Digest of Economy & Markets, International Support, Politics & Culture

?? Welcome to the 26th edition of "Ukraine Through My Eyes"! ??

This week, we continue to explore Ukraine’s agrointegration into the EU, as agriculture remains one of the most resilient sectors in the country despite the war. With over $10.3 billion in damages due to destroyed agricultural machinery and infrastructure, Ukraine remains a critical supplier of grain and sunflower oil, reinforcing its role in global food security.

On the local development front, new electricity procurement rules for the Armed Forces are improving efficiency and security, while all communities are preparing spatial development plans by 2025, ensuring a solid foundation for future recovery.

In the economy, freight transport surged by 24.3%, and the National Bank imposed card transfer limits to curb fraud.

International support remains strong: Denmark is investing $628 million in Ukraine’s defense, and Korea has provided a $100 million loan to aid economic recovery.

On the cultural front, Ukraine will present a powerful opera at the Venice Biennale on the Kakhovka Hydroelectric Power Station disaster, showcasing its resilience through art.

As Ukraine continues to rebuild and innovate, its resilience is tested every day. Can the nation's local efforts and international support continue to rise to the challenge?

Wishing you a peaceful and resilient week!

Слава Укра?н? - Разом сильн?ш? - до перемоги! ????

??? Yours sincerely, Markus Ciupek

Ukrainian Agrointegration into the EU (Part 2)

by Tetiana Babych, PhD

The invasion of Ukraine by Russia has had a profound effect on agriculture. The damages amount to $10.3 billion, which is the total value of destroyed assets. Of these, $5.8 billion (or 56.7%) of the damages come from agricultural machinery damage and destruction, making it the largest category of damages. Zaporizhya, Kherson, and Luhansk are the top three regions that suffered the most significant losses, accounting for 65% of the total damages.

An estimated 181,000 pieces of agricultural machinery and equipment have suffered full or partial damage as a result of the invasion. Tractors are the main contributors to this damage, with about 18.2 thousand destroyed and 6.8 thousand partially damaged (but still repairable) units. The replacement value for destroyed tractors alone amounts to $1.6 billion.

One type of infrastructure that is particularly vulnerable to harm is storage facilities, even those located far from the front lines. This has resulted in a 19.5% decrease in Ukraine's storage capacity, excluding facilities that are still physically sound but are closed due to conflict. Additionally, 16.3 thousand hectares of perennial plantations, valued at $398 million, have been lost due to the war.

To support Ukrainian farmers who have lost their agricultural machinery, there is a government program aimed at assisting agricultural producers. This program compensates 25% of the cost of machinery and equipment produced in Ukraine, covering 11,314 items. A total of 126 Ukrainian agricultural machinery enterprises are participating in the program. This state support boosts the development of Ukrainian machine engineering, providing manufacturers of machinery and equipment the opportunity to become more competitive in the market. In turn, farmers have been able to update their fleet under favorable conditions.

From April to August 2024, Ukrainian farmers purchased 859 units of domestic machinery for 913.6 million UAH. Most of the equipment was purchased by farmers in Kirovohrad, Poltava, Odesa, and Mykolaiv regions. The most popular Ukrainian manufacturers are the Kharkiv Tractor Plant (16%), Farmer (11%), and DEMETRA (6%). Other top manufacturers include Remsintez, Favorit, Agromermaash-BC, Kobsarenko Plant, Veles-Agro, Elvorti, and BilozerkivMAZ.

The total losses, including foregone revenue for agricultural producers and increased production costs, amount to $69.8 billion. Unlike damages, which are localized in the areas directly affected by the battles, these losses impact agribusinesses across all of Ukraine. The losses encompass decreased crop and livestock production, reduced domestic prices for key agricultural commodities, increased production costs, and recultivation costs.

Due to the expansion and intensity of hostilities, Ukraine is now the most mined country in the world, surpassing Afghanistan, Cambodia, and Syria. The complexity of demining involves not only landmines but also unexploded ordnance. The cost of complete demining in Ukraine is estimated at $32 billion.

Given the extent of damages and losses suffered by agricultural producers in Ukraine, the full restoration of the sector's potential requires substantial resources. Total reconstruction and recovery needs over the next 10 years amount to $56 billion, with 2024 priority needs being $435 million, most of which is already covered by donor funding. These needs include support for reconstruction, specifically the replacement of damaged assets ($9.4 billion); support for immediate production recovery ($6.1 billion) aimed at restoring production; support for longer-term production recovery ($35.5 billion) aimed at deepening value chains and increasing value-added in the sector, along with improved sustainability of production; and support for public institutions ($5 billion), including initiatives aimed at accelerating EU accession.

