Ukraine’s rich mineral resources: a blessing or a curse?

The country’s raw material sectors were largely frozen until the start of Russia’s war against Ukraine in 2014, and Ukrainian officials, in partnership with Russian oligarchs, hindered the development of the fuel and energy complex (FEC), the extractive industry, and the agricultural sector. The war changed everything. Internal barriers for investors and entrepreneurs prevented the commercialization of Ukraine's raw material potential. It seems that oil, gas, ore, and rare earth metals were almost deliberately kept off the market to take advantage of the extreme situation and provide access to them for the Government's political, nomenclature, and power favorites.

Over the past year, we have seen all the signs of preparations for the nomenklatura-oligarchic development of raw materials under the guise of the noble goal of modernizing the country.

The government, together with its foreign advisors and partners, proposes to create a $540 billion “Ukraine” Fund and a $460 billion European Structural Fund to coordinate the “drain” of money into the growth areas identified by the Ukrainian authorities. These include metallurgy, energy, and agriculture. These are precisely the sectors that provide raw material exports.

But hopes that international agencies, business, and EU institutions will ensure quality management of Ukraine's state-owned raw materials sectors are completely unfounded. The EU/US/G-7 have at various times destroyed hopes for the creation of a full-fledged free market in Tunisia, Iraq, Serbia, Algeria, “pre-Millean” Argentina, Mexico, and Venezuela. In these countries, the VIP bureaucracy seized control over the political and legal institutions of the state, relying exclusively on the raw materials business with a dash of dubious schemes. The resource barons formed an oligarchy that secured a seat at the tables of international organizations and on the stages of the world’s most prestigious forums. But are there any resource-rich countries that are economically developed? Yes. Australia and New Zealand can serve as examples for Ukraine. However, this requires different approaches, which will be discussed in detail later in this article.

The recent report by the United Nations Conference on Trade and Development (UNCTAD), ‘The State of Commodity Dependence 2025,’ is rich in statistical data on the state of international trade in raw materials and on economic development more broadly. It helps shape perspectives on this economic sector in the context of defining Ukraine’s long-term development strategy, providing substantial food for thought on whether Ukraine should place its bets on the commodities sector.

The lion's share of the country's rich raw material resources is still not involved in commercial circulation. There is also no full-fledged, detailed audit of what is in the country's subsoil; we simply do not know that we have coal, iron ore, oil, gas, or rare earth metals.

Therefore, estimates of their value range from $0.5 to $26 trillion.

The agreement signed by the United States and Ukraine in April 2025 on the establishment of the Reconstruction Investment Fund was called a raw material agreement, with a view to attracting U.S. investment in the extraction of Ukraine’s mineral resources. The economic programs announced by the Government, including industrial development, envisage preserving state ownership in the extractive sector and using a wide range of regulatory policy instruments to commercialize Ukraine's raw materials. But, as we have already written, if they continue to be managed by Ukrainian VIP officials and heads of state-owned companies appointed by them, there is a high probability that the industry will be effectively monopolized by oligarchic structures with the participation of foreign companies from the US/EU/G-7.

Obviously, our government relies on the raw materials sector as an engine of economic growth and a source of resources for the country's modernization.

At the same time, the state is the main, and in many sectors, the monopoly owner. It controls the commercial use of mineral resources through state and private entities that have received special permits/licenses.

The Ukraine–United States Mineral Resources Agreement provides a substantial package of benefits and preferences across the monetary-credit, budget-tax, and administrative-regulatory spheres.

This will set Ukraine's commodity sector apart from the general business environment to attract investment, increase its capitalization, exports, and budget revenues from both taxes and non-tax payments (e.g., dividends from state-owned companies).

Along with the raw materials sector, the Ukrainian government creates special conditions for technology parks, which are essentially special economic zones. They also have their own monetary, fiscal, and regulatory policies. Determining the locations, mode of operation, and entry procedures is not a matter of market decisions, but rather one of nomenclature and commercial considerations.

The formation of the capital structure in this way is called typical state interventionism. Only in contrast to the Soviet state plan or totalitarian/authoritarian economies like Russia and Belarus, Ukraine de jure maintains a market economy regime with a declarative (not real) principle of equality of business conditions.

The involvement of Western commercial entities, consulting firms, or the presence of their representatives on boards of directors or supervisory boards in the commercialization of a particular resource does not at all guarantee high-quality management, the neutralization of conflicts of interest, or the prevention of the merging of political and economic power. It’s nothing more than a cover.

If the main element of Ukraine's long-term development strategy is to commercialize the commodity sector, it is important to analyze similar cases of other countries with a similar development level and similar quality of public administration institutions. It is important to understand the state of commodity markets, the level of competition, margins, investment, technological, and environmental requirements, the state of the economy, and the state of global and regional value chains in order to assess the volume and scale of investments. There are many historical examples in this world.

