Business met with Rostyslav Shurma, the Deputy Head of the Office of the President of Ukraine

14/ 07/ 2023

The vision of post-war economic development of Ukraine, interaction with courts and law enforcement agencies, logistics, the shadow economy, integration with the EU, and the security situation — these and other issues were the focus of the meeting between the European Business Association and Deputy Head of the Office of the President of Ukraine, Rostyslav Shurma, which took place on July 13. The economic recovery of Ukraine. Mr. Shurma presented the business with a concept for the recovery of Ukraine as a powerful state on the geo-economic map of the world, which will be based on sectors with the highest competitiveness and potential for development: Energy. Considering the significant transformation and electrification of industries in Ukraine and the EU and potential to replace russian energy resources, Ukraine can develop supplies of electricity and energy-intensive products. Agricultural sector. In addition to crop cultivation, the vertically integrated technological chain is seen as a promising development. Industrial clusters. Machinery manufacturing (turbines, generators, transformers, wind turbines - production localization in Ukraine), lithium extraction, where Ukraine ranks second in Europe, and production of lithium-ion batteries. Wood processing has significant potential for replacing russian and belarusian products in the EU market, and there are ongoing reforms in the wood processing industry. “Green” metallurgy, military tech, IT, and infrastructure. Several reforms and conditions are needed to implement this comprehensive economic program. The main ones are security guarantees and market access. Mr. Shurma noted that despite the efforts of Ukraine and its partners to ensure war risks, these guarantees are point assurances aimed at individual projects. They will not be able to cover the entire layer of necessary reconstruction. Therefore, the main security guarantee for Ukraine remains NATO membership, which Ukrainian diplomacy will continue to work on. Mr. Shurma noted the importance of maintaining access to the EU and G7 markets permanently. It also requires meticulous work on standards and technical certification harmonization. According to Mr. Shurma, the investment boom is contingent upon the end of the war in Ukraine and the assurance of security. However, he advises companies to start preparing for potential projects now. So, they can be launched as soon as the security situation permits. At the same time, the government will develop infrastructure for future projects without waiting for the end of hostilities. Judicial reform. Mr. Shurma acknowledged that the previous reforms in the judicial sector did not solve the problem, and further work in this direction is needed, particularly in the maximum possible digitization of judicial processes. Ukraines international partners also expect reforms in the judicial sphere and law enforcement sector. Fight against corruption. According to the Deputy Head of the OP, digitizing as many processes as possible should also help Ukraine in the fight against corruption. We have to form zero tolerance for corruption in the country. Human capital. In the context of the business communitys concern over workforce shortages and employee retention, Mr. Shurma acknowledged the difficulties with the reservation procedure. Attempts have been made to digitize the arrangement and the process of going abroad for work assignments. Although these initiatives have not been implemented yet. Efforts to address them should continue. Law enforcement agencies and pressure on businesses. The business community feels the increasing pressure from law enforcement agencies, which Mr. Shurma agreed with. However, he noted that detailed analysis often confirms instances of law violations. Sometimes, this occurs due to the inadequacy and unfriendliness of legislative requirements toward businesses. The reaction of law enforcement agencies is often inadequate to the nature of the offense, so the Office of the President proposes to limit law enforcements access to the business by reducing these functions to one body (most likely the Bureau of Economic Security), but this still requires specific procedural changes. The Office of the President promises to work on fundamental flaws in the legislation and change the culture and approaches to the work of law enforcement agencies. Meanwhile, Mr. Shurma is open to a detailed review of problem cases that businesses may have in this area, so please let us know if you have current problems in your interaction with law enforcement. Shadow economy. The reason for the widespread shadow Mr. Shurma calls habits and high tax burden, because of which some companies resort to optimization. Mr. Shurma sees the solution to this as lowering rates and strengthening control. There is now a consensus in the country to reduce taxes and enhance competitiveness. This approach must be coordinated with international partners, in particular, the IMF. Therefore, tax cuts are unlikely until the end of the war. However, the countrys leadership intends to reach a consensus on the future tax model and combat the shadow economy by that time. Export logistics. The authorities are exerting maximum efforts to sustain the grain corridor, but its future prospects remain uncertain. Plan B - the development of land corridors and the Danube connection - has expanded the possibilities of supplies dozens of times - up to 50-60 million tons. But this is not enough. Attracting investments. Now the role of the public sector in investment activity is increasing, as the state is the administrator of international aid that Ukraine receives from its partners. The current priorities for channeling funds are closing the budget deficit, state infrastructure investment projects, social sphere, and business. However, in the context of business support, each dollar will be spent in the model of the maximum multiplier, when for one invested dollar, there should be another 5 dollars of private capital. For example, through subsidized loaning, compensation of mortgage interest rates, and the use of development financial institutions. For example, together with BlackRock, the Government is launching the Development Fund of Ukraine, which will attract mixed financing for the reconstruction of Ukraine. BlackRock is now providing free counseling to attract capital. Preparing for the winter and the consequences of the Kakhovka Hydroelectric Power Plant explosion. The authorities continue to restore damaged facilities, build up coal and gas reserves, and work to strengthen air defense. The outlook for the next heating season is still difficult to assess due to several influencing factors, and businesses should be prepared for different scenarios, just like last year. The explosion of the Kakhovka Hydroelectric Power Plant will have long-term consequences. Within three years after the end of the hostilities, the hydroelectric power plant can be fully rebuilt, which is crucial for the river transport development, industrial water supply, and irrigation systems. International partners are willing to help rebuild the plant, including Canada. Business participation in the reconstruction of Ukraine. Mr. Shurma suggested that businesses can contribute to the reconstruction process by participating in government procurement, preparing investment projects for post-hostilities launch, and intellectually joining cluster groups for economic development. Cashless economy. The state plans to switch to a total cashless economy, but not overnight. There should be prerequisites for such transition and abandonment of cash, in particular, a 100% guarantee of the state for capital on bank accounts, total amnesty of capital, equalization of tax rates, and development of payment infrastructure, including the national payment system. In addition, the state needs at least a year to prepare all the processes for the transition. Thanks to Rostyslav Shurma for a frank and productive conversation with the business community!

