Nowadays, they are increasingly being heard among industrialists hope that 2025 will be the year of recovery of the Ukrainian economy. Instead, we read almost every day about the destruction of production infrastructure, the destruction of industrial facilities, power outages, logistical problems, etc. Therefore, the only way out under such conditions is to obtain security guarantees in order to attract investors and the latest technologies to support the industrial sector. And although experts are convinced that the industry has already “pushed off the bottom” and started to revive little by little, the issue of reliable security guarantees remains open.
The full-scale invasion of Russia dealt a devastating blow to Ukrainian industry. The war destroyed key assets, disrupted production, sales and logistics chains, endangering Ukraine’s economic stability.
Deindustrialization is killing the country’s competitiveness
In accordance with research United Nations Industrial Development Organization (UNIDO), gross value added decreased by 21%.
For according to the report The Rapid Damage and Needs Assessment (RDNA3), jointly prepared by the Government of Ukraine, the World Bank Group, the European Commission and the United Nations, put direct industry losses at a staggering $13 billion. This represents 8.6% of the total economic losses caused by the war. Donetsk, Kharkiv and Kyiv regions, which used to be centers of the country’s industrial activity, suffered the biggest blows.
One of the most devastating consequences was large-scale deindustrialization. Since the beginning of the war, the share of the manufacturing industry in the GDP has decreased to a record low level of 7.6%. For comparison, in 2021 this indicator was 10.3%, and in 2020 – 10.1%. This indicates catastrophic losses in the processing industry, which has always been an important source of employment, innovation and filling the budget.
The loss of industrial potential doesn’t just slow down the economy—it seriously undermines a country’s ability to recover. Deindustrialization threatens future economic growth and weakens Ukraine’s competitiveness on world markets. To overcome these challenges, Ukraine will need not only investments, but also large-scale reforms and support from the international community.
The industrial prosperity of the eastern regions was interrupted by the war
Although significant losses are usually discussed in the context of a full-scale invasion, for the eastern regions — Donetsk and Luhansk regions — the consequences of the war began to manifest much earlier, in 2014.
In the early 2010s, the industry of Ukraine was largely concentrated in the eastern regions. Dnipropetrovsk, Donetsk, Zaporizhzhya, Poltava, and Kharkiv regions formed the basis of the country’s industrial potential. In 2010, these regions provided a significant share of heavy industry, including metallurgy, coal mining, and engineering. It was the eastern regions that had a historical advantage due to their powerful infrastructural and resource bases.
At that time, the western and southern regions focused on other sectors of the economy – agriculture, tourism, light industry. The relatively low level of industrialization of these regions caused a significant disproportion in the distribution of industrial production between regions.
The beginning of the war in eastern Ukraine in 2014 radically changed the industrial map of the country. The hostilities, the loss of control over parts of the Donetsk and Luhansk regions, as well as the destruction of large industrial enterprises led to a serious reduction in production volumes in these regions. Industry began to gradually shift to the central and western regions, where the government stimulated the development of new production facilities, including through the relocation of enterprises from the war zone. We can see on the infographic the top 5 regions with the largest increase in the industrial sector during 2010-2021, that is, during the period when the occupation of Donetsk and Luhansk regions had already begun.
Infographic: IA “FACT”
Some industries, such as mechanical engineering and the food industry, began to grow strongly in the western regions, which was a response to the needs of the domestic market and export opportunities.
Dnipropetrovsk remains the country’s industrial leader
For data by 2021, five key industrial regions (Dnipropetrovsk, Donetsk, Zaporizhzhya, Poltava and Kharkiv) still provided 58.8% of the volume of industrial output. However, due to the decrease in the role of Donbas, the share of other regions began to increase noticeably.
Infographic: IA “FACT”
Industrial regions of Ukraine, such as Dnipropetrovsk, Donetsk, Zaporizhzhya, Poltava and Kharkiv regions, were at the same time and innovation leaders. In 2020, they together provided 65.73% of all innovative products manufactured in Ukraine. This testifies to their important role in the development of the modern economy. It is interesting that innovation costs in these regions accounted for only 44.1% of total investments in the country. In other words, the invested funds brought a high return, making these areas efficient locomotives of innovation.
Infographic: IA “FACT”
The most affected region is Donetsk region, the industry is metallurgy
The full-scale invasion of Russia in 2022 was a turning point for Ukrainian industry, causing drastic changes in its structure.
One of the most severe consequences was the destruction of large industrial enterprises in the eastern and southern regions of the country. Among the most painful losses are metallurgical giants such as “Azovstal” and MMK named after Ilyich, which were not only economic, but also symbolic pillars of Ukrainian industry. These destructions dealt a serious blow to the industry, which for a long time provided a significant share of the country’s GDP. “In terms of regions, the Donetsk region was the most affected, accounting for almost half of the total amount of direct losses of enterprises. In the cross-section of branches – metallurgy”, – noted in project report “Russia will pay.”
In response to these challenges, the Ukrainian government initiated a large-scale relocation of businesses. Enterprises from dangerous regions were transferred to the central and western regions, which contributed to the strengthening of the industrial potential of these territories. Lviv, Ivano-Frankivsk, and Transcarpathian regions have become new centers of industrial revival, attracting investments and creating new production facilities.
The western regions of Ukraine have become the focus of new enterprises focused on export and production of products for the needs of the defense complex. This shift not only helped compensate for the loss of the industrial potential of the east, but also changed the emphasis in the geography of Ukrainian industry.
Industry in the EU provides jobs, exports and innovation
The European Union has updated its Industrial Policy Strategy, recognizing industry as a key basis for economic growth. This strategy is aimed at strengthening the position of Europe in the conditions of globalization, technological progress and challenges of sustainable development. After all, the EU seeks not only to preserve, but also to strengthen its industrial leadership in the world.
Industry is of great importance for the economy, as evidenced by the research of international consulting companies. Some convincing numbers. Industry provides 70% of the value of global merchandise exports, is responsible for 77% of private sector innovation, and contributes to 37% of the economy’s productivity. These indicators confirm that it is impossible to achieve sustainable economic development without a powerful industrial base.
In addition, industry plays a crucial role in ensuring the stability of the economy. It produces the means of production and consumer goods that support the work of other sectors, contributing to the growth of GDP. An important aspect is the creation of jobs: according to the European Commission, one job in the manufacturing industry generates two additional jobs in related sectors such as transport and trade.
Thus, the industrial policy of the EU is focused not only on economic growth, but also on ensuring economic sustainability, innovation and employment in a wide range of spheres.
Ukraine’s industry is efficient, but not balanced
Industry has always been a key sector of the Ukrainian economy. In the last pre-war year, its contribution to GDP was 20.58%, leaving trade (13.83%) and agriculture (10.63%) behind. Industry also became the largest employer, employing more than 2.1 million Ukrainians, or almost a quarter of all employed in business.
The industrial sector plays an important role in filling the budget: more than 40% of tax revenues to the state treasury come from large industrial taxpayers. In addition, the industry provides more than 70% of the country’s merchandise exports and creates 18% of gross value added (GVA).
However, the structure of Ukrainian industry remains quite unbalanced. Almost 41% of GVA in 2020 was accounted for by the extractive industry, while in processing the main focus was on the food and metallurgical industries, which together form more than 40% of GVA. Mechanical engineering, which was once one of the drivers of the industry, has experienced a significant decline: its share in the industry has tripled over the past 13 years, from 16.7% in 2007 to 5.6% in 2020.
Even before the full-scale invasion, it was obvious that industry, although it remains the basis of the economy, needs diversification and modernization in order to fully meet modern challenges and increase its competitiveness.
