Russia’s unprovoked war against Ukraine has caused billions of dollars in damages to the infrastructure of Donbas, the core industrial region in Ukraine's east. The area’s economy is expected to shrink by a quarter over the last year, while some businesses based in the two easternmost oblasts of Luhansk and Donetsk believe the worst part of the war is over.
Donbas customarily accounts for a
tenth of the nation’s gross domestic product, but up to 15,000 square kilometers of the region, or 2.6 percent of Ukraine’s overall territory, is occupied by Kremlin-backed proxies and
regular troops. Their destructive presence isn’t conducive to economic growth.
Prime Minister Arseniy Yatsenyuk said
the region requires “billions of dollars” in reconstruction money at a Sept. 3
Cabinet of Ministers meeting. “If two months ago when we liberated Slovyansk
(in Donetsk Oblast), we needed Hr 8 billion, according to our estimates, then
today I could say with certainty that hryvnias could be changed to dollars,
billions of dollars worth of infrastructure is ruined,” he said.
Washington D.C.-based lender International
Monetary Fund has already stated that Ukraine will need more than the previously-approved $30 billion program, $17
billion of which it is supplying, to recover.
In September alone, losses to the economies
of Donetsk and Luhansk oblasts were at $620 million, according to the prime
minister. Meanwhile, the office of Serhiy Taruta, governor of Donetsk until
Oct. 10, optimistically believes the oblast needs $270 million to restore what
has been ruined, according to a September gubernatorial report that the Kyiv
Post obtained.
Ukravtodor, the state agency in
charge of roads, has reported about $170 million in infrastructure losses. Ruined
railroads depress the coal industry, Donbas’s key economic driver, which contracted
14.2 percent in January-August.
Meanwhile, Agriculture Minister Ihor
Shvayka says the war won’t significantly affect the sector’s performance as
crop yields in the two oblasts are up by 10 percent. The biggest risk comes for
this year’s sunflower production. Nearly
55 percent of it is stored in areas controlled by Moscow-backed forces, according
to Volodymyr Osadchuk, head of Noble Resources Ukraine, a grain trader.
Olena Belan, chief economist at
investment company Dragon Capital, expects the economic output in Donetsk and
Luhansk oblasts to shrink by as much as 25 percent this year. She expects new
investments to come next year which should boost economic growth.
What remains a matter of
macroeconomic projection for analysts is a constant headache for businesses.
Borys Markov, CEO of ATB grocery chain, says small and medium-sized companies
don’t have the required profits anymore to survive the turbulence. “As for
the big businesses, the enormous damage
caused by the war in Luhansk and Donetsk regions will at best stop the development
and at worst lead to the bankruptcy of many companies,” he says.
Only some 70 percent of 226 ATB outlets in the region continue
to operate. The remainder closed. Corporate analysts estimate their losses at
$80 million and this will keep this year’s income statement in the red, reports
news agency Interfax Ukraine.
However, retail is still functioning, though supplies
of electricity and water are not stable, said Oleksandr Gavrylyuk, agriculture
expert at KPMG, an audit company. He says there’s no need for companies to shut
down businesses in the Donbas since people still need to purchase what they
need.
Alla Oliynyk, CEO at Fitofarm, a pharmacy chain that
operates in the Donbas, laments that banks don’t want to issue loans for
companies whose revenue sources are located in the eastern region. She added
that 60 percent of Fitofarm’s employees have been supporting the separatists,
which is why management had to identify the pro-Kremlin opinion makers among the
staff and fire them. “We completely banned all political discussions in
our offices,” Oliynyk says.
“To understand the scale and rate of the market’s
contraction, I’ll give you one fact: in May we had 37 clients, in June – 12 and
in July – 4,” explains Enrique Menendez,
founder of Ad Factory, a Donetsk-based web advertising agency. “All my
employees left, only my accountant and I have stayed.”
He added that the lowest point of the war may have passed.
Russia’s war has caused hundreds of thousands to flee
their homes. According to an Oct. 2 United Nations report, there were 375,800
internally displaced people in Ukraine, which includes those who left Crimea
when Russia invaded in late February.
Kyiv Post staff writer Olena Gordiienko can be reached
at [email protected].
