The Russian war on Ukraine has turmoiled Europe into its first war in decades and while the effects of the war are harshly felt in Ukraine with lives lost and damages amounting, Europe and the rest of the world are also being severely affected. This policy brief shortly summarizes the presentations and discussions at the SITE Development Day Conference, held on December 6, 2022. The main focus of the conference was how to maintain and organize support for Ukraine in the short and long run, with the current situation in Belarus and the region and the ongoing energy crisis in Europe, also being addressed.
War in Ukraine, Oppression in Belarus
Starting off the conference, Sviatlana Tsikhanouskaya, Leader of the Belarusian Democratic Forces, delivered a powerful speech on the necessity of understanding the role of Belarus in the ongoing war in Ukraine. Tsikhanouskaya argued that Putin’s war on Ukraine was partly a result of the failed Belarusian revolution of 2020. The following oppression, torture, and mass arrestations of Belarusians is a consequence of Lukashenka’s and Putin’s fear of a free Belarus, a Belarus that is no longer in the hands of Putin – who sees not only Belarus but also Ukraine as colonies in his Russian empire. Amidst the fight for Ukraine, we must also fight for a free Belarus, Tsikhanouskaya added. Not only Belarusians fighting alongside Ukrainians against Russia in Ukraine, but also other parts of the Belarusian opposition need support from the free and democratic world and the EU. The massive crackdowns on opponents of the Belarusian regime today and the war on Ukraine are not only acts of violence, but they are also acts against democracy and freedom. The world must therefore continue to give support to those fighting in both Belarus and Ukraine. Ukraine will never be free unless Belarus is free, Tsikhanouskaya concluded.
Johan Forssell, Minister of Foreign Trade and International Development Cooperation continued Tsikhanouskaya’s words on how the Russian attack must be seen and treated as a war on democracy and the free world. Belarus, Moldova and especially Ukraine will receive further support from Sweden, Forssell continued, adding that the Swedish support to Ukraine has more than doubled since the invasion in February 2022. Support must however not be given only in economic terms and consequently Sweden fully supports Ukraine on its path to EU-membership, which will be especially emphasized during Sweden’s upcoming EU-presidency. Support for the rule of law, democracy and freedom will continue to be essential and, in the forthcoming reconstruction of Ukraine, these aspects – alongside long term sustainable and green solutions – must be integrated, Forssell continued. Forssell also mentioned the importance of reducing the global spillover effects from the war. In particular, Forssell mentioned how the war has struck countries on the African continent, already hit with drought, especially hard with increased food prices and increased inflation, displaying the vital role Ukrainian grain exports play.
Andrij Plachotnjuk, Ambassador Extraordinary and Plenipotentiary of Ukraine to the Kingdom of Sweden, further talked about the need for rebuilding a better Ukraine, emphasizing the importance of involvement from Kiyv School of Economics (KSE) and other intellectuals and businesses in this process. Plachotnjuk also pinpointed what many others would come to repeat during the day; that resources, time and efforts devoted to supporting Ukraine must be maintained and persevered in the longer perspective.
Economic Impacts From the War and How the EU and Sweden Can Provide Support
During the first half of the conference, the Ukrainian economy and how it can be supported by the European Union was also discussed. On link from Kiyv, Tymofiy Mylovanov, President of the Kyiv School of Economics, shared the experiences of the University during wartime and presented the work KSE has undertaken so far – and how this contributes to an understanding of the damages and associated costs. Since the invasion, KSE has supported the government in three key areas; 1) Monitoring the Russian economy, 2) Analyzing what sanctions are relevant and effective, and 3) Estimating the cost of damages from the war. For the latter, KSE is collaborating with the World Bank using established methods of damage assessment including crowd sourced information on damages complemented with images taken by satellites and drones. According to Mylovanov, the damage assessment is crucial in order to counter Russia’s claims of a small conflict and to remind the international community of the high price Ukraine is paying to hold off Russia.
The economic impact from the war was further accentuated during the presentation by Yulia Markuts, Head of the Centre of Public Finance and Governance Analysis at the Kyiv School of Economics. Markuts explained how the Ukrainian national budget as of today is a “wartime budget”. Since February 2022, the budget has been reoriented with defense and security spending having increased 9 times compared to 2021, whereas only the most pressing social expenditures have been implemented. This in a situation where the Ukrainian GDP has simultaneously decreased by 30 percent. Although there has been a substantial inflow of foreign aid, in the form of grants and loans, the Ukrainian budget deficit for 2023 is estimated to 21 percent. Part of the uncertainty surrounding the Ukrainian budget stems from the fact that the inflow from the donor community is irregular, prompting the government to cover budget deficits through the National Bank which fuels inflation and undermines the exchange rate. Apart from the large budget posts concerning military spending, major infrastructural damages are putting further pressure on the Ukrainian budget in the year to come, Markuts continued. As of November 2022, the damages caused by Russia to infrastructure in Ukraine amounted to 135,9 billion US Dollars, with the largest damages having occurred in the Kiyv and Donetsk regions, as depicted in Figure 1.
Figure 1. Ukrainian regions most affected by war damages, as of November 2022.
The infrastructural damages constitute a large part of the estimated needed recovery support for Ukraine, together with losses to the state and businesses amounting to over one trillion US Dollars. However, such estimates do not cover the suffering the Ukrainian people have encountered from the war.
The large need for steady support was discussed by Fredrik Löjdquist, Centre Director of the Stockholm Centre for Eastern European Studies (SCEEUS), who argued the money needs to be seen as an investment rather than a cost, and that we at all times need to keep in mind what the consequences would be if the support for Ukraine were to fizzle out. Löjdquist, together with Cecilia Thorfinn, Team leader of the Communications Unit at the Representation of the European Commission in Sweden, also emphasized how the reconstruction should be tailored to fit the standards within the European Union, given Ukraine’s candidacy status. Thorfinn further stressed that the reconstruction must be a collective effort from the international community, although led by Ukraine. The EU is today to a large extent providing their financial support to Ukraine through the European Investment Bank (EIB). Jean-Erik de Zagon, Head of the Representation to Ukraine at the EIB, briefly presented their efforts thus far in Ukraine, efforts that have mainly been aimed at rebuilding key infrastructure. Since the war, the EIB has deployed an emergency package of 668 million Euro and 1,59 billion for the infrastructure financing gap. While all member states need to come together to ensure continued support for Ukraine, the EIB is ready to continue playing a key role in the rebuilding of Ukraine and to provide technical assistance in the upcoming reconstruction, de Zagon said. This can be especially fruitful as the EIB already has ample knowledge on how to carry out projects in Ukraine.
During a panel discussion on how Swedish support has, can and should continuously be deployed, Jan Ruth, Deputy Head of the Unit for Europe and Latin America at Sida, explained Sida’s engagement in Ukraine and the agency’s ambition to implement a solid waste management project. The project, in line with the need for a green and environmentally friendly rebuild, is today especially urgent given the massive destructions to Ukrainian buildings which has generated large amounts of construction waste. Karin Kronhöffer, Director of Strategy and Communication at Swedfund, also accentuated the need for sustainability in the rebuild. Swedfund invests within the three sectors of energy and climate, financial inclusion, and sustainable enterprises, and hash previously invested within the energy sector in Ukraine. Swedfund is also currently engaged in a pre-feasibility study in Ukraine which would allow for a national emergency response mechanism. Representing the business side, Andreas Flodström, CEO and founder of Beetroot, shared some experiences from founding and operating a tech company in Ukraine for the last 10 years. According to Flodström there will, apart from a huge need in investments in infrastructure, also be a large need for technical skills in the rebuild. Keeping this in mind, bootcamp style educations are a necessity as they provide Ukrainians with essential skills to rebuild their country.
