Business Ukraine magazine issue 6/2017

ISSUE 06/2017

BEYOND VISA-FREE TRAVEL What next? With the Association Agreement and visa-free travel now realities Ukraine needs fresh EU integration incentives

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BUSINESS UKRAINE ISSUE 06/2017: What next for EU-Ukraine relations? Summer 2017 saw Ukraine achieve the country’s two key EU integration objectives with confirmation of visa-free travel and final ratification of the Ukraine-EU Association Agreement. While this progress is cause for celebration, it also leaves Kyiv in need of new incentives to drive the country’s ambitious reform agenda.

Ukrainian parliament’s “Game of Chairs” is a reckless ratings loser September marks the beginning of season 48 (or is it 49?) of “Game of Chairs”, otherwise known as the Ukrainian parliament. As the country’s MPs return to work for the autumn parliamentary session, few Ukrainians will be tuning in. While the palace intrigues and Machiavellian plot twists of TV’s “Games of Thrones” make for compulsive viewing, the ideological ambiguity and backroom dealing of Ukraine’s parliamentary chair traders has proven the ultimate ratings loser. Despite two pro-democracy revolutions and a war to defend the country’s civilizational choice, the sad truth is that the majority of Ukrainians regard their parliament as a parody of democratic principles.

It is not hard to understand the Ukrainian public’s loss of faith in the country’s fledgling democracy. Very few of the parties in today’s parliament have any coherent or consistent ideological positions. Instead, each important parliamentary vote is proceeded by a fresh round of bargaining to secure the support of various factions and even individual MPs. In this murky and hyper-mercantile environment, chairs on key committees and other potentially lucrative positions become mere commodities.

Evidence of growing public disillusionment in the democratic process is easy enough to identify. Ukraine’s current political class enjoys some of the lowest approval ratings in recorded history. No healthy democracy espouses unconditional love for its elected representatives, but Ukrainians have taken this natural skepticism to new extremes. In opinion poll after opinion poll, the country’s politicians routinely struggle to achieve approval ratings in double figures. Tellingly, the only option to receive significant public support is “none of the above”. Ukraine’s political parties suffer from similar levels of public disapproval. They remain largely personality driven, with a plethora of eponymous blocs functioning as de facto clans in a closed confederacy of institutionalized corruption.

The sense of impunity enjoyed by Ukraine’s parliamentarians serves to exasperate the mood of public fatigue. Ukraine’s partisan but pluralistic media landscape provides Ukrainian audiences with intimate knowledge of the corruption schemes and ostentatious excesses of the country’s political classes, but exposure virtually never carries any consequences. MPs declare tens of millions of US dollars in cash and live in palaces, but this fails to translate into court cases or prison sentences. The very worst outcome a Ukrainian MP can generally expect is the loss of parliamentary immunity and an overnight dash out of the country. Even in such extreme cases, the blow of exile typically comes cushioned by a small fortune.

This brazen conduct represents the primary obstacle to Ukraine’s post-Soviet

transformation. After all, there is clearly nothing wrong with Ukrainian society’s core democratic instincts, as evidenced by the mass participation in both the Orange and Euromaidan revolutions. Unlike Russia and many other exSoviet states, Ukrainians do not crave the fabled stability of a political strongman or the comforting familiarity of pseudo-democratic authoritarianism. On the contrary, today’s Ukraine is a fundamentally democratic society with a demonstrable desire to live under representative government, complete with all the necessary institutional checks and electoral accountability. Ukrainians have made huge sacrifices to achieve this goal and will eventually reach the point where frustration at the current state of affairs leads to an overwhelming response. Herein lies the mounting danger. There is widespread consensus that any future political earthquake in Ukraine will be far bloodier than the 2004 and 2014 vintages. Each of these previous Ukrainian revolutions carried with it the hope of a new democratic dawn, but three-and-a-half years after the flight of President Yanukovych, there is little to suggest that the postEuromaidan period will ultimately prove more successful than the Orange era before it. While there are signs of significant progress at the local level thanks to decentralization, the big beasts of national politics and their oligarch owners appear to have regained their confidence and are busy pushing back against anti-corruption reforms. In a country armed to the teeth and awash with military veterans who have seen comrades make the ultimate sacrifice, this is an extremely dangerous game to be playing.

The democracy deficit in the Ukrainian parliament is also a cause for concern far beyond the challenges it poses domestically. Ukraine finds itself on the frontlines of global democracy at a time when the authoritarian model is making a comeback for the first time since 1991. If Ukraine’s dysfunctional democracy fails, the knock-on effects could help to reverse the progress achieved since the fall of the USSR. This is something Ukraine’s international partners must bear in mind when discussing continued aid for Kyiv. In order to make Ukraine’s post-Soviet transition sustainable, creating a genuinely democratic parliamentary culture must be the priority objective through which all other initiatives flow. International support has played a vital role in the adoption of numerous individual post-Euromaidan reforms, but unless Ukrainian democracy rests on the firm foundations of a fully functioning and publicly accountable legislature, the country’s long-running “Game of Chairs” saga could well end in tragedy.

About the author: Peter Dickinson is the publisher of Business Ukraine magazine and a nonresident fellow at the Atlantic Council

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opinion

Kyiv can lead Ukraine from revolution to evolution

Greater grassroots democracy in the capital can provide momentum for sustainable transformation

About the author: Sergiy Gusovsky is a member of the Kyiv City Council where he serves as head of the Samopomich faction There is currently a mood of mounting dissatisfaction in Ukrainian society over the slow pace of reforms in the country. Many of the major changes envisioned during the Revolution of Dignity have remained in a state of limbo for several years, while we are also witnessing creeping stagnation in the civil society sector and a lack of community inclusion at all levels of governance.

These negative trends pose a direct threat to the broad roadmap for change outlined in early 2014 as Ukraine emerged from months of political turmoil and sought to embark on the most ambitious transformation of twenty-first century Europe. The answer to regaining Ukraine’s revolutionary reformist momentum may lie in Kyiv itself – a forward-looking and dynamic city that has repeatedly proven capable of mass mobilization in support of Ukraine’s European aspirations.

As Kyiv continues to grow and expand, greater devolution of powers to local self-government within municipal structures could help to engage people at the grassroots level and help to foster a new generation of politically active citizens capable of translating localized engagement into national development.

Kyiv’s Credentials

With national politics seemingly stuck in a rut of deeply entrenched rent-seek10

ing behaviors and corruption, many observers believe Ukraine’s best chance of achieving meaningful change lies at the local level. Kyiv is perhaps the most obvious candidate to lead this process. In 1990, 2004 and 2014, the Ukrainian capital repeatedly served as the stage for mass protests that decisively changed the national narrative. Kyiv’s “Maidan moments” highlighted the city’s ability to serve as a platform of last resort for Ukrainians fed up with the status quo in the country. These outpourings of revolutionary emotion are indications of Ukrainian society’s fundamentally healthy democratic instincts. However, in order to move beyond mass protests and reach a point where everyday engagement in governance is the norm, Ukrainian civil society needs to progress from revolution to evolution. Kyiv should lead this process.

In order to maintain its leadership role in modern Ukrainian society, Kyiv must set a positive example of inclusion in governance. Here it is worth remembering the words of His Beatitude Lubomyr Husar, who cautioned us to recognize the seriousness of the transitional challenge today’s Ukraine faces. Ukrainian society needs to achieve a psychological breakthrough and learn to re-evaluate itself. The Soviet system did a lot to make individuals feel little tiny cogs in a huge system. This experience left us with the paternalistic idea that everything will be resolved at some higher level. The truth is that the capital of Ukraine has :

opinion

Maintaining the Maidan momentum: Kyiv has been the driving force behind Ukraine’s two post-Soviet pro-democracy revolutions and can fuel further democratization by embracing greater self-government at the local level

body is it when it is practically directly subordinated to the President? This city management structure has no room for the kind of community involvement that could influence elected officials and control municipal activities. Instead, the system appears designed to prevent anybody from impeding the work of the ruling elite.

Decline of District Democracy

: not yet cured itself of this paternalism, and the current authorities are in no

hurry to help the process along.

The sheer size of Kyiv also encourages people to view the mechanics of municipal government as vast and impenetrable. According to official data, the population of the Ukrainian capital is slightly less than three million. Unofficially, the figure is probably well in excess of four million. If various suburbs and satellite towns are included, it is possible to estimate the population of Greater Kyiv at approximately six million. This places Kyiv among Europe’s largest cities. Nevertheless, Kyiv is currently divided administratively into just ten districts. Some of these districts include over 400,000 citizens, which is more than many of Ukraine’s regional capitals. Creating sustainable government in a modern megacity on this scale requires significant self-government.

Vertical Governance

What kind of municipal structures do we have in the Ukrainian capital? At present, there are entire areas of the municipal administration where there is no self-governing element at all. In most large European cities, local issues are addressed at the level of district council, while issues of more global significance are dealt with at the national level. In Kyiv, the current system is closer to the kind of presidential vertical favored in authoritarian post-Soviet states. All district level decisions are made by appointed district administrations instead of elected district councils.

In practical terms, the state is able to intervene in the daily activities of Kyiv’s individual districts. This intervention comes via the heads of the district council administrations appointed by the President of Ukraine. Similarly, the President of Ukraine appoints the head of the Kyiv City State Administration (KCSA), described as the “executive body of the city council”. What sort of a local executive 12

There is no reason to view the current state of municipal affairs in the Ukrainian capital as in any way inevitable. Kyiv has a long history of self-government within the framework of the medieval Magdeburg Law. This lasted until 1835, when Russia’s Tsar Nicholas I deprived the city of its Magdeburg rights. What followed was a mockery of self-government within the Russian and Soviet empires. In Soviet times, district councils existed on paper but were essentially fictional, as was much of the official communist system.

District councils made a comeback in post-Soviet Kyiv, only to disappear in 2010 when President Yanukovych implemented the current vertical power structure. The 2014 Revolution of Dignity occasioned a rethink of the municipal structure. In summer 2015, Kyiv City Council decided to revive district councils. However, political compromises meant that the reestablished district councils enjoyed very limited powers. Even this proved to be unrealistic.

Within six months, the decision to create elected district councils was cancelled and the process of developing greater municipal self-government was blocked.

Why did this happen? It seems that the pro-presidential majority had no interest in risking their positions in the individual districts of Kyiv. This is not hard to understand. While the pro-presidential party currently controls just over 40% of the votes in the Kyiv City Council, it enjoys 100% control at the district level.

This is the reason for the imbalance between the choices expressed by the Kyiv electorate and the current realities of the municipal government.

Fostering Grassroots Democracy

The existence of efficient and openly elected district councils would make the capital’s municipal management significantly more efficient. Local councils could also play another important role in the development of a more democratic Ukraine. The national capital attracts people from all over the country and is a major melting pot. District councils could become a school of parliamentarism for Ukrainians who have decided to go into politics and wish to learn more about the practicalities of self-government. This would also allow political parties to evaluate the strengths of their representatives on district councils, becoming a recruitment pool for future posts in regional and national government. It would establish a logical and evolutionary chain, allowing Ukrainians to move from district and municipal government to parliament.

This would help Ukraine to overcome the lack of candidates with proven experience in public policy. In this light, I view district councils as the “first grade” in a school of self-government and politics.

At present, it is difficult to avoid the conclusion that the decentralization movement has completely omitted Kyiv. The city has fallen into a slumber brought on by imitations of reform and development. The only way out of this predicament is to wake up the Kyiv community via involvement in the day-to-day activities of the municipal government. The lack of democratically mandated district councils keeps civil society from engaging in public policy and prevents new people from entering into municipal management. It hinders the emergence of Ukraine’s next generation of politicians.

In my opinion, the requirement to renew district councils in Kyiv should be a key policy for any democratically minded political force interested in real reforms and community engagement. This would allow Kyiv to regain its position as the driver of Ukrainian reforms while also confirming its status as the true capital of our country.

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investment

Five steps to boost Ukraine’s investment attractiveness Ukraine’s economy is growing but numerous barriers remain to greater international investment Step 2: Make Reforms Reality

About the author: Rostyslav Korobka is the Vice-President of the Ukrainian Chamber of Commerce and Industry Today’s Ukraine is a contradictory country boasting numerous positive economic indicators while at the same time facing enormous political, social and security challenges. The ongoing military conflict with the Russian Federation in the east of the country serves to complicate the huge reform challenges that stand before Ukraine, while key domestic concerns include corruption, currency instability, and rule of law uncertainty. These issues have combined to prevent the emergence of an attractive investment environment despite the clear underlying appeal of Ukraine’s vast resources, advantageous location, and reform trajectory.

Ukraine rose just one place to eightieth position in the World Bank’s 2017 Doing Business report, reflecting a modest improvement in the Ukrainian business climate over the past year. There has been a concerted effort to reduce the number of regulatory acts and rules that suffocate the Ukrainian business environment. However, Ukraine has also fallen further behind on issues such as contract compliance.

Most analysts agree that foreign investment can play a decisive role in determining Ukraine’s wider national development. According to some experts, every single additional point gained in the World Bank’s Doing Business survey could be worth as much as USD 600 million in investment. In order to secure this kind of international investment, Ukraine must focus on improving the country’s attractiveness. The following five steps could help Ukraine provide the stability that fosters long-term investment.

Step 1: End the War

With the support of our international partners, Ukraine must seek to end the conflict in eastern Ukraine as soon as possible. Ongoing hostilities in the Donbas are the key issue facing the country and lie at the heart of many interconnected challenges and problems. Obviously, war is a massive obstacle to any investment. There are virtually no examples of countries engaged in active military conflicts that have also boasted attractive investment profiles. In the postSoviet region, it is enough to consider the case of Georgia, which saw a threefold decline in international investment flows following the brief war with Russia in summer 2008. This drop came despite the fact that Georgia was exactly the kind of reformist darling that today’s Ukraine now aspires to be. At the time of the war with Russia, Georgia had spent a number of years earning plaudits as the star performer in the annual Doing Business ranking. Even so, the military factor was enough to reverse these positive investment trends.

14

Contemporary Ukraine suffers from a highly infectious political disease called populism. The symptoms of this debilitating condition include endless sloganeering and relentless talk of change without any accompanying action.

Ukraine desperately needs to move beyond the stage of declarations and begin actually implementing reforms. The country must become far more efficient and transparent in every way. This relates to everything from regulatory acts to the tax system. We need to provide a supportive environment for our SME sector. Our international partners can also help us to fight back against the epidemic of empty promises plaguing today’s Ukraine. We now have free trade agreements in place with the EU and Canada. We receive a lot of international technical assistance to help boost our foreign trade capacity, promote investment activities, and reform our public sector. I would not say this support is inefficient, but from my point of view, we need to create monitoring systems that would allow our partners to keep closer track of how this assistance is used and introduce penalties if necessary. We need more sticks to accompany the carrots.

