How will Ukraine's economy change after joining the EU?

In June 2024, after much waiting and political negotiations, Ukraine received the green light from the European Union to begin accession negotiations. This step was a historic moment on Ukraine's path to integration into the European family, but it only opens a new stage of testing and reform.

Start of negotiations on Ukraine's accession to the EU: a new stage of European integration June 25, 2024 became a defining date for Ukraine on its way to the European Union, when a historic intergovernmental conference was held in Luxembourg, at which Ukraine and the European Union presented their delegations to participate in the negotiation process. This day marked the official start of the long-awaited negotiations on Ukraine's accession to the EU.

However, despite the announcement of the start of negotiations and the congratulations of Ursula von der Leyen and Charles Michel, the Financial Times noted that the event is most likely the formal start of a new stage on Ukraine’s path to the European Union, and the main stage of work on this issue should not be expected before 2025.

At the conference, the EU unveiled a negotiating framework, which includes 33 sectoral chapters, approved by all 27 EU member states. This framework will become the basis for adapting the national legislation of Ukraine to the norms and standards of the European Union in each individual area. Negotiations on the opening of each section of the framework, which are due to begin in July 2024, will be opened by a separate decision of the EU Council, ensuring Ukraine's step-by-step progress towards membership.

Based on the results of bilateral meetings, the European Commission prepares regular reports on Ukraine’s progress in each sector. This will allow us to track the speed of Ukraine’s progress in comparison with other candidate states and ensure transparency and objectivity in assessing reforms.

Negotiations will continue until Ukraine successfully completes negotiations on all 33 sections of the framework in the prescribed manner, and the EU closes all chapters, confirming Ukraine's readiness to become a full member. After submitting a positive conclusion from the European Commission on the success of the negotiations, ratification of the accession agreement will take place with the unanimous consent of European parliamentarians and national parliaments of all EU member states and Ukraine.

Reforms and challenges

European integration requires Ukraine to carry out deep structural reforms in all areas of the country's life. In particular, we are talking about reforming the judicial system, fighting corruption, modernizing the economy, harmonizing legislation with EU standards, protecting the rights of national minorities and many other aspects. The implementation of these changes will require great efforts from both the government and society as a whole.

Ukraine's accession to the EU will also have important consequences for the country's economy. This opens up new opportunities for Ukrainian business, in particular, access to the large European market, the attractiveness of foreign investment, and participation in European development and innovation programs. At the same time, adaptation to European standards of production and trade will also require Ukrainian companies to spend a lot of money and rethink business processes.

The prospect of membership in the European Union opens up new horizons for economic development for Ukraine. According to a January 2024 report by the National Bank of Ukraine, the Ukrainian economy can expect rapid growth of 7% and real GDP per person of $15,500 after joining the EU, subject to all necessary reforms.

The positive outlook is due not only to the prospect of joining the EU, but also to the “expectation effect”, which stimulates economic activity even before actual membership. NBU analysts cite a study by Campos et al., which showed that in the countries of Central and Eastern Europe that joined the EU in 2004, labor productivity and GDP per person in 2003 were on average almost 10% higher than in the case of no prospect of entry.

The process of integration into the European Union also strengthens foreign economic relations, helps attract investment and opens new markets for Ukrainian goods and services. The free movement of goods, capital, services and labor with EU member countries creates conditions for business development and increasing the competitiveness of the national economy.

The agricultural sector as a “stumbling block”

Ukraine's agricultural sector, which is one of the pillars of the country's economy, may become the subject of special discussions during accession negotiations. Blockades of the Ukrainian border by Polish farmers and transporters, as well as the European Union's response to this, indicate potential problems that may arise in connection with the access of Ukrainian agricultural products to the European market.

On the other hand, the integration of Ukraine into the European Union opens up new prospects for the Ukrainian agri-food sector. As the Parliamentary State Secretary of the German Ministry of Food and Agriculture Ophelia Nick noted during the International Conference on the Reconstruction of Ukraine in Berlin, the integration of Ukraine into the EU has the potential to significantly strengthen the agricultural sector in the EU and increase food security throughout the continent and in the world.

Ukraine's integration into the European Union is unlikely to be an easy process. The powerful implications for the EU single market and global markets must be taken into account. An important challenge will be to ensure that the EU's common agricultural policy and income support system remain effective in the enlarged Union.

However, Ukraine is already demonstrating its ability to maintain high levels of production and export of grains and oilseeds even in difficult conditions. According to Ophelia Nick, the volume of Ukrainian grain exports has already reached pre-war levels, which is a major achievement for the global food market.

For the further development of the Ukrainian agri-food sector, permanent and safe transport routes for grain are important, which will ensure reliable supply and stabilization of the world market. Germany and other international partners are ready to provide Ukraine with the necessary support to maintain its role as one of the key producers and exporters of agricultural products.

How the opening of the European market will affect the Ukrainian economy

Accession to the EU gives Ukraine access to the large European market, offering new opportunities for export and investment. At the same time, membership also involves facing increased competition, which will require Ukrainian companies to improve their competitiveness and product quality.

According to Dimitar Bogov, lead regional economist at the EBRD, the recovery of the Ukrainian economy may be limited due to emigration and labor shortages, as well as uncertainty about external financing. Shifting the focus to the domestic industrial base and increasing exports through the Ukrainian Black Sea corridor could be an important step towards overcoming these challenges.

According to experts, Ukraine's long-term success on the path to European integration depends on the country's ability to create conditions to retain a skilled workforce and use recovery funds effectively, contributing to the development of the domestic economy and social welfare.

The transport sector also plays a key role in the socio-economic development of any country, ensuring the mobility of citizens and the efficiency of economic processes. For Ukraine, a country seeking integration into the European Union, adapting the transport sector to European standards is one of the key tasks.

According to the Association Agreement between Ukraine and the EU, Ukraine undertakes to implement the priority transport rules of the European Union. This involves not only the restructuring and modernization of the transport sector, but also a gradual approach to current EU standards in the sectors of road transport, railways, inland waterways, aviation and maritime transport.

Reforming the transport sector of Ukraine provides for an integrated approach, including modernization of infrastructure, increasing the level of safety and protection of consumer rights, as well as the effective implementation of European directives. An important aspect is the liberalization of the transport services market, which will increase competition and improve the quality of services.

Ukraine's path to membership in the European Union is long and requires significant efforts. However, given the potential benefits of EU membership, this investment of time and resources is justified. Accession negotiations will test the Ukrainian government, society and economy, but will also open the door to new opportunities and prospects for Ukraine on the European stage.