A recurring theme in both panel discussions was how the reconstruction requires both public and private foreign investments. Early on, as the war continues, public investments will play the dominant part, but when the situation becomes more stable, initiatives to encourage private investments will be important. The potential of using public resources to facilitate private investments through credit guarantees and other risk mitigation strategies was brought up both at the European and the Swedish level, something which has also been emphasized by the new Swedish government.
Impacts From the War Outside of Ukraine – Energy Crisis and Other Consequences in the Region
The conference also covered the effects of the war outside of Ukraine, initially keying in on the consequences from the war on energy supply and prices in Europe. Chloé Le Coq, Professor of Economics, University Paris-Pantheon-Assas (CRED) & SITE, gave a presentation of the current situation and the short- and long-term implications. Le Coq explained that while the energy market is in fact functioning – displaying price increases in times of scarcity – the high prices might lead to some consumers being unable to pay while some energy producers are making unprecedented profits. The EU has successfully undertaken measures such as filling its gas storage to about 95 percent (goal of 80 percent), reducing electricity usage in its member countries, and by capping market revenues and introducing a windfall tax. While the EU is thus appearing to fare well in the short run, the reality is that EU has increased its coal dependency and paid eight times more in 2022 to fill its gas storage (primarily due to the imports of more costly Liquified Natural Gas, LNG). In the long run, these trends are concerning given the negative environmental externalities from coal usage and the market uncertainty when it comes to the accessibility and pricing of LNG. Uncertainties and new regulation also hinder investments signals into new low-carbon technologies, Le Coq concluded. Bringing an industrial perspective to the topic, Pär Hermerèn, Senior advisor at Jernkontoret, highlighted how the energy crisis is amplified by the increased electricity demand due to the green transition. Given the double or triple upcoming demand for electricity, Hermerèn, referred back to the investment signals, saying Sweden might run the risk of losing market shares or even seeing investment opportunities leave Sweden. This aspect was also highlighted by Lars Andersson, Senior advisor at Swedenergy, who, like Hermerèn, also saw the Swedish government’s shift towards nuclear energy solutions. Andersson stated the short-term solution, from a Swedish perspective, to be investments into wind power, urging policy makers to be clear on their intentions in the wind power market.
Other major impacts from the war relate to migration, a deteriorating Belarusian economy and security concerns in Georgia. Regarding the latter, Yaroslava Babych, Lead economist at ISET Policy Institute, Georgia, shared the major developments in Georgia post the invasion. While the Georgian economic growth is very strong at 12 percent, it is mainly driven by the influx of Russian money following the migration of about 80 000 Russians to Georgia. This has led to a surge in living costs and an appreciation of the local currency (the Lari) of 12,6 percent which may negatively affect Georgian exports. Additionally, it may trigger tensions given the recent history between the countries and the generally negative attitudes towards Russians in Georgia. Michal Myck, Director at CenEa, Poland, also presented migration as a key challenge. While the in- and outflow of Ukrainian refugees to Poland is today balanced, the majority of those seeking refuge in Poland are women and children and typically not included in the workforce. To ensure successful integration and to avoid massive human capital losses for Ukraine, Myck argued education is key, pointing to the lower school enrollment rates among refugee children living closer to the Ukrainian border. Apart from the challenges posed by the large influx of Ukrainian in the last year, the Polish economy is also hit by high energy prices, fuel shortages and increasing inflation. Lev Lvovskiy, Research fellow at BEROC, Belarus, painted a similar but grimmer picture of the current economic situation in Belarus. Following the invasion, all trade with Ukraine has been cut off, while trade with Russia has increased. Belarus is facing sanctions not only following the war, but also from 2020, and the country is in recession with GDP levels dropping every month since the invasion. Given the political and economic situation, the IT sector has shrunk, companies oriented towards the EU has left the country and real salaries have decreased by 5 percent. At the same time, the policy response is to introduce price controls and press banknotes.
Consequences of War: An Academic Perspective
The later part of the afternoon was kicked off by a brief overview of the FREE Network’s research initiatives on the links between war and certain development indicators. Pamela Campa, Associate Professor at SITE, presented current knowledge on the connection between war and gender, with a focus on gender-based violence. Sexual violence is highly prevalent in armed conflict and has been reported from both sides in the Donetsk and Luhansk regions since 2014 and during the ongoing war, with nearly only Russian soldiers as perpetrators. Apart from the direct threats of sexual violence during ongoing conflict and fleeing women and children risking falling victims to trafficking, intimate partner violence (IPV) has been found to increase post conflict, following increased levels of trauma and post-traumatic stress disorder (PTSD). While Ukrainian policy reforms have so far strengthened the response to domestic violence there is still a need for more effective criminalization of domestic violence, as the current limit for prosecution is 6 months from the date crime is committed. An effective transitional justice system and expertise on how to support victims of sexual violence in conflict, alongside economic safety measures undertaken to support women and children fleeing, are key policy concepts Campa argued. Coming back to the broader topic of gender and war, Campa highlighted the need for involvement of women in peace talks and negotiations, something research suggests matter for both equality, representativeness, and efficiency.
Providing insights into the relationship between the environment and war, Julius Andersson, Assistant Professor at SITE, initially summarized how climate change may cause conflict along four channels: political instability and crime rates increasing as a consequence of higher temperatures, scarcity of natural resources and environmental migration. Conflict might however also cause environmental degradation in the form of loss of biodiversity, pollution and making land uninhabitable. As for the negative impact from the war in Ukraine, Andersson highlighted how fires from the war has caused deforestation affecting the ecosystems, that rivers in conflict struck areas in Ukraine and the Sea of Azov are being polluted from wrecked industries (including the Azovstal steelworks) and lastly that there is a real threat of radiation given the four major nuclear plants in Ukraine being targeted by Russian forces. Coming back to a topic mentioned earlier during the day, Andersson also emphasized potential conflict spillovers into other parts of the world due to the war’s impact on food and fertilizer prices.
Concluding the session, Jonathan Lehne, Assistant Professor at SITE, reviewed how war and democracy is tied to one another, highlighting that while studies have found that democracies per se are not necessarily less conflict prone, it is still the case that democratic countries almost never fight each other. As for the microlevel takeaways from previous research, it appears as if individuals and communities having experienced violence and casualties actually reap a democratic dividend in some respects, such as greater voting participation. On the other hand, while areas with a large refugee influx also experience an increased voter turnout, voting for right-wing parties also increase with politicians exploiting this in their communication.
