Business Ukraine 10/2018

Issue 10/New Year 2019

UKRAINE IN 2019

25 years together

BUSINESS UKRAINE MAGAZINE 10/2018 (NEW YEAR 2019): From headline-grabbing presidential and parliamentary elections to ambitious architectural additions like the planned pedestrian bridge in downtown Kyiv that is featured on this month’s magazine cover page, we explore what 2019 has in store for Ukraine

Time to stop treating Ukraine as an awkward afterthought The appearance of an independent Ukrainian state in 1991 was one of the greatest miracles in modern history, but there is no denying that it also made the geopolitical affairs of the world infinitely more complicated. Ukraine was simply too big, too unexpected and too deeply intertwined with Russia. Even now, there remains a sense that nobody knows quite what to do with a country that is unrivalled in its international awkwardness. This ambiguity leaves Ukraine stuck firmly in geopolitical no man’s land, locked in an undeclared war with Russia while denied a roadmap towards future European Union or NATO membership. As each year passes, this failure to address the international implications of Ukrainian independence becomes more and more costly for all concerned.

During the 1990s, the scale of the shift in the geopolitical landscape caused by Ukraine’s arrival was not yet fully apparent. All roads still led to Moscow and it seemed possible to continue dealing with the nominally independent Ukraine as an unofficial imperial appendage. However, this proved to be a transitional phase within a much more profound process of Ukrainian national awakening that necessarily undermined historic Russian claims to a unique position of influence in the country.

The 2004 Orange Revolution and the 2014 Revolution of Dignity both reflected a growing Ukrainian desire to escape from the Kremlin orbit and rejoin the European community of nations. These revolutionary flashpoints highlighted the broader emergence of a post-Soviet generation inside Ukraine with no allegiance to the old empire. They also exposed the redundancy of attempts to understand Ukraine by viewing the country through the outdated Russian prism.

Ukraine’s efforts to strengthen its independence and secure a European future now lie at the very heart of a rapidly escalating Cold War between Russia and the Western world. This makes Ukraine arguably the greatest single cause of geopolitical friction on the planet today. Indeed, were it not for Ukraine, the political boundary separating Europe and Eurasia would have been settled long ago and everything would be neat and tidy. Instead, Europe must deal with the hybrid hostility of a paranoid Russian state whose siege mentality is aggravated by Moscow’s refusal to accept the reality of a separate and sovereign Ukraine.

Why has the outside world been so slow to accommodate the emergence of an independent Ukraine? Other formerly captive nations like Poland, Hungary and the Baltic States did not experience such problems following the Soviet collapse of 1991, but they either had long histories as independent nations or, in the case of the Baltic States, were compact enough to be absorbed into the European community with a minimum of fuss. Ukraine, on the other hand, was an implausibly large country with no prior record of independence. In place of its own national nar-

rative, Ukraine had the dubious honor of a starring role in Russia’s foundation myth. This lent the emergence of an independent Ukraine in 1991 a novelty factor that completely overlooked the epic qualities of the country’s long quest for statehood.

Ukraine’s arrival has obliged the international community to revise its entire understanding of Eastern Europe - but this process is still very much in its early stages. Various EU institutions have now reluctantly acknowledged Ukraine’s European status, but there remains huge resistance to any suggestion that the country may qualify for EU membership at some point in the distant future. NATO has similarly shied away from any concrete talk of membership, leaving Ukraine in international limbo.

This uncertainty has not prevented the consolidation of Ukraine’s own nation-building efforts. The country has struggled with national identity issues ever since 1991, but the formerly blurred boundaries between Russia and Ukraine have nevertheless steadily solidified.

This process received a huge boost in 2014 when Ukrainians faced the biggest threat to independence since 1991. Russia’s invasion of Crimea and eastern Ukraine forced millions of ordinary Ukrainians in the country’s traditionally Russophile south and east to determine where their loyalties ultimately lay. To the surprise and chagrin of the Kremlin, the vast majority chose to embrace their Ukrainian identity.

This was the moment of truth for the modern Ukrainian state, and the country passed the statehood test emphatically.

With independent Ukraine now firmly established on the map of Europe but under sustained attack from a revanchist Russia, the time has come to stop treating the country as some kind of awkward afterthought or temporary aberration. Instead, the international community needs to recognize that today’s Ukraine represents a once-in-a-generation geopolitical challenge on a par with the 1990s reintegration of the Warsaw Pact nations or the post-WWII Marshall Plan. It is a task requiring vastly increased resources and a far more ambitious long-term vision than anything we currently have in place. The subsistence levels of support and limited integration incentives offered by the West in recent years will not solve the long-term problem of Ukraine’s vulnerability. On the contrary, this arms-length approach will only serve to encourage further Russian aggression, both inside Ukraine and elsewhere in the Western world.

The idea of integrating Ukraine may not be universally popular, but the country is here to stay and the West has a direct interest in ending the ambiguity around its geopolitical alignment. Until this issue is decisively resolved, Ukraine will remain a source of chronic international instability.

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

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2019 preview

Ukraine in 2019 Year of the Vote Presidential and parliamentary elections will dominate Ukraine’s national life for next 12 months

Ukrainians can look forward to virtually an entire year of intensive electioneering in 2019 as the country hosts presidential and parliamentary elections. Ukraine will elect a new leader in spring, with the first round of voting in the presidential election scheduled for 31 March and a second round runoff, if required, set for 21 April.

A parliamentary vote will then take place at the end of October. This means Ukrainians face an unrelenting cacophony of campaign noise lasting from the first days of January until the start of November.

The stakes could hardly be higher. The coming election cycle will likely determine the fate of Ukraine’s 2014 revolution and confirm whether the country’s bid to escape the Kremlin orbit is to prove successful. Presidential and parliamentary votes held in the post-revolutionary environment of 2014 resulted in resounding victories for proWestern and patriotic political forces. A repeat of this performance in 2019 would seal Ukraine’s historic westwards turn and cement the biggest change to the geopolitical map of Europe since the fall of the Berlin Wall. Russia will be counting on a repeat of 2010, when Kremlin-backed candidate Viktor Yanukovych won the presidential vote and reversed the pro-Western course adopted following Ukraine’s 2004 Orange Revolution.

However, there is far less chance of Russia securing any election success on this occasion.

Vladimir Putin’s undeclared war against Ukraine has proven disastrous for Russian influence in the country and the coming elections are expected to underline this fact once more. The Russian occupation of Crimea along with parts of Luhansk and Donetsk regions has effectively disenfranchised millions of Ukrainians who formerly served as the electoral base of the country’s pro-Russian political parties. Indeed, Yanukovych’s 2010 presidential election victory relied heavily on the overwhelming support he enjoyed in these three regions of Ukraine. Throughout the rest of Ukraine, Putin’s war has made Russia so toxic that even the most previously vocal supporters of the Kremlin now find themselves forced to cloak their advocacy in the language of pragmatism and compromise. Once guaranteed between 30% and 40% of any Ukrainian national vote, today’s pro-Russian parties would consider anything over 10% an encouraging result.

The Russian retreat from Ukrainian politics has 8

not enabled a new generation to emerge. On the contrary, the political forces contesting Ukraine’s presidential and parliamentary elections in 2019 will be all too familiar to voters. The two presidential frontrunners, incumbent Petro Poroshenko and current favorite Yulia Tymoshenko, both began their political careers in the 1990s. Indeed, the current popularity of comedian Volodymyr Zelensky and rock star Svyatoslav Vakarchuk in presidential opinion polls suggests an electorate so desperate for change that it is prepared to entertain almost any alternatives.

Novelty presidential candidates are a symptom of Ukraine’s imperfect democracy, but they should not distract from the main event. The battle between Tymoshenko and Poroshenko will set the political tone for the entire year. If Poroshenko is able to hold on for a second presidential term, this will leave him well placed to secure a strong result in the following parliamentary vote. However, a Tymoshenko win in the spring presidential ballot would transform the entire Ukrainian political landscape and pave the way for a potential landslide victory in autumn’s parliamentary election.

Tymoshenko is a formidable opponent for President Poroshenko. She is probably the most skilled politician in the country and a powerful orator who has intimidated the biggest beasts of Ukrainian politics for over two decades. Her 2019 presidential campaign is her third – she lost to Yanukovych in a second round runoff in 2010 and fell at the first hurdle against Poroshenko in 2014. Most pundits agree that the coming vote represents by far her best chance. The Tymoshenko campaign has attracted criticism over populism (including a pledge to breach the country’s IMF commitments by halving household gas bills) and has faced widespread innu-

endo regarding her alleged readiness to strike deals with Russia. Extensive positive coverage of the Tymoshenko campaign on Ukraine’s most Kremlin-friendly TV channels has served to reinforce perceptions that she is Moscow’s preferred candidate, but Tymoshenko herself has publicly remained an outspoken critic of Russian aggression and continues to back Ukrainian membership of both NATO and the European Union.

President Poroshenko will seek to counter Tymoshenko’s populist appeal by promoting the achievements of his first term in office. At first glance, there appears little to brag about. However, given the dire situation of the country in spring 2014 and the poor performances of previous Ukrainian presidents, his record is not without relative merit. Poroshenko’s election campaign rests on the three pillars of army, religion and language. The strengthening of the army is perhaps the greatest single success of Poroshenko’s presidency. In spring 2014 when Russian launched its hybrid invasion of eastern Ukraine, the Ukrainian army was a shambles with only around 6,000 combat-ready troops. Today, it is a battle-hardened and often well-equipped fighting force numbering in the hundreds of thousands.

Poroshenko can also point to the advent of visafree EU travel and the recent establishment of an independent Ukrainian Orthodox Church as key achievements. He has managed to maintain international support for Ukraine throughout his presidency, signing an Association Agreement with the EU back in 2018 and recently securing renewed financial backing from the IMF and World Bank thanks to modest reform progress.

Crucially, Poroshenko has failed to achieve a definitive break with the institutionalized corruption that helped provoke both of Ukraine’s two post-Soviet revolutions. Despite enjoying an overwhelming mandate for change in 2014, he is widely blamed for allowing the old system of oligarchic clan rule to reassert itself. Nevertheless, as President he has overseen three years of modest economic growth.

For many Poroshenko supporters, the coming presidential vote is a question of better the devil you know. Much will now depend on the readiness of Ukrainians to gamble on a Tymoshenko presidency. The outcome will determine the country’s trajectory in 2019 and for some years to come.

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2019 preview

Coming to Kyiv in 2019 New pedestrian bridge New Kyiv landmark will offer panoramic views of the Ukrainian capital city and the Dnipro River

The Ukrainian capital has always been one of Europe’s most visually stunning and photogenic cities. In the coming year, an ambitious architectural project promises to provide residents and visitors alike with a new place to enjoy sweeping Kyiv landscapes. Work is already underway on a pedestrian and cycling bridge that will link the Arch of Friendship with St. Volodymyr’s Hill in the heart of the city, offering what promise to be impressively panoramic views of Kyiv.

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The bridge will be 210 meters in length with separate pedestrian and cycling lanes. It will feature a number of viewing platforms where people will be able to look down towards the riverside Podil district and across at the islands and beaches of the Dnipro River towards Left Bank Kyiv. The bridge is set for completion by the end of spring 2019, with the traditional Kyiv Days festivities on the last weekend of May a likely date for the official opening.

2019 preview

Finding new keys to happiness in 2019 Ukraine’s legal industry continues to adjust to a difficult political and economic environment

About the author: Armen Khachaturyan (armen.khachaturyan@asterslaw.com) is a senior partner at Ukrainian law firm Asters Many people consider happiness the most appropriate measure of social progress. This is not particularly good news for Ukraine, which currently occupies the one hundred and thirty eighth position among 156 nations featured in the 2018 World Happiness Report. Ukraine has been struggling to find happiness ever since it became independent in 1991 following the collapse of the Soviet Union.

As a citizen of this patient and hopeful nation, I still believe that happiness will come to Ukraine soon, exactly as I did in that already distant year of 1991 when there was almost no private business to speak of and virtually no legal services market in Ukraine. At that time, the best legal brains were all in academia teaching and analyzing law. Then came the years of wild capitalism, unfair privatization, fantastic enrichment, barter culture, and raider attacks. Ukraine witnessed the country’s first foreign investments and joint ventures. These changes required new laws and new legal practices. Progress came quickly enough thanks to governmental assistance and study programs, the work of NGOs, and the Kyiv offices of international law firms, which injected their professional style and workaholic mentality into the incipient Ukrainian legal industry. During these early years, many Ukrainian legal startups enhanced their HR strategy with internships and LL.M degrees from top law schools in Europe and 12

the US. Fluency in English and good knowledge of Western and Ukrainian law provided legal services providers with unprecedented opportunities. There was almost no competition, while fees were set according to Western standards. Happiness seemed to be within touching distance.

However, things turned out to be significantly harder than expected for the first generation of the then-fledgling Ukrainian legal services industry. Competition started to pick up quickly, while the rapidly maturing local market produced plenty of strong competitors for their erstwhile international “mentors”. Soon enough, local law firms were dominating the Ukrainian market, both numerically and in terms of industry rankings. Challenges came also from the economy, which faced one crisis after another.

A lack of reforms meant that many important investments were set aside until a better time that never seemed to arrive. The country’s everchanging and unstable political landscape was particularly unhelpful, with each successive government seemingly having little in common except a lack of appropriate skills and an appetite for corruption.

The dramatic point dividing independent Ukraine’s destiny into “before” and “after” phases was the 2013-14 Revolution of Dignity, when the public took to the streets to force a change of political regime and direct Ukraine’s course towards

the EU. What happened next was an unprecedented period of nation-building. Since 2014, Ukraine has experienced a rapid development of national identity at a time when the country has had to contend with military interference in one region and annexation in another while also launching painful and difficult economic, political and judicial reforms alongside the fight against corruption.

Ukraine’s legal industry continues to adjust to what remains a highly challenging political and economic environment. Further changes in the legal market are anticipated with the expected coming adoption of a statute on legal practice and enhancement of the so-called “attorneys’ monopoly”, which means that only attorneys are able to handle representation in the country’s courts.

Consequently, the role of the attorney community will likely become stronger in 2019.

One of the most pressing professional issues facing the legal services industry in Ukraine remains insufficient legal education. This explains the success of the recently launched Legal High School initiative, which webcasts lectures and shares the experience of practicing lawyers. It also explains the widespread public and professional support for emerging private law schools such as the Ukrainian Catholic University’s law school, which features the world’s best teaching practices combined with practical training. There is also a clear dynamic towards consolidation within the legal market. A number of recent mergers reflect this trend, including one creating the largest Ukrainian law firm, Asters, with a headcount exceeding 240 employees and an expanding international presence. Meanwhile, legal practitioners continue to face a range of their own industry-specific problems including tightening competition, declining legal fees, and the never-ending necessity to refocus on new practices. Today this means IT, infrastructure and energy, especially the renewable energy sector.

The coming year will inevitably be complicated

by Ukrainian presidential and parliamentary elections. Despite the many challenges currently facing both the nation in general and the legal profession in particular, I still believe in a happy future. Ukraine deserves to be a happy nation.

The task now is to find the right keys to unlock this happiness, and to do it as soon as possible.

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2019 preview

Coming in Early 2019 Estonian IT Hub in Kyiv An ambitious new IT hub with an Estonian flavor will open in Kyiv in early 2019 as the Baltic nation looks to tap into Ukraine’s vibrant startup sector.

Although it has yet to open its doors to the public, the Lift99 Hub in Ukraine has already welcomed its first VIP guest, with Estonian President Kersti Kaljulaid paying a visit to the hub in autumn 2018 to learn more about the project. The Lift99 Hub in Ukraine, which is set to open in February 2019, is the Ukrainian affiliate of Estonia’s startup community flagship Lift99. It seeks to offer many of the innovations that have helped Estonia become one of the global leaders of the digital revolution.

President Kaljulaid said the choice of Ukraine as the location for this sec-

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ond Life99 hub reflected the appeal of the Ukrainian IT industry as well as the country’s cultural closeness to Estonia. “Ukraine is home to a highly talented IT community. It is a strategic partner for Estonians because of the values we share,” she commented.

