Expert Opinion, Geopolitical Analysis

Statistics tell the tale: Irreplaceable losses for the Ukrainian economy

workers


Author: Olga SHELKOVA | 27.08.2014

Translated from Russian, by Maria Razdiak
Edited by Ken Griffith and S. Naylor
Original article: http://odnarodyna.com.ua/node/24311

 [Olga Shelkova is an independent economic journalist, primarily analysing, the events of the CIS (The Commonwealth of Independent States).]


The published results by the Goskomstat (Federal Bureau of Statistics) of changes to the Ukrainian economy during the first half of 2014 can be shocking. But the most important figures in the situation at hand are not the fact that the GDP fell 4.5% , nor even that the gross domestic product is predicted to fall -7% by the end of the year, but the irreplaceable losses concealed by these frigid statistics—the losses that will destroy the actual possibility of a Ukrainian economic recovery in the future.

********

We are speaking primarily about the collapse of the industrial sector, which is accelerating. During the period from January to June, the volumes of industrial production shrank by 5.8%, while July alone brought that sector down by another 12%. The most profound damage was suffered by the coal sector (-28.7%), the automobile production (-23.8%), the chemical manufacture (-22.2%), the oil refining sector (-15.9%), the rubber industry (-13.8%), metallurgy (-12.3%), and furniture production (-12.5%). Clutched by war, the Lugansk and Donetsk regions have lost 56% and 28.5%, respectively, of their industrial potential. The crisis of the component supply from Donbass in turn led to the collapse of the industrial giant of Zaporozhie (ZAZ). This enterprise lowered its production volume by 98.9%, and by October will probably stop all manufacturing, leaving 21,000 workers out of the street.

The industrial potential was also dented by the fall in exports to Russia, which ranged from 25% to 70% over the different sectors. For example, automobile production lost 40% of all exports, metallurgy – 32.6%, agricultural – 37%.

It must be noted that these horrific statistical indicators include the period during which Ukraine had a legitimate government, and economic relationships with Russia were actively developed. With the complete severance of economic ties with the Russian Federation by the Kiev Junta, the pace of industrial collapse will only accelerate.

********

 The state of the agricultural sector, for which Kiev has great hopes, is no better. The first quarter of 2014 showed a 3.9% decrease in the volume of agricultural productivity, while the amount of produce fell by 17.6%. The fall in plant production during the six months totaled 30.1%. Grain production (not including corn, as the marketing year for such starts and finishes in September) shrunk by 2.1 times (i.e. more than half), winter and spring wheat – 4.8 times, rye – 27.5 times, grain legumes – 2.3 times, rapeseed – by 36.5%, the collection of fruit and berries – 11.8%, cattle livestock – 3.2%.

Specialists predict an estimated a 10% fall in the gross output of grain, which will lower the export potential by 7%; while Ukrainian agriculture by the end of the year may shrink by 10-15%.

Instead of assuring the country’s food security, Ukraine has increased grain export in the second quarter by 89.4% (in comparison to the previous year). And to entirely destroy the agricultural sector, Yatsenyuk’s government cancelled taxation subsidies for those agro-industries with a turnover of 20 million hryvnias or more and with an agriculture-land mass of 3 thousand hectares or more. In reality almost 90% of the agro-producers have lost their tax privileges, as small agro-holdings account for only 10-15% of the Ukrainian agriculture, while medium companies hold 60-65%, and 20-25% are the large agro-producers. Taking into the account that the devaluation of the hryvnia, the cost of production resources has automatically increased by 40-50%. It is time to say goodbye to the legend of the “Grainary of Europe” Europe and the industrial sector.

 ********

The worrying situation in the real economy is leading to a fall in the government budget. The Finance Minister A. Shlapak has stated that the current budget deficit of 30 billion hryvnia ($2.3B) can reach 87 billion hryvnias ($6.6B) by the end of the year. Thus, it can already be said that the country is caught in a stagnationary spiral.

Firstly, government debt is growing with a geometrical progression. While 2013 bought an increase in the public debt (during the first semester) of 11.3%, and the external debt fell by 6.4%; the same period of 2014 presented a 50% increase in public debt and a 65% increase in external debt.

Secondly, Ukraine’s international reserves are decreasing rapidly. Despite IMF credits, gold and foreign exchange reserves of Ukraine have shrunk from $20.41 billion to $17.08 billion. Plus, over $10 billion are not gold, nor currency, but debt obligations (read as IOUs) of the NBU (National Bank of Ukraine).

Thirdly, from February the national currency has devalued by 62%. By the end of the year it may reach 15 hryvnia to 1 US dollar. The International rating agency, Fitch, lowered the long-term rating of the default issue of the Ukrainian national currency from B to CCC, or to the “extremely speculative” level.

