Business Ukraine summer 2015 by Business Ukraine magazine

FACE OF THE NEW UKRAINE? Patrol police as symbol of UA reform Service to launch in more cities soon

July/August 2015

SWEDEN UKRAINE IN

Special focus on Swedish investment in Ukraine including everything from industrial production and IT startups to alternative energy and agriculture Also inside: Monthly American Chamber of Commerce in Ukraine Newsletter

Sweden in Ukraine issue sponsor

July / August 2015 Sweden is Ukraine’s biggest trade partner in northern Europe and a major investor in the country. Business Ukraine magazine spoke to some of the key Swedish investors in Ukraine to assess their opinion about the progress being made in the country under its new reformist government, and the prospects for Ukraine’s further European integration.

FACE OF THE NEW UKRAINE? Patrol police as symbol of UA reform Service to launch in more cities soon

July/August 2015

SWEDEN UKRAINE IN

Sweden in Ukraine issue sponsor

From the editor New Kyiv cops are popular because Ukrainians are dying for dignity

Kyiv’s new police force has proved one of the surprise hits of summer 2015, with the stylishly attired officers of the revamped service becoming the social media stars of the season. This enthusiastic reception has not been restricted to the pages of Facebook and Instagram - police officers patrolling the streets of the Ukrainian capital have also reported being overwhelmed by the positive reactions they have encountered from members of the public, who have inundated them with offers of free coffee, requests for souvenir selfies, and general words of kindness and encouragement. This outpouring of affection for police officers would be a noteworthy turn of events in any country. In Ukraine, where the police have long been seen as a symbol of institutionalized corruption, it is nothing short of miraculous. Why are these new Kyiv cops proving so popular? Their fetching Americanstyle uniforms certainly help, as do the high percentage of photogenic young female recruits, and the general absence of beer bellies. But slick presentation alone would not be enough to win over the notoriously cynical Ukrainian public.

July-August 2015

The popularity of the patrol police reflects the hunger for change in postrevolutionary Ukrainian society. Almost eighteen months since the fall of the Yanukovych regime, the appearance of these cops in Kyiv is the first concrete evidence that a new and better Ukraine is finally beginning to emerge. For many ordinary Ukrainians, the patrol police have quickly come to personify the hopes and ambitions which drove millions to Maidan, and which have since mobilized the nation in its war with Russia. They have become the face of the new Ukraine, and the guardians of a revolution which sought to defend the basic human dignity of all Ukrainians against a culture of endemic corruption that robbed the country of its self-respect. Such high expectations can be dangerous. Indeed, the scale of the hype surrounding Kyiv’s new cops makes a fall from grace practically inevitable. Those who wish to resist change will almost certainly target these high-profile police as a way of discrediting the entire reform process. Sooner or later, there will be bribery accusations and other attempts to demonstrate that Ukraine remains as corrupt as ever. Nevertheless, the lessons of the patrol police launch are already clear: the Ukrainian public desperately wants to believe in the possibility of a more honest future, and is prepared to give its full support to anyone who can help turn that dream into reality. Ukrainians don’t expect Greek pensions or German salaries overnight - they merely seek the quiet dignity of a country governed by the rule of law. Peter Dickinson Business Ukraine magazine

Sweden in Ukraine Swedish Ambassador to Ukraine Andreas von Beckerath on reform, investment and EU integration Sweden has a large business presence in Ukraine. In light of the current challenges in Ukraine, what has been the embassy’s message to Swedish companies active in Ukraine and to those looking to enter the Ukrainian market? I am generally a great optimist when it comes to Ukraine’s future, and I try to share this optimism with Swedish companies. One of the reasons for this optimism is what I regard as Ukraine’s positive fundamentals. Ukraine is rich in natural resources and has a very well educated workforce with a wide range of professional skills – particularly among the younger generation. Ukraine is a market where you can recruit staff for competitive salaries. The geographical location of Ukraine is another advantage. I sometimes have to remind Swedes who haven’t been here that it is only a two-hour flight from Stockholm to Kyiv, which is actually less than the distance to Brussels. Ukraine offers proximity to EU markets including Sweden. Beyond these fundamentals, there are a number of present factors in Ukraine’s favour, despite the ongoing Russian aggression. I think the signing of the EUUkraine Association Agreement will be incredibly important for the development of the Ukrainian economy. Ukraine also currently enjoys strong political and economic support from the EU, from the world community, and from Sweden. I would argue that Ukraine today has the most reform-oriented government it has ever had, which is working in combination with a world-class civil society to actively push the reform agenda. I try to be honest and frank with Swedish companies when it comes to the huge challenges Ukraine is facing, not least in terms of the rule of law and the fight against corruption, but I also aim to present an optimist perspective of the country’s potential. Many Swedish investors are actually already well aware of Ukraine’s potential. The key question they have now is how quickly the reform process will be able to unlock this potential. What contributions is Sweden making towards Ukraine’s EU integration process? Next to strengthening bilateral relations between Sweden and Ukraine, my single most important task is to help Ukraine integrate into the EU. It is up to the Ukrainian people to decide how close to the EU they want to be; what we try to do is enable Ukraine to follow its chosen path. The speed of this EU integration process depends on the progress of the reform agenda. Every year, we invest an average of EUR 25 million in projects designed to enable Ukraine to reform itself and move closer to the European Union. These projects include technical support, grants and credits, investments into Ukraine’s dynamic civil society, and support for energy efficiency. This highlights the fact that we are not only ready to provide political support, but also practical help to speed up Ukraine’s EU integration. On top of this, I’m very proud of the fact that Sweden is one of the staunchest supporters of Ukraine’s EU integration within the European Union itself. We constantly argue that the EU should have an ambitious and generous policy when it comes to strengthening ties with Ukraine. How do you expect full implementation of the EU-Ukraine association agreement to impact on bilateral ties and trade relations between Sweden and Ukraine? I am optimistic that the Association Agreement will serve as both an anchor for reforms and a roadmap for the reform process. Ukrainian companies will also 8

benefit from access to the EU market, which is the biggest consumer market in the world. For Swedish companies, the signing of the Association Agreement is an important signal as it demonstrates that Ukraine is open for business. Which sectors of the Ukrainian economy do you regard as the most attractive for Swedish investors? There are many interesting sectors but I would highlight three: IT, agriculture and ‘clean-tech’. Big Swedish companies like Ericsson and Sigma Software already have a major presence in the Ukrainian IT sector, and alongside them are smaller, startup companies like Beetroot, which was established in 2012 by two young Swedish entrepreneurs and now employs about 60 Ukrainians. My dream as ambassador is to see more of these small and medium-sized Swedish companies exploring Ukraine’s potential. I think SMEs could serve as an engine for Ukraine’s economic growth, which is exactly what we have seen in Sweden. Everyone is also talking about Ukraine’s agriculture sector, which stands to be one of the chief beneficiaries of the free trade component within the Association Agreement. The third sector of particular interest for Swedish companies is ‘clean-tech’, which covers energy efficiency, waste management, renewable energy and other green technologies. Ukraine has enormous needs in this area, while Sweden is a recognized world leader. As the ambassador of a major investor country, which aspects of the Ukrainian reform process do you regard as most crucial in order to attract greater international investment? If I had to single out one sector, it would be strengthening the rule of law and the battle against corruption. I believe that the government has done more in terms of reform than it usually gets credit for, but nevertheless it has not done enough, and the process has not been fast enough. Another important chalwww.bunews.com.ua

You were one of the most prominent international representatives at the recent Kyiv Pride parade in support of sexual minorities. How important is social reform in the context of Ukraine’s broader European integration efforts? For Sweden, respect for human rights is always a key principle, and we believe the rights of sexual minorities are an inseparable part of this human rights agenda. We are convinced that it is impossible to commit to human rights in an ‘a la carte’ manner. Human rights have to apply to everyone, including sexual minorities. I personally believe that having the right and the freedom to love is one of the most fundamental human rights, which is why my wife and I decided to join this year’s parade. In my experience, Ukraine is a very tolerant country. If you look at Sweden in particular and Western Europe as a whole, there has been huge progress with regard to the rights of sexual minorities over the past 40 years. I think this process will also take place in Ukraine. Swedish Vikings are seen as the founders of the Kyiv Rus state. How conscious of this historic contribution are modern Swedes? Swedes in general are aware of the common history we share with countries

like Ukraine, but the contemporary focus is much more on building a common future together. When Swedes follow Ukraine in the news today, it is generally in the context of Russian aggression. For Swedish people, the right of every country to determine its own future is a core notion. Representatives of Sweden in Ukraine must often find themselves reminded of the Battle of Poltava. How would you characterize contemporary Ukrainian attitudes towards this prominent Swedish role in Ukrainian history? I am amazed by how knowledgeable Ukrainians are about the Battle of Poltava. They tend to know more about it than most Swedes. For many Swedes who do know about the Battle of Poltava, there is a feeling that it was actually good we lost, because otherwise we might have continued playing the role of a regional power, with all the problems that involves.

sweden in ukraine

lenge for the government is to communicate what they have already achieved in terms of reforms. Many important reforms will not have an immediate impact on the living standards of ordinary Ukrainians, which also makes the task of the government harder. It may take a few years before the general population becomes aware of the positive results of many reforms, which is why reforms in high visibility areas like the fight against corruption are particularly important.

For many Europeans, Ukraine remains a relatively unknown country. How has awareness of Ukraine evolved among your Swedish colleagues since your arrival in the country two years ago? The events of the past eighteen months have received extensive coverage in the Swedish media, while there is considerable Swedish solidarity with Ukraine and support for the country’s right to determine its future path. I was recently in Sweden for a major annual conference and it was striking to note how much interest there currently is in Ukraine. In order to improve awareness of Ukraine I try to bring as many of my Swedish compatriots as possible to Kyiv, including both business people and politicians. Without exception, these first-time visitors from Sweden are always extremely impressed by what they encounter, and leave the country feeling much more optimistic about Ukraine’s future.

SEB CORPORATE BANK 7, Mikhailivska Street, 01001 Kyiv

July - August 2015

Ukraine and Sweden: partners in a shared future

weden has always been a strong partner and supporter of Ukraine. Today, we are committed to reciprocating and making our commercial, historic and social ties even more solid. While Swedish-Ukrainian cooperation dates back centuries, all the way to the Kyivan Rus, the modern era of bilateral relations started shortly after Ukraine’s independence in 1991, with Sweden being the first Nordic country to recognise the newly-formed state. This spirit of alliance has persisted throughout the centuries and has resulted in the dynamic cooperation between our governments, businesses and peoples that we enjoy today. Sweden is Ukraine’s largest trade and economic partner in northern Europe, as well as a strong advocate for Ukraine’s European integration. Our bilateral cooperation has particularly gained momentum in the recent years. Between 2009 and 2013, Sweden provided EUR 25 million annually as part of its cooperation policy and granted Ukraine an extension of technical assistance covering 2014-2020 with yet another EUR 25 million per year. The goal of this development cooperation is to deepen democratic transformations related to European integration, as well as to enhance energy efficiency and environmental protection in Ukraine. Furthermore, there is a growing demand for greater cultural cooperation. With the support of the Swedish government, many Ukrainian students and young professionals obtain their degrees in Swedish universities, embedding themselves fully into Nordic society. Three years ago, the Swedes and Ukrainians had a chance to meet during the Euro 2012, co-hosted by Ukraine and Poland. Thirty thousand Swedish football fans represented their country during the event, while Ukrainians were happy to host their friends from abroad.

Reformist government is reliable partner for Sweden Ukraine’s current government is, first and foremost, a new, strong, and agile team of professionals. We have come to our ministerial positions from private sector jobs and are dedicated to introducing the necessary reforms as we are well aware of the hurdles facing the average business. Our strong desire to introduce economic change primarily falls under two key areas: macroeconomic stabilisation and deep and structural economic reforms. While the Ministry of Finance and the National Bank are focusing on macrofinancial stability, my own responsibility is to create an environment in which businesses will thrive, so that the country returns to economic growth in 2016. At the Ministry, we are working hard to reduce the unnecessary burdens on businesses by removing excessive and ineffective regulation, cutting red tape, and introducing transparency into government agencies. A simple removal of the quarantine certificate for agricultural goods brought up to UAH one billion back into the sector, while abolishing an ineffective drilling monitoring returned up to UAH three billion to companies in this area. In order to fight corruption, the Ministry of Economic Development and Trade of Ukraine is implementing a public procurement reform that aims at transferring all procurement tenders online. Having started a pilot project in e-procurement earlier this year, savings on contracts from tenders held online have reached 10%-30%, while introducing an impeccably transparent procedure. Within the system currently being tested, every tender is accessible online to every citizen at every stage, drastically decreasing corruption risks for our annual public procurement market of UAH 250 billion. Introducing transparency at every step, removing intermediaries - such as with natural gas imports - and leveling the playing field among businesses constitute our drive towards a healthy and truly free market environment, 10

About the author: Aivaras Abromavicius is the Minister of Economic Development and Trade of Ukraine where investors can safely bring their capital. Ukraine is a country of great untapped potential with close proximity to European transport hubs, a highly-skilled workforce, and rich soil. Now that Ukraine and the EU are introducing the Deep and Comprehensive Free Trade Area, Ukraine is becoming a worthwhile destination for establishing business operations. For Ukrainian products to flow freely to the EU and vice versa, the Ministry is adapting Ukraine’s technical standards to those of the EU, and removing other barriers to trade.

