Since 2009, the OECD Eurasia Competitiveness Programme has supported the Government of Ukraine in advancing national economic reform through its Sector Competitiveness Review project. This report contains the conclusions of the first phase of the project, the Sector Competitiveness Strategy. It provides an assessment and recommendations to guide investment policy reform and support the development of high-potential sectors such as agribusiness, machinery manufacturing and alternative sources of energy. These recommendations aim to promote competitiveness, attract investment to the country and strengthen the public-private dialogue.

The Ukrainian economy experienced a decade of robust growth from 2000 onwards. During 2000-08, real GDP grew at an annual average rate of 7%, among the fastest in Europe. Foreign direct investment (FDI) inflows to the country increased at an annual average rate of 43.8% to reach USD 10.9 billion in 2008 in nominal terms. The economic growth of the country was supported by a more efficient use of resources which led to an increase in productivity, and by external factors, including an upsurge in commodity prices, particularly steel, which is one of Ukraine’s leading exports. However, during the expansion the country failed to implement all the necessary reforms required for broad-based financial stability and durable economic growth.

As part of the OECD Eastern Europe and South Caucasus Initiative (see box on the next page), a sector competitiveness review was conducted for the Republic of Ukraine to improve sectoral competitiveness and enhance its policy convergence with OECD investment instruments. The Sector Competitiveness Report is part of a wider project following a three-phase approach over five years (2009-14): first, by developing a sector competitiveness strategy (Phase I), secondly, by implementing specific aspects of the recommended policies to address the existing constraints (Phase II), and finally, by putting in place the mechanisms to embed sustainable reform (Phase III). The aim of the first phase of the project, co-financed by the Swedish International Development Agency and the Polish government, is to enhance the country’s productivity level by identifying policy barriers that should be removed to boost the competitiveness of selected economic sectors.

This chapter presents the approach and methodology used to provide a sector competitiveness strategy. This includes the definition of the concept of competitiveness and the description of some tools to prioritise high potential sectors, analyse them, and formulate policy recommendations. Finally, it examines a framework to prioritise among policy recommendations.