Over the past weeks, government officials at various levels have suddenly turned to the problem of the further work of the country's economy, a seemingly non-priority against the background of the war, but vital for the functioning of the state. This is the reason of appeals to business to work, and various legislative incentives (for example, changing the maximum volumes and rates of the simplified taxation system, simplifying customs procedures, etc.).
It is well known that the economy of Ukraine rests on the main export-oriented industries: agricultural production, metallurgy, IT.
In the context of the ongoing hostilities on the territory of Ukraine, it is extremely difficult to predict what will happen after, but it is already clear that with the most optimistic outcome (the cessation of hostilities and the withdrawal of Russian troops from the territory of Ukraine), the picture for the main sectors will be approximately as follows:
- Agricultural production:
- Experts predict that by the end of 2022 in Ukraine, at least 30% of the acreage will not be sown. In addition, there is a problem of supplying those farmers who still plan to sow, in terms of providing fuel and lubricants, fertilizers, seed, which will most likely further reduce the forecasted crop volume.
- Fertilizer cost. Let's not forget that the increase in the price of fertilizers (as a result of the increase in the price of gas) has amounted to 60% -70% since the beginning of 2021. Therefore, even before the war, farmers revised their application rates and, accordingly, the overall profitability of production, and now, when the price of food is difficult to predict and the associated risks go off scale, this can become an additional risk factor for a significant reduction in yields.
- Logistics. One of the main problems both for the sale of last year's harvest in warehouses, and for the expected harvest of this year, is to ensure the logistics of fuels and lubricants and fertilizers. As long as the Russian Federation has a relatively unhindered possibility of missile and bomb strikes on the territory of Ukraine, the risks of disrupting logistics chains are extremely high. Especially given the possible blocking (or capture) of ports. This is a factor that carries significant risks, even taking into account state credit support.
- Even a ceasefire and the withdrawal of Russian troops does not guarantee that, given the immutability of the Putin regime (and its change, although very desirable, is doubtful in the near future), Ukraine will not escalate, for example, immediately after the harvest. In such a situation, farmers will find themselves with loans (even very loyal ones, given the state policy) and without a crop - either destroyed or requisitioned (read marauded) by the occupiers.
- Not all personnel involved will want to risk their lives on the fields in the face of an escalation of hostilities. Unfortunately, this confirms the sad experience of crop losses due to shelling and the inability to harvest it in Ukrainian-controlled areas of Donetsk and Luhansk regions. In addition, there is the problem of clearing fields.
- Since the beginning of hostilities, production was stopped by Azovstal and MMK. Ilyich, Zaporizhstal, ArcelorMittal Kryvyi Rih, 80% of whose products went to the proceeds.
- Logistics, as for agricultural production, remains a major risk factor. It is unlikely that manufacturers will overstock warehouses without the ability to export manufactured products, and the need for stability in the execution of contracts with foreign partners who will quickly get tired of force majeure has not been canceled. Until the safety of transportation to the port and the subsequent passage of merchant ships from the ports of Ukraine is ensured, production will either be at a low level or it will not be on a scale that is significant for the economy.
- Here the situation is simpler in the sense that this industry is not as heavily dependent on logistics as the previous two. However, the situation is more complicated since the main production factor for the sphere is human capital, which has certain specifics: it is one thing to work remotely at home, in warmth, comfort even with quarantine restrictions, and another thing from a damp basement or a bomb shelter under shelling. And not always relocation within the country solves this problem. It should also not be forgotten that most of the IT specialists are young people of military age who can drop out of the production process in an instant, being mobilized.
- No matter how harsh it sounds, for many Western companies it is easier to change Ukrainian contractors for, for example, Indian than to delve into why their orders miss deadlines due to the inability of employees to work.
All this together, firstly, reduces the tax base by several times, and secondly, creates a sharply negative trade balance in any development of the military situation in the short term. And if the negative trade balance is likely to be covered by external financial assistance within the overall balance of payments, then all the signs of an impending fiscal crisis are evident. And this is in a situation favorable for Ukraine.
In summary, the common challenges for key industries are:
- risks of death of personnel (or impossibility of its involvement);
- risks of physical destruction of production facilities;
These risks are relevant not only for zones of active hostilities, but also for the whole country - missile strikes on Western Ukraine show that it costs nothing for our crazy neighbor to continue to cause death, damage and destruction to civilians from its territory throughout our country, even in its most remote corners. And this, knowing our enemy, is not excluded even if a ceasefire agreement is signed. All this is about the importance, maximum deployment speed and air defense efficiency.
If it fails to deploy it quickly, the state could at least insure the risks of the death of employees, the destruction of industrial and commercial infrastructure, and the commodity remains of a business that risks working in such conditions. It is clear that not a single insurance company will be able to take on such risks now and will not be able to reinsure them abroad.
Without this, unfortunately, all the appeals of the state to business to work in such conditions, even with all the desire of business, are unlikely to have the desired effect. On the other hand, without the immediate launch of a business, the country will face a severe fiscal crisis, in which we will become critically dependent on the help of Western partners, and therefore dependent on their motivations, often directly contrary to the interests of Ukraine.