Ukraine’s open economy poorly suited to wartime conditions, finds LSE report

Ukraine’s ‘relatively open’ economy is poorly suited to wartime conditions, finds a new report from the PeaceRep-Ukraine team at LSE IDEAS, the LSE’s foreign policy think tank.

The authors warn that government spending on civilian reconstruction efforts remains limited, while Ukraine is losing domestic market share in key sectors to foreign firms.

Even though state purchases of goods and services rose overall from 2021-23, this was driven by a massive increase in defence spending, and the purchase of civilian goods and services dropped from $16bn USD to $14.7bn USD during this time, according to the report.

In the market for construction materials, the state’s share of purchases also decreased from 32.7% to 27.7%, even though the market itself shrank by more than half. At the same time, imports increased their market share from 14% to 23% in the construction materials sector and from 23% to 35% in the food sector, according to the report.

The authors write that these findings show the Ukrainian government’s priority is winning the war, with less focus on the massive challenge of rebuilding the country’s economy and critical infrastructure.

They welcome Kyiv’s ‘Made in Ukraine’ strategy – a $1.2bn subsidy and labelling scheme to support the domestic production and supply of goods – and urge donors at the upcoming Berlin Ukraine Recovery Conference to spend aid for Ukraine in Ukraine as much as possible.

“A genuine commitment to a ‘level playing field’ means recognizing that it is not remotely ‘level’ from a Ukrainian perspective at the moment. Flexible policies that allow Ukraine to give preference to its own companies and sectors will be critical going forward,” says Luke Cooper, an author of the report and Director of PeaceRep’s Ukraine programme at LSE IDEAS.

“Well designed industrial policy that identifies and takes active steps to grow Ukraine’s key economic sectors is not an optional extra, but a vital part of the war effort. Donors can support the domestic economy by committing to spend ‘aid for Ukraine in Ukraine,” says Volodymyr Vlasiuk, another author and Director of Ukraine Industry Expertise.

Featured Photo by Artem Kniaz on Unsplash.

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