Business Ukraine New Year 2017 by Business Ukraine magazine

New Year 2017

GATEWAY TO EAST UKRAINE KHARKIV IN FOCUS: From rising passenger traffic at Kharkiv International Airport to the city’s booming IT sector - Ukraine’s second city is open for business

Ulf Schneider Founder and Managing Partner

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

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

New Year 2017

GATEWAY TO EAST UKRAINE KHARKIV IN FOCUS: From rising passenger traffic at Kharkiv International Airport to the city’s booming IT sector - Ukraine’s second city is open for business

BUSINESS UKRAINE MAGAZINE/NEW YEAR 2017: Ukraine’s second city and former capital Kharkiv is currently seeking to expand its horizons and reorient itself away from decades of integration into the Russian economy. The Kremlin’s hybrid war against Ukraine has forced change on the city, leaving it at an historical crossroads and making Kharkiv one of the most geopolitically important places in today’s world. As Ukraine welcomes the start of 2017, Business Ukraine magazine takes the pulse of Kharkiv and looks at how the city of adapting to the post-Euromaidan environment in the country. What will the coming year hold for Kharkiv? Whatever happens, it will have huge implications for both Ukraine and wider region.

Will Western world wake up to Russian hybrid war in 2017? Ever since Russia launched its invasion of Crimea in February 2014, analysts have struggled to define this novel form of international aggression. The combination of information attacks, unmarked military forces, and diplomatic denials employed by the Kremlin in Ukraine has proved remarkably effective. It has paralyzed the international community, creating an air of ambiguity that has provided ample excuse for inaction. This is the essence of hybrid warfare – a strategy designed to keep opponents too confused and uncertain to launch effective countermeasures. The West’s desire to downplay Russia’s actions is understandable. For the past quarter century, citizens of the Western world have grown used to thinking of international conflict as part of a primitive past. While warfare has continued to plague the rest of the globe, the developed nations of the EU now struggle to entertain the possibility of a direct threat to their incomparably comfortable way of life. Cosseted in this illusion of mutually self-interested security, they find it inconceivable that a fellow member of the global elite such as Russia could be actively plotting to undermine the very institutions that provide the foundations for today’s unprecedented prosperity. It is far easier to explain away each successive example of Russia aggression as a justifiable, albeit disagreeable, response to a particular grievance. This has led many to portray the hybrid war in Ukraine as Russia’s understandable response to Western encroachment of Moscow’s historic sphere of influence. We heard similar arguments in 2008 when Russian tanks rolled into Georgia. It was much the same in 2007 when Kremlin hackers sought to cripple tiny Estonia’s e-infrastructure. Such are the fruits of appeasement. Rather than placate the Kremlin, this absence of pushback has merely encouraged Russia to expand the scope and ambition of its hybrid war. Inevitably, the costs of the West’s ostrich-like refusal to recognize Russian realities continue to mount. More than ten thousand Ukrainians lie dead. Aleppo is in ruins. Extremism is on the march across Europe. America has a presidentelect who openly sides with the Kremlin over and above the analysis of his own security services. The phenomenon of fake news has expanded from Kremlin quirk to major international security threat. These developments are all part of a Russian hybrid campaign designed to reverse the verdict of the Cold War and shatter the certainties of post-1991 democratic hegemony. There is considerable incomprehension over why Russia would want to set itself on such a destructive path. After all, isn’t Russia fundamentally part of the same civilization as the rest of Europe? The harsh truth is that modern Russia simply cannot compete in a world where soft power is the preferred method of Decemember 2016

gaining and maintaining international influence. The Russian economy is too weak, while the Russian system of government is too corrupt. Faced by this uncomfortable reality, the Kremlin favors a strategy of limited military intervention in neighboring countries, coupled with efforts to reduce the allure of the Western world and drag it down to the Russian level via a cocktail of hacks, fakes, cyber attacks, and conspiracy theories. Rather than attempting to demonstrate its own attractiveness, Moscow promotes a melancholy message that can be summed up as, “See? You’re just as bad as us.” The end goal of all this hybrid aggression is not global conquest. The Kremlin’s territorial ambitions are relatively limited in scope and probably do not extend beyond the borders of the former Soviet Empire. Instead, Russia seeks a divided and self-doubting Western world that will allow the Kremlin to consolidate its authoritarian agenda at home while subjugating the nations on its periphery. If non-Soviet nations are not under direct physical threat of invasion, why should they care enough to confront Russia? This is the big question facing today’s Western leaders. Does the idea of European disunity concern them? Are they indifferent to a world of increasingly militarized borders and nuclear proliferation, where the inevitable emergence of rival alliances would set the stage for a return to the Great Power conflicts of earlier centuries? This is the vision promoted by the Kremlin. There are signs the West is slowly waking up to the scale of Russia’s objectives. The election of Donald Trump was a landmark event in this process. Government officials in Washington DC, London, and Berlin are now openly speaking about a Russian hybrid war against the West. Nevertheless, this belated recognition among policymakers has yet to filter down to the public, where talk of a Russian threat still often provokes accusations of warmongering. Western society remains hamstrung by the insularity of public opinion, with over-confident populations focused exclusively on internal inadequacies that render them blind to external enmity. This could lead to further disasters in 2017. With elections in France, the Netherlands, and Germany on the horizon, Russia’s hybrid war is set to enter a new phase. The next 12 months could well be decisive for the future of Western civilization. It is time to decide whether it is worth fighting for. Peter Dickinson Business Ukraine magazine

kharkiv in focus

Kharkiv in Focus

Ukraine’s second city in search of new horizons as it finds itself firmly in the geopolitical spotlight As the world enters a new age of uncertainty, Ukraine’s second city finds itself very much in the spotlight. Indeed, Kharkiv has probably never been more important in a global context. The city plays a decisive role in safeguarding Ukrainian unity, which, in turn, is a key factor in the broader international struggle against Russian hybrid aggression. Kharkiv has as good a claim as any city in the world to being the ‘hinge of fate’ in the geopolitical confrontation that looks set to define the coming decades. The initial rounds of the contest have so far gone in Ukraine’s favor. The Kremlin’s 2014 efforts to manufacture a Kharkiv separatist insurgency fell flat, effectively putting an end to Vladimir Putin’s plans for a ‘Novorossia’ empire in eastern and southern Ukraine. Nevertheless, few doubt that the Kremlin will seek other means to destabilize and undermine the city.

Globalizing the Kharkiv economy

The outcome of this geopolitical struggle remains in the balance. Much will depend on Kharkiv’s ability to reverse decades of economic integration with Russia and reorient itself towards global markets. Since 2013, the Kremlin has sought to utilize economic sanctions and trade embargos, cutting Ukrainian companies off from access to the Russian markets they once depended on. This is a risky strategy from a Russian point of view. While it has resulted in considerable short-term difficulties for the Kharkiv business community, it has also strengthened previously weak resolve to look beyond the horizons of the former Soviet Union. Successful economic reorientation will bring geopolitical stability to Kharkiv, whereas rising poverty and lack of prospects will leave the city increasingly vulnerable to further Russian hybrid assaults. The task facing the city is Herculean in nature, especially given the depth of the previous bilateral ties with Russia. Nevertheless, there are indications that a successful transition is possible. Kharkiv companies are already making 10

progress in their quest to expand into global markets, while international investors are slowly discovering the attractions of the city and surrounding region. Kharkiv International Airport has registered record passenger growth in 2016, while the city’s IT industry has proven capable of attracting major international investment as well as competing on the global stage. This globalization process is only just beginning, but the quality and expertize on offer make Kharkiv a potentially appealing partner as well as a cost-effective option. This should be sufficient to generate growing interest in the city over the coming few years. The challenge for Kharkiv is to seize this opportunity while international attention remains on Ukraine.

Cultural hub

As Kharkiv attempts to reorient its economy, the city is also undergoing a cultural reinvention and emerging as a vibrant and dynamic creative hub. Contemporary Kharkiv has a distinctly hipster vibe to it, with a plethora of stylish and original bars and clubs catering to the city’s vast student population. The Kharkiv arts scene is already among the liveliest in Eastern Europe, and local officials are hoping to develop the city’s reputation as an arts and culture capital in the coming years along the lines of Glasgow, Liverpool and other formerly industrial giants of the Western world.

Today’s Kharkiv is home to a range of exciting musicians and literary figures. Ukraine’s internationally acclaimed punk writer Serhiy Zhadan has long used the city as his primary canvas, earning himself the unofficial title of “Bard of the Donbas”. He is one of many Kharkiv writers contributing to the city’s reputation as a bastion of post-Soviet literature. Zhadan’s decision to write in Ukrainian reflects not only his own personal commitment to Ukrainian identity but also the complexity of the identity issues that lie beneath the surface in this ostensibly Russian-speaking city. Binary approaches to national identity based on linguistic preferences were never an effective benchmark in post-Soviet Ukraine – they are now completely redundant. The Euromaidan Revolution and hybrid war with Russia have transformed perceptions of what it means to be Ukrainian, and this is particularly the case in Kharkiv.

Crossroads of history

In geographical terms, Kharkiv has always been one of the great crossroads cities of the Eurasian landmass. It now finds itself at a crossroads of world history. The next few years will probably be decisive in determining the future direction of Kharkiv, the surrounding region, and the country as a whole. The repercussions will reverberate throughout Eastern Europe and beyond. This is Kharkiv’s moment to shine. www.bunews.com.ua

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The man they call the king of Kharkiv Businessman Oleksandr Yaroslavsky has invested over USD 1 billion dollars in Ukraine’s second city He has been called everything from Ukraine’s most talented developer to the country’s leading football club president and largest private investor. The international media frequently refer to him as one of the most influential personalities in today’s Ukraine. To many, he is simply the uncrowded king of his native Kharkiv. Oleksandr Yaroslavsky has maintained his position at the top of the Ukrainian business world for the past two decades thanks to a combination of intuition and experience. One of the secrets of his success has been an unerring ability to take the pulse of the Ukrainian economy and act accordingly.

Local roots

Born into a family of doctors, Oleksandr Yaroslavsky received a technical education at the Kharkiv Academy of Catering. He served in the Soviet Army before studying law and working at a food institute. The collapse of the Soviet Union and the liberalization of the economy allowed him to enter the business world for the first time. The traits that would keep Mr. Yaroslavsky ahead of his rivals in the Ukrainian business community soon became evident. His acquisition of UkrSibbank in 1998 led to a striking change in the bank’s fortunes, emerging from mediocrity to become one of the leading banks in Ukraine. After ten years of successful operations, he sold the bank to French-based international bank BNP Paribas. The sale proved well timed – the ensuing global ‘credit crunch’ crisis dramatically reduced the investment attractiveness of the Ukrainian banking sector.

The art of timing

“I like to buy companies in crisis or with strong prospects. I get them working effectively, and then I exit with a profit. For example, I built up and sold an oil extraction plant, built up UkrSibbank, and was among the initial shareholders of Kyivstar. There have been many more similar projects,” says Mr. Yaroslavsky of his business philosophy. Over the years, his assets have included Nadra Bank, Northern Mining, and XXI Century construction company to name but a few. During an era of access to cheap imported gas, his DCH Group became one of the country’s largest nitrogen fertilizer producers. His holding also successfully sold the Merefa Glass Packaging Plant to Turkish holding Sisecam. He helped revive Kharkiv Airlines during a period of growth in the domestic air travel market, but withdrew before a downturn in the industry’s fortunes.

Investing in Kharkiv

Analysts estimate Mr. Yaroslavsky’s total investment in the economic development of Kharkiv at around USD 1 billion. Among the many projects he has been involved in, pride of place must surely go to his role in championing Kharkiv’s football credentials, both as presi12

dent of local football club Metalist Kharkiv and as a leading figure in Kharkiv’s bid to serve as a host city during Euro 2012. Mr. Yaroslavsky took over ownership of Metalist Kharkiv in 2005 when the team was stuck in a rut. His management and investment revived the club’s fortunes, with Metalist taking third place in the Ukrainian

Premier League on six occasions under his stewardship while becoming a regular feature in the latter stages of the UEFA Cup and Europa League. His personal role in Kharkiv’s Euro 2012 participation was even more striking. When Ukraine was first awarded the right to co-host the championships by UEFA in 2007, few saw Kharkiv as a potential host city. Mr. Yaroslavsky intervened to initiate a program of modernization that transformed the city’s sports facilities and tournament infrastructure. The scale of the improvements was too striking to ignore, and UEFA officials were eventually convinced. During the buildup to Euro 2012, many international journalists focused on Kharkiv as the most impressive example of Ukraine’s efforts to transform itself in order to co-host the tournament. A Polish TV crew even filmed a documentary about Mr. Yaroslavsky. Perhaps inevitably, the film was entitled “King of Kharkiv”. Overall, the Kharkiv-born businessman invested around USD 300 million into the city’s preparations for the championships, making him Ukraine’s largest Euro 2012 private investor.

Attracting international investment

Oleksandr Yaroslavsky currently uses his DCH Group’s key assets including Kharkiv International Airport and the Premier Palace Hotel Kharkiv to help attract international investment to the region. This means hosting international aviation conferences like Routes CIS, along with a wide range of regular industrial forums and agricultural events like Agroport. For the past year, there has been considerable speculation over the future investment directions Mr. Yaroslavsky is likely to take. Towards the end of 2016, he declared an interest in purchasing Odesa Portside Plant. After the failure of the plant privatization tender, he announced his intention to establish an international consortium to purchase the asset. Talks with interested parties (including a number of major Western banks) are currently ongoing. He recently returned to his investment roots with the acquisition of a controlling stake in the iconic Kharkiv Tractor Factory. This leading Ukrainian machine-building plant has a long history and major local social importance as an employer of around 3,000 Kharkivites. Many are now hoping Mr. Yaroslavsky can return the plant to its former glory and repeat the success he has had in sectors as diverse as banking, industry, construction, and football. www.bunews.com.ua

kharkiv in focus

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IT Brain of Ukraine Kharkiv’s booming IT industry is transforming former national capital into Ukraine’s leading Smart City

Members of Kharkiv IT Cluster raise a toast: the cluster is working to strengthen the IT ecosystem in Ukraine’s second city while also fostering a new generation of IT talent Kharkiv has a long history as a center of academic excellence and scientific innovation. For over one hundred years, it has been at the cutting edge of technological developments, producing world-beating products and Nobel Prize winners. It is therefore no surprise to see today’s Kharkiv at the forefront of Ukraine’s booming IT industry and pioneer in the quest to make Ukrainian cities more tech-savvy. According to a recent report produced by Ukraine Digital News and local industry players, small and medium-sized IT enterprises currently employ more than 22,000 people. The average software engineer’s salary in the city is around US 2,000 per month, according to figures provided by DOU.ua, a Ukrainian portal for developers. A combination of these relatively high salaries and the international job opportunities open to experienced programmers make the IT industry one of the most appealing options for young Kharkivites. The sector is also playing an increasingly important role in the regional economy. In Q1 2016, the city’s IT industry attracted USD 132.9 million in foreign direct investment.

Long road to Smart City status

Kharkiv’s progress towards Smart City status has been underway for almost two decades. The city authorities first began implementing digital technolo14

gies back in 1997. Within a year, Oleksandr Popov, the director of the City Information Center of Kharkiv City Council, had begun improving the city’s connectivity by linking all municipal services into a single online-accessible system. The move, inspired by the example of Lille in France, paved the way for further steps towards the digitalization of Kharkiv. “All our Smart City projects have been developed in-house, with 90% of financing coming from the reinvestment of funds generated by utilities. Around 20 Kharkiv city professionals have been involved in the process,” says Popov. The digitalization of local government has focused on increasing transparency and accountability. Today, Kharkiv residents can access the Unified City Register of Acts, which contains electronic records of all city council documents dating back to 1998, via their bank ID or by registering with the site. In 2007, the Kharkiv authorities launched the 1562 service, which seeks to enhance dialogue between city authorities and the local community. This platform allows residents to register complaints or make suggestions to the municipal authorities via phone or email. To boost citizen engagement, local IT company Artioker has designed a mobile app dubbed Active Kharkiv Citizen. This allows Kharkiv residents to create petitions, vote, and provide feedback on any aspect of city life via the app. Kharkiv residents benefit from a network of 34 online social security offices, www.bunews.com.ua

Street-level innovation

The Kharkiv IT industry has played a role in improving the everyday flow of the city. Forty-five Kharkiv crossroads are equipped with adaptive traffic control systems, with every crossroad having its own passport. Traffic flows are visible on an electronic map, making it easier for drivers to avoid congestion. OpenStreetMap, an open source road map designed by openstreetmap.org, allows users to find their way around the city. Another service that makes Kharkiv a better place to live is Online Advertising by Kharkiv GIS. This features a map of the legal advertising platforms in the city and enables residents to report any illegal advertising. Entrepreneurs can also request permission for outdoors advertising via the service. A similar map of outdoor amenities and playgrounds is currently at the development stage. As part of the Safe City project (2016-2020), Kharkiv’s main attractions will be equipped with video surveillance systems with online monitoring. Connectivity is one of the key characteristics of any Smart City. To ensure consistent connectivity, a cloud service offered by local IT company OnAir has been introduced as the basis for a range of services. It is currently undergoing testing in a variety of locations around the city. The company expects implementation of a fully functioning version of this service in the near future.

