News / Europe

    Ukraine Faces Hard Road to Economic Recovery

    A member of a Ukrainian self-defense unit attaches stickers during a rally outside an office of Alfa bank in Kyiv, March 26, 2014. Participants were demanding that people stop using the services of Alfa bank, which has Russian origin, according to organizers.
    A member of a Ukrainian self-defense unit attaches stickers during a rally outside an office of Alfa bank in Kyiv, March 26, 2014. Participants were demanding that people stop using the services of Alfa bank, which has Russian origin, according to organizers.
    Reuters
    Smarting from Ukraine's U-turn towards Europe, Russia is likely to employ every weapon in its economic arsenal to ensure its neighbor's road to financial recovery is as painful as possible, even when paved with billions of dollars in Western aid.
     
    After months of anti-government protests and the overthrow of a government blighted by corruption and economic mismanagement, Ukraine is on the brink of bankruptcy, running wide external deficits and a current account shortfall of over 9 percent of gross domestic product.
     
    On Thursday, the International Monetary Fund threw a financial lifeline, agreeing to stump up $14-18 billion as part of a two-year bailout package in exchange for tough economic reforms.
     
    The deal, combined with Kyiv’s signing of a cooperation pact linked to closer trade ties with the European Union, represents a serious blow to Russian President Vladimir Putin's dream of Ukraine joining a Eurasian Union of former Soviet states.
     
    Moscow will not make it easy.
     
    Russia has “the right to use selective protective measures against Ukraine if it creates a free trade zone with a third government, or for example with the European Union,” a Russian economy ministry spokesman said in response to a question from Reuters.
     
    Ukraine is already feeling some consequences from its break with Russia. Prime Minister Arseny Yatseniuk said on Wednesday the price the country would pay for Russian gas, which accounts for over half of Ukrainian gas imports, would soar by almost 80 percent from April 1 as the seizure of Crimea had rendered a cheaper gas deal obsolete.
     
    Russia's Gazprom has suggested a new conflict over gas payments and supplies - like disputes in 2006 and 2009 that halted supplies to Ukraine and onward to Europe - could break out, though it added it had no interest in a resumption of such disputes.
     
    “The better off Ukraine is under the new government, the more likely it will integrate into the West,” said Nicu Popescu, senior analyst at the EU Institute for Security Studies (EUISS).
     
    “So disrupting the Ukrainian transition in political and economic terms is probably Russia's primary foreign policy goal in the foreseeable future.”
     
    Putin's annexation of Crimea, which Kiev and the West say is illegitimate, is likely to push Ukraine's gross domestic product (GDP) down by 5 percent in 2014, according to Simon Mandel, Vice President for Emerging Europe at New York-based brokerage Auerbach Grayson.
     
    While the tens of thousands of Russian troops thought to be massed on the border show no immediate sign of entering other parts of Ukraine, Russia has already flexed its trade muscles to upset the Western-backed Ukrainian recovery plan.
     
    Blood and sweat
     
    Last year Putin showed he was prepared to wield restrictions or bans on Ukrainian exports as punishment for attempts by the country of 46 million to move out of Moscow's orbit.
     
    With exports to Russia accounting for nearly a quarter of Ukrainian external trade and contributing around 8 percent of GDP, further moves could significantly inhibit the country's bid for economic renaissance.
     
    It would take a lot of “blood and sweat” for many Ukrainian companies to withstand any Russian trade ban, Vice President of the European Bank for Reconstruction and Development (EBRD) Andras Simor told Reuters.
     
    “They will need to be flexible if circumstances create a need for adjustment,” he said. “We will be there to try and help them as much as possible.”
     
    Cementing Kiev's historic shift away from Russia, a bilateral free-trade agreement between Ukraine and the European Union is due to come into force later this year, and Russian trade officials have expressed concerns over closer Ukrainian association with the European bloc.
     
    Russia's milk union has asked for a ban on Ukrainian dairy products, and while no bans are in the works, imports from Ukraine are being monitored closely, according to the assistant to the head of Russia's veterinary oversight agency Rosselkhoznadzor.
     
    “There are no plans to impose restrictions on trade, but we must be prepared for the fact that we will impose restrictions if ... Ukraine is not able to fulfill its obligations due to the political situation in the country,” Rosselkhoznadzor's Alex Alexeenko told Reuters.
     
