This report examines to which extent the concentration of Ukraine’s production and export structure has contributed to turning Ukraine into one of the countries hardest hit by the global economic and financial crisis. It discusses the role increased diversification can play in reducing the country’s vulnerability to future shocks and bringing the country back onto a strong and sustainable growth path. It analyzes obstacles to enhanced diversification and sustainable growth in terms of the business environment, the availability of skills, and the situation of global markets for Ukrainian exports.

While an analysis at the aggregate level can give useful guidance as to possible policy directions for enhancing economic diversification, an in-depth analysis of individual sectors is useful – if not necessary - in order to design concrete policy proposals. It is for this reason that two sectors are analyzed in more detail in this report: the basic metal and metal processing industry and the tourism industry with a particular focus on the hotel sector. Economic diversification can take place within sectors, when new production technologies are explored or new products with higher value added are launched, or it can come through the growth of new sectors. With respect to the metal and base metal sector in Ukraine, there is substantial potential for the former, while the tourism sector, currently relatively small, could become a significant new export sector.