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A divided Ukraine could see two radically different states emerge

It is increasingly difficult to predict what the future holds for Ukraine. One scenario sees the country becoming divided along roughly ethnic lines, with an ethnic Ukrainian western state and a more Russia-oriented…

Tale of two countries? Sergey Dolzhenko/EPA

It is increasingly difficult to predict what the future holds for Ukraine. One scenario sees the country becoming divided along roughly ethnic lines, with an ethnic Ukrainian western state and a more Russia-oriented eastern state comprising today’s southern and eastern Ukraine. So what would the economies of these potential new states look like?

The most obvious question is where the borders between the two new states state would be drawn. For simplicity, the subsequent analysis is based on the assumption that a future “East Ukraine” would comprise those regions (oblasts) where recently deposed leader Viktor Yanukovych received over half of the vote during the 2010 Presidential election. “West Ukraine” would include the other 17 of the total 27 oblasts.

Aljazeera

This is, of course, an extremely crude assumption – it is certainly not a forecast – but it does allow us to imagine how Ukraine’s current economic geography might shape the future of the two hypothetical states.

Town and country

In the event of a split, Ukraine’s 45m inhabitants would be split fairly evenly between the two halves. West Ukraine would be relatively rural, with only 14.4m of its 24m inhabitants (57%) classed as urban dwellers. By contrast, East Ukraine would be a less populous but more urbanised state, with 79% living in urban areas.

West would be poorer than East. The current unweighted average monthly income of western Ukrainian regions is US$291, compared to US$320 in the east. These averages conceal significant regional variation, with Kiev and its surrounding region the only areas in the West with average incomes greater than the current Ukrainian average.

In East Ukraine, the average income is almost uniformly higher than in the West. Only Kherson, a sparsely populated region just north of Crimea, is poorer than the West Ukrainian average. The unemployment rate is also higher in West Ukraine (8.5%) than in the East (6.8%).

Farms and factories

The economic structures of the two states could hardly be any more different. In West Ukraine, the economy is dominated by agrarian production and the huge service sector centred on the capital city of Kiev. Ukraine is currently the world’s largest producer of sunflower oil, and a major exporter of other agricultural products, such as wheat, grain and sugar. Much of this production takes place in the West.

Many of the country’s largest services – phone operator Kyivstar, say, or aerospace design companies – and energy companies such as Naftogaz Ukrainy or EnergoRynok are concentrated in Kiev. Western Ukraine accounted for just over 42% of total exports in 2013, with over half these exports registered to companies in Kiev alone.

West Ukraine isn’t short of farmland. thisisbossi

However, given their links with industrial production in Eastern Ukraine, it is unlikely that these companies would continue to generate current levels of revenue in the event of any future split. What would happen, for example, to Kiev-based design bureaus working for Kharkiv-based aerospace firms?

Ukraine’s industry centres on the East. Nearly all steel production and most arms manufacturing takes place in the region, and the country is currently one of the world’s leading exporters in both sectors. Other higher value-added sectors, including the auto and aerospace industries, are also predominantly located in the East, although the competitiveness of enterprises in this region is patchy.

But cars don’t build themselves, and all these energy-intensive factories use up a lot of power. It is likely that East Ukraine would continue to import large quantities of natural gas from Russia. West Ukraine’s energy demands would be much lower.

The wildcards

Two other issues might define the respective economic futures of a divided nation: the future of Ukraine’s large stock of public debt; and the potential transformative impact of shale gas.

The first key issue is how the large stock of existing Ukrainian public debt would be divided up. Ukraine currently has a public debt-to-GDP ratio of around 40%. That’s a lower share than many advanced economies, like the US and the UK, but the fact that Ukraine has been unable to balance its budget for a number of years has caused its debt burden to grow rapidly.

Assuming that this stock of debt would be split evenly between the two states, it is clear that the debt-to-GDP ratio would increase even more in the poorer, more agrarian West, especially if it were unable to balance government expenditure and income. It is likely that West Ukraine would require significant external support to manage any future debt obligations. While the East would also inherit a relatively high debt burden, it would, by virtue of its greater export and productive potential, be better equipped to manage this debt.

The second area of uncertainty relates to Ukraine’s two large deposits of shale gas – one in the western Lublin basin, and the other in the eastern Dnieper-Donetsk basin.

Large scale shale gas extraction has the potential to boost the fortunes of both states although at this stage the prospects for both deposits are uncertain. However, Royal Dutch Shell’s decision last year to invest in a US$10 billion project in the eastern Yuzivska field indicates that the prospects in East Ukraine currently look brighter.

Differing futures

Western Ukraine’s economic powerhouse, the city of Kiev, would likely experience significant disruption in the event of a division. West Ukraine would require enormous levels of external assistance, both to manage its large public debt burden, and to generate the type of economic restructuring that would be required to increase income levels across the country. Without restructuring, West Ukraine would be one of the poorest countries in Europe. The financial assistance and open market for exports provided by the EU would be crucial to the economic future of the country.