Swedish-Ukrainian ties: best is yet to come Swedish companies were among the first investors in Ukraine. However, with the potential both countries have in reserve, even more rewarding partnerships can be developed. As of today, one of the most successful Swedish companies in Ukraine is the food processing company Chumak. Founded in 1996 by two young Swedish entrepreneurs with financial support of Hans Rausing of Tetra Pak, it became one of the largest food producers on the Ukrainian market. Another promising domain of bilateral cooperation is the energy sector, especially in the areas of energy efficiency and energy conservation, where Sweden is an undisputed world leader (26% of Swedish domestic energy needs are met by renewable sources). Waste management presents substantial opportunities for cooperation, as Ukraine could build on the vast experience and leading technologies of Swedish companies, following the waste management market’s demonopolisation in spring 2015. Other potential areas of collaboration include telecommunications, energysaving and environmental protection, nuclear safety, and more. Notably, the first ever meeting of the Ukrainian-Swedish working group on energy issues will take place this year. Sweden and Ukraine have strong historic ties, while its long history of mutual respect, cooperation and support clearly sets Sweden apart as a reliable partner, and even more importantly, as a friend. With our new path of reform and modernisation, and our efforts focused on combatting corruption and improving the business climate, one can be sure that Sweden-Ukraine relations will accelerate and bring further tangible results in the coming years. www.bunews.com.ua

www.bunews.com.ua

Vindkraft Ukraina seeks to harness alternative energy advantages of Ukraine’s Black Sea coastline South Ukraine-based wind energy company Vindkraft Ukraina is the brainchild of Swedish businessman Fredrik Svinhufvud, who has had an interest in alternative energy since being exposed to a mini-hydro plant on his family farm during childhood. The decision to establish Vindkraft Ukraina came in 2009 after Ukraine introduced a law on green tariffs, and was followed by a series of steps to identify suitable sites and appropriate technologies. The Vindkraft Ukraina team was initially led by Fredrik Svinhufvud and after the first turbine was commissioned his fellow Swede and partner Carl Sturen took over. Today the company is managed by him and an experienced team including another fellow Swede and partner, Mats Lundin, who is also serving as chairman of EUEA (European-Ukrainian Energy Agency). Both Carl and Fredrik have extensive experience of running businesses in Ukraine while Mats has been active internationally within the renewable energy sector for the last 20 years. Fredrik formerly served as Managing Director at Tetra Pak Ukraine and as President of the country’s European Business Association (EBA), while Carl is best known as one of the founders of the Chumak brand and proud honorary consul of Sweden. A step-by-step approach was adopted to develop their alternative energy company in southern Ukraine’s Kherson Oblast, gradually building up production to today’s output of 30 MW. Fredrik spoke to Business Ukraine magazine about his experience of the Ukrainian alternative energy sector and his hopes for further growth in the renewable energy industry as Ukraine seeks greater EU integration. What was the strategy behind the establishment of a wind energy company in southern Ukraine? Our analysis demonstrated that wind conditions along the coastal area of Kherson Oblast were favorable. Carl with his team and partners also had extensive experience of operating in the Kherson region via the locally located Chumak and Green Team companies, so we decided to build on this experience. Has working in the alternative energy sector become easier since the advent of the new Ukrainian government in late 2014? Initially there was not much change as earlier corruption and irregularities within the solar power sector had drained the entire renewable energy sector of funds. Some key issues have recently been addressed by the Ukrainian parliament, which on 4 June adopted a draft law introducing changes to legislation governing competitive conditions for the production of electricity and alternative energy sources. President Poroshenko has put his signature to this law and it came into effect on July 16. What more would you like to see the Ukrainian authorities do to facilitate the growth of the alternative energy sector? Working in the Ukrainian alternative energy sector is a complex process but it is possible to achieve results if you are persistent and have a good network of colleagues and contacts. One of the problems we face is the regularity with which officials are replaced, delaying many decisions and permits. Additionally, practices and processes in the alternative energy sector are not yet stable or well defined, so things can often take a very long time and test your patience. There are also significant obstacles in terms of financing projects – both in terms of

July - August 2015

availability and costs. To mitigate these problems, Ukraine must fundamentally address its attractiveness for investments, both national and international.

sweden in ukraine

Swedes pioneering wind power in southern Ukraine

How big a percentage of Ukraine’s energy needs do you think wind power can realistically meet? It is important to look at two main aspects of this issue – technical and financial. Some renewable sources such as wind and photovoltaic energy are dependent on weather conditions and are not always available. This has far-reaching technical implications that need to be taken into account and managed. Other types of renewable energy such as biomass and biogas can be used as more conventional sources of energy because you can better control their output and balance the grid. The main principle is that production of electrical energy must at all times match consumption. In addition to these issues, it is also important to note that Ukrainian power grids are not currently in top condition. Huge investments will be required in order to rectify the situation. Alternative energy industry professionals generally believe that due to technical limitations, at present Ukraine cannot produce more than 2 GW of wind and solar energy combined. This would be equal to approximately 3.5% of Ukraine’s annual electricity consumption. In addition to this production, biomass, biogas and small hydro production will be able to contribute further to the overall alternative energy totals, depending on circumstances. Earlier estimates that renewables will be able to contribute 20% of Ukraine’s domestic energy requirements now look overly optimistic. In my opinion, this will take many decades to achieve, if at all. How have local communities responded to the innovation of wind power and the presence of giant wind farms? Attitudes have generally ranged from neutral to positive. Individuals and families living close to our wind farms have expressed their excitement that something like this is happening in their neighbourhood, while overall there is a tangible sense of relief that someone in Ukraine is taking steps to reduce dependence on imported Russian gas, which drains the country’s currency reserves as well as serving as a political weapon. Parts of your wind farm facility are located meters away from the de facto border with Russian-occupied Crimea. Has the deteriorating security situation of the past eighteen months had any impact on your operations? No, we have not felt any impact. The Ukrainian forces are doing an excellent job and we have not been disturbed. We are very grateful to them for this and for their general presence protecting the country and the population. Will full implementation of the EU-Ukraine Association Agreement offer any impetus to the Ukrainian alternative energy sector? Yes, I believe so. The main impact of the EU-Ukraine Association Agreement will be to bring international perspectives to the market, which will increase transparency within the renewable energy sector. I hope this process will attract new players to Ukraine who have access to finance, while encouraging existing market participants to follow the rules as in most European countries and other civil societies. 13

3G revolution could transform Ukrainian society Ericsson’s Wojciech Bajda says mobile progress will change the way Ukrainians do business What does the launch of 3G services in Ukraine mean for companies? The situation in Ukraine is likely to develop in line with global trends. According to Ericsson estimates, smartphones currently account for 25% to 30% of all mobile subscriptions, and by 2020 that number is expected to triple. By 2020, mobile traffic will also grow ten-fold. These trends are a major impetus for operators globally to concentrate on enhancing network capacity and quality. Ukrainians have already experienced the advantages of new technologies, and similar to other global end-users, they seek higher speed and quality of connection. Implementing new technologies and mobile broadband will stimulate the country’s social and economic development. The introduction of 3G in Ukraine will promote competition and the growth of quality services, benefitting both users and companies. For example, we will see a burst in the development and use of mobile apps. Access to a 3G connection will enable IT developers to create new mobile applications that are popular and easily accessible, that also allow subscribers to enjoy a great app experience without limitations. As a result, companies across industries will take advantage of a wide range of new, easily accessible mobile applications. Based on your global experience, what will be the impact of 3G services on Ukrainian consumer habits? There are currently 12 million smartphone users in Ukraine, and this number continues to grow. Consumer behavior in Ukraine is similar to European expectations – users want the ability to be online always and everywhere, as they believe that technologies help them to be more successful in their life and work. Due to the growth in smart devices, primarily smartphones, the penetration and share of mobile and OTT services is growing. Combined with the introduction of 3G, we will see an upswing in the active use of mobile broadband and a lesser dependency on Wi-Fi so that endusers can be online essentially anywhere – in the park, on transport, or on the road. 3G access will simplify life and allow for watching streamed video during lunchtime in the park, receiving a video call from a loved one while commuting or having an online video conference just about anywhere. There are many benefits of wider accessibility associated with mobile internet of the third generation.

may cut up to 20% of its network maintenance expenses by outsourcing these services. A second major trend is demand for greater personalized services. Individual service packages can be tailored to cover all market segments. These offerings allow Ukrainian operators to build greater loyalty with subscribers by providing them with the ability to better control their expenses on mobile connections. For example, an operator may define premium users and provide them with the best possible user experience even in high network load conditions. The third trend is the advanced level of technological literacy among Ukrainians, which is increasing year by year. Ukrainians have become quite accustomed to the use of a wide range of services, and there is a growing usage of smartphones. Like their European counterparts, Ukrainians also want to be ahead of the curve in terms of new technologies. How does the Ukrainian telecommunications market compare with similar emerging markets in Eastern Europe and the former Soviet Union? From the standpoint of doing business, the Ukrainian market is much closer to Europe. Most of our clients or potential partners here are global corporations that share European values – cooperation, mutual respect and courtesy, and the ability to be a good role model. This leads to the smooth running of businesses and reduces the occurrence of misunderstandings. In Ukraine, we are not only working on projects for local clients, but also for the markets of Georgia, Armenia and other countries. Ukrainians have proven to be quite flexible and very ambitious. For instance, when we had a need to find Western experts for our projects in Armenia, we experienced challenges identifying candidates willing to relocate and start something new. However, our Ukrainian engineers were less apprehensive and were ready to take up complicated tasks at short notice. This is one of the reasons why our Ukrainian team has become something of a quasi-hub for the entire Eurasia region. Meanwhile, our engineers work on plenty of projects all over the world and are ready to enter unknown areas.

What are the key trends you have witnessed on the Ukrainian telecommunications market over the past ten years? If we talk about the telecom market in Ukraine, there are three major tendencies. Firstly, in a relatively short period we will start to see operators gradually switching to the managed services model for its economic and technical benefits. This path provides a great opportunity to reduce

Which sectors of the Ukrainian telecommunications industry offer the most exciting growth opportunities? Mobile broadband has become an integral part and the basis for innovations in almost any industry. Today, in such countries as Japan, Korea and the US, data traffic forms about 50% of operator revenues or sometimes even more. Global experience shows that traffic volume increases by 3 to 10 times after the commercial launch of a 3G network in any given country. This happens because of both an increase in the subscriber base, and an increase in the traffic growth per subscriber. Moreover, 4G network implementation similarly spurs development by increasing traffic volume per

operational expenses that opens the door for increased investments in innovation. These factors are clear drivers behind the use of managed services becoming the key trend for telecom market development in recent years. According to global statistics, an operator

subscriber by five times. To summarize, mobile broadband can become the driver of technological progress in the Ukrainian economy, and act as a core that will stimulate innovations and advancements across industry and throughout society in the country.

About the interviewee: Wojciech Bajda is Vice President and Head of Customer Unit Ukraine & Eurasia at Ericsson in Northern Europe & Central Asia 14

www.bunews.com.ua

Ukrainian sauce with a Swedish flavor The Chumak story: how two young Swedes created one of Ukraine’s best-known brand names If you live in Ukraine, the chances are you have some Chumak products in your kitchen. The company’s ketchups, sauces, fruit juices, pastas and sunflower oils are ubiquitous items in supermarkets and convenience stores across the country, enjoying a level of brand recognition among Ukrainian consumers similar to many top international corporations. Named after the iconic Ukrainian salt traders (‘chumaks’) of the early modern period, this quintessentially Ukrainian brand was actually founded by two enterprising young Swedes who came to Ukraine in the early years of independence with big ambitions and a readiness to take risks in what was at the time an almost totally undeveloped market. Their gamble paid off, paving the way for what was to become one of the country’s biggest culinary success stories and an ongoing advert for adventurous international investment in Ukraine.

Swedish startup attracts international attention Swedes Johan Boden and Carl Sturen were both in their 20s when they first arrived in Ukraine in the mid-1990s. After a number of initial forays into the embryonic post-Soviet Ukrainian agricultural sector, they eventually identified a suitable site for a production facility in the Kherson region town of Kakhovka. The two Swedish entrepreneurs were then able to secure financial backing from Swedish industrialist Hans Rausing of Tetra Pak fame. The Chumak brand premiered in 1996 and quickly gained a strong foothold among Ukrainian consumers, with early fans including the then-President of Ukraine, Leonid Kuchma. Over the intervening nineteen years, the company has consolidated its position as a major national brand with significant international market penetration throughout the former USSR and a growing presence in Europe. In 2008, Swedish investment company East Capital and Ukrainian investment bank Dragon Capital bought out Mr. Hausing’s stake in the company, becoming the major Chumak shareholders. Despite this rise from agricultural startup to international corporate entity, the company’s head office is still located in rural Kakhovka in southern Ukraine, which continues to serve as the nerve centre for the expanding Chumak commercial empire.

Expanding into European markets

Speaking to Business Ukraine at Chumak’s Kyiv office, the company’s Managing Director Konstantin Shevchenko explains how Chumak has remained close to the company’s roots, maintaining cooperation with local agricultural contractors in southern Ukraine, many of whom have been working as suppliers for fifteen years or longer.

Exports currently account for around 20% of Chumak’s total sales, with the bulk of these exports going to the former Soviet republics. Chumak has been among the many Ukrainian companies to suffer as a direct result of the trade barriers imposed over the past year by the Russian Federation on Ukrainian imports, but elsewhere in the ex-USSR the picture is rosier. Chumak remains a market leader in the Baltic States, and has significant market share in many of the Central Asian republics, while enjoying number one ketchup brand status in Belarus. Chumak also exports to North America and to a number of EU member states, with a growing presence in central European countries such as Hungary and Poland. Agricultural producers are widely tipped to be among the key beneficiaries of Ukraine’s EU Association Agreement, which is due to come into full effect in January 2016, but senior management at Chumak is not expecting to see any immediate impact on the company’s exports to the EU. “In the short-term, we are not over-optimistic that the Association Agreement will lead to any radical changes for Chumak’s position in EU markets. There will clearly be new opportunities resulting from this agreement, but our position

This long-term approach to building partnerships fits well with the Chumak slogan: ‘from field to table’. While sourcing core ingredients locally is a nod to more traditional agriculture, Chumak has also earned a reputation for its innovative approach to production. The company has enjoyed associations with innovation ever since its inception, even helping the Ukrainian authorities to draw up consumer standards for ketchup products in the 1990s when no such standards existed. Chumak was the first Ukrai-

as a producer of fast-moving consumer products is not as simple or straightforward as trading in commodities. We need to consider a wide range of factors such as meeting consumer expectations in terms of packaging, branding, positioning and marketing. Each individual EU market needs to be carefully analyzed and studied in its own right. We are currently working to become a bigger player in EU markets, but we expect that it will take years rather than months before we see significant progress,” concludes Mr. Shevchenko.

