The motion whether Ukraine will be able to overcome the economic crisis without Russia will be debated in Kyiv on February 25, 2009.
Ukraine must make efficient use of all available leverages to overcome the downturn, including foreign economic cooperation. Being an export-oriented country, Ukraine was hit by the economic crisis more severely than other countries of the region because of reduction in the world’s demand and a significant outflow of capital from the region. In addition, the existing Ukrainian economic model will be further threatened by the structural changes in the world’s economy. With increasingly stiff foreign competition on the key Ukrainian export markets investors and companies have to consider national risks more seriously. In order for Ukraine to return to the path of sustainable economic growth, it is necessary to reduce dependence on the raw material production and develop areas with high growth potential, such as infrastructure construction and logistics, tourism, agriculture and heavy engineering and focus on production of high value goods and services. To support the economy in the short term it is no less important to ensure financial stability and sales of the available products. Considering the time constraints, it is quite hard to attain the objectives without foreign capital, import of technologies, governance practices and external sales markets. Can Ukraine succeed in implementing the anti-crisis strategy without taking any special steps to strengthen economic cooperation with Russia? There does not seem to be unanimity of opinion on the issue. .
Those advocating stronger economic cooperation with Russia to emerge from the economic crisis believe that this will help raise considerable investments in the Ukrainian economy even in the short-term perspective. At a time of global uncertainty investors will invest funds in businesses where external and internal environment is more understandable and where potential synergy is more obvious. Russian investors can manage the risks existing in Ukraine as they have been investing in the national economy for years. According to experts, in 2009 twenty percent of foreign investments in Ukraine came from Russia. In addition, geographical proximity, historical production ties and similar technologies and approaches to business making create huge potential for positive synergy effect from mutual activity.
In addition to investments Ukraine also needs reliable sales market for its products to finance the required economic transformations. At present, due to stiff EU technical requirements European markets are closed for most Ukrainian products. At the same time Ukrainian products sometimes can’t get to the Russian market because of strained relations between the two countries. Ukraine can significantly increase its sales market provided the country will move towards a constructive dialogue with Russia and manage to remove restrictions and reduce non-tariff barriers for Ukrainian products.
Opponents of the motion point to the fact that in order to distance itself from Russia and get closer to Europe Ukraine will have to take much effort to reform the economy. Still, in the long term perspective it will make the country more competitive and ensure sustainable growth. And partnership with Russia can hinder fast modernization of many Ukrainian production companies and weaken their competitiveness at other European markets. The crisis is a “time of change”. Ukraine can and must overcome dependence from Russia and reform the economy to successfully compete with other countries on global markets.
On certain conditions, the EU can open its markets for many Ukrainian goods. In addition, such international financial institutes as IMF have already demonstrated their readiness to provide loans to Ukraine. Ukraine can increase the number of investors and reduce the cost of financing provided the country will make further efforts to stabilize economic situation and improve its business climate. While many industries in Russia remain inefficient European companies can bring new technologies and modern governance practices to Ukraine and make Ukrainian goods competitive at international markets. Direct foreign investments from developed countries will allow Ukraine to diversify its economy and start producing more high value products. In its turn Ukraine will become more interesting to European companies because of its unique geographical position and high growth potential of the internal market provided the state will create a friendly business environment.
Finally, global economic transformations create many new opportunities for successful cooperation with such fast-growing economies as India and China as well as other countries. To improve the welfare of the country Ukraine should focus its efforts on making the country’s economy attractive to as many external partners as possible.
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