Priority directions of economic development

Priority directions of economic development Dynamic, sustainable and inclusive growth based on structural modernization of the economy, improvement of the business climate and the efficiency of the public sector is one of the main tasks of the Cabinet of Ministers of Ukraine. The key task for economic growth is to create equal, transparent and predictable rules of doing business, achieve Ukraine’s integration into regional and global value chains, promote the development of high-tech industries, facilitate the attraction of both foreign and domestic investment in the Ukrainian economy and to develop the export potential of Ukrainian manufacturing companies. Developing industrial production To upgrade Ukraine’s industry, the following is planned: to develop industrial clusters and to solve regulation-related problems. The focus will be on the development of environmentallyfriendly and innovative products; technical re-equipment of Ukraine’s military industrial complex production facilities; deregulation of customer-supplied raw materials; to introduce strategic planning of State investment taking account of medium term budget objectives, wherein projects to get budget financing will be selected on the basis of complete information on their future benefits and expenditure on their execution as well as the need to ensure basic funding for the current project portfolio; to actively use various forms of public-private partnerships, including concessions; creation of venture funds to finance innovative projects. Facilitating the development of the agro-industrial complex New State aid instruments will be developed during year with a view to creating a reimbursement mechanism for expenses related to the transition of agricultural producers to the general VAT regime. In future, new mechanism will have to be focused on ensuring food security, predictability and stability of product markets through: increasing the competitiveness of small and medium enterprises, increasing the production of high added value agricultural products; diversifying business opportunities in the agro-industrial sector. For the first time provides for the allocation of funds from the State Budget of Ukraine for State support of agricultural producers in the amount of at least 1% of agricultural production output in 2017-2021. In 2017: the number of business entities in the agro-industrial complex to receive partial compensation of the interest on credits is 663; the size of loans, the cost of which has become cheaper due to the receipt of funds from the State budget is about 484 mln USD; the number of agricultural producers to receive transfers from the budget is 12000; the number of agricultural producers to receive compensation for purchases of agricultural machinery and equipment is 4000; agricultural machinery and equipment, the cost of which has become cheaper due to the receipt of funds from the State budget is worth 106 million USD; the number of items of agricultural machinery, the cost of which has become cheaper due to the receipt of funds from the State budget is 3815, including 525 tractors, 40 grain carriers, 40 soil processing machines and 3250 sowing machines; the number of items of agricultural equipment, the cost of which has become cheaper due to the receipt of funds from the State budget is 520. According to the Government approved by the Order of distribution of budget subsidies for the development of agricultural commodity producers and stimulation of agricultural production in 2017, the budget subsidy will be provided in automatic mode. Increasing energy independence It is supposed in 2017: to begin the transition of Ukraine’s energy sector to market principles and the development of competition to increase the economic performance of energy sector participants and the efficient utilization of energy resources; to approve the Energy Strategy of Ukraine for the period up to 2035; to increase natural gas production to 20,3 billion cubic metres by facilitating investments in production facilities and, in particular, by offering tax incentives for new drilling operations and by reforming the licensing and approval system, by facilitating access to land and by conducting transparent auctions of new land plots. In the medium-term up to 2020: to phase out Ukraine’s total dependence on external sources of energy supply, to diversify routes and sources of energy supply; to transit to a new energy market model, which is based on market principles and envisions the development of competition with a view to improving the quality of services and reducing energy prices; to integrate the Ukrainian energy sector into the EU energy markets and the European energy security system; to implement the European energy security system with a focus on cyber security and energy supply security; to increase domestic energy production. Quantitative Targets to be achieved by the end of 2017 and in the medium-term: share of energy from renewable sources in gross final energy consumption in 2017 – 8,3% and in 2020 – 11%; domestic natural gas production, million cubic metres: 23,5 (2018); 26,2 (2019); 27,6 (2020); share of one source in total annual imports (coal, natural gas, oil and petroleum products, nuclear fuel) – 30% maximum.                 Coal industry reform In 2016, the volume of coal mining in Ukraine amounted to 5,8 million tonnes. As of January 1, 2017 there were 33 economically active mines. The main goal of the coal mining sector reform is to to create an economically viable coal industry (break-even performance), capable of fully meeting the national economy’s demands for coal production at market prices. In the medium-term up to 2020: to optimize the State aid system to coal industry; to denationalize the industry to the maximum extent (mine privatisation); to deregulate the coal product market and to transition to market pricing for coal products; to ensure further use of human capital (redundant workers) and mine infrastructure to create new manufacturing plants, industrial estates, energy parks, etc. Developing renewable energy The use of renewable energy sources is one of Ukraine’s most important policies directed at saving traditional fuel and energy resources and at environmental protection. The currently technically achievable energy potential of renewable sources in Ukraine is 68.6 million tonnes of oil equivalent, which is around 50% of the total energy consumption in Ukraine. An increase in the share of energy from renewable sources in the structure of total energy end-use will make it possible to: Optimize Ukraine’s fuel and energy balance; increase Ukraine’s energy independence; increase the national economy’s competitiveness; to ensure the renewal of fixed assets in Ukraine’s energy industry (to increase the overall rated capacity of renewable energy facilities up to 10.9 GW); to reduce greenhouse gas emissions; to create jobs in the energy sector and other industries. Developing Ukraine’s raw material base Our country’s raw material resources have considerable potential, on a par with those of the world leaders in this sector. Goal to be achieved: to meet the national economy’s needs in mineral resources by domestic mineral production; to reduce Ukraine’s dependence on imported mineral resources and to increase the country’s export potential through domestic production of minerals, which are in high demand on the world market; to create powerful anchor projects to assist the promotion of Ukraine’s positive image on the world market; to attract geological exploration companies to the Ukrainian market. In 2017, it is planned to add new reserves: 2 million tonnes of coal reserves and resources; 0,8 conditional units of uranium reserves and resources, 0,8 conditional units of TiO2 titanium reserves, 10 billion tonnes of clay reserves and resources, 50 cubic meters of fossil raw materials, as well as prepare one promising oil and gas site, etc. Transport regulation reform In 2016, the share of gross value added from transport sector was 6,6% of GDP, the number of persons employed was approximately 0.8 million. The cost of services rendered in 2015 was 13,5 billion USA dollars, or 5.1% of the total cost of services and goods sold in Ukraine. On average, transport accounts for 12,1% of the total value of goods. The most transport dependent are agricultural products (27,3%), metal goods (10,7%), coal (6,8%), oil (10,7%), gas (5%), retail goods (12,4%), postal and communication services (6,3%), public administration and defence industry (7%). Quantitative Targets to be achieved by the end of 2017: to introduce a single hub for the provision of administrative service electronically; to approve a plan for the modernisation and technical reequipment of PJSC «Ukrzaliznytsya»; to create the conditions for concession management of infrastructure facilities; to create an inspection system to control vehicle size and weight. And in the medium-termIn: to introduce a new procedure for tariff-setting based on the actual expense structure; to ensure free pricing in competitive market sectors for transport services; to ensure consistency between actual sea port depths in Ukraine and their certified depths; to renovate shipping locks in Ukraine; to ensure lock modernisation projects are prepared; to improve public road conditions; to lift restrictions on the number of airlines and flights serviced by them between Ukraine and EU countries, on a parity basis; to sign the Agreement on the Common Aviation Area with the EU. Foreign Investment Opportunity in Ukraine

