business ukraine october 2015

Also inside: Monthly American Chamber of Commerce in Ukraine Newsletter

October 2015

UKRAINIANREAL ESTATEFrom premium residential properties tointernational investment opportunities

ODESA INVESTMENT FOCUSBlack Sea Economic Forum: investoropportunities and reform challenges

POSTER GIRL FOR THE NEW UKRAINEInterview: can controversial Saakashvili pick Yulia Marushevska clean up Europe’s most corrupt port?

2015 review Real estate projects stalled

amid economic uncertainty

Ari Schwartz‘Kyiv clients becoming more knowledgeable

and demanding’

Investing in apartments Safe haven for capital?

FROM

699PER PERSON INCLUDING

VAT

UA

H

GREAT FOODGREAT BEERLIVE MUSIC EVERY NIGHT

24A Mykhailivska st.www.bluesbar.com.ua

5

Back in the days of the Cold War, Kremlinologists would try to get a feel for the mood in Moscow by analyzing the seating arrangements of the Soviet leader-ship during Communist holidays on Red Square. Today, things are considerably more straightforward. If you want to know what the Kremlin is thinking, sim-ply tune in to the evening news on any Russian TV channel.Anyone watching Kremlin TV in recent weeks would have noticed one particu-larly striking change in editorial priorities: after a year and a half of breathless coverage, Ukraine suddenly dropped off the radar entirely, replaced by wall-to-wall coverage of Russia’s new war in Syria. Instructions had clearly been is-sued from on high – the Ukraine conflict was over, and it was time to change the subject. Russia’s TV executives were not the only ones to receive the memo – the Kremlin’s proxy forces in east Ukraine also suddenly changed their tune in early autumn, replacing threats of new offensives with talk of a return to Ukrai-nian sovereignty and adherence to the terms of the second Minsk agreement. Separatist leaders who showed signs of rejecting the new Kremlin position found themselves removed without ceremony. Meanwhile, on the frontlines, the phoney ceasefire gave way to periods of prolonged silence. Days passed without any reported fatalities. As if by miracle, the dynamics of the conflict transformed almost overnight. The completeness of this transformation served as a reminder of exactly who stands behind the war in east Ukraine. Despite the Kremlin’s insistence that the conflict is a ‘Ukrainian Civil War’, Putin’s ability to end hostilities with a click of his fingers was now clear for all to see. The entire operation was choreo-graphed to perfection, featuring the kind of military precision and central coor-dination that are only possible in dictatorships. The ceasefire conveniently took hold on the eve of Putin’s speech at the United Nations General Assembly, while Ukraine’s disappearance from the Kremlin TV schedules was stage-managed to coincide directly with the start of Russia’s air war in Syria a few days later. It was a master class in Kremlin control.

Opinion remains divided over exactly why Putin decided to switch his atten-tions from Ukraine to Syria. Some see it as a stroke of geopolitical genius meant to force the West to welcome Russia back to the top table of international poli-tics following the post-Crimea freeze in relations. Others have argued that it is a desperate gamble designed to distract attention from what amounts to a disastrous and humiliating Russian defeat in Ukraine. There may be elements of truth in both arguments – Russia’s entry into the Syrian conflict has cer-tainly forced the West to increase its engagement with the Kremlin. It has also knocked Ukraine decisively out of the international headlines. What is clear is that Putin has total control over the conflict in east Ukraine, and can dial the devastation up or down as he chooses. This will come as no surprise to Ukrai-nian audiences, who have been well aware of the decisive Russian role in the conflict ever since the first groups of ‘little green men’ began seizing govern-ment buildings in the Donbas in April 2014. Nevertheless, it is worth stress-ing this point among international audiences, where the tendency to view the Ukraine conflict as a messy internal affair has served to discourage many from offering Ukraine the kind of unambiguous support which the country would otherwise have expected to receive as the victim of inter-national aggression. The events of the past few months should be sufficient to shatter this myth of a ‘Ukrai-nian Civil War’, and the fact of Russian aggression should weigh heavily on EU leaders as they consider any return to ‘business as usual’ with the Kremlin. To paraphrase the famous Israeli dictum, if Russia ceased its aggression, there would be peace. If Ukraine laid down its arms, there would be no Ukraine.

Peter DickinsonBusiness Ukraine magazine

From the editor: Putin’s Syria switch shatters myth of ‘Ukrainian Civil War’

OCTOBER 2015Ukraine’s real estate sector has experienced a rollercoaster ride of booms and busts over the past decade, but with analysts identifying undersupply in virtually every sector, some investors continue to see real estate as a attractive option. November sees a major real estate forum in Kyiv which will highlight international interest in the sector.(Cover image: Park Avenue VIP residential complex in Kyiv)

October 2015

Also inside: Monthly American Chamber of Commerce in Ukraine Newsletter

October 2015

UKRAINIANREAL ESTATEFrom premium residential properties tointernational investment opportunities

ODESA INVESTMENT FOCUSBlack Sea Economic Forum: investoropportunities and reform challenges

POSTER GIRL FOR THE NEW UKRAINEInterview: can controversial Saakashvili pick Yulia Marushevska clean up Europe’s most corrupt port?

2015 review Real estate projects stalled

amid economic uncertainty

Ari Schwartz‘Kyiv clients becoming more knowledgeable

and demanding’

Investing in apartments Safe haven for capital?

FROM

699PER PERSON INCLUDING

VAT

UA

H

PARK AVENUE VIPRESIDENTIAL COMPLEX

Seven Hills Group of Companies is part of Scorpio Real Estate Ltd international development company that has projects in America, Asia, Central and Eastern Europe. In Ukraine, the company builds properties that are not only works of architectural art but also technologically advanced facilities.

Park Avenue VIP residential complex is the company’s flagship project. It adheres to international quality standards, utilizing the most advanced technologies and the best of contemporary international experience.

Key advantages of Park Avenue VIP residential complex:

∙ The only gated residential complex in Kiev with full security control

∙ Unprecedented quality of apartments, underground parking, landscaping and all supporting facilities

∙ High level of services delivered by maintenance company∙ Developed internal infrastructure∙ The best value for money on the market∙ Investment value that will stand the test of time∙ A real community of residents∙ A project built with added soul. Our top priority is your

comfort and convenience

Seven Hills is currently in the process of building the last stage of the project: Park Avenue VIP. This last part of the complex is scheduled for completion by the end of 2018.

As we launch the ‘Park Avenue VIP’ concept, the company wants to emphasize that for us the VIP idea is not limited to ‘Very Important People’ in the traditional understanding of luxury, wealth and social status.

The main entrance to the complex is designed as atrium with a 7 meters ceiling height.

The company wants to dispel this stereotype and spread the message that for Park Avenue VIP, the term VIP represents ‘Very Important Individual People’ including families and children. In line with this understanding, we are committed to meeting all the needs and requirements of every single one of our clients during the final phase of construction.

г. Киев, пр-т Голосеевский, 60 (044) 501-501-4

www.parkavenue.com.uafacebook.com/parkavenue.com.ua

8 www.bunews.com.ua

The Ukrainian real estate sector has been through a turbulent 12 months but there are signs that the worst of the shocks are now over. 2015 has been an extremely difficult year for the Ukrainian economy in general, but as the New Year period approaches, it seems that the worst-case scenario predic-tions of many have failed to materialize. Following the collapse in value of the hryv-nia in February, the national currency has stabilized. Meanwhile, the government has succeeded in reaching an agreement with most of Ukraine’s international creditors and thus avoided a widely predicted default that would have potentially plunged the economy into far greater long-term turmoil. These small gains have allowed businesses in the country – including those in the real estate sector – to begin looking to the future with guarded confidence and creating strat-egies for renewed growth in a more stable environment.

Kyiv office real estate marketSince the beginning of the year, seven new business centres entered the Kyiv office real estate market, introducing 103,900 square meters of total leasable area onto the market. Six of these office centres fall into the ‘B’ Class of office space, while one ranks as ‘A’ Class. All new entrants are located on Kyiv’s Right Bank, with two located inside the city’s central busi-ness district. According to date from property experts JLL, in 2015 a total of 38% of all Kyiv office space was rented by companies engaged in produc-tion. Another 33% was taken up by IT compa-nies. Approximately 40% of office space ten-ants were companies active in the fast-moving consumer goods (FMCG) segment. Rental rates in Kyiv business centres fol-lowed the fluctuations of the hryvnia-dollar exchange rate throughout the year. Rates de-creased during the devaluation period in the first quarter and then remained at these new levels for the subsequent months. At the end of Q3, the highest basic annual rental rate was USD 350 per square meter.Real estate company DTZ noted increasing de-mand for office real estate in Kyiv and Lviv in 2015, with many tenants seeking new options in the changing economic environment. “This demand is the result of an understanding that

rental rates have reached their lowest point and now is the best time to secure the most favorable terms or to find new office spaces. This trend is likely to continue until the end of the year,” comments DTZ Ukraine Managing Director Nick Cotton. This office space jockeying has affected vacan-cy rates. JLL analysts estimated the office real estate vacancy rate in Kyiv at the end of Q3 as 39.4% on ‘A’ Class business centres, and 23.3% in the ‘B’ Class segment.

Commercial real estate The majority of large-scale projects in the Kyiv commercial real estate sector are still in progress. Several major shopping malls (Re-spublika, Retroville, Lavina Mall and Block-buster Mall) was postponed plans to open in 2015, and are now scheduled to open their doors in 2016. Since the beginning of the current year, only one major shopping mall in Kyiv, Doma Center, opened for business, with an area of 8,000 square meters. More complexes are also in the pipeline. By the end of 2015, the ‘New Way’ shopping and en-tertainment complex is expected to be com-missioned, with a planned total floor area of 25,000 square meters. The current year saw construction begin at ‘Ocean Mall’, located close to the existing ‘Ocean Plaza’ shopping and entertainment complex. This project is being undertaken by MegaLine company, which is also behind complexes such as Lavina Mall and Block-buster Mall. The relatively small amount of new retail spaces entering the Kyiv market in 2015 meant rents and vacancy rates were able to re-main largely unchanged. According to JLL, the average vacancy rate in the Ukrainian capital is currently around 25%-30%. “Crises are a time of great opportunity,” comments Lilia Rezvaya, Managing Direc-tor of Kyiv’s downtown Gulliver complex. ‘We decided to use this period to completely renovate the ground floor of the Gulliver complex and opened the new season with a new anchor tenant – Silpo supermarket – and a new format.”Despite the challenging economic climate, there does not appear to be any shortage of Ukrainian customers. According to Gulliver officials, the average number of daily visi-

Real Estate Focus real esta

te

9

:

October 2015

tors to the complex was up 41% in 2015 compared to the previous year. They attri-bute this rise to an increase in the number of tenants as well as a series of promotions and events designed to attract more customers.

Kyiv residential real estateThe Kyiv residential real estate market spent much of 2015 coming to terms with currency fluctuations, with most develop-ers forced to adapt to the declining pur-chasing power of Ukrainian buyers while attempting to maintain business plans es-tablished at the old exchange rate. In the primary market of new properties, the fall in value of the hryvnia led to a rise in Ukrai-nian currency prices. In the secondary mar-ket, where pricing has long been entirely in USD, the Ukrainian currency devaluation led to a sharp drop in prices. 2015 was in many ways a transitional year for the residential real estate market. For the first time since independence, the number of

transactions in the primary market may have surpassed the volume in the traditionally dy-namic and active secondary market. This land-mark is in part the result of a policy of mas-sive discounts on the part of developers. In the second and third quarters of 2015, developers introduced promotional prices and discounts that in some cases went as low as 40% of cost.

Regional Ukrainian real estate marketsCommercial real estate activity in Ukraine’s regions during 2015 was even more moder-ate than in the capital itself. By the end of Q3, only two new shopping and entertainment complexes had opened for business in the country’s regions – the Forum Lviv mall in Lviv and Hollywood mall in Chernihiv. By the end of the year, a third complex is expected to open – Odesa’s Gagarin Plaza. “The opening of Forum Lviv by multi Devel-opment has shown that a well-designed and implemented project can be successfully real-ized in Ukraine’s regions,” comments Nick Cot-ton. He argues that the opening of Forum Lviv has important positive implications that go beyond the regional level. “This is a rare exam-ple of an international developer successfully cooperating with local partners. Although the project developed under exceptionally diffi-cult circumstances, it boasted 94% occupancy upon completion. This success sets new stan-dards for the entire country.”

Lviv logistics appealThe past year has witnessed considerable progress in the logistics real estate mar-ket. Dutch company CTP won an invest-ment tender for the development of the ‘Ryasna-2’ industrial park in Lviv, which is set to become a logistical base for 20-30 enterprises. Japan’s Fujikura has already expressed its readiness to establish a pres-ence at the site. Fedor Arbuzov, Head of Industrial and Lo-gistics Property Department at DTZ Ukraine, says that 2015 saw rental rates in the seg-ment break all records for dumping as own-ers fought for shares in a shrinking and cash-strapped market. This price competition has managed to keep most facilities busy, with a vacancy rate in the warehouse and logistics real estate market in the regions of Ukraine of about 10%.Residential real estate markets in Ukraine’s

regions have largely been quiet in 2015, with the only significant movement to be found in Lviv and Odesa. The key drivers pushing de-mand in the regional real estate market have included the large number of displaced per-sons from the conflict zone in east Ukraine. Many wealthier Donbas residents have en-tered the real estate markets in other Ukrai-nian regions, with both Odesa and Lviv prov-ing popular options.

Expectations for 2016In the coming year, the commercial real es-tate market in Kyiv will be one of the focuses for growth, with four new shopping centres expected to open for business. This will sub-stantially increase the number of new options available to retailers, driving up vacancy levels in existing complexes accordingly. It will also have a downward impact on rental prices as owners find themselves forced to compete for finite custom and seek to offer the most attrac-tive terms possible. The office real estate market will likely wit-ness the arrival of double the amount of new space in 2016 compared to 2015, which will have a significant knock-on effect on occu-pancy and vacancy levels. At the same time, anticipated improvements in the general business environment are expected to lead to upwards adjustments of rental rates by the end of the coming year.

10 www.bunews.com.ua

Lilia RezvayaManaging Director of Gulliver shopping and entertainment complex“2016 will see a rise in non-standard commer-cial real estate tenants. We need to pay more attention to market participants whose prod-ucts and services are in demand but who are not necessarily already represented in existing shopping malls or entertainment complexes. For example, we opened a Visa Service Centre and a Post Office in Gulliver in 2015. We will also expect to see the growth of outlets pro-moting Ukrainian produce. There is a strong market trend towards buying Ukrainian prod-ucts at present, and this trend is not limited to fashion. The coming year will also witness the development of social aspects of Ukrainian shopping and entertainment complexes. Cus-tomers will increasingly come to see them as places for general leisure as well as shopping.”

Nick CottonManaging Director of DTZ Ukraine“This year began with the devaluation of the hryvnia, which affected the entire real estate market and led to negative complications across the sector. Business sustainability is now returning to the market and DTZ expects to see improvements throughout the real estate sec-tor by the end of 2016, with subsequent rent adjustments in 2017.”

