Business Ukraine November 2015

STREET ART REVOLUTION

Mural mania in Kyiv as Ukrainian capital gets contemporary European makeover

November 2015

AMERICA UKRAINE IN

U.S.-Ukraine investment in focus: from global consumer brand names and high tech to energy, entertainment, agriculture and IT

Also inside: Monthly American Chamber of Commerce in Ukraine Newsletter

POPULAR PATROL POLICE

U.S.-backed Ukrainian police reforms win public support - but are changes more than cosmetic?

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BUSINESS UKRAINE: NOVEMBER 2015 America has been one of Ukraine’s key allies ever since independence in 1991. As the country enters a new stage in its post-Soviet development, the U.S. is once again providing crucial international support.

This month Business Ukraine explores the U.S.Ukraine relationship and looks at everything from American investment into the Ukrainian economy to U.S. backing for ambitious plans to create new law enforcement structures in line with Western norms.

STREET ART REVOLUTION

Mural mania in Kyiv as Ukrainian capital gets contemporary European makeover

November 2015

AMERICA UKRAINE IN

U.S.-Ukraine investment in focus: from global consumer brand names and high tech to energy, entertainment, agriculture and IT

Also inside: Monthly American Chamber of Commerce in Ukraine Newsletter

POPULAR PATROL POLICE

U.S.-backed Ukrainian police reforms win public support - but are changes more than cosmetic?

From the editor: volunteerism saved Ukraine but it has limits When Russia attacked Ukraine in early 2014, the country was without a functioning government and had no military to speak of. From the Kremlin’s perspective, Ukraine was quite literally defenseless. It was a sitting duck. Perhaps understandably, few outsiders at the time had much faith in Ukraine’s survival as a sovereign state. Instead, geopolitical obituary writers composed somber accounts of Ukraine’s brief and turbulent independent history, while think tankers and analysts speculated on the likely composition of Putin’s new imperial acquisitions. It turns out they were all wrong. Like Putin, they had fatally underestimated the Ukrainian national spirit.

The weaknesses the Kremlin sought to exploit in post-revolutionary Ukraine were real enough. Nevertheless, instead of putting their proxies into power in Kyiv and dictating terms to the EU, Russia finds itself stuck with a dysfunctional enclave in the Donbas that represents less than 5% of Ukrainian territory. The dream of ‘Novorossia’ has been quietly forgotten, while Quislings who once raised their voices in Kyiv now fear to tread in Dnipropetrovsk, Kharkiv and Odesa. Russia’s hybrid war plans went awry because the Kremlin failed to take the Ukrainian people themselves into account. It is easy to understand this oversight – after all, Russian leaders have little need to worry about public opinion in their own country, much less civic activism. In Putin’s Russia, public opinion can be whipped into whichever direction suits the Kremlin, while civic society has long since been neutered. None of this applies to Ukraine. Putin may sincerely believe that Russians and Ukrainians are one people, but the events of the past two years have demonstrated that this is emphatically not the case.

Ever since the early days of the Russian invasion, Ukrainian society has mobilized on an unprecedented scale. A huge wave of volunteerism has swept the country, touching every sphere of national life. Ukrainian men in their thousands have signed up for service with the fast-expanding Ukrainian armed forces or one of an array of volunteer battalions. Behind them has stood a far larger auxiliary army of civilian volunteers who have made sure the undersupNovember 2015

plied men at the front receive kit, clothing, and food. Hospitals have been inundated with medical supplies. IT geeks have set up volunteer hacker battalions, businesses have established fundraising initiatives, and ordinary Ukrainians have opened up their homes to complete strangers displaced by the fighting.

This spirit of volunteerism has also reached the very highest levels of government and state management, with a new generation of ministers and directors giving up lucrative careers in the private sector in order to contribute to the construction of a new Ukraine.

The results of Ukraine’s volunteerism wave have been profound. The state has survived the twin shocks of revolution and war, and has even been able to begin the process of transformation towards a more European model of governance. Three nationwide elections have been held. Ukraine has built an army.

The country has absorbed over 1 million internally displaced Ukrainians. There has been no Syria-style flood of refugees into the EU. Ukrainian statehood has undergone the ultimate test, and the country has passed with flying colours.

