Recently, a majority of the Dutch electorate voted against the EU-Ukraine Association Agreement in a non-binding referendum. This result reflects widespread dissatisfaction with EU policies in general, as well as specific Ukrainian policies. The combined effect will only serve to further dampen investor enthusiasm towards the Ukrainian market.
Rising Euroscepticism
The Association Agreement, having served as the backdrop for the Euromaidan movement and subsequent Ukraine Crisis, has actually already come into effect on a provisional basis starting from January 1st. However, the Dutch referendum result serves as a major impediment not only to local politicians looking to implement the agreement fully, but also reflects wider concerns from the EU electorate at large.
While EU voters may have been open to the prospect of integration with the Ukrainian market a few short years ago, events since then have seen a marked change of mood and tone. Eurosceptics have seen their ranks swell as dissatisfaction with EU policy on economic integration and regulation continues to rise. In addition to these issues, EU policies with respect to immigration still strike a negative chord with many European voters and has led to the rise of far-right parties in several states. Compounding this sentiment are the recent terrorist attacks in both Paris and Brussels.
Ukrainian corruption and weak economy
With respect to Ukraine specifically, economic issues predominate. Ukraine’s persistent levels of corruption and attendant weak economic performance make many Europeans, the Dutch included, ask why they should integrate with Ukraine. These issues are magnified given the Eurozone Crisis and the possibility that yet another economic bailout might be asked of them in a worst case scenario. Added to this are the fact that Ukraine still has issues with an IMF bailout, as well as the recent revelation that Ukrainian President Poroshenko may have been implicated in the Panama Papers scandal.
The Ukrainian corruption scandals, culminating with the recent resignation of Prime Minister Arseniy Yatsenyuk, also serve to highlight perceived differences in values. Endemic corruption charges, which still persist despite Euromaidan (specifically formed to fight corruption in the first place), only make Europeans even more disenchanted with Ukraine. The corruption and subsequent infighting between the President and former Prime Minister is reminiscent of the conflict between former President Yushchenko and former Prime Minister Tymoshenko despite their earlier unity during the Orange Revolution.
Nuance and radical solutions
The Netherlands has served an outsized role in the Ukraine Crisis due to the tragedy of Malaysia Airlines Flight 17. This catastrophe served to make events in Ukraine very personal for many Dutch citizens due to the large number of Dutch passengers on board. At the time, anti-Russian feeling was increasing daily. Ironically, however, that anti-Russian sentiment does not automatically translate into pro-Ukrainian feelings due to the issues outlined above.
This nuance is indicative of a wider European recognition of the possibility that Ukraine may simply be manipulating the U.S. in its conflict with Russia. Despite Ukraine’s lack of substantive economic reform, Western governments, in particular the U.S., seem willing to give Ukraine the benefit of the doubt. This is because Ukrainian government officials present the image of being the West’s bulwark of democracy and values, against Russia.
However, many Europeans are affected much more by the Ukrainian Crisis and attendant anti-Russian sanctions. This is because, unlike the U.S., Europe is already much more interlinked with the Russian economy. This has led to calls from some quarters for a new European architecture more inclusive of Russia both politically and economically. In this event, Ukraine’s economic prospects would theoretically be much brighter as it would not be forced to choose between Russia and the West.
Ukraine: breadbasket of opportunity
From an investment perspective, Ukraine is a goldmine with several lucrative opportunities. In addition to being a transit point for oil and gas between Russia and the rest of Europe, it possesses these resources itself in abundance. This abundance even led to Tymoshenko’s moniker as the “Gas Princess” due to her dealings in the sector.
Also of interest to potential investors is Ukraine’s agricultural sector. Ukraine, known as the “Breadbasket of Europe” is home to some of the most fertile soil in all of Europe. This abundance was highlighted by Napoleon and Hitler, who both realized that possessing Ukraine would enable them to better feed their own troops while starving Russians into submission. Lastly, the importance of agriculture is even symbolized in Ukraine’s national flag, where the blue top half represents the sky and the gold bottom half represents the land.
Lastly, different republics in the Former Soviet Union had different specializations. Whereas Belarus, for example, specialized in electronics technology, Ukraine’s specialization was rocket and missile technology. Dnipropetrosk, in southeastern Ukraine, is home to the huge Yuzhmash (“southern machine”) and Yuzhnoye plants, at one time actually personally directed by no less than Nikita Kruschev, Leonid Brezhnev, and former Ukrainian President Leonid Kuchma. Western investment in these plants is typified by the Sea Launch project, led by Boeing, which utilized Ukrainian rocketry expertise for space launches from the Earth’s equator.
Unfortunately, rising Euroscepticism, symbolized by the Dutch referendum, serves as a significant barrier to potential future European investment in Ukraine. This is supplemented by the varying governance and corruption issues within Ukraine itself, which have not escaped the notice of European governments or their people. As much as it might like to have Ukraine in its camp geopolitically, this skepticism is starting to now appear in the U.S. government as well. All of these factors serve to reinforce an already negative investor outlook on Ukraine.
