The armed conflict is taking a heavy toll on the economy in Donbas, Ukraine's industrial heartland. Infrastructure has been damaged, fewer product orders are coming in, and exports to Russia have slumped.
The long-running political crisis in Ukraine has had a negative impact on the country's economy overall. But out of all of Ukraine, the Donbas region in the southeast of the country has been affected the most. And the situation is only deteriorating as pro-Russian separatists continue to destabilize the region.
According to the Donetsk office of the Ukrainian Statistics Bureau, in the first quarter of 2014, losses by companies in the region were 37 percent higher than the national average. Losses in the Donbas region in the first three months of this year alone were estimated to amount to the equivalent of 1.8 billion euros ($2.4 billion) - more than the reported losses in all of 2013 (1.3 billion euros). Compared to the same period in 2013, industrial production dropped by 13 percent. That's due to a decline in export orders as well as weakening domestic demand.
Large companies are still producing
Managers of large factories in the eastern Ukrainian crisis region said their production is still running normally. But the forecasts for the next two months are disappointing. "We're still doing normal operation for now. But the order situation has of course deteriorated," Volodymyr Shooliy, head of marketing for the Novo-Kramatorsk machine factory, told Deutsche Welle.
The city of Kramatorsk is situated in the area where Ukraine's government forces are involved in an anti-terror operation. Since April, they have been fighting against pro-Russian separatists in the southeastern regions of Donetsk and Luhansk who have proclaimed "people's republics" there. Shooliy blamed the companies' dire economic forecasts on the separatists. "Which foreigners will come to us if they have to pass 13 road blocks first?"
Massive slump in trade with Russia
Several orders have been cancelled because of the unstable political situation in the country, Yury Makohon from the Ukrainian National Institute for Strategic Studies told DW. New orders will be difficult to procure in Donbas in the near future, he added. "The most important heavy industry firms are still producing, but they're no longer used to capacity."
Factories in eastern Ukraine have focused on the Russian market, he said. But they've now lost access. "Trade volume between Russia and the Donetsk region has seen a massive slump since the beginning of this year," Makohon said. Industry and freight traffic were experiencing extreme differences because the railway system has been damaged in the areas of the fighting.
Air traffic has come to a complete halt, incurring major losses for the region's economy. The airport of Donetsk, a city of several million inhabitants, is to remain closed until June 30th, according to Ukrainian authorities. Travel operators have said all flights for the entire summer have been cancelled. "Our staff can't access the airport safely at the moment," Dmitry Kosinov, the airport' spokesman, told DW, adding that shots are still being fired regularly near the airport.
Many small business owners have taken flight
Small and medium-sized companies have been worst affected by the crisis in the Donbas region. Makohon said they make up some 10 percent of the region's economy. One in two has shut down over recent weeks due to increasing tension, leading to a considerable rise in unemployment.
There are reports that separatists have pressed business owners for money, raided shops and kidnapped people. Many small business owners have left the region as a result- to avoid assaults by militants from the so-called Donetsk People's Republic, social scientist Yaroslav Pasko told DW.
Developments in Donbas have seen a negative trend since 2008, economic expert Makohon pointed out. "But, of course, the political crisis and the fighting make the situation more difficult," he said. Even if there is a swift and peaceful solution, Makohon said it may take years before the economy in the Donbas region can return to its 2013 level.
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