The policy of “patching holes” is destroying the economy: Ukraine is losing billions

14 May 2025 13:36

The Ukrainian economy is not a collection of disparate enterprises, but a living, complex organism where each element is connected to hundreds of others. And when one “organized” decision kills a key enterprise, the consequences are felt by thousands of people, dozens of related industries, and the entire country. Anatoliy Amelin, executive director and co-founder of the Ukrainian Institute for the Future think tank, spoke about such a case, citing the example of the shutdown of Ingulets GOK, "Komersant Ukrainian" reports

In his commentary, Amelin emphasized that the economy is not a set of separate elements, but a living organism where everything is interconnected.

“We are killing our economy more efficiently than our enemy does. And I’m not talking about taxes, regulation, or economic freedoms. Although it is also worth talking about this loudly. I’m talking about the lack of understanding among our regulators that the country’s economy is an ecosystem, a living organism where everything is interconnected. But for some reason, we continue to treat the economy separately as a “dismemberment”.
Each organ separately, not as an organism as a whole,” he notes.

Unfortunately, Ukrainian regulators often act in a pointed manner, without considering how their decisions affect the economy as a whole. Amelin cites three examples that illustrate this problem:

The NBU’s rate hike to fight inflation.

“Inflation is growing. Without studying its causes – we raise the NBU rate – bank loans grow – business freezes – the economy slows down,” Amelin writes.

Instead of analyzing the causes of inflation, the regulator resorts to a tight monetary policy, which hinders business development.

Restrictions on foreign exchange transactions.

To stabilize the hryvnia exchange rate, the NBU has restricted the payment of dividends and payments abroad.

“The result is a loss of confidence in the jurisdiction. Businesses have set up capital outflow schemes and switched to other markets,” the expert said.

International companies operating in Ukraine are redirecting investments to other countries, which weakens the economy.

Increase in electricity tariffs. Due to the destruction of the energy market, tariffs were raised indiscriminately for everyone.

“They stabilized demand by closing businesses. People lost their jobs. Revenues to the budgets of all levels fell,” Amelin emphasizes.

“This decision solved the local problem of outages, but dealt a huge blow to the economy.

Ingulets GOK: how the shutdown of one enterprise destroys the region

Amelin analyzes in detail the shutdown of the Ingulets Mining and Processing Plant (InGOK), one of Ukraine’s largest iron ore producers.

“The other day I accidentally found out that since last year, Ingulets Mining and Processing Plant, one of the largest iron ore producers, has been shut down,” he writes.

This city-forming enterprise used to generate $500 million in foreign currency earnings per year and more than UAH 1 billion in revenue for Ukrzaliznytsia. Its shutdown has become a real socio-economic disaster for Kryvyi Rih.

The scale of losses from the shutdown of the plant

According to Amelin, the key indicators of InGOK demonstrate how important the company was for the economy:

Production: In 2023, the plant produced 3.51 million tons of concentrate, although its capacity is 14-15 million tons. Exports amounted to 77% (2.7 million tons), bringing in $553.5 million in revenue.

Costs: Electricity accounts for 51% of costs, which has become a critical factor due to rising tariffs.

Staff: The company employed 4,800 people with an average salary of UAH 25,200 per month. The annual payroll was UAH 1.45 billion, and payroll taxes amounted to UAH 601.75 million.

Region: InGOK provided 30% of jobs in the region.

The plant’s shutdown triggered a chain reaction:

Social impact: 10,950 people lost their jobs (including those in related industries). The purchasing power of the region fell by UAH 2.3 billion, and consumption taxes (VAT) decreased by UAH 319.32 million. The outflow of skilled workers has begun, threatening the long-term degradation of the region.

Transportation: Ukrzaliznytsia lost UAH 1.123 billion in revenue, port operators lost UAH 486 million, and road carriers lost UAH 140 million. Total tax losses from transportation amounted to UAH 158.06 million.

Related industries: Material suppliers lost UAH 680 million in turnover, repair companies – UAH 425 million, and energy companies – UAH 4.608 billion. Total tax losses amounted to UAH 1.4 billion.

Why did Ameche Mining shut down?

Amelin says the key reason for the shutdown is the rising cost of electricity, which accounts for 51% of production costs.

“It was the rising cost of electricity that killed the company,” he said.

InGOK’s consumption is 1.44 billion kWh per year, and the current electricity price on the market (4258.63 UAH/MWh) makes production unprofitable. For minimum profitability (3-5%), a price of UAH 3200-3400/MWh is needed, which requires subsidies of UAH 1.15-1.68 billion per year.

Other factors were:

Falling global iron ore prices (below $100 per ton).
Increased logistics costs due to the blocking of ports.
Loss of the domestic market (in particular, due to the shutdown of Azovstal and other steel plants).

Ecosystem approach: how could InGOK be saved?

Amelin offers an alternative scenario based on an ecosystem approach. Instead of raising tariffs for everyone, he calls for subsidizing electricity for strategic enterprises such as INGOK to save jobs, foreign exchange earnings, and economic activity. According to his calculations, electricity subsidies of UAH 1.3 billion per year would have this effect:

Tax revenues: uAH 2.96 billion (including related industries).
Export revenues: $553.5 million.
Jobs: Restoration of 10,950 jobs.
Savings on unemployment benefits: uAH 400 million.

The net budgetary effect would amount to UAH 1.9 billion.

“That is, not only is taxpayers’ money returned, but the budget receives almost UAH 2 billion in taxes on top of the $500 million foreign exchange market,” Amelin emphasizes.

Amelin calls for an ecosystem approach to be applied not only to InGOK, but also to other sectors of the economy:

Mining and processing of critical materials. It is necessary to subsidize processing in Ukraine to create added value rather than export raw materials.
Metallurgy. The construction of new metallurgical facilities should be seen as part of an ecosystem that stimulates the economy through a multiplier effect.
Agro-processing. Instead of bans on the export of raw materials, incentives should be created for processing in Ukraine.
Mortgage lending. Preferential mortgages should be part of a comprehensive renovation of the housing stock, which will revitalize the construction industry.

“Unfortunately, we cannot look at the whole picture. We are solving point problems without understanding the impact of our decisions on the entire ecosystem,” Amelin concludes.