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Business under supervision – pathologies serving the system of power in Russia

Author(s): Maria Domańska,Piotr Żochowski / Language(s): English

The relations between Russia’s authorities and business circles are subordinated not so much to rational economic calculations as to the interests of political elites. The key interest in this case is maintaining the current model of government. The formal and informal supervision of business by law enforcement agencies is an important element of Russia’s economic reality. Despite the rhetoric of high-ranking officials, intended to suggest that the state is taking care of businesspeople’s interests, it is evident that there is no will to devise a systemic solution to the most urgent problems, including the state institutions’ disrespect for the rights of ownership.

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Moldova: from oligarchic pluralism to Plahotniuc’s hegemony

Author(s): Kamil Całus / Language(s): English

Moldova’s political system took shape due to the six-year rule of the Alliance for European Integration coalition but it has undergone a major transformation over the past six months. Resorting to skilful political manoeuvring and capitalising on his control over the Moldovan judiciary system, Vlad Plahotniuc, one of the leaders of the nominally pro-European Democratic Party and the richest person in the country, was able to bring about the arrest of his main political competitor, the former prime minister Vlad Filat, in October 2015. Then he pushed through the nomination of his trusted aide, Pavel Filip, for prime minister. In effect, Plahotniuc has concentrated political and business influence in his own hands on a scale unseen so far in Moldova’s history since 1991. All this indicates that he already not only controls the judiciary, the anti-corruption institutions, the Constitutional Court and the economic structures, but has also subordinated the greater part of parliament and is rapidly tightening his grip on the section of the state apparatus which until recently was influenced by Filat.

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The migration of Ukrainians in times of crisis

Author(s): Marta Jaroszewicz / Language(s): English

Before the Russian annexation of Crimea and the outbreak of the conflict in eastern Ukraine, the scale of labour outward migration of Ukrainians had been characterised by a slight downward trend. Back in 2014, an increase in the number of Ukrainians who migrated to Russia was observed, although no similar increase was recorded for EU countries (excluding Poland). The year 2015 brought a more rapid surge in the number of Ukrainians migrating to the EU, again mainly to Poland. Due to the lack of current EU-wide data[1], estimates can be made based only on data compiled by national statistical offices in countries which are the most popular with Ukrainian migrants. In Poland, as of October 2015 Ukrainians held 52,000 valid residence cards. Much greater migration dynamics have been observed in the case of temporary migration – the number of declarations which enable an individual to take up a temporary job in Poland, issued in the first half of 2015, was a staggering 400,000. This means a more than twofold increase – in the whole of 2014 372,000 declarations were issued to Ukrainian citizens. No similar increase has so far been observed in other EU states, including Italy and the Czech Republic, which have always been popular destinations for Ukrainian migration. In late 2014, 233,000 Ukrainian migrants were registered in Italy (in late 2013 the figure was 191,000), whereas in the Czech Republic the number of Ukrainian migrants remains stable – 104,000 in June 2015.

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Reform #1. Why Ukraine has to reform its gas sector

Author(s): Wojciech Konończuk / Language(s): English

In April 2015, the Ukrainian parliament passed a long-awaited law on the gas sector which paves the way for the extremely difficult process of reforming and de-monopolising the Ukrainian gas sector. The law will come into force on 1 October 2015 and involves the break-up of the state-owned company Naftogaz, the current monopolist, and the gradual creation of a competitive gas market in line with the so-called Third Energy Package. At the same time, a threefold increase in the price of gas paid by individual customers and the public sector was introduced. The price had been subsidised for years and no previous government had ever decided to raise it.The comprehensive reform of the gas sector is one of the most important and most difficult reforms Ukraine has to implement. Its success will be of fundamental importance for the Ukrainian state due to its impact on several major areas of the state’s functioning. Without the marketisation of gas prices and an improvement in Naftogaz’s financial standing (in 2014, the company’s deficit accounted for 7% of Ukraine’s GDP), it will be impossible to reform Ukraine’s public finances to end the long-lasting economic crisis. Without an improvement in Ukraine’s energy efficiency, which currently is one of the world’s lowest, it will be impossible to reduce the country’s dependence on the import of gas. Successful implementation of the reform will also be important in the context of the future of Ukrainian-Russian relations. The question of gas supplies has been one of the major aspects of this relationship since 1991. Another extremely important consequence of the reform will be to eliminate the main source of income from corruption in Ukraine., which has benefited the ruling elite since the 1990s. Corruption seems to be the reason behind the reluctance of all previous governments in Kyiv to reform the gas sector.

