Today Ukraine ranks 64th among 190 countries in the ease of doing business rating. At the same time, in the field of international trade, our country is gradually reorienting itself from East to West and is seeking its role in new sales markets. This is facilitated by an Association Agreement with the European Union and a Free-trade Area Agreement with Canada. 
has carried out research on what are the constraining factors for the exports development in Ukraine, what Ukrainian exporters lack and what awaits them in the future.
The pandemic has affected almost all areas of business, and has become critical for some exporters. This year, the situation has begun to improve a little. For example, the export of goods in 2020 decreased compared to 2019 by 1.7% (by $841.7 million) and amounted to $49.2 billion. But in the Q1 of 2021, the export of goods from Ukraine increased by 12% compared to the Q1 of last year, to $13.71 billion.
The main trading partner of Ukraine in 2020 was the EU countries that accounted for 37.8% of exports. In addition, exports to China, Great Britain, Poland, and Turkey increased significantly. But the volume of exports to the Russian Federation is decreasing every year.
The most exported goods from Ukraine, according to the State Statistics Committee, are:
- agricultural and food industry products (45.1%);
- products of the metallurgical complex (18.3%);
- mechanical engineering products (11.0%);
- mineral products (10.8%);
- chemical industry products (5.5%).
Last year, an increase in the export of goods was recorded in the following product groups: mineral products—by $465.5 million (by 9.6%); industrial goods—by $64.2 million (4.1%); agricultural and food industry products—by $55 million (0.2%); products of the chemical and related industries—by $50.5 million (1.9%).
In 2020, 45.1% of exports were products of the agro-industrial complex and the food industry. This testifies to the fact that the specialization in agriculture is assigned to our country in the international division of labor. Such an excessive role of the agricultural sector is observed in backward countries and confirms the fact that our country has turned from a developed industrial country into an agrarian and raw material appendage of the civilized world. Since agricultural products and raw materials are many times cheaper than finished goods, Ukraine suffers from such specialization multibillion-dollar losses.
Oleksandr Khmelevsky
Ph.D. in Economics, independent expert
What does a Free-trade Agreement give?
Exports of Ukrainian goods to the European Union have grown by 60% since the beginning of the Association Agreement with the EU temporary application in 2014. In the first half of this year, the export of Ukrainian goods increased by 30% compared to January—June 2020, to $29.9 billion, and by 22% compared to 2019. This positive trend is due not only to the easing pandemic, but also to the entry into force of new free-trade agreements.
In particular, from January 1, 2021, Ukraine began trading with Israel and the UK on free-trade terms. This means that a significant amount of Ukrainian goods began to be imported into these countries with a reduced or zero duty.
In addition, trade with Turkey may begin in the near future. The Ukrainian government is in talks to update the agreements with North Macedonia, Montenegro, and Moldova. In the future, the possibilities of signing free-trade agreements with India, Egypt, China, Jordan, Vietnam, Brazil, Saudi Arabia, South Africa, and Japan are being considered.
Free trade, in addition to low import duty rates, provides other opportunities for Ukrainian exporters.
Firstly, these are facilitated export procedures. As a general rule, to export Ukrainian goods of preferential origin, the exporter must obtain a certificate of origin issued by the Ukrainian customs. At the same time, for example, the Free-trade Agreements with the EU, EFTA countries (Norway, Liechtenstein, Switzerland, and Iceland), and the UK provide for the possibility for an exporter to obtain the status of an approved exporter. It can be obtained by an exporter who constantly exports goods of preferential origin.
Secondly, new trade business models provide Ukraine with an opportunity to become a platform for processing goods originating from the EU, EFTA countries, Israel, and Georgia. For example, salmon of Norwegian preferential origin is exported to Ukraine, processed by smoking and imported into the EU as salmon of Ukrainian origin at a duty rate of 0%. Smoked Norwegian salmon is imported into the EU at a rate of 13%.
The expert also noted that, in addition to new opportunities and sales markets, there may be cases when markets are closed as a result of imposing an anti-dumping investigation or a special duty in partner countries. For example, in April this year, the United States opened an anti-dumping investigation against Ukrainian (unprocessed) honey.
