Not a threat, but a noticeable impact marks crisis in Ukraine for German economy. Traditionally based on export, decline of a whole of 9 billion euros in foreign trade to East of Europe leads to a palpable effect on German trade balance to the East. While trade with Russia is in deep crisis due to Western sanctions against Moscow, decay of the hryvnia, political instability, and general crisis are marking the cornerstones of decrease in trade with Ukraine. Though situation in general appears bad, some positive hints and potentials can be noticed.
No doubt, that Ukrainian economy contemporary is in deep crisis. General growth of 2014 shows a decline about 6.8 percent, for 2015 expectations are even worse: economy may shrink once more about 8.5 percent. Trade balance with Germany reflects this fact. Compared to 2013, last year’s exports from Germany to Ukraine declined from some 5.3 billion euros to 3.6 billion – a minus of 33.1 percent. For 2015, statistics appear even worse: compared to February 2014, this year’s February once more witnessed a decline of German exports to Ukraine about 37 percent according to statistics of German Federal Office of Statistics. “We notice a dramatically decrease of our exports to Ukraine,” summarizes Alexander Markus, Head of Delegation of German Economy in Ukraine (GEU). Only currency devaluation of hryvnia already reduced buying power about some 40 percent. Import goods from the West for more and more Ukrainians become unaffordable.
For Germany, market in Ukraine is far from being a high priority case. About 2,500 companies are currently actively working in Ukraine, estimates Markus. In general, the losses in Ukraine for German foreign trade are not a tragedy at all, but of course noticed with regret – especially since trade between both countries in general increased to develop since 2004. While global crisis in 2008 showed its heavy effects in bilateral trade, situation afterwards remained fragile, but in tendency was supposed to recuperate slowly. While Ukrainian exports to Germany indeed couldn’t keep their 2011 year’s record about nearly 1.9 billion euros, value of imported goods from Germany increased and indicated a slowly growth of Ukrainian buying power, until events of late 2013 first stopped this tendency and then continued to collapse in 2014. Heavy decreases nearly every sector noticed, most dramatics are to be found in cars (-52.9%), metal products (-40.1%), and machines (-35.7%). For some reasons, only tobacco goods from Germany noticed growing request in Ukraine about 9.8 percent.
Main reasons for the actual developments in trade with Ukraine of course are about to be found in political crisis and in conflict with Russia. For Germany’s trade with Russia, conflict’s impacts are in quantity even worse: though losses in exports to Russia for 2014 only reach a level of -18.1 percent, this number at all means a reduce of 6.5 billion euros – so European Union’s sanction against Russia in total create a much higher loss for Germany. Among a majority of more than 6,000 German companies working on Russian market, sanctions’ proceeding isn’t too popular. In a survey of Germany’s East Committee of German Economy published earlier this year, a number of 42 percent German companies involved in Russia rated sanctions as an inappropriate way to solve the conflict. Support for sanctions came from only about one quarter of survey’s participants. Nevertheless, while presenting poll’s result in February, representatives of the Committee underlined that German companies would anyway act, as policy of German Government towards Russia would demand. “Priority of policy counts and is obligatory base of acting on the markets,” affirms as well Alexander Markus the reliability of German business in times of conflict.
Beside all negative development in East European business, concerning Ukraine Markus sees some ways and possibilities for transformation and realignment of Ukrainian economy: “In our view, there will be an economic shift from energy intensive industries to light industries with less need of energy in Ukraine in the future: food and feed, furniture, textile, automotive components – all these are successful business models in country.” Therefore, setting wouldn’t be too bad. Due to currency devaluation, Ukrainian consumers would prefer to buy cheaper products from domestic companies, which now could start to develop – in different sectors first such signs already had appeared. Devaluation of hryvnia as well could stimulate export business. Indeed, and that’s a main difference to two-sided breakdown in balance with Russia, German economy noticed a growth of exports from Ukraine about 3.3 percent. Since Ukrainian performance in general worsened – its exports at all lowered about 16.6 percent – this could be rated as a notable achievement. Main export goods to German market therefore were automotive components, which noticed a growth of 38 percent in 2014. “In general, Ukrainian exports to Germany show a changing trend from less minor processed raw materials to higher end components,” analyzes a paper of GEU a rather positive development.
For Ukraine, main goal must be to create an atmosphere of political stability – is common point among experts. Currency devaluation like in Ukraine usually leads to some positive aspects like low payments or rents and therefore may create a more attractive atmosphere for investors. In Ukraine actually there is no such development to see, direct investments from foreign countries in 2014 just were about 300 million dollars according to National Bank of Ukraine. “This is an indirect impact of the military conflict in Donbas. Instable situation discourages foreign companies,” quoted German Spiegel Online on Sunday Robert Kirchner from German Advisory Group in Ukraine. While peace is first priority, Ukraine has to face yet a couple of other challenges to transform its economy to a modern one with real possibility of success. Government finally has to develop serious steps fighting corruption and arbitrariness in justice. Foreign companies, so a common view, may only invest in a notable way, if they can be sure to obtain reliable judgment on fixed laws.
On the other side for success on European markets, after expected coming into effect of free trade pact with European Union in 2016, Ukrainian companies have to learn, how business in European Union works: “There is another mentality in business, another way to promote products; new networks have to be established,” explains Markus. Consumers in EU prefer different images of goods and are not yet being used to a trademark “Made in Ukraine.” Though Ukraine actually had advantages by offering its goods in Europe much cheaper than in reverse, in many sectors still standards of production and products must be improved to fit European requirements. “In some spheres, Ukrainian products are already competitive. What is needed now is a modernization not only of structures and hardware, but as well of mentality and knowledge,” says Markus. Concerning its economy, Germany’s economy would be willing not only to continue cooperation with Ukraine, but as well to intensify it. End of 2015, mentions the expert, may see the establishment of a bilateral chamber of commerce between both countries.
