On investment in Ukraine’s agriculture

In the recent years, economic growth of Ukraine has become critically dependent on the agricultural sector’s prospects. In 2010-2016, the industrial share in the country’s GDP dropped from 31.3% to 26.3% (down 5 p.p.), while the agriculture’s contribution grew from 8.3% to 14.4% (up 6 p.p.). Over the three years (2014-2016), the export share of agricultural produce expanded from 31% to 42.5% (up 11.5%!). According to preliminary assessment, the agricultural sector accounted for almost one-third (28%) of currency receipts in 2016.

Further growth of the agricultural sector requires affordable and sizable financing. The financing goals may include the following:

  • expanding the production volume and assortment of agricultural products,
  • improving their quality and increasing the added-value share,
  • major overhaul of production facilities and technologies
  • optimization of the production-sale cycle

Indeed, growth of capital investment in the Ukrainian agriculture has far outpaced growth of agricultural output. The gain in investment was 27.1% in 2015 and 49.5% in 2016, while gross agricultural output sank by 4.8% in 2015 and increased 6.1% last year.

At the same time, the agriculture’s portion in the total investment volume steadily grew from 6.1% in 2012 to 13.8% in 2016.

Taking into account that Ukraine’s economy is an open economy and much of necessary modern agricultural equipment and technology are imported, the assessment of real possibilities of capital investment must be dollar-based.

The investment volumes and production growth are indicated or calculated above in hryvnia value terms. However, these indicators are far less impressive in dollar equivalent. Hryvnia investments in the agricultural sector rose from UAH 18.8 Bl in 2014 to UAH 30.2 Bl in 2015 and UAH 45 Bl in 2016. In dollar terms they dropped from $2.4 Bl in 2012 to $1.4 Bl in 2015 and increased by $500 Ml to $1.9 Bl in 2016.

Remarkably, in hryvnia terms, annual investment in the food industry actually stayed unchanged at some UAH 13.5 Bl from 2012 till 2015. This amount grew to UAH 16.9 Bl last year. In dollar terms, as the diagram shows, investment dropped more than by half, from $1.7 Bl in 2012 to $0.7 Bl in 2016.

This trend shows that the agriculture development was not supported with an adequate gain in food processing capacities. “Excessive” agricultural produce added no value from domestic processing and was sold abroad as feedstock.

Sources of investment in the agricultural sector

A peculiarity of the Ukrainian agricultural economy is that the investment burden is carried mainly by producers, actually financing production from own revenues. The share of producers’ own money in the total investment volume went up constantly throughout 2012-2016 and reached 69.4% last year.

The latest study by UkrAgroConsult Company “2017-2022: Development of Ukraine’s agribusiness strategies. Investment climate. Factorial analysis shows that profitability of faming companies declined in 2016 – this trend will persist at least till 2022. This means the main source of investment and self-finance for maintaining growth, i.e. producers’ profits, is almost exhausted.

The next source of investment is the State Budget. Its share in capital investment decreased from 6.3% to 2.3%.

The most important source of finance for the development is bank loans, but the share of banks in investment fell from 16.1% to 7.1%, or almost by half.

Targeted agricultural loans from the international market (a €400 Ml loan program from the European Investment Bank in 2016, a $150 Ml loan program from the World Bank in 2017 etc.) support Ukrainian banks in crediting investment projects. But these loans do not solve drastically the problem of insufficient domestic resources for investing into growth points – they just put it off for some time, doing this on indemnity basis.

A multitude of reasons can be cited why the bank share in the crediting of company investment is miserable. However, this does not negate the fact that the banking system fails to fulfill one of its key roles – crediting the development of the economy’s real sector, specifically the agriculture as a locomotive of the present economic upturn in Ukraine.

The insufficient crediting horizon prevents farmers even from envisioning and planning large and break-through investment projects. For instance, to the National Bank of Ukraine reports that only 20% of 2016 loans to agricultural companies were provided for more than 5 years.

The development and implementation of medium- and long-term projects are possible with participation of foreign capital. The above table shows that the share of foreign investors’ money in investments generally expanded from 1.6% in 2013 to 2.9% in 2016 in view of the overall decline in capital investment.

