© www.chathamhouse.orgEmployee walks through scrap metal area at a steel plant in Ukraine. Trade volumes between Russia and Ukraine plummeted as a result of sanctions and embargoes.
In March, I traveled to Kiev and government-controlled Luhansk province in Eastern Ukraine and found that recent reports on the conflict, such as they are, have given short shrift to the economic crisis facing the civilian population of Eastern Ukraine. There, the old industrial centers of Severodonetsk and Lisichansk, as well as the scores of front line villages located in the immediate vicinity of the ceasefire line, are in danger of economic collapse, unless something is done to put an end to the war and to revive the Ukrainian economy.
To get a sense of the toll that the war has taken on the Ukrainian economy, one could hardly do better than to speak with Vladimir Vlasiuk of Ukraine Industry Expertise (UEX), an industrial policy research firm in Kiev, which has tracked the shrinking industrial and manufacturing base in Ukraine over the past two years.
The overall picture Vlasiuk painted of the Ukrainian economy, despite his best efforts, was not encouraging. According to UEX's estimates, Ukraine's GDP has contracted by 16.5 percent since the beginning of the crisis in 2014. And if one includes the loss of Crimea and rebel-held territory, Vlasiuk says it's closer to 24 percent.
The war and the loss of access to the Russian market have resulted in a steep decline in exports, which have fallen to $38.1 billion in 2015, from a high of $68.8 billion in 2012. The hope that greater access to the European market would make up for the loss of access to the Russian market remains unfulfilled; since 2011 exports to the EU have fallen by roughly $5 billion.
Nowhere is the economic decline more acutely felt than in the country's industrial heartland in the east. Since the beginning of the war, a wave of plant closings in Ukraine has resulted in the loss of 700,000 industrial jobs in 2015 alone.
Perhaps emblematic of the industrial slowdown is the deteriorating situation in what remains of eastern Ukraine's industry towns. In Severodonetsk, a city of 100,000 people, approximately 60 miles north of the rebel-held city of Luhansk, I met Sergei, a longtime employee of the AZOT chemical plant. He told me that prior to the war, the AZOT plant employed 1 in 10 residents of Severodonetsk. Now it operates sporadically and is on the verge of shutting down. "If the plant should shutter completely," Sergei told me, "you take the core out of this place. And people will leave."
In neighboring Lisichansk much of the heavy industry — a major coal mine, a glass factory and an Rosneft-linked oil refinery — had been dependent on government subsidies before the war, but now, with both the war and International Monetary Fund austerity mandates eating away at the national budget, the subsidizes are evaporating. Without these, the mine and the glass factory are unlikely to survive (the refinery was shuttered before the war). In February, the Lisichansk city council appealed directly to the Verkhovna Rada for economic assistance, but it is likely the council's plea will fall on deaf ears in Kiev.
One humanitarian aid worker who has lived and worked in Severodonetsk for the past two years told me, "The point about this area is that even prior to the war, it was already in decline. But with the extensive damage from the war and now, with the loss of access to the Russian markets, it is teetering on the edge."
It is hard to escape the conclusion that if things don't change soon, the entire region faces economic collapse. Last year, a report issued by the UN Food and Agriculture Organization (FAO) said that at least 65 percent of government-held eastern Ukraine had been "directly affected by the conflict."
What too often goes unmentioned in the coverage of the Ukrainian conflict is that huge numbers of people remain vulnerable — especially on the front line. The UN's Office of the High Commissioner for Human Rights (OHCHR) estimates that 800,000 people live in the vicinity of the ceasefire line, and an estimated 8,000-15,000 of them cross the line on a daily basis.
Given all this, the potential for a humanitarian disaster is becoming ever more real, and yet, Kiev seems unmoved. In Severodonetsk I spoke with David who runs a humanitarian aid organization that serves government-controlled Luhansk. Due to his concern over possible reprisals against his organization, I agreed not use his real name.
In fearing reprisals from the Ukrainian Security Service (SBU), David was not alone. Several workers at the AZOT plant I was scheduled to meet with backed out at the last minute due to their worries that speaking frankly to a journalist would draw them the SBU's unwanted attention.
David's take on Kiev's response to the humanitarian crisis in the Donbas is little short of scathing. While he was no fan of the previous government under Ukraine's former President Viktor Yanukovych, he says that, "Since Maidan it is clear no one is working in the interests of the country." By his estimate, people in the Donbas today are "three and a half times poorer than they were under Yanukovych." Before the war, David told me, "we Ukrainians would go to Europe as tourists, now we go as refugees."
Corruption, in his view, remains endemic. "On a policy level," David continued, "Kiev is not doing enough to help the region recover. The money marked for reconstruction, for welfare, for refugees — we see a lot of it disappearing." According to David, since the Maidan, "Corruption is two-times worse...its almost as if they added a new layer of corruption!"
Sergei, the AZOT worker, echoed these sentiments almost exactly. "Judicial corruption is just as bad as it ever was." Right now, he explained, "all we have is the appearance of a battle against corruption. The old corruption is gone, sure, but its been replaced by something new."
Back in Kiev, my conversation with Vlasiuk turned to politics. When I told him that a year ago at a refugee settlement for displaced women and children from Eastern Ukraine, a woman told me that, "There is no 'back' for Ukraine," he didn't seem surprised. So I asked if he shared that woman's sentiments, or did he think Ukraine could be put back together? Vlasiuk, who served a tour as a volunteer when the crisis broke out, said he has reluctantly come to believe that "Donbas [Eastern Ukraine] is a burden for Ukraine; it would be better to cut this territory and more forward."
Vlasiuk believes that Ukraine requires a Marshall Plan of its own. And indeed, there seems to be some support in Europe for the idea. Only recently, Hans-Georg Wellman, the head of the German parliament's working group on Ukraine, called on the EU to commit billions of dollars to assist Ukraine in its recovery.
If such a program were to materialize, it should be contingent, not on implementing the 'reforms' of the International Monetary Fund which only serve to eviscerate the national budget, but on Kiev's full compliance with the Minsk-II Agreements. After all, it is Kiev that has been the primary obstacle to the protocol's implementation.
According to the aforementioned OHCHR report, Kiev has yet to implement "critical measures" including, but not limited to, "the much-awaited parliamentary vote on decentralization, which has been postponed and should take place by July 22, 2016. Envisioned as part of the Minsk Process, this vote is to be the precursor to a series of steps toward peace... ."
The ultimate goal of any plan should be the full and peaceful integration of the separatist enclaves back into Ukraine as envisioned by the Minsk protocol.
But something needs to be done to address the myriad challenges that are facing Eastern Ukraine, and soon. Because in the absence of any progress in implementing the Minsk-II Agreements, millions of people on both sides of the ceasefire line will continue to suffer grinding poverty and war without end.
Meanwhile, the Crimea is doing just fine.
There is clearly a real difference between good and bad leadership.