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Ukraine's economy over the last 30 years: the good, the bad, and the unusual

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By Iryna Fedets, Senior Research Fellow at the Institute for Economic Research and Policy Consulting

Published in: Economy & Finance
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Ukraine's economy over the last 30 years: the good, the bad, and the unusual

  1. 1. the good, the bad, and the usual IRYNA FEDETS INSTITUTE FOR ECONOMIC RESEARCH AND POLICY CONSULTING UKRAINE’S ECONOMY OVER THE LAST 30 YEARS:
  2. 2. Main points 1. 1990s: a mixed start 2. The bumpy road towards liberalization and growth in the 2000s 3. Hashtag victory: Ukraine since 2014 4. The EU and international trade 5. Business climate and regulations 6. Ukraine now: challenges and opportunities 7. The role of the civil society as a driving force for reforms 8. Policy agenda by the Reanimation Package of Reforms
  3. 3. 1990s: a mixed start With the dissolution of the Soviet Union, Ukraine became independent in 1991. Strengths:  Well developed industry contributing half of the GDP  Good education of employees  Some, but very limited opportunities for private businesses under late perestroika Soviet law, such as cooperatives Weaknesses:  Industry was connected to Russian factories  Enterprises used to be state-owned  Lack of experience of entrepreneurship, private enterprise was illegal under Soviet law  Lack of small and medium businesses  Virtually absent civil society, people were punished for protesting Soviet rule and imprisoned based on their religion and ethnicity
  4. 4. The bumpy road towards liberalization and growth in the 2000s Ukraine took several steps to move from centralized to market economy. While private businesses emerged and economy began climbing back from the significant downturn in the 1990s, socialist legacy in regulations and selective benefits transformed into oligarchic economy.  Privatization: enterprises became privately owned, but privatization process was restricted and benefited the managers of the firms and many state-owned enterprises still not privatized  Monetary policy: national currency, but price regulations on household products until 2017  Energy: cheap, but made Ukraine dependent on Russia, subsidies were covered by taxpayers  Agricultural land: moratorium on sales still in place, cheap rent, lack of incentives for farmers  Corruption: dependent courts, influence of oligarchs, unfair public procurement  Business: simplified tax system introduced, but administrative barriers and shadow economy
  5. 5. Hashtag victory: Ukraine since 2014 #victory:  Independence of the National Bank, inflation targeting, foreign currency liberalization  Electronic public procurement, VAT refund  Laws improving privatization of SOEs  Naftogaz profitable, court victory  Price regulation for products cancelled  “Single window” at customs simplified trade  Civil society taking part in assessing judges, law enforcement, anti-corruption officials #betrayal:  Many SOEs not privatized  Unreformed Anti-Monopoly Committee  Corporate raiding increased  Unreformed law enforcement, unsolved crimes against activists, searches of businesses  Smuggling and offshore money deposits  Anti-corruption institutions not completed, compromised by unlawful practices  Questionable judges kept their jobs
  6. 6. The EU and international trade  The EU is Ukraine’s biggest trade partner: 41% of all imports and exports in 2018  Ukraine was the EU’s 23rd biggest import partner and 20th export partner in 2018  The EU is one of the main providers of technical assistance to Ukraine (500 mn EUR in 2018)  Ukraine has been a WTO member since 2008  EU-Ukraine Association Agreement in effect since 2017 (provisional implementation: 2014)  41% of exporting or importing firms reported having benefited from the Agreement in 2018 28% 45% 32% 52% 28% 41% 0% 20% 40% 60% Benefited from the AA Expected to benefit from the AA 2016 2017 2018 6% 7%6% 6%5% 7% 0% 20% 40% 60% Lost from the AA Expected to lose from the AA 2016 2017 2018 Source: 2018 Trade Facilitation Dialogue survey by the IER
  7. 7. Business climate and regulations Simplification of administrative procedures and lifting restrictions on foreign currency use are undermined by complicated and unpredictable tax system, big fines, and outdated labor law.  Registering business and paying taxes online, electronic database of inspections  Reduced employment tax (to 22%), simplified export of services  Fines by government lead to corruption  Tax rate and taxation still a problem  More control over businesses using simplified taxation system with outdated income limits 20% 20% 23% 23% 26% 26% 27% 35% 44% 59% 0% 10% 20% 30% 40% 50% 60% 70% Lack of qualified workforce War in the eastern Ukraine Corruption High regulatory pressure Frequent changes of economic legislation Inflation Burdensome administration of taxes and accounting High tax rates Unstable political situation Low demand Top ten impediments for SMEs in Ukraine Source: 2016 Annual Business Climate Assessment survey by the IER
  8. 8. Ukraine now: challenges and opportunities Challenges:  Low growth not reaching even the 1990 level  Emigration and lack of skills  Populism, lack of public discussion of adopted legislation, the threat of reforms reversal Opportunities:  Economic freedom agenda as stated by president  Record high level of public support of political leadership and willingness to put up with temporary difficulties 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 GPD in Ukraine in constant 2010 US$, percentage to 1990 Percantage to 1990 Source: World Bank
  9. 9. The role of the civil society as a driving force for reforms NGOs, their coalitions, and business associations have contributed to policy agenda in Ukraine by advocating for changes  Analysis and feedback about draft laws  Working with international donors  Setting reform agenda, roadmaps  Direct action events  Experts participating in public councils, entering government Source: Ukraine Crisis Media Center
  10. 10. Policy agenda by the Reanimation Package of Reforms Toronto Principles: key reform priorities from 2019 to 2023  Security and rule of law, including anti-corruption system  Democracy and good governance, including electoral reform  Prosperity and human capital development, including market economy, free competition, and equal conditions for businesses Roadmap of Reforms for 2019-2013: setting reform objectives  Goals for judicial and anti-corruption reform, as well as tax and budget reform, improved business climate, and other sectors Top 20 Priority Draft Laws for the Parliament: short-term steps  Anti-corruption strategy and laws related to law and security, public administration, business, education, and culture Source: Reanimation Package of Reforms
  11. 11. Contact information Iryna Fedets fedets@ier.kyiv.ua Twitter: @irkeyshn LinkedIn: Iryna Fedets

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