Ukraine’s economy has gone from Soviet chaos to oligarchic dominance as a vital global trader of wheat and neon – and now to Russian devastation | Opinion

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Yuri Gorodnichenko, University of California, Berkeley

(THE CONVERSATION) The Ukrainian economy continues to function despite the blows the country is suffering from the Russian army.

Many factories and companies still work. Other industries like those of information technology barely missed a beatworkers continuing to work in areas outside the direct line of fire.

But Ukraine has been largely transformed into a war economy. For example, a manufacturer of women’s shoes uses Italian leather to make military boots, a construction company’s dump trucks have been converted into anti-aircraft launchers, and a steel and mining group manufactures anti-tank weapons and shelters. in concrete. And many computer scientists joined the Ukrainian army of hackers aimed at defending infrastructure against cyberattacks or going on the offensive against Russia.

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Yet the economic damage is considerable. At the start of the war, the central bank of Ukraine total estimated production halved. The government believes that Russia has already destroyed more than 500 billion US dollars into economic assets. Significant damage to airports, seaports and bridges crippled the country’s infrastructure and the ability to trade with other countries.

Beyond its importance in feeding, feeding and supporting its own citizens, Ukraine is also a vital part of the global economy with its exports of wheat, corn and neon. As a native of Ukraine and economics teacherI would like to give you an overview of the Ukrainian economy, how much it has changed since it was a Soviet republic and the consequences of the Russian war.

Ukraine’s command economy is collapsing

Ukraine inherited a “command economy” when it became an independent state after the dissolution of the Soviet Union in 1991. In a command economyall decisions regarding production, investment, prices and incomes are centrally determined by a government.

In addition, a large part was related to a Soviet obsession with heavy industry and a huge military-industrial complex. In other words, the Ukrainian economy was great at mining ore and building intercontinental ballistic missiles, but less so at making the kinds of consumer goods vital to a modern economy.

And so, the the economy collapsed shortly after independence. Gross domestic product plunged over 60% in the early 1990s and inflation soared to over 10,000%. For ordinary Ukrainians, this collapse meant massive poverty and hardship: about 50% of households lived on less than $5.50 a day, and life expectancy has decreased by five years.

This led to the massive privatization of public enterprises as small as a grocery store to as large as giant steel mills – like in Russia. It also created the class known as the oligarchs, made up of former communist elites and others with ties to the government. who has control on large factories and other key productive assets at little or no cost. Some estimates suggest that more than 50% of GDP was controlled by oligarchs.

Although the oligarchs initially helped the largest Ukrainian companies restore their production capacity, revive the economy, they quickly started using their relationships to stifle competition. Corruption was rampant, and the economy struggled to expand or diversify beyond the production of commodities and equipment like steel, iron ore, and mining equipment. In 2006, for example, base metals accounted for 43% of exportsfollowed by mineral products at 10% and chemicals at 8.8%.

And Russia was Ukraine’s largest trading partner, purchasing 56% of all its exports. The UK was far behind with just 3.4%.

Ukraine’s import sources were only slightly more diversified. Goods from Russia accounted for 16% of Ukraine’s imports, just behind 23% of US imports.

Ukraine’s economy began to change drastically around 2014, when Russia annexed Crimea and fomented insurgencies in the east of the country.

The events leading up to annexation were largely inspired by Ukrainians’ desire to forge closer economic and political ties with Europe and to end corruption. An agreement forged in 2013 to integrate Ukraine more closely into the European Union was abruptly abandoned days before it was signed, and the government signaled that it planned to align itself more closely with Russia. Massive street protests followed, which eventually ousted the pro-Moscow president from power in what became known as the Maidan Revolution.

Russia responded by taking the Crimea and supporting the separatists in the Donbass region.

Since then, trade with Russia has plunged as Ukraine has strengthened its ties with other countries, especially those in Europe. The government almost immediately resumed negotiations with the EU on the trade agreement and signed it, which lowered or removed tariffs on most goods and made the EU its biggest trading partner.

In addition, the economic crisis caused by the conflict in the East has led the International Monetary Fund to offer a $17.5 billion bailout in return for economic reforms that included a crackdown on corruption, an independent central bank, and improved democratic processes, many of which Ukraine then implemented.

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As a result, Ukraine started shipping a wider range of goods around the world, especially agricultural products such as wheat and sunflower oil, which was its greatest export ahead of base metals in 2019. Ukraine has some of the most fertile soil in the world.

Another key growth industry in Ukraine has been computer sciencewhich accounted for 26% of export revenue in 2020. In fact, computer services were its top export to the United States in 2021.

Ukraine’s increased integration into the global economy means that many of its products play a vital role in certain markets.

Ukraine was expected to gain 12% of world wheat exports in 2022. Egypt, Tunisia and Algeria, for example, highly dependent on Ukraine for their wheat, and there are fears of starvation as a result of the Russian blockade on ships leaving Ukraine. The situation will only get worse as the conflict drags on and if farmers are unable to plant their seeds as war rages on.

Ukraine is also playing a critical role in neon production, an inert gas that is a key component of lasers used in chip manufacturing. Ukraine produces 90% of the semiconductor-grade neon used in the United States

It’s still unclear how many civilians Russia’s war in Ukraine has killed, and it’s unclear when the destruction will end. But another casualty of the invasion is likely to be Ukraine’s economy and the progress it has made in moving from an unbalanced Soviet economy to a diversified modern economy.

This article is republished from The Conversation under a Creative Commons license. Read the original article here: 178971.

Licensed under Creative Commons – attribution, no derivatives.

Christi C. Elwood