Why American industry should invest in Ukraine

By Dan Runde | April 21, 2023

Ukrainian President Volodymyr Zelenskyy speaks to the media at joint press conference with Slovakia’s Prime Minister Eduard Heger, Moldova’s President Maia Sandu, Slovenia’s Prime Minister Robert Golob and Croatia’s Prime Minister Andrej Plenkovic.

America’s highly productive and very diversified economy is the largest in the world and exports the second highest number of products globally. Ukraine, a country similar in size to Texas, leads globally as an exporter of raw materials and is the largest international exporter of sunflower oil, the second-largest of ferro-silico-manganese products. Although the countries have different economic landscapes, the opportunities for investment cooperation exist and are supported by both a joint passion to protect democracy and talented and hardworking workforce.

Ukraine has long been known for its untapped investment potential. However, in the past year, the people of Ukraine have shown a remarkable desire to fight for Western democratic values and make the reforms necessary to join the European Union.

Ukraine has fought for its independence through the actions of top political management, defenders, and unprecedented international support. This highlights that Ukraine is committed to be free, interconnected with the West, and developed economically. The world is witnessing the formation of a new Ukraine that is a reliable investment partner.

Some prominent American companies have been present in Ukraine for many years, including Cargill, P&G, Bunge, Coca-Cola, PepsiCo, Jabil, and CHS. These companies operate under FCPA rules, proving that business in Ukraine can be profitable and transparent. The U.S. has strong potential to become the top investor in Ukraine.

Ukraine’s strong material base and skilled labor force

Ukraine has a strong material base that the United States could tap into, and its skilled labor force can be a key partner to American technology companies. Ukraine’s raw materials base is rich. It ranks 25th in mining globally, 6th in production of iron, 5th in titanium, and 7th in kaolin. With access to significant agricultural raw materials, clays, wood, and other vital products for manufacturing, Ukraine is highly attractive for the U.S. industry.

Ukraine is also known for its skilled and highly educated labor force.

More than 60,000 specialists graduate annually, and Ukraine ranked 21st in the Global Skills Index 2022 — mainly due to the high number of specialists in computer science, mathematics, software engineering, big data, and machine learning. Although more than 8 million people left Ukraine after the full-scale invasion, over 5 million refugees have already returned home and more than 80 percent of Ukrainians who left Ukraine during 2022 are considering coming back after the war to support the rebuilding of Ukraine. People currently working in Ukraine, defenders who are coming back to their homes, and those who are gradually returning create a pool of highly motivated and internationally experienced entrepreneurs and workers today.

Expansion to markets that are not covered by the current US FTAs

Under a free trade agreement (FTA), countries reduce tariff and non-tariff barriers to mutual trade. FTAs play an important role in enhancing international cooperation and increasing trade between participants. The U.S. has FTAs with 20 countries and is a member of regional FTAs, such as USMCA, TPP, and others.
Ukraine has 19 FTAs with 46 countries, including the Deep and Comprehensive FTA with the EU. U.S. investments in Ukraine may open new trade opportunities for American companies, specifically with a focus on European markets and the region.

Trade between the U.S. and the EU is significant, and both economies accounted for one-third of global trade flows in 2021. The proposed Transatlantic Trade and Investment Partnership agreement between the US and the European Union, which envisaged zero customs duty for many products and, more importantly, the removal of non-tariff barriers to trade, was put on hold. Even though investments in Ukraine cannot substitute for the above, it may open a window of opportunity for many American companies to expand trade activities to countries covered by Ukraine’s FTAs.

Additionally, the United States and Ukraine should work towards a bilateral FTA.

Relocation of US manufacturing from Asia to Ukraine

In recent years, there has been a trend to move American industry away from Asia and bring manufacturing back to the U.S. and its neighboring countries.

This is an effective tool to create more job opportunities in the U.S. and de-risk business activities by shortening supply chains. However, not all supply chain ecosystems can be effectively moved back to North America, especially given the need for access to specific raw materials or pre-finished goods. There is also a large European and other regional market that can be served without overpaying for logistics, building expenses, and operational costs that could make exports unprofitable.

Ukraine could be an excellent place for some American companies to do “right-shoring” (nearshoring to the most effective location). According to the Savills Nearshoring Index in 2020, Ukraine ranked second out of 40 countries in terms of its nearshoring potential for American companies based on assessments of the cost of manufacturing labor, electricity, infrastructure, and trade openness. In comparison, Mexico ranked 15th, Poland was 19th, and Germany ranked at 39th.

Opportunities for US businesses to tap into Ukraine’s IT sector

Before the war, Ukraine’s  IT industry grew by 25-30 percent annually and generated 4 percent of Ukraine’s GDP in 2021.

Despite the invasion, IT companies in Ukraine were able to restore growth dynamics. In 2022, the export revenue of IT services grew by 5.85 percent and amounted to $7.3 billion. According to the National Bank of Ukraine, exports of IT services in 2022 constituted 45.5 percent of the total service export structure — which is a 7.7 percent increase from 2021.

Ukraine’s IT sector is a strongly developed ecosystem that contains 1,613 product companies, 534 service companies, and more than 87 Research and Development centers including several that have U.S. origins such as Boeing, Cisco, and Waze. Additionally, People.ai, Grammarly, GITLab, and BitFury are all startups founded by Ukrainians.

A strong talent pool, combined with national state incentives, such as the low tax regime for IT companies registered in Ukraine, creates an excellent opportunity for American technology companies. Ukraine is open for business and investments. American industry could become its strategic partner, and cooperation would create a win-win case for both countries.

U.S. companies could expand businesses and increase their profitability. Ukraine would benefit from economic development through investment and access to technology. Once a Titan of the soviet industry, Ukraine can re-emerge economically transformed, shifting from a raw material exporter to producer of high value-added products.