Russian economic footprint in Ukraine

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Since the annexation of Crimea and the beginning of the Ukrainian-Russian war in 2014, Russia lost a significant part of its economic grip on Ukraine. However, due to the widespread use of offshore and hidden investment, it is difficult to estimate its actual economic footprint. This report looks into how Russia’s economic footprint has changed in the last decade, how Russia has influenced Ukrainian society through media, political parties, government debt, and other political amplifiers, and what Ukraine can do to mitigate the corrosive effects of the existing Russian presence.

The key findings are:

  • The trade between Ukraine and Russia has declined substantially. The country’s total imports from Russia had fallen from 18% of GDP in 2012, when it was at its peak, to 6% of GDP at the beginning of 2019.
  • The Russian corporate footprint has also decreased, but more gradually. Since 2009, the share of assets and the turnover of Russian companies in Ukraine have decreased from 3.6% to 2.1% and from 4.3% to 2.8% of total assets and total turnover, respectively.
  • The stock of Russian investment has remained relatively stable when looking at official data. However, it is important to note that official data significantly underestimates Russian investment in Ukraine. Our calculations show that when taking into account offshore investment, Russian investment into Ukraine is at least two times higher than the official estimates.
  • Russian influence has changed in the political and social sphere as well as in the economy. While a ban on the Russian media, social networks, and a church Tomos undermined Russia’s ability to influence Ukraine, some of the channels of its influence have remained intact. Russia is still able to support pro-Russian political parties or Ukrainian media being purchased by individuals close to Russia. Almost half of the Ukrainian population still views Russia positively, likely distinguishing ordinary Russians from the Russian government. There is also a strong regional disparity with people in eastern Ukraine viewing Russia much more favorably than people in western Ukraine do.
  • The situation has also changed significantly in some critical industries. For instance, the banking sector is one of the most prominent examples of Russian capital outflow. There were 13 Russian banks in 2009 (3 among the ten largest); as of 2019, only 5 Russian banks are still active. In energy, one of Ukraine’s most notable achievements was that it stopped direct imports of Russian gas. However, the Russian presence remains significant and virtually unchanged in other critical sectors, such as metallurgy.
  • We believe that to address the corrosive effects of capital from Russia, Ukraine should first enhance the transparency of investment to be able to map the extent of Russian investment in Ukraine clearly. Also, we believe it is especially important to limit Russian investment in selected critical sectors such as media, energy, etc.; to limit investment by Russian state-owned companies and those linked to the Russian government by closing loopholes in sanctions in general, and, overall, to address governance gaps that facilitate the inflows of corrosive capital identified in this report.
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