Despite terrorist rocket attacks from Russia, Ukrainian farmers are continuously working to ensure food security. According to the Ministry of Agrarian Policy, Ukraine has harvested 50.4 million tons of the new crop, gathered from an area of 14.2 million hectares. This includes 34.3 million tons of grains, 13.6 million tons of oilseeds, and 2.5 million tons of sugar beets.

In general, experts suggest that the agricultural sector in Ukraine does not face major issues with financing, as both state and commercial banks effectively fund it as an export-oriented industry. However, large agribusiness companies find it more advantageous to attract funds from external creditors. Alongside Ukrainian capital for investment programs, they need medium- and long-term funds for 5-10 years.

Leading Ukrainian agribusiness holdings are continuing to restore lost capacities and opportunities by launching new investment projects, even during the war. Some invest in already established areas, while others explore new segments. However, not all companies are willing to undertake large-scale investment projects due to the risks involved.

The National Bank Sets a Limit on Card-to-Card Transfers

The National Bank of Ukraine has approved restrictions on card-to-card (P2P) transfers for a six-month period starting from October 1, 2024. These restrictions apply to transfers between individuals but will not impact volunteers, individuals with verified monthly income sources exceeding the limit, transfers between client accounts within the same bank, transfers to legal entities, or transactions using IBAN details.

The NBU stated that 98% of banking clients transfer funds within the established limits each month, meaning the majority of users will not be affected by these changes. However, the restrictions are intended to target shadow businesses and fraudsters exploiting "drop" schemes, which handle around 200 billion UAH annually. The regulator engaged in discussions with volunteers to ensure the limits would not affect accounts associated with volunteer activities or the transfer of funds from those accounts.

The imposed restrictions are lighter than the regulator’s original plan, which initially considered additional limitations such as capping the number of monthly transfers at 30.

Source: NBU, 30/09/2024

Ukrainian Railways Reports 24.3% Increase in Cargo Transport in 2024, Driven by Surge in Exports

Throughout all types of connections, 118 million tonnes of freight were moved between January and August 2024, marking a 24.3% increase compared to the same period in 2023, according to Ukrainian Railways. During this time, 53.4 million tonnes of goods were moved in domestic traffic, reflecting a 3.6% decrease from the same period in 2023. Meanwhile, 57.74 million tonnes of cargo (or 65.8%) were delivered for export. Additionally, 6.6 million tonnes of goods were transported via imports, representing a 57.1% increase compared to the same period in 2023.

Source: UBN, 02/10/2024

The Ukrainian Military Industry Increases Cooperation with Western Companies

Members of the Ukrainian defense industry signed cooperation agreements with companies from the US, France, and Poland during the second international Defense Industries Forum (DFNC2). The agreements cover areas such as combat systems, unmanned systems, ammunition, special chemicals, and radio-electronic intelligence. At the same time, the Czech holding firm Czechoslovak Group and a Ukrainian armored vehicle manufacturer signed agreements for the manufacturing of ammunition and parts supply. Joint manufacturing will begin in early 2025, producing over 100,000 rounds of ammunition, with plans to increase production to over 300,000 rounds by 2026. Additionally, the British armaments company BAE Systems is proposing to shift M777 artillery maintenance to Ukraine in partnership with a local company. Furthermore, the American company AeroVironment reached an agreement with a Ukrainian firm to gradually localize the manufacturing of Switchblade 600 kamikaze drones.

Source: UBN, 03/10/2024

Results of the First Auctions of the Land Bank: The State Budget Receives Over 35 Million UAH

On October 1, the first 16 online auctions for the sublease of state agricultural lands within the "Land Bank" project were held through the Prozorro system. These auctions brought over 35 million UAH to the state budget.

The auctions involved 16 plots of land in the Vinnytsia region, with 94 participants competing for them. The overall cost of subleasing state lands increased by more than eight times compared to the starting prices, showing significant interest from farmers. The average cost of subleasing was 33,000 UAH per hectare.

The most expensive lot was a 262-hectare land plot in the Kalynivka urban community, which sold for 8.5 million UAH (excluding VAT). The second most expensive lot, also in Kalynivka, was a 170-hectare plot, sold for 5.5 million UAH. The highest competition was for a 38-hectare land plot in Kalynivka.

In total, 10 participants emerged as winners. They must conclude a sublease agreement within 20 working days and pay the proposed cost, along with VAT, within five working days. The overall economic impact from these first 16 auctions may exceed 42.5 million UAH.