    Dairy products account for only a fraction of Ukraine's sales to Russia, but all Ukrainian exporters will be anxiously eyeing Russia's trade stance, particularly industrial producers in the east.
     
    Russia accounts for 13 percent of Ukraine's iron and steel exports, and the political crisis has already hit shipments from Ukrainian steelmakers this year.
     
    Sales of rebar - a steel bar or mesh of steel wires  used in reinforced concrete - to the Commonwealth of Independent States (CIS), a bloc of former Soviet states, fell 70 percent to 45,000 tons in January compared with the average monthly export figure in the first half of 2013.
     
    Russian steelmakers have aggressively lobbied their government to implement measures to defend domestic producers from Ukrainian imports.
     
    A spokesman for Ukraine's largest steelmaker, Metinvest , which controls about half of the country's steel industry, said expanding its sales markets was a priority.
     
    However, the steel industry has been battling low prices and weaker demand for the past three years, complicating potential diversification efforts.
     
    “Tough competition on the international steel market makes the chance of (steelmakers) expanding their export market presence very low,” Eavex Capital metals analyst Ivan Dzvinka said in Kiev.
     
    Social tensions
     
    The free-trade agreement (FTA) between Ukraine and the European Union, due to be signed after a presidential election on May 25, is unlikely to help many of Ukraine's industrial producers whose output is focused on the Russian market.
     
    Manufacturers of train carts and turbo engines, which together account for 2.5 percent of Ukraine's total exports, will be hit particularly hard.
     
    “Re-orienting  these industries to Europe would be nearly impossible without very heavy investment, which means production and exports could be lost in the short term,” Nomura analysts said in a note.
     
    However, what Ukraine stands to gain from the EU trade agreement could become apparent in the longer term as it aims to help the country create new businesses and modern industries and become a destination for European manufacture.
     
    “The point of the FTA is not to make it possible for Ukraine to export Soviet-era tractors to Europe. That's not going to happen. But it could eventually lead to Ukraine becoming a producer of Peugeots, Volkswagens, fridges or Nokia telephones,” the EUISS's Popescu said.
     
    With most of the country's heavy industry located in eastern Ukraine, recently the focus of violent pro-Russian rallies, any trade restrictions could also have political implications.
     
    “Social tensions could rise if businesses are forced to cut output, leaving people without salaries,” said Lydia Shynkaruk of Kiev's Institute of Economic Forecasting.
     
    At the Red October factory in the eastern city of Kharkiv, marketing manager Dmitry Laptev said the facility, which sells 70 percent of the brick factory machinery it produces to Russia, was yet to experience any trouble with exports.
     
    “The only issue would be if they completely shut the border to all Ukrainian products, then that would hit us, of course. It would hit everyone,” he said, standing among rusting machinery overshadowed by a Soviet mural with the slogan 'My factory is my honor'.

    You May Like

    In Britain, The Sun Still Doesn’t Shine

    Invoking Spitfires and Merlin, Leave voters insist country can be great again, following surprising 'Brexit' vote last week

    Double Wave of Suicide Bombings Puts Lebanon, Refugees on Edge

    Following suicide bombings in Christian town of Al-Qaa, on Lebanon's northeast border with Syria, fears of further bombings have risen

    US Senators Warned on Zika After Failing to Pass Funding

    Zika threats and challenges, as well as issues of contraception and vaccines, spelled out as lawmakers point fingers

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Slow Rebuilding Amid Boko Haram Destruction in Nigeria’s Northeasti
    X
    June 29, 2016 6:15 PM
    Military operations have chased Boko Haram out of towns and cities in Nigeria’s northeast since early last year. But it is only recently that people have begun returning to their homes in Adamawa state, near the border with Cameroon, to try to rebuild their lives. For VOA, Chris Stein traveled to the area and has this report.
    Video

    Video Slow Rebuilding Amid Boko Haram Destruction in Nigeria’s Northeast

    Military operations have chased Boko Haram out of towns and cities in Nigeria’s northeast since early last year. But it is only recently that people have begun returning to their homes in Adamawa state, near the border with Cameroon, to try to rebuild their lives. For VOA, Chris Stein traveled to the area and has this report.
    Video

    Video Clinton Leads Trump, But Many Voters Don't Like Either

    In the U.S. presidential race, most recent polls show Democrat Hillary Clinton with a steady lead over Republican Donald Trump as both presumptive party nominees prepare for their party conventions next month. Trump’s disapproval ratings have risen in some recent surveys, but Clinton also suffers from high negative ratings, suggesting both candidates have a lot of work to do to improve their images before the November election. VOA National correspondent Jim Malone has more from Washington.
    Video