Book Launch – Reconstruction of Ukraine: Principles and Policies
The Development Day was also guested by Ilona Sologoub, Scientific Editor at VoxUkraine, Tatyana Deryugina, Associate Professor of Finance at the University of Illinois at Urbana-Champaign, and Torbjörn Becker, Director of SITE, who presented their newly released book “Reconstruction of Ukraine: Principles and policies”. Sologoub started off by giving an overview of the mainly economic topics covered in the book and pointing out that the main purpose of the book is to inform policy makers about the present situation and to suggest needed reforms and investments. Becker outlined the four key principles recommended to stem corruption during reconstruction; 1) Remove opportunities for corruption and rent extraction, 2) Focus on transparency and monitoring of the whole reconstruction effort, 3) Make information and education an integral part of the anti-corruption effort, and 4) Set up legal institutions that are trusted when corruption does occur. Deryugina focused on the energy sector and related back to what had previously been discussed throughout the day, the need to “build-back-better”. Deryugina mentioned that Ukraine, previously heavily reliant on coal and gas imports from Russia, now have the opportunity to steer away from low energy efficiency and bottleneck issues, towards becoming a European natural gas hub. The book is available for free here. There will also be a book launch on the 11th of January 2023 at Handelshögskolan.
Via link from Kiyv, Nataliia Shapoval, Head of KSE Institute and Vice President for Policy Research at Kyiv School of Economics closed the conference by emphasizing the urgency of continued education of Ukrainians in Ukraine and elsewhere to avoid loss of Ukrainian human capital. Shapoval also stressed how universities can act as thinktanks, support policy makers in Ukraine and Europe to come up with effective sanctions against Russia and provide a deeper understanding of the current situation – a situation which will linger and in which Ukraine needs continued full support.
This year’s SITE Development Day conference gave an opportunity to discuss the need for continued support for Ukraine and the implications from the war in a global, European, and Swedish perspective. Representatives from the political, public, private and academic sectors contributed with their insights into the challenges and possibilities at hand, providing greater understanding of how the support can be sustained, with the goal of a soon end to the war and a successful rebuild of Ukraine.
List of Participants in Order of Appearance
- Anders Olofsgård, Deputy Director at SITE
- Sviatlana Tsikhanouskaya, Leader of the Belarusian Democratic Forces
- Johan Forssell, Minister of Foreign Trade and International Development Cooperation
- Andrij Plachotnjuk, Ambassador Extraordinary and Plenipotentiary of Ukraine to the Kingdom of Sweden
- Tymofiy Mylovanov, President of the Kyiv School of Economics (on link from Kyiv)
- Yuliya Markuts, Head of the Centre of Public Finance and Governance Analysis, Kyiv School of Economics
- Jean-Erik de Zagon, Head of the Representation to Ukraine at the European Investment Bank
- Cecilia Thorfinn, Team leader of the Communications Unit at the Representation of the European Commission in Sweden
- Fredrik Löjdquist, Centre Director of the Stockholm Centre for Eastern European Studies (SCEEUS)
- Jan Ruth, Deputy Head of the Unit for Europe and Latin America at Sida
- Karin Kronhöffer, Director of Strategy and Communication at Swedfund
- Andreas Flodström, CEO and founder of Beetroot
- Chloé Le Coq, Professor of Economics, University Paris-Pantheon-Assas (CRED) & SITE
- Lars Andersson, Senior advisor at Swedenergy
- Pär Hermerèn, Senior advisor at Jernkontoret
- Ilona Sologoub, VoxUkraine scientific editor (on link)
- Tatyana Deryugina, Associate Professor of Finance at the University of Illinois at Urbana-Champaign (on link)
- Torbjörn Becker, Director at SITE
- Michal Myck, Director at CenEa, Poland
- Yaroslava Babych, Lead economist at ISET Policy Institute, Georgia
- Lev Lvovskiy, Research fellow at BEROC, Belarus
- Pamela Campa, Associate Professor at SITE
- Julius Andersson, Assistant Professor at SITE
- Jonathan Lehne, Assistant Professor at SITE
- Nataliia Shapoval, Head of KSE Institute and Vice President for Policy Research at Kyiv School of Economics (on link)
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
The need for urgent climate action and energy transformation away from fossil fuels is widely acknowledged. Yet, current country plans for emission reductions do not reach the requirements to contain global warming under 2°C. What is worse, there is even reasonable doubt about the commitment to said plans given recent history and existing future investment plans into fossil fuel extraction and infrastructure development. This policy brief shortly summarizes the presentations and discussions at the SITE Development Day Conference, held on December 8, 2021, focusing on climate change policies and the challenge of a green energy transition in Eastern Europe.
Climate Policy in Russia
The first section of the conference was devoted to environmental policy in Russia. As Russia is one of the largest exporters of fossil fuel in the world, its policies carry particular importance in the context of global warming.
The head of climate and green energy at the Center for Strategic Research in Moscow, Irina Pominova, gave an account of Russia’s current situation and trends. Similar to all former Soviet Union countries, as seen in Figure 1, Russia had a sharp decrease in greenhouse gas emissions (hereinafter referred to as GHG emissions) during the early 90s due to the dramatic drop in production following the collapse of the Soviet Union. Since then, the level has stabilized, and today Russia contributes to about 5% of the total GHG emissions globally. The primary source of GHG emissions in Russia comes from the energy sector, mainly natural gas but also oil and coal. The abundance of fossil fuels has also hampered investments in renewable resources, constituting only about 3% of the energy balance, compared to the global average of 10%
Figure 1. Annual greenhouse gas emissions per capita
Pominova noted that it is a massive challenge for the country to reach global energy transformation targets since the energy sector accounts for over 20% of national GDP and 28% of the federal budget. Yet, on a positive note, the number of enacted climate policies has accelerated since Russia signed the Paris Agreement in 2019. One notable example is the federal law on the limitation of GHG emissions. This law will be enforced from the end of 2021 and will impose reporting requirements for the country’s largest emitters. The country’s current national climate target for 2030 is to decrease GHG emissions by 30% compared to the 1990 level. As shown in Figure 1, this would imply roughly a 10 percent reduction from today’s levels given the substantial drop in emissions in the 1990’s.
Natalya Volchkova, Policy Director at CEFIR in Moscow, discussed energy intensity and the vital role it fills in Russia’s environmental transition. Energy intensity measures an economy’s energy efficiency and is defined as units of energy per unit of GDP produced. Volchkova emphasized that to facilitate growth in an environmentally sustainable way it is key to invest in technology that improves energy efficiency. Several regulatory policy tools are in place to promote such improvements like bottom-line energy efficiency requirements, sectoral regulation, and bans on energy-inefficient technologies. Yet, more is needed, and a system for codification and certification of the most environmentally friendly technologies is among further reforms under consideration.
As a Senior Program Manager at SIDA, Jan Johansson provided insights on this issue from an international perspective. Johansson gave an overview of SIDA’s cooperation with Russia in supporting and promoting environmental and climate policies in the country. The main financial vehicle of Swedish support to Russia with respect to environmental policy has been a multilateral trust fund established in 2002 under the European Union (EU) Northern Dimension Environmental Partnership (NDEP). One of the primary objectives of the cooperation has been to improve the environment in the Baltic and Barents Seas Region of the Northern Dimension Area. Over 30 NDEP projects in Russia and Belarus have been approved for financing so far. Seventeen of those have been completed, and the vast majority have focused on improving the wastewater treatment sector.
