The rupture caused by Russian's annexation of Crimea will take decades to mend
It has been nearly two years since Russia annexed Crimea, and the period of transition is formally over. There has even been a nominal reshuffle of power through local elections and a law on the establishing of a free economic zone. Most Crimeans have received Russian passports and have re-registered their properties in accordance with Russian legislation. Crimea’s integration into Russia took place with unprecedented speed. The currency, the laws, school curricula, and even trade changed dramatically in the space of a few months.
Crimea is unique not so much in the speed of its integration into Russia as in the virtual absence of armed conflict and human casualties, compared to the struggles for the two other unrecognised republics in Donetsk and Luhansk. The Crimean peninsula became de facto part of Russia without a single shot being fired. Perhaps that’s why out of more than two million residents, just 20,000 people have given up Ukrainian citizenship – less than 1 percentof the population (mostly government, military, and security officials, and activists of Russian political organisations). And this is in spite of the wave of primitive Russian propaganda constantly broadcast by the local media.
However, Crimea has gone through a period of ideological prejudice and economic blockade, and a rupture in family, friendship, and business ties with the rest of Ukraine. A rupture that will take decades to mend.
Road to nowhere
To understand how much Crimea has changed, you just have to visit Simferopol railway station. Before the annexation, you couldn’t move for the number of people on the station’s front square. Except for a few suburban trains, nothing else runs now. There aren’t even long-distance trains to Kyiv any more, something which divides families even further and complicates people’s ability to move around.
However, despite the eerie quiet of this square, you can find a small group of people who come together several times a day to cross the northern “border” in a minibus. Most are destined for big cities such as Kyiv, Kharkiv, and Kherson. Among them are students who want to return to their studies on the mainland and businessmen who are reluctant to close down their operations in Crimea.
However, travelling over to mainland Ukraine is expensive and not everyone can afford the fare. A one-way ticket costs up to 1,000 hryvnia ($50) and the average monthly salary is just $150–200. Therefore, people often have to choose the less comfortable but cheaper route, despite the associated risks it entails.
Maria is an old friend of mine. She is an elderly woman who is very loyal to the new Crimean authorities, but she has grandchildren in mainland Ukraine. She is one of the people who have no choice but to take the cheaper route, but have to endure a significant amount of humiliation to even get out of Crimea, not to mention getting to their destination in Ukraine and back.Recently, she was forced to return from the mainland to Simferopol by the longer, cheaper route (by taking a train from Kyiv to Novoalekseevka, then a taxi to the border, walking 1.5 kilometres through no man’s land once at the border, and then finally boarding the bus to Simferopol). The trip was half the cost of the direct route, but took twice as long.Her journey included two “border” inspections, and contact with people from Ukraine’s “Right Sector” and the Crimean Tatars, who are leading the food blockade. She had to go through all of this before the 1.5 kilometre walk to the spot where private drivers can take you to the “Russian border”. All this is pretty tiring, even for a healthy young person, let alone a pensioner like Maria.As she voices these complaints, Maria often forgets that just over one year ago, she was telling me with enthusiasm how she had voted to join the Russian Federation in the Crimean referendum, but now it seems that she is paying for her vote.
A dictatorship of the majority
The hysteria in Crimea around the revolutionary events of Euromaidan in the winter of 2014 was quite understandable. We in Crimea experienced a conflict of values between those who sided with the protesters occupying Maidan, and the majority ethnic Russian residents on the peninsula, who held pro-Russian views.
Few of my Crimean friends sympathised with the revolutionary movement underway in Kyiv. In fact, most of them held highly negative views on it. After the start of Euromaidan in 2013, one of my colleagues, Dmitry, who works at a Ukrainian pharmaceutical company in Crimea and who graduated in Zaporizhia, joined “Russian Unity”, an extreme nationalist organisation, and was then active in the “Stop Maidan” movement. Now, Dmitry is 25 and has become an apologist for Russian Crimea. After our company left the region, he moved to Krasnodar, in Russia, where he found another job.
The pro-Russian majority, who are convinced of the legitimacy of Crimea’s historical return to Russia, are not interested in the domestic problems caused by such a geopolitical crisis. The sanctions, the blockade, and other problems are perceived as a conspiracy. Their slogan is “Let rocks rain from the sky! We have finally come home”. Nationalism and the feeling of “coming home”, at least for now, conceals the social, economic, and mobility problems people face.
There is a certain logic to this otherwise emotionally charged point of view. We should not forget that Crimea was for many years a heavily subsidised and economically depressed region. For many elderly voters, the relatively high Russian pensions (compared to those in Ukraine) represented a big pull factor for those striving to improve their own well-being through integration with Russia.