And such information is carefully analyzed by private market agents on their own, at their own expense, and they manage risks. In a free market, there is an effective “profit and loss” mechanism, which, for investors, entrepreneurs, and shareholders, is both a signal system (prices, volumes, shares) and a system for assessing adequacy/compliance with market requirements. In the case of a state takeover and control, the risks of investment and managerial errors are transferred to the State. Therefore, there is a high danger that instead of accelerating economic growth, the resource sectors will exacerbate an already very difficult situation in the country.

According to UNCTAD, commodity exports account for about a third of global merchandise trade.

In 2012-2014, exports of raw materials amounted to $6.15 trillion, and in 2021-2023 — $7.15 trillion (average annual figure). During this time, the share of commodities in exports decreased from 35.5% to 32.7%.

For comparison, global exports of goods amounted to $17.31 trillion in 2012-2014, and $21.73 trillion in 2021-2023.

In 2012-2014, Ukraine's merchandise exports amounted to $61.98 billion, or 0.36% of the world total. The volume of Ukraine's raw materials exports amounted to $26.22 billion, or 0.43% of the world total.

In 2021-2023, Ukraine exported goods worth $48.83 billion, or 0.22% of the world total. Commodity exports amounted to $30.43 billion, or the same 0.43% of global commodity exports.

Ukraine, with its current ownership structure, foreign trade regime, and macroeconomic policies, cannot maximize the benefits of its raw material resources.

Their returns remain minimal, and the benefits are concentrated in the hands of a small group of people close to budgetary flows. This is confirmed by the small amount of total rent from natural resources, which in 2021-23 amounted to only 3.4% of GDP. For comparison, in Kazakhstan it is 19.2% of GDP, Azerbaijan 22.1% of GDP, Chile 8.3% of GDP, Australia 8.4% of GDP, and Norway 8.5% of GDP. These countries are typical commodity exporters.

Raw materials can be conventionally divided into three groups:

Energy. In 2021-2023, exports of energy commodities amounted to $3163 billion (44.5% of total global commodity exports).

For comparison, in 2012-2014, it was 52.1% ($3203 billion).

This dynamic is explained by a number of factors, including lower oil prices and a change in the structure of energy consumption.

Ukraine's share in global energy exports in 2021-23 was a meager 0.02%. This means that Ukraine's energy commodities sector has been on a starvation diet of investment for all 34 years of independence. Tens of billions of dollars of foreign investment and technology are needed to make a name for itself in the global energy commodities market, as the country does not have such potential.

Agriculture. From 2012-2014 to 2021-2023, agricultural exports increased significantly, reaching 34% ($2292 billion) in 2021-2023. This sector accounts for about a third of the world's commodity exports. Food accounts for ~87% of this amount. Ukraine's share in world exports of agricultural raw materials, including food, in 2021/23 was only 1.1 %. With such an indicator, it is unlikely that we can count on the status as a breadbasket/feeder, not only for the world, but even for part of Europe. You can have the most fertile land in the world, but it's not enough to win the intense, fierce competition on the global agricultural commodities market. We need full protection of private land ownership rights, developed infrastructure, high technology, and access to global markets. Ukraine started reforming its land market almost 30 years late. This is certainly the right step, but it is clearly not enough to turn agriculture into a powerful engine of economic growth. To attract investment in this sector, we require a full-fledged financial market, a new tax system, and deep deregulation. The current regime of agricultural raw materials production is beneficial only to large agrarian barons, who are in no hurry to invest their billions of dollars in their home country due to weak property rights protection institutions.

Mineral products, ores, and metals. The share of this group is 23% of global commodity exports. On average, in 2021/23, this figure amounted to $1650.4 billion. The mining sector grew by 34% between 2012-2014 and 2021-2023 %.

At the same time, the source of raw materials for Ukraine's extractive sector is under Russian occupation or in a zone of high security risks. That is, its commercialization is too difficult.

Focusing on rare earth metals and ferrous metallurgy is a bet on a highly speculative future.

Investments should amount to tens of billions of dollars, not borrowed money, but our own money. Given the rapid development of modern technologies, the active involvement of resource-rich Africa and South America, and the payback of investment projects in such sectors of the economy, especially if they are implemented by state-owned businesses in an oligarchic political regime, is highly questionable.

If Ukraine fails to reform its legal and governmental institutions, change its macroeconomic policy, ownership structure, and regulatory system, it is likely to repeat the fate of countries that live with the resource curse in their economies and politics. Countries where 3% of the population lives off the backs of 97% of the rest, and where resource barons have seized political and judicial power and are crushing even the possibility of competition.

Totalitarian Algeria successfully sells energy raw materials to the EU and the US. The country's commodity exports accounted for 95.8% of merchandise exports in 2021/23. At the same time, energy products accounted for 93.7% of total merchandise exports. Oil and petroleum products and natural gas account for about half of this value. At the same time, Algeria is ranked 161st in the Index of Economic Freedom, 2024. The country was ranked 157th in the Human Freedom Index 2024. The country's GDP in 2024 amounted to $264.9 billion, or only $5682 per capita. The share of resource exports in Algeria’s GDP in 2021–2023 was 27.6%. This is an example of a country that effectively acts as a ‘gas station’ for the EU, supplying its oil and gas needs.

