The economic effect of the Crimean annexation

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The Strategy for socio-economic development of Crimea to 2030[1] has formed the basis for the vision of the newly annexed region. The adopted document aims to form the modern engineering, transport, and social infrastructure, and to ensure “all-inclusive” sustainable development.

Since Crimean annexation, Russia has substantially increased expenditures on social sector and infrastructure, and local authorities have stated about sustainable economic growth. However, now peninsula is much more politically, physically and economically isolated.

The decline in economic activity in the region due to its full interdigital isolation is observed in all spheres of life. It is no coincidence that during the meeting with the local retirees in Crimea Prime Minister Dmitry Medvedev said his famous phrase: “Just no money now <…> Hold on. I wish you all the best, good mood and health.”[2]

The economic prosperity promised by the Russian authorities has not happened. The increase in wages and pensions did not last long: the increase in price of food products and the depreciation of the ruble quickly affected the consumer opportunities of the Crimean population. The social and economic situation in Crimea after its occupation is characterized by a rapid return to Soviet standards from the sectoral structure of the economy to the Social Security Indicators.

According to statistical data provided by Federal State Statistics Service, Crimea can be estimated as the outsider. According to the research proceed by the agency “RIA-Rating”, Crimea has ranked 66th out of 86 regions in the 2016 Quality of Life Index.[3]

For instance, the movement of funds for export-import operations of Crimean Peninsula has noticeably decreased. Despite the fact that the size of the budget of Crimea has increased significantly (from $ 600 million to $ 1008 million), this has not led to an increase in the subsistence level. For three years, its size fell from $ 147 to $ 145.1 in 2016.[4]

The most attractive promise of Russian politicians about an increase in salaries in Crimea statistically has been realized.  In 2013, the average monthly wage was less than 3 thousand hryvnia (about 11 thousand Russian Rubles).[5] Later, at the end of 2016 the average Crimeans earned approximately 25 thousand Russian rubles (about 10 thousand hryvnia). The difference is over 120%. But if analyzing the same numbers in USD equivalent taking into account the average weighted exchange rates and inflation, the situation is changing dramatically. Over the past three years, Crimean average nominal salary changes from 356,1 USD up to 362,3 USD what comprises only 2% growth.

Now the prices in Crimea are several times higher than in Ukraine. According to experts, the growth of incomes of Crimeans has been absorbed by inflation for a long time. Since 2014, the general level of inflation, according to the Crimean Statistical Service, exceeded the mark of 75%.[6]  Furthermore, the injection of Russian money remains unevenly allocated, with those working in the public sector and the military being the main beneficiaries of increased opportunities and salaries.[7]

The foreign trade has suffered considerably. So, according to the results of 2016, the foreign trade turnover of Crimea amounted up to 70 million USD – more than three times less than the level of 2015 (216.7 million USD). If compared with the times before the Russian annexation of the peninsula, the Crimean export fell by approximately 28 times, and imports – by 35 times.[8]

Crimea, being a subsidized region in Ukraine, has not been able to change its pessimistic economic status in the Russian Federation yet. Moreover, the level of donations of the region has increased approximately twice. As reported earlier, Crimea has received about 50% of its budget from Kyiv. Now the average percentage is settled at around 70%. In 2017, Crimea will receive from the federal budget 37.15 billion rubles, which leads the region into the top five recipients of subsidies in the country.[9]

The occupation has affected manufacture, trade, and tourism. The agrarian sector of the peninsula suffered billions of losses, as Crimea could not become independent from the water resources from Ukrainian river Dnipro.

Tourism, Crimea’s main income source before the annexation, has been seriously injured with the number of visitors said to be decreased up to 50% comparing to 2013. According to Alexander Liyev, ex-Minister for Resorts and Tourism, after the annexation in 2014 the number of tourists fell to 2.5 million, as the largest share of tourists were Ukrainians. Today, the tourist flow to Crimea is actually a one-way flow from Russia. Authorities are doing their best to fill that negative gap, however, in the context of Western sanctions Crimean cities now can accept only domestic flights.

