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Ukraine

Situation and cooperation

Building in Kyiv, the capital of the Ukraine

In 2004, Ukraine's Orange Revolution raised great hopes that democracy and the rule of law might be established. But the fresh political start failed, and a long period of political inertia followed.

The country has since been able to make some progress, but there is still a great need for reforms. The overall policy course of the current government is geared towards integration in Europe and reform. The government wants to achieve peace in the country, make further headway on decentralisation, fight corruption and improve the public finance situation. Ukraine's civil society is working actively together with the government. It is providing important ideas and impetus for reforms and serves as a political watchdog.

Governance and human rights

View of Kyiv at sunrise

Ukraine has signed the majority of the human rights conventions sponsored by the Council of Europe and the United Nations.

However, since the beginning of fighting between government forces and pro-Russian militias in 2014, the human rights situation has deteriorated. A February 2018 report by the United Nations High Commissioner for Human Rights (UNHCHR) found that, notwithstanding a decline in violence following the Minsk ceasefire, massive human rights violations continue to occur, especially in the eastern parts of the country that are not controlled by the government.

Widespread corruption, too, continues to pose a major problem. The 2017 Corruption Perceptions Index drawn up by the non-governmental organisation Transparency International ranks Ukraine 130th out of 180 countries assessed.


Economy

Employees in a Ukrainian chocolate factory

Ukraine is officially classed as a lower-middle-income country by the World Bank. The Human Development Index (HDI) compiled by the United Nations Development Programme ranks Ukraine 84th out of a total of 188 countries listed. There is a wide gap between incomes in the capital, Kyiv, and the rest of the country.

Ukraine's economic development has been seriously affected by the current national crisis. In 2015, gross domestic product fell by 9.8 per cent. After that, the economy recovered somewhat, growing by 2.3 per cent in 2016. According to International Monetary Fund (IMF) projections, economic growth in 2018 will be 3.2 per cent.

Ukraine's main industries are the chemical and metal industries, food and agriculture, mechanical engineering, and, increasingly, information technology. Internationally, Ukrainian industry remains largely uncompetitive because its plants are outdated and use too much energy. As the steel sector accounts for a significant proportion of Ukraine's export earnings, the country is very vulnerable to price volatility in the world steel market. But there are also some very advanced industries, for instance the aircraft and aerospace industry.


Development potential

Ukraine offers many advantages for potential investors: with a population of around 45 million, the country has a large and attractive domestic market. There is a high level of unmet demand for consumer goods and a substantial need for modernisation. Ukraine's geographical proximity to EU and Eastern European markets is also an advantage. Ukraine has a well-functioning school system. The population has a good level of education, while wage levels are comparatively low.

The economy can only fulfil its potential, however, if the political situation can be stabilised, public financial management is improved, and effective measures are taken to combat corruption and legal uncertainty.


Priority areas of German cooperation with Ukraine

Bilateral development cooperation between Germany and Ukraine began in 2002. For 2017, the German government committed 41.45 million euros for bilateral development cooperation. Since 2014, the BMZ has provided a total of 377 million euros to Ukraine.

The priority areas of cooperation are:

  • Sustainable economic development
  • Energy efficiency
  • Democracy, civil society, public administration and decentralisation

The BMZ has also considerably expanded its support for Ukraine's response to the crisis in the eastern part of the country. For example, municipalities receive support as they take in internally displaced persons and provide psychosocial counselling for them. Further activities include support for job creation and the provision of housing.


Sustainable economic development

Paper for the production of bank notes in the Malyn paper factory, Ukraine

Small and medium-sized enterprises (SMEs) can become a driver of growth for the Ukrainian economy, and reduce unemployment and poverty. However, the general environment is unfavourable to private sector engagement: excessive bureaucracy and state control, non-transparent administration, widespread corruption, a shortage of management personnel and inadequate access to financial services (which are usually excessively expensive) are all deterrents to potential investors.

Under the Association Agreement with the EU that was agreed in mid-2014, Ukraine has made a commitment to introduce a broad range of legal and economic standards. The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) is assisting Ukraine's finance, economic development and regional development ministries and other important institutions in launching and implementing reforms in the areas of public financial management, decentralisation and sustainable economic development.

On behalf of the BMZ, KfW Development Bank is supporting Ukraine through loans. The capital provided enables local banks to secure financing for themselves and, thus, to refinance loans for SMEs.


Energy efficiency

Substation

So far, energy has been used extremely inefficiently in Ukraine. Outdated power plants and network systems cause high losses and place an unnecessary burden on the global climate. The country's high level of energy consumption makes the economy highly dependent on energy imports – and, thus, very vulnerable to price volatility and supply constraints.

Through KfW Development Bank, Germany is providing Ukraine with loans that the country can use to modernise parts of its power supply infrastructure. Furthermore, KfW is providing loans through local banks to Ukrainian companies, especially SMEs, which they can use to finance, at favourable terms, investments in improved energy efficiency.

Germany is also advising the competent authorities on developing strategies to improve energy efficiency in municipal buildings, and on introducing EU-compliant technical standards. With German support, municipal energy plans are being developed and training is being provided for energy managers.


Democracy, civil society, public administration and decentralisation

In this priority area, German development cooperation with Ukraine is geared towards implementing reforms at national, regional and local authorities. Advice is being provided to the finance ministry, the supreme audit institution and the parliamentary budget committee with regard to the introduction of EU standards that had been agreed as part of the Association Agreement. Improvements are being made, for example, in the areas of external auditing, tax legislation, and strategic budgeting.

Cooperation programmes also include capacity building for municipalities, especially in rural areas. Often, local authorities lack the money and powers needed to finance social services and infrastructure. Germany supports the Ukrainian Social Investment Fund (USIF). The Fund finances infrastructure projects in villages and small towns that are planned and implemented by the local population.

Within the framework of German development cooperation, support is also provided to decentralisation reforms within the framework of the EU multi-donor U-LEAD programme (Ukraine Local Empowerment, Accountability and Development Programme). Among other things, Germany provides advice on how to set up government institutions for decentralisation, namely the Central Reform Office and the Regional Reform Offices. Simultaneously, the BMZ supports reforms concerning the delivery of government services. For example, legislation has been adopted on the decentralisation and optimisation of working procedures and on intermunicipal cooperation.

The BMZ also supports the development of the "eData" web portal, which will enable Ukraine's civil society to access data on the use of budget funds. Germany works together with the ProZorro project, which gives participating companies and the general public access to data on government tenders, improving government transparency and making it much harder for actors to embezzle funds or engage in corrupt activities.


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