Yellow ketchup and innovative approaches

nian company to offer preservative-free sauces on the domestic market, and has been behind a series of culinary firsts for Ukraine, continuing to diversify its range of products as Ukrainian consumers became more sophisticated and new producers entered the market. The company recently launched Ukraine’s first yellow ketchup – a novelty that plays on local perceptions of yellow tomatoes as being particularly tasty and nutritious. This unconventionally coloured ketchup is very much in line with the Chumak tradition of surprising consumers with new culinary creations. “Our strategy is to provide unique and innovative products targeting specific consumer segments of the market. For example, a couple of years ago we were the first company to introduce kids’ ketchup to the Ukrainian market, in direct response to consumer research which showed that children like ketchup with their meals but many parents have health concerns about traditional ketchups. This helped us to gain market share while consolidating our reputation for innovation,” Mr. Shevchenko comments. The Chumak range of products continues to expand beyond the core sauce segment, and now includes a number of fruit juices and fruit smoothies designed to appeal to schoolchildren looking for a convenient and healthy snack. “From being primarily a food supplement producer, we are now moving towards being a ready-to-consume healthy food producer,” says Mr. Shevchenko.

www.bunews.com.ua

sweden in ukraine

July - August 2015

Swedish industrial technology in western Ukraine Lutsk-based SKF Ukraine exports to almost 50 countries and benefits from easy access to EU SKF has been operating a production facility in western Ukraine since 1998. What made the company choose Lutsk? SKF experts initially studied the majority of bearing production factories in the former USSR. Following this analysis, and together with related financial audits, the Lutsk plant was selected for acquisition. The bearing production plant in Lutsk (at the time named GPZ-28) was the last of its kind constructed in the former USSR and hence was better technically equipped and generally more up-to-date. Besides this advantage, the Lutsk plant is also located very close to EU markets (just 70km from the Polish border). Perhaps the most important factor was the quality of the existing management of the plant and the general professional skills of plant employees, which compared favourably to other available options. At present 95% of all the SKF products made in Ukraine are subsequently exported to international markets. Which countries represent the primary markets for the goods SKF produces in Ukraine, and how has this export market developed over the past 17 years? SKF Ukraine currently exports its products to almost 50 countries worldwide, with the majority of these exports going to Germany, Italy and Sweden. To provide a better understanding of the export situation, I would like to provide several figures. In 1998, sales volumes at the Lutsk plant amounted to USD 5.3 million annually, including USD 1 million in exports. In 2014, sales volumes amounted to USD 89.7 million, including USD 86.6 million in exports. Sales volumes over the period have increased 17 times as a direct result of this growing export business. Such growth would have been impossible without SKF. The Lutsk plant has not only benefitted from the right to use the SKF brand globally, but has also gained access to world markets through existing SKF sales channels. This growth is also the result of major investments by SKF that have made possible the modernization of equipment, introduction of new

technologies, and significant investment in the plant’s human resources. As a major industrial exporter from Ukraine, do you anticipate any changes to your business model as a result of the free trade component of the EU-Ukraine Association Agreement, which will be fully implemented starting in January 2016? Our products are not subject to export duties, so for SKF Ukraine the EU-Ukraine Association Agreement is primarily more important in a political and symbolic sense. Your corporate policy stresses environmentally sound activities and the reduction of CO2 emissions. What lessons can you share with other Ukrainian industrial producers in terms of contributing to a cleaner environment? Reducing CO2 emissions has long been a core corporate value for SKF Ukraine. In the 17 years that SKF Ukraine has been part of the SKF family, a wide range of initiatives have been introduced at the Lutsk plant to help reduce CO2 emissions. For instance, over the past five years the share of CO2 emissions in relation to value added by a product has been reduced by almost 42%. Thanks to an extensive investment program, over the past couple of years we have replaced 25 existing transformers at the Lutsk plant with modern and more environmentally friendly transformers of Italian origin. As a result of all these environmentally friendly innovations, SKF Ukraine has qualified for the energy management standard ISO 50001. Many international companies are closely following the reform process for signs that now is a good time to enter the Ukrainian market. What does your experience of doing business in Ukraine over the past year suggest about the

reform process and the commitments of the government to improve the investment climate? We have considerable experience of doing business in Ukraine and have faced all manner of challenges over the years. The biggest problem has always been, and unfortunately continues to be, the system of VAT reimbursement in Ukraine. Even after the introduction of the so-called automatic system of VAT reimbursement, in certain months there have been instances when our company has found itself removed from the final list of companies qualifying for automatic VAT reimbursement, despite this being contrary to the provisions of the applicable law. The other key challenges we have encountered relate to the frequent changes to Ukraine’s tax and customs legislation. These changes are often introduced without providing companies with the new legislation in advance for prior study and implementation preparations. Despite these obstacles, we always adhere to each new piece of legislation. However, it is important to note that there have been and still are occasions when the authorities are not following the legal requirements themselves. In general, Ukraine today offers all the core conditions for developing a successful business: the tax burden is in line with European levels, customs procedures are better organized, there is support for business from the local authorities, and the country’s infrastructure is increasingly well developed. Most importantly, Ukraine offers an abundance of well-educated and professional employees. I am convinced that there are considerable opportunities for potential investors who are prepared to be decisive and open up new businesses in Ukraine. What are your plans for the future development of SKF operations in Ukraine? There are numerous development perspectives we will be pursuing in Lutsk, including the enlargement of the plant’s product range, further replacement of technical equipment, modernization of production, and further training and development of our employees. SKF Ukraine prides itself on being a socially responsible company and we will continue to develop our social programmes. The biggest value for any company is its people!

About the interviewee: Vladimir Tsybulsky is the Managing Director of SKF Ukraine. He is a graduate of Lviv Polytechnic Institute and also studied at Harvard Business School. 18

www.bunews.com.ua

Connecting Ukraine to European Markets

YTL is a Swedish-based transport company connecting Ukraine to Scandinavia and European markets

Professional team with over 25 years of transport experience Small, flexible, client-oriented company Full truckloads, partial loads and oversized loads are no problem for us Branch office in Poland with cargo reloading facilities

YTL Poland

ul. Piasecka 20 21-040 Swidnik Tel/fax: +48-815-244694 Mob: +48-690-288474 info@ytl-polska.pl www.ytl-polska.pl

YTL Sweden

Ystad Transport & Logistics AB Box 36 271 21 Ystad Tel: +46 411-570990 Fax: +46 411-13100 info@ytl.se www.ytl.se

Energy efficiency and independence Government must work harder to attract international investment into Ukrainian energy sector Ukraineâ&#x20AC;&#x2122;s domestic energy production industry is one of the most strategically crucial sectors of the national economy. The country needs to attract major international players to participate in the production process in order to meet energy independence targets of Ukraine. Swedish oil and gas company Misen Energy AB (publ) is one of a number of international companies currently active in the Ukrainian energy sector, focusing on the introduction of new technologies designed to increase existing production volumes and tap into hard-to-reach energy reserves. Misen, which trades on Nasdaq Stockholm First North, entered the Ukrainian market in 2011, operating via a Joint Activity Agreement (JAA) between its subsidiary Misen Enterprises AB, its Ukrainian subsidiary LLC Karpatygaz, and Ukrainian state-owned company Ukrgasvydobuvannya. Misenâ&#x20AC;&#x2122;s officials define company strategic goal in Ukraine as development of the countryâ&#x20AC;&#x2122;s existing oil and gas fields at the final stage of development, with an emphasis on the significant increase of hydrocarbons production by implementing large-scale investment programmes. In practice, this means providing technologies and know-how to produce more from depleted, underperforming or uneconomical resources, while also improving obsolete infrastructure. The company currently employs over 200 people at a number of sites located across Ukraine, with a focus on Lviv, Kharkiv and Poltava regions. Business Ukraine magazine spoke to the Chairman of the Board of Directors of Misen Energy, Dr. Andrius Smaliukas, about the prospects for Ukrainian energy sector, and asked what needs to be done in order to achieve the longterm goal of complete energy independence.

with solid corporate management and the deployment of leading technologies. In 2010, we were presented with the opportunity to participate in a joint project together with stateowned company Ukrasvydobuvannya focusing on the recovery of inactive and low-yield fields.

As a result, the Swedish company returned to the Ukrainian energy market. To be honest, at the beginning of this project in 2011, very few people had much faith in its success. It was little more than a startup. According to the terms of the Joint Activity Agreement signed with Ukra-

What attracted Misen to enter the Ukrainian energy sector? The company already had some experience of operating in the Ukrainian oil and gas sector dating from the mid-2000s, when it participated in a relatively small-scale project in Ivano-Frankivsk region. Due to a number of technical reasons, this initial foray into the Ukrainian energy sector was not as successful as has initially been anticipated. Nevertheless, the experience demonstrated that the sector was potentially very promising if approached 20

www.bunews.com.ua

You are currently most active in Lviv, Poltava and Kharkiv Oblasts - why did you choose to focus on these three regions?

The main task of our project is to recover 110 low-yield, abandoned or inactive wells. Lviv, Kharkiv and Poltava regions are traditional gas-producing regions of Ukraine and home to the largest concentration of fields at their final stage of development. These are the regions most in need of technological and financial resources in order to increase levels of natural gas production. So far, we have worked over 67 wells, including recovery of 5 liquidated wells and sidetrack drilling in 5 wells;

drilled 4 new appraisal-development wells at Letnianske field (Lviv region) and constructed 11 hydrocarbons commercial metering units. Since 2011, the JA has produced 2.2 billion cubic meters (BCM) of natural gas, nearly 180 kton of liquid hydrocarbons (gas condensate, oil, LPG) and paid taxes totaling UAH 5.7 billion to all levels of the budget.

sweden in ukraine

gasvydobuvannya, the Swedish partner was to utilize Western technologies to recover several dozen wells. At that time, many of these wells where not merely abandoned, but had effectively been liquidated. So far, we have managed to bring more than 60 wells back to life and have achieved increased output.

Which areas of Ukraineâ&#x20AC;&#x2122;s energy production industry offer the most scope for im- :

Khrestyshche BCS (Kharkiv region) is expected to be commissioned in August, 2015. It features 4 TITAN 130 CS gas turbine units manufactured by Solar Turbines (USA). The BCS has a total capacity of 60 MW and is currently 95% complete

July - August 2015

Yulievska BCS (Kharkiv region) was commissioned in September, 2012. It features Centaur-40 compressors and Solar Turbines (USA) with a capacity of 7 MW. Incremental production since commissioning (as of 01.07.15) stands at: natural gas: 310,209 MMCM, gas condensate: 18,340.5 tonnes, LPG: 1,477.6 tonnes

Rozpashnivska BCS (Poltava region) was commissioned on 25 March 2014. It is equipped with Ariel compressor manufactured by Propak Systems LTD (Canada) and has a capacity of 1.08 MW

www.bunews.com.ua

Ukrainian trends are moving in a similar direction to those witnessed throughout the global oil and gas industry as a whole. Excluding the areas where we are not active, such as shale gas and offshore gas production, the most promising areas are recovery of low-debit or inactive wells, as well as deep drilling at depths of 5 thousand meters and more. Technologies are improving every year, providing new opportunities for production at fields that where viewed just a few years ago as unpromising. In this sense, Ukraine is in line with recent global experience. For example, in the US increases of up to 30% in annual oil and gas production have proved possible thanks to the recovery of inactive well stock. In Ukraine, the figure could be even higher. The same dynamic can be identified in terms of booster compressor stations (BCS) which facilitate production from reserves with low pressure. Out of 12 BCSs planned to be constructed (aggregated capacity 103,5 MW) our company has already commissioned three BCSs and in the near future we plan to commission the largest BSC in Ukraine, the Khrestyshche BCS, which will ensure compression of 4 BCM of gas (near 20% of all domestic production in Ukraine). This project is a source of great corporate pride. At these BCSs we used equipment and technologies from the US, Canada, Argentina and Europe, including equipment from the Solar Turbines wing of global giant Caterpillar Group. Based on your experience of the Ukrainian energy sector, how much more energy could be produced domestically via greater efficiency and without exploiting untapped resources? Historically speaking, Ukraine achieved peak domestic gas production of 70 BCM at the beginning of the 1970s. Although it is widely seen as impossible to return to this level, expert analysis has shown that if transparent conditions are established for greater foreign investment in the Ukrainian gas sector, production levels could reach 30 BCM by 2025. If combined with greater implementation of energy efficiency technologies and a decrease in domestic gas consumption, this could be sufficient to guarantee gas energy independence for the country. However, for this to happen, the sector must become attractive to investors. The current rules and legal environment are not fully facilitating this.

Greater energy independence is one of Ukraine’s key long-term objectives, yet many foreign investors involved in the energy sector have complained that the government has not done enough to encourage international investment in the sector. How would you characterize your interaction with Ukrainian state bodies and government officials? This is a very sensitive subject. When we started this project in Ukraine the only available legal option for cooperation with Ukrgasvydobuvanny was a Joint Activity Agreement (JAA), which is a very specific Ukrainian instrument. After the new government came to power, besides raising subsoil charges to an unthinkable 55% for private gas producers, a discriminative tax approach also targeted JAAs, which effectively deprived our business of its economic logic. While there is an awareness of the absurdity of this situation within the new generation of middlerank state officials and among a significant portion of MPs, at the very top of government there appears to be an impenetrable wall. We appreciate that senior state officials are responsible for directing as much revenue as possible to the state budget. However, it seems that this is being done via the practical destruction of an entire industry. As a result, global energy industry giants like Chevron are leaving Ukraine. These actions by the Ukrainian government could be regarded as a breach of the Ukrainian–Swedish Bilateral Investment Treaty and Energy Charter Treaty. Nevertheless, I still believe that the Ukrainian government will remedy the situation, especially taking into account the contribution Misen makes towards the goal of Ukrainian gas independence. What steps could the Ukrainian government take to make the country’s energy market more attractive to international investors? The extremely high rates of subsoil charges introduced by the Ukrainian government would only be reasonable if Ukraine was exporting oil and gas like Norway. As Ukraine is currently a net importer of gas, it should reduce these rates as much as possible, at least to the level of Poland or Romania, in order to attract foreign investors. In the present situation, when there is high demand for foreign investors, we are unable to see the logic behind the actions of Ukrainian government, which, despite all the current geopolitical issues it faces, has managed

to create yet another barrier for potential international investors. How has the heightened instability over the past eighteen months of revolution and armed conflict impacted on your business? Inevitably, recent events in Ukraine have affected us in both indirect and direct ways. For example, one of our BCS is located in territory not currently controlled by the Ukrainian government. We have also encountered difficulties engaging with Western financial markets, as many Western financial experts currently regard Ukraine as high risk. The fact that much of Ukraine’s industrial potential is located in the conflict zone is also a crucial factor. Nevertheless, the most important challenge remains the discriminatory actions of the Ukrainian government, particularly in terms of the 70% subsoil charge.

sweden in ukraine

: proved efficiency?

What are your plans for further Misen involvement in the Ukrainian energy sector? Misen has already invested over UAH 3.5 billion into Ukraine’s oil and gas sector. We are now focused on continuing our work while seeking resolution to the problems currently facing the industry. I would like to stress that we continue to believe in this country, which just over one year ago has chosen the path of democracy and European values. In terms of our future plans, our priority is to complete all the projects foreseen in the JAA with Ukrgasvydobuvannya and to prove that increasing gas recovery in energy fields at the final stage of development is one of the keys to the stabilization and increase of domestic production of hydrocarbons in Ukraine. Unfortunately, execution of our programme is being jeopardized by unreasonably high subsoil charges. Nevertheless, we believe in the prudence and wisdom of Ukrainian state officials and are confident they will do everything in their power to remedy the situation in order to achieve the ultimate goal of Ukrainian energy efficiency and independence.

About the interviewee: Dr. Andrius Smaliukas is Chairman of the Board of Directors of Misen Energy. He has completed studies at a range of institutions including Vilnius University, London University, Cambridge University and Harvard Law School. He is a Dispute Resolution Partner at pan-Baltic law firm Ellex.

