UARU
How War In Donbas Has Affected Local Business
6 May, 2018

By now, many people are aware of the human and political cost of the war between Ukraine and Russia-backed separatists in Donbas. But for many people still living in the region, both on the frontline and beyond, it’s the negative effects the conflict has had on business that has most impacted their day-to-day life.  

According to conflict expert Natalia Mirimanova, who has recently conducted a study into the role of business in peacebuilding in Donbas, it’s the medium-sized businesses that have had the most difficult decision to make:

“Those who had their equipment, their factories, their workshops, their buildings, real estate, they were caught in a truly difficult situation because this was all they had, so to speak, and they could not transport, they could disassemble their equipment and take it to a safer place.”

As a result, some business-owners were forced to relocate to government-controlled parts of Ukraine or Russia, and others had to abandon their businesses completely. Smaller business-owners, on the other hand, stayed simply because they had no other choice, Mirimanova adds.

Despite strong political convictions on both sides of conflict, Mirimanova’s research also  suggests that politics and ideology have not been factors in business-owners’ decisions to leave or stay in the area.  

“Overall, business in Donbas, people whom I spoke to, are rather apolitical. What they care about is transparency, clear rules, possibility to do business, keep connections, etc.,” Mirimanova states.

Looking towards the future and a potential end to the conflict, however, it is now unclear as to whether or not business will return to the way it was before if, for example, Ukraine regains control of Donbas.  

In this regard, the situation differs between Luhansk and Donetsk. According to Mirimanova, in Donetsk people are less loyal to the de facto authorities of the so-called republic, but have a greater sense of local patriotism. This is not the case in Luhansk:

“In Luhansk, what we can see today, they are drifting further and further away from Kyiv, much further than Donetsk, and they somehow grew to believe in the future of their republic,” Mirimanova comments.  

Hromadske sat down with conflict analyst Natalia Mirimanova to discuss how the war has affected business in Donbas and how this may change in the future.    

Natalia, you've conducted research on what's going on with business in the non-controlled territories of Luhansk and Donetsk, you've been working on many conflicts within the post-Soviet space for the last decades, but, in particular, we're focusing on the Russia-Ukraine conflict over Donbas. What do we need to know?

I looked into business from Donbas and Luhansk, the state and the left. So, what I can say that, from the very beginning, in the first chaotic months of the crisis, of the military escalation, business was trying to figure out what was going on. The business was not an active political actor on either side, I would say. So, business people who had something to lose – you know, assets and clients, and money, and capital and finances, especially after the bank transactions became impossible – they left. I would  say that medium and slightly upper-medium business groups, they left to the government-controlled territories, or to Russia – much less to Russia, I would say. Those who had their equipment, their factories, their workshops, their buildings, real estate, they were caught in a truly difficult situation because this was all they had, so to speak, and they could not transport, they could disassemble their equipment and take it to a safer place, so to speak. So, in the end, some decided to abandon all their business, some decided to re-register it with someone who stayed there, some other business left their business to their parents, to their relatives etc., again, to wait and see. For the majority of business companies: small, medium, that I interviewed on the side of the non-government controlled territories, they stayed simply because they couldn't leave. Because stories of IDP entrepreneurs were not all that rosey and successful either. Some – few, I would say, very few – stayed because of ideological convictions. Overall, business in Donbas, people whom I spoke to, are rather apolitical. What they care about is transparency, clear rules, possibility to do business, keep connections, etc. All were very much upset about the blockade – and I refer to the blockade introduced early on in the conflict and not the recent, official blockade – ban on commercial transactions and on taking cargo across the line of contact, except the least of the enterprises, whose raw materials were of key importance for strategic industry in Ukraine.

You have also wrote that there are moral and ethical dilemmas for the people who are willing to do business, especially those based in occupied territories of Donbas. What are these dilemmas, and, to what extent are the influencing?

