Sanctions-Hit Crimea Is Now Russia’s Fastest Growing Economy

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The Crimea, which Russia retook in 2014 following problems with the Central Government of Ukraine’s handling of ethnic Russians in the Province, has been responsible as a reason for the United States and other Western governments from imposing sanctions both on Russia and Crimea. Companies from the United States and EU are largely forbidden to even trade with Crimean based businesses and individuals, a situation that hasn’t exactly endeared Crimean residents to either.

However, the Crimea has become Russia’s fastest growing region, with growth between January to March 2019 in excess of 20% in both the Crimean manufacturing and construction sectors. Construction to develop Sevastopol, Crimea’s largest port, grew by 71% during the same period, as Moscow looks to invest in a region that Kiev preferred to neglect.

The growth rates in Crimea though haven’t come cheap, with Central Government funding pouring in. Moscow will have spent over US$13 billion from 2015 to 2022 to bring the Peninsula up to Russian integrated standards. That has included the building of the Kerch Straits Bridge, which is now Europe’s longest.

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Crimea’s problems have been a result of its largely ethnic Russian, and Russian speaking community continuing to maintain pro-Russia ties. Kiev’s reaction towards Crimea was to underinvest as the local population tended not to see things in the same manner as the incumbent government, a situation that also persists in Eastern Ukraine. Eventually, what has been called an “illegal” referendum was held with the majority of Crimean residents voting to return to Russia, which it had previously been part of from 1798 until 1954, when it was passed to the then Soviet, Moscow supported Ukrainian Government. The Russian military then moved in and in a bloodless take over, re-possessed the territory. The West promptly reacted by banning trade and commerce with the Crimean region in its entirety as well as considerable sanctions upon Russia.

However, the growth rate must be taken in context. Russian Economics Professor Natalia Zubaravich, speaking to Moscow Today quoted the “Economic Base Effect”, saying that “When your base is low, you grow faster, and this is especially noticeable when it suddenly grows with budget money.”

Investing in Crimea may be a step too far for most EU based businesses. But not the Russians, happy to be reunited with a part of what had been their old Imperial and Soviet Empire, but the Chinese as well, as noted in the article “Belt & Road Crimea.”

Meanwhile, the Crimean region is also experiencing something of a tourist boom, both from Russia and overseas. Moscow has earmarked an additional US$4.7 billion for tourism development in Crimea over the next three years.

 

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Russia Briefing is produced by Dezan Shira & Associates. The firm advises international businesses on investing, setting up businesses and administering them throughout the Eurasian region, including Russia, China, India & ASEAN, and maintains offices and partners in each of these countries and regions. For assistance with investing in Russia, or for Russian businesses wishing to invest in Asia, please contact Maria Kotova at maria.kotova@dezshira.com or visit us at www.dezshira.com.

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