Gasoline, fertilizers, fuel for nuclear power plants, cosmetics and medicines, electronics and equipment — all this is imported into Ukraine from — abroad. In the event of an escalation of the conflict, the supply chains will be cut off.
Foreign trade in goods is the most significant component of GDP, especially when it comes to critical categories of imports that are not produced in Ukraine. If Russia moves from threats to actions, everything that our country imports from the Russian Federation and Belarus will be in short supply, reports the Chronicle.info with reference to Focus.
Dmitry Goryunov, senior economist at the Center for Economic Strategy (CES), says this.
One consolation is that over the past 20 years, Russia's share in total imports has decreased by almost 4.5 times — from 36.9% in 2001 -m to 8.24% in January-November 2021. Such data are provided by the State Statistics Service. In the event of force majeure, the supply chains of these goods will be destroyed, but experts do not predict disasters.
«According to our calculations, the market is oversaturated with goods and services by about one and a half times. This means that there are substitute products, you can find an affordable option», — says Ruslan Beltyukov, President of the All-Ukrainian Association of Business Executives.
Without gasoline. Where to look for alternative suppliers of petroleum products?
Ukraine's most vulnerable spot, in which it is almost completely dependent on imports, is energy resources.
«We still buy them, first of all, from Russia and Belarus. The work of all businesses, the livelihoods of all people», is tied to energy resources, — states Marina Trepova, procurement specialist, CEO of IPSM.
Energy expert, director of the «Consulting group A-95» ; Sergey Kuyun confirms that problems with gasoline and diesel fuel are inevitable.
«The situation is very bad. Despite the eighth year of the war, we still have about 30% of diesel fuel imports from Russia, about 35% from Belarus. In addition, almost 50% of gasoline comes from Belarus, and we bring a lot of liquefied gas from Russia. We are very dependent. If it's «hot», then the fuel supply is the first thing to stop», Kuyun warns.
The CEC considers the scenario of a large-scale invasion of the Russian Federation unlikely, but does not deny possible complications. CEC Senior Economist Dmitry Goryunov believes that in the event of an aggravation, Ukraine will have to look for alternative sources of supply of petroleum products, but no one knows where to find such volumes. It could be Lithuania, but it does not have the volumes Ukraine needs. In addition, on February 2, Belarus announced the termination of the transit of Lithuanian oil products to Ukraine, which could create a certain deficit in the oil products market.
«We have one less stable source of supplies», — says Sergey Kuyun.
There are no fuel reserves in Ukraine. A few years ago, an expert group was drafting a draft law on strategic reserves, but the document was not even registered in Parliament. Supplies of oil products from Russia and Belarus are not diversified, since other options are significantly more expensive. In an extreme case, domestic seaports with transshipment capacities of tens of millions of tons can be used, it is through them that large volumes of fuel can be delivered.
Sergey Kuyun talks about another option, albeit a small one.
«It is possible to arrange deliveries from Poland. More precisely, to receive tankers in Polish ports, in Gdansk in particular, and then transport them through the oil pipeline system to the border with Ukraine, pour them into tanks and carry them on. There is only one peculiarity: in Poland the gauge is narrow, in our country it is wide, at the border it is necessary to rearrange the tanks. Therefore, bandwidth is reduced«.
According to the expert, Polish companies would very much like to cooperate in this direction, but there is no systemic interest from the Ukrainian side. And this despite the fact that the risks are growing. Due to the possible aggravation of the situation at the border and an increase in demand for fuel, it may disappear at gas stations.
Energy challenges: coal supplies and stable operation of nuclear power plants
Ukraine still imports coal from Russia for their thermal power plants. Dmitry Goryunov speaks about this. And that's also a big risk.
«Last year, Russia was the main importer of hard coal. We brought about 67% of all imports from there. In November 2021, when the heating season began, Russia stopped importing its coal, blocked supplies from Kazakhstan», recalls Svetlana Taran, head of the International Trade Analytics Center Trade + KSE Institute. In such circumstances, Ukraine had to urgently look for other suppliers, including in Poland, South Africa, and the United States. Currently, DTEK supplies coal to the country from Colombia and the USA.
Approximately 30% of diesel fuel imports come from Russia, about 35% from Belarus. In addition, almost 50% of gasoline leaves Belarus. We are very dependent. If it is «hot», then the supply of fuel is the first thing that will stopDirector «A-95 Consulting Group″Sergey Kuyun
Another risk is the stability of nuclear power plants. Ukrainian nuclear power plants depend on imported nuclear fuel. Energoatom still partially imports it from Russia, says Dmitry Goryunov, but emphasizes that Ukraine is buying more and more fuel from the American company Westinghouse, the actual supplies are leaving Sweden. For the sake of energy independence, the state, as a shareholder of Energoatom, must continue to diversify supplies in order to avoid a shortage of nuclear fuel in the event of any aggravation.
