Have Ukrainian exports to the EU increased by 40%, as according to the statistics from Brussels, calculated in euros? Or has there been a 55% increase, as calculated in US dollars by the Ukrainian State Statistics Committee?
Experts could argue for a long time about the correct methods for calculating figures, about changes in the dollar-euro exchange rate and so on. In any case, the fact is that both figures show an increase in exports of goods from Ukraine to the EU between 2015 and 2018. And this increase comes at an unprecedented rate.
It is important to point out that processed food has enjoyed the fastest growth, representing 75% of Ukrainian goods sold to the EU. It is undoubtedly a considerable part of this increase.
Such a leap would not have been possible without the Association Agreement, which includes the Deep and Comprehensive Free Trade Area. Incidentally, the same dynamics are present in the Republic of Moldova, which signed the Association Agreement at the same time as Ukraine and Georgia. This was probably the largest incentive for the Eastern partner countries to sign up to the Eastern Partnership, a format that will celebrate its first 10th anniversary next week.
It is especially gratifying that Ukraine’s trade is not concentrated on one or two neighbouring EU Member States: Ukrainian manufacturers found their way into the market everywhere. The largest increase in exports was found in exports not to Poland, not to Hungary or to Romania, but to Malta.
Changes in recent years
The EU’s single market became Ukraine’s main trading partner back in 2014.
Trade with Russia had started to decline the year before due to restrictions introduced by the Kremlin; however, according to data from 2013, the Customs Union of Russia, Belarus and Kazakhstan still remained the country’s main trade partner. Later, the trade war carried out by Russia was supplemented by hybrid warfare and soon regular warfare, making trade with Russia not only complicated and risky, but also unacceptable for some Ukrainian exporters.
A duty-free treatment was introduced in 2014 for Ukrainian exports to the EU, as foreseen by the Association Agreement. At first Europe opened up customs unilaterally and, since 2016, customs have been open on a permanent basis, on both sides.
Having first lost Crimean businesses, followed by the possibility of exporting to Donbass and the Russian market, Ukraine has still not recovered to its pre-war level of foreign trade.
There is nothing surprising here. It is difficult to quickly compensate for industries remaining in occupied territories and the search for new markets is not an easy task. But trade with the EU has become an exception to the rule.
The share of the 28 Member States of the European Union in the total volume of Ukrainian commodity exports for 2018 amounted to over 42.5%. Europe has never had such a large share in Ukraine’s foreign trade, and this is something that no administrative methods can achieve. Businesses see that it is now easy for them to trade with the EU.
It is also true that this is by no means the limit. For example, last year, almost 70% of Moldovan exports went to the EU.
However, let us first look at Ukraine. Europe is a large area and it is important to understand where in the EU Ukrainian goods are going. There is an undeniable success here: Ukrainian producers have managed to conquer markets in more EU countries than their Moldovan counterparts.
From Spain to Poland
Market relations are cynical in their essence. Businesses follow the money and international trade is not always reflective of whether political relations are positive or negative.
When it comes to individual states, Russia until 2018 remained the largest importer of Ukrainian goods. Despite the economic sanctions, the recurring problems at the border and so on, statistics from 2018 show that there is still no country in the world to which Ukraine sells more than it does to Russia. However, each year, Russia’s share in the total trade is decreasing. In 2012, the share of all Ukrainian exports was 25.6%; by 2018 the number had decreased to only 7.7%. Based on the statistics on Ukraine’s exports to the EU during the first quarter of this year, it appears the number-one spot will be taken by Poland in 2019.
At one time, the Ukrainian economy was hurt by the fact that a quarter of its exports were focused on Russia. Such a level of dependence brings economic pressure. In contrast, the current level of trade with Russia is safer.
When it comes to Ukraine concentrating on exports to the EU, it is not only about differences in Moscow’s and Brussels’s attitude towards the country. There is another key difference, as mentioned earlier.
Exports to the EU are not concentrated on one state.
The goods that Ukraine sold to the EU in 2018, estimated to be worth around €20 billion, are spread out throughout the continent.
Of course, there are some Member States with which Ukraine’s businesses trade more actively. Together they sell goods worth over €2 billion to Poland, Italy and Germany. A further six countries import goods worth another €2 billion between them.
