Ukraine country profile
28 August 2006by eub2 -- last modified 26 February 2022
The EU cooperates with Ukraine in the framework of the European Neighbourhood Policy and its eastern regional dimension, the Eastern Partnership. The key goal is to bring Ukraine closer to the EU. The European Neighbourhood Instrument is the EU financial instrument dedicated to the Neighbourhood for the period 2014-2020. Other funding sources are the thematic programmes, focused on human rights and civil society. EU assistance to Ukraine takes the form mainly of country Action Programmes funded every year under the ENI. Ukraine also benefits from regional and multi-country Action Programmes, also funded under the ENI.
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Ukraine
Member of Schengen area: No
Political system: Republic
Capital city: Kiev
Total area: 603,550 km²
Population: 45.7 million
Currency: hryvnia
Country overview
On 5 March 2014, the European Commission announced a large support package for Ukraine to help stabilise the economic and financial situation of the country. All measures combined could bring overall support of €11 billion over the next seven years from the EU budget and the international financial institutions, including up to €1.4 billion in grants from the Member States.
On 9 April 2014, the Commission decided to create the Support Group for Ukraine. It ensures that Ukrainian authorities have all the support they need to undertake political and economic reform and stabilise the country.
For more information, please see the Frequently Asked Questions on support to Ukraine.
On 17 July 2014, the Commission released an information note to EU businesses operating and/or investing in Crimea/Sevastopol. It explains the risks related to the economic and financial situation in Crimea/Sevastopol, after its illegal annexation by Russia.
Since taking office, Commissioner Johannes Hahn has visited Ukraine five times, participating, among others, in the International Conference on Support for Ukraine on 28 April 2015 and the 12th Annual Meeting of the Yalta European Strategy in Kyiv on 10-12 September 2015.
On 13 and 14 July 2015, the first meeting of the EU-Ukraine Association Committee reviewed Ukraine's reform progress and the challenges ahead. In the margins of this event, the Ukrainian delegation participated in a study visit to the EU institutions organised by the Support Group for Ukraine. The visit was designed to deepen working-level relations in crucial reform areas.
In 2015, Ukraine became fully associated with the Commission's Horizon 2020 programme. Its researchers, businesses and innovators can now participate under the same conditions as EU Member States a multinational programme dedicated to research and innovation, equipped with a total budget of almost € 80 billion for 2014-2020..
Economy overview
After Russia, the Ukrainian republic was the most important economic component of the former Soviet Union, producing about four times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied unique equipment, such as, large diameter pipes and vertical drilling apparatus, and raw materials to industrial and mining sites in other regions of the former USSR.
Shortly after independence in August 1991, the Ukrainian Government liberalized most prices and erected a legal framework for privatization, but widespread resistance to reform within the government and the legislature soon stalled reform efforts and led to some backtracking. Output by 1999 had fallen to less than 40% of the 1991 level. Outside institutions - particularly the IMF –encouraged Ukraine to quicken the pace and scope of reforms to foster economic growth. Ukrainian Government officials eliminated most tax and customs privileges in a March 2005 budget law, bringing more economic activity out of Ukraine's large shadow economy. But more improvements are needed, including fighting corruption, developing capital markets, and improving the legislative framework. From 2000 until mid-2008, Ukraine's economy was buoyant despite political turmoil between the prime minister and president.
Ukraine's dependence on Russia for energy supplies and the lack of significant structural reform have made the Ukrainian economy vulnerable to external shocks. Ukraine depends on imports to meet about three-fourths of its annual oil and natural gas requirements and 100% of its nuclear fuel needs. In January 2009, after a two-week dispute that saw gas supplies cut off to Europe, Ukraine agreed to 10-year gas supply and transit contracts with Russia that brought gas prices to "world" levels. The strict terms of the contracts further hobbled Ukraine's cash-strapped state gas company, Naftohaz. The economy contracted nearly 15% in 2009, among the worst economic performances in the world. In April 2010, Ukraine negotiated a price discount on Russian gas imports in exchange for extending Russia's lease on its naval base in Crimea.
Ukraine's oligarch-dominated economy grew slowly from 2010 to 2014. After former President YANUKOVYCH fled the country during the Revolution of Dignity, the international community began efforts to stabilize the Ukrainian economy, including a March 2014 IMF assistance package of $14-18 billion. Ukraine has made significant progress on reforms designed to make the country a prosperous, democratic, and transparent country.
