MBS Blog

The dependence on exports-particularly of steel-has made Ukraine an almost “mono-crop” economy. Since Ukraine does not have a fully developed domestic market for products, nor the capacity to manufacture high end consumer goods, it relies too heavily on exports of products that lack the added value to promote real and sustained economic growth.

While the crisis has highlighted this, and there is considerable economic pain all around, it may actually give Ukraine an opportunity to develop manufacturing for the domestic market. The recent imposition of import duties-while not positive-could have the effect of strengthening the domestic industrial sector.

The best scenario-and we are an optimistic bunch-will be that Ukraine attracts more manufacturing, especially from Western Europe-as the costs are quite cheap by comparison. In addition, when the domestic market for finished goods matures, Ukraine will be poised to see real sustainable growth. Of course, this will all depend on the political situation. Right now, that looks as stalemated as ever.

Ukraine’s rust belt: the eye of the economic storm (from AFP)

MAKIYIVKA, Ukraine (AFP) - The giant Soviet era notice board to record production achievements and the photographs of the heroes of labour still stand proudly outside the factory.

But the main steel plant in the southeastern Ukrainian city of Makiyivka will not be breaking any output records now amid a devastating economic crisis that has forced it lay-off thousands of workers and almost halt production.

The groups of disaffected young men stalking the town in search of temporary work to make ends meet underline the problems of this region, which has the biggest concentration of mining and metals plants in the country.

Already rocked by the collapse of the Soviet Union’s command economy, the global economic crisis means the metals factories have been struck by a plunge in export orders that count for 80 percent of their production.

“The economic crisis has affected everything and has affected me in particular because I have lost my job,” said Roman Sleznyov, a metals engineer, as he looked for temporary work outside the factory.

“I have a higher education qualification in engineering but at the moment all the factories have virtually stopped working and it is impossible to find work.

“I’m looking for work now but something very simple. I just want to find work and to feed myself,” he said.

According to local unions representative Anatoly Akimochkin, the Makiyivka Metals Factory, once renowned in the Soviet Union for its use of experimental technologies, has laid off 7,000 workers due to the economic crisis.

The figures speak for themselves: in the first two months of this year, industrial production in the Donbass region fell by 35 percent and metals production fell by 44.2 percent, according to official statistics.

“The crisis has taken on a very serious magnitude in our region, primarily because the economy of our region is an export dependent economy,” the Donbass region’s governor Volodymyr Logvynenko told AFP in the regional capital Donetsk.

He said that factories were not just suffering from a fall in orders but above all from the plunge in global prices for their products.

A statue of Lenin still stands in the centre of Donetsk, a city founded in the 19th century by a Welsh mining entrepreneur. A plinth with a slogan by the first Soviet leader shows the importance of the region in the Soviet psyche.

“The Donbass is not a region by chance, it is a region without which Socialist construction would simply remain a nice wish,” it reads.

Ukraine is one of the countries worst hit by the global economic crisis worldwide. According to Ildar Gazizullin, senior economist with International Centre for Policy Studies the national economy will contract by 13 percent in 2009.

Economists said that while Ukraine’s notoriously chaotic politics has not helped matters, the main reason why the country has been hit so hard is the failure of regions like the Donbass to diversify their economies.

With the big factories so reliant on export markets and small businesses slow to develop, the country has always been hugely vulnerable to such a crisis.

“Ukraine is a small and very open economy,” said Gazizullin.

“If you look at the ratio of our trade to GDP it is one of the highest ratios in the world, we export a lot, so the dramatic decline in steel prices and demand in October and November last year hit the economy hard.”

“If you look at the structure of the Ukrainian economy, especially in manufacturing, it didn’t change much after the collapse of the Soviet Union.”