Business Ukraine Issue 3/2017

ISSUE 03/2017

50 TOP BANKS

OF UKRAINE

ISSUE 03/2017

50 TOP BANKS

OF UKRAINE BUSINESS UKRAINE ISSUE 03/2017: Ukraine’s banking sector has undergone fundamental reforms since 2014, leading to the closure of dozens of banks and the biggest industry shakeup since the fall of the Soviet Union. Can the sector now drive Ukraine’s economic recovery?

Negativity is Ukraine’s worst enemy Over past few years, it has become fashionable to identify Ukraine’s enemies.

Unsurprisingly, Russia was the first enemy to be officially unmasked after the Kremlin dropped all pretense of Slavic fraternity and invaded the country. Russia was a no-brainer, but there has been no shortage of additional enemies. The next to face public exposure was corruption. Whereas Russia was the enemy at the gates (or actually inside the gates, technically speaking), corruption was the enemy within. According to many, this made it an even more dangerous foe than Russia itself.

An eclectic collection of lesser enemies has since joined the list, including everything from burdensome bureaucracy, emigration and low birth rates to bad roads, nepotism and international indifference. One particularly ubiquitous and insidious enemy has so far escaped detection. This enemy is the relentless negativity that shrouds Ukrainian perceptions of their own country. Most Ukraine-based expats will recognize this condition all too well from endless depressing conversations with Ukrainian friends and colleagues who treat any display of outsider optimism as a charming but childish flaw. It is the debilitating practice of always expecting the worst, of finding the thorn on every rose, and the cloud within every silver lining.

The public reaction to Ukraine’s epic quest for visa-free EU travel has been a case in point. At first, the entire notion of visa-free EU access was subject to ridicule and dismissed as completely out of the question. At each stage of the process, the mockery continued unabated. Everyone from TV analysts to barroom bigmouths expressed confidence that the whole issue was a sham. It would never happen. Ukrainians were just embarrassing themselves. Nobody wanted them. With Ukraine now finally on the verge of securing visa-free travel, the lyrics have changed but the tune remains the same. In recent weeks, we have learned from these same founts of negativity that visa-free access was never even worth having in the first place. So many documents! No guarantees!

Treated like criminals! Might as well just get a visa! There is literally no pleasing these people.

This default negativity is not without foundation. In many ways, it is a logical defense mechanism rooted in the bitter lessons of Ukrainian history. Since 1991, Ukraine’s experience of self-government has been profoundly disappointing. Starting out from a strong base, Ukraine has gradually slipped to the bottom of the post-Soviet class amid institutional corruption of biblical proportions and serial economic failures that have created huge wealth for a tiny minority while leaving the majority of Ukrainians anchored among the world’s poorest people.

The country’s history prior to independence was even more devastating. Occupied and partitioned for hundreds of years, Ukraine was the epicenter of the www.bunews.com.ua

totalitarian apocalypse in the first half of the twentieth century, suffering more than any other nation at the hands of Hitler and Stalin. Between 10 and 20 million Ukrainians were killed between 1917 and 1953, but these staggering crimes remain largely unknown to the outside world.

Ukraine’s historic trauma would be enough to make anyone inclined towards negative expectations. When combined with the fabled fatalism of Slavic lore, it more than explains the strong undercurrents of negativity in today’s Ukrainian society. Nevertheless, it is important to recognize that this negativity serves the function of a self-fulfilling prophecy. Constantly talking down Ukraine’s chances hampers the post-Maidan transformation process in very real ways. It makes it much more difficult for reformers to maintain the momentum needed in order to overcome decades of inertia. It consolidates the status quo and strengthens the position of those who advocate resignation in the face of impossible odds. Crucially, it is also a massive turnoff for international investors. I have met numerous delegations of potential investors who have been left confused by the negativity they have encountered during visits to Ukraine. While some government and business community representatives have presented them with a balanced overview of progress and challenges, others have painted a picture of unrelenting pessimism. Predictably, this approach does not inspire investor confidence.

Ukraine does not need to wage an all-out war against negativity. Rose-colored glasses would be of little use in the current climate, and a frank assessment of the country’s shortcomings is essential if the transition envisaged on Maidan is to prove achievable. However, a more nuanced approach to the country’s affairs is long overdue. Ukraine is certainly an imperfect place. It has experienced one of the world’s most turbulent histories and remains stuck next to arguably the worst neighbor on the planet. Corruption is endemic. People are poor. But it is also a miracle of hope where grassroots activists have built a vibrant and thriving civil society. It is a land where the flame of liberty has survived some of humanity’s darkest chapters, where traditions of hospitality and inclusion have defied centuries of invasion. Ignoring Ukraine’s problems would be foolish and counterproductive, but overlooking the country’s virtues and achievements is equally shortsighted.

Ukrainians actually have a lot more to be proud of than many appreciate, and they may find that this pride is itself a steppingstone towards success.

Peter Dickinson Business Ukraine magazine 5

Introducing the new Volvo V90 Cross Country The new Volvo V90 Cross Country is ready to go whenever you are. Versatile and elegant with all-road, all weather capabilities. Designed to let you live fully now.

THE GET AWAY CAR MADE BY SWEDEN WWW.VOLVOCARS.COM.UA

Winner Imports Ukraine Ltd, Identification code 20054535

SPECIAL FOCUS ON UKRAINIAN BANKS

8

Ukraine’s banking sector has undergone fundamental change – can it now drive economic growth?

The past three years have seen the biggest shakeup of the Ukrainian banking sector since its formation in the early 1990s. Financial institutions continue to disappear from the market as part of ongoing reforms, with the number of registered banks now half that of early 2014. Closures have become everyday occurrences with Ukrainians no longer shocked by news of yet another bank forced into administration. Most analysts believe this period of turbulence is currently far from over. In 2017, banks with capital of less than UAH 200 million and remaining market players with Russian state capital are the most at risk. Meanwhile, all private sector participants must compete with a growing presence of state-owned banks, which now account for more than 50% of the overall market. Nevertheless, there are signs that the far-reaching reforms of recent years are laying the groundwork for renewed and sustainable growth in a sector that is essential for the broader health of the Ukrainian economy.

Continuing Cleanup

Despite assurances from Ukrainian National Bank Governor Valeria Gontareva at the end of 2015 that the cleanup of the country’s banking system was finally coming to an end, bank closures continued throughout 2016. A total of 21 banks came under Guarantee Fund control in the past year, down from 33 in 2015. The past twelve months also saw the single biggest challenge to the entire banking system since the start of the cleanup, with the nationaliza-

banking sector

Historic Banking Sector Reforms Continue

tion of PrivatBank. Other bankrupt banks were less fortunate and faced liquidation. In addition to the headline-grabbing nationalization of PrivatBank, key events of the past year including the bankruptcy of Khreschatyk Bank, Fidobank and Mikhailovskiy Bank. All of these financial institutions were active players on the Ukrainian retail banking market and continued to attract deposits until literally the very last moment. The closures have continued into 2017, with another notable retail operator, Platinum Bank, declared insolvent in January.

Most of the banks forced to withdraw from the market were unable to comply with National Bank capitalization limits that were set based on stress tests carried out during 2016. However, there were also a number of other reasons. For example, Smartbank and Unison Bank were recognized as insolvent due to opaque ownership structures, while others were forced to end operations due to involvement in illicit financial schemes.

The massive scale of the ongoing banking sector cleanup has created a number of new legal challenges for the industry regulator, with numerous individual banks seeking to contest National Bank of Ukraine (NBU) liquidation orders in court. At the end of December 2016, NBU officials announced that nine banks claimed to have

About the author: Viktoria Rudenko is the director of the “Top 50 Banks in Ukraine” project www.bunews.com.ua

9

banking sector

: secured court decisions reversing their insolvency and permitting them to return to the market. Outgoing NBU Governor Valeria Gontareva has dismissed these claims, stating that no legal mechanism exists that could allow these banks to resume activities in Ukraine. The country’s Supreme Court has received a request to clarify the situation regarding court rulings on NBU decisions, but there has yet to be an official response.

From Privat to Public

The most significant development on the Ukrainian banking market over the past year was undoubtedly the nationalization of PrivatBank. The decision to nationalize was widely interpreted as a bold and drastic measure, but it was not entirely unexpected. Rumors of such an impending step had been swirling around Kyiv since spring 2016, when a memorandum on Ukraine’s IMF cooperation program outlined the possibility of nationalizing a large but unnamed bank. It was clear to even the most uninformed of observers that the bank in question was PrivatBank.

Officials at PrivatBank played down the threat of nationalization throughout mid-2016, often joking about the issue. Meanwhile, the NBU and Finance Ministry spent at least six months preparing a plan for what would arguably be the most ambitious operation ever attempted in the Ukrainian banking sector. Zero hour finally arrived on 18 December. The move to nationalize came accompanied by a well-coordinated and sophisticated multimedia information operation informing the public about the reasons for the introduction of an interim administration. This information effort was an important success, allowing the state to avoid panic and prevent a rush on deposits. By this point, the rumor mill had reached a crescendo, with many predicting the imminent collapse of Ukraine’s largest bank.

PrivatBank’s problems were first revealed during a routine stress test conducted in 2015. Bank officials were unable to reach agreement with the NBU over necessary capitalization levels, with so-called holes in the bank’s capital attributed to everything from the devaluation of the hryvnia to the Russian seizure of Crimea and the loss of loan portfolios in the eastern Ukraine conflict zone. However, when the moment of nationalization arrived, NBU Governor Gontareva identified the key problem as loans to related parties, which accounted for 97% of the bank’s corporate portfolio. This left the bank needing UAH 148 billion in capital by December 2016. By agreeing to proceed with nationalization, the state effectively took on this loss itself.

Officially, the process was portrayed as a sensible agreement between PrivatBank shareholders and the government. However, it is difficult to depict the process as being entirely voluntary. The National Security and Defense Council, the Cabinet of Ministers, and the National Bank all took part in the collective decision to proceed with the nationalization process, highlighting the strategic importance of PrivatBank to the Ukrainian economy as a whole.

It later transpired that the nationalization decision had come following long negotiations with the bank’s main shareholders and after the government had enlisted the support of the International Monetary Fund.

The entire nationalization process managed to avoid any major disruption to the bank’s operations. Payments to legal entities were blocked for a single day, while payments to individual private account holders continued more or less as normal. The smoothness of this operation surprised many and led to considerable praise over the execution of this challenging task. Nevertheless, opinion was sharply divided over the decision to nationalize at all.

Writing in Bloomberg, Leonid Bershidsky summed up widespread cynicism towards the nationalization in an article entitled “Ukraine Nationalizes an Oligarch’s Losses.” Bershidsky noted: “Given its long record of failure to hold oligarchs responsible for anything, the government’s decision to act was a bold move. It was also perhaps an unavoidable one, given the changing political climate and Ukraine’s lack of allies in President-elect Donald Trump’s administration. Ukraine’s champions such as Vice President Joe Biden are on their way out… The oligarch and the government have effectively made a deal, trading the stability of a too-big-too-fail bank for (PrivatBank owner Ihor) Kolomoisky’s too-big-to-jail status.”

Others were more generous in their assessment of the PrivatBank nationalization. Writing for the Atlantic Council, Anders Aslund said the move was a ‘good thing’, commenting: “The government has acted fast and the right measures seem to have been taken. It has appointed former Minister of Finance Andriy Shlapak temporary chief executive. Danyliuk announced that PrivatBank will be privatized as soon as its situation has stabilized. The Ministry of Finance even issued a video to explain the nationalization. All relevant officials instantly stated their support for the nationalization and that the assets were safe. International institutions have followed suit. The IMF called the decision “an important step...to safeguard financial stability,” while the European Bank for Reconstruction and Development said it was the “right way forward for Ukraine now.” European Union High Representative for Foreign :

Banking Reforms Commentary: Rustam Kolesnik Head of the Supervisory Council of Financial Club and General Director of Yuridicheskaya Practika publishing house It is premature to start suggesting that the cleanup of the Ukrainian banking system is nearing completion. The peak period of failing banks seems to have passed, but in reality, there is huge work ahead as the entire industry seeks to resolve all sorts of outstanding issues between individual banks, shareholders, owners, debtors and the NBU itself. Meanwhile, we are seeing the emergence of numerous promising new directions for legal support within the Ukrainian banking industry. The participation of lawyers in credit and mortgage disputes has now become a traditional practice. Legal changes simplifying capitalization have created opportunities, particularly for cooperation with smaller banks. The market for problem assets is quite attractive, with loan portfolios sold at substantial discounts. Financial restructuring also offers a potentially interesting mechanism to settle issues relating to overdue debts in an effective manner. As banking sector reforms continue, the ongoing process will create further opportunities for the legal services industry.

10

www.bunews.com.ua

banking sector

: Policy Federica Mogherini congratulated the Ukrainian authorities on their

decision. It remains to be seen if everything works out, whether PrivatBank continues to function, and whether its related assets are safe, but for now it appears a great victory for economic reform in Ukraine.”

Cautious Return to Growth

Many of Ukraine’s remaining banks spent the last year continuing to optimize their operations by measures such as the reduction of branches and the introduction of additional remote channels for customer service. Meanwhile, the quest for new investors and solvent borrowers goes on. A return to market growth is evident across the sector but has been hampered somewhat by the entry into force in New Year 2017 of laws requiring banks to adopt increasingly cautious credit risk measures.

Statistically, the past year represented a new low. The costs associated with the nationalization of PrivatBank ensured that 2016 set new records for Ukrainian banking sector losses. The annual total for the entire sector was a loss of UAH 159 billion, which was 2.5 times higher than the previous record set in 2015. However, 80% of these 2016 losses were directly attributable to PrivatBank. At the other end of the scale, 62 banks operating in Ukraine reported annual profits in 2016, earning a total profit of UAH 10.8 billion. The best result was posted by Raiffeisen Bank Aval (UAH 3.82 billion), followed

by Citibank (UAH 1.44 billion) and OTP Bank (UAH 962 million). “This year we expect this trend to continue, with profitability returning to the Ukrainian banking sector,” commented Vitaliy Vavrishchuk, Director of the Financial Stability Department at the NBU. As they seek to take advantage of Ukraine’s improving economic climate, banks will have to work in new market conditions with the state playing a disproportionately prominent role. Following the nationalization of PrivatBank, the market share of state banks in Ukraine has now reached 55%. The Ministry of Finance, together with the National Bank, are currently developing a new strategy for the country’s state-owned banks. “External consultants have been recruited to help evaluate all the pros and cons of the situation. As soon as the opportunity arises, we will seek to privatize part of the state package,” said Finance Minister Alexander Danilyuk.

For many of the smaller banks on the Ukrainian market, the biggest challenge in the coming months will be meeting increased capitalization requirements of at least UAH 200 million by 11 July, rising to UAH 300 million by 11 July 2018. It is already becoming apparent that not all banks will be able to meet

these targets. By early April, thirty-seven banks were reportedly in the firing line. The easiest ways to secure the necessary capital are via profits or shareholder support. If these avenues are not forthcoming, then the next most favored route remains fresh investment. However, any prospective investors will have to comply with the NBU’s tightened regulations regarding the transparency of bank ownership and the origins of investment funds.

Russian Retreat

Another category of banks facing huge challenges on the Ukrainian market this year is those with state-owned Russian capital. Russia’s Sberbank has already announced the sale of its Ukrainian subsidiary to a consortium including Latvia’s Norvik Bank. The sale of BM Bank is also reportedly close to completion, while the fate of VTB Bank will be decided by the end of the year.

Russian banks have been under increased pressure in Ukraine ever since the outbreak of the Kremlin’s hybrid war in early spring 2014. They have often been targeted by protesters and information campaigns, but had previously managed to maintain a robust market presence despite the tensions surrounding the ongoing conflict. Things came to a head in early 2017 when the parent structure of Sberbank confirmed plans to begin accepting identification documents issued by the so-called People’s Republics of Donetsk and Luhansk. Activists responded immediately to what many saw as the latest step towards creeping Kremlin recognition for the Russian-managed separatist entities in eastern Ukraine. Since 10 March, Sberbank branches across Ukraine have been subject to blockades, with the entrance to a flagship branch in downtown Kyiv bricked up. In tandem to this grassroots pressure, March also saw the introduction of Ukrainian government sanctions against banks with financial ties to the Russian state, while the NBU banned bank-tobank currency transfers from Ukraine to Russia, and the State Pension Fund suspended the payment of Ukrainian state pensions through banks with Russian state capital.

