Ride that wave:
What is the likelihood that the government and opposition will take advantage of Ukraine’s economic recovery to improve their own positions and why does Ukraine need a qualitatively new, pro-Ukrainian political class?
What happens in Ukraine in 2017 will likely determine the country's further course for a number of years ahead. Desperate efforts by opposition forces to increase the political temperature over 2016, especially in the fall, will probably be dramatically extended in 2017. As the domestic economy shows ever-clearer indications of recovery, and offers opportunities to gradually improve the standard of living of ordinary Ukrainians, the government and the opposition will be forced to compete for the right to ride this wave: to take advantage of the fruit of an objective process that they had little influence over while preventing their rivals from doing so.
ON THE PATH TO RECOVERY
Signs of economic growth are getting stronger by the month. Over the first 11 months of 2016, the processing industry increased output by 3.4% compared to the same period of 2015, while the agricultural sector improved 4.0%, retail trade grew 3.7%, transport 9.5%, and construction 14.1%, with commercial building up 19.6%. In QIV, exports of goods also began to climb: compared to the same period of 2015, growth was 7.4% in dollar terms and 9.0% in euro terms.
Business has seen its financial position improve considerably, too. Specifically, over the first three quarters of 2016, large and medium enterprises reduced their losses from 44.2% in 2014 to 39.8% in 2015, and further to 32.8% in 2016. In the processing industries this figure was 27.7%, while in agriculture it was 12.2%. Profits in profitable companies grew from UAH 233.2 billion to UAH 270.5bn, while the losses of unprofitable businesses went down from UAH 417.1bn to 188.5%, a reduction of nearly 70%. Over the first three quarters of 2016, US $3.8bn came to Ukraine as foreign direct investment, while US $0.46bn left the country, compared to US $2.5bn and $0.53bn in the same period of 2015.
In 2016, financial sector and currency markets also began to stabilize. The dollar may have strengthened substantially against the hryvnia, but that was partly a reflection of its stronger position relative to most world currencies. Compared to the euro, for instance, the hryvnia remained relatively stable, with just a few minor fluctuations here and there. Data on specialized internet resources suggest that, in mid-January 2017, the euro was going for UAH 30.10-30.30 on the black market, compared to UAH 28.20-29.40 in mid-January 2016, meaning that it had strengthened less than 7% against the Ukrainian currency. In the context of double-digit growth in prices and nominal household incomes among Ukrainians, this is quite moderate. Moreover, at its peak in 2016, the euro was UAH 30.40, bottoming out during the summer to a seasonal UAH 27.20.
As of December 29, the country’s reserves stood at US $15.6bn, compared to US $13.3bn
IT SEEMS THAT THE MOST CRITICAL PERIOD OF INTERNAL TURBULENCE HAS PASSED. IN 2017, THERE IS EVERY REASON TO BELIEVE THAT THE DOMESTIC ECONOMY WILL NOT ONLY CONTINUE TO RECOVER BUT BECOME MORE DEFINED
at the end of 2015 and US $5.6bn at their lowest in late February 2015, when the hottest phase of the armed conflict in Donbas began to wind down. Even at the end of February 2014, when the Yanukovych regime was in collapse and Russia began its invasion, reserves were lower: US $15.46bn. Gross foreign debt has also been reduced: at the beginning of 2014, it stood at US $142.1bn; by early October 2016, it was US $116.0bn
And so it seems that the most critical period of internal turbulence has passed. In 2017, there is every reason to believe that the domestic economy will not only continue to recover but become more defined. One factor that could potentially spoil this trend would be geopolitical instability or serious escalation in the east—but this could actually play into the hands of those in power rather than their opponents. Those who try to undermine the situation when things get critical in the country arelikely to find themselves very unpopular.
At the same time, in the absence of serious escalation, the current trend towards a tacit
frozen conflict and very slowly but surely curtailing contact with the occupied territories reflects the mood among most of the rest of Ukrainian society. A Razumkov Center public opinion poll at the end of November showed that, should a referendum be held, 53.6% of respondents would support recognizing the occupied territories as such and isolating them until the Ukrainian government regains control over them. Only 29.6% favored granting them special status and holding elections prior to the restoration of Ukraine’s control over the territories, and granting the Russian proxies an amnesty as per the Minsk Accords.
THE STANDARD OF LIVING
In 2016, the living standard remained low but, compared to 2015, it not only stopped declining but began, to one extent or another, to recover after a deep collapse over 2014-2015. This coming year, this trend should not only continue but become much more defined for a slew of categories of consumers.
