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Ukraine’s withdrawal from CIS to reduce investments in Ukrainian economy — experts

March 21, 2014, 16:46 UTC+3 KIEV
Analysts say that economic damages from Ukraine's withdrawal from the CIS will amount to billions of dollars
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© ITAR-TASS/Valery Matytsin

KIEV, March 21. /ITAR-TASS/. Ukraine’s withdrawal from the Commonwealth of Independent States (CIS) will lead to a sharp decline in investments in the Ukrainian economy from CIS countries, primarily Russia, which is one of the largest investors, said leader of the Ukrainian Choice movement Viktor Medvedchuk.

“The CIS is an effective economic union,” Medvedchuk said commenting on the statements of Ukraine’s Acting Foreign Minister Andrii Deshchytsia and Acting Secretary of the Security Council Andriy Parubiy that Ukraine started procedures to leave the CIS.

“Ukraine’s withdrawal from the organization will also mean leaving the CIS free trade zone,” he said. “The country will forfeit duty free export regime, which will break cooperation ties with enterprises in Russia, Belarus and Kazakhstan. Economic damages will amount to billions of dollars.”

Earlier, Ukraine’s permanent representative at the Eurasian Economic Commission admitted the EU association agreement would rather be for the EU’s advantage than Ukraine’s as a free trade zone is always more beneficial for a more competitive economy. As a result, most Ukrainian enterprises will face bankruptcy and thousands of facilities will be halted, whereas the EU will enjoy an expanded sales market for its goods. Meanwhile, Ukraine will be unable to reorient towards other markets with its low-demand products.

The Institute of Economics and Forecasting of the Ukrainian National Academy of Sciences has estimated Ukraine’s possible losses from wind-up of cooperation with the Customs Union and Russia. The experts believe that Russia’s introduction of both tariff and non-tariff protective measures can reduce exports to Russia to $8 billion by year-end. In particular, agricultural export will shrink 50%, food export will fall 40%, export of chemical and engineering products - 20%. In effect, a free trade with the EU will drop Ukraine’s GDP by 0.5-1%.

Economic conditions at national enterprises have considerably deteriorated since the middle of last year as Ukraine’s production cooperation with the partners in the Customs Union - sales market for more than 50% of Ukraine’s goods - aggravated, says the Ukrainian Union of Industrialists and Entrepreneurs and the Federation of Trade Unions. The situation is at its worst in construction and mechanical engineering where many plants are not operating full-time and wages are in decline, while unemployment is on the rise. President of the Novokramatorsky mechanical engineering plant Georgy Skudar believes, “Nobody is waiting for us in the EU. We have never been able to supply rolling mills to Germany and will not be able to do it now either.”

According to the Center for Integration Studies of the Eurasian Development Bank (established in 2006, members are Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan), the border macro-region of Russia, Ukraine and Belarus with a total area of 0.9 million square kilometres and a 4,460-kilometer border has a considerable potential with its 50 million population and a total GDP of more than $460 billion. Notably, Ukrainian regions are now making the largest contribution in industrial production (48.3%), while the Russian regions are concentrating 80% of the macro-region’s investments. Gross regional product calculated on purchasing power parity in Belarusian, Russian and Ukrainian border regions is 36%, 8% and 61% of each respective country’s GDP. Break-up with the CIS would first hit the Ukrainian economy.

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