Business Ukraine 01/2020 by Business Ukraine magazine

01/2020 MIPIM issue

2020 GUIDE UKRAINIAN

REAL ESTATE INVESTMENT

WHY CHOOSE

BUSINESS UKRAINE 01/2020: This month’s issue includes a special focus on Ukrainian real estate investment as part of Business Ukraine magazine’s media partnership with the Ukrainian delegation at the 2020 MIPIM event in Cannes. ON THE COVER: The METROPOLE project in Kyiv combines three towers connected by a central green rooftop plaza. The project includes residential, office, retail and leisure functions. The architect behind the project is the French award-winning VASCONI bureau.

Chronic distrust of authority is Ukraine’s infowar Achilles Heel Ukraine was briefly gripped by mass panic in February as dark rumors swirled over the return of Ukrainians evacuated from China due to the coronavirus outbreak. It later transpired that the entire episode was the result of a carefully curated disinformation campaign. However, while the news that led to the hysteria was fake, the reactions were real enough. This served as a reminder of the chronic distrust towards all forms of authority that hampers Ukraine’s progress and leaves the country dangerously vulnerable to information attacks. Ukraine’s default distrust of officialdom is not hard to understand. Indeed, after centuries of imperial dominance and decades of post-Soviet dysfunction, Ukrainians can be forgiven for assuming that those in power do not have their best interests at heart. Nevertheless, this tendency to instinctively believe the worst leaves Ukrainian society wide open to manipulation and complicates the already difficult job of governing the country. The debilitating effects of this relentless skepticism are often evident in everyday life. Anyone who has spent time in Ukraine will be painfully familiar with the phenomenon of highly educated and otherwise well-informed people embracing the most absurd and outlandish conspiracy theories in order to explain seemingly straightforward events. In this polluted information environment, to accept the official version of anything is to announce oneself as a fool. Ukrainian cynicism towards official sources of information is not always a bad thing. Over the past six years of hybrid warfare, all but a tiny minority of Ukrainians have learned to disregard the disinformation efforts of Russia’s Kremlincontrolled media. This is welcome progress, but it will not protect the country against further information attacks. Moscow is well aware that its official media platforms have lost all credibility and has long since opened up new fronts

in its information war against Ukraine. This includes fairly obvious purveyors of disinformation such as Ukrainian TV channels with Kremlin-connected ownership, but it also extends to more sophisticated operations utilizing social media and public figures with anti-establishment credibility. The recent coronavirus fiasco will only serve to encourage more efforts in this direction. Nor is Russia the only actor seeking to exploit Ukrainian society’s trust issues. Ukraine’s many populist politicians are also eager to feed the lack of public confidence in the the country’s fledgling democracy, leading to endless cycles of election and rejection as each new face runs into the same brick wall of blanket suspicion. As his approval ratings continue to decline, President Zelenskyy will be acutely aware of this particular Ukrainian tradition. Greater public trust in the Ukrainian authorities cannot be achieved overnight. Inevitably, much will depend on the future conduct of the authorities themselves and the extent to which they are held accountable for their misdeeds. However, there are a number of steps that could lead to more immediate improvements. Greater transparency in government would help, as would more emphasis on effective communications strategies that do not involve waiting until the moment of crisis before attempting to respond. Enhanced engagement with the media could also improve public perceptions of state institutions. President Zelenskyy has popularized the idea of direct dialogue with the electorate via social media, but democracy depends on the scrutiny of a journalistic filter. Most of all, the Ukrainian authorities need to recognize that the current lack of public trust is a matter of national security. Until it is addressed, Ukraine will remain crippled by domestic discontent and virtually defenseless against further acts of Russian information aggression.

About the author: Peter Dickinson is Publisher of Business Ukraine magazine and UkraineAlert Editor at the Atlantic Council

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2018

Ukrainian Real Estate

2020 Investment Guide Ukraine is currently experiencing one of those rare periods in the evolution of a nation when history seems to be moving at a greatly accelerated pace. After centuries of imperial anonymity and decades spent in the post-Soviet shadows, the country has rarely been out of the international headlines since 2014. While global media attention has focused on Ukraine’s undeclared war with Russia and, more recently, the country’s pivotal role in the impeachment of US President Donald Trump, the real story has been of a young European nation finally finding its voice and seeking a place for itself on the world stage. Over the past six years, this climate of change has made itself felt in virtually every sphere of Ukrainian daily life. A game-changing Association Agreement with the European Union has helped the Ukrainian economy move beyond the traditional comfort zone of the Soviet world and enter new global markets at an unprecedented rate. Whereas Russia once enjoyed complete dominance and accounted for around onethird of all Ukrainian imports and exports, it has now been replaced by China as the country’s leading trade partner and finds itself competing with a number of expanding markets for Ukrainian produce including Germany, India, Poland and Turkey. As the Ukrainian economy diversifies, it is also growing. Ukraine’s GDP has risen consistently every quarter since early 2016 and is forecast to gain further momentum in the coming two years. This is fueling expansion everywhere from the country’s vibrant eating out scene and retail sector to the Ukrainian air travel industry. In 2019, Ukraine ranked as Europe’s number three country in terms of new cafes. Meanwhile, Ukraine’s busiest airport Boryspil took top place in Europe last year for passenger growth.

With Ukrainians traveling more than ever, they are increasingly demanding international standards at home and adopting the best of the innovations they encounter abroad. Indeed, we are already starting to see the first examples of Ukrainian creativity being replicated elsewhere in Europe. This trend is benefiting from the country’s thriving IT sector, which is one of the fastest-growing in the world. Ukraine’s tech boom is among the key drivers pushing office rental rates up across the country, with tech-savvy companies also expecting a wider range of convenience and functionality. All this makes Ukraine and intriguing destination for real estate investment. It is a country with a huge appetite for change which must nevertheless come to grips with an inheritance of outmoded infrastructure and decades of neglect. In many cases, this means starting from scratch and creating new real estate solutions that meet the challenges of tomorrow. Ukrainian towns and cities reflect this transitional mood, with impressive modern facilities often sitting alongside uninspiring Soviet-era properties. The legacy of the communist era also means that large urban plots are widely available for the kind of ambitious city center development projects that few other European countries could accommodate. Challenges abound. New investors must reckon with such realities as an imperfect judicial system, while the potential for political instability remains strong. Nevertheless, the opportunities for real estate investment in today’s Ukraine are unlike anywhere else in Europe and will not be repeated. As a country, Ukraine has set out since 2014 on the road towards greater European integration. The journey will be necessarily long, but the benefits will be highest for those investors who join during the early stages.

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Ukraine’s decentralization reforms create regional real estate investment opportunities

Ukraine’s untapped potential may be greatest in vast country’s smaller cities and tourist attractions

About the interviewee: Olena Shuliak is a Ukrainian MP and official Cabinet of Ministers representative in parliament. She heads a range of parliamentary subcommittees dealing with issues related to the construction industry. Visitors to Ukraine’s capital would likely be struck by the many construction cranes that dot the skyline. Indeed, Kyiv creates the impression of a country in the grip of a building boom. In reality, investment in the Ukrainian real estate sector currently lags far behind the levels registered elsewhere in Europe. This creates both challenges and opportunities. Looking ahead, the greatest investment potential may actually lie far beyond the Kyiv city limits in the less well-known regional capitals and underexploited tourist attractions of this vast country. Ukrainian MP Olena Shuliak is trying to help the country’s real estate sector capitalize on its obvious investment potential. She was among the new intake of first-time MPs to enter parliament during the generational shift in power that took place in Ukraine following the summer 2019 parliamentary elections. As well as serving as the official Cabinet of Ministers representative in parliament, Shuliak also leads a series of parliamentary subcommittees dealing with issues related to the construction industry. A former executive at a Ukrainian developer company with almost a decade of professional experience in the Ukrainian real estate industry on her CV, she is well-versed in the realities of the sector and acknowledges that much more needs to be done in order to entice international investors. Shuliak cites rule of 12

law issues and political instability as key factors currently deterring investors, but argues that progress is now being made. She points to specific recent examples such as the series of anti-raider and investment protection laws passed by parliament since August 2019, while noting the government’s commitment to further judicial reform. Work is also underway to reduce the bureaucratic burden within the real estate sector via an ambitious digitalization program that aims to move everything from planning applications to building permits online. This is part of a broader digital revolution currently taking place throughout Ukraine’s state institutions initiated by President Zelenskyy following his spring 2019 election. “Our goal is that within three years, it will be possible for real estate developers to initiate new projects without needing to meet any civil servants at all,” says Shuliak. While these efforts promise to make life both more convenient and more predictable for real estate investors in Ukraine, Shuliak argues that the most significant reform may actually be the decentralization drive that has already been underway in the country for a number of years. The new government has identified regional development as one of its policy priorities and intends to promote further decentralization initiatives that will empower local authorities and make sure bigger budgets are available at the regional and district levels. “If we look at a sector such as retail real estate, the figures show that construction has been too focused on Ukraine’s largest cities with populations of more than one million. At the same time, smaller regional capitals are being overlooked,” she observes. Decentralization aims to challenge this traditional focus on Ukraine’s largest population hubs. It has given local authorities the freedom to develop their own investment strategies, while also motivating them with the prospect of retaining a larger share of any resulting revenues. This makes Ukraine’s underdeveloped mid-sized cities potentially attractive investment focuses for developers. Shuliak identifies tourism in particular as a sector with huge scope for interesting real estate and construction investment projects. Ukraine’s 2014 revolution and ongoing undeclared war with Russia have kept the country in the international headlines for much of the past six years, sparking rising levels of outside interest and leading to a growing number of foreign visitors. It is too early to speak of a tourism boom, but Ukraine’s expanding international profile and the recent arrival of budget airlines have combined to help big Ukrainian cities such as Kyiv, Lviv and Odesa establish themselves as increasingly mainstream European tourist destinations. Shuliak sees potential throughout the fledgling Ukrainian tourism sector, pointing to everything from eco-tourism and heritage tours to the development of more traditional beach resorts and winter sports facilities in the Carpathian Mountains. “Our ski resorts have all the natural attributes to be competitive on the Central European market alongside resorts in Poland, Slovakia and the Czech Republic, but in terms of infrastructure, we still have a long way to go.” she says. “This creates opportunities. With the right combination of public and private investment, Ukraine’s mountain resorts could become real pearls.” www.bunews.com.ua

Kyiv Region will be Ukraine’s investment showcase

A range of geographic, economic and logistical advantages add to Kyiv Region’s investor appeal Ukraine’s economic development depends on the country’s ability to attract international investments. Meanwhile, decentralization reforms undertaken since 2014 have empowered Ukrainian regional authorities with enhanced economic independence and greater potential to improve their local investment climates. Governor of Kyiv Region Oleksiy Chernyshov explains how his team aims to capitalize on the region’s many advantages to create an investment showcase for the entire country. Kyiv region is located in the geographical and economic heart of the country in close proximity to the capital city itself. This advantageous location creates a wide range of in-built advantages. What is your vision for the development of the region? Oleksiy Chernyshov: Today’s Ukraine is seeking to embark on a period of rapid and qualitative change. The driving force behind this transition will inevitably be investment. The Kyiv region is already emerging as a successful example of positive transformation. This is something we intend to build on. Kyiv region benefits from a range of attractive attributes that make investment more appealing. These factors include location, transportation infrastructure, access to excellent human resources, and comprehensive support from the regional authorities including myself personally as the head of the Kyiv Regional Administration. We also benefit from a window of opportunity. Ukraine currently has a chance to change the trajectory of the country’s development and make genuinely historic progress. Following presidential and parliamentary elections in 2019, we now have a new president and changes at every level of government. There is political will to act. The challenge is to identify the best approaches and begin working for a more prosperous Ukraine. What investment projects are underway in Kyiv region at present? Oleksiy Chernyshov: We are currently working on a number of large-scale projects that will help to establish the region as a showcase of the opportunities available throughout Ukraine. The new Kyiv Regional Administration team is focused on projects that can demonstrate high potential for development not only in Kyiv region itself, but also elsewhere in the country. One of these flagship projects is Bila Tserkva Airport, with the redevelopment and upgrade of the existing airport and its transformation into an international air travel and cargo hub. The project benefits from the multi-

modality of the site itself. Bila Tserkva Airport is located close to a major railway line, while the Kyiv-Odesa highway, which is one of Ukraine’s most important road arteries running north to south through the center of the country down to the Black Sea, is just 12km away. By the end of 2020, an international customs checkpoint and border facilities will be established at the airport. The next stage will involve the construction of new cargo and passenger terminals together with a service center. We plan to work with carriers to improve logistics and expand the services available for both cargo and passenger transportation. Securing international status for the airport will also make it possible to attract new airlines. This will have a positive impact on the tourism industry and on the wider economy. Another key project is the construction of a new ring road around Kyiv. This is an impact project for the entire Kyiv region economy. Building works alone could result in the creation of up to 30,000 new work places. Thanks to this new ring road, we will be able to greatly simplify and improve transportation issues throughout the suburban areas surrounding Kyiv itself, while also reducing the burden on existing roads created by transit vehicles. State support for this project will help to ensure timely progress. Kyiv region is looking to attract investors and make their work in the region easier. What are your next steps towards attracting investors? What is your approach as Governor of the region? Oleksiy Chernyshov: Thanks to my previous professional activities, I have extensive prior experience of working with investments and engaging with investors. This is an area that I understand. I appreciate the priorities of investors and the need for close cooperation between the private sector and the state. Since the beginning of this year, we have restarted the work of the Regional Development Agency. In February, we held the first extended meeting of the Kyiv Region Investors Council. This was attended by all the key investors and business representatives with significant interests in the country and region, along with representatives of numerous state bodies. I am happy to report that a constructive and balanced dialogue was quickly established. Representatives of the state authorities and the business community agreed to work in partnership towards the common goal of creating greater comfort and security in the business and investment climate. We will definitely strengthen the position of the Kyiv region as an example of what Ukraine can offer to investors, and as an efficient investment showcase.

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About the interviewee: Oleksiy Chernyshov is Governor of Kyiv Region

Ukrainian Real Estate Market

2020 Investment Analysis

Alexander Nosachenko of Colliers International (Ukraine) looks at Ukraineâ&#x20AC;&#x2122;s real estate market trends

real estate investment

Ukraine is one of Europeâ&#x20AC;&#x2122;s largest and least-developed real estate investment markets. The steady growth of the Ukrainian economy since 2016 is creating a range of new opportunities for real estate investors, but local nuances require careful consideration. Colliers International (Ukraine) managing director Alexander Nosachenko spoke to Business Ukraine magazine about the current status of the Ukrainian real estate market and shared his thoughts on the most interesting segments for potential investors.