Twenty-first century transport

Kharkiv is currently introducing a new model of transport management to make it easier and more efficient for residents to get around the city. One of the objectives is to ensure timetable accuracy and synchronize underground and street-level public transport in order to maximize user convenience. A single electronic ticket valid for all the forms of public transport will soon replace the current token system. It is worth remembering that back in the 1990s Kharkiv had been an innovator in the introduction of tokens themselves. The modernization of the public transport ticketing system comes as Kharkiv city authorities continue to negotiate with the European Bank of Reconstruction and Development over a loan for the construction of a new underground metro line. Construction could begin in 2017. In December 2016, the city unveiled its first digital trolleybus schedule display as part of a pilot project that will eventually see similar displays cross Kharkiv. “We need to install nearly one thousand digital displays. Vehicle tracking will be done via GPS. The project will take some years to complete but we have made a good start,” says Kharkiv Deputy Mayor Yevhen Vodovozov. Kharkiv software developers are active in the process of transforming Kharkiv’s public transport services. Local mobile agency Itomych Studio has designed a free app named Marshrutki that provides citizens with real-time data on the city’s buses and minibuses.

Kharkiv healthcare and education

To prevent residents from queuing for hours at city health care institutions, a pilot online appointment booking system has been trialed for more than a year at a Kharkiv city hospital. Once registered, a patient can choose the most suitable time for an appointment and receive an SMS reminder beforehand. The city is currently introducing this innovation at a further three Kharkiv health centers. A unified system of online medical offices at city universities containing patient data is currently under development. An electronic patient card may also be on the horizon. Decemember 2016

Every school in the city has been connected to the Internet and equipped with a computer classroom at the expense of the local budget. In addition, regional NGO Kharkiv IT Cluster promotes IT-related professions by conducting a series of workshops for schoolchildren, as well as meetings with students and training courses for teachers. “The process of teaching computer science in schools is becoming more innovative thanks to the Kharkiv IT business community. We partner with the Academy of Further Education and train teachers from regional towns in new programming languages. They are currently being taught Python,” says Nataliia Vynogradska, the Managing Director of Kharkiv IT Cluster. The cluster currently has a membership of 29 companies and cooperates with eight local universities. Early in 2016, the cluster launched the Kharkiv IT Unicorns initiative - a series of teaching and training activities to help students put their ideas into practice. “We seek to enhance the development of the IT ecosystem in Kharkiv while contributing to the structuring and strengthening of the local IT community,” comments Ms. Vynogradska.

kharkiv in focus

with an additional two offline offices set to start operating soon. With their passport data and personal tax reference number uploaded online via any Administration Centre, clients can later submit them to a range of other institutions with no need to upload them again.

Attracting tourists and investors

“We actively promote the image-building Smart City project, which celebrates the integration of technologies into city life,” says Viktoriia GretskaMyrgorodska, the head of Kharkiv’s investment development and imagebuilding projects department. “Initially, the initiative aimed to make Kharkiv an attractive tourist destination, with ‘smart’ standing for ‘social, modern, art, research, tourism.’ However, today the concept has saturated every aspect of life in the city.” As part of the Seven Wonders of Kharkiv project, six city landmarks have been equipped with QR-codes, with fifteen more landmarks set to join the list in 2017. The technology involved allows city officials to track the number of tourists visiting any particular landmark. In a reflection of grassroots enthusiasm for the Smart City concept, this project was initiated by a group of volunteers. Meanwhile, the Investor’s Navigator initiative guides investors step-by-step through the process of launching a business in the city, from finding the right location to obtaining a business license. Another investor-friendly initiative set for release in the coming months will be an interactive map indicating vacant land plots, buildings in need of renovation, and unfinished construction projects.

Kharkiv Smart City technologies going global

A number of Kharkiv-based companies have also developed innovations for cities in Europe and the US. Kharkiv-based software development company CodeIT has a range of international clients, with 32% of the company’s current client portfolio coming from North America. CodeIT has developed two eye-catching applications for Swiss municipalities. One is a platform that helps Swiss municipalities manage local recycling efforts by reminding users of the schedule for upcoming collections. It also allows municipal authorities to send users custom messages such as local news bulletins. After successful implementation in one Swiss municipality, it has expanded to three further Swiss cities. The second app, Grippe, allows users to carry out health checks via online testing. It also lets users manage a centralized health calendar and provides access to a map monitoring flu outbreaks across Switzerland. Another local company, Itomych Studio, has built on its local Marshrutki app for Kharkiv by designing a similar app to track public transport for a client in Delaware, USA. Dubbed UD Shuttle, this app is available free of charge via App Store and Google Play. These examples reflect the global competitiveness of Kharkiv’s IT sector and highlight the city’s status as one of the most innovative Smart Cities in the region. 15

Icon of Empire: Kharkiv’s distinctive Derzhprom Building (literally “State Industry Building”) is part of an imposing architectural ensemble dating back to the early years of the Stalin era when Kharkiv served as the capital of Soviet Ukraine. Built to symbolize the Communist regime’s utopian vision of a rational and scientific future, it is widely recognized as a classic example of the Constructivist architecture favored by the Bolsheviks in the 1920s and 1930s. At the time of its completion in 1928, it was the tallest structure in Europe and a source of enormous Soviet pride. The Derzhprom Building survived WWII and the collapse of the Soviet Union. It remains one of Kharkiv’s most distinctive landmarks today.

www.bunews.com.ua

Ukraine’s second city hard hit by Russian hybrid war but economic recovery is underway During Tsarist and Soviet times, Kharkiv was always one of Ukraine’s great cities. Indeed, it served as Soviet Ukraine’s capital city between 1919 and 1934 as the Bolsheviks sought to lessen the authority of Kyiv as a focus of Ukrainian nationalist sentiment. An economic and educational hub conveniently positioned on the Ukrainian border with Russia, Kharkiv was always historically the first stop for commercial and cultural exchange between the two countries. The fall of the USSR in 1991 did nothing to alter Kharkiv’s productive and profitable position.

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The events of the past few years have placed these historic ties with Russia under enormous strain. The Euromaidan Revolution and subsequent hybrid war, together with Ukraine’s pivot westward towards Europe and the US, have had a disproportionate impact on Kharkiv. No city in unoccupied Ukraine besides Lviv has faced as much change as quickly as Kharkiv. While Lviv experiences unparalleled GDP growth and enjoys successes like Ukraine’s first nonstop express train to Poland, how is Kharkiv coping with the loss of its greatest trading partner and the realities of vastly reduced cooperation with Russia? :

kharkiv in focus

New Kharkiv horizons

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Increased industrial self-reliance The loss of Russian business and partnerships has put a serious dent in Kharkiv’s economy. Some peg the value of lost business at 50% of Kharkiv’s prewar output. While 2016 saw Kharkiv make up around 7% of that lost ground via expanding exports to Europe and elsewhere, there is still a great deal of lag in exports. Challenging times lie ahead for the Kharkiv economy, but current trends suggest that those industries capable of weathering the storm stand to emerge much stronger, leaner, and competent. Kharkiv has not yet fully replaced the loss in Russian business, but the ongoing hybrid war in the Donbas has helped the city to solidify its historic position as one of the most crucial regions when it comes to Ukraine’s defense establishment. Kharkiv’s Malyshev Tank Factory, once dependent on components manufactured in Russia, now sources its parts internally from Ukraine, as well as from other European countries that use similar vehicles in their militaries. While the plant is still not operating at 100% capacity, new tanks are a regular sight leaving the factory on lowboy trucks. They travel to the railhead for shipment to the frontlines, via Kramatorsk or Konstantinovka. Likewise, the Kharkiv State Aircraft Manufacturing Company is learning to live without Russia. In December of 2016, the company produced the first Antonov-family aircraft featuring components sourced entirely within Ukraine. It was once said that no rocket could be launched in the Soviet Union without parts from Kharkiv. Until 2014, the reverse was also true, with Kharkiv rockets equally dependent on components from elsewhere in the former Soviet world. Now, though, Kharkiv produces rockets and aircraft for the Ukrainian military without outside assistance from Russia. This industrial expertise and growing self-sufficiency hold obvious investor appeal. Kharkiv’s abundant twentieth century industrial infrastructure make the city a natural choice for projects that depend on creating heavy machinery, such as the automotive industry. Because of its perceived proximity to perpetually unstable Russia, external companies have been slow to invest in Kharkiv. Nevertheless, the capacity for production is there, as are transportation hubs including a modern international airport and a major rail junction. The region also boasts significant energy advantages. Almost half the gas produced in Ukraine comes from Kharkiv Oblast, and the region is self-sufficient when it comes to electrical generation. This makes Kharkiv more economically stable than other regions of Ukraine. It also con-

tributes to the city’s status as an unusually affordable place to rent and maintain office space.

Education leader, IT innovator

Over 180,000 students currently call Kharkiv home, including many thousands of international undergraduates. This huge student population is testimony to the city’s robust university education system. In addition to Kharkiv’s Polytechnic Institute, which is widely regarded as Ukraine’s finest institution of higher education, Kharkiv has dozens of other universities and institutes. Inspired by the examples of university/tech clusters in San Francisco and Boston, Kharkiv is currently attempting to incentivize graduates to stay in Ukraine rather than depart to make higher salaries in Europe or the US. This educational excellence has helped create a vibrant IT and startup scene. IT is one of Ukraine’s key growth sectors and Kharkiv is at the forefront of this trend. In comparison to other Ukrainian IT hotspots such as Kyiv and Lviv, Kharkiv is currently an underrated, underdeveloped source for both recruiting and investment. Western companies looking to find relatively inexpensive European-level expertise and quality can do so in Kharkiv for much less than they would pay in their own countries.

Agricultural appeal

Outside the city, Kharkiv Oblast boasts some of Ukraine’s more productive farmland. The region produced over four million tons of wheat in 2016. The Kharkiv agricultural sector has room for improvement. It would certainly benefit from modernization of its equipment and infrastructure. However, as with the city’s industrial facilities, there is already a solid agricultural base available in terms of personnel, systems, and experience. Kharkiv region already produces a significant share of Ukraine’s annual agricultural output, but it could be much more productive given additional external investments and partnerships.

and farm-to-table processes pioneered in the West. This post-Maidan generation of Kharkiv restaurants and bars employs similar strategies to their contemporaries in Berlin, Pittsburgh, Brooklyn and Paris, including the use of existing architecture to create unique and appealing atmospheres that any urban Westerner will immediately recognize. Daily life in Kharkiv is comfortable and convenient by Ukrainian standards. The city continues to upgrade its subway system (alongside Kyiv and Dnipro, Kharkiv is one of only three cities in Ukraine with a metro system) and its trash collection mechanisms. As with other post-Soviet countries, Ukraine lags behind the West in terms of recycling and ecologically friendly garbage processing. In this respect, Kharkiv is no different.

Challenging present, bright future

Apart from those areas directly affected by the ongoing hybrid war with Russia, no Ukrainian city or region has suffered as dramatic or debilitating a drop in business since 2014 as Kharkiv. For industries comfortable with lengthy and established dealings between Ukraine and Russia, it’s been a difficult road. Nevertheless, with local industry realigning to domestic and Western markets, and a vibrant academic scene guaranteeing a steady stream of recruits for the city’s booming IT sector, the future still looks relatively bright for Kharkiv as Ukraine’s industrial engine and foremost university town.

Restaurant renaissance

As self-reliance increases in Kharkiv, and as traditional industries scale back their production due to curtailed cross-border trade, restaurants and other service sector businesses have adjusted by going local. A wide range of bars and restaurants opened for business recently in the city. Places like the Premier Palace Kharkiv’s “Sky Lounge,” “Fabrika.space”, and “Lumber” all feature English-speaking staff and a hipster feel. They offer menus and cocktails with ingredients drawn partly from local sources, making them very much in line with revolutions in cuisine

About the author: Adrian Bonenberger (adrian.bonenberger@theubj.com) is the News Editor of The Ukraine Business Journal (UBJ)

www.bunews.com.ua

Gateway to East Ukraine Kharkiv International Airport sees record rise in passenger numbers as recovery takes off

The story of how Oleksandr Yaroslavsky managed to secure Euro 2012 host city status for Kharkiv has long since passed into local legend. When Ukraine and Poland won the right to co-host the championships back in 2007, few regarded the capital of eastern Ukraine as a serious host city candidate. Instead, Kharkiv was placed on the reserve list behind Dnipro - another of Ukraine’s one million plus cities that already boasted a completed modern stadium and an array of infrastructure assets. Faced by this challenge, Mr. Yaroslavsky initiated an ambitious program of infrastructure modernization that eventually allowed him to convince UEFA officials to opt for Kharkiv.

The ultimate upgrade

One of the biggest obstacles the Kharkiv Euro 2012 bid faced was the absence of a modern international airport. Although it was the largest city in Ukraine’s industrial heartlands, mid-2000s Kharkiv was served by an airport that had seen little investment since the Soviet era. Mr. Yaroslavsky identified efforts to overhaul the city’s air transport hub as one of the keys to a successful Euro 2012 bid. In line with Ukrainian legislation governing public-private partnerships, he worked with the government to transform Kharkiv airport, investing in state-of-the-art passenger terminal facilities while the state financed construction of a new runway capable of accommodating long-haul aircraft in the Boeing 767-300ER class and large cargo craft such as the AN-124. The result was a quantum leap forward for regional air travel, bringing Kharkiv up to the latest European standards in terms of both technological capabilities 20

and passenger service. This upgrade did not result in the complete replacement of existing facilities. The old terminal building, which dated from 1954 and was of considerable historic value, underwent a complete renovation while maintaining its unique original facades and architectural appeal. It became the VIP terminal, benefitting from the latest technologies while retaining an iconic period charm. UEFA President Michel Platini cut the ribbon at the official opening ceremony of the revamped terminal, and it served as the point of entry for teams and UEFA officials during the tournament itself. In 2013, the airport saw the opening of the General Aviation Service, providing customs and migration support, ground support for aircraft, and a range of services for flight crews including rest space in the VIP terminal, hotel reservations, 24-hour personal assistance and more.

Post-Euro 2012 takeoff

The construction of the new terminal building, together with the reconstruction of the old terminal and additional infrastructure facilities, involved an investment of USD 107.2 million from Mr. Yaroslavsky. This represented a significant portion of the estimated USD 300 million he spent on Kharkiv’s preparations for Euro 2012. It was an investment made with a view to the long term. While many of the construction projects across Ukraine during the buildup to Euro 2012 specifically focused on the tournament itself, the summer 2012 football fiesta was just the beginning for Kharkiv International Airport. Once fully operational, the new airport facility quickly emerged as one of the fastest growing air gates in Ukraine, www.bunews.com.ua

kharkiv in focus

attracting international carriers and adding new routes at a pace that reflected its position as a hub for one of the country’s wealthiest and most economically active regions.

Record passenger growth in 2016

The crisis of 2014-15 derailed this growth trajectory, but current trends point to a strong revival. During the first eleven months of 2016, passenger numbers increased by a record 61% year-on-year. Analysts now expect Kharkiv International Airport to return to precrisis figures within the near future. Major international carriers are returning to Kharkiv and new airlines are seeking to add the

Decemember 2016

destination to their routes. Kharkiv International Airport’s Q3 results for 2016 earned the airport a place among Europe’s best performers in the below five million passenger category from the Airports Council International Europe (ACI Europe). A passenger traffic increase of 57.8% was sufficient to see Kharkiv become only the second Ukrainian air hub to feature in the ACI Europe rating. This strong performance in what remains a challenging geopolitical environment suggests that the current rebound is only the beginning. As Ukraine’s economic recovery continues to gain ground, the sky could well be the limit for Kharkiv International Airport.

Promoting Kharkiv investment in the US

Regional investment initiative seeks to build business bridges between America and Ukraine’s second city Kharkiv is leading the way among Ukraine’s cities in terms of international investment promotion. While efforts to establish national investment promotion bodies are finally beginning to gain ground in Kyiv itself, the capital of eastern Ukraine has had its own representative office in the US since autumn 2015. Business Ukraine magazine invited Shai Franklin, the Director of the Kharkiv Regional Representation Office in the United States, to outline the key goals of this investment initiative. The Kharkiv Region Representative Office was founded in 2015 by the GloBee International Agency for Regional Development, with the support of the Kharkiv Oblast State Administration. On 22 September 2015, the official presentation of Kharkiv Region Representative Office took place at the US Embassy in Ukraine with the participation of the US Ambassador to Ukraine Geoffrey R. Pyatt, the Head of Kharkiv Oblast State Administration Ihor Rainin, and the Minister of Internal Affairs of Ukraine Arsen Avakov.

Kharkiv delegation in DC and NYC

Using facilities in Washington and New York, in 2016 the Kharkiv Region Representative Office was successful in raising visibility, connecting Kharkiv region more deeply with the United States, and identifying substantive opportunities for the further development of bilateral ties. In late February 2016, we organized and hosted a business delegation led by Ihor Rainin, who at the time was serving as the Head of the Kharkiv Oblast State Administration. Meetings took place in New York and Washington including with the Brooklyn and US Chambers of Commerce, Congressional leaders, major think tanks, and a range of US Government agencies such as the US Trade Representative, Overseas Private Investment Corporation (OPIC), Commerce Department, USAID, and State Department. Meetings also took place between CEOs of companies from Kharkiv region and US investors and representatives of high-tech companies, among others.

