Per aspera ad astra: Through hardships to the stars

Amidst the aftermath of the full-scale invasion by Russia, Ukraine's economic stability endured a significant blow, witnessing a staggering decline of 29 percent in its GDP during the year 2022.

However, in the subsequent year of 2023, there emerged a notable growth, with the economy exhibiting a remarkable upturn by 19.5 percent in the second quarter and 9.5 percent in the third.

Over the entire 2023, Ukraine managed to achieve an annual economic growth rate nearing 6 percent, a feat deserving of commendation given the extensive devastation wrought by the Russian intervention and the enduring occupation of approximately 17 percent of Ukrainian territory by Russian forces.

Following a peak of 26.6% inflation at the close of 2022, the inflationary pressures have since reverted to pre-war levels, aligning with the inflation target range of the National Bank of Ukraine, spanning 5% ± 1 percentage point.

Despite the state of war, Ukraine has benefited from a robust recovery trajectory, buoyed by unwavering reform initiatives. The nation's resilience has been prominently demonstrated, underpinned by concerted governmental efforts and innovative measures.

In March 2022, a staggering 79% of businesses within the country were either inactive or teetering on the brink of closure. Nonetheless, by the year's end, this figure had plummeted to a more manageable 32%, indicative of Ukraine's adeptness in navigating bureaucratic hurdles. The sustained accessibility of most public services can be largely attributed to the nation's heightened digitalization efforts, catalyzed by the exigencies imposed by the Covid-19 pandemic.

Undoubtedly, Ukraine is on the right path towards the inevitable victory, the manifestation of which hinges upon the economic revitalization endeavors.

The reconstruction offers a unique opportunity to upgrade Ukraine’s productive capacity and attract foreign capital and modern technology. This will lay the foundation for long-term growth and facilitate Ukraine’s tighter integration into the global economy.

The nation's economic landscape is rich with diversity, offering a myriad of investment prospects across various sectors.

Particularly promising avenues include the electricity domain, gas exploration and storage, as well as burgeoning fields such as hydrogen energy. Furthermore, Ukraine's fertile agrarian expanse presents ripe prospects for investment in agro-processing, alongside opportunities in logistics, decarbonization, and green technologies.

As known, Ukraine produces a significant part of grain. Ukrainian grain is of high quality and is supplied to different parts of the world, from Asia to Latin America and from the Middle East to Africa. According to the Statistics Service of Cyprus, 30% of Cypriot imports from Ukraine are grain.

Ukraine has successfully established a self-enforced corridor in the western Black Sea that follows closely the coast near Romania and Bulgaria after Russia exited the UN-supported Black Sea Grain Initiative in July 2023.

The strategic positioning of Ukraine's grain market warrants special mention, with the nation poised to substantially augment its production capacity owing to the abundance of fertile terrain. Investment in this pivotal sector not only promises financial dividends but also assumes a crucial role in ensuring global food security. It's a simple equation: investing in Ukrainian grain translates to safeguarding the food security interests of participating nations.

At the vanguard of reconstruction efforts lies the private sector, serving as the principal engine for economic rejuvenation.

The government is providing comprehensive support to the economy, creating the most favourable investment environment and forming a global coalition of investors together with partners.

Collaborative endeavors are underway to seed growth nodes within Ukraine's post-war economic landscape, with the government steadfastly fostering a conducive investment climate. Priority sectors have been identified, encompassing defense industry innovation, export-oriented agricultural and industrial complexes, high-value engineering, and resilient IT infrastructure.

Along with fostering private enterprise, the government has instituted a suite of support measures targeting small and medium-sized enterprises (SMEs).

The government is planning to expand support programmes for small and medium-sized enterprises. Preferential loans, grant programmes, the development of industrial parks, war risk insurance for the reconstruction of investments, deregulation, the development of new logistics, trade liberalisation – all this is on the agenda for the recovery of the Ukrainian economy and the support of domestic entrepreneurs.

