Russia loses leverage as Ukrainian exports go global

Monument to "The Sailor's Wife" at Odesa seaport in southern Ukraine. Odesa is one of the main gateways for expanding Ukrainian exports as the country's economy broadens its horizons. REUTERS/Valentyn Ogirenko

Ukraine’s State Statistical Service has just published its data on Ukraine’s foreign trade in 2019. Overall, the changes it reveals might not appear large. The country’s merchandise exports increased by 5.8 percent to USD 50.1 billion, while imports rose by 6.3 percent to USD 60.8 billion. Since Ukraine currently receives annual remittances of around USD 12 billion, the trade deficit is of no concern.

The two big changes are in the structure of Ukraine’s trading partners and the makeup of its export commodities. The key takeaway is that Ukraine is no longer economically dependent on Russia. Traditionally, Russia was the all-dominant trading partner accounting for about one-third of Ukraine’s total foreign trade. In 2019, by contrast, Russia was Ukraine’s third largest export market with only 6.5 percent of Ukraine’s exports, though it still contributed 11.5 percent of Ukraine’s imports, being number two after China.

Overall, the European Union has grown in importance as a trading partner with 41.5 percent of Ukraine’s total merchandise exports and 41.1 percent of its imports. As for so many countries in the world, China has suddenly become the biggest trading partner with 7.2 percent of Ukraine’s exports and 15.1 percent of its imports.

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Ukraine’s export markets have become remarkably diversified in recent years. This is in part due to necessity, with trade complications related to Ukraine’s ongoing undeclared war with Russia forcing the country to look beyond the traditional comfort zone of the former Soviet Union. As the export figures for 2019 demonstrate, no one market is now dominant. China comes first with 7.2 percent of Ukraine’s exports, followed by Poland with 6.6 percent, while Russia is in third place with only 6.5 percent. Next is Turkey with 5.2 percent, followed by Italy and Germany both on 4.8 percent, then comes Egypt (4.5 percent) and India (4.0 percent).

This diversification of export markets reflects Ukraine’s evolving export production. Traditionally, agricultural products and metals have matched one another at close to 40 percent each. Now, however, metals have sunk to 20.5 percent, while agricultural products have surged to 44.3 percent. As the quality of Ukrainian agricultural produce has greatly improved, much of these exports are now going to Europe, but trade ties to traditional Ukrainian agricultural markets China, Turkey, Egypt, and India also remain strong.

In the past, one-third of Ukraine’s exports went to Russia. Much of this was in the form of machinery, which in most cases involved components for the military-industrial complex. However, both countries have now imposed severe sanctions on one another. Even so, Ukraine’s overall exports of machinery held up at 8.9 percent, with only a minor decrease registered in 2019. This is one of the most promising indications from the past year, suggesting that Ukraine is getting involved in the European supply chain with Poland and Germany. An important old remnant is mineral production, accounting for 9.7 percent of Ukraine’s total exports. Not everything is rosy. That three groups of commodities account for three-quarters of Ukraine’s total exports is, of course, a serious vulnerability, as commodity prices tend to fluctuate sharply.

As is often the case for economies with not very diversified exports, the country structure of Ukraine’s imports stands in stark contrast with the country structure of its exports. Here China leads with 15.1 percent (don’t we all need Chinese manufactures of all kinds from clothes to toys and consumer electronics?). Russia follows with 11.5 percent, presumably oil and the like, with Germany in third place on 9.9 percent (dare we guess cars and machinery?). Ukraine has substantial trade with Belarus, and the obvious question is whether much of this trade is in fact a way of evading the Russian trade sanctions against Ukraine.

The United States is at present a relatively minor trading partner, accounting for only 2.0 percent of Ukraine’s exports and 5.4 percent of its imports. Given that the US has a trade surplus with exports being no less than three times larger than imports, it would be natural for the United States to offer Ukraine, a close ally, a free trade agreement.

The essence of these trade statistics is positive. Ukraine’s foreign trade is growing steadily, though at a moderate pace. In particular, Ukraine’s trade with the European Union, China, and the Middle East is expanding, while its trade with Russia is swiftly dwindling because of the many trade sanctions currently in place. This benefits both Ukraine’s economy and the country’s security. Ukraine’s agricultural trade continues to boom, but it is reassuring that machinery exports remain significant and relatively stable. Meanwhile, the considerable bilateral trade with Poland and Germany suggests that the Ukrainian economy is integrating into wider European supply chains.

Anders Åslund is a senior fellow at the Atlantic Council in Washington. His latest book was “Russia’s Crony Capitalism: The Path from market Economy to Kleptocracy.”

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The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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