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How do current investment trends on the Ukrainian real estate market compare to what you are seeing in the rest of Europe? Real estate investment in Europe at the end of 2019 amounted to about EUR 308 billion. In terms of breakdown, about 41% (EUR 128.3 billion) of total investment went into the office real estate segment. Apartments took second place with about 19% (EUR 58 billion), followed by retail with 15% (EUR 40 billion). Meanwhile, warehouses accounted for 11% (EUR 35 billion), and 8% (EUR 24 billion) went into hotels.

300

25.0%

Kyiv Office Market 19.8%

250

200

14.0%

20.0%

17.5%

16.8% 15.1%

14.4%

13.5%

15.0%

150

7.6%

100

10.0%

6.5%

7.0% 5.0%

2010

2011

2012

2013

New supply, ths, sqm

2014

2015

Gross take-up, ths, sqm

2016

2017

2018

2019

0.0%

Vacanсy rate, %

Source: Colliers International (Ukraine)

Nine years ago in Ukraine, investments in real estate transactions represented 6% of total foreign direct investment, but this rose to about 12% in 2019. Unfortunately, there is no consolidated information covering all transactions, figures and new owners, as the Ukrainian market is still on the path towards full transparency. Based on the available open data, real estate investment in Ukraine is currently in line with broader European trends, with the country’s office segment occupying first place. Retail was in second place in 2019, followed by warehouses and industrial real estate.

How would you assess the current investment climate in the Ukrainian commercial real estate market? The Ukrainian real estate investment market is definitely growing. The main indicators of this growth are increasing volumes of transactions and more interested companies. There is particularly strong demand for facilities already rented by tenants and therefore already generating income, as well as other liquid projects. The most common requests we are seeing are for office real estate of about 10,000 square meters, but there are currently very few of facilities of this standard on the market. At present, a significant share of investment is local equity. Foreign investors are still cautious regarding the Ukrainian market. The main factors that prevent international investors from entering the commercial real estate segment are an unstable economy, the military conflict in the east of Ukraine, corruption, and a perceived lack of transparency in interactions between the business sector and the state.

Which sectors of the Ukrainian real estate market are currently attracting the most investor interest? The Kyiv office segment is of particular interest to investors. 2019 was the most active period for the segment in the last few years. This revitalization was evident among tenants, with office space take-up increasing by 19% year-on-year. It was also felt by developers, with new supply increasing by 88% compared to 2018. The 2019 total of 94,000 square meters is expected to more than double during the present year to reach at least 230,000 square meters by the end of 2020. Nevertheless, demand is currently outstripping supply. Growing demand combined with the mod18

est levels of new supply over the previous four years have combined to produce a significant decrease in the average office vacancy rate in Kyiv, which has fallen from 17.5% in 2015 to 7% at the end of 2019. Whenever the vacancy rate drops below 10%, it is an indication that the market favors landlords. Over the past two years, Ukraine’s rapidly expanding IT sector has consistently maintained the largest share in the country’s total office space demand structure, accounting for about 45%. The highest demand for office space comes from IT outsourcing companies, which are actively expanding in line with the dynamic development of the industry. Illustrating this point, IT companies are also actively involved in the leasing of premises which are still under construction. At the same time, industrial, energy sector and financial companies are also becoming increasingly active in the office real estate segment. High rental activity in the office segment of the real estate market is one of the outcomes of Ukraine’s economic stabilization. Given the increasing demand for quality office space, there has been an increase in the highest base rental rates for Grade B office space, with rates rising from USD 19/sq m/month in 2018 to USD 23/sq m/month in 2019. Meanwhile, the prime headline rent for Grade A space has remained at USD 30/sq m/month. Office premises featuring thoughtful concepts and a good location are of great interest during the construction phase. Given the current pent-up demand for office space, some of the business centers announced for 2020 will be commissioned with low vacancy rates. The Ukrainian retail market continues to grow as it responds to improved purchasing power and consumer sentiment. The retail space expansion rate in 2019 was the highest seen during the last 10 years, with four new shopping centers commissioned. During the first three quarters of 2019, the vacancy rate remained at 4.4%. However, due to the commissioning of the first phase of the large Blockbuster Mall project in Kyiv, vacancy rates increased to 11%. It is expected that with the process of attracting new tenants to the mall, the vacancy rate will decrease to around 5% 7% by the end of the current year. Over the next three years, more than 800,000 square meters of new retail real estate space is expected to be commissioned, which represents 53% of Ukraine’s total shopping center

What are the prospects for the Ukrainian hotel segment? Most investor interest is currently focused on middle-priced hotels and quality-built properties in interesting locations. The most liquid properties are three-star hotels. This sector is starting to attract the attention of investors as Ukraine has considerable untapped tourism potential. If you look globally, real estate investment is shifting towards the hotel and residential segments as investors look to gain from the expanding economy of impressions. This trend is driving the growth of tourism around the world. Sooner or later, it will affect Ukraine as well. In the hotel sector, we can see a transformation towards the tastes of millennial clients. This is also evident in Ukraine, with larger “working” areas and co-working. Hoteliers are building their businesses not only with tourists in mind, but also local customers. Additionally, several capsule hotel projects were commissioned last year in Ukraine. In the Ukrainian residential sector, we are finally seeing the evolution of apartment formats to a new level. The market has matured with the emergence of professional apartment complexes - apartments that are purchased specifically to be leased by a professional management company.

Which funding models are currently the most popular among Ukrainian real estate developers? The paradox of the Ukrainian market is that most real estate projects are financed by private capital. This approach works in the residential sector, where small-scale investors invest their own personal funds into projects. However, in the commercial real estate sector, the efficiency and speed of construction is much lower without debt capital. This situation is a result of the unfavorable loan terms offered by local banks. The market has recently seen some examples of foreign banks lending to commercial real estate projects. Real estate company Martin, which is developing the Retroville shopping, entertainment and business center in Kyiv, has announced a loan of EUR 41.1 million from Polish state bank BGK (Bank Gospodarstwa Krajowego S. A.). To date, the company has already received EUR 12.2 million. The same bank will provide a loan of EUR 53.6 million to real estate company Budhouse in order to continue the construction of Nikolsky shopping center. However, under the terms of this cooperation, the contractor must be a Polish company, while 40% of all services and goods for the completion of the property should come from Poland. www.bunews.com.ua

How do you see the Ukrainian real estate market developing during 2020? Investment activity will continue. We expect that over the next 12 months, investors will focus on good-quality properties. In 2020, major transactions are expected to take place on the Ukrainian market including the sale of bank assets, non-core assets of state-owned enterprises, and the privatization of state property. The Kyiv office market is now in a phase where it is profitable both to buy ready properties and to invest in new projects, so office transactions will retain their leading position. Development in response to the long-standing shortage of quality office space will lead to a significant increase in new supply during 2020. In the retail market, if all planned retail projects are commissioned on schedule, total supply of retail space will increase by more than 53% and will amount to about 2.3 million square meters. The development of large retail facilities requires additional investment, so new shareholders are expected to join these projects. Meanwhile, Ukraine’s industrial and logistic real estate market will continue to attract significant interest from investors if rental rates remain on current growth trajectories.

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stock. However, there is a high probability that the completion of several of these shopping center projects will be delayed until a later date. New retailers are increasingly noticing Ukraine’s expanding consumer market. Over the past three years, 47 international brands have entered the Ukrainian retail market. Some retailers, such as H&M, have reported very strong performance in the Ukrainian market compared to their results in other Central and Eastern European markets. In line with this trend, there are currently a number of well-known retail brands showing significant interest in the Ukrainian market. When choosing between Ukrainian office and retail real estate based on the same level of return and asset value, investors often prefer the office segment. This is due to the fact that we are witnessing decreasing interest in the retail sector amid the rise in e-commerce. This global trend is also visible in Ukraine. Additionally, retail is also more sensitive to fluctuations in the economy and in currency exchange rates. Each stress factor contributes to a decline in turnover, potentially leaving tenants unable to pay previously agreed rental rates.

About the interviewee: Alexander Nosachenko is Managing Director of Colliers International (Ukraine).

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Ukrainian market embraces innovation Ukrainian tastes in commercial real estate are becoming increasingly diverse and sophisticated

About the interviewee: Yuriy Kryvosheya is the President and Managing Partner of PJSC Toronto-Kyiv and a member of the board at the Canada-Ukraine Chamber of Commerce. From his vantage point as President and Managing Partner of the Toronto-Kyiv complex in the center of the Ukrainian capital city, Yuriy Kryvosheya has observed the recent evolution of the Ukrainian commercial real estate market first-hand. He says that the progress of the past few years in many ways surpasses the most optimistic forecasts during the shocks of 2014-15. Far from merely regaining its footing, the country’s commercial real estate sector has visibly grown in confidence and now displays a sense of swagger that is starting to attract international attention. “Demand has diversified as people stop thinking about commercial space purely in terms of square meters and start to consider it as a tool to attract clients and retain talent. We are seeing more and more companies in Ukraine embrace mixed functionality. The boundaries between office, co-working, leisure, and retail spaces are becoming blurred and there has been a marked rise in tenants who are prepared to pay a premium for quality real estate. As rates continue to grow, this means growing returns on investment.” A number of factors are driving this progress. Ukraine has posted four consecutive years of economic growth, with this positive 20

trend forecast to strengthen further in the coming few years. This is generating a steady flow of newcomers to the Ukrainian commercial real estate market, both local and international in origin. Ukrainians are also traveling more than ever and implementing the best of current world trends at home. Since 2016, Ukraine’s air travel industry has experienced record increases in passenger numbers thanks to the arrival of numerous budget airlines on the Ukrainian market and the advent of visa-free travel to the EU for Ukrainian citizens. Kryvosheya says this broadening of horizons is helping to make Ukrainian tastes more sophisticated and fueling demand for original offers in every segment of the commercial real estate sector. The maturing of the Ukrainian market is not going unnoticed. Although he prefers not to name names, Kryvosheya says he is now seeing interest from a growing number of senior international market players including billion-dollar real estate investors with proven track records. “The fact that they are prepared to invest both their time and their money to actually come to Kyiv personally is a strong indication of their seriousness about the market,” he notes. As the Ukrainian real estate market and wider economy continue to progress further up the learning curve, Kryvosheya sees new opportunities arising for investors. To underline this point, he notes the recent trend of strategic real estate acquisitions by major Ukrainian investment groups such as Dragon Capital. This is exactly the kind of domestic vote of confidence international investors often look for, he observes. Meanwhile, the Ukrainian banking sector’s current inability to offer competitive financing creates a considerable window of opportunity for investors to fill the liquidity gap. In Kryvosheya’s view, the most enticing aspect of today’s Ukrainian market is the appetite for innovation. Over the past three decades of often turbulent change, Ukrainian society has earned a reputation as an early adopter of new trends and technologies. With so much around them in a state of transition, picking up fresh ideas and innovations has become second nature to the current generation of Ukrainians. In addition to these broad societal trends, Ukraine is also home to one of the world’s fastest-growing IT and creative industries with a strong startup component that offers all manner of competitive solutions for the facility and property management sector. This makes innovative investment particularly attractive and creates the potential for Ukraine to leapfrog its neighbors as a hub for creative commercial real estate solutions. “With the growth of the economy and the diversification of the market, we are now at a moment where Ukraine has the chance to become globally competitive as a progressive real estate market,” says Kryvosheya. “In the current climate, investors can jump ahead of the curve. They can create the kind of real estate spaces that will be popular tomorrow, not what was in demand yesterday. With the global agenda now shifting from shareholder to stakeholder investment concepts, Ukraine can be a platform for socially responsible real estate innovation.” www.bunews.com.ua

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Ukraine’s big privatization push

New Ukrainian government seeks to attract long-term strategic investors with historic sell-off

The Dnipro Hotel in the heart of the Ukrainian capital is one of a number of high-profile Kyiv hotels to feature in the current privatization drive Ukraine is currently in the early stages of an ambitious privatization drive that aims to significantly reduce the country’s bloated portfolio of stateowned properties and enterprises while attracting strategic investors with the long-term vision to capitalize on the expanding Ukrainian economy. Over 1000 objects ranging from small-scale offerings to major industrial enterprises are on the list, with up to 500 set to go on sale this year. There are a number of eye-catching items among the more than 100 featured properties, including downtown real estate in major cities and some of Kyiv’s most prominent hotels. This is not the first occasion when an incoming Ukrainian administration has announced its intention to launch a new wave of privatization. Previous efforts have often fallen flat, with flagship sales abandoned amid acrimony and frustration for potential bidders. The man charged with overseeing the current privatization push promises that this time it will be different. Dmytro Sennychenko, who was appointed as the new chairman of the State Property Fund in September 2019, brings a wealth of private sector experience to his new position, having previously served as CEO of Parkridge Holdings and Jones Lang LaSalle in Ukraine during a ten-year career in the real estate industry. He also has valuable modernization experience at 22

one of Ukraine’s largest state-owned enterprises on his CV, having served as director of real estate and infrastructure management at the country’s giant postal services provider Ukrposhta for three years prior to taking over at the State Property Fund. During this tenure, Sennychenko managed to increase Ukraposhta’s rental property income sixfold. He now hopes to apply this success on a far broader scale in his new role. “This is the last big sale on the primary market in Europe,” says Sennychenko. He argues that the timing is currently ideal, with the Ukrainian economy enjoying its fourth consecutive year of growth and poised to strengthen further. “All the preconditions are in place. Those who come first will benefit from this rising economy.” Since his appointment, Sennychenko has begun a fundamental overhaul of the State Property Fund with a view to transforming the way it handles the entire privatization process. This includes the digitalization of inventory and a user-friendly approach to presentation designed for clarity and convenience. He has enlisted the help of Transparency International to improve transparency within the organization, and is working closely with credible international corporate brands including the Big Four accounting firms in order to boost investor confidence. Whereas previous privatizations

were publicized via official government journals with a very limited circulation, a new website now offers detailed information on coming sales together with clocks counting down to scheduled tenders. Throughout the process, Sennychenko’s private sector experience has helped shape his vision of what investors expect from a privatization tender. “We are very conscious of the need to create a modern investment product,” he explains. Based on his interaction with the Ukrainian President, Prime Minister and Cabinet members, Sennychenko is confident the current administration has the requisite political will to succeed where past privatization efforts have failed. “We all share the same philosophy,” he says. Instead of looking to maximize sale prices, this means creating post-privatization obligations that will help transform loss-making enterprises and moribund assets into gains for the Ukrainian economy. “Our number one goal is to attract competitive investors. The second objective is to fight corruption, which is widespread in the state-owned sector. Revenues from sales are not a priority and come in third place.” About the interviewee: Dmytro Sennychenko is Chairman of the Ukrainian State Property Fund

real estate investment

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Reinventing Ukraine’s industrial architecture Ukraine inherited a vast array of industrial architecture from the Soviet era, much of which soon fell into disuse following the collapse of the USSR. Almost thirty years on, elements of this industrial infrastructure are now being reinvented to meet the needs of a new generation of Ukrainians. Cavernous spaces that formerly housed manufacturing plants and centralized service facilities are undergoing complete renovation and reemerging as everything from food halls and co-working spaces to nightclubs and exhibition venues. The Promprylad.Renovation complex in western Ukrainian city IvanoFrankivsk (pictured) is a good example of this trend. This former Soviet factory is in the process of being transformed into an innovation center that aims to foster collaboration between the region’s businesses and social initiatives. The project has been partially funded by contributions from over 400 community co-investors. Once completed, it will have a total floor space of 38,000 square meters. As part of the project’s commitment to community development, 3% of profits from all Promprylad.Renovation operations are set to be channeled into local cultural, educational and urban initiatives. Meanwhile, 30% of the entire complex area will be given over to not-for-profit and other public needs. In addition to this socially geared space, Promprylad.Renovation will also host a museum, rock music academy, exhibition and concert halls, an art center, and a rooftop gardening area. The Promprylad.Renovation project is a unique concept that reflects the specifics of the local IvanoFrankivsk community, but it is also an example of the real estate potential present in Ukraine’s Soviet era architectural inheritance.

real estate investment

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legal industry review

Legal Industry Review A series of dramatic political changes of 2019 created a new legislative environment in Ukraine, with President Zelenskyy’s unprecedented one-party parliamentary majority passing laws in “turbo mode” and moving forward with an ambitious business agenda. This is creating a rapidly evolving professional landscape for the country’s legal services professionals. Success in 2020 will depend on their ability to adapt, innovate, and anticipate.