Sowing question. 95% of fertilizers and seeds are imported
Ukrainian farmers need imported goods for sowing. We are talking about fertilizers and plant protection products.
«More than 95% of plant protection products are imported, as well as a significant part of the seeds. Although the share of seeds depends on crops – for sunflower, for corn, imported hybrids are needed,” explains Volodymyr Lapa, strategic development adviser at the Ukrainian Club of Agrarian Business. He outlines the risks: without remedies for plant diseases and pests, it is impossible to get a crop of acceptable quality and quantity. This applies to cereals, oilseeds, horticulture, berry farming.
The good news is that farmers most likely purchased all the necessary funds for spring sowing in advance.
«Usually, at the start of the season, plant protection products are already in the country. It doesn’t happen that a supplier has to deliver an insecticide to a farmer in April, and he imports it and clears it at the end of March,” says Maria Kolesnik, deputy director of the company «Proagro group». At the same time, according to her, no one has yet delivered what will be needed in the fall, because first we need to empty the warehouses from what is stored there today.
Ukraine mainly produces mineral fertilizers on its own, says Maria Kolesnik. But Vladimir Lapa emphasizes that the lion's share of the cost of mineral fertilizers is gas, so their production in Ukraine depends on the import of blue fuel, as well as the price of it. The scheme is as follows: the higher the cost of gas, the higher the price of fertilizers, which affects the agricultural sector. The country still imports part of its fertilizers from Belarus (imports of fertilizers from the Russian Federation have been banned since 2019).
What about shampoo? It all depends on logistics networks
According to the State Statistics Service, 13.2% of all imports for 11 months of last year were products of the chemical industry and related industries. A lot of imports into the country go in the category of pharmaceuticals. Vladimir Ignatov, executive director of the Association of Representatives of International Pharmaceutical Manufacturers, reassures that in the short term the drug will be enough.
«The drug supply chain has several logistical «buffers» to cover demand: pharmacies have stock for several weeks, distributors-importers for several months, and manufacturers store in warehouses(including customs-licensed) additional stock for a few more months« ;, — says Ignatov.
According to Ignatov, it is important for the industry to keep the situation under control: the preservation of freight traffic across the country, the openness of borders and the work of the customs service, economic stability (exchange rate), stable regulation of the pharmaceutical sector. In order to properly store medicines, pharmaceutical warehouses need energy.
Some industries are completely dependent on the proper operation of logistics networks. For example, the cosmetics industry imports the ingredients needed for production from Europe by rail and road. There is a share of imports from Asia, for which the work of ports is important, as Ivan Shershenyuk, head of the technical regulation department of the Association «Perfumery and Cosmetics of Ukraine».
According to him, some manufacturers buy goods in large quantities from abroad — in Germany, France, Poland. Those who buy from distributors in Ukraine can order smaller quantities. But they try to keep stocks for several months.
«I think that there will be no shortage of basic cosmetic products, because there is a need for them, they are necessary. I don't think the market will be left without shampoos, face creams, hair masks, etc. This is possible with more specific products», Shershenyuk predicts.
The problematic issue of the cosmetology industry is primary and secondary packaging. For the most part, companies buy it in Asian countries, because of the coronavirus pandemic, these goods are in short supply. A lot of containers were spent on antiseptics. Now manufacturers have found alternative suppliers of 250-300-500 ml containers, some are trying to establish their own production.
Inconspicuous imports plus reduced demand: «The market tends to save money»
Under a negative scenario, there may not be a shortage for some groups, since the demand for them will decrease several times.
«There may be a drop in demand for goods that are in the zone of optional consumption, regardless of whether whether prices will increase or not. There is simply a reduction in demand. In any crisis situation, the market tends to save money», says Ruslan Beltyukov.
A tenth of Ukraine's imports is transport.Therefore, new cars can become commodities that are difficult to obtain. Cars are usually delivered to Ukraine by sea. If the ports do not work, such deliveries will not be possible. In this case, air transportation is not even considered, because then the cost of cars will increase significantly.
Another important import sector in stable times is equipment. It makes up one fifth of all imports, according to the State Statistics Service.
«We have a lot of investment imports — this is the import of engineering products, which are used in production by Ukrainian companies as fixed capital. It is an important import point for upgrading enterprises. Often we import this equipment from European countries, the USA», — says Svetlana Taran.
In conditions of uncertainty and crisis situations, investment imports are always reduced.
«Now it is significant and the consumption of equipment has been drastically reduced. In many companies, the issue of capital investment was postponed for the second half of the year, because it is not known what will happen», — Ruslan Beltyukov states.
Electronics are also brought to Ukraine from abroad. The ALLO group of companies admits that in case of an aggravation of the situation, imports will be temporarily suspended, since this would be economically inexpedient and physically risky. In this case, the marketplace is reoriented to the sale of goods from warehouses, to those goods for which there will be demand. This was told by Dmitry Derevitsky, founder and co-owner of the allo.ua marketplace and the multi-channel retailer ALLO.