These measures have sparked fresh debate over the nature of Ukrainian economic ties with Russia during a period of undeclared war between the two countries. While many advocate a hardline approach involving the cutting of all but the most essential bilateral economic connections, others argue that a more pragmatic approach will be in Ukraine’s national interests. Meanwhile, the activist campaign against Russian banks has also raised considerable law and order concerns, with critics arguing that such non-state actions could seriously damage perceptions of the country among international investors.

Banking Reforms Commentary: Ruslan Cherniy Managing Partner at Financial Club and Chief Editor at FinClub Information Agency There are significant signs of recovery on the Ukrainian financial market. Despite the fact that there was a thorough cleanup of the Ukrainian banking system and 90 banks left the market, surviving institutions are now finding the right working models and are beginning to lend once again. There is evidence of growing competition in a number of retail segments including credit cards, car loans and mortgages. Ukraine’s largest enterprises continue to receive credit and financing from their own funds, so many banks remain focused on small and medium-sized businesses. The most promising sectors as far as the banking industry is concerned are the agricultural sector and retail. Looking ahead, the level of competition for bank customers will depend partly on the government. More than 50% of the banking system currently belongs to the Ministry of Finance which now finds itself thrust into the position of a virtual monopolist with the ability to dictate the rules of the game. Will government officials be able to avoid using state-owned banks to pursue their own mercenary interests? We will have to wait and see. One thing is already abundantly clear - it is in the interests of the banking sector as a whole to see the partial withdrawal of state-owned banks from the guardianship of the government as quickly as possible. Ideally, this would mean selling at least 15-20% of shares in each state-owned bank to respectable European investors.

12

www.bunews.com.ua

2

PrivatBank

7

UkrSibbank

4

11

OTP Bank

6

9

FUIB

5

7

8

4

Ukrsotsbank

10

10

Ukreximbank

9

11

3

14

Credit Agricole

Kredobank Sberbank

12

12

14

13

Pivdenny

16

32

TAScombank

18

24

ProCredit Bank

20

25

Universal Bank

31

Idea Bank

22

Industrialbank

13

15 17 19 21

22

23

24

25

6

15 16

Alfa-Bank

Prominvestbank

VTB Bank

20

Credit Dnepr Bank

39

Marfin Bank

35

Pravex Bank

17

Megabank

Kirill Shevchenko

231

Tamash Khak-Kovach

Profit (million UAH)

Ukrgasbank

Volodymyr Lavrenchuk

Statutory Capital (million UAH)

5

Raiffeisen Bank Aval

3620

Volume of deposits from customers (million UAH)

3

9

2

Andriy Pyshnyy

Volume of issued loans (million UAH)

Oschadbank

Number of ATMs

1

Financial and operations indicators (as of 1 January 2017)

Number of branches

1

Bank

Chairperson of the Board

Position in 2016

2017 edition of annual Ukrainian banking sector ranking produced by Financial Club

Position in 2017

banking sector

Top 50 Banks in Ukraine

2549

66194.49

144419.25

34856.84

468.17

20398.64

46180.97

13837

505

2383

28003.97

84

115

15211.49

585

Oleksandr Shlapak

2240

20492

Philippe Dumel

349

1120

155

194

Serhiy Chernenko

159

Tamara Savoschenko

265

Oleksandr Hrytsenko

84

Jean-Paul Piotrowski

Grzegorz Shatkovski

Igor Yushko

Viktoria Mykhaile

110

147

104

660

43729.31

21802.42

-135309.08

20678.61

36424.10

5069.26

-993.97

24755.75

33185.52

26776.25

16689.82

-14690.89

692

58426.56

83770.73

31008.04

-1011.11

298

40393.78

18798.07

12465.46

-2817.97

956.89

263

216

15505.34 5594.60

25629.50

25210.32 7921.37

29153.11

40617.68

-5803.13

8302.10

34215.78

-6892.23

7442.29

1521

-120.59

435

-5.34

5604.95

5734.37

Viktor Ponomarenko

28

Irina Starominska

44

Konstantin Goy

Mikhail Vlasenko

Taras Kyrychenko Mikhail Bukreyev

Oleksandr Shipilov

94

12684.05

91

4499.68

72

54

42

138

95

221

177

104

82

34

25

113

7898.43

3320.62

1428.65

2425.22 982.25

2080.88

7811.97

263.77

8896.85

74

26052.83

2248.97

807.79

-4094.77

69

189

1222.93

7 515.62

Serhiy Tyhypko

42

367.01

23452.61

12325.10

Elena Malinska

3294.49

868

13590.57

32

962.01

50694.75

272

Konstantin Vaisman

6186.02

293.68

180945.88

111 75

3820.64

54691.63

Alla Vanetsyants Andriy Rozhok

6154.52

9727.61

308

836.71

4232.96

4478.11

2860.44

298.74

3105.47

68.95 6.30

300.65 77.14

53.34

3004.71

1038.01

-588.38

6441.56

620

25.73

1857.79

607.80

2.86

Ranking Methodology: The “Top 50 Banks of Ukraine” ranking is an annual nationwide banking industry survey produced by the independent information agency “Financial Club”. The ranking is currently in its sixth year and is based on a range of information including quarterly and annual financial reports together with detailed operational information provided by individual banks. This information is assessed and the overall ranking is calculated in cooperation with an expert council featuring a number of leading executives from the Ukrainian banking sector.

14

Top 50 Banks in Ukraine

31 32

33

30

33 29

28

Forward Bank Bank of Investments and Savings ING Bank Ukraine VS Bank A-Bank Citibank

34

36

36

46

Credit Europe Bank

38

38

SEB Corporate Bank

40

-

35

37

39

41

42

-

-

-

-

-

International Investment Bank Globus Arkada Crystalbank Deutsche Bank DBU Clearing House BTA Bank

43

41

45

-

Avangard Bank

40 -

DB Bank

-

Altbank

44

46

47

48

49

50

43

-

50

Express-Bank Unex Bank Vernum Bank Commercial Industrial Bank

Oleh Kholachuk

Andriy Kiselev

4957.52

83

3585.06

4492.95

18

98

20

23

25

Oleksandr Omelchenko

21

15

Irina Pokhodzieva

38

27

1

0

Mark Appelman

1

0

1179.67

17

2120.34

1

0

1092.03

0

1198.47

0

210.79

Onur Anliatamer

Konstantin Palivoda

Kristian Andersson

9

1

Leonid Grebinskiy

21

Viktoria Andriyevska

4

Borislav Ivanov-Blankenburg

Evheniy Bezvushko

1

4

0

9

19

Ruslan Kizyak

6

2

22

2732.24

212.95

6366.98

161.63

286.33

252.50

4798.67

16758.31

817.63

1045.08

932.45

178.48

823.51

420

120.52

250

0

228.26

2

136.82

1

0

139.20

270.38

158.55

60.73 9.73

57.88

48.68

1500

4.14

510.39

253.70

573.93

42.62

112.80

33.80

504.63

863.48

51.46

228.67

169.25

1

555.57

392.19

63.61

-84.00

656.01

2157.63

791.10

160

220.45

2096.65

6.25

1349.24

996.86

982.70

4.05

120

162.38

36

Oleksandr Sobolev

731.30

1020.03

22

Ihor Volokh

2411.49

4540.37

44.27

Dmitry Potuzhniy

3

7.78

283

0

203

Serhiy Gorbachevskiy

500

1072.35

452.04

88 1

-575.55

2531.35

15

Vladislav Didovets

Svetlana Korchinska

210

1730.41

1020.04

22

5

95.38

1407.18

12170.82

Konstantin Ludvik

30

307.35

3529.62

194

Serhiy Mamedov

6212.05

4143.09

Yuriy Kandaurov

Steven Fisher

0

1072

Profit (million UAH)

30

34

Diamantbank

Serhiy Naumov

19

Statutory Capital (million UAH)

29

23

Piraeus Bank

35

Volume of deposits from customers (million UAH)

28

19

Vadym Morokhovskiy

Volume of issued loans (million UAH)

27

Vostok Bank

Number of ATMs

26

Bank

Financial and operations indicators (as of 1 January 2017)

Number of branches

Position in 2016

26

Chairperson of the Board

Position in 2017

2017 edition of annual Ukrainian banking sector ranking produced by Financial Club

248.77

-83.24 0.47

48.56

292

-20.43

169.50

11.14

128.62

2.50

126.12

1.06

1.50

Ranking Methodology: The “Top 50 Banks of Ukraine” ranking is an annual nationwide banking industry survey produced by the independent information agency “Financial Club”. The ranking is currently in its sixth year and is based on a range of information including quarterly and annual financial reports together with detailed operational information provided by individual banks. This information is assessed and the overall ranking is calculated in cooperation with an expert council featuring a number of leading executives from the Ukrainian banking sector.

16

ALEXEY ALEKSANDROV Senior Vice President, Head of Private Banking, Norvik Banka

OLENA DMITRIEVA Deputy Chairman of the Board, Globus Bank

JEAN-PAUL PIOTROWSKI Chairman of the Board, Credit Agricole Bank

VADYM BEREZOVYK Deputy Chairman of the Board, Ukrgasbank

KONSTANTYN LEZHNIN Deputy Chairman of the Management Board on Retail Banking, UkrSibbank

ANTON TIUTIUN Deputy Chairman of the Management Board, Oschadbank

OLEKSII BEROV Deputy Chairman of the Board, TAScombank

SERGIY NAUMOV Chairman of the Managament Board, Piraeus Bank

SERGEY CHERNENKO Chairman of the Management Board, FUIB

www.bunews.com.ua

banking sector

Top 50 Banks in Ukraine: Introducing the Expert Council

17

Revolutionary Reinvention of

a Former Soviet Dinosaur

Ambitious transformation efforts of Ukraine’s state-owned Oschadbank win EBRD support When Andriy Pyshnyy became Chairman of the Management Board at Ukraine’s largest state bank in spring 2014, the nation was in a perilous position. The Kremlin had seized control of Crimea and a Russian hybrid invasion was rapidly unfolding in the eastern border regions of mainland Ukraine.

Many people in his position would have identified mere survival as the immediate priority for the bank, but Mr. Pyshnyy recognized that Oschadbank needed to play a leading role in the national transformation that held the key to securing continued Ukrainian independence. What followed was an internal revolution designed to change the way the bank saw itself, while reenergizing the manner in which it interacted with its millions of Ukrainian customers.

Three years on, Oschadbank has done much to shake off its Soviet shadow.

Despite a late start, it has emerged among the leaders as Ukrainian banks rush to embrace digital banking. There has been a complete rethink of the bank’s business model, with a range of innovative new services and industry novelties such as inclusive branches catering for the physically challenged.

Oschadbank has also broadened its horizons. The new-look bank has won international acclaim for its ambitious rebranding efforts, and is currently developing strategically crucial cooperation with the European Bank for Reconstruction and Development (EBRD).

Corporate Communications

Back in early 2014 when he first took over at Oschadbank, one of Mr. Pyshnyy’s initial priorities was to communicate the bank’s new philosophy to all 32,000 employees across the country. However, this proved easier said than done. “I sent a group email out to all Oschadbank staff members and was puzzled when I did not receive any replies. Eventually I contacted the IT department and learned that there was actually no mechanism in place to facilitate direct communication between the Chairman of the Management Board and employees,” he recalls. “It took the IT team three days to send the letter out to everyone. Now every member of staff can send me an email directly.”

This is just one example of the changing corporate culture that is transforming Oschadbank from a symbol of Soviet stagnation into a flagship for the changes taking place in post-Euromaidan Ukraine. There has also been a conscious effort to improve face-to-face interaction with the regions. “We found ourselves with lots to do and little time, so we quickly removed unnecessary barriers to direct contact,” says My Pyshnyy. “Together with my senior management team, I began visiting regional branches. It might surprise you to learn that in Chernihiv, for example, the last visit from the bank’s Chairman was in 1948. This is a city just 160km from Kyiv! These visits proved a crucial tool in helping our nationwide team to understand our vision for the development of the bank.”

Meanwhile, at the bank’s Kyiv headquarters, which are perched elegantly on the slopes overlooking the Olympic Stadium, pop art posters and striking photographic prints from Ukraine’s 2013-14 Revolution of Dignity adorn the walls of corridors and meeting rooms. The building’s large basement area was once an extravagant sauna complex reserved exclusively for senior man18

agement. It is now a fresh and funky cafeteria serving the bank’s hundreds of HQ employees. This open-plan cafeteria features murals that would not look out of place in the offices of an independent IT startup. It is all a very long way away from the staid stereotypes associated with traditional Ukrainian state-owned companies. When talking to Mr. Pyshnyy, it soon becomes clear that this is exactly the point.

Flagship for the New Ukraine

“When we began our work, the first task was to rethink our entire philosophy,” Mr. Pyshnyy says. A key early benchmark in this process was the creation a definitive manifesto to highlight the values that would serve as a point of reference for the bank’s future direction. Among other things, these declarations identify Oschadbank as ‘a national bank for the nation’ and ‘a changing bank that leads change.’ The manifesto is currently on display at every one of the bank’s more than 3,500 branches across Ukraine, serving as a statement of intent as the entire Oschadbank team joins the transition process first initiated in spring 2014.

The bank also has a new slogan. “My Bank, My Country” has replaced the vaguely sinister “Always Close”. Branded materials, including everything from branch interiors to banking cards, have received a completely new look. Designs now incorporate national elements such as Ukraine’s distinctive vyshyvanka embroidery patterns. The aesthetic is young, stylish, and self-confident. Some of it would not look out of place in a contemporary art gallery.

This rebranding process has played a crucial part in the repositioning of Oschadbank. It has also won the bank considerable plaudits at home and abroad. Ukrainian branding agency Fedoriv received a prestigious Red Dot award in November 2016 for the Oschadbank rebranding campaign, making it one of relatively few Ukrainian marketing efforts to achieve such high-level international recognition.

Innovation and Inclusivity

While international branding awards are no doubt welcome, the changes at the bank run far deeper than fashionable business school buzzwords and clever packaging. To illustrate this point, Mr. Pyshnyy reels off a long list of areas where the bank has radically improved its market position over the past three years. Oschadbank has moved from eighth to second place nationally in terms of salary payment accounts – with private sector companies including multinationals like McDonald’s and Turkish Airlines making up fifty percent of clients. The bank is also now in the number two spot for internet and mobile banking, with 1.6 million users. Fifty percent of all the bank’s transactions are now via remote channels, compared to just twenty-two percent in 2014. Special new Oschadbank pension cards offer convenience to pensionage account holders, while the bank is also at the forefront of smartphone banking and cashless transactions in Ukraine. Due to cooperation between Oschadbank and Mastercard, all cardholders can swipe their cards to travel on the Kyiv metro (with thirty thousand on average doing so daily), while :

banking sector

www.bunews.com.ua

19

: the bank has teamed up with Velyka Kyshenya supermarket chain to install

Ukraine’s first self-service checkouts.

The new-look Oschadbank has introduced a new concept to Ukrainian retail banking – branches designed specifically for physically challenged customers. Based on World Health Organization recommendations, these “Inclusive Branches” are accessible for wheelchair users and come with features such as lowered counters and speaking cash machines for the visually impaired, as well as staff trained in sign language and other areas of disability awareness.

The first Inclusive Branch, located close to Kyiv’s Ukraine Palace concert hall, opened to the public in late 2014. It was supposed to be a pilot project that would allow Oschadbank officials to test the concept. However, it soon became clear that there was significant – and growing – demand for such services.

“With more and more veterans returning from the conflict zone with missing limbs and other disabilities, we decided that we simply had to expand this program across Ukraine. There are now 14 Oschadbank branches across the country fully accessible for disabled customers,” explains Mr. Pyshnyy.