A concerted emphasis is placed on bolstering the domestic mechanical engineering sector, alongside stimulating construction activity through tailored recovery programs.

Industrial parks, serving as incubators for economic resurgence, are being actively developed, with the intent of harnessing their full potential to catalyze job creation and industrial growth.

Moreover, efforts are underway to cultivate an investment-friendly ecosystem, replete with bespoke incentives tailored to attract both domestic and foreign investors.

The overarching aim is to fashion a new economic paradigm for Ukraine, one characterized by export-led growth and seamless integration into global value chains. Central to this endeavor is the imperative of fortifying macroeconomic stability, a pursuit necessitating substantial external financing.

To this end, initiatives are underway to mobilize over $37 billion in external funding, bolstered by a multifaceted approach encompassing SME support, industrial revitalization, and strategic investment promotion.

The trajectory of Ukraine's economic renaissance is poised to chart a transformative course, underpinned by resilient entrepreneurship, strategic foresight, and robust governmental stewardship. As the nation embarks on this pivotal journey towards economic renewal, the collaborative ethos of its people, coupled with strategic partnerships with the global community, shall serve as the bedrock upon which a prosperous future is built.

Among the Government`s priority areas are the following.

1. Support for small and medium-sized enterprises

Small and medium-sized enterprises ought to emerge as pivotal drivers of growth within the Ukrainian economy. To realize this vision, we are channeling resources towards bolstering existing enterprises while fostering the inception of new ones. Entrepreneurs stand to benefit from non-repayable grants under the auspices of the eRobota initiative. Furthermore, companies can access preferential loans through the "5-7-9" program and the portfolio guarantee scheme. These initiatives are undergoing expansion and refinement, with the primary objective of catalyzing the establishment of numerous enterprises.

2. Support for the Ukrainian manufacturer

The state is poised to leverage a diverse array of instruments to propel the development of domestic mechanical engineering.

In the fiscal year 2024, the budget has earmarked funds to offset the acquisition costs of Ukrainian equipment. Moreover, there is a strong effort to bolster the state's procurement of military equipment, modern railway carriages, buses, and essential utilities. We are actively fostering the localization and advancement of domestic manufacturing of machinery and equipment for demining purposes. In addition, a registry of Ukrainian manufacturers is in the works to enhance the efficacy of programs aimed at promoting local production.

Efforts to stimulate construction are underway through the implementation of the eRecovery and eOselia initiatives.

3. Development of industrial parks

The government is spearheading the development of industrial parks—zones replete with pre-existing technical infrastructure and tax incentives. Currently, there are 70 registered industrial parks, with plans underway to fortify their protection. Investors are afforded a plethora of opportunities within these industrial enclaves to actualize their business endeavors, foster production, and engender employment opportunities.

4. Investment projects and war risk insurance.

We are steadfastly endeavoring to cultivate the most conducive investment climate for both domestic and foreign investors alike. Investment propositions exceeding $400 billion have been curated, with priority accorded to sectors such as energy, defense, agriculture, natural resources, and digital technologies. Facilitating this endeavor is UkraineInvest, a governmental body dedicated to attracting and supporting investments, offering bespoke assistance to investment ventures.

The inception of Diia.City heralds the advent of a pioneering legal and fiscal framework tailored to IT enterprises. Furthermore, we are expanding the scope of war risk insurance through collaborative efforts with MIGA, DFC, EBRD, and national export credit agencies of allied nations. The profound strides made in digitalizing the Ukrainian state have shielded it from the dire economic repercussions of the Russian invasion.

Digitalization has emerged as the cornerstone of Ukraine's policy agenda, positioning the nation on a trajectory to become a global leader in citizen-centric and business-oriented service provision.

The "Diia portal" stands as a testament to our commitment to streamlined governance, offering over 70 digital services to the populace. Notably, business registration in Ukraine can be completed in a mere 2 seconds, while establishing a limited liability company takes a mere 30 minutes. To date, the "Diia portal" has facilitated the endeavors of over 1 million private entrepreneurs and 14,000 companies.

