Let’s Have a Frank Conversation about Russia?
In the information age, changes of opinion happen very quickly. We already hear some experts today saying that Ukraine should go back to the market of the Eurasian Union. Such opinions are consistent with the articles in the Russian media about the huge [economic] losses of Ukraine after taking steps towards integrating with Europe.
It seems to me that this is a very dangerous trend which may as well be considered an element of hybrid war. I would like to have a frank conversation about this issue. I will now be talking only about agricultural exports, which is one of the major drivers of Ukraine’s external trade.
In the first four months of 2016 Ukraine exported $209 million worth of agricultural products to the Eurasian Union. This is almost a 5 times drop compared to the same period in 2013, when we exported $1 billion worth of agricultural products to the countries of the Customs Union (Eurasian Union minus Kyrgyzstan and Armenia). However, let us not take these figures out of context. In the same four months of 2016, Ukraine exported almost $1.5 million worth of agricultural products to EU countries and $2 billion to Asian countries. I am sure this covers the topic of diversification of markets and reorganization of export flow.
Does the agricultural industry experience any considerable systemic problems due to this reorganization? My answer is ‘no’. There are certain issues in several areas that have not quite reoriented yet, but professionals are also optimistic that improvement is possible. In general though, the agricultural industry is actively developing and going through modernization, and exporters are accessing new markets – not only in EU countries, but also Asia and Africa.
I have recently mentioned the positive developments in the trade with ASEAN. There are equally positive developments in other strategic directions, such as export of agricultural products to China. I want to emphasize that this change is systemic. Every month our exporters gain access to new markets all over the world. This is the result of reorientation of businesses and setting higher quality standards, which was facilitated by integration with Europe. We are only starting to change, and we will observe the full-scale effect of modernization and reorientation of the Ukrainian agricultural sphere in several years.
Let’s go back to the issue of export to the Eurasian Union. There is one more important question we need to answer to see the full picture: did exports to all countries of the Eurasian Union drop equally? And the answer is ‘no’ again. The biggest drop was observed in exports to Russia. For the four months of 2016 compared to the same period in 2013 it dropped by 96%, whereas exports to Belarus and Kazakhstan dropped only by 45%. This means that despite the pressure, issues with transit of goods, and geoeconomic difficulties, we managed to maintain mutually beneficial relations with Minsk and Astana. I am sure that in the future we will be able to return to pre-crisis figures with those countries, and no geoeconomic games of our ill-wishers can prevent us from doing so.
Another important issue is the attitude of the Eurasian Union member states to the integration processes inside the Union. Are all the members happy with the situation? The answer is ‘no.’ For instance, the President of Belarus Alexander Lukashenko recently said at a meeting of the Supreme Eurasian Economic Council: "After we signed the agreement, turnover inside our country has only been dropping. In 2012 and 2013 it was at the level of $65 billion, but in 2015 it was only $45 billion. Perhaps, not all conditions of the agreement are in line with the current economic situation and our expectations. In addition, there is a trade conflict in the agricultural sphere between Kazakhstan and Kyrgyzstan. Agricultural producers in Armenia are counting losses, especially in the cognac production industry, which is a priority in that country.
Finally, the main question is, what should we expect from the Russian market and should we expect that under some hypothetical conditions Ukraine would make a comeback there? The situation is complicated. The Russian market is shrinking, priorities are shifting towards cheaper products, the importance of the premium segment is dropping, and the share of Russian local brands is growing. Investors view Russia as an unpredictable partner. Direct foreign investment in the country has rapidly dropped and is at its lowest level in the last 10 years. At the same time, Russia is building a closed system. The country is planning to become self-sustainable in fruit, vegetables, milk, and meat. Of course, these are only plans, but in any case it means Russia is going to implement very protectionist policies on its markets, and there will be trade conflicts with all importing countries. So, even leaving the geopolitical factor out of focus, it becomes clear that Russia will not let Ukrainian exporters into its territory.
Personally I am not in the least upset by this. I know for sure that if Ukraine breaks trade ties with its aggressive and unpredictable neighbor, it will win more than short-term financial gains. Our country, our economy, and our producers received encouragement and the opportunity to modernize and become more effective. It means that the industry has serious prospects for development and for the future. So, before everything else, we need to think about strengthening our positions in external markets by successful competition, about modernizing the industry as much as we can, promoting Ukrainian agricultural IT and equipment manufacturing, and about attracting the investors who are currently running away from Russia.
A column serves to express the personal opinion of the author. It does not aim to be objective or comprehensive about the topic in question. The opinion of Ukrayinska Pravda or Ekonomichna Pravda editors may differ from that of the author. The editors are not responsible for the factual accuracy and interpretation of the information, our media outlet hereby only serves as a platform.