He believes this innovative approach can have an impact on attitudes towards disability throughout Ukrainian society, and sees it as one of the ways the bank can contribute to the country’s development. “By taking into consideration the challenges facing those with physical disabilities, we are helping to change the psychology of society. I would like to see a similar approach adopted by other state services such as the railways, post office and metro system. At present, it seems like we are taking a lead in areas where others have an obligation to set an example.”

Modernizing Ukraine’s Largest Network

Not all branches of Oschadbank have yet undergone complete renovations.

With 3,600 branches across the country, the bank has an unrivalled nationwide infrastructure, making a total overhaul a Herculean task. Over 500 of these branches are new additions to the network offering the bank’s new format. This includes new staff, new technologies, new services, and an entirely new business model. There has also been a rationalization of existing branches, with underperforming locations closed down and new branches opened where most needed.

Meanwhile, the ongoing hybrid conflict with Russia has meant considerable material losses for the state-owned bank. Oschadbank lost 300 branches due to the Russian takeover of Crimea, and has been cut off from a further 400 branches situated in the occupied areas of Donetsk and Luhansk oblasts.

Conflict zone maps covered in pins decorate one of the bank’s conference rooms, lending it the ambience of a military headquarters. “Every day we were monitoring the developments at the front because we constantly had to evacuate personnel,” recalls Mr. Pyshnyy. Near to the maps, an improbably tall tower of stacked cardboard boxes reaches up to head height. “Those boxes contain the claims we have filed against the Russian Federation for the bank’s losses in Crimea. The total damages claimed amount to more than USD one billion,” he says.

As Ukraine’s largest nationwide bank with over 20 million customers, Oschadbank has had to adapt its everyday operations to the current conflict conditions in the east of the country. As well as evacuating employees, there have also been efforts to provide banking services for those living close to the conflict zone. An armored vehicle modified by the bank now traverses frontline towns. This Oschadbank innovation offers secure access to a cash machine and two fully functioning counters.

EBRD Cooperation

Mr. Pyshnyy’s reinvention of the Oschadbank brand received a significant vote of confidence in November 2016 with the signing of a Memorandum of 20

About the interviewee: Andriy Pyshnyy is Chairman of the Management Board of Oschadbank Understanding between the bank, the Ukrainian Finance Ministry, and the European Bank for Reconstruction and Development (EBRD). The memorandum pledges EBRD support for Oschadbank as it continues to implement the current development program, with the aim of further commercialization and partial privatization by 2018. According to EBRD officials, their engagement may also result in the EBRD making an equity investment in Oschadbank.

The memorandum was the product of more than two years of talks between bank representatives and EBRD officials. It has cemented Oschadbank’s position as a key player in the reform of the Ukrainian banking sector, while helping to lay the groundwork for a future reduction in the state’s currently dominant role in the industry. “Our cooperation with the EBRD is based on synergies,” says Mr. Pyshnyy. “Oschadbank has demonstrated its leadership potential over the past two and a half years. We have declared our readiness to compete, not just on a level playing field with the best banks on the market, but also in new segments such as internet and digital banking. The signing of the memorandum with the EBRD is a positive verdict on our development strategy that reflects the bank’s performance since 2014.”

Defying the Doubters

The developments at Oschadbank over the past three years are in many ways a model for the kind of wholesale change envisioned during Ukraine’s 2013-14 Revolution of Dignity. Although still a work in progress, the bank has already managed to shift perceptions and shed much of its Soviet baggage. This has proved doable despite inheriting exactly the kind of lumbering corporate culture and outdated business model that skeptics typically dismiss as beyond reform.

The wider historic importance of this process has not been lost on Mr. Pyshnyy, who is well aware of the high stakes involved. “There are not enough transition success stories in today’s Ukraine,” he says. “When a brand as big as Oschadbank is able to achieve massive and meaningful change, it sends out a signal to society that such transformations are possible. Everybody used to think of Oschadbank as a dinosaur with no real potential, but the results of our work prove otherwise. I would like to think that our success is something all Ukrainians can be proud of.” www.bunews.com.ua

banking sector

ProCredit Bank Eyes Online Expansion Ukrainian branch of German banking group sees tailored internet services as key to growth German-based ProCredit Bank has closed seven locations in Ukraine so far this year, but downsizing its Ukrainian presence is not on the agenda. Quite the opposite, in fact. The bank has been one of the Ukrainian financial sector’s strongest performers during the prolonged turbulence of the post-Euromaidan period, posting an annual total assets increase in 2016 of more than 55%. This robust growth has continued into 2017, with the bank’s loan portfolio up EUR 25 million in the first quarter of the current year. This impressive performance has helped to secure the support of ProCredit Group shareholders in Germany for further expansion in Ukraine. The goal of this expansion is to provide improved online services tailored specifically to meet the needs of the bank’s key clientele – middle class Ukrainians and the SME sector.

Mobile application launch

The increasing emphasis on online services is very much in line with the current banking habits of ProCredit’s Ukrainian clients. “Most of our customers didn’t even notice (the location closures),” says Viktor Ponomarenko, the General Manager of ProCredit Bank in Ukraine.

“They have already come to appreciate that they can do most of their banking transactions online. There is simply no need to visit branch offices on a regular basis anymore.”

The bank plans to upgrade its existing online banking services significantly over the course of 2017, while also launching a mobile banking application. “This app will be a very important component of our business model. Smart phones have become an integral part of our everyday lives. They are now important instruments for financial transactions. We want to offer an attractive, secure and simple mobile application,” explains Mr. Ponomarenko.

Fewer customers, more transactions

ProCredit Bank’s online innovations are part of efforts to focus more on the bank’s main customer groups. This means a greater range of services for a select but growing niche of private individuals and companies looking for efficiency and transparency. It is an approach geared towards frequent consumers of banking services.

In practical terms, this transition has meant fewer customers but more transactions. Mr. Ponomarenko expects this trend to continue as the bank’s attention shifts further towards its core business segments. ProCredit Bank currently has approximately 40,000 private individual clients in Ukraine, down from around 60,000 a year ago.

Mr. Ponomarenko estimates that in the current market conditions, the most suitable client base would be around 20,000. “It has never been our intention to become a bank for the masses,” he says, adding that the current changes will allow the bank to allocate more resources towards working with target customers. “Our business model is focused on providing high quality service. This requires a limited number of customers.”

ProCredit Bank’s repositioning strategy has included increasing the minimum deposit level up to EUR 5,000 or local currency equivalent, along with the introduction of UAH 100 flat monthly fee for accounts.

Mr. Ponomarenko acknowledges that this new fee may prove contro22

About the interviewee: Viktor Ponomarenko is the General Manager of ProCredit Bank in Ukraine versial among some of the bank’s existing customers, but believes it is a sensible approach providing both clarity and competitive advantages over the more common practice of charging individual fees for separate services. “If you calculate the costs, the package we offer is very economically attractive. I anticipate that in most cases, it will actually help clients to save money.”

Personal approach

ProCredit Bank is perhaps best known for its work with the SME sector of the Ukrainian economy – a segment where personal banking relationships can often play a crucial role. This emphasis on SME customers will remain at the core of the bank’s business model as it embraces the cashless concept, with Mr. Ponomarenko eager to stress that the reduction in physical locations will not lead to less direct contact with SME clients. “When we talk about the SME sector, the personal touch is clearly important. You need to have a personal connection with the bank,” he says. “This will not change with the reduction in the number of branches. Every business customer of ours has a personal advisor. We will invest further in these personal services, irrespective of the number of physical branches the bank has in Ukraine.”

Keeping it simple

As the bank turns towards online innovation, one of the biggest challenges it will face is avoiding overly complex solutions. As with all internet offerings, intricate online banking services are not always user-friendly and can sometimes run the risk of undoing initial efforts to create greater efficiency. Mr. Ponomarenko says simplicity will remain a core component of the ProCredit Bank business model in Ukraine, even as they strive to add new services and improve quality. “The development of our online services is a significant investment that reflects our commitment to the Ukrainian market,” he offers. “In this context, being simple is actually a lot more difficult than being complicated. Ultimately, we aim to offer an intuitive service that covers all the needs of our customers.” www.bunews.com.ua

Ulf Schneider Founder and Managing Partner

We provide our international clients with the back office services they need to expand their business into or within Ukraine, Russia, Kazakhstan, Belarus, Poland and Germany. Our services include market entry support, accounting outsourcing, tax consulting, import, ERP systems and support in legal matters with a focus on migration, labor and corporate law. Contact us to receive your individual offer.

www.schneider-group.com

Contact person | Kateryna Kotenko +380 / 44 / 490 55 28 | kyiv@schneider-group.com

banking sector

Banking reform progress: courageous but not enough

Interview: Taras Kyrychenko sees stronger banking sector but hopes for further reforms When outgoing Ukrainian National Bank Governor Valeria Gontareva announced her resignation in April, she said it was a case of “mission accomplished”. As NBU Governor, she oversaw the most intensive reformist drive in the history of Ukraine’s banking sector. What are going to be the key legacies of Ms.Gontareva’s tenure?

History will judge Governor Gontareva’s NBU tenure and only the passage of time will determine her ultimate legacy. However, we certainly have her to thank for the huge efforts undertaken to modernize the Ukrainian banking system. It important to remember that this process has taken place amid a climate of enormous difficulties in the country, with a war in eastern Ukraine, massive GDP losses, and a very challenging situation with the level of Central Bank reserves. Despite all this, the banking system has not only survived, it has actually became much stronger. There is still much to do, but I would identify a number of significant achievements. These include cleaning the banking system of “zombie banks” and introducing transparent capital requirements – a development which has provided clarity for both local and international banks. Ms. Gontareva managed to improve the way the central bank itself works, creating a more modern approach to the organization of the NBU’s functions. She was also a courageous NBU Governor. It is crucial for the financial sector to have the appropriate supervision, and she applied the regulations despite knowing that this would be painful medicine for many in the banking sector. It took a lot of courage. It required the ability to say no.

What are the key future reform priorities for the Ukrainian banking industry?

A definite priority is securing creditor rights. If we want to create the conditions for an expanding Ukrainian economy, we must make sure that Ukrainian businesses have secure access to credit. This also means making sure creditors themselves receive sufficient protection. There has already been some progress in this direction but there is still a long way to go. Other key focuses include keeping the macroeconomic situation under control, making sure inflation is contained, and creating the conditions for a stable exchange rate. In broad terms, the most important challenge is keeping the banking system strong and making sure it continues to develop. Huge legislative work lies ahead. Many, many laws need to be changed. Some are currently under consideration at the Ukrainian parliament so much will depend on the ability of MPs to pass the necessary legislation.

What will the recent banking reforms mean for the development of the broader Ukrainian economy in the coming years?

I think we have already achieved liquidity in the system. Banks now have enough money to ensure new lending. If there are good rules put in place, the money will reach the economy and fuel new growth. To make this happen, we need to make sure that we have the right regulations. However, even this will not be enough. We also need to see a return of business confidence.

Banks can provide the financial support required for a new wave of economic expansion, but people themselves need to act as the catalysts for new business development. People must realize that it is perfectly possible to create new businesses in challenging conditions.

The closure of over 80 banks during the reform process has badly damaged consumer confidence in the Ukrainian banking sector. What can be done to rebuild faith in Ukraine’s banks?

As far as I am aware, more than 90% of account holders affected by the recent spate of bank closures got all their money back, so they really have no reason to complain. Those who did lose their deposits must learn to make better choices. No investment comes without risks. If they chose a bank offering 12% interest over 3% interest, then that also involves accepting a certain level of risk. My advice to Ukrainian society as a whole would be that it is worth learning more about investment risks.

In terms of concrete measures, I think it would be a good idea to expand existing State Deposit Guarantee Fund protection to include small businesses in addition to individual depositors. When it comes to larger multinational companies, they have the resources to take the appropriate risk management measures. If they fail to do so, then we are talking about a lack of professionalism. To achieve this, Ukraine can simply cut and paste from existing legislation used within the EU. This issue is currently not on the agenda, but I am sure that it would receive widespread support among the banking community. The key is to avoid procrastinating and to seek rapid implementation.

How secure are the current Ukrainian banking sector reforms - is there a threat that they could be reversed?

We must pray that we have learned the lessons of the recent past. Ukrainian society is currently paying for the ugly practices of the last 25 years, and this is not limited to the financial sector. Are the current reforms irreversible? It is impossible to rule anything out. I do not personally believe Ukraine will witness a return of “zombie banks”. Nevertheless, there will always be people who want to go back to the “easy business model” of the past. The real question is whether society will allow this to happen. Has society learned from the experiences of the past three years? If not, there is a danger we will see the same mistakes once again. We will then have a second chance to learn, and so on. Repeating the process is not a problem – but it is more expensive that way.

About the interviewee: Taras Kyrychenko is the Chairman of the Management Board at Pravex Bank (Intesa Sanpaolo Group) and Co-Chair of the American Chamber of Commerce’s Finance and Banking Committee

24

www.bunews.com.ua

French Bank Offers Digital Convenience with a Human Face

Credit Agricole combines online efficiency with personal approach to attract Ukraine’s middle classes May will see the opening of a new flagship Credit Agricole branch in Kyiv’s riverside Podil district. The unveiling of this new model branch will be the first stage in a nationwide process that will involve upgrades and innovations at the bank’s 150plus Ukrainian branches as Credit Agricole moves to keep pace with the changing needs of Ukraine’s growing middle class retail banking clientele.

The design of the new Podil flagship branch reflects the bank’s current emphasis on transparency, with plenty of open spaces and a lack of partitions but with a dedicated meeting rooms for servicing clients. This branch is designed to meet all the customer expectations in terms of confidentiality, expertise, personal adviser and ability to receive services at any suitable time. It will offer a fully-fledged 24/7 self-service zone, a consultancy center for transactions and an internet banking zone, along with features such as a digital wall and coffee area where clients and bank staff can communicate informally. In general this flagship branch will propose a fresh approach to servicing clients due to its special zoning and the way everything is organized inside. As an example spaces for meetings with customers do not feature telephones, so there will be no annoying interruptions. The whole bank will be just for a client. This by the way reflects the new positioning of Credit Agricole – “The whole bank just for you!”

Many of Ukraine’s retail banks can be difficult to navigate, creating a sense of confusion and mild anxiety among occasional visitors as they try to work out where queues begin and which desk or counter they should head for. Thus the new branch will have the “meeter greeter” who will provide support and consultancy to new arrivals entering the branch. Credit Agricole Bank officials hope their solution to this common problem will prove particularly popular.

“We want to change the classical model of Ukrainian banking where the client often appears to be lost, going from desk to desk and asking for help,” says Galyna Zhukova, a Board Member of Credit Agricole Bank in Ukraine responsible for the bank’s retail, digital, and network activities. “We want 26

About the interviewee: Galyna Zhukova is a Board Member, responsible for retail, network and digital at Credit Agricole Bank in Ukraine our staff to meet every client. It is so simple, but it changes the nature of the relationship between client and bank.”

This commitment to the personal approach comes at a time when many banks are moving in the opposite direction and focusing their retail banking strategies on digital services while downgrading walk-in facilities. Ms. Zhukova says the Credit Agricole strategy is in response to an extended dialogue with Ukrainian clients over the past two years, including brain storming sessions and focus groups. The goal was to identity what kind of service culture the bank’s customers wanted to see. “Despite all the predictions that branch networks

will die a natural death amid the march of digitization, our dialogue with clients has led us to belief that bank branches actually have a promising future,” she says.

“Clients are becoming more demanding and digitally savvy. They expect maximum speed and convenience from their banking services, but they do not want to do everything on their own. There is still demand for professional advice, but we found that people want to receive this on a personal level, not from a robot or an anonymous call center. They want to share their ideas and discuss financial issues with bank staff who know them and understand their individual situation.”

www.bunews.com.ua

banking sector

Ms. Zhukova says the ideal branch of the future should be at the center of what she describes as ‘a multi-channel relationship between the client and the bank’.