3. Functioning Financial System

We urgently need to build a competitive and transparent Ukrainian banking system in order to help the SME sector thrive. The SME sector is a priority issue for Ukraine due to the country’s weak and muzzled middle class. Thanks to corruption and successive political crises, our government has traditionally focused on securing the support of large Ukrainian enterprises. For more than 20 years, we have been slowly killing off our middle class instead of strengthening it. A functioning financial system can help to counter this problem and create a flourishing SME sector.

Step 4: Offer Investors Protection

Despite the fact that Ukraine clearly needs greater international investment, we still lack the tools to protect the interests of international investors. The past few years have seen numerous initiatives to promote investment such as the launch of the Investment Promotion Office. However, there has been no progress towards state-backed guarantees or other forms of protection capable of attracting a new wave of otherwise wary international investors. As soon as possible, we need to offer guarantees to investors at the local and national levels. This needs to happen while the cleanup of the Ukrainian courts and legal system continues. Judicial transparency is crucial for Ukraine’s long-term investment appeal, but investor protection measures are an effective short-term solution.

Step 5: Create a Vision

In order to generate momentum, we need to know where we are going as a country. Ukraine must set itself clear objectives and then adopt them across society. We need to understand what kind of Ukraine we want to create by 2020 or 2030. Is it enough to become one of the world’s leading agricultural exporters? Do we want to become a hub of East-West economic interaction? Or is the goal to foster a new generation of IT innovation and create the next Facebook or iPhone? If we want to be competitive on a global scale, it is not enough to talk about reform and anti-corruption activities. We must have more ambitious and inspirational goals. This will boost domestic development while making the country much more attractive to outside investment.

legal

Ukraine’s new takeover rules Legislative changes seek to improve corporate governance and boost Ukraine’s investment climate

About the author: Oles Kvyat (oles.kvyat@asterslaw.com) is a counsel at Asters law firm and one of the leading Ukrainian experts in Corporate law The adoption and entry into force of new legislation improving takeover regulations and corporate governance in joint stock companies (JSCs) has been a pleasant surprise for Ukrainian legal and stock markets. Even those who initially brought up the issue, drafted the legislation, and wholeheartedly supported it through all the stages of the lawmaking procedure remained unconvinced that it would become law. They remembered the efforts of 2011-12, when a similar legislative initiative suffered rejection by the market and received a presidential veto. However, it is now clear that the squeeze out and sell out amendments to Ukraine’s JSC law are the most cardinal changes to this legislation since its introduction in 2008. The newly introduced mechanisms should help improve the level of corporate governance in medium and large-scale businesses. They will go a long way to resolving historical problems plaguing the stock market, and generally improve the Ukrainian investment climate and the M&A market situation. Prior to the recent changes, Ukraine’s tender offer rules consisted of literally one article within the country’s JSC legislation obliging the majority shareholder, upon his acquisition of a controlling stake, to send an irrevocable public offer to the remaining minority shareholders to purchase their shares. If accepted, the majority shareholder would then purchase their shares at the market price. The new law has elaborated significantly on the consequences of share consolidation in the hands of a single shareholder. For example, once a majority shareholder acquires a dominant controlling stake of 95% or more shares in a private or public JSC, they are entitled to force out minority shareholders at a fair price via a so-called squeeze out. Meanwhile, minority shareholders holding 5% or less of a private or public JSC have the right to require purchase of shares at a fair price.

In a bid to address the traditional Ukrainian problem of majority shareholders seeking to manipulate share prices, the revised law has elaborated on the determination of a fair share price, while also introducing an escrow agreement. Under both the squeeze out and sell out procedures, the share purchase price paid by the majority shareholder is established as either the highest price paid in the previous 12 months, or the market price established by a licensed appraiser.

16

As expected, immediately after the law came into force, the changes relating to squeeze out mechanisms became the hottest topic of discussion among legal professionals. The debate centered on concerns that the squeeze out device, although facilitating the efficient operations of the company in question, would also infringe on the property rights of minority shareholders. While I wholeheartedly share these concerns regarding the rights of minority shareholders, I believe the Ukrainian corporate environment will benefit from the new-look squeeze out mechanism.

First of all, it is no secret that after the original JSC law was introduced, the Ukrainian securities market suffered from a situation where almost every public JSC had the formal features of a public company but was de facto not public at all. There are various reasons for this, including the high degree of capital concentration in JSCs and the reluctance of majority shareholders to pay dividends. You can count the number of genuine publicly traded companies in Ukraine on the fingers of two hands. The new squeeze out device should enable “quasi-public” companies to align their de jure status and activities with reality via transformation into private companies.

There is no doubt that the authors of the law understand the basic principles underlying property rights, including the protection of private property. However, in circumstances where minority shareholders often use their corporate rights in contravention of, or sometimes even against, the company’s long-term goals, it becomes apparent that the majority’s right to squeeze them out does not actually infringe property rights as long as fair compensation is paid.

The new squeeze out mechanisms should allow a majority shareholder to resolve problems concerning “irresponsible” minority shareholders who, in addition to their non-participation in decision-making processes, create various obstacles to the efficient operation and development of the business. Ukrainian JSCs often have large numbers of “sleeping shareholders”, mainly individual shareholders who acquired a fraction of the firm’s equity during the privatization process and, in view of their shareholding insignificance or some other reasons, do not participate in the company’s life at all. Then there are dishonest shareholders who exploit their shares for greenmailing, raider activities, or corporate conflict purposes.

In addition, nobody can guarantee that the new dominant shareholder’s actions will result in the company’s further development or generate increased profits. Instead, the company might lose its business position, thus resulting in a share price drop or even bankruptcy. In such circumstances, the squeeze out procedure would guarantee receipt by minority shareholders of fair compensation for their shares. It is also worth mentioning that the squeeze out device is balanced by a corresponding sell out procedure that can be triggered upon the initiative of dissenting minority shareholders.

The new squeeze out and sell out mechanisms adopted in Ukraine have already proven extremely efficient in many developing and developed economics throughout the world. The Ukrainian legislation that now governs the squeezing out and selling out of minority shareholdings has adopted the best practices of these existing international mechanisms as they are used in various popular jurisdictions, while still taking into account the specifics of the Ukrainian business environment. This should substantially contribute to bringing the Ukrainian corporate environment into alignment with the global corporate world. In essence, it is a progressive move designed to foster growth and remove some of the legislative barriers to investing in Ukraine.

banking

Ukraine’s car loan market keeps pace with growing auto sales Credit Agricole witnessing growth in car loan portfolio as demand keeps pace with overall market trends

About the interviewee: Roman Bunich is the Director of the Alternative Channels and Third Party Sales Department at Credit Agricole Bank in Ukraine Robust growth in the auto sales market is widely seen as an indication of Ukraine’s economic recovery, and the country’s car loans segment is keeping pace with the positive dynamic. Sales figures for new cars in Ukraine have risen by over 30% so far in 2017, and car loans market leader Credit Agricole says they’ve experienced a similar expansion in their portfolio this year. However, the Director of car loans service at Credit Agricole Roman Bunich is cautious of talk about an auto industry boom. He regards current growth levels as sustainable but does not see economic evidence to suggest that accelerated progress is around the corner. “The current increases are stable and we’re seeing a very close correlation between the growth in sales and loans,” Mr. Bunich offers. “However, there is little reason to expect any sudden surges.”

By August 2017, Credit Agricole had dispersed UAH 1.2 billion in loans since the start of the year. That figure is almost equal to the annual sum of UAH 1.3 billion for 2016, raising the prospect of a yearly total closer to UAH 2 billion. Almost 50% of this portfolio is in the form of very low rate loans – a service Credit Agricole offers via partnerships with insurers and some Ukraine’s largest international auto importers. The bank has developed financing packages without any flexible interest rate clauses, providing customers with added peace of mind and a sense of predictability when taking out a car loan. “It has proved a popular and convenient option. We have customers who are already purchasing their fourth car via our very low rate loan program,” says Mr. Bunich.

The portion of overall new car sales in Ukraine covered by loans is currently around 12-15% of the market and has remained steady for the past few years. This relatively low figure reflects the economic uncertainties faced by many Ukrainians that prevent them from making significant medium-term financial commitments. It is all a far cry from the heady days of 2008 when Ukraine ranked among Europe’s top ten auto sales markets with approximately 600,000 purchases – 18

of which around 50% were financed by loans. Then came the global credit crunch and a collapse in the Ukrainian auto market. Almost a decade later, the slow recovery is still underway.

Mr. Bunich first entered the auto financing sector of the Ukrainian banking industry in 2004 and joined Credit Agricole in 2007 to help oversee development of the bank’s car loan services. He witnessed the often somewhat lax attitudes towards car loan qualification in place at some banks during the years leading up to the 2008 crash, and recalls how people in low-paying employment were able to secure loans on the basis of their passport and taxpayer’s ID alone. “First there were lots of banks active in the market then there were virtually none. It was a bit of a jungle,” he offers. The market has matured considerably since then, with Credit Agricole securing international certification for its car loan financing services in 2011. It was the first and, to date, the only Ukrainian bank to do so.

Staying ahead in what is an expanding but relatively small and highly competitive car loans market requires constant service upgrades. Mr. Bunich points to Credit Agricole’s new multi-step rate, which allows for longer-term loans with very low rates in the first year and climbing gradually over an extended period if the client requires additional time to complete repayments. Other conveniences include an innovative automated application process that connects the bank to dealerships around the country, providing analytical oversight and reducing the potential for paperwork delays. “As a car loan granter, we are becoming more flexible and competing in terms of the services we provide,” he says. “We try to be faster and have also worked to simplify the documentation required when applying for financing. We are always fine tuning our services.”

With the loan financing market for new cars closely tied to the growth in overall Ukrainian sales, Mr. Bunich sees the used car sector as a particularly attractive option, but believes the expansion of this sector is currently being hampered by a lack of awareness among potential customers of the services that are already available. Credit Agricole offers used car loan services but last year only issued loans for 90 cars, a tiny return when compared to the loans for around 3,500 new cars the bank expects to issue this year. “I see huge potential in used car financing. The problem is that people simply do not know about these services,” he says. “We will continue to develop our loan services for the purchase of used cars. At the end of the day, we want to tailor our products to meet customer demand. Credit Agricole is a bank for car lovers, whether they are buying a new or used vehicle.”

The other niche attracting considerable industry attention is the electric car market. Sales growth figures continue to climb impressively in Ukraine, but the actual volumes involved remain relatively small.

Mr. Bunich does not see this changing until the country has the necessary infrastructure to make large numbers of electric cars a realistic and convenient proposition. “Electric cars are the future. There is no doubt or debate about that. The question is when this future will arrive in Ukraine,” he says. “Everything depends on infrastructure. As a green bank, we already offer financing packages for electric cars, but Ukraine is not yet a comfortable place to drive an electric car. It will happen here, but it is unlikely to come soon.”

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geopolitics

Beyond Visa-Free Travel

Ukraine needs new EU integration incentives in order to reboot the country’s reform agenda but Brussels is running out of viable options after playing its trump cards of visa-free travel and Association Agreement ratification

Brussels and Kyiv enjoyed a productive and dynamic summer season in 2017. Finally, the long-awaited visa-free regime with the EU came into effect, making European integration infinitely more tangible for ordinary Ukrainians. The EU also completed the process of ratifying the Association Agreement with Ukraine following extended delays due to the Dutch referendum on the subject in spring 2016. The flurry of good news continued with confirmation of the EU decision to raise caps on zero-tariff imports, thus opening up further opportunities for Ukrainian businesses.

However, relations between Ukraine and the European Union also showed signs of growing strain during the second quarter of 2017. The EU is increasingly impatient about delays in a series of reforms that Ukraine has committed to deliver. Reforms stuck in the Ukrainian parliament include key issues such as healthcare, customs, and more. Meanwhile, Ukraine’s parliament has also made a number of decisions that breach the terms of the EU Association Agreement. One example is a three-year extension of an increased export tax on scrap metal. Although it is against prior commitments made by Kyiv, the Ukrainian steel industry has received a new lease on life thanks to such protective measures.

Increasingly Strained Relations Ukraine was moderately successful in delivering on reforms in Q2 2017 but the pace was significantly short of EU expectations. Reforms related to European integration cover a wide range of areas that, in most cases, require parliamentary votes. Ukraine’s parliament has come under increasingly heavy criticism from the EU, mainly via the head of the EU Delegation to Ukraine, Hugues Mingarelli. The European Union’s main complaint is that parliament is delaying and even blocking a series of www.bunews.com.ua

reforms to which Ukraine has committed itself. The average timeframe for adopting important laws related to European integration is now 12 months, a delay that is difficult to justify. Moreover, aside from these delays, bills are often drafted or adopted in a manner that does not meet EU standards.

In the opinion of both the EU and many Ukrainians, the problems with parliamentary adoption of EU-compliant reforms come from the fact that many MPs have vested interests and thus are preventing the legislature from fulfilling its commitments to the EU. Bills are frequently prepared by the Cabinet of Ministers and various ministries and are registered in parliament, but are then neither debated nor adopted because the chairs of the relevant parliamentary committees fail to put the bills on the agenda.

Various sources point fingers at several committee chairs as the guilty parties over these apparent delaying tactics including the chair of the tax committee, the chair of the healthcare committee, and the chair of the industrial policy and entrepreneurship committee. EU dissatisfaction with the results of the parliament’s work is backed by statistics for 2016: of 126 EU documents that were supposed to be implemented in the Ukrainian legislature, only 36 of them were, in fact, implemented in part, while only 23 documents were fully implemented.

The EU’s growing disappointment with the pace of reforms in Ukraine is evident in the comments of the EU Ambassador to Ukraine and other Brussels officials. The EU clearly feels deceived by the Ukrainian side because there was actually no progress at all on a series of reforms that had been jointly agreed. Previously, the EU restricted its criticism largely to private discussions with Ukrainian officials. However, in recent months it has been noticeable that there is no longer any taboo : 21

geopolitics

: over publicly discussing the alleged wrongdoings of Ukrainian authorities.

As seen from Brussels, growing tension will pressure Ukraine into delivering on at least some of its commitments. In Kyiv, this additional pressure has not been well received. Many believe that it will only worsen relations between the two sides without leading to any positive results. The growth of criticism from the EU has been tolerated as long as it takes place in Kyiv. If criticism starts echoing in Brussels on a regular basis, it will be a particularly bad sign for Ukraine, since this could erode unity within the EU over Ukraine.

The timing of this mounting criticism reflects dissatisfaction over the delivery of reforms at a time when the EU has delivered on its commitments, specifically the visa-free regime and ratification of the Association Agreement. In the past, the absence of these two results kept Brussels from heavily criticizing Kyiv, as the EU itself was also guilty of delaying on its commitments.

In order to avoid more criticism from the EU, Kyiv will likely make an effort to deliver on certain reforms that will have a limited impact on the positions of the current political elite. Ukraine will try to buy some time on more complicated reforms related to sensitive issues such as the fight against corruption, the moratorium on exports of timber, and so on. As a result, around half of the reforms expected by the EU will be implemented in order to show progress, while the dysfunction surrounding politically sensitive areas will remain.

