The Ukrainian economy: what has it lost and what remains? – Kyiv Post
The Kyiv Post spoke to Alexey Rashchupkin, managing partner of Kyiv-based investment bank Altius Capital, to do a quick tally of the economic losses Ukraine has suffered since Russia unleashed an all-out invasion of its former major trading partner earlier. This year.
For the average Ukrainian, the effects of rising oil prices, stagnating wages, a weaker Hryvnia and low property rents are alarmingly clear. But, when examined sector by sector, the country’s economic situation becomes bleaker and the challenges ahead more long-term.
For starters, Ukraine, once a major global steel producer, lost half of its steel production: the Azov Steel Plant and the Ilyich Steel Plant, both located in the southern city now devastated Mariupol.
The two metallurgical facilities were owned by Donetsk-based oligarch Rinat Akhmetov and together accounted for half of Ukraine’s steel production. The other half – Viktor Pinchuk’s Interpipe and ArcelorMittal Kryvyi Rih (part of the multinational ArcelorMittal) – is in the Ukrainian-controlled Dnipropetrovsk region.
The loss for Ukraine is not just a matter of factories and surrounding infrastructure themselves, but of jobs and social services, sales and export taxes, Rashchupkin said.
The losses suffered by Ukraine’s agribusiness sector have drawn more media attention, which is replete with stories of Russian forces capturing Ukrainian land, stealing the country’s grain and blockading its ports.
Unfortunately, in the past five years or so, even with the war simmering in eastern Ukraine, the country had managed to increase yields by 50%, harvesting over 100 million tons of grains and oilseeds. in 2021. But this year, the expectation is for a 30% year-on-year decline, despite Ukrainian farmers being able to harvest winter crops.
The problem, however, is more about getting the grain out of the country than getting it out of the ground, the banker pointed out.
“The blockade is not only starving Ukraine but also Africa and the Middle East,” Rashchupkin said. And Ukrainian Black Sea ports are not limited to grain, with around 90% of all exports leaving the country by sea, mainly via Odessa and Mykolaiv – still held by Ukraine, then Mariupol and a bit of Kherson , now under Russian occupation.
Blocked Black Sea ports have had less of a negative effect on Ukrainian fast-moving consumer goods, with much of the production still intact in the country. Instead, the challenge for this sector is the loss of people, both workers and consumers, fleeing their homes and the country. Around 7 million Ukrainians have fled to Europe, some returning home recently: others have migrated from eastern Ukraine, where much of the country’s production is located, to western Ukraine, where there is less death and destruction.
And of those who have fled the country, many may never return – especially those of working age, whether skilled or not, Rashchupkin said.
In London, for example, the service sector was occupied by Turks in the 2000s, then Poles and Balts, explains the banker. From now on, low-skilled Ukrainians will take their place.
“It’s a matter of supply and demand.” Poland has taken in the most Ukrainian refugees, many of whom are replacing the low-skilled labor that Poland has lost to the EU. In 2018-2019, the Polish government was ready to grant visas to one million Ukrainians to fill the labor shortage. Now they receive three times that amount in refugees.
“That’s why you see low-cost airlines flying to small towns in Europe, not only because airport fees and traffic are lower, but because Ukrainians commute for work. the low.”
Other industries such as food production have also been more affected by the loss of labor than by the loss of production facilities. Some of the country’s food processing plants, for example, have been destroyed, but the main problem is that Ukraine has lost a quarter of its workforce – people who make and consume Ukrainian processed foods.
The Ukrainian pharmaceutical sector has seen a 40% drop in production, but only 25-30% in revenue due to the devaluation of the hryvnia.
On the bright side, the computer industry remained incredibly stable during the war, seeing little or no drop in revenue. Many women who worked in IT have gone abroad, where they continue to do their work, but the men have been forced to stay. And these men don’t just stay to fight but to work.
“The government has a plan according to which Ukrainians are divided into two groups – those who fight and those who work,” Rashchupkin points out.
Amid all its losses, Ukraine is receiving aid from the West, mostly from the United States and mostly in the form of weapons. And perhaps counterintuitively, lend-lease is a win-win situation.
For example, by sending weapons to Ukraine, the United States is not only repelling Russian aggression, but testing those weapons in a real theater of war. Either way, some of this war material is nearing the end of its lifespan and will have to be replaced with new orders from US defense factories, thus spurring new jobs, taxes, etc. in the USA.
The United States also stands to gain by increasing sales of liquefied gas to Europe, as the continent rejects Russian imports.
But perhaps the most promising of all in Ukraine and abroad will be Western investment in rebuilding Ukraine after the victory of the war.