She argues that while digital solutions will continue to expand into every sphere of banking activity, the branch as a point of human contact will evolve rather than becoming extinct. This process of evolution mirrors the developing expectations of Ukraine’s retail banking market. Ms. Zhukova sees Ukraine’s growing middle class as the key engine driving demand for more comprehensive banking services, and says the country’s current economic recovery will help to support this process.

“The environment is changing and the share of people in Ukraine looking for solid retail banking options is growing. The expanding middle class is becoming more and more aware that banks are service providers and they, as consumers, can be demanding and can choose. Banks need to adapt to their needs.”

She sees many positives in the banking reforms of the past three years. However, Ms. Zhukova supports greater efforts to explain the process to the public and help them to make informed financial decisions. “The Ukrainian population would benefit from greater financial awareness,” she says. “When banks default, people suffer. However, some people repeat the same mistake, risking their money by opting for the most aggressive interest rates.”

She believes individual banks have a role to play in addressing this problem. “We need to see greater communication with the public to inform them about financial matters.” Ms. Zhukova says international banks like Credit Agricole are already contributing to this process by introducing a culture of predictability and compliance to the market. This includes Credit Agricole’s clear and transparent pricing policy on interest rates and commissions.

She expects these practices to continue spreading throughout the Ukrainian banking industry as competition grows and customer expectations rise. “More and more Ukrainian banks are now asking their clients to demonstrate the source of their money, much as we have done for many years,” she reflects. “Factors like this can contribute to the qualitative changes taking place in the banking sector as a whole.”

27

banking sector

Turkish bank looks to Ukrainian agricultural sector Creditwest Bank is positive about banking sector reforms but hopes for further improvements The most important part of the financial system and economy of any country is the banking sector. Ukraine is not an exception. Over the past few years, there have been significant efforts by the National Bank of Ukraine (NBU) and banking sector professionals to stabilize and develop the country’s banking sector.

We regard these developments as a move in the right direction. Since 2013, the quantity of banks operating in Ukraine has decreased by half, while the quality of banks has increased by half. It is therefore possible to talk about this cleanup as a positive factor for Ukrainian economy.

The list of liquidated banks includes those that allowed money-laundering schemes. Some had problematic credit portfolios and cash flows due to bad risk assessment or corruption. Others collected deposits mainly to finance the businesses of the bank’s shareholders. These practices needed addressing. Another positive was the nationalization of Privat Bank, which will secure the deposits of Ukrainian citizens and help to increase public trust in both the Ukrainian banking system and the government.

These measures are producing tangible results. In the first two months of 2017, the return on equity of the Ukrainian banking system reached 17.71% after having spent the previous two years deep in the negative band. We believe that at the current time, the Ukrainian banking sector is quite strong and is now able to cope with potential challenges. In the nearest future, we anticipate that it will contribute more to the GDP growth of the country.

Despite this progress, there remains room for further improvements in order to bring the Ukrainian banking system up to the highest international standards. The NBU and Ukrainian parliament need to adopt measures to ensure the protection of creditors’ rights and carry out the appropriate reforms in the judicial system. Another important issue is the development of financial markets in Ukraine and the adoption of best world practices in the regulatory field.

This will improve the ability of Ukrainian companies to attract and allocate financial funds and allow for the hedging of foreign currency, interest, credit and other financial risks, while also bringing more liquidity and stability to Ukrainian foreign currency and stock markets. These instruments would make Ukrainian companies more competitive on well-developed markets.

Last but not least is the crucial question of free repatriation of foreign investments, including dividends. If executed properly, this could boost foreign investment in Ukraine by USD 10 billion or more. Taken collectively, this wish list of banking sector reforms could turn the current guarded optimism about Ukraine’s banking industry into a long-term growth perspective.

of brands such as Altinbas Jewelry, Assos, Onsa Refinery, Creditwest, Alpet and Transal. The Group’s activities encompass prime jewelry manufacturing, trading in oil products, and the provision of financial and logistical services. The Group is also active in the education sector with the Istanbul Kemerburgaz University. In total, Altinbas Holding consists of 21 companies employing more than 4,000 people with an annual turnover of over USD 3 billion.

Altinbas Holding’s only presence in Ukraine is in the financial sector as the sole shareholder of Creditwest Bank. The bank was established in spring 2007 with a focus on servicing corporate clients by offering flexible financing together with high quality forex and forward operations. There are plans to open SME business services in 2017. Creditwest Bank has a successful record of passing regulatory inspections and currently meets all NBU requirements. It has one of the healthiest credit portfolios on the Ukrainian market, with NPLs making up 0.24%. The bank has developed a good reputation among foreign investors, securing long-term funding from the Black Sea Trade and Development Bank in 2015 to support clients engaged in international trade.

As a participant in the Ukrainian banking system and active operator on the country’s financial market, Creditwest Bank supports the reform process. The bank cooperates with a range of international businesses operating in Ukraine but the core focus remains on financing local enterprises. This spring, Creditwest Bank is celebrating its tenth anniversary in Ukraine. The bank has overcome a range of challenges including the 2008 economic crisis, and now enjoys excellent financial standing along with the necessary resources to develop further in Ukraine. In 2016, the bank’s credit portfolio grew by 62%. Forecasts for 2017 are even more optimistic, envisaging a 70% increase. These results have only been possible thanks to a highly professional team and comprehensive support from the bank’s shareholder Altinbas Holding.

Altinbas Group began its operations with a jewelry business in Turkey in the middle of the twentieth century. Altinbas Holding currently includes a range

One of the key focuses of the bank’s activity is the agribusiness sector. In 2016, Creditwest Bank acquired a number of large agrarian groups involved in grain production, processing, and export. While the bank will continue to seek credit portfolio diversification in different industries, agribusiness clients will remain a top priority.

The strategy for 2017 includes engagement with new clients from among the top ranks of the agribusiness industry along with increased engagement with small farms starting at 1000 hectares in size. This segment has particularly exciting potential, with fast-growing companies offering strong financial standing and reliable collateral. Our approach to the agribusiness sector is in line with the Creditwest Bank philosophy of developing long-term partnerships. We aim to be a reliable partner, providing companies with support during times of temporary turbulence as well as in periods of market growth.

Ten years in Ukraine

28

About the author: Adnan Anacali is Chairman of the Board at Creditwest Bank Ukraine

Agribusiness expansion

www.bunews.com.ua

Ideal Meeting – your perfect event

Our extensive experience and professional approach make perfect Premier Hotels and Resorts the perfect event partner.

In order to organize and hold your conference, meeting or forum quickly, conveniently, and professionally, we offer you a fresh look at the whole process.

We offer you the Ideal Meeting !

Ideal Meeting is a concept of holding ideal events at Premier Hotels and Resorts venues, embodying our experience and knowledge gathered over many years at a wide range of hotels. Any kind event will be easy to organize and host thanks to our four key criteria: Easy, Smart, Green, Fast.

1. Easy – we’re easy to deal with

You deal with your own personal conference assistant! Throughout the lifecycle of the event from initial order to completion, event organizers and participants address a special personal assistant who knows all the details.

We always provide rooms and grounds equipped and ready for the event.

This includes screens, projectors and anything else that may be required.

2. Smart - eat reasonably and enjoy

In addition to classic coffee breaks and snacks, we offer gourmet and traditional local treats, all designed to be healthy and contribute to a creative mood.

Choose from five options of smart coffee breaks offers: Classic, Gourmet, Fresh Organic Traditional, Smart Food, and Recharge.

3. Green - caring for the environment

During your event, we make every effort to reduce the impact on the environment and spend part of our profits to support social programs: • We serve drinks in glassware to reduce the use of plastics • All paper and printed materials remaining after the conference are handed over for recycling • We use the optimal settings of heating and air conditioning to reduce your event’s carbon footprint • We spend part of the proceeds from your event on funding for the “Towards a Dream” competition for orphans

4. Fast – the speed your event needs Your event will be accompanied by fast Internet access.

+38 044 359 08 08 www.phnr.com

banking sector

Ukraine’s Banking Reforms in Perspective

Experts gather in Washington DC to assess status of ambitious Ukrainian banking industry cleanup When assessing the current state of Ukraine’s banking reforms, it is important to consider not only what remains to be done but also how much the country has already achieved, according to one of the Ukrainian government’s most senior international economic advisors. “The fact that Ukraine is even alive and growing today is quite amazing, given where it was in 2014,” commented Daniel Bilak, chief investment adviser to the Prime Minister of Ukraine, at an April Atlantic Council event in Washington DC dedicated to Ukraine’s banking sector reforms. Mr. Bilak said that thanks to comprehensive reforms, “the current trend is actually very good. When investors see this, they see Ukraine in a very different light compared to what they might read in the media.”

International success story

The Russian attack on Ukraine has had a huge negative impact on the country’s economy. The Kremlin annexed Ukraine’s Crimean peninsula in March of 2014, cutting Ukraine off from vast Black Sea energy reserves. Russian forces then backed separatists in the industrial heartlands of eastern Ukraine.

The effect was immediate and devastating. “We lost 10 percent of our territory, but this was not all. We also lost 15 percent of our gross domestic product and 30 percent of our export revenues,” said outgoing National Bank of Ukraine Governor Valeria Gontareva during her keynote address. “We had [no] reserves to maintain our peg to the US dollar exchange rate.” The result was a plunging currency.

These adverse conditions make the subsequent reform of the Ukrainian banking sector even more remarkable. According to Ms. Gontareva, the key role played by the International Monetary Fund (IMF), the World Bank, the European Union, and other international partners make these Ukrainian bank reforms an international success story. International support remains an important element of the Ukrainian economic recovery as a whole. On 3 April, the IMF disbursed USD 1 billion of the USD 17.5 billion allotted for financial support of the government’s ongoing reform program, contingent on the acceleration of reforms.

Mr. Bilak and Ms. Gontareva shared a stage in Washington DC with Francis Malige, Managing Director for Eastern Europe and the Caucasus of the European Bank for Reconstruction and Development, and Susan Schadler, senior fellow at the Centre for International Governance Innovation. Anders Aslund, a senior fellow at the Atlantic Council’s Dinu Patriciu Eurasia Center, moderated the discussion.

In an earlier blog post for the Atlantic Council’s UkraineAlert, Mr. Aslund had written that the latest funding tranche from the IMF to Ukraine arrived in spite of the need for further structural reforms, and was due to the great strides made toward macro financial improvements in recent years. Ms. Schadler agreed, stating that much of the work done in Ukraine satisfies the criteria the IMF generally looks for to stabilize economies in times of crisis.

Cleaning up after Yanukovych

Ms. Gontareva described how former Ukrainian President Viktor Yanukovych “supported an absolutely artificial foreign exchange rate” and spent about USD 23 billion to do so. “Even without the Revolution of Dignity, Ukraine was on the verge of disaster from a macroeconomic point of view,” she added. Ms. Gontareva insisted that the basis for future success in Ukraine remains macro-financial

stability. “A stable macro-financial environment is a must. It is the first requirement before you can consider any further development of business, portfolio investments, or direct investments in our country,” she said. Ms. Gontareva expects 2 percent GDP growth and 9 percent inflation this year, with accelerated growth next year. At the same time, she added, a cleaned up banking sector is ready to start lending. Ukraine has also internally transformed its central bank since 2014. Reforms in the banking sector have addressed insolvency and illiquidity, money laundering, and nontransparent ownership, with 100 percent of ownership in the Ukrainian banking system now accounted for - up from only 40 percent in 2014.

Positive indicators

Ms. Schadler told the panel that when taken together, a flexible exchange rate allowing the rate to move without startling markets, a cleaned-up banking system without concerns of non-performing loans or unclear ownership, and sustainable fiscal practices generally lead to macroeconomic stability. Ukraine has addressed all three of these necessities, she said. However, while Ukraine has made great strides toward improving its banking sector, Ms. Schadler was more skeptical on matters of growth in investment and employment, which require a “huge amount of political maneuvering.” She claimed that Ukraine is at a very early stage, at best, of making progress in both these fields.

Mr. Malige suggested four factors, which “taken together, will be building blocks for a much better functioning banking system, and therefore lending to the real economy, and therefore economic growth.” These four building blocks are good conditions facilitating lending from banks which lower interest rates and shift lending to the real economy rather than to the government, the development of capital markets, land reform that would allow banks to accept land as collateral, and privatization in the banking sector. This last point is particularly pertinent given the prominent role played by the state in today’s Ukrainian banking industry.

Mr. Bilak described how Ukrainian banks such as Raiffeisen and BNP Paribas are now lending in hryvnias at 10 or 12 percent over five-year terms, which was previously “unheard of.” This development demonstrates that there are now “mechanisms to get liquidity back into the system” in order for “small [to] medium-sized businesses and foreign investors to be able to take that money and apply it in a sensible fashion,” Mr. Bilak concluded.

About the author: Jack Gloss is a communications intern at the Atlantic Council 30

Understanding Interpol Ukraine can gain from closer cooperation but understanding of complex procedures is crucial In recent years, one of the most important areas of international cooperation for Ukraine has been with Interpol, and particularly with its search database. At present, 1,763 of the people on the Interpol wanted list are there at the request of Ukraine. Many of these individuals stand accused of involvement in activities connected to the banking and financial sectors. This makes a better understanding of Interpol procedures worthwhile for Ukrainian officials and those whose work relates to the financial and banking sectors.

Interpol Structure

The management bodies of Interpol are the General Assembly and its Executive Committee, and the General Secretariat. The General Secretariat is the actual management body responsible for adopting key decisions.

Interpol’s National Bureaus operate at the local level in each member state. They are responsible for carrying out the organization’s duties in each separate country. The Commission for the Control of Interpol Files (“Commission”) occupies a special place in the central office system as an independent body. Its function consists of supervising compliance with the rules of placement, processing, and storing information in the Interpol database.

Search Database

Interpol’s search database contains the scope of all data about wanted people. Each wanted person has an appropriate notice (card) assigned, depending on the purpose of the search. A red notice means a search for a convicted or accused person in order to secure extradition. A yellow notice indicates a search for a missing person. A blue notice means collection of information about a person and their location in the interests of an ongoing investigation. A black notice refers to unidentified bodies, while a green notice relates to potential offenders and repeat offenders. An orange notice is a warning of possible danger to health and property, and a purple notice relates to the instruments of crime and criminal schemes.

Red notices are the most widespread instrument used by Interpol. Placement of a red notice is subject to a number of requirements. The alleged offense for which a person is wanted must qualify as a crime in most countries. The punishment for the crime in question must be at least a two-year custodial sentence. In cases where the subject of the red notice is an escaped convict, the non-served portion of the sentence must be at least six months.

Publication Procedure

It is important to remember that the process of notice publication is not automatic. Any request to place someone on the Interpol wanted list must first pass through several stages involving the National Bureau and General Secretariat. This is not a formality. For example, Interpol recently rejected the Russian Federation’s request to place a red notice on Viktor Muzhenko, the Chief of the General Staff of the Ukrainian Armed Forces.

In practice, there are no guarantees regarding the publication of red notices. Publication is subject to rejection for a range of reasons.

Interpol rejected a request filed by the Russian Federation to place 32

About the author: Denys Bugay is an Attorney-at-law, Partner, and Head of the White-Collar Crime Practice at VB PARTNERS a red notice on Ukrainian oligarch Ihor Kolomoisky. Likewise, a request from Ukraine to place Russian citizen Arsen Pavlov (a commander of Russian hybrid forces in eastern Ukraine better known by his nom de guerre “Motorola”) on the wanted list also met with rejection.

Meanwhile, there is a procedure for “preliminary appeal” against any publication decision, as was used by Ukrainian MP Aleksandr Onishchenko. This procedure allows individuals to appeal to the Commission to consider the illegality of any search for a person prior to publication of an official red notice by the General Secretariat.

Alternative Options

There are a number of alternative routes available other than seeking to place someone on the wanted list via the traditional channels. A national bureau may launch a so-called “diffusion” on Interpol’s internal network.

This is a notice on the need to arrest a person issued to a certain circle of other national bureaus. Such notices are not accessible to the public.

