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Russian Invasion of Ukraine Impedes Post-Pandemic Economic Recovery


Russian Invasion of Ukraine Impedes Post-Pandemic Economic Recovery

The ongoing war in Ukraine has dimmed prospects of a post-pandemic economic recovery for emerging and developing economies in the Europe and Central Asia region, says the World Bank’s Economic Update for the region, released today.
Economic activity will remain deeply depressed through next year, with minimal growth of 0.3% expected in 2023, as energy price shocks continue to impact the region. So far, however, the region has weathered the storm of Russia’s invasion of Ukraine better than previously forecast. Regional output is now expected to contract by 0.2% this year, reflecting above expectation growth in some of the region’s largest economies and the prudent extension of pandemic-era stimulus programs by some governments.
Ukraine’s economy is now projected to contract by 35% this year although economic activity is scarred by the destruction of productive capacity, damage to agricultural land, and reduced labor supply as more than 14 million people are estimated to have been displaced. According to recent World Bank estimates, recovery and reconstruction needs across social, productive, and infrastructure sectors total at least $349 billion, which is more than 1.5 times the size of Ukraine’s pre-war economy in 2021.
The global economy continues to be weakened by the war through significant disruptions in trade and food and fuel price shocks, all of which are contributing to high inflation and subsequent tightening in global financing conditions. Activity in the euro area, the largest economic partner for emerging and developing economies (EMDEs) of Europe and Central Asia, has deteriorated markedly in the second half of 2022, due to distressed supply chains, increased financial strains and declines in consumer and business confidence. The most damaging effects of the invasion, however, are surging energy prices amid large reductions in Russian energy supply.
Downgrades to growth forecasts for 2023 are broad-based across EMDEs in Europe and Central Asia as the regional outlook is subject to considerable uncertainty. Prolonged or intensified war could cause significantly larger economic and environmental damage and greater potential for fragmentation of international trade and investment. The risk of financial stress also remains elevated, given high debt levels and inflation.
A supplement to the report examines the impact of the energy crisis. While global prices for oil, gas and coal have been rising since early 2021, they skyrocketed after Russia’s invasion of Ukraine, sending inflation to levels not seen for decades in the region. This unprecedented crisis has implications for consumers and Governments alike – constraining fiscal affordability; firm productivity; and household welfare.
Hardest hit will be countries with medium to high reliance on natural gas imports for heating (which accounts for 30% of energy demand), industry, or electricity, as well as countries closely connected with EU energy markets. These countries must prepare for gas shortages and put in place emergency plans to mitigate the worst impacts on households and firms, including saving energy, boosting energy efficiency, and implementing quota/rationing plans. Behavior change campaigns that focus on heating efficiency in homes and buildings, such as resealing windows and adding insulation, require relatively minimal investment and have immediate impacts.
The report also includes a special focus on the region’s social protection systems, which have played a critical role in supporting households and businesses during the pandemic and, more recently, from the fallout of the war in Ukraine.
The region’s pandemic response comprised two broad types of policy instruments: income protection measures and job protection measures. The report assesses the effectiveness of these measures in promoting economic growth, reducing poverty, and preserving jobs. It finds that, in the short run, higher spending on job protection measures was associated with higher employment and less poverty. However, the effect of these measures on growth is less clear.
These lessons from the pandemic are instructive for policymakers in making social protections systems adaptive and inclusive to effectively address both short-term shocks to the economy, and the longer term trends which are transforming labor markets, including globalization, demographic trends, technological innovation, and the impacts of climate change and climate action.
Policy interventions to building social protection systems for the future can include a combination of (i) guaranteed minimum income support designed to protect individuals and households from adverse shocks, (ii) regulatory reforms that gradually remove restrictions on firms’ hiring and dismissal practices, and ultimately support the creation of formal jobs in the private sector and a reduction in informality; (iii) enhanced coverage of and protection for vulnerable groups; and (iv) digitalization for improved quality and quantity of services provision.

War Divides but also Unites

War has many layers. There is the outermost layer, comprised of both sides’ soldiers and artillery power. Moving inward, there are more stealth components, and once that onion is fully peeled, you get to the financing. Someone has to pay for all that stuff, and in the case of Russia, they rely on gas and oil sales to finance their activities in Ukraine. 