About the author: Oleksiy Nasadyuk is the head of the Top 50 Leading Law Firms in Ukraine annual research program The most commonly heard assessment of the Ukrainian legal services market in 2019 was “difficult but interesting”. For some law firms, the past year was a period marked by waiting for relative calm to return to the market following the turbulence of presidential and parliamentary election campaigns. For others, the changing political environment represented an opportunity to significantly strengthen their position on the Ukrainian market. It now likes those hoping for calm will be disappointed. In general, political factors cast a long shadow over the entire Ukrainian economic landscape for much of last year. Initially, this meant businesses putting new ventures on hold in order to assess the political climate following the country’s election cycle. The dramatic results of the Ukrainian presidential and parliamentary elections 26

in April and July 2019 then led to a whole range of new evaluations and expectations about the future direction of the country. Once in power, President Zelenskyy’s single-party majority in parliament spent much of autumn 2019 adopting new legislation in so-called “turbo mode”, creating additional work for legal professionals. Key legal sector focuses in 2019 included the Ukrainian renewable energy industry, which has attracted unprecedented international investor interest and engagement in recent years. Asters Co-Managing Partner Oleksiy Didkovskiy says the renewables sector was incredibly active last year in terms of demand for legal services, but cautions that recent talk of retroactively revising feed-in tariffs and other commitments to investors now threatens to undermine the appeal of the industry. “Changes in the regulation of the renewable : www.bunews.com.ua

25 YEARS REACHING THE STARS FOR OUR CLIENTS

legal industry review 28

: energy sector could lead to a significant decrease in its attractive-

ness in the near future,” he cautions. According to the available financial indicators, revenues in the Ukrainian legal services industry remained at 2018 levels during the past year, with the country’s top 50 law firms reporting overall income of UAH 6.5 billion a recording period including the fourth quarter of 2018 and the first three quarters of 2019. Dispute resolution was the most common practice, accounting for around 20% of revenues. Corporate law along with Merger and Acquisition work were also among the most popular and profitable spheres. The industry trend towards increasing specialization in niche legal services continued to gain momentum during 2019, with this dynamic mirroring the growing economic importance of specific sectors. The most promising segments last year included the IT sector, agriculture, energy, and pharmaceuticals. While specialized boutique legal service providers have long focused on these sectors, larger law firms are now also actively developing their presence in these practices. Many of Ukraine’s biggest law firms are expanding their footprint in specific areas as they look to capitalize on growing demand. This will continue in 2020. Looking ahead to 2020 and beyond, many expect to see a sharp rise in demand for legal services relating to the Ukrainian agricultural land market, with the government expected to push through reforms in the coming months ending a moratorium on land sales that has been in place for the past two decades. Other developments that are expected to generate new demand for legal services include plans for a major privatization push this year, with over 1000 items ranging from minor real estate to large industrial en-

terprises set to go under the hammer. Meanwhile, new legislation governing public-private partnerships could serve as a catalyst for a new wave of international investment into the Ukrainian infrastructure sector, which would also generate a potentially lucrative new niche for legal services providers. “The launch of the agricultural land market is likely to lead to completely new areas of legal practice ranging from consulting to risk assessment. After all, we are talking about the launch of completely new legal mechanisms and entirely new rules of the game for the Ukrainian land market,” comments Artem Stoyanov, a Senior Partner at LCF Legal Group. He notes that in addition to flagship policies such as agricultural land sale reform, the pace of legislative change in general will be a key factor determining the development of the country’s legal services industry in 2020. “The pace of the changes taking place in state policy is forcing the legal services market to work in a similarly accelerated mode. Many of the issues we currently face are new to the market, obliging lawyers to become pioneers in the implementation of a range of projects. This means that flexibility and rapid adaptation will be crucial qualities for law firms in 2020. In order to remain successful on the Ukrainian legal services market, it will be increasingly important to be prepared for the changes taking place in the country before they come.” Competition within the Ukrainian legal services sector will be intense during the current year, with law firms looking to recruit new partners and identify specialist advisors capable of bolstering competence on narrow-profile issues that are likely to be in demand. Most industry observers recognize that success will de- :

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legal industry review

Legal Industry Commentary: Rustam Kolesnik Chief Editor of Yuridicheskaya Practika publishing house Ukraine is going through another period of turbulence and this is making itself felt in the country’s legal services market. In addition to the already familiar factors of economic and political instability, we are now seeing the growth of institutional instability and the failure of individual state organs due to the complete reload of power in the country following the 2019 presidential and parliamentary elections. For Ukraine’s legal services providers, this has meant a pause in the growth rates witnessed in recent years. Indeed, simply maintaining the results achieved in 2018 proved to be a difficult enough task for many Ukrainian law firms last year. The arrival of new faces throughout state institutions and the appearance of new ideas would potentially have been more welcome if legal services providers had received clear answers to the key questions facing the Ukrainian business community as a whole – namely, when will the new rules of the game finally be determined, and what will these new rules be? The priorities within Ukraine’s legal services market this year will largely depend on the answers to these two questions.

: pend on a law firm’s ability to offer the requisite expertise in eco-

nomic spheres where activity is on the rise, while also employing innovative approaches to legal issues and demonstrating a strong command of the technicalities involved in what are often relatively unexplored areas. Some Ukrainian legal services professionals believe that in the increasingly diversified and specialized Ukrainian marketplace, there is also considerable benefit in offering a full package of services covering everything from economic and production processes to financial models. In other words, legal services providers need to become far more immersed in their client’s business life and activities.

The dynamic pace of change in the Ukrainian political sphere, along with the emphasis on “turbo mode” adoption of new legislation, will inevitably make itself felt throughout the legal services industry. This will create new directions for the industry and speed up the tempo of the sector’s evolution. We can expect to see increasing levels of competition between the largest players on the legal services market and ambitious young teams that benefit from enhanced agility and seek to identify new market trends in a timely way that allows them to occupy new niches. The battle for these niches will likely be one of the factors determining the development of the legal services industry in 2020 and beyond.

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Jeantet is one of France’s leading and oldest independent business law firms. We deliver customized services with added value. Our firm was established over 90 years ago. Today our team of 180 lawyers work from seven different international offices, while our partner network spans 130 countries. We offer the services of our excellent team of seasoned Ukrainian lawyers led by Bertrand Barrier and Karl Hepp de Sevelinges. Our areas of expertise include Corporate and M&A, Banking & Finance, Foreign Investments, Private-Public Partnership, and Antitrust issues.

www.jeantet.fr • bbarier@jeantet.org

Paris • Casablanca •

4 Volodymyrska Street, Kyiv, 01001, Ukraine +380-44-2060980

Luxembourg • Geneva • Budapest • Kyiv • Moscow

Top 50 Ukrainian Law Firms

LAW FIRM

ASTERS

SAYENKO KHARENKO

Oleksiy Didkovskiy, co-managing partner, Serhii Sviriba, co-managing partner, Armen Khachaturyan, senior partner Michael Kharenko, partner

ILYASHEV & PARTNERS

AEQUO

ARZINGER

BAKER MCKENZIE

GOLAW

AVELLUM

EQUITY

Mikhail Ilyashev, managing partner

Denis Lysenko, managing partner

Timur Bondaryev, managing partner

Serhiy Chorny, managing partner, Serhiy Piontkovsky, managing partner

Valentyn Gvozdiy, managing partner

Mykola Stetsenko, co-managing partner, Aminat Suleymanova, co-managing partner Viktor Barsuk, senior partner

NUMBER OF LAWYERS

RANKING

English-language version of annual rating covering 2019 produced by Business Ukraine magazine in partnership with Yuridicheskaya Praktika

139

CONTACT DETAILS

PRACTICE AREAS

Litigation, International Arbitration, Banking & Finance, Competition, Criminal Law, Business Protection, Corporate, Energy, M&A, Family Law, Land, Real Estate, Construction, Intellectual Property, Labor & Employment, Capital Markets, Debt Restructuring, Tax, International Trade & WTO Rules, ADR

19-21 Bohdana Khmelnytskoho Street, Kyiv, 01030; Tel.: (044) 230-60-00; info@asterslaw.com, www.asterslaw.com

Litigation, Bankruptcy, Corporate, International Trade & WTO Rules, Business Protection, Labor & Employment, Criminal Law, Intellectual Property, Competition, Banking & Finance, M&A, Compliance, Tax, Land, Real Estate, Construction, International Arbitration, PPP & GR

11 Kudryavska Street, Kyiv, 04053; Tel.:(044) 494-19-19, office@attorneys.ua, www.attorneys.ua,

Regulatory, Litigation, Business Protection, Tax, Corporate, Intellectual Property, International Arbitration, Banking & Finance, Labor & Employment, Land, Real Estate, Construction, Bankruptcy, Compliance

Senator Business Center, 32/2 Moskovska Street, Kyiv, 01010; Tel.:(044) 390-55-33; mail@arzinger.ua, www.arzinger.ua

Banking & Finance, Litigation, M&A, Corporate, Competition, Criminal Law, Labor & Employment, Tax, International Arbitration, Intellectual Property, International Trade & WTO Rules, Capital Markets, Business Protection, Compliance, Land, Real Estate, Construction, Debt Restructuring, Private Clients, Bankruptcy, PPP & GR

10 Muzeyny Provulok, Kyiv, 01001; Tel.: (044) 499-60-00; info@sk.ua, www.sk.ua

Litigation, International Arbitration, Intellectual Property, Competition, M&A, Banking & Finance, Corporate, Tax, Land, Real Estate, Construction, Private Clients, Capital Markets, Debt Restructuring, Infrastructure & Logistics, Business Protection, Labor & Employment, Transport, International Trade & WTO Rules, PPP & GR

Senator Business Center, 32/2 Moskovska Street, Kyiv, 01010; Tel.: (044) 490-91-00; office@aequo.ua, www.aequo.ua

Banking & Finance, M&A, Tax, Land, Real Estate, Construction, Intellectual Property, Competition, Litigation, Labor & Employment, Debt Restructuring, Corporate, Capital Markets, Compliance, International Trade & WTO Rules, International Arbitration, Private Clients, PPP & GR

Litigation, Banking & Finance, Criminal Law, Corporate, Tax, Debt Restructuring, M&A, Compliance, Labor & Employment, Bankruptcy, Business Protection

Banking & Finance, M&A, Tax, Litigation, Corporate, Capital Markets, Private Clients, Competition, Energy, Land, Real Estate, Construction, International Arbitration, Labor & Employment, Infrastructure & Logistics, International Trade & WTO Rules, Family Law, Debt Restructuring Litigation, Criminal Law, Bankruptcy, Business Protection, Banking & Finance, Debt Restructuring, Private Clients, Enforcement, Tax, Land, Real Estate, Construction, PPP & GR, Corporate, International Arbitration, Competition

24 Bulvarno-Kudriavska Street, Kyiv, 01601; Tel.:(044) 590-01-01; kyiv@bakermckenzie.com, www.bakermckenzie.com/ukraine, 19B Instytutska Street, Kyiv, 01021; Tel.: (044) 581-12-20; info@golaw.ua, www.golaw.ua

38 Volodymyrska Street, Kyiv, 01033; Tel.: (044) 591-33-55; info@avellum.com, avellum.com 4 Rylskiy Lane, Kyiv, 01001; Tel.: (044) 277-22-22; info@equity.law, equity.law

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LCF LAW GROUP

CMS

ETERNA LAW

Anna Ogrenchuk, managing partner

Graham Conlon, managing partner CMS Cameron McKenna Nabarro Olswang Johannes Trenkwalder, managing partner CMS Reich-Rohrwig Hainz Council of Partners

DENTONS

ILF

AVER LEX

VASIL KISIL & PARTNERS

GRAMATSKIY & PARTNERS

Oleg Batyuk, managing partner

Tetyana Gavrysh, managing partner

Olga Prosyanyuk, managing partner

Andriy Stelmashchuk, managing partner

Ernest Gramatskiy, president

ALEKSEEV, BOYARCHUKOV & PARTNERS Sergey Boyarchukov, managing partner

EVERLEGAL

Yevheniy Deyneko, managing partner

MORIS

DLA PIPER UKRAINE

Andriy Romanchuk, managing partner

Margarita Karpenko, managing partner

February 2017

NUMBER OF LAWYERS

RANKING 10

PRACTICE AREAS

Litigation, Bankruptcy, Banking & Finance, Debt Restructuring, Corporate, Tax, International Arbitration, Intellectual Property, Infrastructure & Logistics, Private Clients, Land, Real Estate, Construction

