Ukrainian economy suffocated by political unrest | Characteristics
Odessa, Ukraine – For Alona, 25, living in crisis-stricken eastern Ukraine means she is already worried about clashes on the streets and where she might live in the future if Russia invades. Now she has another concern: job security.
“Our company asked us [to take] unpaid vacation and if we request that unpaid vacation, we can save our [jobs]She told Al Jazeera.
Alona works as a human resources manager at a consulting firm which she says has seen a 30% drop in demand for some of her services since the start of the crisis. She fears that this decline will continue, as one of the first things clients cut is their consulting services.
Alona also says that imported goods have become more expensive as the Ukrainian currency continues to decline. It has lost two-fifths of its value since the start of the year. She says a dress that cost around $ 30 in February now costs $ 40.
Her father is a taxi driver and her mother is unemployed, which means that it is especially important for the family to protect the money they have. “In this situation, the banks are not safe,” says Alona. “We have fewer deposits in the bank because we keep our money at home now. “
The Ukrainian crisis began in November with mass protests against President Viktor Yanukovych’s decision to forgo a trade deal with the European Union in favor of rapprochement with Moscow. Yanukovych was overthrown and an interim government established, but instability spread to the southeastern peninsula of Crimea, which was annexed by Russia.
Today, eastern Ukraine is in turmoil as pro-Russian protesters demand independence. Violence spread south to Odessa where at least 42 people have died in clashes Friday, growing fears of civil war.
Still open for business?
Alexander Varichenko, 39, is a director of an international steel company based in Donetsk, a quarter of its business from Russian customers. He thought this would shield the company from rising tensions between Ukraine and Russia, but he was wrong.
Varichenko says that since November, customs officials have held trucks at the border for much longer than normal, imposing new costs on businesses. ” They fill [the] the order of the Russian government and it’s kind of a way to punish Ukraine, ”he said. “Maybe there will be a decrease in the number of customers because they are not sure that their goods will be delivered. “
The company has also been under pressure since Russia raised prices for its gas supply. Varichenko is now wondering whether the company should raise prices or reduce production. “If Russia doesn’t leave Ukraine alone… the situation will get worse and worse,” he said.
While the country’s economy has been weak since Ukraine’s independence, recent instability has exacerbated the situation. The International Monetary Fund (IMF) has said Ukraine would need more funding if the East is annexed after the organization has already agreed to a $ 17 billion bailout.
Adrian Karatnycky, senior researcher at the Atlantic Council, which advises investors in Ukraine, says fears of a Russian invasion or continued instability will frighten investors. If, however, the country holds a presidential election on May 25 that could signal a certain level of stability, he said.
|Russian President Vladimir Putin has said he will not recognize the legitimacy of a new Ukrainian president if he is elected on May 25 [AFP]|
If such an election takes place, Russian President Vladimir Putin says he would not recognize it.
Putin is also facing economic turmoil in his country. The Russian currency has fallen 10% this year. At the end of April, the IMF said the Russian economy would only grow 0.2% this year, against a previous forecast of 1.3%.
The organization says sanctions implemented by Europe and the United States on the conflict have frightened investors, causing capital flight.
Karatnycky says that even if a global economic crisis is not guaranteed, Russia has more to lose than the West, but other countries would still be affected by sanctions and unrest. “It could have a ripple effect … [could] be a recession in the West, ”says the analyst.
This month, Russia threatened to cut back its natural gas supplies to Ukraine after claiming that the country owed billions of unpaid bills. Russia supplies a third of the European Union’s gas imports.
If gas supplies were cut off, Karatnycky said countries could quickly remedy the situation by using alternative energy. “It’s all really, really abstract because we don’t know how bad it’s going to get,” he says. “We don’t know how deep the disruption will be for the economy.”
While the conflict has heightened concerns about Ukraine’s economy, it has been plagued by deep-rooted issues for years. At the beginning of April, Kiev Post reported that the black market economy accounted for almost 20 percent of the country’s GDP, citing government figures.
Widespread corruption limited Ukraine’s economic growth, and the country was unable to adapt to capitalism as well as countries like Poland which had similar economic characteristics but grew much faster after the collapse of communism, according to Karatnycky.
In 2013, Transparency International ranked Ukraine 144 of 175 countries and territories in the corruption perception index, which places it below Russia. “The impact of corruption on Ukraine [and] its economy is simply devastating because corruption is rampant, ”said Andrei Maursov of Transparency International. “The loss to the economy is simply immense.”
Last month US Vice President Joe Biden said Ukraine must “fight the cancer of corruption”.
Maursov credited the movement that toppled Yanukovych with highlighting the level of corruption in the country. After the former president fled, the footage of his luxurious home shocked and angered many who wondered how the ruler was able to accumulate such wealth.
Maursov says: “Here we have a joke that even the princes of Saudi Arabia would envy Yanukovych.”