July - August 2015

Remembering Ukraine’s Euro 2012 Swedish invasion Up to 30,000 fans of the Swedish national team made Kyiv home during European Championship When Ukraine co-hosted UEFA’s Euro 2012 championship, the luck of the draw meant that Sweden were scheduled to play all three group stage games in Kyiv. Rather than travelling from city to city like most fans, this meant that followers of the Swedish national team could settle down and enjoy an extended break in the Kyiv sunshine. What followed was a two-week love affair between the residents of the Ukrainian capital and an army of good-natured Swedish fans that eventually swelled to over 30,000 in number. Sweden failed to sparkle on the pitch and did not progress into the knockout stages of the competition, but the team’s yellow-andblue clad fans were the undisputed stars of the championship, winning friends with their jovial antics and general willingness to engage with the Ukrainian public. Business Ukraine magazine tracked down some of the Swedes who helped organize this memorable Kyiv residency and asked them to share their recollections.

Sweden’s biggest ever football fan camp Gothenberg restaurant manager Lindha Jansson was one of the organisers of the vast ‘Camp Sweden’ settlement erected on Kyiv’s Truhaniv Island to house thousands of visiting Swedish fans during Euro 2012. At its height, the camp was home to over 7,500 Swedish supporters, making it one of the focal points of festivities during the early stages of the tournament. As well as providing accommodation, the camp also offered a daily programme of entertainment including live music performances and sports events, all washed down with lashings of cold beer. Ms. Jansson recalls that on the eve of the big kick-off there were fears that the camp would not be able to cope with the huge influx of Swedes, but says that everything eventually went according to plan. “Three days before the fans were due to start arriving, nothing was ready in terms of water, electricity or other basic amenities. We were concerned at the time that the Ukrainian authorities didn’t seem to appreciate quite how many fans would be coming. But in the end it was a great camp and our biggest ever,” she reflects. Ms. Jansson is still full of praise for her Ukrai24

nian Euro 2012 hosts, commenting that she and her fellow Swedish camp organisers encountered levels of everyday helpfulness and kindness that are by no means the norm when it comes to interactions between locals and travelling football fans. Unsurprisingly, she singles out Truhanov Island itself as her favourite spot in the Ukrainian capital, calling it “a wonderful green area and a fantastic place to build a camp.” The Swedes did not only take over Kyiv’s main mid-river island – they also dominated the Euro 2012 fanzone itself on Khreschatyk, which boasted its very own Swedish bar area. This Swedish enclave quickly became the first port of call for visiting fans of all nationalities. Euro 2012 was generally one of the friendliest football championships in living memory, and this spirit of camaraderie was nowhere more pronounced than in the Swedish section of the fanzone. Every day English, French, Dutch and German fans rubbed shoulders with the Swedish contingent and their Ukrainian hosts. Amazingly, there was almost no friction whatsoever, de-

provincial Swedish town of Falun, they came to Kyiv with few expectations but say that they still have very fond memories of their Ukrainian summer holiday. “Unfortunately we didn’t have much luck on the pitch at the Olympic Stadium, but we took some unforgettable memories back to Scandinavia with us. The beautiful women of Kyiv, the kindness of locals, the city’s beaches and its cultural sites all helped take our minds off the team’s defeats,” they told Business Ukraine magazine via email. Euro 2012 was supposed to put Ukraine on the map and create a positive image for the country among international audiences. Unfortunately, this positive legacy has been completely overshadowed by the past eighteen months of revolution and war, making the tournament seem like a distant memory for Ukrainians and international observers alike. Nevertheless, for thousands of Swedes it remains a fond memory and an unforgettable experience. The Swedish invasion of 2012 made such an impression on Kyiv that the Ukrainian capital now

spite industrial-scale alcohol consumption.

boasts a monument in honour of the visiting Swedish fans. Meanwhile, in Sweden today, thousands of those who made the trip continue to serve as unofficial ambassadors for Ukraine. Each one is able to confirm that there is a lot more to the country than the current headlines about conflict and political upheavals might suggest.

Friendly city, beautiful women, great beaches The four Backstrom brothers (Jonas, Markus, Staffan and Lars) made Euro 2012 a family affair, travelling to Ukraine together for a ten-day adventure. Hailing from the

www.bunews.com.ua

Scandinavians closely connected to creation of medieval state centred on today’s Ukrainian capital

According to most official histories, the great medieval state of Kyiv Rus was founded by a group of Viking trader-adventurers who were invited to bring law and order to the potentially prosperous but disordered and chaotic lands of far eastern Europe. These Viking state-builders are believed to have originally come from Sweden, which would make the Swedes the first expat managers in Ukrainian history and a very early precursor of today’s EU assistance programmes and foreign-born ministerial appointments. The alleged connections between medieval Ukraine and Viking Sweden certainly make for an intriguing tale, but how much of it is true? Business Ukraine magazine sat down with Ukrainian historian and archeologist Fedir Androshchuk to discuss the Kyiv Rus-Swedish connection. Mr. Androshchuk, who is a research fellow at Stockholm’s Museum of Swedish History, has spent much of his adult life investigating the ties between Scandinavia and the early medieval Kyiv Rus state. He explains that our knowledge of the origins of the Kyiv Rus state is heavily dependent on a very small number of surviving documents – none of which are contemporary in nature.

Inviting the Vikings

Archeology offers evidence of close ties

Conventional understanding of the foundation of the Kyiv Rus state comes almost exclusively from the ‘Tale of Bygone Years’, which is an ancient chronicle composed in Kyiv in the early twelfth century – nearly 300 years after the events which are traditionally depicted as the starting point of Kyiv Rus history. The ‘Tale of Bygone Years’ is the sole source of the legend that the state’s Viking founders were ‘invited’ to establish a government in the region. This invitation allegedly came from the tribes living in what today make up parts of Belarus and European Russia. The chronicle claims that these rival tribes had grown tired of their endless infighting and decided to seek outside help, addressing the Vikings thus, “our land is great and rich, but there is no order in it. Come to rule and reign over us.” These claims sound suspiciously like the work of apologist historians seeking to retrospectively justify the aggressive expansion of the Vikings into eastern Europe. There are very few historic examples of groups voluntarily ceding their sovereignty in the manner, and many believe the claims of an invitation being issued are convenient way of explaining the growing influence of the Vikings. This ‘invitation’ narrative was first brought to the attention of conventional historians during the eighteenth century, when a number of German and Scandinavian academics began trying to translate and decipher the few surviving documents relating to the ancient Rus state. Mr. Androshchuk says that the ‘invitation’ interpretation has always been opposed by sections of Russian academia, who have long regarded claims about the Scandinavian origins of Kyiv Rus as demeaning and

While arguments continue to rage over the exact role of the Vikings in the creation of the Kyiv Rus state, the available historical and archeological evidence amply demonstrates the existence of deep ties between Kyiv Rus and Scandinavia. Mr. Androshchuk points to the discovery in the twentieth century of Viking artifacts at Kyiv Rus era burial sites throughout modern-day Ukraine, and says that in Sweden there have been similar finds that suggest close ties of kinship and trade. He explains that there is now an emerging consensus among European historians that Kyiv Rus actually came into being as a coherent state far later than previously thought, and probably dates from the time of Volodymyr the Great in the final decades of the tenth century. Nevertheless, he confirms that evidence abounds of a strong Scandinavian presence in the region stretching back at least a further 100 years. “We know that the Vikings were here from some time in the ninth century and were engaged in trade and military functions. Arabic chroniclers have provided numerous accounts of their presence,” he offers, pointing out that the term ‘Rus’ may itself derive from the Old Norse word meaning ‘the men who row’. One Frankish chronicle from the same ninth century period goes even further, referring to a ‘Rus’ presence in the region which is specifically said to have come from modern-day Sweden. Meanwhile, in Sweden itself, discoveries of Kyiv Rus jewelry and household items point to the extent to which the Swedish warriors and traders of the time where connected to the lands of modern-day Ukraine. Mr. Androshchuk highlights the example of the royal Viking city of Sigtuna, where Kyiv Rus necklaces and ceramics have been uncovered. Sigtuna was also the childhood home of the Swedish princess Ingegerd Olofsdotter, who would become the wife of celebrated Kyiv Rus ruler Yaroslav the Wise.

belittling to Russian imperial pride. It did not help that when the claims first surfaced in the mid-1700s, Imperial Russia was still wary of Swedish ambitions in the region and sensitive to Scandinavian pretentions due to the relatively recent Great Northern War, which had culminated in the Swedish defeat at the 1709 Battle of Poltava in modern-day Ukraine. “These contemporary geopolitical considerations helped to politicize the issue, and the debate continues to this day,” explains Mr. Androshchuk.

The exact role of the Swedish Vikings in the creation of the Kyiv Rus state remains the subject of a debate that will probably never be satisfactorily resolved. With Ukraine, Russia and Belarus all laying claim to the legacy of the Kyiv Rus civilization, long-standing claims that European outsiders were the principle state-builders during this formative period have gained renewed political potency. Nevertheless, there is no doubting the fact that the ties binding Sweden and Ukraine are profound and stretch back for over a thousand years.

July - August 2015

sweden in ukraine

Did Swedish Vikings really found Kyiv Rus?

8 Years of Ukrainian History n Politics: Anyone looking to take the pulse of Ukrainian democracy needs to look beyond the bright lights of the capital n n Industry: Outdoor sector leading advertising market upswing n Interview: Walid Arfush on the need to shake up state TV n

n Politics: As President Yanukovych consolidates grip on power is Ukraine’s fledgling democracy strong enough to survive? n n Real Estate: New re-registration process eases developer concerns n Franchising success of Ukraine’s pop art pizza king n

Volume 4, Number 4 April 2010

Volume 4, Number 3 March 2010

www.bunews.com.ua

VICtorY

wanted:

green shoots

Russia’s regional resurgence receives a fresh boost on the eve of Victory Day celebrations as Ukraine’s new government agrees to 25-year Sevastopol lease extension in return for cheap gas supplies

With a new government in place in Kyiv and international markets finally showing signs of modest growth will spring 2010 bring with it evidence of a Ukrainian economic recovery?

CHAMBER

NEWS

CHAMBER The Chamber Newsletter is produced in association with:

NEWS

Ukraine’s monthly English-language current affairs magazine since 2007

September 2011 www.bunews.com.ua

November 2014 www.bunews.com.ua

SPECIAL ISSUE: LVIV IN FOCUS CONECTING TO THE EU MAINSTREAM CITY BRACES FOR EURO 2012 DEBUT LEMBERG CHIC: LVIV FASHION WEEK INTERNATIONAL AIRPORT ON ARRIVAL BRAIN OF UKRAINE: TRY OUR PUB QUIZ

LUre oF LeoPoLIs Mont wanted: eUro re ‘European’ in hailed as the most New parliament this EU integration optimism? entary Elections: justify 2014 Ukrainian Parliam- will the new intake of MPs the country’s history

Also inside: Monthly American Chamber of Commerce in Ukraine Newsletter

Also inside: Monthly American Chamber of Commerce in Ukraine Newsletter Chamber News is supported by:

Official newsletter of the American Chamber of Commerce in Ukraine July 2015

“This is it, Mr. Prime Minister. This is it”. – A compelling message from the Washington Business Forum Andy Hunder, President of the American Chamber of Commerce in Ukraine

It was, without doubt, the best presentation put on by a Ukrainian government in a quarter of a century. All speaking fluent English, articulate and showing well-honed presentation skills, Ukraine’s Cabinet Ministers did a marvellous job in presenting the country to the US business elite that convened at the US Chamber of Commerce building across the road from the White House on July 13 for the first ever U.S.-Ukraine Business Forum. The Hall of Flags was packed with leading business figures, many of whom make the call on where to invest billions of dollars. The Ukrainian government team, led by PM Arseniy Yatseniuk, had been preparing their presentations months before the event. A snazzy and upbeat 2 minute video promoting Ukraine as an attractive business destination was shown first thing at the Forum – the video, Ukraine open for U, became a YouTube hit with over a quarter of a million views in the first two days. The US Department of Commerce and US Chamber of Commerce had done an excellent job in attracting a high calibre crowd to listen and meet

July 2015

Ukraine’s leadership, the majority of whom were themselves former investment bankers and leading corporate CEOs only a few months ago, having given up lucrative careers in business to serve in Ukraine’s post-Maidan government. Prior to the Washington event, we at the American Chamber of Commerce in Ukraine ran a survey of our 600 members, the biggest investors in Ukraine, asking what they saw as the major obstacles of doing business in Ukraine. The number one barrier, cited by an overwhelming 97% of respondents, was corruption. The word corruption was mentioned 13 times by Vice-President Joe Biden in his closing speech at the Forum. “Investigate and prosecute corruption”; “Ukraine needs to confront the corruption”; “root out corruption”; “improve judicial accountability and fight corruption”, are just a few of the things that Vice-President Biden mentioned. But most powerful in the Vice-President’s 31 minute speech were three words, which he repeated twice: “This is it, Mr. Prime Minister. This is it”. This was the clearest call to action of the entire Forum. Biden went on: “The next couple years, the next couple months will go a long way to telling the tale. If you do what I believe you will, your country will owe you, Europe will owe you, and we will owe you. Because the cumulative impact of Ukraine economically secure and sound will have a profound impact.” Just minutes earlier he reiterated: “And as Ukrainians know in their bones, it’s not enough to talk about change; we have to deliver, you have to de-

liver change. …. Now, they’ve got to put people in jail. They’ve got to actually do it.” This was also the message coming from US investors looking at business opportunities in Ukraine: the top issue that must be fixed immediately is corruption. The evening reception that followed the Forum took place at the celebrated historic Washington DC hotel, the Willard InterContinental, renowned for being the venue where the term “lobbyist” was coined by President Ulysses S. Grant during his tenure in office. Grant, it is said, would frequent the famous Willard Hotel on Pennsylvania Avenue to seek reprieve from the demands of office. Despite his best efforts to keep his outings private, individuals standing in the hotel lobby would approach Grant and ask him for special favours. President Grant apparently referred to these people as lobbyists. The key issue on the minds of many guests that came to the Willard for the Ukrainian Business reception was whether we will see tangible and swift change in lobbying the government on a strong stance against corruption. The Willard Hotel has also inspired many great leaders throughout history. On August 28, 1963, the Reverend Martin Luther King finished his famous “I Have a Dream” speech while a guest at the Willard. We too have a dream and sincerely hope that corruption will, one day, be eradicated in Ukraine. This article was first published in Ukrainian by Ukrainska Pravda

April 2015

Ukrainian privatisation: challenges and opportunities State selloff should boost Ukrainian budget but legislative framework requires polish Since mid-May 2015, Ukraine has embarked a new wave of privatisation that is widely seen as the biggest and most ambitious in the country’s history. Many regard this privatisation programme as a way to balance Ukraine’s depleted state budget while attracting much-needed international investment into the country, but significant challenges remain if the process is to achieve its stated targets. The privatisation list includes a number of opportunities that are likely to spark considerable investor interest, including regional power distribution companies, thermal power generation facilities, a range of seaport operators, and Odesa Port Plant. While these potential acquisitions are all theoretically attractive, there are question marks over the mechanics of the privatisation process itself. Additionally, some of the properties and enterprises listed for privatisation still feature in legislation explicitly excluding them from privatisation, or may be subject to court proceedings initiated by Ukrainian financial and industrial groups.

