Crimean economy without myths (3) Exclusive from BlackSeaNews

Crimean industrial association "Titan" in Armyansk,from web-site

Chairman of Tavrichesky Institute of Regional Development,
Honored Economist of the AR Crimea,
Chief Editor of  BlackSeaNews

Director of Tavrichesky Institute of Regional Development,
Leader of  the BlackSeaNews Project

Continued from: Crimean economy without myths (1) Exclusive from BlackSeaNews

                              Crimean economy without myths (2) Exclusive from BlackSeaNews                          

First we want to remind briefly «the short summary of the previous episodes» to our perinnially hurrying reader.

1) The authors are convinced that widespread perceptions of the Crimean economy have nothing in common with realities of the past. Even at present they are strongly distorted in mass consciousness. In their turn, they may considerably influence the projection of the future.

2)  Authors consider that before USSR breakup the main function of the Crimea was military one – but it was such a top secret issue, that nobody believes it  till now:)). Military function consisted of 2 parts: military base itself (navy, space and air forces…) and military mechanical engineering, presented by instrument-making, shipbuilding and sectoral science.

3) Second significant function of  the Crimea in the Soviet times was the one of the largest USSR’s «canning workshop», which used to produce sizeable share of fish, fruit and vegetable canned goods, wine, etc. (the other well-known function of «All-Union Zdravnitsa or Health Resort» deserves, still, special and separate discourse in future).

4) Almost all the above mentioned self-destructed in 1990’s as a result of spontaneous market processes. The main cause in defense industry complex  was its uselessness and impossibility of conversion. In food industry – longstanding privatization delay in the Crimea (due to political motives) in comparison with the other Ukrainian regions. Thus, result was self-destruction of the canning industry and its raw materials base – fruit and vegetable growing.

5) Modern structure of the Crimean economy was sketchy outlined by 1995, finally formed by 2001 and has not changed greatly since then. It is primitive, but stable. Formally food industry ranks number one, chemical one has the second ranking.

However, it’s not the same food industry it used to be – neither by volume, nor by nomenclature of products.  It primarily meets internal Crimean demand; beyond the borders of the peninsula the agro-industrial complex of the Crimea supplies corn and wine (their production has again reached the Soviet times level), as well as vodka and brandy, which production in comparison with 1980’s increased 5-6 times.

While chemical industry remained the same as it used to be in the Soviet times…

Leading positions of chemical industry in modern Crimea economy are not a kind of miracle, but result of preservation of productive facilities, export character of production and continuously high demand at foreign markets.

Crimean alkali-works in Krasnopereckopsk, photo from web site

We should, still, notice that so far it keeps this leadership preserving almost the same output, which in Soviet times allowed chemical industry  to share only 7.5 % of the Crimean  industrial output and be ranked number 3 or 4 together with light industry…

This is the evidence of lack of intensive development in previous years, though substancial expenditures were invested into Crimean chemical production– considering technological peculiarities, without them preservation of the same level could be impossible.

Table 9. The dynamics of some indexes of chemical industry

Output indexes, % to previous year

Share of chemical production in total export, %

Sulphuric acid production(monohydrate), %


Output indexes, % to previous year

Share of chemical production in total export, %

Sulphuric acid production(monohydrate), %

Privileged regime of taxation in the Northern-Crimean experimental economic zone «Sivash» in 1996-2001 contributed to chemical sector preservation (and in fact of 3 out of 4 chemical plants of the Northern Crimea).The index values of volume of output detect this starting from the year of 1998.

The growth began in 1-2 years after granting to chemical enterprises of the Northern Crimea the right of duty-free import of new equipment and privileges in profit tax in case of itheir reinvestment in production development. Let’s remark, that chemical industry sector passed the lowest level point 2 years earlier than whole of Ukraine (economical growth in «Sivash» Northern-Crimean experimental economic zone began in 1998, in the whole country – in 2000).

Preservation of big chemical industry sector in the Crimea can be treated so far, as the only one successful, but local in scope and short in duration effort of intelligent influence on structural processes in Crimean economy.

But in general Crimean economy in past 20 years «preferred»  the spontaneous conversion – so to say, sheer market experiment.

Spontaneity became especially greatly evident from 2003 to 2008, when substantial market deviation took place – land and construction one, which due to the crisis has come to the end by now.