• Ukraine is at the crossroads of trade routes to Europe - Central Asia - Middle East - Caucasus. This makes it an ideal location for transit traffic within the framework of international transport corridors.
• Ukraine has 30% of world's black soil and about 200 types of minerals. It traditionally holds a leading position in the production and supply to foreign markets of grain and sunflower oil, ferrous metals, pipes, power equipment and many other complex engineering products.
• On September 16, 2014 the Association Agreement between the EU and Ukraine was ratified by both the Parliament of Ukraine and the European Parliament. The main part of the Agreement is devoted to key reforms, economic recovery and growth, as well as governance and sectorial cooperation in the fields of energy, transport, environment, industry and so on.

Since January 1, 2016, a free trade zone between Ukraine and the EU has been functioning, which has positively influenced the state of trade relations between Ukraine and the European Union. In particular, exports of Ukrainian goods to the EU countries in 2016 compared to 2015 increased by 3,7% and amounted to 13,5 bln USD. At the same time, the EU became the main trading partner of Ukraine. Its share in the total volume of Ukrainian exports increased by 2,8% and amounted to 37,1%.

• Volume of foreign direct investment in the economy of Ukraine increased in 2016 compared with 2015 by 17,1% and amounted to 4,4 bln USD. The total volume of accumulated foreign investment as of April 1, 2017 reached to 38,1 bln USD.
• The Ukrainian powerhouse opportunities in agriculture, energy, information technology, infrastructure and manufacturing have grown too large for investors to ignore. When combined with a highly skilled workforce, cost-efficiency, strategic geographic location and rapid facilitation of terms of doing business, Ukraine has much to offer.