About the author: Natalia Eva is a marketing and PR specialist at UREClub

:

rea

l est

ate

Are you considering investing in Kyiv’s real estate market and wondering if this would be a good idea? Nearly all of us have been pitched investment ideas. These pitches typically appeal to our emotions (greed and fear - es-pecially fear of missing out) and to our sense of logic (especially numbers and common sense). Any coherent investment story depends on reliable numbers that ‘pass the smell test.’ Yet the investment story for an emerging market like Ukraine can often resemble an investor pitch for a technology startup - long on narrative. As investors, we would all like to see more hard data, but reliable economic figures for Ukraine can be hard to find due to the size of the country’s shadow economy. Let’s examine some of the most common narratives for residential real estate in Kyiv and see if prevailing conventional wisdom for this market is reliable.

Narrative 1: Kyiv is Ukraine’s most attractive market for residential real estate investment This idea is not particularly controversial. Indeed, you will find few real estate professionals who would argue otherwise. The Kyiv market has the coun-try’s greatest demand and highest liquidity for housing. Wealth and power in Ukraine are hyper-concentrated in Kyiv and the recent conflict in the east of the country has only reinforced this tendency due to the migration of business elites from the Donbass.

Narrative 2: There is a shortage of quality housing in downtown Kyiv Kyiv truly lacks enough quality housing in the city center to meet current demand. It is important to keep in mind that a lot of housing stock down-town is used for daily rentals, while apartments all over Kyiv are often used as offices for small companies. In 2014, according to Ukraine’s State Statistics Service, Kyiv’s total housing stock comprised 62.7 million square meters, which means an average of 22 square meters per person. By con-trast, the EU average is more than 40 square meters per person. However, if we dig deeper into the numbers, we see that Ukraine’s statistics for Kyiv assume a population of 2.85 million people, and these statistics include the housing stock of bankrupt projects and those where development has

stopped. If we divide this inflated housing stock figure by es-timates of Kyiv’s unofficial population of 3.25 to 3.5 million, we get a 19.3 to 17.9 square meters per person, without making allowances for daily rental apartments and apart-ments used as offices.

Narrative 3: Real estate is the most trusted asset class among Ukrainians Ukrainians don’t trust domestic banks and many foreign banks have either exited Ukraine or scaled back lending. Meanwhile, the home own-

ership rate is over 90% in Ukraine versus less than 30% for the EU as a whole. However, let’s be honest

about these home ownership statistics in Ukraine

- many current homeowners received their home as a result of privatization and many households include a lot of multi-generational living arrange-ments, among them newly married couples who would no doubt be glad to enjoy a bit more privacy.

Narrative 4: Currently nobody in Ukraine uses mortgage servicesBanks in Ukraine have scaled back lending and local mortgage interest rates are high. Today the vast majority of real estate purchases are ‘cash’ sales. Ulti-mately, a healthy mortgage market has the potential to offer more people ac-cess to Ukraine’s housing market and to raise prices, but this day is far away. Many obstacles stand in the way, including lending risks, no effective mecha-nism for assessing property values, lack of a mortgage-backed securities mar-ket, lack of an electronic land inventory, weak foreclosure procedures and an unreformed judicial system.

Narrative 5: Western-oriented reforms in Ukraine will spur price in-creases in real estateMost political observers argue that there has so far been no notable reduction in corruption in Ukraine since the election of the post-Maidan parliament and President Poroshenko. One of the most corrupt sectors of Ukraine’s economy is construction. In Kyiv, the real estate development market is dominated by a handful of entrenched players. According to The World Bank’s ‘Ease of Do-ing Business Report’, Ukraine ranks near the bottom for ease of obtaining con-struction permits, paying taxes, registering property, and getting electricity. These costs are passed on to Ukrainian homebuyers, where sale prices greatly exceed construction costs and are inflated by rent-seeking regulators. Reduced corruption and greater competition in Kyiv’s homebuilding sector (including more participation by foreign developers) would increase supply, improve construction quality, and theoretically lower, or at least stabilize, increases in housing prices.

Narrative 6: Homebuilding in Kyiv has virtually stopped as a result of Ukraine’s financial crisisThis is not completely true. While no one would confuse today’s market with a housing boom, if you take a quick walk around Kyiv city centre you will see lots of construction activity. Due to the hryvnia devaluation, material and la-bor costs for developers (mostly based in UAH) have decreased in dollar terms much more than housing prices (which are priced in dollars). As a result, de-velopment projects continue despite the current economic malaise. Instead of relying on bank financing, most of these developers are able to finance their projects with proceeds from ‘pre-sales’ of apartments fueled by Ukrainian trust in real estate and Kyiv’s housing deficit. Despite a challenging economic environment, Kyiv’s real estate market has proven to be remarkably resilient. The much anticipated ‘fire sales’ of proper-ties have not come to pass. The good news is that all the fundamentals are in place for tremendous real estate development in Kyiv. However, realizing this potential will require deep political, economic and institutional reform. In the near-term, Kyiv’s real estate market is more likely to muddle along.

The Ukrainian capital offers attractive options but lack of clarity hampers investment assessmentsKyiv real estate investment realities


rea

l est

ate

About the author: Tim Louzonis ([email protected]) 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

Successful construction with PERI

Do you want to know how to speed up your construction project by 2 months?

PERI Ukraine is a subsidiary of PERI GmbH - the world’s largest manufacturer and supplier of formwork and scaffolding. PERI Ukraine has completed more than 2,000 industrial, civil and social projects. Our arsenal of revolutionary systems and equipment will help you to

achieve breakthroughs in construction and economy of resources.

PERI Ukraine Formwork Scaffolding Engineering Obyizna doroga Str., 60 07400 Brovary Ukraine

Telephone +380 (44) 390-26-26 Telefax +380 (44) 390-26-99 [email protected] www.peri.ua www.peri.com

The most famous rule in real estate is the primacy of ‘location, location, location’. How does this apply to Ukraine’s relationship with the rest of Europe? In purely geographical terms, there is no debate – Ukraine is located in the heartlands of Europe. It borders four EU member states and shares common historical ties with most of the nations east of Berlin. Geography is not the only factor of importance for the European business community, and it is crucial for Ukrainians to understand outside percep-tions of the country. My personal experience at a recent real estate investment forum in War-saw offered a window into business community perceptions of Ukraine. The event focused largely on real estate markets in Poland, Hungary, the Czech Republic, Romania and the states of the former Yugoslavia. Despite this close proximity, there was no mention of Ukraine or presentations about the country. Some Ukrainian companies and international compa-nies with offices in Ukraine attended the event, but Ukraine was most defi-nitely not on the agenda. There was no escaping the fact that for these real estate professionals, Ukraine was beyond their range of interest, despite a focus on Central and Eastern Europe. It left me with the impression that Ukraine continues to occupy an undefined grey zone somewhere between Europe and Russia.

Negative associations: conflict and corruptionIt may be hard for Ukrainians to believe, but I actually met numerous ex-ecutives who still think Russian soldiers are roaming the streets of Kyiv while war rages across the entire country. These exaggerated perceptions of the localized east Ukraine conflict are the result of sensationalist me-dia coverage and casual audience interest. Others had a more accurate impression of the continuing problems Ukraine faces with endemic cor-ruption. War and corruption are the key themes damaging Ukraine’s in-ternational image, and it is not enough for Ukrainian leaders to discuss these issues with their fellow politicians. Instead, Ukrainian real estate community leaders should take it for granted that it is their responsibil-ity to build bridges with European investors and financial institutions. They should see themselves as business ambassadors and make it their business to present potential partners with information about Ukraine’s many real estate success stories. Our efforts to persuade partners to attend November’s EEA REAL ESTATE

FORUM event in Kyiv provided further evidence of the need to counter Ukraine’s negative image blues. Our key part-

ner only agreed to attend the forum after first attend-ing a business event in Kyiv attended by over 100 ma-

jor entrepreneurs and developers. This experience convinced me more than ever that it is important

for Ukrainians to reach out and actively promote the country. We all need to visit forums, attend

conferences and get as involved as possible in the wider real estate community. Few

would dispute this, but not everyone is prepared to do so themselves.

Ukrainians must become informal ambassadorsUkraine’s natural position is at the centre of Europe, both geographically and economically. However, to break out of the unnatural isolation that has dogged the development of the country for centuries, we must all be prepared to struggle at every level to convince business community rep-resentatives throughout Europe that Ukraine is a fellow European land of great potential. We should be wary of presenting Ukraine primarily as an agricultural land capable of ‘feeding the world’. The ‘breadbasket’ brand is a positive one, but Ukraine can offer so much more. It can become a major regional player in such key areas as logistics and transit, retail, service provision, tourism, manufacturing, IT and real estate. The biggest country in Europe cannot limit itself to an agricultural image alone. Ukraine boasts an ancient Euro-pean history and has five cities of over one million people, not to mention the country’s excellent human capital. In theory, Ukraine has it all – includ-ing the famed ‘location, location, location’. However, it is up to Ukrainians themselves to spread the word and inform the outside world about the country’s investor appeal.

Ukraine suffers from negative perceptions and it is up to businesses to provide image boostEuropean perceptions of Ukrainian real estate


rea

l est

ate

About the author: Olga Solovei is CEO and Co-founder of UREClub, a business community group uniting over 100 real estate professionals

As CEO of the Seven Hills Group of Companies in Ukraine, Ari Schwartz has overseen to de-velopment of Kyiv’s prestige 1280-apartment Park Avenue residential complex for the past nine years. The project, which is now entering the final stage, has continued to expand in both size and scope despite often challenging mar-ket conditions, reflecting consistently strong levels of demand in the Ukrainian capital for high-end residential real estate. Mr. Schwartz spoke to Business Ukraine magazine about the challenges of meeting rising expectations among his Kyiv clientele, and why he remains convinced Ukraine is an attractive market for international developers as long as they are prepared to commit for the long-term.

How has the luxury segment of the Kyiv real estate market developed since you entered the market almost a decade ago?I do not think there is a genuine luxury prop-erty market yet in Ukraine, but new and better projects are appearing in Kyiv on an almost daily basis. There is still a tendency among some developers to construct ordi-nary buildings before adding lots of addition-al marble then calling it luxury property. This is not my understanding of luxury real estate. Until the crisis of 2008, high-end developers could sell whatever they built. People would buy apartments regardless of the specifica-tions, and only then try to modify them to their personal tastes. This was never our ap-proach. We try to meet each client’s specific needs and tailor the property to their require-ments. The product should be convenient for the client, not for the developer. We regard all our clients are VIPs and try to let them know that they are very important to us.I do not actually like my colleagues to refer to our properties as luxury apartments. They are standard apartments – the standard is high for the Kyiv market, but it is not luxury property in the global understanding of the term. The standard we offer in Ukraine is ac-tually no higher than the quality we offer to customers in France or Hungary or any of the other markets where we are present. There is no reason for Ukrainian clients to accept a lower standard that their counterparts else-where in Europe.

How have customer expectations changed

since you entered the Ukrainian real es-tate market?Any babushka will tell you that now is a bad time to sell real estate and a good time to buy. It is a buyers’ market and clients are getting smarter. They are demanding bet-ter quality in every aspect of the property. I would say that clients today are twice as demanding as they were before 2008. In those days, there was excess demand and developers knew that they could offload everything they produced. Clients today are looking to maximize what they get for their investment. Kyiv clients have generally trav-elled extensively and have seen a lot of the world. They want the same quality in their own lives, whether it is a matter of good lifts or bigger windows or better interior design. Expectations are becoming higher and high-er, which puts pressure on us to make sure our customers are satisfied. When we first tried to include larger windows in our apart-ment designs, we were told that the cen-tralized Kyiv heating systems would not be sufficient to heat apartments with such big windows. To solve the problem, we installed a state-of-the-art boiler system of our own which is now a showcase feature regularly visited by Kyiv City Administration officials. There was no other option for us, because the kind of people we seek to attract are no

longer prepared to accept apartments with-out such features. I welcome this trend to-wards a more informed Kyiv public, because it creates genuine competition and forces other developers to meet the high standards we have set for ourselves.

Has the Kyiv real estate market bottomed out yet or do you anticipate further drops?We are no longer at the bottom – from our perspective, the market had already bot-tomed out in 2014. We are now definitely on an upward trend. Immediately after the revo-lution in early 2014, there was a noticeable jump in demand. We are still moving up and the market is growing.

How have the past two years of political and economic instability affected your business? We previously imported a large proportion of our construction materials from around the world, but over the past two years, I have taken the decision to buy as much as we can inside Ukraine in order to support the local economy and keep the money inside Ukraine. Wherever we have been able to find world class prod-ucts, we have switched to Ukrainian suppliers. As an initial step, we paid for experts from an Israeli company that produced doors for Park Avenue to visit Lviv. They worked with a Lviv manufacturer to produce high-quality doors that met our standards. After this initial suc-cess, we began switching to local Ukrainian suppliers whenever possible.

What would your message be to any inter-national developers looking to enter the Ukrainian real estate market?There is no easy or fast money to be made in Ukraine. But if you want to make money in the long term and are ready to integrate yourself into the local culture, this is the place to be. This is definitely one of the best countries in the re-gion for foreigners to invest in and do business in. We have had so many opportunities to leave the Ukrainian market but we never lost faith. There have been times when we have lost money in the short term, but we are making money in the long term. You can achieve short term profits in places like New York and Paris, but if you want to succeed in Ukraine, you need to be ready to commit to the country for a longer period.

Park Avenue developer Ari Schwartz explains why rising client expectations are good for businessKyiv real estate customers increasingly expect VIP service

About the interviewee: Ari Schwartz is the CEO of Seven Hills Group of Companies


rea

l est

ate

3.CONSTRUCTION MANAGEMENT• Site management • Construction supervision • Planning, cost and progress control • Risk management • Quality management • Budget estimate and cost control • Tender procedures • Contracting

1.TECHNICAL DUE DILIGENCE• Permissive documentation audit• Project feasibility study • Engineering concept• Preliminary cost estimation• Preliminary directive building chart• Optimal chart of project financing• Recommendations for juridical chart of project management

2.DESIGN AND ENGINEERING• Conceptual design and adaptation • Master plan•Feasibility(Engineering) Studies with energy effective technologies implementation• Basic and detail design (incl. adaptation) • Permitting support • Author supervision

WE OFFER A WIDE RANGE OF SERVICES THAT COVER THE WHOLE PROJECT LIFE CYCLE/INVESTMENT CYCLE AND COULD BE ORDERED EITHER AS A ONE

PACKAGE OR SEPARATELY

TELEPHONE: 044-520-12-99, 044-561-65-54, 067-500-20-92 ADDRESS: OFFICE 102, 10A SMILYANSKA STR., KYIV, UKRAINE

Rustler Property Services

Rustler Property Services is a subsidiary of Austrian Rustler Gruppe GmbH,

operating on the Ukrainian market since 2008

We are here to ensure health, safety and comfort in your office and home at reasonable prices

Contact us now on (044) 4965242 or www.rustler.com.ua

November special offer Basic maintenance of offices and

apartments up to 300 sq m: - electricity networks- plumbing systems

- HVACUAH 2000 per month, incl VAT.

