What State Decisions Does the Economy of Ukraine Urgently Need?

In the current realities, we — as a country and as a society — can either swim along the current of a negative inertial scenario or make political decisions that will move Ukraine to victory, economic development and global subjectivity.

Economically, we have already lost. After all, 33 years of the absence of systemic liberal reforms made Ukraine a country in which the whole essence of competitive advantages is cheap workforce, cheap electricity, natural resources and a convenient geographical location.

A full-scale military invasion put an end to all these advantages. After all, in the current conditions, the workforce is limited and more expensive, electricity is more expensive and the risks of blackouts are increasing, mining and climate change are reducing the productivity of the land, and the country itself has turned into a logistical dead end.

So, have we lost economically? Without Western aid, we are unable to recover?

It looks like this. But either we will be lucky to survive again, or we will find the strength to break the negative trends of degradation and economic decline.

What political solutions do we need in order to, if not restore, at least stabilize the economy as of now?

The situation in the economy is like this. After a significant drop of almost 30% of Gross domestic product (GDP) in 2022, we have more than 5% growth in 2023 and a 3-4% increase in Gross domestic product (GDP) is forecast for 2024.

Currently, the main priority is to reach a point in the situation with the defense of the country, from which we will either have prospects for a military victory for our country, or we will conduct negotiations from a position of strength (that is, we will be able not to neglect the red lines). What technological, sanctioning, mobilization or management measures will help us to strengthen our position, the topic of another material.

Let's try to figure out what needs to be done in the economy in order not to lose Victory.

All of us have been hearing for ten years that we have a war and it is not time for reforms. But I have said it many times and I want to emphasize it again: war is precisely the stimulus for the implementation of rapid reforms, including radical ones. Yes, it seems that now is not the time for experiments, but this is the time to make fundamental changes.

For example, a few days ago the Great Privatization program was presented, and I believe that it is very timely for the country because it is necessary to act right now, despite all warnings. Relatively speaking, the 480 million UAH that will now be received for the Kozatskyi Hotel will be much more important for the country's economy than one billion UAN, for example, in 2026.

So, what reforms should be carried out in our country?

The first is customs reform. What prevents customs reform? How can a war interfere with this reform, when there is a significant corruption rent? In general, corruption rent was estimated as early as 2022 in the country as a whole at 450 billion UAH. Why are we postponing the decision on customs reform, when these 450 billion practically cover the shortage of the same 500 billion UAH in the state budget, which the Ministry of Finance of Ukraine is talking about today?

So, the biggest losses for the state budget are, in fact, customs corruption, smuggling and gray schemes amounting to almost UAH 200 billion every year.

The second is the reform of administration in the tax system. Or rather, a complete reboot of the tax system.

Yes, we can postpone the liberal anti-corruption tax reform until after the war (recall that, in addition to changes in the administration, it provides for the reduction of tax rates to 13-18% on the payroll fund, the introduction of a tax on withdrawn capital instead of an income tax and a significant reform of value-added tax (VAT). But it is the rebooting of the State Tax Service of Ukraine and changes in work approaches that will help reduce state budget losses by UAH 150 billion.

The third is the decriminalization of economic crimes, the removal of many state bodies from pressure on business, that is, the reform of the Criminal Procedure Code.

Nothing prevents you from doing it right now, without postponing the matter to be done sometime in the distant future.

The fourth reform that needs to be done is bringing order to the antimonopoly system. In the public procurement system, which is already technologically ready to strengthen public control, it is essential to reduce corruption in this area. In addition, we should not be afraid of greater transparency even in military procurement.

The enemy knows much more about them than society. And our closedness does not hinder the enemy but helps the corrupt instead of increasing the efficiency of equipping the Armed Forces of Ukraine.

The fifth is judicial reform, which has repeatedly failed. Taking one step forward, we always take two steps back. But nothing prevents it from being carried out right now, because war in this matter is definitely not an excuse.

In addition, in the field of public administration, we need to increase the level of strategizing. The country currently has no strategy. We are constantly told that there is a strategy to return to the borders of 1991, although we at the level of think tanks do not see or understand what it is about. We see only micromanagement at the level of both the management of Ukraine's defense capabilities and the economy.

Formally, there is a certain set of documents. For example, in the absence of a national economic strategy, there is a National Income Strategy. But to what principle does such a strategy correspond? What economic logic? To build which country was it developed? These questions remain open.

Strategy is not a document. Strategy is strategic thinking, modeling, visioning, adaptability, systemic activity to obtain the necessary effect and influence through subjectivization and implementation of social changes. Strategizing is one of the priority components of development.

Another important component is the involvement of civil society, think tanks and business associations in the creation of transparent and understandable economic policies.

Because with us, everything usually happens this way. A corrupt or economically harmful draft law is being prepared, as was the case with the draft law on restarting the Bureau of Economic Security of Ukraine. And they are trying to secretly push it through the Verkhovna Rada of Ukraine and adopt it. And only when the civil society takes a consolidated stand and starts loudly insisting that the law is corrupt and does not bring any positive changes, only then it turns out that we can discuss everything, reach a common understanding. In addition, it turns out that we can agree and even submit to the Verkhovna Rada of Ukraine such a draft law, which takes into account the key wishes. But before that, a game of thimble takes place.

So why not start with a strategy, with policies that will be discussed in detail, and already on the basis of the agreed policies, write draft laws. That is why we have been insisting for many years that strategies and policies should be discussed, not the texts of draft laws.

And finally, the main thing, what we started with. Ukraine used to have four competitive advantages, which we conditionally sold in the world. These are cheap workforce, cheap electricity, cheap land and cheap resources, logistical capabilities.

 

What do we have now? Now we will not have cheap workforce and in general there will be a big shortage of it. Apart from that, unfortunately, we will no longer have cheap electricity, but we hope that there will be at least green energy in the future.

We have mined lands. We have not so effective deposits of the same titanium and lithium. And a similar situation has developed with many other minerals. Even with gas, because we do not have the effective deposits that some other countries have, and the vast majority of resources are located either too close to the aggressor or in the occupied territories.

That is why we need to completely change the logic of how we "sell" Ukraine in economic terms.

In my opinion, Ukraine should become the most suitable and free country in the world for the realization of entrepreneurial ideas and human talents. Accordingly, we must create real economic freedoms and ensure unquestionable protection of property and intellectual rights.

Ukraine must build an effective digital state with a developed service oriented to people.

We must be drivers of innovation in the public and private sectors, leaders in the development of the virtual economy.

We have to teach the world adaptability and the ability to respond to global challenges, because this is exactly what the world will need in the coming decades. We must become a global exporter of security — in the broadest sense.

However, for this we need a completely different economic strategy, a different quality of public administration, a different level of responsibility and developed human capital.

Where to start? From the implementation of strategizing at the state level, the urgent implementation of the reforms listed above, the construction of a real dialogue between the government and society.

Read this article in Ukrainian and russian.