CONTACT DETAILS

47 Volodymyrska Street, Office 3, Kyiv, 01001; Tel.: (044) 455-88-87; info@lcf.ua, www.lcf.ua

Litigation, Banking & Finance, Corporate, M&A, Competition, Tax, Land, Real Estate, Construction, Intellectual Property, Compliance, Labor & Employment, International Arbitration, Bankruptcy, Debt Restructuring

38 Volodymyrska Street, 6 Floor, Kyiv, 01034; Tel.: (044) 391-33-77; kyivoffice@cms-cmno.com, www.cms.law

Corporate, International Arbitration, Litigation, Transport, Tax, Banking & Finance, M&A, Labor & Employment, Infrastructure & Logistics, Intellectual Property, Land, Real Estate, Construction, Debt Restructuring, Migration Law, Competition, International Trade & WTO Rules, Bankruptcy, Business Protection, Enforcement, PPP & GR

1-Đ? Sportyvna Sq., 32th Floor, Gulliver Business Center, Kyiv, 01601; Tel.: (044) 490-70-01; office.kyiv@eterna.law, eterna.law

Litigation, Corporate, PPP & GR, Tax, Land, Real Estate, Construction, Labor & Employment, M&A, Intellectual Property, Criminal Law

Criminal Law, Business Protection, Litigation

22 Shovkovychna Street, Suite 3, Kyiv, 01024; Tel.: (050) 339-23-07; office@ilf-ua.com, ilf-ua.com

Litigation, Corporate, M&A, Criminal Law, Intellectual Property, Labor & Employment, International Arbitration, Banking & Finance, Tax, Land, Real Estate, Construction, Transport, Private Clients, Family Law, Competition

17/52A Bohdana Khmelnytskoho Street, Kyiv, 01030; Tel.: (044) 581-77-77; vkp@vkp.ua, www.vkp.ua

Litigation, Bankruptcy, Banking & Finance, Business Protection, Criminal Law, Corporate, Private Clients

11 Shota Rustaveli Street, Kyiv, 01001; Tel.: (044) 235-88-77; office@abp.kiev.ua, www.abp.kiev.ua

Banking & Finance, Corporate, M&A, Debt Restructuring, Intellectual Property, Land, Real Estate, Construction, Litigation, International Arbitration, Labor & Employment, Compliance, Tax, Competition

Land, Real Estate, Construction, Litigation, Business Protection, Tax, Corporate, Mediation, Banking & Finance, Criminal Law, Labor & Employment, Debt Restructuring, Bankruptcy, M&A, Intellectual Property, Compliance, Migration Law, Transport, Private Clients, Family Law

Litigation, M&A, International Arbitration, Labor & Employment, Banking & Finance, Corporate, Tax, Competition, Criminal Law

Litigation, Tax, Banking & Finance, Corporate, M&A, Land, Real Estate, Construction, PPP & GR, Debt Restructuring, Private Clients, Competition, Bankruptcy

Tax, Litigation, Corporate, Labor & Employment, Intellectual Property, Banking & Finance, M&A, Competition, Criminal Law, Land, Real Estate, Construction, Infrastructure & Logistics, Debt Restructuring, Transport, Compliance, Migration Law, Private Clients, Bankruptcy, Business Protection, Enforcement

legal industry review

LAW FIRM

41 Naberezhno-Khreshchatytska Street, 9th floor, Kyiv, 04070; Tel.: (044) 494-47-74; kyiv@dentons.com, dentons.com

2 Khrestovyi Alley, Kyiv, 01010; Tel.: (044) 300 11 51; info@averlex.com, www.averlex.com

16 Mikhaylivska Street, Kyiv, 01001; Tel.: (044) 581-15-51; office@gramatskiy.com, www.gramatskiy.com

4 Rylskyi Lane, 6 Floor, Kyiv, 01001; Tel.: (044) 337-00-16; hello@everlegal.ua, www.everlegal.ua

8b Moskovska Street, Kyiv, 01010; Tel.: (044) 359-03-05; info@moris.com.ua, www.moris.com.ua

77A Velyka Vasilkivska Street, Kyiv, 03150; Tel.: (044) 490-95-75; ukraine@dlapiper.com, www.dlapiper.com/uk/ukraine/

: 33

ADER HABER

SALKOM

KPMG LAW UKRAINE

L.I.GROUP

Yuriy Petrenko, managing partner

Eduard Tregubov, managing partner

Sergey Popov, partner

Mykola Kovalchuk, senior partner Artur Megerya, senior partner

EVRIS

INTEGRITES

ANTIKA LAW FIRM

JUSCUTUM

EUCON LEGAL GROUP

REDCLIFFE PARTNERS

LAW FIRM

Ihor Kravtsov, managing partner

Oleksiy Feliv, managing partner

Alexey Kot, managing partner

Artem Afian, managing partner

Yaroslav Romanchuk, managing partner

Olexiy Soshenko, managing partner

Vladimir Kotenko, partner, Albert Sych, partner

DYNASTY

Denys Myrgorodsky, managing partner

NUMBER OF LAWYERS

RANKING

CONTACT DETAILS

PRACTICE AREAS

Litigation, Banking & Finance, Tax, Land, Real Estate, Construction, Private Clients, Labor & Employment, Business Protection, Enforcement, PPP & GR, Corporate, Criminal Law, Debt Restructuring, Bankruptcy, M&A, Compliance, Family Law, Competition

Litigation, Banking & Finance, Criminal Law, Labor & Employment, Land, Real Estate, Construction, International Arbitration, Competition, Business Protection, Private Clients, Intellectual Property

Tax, Corporate, M&A, Compliance, Litigation, Land, Real Estate, Construction, Private Clients, Banking & Finance, International Arbitration, Intellectual Property, Labor & Employment

Bankruptcy, Litigation, Corporate, Criminal Law, Business Protection

Litigation, Tax, Corporate, Debt Restructuring, Banking & Finance, M&A, Intellectual Property, International Arbitration, Bankruptcy, Business Protection, Enforcement

115

Litigation, Banking & Finance, International Arbitration, Land, Real Estate, Construction, Competition, Corporate, M&A, Criminal Law, Intellectual Property, Bankruptcy

Litigation, Investments, Corporate, Land, Real Estate, Construction, International Arbitration, Tax, Competition, Banking & Finance, M&A

Intellectual Property, Business Protection, Corporate, Litigation, Criminal Law, PPP & GR, Compliance, Capital Markets, Tax, Transport, Infrastructure & Logistics, Private Clients, M&A, Labor & Employment, Land, Real Estate, Construction, Migration Law

7 Klovsky Uzviz, Office 22, Kyiv, 01021; Tel.: (044) 280-88-87; office@aderhaber.com, aderhaber.com

12 Khreschatyk Street, Kyiv, 01001; Tel.: (044) 591-31-00; salkom@salkom.kiev.ua, salkom.ua

Senator Business Center, 32/2 Moskovska Street, Kyiv, 01010; Tel.: (044) 490-55-07; info@kpmg.ua, kpmg.ua

36d Eugena Konovaltsya Street, Office 4, Kyiv, 01133; Tel.: (044) 227-05-14; lawyer@ligroup.com.ua, ligroup.com.ua

Vector Business Center, 52 Bohdana Khmelnytskogo Street, Kyiv, 01030; Tel.: (044) 364-91-91; office@evris.law, www.evris.law 1 Dobrovolchykh Batalioniv Street, Kyiv, 01015; Tel.: (044) 391-38-53; info@integrites.com www.integrites.com

12 Khreschatyk Street, Kyiv, 01001; Tel.: (044) 390-09-20; office@antikalaw.com.ua, www.antikalaw.com.ua

35 Olesya Honchara Street, Kyiv, 01034; Tel.: (044) 359-08-96; office@juscutum.com, juscutum.com

Tax, Corporate, Litigation, M&A, Criminal Law, Intellectual Property, Compliance, Labor & Employment, Land, Real Estate, Construction, Migration Law, Infrastructure & Logistics, International Trade & WTO Rules, Business Protection, PPP & GR, Private Clients

5Đ? Peremohy avenue, office 500, Kyiv, 01135; Tel.: (044) 238-09-44; office.ua@euconlaw.com, www.euconlaw.com

Tax, M&A, Corporate, PPP & GR, Private Clients, Litigation, Labor & Employment, Debt Restructuring, Competition, Banking & Finance, Intellectual Property, Infrastructure & Logistics

19A Khreschatyk Street, Kyiv, 01001; Tel.: (044) 490-30-00; kyiv@ua.ey.com, ey.com/ukraine

Litigation, Banking & Finance, M&A, Competition, Corporate, Intellectual Property, Capital Markets, Tax, Land, Real Estate, Construction, International Arbitration, Debt Restructuring

Litigation, Land, Real Estate, Construction, Criminal Law, Tax, M&A, Banking & Finance, Corporate, Business Protection, Debt Restructuring, Labor & Employment, International Arbitration, Bankruptcy

75 Zhylyanska Street, Kyiv, 01032; Tel.: (044) 390-58-85; office@redcliffe-partners.com, www.redcliffe-partners.com

2 Glinky Street, MOST-City Center, Dnipro, 49000; Tel.: (056) 371-30-30; office@dynasty.legal, www.dynasty.legal

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PAKHARENKO & PARTNERS

KM PARTNERS

Antonina Pakharenko-Anderson, managing partner

Alexander Minin, senior partner

KINSTELLAR

SOKOLOVSKYI & PARTNERS

DOUBINSKY & OSHAROVA

LAVRYNOVYCH & PARTNERS

BARRISTERS

HILLMONT PARTNERS

Kostiantyn Likarchuk, managing partner

Vladyslav Sokolovskyi, managing partner

Michael Doubinsky, managing partner

Maksym Lavrynovych, managing partner

Oleksii Shevchuk, partner

Serhii Nyzhnyi, partner, James Hart, partner

PAVLENKO LEGAL GROUP

KONNOV & SOZANOVSKY

VB PARTNERS

Vitaliy Burdak, managing partner

Alexey Ivanov, managing partner

Volodymyr Vashchenko, managing partner

February 2017

NUMBER OF LAWYERS

RANKING 34

PRACTICE AREAS

Intellectual Property, Litigation, Corporate, Private Clients, Competition, Business Protection

Tax, Litigation, Criminal Law, Labor & Employment, Corporate, M&A, Intellectual Property, Compliance, Land, Real Estate, Construction, Competition, Business Protection, International Arbitration, Private Clients

Litigation, International Arbitration, Energy, Banking & Finance, Corporate, Competition, Criminal Law, M&A, Compliance, Land, Real Estate, Construction, Infrastructure & Logistics, Labor & Employment

Litigation, Criminal Law, Tax, Debt Restructuring, Bankruptcy, Corporate, M&A, Intellectual Property, Compliance, Labor & Employment, Business Protection, Family Law

Intellectual Property, Litigation, Criminal Law, Competition

Litigation, Banking & Finance, Corporate, M&A, Land, Real Estate, Construction, Intellectual Property, Compliance, Tax, Competition, Bankruptcy, Business Protection

Litigation, Private Clients, Criminal Law, Business Protection, Compliance

Litigation, Corporate, Tax Land, Real Estate, Construction, Debt Restructuring, Private Clients Bankruptcy, Business Protection PPP & GR,

Litigation, Corporate, Business Protection, PPP & GR, M&A, Banking & Finance, Tax, Competition, Capital Markets, Land, Real Estate, Construction, Private Clients, Intellectual Property, Compliance, Labor & Employment, Debt Restructuring, Transport, Infrastructure & Logistics, Family Law, Bankruptcy, Enforcement

Corporate, Intellectual Property, Litigation, Land, Real Estate, Construction, Banking & Finance, M&A, Compliance, Labor & Employment, Tax, Debt Restructuring, Business Protection

Criminal Law, Litigation, Business Protection, Private Clients, International Arbitration, Tax

legal industry focus

LAW FIRM

CONTACT DETAILS

72 Velyka Vasilkivska Street, Kyiv, 03150; Tel.: (044) 593-96-93; pakharenko@pakharenko.com.ua, pakharenko.ua 5 Pankivska Street, Kyiv, 01033; Tel.: (044) 490-71-97; admin@kmp.ua, www.wts.ua, www.kmp.ua

1-Đ? Sportyvna Sq., 16th Floor, Gulliver Business Center, Kyiv, 01601; Tel.: (044) 394-90-40; kyiv.reception@kinstellar.com, www.kinstellar.com

19, Pirogovskogo Street, Build 4, Kyiv, 03110; Tel.: (044) 495-19-29; pravo@splf.ua, splf.ua

110 Zhylyanska Street, 9 Floor, Kyiv, 01032; Tel.: (044) 490-54-54; info@iplaw.com.ua, www.iplaw.com.ua

41 Saksaganskogo Street, Kyiv, 01033; Tel.: (044) 494-27-27; office@lp.ua, www.lp.ua,

9 French Boulevard, Office 10, Odesa, 65012 Tel.: (048) 737-71-51; info@barristers.org.ua, barristers.org.ua

6-D Yevhena Konovaltsia Street, 5th floor, Kyiv, 01133; Tel.: (044) 277-24-47; office@hillmont.com.ua, hillmont.com.ua 23A Zlatoustivska Street, Kyiv, 01135; Tel.: (044) 281-06-00; office@plglaw.ua, www.plglaw.ua

23 Shota Rustaveli Street, Suite 3, Kyiv, 01033; Tel.: (044) 490-54-00; info@konnov.com, www.konnov.com 22 Rybalska Street, Kyiv, 01011; Tel.: (044) 581-16-33; office@vbpartners.ua, vbpartners.ua

: 35

LAW FIRM

ANK

SHKREBETS & PARTNERS

MITRAX

JURLINE

AMBER

GRYPHON LEGAL

Alexander Kifak, managing partner

Eugene Shkrebets, managing partner

Kyrylo Fesyk, managing partner

Volodymyr Zubar, managing partner

Semen Khanin, managing partner

Helen Lynnyk, managing partner, Igor Lynnyk, senior partner

NUMBER OF LAWYERS

RANKING

legal industry review

CONTACT DETAILS

PRACTICE AREAS

Litigation, Tax, Maritime Law, International Arbitration, Business Protection, PPP & GR, Corporate, Criminal Law, Labor & Employment, Private Clients

Litigation, Criminal Law, Tax, Energy, Corporate, Labor & Employment, Land, Real Estate, Construction, Private Clients, Bankruptcy

Litigation, Business Protection, Criminal Law, Family Law, Corporate, Tax, Land, Real Estate, Construction, Debt Restructuring, Private Clients, Bankruptcy, Enforcement, PPP & GR