REAL ESTATE EXPERTS SPECIALIZING IN: Property managementBrokerageFacility managementTechnical maintenance and repair servicesReconstruction and fit-out projects managementTechnical due diligenceEVVA locks sales

----

-

--

1LVIV TODAY | October 2015

№83/October 2015

Enjoy thE stylish lviv Fashion WEEk, dElicious chEEsE & WinE FEstival

and so-o-o-o much morE!!!

FastEn your

sEatbElts for a spectacular

october in lviv!

The heart of Europe - the soul of Ukraine

Тел.: +38 (032) 243-00-10, моб.: +38 (067)[email protected],

www.ramadalviv.com.ua

leave the rest to ussm

Ramada Lviv Hotel

WEST UKRAINE’S LIFESTYLE GUIDE

The best of Lviv

real esta

te

Statistically speaking, over time property is probably the best in-vestment you can make, outperforming other asset classes. Prop-erty nearly always appreciates, so there is little risk that you will lose your money. The determining factor is generally when you get in, and when you choose to sell. This is more or less the same in any country.The swings in Ukraine can be more volatile than in more mature markets. If you bought property in Kyiv during 2006 to 2008, you would probably have lost money. This is true even on prime real estate in the centre of Kyiv, whether residential or commercial. For example, commercial real estate on Prorizna Street at the beginning of 2008 was selling for more than USD 6000 per square meter. At present, you would be lucky to get USD 3000. Due to the economic malaise affecting the world since 2008, followed by the political and economic crisis in Ukraine since 2013, rental rates on these proper-ties have dropped from USD 60 per square meter to USD 25. How-ever, if you had bought these properties back in the 1990s at USD 500 per square meter, you would still make a considerable profit.This is not only true for Kyiv. In the late 1980s, London property prices collapsed by over 30%. There are now fresh concerns that London property prices are over-inflated and that a new crash is ‘just around the corner’ with drops of 30% being predicted by some economists and property watchers. There are numerous reasons for such speculation, not least the growing gap between salaries and mortgages. Average mortgage to salary ratios were typically three to one, but in today’s London this has now grown to eight to one. How can you assess whether real estate prices are set to rise or fall? For the London market, there is a huge range of statistical data gathered over years to indicate what is happening. However, no-body knows when a correction will occur, and when it does happen there is a tendency for the market to overreact, leading to dramatic swings as everyone scrambles to reduce their losses.

Common sense strategies for the Kyiv marketThe Ukrainian market does not possess the long and detailed his-tory that enables investors to make informed decisions as the do when dealing with more mature markets like London or other major European cities. Back in 1987 – the year of the last major London property crash – there was no property market at all in Kyiv. With limited amounts of statistical information to rely on, how can mar-ket participants assess when to get in or out of the Ukrainian prop-erty market?The best answer would be common sense. Read the signs that are around you and gauge people’s attitudes. Follow some of the tried and tested old adages – for example, when taxi drivers start talking about property trading, it is probably time to get out. Try to understand the vagaries of the Ukrainian political and economic market place.At present, property prices are well below their 2008 peaks. In all probability, they will eventually recover to nearly where they

were, but the big question is when. My guess is it will take at least 5 years, and even then, this depends on outside factors such as the actions of the Kremlin. You can currently buy cheap and could prob-ably double your money in 5 years, but with so much commercial property (offices, retail and warehouses) standing vacant, finding a good tenant and a reasonable level of rent could prove challenging, resulting in poor annual yields.Residential properties in Kyiv are typically 50% of their value back in 2008. The principal reasons for this decline are the economic and political problems in Ukraine, compounded by the inability or un-willingness of Ukrainian banks to offer mortgages. When they do, interest rates often exceed 24% per annum and are only available in hryvnia as foreign currency loans for residential property are no longer possible after the 2008 crash. If you are buying to reside, now is a good time to enter the market, assuming you have the money and are prepared to wait for a few years before you see any improvements. If you are looking to lease there is good reason to be cautious, as rents are 50% down on boom time rates except for in certain areas of Kyiv.

Targeting the growing diplomatic community What are the best investment opportunities currently available on the Ukrainian real estate market? There are two sectors which are worthy of special attention. One is buying residential property in locations of interest to the diplomatic community. Due to the po-litical crisis in the region, this is one of the few expatriate groups that is actually expanding in Kyiv. This growth is also due to Euro-pean Union countries expanding their embassy staff levels because of the new Association Agreement between Ukraine and the Euro-pean Union. If your property matches their criteria, embassy staff are generally reliable tenants. There is even an investment fund to invest in this sector, which offers reasonable annual yields with the potential of capital growth in excess of 50% over 5 years.The second area of interest is the agricultural sector. Used, abused and under-invested since before independence, Ukrai-nian agriculture is still under-producing by factors of 4 to 6. Foreign investors and local oligarchs have also invested in agricultural holdings without having the technical knowhow to de-velop their assets, leading to further losses in value. As a result, agricultural holdings are currently cheap. If you choose to invest in agricultural holdings and the land they control, with good agricultural tech-nologies and management you can ex-pect yields approaching 20% per year, while the value of your holding will also be enhanced.

19

Real estate prices are looking increasingly attractive but is now the right time to enter the market?Timing is everything on the Ukrainian property market

Terry Pickard ([email protected]) is the founder and Chairman of Pickard, a real estate agency that has been operating across all sectors of the Ukrainian property market for over 23 years and currently represents Newark Grubb Knight Frank in Ukraine

October 2015


rea

l est

ate

The reform process currently underway in Ukraine has far-reaching implications for the country’s economy in general and for the real estate sector in particular. With the implementation process still in its infancy, it is not yet clear whether the pro-posed changes and innovations will lead to a more transparent and effective business environment. Lawyers specializing in real estate law are guard-edly optimistic that many of the legislative changes are leading in the right direction, but the coming months will provide greater clarity on the success of these measures.

Decentralization and registrationOne key area of the reform process highlighted by many real estate lawyers involves the registra-tion process. Natalia Klochun of Arzinger law firm explains that changes introduced to parliament in summer 2015 would lead to a delegation of registration functions from the Ministry of Justice to a wide range of bodies including notaries, city councils and local state administrations. The draft law which parliament passed in summer 2015 also contained a list of banks accredited to provide registration services, but Ms. Klochun predicts that these banks may eventually be excluded from the bill during a second parliamentary reading due to public concerns. Her colleague at Arzinger, Timur Bondarev, says that the proposed registration changes are in line with broader efforts to devolve more power from

central government in Kyiv to local organs. “This kind of devolution of power should ensure a reduc-tion in corruption as it ends the monopolization of authority. Nevertheless, many real estate market players remain ambiguous about the proposed changes due to previous experience. Past attempts of this nature have shown that vesting new powers in different organs can lead to freezes in activity,” comments Mr. Bondarev.Similar decentralization reforms have targeted the State Architecture and Construction Control (SACC) body. Oleg Boichuk of EPA&P law firm ar-gues that the need to reform this sector was be-yond question and says that the initiated reforms closely mirror national political efforts to increase decentralization. Procedures such as granting con-struction rights will now be passed down to the lo-cal level. “Conceptually, this system has previously functioned in Ukraine and is also well established in many other European countries, so it cannot be regarded as entirely novel. However, it is important to note that the bill does not eliminate the admin-istrative hierarchy in full, but merely pushes it into the background. New supervisory powers have also been introduced which will be wielded by the central authorities,” says Mr. Boichuk. He argues that for this reason, the new law cannot really be regarded as a complete and qualitative reform.

Real estate register reformOne of the key real estate sector reforms is the introduction of a digital real estate register open

to the public. This anti-corruption measure is among the best known of all Ukraine’s post-Maidan reforms. It aims to expose corruption by identifying the assets of state officials and high-lighting discrepancies between stated incomes and property values. Baker & McKenzie attorney Elmaz Abkhairova is optimistic that this reform will prove useful for real estate professionals while also assist-ing in the fight against corruption. “For real es-tate market participants, full access to the state property register should generally simplify real estate transactions, particularly in terms of due diligence.” However, she notes that the register is currently far from exhaustive, raising issues over whether it will prove to be an effective transpar-ency tool. “The register is currently half-empty and most of the information on real estate own-ership in Ukraine is still stored on paper in state archives. In practice, the process of compiling the digital register is moving slowly. One of the main obstacles is the absence of any obligation for property owners to transfer data to the regis-ter,” Ms. Abkhairova explains. Despite certain criticism of the many reform initia-tives connected to the real estate sector, legal ex-perts identify numerous positive aspects to these changes. Analysts are now awaiting the results of implementation and looking to see how the new laws affect the interaction between the real estate private sector and state bodies at both the national and local levels.

Ukraine’s anti-corruption efforts have significant implications for real estate but implementation is keyReform drive repercussions for the real estate sector

About the author: Sergey Vlasov is a journalist at UREClub

• AIM Realty Kiev serves Kiev’s luxury and upmarket segments and specializes in high-end residential real estate for foreign clients• AIM provides a full-cycle of real estate services to tenants and buyers and owners and sellers, including long-term rentals and tenant search, property purchases and sales, property management, leased office space, facility and asset management• AIM’s founders are foreign professionals, who have over 15 years of real estate experience in Ukraine and the expertise to help you

Tel. +38 (044) 359 06 61www.aimrealtykiev.comEmail: [email protected] aimrealtykievhttps://www.facebook.com/aimrealtykiev

FOR RENT

FOR SALE

Luxury 3br apartment in center of KievID 824 $4,500/month 167m2 m. Zoloti Vorota

Modern 2br apartment In townhouseID 821 $650/month 50m2 m. Vokzalna

Stylish 1br apartment in center of KievID 296 $152,00092.2m2 $1,649/m2m. Universytet

Excellent 2br apartment for sale on Khreshchatyk stID 671 $625,000130 m2 $4,808/m2m. Teatralna

Excellent 3-storey 5br townhouse on Lokomotivna stID 711 $5,000/month300 m2 m. Vokzalna

Beautiful 1br apartment on Baseina stID 817 $1,800/month66 m2 m. Palats Sportu

Wonderful 4br apartment for sale on Velyka Vasylkivska stID 714 $300,000177 m2 $1,695/m2m. Olimpiiska

Excellent 1br apartment in center of KievID 685 $1000/month70m2 m. Kreshchatyk

Amazing 2br apartment for sale on Klovs’kyi descentID 719 $460,000146 m2 $3,151/m2m. Klovska

Excellent 2br apartment for sale on Shovkovychna stID 820 $148,50066m2 2,250 /m2m. Palats Sportu

FEATURED PROPERTY

FEATURED PROPERTYFOR RENT FOR RENT

FOR RENT FOR RENT

FOR RENT

FOR SALE FOR SALE

FOR SALE

FOR SALE FOR SALE

The Ukrainian economy is in need of a complete reload, and it is clear that despite ongoing economic and political crises, this reload needs to take place as soon as possible. However, a revitalization of the economy will not be pos-sible unless the government creates efficient mechanisms for partnerships between the public and private sectors. These mechanisms are a prerequisite if Ukraine is to attract the direct foreign investments the country requires.This was the consensus verdict at the recent Black Sea Economic Forum, held in Odesa in early October and attended by dozens of international investors and major Ukrainian businesses. In a series of panel discussions at the fo-rum, participants shared their ideas regarding the future prospects for the development of the Ukrainian economy. There was general agreement that greater cooperation between public and private sectors would be a key factor facilitating future growth. In line with forum’s Odesa location, the event focused in particular on tour-ism and the port industry. Participants explored the investment opportuni-ties in these two key sectors, assessing both opportunities and risks. The relationship between public and private sectors was one of the main themes of Ukrainian Deputy Minister for Infrastructure Yuriy Vaskov’s speech during the forum opening ceremony. Mr. Vaskov highlighted the need for greater leg-islative transparency if Odesa port is to attract international investors, com-menting, “We have to understand that potential investors who are willing to invest into Ukraine’s port infrastructure need to know the rules of the game. This means changing our approach to issues like the calculation of refund payments and project implementation deadlines. As a result, we will lay the foundations for truly effective relations between the public and private sec-tors, paving the way for a significant improvement in the investment climate around the Ukrainian port industry.”

Ukraine’s ample investment appealDespite the well-documented challenges facing the Ukrainian economy and the as-yet largely unfulfilled expectations of greater state support for inves-tors, today’s Ukraine continues to boast a range of strong points and advan-tages which make it an attractive investment option. One of Ukraine’s key selling points is the cost competitiveness of Ukrainian labour. The Ukrainian workforce is skilled and highly educated while costs are significantly lower than in other European markets. Ukraine’s well-developed transport infrastructure is also a strong selling point, including pipelines, transit terminals, railways, power transmission networks and seaports. The Ukrainian domestic market is an appealing and

significantly under-exploited attraction, boasting over 45 million consumers with growing disposable incomes.

The relative immaturity and low levels of competition on the Ukrainian domestic market make it particu-larly attractive for international investors.

Natural advantages include borderland location

Ukraine’s most important natural advantage remains the country’s geographical loca-tion. Situated at one of the world’s great

geopolitical crossroads, Ukraine lies on the boundaries between Europe and Asia, and between northern and southern Europe. The country has land bor-ders with four separate EU member states and is close to the Middle East. Ukraine already enjoys strong industrial and manufacturing ties to CIS and Baltic countries, but there is huge scope for greater production and industrial cooperation with European partners. As well as its appealing geographical location, Ukraine is also home to some of the most fertile land on the planet, boasting approximately one-third of the world’s ‘black earth’. This fabled fertility has previously earned Ukraine the title ‘Breadbasket of Europe’. It now offers the promise of a new wave of investment in the Ukrainian agriculture sector against a backdrop of rising exports and increasing efficiency. International investors looking to enter the Ukrainian agriculture market can count of favourable weather conditions. The country is known for the sever-ity of its winters, but the annual chill is matched by long, hot summers. More importantly, Ukraine does not suffer from extreme weather conditions and natural disasters such as tornados, tsunamis, droughts and earthquakes. Ukraine also has an inbuilt advantage in terms of the educational levels of the population. The country ranks well above average in terms of overall educa-tion levels on the UN’s Human Development Index, while in the Global Com-petitiveness Report published by the World Economic Forum, Ukraine ranks 19th among 60 featured countries in terms of mathematical and scientific education.

The importance of local engineering expertizeAs Ukraine looks to expand its economic ties internationally and attract for-eign direct investment, all these advantages will become increasingly strate-gic assets. For investors looking to enter the Ukrainian market, engaging a local engineering company is often a crucial step towards the future success of any investment project. The right choice will lead to a reliable local part-ner capable of protecting and promoting investor interests on the Ukrainian market. Local expertize will take the pain out of bureaucratic procedures and make sure all the required licenses, permits and approvals are coordinated correctly, while issues such as bidding procedures, design and construction costs are approached with the investor’s best interests in mind. Ukraine has a number of companies capable of performing this role for in-ternational investors. Some are representative offices of German, Austrian and US engineering companies. There are also numerous local market play-ers with European-trained staff who have experience with leading European companies and professional qualifications from top international education-al institutions. These companies generally offer services tailor-made for the Ukrainian economy and designed to optimize cooperation between interna-tional investors and local construction market representatives. They are of-ten able to offer competitively low prices, while the importance of reputation offers safeguards in terms of quality. Unlike international brands, local part-ners depend on recommendations to build their reputations, which serves as a significant motivating factor. The ensuing partnership of international and local knowhow is ideally suited to the challenges and opportunities pre-sented by the contemporary Ukrainian market, especially in the real estate and construction businesses.