Direct investments (share capital) in Ukraine’s agriculture also actually dropped. The volume of direct foreign investment into the sector reached $776.9 Ml by January 1, 2014, shrank to $502.2 Ml by January 1, 2016 and did not actually change by January 1, 2017 ($500.1 Ml).

One of the conclusions of UkrAgroConsult’s study is that, in fact, all of the three system non-government finance sources for enhancing growth and competitiveness of the Ukrainian economy’s key branch – growers’ own profits, bank crediting and foreign investment – are now losing their position as an agriculture development resource. As mentioned above, financing the production development and growth from own profits has actually exhausted its potential and, at best, it will be only able to maintain agricultural production at the previous level.

Reforms and investments

In this stalemate situation, it is understandable why the IMF, as a creditor, insists on conducting reforms by the Ukrainian government as soon as possible. The reforms are to be focused on ensuring mid-term outlook for the debtor’s solvency. One of their key points should be opening the land market.

The overwhelming majority of experts believe only this step can solve the investment shortage problem of the agriculture in the near-term without fundamental changes in the nation’s social and economic set-up. The land market will bring long-awaited significant investment to the Ukrainian agricultural sector that will cause its growth and a greater financial effect for the State Budget.

Once the land market opens, the following investor groups will most probably arise:

  • investors from offshores, who know very well the mechanisms of market relations in the country, including procedure nuances of land purchase / sale and use, and who do not mind investing in the promising asset;
  • transnational capital, which holds a dialogue on equal terms with the central authorities and is interested in the “Ukrainian” link for its technological chain;
  • speculative capital.

Medium-sized foreign investors (primarily ones from EU countries) interested in boosting production by developing the local economy will sit out for one or two years to better assess their risks (both commercial and legal ones).

The risks related to property rights observance, judiciary system effectiveness, state authority actions etc. are unlikely to get practically offset over this period.

UkrAgroConsult’s studies indicate that a substantial inflow of investment into the real agricultural sector can be expected at best toward 2020. However, it is not yet clear if agribusinesses and farmers, like Bolivar, will be able to “carry double”: 1) the burden of capital investment for stabilizing and/or expanding agricultural production; and 2) the government’s aspiration to increase fiscal payments to the State Budget.

Source: blackseagrain.net

Rada passes bill in support of foreign investment in Ukraine

The Verkhovna Rada of Ukraine has cancelled the registration of foreign investment and simplified the procedure for issuing permission to employ foreigners, as well as the procedure for issuing temporary residence permits.

Some 239 deputies voted in favor of the draft law in its second reading on Tuesday.

The bill cancels registration of foreign investment, replacing it with formal notification for state statistics purposes.

It also spells out the basic aspects of applying for permission to hire foreigners and persons without Ukrainian citizenship. The changes are expected to simplify procedures for attracting foreign managers and qualified foreign workers, who are necessary during the first stages of setting up subsidiary operations in Ukraine.

In addition, the adopted bill changes procedures for issuing temporary residence permits, giving foreigner investors the right to reside in Ukraine, as well as foreigners working at (and not necessarily for) Ukrainian enterprises. Deputies expect the new law will make it easier to reside in Ukraine while monitoring enterprise activities.

According to Samopomich Party faction deputy Serhiy Kiral, the legislation applies specifically to four categories of highly-paid IT specialists – graduates of the world’s top 110 universities, as well as artists. According to Kiral, there are currently 9,000 such [foreign] employees in Ukraine today.

Petro Poroshenko Bloc faction deputy Viktor Pynzenyk said the current law obliges foreign employees to receive work permits each year.

‘The [new] law provides permission for three years, and ensures that low-qualified workers are not hired. The law also establishes minimum salary requirements,” he said.

Pynzenyk said the new law would not revolutionize the country’s investment climate, but should be viewed as a small step on the path to creating a more favorable climate for foreign investment in Ukraine.