Russia's occupation of Crimea in March 2014 and on-going aggression in eastern Ukraine have hurt economic growth. With the loss of a major portion of Ukraine's heavy industry in Donbas and ongoing violence, Ukraine's economy contracted by 6.8% in 2014 and by an estimated 10.5% in 2015. Ukraine and Russia have engaged in a trade war with sharply reduced trade between the countries by the end of 2015. The EU-Ukraine Deep and Comprehensive Free Trade Area finally started up on 1 January 2016, and is expected to help Ukraine integrate its economy with Europe by opening up markets and harmonizing regulations.
Political relations
Ukraine is a priority partner for the EU.
With the EU-Ukraine Association Agreement (AA) including a Deep and Comprehensive Free Trade Area (DCFTA) signed in 2014 and in force since 2017 after being provisionally applied, our relations have achieved an unprecedented level of closeness. The AA/DCFTA is the blueprint for Ukraine's ambitious reform agenda kicked-off with the 2013-2014 Maidan and for the EU's support. It is based on shared values and commitment to respect for democratic principles, the rule of law, good governance, human rights and fundamental freedoms.
Our common goal is further economic integration and political association between Ukraine and the EU. During the five years since the Euromaidan Revolution of Dignity, Ukraine has taken essential steps in implementing complex reforms. Our partnership is built on the principle that as long as Ukraine keeps reforming at an unprecedented level, the EU keeps supporting at an unprecedented level. Since 2014, this has meant yearly funds of up to € 200 million mobilised from the bilateral pillar of the European Neighbourhood Instrument (ENI), for a stronger economy, stronger governance and stronger society in Ukraine.
Economic and trade relations
On 1 September 2017, the EU-Ukraine Association Agreement came into full force. The Association Agreement, including its Deep and Comprehensive Free Trade Area (DCFTA) part, is the main tool for bringing Ukraine and the EU closer together. The DCFTA offers Ukraine a framework for modernising its trade relations and for economic development by opening up markets and harmonising laws, standards and regulations in various sectors. This will help align key sectors of the Ukrainian economy with EU standards.
The DCFTA has been provisionally applied since 1 January 2016, constituting a major milestone in bilateral trade relations and offering new economic opportunities to both the EU and Ukraine. Ukrainian businesses receive stable and predictable preferential access to the largest market in the world, with over 500 million consumers. EU businesses are able to benefit from easier access to the Ukrainian market and build new relationships with Ukrainian suppliers and partners.
On 1 October 2017 the additional autonomous trade measures of the EU for Ukraine entered into force. The EU regulation on the measures tops up the quantities of agricultural products that Ukraine can export to the EU under the Association Agreement without paying customs duties. It also accelerates the elimination of EU import tariffs for several industrial products, as foreseen in the Association Agreement.
Snapshot of trade statistics
The concrete results of implementation of the DCFTA can already be seen: Ukrainian exports to the EU has never been higher than in 2018, there is also a significant increase in EU exports to Ukraine.
EU28 trade in goods with Ukraine (in million €)
|
EU28 trade in goods with Ukraine (in million €) |
||||||
|
ALL goods |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
|
TOTAL trade |
37.781 |
30.729 |
26.877 |
29.749 |
36.877 |
40.085 |
|
EU28 Imports |
13.882 |
13.734 |
12.844 |
13.182 |
16.683 |
18.019 |
|
EU28 Exports |
23.899 |
16.995 |
14.033 |
16.568 |
20.194 |
22.065 |
|
EU28 Balance |
10.017 |
3.262 |
1.190 |
3.386 |
3.511 |
4.046 |
Source: Eurostat
The EU remained Ukraine's main trading partner, representing 42% of Ukraine's total trade, with a similar split between imports and exports. Total trade between the EU and Ukraine reached about €40 billion in 2018, an increase of close to 9% when compared to 2017. Ukraine is EU's 21st largest trading partner.
In 2018, Ukraine mainly exported base metals and articles thereof (21.9% of total), vegetable products (18.9%), mineral products (15.0%), machinery and appliances (11.8%). Ukraine's export profile is now more diversified than a decade ago when 70% of exports consisted on vegetable products, base metals and mineral products. Today, other categories such as animal products, foodstuff and machinery products, feature much more prominently on the export list. Footwear and articles of stone, although still relatively low have seen exports increasing by more than 50% over the last 10 years.