EU Carrots and Sticks

The current mismatch between expectations and actions could result in attempts on the part of Brussels to find additional stimuli. Such instruments could include delaying disbursement of its third EUR 600 million macrofinancial tranche. At the beginning of April 2017, Brussels disbursed the second tranche without the necessary conditions in place, as described in the EUUkraine Memorandum of Understanding, on the lifting of the moratorium on timber exports. In Brussels, the decision to push for the disbursement of EUR 600 million, despite Ukraine’s failure to meet the agreed conditions, was associated with European Commission Vice President Valdis Dombrovskis.

The third EU disbursement, which should take place at the latest in October, has a long list of conditions for Ukraine to meet. These conditions include reforms identified in the MoU, as well as a list of issues compiled following the memorandum. Currently, among many issues on the table, few are very important, but lifting the moratorium on timber, relaunching the work of the National Agency for Corruption Prevention, and issuing benefits to internally displaced people (IDPs) are among the issues regarded as crucial. If the EU does not disburse the third tranche by October, the funds will return to the EU budget and could be earmarked for other needs. Since Ukraine is already well behind schedule, Kyiv might find it difficult to deliver on these reforms, even if it would like to do so.

The overall macro-financial assistance package of EUR 1.8 billion is the biggest the EU has ever provided to a non-member country. For Ukraine, the third tranche of EUR 600 million is not a critical issue, especially with national currency reserves having reached a relatively stable position. However, any EU decision to withhold the funds would be a bad signal for Ukraine. Economic actors interested in Ukraine would certainly interpret it as a rollback of reforms.

This means Ukraine will have to fight for the third tranche for reasons not necessarily related to its direct financial value, but due to the potential reputational damage it could cause.

Nevertheless, if Ukraine does not at least partly deliver on reforms, the country will continue to lose credibility among international supporters, and that could have major consequences in 2018. The EU could even change its broader discourse in relation to Ukraine. Some signs of this possibility have already been observed, with EU officials speaking increasingly about “rapprochement” rather than “integration”, suggesting a weaker appetite for 22

Ukraine engagement in Brussels.

On the positive side, two important laws passed by Ukraine’s parliament relating to the electricity market and the Energy Efficiency Fund give cause for hope amid the mounting reformist gloom. The first of these brings into force the standards of the Third Energy Package, which would create a properly functioning electricity market and regulate relations between electricity generation, supply, transportation, and distribution. The second law set up an Energy Efficiency Fund. The passage of this law led to the disbursement of EUR 100 million from the EU to help launch the Fund. The Fund’s aim is the modernization of residential buildings that will save about US USD 3 billion if implemented properly.

Corruption Complaints Unresolved

Fighting corruption remains one of the key reforms demanded by the EU and therefore warrants special mention. Since the Euromaidan Revolution, Ukraine has taken some serious steps to set up the necessary institutions required to combat the country’s chronic corruption problems. It must now make these institutions work. One of the main issues on the EU-Ukraine agenda in this area has been the independence and functionality of the National Anti-Corruption Bureau of Ukraine (NABU).

Of all issues related to NABU, two are particularly noteworthy. The first one is the NABU audit, which has been on the agenda since the beginning of the year.

A negative audit would allow for the removal of current NABU Director Artem Sytnyk and the appointment of someone who is “more loyal” to the powers that be. So far, however, a team of NABU auditors has not been put together, although several attempts have been made with no result. The EU has suspected political motives behind the selection process and has requested a transparent procedure.

The second big issue is granting NABU the right to tap phones. This point is technically agreed but has not been implemented. The political class seems to be afraid of giving such a tool to an institution it does not control, since some politicians are scared of becoming targets. It is likely that the right to tap phones would significantly improve NABU’s chances of collecting conclusive evidence.

The EU has called many times for NABU to have this power without result.

Another anti-corruption issue is reforming the Office of the Prosecutor General. The EU Advisory Mission (EUAM) to Ukraine has openly criticized Prosecutor General Yuriy Lutsenko for impeding reforms, as demonstrated by the fact that he disbanded the unit in charge of the reform process. Lutsenko is in a difficult position, given that he is loyal to a president who appears very reluctant to carry out hardcore reforms at the Prosecutor General’s Office, while imitating the reform process and even delivering the occasional element in certain instances.

Unlike many Ukrainian officials, the EU considers the Prosecutor General ineffective because he has produced few tangible results. However, this problem will have to be handled by President Poroshenko himself, since he appointed Lutsenko and convinced Ukraine’s international partners, especially the US and the EU, of the argument that reforms had not been taking place precisely because the previous prosecutors were insiders, while Yuriy Lutsenko was an outsider with no special relations to the office. This theoretically gave him a free hand in reforming the institution, but it has yet to produce results.

Freer Trade

The EU and Ukraine have seen progress on temporary trade preferences for Ukraine in recent months. These trade preferences have been introduced for a period of three years and cover a number of additional import quotas at zero tariffs for agricultural products including honey, tomatoes, grape juice, oats, wheat, maize, and barley. The EU has also decided to completely drop :

geopolitics

“Brussels must identify new tools capable of maintaining the reformist momentum in Ukraine at a time when the modest gains since 2014 appear to be coming under threat” : import duties on several industrial products such as fertilizers, dyes, pigments

and other coloring materials, footwear, copper, aluminum, and television and sound-recording equipment.

Additional import quotas at zero tariffs are an important step on the part of the EU aimed at correcting imbalances in its free trade agreement (DCFTA) with Ukraine. Ukraine has been rightly complaining that the DCFTA puts a lot of pressure on the country’s economy while offering very difficult conditions for competing with EU companies. The quotas initially proposed by the European Commission were better for Ukraine than the ones actually voted through by the European Parliament. The initial quotas were agreed with the EU, but then the Ukrainian parliament decided to increase export tax on scrap metal, which caused the EU legislature to change its mind. For some countries, Ukraine’s mistake offered a good pretext to skate away from the initial offer. Countries like France were reportedly against it. Surprisingly, the biggest opposition actually came from Poland, a country that has traditionally acted as Ukraine’s principle advocate within the EU, and from Hungary. Some officials reported that Romania also voiced concerns. Many EU countries are uneasy about the country’s agricultural potential since, according to government statistics, Ukraine was one of the top three suppliers of agricultural products to the EU in 2016.

The potential for Ukraine’s farm sector is indeed huge.

Today, 281 Ukrainian companies have the right to export to the EU market, 101 of which are food-related. In Q1 2017, exports of Ukrainian goods rose 24.5% compared to Q1 2016. In 2016, total exports to the EU amounted to 40% of all Ukrainian exports, making the EU the number one destination for Ukrainian products. What’s more, some of the most underperforming domestic industries have finally started to make inroads into the EU market in 2017.

The prime example is Motor Sich, which signed a contract to supply a German company with 100 helicopter engines. If Ukrainian companies can adapt to the EU market, this could be the beginning of a very productive relationship, as the full-bore DCFTA only comes into effect in about 7 years.

Despite such positive trends in trade, no major investments from EU partners are on the cards in the near future, especially with privatization plans on hold.

In 2016, only 1% of Ukraine’s annual privatization plan was actually carried out, which is equivalent to UAH 190 million of a projected UAH 17 billion windfall. It is very unlikely that the bulk of privatizations will actually take place this year, partly because of Ukraine’s low business ratings with S&P, Fitch and the World Bank’s Doing Business Index. These negative assessments keep foreign investors away from the country.

Enhancing the Relationship

The EU finally delivered on the Association Agreement (AA) in mid-2017. The

process of ratification took a long time, but the decisive moment actually took place on 15 December 2016, when the EU Council made a decision intended to appease Dutch voters and guarantee that the AA does not offer Ukraine future membership in the EU or involve military commitments to defend Ukraine.

Ukraine has proposed a new format of “enhanced” association for “advanced” countries in the EU’s Eastern Partnership: namely Ukraine, Moldova and Georgia. The proposal generated little but skepticism in the EU. Commissioner Hahn noted that there was no consensus on Ukrainian Foreign Minister Pavlo Klimkin’s proposal among EU member states. Instead, the EU continues to insist on the implementation of Ukraine’s current commitments. Only then will it consider discussing “enhanced” association. From Ukraine’s perspective, Klimkin’s proposal makes sense as the two key carrots offered by the EU - the Association Agreement and visa-free travel - are no longer available. Ukraine now needs fresh motivation in order to continue its reform efforts.

The visa-free regime, the main tangible nationwide component of EU integration, finally entered into force on 11 June. Ukrainians warmly welcomed the event but this did not prevent ongoing animosities between Brussels and Kyiv.

Controversy arose when President Poroshenko suggested visa-free travel to the EU was not available to citizens from Russian-occupied Crimea and eastern Ukraine. The EU strongly refuted this statement and saw it as an attempt to establish a new dividing line inside Ukraine. Ukrainian sources were quick to point out that the statement reflected fears that holders of Ukrainian passports residing in Occupied Ukraine might travel to the EU and stage provocations that could hurt Ukraine’s reputation.

Ukraine was encouraged by the summer 2017 EU vote to extend sanctions against Russia, which are now in force until 31 January 2018. In mid-June, Ukrainian officials were discreetly expressing concern over reports that Italy might attempt to block the extension. However, it appears that the briefing given by Angela Merkel and Emmanuel Macron on the implementation of the Minsk agreement at a summit of heads of state in Brussels was enough to convince EU members to extend the sanctions. President Poroshenko originally wanted the extension to last for a year, not six months. However, that was not possible because EU members believe that a half-year provides more incentive for Russia to cooperate.

Over the coming year, the EU’s Ukraine focus looks likely to remain firmly on reform efforts, with particular attention towards healthcare, pensions, land ownership and privatization, along with the overarching efforts to make sure anti-corruption institutions function properly. For Ukraine, the biggest challenge will be maintaining what little reformist momentum the country has managed to generate, now that the two biggest EU incentives are realities. New motivational tools may be required to produce new results.

About the author: this article is by Leonid Litra and draws on a more detailed report produced by the Institute of World Policy in cooperation with the Truman Agency 24

20/10 2017 НСК «ОЛІМПІЙСЬКИЙ»

ВЕ ЛИКИЙ ФЕСТИВА ЛЬ Д ЛЯ МА ЛОГО БІЗНЕСУ

НАВІЩО БІЗНЕСУ СТРАТЕГІЯ ? ЯК ПРЕЗЕНТУВАТИ СВОЮ КОМПАНІЮ ПЕРЕД ІНВЕСТОРОМ ЧИ ПАРТНЕРОМ ? ЯК ЗРОЗУМІТИ, ЧИ ВАРТО ЗБІЛЬШУВАТИСЯ І ЗРОСТАТИ ? ЯК СКЛАСТИ ЕФЕКТИВНИЙ МАРКЕТИНГОВИЙ ПЛАН ? ЯКІ ГОЛОВНІ КОМПЕТЕНЦІЇ СПІВРОБІТНИКА В РЕАЛІЯХ СУЧАСНОГО БІЗНЕСУ ? ЯК СФОРМУВАТИ РИНОК ЗА ЙОГО ВІДСУТНОСТІ ? ЯКІ ДАНІ ЗБИРАТИ І ЯК ПРАЦЮВАТИ З НИМИ У ПРОДАЖАХ ? ЩО ПРИТАМАННЕ БІЗНЕСАМ-2020 ? ЯКИХ ТРУДНОЩІВ ЗАЗНАЄ БІЗНЕС ПІД ЧАС ВИХОДУ НА МІЖНАРОДНІ РИНКИ ? ЯК ВИХОВАТИ В СОБІ СТРАТЕГІЧНЕ МИСЛЕННЯ ? У ЩО НАЙЕФЕКТИВНІШЕ ІНВЕСТУВАТИ

СИЛИ, ЕНЕРГІЮ ТА ЧАС ? ЯК ВИРІШУВАТИ КОНФЛІКТИ В КОМАНДІ ? ЯК ОТРИМАТИ ПОЗИКУ ? ЧИ ВАРТО ЗВАЖУВАТИСЯ НА КРЕДИТУВАННЯ ? ЯКІ РОЛІ ВИКОНУЄ ПІДПРИЄМЕЦЬ І ЯК НИМИ ЖОНГЛЮВАТИ, ЩОБ НЕ ЗГОРІТИ ? ЯК ВИБРАТИСЯ З РЕЖИМУ «БІГ ПО КОЛУ» ? ЯК ЗБІЛЬШИТИ ПРОДАЖІ ? ДЕ ШУКАТИ ФІНАНСУВАННЯ ? ЯК ГРАМОТНО ПОБУДУВАТИ СТРАТЕГІЮ І ЧИ

ВОНА МАЄ БУТИ ДОВГОСТРОКОВОЮ ? ЯК СКЛАСТИ ЦІНУ СВОГО ПРОДУКТУ ? ЩО ПОТРІБНО ЗНАТИ ПРО КІБЕРБЕЗПЕКУ ? ЧИ ВАРТО НЕВЕЛИКИМ БІЗНЕСАМ ОБ’ЄДНУВАТИСЯ ДЛЯ ВИХОДУ НА ЗОВНІШНІ РИНКИ ? ЩО ПОТРІБНО ВЗЯТИ ПІД КОНТРОЛЬ, ЩОБ РОЗВИТОК

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Ліцензія НБУ №148 від 05 жовтня 2011 року

БУВ ПЛАНОМІРНИМ І ПОСЛІДОВНИМ ? КОЛИ І ЯКУ CRM-СИСТЕМУ ОБРАТИ ? ЯК ЗРОБИТИ СЕГМЕНТАЦІЮ, ВИЗНАЧИТИ ГОЛОВНІ ЦІЛЬОВІ АУДИТОРІЇ ТА КЛІЄНТСЬКІ ПОТРЕБИ ? ЯК МАЛОМУ БІЗНЕСУ ПРИВЕРНУТИ ДО СЕБЕ УВАГУ ВЕЛИКИХ КОРПОРАЦІЙ ? ЯКІ СКЛАДНИКИ СТАБІЛЬНОСТІ КОМПАНІЇ ? ЯК НАЗИВАТИ НОВІ ТОРГОВЕЛЬНІ МАРКИ, ЯКЩО ГРОШЕЙ НА КРЕАТИВНУ АГЕНЦІЮ БРАКУЄ ?

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investment

Bunge signs memorandum on Mykolaiv port investment Agribusiness giant signs memorandum to finalize third stage of Mykolaiv port infrastructure project US headquartered agribusiness company Bunge will provide investment over the coming year to improve port facilities in Mykolaiv.

Bunge officials concluded a memorandum in late August with representatives from Ukraine’s Infrastructure Ministry and the country’s Seaport Authority, with implementation of the latest port upgrade set to be complete by the end of 2018.

Bunge has been present in Ukraine since 2002 and since then has been one of the largest international investors in the Ukrainian economy. USD 280 million of the company’s Ukraine investments have focused on Mykolaiv Sea Port facilities. Mykolaiv serves as the www.bunews.com.ua

key gateway to Ukraine’s agricultural heartlands and is the point of departure for much of the agricultural produce Ukraine exports to global markets. It has been the focus for some of the biggest individual international investments in Ukraine over the past two years as agricultural infrastructure has emerged as a strategic priority.