International investors can succeed in Ukraine but finding right local partners remains crucialUkraine offers investment gateway to Eastern Europe


rea

l est

ate

About the author: Yuliya Dvorakovskaya is founder of CBM Forum engineering company


The Ukrainian construction industry is currently facing a number of new challenges as it seeks to emerge from the economic downturn in the wider Ukrainian economy. Construction companies and develop-ers need to adapt to doing business in a volatile economic environment where a lack of bank lending and foreign investment is exasperated by lower consumer demand. Developers and builders find themselves forced to battle for every buyer or project. The winners will inevitably be those who can offer not just accommodation or commercial prop-erty, but who are able to offer a certain quality of life, including higher levels of comfort and serviceability together with long-term thinking. In practice, this means adopting an innovative approach including at-tention to aspects like energy-efficient technologies, flexible planning, and appealing aesthetics. To achieve these goals, developers and con-struction companies need to find reliable partners and allies who are able to make sense of the legislative changes taking place in the Ukrai-nian market, while also identifying the new trends and client priorities that will attract the kind of demand needed to make sure future projects are successful.MA Group aims to meet these needs by identifying the specific needs of companies operating in Ukraine or seeking to enter the market. The MA Group of companies offers a range of services covering the entire construction cycle, from architecting, consulting and design to develop-ment and construction itself. The Group is currently development me-dia and agrarian branches of its operations, but the primary focus of its activity remains architecture and design.

Two decades of architectural expertizeThe MA Group story began 20 years ago with the creation of the Insti-tute ‘MiskCivilProekt’. The Institute has earned a strong reputation on the Ukrainian market and has helped to develop the careers of numer-ous leading Kyiv architects. Their projects have included everything from residential buildings, shopping centers, resorts and hotels to embassies and museums – many of which have received international recognition. The team at MiskCivilProekt seek to provide clients with extra value by of-fering an inclusive, full-cycle approach that takes into account every aspect of any given project, including everything from the commercial interests of the developer to the often complex and time-consuming documentation process. Unsurprisingly given the architectural pedigree of the Institute, particular attention is paid to the initial design stage of any new project. Institute architects seek to create the right conditions from the outset that will allow the future project to function successfully and attract the visi-tors or buyers it is designed to appeal to. Finding a winning combination of aesthetics and functionality is always a challenge in any architectural project, and the Institute has a long track record of compliance with the commercial expectations of the customer. Other Institute priories include the efficient use of space in order to maximize future profit potential and utility. This is all possible thanks to cooperation between the Institute and other branches of the MA Group of companies, which are typically engaged in the project development and construction phases. Research and consultation processWithin MA Group, the consulting company City Development Solutions has

responsibility for making sure construction projects presented to developer company partners are in line with the latest global trends and meet with con-temporary consumer expectations. They specialize in residential real estate and place great emphasis on market research and consultant expertize from across the residential segment of the real estate market. This provides an ob-jective overview of market conditions, paving the way for projects that take into account current requirements while also anticipating longer-term needs and expectations. The Ukrainian real estate industry is currently an exciting sector with huge potential for further growth, but there has never been a greater need for professional partners who are aware of global trends and local nuances. Developers need to identify the right al-lies that are capable of providing a full range of services – with ev-ery step of the process taking into account the broader long-term requirements of each project. This development of professional partnerships is an indispensable prerequisite for the revival of the domestic construction industry. It is also essential if Ukraine is to facilitate the market entry of much-needed foreign investors.

MA Group offers full cycle of services for companies seeking long-term Ukraine presence

About the author: Andrey Malafeev is the Chairman of the Executive Committee of MA Group and President of the UKRAINIAN BUILDING COMMUNITY

Reliable partners in a challenging market

rea

l est

ate

: co

mpa

ny

pro

file

MA GroupTel.: +38-0445933132

Email: [email protected]: 21/16 Skovorody Street, Kyiv, 04070

Wanted: A New Generation of Ukrainian Leaders

Official newsletter of the AmericanChamber of Commerce in Ukraine

October 2015

“What does leadership mean to you?” – I was asked, on the spot in front of a video camera rolling, as I was approaching the open-ing of Ukraine’s brand new Lead-ership Academy in Kyiv earlier this month. I hastily answered: “Leadership is the ability to in-spire new leaders, to inspire and motivate, to let individuals give the best they have, unlocking po-

tential”. I have since given the question much more thought, especially after seeing the new impressive Academy opening its doors for the first time in Ukraine and understanding the importance of growing new leaders here. The Academy of Leadership is a new format of education for 16-year-old Ukrainian graduates from high schools, taking a gap year prior to entering university, with the course lasting 10 months and it is built on the combi-nation of elements of physical, academic and spiritual education and devel-opment. It is based on a principle of boarding schools. The academy started operating in September 2015. Students were select-ed among 500 young people who enrolled into the academy. The expenses are covered by a grant from the Western NIS Enterprise Fund. The goal of the academy is to select young people with a high potential to leadership, train them to the highest standard by the best teachers, so that training allows them to reach their potential and serve to own country. It is based on a similar model successfully operating in Israel. A team from the Presi-dential Administration, including leading communications expert Natalia Popovych, visited Israel earlier in the year and have been cooperating with Israeli colleagues.The practice of sending children off to schools so that they could learn to-gether is of very long standing, recorded in classical literature and global history going back over a thousand years. Ukraine’s government is in great need of new honest and professional leaders. The public sector can learn from their private sector colleagues.

In Ukraine’s Business community today, I am privileged to see many world class leaders – Ukrainian top managers, among the 600 members of the American chamber of commerce in Ukraine, managers who are success-fully leading global brands and corporations. A number of these men and women are making a B2G shift by leaving lucrative salaries and career tracks and taking on roles in the public sector. The move is not easy as they encounter plenty of resistance from the old system where the old guard has no desire to change. It is a challenge how to motivate a government official on a salary of around $150 who may have been working for any specific government department for many years in a corrupt environment. Two years on after Ukraine’s Revolution of Dignity started, what is it that needs to be done to grow new leaders? One of the Academy of Leadership’s Professors, renowned historian Yaroslav Hrytsak, in his book the “26th percentage” argues that two things are vital: 1) For the country’s best people not to leave and 2) for those that do come in to government, not to succumb to the old ways of operating in corrupt and self-gain interest. At a breakfast meeting last week with a chief European government official a question was asked: “Where in Ukraine’s Balcerowicz? “, with reference to Polish economist Leszek Balcerowicz, former Deputy Prime Minister, famous for implementing the Polish economic transformation program in the 1990s, a shock therapy commonly referred to as the Balcerowicz Plan. The business leaders at the table did start think about who in Ukraine today are the key drivers and the especially the leaders who will take the country’s economy forward. We do see some excellent people coming in to government today. The focus should now be to let them grow and bring in more talented individuals. Leadership is about taking responsibility.In the words of Dwight D. Eisenhower: “Leadership is the art of getting someone else to do something you want done because he wants to do it.”The risk of populism, however, remains high. How does one focus on hu-mility while achieving great things? Nelson Mandela sums this up: “It is better to lead from behind and to put others in front, especially when you celebrate victory when nice things occur. You take the front line when there is danger. Then people will appreciate your leadership.”

Andy Hunder, President of the American Chamber of Commerce in Ukraine

25October 2015

The Draft Law “On Financial Restructuring” is an important and neces-sary step that will speed up the recovery of the Ukrainian economy. This conclusion was made after numerous expert discussions at the American Chamber of Commerce in Ukraine after the Ministry of Finance of Ukraine presented the Draft Law. An opportunity to do proper voluntary financial restructuring as envisioned by the Draft Law is a generally accepted world practice which has proved to be an effective tool to overcome the financial turmoil and difficult economic situation in many countries.

Adoption of this Draft Law will allow creating prerequisites to re-store financial and corporate sector of the country through the fi-

nancial and operational restructuring of companies. The Draft Law creates reliable and effective mechanisms which allow restructur-ing business quickly and successfully, restoring companies’ liquid-ity and business crediting as well as solve the banking issue of troubled debts. It will certainly have a positive impact both on the financial system of Ukraine and its economy in general.

According to Mr. Ihor Olekhov, Co-Chair of the Chamber Banking & Financial Services Committee, partner in the Kyiv office of Bak-er & McKenzie, this Draft Law is economically advantageous and useful both for companies being under financial difficulties and banks which are experiencing a constant growth of the number of problem loans, that turns to increase of banks insolvency. “Debtors which faced financial difficulties and liquidity problems and are already on the verge of bankruptcy will be able to restructure their debts and business. The Draft Law creates prerequisites for finan-cial recovery, stabilization and development of viable companies. Saving viable companies will help to keep jobs. In case of adoption of this Draft Law, banks will have an opportunity to restructure

problematic debts and reclaim their money in the short or medium term. This will bring stability to the banking system and create the necessary conditions for banking financing of business on compre-hensible and favorable terms.”

The most notable feature of this Draft Law is the revised Article 6 of the Ukrainian Bankruptcy Law, which will effectively allow Ukrai-nian businesses to do pre-packaged restructurings or schemes of arrangement. “In particular, in order to achieve restructuring it would be necessary to receive approval of 75% of involved secured creditors and more than 50% of involved unsecured creditors. This

would allow to bind the minority dissenting creditors to the re-structuring terms agreed by the majority creditors and allow the restructuring to go ahead”, - stated Mr. Olexander Droug, senior associate at Sayenko Kharenko.

The mechanisms offered by the Draft Law allow the restructurings to be conducted in an organised and efficient manner ensuring equal treatment of all creditors. To achieve this, the Draft Law provides for the possibility to impose a moratorium or enter into a standstill agree-ment during which involved creditors will not be able to enforce their claims but instead would negotiate and agree the restructuring plan. “Another benefit is that it is not necessary to restructure all debts. The businesses would be in a position to pre-select the creditors that would be involved in the financial restructuring”, - said Olexander Droug.

Thus, the Draft Law “On Financial Restructuring” will speed up the growth of the Ukrainian economy, improve banking and financial system and preserve viable companies that are important compo-nents of successful development.

Why adoption of the Draft Law “On Financial Restructuring”is so important for Ukrainian economy

od

esa inv

estmen

t foc

us

There is added buzz around Odesa these days. The excitement is largely down to the arrival in town of former Georgian President Mikheil Saa-kashvili, who was appointed governor of the strategically crucial Black Sea region by Ukrainian President Petro Poroshenko in May. Since his arrival, the larger-than-life Georgian has embarked on a one-man crusade to transform this notoriously corrupt and apolitical port city into an unlikely engine for the reform of the entire Ukrainian nation. He has dismissed swathes of time serving bureaucrats and surrounded himself with a team of trusted Georgian reformers and Western-educated Ukrainian activists – many of whom are unpaid volunteers attracted by the allure of Mr. Saakashvili’s historic mission. War has been declared on everything from the oligarchic ‘shadow government’ in Kyiv to the pot-holed roads that prevent Odesa from taking up its rightful place as a gate-way to Eastern Europe. This quest has attracted remarkable levels of local support. Despite being an outspoken enemy of the Kremlin in a city where Russian ties tradition-ally run deep, Mr. Saakashvili has firmly established himself as the most popular governor in living memory. ‘Saakashvili selfies’ are the height of fashion among Odesa high society, and he is regularly mobbed in the street by members of the public eager to show their support for someone who actually seems to share their hunger for change. Mr. Saakashvili’s crusading style has also earned him new enemies. The recent mayoral elections in Odesa demonstrated the limits of what he can achieve through strength of personality alone. His candidate for mayor, the US-educated Sasha Borovik, emerged late in the race as a strong chal-lenger to incumbent Gennadiy Trukhanov, but was ultimately thwarted amid accusations of widespread vote-rigging. Mr. Saakashvili complained that his candidate was denied access to all but two of Odesa’s thirty TV channels and had faced opposition from a broad coalition of interest groups tied to the existing Odesa elite. This mayoral setback is unlikely to prove fatal to the Saakashvili Revolution, but it served to illustrate the scale of the challenge he faces. As President of Georgia, he had control over state budgets, untrammeled access to the na-tional media, and could call on the support of the police and security servic-es. In his new role as unelected Odesa Governor, Mr. Saakashvili has none of these advantages and finds himself forced to rely largely on his fame and public popularity. He compensates by being everywhere at once and living up to his previous Georgian nickname of the ‘Energizer Bunny’.

President Poroshenko’s boldest appointmentMany observers regard the appointment of Governor Saakashvili as President Poroshenko’s boldest move. Some felt that the choice would backfire disastrously, given Odesa’s historic links to Russia and the city’s ambivalent attitudes towards Ukraine’s Euromaidan Revolution. Odesa occupies a special place in the Kremlin’s vision of a wider ‘Russian World’ beyond the borders of today’s Russian Federation. Identified as one of eight Ukrainian cities ripe for separatist takeover during the Kremlin’s ‘Russian Spring’ campaign following the seizure of Crimea, it was the scene of deadly clashes in May 2014 that left dozens dead. Despite these tensions, the city failed to rise in support of Putin’s vision of ‘Novorossiya’ and the separatist threat has since subsided. Security remains an issue: although far from the front lines in east Ukraine, Odesa has been the scene of regular bomb blasts targeting

Ukrainian military support groups. Nevertheless, the days when a Rus-sian takeover seemed imminent are long gone. Ultimately, local identity is far more important to Odesites than Russian imperial nostalgia, and war is seen as bad for business in this most mercantile of port cities. Governor Saakashvili often speaks out against the continuing Kremlin threat to Ukraine, but in his current role as regional administrator, his real enemies are closer to home. As the recent mayoral elections demon-strated, his reformist agenda has placed him in direct confrontation with a powerful alliance of vested interests that is deeply entrenched in every aspect of Odesa society. So far, the reformist gains have been small but symbolic. American-style patrol police now cruise the streets of Odesa (thanks largely to the efforts of fellow Georgian reformer Eka Zguladze at the Ukrainian Interior Min-istry), while Governor Saakashvili recently opened Odesa’s first Public Administration Office – a one-stop-shop where Odesites will be able to complete formerly time-consuming bureaucratic procedures in a matter of hours. These two measures are both from his Georgian playbook, and both target the rampant everyday corruption that has fuelled two Ukrai-nian revolutions in the space of a decade. These innovations have been welcomed, but Governor Saakashvili’s over-all success will be measured by his ability to combat high-level corruption and improve the broader business climate. Ukraine regularly ranks as the most corrupt country in Europe, with Odesa often labelled the most cor-rupt city in Ukraine. This verdict may be overly harsh, but few would ar-gue that Odesa’s port facilities have been a nest of corruption for decades. The Saakashvili team are well aware of the central role played by the port in Odesa’s corruption schemes, and they are busy introducing revolution-ary changes to port customs procedures designed to bring Odesa into the digital age and cut clearance times from days to hours. If the plan suc-ceeds, it will generate huge budget revenues while attracting new traffic to the port. Corruption will become considerably more difficult. For the time being, most international investors are waiting to see if Gov-ernor Saakashvili can deliver on his bold promises. He has already suc-ceeded in generating significant international interest in his Odesa Revo-lution, but the mood of optimism he has generated needs to translate into concrete reformist gains before he is able to attract major international investment to the region.

