Is Ukraine beginning to find its economic footing?

12 Apr 2015

Despite the continued conflict with Russian supported separatists, the Ukrainian government has signed an agreement with the Russian government to continue to buy gas at a lower price than previously.

 

Ukraine had previously been paying $329 per thousand cubic metres of gas and has now been negotiated to $248 per thousand cubic metres for the next quarter. This saving of $81 per thousand cubic metres comes after Ukrainian Minister Demchyshyn announced that Ukraine was planning to halt any purchases of natural gas from Russia starting on April 1st 2015. The Ukrainian government will continue to hold talks with Russia to find a permanent solution to the dispute on gas prices that has continued throughout the armed conflict in Eastern Ukraine which has also seen Russia threat to cut off Ukraine’s entire natural gas supplies due to unpaid bills by the Ukrainian government which now pre-pays Russia for its supplies.

 

On 11th December 2014, John Whittingdale OBE MP secured a debate in the House of Commons about Ukraine and UK relations with Russia and spoke about the economic challenges that Ukraine faces in the months to come and the months after the end of the conflict in the East when it arises. Mr Whittingdale stated that “There has been massive currency depreciation, the economy is likely to shrink for the third year in a row, and about 20% of production capacity in eastern Ukraine has essentially been lost”. This grim picture of the Ukrainian economy which has been seriously affected by continued political uncertainty in the past few years and the conflict raging in the East was followed by Mr Whittingdale telling the House that he has been “reassured that gas reserves have been increased.”

 

Progress is being made and this new gas deal is a sign of economic progress and although this deal only stands for the next quarter, the government now has a much better footing with which to negotiate a new, more long term deal. The House of Commons Library briefings suggest that Ukraine imports 25.1 billion cubic metres of Russian gas and this demonstrates how important this deal is to Ukraine and represents a large saving financially and the allows Ukraine to continue to import the vast supplies of gas that are required.

 

John Whittingdale and Geoffrey Clifton Brown both commented in the House that investment from Britain and America was the key to supporting Ukraine in the future with Mr Clifton Brown commenting that the Ukrainian President had told him that the most appropriate assistance would be “everything from military uniforms through to the most sophisticated weaponry to combat the supplies being provided to the rebels by Russia”. As Prime Minister David Cameron has ruled out supplying truly the most sophisticated weaponry, it seems most appropriate that Ukraine should be supported to help make Ukraine an attractive investment opportunity for private business. John Whittingdale suggested that there is growing support for “a new Marshall Plan for Ukraine” to increase the confidence of Western investors to support Ukraine and to facilitate a growing Ukrainian economy. The second recommendation was to create a ‘political risk insurance scheme’. This, in conjunction with the Multilateral Investment Guarantee Agency, can offer support to the British-Ukrainian Chamber of Commerce and Ukrainian businesses by creating a fund to cater for political risk and the risk of conflict to protect business against these factors which have caused setbacks and damage to the Ukrainian economy in the past.

 

Lenin published in Pravda in 1917 saying “let the Ukrainian people have the right to shape their own life on their own soil.... All laws by which order is to be established here in the Ukraine shall be passed solely by this Ukrainian Assembly” and I think those words are as relevant now as they were to the proletariat revolution of the last century, let’s help Ukraine to stand on its own two feet in years to come.

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