Commenting on the company’s ongoing investment into the Ukrainian agriculture sector, Bunge CEO for Europe, Middle East and Africa Tommy Jensen commented, “Bunge has succeeded to become not only one of the major foreign investors in Ukraine, but also a leading exporter of grain and sunflower oil. We strongly believe in Ukraine

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investment

: and its agricultural potential. By signing this memorandum, we give

our commitment to create additional export capacities of agricultural commodities annually. For this expansion, Bunge will provide additional investment till the end of 2018.”

The planned port facility upgrade is expected to boost capacity and improve Mykolaiv’s production potential. Ukrainian Seaport Authority Head Raivis Veckagans stressed that the partnership between the Seaport Authority and Bunge will help to increase Ukrainian agricultural export volumes and consolidate the leading position enjoyed

by Ukrainian agricultural products on global markets, while also opening up new opportunities for more complex production lines.

“With the framework of the memorandum, the Ukrainian Seaport Authority plans to create additional anchorage for the rapid processing of ships,” commented Mr. Veckagans. “Bunge will increase transshipment volumes and create new jobs. This will help us to increase Mykolaiv port capacity for freight turnover and support the production of value added products, which a particularly promising direction.”

This investment commitment is the latest stage in the agribusiness company’s Ukraine operations. Bunge attracted headlines in summer 2016 with the unveiling of a state-of-art Multi-Seed Crushing Plant and the expansion of its grain transshipment complex in Mykolaiv Sea Port. Ukrainian President Petro Poroshenko attended the June 2016 official opening ceremony and called the USD 180 million investment ‘a vote for Ukraine’. “This investment acts as the best advertisement for the investment opportunities and attractiveness of the country,” commented the Ukrainian President.

The August 2017 signing of a memorandum for the further development of Mykolaiv port facilities drew an equally enthusiastic response from representatives of the business and diplomatic communities as the latest indication of Ukraine’s improving investment climate. US

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Ambassador to Ukraine Marie Yovanovitch emphasized that Ukraine is becoming a more competitive destination for international investment. “I congratulate the Ministry of Infrastructure for the support it has provided to Bunge in Mykolaiv,” commented Ambassador Yovanovitch. “This support is very important. It testifies to the desire to improve the business climate in Ukraine and build the kind of country that, in my opinion, every Ukrainian wants to live in. With your continued support, Ukraine can become an attractive and dynamic country for international investors and local entrepreneurs alike.”

Meanwhile, American Chamber of Commerce in Ukraine President Andy Hunder admitted that “Foreign Direct Investment (FDI) is crucial for Ukraine on its path of economic recovery. It is always a pleasure to support FDI,” commented Mr. Hunder. “Bunge’s new investment will create new jobs in Mykolaiv and serve as a vivid example for potential investors who are looking at Ukraine as a potential investment destination. I am convinced there will be more success stories to follow.”

Bunge will celebrate its two hundredth anniversary in 2018 and company officials have repeatedly stressed their readiness to share their considerable international experience with Ukrainian officials in order to help improve the country’s FDI attractiveness. “Today we start writing a new chapter in the success story of cooperation between Bunge and the Ukrainian state,” said Mr. Jenson during the memorandum signing in Kyiv. “By signing this Memorandum, we give our commitment to create 400 000 tons of additional export capacities of agricultural commodities annually. We have established a good dialogue with the Ukrainian government. As a global company, we are ready to advise and assist in the development of better regulation, increase the protection of investors, and establish public-private partnership mechanisms, bringing international best practices to the table.”

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interview

A high-priority but high-risk destination: Azerbaijan investors cautious on Ukraine Azerbaijan Ambassador Azer Khudiyev says Baku sees stability as key to greater investment in Ukraine If embassy buildings are statements of intent, then the Azerbaijan Embassy in Kyiv is making a very bold statement indeed. Situated on a sprawling multi-hectare plot of land in the Lukyanivska district of the Ukrainian capital, the Azerbaijan Embassy complex is one of the largest and most impressive in the country. Over the www.bunews.com.ua

years, it has drawn admiring glances from many in the Kyiv diplomatic community including the Americans, who reportedly once sought to acquire the plot for their own diplomatic mission.

The complex is so spacious that residential quarters are currently under construction to house embassy staff on site. A landscaped

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About the interviewee: Azer Khudiyev is the Ambassador of the republic of Azerbaijan in Ukraine

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yev borders the embassy complex and adds to the overall impression. Designed in the distinctive Azerbaijani style, the park features a luxuriant waterfall fountain and regularly appears in media rankings of Kyiv’s best park areas.

This imposing Azerbaijani presence is testament to the importance placed by Baku on bilateral ties. Ukraine and Azerbaijan are celebrating twenty-five years of diplomatic relations this year, and cooperation between the two former Soviet republics has never been more strategically important. The two nations are seeking closer ties with the Euro-Atlantic community while navigating a post-Soviet neighborhood dominated by a resurgent Russia. Both countries have important roles to play in the New Silk Road project and other key geopolitical infrastructure initiatives designed to connect Asia and Europe.

Azerbaijani Investors Await Stability

The man charged with overseeing the development of Baku’s bilateral relationship with Kyiv is Azerbaijan Ambassador to Ukraine Azer Khudiyev. Ambassador Khudiyev arrived in Kyiv in 2016 to begin what is his second diplomatic posting in Ukraine, having previously served at the Azerbaijan Embassy in 2003-2005. As the Caucasus nation’s top diplomat in Ukraine, he finds himself working to foster closer ties in what is an exceptionally transitional environment that combines great potential with considerable challenges.

“Azerbaijani companies are very interested in Ukraine. There is widespread recognition of the opportunities that are on offer here, but for many potential Azerbaijani investors, the risks are still too high,” he says, citing raider attacks and other fundamental law and order issues as key obstacles to greater Azerbaijani investment in Ukraine.

There is certainly room for considerable growth in bilateral trade.

Turnover in 2016 amounted to USD 334 million, 2.6 times lower than the figure for 2013. Efforts are underway to boost this total by bringing together the two business communities. Spring 2017 saw a major Ukraine-Azerbaijan economic forum take place in Kyiv, attracting the participation of more than 40 Azerbaijani companies and holdings. It is hoped that similar events will help to strengthen economic ties while expanding cooperation beyond traditional spheres such as the energy sector.

Aerospace and Energy

Ambassador Khudiyev identifies the aerospace industry as one of the most attractive options for deepening bilateral cooperation.

“Ukraine has great expertise and strong traditions in this sector, while aerospace has been identified as a priority for Azerbaijan,” the Ambassador comments. The groundwork for this process is already in place. In recent years, Baku has increased cooperation with Ukraine’s flagship Antonov aircraft manufacturing company and has placed orders for a number of planes, potentially paving the way for further future aerospace collaboration.

Energy cooperation has long been one of the cornerstones of bilateral economic ties between Azerbaijan and Ukraine, and this remains the case today. Azerbaijan’s state-owned oil company SOCAR has a strong presence in Ukraine with filling stations and refineries across the country and an overall investment in the Ukrainian economy of more than USD 200 million. Ukraine’s desire to achieve energy indewww.bunews.com.ua

pendence opens up considerable opportunities for greater cooperation with energy-rich Azerbaijan. “In light of Ukraine’s energy sector reforms and the search for new partners, Azerbaijan could expand its presence on the Ukrainian domestic gas market,” says Ambassador Khudiyev, before stressing the need for Ukraine to create the right legislative conditions for long-term supply contracts.

interview

: park named after modern Azerbaijan’s founding father Heydar Ali-

Silk Road Partners

By far the most eye-catching aspect of Azerbaijan-Ukraine ties at present is the role both countries can potentially play in the ambitious Beijing-led plans to create a new transport corridor linking the Asia-Pacific region to European markets. Dubbed “The New Silk Road”, this vast infrastructure undertaking envisages a route bypassing the Russian Federation and travelling through Kazakhstan, Azerbaijan, Georgia and Ukraine via the Caspian and Black Seas.

With Azerbaijan looking to diversity its economy away from the energy sector, transport is one of the key directions as Baku seeks to take advantage of the country’s strategic location. Cooperation with Ukraine in this direction offers a number of obvious synergies.

In November 2016, Ukraine and Azerbaijan’s railway operators signed a Memorandum of Understanding committing them to develop rail freight cooperation. This is a step in the right direction, but Ambassador Khudiyev believes it is just the beginning. “If we analyze the geography and transport potential of both countries, it is obvious that the existing potential has not yet been realized,” he comments.

While both Azerbaijan and Ukraine are members of the European Union’s Eastern Partnership, Baku does not envisage following in Kyiv’s footsteps and securing an EU Association Agreement for the Caucasus nation similar to the agreement signed by between Kyiv and Brussels. Instead, Ambassador Khudiyev says Azerbaijan seeks a strategic partnership with the EU that will reflect the specifics of the Baku-Brussels relationship. Nevertheless, Ukraine’s ongoing integration process can provide Azerbaijan with valuable insights.

“The Ukrainian experience is very interesting for Azerbaijan,’ explains Ambassador Khudiyev. “There is a long list of integration themes where we can benefit from direct reference to the successes of shortcomings of Ukraine’s own experience.”

Ukraine’s EU integration process is taking place against a backdrop of armed conflict in the east of the country, inevitably restricting the country’s ability to progress on a wide range of issues. There are echoes of Ukraine’s current situation in Azerbaijan’s own post-Soviet experience. “Azerbaijan was one of the first countries in the region to suffer from the problem of separatism. Starting from the late 1980s, our nation has faced an unprecedented threat to its territorial integrity. As a result of this aggression, nearly one million Azerbaijanis have become refugees or IDPs,” says the Ambassador. He comments that the conflict in the east of Ukraine, as well as all the frozen conflicts in the post-Soviet world, are impediments to regional development as a whole, but stresses Azerbaijan’s commitment to support Ukraine during this challenging period. This solidarity is in part a reflection of Azerbaijani recognition for the role played by Ukraine during the conflict in Azerbaijan back in the 1990s, when Ukraine helped to provide vital training and military hardware at a time when few others were willing to stand with Baku. “We will never forget this,” says Ambassador Khudiyev. “Our goal is to honor these ties and build on this positive relationship”.

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Securing Ukraine’s cyberspace Andy Hunder, President of the American Chamber of Commerce in Ukraine

The need to address increasingly sophisticated threats against American and global businesses have gone from an IT issue to a top priority for the C-suite and the boardroom. US Chamber President and CEO Thomas J. Donohue recently commented: “In an interconnected world, economic security and national security are linked. To maintain a strong and resilient economy, we must protect against the threat of cyberattacks.”

Software: keep it legal

On June 27, on the eve of a public holiday in Ukraine, a major global cyberattack took place. Ukrainian companies were among the first to announce that they were being attacked, followed by reported infections across 64 countries. Later reports confirmed that 80% of all infections were in Ukraine. The hack was the biggest in Ukraine’s history, with businesses, government institutions, media companies, industrial holdings and strategic state owned enterprises attacked.

Smart security is total security

The lack of legal regulation of the national state policy on cybersecurity and a clear cybersecurity strategy complicate Ukraine’s fight against cybercrime. A recent cybersecurity test demonstrated the need to develop a clear legal framework for national cybersecurity policy. The legal basis should determine the legal and organizational framework for ensuring the protection of vital interests of Ukraine and its people in cyberspace.

From an IT issue to a top priority for the C-suite

One example to follow is that from our colleagues at the U.S. Chamber of Commerce in Washington DC. The U.S. Chamber’s National Security and Emergency Preparedness Department was established over a decade ago to develop and implement the Chamber’s homeland and national security policies. The task force’s Cybersecurity Working Group identifies current and emerging issues, crafts policies and positions, and provides analysis and direct advocacy to government and business leaders.

Unlike most things you buy, software doesn’t necessarily belong to you.

Paying for a software or program, a person becomes a licensed user — not an owner. Some users turn to installing pirated software. The usage of illegal software is a widespread problem in Ukraine, as a market for pirated software is significant. Using such software means potential trouble for users while dealing with confidential information like financial statements, sensitive passwords and personal media items.

As a result, software companies experience material losses, risks of cyberattacks redouble, and Ukraine’s IT sector lags behind many European countries. Obviously, the Government, as well as business should respect and follow antipiracy legislation, because software piracy resulted in lost jobs and unfair market competition. The only way to solve the problem with illegal software is to carry high penalties for users caught in the act.

Think before you click

Digital literacy is an emerging concept in Ukraine, which can serve as an effective tool for personal and data protection. Digital literacy is not just a basic skill or ability to handle a computer. It is the competence to use, create and share digital content safely and responsibly. Thus, every bona fide employer today, understanding that big data needs big security, should promote the knowledge of effective navigation, evaluation and creation of information in cyberspace within their staff. Various instruments can be used nowadays: trainings, online resource guide, development of eLearning strategy and even self-exploration.

In the words of Neil Rerup, cybersecurity entrepreneur and IT security futurist: “True cybersecurity is preparing for what’s next, not what was last”. That is why it is pivotal for Ukraine to develop a legislative framework on cybersecurity, comply with software licenses and promote digital literacy. These factors can become powerful drivers for securing Ukraine’s cyberspace.

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WEST UKRAINE’S LIFESTYLE GUIDE №100/April 2017

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real estate

Top 10 things you should know

before buying Kyiv property Your essential guide to real estate investment opportunities in the Ukrainian capital Kyiv’s residential real estate market can seem chaotic to foreign investors who are unfamiliar with it. However, as Games of Thrones character Petyr Baelish would say, “Chaos isn’t a pit. Chaos is a ladder.” Savvy investors know that the best opportunities lie in situations that aren’t easy. Whether you are an individual buyer, a property fund, or a foreign real estate developer considering entering the Ukrainian market, here are 10 things you should know before buying property in Kyiv. The list includes price and supply drivers, the availability of market information, investor risks, and other countryspecific nuances.

1. The Ultimate Immovable Asset

Real estate is the most trusted asset for Ukrainians and functions as their “piggy bank”. Many Ukrainians do not trust the country’s banking system. Instead of depositing their savings into bank accounts, pension www.bunews.com.ua

funds or other financial instruments, Ukrainians typically convert their earnings into hard currency (usually US dollars) and save this physical cash before buying real estate at the first opportunity. If a Ukrainian has a financial windfall, then they will also likely invest much of it into real estate. The preference for real estate purchases serves to push up and maintain the value of this asset class as a whole. As a result, a great deal of Ukraine’s capital at any given time is locked up in the country’s real estate market.

