Ukraine Business Overview

Business and Economic Overview

Following Russia’s invasion of Ukraine, the country’s economy shrank more than 30 per cent,[1] and has destroyed infrastructure and disrupted business and daily life.[2] Indeed, according to Economy Minister, Yulia Svyrydenko, Ukraine’s economy suffered the largest losses and damage in the history of its independence.[3]

That said, this roughly 30 per cent contraction in GDP is better than experts predicted shortly after Russia’s invasion in 2022.[4] In fact, many had predicted a contraction between 40 and 50 per cent.[5] The banking system has also remained intact, with Andriy Pyshnyy, governor of the National Bank of Ukraine, stating that “[a]lmost all banks—not only systematically important banks—[have] continued operations” which is “a big advantage for Ukraine.”[6]

However, to add to the degradation of Ukraine’s economy, in September 2022, the cost of reconstruction and recovery in the country was estimated to be roughly $349 billion by the World Bank, the European Commission and the Ukrainian government.[7] The ongoing conflict has inevitably increased this figure since then.[8]

Prior to the conflict, around 56.1 per cent of land was used for arable farming and 13 per cent as permanent pasture.[9] However, due to the Russian invasion, the production prospects of crops have been hampered by the low availability of inputs, delivery challenges, difficulty in access to fields, as well as labour shortages.[10]

Ukraine was also a major exporter of wheat,[11] but wheat and cereal exports have dwindled amid port closures, damage to infrastructure and government policies seeking to ensure secure supplies within the country.[12] In light of this, it was estimated in 2022 that 12 million people were in need of life saving assistance.[13]

The World Bank has stated that the full level of economic damage will depend on how long the war lasts, but even when it does come to an end, recovery will be slow and there will be a continuing threat of widespread poverty.[14] Foreign aid will be critically important in restoring Ukraine’s financial stability, and the country’s budget deficit in 2023 is planned at $38 billion which the government plans to cover with foreign aid.[15]

The National Bank of Ukraine has sought to try and protect the stability of the economy as much as possible by introducing a number of restrictions for financial transactions.[16] For example, individuals may transfer funds abroad within a limit of UAH 100,000 per month for online purchases,[17] and cash withdrawals from bank accounts are limited to UAH 100,000 per day.[18]

With regard to business in Ukraine, the country ranked 64^th on the Ease of Doing Business Index, and 8^th on the Strength of Legal Rights Index.[19]

Ukraine has also ratified major international treaties in relation to intellectual property, including the TRIPS Agreement, Paris Convention for the Protection of Industrial Property, Berne Convention for the Protection Literary and Artistic Works, and in 2014 the country ratified the Association Agreement between the EU and Ukraine, which means that Ukraine must ensure and adequate level of protection and enforcement of intellectual property rights.[20]

There are no specific laws regulating public takeovers or mergers in Ukraine, but the Ukrainian Tax Code provides some guidance on the tax regime for corporate mergers and acquisitions.[21] In a bid to boost foreign investment, Ukrainian legislators passed a unified tax code in December 2010, which was designed to make revenue collection more efficient, and spark growth in targeted industries.[22]

Furthermore, pipelines connecting the Siberian oil and gas fields with Europe are a major economic asset for Ukraine. Manufacturing is also a highly important sector of the economy, both in terms of productivity and revenue earned.[23] Ukraine has a major ferrous industry and ranks among the top steel producers in the world.[24] Other products manufactured within Ukraine include transportation equipment, other types of heavy machinery, chemicals and food products.[25]

However, business leaders are dealing with the unprecedented scale and impact of the crisis brought about by the war, and according to accenture, “[c]ontinued volatility is set to frame a new business landscape” from now on, not just in Ukraine, but across the world.[26]

References

[1] https://edition.cnn.com/2023/01/05/business/ukraine-economy/index.html

[2] ibid.

[3] ibid.

[4] ibid.

[5] ibid.

[6] ibid.

[7] ibid.

[8] ibid.

[9] https://www.cia.gov/the-world-factbook/countries/ukraine/

[10] ibid.

[11] https://www.weforum.org/agenda/2022/04/ukraine-economy-decline-war/

[12] https://www.cia.gov/the-world-factbook/countries/ukraine/

[13] ibid.

[14] https://www.weforum.org/agenda/2022/04/ukraine-economy-decline-war/

[15] https://www.reuters.com/markets/europe/ukraines-economy-falls-304-2022-minister-2023-01-05/

[16] https://taxsummaries.pwc.com/ukraine/corporate/other-issues

[17] ibid.

[18] ibid.

[19] https://archive.doingbusiness.org/en/data/exploreeconomies/ukraine

[20] https://taxsummaries.pwc.com/ukraine/corporate/other-issues

[21] ibid.

[22] https://www.britannica.com/place/Ukraine

[23] ibid.

[24] ibid.

[25] ibid.

[26] https://www.accenture.com/gb-en/insights/strategy/ukraine-operating-through-volatility-business-continuity