Ukraine Seeks to Reshape Economy Through Reform Agenda

Executive Summary:

• Russia has sought to destroy the Ukrainian economy during its war, leading Kyiv to seek significant funding to repair the economy.
• Ukraine is actively seeking financial aid from international sources and has a long list of reforms to implement to ensure this much-needed financing.
• By focusing on developing strategic sectors, Ukraine can pave the way for a robust and sustainable economic revival, creating opportunities for both businesses and investors alike.

Since the beginning of its war against Ukraine, Russia has sought to bring down the Ukrainian economy, especially the energy sector (DW.com, August 28, 2023). Rebuilding Ukraine’s economy after the Russian invasion is estimated to require an estimated $486 billion (The United Nations, February 15). This estimation is 2.8 times the country’s projected economic output in 2023, based on an updated assessment conducted by the World Bank, United Nations, European Commission, and the Ukrainian government (The World Bank, February 15). The ongoing hostilities are expected to lead to an increase in those estimations, which would require additional investment. The substantial support Ukraine will require following the war highlights the significance of the European Union’s plan to set up the Ukraine Facility and Ukraine Assistance fund to aid the country’s economic recovery and secure sustainable financing (Consilium.europa.eu, March 20).

The plan still needs to be approved, and the framework agreement must be signed and ratified in the Verkhovna Rada (Ukrainian parliament). Once it is signed, the European Commission will be able to offer Ukraine up to 1.89 billion euros ($2.05 billion) in pre-financing. An integral part of the plan is the Ukraine Investment Framework (UIF), a special investment mechanism valued at 9.3 billion euros ($10.07 billion) (Government Portal of Ukraine, April 22). Yulia Svyrydenko, first deputy prime minister and minister of Economy, foresees that, through various risk-sharing instruments, blended financing and grants, and technical assistance, the UIF will help attract about 40 billion euros ($43.3 billion) to the Ukrainian economy in the coming years (Government Portal of Ukraine, May 10; Facebook.com, May 14). UIF support should help develop the key sectors identified in the Ukraine Facility plan, such as energy, agriculture, logistics, critical materials, digital transformation, and a green energy transition

Ukraine has a long list of reforms to be implemented to ensure this long-awaited financing. Kyiv has already implemented numerous laws needed for promoting and incentivizing foreign investment, such as the law on fair lobbying practices and the law on investment insurance against war and political risks (Government Portal of Ukraine, November 22, 2023; Verkhovna Rada, February 23). The Ukraine Facility plan currently includes over 100 reforms in 15 sectors that the government and parliament must implement over the next four years (Government Portal of Ukraine, March 18).

Overview of Key Reforms

(1) Agriculture-Food Sector—The strategy for the development of agriculture and rural territories until 2030 includes the adoption of the State Agricultural Register (DAR), an automated public land relations and land assessment monitoring system compliant with EU standards (European Union, August 12, 2022; DAR.gov.ua, accessed May 23). Additionally, the Verkhovna Rada aims to amend the law on state support for Ukrainian agriculture, focusing on developing support measures funded through donor programs (Zakon.rada.gov.ua, December 4, 2020). The plan also involves implementing an electronic document management system and establishing a unified system with the European Union’s Farm Sustainability Data Network to monitor the agricultural sector and inform decision-making on state support for farmers (Consilium.europa.eu, November 13, 2023). Moreover, the government plans to allocate at least 100 million euros ($162 million) to cover demining and other costs for agricultural producers (RBC-Ukraine, December 20, 2023).

(2) Mineral Resources—The Ministry of Environmental Protection and Natural Resources and the State Service of Geology and Subsoil are set to implement a comprehensive strategy focused on transparency and accessibility for investors in Ukraine’s mineral resources sector (Government Portal of Ukraine, May 14). By the fourth quarter of 2024, legislative changes are planned to be introduced to revise the National Program for the Development of Ukraine’s Mineral Resources until 2030 (Food and Agriculture Organization of the United Nations, accessed May 28). These changes will include establishing a state compensation fund, aligning industry goals with national policies, and identifying strategic and critical raw materials. The second quarter will include the publication of a portfolio of investment projects for critical raw materials extraction and international tenders for production-sharing agreements aimed at increasing accessibility to investors to further boost Ukraine’s economy (European Commission, April 15). By the fourth quarter of 2025, a report on mandatory environmental, social, and governance reporting for the extractive industry will be released, emphasizing transparency and offering recommendations to address legal barriers and enhance investor accessibility (Ukrainefacility.me.gov.ua, March 2024).

(3) Energy Sector—The Ministry of Energy, Ministry of Regional Development, Ministry of Economy, National Energy and Utilities Regulatory Commission, and Ministry of Finance are working together on several important initiatives. In the second quarter of 2024, the Integrated National Energy and Climate Plan looks to be approved, aiming to reduce greenhouse gas emissions, promote renewable energy sources, and increase energy efficiency by 2030 (Ukrainefacility.me.gov.ua, March 2024). By the third quarter of 2024, the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) is planned to be implemented to prevent market abuse in the energy sector (European Union Agency for the Cooperation of Energy Regulators, accessed May 23). In the fourth quarter of 2024, a market-based renewable energy concept will likely be introduced alongside measures to ensure the independence of the National Energy and Utilities Regulatory Commission (Ukrainefacility.me.gov.ua, March 2024).

(4) Green Energy and Sustainability—The Ministry of Environmental Protection and Natural Resources has several milestones planned in the coming years. In 2024, a law on industrial pollution control is planned to be introduced, along with exemptions from certain environmental assessment rules (Government Portal of Ukraine, May 14). In 2025, laws on state climate policy and greenhouse gas emission trading look to be enacted, along with reinstating a mandatory emission monitoring system (Enerdata, January 25, 2021; Ukrainefacility.me.gov.ua, March 2024). Ukraine’s second nationally determined contribution to the Paris Agreement will likely also be approved (Ukrainefacility.me.gov.ua, March 2024). A transition to green energy and sustainability will aid the economy by opening new opportunities for production and aligning the country with the environmental policies of the West.

Svyrydenko has previously stated that for sustainable economic growth, Ukraine must turn from a country that exports raw materials into an exporter of finished products. “We need to develop the processing industry—processing should be the new economic philosophy of Ukraine,” she emphasized at the end of last year (Government Portal of Ukraine, November 3, 2023). According to the Ministry of Economy, the share of the manufacturing industry in Ukraine’s gross domestic product is 10.3 percent, with the Organization for Economic Co-operation and Development benchmark set at 20–25 percent.

Prioritizing the development of key sectors will be instrumental in driving economic recovery in Ukraine. Incentivizing investment in these areas is essential for long-term growth and stability. By focusing on strategic sectors, Ukraine can pave the way for a robust and sustainable economic revival, creating opportunities for both businesses and investors alike.