In Ukraine, an economy at the service of war
(Le Monde, march27)
Since the beginning of the Russian military offensive, the state has been trying to plan production and reorganise logistics, while ensuring the survival of businesses and providing financial assistance to the inhabitants.
Running the economy like a war machine. Since the start of the Russian military offensive on 24 February, exports from Ukraine have been controlled, the sale of basic foodstuffs rationed and production planned. In addition, certain prices are capped. "Ukraine is moving to a war economy", said Denys Chmyhal, the Ukrainian Prime Minister, on 10 March.
This transformation took place in the early hours of the conflict. At the end of February, the Ukrainian state put the economy into an artificial coma to protect it from future shocks. Capital flow controls were put in place to filter the outflow of foreign currency. The state now uses it to buy so-called "essential" goods abroad. The payment of customs duties has even been suspended in order to speed up the delivery of certain imported goods. "Three categories of products have been identified as essential: food, medicine and fuel," explains Nataliia Shapoval, director of the institute attached to the Kyiv School of Economics University.
Overnight, this economist abandoned her work on corporate governance and health sector reform. At the head of a team of about fifty analysts, she submits a note on the impact of economic sanctions in Russia to the government every day at 1.30 pm. She then counts and quantifies the destruction caused by the Russian army, crossing information collected on social networks and the media with testimonies from inhabitants. A website has even been created, where Ukrainians can list the destruction they have witnessed. In mid-March, the government estimated the cost of the destruction at $500 billion (€455 billion).
"If you have been forced to evacuate, find a job where you are," said Defence Minister Oleksii Reznikov in early March. The country wants to avoid economic collapse at all costs, even if it means rebuilding factories elsewhere. Part of the damaged production apparatus can be rebuilt in the west, where there is less destruction," says Nataliia Shapoval, "even if it obviously depends on the duration and scale of the conflict. This is already happening in the area, where the United Nations Development Programme (UNDP) is helping farmers displaced by the war to cultivate new land on loan from the state.
In a country under siege, with ports destroyed or paralysed, the agricultural sector plays a crucial role. "At the moment, agricultural stocks are high. Food rationing has been put in place. So food security is not threatened, even if some of the encircled towns are not supplied or are supplied with difficulty," says Ms Shapoval.
Nearly 100,000 people are still trapped in Mariupol (south-east) under Russian bombs without access to water, food or medicine. Manal Fouani, UNDP's deputy head in Ukraine, is cautious: "It's important to have wheat, but the factories that turn it into flour must not be destroyed. In recent weeks, Russian bombing has targeted many strategic infrastructures, such as steel plants and fuel depots.
Concern about fuel shortages
The country's granaries are full of wheat, maize and soya, which cannot be exported, but will they remain so for much longer? "The eastern areas, where there is currently heavy fighting, such as Kharkiv, or the Black Sea basin, with oblasts [administrative divisions] such as Kherson or Zaporijia, are the biggest producers" of wheat, says QuantCube Technology, a French company specialising in real-time economic data analysis, which shared satellite data with Le Monde. Roman Leshchenko, Ukraine's agriculture minister, has warned that the country will sow half as much spring crop in 2022 as it did in 2021.
The country's agriculture is also highly dependent on the consumption of inputs such as fertilisers, seeds and pesticides. Every Wednesday, the major Ukrainian traders and food manufacturers of the Trend and Hedge Club exchange the latest information during a video conference. We expect maize and sunflower yields to fall by at least 50% to 60% because fertilisers and pesticides will be in short supply," says Kateryna Konashchuk, head of this club of industrialists, "but farm labour will be available if needed.
The IT services sector, which contributed 4% of the national gross domestic product before the war, is one of the most resilient
The main concern is the shortage of fuel. "Our needs will only be covered to the tune of 20% for the next harvest," a representative of the Ukrainian Ministry of Agriculture told club members in mid-March, while expressing pessimism about the ability to export anything, even though 95% of the country's agricultural exports normally pass through the ports on the Black Sea or the Sea of Azov. "Technically, we can no longer transport anything by rail. That leaves road freight, but between the shortage of trucks and the cost of transport, it remains a very limited possibility," concluded the senior official.
The other pillar of Ukraine's economic resilience needs neither land, nor fertiliser, nor transport infrastructure to function. The IT services sector, which contributed 4% of the national gross domestic product (GDP) before the war, is one of the most resilient. While 10% of the population has already fled abroad, the vast majority of the 250,000 engineers are still working. Some are contributing to the war effort in their own way, helping the state to protect itself from cyber attacks.
Of the 600 employees of Viseven, an IT services company, for example, 140 have left Ukraine and 260 have been relocated within the country within a few weeks. Video conferences with their pharmaceutical clients continue, sometimes interrupted by bomb threats. "We first opened an office in Ternopil, western Ukraine, where we had booked a hotel to accommodate employees and their families, and then another in Poznan, Poland," says Nataliya Andreychuk, the company's president. In each country where the company is present - in Germany, France or Turkey - an employee coordinator is responsible for welcoming employees who want to flee Ukraine.
"Imagining life afterwards”
The state has a central role in organising the economy. In addition to planning production and reorganising logistics, the state has to ensure the survival of businesses and provide financial assistance to the inhabitants. It has lowered the corporate tax rate to 2%, and opened low-interest credit lines for SMEs, which farmers should soon benefit from.
The International Monetary Fund (IMF) estimates that Ukraine's budget deficit will reach 7.4 billion dollars, or 4% of GDP
In addition, compensation of 6,500 hryvnias (200 euros) has been paid to nearly 500,000 Ukrainians who have lost their jobs due to the war. We can rely on the state and local resources for humanitarian and development assistance," says Manal Fouani of the UNDP, "and in particular on all the digitisation efforts undertaken before the war. The DIIA application, launched by the government in 2020, will be used to locate displaced people, pay out emergency aid, disseminate government information and record the destruction suffered by SMEs.
The financial needs of Ukraine are enormous," says Axel van Trotsenburg, the World Bank's managing director of operations, "simply because the state must continue to function by paying, for example, salaries or pensions, which it does successfully. For this, it needs additional resources. The International Monetary Fund (IMF) estimates that Ukraine's budget deficit will reach $7.4 billion, or 4% of GDP, while the country's economy is expected to contract by 35%.
The Washington-based institution has given the green light for $1.4 billion in emergency financing. The World Bank has said it is ready to provide financial assistance of up to $3 billion, mainly in the form of soft loans. The European Investment Bank has made available an emergency package of €668 million. Finally, Ukraine has raised a further $700 million through a war bond issue.
"The country was better prepared financially than in 2014, when the war in Donbass started. The banking sector is healthy, the Ukrainian currency is stable and the central bank has large reserves," observes Natalie Jaresko, former Ukrainian minister of economy and finance between 2014 and 2016. Four weeks after the conflict began, Ukraine is already thinking about reconstruction. "It's important to talk about it now. When the war is over, it is important to ensure that Russian assets frozen by the EU, the US and their allies are used to pay for reparations," Jaresko says. The Kyiv School of Economics is even devoting a working group to this issue. "We also work there to imagine life afterwards and try to forget the war, if only for a few moments," admits Nataliia Shapoval.
(deepL)
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