Most attractive sectors for investment Agribusiness Ukraine is frequently referred to as being a potential global agricultural superpower. Over 70% of the country’s total area is agricultural land. This amounts to just over 42 million hectares of which 32 million is arable land suitable for grain and vegetable farming. Approximately 25% of Ukraine’s population is employed in the agricultural sector. The agricultural sector is one of the promising sectors of Ukraine's economy, accounting for over 20% of GDP. Ukraine is among the five largest grain exporters globally and takes first place in the world in terms of export of sunflower oil (58%). The largest part of Ukraine’s current agricultural output consists of a diverse combination of cereal and forage crops including wheat, maize, barley, sunflowers, sugar beets, tobacco, legumes, fruits and vegetables. Ukraine takes a leading position as a large producer of cereal grains, particularly wheat. The entire annual cereal crop can reach as high as 90-100 million tons. Agri-Tech Ukraine is also known for its domestic agri-tech manufacturing with major plants located around the country. Agricultural industry flagship cities already include: – Kharkiv (various tractor models and engines for self-propelled harvesters) – Odesa (tractor ploughs) – Kropyvnytskiy (seeding machines) – Dnipro and Ternopil (beet harvesters) – Kherson (corn harvesters) – Berdiansk (reapers) – Lviv (agricultural machinery). Ukraine has the opportunity to develop agricultural clusters that could be promote designing, testing and manufacturing of the latest agri-technologies. Energy Ukraine has a diverse endowment of natural energy resources and continues to be a net exporter of electricity and certain types of coal. However the country’s reserves of fossil-fuel energy are not large and neither the location nor the exploitation of these resources is ideally aligned with Ukraine’s domestic needs.  As a result, Ukraine today imports additional quantities of natural oil and gas, including anthracite coal just to meet its current demands. Gas sector. In a major move aimed at structural reform of the gas sector, Ukraine passed legislation in December 2016 enabling the unbundling of the state’s largest oil and gas company «Naftohaz». The major restructuring is designed to be completed by 2017 and will allow transparent third party access to Ukraine’s gas transmission system. Ukraine possesses Europe’s third-largest reserves of shale gas, estimated at anywhere from 5-8 trillion cubic meters of which 1.2 are technically extractable today. Ukraine has not banned fracking and the Oleksa basin in western Ukraine is attracting large foreign interest with several companies having already signed multi-year exploration agreements in the basin. Electricity sector. Ukraine’s electricity sector consists of more than thirty power plants of which fourteen are thermal and another four are nuclear plants. Whereas the government continues to straddle the wholesale power sector as a supplier and owner of the national grid, the distribution sector has been largely privatized with previously state owned Oblenergo companies competing with smaller independent suppliers for the right to supply heavy industry and residential markets alike. Coal  sector. Traditional coal production has been decreasing steadily which has necessitated that Ukraine diversify its import supplies from as far away as the USA and Australia. Nuclear power. Nuclear power is a major resource for generating electricity in Ukraine. The government anticipates that nuclear energy will soon be in a position to meet half of the country’s future electricity needs. In this regard the government took active steps towards this objective by signing a long term agreement with Westinghouse in 2016 in order to provide nuclear fuel for its four active nuclear power plants. Ukraine’s need for electrical power is expected to double over the next 15 years resulting in the need for substantial and sustained investment over many years to ensure the modernization of its ageing power plants, security of its input supplies and the competitiveness of its varied producers. Alternative Energy Ukraine is taking important strides to increase the use of renewable-energy sources and alternative fuels as part of its broader strategy to reduce its reliance on traditional fossil fuels. It has been estimated that Ukraine has the potential to increase its use of renewable energy tenfold, by the year 2030 and reduce its natural gas consumption by 15% over the same period. The opportunities to invest in Ukraine’s alternative energy sector are exceedingly favorable as the country has diverse reserves of raw material and a well-educated workforce possessing the technical know-how required to develop and introduce the latest commercial advances in this sector.  As a result, interest in Ukraine’s renewable energy sector continues to grow and the government estimates that the total investment in alternative energy will reach 18 bln USD by the year 2020. Solar  energy. The government estimates that there is a 4 GW potential for annual solar energy production in Ukraine. Wind. Today wind power in Ukraine is in the early stage of re-development and modernization. Industry experts have identified promising regions of sparsely populated southern Ukraine as ideally suited for wind power development owing to above average annual wind speeds which makes production economically viable. Biomass. Ukraine’s agricultural sector is the fastest growing industry of the economy and is expected to generate increasing amounts of agricultural and forestry waste, the key resource needed for biomass based heat and power generation. Government policy is currently focused on developing this renewable energy sector as the cost effective inputs of labor and raw materials are among the lowest in Europe. Information Technology. Ukraine’s IT industry is a driving force in the country’s resurgent economy and it is diverse; from cutting edge work in AI, cyber security and nanotechnologies to highly commercial ventures in blockchain, FinTech, big data management, gaming, agribusiness and e-commerce, investment opportunities exist. The number of IT specialists in Ukraine at over 90,000 and this figure is expected to double in the next 3 years. Ukraine has the largest and fastest-growing number of IT professionals in Europe and the country’s universities and polytechnic institutes graduate over 100,000 new engineers annually. Ukraine has over 1000 local IT service companies and more than 100 leading global companies with subsidiaries in the country. The impact of IT’s growth on Ukraine’s economy has been dramatic with the combined value of such outsourcing now