Ports, mines, agriculture: What can new regions give Russia’s economy?

On Monday, Russia's State Duma ratified the treaties on the accession of the Donetsk and Lugansk People’s Republics (DPR and LPR), as well as Kherson and Zaporozhye Regions, to the Russian Federation. The territories overwhelmingly voted to join the country in referendums in September. 

Economists say the restoration of the conflict-ravaged territories will take huge investment, noting, however, that the returns may be even greater. RT looks at the economic cost as well as the benefits of integrating the territories into Russia.

1. What are the new regions?
   The total area of Donbass, Kherson and Zaporozhye is almost 109,000 square kilometers (42,085 square miles,) or over 15% of Ukraine’s former total area. More than eight million people previously lived in the territories, which have more than 5.6 million hectares of arable land. Moscow has yet to determine the future borders of Kherson and Zaporozhye, parts of which are still controlled by Ukrainian troops.
   
2. What are the drivers of the Donbass economy?
   Donbass with its coal-based economy was Ukraine's industrial heartland. The DPR accounted for 20% of the country’s industrial production as far as 2014. The mineral-rich region has the fourth-largest coal field in Europe, with its extractable reserves estimated at over 10 billion tons. As of February, 115 coal mines were operating in Donbass, producing around 70 million tons of raw material per year. Eight power plants are also located in the Donetsk region.
   
   The LPR is an important transport hub and is known for its metallurgy, machinery and agricultural industries. It also has chemical and pharmaceutical plants and several coal mines. A number of important transit highways pass through the republic. Authorities in LPR say its agricultural potential is great, with a focus on the cultivation of grain.
   
3. Why is Zaporozhye important?
   Zaporozhye Region was the center of energy supply in Ukraine, with its three powerful energy producers: the Zaporozhye nuclear power plant, the largest nuclear facility in Europe, the Dnepr Hydroelectric Station and the Botievo wind farm. In 2019–2020, Zaporozhye produced about 40 billion kWh of electricity per year, which is approximately 25–27% of the entire energy sector in Ukraine. The region has a number of large industrial and mechanical engineering facilities, including the Zaporozhye Automobile Building Plant (ZAZ) with an output of 150,000 vehicles a year. The Dnieper River, the Kakhovka Reservoir and the Sea of Azov play a significant role in Zaporozhye’s economy, which also has great potential for industrial fish farming.
   
4. What’s the significance of Kherson?
   

   Kherson Region specializes in shipbuilding and is known for its resorts and agriculture. It had the largest territory of arable land in Ukraine, at almost 20,000 square kilometers. The region produces cereals, sunflowers and vegetables. The fertile land allows two or sometimes even three harvests a season. Other traditional industries there are cattle breeding and winemaking. There are plans to develop a resort and tourist cluster on the territory, which has access to both the Azov and Black Sea.

5. What challenges does Russia face?
   

   Russia obtained land with incredible agricultural and industrial potential, but with highly degraded infrastructure, due to a lack of investment from Kiev over the past 30 years. The government’s primary concern is to integrate those territories and help them overcome the economic development gap, and to recover from the destruction inflicted by the conflict. Initially, Moscow will finance the budgets of the four regions. In the future as integration deepens and the economy is restarted, the volume of transfers from the federal budget will decrease, experts say.

6. How could Donbass, Zaporozhye, and Kherson contribute to the Russian economy?
   The territories have an extremely advantageous geographical location. They offer vast opportunities due to the presence of ports and maritime routes with the south of Russia. Access to the key port of Mariupol in the Azov Sea means a potential increase of coal and other supplies to Africa and South Asian countries. The regions can contribute to both ensuring the nation’s food security and to increased export supplies to ‘friendly’ states. Experts estimate the potential contribution to the Russian economy could be worth trillions of rubles or even more.

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