Source: en.interfax.com.ua

Ukrainian Railways plans five-year investment program

Ukraine’s state-owned JSC Ukrzaliznytsia railways operator has presented its five-year development strategy for 2017-21, which includes investment of UAH 130 billion to UAH 150 billion, and the formation of five business sectors: freight transport and logistics, passenger transport, infrastructure, traction services, manufacturing and services, according to the Railway Gazette.

In the freight sector, Ukrzaliznytsia plans to invest in the creation of intermodal terminals and logistics services with a target of growing its share of the container market from 29% to 45% in 2021. The passenger division will form six regional commuter-operating businesses in 2018, and a company to manage stations. The planned traction services company would be tasked with purchasing 250 new locomotives and modernizing the current fleet, the Railway Gazette reported. Read also Ukrzaliznytsia invited to mend railway tracks in Poland The 2017-21 rolling stock investment plan is worth UAH 108 billion, including UAH 87 billion for the purchase of 262 locomotives (UAH 36 billion), 35,773 wagons (UAH 31 billion), 440 coaches (UAH 9 billion) and 46 diesel and electric multiple-units (UAH 11 billion). The remaining UAH 22 billion would be used for the modernization of 403 freight, 212 passenger and 283 shunting locos as well as 57,510 wagons, 696

The 2017-21 rolling stock investment plan is worth UAH 108 billion, including UAH 87 billion for the purchase of 262 locomotives (UAH 36 billion), 35,773 wagons (UAH 31 billion), 440 coaches (UAH 9 billion) and 46 diesel and electric multiple-units (UAH 11 billion). The remaining UAH 22 billion would be used for the modernization of 403 freight, 212 passenger and 283 shunting locos as well as 57,510 wagons, 696 coaches and 430 multiple units. This would mean that at least half of the Ukrzaliznytsia fleet would be new or modernized, in contrast to the current situation where three-quarters of the fleet are in need of modernization or replacement.

Source: unian.info

Ukrainian startup Grammarly attracts $110 mln of investment

IT company with Ukrainian roots Grammarly as part of the funding round conducted by venture investors General Catalyst jointly with IVP and Spark Capital has raised $110 million of investment, the company has said in a press release.

Jointly with the investors the company will work on speeding up the company’s growth, expansion of the team and business development.

Grammarly is an intellectual online service based on artificial intelligence. The software improves communications between people using not only grammar check, but providing for stylistic accuracy and increasing effectiveness of messages.

The product daily helps over 6.9 million of users in various spheres of life, making their communication in messengers, documents, e-mail and posts in social networks more clear, the company said.

Grammarly was founded by Kyiv residents in 2009: Maksym Lytvyn, Oleksiy Shevchenko and Dmytro Lider. The offices of the company are located in Kyiv, San Francisco and New York.

The team includes over 100 people.

Source: interfax.com.ua

Huawei among top Chinese investors active in Ukraine

Huawei began as a small opera­tion when it was founded in 1987 by Ren Zhengfei, a former engineer in China’s People’s Liberation Army. It has since then grown into a global multinational headquartered in Shenzhen, in China’s Guangdong Province.

At first manufacturing for industry, it gradually expanded into telecommunications and consumer electronics, releasing its first cellular phone on to the mass market in 2004. Today its products and services are available in more than 170 countries and are “used by one-third of the world’s population,” according to the company’s website.
Huawei began operating in Ukraine in 1998 and since then its business in the country has “grown year on year,” says Vitaliy Matarykin, a public relations manager.

Looking ahead, the tech manufacturer is focusing on 4G technology which will allow users greater access to data-hungry services.

“We believe that in the nearest future cloud services will boom in Ukraine,” says Matarykin. “People will have access to their information anytime and anywhere. The business-to-business market, especially in the small and medium enterprise segment, has very high potential demand in I.T. and new technology solutions in telecoms.”

Last month Huawei announced that it plans to soon open a research and development center in Ukraine. If the center does open, it will join the more than a dozen such institutions which Huawei already operates worldwide

Source: kyivpost.com

Reforms bring a business-friendly Ukraine

For so long mired in corruption and bureaucratic red tape, in the past three years Ukraine has enacted numerous reforms to improve the climate for doing business. Now, writes Natasha Turak, the battle is on to convince investors that the conflict-affected country is a safe bet.

