The Economy of Ukraine and Geopolitical Threats


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Vladimir Vepryev is a consultant in business and international relations with a diverse background. A native of Ukraine, a naturalized U.S. citizen, and a firm believer in life-long enhancement of skills, he finished a Bachelor of Science in Mechanical Engineering, another Bachelor of Science in Structural Engineering, and a Master of Science in Mechanical Engineering, all from the Ukrainian State University of Water Management. Later, Vlad earned a Master of Business Administration from Georgetown University, a Master of Science in International Development Studies from the University of Amsterdam, and a Master of Liberal Arts, concentration in Government, from Harvard University. He also completed graduate studies in international management at the University of Oxford, Trinity College.

Ukraine took a place of a hot topic in news reports and analytical observations in the last several months. Nevertheless, not much attention was dedicated so far to the perspective of the post-crisis economic conditions in this Eastern European country. Despite the severe nature of current challenges, Ukraine has a chance to prosper and to avoid submission to difficulties.

Indeed, currently Ukraine comes through a very dangerous period of its history due to the extreme corruption of the previous administration of Viktor Yanukovich and the hostile actions from the side of the Vladimir Putin administration in Russia. Therefore, while the foreign business stakeholders demonstrated their support to the people of Ukraine and the country’s provisional government on many counts, the same stakeholders remain hesitant in terms of investing. Definitely, such a careful attitude is more than justified in this particular moment. The violent dictatorial regime of Putin signals a clear possibility of a full-scale war against Ukraine.

Crimea, an autonomous administrative unit in the south of Ukraine, has been taken over by Russia. The militant separatists exercise their activities, concentrating primarily in two more regions in the east of Ukraine, Donbass and Luhansk. Alongside other problems there is a concern that international business circles may be find overly risky to conduct undertakings in a country that does not control 100% of its own territory.

Different scenarios may unfold from this particular moment in history. In the case of a full-scale war any and all peaceful business activities have to hold off. Having said that, it is still reasonable to consider that such a war can be avoided in Ukraine. The history of the war in Georgia in 2008 illustrates that the full-scale aggression of the Putin regime can be stopped by the combination of military and diplomatic means. Dedication and resistance of the people of Ukraine can bring very positive results. The people of Ukraine already proved their dedication in the protests against the Yanukovich regime.

The current anti-terrorist operations conducted by the authorities of Ukraine in the east of the country have realistic chances to win. Therefore, the national administration in Kyiv may keep the authority at least over the majority of the territory of Ukraine. However, the threat from the Putin administration will remain a clear and present danger.

External political support can make a great solution. The West already expressed solidarity with Ukraine. Historically, as one of the examples, the support from the countries of North America and Western Europe greatly helped the Central European and Baltic states in the course of reforms that started in the late 1980s. For example, the Central European and Baltic countries maximize the protection from external threats due to their participation in the North Atlantic Treaty Organization (NATO).

Strengths, weaknesses, opportunities, and threats (SWOT) analysis works as a reliable method in order to identify internal and external factors of influence. SWOT analysis separates such internal factors as strengths and weaknesses from external opportunities and threats. This article does not have a goal to provide a complete SWOT analysis on Ukraine. Instead, the SWOT components may be involved in relation to the potential of prosperity in countries with external threats and/or absence of an external integrity.

Certainly, the national administration in Ukraine and the country’s business circles cannot afford to succumb any internal weakness. Overcoming of corruption is the most critical part. Moreover, major economic changes need to be implemented.

The external threats should not paralyze the national economy. The global business community should not assume that the threat from the Putin regime would act as an absolute blockage for any foreign direct investment (FDI) or imports to Ukraine.

Historic evidence indicates that a number of national economies functioned, developed, and prospered in a close geographic proximity to geopolitical and/or regional threats of various magnitude and unpredictability. In some of this cases, absence of territorial integrity impacted as an additional problem. But even when the combination of the proximity of threats and the absence of territorial integrity presented the more difficult level of challenges, some countries managed to overcome and succeed. Such cases pertained to the very recent past and continue to exist in some parts of the world as we speak. As a common denominator, strong work ethics in all these countries became a topic of national pride and international fame. From the SWOT perspective it acted as a major internal strength.