Johansson also shed light on the differences that can exist between governments in their approach to environmental policy. For example, in the area of solid waste management, Russia prefers large-scale solutions such as landfills and ample sorting facilities. In Sweden and Western Europe, governments have a more holistic view founded on spreading awareness in the population, recycling, corporate responsibility, and sorting at the source.
Environmental Transition in Eastern Europe
In the second part of the conference environmental policies and energy transformation in several other countries in the region were discussed.
Norberto Pignatti, Associate Professor and Centre Director at ISET Policy Institute, talked about the potential for a sustainable energy sector and current environmental challenges in Georgia. The country is endowed with an abundance of rivers and sun exposure, making it a well-suited environment for establishing the production of renewable energy such as wind, solar, and hydro. As much as 95 % of domestic energy production comes from renewable sources. Yet, domestic energy production only accounts for 21% of the country’s total consumption, and 58% of imported energy comes from natural gas and 33% from coal. Furthermore, the capacity of renewable energy sources has declined over the last ten years, and particularly so for biofuel due to the mismanagement of forests. A notable obstacle Georgia faces in its environmental transition is attracting investors. Low transparency and inclusiveness from the government in discussions about environmental policy, along with inaccurate information from the media, has led to a low public willingness to pay for such projects. Apart from measures to overcome the challenges mentioned, the government is currently working on a plan to impose emission targets on specific sectors, invest in energy efficiency and infrastructure, and support the development of the renewable energy sector.
Like Georgia, Poland is a country where energy consumption is heavily reliant on imports and where coal, oil, and gas stand for most of the energy supply. On top of that, Poland faces significant challenges with air quality and smog and a carbon-intensive energy sector. On the positive end, Poland established a government-industry collaboration in September 2021, that recognizes offshore wind as the primary strategic direction of the energy transition in Poland. Pawel Wróbel, Founder and Managing Director of BalticWind.EU, explained that the impact of the partnership will be huge in terms of not only energy security but also job creation and smog mitigation. The plan implies the installation of 5.9 GW of offshore wind capacity by 2030 and 11GW by 2040. Wróbel also talked about the EU’s European Green Deal and its instrumental role in accelerating the energy transition in Poland. By combining EU-wide instruments with tailor-made approaches for each of the member states, the Deal targets a 55% reduction in GHG emissions by 2030 through decarbonization, energy efficiency, and expanding renewable energy generation. Michal Myck, Director of CenEA, highlighted the role of social acceptance in accelerating the much-needed energy transition in Poland. In particular, to build political support, there is a crucial need for designing carbon taxes in a way that ensures the protection of vulnerable households from high energy prices.
Adapting to the European Green Deal will also create challenges for countries outside of the EU, especially if a European Carbon Border Adjustment Mechanisms (CBAM) is put in place in 2026 as suggested. Two participants touched on this topic in the context of Belarus and Ukraine respectively. Yauheniya Shershunovic, researcher at BEROC, talked about her research on the economic implications of CBAM in Belarus. It is estimated that the introduction of CBAM can be equivalent to an additional import duty on Belarusian goods equal to 3.4-3.8% for inorganic chemicals and fertilizers, 6.7-13.7% for metals, and 6.5-6.6% for mineral products. Maxim Fedoseenko, Head of Strategic Projects at KSE, shared similar estimations for Ukraine, suggesting that the implementation of CBAM will lead to an annual loss of €396 million for Ukrainian businesses and a decrease in national GDP of 0.08% per year.
An example of Swedish support to strengthen environmental policies in Eastern Europe was presented by Bernardas Padegimas, Team Leader at the Environmental Policy and Strategy Team at the Stockholm Environment Institute. The BiH ESAP 2030+ project is supporting Bosnia and Herzegovina in preparing their environmental strategy. This task is made more challenging by the country’s unique political structure with two to some extent politically autonomous entities (and a district jointly administered by the two), and elites from the three different major ethnic groups having guaranteed a share of power. The project therefore aims to include a broad range of stakeholders in the process, organized into seven different working groups with 659 members on topics ranging from waste management to air quality, climate change and energy. The project also builds capacity in targeted government authorities, raises public awareness of environmental problems, and goes beyond just environmental objectives: mainstreaming gender equality, social equity and poverty reduction. The project is 80 percent finished and will produce a strategy and action plan for the different levels of governance in the country’s political system. There is also a hope that this process can serve as a model for consensus building around important but at times contentious policy issues more generally in the country.
Public Opinion and Energy Security
Finally, Elena Paltseva, Associate Professor at SITE, and Chloé le Coq, Professor at the University of Paris II Panthéon-Asses (CRED), shared two joint studies relating to the green transition in Europe.
Recent research shows that individual behavioral change has a vital role to play in the fight against climate change, both directly and indirectly through changes in societal attitudes and policies motivated by role models. A precondition for this to happen is a broad public recognition of anthropogenic climate change and its consequences for the environment. The first presentation by Paltseva and Le Coq focused on public perceptions about climate change in Europe (see this FREE policy brief for a detailed account). Using survey data the study explores variation in climate risk perceptions between Western Europe, the non-EU part of Eastern Europe, and Eastern European countries that are EU members. The results show that those living in non-EU Eastern European countries are on average less concerned about climate change. The regional difference can partly be explained by low salience and informativeness of environmental issues in the public discourse in these countries. To support this explanation, they study the impact of extreme weather events on opinions on climate change with the rationale that people who are more aware of climate change risks are less likely to adjust their opinion after experiencing an extreme weather event. They find that the effect of extreme weather events is higher in countries with less independent media and fewer climate-related legislative efforts, suggesting that the political salience of the environment and the credibility of public messages affects individuals’ perceptions of climate change risks.
The second presentation concerned energy security in the EU, and the impact of the environmental transition. It was argued that natural gas will play an important role in Europe’s green transition for two reasons. First, since the transition implies a higher reliance on intermittent renewable energy sources, there will be an increased need for use of gas-fired power plants to strengthen the supply reliability. Second, the electrification of the economy along with the phasing out of coal, oil, and nuclear generation plants will increase the energy demand. Today, about 20% of EU’s electricity comes from natural gas and 90% of that gas comes from outside EU, with 43% coming from Russia. To emphasize what issues can arise when the EU relies heavily on external suppliers, the presentation discussed a Risky External Energy Supply Index (Le Coq and Paltseva, 2009) that considers the short-term impact of energy supply disruptions. This index assesses not only the importance of the energy type used by a country but also access to different energy suppliers (risk diversification). The index illustrates that natural gas is riskier than oil or coal since natural gas importers in the EU depend to a greater extent on a single or few suppliers. Another crucial component of the security of gas supplies arises from the fact that 77% of EU’s net gas imports arrive through pipelines, which creates an additional risk of transit. Here, the introduction of new gas transit routes (from already existing suppliers) may increase diversification and decrease risks to the countries having direct access to the new route. At the same time, countries that share other pipelines with countries that now have direct access may lose bargaining power vis-à-vis the gas supplier in question, as demand through those pipelines could fall. Le Coq illustrated this point applying the Transit Risk Index developed in Le Coq and Paltseva (2012) to the introduction of the North Stream 1 pipeline. She concluded that the green transition and associated increase in demand for natural gas is likely to be associated with higher reliance on large gas producers, such as Russia, and resulting in energy security risks and imbalance in the EU. One way to counteract this effect is to exercise EU’s buyer power vis-a-vis Russia within the EU common energy policy. While long discussed, this policy has not been fully implemented so far.