2. Minimal Mortgage Market

Mortgage financing is still not a practical option for most people in today’s Ukraine. As of mid-2017, mortgage rates in Ukraine are generally above 20% per year. Many Ukrainians remain reluctant to make long-term financial commitments. Inflation is also relatively high, meaning banks must of-

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: fer high deposit rates to attract funds. These deposit rates in turn serve to

push up mortgage rates. Mortgage rates also need to mitigate liquidity risks that arise from a lack of long-term funds on deposit. Most Ukrainian depositors keep their money in banks for short periods of between three and six months, while most mortgages typically have terms of 15 to 20 years.

Mortgage rates are also high to account for currency risk. While the Ukrainian hryvnia exchange rate has been relatively stable in 2017, there was a steep currency devaluation from early 2014 until the end of 2015. Due to a combination of these factors, the Ukrainian mortgage market is minimal.

Currently about two-thirds of Kyiv home buyers use their own funds for direct property purchases and just under a third use deferred financing from property developers. Meanwhile, only about 3% to 4% of Ukrainians use some form of credit financing.

3. No Market Regulation

In today’s Ukraine, there is currently no licensing for real estate brokers and the profession is not regulated by the state, so it pays to be careful. In developed markets, real estate professionals are required to pass exams in order to receive a state license before practicing their profession. Their professional behavior must match a code of ethics and they can face steep fines or lose their license for ethical violations. None of these regulations exists in Ukraine, so it is wise to use extreme caution when selecting a broker or real estate agency. Many real estate brokers are experienced and ethical professionals, but there are no guarantees so a careful approach is definitely justifiable.

4. Imperfect Information Environment

Property listings on Ukrainian web portals often contain inaccurate, contradictory, incomplete, or deliberately false and deceptive information. Online property information for existing homes in Ukraine is often a mess.

There are many reasons for this: the modest levels of professionalism among some brokers and the reluctance of many Ukrainian owners to work exclusively with a single broker combine to create market chaos. Additionally, some brokers have bad intentions and deliberately create false listings just to get the contacts of potential tenants or buyers so they can offer them something else. A good broker will be able to quickly filter through this mess and avoid pitfalls but newcomers should avoid taking available information at face value.

5. State Statistics vs Reality

Official Ukrainian statistics do not generally reflect the actual prices paid for apartments sold on the secondary market.

Most apartments on Ukraine’s secondary market are sold in exchange for physical cash, with payment made in US dollars.

In order to save on taxes, the buyer and seller will often opt to sign a sales-purchase agreement with an official price specified in hryvnia that is well below that actual transaction value. This makes official statistics for secondary market sales useless for the purposes of serious market price analysis. Instead of official statistics, resourceful brokers in Ukraine compile information on recent sales transactions and are able to advise buyers and sellers on fair market value for properties.

6. No Substitute for Due Diligence Due to a lack of quality property information and other investor risks, it is particularly important to do thorough due diligence when investing in Kyiv real estate. Due diligence for residential real estate can be divided into three parts: initial, legal, and technical. Firstly, you must find a competent broker who can advise you on the investment potential of the properties that you are considering. This broker should also have the resources to help you with legal and technical due diligence. Initial due diligence includes checking the official state register to confirm that the documents provided by the seller match the registered owners and whether there are any outstanding legal issues related to the property. If a buyer wishes to perform thorough legal due diligence, most agencies can get their own lawyers (or the buyer’s lawyer) to check all the legal documents related to the seller’s property. Lawyers will request additional documents from the seller. A good lawyer may need to adopt the grey methods of a private investigator in order to uncover court cases related to a property. These cases will often not be searchable in standard databases. Some buyers engage an additional inspector for a technical due diligence report to check the structural integrity of an apartment and the building itself before proceeding with any investments.

7. Housing in Short Supply

Kyiv has a structural housing shortage with an average living space per person equal to about 50% of the EU average. Kyiv is Ukraine’s wealthiest city and property values reflect this fact, making it the best market for real estate investment in the country. However, Kyiv also has a shortage of housing space. As recently as 2014, the average living space per person in Kyiv was only 22 square meters per person, while the EU average was more than 40 square meters per person. If we adjust these statistics by removing bankrupt or frozen construction projects and divide by Kyiv’s estimated unofficial population of 3.25 to 3.5 million, we get an even lower figure of under 20 square meters per person, without making allowances for daily rental apartments and apartments used as offices. While construction of new housing has continued at a good pace since 2014, the housing deficit in Kyiv remains. Moreover, much of the new housing in Kyiv is well outside the prime locations for premium rental apartments.

8. High Price of Low Communal Charges

Low property taxes and communal charges exacerbate housing shortages in Kyiv and contribute to a climate of underinvestment. The carrying costs for holding property in Ukraine are exceptionally low. Communal charges are relatively cheap and significant property taxes await implementation. There are property taxes in some cases, but they are minimal at this point. A federal law on property taxes passed a few years ago, but implementation fell short after municipal governments did nothing due to fears over a possible voter backlash. These low carrying costs enable owners of Kyiv rental apartments (especially in prime locations) to delay renovations to update their apartments. Instead, many of these owners will hold out without investing, hoping to find someone naive enough to pay an asking price that is way above the market rate. All of this exacerbates the already existing shortage of housing and keeps overall quality levels lower than they would otherwise be in a more competitive market.

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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9. Few Distressed Sales

10. Historical Properties Remain the Future

Current sale prices in Kyiv are much lower than historic peaks but potential investors should not expect distressed sales. Many foreign investors arrive in Kyiv with unrealistic expectations of finding fire sale prices for real estate. Some go around muttering, “The prices for real estate in Kyiv are still too high,” as if repeating this mantra will magically decrease prices to the level they desire. In fact, Kyiv prices for real estate have plummeted since reaching stratospheric highs in 2007-2008 when prices of fixer-uppers in historical buildings reached USD 10,000 per square meter and higher. The first big drop began with the 2008 global financial crisis. Then came another significant fall from early 2014 through 2015 when the hryvnia currency depreciated 60% against the US dollar. In 2015 alone, sale prices were down 20-25% for apartments in older buildings in the center and down 20% for business-class complexes downtown. Today it is possible to find fixer-uppers in historical buildings in Kyiv at prices from USD 1,200 per square meter, or just over one-tenth of the price at the peak of the pre-credit crunch bubble market. Yet despite the huge price drops in Kyiv real estate, the number of distressed property sales has been relatively low. This should not come as a big surprise. Real estate is Ukraine’s most trusted asset class. Few people bought their properties via mortgage financing, while property taxes and communal charges are low. Kyiv in no way resembles the US credit crunch housing bubble that left millions of Americans with “upside down mortgages” where they owed the bank more than their house was worth. In Kyiv, people tend to own their property outright. This makes Ukrainian property owners less likely to seek a fast sale at a heavily discounted price.

Fixer-upper apartments in historical buildings in the heart of downtown Kyiv currently offer the best potential investment returns. The premium rental market in Kyiv is dominated by expats who usually make the best tenants. They can often sign leases for two or more years, while affluent Ukrainian tenants will usually rent for shorter periods and can be less predictable, often taking on accommodation temporarily while their house or apartment is under renovation. Kyiv does not have any single expat neighborhood. Instead, many premium apartments cluster together in a narrow strip of Kyiv’s Old Town near the metro stations Zoloti Vorota, Universytet, and Lva Tolstoho, while thousands of expats also live all over the sprawling city and beyond Kyiv in the fast-expanding suburbs. Nevertheless, the most popular expat accommodation options remain in the downtown area close to embassies and the offices of multinational companies. There is an absolute deficit of expat-suitable two-bedroom apartments in this prime area due to the multiple reasons discussed above. Because of the low carrying costs for holding property, there are not a lot of attractive offers on the secondary market for such properties at any one time. In order to find the right investment opportunity, you have to spend a lot of time searching and engage a broker who is capable of sifting through lots of false information online and filtering out otherwise decent-looking properties that carry red flags. The good news is you can find prices for fixer-uppers in historical buildings in Kyiv’s center for as low as USD 1,200 per square meter for apartments with no lift that are offered by motivated sellers. When properly renovated, such apartments can deliver annual yields of 10-12% or more.

This figure involves rental income alone and does not take into account the price appreciation of these properties, which could be substantial over the next five to seven years if the Ukrainian economy continues to grow.

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Sviatoslava Maksymchuk turns her passion for the Ukrainian capital into booming tourism business

When airline Wizz Air recently decided to make Kyiv tourism the main feature story of their inflight magazine, the search for a suitable cover page icon did not take long. Sviatoslava Maksymchuk, who owns and runs the aptly named ‘Kyiv Friendly Tours”, was the obvious choice. Already something of a social media star for her fun and funky coverage of Kyiv tourism, Ms. Maksymchuk is now a Kyiv cover girl in every sense. Her rise epitomizes the post-Maidan growth of a hip and happy Kyiv tourism trade reflecting the city’s newfound swagger. “I guess it is every girl’s dream to be on a magazine cover,” she tells Business Ukraine magazine. “At first I thought it was a joke.

Now I feel very lucky but at the same time responsible for representing Kyiv in front of a multimillion audience. Friends and family message me with photos of the magazine and I feel blessed.”

Ms. Maksymchuk first entered the tourism trade in 2014. A passionate Kyivite herself, she was inspired by the revolutionary changes taking place in the country and wanted to share her enthusiasm for the Ukrainian capital with the trickle of tourists who were then coming to Ukraine in the wake of the Euromaidan Revolution. From the very start, she sought to offer personalized tours and tried to give guests a glimpse of the real Kyiv. This infectiously bubbly and engaging approach was a million miles away from the scripted scenarios and textbook banalities more commonly associated with traditional Ukrainian tour guides. Within months, she found herself gaining a trendsetter reputation within the industry as post-revolutionary Kyiv shed its Soviet shadows and emerged as Europe’s latest hipster capital.

What started out as a hobby very quickly became a serious startup business. “In 2015 the number of tourists contacting us was still quite low. There was a tangible sense of fear among foreigners who were looking at possible tours of Kyiv. They expected it to be a warzone,” she recalls. “By 2016, I began to get the sense that the sector was on the verge of a boom. This growth has continued to accelerate. At times during the 2017 summer season, my agency has had seven tours of the city underway simultaneously.” Ms. Maksymchuk says there has been a significant increase in tourist numbers over the past few months, with many guests citing the May 2017 Eurovision Song Contest as one of the reasons they first became interested in Kyiv as a potential destination. She has also noted a sharp rise in Indian visitors following the relaxation of Ukrainian visa regulations earlier this year.

Ms. Maksymchuk originally led most of her agency’s tours herself, but the Kyiv Friendly Tours team has expanded alongside the growth of the business. She has also branched out, teaming up with partners to establish a Kyiv Guide School to train English-language tour guides with the requisite communication skills and historical knowledge to keep tourists coming back for more. Since the school’s launch in November 2016, it has produced 36 graduates. This total includes numerous veteran tour guides eager to brush up on their knowledge and learn from one of the local tourism industry’s most talked-about innovators. Ultimately, Ms. Maksymchuk would like to see greater state regulation of the Kyiv tourism trade in order to protect it from www.bunews.com.ua

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Cover Girl of Kyiv Tourism

About the interviewee: Sviatoslava Maksymchuk is the owner of Kyiv Friendly Tours (right) and was the cover page star of the August-September 2017 Wizz Air inflight magazine focusing on Kyiv tourism (left) charlatans and scammers. “Kyiv tour guides are currently unlicensed and there is inevitably an element of risk for tourists. Regulating the industry and issuing licenses would improve tourist safety and boost the reputation of the country as a tourism destination.”

The tour portfolio developed by Ms. Maksymchuk covers a wide variety of themes ranging from ultra-contemporary to picture postcard traditional. She regularly guides guests through the venerable halls and ancient chambers of Kyiv’s palaces and cathedrals, but was also one of the first to offer street art tours of the city’s expanding mural collection. Her nightlife tours, involving pub and bar crawls through nocturnal hipster Kyiv, have proved particularly popular.

Culinary tourism and wine-tasting trips have earned rave reviews, while some of her tourists have been able to learn traditional Ukrainian musical instruments or try their hand at folk pottery. As far as Ms. Maksymchuk is concerned, there really are no limits. Her only concern is to avoid catering to the unsavory side of the Kyiv tourism market. “Our mission is to introduce audiences to the diversity and richness of contemporary Ukraine. Stereotypes about Chornobyl and sex tourism are so outdated,” she says.

The next target on Ms. Maksymchuk’s business plan is to develop partnerships with tour operators and begin offering entire package options to tourists. She would also like to expand beyond the confines of the Ukrainian capital by introducing regular tours to Lviv and Odesa. Other appealing destinations across Ukraine include Bukovel in the Carpathian Mountains and the iconic “Tunnel of Love” in Rivne Oblast, which Ms. Maksymchuk says is particularly popular among Chinese tour operators. She is confident that her upbeat approach and international appeal will translate into success anywhere in the country, and is happy to be in a position where she can have a positive impact on perceptions of Ukraine. “Tourists tend be quite frank and sincere,” she reflects. “They often tell me that Ukraine’s international image is dominated by war and crisis, and are surprised by how friendly and stylish the country actually is. It feels good to be offering an alternative vision.”

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MP says Ukraine must take tourism seriously Anna Romanova believes Ukraine needs to market itself more effectively as a tourism destination

Contest in Kyiv served to underline Ukraine’s considerable tourism potential, but the fact that the Ukrainian capital’s charms came as such a surprise to visiting journalists also highlighted the scale of the task ahead.

Indeed, the image problems facing Ukraine’s tourism sector can hardly be overstated. The country remains shrouded in obscurity and hampered by unflattering perceptions fed by decades of negative news coverage and the more recent media emphasis on Russia’s hybrid war in the east of the country. In terms of the tourism sector in particular, these image woes include unwelcome associations with macabre Chornobyl trips and the sleazy sex trade.

Selling Ukraine to Ukrainians

About the interviewee: Anna Romanova is a member of the Ukrainian parliament and Chair of the Parliamentary Subcommittee on Tourism Development, Resorts and Recreational Activities Ukraine’s underdeveloped tourism industry is showing signs of life. According to recent analysis conducted by JLL Hotels and Hospitality Group, the occupancy rate at hotels in the Kyiv high-end segment for June 2017 was 46%, which represents a significant increase on the corresponding figure of 37% for the same period one year earlier. Meanwhile, Kyiv’s stint as host city of the 2017 Eurovision Song Contest saw occupancy rates climb as high as 55% during the month of May. After three exceptionally challenging years, this modest growth has provided the entire sector with a much-needed tonic.

As guests slowly return to Kyiv, the Ukrainian capital’s hotel sector is also expanding. According to JLL’s Tatiana Veller, a total of over 660 internationally branded rooms in different segments of the Kyiv hotel market are expected to come into operation by the end of 2017 with the opening of the Accor Group’s Mercure Congress Kiev (160 rooms), Park Inn

by Radisson Kyiv Troyitska (192 rooms) and Marriott/Starwood’s Aloft Kiev (312 rooms). Meanwhile, regional capitals such as Lviv and Odesa have enjoyed a strong 2017 tourist season as the domestic market continues to improve in terms of both quality and variety. The advent of visafree travel to the EU has opened up new horizons for Ukrainian tourists, but many still prefer the convenience and competitive rates on offer in Ukraine itself.