Creating a practical framework The outline plan for the current wave of privatisation is clear enough. The State Property Fund is responsible for developing a privatisation plan covering the coming three years, which must then be enshrined in law. The aim is to ensure a consistent, competitive, and transparent privatisation process in line with international norms. In the near future, the Ukrainian parliament, together with the Cabinet of Ministers, will be responsible for bringing the existing legal framework into line with the objectives set out on the ‘Ukraine-2020 Sustainable Development Strategy’ and the coalition agreement. There are a series of relevant Ukrainian laws requiring revision. Meanwhile, much work remains in order to remove existing legislative contradictions. Potential participants expect the new privatisation laws to establish parity between the state and investors in terms of their rights and obligations. The resulting privatisation process envisages a state programme designed to ensure effective cooperation between investors and the state in each respective industry. Of crucial importance will be the tender process, with much attention currently being paid to guaranteeing that the coming wave of privatisations are carried out on a competitive basis which is both profitable and in line with the government’s broader policy goals. The objective here is twofold: to make sure that the state is able to secure the highest possible price for its assets, and to safeguard social stability.

Historic privatisation push This latest wave of privatisation is the largest, and latest, in a long line of similar processes to have taken place in Ukraine over the past two decades. In May 2015, the Cabinet of Ministers approved a list of 286 enterprises subject to privatisation, including 26 power facilities, 35 coal production facilities, more than 100 agricultural facilities, 43 transport facilities, 53 machine-building facilities, 8 chemical facilities, and a number

of assets in other industries. There are a number of technical reasons why this ambitious privatisation process will not be completed by the end of 2015. Instead, the selloff of state assets will continue throughout 2016 and 2017. Preliminary information provided by the State Property Fund of Ukraine and published in the media indicates that this year may see open tenders for shareholdings in Odesa Port Plant, Tsentrenergo, six regional power distribution companies, and six thermal generation plants, although it is important to note that this is subject to confirmation.

Preparing for privatisation One of the key preparatory issues the government now faces is the process of making sure the assets earmarked for privatisation are ready to go under the hammer. Asset administrators and operators must begin full-scale pre-privatisation preparations, which in many cases will involve the corporatisation of state-run enterprises. This process will need to be both thorough and transparent, as potential investors have every right to expect a detailed analysis of exactly what they are buying. Any asset appraisal must include a full inventory, and will need to confirm the ownership of any associated real estate and land connected with the assets. Documentation will require careful study in order to clarify the status of utility systems and networks, while in many cases special permits may need to be renewed or updated. In many cases, the issue of trade union support for privatisation will also need to be addressed. These measures will then form the basis for an independent audit and for further feasibility studies. This will allow the state to calculate the anticipated effects of privatization in terms of a range of industry and region-specific features including environmental, economic and social impact.

Learning from international experience As Ukraine embarks on its most ambitious privatisation programme to date, the country has plenty of international experience to lean on. Privatisation programmes are as varied and country-specific as national economies, with the best approach for Ukraine likely to be a ‘pick and mix’ attitude borrowing from the best practices in a range of developing and developed economies. With a range of seaport assets on the Ukrainian privatisation list, global experience of seaport privatisation is of particular interest. A number of maritime countries have approached this issue by stopping short of full privatisation and instead opting for long-term concessions ranging from 10 to 49 years. Italy has generally offered a more gradual road towards eventual privatisation, moving via initial phases of corporatisation and concession. Other countries including Sweden have chosen to set up state holdings to manage assets and oversee privatisation processes. The Ukrainian authorities have given every indication that they intend to make use of international best practice by engaging competent international experts to aid with the privatisation process and the management of state assets.

Checking for hidden risks As investors weigh up whether to participate in Ukraine’s privatisation process, there are a number of issues and risks they will need to address if they wish to avoid potentially unpleasant surprises further down the line. The most

About the author: Volodymyr Prushinskiy is Managing Partner at LEGAL COMPANY LEX-LIGA. He has more than 20 years’ experience in the Ukrainian legal industry. 32

www.bunews.com.ua

privatisation

important prerequisites for any would-be investor include a clear understanding of the existing legal framework, the terms and conditions of the tender process, and the value of the asset up for privatisation. Other key factors to study in detail include the rights and obligations of both the bidders and the authorities, as well as of third parties who may be entitled to appeal at any stage of the privatisation process. After conducting a thorough study of the privatisation assetâ&#x20AC;&#x2122;s overall structure and liabilities, it is essential to back this up with a detailed audit covering everything from ownership issues to permit documentation. Potential investors should also study reports from the relevant fiscal, regulatory and other state

July-August 2015

authorities. It is important to check for any possible outstanding court proceedings against privatisation targets - either in terms of its associated properties, or in terms of its rights - while also getting a good idea of any potential litigation that the asset could face in the future. This risk management checklist is far from exhaustive, but such caution is justified given the complex Ukrainian reality in which the current wave of privatisation is taking place. The privatisation programme offers great opportunities for the Ukrainian state and likewise for ambitious investors, but care is required to make sure that all participants get what they expect from the process. 33

Moratorium robs Ukraine of agricultural superpower status Ukraine well-placed to benefit from growing global food demand but must make it easier to invest The world population will grow from six billion to nine billion over the next 30 years. In addition to this growth, more and more people are moving up the living standard scales in places like India and China. As a result, they are demanding more nutritious and tastier food. This population growth, combined with improving living standards, will increase food demand by a factor of two during the coming 30-year period. In other words, in the next 30 years the world will need to produce twice as much food as it does today, while utilising the same finite amount of land and water. This, to put it mildly, is quite a challenge. For Ukraine, it is also a once in a lifetime opportunity.

Obstacles to agricultural investment Ukraine has 27% of the world’s black soil resources, but this abundance of agricultural wealth is currently underexploited. Agricultural experts have forecasted that with the right technology, current Ukrainian agricultural yields could be increased by four to six times. Furthermore, the cost of this potentially high productivity agricultural land is considerably less than the cost of land in other European countries. For example, in Poland one hectare costs EUR 8000, and in the Netherlands the price can be as high as EUR 50,000. Increased demand for food is likely to continue pushing land prices up worldwide. For example, in Poland prices rose by 20% from 2008 to 2010, and during the past year by as much as 30%. This is in anticipation of when the agricultural land market becomes open to foreign investors from 2016. By comparison, agricultural land prices in Ukraine have actually declined in recent years, and especially during the past 2 years. This decrease comes despite the fact that Ukraine has signed a far-reaching Free Trade Agreement with the European Union. With all these positive factors in Ukraine’s favour, why isn’t foreign direct investment flooding into the Ukrainian agricultural sector? The main current obstacle is the conflict with Russia in the east of the country, which is causing a myriad of political and economic problems. Even if this immediate issue is resolved, there is unlikely to be a stampede of investors rushing to the Ukrainian agriculture sector due to the long-standing moratorium on agricultural land sales. This measure has long served as a major obstacle to the development of the country’s agricultural industry. Even the IMF has stated that lifting the moratorium could be a factor determining whether Ukraine receives further funding. Nevertheless, it is still in place. Why?

Ukraine has approximately 33 million hectares of black soil agricultural land that, if valued conservatively at USD 1000

an overall total of USD 66 billion flowing into the Ukrainian economy over a period of 10 years or so. This investment would not only be a windfall in itself – it would also lead to increases in agricultural yields by a factor of at least 4 times, most of which would go to export at a time when agricultural commodities are rising in price due to increasing global demand. In theory at least, Ukraine should have a very bright future. Some economists even predict that Ukraine could be one of Europe’s bestperforming economies during the coming decade. All that is holding it back is a moratorium justified by populist patriotism and the alleged desire of vested interests among the political classes to protect ‘poor farmers’ and the sovereignty of Ukraine against the threat of foreign investors who are apparently intent on buying up all of the country’s sacred land. Such sentiments have an understandable appeal to certain sectors of Ukrainian society, but the present status quo is hardly a good example of social justice. The ‘poor farmers’ who are currently being protected from rapacious foreign capital are in many cases pensioners. They get ‘peanuts’ for their little three-hectare plots, while the country’s big agricultural holdings consolidate these little plots into what should be viable agricultural units. However, experience has repeatedly demonstrated that they do not process the technology or know-how to get the most out the land. Nor does the sovereignty issue stand up to close inspection. Does anyone really believe that foreign buyers will lift the land up and transport it out of Ukraine, as the Nazis tried to do during WWII? In reality, they will invest in the land, bringing the technology and expertise required to increase quality and yields. This would be beneficial for the whole country – not least for the current plot owners, who would receive significant sums to help finance a dignified retirement. The morato-

per hectare, produces a potential total revenue of USD 33 billion. In order to increase yields, buyers would be required to invest USD 1000 per hectare, giving

rium blocks this progress, and serves as the biggest single obstacle to Ukraine’s emergence as a 21st century agricultural superpower. Amid all the talk of reforming Ukraine, removing the moratorium is a measure that could quickly yield spectacular results.

33 billion dollar breadbasket

About the author: Terry Pickard (terry@pickard.com.ua) is the founder and principal of Pickard & Co. Ltd which has been consulting on Ukrainian real estate since 1992. This year the company launched its new division Pickard Agricultural Services, the only international real estate company offering brokerage services to the Ukrainian agricultural sector. 34

www.bunews.com.ua

Shedding light on bank ownership Ukrainian banking sector reform process promotes transparency and greater accountability The ongoing geopolitical and economic turmoil in Ukraine, which started back in 2013, has revealed the multiple drawbacks of Ukrainian banks and the vulnerability of the country’s banking system as a whole. This exposure has led to a major reform effort across the banking sector that remains ongoing, with one of the key focuses being efforts to increase the transparency of Ukrainian bank ownership.

Pocket banks The number of financial institutions holding a Ukrainian Banking License had grown to 180 by early 2014. In reference to their ownership by what were overall non-banking business groups, many of these banks were unofficially known as ‘pocket banks’. Patronized by their powerful owners, such banks engaged mostly in non-arm’s length transactions with their affiliated companies, often serving as huge conversion centers for their ultimate beneficiaries, while also allegedly misusing refinancing loans provided by the National Bank of Ukraine (the NBU). In early 2014, the NBU, following the recommendations of the IMF, announced its intention to pursue significant changes in the Ukrainian banking sector. The NBU’s subsequent steps resulted in the removal of an unprecedented number of insolvent banks from the market, and an increase in owner liabilities. In March 2015, the Ukrainian parliament adopted the NBU-backed law extending liability for violations of banking laws and NBU regulations. This law also introduced criminal liability for wilful misconduct. These legislative innovations primarily targeted owners with substantial interests in Ukrainian banks. Historically, the ultimate beneficiaries of many Ukrainian banks had previously avoided any liability by hiding themselves behind complex ownership structures involving the use of special purpose vehicles and fragmentation into dozens of smaller structures and entitles. Such fragmentation helped the ultimate beneficiaries to get around the mandatory NBU approvals required for acquiring a significant holding in a Ukrainian bank. As part of the regulatory package aimed at increasing the liability of Ukrainian bank owners, the NBU, by its resolution issued on 12 May 2015, introduced new rules governing the process of determining the individual ownership of banks. In line with the new regulations, each bank is required to set up a list of its affiliated entities to be approved by its management board. This list should be submitted to the NBU and updated on a monthly basis. The NBU, via authorized officers, can also rule on whether a legal entity or an individual is affiliated to the bank. In such cases the bank must be informed electronically. A person is deemed affiliated to the bank unless the bank can prove otherwise within 15 business days upon receipt of the relevant NBU notice.

of bank ownership structures, with obligations imposed on the bank and its shareholders to disclose the relevant details. To add weight to these measures, significant sanctions have also been introduced for failure to meet the transparency criteria. Banks with ownership structures lacking in transparency can be given time by the NBU to align their ownership with the applicable rules. In cases where the bank fails to meet the established transparency criteria, the NBU will then declare the bank’s ownership structure non-transparent and inform the bank accordingly. Under these new rules, a lack of ownership transparency can be determined if it is based on trust ownership, thereby preventing identification of all the owners of substantial interests in the bank. Banks are required to submit documents highlighting their ownership structure on an annual basis, as well as update the NBU on any significant changes.

Serious sanctions

Another significant step towards securing more information on bank beneficiaries was made by the NBU with

In line with the recent reforms, the NBU can now impose a range of sanctions on banks for their failure to disclose the ownership structure. These include officially declaring the bank troubled, rejecting the refinancing of the bank, or refusing to grant a general foreign exchange license to the bank. Any of these sanctions would be potentially painful for a Ukrainian bank, so there can be little doubt that the new regulations are a serious issue for all banks operating in the country. The figures related to Ukraine’s banking sector reform process speak far louder than words: the number of banks operating in Ukraine has decreased from 180 in early 2014 to 130 as of 1 June 2015. Those still operating in Ukraine have passed the transparency test, as confirmed by the recent public disclosure of bank ownership structures on the NBU website. As frequently reported by NBU officials, the recent steps taken by the market regulator have been widely hailed as a success. Thanks to these encouraging results, we can ex-

the introduction of criteria addressing the transparency

pect further regulatory initiatives to come.

Who owns Ukraine’s banks?

About the authors: Iryna Pokanay is an Asters Law Firm Partner who focuses on cross-border banking and finance transactions, project and trade finance, secured and syndicated lending, debt restructuring, capital markets transactions and M&A. Gabriel Aslanian is an Asters Law Firm Counsel who has vast experience in banking and finance transactions, project and trade finance, secured and syndicated lending, debt restructuring, capital markets transactions and M&A. 36

www.bunews.com.ua

Trading with the enemy Crimea is legally part of Ukraine but Ukrainian law struggles to determine terms of trade When it comes to trading with Russian-occupied Crimea, any attempt to ascertain the risks of continued commercial relations must necessarily begin with the phrase: ‘it depends’. Even if we put all political, historical and ideological disputes to one side, whenever a business decides to trade with a Crimean entity, it will find that it faces significant legal dilemmas. Russia may have secured de facto control over the Ukrainian peninsula, but the international community has largely refused to recognise this extension of Russian sovereignty. As a result, from a legal point of view and under international law, Crimea remains part of Ukraine. This makes it less straightforward to ascertain whether the supply of goods from mainland Ukraine to Crimea is a domestic or international transaction. The Ukrainian response to this question is that such trade is domestic with international elements.

