Ukraine has found itself in an incredibly difficult security situation. A Russian funded war is ravaging eastern Ukraine, the European Union is stalling the implementation of the Association Agreement (AA), NATO is not willing to grant Ukraine allied status in the near future, Ukraine has not been provided defensive weapons from its Western partners, and the Ukrainian economy is in total disarray. With so many problems internally and externally, Ukrainian authorities are in a vice and must ask themselves some serious questions about its priorities when it comes to moving forward. Unusual times call for unusual measures and creative solutions, looking toward new markets and potential allies in the political sphere.
The two most important issues that Ukraine faces are the war in Donbas and the crumbling economy. In an article for the Atlantic Council, a think tank, Eurasia analyst Paul Goble noted that “before Ukraine can be reformed, it must be defended.” Gobles is correct when he states that Ukraine must oust the Kremlin-backed militants wreaking havoc on Ukrainian territory. While Goble is correct to state that Ukraine’s territorial integrity is the paramount concern, there’s no reason that both Ukraine’s defense and the reform of the country’s broken economy can’t be done simultaneously. In fact, both issues are necessarily inter-related as Ukraine’s ability to build a vibrant economy is directly related to the country’s security. The defense of the country’s east can be completed even while reformers in government can look both inward and outward for foreign support.
How can Ukraine fix its economy and also convince foreign investors to continue providing capital for new business opportunities? The delay of the AA by the European Union was an unfortunate side effect of intense Russian lobbying efforts. Not only did the Russian lobbying undermine Ukraine’s opportunity for economic reform and foreign investment opportunities, but also reinforced President Putin’s perception that the EU is fundamentally weak, venal, and divided. Lacking immediate economic integration with Europe, Ukraine is essentially forced to fend for itself until 2016, finding alternative markets and potential international partners.
Some analysts and Ukrainians have pointed to China as a potential source of foreign capital and political support. China has previously shown intense interest in investing in Ukraine, particularly in the agricultural sector. However, Ukraine shouldn’t count on China either as a source of foreign capital or a partner in the political realm. China’s foreign policy in the international arena is one of caution and fence sitting. Beijing has stayed largely silent on the issue of the Ukrainian crisis since the annexation of Crimea, wary of upsetting either the West or Russia. China and Russia are both BRIC nations that often cooperate on the UN Security Council and in bilateral relations, even if the authorities in Beijing are uneasy of Russian support for separatism in Ukraine. After all, China is a multiethnic country with its own challenges when it comes to separatism, particular in the far western regions and Tibet. Despite China’s notoriously cautious approach, Kyiv should veer from considering China as a potential source of foreign capital or political support. China is unlikely to want to spoil its relationship with the Kremlin over Ukraine, and recent signals have hinted that Beijing leans toward Moscow. China recently signed a record 30-year gas deal with China, and China is Russia’s largest trading partner. In 2013, some 90 billion dollars were traded between the two countries. More recently, top Chinese officials have addressed the Crimean crisis with more understanding toward Moscow’s official position. Chinese officials have made statements sympathetic of the Kremlin. “China reacts with full understanding to the challenges and threats Russia has faced in connection with the Ukrainian issue and supports Moscow’s approach to its settlement,” stated Gui Congyou, a regional director in the Chinese Ministry of Foreign Affairs. In addition, cooperating with Russia’s largest trading partner will only deepen Ukraine’s dependence on Moscow at time when such a strategy is both politically and strategically unfeasible.
Barring economic integration over the next two years with the EU, can Ukraine instead focus on deepening economic ties with Canada and the United States? In the long term this is certainly a sound strategy, but Ukraine’s unstable political and security situation is scaring away potential investors from across the Atlantic. Nick Piazza, CEO of PS Advisors in Kyiv, believes that the Western investors see Ukraine as a high-risk, but also potentially high-reward market. The costs of funding a start-up in Ukraine are rather cheap, but associated risks are quite high. A large proportion of new start-ups shut down within the first few years of operation. Lacking dedicated economic reforms, Ukraine’s business climate is also far from enticing, as byzantine tax laws and weak rule of law are significant impediments for small businesses and start-ups. However, with substantive reforms Ukraine may indeed become an attractive investment destination for North America’s capital market. The average cost of 20.000 USD to create a business in the country is quite cheap, especially when a market of 45 million people is taken into account.
In the short term, the surprising answer for where Ukraine should look for partnership is not North America or China. Instead, Ukraine should lobby for expanded business ties and economic integration with Turkey. Turkey is a high growth economy with a GDP of roughly 820 billion USD and GDP per capita of USD 19,000. The country’s economy is also predicted to expand by 6 percent through 2017. In comparison, Ukraine’s GDP per capita is around USD 6.500 and its economy is predicted to contract up to 7 to 9.5 percent in 2014 alone.
Ukrainian leaders should look to expand economic ties with Turkey for a number of reasons. First and foremost, Turkey is already Ukraine’s third largest trading partner, with over 5 percent of Ukraine’s exports destined for its Black Sea neighbor. Secondly, Turkey has a large population of 76 million people, many of whom possess skills in high-demand. In comparison to Ukraine’s rank of 99 on Forbes “Best Countries to Do Business,” Turkey is ranked 57th. Turkey is rapidly expanding its technological and automotive sectors, an economic field in which Ukraine also has much potential. Ukraine is currently experiencing an IT boom, and is currently a prime outsourcing location for foreign IT firms looking for skilled programmers. In 2013, Ukraine was ranked 4th worldwide in terms of the number and quality of computer programmers. Turkey and Ukraine can jointly tap into this human capital potential and expand their IT sectors and other areas of economic cooperation. The two countries’ close proximity makes this endeavor feasible and worthwhile.
Ukraine and Turkey’s political priorities also overlap in key areas. Turkey is a member-state of NATO, and has long been concerned about Russian aggression and interference on its frontier. The Russian annexation of Crimea not only deepened Russia’s control over the Black Sea, but also has also threatened the indigenous Turkic-speaking Crimean Tatars on the peninsula. In recent years, Turkish authorities have tried to present themselves as natural protectors and allies of Turkic peoples in the Caucasus and Central Asia. Russia’s annexation of the former Ottoman stronghold of Crimea is a threat to Turkish interests. Ankara has also long-struggled with the separatist sentiments of Turkey’s Kurdish minority, and Russia’s departure from international convention when it comes to supporting separatism in Ukraine marks a dangerous precedent. Ukraine should highlight the threat to Turkish interests of Russia’s illegal annexation, increasingly ugly suppression of Crimean Tatars, and Russian support for de-stabilizing separatism. Furthermore, instability on Turkey’s southern frontier in Syria and Iraq has Ankara scrambling for partners in its neighborhood. Ukraine can support Turkish policy in Syria, which is diametrically opposed to the Russian-backed Assad regime, and pledge cooperation with Turkey in the international arena.
Uncertain times call for unique and creative solutions. While Ukraine’s long-term interests and needs are best met through political and economic integration with Europe, in the face of a somewhat divided EU Kyiv may also look further afield for economic and political partnerships. While China and North America are both important potential partners, substantive cooperation and economic ties in the short-term are unlikely due to the reasons listed above. Perhaps Kyiv’s most promising partnership lies closer to home, just across the Black Sea in the image of Turkey. Ukrainian and Turkish interests overlap in key areas when it comes to security, and both economies share important commonalities when it comes to the potential for greater economic integration and cooperation. While Turkey is already Ukraine’s third largest trading partner, Ukrainian authorities might as well look into deepening ties with Turkey by highlighting shared interests in these trying times.