Who will pay for the dream of the Imperialist? A review of the Crimea Situation

Born out of Syrian and Crimean disagreements, much has been made of the differences between Obama and Putin.

However, here we study the Crimean Situation from an economic perspective.

Revisit Cold War? There is more to Ukraine than banter between Heads of State. Image Source: Reuters

In light of the recent annexation of Crimea by the Russian Federation- or it may be more relevant to say the ‘annexation of Crimea by Putin’ – I have decided to roughly estimate the price of this geographical change. This article’s purpose is to evaluate the annexation in terms of its implications for the Russian economy. Apart from its impact on geopolitical facets and international relations, the emphasis here will be the internal affairs of the country.

First of all, it would be relevant to demonstrate some estimated figures. For instance, an economist, Andres Ostlund, reckons that so far Crimean succession has cost Russia from 1-2% of its total GDP. Moreover, he predicts that the price will continue to increase each consecutive year. A financial expert from Ukraine, Andrey Zhitnicky, claims that Crimea is expected to experience economic stagnation with negative economic growth, which will last for at least 5 years. Also worth noting: a majority of the prominent economic experts agree that returning Crimea to the Russia Federation will negatively affect its economy.

But the question is: who will pay for that?

In order to answer this, the current situation in Crimea requires analysis.

As of May 2014, de-facto Crimea is part of the Russia Federation, and due to its geographical situation, the government will have to build a bridge connecting the peninsula to Russian territory, in order to make it more accessible for tourists coming from there, of which the number is expected to rise by roughly 150%, new roads will be constructed. The estimates of the ‘Yabloko Party’ are that it will cost somewhere in the region of $3 billion. Further, if the President envisions a plan to turn Crimea into an international resort he will have to modernize Belbek airport, a significantly costly affair.

One may argue that theoretically it could have a positive impact on the Russia economy. Looking back at the 1930’s, Roosevelt’s plan involved a similar construction of roads, which in turn created jobs. This contributed to America’s recovery from the Great Depression. However, the situation in Russia is radically different: a bulk of its construction workers consist of illegal immigrants; in other words, a cheap labor force that doesn’t pay taxes and, therefore, doesn’t contribute to the budget.

The infrastructure is not the only problem Putin ought to address. The people of Crimea should be his first priority. As of 2013, Crimea’s total population was 2.3 million, of which 600 thousand were dependent on public funds, including pensioners, policemen, teachers, and doctors. An average pension in Russia is $300, so from the aforementioned statistics, it follows that in order to pay the annual amount of pensions in Crimea, Russia must allocate roughly $2 billion each year. Considering the fact that Russia has the budget deficit of approximately 0.8% of its total GDR, which will continue to rise up until 2016, the question of where to get monetary funds for Crimea remains unanswered.

Does the Russian government have any other alternative but to cut the pensions of 40 million retired Russians, and the wages of those who work in the public sector? Given the current situation where prices are constantly going upwards, there will evidently be a considerable fall in purchasing power.

The problem of Crimea’s reliance on Ukrainian energy and water resources remains without any feasible solution either. One may argue that the peninsula can sustain itself by utilizing unexplored shale gas, recently discovered in the Black Sea. But its exploration requires both time and financial resources. Moreover, there is no guarantee of the energy being enough to sustain the whole territory. Consequently, it appears that Russia will have to assign more money in order to build new oil pipelines. As regards to the water supply, which is currently being entirely provided by Ukraine, it should be a matter of concern for Putin, as Ukraine can shut the tubes or increase prices, and the process of building new water tubes will take years.

Crimean tourism is likely to be hit. Image Source:Mashable

Finally, it is not only the people of Russia who will be affected by the annexation, but also the people of Crimea. Tens of thousands of whom let their houses and flats to tourists each spring and summer. To begin with, 75% of a total of 4 million tourists in 2013 accounted for Ukrainians. Given the current situation and the anti-Russian tendencies in Ukraine, this number will decrease. That, in its turn, will impact their total revenue. Furthermore, Russia is about to pass a law which will put an end to people letting property, depriving them from their major source of income.

To conclude, Putin’s geopolitical and imperialistic claims appear to be extremely costly for him. However, the oligarchs and the President himself are not the ones to pay for this. Most likely, the funds to cover the cost will be taken directly from the common man’s wallet: pensioners, teachers, policemen, firefighters, doctors, etc. Apparently, by aspiring to his ‘dream’, Vladimir Vladimirovich has forgotten to ask the people, bearers of democracy, whether they share his views or not. Perhaps, he also forgot that the Slavs whose opinion has not been respected for too long tend to demand changes, as the Ukrainians had recently demonstrated.

Bogdan Nesvit

Bogdan Nesvit

Editor, Eastern Europe at InPRA
Having completed his under-graduation at Dnepropetrovsk National University, Bogdan read as a post-graduate at the University of Oxford and University College London(UCL).

Coming from Ukraine, he has worked for Ukrainian City Councils, magazines, journals and joined the United Nations in 2014.

He hopes to bring a different but robust prospective on Eastern European and Eurasian politics with his work.
Bogdan Nesvit

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  1. […] Crimea, the peninsula in the Black sea was annexed by the Russian Federation. In the article ‘The dream of the imperialist’ I mentioned that Ukraine supplied 80 % of Crimea’s fresh water and up to 90 % of its […]