Paul
Goble
Staunton, September 11 – The spate
of bad economic news in Russia has led Moscow to try again what it has done so
often in the past: tell Russians that no matter how bad things are in their
country, the situation in the “non-existent state” of Ukraine is worse. But
now, Moscow has a problem: the situation in Ukraine isn’t worse but better,
Vladislav Inozemtsev says.
Despite all the problems economic
and otherwise Ukraine faces, the Moscow economist says, in the second quarter
of this year, Ukraine had the highest rate of GDP growth in the last three years
(4.6 percent), salaries rose 10 percent, capital investment 17.8 percent, and
construction 21.2 percent (echo.msk.ru/blog/v_inozemcev/2499311-echo/).
The Ukrainian government argues that
the main drivers of this acceleration were expanded agricultural production and
retail trade growth in the first half of the year, Inozemtsev says. But those
developments “have their own causes,” and they are far from the only things
going on that are boosting the Ukrainian economy.
In part, he continues, the large percentage
increases reflect the low base from which Ukraine started given the fall in
real incomes over the last four years and the weakening of the national
currency. But in the last year, he says,
“the trend has changed.” Openness to Europe has allowed Ukrainians to work
abroad, increasing competition at home, and boosting confidence.
Obviously, the growth in Ukraine’s
GDP from 2015 to 2019, from 90.6 billion US dollars to 131 billion, is in large
measure a recovery and won’t be “eternal, but it must not be underrated” as
Russian commentators often do. And there are several other circumstances that lay
the foundation for optimism about the future.
“Cooperation with the US has become
a major boon for Ukraine,” he continues. Over the last four years, EU
investment has helped open “more than 200 industrial enterprises;” exports to
the EU have risen more than 30 percent since 2015; and even the liberalization
of the visa regime has helped promote economic growth.
Also helping Ukraine to grow
economically is that its system is still oligarchic but it is competitive. That
is, various oligarchic groups are represented in the government, but they have
to compete with each other, unlike in Russia where competition is usually
suppressed, something that “kills the investment climate.”
Moreover, and in contrast to Russia,
Ukraine has “a quite effective judicial system, the rights of investors
(especially foreign ones) are respected, and entrepreneurialism is not, unlike
in Russia, a criminally punishable phenomenon. Even state companies there to a
much greater degree than in Russia act like commercial organizations and not
like government agencies.”
“All this lays the foundation for the maintenance of positive
macro-economic trends,” Inozemtsev says.
Moreover,
not only have government and police raiding of businesses fallen, but there is
hope that with the coming to power of a new regime taxes will be reduced and
bureaucracy will be cut back. And the
new regime may gain statistical growth if it is able to shift more of the
Ukrainian economy out of the gray zone.
At
present, approximately 30 percent of GDP is in the gray zone. If the government
can reduce that by several percent, it will see reported GDP go up by a similar
amount. While that reflects bookkeeping rather than production, it will by
itself give more people confidence in the economy and thus contribute to real
growth.
“Undoubtedly,”
Inozemtsev concludes, “Ukraine remains in many ways a country with many
problems … but the direction of the development of the Ukrainian economy toward
liberalization, openness to the outside work and the encouragement of
competition leaves no doubt and therefore, as in 2004, one can say ‘Ukraine isn’t
Russia.’”
“Neither
in a political nor in an economic sense.”
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