After Ukraine gained its independence in 1991, the United States sought to establish diplomatic relations with the new nation in order to encourage a democratic and secure Ukraine. Not only is Ukraine too large a nation to ignore, with a population of more than 42 million, but Ukraine is also situated between Russia and the NATO-affiliated European countries, a geostrategic location for both the United States and the European Union. As a means of influencing Ukraine’s geostrategic significance, the United States dedicated over US$1.8 billion over the past 20 years. It is in the best interest of the United States to maintain a presence in the region and support Ukrainian integration and partnership.
Unfortunately, in 2013, sparked by Ukrainian President Viktor Yanukovych’s refusal to sign an EU Association Agreement in November, tensions and violence escalated. The Euromaidan attracted waves of demonstrators to the Maidan Nezalezhnosti, or Independence Square, in Kiev, fueled by an overwhelming sense of injustice and despair and an ambition to combat pervasive government corruption and stand up for human rights. Protesters, including many university students, were undeterred by the winter freeze or clashes with police; their fervor to realize change was revolutionary. A new trend was quickly taking over the consciousness of the Ukrainian people: Ukrainians longed to enact reforms for themselves and take matters into their own hands. By spring 2014, the displaced President Yanukovych had fled Ukraine and the new President Petro Poroshenko was elected into power in May. The protesters were victorious, and there was the installation of a new, pro-European government, dedicated to adopting European standards and overseeing reform initiatives.
With a newly-defined spirit for Ukraine, one founded upon proactivity, cooperation, and reform-mindedness, many business and finance talents stepped into the public sphere to guide leadership and decision-making. These knowledgeable, pro-business leaders were ready to reinvigorate the Ukrainian economy and stimulate the business environment for the nation. Despite governmental changes, numerous obstacles and complications overwhelmed initial reform efforts. By early 2015, Ukraine had slipped into a financial crisis driven by the annexation of Crimea and war in the Eastern part of the country, reaching the lowest level of economic activity in its entire history. Devaluation of the Ukrainian hryvnia and an inflation rate as high as 40 percent plagued the country, while the value of foreign direct investment in the economy decreased more than fivefold compared to 2013 – from US$4.5 billion to US$0.8 billion.
In the face of such dire challenges, Ukrainian leadership sought to emphasize reform initiatives. Since independence, Ukraine’s political scene has been dominated by powerful oligarchs, who guided government based on self-interest; despite the introduction of a new government, public skepticism still abounds due to a history of government corruption. Recently, public service reform, such as the creation of a Register of Public Servants and decentralization of essential administrative services, has been adopted to keep government leaders accountable for their actions and encourage trust with the public. This move towards transparency is just the first, but vital, step in the reform process. Going forward, a larger issue will be to ensure competitive market-level remuneration for public servants in order to attract talented professionals from the private sector. Furthermore, NGOs and think tanks have emerged in an attempt to offer consulting services to the government and occupy an active role in the public sphere. These organizations are still of tremendous importance to alleviating economic and societal conditions in Ukraine.
International players also reacted to the crisis in order to prevent a further downslide. In an attempt to prevent escalations of war in the Eastern Ukraine and in response to the annexation of Crimea through illegal plebiscite, the United States, as a strategic political and financial partner has offered US$760 million in security, programmatic, and technical assistance and two US$1 billion loan guarantees to aid Ukraine since the Euromaidan. The United States has also provided US$15 million in funding to support law enforcement reform, particularly for the reform of Ukrainian police system, and US$4.2 million in Foreign Military Financing funds. These are just a few examples of US government technical assistance programs operating in Ukraine aimed at establishing security in the region.