These positive developments suggest an industry on the up, but the Ukrainian tourism sector is still lagging far behind many of its regional competitors. One of the Ukrainian tourism industry’s most prominent shortcomings is weak brand awareness due to a lack of international promotion. The gushing media coverage generated by the Eurovision Song 52

Ukrainian MP Anna Romanova is at the forefront of efforts to energize the domestic tourism industry and transform international attitudes towards Ukraine as a potential holiday destination. As Chair of the Parliamentary Subcommittee on Tourism Development, Resorts and Recreational Activities, she has long pushed for greater state involvement in the tourism sector. In a private capacity, she has also been instrumental in the establishment of an association for hospitality industry professionals and the launch of online tools designed to make Ukraine more accessible as a tourism destination.

“We wanted to help people to learn how to make tourism profitable,” she says of the Ukrainian Hospitality Industry Association, which she co-founded in 2016 and where she currently serves as a board member.

“Ukrainians are naturally hospitable but we still need to develop a more effective tourism culture and adopt a more businesslike approach. I have travelled extensively throughout Ukraine and have encountered many hospitality sector professionals who have great facilities but struggle to market them effectively. They do not advertise internationally or offer the kind of packages that would appeal to foreign guests. This has to change.”

Ms. Romanova’s Association launched an online directory earlier this year as part of ongoing efforts to raise awareness about Ukraine’s existing tourist attractions and hospitality infrastructure. The website zruchno.travel bills itself as the largest tourism database in Ukraine and features information on over 50,000 tourist attractions and destinations. The portal is currently only available in Ukrainian and Russian language formats, with additional language options in the pipeline. This initial focus on local audiences is not merely a matter of convenience. “We need to establish a strong domestic tourism sector as a basis for development. Many Ukrainians have never explored their own country. They represent a huge potential market that can create the foundations for further growth and the international expansion of our efforts,” says Ms. Romanova.

Eurovision Breakthrough

The MP immediately recognized the tourism potential of the 2017 Eurovision Song Contest in Kyiv and helped to produce a quirky Englishlanguage brochure for visitors featuring tourism advice and etiquette guidelines including everything from tipping in restaurants to interacting with Ukrainian women (‘don’t make indecent proposals’). Eurovision guests also received advice to avoid discussing relations with Russia or referring to Ukrainians as Russians, a suggestion that earned the booklet frowning coverage in the Kremlin media. Ms. Romanova allows herself

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a cheeky giggle at the memory of Moscow’s disapproval before taking a swipe at her fellow Ukrainians for failing to grasp the importance of the country’s Eurovision Song Contest achievement. “Plenty of people complained about all the spending lavished on Kyiv’s Eurovision preparations and then moaned when millions of visitors failed to materialize. They don’t seem to appreciate that the important thing is not how many actually came to Kyiv, but how many watched the coverage on TV.” She hopes the Ukrainian government will now build on the success of Eurovision and points to the 2017 budget allocation of modest state funding for tourism promotion as an indication that Ukrainian officials are finally starting to take the sector seriously. Ukraine still lacks a dedicated Ministry of Tourism, but the Ministry of Economic Development and Trade has recently introduced a Tourism Department. Ms. Romanova sees this as a step in the right direct that signals the growing profile of the industry in government circles. “Eurovision provided an impulse for Ukraine’s tourism sector and gave us reasons to become more ambitious as a country.

We must now push on with new promotions focusing on the 2018 spring and summer seasons,” she says.

Culinary tourism is still in its infancy in today’s Ukraine but offers huge opportunities, with wine tours in particular proving popular.

Ms. Romanova believes Ukrainian spa resorts such as Truskavets have the potential to become genuinely world-class destinations, but concedes that service standards still sometimes fall short of international expectations. Unusually for Ukraine, however, these resorts already enjoy the advantage of strong brand recognition within the post-Soviet world.

Perhaps her most colorful suggestion is village tourism, with visitors spending time in traditional Ukrainian rural locations and enjoying ecoholidays. “All across Ukraine, young people are fleeing the countryside and moving to the city because they see no future for themselves in the village. Many end up unemployed or stuck in low-paying jobs. It would be far better to offer training and help young people in rural Ukraine to develop the eco-tourism industry. There is already considerable international tourist demand for an authentic slice of traditional village life.

Ukraine has all the attributes to become a market leader in this niche,” says Ms. Romanova.

How should Ukraine be seeking to sell itself as a tourist destination to the outside world? Ms. Romanova already has a number of niche sectors in mind. She is enthusiastic about thematic historical tourism, pointing to the wealth of options provided by Ukraine’s diverse heritage as one of Europe’s great crossroads nations. The list of specific customer bases includes everyone from Scandinavians interested in the Viking legacy of the Kyiv Rus civilization to Jewish visitors looking to explore Ukraine’s unrivalled Judaic inheritance. The Ukrainian diaspora, which is among the world’s largest overseas communities, also represents a vast reservoir of potential tourists who would love to spend more time in their ancestral homeland.

Regardless of the niche or theme, one of the Ukrainian tourism industry’s most powerful selling points at present is price. The devaluation of Ukraine’s national currency has made the country among the cheapest destinations in Europe. When combined with steadily rising service standards and improving facilities throughout the hospitality sector, this makes for unbeatable value. “Most Europeans would actually spend less on a week’s holiday in Lviv than they would simply by staying at home, and that includes accommodation and daily restaurant trips,” says Ms. Romanova. “Ukraine’s hospitality sector is internationally competitive in terms of quality and also offers unbeatable value. Our task now is to get this message to the outside world.”

Niche Opportunities

www.bunews.com.ua

The Price is Right

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Kyiv’s latest hospitality hub Hotel group DBI takes on management of Podil venue amid plans for further Ukrainian expansion

September sees Swiss-based hotel management group DBI add a second hotel to its collection in Ukraine, with the rebranded and refurbished “Number Twenty One by DBI” hotel in Kyiv’s historic riverside Podil district officially joining the group. The hotel, formerly known as the Impressa, has undergone a complete renovation with the new-look venue now under DBI management. It joins the Ramada Encore Kiev in the DBI’s expanding Ukrainian portfolio.

Ambitious Expansion Agenda

DBI Chief Operating Officer Irantha Duwage sees Number Twenty One by DBI as a lifestyle hotel in the spirit of London’s Haymarket Hotel. Located on Sahaidachnoho Street in central Podil, the hotel is an intimate affair with its own restaurant “The Kitchen 21”. Mr. Duwage regards the Podil venue as next step in the hotel group’s regional expansion agenda that focuses on both managing existing hotels in partnership with owners and establishing new hotels in a range of different client categories.

Construction work is already underway on a seventy-five to eighty room venue close to Kyiv City Airport that will operate under DBI’s “Moi” brand. Mr. Duwage describes the project as a “luxury hostel concept” and says the aim is to occupy a vacant niche in the Ukrainian hospitality market for high quality and economically competi-

tive accommodation aimed at frequent travelers. “We want to provide the same kind of experience that guests in this category have come to expect in places like London or Copenhagen. In today’s Kyiv, there is a lack of quality in this segment of the market but huge potential.”

Further DBI projects penciled in for 2018 include two venues in Kyiv’s Obolon district, one of which is set to operate under the “Sync” brand, which is designed to cater specifically for millennials and features a high level of app-based automated services. There are also plans for venues in regional capitals such as Odesa and Dnipro. “Today’s young generation are very mobile. They are comfortable traveling from one city to another and tend to have high demands when it comes to issues of value and service standards,” says Mr. Duwage. “Their priorities are convenience and reliability. Anyone who can provide this will be successful.”

Bureaucratic Barriers

The DBI vision for Ukraine anticipates rising domestic demand for quality hotel options as well as the further development of the country’s hospitality and tourism sector as a whole. Mr. Duwage sees signs of progress within the hotel industry, with occupancy rates continuing to climb from record lows during the height of the geopolitical crisis in 2014. However, he argues that excessive and outdated regulations continue to act as barriers to greater international investment. “Finding the investors and carrying out construction works in Ukraine are actually the easy parts,” he says. “The real problems are caused by rules and regulations that are often out of date compared to contemporary European market norms. This often leads to rising costs that can add anything from ten percent to thirty percent onto the cost of a project, which often represents the investor’s profit margin. If the regulatory aspect of the industry could be updated

About the interviewee: Irantha Duwage is the Chief Operating Officer of Swiss-based hotel management group DBI

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Time for Kyiv to Shine

With over five years of experience in the Ukrainian hotel industry as General Manager of the Ramada Encore Kiev hotel, Mr. Duwage is confident that broad market trends in the international hospitality sector are slowly aligning in Ukraine’s favor. Like many of his colleagues in the Kyiv expat community, he is particularly enthusiastic about Kyiv’s tourism potential.

Unsurprisingly, he would like to see much greater efforts undertaken to promote the city among international audiences. “I have always believed that Kyiv has the potential to become the new Prague. It has literally everything in order to make itself attractive to today’s traveler. There are parks, beaches and all manner of beautiful history on show, but Kyiv has not yet worked out how to take advantage of this appeal,” he says. “It would be great to see a genuine tourism bureau headed by experienced professionals who understand how the industry works and appreciate the crucial role tourism can play in the wider Ukrainian economy. Ultimately, now might be the right time to consider establishing a Ministry of Tourism at the national level.”

Such sentiments are commonplace among hospitality industry professionals in the Ukrainian capital and elsewhere in the country. There is a sense within the industry that things are moving to the next stage, but many believe much more would be achievable with greater state support.

Mr. Duwage points to the many seasoned expatriate professionals managing hotels in Kyiv as a resource that could add real value to Ukraine’s emerging tourism strategy. “There are numerous very experienced figures currently occupying senior positions in the Kyiv hotel industry, many of whom have worked in leading hotels all over the world. This experience would be invaluable for Ukraine as the country looks to raise its profile establish itself as an attractive destination.”

Positive Word of Mouth Part of the challenge is raising awareness of Ukraine as a potential destination among outside audiences. Mr. Duwage would like to see the state take an active role in this process and thinks it would make sense to tailor promotional campaigns to specific country audiences by employing positive trip appraisals from fellow nationals. “I have considerable experience over the years of international friends visiting and being overwhelmingly impressed. No matter where they live, they are always ready to come back to Kyiv. In fact, it would be difficult to find anyone who has spent time in the Ukrainian capital and has anything bad to say about it,” he reflects. “Using these positive testimonials would be a great way to appeal to specific audiences. It would require some investment on the Ukrainian side, but the returns would be outstanding.”

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and streamlined, the Ukrainian market would rapidly become much more attractive to international investors.”

DBI Connect

Convenient Geography

Mr. Duwage argues that Ukraine would benefit from identifying the specific segments of the tourism industry it is most interested in focusing on.

He points to business tourism as an obvious growth sector, with Ukraine’s large domestic market and convenient geographical location making it a potentially competitive venue for conferences, forums and industry events. “This is a country with a population of more than forty million. All of the big multinational companies already have well-established presences here,” he explains. “Kyiv is a two-hour flight from a whole host of European and Middle Eastern destinations. The city is also in a good position to host visitors from Asian markets, being significantly closer than other regional destinations in Central Europe.”

With many Ukrainian tourism industry observers still in the habit of looking towards Europe as the most obvious source of future tourists, this observation about Ukraine’s convenience for Asian travelers is both timely and pertinent. Recently introduced changes to Ukraine’s visa policies towards India have already borne fruit according to Mr. Duwage. This trend highlights the growing importance of Asian markets within the international tourism industry and the opportunities for Ukraine. “The number of Indian visitors staying with us has increased dramatically within the past two months since the simplification of the visa regime,” he says. “This is the way forward. No country can afford to close its doors to the outside world anymore. India has the fast-growing middle class in the world and there is huge appetite for travel. Ukraine is in a good position to gain from this.” www.bunews.com.ua

As DBI expands its presence in Ukraine, the group is also rolling out an app-based loyalty and bonus card system designed to reward customers while creating a wider DBI community with links to a range of

participating partners. DBI Chief Information Officer Nuwan Weerasinghe explains that as well as offering additional benefits to the group’s

customer base, the goal of the DBI Connect app is also to provide a platform for direct communication. “We see the app as a way of maxi-

mizing interaction with customers,” he says. “This format will allow us

to pass on a range of benefits directly to clients including discounted rates, special offers, and news regarding our network. They will also be

able to use the app to do things like check in, order room service and make reservations in our hotels and restaurants.”

The DBI Connect concept envisages a broad network including

DBI venues and partner organizations ranging from airlines and restaurants to boutiques and supermarkets, all with an

emphasis on Ukraine. “There are so many discount and loyalty

cards in circulation today. Our goal is to offer genuine value

in a range of areas, whether it is discounts and bonuses or informational support and app-based services,” says Mr. Weerasinghe.

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Defending “Unlivable” Kyiv Kyiv expat Terry Pickard hits back at The Economist for placing Kyiv among world’s worst cities

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ter of a century. I have been lucky enough to witness this naturally stunning city evolve and improve. For the benefit of the Economist Intelligence Unit, here are just a few of the reasons why I regard the Ukrainian capital as one of Europe’s most “livable� cities.

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I cannot understand how The Economist Intelligence Unit came to rank Kyiv in the bottom ten of the 140 capital cities featured in its annual Global Liveability Report for 2017, but I can only assume that those in charge of the report have never actually visited the Ukrainian capital.

While far from perfect, Kyiv boasts many unique attributes and appealing assets that make it a wonderful place to live and work. As a British expat, I have lived all over the world during my professional career but have chosen to make Kyiv my home for the past quar-

Cheap Transport

The Kyiv metro is clean, efficient and orderly. It is also probably the cheapest metro system of comparable size and scale in the whole world. A single journey costs less than EUR 0.2, while an unlimited :

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: monthly travel pass is yours for just EUR 12. You rarely have to wait

for a train and delays are almost unheard of. Taxi coverage is also excellent. Where else in Europe but Kyiv could you get a taxi at any hour of day or night, seven days a week, for mere pennies? Trips to the international airport can cost as little as EUR 10, despite the distance of more than 40km from the downtown area.

Beach Beauty

Kyiv is one of Europe’s largest cities but it has a laidback ambience that has led many to dub it “the world’s biggest village”. Perhaps this chilled out atmosphere is partially down to the many miles of sandy beaches that line the Dnipro River that splits Kyiv in two.

There are literally hundreds of beaches located inside the city limits, with many within walking distance of the city center itself.

Many of Kyiv’s best beaches are located on islands in the middle of the Dnipro River, offering spectacular views of the ancient Kyiv hills and the Lavra Monastery. I do not know of any other European capitals that can offer you all this.

Park Pleasures

Kyiv is internationally renowned as one of Europe’s greenest cities because it boasts 100 park and nearly 500 public gardens. There are also a large number of tree-lined boulevards throughout the city, which bloom in springtime and create a sensational annual explosion of color.