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The economic recovery of Ukraine. Mr. Shurma presented the business with a concept for the recovery of Ukraine as a powerful state on the geo-economic map of the world, which will be based on sectors with the highest competitiveness and potential for development:

Energy. Considering the significant transformation and electrification of industries in Ukraine and the EU and potential to replace russian energy resources, Ukraine can develop supplies of electricity and energy-intensive products.
Agricultural sector. In addition to crop cultivation, the vertically integrated technological chain is seen as a promising development.

Industrial clusters. Machinery manufacturing (turbines, generators, transformers, wind turbines – production localization in Ukraine), lithium extraction, where Ukraine ranks second in Europe, and production of lithium-ion batteries.

Wood processing has significant potential for replacing russian and belarusian products in the EU market, and there are ongoing reforms in the wood processing industry.

“Green” metallurgy, military tech, IT, and infrastructure.

Several reforms and conditions are needed to implement this comprehensive economic program. The main ones are security guarantees and market access. Mr. Shurma noted that despite the efforts of Ukraine and its partners to ensure war risks, these guarantees are point assurances aimed at individual projects. They will not be able to cover the entire layer of necessary reconstruction. Therefore, the main security guarantee for Ukraine remains NATO membership, which Ukrainian diplomacy will continue to work on. Mr. Shurma noted the importance of maintaining access to the EU and G7 markets permanently. It also requires meticulous work on standards and technical certification harmonization. According to Mr. Shurma, the investment boom is contingent upon the end of the war in Ukraine and the assurance of security. However, he advises companies to start preparing for potential projects now. So, they can be launched as soon as the security situation permits. At the same time, the government will develop infrastructure for future projects without waiting for the end of hostilities.

Judicial reform. Mr. Shurma acknowledged that the previous reforms in the judicial sector did not solve the problem, and further work in this direction is needed, particularly in the maximum possible digitization of judicial processes. Ukraine’s international partners also expect reforms in the judicial sphere and law enforcement sector.