Ukraine must now step up to the next level. Volunteerism is a fabulous thing, but it is no way to run a modern European country. Nor can it last forever.

Sooner or later, ordinary Ukrainians will lose their enthusiasm for doing the government’s job. There are indications that this process is already well underway, with donations to the armed forces dropping and sympathy for displaced Ukrainians also apparently on the wane. In 2016, the Ukrainian state needs to take on the responsibilities currently being met by volunteers. The volunteerism of the past two years has quite literally saved Ukraine, but it is now time to acknowledge this historic contribution and move on Peter Dickinson Business Ukraine magazine 5

America in Ukraine

U.S. Ambassador Geoffrey Pyatt on Euromaidan, Ukrainian reforms and Kremlin trolls

How have the events of the past two years shaped attitudes towards Ukraine among your colleagues in Washington DC and in the U.S. diplomatic service?

I think everyone in the U.S. government – from the White House to the State Department and here at our Embassy in Kyiv – recognizes that this is a moment of opportunity for Ukraine. We were all inspired by the strength and determination that the Ukrainian people showed on the Maidan – their willingness to stand tall and refuse to allow their government to steal from them the European future they want and deserve. Today, you have a real democracy in Ukraine. You have leaders committed to making necessary reforms to keep Ukraine squarely on the path to European integration. And that progress toward realizing the promise of Maidan – of building a truly representative government rooted in freedom and dignity – undergirds our partnership with the Ukrainian people and their government.

Ever since 1991 America has been a major supporter of Ukraine’s post-Soviet transition, but in recent months U.S. officials (including yourself ) have become increasingly outspoken in their criticism of Ukraine’s current reform efforts. At what point will American patience run out?

To be fair, these are concerns that are being expressed, first and foremost, by the Ukrainian people. The Ukrainian people have consistently said that they want to see more reforms happen faster, and that the number one issue that needs to be tackled by the government is rooting out the endemic corruption that has characterized the past two decades since Ukraine gained its independence. So the Ukrainian people are in the driver’s seat. And they want to see their leaders keep their foot on the gas when it comes to implementing reforms. That means showing the Ukrainian people that they are delivering meaningful change and making real progress. As for the United States, we’ve consistently said that if Ukraine keeps reforming, we’ll keep supporting.

Numerous voices within Ukraine, including members of parliament, have raised concerns that America exerts undue influence on the current Ukrainian authorities. What is your response to these concerns?

Ukraine’s future is for the Ukrainian people to decide. They’re the

ones who stood on the Maidan. They’re the ones fighting to protect their country against Russian aggression in the east, and who are leading the charge to build a representative democracy that is accountable to the people. Our diplomacy is focused on ensuring that Ukraine’s future is determined by the Ukrainian people – not

by Moscow, or Washington, or anyone else.

American private sector investment into Ukraine could play a major role in helping consolidate the country’s successful transition away from the corrupt post-Soviet model. Based on your interaction with American business leaders, what are the priorities for Ukrainian authorities in order to improve the investment climate in the country?

This was a huge focus of Secretary Pritzker’s visit when she was here last month. First and foremost, it’s important to recognize the notable progress that Ukraine has made. In the last year, foreign reserves have grown from USD 5 billion to USD 12 billion, industrial production has stabilized, agricultural exports are increasing, the currency has stabilized, and experts predict a return to overall economic growth in 2016. These are the returns on the hard but important reform progress that the Rada has made in conjunction with the Prime Minister and the President.

There’s still a long road ahead for Ukraine to reach its full economic potential. To get there, Ukraine has to stay the course and continue to make meaningful progress on reform. That’s not only the key to maintaining the support of the international community in the near-term, it’s also absolutely critical to creating a climate where U.S. and other global companies like the ones that traveled with Secretary Pritzker — businesses like Cargill, Citibank, Dupont, Honeywell, NCH Capital, and Westinghouse – have the confidence to invest.

