Last reviewed 6 November 2020

Deal-making between the UK and Ukraine has been on the rise, but there remains considerable untapped potential after the signing of a new free trade pact.

Ukraine open for business

Europe’s second-largest country — behind only Russia — Ukraine holds significant unrealised potential for British exporters across a broad spectrum of industries. It follows the signing of a new free trade agreement in October 2020 — among the first post-Brexit deals to be signed — that seeks to expand on current bilateral business worth around £1.5 billion per year (US$1.9 billion).

And yet Ukraine remains largely off the beaten track for most UK firms, despite courting ties with the West since independence from the former Soviet Union in 1991. With a population of 50 million, it is today a sizeable market in its own right, with immense natural resources, including significant coal and some oil and gas reserves.

A huge, sprawling country — bordering Russia to the east, and a number of Eastern European states in the west, including European Union (EU) members Poland and Romania — it is best known for its rolling agricultural plains that cover much of its landmass. These fertile lands even led to Ukraine being labelled the ‘bread basket of Europe’ because of its immense grain output, which make up almost half of all crops.

It is estimated that around 70% of Ukraine’s land area is devoted to agriculture. As well as wheat and barley, other notable crops include corn, sugar beet, soya beans and rapeseed, while dairy and meat production is also important.

The more industrialised eastern part of the country alludes to Ukraine’s heritage and historical links to Russia, which still remain critical, albeit fractious, today.

Russia relations

Moscow retains a strong interest in its former satellite state, with a sizeable minority speaking Russian as their first language, especially in the cities and in the more industrialised areas of the east; Ukrainian is the main official language spoken. Yet this remains a source of great tension to this day, notably in 2014, after an uprising against the pro-Russian President Viktor Yanukovych ushered in a Western-leaning government.

Moscow took its opportunity at the time to spread pro-Russian sentiment in the industrialised east and to annex the Crimean peninsula — a distant land familiar among British historians after the Crimean War and the famous 1854 Charge of the Light Brigade.

Fast forward to the present era and the Crimea — a strategic peninsula on the northern coast of the Black Sea — is still recognised as Ukrainian by most other countries, including the UK, although it is now administered under Russian control. The EU imposed a number of travel bans and asset freezes in the wake of the 2014 annexation, among other retaliatory actions.

At the same time, to consolidate Moscow’s claim to the territory, a bridge was opened in 2018 to connect the Crimea to the Russian region of Kuban, from which it is separated by the Strait of Kerch.

The area remains a source of significant local and international friction to this day. Indeed, serving Ukrainian President Zelensky said in his inaugural address that ending the Russian-backed insurgency in the country’s east is a priority.

Reconstruction efforts

Reconstruction of Ukraine’s infrastructure and public institutions has played a major part in the revival of the economy since its independence around 30 years ago, as it emerged from the Soviet era. This has meant both modernisation, extensive reforms, and also a repositioning of the economy to open up more to the West. Technology is thriving and transforming traditional industries and area.

Lviv, the largest city in western Ukraine, is undergoing something of an economic boom, driven by its IT industry and services-based economy. The country has been supported along the way by flagship EU institutions, such as the European Bank for Reconstruction and Development (EBRD), which has invested a cumulative €14.6 billion (US$17 billion).

As well as supporting ongoing reform efforts — which remain a key priority — this has tended to focus on strengthening energy efficiency and energy security, unlocking agricultural and industrial potential, and boosting infrastructure and the financial sector.

Among almost 500 projects, the bank is still supporting ongoing site work at Chernobyl, in the wake of the devastating 1986 nuclear power plant accident — one of Ukraine’s (then a part of the Soviet Union) darker moments.

A 30km exclusion zone was imposed around the site, which is still in place, but the area has become almost the stuff of legend as an eery, off-limits attraction for curious visitors, TV crews, and recently spawned a popular new Netflix drama series of the same name.

The EU describes Ukraine as a “priority partner” in recognition of its clear potential and also its strategic significance given its unique relationship with Moscow.

