The concentration of primary commodities remains in the structure of Ukraine’s exports, the country is losing the potential for increasing exports of higher value-added products, the World Bank has said.
“Ukraine has a strategic geographic location at the crossroads of Europe and Asia, the largest endowment of fertile agricultural land in Europe, a large population of educated workers, and an Association Agreement with the European Union since 2015, which includes a Deep and Comprehensive Free Trade Area (DCFTA). These endowments offer a tremendous opportunity for Ukraine to boost exports of higher value-added and diversified products … But the benefits associated with trade openness, such as technological externalities and knowledge spillovers, have remained limited,” the World Bank stated in a report.
“Ukraine has not yet become a major participant in Global Value Chain (GVC) exports, although it has latent potential to integrate into such international production networks. Global production today is highly integrated across multiple countries, with a single finished product often resulting from manufacturing and assembly lines spread across multiple countries, with each step in the process adding value to the end product. Through such global value chain exports, countries not only exchange products but also technology, knowledge, and networks. For Ukraine, however, the share of such GVC products in exports has been low at 5.7 percent percent in 2014, much lower than 27 percent for Poland, 38 percent for Romania, 38 percent for Turkey, and 59 percent for Vietnam,” the document reads.
“Reforms to attract Foreign Direct Investment (FDI) are an important driver of exports and integration into Global Value Chains,” the bank said … One of the most important factors in attracting FDI is the rule of law and the protection of property rights. Clearly, much more needs to be done to create a level playing field for FDI in Ukraine. This will not only require strengthening the anticorruption architecture and the judiciary, but also further streamlining the regulatory environment, strengthening competition policy, and reforming state owned enterprises, and making progress on privatization. Another important factor in attracting FDI is macroeconomic stability. With Ukraine experiencing two macroeconomic crises in the last ten years, it will be important to build on the progress made since 2015 in safeguarding fiscal and financial sector stability. Enabling efficient financial intermediation and boosting credit growth will also require reducing the footprint of the state on the banking sector and cleaning up the high share of non-performing loans,” according to the report.
“Ukraine also needs an efficient and competitive logistics system to boost exports and its integration into the global economy. At present, this is not the case. Due to low population density, geography, and the structure of output (heavy reliance on metals, basic industry, and agriculture), transport volume per unit of GDP is much higher than in other countries in Europe. For example, the costs of logistics in grain exports are affected by the underutilization of river transport, inefficiencies in rail transport, high share of road transport, deficient storage management and port fees. Weaknesses in Ukraine’s logistics are also reflected in a low ranking in the Logistics Performance Index. Five key drivers of current high logistics costs are lack of regulatory clarity and sub-optimal management of public assets that create barriers to private investments, underutilization of river transport, underinvestment in rail transport, inefficiencies in storage management, and excessive use of road transport,” the World Bank stated.