“Money is a coward,” one of the CEOs traveling with Secretary Pritzker told the Ukrainian Prime Minister. They will want to see that reforms stick and the IMF conditions are complied with. They want to make sure that the environment is one where they’re taking a business risk, not other unknown risk. Only then will you see them bringing their resources, their technology, and their capital to the Ukrainian market. Getting there requires that Ukraine tackle corruption, make its infrastructure more efficient and attractive for investors, reduce excessive regulations, raise the professionalism of :

“I don’t spend much time focusing on ‘Kremlin narratives’. Everyone knows the Kremlin seeks to use information to deny, deceive, and confuse.”

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further this Kremlin narrative?

I don’t spend much time focusing on “Kremlin narratives.” Everyone knows the Kremlin seeks to use information to deny, deceive, and confuse – to sow seeds of doubt to provide cover for its manufactured war in eastern Ukraine. You could spend every hour of every day trying to bat down every lie, to the point where you don’t achieve anything else. And that’s exactly what the Kremlin wants.

Our focus is on how we can help the Ukrainian government build the future the Ukrainian people want and deserve. That’s why we’re looking at expanding access to English; helping young entrepreneurs; helping train new, clean police; supporting civic activism; working with governments to help them streamline processes to meet citizens’ needs – the things that matter.

: its judiciary, better protect intellectual property, and improve its tax

administration.

Of these, the number one impediment to faster investment by American companies in Ukraine is the problem of corruption. That’s why we’ve placed such an emphasis on the Prosecutor General’s Office.

That’s why we’re so focused on the rapid implementation of the new framework for the anti-corruption prosecutors, the National AntiCorruption Bureau – the NABU. All of these are institutional measures to root out the pervasive corruption that has done so much to hold Ukraine back since its independence. It’s about creating an expectation that if you are a government official involved in stealing resources from the Ukrainian people, you will be held accountable.

And it’s about changing the entire system, not just one individual or another.

Imagine if – instead of lining corrupt officials’ pockets – the resources being stolen from the Ukrainian people as a result of corruption were freed up and reinvested in Ukraine’s economy. Imagine what those resources could do to fuel the development and broad-based prosperity the Ukrainian people want and deserve.

We know that these changes are hard – not only for the Ukrainian government, but also for the Ukrainian people. That’s why the proceeds of the third USD 1 billion dollar loan guarantee Secretary Pritzker announced will be focused on helping the Ukrainian government protect those most vulnerable to the impact of the necessary economic adjustments.

One of the American CEOs who traveled with Secretary Pritzker told the President and Prime Minister, “Don’t blink. Keep it up.” That’s the same message we’ve been conveying publicly and privately. Because pressing ahead and accelerating the process of reform will benefit the people of Ukraine. And it’s an effort that the United States will continue to put all of its energy into supporting.

The Kremlin has sought to portray the conflict in east Ukraine as a proxy war between the US and Russia. Are you concerned that high-profile American support for Ukraine - whether it is nonlethal military aid or other forms of support - can be exploited to

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You are an active social media user with a large online following.

What has your experience in Ukraine taught you about the role of social media in public diplomacy?

News and information travel fast. The world is more connected than ever. And if you want to keep up, you have to ride the wave, learn the latest technology, find your voice, and most important: participate in the conversation.

Your high social media profile leaves you exposed to online attacks from fringe elements and so-called Kremlin trolls. How big an issue is this, and how have you dealt with it?

That’s easy: by ignoring them.

Many of your predecessors in the post of US Ambassador to Ukraine have remained deeply engaged with Ukraine since leaving Kyiv, taking on prominent roles in the public debate during the current crisis. Do you anticipate following in their footsteps and maintaining your ties to the country?

I really enjoy my work as Ambassador, and with everything that’s going on, I frankly haven’t given much thought to what comes next.

But it’s impossible - having lived through such a momentous and consequential time in Ukraine’s history, and having built such extraordinary relationships – to imagine leaving here without maintaining what I really see as enduring ties with Ukraine.

As someone who has travelled extensively to virtually every corner of Ukraine, what is your personal impression of the impact that the events of the past two years have had on Ukrainian society?

What you hear from the Ukrainian people is consistent from east to west. The Ukrainian people want to live in freedom and dignity.

