How the Crimean Economy Has Changed since the Annexation – Military Complex is Growing and the Rest is Stagnating

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In seven-year time after its annexation, the economy of Crimea has changed completely. We just have to look at the most telling figures to see what kind of economic model the Crimean Peninsula has become. Before its occupation in 2013, foreign exports amounted to USD 904.9 million and imports to USD 1.044 billion, and from the city of Sevastopol – USD 99.8 million and USD106.9 million respectively, the situation has drastically changed now. Already in 2019, exports have fallen by 27 times – the corresponding figures for Crimea were USD 33.7 and USD 60.4 million, while Sevastopol was USD 6.4 and USD 6.3 million, respectively.

However, even those volumes that were exported can be divided several times. Thus, if we look at the export component of products from the Crimean region in 2014-2020 from seaports, it appears that most grain was sent to Asia – Syria, Lebanon, Libya, as well as Egypt, Northern Cyprus, and Turkey. An interesting fact is that a significant portion of grain exports is made at the Kerch Strait – the roadstead No 451 of the Russian port Kavkaz, the fifth largest port in the Russian Federation in terms of cargo turnover. Andriy Klymenko, head of the monitoring group at the Institute for Black Sea Strategic Studies, explains that this allows Crimean grain to be mixed with grain from Russian regions to hide its origin from the occupied territory.

The same situation is with other export options. For example, liquefied gas supplied from Crimea to Syria, Lebanon and Egypt is re-exported from the Russian Federation through the gas terminal at the Kerch Fishing Seaport. In the same pattern the Russians also receive fuel and lubricants – re-exported from the Russian Federation via the Feodosiya oil terminal to Syria.

These figures mean that the peninsula has actually stopped producing for foreign markets, having become a major subsidised region for Putin’s Russia.

Many experts have long drawn attention to these figures. If one looks at the number of subsidies, as of 2020 they amounted to 2.1 trillion roubles (USD 34.7 billion). Such figures do not consider various major infrastructure projects, let’s say, the Kerch Bridge access roads. Of course, spending on the military industry is not counted either. The situation has not changed this year either. The budget of the Peninsula in 2021 consists of about two-thirds of subsidies, and only 22% its own revenue.

All this puts a burden on the budget of Russia and consequently on the taxpayers of Russia. If the negative effects of the sanctions are considered, Bloomberg Economics estimates that economy of Russia has lost more than USD150 billion in five-year time.

 

The Crimean military base

One of the most prominent industries, which has become the trademark of Crimea, has always been tourism. Although in a partial ratio, the tourism industry brought about 25% to the budget, it certainly made an important component of the image. If we keep the record since 2010, the tourist flow to the Peninsula ranged from 5 to 6 million holidaymakers per year. At the same time, there were about 1 – 1.2 million tourists coming from Russia. Russian statistical agencies report roughly similar figures, with just over 6 million tourists arriving in 2020. Oleksandr Liyev, former Minister of Resorts and Tourism of the Autonomous Republic of Crimea, has a different opinion – 1.2 million tourists travel from Russia and 100,000 from the Ukrainian mainland. Apart from logistical problems, such as airline subsidies for tickets to the Peninsula, which were removed at first, there are other factors, including infrastructure. For example, the number of guesthouses and hotels receiving tourists has dropped from 2,500 in 2013 to 826 in 2020. Oleksandr Liyev also notes that the number of private guest houses has decreased threefold to 1,000 units.

While the southern coast of Crimea is still somehow visited by tourists, the western and eastern parts of the Peninsula suffer from a lack of tourists.

Part of the tourist inflow is created artificially, given that out of more than six hundred sanatoriums, according to the monitoring group of the Institute of the Black Sea Strategic Studies, almost 200 have been expropriated or transferred to the state structures of Russia. For example, there are 68 sanatoriums in Yalta, 37 in Yevpatoria, 33 in Alushta and so on. And often they have fallen into the hands of oligarchs close to the Kremlin. For example, in 2016, the Foros Sanatorium was purchased by the Federation of Trade Unions of the Republic of Tatarstan, which, according to Russian sources, simply could not have had the funds to buy the Crimean sanatorium for 1.4 billion roubles. Later, Mikhail Shmakov, Chairman of the Federation of Independent Trade Unions of Russia, admitted that the trade unions acted as an operator in the purchase of Foros, receiving funds from large regional companies, probably KAMAZ and Tatneft.

In a similar way, the Livada Sanatorium in Yalta was sold in November 2018 to the Russian businessman Konstantin Malofeev, an active collaborator with the authorities.

Andriy Klimenko says that some of the sanatoriums have been transferred to the ‘ownership’ of the republics of the Russian Federation – Tatarstan, Chechnya, Ingushetia, Bashkiria, and others. That is why part of the tourist flow is created according to the ‘trade union’ line.

An equally important change has been the companies’ work for the Russian defence sector. According to the Institute for Strategic Studies, some 200 Russian enterprises cooperate with the seized Ukroboronprom companies. For example, the Leningrad shipyard Pella Ltd. became the so-called curator and then tenant of the shipyard More, which was state-owned in Ukraine, and after the occupation of Crimea was seized, expropriated, and ‘transferred’ to the Russian federal ownership. The list of such enterprises is quite extensive.

It is at the expense of military orders that Russian statistics proudly report on the growth rate of industrial production. Thus, according to Rosstat in 2018, Crimea was the second and yielded only to the Rostov region in such terms – 109 % and 110%. The Krasnodar region was the third in the list.

Therefore, it is now safe to call Crimea a military factory. In 2014-2019, 68% of the economic activities in Sevastopol were related to military production. In Crimea, the distribution of economic activities is quite different: transport 53%, mining 11%, public administration and military security 6%, real estate operations 6%, production and distribution of electricity, gas, and water 5%, and other activities 19%.

The same situation is in the banking sector. Before the occupation, the territory of the Autonomous Republic of Crimea and the city of Sevastopol had an extensive network of separate branches of commercial banks. Of these, 67 banking institutions were registered in the Ukrainian mainland and two banks were located in Crimea.

As of 1 September 2020, there were six active Russian banks on the Peninsula – all of which are under international sanctions. Local entrepreneurs say they have to travel to the Krasnodar region when dealing with Chinese suppliers to open an account there and receive goods because of the sanctions policy against Crimean banks.

Andriy Klimenko says that all this creates a huge distortion in the economy of the Peninsula. Thus, in terms of subsidies, Crimea is in the same group as the most subsidized Russian regions with the republics of Chechnya, Ingushetia, and Dagestan and with such remote territories as Altai and Chukotka.

At the same time, the average salary in Crimea in 2015-2020 was 10,000-15,000 Russian roubles (333-500 euros), although official statistics show figures twice as high. The only exceptions are officials, law enforcement officers and military personnel – their salaries are almost ten times higher than the average in Crimea.

As a result, we can rank consumer demand dynamics of Russia in 2020, with Crimea ranked 78th out of 85 regions.

Maksim Butchenko

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Autorius: Voras Online