The procedure for publishing these kinds of notices allows for the arrest of a person without compliance with all the formalities and requirements of Interpol. Notably, the wanted notice for the Ukrainian roofer Pavel Ushevets was in line with this procedure.

Reasons for Rejection

There are a number of common reasons behind the decision to reject a request to issue a red notice or remove an individual from Interpol’s

www.bunews.com.ua

Appeal Procedures Anyone featured on the Interpol database enjoys the right to apply, either directly or through their appointed legal representative, to the Commission requesting a correction or deletion of their personal information.

It is worth noting that Commission’s meetings are relatively rare occurrences. Since the start of 2017, the number of the Commission members has been increased from five to seven, and the number of scheduled meetings has been increased from four to six. Nevertheless, these changes are unlikely to significantly accelerate the consideration of what generally amounts to thousands of complaints. For example, the Commission has not yet reached any decision regarding the Onishchenko case, despite the delays this implies elsewhere.

banking sector

wanted list. This includes the expiry of the valid period of sanction, as in the case of Yuriy Ivanyushchenko due to expiry of the ruling to take him into custody. It is important to note that in the event of the repeat of an arrest warrant, the relevant red notice should be re-assigned.

Requests also face rejection if there is evidence of a political motive or allegations of persecution behind the prosecution. This was the case regarding the request made against Ukrainian political figure and former Right Sector leader Dmytro Yarosh, for example. The claim of a political motive is a particularly strong argument both at the stage of data publication and during the appeal stage against wanted notices after publication. This is one of the arguments used by the legal teams working to defend Ukrainian ex-President Viktor Yanukovych and many of the senior members of his former government. It is a potentially effective tool, but it does not always work. For example, the Commission found no political motive in the search for former Ukrainian Energy Minister Eduard Stavitsky.

Interpol can also reject search requests on grounds that there are commercial reasons for the prosecution. In other words, if they have reason to believe that the criminal prosecution in question aims to take possession of the suspect’s assets. This was the case in the removal of a red notice on Jordanian businessman F. Almhayrat, after it was proven that the purpose of the criminal proceedings initiated against him was to force his dismissal from the position of director and transfer his company shares to other shareholders.

Violations of human rights are also sufficient reason for Interpol to reject requests. This can include concerns over freedom of speech, the right to a fair trial, breaches of laws prohibiting the use of torture, and other infringements of internationally recognized human rights.

Partner for Ukraine

In general, it is possible to characterize the procedure for considering red notice applications as both durable and formalized. It is worth bearing in mind that Interpol only publishes a relatively small portion of red notices on its official website. This could be as low as two percent of all notices.

Due to the ambiguity this lack of a complete list can create, our guess is that in order to be sure of the removal of a notice, individuals should seek written confirmation from Interpol’s central office. The legal representatives of Ukrainian politician and former Minister of Health Raisa Bogatiyiova received confirmation of this nature.

In the current political climate, cooperation with Interpol offers numerous advantages for Ukraine. However, Interpol is a complex institution that requires detailed understanding if this cooperation is to be of value.

In practical terms, the key to effective interaction is likely to be the proactive work of Ukraine’s law enforcement bodies.

33

Honoring Ukraine’s Leading Bankers On 13 April, Ukraine’s banking industry leaders gathered at Terracotta Restaurant in Kyiv’s Premier Palace Hotel for the annual Financial Club Awards honoring the top banks and professionals in the Ukrainian financial sector. The event was supported by law firms Spenser & Kauffmann and Asters, together with media partners Yuridicheskaya Practika and Business newspaper.

Top 50 Banks in Ukraine: 2017 Rating Winners

Leading Bank

Oschadbank

Retail Banker

Konstantyn Lezhnin, Deputy Chairman of the Management Board on Retail Banking, UkrSibbank

Top Manager

Corporate Banker

Financial Director

Chief Operating Officer Savings Deposits Classic Deposits Card Loans

Cash Loans

Automobile Credits Mortgage Loans

Internet Banking Salary Services

Premium Banking

Branch Services for Accountholders SME Loans Overdrafts

Cash Collection Services

Services for Legal Entities 34

Tamas Hak-Kovacs, Chairman of the Board, OTP Bank

Larysa Bondarieva, Member of the Management Board, Corporate and SME, Credit Agricole Bank

Oleg Soroka, Financial Officer, Raiffeisen Bank Aval Elena Lukyanchuk, Director of Operations, Alfa-Bank Ukrgasbank

Ukrsotsbank Alfa-Bank Alfa-Bank

Credit Agricole Bank Kredobank PrivatBank

Oschadbank Alfa-Bank

Ukrsotsbank

Raiffeisen Bank Aval UkrSibbank

Oschadbank

Ukreximbank

banking sector

www.bunews.com.ua

35

Boosting Ukraine’s Infrastructure Development Andy Hunder, President of the American Chamber of Commerce in Ukraine

Compensation of investments in strategic infrastructural objects is vital for increasing the competitiveness of the sea ports. The Procedure of investments’ compensation should be adopted by the Resolution of the Cabinet of Ministers, which is currently being developed.

The Railways

The need for infrastructure development is one of the greatest global challenges of our time. Running a successful business when there are no roads, or no railways, or even no Internet is outright impossible. Business is all about connectivity. Infrastructure is equal to connectivity in the modern world – roads, railways, ports and transport are crucial for the economic development and growth. Good infrastructure is essential to make trade and commerce flourish.

Ukraine is no exception: infrastructure serves industry which, in its turn, contributes to better economic output. Taking into account the existing challenges in infrastructure that business is facing the Infrastructure committee of the American Chamber of Commerce in Ukraine has developed guidelines vital to boost efficiency.

Infrastructure Roadmap for Ukraine

The adoption of financial plans of the State owned enterprises (SOEs) and compensation of investments in strategic infrastructure projects should be among the primary steps to fortify Ukraine’s infrastructure potential.

Adopting the financial plans of the SOEs is central. Business needs clear, deliverable timetables for the realization of major infrastructure projects. We at AmCham Ukraine have stressed the importance of adopting the financial plans. This will help to avoid surprises, assuring in perspective the proper implementation of capital investments.

According to the survey, conducted among Members of the American Chamber of Commerce in Ukraine on the effectiveness of Ukrainian Railway activities in 2016, 54% of respondents believe that conditions in the railway freight transportation sphere have deteriorated in 2016. The major directions of Ukrainian Railway reform were determined as fight against corruption (84% of respondents), change of system and methodology for railway tariff setting (55%), elaboration of a new comprehensive strategy for the development of rail transport (42%), and formation of the independent body on adjustment of railway tariffs (39%).

Realizing that the situation in the sphere of railway cargo transportation has worsened, AmCham Member Companies have developed a number of proposals for its improvement. Ensuring a transparent mechanism for railcars distribution, taking into account seasonal peak loads on rail transport and public discussion of plans for the implementation of capital investments are among the main factors that will contribute to the successful activities of Ukrzaliznytsia in the future. At the same time, an effective dialogue with the business community should remain one of the main instruments of cooperation to address pressing issues in railway sphere.

Accelerating Ukraine’s Infrastructure Development

As infrastructure development is a key component for sustainable growth of all sectors of economy, in 2017, Chamber launched a new Infrastructure Committee. Its main goal is to assure an effective cooperation between business and state regulatory bodies, in order to improve the state’s regulatory function and harmonize respective national legislation with European standards.

Both business and the Government are interested in increasing competitiveness of infrastructure sphere. In this regard, further amelioration of the sphere is possible through active and constructive dialogue between state officials and the business community.

35

46

Regional Reform Success Stories

IRI survey results: positive local reform indicators stand in contrast to pessimism at the national level

regional reforms

Ukraine’s Decentralization Dividend

Are things finally looking up in Ukraine as it struggles to match the reform expectations of the 2014 Revolution of Dignity? While substantial challenges remain, a recent nationwide municipal poll conducted by the International Republican Institute (IRI) indicates clear progress on reforms at the local level, despite continuing pessimism on the national level.

The poll, made possible with the support of the Government of Canada, is the third annual nationwide municipal survey of its kind carried out by the IRI. It draws from a sample of more than 19,000 respondents from 24 Ukrainian cities representing oblast centers across the country, including Mariupol and Severodonetsk close to the frontlines in the east Ukraine conflict zone.

Fruits of Decentralization

With so much attention focused on Ukraine’s national political and economic ratings, this regional municipal survey provides a rare and enlightening below-thesurface look at the issues and political developments impacting the largest regional cities in Ukraine, including those on the contact line with Russian-backed forces. The results are as striking as they are surprising.

Despite the fact that the full legislative package of decentralization measures has not yet been implemented across the country, it seems the decentralization processes that have begun are already having a positive impact on local Ukrainian communities.

Comparisons with the results of previous years highlight evidence of changing attitudes towards local government throughout Ukraine. Approval ratings for local authorities have increased significantly year-on-year.

Growing support for city mayors was one the biggest changes, with the figure rising from 14 percent in 2015 to 49 percent in 2017. Similarly, city councils rose to 25 percent, while even the less visible municipal executive committees saw a seven-point increase in public approval (from 25 percent to 32 percent) over the past three years.

Public views of city services are also on the upswing.

Levels of satisfaction among residents towards a selection of 22 municipal services ranging from water delivery to public transportation increased in the overwhelming majority of cities surveyed. Over the past three years, a majority of cities have improved their composite indicators of the quality of public goods and services, as well as the overall level of satisfaction with the interaction between citizens and local authorities. : www.bunews.com.ua

47

Lutsk Castle in western Ukraine: Lutsk is one of a number of regional Ukrainian cities where municipal authorities are working to develop local investment strategies

48

: This rise in public satisfaction appears to

coincide with the devolvement of responsibilities to mayors and city councils, indicating that decentralization is helping to deliver better results for the Ukrainian people.

Anti-Corruption Progress

Evidence of improved attitudes at a local level contrasts sharply with continued pessimism towards the national situation.

In more than half of the cities surveyed, the proportion of respondents who think things are headed in the right direction has increased since IRI’s first nationwide survey in 2015. Nevertheless, a clear majority across the board still feel that Ukraine as a whole is moving in the wrong direction.

While a substantial portion of respondents continue to rate corruption as a major issue in their cities, the proportion of people citing corruption as a significant problem has fallen by a minimum of 10 percentage points across all cities surveyed. These figures represent a gradual decrease in the perceived severity of corruption at the local level over three consecutive years. This suggests greater accountability among regional officials and a sense of growing trust among the public.

These perceptions of localized progress in the fight against corruption present potentially interesting opportunities for investment attraction. While corruption continues to be a top concern at the national level for Ukrainians and a consistent barrier to international investment, many regional cities are taking the lead in marketing themselves to investors and working with international partners to overcome negative perceptions of Ukraine at the national level.

The cities of Uzhgorod, Lutsk, Vinnytsia, Kharkiv and Mykolaiv all showed the strongest levels of support for efforts by their respective city authorities to increase investment in their communities. The fact that cities in the west, east and south of Ukraine all received positive feedback from local residents for these investment attraction efforts at time when the country continues to face serious challenges is a significant achievement. These results also demonstrate that proactive efforts to woo investors are not restricted to a handful of Ukrainian cities in the far west of the country bordering the European Union.

Instead, these efforts represent what can be termed as a genuinely nationwide improvement by municipal authorities. It is also worth noting that this is something local communities both welcome and value.

Beyond the EU Border Zone

In Mykolaiv, a combination of a new local development agency and civic advisory working groups are currently marketing the city to investors and coordinating international investment projects. These efforts are particularly important in regions like Mykolaiv because they are located further away from Ukraine’s EU border zone. Cities in southern and eastern Ukraine have to do much more to keep up with the natural advantages that western Ukrainian cities possess thanks to an attractive and increasingly open new market situated next door in the EU. Mykolaiv is a good example of the contribution local investment initiatives can make towards improving municipal government.

regional reforms

“Growing public support for city mayors was one the biggest changes identified by the survey with the figure rising from 14 percent in 2015 to 49 percent in 2017” This large southern Ukrainian city has a population of around half a million. It is a place where the relics of a once active Soviet-era ship building industry sit vacant and rusting, depriving many locals of former employment opportunities. Drawing on the confidence and support of local residents to pursue city re-branding initiatives is a good way to maintain engagement. It will also help to attract investors to new and attractive economic sectors such as logistics and luxury yacht servicing. This will help the city authorities to keep up the momentum required to govern effectively.

Building on Recent Regional Gains

Now more than ever, it is vital for Ukraine’s regional and municipal officials to seize upon the progress that has already been made locally in order to continue the decentralization process and deliver even better results for their cities. Thanks to decentralization, it is no longer accurate to blame Kyiv for every budgetary shortfall, or for the inability to take action on repairing or updating any given municipal service. Continued education and sharing of best practices among both elected and unelected officials at the municipal level will be critical in continuing to deliver improvements.

This will not only benefit local residents. Ultimately, it could serve as a crucial component in delivering a better future for the country as a whole.

About the author: Michael Druckman is the Resident Country Director for Ukraine at the International Republican Institute www.bunews.com.ua

49

reforms

Ukraine’s Business Ombudsman Experiment Proves Successful Independent advisory body plans to expand after winning plaudits during impressive first two years Ukraine’s Business Ombudsman Council (BOC) celebrates its second anniversary in May with plans already in place to expand the institution. Established in early 2015 to serve as an independent voice for the business community in disputes with the Ukrainian authorities, the BOC has proved one of the most effective and practical reforms of the post-Euromaidan era. The latest figures speak for themselves: in 2016 the BOC closed 570 cases, resulting in a yield of UAH 5.96 billion. A landslide 94% of all complainants said they were satisfied with the work of the BOC. Meanwhile, state institutions adopted 87% of the BOC’s recommendations.

This picture of effectiveness and apparent public-private sector harmony is completely at odds with the overwhelmingly negative media portrayals of Ukraine’s ongoing reform process. It serves as a timely reminder that beyond the headlines, change is slowly but steadily taking place in Ukraine. Much of the credit for this success must go to Ukraine’s Business Ombudsman Algirdas Semeta. A Lithuanian who previously served as his country’s finance minister before spending five years in Brussels as a European Commissioner, Mr. Semeta was the first person appointed to the BOC back in December 2014. He personally oversaw the recruitment of the current BOC team, which features 23 people. This process was dominated by efforts to identify candidates with both the right professional backgrounds and the requisite integrity.

As a new institution, the BOC benefitted from not having to address issues of deeply entrenched corrupt practices or resistance to change from middle management – both major challenges for those seeking to reform Ukraine’s existing state bodies. “Creating the Business Ombudsman Council from scratch was one of the prerequisites for success,” says Mr. Semeta. “Our selection process was rigorous and so far we seem to have got it right. Over the past two years, we have not faced any issues regarding the integrity of our staff.”

The BOC is financed by a coalition of donor countries including Denmark, the Netherlands, Finland, Poland, France, Sweden, Germany, Switzerland, Italy, the United Kingdom, Japan, the United States, and the European Union through an EBRD multi-donor account. It enjoys close ties to Ukraine’s leading business associations. These connections with business associations helped to get word out about the role of the BOC when it launched in 2015, ensuring a steady flow of cases to address from the very beginning.

Mr. Semeta has also engaged in a series of regional outreach visits to raise awareness about the institution’s role among business communities beyond the capital city.

Developing a working relationship with government institutions has proved more challenging. The BOC has no official authority and is limited to an advisory role and recommendations. It relies heavily on its credibility as an independent and transparent institution, while also depending on high-level political support in order to operate effectively. Perhaps unsurprisingly, there was initial skepticism among many of Ukraine’s state institutions. Overcoming these doubters and building mutually beneficial working relationships has been one of the toughest tasks facing Mr. Semeta and his team. “The initial reaction was a little bit suspicious,” he recalls. “Many state institutions thought of us as just another group of lobbyists – and in the Ukrai-

50

About the interviewee: Algirdas Semeta is Ukraine’s Business Ombudsman nian context, this was not a flattering characterization. They thought we would take the side of any company that came to us with a complaint. It took us some time to demonstrate that we are a genuinely neutral institution that assesses every case on its own merits and asks demanding questions of companies that apply to us. We also invite the institutions themselves to make their case before reaching our own judgment. Over the past two years, we have demonstrated that we are not afraid to tell companies when we conclude that the state body is in the right. This has helped build a high degree of confidence with Ukraine’s state institutions.” He sees this process as one of the keys to the effectiveness of the BOC, allowing it to build productive relationships throughout the state sector rather than becoming bogged down in constant confrontations. “I cannot name a single institution or state body that refuses to implement our recommendations or offers particular resistance,” says Mr. Semeta.

