A long-term socio-economic crisis in a neighbouring country will inevitably affect our economy

14 may 2014

First Deputy Director of the Analytical Center Vladislav Onishchenko spoke about the challenges of the Russia-Ukraine economic relations at a roundtable on “Economic situation in Ukraine: experts’ opinion” that was held at the press-center of the International Information Agency “Russia today”.

Russia and Ukraine need each other, believes the expert. “As a matter of fact, we can find a substitute for Ukraine’s import and export, but this would not be profitable,” believes Mr. Onishchenko. According to him, one must not forget that relatively cheap qualified Ukrainian workforce is present in the Russian Federation, accounting for as much as 4-5% of the Russian GDP. This situation is unlikely to change as these people have nowhere else to go and will continue trying to work in Russia. At the same time Mr. Onishchenko added that Russia also benefits from this process as it provides the country with cheaper qualified workforce compared to the domestic one.

It is impossible to re-arrange Ukraine’s whole economic sectors to start exporting to other countries and regions. “For example, have a look at the machine-building industry. There are no other places those products can be supplied to, apart from the Russian Federation or to a lesser extent to the CIS countries” said Mr. Onishchenko. On the whole, Ukraine’s economic sectors have no other alternative but keep up the economic relations that were established back in the Soviet times. “In Russia we could find a replacement and purchase the same machine-building equipment from a different place or set up its domestic production, but this will require time investment, entail extra expenses and turn out to be more costly in the end,” Mr. Onishchenko pointed out and added that such sectors are fairly numerous.

As for another important aspect of cooperation - in the oil and gas sectors, according to Mr. Onishchenko, “it is simply there”. “Even if we were to skip the topic of gas export to Ukraine, there is no way we can avoid transit across the territory of Ukraine,” he believes. “Temporary alternatives for a period of 2 to 3 months remain possible though. Yet, the total volume of gas that we are to supply to companies from Western and Eastern Europe in line with the existing agreements cannot be transported by means any other than gas pipelines. In a sense, we are in the same boat, and everything depends on how reasonable economic solutions can be reached in the context of the current political situation”. According to Mr. Onishchenko, Ukraine has had debts since 1990s: some of them were forgiven, new ones appeared and this was not related to gas prices.

“In general”, - added the expert, “if we were to compare the economic relations between Russia and Ukraine, it would be obvious that a dramatic divergence in trends occurred over the last 20 years”. For instance, although it had the same starting position as Russia, Ukraine failed to achieve the same results. “When it comes to the purchasing power parity, there is an almost five-fold difference between the two countries, which testifies to the fact that we are dealing with a poor country with big socio-economic problems,” Mr. Onishchenko remarked. With profits being low, the domestic demand – insignificant, and investments practically brought to a halt due to the latest events, there is not much hope for accelerating or even maintaining the pace of the economic growth and it is unclear what can be done to achieve that, the expert believes.

Mr. Onishchenko characterized Ukraine as a country where the socio-economic crisis goes hand in hand with the political one and coordinated actions of trading partner countries that would support Ukraine are needed to clear the backlog of economic issues, otherwise Ukraine may cease to be an important economic partner for the EU and Russia. According to him, a joint plan aimed at developing the country by means of domestic resources has to be elaborated. “Unless this happens, we will end up with a neighbouring country locked in a long-term socio-economic crisis that will inevitably affect our economy,” Mr. Onishchenko summarized.

The video of the roundtable is available here.

Photo courtesy of the International information agency «Russia today».