At the end of March, the Ukrainian government closed the program of economic cooperation with Russia for 2011-2020, which envisaged the expansion of trade and financial ties between states. Prime Minister of Ukraine Vladimir Groysman promised at any cost to break the “imposed” the country connection with the Russian economy. A month later, it became known that Ukraine withdrew from the CIS, which was accompanied by the dissolution of the Treaty of Friendship, Cooperation and Partnership with Russia.
The political background of these decisions does not need an explanation. The process of degradation of diplomatic relations between countries has been going on since the change of power in Ukraine in 2014. The official rupture of a number of state agreements has become just the tip of the iceberg in comparison with deeper processes, which, incidentally, are spoken less frequently.
The economic consequences of the conflict between the two countries (with the exception of sanctions and gas wars, which traditionally attract a lot of attention in the press) have so far not been fully understood. This side of the conflict is either ignored or the scale of losses is significantly underestimated, which allows each side to manipulate the rhetoric of “national interests” against the background of the destruction of entire sectors of the economy.
Sergey Kulik, Director for International Development of the Institute for Contemporary Development and member of the expert group “European Dialogue”, took the first step towards a comprehensive analysis of losses from the Russian-Ukrainian conflict, preparing a detailed report entitled “Russia-Ukraine: the price of divorce” (the full version of the report ” New “publishes on the site). Focusing on the Russian economy, Kulik cites calculations according to which the curtailment of cooperation with Ukraine has led to the need to infuse tens of billions of dollars into a number of sectors and programs, which worsens the already dubious prospects for economic growth in Russia.
Preconditions for the weakening of trade relations between the two countries appeared before the accession of the Crimea and the war in the east of Ukraine. At the peak – in 2011 – bilateral trade reached a maximum of $ 50.6 billion and has since been smoothly declining, falling to $ 39.6 billion by the end of 2013. However, in terms of the degree of diversification of trade relations and the specifics of its requests, Ukraine continued to stand out among all other external partners of Russia.
If Moscow did not interfere with the signing of the Association Agreement with the European Union (CA) by Kiev, then the reduction in trade would occur at a low rate.
Instead, we saw a dramatic gap, as a result of which Russian exports to Ukraine fell by 3 times compared to 2013 (from $ 24 billion to $ 8 billion).
And for some groups of goods (perfumes and cosmetics, railway equipment, glass, etc.), the share of the Ukrainian market was above 20% – in many cases, Russian suppliers could not find alternative markets. As a result, “the very likely losses for Russia turned out to be incomparable with the losses already incurred, at least for Russian exports because of the conflict,” Kulik writes. Only import substitution through the OPK, loss of orders in Ukrainian civil enterprises and risks for the banking sector cost Russia $ 50 billion – this is 5 times more than the expected damage from the association of Ukraine with Europe.
A special item of expenditure in the “divorce” was the accession of the Crimea, which “was an obvious surprise for the economic block of the government.” For the arrangement of life in the region from 2014 from the federal budget was spent from 300 to 470 billion rubles. To revive the economic growth was not possible, but the dependence of the Crimea on budget injections is steadily growing every year: in 2018, the republic’s revenues by 77% are provided with financial resources from Moscow. “In terms of the amount of gratuitous revenues to the budget of the entity since 2015, there has been a steady growth – in 2016 by almost 20%, in 2017 – by almost 40%. <…> In general, from 2015 to 2020, aid from Moscow in annual terms will increase by 2.3 times – to 150 billion rubles, “Kulik said.
Kulik’s forecast for the future is disappointing: the scale of costs for import substitution and mutual isolation of countries makes the probability of a course change extremely low, even if there is a warming in the political plane. At the end of 4 years apart Ukraine is actually in a state of default, and Russia is weakened by financial losses, Western sanctions and stagnation in the economy.
Sergei Kulik’s report notes that Russia has lost dozens, if not hundreds of billions of dollars, from breaking off relations with Ukraine.
At the same time, Crimea, in which standards of living after joining Russia were supposed to grow, today is one of the weakest regions in the economic sphere, which requires large capital investments and subsidies from the federal budget. From the point of view of the economy, the Crimea is still operating in an emergency mode, and this situation will continue for a long time. The report does not say how disastrous it is, it is about objective information, without assessments. These are figures and trends that allow you to think about how you can reanimate the situation.
In particular, if the conflict around the Crimea can last for decades, then with respect to the Donbass, the denouement should come sooner. If, provisionally, tomorrow the hot phase of the conflict is over and instead of militaristic accusations it is necessary to really deal with territory and people, what will this mean for Russia? And for Russia this is a very important problem – Donbass is not indifferent to us even purely in the economic sense.
And the question arises: what remains to be restored? The old economy that existed in the Donbass since Soviet times – the coal, metallurgical and chemical industries – probably will not recover in its former form. Human capital is also very hard hit – many people just left. Hence, it will be necessary to develop a new economic profile and to seek ways to restore the Donbas.
Another topic that is of interest to the authors of the report is related to the creation of a joint Russian-Ukrainian platform for expert discussion of socio-economic reforms that are already under way in Ukraine and which will be forthcoming in the near future: reforms in the pension system and health, decentralization of power, struggle with corruption and so on. We in fact as the countries strongly enough are similar against each other from the point of view of starting positions. In addition, Ukraine is still our neighbor, despite all the conflicts.
– In addition to individual reports, our expert group also produces a quarterly bulletin on domestic policy in Ukraine. This is due to the fact that we do not like the information background that has developed in Russia today. The only topic for public discussion, in fact, boils down to hatred for Ukraine as a sovereign state: how can they pursue a different course and choose a different future than we do.
In this information noise, emotions predominate. I am sure that people who make decisions in Russia do not know what really happens in Ukrainian politics and the economy – everyone is blinded by mutual accusations. However, we believe that sooner or later our relations with Ukraine will be normalized.
Of course, these relations will never return to the state of “fraternal peoples” – the idea of a single community will have to be left in the past.
But the resolution of conflicts in the Crimea and the Donbass, in any case, will require a transition to a civilized discussion in expert language. It is of fundamental importance that at that time we have a picture of where we are in the initial position. We as experts do not discuss high politics – what to do with the Crimea or the Donbas. Let politicians do this. Our task is to give them analytical material for reflection, which would encourage them to dialogue and mutually beneficial solutions.