The change of regime in Ukraine and recent events in Novorossiya have unnerved Russian billionaires who own major assets in Ukraine, including heavy industry, chemical and metallurgy plants, and oil refineries.
The change of regime in Ukraine and recent events in Novorossiya have unnerved Russian billionaires who own major assets in Ukraine, including heavy industry, chemical and metallurgy plants, and oil refineries. Revising past privatization deals in Ukraine will certainly be the dominant issue in parliamentary elections. However, it should be noted that Russian owners haven’t lost any assets since the Maidan rallies.
The most likely outcome is that owners will not be paid any damages for war-related losses. The Ukrainian government has already declared this with regard to the Lisichansk Refinery.
Ukrainian President Petro Poroshenko has appointed wealthy owners of major assets to key government positions, as a quick look at the senior officials in the presidential administration confirms. Poroshenko himself owns assets in Russia, so he is not interested in stripping Russian businesses of their assets in Ukraine.
Poroshenko has studiously avoided adding to the public pressure on Russian state-controlled banks in Ukraine, in particular calls on customers to withdraw their money and even incitement to burn down local branches. Poroshenko’s pick to lead the National Bank of Ukraine, Valeriya Gontareva, has clearly stated that these are Ukrainian banks with Russian owners, and their failure would pose huge threats to the banking system in Ukraine. In other words, Ukraine would only be hurting itself, not the Kremlin.
However, whenever possible, Russian owners will seek to sell their businesses in Ukraine or re-register them in the names of persons of different nationalities, particularly those with EU citizenship.
By the end of 2014, Ukraine's GDP will have shrunk by about 10%. In addition, consumer prices will rise by least 20% by year end. This will cause a significant reduction in consumer demand, especially for foreign-made products, because Ukraine’s currency has already devalued by 60%. The socioeconomic situation is deteriorating much faster in Ukraine than in Russia.
Clearly, Ukraine is important to the Russian government beyond economic assets. As for how current events will affect the prospects of Russian businesses in Ukraine, that will become clearer when the situation in eastern Ukraine is stabilized. It will depend largely on the ability of Ukrainian oligarchs – partners of their Russian counterparts – to hang on.
US and EU sanctions and Russia’s response won’t have a strong impact on global economic growth, knocking off only about 0.1-0.2 of a percentage point. However, the sanctions will have a more meaningful impact on the Russian economy. The danger lies not so much in the food import ban (this may even be beneficial in terms of promoting import substitution), but restricted access to technology and machinery.