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Monday, February 26, 2018

From some Ukrainian goods still depends on Russia

Contrary to the assurances of supporters of European integration, once came to the Maidan, the Ukrainian economy was not able to get rid of the strongest dependence on Russia. The EU made us meaningful competition, even taking into account mutual sanctions. However, the Russian industry also remained sector, whose dependence on Ukrainian supplies for the us.

The Russian economy relatively painlessly survived the severe decline in economic relations with Ukraine, which last year was not included even in the top ten largest trading partners of the Russian Federation. But for Ukraine, Russia remains a trading partner number one, despite all the declarations of the Ukrainian authorities on the reorientation of the economy towards the European Union. Without the Ukrainian products, metals and machinery Russia is quite live, and now Ukraine from Russian gas and oil (even if they are supplied via third countries) is nowhere to go.

Still first

“Reduced the volume of purchases by Ukraine in the world market: end-use to buy nothing, and for processing due to the collapse of the industry for nothing”

Two and a half years have passed since the victory of euromaidan, the main outcome of the economic relations of Moscow and Kiev was that Ukraine had among the most important foreign trade partners of Russia. If at the end of 2013 the volume of trade with Russia (39.6 billion dollars) to Ukraine, according to the Federal customs service (FCS), second only to Germany, Italy, the Netherlands and China, then two years later (14,97 billion), it remained outside the top ten, behind South Korea, USA, Japan, Belarus, Kazakhstan and Turkey, and this year it may be added also Poland, UK and France.

Yes, in the ruble equivalent reduced over the last two years was not so impressive: in 2013, with the average rate of 31.84 rubles per dollar, Russia’s trade with Ukraine amounted to 1.26 trillion rubles, and in 2015 at the average rate 60,96 rubles per dollar – 912 billion. But the pace of decline in trade with Ukraine in the two years was significantly higher than the overall indicators of the decline of the foreign trade turnover of the Russian Federation (62,2, respectively, and 37.7%). As a result, the share of Ukraine decreased from 4.7% in 2013 to 2.8% in 2015, and has a further tendency to decrease. In the first half of the total volume of trade between the two countries amounted to only 57.8 per cent ($4.3 billion) from the same period in the first six months of 2015 (7.4 billion dollars).

If we look at foreign trade statistics from the Ukrainian side, even a sharp reduction of trade turnover with Russia has not led to fundamental changes in Russia remains the main trading partner of Ukraine, significantly outpacing other countries. According to the state statistics service of Ukraine (GSSU), last year’s trade volume with Russia amounted to 12,315 billion is exactly twice the trade with second-place China (6,169 billion dollars).

Nothing has changed and mutual tightening of trade sanctions – for the first five months of this year, as the latest materials GSSU, trade with Russia continues to occupy first place in the structure of Ukrainian foreign trade. Three years ago, in the period of preparation for the signing of a trade agreement with the European Union, which became the reason for the “euromaidan” Ukrainian supporters of European integration has repeatedly stated that Ukraine will easily be able to reorient their economies from Russia to Europe, especially in terms of exports. However, this did not happen.

At the end of last year in the first ten foreign trade partners of Ukraine were only four EU countries (Germany, Poland, Italy and Hungary), the total volume of trade with which (14.9 billion dollars) is comparable with Russia. If we take only the export of Ukrainian goods in the first place in January-may is again Russia ($1.2 billion), followed by China, Egypt and Turkey, and only on the fifth place is the EU country – Poland, where for five months has exported Ukrainian products to the 835,5 million dollars. The volume of Ukrainian exports in key EU countries was significantly lower: Germany – 578,7 million dollars, the Netherlands – 427,4 million dollars, France – 154,8 million dollars. As expected, the European Union did to the Ukraine so wide gesture to its export flows at once turned back from Russia.