This year’s SITE Development Day conference gave us an opportunity to highlight yet another key issue, not only for Eastern Europe, but for the whole world: global warming and energy transformation. Experts from across the region, and policymakers and scholars based in Sweden, offered their perspectives on the challenges that lie ahead, but also highlighted initiatives and investments hopefully leading the way towards a brighter future.
List of Participants
- Chloé Le Coq, Professor of Economics at the University of Paris II Panthéon-Assas (CRED). Paris, France. Research Fellow at SITE.
- Maxim Fedoseenko, Head of Strategic Projects at KSE Institute. Kyiv, Ukraine.
- Jan Johansson, Senior Program Manager, SIDA. Stockholm, Sweden.
- Michal Myck, Director of CenEA. Szczecin, Poland.
- Bernardas Padegimas, Team Leader: Environmental Policy and Strategy, Stockholm Environmental Institute. Stockholm, Sweden.
- Elena Paltseva, Associate Professor, SITE/SSE/NES. Stockholm, Sweden
- Norberto Pignatti, Associate Professor of Policy at ISET-PI, and Head of the Energy and Environmental Policy Institute at ISET-PI. Tbisili, Georgia.
- Irina Pominova, Head of Climatwe and Green Energy at the Center for Strategic Research. Moscow, Russia.
- Yauheniya Shershunovic, Researcher at BEROC, Minsk, Belarus. PhD Candidate at the Center for Development Research (ZEF). Uni Bonn.
- Natalya Volchkova, Policy Director at CEFIR, Assistant Professor at the New Economic School (NES). Moscow, Russia.
- Pawel Wróbel, Founder and Managing Director of BalticWind.EU. Poland.
- Julius Andersson, Researcher at SITE. Stockholm, Sweden.
- Anders Olofsgård, Associate Professor and Deputy Director at SITE. Stockholm, Sweden.
After having been relatively mildly affected in the first wave, Eastern Europe is currently in the midst of the second wave of the COVID-19 pandemic with much higher levels of infected and dead compared to the spring. This health crisis not only has economic consequences but also has contributed to political instability in parts of the region. This policy brief shortly summarizes the presentations and discussions held at the SITE Development Day 2020 Conference, focusing on the consequences of the COVID-19 pandemic in Eastern Europe.
A Swedish Government Perspective
The conference started with the Swedish Minister of International Development Cooperation, Peter Eriksson, discussing the current situation in Eastern Europe with a particular focus on the partnership with Sweden.
According to Minister Eriksson, Swedish foreign policy in general, and foreign aid policy in particular, has historically paid too little attention to Eastern Europe. He has therefore emphasized that Swedish aid should be used to promote democracy and human rights in the region. As the pandemic has exacerbated global anti-democratic trends and intensified existing inequalities, international support and cooperation have become more essential than ever.
Minister Eriksson mentioned several priority areas of Swedish aid policy in the region, such as the fight against corruption, economic reforms for poverty alleviation, gender equality, and media freedom. Emphasizing the importance of the latter, Minister Eriksson mentioned education for journalists and financial support for small independent media as important Swedish efforts in the region. He stressed that the protection of pluralistic media is also a military security matter, as countries like Georgia and Ukraine have been targets of foreign disinformation campaigns. The importance to support democracy and civil society was also illustrated by the case of Belarus, where all ongoing projects in partnership with the state or state-affiliated organizations have been suspended. The Swedish government has successfully implemented regional projects in energy efficiency and water purification, although Minister Eriksson underlined that the need for measures to slow down climate change is intensifying.
The important role of European Union membership was also mentioned. Minister Eriksson argued that the incentives created by potential EU membership have been the main drivers of democratization, modernization, and poverty reduction as well as progress towards greener economies in the region.
In response to the pandemic, Sweden, as well as the European Union, have increased aid transfers to Eastern Europe. Minister Eriksson underlined, though, the need to not only support immediately affected sectors and outcomes, as the pandemic has many serious spillover effects in other areas already in need of help prior to the crisis.
The Economic Outlook for the Region
The second section of the conference provided a current account of the economic situation in the region by two speakers from different sectors.
Alexander Plekhanov, director for Transition Impact and Global Economics at the European Bank for Reconstruction and Development (EBRD), shared results from an EBRD survey on the impact of the pandemic. The survey was conducted in August and covered 8 emerging economies in Eastern Europe and 6 more advanced countries for comparison.
Analysis of the survey responses shows that the impact of the crisis is very broad. The share of respondents that had lost their job was 15% in emerging economies, and almost twice as high in advanced economies. Many factors contributed to this gap. One affected area was tourism, with international tourism being particularly important in many emerging economies, and hard to replace with increased domestic tourism. The outbound relative to inbound tourism for countries like Sweden and the UK equals a factor of 3 and 2 respectively, while the corresponding in emerging economies is often below 1.
Compared to the 2008 financial crisis, the economic impact over the first five months of the pandemic was at similar aggregate levels, but more unequal across socio-economic groups. For instance, job losses were higher among the young and those with lower income and with less education. Yet, the overall impact in emerging economies was 10% less unequal than in advanced economies due to differences in the structures of economies and the feasibility of working from home.
Fredrik Rågmark, the CEO of Medicover, a healthcare and diagnostics services provider operating in the region in the last 25 years, provided insights from a business perspective.
Similar to Minister Eriksson, Rågmark argued that, for Medicover, the biggest change in the region over recent years has been related to EU integration, and in particular to Poland becoming an EU Member. Rågmark noted that the change was not limited to Poland: all the countries in the region are on a trajectory of change but at different stages. In his mind, the biggest difference between the emerging Eastern Europe and the West is that people have higher expectations about the future in the East.
Rågmark recognized that corruption has been a major challenge for the region in attracting business and investors, but also that it has gotten significantly better in recent years. The EU integration process has been essential there, as membership and continued support relies on institutional reforms to improve governance and ensure political accountability. Recognizing the risk that governments lose incentives to continue reforms once membership is secured (currently exemplified by the policies in Hungary and Poland), Rågmark yet emphasized that the European Union has been extremely successful in improving the business climate in the region and should receive more recognition than it often does.
As for the COVID-19 crisis, Rågmark argued that Plekanovs description was very representative of what he has seen in Eastern Europe. Medicover experienced a drastic falloff in late March when people were not allowed to visit the hospital unless they had acute symptoms. When countries re-opened in the summer, the company had a strong rebound of replaced demand from the lockdown. Also, Medicover has contributed significantly to the testing effort across the region. Due to the challenges associated with the skyrocketing demand for PCR testing, many countries in Eastern Europe that previously only allowed the public sector to treat inpatient COVID-19 cases, have opened up ambulatory services to the private sector. In terms of scaling up testing capacity, the private sector has been very important. Medicover is now a major provider of PCR-testing in Ukraine and Poland, and the single largest provider in Romania.
Economic Policy Responses to the Crisis: Regional Experiences
In this section, experts from the FREE network provided brief overviews of the current situation in their respective countries, as well as the major developments during the year.