Estonia is in many ways the ideal IT partner for Ukraine as the country seeks to harness the potential of its growing tech scene. The tiny Baltic state has earned a reputation as one of the most technologically advanced nations in the world and is at the forefront of e-government innovations that could also help streamline Ukraine’s own modernization efforts.

(Author: Cosmos Ojukwu)

2019 preview

Ukraine in 2019: Standby Mode Presidential and parliamentary elections will encourage investors to wait and see what the year brings

About the author: Andriy Dovbenko is the owner of EVRIS law firm New Year 2019 comes to Ukraine accompanied by the official start of the presidential election campaign. Indeed, the Central Election Commission launched the campaign on 31 December as the old year ended. Six months after the coming presidential election, Ukrainian parliamentary elections will take place. Political billboards have already dominated the streets of the country for several months now, featuring dozens of different campaign promises next to the names of the various parties and presidential candidates. Such adverts will remain a feature throughout the coming year.

For Ukraine’s foreign investors, pre-election uncertainty further increases the already considerable risks associated with investing capital in the Ukrainian economy. Ukraine also faces a huge debt burden on the budget over the coming year. According to Ukrainian Prime Minister Volodymyr Groysman, the country will have to allocate one-third of the national budget in order to meet long-term debt repayments in 2019. Once we take general levels of social and political instability into account, it becomes clear that any talk of a boom in foreign investment during 2019 is quite illusory.

On the other hand, even the slowest pace is better than treading water.

The government is currently predicting a GDP growth rate of 3%. Meanwhile, Ukraine’s largest lender, the International Monetary Fund, has already approved a new standby cooperation program for 14 months totaling USD 3.9 billion. The first tranche of USD 1.4 billion entered the accounts of the National Bank of Ukraine before the end of 2018. This is an extremely important signal for the global business community. Cooperation with the IMF is the key to macroeconomic stability. In simple terms, it sends out a message that it is safe to deal with Ukraine.

As part of the new IMF standby agreement, Ukraine has committed itself to following the present course of liberalization and deregulation of the economy. This will include reforming the State Fiscal Service, beginning the privatization of state property, and taking additional measures to combat corruption. There are already some signs of potential progress in this direction on the horizon. In 2019, we expect to witness the long awaited unveiling of Ukraine’s Anti-Corruption Court 16

and the full launch of the country’s State Bureau of Investigation.

These transformations in the law enforcement and judicial systems will serve as further markers by which foreign investors will evaluate the overall progress (or lack thereof) in protecting the rights of business in Ukraine.

Edmund Burke, the founding father of modern British conservatism, famously said: “For the triumph of evil, only one condition is necessary - that good people do nothing.” Judging by the growth in the share of medium and small businesses in the structure of the Ukrainian economy, “good people” are not going to stand idle. In the troubled times of 2014, the Ukrainian IT industry was a real lifeline for the economy providing the country with the kind of serious foreign exchange earnings it desperately needed. If the state systematically develops this sector and provides the conditions to meet growing global demand for Ukrainian developers, then over the next five years, our country can earn itself an international reputation as a high-tech nation. This is an entirely realistic objective.

Unfortunately, in 2018 the chance for a potential economic breakthrough in the form of lifting the ban on the sale of agricultural land was lost. On 21 December, the Ukrainian parliament extended the current moratorium until the end of 2019. This happened despite all of the government’s previous public assurances of its readiness to form a liberal land market. Such a market represents huge deferred economic potential for Ukraine. It is important to note that the processes necessary for the implementation of this task are making progress. However, investors would no doubt like to see things moving forward at a faster rate.

The top priority economic problem facing any new Ukrainian government elected in 2019 is the issue of labor migration. It is not possible to stop the frightening outflow of skilled labor from Ukraine in the space of a single year because the gap in incomes at home and abroad remains too tangible. According to various estimates, during the course of 2018 Ukrainian labor migrants transferred between USD 8 billion and USD 11 billion home. One the one hand, this inflow of foreign currency allowed the country to ensure the relative stability of the national currency, but on the other hand, these huge figures illustrate the scale of the human resources the Ukrainian economy is losing due to the country’s inability to provide suitable jobs for the millions of Ukrainians ready and willing to work. The problem of labor migration arose not only because of low wages, but also due to critically outdated labor legislation. In terms of this legislation issue, 2019 can serve as a turning point. This will depend on the political will of the new leadership of the country.

The present year promises to be a time of great change within Ukraine’s corridors of power. Even for Western countries with stable political and economic institutions, a period of intense electioneering featuring both presidential and parliamentary votes in quick succession would inevitably mean a slowdown in economic growth and the possibility of general political instability. Ukraine is no exception. The main hope is that the standby mode we expect to experience in 2019 does not drag on. www.bunews.com.ua

Building on Ukraine’s IT boom in 2019

Ukraine is emerging as a global IT powerhouse but has not yet become a true startup nation

About the author: Vitalii Rybak is an analyst and journalist at Internews Ukraine and UkraineWorld For much of the past decade, Ukraine’s information technology sector has been among the country’s fastest growing industries. Over the same period, IT experts from Ukraine have found considerable international success. Ukrainian IT companies, however, have developed largely in the service and outsourcing sectors. IT in Ukraine may outgrow these market segments eventually, but the industry is not there yet.

The figures produced by the industry are nothing short of remarkable.

Over the last ten years, exports from the Ukrainian IT sector have grown by 540 percent, from USD 243 million to USD 1.311 billion, according to a recent report. This puts it in third place among Ukrainian exports. IT companies brought in UAH 4.1 billion (approximately USD 146 million) in tax revenue to the Ukrainian state budget in 2017, a figure that has been growing by approximately 27 percent annually since 2015, according to Ukraine’s State Fiscal Service. In 2018, the total is set to reach UAH 10 billion (USD 357 million). Numerous global IT market leaders including GlobalLogic, Microsoft, DataArt, Ubisoft and many others have offices in Ukraine. They are not all centered in Kyiv. On the contrary, many have also opened regional offices.

What is the reason for the remarkable and consistent growth of the Ukrainian IT industry? The answer lies in a combination of the country’s business environment, human resources, and infrastructure capabilities.

Business Environment

Ukraine’s IT sector has not been hampered by excessive regulation. “[An] absence of regulatory pressure on the IT sphere adds to its growth and competitiveness,” the IT Ukraine Association and Better Regulation Delivery Office (BRDO) reports. Even though Ukraine ranks in seventyfirst place in the World Bank’s Doing Business 2019 report, Ukraine’s tax policy makes the country lucrative for international IT companies.

Ukrainian tax legislation allows companies to work with self-employed 18

specialists who pay only a single tax of 5 percent of their income together with a unified social tax, which is 22 percent of the minimum wage, or UAH 819. This allows IT companies and IT specialists alike to maximize their income.

“We think that the business climate in Ukraine has become more predictable in the past few years,” says Igor Byeda, the Head of Central Eastern Europe (CEE) at GlobalLogic. “IT achieved some important changes in the industry in 2018.” Firstly, the registration of private entrepreneurs who are non-residents of Ukraine has become simpler. “This simplifies the cooperation between Ukrainian IT companies and foreign tech professionals,” Byeda notes. Secondly, the process of importing prototypes for R&D purposes has undergone significant simplification. Byeda argues that this accelerates the procedure for importing engineering samples used in digital product development for international clients.

Finally, Ukraine’s IT Association has signed a memorandum of cooperation with the Ministry of Education and Science of Ukraine, which means they will both work together to enhance a technology-based educational environment. For instance, IT Association experts will create an electronic educational platform for schools and universities and develop electronic textbooks. In return, IT companies will receive more of the high-quality young specialists they need in order to maintain the industry’s steep growth trajectory.

Stuttering Startup Scene

While many of Ukraine’s large and medium-sized IT enterprises prosper, Ukrainian startups still often struggle to get off the ground. In terms of investment in the IT sphere, Ukraine has a long way to go to match many of the world’s digital investment leaders. Ukraine has approximately 150,000 IT engineers who receive a total of USD 265 million in investment each year, while 120,000 Israeli IT engineers attract USD 5.2 billion in investment annually, according to Max Yakover, managing partner and CEO of UNIT.City.

This lack of outside investment is not the only problem facing startups. At the initial stage, domestic sources of financing are helpful. However, the average interest rate for business loans in Ukraine is around 25 percent, a remarkably high rate that is prohibitively expensive for most. This is one of the main reasons so many Ukrainian startups seek funding abroad.

Ukrainian startup Petcube, which created interactive pet cameras, has raised USD 14 million in seed, venture, and Series A financing, as well as USD 500,000 from two Kickstarter campaigns. It is currently one of the most successful Ukrainian startups.

Human Resources

Ukrainian IT engineers earn far above average salaries in Ukraine. Their average wage is currently USD 2,095 per month, which is seven or eight times higher than the average salary. Perhaps understandably, the industry has little trouble attracting new workers. As of 2017, 94,000 selfemployed IT specialists were registered in Ukraine, while 46,000 were employed at IT companies. This is a 27 percent increase compared to the figures for 2016. The total number of IT specialists has since grown and is now close to 150,000, according to some estimates.

IT Ecosystem

IT sectors thrive in environments where universities, government, corporations, service providers, and venture capital interact with each other. These components make up the IT ecosystem, as defined by the Global Competitiveness Index (GCI). Ukraine’s IT sphere is just starting to build this kind of ecosystem. Ukraine’s tech ecosystem has been developing mostly through IT clusters (small networks of connected businesses, suppliers, and associates) as well as through IT parks, locations where infrastructure and cooperation enable high technology and innovative businesses.

UNIT.City, an innovation park located in Kyiv, is an example of how this works. UFuture Investment Group, which is owned by Ukrainian entrepreneur Vasyl Khmelnytsky, has transformed an abandoned factory into a high tech space for companies, startups, students, professionals, and research laboratories.

Ukraine also has several business associations, including the IТ

Ukraine Association. To date, it has assembled fifty-eight software development companies, which collectively account for 50 percent of the total revenue of the IT industry in Ukraine. Its goal is to represent the interests of member companies in international industry associations and organizations, as well as to facilitate the sustainable development of IT in Ukraine.

2019 preview

Ukraine still has room for improvement in tech education. According to QS World University Rankings 2019, only one Ukrainian university is in the top 500 globally: Karazin Kharkiv National University sits at number 471. In fact, most Ukrainian IT specialists are self-educated since the available university programs are often behind the curve of the industry.

Another problem is brain drain. Just under 10 percent of Ukrainian IT engineers moved abroad in 2015. This figure dropped to 3.8 percent in 2017, which is encouraging. Nevertheless, more than one in five Ukrainian IT specialists is currently thinking about moving abroad, according to industry surveys.

Competition and Cooperation

The Ukrainian IT industry is becoming more and more competitive globally. Ukraine climbed to 43rd place in the 2018 Global Innovation Index, a jump of twenty-one spots since 2015. Meanwhile, eighteen Ukrainian companies made it into the 2018 Global Outsourcing 100. The case of GlobalLogic in Ukraine shows that Ukrainian specialists are able to produce high-end solutions. GlobalLogic uses artificial intelligence and machine learning to build fully robotized warehouse systems.

The future of Ukraine’s IT sector likely lies in greater global cooperation rather than competition. Byeda emphasizes that IT projects are becoming more and more complex, and that “their successful accomplishment goes beyond a single engineering center.” The coming spike in international IT cooperation could be an opportunity for Ukraine’s IT sphere to grow beyond outsourcing and put out more of its own projects.

Ukraine’s EU integration, which includes coordinating with the EU digital union, would further aid Ukraine’s incorporation into the global IT market. However, the main challenge facing the Ukrainian IT industry in 2019 is to further improve the overall business climate and provide every benefit for startups. Without these steps, the sustainable development of Ukraine’s IT sphere will not be achievable.

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Kyiv property market in 2019 What can we expect from the housing market in the Ukrainian capital over the coming year?

Ukraine’s economic recovery has continued to gain momentum throughout 2018, with progress on many fronts that has laid the groundwork for long-term growth alongside integration into the global economy.

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However, the spike in tensions with Russia following the late November naval attack on Ukrainian vessels in the Black Sea added significant clouds of uncertainty to an otherwise improving outlook. This has gen-

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Kyiv Real Estate: Tale of Two Cities In 2018, the Kyiv real estate narrative remained a tale of two cities. On one hand, there is the premium rental market catering largely to expats who often live in Tsarist and Stalinist buildings in a small downtown area that represents the city’s historical center. Then there is the broader market that overwhelmingly serves the local population that tends to live in a mix of later period Sovietera buildings and new buildings spread across a large area that is roughly the size of Berlin. The market dynamics (prices, supply and demand) and investment potential for these two segments remain quite distinct, with the best re- :

2019 preview

erated additional anxiety among investors who were already becoming increasingly skittish about Ukraine due to the presidential and parliamentary elections scheduled to take place in spring and autumn 2019.

What will this mean for the Kyiv property market over the coming year?

In order to establish realistic expectations for the next twelve months, it is important to assess the progress of the property market during the course of 2018, while also considering the state of the wider Ukrainian economy and the likely repercussions of potential political and geopolitical developments.

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: turns on investment available by serving the expat market in the city center.

This is something that investors who are considering Kyiv property in 2019 should bear in mind.

In 2018, the Kyiv real estate market developed along lines already laid out during the previous year. The supply of Kyiv rental apartments in the upmarket price range of USD 1,000 to USD 3,000 per month remains tight.

Meanwhile, more and more expats are moving to the Ukrainian capital. This is forcing rental rates to rise slightly as newcomers maintain price pressure on limited supplies of suitable accommodation. Meanwhile, demand for premium rentals of USD 5,000 per month and higher has experienced a notably less pronounced increase.

While demand for premium rentals is not nearly as strong as in the upmarket segment, the renovation quality of offers in the premium segment remains highly unsatisfactory for many expats, especially those with families. This is a significant opportunity for property investors, who can currently take advantage of lower sale prices and renovation costs for larger fix-upper apartments.

With many investment projects on hold pending the outcome of Ukraine’s elections in 2019, we could see a pickup in demand for premium housing for expats after this uncertainty is gone towards the end of the coming year.

Following on from a sharp rise in foreign buyer interest in Kyiv property in 2017, interest remained high in 2018. However, there was only a gradual increase in the number of transactions on the secondary market. As 2018 draws to a close, it seems clear that many potential property purchasers are choosing to wait and see. This could mean waiting until after the New Year, or it could lead to longer delays as investors hold off until they know the outcome of Ukraine’s 2019 elections.

So far, prices for investment-grade flats on Kyiv’s secondary market remain stable and have been at current levels for the past two years. While sale prices for properties on Kyiv’s secondary market and rental prices for upmarket and premium rental housing are both usually priced in USD, large movements in the hryvnia/dollar exchange rate can still affect prices. This is likely to remain a factor over the coming year, but there is presently little sign of major shifts.

After strengthening during the course of the year against the US dollar, as of late December 2018 Ukraine’s currency exchange rate was about UAH 28 to one US dollar, which is more or less where it began the year.

As in the previous few years, in 2018 mortgage financing remained a nonviable option for Ukraine’s homebuyers, with lending rates of over 20% per year. Earlier in 2018, some international banks had been hopeful that mortgage rates could fall to a more reasonable 9%-14% in 2019. These banks are now less optimistic that Ukraine will be able to bring down inflation and lower its refinancing in order to make such mortgages possible. As of late December 2018, Ukraine is maintaining one of the tightest monetary policies in Europe with a benchmark rate of 18%. Banks expect mortgage rates to be around 1520% in 2019, which will not be enough to lift prices in Kyiv’s broader housing market. On a more positive note, there is some optimism that escrow management companies will begin providing buyers with services by mid-2019. This should help mitigate counterparty risk and make Ukraine’s property market more attractive to international investors.

Economic Recovery Continues

According to the World Bank, Ukraine’s economic growth rate was 3.5% in the first half of 2018, which is significantly higher than the 2.5% registered during the first half of the previous year. This growth then decelerated in the third quarter of 2018. Analysts are now predicting a final growth figure for 2018 of between 2.7% and 3.2%, with growth expected to continue at a slightly lower rate in 2019 due to election uncertainties, delays in key reforms, and a peak in repayments of Ukraine’s sizable public debt obligations. However, much like 22

economist Paul Samuelson’s quip that “the stock market has predicted nine of the last five recessions,” economists have often been wrong before when it comes to Ukraine forecasts.