Restaurant Renaissance

As a very keen amateur chef and Chairman of The Ukrainian Connoisseurs Club (TUCC), I believe I have the requisite competence to write about Kyiv’s culinary scene, both in terms of quality and availability. The diversity of products available in many of Kyiv’s newer supermarket chains is immense. It could even put many Western supermarkets to shame. Due to the ever-widening range of locally sourced products at relatively low prices, you can eat at home or dine out at very affordable prices while enjoying some excellent products like duck or goose breast, Angus beef, goat cheese, wild mushrooms, snail caviar (that’s a new one), Black Sea oysters and mussels. You can always rely on a great selection of in-store baked breads on offer at prices that are often 50% lower than in EU countries. These low prices are also a feature of Kyiv restaurants.

For example, the TUCC is able to host four course dinners with wines, aperitifs, coffee and tea in excellent restaurants for only EUR 40. There are now more restaurants than ever in Kyiv, with new venues constantly popping up to cater to all tastes and budgets. Even street food has become fashionable, with regular hipster events designed to promote the latest in funky fast food options.

Friendly Vibe The population of Kyiv is officially less than three million but it is actually much more - possibly as high as four or even five million.

The Ukrainian capital attracts people from all over Ukraine and has a lively international community drawn from across the globe. Despite its size, it is a remarkably friendly and welcoming place, allowing newcomers to feel “at home” from day one. This is difficult to gauge with any scientific accuracy but it is something expats in particular often identify. Kyiv is also safe. The Economist report cited instability as one of the reasons behind its low marks for the Ukrainian capital, but the hybrid conflict with Russia is actually many hundreds of kilometers to the east and has not had any discernible impact on security in Kyiv. It remains a relatively safe city where street crime is far rarer than in many European capitals.

Comfortable Climate

I never leave Kyiv during the summer months because the weather is generally better than in virtually any of the more fashionable European beach resorts I could choose to visit. As I write this article in my Kyiv office in late August, the temperature is in the low thirties with clear blue skies and a pleasant breeze. It has been more or less this way since May. The Ukrainian capital also boasts a great range of seasonal variations that add a sense of diversity and dynamism to the Kyiv calendar. While the summers are long and hot, the winters are equally traditional and impressive. This allows for a range of different seasonal activities including everything from sunbathing on the beach to ice fishing on the frozen Dnipro River within a few months and at virtually the same spot.

Engaging Narrative

Much like the rest of Ukraine, Kyiv has experienced a rollercoaster ride of political and economic upheavals since the fall of the Soviet Union.

However, despite Vladimir Putin’s best efforts, post-Soviet Ukraine seems to have chosen the path of integration with the rest of Europe rather than a return to Russia. Kyiv has been at the forefront of this process, especially during the 2004 Orange Revolution and the 2014 Euromaidan Revolution. The Kremlin’s actions have tended to consolidate Ukraine’s sense of national identity, regardless of whether people are Orthodox or Catholic, Russian- or Ukrainian-speaking. As the Ukrainian nation has united and consolidated, Kyiv has grown in stature and shaken off the provincialism it inherited from the Soviet era. This has added to the vibrancy and self-confidence of the city.

Many readers will find fault with the above points, or claim that as a privileged expat, my experience is far from typical. I would certainly agree that life is tough for the many Kyiv residents struggling on low salaries, while there is little positive to say about the often incompetent or corrupt local and national authorities. Much of the city’s infrastructure is in desperately poor shape, and public services are often inadequate. Nevertheless, the populations of many major cities have similar complaints, while relatively few enjoy the advantages of Kyiv. There is still a long way to go before the Ukrainian capital can take its place alongside Europe’s top cities.

However, calling it one of the world’s least livable cities is complete and utter rubbish.

About the author: Terry Pickard has lived in Kyiv since 1992. He is Chairman of Pickard real estate agency and founder of The Ukrainian Connoisseurs Club

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QATAR AIRWAYS TOUCHES DOWN IN UKRAINE Ukraine’s international connectivity received a major boost on 28 August with the start of new daily Qatar Airways flights between Kyiv and Doha. The arrival of award-winning airline Qatar Airways in the Ukrainian capital was toasted as a further indication of Kyiv’s rising international profile. While in Ukraine to mark the opening of the new Kyiv-Doha route, Qatar Airways Chief Commercial Officer Ehab Amin explained that the launch of Ukraine flights was part of the Qatar Airways expansion strategy in the region and would provide Ukrainian passengers with access to the airline’s global 60

network of more than 150 destinations. In an official statement, Qatar Airways Group CEO Akbar al-Baker commented: “This new route will connect businesses in Kyiv and across Ukraine to new business partners from around the globe, while also appealing to leisure travellers, offering them the opportunity to experience this charming city.” As well as taking advantage of the global flight connections offered by Doha’s Hamad International Airport, Ukrainians looking to visit Qatar can now also benefit from a new 30-day visa waiver scheme.

networking events

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Celebrating Ukraine-Canada Free Trade Guests from the diplomatic, business and political communities gathered on the summer terrace of Kyiv’s Vozdvyzhenskiy Hotel in early August to celebrate the start of free trade between Canada and Ukraine.

Following ratification by both sides, the Free Trade Agreement came into force on 1 August 2017, marking the beginning of a new chapter in bilateral ties between the two countries. Free trade negotiations between Ukraine and Canada began in 2010 and involved six rounds of talks before the signing of the agreement during Canadian Prime Minister Justin Trudeau’s official visit to Ukraine in July 2016. This celebratory event was co-hosted by the Canadian Embassy, the Canada-Ukraine Chamber of Commerce and the Canada-Ukraine Trade and Investment Support Project, with the participation of Ukraine’s Deputy Economic and Trade Minister Nataliya Mykolska and the country’s Export Development Office. Guests included Ukrainian companies who already export to Canada as well as potential exporters and representatives of the Canadian business community in Ukraine.

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networking events

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25 YEARS

OF SWISS-UKRAINIAN RELATIONS Kyiv marked the National Day of Switzerland on 1 August with a gala reception to celebrate 25 years of Swiss-Ukrainian diplomatic relations. Guests including representatives of the diplomatic, political and business communities gathered at the elegant Mystetskiy Arsenal venue close to the Lavra monastery complex in Kyiv’s lush riverside hills for an evening of open-air networking and musical entertainment courtesy of Swiss cellist Liz Schneider and Ukrainian rock legends Okean Elzy, led by iconic singer Slava Vakarchuk. Guests of honor included Nibulon General Director Oleksiy Vadaturskyi, who received the William Tell Award for his significant contribution to Ukrainian-Swiss relations.

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networking events

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New Cuban Venue

in Historic Podil

Kyiv’s business community gathered at newly opened Cuban restaurant Habana for a Fryday Afterwork networking event as the summer season sweltered on in the Ukrainian capital. Situated in the historic riverside Podil district of Kyiv, Habana offers a taste of Cuba with authentic Caribbean dishes and salsa dancing.

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When the heat is on in summertime Kyiv, the Ukrainian capital city’s many beach clubs come into their own. As temperatures soured into the mid-thirties this summer, expatriates and local professionals enjoyed an ultra-relaxing evening of business networking and poolside chillaxing courtesy of the Fryday Afterwork team at Kyiv’s Bora Bora Beach Club.

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networking events

Beach Party Networking at Bora Bora

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Ukraine prepares to boost public diplomacy efforts Plans to establish Ukrainian Institute as Kyiv seeks to improve country’s weak international profile the aftermath of the 2013-14 Revolution of Dignity. The first major institutional step in this process was the creation of a Public Diplomacy Division within the Foreign Ministry in late 2015. The Ukrainian Institute concept then went public in February 2017, with initial funding included in this year’s state budget. With a 2018 launch date tentatively penciled in, the key task over the coming months will be to appoint a Ukrainian Institute Director via public competition who will then have responsibility for overseeing the rollout of this ambitious concept.

Foreign Ministry officials envisage an initial network of Ukrainian Institutes in key capital cities including Paris, Berlin, Rome, Warsaw, Vienna, Beijing and Washington DC. Ukraine already has suitable premises available in some of these cities, with other Institutes planned on a rental basis. Up to 40 staff will take up positions in designated countries or join the coordination team in Kyiv itself. There are also plans to cooperate with existing and independently managed Ukrainian Institutes that already operate in London, New York and Stockholm. These nonstate institutes currently rely on support from Ukrainian expats and members of the diaspora along with the Ukrainian Catholic University.

Beyond Folk Themes

About the interviewee: Iryna Shum is the coordinator of the Ukrainian Institute project and a member of the Public Diplomacy team at the Ukrainian Foreign Ministry What do most foreigners know about Ukraine? There is a good chance they know next to nothing, while what little information they may have is likely to be both distorted and negative in character. This unsatisfactory state of affairs may be about to change. After decades of neglect, Ukraine is finally addressing the country’s international image problems. Autumn 2017 will see preparations continue for the launch of a public diplomacy initiative designed to promote Brand Ukraine internationally and raise the country’s cultural profile around the world.

Ukraine Embraces Public Diplomacy

The Ukrainian Institute is the brainchild of Foreign Minister Pavel Klimkin and Ukrainian diplomat Dmytro Kubela. It is part of the Ukrainian Foreign Ministry’s ongoing public diplomacy efforts and represents the latest stage in a developing strategy that began to take shape in

Iryna Shum, who is coordinator of the Ukrainian Institute project and a member of the Public Diplomacy team at the Ukrainian Foreign Ministry, says the basic goal of the Ukrainian Institute is to open the country up to the outside world. “There is currently virtually no awareness of Ukraine internationally. We want to change that and act as a platform for cultural dialogue,” she says. Ms. Shum anticipates a primary focus on contemporary Ukrainian culture and speaks enthusiastically about the country’s fashion, music, cinematography and literature scenes. She is well aware that this self-consciously contemporary take on Ukrainian culture is at odds with the more traditional depictions that have previously enjoyed ascendency. “If you look at typical diaspora events and cultural websites, you will find a lot of vyshyvankas (traditional embroidered shirts), Ukrainian cuisine, and Taras Shevchenko,” says Ms. Shum.

“We aim to show international audiences that we have much more in common with them, and much more to share. We will not neglect folk themes and classical aspects of Ukrainian culture, but the emphasis needs to be placed on more contemporary elements.”

Showcasing Ukraine’s Cultural Awakening

This contemporary emphasis is very much in line with the current am-

“If you look at typical diaspora events and websites, you will find a lot of vyshyvankas, Ukrainian cuisine, and Taras Shevchenko. We aim to show international audiences that Ukraine has much more in common with them and much more to share” 68

brand ukraine

bience in Kyiv, where talk of an unprecedented cultural awakening has been steadily gaining ground since 2014. The most prominent cultural ambassadors of Ukraine’s post-Maidan generation are the country’s fashion designers, many of whom have earned international acclaim for creations that play heavily on traditional Ukrainian embroidery. However, funky takes on folksy styles are only part of the Ukrainian fashion industry’s recent success story. A new generation of designers has come of age since 2014, attracting the attention of global fashion authorities like Vogue magazine while benefitting from the patriotically driven domestic passion for “Made in Ukraine” labels.

The Ukrainian contemporary arts and music scenes are also flourishing, buoyed by the revolutionary impulses of Maidan and jolted by the subsequent hybrid war with Russia. Successes such as Crimean Tatar singer Jamala’s 2016 Eurovision Song Contest victory have raised the profile of Ukrainian performers and imbued the country’s creative community with a sense of self-confidence that has helped to broaden horizons and amplify aspirations. Meanwhile, the global media attention generated by ongoing geopolitical turbulence in the country has put Ukraine on the international radar for the first time, fuelling unprecedented outside interest and creating a buzz around all things Ukrainian. “I see big potential for Ukrainian musicians in particular as cultural ambassadors,” says Ms. Shum. “The Ukrainian fashion industry and visual arts are also developing very rapidly. We want to be able to create cultural programs that can tour entire countries, taking contemporary Ukraine beyond the major capital cities and participating in festivals and other forms of cultural collaboration.”

Starting from Scratch

Creating a brand new state institution is a daunting task but recent experience suggests it is in many ways easier than attempting to reform an existing Ukrainian government body. Starting with a clean slate means there are no mid-level bureaucrats to retrain or bad habits to eradicate. However, building up governmental support and securing sufficient state funding for the establishment of the Ukrainian Institute has proved a painstaking process. The coming selection of a Ukrainian Institute Director to oversee the development of the project will prove crucial, with Ms. Shum adamant that the process must be wholly transparent in order to ward off accusations of corruption in the appointments process.

As Ms. Shum and her colleagues have expanded on their vision for the Ukrainian Institute, they have drawn on the experiences of European colleagues. The original inspiration for the Ukrainian Institute came from Ukrainian diplomatic interaction with the UK’s British Council and Germany’s Goethe Institute, but Ms. Shum says the closest parallel in terms of state ties and official status will likely be the Polish Institute.

She expects the outcome to represent a fresh chapter in Ukraine’s fledgling public diplomacy and a long overdue step away from the image woes and ambiguity that have dogged Ukraine since independence. The historic events of the past three years have transformed the way Ukrainians see themselves and their nation, but this message has yet to reach mainstream international audiences. Many in Kyiv are now hoping the Ukrainian Institute can introduce the world to the vibrant realities of contemporary Ukraine.

The Ukrainian Institute hopes to serve as a platform for contemporary Ukrainian cultural ambassadors like fashion designer Roksolana Bogutska (Image from Roksolana Bogutska’s 2017 Cruise Collection)

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Defeating the Russian Infowar

StopFake’s Margo Gontar shares her insights into the principles underpinning the Kremlin infowar

For the past three and a half years, Ukrainians have been trying to push back against the fakery of the Kremlin disinformation campaigns targeting our country. More recently, this challenge has become global in scale. As Russia goes through its imperial agonies, it seems intent on sowing confusion and forcing its delusional fantasies on international audiences, regardless of the cost in money and human lives or the damage this does to Russia’s global standing.

As one of the co-founders of StopFake, I have been involved in the Ukrainian fight back against Russian propaganda since the outbreak of the current hybrid war with the invasion of Crimea in spring 2014. This experience has taught me the truth of the old adage that in order to achieve success in any conflict, you must know your enemy and never underestimate them. As media analysts and security experts around the world ponder how best to respond to the challenges posed by Russian propaganda, I would like to share the key lessons I have learned on the frontlines of the Kremlin information war.

Rule 1: Question Everything

Believe nothing. Even apparent statements of fact may turn out to be anything but factual. It is vital to recognize that facts do still exist, but you must keep your feet planted firmly on the solid ground of demonstrable fact and avoid taking anything at face value. You will need this sure footing as you become drenched in lies.

The flood of fake news will try to force you off this firm foundation, but you must cling to it. Take a deep

breath and focus on the facts. Once you have a core factual basis in place, other facts will present themselves.

