The new industrial policy of Ukraine: competition for China or recovery of Donbas?

11.11.2015

The neglect of the industrial sector by the government turns Ukraine into a raw material appendage. Instead, the state requires a single national policy for the development of domestic industry. That is the conclusion reached at the conference “New Industrial Policy of Ukraine: a Springboard for Global Manufactures or Reindustrialization of Donbas?” organized by Alexander Pol Institute and Kyiv International Economic Forum.

In his opening, Director of Alexander Pol Institute and conference moderator Volodymyr Panchenko noted that the Government conducts industrial policy residually. After the liquidation of the relevant ministry and department within the Ministry of Economic Development and Trade almost nobody addresses the issue of the industry in the Cabinet.

“But industrial policy lives outside the ministry, and therefore it is in real life and soon will return to the state authorities,” – he said.

Further the discussion was opened about the state’s role in the development of the industrial sector. Thus, according to former Acting Minister of Economic Development and Trade Anatoliy Maksyuta, the development of high-tech sectors requires the state support.

“National industrial policy is never formulated. The priorities of industrial policy as well as tools to achieve them and material, financial, and human resources should be identified. First of all, you need to create the conditions for business – industrial parks, free economic zones, etc.” – added Mr. Maksyuta.

In his turn, Advisor to the Minister of Economic Development and Trade Oleg Yakovenko said that the leadership of the Ministry acknowledges the policy of liberalism and considers deregulation of business conditions as the main priority. Having said this, he called the use of model that provides selective regulation of economic life as the optimal one for industrial policy.

“Should the state be engaged in recovery of Donbas, without a full control over its territory?” – the leading expert of the Center for Market Economy, Head of the Institute of Forecasting NASU (the National Academy of Sciences of Ukraine), Ph.D. Lydia Shynkaruk asked this rhetorical question as a continuation of the discussion.

The expert noted that reforming of industrial regions in the EU generally takes 30-40 years and in Ukraine maximum a decade is given for this process. Otherwise, the country’s industry will remain completely raw.

Instead of the development of old industrial areas the state should encourage the arrival of foreign industrial manufacturers in other sectors. Given the drop of labor prices, Ukraine has all chances to become a base for leading industries that move from Asia to Europe.

Cheap labor is not something we should be proud of, but in current economic circumstances it is a competitive advantage. In this sense Ukraine could become a springboard for low cost global producers, added Olena Chepizhko, the Head of Communications Department of Eurocar Ltd. But the business does not have a clear understanding of how to move forward. The first problem is that instead of a single concept of development from the government, we hear a cacophony, a bunch of delinked programs. The second problem is lack of investment incentives. Now investors have to be “dragged” into Ukraine, more favorable conditions than in neighboring countries should be created. And the third problem is the ongoing turbulence in the regulatory policy. 43 changes in Tax Code over the last two years just cannot be explained to the foreign investor.”

The policy of non-interference

The ignoring of the real sector, according to participants, can lead to the fact that Ukraine will become a raw material appendage of the world. For example, Serhiy Bilenkyi, Head of the Federation of Metallurgists of Ukraine states that non-interference in scrap metal procurement sector, including its almost unimpeded export, stimulates the reduction of steel products manufacturing, which has a much greater rate of added value. The policy of non-interference can lead to a shortage of ferrous scrap for steel industry in the amount of 1 million tons.

“We see that the volume of exports is the same as the volume of deficit. And the state must intervene here. In case ferrous scrap which will go to the factories one ton of steel would be produced, the state will get 7 times more revenue than from the export of scrap. The decision is by the authorities. If the existing duty would be increased to EURO 30 per ton, this factor would allow to leave some scrap in the local market and thus to support the enterprises in Ukraine. It is necessary to restore a reasonable balance between the exporters and metal working industry”, – he said.

A similar problem was avoided by furniture industry producers. Thanks to the law “On log export prohibition”, the reorientation of exports of log and other wood raw materials into the production of a deeper degree of processing, including furniture is taking place. But today the Ministry of Economic Development and Trade insists that this document contradicts the norms of the World Trade Organization and prepares amendments to the law.

However, according to Yuliya Romanska, the Director of the Ukrainian Association of wood processing enterprises, the WTO legislation provides the rule for which export restrictions become possible in the event of a critical shortage of certain groups of products. Speaking of the wood market, today we have a case in point.

“We suggest that the ministry at first must put things right in the market of wood. Today there is chaos: there is no transparent pricing, no prescribed rules of trade, etc. Until this is done, the moratorium cancellation is out of the question”, – she added.

Our international obligations cannot stand on the way of the development of economic sectors. When the life of society is in danger, we should not be guided only by international obligations hoping for macro-financial assistance.

“If we make our opponents aware that restrictions are a temporary measure aimed at fighting corruption, it will be accepted. For example, the wood industry ban should be temporary in order to restore forest reserves. The task of public, the community of experts is to bring to the attention of our partners in Europe that we are not “griefers”, but we follow the rules,” – said Ihor Guzhva, a leading expert of the Center for Market Economy, Rector of the Ukrainian State University of Finance and International Trade.

 

 
 

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