The World Bank (WB) in its recent report “The Impact of the War in Ukraine on Global Trade and Investment” presented the expected war effects on Ukraine in terms of global value chain integration.
Ukraine is not a large supplier on a world scale. However, it is a large supplier of some specific products in particular sectors. Ukraine’s exports of iron ore and iron products, some metals, semi-finished metal products and transport equipment appear as the most relevant for the supply chains of Ukraine’s trading partners. Ukraine’s balance of payments data shows the growing importance of the computer services sector for its exports. These computer services provide inputs to numerous firms abroad.
The magnitude of the war’s impact on other countries involved in those value chains will depend on the role Ukraine plays in them, either as an important supplier or user of inputs. Countries that are most dependent on Ukraine for imports are primarily in Central and Eastern Europe. Moldova is the most dependent, relying on Ukraine for more than 25% of its agricultural imports, while Georgia sources nearly 20% of its agricultural purchases from Ukraine. Only Moldova (7% of imports) relies heavily on Ukraine for industrial products and capital goods. Ukraine’s exports of intermediate goods represented substantial external supply for Moldova (14%), Senegal (9%), Georgia (8%). Outside of Europe, Tunisia (15%), Egypt (10%), India (8%), Turkey (7%) and Lebanon (7%) rely heavily on Ukraine for their agricultural imports, while some African and Arab countries rely on it for imports in specific GVCs.
In terms of individual value chains, the war in Ukraine could cause disruption for the products that are Ukraine’s largest exports. These products belong to the following GVCs: steel (due to Ukraine’s exports of iron ores, ferro silico manganese, pig iron), heavy manufacturing (flat and rolled steel products), semiconductors (neon gas), cars (ignition cables), industries using titanium, and the IT industry.
Inputs into the steel industry
Europe relies on imports from Ukraine for agglomerated and non-agglomerated iron ores at 16 % and 15 %, respectively, with Poland and the Czech Republic being two big importers. This suggests the potential for supply chain disruption, as iron and steel products are used in many manufactured goods, as Ukraine is a second-tier exporter of agglomerated iron ore (7.9% of world exports in 2019) with several countries, including Vietnam (27% imports).
Moreover, Ukraine is the world second-largest exporter of ferro-silico manganese in 2021. Turkey, Germany, Poland, and Egypt are Ukraine’s main importers, and overall, Europe imports 49 % of its ferrosilico-manganese from Ukraine.
Ferro-silico-manganese is used as an alloying element in the production of steel and can be used as a substitute for ferro-manganese or silicomanganese in the production of different types of steel.
Pig iron, the fist transformation of iron ore, is an input for wrought iron and steel making. Ukraine is among the largest suppliers of pig iron. Ukraine’s main destination is the United States, followed by Europe (Italy and Spain being the top two markets). For non-alloy pig iron, the most important pig iron product exported by Ukraine, the United States imports 41 % and Turkey imports 22% of its needs from Ukraine.
Inputs into other metal industries: aluminum and titanium
Titanium ore is an input in the aerospace, aviation, automotive, and medical industries. Ukraine was the 5th largest world exporter of titanium. Ukraine is the largest supplier of the mineral to russia and the Czech Republic.
Ukraine’s supplies of aluminum oxide account for 6% of world exports. Aluminum oxide is the main input in the manufacture of aluminum metal, as well as the production of filers, glass, catalysts, gas purification, abrasive substances, paint, body armor, and electrical insulation. The application is wide across microelectronics, chemicals, aerospace, and other high-technology filds.
Inputs into heavy manufacturing
Rolled iron products have many uses in industry and construction. Europe’s imports from Ukraine are important for semi-finished products of iron/non-alloy steel. Ukraine is a major supplier of these products in several other markets as well, including Turkey, and Nigeria.
Inputs into semiconductor production
Ukraine exports 70% of the world’s neon gas, a byproduct of the steel industry and an important input in the production of computer chips. A factory in Odessa produces 65% of the world’s neon. According to industry sources, dependence on Ukraine for highly purified neon used in chip production is large, as Ukraine is the source of 40% to 50% of the world supply of this critical input. According to the combined trade statistics for rare gases other than argon (neon, krypton, xenon), Moldova and Slovenia depend on Ukraine for 36% and 12% of imports per product, respectively. The United States relies on Ukraine for 11% of imports per product (US$8.5 million), Austria for 7% (US$1.2 million), and Hungary for 5% (US$1 million).
Ukraine’s inputs into transport vehicles (wiring) takes 4% of world’s exports and are important for some European markets. Notably, imports of wiring sets from Ukraine are important for Romania (22% of imported product), Germany (12%), and the Czech Republic (11%). Ukraine’s exports of axles and wheels (inputs for the production of railway vehicles) account for 8% of world’s exports. Ukraine is the most important supplier for Bulgaria and Latvia. These exports may be tied to specified types of railway equipment and brand manufacturers, which may mean that finding alternative sources of supply might be more challenging than conveyed by trade figures alone.
ICT services
Ukraine exported US$6.8 billion of telecommunications, IT, and computer services in 2021, according to the IT Ukraine association, a 35% increase from 2020. This makes it the third-largest sector of exports for the country, accounting for 1/3 of total services exports in 2020. The sector has been growing rapidly since 2014. It is possible that the actual volume of exports is larger as the activity of many freelancers selling IT services may not be well captured in balance of payment statistics. Ukraine IT services mainly serve North America and Western Europe; 81% of Ukrainian IT companies export to the United States. The second-largest buyer of Ukraine’s IT exports is the UK (64 % of companies), followed by Germany (60%). In value, exports to the United States account for 40% of the total. E-commerce, banking, and fintech are the main client industries and software development and operations (DevOps), software quality assurance (QA), and user interface and experience design (UI/UX) the most prominent services provided by Ukraine.
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