Rule 2: Tactics Change

The Russian information war consistently exploits the freedoms of Western society and turns them into weapons to attack the democratic world. However, the specific methods involved are subject to rapid and often innovative evolution. Kremlin propaganda is like a virus. It mutates and changes its structure in order to adapt to the environment. Things that worked yesterday might not work today and vice versa. Like the villain in a classic horror movie, Russian propaganda is hard to defeat because it refuses to die and keeps coming back in new forms.

This is ostensibly bad news, but it does suggest that efforts to fight back are working.

The very fact that Russian information warfare tactics adapt and evolve tells us that all the fact checking and debunking is actually effective. New approaches are required specifically because earlier tricks are no longer viable. The dynamic nature of Russian information warfare should serve as encourage-

ment for anyone engaged in efforts to expose this aspect of the Kremlin’s hybrid aggression. Clearly, Moscow is monitoring our debunking efforts and responding accordingly.

Rule 3: Russia Knows All Your Weaknesses

Kremlin propaganda takes advantage of the specific weaknesses of every country or demographic, and is adept at tailoring its infowar attacks to exploit individual weaknesses. Disinformation campaigns targeting Western audiences may not always be as obvious or blatant as those used against Ukraine. Instead of undisguised anti-Ukrainian sentiment, Kremlin information offensives elsewhere in Europe tend to focus on themes like anti-immigrant sentiment or anti-Islamic and anti-EU moods. Russia will rarely attack an individual EU country directly, preferring instead to exploit existing resentments and prejudices within any given society. This makes these attacks far harder to identify than the more direct anti-Ukrainian messaging favoured by the Kremlin with regard to Ukraine itself. Russia is particularly skilled at playing on the

About the author: Margo Gontar is co-founder of StopFake.org and producer/presenter at StopFakeNews

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Rule 4: Infotainment is King

In today’s overcrowded and overloaded multimedia environment, information is in many ways secondary to infotainment. This term, once seen as derogatory and condescending, is now here to stay. Kremlin information warfare has played a major role in the recent rise of infotainment. Russia has proven extremely proficient in the production of engaging content loaded with emotions and professionally packaged into easily digestible formats. The high production values and emotional appeal of this Russian infotainment is often so persuasive that consumers do not notice the clear Kremlin messaging it contains.

Many media observers fear that the rise of infotainment is in danger of killing off the journalistic profession and eroding basic notions of truth and falsity. It may well be

to become cynical towards the media in general, while at the same time accepting the inevitability of fake news. The desired end goal is an international audience dominated by growing levels of apathy and intellectual laziness. Russia wants people to feel disoriented by the constant flow of contradictory information and seeks to provoke feelings of passivity and helplessness.

true that old school journalism is indeed becoming outmoded in a world where the information arena is just another battlefield. Complex realities are simply less engaging than slick news packages that come complete with tear jerking soundtracks and carefully calibrated emotional manipulation designed to lead audiences to unambiguous moral conclusions. Luckily, facts are still the most important ingredient in any news narrative. However, media professionals need to recognize that being factually correct is no longer enough. They must acknowledge that facts are much more likely to reach mainstream audiences if they come in a shiny envelope. This is today’s media reality and there is no point protesting.

media

hidden desires and weak spots of individual countries in order to undermine social cohesion and increase tensions. It has consistently demonstrated an ability to provide specific audiences with a version of reality tailored to their tastes and grievances. This is essentially a legacy of the KGB’s Cold War era information operations rebooted for the modern multimedia age.

The Right Response

How can we defeat Russian information warfare? The simple answer is to continue refuting, debunking and exposing lies, while at the same time relentlessly promoting fact-based narratives. Facts matter and fact checking matters, even in a media environment where presentation is increasingly crucial. Quality journalism will always depend on a solid factual foundation, regardless of the growing importance of engaging storytelling.

It is also essential to remain vigilant. The Russian information war is a long-term phenomenon that we must get used to living with, but it will remain dynamic in character, evolving and mutating continuously. Those seeking to oppose Kremlin disinformation will have to be similarly innovative in order to have any hope of success.

Rule 5: Russia Does Not Want to Convince You

In order to fight back against Kremlin disinformation effectively, you need to understand one thing above all others: Russia’s goal is not to make you believe what they say is true. On the contrary, the Kremlin seeks to convince you that nothing is true.

Moscow aims to promote the idea that there is no definitive version of the truth. It seeks to foster a climate of scepticism towards the very notion of truth and encourage people

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Putin still in denial over the loss of Ukraine Moscow’s invasion of Crimea and the Donbas has proved disastrous for Russian influence in Ukraine

When Kremlin proxies in eastern Ukraine declared the foundation of “Malorossia” in mid-July, most people laughed. This bizarre attempt to replace Ukraine with a “Little Russian” vassal state was seen as one more indication of how hopelessly out of touch Russian policymakers are with Ukrainian public opinion. However, at least one man in Moscow failed to see the funny side. Key Putin aide and Ukraine curator Vladislav Surkov called it a way of sparking debate within Ukraine while emphasizing that the Donbas is not fighting to separate from Ukraine but for the country’s future. “Kyiv wants a pro-European utopia,” he commented. “The Donbas responds with Malorossia.”

Russian President Vladimir Putin voiced similarly optimistic sentiments during the July G20 summit in Hamburg, where he accused the Ukrainian leadership of “trading in Russophobia” and blamed a handful of Kyiv politicians for driving an artificial wedge between Russia and Ukraine. “I am absolutely convinced the interests of Ukraine and Russia, of the Ukrainian and Russian people, fully match,” he claimed, before accusing the West of preventing Ukraine and Russia from moving closer together “at any cost.”

These developments provide insight into Moscow’s apparent delusions over the catastrophic loss of Russian influence in Ukraine since 2014. Putin and his inner circle appear to be denial about the scale of the damage their hybrid war has done to bilateral ties.

Instead, the Kremlin clings to the idea that a silent majority of proRussian Ukrainians lies ready and waiting, poised to take over the reins in Kyiv at the right moment and steer Ukraine back into the Kremlin orbit.

Such wishful thinking is nothing new. On the contrary, it is consistent with Moscow’s historic characterization of the Ukrainian independence movement as the work of an extremist minority and their foreign backers. However, the events of the past few years have left Kremlin notions of Slavic solidarity looking more anachronistic than ever. Although Putin refuses to admit it, the sun may finally be setting on centuries of Russian preeminence in Ukraine, and he has only himself to blame.

Geopolitical Divorce of the Century

When historians look back at the collapse of Russia-Ukraine relations, they will likely pinpoint the invasion of Crimea as the decisive moment. The early 2014 military takeover of Ukraine’s southern peninsula and the subsequent Kremlin-led hybrid war in the east of the country have forced Ukrainians into a fundamental reassessment of their attitudes toward Russia. It has poisoned bilateral ties and transformed what was essentially a trade dispute into the geopolitical divorce of the century.

On a personal level, the impact has been particularly painful. Thousands of extended families living on both sides of the Ukraine-Russia border are no longer on speaking terms. Lifelong friendships have fallen victim to the polarization of propaganda. As the conflict has dragged on, rivers of hate have created an entirely new topography, obliterating the blurred boundaries and casual sense of community that once drew Russians and Ukrainians together as 72

kindred spirits in a wider world.

On the national level, survey after survey has reflected a massive shift in Ukrainian public opinion since the outbreak of hostilities.

Formerly solid support for closer ties with Russia has evaporated like spring snow, while membership of the European Union and NATO have become increasingly appealing. The war has proved a watershed moment in Ukraine’s nation-building experience, forcing Ukrainians to address issues of national identity after decades of post-Soviet ambiguity. Record numbers now self-identify as Ukrainians, with the rising profile of Russian-speaking Ukrainians one of the major social breakthroughs since 2014. Virtually nobody talks about Russian fraternity anymore, except in the most bitterly sarcastic of terms.

Many in Moscow will no doubt hope this violent swing in public opinion is reversible. After all, history is full of warring nations that rebuilt ties once the bloodletting stopped. France and Germany fought two world wars in the twentieth century before going on to serve as the twin engines of a united Europe. Britain and America came to blows in the late eighteenth century before eventually returning to the common ground that had once united them. Time will also eventually heal the wounds of the current Russia-Ukraine conflict, but when the relationship does finally resume, it is likely to be on a strikingly different footing.

Pro-Russian Electorate Disenfranchised

One of the key problems facing the Kremlin in Ukraine is the loss of a pro-Russian electorate. Moscow-leaning former Ukrainian President Viktor Yanukovych relied heavily on voters from the Crimea, Donetsk and Luhansk regions. This electorate now finds itself de facto disenfranchised by Putin’s hybrid war. The changing composition of Ukraine’s electoral landscape was already prominent during the country’s 2014 presidential and parliamentary elections, which saw pro-Russian parties reduced to the sidelines.

Nor is the situation likely to improve in the near future. Even if it proves possible to reintegrate Donetsk and Luhansk into the Ukrainian political system, these regions are unlikely to remain as uniformly pro-Russian as they once were. With almost two million internally displaced people currently experiencing different regions of Ukraine for the first time, the post-war political landscape in the Donbas looks destined to become far more pluralistic as returnees make their presence felt.

Generationally, the clock is also ticking against any future Ukrainian return to the Russian orbit. In both business and politics, Ukraine is currently in the hands of the last Soviet generation, many of whom were born in Russia, studied in Moscow, or did their Red Army service alongside Russians. This shared Soviet experience is foreign to the emerging generation of young Ukrainians. For them, the current conflict will serve as the definitive point of reference for all things Russian.

Beyond politics, Russia finds itself without many of the levers it has traditionally used to maintain its position in Ukraine. The Ukrainian government’s ability to wean the country off its addiction to Russian

geopolitics

gas has denied the Kremlin its weapon of choice, while Russia’s own embargo policies have robbed Moscow of the incentives inherent in bilateral trade. Losing access to Russian markets has been a painful and expensive experience for the Ukrainian economy, but there are signs that the worst is now over. Ukrainian exporters are finding new partners in the EU and beyond. As they broaden their economic horizons, they will be in no hurry to return to Russian partners who operate as the business wing of the Kremlin.

Media Reach Reduced

Russia’s political and economic reach in Ukraine are both in freefall, but the greatest setback for the Kremlin has come in the soft power sphere. Until the outbreak of war in 2014, Russia enjoyed enormous everyday cultural influence in Ukraine. Ukrainians watched Russian TV channels and Russian-made TV serials. They flitted between Russian and Ukrainian websites while favoring Russian email and social media services. The Russian and Ukrainian celebrity worlds functioned as a single entity. Pop stars from both countries would perform on the same concert circuit before starring together in joint New Year gala celebrations. In this sense more than any other, Kremlin assertions that Ukraine was part of a wider “Russian world” were largely accurate.

Over the past three years, this situation has changed dramatically.

Ukraine has banned Russian TV channels and social media platforms, while Ukrainian channels face severe restrictions on the Russian-made content they can broadcast. Many Kremlin-friendly Russian pop stars are no longer welcome in Ukraine, while Ukrainian stars who choose to continue touring Russian cities risk pariah status at home. None of these bans is absolute, of course. For example, many Ukrainians continue to access Russian social media www.bunews.com.ua

through indirect online resources. However, the boundary between Russian and Ukrainian media is now clearer than ever before, while the prevailing mood of patriotism in Ukraine is encouraging people to opt for homegrown media. The relentless anti-Ukrainian propaganda that has defined the Russian media landscape for the past three years has played a major role in this process, turning formerly enthusiastic Ukrainian consumers away. As new viewing habits take root, the decline of Russia’s media reach in Ukraine will only grow more pronounced.

Putin: The Man Who Lost Ukraine?

It is not difficult to imagine why Moscow is so reluctant to recognize the apparently decisive decline of Russia’s position in Ukraine.

Since assuming the presidency in 1999, Putin has sought to reassert Russia’s superpower status and regain the regional dominance lost during the chaos of the 1990s. Ceding control over Russia’s most important imperial outpost does not fit into this narrative.

Indeed, the failure of his Ukrainian gamble could see Putin robbed of his place in Russian history entirely and labelled as “The Man Who Lost Ukraine.”

Nevertheless, the odds appear stacked against any Russian revival in Ukraine. In the short term, this will likely mean a continuation of low-level fighting in eastern Ukraine and other Kremlin spoiling tactics as Moscow seeks to prevent a Ukrainian recovery and delay the inevitable. In the longer term, the eclipse of Russian domination offers Ukraine the opportunity to move beyond decades of impeded evolution and begin to reach its true potential as a sovereign nation. This is a tantalizing prospect but one that will also create an entirely new set of challenges. Russia may have lost the war of Ukrainian independence, but Ukraine has yet to win.

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and finally...

Ukraine Declared World No. 1 Climber in Doing Business Ranking

Research conducted by the Financial Times newspaper has identified Ukraine as the world’s most improved business climate since 2010 based on the results of the World Bank’s authoritative “Ease of Doing Business” survey. These surprising findings owe much to Ukraine’s relatively low starting point but also reflect the country’s steadily improving business climate as it seeks to transition from the chaotic post-Soviet era towards a more recognizably European model of transparent and democratic governance.

Over the period 2010-2017, Ukraine’s Doing Business score climbed from 39.69 to 63.9, an increase of 24.21 points that represented the largest growth of any country in the world over the featured eight-year timeframe. The Financial Times study found that post-Soviet and former Eastern Bloc countries dominated the ranking for progress since 2010, with Uzbekistan and Belarus making up the top three positions behind Ukraine. Meanwhile, Poland, Serbia, Macedonia, Slovenia and the Czech Republic also made it into the top twelve, highlighting the strong reform dynamic within the former Soviet bloc of nations.

Skeptics have responded to these findings by pointing to multiple accusations of post-Soviet countries seeking to manipulate the results of the annual World Bank survey by adopting isolated reform measures specifically designed to gain credit in the Doing Business ranking. While these concerns are worthy of consideration, it is unlikely that such a clear pattern of progress among ex-Warsaw Pact countries could have been entirely the product of gaming tactics.

These results will offer encouragement to Ukraine at a time when the country is particularly eager to attract new international investment as it seeks to replace longstanding Russian ties and broaden its economic horizons. However, investors may wish to keep the champagne on ice for the time being. The positive trends identified by the Financial Times offer a timely boost for Ukraine but they cannot disguise the major challenges the country continues to face in attracting international investment. Ukraine rose just one place in the 2017 Doing Business ranking, climbing from 81 to 80. It continues to lag far behind other regional economies amid complaints over the slow pace of post-Maidan reforms and rule of law problems created by a weak and corrupt judiciary.

Nevertheless, this Financial Times research is far from the only international indication that Ukraine’s overall business climate is improving. Amid rising GDP and a growing number of positive economic indicators, the country is showing signs of rising on the international investment agenda. A survey released by “Institutional Investor” media outlet in late August identified Ukraine as the top target for global investment fund managers in 2018. Institutional Investor researchers questioned a total of 214 fund managers at 154 investment companies, asking which countries were top of the list for the coming 12 months for current or potential investments. Ukraine was No. 1 with 32% of respondents prioritizing the country, followed by Romania with 26%, Nigeria with 25%, and Kenya with 24%.

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

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