Основні економічні тенденції на Сході України

Summary

Brian Milovy, Economic Resilience Strategy Lead at USAID, provides an insightful masterclass on the untold economic stories of Eastern Ukraine. He explores the impacts of the ongoing conflict, which has disrupted both industrial and agricultural economies, severing supply chains and market connections. Despite the challenges, Milovy highlights emerging trends like the rise of IT and industrial engineering sectors, as well as smallholder farmers diversifying their markets. The region's future depends on strategic diversification, modernization, and overcoming oligarchic monopolies to rebuild and thrive in a post-conflict world.

Takeaways

• 😀 Economic narratives about the conflict in Eastern Ukraine are often oversimplified and overshadowed by geopolitics, missing crucial local economic dynamics.
• 🌍 Eastern Ukraine is not only about the Donbas industrial zone but also includes rural areas like Slab Ukraine and Priia, which have distinct economic characteristics.
• ⚡ The conflict has severed critical supply chains, such as the rail line in Luhansk, affecting access to anthracite coal, which is crucial for Ukraine's electricity production.
• 💼 The loss of access to the Russian market has had a devastating impact on Eastern Ukraine's industrial exports, which have been further affected by sanctions and the blockade.
• 🔄 While exports to the EU have grown, this is not enough to replace the substantial losses from the Russian market, with many industrial sectors still struggling to diversify.
• 💰 Small and medium manufacturers in Eastern Ukraine face cash flow challenges due to monopolistic control by oligarchic industrial holdings.
• 🛠️ Despite high official unemployment rates in Eastern Ukraine, factories struggle to find skilled and even unskilled workers due to labor migration, especially to Poland.
• 🌾 Agriculture in Eastern Ukraine is divided between large-scale commodity crops like wheat and sunflower and smallholder farming of vegetables and livestock for local markets.
• 🌾 The war has exacerbated the struggles of smallholder farmers, who now face disrupted market connections, making it more difficult to sell their produce across the front line.
• 🚜 Smallholder farmers and manufacturers must diversify their market channels and adopt formal business practices to adapt to the evolving economic landscape, including branding and modern payment systems.
• 💡 Brain-intensive sectors, like IT and industrial engineering, play a crucial role in retaining young graduates in Eastern Ukraine, though these industries need to develop more sophisticated products and improve local education systems to thrive.

Q & A

What are some of the overlooked economic aspects of Eastern Ukraine's economy in the context of the ongoing conflict?

The war in Eastern Ukraine has severed the connections between smallholder farmers and their traditional markets, disrupted industrial exports, and created challenges in the labor market, particularly with unemployment and migration to Poland. Additionally, there is a lack of attention on the agricultural sector, especially the struggles of smallholder farmers compared to large-scale commodity crop production.

How does the geography of Eastern Ukraine affect its economy?

Eastern Ukraine's economy is divided into industrial areas like Donetsk and Luhansk, where coal and manufacturing are prominent, and rural areas like Slab Ukraine and Priia, which have a more agrarian focus. The disruption of transportation routes and market connections due to the conflict has made it difficult for rural areas to sustain their agricultural production and for industrial cities to function at full capacity.

What role does anthracite coal play in Eastern Ukraine's economy?

Anthracite coal, essential for Ukraine's electricity production, has been a key factor in the ongoing conflict. The war has led to Ukraine losing control over all its anthracite coal, which is now primarily controlled by non-governmental areas. The conflict has also disrupted the transportation of coal from mines to power plants, particularly affecting regions like Luhansk and Donetsk.

How has the conflict impacted industrial exports from Eastern Ukraine?

The conflict, combined with sanctions and an economic blockade, has drastically reduced industrial exports from Eastern Ukraine. Exports to Russia have plummeted, and while exports to the EU have increased, they haven't been enough to compensate for the losses in the Russian market. This has forced Eastern Ukrainian manufacturers to diversify their markets and adapt to new trade routes.

What challenges do Eastern Ukrainian manufacturers face in the current economic environment?

Eastern Ukrainian manufacturers are facing challenges like cash flow crises due to monopolistic relationships with large industrial holdings, where smaller manufacturers have to pay for materials upfront, but payments are delayed. Additionally, they are struggling with high unemployment and competition for labor, as many workers are migrating to Poland for better opportunities.

Why is the labor market a significant issue in Eastern Ukraine?

Official unemployment is high in Eastern Ukraine, yet factories are struggling to find qualified workers. Labor migration to Poland has become increasingly popular, which further exacerbates the shortage of skilled and unskilled workers in local industries. This is leading to increased competition for workers and pushing manufacturers to offer higher wages and better working conditions.

How has the agricultural sector in Eastern Ukraine been affected by the war?

The war has disrupted traditional market connections for smallholder farmers, who now face difficulties in getting their produce to market. While large-scale commodity crop farming, such as sunflower and wheat production, has continued to grow, smallholder farming of vegetables, fruit, and livestock has become more challenging, with fewer young people remaining in rural villages.

What is the role of smallholder farmers in Eastern Ukraine’s economy, and what challenges do they face?

Smallholder farmers in Eastern Ukraine traditionally produce vegetables, fruit, and livestock for local markets. However, they face disruptions due to the war, which has severed trade connections and made transportation of goods difficult. Moreover, the rise of large-scale, mechanized farming has outpaced their production methods, leading to economic struggles.

What is the significance of diversifying market channels for smallholder farmers in Eastern Ukraine?

To survive in the current economic environment, smallholder farmers need to diversify their market channels. By formalizing their businesses and creating brands, as seen in cooperatives like Uchi Stannik, farmers can access new markets such as supermarkets and restaurants, which can provide more stable and profitable sales compared to informal markets.

What role do brain-intensive industries like IT and industrial engineering play in Eastern Ukraine’s economy?

Brain-intensive industries like IT and industrial engineering offer skilled employment to university graduates, helping retain talent in the region. However, these sectors face challenges in competing with larger cities like Kyiv and abroad. Companies in these industries need to develop more sophisticated products and improve their ecosystems to thrive and retain highly skilled workers.