Ukraine Exports Selling the Farm

As it fights a proxy war with Russia, Ukraine is slowly increasing economic ties with the West, especially Germany. Exports of sunflower oil are the latest ray of hope.
Every other bottle of sunflower oil in Europe comes from Ukraine.

The Ukraine economy is in a crisis - fighting a debilitating war in the east with Russia, while trying to weed out years of corruption.

But even in its darkest hour, the country, which is being kept alive by aid from the European Union and International Monetary Fund, is slowly building up its economic ties to the West.

Exports to European countries, especially to Germany, rose 2.7 percent last year. The IMF is contributing up to €15.4 billion ($17.5 billion) toward a €35 billion aid package designed to help Ukraine stave off a national default.

Ukraine is still in an untenable position, with a fifth of its land mass occupied by Russian surrogates. Peace talks between German Chancellor Angela Merkel, French President François Hollande, Ukraine’s Petro Poroshenko and Russia’s President Vladimir Putin have produced only a fragile ceasefire.

Ukraine companies are looking more intensely towards the West and ask for partners in Europe. Alexander Markus, Delegate of the German Economy in Ukraine

Amid the war, Ukraine’s economy contracted last year by 7.5 percent to €156.6 billion. Its currency, the hryvnia, plunged to an all-time low after the latest round of talks failed to produce a lasting peace.

“German companies here (in Ukraine) and exporters (to Ukraine) are clearly being affected by the loss of purchasing power in the Ukraine,” said Alexander Markus, a German economic expert working in Ukraine.

In 2014, German exports to Ukraine fell by two-thirds to €4.2 billion, according to the Federal Statistical Office in Wiesbaden. But exports from Ukraine to Germany rose by 2.7 percent to €1.8 billion.

Ukraine's agriculture sector set new production records last year, with every second bottle of sunflower oil sold in Europe coming from Ukraine.

This is a promising development and a sign of diversification from the country’s traditional economic base in heavy industry.

About 400 German companies have subsidiaries in Ukraine, including German retailer Metro, tradeshow organizer Deutsche Messe and German farm machinery maker Claas.

Ukraine’s external trade balance produced a €3.4 billion deficit in 2014, down from a deficit of €7.5 billion in 2013, despite the annexation of the Crimea last March.

 

Mr. Poroshenko's chocolate manufacturer increased in profit nine-fold in 2014. Here, a worker inspects freshly made chocolate covered apricots at the Roshen Kiev Confectionery factory.

 

The European Union is Ukraine’s largest trading partner.

It bought 36 percent of all exports from Ukraine last year, more than the 29 percent sent to countries of the former Soviet bloc. Before the Ukraine conflict erupted, the former Soviet states bought 36 percent of Ukraine's exports.

“Ukrainian companies are looking more intensely toward the West and are seeking partners in Europe,” Mr. Markus said.

But the ongoing conflict is still an obstacle to German and European companies that are hesitant to start new cooperations.

“There are hardly any new projects in the auto industry that are being given to subsidiaries of German auto-parts suppliers in Ukraine,” he said.

Russia's President Putin has boasted that Ukraine separatists could take Kiev in two weeks, making many wary of investing. Ukraine businesses see their country looking toward Europe.

“We are a new country now,” said Gennadij Tschischikow, the head of the Ukrainian Chamber of Industry and Commerce.

Mr. Tschischikow said Ukraine must reduce the power of its industrial oligarchs, fight corruption and introduce market-oriented structures. Voters want the government to take action, he said, and the Ukraine president, Mr. Poroshenko, himself a businessman, is expected to lead the way. Mr. Poroshenko is Ukraine's “chocolate king,” the owner of Roshen, a Ukrainian chocolate maker whose profits grew nine-fold in 2014.

“Now we have to show the world we can implement reforms despite the war,” Mr. Tschischikow said.

Ukraine Needs Economic Assistance-01

 

Mathias Brüggmann is the head of Handelsblatt's foreign affairs desk, leading the coverage of the Ukraine crisis. To contact the author: [email protected]m