Over May–December 2016, inflation was 12.4% compared to December 2015. Prices for foodstuffs grew a very moderate 3.2%. Some categories continued to rise strongly, such as dairy products, at 20-30% and oil, at 9.4%, while vegetables became noticeably cheaper, prices falling 28.6%. Given that the euro grew 8.4% relative to the hryvnia over that same period, in euro terms, consumer prices grew only 3.7% in Ukraine, while most consumer goods became noticeably cheaper—again, with the exception of dairy products and oils.
Meanwhile, official average wages in November—to be spent by Ukrainians in December—grew 20.2% on an annual basis, not just in hryvnia terms, from UAH 4,498 to UAH 5,406: even in euro terms, it grew 10.9%. This is possibly the highest pace across the continent, despite its small nominal size. Among others, wages grew in the farm sector by 24.2%, to UAH 4,193, or 14.6% in euro terms; industrial wages grew 23.4%, to UAH 6,206, or 13.9% in euro terms; and in the retail sector, they grew 23.2%, to UA 6,073, 13.6% in
euro terms. In December, the minimum pension was up 16.1%, 7.1% in euro terms compared to December 2015.
Averages wages grew much less in 2016 in education, 8.7% to UAH 3,723, and in healthcare, 9.0% to UAH 3,453, which cut into the buying power of those working in these two sectors. However, planned wage rises this winter should improve the situation for those working in the public sector. Presumably, these Ukrainians will find their disposable income significantly improved in Q1 2017. As of January 2017, they will be 60-64% higher in hryvnia terms than a year ago for educators and 44% higher for other public sector employees. Should the euro exchange rate remain more-or-less where it is today, this means that average wages will have grown at least 35-50% in a year, even in the European currency.
In 2017, the standard of living should improve even more markedly for the poorest Ukrainians, who were paid a wage close to the official minimum wage, UAH 1,400-2,000, in 2016. Even taking inflation into account, their real incomes in 2017 should be at least 1.5-2 times higher than a year ago, thanks to the fact that the minimum was raised 2.32 times in January 2017, compared to January 2016.
Although economists are ambiguous about this government initiative and opposition politicians are frankly critical, ordinary Ukrainians have generally been receptive to the decision to raise the minimum wage. The Razumkov poll showed that most of those surveyed believed that either the increase would not reflect on their material standing, 44.1%, or it would affect it positively, 33.9%. Only 13.1% were afraid that it would have negative consequences.
Incidentally, in 2017, the minimum wage, even in euro terms, could significantly outpace indicators recorded just before the collapse of the Yanukovych regime and the start of Russia’s aggression, both of which led to the huge collapse in the standard of living in Ukraine. In February 2014, the minimum wage was UAH 1,218, which was around €100 at the exchange rate then. For the average wage to return, in euro terms, to the level at that time, UAH 3,200 or €263 at the exchange rate in February 2014, it needs to reach UAH 8,000, which is quite possible in 2017, although this is more likely to happen towards the end of the year.
THE OPPOSITION'S FALSE START
Against this economic stabilization and the start of a recovery in the standard of living, the trend towards growing disillusion with the government stopped at the beginning of 2016. According to the Razumkov Center, the percentage of Ukrainians who completely or partly trust in the president, which was 24.3% by April and 24.4% in November, has remained stable, although, compared to March 2015, when it was 43.6%, let alone May 2014, when 54.0% of Ukrainians voted for Petro Poroshenko, these indicators are low. Trust in the Government has been growing better: by November, it had risen to 17.5% from 15.8% in April, although it is still much lower than it was in March 2015, when it was 28.7%. Together with the better economic outlook, these indicators should continue to improve.
As it turned out “unaffordable” utility rates did not lead to destabilization: there were no Maidans against them in November, and there aren’t likely to be any in the spring, either. The Government’s subsidy program is generous to a fault and has protected most of those for whom the new rates really were unaffordable. The Government’s social initiatives at the beginning of the present year should make a large portion of poorer Ukrainians feel a lot better, too.
Traditionally, the majority of Ukrainians have been unhappy with the direction their country is moving in for a couple of decades, and this trend is likely to stay at its currently high level. Possibly it will even grow stronger. Still, the share of people actually prepared to take radical action to change those in power is likely to go down.
Under the circumstances, the Poroshenko Administration should put every effort into avoiding a snap election and to show itself in a positive light to voters, not just in the negative one caused by the sharp decline in their standard of living over the last few years. If it manages to hold on through 2017, the chances that the ruling polity will stay in power until the end of its term will improve considerable. Any elections prior to 2019 will be possible only as the result of some unpredictable forcemajeure situation or at the government’s own initiative, should it get it into its head to decide that a pre-term election might be to its advantage.
