The article is written by UDI Associate and Content Manager Alina Nychyk.
A significant number of forecasts predict shifts for Ukraine in the next year. Is this a sign that Ukrainian fatigue with the unrelenting war in Donbas, and corruption that continues to grip the country? Could 2017 finally drive positive change for Ukraine’s political and economic development?
Ukrainians have fought for freedom from foreign invaders for many centuries. In the aftermath of bloodshed from the whole history of the country, in 1991 Ukraine achieved independence. However, the country remained dependent on its neighbors, both economically and politically. For years, Russia held influence over Ukraine’s internal affairs. Within Ukraine, corruption rapidly infected economic development, impacting its progress. After the 2008 economic crisis, the GDP fell by 14%. Ukrainians began exploring opportunities outside the country. The European Union provided a chance to join the European community and remedy Ukraine’s problems. As a first step in the process of European integration, pro-Russian President Viktor Yanukovych promised to sign the Association Agreement with the EU. The signing of the agreement would signal a transition toward European democratic values and economic prosperity. However, such a move was not easily made. Further obstacles emerged. Ukraine became drawn into war with its biggest neighbor and its territory was partially occupied. The newly elected politicians presented themselves as pro-European, and had a chance to develop the country. However, corruption continues to flourish, and the economy is collapsing, plunging 80% of the Ukrainian population into poverty. Domestic politicians continue to rob the Ukrainian people, whilst foreign aggressors exhaust the country through waging incessant warfare from the East. These factors beg the question, what can Ukraine expect in the new 2017? 2017 is the 26th year of independence and the 4th year of the war?
Recently, a number of propositions for solving the Donbas conflict, fighting corruption and Ukraine’s future development have appeared. However, the population should be cautious as some ‘new ideas’ are actually traditional positions held by old oligarchs. Unfortunately, even foreign media are often influenced by Ukraine’s corrupted elites. An article written by oligarch Viktor Pinchuk, “Ukraine Must Make Painful Compromises for Peace with Russia”, is quite telling of this dynamic. For instance, as the husband of ex-president Kuchma’s daughter, Viktor Pinchuk developed his business influence in the 1990s, with the approval of his pro-Russian father-in-law. Allegedly removing himself from involvement in politics, Pinchuk retains ownership of some Ukrainian TV channels. The oligarch’s position on Ukraine involves abandoning European and NATO aspirations, forgetting about the Crimean occupation, and reaching a compromise with Russia on Donbass. Similarly, these ideas are promoted by Russiaas a solution of Ukrainian crisis for international community. While Kuchma is a member of the contact group helping to resolve the conflict in Donbass, the statements of Victor Pinchuk should be cautiously considered.
The other peculiar case is the fleeing of oligarch and member of Ukrainian Parliament – Oleksandr Onyschenko. In December 2016, Time Magazine published his piece, “Private: Exiled Ukraine Parliament Member: I Witnessed Presidential Corruption”. The oligarch tried to disguise his tainted business dealings, which are unknown to the international community. He did this by accusing President Poroshenko, and the Ukrainian government of corruption.. As a reminder, Oleksandr Onyschenko was involved in the gas business in Ukraine, and was accused of generating $110.7 million in damages to the state through various machinations. scam The accusations against Ukraine’s president and the government are definitely grounded in reality. However, Onyschenko provides only generalizations, already known to the public, and without solid evidence. The main message of the article is the political prosecution of Onyschenko himself. Consequently, his real proposition is not to fight corruption as a whole, but to replace the present corrupt political leaders with the previous alumni of leadership, which he belongs to. Ukraine should sweep away old and new corrupt oligarchs altogether. Ukrainian civil society has to be a guardian of the process.
Travelling freely to the European Union?
In 2016, Ukraine was expecting visa liberalisation with the European Union, and the negative outcome of this proposal was one of the biggest disappointments for Ukrainians that year. Although visa liberalisation was one of President Poroshenko’s election promises, it was postponed for a number of times. When Ukraine fulfilled its obligations, the EU should have come to a decision in November, but did not. Ukrainians were full of grief and anger. It is difficult to judge whether the responsibility should be attributed to the Ukrainian or European side. Ukrainian reforms are going very slowly and corruption is spreading. Due to the refugee crisis in Europe, populist nationalism is on the rise in various member EU states. Unfortunately, Ukraine has to deal with the consequences. However, many now see visa liberalisation as a European debt to Ukraine, which needs to be achieved in 2017.