There are now plans to build on the initial success of the ombudsman initiative by expanding the current team from 23 to 35 staff members, while gradually moving away from dependency on international donor funding towards state financing and support from Ukraine’s business associations. Will Mr. Semeta stay around to oversee this process? Appointed in late 2014 prior to Ukraine’s first batch of foreign-born government ministers, he is already one of the longest-serving international figures among the country’s postEuromaidan generation of reformers. “It is a difficult question,” he concedes. “I was working in Brussels for five years prior to my arrival in Kyiv, so I’ve now been away from home for eight years. I will certainly stay until the end of 2017 and then we’ll see.”

While his Baltic homeland may beckon, Mr. Semeta also clearly finds his involvement in Ukraine’s historic transition rewarding. “Before I took this job on, I was very familiar with what was going on in Ukraine thanks to my role at the European Commission. My understanding was that Ukraine is one of the most crucial places where the geopolitical future of Europe, and probably the entire world, is currently being determined,” he says. “This task appealed to me because it involved real activity that could lead to practical improvements. So far, I have not been disappointed. I am happy that we are gradually moving the business climate in the right direction.” www.bunews.com.ua

geopolitics

Five reasons why supporting Ukraine is in US interests Memo to Tillerson: American interests best served by successful and democratic Ukraine The new presidential administration in the US is currently shaping its approach towards Ukraine amid a sense of international uncertainty over continued American commitment to traditional aspects of US foreign policy. Given these concerns, it was hardly surprising that US Secretary of State Rex Tillerson sparked alarm when he recently asked his G7 colleagues, “Why should US taxpayers be interested in Ukraine?”

Within days of this comment, unconfirmed reports appeared outlining plans to slash the USAID budget for Ukraine by 69%, triggering further doubts over US policy towards Ukraine. The Kyivbased Institute of World Policy invites Secretary Tillerson to consider the following five reasons why supporting Ukraine is very much in the interests of the United States.

1. A secure Ukraine is crucial for transatlantic ties

Russia’s hybrid war in Ukraine is a blatant violation of the European security order. Russian success in Ukraine would lead directly to the destabilization of the continent. It would also encourage Russia to deploy similar tactics elsewhere in Europe. In such a scenario, the US would find it even more difficult to stay out. If exposed to unchecked Russian aggression, Europe could rapidly become a problem rather than a partner. The US would then find itself having to invest resources to support stability in Europe, rather than enjoying the benefits of united transatlantic actions on geopolitical issues elsewhere.

Lifting sanctions on Russia would also risk increasing the tension in US-European relations, since leading European countries like Germany, Great Britain and France have all firmly rejected any attempt to remove Ukraine-related sanctions imposed on Russia without full implementation of the Minsk agreements. Europe has defied expectations by maintaining a united front in response to Russian aggression in Ukraine. If the US broke ranks at this point, it would cause huge damage to the transatlantic relationship.

2. Global nuclear nonproliferation is at stake

Abandoning Ukraine would deal a major blow to nuclear nonproliferation efforts - something President Trump himself identified in December 2016 as one of America’s top foreign policy priorities.

Under the terms of the 1994 Budapest Memorandum, Ukraine surrendered the world’s third largest 52

nuclear arsenal in exchange for security assurances from the US, UK and Russia, who all committed to respect Ukrainian sovereignty and territorial integrity. Russian aggression against Ukraine, along with the restrained response of the international community, have exposed these assurances as hollow. This sets a dangerous precedent for any nation possessing or seeking to acquire nuclear weapons.

It undermines the potency of any future security guarantees, while complicating negotiations with existing nuclear powers on arms reductions.

3. Ukraine’s security directly affects the US economy

Guaranteed security is a prerequisite for sustainable trade and investment in the transatlantic region. Future European security is unimaginable without a secure Ukraine. If Russia succeeds in invading and annexing Ukrainian territory, no country in the region will feel secure from similar attacks. The entire security apparatus of the postWWII world will collapse, bringing down all manner of economic relationships.

This makes Ukrainian security an important factor in US economic welfare. Total US-EU trade in goods and services in 2015 amounted to USD 1.15 trillion. The EU is America’s top trading partner.

European security is essential for a prosperous America, and a sovereign Ukraine is essential for European security.

4. Supporting Ukrainian democracy is a US foreign policy priority

The considerable material and political support provided by the US to Ukraine since 1991 - especially since the 2014 Revolution of Dignity – makes Ukraine’s domestic reform course a test case for US credibility as a democracy supporter.

Abandoning Ukraine would severely undermine US authority around the world, while also writing off a key regional relationship at a critical point in its development.

Over the last three years, Ukrainians have demonstrated their ability to implement fundamental and far-reaching reforms. Since 2014, there has been more progress in overcoming the country’s Soviet inheritance than in the previous two decades of independence. The US has a major role to play in making sure this progress continues. It is also very much in American interests to do so. Ukraine has sufficient resources and potential to become the most significant foreign policy success story of Donald Trump’s presidency. This success could transform the entire post-Soviet region.

Supporting Ukraine is also the most practical US foreign policy response to Russia’s hostile actions.

Continued support for Ukraine allows the White House to avoid entering into direct confrontation with the Kremlin, while presenting the opportunity to make a tremendous impact on the region. In contrast, withdrawing support for Ukraine would undermine the momentum of the Ukrainian reform process and create a favorable environment for further Russian advances. Such an outcome would fail to satisfy virtually any interpretation of US foreign policy objectives.

5. Ukraine’s success would enhance regional security

As long as Ukraine is able to maintain its independence from the Kremlin, the Russian Federation will be unable to achieve superpower status comparable to that of the USSR. Instead, it will remain a troublesome but limited regional power. However, if Ukraine falls back under Moscow’s control, the Kremlin will have a platform to project its influence with far greater effectiveness into Central Europe, the Middle East, and further afield.

In order to safeguard its independence, Ukraine has little choice but to make a success of its postMaidan transition towards a more transparent and democratic model of governance. A reformed Ukraine would become a democratic champion in the post-Soviet space, providing a strong counterargument to Russia’s hybrid interventions while inspiring calls for similar transformations elsewhere in the neighborhood. Supporting Ukraine’s transition is not only strategically smart within the current foreign policy context – it could also bring long-term dividends throughout the postSoviet region. www.bunews.com.ua

Empowering Ukrainian Exporters New government office seeks to boost Ukrainian exports and help open up global markets

About the interviewee: Maryana Kahanyak is Head of Ukraine’s Export Promotion Office Ukrainian producers are currently in the process of expanding their horizons. The growing possibilities presented by the free trade dimension of the EU-Ukraine Association Agreement, coupled with the geopolitical realities of the current confrontation with the Russian Federation, have made the quest for new international markets a top priority.

March 2017 saw the launch of Ukraine’s Export Promotion Office (EPO) as part of government efforts to support Ukrainian exporters and help them expand globally. Business Ukraine magazine spoke to EPO Head Maryana Kahanyak about the goals of her Office and the challenges facing Ukrainian export-oriented companies.

What is the background to the Export Promotion Office?

The Export Promotion Office (EPO) began operations in its current form in March. The EPO is the result of an evolutionary process that has seen the concept of export promotion develop through a number of stages. The original idea was to harness all the available personal experience and knowledge of export support in Ukraine in order to help shape the future development of the country’s export trade. I joined the team at the Ministry of Economic Development and Trade (MEDT) in May 2015 to help organize the Ukraine54

America Business Forum in Washington DC. This was a unique opportunity to present the new-look Ukraine following the Revolution of Dignity, to communicate the reforms taking place in the country, and to promote Ukraine in general.

Following the success of this initial effort, the Deputy Minister of Economic Trade and Development Nataliya Mykolska initiated the establishment of the EPO. With support from a number of technical assistance projects, we managed to form a small team of like-minded professionals and worked within the MEDT to organize forums in Germany, the Netherlands, Canada, and France, along with trade missions to Malaysia, Indonesia, Kenya and Tanzania.

Last autumn, two technical assistance projects signed an agreement with the MEDT providing systematic support for the development and operations of the Export Promotion Office. We now have a team of 20 experts and a clearly defined set of goals and priorities.

What is the status of the Export Promotion Office and how is it funded?

Formally speaking, the EPO is a consulting and advisory body to the Ministry of Economic Development and Trade. Together with the government, our intention is to create a full-scale institution working in the interests of Ukrainian exporters along the lines of similar structures in different countries.

At present, the EPO is a unique example of effective and successful cooperation between the MEDT, technical assistance projects, and the Ukrainian business community. The EPO is able to operate due to support from the Western NIS Enterprise Fund (WNISEF) and Canada’s Expert Deployment for Governance and Economic Growth (EDGE) technical assistance project. Indirectly, we also enjoy support from Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).

What services does the Export Promotion Office offer?

The most simple and direct support the EPO provides is information for exporters. This includes databases, analytical materials, and research. We organize and coordinate educational platforms for exporters (trainings and seminars), as well as various online programs

- often in partnership with business schools.

Another important part of our work is providing services for exporters such as evaluations of their export readiness and primary consulting. We process requests to find business partners in new international markets, and support Ukrainian companies looking to participate in tenders abroad. We also organize events that can help contribute to the business development of exporters. These events include trade missions and exhibitions as well as b2b and b2g meetings. We have just returned from trade missions to Israel, Sweden and Germany, and have already started preparations for coming trade missions to Belgium, Canada and Turkey.

What are the key Ukrainian export trends since 2014?

According to the latest state statistics, there has been a general decline in exports since 2013 with the sharpest drop (-29.7%) occurring in 2015. This trend now appears to be over, with 32.7% year-on-year growth in January-February 2017. This impressive growth rate is partly down to the low benchmark figures created by the declines of recent years. Nevertheless, it provides grounds for optimism.

The most dramatic changes over the past few years have been in terms of the destination markets for Ukrainian exports. The share of exports going to the Russian Federation has halved from around 20% in 2013 to less than 10% in 2016. As a result, Ukrainian producers are seeking to enter new markets. The share of Ukrainian exports going to the EU, North and South America, Africa and South Asia is steadily growing.

The basket of goods that Ukraine exports is also changing. If we look at the top five exports in 2014, we find base metals and related products, vegetable products, mineral products, machinery and mechanical appliances, and animal or vegetable fats and oils and derivatives. From this list, the export of metals, machinery and mineral products has since fallen by half. Instead, the agricultural sector is demonstrating the most progress, with higher levels of valued added goods for export. Despite the overall 33% export decrease between 2014 and 2016, exports of vegetable and animal fats and oils actually grew over this period by 4%.

brand ukraine

What are the key difficulties facing Ukrainian companies that previously exported to Russia and are now seeking new export markets?

According to the figures for 2016, the EU is now Ukraine’s major trade partner with a steadily growing share of Ukrainian exports.

Meanwhile, the Russian share of the Ukrainian export market has halved since 2013. This indicates that many companies have already succeeded in reorienting their exports towards the EU. The EU market is much larger than the Russian market, but it is also more challenging. Ukrainian companies seeking to enter EU markets face a number of specific challenges related to things like obsolete export strategies, uncompetitive products, poor knowledge of foreign markets, and limited marketing and communications skills.

How can the Ukrainian government support Ukrainian companies seeking the necessary certification to enter new EU/global markets?

The government can only really create the proper conditions for business. The EPO can facilitate access to free information, education and training. We can organize participation in business events that open up new opportunities for exporters. However, companies must deal directly with everything related to operational activities like certification. In other words, everyone should do their job: the ministry should establish an effective export policy at the state level, the EPO should help Ukrainian companies to be successful on international markets, and businesses should take fully responsibility for their operational activities.

What role does Brand Ukraine play in supporting exports and how can this brand be strengthened?

One of the challenges we currently face is the need to present Brand Ukraine in a consistent manner at international exhibitions and fairs in terms of marketing, design and positioning. In order to avoid reinventing the wheel every time, we need to develop a national brand book. This will significantly aid the process by defining the basic guidelines and standards for all country-branded products. It will allow us to make sure everything complies with a single style. This brand consistency is very important for business and for the state. www.bunews.com.ua

55

Buying Ukraine’s Black Earth Agricultural land sales reform is back on the agenda but proposed changes may prove disappointing

From ancient folk legends of pastoral fertility to the horrors of Stalin’s 1930s Holodomor terror famine, agricultural land has always occupied a central role in the Ukrainian national narrative. This is hardly surprising – Ukraine is the famed “Breadbasket of Europe” boasting the world’s greatest concentrations of highly sought-after Black Earth. There has traditionally been an almost mystical relationship between Ukrainians and the soil, with a broad and longstanding consensus that it is the country’s greatest asset. This makes the issue of agricultural land sales particularly emotive for millions of Ukrainians. Indeed, it has sparked far greater national debate than the lessthan-transparent privatization of the country’s giant industrial enterprises.

With the International Monetary Fund (IMF) calling for land sale reforms as a condition for the current cooperation package, the issue is now back at the top of the country’s political priorities and looks set to dominate the agenda in May and beyond.

In fact, many of the broader issues relating to land reform were resolved at the turn of the millennium. Changes to legislation saw land previously belonging to Soviet-era collective farms privatized and distributed among employees. However, the final stage of this process, allowing for the free market circulation of agricultural land, has remained out of reach. At present, there is a moratorium over the sale of agricultural land, which means the owners of land plots cannot sell or otherwise dispose of their land. This moratorium is set to remain in place until 1 January 2018.

IMF Expectations

In its recent memorandum with the IMF, Ukraine expressed its intention to approve the appropriate laws and complete agricultural land reforms by the 56

end of May 2017. Despite these assurances, not everyone is convinced this will happen. Experience tells us that Ukraine does not always fulfill major obligations before the IMF and other international partners. Will the Ukrainian government keep its word this time?

At present, two rival bills (numbers 5535 and 5535-1) are set to go before the Ukrainian parliament for consideration. The key difference between them is the right of foreign entities and individuals to purchase agricultural land. While the first option would allow foreign purchases from 2030 onwards, the second version would place tough limits on the circle of potential buyers, restricting all purchases to Ukrainian citizens and companies where Ukrainians hold more than 51% of share capital. These differences cut to the very core of the emotions surrounding the agricultural land sale issue.

Relatively few Ukrainians actually object to the notion of owning and selling agricultural land, but almost everyone seems upset by the idea of sales to foreigners. “Foreign people will come and take over our precious land,” is the potent rallying cry and political message of those opposing reform.

Rental Realities

In reality, it is actually far from clear whether the issue of land sale reform will transform the agricultural sector, regardless of whether foreigners are excluded from the market or not. Following the distribution of collective farm land plots to individuals in 1999-2000, only a small number of these new landowners chose to become independent farmers and develop their own piece of Ukraine’s celebrated Black Earth. The vast majority opted to rent their land back to the same collective farms – now reorganized into commercial companies – or to reach agreement with newly

About the author: Andrey Selyutin is a Partner at Arzinger Law Office

Fewer Buyers Means Lower Prices What would be the optimal form of land reform for Ukraine’s economic development? The most advantageous approach might be one that makes the title to land negotiable. Leaseholds, freeholds and any other title to land make sense when the law allows for the sale, mortgage, or transfer of the land to a successor. Cancelling the current moratorium on the sale of agricultural land will not boost the Ukrainian agriculture sector or fuel broader economic growth if the new legislation effectively creates a new moratorium. By making the circle of potential buyers prohibitively narrow, Ukrainian MPs risk doing a disservice to the landowners they claim to be trying to protect. As any student of economics will tell you, fewer buyers means lower prices.