By contrast, for those political forces in opposition, who actually have greater support among their electorate than the parties that are currently in power, it will be critically important to have a snap election called. Otherwise, growing improvement in the domestic economy and the appearance of new rivals will reduce their chances of coming to power even
2017-18 WILL BRING OPPORTUNITIES FOR NEW FORCES TO EMERGE. THIS MEANS A PARTY THAT WILL OFFER A DEVELOPMENT IDEOLOGY BASED ON UKRAINE'S OWN POWERSAND CONSOLIDATION ON A UKRAINIAN CULTURAL FOUNDATION
further. Indeed, they must get into government at the right time—at the start of the recovery. This will offer them a real advantage in carrying out their own policies, even if there is little in common between the two phenomena.
For Tymoshenko, Saakashvili and other extraparliamentary opposition groups, if there is no snap election in 2017, they will have effectively run a false start. This feature of Ukrainian politics, with the chronic demand for new faces and ideas made fools of Arseniy Yatseniuk during the 2009-2010 presidential race and with Klitschko in 2013-2014. If elections are held off until 2019, the risk is that they will face voter fatigue with platforms that were revealed too soon and the loss of support in favor of even newer projects that will be promoted closer to the actual election. It’s thus important for them to do what they can to provoke a reset in the government this year, because later will be too late.
THE YOUNG UKRAINIANS
Given the likelihood of a false start for the populist opposition, 2017-18 will bring opportunities for new political forces to emerge. Like the current government, the current opposition is all offering the same old discourse, which no longer applies to the new realities of contemporary Ukraine nor the goepolitical and geoeconomic challenges that are more and more clearly being shaped around the world. New “anti-corruption” initiatives simply come across as improved “add-ons” that substitute means for goals. After all, combating corruption cannot be a goal in and of itself, or even a long-term objective for a constructive, creative political force or ideology. It is, at best, one of a set of measures for unblocking the potential of a society to reach serious development goals.
And so the time is ripe for the political limelight to shine on a modernizing, young Ukrainian political force for whom the minimization of conditions for corruption to flourish, rather than combating it, would be just one plank in a platform to build a new Ukraine. This means a political party that will offer a development ideology based on Ukraine’s own powers, a center-right platform in the socio-economic dimension and national consolidation on a Ukrainian cultural foundation. Although international realpolitik has effectively killed euroromanticism, a clearly pro-western geopolitical orientation is still necessary. Such a force would be capable of pushing the radicals and narrowly ethnic elements out of the conscious portion of Ukrainian society, but would first of all stop the parasitic oligarchic “campaigns” aimed at the patriotic electorate and integrate the “new patriots,” born of the resistance to Russian aggression among those who once were indifferent to the national idea, into its ranks.
In the last few years of confronting Russia’s aggression, the issue of threats to Ukrainian cultural and linguistic identity was pushed into the background in political discourse. This led to dangerous arguments that that active ukrainianization was irrelevant and a taboo on raising language and other “sensitive” issues. All this has done is to gradually place a time bomb under the long-term prospects for a Ukrainian state and identity.
The undisputed presence of Russian speakers in the homes of Ukrainian patriots has made overly popular a poisonous notion about the need to indefinitely postpone the process of consolidating society based on the Ukrainian language and derussifying the country. In fact, a truly pro-Ukrainian, and not just antiPutin, mood is evident among Russian speakers in the daily lives of Ukrainians, regardless of their ethnic origins, and these Ukrainians actually have no qualms about the need to ukrainianize and properly derussify Ukraine.
Individuals and political forces for whom this is a “sensitive” issue are, in fact, either indifferent to the Ukrainian idea or more-orless hostile to it. And so their resistance is not
Over the first three quarters of 2016, large and medium enterprises reduced their losses from 44.2% in 2014 to 39.8% in 2015, and further to 32.8% in 2016. In the processing industries this figure was 27.7%, while in agriculture it was 12.2%
worth using as a counter-argument to the need for a Ukrainian foundation to national consolidation. Otherwise this consolidation risks going down a path as dangerous as Russia’s occupation: turning Ukraine into a “different, nicer, more democratic, pro-European, liberal, and market-oriented” little Russia.
As long as ORDiLO and Crimea are not reintegrated, pro-Russian, reactionary forces are unlikely to make any kind of comeback in Ukraine. Still, the risk that the country will be stuck in the mud is very real, and that it will simply respond to internal and external events without evidence of a real national identity or a strategic development goal with a plan for reaching it. Such an outcome is the most dangerous one, both for Ukraine’s development and in view of its vulnerability to Russian or any other manipulation.
The country simply needs a consolidating idea and a pro-active government that will both modernize domestically and carry out its own subjective policies in the international arena. For Ukraine to agree to be a mere object of geopolitics, to get caught up in domestic politics and squabbling over the redistribution of assets and cozy public posts as its primary goals rather than as a means to carry out transforming policies threatens to turn the country into a semi-colonial territory in an inevitable spiral of socio-economic decline.
A failed protest. Pro-Russian forces place their bets on social frustration. But their cause is going no further than paid-for rallies