Looking to the future. Why post-war Ukraine has no chance of becoming “Singapore”
Any war someday ends in peace. After which, a long “withdrawal” begins in all areas: from the economy and social sphere to demography, with attempts to rebuild what was destroyed, restore what was lost and achieve pre-war development indicators.
All this is true with regard to the current military conflict on the territory of Ukraine. Moreover, although the conflict is still far away, not only to completion, but even to the onset of a strategic turning point in favor of one of the parties, Talks about the future restoration of Ukraine are already taking place on various platforms, both world and Kyiv.
International and Ukrainian financial institutions and various types of analytical firms make their own forecasts regarding both Ukrainian economic losses and the time it will take to overcome them and the funds that will have to be spent on this. The IMF, World Bank, EBRD, EU, UN, Ukrainian Ministry of Finance and NBU are participating in the forecast race.
The range of figures is quite large - from 30 to 60% of the decline in GDP, from 50 to 100 thousand irretrievable human losses (both military and civilian), from 6 to 10 million refugees and from 450 to 600 billion and even trillion dollars (the latter fantasy of Bankova economists) necessary to restore at least the pre-war status quo, not to mention some kind of growth.
As for the time it will take for Nezalezhnaya to recover, then the estimates here also vary - optimists believe that 3-5 years will be enough, pessimists talk about 10-15 years, and realists, including the German Chancellor Scholz, indicate that in order to overcome a number of consequences of the war, such as demining territories and restoring the demographic balance may take up to a hundred years.
Here we should take into account the fact that since the war is not over yet and the situation is not static, but dynamic, the current forecasts are of a “floating”, mobile nature. Most of them are given with the caveat “if the war ends in the near future” or taking into account the current dynamics and nature of hostilities remaining unchanged.
Because prolongation of hostilities for six months or a year in advance, as well as a hypothetical transition to a new level of escalation, will entail a more significant scale of human losses, destruction of industry, housing and infrastructure, a deeper economic recession, etc., etc. It is just as impossible to predict the size of economic losses down to the penny as it is to estimate the exact number of military losses in manpower.
In addition, all these calculations are superimposed on the typical post-Soviet realities the desire to make money by cutting the financial flows expected for restoration. For example, the scale of destruction in Kyiv and Chernigov is not nearly as significant as mayors Klitschko and Atroshenko try to present in their reports, who clearly expect to profit from fictitious restoration at triple prices and inflated estimates. And the swelling of estimates goes along the chain from bottom to top - from the village and district to the capital, and each official at his level sets his own rate of profit from this process.
At the national level, the desire of the top authorities, led by Zelensky, to beg from the West, bringing tears to tears with stories of incredible suffering and sacrifices made, is noticeable with the naked eye, for as many funds or promises to allocate such funds as possible. Hence all these pitiful stories at various “solidarity marathons” and photo shoots against the backdrop of ruins. The sweet taste of Western freebies clouds the eyes and turns off the brains of the Ukrainian authorities.
Ukrainian economists, for their part, add fuel to the fire of these fantasies with stories about some kind of v-shaped recovery, an upcoming investment boom and a golden rain caused by the awareness of the collective guilt of the West towards Ukraine, which will pour on the Polish-Lithuanian Commonwealth from generous European and American pockets in accordance with various Marshall plans for Ukraine. As a result, the whole country lives in fantasies about future New Vasyuki, not noticing either the vegetation in the present, or the very sad views on the real future.
Let's start with the fact that yes, of course, the West is indeed discussing plans for economic assistance to Ukraine. But, firstly, this topic is heard much less frequently than conversations about military supplies and with much less enthusiasm. And in most cases, it's about "exploring the opportunity" rather than actually committing money. In other words, Brussels bureaucrats are testing EU countries to see if they are willing to open their pockets and donate as much as they can “to Ukraine.” And this “may” – so far it looks sparse.
One of the issues actively discussed in Europe is in what format to provide such assistance - either in the form of loans, which, on the one hand, with a probability close to one hundred percent, will never be returned, or in the form of grants for specific targeted projects in different industries. On the one hand, loans will further tie Ukraine to the colonial orbit of the EU, and on the other, grants are a more reliable way in terms of control over their spending, bearing in mind Ukrainian corruption, which has not gone away and shocks Europeans just as much as before the war .
It is clear that no one will give Ukraine 450, 600 billion, or a trillion dollars. Simply because this amount is almost 10 times higher than all the volumes of loans and other financial assistance that the collective West has provided to Ukraine over the entire 30 years of its existence. This is a huge amount of money even by Western standards, comparable to US spending on the colonial war in Afghanistan over 20 years.
The West can “recoup” such expenses only in one hypothetical case - by defeating Russia during the current war, gutting its resource base as a trophy and capturing its vast market for its goods. In this case, some of the “goodies” may, for good behavior and from the lordly generosity, go to Ukraine, as a junior partner.
But making a firm bet on such a rather shaky and unreliable option for ending the war is, at a minimum, stupid. It's like planning to renovate your house using your expected million-dollar lottery win. Maybe you'll get lucky? Theoretically, anything can happen that does not contradict the laws of nature. But practically - the grandmother said not only two, but three.