But there is no state on which a critically high proportion of Ukraine’s trade depends. Even Poland accounts for less than 7% of Ukrainian exports.
Now let us go back to Moldova. Romania takes 25% of its exports, a figure that is also equivalent to 35% of the country’s exports to the whole of the EU. Ukraine has managed to avoid such a dependence, which is an additional reason to value the success in diversification achieved by its exporters.
Unfortunately, the situation in Moldova, another Eastern partner country, does not even closely resemble that of Ukraine. If the Association Agreement helped Ukrainian manufacturers not only to eliminate their dependence on the Russian market but also to diversify their trade, the Moldovans cannot claim similar success. About two-thirds of Moldovan exports to the EU are shared between three countries: Germany, Italy and Romania.
In contrast, in Ukraine, since free trade between Ukraine and the EU began in 2016, exports to almost all EU Member States have increased. Total exports to the EU have increased by 55%. Naturally, some countries have seen a higher increase in imports from Ukraine than others. Exports to Belgium, Estonia and Latvia have doubled. Large increases have also been seen in Slovakia (84%), Hungary (81%), the Netherlands (by 77%), Germany (66%) and Poland (65%).
However, as mentioned earlier, the biggest trade explosion has been witnessed in Malta. In 2018, Ukraine sold over five times more goods to the country than in 2015. That said, exports to Malta in 2018 were worth around €60 million – not a small change, but still a relatively insignificant amount for the Ukrainian industry; an interesting fact, rather than a great victory.
What is Ukraine selling?
It is clear that everyone will benefit from the growth of exports. This will support the stability of the currency, jobs and taxes. But with what is Ukraine supplying the European Union? Is it true that Ukraine sells only ore, metal and wheat to the EU? And is it true that only tycoons and huge enterprises can make their way into the European market?
The greatest myth is that only the giants can trade with the European Union. Small and medium-sized enterprises can do this too.
According to the country’s Ministry of Economic Development and Trade, more than 14,000 Ukrainian enterprises exported goods to the EU in 2017, and not many of these would be considered “tycoons”.
It is difficult to find a major media outlet that has not mentioned Ukrainian producers entering the EU market in the last few years. Their success stories are truly inspiring.
Many entrepreneurs find routes into the market which are not viewed by most people as serious business at all. For instance, the export of blueberries or even bog blueberries.
Growing forest berries is no longer simply an artisanal occupation that is only likely to bring in a small income. The world is changing. Today, such berries are not harvested in forests but grown industrially, and Ukraine is considered one of the most promising players in this industry. The area of bog blueberry plantations in Ukraine is growing rapidly and likely to reach 3,000 hectares this year. Nevertheless, the country remains far behind Poland, where, according to various estimates, between 11,000 and 14,000 hectares of land are allocated to this berry.
As to the market volume: the EU currently consumes 160,000 tonnes of bog blueberries each year. This makes over €0.5 billion at wholesale prices. Most importantly, the demand for berries is growing and, according to experts, may yet increase fourfold.
Some Ukrainian producers have gone further, too: there are those who not only sell berries, but also process them. This means more jobs, more value added and more money, as described in the success story “To surprise with blueberries”.
Ukraine’s manufacturers are competitive in the EU in areas where this is not really to be expected; for example, the production of books and toys for European children.
It is hard to imagine, but that the sale of Ukrainian toys to the EU has brought more than €65 million into the country.
This is 0.4% of all revenues from Ukraine’s exports to Europe.
Even among the most popular exported goods, something surprising can be found. Sets of spark plugs for cars were second top among all goods sold to the EU in the first half of 2018. These products made up over 7% of the value of all Ukrainian exports to the EU. However, this is not so surprising considering that Ukraine is gradually becoming a hub for the production of machinery and equipment, including electrical equipment, which as a whole contributes to 14% of Ukrainian exports to the EU.
According to the Institute of Economic Research, raw materials – on which Ukraine was previously so reliant for its exports to the EU – now represent only a quarter of the country’s EU exports.
It is therefore safe to say that those who believed the Association Agreement would turn Ukraine into a raw material base for Europe were wrong. In fact, the trend is exactly the opposite. Three years of the free trade area have clearly demonstrated this.
Author: Sergiy Sydorenko
Article published in Ukrainian and Russian by eurointegration.com.ua (Yevropeyska Pravda)
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