The consequence of such an investigation may be an anti-dumping duty of 94.5% for Ukrainian honey in the United States. Although the procedure of the investigation itself is lengthy (about 1.5 years), the preliminary anti-dumping duty as an interim measure may be imposed by the United States as early as November this year.
Exporters' problems
Now Ukraine continues to export commodities of the raw material group (grain, metal products) that are most susceptible to the price situation on world markets. The lack of a clear policy aimed at supporting the production of such goods makes the Ukrainian economy especially vulnerable and dependent on global trends.
I would attribute the factors of a poor examination of markets promising for export, insufficient participation of the state in helping Ukrainian business to develop new areas, lack of a clear management strategy and organizing work with foreign economic partners to the economic block. In this context, it is very important to strengthen the activities of the Export Credit Agency, to develop foreign economic channels. Sometimes it seems that our foreign counterparties are even more interested in strengthening bilateral relations with Ukrainian exporters than our state. The growth of export volumes is also slowed down by its "shadow" plane, and smuggling in certain areas. Therefore, the economic block of factors today actually hinders the development of exports to some extent.
Ivan Miroshnychenko
Agricultural sector expert, Chairman of the Board of the NGO Business-Varta
According to a survey of the Kyiv Chamber of Commerce and Industry (124 enterprises exporting their products to the EU, Asia, Africa, and the USA took part in it), the key problems of exporters are:
- bureaucracy in obtaining export permits;
- the complexity of customs clearance procedures and obtaining licenses, permits;
- the difficulty of complying with all the requirements for import in importing countries;
- lack of information on institutions and organizations promoting exports;
- high duty rates in importing countries;
- corruption component at customs.
In fact, there are many constraining factors, but the key stumbling block is the lack of a clear action plan and specific steps for its implementation, as well as a unified coordination of all processes aimed at export development. Now we have an Economic Strategy, an Export Strategy, many departments, non-governmental institutions, including those working in support of exporters. But so far it looks like a circular firing squad: there is no one responsible body and specific persons who would be entrusted with the task of promoting domestic exports. Now an important stage of revision and formation of the Export Strategy of Ukraine for the next 5 years is underway. From the side of the Export and Investment Support Committee of the Kyiv Chamber of Commerce and Industry, we will submit our proposals on the necessary changes.
Viktor Shevchenko
Head of the Export and Investment Support Committee of the Kyiv Chamber of Commerce and Industry
Experts believe that the main problems of Ukrainian exports today are the detachment of the government and the state from export problems in general. Ukrainian export falls entirely on the shoulders of each individual manufacturer.
Another negative factor is the inconsistency of Ukrainian legislation with the legislation of the EU member states.
This concerns the issue of the plant protection products certification, requirements for the register of feed additives and the food production, items and materials in contact with food, and the like. Efforts are being made to improve legislation, but it is complicated by the state bureaucratic machine. For instance, draft laws that are needed by business and hinder the entry of Ukrainian products to the EU export markets can be adopted from 2 to 5 years. There is no one to draft the normative legal acts that must be drafted for their implementation. There are simply not enough specialists, and wages are scanty.
Yana Kazmina
The World Bank expert on support to the agricultural sector
Unfortunately, the overwhelming majority of Ukrainian manufacturers of products with a high share of added value that can independently organize crediting and sales of their products in the world market suffer from a shortage of balance funds.
High risks of financial losses during export operations and unfavorable terms of export crediting (high interest rates and short terms of loans provided) force exporters to settle export operations through offshore companies and evade taxes.
Ukraine is taken over by transnational corporations that are aimed at providing raw materials for their own industries located outside the country. In our country, there are no investments in the modernization of export-oriented industries and there is an acute shortage of the latest technologies, as well as an outdated transport infrastructure that does not meet modern requirements for effective cross-border traffic.
The practice of taking restrictive and protectionist measures by individual countries and leading transnational corporations is quite common.
In addition, Ukrainian banks, having a strong potential in lending, charge the manufacturer a fairly high interest on loans and credits compared to European banks. For example, my clients receive loans at a rate of 1-3% per annum, while in Ukraine we see a loan interest of 9-15% per annum. These tariffs, of course, are included in the product costing. But each export operation is still at the level of world prices, only for the manufacturer of products it is no longer so attractive, because the main income must be given to the banks.