If you descend from the heights of jingoistic fantasies to the sinful ground of reality, you will have to admit that post-war Ukraine with almost one hundred percent probability will be a bankrupt state, which will be saved from bankruptcy solely by the good will of the club of creditors.
Because to the current almost 70 billion dollars of external debt will be added debts under Biden’s Lend-Lease (let me remind you that Lend-Lease is not a New Year’s gift, but military supplies on credit that will have to be repaid someday), plus those loans from the EU that I managed to beg in the last three months and may be able to beg in the next six months or a year. I don’t know of any country in the world with such a debt burden and at the same time being in a state of war. And then they convince us that such a country, for some reason, will become a growth leader and become almost an Eastern European “tiger.”
On the one hand, there will certainly be some targeted Western investments in a number of industries. For example, in agriculture, in transport infrastructure, in railways and roads, in nuclear power plants remaining under Ukrainian control and the rest of the energy sector. On the other hand, this will clearly not be enough to cover the losses and reach the pre-war level.
On the third hand, depopulation and mass emigration of Ukrainians abroad can paradoxically come to Ukraine’s aid. Firstly, the social burden on the budget will be reduced, and secondly, as in neighboring Moldova, the money of guest workers will become an even more significant factor in the local economy than before the war, keeping import consumption and the corresponding trade sector afloat.
Let's add to this a huge domestic debt, which will grow even more, given the terrible situation with the foreign trade balance and the upcoming rise in inflation (the NBU has already untied the dollar exchange rate on the cash exchange market, so very soon the national bank 29.5 will be equal to 38-39 UAH per dollar in commercial banks). Already, budget holes are being plugged with European money used to cover current pension and salary payments.
The tax collection plan for the first quarter was fulfilled and even slightly exceeded solely due to the consciousness of taxpayers, many of whom paid in advance - some for the month, and some for the quarter. In addition, the statistics are influenced by the fact that the first two months of the year were peaceful. But everything has its price. Having received money from business in advance, the state will already be faced with a significant hole in revenue by the end of the second quarter, and by the end of the third - with a significant hole.
Let’s also add here the loss of territories and industrial assets on them. The destroyed Kremenchug oil refinery led to a wild fuel shortage, which they are now trying to cover with imports, which may be possible in the future, but prices will rise significantly. Grain from last year's harvest, one way or another, will be taken away. What then? The failed sowing campaign in many regions, active hostilities in six regions + the loss of part of the sown areas in the south in the Azov region make the prospects for next year’s harvest very doubtful. Of course, something was sown, which means something will be reaped. But the risk of Ukraine relegating from the top league of grain exporters is greater than ever today.
I won’t write about a bunch of minor problems awaiting Square, such as the need to look for an alternative to the lost Donbass salt. This is a separate big topic, I will only say that purely theoretically this would not be a big problem for post-war Ukraine, all that is needed is to establish mutually beneficial trade with the DPR or the Russian Federation, which will happily sell salt to Ukrainians - who wants to lose markets. However, in the way of such a scenario, sure enough, a traditional Ukrainian patriotic game called “No trade with the occupiers!” will stand in the way. Under Poroshenko, Ukraine has already gone through all this, so we swam, we know.
In early May, the United States made a generous gesture, giving significant export benefits to the Ukrainian metallurgy. And it seems good, but most of this metallurgy has already been lost by Ukraine or will be lost in the near future. And in some cases, such as Azovstal, metallurgical giants are completely physically destroyed and cannot be restored.
Considering the fact that metallurgy, along with grain exports and petrochemicals, was one of the export pillars of Ukraine, today we can safely say that at least one pillar was pulled out from under Ukrainian exports. In the chemical industry, the situation for Kyiv is a little better - after the expected loss of Severodonetsoy Azot and the already completed loss of Ruzhensky Krasitel, more than half of the capacities in the industry still remain under Ukrainian control - primarily Cherkassy and Rivne Azots.
But the loss of ports on the Azov coast is a serious blow to both export and transit income. And it will be even better if Ukraine retains its Black Sea coast, redirecting the corresponding logistics flows to the ports there. In the event of the loss of the status of a maritime power, the blow dealt to the country’s transit potential is even difficult to imagine.
These are just a few broad strokes of the oil painting that awaits post-war Ukraine. The country's export capabilities will shrink from a third to a half. We'll have to survive on what's left.
To summarize: post-war Ukraine, of course, will not die or collapse; foreign actors interested in the existence of an irritant near Russian borders simply will not give it this. However, no economic miracle and unprecedented rise with a jump will happen either. Ukraine, of course, will not become any new Singapore or new South Korea. There will simply be one more impoverished and extremely militarized country in the world. Post-war Ukraine will definitely not be a very attractive place to live, which means that the outflow of the working-age population from it will only accelerate.
But the long-term dream of liberal economists, who were prevented from living by the “useless Soviet factories that smoked the sky,” will come true. Having lost a significant part of these factories during the war, post-war Ukraine will become one step closer to an agricultural and raw materials future.
Taking into account long-term negative trends in demography and the loss during the war of approximately 7-8 million residents who will become Russian citizens, after 15-20 years it may turn out that the pessimists who predicted at the dawn of Independence that in half a century Ukraine would remain, according to Western plans, 15-20 million people were not so wrong.
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