Already in Soviet times Ukraine was the granary of the Soviet Union.
Foto: imago images/ITAR-TASS/Alexander Reka
A large part of the world feeds on Ukrainian agricultural products. The Ukrainian Soviet Socialist Republic was once considered the granary of the Soviet Union. The economy still benefits from the extraordinary fertility of their black earth soils. As the fifth-largest exporter of wheat – the largest is now Russia – the Middle East and poorer countries such as Egypt, Yemen and Lebanon are primarily supplied. The country also exports large quantities of sunflower oil, corn and chicken eggs, including to the EU. That has now come to an end since the Black Sea ports, including Hamburg’s HHLA container terminal, were closed a week ago in the wake of the Russian attack on the country. The majority of Ukrainian exports have so far passed through these ports.
The success of the export-oriented agricultural industry is linked to its industrialization. Similar to East Germany, the once collective companies passed into private hands. However, the dimensions in Ukraine are different. In Germany, by far the largest areas are owned by cooperatives in Mecklenburg-Western Pomerania, with an average of almost 1,500 hectares. In contrast, IMC Agrarholding alone, with its CEO Alex Lissitsa, who is also well connected in Germany, tills around 125,000 hectares in northwestern Ukraine.
“In the turmoil of the 1990s, a small class of oligarchs emerged who dominated large parts of the economy and exert a strong influence on politics,” writes economic expert Hans Peter Pöhlmann from Germany Trade and Invest (GTAI), the foreign trade agency of the Federal Ministry of Economics his Ukraine analysis. After food, iron and steel are Ukraine’s most important export goods. The huge country also has enormous mineral resources, from iron ore, nickel and lithium to rare earths. Extensive, still untapped shale gas deposits also lie dormant underground. This could turn the country from an energy importer dependent on Russia to an exporter.
Against the background of earlier historical tragedies and serious economic crises since the collapse of the Soviet Union, economic life is often still short-term oriented, Pöhlmann complains: “Corruption, the informal economy and a lack of protection of property rights are considered problematic.” Trust in state institutions is comparatively low, the Networks and personal loyalties are therefore much more important than in Germany.
After all, according to GTAI, the business climate has improved in recent years. In addition to the oligarchic industrial groups, there is a growing number of young entrepreneurs who live a modern, western-style management style. This applies to the flourishing IT and start-up scene, but also to working in international companies. Compared to German business culture, »multitasking and improvisation« are more widespread.
Russia has been the most important export country since independence in 1991. Today it is China and Poland. But the Ukrainian economy had not yet returned to pre-corona levels before the Russian invasion. The low vaccination rate, the sharp increase in gas prices and global supply chain problems are cited as reasons for the slow recovery.
With a per capita economic output of around 4,000 euros, Ukraine achieved only a third of that of Poland before the war. Unemployment is high. Many Ukrainians work as truck drivers, harvest workers and seafarers in the EU. For German companies like Beiersdorf (“Nivea”) or Siemens, the 44 million Ukrainians are just a sales market, for others an extended workbench. For example, the VW Group has ordered short-time work in its plants in Dresden and Zwickau because cable harnesses from the Nuremberg supplier Leonie are missing. In the western Ukrainian Leonie factories, 7,000 employees also produce wiring systems for BMW.
Too little has been invested in recent years. The government of President Volodymyr Zelenskyj therefore wanted to attract more foreign investors. In February 2021, investment incentives for some major projects were decided. Thus, the construction of several new units in the 15 nuclear power plants was planned. State-owned companies should be privatized, train stations, ports and airports should be sold.
Without international donors, the planned infrastructure projects will not be financed even after a possible peace. After a long delay, the International Monetary Fund (IMF) transferred a loan tranche of USD 700 million to Ukraine in November from the assistance package that has been in place since 2020. Two further tranches are to follow by the end of June. In the coming week, the IMF wants to decide on emergency financing. This money is urgently needed by the state: after the Russian attack, Fitch was the first rating agency to downgrade the creditworthiness of Ukraine and its banks to junk level. This threatens the country with insolvency.