Investments
Foreign trade and investments are vitally important for both the Ukrainian and the EU economies, in terms of growth and jobs, lower prices, better quality and greater choice for consumers through increased competition, and so on. Unfortunately, foreign direct investment remains low, pointing to the need to improve the business climate and encourage investment, in particular through enforcement of the rule of law and the fight against corruption. According to the State Statistics Service of Ukraine, the volume of direct investment (equity capital) into Ukraine's economy from the EU countries as of 31 December 2018 totalled USD 24.7 billion. The main investor-countries are Cyprus - USD 8.9 billion (35.9 % of the total volume of investment from the EU), Netherlands - USD 7.1 billion (28.5%), United Kingdom - USD 2 billion (7.9%), Germany - USD 1.7 billion (6.7%), Austria - USD 1 billion (4.1%) and France - USD 0.6 billion (2.6%). Significant volumes of direct investment from the EU countries are concentrated in industrial enterprises (34.4%), enterprises of wholesale and retail trade, repair of vehicles and motorcycles have accumulated 13.8% of direct investment, organizations carrying out transactions with real estate 12.8% and financial and insurance institutions have accumulated 10.5%.
More information on EU trade agreements - European Commission's annual report on the implementation of trade agreements - https://trade.ec.europa.eu/doclib/press/index.cfm?id=2071
Financial cooperation
The EU support to Ukraine under the European Neighbourhood Instrument, is coordinated by the European Commission's Support Group for Ukraine (SGUA). Together with the EU Delegation to Ukraine , SGUA develops support programmes for key reform areas (e.g. for decentralisation (link is external), the fight against corruption (link is external) or strengthening the rule of law (link is external)) which are often co-financed and implemented by EU Member States. The EU also supports the Ukrainian civil society through grants from different financial instruments, through contributions to the European Endowment for Democracy (link is external) and a steady dialogue that informs our policymaking.
Over the last years, Ukraine has gained access to different European Union programmes, becoming for instance the frontrunner of Erasmus+ among the Eastern Partnership countries; becoming fully associated to the EU's Horizon 2020 programme for research and innovation; and taking part in the Creative Europe (link is external) programme supporting the cultural, creative and audio-visual sectors.
The EU also cooperates with Ukraine in the framework of the eastern regional dimension of the European Neighbourhood Policy, the Eastern Partnership.
Bilateral Cooperation
The EU supports Ukraine through a variety of instruments.
Overall, the EU and Financial Institutions (European Investment Bank (link is external) and European Bank for Reconstruction and Development (link is external)) have mobilised between 2014 and today over € 13 billion in loans and € 2 billion in grants to help Ukraine stabilise its economy, carry out comprehensive reforms and improve the lives of its citizens. This includes substantial bilateral financial and technical assistance under the European Neighbourhood Instrument (over € 1.4 billion). Ukraine benefits from Twinning and TAIEX, and, beyond bilateral support, from ENI regional and multi-country Action Programmes for the Eastern Partnership countries. In addition to the Chornobyl Shelter Fund, support is provided via the Instrument for Nuclear Safety Cooperation (INSC II) 2014-2020. Furthermore, the EU mobilised via four programmes a total of € 4.41 billion in macro-financial assistance for Ukraine, paid upon the fulfilment of reform conditions.
Finally, since 2017, a € 50 million comprehensive support programme for government-controlled parts of Donetsk and Luhansk regions is in place. It aims at strengthening good governance and decentralisation, supports economic revitalisation and small and medium sized enterprises (SMEs), increases community security and social cohesion, fosters the regional health care system, supports displaced universities and assists with tackling the infrastructural disconnect. The programme was recently topped-up by € 10 million and expanded to support the Sea of Azov region.
Investments are channelled to Ukraine via the EU External Investment Plan, notably the Neighbourhood Investment Platform. Since 2014, over € 180 million has been channelled through the NIP to Ukraine for the support to infrastructure financing in fields such as transport, water/sanitation, energy efficiency, environment as well as SME funding and local currency lending.
Loans amounting to € 4.6 billion have been mobilised by the European Investment Bank since 2014 to support infrastructure development and reforms in the transport, energy, agriculture, education and municipal sectors, as well as for SME development in Ukraine. Investment worth € 4 billion from the European Bank for Reconstruction and Development (link is external) has been mobilised since 2014 to help develop and reform, inter alia, the banking sector, agribusiness, transport and small businesses.
Via the European Union Advisory Mission (EUAM) Ukraine (link is external), Ukraine-based international experts mainly from EU Member States assist Ukraine with the reform of the civilian security sector.
Find the latest opportunities from the EU-Ukraine cooperation here and here.
Useful links
Delegation of the EU to Ukraine
Ukrainian Government
Tourist information
Source: European Commission, CIA World Factbook
