Russian sanctions will not be lifted, and Ukraine needs 10 years to recover: an interview with an economist

Roman Sheremeta– Professor of Economics at Case Western Reserve University, one of the co-founders of American University in Kyiv and TED speaker. According to Forbes, Roman Sheremeta is one of the two best Ukrainian economists. In addition, Sheremeta has one of the highest rankings of young economists in the world according to the IDEAS rating.

from purchases of Russian energy resources

I would like to start by saying that the economic crisis that we are seeing today is not the result of EU and US support for Ukraine, as the Kremlin propaganda is trying to explain, but is caused by Moscow's aggressive policy. Does Western society understand this? Or perhaps they have questions?

The matter, in my opinion, is much more complicated than this interpretation of events. The partial crisis that we are currently in is also related to the exit of countries from the covid epidemic, we are talking about monetary and fiscal government regulations established during the pandemic. And these restrictions have affected the demand of the population for certain groups of goods and services. For example, at first there was a shortage of certain goods, but now there are a lot of them.

For example, this inflation that we are all seeing now, it is not caused by the Russian-Ukrainian war. At the same time, the war at this stage still has a significant impact on the world economy.

So, Russia is 100% to blame here, Ukraine has nothing to do with this at all, Ukraine is just a victim, and Russia is an aggressor, Russia can stop all this at any time – just withdraw their troops from Ukraine and things will start to stabilize, but they don't want that. Ukraine cannot and should not give up its territories and its people, nor can it allow the Russians to kill its citizens.

Russia is to blame, and the whole world understands this, and no one really blames Ukraine among Western countries, at least not the United States. Republicans, for example, twist everything in the direction that the blame lies with Biden and his government, and the Biden administration transfers all the blame to Russia, and in the end this thing comes out, but no one puts the blame on Ukraine anyway.

In your opinion, are the EU and US sanctions imposed against Russia sufficient to prevent Russia from making super profits and financing an aggressive war against Ukraine? What other sanctions do you think should be introduced against Russia in the near future?

What the EU is proposing today in terms of sanctions is a very good step in this direction. Namely, with Russian oil – the upper price limit means that no one will be able to buy and sell Russian oil outside the upper limit that the EU countries have set for it. This also applies to third parties. I think this is very good, as it will prevent Russia from making windfall oil sales, especially at a time when the price of oil could rise.

The same follows to do with the prices of Russian gas and other strategic resources. I would personally ban buying oil in Russia altogether, as the United States did, and, in principle, the EU could do this without any problems, but they moving very slowly in this direction.

And this is a problem with the European players, there are certain cells, for example, Hungary or Germany, which have a lot of ties with Russia that are difficult for them to break. But in general, the policy in this direction is very effective, and it hurts Russia.

First of all, the ban on the export of high technologies to Russia is effective, and an embargo on chemical products is also being introduced now. And this is extremely important, because, for you to understand, it is by such measures that we destroy Russian tanks. Russian tanks and planes cannot be produced without IT technologies, without high-tech chips, and this seriously undermines Russia's ability to wage war, they simply have nothing to do with it.

Since the beginning of the war, Ukraine finally has more weapons than Russia, partly due to the fact that the Ukrainians recaptured from the Russians, and partly because Russia simply has nothing to fill the holes in the weapons, and all this is good news for Ukraine, sanctions work, and there will be even more of them.

To what extent can Europe completely refuse to purchase Russian energy resources and what are the realistic deadlines for this?

I think it might happen next month. They have already almost sorted out the gas, the reserves in most EU countries are already at the maximum, that is, the Europeans were preparing for this, storing a lot of gas. Of course, it will be difficult, because they will use the gas that is pumped into the storage facilities, and not supplied directly through the Nord Stream, but it is already destroyed, and in the near future I do not see the possibility of resuming supplies to them at all.

Europe can do it. It will be hard, it will be painful, but the Europeans have already prepared to use liquefied gas from the United States, they have replaced Russian oil with black gold supplies from other OPEC countries, and renewable energy is also gaining a certain role.

Although, on the other hand, nuclear energy should become a real substitute for all this energy from Russia, but building nuclear power plants throughout Europe will take a lot of time. So I'm all for nuclear power, the irony is that we live with all these nuclear threats from Russia, and we need to build new nuclear power plants, because we don't want to depend on Russian oil and gas anymore. Steps in the form of restrictions may take a little longer than expected, but Europe is ready and may do so in the near future. Especially if the US can guarantee the flow of liquefied gas and oil from the OPEC countries, that is, these are the steps that will allow Europe to become independent from Russia.