Fourthly, international investments have fallen. The volume of direct international investment has fallen by 11.9% since the beginning of the year. Leading the decrease are the countries of the EU: Austria decreased direct investment by $404.9 million, Great Britain – by $354.5 million, Netherlands – by $193.8 million, Germany – by $178.4 million, Italy – by $128.2 million.

Consumption, a useful tool in increasing the economic growth during a crisis, is also on the decline. The negative tendencies are further worsened by IMF mandates in regard to lowering public and social spending. Thus, this year Ukrainians have cut their trips abroad by 40%. Imports have fallen by 20-25%, pharmaceutical sales – by 18%. Airlines have lost half their passengers; railroads have seen a 50-70% decrease in freight (depending on the industry). The turnover of Ukraine’s retail trade and restaurant business fell by 21.5% (July 2014 compared to July 2013), while the June decrease was 20.9%.

Positive tendencies are not observed. With the backdrop of a 62% loss in the national currency and 12% annual inflation – which lightened the wallets of the population by three-quarters – citizens are not in a mood for shopping. The devaluation of the currency is paralleled by the increase in prices. According to the Finance Ministry: the price of fruit increased by 56%, sugar – by 35%, vegetables – by 28%, pork – by 25%, fish (and fish produce) – by 21%, beef – 10%, bread (and baked goods) – by 30%, pharmaceuticals – by 60%, petrol – by 50%, public transport – by 100% (i.e. doubled in price). The first wave of increases in tariffs will be followed closely by a second. In October, the price for electricity will increase by a further 40%, gas – by 73%, water – by 84%, sanitation – by 105%.

********

The broke and hungry Ukrainians will face another trial – the cold. In connection to the multi-billion gas debt to Russia, the gas supply was terminated in June. Here the conversation is not only about the heating and the hot water supply to the residential sector but a worsening of the economic crisis due to the gas deficit. The decline of 30% in volume of gas utilized occurred because of the closure of whole factories. Gas shortages will soon hit cement, nitrogen, glass, metallurgy and separate segments of the chemical industries. Thus, the initial effects will be felt by a number of basic enterprises (some international) which carry a great social responsibility: “ArcelorMittal Krivoy Rog”, “Azot” in Cherkasy, “HaidelbergCement Ukraine”, “Dneprazot” and others. Unsurprisingly, this will sharply increase the unemployment level, which may double by the end of the year; reaching 10.2%. This number is only the official statistic. It fails to take into account a shortening of the work week, and forcing the employees into unpaid vacations of unspecified length.

The Ukrainian Department of Energy set limits on the use of natural gas for all consumers; estimating a reduction in the use of natural gas by 30% for the communal and the industrial sectors. In turn, “Kievenergo” announced their plans to use less than half of the gas necessary to heat the capital during winter.

The consumers responded to the government plans of freezing them in their own flats by increasing the demand tenfold for water and space heaters. That will have little effect apart from the increased danger of the electric grid having brownouts (which will in turn lead to a water supply collapse). Russian gas is required to produce electricity, as is the Donetsk coal, which together generate 42.2% of the Ukrainian electricity supply, which in turn powers the domestic heating plants. An increase in electricity production from the nuclear plants is also unrealistic, considering the titanic efforts of the Junta to replace Russian nuclear fuel with American fuel produced by the Westinghouse Company, which is not even suitable for the reactors.

Despite all the efforts to organize a reverse gas flow from Europe, Yatsenyuk was forced to admit that without Russian gas Ukraine would not survive. He went on to state that the government has reserved $3.1 billion to purchase 5 billion cubic meters of the Russian gas. The problem is that as of the August 1st 2014 “Naftogas Ukraine” owns “Gasprom” $5,296 billion, and until some of that is paid the negotiations are stalled.

********

Whilst the international experts are predicting the greatest economic decline in the world for Ukraine, the economies of the countries in the Eurasian Customs Union – despite the sanctions pressure from the EU and US – are showing a positive dynamic.

According to the CIS Interstate Statistical Committee, on the basis of the economic development of the States of the Commonwealth during the first half of the year 2014, there has been a 1.2% increase in the GDP of Belarus, 0.9% – in Russia and a 3.8% growth in Kazakhstan. The rates of growth of the Belarus economy in the second quarter have accelerated due to the increased retail turnover, despite the decrease in industrial manufacturing. Kazakhstan is showing good results throughout: capital investments increased by 5.2%, logistics – by 4.1%, while retail turnover increase by 11.8%.