Promoting the Kharkiv brand

Since that time, the Representative Office has facilitated visits and meetings by Kharkiv-based companies seeking markets and investment. We have coordinated our trade promotion efforts with the Consulate General of Ukraine in New York, and met with and briefed local companies in Kharkiv and at the Kharkiv Region Chamber of Commerce. Contracts are being finalized between Zdorovye, the leading Kharkiv-based pharmaceutical producer, and American wellness companies Unicity and Mannatech. Since signing preliminary contracts, the parties have been working on technical specifications, and we anticipate

(Photo courtesy: Ron Sachs) final agreements early in 2017. Zdorovye’s progress is significant, because its General Director was part of the February delegation to the United States. This is an opportunity to plug Ukrainian pharmaceuticals into the massive US market. The Representative Office has also been connecting Kharkiv’s expanding software development community with the American IT sector, where there is huge potential appetite for strategic partnerships.

Highlighting regional concerns

The activities of the Representative Office extend beyond facilitating direct bilateral business ties. Given the pressing needs of Ukrainian soldiers and the country’s population of displaced persons, we are also working to highlight the region’s concerns. Recently, the Representative Office was fortunate to secure additional hundreds of thousands of dollars in medical supplies for regional and military hospitals in the Kharkiv region. In October 2016, the Representative Office organized a small delegation of experts in branding and government relations to address and participate in Kharkiv’s annual International Economic Forum. Our goal there was to accelerate and expand connections between Ukrainians and Americans, and to provide information and recommendations about doing business with the United States.

Strengthening ties in 2017

Throughout the past year, the Representative Office has been in contact with key Members of Congress regarding potential future visits to Kharkiv, especially in the context of the 2017 International Economic Forum, which will take place in autumn 2017. We are also in discussions with OPIC and the European Bank for Reconstruction and Development (EBRD) to identify opportunities for foreign investment in Ukraine’s business sectors. The Kharkiv Region Representative Office is now working to organize further visits in both directions, involving business executives, IT specialists, university leaders, and others. We fully realize the priority of engaging the United States and promoting Kharkiv region as a business destination, as an innovator in digital tech and e-governance, and as a center of democratic free enterprise.

About the author: Shai Franklin is CEO of Your Global Strategy, Inc. He serves as Director of the Kharkiv Region Representative Office in the United States.

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Kharkiv-based company Kluchi Zdorovya (“Keys to Health”) specializes in products using natural ingredients. The company currently produces a range of brands including more than 200 herbal teas and coffees, over 20 types of porridge,

herbal syrups, and a selection of medicinal skincare products for adults and children including sprays, dry herbal mix for bathing, powders, creams, and gels. All Kluchi Zdorovya products are conceived and developed using a combination of contemporary medical knowhow and traditional healthcare lore. The company’s product range undergoes thorough clinical testing to ensure safety. For example, the Sonia range of herbal teas for young mothers received a recommendation from the Pediatric Department of the Ukrainian Academy of Sciences for consumption by children from six months of age. Kluchi Zdorovya is one of the relatively few Ukrainian companies in its sector that currently works in

line with European Union production standards and has received certification (ISO 9001:2001 and ISO 22000:2007). Quality control systems are active at every stage of the production process to ensure consistency and high quality produce. “We have experience of working with American and European partners and are open to further export partnerships. Our production capacity, modern facilities and product certification allow us to expand further and enter new markets in cooperation with the right partners,” says Kluchi Zdorovya President Dmitry Gorlo (pictured). The company’s clients include millions of people who trust Kluchi Zdorovya as a dynamically growing company to bring them tasty, healthy and high-quality products.

promotion

Herbal Kharkiv: Modern Technology and Traditional Remedies

Twenty-first century Kharkiv’s luxury landmark

Five-star Premier Palace Hotel Kharkiv brings touch of modernity to downtown architectural ensemble In autumn 2016, American publication U.S. News & World Report ranked the Premier Palace Hotel Kharkiv among the top five hotels in Ukraine. The five-star Kharkiv hotel beat out competition from over 60 of the country’s leading hotels to enter the top five of the rating, which is based on visitor feedback and the assessments of travel industry experts. It was the only representative from the east Ukraine region to earn a place in the top segment of the annual survey. This kind of acclaim is nothing new for Premier Palace Hotel Kharkiv. Ever since opening its doors for business in December 2011, the hotel has served as a local landmark and the only twenty-first century addition to the remarkable early twentieth century architectural ensemble that rings Kharkiv’s iconic Freedom Square. Despite initial fears that a contemporary hotel complex might spoil the existing aesthetic of the pre-WWII Soviet era buildings surrounding the vast square, the eleven-story Premier Palace has won widespread plaudits for harmoniously fitting into the existing panorama while also enhancing it with a touch of understated modernity. This was the first luxury hotel to open in Ukraine’s second city. The interior reflects this status, combining the sophistication of classical hospitality with functionality and the convenience of the latest technological solutions. It features four restaurants, a spa center, swimming pool, and panoramic views of Kharkiv city center. The hotel opened months before Kharkiv served as one of Ukraine’s four host cities during the Euro 2012 European football champi-

onships. Prominent local businessman Oleksandr Yaroslavsky invested USD 126 million in the construction of the hotel – part of an outlay that made him the largest single private investor in Ukraine’s preparations to co-host the championships. During Euro 2012, the hotel served as regional headquarters for UEFA while group stage matches took place in Kharkiv. This Euro 2012 role served as an eye-catching international debut for the hotel. It has remained a focus of Kharkiv happenings ever since – particularly international events. In the past year, the Premier Palace Hotel Kharkiv has played host to the presentation of the city’s Honorary Consul of the Republic of France and the Honorary Consulate of Austria, as well as serving as the venue for the opening ceremony of the Brazilian Consulate. Over the past four years, the hotel has hosted more than 1,500 events, with a strong emphasis on the business sector. Highlights include the annual International Business Forum. This focus reflects the long-standing efforts of Mr. Yaroslavsky’s DCH Group to improve the business climate in Ukraine. The hotel has also served as a venue for top table political dialogue. For example, in May 2014, it hosted an all-Ukrainian round table dedicated to national unity attended by former presidents Leonid Kravchuk and Leonid Kuchma along with PM Arseniy Yatsenyuk and Interior Minister Arsen Avakov. Social events are a key part of the annual calendar, with highlights including the “When Dreams Come

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kharkiv in focus

True” international charity ball in aid of children affected by the conflict in the Donbas. During the initial stages of the investigation into the July 2014 MH17 disaster, the hotel acted as an impromptu international crisis center. The latest indication of the hotel’s leading position on the regional hospitality market was the opening of a new regional office of the European Bank for Reconstruction and Development within the complex. “The Premier Palace Hotel Kharkiv is a convenient location offering European service standards and operational exDecemember 2016

cellence, which is very important for the EBRD,” commented the EBRD’s Anton Usov. “Using the hotel as a base will help us to more effectively engage with the eastern Ukrainian business community. Mr. Yaroslavsky has created an excellent platform for domestic and international business.” The arrival of the EBRD is further confirmation of the Premier Palace Kharkiv Hotel’s status as a hub for the Ukrainian business community. It also underlines the hotel’s reputation as a hospitality industry leader in the wider region. 25

Kharkiv pharmaceutical giant eyes EU and US markets Zdorovye will celebrate landmark 110th anniversary in 2017 with push to expand export reach opportunity to reflect on how far we have come as a company over the past 110 years. It all began in 1907, when the Galenika Steam Plant of Chemical-Pharmaceutical and Herbal Medical Products first opened in Kharkiv, which was then one of the key industrial centers of the Tsarist Empire. In 1923, the company was renamed “Zdorovye of the Workers”. In 1977, the company adopted its present branding as Zdorovye. By the turn of the millennium, we had entered the top five domestic pharmaceutical manufacturers in Ukraine. We have remained among the market leaders ever since. It has been an incredible journey for everyone involved at Zdorovye. We are looking forward to maintaining this progress throughout our second century.

About the interviewee: Oleksandr Dorovskoy is the General Director of Zdorovye Pharmaceutical Company Kharkiv-based pharmaceutical company Zdorovye has been one of the leading Ukrainian manufacturers of medical products for more than a century. The company’s General Director Oleksandr Dorovskoy spoke to Business Ukraine magazine about the company’s plans to expand international exports in the coming year.

According to market analysis by PharmXplorer and Proxima Research, Zdorovye currently ranks among the top five Ukrainian pharmaceutical manufacturers. How do you seek to maintain your market position and achieve further growth? Our current position depends heavily on public confidence in the brand. This means building a long-term strategy focused on strengthening confidence in the Zdorovye brand as a responsible and reliable producer of pharmaceuticals. The key to our branding is the combination we offer of European quality products at affordable prices. We have more than a century of experience and a production list including 346 products covering everything from cardiology to dermatology. Zdorovye has created 13 entirely original products such as Glutargin, Inflarax, and Artiphlex. We export our products to 15 countries around the world. All this is possible thanks to our highly qualified and professional team of over 1,500 staff. In 2017, Zdorovye will mark its 110th anniversary. How important are such landmarks for the further development of the company? This anniversary will be an occasion to take stock of our current position and identify the key directions for our further development – both in the short-term and in the longer term. Naturally, it will also be an 26

As an international pharmaceuticals company with a significant interest in export markets and a leading position on the domestic market, how challenging has it been to make sure Zdorovye products meet both domestic and international industry standards? Our current production facilities and capacity allow us to make a huge range of different medications in a selection of dosages. We are also constantly working to improve our production processes and introduce new quality control systems. All our production sites are certified in accordance with GMP standards and comply with international quality standards. Our enterprise management system has been designed specifically to meet the relevant international standards (ISO 9001:2008, ISO 14001:2004). Our company is equipped with the latest high-tech equipment from international manufacturers. What are your priority directions for company development? Our current focus is on the modernization of production, expansion of our product range, the introduction of new dosage formats, and entry into new sales markets. In March 2016, the company received a license from the State Administration on Pharmaceutical Products of Ukraine for the production of soft gelatin capsules, allowing us to boost our product portfolio with new high-quality medical products. In the coming year, we are planning to release 10 medical products in soft capsule format. New products entering the market include the antiseptic “Betaiod-Zdorovye’’, “Cyclokapron-Zdorovye’’ for the emergency treatment of bleeding, and “RE-SALT”, which treats mild dehydration. Another new product launched in 2016 was the urological antiseptic “Cistoral”. We have made great progress in expanding exports. In July 2016, the company successfully underwent a quality audit by representatives of the Ministry of Health of Belarus. In September, we signed a contract for investment and production with the American pharmaceutical company Unicity. This cooperation means access to the US market and confirms our ability to meet the highest international standards and compete globally.

What official recognition has Zdorovye received for its work in recent years? The company has been a recipient of the Panacea Award on five separate occasions in recent years, including recognition for Product of the Year and Domestic Manufacturer of the Year. We have received a certificate of honor from the Ukrainian Cabinet of Ministers for our significant contribution to the development of the Ukrainian pharmaceutical industry, www.bunews.com.ua

As one of Kharkivâ&#x20AC;&#x2122;s oldest companies, what is your approach to corporate social responsibility? We regard our contribution to society as one of the guiding principles of the company, and maintain an active corporate social responsibility policy focusing on spirituality, sports, and social support to the community. Our largest single social program is the construction and maintenance of Orthodox churches. On 23 August 2016, we marked the first anniversary of a new church built in Kharkiv region with Zdorovye funding. To celebrate this anniversary, we donated a rare icon from Mount Athos. We also regularly carry out charitable activities at existing churches. Sport is another focus of our social responsibility programs. For a number of years we have supported an annual wrestling tournament held in the memory of Leonid Dunai. We provide funding for the pupils of Kharkiv Physical Culture School No. 1, and offer our support to a number of prominent European and world champions. This year, we served as the main sponsor of the Ukrainian national wrestling team at the Olympic Games in Rio de Janeiro. We were also the general sponsor of the Club World Cup in Freestyle Wrestling, which took place in Kharkiv in 2016 â&#x20AC;&#x201C; a first for Ukraine. By the way, the Zdorovye Wrestling Club took a very credible third place. For the past 15 years, Zdorovye has supported the Komarovsky Orphanage for children with cerebral palsy. We also work to support the pension-age community by offering discounts on Zdorovye products as well as access to diagnostics and free legal advice. We are active academically, providing scholarships for students seeking to attend the National Pharmacy University. Our management also collaborates extensively with the institute.

kharkiv company profile

while in 2015 and 2016 the company received recognition as a conscientious taxpayer. Other 2016 awards and acknowledgements include first place as Industry Leader in the National Business Rating, and an honorary award as Exporter of the Year from the Ukrainian Chamber of Commerce. This recognition helps to cement our brand position as an industry leader and major contributor to the Ukrainian economy. It also provides motivation for the future.

Zdorovye has already attracted a number of European investors and partners. How do you see these collaborations contributing to the further development of the company? We are open to partnership and welcome new cooperation proposals. Our production capacity allows us to provide manufacturing services for medical products, veterinary drugs, dietary supplements, and cosmetics for the CIS, European, Asian, African, and American markets. Our approach to international partnerships is guided by our core company mission, namely to provide people with access to high quality and effective medical products. What are your key objectives for 2017? We plan to register and launch more than 20 new medical products. We also expect to open a new laboratory and technology center for pharmaceutical development equipped with a cutting-edge laboratory and pilot production equipment. There are further plans for export expansion to European markets (Poland, Slovenia), Africa (Burkina Faso, Ghana), and the Middle East (Jordan, Saudi Arabia). It will also be a jubilee year for the company. As we prepare to mark the 110th anniversary of Zdorovye, we can look back on several generations of people who have had faith in the quality of our products. This will help to remind us of our mission to help improve quality of life by providing access to better healthcare products. Decemember 2016

Why Kharkiv is key

to Ukrainian unity

Once one of Putin’s key hybrid war objectives, the capital of east Ukraine is learning to live without Russia When the first signs of Russian hybrid war began to appear across eastern and southern Ukraine in the early spring of 2014, few observers expected Kharkiv to remain in Ukrainian hands for long. This pessimism was rooted in recent experience. Throughout the preceding months of mass protests against the authoritarian rule of Viktor Yanukovych, the city had acted as the center of the “antiEuromaidan” movement. It had provided many of the notorious “titushki” thugs who served as street muscle for the regime. When President Yanukovych’s inner circle finally deserted him in late February 2014, he fled Kyiv for Kharkiv before finally escaping to Russia. At the time, the route of his retreat seemed entirely logical. Kharkiv was a city closely associated with pro-Russian sentiment. It was regarded as a place where Soviet nostalgia trumped sympathy for the revolutionary mood sweeping the country. No other Ukrainian city outside of Crimea looked to be quite as firmly rooted in the “Russian World”.

Gateway to Novorossia

From Moscow’s point of view, Kharkiv was also by far the most important city of the future “Novorossia” or “New Russia” - the new client state the Kremlin hoped to create from the wreckage of a partitioned Ukraine. As well as being the largest city in eastern Ukraine, Kharkiv also contained the region’s most important industries. Crucially, it commanded vital lines of communication that would open up the road to Dnipropetrovsk, Donetsk and Kyiv itself. Controlling Kharkiv was an essential prerequisite if Vladimir Putin was to realize his ambitious plans for a new empire in mainland Ukraine. Quite simply, without Kharkiv there could be no Novorossia.

A bloody Russian spring

Throughout March and early April 2014, things seemed to be going

very much according to the Kremlin playbook. With the Russian border lying just a few dozen miles away, Moscow was able to bus thousands of Russian citizens into Kharkiv to bolster already significant crowds protesting against the revolutionary events in Kyiv. Despite numerous fiascos (at one point, bussed in Russians attempted to storm a Kharkiv theatre after mistaking it for a government building) this imported contingent gave Russia an unassailable street-level advantage. Kharkiv’s sizable pro-Ukrainian movement was soon physically overwhelmed and found itself literally beaten back. There was a sense of unrestrained rage about the ensuing violence that seemed driven by an atavistic need to humiliate and punish Kharkiv’s pro-Ukrainian activists. The Ukrainian patriotic wave unleashed by the Euromaidan Revolution had driven many Russians on both sides of the border into a state of impotent rage. Now it was finally payback time, and they were fighting on what they considered home turf. Central Kharkiv is perhaps the definitive surviving monument to early Stalinist monumental architecture. It is a district of colossal structures and sweeping cobbled boulevards that fan out from what is one of Europe’s largest squares. This downtown square is so vast that rival groups had been able to coexist peacefully throughout the months of the Euromaidan protests without clashing. However, the entire dynamic of the street protests had now changed dramatically, and confrontation was suddenly top of the menu. In scenes that sent shockwaves through the rest of Ukraine, Russian flag-waving and bat-wielding mobs forced bloodied Ukrainian protesters - mostly college-age boys and girls - to crawl on their hands and knees along improvised “corridors of shame” while begging forgiveness, as if their desire for a European future was a betrayal of the city’s Soviet inheritance and Russian associations. By early April, the Kharkiv regional administration building had been :

“The victory of Ukrainian Kharkiv was vital for Ukraine’s survival in 2014, but the completeness of this triumph should not be overstated”

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kharkiv in focus

Decemember 2016

: stormed and occupied. Declarations appeared heralding the foundation of the so-called Kharkiv People’s Republic. The Kremlin, despite officially denying any involvement in the unrest, warned Ukraine not to use force to oppose the takeover. Meanwhile, Russian troops massed along the nearby border. The takeover of Kharkiv looked set to become a master class in the art of hybrid warfare.

who in late April gave birth to the obscene terrace chant “Putin Hoylo” (literally ‘Putin is a Prick”) – a song that became a hugely popular anthem of Ukrainian defiance and a symbol of Kharkiv’s emergence as a bastion of resistance to the Russian hybrid war. Soon the whole country was singing along. In autumn 2014, the city’s colossal Lenin monument came crashing down.