East Ukraine, on the other hand, has the potential for a brighter future. It would inherit the richer, more urbanised and on the whole more productive sections of the Ukrainian economy. It is also further along in developing its shale gas resources. Consequently, East Ukraine would be more viable as an independent state and would possess the capabilities to compete in some areas of the global economy. In an alternative scenario, East Ukraine would also represent a significant and relatively modern addition to an enlarged Russian economy.


Are you an academic in Ukraine? If so we are keen to hear from you: uk-editors@theconversation.com

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12 Comments sorted by

  1. Andrew Gilmour

    logged in via Facebook

    Kiev without the Eastern Ukraine is nothing. In case of dividing the country the Westren Ukraine and KIev will suffer a lot and will be a burden for the EU, even in case of associated membership.

    The Eastern Ukraine does not want this membership as it would kill the region's factories and jobs.

    It is the EU and the US who started creating this mess. Unfortunately, the Ukrainian people are now facing the consequences.

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    1. Andrew Gilmour

      logged in via Facebook

      In reply to Joseph Bernard

      Yes Joseph, this video shows that fascists in the Westernm Ukraine grew up to the point when they became dangerous.

      The Eastern part is more industry orientated, whereas the Western part is more about nationalism. This nationalistic movement is very dangerous for the West too, it is like Taliban initially supported by the US and then the US were fighting against it.

      Such nationalists do not deserve to be in the EU at all.

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  2. David Stein

    Businessman

    Thank you Richard. A national de-merger. Perhaps Czechoslovakia provides an example of how it can happen peacefully, and maybe Canada provides an example of how it can be held together despite ethnolinguistic differences. France, however does not border Quebec, nor is it rolling the tanks and battleships to take over the island of Montreal.
    Perhaps this is a naive question coming from someone in Australia, but do Russian speaking Ukrainians identify as Russian, or as Ukrainian, or something…

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    1. Karel Machala

      logged in via Facebook

      In reply to David Stein

      Many Russian speaking East Ukrainians still identify as Ukrainians. Even the two important anti Yanukovych pro-Ukrainian anti-Putin politicians like Timoshenko and Klitchko spoke Russian as their mother tongue in childhood (Ukrainian surnames), but now you never hear Timoshenko speak other than Ukrainian. She is from the East.

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  3. Thomas Goodey

    Researcher

    "West would be poorer than East. The current unweighted average monthly income of western Ukrainian regions is US$291, compared to US$320 in the east."

    That's a trivial difference.

    "Without restructuring, West Ukraine would be one of the poorest countries in Europe."

    Yes, but they would be IN EUROPE, which East Ukraine is not. West Ukraine would have at least a possibility of the rapid development that has been enjoyed by, for example, Poland. They would have a future. They would be potentially well and truly out of the post-Soviet twilight zone where an average income of a few hundreds of dollars a month is considered as natural and normal.

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    1. Richard Connolly

      Senior Lecturer in Political Economy at University of Birmingham

      In reply to Thomas Goodey

      Thanks, Thomas. You make an interesting point.

      Several quick points spring to mind.

      1. The figure for the western regions is inflated by Kyiv, which has the highest per capita income in the country. In the event of a split, I'm not sure that Kyiv would sustain such high levels.

      2. Bear in mind that the calculation method used here simply involved converting UAH into dollars at 2013 exchange rates. Now, if a split were to occur, there is a strong chance that two separate currencies would…

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    2. Andrew Gilmour

      logged in via Facebook

      In reply to Thomas Goodey

      Re: "Without restructuring, West Ukraine would be one of the poorest countries in Europe." Yes, but they would be IN EUROPE, which East Ukraine is not.

      You nicely forgot to mention a very important thing. They would be in association but not in Europe. Europe never invited them to be a member of the EU, they invited Ukraine to be an associated member. What this association actually means?

      For the whole country it would mean that borders for people are still closed to go to Europe. So, a visa…

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    3. Karel Machala

      logged in via Facebook

      In reply to Andrew Gilmour

      I found the map very interesting in the beginning. Now, I have an impression this map occurs very often for a reason - it is disseminated, promoted or helped occur more and more by the Putin propaganda to promote the view Ukraine is divided and the East is entirely pro-Putin and wants to join Russia. Not true. Only 33% in the Eastern Donetsk (the most blue parts) want to join Russia according to latest poll. 40% of Crimeans. This is why he sent his military, otherwise a clean democratic referendum…

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    4. Elena Berwick

      Accountant

      In reply to Karel Machala

      I suppose a clean and democratic referendum for you Karel is a referendum with the fascists from the Ukrainian Svoboda party monitoring this referendum.
      33% of Donetsk and 40% of the Crimean people supporting Russia...We will see what the Crimean people say first. Second, people of Donetsk, Kharkov, Dnepropetrovsk and the other Eastern cities support going out but they have no gorillas similar to Svoboda fascist party and cannot fight with them, so they are scared.

      You have no idea why the…

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    5. Andrew Gilmour

      logged in via Facebook

      In reply to Karel Machala

      Just go there Karel to actually understand what is the representation of people in there rather than sitting in the Internet. The whole Eastren Ukraine speaks Russian and about a half of the central part speaks Russian and obviously all the Crimea.

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  4. Louise O'Brien

    Marketer.Communicator. Observer

    I believe that part of Ukraine is more likely to become part of Russia than become a separate state.

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