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Ukraine’s wartime nationalism

Author(s): Tadeusz A. Olszański / Language(s): English

The Euromaidan revolution and the war in Donbas that followed it have brought about deep changes in the way Ukrainian citizens think and have led to a rapid transformation of how people view the concept of national community. It began to be increasingly common for proponents of nationalism to refer to solidarity with the state instead of referring to the nation understood as an ethnic community, as they had previously done. This is due to the fact that an entire young generation has matured which takes the Ukrainian state for granted, but also because in the Russian-Ukrainian conflict most Russian-speaking citizens of Ukraine have opted for Ukraine.The war with Russia, which has now been ongoing for over a year, has led to a significant radicalisation of society’s attitudes and to attempts to seek models of military actions from the past that could serve as reference points in contemporary thinking. In Ukraine, the main, if not the only clear-cut model of this type of action, has been the story taught in schools involving fighting carried out by the Ukrainian Insurgent Army (UPA) in 1943–1952 (the narrative omits the crimes perpetrated by this formation—not only those against ethnic Poles). One consequence of this has been the currently observed wide-scale adoption of OUN-UPA symbols including by groups dominated by Russian-speaking residents of central and eastern Ukraine. This, however, is not accompanied by the adoption of the ideology of these historical organisations. Even when activists and columnists refer directly to Stepan Bandera, his actual views remain largely unknown. A new phenomenon has emerged which so far has been of marginal importance, but which has large potential to develop: neo-Nazism which refers to contemporary European neo-Nazism instead of Banderite traditions.

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Ukraine on the financial front – the problem of Ukraine’s foreign public debt

Author(s): Rafał Sadowski / Language(s): English

One of the key challenges that Ukraine is facing is the scale of its foreign debt (both public and private). As of 1st April it stood at US$ 126 billion, which is 109.8% of the country’s GDP. Approximately 45% of these financial obligations are short-term, meaning that they must be paid off within a year. Although the value of the debt has fallen by nearly US$ 10 billion since the end of 2014 (due to the private sector paying a part of the liabilities), the debt to GDP ratio has increased due to the recession and the depreciation of the hryvnia. The value of Ukraine’s foreign public debt is also on the rise (including state guarantees); since the beginning of 2015 it has risen from US$ 37.6 billion to US$ 43.6 billion. Ukraine does not currently have the resources to pay off its debt. In this situation a debt restructuring is necessary and this is one of the top priorities for the Ukrainian government as well as for the International Monetary Fund (IMF) and its assistance programme. Without this it will be much more difficult for Ukraine to overcome the economic crisis.

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A captured state? Moldova’s uncertain prospects for modernisation

Author(s): Kamil Całus / Language(s): English

There have been several significant changes on Moldova’s domestic political scene in the wake of the November 2014 parliamentary elections there. Negotiations lasted nearly two months and resulted in the formation of a minority coalition composed of two groupings: the Liberal-Democratic Party (PLDM) and the Democratic Party (PDM). New coalition received unofficial support from the Communist Party (PCRM), which had previously been considered an opposition party. Contrary to their initial announcements, PDLM and PDM did not admit the Liberal Party led by Mihai Ghimpu to power. Moreover, they blocked the nomination for prime minister of the incumbent, Iurie Leancă. Leancă has been perceived by many as an honest politician and a guarantor of reforms. This situation resulted in the political model present in Moldova since 2009 being preserved. In this model the state’s institutions are subordinated to two main oligarch politicians: Vlad Filat (the leader of PLDM) and Vlad Plahotniuc (a billionaire who de facto controls PDM).