Just when it appeared that Kharkiv was slipping out of Ukraine’s grasp, the entire separatist movement came crashing down with a suddenness that took everybody by surprise. A well-executed 8 April raid by the Ukrainian security forces succeeded in liberating the occupied regional administration building, leading to dozens of arrests that decapitated the fledgling insurgency. The city center went into lockdown mode and forces from Kyiv and elsewhere in Ukraine arrived to bolster the shaky local law enforcement organs. Confronted by this unexpected show of resolve, pro-Kremlin forces began to melt away like spring snow. Rallies and sporadic clashes would echo on for some months, but the decisive period of the confrontation had now passed. With it went the Russian dream of a Novorossia empire. Instead, control of the streets passed to the Ukrainian side. As if to underline this point, it was fans of local football club Metalist Kharkiv

The tensions of spring 2014 have never entirely left Kharkiv. A spate of terrorist bombings targeting pro-Ukrainian groups rocked the city in late 2014 and early 2015. Rumors regularly reemerge of an impending Kremlin attack or local uprising. With the Russian border lying so close to the north and Russian hybrid forces waging war to the south, there is certainly no room for complacency. Nevertheless, today’s Kharkiv is now an unambiguously Ukrainian city where even the most ardent local admirers of Vladimir Putin no longer speak of a Kharkiv People’s Republic. The living conditions in the occupied parts of Donetsk and Luhansk regions have seen to that, robbing the Russian rebellion of any residual romance. Instead of playing a key role in Putin’s hybrid war, Kharkivites find themselves having to deal with the consequences. The city is home to Ukraine’s largest IDP population, with the massive influx of displaced Donbas residents placing a huge strain on local social services.

Ukraine’s second city survives

Nobody wants to be the new Donetsk

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The victory of Ukrainian Kharkiv was vital for Ukraine’s survival, but the completeness of this triumph should not be overstated. Today’s Kharkiv remains a city of diverging opinions and considerable Russian sympathies – much as it has always been. Kharkiv’s formerly pro-Russian Mayor Gennady Kernes remains in his post, having won reelection in late 2015 in a landslide election victory while posing as a pragmatic patriot. The continued popularity of Mayor Kernes should come as no surprise. Even without the support of imported insurgents from Russia itself, Kharkiv’s pro-Russian camp has always been large, vocal, and influential. Nobody has managed to come up with any exact figures for the size of the respective pro-Ukrainian and pro-Russian contingents in today’s Kharkiv. The most plausible estimates place both groups at no more than around 10-20% of the population. Crucially, it is widely accepted that the vast majority of Kharkivites would prefer not to take sides. After a century of relentless Soviet and post-Soviet hyperbole, they have become immune – or maybe just exhausted. A mood of worldly cynicism reigns supreme.

Saved by indifference?

Many believe this indifference to political sloganeering actually saved Kharkiv from disaster back in 2014. While many international

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journalists have sought to depict the city as torn between two passionate and polarized camps, the reality may be that most of the geopolitical tension in Kharkiv during the early stages of the Russian hybrid war came from outside sources. Writing in POLITICO, British author Peter Pomerantsev called Kharkiv a place that defied definition in terms of bipolar dividing lines. “The population’s political passivity and disinterest in real change that so infuriates prodemocracy activists also means it is hard to stir up strife: post-Soviet cynicism saved Kharkiv from Russia. But the fractured nature of life in Kharkiv means a unified push for reforms is also impossible. In this world, men like Kernes, who can change without ever changing, flourish.”

kharkiv in focus

Patriotism and political cynicism

Ukraine’s future success depends on Kharkiv

Today’s Kharkiv is now Ukraine in microcosm – a city struggling to balance a growing sense of Ukrainian identity with a desire to cling to the certainties of the shared Soviet past. To a significant degree, the success of the new Ukraine will also depend on the success of Kharkiv. If the city can prosper in post-Euromaidan Ukraine, it will serve as the final nail in the coffin of Russian expansionist ambitions in the region. However, as long as Kharkiv lingers in the no-man’sland of transition, Ukraine as a whole will remain vulnerable.

25 years in Ukraine, fighting for your business Andy Hunder, President of the American Chamber of Commerce in Ukraine

Since 1992 As we enter the New Year, 2017 will be a very special one for the members of the American Chamber of Commerce in Ukraine: we will be celebrating our silver jubilee 25th Anniversary in Ukraine. The Chamber was founded in 1992 and has grown from strength to strength over the past quarter of a century. We will be recapping on the major successes that we achieved in Ukraine. Our team is full of inspiration and new ideas setting even more ambitious goals. A large number of policy, networking and educational events are already scheduled for the first quarter of 2017. Continuing our dynamic cooperation with government officials and stakeholders, we count on support and professional involvement of our Members into Chamber activities so that the reform-oriented measures can be taken for the benefit of the business community and Ukraine at large, strengthening the sustainability of Ukraine’s economy.

Part of a unique European network A former European minister visiting Kyiv last week asked me to explain to him a phenomenon he had encountered after spending two days in Ukraine. “Half the people that I speak to,” he said, “talk of massive positive change that has taken place in Ukraine over the past three years; the other half complains that nothing has changed. Who is telling the truth?” he interrogated. I explained to him that the reality is, probably, somewhere inbetween. The bad news we hear much quicker – if it bleeds, it reads, - good news takes longer to get across.

In a Financial Times article on December 8th, I was quoted as saying that “tectonic shifts” are being made in Ukraine, to the betterment of the business environment. “The reform we have seen in the past three years is more than Ukraine achieved in the past quarter of a century. We are seeing real, tangible changes. Still on investors’ wish list are continuation of the IMF program; the ability to repatriate profits; transparent privatizations; a crackdown on illicit trade; and improved tax administration.”

I am delighted that in 2017 Ukraine will now have a presence and more visibility among the American Chambers of Commerce in 44 countries throughout Europe and Eurasia, all part of the Chamber’s B2U strategy, promoting Ukraine as an attractive destination for investors. I have been elected to serve as Treasurer of the AmChams in Europe, an umbrella organization, representing the interests of more than 17,000 American and European companies employing 20 million workers – accounting for more than $ 1.1 trillion in investment on both sides of the Atlantic. On the next page you will see the newly elected Executive committee that has been elected to serve in 2017. I invite you to celebrate our 25th anniversary together with us, continuing to fight for business in Ukraine.

The fight against corruption remains number one issue for business in Ukraine. We are looking towards 2017 with hope that we will see more of the 3rd of our “3Ps” on corruption being brought in to life: “Prevent, Publicize and Punish”, something that we have been advocating throughout the outgoing year.

2016 was a turning point where we saw a change of trajectory in economic growth: following 5 years of GDP contraction and decline Ukraine posted 1.4% GDP growth figures for 2016. This is a very encouraging signal and should be made good use of in attracting new investment to Ukraine. December 2016

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investment

Selling Brand Ukraine in 2017

Myron B. Rabij says Ukraine needs to focus far more on marketing itself to international investors Ukraine begins 2017 with a number of positive indicators suggesting the country’s economy is entering into a period of renewed growth. Nevertheless, foreign direct investment (FDI) remains in alarmingly short supply. Most analysts agree that without greater international investment, the current post-Maidan recovery is likely to remain anemic. The loss of access to traditional Russian markets and the ongoing geopolitical confrontation with the Kremlin have added a sense of strategic urgency to Ukraine’s current search for new international partners. Since 2014, this has produced a sharp upswing in efforts to promote Ukrainian investment on the global stage. The Ukrainian government has staged an unprecedented series of bilateral business forums, while the private sector has also sought to meet growing international interest in what many continue to view as Europe’s last great emerging market. This trend looks set to continue into 2017. One of the key investment attraction initiatives of the first quarter will be a series of forums in North America organized by A7 Conferences with the support of Dentons. This tour will run throughout early March, with investment events scheduled to take place in Toronto, New York City, Houston and San Francisco. Business Ukraine magazine spoke to Dentons Kyiv and New York Partner and Head of its Energy Practice Myron B. Rabij about the challenges of selling Brand Ukraine to outside audiences. What are the key concerns among potential investors considering Ukraine market entry? Stability of the government (which I think is a misplaced concern - governments will inevitably change during the reform process), the bureaucracy, the tax system and tax load, low margins (i.e. profitability), and, of course, corruption. The time drag of the bureaucracy cuts away at already low margins and creates risk. As to corruption, to be frank, experienced investors in emerging markets appreciate that corruption cannot be completely eliminated. It exists in all markets in varying degrees. Investors seek to understand whether there are ways to overcome the hurdles created by corruption that threaten to impede business. This could mean the court system, law enforcement, or an ombudsman or other relief - including the reliability of international arbitration award enforcement. Does my business stand a chance when confronted by corruption? That is what an investor needs to know. How important are geopolitical factors for investors when looking at Ukraine? Very. Investors used to regard Ukraine as a bridge into Russia due to its trade treaty advantages and its proximity to Europe. That advantage is no longer there. An investor currently buying into Ukraine or considering building something in Ukraine is not only thinking of the domestic market (where buying power is quite low), but

is also looking to use Ukraine as a springboard into other markets. There has to be incentive to invest and investors need to understand where the Ukraine springboard may take them. Who are Ukraine’s new strategic trading partners other than the EU and the US? The EU and the US are already trading amongst themselves. There has to be additional added incentive other than Ukraine marketing itself as a low-cost labor market or outsourced manufacturing market for resale back into the EU. Which areas of the reform process offer the greatest potential for shortterm improvements in the Ukrainian investment climate? You are absolutely right in identifying the short term as the biggest problem for the investment climate. The long-term picture looks positive, but getting from here to there is a hard road. Ukraine needs to keep working on lowering the tax load, and reducing and simplifying the bureaucracy. There have been considerable achievements but the process must go further. It is possible to name numerous specific priorities: Further lowering tariffs on upstream drilling and changing how they are calculated; finally approving long-term power purchase agreements and the electricity law for the electricity sector and perhaps reducing connection fees; allowing the feed-in tariff to kick in during the investment stage and not simply at its completion. Creating incentives for IT innovation, privatizing land and jump starting the privatization process generally, allowing foreign law governed foreign arbitration of cross-border shareholder disputes while still debating internal court reform, and further relaxation of currency regulations (already in the works but still a multi-step process).

Many analysts identify communications as a major Ukrainian weakness, with potential investors unaware of the opportunities Ukraine represents. How should Brand Ukraine be packaged for outside audiences? That’s a very good point. At present, Brand Ukraine does not produce a warm and fuzzy feeling. Packaging certainly helps but on a fundamental level, both the Brand and the Product need to be strong and must contain a positive message. This message is currently missing. The focus on the hybrid war with Russia is diverting attention completely away from investment. Anyone in marketing will tell you that you cannot sell your brand by constantly comparing it to or complaining about the competition (i.e. Russia). As everyone can plainly see, the result is a lot of press and attention on Russia but not Ukraine. Brand Russia effectively gets a boost from the marketing campaign of Brand Ukraine. Advertising is about you (the consumer) and me (the vendor). It is not about the other guy. I think Ukraine misses this. The Ministry of Economy has produced some very well packaged marketing materials. That has to continue. Bearing in mind how many business people are now in government and parliament, I remain surprised how little they focus on Ukraine’s marketing campaign. I think Ukraine really needs to focus on producing quick, positive, and high profile news on investor-friendly “wins” rather than a constant re-hashing of existing problems. The government also needs to advertise and promote its reform and development strategy. We hear a lot about the various pieces. We need to hear a consistent message about how it all fits together.

About the interviewee: Myron B. Rabij is a Partner at Dentons Kyiv/New York

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it sector

Odesa health startup secures UK investment

Practical posture device proves latest Odesa innovation to attract international attention Ukrainian startup Mevics has secured USD 500,000 in funding from UK-based investment company UB Tower for an innovative health device designed to monitor the spine and improve posture. The deal, finalized in December 2016, will now position the Odesa-based startup for US and EU market entry in 2017. It is the latest breakthrough for the Ukrainian startup scene as the country’s booming IT sector continues to mature and expand beyond its traditional focus on outsourcing.

Smart student startup

The Mevics startup is the work of students from the Institute of Computer Systems at Odesa Polytechnic University. An early prototype of their device was first presented in spring 2015, when it took first place at the “IT-Eureka! Ukraine” contest in Odesa. The technology was subsequently showcased at a range of IT forums and conferences across Ukraine, attracting the attention of numerous potential international investors. Negotations with UB Tower began in summer 2016, leading to December’s public announcement of the London-based investment group as co-founders of the project. The product they hope to take to European and North American markets is a miniature device that monitors the position of the user’s spine and synchronizes via Bluetooth with the user’s smartphone. If the user starts to slouch, the device vibrates to indicate the need to straighten up their posture. In other words, it is ideal for people who spend their days sitting in front of computer screens. The device is unobtrusive and virtually undetectable beneath clothing, with a product overhaul by design agency Ganzel giving it a funky and contemporary appearance. The Mevics team is now focusing on further research and product development, with the first

product shipments to Kickstarter backers penciled in for August 2017. The progress of Mevics is no fluke. From the very beginning of the startup’s existence, the young Mevics team stood out for their motivated and strategically savvy leadership. Co-founders Victor Laushtan and Vlad Morzhanov put together a strong team and invested significant resources in order to create the right balance for a competitive startup. Their success reflects the growing confidence of the Ukrainian startup scene and the increasing international attention it is generating. Long known as one of the leading outsourcing destinations in the international IT industry, Ukraine is also beginning to earn a global reputation as a startup center.

Odesa IT innovators

Mevics is one of numerous similar success stories to emerge recently from the Odesa tech startup scene. Many have attracted considerable media attention, such as the USD 1 million investment into Odesa’s Augmented Pixels, or the USD 2 million that Odesa-founded global product company Clickky attracted from iTech Capital. Meanwhile, even non-techies may recall the sensational 2015 deal that saw Odesa’s Looksery purchased for USD 150 million by Snapchat. Other recent Odesa startup breakthroughs include AgriEye, which managed to raise USD 150,000 in angel investments. The Odesa IT scene benefits from the cross-cultural synergies of the city’s unique IT ecosystem. This ecosystem has evolved organically thanks to the

presence in Odesa of a wide range of different IT service providers and product development companies such as the brilliant Readdle and KeepSolid. The city also boasts various popular meeting points and hubs that allow startups and software developers to interact, such as Terminal42, iQSpace, and ThelmpactHub.

Ambitious plans for 2017

The coming year looks set to witness the further evolution of this vibrant Black Sea IT scene. Terminal42 founder Sergey Petrenko and Karina Lapina, the founder of the Experiment42 pre-acceleration program, recently visited Amsterdam in search of new ideas and received inspiration in the form of the “City of Startups” project. These two Odesa IT innovators are now actively preparing their plans for the coming year and will be sharing their experience with the wider tech community. Meanwhile, iQSpace will host a Battle of Startups in 2017. The next generation of startup superstars will also be a key focus of the city’s 2017 IT activities. The IT Cluster Odessa initiative is developing a new concept called ITStudWay that will provide undergraduate students with product development experience during the course of their university studies, with the aim of introducing them to the commercial realities of the startup world.

About the author: Yulia Sulimova is founder and director of IT Cluster Odessa 42

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hotel sector

International hotel group eyeing Odessa and Lviv expansion Regional capitals becoming increasingly attractive due to Ukraine’s growing domestic tourism market Every cloud has a silver lining. The recent devaluation of Ukraine’s hryvnia currency has combined with the geopolitical situation to fuel robust growth in the country’s domestic tourism market. With popular traditional holiday destinations in Crimea now off limits and foreign trips prohibitively expensive, more and more Ukrainians are looking at domestic options and discovering that the country actually has much to offer. Carlson Rezidor Hotel Group Vice President for Business Development David Jenkins believes this consolidation of the domestic tourism sector has helped to create the right conditions in Ukraine for long-term growth in the hospitality sector.