Is it really, on in your opinion, the leading EU countries did not understand that Russia always uses energy as a weapon and therefore they so easily “sat down” on the Russian “gas needle”?

Good question, and hard to answer. I think it's just business. This is not even the government, but the business behind the government.

When you have the Austrian chancellor working for a Russian oil company, or if the German chancellor is in the same way, they earn millions of dollars on this, in fact it is a direct bribe for European politicians. Of course, we are talking about former politicians, but they have a powerful political influence.

And in fact, we see that – some European countries sold themselves to Russia with giblets, but now their citizens are against it, and they say – wait, what is this happening? Look at Scholz – today he has popular support hovering around 30%, he will not be re-elected to the post of chancellor in his life, and he is now clinging to any opportunity to justify the trust of voters, but he has no political future. At least, I don’t see any prospects for him, especially in Germany, at all – solely for this lethargy in matters of support for Ukraine at the beginning.

And all these things take place due to these financial ties with Russia. And as soon as these ties are severed, and all the Russian spies, or whatever you can call them, these former prime ministers now working for Russia, I don’t know how else to call a German working for Russia, so as soon as these ties will be severed, Europe will be able to fully function again, without being tied to Russia.

“Hunger riots” and “Russian winter” : how Russia manipulates Europe

Russia is now actively threatening Europe with “Russian winter” and “hunger riots”. To what extent can this energy blackmail undermine the economies of European countries in winter and are they ready for the worst scenarios?

As I already said, this is all Russian propaganda, they scare with their horrors about terrible scenarios and boast that they will win the war.

That is, everything whatever you hear from Russia, immediately turn 180 degrees – they will lose the war, and everything will be fine in winter, especially in Europe. After all, Europe has sufficient gas reserves, and they can count on help from the United States, OPEC countries, Saudi Arabia.

And all these countries do not do it voluntarily, but there are questions of profit here, and they, of course, will replace Russia in the market of energy resource suppliers for the EU, and how long we will supply these energy resources to Europe – everything will be fine with them.

With food riots, this is also Russian propaganda, nothing will happen. Europe is well prepared for this. But what I'm worried about is Ukraine. After all, despite the fact that we have sufficient gas reserves, our infrastructure is significantly damaged. I worry about such cities as, for example, Nikolaev, and for the cities that have now fired the Armed Forces of Ukraine. When winter comes, they won't have to worry about gas, because it won't get there, no matter what. This problem needs to be solved immediately, to buy diesel generators and other means that will help Ukrainians survive this winter.

There will be no famine, with the possible exception of the territories temporarily occupied by Russia, because the occupiers do not give them anything, that is, it is the temporarily occupied territories that worry me the most. Also, the war in Ukraine is a huge problem for states that depend on the supply of Ukrainian grain, I mean African countries, but everything will be fine with Europe.

Problem in countries where Russian business is present

In early September, Russia stopped gas transit through the Nord Stream and announced that it would resume it after the lifting of part of the sanctions. Since then, gas prices in Europe have risen by about 30%. Can this situation with Nord Stream also affect Europe and the partial easing of sanctions in order to get cheaper gas?

No one will lift the sanctions. This will never happen, the sanctions will only gain momentum.

Until Russia withdraws its troops from Ukrainian territory, no one will even talk to them about this topic. Europe has already been betrayed by Russia so many times, and they have seen all these atrocities of the Russians so many times, here is a vivid example – Russia itself blew up its Nord Streams and throws it all off at the Anglo-Saxons, this is complete nonsense. So no one will lift the sanctions, that's it, the issue is closed.

Recently, more and more brands are being renamed and entering the Russian market with other names. Thus, they continue their work in the aggressor's market, and another part of the giants come up with various schemes in order to continue selling their products in any case. What causes it and how can it be stopped? Does it actually mean that the world has adapted to the bans, is tired of them and is ready to return to the market, because “the war can continue for a long time”?

If Speaking of top manufacturers, more than 1,000 major companies have left Russia and have no plans to return until the Putin regime falls and the country changes course.