The story is familiar by now: for decades a complicated legacy of corruption, cumbersome bureaucracy and political upheaval has dogged Ukraine’s economic ascent. The country possesses a range of diverse and potentially lucrative sectors, yet has staggered behind its regional neighbours due to internal complications and now conflict.

In the past three years, however, the former Soviet state has enacted more reforms than ever before in its history, with the goal of improving transparency, law enforcement and economic growth.

Ukraine has risen in the World Bank’s Doing Business ranking from number 152 in 2012 to number 80 today. These are crucial steps, according to many of the stakeholders in the country’s business landscape – but as with any country facing such seismic change, there remains more work to be done.

Varied opportunities

Looking at the fundamentals, Ukraine offers enticing investment opportunities across a number of sectors including agriculture, IT, ports and shipping, energy, healthcare and manufacturing. Human talent is abundant and labour costs are low. Yet a survey of corporate executives by international law firm Kinstellar found that 82% of respondents view Ukraine as a difficult place to do business, citing political risk, security risk, corruption and regulatory risk as their top concerns.

Fear of political instability due to the war with Russian-backed separatists in the east of Ukraine deters many investors, and a complex regulatory environment can lead to substantial delays in basic processes such as applications and licensing. Many in the business community, however, cite recent government reforms as reasons for optimism.

“Ukraine has done an incredible amount in a very short period of time – with the police, with judicial reform, with anti-corruption,” says Lenna Koszarny, CEO at Horizon Capital. “More has been done in the past two-and-a-half years than in the 20 years preceding. Clearly, when a country hasn’t pursued structural reforms for 23 years, there is a lot to do. The process has just started.” Her firm is Ukraine’s largest private equity fund, and has invested more than $500m in Ukrainian and regional companies to date.

Mass changes

Among Ukraine’s reforms are: three anti-corruption bureaus established in 2015 for prevention, investigation and prosecution; an electronic system for asset and income disclosure that has led to the resignations of thousands of public servants; a public e-procurement system meeting World Trade Organisation requirements; decentralisation allowing more financial resources to local regions; banking sector and judicial reform; secured macroeconomic stability; a reduction of personal and payroll taxes; and the start in late 2016 of a government effort to repeal hundreds of outdated regulations on taxes, customs, and foreign exchange restrictions.

“The biggest reform of the past three years is decentralisation, which was fundamental because it broke the Soviet vertical of power where all decision making and finance was held at the top,” says Daniel Bilak, a director at UkraineInvest, the national investment support agency founded in November 2016.

“We need to make the business environment a safer and more attractive place,” he adds. “Difficulties with the rule of law and property rights protection have clearly undermined investor confidence. This is why there is huge judiciary reform under way at the Supreme Court level all the way down to the appellate court. People are starting to feel these reforms, but it doesn’t happen overnight.”

People power

Arguably Ukraine’s best asset is its human talent. Of its 45 million inhabitants, 70% hold a secondary education degree or higher and, according to the World Economic Forum, Ukraine produces 130,000 engineering graduates per year – the most in Europe – and is ranked number one for IT engineering in central and eastern Europe (CEE). The countrys IT sector generates about $3bn annually.

Labour costs are also among the lowest in the CEE region; the average monthly salary is $179, according to 2015 figures, significantly below the regional average.

“I’ve been here 10 years, and what Ukraine has to offer is a solution for Western countries facing a shortage of IT personnel,” says Hans Uithol, CEO of Dutch professional services company HYS Enterprise, which runs all its operations from its 150-strong team in Ukraine’s port city of Odessa. “It’s not about money; it’s about the availability of people,” he adds.

More than 100 international companies operate software R&D labs in Ukraine including BMW, Volvo and IBM – Samsung alone employs 1000 Ukrainian engineers for its research projects. IT outsourcing sales have grown twentyfold since 2003, and represent 40% of all Ukraine’s exports to the US.