Source: The Ministry of Economy, 02/10/2024

The Ministry of Defense Implements a New Mechanism for Purchasing Electricity for the Armed Forces

The Ministry of Defense has implemented a new mechanism for purchasing electricity, guided by Order No. 651, developed in collaboration with the Ministry of Economy. The main objective of these changes is to ensure effective and transparent procurement through open tenders in the electronic system. The key provisions of this order are:

• Electricity procurement will be conducted via an electronic system, adhering to principles of transparency and non-discrimination of participants.
• Tender participants must provide documentation that confirms their competence and experience in supplying electricity.
• Bank guarantees are required to secure tender proposals and contract execution. Additionally, companies from Russia, Belarus, and Iran are prohibited from participating in the tenders, thereby enhancing the security of procurement.

Source: Ministry of Defense of Ukraine, 03/10/2024

Ukraine Successfully Carries Out Its First International Automatic Exchange of Information on Financial Accounts

Ukraine has successfully completed its first international automatic exchange of financial information under the Common Reporting Standard (CRS), aimed at increasing transparency in financial operations and combating tax evasion. The State Tax Service of Ukraine shared data about non-residents' financial accounts with tax authorities in partner jurisdictions, and in return, received information about tax residents' accounts from foreign competent authorities. This exchange includes details like account owner’s name, address, tax residency, tax identification number, and account details. Participation in the CRS system strengthens tax transparency and improves Ukraine's standing as a reliable partner in international tax relations. It helps in identifying undeclared income, enhancing the effectiveness of taxation rules for controlled foreign companies, and obtaining additional tax data for improved control over individual taxation.

This initiative is a part of Ukraine's broader commitment to EU integration and aims to further increase transparency in its tax system.

Source: The Ministry of Finance of Ukraine, 04/10/2024

Starting in 2025, All Ukrainian Communities Must Develop Spatial Development Plans

Starting from 2025, all Ukrainian territorial communities will be required to develop their spatial development plans, as mandated by law. Despite this requirement, only a few dozen communities have begun the process due to its complexity. Two tools are being proposed to simplify this task: a state-level urban planning cadastre, which is already operational, and comprehensive restoration programs (CRP) that can serve as a foundation for these plans. Olena Shuliak, Head of the Committee of the Verkhovna Rada of Ukraine on State Governance, Local Self-Government, Regional Development, and Urban Planning, emphasized the importance of these spatial plans. Although there was initial resistance from local governments and Parliament when land use planning laws were amended in 2019 and 2020, the newly adopted law has shifted spatial planning into a new phase of development. Under the new regulations, all Ukrainian territorial communities, without exception, must start developing their spatial development plans by January 1, 2025. Among the few communities actively engaged in development are Chuhuiv and Merefa in the Kharkiv region.

Source: Verhovna Rada, 04/10/2024

Denmark and Ukraine Agree on Billion-Dollar Investments in Ukrainian Defense Industry

Denmark and Ukraine have agreed on billion-dollar investments in the Ukrainian defense industry, totaling 4.2 billion Danish kroner ($628 million). This funding, provided by Denmark, will be used to equip the Ukrainian armed forces with weapons and equipment. The funds will come from the income generated from frozen Russian assets. Danish Defense Minister Trelts Lund Poulsen, along with his Ukrainian counterpart Rustem Umerov and Minister of Strategic Industry Herman Smetanin, signed a memorandum of intent to continue cooperation with Ukrainian defense enterprises.

Source: Investory News, 30/09/2024

New Checkpoint on the Hungary-Ukraine Border May Open This Year

A new border crossing between Hungary and Ukraine may open this year. Hungary’s Minister of Foreign Affairs Peter Szijjarto emphasized that Hungary is ready to develop the infrastructure of border crossings, adding that the Beregshurany border crossing will be expanded, and a new bridge over the Tisza River will be constructed. Szijjarto also mentioned plans to create a border development zone for businesses at the Hungarian-Ukrainian border.

Source: Interfax, 01/10/2024

Ukraine Secures $100 Million Loan from Korea: Finance Minister Serhiy Marchenko Signs Landmark Agreement

On October 2, Ukraine signed a $100 million loan agreement with the Export-Import Bank of Korea, marking the first financial support from the Republic of Korea. The loan, offered at favorable terms, has a 20-year term, with an interest rate of 1.0% and a 5-year grace period. Finance Minister Serhiy Marchenko noted that this agreement is the start of further economic cooperation between Ukraine and Korea. Additionally, Ukraine and Korea signed an agreement in April 2024 for $2.1 billion in concessional loans through the Economic Development Cooperation Fund (EDCF), aimed at Ukraine’s recovery projects.

Source: The Ministry of Finance, 02/10/2024

NATO Secretary General Mark Rutte Visits Kyiv

The new NATO Secretary General Mark Rutte has made his first foreign visit to Kyiv, where he expressed his commitment to supporting Ukraine and advancing its NATO membership. During a joint press conference with President Volodymyr Zelensky, Rutte emphasized the importance of increasing defense production to benefit Ukraine and replenish NATO stockpiles. He further discussed the areas where NATO can provide support to Ukraine.

