Ukraine targets value-added production to reshape wartime economy

By Olena Harmash

KYIV (Reuters) – Ukraine’s wartime government will boost domestic value-added production to reshape its commodities-driven economy, increase revenue, boost growth and return millions of Ukrainians home, the first deputy prime minister said.

Yulia Svyrydenko, who is also the economy minister, told Reuters in an interview that the changes were needed for the country to recover, to rebuild after colossal damage from the war and to bring the economy closer to the European Union.

“Our task is to support more Ukrainian production and also support the consumption of Ukrainian-produced goods,” the 38-year-old said in an interview.

The government has already introduced a number of programmes offering grants and loans to small and medium-sized businesses, also to help companies relocate to safer areas and created dozens of industrial parks with specialized fiscal measures.

“The task is to move away from the economy of raw materials and to build the economy that produces goods with added value. We face challenges to accelerate growth because we need to rebuild and also integrate into the European Union.”

The government has raised its forecast for economic growth this year to 4% from the previous target of 3.5% due to better preparedness for energy sector challenges, Svyrydenko said.

The government’s conservative scenario for 2025 envisages a 2.7% increase in GDP as the war, security risks, expected energy deficit and staff shortages will limit growth, she said.

The central bank is more optimistic about 2025 economic prospects and forecasts 4.3-4.6% growth in 2025 and 2026.

LOSSES MOUNT

As the war with Russia approaches its 1,000-day mark, human, social, and economic losses mount. Svyrydenko said the government, the World Bank, and other partners were working on a new assessment of economic losses caused by the war.

The latest available estimate showed that direct damage in Ukraine reached $152 billion as of December 2023, with housing, transport, commerce and industry, energy and agriculture as the most affected sectors. The total cost of reconstruction and recovery was estimated at $486 billion.

“It is 2.8 times higher than our nominal GDP in 2023,” Svyrydenko said.

Despite economic growth in 2023 and so far in 2024, the Ukrainian economy was still only at 78% of its size before the invasion in February 2022, Svyrydenko said.

The key objective was to make the Ukrainian economy more self-sufficient.

“From every hryvnia consumed in Ukraine, 40% is returning to the budget… and it is the issue not only of economic self-sufficiency but also our defence capacity,” she said.

Ukraine spends the bulk of its state revenue to fund its defence efforts. Kyiv critically depends on financial aid from its allies to pay for social and humanitarian spending. Nearly $100 billion in Western economic aid has been received so far.

Reduced electricity generation capacity after Russia’s intensified bombardments of the Ukrainian power sector has been a key challenge this year and going forward, Svyrydenko said.

The government oversaw a massive repair campaign, agreed on higher electricity imports from Ukraine’s Western neighbours, and supported businesses in their steps to boost energy independence by simplifying regulations and allocating funds.

Another difficult task was to return Ukrainians home, Svyrydenko said. Ukrainian businesses name labour shortages as one of their top problems as millions of Ukrainians are abroad and tens of thousands of Ukrainian men were mobilised.

The government plans to set up a specialized agency to spearhead efforts to return Ukrainians home. For now, 4.1 million Ukrainians have been temporarily registered in Europe, official data showed.

Svyrydenko said the government research showed that about 53% were ready to return once the security situation improved and also jobs and housing were available.