Meeting challenges

All of this has happened despite a lack of dedicated infrastructure supporting tech entrepreneurs, says Bohdan Kupych, vice-president of business development at Kiev-based tech holding company KM Core. “There is no access to capital for entrepreneurs. It’s boot strapping, family and friends’ money… that’s where we work.” KM Core has invested about $100m in several tech projects in Ukraine. “We help companies get started to the point where they can attract additional investment,” he adds.

“There are some start-ups that manage to gather capital, but once they enter the growth stage they’re forced to look outside the country,” says Yuri Warczynski, co-founder of HYS Enterprise. “That is a disadvantage for Ukraine, but also an opportunity for venture capitalists, for angel investors, for anybody ready to invest in start-up accelerators here in Ukraine.” Notably, the founders of WhatsApp and PayPal were both born and raised in Ukraine but found success in the US.

An additional challenge is the impact Ukraine’s war has on investor perception, says Oleg Shkuropat, Odessa branch manager at Danish-founded Ciklum, one of Ukraine’s leading IT outsourcers with 3000 employees across the country. “The growth of our office here in Odessa has decreased, because of the war in the east and the conflict with Russia,” says Mr Shkuropat. “It’s hard to convince clients to build out their R&D centres anywhere further from Kiev or the country’s west. This office used to grow by 40 to 50 people per year, but in the past three years we’re growing by six to seven people per year. Other companies have been less fortunate and closed down.”

HYS Enterprise’s Mr Uithol believes the biggest efforts “should lie in showing the region is safe”, adding: “We cannot emphasise enough that now it is really safe to invest here, and your capital is secure.”

Rewarding the risks

Despite the apparent hurdles left by decades of mismanagement, Ukraine’s fundamental strengths have provided significant returns for those committed to navigating the country’s investment landscape. “Having discussed the current problems, there are in fact a lot of companies here that have made a lot of money,” says Mr Bilak.

Many of those successful companies are in agribusiness, one of Ukraine’s most lucrative sectors – the country holds 33% of the world’s black earth soil, considered the most fertile for agriculture, and its land bank is capable of feeding 500 million people. More than 70% of Ukraine’s territory is agricultural land, valued at more than $100bn, and the country is the world’s top exporter of sunflower oil and the third largest exporter of corn. The agriculture industry has grown by 14% a year since 2003 and constitutes 38% of all Ukrainian exports.

US-raised Ukrainian John Shmorhun, CEO of AgroGeneration, represents just one of these success stories. Founded a decade ago, the company employs 1400 people across 12 farms in Ukraine and produces 400,000 tonnes of crops per year.

“The reason Ukraine is so important is that we are profitable, in spite of all the hurdles and without subsidies. We were forced to be efficient from the very start,” says Mr Shmorhun. “If you want profitable, efficient farming, come to Ukraine.”

Growing pains

With additional investment into management, irrigation, logistics and equipment, Ukraine could double or triple its annual grain harvests of 60 million tonnes a year. “Ukraine needs $50bn to $60bn in foreign direct investment [FDI] for its agriculture over the next five to six years,” says Mr Shmorhun. “Ukraine doesn’t need smart people, labour or soil, it already has that. All we need is the investment.”

He says land reform is the biggest issue for agricultural investors – something Mr Bilak says is under discussion, as large companies in the sector face complex land ownership laws and cannot own the land on which they work. “Land reform, pension reform and public administration reform – those are the three big reforms being worked on right now,” adds Mr Bilak.

“Investors need to get over the war,” says Mr Shmorhun, who states that the conflict occupies 7% of the country, while 93% of it remains perfectly operable. “Things are moving in the right direction. My message to investors is look at the companies and their success rate over the years. Judge for yourself,” he adds. “When you can make these types of margins, why not? The war doesn’t affect us. Agriculture in Ukraine is revolution-proof. We’ve proven it.”