Failure of industrial cooperation with Russia did not bring benefits to the Ukrainian producers. However, Russian volume of industrial manufacturing has increased by 1.5% – mostly due to a need to replace the Ukrainian imports in the high technology and innovative sectors. In the future the positive effects of the banned imports from Ukrainian military-industries into Russia will only increase. For example, the internal program for developing the strategic nuclear forces no longer plans for the presence of Ukrainian manufacturers. Thus, Russia is now planning to establish domestic production of air-to-air missiles. The manufacture of the helicopter engines will be moved to St. Petersburg, at the factory “Klimov”, which, by 2015, should be producing 450 motors yearly; thus, completely replacing the imports from the Ukrainian factory “Motor Sich”, located in Zaporozhie.

Russian sanctions on European and American agricultural produce allow for the expectation of continuous growth, not only in the industrial sector but also in agriculture.

Personal income in Russia continues to grow. The average pay cheque in June, was 32,715 rubles ($877), a growth of 9.4% in comparison with June 2013. This is a growth rate that Ukrainians can only dream of.

********

All the Ukrainian attempts to wound Russia have only hurt Ukraine. “Already, even without the use of any measures, our trade turnover with the Customs Union has fallen by 30%” – said Poroshenko, during a meeting in Minsk on the 26th of August. “And in no situation can we allow for a further deterioration in terms of trade.” But, the Kiev regime – not with words but with actions – is turning down a possible partnership with Russia and with the other countries of the ECU. It seems that Kiev has declared an economic war ­– not on Russia, but on Ukraine and the Ukrainian people.

Discussion

21 thoughts on “Statistics tell the tale: Irreplaceable losses for the Ukrainian economy

  1. Reblogged this on gingerblokeblog.

    Like

    Posted by gingerblokeblog | September 8, 2014, 21:12
  2. What else should Ukraine expect?
    The populace of western Ukraine is still largely ignorant of the catastrophic mistake of allowing Fascists to take over their country, and the widows and girlfriends of the thousands of the fallen, still somehow hope against hope, that their loved ones will return,

    People in the EU and the western hemisphere are far better informed about the Ukrainian ‘realpolitic’ and this ‘catastrophe writ large’ than the average western Ukrainian junta supporter, who has swallowed all of the Nazi propaganda, and correspondingly, somehow thinks that if they ‘stand up and show solidarity’ towards the Kiev Nazis, and excuse them, and deny that they are really fascists, and support ‘their Nationalist Ukraine’ …then everything will still somehow turn out OK.
    The reality is that the deluded and the ignorant, as well as the innocent, will all starve and freeze together.

    The internet is full of these western Ukrainian (and eastern Ukrainian) ‘Nazi deniers’. who idiotically sit and watch Poroshenko and Kolomoyskyi’s TV channels, while their Nazi berserkers and war criminals still run wild, aided and abetted and financed by the United Snakes of Amerika…..

    This is totally psychotic cognitive dissonance, on the part of very many in Banderastan, who still for instance, deny that; the Odessa massacres and rapes never ever took place, and somehow, in their abject delusion, they can still support such vile war-criminals and cheer them on…
    This is an endemic problem in the Ukraine psyche, that no matter how horrific the reality becomes, the penny never ever drops.
    How long until they wake up? Maybe when it’s far too late, or possibly not even then, and then they will all dutifully say as one;
    ” Russia brought it on us…and it’s all Putin’s fault..”

    Now they will see their country suffer as a third world economy, or very much worse as winter comes.
    The coming total collapse of Ukraine may also cause further and more catastrophic financial repercussions in the rest of Europe, just as the idiotic anti-Rodina sanctions have done..

    All because of the Kiev Nazi junta and the oligarch ‘ill laid plans’ and all effectively taking place over a very short seven months since the Maidan US sponsored snipers took up their positions. .

    One of the further financial globally-seismic quakes will certainly be a huge acceleration of quantitative easing and many more bank bail-out’s for banks like Raffeisenbank, who have more than significant exposure in an economy destined for the gutter.

    As usual, EU taxpayers, encouraged by the IMF and World Bank, will have to further try to prop up this debacle, and their directors will reap huge commissions while the average EU citizen just gets poorer and poorer, and more in debt to the corrupt ‘system’…..

    A million refugees in Russia.?? . I think it will triple or quadruple at least before long, as Ukrainians flee the coming melt-down, and flee anywhere to get any job they can…. They certainly won’t be offered jobs in the rest of Europe..

    .And all because the United Snakes destabilised yet another sovereign country, for the Neocon Bidens of this world to reap huge rewards from Ukrainian gas reserves, and for hegemonic wet-dreams of NATO expansion..

