Before and after the annexation of Crimea and the outbreak of conflict in Donbas, as well as presently, discussions in Ukraine consistently revolve around the same topics: the need for a strong economy, stimulating domestic production, creating well-paying jobs, ensuring a fair business environment, and preventing abuses by authorities. However, despite ongoing debate, attention continues to focus on addressing immediate problems and economic tactics, with insufficient emphasis on developing a coherent strategy. Although the current period of conflict may not seem like the best time, reality has shown the inadequacy of Ukraine’s old economic paradigm, signaling the need for a thorough revision.
The lack of long-term planning has led to inadequate investments in vocational education, high-quality higher education, and applied research, which could serve as the foundation for a new phase of industrialization and the construction of a technology-based economy. As a result, a socio-political model has emerged that reflects economic uncertainty – populism as the basis of politics and a constant struggle for “shares” as a characteristic element of Ukrainian politics. If the main key to economic success remains rent, the struggle will also be for its control. This is one of the key reasons why Ukraine was not prepared for Russian aggression.
Ironically, our resource-based economic model even hinders the development of sectors related to these resources. The gas industry, which was the cornerstone of our economy for many years, has been neglected in terms of proper investment, and the energy sector remains monopolized, while Ukraine’s metallurgical industry has undergone gradual degradation, shifting from predominantly steel and sheet production to exporting ore. Russian aggression has highlighted these obvious shortcomings – we have an underdeveloped industry that cannot be quickly adapted to military needs. We critically depend on Europe and America not only for supplying weapons but also for establishing production lines for ammunition and military equipment. Additionally, China, as an unpredictable partner, remains the main supplier of components for almost all drones produced by Ukraine.
In the current situation, amid intense conflict, we should focus on simplifying the business environment. The government should concentrate on transparency and efficiency of the judicial system and curb abuses by law enforcement agencies that hinder business activities. Additionally, I believe we can work on establishing special industrial zones in the western part of the country. This would entail ensuring a transparent and accessible process for connecting new businesses to infrastructure. Currently, opening a factory may be preceded by waiting for up to a year to connect to the power grid.
This problem can be easily addressed by the state through appropriate regulations. Long-term, we need to work on developing an economic model that takes into account both our strengths and weaknesses as Ukraine. We need to realistically assess and focus on economic potential.
Our main long-term weaknesses are our proximity to Russia (which is likely to remain aggressive and dangerous) and demographic decline (Ukrainians are an aging society that has experienced the largest emigration in Europe since the end of World War II). These problems do not have simple solutions and therefore must be considered within the framework of a new economic model. Our main assets are the availability of rich resource potential (both agricultural and energy-related, as well as metallurgical) and proximity to the world’s largest market – Europe.
Demographic challenges require us to focus not only on attracting back departing Ukrainians but also on the quality of the workforce, not just the quantity. We need high-quality education, healthcare, and an attractive social model. The development of high-class and technological industry is crucial in this regard. The security challenge requires us to prioritize the defense industry sector, where Ukraine can become a global leader based on its historical experience. The production of weapons and military equipment for us and future NATO partners is crucial in the face of current threats.
Ukrainian resources should be utilized for the development of a technology-based economy rather than fueling the old oligarchic model. We already have successful examples in this regard, such as the Ukrainian furniture industry, which has become a significant exporter to the European Union. Similarly, we can pivot towards exporting metal products, industrial equipment, and weaponry.
Integration with the West and the European Union provides significant opportunities for export-focused sectors. In addition to exporting agricultural raw materials to the EU, Ukraine can become an industrial base for European companies from East and Southeast Asia looking to relocate their production. Of course, to achieve this goal, we must address fundamental issues such as reforming our judicial system.
Therefore, in this period when the reconstruction of Ukraine after the war is being discussed, we must focus on Ukraine’s challenges and opportunities in strategic economic development. Without this, we will not be able to guarantee the long-term security and survival of the Ukrainian state and nation. We must avoid repeating past mistakes.
Alexandr Katsuba – Ukrainian entrepreneur, energy expert, owner of Alphagas company
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