Source: Ukrinform, 03/10/2024

Norway Plans to Allocate 250 Million Kroner to Norfund for Investments in Ukraine

Norway has announced plans to allocate 250 million kroner to Norfund for investments in Ukraine. These funds aim to reduce risks for companies investing in Ukraine, particularly Norwegian companies. Minister of Economy Yulia Svyrydenko highlighted that this investment supports efforts to attract €40 billion in public and private investments in collaboration with international financial organizations. Norfund provides equity investments, which are higher-risk but focus on creating jobs and promoting the "green" transition in Ukraine.

Source: The Ministry of Economy, 04/10/2024

Switzerland to Provide $1.7 Billion for Ukraine's Early Recovery Projects

Switzerland will provide $1.7 billion for early recovery projects in Ukraine. Of this, 1 billion Swiss francs will be allocated to self-governance, demining, and humanitarian assistance for over 4.5 million internally displaced persons in Ukraine. Another 500 million Swiss francs will be directed towards recovery programs involving the Swiss private sector. Switzerland’s initiatives also include joint projects with Ukrzaliznytsia, support for decentralization, and preparation for the upcoming heating season.

Source: The Ministry of Economy, 03/10/2024

2 Years of "Customs Visa-Free" in Ukraine: 120,000 Declarations Processed

Ukraine joined the Convention on a Common Transit Procedure on October 1, 2022, and has since been utilizing the NCTS (New Computerised Transit System). Over the past two years, approximately 120,000 declarations have been processed, including nearly 5,000 internal transit operations. The number of submitted declarations has increased by 3.7 times, reflecting greater interest from domestic exporters and importers. The State Customs Service has registered 137 general guarantees and nearly 10,000 individual guarantees in the NCTS guarantee management system, totaling almost 450 million euros. The NCTS system forms the backbone of the EU's customs IT systems and is essential for Ukraine’s eventual EU membership. Ukraine transitioned to an updated version of the system in April 2021.

Source: The Ministry of Finance, 03/10/2024

Ukraine to Establish State Agency for Insurance of Military Risks

Ukraine plans to create a State Agency for the Insurance of Military Risks. During consultations with businesses, the National Bank and the Ministry of Economy presented a draft law proposing a unified system of insurance against military risks. This law aims to protect individuals and legal entities from the consequences of military aggression by the Russian Federation and to offer compensation for losses. The system will unify all existing programs into a single pool with clear rules to attract international reinsurers. Funding will come from mandatory insurance payments and financial assistance from donors. The State Agency will set policies for assessing risks and ensure coverage for physical damage caused by war, including property pledged as collateral and residential construction objects. The draft law will be submitted to the Verkhovna Rada by the end of December 2024.

Source: The Ministry of Economy, 03/10/2024

Verkhovna Rada Prepares Draft Law on Taxation of International Parcels Up to 150 Euros

Ukraine is preparing to introduce taxation on international parcels valued at up to 150 euros. A draft law is being finalized and will soon be presented to the Verkhovna Rada. Danilo Hetmantsev, head of the tax committee of the Verkhovna Rada from the "Servant of the People" party, argues that the exemption on packages up to 150 euros is unfair, as Ukrainian companies pay VAT, while foreign suppliers do not. This new law aims to correct this imbalance, allegedly supported by domestic producers and retailers. Hetmantsev has indicated he will personally lobby for the bill’s adoption in the Verkhovna Rada, despite potential dissatisfaction from certain groups.

Source: Danilo Hetmantsev, head of the tax committee of the Verkhovna Rada Facebook, 03/10/2024

At the Venice Biennale, an Opera About the Explosion of the Kakhovka Hydroelectric Power Station Will Be Presented

Ukrainian composers Roman Grygoriv and Illia Razumeyko will present their contemporary opera GAIA-24 at the 60th International Art Exhibition of the Venice Biennale on October 26. The opera is inspired by the explosion of the Kakhovka Hydroelectric Power Station on June 6, 2023, a tragedy that resulted in an ecological disaster for Ukraine. The musical performance integrates the myth of the ancient Greek goddess Gaia and the Gaia hypothesis, which posits that the Earth is a living organism capable of self-regulation. The destruction of ecosystems is highlighted as having potentially devastating global consequences.

This opera will be the final event of the Ukrainian pavilion, organized by the Ukrainian Institute, and will tackle themes such as ecological disasters, pollution, migration, forced displacement, and food security inequality. The performance will feature loud electronic sounds, scenes of nudity, and strobe lighting to enhance its artistic expression.

Source: Opera Aperta Facebook, 04/10/2024