Military action has subjected every Ukrainian to tests never seen before. Russia's aggression is putting undeniable pressure on numerous sectors of the Ukrainian economy. In addition to stopping the shelling, Ukraine vitally needs to rebuild and modernize its economy and needs reliable partners for assistance and further mutually beneficial cooperation.
- According to your estimates, how much damage was caused to Ukrainian economy by more than 20 days of active fighting?
AA: From 20 to 30% of annual GDP. If we talk about the damage caused to the infrastructure, I have seen several estimates, ranging from 50 billion to 300 billion dollars. It's almost impossible to make an accurate estimate right now because the full extent of the damage is unknown. Not only transport infrastructure has been damaged, but also residential infrastructure and social infrastructure. Businesses have been damaged as well, and they either closed down or were relocated. We lost more than 3 million people involved in economic processes. People who have left Ukraine have fallen out of the economy and, accordingly, do not create a product. In addition, they are not consumers of the product in Ukraine.
Only a set of these factors together can give a final estimate of the loss to the economy. If we talk subjectively, starting from GDP, an estimate of 20 to 30%, it will be a realistic figure. But when we talk about GDP, it is a product that is created annually. That is, such a product will not be created. We have to add to it the amount of damage that has been done to the infrastructure, and here, accordingly, the estimates will be much higher. If we proceed from the fact that Ukraine's GDP is 200 billion dollars, it is about 65 billion. At least another 100 billion dollars of damage was inflicted during these 3 weeks of war alone. If we add the damage that was caused, according to various estimates, after the annexation of Crimea and the occupation of Donbass, there is about 240 billion more.
I always try to remind you that in '91, the Sberbank of Russia seized even the branches of the Sberbank and the savings of Ukrainians from the Ukrainian embassy. If you count the money to date, taking inflation into account, it adds up to about 200 billion more. In 2022 we lost 30% of GDP, and we will lose 30% next year as well. Yes, the economy will recover, but we will be able to reach the level of the end of 2021 not earlier than in 5-7 years. It is necessary to have investments and resources for recovery - again, the cumulative effect. The total amount of the cumulative damage inflicted on Ukraine is unlikely to be less than $500 billion.
- We have seen the Prime Minister's briefing and the President's address. We understand that the government introduces certain changes in the taxation system and customs regulations. What prospects should we expect from these measures?
AA: This is a kind of anti-crisis package of actions which allows the economy to keep afloat. The reform will be something that we will launch after we win. The tax breaks will remain in effect until the end of hostilities. Consequently, when the fighting is over, everything will go back to normal. Economic recovery will require a different correct approach. A radical tax reform is definitely needed here, which will create opportunities for Ukrainian businesses to accumulate resources. Administrative pressure must be decreased, the system of cooperation with the state and socialization must be simplified, and, consequently, conditions for outside investors must be created. In this way it will be more profitable for them to come to Ukraine, taking into account the risks which we will have for several years, rather than choose other jurisdictions.
The current relaxations are very spotty and are not significant for the future of Ukraine in terms of regulation. Transformation is also ahead. The most important thing is judicial reform, without which the economy will not survive either. Business should feel protected. We need an arbiter between business and the state which can be trusted. The existing judicial system does not fulfill this role. We need to create conditions for an economy where added value is created, primarily in the intellectual sphere. It will require transformation of military-industrial complex of Ukraine, transformation of Ukrainian science system, improvement of educational system. We need completely different skills and knowledge from what the current system teaches. Such will be the reset of the economy. The most important is that today it is being discussed in the echelons of power.
- The authorities are giving advice to stay in their jobs, to carry on with what people are doing. How do you think the economy should be supported now?
AA: I would not limit the tax relief to the end of the war. At least six months of these regulations are needed after the war is over, so that business can predictably plan for the future. Let's be honest: business today is mostly focused not on making money, but on supporting the Ukrainian army and volunteers. All of my friends who are involved in business do exactly that. So business needs to be able to rebuild its resource base after the victory. A tax reform should be announced within this half a year. A liberal, progressive reform, not the dotty loosening that we have.
The Institute of the Future presented the concept of the Tax Code a month and a half ago. We are finalizing this document and I think we are going to present the text of the Tax Code in a month.
- In the search for new opportunities and development for Ukrainian business we discussed the government's actions. What can you advise businessmen now and in the future?
AA: The main message is to realize that the war will end. Ukraine has a very good chance to get support from the West. Restoring the economy means restoring the infrastructure and supporting business accordingly. Don't carry business far away and out of Ukraine. I'm sure that after the victory, Ukraine will receive the most favorable mode of development. Here the consumer market will develop, at the first stage there will be a big state order. There will be more opportunities here than in Europe or other countries.
Attention to Ukraine rises to the highest level possible, and the world system will be transformed between two poles. China and the United States will determine the future of Russia and the future of Ukraine. In the next two weeks, we will have news in this format. What Russia has arranged is no longer satisfactory to anyone. If in the early days the West looked at China's actions with condescending eyes closed. Now Russia has become a pariah, and even China perceives it as a junior partner, as a stepchild, which has nowhere to go, but from which China will try to squeeze out the maximum.
For the first time in 30 years, Ukraine has demonstrated its subjectivity. One of the signs of being a subject is the ability to influence the actions of other subjects. And Ukraine, the Ukrainian people have changed the policy and the world agenda by their actions. And this opens up great opportunities for Ukraine.
Front News Ukraine