There are certainly reasons for guarded optimism. In 2018, Ukraine took several positive steps to increase its economic integration with the global economy (especially the EU) and to open up key areas of its economy to foreign investment. One particularly promising example is the energy sector, where Ukraine has begun making strides towards energy independence from Russia. The past twelve months saw the development of new solar and wind power projects, including those with funding from foreign private equity investors and international financial institutions such as the EBRD. New support schemes for renewables could come into force already next year, which would drive competition and investment in the industry.

Ukraine also boasts the third largest proven natural gas reserves in Europe and there are signs that this will become a bigger factor in the country’s energy strategy moving forward. Ukraine’s oil and gas industry has an improved outlook for investment growth in the coming years following fiscal relief, liberalization of the regulatory framework, and the recent launch of electronic auctions for the sale of exploration and production licences, as well as efforts to improve the transparency of geological information.

New regulations are also improving Ukraine’s energy efficiency and reducing waste. In 2018, a law on the energy performance of buildings came into force in Ukraine, which requires energy certification of certain types of buildings and provides a platform for the broader use of energy performance contracts and energy-saving technologies. A new electricity market is about to take shape based on the European liberalized and decentralized model, with improvements in market entry and competition as well as cross-border electricity trade.

Airlines, Agriculture and IT

For Ukrainians, 2018 was a year of broadening travel horizons. Both of Kyiv’s international airports recorded passenger growth of over 25%, while in Lviv this growth was nearly 50%. The boom in air travel is due to a number of factors including the removal of visa barriers for EU visits, the market entry of new low cost carriers like Ryanair, and significant route expansions by existing operators. Ukraine is also welcoming more arrivals. In 2019, Kyiv is predicting a record number of international visitors.

Ukraine’s thriving IT sector continues to serve as one of the key engines of the domestic economy with annual growth in excess of 20%. This is driving demand for office space in Kyiv and in other major outsourcing hubs. Traditional sectors of the Ukrainian economy such as agriculture are also performing strongly. In 2018, Ukraine recorded a record grain harvest in excess of 70 million tons. As modernization brings higher yields to the Ukrainian agricultural sector, getting Ukraine’s farming exports to market will require sizable investments to remove logistical bottlenecks in the country’s transport network.

A billion-dollar deal with General Electric signed in early 2018 to provide Ukraine with new locomotives and to modernize existing rolling stock was a positive step in this direction.

When looking at Ukraine’s medium and long-term economic growth prospects, it is helpful to bear in mind that the country is still in the early stages of its post-Maidan economic recovery and transition away from deep integration with Russian markets. There remains much work to do, especially in the area of value-added exports. The challenge here is to integrate Ukraine more fully into global value chains, a process that is already underway in a number of sectors of the economy. Currently, the share of Ukraine’s exports integrated into global supply chains is quite low at about 6% versus a figure of 27% for neighboring Poland. This illustrates how much room Ukraine has to grow.

2019 preview

Election Year Uncertainty

Price Drop Unlikely

By late 2018, many foreign investors had begun shelving investment plans in Ukraine until after the country’s election cycle is complete in late 2019. This means a delay of virtually an entire year. The outcome of Ukraine’s presidential election should be clear by late April, while parliamentary elections are set to take place at the end of October.

This was a predictable pause as seen during any election year. Russia’s seizure of three Ukrainian naval vessels in the Black Sea in November 2018 was also far from surprising for many observers, given Russia’s ongoing efforts to sabotage Ukraine’s economic recovery and derail the country’s Euro-Atlantic integration. This new tension with Russia led Ukraine to declare martial law for a 30-day period in 10 strategic border regions. This precautionary measure did not lead to significant changes on the ground, but it further dampened investor enthusiasm for Ukraine.

International institutional support for Ukraine is likely to remain strong in 2019. Despite the international community’s limp response to Russian aggression in the Black Sea, we can expect increased multilateral lending and technical assistance for Ukraine in the year ahead from the IMF, EBRD and EU. Indeed, on December 18 the IMF improved a new USD 3.9 billion program for Ukraine, which will allow it to receive additional foreign aid. This support will be crucial as Ukraine faces a spike in long-term foreign debt payments. The need to maintain IMF financing will probably limit the maneuvering of presidential candidate Yulia Tymoshenko in particular. If her presidential bid proves successful, Tymoshenko will need to balance her populist promises to potential voters with the need to support key reforms that are a condition of continued IMF lending.

Many investors considering Ukraine are hitting the pause button until after the 2019 elections. If you are thinking of buying investment property in Kyiv, should you also wait on the sidelines? It can be difficult to cut through the noise of the 24/7 news cycle and see past the bad optics of the current tensions in the Black Sea. However, if you are a buyer who plans to hold your property for the medium to long-term term and want to benefit from gross current yields that can be 14% and higher, waiting could just mean you will have more competition for good deals when the elections are over. Given that sale prices for investment-grade properties have been at current levels for about two years and Ukraine’s economic recovery is well underway, it is doubtful that these prices will decrease in 2019. In fact, it is far more likely that we will start to see price increases after Ukraine’s election season finally ends. Buying property in prime Kyiv locations at historically low prices with strong appreciation potential and achieving high current yields by renovating these properties to let as premium rentals is hardly a radical investment strategy. Nevertheless, in light of the current news cycle, it might appear contrarian to many, leading to hesitation. This means that for most of 2019, we can expect herd thinking about Ukraine to create an appealing buying period for properties in Kyiv’s historical buildings in prime locations downtown.

Special thanks to Robert Kossmann of Raiffeisen Bank Aval and Svitlana Teush, Head of Real Estate, Construction and Renewable Energy practices at Redcliffe Partners, for their contributions to this article

About the author: Tim Louzonis (tim@aimrealtykiev.com) is a co-founder of AIM Realty Kiev and AIM Realty Lviv, real estate agencies that specialize in real estate for foreign investors and 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. www.bunews.com.ua

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Ukrainian legal industry 2019 preview

Serhii Sviriba: “Ukrainian legal services clients want easily applicable and industry-specific solutions” range. A merger is a trick of sorts, as it is becoming increasingly difficult to win clients.

Firms choose to merge and strengthen their practices rather than growing them from scratch.

About the interviewee: Serhii Sviriba is Co-Managing Partner at Asters law firm On 1 October 2018, the largest merger in the history of the Ukrainian legal services industry was completed. Operating under the brand Asters, the new firm created by this record merger is the largest in Ukraine with 27 partners and 140 lawyers. Asters Co-Managing Partner Serhii Sviriba spoke to Business Ukraine magazine about significance of this merger and shared his opinion on the key development trends in today’s Ukrainian legal services market.

Which factors defined the development of the Ukrainian legal services market over the past year?

In terms of work, the trends we saw in 2018 were definitely set by state and state-owned companies. Criminal law practice, litigation, arbitration, tax disputes, and all regulatory areas are currently on the rise. We are witnessing the gradual return of transaction and project-related work in the energy, construction and project financing spheres, including work with the involvement of institutional investors. This is helping to revive the market.

If we speak in broad terms about the current situation in the market and its development, then the market is determined by tightening competition along with the need to follow legislative and global trends, in particular when it comes to approaches used in shap24

ing legal products and by alternative pricing including dumping. A separate issue that is encouraging market participants to unite and adopt a pronounced stand is the lawyer’s identification with the client. The market is still not completely transparent, although there are some improvements.

People – the most important force that moves any business forward – are also changing within the legal profession. We are seeing the emergence of a new generation of Ukrainian lawyers who are no longer tempted by partner preferences, as was often the case before.

A healthy work-life balance and the ability to work from anywhere in the world are the key trending choices in today’s Ukrainian market that more “old-fashioned” lawyers will have to respect.

What do you think is behind the current law firm merger drive?

Instead of law firms splitting up, we are now seeing a market trend towards consolidation.

There is one simple reason for this development – today’s clients need an all-powerful counsel who can simultaneously handle criminal, taxation, land and arbitration matters if necessary. One lawyer cannot reasonably be a Jack of all trades. In my opinion, only a fullservice firm can offer a team of professionals working together to provide the necessary

Have you already achieved synergy following your merger?

I expect we will have tangible results within the next year or two. The most important thing at this stage is to fine tune the internal processes within the newly enlarged law firm. It is safe to say that our merger has already triggered the growth of our geographic presence. We already have an office in Washington D.C. and in November 2018 we opened an office in Brussels. We also have plans for further future expansion in Europe.

The merger was a move to strengthen Asters’ competitive edge in the Ukrainian legal services market. Our primary task is to create new capacity, redesign the existing mechanisms to increase internal efficiency, and upgrade the firm’s marketing strategy and communication streams.

What legal products are currently in greatest demand in Ukraine?

While in-house counsels are occupied with routine activities, legal associates are being tasked with handling global projects and finding fast solutions to urgent problems or unconventional approaches to work. Socalled “trouble-shooting” and “deal-making” will always be of value and in high demand.

A lawyer is seen as a business consultant who helps businesses adopt strategic decisions and build strength. I believe that within five years, successful legal firms will be a symbiosis of lawyers, managers, IT specialists and analysts.

Although legal tech is currently much debated and scrutinized throughout the industry, it is still too early to describe it as one of the most in-demand products. Nevertheless, I think legal tech is the next big thing that will change the legal profession dramatically.

To what extend are law firms ready to modify their product lines?

We live in a unique time of change and have

Are we seeing the emergence of a market where lawyers adapt to the needs of clients or do law firms themselves also initiate the promotion of new legal services?

One needs to keep in mind that the client is not always aware of a problem and may not be in a position to clearly identify the legal product they require. In practical terms, the

client may have no idea what exactly he or she actually needs. For instance, only a few years ago, most companies knew next to nothing about anti-corruption compliance, FCPA, and its implications. Those lawyers who could see the prospects in this area successfully convinced their clients of the importance of compliance and were able to gain valuable experience. They are now reaping the benefits of this foresight.

In addition, the Ukrainian legal market is abundant with professionals, so the ability of a law firm to have an edge will play a key role in helping law firms to gain a competitive advantage. One must be able to stand out among an increasing number of legal service providers. Clients, even those who are well-versed in the market, are finding it increasingly difficult to decide who to turn to for help, even while observing all the basic rules of the game such as quality, cost, and time. It will be difficult for firms to emerge from this challenging period without a sound marketing strategy.

Asters has done very well in this regard. I can safely say that our marketing department is the strongest in Ukraine at present.

How would you describe a typical Ukrainian legal services client in 2018?

Clients are becoming more and more demanding as we improve the quality of the services we provide, coordinate project management methods, and gain a better understanding of the specifics of each client’s business. We are able to reduce the time needed for coordination and overcome the reluctance of partners to share client details.

Clients expect their requests to be acted upon immediately and without days off. They also expect consultants to be technically savvy and equipped with all modern technologies ranging from a CRM system containing all client-related information to all modern communication channels. We apply a very conscientious and tailored approach to each client

because it is only this deep knowledge and constant contact with the client that make them feel unique and lead them to see their legal adviser as a close colleague.

Luckily, our recent merger has enabled us to significantly expand our expertise and secure unique projects. Clients are no longer interested in lengthy legal opinions. Instead, they increasingly want to see clean-cut, brief, easily applicable and industry-specific solutions.

Now is the time for lawyers to be proactive.

They must seek to prevent client risk and thus become more appealing and reliable while earning themselves customer loyalty.

2019 preview

to be ready for anything. It is important to promptly determine the demand for a particular product and gain a sense of the client’s need for that product. You need to keep an ear to the ground, communicate with businesses, and be ready to cut the dead weight of inefficient products. Something that seemed like a brilliant idea yesterday might be totally irrelevant today.

We can confidently say that all legal services market players will face serious changes in the coming years. Developers have already created software that can read and correctly interpret intricate texts written in “legal language”. AI learns with each new document it processes, identifies repetitions and errors, prepares reports on all terms of contract, and greatly reduces the need for a human lawyer.

Thanks to technologies such as big data, online justice, improved legislation analysis and the collection of data for court proceedings, justice will be made more accessible and the cost of legal services will have to be reconsidered.

New technologies will transform the legal profession. A recent study entitled “The Future of the Legal Profession” published in the UK predicts the rise of Legal IT in the future, and points out that because of total market globalization, competition will become even more serious as specialists from developing economies such as China or India increasingly appear on the global stage. Very soon, we will see a marketplace where clients pay not only for professionalism but also for customized and tailor-made services specific to their needs.

What is your forecast for the development of the Ukrainian legal services market in 2019?

We operate in a jurisdiction where projecting the future is often a thankless task. Personally, I think the trend towards market consolidation will increase. In general, participants in the Ukrainian legal services market can make quite optimistic plans for 2019. Virtually all areas of litigation practice offer huge opportunities, from ordinary recovery of accounts payable or underpaid taxes and settlement of disputes arising from commercial contracts or labor agreements, to extremely complicated corporate disputes, separation of business between partners, and divorce proceedings between wealthy spouses. I therefore expect to see strong growth in the alternative dispute resolution practice that we have heavily invested in through our partner Oleksii Reznikov.

I also expect to see growth in bankruptcy and debt-restructuring services. However, the forthcoming active political season of presidential and parliamentary elections in spring and autumn 2019 will produce traditional levels of additional pressure on prospective transactions and projects, leaving many investors with little choice but to wait for better days.

“Thanks to the role of new technologies, justice will be made more accessible and the cost of legal services will have to be reconsidered”

www.bunews.com.ua

25

Ramada Encore Kiev Upgrades for 2019

The Ukrainian capital city’s largest international branded hotel in terms of number of rooms is introducing a range of upgrades and innovations for 2019. One of the most striking additions to the Ramada Encore Kiev ensemble for the coming year is the hotel’s new Madrid restaurant. This stylish and comfortable venue will offer Spanish cuisine and tapas bar dining while also hosting buffet breakfasts.

Guests staying in any one of the 58 apartments available at the Ramada Encore Kiev Hotel will now benefit from an improved level of personalized service that includes a dedicated separate reception desk as well

as the hotel’s personal butler service. This private butler service will afford guests of the hotel maximum convenience, with services including everything from restaurant reservations and excursion bookings to entertainment activities for children.

Guests of the hotel will also be able to use the butler service to make sure the Ramada Encore Kiev’s culinary selection comes tailored to meet their specific needs, whether this is a matter of personal preferences or involves dietary requirements for gluten free, vegetarian, kosher, or halal dishes. The attention to detail does not stop there. Each room

comes with a pillow menu and bed linen selection options to make sure you have the best possible sleep environment.

Hotel guests can now take advantage of a new lounge zone designed to provide an ideal working environment and location for business meetings and discussions, or to serve as the perfect spot to relax and wind down watching your favorite sports event or movie while enjoying light snacks and drinks. We will continue to develop our coffee break menu throughout the coming year, with a focus on healthy foods and the very best in locally sourced Ukrainian products.

What are your professional goals for 2019?

The Ramada Encore Kiev team share their expectations for the coming year

Natalia Rogovskaya

Guest Relations Executive Ramada Encore Kiev “Our goal for 2019 is to continue providing high-quality guest-centric service with a heightened focus on the personal requirements of each individual guest. We aim to make sure every guest enjoys a unique experience while staying with us. This will help to create future loyal customers who choose to return to us year after year.

Ideally, our personalized approach will allow guests to feel the difference between a good stay and a truly memorable experience.”

Kateryna Graichenko

Director of Sales, Ramada Encore Kiev “I will seek to consistently improve my contribution and the quality of our services over the coming year. This means never settling for the status quo or remaining stationary in our work.

Instead, I want 2019 to be a year of proactivity and movement that will make its mark on everything we do.”

Alyona Pichugina

Sales Executive, Ramada Encore Kiev “I will continue to seek inspiration in 2019 by constantly challenging myself to go beyond the comfort zone. This also means remaining physically on the move and taking as many trips as possible. Visiting new places and experiencing new emotions can inspire us to diverse thinking and help generate fresh ideas, which is one of the keys to success in the hospitality business.”