Room for modernisation

Ukraine is bordered by seven countries, four of them in the EU, and its infrastructure offers connections to key central and western European markets – many of its manufacturing plants are already integrated into European and global supply chains. Thirteen seaports, 170,000 kilometres of roadways, 22,000 kilometres of railways and more than 20 passenger airports support an export-oriented economy, complemented by Ukraine’s Deep Comprehensive Free Trade Agreement with the EU, which lifts tariff and non-tariff barriers for Ukrainian exports.

The ports and shipping sector is vital to exporting the country’s agricultural produce, yet according to the State Property Fund of Ukraine (SPFU), 70% to 90% of the ports’ infrastructure is outdated. FDI is essential to upgrading the ports to boost exports.

This endeavour is complicated, however, by the country’s privatisation regime. It has 3500 state-owned enterprises, and so far, ports are not up for privatisation, says Andriy Gaidutskiy, SPFU’s deputy chairman. Multinationals such as Cargill and ArcelorMittal therefore develop the ports, investing in projects including grain terminals and logistics, on a concession basis.

TIS Group of Terminals in Yuzhny, 27 kilometres east of Odessa, is Ukraine’s busiest maritime hub, operating five maritime terminals for ore, coal, fertilisers, grain and containers. “There is definitely a reason to do business in Ukraine,” says TIS CEO Andrey Stavnitser, citing Ukraine’s global standing as an agricultural producer.

“Yuzhny is the deepest port in Ukraine, which makes it perfect for large-scale commodity trade. TIS has invested in excess of $500m in maritime and land transport infrastructure, and now Yuzhny is the third largest port in the whole Black Sea,” he adds.

“Despite all the bureaucratic challenges, a private business of brick and mortar such as TIS works under international standards and can provide its partners with flexible and reliable services,” says Mr Stavnitser. The government is forming new concession legislation, and assets from ports to power plants are being prepared for concession or privatisation with the help of international consultants.

“The process is moving forward – not too fast, but it definitely is. Moreover, existing ports will also be open for large-scale privatisation, which is another reason to consider Ukrainian reforms seriously. I stress that private business is driving all the positive changes – and does this efficiently and promptly, pushing the government for faster and more efficient solutions as needed,” adds Mr Stavnitser.

Changing mindsets

Numerous other sectors in Ukraine present investment opportunities, among them energy – with everything from oil and gas exploration to coal, where French ArcelorMittal has invested $170m into a coke plant in central Ukraine, to renewables, where Turkish Atlas Global Energy has invested $20m into a wind farm in western Ukraine. Two hydropower plants were privatised in 2016, with more planned for this year.

“The biggest reform we are seeing is a change of mindset, especially in many government officials,” says Andy Hunder, president of the American Chamber of Commerce in Kiev, which represents 600 companies. “There is a lot of resistance – we’re seeing a clash between old and new. The new people, especially over the past three years, are coming in and they want change. Things are moving, albeit slower than we would like, but we have hit rock bottom and now we are climbing out.

“The voice of business can definitely be heard. A lot still needs to be done, but we are in this together and pushing together.”

So what advice would Mr Hunder give investors in Ukraine? “The most important thing is to have a clear strategy and play by the rules,” he says. “If you understand the realities and risks of doing business here, you can really see your success.”

Mr Bilak adds: “We’re in this transition period between old and new Ukraine that began three years ago. Up until three years ago, people were afraid of the system; now the system is afraid of the people. You have to pull many weeds out before you have a garden and that is the process we’re in. You are seeing, and will continue to see, fundamental change.”

Author: Natasha Turak

Source: thebanker.com

UVCA Publishes Overview of Ukrainian Investment Market

The Ukrainian Venture Capital & Private Equity Association (UVCA) published the first overview of Ukrainian investment market displaying current players’ activity, sectors of interest, and portfolio.

The Investors Book identified 34 active investors, which deal with global companies from Ukraine (mostly IT sector). According to the Book, there are 29 funds operating in Ukraine, consisting of:
– 5 incubators and accelerators,
– 1 corporate fund,
– 17 venture capital funds, and
– 6 private equity funds.
Out of the total, 10 funds may participate in rounds A or B, 16 funds are ready to invest in seed startups, 7 funds would invest at the pre-seed stage.
Ukrainian investment funds have 20 portfolio companies on average. Funds are ready to invest from 50k to dozens of millions USD, depending on the fund type and project stage. Thirty-seven percent of the funds may invest from 100k to 1 million USD.

