German-Ukrainian economic relations in review
On 11 December, Germany and Ukraine will hold its traditional bilateral business forum for the seventh time already. As it marks the third edition during Russia’s full-scale war, it is a good moment to look back at how bilateral economic ties have developed over the recent past. The volume of bilateral trade has increased to EUR 9.9 bn, the highest level ever, and Germany is one of the key investment partners. Both trade and investment are supported by federal guarantee schemes. Due to the war and the destructions it caused, the defence and energy sectors are gaining importance in bilateral relations, which is mirrored at the forum. Germany supports both sectors through public aid and private investments. The business forum will provide an important platform to discuss opportunities for expanding bilateral economic relations and to consider approaches to overcoming economic challenges for further investment in Ukraine.
Bilateral trade
Bilateral trade between Germany and Ukraine has grown steadily over the last five years. In 2019, Germany was already Ukraine’s third most important trading partners, with bilateral trade reaching EUR 7.7 billion. The volume has increased in subsequent years, demonstrating resilience and adaptability in the face of adversity during the pandemic and since the start of the war. In 2023, bilateral trade in goods reached EUR 9.9 bn – the highest level ever.
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After 9M2024, the trade volume has further increased by 17% yoy and already exceeded the one for the full year of 2022. Besides, the trade volume with Ukraine has exceeded the one with Russia by 17% within this period. Overall, 2024 will most likely bring a new record in terms of bilateral trade. Germany has experienced a large trade surplus with Ukraine. Thereby, many of the current exports are related to Ukraine’s defence sector, including military equipment. Other than, Germany mainly exports machinery, electrical equipment and vehicles to Ukraine. But it is not only German exports that contribute to the growth in bilateral trade, imports from Ukraine also play a key role. After 9M2024, they increased by 23% yoy. The most important goods are agri-food products, electrical equipment, furniture, metals and metal articles.
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In the German value chains, Ukraine is increasingly integrated, for example as an exporter of electrical wiring systems. When the war broke out, Volkswagen had to introduce temporarily short-time work in its plants in Zwickau and Dresden, as these electrical systems could not be imported from Ukraine.
Investment activities
Investment also contributes to the strong economic ties. In 2023, Germany accounted for 5% of the total FDI stock in Ukraine, and ranked fourth among source countries. German investment continues during the war. Projects have been announced and implemented by Bayer, Fixit, Notus and Goldberg Solar, among others. The number of members of the German-Ukrainian Chamber of Industry and Commerce has also increased. In mid-Nov-24, the chamber recorded 223 members, 69 more than before the war. Supporting private German investment was also underlined by the Federal Government in its Resolution with 15 measures for the reconstruction of Ukraine (“Eckpunktepapier”). Attracting private investment as a key priority for Ukraine’s economic policy was also one of the main pillars of the Ukraine Recovery Conference Germany hosted in June this year.
Guarantee instruments
The Federal Ministry for Economic Affairs and Climate Action supports the bilateral economic relations through a variety of instruments. For example, during the war, it has kept open the public guarantee schemes for private investments from Germany. Since 2022, 32 investment projects from Germany have been approved for receiving public guarantees – making Ukraine the No. 1 destination country for this instrument in terms of projects insured. In terms of the overall guarantee stock, Ukraine is a Top-3 market for the number of guarantees (52) but outside of the Top-10 for the volumes insured (around EUR 0.34 bn). Another public instrument covers export transactions, also kept open during the war. Hermes insurance policies protect them against risks of commercial and political payment defaults. Since the beginning of the war, coverage amounting to more than EUR 430 m has been provided, which often enables the imports of crucial capital goods and technologies.
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Still, Ukraine is outside the Top-10 destination countries for the export credit guarantees. Among other reasons, this development is linked to the high level of war-related uncertainty in Ukraine. Thus, the focus of the guarantee is on short-term cover. Nevertheless, exports increased, driven primarily by goods from the defence sector. As a result, the share of guarantees to exports declined since the start of the war. Germany underlined the ongoing importance of these two instruments during the Ukraine Recovery Conference. There are other partner countries that follow Germany’s lead and offer similar public guarantee schemes. Therefore, Germany initiated an agreement between 13 international export credit agencies and investment insurers from different countries to establish an exchange format to share expertise to strengthen financing instruments in favour of Ukraine.
Finally, it is worth mentioning that the German DZ Bank is involved in a guarantee scheme providing insurance for the movement of ships along the Ukrainian Sea Corridor. This corridor allows Ukraine to resume exports and imports via the Black Sea. On a monthly average, Ukraine exported 6.9 m tonnes (USD 1.5 bn) via this logistical route, significantly more than via the previous Black Sea Grain Initiative (2.7 m t, USD 0.8 bn).
The business forum: key sectors in focus
Since the start of the full-scale war, Germany has further solidified its position as one of Ukraine’s most important allies, providing substantial financial, humanitarian and defence assistance. In the defence sphere, this support has had already a significant economic impact. The growth of German exports to Ukraine during the war has been driven primarily by defence goods, accounting for ca. 25% of exports to Ukraine during 9M2024. In addition, German defence companies such as Rheinmetall or Quantum, among others, have announced and implemented investment and joint-venture activities with Ukrainian counterparts, paving the way for further cooperation in this sector. Mutual cooperation between Ukraine’s growing defence and IT sectors will also be a key point of discussion at the Forum. In particular, Ukraine can showcase its high level of digitisation in public services and defence at the forum.
The energy sector will also be a focus of the forum. Damage in this sector has been recorded at USD 16 bn by May-24, 53% of which relates to power generation facilities, which require longer repair times than transmission/distribution. Germany has pledged EUR 360 m in support of this sector. Further discussion on the involvement of private investment for repairs and the green transformation will take place.
The forum will also give the business community a platform to discuss a wide range of war-related barriers to investment, such as labour shortages, access to finance and access to energy as key investment.
Outlook
Bilateral economic relations between Germany and Ukraine have further intensified since the start of the war. Bilateral trade has grown to its highest level ever, investment has continued and Germany is a staunch supporter of Ukraine’s resilience. Given this positive background, the upcoming forum will provide a key platform for relevant stakeholders from different sectors to further intensify dialogue around the recovery and reconstruction of Ukraine.