Transit via Ukraine

Potential pitfalls abound

In the summer of 2014, Ukraine responded to the Russian occupation of Crimea by passing a law creating a temporary free trade zone covering the occupied peninsula. This law established a legal framework for continued trade but also left a number of issues unresolved. The supply of goods to Crimea was therefore made possible, with one key proviso – Crimea would no longer be recognised as falling within the customs jurisdiction of Ukraine, making any trade to and from Crimea subject to customs control at checkpoints separating mainland Ukraine from the peninsula. This temporary free trade zone law has helped companies engaged in trade relations with Crimea, as it in effect authorised the application of international trade rules, including currency sales and customs declarations, between what legally remain two Ukrainian regions – albeit with one of them under foreign military occupation. As a result, under the current temporary

The situation changes somewhat when it comes to the transit of goods between a third country and Ukraine. The temporary free trade zone law states that in cases involving third countries, goods must be delivered via a designated checkpoint at the administrative border between mainland Ukraine and Crimea. According to Ukrainian law, this remains the only legal way to import goods into Crimea. Goods delivered in this manner are subject to free trade zone regulations and not legally regarded as export goods. This creates potential issues for the supplier regarding the status of their goods within the free customs zone regime. The usual restrictions over the subsequent sale of goods imported into a free customs zone have been somewhat tweaked in Ukraine’s temporary law governing trade with occupied Crimea. As a rule, goods brought into such zones are not available or resale without the imposition of duties. These restrictions have not been fully applied to the temporary law introduced for trade with Crimea, with a number of goods excluded from the general prohibition on sales. In effect, Ukraine

Enforcing restrictions on the sale of goods in Crimea is obviously not currently feasible for the Ukrainian authorities. Instead, they may opt to impose alternative measures including the categorization of goods as ‘concealed imports’, leading to the levying of additional taxes and duties. Such moves would be of questionable legality, but remain possible. With a draft law on the termination of the Crimea free trade zone already registered at the Ukrainian parliament, the potential pitfalls of trading with the occupied peninsula look set to grow. Trading with Crimea remains an extremely risky undertaking. This risk is rooted in the uncertain legal status of the peninsula. It is also a direct result of the fact Ukraine has no clearly defined position on the economic status of Crimea. Additionally, current Ukrainian legal regulations governing economic activities in Crimea contain a wide range of hidden risks that might well materialise if changes in the broader legal framework take place.

free trade zone law, goods shipped to Crimea from mainland Ukraine are legally regarded as exports.

has created a ‘quasi-export’ regime for goods transited through the customs jurisdiction of Ukraine to Crimea from third countries.

While limited trade does continue, these risks serve as a significant deterrent.

Free trade with occupied peninsula

About the authors: Andriy Selyutin (Andriy.Selyutin@arzinger.ua) is Counsel at Arzinger Law Office and Head of South Ukrainian Branch in Odesa. He specializes in civil, economic, corporate and tax law. Oleg Milchenko (Oleg.Milchenko@arzinger.ua) is an Associate at Arzinger Law Office. Oleg specializes in maritime and contract law as well as in intellectual property. 38

www.bunews.com.ua

GOOD MEDICINE Your family and well-being demand the highest standard of care. Quality international doctors at a clinic you know and trust.

www.amcenters.com

Đ&#x161;yiv: (044) 490 7600 Lviv: (032) 253 7000 E. info@amcenters.com

Real Estate Property prices and hryvnia woes Does Ukraine’s currency devaluation make now right time to invest in Kyiv residential real estate?

Ever since Ukraine’s hryvnia plunged earlier this year it seems like a day doesn’t go by without someone asking if now is a good time to buy property in Kyiv. This is a result of both the unstable economic situation and of the non-transparent nature of the Ukrainian real estate sector. Unlike more developed real estate markets, Ukraine does not have a Multiple Listing Service that enables real estate agents to share property information with other agents who represent buyers, and for buyers’ representatives to obtain detailed information about a property from a shared database. While Ukraine has many large real estate portals, property information for existing homes is often fragmented, incomplete or inaccurate. As a result, potential buyers often look to locally-based real estate professionals for insider tips on real estate pricing to help them find the best deals in Kyiv. Since Ukraine’s political and economic crisis became a major story in the Western media, we also have been seeing an increased interest from property funds and individual foreign investors who are looking for deals.

July-August 2015

Currency crisis impact on real estate sector Since Russia’s annexation of Crimea, Ukraine’s national currency, the hryvnia (UAH), has undergone a series of devaluations. In early February 2015, the National Bank of Ukraine removed the peg for the country’s currency and the hryvnia immediately fell almost 30% in a couple of days. Later in February, the Ukrainian hryvnia reached an all-time low against the US dollar, down almost 50% since the beginning of the month and almost 75% since the beginning of 2014. In mid-July 2015, the hryvnia was trading at about 22-24 to the dollar (down about 60% since 2014). With the threat of a possible default hovering over the Ukrainian economy, further drops in the value of Ukraine’s currency cannot be ruled out. The February 2015 devaluation of the hryvnia set off a wave of rent renegotiations between tenants and landlords. Prior to this devaluation, many Kyiv residents were paying their apartment rent at rates linked to US dollars or euros. After the devaluation, many Kyiv landlords were forced to set their : 41

: rents in hryvnia with no link to the US dollar, leaving them with the devaluation risk. However, landlords with premium properties and/or apartments in the city center can still set their rents linked to the US dollar or euro, even though in many cases they must settle for lower rents. As noted above, real estate pricing information in Ukraine is highly fragmented and price information is asymmetrical. So even for experienced real estate professionals in Ukraine, determining ‘fair’ prices based on market standards can be the result of gut instinct and intuition rather than digesting analytical reports. That said, there a number of clear pricing trends in evidence on Kyiv’s residential real estate market. Rental prices in Kyiv’s center continue to drift downward as more expats leave Ukraine and as local landlords become more willing to negotiate on price. Rents for properties that were priced in 2014 at up to USD 3,000 have decreased approximately 50%, and in many cases without a link to US dollars. The elite and business class segments in Kyiv’s center of about USD 5,000 - 10,000 per month in 2014 have condensed to a range of USD 4,000 - 8,000 per month in 2015 (this represents an exchange rate adjusted decrease of about 20-25%, but still tied to the US dollar). Similar pricing trends have also been observed for elite properties outside the city center in such new residential complexes as Dragomyrova, Park Avenue, and Bulvar Fontanov.

Purchasing power and the hryvnia decline In July 2015, a 100 sqm apartment with a recent renovation in an old building in Kyiv’s center would be expected to sell for approximately USD 2,000/ sqm to USD 2,200/sqm; in 2014 that same apartment would get about USD 2,500/sqm to USD 3,000/sqm (a decrease of about 20%-25%). Today, a 100 sqm unrenovated apartment (‘shell and core’) in a new downtown business class complex sells for about USD 2,500 to USD 2,700; in 2014 that same apartment would get about USD 3,000/sqm to USD 3,200 sqm (down about 20%). In July 2015 a 100 sqm apartment with recent renovation in an old building located outside Kyiv’s center would sell for approximately USD 1,300/ sqm to USD 1,500; in 2014, that same apartment would have been priced at about USD 1,800/sqm to USD 2,000/sqm (down about 25%). Prices on unrenovated apartments in business class buildings outside the city center have dropped by around 10-20%. The influx of displaced people from the Donbas region has helped boost prices and demand in this segment, especially in new housing complexes outside Kyiv’s center for family-size apartments from 100 to 200 sqm in size.

Opportunities for investors Despite the absence of widespread fire sales, there are some motivated Ukrainian sellers. In our practice we have seen deals for USD 2,800/sqm for unrenovated properties in new elite buildings (this is at least 50% below the average price asked by many sellers). We have also seen deals in older buildings in Kyiv’s center with renovated apartments selling for USD 2,700/sqm (this is about 30% lower than prices quoted during the first quarter of 2014). There are also numerous examples of properties in good locations

in older buildings, but where the apartment requires a full renovation, selling for USD 1,500/sqm (this is about 30% lower than in the first quarter of 2014).

Risks remain In addition to the risk that Ukraine could default on its debt obligations, there is always the possibility that the Minsk II agreement could collapse and the conflict in the Donbas region could flare up once again. If you’re a real estate investor from a foreign country, then Ukraine probably looks pretty scary to you right now. This is especially true if you are getting your news exclusively from Western media outlets, which do not always do a good job of vetting stories for Russian propaganda. Ukraine is all over the news and much of the coverage is negative. However, there are several factors that should give investors reason to be cautiously optimistic when considering Ukraine. Firstly, it is important to note that together with other Western countries, EU member states have remained united and recently renewed economic sanctions against Russia, which increases the chances of a peaceful resolution to the conflict in east Ukraine. Secondly, many argue that today’s Ukraine has the most pro-reform government in place since it gained independence in 1991. Thirdly, Ukraine continues to make gradual progress towards implementing the Ukraine-European Union Association Agreement, which should pave the way for increased trade and investment. Other examples of good news include the first ever US-Ukraine Business Forum, which took place in July in Washington DC and which underscored the strong US commitment to supporting Ukraine’s efforts to reform its economy. Following the Forum, the US signed an Open Skies Agreement with Ukraine, which should promote increased trade and travel between the countries, while Canada and Ukraine concluded a free trade agreement.

Key points for foreign investors If you are a foreign investor who is considering investing in Kyiv’s residential real estate market and if you are new to this market, then there are a few local specifics that you should keep in mind. Many Ukrainians, use real estate as a form of savings instead of holding assets in bank accounts, financial markets, or investing in a small business. Property taxes for residential property have only recently been introduced in Ukraine. Many municipalities still have not implemented them, and taxes are relatively low by global standards. Most real estate transactions in Ukraine are ‘cash sales’. Mortgages are rarely available from local banks and interest rates can be quite high. Most new residential properties are typically sold as ‘shell and core’ construction and require a full renovation by the buyer. Additionally, taxes and bank requirements for non-residents should be taken into account by foreign buyers. However, as with many investments, it’s possible to structure an investment in Ukrainian real estate in a more tax-efficient way and to address banking requirements with the help of experienced real estate professionals. Can a savvy investor or buyer find deals in Kyiv’s residential real estate market today? The simple answer is ‘yes’. Have we reached the absolute bottom of the market? Probably not, but many signs indicate that we are getting close to the bottom.

About the author: Tim Louzonis (tim@aimrealtykiev.com) is a co-founder of AIM Realty Kiev, a real estate agency that specializes in real estate services for expats. Tim is a long-time expat with Ukrainian roots. He first came to Ukraine as an exchange student in 1993 and returned in 2008. 42

www.bunews.com.ua

Learning the lessons of faulty valuations Real estate sector professionals should look to past problems when seeking to set prices

When a property market declines, as has happened in Ukraine ever since the global crash of 2008, the mistakes of the past tend to come into fresh focus for owners and financiers alike, and as a result the ‘blame game’ can start in earnest. At present, the market is witnessing declining prices once again, and many are looking to the recent past for indications of what to expect next. So who and or what was to blame for the poor residential valuations carried out before the real estate market crash of 2008? As usual, there is no singular person or institution to carry the blame for properties being worth less than the financing associated with these individual properties. Borrowers and lenders alike were equally responsible for the calculation errors made at the commencement of the financing facility.

The dangers of outsourcing valuations Prior to the Ukrainian real estate market 2008 crash, most Ukrainian banks decided not to have their own in-house valuations conducted, so they had a team of approved external valuers carry out this task instead. Meanwhile, inside the banks there was usually an officer responsible for determining which valuation companies would be approved. When one checked the list of approved valuation companies with most banks, it was surprising to note that very few of these lists contained any international real estate companies that had RICS compliance and professional indemnity insurance. Most of the approved valuators were small local companies with none of the usual compliance requirements. In many cases, they were often fairly new to the Ukrainian property industry. Any international valuation companies that wanted to be included on a bank’s official valuators list would usually find that the process involved offering some form of ‘kickback’ to be paid to the selecting officer of the bank, something which most reputable companies would never be prepared to do as they would risk losing their fran-

chise and PII. As a result, internationally accredited companies rarely got this approval.

Pumped up property prices The local valuation companies had no franchise to protect or professional indemnity insurance to consider, and so in many cases could offer these kickbacks. This produced a situation where these valuation companies could therefore be a little more ‘flexible’ with their valuations. As their valuations were paid for by those seeking a loan facility, their client ‘loyalty’ was often for the loan seeker and not the bank. They could thus be more easily ‘persuaded’ to inflate the value of the property they were trying to buy. It was this ‘persuasion’ factor that was more valuable than the valuation fee, which would typically be UAH 400 to 800, and which made it good business to be accredited by the bank. Values determined in this manner were typically 20% higher than they might otherwise have been based purely on market factors, so the crediting bank would offer a loan of 70% worth of this value, which, compared to standard Western practice where 90% of the property value is common in property loans, appeared a fairly secure investment for the bank. Then came the crash, and property values dropped by as much as 50%.

Banks pay price for inflated real estate rates In line with this scenario, if the bank had loaned 70% on a USD 200,000 valuation, which is USD 140,000, then the real value of the property could actually be 20% less, or USD 160,000. If this real value then dropped by 50%, which is USD 80,000, and the lender could not pay back the loan, then the bank would have to repossess. The security for the loan at this stage would be worth USD 60,000 less than the loan itself, and the bank would find that it had a problem. Who was to blame for this situation? That usual demon greed. Euros were cheap at around 4%, while loans in Ukraine were available at around 12%, so for banks it seemed like easy money with apparently little risk. Unsurprisingly, ‘corners were cut’ and checks were few, while potential risks where ignored. Let’s hope that as the Ukrainian real estate market experiences its latest round of price fluctuations, the relevant lessons have been learned.