The world’s response to the Russian invasion of Ukraine was swift. Major governments and companies sought to cut ties, ending trade and commercial ties with the hopes of imperiling Mr. Putin’s advances. To some extent this worked, although recent developments have shown just how resilient and dogged Russian forces are. At this time last year, China was a major buyer of US natural gas. Fast-forward to today, and that has shifted dramatically. Post-invasion, Europe cut Russian gas imports which provided US gas providers a new clientele base. Simultaneously, China’s energy demands declined due to a slowing economy, but it also found a cheaper gas provider in Russia due to the deep discounts the Kremlin had to offer based on decreasing European demand for Russian gas. 

Digging into the numbers it’s been an astonishing turn of events. Between February and April of this year, China’s natural gas imports from the US plummeted by 95% (compared to the same period in 2021). To make up for this, imports of Russian gas grew by roughly 50%. Chinese-Russian relations have a complex history. The two powerhouses share a 2,700-mile land border and have been involved in countless skirmishes both locally but also through proxy wars abroad. Yet, most analysts agree that Russia and China are currently enjoying their best relations since the 1950s. 

In 2014 a pipeline was approved linking China with eastern Russian gas fields. Approximately 38 billion cubic meters of gas were slated to be sold annually. It’s a large number, but nothing compared to the 155 billion cubic meters that the European Union purchased from Russia just last year. China will likely learn from Europe’s stumbles not to place all their gas imports in one basket. Major European countries such as Germany were overly reliant on one supplier country (Russia), and that has not turned out well.  

The war in Ukraine has undoubtedly moved Russia and China closer. Think tanks around the globe are hashing out whether this is a good thing for global stability. If anything, having Russia supply a larger portfolio of natural gas imports than before while simultaneously receiving US imports from small suppliers is certainly advantageous for China. Producers such as Dallas-based Energy Transfer LP have just inked two Chinese buyers for 3.4 million metric tons per year. This represents 60% of the total natural gas output from Energy Transfer’s Lake Charles, Louisiana project. 

If this war has taught us anything it’s that the things all our economies require to function will continue to hold the greatest leverage.    

inflation "made in Ukrainian" product imported into Israel, is that the product is manufactured in the territory of Ukraine.

The Impact of the War in Ukraine on the Free Trade Agreements with Israel and the EU

As is well known, the war between Russia and Ukraine affects a wide range of areas, both security and economic.

This new war situation created, may also affect aspects related to imports and exports between Israel and Ukraine, aspects of customs duties, and other import taxes.

Israel and Ukraine have signed in 2019 a Free Trade Agreement (FTA), and entered into force in January 2021 (1).

Under the FTA, the imposition of customs duties on the movement of goods between countries was abolished, in relation to most types of products, mainly industrial, and the reduction of customs duties on agricultural products.

The main products that Israel imports from Ukraine are agricultural products and food products, metals and machinery (2).
One of the basic conditions in the FTA for granting a customs exemption for a  “made in Ukrainian” product imported into Israel, is that the product is manufactured in the territory
of Ukraine.

The FTA defines in Article 1.2(w)(1), that the territory of Ukraine, is:
“…the land territory, internal waters, and territorial sea of Ukraine and the airspace above them and the exclusive (maritime) economic zone and continental shelf, over which Ukraine exercise sovereign rights and jurisdiction in accordance with its national laws in force and international law…”

The new war situation that has arisen may intrigue the interesting legal question of: What is the origin of a product manufactured in the territories of eastern Ukraine, that are de-facto, under the control of Russia.

That is, whether for the purposes of the FTA with Israel, such a product remains a “Made in Ukriane” product, or not.
This is not an academic question, but a question that may directly affect the question of whether the product will be subject to customs duty on imports to Israel, or not.

It is important to note that there is no FTA between Israel and Russia, and therefore products made in Russia, imported into Israel, are usually subject to customs duties upon importation.
Israel has been negotiating with the Eurasian Economic Union (Russia, Belarus, Kazakhstan, Armenia, Kyrgyzstan) for several years to sign a FTA, but the talks have not yielded to an agreement yet.

For example, ketchup imported from Russia to Israel is subjected to a 12% customs duty, and if imported from Ukraine, is subjected to a reduced duty rate of about 8.5%. Imports of electric motors from Russia are subject to 12% customs duty and from Ukraine to Israel is
exempted, and there are many more examples.