One crucial component to bolstering Ukraine’s security is developing renewable energy sources in order to achieve energy independence. Historically, Ukraine has been dependent on Russia for oil and natural gas. Though much of Ukraine’s energy resources now come from Europe, establishing Ukraine’s own energy supplies will prevent Russia’s weaponization of energy resources in the future. Only 1 percent of Ukraine’s electricity is currently produced from renewable energy sources, but the government aims to have the nation produce 11 percent of its energy from renewables by 2020, in line with the EU Renewable Energy Directive. Nearly 3.5 billion cubic meters of natural gas can be saved by 2020 using biomass as an energy source. The United States is dedicated to helping Ukraine develop the infrastructure necessary to transition to a renewable energy economy; the US Agency for International Development (USAID) has devoted US$13.5 million towards the Municipal Energy Reform, which will aim to help 17 Ukrainian cities institute green energy approaches.
Besides addressing security issues, preparing for the arrival of foreign investors has been of vital importance to Ukraine since the Euromaidan. In the last two years, cooperative efforts by all parties led to key successes to institute the best possible conditions for doing business in Ukraine. For example, the business registration procedure was simplified from 21 days to two days and the number of business licenses was cut in half, from 56 to 30. Ukraine has also seen stronger protections for the rights of minority investors and the implementation of over 100 other high priority deregulation measures by mid-2016.
Indicators such as the Doing Business index, which measures ease of doing business across 189 countries, demonstrate how simplifying regulations and guaranteeing stronger protections in Ukraine will invite greater foreign direct investment. In 2013, Ukraine was 137th on the ranking, but through recent reform efforts, Ukraine has improved to occupy the 83rd position and is anticipated to continue moving towards a better ranking this coming year, perhaps in the sixties or seventies. An improvement in Ukraine’s ranking will inform foreign investors of the improvements in Ukraine’s business environment and help investors understand the deregulatory measures that have changed the positioning of Ukraine in the political arena since 2014.
Experts have reported that every increase in rank in the Doing Business index provides an additional investment of US$250-500 million per year. As there has been a 40 percent contraction in Ukrainian GDP in the aftermath of the Euromaidan and subsequent political instability, encouraging investment is crucial to enhancing trade, spurring business growth, and providing development opportunities in Ukraine. Undeniably, Ukraine is historically intertwined with Russia, yet it manages to balance a relationship with European nations and cooperate with NATO. Exports to traditional trade markets —Commonwealth of Independent States (CIS) and Russia — have declined by 65 percent between 2012 and 2015. However,the Ukrainian market opened to EU exporters beginning January 1, 2016. Thus, with these recent trends in international trade, it is in the United States’ best interests to develop even closer relations with Ukraine, not only for the promotion of geopolitical stability, but also for the development of trade partnerships and the expansion of the market economy in Ukraine.
USAID has taken the initiative to allow for cooperation with current programs targeting private sector development, such as the Financial Management Capacity Development Initiative, and trade development, including the Ukraine Trade Policy Program (UTPP), a two-year program implemented in April 2015. UTPP seeks to offer short and long-term training, consultation, and technical assistance to support Ukraine’s export markets diversity and strengthen against other markets. Furthermore, the program aids Ukraine in addressing foreign trade disputes via the World Trade Organization (WTO). The objective of these programs is to develop a competitive Ukrainian economy, particularly through encouraging private businesses and regulating the political and financial sectors in Ukraine according to international standards.
Ultimately, the United States has a significant stake in Ukraine. Due to US geopolitical tensions with Russia, the United States must ensure its presence in Ukraine by guaranteeing the security of the region, particularly against political and energy-related threats. The United States also possesses financial and economic interests in Ukraine, as the relatively young country holds many opportunities to expand business ventures with the involvement of foreign investors. This can only be encouraged with further reforms to clean up the business environment and facilitate trade in Ukraine. Thus, the United States has invested heavily in international trade through USAID projects, for example, which would improve the competitiveness of Ukrainian small and medium enterprises on global markets and ensure that Ukraine sticks to its obligations under WTO agreements. In such a context, successful reforms in Ukraine can only increase the chance that the United States and other foreign investors and companies will seize opportunities in Ukraine down the line.