Those years saw the development of powerful market cluster, predominantly shadow one, which provided services to the sale-buying businesses and construction at the land plots – i.e. «land-construction rush».

Its volume is impossible to evaluate using official statistics data. The expert evaluation consider it being equal to the volume of official gross product of the autonomy.

The regional gross product of the Crimea in 2008 amounted 27,4 billion Hryvnias, that is approximately 3,4 billion US dollars. It corresponds to market cost on shadow market of  just only about 1-1.5 thousand hectares of  land during the period of the highest prices (up to 3-3.5 billions dollars per a hectare).

Taking into account that only in last half of 2010 about 2 000 hectares of land were claimed back by the Crimean Office of Public Prosecutor, the scope of shadow land market becomes clear.

Even without regard to construction market and connected with it corrupt payments, which according to some assessments amount up to 50 % of market value of real estate, one can affirm that exactly shadow land and construction market was the main «economic sector» of the peninsula in 2006-2008.

If the profitability of hotel business is considered high when it reaches 10-15 %, then profitability of construction of elite real estate in Crimea before crisis of 2008 used to reach 500 %.

Hence, during 2000’s construction sector played the role of main driving force of the Crimean economy, together with above mentioned chemical industry construction industry, though official statistic indexes of its share (because of considerable shadow component  during selling of flats and execution of work) didn’t demonstrate dramatic growth.

The collapse of the real estate market in 2008-2009 resulted in loss of relevance of this cluster, however inflicting substantial damage to Crimean economy and leaving negative effect for years to come.

The main one is professional and moral retrogress of Crimean elite, perverted by easy corruption «land» lucre and besides, to a considerable degree – loss of inner sources of budgeting for developing of local communities resulted from passing over of the considerable areas of recreation lands for commercial construction.

The hopes of transit and transport potential of the Crimea are at the moment just  dreams, the objective indexes detect decreasing of volume of transportation 2-5 times in comparison with the Soviet period.

Table 13. Cargo turnover by means of transportation, mln. ton- km.


Land surface

Motor highway







Table 14. Transportation of passengers by means of public transport, mln. person.


Land surface

Motor highway (buses)


Trolley buses





And it is no wonder. The map of international transport corridors in the Black Sea region (Sourse – Razymkov Centre) gives the answer to the question on its causes. It is obvious that all international transport corridors pass the Crimea over…

In 1999-2004 the attempt was made to correct the structure of Crimean economy through creation of the territories of priority development (TPD) and free economic zones on the territory of 9 Crimean cities and districts. It was without any success.  

It turned out, that they failed to invite substantial foreign investments, including industry developing projects on the territory of the Crimea, except some insignificant Russian and Ukrainian investments in hotel projects in Yalta and Alushta.

In general, within the last 20 years efforts to involve foreign investments into Crimea economy suffered a set-back.

Table 10. The dynamics of some indexes of  investment  activity

Direct foreign investments (at the beginning of the year), mln. US doll.

Share of direct foreign investments in ARC in general volume of foreign investments in Ukraine, %

Note: we would like to draw reader’s attention to line of the table: «Direct foreign investments (at the beginning of the year)», which means the quantity of investments by «accumulative results», i.e. for all the years since the beginning of statistic account period. Thus, figure 718,4 in 2010 means that as on January, 1, 2010  investments of 718, 4 mln. US doll. were invested into the  economy of the Crimea, starting from 1996 - that is within the period of 14 years

At the same time it’s senseless to cherish illusions and jump to hasty conclusions upon observing some increase in dynamics of growth of investments in 2006-2008 – its cause was the «land and construction rush» …

We want to repeat once again the thoughts, which concluded the previous article:

After crisis in 2008-2009 and the burst of the «soap bubble» at the land and construction market the fundamental structural drawbacks of the Crimean economy, strategic mistakes, wasted time, improper management and, linked to the all above, critical accumulation of unsolved problems became evident.

The attempt of systematic correction of structural distortions and strategic faults of the past years has been launched in the Crimea since the middle of 2010.  And there is no other alternative. However this task is extremely complicated and calls for non-standard decisions.

This article in its magazine version  was published in the Ukrainian language in the digest of the Razumkov Centre «Quality of Life and the Crimean residents and prospectsof its improvement in the context of realisation of the Strategy of economic and social development of the Crimea i n 2011-2020».

To be continued


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