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The Eurasian Economic Union – more political, less economic

Author(s): Aleksandra Jarosiewicz,Ewa Fischer / Language(s): English

The Eurasian Economic Union is undoubtedly the most comprehensive form of economic integration of the post-Soviet countries since the break-up of the Soviet Union. However, the way in which the integration process has been unfolding, as well as Russia's aggressive policy over the last year, are indications that the EEU has become primarily a political project, and the importance of its economic aspects has eroded. This has triggered a change in the way Kazakhstan and Belarus treat the EEU. Initially, the two countries viewed integration as an opportunity for the development of genuine economic co-operation. However, Russia's annexation of Crimea and the conflict in Ukraine have revealed the real significance of the EEU project – as a tool to reinforce Russian influence in the post-Soviet area and isolate the post-Soviet countries from the West and China.

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Russian sanctions against Moldova. Minor effects, major potential

Author(s): Kamil Całus / Language(s): English

Russia has been Moldova’s main trade partner and Russian capital has accounted for a large part of its foreign investments, dominating in the energy and the banking sectors. Moreover, Russia has been a key job market for Moldovan expatriate workers. In the economic sphere, this is making Moldova unilaterally dependent on Russia. Moscow has been attempting to exploit this situation to put pressure on the authorities in Chișinău for quite some time.In recent months Russia has increasingly used instruments for exerting economic pressure on Moldova, as a means of responding to the current authorities’ pro-Western policy. A key element of this policy was Moldova’s signing on 27 June 2014 of the Association Agreement with the EU (which came into force on 1 September 2014). Over the last year, Russia has implemented a number of import restrictions on Moldovan goods. The aim of the Russian actions is to fuel social disappointment, and ultimately – to prevent the pro-European coalition currently in power from winning the parliamentary elections scheduled for 30 November 2014. Another aim might be to convince the Moldovan authorities to suspend the implementation of the Association Agreement – a plan openly put forward by Vladimir Putin during the CIS summit in Minsk on 10 October 2014.

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Before the parliamentary elections in Ukraine

Author(s): Tadeusz A. Olszański / Language(s): English

The parliamentary elections to be held in Ukraine on 26 October will bring about deep changes in the political composition of the Verkhovna Rada, Ukraine’s parliament. It is very probable that after the elections only one or two of the five parties which are represented in the parliament today will remain, and the leading positions will be taken by groupings who were still considered marginal a year ago. The Petro Poroshenko Bloc, a party which according to polls can count on victory, did not exist a year ago and today still remains in the construction phase. It is likely that around two-thirds of the newly elected deputies will be people with no parliamentary or even no political experience. On the one hand, this may be a strong impetus to revival; but on the other the lack of experience of most of the parliamentarians may be a problem. Another source of potential problems may be the process of consolidating the internally unstable political parties which have emerged during the electoral campaign.

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Azerbaijan – a growing problem for the West

Author(s): Aleksandra Jarosiewicz / Language(s): English

Azerbaijan’s cooperation with the West, launched two decades ago, has helped it become a relatively strong and ambitious actor on the international stage. It has become a key country in the region from the Western (USA and the EU) and Turkish points of view, as well as an important partner in the energy sector. The strategic EU concept of the Southern Gas Corridor, also supported by the United States, is among the initiatives based on cooperation with Azerbaijan.Surprisingly, however, Azerbaijan’s increased ambition and importance have caused its policy to diverge ever farther from the expectations and plans formulated by the West. The changes in the balance of power in the South Caucasus, occurring in the context of the conflict in Ukraine, have forced Azerbaijan to revise its assessment of its position in the region. The main impetus for Azerbaijan’s actions is fear of Russia, as well as the weakness of the West which has become particularly apparent in the recent stages of the Ukrainian crisis.

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The eastern ‘partnership’ of gas. Gazprom and CNPC strike a deal on gas supplies to China