Apart from Israel, Ukraine has other FTA, for example, with Canada and the EU countries, and also in these agreements a basic condition for granting a customs exemption for a product made in Ukraine is that it creates in Ukrainian territory.

The EU, by the way, has already hastened to issue a notice on February 23 rd , 2022 stating that products arriving from the Donetsk and Lugansk territories in Ukraine will not enjoy a
customs benefit when entering the EU, due to difficulty in verifying the Ukrainian origin of the product (3).

Needless to say, this is not the first time there has been a territorial dispute over certain territories in the world, and any such dispute usually has one effect or another on trade relations between countries.

For example, in this context it is interesting to note that the European Union, which has had a FTA with the State of Israel since 1995, previously declared that the territories of Judea and Samaria (the west bank), including territories from Modi’in-Maccabim-Reut, and the Golan Heights (north of Israel, near Syria), would not be considered as the State of Israel for the FTA purposes. Therefore, according to the EUs decision, a product manufactured in these territories will not enjoy a customs benefit upon entering the EU.

This case even came to a decision in the European Court of Justice, which ruled that products manufactured by Soda Club in Mishor Adumim (near Jerusalem) would not enjoy a customs benefit when
entering Germany. Contrary to this, when it comes to other territorial disputes, such as Turkish Cyprus, or the Falkland Islands (dispute between Britain and Argentina), no similar declarations have been made.

In my opinion, the State of Israel will not be interested in undermining trade relations with Ukraine or Russia, and therefore will not issue declarations regarding the disputed territories of east Ukraine.

Defending Every Inch of NATO Territory: Force Posture Options for Strengthening Deterrence in Europe

In light of Russia’s unprovoked war on Ukraine, the Scowcroft Center for Strategy and Security’s Transatlantic Security Initiative convened a task force of Atlantic Council experts focused on strengthening US and NATO force posture. This Scowcroft Center Issue Brief outlines the strategic context that NATO now faces, key principles for strengthening NATO’s deterrence posture, and a menu of recommended posture enhancements for the Alliance.

Strategic Context and Key Insights
■ We are now in a new era of sustained confrontation with Russia. It
is not a broad-based competition for influence across numerous domains (e.g. economic), as is the case with China; rather, it is a dynamic confrontation throughout the transatlantic theater, most heatedly along NATO’s eastern flank from the Arctic in the north to the Black and Mediterranean Seas in the south. Russia wishes to push its influence or direct control of territory as far west, north, and south as possible, especially in the former Soviet states.
■ Russia has now demonstrated both the intent and capability to mass forces to underwrite a sustained coercive-diplomacy campaign and invade the sovereign territory of another nation. Moreover, now that Russian forces have undertaken operations in Ukraine, Putin may decide to further threaten the territory and freedom of action of additional non-NATO members, such as Georgia, Moldova, and Finland—as well as NATO members themselves. Russia today has a preponderance of conventional combat forces in Eastern Europe.
■ No matter what happens next regarding Russian military operations in Ukraine and Belarus, the security environment in Europe and adjoining regions has been structurally changed for the worse for the short to medium term. Thus, NATO’s approach of deterrence by punishment—conducted by rapid reinforcement to its frontline allies—can no longer be NATO’s sole model for deterrence. Deterrence by denial must now gain greater weight in NATO’s strategic concept.
■ Based on Russian actions, the 1997 NATO-Russia Founding Act—and its restrictions on NATO’s eastern posture—is no longer relevant. We are in new, dangerous territory—a period of sustained tensions, military moves and countermoves, and major intermittent military crises in the Euro-Atlantic area that will ebb and flow for at least the remainder of the 2020s, if not longer.
■ In this environment, military tensions will likely be exacerbated by increased, aggressive Russian unconventional activities in the homelands of NATO and European Union (EU) members. We should expect Russia, feeling the impact of coordinated Western sanctions and other diplomatic measures, will ramp up the level and intensity of cyberattacks, election meddling, online disinformation,
covert activities, and support for extremists in homelands across the democratic world. On top of a local conventional-combat power imbalance between Russia and allied forces in Eastern Europe, and increasingly aggressive sub-threshold operations, the Alliance also
faces a highly dynamic strategic-forces balance. Russia has undertaken a long-term, sustained nuclear-modernization program that has produced several new types of offensive nuclear weapons. These novel systems present new threats to NATO, its outmoded conceptual approach to nuclear deterrence, and its aging nuclear force inventories.
■ In turn, the Alliance will need to assure its nuclear deterrent capabilities. Modernized and adapted NATO nuclear capabilities must be prioritized in order for the Alliance to effectively deter numerically superior Russian forces from attacking NATO’s eastern-flank members, from Norway in the north through Lithuania, Poland,
Hungary, Slovakia, Romania, and Turkey in the south.
While this conclusion may run counter to the Biden administration’s initial proposition to reduce US reliance on nuclear weapons in its national security strategy, itwould represent a clear-eyed reappraisal of the new security environment. That Biden administration commitment was made well before the ongoing Russian invasion of Ukraine. If President Biden were to wisely
decide to reassess this policy position, he would likely gain bipartisan and Alliance-wide backing.