One solution may be changes to the laws governing leaseholds that would provide greater security and flexibility. Competition between tenants will always be better for the landowners themselves. Implementation of clear and workable laws on the transfer and mortgage of leaseholds to land could serve as an even more meaningful land reform than the cancellation of the longstanding and controversial moratorium.

We can now expect these issues to dominate the political arena throughout May and into summer 2017 as Ukrainians debate the pros and cons of efforts to put the hallowed Black Earth of Ukraine up for sale.

agriculture

established agricultural businesses.

Faced by the prospect of a long-term moratorium, agricultural businesses sought to secure their interests by negotiating long-term rental agreements with the appropriate provisions protecting them from the implications of any future cancellation of the moratorium. As a direct result of these developments, the large majority of Ukrainian agricultural land plots that would fall under the removal of the moratorium are already subject to rental agreements with the major agricultural companies that dominate the Ukrainian agricultural industry. In most cases, rental payments cover many years in advance. This leasehold model has proved a good instrument for operating an agricultural business in Ukraine. It is also worth noting that it does not prevent foreign investors from operating in the Ukrainian agricultural sector. Many Ukrainian agro-holdings currently have foreign shareholders.

Under the current circumstances, any individual plots of land that theoretically became available for purchase following the end of the moratorium would be of limited interest on the open market, except to the current tenants. Bearing in mind that most of these tenants have already made significant investments into long-term rental agreements, there is little reason to anticipate widespread eagerness to purchase the land. Meanwhile, the owners of the land would not be in a position to find alternative potential buyers.

This does not mean that land reform would not produce any kind of land market. There is plenty of free and unburdened agricultural land in Ukraine.

However, we should not expect the kind of land sales boom that some of the more optimistic analysts are now predicting.

How We’re Different

No hassle. No stress. See a doctor when and where you want, on your terms.

Doctors you’ll recommend European and US physicians Preventative and Acute Care All English-speaking staff

Treating you, differently Same day appointments and home visits More quality time with your doctor 24/7 direct phone and email support

International Direct billing to over 35 insurance groups Certified Visa and Work Permit centers Modern clinics in convenient locations

Kyiv: +38 (044) 490 76 00 • Lviv: +38 (032) 253 70 00 • Odessa: +38 (048) 701 40 00 • Tbilisi: +99 (532) 250 00 20 • Batumi: +99 (532) 250 00 77

www.amcenters.com

www.bunews.com.ua

57

Astana.

Energy of the Future.

EXPO-2017 The International Specialised Exhibition, EXPO 2017, will be held in Astana from 10 June to 10 September. The event is coming to Kazakhstan at the instigation of the president, Nursultan Nazarbayev. Astana will become a platform presenting international achievements in the area of green technology. Over 112 countries and 18 international organisations have already confirmed their participation in the EXPO. The main goal of this exhibition is to promote a power-efficient way of life and the active implementation of sources of renewable energy.

EXPO 2017 will cover an area of 174 hectares, with the exhibition itself taking up 25 hectares. The centrepiece is an impressive spherical construction, 80 metres in diameter and with an internal floor area of 24,000 square metres. Interactive projects will be displayed on seven floors in the largest spherical building in the world that is already becoming a local landmark.

Kazakhstan’s national pavilion will be divided into two major zones: Introduction to Kazakhstan and Creative Energy will be on the ground floor. The first zone will present the diverse

The national pavilions of the participating countries will have a special place at the exhibition, introducing not only their latest achievements in the production of green energy, but also allowing visitors to submerge themselves in the culture of each country.

Two thematic pavilions will introduce visitors to the evolution of energy. The first pavilion will introduce the concept of energy for the way we live. This pavilion is divided into four zones: The Universe and Energy, Earth and Energy Resources, Smart Cities and Smart Life, and Tech-Garden. The second pavilion is based around two topics that will help expand our understanding and conception of energy: Energy for All and My Future Energy.

The architects who have designed the buildings for EXPO have taken power efficiency into account, and thus the key buildings will be supplied with power harvested from the sun, wind and earth. Smart Grid technology will be used throughout the exhibition, reducing the cost of the power used inside the pavilions and to light the streets outside. Two noiseless wind generators have been installed in the upper part of the sphere.

Five million people are expected to visit the EXPO and the organisers have developed tourist routes for visitors and residents of Kazakhstan that include visits to exhibitions, sites of interest, national parks and places and monuments included

Air Astana, the official air carrier of EXPO 2017, launching direct flight on route Astana – Kyiv 5 times a week starting from June 1, 2017 and has prepared something special for you.

Everyone flying on an international flight originating outside of Kazakhstan with arrival in Astana between 1 June and 10 September 2017 will be able to get a free entrance ticket to EXPO 2017.

Don’t miss a chance to become part of this global and inspiring event and travel with The Best Airline in Central Asia and India.

To reserve your ticket for the flight and EXPO 2017, please visit www.airastana.com

on the UNESCO World Heritage List. There will also be a rich cultural entertainment programme with around 3,000 events.

Another significant role of EXPO 2017 is the development of the tourism industry in Kazakhstan. Starting from 1 January 2017, a visa-free regime was expanded to include the following countries: Australia, Austria, Belgium, Bulgaria, Canada, Chile, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Monaco, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, the UK, the United Arab Emirates, and the USA. The citizens of the above countries may enter the country with all types of valid passports for a stay of up to 30 days. Citizens of Hong Kong SAR can enter Kazakhstan without a visa for up to 14 days.

Tickets for EXPO 2017 can be purchased from tickets.expo2017astana. com, the official EXPO 2017 ticket offices and from Meloman and Kazpost, official subagents for EXPO 2017. A complete list of sales points is available on the website tickets.expo2017astana.com Several types of tickets are available for the exhibition: 4,000 tenge (350 UAH) for a ticket with a fixed date on a weekday, which includes access to all shows on that date.

6,000 tenge (520 UAH) for a ticket with a fixed date, weekday or weekend, which includes access to all shows on that date.

6,000 tenge (520 UAH) for a weekday ticket with an open date, allowing you to choose the day you wish to visit. When you register the date you have chosen it will become a fixed date ticket.

8,000 tenge (695 UAH) for entrance on any one day during the weekend or weekday.

promotion

natural landscapes of the country and its cultural and historical values, showing the present and future of the Republic. The second zone will introduce the latest innovations produced by Kazakhstani scientists and look at future projects in the area of energy and environmental protection.

National Business Associations Unite to Boost Ukrainian Investment Climate A number of Ukraine’s most prominent national cham-

bers of commerce and business associations came together on 19 April at the Ukrainian Chamber of Commerce and Industry in Kyiv to establish a new multinational

advisory body. The initiative is part of efforts to improve dialogue between the international business community and the Ukrainian authorities. Business association and

chamber representatives said combining efforts could also help to improve the country’s investment climate.

The new International Council of Business Associations and Chambers in Ukraine (ICBAC) includes participation

from Turkish, Chinese, French, German and American business associations alongside their colleagues at the Ukrainian Chamber of Commerce and Industry.

60

In mid-April, guests enjoyed an evening of executive networking with Fryday W focusing on the need to market Brand Ukraine internationally. The event welcomed guest speaker Martin Nunn, a 24year veteran of the Ukrainian media who currently serves as Marketing Director at the Ukraine Business Journal. Mr. Nunn presented a concise and punchy review of the role of the media in attracting investment and outlined necessary steps to reflect the reality of Ukraine’s fast-improving business climate. Fryday W serves as a professional platform for making valuable business connections. Each monthly midweek event features one or more guest speakers and attracts key business figures and decision makers.

www.bunews.com.ua

networking events

Selling Brand Ukraine to International Investors

61

62

networking events

Eurovision Theme at Annual Expat Charity Gala Kyiv Lions Club held its traditional Burns Night extravaganza at Kyiv’s Hilton Hotel on 22 April. With Europe’s favorite song contest taking place in the Ukrainian capital this year, the night’s Eurovision theme was both appropriate and inevitable.

Twelve nations took part in an impromptu Eurovision contest, with Denmark’s Oliver Jahn emerging victorious. The real winners on the night were Ukrainian good causes, with USD 49,000 raised for charity.

www.bunews.com.ua

63

Russian Language in the

New Ukraine Russian-speaking Ukrainians have played a key role in defending the country against Russian aggression but the ongoing conflict with the Kremlin continues to cast a shadow over the future of the Russian language in post-Euromaidan Ukraine Language has long been one of the key battlegrounds in the struggle to determine Ukraine’s post-Soviet identity. While most of the population is able to communicate in both Ukrainian and Russian, the issue has consistently served as a political flashpoint ever since Ukraine gained independence in 1991. Ukrainian is the official state language, but the status of Russian has ebbed and flowed over the past quarter century under a series of different administrations. Alleged oppression of Russian-speaking Ukrainians was one of the key reasons cited by the Kremlin in spring 2014 to justify Russia’s seizure of Ukraine’s Crimean peninsula. The language issue has also been central to the ongoing Kremlin-led separatist war in eastern Ukraine that is now entering its fourth year.

Many Russian-speaking Ukrainians spoke out against the Kremlin’s military intervention in Ukraine, rejecting Russian claims of any rights violations. Thousands more went even further, taking up arms against Russian hybrid forces in the east of the country. The role of Russian-speaking Ukrainians in the defense of the country has changed perceptions about what it means to be Ukrainian and led to a more inclusive approach to issues of national identity. Nevertheless, the ongoing conflict with Russia has placed the long-term development of the Russian language in Ukraine under question. With many of Ukraine’s largest cities still predominantly Russian-speaking, the future of the language in Ukraine is an issue of huge strategic importance.

The Ukrainian Center for Independent Political Research (UCIPR) recently carried out an EU-funded nationwide study to gauge opinion among Russian-speaking Ukrainians. The study involved six focus groups in cities across Ukraine, along with expert interviews and surveys with opinion leaders in a range of fields. The subsequent report, “Russophone identity in Ukraine”, offers a range of timely insights into attitudes among Russianspeaking Ukrainians towards the historic changes taking place in the country. Business Ukraine magazine asked UCIPR’s Julia Kazdobina what this study can tell us about the future evolution of Ukraine’s language politics and invited her to explore how the opinions she encountered across the country are likely to shape national identity issues.

Many observers claim that until the outbreak of the current war with Russia, people typically regarded Ukrainian identity as closely tied 64

to the Ukrainian language. They argue that this approach has now changed, with widespread acceptance of Russian-speaking Ukrainians as full and equal members of the modern Ukrainian nation. Does your research support these claims?

Attitudes towards Russian speakers in today’s Ukraine are changing, but the conflict with Russia means that it remains a controversial theme. On the one hand, there is clearly a lot more acceptance since so many Russianspeaking Ukrainians participated in recent historical events in support of Ukraine, including the Revolution of Dignity and the volunteer movement in response to Russia’s hybrid war. On the other hand, many of Ukraine’s Russian speakers live in the conflict zone and some of them do indeed embrace the “Russian World”, together with its messages that Russians and Ukrainians are one people and Ukrainian independence is an aberration.

Many welcomed the Russian aggression in Crimea and eastern Ukraine.

This generates a lot of distrust. Nevertheless, people are starting to understand that while it is sometimes possible to find a connection between the language a person speaks and their attitudes towards the current conflict, language is not an accurate indicator of political loyalties. Due to the role of Russian-speaking Ukrainians in defending Ukraine against Russian aggression, we are indeed witnessing an historic evolution in our understanding of what it means to be Ukrainian. However, somebody speaking Ukrainian is still a lot more likely to be regarded as a Ukrainian patriot than somebody speaking Russian.

How important has the conflict with Russia been in forcing Russianspeaking Ukrainians to assess their attitudes towards national identity? Can we talk about new-found feelings of Ukrainian patriotism among Russian-speakers, or does your research point to a more deeply-rooted sense of attachment to Ukraine that was previously underestimated?

Our research has shown that a number of Russian speakers started developing their Ukrainian civic identity long before the start of the current Russian aggression. Some study participants indicated that they first felt Ukrainian rather than Russian during the 2004 Orange Revolution, some even before that. This does not necessarily mean they switched to the Ukrainian language in their daily lives, but most of them increased their usage :

society

www.bunews.com.ua

65

: and consumption of Ukrainian. The current conflict certainly sped up this

identification process. Most of Ukraine’s Russian speakers knew there was no persecution of Russian-speaking Ukrainians, so when Russia attacked Ukraine under the pretext of protecting them, they saw Russia’s actions as international aggression. Consequently, their Ukrainian civic identity grew stronger. They did not want to identify with the aggressor or be in any way responsible for what the Kremlin was doing in Ukraine.

According to your report, many Ukrainians who previously identified culturally with Russia are now rejecting these ties. Will this lead to the emergence of a specific Russian-language Ukrainian culture that is distinct from the cultural world of the Russian Federation?

That culture is already emerging, although at this point it is most evident among people in artistic and creative circles. One small but enlightening example of this split from Russian culture that we encountered during our survey is the story of an annual poetry collection published in Odesa called “Russian poetry in Ukraine”. Due to changing attitudes towards national identity, the organizers of the collection decided to change the name to “Ukrainian Poetry in Russian”. There is plenty of other evidence pointing to the growth of a distinctively Ukrainian Russian-language cultural identity. A number of east Ukrainian authors write in Russian but produce work rooted in today’s Ukrainian realities.

Ukraine and Russia are drifting apart in many ways. We are witnessing the severing of long-standing cultural ties between the two countries. Ukrainian singers and performers who give concerts in Russia face heavy criticism in Ukraine. Meanwhile, Ukrainian government policies are limiting access to Russian TV and printed materials. Russian performers who have visited Crimea in violation of Ukrainian legislation can no longer enter the coun66

try. All these measures will help to facilitate the emergence of a specifically Ukrainian contemporary culture, including a Russian-language Ukrainian culture. Those who work in the Russian language will continue to do so. After all, it is not easy for writers or performers to switch to another language.

Many see no reason to change, as Russian remains a widely used minority language protected by the Ukrainian Constitution.

The Kremlin has justified its intervention in Ukraine as an effort to protect Ukraine’s Russian-speakers, but the findings of your report suggest that the war has alienated Ukraine’s Russian-speaking community and placed them in opposition to Russia. How did attitudes towards Russia vary from region to region during the course of your research?

We cannot draw any definitive conclusions about regional differences based on the research we have done. Larger scale research would be required to come up with clear answers. However, in Kramatorsk, the administrative center of the part of Donetsk region under Ukraine’s control, we saw several people hostile to Ukraine and the Ukrainian language. In Kharkiv, some of our study participants had a hard time condemning Russia’s actions because they had family members living in the Russian Federation. These are snapshots. To give a definite answer to your question about regional differences, one would need to have a far larger sample.

Few would dispute the fact that bilingualism is the reality in today’s Ukraine, but opinion is divided over whether this bilingualism is a strength or a weakness. What did the Russian-speaking Ukrainians you engaged with have to say on this subject?

Most Russian speakers did not see a problem with bilingualism. It was important for many of them to speak Russian and to teach their children the

Your report concludes that Russian-speakers in Ukraine do not experience any oppression. If this persecution narrative is essentially a myth, how do you account for the considerable international attention paid to claims of discrimination against Russian-speakers over the past three years?

I believe any attention is a consequence of Russia’s large-scale disinformation efforts, together with the presence of political forces in Ukraine that began the process many years ago by playing the language card in domestic Ukrainian politics. Numerous Ukrainian oligarchs invested heavily in political parties that raised, but failed to resolve, the language issue. They did so in order to encourage people to fight over identity issues rather than asking questions about the sources of oligarchic wealth. Political forces exploiting the language issue stood behind former President Viktor Yanukovych. Some researchers actually trace the beginning of the Russian disinformation campaign against Ukraine back to the 2004 presidential elections in Ukraine, which saw opposition candidate Victor Yushchenko and his supporters labeled as Nazis.

Once he became President, Yushchenko’s efforts to Ukrainianize the movie market and to educate Ukrainians about the events of the Holodomor (artificial 1930s famine organized by the Soviet regime) were strongly resisted.

