Now from the onset, I want to make a few things clear that I made in my last major Ukraine sitrep from 2018:
- Ukraine hasn’t collapsed (desires of more deluded pro-Russians aside) nor has it come closer to it.
- While Ukraine’s economy remains in the gutter, ahead only of Moldova in Europe, it is the more Russophone East and South that have, on average, been worse affected.
- Ordinary Ukrainians still live far better than in the 1990s, even if living standards have if anything regressed over the past decade by most measures.
But on to the bad news: Despite occasional outbursts of optimism on the part of observers…
second in a series of economic deep dives. today side by side comparison of Ukraine and Russia economies & how they fared in the 2020 crisis
— BenAris (@bneeditor) May 5, 2021
Now here’s the thing. I actually agree that Ukraine probably has the highest potential/reality gap of any country outside Best Korea. This a straightforward conclusion from national IQ vs. GDP per capita stats.
Problem is, Ukraine can remain “irrational” longer than you can remain solvent.
According to most indices of consumer well-being, Ukraine remains about as mired in the mud as it was in 2016. Here are some representative examples.
5.7M sqm of residential housing was constructed in 2020, down almost 50% from 2019. This is only 50% higher than in 4.1M sqm in Belarus (a country with 1/4 of its population that had an abortive color revolution). It is also a tiny fraction of the 80.6M sqm constructed in Russia. Many individual Russian regions have as much or almost as much construction as all of Ukraine. For instance, even outside the capitals, Krasnodar oblast (official pop: 5.2M) had 4.5M sqm of construction. Crimea inc. Sevastopol had 1.3M, or almost a quarter of the Ukrainian total. It’s evidently doing very well without Ukraine.
Ukraine appears to have lost about 30% of its manufacturing capacity relative to 2010. (The graph based on Ministry of Finance statistics compiled/analyzed by a correspondent called “IC”).
The past few years haven’t been good ones for automobilization in general in the ex-USSR. Still, whereas Ukraine once did have a small car manufacturing industry, today it’s as good as non-existent (<5,000 produced in 2020).
In fairness, Ukraine did see 200% growth in Q1 2021. Apparently, a small factory producing a few hundred cars per month started up in Zaporozhye. However, closer analysis shows that all it does is just simply assembly of Ladas (!) and Renault Arkanas from imported Russian subcomponents. So, basically doing for Russia, and at a very small scale at that, what the likes of Slovakia do for Germany. Eurointegration going from strength to strength!
In terms of car sales, less than 100,000 new cars were sold or registered in Ukraine in 2020. This is less than twice as much as the 52,000 in Belarus, and a tiny fraction of the 1 .63M in Russia. Now in fairness, some of that just accrues to евробляхи illegally imported from Poland and the like, but can it explain a twofold per capita gap with Belarus (let alone an eightfold one with Russia)? Press X for doubt.
The aerospace industry has as good as vanished since the Euromaidan. The sole foreign attempt (by the Chinese) to get something going again by buying up Motor Sich was blocked by American influence.
7.6M passenger flights in 2019, vs 115M in Russia. This 1:10+ ratio is typical.
Saw this blog post by genby on meat production a few weeks ago.
This shows the ratio of Ukrainian to Russia meat production going down from 43% in 1990 to 23% by 2019.
Contra various claims, the price of a Big Mac (a standard product used to assess international differences in prices) in Russia is cheaper than in Ukraine. In mid 2020, the average Russian can buy almost twice as many Big Macs per month as a Ukrainian (a correlation that has held steady since at least the early 2000s).
In fact, genby makes an interesting argument that, based on prices in the Auchan supermarket chain, Russia might have the cheapest products relative to both Ukraine and Poland.
You might rejoinder, why am writing about boring stuff like food and housing. What about high tech?
The reason is – I’m not sure it exists in Ukraine, period.
Now I certainly don’t want to create the (false) impression that Russia is any kind of technological superpower, in reality, the situation, while much improved in the last few years, is still decidedly uninspiring. It is not an O-Ring dense economy.
