Thursday, February 26, 2015

At the finish line of deindustrialization: how Ukraine loses its industry


By Ivan Lizan

Translated by Eugene

Ukraine's refusal to cooperate with Russia in the military, scientific and technical fields has already begun to bear fruit. Naturally, this Kiev’s policy forced the citizens of Ukraine to eat only one (poisonous) kind of "fruit”: unemployment, poverty and deindustrialization.

Thanks to the West and Kiev for this

The goal of this break in cooperation, initiated by the Western curators of Kiev - while talking heads in the government only announced Washington's decision, wrapped in the slogan “Not a single spare part for the occupier!" - was actually the disruption of the state defense order of the Russian Federation.

"Geniuses" of the Ukrainian political thought expressed the intention to force Moscow’s capitulation by refusing to cooperate and to export components. For example, the Ukrainian political "giant" Yuri Lutsenko suggested to use the Yuzhmash plant as a means to blackmail Russia. The argument was truly "deadly", but, as turned out, not for Russia: "... all Russian nuclear missiles can be serviced only by our Yuzhmash. Without this service, the whole world will sing la-la-la-la" [reference to the obscene ditty “Putin huilo la-la-la-la” popular among anti-Russian Ukrs] - Lutsenko repeated in mid-July last year.

However, the negative effect of breaking the bonds is almost always mutual and is not immediate. Because, all of a sudden, it turned out that the mastodon of Ukrainian engineering - the backbone of Ukrainian rocket-building – Yuzhmash found itself between life and death. Yet, Russian companies still keep working, for reasons still unclear to Kiev.

How the flagship of rocket-building dies

The plant had problems before. They were not critical, but accumulated from year to year.

Americans were first to refuse cooperation with Yuzhmash because of the exploded Anthares rocket. Formally, the Americans are going to work for about a year on finalizing the technical solution for their rocket, so Yuzhmash will be left without US orders during this time. In reality, if Washington decides to renew the cooperation, they will not find anyone to talk with, as by that time the company will be reduced to just a pile of equipment.

The final nail in the plant’s coffin was the refusal of the Russian Federation to procure launch vehicles Zenit; they will be replaced with [Russian made] Angara.

As of mid-October 2014, about fifty employees were leaving the company on a daily basis. And they were the most valuable workers that could not be replaced by anyone else. The situation was aggravated by endless waves of "mogilizations" [wordplay: mobilization/mogilization as “mogila” means “grave” in Russian] announced by Kiev in the framework of the civil war in the East.

The number of mobilized workers is not precisely known, but the more employees will lose their jobs, the more will be sent to the ranks of the Ukrainian army - thus not only enhancing the country's defense, but also "creating new jobs." Therefore, the damage to the personnel potential will increase in direct proportion to the duration of the war and the number of layoffs at the plant.

Death of the enterprise: Just the facts

One can learn about the state of the company from the interview of its former director Victor Shchyogol, but here we are only interested in the facts and consequences of the plant’s closure:

-- over the past three years, the volume of production at the plant fell more than 4 times, and the volume of contracts with Russia decreased by 60 times, as calculated in hrivnya equivalent;

-- the closure of the plant will result in the loss of about 50 000 jobs at Yuzhmash and associated enterprises;

-- about 70% of the components for the launch vehicle Zenit was produced in cooperation with Russia;

-- contracts with the Brazilians and maintaining working relationships with the US will allow to employ only about 10% of the plant’s personnel;

-- cooperation with Russia terminated completely, resulting in the loss of more than 80% of the plant’s revenue;

-- employees of the company have not received wages for over seven months;

-- out of the total workforce of 7000, more than a thousand employees have left the company;

-- even two years ago, orders from Ukraine amounted to the miniscule 10 million hryvnia (just over $1 million at the 2013 exchange rate), now there are no orders at all.

Who is next?

The next candidates for demise are Antonov ASTC [Aviation Science and Technology Complex] and other machine-building enterprises.

On January 30 the IMF mission arrived in Antonov ASTC. They acquainted themselves with the work of the enterprise and visited the laboratory of static tests, the engineering and piloting stand, the trainer AN-148, assembly shops for both experimental and serial productions, and also learned about promising projects.

It is unknown, what was the real purpose of the visit by IMF clerks, but it is doubtful that the sharks of the Western capital were interested in a speedy recovery and development of the enterprise. Most likely, it goes to its liquidation. Probably, the closure of a number of high-tech industries is one condition for the disbursement of IMF loans to Kiev.

Remarkably, the dying Yuzhmash and Antonov are connected by industrial cooperation – the chassis for the aircraft family AN are made in Dnepropetrovsk.

The situation is no better in railcar construction - in the first half of last year, they assembled only about 3,500 cars with a capacity of 38 thousand. The Kharkov plant Electrotyazhmash has lost $41 million due to the cancellation of orders from Russia for the supply of turbine generators, electric motors and mine-drilling equipment. The losses of Yuzhkabel amounted to $12.4 million.

Only Turboatom and “Motor Sich" managed to survive - so far.

Next in line – the death of metallurgy, which remains in a state of depression for several years already. The destruction or loss of the Avdeevka coke plant will force Kiev to switch to imported coking coal, while the transition of Mariupol under the authority of DPR [Donetsk People Republic] will lead to the loss of the major port for exporting rolled metal. With diminished metal production, the state budget will lose a large share of its foreign currency earnings.

In the framework of the war between Kiev and Dnepropetrovsk, the ferroalloys sector, which is controlled by Igor Kolomoisky, could potentially die as well. Ferroalloys plants have not been modernized, and this is an incredibly energy-intensive industry. So far, the only thing that saves the industry – is the supply of electricity from Russia and the unwillingness of Kiev to confront Kolomoisky.

Quite vague are the prospects of chemical and food industries, however, the situation is no better in other areas of the economy that are suffering from young reformers and "visiting warriers" from the Baltic states and the US.


One can say with certainty that at the end of its civil war, the Ukraine will complete the process of de-industrialization, and what is left of it, will be able to grow only grains.

The existing objects of infrastructure are irrelevant to Kiev rulers, while the workers capable of servicing power plants and producing high-tech goods at miraculously survived factories will either die at the front, unable to avoid "mogilizations", or travel outside the country to escape from poverty. It is safe to admit that the administrative staff are absolutely incompetent, which is confirmed by regular accidents at Ukrainian nuclear power plants, which only narrowly failed to repeat the Chernobyl disaster.

The financial default, which Kiev will have to declare, inevitably, will only hasten the death of the industry. Together with the production shut down, Kiev will get a reduction of foreign exchange earnings, a decline in budget revenues, and, therefore, an approaching collapse and tens of thousands of lost jobs - not because of some Moscow’s policy, but from Kiev’s own desire to kill itself to spite Russia.

Because each new closed plant will only bring closer the start of large-scale urban riots and increase the number of opponents of the bankrupt project "Ukraine". 

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