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

WHY 2019 WILL BE YEAR OF CONTINUED GROWTH FOR BUSINESS IN UKRAINE

Andy Hunder, President of the American Chamber of Commerce in Ukraine, Member of the National Reforms Council and National Investment Council, Treasurer of AmChams in Europe Ukraine is back on the front pages of the world’s top newspapers. Twice in the past three weeks Ukraine featured on the cover photo of the Financial Times. The headlines read: “US Backs Kyiv in Naval Clash with Kremlin” and “Kyiv Splits from Russian Church”. The news headings highlight the Uturn that Ukrainians have made shifting away from Russia and turning to the West ever since the 2013-2014 Revolution of Dignity.

The same shift is also happening in business.

Earlier this year, I visited Mondelez, formerly Kraft Foods, an American multinational confectionery and food company near the city of Sumy. The factory is situated thirty miles from the Russian border. It used to melt, mold, and package chocolate for consumers in Russia and Ukraine. After 2014, the company revolutionized its business model: the plant today operates twenty-four hours a day, seven days a week, and produces iconic US-brand Oreo cookies, which are exported across EU markets.

Throughout 2018, I traveled across Ukraine visiting firms from north to south, east to west.

Wherever I journeyed, in Kryvyi Rih, Nikopol, Sumy, Ternopil, Odesa, Lviv, Dnipro, Kamianske, Chornobyl or Vinnytsia, I witnessed story after story of growth and plans for further development. I’m not surprised that 74 percent of American Chamber of Commerce members saw their business increase in Ukraine in 2018; three quarters are forecasting continued growth in 2019, according to our latest survey.

This expansion is a result of Ukraine’s economy showing continuous, albeit modest, growth over the past three years. After the illegal annexation of Crimea and Russia’s subsequent invasion, Ukraine went through a nasty fiscal plunge in 2014 and 2015. It is now rebounding.

For example, Ukraine’s 2018 cereal grain harvest hit a record-breaking high of 70 million tons, the highest crop ever reaped since 1991.

Corn accounted for around half of that amount, due to exceptionally favorable weather conditions. The major ABCD agriculture commodity companies, Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus, have stepped up their investment in Ukraine.

In addition to agriculture, our member companies grew in IT, healthcare, food and beverage, infrastructure, fast-moving consumer goods, renewable and nuclear energy sectors.

Kira Rudik, chief executive of Ring Ukraine, is one of the newly elected female CEOs to be voted on to the AmCham Ukraine Board of Directors. You may have seen the Ring TV ads on CNN. Kira established the company only two years ago with ten employees. Today, Ring employs over seven hundred research and development professionals in Ukraine. Just recently it was acquired by Amazon in a $1 billion deal.

Ring makes high-tech doorbells that record live video of the homeowner’s doorstep then wirelessly broadcasts it to their smartphones.

Through this technology Amazon expects to improve its parcel delivery service.

This is just one example of a thriving IT market in Ukraine.

In 2018, Ukraine’s three mobile phone operators launched 4G, the fourth generation of cellular network technology, boosting mobile broadband allowing business and customers to communicate at much faster speeds.

Although optimism is widespread among companies already operating in Ukraine, new investors are still sluggish in setting up shop. Ukraine’s 2018 FDI remains pitifully low at a meagre $2 billion, under 2 percent of GDP. Investors are waiting for predictability on what will follow March’s presidential vote and October’s parliamentary elections. The presidential race is wide open, confirming that the country’s democratic health is sound.

There were setbacks to investment in 2018 to be sure. In November, the introduction of martial law in ten regions across Ukraine resulted in some global corporate headquarters banning all business travel to Ukraine.

Days after martial law was introduced, we put out an official statement reassuring companies of a “business as usual” approach.

Russia’s aggression against Ukraine’s navy in late November did disrupt commercial vessels in the Azov Sea, however the introduction of martial law didn’t impact business in other areas. Martial law is expected to be fully lifted on December 26.

Not everything is perfect in Ukraine, especially as the war in the east continues for a fifth year and the threat of further Russian aggression looms. But the companies that continue to operate and take advantage of the resilient economy and economic reforms have remarkable stories to share. Our member companies are feeling bullish about the year ahead, and so are we.

Source: Atlantic Council

ANNUAL GENERAL MEMBERSHIP MEETING

The Chamber held its Annual General Membership Meeting welcoming hundreds of senior representatives of the business and diplomatic communities, Government officials as well as partners, who had a chance to network with each other and catch up on latest developments of the Chamber.

The highlight of the event was announcement of the 2019 Chamber Board of Directors - a team of dedicated business leaders, that will directly influence Chamber’s successful operations and the development of Ukraine’s business environment in the nearest future.

BEER PARTNER

WINE PARTNER

AMCHAM UKRAINE 2019 BOARD

Lenna Koszarny Chair Horizon Capital On behalf of the AmCham Ukraine Board of Directors, I would like to thank Grzegorz Chmielarski, Managing Director of McDonald’s Ukraine, for his leadership as Chair of our Board beginning in 2017.

Serving on the Board these past three years, alongside such esteemed members of our community, has been very rewarding. I am humbled and delighted to be elected as Chair and look forward to working together with our Board and President to amplify the country’s success and that of its members, as well as focusing on issues that matter to our members during this crucial year ahead.

Alexander McWhorter Vice-Chair Citibank

Iryna Kozlova Treasurer PepsiCo Ukraine

I see my role as being able to represent the voice of the business community and our clients as we work to foster a climate where all companies can invest, grow and plan for the long term future in Ukraine. I will help bring best practices Citi has seen around the world, and help share these solutions with companies, government officials and other stakeholders to help ensure an attractive investment climate and a strong and stable economy over time.

It is very important for me to be part of AmCham Ukraine Board since I can contribute for promoting and development of my home country’s business environment through driving the best international practices. Besides that, having local background in many business functions including finance, marketing and commercial I know how to adapt best practices in Ukraine. My mission in the Chamber I see in improving such important part of business environment as taxation system. Further simplification and increase of its efficiency are our big goal for 2019. Worth to say, I’m confident that building attractive business environment is going simultaneously with responsive way of doing business and it’s the area where I’m going to contribute too.

Matteo Patrone Vice-Chair EBRD

Serhiy Chorny Secretary & Legal Advisor Baker McKenzie

I will bring international experience and knowledge in a diversified range of sectors and industries as Managing Director of the EBRD, the largest institutional investor in Ukraine. In my role of the Chamber Board member, I will be acting on behalf of the whole membership to improve the investment climate, attract and support foreign direct investment in Ukraine. By helping conduct intensive policy consultations with the authorities and introduce proper business practices and corporate standards, I, together with fellow Board Directors and all members will try to make this country a better place to work and live.

Each Board Member, has a two-fold task of (1) acting as watchdog for the membership in monitoring and ensuring that the Chamber’s activities strictly comply with and promote its declared mission and values, and (2) assisting in developing the Chamber’s strategy, as well as tactics on key issues, in the fast changing and challenging environment of Ukraine. In addition, I will have a narrower focus on helping to resolve legal issues arising in the Chamber’s activities, and will participate in the development of strategy of the Chamber’s Legal Committee and its Working Groups. The year ahead is expected to be difficult, and Board Members will have to ensure that the Chamber is steered in the right direction whatever dire straits it faces.

AMCHAM UKRAINE 2019 BOARD

Nathalie Alquier Director Danone

Guilhem Granier Director SANOFI Ukraine

I am proud to be in such a professional organization. The Chamber is truly dedicated to creating the best possible conditions for business in Ukraine, bringing it to the highest international standards. Supporting the success of business while advocating for responsible management is great inspiration for me. Based on previous year experience, I can predict that the following topics will be of high interest of the industry in 2019: • Resolving of waste package management issue for the benefit of responsible producers of packaged goods; • Calling for of fair competition practices & behaviors of market players; • Standing for uncompromised approach regarding milk quality & products safety.

Next year I am going to put my affords towards providing own input into the resolving of the above mentioned issues.

I am proud and honored to serve at the Board of Directors of the American Chamber of Commerce in Ukraine for the second year in a row and will do my job with the same dedication as I did last term.

I am fully committed and energized to support the Healthcare Committee in enhancing healthcare in Ukraine with our common strategy and create additional value for patients, state, and healthcare companies. Thank you for your trust, valuable support and let’s get to work together to make the changes happen.

Grzegorz Chmielarski Director McDonald’s Ukraine

Kamran Iskandarov Director Coca-Cola Ukraine

Stepping into 2019 I would like to bring with me two important elements which can help our organization to move forward and deliver achievements to our Members: experience resulting from five years - sometimes turbulent but overall successful - on the position of managing director of McDonald’s Ukraine and continuity resulting from five years of service on the AmCham Ukraine Board of Directors with the last two years as its Chairman.

I believe that a new Board of Directors is unique puzzle aimed to share, help and value each member` expertise and ability to unite for the best performance and to help sharing Ukraine`s business success to attract new investments. I see my role in the AmCham Ukrainian Boards in bringing my marketing and commercial expertise in every area in need. Also, I feel responsibility to continue supporting culture of freedom and responsibility among the members as I understand that AmCham is exemplary unity of entrepreneurs being committed to Ukraine` prosperity. And my mission is based on my strong believe that by uniting efforts of our companies we will drive and bring positive change to Ukraine and business particularly in 2019.

Alastair D. McBain Director Arawak Energy Ukraine B.V. Recent years have been challenging for Ukraine, and 2019 is unlikely to prove an exception. As we transition through the elections, it is important that AmCham Ukraine consistently delivers practical, realistic and executable advice on how to achieve energy self-sufficiency at the earliest practicable moment. An invigorated energy industry is part of the solution, and both government and industry need to work together to make this happen. I intend to use my knowledge and experience to enable the Chamber Board to play a leading role as guides, advisors and friends.

AMCHAM UKRAINE 2019 BOARD

Kira Rudik Director Ring Ukraine

Andriy Tsymbal Director KPMG Ukraine

I will bring in the IT approach: fast, smart and visionary. I will devote my energy and skills mainly to the following: advocate transparent rules and fairplay to the Ukrainian government, bring Global business leaders to Ukraine and encourage them to invest, support young aspiring leaders in business and education. Foreign investors really find it hard to see our country as a safe and successful business area. I want to make the business climate in Ukraine more attractive to international investors. We will do our outmost to improve the name of Ukraine in the international arena.

It is a great honor and responsibility to serve as an AmCham Ukraine Board Member. In this role, I would like to make greater impact on improvement of business environment in Ukraine which I believe would be beneficial for Chamber Member Companies as well as for the wider business community in Ukraine.

Evgeniy Shevchenko Director Carlsberg Ukraine

Vasile Varvaroi Director Cargill AT

To be a member of the Board of Directors of the Chamber is both a great honor and responsibility. For 5 years, I have been a member of the Board of Directors of one of the biggest and the most powerful business associations of our country.

Together we have implemented many useful initiatives and these days we can see the results of our joint efforts. The government listens more and more to business. It helps to create more favorable conditions for its development and the improvement of the investment climate. We have a clear understanding that there is a lot of work to be done in the future to continue making positive changes in the industry and Ukraine in general. However, we are ready for this challenging task.

AmCham Ukraine has proposed a very ambitious agenda for 2019, considering the priorities we have set-up to the year to come. The Agricultural field continues to be in the center of what we are collectively trying to achieve. I am looking forward to contribute with my knowledge, experience and skill to the areas where these inputs would be valuable. I am passionate about the world of food and agriculture and I plan to promote the development of the agricultural sector as a major strategic part of the Ukrainian economy.

Serhii Yanchyshyn Director Oracle It is a big honor to represent Oracle within the Chamber - the best business community organization in Ukraine and worldwide. AmCham Ukraine Membership gives an excellent opportunity to be at the forefront of the business activities in Ukraine. I plan to participate in ICT and IPR committees bringing significant value based on extensive experience on the ICT market.

B2G Dialogue ROUNDTABLE DISCUSSION “BUSINESS ASSISTANCE IN THE DEVELOPMENT OF ELECTRONIC HEALTH SYSTEM” The Chamber signed a Memorandum on Cooperation with the state-owned enterprise “Electronic Health” aimed at developing cooperation between the parties in healthcare sphere by conduct-

ing joint activities, experience exchange and sharing ideas on how to move forward an innovation-driven electronic health environment.

PHARMA REGULATORY TALKS: PUTTING PRODUCTS INTO MARKET Pharma Regulatory Talks invited Roman Ilyk, Deputy Minister of Health of Ukraine, and Tetiana Dumenko, Head of the State Expert Center, for discussion of the strategic aspects of delivering products into the market. In particular, the registration procedures, Good Manufacturing Practice (GMP) recognition and the Registry of Medicines were discussed during the meeting. The event was organized jointly by the Chamber, its Member Company Danevych.

Law and the Association of Pharmaceutical Research and Development.

MEETING WITH OLHA STEFANYSHYNA, DEPUTY MINISTER OF HEALTH OF UKRAINE AND VICTOR NESTULIA, ACTING GENERAL DIRECTOR OF THE STATE-OWNED ENTERPRISE “MEDICAL PROCUREMENT OF UKRAINE” Following one of the key priorities of the Chamber Healthcare Committee - to provide support in the course of transformation of the public procurement of pharmaceuticals and medical devices system, the meeting was devoted to the discussion of reform of public procurement of medicines. Currently the national procurement of medicinal products are conducted via international organizations – UNDP, Crown Agents and UNICEF, but by 2020 national procurement has to be transferred to newly established State-Owned Enterprise “Medical Procurement of Ukraine”.

B2G Dialogue MEETING WITH OLEKSANDR KOLOTILIN, ACTING HEAD OF THE STATE SERVICE OF UKRAINE FOR GEODESY, CARTOGRAPHY AND CADASTER” Meeting participants discussed the procedure for returning the reclaimed state and communal lands to agricultural land, the competence of the responsible authority on this issue and the procedure for amending the State Land Cadaster in terms of the purpose and composition of land plots.

BANKING & FINANCIAL SERVICES COMMITTEE MEETING WITH OLEG CHURIY, DEPUTY GOVERNOR OF THE NATIONAL BANK OF UKRAINE Chamber Members met with NBU Deputy Governor Oleg Churiy, who presented banking sector reforms in currency regulation sphere as well as further action steps of the National Bank of Ukraine in regard to implementation of the Law “On Currency”.

WORKSHOP “OIL & GAS ONLINE AUCTIONS FOR GRANTING SPECIAL PERMITS FOR SUBSOIL USE ON THE PROZORRO.SALE PLATFORM” The Workshop was organized jointly by the American Chamber of Commerce in Ukraine and the Association of Gas Producers of Ukraine. AmCham Ukraine Members had an opportunity to discover newly established procedure for online auctions for granting oil & gas licenses. The Meeting was devoted to essential information for potential bidders regarding specifics of licenses on ProZorro.Sale platform.

AGRICULTURAL COMMITTEE MEETING WITH ANDRIY CHELOMBITKO, HEAD OF DEPARTMENT ON PHYTOSANITARY SAFETY AND CONTROL IN SEEDS SPHERE OF THE STATE SERVICE FOR FOOD SAFETY AND CONSUMER PROTECTION Chamber Agricultural Committee Members had a productive meeting with Andriy Chelombitko. Key focus – requirements of Indonesian side for export of wheat from Ukraine, areas free from harmful organisms, bylaws to Law on private laboratories, opening of rapeseed export to China.

PRESENTATION OF THE SECOND EDITION OF THE INFOGRAPHIC REPORT “ENERGY OF UKRAINE” The American Chamber of Commerce in Ukraine presented the second edition of the Infographic Report “Energy of Ukraine” developed together with Chamber Member Companies – Top Lead, AEQUO Law Firm, Baker Tilly Ukraine, DTEK. The report is an analytical publication that presents complex aspects of Ukrainian energy sector functioning: its current state and potential as well as areas to be reformed.

DOWNLOAD THE REPORT:

REGIONAL OUTREACH BUSINESS TRIP “OPEN ZAKARPATTIA. LAND CLOSE TO THE SKY” This year the American Chamber of Commerce in Ukraine launched a new platform – Regional Outreach Trips – and has already conducted a few successful and inspiring visits to several amazing cities of Ukraine.

This time paticipants had an opportunity to explore Zakarpattia Region

as a business tourism destination full of opportunities tailored to business needs during the “Open Zakarpattia. Land Close to the Sky” business trip. Chamber Members visited best sites of Uzhgorod and Mukachevo, met with Zakarpattya Regional State Administration.