Author(s): Szymon Kardaś / Language(s): English

The CEOs of Gazprom and China’s CNPC signed a contract concerning Russian gas supplies to China on 21 May 2014 in Shanghai. The contract had been under negotiation for many years and was signed in the presence of the two countries’ presidents. Under this 30-year deal, ultimately 38 billion m3 of natural gas will be exported annually from eastern Siberian fields (Chayandinskoye and Kovyktinskoye) via the Power of Siberia pipeline planned for construction in 2015–2019. The lengthy negotiation process (initial talks regarding this issue began back in the 1990s), the circumstances surrounding the signing of the contract (it was signed only on the second day of Vladimir Putin’s visit to Shanghai, and the Russian president’s personal engagement in the final phase of the talks turned out to be a key element) and information concerning the provisions of the contract (the clause determining the contract price has not been revealed) all indicate that the terms of the compromise are more favourable for China than for Russia. This contract is at present important to Russia mainly for political reasons (it will use the future diversification of gas export routes as an instrument in negotiations with the EU). However, the impact of this instrument seems to be limited since supplies cannot be redirected from Europe to Asia. It is unclear whether the contract will bring the anticipated long-term economic benefits to Gazprom. The gas price is likely to remain at a level of between US$350 and US$390 per 1000 m3. Given the high costs of gas field operation and production and transport infrastructure development, this may mean that supplies will be carried out at the margin of profitability. The Shanghai contract does not conclude the negotiation process since a legally binding agreement on gas pipeline construction has not been signed and not all of the financial aspects of the project have been agreed upon as yet (such as the issue of possible Chinese prepayments for gas supplies).

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Kazakhstan’s attitude towards integration with Russia: less love, more fear

Author(s): Aleksandra Jarosiewicz / Language(s): English

Russia’s annexation of Crimea and destabilization of Ukraine have created a new context for Kazakhstan’s foreign and domestic policy. The ongoing crisis in the relations with Russia and the West has also changed the current order in the entire post-Soviet area. From Astana’s perspective, the Kremlin’s policy towards Ukraine can be considered dangerous since it shows Russia’s determination to interfere with the domestic affairs of its neighbours in the pursuit of its own interests. Furthermore, this policy reveals and raises the price a country needs to pay for its potential attempts to break free from the Russian zone of influence. At present the biggest challenge for the authorities in Astana is the accelerated implementation of the idea of the Eurasian Union promoted by Moscow, which is to be another stage in the integration of post-Soviet states (presently Russia, Kazakhstan and Belarus). The signing of the Eurasian Union’s founding documents planned for late May 2014 and the launch of this organisation (scheduled for January 2015) is sure to bring Kazakhstan closer to Russia and simultaneously limit its economic and political independence. Nevertheless, Astana’s position in relations with Moscow will to a large extent depend on the new shape of the relations between Russia and China. China is pursuing its own strategic interests in Central Asia (including in the energy sector) and its main partner in the region is Kazakhstan. At the domestic level, Russia’s actions in Ukraine made the authorities in Astana fear that measures similar to those used in Ukraine could be applied towards Kazakhstan. On the one hand this has led to increased efforts aimed at consolidating the state and strengthening its structures, and on the other hand it has brought about a revision of those aspects of domestic policy which Russia could interpret as a pretext for interfering.

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Georgia - between a dream and reality

Author(s): Marek Matusiak / Language(s): English

Following several years of political turmoil triggered by constitutional reform (a shift from a presidential to a semi-presidential system) and electoral reshuffles (parliamentary elections in 2012; presidential elections in 2013), the political situation in Georgia has stabilised: key posts in the country are now in the hands of democratically elected members of the Georgian Dream coalition. Despite its mosaic-like structure and internaltensions, Georgian Dream remains strong and enjoys high levels of public support. This puts it in good stead to play a central role in Georgian politics in the foreseeable future, including securing victory in the local government elections scheduled for June.However, local billionaire Bidzina Ivanishvili does not currently hold a political office - despite the fact that he is the founder, sponsor and undisputed leader of the coalition, as well as former prime minister and the most popular public figure in Georgia (besides Patriarch Ilia II).. This raises several questions, for example: Who is really at the helm of the Georgian state? What is the long-term vision of the current government? The past achievements of the politically heterogeneous Georgian Dream - dominated by Mr Ivanishvili - offer little help in answering these questions.

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Ukrainians’ EU migration prospects

Author(s): Marta Jaroszewicz / Language(s): English

The political crisis in Ukraine, particularly the bloodshed seen on 18-20 February and the subsequent Russian intervention in Crimea, has sparked fears of another possible wave of immigrants heading to the EU. However, the country was partially politically stabilised (at least in its central and western parts), and this has made the scenario of a mass migration of people from Ukraine rather unlikely. If there is no civil war in Ukraine, any further development of the political situation in Ukraine may have only an indirect impact on the actual migration. Should the political instability continue, the Ukrainian economy remain in recession while jobs are available for Ukrainian immigrants in the EU, then an increase in the migration of Ukrainian citizens to the EU, including Poland, would be possible. In the short term there may be two characteristic groups of immigrants: (1) young people who will attempt to leave Ukraine for good due to the lack of job opportunities; (2) circulating migrants, mainly from western Ukraine, who will be looking for temporary jobs. Only if the economic downturn trend and political turmoil in Ukraine continues for a longer time, will settlement migration increase.