Litigation, Maritime Law, Criminal Law, Corporate, Tax, Land, Real Estate, Construction, International Arbitration, M&A, Infrastructure & Logistics, Private Clients, Family Law, Competition, International Trade & WTO Rules, Banking & Finance, Labor & Employment, Business Protection

Litigation, Tax, Banking & Finance, Business Protection, Criminal Law, Corporate, Private Clients, Compliance, Land, Real Estate, Construction, Family Law

Banking & Finance, Corporate, Compliance, Tax, Capital Markets, Land, Real Estate, Construction, Litigation, Intellectual Property, Debt Restructuring, Forensic

9 Lanzheronivska Street, Suite 17, Odesa, 65026; Tel.: (048) 234-87-16; office@ank.odessa.ua, ank.odessa.ua

14 Kaplunivski Lane, Kharkiv, 61002; Tel.: (057) 720-90-01; office@shkrebets.com, shkrebets.com

72 Velyka Vasilkivska Street, Office 175, Kyiv, 03150; Tel.: (044) 2401551; info@mitrax.com.ua, mitrax.com.ua 66/1 French Boulevard, Odesa, 65009; Tel.: (048) 738-08-93; office@jurline.ua, www.jurline.ua

29 Lesi Ukrainki blvd, office 75, Kyiv, 01014; Tel.: (067) 325-95-82; office@amber-corp.com, www.amber-law.net

36D Evgena Konovaltsya Street, Office 1, Kyiv, 01133; Tel.: (044) 227-92-12; office@gryphoninvest.com.ua, gryphongroup.com.ua

50 Leading Law Firms of Ukraine

Methodology of the Annual Ranking The annual â&#x20AC;&#x153;50 Leading Law Firms of Ukraineâ&#x20AC;? ranking is widely recognized as the long-running and most authoritative survey of the Ukrainian legal sector. Launched in 1997, the ranking is produced using research conducted by leading Ukrainian legal industry publishing house Yuridicheskaya Praktika and aims to provide a comprehensive picture of the development of the Ukrainian legal services market. Business Ukraine magazine is the official English-language partner of the ranking. Over course of the past two decades, the methodology underpinning the ranking has been adapted and finetuned to reflect changes in the Ukrainian legal industry. The ranking includes a number of established criteria: the number of lawyers, profitability, complexity 36

of transactions and lawsuits handled, and financial efficiency. The professional reputation of each individual law firm is an important additional factor. The analytical team that produces the annual ranking is receptive to the strict requirements of confidentiality regarding information provided by law firms for the purposes of the ranking. The research period for the current ranking covers the fourth quarter of 2018 and the first to third quarters of 2019. Once all data is calculated and the preliminary ranking is calculated, a panel of legal industry experts assess the ranking and provide their own input. Participating legal experts provide their feedback in isolation, and are not aware of other expert recommendations until following the final publication of the ranking. www.bunews.com.ua

As the first foreign law firm to open an office in Kyiv in 1991, we are presently celebrating our 30th anniversary in Ukraine. During that time, we have successfully completed many of Ukraine’s milestone projects, including:

•The First IPO in Ukraine (to raise approximately USD 500 million by a Ukrainian energy company’s listing on the London Stock Exchange); •The First True Project Financing in Ukraine (for oil and gas exploration and development, including processing facilities, pipelines, railroad construction, etc., funded by the EBRD); and •Most of Ukraine’s Agricultural IPO’s. In recent years, we have successfully handled the legal work for many of the largest and most complex transactions and disputes in Ukraine, including:

•The Largest Acquisition in the Ukraine Energy and the Natural Resources Sectors; •The Largest Bilateral Investment Treaty Arbitration Concerning Ukraine (at the Permanent Court of Arbitration in The Hague); •The Largest Acquisition in the Agricultural Sector (by a major foreign investor to

purchase a Ukrainian farming business, for which we earlier handled its creation and financing); and

•A Highly Complex Corporate Raid Defense Simultaneously Involving Over 50 Related

Proceedings.

Our legal practice is based on our commitment to provide client service of the highest quality. We organize our practice in teams around our clients to respond to and understand fully each client’s needs and efficiently deliver timely legal work. We are ranked in the 2019 independent KyivPost Survey of Law Firms among the top three law firms in Ukraine. We would be pleased to assist you for your proposed transactions or to defend you should your property or contract rights be challenged. We also provide legal research reports on signiﬁcant problems in Ukrainian legislation that investors should be aware of, but that are not widely known.

18/1 Prorizna Street, Suite 7 Kyiv 01001, Ukraine

B.C. Toms & Co Attorneys and Counselors at Law www.bctoms.com

+38044-490-6000 kyiv@bctoms.net

legal industry review

Ukrainian infrastructure: new horizons Ukraine hopes business-friendly legislative changes will attract infrastructure investors

About the author: Sergiy Oberkovych is a Senior Partner at GOLAW Ukraine is conveniently located on a number of global trade routes and has huge but as-yet not fully exploited potential as a transit hub. In order to unleash this potential in its entirety, Ukraine’s infrastructure requires a significant upgrade that will only be possible with the involvement of private investment. With this in mind, the Ukrainian authorities have recently launched a number of amendments and legislative initiatives designed to make investing in the country’s envisioned infrastructure upgrade a more attractive proposition. When taken together with Ukraine’s advantageous geographical location, these changes pave the way for what promises to be a new decade of unprecedented opportunities for international infrastructure investors and developers. Ukraine continues to take gradual but consistent steps towards the creation of a more investor-friendly business climate as part of efforts to facilitate infrastructure development. In recent years, the country has approved the “Drive Ukraine 2030” national transport strategy, which serves as a blueprint for Ukraine’s ambitious infrastructure upgrade. Meanwhile, implementation of the EU Association Agreement continues, a new approach to the administration of the country’s seaports has been established, and there has been significant reform of Ukraine’s privatization and concession mechanisms. In the second half of 2019, the Ukrainian parliament adopted a new law on concessions which significantly improved the framework for public-private partnerships (PPPs). This law is widely seen as investor-friendly and creates a framework for greater strategic investor involvement in Ukraine’s key infrastructure sectors. The new law has introduced a transparent procedure for selecting concessionaires that is consistent with international practices, while also creating the possibility of attracting advisers and independent experts to elaborate PPP projects in the form of concessions. The law also clearly states that concession agreements can be governed by 38

foreign laws, and provides an extended list of possible dispute resolution options including mediation, non-binding expert assessment, and national or international commercial or investment arbitration. Following the adoption of this legislation, Ukraine has already demonstrated the country’s first concession success stories. In recent months, concessionaires were selected for Kherson Seaport and Olvia Seaport via a transparent public bidding process. The Ukrainian authorities have subsequently announced further concession opportunities focusing on the country’s railway stations and airports. This new regulatory framework is expected to provide a considerable boost to Ukraine’s infrastructure portfolio. By providing profitable opportunities for developers, it is hoped that it will attract billions in investments. The range of infrastructure opportunities in today’s Ukraine is extensive. There is currently a pressing need for development in every sphere of the country’s infrastructure portfolio including sea and river ports along with aviation, rail, and road transportation. In terms of opportunities for developers, special attention should be paid to the road sector. Ukraine has an estimated road network totaling in excess of 170,000km. Despite some progress in recent years, the vast majority of these roadways remain in poor condition. The government-approved “Drive Ukraine 2030” national transport strategy envisages investments of USD 60 billion in the development of Ukraine’s road infrastructure, making this a potentially attractive area for international developers. There are currently numerous projects related to Ukrainian road construction and information is publicly available. Thanks to public procurement reforms carried out in 2016, the majority of public tenders in Ukraine are now open to a broad range of potential contractors. This includes individual entrepreneurs as well as both local and foreign companies. Furthermore, starting in April 2020, legislative changes will open up the possibility for consortium participation in tenders, paving the way for groups of companies to enter the process. While the legislative framework for participation in Ukraine’s infrastructure upgrade is becoming more investor-friendly, it is worth noting that foreign bidders may still face some obstacles when entering tenders, especially with regard to construction projects. Tender documentation may contain specific requirements for bidders such as the availability of equipment and employees with the relevant qualifications, while companies may also be asked to demonstrate relevant experience. In some cases, potential contractors may require licenses that are not available to nonresidents of Ukraine. In order to participate in Ukrainian infrastructure development projects and meet the terms set out in tenders, it is suggested to foreign businesses to consider establishing a legal presence in Ukraine beforehand. This can be achieved by establishing a subsidiary company, a representative office in the country, or by creating a joint venture together with local partners. These challenges should not be overestimated. In general, it can be said with some confidence that there is considerable space for many more players to enter the dynamic and rapidly evolving Ukrainian infrastructure market. Furthermore, changes to the Ukrainian legislative framework and government commitments to improve the infrastructure sector mean that now is the ideal time for action. www.bunews.com.ua

legal industry review

Business and law enforcement agencies

Top 5 Tips: How to protect business from the risks posed by Ukrainian law enforcement activities mind, there are a number of measures that can help reduce the potential impact of law enforcement on business.

1. Determine Potential Risks

About the author: Denys Bugay is a Partner and Head of the White-Collar Crime Practice at VB PARTNERS During each new Ukrainian election cycle, the various candidates typically promise to reduce the pressure on business. The electorate is told that law enforcement officials will focus on fighting crime rather than searching office complexes. Every new president promises to liquidate the economic unit of Ukraine’s State Security Service, and emphasizes that security organs will be restricted to issues of national security. Other popular but empty promises include commitments to liquidate the tax police in its current format and transform it from a law enforcement agency into an analytical service. In recent years, the authorities have sought to diminish the appetite for corruption within law enforcement agencies by adopting two packages of laws dubbed “Stop-Mask-Show” I and II in reference to the balaclava-clad raids on business premises they are attempting to limit. While this legislation has had a positive effect on relations between law enforcement officials and the business community, The overriding goal of a fundamental change in the relationship has not been achieved. Instead, some investigators, prosecutors, and judges continue to misapply these laws and use criminal proceedings to pressure businesses. With little hope on the horizon of any dramatic improvements, businesses operating in Ukraine need to shape their outlook on the understanding that law enforcement officials may interfere in their activities. With this in 40

A sensible business model includes efforts to determine the risk of unwanted entanglements with law enforcement agencies. Past experience and analysis of law enforcement practice can provide valuable insight. The actions of investigators tend to be standardized. Key areas of interest are easy to identify, regardless of the authority. These include cash transactions, operations with fictitious companies with no clear business purpose, outsourcing of staff, and so on. Businesses should seek to analyze their processes from the outside and through the eyes of an investigator in order to highlight any potential issues. This analysis should be used to adjust business models in order to reduce criminal risks.

2. Seek Expert Assistance

Companies should be wary of relying exclusively on in-house resources to address issues with law enforcement. An experienced lawyer not only understands the psychology of investigators, but also knows their methods and can plan suitable next steps ahead of time. They also possess the requisite psychological resilience and immunity to aggressive investigators. My personal experience shows that an ability to remain calm and demonstrate a lack of emotional reaction is an important factor allowing you to focus on the key issues. This can help to shape winning strategies and neutralize adverse impacts.

3. Do Not Wait Passively

If you are subject to a ruling or otherwise informed of an investigation, do not wait for your “guests” to arrive. Instead, begin your own proactive investigation. Professional analysis of the initial stages of an investigation will allow you to forecast its future direction with 99% accuracy. Lawyers can analyze any inquiries in detail. They can identify the range of issues involved, examining open sources and court rulings to determine the nature and scope of the investigation. Other steps include compiling lists of contractors potentially involved in the investigation, along with a register of relevant documents and an

overview of employees who may be questioned. This work will allow businesses to identify possible questions for company management. Forewarned is forearmed. If you expect a fire to start, it would be wise to make sure you have a fire extinguisher nearby.

4. Expect Expertize

The professionalism of Ukrainian law enforcement agencies is on the rise and their ability to understand complex business processes should not be underestimated. In recent years, every law enforcement agency has formed its own highly efficient economic units. Investigators, prosecutors and detectives have all significantly enhanced their practical skills and knowledge. They have learned how to conduct in-depth analysis and gather evidence while engaging professional economic experts, appraisers, and auditors. The National Anti-Corruption Bureau of Ukraine (NABU) even has its own financial forensics specialists. Similar progress has also been made in terms of international cooperation between Ukrainian law enforcement agencies and other countries.

5. Investigations Without Borders

Modern criminal investigations have no boundaries. There is no banking secrecy. Accessing all of a company’s foreign transactions is now only a matter of time and effort. In previous years, investigations often ground to a halt when a foreign company or an account with a foreign bank was detected in the transaction chain. This is no longer an obstacle and merely means an additional three months of work. Foreign partners share information on Ukrainian parties, including information received from units monitoring the financial activity of banks. The concept of banking secrecy has ceased to exist, and European prosecutors face no restrictions disclosing such information. Criminal risks are an integral part of the Ukrainian business environment. Much like other factors such as fluctuating exchange rates, these risks must be kept in mind and can arise at any time. Businesses should do their homework and seek professional legal guidance if they want to avoid becoming caught up in unwelcome criminal investigations. www.bunews.com.ua

legal industry review

Ukraine’s top legal trends for 2020

Key themes this year range from agricultural land sales to new tax regulations novelties include mandatory written employment contracts, while dismissal would also be made easier. Employers will be able to dismiss employees at will without disclosing a reason, but will need to give notice of termination and pay monetary compensation. There will also be specific grounds for dismissal such as if the employee does not meet the requirements for the position. In this case, no compensation or notice will be required. Finally, it is worth noting that mediation could be introduced to resolve labor disputes. The proposed changes are quite employer-friendly and there is no guarantee they will all pass.

4. Procedural Rules

About the author: Bertrand Barrier is a Partner at Jeantet Ukraine In recent months, the Ukrainian parliament has issued numerous new laws and is working on many business-related drafts with potentially far-reaching implications. Here are some of the key legal issues to watch out for in 2020.

1. Land Reform

One of the main topics currently on the agenda is the sensitive issue of land reform. Changes under consideration include lifting the moratorium on sales by 1 October 2020, and restricting the acquisition of agricultural land plots to Ukrainians or legal entities with Ukrainian UBOs (Ultimate Beneficiary Owners). Banks should be able to acquire land plots by way of enforcement. However, they will need to sell them within two years. A referendum on foreign acquisition of agricultural land is promised at a later stage. One of the interesting features of the law could be that buyers will need to prove the origin of money in order to purchase land.