Have a look at the “Book” here

Established in mid-2014 and led by Olga Afanasyeva, CEO, UVCA currently unites 40 members – private equity and venture funds, accelerators, incubators, educational institutions, and non-government organizations that make significant impact on the development of Ukrainian investment market. The association promotes investment opportunities across the country for foreign investment funds, conducts market research, lobbies laws for improving investment and business climate, and implements Invest in Ukraine activities.

Source: finsmes.com

Why Investors Are Giving Ukraine a Second Chance

Ukraine today is open and transparent, but foreign investors are often taken aback by its challenges. While corruption and property rights are issues, any objective assessment must recognize the monumental strides the country has taken on these issues.

After three years of reforms, society is fatigued, and the mood is pessimistic. The current media narrative—that while some changes have taken place, reforms in the country have stalled—disregards the scale of achievements since 2014. Ukraine began building a truly democratic state only three years ago, after twenty-three years of failed kleptocratic leadership by its Soviet-era elites. The regime of former President Viktor Yanukovych’s industrial-scale plunder of the state treasury put Ukraine’s very survival in question after the Revolution of Dignity. Ukraine lost almost 30 percent of its GDP, 60 percent of the value of its currency, and 7 percent of its territory to an invading aggressor, with the treasury holding less than $15,000 in the country’s current account and barely enough gold reserves to cover one month’s worth of imports.

A Japanese business delegation explores an Antonov An-225 Mriya, the largest cargo aircraft in the world, in Kyiv, Ukraine, on March 15. Led by the Japan External Trade Organization, the delegation met with Minister of Economic Development and Trade Stepan Kubiv and representatives from the Ministries of Agrarian Policy and Food, Energy and Coal Industry, and Infrastructure, among others. Credit: UkraineInvest

But Ukraine turned things around. Within two years, the country had achieved macroeconomic, currency, and public debt stability; signed a free trade and Association Agreement with the European Union; decentralized power and funding to local governments; reformed its notoriously corrupt police force, public procurement system, and gas sector; and embarked on an overhaul of the financial and tax systems. And it continues to improve the business environment by scrapping outdated and job-killing regulations.

More has been done to reform the country in the past three years than in the previous twenty-three, resulting in 4.7 percent year-over-year economic growth in the fourth quarter of 2016. The International Monetary Fund recognized these achievements and signaled its confidence in the government’s course by releasing on April 3 the fourth installment of $1 billion under its four-year, $17.5 billion lending program.

Also on April 3, Prime Minister Volodymyr Groisman announced the next wave of far-reaching structural social and economic changes that will finally be felt by ordinary Ukrainians. They include the reform of the pension, health, and education systems, the creation of a market for agricultural land, and a new approach to privatizing state-owned enterprises.

Unfortunately, most Ukrainians have not yet felt the results of the initial changes, but investors have taken note. Ukraine’s western and central regions are now integrated into the European automobile supply chain through a large cluster of major international manufacturers profitably exporting auto parts to the EU, creating tens of thousands of jobs and investing hundreds of millions of euros into Ukraine’s economy. The country’s largest investor, ArcelorMittal, has announced a $400 million modernization of its steel works in eastern Ukraine this year, creating about 25,000 new jobs. UkraineInvest is currently supporting a number of global players in the agribusiness, infrastructure, innovation technology, energy, and energy efficiency sectors with planned investments this year.

While investors recognize the opportunities, they are also aware of the risks. The unprecedented social and economic transformation underway in Ukraine inevitably involves significant transaction costs. Although the EU’s Association Agreement assessment mission recently gave the government high marks for addressing the challenges of corruption, the country’s greatest challenge remains to strengthen the rule of law and transform the relics of the Soviet system that hinder business: the courts, the prokuratura, various security and law enforcement agencies, and numerous administrative bodies. While much remains to be done, a recent high-profile arrest shows that Ukraine’s new Western-backed anti-corruption institutions are beginning to succeed, and the current reform of the Supreme Court, involving civil society oversight, may facilitate the reform of the country’s judiciary as a whole.