Sanctions of the western world imposed against Russia’s aggression, including a ban on imports of goods from Crimea and Sevastopol is another reason of the poor performance. The Western economic pressure, though not fatal for the economy of the Russian Federation, has substantially damaged the Crimean Peninsula. Foreign investors escape from Crimea as this may create troubles for their business in Europe.

After 2014, the banking system of Crimea is based on two main banks – RNKB and Genbank, which are included in the Western sanctions lists. Therefore, their activity is focused only inside the peninsula and has legal ties only with neighboring Russia. For the outside world, these banks are isolated. In addition, sanctions do not allow full-fledged functioning of any international payment system or an international financial institution in Crimea.[10]

The transition to the legal field of the Russian Federation significantly affected the Crimean business, which was not ready either for the size of Russian fines or for the tax system of this country.

Unreasonable penalties for the slightest violations were particularly affected by small business – one by one small business comprising the basis of Crimean economy began to close.

Today Crimea has become a “gray zone” in terms of international law and the observation of international organizations. Even according to the official data of Russian statistics, no one can say that currently Crimea lives much better than before 2014. According to Director of the regional program of the Independent Institute of Social Policy (Moscow) Natalia Zubarevich, according to Russian statistics, the economy of Crimea is growing, together with the indicators of Dagestan and Chechnya (economic outsiders of Russia), which casts doubt on the reliability of the data. The main reasons for dissatisfaction continue to be rising prices, roads, bureaucracy, the health care system. The life standards “before” and “after” takeover is difficult to compare — even if revenues grow, sometimes it does not reflect the unprejudiced state of affairs.[11]

[1] Ministry of Economic Development of the Republic of Crimea. 2017. Strategy For Socio-Economic Development Of The Republic Of Crimea To 2030. Simferopol.

[2] Sergeyev, M. 2016. “Week In The Economy. “No Money, But You Hold On” – This Phrase Has Already Entered Down In History”. Nezavisimaya Gazeta.

[3] Russian Regions’ Rating On The Quality Of Life-2016. 2017. RIA-News Agency.

[4] “Как Изменилась Экономика Крыма За 3 Года Аннексии”. 2017. Слово І Діло.

[5] The calculations are made taking into account the average weighted exchange rate:

2013 1 USD = 8 UAH = 30 rubles

2014 1 USD = 17 UAH = 55 RUB

2015 1 USD = 23 UAH = 65 RUB

2016 1 USD = 25.5 UAH = 66.8 rubles

[6] “Three Years Of Annexation: How Crimea Lives”. 2017. Segodnya.Ua.–888708.html.

[7] “Crimea’s Annexation: Two Years On”. 2017. Country.Eiu.Com.

[8] Сергеева, Елена. 2017. “Экономика Крыма: Уверенное Падение”. Крым.Реалии.

[9] Subsidies to the regions of Russia in 2017.

[10] Tishenko, Y. and Kazdobina, Y. 2016. Crimea after the annexation. Public policy, challenges, decisions and actions. 1st ed. Kyiv: Український незалежний центр політичних досліджень.

[11] Tkachev, Ivan. 2017. “Three Years In Russia”.  RBK Newspaper.

Riana TEİFUKOVA, Gazi Üniversitesinde Uluslararası İlişkiler bölümünde Doktora öğrencisi olup uluslararası güvenlik, jeopolitik ve stratejik araştırmalar alanları üzerinde çalışmalar yapmaktadır. Gazi Üniversitesi'nde eğitimi başlamadan önce, Varşova Üniversitesi Uluslararası İşletme Programında yüksek lisans eğitimi tamamlamıştır, lisans derecesini Kiev Ulusal Ekonomik Üniversitesinde Uluslararası İktisat bölümünde almıştır. Yurtdışı Türkler ve Akraba Topluluklar Başkanlığı, Birleşmiş Milletler Kalkınma Programı gibi kurumlarda çalışmıştır; Ukrayna Ankara Büyükelçiliği, Ukrayna Kırım Özerk Cumhuriyeti Bakanlar Kurulu Dış İlişkiler Dairesi ve benzeri kurumlarda staj yapmıştır. TEİFUKOVA, Rusça, Ukraynaca, İngilizce ve Türkçe dillerine hakimdir. Ayrıca orta düzeyde Fransızca bilmektedir.