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The transformation of agriculture in Ukraine: From collective farms to agroholdings

Author(s): Arkadiusz Sarna / Language(s): English

In recent years, Ukraine’s agriculture has been consistently improving and has been the only part of the country’s economy to buck the recession. According to preliminary estimates, in 2013 agricultural production increased by 13.7% - in contrast to a 4.7% decline in the industrial sector. According to official statistics, Ukraine’s industrial production was up 40% in the final months of 2013 when compared to the same period of 2012. This translated into an unexpected gain in fourth-quarter GDP growth (+3.7%) and prevented an annual drop in GDP. Crop production, and particularly the production of grain, hit a record high: in 2013, Ukraine produced 63 million tonnes of grain, outperforming its best ever harvest of 2011 (56.7 million tonnes). The value of Ukraine’s agricultural and food exports increased from US$4.3 billion in 2005 to US$17.9 billion in 2012, and currently accounts for a quarter of Ukraine’s total exports. Economic forecasts suggest that in the current marketing year (July 2013 - June 2014) Ukraine will sell more than 30 million tonnes of grain to foreign markets, making it the world's second biggest grain exporter, after the United States.

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Turkey's economy: a story of success with an uncertain future

Author(s): Aleksandra Jarosiewicz / Language(s): English

In the decade since the Justice and Development Party (AKP) came to power, Turkey’s economy has become synonymous with success and well-implemented reforms. Economic development has been the basis of both socio-political stability inside the country and of an ambitious foreign policy agenda pursued by the AKP. However, the risks associated with a series of unresolved issues are becoming increasingly apparent. These include the country’s current account deficit, its over-reliance on short-term external financing, and unfinished reforms, for example of the education sector.This leaves Turkey exposed to over-dependence on investors, especially from the West. Consequently, Ankara has become a hostage of its own image as an economically successful state with a stable socio-political system. Any changes to this image would cause capital flight, as exemplified by the outflow of portfolio investment and an increase in the cost of external debt that followed the nationwide protests over the proposed closure of Gezi Park last summer. In addition, Turkey remains vulnerable to potential changes in investor sentiment towards emerging markets.

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The Iasi-Ungheni pipeline: a means of achieving energy independence from Russia? Moldova’s attempts at gas supply diversification

Author(s): Kamil Całus / Language(s): English

Since taking power in 2009, the Alliance for European Integration (AIE) has been trying to end Moldova’s dependence on Russian gas. Currently, natural gas accounts for about 50% of the country’s energy balance (excluding Transnistria), and Gazprom has a monopoly on the supply of gas to the republic. The key element of Chișinău’s diversification project is the construction of the Iasi-Ungheni pipeline, which is designed to link the Moldovan and Romanian gas transmission networks, and consequently make it possible for Moldova to purchase gas from countries other than Russia. Despite significant delays, construction work on the interconnector began in August 2013. The Moldovan government sees ensuring energy independence from Russia as its top priority. The significance and urgency of the project reflect Chișinău’s frustration at Moscow’s continued attempts to use its monopoly of Moldova’s energy sector to exert political pressure on the republic.

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Russia’s turn towards Asia: more words than actions

Author(s): Marcin Kaczmarski / Language(s): English

The APEC[1] summit in Vladivostok (8-9 September) was expected to confirm Russia’s ambitions to play a more significant role in the Asia-Pacific region (particularly in East Asia) [2] and balance Moscow’s foreign policy by shifting some of its focus from Europe to Asia. The measures taken ahead of the summit included both the implementation of economic projects in Russia’s Far East and greater diplomatic engagement in the region. The summit itself, however, was less effective than expected.Russia failed to define its place in the Asia-Pacific order, and did not propose any new political or economic initiatives that would go beyond the discussions that have already been held within APEC for years, including plans for a free trade area.

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