The Academic Director of BEROC, Kataryna Bornukova, provided an alarming description of recent developments in Belarus. Even before 2020, the prospects of the Belarussian economy did not look great. As relations with Russia started to worsen, the year began with shortages in the oil supply which contributed to GDP contraction already in the first quarter. When the pandemic hit Belarus in the spring the government neglected its severity. Initially, no measures of economic relief were introduced and there are valid suspicions that the official COVID-19 statistics were inaccurate. Eventually, the government created incentives for state-owned companies to keep up output, slowing down the GDP contraction in the second quarter. However, these measures are now a source of financial risk for the whole country as the state has accumulated huge inventories and substantially increased public debt. Unfortunately, during the second wave, policy responses are still lacking and the ongoing political crisis worsens the situation as it hampers economic development through increased uncertainty and lowered public trust.
As for Poland, Michal Myck, director of CenEA, argued that development during the crises has been mixed both in terms of the pandemic itself and government response.
While infections were at low levels during the first wave in April, they increased sharply during the second wave at the end of October. Similar to Belarus, there have been significant political developments over the year such as the presidential election campaign and the “Women’s Strike”. Myck suggested that these events have complicated a clear strategic response to the virus. During the summer, the government shifted its attention away from preparations for the second wave, towards the July elections. The first wave was met by fiscal and monetary stimulus packages. Although employment and growth have not fallen that much relative to neighboring countries, Myck argued that Poland will be left with a significantly higher level of public debt and other challenges when the pandemic is over.
Giorgi Papava, Center Head at ISET-PI, explained that the Georgian government declared a state of emergency and lockdown in March, despite the low number of infections at the time. From April to June, the economy then experienced a 13% drop in GDP. After the economy re-opened at the end of June, it has shown a slight recovery over the summer. Unfortunately, it was followed by a sharp increase in infections in the autumn. This second wave was not met by similar restrictions until after the elections at the end of November, again suggesting the role of politics in the pandemic response in the region. In terms of economic impact, the most severe blow for Georgia was the sharp decline in tourism affecting many sectors including hospitality and food services, construction, arts, entertainment, and recreation.
Olena Sholomytska, Senior Researcher at KSE, explained how Ukraine, like most other countries in the region, experienced low reported infection rates in the spring, though high detection rates and low levels of testing may suggest that real infection rates were higher. The summer was followed by a sharp increase in infections and the situation has worsened since then. The economy saw a 7.5% drop in GDP in the second quarter, partly due to a strict lockdown policy, followed by a slight recovery in the third. The Ukrainian government has introduced various monetary and fiscal measures for both households and firms including cash allowances for self-employed, small firms, and people with temporary pay cuts, as well as long-term financing for banks up to 5 years. Currently, the government is reluctant to enforce stricter measures to prevent the second wave of infections mainly for political reasons. Ukrainians are becoming less afraid of the virus and more discontent with the restrictions, so the government is concerned about taking an unpopular decision.
Natalya Volchkova, Director at CEFIR at NES, explained how Russia, after a relatively calm summer, was hit by the second wave in October as the number of infections and COVID-19 deaths reached their highest levels since the onset of the pandemic. As far as economic performance is concerned, monthly indicators of economic activity show a sharp decline at the beginning of March and a slight recovery since then. However, when looking at month-on-month comparisons, economic performance is significantly lower in every month throughout 2020 compared to 2019.
The support measures introduced during the spring and summer constituted 3.7% of GDP. While most stimulus was allocated to the corporate sector (2.1%) households also received a significant amount of support (1.6%). The measures targeted to help household income included: cash transfers to families with children; increased unemployment benefits; 2019 tax-return for self-employed; extra payments to medical specialists; and credit restructuring and penalty-free payment deferrals for COVID-19 infected. The support dedicated to the business sector included: tax and credit payment deferrals; bankruptcy moratorium for 6 months; reduction in property tax: and subsidies to backbone enterprises. The support measures are expected to increase GDP growth by 1.8 percentage points by boosting household consumption, corporate inventory, and investments.
Sergej Gubin, Research Fellow at BICEPS, described the epidemiological impact of the pandemic in the spring as hardly noticeable in Latvia. Although, the country currently has the 3rd lowest COVID-19 mortality rate in the EU, infections and mortality have increased quite dramatically during the fall.
While the restrictions introduced in the spring did not include a strict lockdown or a mandatory mask policy, the government closed borders, schools, and kindergartens. Following the second wave, the restrictions adjusted to including a mask policy, open borders, and 5-12 graders on distance learning.
The economic policy response has included downtime benefits for employees of firms with a reduction in turnover of 30% or more, temporary tax reliefs, and sick leave benefits for parents with young children on distance learning. The drop in GDP for 2020 is projected to be 7% and unemployment is expected to increase by 7.7%.
The Implications of the Pandemic for Gender Inequality
It is widely known that the pandemic has had catastrophic consequences for health and economic activity. Many experts, though, have also expressed concerns about its impact on gender equality and the welfare of women. On the health side, men and women have been shown to be equally susceptible to infection, however among those that get infected women have significantly lower mortality rates than men. Monika Oczkowska, Senior Researcher at CenEA, showed that about 40 % of deaths in Poland were women, which is very similar to Western European countries, whereas excess mortality has been particularly high among men in older age groups.
The pandemic has also impacted gender inequality through the labor market. In countries like Ukraine and Georgia, the pandemic has significantly worsened pre-existing inequalities. In the latter, the number of registered unemployed increased by 16 000 in the second quarter, and among them, 90% were women, according to Yaroslava Babych, Policy Center Head at ISET-PI. Also, among the 44 000 workers that lost their employment during lockdown in the spring a vast majority were women. Partly, the reason for this is that the restrictions affected sectors that were predominantly female such as restaurants, cafés, and retail, as well as arts and entertainment.
In Belarus, a country with relatively high female labor force participation, the impact on gender inequality changed over time. In the Belarussian labor market, women are highly concentrated in the hospitality and public sector, and men in the industrial sector. After the first wave in the spring, women were worst affected, both in terms of unemployment and loss of income, which was largely driven by the impact on the hospitality industry. Over time men became more affected as the industrial sector took a hit, whereas women benefitted from steady employment within the public sector. The gender distribution in the Ukrainian labor market is similar to the Belarusian. Women are concentrated in sectors that are economically vulnerable to the crisis but also in those that are critical for everyday life such as the health and education sectors. In other words, in these countries some women are at high risk of losing their job while others, that are less at risk of an economic shock, often are particularly likely to be exposed to health shocks.
From a more positive perspective, the crisis has also brought about structural changes to the labor market that could potentially improve gender equality. In Russia, workplaces have started to provide more flexible working conditions which have enabled more women to work remotely from home.
One serious consequence of the crises is an increase in domestic violence as the pandemic has exacerbated things that are known to increase conflict and violence within households. Maria Perrotta Berlin, Assistant professor at SITE, argued that mobility restrictions have increased the time spent with family members, increased isolation from social networks and support organizations, and increased stress caused by economic insecurity. According to the international ombudsman of Russia, the number of distress calls relating to intimate partner violence has increased by 150% during the pandemic, compared to an estimated average increase of 60% in Europe during the same time.