Germany can be mentioned as a clear example with a happy end. After World War II, the combination of great efforts, pro-business regulations, the Marshall Plan, the strong leadership of Konrad Adenauer, and the involvement of international political and business stakeholders transformed the Western part of Germany into one of the leading economies of Europe. In the same time, the Soviet troops and the satellite communist regime remained in East Germany for decades. These Soviet troops stayed when the Berlin Wall was taken down in 1989 and Germany reunified in 1990. West Germany acted as the core of the reunification process with its governmental structure, institutions, legal system, military forces, etc. expanding the authority to the East in accordance with the will and results of fully democratic elections. Presence of Soviet troops lasted until 1994 when in the meantime the Warsaw Pact was dissolved in 1989 and the USSR felt apart in 1991. Most importantly, West Berlin with its special status of governance and the surrounding Berlin Wall experienced the most difficult conditions. Nevertheless, West Berlin developed simultaneously with West Germany and transformed itself into a modern European city.

Botswana is located in the southern part of Africa. In the recent decades this part of the continent was not the most stable part of the world. Botswana attained independence from Great Britain in 1966. The extremely discriminatory regime of apartheid and race segregation existed in South Africa until 1994. Angola and Mozambique had full-scale civil wars in the 1970–1990s. The regime of Robert Mugabe in Zimbabwe gradually shifted to being one of the most authoritarian in the world. Instead of Germany, Botswana has additional tasks due to its landlocked position. All of the above did not stop Botswana from becoming the success story of Africa. The wise, energetic, and effective leadership of the country also implemented pro-business policies. Great efforts paid off in Botswana as well. The economy of Botswana continues to flourish. As one of the results, many socio-economic challenges were avoided and/or removed in Botswana. The country prevented any internal political turbulence.

Now let us look at the country where the current regime of Russia presents a threat to the same extent as it does in Ukraine. Azerbaijan became independent only in 1991 after the collapse of the USSR. Approximately a quarter of Azerbaijan’s territory remains under the control of Armenia after the Nagorno-Karabakh War between two countries in 1988–1994. During the initial stage of this war in 1988–1991 the central Soviet authorities did not generate enough efforts for the de-escalation of the conflict. After the collapse of the USSR in 1991, the war intensified. The government of Russia clearly supported Armenia in the conflict. After the losses in the war, the situation in Azerbaijan improved. Based on the utilization of the natural resources, such as oil and gas, Azerbaijan strengthened the national economy, attracted the FDI, and developed strong business ties with variety of countries. Despite being located next to the Caspian Sea, the world’s largest lake, Azerbaijan does not have an access to a real sea or ocean. Therefore, it can be identified as a landlocked country as well.

Korea continues to remain divided. The extremely brutal and mentally unstable communist dynasty continues to run the North turning everything under their control into a huge concentration camp. The creation of nuclear weapons in North Korea presents the new level of threats to the people and the national administration of South Korea. The distance between Seoul, the capital of South Korea, and the inter-Korean border/demarcation line equals only thirty five miles or fifty six kilometers. Such proximity creates additional pressure in terms of possible bombing and/or missile attack. Yet, South Korea accomplished major economic solidification and became famous as one of the Asian Tigers. South Korea continues to expand economy and acts as an important participant in international affairs. The levels of life and incomes in South and North Korea present the brightest evidence in favor of the market economy. The focus on science, technology, and education played a very important role in the priorities of South Korea. For example, South Korea maintains and enhances its advanced standing in the auto manufacturing and high-tech industries. South Korean automakers continue to establish their factories abroad, in particular in India and USA.

Several corollaries can and should be reiterated in relation to all of these successful examples above: The increase of economic well-being took place in all these countries. The FDI continues to come. The companies, originated in these countries, extend their activities abroad. The quality of education increased. While foreign business entities are/were fully aware of the local and/or geopolitical threats, this awareness did not lead them to halt their business operations. The list can go on.

Two things need to be absolutely avoided for the possibility of bright future in Ukraine. One is the external threat of a full-scale war in the very near future. Another one is the weaknesses of internal mistakes. Ukraine has control on the latter problem. If and when these conditions are met, the recent history gives encouragement. Ukraine, the second largest country in its continent, can succeed regardless from the external geopolitical threats.

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