They want to determine their own future. They overwhelmingly support closer ties with Europe. They want their children to have a brighter and more prosperous future that affords them the opportunity to reach their full potential. And for Ukrainians – particularly young people – there is no turning back. There can be no return to the past. There can be no tolerance for the corruption and cronyism that have dominated Ukraine’s past.

So when I look at the creative, innovative, entrepreneurial energy of young people who want to be more connected with the rest of the world than ever before, and their willingness to stand up for what they believe in with such incredible resilience and determination, I am confident that Ukraine’s future is bright. www.bunews.com.ua

america in ukraine

U.S. business community stands with Ukraine

American businesses entered the Ukrainian market early and have maintained a strong presence The U.S. business community has been very committed and heavily invested in Ukraine for many years. On my first trip to Ukraine in the fall of 1992, Monsanto already had a large low tillage demonstration program in Sumy Oblast. AGCO (Massey Ferguson), Cargill, DuPont, Microsoft, Pioneer, Coca-Cola, DeKalb, Kyiv Atlantic, Pepsi, Mars, P&G, John Deere, IBM, Case NewHolland, Bunge, FMC, Westinghouse, ADM, OPIC, USEXIM, DowElanco, and many other U.S. companies were already invested in Ukraine or would soon be doing business on the ground in the newly independent country.

All through the 1990s, many more U.S. companies started doing business in Ukraine despite the challenges of this transitional period.

Ukraine is attractive as a large country boasting over 45 million people as a consumer base, a high rate of education, fertile land, a good location and numerous other assets. There are now hundreds of U.S. businesses active in Ukraine making a strong and committed contribution to the economy and people of Ukraine.

Learning in the 1990s

The 1990s was a time for gaining experience, learning and testing for U.S. businesses in Ukraine. Many found they had to make major adjustments in the way they did business in order to survive in Ukraine.

This communication proved a two-way street. Over time, many Ukrainians with business skills and international education became available to work for U.S. businesses, a process that has contributed to the broader success of the international business community emerging in the country.

Many veterans of Ukraine’s early post-independence development like to say that the international business community was very naïve – indeed rather romantic – in those early years when it came to determining how best to do business in Ukraine. Over the course of the first 10 years of independence, the international business community in the country became much smarter, more experienced, savvy, clever, and tough in the way they managed to organize and do business. Their understanding of the sometimes harsh realities of doing business in Ukraine also improved immeasurably.

Riding the Ukrainian rollercoaster

Throughout the many ups and downs in the Ukrainian political, governmental and business marketplace, Ukraine has been very fortunate that U.S. and other international companies have stood firm in Ukraine.

Rather than exit the market in search of less challenging environments, they have continued to doing business in the country, creating jobs, training employees, bringing in the latest technologies and business practices, and supporting civil society. The international business community survived the Russian crisis in the late 1990s, and remained in place during the time between 1999 and 2004 when severe Ukraine fatigue set in for businesses across the world, and among ostensibly supportive governments.

There are thousands of heroic, untold stories about what U.S. businesses and their employees did to help the people of Ukraine during the Orange Revolution. The same was true during the Revolution of Dignity. Support has also come in the battle against Russian aggression in Crimea and eastern Ukraine. The overall contribution from 10

About the author: Morgan Williams is Government Relations Director at the Washington office of SigmaBleyer private equity investment firm and President of the U.S.-Ukraine Business Council (www.USUBC.org) businesses and their employees has once again been amazing. Businesses did their best to maintain their companies, support their employees, move employees out of the war zones and find other jobs for them, help their families, while also donating to humanitarian causes.

Once again, many in the international business community chose to stand with the new Ukraine when it might have been easier to begin developing exit strategies.

Contributing to a better Ukraine

One of the most amazing factors behind the success of Ukraine over the past 24 years has been the broad, strong and consistent support the country has experienced from the U.S. and international business community for the right to do business. This has included support for freedom of the press, fighting corruption and a corrupt legal system, boosting democracy, defending Ukraine’s territorial independence, building civil society and supporting a wide range of humanitarian causes.