Advocates of European integration can be comforted by the fact that last year Ukraine for the first time since 2004 achieved a positive foreign trade balance (exports exceeded imports by 632,5 million dollars), but do not forget that at the same time, total foreign trade turnover of Ukraine fell by almost 30%. This year the decline continued in January-may, according to GSSU, Ukrainian exports declined 11.5%, import – 6.2% foreign trade balance again became negative.

“The decline in foreign trade suggests that export to us or nothing in effect to reduce industrial production, or our exports useless in a power loss of markets, primarily Russian (exports to Russia in the first six months decreased by 1.6 times in comparison with the first half of 2015, as compared to the first half of 2013 the reduction was almost ten-fold), – it is noted in the recent external review of the Ukrainian information Agency “Minprom”. Respectively, reduced the volume of purchases by Ukraine in the world market: end-use to buy nothing, and for processing due to the collapse of the industry for nothing”.

Hydrocarbons through the back porch

As Ukraine makes Russian gas europaisierung contribution to the reduction of Russian exports to Ukraine – on the conscience of the “gas issue”. In 2013, according to Ukrainian sources, Russia has purchased 25.8 billion cubic meters of blue fuel, and in 2015 – only 16.4 billion cubic meters. On 25 November last year, Ukraine ceased to buy Russian gas, or rather, Gazprom has blocked the pipeline proceeds from the “Naftogaz of Ukraine” of new listings in advance.

However, the Ukrainian side continued to use Russian gas, purchasing it from the countries of the EU, where fuel is supplied by transit through the territory of Ukraine. The most significant volumes of transit gas (9.7 billion cubic meters) last year were purchased in Slovakia, with the Ukrainian side insisted that the cost was lower than what was offered by Russia.

However, in the coming weeks, Ukraine will probably need to resume purchases in the Russian Federation. As reported in mid-June, energy Minister Alexander Novak, for normal autumn-winter period Ukraine will need to 18-19 billion cubic meters of gas and reverse supply to ensure this amount is not enough. On August 11, according to the Association of European operators of the underground gas storages (GSE), Ukraine had a margin of only 11,292 million cubic meters or 36.3 per cent of the capacity of their storage.

A sharp reduction has been and there is one more important item of Russian exports to Ukraine are oil products, and in this case, the two countries moved, in fact, on a collision course. In October last year the Federal service for technical and export control of the Russian Federation introduced a permissive principle for the supply of Russian fuel to Ukraine because of fears that the fuel can be used for needs of the Ukrainian army in the conflict in the Donbass. This has had a noticeable impact on the volume of the Russian exports of fuel to a neighbor: by the end of 2015, it amounted to around $ 1 billion, or 67% less than the year before.

Reciprocate Ukraine did in early April when Prime Minister Arseniy Yatsenyuk shortly before his resignation took the initiative to prevent the import of Russian oil products. This did not happen, but the leadership on the Ukrainian fuel market Russia ceded Belarus, which last year controlled almost half of the import of fuel to Ukraine. According to the latest data of the Belarusian statistics, in the first half deliveries to Ukraine in the physical volume increased by 64% (to 2.2 million tons) and in value by 4%, to $ 823,4 million.

But, as in the case of gas, the end point in the fuel chain is still Russia, which supplies almost all the oil for Belarusian oil refineries. That is why the Ministry of energy of the Russian Federation immediately called the Arseniy Yatsenyuk plans to ban the export of Russian oil products is quite strange. Moreover, the reduction of the Russian presence on the Ukrainian fuel market, in fact, did not affect the physical volume of export of oil products in 2015 and so he increased by 4.1%, although in value terms due to the fall in world prices for oil fell by 44%.

The landowner sleeps peacefully

On the Russian side, the sanctions main impact was on production of Ukrainian agriculture and food industry. At the end of last year, Prime Minister Dmitry Medvedev signed a decree, which suspended the agreement on free trade zone with Ukraine, and extended to her Russian counter-sanctions imposed against countries of the European Union and the United States two years ago. “All preferences go in the past, benefits will not be”, – commented this decision Medvedev. Already after two months of 2016, Ukrainian experts estimated the costs of these restrictive measures, $ 1.1 billion per year. And in April of this year in the report of the Ministry of economic development and trade of Ukraine claimed that because of trade restrictions from Russia, the country from 2012 to 2015 has lost 98 billion dollars.