I spoke to individuals, quite a lot, and their stories were quite typical. By and large, in Donetsk, they do not have loyalty to the local authorities, or de facto authorities, so to speak, they do have loyalty to their place, so they felt they could not abandon it because if they leave, what would happen to Donetsk. In Luhansk, this local patriotism, so to speak, is as strong. However, in Luhansk, what we can see today, they are drifting further and further away from Kyiv, much further than Donetsk, and they somehow grew to believe in the future of their republic – at least they refer to "our young republic." In terms of the affinity to Kyiv, it's a problem for all because they felt that they were abandoned. I mean, it's a very common narrative that they waited, that somehow this conflict will be resolved very soon, very quickly. But then they saw that Kyiv, in their opinion, was not very much motivated to resolve it quickly, and, instead, it's a long-lasting war, now low intensity, but who knows whether it can escalate. So these people found themselves between a rock and hard place, so to speak.

What is their willingness to incorporate with the rest of Ukraine? To what extent have Ukrainian goods been substituted? What has been substituted? What kind of jobs do those people have?

In the early months and a couple of years right after 2014, irrespective of the ban, thanks to the ubiquitous corruption, goods were going back and forth and Ukrainian goods were common in supermarkets and other places in the NGC (non-government controlled) areas. However, it was becoming an increasingly risky business because the line of contact was never risk-free, so to speak. And although people knew about the so-called tariffs that they had to pay at checkpoints – on both sides, by the way – rules may have changed, so this created a sense of insecurity. So that's why what my first study showed in 2015, entrepreneurs in Luhansk and Donetsk, they're reluctantly, but quite quickly, reorientated towards Russian supplies. They would all say that the minute the situation normalizes, and things become as they used to be, they would immediately restore business relations with Ukrainian partners because they still preferred Ukrainian goods and Ukrainian services to the Russian ones, of course. Now, in 2016, in Donetsk, businesses are still quite happy to trade with the rest of Ukraine, with Ukrainian partners, Ukrainian companies. In Luhansk, the process seems to go, I wouldn't say irreversible, but quite far from the departure point, and the narrative became that we cannot trust the quality of Ukrainian products, we cannot trust Ukrainian partners etc., so we prefer Russian supplies. This is what blockade and isolation normally does to human relations, because business is important not only economically, but also in terms of people's interaction, right, and combating myths and stereotypes.

What about big business? Also, we know that Donbas is a heavily industrialized place, so it can't be compared to South Ossetia, or Transnistria, or any other kind of frozen conflict republic in the post-Soviet space, because they are smaller territories, some where there are more agricultural places. This is heavy industry. This region lives of big contracts, import, export, it's not like a couple of people can do that. It requires some legality. To what extent has the way the region is financed changed? What is the role of the oligarchs? What's happening with their business, the people who actually own the region?

Right question. Well, Donbas – Donetsk and Luhansk – they were not exporters, as opposed to other regions of Ukraine. So, they were the major exporters of coal and steel, and other stuff, and the source of hard currency that was coming into Ukraine, by the way. In order to export, one needs legality, one needs a certificate of origin etc. Therefore, for enterprises to continue their export, they had to retain their Ukrainian registration. That was not easy, as you can understand, and some preferred just to close their enterprises. Some others opened companies in Russia – very few, but still, there a companies like that, companies in Russia were exporting through the new Russian companies. But, the majority of the big mines and metal, steel production in Rinat Akhmetov, for instance, they changed their registration from Donetsk to Kramatorsk, for example, in the government-controlled territories, and continued export in a legal way. Again, because there was an exception, they were exempt from the ban on commercial cargo activities, so they were allowed to take their coal out and to take steel in, or the other way round. So, this interesting scheme was functioning up until March 2017, when first it was a spontaneous blockade by some individuals and battalions, and then it was nationalization, or external management introduced to these big companies, and then there was an official decree of the President about the official blockade. Now these assets are lost and it's not very clear whether they operate. Some of them do, but clearly, the volume of production is much less, simply because even keeping afloat these huge enterprises requires a lot of money. There were attempts on behalf of the de factos to come and make some mines and factories, to pay taxes in the so-called republics, which they refused to do because they need a clean reputation in order to be exporters. Besides, they had all this huge staff; miners and workers, who were paid on their Ukrainian accounts. So now it's very unclear what's going on in terms of how operational are the mines and enterprises. Some mines are flooded, so it's a very sad story. What I know from what I heard that coal goes via Russian ports to Turkey and to other places, or, it returns to Ukraine as Russian coal via an official Russian-Ukrainian border.