Though deterrence of Russia will take on greater weight
in US defense planning, the threat posed by China will
still demand significant resources. Thus, though the
United States must play a leading role in shaping and
contributing to an adapted NATO defense posture, the
US capacity to contribute will be constrained by IndoPacific requirements necessitating increased contributions in Europe from European allies and Canada.

The container logistics implications of war in Ukraine

The container logistics implications of war in Ukraine

The spoils of the recent war in Ukraine has largely weighed down on the global container logistics and its threatening to slap even further as the day goes by. As major container logistics companies have cried out.

According to a recent MEDIA STATEMENT on behalf of Christian Roeloffs, co-founder and CEO, Container xChange reads “I would like to express my horror at the events of the last week and my deepest sympathy for all the Ukrainian families who through no fault of their own have been dragged into this conflict following Russia’s invasion of its neighbour.
“This is a tragedy for Europe and has shocked us all at Container xChange. Our thoughts are with our friends in Ukraine. We can only hope that peace returns to this great country soon”.

This is how severe the condition is. From what Roeloffs reported, it was gathered that Parts of the Black Sea and Sea of Azov are now dangerous or unpassable. There have been missile attacks on vessels and ship arrests and lane closures for commercial shipping. The Ukrainian seaports of Odessa and Mariupol are closed/damaged/under attack. Trade and container movements have ceased. Cargo and equipment are stuck at ports.

Due to ongoing disruption to shipping in the Black Sea, container build-ups are expected at ports to exacerbate at storage areas across the region. Maersk has pulled out booking shipments to and from any Russian ports (with exception of foodstuffs, medical and humanitarian supplies) and other carriers have started following.

Russian and Belarussian ports in the Baltic and Black Sea will likely see a build-up of boxes if carriers refuse to make port calls due to the security situation and sanctions. The full implications of sanctions are not yet clear but the closure of the SWIFT system to Russia will make payments from Russian partners more difficult. The Rouble has also been in freefall after Russia’s central bank was cut off from its reserves.

Roeloffs concluded “Maritime trade with Russia and Russian businesses could be very difficult in the months and even years to come. On Monday, the UK banned all Russian ships from entering its ports. There has been at least one ship arrest by the EU. Our legal team is monitoring the situation.

On the Asia-Europe trade we could see more demand for maritime shipments and equipment out of Asia due to modal shift. For example, the Asia-Europe rail and road routes through Russia and
Belarus are reportedly closed and/or being used by militaries. Borders with the EU are closed.

The closure of air space across Russia and Europe has also reduced air freight capacity. We expect this awful war to add to the stretched nature of global container supply chains, bringing yet more inflation, disruption and delays.

Overall, the situation for container availability is likely to worsen, but this will vary by port and region. Central and Northern Europe is already congested, and any further trigger to the cargo flow will only worsen the state of container pileups.

We will continue to monitor the situation and what this means for global equipment networks and box availability. We will continue to support our customers in uncertain times with data and technology for better container operations, enhancing productivity and informed decision making.

Once more, we send our deepest sympathies and support to the people of Ukraine at this terrible time for them all”.

About Container xChange:   
Container xChange is one of the world’s leading container leasing and trading marketplace. More than  800 companies such as Kuehne+Nagel, Seaco, Sarjak use xChange to gain market
transparency, avoid demurrage & detention charges and increase operational flexibility.

Covering the entire transaction process from finding new partners to tracking containers and managing payments, xChange makes using 3rd party equipment and now container trading as easy as booking a hotel. Founded by Dr. Johannes Schlingmeier and
Christian Roeloffs in 2017 and headquartered in Hamburg, Germany, the company has more than 200 employees.