Ukraine celebrates 25 years of economic collapse

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August 24, 2016 –

– By Eduard Popov for Fort Russ – translated by J. Arnoldski –

On August 24th, Ukraine celebrates independence day. Supposedly on this day in 1991, Ukraine declared its independence. But even the date is rather controversial: up until the abolition of the USSR in December 1991, Ukraine legally remained part of the union state. The near end of the existence of the USSR was the Ukrainian referendum of December 1st, 1991 in which the majority of participants voted for independence. Finally, there were the Belovezh Accords, a declaration by the presidents of Russia, Ukraine, and Belarus on December 8th, 1991.

The validity of both acts is questionable from a legal point of view but, nevertheless, it was from this point on that the existence of an independent Ukraine came into existence. I propose that we briefly estimate the economic results of Ukraine’s 25 years of independence. 

Although population does not directly relate to economic indicators, it nevertheless is direct or indirect evidence of the quality of life.

In 1991, the population of Ukraine was slightly more than 52 million people. As of July 1st, 2016, according to the data of the Ukrainian State Statistic Committee (Ukrstat), the population of Ukraine is composed of 42,488,512 people. In the opinion of independent experts, this population figure is overstated by several million, particularly since the residents of the Donetsk and Lugansk People’s Republics, who in conservative estimates make up 3-3.5 million people, were counted as residents of Ukraine. 

Thus, the real population of Ukraine, according to some experts, does not exceed 36 million people. If these estimates are correct, then Ukraine has lost 16 million people over a quarter of a century. The larger portion of these demographic losses are attributed to economic migrants who left the country and became the citizens or residents of other states. This is an important point seeing as how Ukraine originally inherited a strong economy, especially industry, from the Soviet era.

Ukraine occupied second place after Russia in the Soviet economy in terms of industrial production. The leading sphere of industry, engineering and machine-building, employed 28.3% of Soviet Ukraine’s industrially employed residents. In addition to the leading machine-building, metallurgy and the chemical industry were also leading spheres. 

The leading sector of the economy in post-Soviet Ukraine is metallurgy, a fact which reflects a drop in the level of technological production. The Ukrainian Soviet Socialist Republic was one of the leaders in electricity production, producing 17.2% of the USSR’s total output. In 2016, however, Ukraine was forced to import electricity from Russia. While Ukraine inherited 5 nuclear power plants from the Soviet epoch, specialists assess the state of the 4 in operation (especially the Zaporozhye plant) as close to critical.

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One of the most developed industries of the Ukrainian SSR was the military-industrial complex. Along with the aviation industry, the military-industrial complex has suffered perhaps the most severe losses since independence. The country that inherited 3 military districts and a powerful defense industry is now forced to use ammunition from the 1960’s-’70’s. Following the destruction of cooperative ties with Russia after the “Revolution of Dignity,” Ukraine effectively lost its military and civil aviation industry

In January 2016, the final liquidation of Ukraine’s (former Soviet) leading defense aviation manufacturer, Antonov, was announced. Now, a number of other iconic Ukrainian military-industrial enterprises are in a state of clinical decline. The leading producer of military naval vessels in the USSR, the city of Nikolaev, has since independence lost its unique technological and productive base, engineers, and highly skilled workers. The leading Soviet factory in rocket and space technology, Yuzhmash in Denprepetrovsk, has switched to civilian production of trams and trolleybuses and is not even working at full capacity.

A less noticeable sphere of decline in production is in the agricultural sector. Here two parallel trends can be observed: the consolidation of production parallel to the impoverishment of the masses of the rural population. Instead of Soviet collective and state farms, more or less larger farm holdings and enormous estates have appeared. According to independent Ukrainian experts, despite the current moratorium on selling agricultural lands, Western transnational corporations control 2.2 million hectares of land, a trend which is only increasing. The country is going down the path of Romania, which gradually lost control over its land resources to transnational corporations. The anticipated lifting of the moratorium on agricultural land sales will only render the process of latifundization more rapid. 

The new Ukrainian leadership which came to power as a result of a coup d’etat on February 21st, 2014, has greatly accelerated the economic decline and de-industrialization of Ukraine. In the post-revolution years of 2014 and 2015, GDP fell by 28.1% and 31.3% respectively compared to the previous years. In 2013, Ukraine’s GDP was worth $183,310 million. In the first year of the “revolution,” it amounted to $131,805 million, while in 2015 it sunk to $90,615 million. In fairness, it should be noted that GDP calculation is not in dollar terms, but in the national currency (UAH – hryvnia) equivalent, which would show dynamics of growth. However, the triple fall of the hryvnia reflects the general state of Ukraine’s financial system. At the end of 2013, one dollar was 8 hryvnia, while by the end of 2015 one dollar equaled 24 hryvnia. Economists estimate that the Ukrainian inflation rate reached a record 40% in 2015. 

Other achievements of the “Revolution of Dignity” include the sharply increasing level of state debt relative to GDP. If in January 1st, 2014, the Ministry of Finance of Ukraine’s data indicated a debt of 584,114.1 million hryvnia, then on January 1st, 2015, this was 1,100,564 million hryvnia. By January 1st, 2016, debt reached 1,556,083.4 million hryvnia. This means that over the course of 2 years of reform, Ukraine’s total debt has grown 2.66 times. 

Ukraine’s foreign debt has increased even more. On January 1st, 2014, it was 300,025.4 million hryvnia; on January 1st, 2015 it was 611,697.1 million, and already by December 1st of the same year (2015) it amounted to 1,024,807,7 million hryvnia. In other words, Ukraine’s foreign debt has increased 3.41 times. Moreover, the total of state guaranteed debt does not include the $3.075 billion that Ukraine owes Russia since December 2013 which the Ukrainian government currently refuses to pay. 

On January 1st, 2016, the ratio of gross external debt in relation to GDP was 131%. In other words, Ukraine’s economy produces much less each year than what it owes foreign creditors. 

These few samples of far from complete data on the economy of Ukraine give an idea of the catastrophic collapse of the once prosperous economy of a former Soviet republic. The main reason for this economic collapse, the bottom of which is still nowhere in sight, is the forcible disruption of ties with Russia. This is not even the result of incompetence on the part of the Ukrainian leadership. President Poroshenko himself is an experienced economist by practice, the founder of the Roshen company. The reason for such economic collapse lies in that President Poroshenko and his heads of government (Yatsenyuk and Groysman) do not rule in the interests of Ukraine, but follow the orders of foreign patrons.

In 2014, Prime Minister Yatsenyuk banned the supply of Ukrainian defense products to Russia which Russian consumers had already paid for. Ukrainian enterprises were left without orders and a bad reputation while the Russian defense industry was dealt a severe blow and forced to spend additional time and money on producing analogues to the products supposed to be imported. The only winner in this context is the United States, which managed to temporarily weaken its main military and political rival – Russia. 

SEE ALSO: Popov: Ukraine is a country without a social future

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