    I was in Ukraine last Xmas, and I could never ever have imagined such a fall and such carnage was to come..

    If anything positive is ever to come out of this, then it should be that no other nation should ever fall for the Nazi and the Neocon lies as Ukraine has done..

    Like

    Posted by Richard McDonald Brown. | September 8, 2014, 21:15
    • All because of the Kiev Nazi junta and the oligarch ‘ill laid plans’ and all effectively taking place over a very short seven months since the Maidan US sponsored snipers took up their positions. .

      And all because the United Snakes destabilised yet another sovereign country, for the Neocon Bidens of this world to reap huge rewards from Ukrainian gas reserves, and for hegemonic wet-dreams of NATO expansion.
      ——–
      The Ukrainian people and the ruling elite in Russia deserve a tremendous amount of the blame. Russia is largely blamed for the Ukrainian oligarchical mess, and, while that may be somewhat unfair, it is clear that the Kremlin loves dealing with oligarchs. They don’t care about anything else in the country, such as the educational system being very anti-Russian or the rise of Nazi paramilitaries, but they do want to have good (meaning corrupt) relations with as many oligarchs as possible. Even now, many argue that the Kremlin is sabotaging Novorossiya to make sure a government run by oligarchs is all that comes out of things. Perhaps many in Moscow would prefer an anti-Russian Ukraine run by oligarchs over a pro-Russian Ukraine without oligarchs.

      And the Ukrainian people somehow thought that Russia and the pro-Russian areas were stopping them from achieving their dream of a life like those in places like Austria have. They let their negative emotions overcome their brains. The US and EU simply want to use them to weaken Russia. In fact, they might turn into a failed state – Europe’s version of Iraq or Somalia.

      Like

      Posted by Paul | September 9, 2014, 14:10
    • Quote from above “.And all because the United Snakes destabilised yet another sovereign country, for the Neocon Bidens of this world to reap huge rewards from Ukrainian gas reserves, and for hegemonic wet-dreams of NATO expansion.. ”
      If the Novorussian disagree with some economic decisions made by Kiev , now is the time to oppose and sabotage them . There is war going on yes or no ?
      Why the Novorussians do not attack the business of Biden ? Why are unknown people allowed to exploit mines and business vacated by the legal owners ? Why Monsanto is allowed to conduct business in Novorussia instead of being attacked ?

      Like

      Posted by Anti EU | September 12, 2014, 09:28
  3. Thank you for publishing significant pieces such as these. The economic aspects are indeed highly significant for what will evolve.

    It’s curious that, in English re Novorossiya, relatively so huge readership and number of commenters attach to the Vineyard Saker site, when Saker’s postings have not really been so sharp and illuminating as posts here on Slavyangrad, on Colonel Cassad and other sites …

    Saker apologises and makes excuses *very* much for Mr Putin … commenters have been noting that Saker was heavily promoted by the Asia Times Online site, which recruits for US government and promotes the CIA’s ‘Radio Free Europe / Asia’ … and that Saker writes like a female tho claiming to be male, and is located in Florida USA near CIA-Wikipedia’s headquarters … ha! … Well, not important

    But would like to see more people in Europe and points West understand more about the reality of Novorossiya, Ukraine & Russia, as Slavyangrad is nobly helping to show

    For a great hearty belly laugh – 2 minute video
    ‘Proof of the Russians invading Ukraine!’ – Truly funny, over 400,000 views

    Like

    Posted by brabantian | September 8, 2014, 21:24
    • “Saker” is a CIA “shop” for disinfo. It is made up of a network of other sites (including CIA Wikipedia) with VERY similar writing, same font, same people, and same purpose – to confuse people who are funneled into disinfo sites as you say linked in the comments to the Saker site. When I began to suspect it was a “shop” for disinfo after two visits to the site, I asked a friend to investigate because he had been in US Navy intel. He spent 30 minutes on the internet following the trail from the “Saker” site to similar sites and said “Yep, it’s a typical (CIA) “shop” operation.” The internet in the US is absolutely saturated with these operations, on different topics – Iraq, 911, GMO, conspiracy theories, JFK assassination, Peak Oil, Ukraine, Pivot to Asia, mortgage crisis, BitCoin, MH 370 and MH17, YouTube comment sections, etc. etc.

