KHARKIV, ukraine — After 20 years of running a large commercial tube-manufacturing plant out of eastern Ukraine’s biggest city, Leonid Filshtinskiy is moving some of his operations westward — to Spain.
“I decided to do it because I fear losing Russia as a market,” Filshtinskiy said, explaining how his business, which mostly depends on buyers in the former Soviet Union, struggled as political upheaval gripped Ukraine. “This political situation, this bad experience, has pushed us toward these kinds of changes.”
In larger Kharkiv, a Russian-speaking region known for its universities, factories and farms, evidence of an adverse political situation is scant. There have been no big protests for months, the war with separatists in neighboring Donetsk and Luhansk has not spilled over the region’s borders, and life in the regional capital has been almost boringly calm.
But even relatively quiet parts of Ukraine have not escaped the economic backlash of the country’s political problems.
In Kharkiv, the setbacks come with a special challenge: how to revive a flagging economy largely dependent on trade with Russia and Ukraine’s other neighbors to the east when Ukraine as a whole is making a concerted turn to the west.
“Before, when 100 percent of contracts went to Russia, why did you have to think? You didn’t,” said Eduard Rubin, deputy chairman of the Kharkiv chapter of the European Business Association, a large international nonprofit group in Ukraine. “But the situation in Ukraine, it changed.”
The long-anticipated association agreement that Ukraine signed with the European Union on Friday will open up a free-trade zone between Ukraine and its Western neighbors.
The reorientation will probably come at some cost. Russia had vowed “consequences” if Ukraine signed the EU agreement, ranging from new tariffs and customs on exports to an end to commerce in certain sectors altogether.
If it makes good on its threats, Ukraine could stand to lose its biggest trading partner. In 2012, Russia accounted for about a third of all Ukraine’s imports and a quarter of all exports nationwide.
In Kharkiv, the loss would be even greater.
“There’s only 20 percent left of the volume of trade that there used to be with Russia,” said Oleg Tentyuk, 40, whose company, EuroCarriage, has facilitated imports and exports across Russia’s border with Kharkiv for a decade. “Russia has made it much harder for Ukrainian goods to cross the border. … We have to rethink.”
The Ukrainian government thinks the best solution is the full about-face to Europe that it initiated Friday — a move Kiev hopes will prompt European leaders to pump foreign capital into the local economy.
“Ukraine is going back to Europe,” said Sergiy Yevtushenko, who heads Ukraine’s state agency for investment and national projects. “Signing the agreement will give more security to international investments.”
Ukraine entered the current period of political transition already hungry for foreign help to buoy a shrinking economy, pay off mounting debt and jump-start economic reforms. But over the past eight months, protracted instability and war in the east have deterred the Western investors it is so feverishly courting.
“It’s very hard to explain to foreign investors that there is war in Donbas but everything in Kharkiv is fine,” said Rubin, who also heads the Ukraine-based software development company Telesens, in a reference to eastern Ukraine’s industrial heartland, where separatists are openly fighting the Kiev government. “All the contracts that were coming from the U.S. and the EU, they just stopped.”
Developments
• Pro-Russian insurgents on Saturday released a second team of observers from the Organization for Security and Cooperation in Europe, who had been held captive since the end of May, the organization said.
• Russia’s foreign minister accused the U.S. of encouraging Ukraine to challenge Moscow. In televised remarks, Sergey Lavrov said, “Our American colleagues still prefer to push the Ukrainian leadership toward a confrontational path.”
