Crisis in Eastern Europe
Threatened Russian invasion is ailing Ukraine’s economy – a country on alert
In view of a possible Russian invasion of Ukraine, the US Army is moving more soldiers to the borders
© Armin Weigel / DPA
The Russian soldiers are still at the gates of Ukraine. But the country’s economy is already suffering noticeably: projects are being put on hold, investors are withdrawing. A look at a country in a state of emergency.
Dmytro Woloschyn sits in his open-plan office in Kiev and lists questions. What happens if the situation escalates? What then happens to the foreign employees? What would be the consequences of martial law? Many company bosses in Ukraine are in the same situation as Voloshyn, head of an online platform, and are forced to think about the consequences of a Russian invasion. Invasion or not, Ukraine’s economy is already suffering.
Answers are hard to find, but the list of questions is growing. What happens if the banking system collapses? Can all the bills be paid? And what to do in case of internet problems? Woloschyn operates Preply, a platform for global networking of students and teachers. The company, founded in 2013, employs 400 people in Kiev and Barcelona. It is considered a successful model in the Ukrainian high-tech sector.
Companies in Ukraine on heightened alert
But the company prefers to prepare for the worst. “We had to draw up an emergency plan with answers to all these questions,” says the 34-year-old Voloshyn of the AFP news agency, showing tables with different scenarios on his laptop. “We are not using it at the moment because we are confident that the situation will remain stable.”
He recalls that the state of heightened alertness has persisted since the annexation of Crimea in 2014 and society has become somewhat used to it. “That’s why we’re not panicking,” says Woloschyn.
In fact, many people and workers in the Ukrainian capital are currently living a strange double life. Everyday life goes on, despite fears of invasion created by the massive Russian troop deployment on the border. However, according to a survey by the European Business Association, 40 percent of the companies belonging to the association – including many multinational companies operating in Ukraine – have drawn up emergency plans, and another 40 percent are planning such.
How Ukrainian civilians are preparing for a war with Russia
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Russia’s presence is already having a negative impact
The scenario of a Russian invasion alone is already having an impact on the country’s real economy, despite repeated denials from Moscow. Projects were put on hold, investors withdrew and took foreign exchange out of the country. The Ukrainian central bank lowered its economic outlook for 2022 from 3.8 percent to 3.4 percent.
Since the beginning of the year, the central bank has also spent around one billion dollars to stabilize the Ukrainian currency. Despite this, the hryvnia has recently been at its weakest level in four years – which in turn is fueling inflation and weakening the purchasing power of people in one of the poorest countries in Europe.
President Volodymyr Zelenskyy has already found clear words about the warnings from Washington of a Russian invasion of Ukraine in February: “We don’t need this panic.” Rather, it is about stabilizing the economy.
Experts assume that Ukraine will be in a more stable financial environment than in 2014 thanks to Western aid. However, there is a risk of long-term damage to the economy: even if a military escalation should ultimately fail to materialize, there will be an understanding that there is a risk to business in the region has increased “will continue to weigh on the Ukrainian economy for a long time,” says Lilit Gevorgyan from the analysis company IHS Markit.
The threat of war will persist unless there is a détente with Russia, Gevorgyan continues. This will continue to have an impact on strategic investments – “and the country urgently needs them”.