Nonetheless, it does produce 10% of the world’s power turbines and 40% of the commercial NPPs under construction, the world’s only nuclear icebreakers, the Armata and various nuclear Wunderwaffen. It created Sputnik, one of the most successful and effective Corona vaccines (even if adaption is low, because most Russians are anti-vaxxer idiots – but in that sense, it is in fact kindred souls with Ukraine).
A factory in Ukraine purportedly produces… 60% of the skis used in Europe. Impressive if accurate, but it’s telling that this is what one has to reach for to find examples of Ukrainian manufacturing success.
If you had invested into the Ukrainian stock market on the upsurge of good feeling immediately following the Euromaidan, you would only be barely up in grivna terms and massively down in dollar terms (you’d be up 3x in ruble terms with the MOEX and about 25% in USD terms). This is at once both remarkably in light of the noises made about opening up to Western investment, as well as what it says about their failure to come and what it implies for the Ukrainian economy.
(Incidentally, I note that, very unusually for Ukrainian institutions these days, the website of the Ukrainian stock market has a Russian translation to go along with English and Ukrainian. This says a lot about the ultimate limits of svidomism – it ends where money begins).
But this is actually a good illustration of what I have been getting at.
IT exports apparently similar and 3x higher for Ukraine in per capita terms, meanwhile in terms of what their respective IT spheres have actually create:
Russia: Yandex (inc. AI, cloud services, self-driving cars – basically, a parallel Google, that is its close technological peer, often coming to solutions at the same time as it or slightly ahead); mail group (Vkontakte, Russia’s Facebook); several e-commerce giants; world’s largest digital bank, TCS Group (Tinkoff). These are the foundations of a self-contained tech ecosystem replicating most everything that you can find in Silicon Valley (or Shenzhen) and which no other European country, not even Germany, possesses. There’s even a 23andme-equivalent (Genotek).
Ukraine: 4A Games and GSC make good video games, I don’t want to diss them. But they’re not Yandex or Vkontakte, and they’re not even CD Projekt Red (Poland). Otherwise, <1% of the population (freelancers) lead very nice lives, enjoying Western salaries with Ukrainian prices. Good for them, many of us aspire to the lifestyle of a geo-arbitraged NEET, but it’s hard to see how that will make a lasting contribution to Ukraine’s economic development.
Why do Ukraine (and Belarus) “export” IT services? Because they do not have a Yandex, an Ozon, or a Vkontakte to hire many of their talented software professionals. That Belarus apparently has half of Russia’s IT exports while its only IT company of any international stature is World of Tanks says it all.
In fact, one comparison could be to Moscow in the 1990s, which hosted one of Boeing’s most important global R&D centers and, as I recall, playing a rather a central role in designing the Boeing 787 Dreamliner. This was good for Russian programmers who stayed employed, but it was Boeing and the US that derived 99% of the added value from this. Much of the Ukrainian IT outsourcing sector can be described in the same veins. But today, many of those engineers would be working on places like the Irkut MC-21.
Again, as per above, I don’t want to give the impression that Ukraine is some Sub-Saharan African tier economic hole. Some of the unsatisfactory raw statistics are belied by things such as the propensity of Ukrainians to buy second hand cars from Europe, which accounts for the paucity of new car sales. Ukraine’s depopulation coupled with open labor markets with ECE have produced upwards pressure on wages for those who remain there. This has allowed them to float upwards and, anecdotally, improve their ability to do things like budget international travel (though the extent of it should not be overestimated – see the airline flight statistics).
But does any of this resulting in the appearance of the type of complex O-Ring industries that are the true foundation of long-term international wealth and First World convergence? There’s scant evidence of that. It remains an economy based on unmodernized metallurgical enterprises, some new fangled simple assembly work factories in the west, and geo-arbitraging IT service exporters based in Kiev and Lvov (who live very well, but whose contributions to development must be seen as minimal).