ATLANTIC COUNCIL: Transforming Ukraine into an international manufacturing hub

The Ukrainian authorities must make meaningful rule of law progress in order to boost the evolution the country's manufacturing sector

Sergiy Tsivkach
Thursday, 30 December 2021 02:02

In recent years, Ukraine has gained considerable international attention as an increasingly important player in the global IT and fintech industries. This recognition is hardly surprising given the impressive domestic growth of the Ukrainian tech sector.

In 2020, Ukraine’s annual IT exports topped USD 5 billion for the first time. The country’s IT sector currently employs over 200,000 people, with rapid expansion creating a new class of upwardly mobile and comparatively well paid young tech professionals in most major Ukrainian cities. The industry has consistently posted double digit annual growth throughout the past two decades and is on track to contribute 10% of Ukrainian GDP within the coming few years.

This IT success story is due to a combination of factors including Ukrainian talent, a strong education system, creative vision, and a regulatory framework designed to enhance growth. The time has come to repeat this success in the manufacturing sector.

During the first half of 2021, manufacturing accounted for 11.7% of Ukrainian GDP, the highest share for the past three years. Ukrainian manufacturers already work with a wide range of leading international brands including the likes of Porsche, IKEA, Heinz, Nestle, Bentley, and Unilever.

Ukraine has many of the attributes necessary to become a major international manufacturing hub. Advantages include a favorable geographical location close to European and Middle Eastern markets, entrepreneurial and highly educated human capital, and competitive costs.

However, until recently, Ukraine lacked a number of key components needed to build on its obvious manufacturing potential. Crucially, there was no clear vision for the development of the manufacturing sector or appropriate regulatory basis for growth.

This is now changing. A presidential initiative providing state support for investment in the manufacturing sector offers great potential. Meanwhile, a range of additional measures such as incentives for companies setting up production facilities and efforts to advance judicial reform represent positive and long overdue signals for Ukrainian and international investors.

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