AMERICAN CHAMBER OF COMMERCE IN UKRAINE ELECTS NEW CHAIR AND EXECUTIVE COMMITTEE

Lenna Koszarny elected Chair of AmCham Ukraine Board of Directors continuously creating opportunities for business to business partnerships, and promoting Ukraine internationally as an attractive investment destination.

The AmCham Board of Directors plays a key role in identifying the strategy and the vision of the Chamber based on Members’ priorities and needs. The Directors are actively involved in policy activities, bringing professional expertise and advocating for ease of doing business in Ukraine.

Andy Hunder, President of the American Chamber in Ukraine, runs the executive operations of the Chamber with his team, who report to the Board of Directors.

Lenna Koszarny, Chair of the American Chamber of Commerce in Ukraine Board of Directors, Founding Partner and Chief Executive Officer of Horizon Capital The American Chamber of Commerce in Ukraine today announced that Lenna Koszarny, Founding Partner and Chief Executive Officer of Horizon Capital, has been elected Chair of the Board of Directors. The newly elected Vice-Chairs are Alexander McWhorter, Managing Director, Citibank, and Matteo Patrone, Managing Director, Eastern Europe and the Caucasus, EBRD. Iryna Kozlova, General Manager, PepsiCo Ukraine, was elected Treasurer and Serhiy Chorny, Managing Partner, Baker McKenzie, will serve as Secretary & Legal Advisor.

This is the first time in AmCham Ukraine’s 26-year history that a female CEO has been elected Chair.

The American Chamber of Commerce in Ukraine represents over 600 members and affiliated parties. Since 1992, the Chamber has been serving investors, multinationals and companies operating in Ukraine. It continues standing up for business, driving actionable dialogue between business and government,

AmCham Ukraine Board of Directors 2019

“I wish to congratulate Lenna and the Executive Committee on this election. This is indeed good news for our members, 74% of whom plan to expand their business in Ukraine in 2019. I look forward to working together with Lenna, the newly-elected Executive Committee and the entire Board throughout an exciting year, serving the members”, commented Andy Hunder, President of the American Chamber of Commerce in Ukraine.

“On behalf of the AmCham Ukraine Board of Directors, I would like to thank Grzegorz Chmielarski, Managing Director of McDonald’s Ukraine, for his leadership as Chair of our Board beginning in 2017. Serving on the Board these past three years, alongside such esteemed members of our community, has been very rewarding. I am humbled and delighted to be elected as Chair and look forward to working together with our Board and President to amplify the country’s success and that of its members, as well as focusing on issues that matter to our members during this crucial year ahead”, said Lenna Koszarny, Chair of the Board of Directors.

Lenna Koszarny, Founding Partner and Chief Executive Officer of Horizon Capital, manages four funds focused on Ukraine and the near region, with over $800 million under management. Born in Canada, Lenna has lived and worked in Ukraine for 25 years. She is a CPA and received her HBA at the Ivey Business School.

CHAMBER MEMBER TOUR: RING UKRAINE – $1 BILLION DEAL COMPANY Big, green and cozy office in the very center of Kyiv welcomed Members of the American Chamber of Commerce in Ukraine within the Chamber Member Tour to Ring Ukraine. Ring Ukraine is a young and successful R&D company specializing in smart-home security technologies. Their office was opened in 2016 starting with only 10 employees, which has now grown to over 700. Guests were impressed by the company’s success story delivered by Kira Rudik, CEO at Ring Ukraine.

WELDI 5TH ANNIVERSARY. BLACK & WHITE CELEBRATION The American Chamber of Commerce in Ukraine celebrated the 5th Anniversary of its Women’s Executive Leadership Development Initiative (WELDI). The first important milestone of the great experience-sharing and networking platform for like-minded, powerful and professional women leaders.

GRAND SPONSOR

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GIFT PARTNER

Business Brain of Ukraine Retail real estate executive Mykhailo Merkulov on the changing face of shopping malls in Ukraine

Mykhailo Merkulov is CEO of Arricano Real Estate, one of the market leaders in the Ukrainian retail real estate sector. Arricano has built six malls in Ukraine with a seventh under construction. Consumer spending is currently enjoying a period of steady growth in Ukraine with an annual increase of around 6% in 2018, while the rise of e-commerce is changing the way Ukrainians shop. Mr. Merkulov spoke to Business Ukraine magazine about the transformations taking place in today’s Ukrainian retail sector and outlined his vision for the future of consumer culture in the country.

What excites you the most about the Ukrainian retail industry?

I could tell you about the double-digit dollar growth we are experiencing as a company for the third consecutive year, but what excites me most is the period of transformation and transition we are now witnessing.

Retail real estate has traditionally favored an old-fashioned business model. For thousands of years, people have been building shopping space, renting it out, and forgetting about it beyond basic administrative functions. We are now seeing changes thanks to the disruptive role played by things like e-commerce. It might not be immediately obvious to consumers, but it is happening. Retailers are becoming niche players seeking a smaller target audience and trying to build relationships with them via the channels that their potential audience is using. This means not only billboards and traditional media but also YouTube and Instagram. This represents a tremendous shift in the traditional work of retailers and shopping malls. Retailers are becoming more technologically literate. This is pays off in terms of better understanding, better penetration, and an improved product that they still often sell in-store.

What are the key obstacles to this transformation?

As is the case in any transition period, problems arise from the uneven pace of the transformation. Some of the market players 42

in Ukraine are very advanced. This is particularly true of companies in the tech and electronics sectors. Meanwhile, some clothing retailers are falling behind, and the bigger the brand, the further behind they often are. It is much more difficult to transform a big company. I find it surprising that many of the biggest international players have yet to launch loyalty programs and e-commerce in Ukraine. This means they are not getting data from their customers or communicating with them other than through advertising. At the same time, we are seeing new players making the transition from online to offline. This uneven technological progress is a challenge for us because we are trying to create retail ecosystems. Data plays a crucial role in this, allowing us to know what our customers want while giving them access to as much information as possible. I would like to give visitors to our malls the same quality of service that they can get from Amazon or Google online.

How are Ukrainian consumer habits changing?

I would like to debunk one popular myth.

People often say that Ukraine is five years behind the rest of Europe. This may be true economically, but not when it comes to consumers. Due the economic situation in Ukraine, around 20% of consumers are consuming 70% to 80% of all goods and services. This 20% are very tech-savvy. They shop online, they have the latest smart phones, they use social media, and they have travelled internationally. In other words, their behavior is the same as consumers elsewhere in Europe.

This means that we must aim to be just as advanced in our product offering as our colleagues in Europe and America. We need to bridge the technological gap.

Where do you see the Ukrainian retail industry in a decade?

That is a tricky question. It can trigger all sorts of fantasies. You can go to extremes like the futurists who predict that in ten years, people will no longer be buying things in stores. Instead, customers will purchase a file from a designer and their home 3D printer will produce the clothing for them. What we can say

with some confidence is that shopping malls in 2029 will be completely different to the kind of malls we see today. This is primarily due to one key reason. You can already buy whatever you want online. Producers are dreaming of direct delivery to consumers, while e-commerce also dreams of putting us out of business. Thanks to these changes in the retail environment, large shopping spaces will undergo a transformation. They will become social engagement spaces. The focus will be less on selling people stuff and more on engaging them into meaningful activities.

The shopping mall of the future will be a datadriven business based on consumer needs and social interaction.

What would be your advice to investors considering possible Ukraine market entry?

I could say that you should do all the proper due diligence, but that would not be anything new. What I would say from my experience is that Ukraine is a high risk, high return market. It is a country full of opportunities, but these opportunities are unevenly dispersed throughout the Ukrainian business landscape.

In order to succeed, you need to treat Ukraine as a startup business. You should approach any due diligence just as you would for a startup. You should base your investment decision on trust, on the team, and on gut feeling. You must ask yourself whether you are ready to invest in this company and these people. Do you trust them? As with any startup, you must also be ready for the possibility of failure. If it does not fail, if you find the right opportunities, deal with the right people and build up the requisite levels of trust, then your investment can generate impressive returns. Thankfully, we have many examples of this in today’s Ukraine.

Business Brain of Ukraine Name: Mykhailo Merkulov Age: 44 Place of Birth: Kharkiv Company: Arricano Real Estate Position: Chief Executive Officer

interview

www.bunews.com.ua

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Increasing the cost of

Russia’s Crimean crime Ukrainian state-owned bank Oschadbank sets legal precedent with billion-dollar international arbitration court victory over the Kremlin April 2014 was a very challenging month for Ukraine, to put it mildly. The entire country was perilously close to spinning out of control. The Revolution of Dignity had sparked the flight of Ukraine’s former leadership and been followed by the start of Russian military aggression in the south and east of the country. Naturally, these unprecedented problems made themselves keenly felt within the Ukrainian banking system.

Distressing information flowed relentlessly into the office of the Oschadbank Chairman, where I had arrived to take up my position just a few weeks earlier. The outflow of deposits from the bank was around UAH 200 million to UAH 300 million per day. Meanwhile, the chaotic and frightening situation in Crimea continued to escalate, with the prospect of losing our Crimean assets becoming more and more realistic with each passing day. I had a good overview of the bank’s position and a clear vision of what was required. Nevertheless, it was difficult to escape the impression of a runaway train that was heading inevitably towards a terrible crash.

Unlike other banks operating in Crimea, we did not have the option of winding down our business on the peninsula in order to save our assets. Instead, we had to remain in Crimea as long as Ukrainian laws were in effect. Meanwhile, we were receiving information on a daily basis about shameless looting by the self-proclaimed leaders of the annexed peninsula. We could not do anything to stop these actions. Instead, we focused on what we could do, which was to document everything as it had been on the eve of the annexation crisis. We began collecting everything from documentary evidence to photos, video footage and eyewitness testimonies. We recognized that this factual basis would be crucial in the coming legal battle to recover our losses.

This approach has produced results. In late November 2018, an international arbitration court backed Oschadbank’s claims against Russia and awarded around USD 1.3 billion in compensation for the bank’s losses in Crimea, together with interest on late payment of approximately USD 100,000 per day. This compensation award covers both lost assets and loss of business. Oschadbank assets in Crimea were considerable and included a branch network of more than 300 outlets together with a solid credit portfolio. It took an entire day for the arbitration court to assess how our losses were calculated. Crucially, we were able to provide the necessary documentary evidence, all of which was collected during the dramatic spring of 2014.

Legal Groundwork

Oschadbank’s eventual victory was not a foregone conclusion.

While we had a considerable amount of evidence in our possession confirming our losses, it was far from clear whether this would prove a sufficient legal basis for success in the international courts.

When we began the process, there was no consensus legal opinion, with around half of the experts we polled saying it was a waste of time and money. There were queries over all manner of issues, including the fundamental question of whether Oschadbank qualified in a legal sense to sue the Russian Federation. Having analyzed all the pros and cons of the situation, we decided that a lawsuit was the most appropriate way forward.

Following discussions with the more optimistic members of the expert legal community, we concluded that the best approach would be to make our claim based on a bilateral agreement between Ukraine and Russia on the mutual protection of investments dating from November 1998. Significantly, both countries subsequently

“Thanks to our efforts, all the other Ukrainian companies that also lost business in Crimea now have the green light to proceed with their own claims against Russia”

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opinion

“The Last Barricade” by artists Yuri Solomko and Ismet Sheikh Zadeh This somewhat prophetic artwork depicting two rival figures imposed onto a map of Ukraine with their spears stuck in the Crimean peninsula dates from 2003. Purchased by Oschadbank at an October 2014 charity auction in aid of wounded Ukrainian soldiers, it is currently on display in the bank’s boardroom. “This picture serves as a daily reminder that the struggle continues,” says Chairman of the Oschadbank Management Board Andriy Pyshnyy. ratified this agreement. Such details often play an important role in international proceedings of this nature. The most obvious example of this is the Yukos vs Russia case. Yukos was initially awarded USD 50 billion in arbitration, only for it to transpire that the European Energy Charter on which the claimant based their lawsuit had not been ratified by Russia. This allowed the Russian Federation to avoid any payouts.

Choosing the right legal adviser was a cornerstone for our further progress. We held talks with ten leading international law firms. Six were not ready to take on the case. Of the four who were ready to proceed, we chose London-based Quinn Emanuel Urquhart & Sullivan LLP, a law firm that specializes in high value and complex disputes, often with an international or cross-border element. They are a global leader when it comes to dealing with investment disputes involving states. Most importantly, they were convinced that victory was achievable. This confidence came despite the fact that there were no such precedents globally. We would be the first. Of course, there have previously been lawsuits regarding investments in regions subsequently occupied by foreign powers. However, Crimea was a completely different story.

De facto, Russia had annexed the peninsula. De jure, it remained part of Ukraine and the international community refused to recognize Russian claims. How would the court choose to interpret the situation? www.bunews.com.ua

Making Our Claim The next step was a letter of notification to the respondent in our claim. Oschadbank sent letters to several recipients in Moscow including the President of the Russian Federation, the Prime Minister, and the Ministry of Foreign Affairs. In line with the relevant legislation, we waited six months for any response. We received none.

Our legal counsel advised against so-called bifurcation of our claim into separate component parts and advised us to opt for a single hearing. They also proposed the Honorable Charles N. Brower as our arbitrator. Mr. Brower once took part in the preparation of disarmament agreements between the United States and the USSR and came with a reputation as a respected international expert. This added considerable credibility to our arbitration case.

The hearing was held by an arbitration court in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), administered by the Permanent Court of Arbitration (PCA), based in The Hague (Netherlands).

This choice was determined by the terms of the 1998 mutual protection of investments agreement between Ukraine and Russia.

The hearings took place in Paris, because French laws are less indulgent of participants in legal proceedings who initially refuse to participate and then try to appeal unfavorable decisions. Indeed, international arbitration awards based on the results of arbitration proceedings conducted in France are not subject to review : 45

About the author: Andriy Pyshnyy is Chairman of the Management Board of Oschadbank

: by appeal. They can only be appealed by setting aside the award

itself, and French law provides very limited grounds for such actions. Furthermore, French awards in international investment arbitration courts are enforceable in 154 different jurisdictions, including the seizure of assets.

Moscow Stays Silent

The Russian authorities ignored all invitations to participate in the arbitration proceedings. The country’s various authorized representatives did not respond to numerous letters and messages from the arbitration tribunal. Nevertheless, the process continued. In line with international arbitration regulations established by the United Nations, if one of the parties fails to appear in court without good reason after having received the proper notifications, the case may proceed without that party’s participation. Any award remains binding, regardless of this nonparticipation.

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Russia’s decision to ignore Oschadbank’s arbitration case testifies to the fact that Moscow has no convincing counterarguments to put forward in its favor. Nor has Russia accepted the verdict. After refusing to participate in the arbitration process, Russia is now attempting to continue its resistance in the implementation stage.

I will not speak in detail about the arbitration claim procedure itself, beyond commenting that everything strictly adhered to the existing international legal framework. The most emotional moments were the hearings themselves, held in March 2017. I can vividly recall two sleepless nights on the eve of the hearings when we worked endlessly on the more than 600 slides featured in our presentation.

My own appearance before the arbitrators also naturally stands out in my memory. At the time, I was acutely aware of how important my speech would be for the future success of Oschadbank’s claim.

Then there was the day we had to find a printing house to publish a mountain of paperwork, and the moment we found ourselves rely-

ing on a Parisian motorcyclist courier to deliver crucial documents to the tribunal despite the traffic jams for which the French capital city is rightly famous.

Setting a Precedent

Oschadbank is a large state institution with a global reputation.

Ever since we began arbitration proceedings, it has been clear that the fate of numerous similar cases would depend on the outcome of our claim. A large number of Ukrainian companies also suffered losses due to the Russian annexation of Crimea. Whenever I asked my colleagues from these companies why they did not also pursue justice via international arbitration proceedings, they would answer: “We are waiting to see the outcome of your claim.” Now that we have secured victory, I can confidently advise them to avoid any further delay and actively defend their rights in the international judicial bodies available to them.

