Before Ukraine builds a wall

Poland still is not the major partner for Ukraine. If it doesn’t act now it may lose its competitive advantage. And then it will be too late.
Before Ukraine builds a wall

Kiev (Thisisbossi, CC BY-SA)

Over the centuries, the existence of the Ukrainian state depended largely on the goodwill of its neighbors, among which Poland and Russia were the most influential. The territories of Ukraine constituted an important direction for the expansion of business operations, usually by way of armed conquest. Our current relationship with Ukraine, however, does not take advantage of the economic potential of the two countries.

Ukraine has been in a state of war since it opposed Russia’s interests. In cooperation with President Petro Poroshenko, the Supreme Council of Ukraine has been managing this conflict in a skilful and prudent way. In spite of the constantly growing threat, the Ukrainian authorities have commanded the activities on the front in an orderly fashion and have also conducted a skilful foreign policy. It is not limited to pleading and guided only by current needs, but puts emphasis on postulates important for the future, such as energy security. It is meticulous and clearly complies with a previously established plan. Such skilful and thoughtful actions allow us – even in spite of some internal disagreements – to see Ukraine as a united nation which has matured enough to become sovereign and fully independent.

This policy, however, would not be possible without the highly-publicized military and financial support that it receives (coming mainly from across the Atlantic) and the silent opposition of the countries of Central Europe to the Kremlin’s aggressive policies.

Looking for partners

Because the country is forced to establish a path of economic development without the participation of the Russian Federation, previously unknown influences of certain interest groups  are emerging in Ukraine. The country is trying to accept and manage these influences as much as possible in accordance with its own social interests. It does not remain passive itself, as it is looking on its own for profitable allies and economic partners for the newly developing economy. For example, this year it signed an agreement on the supply of gas with Hungary and appointed the former president of Georgia, Mikheil Saakashvili, to the position of governor of the Odessa Oblast. Along this path, the Ukrainians are also looking to the European Union.

We should expect the deepening of Ukraine’s relations with Hungary, Romania, Slovakia and even with Belarus. Poland is, unfortunately, the missing link in this chain. The current economic cooperation does not utilize even half of the capabilities of both markets. Ukraine has a distinct strategy for our country. It treats us as… a potential partner. This approach was manifested during the meeting of Prime Minister Ewa Kopacz with the Prime Minister of Ukraine at the beginning of the year, which marked the beginning of negotiations on cooperation in the field of energy (relating to the adaptation of the power plants so they could also use coal from Poland). The condition for the talks to succeed set by the Ukrainian side was for Poland to grant credits for the modernization of the power plants in the amount of approx. 100 million euro over 10 years.

The Polish-Ukrainian talks, however, are so vague that the issue of the export of Polish coal is not at all certain. Deputy Prime Minister Janusz Piechociński admitted that Ukrainians reported demand for our coal, but wanted to receive it for free. Ultimately, no binding agreements have been concluded. Will it turn out in a few months that the outcome will be similar to the case of the attempts to connect Poland to the Odessa-Brody oil pipeline a few years ago? The latter plan was ultimately not implemented.

Poland needs to act

If Poland does not want to wake up several years from now as the country that lost the most in dealing with Ukraine, it should immediately start taking more vigorous action, e.g. bring about the signing of an agreement for the supply of coal along with a clause specifying when the first tranche is to be delivered. It should also resume talks on the supply of Caspian oil and obtain funds for the co-financing of this project from the European Union. A separate issue, although more sensitive, is the possible supply of military equipment. In this area, however, big political risks are present.

In order to ensure cooperation with Ukraine and assess the needs of its economy, Poland should also organize an economic mission in the coming months. Many Polish entrepreneurs have goods that are in demand in Ukraine, but they will not enter the Ukrainian market without adequate support.

Exports from Poland to Ukraine are much smaller than would result from the potential of the Ukrainian market. Huge space for the sales of Polish products has been created in Ukraine. Polish companies would be able to obtain huge profits from such trade, but everything indicates that such a situation will not occur in the coming years. This is due to two reasons: firstly, the Ukrainian government prevents the free sale of goods, and secondly, there is a shortage of capital on the Ukrainian side.

Previous Polish activities, which included admitting wounded soldiers to hospitals, paying for the accommodation and education of Ukrainian students or the proposal for the abolition of visas for the entire territory of the European Union, were all very good moves, but lacked consistency. Poland should establish simple rules and expect something real in return – selfless acts of solidarity could simply weaken its negotiating position.

It should also keep in mind that the more Ukraine gets from the West, the less willing it will be to talk to Poles. Every small economic agreement with the neighbors will be a tiny building block in the wall separating Poland from the potential benefits of cooperation with Ukraine.

According to the data presented by the company, in previous years Polish export to Ukraine ranged from several to over a dozen percent. At the end of 2012, it amounted to USD5,279.6m, which was an increase of 12.6% compared to the beginning of 2012. This market is much more absorbent and Poland should assume that the sales of domestic manufacturers would be much higher if it were not for the introduction of the embargo and the hike in customs duties.

Taking over Russia’s position

We can assume that unless there are some spectacular changes that deprive Ukraine of a greater part of its own territory, the country will continue to develop in line with a complete decoupling from Russia.

According to, Russia was still the largest supplier of goods to Ukraine in 2012. A huge gap waiting to be filled has now been created. Should Poland therefore leave this market to more prosperous states that will be willing to extend credits for their supplies? The answer is no.

Many of Polish exporters are already familiar with this market and it would be a shame to lose it. The best scenario to pursue by Poland is to put a wedge between the Western subsidies and the internal policies of Ukraine.

Poland should obtain a certain share of the market by exporting even small quantities of goods  and adjust prices on an ongoing basis so as not to lose and not to alienate the neighbor who is currently immersed in a war. Political assurances are required for such interventions.

The introduction of the embargo on Polish pork by Ukraine is a tool in a political game which Ukraine was forced to play. The unblocking of the supply of Polish pork and the reinstatement of the embargo in 2014 were supposed to show Poland the importance of trade with Ukraine and check the commitment to this issue. The Ukrainian government is perfectly aware of how much Poland can do in this respect in the international arena. It follows, therefore, that in the coming years Polish interests will have to be confronted with the needs of Ukraine, the fulfilment of which is likely to involve  many countries looking for new paths of development, such as Georgia, Romania, Lithuania or Estonia.

The author is a member of the „4Future” Students Association for Research and Economic Forecasting at the University of Łódź, awarded in the category „Best student research team” in NBP’s competition for the best macroeconomic analysts of the year.

Kiev (Thisisbossi, CC BY-SA)

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