INTEGRATION POTENTIAL OF THE INDUSTRIAL COMPLEX OF UKRAINE
Authors:   Institute for International Business Development, Kistersky Leonid 
Published: April 2024

The objective of the study is to justify the need to unlock the integration potential of the industrial complex of Ukraine in the context of the implementation of the Association Agreement between Ukraine and the European Union. The industry of Ukraine is in a state of crisis. Since its independence the country has neither elaborated, nor implemented the necessary industrial strategy on the national level with the goal of intensifying capital investment in the diversification of production and promoting high-tech exports. During the transformation period a long-term trend of deindustrialization of the national economy has been observed in Ukraine, caused by the degradation of its industrial complex, as a result of which the state fell into the group of Third World countries and, finding itself in a raw material trap, secured for itself the role of a supplier of low-value-added goods. The experience of the post-war recovery of successful countries of the world (e.g. Germany, Japan, South Korea, Malaysia, Thailand, Singapore, China) demonstrated that one of the main factors of economic growth is the timely introduction of an effective state industrial policy, where a key role is played by the export-oriented processing industry. In the conditions of the Fourth Industrial Revolution, when at the global level more than 80 countries, which account for 90% of the world GDP, are increasing attention to the improvement of state industrial strategies and state industrial policies, in which they recognize the growing need for state intervention and support of industries that are critical for the national economy, Ukraine must confront the problem of increasing the effectiveness of state regulation of industrial development in order to fulfill its integration potential. A long-term strategy for the development of industry in the form of a normative document with a focus on structural development, activation of the domestic market with stable domestic demand will contribute to reducing dependence on exports and will have a positive impact on the national economy, providing jobs for citizens, additional taxes to the budget, creating added value within the country. In such a strategy, fundamental and sectoral science should occupy a prominent place for the development of Industry 4.0 technologies, which will contribute to both the formation of the national value-added chains and balanced exports thanks to the revival of export-oriented processing industry. The analysis of experts’ research results allowed to come to the conclusion that Ukraine should focus on a wide variety of instruments, e.g. war risk insurance; access to “long and cheap” money; significant simplification of connection to networks; incentives to create recycling, such as offsetting a share of capital investment through taxes or industrial parks; stimulation of domestic demand for local goods through public procurement or through government programs; stimulating the export of finished products through the Export Credit Agency, trade diplomacy, exhibition activities, etc.; modification of the tariff and customs policy to reduce the price of import of raw materials, components and some types of equipment for production with a simultaneous restriction on the export of raw materials. At the same time the share of the processing industry in the structure of the GDP of Ukraine in 2021 was about 10%, which is a critically small indicator, while in neighboring countries, like Poland, Slovakia, Turkey, this indicator is twice as high - about 20%. It should be noted that the share of the processing industry in the structure of GDP is correlated with the level of poverty in the country. Ukraine’s GDP per capita at purchasing power parity is about 14000 USD, while in the neighboring countries, this indicator is about 35000 USD, and they have achieved this level of industrial development precisely as the result of using the stimulating tools: industrial parks, development banks, export credit agencies, institutional incentives for the processing industry. One more key tool for the promotion of Ukrainian exports of more complex technological products is the conclusion of the Agreement on Conformity Assessment and Acceptance of Industrial Products (АААА, "industrial visa-free"), which provides for mutual recognition of product conformity assessment between the EU and Ukraine.