33

Saakashvili’s Odesa Revolution

October 2015

Ever since the summer 2015 appointment of former Georgian President Mikheil Saakashvili as Governor of Odesa Oblast, the Ukrainian Black Sea region has emerged as a focus of the post-revolutionary reform impulse currently dominating the Ukrainian political landscape. Governor Saakash-vili’s strong reformist credentials have led many to predict that Odesa will serve as a regional model for the broader reform of the Ukrainian economy. These expectations have thrust Odesa to the top of the Ukrainian invest-ment agenda, with domestic and international businesses eyeing the port city and its environs as an attractive option in a time of political and eco-nomic uncertainty. Over the past few months, Odesa has become an es-sential port of call during official visits to Ukraine and a venue for regular business forums and investor conferences. The Black Sea Economic Forum, which took place in mid-October, was the largest international investment gathering to take place in the Ukrainian port city since the appointment of Governor Saakashvili. Over 400 partici-pants from a diverse range of businesses and international organisations attended the three-day forum, reflecting the wide range of investment opportunities Odesa has to offer. The event, which was organised by the Black Sea Development Foundation and the British Ukrainian Chamber of Commerce, offered expert commentary on issues including the develop-ment of Odesa’s strategically important port facilities, the prospects for the region’s agricultural industry, and the opportunities presented by Odesa’s still largely untapped international tourism potential.

Port potential and railway reform The forum demonstrated that, by eliminating customs delays using E-Gov-ernment to clear shipments in hours rather than weeks as Odesa Gover-nor Saakashvili has proposed, Odesa and Ukraine’s other Black Sea ports can become the quickest transit point for container shipping between Asia and Central and Eastern Europe. This would result in greatly expanded shipping through Odesa and other Ukrainian ports. The introduction of electronic customs procedures would also raise the prospect of virtually eliminating theft and corruption at the port, which has been a long-term problem. Ghinea Arminio Iorga, who is in charge of strategic and policy planning at the Black Sea Trade and Development Bank, added that the Ukrainian Black Sea region ports have great potential. However, in response to the

current decline in world trade, Ukraine’s ports need to reduce their customs fees to the levels charged by Romanian, Bul-garian and Turkish ports if they wish to be internationally competitive. On this basis, Odesa and the other Ukrainian ports have all the natural geographic advantages to suc-

ceed and are well placed to compete and again rank among Europe’s leading ports. Container shipping from Asia

would be able to gain convenient access to East-ern and Central European markets via Odesa, and could take advantage of Ukraine’s land borders with four EU member states. If Ukraine’s Black Sea ports become more attrac-tive to international container shipping, Ukraini-

an freight rail capacity will need to be greatly increased, which in Ukraine’s current difficult financial circumstances can best be achieved by develop-ing private freight rail capacity between Ukraine’s ports and Central and Eastern Europe. In addition, more transhipment container facilities will be needed to move containers between the Ukrainian and Central European gauge railway cars at the borders of Ukraine with Poland and with Roma-nia. These major infrastructure issues will need to be addressed if Odesa is to take full advantage of its geographical appeal.

Irrigation opportunities A range of international experts at the forum outlined how agricultural out-put in southern Ukraine could increase by over 400% via the development of more efficient irrigation infrastructure. Increasingly dry conditions in Ukraine due to climate change have served to create challenges and op-portunities for the agriculture business. While southern Ukraine could theoretically become the ‘California of Europe’ because the dry conditions in the region are ideal for harvesting crops, there also needs to be adequate water supply, which requires much greater irrigation infrastructure. Unlike southern California, Ukraine has the advantage of numerous massive riv-ers providing essentially unlimited water that could be used for irrigation purposes. However, the existing irrigation system in most of southern Ukraine dates back to Soviet times and has fallen into despair. It needs to be modernized and greatly extended to cope with expanding future demand. Farms and commercial banks can assist in the financial implementation of such infra-structure programs, but to do so quickly and effectively requires support from the World Bank and the IFC, as well as other international financial in-stitutions. If Odesa region is able to secure such support, southern Ukraine should prosper.

Attracting Odesa tourism Odesa welcomed a record number of tourists in 2015 and the Ukrai-nian port city is looking to build on this success. The potential for Odesa and the rest of Ukraine to develop a much greater tourism industry was discussed at the forum by Ivan Liptuga, Head of the Tourism Development Department of the Ministry of Economic De-velopment and Trade of Ukraine. As Odesa seeks to attract new visi-tors, particular attention needs to be paid to bringing more cruise liners to the Black Sea region. Experts believe Odesa should focus on becoming a standard destination on all Eastern Mediterranean and Black Sea cruises, joining the likes of Varna in Bulgaria, Constanta in Romania, and Georgia’s Batumi.As well as adding Odesa to international cruise liner routes, the city is also needs to attract a greater number of direct international flights to connect Odesa to cities across Europe and the Middle East. The city’s obvious tour-ism appeal was highlighted by the presence at the forum of representatives from a number of the world’s leading hospitality industry brands including the Hilton, Marriott, Radisson, and Wyndham hotel groups. This tourism potential will only increase if, as expected, Odesa becomes one of the fo-cuses of a renewed Ukrainian gaming industry.

Investors eye Odesa as Black Sea port city attempts to lead Ukraine’s reformist revolutionBlack Sea Economic Forum


About the author: Bate C Toms is Chairman of the Black Sea Development Foundation and the British Ukrainian Chamber of Commerce

35October 2015

od

esa inv

estmen

t foc

us

Mikheil Saakashvili has rarely been out of the headlines since his appoint-ment as Odesa Governor in mid-2015. The crusading Georgian reformer has made it his mission to transform the Odesa region into a model for the new Ukraine and a laboratory for the changes that will allow the country to transition from the post-Soviet to the European development track. He has employed all manner of eye-catching tactics to draw attention to his reformist drive, but none has raised more eyebrows than the appointment of untested 26-year-old Yulia Marushevska as the new head of the Odesa Port Customs Service. Unveiled as the city’s new customs chief in mid-October, Ms. Marushevska had previously spent some months on the Saakashvili team as Deputy Head of the Odesa Regional Administration. Her appointment as customs chief met with a considerable amount of disbelieve, sparking lively debate over her suitability for the role. Inevitably, Ms. Marushevska’s lack of experience in the field of customs clearance has been a key focus of this debate, as has her relatively tender age. Some have accused Odesa’s Georgian Governor of seeking to use her as a front to gain direct personal control of the port customs service. Others have called the appointment a PR stunt that owes more to Ms. Marushevska’s photogenic appearance and English-language skills than her credentials to take on the task of cleaning up what many believe is Europe’s most corrupt port. Such criticisms run the risk of significantly underestimating Yulia Marush-evska and the strength of her personal ambition. Originally from southern Ukraine, Ms. Marushevska was educated at Kyiv National University and at America’s Stanford University before shooting to overnight prominence during Ukraine’s Euromaidan Revolution as the star of a viral protest video entitled ‘I am a Ukrainian’. This simple but powerful video featured Ms. Marushevska speaking to the camera from the front lines of the Euromaid-an protest movement in downtown Kyiv and explaining, in disarmingly simple terms, what the protestors were hoping to achieve. The video proved a massive online hit, attracting millions of views and wide-spread praise from around the world, while also earning the backhanded compliment of a Russian smear campaign that branded it the work of the US State Department. Ms. Marushevska has since explained that she was moti-vated to make the video by a sense of frustration at the widespread ignorance about Ukraine among international audiences, and the failure of many out-side the country to understand what was driving the Euromaidan protests. Following the success of her ‘I am a Ukrainian’ video, Ms. Marushevska found herself very much in demand and began making public appearances across the world as a representative of the ‘new Ukraine’. She proved her-

self to be a media savvy and engaging spokesperson capable of articulating the complex issues at stake in the Euromaidan Revolution and the aspira-tions underpinning visions of a ‘new Ukraine.’ Ms. Marushevska’s obvious poise and confidence in front of the cameras led many to predict a future political career, but there was nevertheless a sense of shock when Governor Saakashvili appointed her as one of his Odesa deputies in summer 2015. This surprise was perhaps misplaced – Mr. Saakashvili him-self became a Georgian MP while still in his 20s, and was once Europe’s young-est elected head of state. He is someone who believes in giving young talent a chance to blossom, having achieved impressive results in his native Georgia by replacing older members of the political establishment with young and untried but untainted reformers. In this sense, Ms. Marushevska is a typical Saakashvili pick: a young and highly educated political novice complete with brimming self-confidence, English-language skills and Western mindset. Governor Saakashvili has defended the appointment of Ms. Marushevska as Odesa Port Customs Service chief by calling her lack of experience ‘an ad-vantage’. He has the support of President Poroshenko, who has praised Ms. Marushevska as a ‘talented woman’ with ‘very good organizational skills’. Crucially, this south Ukrainian native has no connections to the corruption that has long been the defining feature of Odesa Port, and will be able to approach her task as a relative outsider who enjoys the advantages of local knowledge. She takes over at Odesa Port as the city prepares to introduce new digi-talized customs procedures designed to speed up the customs clearance process while cutting out corruption. If these new measures are success-ful, Ms. Marushevska will benefit from considerable kudos, while her many detractors will be temporarily silenced. However, if implementation of the new customs system does not go smoothly, she may find herself singled out as a target by opponents of Governor Saakashvili’s entire reformist agenda. Business Ukraine magazine spoke to Ms. Marushevska about her meteoric rise to prominence, and asked whether she felt intimidated or inspired by all the criticism surrounding her appointment.

Your appointment has been greeted with a degree of disbelief due to your young age and lack of relevant experience in the customs service. What is your response to these criticisms?People with experience made Ukraine the poorest country in the region. Under professional people with plenty of experience, Odesa regional cus-toms became the worst, most corrupt in Europe. In my new position, I am essentially a crisis manager. My job is not to process the cargo coming

POSTER GIRLfor the

NEW UKRAINE

:


37October 2015

od

esa inv

estmen

t foc

us

into the port, but to implement reforms, to change practices and motivate people. CEOs of large corporations often do not know how to manufacture their company’s products, but they know how to motivate people. Gover-nor Saakashvili sees me as someone who can do that. I had an interesting and thorough immersion in this process while working in the regional ad-ministration as Deputy Governor. This is a continuation of that work in a different, somewhat more focused, application.

Odesa Port is widely seen as one of the most corrupt in Europe. What are your priorities as you seek to combat this deeply entrenched cor-ruption?I intend to change procedures and push for changes in legislation, since corruption in the port is systemic in nature. The existing corruption in the system has not developed by accident. It is a direct result of the system it-self. I want to simplify the procedures and make them transparent. I aim to create new customs procedures and practices that make clear how the new system is working. Customs must be a comfortable, predictable and easily understood service for business, not a barrier to business. This changeover will include reducing the size of our operation, creating new customs zones and making the customs service overall more efficient.

Odesa Port has the potential to become a major point of entry for Asian goods entering European markets. How do you plan to support this pro-cess?By simplifying the customs process, we will create the necessary steps and proper strategies to attract greater Asian and European trade to Odesa Port. My task is to create an even playing field for all who wish to utilise our customs system. It is important that customs become transparent and predictable according to clear and equal rules for every market participant.

You have spoken about engaging the support of the international com-munity in your Odesa Port reform efforts. Can you shed a little more light on these plans?We intend to implement the very best world practices, to engage profes-sional Ukrainian and International expertise, and to modify these best practices to meet with contemporary Ukrainian necessities and realities. At present, we are cooperating with USAID. They support us in the technical area and are helping to provide training for customs service personnel. I will work to attract and engage more international support.

Odesa Port is regarded by many as a symbol of the widespread alli-ances in today’s Ukraine between organised crime and corrupt state structures. In your new role at the port you will be entering into direct confrontation with these powerful forces. Are you concerned for your personal safety?I am aware of the risks but this is a critical aspect of the broader Ukrai-nian reform drive and the job must be done. I took on this job in order to implement the necessary reforms and I understand that no quantity of bodyguards will stop determined criminals. This is why I am focusing on doing my job. Many courageous people on the front lines in east Ukraine are risking their lives and sacrificing much more than I am in Odesa. My battlefield is reforms.

Many commentators have argued that the only hope for reform in Ukraine is to completely replace existing personnel at a wide range of state services. How big an overhaul do you envisage at the Odesa Port Customs Service?

First of all, I must emphasize that reforms are not only about changing or replacing people. If regular customs officers have salaries of just UAH 1300 per month, they will be very susceptible to corruption. Unless these cir-cumstances change, it really does not matter who you replace them with. Soon enough, you will probably find that the new officer is corrupt as well. The procedures must be simplified and automated to minimise the pos-sibility of corruption. Of course, if there is direct evidence of corruption, the person involved will be fired. We share the philosophy of zero tolerance towards corruption. The rules have changed and if someone cannot abide by the new standards then that is considered grounds for dismissal.

Your rise to national prominence in Ukraine has been extremely rapid. Did you have any reservations about joining Governor Saakashvili’s team in such a senior position?No, I didn’t have any doubts because I saw Governor Saakashvili and his team as a group of people that really want to change the country. That is the most important thing for me. The fact that he now believes I can do the Odesa Customs Service job is a great honour for me. I will do my best to live up to these expectations. I am proud to accept this challenge and to serve my country.

You have become a symbol of the new generation of young Ukrainians seeking to build what would essentially be a new country. How do you cope with the weight of expectation that this status brings?It encourages me and brings me great hope. It challenges me to work harder so that the new generation of Ukrainians will succeed. I think the situation we are facing now is actually an amazing opportunity for all of us. While other countries were established a long time ago, we are in a great position in that we can model our country as we want.

:


The International Turkish-Ukrainian Business Association (TUID) with more than 200 member companies is proud to invest in

the future of OdesaCem Murat Aytaç

TUID Chairman of the Board

The Odesa IT sector made headlines this autumn when Snapchat pur-chased Odesa-based IT company Looksery for a reported USD 150 million. This attention-grabbing deal was the latest success story for the Odesa IT industry, which has long thrived on the city’s international connections and cosmopolitan outlook together with its entrepreneurial traditions and im-pressive academic pedigree. Autumn also saw the foundation of the ‘Odessa IT Cluster’ – the latest re-gional cluster to emerge in Ukraine as the country’s vibrant IT sector con-tinues to consolidate. The Odessa IT Cluster currently includes 18 compa-nies employing nearly 3,000 people in the city. Coordinators of the project hope membership will rise to 30 companies by the end of the year. Even this would be a small fraction of the city’s overall IT industry, which fea-tures over 200 companies employing more than 8,000 people. With the Odesa IT sector booming but youth unemployment in the port city also on the rise, there are hopes that the new cluster will be able to attract more people to the IT industry. The participation of Odesa’s four largest universities in the cluster initiative will certainly help pro-vide the training required. There should be no shortage of candidates: average wages in Odesa currently hover below the USD 200 per month mark, while within the IT industry employees can expect to make an average of USD 1,500 per month. Business Ukraine magazine spoke to Odessa IT Cluster CEO Yulia Sulimova about the IT industry in Ukraine’s Black Sea capital and discussed why she sees education as the priority for the sector’s future growth.