Political Implications in the Region with a Special Focus on Belarus and Russia
The final section of the day focused on political developments in Russia and Belarus in the times of the COVID-19 pandemic, two countries with close historical, political and economic ties. SITE invited two experts on the politics in respective countries: Elena Panfilova, Founder of the Center for Anti-corruption Research and former Chair of Initiative Transparency International – Russia, and Artyom Shraibman, founder of Sense Analytics, a political consultancy in Minsk and nonresident scholar at the Carnegie Moscow Center.
Panfilova gave a comprehensive narrative of the recent political developments in Russia related to the onset of the pandemic. Panfilova argued that the political response to the pandemic in Russia changed over time. In the spring, the government and political elites had a relatively active response and clear communication with the public. However, when the second wave started in September the government largely stayed silent. According to Panfilova, the reason for this is that Russian politicians started to anticipate the important 2021 regional elections and that they found it hard to communicate with the public without challenging their future political interests as the crisis response had been met with much discontent. This discontent, Panfilova argued, had to do with Russia’s vertical system of accountability being very ineffective in dealing with a horizontal problem such as COVID-19. The response system would have needed help across the political spectrum and would have benefited from more transparency to fight the pandemic; instead, the government continued to restrict political freedom and civil rights.
Reacting to the introduction by Panfilova, Shraibman argued that there is no historic example of a situation where the response to similar situations have differed so much between the Belarusian and Russian governments. The Belarusian regime’s response, in contrast to the Russian, was close to non-existent in the first wave and this continued up until the autumn when the government started to introduce restrictions in response to the second wave of infections.
The pressure of the pandemic has revealed the weaknesses and flaws of governments around the world and not least in Belarus. Although there are several reasons for the political crisis such as the stagnation of the Belarus economy, Shraibman argued that the mismanagement of the pandemic became the tipping point.
Shraibman explained how the Belarus regime has always tried to sell a paternalistic identity and has presented itself as a stable and fair welfare system that cares for the poor and the vulnerable. The mishandling of the COVID-19 pandemic shattered this identity in the eyes of the public. The rhetoric and state-level deception during the first wave irritated a lot of people as the state-owned media outlets often accused the sick of being weak and ridiculed people for wearing masks. As many Belarusians saw relatives die and doctors started to contradict the narrative of the state, people were reminded of the Soviet government’s concealment of the Chernobyl disaster.
These developments created stress on the Belarusian society right before the presidential elections in August since the frustration that had been accumulated was channeled into political activity. During the pandemic, people learned how to organize and coordinate crowdfunding initiatives to support doctors and similar initiatives. This self-organization infrastructure transferred to the opposition campaign and is now used to support victims of political repression.
During the second wave, the government started exploiting the crisis to restrict political freedom. For instance, independent observers were not allowed to observe electoral polls, and political prisoners were not allowed to meet with lawyers. These and similar actions have further aggravated the political discontent with the regime in the country. Shraibman concluded that groups in society that previously have been apolitical now have become politicized, as they have personally experienced the repressive measures previously targeted primarily to the Belarusian opposition.
As in previous years, the Development Day conference offered us an opportunity to invite a diverse group of experts, politicians, and practitioners to discuss a current and important topic in the area of development and transition. The different perspectives highlighted the multifaceted impact of the COVID-19 pandemic on Eastern Europe, as well as the continued engagement of Swedish society in the region. Unfortunately, the pandemic also prevented us from meeting in person this time, but we hope that next year we will be able to meet again at the Stockholm School of Economics.
List of Participants
- Peter Eriksson, Minister for International Development Cooperation, Sweden.
- Alexander Plekhanov, director for Transition Impact and Global Economics, EBRD.
- Fredrik Rågmark, CEO Medicover, Sweden.
- Kataryna Bornukova, Academic Director BEROC, Minsk, Belarus.
- Michal Myck, Director CenEA, Szczecin Poland.
- Giorgi Papava, Center Head at ISET-PI, Tbilisi, Georgia.
- Olena Sholomytska, Senior Researcher KSE, Kyiv, Ukraine.
- Natalya Volchkova, Director CEFOR at NES, Moscow, Russia.
- Sergej Gubin, Research Fellow BICEPS, Riga, Latvia.
- Lev Lvovskiy, Research Fellow BEROC, Minsk, Belarus.
- Monika Oczkowska, Senior Research Economist CenEA, Szczecin, Poland.
- Yaroslava Babych, Head of Macroeconomic Policy Research Center ISET-PI, Tbilisi, Georgia.
- Aleksandr Grigoryan, Associate Professor American University of Armenia, Yerevan, Armenia.
- Olga Kupets, Policy Professor KSE, Kyiv, Ukraine.
- Maria Perrotta Berlin, Assistant Professor SITE, Stockholm, Sweden.
- Artyom Shraibman, founder of Sense Analytics and nonresident scholar at the Carnegie Moscow Center.
- Elena Panfilova, Founder of the Center for Anti-corruption Research and former Chair of Initiative Transparency International – Russia.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
In many parts of Eastern Europe, the transition towards stronger political institutions and democratic deepening has been slow and uneven. Weak political checks and balances, corruption and authoritarianism have threatened democracy, economic and social development and adversely impacted peace and stability in Europe at large. This policy brief summarizes the insights from Development Day 2019, a full-day conference organized by SITE at the Stockholm School of Economics on November 12th. The presentations were centred around the current political and business climate in the Eastern European region, throwing light on new developments in the past few years, strides towards and away from democracy, and the challenges as well as possible policy solutions emanating from those.
The State of Democracy in the Region
From a regional perspective, Eastern Europe has seen mixed democratic success over the years with hybrid systems that combine some elements of democracy and autocracy. Based on the V-Dem liberal democracy index, ten transition countries that have joined the EU saw rapid early progress after transition. In comparison, the democratic development in twelve nations of the FSU still outside of the EU has been largely stagnant.
In recent years, however, democracy in some of those EU countries, such as Bulgaria, the Czech Republic, Hungary, Poland and Romania have been in decline. Poland, one of the region’s top performers in terms of GDP growth and life expectancy, has experienced a sharp decline in democracy since 2015. Backlashes have often occurred after elections in which corruption and economic mismanagement have led to the downfall of incumbent governments and a general distrust of the political system. Together with low voter turnout, this created fertile ground for more autocratic forces to gain power helped by demand for strong leadership.
An example from Ukraine illustrated the role of media, both traditional and social, for policy-making. In some countries of the region, traditional media is strictly state-controlled with obvious concerns for democracy. This is less the case in Ukraine, where also social media plays an important role in forming political opinions. The concern is that, as elsewhere, opinions that gain traction on social media may not be impartial or well informed, affecting public perception about policy-making. A recent case showing the popular reaction to an attack on the former governor of the Central Bank suggests that those implementing important reforms may not get due credit when biased and partial information dominates the political discourse on social media.
Another case is the South Caucasian region: Armenia, Georgia and Azerbaijan. The political situation there has been characterized as a “government by day, government by night” dichotomy, implying that the real political power largely lies outside the official political institutions. In Georgia, the situation can be described as a competition between autocracy and democracy, with a feudalistic system in which powerful groups replace one another across time. As a result, trust in political institutions is low, as well as citizens’ political participation.
