How is the Ukrainian economy doing?
Facts, numbers, problems and prospects on the economy of Ukraine. The speech by Leonardo Dini from Sambir (Ukraine)
In this controversial and difficult phase of the war in Ukraine which shows no signs of moving towards a truce, as the war involves more and more countries – with fighters from Nepal and Syria, on the Russian side; of Colombia and Poland, on the Ukrainian side – the Ukrainian economy, thanks to loyal European support, is not only holding up, despite widespread internal corruption, but is actually growing.
WHAT THE INTERNATIONAL MONETARY FUND THINKS ABOUT THE UKRAINIAN ECONOMY
The leader of the International Monetary Fund highlights in one of her reflections that Ukraine has deserved the economic-financial support of the international community with its wise actions on the internal economy side: this year, for example, it has collected 36% of GDP through taxes: “I don't know many countries that do this, even without a war” recalls Georgieva.
During the war Ukraine reduced inflation from 27 to 5%. Furthermore, the economic growth prospects are at a development of 4.5%; Georgieva also recalled the need to continue with international support.
WHAT ABOUT THE HUB BETWEEN EUROPE AND ASIA?
As regards the Ukrainian economy, as is known, the country was becoming, before the war, a hub connecting Europe and Asia, so much so that the Belt and Road which today arrives in Belarus should instead have the ports as its arrival point, stations, airports and highways of Ukraine.
Furthermore, at the beginning of the conflict, China and Turkey were the largest eastern investors in Ukraine, so much so that as many as eleven thousand Chinese citizens, including technicians and entrepreneurs, were in Ukraine on 24 February 2022.
However, despite being in fact the center of the world, the country is still considered developing, although Ukrainian grain is crucial in the international economy and despite the quality of research and engineering technology of Ukrainian industries in Dnipropetrovsk.
THE EXCHANGE WITH THE EURO
On the exchange rate side between hrivnia, the Ukrainian national currency, and the euro, the current average exchange rate is equal to 0.024 euros and 0.020 pounds, therefore one euro today is worth 40 hrivnia and one pound is equal to approximately 48 hrivnia, 1 dollar is equal to 38 hrivnia. In fact, in Ukraine, particularly in the western regions, the use of dollars in financial transactions is widespread, often also used for the purchase of apartments or land. Therefore, paradoxically, the dollar, also in its counterpart which is the Canadian dollar, as happens with the pound, now has a stable role in the Ukrainian economy. Dollars are used more commonly and widely than euros, as the exchange rate between hryvnia and dollar is advantageous.
PRIVATIZATIONS
Despite the war, Ukraine is also developing an intense privatization activity, already underway before the conflict, since the time of de-Sovietization after independence in 1991.
The phenomenon of privatisations, both real estate and industrial, is common to all post-Soviet and post-communist European countries. Ukrainian Prime Minister Denis Šhimal declared in 2023 that it is appropriate to reduce the presence of the state in the economy to a minimum, while maintaining control over the country's strategic security assets.
UKRAINE BETWEEN ECONOMIC GROWTH AND FIGHT AGAINST CORRUPTION
The dichotomy between the objective need to contribute to the reconstruction and rebirth of the Ukrainian economy and the simultaneous need to limit and control the endemic and widespread corruption in the Ukrainian economic and political system, which also makes the complex process difficult and hinders, is still being discussed. of integration of Ukraine into the European Union. Indeed, if much has been done in this direction, much remains to be done.
Ukraine has now improved by three percentage points in the CPI, the international corruption perception index, finding itself in one hundred and fourth place, out of 180, in the world. And achieving, during the war, a significant improvement.
The ministry most affected by the problem of corruption is that of Infrastructure and Reconstruction, in parallel with the Ministry of Defence; however, the problem goes back a long way. Already in 2006, Cyprus was the country with the greatest investments in Ukraine, due to a deviated investment system: many Ukrainian companies surreptitiously transferred their capital abroad to Cyprus, and then reinvested it, through fictitious third-party companies, on their own balance sheet and then sell the industrial products obtained, taking advantage of the Commodity Exchange and the Cypriot tax relief system.
Today the same phenomenon happens between Ukraine and Switzerland, it has also been discussed due to the recent scandals concerning the Ministry of Defense. The same phenomenon happens with regard to offshore tax havens and Dubai, where vast financial operations connected to the Ukrainian corruption system take place and which include strange financial alliances of Russian and Ukrainian oligarchs, through the economies of the Gulf countries.
HOW THE ECONOMIC INDICATORS PERFORM
Regarding economic indicators, Ukraine, before and after the war, stands at 0.2% market share of world exports; the gross domestic product, GDP, has significantly risen from 115 in 2018 to 164.3 billion euros today, while the consumer price index has gone from 26 in the first year of the war to a normalized 5% today.
The population has decreased from 42.2 million in 2018 to the current 37 million, minus the aggregate data on forced immigration due to the war and those of military casualties in the war.
