CI 3: Ukraine’s Economy Braces for Impact

I believe that most people who are reading this know about the rise in tension between Russia and Ukraine. In this post I am going to talk about the business impact of this geopolitical crisis in Ukraine. Even if Russia does not invade Ukraine in early 2022, Vladmir Putin, Russia’s president, has succeeded, once again, in wreaking havoc on the already fragile Ukrainian economy.

It is important to point out that Moscow already invaded Ukraine back in 2014, when it annexed the country’s southern Crimea peninsula. After that day, the Ukrainian economy never recovered to its fullest, and when it started to show sign of growth, Covid-19 hit, which coupled now with another threat of a Russian invasion.

Despite American warnings of an imminent Russian invasion, there are few signs of panic in Ukraine. Stores are well-stocked, banks function normally and there is no rush for air tickets out. But the psychological pressure of a possible all-out war is already damaging Ukraine’s economy, which is one of Europe’s poorest and sustained a sever blow when Russia seized the country’s Crimean peninsula and Donbas area in 2014.

The value of the Ukrainian hryvnia (Ukraine’s local currency) has declined 4% against the dollar since the year began, making it one of the world’s worst-performing currencies, even as the central bank spent more than $1 billion to prop it up. Many investors have stop funding and suspended expansion plans, waiting to see how this crisis ends.

Western powers signals that in less than a week there will be panic in the financial sector. And the Ukrainian President, Volodymyr, Zelensky, claimed that Ukraine can’t handle this alone. Therefore, western nations are rushing emergency aid to Ukraine, including 1.2 billion euros, pledged by the European Union last month. Destabilizing the Ukrainian economy and possibly sparking domestic unrest could achieve Russia’s goals in the country even without the need for a single Russian soldier to cross the border. Ukrainian officials believe that Russia’s top priority is to hit Ukraine’s economic system.

According to a recent survey by  the European Businesses Association, which polled 136  companies operating in Ukraine, 45% plan to continue operating as usual in the event of a Russian military attack. Some 17% said they are considering relocating to the western regions that are less likely to be occupied by Russia, and only 10% are thinking of leaving the country.

Amid the drumbeat of headlines, Ukrainian companies are willing to stay in Ukraine. This could be Ukraine’s fate as a powerful economy in Europe?