It was quite another matter for Crimean Tatars, pro-Ukrainian activists, and Crimean students, who opted to continue their education in Ukraine at their own risk. For this group, Crimea’s accession to Russia meant either reprisals for their support of the revolutionary movement or huge personal problems from being forced to choose where to live, work, or study. Almost all well-known independent journalists either left Crimea or began to write under a pseudonym for fear of reprisals. Indeed, entire editorial offices left (the largest forced relocation was the Crimean Tatar TV channel ATR, which is now based in Kyiv). All pro-Ukrainian Crimeans (including the Crimean Tatars) were effectively forced to cease all political activity and concentrate on solving their own personal problems.
The world of work and the curse of subsidies
There are still jobs in Crimea, but wages (outside the public sector) are low. The freefall of the rouble against the dollar has meant that even relatively high government sector wages, at least compared to Ukraine, were no longer particularly attractive. Although local officials like to claim that people are better off, by referring to the growth of nominal salaries, not much has actually changed in practice. The average salary today is 24,500 roubles (about $390). One year ago, it was 15,000 roubles (which was still $390 back then because of the prior strength of the Russian currency). Wages have gone up, but the purchasing power of the individual has fallen due to the crisis. But, beyond the statistics, most people’s real incomes are significantly below average indicators for Russia.
One of my contacts, an employee of KEX Consulting, based in Simferopol, said that in early 2015 her salary as a full-time website moderator was 8,000 roubles plus a possible 3,000 rouble bonus. Now the situation has levelled off somewhat: her salary has been increased to 11,000 and the bonus part remains unchanged.
In Krasnodar, for example, people would refuse to work for such low salaries, but in Crimea people willingly sign up. Other private companies pay similar wages with about 10,000–12,000 roubles plus bonuses, but pay is rarely more than this. It turns out that the promised Russian paradise is the same $300 a month which people used to get under Ukraine. Because of these low wages, even the Moscow officials whom the Kremlin is so eager to introduce into the Crimean system at the level of deputy minister (to control the flow of funds) refuse to go to Crimea.
In fact, a history that is painfully familiar to many subsidised regions is repeating itself in Crimea. Relatively high wages for relatively little work in government bodies (compared to the private sector) puts people off going into business. Now everybody’s goal is to find a cushy job working for the state. Of course, this has not only come about through increases in the salaries of the pro-government electorate, but also through Moscow’s inability to increase wages across the board in a region which is unattractive to investors and large companies.
Ivan, one of my former colleagues, who started to work in the air-conditioning business in Crimea, says that in two years of work on the de facto Russian peninsula, sales have fallen, but the price has gone up, so company profits have remained stable. The state of Ivan’s company is not particularly indicative of regional trends, because in most cases companies with some relation to tourism have been suffering losses. And this is normal. If you run a small hotel, part of your profits goes towards buying air-conditioning, plumbing, and electrical equipment for the rooms. The more tourists you have, the more you have to spend on these things. When the flow of tourists slows, sales figures in related areas drop, which leads many companies to go bust.
Economic hybrids in a transitioning state
Today, the situation is rather strange. Most of the main Ukrainian companies have officially left Crimea, but the big Russian players have not yet appeared on the scene, creating an economic limbo where companies are caught between Russian and Ukrainian legislation and practices. This economic limbo has been productive of various economic hybrids.
Many local Ukrainian companies have re-registered under Russian law and pay taxes to Moscow, but remain the subject of their Kyiv offices. Essentially, they are trying to have their cake and eat it – maintaining the status of a legal entity in Ukraine (which exempts them from the need to pay tax according to the law on the free economic zone) while at the same time receiving their registration in Russia. Russian companies, on the other hand, are doing everything possible to hide any relationship with Crimea. They do not want to be seen to be formally present in Crimea for fear of sanctions and reputational damage, and so are ready to deny any links to the peninsula.
McDonald’s was the first major international company to announce its closure on the peninsula (in Simferopol, Sevastopol, and Yalta) after the March 2014 referendum. Its empty and abandoned store still sits opposite Simferopol’s deserted station, and is patrolled by a single security guard.
In April 2014, Ukrainian banks began to hastily pack up and leave, and by May their activities had ceased completely. PrivatBank, owned by oligarch and former governor of Dnipropetrovsk, Ihor Kolomoisky, was the first to leaveafter his property in Crimea was nationalised. Withdrawals from the bank’s accounts were limited at first and then completely stopped. Over 20 banks followedsuit, packing up their operations on the peninsula, though most of them continue to serve Crimeans from the mainland.
There were no Russian banks in the region once the Ukrainian operations had departed. The Russian National Commerce Bank (RNKB) was the first to put down roots and later became the major governmentbank in Crimea. It continued to take deposits and make payments without bank stamps until the end of June 2014 (when the Ukrainian hryvnia went out of circulation and an iron curtain came down over Crimea). The absence of stamps in Crimea at that point could have led to widespread bank fraud and so – in those days of hour-long queues and empty cash machines – all transactions were based on trust between the population and the bank staff.