The poorest country, Nigeria, bears the obvious stigma of the resource curse. The share of this country's raw material exports in total merchandise exports is 96.3 %. The share of energy products in commodity exports is 89.7%. The share of commodity exports in GDP in 2021/23 was 12.6%. Nigeria was ranked 113th in the Economic Freedom Index 2024. GDP in 2024 amounted to $187.6 billion, or $824 per capita. This is a typical example of the seizure of energy resources by local oligarchs and organized criminal groups. In addition, Nigerian officials are in partnership with energy barons. The country has neither private property rights nor open competition. But there is blatant corruption and poverty. The existence of such a regime does not prevent EU countries from trading with Nigeria, and government officials from being frequent guests of international forums and valued clients of offshore companies and wealthy real estate agencies.

Iraq, a petrostate supplying India, China, and the U.S. The share of commodity exports in total merchandise exports amounted to 99.5%, 96.1% of which were energy raw materials. In the first half of the 2000s, the U.S. and its coalition overthrew S. Hussein. They inherited a country where they had every opportunity to create a showcase country. However, instead of the ideas of economic freedom and open competition, a standard welfare state model was proposed. As a result, the Iraqi government was quickly captured by local and international oil barons. They created not institutions of capitalism and freedom, but a typical state syndicate. Yet another country, a resource satellite of developed countries, and the energy barons of India and China. Here, only the favorites of the state can do this business. Iraq, after more than 20 years of "democratization" and implementation of the model of the General Interventionist State, has only $277.5 billion of GDP or $6247 per capita. The share of commodity exports in Iraq's GDP is 42.2%. In the Economic Freedom Index 2024, Iraq was ranked 147th, and in the Human Freedom Index 2024, 156th.

There is no doubt that the Iraqi government, along with its foreign partners and large consulting organizations, tells ordinary Iraqis fairy tales about sustainable development goals, equality, inclusiveness, and active state involvement in everything.

Australia is an example of a country rich in natural resources, which has become a significant benefit. In 2021/23, the share of commodity exports in this country was 92% of total merchandise exports. Commodity exports accounted for 19.3% of GDP. In total merchandise exports, the shares were 14.4% for agricultural goods, 31.6% for energy products, and 46% for mining. In the Economic Freedom Index 2024, Australia ranked 9th. In the Human Freedom Index in 2024, it ranks 7th. Full democracy, personal and economic freedom. And here is the result. Australia's GDP in 2024 amounted to $1796.8 billion, GDP per capita — $66248. Total public spending in 2024 amounted to 38.3% of GDP. Except for the COVID years, this figure has not exceeded 35% of GDP over the past 30 years. The lion's share of budget money is redistributed only at the level of local authorities. No one thinks of nationalizing extractive companies. No one sees the export of raw materials as a threat to national security and does not accept state programs for processing raw materials or using them in the country. Full transparency and accountability across all branches of government—within a system of political freedom, open competition, and an active civil society—help prevent oligarchization and guard against the emergence of authoritarian rule.

New Zealand is another great case of using the status of “raw material dependence” for good. Unlike energy and mining products, this country is a world leader in agriculture. In 2021/23, the share of commodity exports amounted to 81.2% or $35.1 billion per year. Exports of raw materials account for 14% of GDP. Agricultural goods, including food, account for 75.7% of total merchandise exports. Extractive sector goods account for only 4.1%. New Zealand ranks fourth in the Economic Freedom Index 2024 and second in the world in the Human Freedom Index 2024. Thanks to this, this distant agrarian country produced a GDP of $257.7 billion or $48310 per capita in 2024. The country has a fully-fledged institution of private land ownership. There are no state programs for processing raw materials. The government does not interfere with the structure of the market economy. There are no subsidies to agricultural producers. There are no state-owned concerns and no list of “white” businesses. New Zealand is doing well without IMF loans and intellectual and technical assistance from international development agencies. Indeed, over the past 20 years, the state has expanded through generous social programs, which have slowed economic growth. In 2024, total public spending amounted to 42.8%. Before COVID, it was 35-37% of GDP.

It turns out that it is possible to become a rich, prosperous country with fully-fledged capitalism in agriculture. At the same time, no one thinks of industrializing the economy as part of government policy. National elites are well aware of their country's comparative advantages and do not try to impose foreign templates on it, even if they are blessed by Harvard, London, or Paris.

Today, Ukraine's institutions and economic management mechanisms are largely similar to those of countries that have fallen under the raw material curse: Algeria, Iraq, Nigeria, Kazakhstan, and Azerbaijan. It is important for us to learn the lessons of these countries so that we do not repeat their path.

Norway, Australia, New Zealand, and Chile are examples of turning raw materials into sources of economic growth without compromising the freedom and development of other sectors.

To avoid the commodity curse, Ukraine is recommended to do the following:

We absolutely must not forget the negative experience we gained up until 2014 in commercial raw materials and financial transactions with Russia. It was through the commodity sector that Russia seized and toxified Ukraine's public administration institutions. Therefore, the problem of the country's raw materials sector is not just about business. It is also about national security.