While we have demonstrated that success is possible, future Ukrainian claimants will need to be well prepared and will be reliant on the quality of their team. We were lucky in that we could call upon the Oschadbank legal team together with colleagues from our Crimean Regional Department. During the most intense days of spring 2014, Olexandr Matiukha was the de facto representative of the bank’s management board within the Crimean Regional Department. He painstakingly recorded and documented the actions of the invaders. Thanks to him, we had a detailed account of who burst into our premises, what documents they wielded, and what they took away with them. This was to prove crucial in helping us win. The careful preparation of all necessary documentation at the preparatory stage of our claim also helped to establish trust and mutual understanding with the arbitrators. Due to this, there were only a few unanswered questions left to address following the official hearings, whereas it is common in such cases for there to be dozens of outstanding issues.

This does not mean that it was all plain sailing. On the contrary, there were many tense discussions. Our experts and partners repeatedly had to retreat to the library and consult legal papers like students, especially when it came to ascertaining the correct procedure for estimating the value of banking sector businesses. As a lawyer by education, I was very much aware of our preparations, but I was nevertheless surprised by the how deeply the arbitrators immersed themselves in the details of our claim.

Looking back, the whole process has the air of a Herculean task. www.bunews.com.ua

opinion

“Russia’s decision to ignore Oschadbank’s arbitration case testifies to the fact that Moscow has no convincing counterarguments to put forward in its favor” For four and a half years, we worked tirelessly and simply refused to accept Russian robbery. Including all the relevant attachments, our claim eventually expanded to more than thirty thousand pages.

There were countless meetings, negotiations and discussions along the way. The most important point to remember is that we ended up on the winning side. Thanks to our efforts, all the other Ukrainian companies that also lost business in Crimea now have the green light to proceed with their own claims against Russia.

Making Russia Pay

I am sincerely grateful to the entire team behind our success. I would like to thank both Oschadbank’s lawyers and our English partners for their hard work in securing a happy end to our arbitration story. However, the wider story of our search for justice continues. Russia refuses to pay the compensation awarded by the international arbitration process. Given their refusal to recognize or participate in arbitration proceedings, this is unsurprising.

In response to this refusal, we plan to trace assets belonging the Russian Federation or state-owned Russian companies located in other states. We will work to freeze these assets and enforce the arbitration ruling. There are additional mechanisms we can pursue such as targeting international loan repayments due to Russia. The process of making Russia pay will necessarily take many years, but they will eventually pay. The underlying principle is clear – any nation guilty of international aggression can and must pay the price for this aggression.

I have one final point to make. Many people have asked me whether we plan to pay out any bonuses in response to our arbitration success. My answer is clear and unequivocal. There will be no bonuses.

I cannot honestly say whether this is a good or a bad thing. It is simply our decision. Nevertheless, I am convinced that my legal team are deserving of wider national and international recognition.

Their names are Iryna Mudra, Iryna Kiryeyeva and Andrii Pozhydaiev. Thanks to them, this case will become part of legal history and appear in future editions of international law textbooks.

Our victory has now established a legal precedent. It has shown everyone, including Ukraine’s state-owned companies, how they can protect their investments in Crimea and seek compensation for their losses. This is an important legal victory over Russia. Hopefully it will be the first of many.

This column was first published in Zerkalo Nedeli (No. 221)

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Twice as Good

How Ukraine can shine on the global stage Expo 2020 Dubai is a golden international opportunity for Ukraine that must not be missed countries with a total population of three billion people and a combined GDP of approximately USD 7.4 trillion. In other words, if you participate in Expo 2020 Dubai, the whole world will see you.

Why are global exhibitions of this nature so important? Unlike the strict hierarchies of international rankings, the expo format allows emerging economies like Ukraine to stand alongside their wealthier neighbors. Even a country like North Korea which, to put it mildly, is not regarded as tremendously popular among international investors, recognizes the unique opportunities presented by such events. For example, the North Korean pavilion at Expo 2010 Shanghai had the Japanese, Chinese and Saudi Arabian pavilions as neighbors.

Attracting International Attention

About the author: Pavlo Barbul is an international export expert and the former CEO of Spets Techno Export (2015-2018). He can be contacted via Facebook page: Pavlo Barbul What is Ukraine famous for around the world? What position does the country currently occupy in the international imagination? One of the places to look for answers to these questions is in the many annual global indexes ranking different countries. For example, Ukraine currently occupies one hundred and thirty fourth position in the Index of Economic Freedom, alongside African nations such as Benin and Mauritania. Meanwhile, in the Corruption Perception Index, Ukraine is in one hundred and thirtieth position next to the likes of Sierra Leone and Gambia. These are the primary indicators international investors and potential trade partners all over the world reference when looking to research a country.

How can Ukraine overcome the negative impression created by these rankings and become more internationally attractive? Pavlo Barbul, who served as CEO of Ukrainian international trade company Spets Techno Export from 2015 until 2018, believes that if Ukraine wants to make the most of its export potential, the country needs to maximize its participation in major international events. He identifies the forthcoming Expo 2020 Dubai as a key opportunity for Ukraine to change the narrative around the country and demonstrate to international audiences just how much it has to offer.

Finding the Right Stage

How and when should Ukraine seek to present itself to international audiences? It is very important to inform the international community that Ukraine is a country moving in the right direction and making progress. The challenge is to identify the right place and the right time. Dubai, where the global exhibition Expo 2020 will take place, is the perfect example of a suitable stage for Ukraine.

Expo 2020 Dubai will take place from 20 October 2020 until 10 April 2021.

The United Arab Emirates authorities are spending USD 4 billion on preparations for the event. The area allocated for pavilions will stretch for almost four and a half square kilometers. This area will accommodate representatives from 48

How do various countries try to attract attention at World Expo events? The most popular example is the Eiffel Tower. This iconic landmark in the heart of Paris was originally one of centerpieces of the World Expo event hosted in the French capital in 1889. While the Eiffel Tower is probably the most famous expo-related structure, each one of these regular events typically features unique architecture. This has been the case since the very beginning, when the celebrated Crystal Palace served as the venue for the very first World Expo in London’s Hyde Park in 1851.

Buildings are one way to catch the eye. Works of art and examples of innovation have also traditionally proven popular options among countries looking to impress the world. The Soviet Union was an enthusiastic participant in World Expo events and would often invest colossal amounts into the creation of memorable and striking pavilions. The famous “Worker and Kolkhoz Woman” sculpture was purpose-built to serve as the highlight of the Soviet pavilion at the 1937 World’s Fair in Paris. That particular Soviet pavilion also featured number elements from Soviet Ukraine including miniatures of the Dnipro hydroelectric power plant and the planned urban development of Zaporizhia.

Prior to this, during the World Expo in Chicago in 1933, the Ukrainian diaspora in the US achieved the seemingly impossible by collecting money for the construction of a separate Ukrainian pavilion despite the absence of an independent Ukrainian state at that time. This initiative also overcame opposition from the Soviet authorities. It was a particularly remarkable achievement because funding was in very short supply due to the Great Depression.

The coming Expo 2020 Dubai promises to be a reflection of the Gulf state’s unbridled ambition. For the 2020 event, Dubai officials are planning to construct the world’s tallest building, a tower that is set to be almost one kilometer in height.

Ukraine’s Learning Curve

Independent Ukraine has already gained some experience of participating in World Expo events. Modern Ukraine had its own pavilion at Expo 2010 Shanghai, but this was not an entirely Ukrainian project as the country leased a pavilion built by the organizers. Ukraine chose not to participate in the next event, Expo 2015 Milan, because of the ongoing military conflict in the eastern part of

opinion

the country. In 2017, Ukraine did take part in the specialized expo held in Kazakhstan and devoted to the future of the energy sector. In Kazakhstan, Ukraine presented some of the country’s in-house developments in the areas of solar, wind and hydro energy, as well as in energy cropping.

At Expo 2020 Dubai, Ukraine will be building its own pavilion for the first time.

The Ukrainian Cabinet of Ministers made this decision in February 2017, before concluding a contract with the Expo 202 Dubai organizing committee in July 2018. Construction of the Ukrainian pavilion is set to begin in February 2019, but the country’s preparations are already falling behind schedule. It is important to maximize all efforts in order to make sure the country’s preparations are complete on time. Additional organizational and financial support for Ukraine’s participation may come from the Ukrainian diaspora and the country’s business community, as the event creates potentially huge growth opportunities for the latter in particular.

Innovation and Imagination

How will other participating countries seek to surprise the world in 2020?

Some have already announced the concepts behind their planned pavilions in Dubai. The available descriptions resemble a collection of fairytales and fantasies rather than the agenda for a typical business event.

The Netherlands will install a vertical farm in their pavilion producing electric energy and foodstuffs. Brazil is going to recreate the environment of Amazon Basin so that visitors explore one of nature’s wonders without leaving the Brazilian pavilion. The Swedish pavilion will combine a North European forest, desert landscapes, and Arabic ornaments.

How can Ukraine prepare for the Expo properly? The concept behind the Ukrainian pavilion is important, but the right content is vital as well. Nationalstyle ceramics and embroidered shirts are lovely features of Ukrainian culture, but they are not the right fit for the Expo 2020 Dubai format. People will not come to Dubai in order to see folk culture or historical artifacts. They will come for a glimpse of the innovations that will shape the future.

This has always been the case since the concept of World Expo events first took shape in the middle of the nineteenth century. For example, one of the very first expos in 1855 took place in Paris and witnessed demonstrations of lawn mowers, washing and sewing machines, a talking doll and one of the world’s first www.bunews.com.ua

vehicles powered by petroleum products. It is worth underlining that all this was on show at an exhibition held more than a century and a half ago.

Visitors in 2020 will not be overly interested in the iron-ore pellets and corn that Ukraine is currently exporting. They will want to see examples of biotechnologies, artificial intelligence, and alternative energy sources. In other words, Ukraine needs to show products that offer high levels of added value. This will also be an opportunity for Ukraine to demonstrate that it is more than capable of keeping up with key global trends. One such trend is organic food. European and Middle Eastern consumers are will to pay a premium for high-quality foodstuffs produced without the use of chemicals. This is an area where Ukraine is already progressing and can excel in global terms.

Another global trend is healthcare, which the World Economic Forum identified as one of the key competitive factors for any country. The Ukrainian pharmaceutical industry is showing growth and actively reaching out to global markets. Ukrainian specialists have created technology to produce 3D-printed human bone tissues. That is an example of exactly the right kind of story for Expo 2020 Dubai.

Showcasing the New Ukraine

Ukrainian companies are already successfully implementing projects in Dubai in a range of sectors including the restaurant business, real estate development and aviation. Expo 2020 Dubai is a chance to present the very best the country has to offer.

As Ukraine looks to challenge negative perceptions about the country, it is worth recalling the words of Condoleezza Rice’s father, who told the future US Secretary of State when she was growing up: “To achieve success, you should be twice as good.” Condoleezza Rice grew up at a time when race discrimination meant that even a gifted child was likely to encounter barriers just because of their skin color. The challenges facing Ukraine are of a different nature but the message is the same. Being twice as good is exactly the task facing Ukraine at Expo 2020 Dubai.

While demonstrating the latest innovations is good enough for well-established nations like Canada and Germany, Ukraine still has to persuade the outside world that war and corruption are far from the country’s only calling cards. Expo 2020 Dubai is an opportunity to do just that.

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CERTIFICATION is based on the assessment of the level of compliance and integrity, anticorruption policy of a UNIC member. It is conducted by an independent expert in accordance with UNIC Standard based on the best international practices

CERTIFICATE Company is an owner of the Certificate of the Ukrainian Network of Integrity and Compliance (UNIC) – a new initiative for businesses that want to work transparently

High-level compliance assessment by independent experts = Certification Confirms the right to use UNIC logo

CERTIFICATE Company is a member of the Ukrainian Network of Integrity and Compliance (UNIC) – a new initiative for businesses that want to work transparently

Joining the Network = selfassessment of the level of compliance by a member

KEY STEPS TO CERTIFICATION

Confirms membership in UNIC

CERTIFICATION CONFIRMS THAT A UNIC MEMBER (as of a Certification date)

Has defined compliance risks

Has developed a procedure / policy to prevent corruption

DOES NOT GUARANTEE THAT A UNIC MEMBER was not and will not be suspended in corruption in the future

Has implemented a procedure / policy to prevent corruption

Use a procedure / policy to prevent corruption as operational guidelines and principles

IS NOT an investigation of a UNIC member’s non-compliant behavior

STAGES OF CERTIFICATION

1

2

Selection of independent experts

Preparation for Certification

3

4

Assessment

Certification decision-making

BENEFITS OF CERTIFICATION

RIGHT TO USE THE LOGO to mark goods, work, services (on a package or label)

RECOGNITION in media (marketing materials, website, etc.)

INCREASED LEVEL OF TRUST

by other market players with a high level of business integrity and compliance

by subcontractors, investors, creditors

COST AND TERMS COST OF ASSESSMENT

TERMS OF ASSESSMENT

depends on time spent by the project team of an independent expert, as well as on the size, structure, organization and industry sector of a company, subject to the assessment.

FROM 2 MONTHS

TO 6 MONTHS

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Building a global market for virtual gaming goods Gaming innovator DMarket has Ukrainian roots and maintains a major development team in Kyiv

DMarket CEO Vlad Panchenko is one of Ukraine’s most successful gaming industry professionals The video game industry remains among the fastest growing economic sectors in the world and Ukrainian companies are very much part of this process. According to research firm NewZoo, the global games market is going to make around USD 135 billion in revenue in 2018, which is almost twice as much as in 2012. Forecasts continue to predict double-digit annual growth for years to come. Companies with Ukrainian roots or offices in Ukraine have had a fair share of success in the global gaming industry, contributing to its fast-paced development with a wide variety of games ranging from mobile titles to top-tier PC and console franchises such as Metro by 4A Games or S.T.A.L.K.E.R. by GSC Game World.

DMarket is another gaming company with a strong Ukraine connection that is boosting the worldwide expansion of the video game industry. DMarket offers developers ready-to-use technology and a platform for monetizing their titles through trading in-game items.

It is a novel service that also benefits players, content creators and the gaming community as a whole.

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DMarket first hit the headlines of the Ukrainian business media about a year ago as one of the country’s most successful tech startups in terms of investment attraction. Despite close associations with Ukraine, the company actually has its current headquarters in Santa Monica on America’s west coast, a reasonable choice given that California is the global gaming Mecca boasting more than 900 companies working on video games. Nevertheless, DMarket continues to maintain a large office in Kyiv where the main part of the development team is located. The company has its third office in London.

DMarket is making waves within the gaming community but in many ways, it is still a baby. Ukrainian gaming entrepreneur Vlad Panchenko founded the company as recently as May 2017 and was soon able to generate significant international investor interest. He managed to raise more than USD 19 million during two phases of an initial coin offering by the end of the year. Pantera Capital, a renowned investment firm focused on blockchain tech, was among the top contributors. The initial soft cap (the amount of gathered

company profile

capital at which the ICO is considered successful) of USD 1 million was raised within the first 17 minutes of the crowdfunding event.

However, when it comes to tech startups, project implementation success is not always a given despite funding success. Business Ukraine magazine took a closer look at DMarket’s recent advancements to figure out if the project is reaching its goals and meeting its obligations to investors.

Virtual Items, Real Value

As an in-game monetization technology and service, DMarket offers the gaming community an online platform where gamers can trade in-game items among themselves while developers gain revenue from every transaction fee. Someone who is not really into gaming might look down on such trading, assuming it is just another way for immature gamers to waste their time while not really generating serious revenues. However, such thinking is hard to justify when confronted by the relevant figures. Early this year, a virtual rifle from a game called Counter Strike: Global Offensive sold for record high price of USD 61,000. To be more exact, this was a so-called skin for a rifle, a graphic file that changes the rifle’s appearance without changing its gameplay parameters.

This trade alone is a good reason to take the market for virtual goods more seriously. The sums involved can often be mindboggling. Total annual turnover in this fledgling industry is currently several billion dollars, or even dozens of billions according to different sources.

Most of those billions are circulating around a few games and many of the featured titles belong to a single developer. The in-game trading industry presently covers roughly 6% of the global gaming audience of 2.4 billion people. In other words, the overwhelming majority of gamers have no opportunity to resell assets earned or purchased in their favorite titles. This is where Vlad Panchenko saw a window of opportunity. “The most important thing is that DMarket’s solution benefits the whole gaming community, including developers and players as well as content creators and gaming entrepreneurs,” Panchenko says.