About the author: Igor Sirenko, MRICS (isirenko@pickard.com.ua) is the head of the valuation division of Pickard, which has been consulting on Ukrainian real estate since 1992. 44

www.bunews.com.ua

Tel. +38 (044) 359 06 61 www.aimrealtykiev.com Email: contact@aimrealtykiev.com Chat aimrealtykiev https://www.facebook.com/aimrealtykiev • AIM Realty Kiev serves Kiev’s luxury and upmarket segments and specializes in high-end residential real estate for foreign clients • AIM provides a full-cycle of real estate services to tenants and buyers and owners and sellers, including long-term rentals and tenant search, property purchases and sales, property management, leased office space, facility and asset management • AIM’s founders are foreign professionals, who have over 15 years of real estate experience in Ukraine and the expertise to help you

FOR RENT FOR RENT

FOR RENT

FEATURED PROPERTY FOR RENT

Stylish 4 BR apartment near Golden Gate ID 471 $7,000/month 240m2 m. Zoloti Vorota

Amazing 2 BR apartment on Pushkinska Street ID 474 $2,000/month 80 m2 m. Zoloti Vorota

FOR RENT

Modern two-storey 3BR house on Marshala Hrechka Street ID 513 $8,000/month 290m2 Shevchenko Raion

Bright 1 BR apartment on Honchara Street ID 519 $950/month 60 m2 m. Zoloti Vorota

Excellent two-storey 2BR apartment near Botanical Garden ID 496 $2,300/month 120 m2 m. Universytet

FOR SALE FOR SALE

FOR SALE

FEATURED PROPERTY FOR SALE

Stylish Townhouse in Kyiv suburb ID 291 $250,000 220 m2 $1,136/m2 Lisnyky

Incredible 3 BR apartment on Klovs’skyi Descent ID 434 $699,000 156 m2 $4,481/m2 m. Klovska

FOR SALE

1 BR apartment near St. Sofia Cathedral ID 450 $115,000 59 m2 $1,949/m2 m. Zoloti Vorota

Luxury 2 BR apartment in center of Kyiv ID 489 $449,000 129 m2 3,481 /m2 m. Universytet

Stylish 4 BR apartment for sale in Kyiv’s center ID 290 $960,000 258 m2 $3,721/m2 m. Khreshchatyk

Networking events

Mobile operator life:) launches Ukraineâ&#x20AC;&#x2122;s 3G revolution Early June saw a major breakthrough in the Ukrainian telecommunications sector with the launch of the first commercial 3G+ network in the country by mobile operator life:). The official launch ceremony was held at the Hilton Hotel in Kyiv and was attended by an array of dignitaries including Turkcell Board Chairman Ahmet Akca, Turkcell CEO Kaan Terzioglu, Turkish Ambassador to Ukraine Yonet C. Tezel, Ukrainian Presidential Administration Deputy Head Dmytro Shymkiv, Chairman of the National Commission for the Regulation of Communication and Information Oleksandr Zhyvotovskiy, and Ukrainian Minister for Economic Development and Trade Aivaras Abromavicius. Ukrainian astronaut Leonid Kadeniuk was also on hand to celebrate this out-of-this-world technological leap. 46

www.bunews.com.ua

networking events

July-August 2015

Business leaders meet Ukrainian President and PM Early summer 2015 saw the international business community hold a number of high-level meetings with government leaders to promote the reform process in Ukraine. Members of the American Chamber of Commerce in Ukraine met with Ukrainian President Petro Poroshenko under the auspices of the â&#x20AC;&#x2DC;President and Business: Frank Dialogueâ&#x20AC;&#x2122; forum, and also held a meeting with Ukrainian Prime Minister Arseniy Yatsenyuk and representatives of the Ukrainian government. These meetings provided CEOs with the chance to highlight the key challenges they face doing business in Ukraine.

www.bunews.com.ua

networking events

July-August 2015

www.bunews.com.ua

networking events

Fryday fun at Kyivâ&#x20AC;&#x2122;s City Beach Club With the summer season in full swing, the Kyiv branch of international networking franchise Fryday welcomed guests to a poolside networking evening at City Beach Club. The event proved so popular that it will be repeated on 14 August, when Fryday Afterwork will return to the beach-style complex in the centre of the Ukrainian capital. All are welcome!

July-August 2015

Embedded with the Ukrainian army American journalist reflects on week under near-constant fire in the trenches of east Ukraine

After more than a year fighting in east Ukraine, this summer the Ukrainian authorities finally initiated an embedding programme allowing foreign correspondents to spend time alongside Ukrainian troops on the frontline of the conflict. The programme aims to give global audiences an insight into the reality of the conflict by allowing journalists unhindered access to Ukrainian forward positions. Getting the Ukrainian military top brass to accept embedded foreign correspondents was no easy task, but the stakes for the country could hardly be higher. Ukraine is fighting for its continued existence as an independent state, and there is growing recognition among army chiefs that the battle against Russian propaganda is every bit as important as the military confrontation on the ground in east Ukraine.

can die eating dinner or taking a shower,” he reflects. Officially, the conflict in east Ukraine is no longer being fought at full throttle. The Minsk II peace plan signed in February introduced a nominal ceasefire throughout the conflict zone, but Mr. Peterson saw little evidence of any lull in the fighting in and around Pisky. He confirms that on the stretch of the frontline where he embedded, Ukrainian forces remain under near-constant attack from both shelling and snipers. “They’re entrenched in these fixed locations and getting hammered every day by heavy artillery and tanks, with drones flying overhead non-stop,” he says. “How long can they just sit there, weathering these attacks?’

US combat veteran embedded in east Ukraine

The quiet determination and mental toughness of the Ukrainian soldiers he encountered is a recurring theme in the American correspondent’s recollections of his time at the front. “I thought their mental strength was pretty remarkable. What’s most amazing is that many these guys are just a two- or three-hour car drive away from their wives and kids, from their friends and families. And yet most of them haven’t been home in five or six months. Instead, they’re living in this hell. Home is so close, but they might as well be on the moon. I don’t know how they have the mental strength to do it,” he comments. Mr. Peterson believes that the support the frontline troops receive from the Ukrainian volunteer movement is of huge psychological importance, serving to remind the soldiers that they are not alone and have not

One of the first reporters to embed with the Ukrainian troops was US army combat veteran turned war correspondent Nolan Peterson, who writes for The Daily Signal. With his hipster beard and Marine Corps physique, Mr. Peterson is a war reporter straight from Hollywood central casting, but there was nothing glamorous about this particular assignment. He readily admits that none of his experience while on active service in the US army prepared him for the intensity of the fighting in the Donetsk region village of Pisky, where he spent eight days embedded with Ukrainian forces. “In Iraq and Afghanistan you would gear up before heading out on a specific mission. In Pisky, death can come at any moment. You could get killed going to the bathroom. You

Volunteer aid provides vital psychological boost

‘The Ukrainians have realized the importance of letting the truth be told, warts and all. This is the best way to push back against Russian propaganda.’ 52

been forgotten by the Ukrainian public. He remains visibly amazed by the scenes he witnessed in Pisky of civilian volunteers driving right up to frontline positions in order to deliver the latest batch of aid, and argues that this continued backing from members of the public plays a key role in helping to maintain army morale. He was also struck by the hundreds of children’s drawings and messages of support that the Ukrainian troops use to decorate their shelters and forward positions. In the hyper-masculine world of frontline combat, the childish innocence of these pictures offered a startling contrast that made a deep impression on the American reporter. “They put those kids’ drawings up everywhere,” he recalls. “Nobody talks about it openly, but I think those pictures are exactly what sustains them mentally.”

Truth as the ultimate infowar weapon As an embedded journalist, for a brief period Mr. Peterson found himself sharing the day-to-day risks that the Ukrainian troops are living with. He carries a sniper’s bullet that he says came within inches of killing him, and claims to have experienced lifethreatening situations on every single one of the eight days that he spent at the front. Mr. Peterson’ background as a US army combat veteran worked in his favour when it came to winning the confidence of the Ukrainian troops he was shadowing, but he insists that he did not let the inevitable sense of camaraderie that developed between them spill over into his reporting. “Journalists are not soldiers and it is not my job to fight Ukraine’s war for them,” he states. Nevertheless, Mr. Peterson is acutely aware that the conflict in east Ukraine has a strong informational component. He argues that the key to winning this information war is honesty. “I have heard a lot of Ukrainian journalists saying that it is pointless trying to fight propaganda with propaganda. You can’t beat the Russians at their own game,” he reasons. In this sense, the American reporter sees the Ukrainian embedding programme as a step in the right direction. “What they’re doing with embedded jourwww.bunews.com.ua

media diary: september 2012 photo

nalists is actually an indication that the Ukrainians have realized the importance of letting the truth be told, warts and all. This is the best way to push back against Russian propaganda. Western audiences are very distrustful of one-sided or overly positive coverage on any issue. But when you show the naked truth, as I was given the opportunity to do in Pisky, people will treat it with more trust.”

Keeping international audiences engaged Bringing the realities of the east Ukrainian conflict home to international audiences is an increasingly difficult task given the notoriously short attention spans of modern viewers and the information overload of the 24-hour news cycle. Mr. Peterson says one of the biggest challenges he faces as a war correspondent is keeping the Ukraine story relevant to Western audiences. “I didn’t want to go on a ‘war safari’ and just take

July-August 2015

pictures of things blowing up,” he explains, “because American audiences are already inundated with those kinds of scenes from all over the world.” Instead, the Florida-born journalist says he attempts to place coverage of the fighting in east Ukraine within a broader geopolitical narrative. “You can’t report on Ukraine in a contextual vacuum,” he comments. “It is a far larger story and one that international audiences need to know about. A continental shift is taking place right now. This could be like the 1930s in Europe, and could build up into an open confrontation between a NATO member country and Russia.”

Kyiv calm and Donbas devastation Mr. Peterson does not rule out returning to the frontlines for a second spell embedded with the Ukrainian army. If he does choose to head back to the front, it will mean crossing the almost surreal boundary between

the devastated Donbas warzone and the rest of Ukraine. Speaking to Business Ukraine magazine in the comfort of a Kyiv cafe, Mr. Peterson cannot help but marvel at the relative lack of evidence in the Ukrainian capital that the nation is actually at war. This is totally at odds with his own combat memories of Iraq and Afghanistan, where the theoretical battleground encompassed the entire country. For him, this makes the realities of the ongoing conflict on Europe’s eastern fringes all the more shocking. “Out there in east Ukraine, there is a weird boundary between war and peace. That’s what makes it so different to Afghanistan and Iraq. It’s a frontal war, with a contact line between two armies. One of the consequences is that when you are not physically close to the fighting, you don’t necessarily feel the presence of war. This makes the psychological transition from war to peace particularly difficult, because it happens so quickly.” 53

Why the Ukrainian crisis is a global crisis Communications expert Nataliya Popovych says Ukraine must stress global aspect of Russia conflict Since early 2014 the Ukrainian Crisis Media Center (UCMC) has served as an essential stop-off for every major figure visiting Kyiv, and as a platform for Ukrainians to speak to global audiences. Founded in the immediate aftermath of the Euromaidan Revolution by a number of communications professionals who recognized the need to provide the international community with Ukrainian perspectives, the UCMC has played a key role in countering the Kremlin infowar against Ukraine. Business Ukraine magazine spoke to UCMC cofounder Nataliya Popovych about the evolving role of the UCMC in Ukraine’s global communications strategy, and the need to keep international audiences focused on the global implications of Ukraine’s struggle against hybrid Russian aggression. Many pundits claim that Ukraine is losing the information war to Russia. Do you agree? I believe the opposite is true - Russia is losing the information war while Ukraine is becoming stronger every day. Truth always wins. In the beginning of 2014, Ukraine did not have the institutional capacity to engage in this unwanted and unnecessary war. Since then, we have seen initiatives like UCMC and others developing and contributing to Ukraine’s growing communications capacity. The government’s work in the area of communications has also somewhat improved. If Russia was winning this war, there would be no sanctions against it, Crimea would be recognized as part of Russia, and the Novorossiya project would be a success. None of this has happened. Novorossiya has become a recognized failure and the Russian economy is suffering deep pain. Moreover, Russia’s deliberate weaponization of information has earned it many opponents throughout the civilized world. These countries are ramping up their own capabilities to defend against Russian propaganda. I believe we need to judge all communications efforts by their results and the results are in Ukraine’s favour. The Ukrainian Crisis Media Center hosts international correspondents on a daily basis. Have you registered any significant changes in attitudes towards Ukraine among correspondents over the past 18 months? We have witnessed major shifts in awareness among the international media regarding the situation in Ukraine. For example, when Crimea was annexed not everyone regarded it as major news. Awareness that Crimea was part of Ukraine was so low that many did not understand why Ukraine was so worried. However, as the international community became familiar with the Russian hybrid war tactics of covert military operations and fake news stories, numerous media outlets began launching their own investigations. Now we are seeing channels like BBC and CNN mirroring the work of Ukraine’s own StopFake.org and uncovering Russian media lies. The MH17 tragedy was a turning point. From my standpoint, this was the moment when the Russian media over-manipulated and lost the trust of international audiences.

The Ukrainian government is widely accused of failing to communicate effectively with domestic and international audiences. What can Ukrainian government bodies do to improve the way they communicate their messages to key audiences? I personally believe that along with the reform of the civil service, the reform of government communications is one of the most vital steps for Ukraine. Government agencies need to recognize that Ukrainian society has changed. It has matured. This requires a new level of openness, transparency, and professionalism, treating people with dignity and respect. Having recognized this fact, the government should change the way they interact with society as a whole, not only with the media. Civic activists and the media are actually the government’s best allies in their efforts to bring about the necessary changes to the Ukrainian economy, fight corruption, and implement reforms. Should Ukraine’s information policy priority be debunking Russian myths and fakes, or should the focus be on promoting Ukrainian narratives? I am an advocate of an asymmetrical response to the information war waged by the Russian Federation against Ukraine. I am a big believer in the much higher effectiveness of proactive strategic communications, rather than investing too much time and effort in reacting, debunking, and refuting Russian claims. We must confront major manipulations like the notorious ‘Crucified Boy’ story, but the majority of our time and resources needs to be dedicated to strengthening and promoting Ukrainian narratives. Is Ukraine in danger of slipping off the international news radar? There is a certain amount of information fatigue towards Ukraine in Western capitals and in the international media. It is clear that many European nations would have preferred not to know about the conflict in Ukraine and not suffer from sanctions. There is currently a danger that if Russia decides to switch from open warfare towards internal destabilization of Ukraine, it will become more difficult for Ukraine to remain in the international spotlight. It is vital for Ukraine to proactively communicate its position, and to stress that what we are confronted with is not a Ukrainian crisis but a threat to the world order. Until international order is restored, Ukraine needs to remain on the international radar. It is a matter of Ukraine’s national security that the world is informed, aware and ready to support us. Many believe that Ukraine’s conflict with Russia is primarily an information war. What can Ukraine’s experience teach the international community about this form of multi-media warfare? Analysis of the kind of hybrid warfare being waged by the Russian Federation against Ukraine and, in fact, against Western values as a whole, has already led many countries to review their own information space and to explore the extent to which they themselves are vulnerable to information attacks. Many nations are now looking to invest in making the next generations more vigilant and aware of the dangers posed by multi-media warfare. It is not a war of ideas - it is a war of principles. Countries that share the same values and principles as Ukraine will have to unite in order to win it.