In the case of Azerbaijan, there is an elected presidency, but in reality, power has been passed on hereditarily, becoming a de facto patrimonial system. Lastly, in Armenia, the new government possesses democratic credentials, but the tensions with neighbouring Azerbaijan and Turkey have given increasing power to the military and important economic powers. Overall, democratisation in these countries has been hindered by a trend for powerful politicians to form parties around themselves and to retain power after the end of their mandates. Also, the historical focus on nation-building in these countries has led to a marked exclusion of minorities and a conflict of national identities.
The last country case in this part of the conference focused on the current political situation in Russia and on the likely outcomes after 2024. The social framework in Russia appears constellated by fears – a fear of a world war, of regime tightening and mass repressions, and of lawlessness – all of them on the rise. Similarly, the economy is suffering, in particular from low business activity, somewhat offset by a boost in social payments. Nonetheless, it was argued that it is not economic concerns, but rather political frustration, that has recently led citizens to take to the street. Despite this, survey data shows that trust in Putin is still over 60%, and that most people would vote for him again. However, survey data also points out that the most likely determinant of this trust is the lack of another reference figure, and that citizens are not averse to the idea of political change in itself. Lastly, Putin will most likely retain some political power after 2024, transiting “from father to grandfather of the nation”.
Voices from the civil society in the region also emphasized the importance of a free media and an active civil society to prevent the backsliding of democracy. With examples from Georgia and Ukraine, it was argued that maintaining the independence of the judiciary, as well as the public prosecutor’s office, can go a long way in building credibility both among citizens and the international community. The European Union can leverage the high trust and hopeful attitudes it benefits from in the region to push crucial reforms more strongly. For example, more than 70% of Georgians would vote for joining the EU if a referendum was held on the topic and the European Union is widely regarded as Georgia’s most important foreign supporter.
Weak Institutions and Business Development
The quality of political and legal institutions strongly affects the business environment, in particular with regards to the protection of property rights, rule of law, regulation and corruption. Research from the European Bank for Reconstruction and Development (EBRD) highlights that the governance gap between Eastern Europe and Central Asia and most advanced economies is still large, even though progress in this area has actually been faster than for other emerging economies since the mid-‘90s. This is measured through enterprise surveys as well as individual surveys. In Albania, for instance, a perception of lower corruption was linked to a decrease in the intention to emigrate equivalent to earning 400$ more per month. Another point concerned the complexity of measuring the business environment and the benefits of firm-level surveys asking firms directly about their own actual experience of regular enforcement. For example, in countries such as Poland, Latvia and Romania the actual experience of business regulation measured via the EBRD’s Business Environment Enterprise Performance Survey, is far worse than one would expect from the World Bank’s well known Doing Business rating.
From the perspective of Swedish firms, trade between Sweden and the region has remained rather flat in the past years, as the complexity and risks of these markets especially discourage SMEs. Business Sweden explained that Swedish firms considering an expansion in these markets are concerned with issues of exchange rate stability, and the institutional-driven presence of unfair competition and of excessive bureaucracy. Moreover, inadequate infrastructure and the presence of bribery and corruption make everyday business operations risky and costly. It was generally emphasized that countries have to create a safe investment environment by reducing corruption, establishing a clear and well enacted regulatory environment, having dependable courts and strengthening domestic resource mobilization. Swedish aid can play a part, but there is a need to develop new ways of delivering aid to make it more effective.
An interesting example is Belarus, that has seen more economic and political stability than most neighbours, but at the same time a lack of both economic and political reforms towards market economy and democracy. Gradually the preference towards private ownership, as opposed to public, has increased in recent years and the country has seen a rising share of the private sector, even without specific privatization reforms. Nonetheless, international businesses are still reluctant to invest due to high taxes, a lack of access to finance as well as to a qualified workforce, but most importantly due to the weak legal system. An exception has been China, and Belarus has looked at the One Belt One Road Initiative as a promising bridge to the EU. Scandals connected with the two main Chinese-invested projects have damped the enthusiasm recently, though.
The economic and political risks of extensively relying on badly diversified energy sources, as is the case with natural gas imports from Russia in many transition states were also discussed. It was shown how some countries such as Ukraine, Poland and Lithuania have improved their energy security by either benefitting from reverse-flow technology and the EU’s bargaining power or building their own LNG terminals to diversify supply sources. However, either of these, as well as other energy security improving solutions are likely to come with an economic cost, though, that not all countries in the region can afford.
A Government Perspective
The main focus of this section was the Swedish government’s new inspiring foreign policy initiative, “Drive for Democracy”. Drawing from a definition of democracy by Kerstin Hesselgren, an early Swedish female parliamentarian, democracy enables countries to realize and utilize the forces of the individual and draw them into a life-giving, value-creating society. It was emphasized that the values of democracy are objectives by themselves (e.g. freedom of expression, respect for human rights) but also that democracy has important positive effects in other areas of human welfare. The Swedish government views democracy as the best foundation for a sustainable society, equality of opportunity and absence of gender or racial bias.
The “Drive for Democracy” specifically identifies Eastern Europe as one of the main frontiers between democracy and autocracy, and the Swedish government promotes human rights and stability through various bilateral programmes through the Swedish International Development Cooperation Agency, Sida, and multilateral initiatives within the EU, such as the Eastern Partnership. It was also emphasized that democracy is a continuous process that can always be improved, as indeed experienced by Sweden. Political rights were granted to women only in 1919 followed by convicts and prisoners in 1933 and to the Roma people only in 1950. Political and democratic rights are thus never once and for all given, and it is crucial that the dividends from democracy are carried forward to the younger generation.
In sum, the day illustrated clearly how democracy engages all segments of society, from the business sector to civil society, and the potential for but also challenges involved for democratic deepening in Eastern Europe. To get more information about the presentations during the day, please visit our website.
Participants at the Conference
- PER OLSSON FRIDH, State Secretary, Ministry for Foreign Affairs.
- ALEXANDER PLEKHANOV, Director for Transition Impact and Global Economics at EBRD.
- TORBJÖRN BECKER, Director, SITE.
- CHLOÉ LE COQ, Associate Professor, SITE and Professor of Economics, University of Paris II Panthéon-Assas.
- THOMAS DE WAAL, Senior Fellow at Carnegie Endowment for International Peace.
- NATALIIA SHAPOVAL, Vice President for Policy Research at Kyiv School of Economics.
- ILONA SOLOGUB, Scientific Editor at VoxUkraine and Director for Policy Research at Kyiv School of Economics.
- KETEVAN VASHAKIDZE, President at Europe Foundation, Georgia.
- MARIA BISTER, Senior Policy Specialist, Sida.
- HENRIK NORBERG, Deputy Director, Ministry for Foreign Affairs.
- YLVA BERG, CEO and President, Business Sweden.
- LARS ANELL, Ambassador and formerly Volvo’s Senior Vice President.
- ERIK BERGLÖF, Professor in Practice and Director of the Institute of Global Affairs, London School of Economics and Political Science.
- KATERYNA BORNUKOVA, Academic Director, BEROC, Minsk.
- ANDREI KOLESNIKOV, Senior Fellow, Carnegie Moscow Center.