Ukraine New Industrial Policy: Springboard to Global Manufactures or Donbas Re-industrialization?


Steady government neglect of industrial sector downgrades Ukraine to a source of raw materials for world leading manufacturers. Instead, the state needs a single national policy for the development of its domestic industry. This is the key idea of the conference “New Industrial Policy of Ukraine: Springboard to Global Manufactures or Donbas Re-industrialization”, held by Alexander Pol Institute and Kyiv International Economic Forum. 

In his opening speech, moderator of the conference Volodymyr Panchenko noted, that Ukrainian government openly ignores industrial policy. After eliminating the Line Ministry and the relevant department in the Ministry of Economic Development and Trade, almost no one in Government seems to care about the industry issues.

 “But industrial policy continues to exist outside the ministry, and, therefore, in the long run it must become one of the issues for the state authorities”, - Panchenko claimed.

Later the discussion focused around the role of the state in the development of industrial sector. According to the former Acting Minister of Economic Development and Trade Anatoliy Maksyuta, development of high-tech sectors requires support of the state.

“State industrial policy has not been formed, yet. It is vital to establish industrial policy priorities, tools for their accomplishment, as well as material, financial and human resources. In the first place, business needs proper environment – industrial parks, free economic zones, etc.”, - A. Maksyuta added.

Advisor to the Minister of Economic Development and Trade Oleg Yakovenko stated that the Ministry took on the policy of liberalism and sees reduction of regulatory burden for businesses as its top priority. He also finds selective regulation of economy best for industrial policy.

“Should the state be engaged in Donbas recovery without regaining its complete control over the territory?”, - a rhetorical question, asked by Lidia Shynkaruk, Head of the Department at the Institute for Economics and Forecasting at Ukrainian National Academy of Sciences.

The expert pointed out that industrial area reformation in the EU member states normally takes about 30-40 years, whereas in Ukraine it’s 10 years at most. Otherwise, the country’s industry will always remain a source of raw materials.

Instead of developing old industrial sectors, the state needs to encourage foreign industrial manufacturers into other sectors. Considering the fall in labor costs, Ukraine has big chances to become a platform for world leading manufacturers moving from Asia to Europe.

“Cheap labor is by far not something to be proud of, but under current economic conditions it is a competitive advantage. In this sense, Ukraine may become a platform for low-cost world manufacturers, - added the Head of the department of communications at LLC “Eurocar” Olena Chepizhko, - However, business has no idea of where to move forward. The first issue is that, instead of a single development concept, government offers a cacophony, a number of different programs. The second issue lies in the absence of investment stimuli. Nowadays, investors have to be “dragged” to Ukraine, providing them with better conditions compared to neighboring countries. And the third issue is constant concern about regulation policy. A foreign investor is unable to grasp the fact that 43 amendments to the Ukrainian Tax Code have been adopted just over the last two years”.

Non-interference policy

Neglect of real sector, according to participants of the conference, may cause Ukraine to become a source of raw materials for the world. For example, the Head of the Federation of Metal-producers of Ukraine Sergiy Bilenkyi stated that the government’s non-interference in the scrap metals sector, its almost free export, causes decline in metallurgic production, which has a much higher added value. Non-interference policy may lead to the deficit of ferrous scrap for metallurgy in the amount of 1 million tons.

“We see that the amount of export equals the amount of deficit. This is where the state needs to interfere. If one ton of steel is produced out of shipped ferrous scrap, the state budget will receive 7 times more revenue than out of scrap export. Basically, it’s for the government to decide. The increase of customs duty by €30 would allow to leave a part of ferrous scrap in domestic market and, thus, to support industry in Ukraine. What we need is a balance between exporters and metal industry”, - Sergiy Bilenkyi said.

Furniture industry managed to solve these issues. The adopted law “On the ban of the roundwood export” resulted in the reorientation of export from roundwood and other wood raw materials to added value production like furniture. Currently, the Ministry of Economic Development and Trade claims that the law doesn’t come in line with the standards of the World Trade Organization and is ready to change it.

However, UAWC managing director Yulia Romanska stated that in accordance with WTO legislation, limit of export is possible when critical deficit of certain product groups being observed, which is, currently, the case for wood market.

“First of all, the Ministry needs to bring out the order to the wood market. that is in total chaos, with no transparent pricing policy, no foreign trade rules, etc. Until it’s done, the lifting of the moratorium is out of the question”, - Yulia Romanska added.

Our international commitment mustn’t stand in the way of economic development. When life of society is threatened, international commitments and macrofinancial aid mustn’t be a priority.

“If we make it clear for our partners that restrictions are just a temporary measure, aimed at fighting corruption, they will accept it. For example, restrictions in timber industry are called to replenish forest resources. The task of the expert community is to show our European partners that we can and want to follow the rules”, - added Igor Guzhva, Vice-Rector of Ukrainian State University of Finance and International Trade.



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