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Ukraine: Strange Economy at Strange War (0)

The research how war impacts Ukraine's economics is carried out by Bohdan Rybka, student of Turiba's Faculty of Business Administration.

Ukraine long time lives in peace and harmony. The same was with Ukrainian economic system and economy in general. But when the terrible things happened people of Ukraine can’t be behind it. Also we can say it for economy. When a war comes in home you should protect it from aggression and occupation. You should use all methods to protect your relatives, friends, people which around you. In a way of war economy is extremely important. But in Ukraine we can see a lot of differences in economy for satisfy needs for army.

Published on TVNET.LV (Latvian)

In March 2014, when Yanukovych run away from Ukraine government begun to control new power which was formatted from opposition . I am a member of one party from opposition and I can operate with real numbers. So after Yanukovych moved out from Ukraine he left for Ukraine 11, 5 million UAH which was approximately 1,2 million USD . It was a very big problem. The first move was to use Ukraine gold reserve for amount of two billion USD. Next step was printing a new UAH for amount of 30 bln UAH (NBU, 2015). Of course these steps led to UAH value collapse. UAH fallen from 10,5 for dollar to 14,6 for dollar. It was a first signal that Ukraine economy begins to fall.

Next problem was commodity turnover with Russia. When Russia begun to occupy Crimea some of Ukraine companies stops trade relation with Russia for reasons of blockade (Russian and Ukraine) or for principle. The main problem is that Ukraine has 34,8 % (Head , 2014) of export directly sells to Russia

After Crimea occupation Ukraine government faced with hole in budget and finances. They weren’t ready for occupation. Ukraine bureaucracy slowed down a realization that Crimea is under occupation. This situation changed after president election on 25 of May, after two month of occupation. In that time Ukraine begun to war with Russian collaborationists and separatists. Ukraine lost great industrial capacity.

At the beginning for find solution and opportunities we should measure Ukrainian loses. What did Ukraine lose and what will lose tomorrow?

Black-Sea-Costal. The structure of the Black Sea Economic Region includes the Nikolayev, Odessa , Kherson and Crimea . Area - 113.4 km2. ,. In the Kerch peninsula lies 2.8 billion tons (14 % of reserves Ukraine) iron ore. Also we had discovered oil and gas fields on the Kerch peninsula, Crimea. The share of the chemical industry is 20.6% of the total industrial production of the republic. There are the largest chemical companies in Crimea that act as monopolists in Ukraine. They are produce unique and competitive chemical products in the European and world markets.

Ukraine lost 14% of iron ore , opportunity for energy independence , tourist mecca post-Soviet states . From the beginning of 2009 Ukraine begun to spend a lot of money to develop natural gas and oil field on Black Sea shelf. The amount of cost was 20 billion USD includes exploration, purchase of machinery and tools, delivery and installation of gas stations. Ukraine also spent considerable sums of money for the construction of oil and gas refineries. Today all of these industry is captured by Gazprom.

Donetsk economic region covers an area of 53.3 thousand km ² or 8.8 % of Ukraine with a population of 6.67 million people. It is consists of Donetsk and Lugansk regions. Within the area is Ukrainian Donbass (a highly TEC with specific extractive industries and replacement processing industry). Also like Crimea Donbas region is a key for Ukrainian energy independence.

PEST analysis of Ukraine:

  • P – Political factors. So first of all Ukrainian political factors are negative, because of war. But I can say about stability in government and administration of president. All elections are past and Ukraine doesn’t need to spend extra money for new elections. Also Ukraine waiting for ratification of association agreement with EU which will stimulate Ukrainian export and import.
  • E-Economical. Ukraine inflation rate is 272%(Ukraine’s Hyperinflation Rate Boosts,G.Samman). So we can speak about hyperinflation mow in Ukraine.
  • S-social. Ukrainian society are more patriotic today. Ukrainians begin to purchase more Ukrainian production and goods.
  • T-technical. So this part is quite important for European because Ukraine needs of new technologies and this applies to the military and all other areas. For example city transport. Ukraine system of city transport is quite old and Latvian experience in it will be very usable in Ukraine.

The Ukraine and Ukrainian economy still live and develop despite all loss. But Ukraine government doesn’t try to change economic environment in Ukraine. The worst tax policy wasn’t changed. The situation with bureaucracy and corruption wasn’t change as well. There are some new problems which were added to that one.

As I said before our government do nothing to change economic situation. Previous governments tax code wasn’t change and this thing make investors run away from Ukraine and businessmen push to close their business. They even make new type of tax which called “War Tax”- it is takes 1,5% from every profit.

The main interesting thing from my research of corruption that mostly bribes goes up on hierarchy ladder. For example if inspector of road police or example if inspector of road police take bribe , he will leave 10% to himself and past other 90% to higher officer. That officer also had bribes and with that 90% he should leave 10% for himself and give it up to local head of road policy. This local head repeats same thing and give it to regional head. And this regional head gives it to Ministry of Internal Affairs.

Tomorrow of Ukraine is unclear. International rating companies predicting default for Ukraine. But I say that if Ukraine will choose straight way of economy, try to show independence power and strong position that Ukraine will be one of the greatest counties in the world.