Poland has become Ukraine’s largest trading partner for the first time in history. We anticipate that the continued trade growth that is beneficial for both countries, as well as the participation of Polish companies in Ukraine’s future reconstruction, will be key topics of ongoing Polish-Ukrainian high-level discussions this year.
In our opinion, it would be valuable to follow the example of Great Britain and soon France, by preparing a bilateral agreement Poland-Ukraine, primarily concerning economic matters.
Polish companies have good relations with Ukrainian counterparts. Our exports to Ukraine grew by 25% in dollar terms last year (January-October 2023/2022), after a previous increase of 36% (2022/2021). In 2022, Poland became Ukraine’s largest trading partner, while Ukraine is now our 7th largest export market.
We know that dozens of Polish companies have precise plans for new investments in Ukraine. According to our information, about 30 Polish companies have prepared their investment projects from A to Z. Private entrepreneurs know how to calculate and know what and where they want to build, what technologies they will apply and which partners they will involve in cooperation. Companies from infrastructure, processing, food and waste management sectors have already planned their investments.
The increase in trade turnover despite the war and readiness for investment are very important signals for Ukrainian and Polish politicians: entrepreneurs primarily see opportunities for development.
Reconstruction of Ukraine: What do Polish companies need?
According to World Bank estimates, the cost of Ukraine’s reconstruction will exceed $400 billion. Polish entrepreneurs are aware of the enormous potential of the Ukrainian market. This is confirmed by the list of companies interested in the reconstruction of Ukraine, maintained by the Polish Investment and Trade Agency, which already includes more than 3,000 firms. Many of their representatives regularly participate in trainings, join chambers and actively seek contacts during economic missions.
Entrepreneurs expect that the Polish and Ukrainian governments will implement their proposals, which will facilitate the conduct of business. In our opinion, these revolve around three main areas:
Firstly, in the economy and investments, the position is built by the strength of capital – therefore, we propose the creation of an entirely new Development Fund, possibly based on the Polish Development Bank. This Fund would get involved in investment projects in Ukraine benefiting long-term Polish interests. Additionally, as an EU member state financial institution, it could also participate in the EU funds distribution process to support Ukraine. In the EU plan for supporting Ukraine’s reconstruction with 50 billion euros, some funds were specifically intended for foreign investment support.
In the field of similar solutions and institutional actions, the actions of KUKE in the area of export insurances were well-received by entrepreneurs, in which Poland has been a pioneer among export insurance agencies and insurance companies. Since the beginning of the war, about 2 billion zlotys worth of supplies from Polish companies have been effectively protected in this manner, with virtually zero losses.
Secondly, an Interdepartmental Working Group for Polish-Ukrainian economic cooperation should be established – created at the intergovernmental level and thus directly empowered by the appropriate ministers. This team would provide a new opening in relations, coordinating government institutions’ work on an ongoing basis. It would be supported on a daily basis, among others, by a group of business experts-practitioners.
This would allow the business community to analyze the situation efficiently and in real-time and propose practical and quick solutions to administration problems, including those specific to particular sectors. An obvious example is the trade in agricultural products, which has been, is and will be key for Ukraine. Despite tensions, Polish-Ukrainian cooperation is growing in this respect, as evidenced by significantly higher transaction volumes.
Thirdly, systematic assistance in Ukraine’s accession to the European Union – membership in the EU is in our national interest. This would expand the common market, provide significant investment stimulus, strengthen the competitiveness of the EU economy thanks to the strong position of Ukrainian companies in some sectors (eg. IT), ensure security in terms of many raw materials and rare earth metals and increase strategic food security. Therefore, it is in the interest of the Polish economy to provide long-term support for Ukraine’s accession to the Union and offer our extensive experience in absorbing pre-accession program funds and using local government in this process, as well as strengthening public institutions and fighting corruption.
Although the EU has changed significantly over the past 20 years, Poland still has well-functioning procedures and a broad group of experts with extensive experience in accession work. Therefore, our country can play one of the key roles in Ukraine’s integration. This also concerns our invaluable experience in responding to challenges that will inevitably arise – especially in negotiating transition periods and protecting individual sectors.
How urgently solutions in the field of market protection need to be worked out is confirmed by disputes involving farmers and carriers at the Polish-Ukrainian border. The most significant challenges associated with Ukraine’s membership in the EU are integrating Ukrainian agriculture and dividing funds in the EU budget – but challenges can and should be managed, applying the principle: nothing about us without us. Additionally, let’s use our neighbors’ accession also for the necessary EU reform in line with Polish interests.
Much has already been achieved
Although the key issue now seems to be the activation of Union and Polish capital, primarily within the proposed Development Fund, it is worth noting the potential of already implemented actions:
– The National Bank of Ukraine decided last year to abandon the unilateral determination of the fixed hryvnia exchange rate. NBU wants more flexibility and a return to a market-driven currency rate. This is essential for Polish companies, as the continuation of this policy will facilitate future fund transfers in the future. Settlements of transactions in Ukraine’s native currency will also become easier. However, as our experience shows, Polish entrepreneurs who use hard currencies, such as the dollar or euro, in settlements unnecessarily incur significant currency exchange costs and are exposed to high currency risk.
Therefore, one can assume that the gradual liberalization of the currency market in Ukraine will be followed by a gradual increase in entrepreneurs’ interest in payments in hryvnia. Companies always strive to eliminate currency risk, avoid losses resulting from unfavorable exchange rate changes. Unfortunately, the Ukrainian currency is still a niche one in transactions, as perceptions of Ukraine as a high-risk market continue to overshadow settlements with Ukrainian counterparts.
– Another significant event was the entry into force of the amended law on insurance guaranteed by the Polish State Treasury. This made it possible to cover not only exports but also Polish investments, including those in consortia with partners from Ukraine. Transport companies operating in the war-affected area can also be insured. We were the first country in Europe to introduce such provisions.
– Also, the Ukrainian administration skillfully encourages foreign investors, e.g., through tax breaks and preferential land use rates. Investors can also count on state support in the construction of infrastructure to launch factories, e.g., roads, and power lines.
Poland and Ukraine Relations: Disputes Will Not Benefit Any Party
After Prime Minister Donald Tusk’s visit to Kiev, we, above all, expect the green light from leaders to take down barriers and agree on new instruments that will give a new impulse to the most promising area of Polish-Ukrainian relations: trade and investments.
It is worth noting that the vast majority of Polish companies, in the face of the risk associated with the war, did not decide to withdraw from the Ukrainian market. The game is now about transforming good relationships between entrepreneurs and knowledge of the Ukrainian market into a significant involvement of Polish companies in the reconstruction of Ukraine. As reported by the Polish Economic Institute, Poland is in 8th place among investors in Ukraine (for 2022). It is worth aspiring higher and above all, not to repeat the errors of several hundred years of common history. Because as it is known, when two argue, the third party benefits.
Looking at the most successful such partnerships in history, for example, the French-German one, negotiating and signing a Poland-Ukraine agreement – especially for economic development – is the best agenda for the coming months. We will collectively benefit from its fruits for many generations.
Authors: Jacek Piechota, President of the Polish-Ukrainian Chamber of Commerce, a self-government organization that includes half a thousand Polish and Ukrainian entrepreneurs.
Jakub Makurat, Managing Director for Central and Eastern Europe at Ebury, a global payment institution whose main investor is Banco Santander. Ebury is a member of the Polish-Ukrainian Chamber of Commerce.