2. Concessions and Public-Private Partnerships

A new law on concessions was passed late last year and introduces a number of crucial provisions which were previously either non-existing or undeveloped, such as unsolicited proposals, lender step-in rights, permit sharing, availability of payments, and immunity against new laws. On 10 February 2020, an appellate court unblocked the Kherson Sea Port concession tender, making it the first large infrastructure concession, along with the smaller Olvia Port. Importantly, the judgment was issued on the basis of new procedural rules prohibiting the blocking of ongoing public tenders by the Ukrainian courts. Reacting to this judgment, the Ukrainian Minister of Infrastructure announced plans for more concessions in the coming months. The list features four of Ukraine’s largest airports, despite opposition from domestic operators. Many now expect concessions to become the “next big thing” this year in Ukraine.

3. Employment Law

A long-anticipated new labor code is under discussion and could introduce radical changes to Ukraine’s outdated labor code dating from 1972. The main 42

At the beginning of February, important changes concerning the functioning of the Supreme Court were introduced aiming to reduce the workload of judges following the reduction of their number from 200 to 100. Important changes relate to the review of cases by the Supreme Court. Presently, it is possible to ask the Supreme Court to review a judgment in case of a procedural breach or contradiction with the law. New changes introduce much stricter constraints in the right to appeal. As a general rule, it will only be possible to appeal a judgment if the court’s position contradicts the legal position of the Supreme Court expressed in similar cases, or if the appellant makes a strong case as to why such a position should be departed from, or if there is no expressed position of the Supreme Court on the legal issue involved. It remains to be seen what impact these changes will have.

5. Green Energy

At the end of 2019, draft laws limiting feed-in tariffs for alternative energy sources were widely discussed on the market (Draft Law No. 2543 dated 6 December 2019 and Draft Law No. 2543-1 dated 24 December 2019). Both draft laws introduced the procedure of “restructuring” of Power Purchase Agreements (“PPAs”). The so-called “restructuring” of PPAs means that Solar Power Plants (“SPPs”) may opt to amend PPAs decreasing the feed-in tariff and increasing the period of application. However, on 4 February 2020, Draft Law No. 2543 was rejected by parliament, and Draft Law No. 2543-1 was sent back to its authors for additional revision. A first positive signal was given on 21 February 2020, when the Prime Minister announced that the Cabinet of Ministers does not support retroactive rate changes and is discussing a possible compromise decision with investors. We can only hope a solution will be rapidly reached.

6. Tax Law Changes

On 16 January 2020, parliament adopted a draft law introducing major changes to Ukraine’s tax system and which, generally, complies with all BEPS principles. On 11 February, the law was submitted to the president for his signature. At the time of publication, it had not yet been signed. The changes have raised concerns among the business community. They include essential amendments to corporate profit tax (new thresholds for applying tax differences, new definitions and rules for specific transactions and taxpayers), transfer pricing rules, a simplified tax system (new thresholds for taxpayers of unified tax), and taxation of foreign-controlled companies (taxation of undistributed profit of CFCs at the level of the owner who is a resident of Ukraine for tax purposes). We believe that even if the president does not sign this draft into law, its main provisions are very likely to resurface in an alternative draft. www.bunews.com.ua

Ten steps to boost Ukraine’s economic growth

Andy Hunder, President of the American Chamber of Commerce in Ukraine, Treasurer of AmChams in Europe Ukraine has reported positive, albeit modest, economic growth consistently over the past 15 quarters. Meanwhile, 88% of the American Chamber of Commerce member companies in Ukraine reported increased revenues in 2019 and 65% plan to increase their investments in Ukraine this year. As Ukraine has achieved macroeconomic stability over the past couple of years, it is now time to demonstrate accelerated growth. This can only be achieved by boosting Foreign Direct Investment. Here are the 10 steps that can help achieve this goal.

1. Effective judicial reform

Rule of law is critical for business, as it serves as a crucial precondition for investor trust and creates the confidence to put significant capital into Ukraine. This is what investors are demanding. No one should be exempt or above the law. This means effective judicial reform and extends to the mechanisms for selecting judges.

2. Macroeconomic stability

It is crucial to ensure continued macroeconomic stability, central bank independence, and continued cooperation with the International Monetary Fund (IMF). Cooperation with the IMF is the seal of approval for foreign investors who are considering Ukraine. An independent National Bank of Ukraine plays a key role in the country’s macroeconomic stability as it is a powerful signal of trust for foreign investors.

3. Predictable tax policy

8. Transparent privatization

Fiscal policy stability and predictability are vital. Value Added Tax (VAT) refunds to exporters and a transparent tax administration are essential. Recent developments with VAT refunds are satisfactory and should continue. Meanwhile, the shadow economy, the illegal movement of goods across the customs border, and duties evasion schemes harm legitimate interests and distort market competition. It is crucial to reduce the shadow market.

The three-dimensional transparency of privatization, meaning transparency of the asset, transparency of the buyer, and transparency of the privatization process itself, are the key to its successful implementation. This, in turn, will help to increase the efficiency of state-owned enterprises, create new jobs, increase budget revenues, and help to combat corruption in the SOE sector.

Investment and property rights, including intellectual property rights, must be secure. Protection of all investor rights, especially intellectual property rights, are pivotal for 21st-century economic growth. It is also important to launch land reform. This will further boost Ukraine’s already sizable agriculture sector.

Greater efforts are required to reduce the outflow of human capital abroad. This means policies that encourage citizens to live, work, and invest in Ukraine. In today’s world, the competition to attract the best white collar and blue collar talent is global. Ukraine must grow talents and fight for them by providing all the necessary conditions for the workforce to want to work and live in Ukraine.

4. Protect investors

5. Invest in a healthy nation

Ukraine should look to increase government spending on value-based healthcare and enhance food safety to safeguard public health. Government healthcare expenditure has been increasing, but spending needs to be at least double where it is today. A vibrant, healthy nation is the clear objective. With this in mind, the government should implement a waste management strategy based on an Extended Producer Responsibility model.

6. Boost exports

Proper implementation of the Authorized Economic Operators Institute and further improvement of the Single Window for import-export operations will boost international trade. Automation and simplification of customs procedures along with harmonization with the world’s best practices are important to improve and expand import-export operations.

7. Attract infrastructure investment

Business is ready to invest in Ukraine’s ports, railways, river transport, roads, and air transport. The right legislation must be implemented that will encourage private sector investment in Ukraine’s infrastructure.

9. Reduce labor migration

10. Enable energy independence

Ukraine has the resources to become energy independent. The adoption of a new subsoil code, increasing transparency, deregulation, strengthening institutional capacity, as well as modernizing and simplifying access to oil and gas geological information, are what investors are looking for. Ukraine’s government should safeguard the stable operations of renewable energy producers in the new electricity market. No retroactive decisions should be made in the green energy sector.

The business community currently has a first-class dialogue with the Ukrainian government. We clearly see that the president, prime minister, national and local government officials, and MPs all understand the importance of boosting Foreign Direct Investment. The companies already operating in Ukraine are the country’s best ambassadors. Their success is an advert for further FDI and economic growth. We are ready to work together in making Ukraine a better place to do business. 27

ANNUAL MEMBERS APPRECIATION RECEPTION On February 6, the American Chamber of Commerce in Ukraine held the 28th Annual Members Appreciation Reception at the Hilton Hotel in Kyiv where over 400 investors gathered for the event. Among distinguished speakers were Chargé d’Affaires, a.i. of the U.S. Embassy in Ukraine Kristina Kvien, Deputy Head of the Office of the President of Ukraine Yuliya Kovaliv, Counselor to the Chief Executive Officer of the U.S. International Development Finance Corporation Caleb McCarry, Chair of the Board of Directors of the American Chamber of Commerce in Ukraine and Founding Partner

and Chief Executive Officer of Horizon Capital Lenna Koszarny. “We will continue to fight for our members like a mother fights for her children,” AmCham Ukraine President Andy Hunder addressed member companies and investors during the official part. PARTNERS

AMCHAM UKRAINE PRESIDENT ANDY HUNDER MET WITH U.S. SECRETARY OF STATE MIKE POMPEO

On January 31, President of the American Chamber of Commerce in Ukraine Andy Hunder met with U.S. Secretary of State Mike Pompeo at the U.S. Embassy in Kyiv to deliver the voice of business in the course of the Secretary’s visit to Ukraine. Andy Hunder thanked Secretary Pompeo and the entire U.S. Department of State for providing support to all AmChams throughout 43 European countries. Mr. Hunder delivered AmCham Business Climate Survey and provided tangible examples of realities of doing business on the ground, voicing member companies’ success stories. He stressed that the mood of business is upbeat, with 88% of AmCham members seeing increased growth in revenues and 65% increasing investment in Ukraine. “Ukraine is ripe for U.S. investment, and now is the time to invest in Ukraine. There is a need to shift the narrative on U.S.-Ukraine rela-

tions to focus on business and investment. Ukraine is going through a massive overhaul and the 600 members of the American Chamber of Commerce are seeing growth and increased revenues for their business in Ukraine,” commented Andy Hunder. The parties also discussed rule of law, further cooperation with the IMF, unlock of the U.S. Export-Import Bank’s (EXIM) full financing capacity, and OPIC’s transformation into the U.S. International Development Finance Corporation (DFC). Andy Hunder thanked Secretary Pompeo for the constant support that Chargé d’Affaires, a.i. Kristina Kvien and the whole U.S. Embassy team provide to members. The American Chamber of Commerce in Ukraine sees that the business optimism is growing and will continue to help businesses grow in Ukraine throughout 2020.

MEETING WITH THE PRESIDENT OF UKRAINE VOLODYMYR ZELENSKY On February 13, President of the American Chamber of Commerce in Ukraine Andy Hunder met with the President of Ukraine Volodymyr Zelensky to deliver the voice of business, together with the leadership of the Union of Ukrainian Entrepreneurs and the European Business Association. AmCham President Andy Hunder stressed that business and government have a common goal – to attract $50 billion of foreign direct investment (FDI) to Ukraine over the next five years. “We are optimistic and ready to work together. Only by joining forces will we be able to achieve our common goal,” said Mr. Hunder. He also voiced the #1 priority for business – rule of law, that, together with trust, transparency, and political will, is the key component for attracting FDI. Andy Hunder also welcomed the macroeconomic stability that has already been achieved and stressed on the importance of growth that can be achieved by implementing 10 strategic steps for Ukraine’s economic growth.

B2G Dialogue MEETING OF THE NATIONAL INVESTMENT COUNCIL IN DAVOS AmCham Ukraine Board of Directors Chair Lenna Koszarny and AmCham Ukraine President Andy Hunder delivered the voice of business at the National Investment Council Meeting in Davos. At the table with TOP international investors and Prime Minister Oleksiy Honcharuk, they discussed possible ways to increase the inflow of foreign direct investment – a fuel for Ukraine’s economic growth. MEETING WITH YURIY TERENTYEV, HEAD OF THE ANTIMONOPOLY COMMITTEE AmCham Ukraine members met with Yuriy Terentyev to discuss the priorities and key areas of focus for the AMCU in 2020, as well as its view of the Competition-Antimonopoly Reform and recently registered Draft Law #2730. MEETING WITH CALEB MCCARRY, COUNSELOR TO THE CHIEF EXECUTIVE OFFICER OF THE U.S. INTERNATIONAL DEVELOPMENT FINANCE CORPORATION Members of the American Chamber of Commerce in Ukraine and U.S.-Ukraine Business Council met with Caleb McCarry to hear more about DFC’s investment opportunities. DFC is America’s brand-new development bank, investing $60 million in developing countries across sectors including energy, healthcare, critical infrastructure, and technology. MEETING WITH RUSLAN RIABOSHAPKA, PROSECUTOR GENERAL AmCham Ukraine members met with Ruslan Riaboshapka to discuss rule of law as the #1 priority for business, reform of the Prosecutor

General’s Office, the priorities for 2020, and agreed on the mechanism of cooperation with the transparent business community.

B2G Dialogue MEETING WITH ZORIANA SKALETSKA, MINISTER OF HEALTH AmCham leadership and Steering Committees’ members met with Zoriana Skaletska, Viktor Liashko, and Oleksandr Komarida to discuss topical issues in healthcare, food and beverage, consumer goods, and seeds spheres.

MEETING WITH PRIME MINISTER OLEKSIY HONCHARUK ON HEALTHCARE ISSUES AmCham Healthcare Steering Committee members met with Oleksiy Honcharuk to discuss the main challenges and opportunities in Ukraine’s pharmaceutical sphere. MEETING WITH DEPUTY HEADS OF THE STATE CUSTOMS SERVICE AmCham Ukraine Customs Committee member met with Robert Zeldi and Denys Shendryk to discuss strategic priorities on fighting with “grey” import, Authorized Economic Operator and NCTS (New Computerized Transit System) implementation, IPR protection during customs clearance, customs valuation, and classification issues. IT INDUSTRY’S MEETING WITH TYMOFII MYLOVANOV, MINISTER FOR DEVELOPMENT OF ECONOMY, TRADE AND AGRICULTURE AND OLEXANDER BORNYAKOV, DEPUTY MINISTER OF DIGITAL TRANSFORMATION Representatives of the IT industry, united by the American Chamber of Commerce in Ukraine, the European Business Association, IT Ukraine Association, and the Union of Ukrainian Entrepreneurs met with Tymofii Mylovanov and Olexander Bornyakov to discuss key issues of the IT industry’s further development and challenges

to tackle. As a result of the meeting, representatives of business associations and Ministries agreed to sign a Memorandum that will become a roadmap for cooperation between the state and the business to ensure favorable conditions for further sustainable development of Ukraine’s IT industry.

B2G Dialogue MEETING WITH MAXIM LIBANOV, MEMBER OF THE NATIONAL SECURITIES AND STOCK MARKET COMMISSION AmCham Banking & Financial Services Committee members met with Maxim Libanov to discuss the Draft Law #2493 “On Joint Stock Companies” with a focus on further developing domestic capital markets.

MEETING WITH DMYTRO ABRAMOVICH, FIRST DEPUTY MINISTER OF INFRASTRUCTURE AmCham members discussed the current situation in Ukraine’s infrastructure sphere as well as further steps of the Ministry on developing railway transport infrastructure and postal services in 2020. MEETING WITH DENIS BASHLYK, HEAD OF THE STATE SERVICE FOR GEODESY, CARTOGRAPHY AND CADASTRE AmCham members joined the discussion on problematic land issues faced by investors operating in the energy sector, agriculture, and subsoil use.

MEETING WITH IHOR BEREZA, DIRECTOR OF THE FINANCIAL MONITORING DEPARTMENT OF THE NATIONAL BANK AmCham Banking & Financial Services Committee members discussed the main peculiarities and novelties of the new Anti-Money Laundering Law with Igor Bereza.