      And like the Ukraine, the US has been ravaged, raped, poisoned, plundered and pilfered by the same people that have just liquidated Ukraine. Soon there will be more once economically sound and growing countries who find themselves suddenly overnight living in complete poverty and debt. Even 20 years ago 70% of American children lived under the poverty line. A rich country? No just for a few. The US economy has always been based on slavery by exploiting an annual influx of immigrants, a permanent war economy partnership with the Anglos. And now the US has been completely poisoned by nuclear bomb tests, nuclear waste, nuclear power plants, military bases, chemtrails, GMO, vaccines, “modern” medicine that guarantees a shorter life, and higher education costing even more than an oligarch would be willing to pay for his children, and the largest prison system in the world that contracts with global corporations to manufacture products ($2.50/hr, the prisoner gets 25 cents an hour) in the prison slave labor “camps”.

      The entire western economy is being collapsed and the people exposed to a genocide never seen in the history of humanity. The information in this article points to Yatsenyuk as a very dangerous factor in Ukraine politics (he flew 33 tons of Ukraine gold bars to NYC on March 5, and was in the White House with Obama getting his 10% cut on the gold on March 6 – I have photos of their meeting), and Poroshenko is a big lying thief and thug. Tymoshenko is also very dangerous as the Soros cheerleader of the Orange Revolution which was the beginning of the fall of the Ukraine into foreign hands and a national debt that will never be paid off. They of course have oligarch and banking bosses who will profit greatly from stealing the rich gas deposits and other minerals in the Ukraine, and from the liquidation of Ukraine’s accumulated wealth from the blood, sweat, and tears of generations of hard working honest Ukrainians. And last but not least, they will do their best to genocide the Ukrainian people with radioactive munitions used in east Ukraine in this conflict, and the Chernobyl “accident” that the CIA, MI6, and Mossad carried out just like Fukushima in Japan to transform the world economy. So far Putin, Iceland, eastern Ukraine, and Scotland (voting in 8 days to secede from England over the fracking issue in Scotland) are the only ones to stand up to the NWO.

      Queen Elizabeth personally owns BP, more than 50% of Royal Dutch Shell, $17 trillion in depleted uranium holdings, and as the Sovereign of the Commonwealth she has claim to $37 trillion in land holdings. That was her BP company fracking in Ukraine until the conflict with her depleted uranium weapons drove the oil companies out of Ukraine. When individuals, governments, companies, and humanity take the profit out of war and genocide, then we can live in peace.

      Thank you Mr. Putin and the pro-Russian people of the eastern Ukraine for standing up to the oligarchs and the loss of peace and freedom they have caused. You can never negotiate with extreme criminals like the NWO – they only understand the real threat of Russia’s nuclear weapons and Putin’s great strength and courage as a world leader. WEBSITE: LeurenMoret.info

      Like

      Posted by Leuren Moret | September 9, 2014, 05:42
      • I dont care what “your friend” thinks or “what your friend has found”, personally so quit your nitpicking.
        I for one am thankful for his site and I dont care who or what he is because its the COMMUNITY that comes there that matters to me ( or does such a thing not matter to you ??)
        Had I NOT discovered his site I never would have learned of the treasure trove of information that OTHERS there have provided in order to educate me , embolden me, encourage me, and lead me to even FURTHER sources , such as this wonderful site…oh yeah and ways to actually HELP the people of Novorossia (which Ive passed onto many others because you see such information is not available in my local Canadian news)
        ….but then Im sure your friend in his small mindedness doesnt think of such details or what what they may actually mean to others
        .So thank you very much but tell your friend ….hes missing the bigger point of COMMUNITY -probably something which means very little to him as he is far more interested in getting “recognition” ‘ and only that and never thinking about others. Oh yea ….and tell your friend he needs to grow up and learn about what matters in life….like places people can assemble on-line when they have no where else to go and share their hurt and pain and anguish because the Mainstream media sites are full of venom.I find that at Saker thank you very much. Tell your friend that.

        Like

        Posted by JEANNIE | September 9, 2014, 22:05
      • So, you got an education at the Gawker site? You have a lot to catch up…the Gawker is a by-product of Russia’s old “nomenklatura,” a verbose pea-brain without real analytical capacity, who is fed with lots of info daily from the FSB, which he repackages and sells as his own. A nincompoop.

        Like

        Posted by Nemo | September 10, 2014, 03:48
  4. Stunning impact on Ukraine and wonderful advances and opportunities for Russia. The facts, the data, are in. This document is the “gun” Putin holds to the head of the junta. Their guns are pointed at their toes (shot off), their legs (shot off) and now are pointed at vital organs. If they keep pulling the trigger as the US requires and EU and NATO urge on, Ukraine will complete the utter suicide of their society. Their nation is mortally wounded anyway by the loss of “lifeblood” (their economy). Only a miracle can save them. And they have rejected God with their demonic barbarity against Donbass.

    Like

    Posted by Bull Durham | September 8, 2014, 22:50

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