Recently, the European Parliament agreed to vote for a visa free regime for Ukraine in February 2017. Despite previous unfulfilled promises, the visa free regime is very likely to be implemented in 2017.whichmay draw some significant outcomes. From an economic perspective, liberalisation will boost business relations between Ukraine and the Union, facilitate business activities and bring Europe closer to Ukraine. New investment from the EU could possibly follow. From societal perspective, many Ukrainians may try to flee the country and through some machinations overstay, which could have an adverse impact on the Ukrainian economy and raise the negative attitude of Europeans to Ukraine.
The Ukrainian Economy
The Ukrainian economy returned to growth in 2016, after two years of decline (7% in 2014 and 12% in 2015) is expected to increase by more than 2% in 2017, and by 3% in 2018, according to a survey of 30 local and international economic analysts from Focus Economics. The National Bank of Ukraine is more optimistic, and predicts the economy will expand by 2.5% in 2017, and by 3.5% in 2018. However, this is not the case for Donetsk and Luhansk. Both remain embroiled in conflict. Their manufacturing sector has fallen by 32% and 42%, respectively.
Ukraine has great economic potential, and even the crisis in the east cannot fully diminish it. The country offers great manufacturing opportunities, and large corporations are manufacturing there already. Given its highly educated workforce, low labor costs (Ukraine has the cheapest labor market in the world due to the depreciation of Hryvnia), favorable geographic location, coupled with preferential trade regimes (like DCFTA with the EU), Ukraine is perfectly positioned to attract foreign investors in such industries as machine building, food and wood production, light industry, IT, etc. In 2016, foreign investment in Ukraine doubled compared to 2015 and reached nearly 3.8 billion US. However, several reforms by the government, such as fighting corruption, improving the business environment, and ensuring macroeconomic and financial stability, need to be undertaken.
The financial sector experienced difficulties since the global financial crisis. However, the roots of its problems go back to 1990s, when politically-connected oligarchs captured most state enterprises. Indeed, the majority of Ukraine’s financial sector served powerful regional interests, financing private business deals with bank deposits. With nationalization of PrivatBank on December 18, the National Bank of Ukraine (NBU) has almost completed a cleansing of the corrupt and undercapitalized banking system. PrivatBank was too big and important to become insolvent, and will be supported by the Ukrainian budget in 2017. Due to its strict monetary policy, the NBU has reduced inflation from 61% in April 2015 to the present 12%. For years, Ukraine has been facing the difficulty of building the requisite economic institutions for a functioning market economy.
Mood inside the society
According to a sociological survey conducted by the Ukrainian Institute for the Future, citizens do not trust politicians and institutions, and do not believe in the possibility of change.
Future outlook indicates that only 21% of Ukrainians expect a positive change, while 30% are sure of a negative one. Ukrainians simultaneously ascertain a deteriorating situation in the country (73%), and a wrong direction by the government (67%). Only the army, churches and volunteers have a positive index of trust. More people distrust journalists, which is unacceptable given the importance of getting the right information in the crisis times. When people do not trust political institutions, they try to find some alternative ways to get by: they start solving problems with the help of relatives or friends, or they pay unofficial organisations for services they cannot expect from the government, which leads to the rise of corruption in the country. Only one in four Ukrainians believe that the responsibility for the fight against corruption also rests with citizens, while more than 66% of Ukrainians agree with the statement that bribery is an integral part of the Ukrainian mentality.
Only 27% of Ukrainians see a political leader they trust, while 70% do not. Sixty-two per cent believe that the country needs new leaders: among the ‘new political leaders’ are the same old politicians. More than two thirds of Ukrainians expressed a negative attitude towards Poroshenko.
The positive side of the tendency is the huge potential in the disappointed population. Thirty-three per cent of Ukrainians see the solution in new leaders. The aforementioned 70% of people who distrust present leaders could become a ground of support for new political ideas, which Ukrainians would trust.. Ten per cent of citizens are even ready to finance new political parties.
According to the prognosis of the Ukrainian Institute for the Future, life in Ukraine will improve in 2017, due to the government’s actions in 2014-2015, and the improvement of the global economy. However, 58% of Ukrainians cannot wait anymore. According to the survey, the biggest problems in the country are the conflict in Donbas, economic and social policy (business, prices, tariffs, social standards), and corruption. If the population loses confidence with expected improvements, there is the threat of a collective retaliation. However, only 39% of respondents see a high probability of this. More than 29% considered this to be a weak possibility, while 21% of respondents do not consider the possibility at all. Further, 34% of Ukrainians are sure that the country needs a dictatorship, while 40% think that most of the population would support a possible coup. Although 38% believe in a new Maidan, only 20% are ready to participate in rallies. 46% are agreeable to early parliamentary elections. If parliamentary elections were held in the near future, the 5% electoral threshold could be overcome by the party “Batkivshchyna” (11%), the party “Petro Poroshenko Bloc” (9%), the party “Opposition Bloc” (9%), the Radical Party of Oleg Lyashko (7.8%), the party “Samopomich” (7.6%), the party “For Life” (5.7%), and the party “Hromadska Pozycyya” (5.4%).
