ukraine as an emerging market

Ukraine Country Presentation

UKRAINE:Market of Potential Opportunities

Basic Information

Area (sq km) 603,700 (about twice bigger than Finland/Germany)

Population (million) 46.46 mln. people

Capital Kyiv

Languages Ukrainian, Russian

Literacy rate 98%

Currency Hryvnia (UAH)

Remarkable facts:• Ukraine is the biggest

European country by territory• Ukraine possesses 1/4 of

word’s black soil


Regional Focus: Geographic Structure

• Administrative division: 24 oblasts, 1 autonomous republic of Crimea, and the cities of Kyiv and Sevastopol

• The biggest regions are: Kyiv, Donetsk, Dnipropetrovsk, Odessa and Kharkiv.


History and Current PoliticsSoviet Rule

-1922: Ukrainian Soviet Socialist Republic -After WWII: Rapid urbanization, industrialization and increase in literacy & Ukraine became the centre of Soviet arms industry and high-tech research-Many members of the Soviet leadership came from Ukraine: Nikita Khrushchev and Leonid Brezhnev -Chernobyl (1986)


1991: Independence

Political System• The head of state is the president. He/she is elected by popular vote for a

five-year term

• Legislative Power: Verkhovna Rada (Parliament), which is comprised of 450 deputies who are elected every five years

• The highest executive body is the Cabinet of Ministers. The prime minister is appointed by the president upon the parliament’s consent.

Legal System• Ukraine is a civil law country

• Court System: General, Commercial and Administrative


Economic System

• Ukraine has struggled to shift from a centrally-planned economy to a market environment.• There was a deep recession in 90s. • GDP growth from 2000-2008


Comparison with other Economies

Global Innovation Index (2013)


Ukraine in the Global Political Economy

EU Association Agreement vs Eurasian Customs Union


Economy of Ukraine

• One of the lowest GDPs of the Soviet Republics

• Economy contracted • Barter and the use of surrogate money• A shadow economy swelled • Corruption was rife• Small taxation base


Agricultural Industry Service-oriented

1990s

Economy of Ukraine

• Economy picked up• Cheap Russian gas imports• High export revenue• Poverty rates dropped • 2008 recession• IMF loans 2008, 2010


Agricultural Industry Service-oriented

2000s

Banking & Finance• Two-level structure• The National Bank of Ukraine

(NBU) • Commercial Banks• 50 insurance companies• Other financial intermediaries


http://www.bank.gov.ua/control/en/index

Macroeconomic data dynamics: GDP


Macroeconomic data dynamics: exchange rate

Exchange rate: UAH/USD


Comparing with Peers

• Foreign investors come to Ukraine mostly either through Russia or Poland• The countries are close in industry structure, market size and mentality• Ukraine is comparable with Russia in terms of risks.

Opportunities

Risks

-- Ukraine

-- Russia

-- PolandGeneral market characteristics:

•Underutilized investment potential = high growth prospects

•Low level of market saturation•High profit margins (20% average).

Economic Data Ukraine Russia Poland

GDP $ billion, 2012 176 2,014 489

Inflation %, 2012 0.6 5.1 3.6

Exports $ bln., 2012 69.8 529.6 188.5

Imports $ bln., 2012 90.3 334.7 195.4


Formal Requirements: Doing Business• Legal Conditions – Radically modified its Legal system to

match modern conditions– Businesses are subject to licensing by different state agencies– Registering with the tax office– Joint Stock Companies Law protects companies from illegal

seizures• Tax Conditions – Introduced 23 new taxes and levies since

2011– Corporate Income Tax (CIT);– Value-Added Tax (VAT);– Personal Income Tax (PIT);


Formal Requirement: Starting a FirmBureaucratic and Legal hurdles faced when registering a new firm

No. Procedure Time to Complete Associated Costs

1 Pay registration Fee to the Bank 1 day UAH 170

2 Register at the registration office 5 days No Charge

3 Register VAT at the State Tax Authority and obtain a VAT number 10 days No Charge

4 Prepare a seal 2 days UAH 190-250

5 Open a permanent Bank account 1 day Bank's charge

6 Notify the District Tax Inspectorate of the opening of the permanent bank account 2 days No Charge


Informal Requirements: Doing Business

• Informal payments to government officials

• The burden of corruption and regulation does not fall equally on different types of firms

• The informal requirements are considerably less in the Western side of the region

• Payments to stop power outages


Change in Business Environment over time


Ease of Doing Business

• Ukraine (112) ranks lower than Pakistan (110) in Ease of Doing business

• Considerably Higher (47) than Pakistan (105) in Starting a business

• Ranks about the Same (172, 175) in the Getting Electricity Index


• Most revenue generated from Service Industry• Huge Export Industry• 35 corporations from Ukraine represented in