Bilateral trade

That mirrors the UK perspective, and, even with this somewhat unsettled backdrop, there are plenty of reasons to be upbeat about Ukraine’s longer-term future. The capital, Kiev, in the country’s north, is deemed one of Europe’s most underrated cities for visitors.

With its mix of historic architectural masterpieces, a vibrant art scene, and bustling nightlife, it combines the best of both East and West, past and present. Prior to the 2020 coronavirus outbreak, it was also becoming a new destination for city breaks after being added to the Ryannair schedule — the flight time from London is 3 hours and 15 minutes.

Bilateral trade between the UK and Ukraine has also been rising strongly in recent years, although again this may well have been halted in the past year by the pandemic. Total UK exports to Ukraine amounted to £735 million (US$950 million) in the year ended June 2019, a jump of more than 22% on the previous year.

Major British exports include aircraft, medicinal and pharmaceutical products, specialised machinery, textile fibres and cars. There is also a brisk trade in services, from travel and recreation to business services, telecommunications, computer and information services, according to the Office for National Statistics.

UK firms present in the country range from bluechips like BP, Shell and AstraZeneca through to household names like Next and Marks & Spencer. Vodafone Ukraine, in the dynamic telecoms sector, is the country’s second-largest mobile operator with 23 million users and over a third market share.

In the other direction, perhaps Ukraine’s most famous UK export at present, is national footballing legend, Andriy Yarmolenko, who now plays in the Premier League with West Ham United.

Strategic partner

As well as its strategic location, connecting Europe, Russia and Asian markets, Ukraine’s relationship with the UK extends deep into other areas as well, including defence.

On a UK visit in October 2020, President Zelenskyy signed a Memorandum of Intent for the two sides to continue to work together on developing Ukraine’s naval capabilities. At the same time, a Royal Navy destroyer, HMS Dragon, was in the Black Sea in support of freedom of navigation, with a port visit to Odesa to showcase a UK-led maritime training initiative.

Ukraine lost much of its naval capability during Russia’s annexation of Crimea in 2014 and has been building its fleet again since then to protect its interests in the area. UK Defence Secretary Ben Wallace has also visited Ukraine twice in the past year to bolster this cooperation.

“Defence is at the heart of the UK’s special partnership with Ukraine,” he said.

Another UK initiative, Operation Orbital, has trained thousands of Ukrainian soldiers since the Crimean annexation in 2014.

According to the Foreign & Commonwealth Office, the security situation in parts of Ukraine’s eastern region remains “highly unstable” with ongoing clashes between Ukrainian armed forces and Russian-backed armed separatists. The situation in Kiev and other areas outside Donetsk and Luhansk is generally calm, however, it adds.

One objective related to this complex and ongoing political spat has been the reform of Ukraine’s energy sector, to reduce a reliance on Russian gas. That includes nurturing clean and renewable energy, such as the Syvash wind project in which UK consultancy Mott MacDonald has been working as a technical advisor.

Located in Kherson province, southern Ukraine, it will have a generating capacity of 250 megawatts once fully completed.

Business environment

As well as facing up to Moscow’s influence, the Ukrainian government faces other key tests too, as it continues to push reforms aimed at cutting red tape, improving transparency and tackling corruption.

Yet, despite this backdrop, and a continuing level of uncertainty, the country has generated strong business leads for countless international firms for many years. In addition to its large domestic market, Ukraine also boasts a well-educated labour force that appeals to investors.

The new partnership agreement with the UK is intended to build upon existing trade and investment links, on top of other broad, strategic interests like defence. The comprehensive preferential free trade pact covers goods, services, and tariffs and quotas.

Speaking at the signing of the trade deal in October, Prime Minister Boris Johnson said the UK remains Ukraine’s “most fervent supporter”.

He added that this spanned defence support, stabilisation efforts, humanitarian assistance and close cooperation on political issues, as well as trade ties. The UK government has also appointed Baroness Meyer as its first trade envoy to Ukraine to enhance the new relationship.

There is also a thriving British-Ukrainian Chamber of Commerce to support firms on both sides.

For exporters looking for new markets in the post-Brexit era, and once the coronavirus pandemic begins to subside, business prospects in the Ukraine are looking promising.