In a bid to invigorate foreign business engagement and investments in Ukraine, we have unveiled the digital platform "NAZOVNI." This groundbreaking service acts as a catalyst for nurturing global business ties, facilitating partner search, tender information dissemination, and the dismantling of trade barriers.

5. Deregulation

Deregulation looms large as a systemic overhaul aimed at liberating entrepreneurs from the shackles of bureaucratic red tape. Consequently, entrepreneurs can redirect their focus towards actualizing their business aspirations, unencumbered by cumbersome regulatory burdens. Through this effort, we aim to slash the myriad authorizations across 126 domains, optimizing the functionality of regulatory bodies.

6. Logistics

Strategic infrastructure enhancements are underway, particularly in westward logistics, facilitating swift transportation of goods, services, and populace. Collaborative endeavors with our western counterparts have culminated in the construction of new border checkpoints and the modernization of existing ones. Moreover, joint customs and border controls with European neighbors are being established to streamline cross-border operations.

The burgeoning cargo throughput at Danube ports attests to our commitment to bolster maritime logistics. By virtue of dredging works and public-private partnerships, cargo handling has surged to record levels. Efforts are made to seamlessly integrate the Ukrainian railway network into its European counterpart, with strategic railway sections set for reconstruction. Additionally, the modernization of passenger and freight wagons is on the agenda to enhance domestic transport capabilities.

7. Macroeconomic sustainability

A substantial external funding influx exceeding USD 37 billion is imperative to finance defense, security, and other priority budgetary outlays in 2024. To this end, concerted efforts are underway to engage governmental entities, executive bodies, and international partners. Strengthening and broadening the purview of the Multi-Agency Donors Coordination Platform for Ukraine remains a cornerstone of our strategy.

Ukraine also actively cooperates with the IMF, the EU, the US, Japan, the UK, Canada, Norway, other countries and international financial institutions to obtain the necessary budget financing.

The consensus GDP growth forecast for 2024 stands at 4.2%, with the Ministry of Economy harboring an even more sanguine outlook at 4.6%. An effect of this economic upswing is a projected decrease in the unemployment rate to 12.2%, alongside the stabilization of the labor force at 15.1 million individuals. Noteworthy is the anticipated influx of returning migrants, projected at 1.5 million in 2024 and 2 million in 2025, buoyed by nascent economic resurgence.

Wage growth is poised to continue its upward trajectory, with the average salary projected to reach UAH 21,809 by 2023. Inflation, as per expert forecasts, is expected to cap at 9.7% by the end of 2024. The anticipated surge in private consumption, pegged at 8%, bodes well for manufacturing and industrial enterprises, underscoring the imperative to foster domestic production.

The defense industry assumes a pivotal role in this economic landscape, with a substantial allocation of UAH 40 billion earmarked for business development in the 2024 budget. Emphasis is placed on nurturing enterprises that add significant value to Ukrainian products. Government and defense procurement endeavors will be meticulously calibrated to buttress such enterprises, ensuring a multiplier effect on the economy.

Every hryvnia allocated towards Ukrainian products promises a substantial return to the economy, amplifying expenditure on salaries, job creation, education, healthcare, and the requisites of national defense. Notwithstanding the prevailing economic vicissitudes, net FDI inflows are poised to maintain parity with 2023 levels. Noteworthy is the pivot towards risk insurance to galvanize investment, both within the realm of ECAs and through international institutions such as MIGA.

While many risks loom on the economic horizon, our experiences thus far have endowed us with the acumen to navigate such challenges adeptly. The imperative for 2024 is to foster collaboration, fortify mutual trust, enact reforms, and ensure accountability.

Ukraine stands as a veritable bastion of untapped business potential, offering investors a fertile ground to sow the seeds of prosperity. Investing in Ukraine is tantamount to investing in the future.

Ruslan Nimchynskyi, Ambassador Extraordinary and Plenipotentiary of Ukraine to the Republic of Cyprus