Europe’s top 500 Companies in Revenue (2011)


Large Corporations from Ukraine

Industry StructureShare in industrial output

Processing Industry 40.1%

Other services 13.5%

Trade 10%Agriculture

9.5%

Transport&communica-

tions 9.2%

Construction 4.6%

Extracting industry

4.1%Energy&utilities 3.7%

Education 3%

Healthcare 2.3%



Top 15 Corporations of Ukraine


Global Corporations in Ukraine

• PepsiCo• The Coca-Cola Company• Archer Daniel• Adidas• Exxon Mobil Corp.• Rosneft• Ernst & Young

Brand Perception

• Ukraine gained independence in 1991 • During the 90s it had a poor law enforcement,

corruption and deteriorating infrastructure• Orange Revolution of 2004 garnered Ukraine

international news coverage• Economy improved during the first decade of

the 21st century as investment flew in.


• Dropped from 75th in 2009, to 99th in 2010• 2nd largest Military (Europe)• Large Service Sector• High Literacy Rate • Ranked # 19 on the Emerging Market Energy

Security Growth Prosperity Index (published by the think tank Bisignis Institute, which ranks emerging market countries using government corruption, GDP growth and oil reserve information).


Ukraine as a Brand

Brand Perception

• Ukraine is "the breadbasket of the Soviet Union”• Second largest country in Europe with largest area of

agricultural land• Possesses 30% of the world's richest black soil• Growing IT sector ranking fourth in the world in number

of certified IT professionals• Exported arms worth $1.34b in 2012 making it the 4th

largest arms exporter (Source: SIPRI)• Important tie between Russia and the rest of Europe• Russia supplies 25% of Europe’s gas needs


Grains Meat & Dairy

Steel

Iron ore Honey

Sunflower oil &

Barley

Market leader

Future global leader

Largest producer in Europe

6th largest exporters

5th largest exporters

Major global producer


Investment Opportunities• Agricultural infrastructure such as field granaries and port grain

elevators• Opportunities in Ukrainian banking sector for modern retail

banking technologies• Financial services like Insurance and Leasing. Opportunities exist

for large operator entry, take over of existing companies as well as establishment of brokerage networks across Ukraine.

• Web media and custom software development. Outsourcing elaborate software architecture design projects to developers in Ukraine

• Demand for recreational services and health care medical services is continuing to grow


Opportunities in selected sectors: Retail

• According to the international credit agency A. T. Kearney, Ukraine is the 4th most attractive country in retail after India, Russia and Vietnam

• Retail turnover is estimated to be growing 20% annually

• Market is non-consolidated, at the same time competition remains low

• Metro, Billa, Spar are at the market, Auchan and others are to enter the market


Opportunities in selected sectors: Metallurgy

• 7th largest in the world• 4th place in the world by ore

deposits • 30% of GDP • 500,000 people employed Most

producers have international certificates of quality

• Obsolete equipment• Energy efficiency technologies

is of highest priority


Opportunities in selected sectors: Power industry

• About EUR 13 bn needed to replace the obsolete equipment (60-80%)

• Most of the companies are in private hands• According to Investment Program of Ministry of

Fuel and Energy, Ukraine plans to attract USD 3.5 – 4 bn for energy sector development in 2007 – 2008

• High volume investments from the side of international financial institutions, including the following projects:

– Modernization of power – generation units at Rivnenska and Chmelnicka nuclear power stations (EBRD, USD125 mln loan)

– Development of efficient energy transmission (IBRD, USD196 mln loan)

– Reconstruction of Hydroelectric Power Stations (IBRD, USD103.6 mln loan)


Opportunities in selected sectors: Machine building

• Full cycle of machinery building with wide range of products

• 54 enterprises of the industry are to be privatized in 2007

• Opportunities for outsourcing and joint ventures are virtually unlimited


Opportunities in selected sectors: Food processing

• About 20% share in the output or processing industries

• Accounts for about 15% share of FDI

• Selected foreign investors:

– BBH

– Sun Interbrew

– Nestle

– Kraft

– Coca-Cola

– Wimm-Bill-Dann


Large population, large markets

Large resource base

Low political stability

Low economic stability

Transitional society

Ukraine- An Emerging Market?

Ukraine- An Emerging Market?Declining population- high migration and death rates

Bureaucratic system high in corruption

Outdated technology

Declining economy

Post communist state

ukraine as an emerging market

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