Poland, second place for financial support to Ukraine

Politics - July 14, 2022

One of the countries with the most to lose if the war in Ukraine continues is Poland, whose economy is seriously challenged by the armed conflict in the neighbouring country.

And Poland will also lose what it has gained by bringing Ukraine into the West’s sphere of influence. Under these circumstances, the fact that it has been one of the strongest advocates of punishing the Russian Federation since the beginning of the invasion and has called for drastic sanctions, such as disconnecting Russia from the SWIFT system, is not surprising. What might be surprising, however, is that Poland is second in terms of financial support to Ukraine since the start of the war.

Poland’s financial support to Ukraine: almost €1 billion

“We want to call again on our EU partners to implement a bold package of sanctions that will really seriously disrupt the Russian economy. Before our eyes we see the lines moving. From the outset we have called not only for Russian firms to be removed from the capital market, but also from the SWIFT system. This measure will be all the more effective the wider it is. Or there are discussions going on right now that it would be better to leave them to Gazprom or another bank. Well, (…) there must be sanctions for the entire banking system in Russia, because only this can lead to a profound change in Russian policy, which today is characterized by one thing – aggression.” – Mateusz Morawiecki, Prime Minister of Poland.

Countries close to Ukraine spent more to support the war-torn country – relative to their GDP – in the first month of Russia’s invasion than the US, the UK or the EU’s largest economies.

According to Euronews, which cites data from the Ukraine Support Tracker from the Kiel Institute for the World Economy, Washington gave Kiev the equivalent of €7.6bn in the four weeks since Russia’s invasion began on 24 February. This is by far the largest contribution, with Poland in second place with a package of just under €1bn, followed by the UK, Germany and France.

Poland Ukraine’s second largest trading partner after China

Of the EU’s Eastern European members, the Polish economy has the most to lose if the Russian-Ukrainian war continues. According to a survey published by ZF, more than 40% of Polish companies said the Russian invasion threatens their business, with transport and logistics firms most at risk. Before the war, Ukraine was one of Poland’s main sources of agricultural produce, fruit and grain, as well as its main source of labour.

In 2021, the year before the war, bilateral trade in goods between Poland and Ukraine exceeded $10 billion (€9 billion) for the first time. And also last year bilateral trade between Poland and Ukraine reached the highest level in the history of economic relations between the two countries. But 2021 is also the year when Poland ranked second in Ukraine’s list of trade partners after China. Poland is one of the top five importers of Ukrainian agricultural products. The weight of these goods in Poland’s imports approached two billion dollars, and the balance in this sector is in equilibrium.  A special place in Ukraine’s agricultural exports to Poland has been given to berries, vegetables and peanuts. Deliveries increased by 45% in the 2020/21 season, according to an EastFruit analysis. Revenues have increased 3.4 times in five years. These exports evolved as Poland became an alternative to the Russian market.

Polish companies import frozen berries and orchard fruit from Ukraine for processing and export at much higher prices. The additional revenue from these exports amounts to tens of millions of dollars. And thanks also to fruit from Ukraine, Poland can maintain its position as the world’s leading exporter of frozen fruit. The war has put a damper on many plans and businesses.  Polish investment in Ukraine is small in value compared to other countries in the region, but it is the largest in terms of the number of companies.

Last year was also a good one for Polish investment, which in the first six months alone exceeded a record $1 billion. On the other hand, Ukrainian investment in Poland has also increased. Ukrainian firms (20,000 in number) now account for a quarter of foreign-owned companies on the Polish market.

Ukrainian workers contributed to Poland’s GDP growth

Poland has not felt the labour shortage as intensely as its neighbours precisely because of the Ukrainian workers, by some estimates around two million. Now the men have gone to war, and millions of women and children are coming in their place. Half of the refugees are children. From 2014, the year of the annexation of Crimea, to 2019, Ukrainian workers have created 11% of Poland’s GDP growth, a calculation by the Polish central bank shows. Rzeczpospolita newspaper estimates that Ukrainians contributed 2.5% to Poland’s GDP. Poland is already home to a Ukrainian minority of 1.4 million Ukrainians, of whom more than a million have become residents of Poland since 2014, i.e. with the first phase of the Russian invasion of Ukraine.

Since the Russian invasion on 24 February, more than 2.7 million refugees have taken refuge in Poland, making it the country that has accommodated the most refugees of all countries neighbouring Ukraine. As Russia’s efforts have shifted to eastern Ukraine, some of those who fled to Poland and other neighbouring countries have returned, but to areas recaptured by Ukrainian forces.

Poland, key role in Ukraine’s entry into the pro-Western era

But apart from the economic relationship, Poland also played an important role in Ukraine’s break from Russia’s orbit and its entry into the pro-Western era, which began in the final hours of Russianophile leader Viktor Yanukovych at the helm of the country. And it is also Poland, spearheading the European Eastern Partnership initiative, that has paved the way for Ukraine to escape Russia’s orbit and enter that of the EU and NATO.

Poland has long insisted that the EU should have closer ties with its neighbour Ukraine. Warsaw wants a stable and democratic Ukraine to join or at least move closer to the EU, which would give it more security protection and free access to a huge market half the size of Germany’s. The Maidan revolution, sparked by the refusal of Russophile President Viktor Yanukovych to sign an association pact with the EU – the fruit of Poland’s Eastern Partnership initiative – was just the start of the winding road Ukraine has taken.

Because the final direction this country will take will not only influence the Ukrainians and their EU neighbours, but also Russia. Politicians now in power in Kiev are convinced that Ukraine’s future, like its past, is not shared with Russia’s, but with the Central European countries firmly entrenched in NATO and the European Union: Slovakia, Hungary, Lithuania and especially Poland, reveals an analysis by Foreign Policy magazine.

Over the past 20 years, Poland has influenced Ukraine’s cultural and political development more than any other country except Russia. It has been its strongest supporter within the EU and NATO; it has welcomed millions of Ukrainians to live, study and work there; and it has provided an alternative model for what Ukraine could become as a truly Central European country. Since Russia invaded and annexed the Crimean peninsula in 2014, Ukraine has been steadily building itself as a nation state on the Polish model.

An old Polish saying goes:

“There cannot be a free Poland without a free Ukraine, nor a free Ukraine without a free Poland”. This principle has animated Polish policy towards Ukraine since the turn of the century – a fact that has not gone unnoticed in Moscow.