The creation of RNKB is perhaps the most striking example of a hybrid Ukrainian-Russian enterprise. Most of its departments were expropriatedfrom PrivatBank and reformatted under new corporate standards. Many branches retained the same design and only the signs were replaced. PrivatBank cash machines became RNKB cash machines (if not the technical equipment itself, then at least the location). The new state bank even took over the same financial functions as PrivatBank (paying out salaries and benefits, processing invoices for state departments, etc.).
Today there is practically no alternative to RNKB. Contrary to the high hopes of Crimeans, it is mostly second-rate regional Russian banks that have come to Crimea: GenBank, Krayinvestbank, Baykalbank, and about ten to 15 other small banking institutions.
Many people turn a blind eye to the conflict between Crimea, Ukraine, and Russia, trying to make as much money as they can out of it by whatever means they can, hybrid or otherwise. A striking example is Alexander, a programmer from Odessa who comes to Crimea to sell commercial equipment and software for catering businesses.He has his own team of several local experts in Crimea and the company’s central office is in Moscow. His father took a Russian passport in Simferopol, which allowed the family to register a company with the same name as the one in Odessa, but this time according to Russian law.They do not care about the war, or annexation, or the future of the state. At this point in time, these people are only interested in profit and the possibility of entering the Russian market, even through such an unreliable portal as Crimea.Alexander told me: “Well, nothing depends on us. The authorities just do what they want, but at least we can do some business. In spite of the whole situation, we create jobs, make money and pay our taxes”.“Where do you pay your taxes?”, I ask. “Where we need to pay them”, Alexander smiles.
Hostages of power and the price of the blockade
Today in Crimea there is a growing sense of isolation, and this is not just due to the months-old food blockade which has put another wedge between Crimeans and the people of Ukraine, but also because of simple everyday things. For example, cable networks air just one news channel in Ukrainian – Euronews. Everything else has to be accessed via satellite or the internet. Some Ukrainian news websites are blocked for being potentially “dangerous” and distributing “extremist” information. Although such limitations can be circumvented by using a simple VPN server, it is still difficult for the average user to obtain unbiased information.
The food blockade has only had a minor impact on local prices and has actually served to lift the lid on the level of black-market trade here. In large supermarkets, which for the most part sold Russian products at Russian prices even before the annexation, the price of products has not changed. But, in small shops and markets, prices have risen because local suppliers were suddenly deprived of cheaper Ukrainian goods. The difficult economic situation in Crimea is compounded by the external blockade by the West and tacit Russian isolation, the effects of which are strongly felt. The Russian private sector is not interested in investing in Crimea at all, putting the local authorities in an unenviable position.
Since the annexation Crimea has also suffered many corruption scandals that have resulted in the sacking of ministers and heads of major nationalised enterprises such as Chernomorneftegaz. It has also been over a year since rumours began circulating that Crimean banks were being used to launder money and to cash out funds received from financial fraud.After experiencing so much corruption, it is difficult to understand why locals are still mostly loyal to the current leadership of Crimea. It is probably due to the fact that the leader of the Republic, Sergey Aksenov, and the Speaker of Parliament, Vladimir Konstantinov, are integrated into the presidential power-vertical of Vladimir Putin, whose authority here is huge. Therefore, the only thing that can threaten the power of the local authorities is discontent in Moscow. After all, there is no real or imaginary opposition to Aksenov’s team,and when the next corruption scandal erupts here, Crimeans will likely learn about it from Russian media reports because local newspapers and TV channels prefer to ignore this kind of information.
One of my sources who is close to the Crimean Ministry for Internal Policy, Information and Communications told me a few months ago that its employees were enthusiastically awaiting the appointment of new ministers from Moscow because the level of competence of the Crimean officials from the Aksenov–Konstantinov team was extremely low. My source argued that the Kremlin is well aware of the lack of professionalism of local managers, so their replacement was only a matter of time. He turned out to be right. However, the Putin administration has not been able to replace the leadership of local ministries entirely and ordinary Crimeans, deprived of access to objective information, know little of these backroom games.
After nearly two years spent under the de facto control of Russia, Crimea has become an island, almost completely cut off from mainland Ukraine. To the already reclusive and provincial mentality of Crimeans an insular wistfulness and a real sense of being under siege has been added. Fear for the future has been transformed into military-style patriotism and a desire to retain any form of stability, however deceptive it may be. The sanctions policy against Crimea can only get worse from here on in, and, combined with the food blockade and the electricity supply being cut off, Crimea is becoming a true grey zone, isolated from the international community and destined to continue living under the stifling conditions of Russia’s autarchic ideology.
The European Council on Foreign Relations does not take collective positions. This commentary, like all publications of the European Council on Foreign Relations, represents only the views of its authors.
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