What are the main functions of the Odessa IT Cluster?The key purposes of the Odessa IT Cluster are to organize, support, main-tain and implement IT sector development in the city and region in all ar-eas of education and business. Educational projects are our first priority. We are creating a new form of partnership and cooperation between busi-ness and education. The educational process will focus on practical tasks similar to real business projects. In this way, business will be able to affect the quality of education. Odesa has about 120,000 students, and we want at least 10% of them to obtain an IT education.

What are the unique selling points of Odesa’s IT sector?The city’s start-ups are our pride and joy: Kwambio, Augmented Pixels, Clickky, and, of course, Looksery, with its sensational recent USD 150 mil-lion dollar sale.

How will the Odessa IT Cluster differ from other Ukrainian IT clusters?

The main difference is that we aim to create a framework that facilitates the development of the IT sphere via the concept of co-competition. Outside of the cluster, compa-nies can and should compete with each other. Within the cluster, we unite to solve common problems.

We want to create an environment where no one can say: “this cluster represents top-level managers

promoting the interests of a few companies.”

Do you plan to develop ties with IT industries in other Ukrainian cities?Definitely. We have already made several steps in this direction. At the Lviv IT forum in early October, during a panel discussion with rep-resentatives of Lviv, Dnipropetrovsk, Cherkassy, and Kharkiv clusters, Odessa IT Cluster officials proposed uniting the efforts of these clus-ters to solve common problems and improve the development of IT in Ukraine as a whole.

Many Ukraine-based IT companies prefer to register abroad in order to avoid the burdens of existing Ukrainian legislation and market regulations. What steps would you like to see the Ukrainian government take to improve the business climate for the IT sector?The first step would be simplification of the system of registration and busi-ness management. We would also like to see the creation of attractive taxa-tion conditions where all market participants enjoy the conditions for busi-ness development. Research has shown that less than 0.5% of Ukraine’s workforce are employed in the IT sector, but they produce 3% of GDP. In other words, if our government encourages the development of the IT busi-ness in Ukraine, it will lead to an increase in jobs and GDP growth. Ukraine has a wealth of IT professionals, but demand is growing at such a pace that staffing shortages are a constant feature of the Ukrainian IT marketplace. What steps will the Odessa IT Cluster take to help bridge the gap and create a new generation of IT pro-fessionals with the right skills for the global marketplace?Our main task is to change IT education. We are starting to work with schools to teach pupils programming languages. Odesa universities and institutes are already conducting specialized courses for under-graduates where experts from different areas of the IT sector talk about their work and explain what skills are required to enjoy a good career in IT.We are also working to encourage companies to end the policy of working exclusively with graduates. Many undergraduates have the requisite skills and we try to highlight this. It is important to support entrepreneurial and innovative activities among the emerging genera-tion, and we are seeing more and more young Odesa students embark-ing on their first IT initiatives.

Ukraine’s IT industry is attracting increasing amounts of global attention. What can be done to generate greater international awareness of Ukraine’s IT potential?We need to maintain a constant presence in the global informational space. For example, in September, there was a big international IT conference in Odesa where our cluster was an information partner. The conference brought together over 600 participants from a range of different countries. Odesa can and must present itself on the global IT market as a city with a prominent and rapidly growing IT industry. The Odessa IT Cluster will participate in the Bal-kan and Black Sea ICT Clusters Network, which has 19 member clusters from nine countries. We are also currently conducting negotiations to participate in a large-scale conference in California.

New focus for Odesa IT industry aims to consolidate city’s reputation for world class programming Black Sea brainboxes create Odesa IT cluster


About the author: Yulia Sulimova ([email protected]) is the CEO of Odessa IT Cluster

od

esa in

ves

tmen

t fo

cus

New focus for Odesa IT industry aims to consolidate city’s reputation for world class programming


While much of the Ukrainian economy struggles to attract international invest-

ment, the country’s IT sector continues to forge ahead. An array of global industry big names and ambitious international startups have al-ready entered the Ukrainian IT sector, attracted by a winning combination of world class local programming talent and competitive rates. These international entries have joined a thriv-ing local IT industry that has emerged over the past decade as one of the key engines driving the growth of the Ukrainian middle classes. As Ukraine’s IT sector continues to expand, Ukrainian IT professionals are playing an in-creasingly prominent role in global internet in-novation. International investors are entrusting their Ukrainian partners with ever greater de-sign and development responsibilities, many of which have the potential to set trends and open new avenues throughout the industry. Syrian-Ukrainian businessman and philan-thropist Hares Youssef is part of this growing band of international IT innovators looking to utilize Ukrainian knowhow in order to translate original IT ideas into groundbreak-ing products for worldwide audiences. Mr. Youssef has collaborated with Lviv IT com-panies on a number of projects over the past seven years. Together with his Lviv partners, he is currently finalizing the preparations for an online virtual currency that he hopes will revolutionize the way the whole world com-municates through social media.Hares Youssef ’s Ukrainian connection stretches back to the twilight years of the Brezhnev era, when he left his native Syria for Kyiv as part of a student exchange pro-gramme that reflected the close relations the Syrian government of the time enjoyed with the Soviet Union. He returned to Ukraine in the early 1990s, building up a business em-pire with interests in a range of Ukrainian in-dustries. His eponymous HARES Group Hold-ing has since expanded to include assets and interests in a number of countries, but Mr. Youssef has maintained his ties to Ukraine.As the Syrian-born businessman has branched out into the IT sector, he has capitalized on

this association with Ukraine to develop pro-ductive partnerships with a number of IT companies in Lviv – considered by many to be the unofficial capital of the country’s boom-ing information technology industry. His lat-est innovation is the ‘Golden Hearts’ virtual currency, which will allow social media users and other online audiences to make charitable donations and send monetary gifts across the internet via a fully convertible virtual currency backed by physical gold and pegged to global commodities market prices. Mr. Youssef is working on the ‘Golden Hearts’ initiative with the Lviv office of London-based IT company YouTeam. The electronic currency uses the sdk.finance engine developed by Cyberforce –

a Czech-Ukrainian fintech development team. He has previously teamed up with YouTeam on a number of IT projects including the ‘Panda Club’ indoor positioning app (in partnership with Devabit) and ‘Hubbub.fm’ voice social network (with Intellias). A Ukrainian citizen with a home in Kyiv as well as a residence in the Austrian capital Vienna, Mr. Youssef sees Ukraine’s IT sector as one of the country’s most competitive industries and a flagship for the emerging Ukrainian knowledge economy. Business Ukraine magazine sat down with the social media innovator to discuss vir-tual currencies, Ukrainian IT expansion and the future direction of the global communications revolution.

Hares Youssef aims to engineer a more value-based social media communication philosophy

Syrian social media innovatorbanking on Lviv IT excellence

Photo: Joseph Hunwick

Your business career began in traditional industries such as metallurgy, but much of your attention now focuses on IT endeavours. What attracted you to the world of social me-dia innovation? I genuinely love developing my ideas in the IT sector. It provides me with lots of answers to philosophical questions I have about how hu-mans relate to each other and to the natural world as a whole. I see the internet as the only medium capable of promoting the key values of communication, transparency, and sharing – sharing ideas, sharing information, sharing emo-tions, sharing resources, and sharing money. Throughout my life, I have always been inter-ested in the idea of a common consciousness for all humanity. The world contains so many different nations, different languages, and dis-tinct groupings, yet there are ideas and emo-tions that unite us all. Internet communication is still in the early stages of development, but we are already seeing the formation of this common consciousness, which is capable of transcending the old borders and barriers. In IT terms, today’s internet fulfills the function of a common server for all humanity. Each and every one of us has access to this server. I find it very exciting and inspiring to be part of this historic process, and to contribute personally to the evolution of this common consciousness.

Social media has become a core component of our everyday lives in a very short space of time. What do you see as the shortcomings of today’s social media environment, and what is your vision for the future of social media?The values of the market are far too dominant in today’s social media. The owners of social media platforms treat users as raw material. We call them users, but in reality they are ac-tually being used. They need to become more empowered, to become stakeholders in the places where they spend their time and invest their energies. My ultimate goal is to help foster a culture of transparency and promote the con-cept of sharing. My philosophy is, ‘the more you share, the more you get’. The ‘Golden Hearts’

concept is a gateway that can bring us towards this philosophy of sharing. As a philosophy, it is perfectly suited to the almost limitless possi-bilities of the internet. It can take us beyond the old models of communication and interaction that first developed and evolved in the street.

The success or failure of social media proj-ects depends almost entirely on their ability to attract users. Which demographics do you see as the primary participants in the ‘Gold-en Hearts’ initiative?Initially, the ‘Golden Hearts’ concept will pri-marily be of interest to people with large num-bers of online followers and to female social media users, who generally place greater value on sincere displays of affection. Sending a ‘Gold-en Heart’ to a lady will mean more than simply making a more conventional money transfer. ‘Golden Hearts’ represent solid gold, and they can also include personalized messages. This will allow for more emotional input and inter-action. As people share their ‘Golden Hearts’, they will share their emotions. Charities will also benefit from the ability to receive direct online donations. We expect to secure partner-ships with a number of international charities who will then be able to receive ‘Golden Hearts’ donations worldwide. The overall objective is to create a platform that helps people to express themselves more directly, allowing them to show their appre-ciation without the interference of corpora-tions or the market. There is a need for a more meaningful set of values governing internet communication. At present, all we have are Facebook ‘likes’, which are essentially empty gestures despite their popularity. With ‘Gold-en Hearts’, you will be able to show your sup-port transparently and materially in a way that will be noticed by others.

You have business interests across the globe but choose to work with Ukrainian IT compa-nies. What factors influenced your decision to opt for Ukrainian IT development partners?Prior to the ‘Golden Hearts’ project, I had

already developed a range of startups with Lviv IT companies over a number of years. The people I work with in Lviv are extremely skilled and are able to translate my concepts and ideas into functioning IT solutions. They are diligent workers who have the ability to focus on core ideas. Many major American and European IT com-panies now have offices in Ukraine, but it makes more sense for me to work directly with Ukrainian companies. I own shares in American IT companies but I choose to coop-erate with Lviv companies because it is easier for me to find a common language with them and communicate my ideas.

How does your experience with Ukrainian IT companies compare to your interaction with IT professionals in other countries?IT professionals are a separate national-ity. Wherever they come from, they are all the same. I love this new type of people. If you go to Silicon Valley, you will see that there are no na-tional or language barriers. You will find Ameri-cans, French, Ukrainians and South Americans working side by side and communicating in the common language of technology. Differences still exist from country to country in terms of access to capital and in management capabilities, and this is where American com-panies continue to excel. I will be working with American partners on the global marketing of ‘Golden Hearts’ following the official project launch at the end of 2015.

Your ‘Golden Hearts’ initiative is global in scope. What role will associations with Ukraine play in the global promotion of the ‘Golden Hearts’ concept? I hope it will bring additional prestige to the Ukrainian IT market. From my point of view, as-sociations with Ukrainian IT can only be a posi-tive thing. The Ukrainian IT sector is already highly respected. It enjoys wide recognition internationally. I am convinced this reputation will continue to grow in the coming years. In the IT world, ‘Made in Ukraine’ is a strong brand.

it secto

r

43October 2015

“The Ukrainian IT sector is already highly respected. It enjoys wide recognition

internationally. I am convinced this reputation will continue to grow in the coming years.”

The Ukrainian agriculture industry has been one of the best-performing sectors of the national economy over the past two turbulent years, and many analysts expect this strong performance to continue. As Ukraine seeks to integrate into European and world markets, modernization and globalization trends will see more international investment into the agri-culture sector, as both multinationals and entrepreneurs look to capitalize of Ukraine’s fabled breadbasket potential to meet the world’s growing de-mand for all kinds of foodstuffs. The EU-Ukraine Association Agreement, due to be fully implemented from 1 January, 2016, will eventually lead to the alignment of Ukrainian farm pro-duce with EU standards, opening up entirely new access to the world’s most attractive markets. At this stage, it is already clear that Ukraine’s ‘black earth’ is the most attractive feature the country has to offer for a large portion of potential international investors. Ukraine’s agricultural potential is virtually unrivalled, but if the country is to make the most of the coming opportunities, creating better infrastructure and greater export capacities will not be enough. Ukrainian farmers and ag-riculture sector managers must also introduce modern business methods at every stage of the production process in order to make the sector truly com-petitive in a global sense.

Ukrainian agriculture goes globalUkrainian agricultural exports to Russia have long been hostage to the geo-political climate, often falling victim to bans and restrictions at times of politi-cal tension. Many in the Ukrainian agriculture industry therefore predicted impending disaster when bilateral relations plummeted in the wake of the Euromaidan Revolution and Russian annexation of Crimea. Instead, 2014 figures demonstrate the emergence of a welcome and highly positive trend – the diversification of Ukrainian agricultural export markets. The EU market is not yet fully accessible due to the strict conditions and standards required by Brussels, but Asian, African and Middle Eastern mar-kets have proved particularly welcoming destinations for Ukrainian imports over the past eighteen months. In 2014, Ukraine ranked as the fourth largest grain exporter in the world, with the majority of these grain exports going to China, South Korea, Egypt, Israel, Iran, Tunisia and Turkey. The growth in agricultural exports made the Ukrainian agrarian industry a key export sec-tor for Ukraine and a vital source of scarce foreign currency transactions. It succeeded in countering the declines in such traditional export powerhouses as metallurgy, mechanical engineering and the chemicals industry.

Ukraine grows in confidence on international markets

The figures for the past year demonstrate that Ukraine is competing on international markets with increasing confidence against the likes of the USA, Canada, France, and the Netherlands. Ukraine currently ranks first globally in terms of sunflower

seed oil export, third in terms of corn export, and ninth in terms of wheat export.

It may seem that wheat is the grain pre-

dominantly cultivated in Ukraine, but this is not actually true. The grain cultivated in highest amounts is corn. In 2013, Ukraine manufactured 30.9 million tonnes of corn and 22.3 million tonnes of wheat. This trend was maintained in 2014, though the difference between quantities was reduced. In 2014, Ukraine cultivated 24.1 million tonnes of wheat and 28.5 million tonnes of corn. Compared to 2013, the situation in other Ukrainian agricultural sectors did not change in its essentials in 2014. Poultry farming and livestock farming products remained something of a weak link. In 2014, the na-tional eggs total was 1.2 million tonnes (the same as in 2013), while 11.2 million tonnes of milk and dairy products were produced com-pared to 11.5 million tonnes in 2013. Positive dynamics were witnessed in meat and meat by-products manufacture, with 3.3 million tonnes in 2014 compared to 1.2 million tonnes in 2013. Vegetable and fruit pro-duction remained almost at the same levels year-on-year, with a minor decrease compared to 2013 of 34.1 million tonnes (35.1 million tonnes in 2013). Potatoes made up almost 70% of the total vegetable and fruit volume cultivated in 2014.Meanwhile, there has been a significant positive dynamic in the production of industrial crops in Ukraine. In 2014, this sector grew by 4.8 million tonnes to 31.7 million tonnes versus the 2013 total of 26.9 million tonnes. This trend is primarily due to increases in sugar beet production from 10.7 million tonnes in 2013 to 15.6 million tonnes in 2014.