Let's take, for example, Siemens, a German company that has been in Russia since, probably, the time of the tsar, one hundred and fifty years, and even they left Russia. And they are not going to return. And today, or yesterday, H&M completely began to withdraw its business from Russia, I can’t even imagine that H&M will change its brand and remain in Russia under a different name, this will never happen.

Not a single serious company, not a single brand will do business with Russia and will never return to Russia. There are, of course, some small brands that want to stay there and change their presence, but as soon as everyone knows about it, the reputational losses will be so great that they themselves will regret their decision a hundred times over. It just won't happen.

It is clear to everyone that Ukraine can defeat Russia and defend its territory if there is a powerful help from the international community with weapons. Do they understand in the West that it will be cheaper for their economies than to increase their armies and resist Moscow on their territories in case Ukraine loses? And if so, why do some countries still not provide the assistance that the Ukrainian authorities are asking for?

I would start by answering the second part of the question – why are countries not providing the assistance that the Ukrainian authorities are asking for. These countries can be counted on the fingers – Hungary, Germany, which could do much more. Austria, for example, has fallen off the agenda altogether, and this is very, very stupid.

When I was in Lugano and listened to an Austrian deputy who told how Austria helped Ukraine, and do you know what he said? “We helped by not blocking European aid for Ukraine.” That is, their help was that they did not sabotage what Europe is doing for Ukraine, for me this is generally wild, especially if you take into account their history, with Nazism and all that – they have duties to the whole world, and they instead, they sold themselves with the giblets of Russia.

Not all, though, but a part, but this is a gigantic problem. The problem is in these countries where there is Russian business, a powerful Russian lobby, some are up to their necks in Russian propaganda.

And now as to whether it is cheaper for countries to use Ukraine to confront Russia – of course, yes, help is coming to us. And this help is really unprecedented – take the United States, for example, where Biden says – listen, we will give Ukraine one and a half billion dollars every month, and this will continue until the war is over. And this is just huge amounts of money, and this is the USA – the most powerful country in the world, but there are others.

So the world understands all this very well, and perhaps not as deeply as they should understand, but still understands that it will be cheaper to support Ukraine than to fight against Russia.

Unfortunately, Ukraine, and this is used as a cliché by many, is the battlefield of the West against Russia, and the saddest thing is that this is, to some extent, true. Western countries do not want to personally intervene in the fighting, so they use Ukraine to stop this giant evil. This does not detract from the fact that Russia is evil, but at this stage it means that the West still does not want to personally intervene in the war.

What what will happen to the economy of Ukraine after the victory and how much time is needed to recover

We do not know how long the war will last, so we need to prepare for different scenarios. If it is a long one, then how can Ukraine avoid high inflation in the conditions of a protracted war and will the help of the collective West be enough to maintain the existing balance? In the short and medium term. What do you think?

Ukraine shows miracles of endurance, and has long surpassed all my hopes. If the West continues to support Ukraine, then recovery will begin even when the war is not over.

Now, of course, there is a huge decline in GDP, the World Bank at first gave a figure of 45%. Now it is about 37%, and according to other forecasts, we already hear a figure of 30%. The figures are huge, of course, but this was affected by the loss of a large number of territories, and if at the beginning 75% of Ukrainian businesses stopped their work, now this figure fluctuates within only 10%. In fact, business is working, and if Ukraine continues to implement the right economic policy, then the state will begin to recover already in the process of war. I mean the GDP will start to grow.

Here in Russia everything goes the opposite way. It will be years and decades before Russia's GDP recovers to pre-war levels, they have very serious problems in the long term.

Ukraine has short-term problems, the main long-term is the destroyed infrastructure, but the international business will want to come to Ukraine, they believe in the country and want to invest here, they see huge development prospects, investors, venture funds.

Last week I had a conversation with a US billionaire who has raised $50 million and wants to invest in Ukraine with help. So, Ukraine will recover, and this resumption will begin even when the war is not over.

Now many processes are being postponed: inflation is contained due to a fixed dollar exchange rate, tariffs for a while wars do not increase. How will Ukraine get out of all this after the victory? Will this be a price shock for the population when the dollar is released and tariffs are raised?

In order to get out of the fixed exchange rate, a very balanced policy is needed. In many ways, the dollar exchange rate will depend on how the war goes on. Inflation is not only in Ukraine now, you must understand this. It is everywhere, in the US, and this is now very worrying for Americans, even more than Russia or the war in Ukraine.