So, the exporters noted that they need:
- Assistance in establishing contacts with sales representatives abroad.
- Search for partners in target markets.
- Analytical information about possible sales markets.
- Information support on existing opportunities.
- Education, trainings on the implementation of foreign economic activity.
- Organization of B2B meetings and exchange of experience.
- Fascilitation of licensing procedures.
Viktor Shevchenko, who is a co-owner of the ZAMMLER group, says:
"As a co-owner of a group of logistics companies, I would like to note that a very big obstacle to export is the number of permits that are allocated to Ukrainian carriers for international transportation."
This problem arises from year to year, and we do not see any effective steps to solve it yet. All this should be taken into account in making further decisions when updating the Export Strategy for the next 5 years. The strategy should meet the requirements that are voiced by the business, and not remain on paper, but be accompanied by a specific action plan.
Viktor Shevchenko
Head of the Export and Investment Support Committee of the Kyiv Chamber of Commerce and Industry
What are the prospects for the Ukrainian exports development?
In Ukraine, more than 70% of the proceeds from the export of agricultural products are directly dependent on the future harvest. According to current estimates, forecasts for grain and oilseed yields are quite optimistic.
The price situation on world markets is also favorable so far: the FAO grain crops price index is at its highest levels in the last 10 years. Therefore, it is likely that in 2021 Ukraine may set another record for the volume of agricultural exports. And, according to the Ministry of Economy forecast, in 2021, exports should grow by 2.9%.
It is likely that the current and new free-trade agreements will also have a positive impact on the volume of Ukrainian exports.
To maintain the positive dynamics of growing trade in agricultural products, the government and business will need to work together to resolve a number of systemic issues: reducing dependence on agricultural raw materials exports by increasing the share of products with high added value in its structure (modernization of food industry, stimulating domestic demand, access to financial instruments of export trade, overcoming the sectoral imbalance by stimulating the development of animal husbandry, etc.). The following issues are also important: diversifying of target agricultural export markets (opening access for Ukrainian products to new export markets, defending preferences for Ukrainian agricultural products); bringing Ukrainian food quality and safety standards closer to international requirements; supporting and developing elements of logistics and market infrastructure.
Yana Kazmina
The World Bank expert on support to the agricultural sector
In the future, local investors will remain the engine for the establishment of innovative industries. For example, in Ukraine there is a modern enterprise for the production of high-protein feed additives for agricultural and domestic animals.
International investors should also play an active role in developing such industries, as they can offer financial capital, their own expertise, access to foreign sales markets within the framework of international vertical integration and best business practices.
Moreover, Ukraine has the opportunity to get significant advantages due to the development of the transport system and a favorable location in Europe.
In the future, the current exports (agricultural products, ores, metals) will retain their dominant position, which is due to the geographical advantages and resource base of Ukraine.
But the challenge for Ukraine is that primary commodities generate less added value and a multiplier effect of investments in comparison with products of deeper processing or final consumption. In addition, these sales markets are largely cyclical, and that makes Ukraine heavily dependent on global demand for final products. This constrains the growth of Ukraine's gross domestic product, the level of wages does not allow balancing the trade surplus.
At the same time, the global economy, in particular international trade, is characterized by inertia. Consequently, the change in production chains within the framework of the existing specialization, for example, the creation and promotion of a Ukrainian new product abroad, takes a significant amount of time. This requires investment, government support and promotion abroad.
Our country has a significant potential in the field of exporting products of deeper processing, final consumption, and services. At the same time, victory in the international competitive environment requires full-fledged promotion of reforms and concerted efforts of the state and business. So far they exist predominantly on paper.
Read also
Andrii Matiukha supported the initiative to help families of those killed in Kryvyi Rih
Favbet Foundation: how Andrii Matiukha’s initiatives are changing access to sports for children
Public consultations and restoration. What is Shulyak talking about behind the scenes
Ukraine's Recovery: How to Change Critically Low Citizen Engagement Indicators?