About the interviewee: Nataliya Popovych is a Co-Founder of the Ukraine Crisis Media Center and President of PRP, one of the leading consultancies in the post-Soviet region. 54

www.bunews.com.ua

Olivier Vedrine hopes new chat show can help introduce ‘the real Ukraine’ to global audiences Over the past eighteen months, Ukraine has frequently found itself outgunned by Russia in the international information war raging over the country’s future geopolitical trajectory. This has been due in large part to a relative lack of English-language media platforms providing international audiences with information from a specifically Ukrainian perspective. However, the number of Ukrainian English-language TV projects continues to grow as Ukrainians recognize the importance of getting their message out to the wider world. The latest addition to this growing segment is UA Tea Time, a weekly TV chat show that airs via satellite to over 30 countries as part the Ukrainian national public broadcaster’s embryonic English-language service. The show, which began recording in July, is the brainchild of Ukrainian showman Sergey Velichanskiy and his French co-host Olivier Vedrine.

media photo diary: september 2012

Frenchman joins English-language Ukraine infowar

Inspired by Euromaidan Mr. Vedrine has been a Kyiv resident for the past three years and is an outspoken advocate of the country’s European choice. After having first come to Ukraine in order to establish a university, he then found himself gripped by the Euromaidan protest movement. He now combines his educational initiatives with a consulting role on EU integration at Ukrainian law firm Proxen, and activism in support of Ukraine’s efforts to assert its independence from the Kremlin. This admiration for Ukraine’s European aspirations was one of the driving factors behind Mr. Vedrine’s decision to enter the infowar arena. He explains that he was also motivated by an awareness that the country is still struggling to be heard by many in the international community. The Frenchman is no stranger to the inner workings of European institutions, serving as a member of the Academic Council at the Assembly of European Regions. He is well aware of the knowledge deficit regarding Ukraine that persists among many senior European powerbrokers, and seeks to use his new chat show role as a means of introducing international viewers to ‘the real Ukraine.’ “We want to show the public that there’s much more to Ukraine than the current conflict. It is important to promote the emerging generation of young Ukrainians who are embracing European values, and to demonstrate that Ukraine is in the process of transforming itself. It will be a long journey, but I want to promote the idea that Ukraine is on the road,” he says.

Ukraine is not Russia One of the key messages Mr. Vedrine identifies is a disarmingly simple one – Ukraine is not Russia. He argues that international audiences struggle to understand the current crisis in Ukraine because a large percentage continue to subscribe to the misconception that Ukraine was ‘always’ part of Russia and only recent began attempting to assert its independence. “Ukraine and Russia share the same historic roots but their pasts diverged a long time ago,” the Frenchman opines, pointing to the democratic traditions of the Ukrainian Cossacks before contrasting this with Russia’s long embrace of authoritarianism. Mr. Vedrine, who has relatives in both Russia and Ukraine, has spent considerable time in Russia and boasts of a deep affection for Russian culture. He says his Russian friends have branded him a Decembrist in response to his support for Ukraine’s Euromaidan Revolution, but he remains adamant that he is no Russophobe. “I am not anti-Russian – I am anti-Putin,” he says. “I would love to see Russia integrate into Europe, but it needs to do so on the basis of European values, not authoritarian values.”

July-August 2015

Kyiv as freedom focus Mr. Vedrine likes to compare today’s Kyiv to London during WWII, when the British metropolis became a haven for those fleeing occupied Europe and established itself as the de facto world capital of freedom. He says he is convinced that the Ukrainian capital is now well on its way to becoming the focal point of a free Russia, and looks forward to hosting what he terms as ‘free-thinking Russians’ on his new chat show. The Frenchman feels that the unique position Kyiv occupies in Russian culture makes it the ideal place to offer up intellectual alternatives to the ‘Russian World’ as championed by the Putin regime, and says that the city’s unrivalled seniority within Russian history means that it would be impossible to ignore. “Kyiv is the mother city of all Russian civilization - everything came from here,” he opines. “Kyiv is their past, and it can also be their future.”

European values in Ukraine The big challenge now will be finding an audience for his message. Ukrainian media platforms tend to lack the international reach of their Russian counterparts, while many Ukrainian media initiatives also struggle to engage wider audiences beyond those with a personal interest in Ukrainian issues. While acknowledging these challenges, he says his goal is to reach past the limited confines of traditional Ukraine-watching circles and introduce the country to new audiences. “We aim to become a platform for the new Ukraine and a place where the values being embraced by today’s Ukraine can be debated and defended. I remain convinced that European values hold the key to the future of Ukraine. These values are universal but they must be defended and cannot flourish without support.” 55

The five-star resort complex in Truskavets offering everything for health and holidays: 184 comfortable and spacious rooms, medical centre, restaurants and bars, banquet and conference halls, spa, and children’s play areas – all this and more at Mirotel Resort&Spa. In order to make sure your healthy holiday is even more effective, Mirotel Resort&Spa offers guests eco-foods. Most of the food served in our restaurants is grown using ecologically-friendly natural methods in the resort’s own farm and greenhouses. Mirotel Resort and Spa offers guests the services of Med-Palace, which is one of Ukraine’s largest medical and diagnostic centres. Med-Palace is a multi-function medical complex offering diagnostic centre, hydropathic clinic, and spa centre. Thanks to our highly qualified specialist staff and state-of-theart equipment, the Med-Palace diagnostic centre is able to provide around 350 different types of diagnosis (Ultrasound, endoscopy, X-ray) and laboratory research. The range of treatments and programmes available at Med-Palace is huge: diagnosis and treatment for internal organs, cardiovascular/ endocrine/muscular/skeletal system treatments, musculoskeletal system treatments, urology – including lithotripsy (non-contact stone removal). The Med-Palace hydropathic clinic offers a wide range of procedures involving physiotherapy, hydrotherapy, balneotherapy. The treatments offered by the hydropathic clinic enjoy excellence results thanks to the application of combined treatments employing aspects of hydrotherapy and

physiotherapy together with the parallel prescription of mineral waters. Mirotel Resort&Spa also offers a range of treatment programmes covering the following health issues: life without allergies, school for pregnant women, treatments for diabetes complications, ulcer treatments, rehabilitation of motor functions following surgery and trauma, ‘detox’ cleansing treatments, ‘swim together’ early learning school for children from 3 months of age, and much more. The Mirotel Resort&Spa Centre is a haven of beauty and relaxation. The Spa Centre boasts 3 swimming pools (25m, 12m, and 9m in length), 4 saunas and 4 jacuzzis. For younger guests, there is also a children’s swimming pool area with waterfall, water slides and other fun accessories. Guests at Mirotel Resort&Spa can also enjoy a fully equipped sports and fitness complex including: solarium, fita-bar, manicure and pedicure services, and hairdressing salon. The Mirotel Resort&Spa Centre offers a wide range of treatments for rejuvenation and recovery. The Spa Centre also offers the services of cosmetologists: plazma lifting, ozone therapy, mezzo therapy, bio revitalization, contour treatments, tread lifting, carbossi therapy, ‘live collagen’ and many more. The Spa Centre offers different programmes of cosmetic treatments and services to help reverse signs of aging and dehydration, improve physical appearance and skin condition, treat problem zones, and generally improve life quality and bring your organism into harmony. Mirotel Resort & Spa Kobzar Square 1, Truskavets, 82200 - Ukraine Tel: +380 (3247) 6 41 72 Cell: +380 (67) 97 641 70 Web: www.mirotel.ua

Fred Finn says international awareness of Ukraine is improving but negative stereotypes persist British businessman red inn has been officially recognized by the Guinness Book of Records as the world s most travelled individual, clocking up millions of air miles in a career as an international e ecutive. Of all the countries he has visited, few have left as big an impression on Mr. inn as Ukraine, which he first visited in . He is now married to a Ukrainian lady, and continues to base himself in the country when not in the UK or travelling around the world, living in the town of Komsomolsk in Poltava region. Over the years, Mr. inn has become something of an unofficial ambassador for Ukraine, promoting the country globally while also hosting international media in Ukraine itself. He has seen attitudes to Ukraine slowly change and evolve as awareness of the country gradually improves internationally. Mr. inn spoke to Business Ukraine magazine about the reactions to Ukraine that he typically

lifestylediary: september 2012 photo

Worldâ&#x20AC;&#x2122;s most travelled man calls Ukraine home

encounters around the world, and e plained what makes him keep coming back to this lesser-known corner of Europe. As you travel the world you must encounter a lot of curiosity among the people you meet regarding Ukraine. Have you noticed any changes over the past decade in terms of knowledge and awareness about Ukraine? Most people had no idea where Ukraine was and tended to think it was part of the Soviet Union, even long after the break-up of the USSR. People have asked me so many times what it is like to live in Russia. I believe that it really took the Euromaidan movement to make people realize that there is a country called Ukraine. I still have to tell people that Komsomolsk is in Ukraine and not Russia. Even people in Kyiv often have no idea where Komsomolsk is. I have to e plain to them that it s near Kremenchug before they finally understand. What aspects of Ukrainian current affairs, culture and national identity do foreigners tend to be most familiar with? Awareness has evolved since Euromaidan, but the country remains closely associated with corruption - nearly everybody I meet seems to know about this bad, but sadly true, aspect of life in Ukraine, and they wonder if it will ever change. People are now also getting to know that Ukraine has tremendous IT resources and has the potential to become the breadbasket of Europe. There is awareness that Ukraine hosted a fantastic Euro football tournament, and that the country is home to the prettiest girls in the world. When you are discussing Ukraine with foreigners, what tends to surprise them the most? Many are surprised to learn that Ukraine is a democratic country where you can speak your mind. They are also surprised to hear what a great holiday destination Ukraine is, from Kyiv to the spa resorts of the Carpathians and the UNESCO treasures of Lviv, with its wonderful beer, great hotels and wealth of coffee houses. Odesa is another fantastic place, brimming with history. What are most common stereotypes about Ukraine that you encounter, and how do you seek to debunk them? The key stereotype remains that Ukraine is part of Russia. I always e plain that Ukraine is actually the biggest country in Europe. Some think Ukraine is unsafe, but I try to assure them that you can safely walk through Kyiv at any time of the day or night. Stereotypes about food and drink are popular especially the notion that Ukrainians live on a diet of potatoes and vodka. hen I encounter such attitudes, I stress the delights of Ukrainian cuisine, which tends to be gar-

July-August 2015

den fresh and includes an array of home-cooked dishes. I also like to mention that Ukraine has a thriving restaurant scene with high- uality venues offering everything from Ukrainian and rench to Georgian cuisine. Most first-time visitors to Ukraine tend to come to Kyiv. Which other destinations would you recommend to anyone looking to discover the real Ukraine? Kyiv is one of the most beautiful cities in Europe, but there are also places like Odesa, Poltava and the former capital, Kharkiv. Komsomolsk, where I live when in Ukraine, hosts the base where the Ukrainian national sailing team trains. Like most places on the wonderful Dnipro River, it has white sandy beaches. In the small towns of Ukraine you can encounter wonderful hospitality. If you re lucky enough to be invited into a Ukrainian home, remember that everyone takes their shoes off upon entering. There will inevitably be a wide selection of dishes on the table, all freshly prepared. Travelling around the country can also be a lot of fun. It s perfectly safe to take trains between ma or cities and it is a great way to see the beautiful Ukrainian countryside. Youâ&#x20AC;&#x2122;ve experienced the tourism sectors in dozens of countries - which tourism innovations would you love to see implemented in Ukraine? I think Ukraine could certainly make more of an effort to present itself at international travel and tourism forums, where it often has one of the smallest presences. If Ukraine is serious about attracting tourists, more needs to be done to promote the country s attractions to outside audiences. International travel ournalists should be invited to visit and encouraged to e plore Ukraine, which is still a secret waiting to be discovered. e need to remember that people who visit the country tend to love Ukraine, and that tourism is the world s biggest business. 57

For over a decade, TV presenter Karolina Ashion has been one of the most prominent members of the Afro-Ukrainian community. The stylish celebrity first made her name as a host on the country’s music video channels and currently works as a presenter on 2+2 channel. She spoke to Business Ukraine magazine about her experiences growing up as the only ethnical minority child in the provincial Ukrainian town of Shostka, and her optimism about changing attitudes towards race in today’s Ukraine. You are one of the most high-profile members of the Afro-Ukrainian community. How have local attitudes towards Afro-Ukrainians evolved during your lifetime? Growing up as an Afro-Ukrainian in a small Ukrainian town was not easy. As the only child of African heritage in Shostka, I suffered abuse and would often complain to my mother, who would blame it on ignorance and a lack of upbringing on the part of other children. At the same time, I tried not to let these attitudes get me down and always had many Ukrainian friends. Life in those days was dull and I felt cut off from the outside world. I had little understanding of black identity, but at the same time, I was aware of racial issues from a very early age. Whenever I saw a black person on TV – especially during the Olympics – I would feel a sense of extraordinary happiness. Things have improved enormously since then as Ukraine has become more democratic and European. It is much easier to be a member of an ethnic minority in today’s Ukraine. How conscious are you of being a role model for other Ukrainians with mixed ethnic backgrounds? I am proud to be a role model for Ukrainians

product of the current national struggle, which is not about ethnic, linguistic or religious differences. It is a popular struggle for the total emancipation of Ukrainian society. This has given the country a new sense of pride in its national identity, and helped to unite people of different backgrounds. You were one of the first Afro-Ukrainians to become a showbiz personality in post-Soviet Ukraine. What kind of reactions did you encounter from your fellow showbiz stars? I have always felt welcome and enjoyed a relationship of mutual respect with my fellow show business professionals. We all know each other personally, and greet each other whenever we meet around town.

Photo: 2+2 Channel

last word

Afro-Ukrainian icon Karolina Ashion

with mixed ethnic backgrounds. Frankly speaking, it is not something I ever anticipated. I first became aware that my TV career might have inspired others when I began to notice a few years ago that more and more Ukrainians from ethnic minorities were becoming involved in the showbiz industry. I cannot say that I have ever consciously sought to be a role model, but I am very pleased if my experience has encouraged others to follow the same path. Many observers argue that the heightened sense of Ukrainian patriotism over the past eighteen months of revolution and war has led to changing attitudes towards Ukrainian identity. They claim that being Ukrainian is no longer an ethnic or linguistic issue, and people are instead coming to understand Ukrainian identity in terms of civic rights and responsibilities. Would you agree in this assessment? Yes, I completely agree. I think these changing attitudes towards Ukrainian identity are the

What are the key lessons Ukraine can learn from the EU in terms of developing a multicultural society? The Ukrainian government needs to make sure that minority rights are protected in the country. All Ukrainians should enjoy the same democratic freedoms and have the same access to justice, regardless of their ethnic background or social status. The authorities should promote tolerance in Ukrainian society and champion greater dialogue between people from diverse backgrounds. At present I believe we have a good basis for the development of a more tolerant and inclusive society.

About the author: Cosmos Ojukwu is a Kyiv-based Nigerian journalist who has been covering Ukrainian affairs for more than a decade.

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

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.