B2G Dialogue MEETING WITH MYKYTA POTURAIEV, DEPUTY HEAD OF THE PARLIAMENTARY COMMITTEE ON HUMANITARIAN AND INFORMATION POLICY AmCham Media & Communications Committee members met with Mykyta Poturaiev to discuss key proposals to the recently registered Draft Law #2693 “On Media,” developed by the experts of the Chamber member companies.

MEETING WITH HALYNA TRETIAKOVA, HEAD OF THE PARLIAMENTARY COMMITTEE ON SOCIAL POLICY AND VETERANS’ RIGHTS PROTECTION AmCham Ukraine member companies met with Halyna Tretiakova to discuss Draft Law #2708 “On Labor” and provide the business community’s vision. MEETING WITH LIUDMYLA BUIMISTER, HEAD OF THE PARLIAMENTARY SUBCOMMITTEE ON COMPETITION AND EQUAL BUSINESS OPPORTUNITIES, AND SVITLANA PANAIOTIDI, DEPUTY MINISTER FOR DEVELOPMENT OF ECONOMY, TRADE AND AGRICULTURE Participants discussed Competition-Antimonopoly Reform with a focus on recently registered Draft Law #2730. AmCham members shared their proposals for improvement of the Draft Law. MEETING AT UKRAINE WOW EXHIBITION AmCham Hospitality & Tourism Committee members discovered the Ukraine WOW project and exhibition by Yaroslava Gres as well as discussed Ukraine as a top rural tourism destination.

TRADITIONAL BUSINESS NETWORKING COCKTAIL “WELCOME BACK” AmCham Ukraine members, partners, and friends gathered to celebrate the beginning of the new business season. Participants had a chance to catch up with peers, expand network of contacts, and share expectations for 2020. PARTNERS

ST. VALENTINE’S BLOOD DONATION Donation of blood means a few minutes to you but a lifetime for somebody else. For the 4th year in the row, the American Chamber of Commerce in Ukraine held the Saint Valentine’s Day Blood Donation. 78 socially responsible business representatives and Ukrainian citizens joined the initiative and became donors. This time over 35 liters of blood were gathered for Kyiv local hospitals.

SPONSORED WITH LOVE BY

PARTNERS

GIFT PARTNER KYIV

tech

Ukraine in a smartphone

Zelenskyy’s digital revolution aims to change the way Ukrainians interact with the state Critics of Ukrainian President Volodymyr Zelenskyy like to claim that he is big on platitudes but short on specifics. One of the relatively few areas where President Zelenskyy has been clear about his intentions from day one is in his desire to digitize the work of the Ukrainian government. This “country in a smartphone” concept is now starting to take shape, and it may well be the most effective way to speed Ukraine along in its ambitious transformation away from the corruption and dysfunction of the post-Soviet era. Ukraine unveiled the “Diia” mobile application in early February. This app will serve as the main channel of communication between the government and the country’s citizens. Within a week, it had been installed by more than one million Ukrainians. For the moment, the “Diia” offers limited functions such as digital driving licenses and ID for domestic flights. Digital passports are set to launch at the end of March, with much more to follow. Diia’s initial digital offering is already proving popular. Within two days of the official launch, 360,000 Ukrainians had downloaded digital driving licenses. This strong response confirms the huge appetite for digitalization within Ukrainian society, especially among younger Ukrainians. The popularity of digital solutions among Ukraine’s hipster generation should not fool anyone into dismissing the “country in a smartphone” initiative as a mere gimmick or a fleeting fashion. On the contrary, digitalization has the potential to become an unrivaled tool for change. Indeed, it should arguably be the number one priority for anyone interested in Ukraine’s progression towards greater rule of law, stronger property rights, and the fight against corruption. Ukraine does not have to look far for inspiration. Elsewhere in the former USSR, former Estonian President Toomas Ilves is widely credited with driving the digital transformation of his country, which today serves as a global model for digitalization. Ilves once told me that his friends liked to joke about the expense of driving in Estonia. The reason was simple: unlike neighboring countries, Estonia had implemented a system of automatic fines, thus removing the possibility of reaching informal agreements with traffic police. Such examples are directly relevant for today’s Ukraine, which continues to languish in the lower half of global anti-corruption rankings. As well as specific benefits like reducing the human factor in some of the more rudimentary aspects of law enforcement, digitalization can provide a boost to a range of structural reforms. Ukraine’s efforts to open up the country’s agricultural land market would be considerably more effective if issues relating to the currently complicated land registry system were resolved via block chain technologies. Likewise, stalled healthcare reforms would benefit from the full digitalization of medical records and other aspects of the medical services sector. For issue after issue on Ukraine’s reform agenda, digitalization offers a fast track to the kind of transparency that kills corruption. The “country in a smartphone” vision also encompasses digital democracy. If Ukraine is able to implement digital voting, it will

greatly reduce the scope for election fraud while also helping to consolidate the engagement of young Ukrainians in the country’s democracy. Thanks to Volodymyr Zelenskyy’s appeal among younger voters, record numbers of twenty-something Ukrainians participated in the 2019 presidential and parliamentary elections. Online elections could help transform this specific trend into the new normal. In an electorate traditionally dominated by conservativeminded pension-age voters, greater youth engagement would inevitably mean more support for progressive parties. With an outmoded state apparatus and a tech-savvy population eager for change, Ukraine is perhaps uniquely well-placed to embrace the benefits of digitalization. However, these advantages are global in nature. A recent World Bank report on the subject highlighted how digital transformation can boost income levels while cutting government waste. Using the example of Nigeria, the report outlined how implementation of a digital ID card system had allowed the government to identify 62,000 “phantom employees” in the public sector, resulting in savings of around USD 1 billion. Ukrainian Prime Minister Oleksiy Honcharuk has already announced a 10% reduction on government employees as a result of the “country in a smartphone” initiative. This alone could lead to savings worth hundreds of millions of dollars while also dramatically improving the speed, efficiency and transparency of government services. Ukraine’s digitalization drive is currently in its early stages. The potential benefits are already obvious, while the enthusiasm of the initial public response has been highly encouraging. In order to reach its full potential, digitalization now requires a combination of political will and financial backing. President Zelenskyy and his Servant of the People party have already demonstrated their political commitment to the digitalization initiative, not least via the establishment of the new Ministry of Digital Transformation in August 2019. Ukraine’s international partners, including both international financial institutions and individual partner countries, should also consider placing an emphasis on digitalization initiatives. Billions have been allocated since 2014 to help finance a variety of reforms in Ukraine. The return on these investments has been varied, to say the least. Looking ahead, President Zelenskyy’s flagship digitalization drive may now be the most effective way to invest in the country’s future.

About the author: Anatoly Motkin is founder and president of StrategEast.

Nation-building Ukraine celebrates

one year of Orthodox independence

More than one-third of Ukrainians now identify with the new Orthodox Church of Ukraine

“This is a young Church with ancient roots.” The Orthodox Church of Ukraine’s Metropolitan Epiphaniy reflects on the long and often troubled history of Ukrainian Orthodox Christianity during an early February prayer service at Kyiv’s St. Sophia Cathedral to mark the first anniversary of Ukraine’s new national Orthodox Church. History moves fast in today’s Ukraine. Driven on by an undeclared war with Russia that is now entering its seventh year, Ukraine is currently busy shedding centuries of imperial baggage and establishing itself as a genuinely independent nation. This process is generating waves of geopolitical turbulence throughout the wider region, bringing the entire world to the brink of a new Cold War. Much of the accompanying media coverage tends to focus on the headlinegrabbing struggle between Vladimir Putin’s resurgent Russia and a Western world bloated by decades of unipolar ascendancy. However, the epicenter of this unfolding historical drama remains firmly located inside Ukraine itself. It is here in Ukraine that the current contest between Russia and the West will be decided, and it is here that Europe’s future trajectory will be determined. This lends Ukraine’s 60

post-2014 national awakening an importance that extends far beyond the country’s borders. Among the many momentous developments to rock Ukraine since 2014, few have carried greater symbolic significance than the establishment of an independent Orthodox Church of Ukraine. This landmark event took place in early 2019 with the granting of autocephaly, or self-governing status, by the Ecumenical Patriarch of Constantinople, Bartholomew I. For centuries prior to this, Ukraine’s Orthodox faithful had fallen under Moscow’s jurisdiction. The Soviet collapse saw the rise of a Kyiv Patriarchate to rival the Moscow Patriarchate, but this Ukrainian upstart lacked international recognition. The Constantinople Patriarch’s 2019 intervention completely transformed this picture, giving Ukraine an internationally acknowledged

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to owe their loyalty to the Russian Orthodox Church. By comparison, the new Orthodox Church of Ukraine currently has around 7,000 parishes, the bulk of which transferred from the Kyiv Patriarchate following establishment of the new Church. However, counting parishes is not an exact science, with many featuring tiny rural congregations and others existing on paper only. Perhaps more tellingly, a nationwide poll published by the respected Razumkov Center think tank on 3 February 2020 found that over onethird of Ukrainians (34%) now identify as members of the newly established Orthodox Church of Ukraine, while around 14% continue to follow the Moscow Patriarchate. Meanwhile, more than a quarter of respondents (27.6%) defined themselves simply as Orthodox Christians without choosing any particular branch and affiliation. Such shifts do not occur overnight. As the large margins in this survey suggest, the move away from the once dominant Moscow Patriarchate is a long-term trend within Ukrainian society that predates the relatively recent advent of autocephaly. This shift has gained significant momentum since 2014. More than any other single factor, Vladimir Putin’s six-year undeclared war against Ukraine has been disastrous for the Russian Orthodox Church’s fortunes in the country. Members of the Moscow Patriarchate clergy have been accused of actively supporting Russian military aggression in Ukraine, while numerous incidents of priests refusing to perform religious services for Ukrainians killed defending their country have sparked public anger and widespread dismay. Until 2014, church affiliation had been a non-issue for many Ukrainians, but the conflict has transformed it into yet another front line in the bitter geopolitical divorce between Russia and Ukraine. Despite the setbacks of recent years, the Russian Orthodox Church will likely remain part of Ukrainian society for many decades to come. It continues to control the majority of Ukraine’s most important religious sites and has deep, multi-generational roots in Ukrainian society that are strong enough to withstand the current political storms. Nevertheless, the Orthodox Church of Ukraine has also demonstrated over the past year that it is capable of putting down roots of its own. As well as consolidating its position domestically, Ukraine’s new Church has been officially recognized by the Greek Orthodox Church and the Patriarchate of Alexandria. During recent anniversary events, Metropolitan Epiphaniy said he expected further recognition to arrive from within the Orthodox world in the coming months. Efforts are also underway to engage with wider Ukrainian society through the creation of the Mazepa Foundation, an initiative backed by the Orthodox Church of Ukraine that will support good causes and dialogue across the country. Perhaps the most important role played by the new Orthodox Church of Ukraine is as a symbol of Ukrainian statehood. Prior to autocephaly, followers of Ukraine’s Kyiv Patriarchate were often derided as members of an unrecognized sect. This mirrored similar attacks on Ukraine as a whole, with the country’s lack of historical pedigree as an independent nation brandished by opponents as evidence that it was somehow less worthy of the respect due to a sovereign state. In this context, the international recognition that Ukraine’s new Church received in 2019 was a significant step forward in Ukraine’s long nation-building journey. It did not bring Russian religious influence in the country to an end or unite the Ukrainian Orthodox faithful under a single banner, but it did send a clear message that Ukraine is now a truly independent nation with a national church of its own.

religion

Orthodox Church of its own and dramatically reducing Russia’s ability to exert informal influence over the Ukrainian faithful. One year on, the Orthodox Church of Ukraine is firmly established at home and gradually gaining ground internationally. However, much like Ukraine itself, the new Church remains a work in progress that faces enormous challenges from a Russian establishment unwilling to accept the loss of its traditional dominance in a country many in Moscow continue to view as an integral part of the Russian heartlands. Ukraine’s new Orthodox Church has become a target for the Russian authorities in Kremlin-occupied Crimea and eastern Ukraine. It is also struggling with all manner of court cases and disinformation campaigns as Moscow fights a desperate rearguard action to prevent the further loss of influence in its imperial backyard. Internationally, Russia has responded to Ukrainian Orthodox independence by breaking off all ties with the Ecumenical Patriarch of Constantinople and threatening the biggest schism in the Orthodox Christian world for a thousand years. The scale of this rift is a fair indication of the geopolitical stakes involved. “This is a young Church with ancient roots,” commented the Orthodox Church of Ukraine’s Metropolitan Epiphaniy during an early February anniversary service at Kyiv’s venerable St. Sophia Cathedral to mark one year since the Church’s establishment. Metropolitan Epiphaniy went on to describe Ukraine’s newly independent Orthodox Church as the continuation of an ancient lineage stretching all the way back to the conversion of the Slavs in late tenth century Kyiv. This echoes ongoing efforts to attribute similarly deep political foundations to the modern Ukrainian nation, which traces its roots to the early medieval Kyiv Rus state centered on the Ukrainian capital that included swathes of today’s Ukraine, Belarus, and Russia. St. Sophia Cathedral was a particularly apt setting for such bold proclamations of historical continuity. Looming over the congregation were thousand-year-old frescoes depicting the Kyiv Rus royals who first brought Christianity to Ukraine. These secular icons are regarded as the direct ancestors of the independent Ukrainian state that arose from the Soviet ruins in 1991. Like so much else in Ukraine’s reemerging national story, they are also coveted by modern Russia, which claims them for its own foundation myth. This is the quandary today’s Ukrainians face as they fight to establish a national narrative of their own. Untangling the many threads tying Ukraine to Russia inevitably brings them into conflict with their northern neighbors, who have assumed ownership of Ukraine’s historical inheritance for generations. Unsurprisingly, the issue of Orthodox independence has long been one of the most highly politicized aspects of Ukraine’s post-Soviet nation-building efforts. In the years following the 2004 Orange Revolution, Ukraine’s President Yushchenko sought but failed to secure autocephaly for the country. When it finally did come a decade later, the breakthrough was widely attributed to President Poroshenko, who invested considerable political capital in his wooing of the Constantinople Patriarch and sought to use this success as a springboard to reelection. Other factors prevented Poroshenko from earning a second presidential term, but the importance of his achievement should not be underestimated, even if this may not be immediately apparent from the available data. In the year since the Orthodox Church of Ukraine was created, around 600 parishes have left the Moscow Patriarchate and joined the new Church. This is a relative drop in the ocean compared to the estimated 12,000 Ukrainian parishes that continue

Ukraine’s big salary debate

Can competitive official incomes help Ukraine overcome decades of rampant public sector corruption?