    Video New US Ambassador to Somalia Faces Heavy Challenges

    The new U.S. envoy to Somalia, who was sworn into office Monday, will be the first American ambassador to that nation in 25 years. He will take up his post as Somalia faces a number of crucial issues, including insecurity, an upcoming election, and the potential closure of the Dadaab refugee camp in Kenya. VOA’s Jill Craig asked Somalis living in Kenya’s capital city Nairobi how they feel about the U.S. finally installing a new ambassador.
    Video

    Video At National Zoo, Captivating Animal Sculptures Illustrate Tragedy of Ocean Pollution

    The National Zoo in Washington, D.C., is home to about 1,800 animals, representing 300 species. But throughout the summer, visitors can also see other kinds of creatures there. They are larger-than-life animal sculptures that speak volumes about a global issue — the massive plastic pollution in our oceans. VOA's June Soh takes us to the zoo's special exhibit, called Washed Ashore: Art to Save the Sea.
    Video

    Video Baghdad Bikers Defy War with a Roar

    Baghdad is a city of contradictions. War is a constant. Explosions and kidnappings are part of daily life. But the Iraqi capital remains a thriving city, even if a little beat up. VOA's Sharon Behn reports on how some in Baghdad are defying the stereotype of a nation at war by pursuing a lifestyle known for its iconic symbols of rebellion: motorbikes, leather jackets and roaring engines.
    Video

    Video Melting Pot of Immigrants Working to Restore US Capitol Dome

    The American Iron Works company is one of the firms working to renovate the iconic U.S. Capitol Dome. The company employs immigrants of many different cultural and national backgrounds. VOA’s Arman Tarjimanyan has more.
    Video

    Video Testing Bamboo as Building Material

    For thousands of years various species of bamboo - one of the world's most versatile plants - have been used for diverse purposes ranging from food and medicine to textiles and construction. But its use on a large scale is hampered because it's not manufactured to specific standards but grown in the ground. A University of Pittsburgh professor is on track to changing that. VOA’s George Putic reports.
    Video

    Video Orphanage in Iraqi City Houses Kids Who Lost their Parents to Attacks by IS

    An orphanage in Iraqi Kurdistan has become home to scores of Yazidi children who lost their parents after Islamic State militants took over Sinjar in Iraq’s Nineveh Province in 2014. Iraqi Kurdish forces backed by the U.S. airstrikes have since recaptured Sinjar but the need for the care provided by the orphanage continues. VOA’s Kawa Omar filed this report narrated by Rob Raffaele.
    Video

    Video Re-Opening Old Wounds in a Bullet-Riddled Cultural Landmark

    A cultural landmark before Lebanon’s civil war transformed it into a nest of snipers, Beirut’s ‘Yellow House’ is once again set to play a crucial role in the city.  Built in a neo-Ottoman style in the 1920s, in September it is set to be re-opened as a ‘memory museum’ - its bullet-riddled walls and bunkered positions overlooking the city’s notorious ‘Green Line’ maintained for posterity. John Owens reports from Beirut.
    Video

    Video Brexit Resounds in US Presidential Contest

    Britain’s decision to leave the European Union is resounding in America’s presidential race. As VOA’s Michael Bowman reports, Republican presumptive nominee Donald Trump sees Britain’s move as an affirmation of his campaign’s core messages, while Democrat Hillary Clinton sees the episode as further evidence that Trump is unfit to be president.
    Video

    Video NASA Juno Spacecraft, Nearing Jupiter, to Shed Light on Gas Giant

    After a five-year journey, the spacecraft Juno is nearing its destination, the giant planet Jupiter, where it will enter orbit and start sending data back July 4th. As Mike O'Sullivan reports from Pasadena, California, the craft will pierce the veil of Jupiter's dense cloud cover to reveal its mysteries.
    Video

    Video Orlando Shooting Changes Debate on Gun Control

    It’s been nearly two weeks since the largest mass shooting ever in the United States. Despite public calls for tighter gun control laws, Congress is at an impasse. Democratic lawmakers resorted to a 1960s civil rights tactic to portray their frustration. VOA’s Carolyn Presutti explains how the Orlando, Florida shooting is changing the debate.

    Special Report

    Adrift The Invisible African Diaspora