As to foreign preferences, support for Ukraine’s joining NATO has reached a record 71%. The European orientation of Ukraine’s population is also growing: in December 2013, 47% of the population preferred Ukraine to join the European Union, and 36% the Russian-led Eurasian Customs Union, while in December 2016, only 11% of the population support joining the Customs Union, and 58% preferred the European Union.
Influence from abroad
Presently, Ukraine heavily relies on international support in a number of ways. From a political perspective, the issue of Crimean occupation and the war in Donbass cannot be solved without foreign participation. From an economic perspective, the country is very much in need of foreign financial assistance, investment and new technologies. Therefore, studying the possible turns of the main foreign actors from the Ukrainian perspective is crucial when predicting the future of the country.
Due to the latest development, the foreign environment is to become less friendly to Ukraine in 2017. For instance, newly elected US president, Donald Trump, is a very controversial and unpredictable figure. Although, the country is not fully controlled by the president, a number of changes in American foreign policy are to come. The USA will possibly invest less in less important foreign policies, as we might consider the crisis in Ukraine. With Trump’s attitude to NATO and Russia, Ukraine will have to learn how to help itself without strong American guidance, which with all the difficulties is a great opportunity for development.
The European Union is facing many inner problems at the moment, such as the migration crisis, Brexit, and the rise of nationalistic parties in all parts of Europe. Therefore, with the continuation of cooperation, concentrating on itself, the Union will not be able to support Ukraine to the previous extent. However, the collaboration on the level of businesses is to develop due to Association Agreement and visa liberalisation, as it was mentioned above.
China is a global player, with the capacity for shifting global alignment of forces significantly, but is very unlikely to do so in 2017. With its development model, the country is interested in continuation of the chosen road, and so it cooperates with the USA and Europe, and with Russia. An extreme change in Chinese foreign policy is not expected even with regard to Trump’s attitude to the country.
The activity of Russia will influence Ukraine greatly. Will Putin’s regime fall and democratic forces take power, with letting Ukraine go its own way? Will the difficult economic situation cause more foreign aggressive activity of the Russian state? Given the present amount of sources and economic situation, Russian foreign policy towards Ukraine is unlikely to change a lot in 2017. The conflict in Donbass might be frozen for years and Crimea may remain under Russian control. It is Ukraine that can make a change in the situation. The Ukrainian government should use the opportunity of Russian weakness and start reintegration of Donbass and Crimea into Ukraine, mostly through non-military means. From one side, the Russian economy is in dire need of good economic relations with the EU; from the other – Russian interference in European elections, support for right wing parties and strong anti-EU propaganda are mechanisms to break the Union. European economies are losing due to the sanctions against Russia as well, and over time more politicians are talking about the lifting of them, especially watching the slow rate of implementation of reforms, and huge corruption in Ukraine.
The Ukrainian state is very unpredictable and dependent on foreign actors, especially in the present, and therefore, every prognosis cannot not be fully realistic. However, some tendencies are visible. In 2017, the country’s main foreign partners will concentrate on their own domestic situations. International support will be gradually decrease. Due to the positive latest trends, the Ukrainian economy is will experience some growth. EU-Ukrainian economic cooperation will be fosted through visa liberalisation and the implementation of the Association Agreement with the EU. New investors will probably use the advantages of cheap labor and economic opportunities in the development of the country. However, corruption remains the greatest problem in Ukraine. Instability always provides opportunities for greater revenues, and attracts some investors comfortable with taking measured risks. The country lacks fresh leaders, the population is disappointed with the previous ones, and many do not believe in a better future. The radicalisation of Ukrainians could pose a particular threat to the government. It could also lead to the improvement of its actions, or for new leaders to come to power. This gives a chance for a great social change, new political forces, but also instability. Decreasing international support for the ruling elites will lock them out and push for development of the country, or it will stimulate their fastest change. Growing social awareness and activity will be pushing the country to development from within, and international turning back will be a stimulus for independent actions.