So, this is not a Ukrainian problem , and this problem arose even before the start of the war.

Now imagine – Ukraine defeats Russia even faster than we all expected, and a huge influx of capital and investment begins. If this starts, this gigantic influx of billions of dollars into the Ukrainian economy, it will stabilize the hryvnia very quickly. The whole point with the dollar peg is that you don't have significant holdings in that currency. And when this happens, then somewhere in the middle of this recovery process, the transition from a fixed dollar rate to a market one will begin, which will already be determined by supply and demand. And in this case, the strengthening of the hryvnia will begin.

How long after the victory will it take Ukraine to return to the pre-war level of development?

When I was at the London School of Economics, the IMF held a special recovery forum where my Harvard colleagues presented research on how quickly countries recovered from war.

< p class="bloquote cke-markup" dir="ltr">If we talk about the recovery after the Second World War and other conflicts, then the recovery time was from 10 to 20 years. So it will take time.

Have you lost a significant percentage of GDP and territory, and can GDP grow as much as 4-5% per year? Perhaps it will be more, but, for example, it will take 10 years to restore a third of GDP. Of course, I hope that it will be faster, but the whole point here is how much the world will continue to support Ukraine, because business is business.

Of course, there is a huge moral aspect to all this, especially for us who really love Ukraine. Business has a different interest here – Ukraine has so many things that will need to be restored, the same roads, for example, and business will say – here we will be needed, and Caterpillar, John Deere and all these large companies will come. This is the right thing to do, everyone wants to be on the side of justice and go down in history like that. But, despite all this, it is worth counting on a period of 10 to 20 years.

What to expect from the dollar in 2023

The Cabinet of Ministers in the budget forecast for 2023 lays 50 hryvnia per dollar until the end of the year. In general, the dollar exchange rate is a certain indicator of a country's successful economy. How do you assess the forecast of the Cabinet? What to expect from the dollar?

I think this is a good goal, because it is for the future. If they set the rate, say, at 40 or 42 hryvnia, and then it went up, then there would be a problem. In fact, the Cabinet is insured. If things continue as they are now, then I see no reason for the hryvnia to devalue more than it has already.

A lot will depend on the offensive of the Ukrainian army, and if Russia does not counterattack, then the situation will be stable. But the dollar exchange rate, unfortunately, will be very strongly tied to the war.

How is it now possible and necessary to support the economy of Ukraine – its ordinary citizens? Name some tips from yourself.

This is what I personally do.

We must support the Armed Forces and the army as soon as possible. The Ukrainians have already helped a lot, but we need to help even more.

In the near future, everyone needs to understand that the standard of living will go down, so there is no need to buy those things that we can do without in principle, but use this money to support the Armed Forces. Personally, I became a co-founder of the Global Ukraine Foundation, and only in the last two months we have managed to attract donors whose total capital is $45 billion, these are very famous and rich people who have already invested millions of dollars in Ukraine and will invest more and more.< /p>

That is, this is all that we can do and what we do, but again the scheme will be different for each, but it depends solely on the person, and this is what we should do.

For example, my bank account is empty, because my wife and I constantly donate to Ukraine, and this is what needs to be done. So, the main thing is donations and support.

Secondly, what you need to do is volunteer.And to volunteer personally – to give your time. My mother is a doctor, she lives in Ukraine, and all her free time she weaves camouflage costumes for our soldiers. We all can do this – volunteer during the delivery of humanitarian aid, help in any other way.

Thirdly, be active on social networks.Through Linkedin, Twitter, Instagram, Facebook – so that the world can hear us. This is what I do all the time – and this is the second time I have been blocked by Facebook for 30 days, but we must be heard. And the Ukrainians have been very successful in the fight against Russian propaganda, as well as the world as a whole, but more is needed. Everyone at home with a mobile phone with internet access should do this.

Use English – the world needs to hear us, and if you speak English , spread English content, become a lawyer for Ukraine in social networks – this is a very big help.

And fourthly, we as a society must invest in our future. Don't give up , do not leave your dreams, if you want to study – study – that's why I became the founder of the American University in Kyiv. This is what we do – during the war we opened the university, and a significant part of the investment in the university comes from America. I mean, that's what you need to do during the war, and that's what we do on a daily basis – we do business and we live, and that's fine.

We are learning to live in times of war. And if we all do all these things, then we win.