exceeding 2,5 bln USD on an annual basis. IT outsourcing is Ukraine’s third largest export sector. Ukraine is also concentrating on creating favorable conditions that would allow IT entrepreneurs to expand further into domestic markets. The opportunities for combining IT skills with such sectors as agriculture, aviation and medicine are just a few examples of the future directions that Ukraine is beginning to grow. Infrastructure Ukraine’s vast road, rail, air and sea infrastructure, together with the benefits of its geographic location, makes the country an important transit corridor for trade and travel between Europe, Asia and the Middle East. Railways. Ukraine’s rail network is one of the most extensive in Europe. On an annual basis, the rail network handles over 80% of the nation’s freight and 50% of the passenger traffic crisscrossing the country. By carriage volume, the Ukrainian rail network is the 14th largest in the world, the world’s 6th largest rail passenger transporter and the world’s 7th largest freight transporter. Ukraine’s rail network is fully integrated with the networks of neighboring countries of Belarus, Moldova, Poland, Romania, Slovakia, Hungary and the Russian Federation. The network also co-manages 40 international border crossings and services 13 sea ports in the Black Sea basin. Roads. State policy is now focused on fostering a competitive market in highway construction which is stimulating the implementation of new public-private partnership projects. This latest initiative provides new opportunities for foreign investment which will not only have a long term impact on renewing necessary highway infrastructure, but will significantly contribute to the country’s economic revival as well. Maritime. With the assistance of international donors and the private sector the government is embarking on a program of providing increased training for port personnel, introducing modern technologies for loading and unloading together with the privatization of certain port facilities. Investors from Europe, the Middle East and North America currently show considerable interest in the opportunities that Ukraine’s maritime sector has to offer. Aviation Transport.  Ukraine has 23 major airports (19 government owned) with 12 carrying the designation of international and offering regularly scheduled flights for commercial airlines. In 2015 Ukraine signed an Open Skies agreement with the USA and a similar one with the EU is expected to come into force in 2017. This provides an additional impetus for the government to implement its ambitious program of airport upgrades and expansion throughout the country. Aerospace and Technology Ukraine is home to several of the world’s leading aerospace design and production facilities. The Antonov design bureau is the leading example and is best known for designing and building the world’s largest transport plane the An-225 “Mriya” cargo lifter. Ukraine’s other valuable aerospace centers of influence include the Yuzhnoye and Yuzhmash design bureaus in the city of Dnipro, the Ivchenko-Progress aero-engine design bureau and the Motor Sich engine production center in Zaporizhia. Together, these industries and several smaller manufacturers combine to produce some of the most advanced aircraft, satellites and rocket engines in the world. Ukraine is poised to rebuild its aerospace and technology industries to be compatible with NATO standards and develop products and produce innovations that can be sold in wider markets. Manufacturing Heavy Industry – Machine Building. Ukraine’s heavy manufacturing sector is dominated by an extensive network of machine building enterprises.  Over 25% of the population is employed by manufacturing companies involved in mining, railway rolling stock, energy, farm equipment, road construction equipment, machine tools, aircraft engines, instrumentation and manufacturing for the light and food industries.  This manufacturing capacity, together with its excellent educational institutes, has enabled Ukraine to become a global competitor in specialized industries such as automotive, aerospace and ship building. Automotive. At the present time Ukraine’s auto manufacturing output is approximately 200,000 vehicles per year. New foreign investors are investing and expanding operations in cluster areas, particularly in Western Ukraine. This manufacturing is concentrated largely in the assembly of foreign passenger cars for the export market, and domestically produced heavy vehicles for the domestic market. Notable specialized manufacturing includes the production of diesel locomotives and a wide range of tractor models and track vehicles by Kharkiv’s well-known tractor plant XTZ. Aviation.  Ukraine’s production of aircraft on a large scale basis has never been realized, in part, because of the fragmentation of the supply chain that occurred following the collapse of the Soviet Union. The Government is now devoting significant attention to redress this condition and is expanding opportunities for public-private investment in this sector. Ukraine is also becoming known for its niche market in the production of unique ultra-light planes, hang-gliders and paragliders of all designs and models. The Aeroprakt models in particular have become very well-known and have attracted buyers in the United States, Australia, New Zealand and in many European countries. Shipbuilding. Ukraine today ranks among the 10 largest shipbuilding countries in Europe. At the present time, there are over 35 major state companies that are engaged in the design and construction of a wide range of vessels. These include powerboats, barges, bulk carriers (dry cargo ship), tankers, including liquefied gas carriers. Light Industry. The industry currently has a wide profile with selective hubs of manufacturing in such areas as pharmaceuticals, electrical equipment, plastic and rubber products, food processing and textiles. The latter two, in particular, have exhibited a noticeable growth spurt in the last three years. The agricultural sector is the unquestionable leader in this regard as increasing investments are heading into the ‘value-add’ chain, and creating new opportunities in the canning industry, meat, vegetable and dairy processing. These in turn have stimulated the growth of the food specialty market, as smaller investors are increasingly venturing forward into the under-developed field of specialty products such as artisan breads, confectioneries, jams, alcohol and cottage breweries. The clothing industry is also experiencing a similar boom as increasing numbers of European manufacturers establish clusters of garment manufacturing in locations close to Ukraine’s border with EU countries. Portrait of modern Ukraine