Developers can now connect their games to the DMarket platform and receive fees from all the transactions of their in-game items among players, generating a potentially infinite revenue stream. Gamers, in their turn, get the opportunity to monetize their playing time by trading virtual goods acquired during game action. They can also create additional content and get their share of trading fees once a developer adds these user-generated items and makes them available for trading.

DMarket distinguishes itself from the competition by leveraging blockchain technology that solves current issues in in-game items

trading market such as fraud and account hijacking. Once an item appears on DMarket’s blockchain, it gets its own hash that makes the item unique and its transaction history traceable. If someone tries to alter that data, any changes instantly become visible to everyone, preventing any kind of hidden intervention.

Reaching Milestones

Unlike most ICO projects, DMarket conducted its initial coin offering with the Alpha version of the platform already in place in October 2017. An up-and-running version was then presented in March 2018. One of the key added features was the Steam integration that allows platform users to buy, sell and collect items from popular games CS:GO and Dota 2 on DMarket. Since then, the platform has undergone regular updates, creating expanding trading opportunities for users who have already made around 200,000 deals. In June 2018, the company released its blockchain wallet, an iOS and Android application allowing users to store and manage their funds, in-game items, and collectible digital assets.

The next step for DMarket is to broaden the reach of the platform by getting more developers to sign up. The company has managed to enlist support from gaming industry giant Unity Technologies, the creator of the world’s most popular game engine. According to Unity CEO John Riccitiello, half of all games globally use Unity. Now all of those games, covering about 700 million players worldwide, are available for seamless integration into DMarket’s trading ecosystem thanks to the DMarket Integration SDK launched on the Unity Technologies Asset Store in August 2018. There has been a lot of other encouraging news coming from DMarket in recent months including localization of the company’s online platform into eight languages (Russian, Korean, German, French, Portuguese, Spanish, Polish, and Turkish). The company is also strengthening its team. The latest big addition is new Vice President of Business Development and former G-cluster board member Sevan Kessissian, who pioneered cloud gaming as early as 2008 and is widely credited with bringing it to the mass-market level.

These developments confirm that DMarket has come a remarkably long way over the last year, but an even longer path lies ahead as it seeks to change the entire shape of the gaming industry economy. The company’s ultimate goal is to revolutionize gaming as a whole by creating a global trading ecosystem for millions of players and thousands of games without any borders or barriers between them. Within this borderless trading virtual reality, Kyiv is set to play a significant role.

About the author: Conal Campbell is a longtime Kyiv resident and supporter of the Ukrainian tech scene www.bunews.com.ua

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How Ukraine became an open data pioneer Ukraine has embraced open data and climbed to 17th place in the 2018 Open Data Barometer

About the author: James Maddison (james.maddison@theodi.org) is Project Coordinator at the Open Data Institute (theodi.org) Open data in Ukraine has progressed significantly in recent years. This progress serves as an important case study of national and local government investing in and benefitting from open data. In the 2015 edition of the Web Foundation’s Open Data Barometer, in which governments around the world are compared by how they are ‘publishing and using open data for accountability, innovation and social impact’, Ukraine was ranked in 55th position. Three years on, Ukraine is now ranked 17th in the Leaders Edition of the Open Data Barometer. This means that Ukraine has achieved the second biggest historical rate of improvement since the Barometer’s inception and makes the country an open data pioneer.

Impact of eGovernance

Recent improvements are largely down to Ukrainian reforms in eGovernance led by the State Agency for eGovernance of Ukraine

(SAEG). These reforms aim to increase public sector transparency and accountability in order to reduce or eradicate corruption, while at the same time stimulating economic value from data use and innovation. As part of these reforms, the State Agency for eGovernance has created, and is committed to maintaining, an effective and sustainable open data program under which central government and city governments across Ukraine publish data following an ‘open by default’ approach.

To help support the Ukrainian government with these reforms, the Transparency and Accountability in Public Administration and Services (TAPAS) program was set up in 2016. The ODI has been an implementation partner working with local actors and SAEG to share international experience, adapt tools and methodologies for developing capacity and stimulating innovation, and provide policy advice.

Two years on from the start of the program, Ukraine’s national government now publishes open data on a regular basis, while individual cities are making their first steps towards publishing open data at the local level. Strong leadership has played an important role in supporting the development of this initiative, while the creation of an Open Data Leaders Network for national and city government officials has been a key driver for this continued commitment to publishing data openly.

Economic Benefits

Aside from just creating a supply of data, the Ukrainian government has also adopted an Open Data Charter and is embedding its principles and best practices in order to implement resilient open data policy throughout the country. This involves developing partnerships between agencies, data journalists and civil society to make sure Ukraine is publishing data with purpose, so that the information made available actually meets user needs. Strengthening these relationships within the data ecosystem has been an important factor in making open data work for Ukraine.

The promotion of open data principles in Ukraine is also beginning

“Research carried out by the Kyiv School of Economics estimates that open data currently contributes between USD 746 million and USD 903 million to the Ukrainian economy”

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reforms

to gain recognition for its potential economic value. Research carried out by the Kyiv School of Economics estimates that open data currently contributes between USD 746 million and USD 903 million to the Ukrainian economy. Based on the existing economic data and current trends, this figure could increase to USD 1.4 billion by 2025, or just under one percent of the country’s GDP. This is an appealing prospect but it is not a foregone conclusion. Realizing the maximum economic value of open data to Ukraine’s economy will require sustained investment and continued high-level political support.

Open Data Cities

In an effort to emulate the positive changes taking place at the national level, several individual Ukrainian municipal authorities have committed to publishing open data. Some have also adopted the country’s Open Data Charter. Data that city authorities publish is often particularly useful to members of the local community on a day-to-day basis including startups, small-to-medium enterprises and the wider civil society, as the data made available tends to be directly relevant to people who live in that municipality. To help foster innovation through the practical application of this open data, the TAPAS program runs a nationwide Open Data Challenge, which offer participants the opportunity to win further funding in exchange for developing open data solutions that create a tangible social or anticorruption impact.

Winning innovations have included Monitor.Estate, a service that analyzes the legal risks involved with purchasing and leasing properties. Users can access real-time compliance documentation about real estate developers. Fellow winner Greenval is an application that allows farmers to compare registered pesticides and agrochemicals in Ukraine, in order to make informed purchases that reflect their particular needs and product safety. Transparent Infrastructure is anothwww.bunews.com.ua

er open data initiative to earn Open Data Challenge recognition. This platform allows users to monitor infrastructure projects implemented with public funds. It helps make complicated data such as contracts or complex technical information on infrastructure easier for citizens or journalists to digest. Then there is LvivCityHelper, a chat-bot that gives Lviv residents the opportunity to ask their local city council questions and quickly receive answers. The bot is also able to answer frequently asked questions such as when a particular street will undergo repair work or how much money a municipality has allocated to a particular school.

Raising Awareness

Ukraine’s recent successes in the open data sphere create further opportunities for the State Agency for eGovernance to create impact.

These opportunities exist across national and local government agencies, business and civil society. Raising awareness throughout government with regard to the value of open data while working to improve the digital skills of civil servants can help government departments to publish datasets that are valuable to society. The implementation of open standards for data will help to improve the quality of the data that is already appearing in the public domain while making it easier to harmonize local government data policy. Continuing to work in an open way through creating a dialogue with data users will also help to develop a better understanding of which datasets users find most valuable, where the gaps are, and whether it is possible to build new eServices that can make people’s lives better.

Making the case for sustained investment into open data and the underlying data infrastructure is crucial to embed the gains achieved by Ukraine so far. This means continuing to do the hard work of measuring impact while also telling stories like these about the economic value of embracing open data as a policy principle.

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Annual Charity Bazaar Sets New Fundraising Record The twenty-sixth annual Charity Bazaar hosted by the International Women’s Club of Kyiv (IWCK) set a new record in December, raising over UAH 3 million for good causes. The event, which is traditionally one of the highlights on the Ukrainian expat calendar, welcomed more than 8,000 guests and featured the participation of forty-two embassies.

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Ukrainian Catholic University Holds Annual Charity Dinner

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The Ukrainian Catholic University welcomed over 500 guests to its annual charity dinner in Kyiv in mid-December.

Guests enjoyed a festive evening and raised a record amount of UAH 12.5 million.

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Annual Real Estate Industry Awards in Kyiv Over two hundred real estate professionals gathered at Kyiv’s InterContinental Hotel in early winter for the 2018 edition of the annual Eastern Europe Real Estate Project Awards. This event, which is currently in its fourth year, has emerged as the largest industry gathering on the Ukrainian real estate calendar. This year’s award winners included Park Avenue VIP (Residential Building of the Year), Ukrbud (Development Company of the Year), Drozdov & Partners (Architect of the Year) and CBRE Ukraine (Property Management Company of the Year), while the sale of Horizon Park Business Centre was named Deal of the Year.

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Quiz Fun at Kyiv’s Legal High School The Legal High School initiative in the heart of Kyiv brings together many of Ukraine’s leading law firms and legal sector professionals. Since its launch in early 2018, it has hosted a range of training events, forums, seminars and regular legal industry lectures. The latest edition to the Legal High

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School portfolio is the LHS Quiz. The opening event in December attracted a diverse selection of lawyers, bankers, judges and politicians keen to test their knowledge of legal matters and much else. Check out the Legal High School 2019 schedule online for news of upcoming LHS Quiz fun.

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Kyiv’s Citronelle Hosts French Michelin Star Chef One of Kyiv’s leading French restaurants Citronelle opened this year’s festive season with a brace of gourmet evenings courtesy of Michelin Star chef Paul Burgalieres. Twenty-nine year old Burgalieres joins a growing list of Gallic masters to embark on culinary tours of Kyiv. Citronelle maintains close links with a number of French

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restaurants and in recent years has made a tradition of inviting Michelin Star chefs to the Ukrainian capital to showcase their skills for the venue’s friends and partners. With thanks to event sponsors AvtoCapital (Mercedes-Benz Ukraine, Daimler AG), Asters law firm and Aromateque Concept Store.

networking events

www.bunews.com.ua

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The Ksenia Schnaider brand is one of Ukraine’s most internationally successful labels. Best known for iconic denim designs, Ksenia Schnaider clothing is currently available in 16 countries around the world

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fashion industry

Can Ukraine’s Fashion Industry

Become Globally Competitive?

Ukrainian Fashion Industry Profile: Ukrainian designer brands are increasingly in demand but new research highlights the need for modernization and greater state support before the country’s clothing industry can become a genuine engine for economic growth Ever since the 2014 Revolution of Dignity, Ukraine’s fashion industry has enjoyed a rising international profile while also benefitting from increased kudos among domestic audiences eager for anything with a “Made in Ukraine” label. This newfound popularity has attracted considerable media coverage, with journalistic interest amplified by a backdrop of geopolitical drama. Ukrainian designers have become regular features in the pages of Vogue magazine and other bibles of the global fashion press. Meanwhile, outlets offering the latest collections from Ukrainian designers have begun to appear alongside the international brand names throughout the country’s retail scene, with a flagship department store in the heart of Kyiv cementing the trend in the collective Ukrainian national consciousness.

The expansion of the Ukrainian fashion industry over the past four years has certainly been exciting, but has it been profitable? How big a role in the Ukrainian economy could companies from the fashion sector actually play? These questions remained largely unanswered until autumn 2018, when international cultural diplomacy and fashion industry expert Anna Varava presented the results of the first major study into Ukraine’s fashion industry and its place within the wider Ukrainian economy.

Ms. Varava spent around half a year researching the realities of the Ukrainian fashion and textiles business. She received guidance from British DCFTA expert Mark Hellyer alongside Dr. Marc Peter Radke and Dr. Paul Taylor of Germany’s Hochschule Furtwangen University.

The initiative also enjoyed support from the Ukrainian Cultural Foundation and the Association4U project, which seeks to help Ukraine gain maximum benefit from the opportunities arising from the country’s Association Agreement with the European Union.

Ms. Varava’s findings paint a picture of a dynamic industry with a number of encouraging tendencies that nevertheless has much work ahead as it seeks to emerge from the shadows of the grey economy and www.bunews.com.ua

meet the challenges of the rapidly evolving digital retail environment.

She has prepared an overview of her research for Business Ukraine magazine readers to provide insight into the challenges facing Ukrainian fashion brands and textile companies as they seek to match the progress of their more established European neighbors while adapting to the rapidly changing fashion retail sector.

Global Economic Powerhouse

The global fashion industry is worth an estimated USD 3 trillion, making it considerably larger than many more readily acknowledged economic powerhouses such as the international telecommunications industry. Within this USD 3 trillion, women’s wear alone accounts for an estimated USD 621 billion in annual sales, of which USD 340 billion is concentrated in the luxury goods segment. These figures underline the potential importance of the fashion and clothing industry to individual national economies. They also highlight the considerable room for growth in today’s Ukraine.

Significant further expansion of the Ukrainian fashion industry would certainly be in line with global trends, which have seen clothing manufacturing serve for many decades as an important export for emerging economies. Indeed, clothing is a staple of the light industry sector, traditionally seen as one of the easiest areas of any economy to mobilize during periods of growth and transition. The advent of free trade with the EU courtesy of Ukraine’s 2014 Association Agreement opens the door to far greater volumes of clothing exports to European markets.

These exports can include everything from basic everyday items to designer brands.

Still in the Shadows

Researching the Ukrainian fashion industry is challenging due to an absence of reliable figures for the industry as a whole. Nevertheless, : 63

: recent research was able to identify numerous broad trends within

the industry, leading to some key conclusions and recommendations.

In 2017, the domestic women’s wear market in Ukraine was valued at approximately UAH 8.66 billion. However, the bulk of Ukrainian clothes manufacturing currently focuses on export markets. The country’s textile industry is officially worth around USD 3.43 billion, but according to some estimates, as much as 90% of the sector’s output may still be in the shadow economy.

Ukraine currently has 6,000 manufacturing plants operating in the textile industry, with between 80% and 90% of all production bound for export markets. Meanwhile, there are between 500 and 600 Ukrainian fashion designers engaged in the retail trade with their own brands and collections. Around one third of this total, or approximately 200 designers, are regular participants in fashion weeks and other industry events, both domestically in Ukraine and on the international stage. Popular foreign retail markets for Ukrainian designers include the EU (especially Poland), USA, Middle Eastern and Asian countries.

Made in Ukraine

The past few years have been a period of accelerated national awakening for Ukraine, with the country going through the turbulence of revolutionary upheaval and international conflict. One of the byproducts of this instability has been rising patriotic interest in all things “Made in Ukraine”. This trend has been particularly prominent in the fashion industry, with Ukrainian brands benefitting from rising visibility and greater kudos as a result.

According to official Ukrainian government figures, retail trade increased by just 3% in 2017. However, anecdotal evidence from individual designers points to a far larger increase in sales of branded clothing by Ukrainian designers, with many middle class and wealthier customers in particular now preferring to mix and match local and international brands. This hybrid approach has enabled Ukrainian brands to leverage the “Made in Ukraine” trend and position themselves among domestic audiences alongside some of the most globally recognized labels.

As is the case in any fashion industry, a clear hierarchy is now emerging among Ukrainian designers and domestic clothing brands. Some of the country’s more established designers remain very much aloof from the emerging mass market and continue to focus on small circles of private clientele, while others seek to turn their catwalk credibility into international business success. Some of the most successful Ukrainian fashion brands at present, both inside and outside the country, include Ksenia Schnaider, The Coat, and Andre Tan. Clothing sold under the Ksenia Schnaider brand is currently available

in 16 countries around the world. This Ukrainian designer’s iconic jeans and other creations are available in exclusive boutiques and prestige department stores such as Selfridges in London and Isetan in Japan. The brand currently has an annual production output of around 6,000 items of women’s wear apparel, with an average price per item of USD 600. The growing Ksenia Schnaider business empire is a pioneer of the online retail segment among Ukrainian brands, with around 40% of sales coming digitally via the Shopbop and Bloomingdale’s platforms.

Ukrainian brand The Coat has strong representation in Ukraine itself with central showroom in Kyiv. It has an official representative in Moscow, while also cooperating with Milan-based Guffani, which is official distributor of the brand for CIS countries, the Middle East, the Baltics, and Eastern Europe. This brand is another example of the power of a strong online presence, with 65% of The Coat sales coming online and via a popular instagram account that has accumulated over 120,000 subscribers. Annual production currently stands at about 6,000 items, with an average price of USD 400 per piece. The company focuses its attention on status- and fashion-conscious women in the twenty-five plus age category, which means an inevitable luxury premium and heightens the need to maintain an air of exclusivity around the brand.