Seasonal celebrations in Lviv: the capital of West Ukraine has boosted its tourist potential by staging festivities throughout the year and regularly hosting international festivals

Domestic market growth

“If you’ve got a strong base of domestic tourism, then that is a great foundation to build on. Even if you look at top global destinations like Paris and London, the major of visitors are still domestic,” he says. Carlson Rezidor Hotel Group currently has a number of properties in Ukraine including two Radisson Blu hotels in Kyiv and a Radisson Blu hotel in Bukovel, together with a Park Inn by Radisson hotel in Donetsk, which has continued to function despite the ongoing conflict in the Donbas region. Mr. Jenkins expects a new Park Inn by Radisson hotel close to Kyiv’s Olympic Stadium to open for business in 2017, a development he says points to growing confidence in the Ukrainian hospitality sector. However, he is most interested in the country’s two leading regional tourism destinations – Odesa and Lviv. “We are currently targeting Odesa,” he says. “We see a number of positive trends converging, including the boost in domestic demand due

to the situation with Crimea. Occupancy rates in Odesa are actually higher than in Kyiv at present. There is a clear lack of supply. We think this growing demand is sustainable for Odesa and we are actively looking.” His hotel group is far from the only international chain currently seeking to enter the attractive Odesa market. Ukraine’s Black Sea port city has seen a huge spike in the number of annual visitors since 2014 but it remains without any recognized international hotel chains. This makes it an appealing prospect for major global brands. Numerous big names are currently exploring the possibilities for market entry, but there has been no confirmation of any major projects. “We’re confident in the strength of the Odesa market, as are our competitions,” says Mr. Jenkins. “Time will tell who gets there first.”

Lviv seizing the mantel

Odesa’s appeal is primarily rooted in the city’s close proximity to the beaches of the Black Sea and its excellent nightlife options. These attractions make it a potentially popular traditional summer holiday destination with pan-European appeal. Lviv is a different proposition altogether, offering abundant history as well as some of Europe’s most romantic and well-preserved architectural ensembles. Unsurprisingly, Mr. Jenkins says Lviv is also

high up on his hotel group’s list of priorities. He spoke to Business Ukraine magazine immediately following a trip to Lviv, and his enthusiasm was evident. “It’s amazing to see the vibrancy of the city. There are all sorts of new cafes and restaurants springing up,” he says. “I’ve always been a little bit disappointed by Kyiv’s failure to sell itself as a European city break destination, but it is great to see Lviv picking up the mantel. Kyiv has never really fully capitalized on its infrastructure and beauty, but Lviv is doing exactly that.” Mr. Jenkins says the arrival of more international hotel chains will help to put Lviv on the map for international tourists. He is enthusiastic about the way the city authorities are working to court Polish tourists, and also regards Lviv as the natural destination for Ukrainian visitors seeking a ‘European experience’. These factors make Lviv and Odesa the obvious focuses for his hotel group’s further expansion in Ukraine. However, he is already anticipating a time when the less well-known regional cities in Ukraine become the new frontiers. “We’re long been interested in Dnipro as a business destination, and have also explored the opportunities in Zaporizhia,” he says. “This interest remains, but there will need to be an improvement in the economy before these kinds of cities become genuinely attractive.”

About the interviewee: David Jenkins is the Carlson Rezidor Hotel Group Vice President for Business Development 44

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2017 INVESTMENT OPPORTUNITIES Agricultural companies and agricultural land for sale in Ukraine

Commercial real estate at French Quarter residential complex

Sector: Agriculture Region: Ukraine Stage: Operating companies

Sector: Real Estate Region: Kyiv Stage: Ready for exploitation

USD 2,000 — USD 3,000 per sq.m.

Customized search and selection of agricultural facilities in Ukraine to meet investor inquiries for land banks amounting to 500–30 000 ha

Spaces available from 145 sq.m to 500 sq.m.

Due Diligence of agricultural companies and their assets

Height: 4–5 meters

Structuring of transactions for purchase and sale of agricultural facilities; M&A in Agriculture

Utilities: all available

Raising capital for agricultural companies

Condition of the property: after construction without decoration

Expected monthly income from rent is USD 20–25 per sq.m.

Agricultural Asset Management High technology consultancy and support in agriculture

Investment sought to complete construction of residential apartments

Marine elevator for sale in Kherson region

Sector: Real Estate Region: Kyiv region Stage: Development

Sector: Logistics and Storage Region: Kherson region Stage: No operations

Investment: USD 750,000

Call for debt financing amounting to complete residential construction near center of Obukhiv, Kyiv region Living space: 24,653 sq.m (487 apartments) Selling price of apartments is projected at USD 450 per sq.m.

Price: USD 9,500,000

Marine portside elevator in Kherson region provides services of handling and reloading from automobile freight forwarders onto water transport of grains, pulses, oil crops, and grain by-products of cakes, pulps, oilcakes, and brans.

Lending period: 10–12 months (with a grace period of 4–5 months)

Includes mill complex with newly mounted equipment and modern technologies for production of up to 1,500 tons of high-quality flour

Annual interest rate of up to 25% is considered acceptable

Total amount of storage silo is 33,420 tons Grain receiving capacity stands at 1,500 tons Water depth near the pier is 5.5 meters; length of quay is 155 meters

Contacts: 24 Starovokzalnaya St., Kyiv, 03150, Ukraine Tel.: +38 067 713 65 71; +38 067 354 01 75 Tel.: +38 044 223 39 71 E-mail: ib@inventure.ua Web: http://inventure.ua Web portal: https://inventure.com.ua

InVenture Investment Group is an experienced partner with a proven track record in the Ukrainian Private Equity and Venture Capital market. InVenture Investment Group offers a range of services including investment finance support, M&A advisory services in a range of industries, development and implementation of investment strategies, and private banking.

society

Transforming Kyiv into a Smart City Civic society initiative seeks to unite grassroots and government efforts to bring Kyiv into Digital Age corporate partners, and the Kyiv City Administration, with an emphasis on improving public communication of the improvements taking place at street level in the Ukrainian capital. “There is so much going on, but if nobody knows, nobody participates. Even the best ideas can die if they are not supported,” says Ms. Boyko. So what exactly is a Smart City? According to Ms. Boyko, there is no specific answer. “Smart City is a very general term,” she says. “Every city needs to decide what the term means for them and to develop in their own individual way.” One of the current focuses of her work is a plan to create a so-called Smart Street in Kyiv’s Lukyanivska district. The current concept envisages solar-powered benches

About the interviewee: Yaroslava Boyko (team@kyivsmartcity.com) is the Coordinator of the Kyiv Smart City NGO (www.kyivsmartcity.com) On a frosty early winter morning in downtown Kyiv, dozens of journalists have descended on Maidan Nezalezhnosti, jostling for position in a large scrum outside the entrance to the central post office building. Every TV channel is here, along with virtually all the newspapers, radio stations and a host of online platforms. Unusually for such a large media crowd, this is not a political event or a revolutionary gathering – it is the presentation of a new digital initiative to provide electronic mapping information for visually impaired Kyiv residents to help them navigate the city center. This is just one of the many projects supported and publicized by the Kyiv Smart City NGO, a civil society group that aims to serve as an umbrella organization for the many grassroots initiatives seeking to bring the Ukrainian capital into the Digital Age. “The Ukrainian media loves IT innovation stories. They want it and they need it, but they don’t always know where to look,” Kyiv Smart City Coordinator Yaroslava Boyko tells Business Ukraine magazine as she reflects on the size of the media crowd on Maidan. We meet at the group’s loft-like open plan hub in Kyiv’s National Exhibition Center – a sprawling Soviet-era complex that is currently reinventing itself as a focus for the Ukrainian hipster generation of start-uppers and IT innovators. The Kyiv Smart City hub is a self-conscious monument to post-industrial reinvention – a split-level creative space that is all bare brickwork and heavyweight metal pillars, with one wall dedicated to the hundreds of supporters (“Smart Citizens”) whose donations help to keep the NGO afloat. There are even a couple of splendidly preserved Soviet crests adorning one upper corner of the hub. “We kept them there as a symbol of how you can successfully build on the Soviet past without necessarily destroying it,” explains Ms. Boyko.

Bringing together Kyiv’s Smart City innovators

The Kyiv Smart City NGO marked its first anniversary in December 2016. It came into being following crowd-funding efforts, and began life with an agenda to bring together a range of existing Smart City projects and local government initiatives while serving as a platform for future collaborations. The group currently works with civil society, 46

that will recharge electronic gadgets and electric cars, recycling facilities, energy-saving streetlights, improved disabled access, and CCTV coverage. The search for corporate sponsors is currently ongoing, and the goal is to use the project as a prototype for similar digital development throughout the Ukrainian capital and beyond. With plans for the envisaged 2017-2020 project taking shape, local residents are also having their say. Ms. Boyko says 75% of respondents are already prepared to recycle their household garbage, while many have backed plans to install additional energy-efficient lighting in the local park area. “We need to understand that innovation must be a partnership between the local authorities, civil society, and communities. It must meet the needs of society. Innovation for its own sake is pointless.”

Channeling Ukraine’s post-Maidan activist ambience

The Smart City Kyiv NGO is yet another example of Ukraine’s vibrant civil society doing the things that many would regard as the responsibility of the state. In this sense, it is very much part of the post-Maidan mentality evident throughout Ukrainian society. Ms. Boyko and her colleagues actually work closely with the Kyiv City Administration and other government bodies, providing communications support and helping to attract partners and corporate financing for new projects. The group also seeks to help harness Ukraine’s huge IT potential and channel it into more commercially viable directions, conducting training courses and workshops at its Kyiv Exhibition Center hub on themes like Smart Finance. Boyko says the Euromaidan movement was instrumental in teaching her generation to take a more active role in shaping the future of the country. “We were just as smart before Maidan, but we didn’t have the same belief in ourselves or our ability to bring about change.” Ms. Boyko admits that many of her peers have lost their enthusiasm for activism in the three years since Euromaidan. Nevertheless, she refuses to let the post-Maidan frustrations of Ukraine’s stuttering reform process distract her from the long-term objectives underpinning the Kyiv Smart City concept. “The current government do not represent the final stage of Ukraine’s transformation. I understand the sense of frustration in today’s Ukrainian society, but my goal is to unite people who want to contribute,” she says. “The future will not happen by itself. We need to build the future ourselves with the small steps we take in the present.” www.bunews.com.ua

2017 Reform Forecast

From Revolutionary Romanticism to Professional Pragmatism Legal professionals must play their part in accelerating Ukraine’s stuttering reform process in 2017 larly astute legal managers seem to have decided that this is the right moment to enter the Ukrainian market. For example, Kinstellar - a European spinoff of global heavyweight Linklaters, opened a Kyiv office in the middle of 2016. Another global legal powerhouse, Dentons, succeeded Salan’s Kyiv office just a few years earlier in what was already an uncertain time for the Ukrainian market. This pioneering approach may well pay dividends in 2017 and beyond. In the coming few years, the improving Ukrainian economy will lead to a relaxation in the currently tense market competition in the legal sector, creating a healthier environment and reducing the moral and ethical concerns created by the need to survive. Global legal practice trends are also increasingly evident in Ukraine, albeit with a slight delay. These trends include growing rivalry from the Big Four consultancies and in-house legal departments, as well as the packaging of legal services together with other business-related support to create one-stop-shop products. As a result, the Ukrainian market itself is becoming more mature and capable of reaching more sophisticated solutions. Age also matters. In 2016, a large number of Ukrainian law firms celebrated their 10-year anniversaries while a few passed the 20-year threshold. About the author: Armen Khachaturyan is Senior Partner at Asters, a Ukrainian full-service law firm that celebrated its twenty-first anniversary in 2016. In 2016, Ukraine’s legal industry continued to adjust to a difficult political and economic environment that prevented the country’s postMaidan recovery from genuinely taking off. Legal services providers reprioritized their work in order to reflect these challenging business realities. Traditional focuses such as M&A and real estate gave way to areas like dispute resolution, corporate and financial restructuring, and debt recovery. According to market research, turnover in the legal services sector grew annually by around 4%. This reflects the similarly modest growth of Ukraine’s macroeconomic indicators in 2016. Given the hryvnia’s dramatic devaluation over the past two years, it was impossible to expect financial results even close to pre-crisis levels.

Fierce fight for share of a smaller market

The already bitter competition for market share within the Ukrainian legal industry increased during 2016 and looks set to grow further. The shrinking economy has forced law firms to enter into increasingly direct competition, especially in the fields of business advisory and legal consultancy. This was apparently one of the key reasons behind the decision to close down a number of Kyiv offices of international law firms including Chadbourne & Parke, Schoenherr, Gide Loyrette, and Clifford Chance. Nevertheless, the majority of market players remain optimistic about future perspectives. Most have chosen to stay. Indeed, some particu48

Unstable stabilization

Unfortunately, 2016 did not witness game-changing progress in the implementation of badly needed and broadly discussed Ukrainian reforms. This does not mean reforms did not take place at all. Major undertakings included initiating the reform of the judiciary. These ambitious plans came alongside smaller changes such as the strengthening of minority investor protections. However, this progress has been neither systematic nor consistent. Consequently, Ukraine failed to improve significantly on its position in the World Bank’s annual Doing Business survey, where it currently languishes in eightieth position. Despite widespread complaints over the shortcomings of Ukraine’s reform program, most international observers agree that the country is broadly moving in the right direction. During her opening speech at the International Bar Association Annual Conference in Washington DC in September 2016, International Monetary Fund Managing Director Christine Lagarde offered words of encouragement to the Ukrainian government and legal community. Her message was simple: you are on the right track. Keep going, increase the pace, and be consistent. One of the most encouraging developments of 2016 was the appearance of new governmental anticorruption agencies. This has been widely interpreted as a big step towards transparency and a move away from the entrenched practices of corruption within the existing bureaucracy. However, a lack of internal coordination governing the work of these agencies, together with question marks over the ability of these new agencies to make significant progress, have raised concerns in society and led many to conclude that victory in the “war on corruption” will not be possible in the near future. This skepticism has strengthened following revelations www.bunews.com.ua

Legal community must play key role

As well as helping businesses to navigate the fast-changing Ukrainian legislative and regulatory environment, in 2017 law firms and legal professionals will also continue to make a disproportionate contribution to the development of the new Ukraine. The legal services market will provide many of the professionals entering the three branches of the Ukrainian government, although this may not be at quite the same high levels as during the years immediately following the 2014 Revolution of Dignity. In 2017, the new structure of the Supreme Court will take shape on a competitive basis. For the first time, legal practitioners will have a unique chance to join the top ranks of the judiciary, thus theoretically re-establishing the legal and moral principles underpinning the practice of law in Ukraine for many years to come. Similar legal sector

Decemember 2016

involvement will be evident as other government agencies seek to refresh personnel and implement reforms. This process has been ongoing since 2014 and has so far produced somewhat ambiguous results. Nevertheless, efforts to reform state structures will continue. The time for revolutionary romanticism has now given way to the primacy of professional pragmatism. This will be one of the main messages throughout the coming twelve months.

2017 preview

contained in the e-declarations completed by tens of thousands of elected officials and government employees in late 2016. These groundbreaking documents revealed staggering levels of unexplained wealth that are without parallel in the rest of the developed world. We can expect further shocks to the Ukrainian business environment in 2017, with key initiatives including the new electricity law, amendments to taxation law, and the transformation of existing infrastructural monopolies. Deregulation of the economy should become more efficient and will simplify business practices in Ukraine. Unfortunately, past Ukrainian experience teaches us that intensions and implementation do not always match. Legal support is particularly necessary in times of change, as frequent and often inconsistent changes to Ukrainian law and related regulatory practices make business more difficult and legal advice more valuable. This is likely to be the case in the coming year.

Reform remains national priority

The speed and success of the reform program remains Ukraine’s 2017 priority. Far-reaching reforms must become the foundation stone for the broader transformation of Ukraine. The process has the potential to affect European integration while also improving the business environment and creating the right conditions for the rule of law. If this transformation is successful, it will inevitably attract the attention of the outside world. That will mean foreign investment, business development, a further strengthening of civil society, and general improvements in the standard of living. Due to their professional knowledge, skills, and experience, the Ukrainian legal community has a special role to play in the process. We should view ourselves as the “last bastion” in the battle for Ukrainian reforms. The objective is simple yet challenging – to hold the reformist frontline for as long as necessary before launching a final victorious offensive to establish credible rule of law for all. We must not allow the disappointments and frustrations of the past few years to undermine our will to help facilitate improvements and support the development of the country. The coming year will be another pivotal twelve months in Ukrainian history. Members of the country’s legal profession have a crucial role to play.

Growing Demand for VIP Banking Credit Agricole sees increased interest in VIP banking as wealthy Ukrainians seek security and services From cash economy to financial accountability “Now is the right time to change the attitude and handle wealth more transparently,” says Yelyzaveta Tymoshenko, Head of the VIP Banking Development Department at Credit Agricole in Ukraine. “We regularly advise our clients that keeping money in safety deposit boxes is not a smart long-term choice. People have to demonstrate the sources of their wealth and account for their finances. More and more people are recognizing this and seeking the appropriate banking solutions.” Credit Agricole has been offering specially tailored VIP banking services since 2011 and currently works with thousands of wealthy clients. Over the past year, the French-based international bank has been increasingly focusing its Ukrainian personal banking services on the VIP sector. Earlier in 2016, they launched the bank’s global “Horizon 2018” strategy, which in terms of premium banking will see the expansion of VIP banking services and infrastructure throughout Ukraine.