• Ukraine is a European country with significant potential and opportunities. It has well developed machine-building, mining and metallurgical, chemical, petrochemical and transport complexes. The country takes strong positions in nuclear power engineering, aircraft engineering and the rocket and space industry.
• Ukraine is one of the 6 countries in the world that can provide manufacturing of a plane from designing to building. In 2016 nuclear power plants produced 52,3% of the total electricity in the country.

Ukraine is among the top 10 countries - the largest steel producers. In 2016, the         x  acturing volume in Ukraine grew to 24.2 million tons. It is a producer of unique energy equipment, exported to more than 100 countries of the world. For the period from 1992 to 2016, 140 launch vehicles of Ukrainian origin were launched from six cosmodroms of the world, which put into orbit 370 spacecraft on request of 25 countries.

• On the territory of Ukraine there are 4 out of 10 European transport corridors as well as 170 thousand km of roads, 22 thousand km of railways, over 40 thousand km of pipelines. In addition, there are 8 major sea ports in Ukraine, particularly Odessa and Illiychivsk, which are among the largest ports in the world.
• In 2016, 82.2 billion cubic meters of natural gas and more than 13.8 million tons of oil were supplied to European countries via Ukrainian trunk pipelines
• The railways of Ukraine provide 82% of freight and almost 50% of passenger traffic carried out by all types of transport in the country.
• Along with 18 partner countries Ukraine is working on the possibility of arranging multimodal transportation between the regions of the Baltic, Black and Caspian Seas using rail, road, river, sea and ferry services.
• Having a quarter of the world's chernozem (black soil) reserves Ukraine produces and exports large volumes of agricultural products and food. In 2016, the country took first position in the world in sunflower oil production, the fourth and sixth - in production of barley and corn, the eighth – in production of wheat and soybeans etc. Supplies of agricultural products into foreign markets increased to $ 15.3 billion in 2016. The share of this sector in shaping the GDP of Ukraine has increased to 18%.

Ukraine is open for further development of trade, investment and cooperative ties with all regions of the world. It provides the most favorable regime to 173 countries of the world with application of preferential import duty rates of up to 5%, which covers almost two thirds of all goods imported into Ukraine.

• In its turn, after the entry into force on January 1, 2016 of the Agreement on Deep and Comprehensive Free Trade Area between Ukraine and the European Union Ukraine has received more liberal access conditions to the EU market with a population of over half a billion people and a GDP of about 19 billion USD.
• Ukraine has world-renowned research innovative developments in the fields of welding materials, nanotechnology, biotechnology, hydrogen energy, artificial intellect and others. Also, 25 industrial parks have been established in the country for the period 30 to 50 years for implementation of innovative projects of estimated investment potential at about 10 billion USD.