Investment and investment protection in Russia and Ukraine

Speech at the 5th politico-economic talks of the Ostinstitut Wismar

The 5th politico-economic talks of the Ostinstitut Wismar on the topic “Investment and investment protection in Russia and Ukraine” took place on July 3rd at the German Council on Foreign Relations (DGAP). Dr. Ricardo Giucci, head of the German Advisory Group Ukraine presented an overview of the economic state of Ukraine and the development of Russo-Ukrainian economic relations.

The IMF recently corrected its forecasts for economic growth in Ukraine for the year 2015 and now projects a negative growth of 9%. Reasons for this weak performance are the declining consumption and decreasing investments caused by insecurity due to the military conflict in the Donbas. A setback of exports to Russia also contributes its share. External national debt increased massively and now amounts to 94% of the GDP.

Trade diversification advances of necessity, and can be evaluated positively. Caused by its own resolute action, Russia loses its importance as Ukraine’s commercial partner, as merchandise exports clearly indicate: In 2011 exports to Russia amounted to 29% but for the first quarter in 2015 only 11% are expected.  The share of exports to the EU has increased in the same time; however, overall export volume has decreased significantly. Due to the increased use of reverse flows of gas from the EU to Ukraine, Russia has lost its position as the most important natural gas supplier to Ukraine. This general trend of disintegration has further accelerated recently.

This disintegration trend is not dramatic from a  Russian point of view, as Ukraine does not play a crucial economic role for the Russian economy. This unequal interdependence of the two countries is best explained by the huge difference in their economic power: Russia’s GDP was twelve times higher than the Ukrainian GDP in 2013. Insofar, Ukraine’s significance for the Russian economy seems to be overrated in public discourse.

Presentation in German: “Überblick zur wirtschaftlichen Lage in der Ukraine und zu den Wirtschaftsbeziehungen Russland – Ukraine”

More information about the event:  Ostinstitut Wismar