Both Russia and Yushchenko’s domestic political opponents politicized and deliberately misrepresented these efforts. Ukraine’s failure to counter these disinformation attacks helped create the impression that the rights of Russian speakers were genuinely under threat.

Russian propaganda efforts intensified during the 2013-2014 Euromaidan protests, when Ukrainians revolted against the corrupt Yanukovych government. Russian disinformation sought to portray the protesters as Nazis, and then later branded the post-Yanukovych interim administration as a military junta. By this point, Russia had mastered the art of projecting its disinformation into the Western media environment. The Kremlin’s information apparatus was well organized and lavishly funded. Ukraine was in no position to counter Russia’s information offensives, being preoccupied with the postrevolutionary situation in the country and the immediate realities of resisting Russian military aggression. This allowed Russia considerable freedom to promote various false narratives in support of its intervention in Ukraine.

Ironically, all the available evidence shows that if any language is facing oppression in today’s Ukraine, it is the Ukrainian language.

Surveys on Ukrainian attitudes towards national identity tend to adopt a comparative regional approach. Meanwhile, generational differences do not receive nearly as much attention. During the course of your research, did you identify any significant differences in attitudes towards Ukrainian identity between older and younger Ukrainians?

Younger Ukrainians are much more likely to identify with Ukraine. They are also less likely to feel discriminated against if only the Ukrainian language is used. For example, it is hard for people from older generations to watch movies in Ukrainian or to read medical instructions in Ukrainian because

they have used Russian all their lives. The younger generation does not have that problem. They understand Ukrainian just as well as Russian.

Ukrainian-language music quotas for radio stations have recently been introduced. Similar steps are under consideration for Ukrainian TV channels. Based on your research, is there a danger that attempts to accelerate Ukrainian-language usage in Ukrainian society could spark a backlash?

In our research, most people recognized that the current language situation in Ukraine is a consequence of the Russification policies of the Soviet Union. Many of them said that it was not right that Ukrainian speakers are unable to receive information or services in their native language in some parts of the country. At the same time, people said that if they were ordered to speak Ukrainian, they would resist. They would not accept forced Ukrainianization. Based on these responses, I think the current language quota initiatives are not likely to provoke resistance unless political parties try to play the language card again. However, with oligarchs from the east of the country losing a large share of their income base and the parties they formerly supported losing a significant portion of their electorate, I do not think this is currently a very likely scenario.

society

Russian language as they consider it their native tongue. Most of them said that teaching their kids at home would be enough. However, some mentioned that they would like their kids to have the opportunity to study Russian at school and to study Russian literature. At the same time, they sent their kids to Ukrainian language schools. It would seem that for many Russian speakers, bilingualism is a way to preserve their identity while at the same time integrating into the Ukrainian political nation, where Ukrainian is gradually replacing Russian as the lingua franca.

Your report rejects the idea of language as a key cause of the war in eastern Ukraine. Instead, it characterizes the conflict as a clash of values. How would you define these conflicting values?

Study participants had a hard time defining exactly what these values are. I think as Russia retreats more and more into the Soviet past and as Ukraine moves more and more in the direction of a Western-style open society, the answer to this question is going to become clearer. On Maidan, Ukrainians were trying to assert their right to make their own decisions. They demanded the right to be free of government oppression.

Russia did not like that, because it considers Ukraine part of its sphere of influence. The current Russian leadership believes that the use of force is perfectly acceptable when a country like Ukraine disobeys. I think the conflict is essentially between those who value freedom and fair competition, and those who want to go back to a past where there was no freedom but where everybody could expect to receive enough for minimal subsistence.

Ukraine has the world’s second largest Russian-speaking population. Kyiv is the largest Russian-speaking city on the planet outside of Russia itself. It seems safe to assume that people will be speaking Russian in Ukraine for generations to come. What do you see as the future for the Russian language in Ukraine?

I think Ukraine will remain a bilingual country for several generations, although the share of those who are proficient in Russian is going to decrease, especially in western Ukraine. In future decades, Ukraine will have its own Russian-speaking minority who will also be proficient in Ukrainian. As the conflict with Russia ends, their presence is going to become uncontroversial.

About the interviewee: Julia Kazdobina is an analyst at the Ukrainian Center for Independent Political Research www.bunews.com.ua

67

Time to tap into Kyiv’s tourism potential New General Manager of Radisson Blu Hotel in Podil sees Kyiv as a competitive city break destination “I did not have to think long before agreeing,” says Nadine Fernbacher of the invitation to take over as General Manager of the Radisson Blu Hotel in Kyiv’s riverside Podil district. The thirty-something German hotel professional is a relative newcomer to the Kyiv scene. She arrived in the Ukrainian capital at the end of February, less than a month after receiving the initial offer to take on the role. “We move fast in the hospitality industry,” she smiles. “Within four weeks of being offered the job, I was already here.”

From Batumi to Kyiv

What attracted this Rhineland native to one of the less developed outposts on the European hospitality circuit? Ms. Fernbacher says it was a combination of greater professional opportunities and the lifestyle appeal of Kyiv itself. Prior to her current Ukrainian posting, she had been managing a Radisson hotel in Georgia’s Batumi. Working in the subtropical “Las Vegas of the Black Sea” may well be many people’s idea of a dream job, but Ms. Fernbacher says Kyiv can more than compete. “The tourism high season in Batumi is actually very short and consists of two months, while the city itself as actually quite limited in size,” she explains.

Having previously visited Kyiv on numerous occasions for in-house corporate events, she had little hesitation in agreeing to take on the challenge of managing one of the city’s two Radisson Blu hotels. Ms. Fernbacher is enthusiastic about Kyiv’s restaurant and social scenes, noting both the scale of the city and the diversity of the offering. With an extended residency ahead of her, such factors are important.

They also bode well for the development of the tourism industry – an area she singles as for particular attention.

City break appeal

The German hotel manager says Kyiv is a very attractive posting with huge room for career development in both the business and tourism sectors. “There’s a lot of competition here in the international 68

About the interviewee: Nadine Fernbacher is the General Manager of the Radisson Blu Hotel, Kyiv Podil brand segment of the hotel industry, with lots of business guests and conferences.

Compared to a resort like Batumi, it offers far greater opportunities to succeed.” She sees greater tourism traffic as one of the key growth sectors for the coming years, with huge potential for Kyiv to tap into the multi-billion dollar annual European market for city break destinations. “The city has good flight connections, great sightseeing attractions, and a thriving restaurant scene. The general levels of spoken English are also higher than I had expected,” she says, arguing that this should be more than enough to challenge traditional weekender options. “German tourists, for example, love to take weekend breaks to cities like Barcelona and Lisbon. I am confident Kyiv can compete with these kinds of destinations.”

Ms. Fernbacher’s initial priorities include meeting her colleagues in Kyiv’s hospitality sector and getting to know the city

better. When she arrived in late February, the temperature was minus seven degrees and Kyiv lay shrouded in snow and ice. Just weeks later, she sat down with Business Ukraine magazine amid the intoxicating splendor of a city in full bloom.

She hopes the appeal of the Ukrainian capital will become more widely known to international customers over the coming months, but is already encouraged by what she has seen so far. Occupancy rates at the Radisson Blu Hotel in Podil have experienced strong growth in March and April, with May bookings suggesting that this upward trend is sustainable. “We can go even higher,” she says. With a coming flurry of Kyiv tourism articles expected courtesy of the hundreds of international journalists due in the Ukrainian capital in mid-May for the 2017 Eurovision Song Contest, this is a sentiment that many throughout the city’s hotel sector will likely share.

WEST UKRAINE’S LIFESTYLE GUIDE №100/April 2017

Ramada Lviv Hotel

The best of Lviv since 2008 WANT TO KNOW MORE? FOLLOW US ON: www.lvivtoday.com.ua www.facebook.com/LvivToday

leave the rest to ussm

Тел.: +38 (032) 243-00-10, моб.: +38 (067)320-44-77 reception@ramadalviv.com.ua, www.ramadalviv.com.ua

360 Kyiv proves a Facebook hit Stunning 360-degree images of the Ukrainian capital attract a growing social media audience The Ukrainian capital has always been one of Europe’s most photogenic cities. Thanks to the efforts of an innovative Ukrainian photographer, fans of Kyiv can now enjoy the city’s most iconic and unusual locations in 360-degree glory via social media.

IT professional Stanislav Pokutnyy launched the Facebook page “Kyiv 360” in June 2016, within weeks of Facebook unveiling its 360 Photos function. The page has clocked up over 40,000 likes in the past ten months, with popular posts now garnering in excess of two million views. For thirty-five year old Mr. Pokutnyy, the page was an extension of a long-term photography hobby that dovetailed with his interest in innovative technologies and his love for his adopted hometown. A Sumy native, he originally 70

moved to Kyiv in 1989. Despite travelling throughout Europe, he remains in thrall of Kyiv’s beauty and wanted to share this passion with online audiences.

Mr. Pokutnyy uses a combination of spherical cameras and drones in his photography, choosing locations he thinks will be best suited to the 360-degree panoramic format. “It is a very different art to traditional photography, where the photographer’s only concern is the image in front of the camera. With 360 pictures, you have to be careful that there is not a garbage can or pile of junk behind you,” he tells Business Ukraine magazine.

He sees the page as a virtual tour guide for Kyiv and says it has proved particularly popular among Kyiv residents themselves, reflecting the

online ukraine

fact that locals do not always have the opportunity to explore the city they live in. “To many people in Kyiv are preoccupied with their everyday problems or artificial political squabbles. We have forgotten to stop and appreciate the beauty of the city around us.”

As well as Kyivites, the page has proved a hit with Kyiv exiles who miss their former hometown and crave the opportunity to explore old stomping grounds. “The 360 format gives you a sense of actually being there,” says Mr. Pokutnyy. “It is great for nostalgia.”

His Facebook page has already attracted some commercial interest, with everyone from construction companies to leisure venues proposing 360 photo sessions. Mr. Pokutnyy says that while he welcomes such engagement, the photographic imagery has to be right in order for him to agree.

He has also found the project to be a fun way of getting to know the city in a new light. As well as commercial propositions, he is regularly contacted by Kyiv residents with knowledge of lesser known parts of the city that they believe would be ideal candiwww.bunews.com.ua

dates for the 360 treatment. “This entire project is a process for me personally,” he says. “Almost every day I uncover something new. It has changed my entire attitude towards Kyiv.”

Photos posted on the Kyiv 360 page feature a minimum of text.

Usually this means nothing appears but the name of the location.

Mr. Pokutnyy says this is a deliberate choice in order to allow viewers to interpret the images in their own way. “I don’t want to impose my perceptions or vision on anyone. It is a similar approach to art galleries, where you don’t often seen long texts telling you how to interpret any given painting.”

Ultimately, he sees the Kyiv 360 page as a rewarding hobby that allows him to give something back to the city he calls home. At a time when Ukraine’s information space often resembles a proxy warzone, he believes this kind of feel-good online content can make a meaningful contribution. “There is so much manufactured conflict in our lives. This sort of project is not a panacea, but it is a little drop of positivity in an ocean of negativity.” : 71

72

online ukraine

www.bunews.com.ua

73

and finally...

Why is the Kremlin so fixated with phantom fascists?

In mid-April, reports emerged of Kremlin plans to launch a major smear campaign against Russian opposition figurehead Alexey Navalny. Within days, an expensive-looking attack video had appeared anonymously on YouTube, comparing Navalny to Adolf Hitler. The Russian authorities denied any connection to the video, but few believed them. After all, branding opponents as fascists is the Kremlin’s trademark tactic, and has been for many decades.

Kremlin officials have been enthusiastically playing the fascist card against all manner of opposition since the height of the Cold War. When Hungarians rose up against Soviet occupation in 1956, Moscow branded the uprising “a fascist rebellion” before sending in the tanks. It was a similar story during the Prague Spring of 1968. Communist Party officials even referred to the Berlin Wall itself as “The Anti-Fascist Protective Wall”.

This trend has survived the Soviet collapse and continues in the Putin era.

When Estonia sought to remove a Soviet WWII monument from Tallinn city center in 2007, the Kremlin media went into a frenzy about “Fascist Estonia”, sparking riots among Estonia’s sizable ethnic Russian population. Within days, Russia had launched what is now widely seen as the world’s first fully-fledged cyber war against the tiny Baltic State. This hybrid attack, containing disinformation and cyber elements alongside Nazi motifs designed to stir up an ethnic Russian minority, was an ominous harbinger of things to come.

The most infamous Kremlin accusations of fascism have traditionally targeted Ukraine. This did not begin in 2013 with negative Russian coverage of the Euromaidan protests. Ever since WWII, Moscow has sought to portray the Ukrainian independence movement as virtually indistinguishable from Nazi Germany. These efforts have typically highlighted the wartime Nazi collaboration of various Ukrainian independence leaders, while whitewashing the USSR’s own 1939-41 alliance with Hitler.

In the post-Soviet era, Kremlin media outlets first began actively labelling Ukrainians as fascists in 2004. At the time, Viktor Yushchenko was running for the presidency on a reformist ticket while promising to move Ukraine closer to the EU. In other words, textbook fascist behavior. The “fascist Ukraine” theme has remained a more or less constant feature of Russian propaganda ever since.

It rose to new prominence in 2013-14 as the cornerstone of the Kremlin’s efforts to discredit the Euromaidan protest movement and justify the Russian invasion of Crimea and eastern Ukraine. Neither the abject failure of Ukraine’s far-right political parties in successive post-Euromaidan elections, nor the appointment of a Jewish Prime Minister have proved sufficient to debunk these fascism slurs. Russia simply has no other explanation for the loss of yet another former friend and ally.

Why is the Kremlin so fixated with fictitious fascist threats? It may be more out of necessity that choice. In the soft power battle of ideas that determines international competition in the modern world, Russia is virtually unarmed. It has no coherent ideology to place in opposition to the relative rights and freedoms

of the democratic nations. There is simply no answer to the higher standards of living, longer life expectancy, and greater protections offered by the Western model. By playing the fascist card and reawakening the ghosts of WWII, the Kremlin seeks to distract domestic Russian audiences from these glaring shortcomings while avoiding awkward questions.

The fight against Hitler carries a uniquely emotive appeal for today’s Russians, who see themselves as the successor state to the Soviet Union and its 27 million WWII war dead. Putin has skillfully exploited these Russian sensibilities towards WWII. He has made the annual Victory Day celebrations the centerpiece of the Kremlin calendar, while transforming the Red Army triumph over Nazi Germany into the foundation myth of the modern Russian state. It now serves to overshadow the horrors of the Stalinist regime, with Soviet crimes against humanity written off as necessary preludes to the success of the coming war effort. Questioning the official narrative is regarded as heresy. This sacred status makes WWII a uniquely powerful propaganda weapon against anti-Kremlin dissenters. In this context, the glorification of the Red Army and the demonization of all opponents as fascists are two sides of the same coin. To side with the “fascist” is to desecrate the memory of those who gave their lives to defeat Hitler. This is not a particularly rational argument, but it is emotionally explosive when backed up by the full force of the Kremlin media machine.

There are some indications that this form of emotional blackmail may belatedly be losing its potency. The Navalny attack video, for example, disappeared from YouTube within days following a chorus of mockery and widespread hoots of derision. However, it is too early to declare that we have reached “Peak Fascism” just yet. The Kremlin simply has no alternative messages capable of energizing domestic audiences. In the absence of more recent national achievements, WWII looks set to remain the lodestar of the Putinist state for the foreseeable future, leaving the Russian public doomed to continue obsessing over Red Army heroes and phantom fascists until their country is able to compete with the modern world.

Letters to the editor: editor@bunews.com.ua Advertising inquiries: +38-067-4032762 Business Ukraine is distributed every month at a wide range of leading business centres, hotels and restaurants in Kyiv and throughout Ukraine as well as on incoming flights to the Ukrainian capital.

Registration: KV 15006-3978PR Published by: Open Borders Media Director: Susanna Dickinson

74

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.

www.bunews.com.ua