20% VIP client growth in 2016

About the interviewee: Yelyzaveta Tymoshenko is Head of the VIP Banking Development Department at Credit Agricole in Ukraine Ukraine’s banking system is currently undergoing fundamental reforms. The process has sparked a lively national debate, but there is little argument that it is both unavoidable and necessary. In a statement released to Business Ukraine magazine, officials at Credit Agricole bank said that the banking system is becoming more transparent, stable, and solvent. “The process is proving as painful as any radical reform, especially in a tough geopolitical environment. On the other hand, no country has ever managed such a process in a smooth and painless way. The reforms, in cooperation with the IMF and other IFIs, are developing in the right direction. Confidence in the Ukrainian banking system will be the inevitable outcome.” As confidence returns to the banking sector, one of the key growth areas is likely to be demand for VIP banking services. 52

The experience of Credit Agricole suggests significant demand for such services. In the first nine months of 2016, the bank registered 20% growth in its VIP banking client portfolio. “We regard this as a particularly interesting segment for Credit Agricole, especially when you compare the kinds of banking services required by standard account holders and VIP clients. Many of our affluent clients tend to require a far broader range of services. They want access to premium banking cards, expert financial advice, and things like long-term life insurance. These services have been available elsewhere in Europe for decades, but have only recently become widespread in Ukraine,” says Ms. Tymoshenko. Who qualifies for VIP banking services? For Credit Agricole clients receiving services in the bank’s exclusive VIP banking office, the minimum threshold is UAH 2 million in deposits, with the alternative opinion of paying an annual fee. In return, clients gain access to a range of additional services from the bank itself and from prestige partners, a list that features everything from insurance companies to luxury automobile importers. VIP benefits include overdraft facilities up to UAH 500,000 with a 55-day grace period, and a concierge service, as well as travel insurance and access to additional money transfer services. The bank already maintains an exclusive VIP Banking office in Kyiv that functions as a kind of First Class Lounge for clients in the Ukrainian capital, removing the everyday hassle of things like queues while providing privacy and a more personal touch. There are plans to open similar dedicated VIP offices across Ukraine. VIP clients can also call on the services of their own personal banker provided by Credit Agricole.

Attractive for executives

At present, the majority of Credit Agricole’s VIP banking clients are senior executives from international and Ukrainian companies that enjoy existing relationships with the bank. “The owners and www.bunews.com.ua

banking sector

senior executives of companies we already work with have long encouraged us to move in this direction,” says Ms. Tymoshenko. “Credit Agricole has a traditional emphasis on major international corporations. Providing VIP banking services to international executives who first came to us for their company banking needs was a logical progression. This allows us to build on our existing relationships.”

International banking brands offer sense of security

High net worth individuals tend to pay particular attention to banks belonging to international groups, which, due to the global scope of their business model, offer lower risk together with extensive experience and expertise, allowing them to provide greater stability and stronger positions. Global financial players care about their reputation, usually have high ratings, and enjoy the confidence of customers and partners. This also applies to the Ukrainian banking sector. “We have proved that we are a reliable bank on the Ukrainian market because we have successfully passed through two crises without placing any limitations on the ability of customers to access their money,” says Ms. Tymoshenko. Decemember 2016

She sees evidence that this proven long-term reliability is now becoming a priority. “Despite the fact that our bank offers low interest rates on deposits, we continue to attract new clients. This suggests that profits are becoming less important than security for Ukrainian clients.”

Exclusive Banking Club

In the coming year, Credit Agricole plans to expand its VIP banking services further while adapting to the growing demand from wealthy Ukrainian and expatriate clients. As well as a range of specific perks and benefits, premium clients also enjoy access to exclusive events with the kind of networking possibilities that are often crucial to success in the Ukrainian corporate climate. “VIP banking with Credit Agricole is not only about the financial services,” says Ms. Tymoshenko. “We created the Exclusive Banking Club which allows our clients to receive access to top events. We pay special attention to synergy and we see these kinds of business and entertainment events as great way for our VIP clients to communicate, to find new partners, and build new business relationships. These events are also an ideal way for the bank to express our loyalty by creating added value for our existing clients.” 53

Kyiv real estate recovery set to continue in 2017

Modest 2016 growth expected gain pace as confidence returns to Ukrainian property market As we anticipate likely trends in the Ukrainian real estate sector in 2017, it is helpful to look back on the past two years of developments on Kyiv’s housing market. In 2015, many real estate investors were concerned about war and instability in Ukraine’s Donbas region, as well as the rapidly depreciating hryvnia currency. This depreciation led to steep decreases in rental rates in Kyiv and eventually forced their delinking from the US dollar. Apartments that had been renting for up to USD 3000 per month saw rents decrease by 50% in US dollar terms, while the premium price segment decreased by about 20-25% in US dollar equivalent compared to rates for early 2014. In 2015, sale prices were down 20-25% for apartments in older buildings downtown, and 20% for business class complexes in the center. Prices for new family size apartments (100-200 sqm) outside Kyiv’s center decreased by less (10-20%) due to rising demand generated by the influx of families fleeing the Russian hybrid war in the Donbas. However, by the end of 2015, this pricing support effect had run its course.

Market stability returns in 2016 When compared with tumultuous 2015, the past year has been a period of relative stability for Ukraine’s currency (down only about 9% for the year) and a time of nascent economic recovery. Overall, prices on Kyiv’s housing market have stabilized, with slight price increases in premium class rentals and sales of business class apartments. Sale prices for middle class apartments decreased by less than the decline in the value of the hryvnia (about 3-4%) while economy class properties have dropped in price in US dollar terms at about the same rate as the hryvnia. For the first 9 months of 2016, the quantity of commissioned living space in Kyiv in square meters was 7% lower than the same period in 2015, which had been 25% higher than 2014. However, despite this year-on-year drop, available figures indicate that apartment sales actually picked up in 2016. Registered sales-purchase agreements for the first six months of 2016 were about 15% higher than in the same period in 2015.

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Mortgage lending slowly coming to life

In late 2016, rental prices for many apartments in Kyiv’s center continued to drift slightly downward as local landlords became more willing to negotiate on price. However, prices are slowly growing in the segment for diplomats and expat executives. These rises are primarily due to a shortage of suitable housing. Nevertheless, demand remains relatively soft for premium rentals of USD 5,000 per month and higher. Ambassadors and country directors of multinationals typically rent premium flats in this category. About three years ago, many expat country directors had to leave Ukraine due to the refusal of international insurance companies to underwrite policies for these expat C-level executives because of the conflict in eastern Ukraine. They have yet to return in large numbers. It is far from certain that there will be an expat executive influx in 2017. This has had a negative impact on rental rates. The market for Kyiv apartment sales continues to be soft, although prices are stabilizing. At present, it is a market dominated by motivated buyers looking for motivated sellers, with a general absence of “fire sales”. The end of 2016 saw noticeably increased interest in Kyiv’s real estate market among foreign investors, but many potential buyers opted to hold off until after the New Year.

According to a report by the National Bank of Ukraine, in the third quarter of 2016 the quantity of approved mortgages in Ukraine rose marginally. Mortgage financing did not exceed 5% of purchases, but this is still more than double the anemic figure of 2% in 2015. A significant impediment to issuing mortgages remains the portfolios of bad/non-performing hard currency loans issued prior to the 2008 financial crisis. Other obstacles include the unstable hryvnia, high inflation, and lack of trust in local banks. This keeps interest rates high in a bid to attract depositors, which in turn serves to increase the cost of funds for lending. Additionally, Ukrainian depositors generally keep their funds in banks for short periods of around three to six months. This lack of long-term deposits increases liquidity risks for banks. In lieu of mortgage financing, many local buyers choose to rely on deferred payment financing from developers in order to buy apartments in new housing complexes. Buyers make a down payment ranging from 5% to 70%, with full payment deferred until commissioning of the apartment building or for longer periods. Some developers offer interest-free deferment, but if they increase the per square meter price for new buyers, then prices will also increase for those receiving deferred financing. Deferred payment financing from developers was highly popular :

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real estate

Impact of expat exodus

real estate

: among Ukrainian buyers prior to the financial crisis of 2008. However, in

recent years it has become noticeably less popular as Ukrainians have felt less confident about the stability of their incomes. The majority of apartment purchases still involve private funds. According to recent market research data, apartment purchases in Kyiv in November 2016 reflect this reluctance to borrow. About 3-4% of buyers used credit financing, around a third used deferred financing from developers, while just under two-thirds used their own funds.

Talk of new housing bubble premature

While mortgages for individual property purchases remain relatively rare in Ukraine, Ukrainian banks do lend to developers. Larger developers may take out loans with terms of up to three years, while smaller players can take out shorter-term construction loans when sales are sufficient to support construction. Overall, total lending to developers is small. Instead, developers mainly rely on their own funds and apartment sales in order to finance their projects. As a result, the growing supply of new apartments in Kyiv could threaten developer’s profits and eventually make it more difficult for them to finish their projects. This situation makes it difficult for owners of older apartments outside Kyiv’s center to sell at their asking price. However, we should be careful about using the loaded term “housing bubble” to describe a housing market such as Kyiv, which is not primarily fueled by bank sector financing to builders and buyers.

Ukrainian economy set for increased 2017 growth

The stabilization of Ukraine’s currency in 2016 is due to solid fundamentals. According report issued by Standard & Poor’s in December, “The rise in NBU hard currency reserves has increased trust and contributed to stabilization of the hryvnia. The recent stabilization of the hryvnia is also due to the increase in steel prices in the world market and a stable macroeconomic situation in the country.” The report also notes that Ukraine’s currency controls will be liberalized slowly as Ukraine’s National Bank weighs their negative impact on the inflow of foreign direct investment versus the risks to the hryvnia exchange rate should these controls be removed. These solid foundations will support modest GDP growth of 1% in 2016, with most Ukrainian and international sources predicting a further pickup in GDP growth averaging 2.3% per year for the period 2017-2019. Banking sector reform is particularly important for the real estate industry. In 2015 and 2016, Ukraine made great strides towards reforming its financial sector by closing dozens of banks that did not meet capitalization requirements and those that had large portfolios of related-party loans and murky ownership structures. The December 2016 nationalization of Ukraine’s largest bank, PrivatBank, was another step in this direction. Despite widespread domestic concerns over the costs of privatization, the move was widely praised by the IMF and the EBRD. The market would seem to agree. While the hryvnia dropped slightly on the black market after the nationalization of PrivatBank, overall market reaction to this move was broadly subdued. It will be interesting to see what other financial reforms await Ukrainian consumers in 2017. Will these reforms

increase confidence in banks and allow them to attract the deposits they need in order to support the meaningful renewal of mortgage lending? If this does not happen, will many Ukrainians continue to buy and hold real estate as a vehicle for their savings?

Geopolitical trends do not favor Ukraine

All signs indicate that political support for Ukraine among Western governments looks set to decrease sharply in 2017. The inauguration of new US President Donald Trump and the rising influence of rightwing parties in a range of EU countries are both negative developments for Ukraine’s EuroAtlantic pivot. While US watchers caution against assuming that a Trump administration will automatically be pro-Russian, Trump’s nominee for US Secretary of State has alarmed Ukraine’s supporters. Rex Tillerson is the former CEO of oil giant Exxon, which has seen oil deals worth hundreds of billions of dollars imperiled by US financial sanctions on Russia. Mr. Tillerson has been an open opponent of sanctions. He has long-term relationship with President Putin. Those who criticized the Obama Administration as “soft on Russia” and hoped for a more pro-Ukrainian stance from a new Republican administration may soon yearn for the nuanced policies of Trump’s predecessor and his behind-the-scenes maneuvering to keep EU governments on board with financial sanctions. Meanwhile, the growing popularity of Far Right European parties may make EU leaders more reluctant to take a strong stance against Russia. Some Far Right leaders in Europe such as France’s Marine Le Pen regard financial sanctions against Russia as American interference in European foreign policy. The EU is facing a struggle to present a united front against Russia and maintain a consensus on financial sanctions. With elections in France, Germany, and the Netherlands scheduled to take place in 2017 there will be little appetite for geopolitical adventurism in Ukraine. These trends could also threaten Western financial support for Ukraine’s government and serve to block deeper integration between Ukraine and the EU. The silver lining to this situation, if there is one, is that necessity may now force Ukraine’s government to implement real reforms rather than paying lip service to reforms in order to preserve economic aid to the country.

Ukrainian real estate in 2017: what to expect

Barring something dramatic and unexpected such as deep and radical economic reforms, or, God forbid, a flare-up in the Ukraine’s Donbas conflict zone, we can expect the Ukrainian housing market to resemble late 2016. The Trump wildcard will make life interesting for professional Ukrainewatchers and possibly play a role in Ukraine-Russia relations, but the fundamentals of the investment story for Kyiv’s real estate market will likely remain unchanged. In other words, we can expect a slow and steady economic recovery and increasing foreign investor interest in Ukraine, but no major shifts. Mortgages will not return as a viable option for most homebuyers in Ukraine. Currency controls will remain in place with only gradual liberalization (although it is worth stressing that these controls are manageable for foreign investors in their present form with the right legal counsel and deal structuring). There are no obvious reasons to expect a significant rise in rental rates or sale prices in 2017, but much will depend on the hryvnia exchange rate. The Ukrainian real estate market is not particularly hot right now, but there are reasons to be cautiously optimistic about the prospects for the coming year.

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 for foreign 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

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Euro integration in a time of

EU disintegration Ukraine’s Deputy PM for European Integration Ivanna Klympush-Tsintadze battles against tide of history stead, the dominant sentiment when she sat down with Business Ukraine magazine in late December was one of black humor tempered by studied defiance. “I really liked the commentary from a Ukrainian diplomat who recently quipped, “We arrived at the wedding party just as the couple announced their divorce.” This is a very good analogy. This is how we feel right now,” she says.

Europe’s most Euro-optimistic country

About the interviewee: Ivanna Klympush-Tsintadze is the Ukrainian Deputy Prime Minister for European Integration Ukraine’s Deputy Prime Minister for European Integration Ivanna KlympushTsintadze might just have the most difficult job in the Ukrainian government. She finds herself charged with promoting Ukraine’s European integration at a time when the European Union itself is experiencing the biggest crisis of confidence in its entire history. Meanwhile, on the domestic front, the short-term realities of Ukraine’s European pivot have left ordinary Ukrainians counting the cost and increasingly asking whether all the sacrifices have been worthwhile. In the circumstances, a little bit of fatalism would certainly be forgivable. In58

The unfortunate geopolitical timing of Ukraine’s revolution has left the country in the curious position of being prominent among Europe’s declining group of pro-EU cheerleaders despite remaining firmly outside the elite club of member states. “Ukraine is currently the most Euro-optimistic country in the entire continent,” the Deputy PM declares. This bold statement reflects the feeling among many in Kyiv that Ukrainians have shown more faith in the European project than any of the EU’s current member countries. When millions of Ukrainians protested against the increasingly authoritarian government of Viktor Yanukovych in winter 2013-14, many carried EU flags as a symbol of the country’s European aspirations. The Euromaidan protest movement ended in a massacre of protesters – with the victims often portrayed as the first people to have given their lives for the sake of EU integration. This is an engaging narrative but it is not entirely accurate. The Euromaidan protest movement did indeed begin in response to the Yanukovych government’s last-minute decision to reject an EU Association Agreement, but the protests only really took off on a national scale after riot police violently dispersed hundreds of student protesters. While thousands had joined initial gatherings in favour of the EU Association Agreement, millions took part in subsequent protests demanding respect for what they regarded as the quintessential European values of democracy, human rights, and the rule of law. The roots of the revolution lay in a civilizational choice rather than a geopolitical trajectory. This commitment to core European values has not provoked the kind of emphatic response from Brussels that many in Ukraine expected. The Association Agreement remains unratified. Bilateral trade has improved, but continuing quotas have left many Ukrainian exporters feeling frustrated. Even the symbolically important issue of visa-free travel remains elusive, despite endless assurances that the process is nearing completion. Ms. Klympush-Tsintadze remains optimistic about the prospects of visa-free status, but acknowledges www.bunews.com.ua

Hostage to rising anti-EU sentiment

It has been a year of supreme frustration for Ukraine’s EU integration efforts, with events across the continent repeatedly working against the country and providing fuel for domestic skeptics. The UK’s Brexit referendum vote has served as the headliner development of 2016, creating the potential for further departures and putting the future existence of the entire EU project in question. This has made talk of deepening ties with Ukraine politically toxic, leaving Kyiv with little option but to wait patiently for more opportune times. Brexit was a major shock for the EU, but the harshest blow of the year from a Ukrainian perspective was arguably the April referendum in the Netherlands, which saw a landslide majority of Dutch voters rejecting ratification of the EU-Ukraine Association Agreement. Few in the Netherlands seemed particularly concerned about the details of the Ukrainian agreement with the EU. The vote was essentially a chance for anti-EU forces to express their opposition to Brussels. Leading figures in the ‘no’ camp openly spoke of the referendum as a protest against the European Union as whole, with Ukraine’s European ambitions held hostage to long-standing anger over a wide range of Brussels policies. Ukraine’s oft-voiced commitment to European values meant little in this broader geopolitical equation. Ms. Klympush-Tsintadze sees this absence of commitment to core European values as a problem affecting the whole of the EU and admits it is doing much to undermine Ukraine’s integration bid. “My feeling is that societies in Europe have actually forgotten the values that their economies and statehoods are based on. The values of the EU do have to be defended,” she says. “This was understood by the grandparents of today’s EU citizens, but seems to have been forgotten by younger generations. Everybody is taking everything for granted. It seems that the nations of Central and Eastern Europe who joined the EU later have a better, fresher memory of how they implemented change. They have a clearer understanding about the importance of basic European values. The older democracies have a sense that everything is so well rooted it no longer needs protection.”

