Crimea's Economy Summarized

Tyler Durden's picture

As the clock ticks down to tomorrow's Crimea referendum, where residents will vote to align with Russia or to stay in Ukraine, Russia Today looks at what the sunny Black Sea peninsula can offer economically and what ties it has with Moscow and Kiev. At first glance, Crimea has certain problems - a lack of energy, and more dangerously, freshwater resources. The republic's annual GDP is only $4.3 billion - 500 times smaller than the size of Russia’s $2 trillion economy. However, whatever the results of the referendum are, fixing the dilapidated state of infrastructure and transport could offer a real investment opportunity for both Russian companies and Crimean entrepreneurs.

 

 

But Tourism and Energy are key to its future:

Tourism

The backbone of Crimea’s local economy is its bustling tourist industry, which draws in 6 million visitors per year during the summer season. But currently, 70 percent of the tourists are from Ukraine, and only 25 percent from Russia. Political rifts between Russia and Ukraine could turn off tourists, with tourism expected to drop by 30 percent this year.

However, if Crimea becomes a part of Russia it’ll become a more attractive holiday destination for Russia’s population of 142 million, whose per capita income is more than three times Ukrainians', according to World Bank estimates.

The average Ukrainian salary was 3148 Hryvna per month ($331) in February 2014, according to the Ukrainian Bureau of Statistics. In Crimea, the average is 2693 Hryvna ($283), whereas in Kiev, workers make nearly double, 4783 Hryvna ($503).

Oil and Gas prize

The big economic prize in Crimea lies to the south, in the Black Sea natural gas fields.

Extraction from these fields has the potential to be substantial - up to 7 million tons in annual production capacity, by Bloomberg estimates.

US ExxonMobil and UK/Dutch Shell have also been in talks with Ukraine about deepwater offshore oil drilling, but the only problem is, all this oil is located under Crimean waters. The deal is estimated at $1 billion.

ExxonMobil’s Black Sea offshore plans are currently on hold, senior vice president Andrew Swiger told investors at an early March meeting.

On Thursday, Crimea’s authorities took under their umbrella Ukrainian oil and gas fields in the Black and Asov seas, according to the speaker of Crimea’s parliament, Vladimir Konstantinov.

He supports Russia’s Gazprom taking control of the oil and gas assets.

"Russia, and Gazprom, should take care of the oil and gas production. It's not our issue," said Konstantinov, as quoted by RIA Novosti.

 

But as Russia Today notes, Sergey Aksyonov, Crimea’s Prime Minister and an advocate of joining Russia, has the hope that breaking away from Ukraine will transform the economy for the better. Aksyonov cited Singapore, which is an independent city-state, as an example to follow.

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Crimea may not follow the same success path, but an option to boost growth is to make Crimea a special economic zone – with less taxes and financial regulation – which could spur growth and attract foreign investment. In 2005, Russia passed a law that allows for special economic zones, and has toyed with setting one up in the Far East, but so far, none have been established.