“A similar situation exists in the market of the main raw material for glass industry – quartz sand, which is imported from Ukraine in large volumes”

For local farmers, the tightening of food imports from Ukraine was definitely good news, since for many years Russian agriculture has experienced significant competitive pressure from neighbors. Ukraine has traditionally had cheaper labor, more fertile soils, and in the next several years, she could get advantage of the permission for the farming of GMO grain, which has long pushed for local agricultural lobbyists.

This would significantly reduce the cost of feed for the Ukrainian livestock, but at the moment, the prospects for cheap food imports from Ukraine does not threaten Russia, since the beginning of this year under sanctions was of Ukrainian meat and sausages as well as fish, seafood, vegetables, fruits and dairy products. Ukraine, however, did not remain in debt, approving return a list of 43 items, including baked goods, meats, cheeses, chocolate, alcohol, tobacco, and certain types of industrial products.

Ukrainamedica as a matter of time

Among those sectors of the Russian economy, which has benefited from the conflict with Ukraine are metallurgy and mechanical engineering, primarily in the defense segment. Metallurgists have been working in conditions of surplus production, immediately after the start of the crisis in Ukraine has seen an increase of demand for domestic rentals, and the defense industry were able to deploy a large-scale import substitution. In April 2014, President Vladimir Putin said that the defence industry is able to replace Ukrainian goods and a half two and a half years, and the results in this way was reached pretty quickly. In October last year, the Russian defense Minister Sergei Shoigu said that the level of substitution of Ukrainian components in the defense industry amounted to 64%.

And yet, in a number of sectors of the Russian economy dependence on Ukrainian production continues to remain high. In particular, in may, the CPS allowed the largest Ukrainian producer of salt – enterprise “Artemsol” from the city of Artemovsk of Donetsk region – to resume imports of its products in Russia. A short-term ban on import of Ukrainian salt was a good incentive for Russian producers, but they never managed to bring its market share up to 80%, which is considered optimal within the framework of the doctrine of national food security. Another thing is that the yield on this index is only a matter of time. In November last year, the Governor of Astrakhan region Alexander Zhilkin has informed President Vladimir Putin that on one of the world’s largest deposits of salt in the lake Baskunchak completed the modernization of production of the company LLC “Russolo”, which together with the crafts in Sol-Iletsk (Orenburg region) can provide complete import substitution.

A similar situation exists in the market of the main raw material for glass industry – quartz sand, which is imported from Ukraine in large volumes (for 10 months last year – $ 3.3 million). In the industry also began to appear of import-substituting projects. For example, last month in the Vladimir region began construction of a plant for enrichment of quartz sand for the famous glass enterprises, located in the town of Gus-Crystal. Investor, the German holding “Kvartsverke”, intends to invest in this project more than 2 billion rubles, the opening of the plant scheduled for the end of next year.

The tendency to withdrawal from Ukrainian supplies can be traced in the Russian chemical industry – in this sector the volume of imports last year declined by about 30%. There are, however, examples of how the rupture of industrial relations with Ukraine has had on Russian companies severely affected. One of the victims of the crisis was included in the Ukrainian holding company “Azovmash” Armavir heavy engineering plant (Krasnodar region). First, the company faced problems with the supply of components from Ukraine, and last year it launched the bankruptcy proceedings. Could not resist the crisis and Krasnodar football team “Zenit”, the main sponsor which was a big businessman from Donetsk, Oleg Mkrtchyan – after his refusal to Fund the club he departed from the Premier League. However, against the background of the ongoing collapse, which occurs over the last two years in Ukraine’s economy, these losses are clearly not critical for Russia.

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