Euro fatigue in Ukraine

These setbacks have inevitably led to declining levels of enthusiasm for EU integration within Ukraine. This process has made it even more difficult to push through the reforms demanded of the country as it seeks closer ties with Brussels. While few MPs wanted to be singled out for impeding Ukraine’s access to visa-free EU travel, the lack of progress towards broader integration, as well as an absence of any clear long-term goals, has made it more difficult to sell painful reforms. “All of these issues have served to demotivate the Ukrainian public and Ukrainian political parties,” Ms. Klympush-Tsintadze concedes. With no EU membership perspective on the table, she struggles to identify the next big carrot to entice further reforms. Instead, the lady charged with leading Ukraine’s EU integration efforts prefers to focus on something Ukrainians can themselves control – transforming the country’s still largely Soviet state apparatus along the lines of the EU model. “In terms of motivation, all we need to do is look at how people live in the EU,” she argues. “The freedoms and rights they enjoy, starting from healthcare and education, will create sufficient stimulus. This is something that we are aspiring to build in Ukraine. The rules in place within the EU have insured the kind of development these countries now enjoy. I think the best motivation is to build Europe Decemember 2016

in Ukraine and make sure we have the same possibilities here. Once we achieve this, at some point in the future we can then decide about an official membership request.”

Confronting the populists

geopolitics

that even this has issue become a symbol of the slow progress undermining Ukraine’s bid to move closer to the rest of Europe. “The visa-free regime will leave a bitter taste even once it is implemented because of the prolongation of the process,” she concedes.

Few expect the EU integration climate to improve in 2017. With French, Dutch and German elections on the horizon, the current anti-EU populist threat is widely expected to heighten, which is bad news for Ukraine. Ms. KlympushTsintadze was not expecting to face such a challenging European environment when she accepted her current post in spring 2016. On the contrary, she initially interpreted her role in terms of becoming the key coordinator as Ukraine adopted a wide range of EU standards within the framework of sweeping post-Maidan reforms. “When I agreed to take this job in April, I thought my main task would be working with ministries to implement the EU-UA Association Agreement. Unfortunately, because of developments like the Netherlands referendum and Brexit, I find myself having to focus my efforts outside the country. I did not think I would need to explain repeatedly that Ukraine had met all the requirements for the visa-free plan. I did not expect my job would involve so much explaining of why the EU should maintain Russian sanctions. For Ukrainians, it is self-evident that sanctions should remain in place, because Russia has not met its obligations and continues to lie and manipulate. But it is not self-evident in a lot of European capitals. All of this consumes a lot of time and occupies the very limited resources at Ukraine’s disposal.”

Why no Russia fatigue?

Europe’s lack of urgency with regard to post-revolutionary Ukraine is a source of barely concealed anger. Ms. Klympush-Tsintadze complains about the lack of recognition for Ukraine’s considerable reformist achievements since 2014, and roundly rejects any suggestion that ‘Ukraine Fatigue’ is justified. “Only negative news from Ukraine is making it into the international media,” she complains. “I can understand this. It is not sexy to talk about successful audits of state-owned companies. But this adds to the sense of fatigue. My question is, why is nobody fatigued about Russia? Why is it about us, who are making an effort every single day? We are paying a huge price for our conscious decision, for making a civilizational choice.” Despite the frustrations she has encountered since taking on her Deputy Prime Ministerial role, Ms. Klympush-Tsintadze seems confident the tide of history will eventually turn once again in Ukraine’s favor. She believes Europe will eventually have to acknowledge the importance of a stable and secure Ukraine, and expects the younger EU members with their own Soviet inheritance to play an important role in this process. “If there is no security and stability in Ukraine, there won’t be stability and security in Europe. Central European countries understand this well, because they know the threats we are standing up to. The other nations of the EU that have no experience of the Soviet system do not know what we are confronting. It is not only an issue of Russian aggression. It is also about trying to deal with the monstrous legacy of the Soviet Union. This is something deeply embedded in the Ukrainian state apparatus. It is evident in some traditions and behavior, as well as in quite a few existing laws, rules, and procedures.” Ultimately, Ukraine’s Deputy Prime Minister for European Integration recognizes that the current process is a marathon and not a sprint. The country’s current EU prospects may appear less than rosy, but she remains convinced in Ukraine’s ability to move closer to the rest of the continent without necessarily gaining the green light from Brussels. “It doesn’t matter whether Europe is ready to accept Ukraine’s EU membership today. We have been European for centuries. We have always belonged to Europe. I don’t have any doubts about who we are. It is now all about becoming modern Europeans.” 59

Financial Markets Reception

Mark Appelman, Country Manager, ING Bank Ukraine

On December 6, 2016 ING Bank Ukraine held its annual Financial Markets Reception in Hyatt Regency Kiev. The event brought together prominent local policy makers and more than 100 multinational clients to discuss Ukraine’s reforms and its financial markets. Christopher Turner, Global Head of ING currency research, provided new insights in the global trends that will impact currencies around the world. Other speakers were Dmytro Shymkiv, Deputy Head of Presidential Administration and Dmytro Sologub, Deputy Governor of the National Bank of Ukraine. “Bringing these different perspectives together provided our clients with a balanced outlook for Ukraine. This is one of the things that we organize to support our clients in Ukraine” – said Mark Appelman, Country Manager, ING Bank Ukraine.

Dmytro Shymkiv, Deputy Head of Presidential Administration

Best Bank of the year 2016

ING has been awarded as the best bank in the world. ING won a total of four awards at The Banker’s Best Bank Awards 2016. Besides Global Bank of the Year, ING was named Best Bank of the year 2016 in the Netherlands, Belgium, and Western Europe. Financial Times’ The Banker hosted the annual Best Bank Awards 2016 in London, on 7 December. ING has previously won awards for Best Bank in the Netherlands, Belgium, Poland, and Western Europe. And now, this the highly prestigious award for Best Global Bank is added to the list.

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networking events

About ING in Ukraine

Christopher Turner, Global Head of ING currency research

ING has been committed to Ukraine for already 23 years, supporting Large Corporates and Multinationals who are active in Ukraine. We continue servicing our client base with our financing capabilities, differentiated through our sector expertise and network, and continue to invest in our transaction services and financial markets capabilities. ING Ukraine is a full subsidiary of ING, a leading global financial institution with a strong European base. The purpose of ING is to empower people to stay a step ahead in life and in business. ING Bankâ&#x20AC;&#x2122;s more than 52,000 employees offer retail and wholesale banking services to customers in over 40 countries.

Dmytro Sologub, Deputy Governor of the National Bank of Ukraine

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Annual UBC Awards for Top Kyiv Residential Real Estate Projects

Kyivâ&#x20AC;&#x2122;s IQ Business Center welcomed representatives of the Ukrainian real estate industry in December for the 2016 Kyiv City and Region Residential Building Awards. The awards event was organized by the Ukrainian Building Community (UBC) and featured independent assessments of residential construction projects by Baker Tilly Ukraine. Kyiv residential projects to receive awards included Tetris Hall, RiverStone, Busov Hill, Skyline, and Royal Tower.

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networking events

Kyiv Hosts East European Journalism Award Promoting Cultural Diversity

Journalists and media professionals from Georgia, Moldova and Ukraine gathered in Kyiv in late November for a gala ceremony to mark the annual ADAMI Media Prize for Cultural Diversity in Eastern Europe. For the second time, the ADAMI Media Prize honoured the makers of outstanding films, videos and websites from Eastern Europe and the South Caucasus that promote diversity and peaceful coexistence. Of the twelve films and projects nominated by an international jury, five received prizes. ProCredit Holding supported this yearâ&#x20AC;&#x2122;s ADAMI competition, together with the Foreign Office of the Federal Republic of Germany

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Credit Agricole Bank Welcomes Top Clients to Exclusive Jazz Event

On 7 December, Credit Agricole Bank welcomed more than 150 clients to the Fairmont Grand Hotel in historic downtown Kyiv for the bank’s traditional New Year event for top clients. Credit Agricole Bank presented a special program entitled “Great Hollywood Tunes” performed by famous Ukrainian jazzman Oleksii Kogan and the Jazz in Kyiv Band. “Born in the USA, jazz is a truly international phenomenon. It is very popular in France, the home country of our bank. It is an open and interactive musical genre that brings people of different cultures together. This is very much the case tonight, with representatives of companies from more than 10 countries among our guests,” commented Jean-Paul Piotrowski, the CEO of Credit Agricole Bank in Ukraine. This festive evening event also saw the presentation of the bank’s new signature: “The whole bank just for you!”

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networking events

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Festive Fun at the Fryday Kyiv Christmas Special

One of the social highlights in the Ukrainian capital over the festive season was the 2016 Fryday Afterwork Christmas Special, organised by networking community Fryday Kyiv. Crowds flocked to Shooters Entertainment Complex where they enjoyed a festive show programme featuring Christmas carols performed by wellknown singers including The 3 Chinese Tenorâ&#x20AC;&#x2122;s Stephen Wu. To learn more about the best Ukrainian networking and social events taking place in 2017 simply search for Fryday Kyiv on social media. 66

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networking events

Novelty Christmas Cheer for Kyiv Connoisseurs at Va Bene Restaurant

The Ukrainian Connoisseurs Club (TUCC) ended the 2016 gastronomic season with its Traditional Untraditional Christmas Party at Kyiv’s Va Bene restaurant. The theme of these Christmas parties is to invite a leading Kyiv chef to take the traditional ingredients of an English Christmas dinner and do something new and creative with them. The choice of restaurant for this festive season was Va Bene, which scored the highest points from TUCC members over the previous 12 months. Chef Matteo Boifava was the perfect choice for this Christmas dinner, as he also won the TUCC’s Chef of the Year award for 2016. TUCC Chairman Terry Pickard (a.k.a. Santa Claus) welcomed diners alongside Va Bene director Natalia Strogaja. Highlights of the dinner included special Christmas puddings, with some containing silver coins in line with English tradition. It proved a wonderful way to wrap up the fifteenth year of the TUCC’s regular dinners at Kyiv’s top restaurants.

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‘Portait of Taras Shevchenko’ by Ke Sun. Oil on canvas, 2016 (Image courtesy of Alan Yu and the Chinese Academy of Painting and Calligraphy) 68

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Ukrainian bard Taras Shevchenko unites Ukraine and China in landmark cultural exchange programme For almost 100 years, Taras Shevchenko, the celebrated poet and painter who challenged the autocracy of Tsarist Russia and called upon Ukrainians to fight for freedom at a time when Ukrainian nationhood was at its weakest, has been a focus of Chinese-Ukrainian cultural relations. Chinese intellectuals first came across his poetry in the early twentieth century. He was later celebrated in the People’s Republic of China as a ‘poet of oppressed people’. His humble beginnings as an orphaned serf, as well as his millennarian vision of egalitarianism, self-improvement, and sovereignty continue to resonate in China today. In 2016, a landmark series of art exchanges took place between Ukraine and China. It culminated with the opening of the Taras Shevchenko Museum in Beijing in September 2016, the first institution of its kind to be funded fully by a foreign government and not the Ukrainian state or diaspora. This joint Chinese-Ukrainian initiative united the Chinese Academy of Painting and Calligraphy, the National Taras Shevchenko Museum and its fraternal organizations, and the National Academy of Fine Arts and Architecture of Ukraine, as well as both Embassies. It has challenged professionals and laymen alike to reconsider the symbolic and transformative role that Taras Shevchenko’s work continues to play in Ukrainian society today.

International source of inspiration

Taras Hryhorovych Shevchenko, who was born into a peasant family in the Ukrainian village of Moryntsi on 9 March 1814, led a relatively short yet vigorous life that was a triumph against the odds. He was orphaned at 12 and spent his early life in servitude before being liberated from serfdom at 24 by friends and patrons who recognized his colossal artistic talent. Initially an autodidact, Shevchenko became a Master Engraver at the St Peterburg Academy of Fine Arts, creating around 1200 artworks in his lifetime and a literary legacy which is credited with establishing the modern Ukrainian language and literature. As a dissident in imperialist Russia who wrote anti-tsarist satirical poetry in the ‘peasant language’, he was sentenced to exile in a remote Kazakh outpost and banned from writing or drawing. Shevchenko, however, managed to continue producing work, which he hid in his shoes. He died at 47, having achieved prominence in his lifetime as a symbol of Ukrainian nationhood. When the People’s Republic of China was established in 1949, the new government looked to the experience of ‘oppressed peoples’ to find figures that would inspire a new generation of Chinese. Taras Shevchenko was one such figure. During the 1950s, the National Taras Shevchenko Museum in Kyiv received numerous Chinese delegations that came to learn more about the mustachioed freedom fighter. However, after the Sino-Soviet split of 1960, relations ceased across virtually all spheres.

Unprecedented cultural cooperation

This recent ‘Unfading Glory. In Honour of Taras Shevchenko’ initiative was a multi-tiered cultural exchange programme which sought to pick up this thread and to build institutional links between cultural workDecemember 2016

cultural diplomacy

Taras in China ers in China and Ukraine. Initially designed as a research expedition for Chinese artists, the project snowballed, leading to the establishment of the Taras Shevchenko Museum in Beijing in September 2016. Initial plans anticpated a Chinese delegation producing a series of unique artworks on the subject of the great poet’s life, work, legacy, and culture. And while the Chinese side funded the initiative fully, it was not without its ups and down. Indeed, at times it seemed as though the ark would never arrive at shore. Curators Alan Yu, Vice-President of the Chinese Academy of

Painting and Calligraphy, and Yulia Shilenko, Chief Custodian at the National Taras Shevchenko Museum in Ukraine, had been in correspondence about a potential project since 2013, the year Xi Jinping announced his ‘One Belt, One Road’ initiative. Yu had previously curated exhibitions of this kind in Europe, and took a particular interest in the culture of Ukraine. Shevchenko seemed to him a worthwhile subject, a suitable platform for intergovernmental cultural exchange. Ukraine’s 2014 revolution and the hybrid war with Russia that followed put all Chinese initiatives in Ukraine firmly on hold. Indeed, the fact that talks resumed in 2015 is testament to the deep personal interest and involvement of Yu and Shilenko, who insisted on the need to move ahead with the project. Finally, in August 2015, a delegation of acclaimed Chinese artists arrived in Ukraine to learn more about Taras Shevchenko’s legacy. The delegation comprised Qin Long, Gu Honghai, Wan Hongwei, Jiang Xiuqing, Wang Jiaxun, Yu Feihong, Dai Shihe, Nie Weigu, Fu Lili, Nie Yuxiao, Anna Liu, and assistant curator Yu Feihong, with Alan Yu at the helm. The artists had the opportunity to visit the locations linked to Taras Shevchenko’s life and times, as well as experience the customs and ambience of the Ukrainian village. Together they worked on a series of sketches and paintings. The Chinese artists were encouraged to immerse themselves in Shevchenko’s verse and to interpret it visually. Moreover, the cultural project had artistic and literary components: the publication of the first ever complete Chinese-language literary translation of the ‘Kobzar’ (‘The Bard’) poetry collection made from the original Ukrainian, and not Russian. “We started in August 2015, when a delegation of Chinese artists came to the museum. Together we had a very busy itinerary, with a visit to Kaniv, a detailed guided tour of the three Taras Shevchenko museums in Kyiv, as well as other locations linked with the poet’s life. During this trip they made sketches and studies, and these became the basis for a year’s worth of work, where they recreated their impressions and feelings in their artworks. Since the initiative and the funding in this process came from the Chinese side, we had little control over it. At times it felt like we were stalling. For example, the ‘Kobzar’ translation was originally supposed to be illustrated with ink drawings by the Chinese artists. For whatever reason, this didn’t happen, and at one point the Chinese side was dangerously close to cancelling the whole thing,” the soft-spoken and elegant Shilenko recalls. ‘I remained insistent, however, not just with my Chinese colleagues, but also with the museum team : 69

The Taras Shevchenko Museum opens in the Li Keran Memorial Complex. Beijing, September 2016 (Image courtesy of Alan Yu and the Chinese Academy of Painting and Calligraphy)

: here in Kyiv. We were amazed to see the paintings when they finally

reached Kyiv again the following year! We’ve taken it one step at a time, and not without a great deal of personal faith in the importance of what we were doing.” Ostap Kovalchuk, the Vice-Rector of the National Academy of Fine Arts and Architecture, introduced the Chinese delegation to the work of Ukrainian artists, both classic and contemporary. Despite the language barrier, the charismatic academic was able to build great rapport with the visiting artists. “We have many Chinese students in the academy. Some of them come from dinstinguished artistic families who feel that a Ukrainian academic education in the arts has both prestige and value – and rightfully so,” he states. He recalls his frustration at the initial dismissive attitude of many Ukrainians who came to the exhibition. Ostap helped to explain the artistic significance and value of the Chinese artists’ work to the Ukrainians, who are often unaware of the nuances of Chinese art. “It really is a stellar crew. They sent the very best! We’d be walking around in Kyiv or elsewhere and have Chinese tourists asking TV star Dong Hao for an autograph!”

