The lockdown is gradually being lifted but the full implications and costs of the COVID-19 pandemic are still to come. Some sectors of the economy such as travel, tourism, and hospitality face long periods of underactivity.
Others such as the energy business have undermined by the combination of low demand and excess supply. Governments have been forced to borrow on a massive scale and may have to borrow more to sustain support for growing numbers of unemployed workers. And although the number of new cases of COVID-19 is declining in Europe, we may not have seen the peak yet in areas such as the Middle East and Latin America. Until vaccines or treatments are available we will not be able to say that the pandemic is over.
Ukraine shares these problems with many others. The question is which country will be most effective in coming to terms with the situation and restoring economic stability and growth. The answer is that those who do best even in hard times are those who are ruthlessly honest in defining their own strengths and weaknesses and those who are prepared to use the opportunity of disruption to push through the essential changes necessary if sustained success is to be delivered.
Ukraine, having won and maintained independence over the last 25 years, should be economically stronger than it is. The potential is higher than that of many countries in the region. Ukraine has the natural resources, the land, a track record of technical progress, and crucially the human skills to be the strongest economy in Eastern Europe. Skills are much more important than labor costs which are relatively low but can always be undercut by others.
The country also has a geographic position which could Ukraine the pivotal state between Europe and Asia. So there is room for realistic optimism.
The second element of realism begins with an understanding of the changing context. Ukraine’s economic and trading future depends on its relationship with the European Union.
Europe is changing as the paper published by the European Commission in Brussels at the end of May on the plans for economic renewal, post-COVID, demonstrates. The EU is determined to move to a low carbon economy investing in renewables and hydrogen as part of a €750 billion stimulus plan. If Ukraine wishes to build and sustain a substantial trading relationship with the union alignment with these objectives is essential. No one can expect Europe to spend a vast amount on the energy transition and then ignore the carbon content of its imports.
That is one essential step if the investment which is necessary to rebuild the Ukrainian economy is to be forthcoming.
The other is clear and unequivocal evidence that the rule of law is paramount. A lack of trust will simply produce a lack of investment. For companies, Ukrainian or international life is uncertain enough without the added insecurity which comes if the rule of law is insecure and decisions can be changed retrospectively. The shift to the rule of law has not always been easy in countries which until 30 years ago were under Russian control, but the evidence is very clear. Those who made the effort have been rewarded with investment, economic modernization, and a new place in the global economy.
With trust rebuilt and with a shrewd awareness of the changing context Ukraine can thrive. The energy sector is just one area of enormous opportunity. Renewables are replacing coal and with the necessary infrastructure in place wind and solar power can help provide low cost locally produced electricity. That in turn benefits sectors of the economy where energy costs are a key concern. Local renewable power can enhance national security by eliminating the need for imports of electricity from Russia or Belorus. Looking beyond wind and solar Ukraine can also join Europe in taking steps to develop the hydrogen sector enabling a wider process of decarbonization to begin in industry and in the domestic market.
The last few months have been profoundly destabilizing for Ukraine and many other countries. Too many people have died and too many others find their jobs and businesses threaten. What has happened cannot be undone. But the crisis does offer an opportunity to reset the economy for the better. That opportunity should not be wasted.
Nick Butler is a visiting professor at Kings College in London.