Who will feed growing global population?This expanding output has come at a particularly fortuitous time. With the global population growing at a steady rate and expected to reach nine billion within a decade, the world is currently experiencing an unprecedented rise in demand for foodstuffs. As populations grow and as climates change, more and more countries will struggle to feed themselves – even if they are them-selves major agricultural producers. China is a top five global grain producer, but is also one of the largest importers in the world. These conditions are ideally suited to Ukraine’s strengths as an agricultural producer and exporter located at a key geographical crossroads with rela-tively convenient access to European, Asian and Middle Eastern markets. However, if Ukrainian agricultural enterprises are to make the most of this situation, it is imperative that they make the best use of global best practice and implement the IT solutions and management techniques that are bring-ing increased yields and greater efficiency elsewhere. This will be good for the Ukrainian economy; it will also help to attract much-needed international investment to the sector from all over the world.

Ukrainian agricultural sector development modelsCurrent business conditions in the Ukrainian agricultural sector are forcing producers to seek new development models. One of the key focuses is great-er management efficiency. The main challenge most Ukrainian agriculture business owners face today is not boosting production but rather preparing for changes and revolutionary ideas – both within the industry and across the markets that dictate demand. They must seek out optimal management

Agriculture industry finds new partners but producers face management modernization challenge

Ukrainian breadbasket goes global


About the author: Sergey Syzonenko is head of business development advisory at Baker Tilly Ukraine

Agriculture industry finds new partners but producers face management modernization challenge

models for human resources, money flows, and key company processes, while being flexible enough to adapt to rapidly changing situations.Ukrainian agricultural enterprises have almost everything they need to as-sure a successful future for themselves and for their country. Everything but optimally built organizational structure, that is. The agricultural busi-ness is not only about resources. Transforming agriculture into a true busi-ness requires the development of internal systems to manage staff interac-tions and handle issues as diverse as motivating workforces and ensuring compliance with company standards. Enterprises that wish to be success-ful in today’s global marketplace need to implement automated manage-ment systems and IT technologies. To make this happen, company owners and managers have to lead by ex-ample. The main goal of any business is to achieve the maximum possible economic efficacy, but many Ukrainian agricultural firms remain stuck with unproductive practices that have taken root over many years, preventing the company from becoming genuinely competitive. In such circumstances, revolutionary changes are required. Some owners create obstacles by attempting to manage the business from a distance while seeking to maintain control. In such instances, superficial changes will have no impact, and very often the owner’s senior manage-ment may themselves not be prepared for fundamental changes. It is cru-cial to overcome internal resistance to the introduction of new business models and it is the responsibility of owners to see that this happens. In many cases, agricultural enterprise owners want to transform man-agement models but are themselves unprepared to change anything in their own relations with their team. Accepting the necessity of radical changes is a major issue for all employees, and the owner must initiate changes themselves. This process needs to begin with approaches towards communication and zones of responsibility. All too often, owners demand high levels or respon-sibility from their subordinates but do not meet their own requirements themselves. These double standards cannot exist in a modern business en-vironment without leading to a loss of trust in the leader. There is no place for management through coercion in the world of modern business. Up-to-date and effective management models depend upon the ability to influ-ence positively through the leader’s intellectual input and values.

Introducing new corporate thinkingAs well as fostering modern management models, agricultural enterprise owners also need to assess whether they are sufficiently specialized in their production and how they approach the issue of working towards the needs of specific target markets. Risk management is also an important factor that is often missing from existing business models. A holistic approach is re-quired for success, despite the many advantages that Ukrainian agricultural enterprises enjoy. Many agriculture industry professionals recognize the need for man-agement rethinks and there has been a marked rise in demand in Ukraine for the services of professional consulting companies capable of offering complex management solutions for the agriculture sector. Consultants are seen as coaches in management organization who can offer the necessary solutions. While this is true to a certain degree, con-sulting companies cannot actually impose new standards or tell compa-nies exactly how to run their businesses. They can analyze and advise, but nothing will be achieved unless the owner is committed to imple-menting real change starting with themselves. Consulting companies can create a high-powered agricultural machine, but only the owner can start the engine.

ag

riculture

45October 2015

Ukraine’s agriculture industry is fast becoming the flagship sector of the national economy, attracting international attention for all the right reasons at a time when Ukraine is making more headlines for the economic woes affecting the country. This success is spilling over into other areas as Ukrainians seek to taken advantage of the positive vibes emanating from the agriculture segment and provide international audiences with more information about the sector.The latest company to achieve international success with a focus on the Ukrainian agriculture sector is Kyiv-based content market-ing company Top Lead, which won a prestigious international award this autumn for a series of infographics developed to provide in-sight into the Ukrainian agricultural industry. Top Lead took top place in the ‘Best Infographics Series’ at the 2015 Content Market-ing Awards organized by the Content Marketing Institute. The award-winning series, which was produced in partnership with Baker Tilly, Latifundist media and Raiffeisen Bank Aval, was the work of Top Lead’s team of graphic designers, some of whom have

been working in the field of content design for two decades. Like all successful infographics concepts, the winning designs presented complex statistics and multilayered interrelationships in a visually attractive and understandable manner. Top Lead CEO Stanislav Shum told Business Ukraine magazine that he regards the award as a major breakthrough for the Ukrainian content marketing industry as a whole. “It was midnight when I first received notification that we had won the award,” he recalls. “Ini-tially I was stunned and literally couldn’t catch my breath. But when I had read through the whole notification, I found myself letting out a roar of celebration! It is a huge achievement as it is the first time ever that a Ukrainian company has received international recogni-tion at this level in the content marketing field.”To mark this landmark achievement, Business Ukraine magazine this month presents a number of Top Lead’s agriculture infograph-ics from the recently released 2015 series, which aims to build on the award-winning success of the 2014 series.

Kyiv company receives international recognition for innovative graphic design approach

Award-winning Ukrainian


Wheat

Corn

Barley

Sunflower

SoyColza

Sunflower oil

Milk and dairy productsMeat andby-products

Eggs

Exportrevenuemillion USD15

832

338

187

370

3

845

44

2 29

3

3 35

6

1 190 591 988 1132 357 402 199 2 0373 871 1 675

9 043 4 166

10 10274

24 10210 544

28 45217 557

PRODUCTION,THOUSAND

TONS

EXPORT,THOUSANDTONS

4 284 3 700

4 80

0EXPORT OF AGRICULTURAL PRODUCTS AND CORRESPONDING REVENUES

agriculture infographics

EXPORTERS IMPORTERS

CORN

WHEAT

BARLEY

RICE

OTHERGRAINS

USA

UKRAINE

FRANCE

CANADA

ARGENTINA

INDIA

JAPAN

CHINA

SAUDIARABIA

MEXICO

ITALY

ALGERIA

49,815,03

2,6

3,53,55

8

0,1510,41

1,14

4,687,53

1,11

4,2

0,015

0,957,1

1,5

2,975,42,56

0,14

5,76

2,93

17,6

5,8

20,4

24,1

15,9

1,92,7

3,6

0,7411,2

1,7

5,8

5,10,4

10,5

4,5

25,6

11,2

THE WORLD’S GRAIN CROPS BIGGEST EXPORTERS AND IMPORTERS, MILLION TONS

Wheat

Barley

Corn

Sugar-beet

Sunflower

Soy

Colza

Potato

Vegetables

Fruits/berries

The general structure of crops sowing in Ukraine

1 614

394

1 968

1 110

640

271

1 567

321

1 094

1 610

652

593

1 4921 764

1 529

498

951

764

1 590

1 325

1 1091 097

419

774

Chernihiv Oblast

Chernivtsi Oblast

Cherkasy OblastKhmelnitsky Oblast

Kherson Oblast

Kharkiv Oblast

Ternopil Oblast

Sumy Oblast

Rivne Oblast

Poltava Oblast

Odessa Oblast Mykolaiv Oblast

Lviv Oblast

Lugansk Oblast

Kirovohrad Oblast

Kyiv Oblast

Ivano-Frankivsk Oblast

Zaporizhia Oblast

Zakarpattia Oblast

Zhytomyr Oblast

Donetsk Oblast

Dnipropetrovsk Oblast

Volyn Oblast

Vinnytsia Oblast

22%Wheat

19%Sunflower

11%Barley

17%Corn

13%Fruits/berries

7%Soy

5%Potato

3%Colza

2%Vegetables

1%Sugar-beet

REGIONAL CROPPING MAP


Noble GroupGlencore

Pologivsky Oilextraction Plant

Bunge

Vioil

MHP

Zaporіzky olіyazhirkombіnat

Cargill

Creative Group

Kernel

Top 10 Ukrainiansunflower oil producers

Dynamics of sunflower oil production, thousand tons 0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2015(forecast)

2014

2,50%2,80%3,70%4,90%

7%7,10%8,10%9,30%10,30%

26,10%

Bessarabia-V 76,3

Serna 78,0

D&A Evolution 83,8

Khar

kov

fat p

lant

134

,0

F

-F

1

75,3

190,3 Myronivsky PGFS

335,1 Cargill

365,8 Creative Group

76,2

Agr

oint

er

651,

1 Ke

rnel

Top 10 Ukrainiansunflower oil exporters

PRODUCTION DYNAMICS AND KEY UKRAINIAN PRODUCERS OF SUNFLOWER OIL

23,7 Potato

9,6 Vegetables

2,0 Fruits & Berries 0,4 Grapes

10,1 Sunflower

3,9 Soy

2,2 Colza

24,1 Wheat

9,0 Barley 0,5 Rye

0,6 Oats

0,2 Buckwheat

0,1 Rice0,2 Millet

28,5 Corn

11,23 Milk

2,36 Meat (in live weight)

1,19 Eggs

4,23 Sunflower oil

5,60 Beer

2,24 Flour

1,34Bread&Bakery

products

2,11 Sugar

63,8

Grain cropsand

leguminous crops 34,1

Fruits and vegetables

31,7

Forage crops

YIELD OF MAJOR AGRICULTURAL CROPS, MILLION TONS

15,6 Sugar-beet

ag

riculture

49October 2015

opin

ion

At the turn of the millennium, George Soros famously quipped: ‘Ukraine gives corrup-tion a bad name.’ Two anti-corruption revo-lutions have rocked the country since that memorable one-liner, but there has been al-most no progress in the actual fight against corrupt practices. As a result, Ukraine re-mains a land of unfulfilled potential with an economy perpetually gasping for air under the dead weight of a dysfunctional state. We are now well into the latest cycle of failed reforms and the mood of ‘Ukraine fatigue’ is becoming ever more tangible. After 25 years of false dawns, many fear this will be the last time anyone is prepared to listen. Will chronic corruption kill off the dream of a European Ukraine?

Corruption is more dangerous than the KremlinUkrainians are certainly not in denial over the scale of the challenge. On the contrary, public opinion polls consistently identify corrup-tion as the greatest problem facing the coun-try. The international community has also made its position clear. Various prominent figures have declared that unless corruption is curbed, international support for Ukraine will evaporate. All in all, few would argue that corruption is a bigger threat to Ukraine’s well-being than Vladimir Putin and his little green men. So why is it proving so very difficult to make any headway?Ukrainians are no more genetically predis-posed to corrupt practices than any other na-tionality. Indeed, anyone who has worked in Ukraine or run a business here will likely tes-tify that Ukrainians tend to be highly profes-sional and hardworking colleagues who, on a personal level, are often extremely trustwor-thy. There is actually a surprisingly strong work ethic in Ukraine that enables the coun-try to continue functioning despite decades of crippling corruption. Somehow, things still get done. The problem is essentially one of accepted cultural norms and deeply entrenched prac-tices. Corruption has literally penetrated every sphere of Ukrainian life and become the norm. It is so ubiquitous that those who don’t par-ticipate are often regarded as fools rather than paragons of virtue. As one Ukrainian oligarch

put it, only the weak pay taxes. How can this vicious circle be broken? There is consensus that only revolutionary approaches have any hope of succeeding. One such ap-proach would be mass arrests and criminal proceedings against thousands of officials. This would no doubt be cheered in some quar-ters, but it would also be hugely destabilizing and likely open a Pandora’s Box of revelations that could tear the country apart.

Pay kopeks, get corruptionA far more productive approach would be to focus on prevention. The ludicrously small salaries paid to state employees are arguably the key factor driving institutional corruption. Even by Ukraine’s modest standards, state sal-aries are pitiful. This is a recipe for guaranteed endemic corruption, and it has been stewing for decades. If you pay kopeks, you get corrup-tion. It is as simple as that. There have been some efforts to address this problem – notably with the introduction of the new patrol police, who receive salaries more than three times higher than the old force. This policy has proved successful, but it does not go nearly far enough. State salaries need to increase by a factor of at least ten, and huge numbers of state employees need to benefit. The cost of such increases would run into the billions of dollars per year, making it well be-yond the means of the Ukrainian state.

International aid needed to bridge budget gapThe international community needs to step in and set up a fund to pay for revolutionary in-creases in the salaries paid by the Ukrainian state. The country’s international partners are already deeply invested in Ukraine’s reform drive. All recognize the pivotal role of the fight against corruption. A fund to finance the trans-formation of Ukraine’s state salaries to Euro-pean levels would be hugely expensive, but it might end up proving cheaper than allowing Ukraine to carry on as it is, while pouring mon-ey into a bottomless pit of corruption. It would also reduce the risk of senior officials cream-ing off aid into Swiss bank accounts. Paying Ukrainian officials reasonable salaries would create a vast army of anti-corruption allies with a personal interest in conquering corruption and increasing state revenues to levels capable of sustaining their own radically inflated incomes. Within a few years, the burden of payment would have to return to the Ukrainian authorities, creat-ing the perfect incentive for state workers at every level to make sure the revolutionary transition to reasonable European salaries was a success. As a result, Ukraine would gain a state apparatus that actually functions, and the international commu-nity would get a partner it could finally rely on. The price would be colossal, but if viewed from the broader geopolitical perspective, few would argue that it would be well worth paying.

51

The problem of endemic corruption will remain until state employees receive reasonable payStupid state salaries cause corruption

October 2015

Euromaidan anniversary: where would Ukraine be today without 2013-14 mass protests?What if Euromaidan hadn’t happened?


November will see the second anniversary of Ukraine’s Euromaidan protests, which erupted in autumn 2013 over the Yanukvoych government’s sudden U-turn away from the signing of an Association Agreement with the European Union. What began as modest street protests spiraled into a mass movement after the authorities unleashed riot police against protesters, with millions eventually taking part in rallies as a hardcore of activists occupied government buildings and set up a sprawling tent city in the middle of Kyiv.By early 2014, an initially peaceful protest movement driven by demands for closer ties with the European Union had become a deadly showdown between a regime fighting for its life and activists determined to secure a European fu-ture, whatever the cost. The first protester fatalities occurred in January and the violence reached a bloody climax in late February, with dozens of protest-ers killed in downtown Kyiv. In the wake of the massacre, President Yanukovych fled the country and reap-peared in Russia, where the Kremlin-controlled mainstream media began pro-moting claims that he had been ousted in a ‘fascist coup’. Within days, Russian troops had invaded and occupied Ukraine’s Crimean peninsula. These same unidentified Russian troops would reappear in east Ukraine weeks later, plung-ing the region into a conflict that continues to smolder.