Fight against corruption. According to the Deputy Head of the OP, digitizing as many processes as possible should also help Ukraine in the fight against corruption. We have to form zero tolerance for corruption in the country.

Human capital. In the context of the business community’s concern over workforce shortages and employee retention, Mr. Shurma acknowledged the difficulties with the reservation procedure. Attempts have been made to digitize the arrangement and the process of going abroad for work assignments. Although these initiatives have not been implemented yet. Efforts to address them should continue.

Law enforcement agencies and pressure on businesses. The business community feels the increasing pressure from law enforcement agencies, which Mr. Shurma agreed with. However, he noted that detailed analysis often confirms instances of law violations. Sometimes, this occurs due to the inadequacy and unfriendliness of legislative requirements toward businesses. The reaction of law enforcement agencies is often inadequate to the nature of the offense, so the Office of the President proposes to limit law enforcement’s access to the business by reducing these functions to one body (most likely the Bureau of Economic Security), but this still requires specific procedural changes. The Office of the President promises to work on fundamental flaws in the legislation and change the culture and approaches to the work of law enforcement agencies. Meanwhile, Mr. Shurma is open to a detailed review of problem cases that businesses may have in this area, so please let us know if you have current problems in your interaction with law enforcement.

Shadow economy. The reason for the widespread “shadow” Mr. Shurma calls habits and high tax burden, because of which some companies resort to optimization. Mr. Shurma sees the solution to this as lowering rates and strengthening control. There is now a consensus in the country to reduce taxes and enhance competitiveness. This approach must be coordinated with international partners, in particular, the IMF. Therefore, tax cuts are unlikely until the end of the war. However, the country’s leadership intends to reach a consensus on the future tax model and combat the shadow economy by that time.

Export logistics. The authorities are exerting maximum efforts to sustain the “grain corridor,” but its future prospects remain uncertain. Plan B – the development of land corridors and the Danube connection – has expanded the possibilities of supplies dozens of times – up to 50-60 million tons. But this is not enough.

Attracting investments. Now the role of the public sector in investment activity is increasing, as the state is the administrator of international aid that Ukraine receives from its partners. The current priorities for channeling funds are closing the budget deficit, state infrastructure investment projects, social sphere, and business. However, in the context of business support, each dollar will be spent in the model of the maximum multiplier, when for one invested dollar, there should be another 5 dollars of private capital. For example, through subsidized loaning, compensation of mortgage interest rates, and the use of development financial institutions. For example, together with BlackRock, the Government is launching the Development Fund of Ukraine, which will attract mixed financing for the reconstruction of Ukraine. BlackRock is now providing free counseling to attract capital.

Preparing for the winter and the consequences of the Kakhovka Hydroelectric Power Plant explosion. The authorities continue to restore damaged facilities, build up coal and gas reserves, and work to strengthen air defense. The outlook for the next heating season is still difficult to assess due to several influencing factors, and businesses should be prepared for different scenarios, just like last year. The explosion of the Kakhovka Hydroelectric Power Plant will have long-term consequences. Within three years after the end of the hostilities, the hydroelectric power plant can be fully rebuilt, which is crucial for the river transport development, industrial water supply, and irrigation systems. International partners are willing to help rebuild the plant, including Canada.

Business participation in the reconstruction of Ukraine. Mr. Shurma suggested that businesses can contribute to the reconstruction process by participating in government procurement, preparing investment projects for post-hostilities launch, and intellectually joining cluster groups for economic development.

Cashless economy. The state plans to switch to a total cashless economy, but not overnight. There should be prerequisites for such transition and abandonment of cash, in particular, a 100% guarantee of the state for capital on bank accounts, total amnesty of capital, equalization of tax rates, and development of payment infrastructure, including the national payment system. In addition, the state needs at least a year to prepare all the processes for the transition.

Thanks to Rostyslav Shurma for a frank and productive conversation with the business community!