Perhaps the most impressive Ukrainian brand name on the market today in terms of business model and company structure is the eponymous Andre Tan brand, which currently boasts 58 boutiques across Ukraine including spinoffs such as Andre Tan KIDS and Andre Tan Man. The success that designer Andre Tan has had in developing his own brand on the domestic market is a reminder that Ukrainian consumers represent a vast marketplace that is receptive to local designers who are able to position themselves in the same bracket as exclusive international labels. Tan first rose to prominence in Ukraine over a decade ago and has managed to cultivate his personal brand via an extensive media presence on Ukrainian TV. He has recently opened his first international store, Andre Tan California, and maintains a strong online retail profile. Nevertheless, the Andre Tan model is much more oriented towards large-scale sales and a domestic clientele, with just 10% of sales currently via online platforms and an average price per item of around USD 100.

Huge Economic Potential

The available data from state organizations such as Ukrlegprom, the State Statistics Service of Ukraine, and the Ukrainian Institute of Economics indicates that the Ukrainian fashion industry is an entrepreneurial environment dominated by small and medium-sized enterprises (SMEs). Larger enterprises are almost 100% focused on so-called Cut, Make and Trim (CTM) :

“Statistics place the contribution of women’s wear apparel at 0.06% of Ukraine’s GDP. This is equal to half the value of honey production, yet the honey industry currently receives significantly more attention, interest and state support”

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fashion industry

Andre Tan is arguably the biggest brand name in the Ukrainian fashion industry with 58 boutiques across the country

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About the author: Anna Varava is the author of the first major research paper on the Ukrainian fashion industry. She is a senior expert of the Association4U project at the Ukrainian Ministry of Foreign Affairs (Directorate General for the EU and NATO)

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: work, which is at the bottom of the fashion industry food chain and contrib-

utes relatively little to the country’s overall GDP. There are already considerable indications of the potential within the Ukrainian fashion industry to become a driver of economic growth. Current statistics place the contribution of women’s wear apparel at 0.06% of Ukraine’s GDP. This is equal to approximately half the value of honey production in today’s Ukraine, yet the honey industry receives significantly more attention, interest and state support. Based on the current figures for the fashion industry, it is clear that more state support is required if the sector is to reach its obvious potential.

Key constraints on the evolution of Ukraine’s apparel sector include the absence of a coherent development strategy, the oversaturation of the domestic market with imported second-hand clothing, and a lack of both equipment and skilled personnel. Another major barrier to growth is the high number of producers operating below the radar in the shadow economy, which some observers believe could be as high as 90% of the market. There are also considerable concerns over illegal imports, especially in relation to second-hand clothing shipments, which are particularly susceptible to various shadow schemes. None of these obstacles is insurmountable, but they do underline the need for a proper review of existing regulations and industry monitoring.

An Industry in Transition

As Ukraine looks to modernize its fashion industry and integrate into wider European markets, many within the industry are looking towards France as a model for a successful fashion sector that has many of the structural features also present in Ukraine. The French fashion industry is both an economic engine and a powerful soft power tool that helps to promote France globally, making it even more strategically appealing.

As a transitional economy with a proven aptitude for change, Ukraine is in many ways well placed to succeed at a time when the entire global fashion and clothing industry is undergoing dramatic changes that will shape the future development of the sector in countries around the world. The fashion industry of the future will focus increasingly on digital presence with e-commerce, digital marketing, VIP loyalty programs, and online brand building all set to be crucial components to any fashion success story. In this evolving environment, physical stores can and will be replaced by internet-based applications and online services. The adoption of disruptive technologies such as advanced robotics and analytics, virtual and augmented reality, and smart phone retail is already accelerating. These processes have the potential to disrupt entire industries, with fashion no exception. Then there is the growing potential of artificial intelligence to make an impact throughout the www.bunews.com.ua

fashion industry

“The current domestic popularity of “Made in Ukraine” brands presents excellent opportunities for the growth of the Ukrainian fashion industry. A strong presence on the Ukrainian market can act as a platform for future international expansion” fashion value chain, blurring the lines between technology and creativity.

As consumers become more demanding and expectations continue to rise, we will see greater emphasis on flexible, short-term and on-demand fashion production, together with digital manufacturing and higher levels of customization. The right legislative and regulatory landscape will be crucial for the sustainable growth of the fashion industry in this challenging and dynamic environment. In Ukraine’s case, access to financing will be potentially decisive, as SMEs will need the necessary financial tools if they are to invest in growth and innovation.

Remaining in Fashion

Detailed research into Ukraine’s fashion and clothing industry reveals a number of areas that will likely determine the further development of the sector. One obvious point is the need for modernization, both in terms of technologies employed in the industry and in terms of the professional knowledge of those charged with leading Ukrainian clothing manufacturers of all sizes. There is also a need to review legislation governing the import of second-hand clothing and other loopholes that make the large shadow fashion economy in today’s Ukraine possible.

International investors are already present in the Ukrainian fashion and textiles market. In order to attract investors in greater numbers, Ukraine requires a more transparent business climate complete with safeguards and guarantees. Likewise, Ukrainian clothing exporters need to receive more state support in order to boost their presence around the world and establish themselves in new markets.

The current domestic popularity of “Made in Ukraine” brands presents excellent opportunities for the growth of the Ukrainian fashion industry.

A strong presence on the domestic Ukrainian market can act as a platform for future international expansion. It is therefore vital that this “Made in Ukraine” trend receives as much support and promotion as possible over the coming years.

Any future support initiatives will need to focus on the SMEs that form the innovative core of the Ukrainian fashion industry. Promoting SMEs is a winning strategy for emerging economies like Ukraine. SMEs offer flexibility, value added production, and an ability to generate local employment, both directly and indirectly. This is particularly true within the fashion industry.

If these guidelines for the future development of the Ukrainian fashion industry become reality, the results should include an increasing export trade to the EU and a growing Ukrainian presence on other attractive global markets. It will also help to foster a thriving domestic fashion scene that can provide Ukrainians with high quality, fashionable and inexpensive clothing.

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Ukraine-Israel free trade in early 2019

business news

Ukraine and Israel are set to sign off on a free trade agreement in January 2019, with President Poroshenko expected to ink the deal during an official visit to Israel. Talks on a Ukraine-Israel free trade agreement began in 2015. Israel will join a growing list of countries to sign bilateral free trade deals with Ukraine, with recent additions including Canada in 2016. Meanwhile, a long awaited free trade agreement with Ukraine’s Black Sea neighbor Turkish is also set for confirmation in early 2019 following the successful conclusion of negotiations. Other priority free trade targets for Ukraine in 2019 include a deal with post-Brexit UK.

Davos to host Ukraine House again The World Economic Forum in Davos in January will feature Ukraine House for the second year running. The initiative, which seeks to highlight the democratic European credentials of the new Ukraine while promoting the country’s “brains, hands, and grains” competitive advantages, proved a popular addition to the Davos ensemble when it debuted in 2018, attracting over 5,000 visitors. Backed by the Ukrainian Venture Capital and Private Equity Association (UVCA), Western NIS Enterprise Fund (WNISEF), Victor Pinchuk Foundation and Horizon Capital, this year’s Ukraine House will host a range of leading Ukrainian and international speakers while also offering high-level meetings to address specific investment opportunities.

Five-star Kyiv hotels enjoy rising room rates as the Ukrainian capital welcomes more visitors The average price of a room in one of Kyiv’s five-star hotels rose in 2018 by approximately 15% compared to the previous year according to an industry survey carried out by the Ukrainian branch of Colliers International. The average price per night for a room in the Ukrainian capital’s most expensive hotels is now around EUR 150, which still makes it one of the most competitive five-star options in Europe. Meanwhile, occupancy rates have reached the 45% to 50% bracket, representing a continuation of the slow but steady recovery from the industry lows of 68

2014. The four-star category of Kyiv hotels enjoyed slightly higher occupancy rates of up to 58% and an average daily rate of EUR 80, while three-star hotels in the Ukrainian capital were up to 65% full on average this year, with room rates of under EUR 50. Kyiv is experiencing rising visitor numbers as it emerges as an attractive city break destination thanks to growing flight connections and positive media coverage of global events hosted in the Ukrainian capital such as the 2017 Eurovision Song Contest and the 2018 UEFA Champions League Final.

Lviv airport sees 47% growth Lviv International Airport is among the market leaders as Ukraine’s aviation industry continues to report record growth. The western Ukrainian air hub has reported a 47.1% year-on-year increase in passenger numbers over the first eleven months of 2018 to reach a new record total for the period of 1.468 million passengers. Meanwhile, flight numbers in Lviv have risen by 28%. On the other side of Ukraine, Kharkiv International Airport also posted strong growth figures for the January-November 2018 period. Passenger traffic climbed 19% year-on-year in the first eleven months of 2018, with the eastern Ukrainian airport servicing 884,000 passengers by the end of November.

The best of Lviv since 2008

WEST UKRAINE’S LIFESTYLE GUIDE

2018 as Political Pop Art

Ukraine’s New Europe Center and artist Andriy Yermolenko present the highlights of the past year

As the curtain came down in Kyiv on another year of geopolitical high drama and historic turning points, the Ukrainian media landscape was predictably full of reviews and analysis looking back on the highlights of 2018. In order to stand out from the crowd, Kyiv-based think tank New Europe Center decided to team up with Ukrainian artist Andriy Yermolenko to provide a pop art perspective on the key events that shaped Ukraine’s fortunes over the past twelve months.

Yermolenko was an obvious choice as the creative partner for this innovative initiative. The Ukrainian artist is no stranger to politically potent illustrations, having gained considerable national and international recognition earlier in 2018 when his series of spoof promotional posters for the FIFA World Cup in Russia proved an online hit. Designed as grotesque parodies of genuine World Cup promotional materials, these posters featured footballers playing behind barbed wire, in graveyards, and amidst the ruins of Aleppo. One particularly iconic and widely disseminated illustration featured a footballer shooting down a passenger airliner – a

ONE SMALL STEP TOWARDS NATO

In spring 2018, NATO granted Ukraine aspirant country status, meaning that it officially recognized Ukrainian aspirations to join the military alliance. This small and largely symbolic step was welcomed in Kyiv as progress of sorts in a relationship that has been made infinitely more complex in recent years by the outbreak of Russian military aggression in Crimea and eastern Ukraine. Russia’s ongoing attack on Ukraine

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direct reference to the July 2014 attack on flight MH17 carried out by Russian hybrid forces in eastern Ukraine.

Yermolenko’s posters gained viral status on social media and earned him considerable mainstream exposure including an interview with Reuters. This helped to draw international attention to Russian crimes such as the ongoing war in Ukraine and the chemical weapons attack in Salisbury at a time when the Kremlin was preparing to enjoy the soft power benefits of hosting the world’s most-watched sporting spectacle.

This latest collaboration with New Europe Center features Yermolenko’s distinctive pop art style and includes a number of the somewhat ghoulish flourishes that made his World Cup series stand out. Themes include the decision to arm Ukraine with American Javelin missiles, Russian naval aggression in the Black Sea, and rising tensions with Hungary in the Zakarpattia region of southwestern Ukraine. Business Ukraine magazine presents a selection of his works here. For further details and more pop art politics, visit New Europe Center’s social media accounts and website.

has sparked an unprecedented wave of Ukrainian popular support for NATO membership, with opinion polls since 2014 consistently indicating that a national referendum on the subject would result in a landslide victory for membership.

Nevertheless, many NATO members remain cautious and see Ukraine engagement as increasing the potential for direct conflict with Russia.

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culture

TRUMP SENDS JAVELINS TO UKRAINE

In early 2018, America delivered Javelin antitank missiles to Ukraine in a symbolic break with the previous policy of strictly nonlethal support. Although only a small number of Javelins arrived in Ukraine and came with stringent deployment restrictions, the move sent a clear message to the Kremlin about American resolve to stand with Ukraine.

Moscow had repeatedly warned that any attempts to arm Ukraine would lead to more bloodshed, but the arrival of American antitank missiles in Ukraine did not in fact spark any escalation in the simmering conflict.

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HUNGARIAN DIPLOMATIC DEADLOCK DEEPENS

Simmering diplomatic tensions between Hungary and Ukraine came to a boil in the second half of 2018 after a video emerged allegedly showing a Hungarian diplomat issuing passports to Ukrainian citizens in the Zakarpattia region of Ukraine, which borders Hungary and is home to a large Hungarian ethnic minority.

Budapest and Kyiv have been at loggerheads since the 2017 adoption of a new Ukrainian education law that Hungary claims will infringe on the rights of Ukraine’s Hungarian minority to study in their native language. Hungary has since moved to obstruct Ukrainian engagement with both NATO and the EU, drawing complaints that Budapest is working in the interests of the Kremlin.

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UKRAIN

NAVAL ESCALATION IN PUTIN’S UKRAINE WAR The year ended with martial law temporarily introduced in Ukrainian regions bordering Russia after Moscow launched a late November naval attack on Ukrainian ships in the Black Sea, sparking fears of an imminent full-scale invasion. The naval escalation came following months of mounting maritime tensions as Russia imposed a de facto blockade on Ukraine’s Azov Sea ports via control of the Kerch Strait.

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The incident was the first time in Moscow’s four-and-a-half year military campaign against Ukraine that the Russian military had openly attacked Ukrainian forces rather than using troops without insignia in order to camouflage their involvement. Concerns remain that Putin will interpret the absence of subsequent international sanctions as an invitation to escalate the war in Ukraine further.

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interview

Double act educating Ukrainian TV audiences on international affairs

With Ukraine currently at the center of a geopolitical showdown between Russia and the Western world, it has never been more important for Ukrainian audiences to have a solid grasp of contemporary international affairs. This is where TV presenter double act Peter Zalmayev and Taras Berezovets aim to make their mark. The duo host weekly news review show The Week on Ukraine’s Pryamiy channel. Each Saturday evening, they provide analysis of the biggest global headlines from the past week, with a particular focus on Russian hybrid war activities around the world that serve

as extensions or echoes of Ukraine’s own struggle with the Kremlin. “One of our main goals is to be educational,” says Berezovets. “This often means providing our viewers with the necessary background and explaining the broader context of international events. After all, politics does not exist in a vacuum.”

Berezovets and Zalmayev bring considerable international experience to their current roles. Crimean native Berezovets studied as an undergraduate and postgraduate in the UK, while Donetsk-born Zalmayev left the Donbas for the United States in

the mid-1990s before finally returning to Ukraine as the Russian offensive of spring 2014 unfolded.

This international experience informs their outlook as well as their broadcasting style. “For a long time, I was a Ukrainian voice in the West. Now I’m a Western voice in Ukraine,” quips Zalmayev.

Each episode of The Week features four studio guests, but the stars of the show are undoubtedly the hosts themselves. Berezovets and Zalmayev enjoy on-screen banter and try to liven up the often stuffy subject matter of international affairs with liberal sprinklings of quirky humor. One typical scene during a recent show saw the pair dressed up as faux royalty for a brief skit about the birthday celebrations of the UK’s Prince Charles, while Berezovets in particular has a reputation for quick-witted repostes.

These lighthearted interludes are a deliberate feature of the show, reflecting the influence of groundbreaking US current affairs comedy hits such as The Daily Show and Last Week Tonight.

“Nothing engages people quite like comedy,” says Zalmayev. “Ukrainian TV could really benefit from more humor in its current affairs coverage.”

Ultimately, of course, most of the themes covered in each episode of The Week are no laughing matter. The show addresses the very real drama of the new Cold War and tries to provide Ukrainians with a realistic picture of where their country stands amid the hybrid hostilities of the current confrontation. Both hosts argue that a clearer understanding of the international environment is essential for today’s Ukrainian audiences as they seek to make sense of the choices facing the country. “It is fair to say that many Ukrainians continue to see international affairs through rose-tinted glasses,” says Berezovets.

“They think Ukraine has the support of the entire international community and tend to believe this will last forever. In reality, there are no such guarantees. The current unity of the West is fragile and could end at any moment. That is why it is so important for Ukrainian viewers to know how things really stand.”

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