Rebel with a cause

The art exhibition, auspiciously titled ‘Unfading Glory. In Honour of Taras Shevchenko’, opened at the National Taras Shevchenko Museum in Kyiv on 11 May 2016. It featured 30 artworks including both traditional ink paintings and calligraphy along with the adopted form of oil painting. The Chinese artists interpreted well-known works of Shevchenko, for example, ‘Kateryna’, which tells the story of a Ukrainian peasant girl who is abandoned with child by a Russian soldier. Although the exhibition was not intended to convey any political sentiment – other than 70

China’s interest in building further cooperation with Ukraine – a favourable subtext emerged. Dong Hao’s ‘The Poet and the Taiping Rebellion’ recalls a diary entry in Shevchenko’s journal, which suggests that he followed the events of 1850-64 with interest – and that the Chinese have also been aware of the Euromaidan protests! Meanwhile, the unequivocally titled ‘Swallow’s Nest, Crimea, Ukraine’ by Nie Weigu leaves no doubt as to the artist’s convictions on Russia’s territorial aggression. Indeed, the Chinese government has been as critical of the annexation as their wider foreign policy framework has allowed. Many artists turned to the image of Shevchenko himself. “Taras Shevchenko embodies the spirit of Ukraine, he is a freedom fighter of the Ukrainian people and the face of the nation,” the pensive Alan Yu reflects. “He is not only a known figure in the educated circles in China, alongside Pushkin and Mickiewicz, Goethe and Burns, but he is someone whom I personally empathize with, as do many of the artists from the delegation, who also knew hardship early on in their careers.” Yu is also a respected publisher and editor, who expressed his admiration for the great Ukrainian by producing a beautifully illustrated catalogue of the exhibition, securing contributions from high-profile Chinese academics including Liu Dawei, the President of the Artists’ Association of China – thus raising the value of the project in the eyes of the Chinese. This was a key element in presenting the results of the hard work to the Chinese establishment, as well as recording it for posterity.

Shevchenko in Beijing

The exhibition made a short tour of Ukraine, stopping at the Kanivbased Shevchenko Memorial Museum on 11 August, not far from the poet’s resting place, before going to Beijing’s World Art Museum, a www.bunews.com.ua

From Shevchenko to Socialist Realism Socialist Realist art is another Ukrainian cultural export that moneyed Chinese have a particular interest in. It presents Ukraine as a country with an established academic culture, capitalizing on the Soviet-era prestige it enjoyed in China. The largest exhibition of Ukrainian oil paintings in China to date, ‘Beauty is Life: Ukrainian Art of the Soviet Period, 1945-1991’, took place in Weifang in 2011, and was also funded by a private patron. The display, which was curated by Natalia Bratytsia, brought together over 300 paintings by prominent Ukrainian artists and was rated favourably in The People’s Daily. Li Geng, the Director of the Li Keran Memorial Complex, is hopeful that the Taras Shevchenko Museum in Beijing will serve as a platform for future exhibitions of Ukrainian art, and that original artworks by Ukrainian artists will compliment its current collection, which consists of paintings and calligraphy created during the 2015-2016 exchange, as well as over 100 reproductions of Shevchenko’s graphic works. During a press conference in Kyiv, Li Geng recalled the affection that many members of his generation felt towards the Soviet Union, so while his generation remains in power, it may be undiplomatic to wholly write off Ukraine’s Soviet legacy while devising a new cultural-diplomatic strategy.

cultural diplomacy

prestigious venue in the centre of the Chinese capital, for a symbolic homecoming. Here the Chinese delegation presented the fruits of their labours to the Chinese public and officials. An installation of traditional Ukrainian rushnyks (traditional woven embroidered cloths) from the private collection of Viktor Yushchenko completed the display. The former Ukrainian President, a patron of the National Academy of Fine Arts and Architecture, was among the high-profile guests in attendance. The event served to celebrate the opening of the Taras Shevchenko Museum in Beijing, a spacious venue of around 10,000 square metres situated on the premises of the Li Keran Memorial Complex, an artistic and research institution supported by the Chinese government. The choice of the Li Keran Complex as a base for the Taras Shevchenko Museum is significant for a number of reasons. Firstly, the venue is widely attended by established artists, academics, politicians, and government officials. Li Keran (1907-1989) was a painter, poet, and art educator, a prominent figure in twentieth century Chinese art. Secondly, it points to the parallels between Shevchenko’s romantic sensibilities in both poetry and art, and Li Keran’s traditionalist modernization. The poet-painter personality appeals to the Chinese, many of whom see the art forms as inseparable. Thirdly, this is the first museum of the famous Ukrainian created not by the diaspora or the efforts of the Ukrainian government, but funded and organized entirely through the will and effort of the Chinese government and private Chinese patrons. It is the Chinese side that recognized the importance of Taras Shevchenko for China, weaving the Taras Shevchenko Museum into the fibre of the cultural establishment. Experts hope that this will lead to new contributions to knowledge about the artistic phenomenon of Shevchenko, as well as interesting comparative studies uniting Chinese and Ukrainian art in academic research. This was not the first time that the great Ukrainian had been honoured in China. In 2008, a bust of Shevchenko by celebrated sculptor and ‘diplomat of portraiture’ Yuan Xikun was unveiled at Beijing’s Chaoyang Park, just ahead of the opening ceremony of the Summer Olympics. The ceremony was well-attended by Ukrainians and Chinese from political and artistic circles, as well as members of the Ukrainian diaspora in China. Of the 130-odd monuments to the great poet that exist across 35 countries, this is a prominent example, because it was conceived and funded by local authorities. It remains the only statue of the great Ukrainian in the Asia Pacific region. Not that Ukrainians have not been active in promoting their culture in China. The Ukrainian Embassy in the People’s Republic of China hosts and organizes events, including charity art auctions, and has been involved in helping to coordinate ‘Unfading Glory’. Current Ambassador Oleh Diomin, whose involvement added gravitas to proceedings, was cited as a co-curator by Alan Yu as a mark of respect for the diplomat. In September, The Ukrainian House officially opened in Beijing. The organization is designed as an initial point of contact for Ukrainian entrepreneurs seeking to try their fortunes in China, although the Ukrainian House has also participated in a number of cultural initiatives since its inception. Its activity is supported by the Ukrainian Embassy, although funding comes from a private patron – the Chinese billionnaire Wang Jin, owner of Beijing Xinwei Telecom Technology corporation.

Ambassador Shevchenko

‘Fight, and you shall overcome!’, wrote Shevchenko. Among Ukraine’s national symbols, Taras Shevchenko cuts a striking figure, one that has genuine traction with both the Ukrainian establishment and the people, who is also known at home and abroad. His popular appeal was so great that even the Soviet government couldn’t eradicate it, choosing instead to hide him in plain sight, appropriating him as a ‘humanist’, ‘atheist’, and ‘anti-imperalist’. Shevchenko hangs on Dr House’s wall in the famous American TV series and turns up on the front cover of New Order’s ‘Taras Shevchenko’ live video, filmed in 1981 in New York’s Ukrainian National House. Shevchenko’s image was used by Euromaidan protesters, and the Ukrainian soldiers who serve at the front today are issued with a miniature camouflaged copy of the ‘Kobzar’. However, it would be naive to suggest that to the average Chinese, or indeed any other foreign national, the name ‘Shevchenko’ speaks about national liberation rather than football. While he may not have the mass appeal of a rock star or a footballer in terms of promoting Ukraine globally, Taras Hryhorovych has proven his worth in facilitating dialogue among the educated elites, and ‘Unfading Glory’ is undoubtedly the best example of cultural exchange in Ukraine’s recent history. We hope that he paves the way for greater interest and understanding between China and Ukraine in the years to come.

About the author: Myroslava Hartmond is the owner of Triptych: Global Arts Workshop (www.t-gaw. com), one of the first private art galleries in the ex-USSR est. 1988, and a Research Associate of the Centre for International Studies, University of Oxford, where she explores the role of cultural diplomacy in Ukraine. Decemember 2016

society

Ukraine’s first war of independence

Ukrainians should use 2017 centenary to remind world of early twentieth century independence bid The coming year will see a torrent of international media coverage focusing on the centenary of the Russian Revolution. Ukraine should take advantage of this media spotlight to remind the world that 2017 is also the hundredth anniversary of the first modern attempt to establish an independent Ukrainian state. This would improve international understanding of the current hybrid war with Russia, which many in Ukraine regard as merely the latest chapter in a much longer struggle for independence.

The misleadingly named Russian Civil War

The conflict that engulfed the Russian Empire in the wake of the Bolshevik Revolution was decidedly international in character. Nevertheless, historians have chosen to call it the Russian Civil War. This misleading title is typical of the Russocentric bias found in most histories of the region. In reality, much of the conflict took place outside Russia, with Ukraine serving as the primary battlefield. Combatants included Ukrainians, Poles, Czechs, French, British, Germans, and Americans. The many opposing sides championed a dizzying array of national interests and competing ideologies ranging from Bolshevism and Tsarist monarchism to socialism and anarchy. Amid the bloody confusion of the campaign, Kyiv changed hands more than a dozen times before the Red Army eventually emerged as the winners. The victory of the Bolsheviks was to prove one of the most decisive events of the twentieth century. At the time, many feared it would be the catalyst for global revolution. While this international uprising never quite happened, the Bolshevik triumph did pave the way for seven decades of Soviet rule and set the stage for both WWII and the Cold War. Given the historical importance of the Bolshevik success, it is hardly surprising that Ukraine’s own 1917-21 struggle for independence garners little international attention. At best, it appears as a footnote within the bigger Bolshevik story. This creates an incomplete picture of the period and distorts our understanding of modern Ukrainian history. Indeed, it actually fuels many of the myths underpinning the Kremlin’s ongoing international information war against Ukraine, such as the notions that Ukraine is an artificial state and was historically always part of Russia. The success of these information attacks is highly dependent on outside ignorance of Ukrainian realities. By raising international awareness of the country’s longstanding independence ambitions, Ukraine can help to defuse Russia’s information arsenal.

Better than Bandera

Ukraine’s 1917-21 bid for independence is infinitely more sellable that the subsequent WWII-era insurgency which currently dominates Ukraine’s independence narrative. The present emphasis on Ukraine’s WWII experience has served to undermine sympathy for Ukraine’s broader independence struggle, tainting it with the toxicity of fascist collaboration and genocide. Foreign audiences regard the Nazi associations of Ukraine’s WWII insurgents as completely unacceptable, and there is zero international interest in debating the many nuances of the issue. The veneration of Bandera is a selfdefeating exercise that has done much to isolate and weaken the country. It polarizes and radicalizes domestic opinion while serving to horrify and repel many potential international allies. Predictably and tellingly, the Russian media never misses an opportunity to exploit the issue in order to undermine outside support for Ukraine and aggravate internal divisions. In this sense, Bandera is the most counter-productive national icon imaginable. 72

The 1917-21 Ukrainian War of Independence does not suffer from the kind of stigma attached to the WWII vintage. In an historical context, its main problem is obscurity. Ukraine’s early twentieth century independence bid does not fit neatly into a clear and concise narrative. It was a complex and ultimately doomed enterprise involving various different declarations of independence and a number of different governments. Leaders and international alignments changed with the seasons as Ukraine’s fate ebbed and flowed with the tides of war. Atrocities and betrayals tarnished the ideals of independence. Failure inevitably led to exile and recriminations. And yet this tumultuous period laid the seeds for the sovereign Ukraine that would emerge in 1991. The international borders envisaged by the fledgling state of 1917-21 broadly resemble the 1991 outline. State symbols like the trident and the national flag entered the public consciousness and never left. The Ukrainian independence struggle also forced the Communist authorities to grant concessions to Soviet Ukraine. While the autonomy offered by the Kremlin in the early 1920s was largely cosmetic in nature, it would go on to play a crucial role in the eventual collapse of the USSR. In other words, today’s independent Ukrainian state is a direct descendant of the failed bid of 1917-21.

Time to transform Teachers House?

How should Ukraine mark the centenary of the country’s first major independence bid of the modern era? A series of public events and information initiatives would help to generate interest both domestically and internationally. Teachers House in central Kyiv should be one of the focuses of any centennial event calendar. This majestic building served as the seat of Ukraine’s first parliament and should rightfully be one of the most important landmarks in the Ukrainian capital. Instead, it is currently in everyday use as a venue for sundry lectures and educational activities, while housing an extremely modest permanent collection dedicated to the historic events of the early twentieth century. It would make much more sense to transform the entire building into an interactive museum dedicated to the 1917-21 independence struggle. It could then become the centerpiece of a wider national program. Anniversary events would necessarily span over the coming four years, serving as regular reminders that the idea of an independent Ukrainian state has deep historic roots. At a time when Ukrainians are once more fighting – and dying – for their country’s independence, this message has never been more pertinent. www.bunews.com.ua

promotion

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last word

Top 10 predictions for Ukraine in 2017 What does the year ahead hold for Ukraine? Ever since late 2013, the country has experienced a period of historic change and traumatic turmoil. Could 2017 be the year when peace finally returns to Ukraine? What will be the dominant social trends and talking points over the coming 12 months? Business Ukraine magazine looks ahead and speculates about what 2017 may have in store for Ukrainians.

Will Odesa achieve an international tourism breakthrough in 2017?

1. Visa-free dreams come true

Ukraine will finally receive visa-free access to the European Union in 2017, but the delays and objections associated with this long-running saga will leave most Ukrainians feeling anything but welcome.

2. Cyber war to dominate hybrid war

Russia’s hybrid war against Ukraine looks set to continue in 2017, with no end in sight to the Kremlin occupation of Crimea or the Ukrainian Far East. There will be an increased emphasis on cyber warfare as Moscow seeks to crank up the pressure on Kyiv and break out of the current Donbas deadlock. As a consequence, cyber security will become the biggest growth sector of Ukraine’s booming IT industry.

3. The Donald gets to grips with ‘The Ukraine’

US President Donald Trump will struggle to achieve a ‘fantastic deal’ with Russia in 2017. Instead, he will broadly maintain current US policies of support for Ukraine. Trump will also make numerous public references to ‘The Ukraine’, before taking to twitter to denounce anyone who objects. So sad.

4. Modest GDP growth to continue

Ukraine’s economy will continue to grow in 2017 but GDP will remain well below pre-Euromaidan levels. International investment will also rise, with particular focuses on agricultural sector infrastructure and manufacturing, but there will be no stampede.

7. Social media silliness Ukraine’s international online community will remain vocal in its efforts to support the country in 2017. However, community members will frequently be sidetracked by heated and ultimately fruitless social media debates over such existential issues as the correct English-language spelling of Ukraine’s capital city. For the record, it’s ‘Kyiv’ not ‘Kiev’, but there really are far bigger issues worthy of attention.

8. Ukrainian-language pop renaissance

Quotas dictating a minimum number of Ukrainian-language songs on radio station playlists (also known as ‘The Okean Elzy Law’) will lead to the emergence of a new generation of Ukrainian-language pop talent over the coming year. The increasingly limited possibilities for Ukrainian artistes to perform in the Russian Federation will only add to this trend.

9. Ukraine as fake news focus

Thousands of foreign journalists will descend on Kyiv for the 2017 Eurovision Song Contest. They will report their amazement at the complete lack of tanks on the streets, while expressing their admiration for the city’s quintessentially European hipster vibe. After all, who doesn’t love Kyiv in May?

Growing global interest in the fake news phenomenon will lead to renewed international scrutiny of the Kremlin information war against Ukraine. The Ukrainian experience will be widely acknowledged as the definitive example of fake news as a weapon of war. It will be the subject of academic study and spend the year in the media spotlight as journalists seek to understand the role played by fake news in Russian hybrid warfare. Thanks to this increased international attention, many of the most persistent Kremlin myths surrounding the Ukraine war will finally be debunked.

Populism will increasingly dominate the Ukrainian political landscape as a combination of unfavorable geopolitical trends and harsh domestic economic realities leave Ukrainians feeling frustrated with the country’s pro-Western pivot and eager for quick fixes. Key themes will include continuing corruption, communal tariffs, rising crime, and the sale of farmland.

In the coming year Odesa will replace Lviv as Ukraine’s traditional entry in the international media’s annual ‘Top Ten Undiscovered European Tourist Destinations’ rankings. Lviv will remain the country’s most developed tourist destination, but after a decade of mounting media attention, it no longer qualifies as ‘undiscovered’. It is now Odesa’s turn to shine.

5. Eurovision will debunk negative stereotypes

6. Populist politics problems to worsen

10. Odesa international tourism breakthrough

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