The Groisman government understands that making transparency a permanent part of public administration is the key to eventually defeating corruption. The government’s earlier success with ProZorro, Ukraine’s internationally-acclaimed public procurement process, has been followed by the establishment of an online registration system for businesses and property, an e-declaration system outlining the assets of all public officials, and an automatic online VAT-refund registry.

Ukraine has a remarkable story to tell, but it needs more investment now. Experts have urged Ukraine’s international partners—the European Bank for Reconstruction and Development, the World Bank group, OPIC, and the European Investment Bank—to pledge $25 billion for a five-year infrastructure fund to spur investment in the public and private sectors. If these were buttressed by export credits from bilateral export credit and insurance agencies, such as the US Export-Import Bank and Hermes from Germany, the Ukrainian government could offer its citizens a brighter future faster. The Ukrainian people deserve nothing less.

Daniel Bilak is director of UkraineInvest and serves as the chief investment adviser to the Prime Minister of Ukraine.

Source: atlanticcouncil.org

UNIT.City: first Ukrainian innovation park

In recent years, Ukraine has been actively developing the innovation sphere, and Ukrainian start-ups and IT companies are known worldwide. According to IT companies, in 2016 the IT market amounted to $3 billion, which is 3.3% of Ukraine’s GDP in 2016. This area grows by 20,000 jobs annually. These growth rates can gradually match traditional Ukrainian industries like metallurgy and agriculture that will increase budget revenues. Ukraine has been discussing the launch of innovation parks for several years. One of the first has recently opened in Kyiv.

The first part of a large-scale project UNIT.City was presented on April 6 in Kyiv. It is expected to become the focus of the country’s creative economy.

The goal of the UNIT.City project is to combine educational, business, cultural, medical, sports and entertainment facilities in order to provide small and medium-sized innovation businesses with access to all infrastructures necessary for rapid development and expertise in one area.

Target audience

For the most part, companies that work in the areas of high technology, creative ideas and innovative business will be based here. That is, small Ukrainian and international food companies, R&D centers, start-ups and IT companies.

UNIT.City will help create up to 15,000 highly paid jobs, and provide talented youth with the opportunity of self-realizing in their country thus stopping “brain drain” in Ukraine.

Infrastructure

The total area of the future innovation park will be 25 hectares. The project resembles the famous campuses of Google, Apple and other Silicon Valley giants.

As of now, 4000 square meters have been used. Business campuses, sports complex and UNIT.Factory (free programming school), which is the main educational element of the park, are located there.

Business campuses will work in the format of club-offices (the company will use a small room, while meeting rooms and other spaces can be used by other companies).

Investors plan to build 31,000 square meters of business campuses, which will help create an entire innovation park. It is planned to invest 200 million dollars in the project within four years.

Sources: ain.ua and uacrisis.org (UCMC publishes an abridged version of AIN.UA article).

Photos: Olga Zakrevska

EBRD Intends to Invest € 1 Billion in Ukraine in 2017

Şevki Acuner, Director of the European Bank for Reconstruction and Development (EBRD) for Ukraine, hopes that the bank will expand its investments in projects in Ukraine up to EUR 1 billion this year.

“Over the previous two years, we invested EUR 2.2 billion in total, which is about EUR 1 billion per year, so I expect that this year we will achieve the same level of investment,” said the Director in his interview with Interfax-Ukraine Agency.

Mr. Acuner reminded that, in 2016, EBRD’s total investment in Ukraine came up to nearly EUR 600 million, which was caused by Ukraine’s political instability in early 2016.

According to the EBRD Director for Ukraine, the Bank has ambitious investment plans for 2017. In his opinion, the security situation in Donbas will not influence the investment volumes. Thus, he informed that the EBRD intended to invest in subway construction in Kharkiv, development of Ukrainian power lines and energy industry, as well as to finance a number of port industry related projects in Ukraine.

Source: eurointegration.com.ua