Resource information
Ukraine has untapped growth potential.
Ukraine has one of the most fertile agricultural lands in
the world, an attractive geographical location in Europe,
bordering the European Union, the largest market in the
world with a Gross Domestic Product (GDP) of more than $16
trillion, and a large domestic market of almost 50 million
consumers. This note argues that the stunted growth of the
private sector goes a long way in explaining Ukraine's
poor growth performance. The tepid private sector growth is
reflected in: the stagnant structure of the country's
exports, where old industries such as steel, machine
building and chemicals continue to predominate, operating at
low levels of industrial productivity, which has grown at a
much slow pace than in peer countries in the last decade;
the low inflow of high value-added Foreign Direct Investment
(FDI), especially in export-oriented manufacturing; and the
relatively limited role of Small Medium Enterprises (SMEs)
in the development of the economy. All of these factors
suggest that the market-driven process of entrepreneurship,
innovation and productivity does not seem to work properly,
undermining Ukraine's growth prospects. The note
identifies weaknesses in the regulatory environment, limited
access to finance and lack of competition as the main
constraints to private sector development and offers
short-and medium-term policy reform options. The note is
structured as follows. The first chapter uncovers the roots
of the tepid private sector growth. The following three
chapters focus on the three main constraints to private
sector development, reviewing weaknesses on the business
regulatory framework, access to finance, and competition,
and providing recommendations. The last chapter concludes.
