How Ukraine’s economy turned its back on Russia



“Russia pushed Ukraine into the arms of the European Union. There was no pro-European sentiment before the invasion of Crimea in 2014: the ideal for the country was to sign trade agreements with each party. Ukraine found itself having to reorient its economy”rewinds Veronika Movchan, director of the Center for Economic Studies in Kiev.

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The change of direction is obvious. The former socialist republic has endeavored to undo the economic ties forged with Russia. More than 30% of Ukrainian exports took the lead in 2011: the figure now flirts with 5%. The trend is the same on the import side, even if the need for hydrocarbons prevents the cordon from being completely cut: the Russians still account for nearly 10% of Ukrainian imports.

Free trade agreement with Europe

The course was set to the West. Russia’s estrangement is also the story of an economic rapprochement with the European Union. If the curves of Russian and European trade with Ukraine intersect just before the Crimean War, the fault in particular of variations in energy prices, the EU has continued to strengthen its ties with the country of the ‘Is since.

These links are based in particular on an association agreement, the foundations of which were laid in 2014. This free trade treaty, which has already led to the abolition of customs duties on many products, will lead to the erasure of the majority remaining rights by 2023. A summit between Brussels and Kyiv is planned later this year to assess the benefits.

The EU, first partner

As a result, the European Union is Ukraine’s leading trading partner, accounting for more than 40% of its imports and exports. The country is one of the main producers of cereals in the world, but it is mainly its oils made from sunflowers that are shipped to the Union. It can also count on its heavy industry, inherited from its Soviet years: between 2015 and 2019, Ukraine was the source, on average, of 14% of EU steel imports according to the bank American investment company Jefferies.

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However, the rise of Europe now seems to be reaching a plateau. “The absorption capacity of the Ukrainian market is limited “, explains Veronika Movchan.

China in trouble

Another explanation is the rise of China in this market. ” China now accounts for around 15% of Ukrainian imports: it is replacing the European Union thanks in particular to its ability to supply machine tools at affordable prices “, continues the economist.

A phenomenon also observed in the direction of departures at customs.There was a boom in exports from Ukraine to China from 2019, amplified by the Covid crisisnotes the Ukrainian economist. China serves mainly as an outlet for agricultural products and raw materials. The variety of products exported, with approximately 300 references, remains almost 10 times lower than for the European Union. »

France, first foreign employer

Still, these economic ties are not just a matter of exchanges. France has become the country’s leading international employer with, according to Treasury figures, nearly 160 locally established companies, Auchan, Decathlon and BNP to name a few, which employ 30,000 people.

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A table that should not water down reality: the replacement of the historical partner is painful. Ukraine, if it has posted, excluding Covid, regular growth in recent years, the latter is too weak to make up for the economic losses linked to the Crimean War. The country has lost part of its territory and its industry.

Lack of investments

It suffers from a major deficit for its development, the lack of foreign direct investment. The latter are still below 6 billion dollars in 2019 after having stagnated around 4 billion the previous three years. The more than 8 billion reached before the conflict in 2014, linked in particular to the presence of Russian capital, have not found a substitute. Also for lack of having implemented structural reforms capable of creating investor confidence.

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