Little to cheer on Euromaidan anniversaryAs the second anniversary of the Euromaidan protests approaches, Ukraine is experiencing a number of major challenges including war weariness, a severe economic recession and widespread public exasperation at the lack of prog-ress to implement the anti-corruption reforms that served as the key demands of the protesters. Few will be in the mood to celebrate the Euromaidan anniver-sary, while many are inevitably asking whether the country would have been better off if the protests had never taken place at all. It would be hard to argue that the past two years of war, instability, and eco-nomic crisis have been a positive period in Ukrainian history, but the counter-point to this position is the argument that the Yanukovych government was

clearly locked into an authoritarian trajectory that made some kind of funda-mental confrontation inevitable.

Ukrainian national identityOthers have pointed to the historic gains to come out of the Euromaidan Revo-lution, such as the consolidation of Ukrainian national identity that has taken place across the country over the past two years – especially in response to Russian aggression in Crimea and east Ukraine. Millions of Ukrainian citizens who had previously harbored ambiguous feelings towards Ukrainian national identity have embraced a new and inclusive sense of Ukrainian unity rooted in European ideas of democracy that transcends narrow ethnic and linguistic interpretations. A vast volunteer movement has sprung up, fueling a military miracle that suc-ceeded in preventing Russian proxy forces from breaking out of an enclave in the far east of the country. An entire generation has mobilized, with implica-tions that will reverberate at the grassroots level for years to come.Ukraine has also emerged from Russia’s shadow on the global stage, gaining unprecedented international attention after decades in the shadows. Even the least informed of observers now knows that Ukraine is not part of Russia, as many outside observers had long incorrectly assumed.

Tribunal of history yet to deliver verdictThese largely unquantifiable gains may turn out to be profoundly important, but there is already no doubt that they have come at a terrible cost. Was it worth it? The tribunal of history has yet to deliver its verdict, and much will depend on the ability of the current and future leadership of Ukraine to live up to the ideals that motivated millions of ordinary Ukrainians to take to the streets in the historic winter of 2013-14. At present, the outlook is not particu-larly optimistic. To mark the anniversary of the protests, Business Ukraine magazine invited veteran Ukraine analyst Taras Kuzio to consider where Ukraine would be if the

opin

ion

53

+38 (044) 490 7600www.amcenters.com

COMPREHENSIVE AND ACCOUNTABLE PEDIATRIC CARE FROM DOCTORS WE KNOW AND TRUST — AMC

Euromaidan Revolution had never taken place. He reaches the conclusion that a protest movement of similar proportions would inevitably have happened at a later date, and would likely have taken place during scheduled presidential elections in early 2015. Taras Kuzio: If Ukraine’s then-President Viktor Yanukovych had gone ahead and signed the EU Association Agreement in November 2013 at the European Union Eastern Partnership summit meeting in Vilnius, he might still be in pow-er today as he could have boosted his dropping popularity. But it was not to be. Instead, Russian President Vladimir Putin knew of Yanukovych’s fondness for money and bought him off, hoping he would become Ukraine’s ‘Kadyrov’. The plan was destined to fail. Yanukovych never understood that Ukraine is not the Donbas, and Putin never understood that Ukraine is not Little Russia. If the EU Association Agreement had been signed in the autumn of 2013, there would obviously have been no Euromaidan protests, and Ukraine would have held presidential elections in January 2015, which Yanukovych would have been determined to win at all costs. Even with the boost provided by the sign-ing of the EU Association Agreement, this would have required him to use far more election fraud and thuggish vigilantes than he used in the 2004 elections that provoked the Orange Revolution. If he had not signed the EU deal, even more extreme measures would have been required to win the 2015 vote. Yanukovych’s popularity in 2004 was comparatively high as he had been a rela-tively popular Donetsk governor. His criminal past was less well known, he was largely unknown on the national stage, and Ukraine was experiencing robust economic growth. At the time of the scheduled presidential vote in 2015, eco-

nomic growth would have been sluggish at best, or the country would have been in recession. Yanukovych would have had low popularity ratings even if he had generated some patriotic support from signing the EU Association Agreement. How could he have hoped to increase his popularity from 20%-30% to over 50% in order to win the second round of the elections? His opponent might well have again been Yulia Tymoshenko, who thrives on the kind of political competition where she can mobilize protesters and use vit-riolic rhetoric against her opponents (conversely, in 2014 Tymoshenko had no chance of victory against the centrist and soft-spoken Petro Poroshenko). With Yanukovych fighting for his political future and Tymoshenko rabble rousing, the odds are that a popular revolution would have been provoked. In other words, the Euromaidan uprising would still have taken place – but it would have happened a year later. Therefore, to argue that Russia’s annexation of Crimea and hy-brid war in the Donbas were caused by a ‘putsch’ or ‘coup’ is misplaced, as Russia would have acted in the same manner in spring 2015 in re-sponse to similar popular protests against the Yanukovych government. Neither Pu-tin nor Yanukovych accept the right of their people to protest against electoral fraud, and both firmly believe coloured revolutions are Western conspiracies.

About the author: Taras Kuzio is the author of ‘Ukraine. Democratization, Corruption and the New Russian Imperialism’ (Praeger, 2015)

October 2015

About the author: Paul Niland is a long time Kyiv resident. He has written extensively about Ukraine’s recent history. He is also the founder of Statement Email, a charitable crowd funding platform

opin

ion

55

Flawed local elections highlighted democracy deficit but cynicism will not help build a better UkraineIn defence of Ukraine’s imperfect democracy

Ukraine’s recent local elections were imperfect. Many Ukrainians found themselves denied their democratic right to vote because they were located or registered in the temporarily occupied regions of Crimea and the eastern Donbas. Others living close to the front lines of the conflict zone found them-selves similarly disenfranchised for wholly understandable yet regrettable reasons. It is simply too dangerous to hold elections within range of enemy artillery. The election also attracted a few allegations of vote rigging, bribery, and other irregularities that will be all too familiar to anyone with experience of elections in the post-Soviet world. Despite democracy gains over the past decade, this still applies to Ukraine. While there are countries that have de-veloped more or less foolproof systems for the conduct of transparent elec-tions, these models have yet to be adopted in Ukraine. More should be done to improve the election process and make sure that all citizens can vote and all votes count. Learning from the experiences of, and adopting best practice from other countries is not that hard.

Democracy suffers from post-Soviet credibility deficit No system is perfect, of course. In Ireland earlier this year, there was a na-tionwide ballot on recognizing the rights of same sex couples to marry. In one memorable incident, a Russian monitor observing the vote count insist-ed that the process was flawed and invalid because “in such a large room, there are dark corners.” Maybe the gentleman was blinded by all the high-viz jackets the apolitical volunteer vote counters were wearing? He was apparently being serious and not ironic. The gentlemen’s objections duly noted, equality won by a fair margin anyway.Such complaints are comical, but the lack of faith in the democratic sys-tem evident among segments of the Ukrainian electorate is no laughing matter. Negative perceptions abound, with many of the most common stereotypes and clichés serving to deter people from participating in a process that derives its legitimacy entirely from participation. If you ask any Ukrainian for their opinion on democracy, they will likely tell you that politics is a dirty business. All politicians are the same. None of them are any better than the others. My vote makes no difference. It’s all a joke. There’s no such thing as true democracy, anywhere. Everything is con-trolled by big business anyway. We the people, get no choice. The choice is between bad and worse.Some of those things are partially true. Many of them are contradictory. They are all deeply flawed ideas that lead to a deterioration of the demo-cratic system, but they are ideas that are commonly held by people even in such highly developed democracies as Australia, where voting is not just a right, but a legal obligation. I have also encountered similarly cynical atti-tudes towards democracy in Canada, where I have been party to some of the politest political disagreements of my life.The reality is that the elements of truth in those statements are exploited, for political gain. We should recognise this and rise above it. The public should demand that such manipulations, and the reasons for them having elements of truth to them, cease. This is true wherever you are in the world.

Darth Vader antics and the dark side of Ukrainian democracyIn developed democracies, it is largely a quirky minority who hold such skeptical views about democracy, but such ideas are fundamentally dangerous trains of thought when they enter the mainstream in devel-oping or underdeveloped democracies. Feeding such thinking is a very deliberate ploy by people who do not benefit from a democratic system. Let’s take, for example, the candidacy of ‘Darth Vader’ in various Ukrai-nian elections. It’s supposed to be funny. It is not. It panders to all of the above thoughts on the political sphere at a time when Ukraine can least afford it. When Ukraine should be moving past the ‘they’re all as bad as each other’ stage and engaging in a proper discussion about whether one candidate’s vision or pledges has more merit than another, people are posting or tweet-ing photos of a new Darth Vader statue in Odessa which has wifi in its head. If you did this, you contributed to the ‘it’s all a joke’ narrative, and have done Ukraine a disservice.In reality, not all politicians are the same. Some are genuinely motivated to represent their communities. At this critical time in Ukraine’s national prog-ress, we should be focusing on helping the genuine community leaders in the country create platforms on which to compete for votes. People need to take their individual responsibilities as participants in the democratic process a lot more seriously. Not accepting payment for hanging a po-litical promotional banner on your balcony when you know nothing about the candidate or his policies is one way of being more personally responsible. Refusing to sell your vote is another. Democracy is imperfect, and Ukrainian democracy is in many ways more imperfect than most, but it is still the best option the country has. Understanding democ-racy while challenging fallacies about democracy is crucial, and never more so than in Ukraine today.

October 2015

Networking events


Turkish business community welcomes new life:) CEOThe International Turkish Ukrainian Business Association (TUİD) in Ukraine came together in October to welcome Burak Ersoy, incoming CEO of Astelit life:), the biggest Turkish invest-ment in Ukraine and one of the founding mem-bers of TUID. The event was held at the Inter-Continental hotel in Kyiv and was attended by Ukraine-based Turkish executives from a range of companies including the EBRD, Arcelor Mit-tal, BAT, Turkish Airlines, Cacharel, Eyvap, RE/MAX, Viko, Panasonic, Arkas, Nobel, US Polo and Colin’s. Ambassador of the Republic of Turkey to Ukraine Yonet Tezel also honored the event, commenting: “the fact that a major company like life:) keeps investing in Ukraine is proof of the continued faith in Ukraine among Turkish inves-tors and companies despite the economic chal-lenges facing the country.” TUID Vice Chairman Burak Pehlivan presented a plate to Burak Ersoy in recognition of life:)’s support for TUID and the Turkish business community in Ukraine.

Fryday networking in Kyiv’s historic Podil districtAs autumn began in Ukraine, international business networking fran-chise Fryday Afterwork brought members of Kyiv’s business community to Gnezdo, a trendy cocktail bar located at the foot of Podol’s historic An-driyivskiy Uvziz. Hundreds of representatives of the Ukrainian and inter-national business communities attended the event.

57

netw

orkin

g even

ts

October 2015

cul

ture

www.bunews.com.ua58

Business Ukraine is distributed every month at a wide range of leading business centres, hotels and restaurants in Kyiv and throughout Ukraine as well as on incoming flights to the Ukrainian capital.Registration: KV 15006-3978PR Published by: Open Borders MediaDirector: Susanna Dickinson

Letters to the editor: [email protected] inquiries: +38-067-4032762

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.

Ukraine’s struggle to resist Russian aggression has dominated the interna-tional headlines for the past eighteen months and inspired millions around the world. Many foreigners with direct links to Ukraine have been moved to take direct action, becoming part of an informal online army of Ukraine advocates seeking to spread the truth to global audiences about the issues at stake in the country. African musician Daniel Christian went one step further, producing a song and video tribute to Ukraine that went viral on YouTube, attracting both gushing praise and vile abuse. The Nigerian-born singer, who describes himself as an EU-based global citi-zen, spent his undergraduate years in Ukraine. Like many foreign visitors the country, he remains captivated by all things Ukrainian and maintains close ties to the country. Daniel first arrived in Luhansk in 2010 to begin his university studies, before transferring to Dnipropetrovsk University in 2014 once the Kremlin proxy war in his adopted hometown of Luhansk made it impossible to continue his studies there. His ‘Slava Ukraine’ video has proved a big hit on YouTube, clocking up over a quarter of a million views in less than a month and sparking a lively comment section debate. Daniel says he has been overwhelmed by the positive response to his song, but also reveals that he has received death threats from anonymous online sources angered by his support for Ukraine. He explained to Business Ukraine magazine why he was inspired to make his Ukraine tribute song, and why he refuses to let the haters win.

What made you decide to record a song and video in support of Ukraine?First and foremost, I was inspired by God! Secondly, I lived in the region of Lu-hansk when the conflict began and I witnessed everything firsthand. Thirdly, my father thought it would be a good idea to write a song of hope in order to put smiles on the faces of people in the country that gave me an education. Many comments have pointed to the high production values of your song and video. Who participated in the production process? I wrote the lyrics to the song and the talented Kolly Dee sang the cho-rus. Oleg (of MORDAX BASTARDS) created the music and Andrey Mishin did the mixing and mastering. The video itself was directed by my good friend Katya Rybka. Katya is very good at what she does, which is why the video has such high production values. I also want to thank Illia Don-chenko and Anastasia Bezpyatova for their help, and of course, my family and friends who made everything possible.

You are one of many people from across the globe to have shown their support for Ukraine during the current conflict. What role do you think

foreigners can play in raising international awareness about the issues at stake in today’s Ukraine?Foreigners can play a big role in raising international awareness about the current situation in Ukraine - especially foreign students. Foreign students see exactly what is going on and they can speak to friends and family outside of Ukraine. This information can then be shared among wider networks of friends and contacts. Thousands of international students were living in east Ukraine in areas where tensions were highest, and their eyewitness experienc-es can be shared internationally. There are students from every corner of the world studying in Ukraine, so via such informal networks the reality of what is happening in the country can be heard all over the globe.

Your video has gone viral and been enthusiastically received by Ukrainian audiences, but it has also attracted some abusive comments including death threats. Did this negative response surprise you?No, it did not. You can always expect negative responses when you speak the truth. My song is for Ukrainians and in that sense it is all good. No Ukrainians have made any negative comments or said anything bad about the song, which makes me very happy. I have reached my goal. Anyone making negative com-ments clearly does not want peace. Nevertheless, I wish them all well. If doing what I love has put my life in any danger, then so be it. I spoke the truth and I have inner peace, which is most important to me.

What is your message to all those who have responded aggressively to your song?The song is for Ukrainians. To those who are offended by it, I say may God bless their heart. I wish them all the best.

African sings for UkraineDaniel Christian received death threats over Ukraine song but is proud to support his Ukrainian friends

TCC_Siyah 20x26.7cm ING.ai 1 11.06.2015 15:07

business ukraine october 2015

Documents