About the interviewee: Igor Smelyansky is the CEO of Ukrposhta Ukrposhta CEO Igor Smelyansky is the unrepentant poster boy for corporate-competitive salaries in the Ukrainian state sector, and he wants everyone to know it. In recent months, Smelyansky’s income has become the subject of a heated national debate as populist politicians fuel public outrage over the dramatically inflated pay packets of government officials and managers of state-owned enterprises in a country where average salaries remain among the lowest in Europe.

There have been Facebook memes, talk show diatribes, and angry opeds all denouncing the alleged injustice of his high salary. One particular low point was the day he discovered he’d dislodged Ukraine’s latest pop starlet as the main story on the front page of the country’s most popular tabloid newspaper. Managers of national postal services do not normally attract this kind of attention. When we meet for breakfast in a downtown Kyiv cafe next to the central post office that serves as the nerve center of his vast postal empire, Smelyansky says the fuss is a symptom of the thinking that keeps millions of Ukrainians trapped in poverty. “I would be much richer if I accepted bribes,” he quips. This one-liner captures the essence of Smelyansky’s argument. He sees himself as a reformer on a mission to change the way the Ukrainian public sector operates, and makes no apologies for expecting to be paid the market rate. On the contrary, he believes the old practice of paying relative peanuts to top officials served as an open invitation for the kind of institutionalized corruption that has crippled the Ukrainian economy ever since the country first achieved independence in 1991. This is hard to argue with. Senior members of Ukraine’s public sector are notorious for living in multi-million dollar palaces and acquiring fleets of luxury cars while declaring absurdly low official salaries, with the illicit rich pickings on offer driving a culture where top positions are routinely sold to the highest bidder and complex networks of interdependency keep the corruption gravy train firmly on track. The only way to break this vicious circle, says Smelyansky, is to recruit a new generation of professionals and offer them salaries that can compete with the private sector. Since taking on the role of Ukrposhta CEO in 2016, Smelyansky has grown used to the idea that his salary is public knowledge. At first glance, his basic monthly pay of around USD 35,000 does indeed seem startlingly high by Ukrainian standards. With bonuses, he could potentially take home twice as much. However, he is quick to point out that this is actually far less than many CEOs in Ukraine’s private sector currently receive, and significantly lower than the salaries he himself has commanded in the past. Odesa-born Smelyansky came to Ukrposhta

“People say I should not have such a high salary in a poor country, but Ukraine is only poor today because all of the managers on low salaries already stole everything” 62

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he has begun the process of bringing the vast Ukrposhta branch network into the digital age, gotten the business model back on track by demanding market rates from the state for pension delivery services, and launched innovative initiatives such as an export school to teach Ukrainian SMEs how to sell their wares on Amazon and eBay. These efforts have produced striking increases in both revenues and postal traffic. Ukrposhta reported record annual profits last year of more than UAH 600 million. When Smelyansky arrived in 2016, the postal operator was shipping 46,000 express parcels per year. By early 2020, the figure was 47,000 per day. There has also been unprecedented international recognition. At the 2019 World Post and Parcel Awards in Dublin last summer, Ukrposhta’s E-Export Program took top spot globally in the Corporate Social Responsibility and Postal E-Commerce categories. So far, these impressive results have failed to convince Smelyansky’s critics or reduce the public outrage over his official salary. The Ukrposhta CEO is philosophical about the negativity he continues to encounter, and argues that it may require a generational shift in thinking before attitudes finally evolve. “You have to begin teaching people at kindergarten age that professional success through hard work is a good thing,” he says. “The guy living in a mansion and driving a luxury sedan on an official salary of USD 300 is not a hero. The guy running a big company successfully and earning an honest salary is who you should aspire to be. As it is, people know the bosses are stealing, but they sleep better because they don’t know how much is being stolen. At the same time, they complain that I should not have such a high salary in a poor country, but the reason they are poor is because all the managers on low salaries already stole everything.”

interview

from the US, where he was headhunted for the post while working for KPMG in New York, having earlier graduated from George Washington University Law School and received an MBA from Georgetown University. Why did he agree to swap a promising career in the upper echelons of the corporate world for the uncertainties and turbulence of the post-revolutionary Ukrainian public sector? Like many other reformers, Smelyansky was enticed by the prospect of bringing about meaningful change in Ukraine and drawing a line under decades of dysfunction. “If I can change Ukrposhta, this symbol of the lingering Soviet mentality, then anything can be changed in Ukraine.” The task he faced upon arrival at the helm of Ukraine’s national postal service could certainly be described as Herculean. The company he took over was the country’s second-largest employer with around 70,000 staff and over 11,000 branches. It was also riddled with corruption. “The whole system was in balance. Everyone was stealing,” he says. As a self-proclaimed disruptor intent on shaking up the entire institution, Smelyansky did not expect to receive a particularly warm welcome, but he did not shy aware from confronting his detractors. He recalls the moment in the early days of his tenure when he gathered a number of Ukrposhta managers into a meeting room overlooking the company car park and asked them to point to a single vehicle parked outside that could be bought on their official salaries. A stony silence ensued. The gesture did not win him many friends, but he had made his point. Confronting corruption was only part of the problem. Since 2016, Smelyansky has sought to transform the corporate culture within Ukrposhta and overcome the pervading sense of inertia that is alltoo-common in the Ukrainian state sector. Over the past four years,

Kyiv restaurant launches official champagne brand

Citronelle has become the first restaurant in the former USSR to boast its own champagne

Few product trademarks are as closely guarded as champagne. The efforts of French champagne producers to protect their unique beverage from imitators are well-known around the world, helping to create an exclusivity that is synonymous with the high life. With its center in the Champagne wine region of northeastern France, the industry can be difficult for outsiders to access. This makes the recent achievement of the Ukrainian capital’s Citronelle restaurant all the more remarkable. In early 2020, this French restaurant in downtown Kyiv introduced its own line of signature champagnes prepared specially for the venue by the Pierre Morlet champagne house, which traces its roots in the industry back for generations. This was a first not only for the Ukrainian gastronomic scene, but for the entire former Soviet region. The story of Citronelle’s quest for its own branded champagne began in appropriate circumstances with a Paris dinner party in 2016. Citronelle founder Mariia Didkovska was in attendance along with her close friend, a Ukrainian chef working in the French capital. Fellow guests included a member of the lawyer dynasty responsible for coordinating the legal protection and global certification of champagne. This chance encounter led Didkovska to the Champagne region and a series of meetings with Eric Morlet, the son of the man regarded as the modern founder of Pierre Morlet Champagne. “We spent a long time building up the relationship,” recalls Didkovska. 64

“The Champagne wine region is a whole world unto itself with a strong emphasis on tradition. It is a very closed club that you cannot simply enter without an invitation.” This patience eventually paid off. After a number of personal visits to the Champagne region, Didkovska was able to convince monsieur Morlet to take the unusual step of launching a special line of champagnes exclusively for Citronelle restaurant. Following an extended period of tastings and fine-tuning, the first delivery finally arrived in Ukraine at the end of December 2019. Initially, the restaurant expects to receive 800 bottles in four different varieties ranging from classic champagne to rose brute. With prices starting from UAH 2400 per bottle and reaching UAH 6500 for magnums, this is not necessarily an everyday purchase, but Didkovska believes that is all part of the champagne experience. “Champagne is something special. It is a ritual that speaks of a particular mood. It is a celebration of life.” Didkovska hopes her success will now help to generate interest in genuine champagne culture among Ukrainian connoisseurs after decades in which brand associations have been somewhat undermined on the domestic market by the prevalence of locally-produced bargain brands that bear no relation to the real thing. “I hope to promote real French champagne among Ukrainian audiences,” she says. “Nobody believed me when I first told them I wanted to get our own house champagne for Citronelle, but it proved possible in the end. Hopefully this can serve as an inspiration for others.”

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lifestyle

About the interviewee: Mariia Didkovska is the founder of Citronelle restaurant in Kyiv

Turkish Business Community Welcomes President Erdogan to Ukraine Turkish President Recep Tayyip Erdogan arrived in Kyiv in early February for an official visit that reflected the strengthening ties between Black Sea neighbors Turkey and Ukraine. While in the Ukrainian capital, President Erdogan and his Ukrainian counterpart President Zelenskyy attended the annual Turkey-Ukraine Business Forum and met with members of the vibrant Turkish business community in Ukraine. Turkey’s business presence in Ukraine has expanded significantly in recent years, with particularly strong representation in the infrastructure and construction, telecommunications, retail, and industrial sectors of the Ukrainian economy.

Bilateral trade between the two countries currently stands at around USD 4 billion annually. However, work continues on a Free Trade Agreement which experts believe could drive yearly trade volumes to above USD 10 billion, with both presidents expressing hopes that the free trade deal can be finalized during 2020. In a welcome show of solidarity during his Kyiv visit, President Erdogan addressed a Ukrainian military honor guard with the country’s official army slogan, “Glory to Ukraine”. The Turkish leader also underlined Ankara’s refusal to recognize the Russian annexation of Ukraine’s Crimean peninsula and referred to Turkey and Ukraine as “strategic partners”.

networking events

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Annual Industry Rating of Ukraine’s Top Banks Members of Ukraine’s banking and financial communities gathered in downtown Kyiv on 5 February for an awards ceremony to honor the winners of the Banking 2020 ranking, which was produced by FinClub based on official financial data for the previous year. Guests at this year’s ceremony included Finance Minister Oksana Markarova, who praised the recent progress of the Ukrainian banking sector and noted that increased lending capacity would play a crucial role in fueling the country’s continued economic growth. Ukraine’s banks reported profits of UAH 60 billion last year, setting a new industry record. This strong performance came following fundamental reform of the Ukrainian banking sector since 2014.

networking events

British Ukrainian Chamber Hosts FranklinCovey Management Experts The British Ukrainian Chamber of Commerce hosted a networking reception in late January at Kyivâ&#x20AC;&#x2122;s Radisson Blu Hotel (22 Yaroslaviv Val Street) featuring a management training presentation by FranklinCovey Ukraine. Over 50 attendees participated in a masterclass from FranklinCovey Ukraine MD Dmytro Tretiak and CEO Olga Rafalska, who shared a range of practical insights into management and leadership. FranklinCovey is a global leader

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in management training for 75% of the Fortune 500 companies in more than 140 countries worldwide. The British Ukrainian Chamber of Commerce (BUCC) brings together companies and individuals doing business in Ukraine or the UK, including the City of London, the financial capital of Europe. During 2019, the BUCC organized or participated in holding over 50 events in Kyiv, Lviv and London.

French Chamber Elects New Board of Directors The Franco-Ukrainian Chamber of Commerce and Industry (CCIFU) began 2020 by electing a new board of directors that will serve for the coming two years. CCIFU members gathered at Kyiv’s stylish Alaska restaurant in late January for the ballot, which was followed by an evening of networking. Bertrand Barrier of Jeantet law firm was duly elected as the new CCIFU President. He is joined on the 2020-21 CCIFU Board of Directors by Tetiana Chevrolet-Kozhanova (Global Distribution Ukraine), Grégoire Dattée (Mazars), Edouard-Laurent Dorges (France Gourmet), Jean-Jacques Hervé (Agriaudit JJ), Gerard de La Salle (Alfagro), and Mark Sawchuk (L’Oréal).

networking events

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Art Exhibition Explores Ukrainian National Identity Issues The 2020 cultural calendar got underway in Kyiv in mid-January with a new exhibition by Ukrainian-American artist Ola Rondiak that offered a colorful and provocative take on Ukrainian national identity issues. Hosted at the Museum of Kyiv History and curated by Juan Puntes, Rondiak’s “Metempsychosis” show in the Ukrainian capital was actually the second leg of this arts initiative and followed on from the first stage of the exhibition at New York’s Whitebox Harlem venue. The show featured a selection of the artist’s iconic Ukrainian collage-style portraits along with her striking interpretations of traditional Ukrainian “motanka” dolls, which have

served as household guardians and symbols of fertility in Ukrainian culture for countless generations. Rondiak’s art explores Ukrainian identity at a time when the country is undergoing dramatic social change as it continues to wrestle with a troubling imperial inheritance and seek out its own place within the contemporary European community of nations. Born into a Ukrainian family in the United States, Rondiak has subsequently spent more than two decades living in post-Soviet Ukraine. Her art reflects this experience and allows her to share her personal perspective on the national voyage of self-discovery taking place in today’s Ukraine.

networking events

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and finally

Boryspil Airport ranked No. 1 in Europe for passenger growth

Kyiv’s Boryspil International Airport was Europe’s number one for passenger growth during 2019 among airports in the 10 to 25 million passenger category, according to the latest annual ranking produced by aviation industry association ACI Europe (Airports Council International Europe). Boryspil, which is Ukraine’s busiest airport, posted 21.1% passenger growth in 2019, putting it well ahead of second-placed Milan Malpensa Airport, which saw a 16.6% year-on-year increase in passenger traffic. Boryspil’s 2019 annual total of 15.3 million passengers was a new record for the airport and represented around 60% of the Ukrainian aviation industry’s overall passenger flow of

24.3 million travelers. The number of travelers using Boryspil in 2019 was significantly more than double the total recorded in 2014, when the airport serviced 6.9 million passengers. For the past four years, the airport has maintained robust growth of around 20% annually. Ukraine is currently experiencing an unprecedented boom in air travel thanks to a number of factors including a fourth consecutive year of economic growth and the June 2017 advent of visa-free travel to the European Union. In recent years, a range of budget airlines have entered the Ukrainian market, greatly enhancing the country’s connectivity, particularly to EU destinations. Key arrivals have included Ryanair, which launched its first Ukrainian routes

from Kyiv and Lviv in autumn 2018 before embarking on an ambitious expansion to additional Ukrainian airports including Odesa, Kharkiv and Kherson. With passenger numbers rising steadily, Boryspil International Airport has received a number of infrastructure upgrades in recent years. In November 2018, an express train service was unveiled that connects the airport with Kyiv’s Central Railway Station. This Boryspil Express service has proved highly popular and carried over one million passengers during its first year of operations. Meanwhile, spring 2019 saw the long-awaited opening of a four-story car park located alongside Boryspil’s main terminal building.

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No reproduction, use or adaptation of contents, logos, titles or designs is permitted in any manner without the prior written consent of the publisher. The opinions expressed by individual authors and contributors each month in Business Ukraine magazine do not necessarily reflect the position of the publishers. The publishers of Business Ukraine do not accept legal responsibility for the goods and services advertised within the publication.

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