Net debt on GDP is growing exponentially, going from 9.1 in 2018 to the current 20.6%, as is public debt, going from 60% to the current 97% of GDP; the balance of the trade balance, from 5.8 billion euros in 2021, has risen to 19.1 today.
The damage to Ukrainian exports is clear, going from 59 billion euros in 2021, when it was in full expansion, to the current 36 billion. To this must be added the serious problems caused by the blockade of grain exports, first in the port of Odessa and then in the Black Sea, a trade route partially restored but always at constant risk of interruption; and added to this are the problems produced by the repeated blockades of foreign farmers, both on the Polish and Romanian sides, which inhibit the regular export of Ukrainian grain and agricultural food products.
Added to this are the problems in bilateral commercial relations with Poland: in the agricultural sector, imports have seen peaks of development, both in the pre-war period, in 2021, with 63 billion euros, and in the most recent year, with 52 billion EUR.
To all this must be integrated the financial flows of state and private economic aid, especially European and American ones, which have allowed the Ukrainian economic system to remain stable, with the payment of pensions and salaries and have avoided the default of the public economic system, following the war effort.
On the industrial side, the numerous and serious damages to the Ukrainian industry caused by the war must be considered: just think of the damage in Dnipropetrovsk and the related oblast, equipped with high-tech and high-productivity industries, and the definitive loss of the entire mining industrial system of Donbass , to the loss of agricultural crops, in war zones, to the destruction of part of the wheat and cereals produced and of many food warehouses. And also to the direct and indirect destruction of industries throughout the country (just mention the Mariupol steel plant) in the bombed territory and the destruction and damage of countless power plants, the damage to the Zaporizhia nuclear power plant and the loss of its energy potential (the largest nuclear power plant in Europe).
FINANCIAL DAMAGES, ENERGY TRANSITION AND SOVEREIGNTY
As for the financial damage, the economic indicator on the Ukrainian stock exchange stands today at 507, net of the war. But the entire Ukrainian economic system had to be forcibly reconverted to a war economy. Entire industries have had to rapidly transform, sometimes even improvise, new production lines or adapt to the needs of a state at war. Many of the Ukrainian coal mines, with large potential, were located in Donbass, therefore, affected since 2014.
Paradoxically then, the war speeded up the energy transition in Ukraine so much so that, already in 2019, the country's greenhouse gas emissions were lower than those of most European countries; furthermore, wind and solar will contribute 30% to the energy mix in the next few years.
Indeed, here in Ukraine, in the western regions, I have had the opportunity to observe, on many trips between 2019 and 2024, the efficiency and quality of the wind farms in the Carpathians which have not yet been affected by the war and indeed appear synergistic with similar ones nearby, on the European and Polish side.
Moving on to the level of Ukrainian economic-financial independence and sovereignty, it should be remembered that the countries that already had the greatest investments in Ukraine before the war were China, Turkey, Poland and Germany. Recently, Dragon Capital, an English-owned company, purchased the thermal water production plant and is creating a new biopark in Truskavets, the largest western Ukrainian spa centre: the aim of the investment is to distribute Ukrainian thermal water throughout Europe .
However, analyzing the Ukrainian structural economic data shows that, in terms of Ukrainian trade turnover, Poland, Germany and Italy are the top three countries, while Italy follows Poland as the largest destination in Europe for Ukrainian exports, the fourth in the world after China, Poland and Turkey: in fact, it emerges that not only has the leading role of countries such as China and Turkey, Asian stakeholders par excellence, in the Ukrainian economy, not only been sufficiently analyzed and considered so far at a macroeconomic level in the West, and , emerging, of countries such as Saudi Arabia, which already today holds, through its Ministry of Agriculture, the role of strategic investor in Continental, one of the leaders of Ukrainian production.
The significant presence of North American investments in the agricultural sector also emerges: in particular Pinco, Fidelity and the controversial BlackRock, which are among the largest collectors of Ukrainian government bonds in the States , while the investment bank JPMorgan has activated its resources, purchasing 20 billion dollars of Ukrainian bonds in 2019 and coordinated the restructuring of Ukraine's national debt of $20 billion in 2022, as well as having coordinated a raising of $23 billion in sovereign debt since 2010.
THE RUSSIAN BOYCOTT
Instead, the person who boycotted Ukraine was Russia, autocratic by definition in ancient and contemporary Ukrainian history, which in addition to invading the country, hindered Ukraine's rapprochement and normal integration with Europe, first through the pro-Russian Ukrainian president Yanukovych, until 2014, and then with the war.
Yet still and in the future the European Union, the Eurasian Union, ASEAN and the AAB, the Chinese-led Asian Investment Bank, could be in synergy, collaborating on Ukrainian development, if we went beyond the war and the struggle in course, on Ukraine, which right from its name defines itself as a peaceful border territory and natural hub between Europe and Asia.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/economia-ucraina-indicatori/ on Sun, 25 Feb 2024 06:38:30 +0000.