The U.S business community has stood firm with Ukraine over the past 24 years and this cooperation will continue to bring advantages as the country develops. Most of the new and expanded investments in Ukraine over the next few years will come from or through business that is already on the ground in Ukraine.

The government of Ukraine should and could do much more to support the international business community. This should include efforts to improve the business environment, to level the playing field by fighting corruption, to reform the legal system, reduce the size of government, eliminate old Soviet laws and regulations, and sell corrupt state companies to the private sector. The list of things the government of Ukraine could do to improve the international business climate for investors is almost endless. It is high time for the government of Ukraine to start standing firm, strong and solid with the U.S. and international business communities in order to work together to build a better Ukraine. www.bunews.com.ua

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Meeting Ukrainian demand for international hotel brands US-based Wyndham Hotel Group looks forward to renewing Ukraine expansion once economy improves When did the Wyndham Hotel Group first enter the Ukrainian market?

Our presence in Ukraine currently sits under our Ramada and Ramada Encore brands. Our first property in the country was the 165-room Ramada Donetsk which opened at the end of March 2011. The Ramada Lviv opened its 102 rooms to the public in May 2012, followed shortly after by our largest property, the 264room Ramada Encore in Kyiv in June 2012.

What factors attracted Wyndham to the Ukrainian market?

Ukraine’s quickly developing economy attracted Wyndham Hotel Group to the market back in 2011. We also identified a demand for branded hotels with international standards across several cities, and knew that our brands are ideally positioned to cater to this requirement.

How have the upheavals and instability of the past two years in Ukraine affected the Wyndham Hotel Group’s expectations for its Ukrainian assets?

It’s a challenging time for the country as a whole, and the hotel industry has of course been affected. We’ve put some of our development projects on hold but hope to be able to continue our expansion in the country as the economic and political situation improves.

Do you have any plans for further expansion in Ukraine?

Although some projects have been delayed, our developer is currently working on several further contracts throughout the country.

We’re certainly committed to furthering our expansion in

Ukraine over the coming months and years.

Based on your experience of global emerging markets, which segments of the Ukrainian hospitality industry market do you think have the most potential for growth?

Looking at the country’s economy as a whole and based on our experience in other similarly emerging markets around the world, we see the greatest potential in the budget and mid-market sectors to cater for domestic and international travellers in the major cities.

How does the Wyndham Hotel Group approach to Ukraine differ from the Group’s presence in other regional markets, and what characteristics does it share?

Every country is unique so our development strategy and operational approach is always carefully tailored to the local market. That said, as a global hotel group we of course have international standards which we work hard to maintain across the world in order to offer our guests the quality and consistency they expect from our brands.

About the interviewee: Edwin Broers is Wyndham Hotel Group’s Regional Vice President for Central & Eastern Europe

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U.S.-Ukraine trade: moving to the next level Room for growth in U.S.-Ukraine trade but American investors seek rule of law assurances The United States and Ukraine continue to work to deepen the bilateral trade and investment relationship. In the past year, Ukraine has started to emerge from an economic crisis and strengthen its economy to attract investment from U.S. companies. For example, foreign reserves have grown from USD 5 billion to more than USD 13 billion, industrial production has stabilized, agricultural exports are increasing, the currency has stabilized, and experts predict a return to overall economic growth in 2016. These are the returns on the difficult reform program that Ukraine’s parliament has implemented in partnership with the Prime Minister and the President.

Looking ahead, there is great potential to boost bilateral trade by improving the overall business and investment climate in Ukraine as the government continues with its regulatory reform and anti-corruption efforts. Ukraine is also taking advantage of the recently re-authorized U.S. Generalized System of Preferences (GSP), which makes Ukrainian goods and products more competitive in the U.S. market. Internationally, the Government of Ukraine continues to build expertise and capacity in order to benefit from using multilateral tools to increase Ukraine’s export potential, such as through its recent accession to the World Trade Organization (WTO) Government Procurement Agreement and its anticipated acceptance of the WTO Trade Facilitation Agreement.

Since Ukraine’s independence in 1991, the United States and Ukraine have developed a robust and mutually beneficial trade relationship. However, a great amount of bilateral trade potential still remains untapped. In order for Ukraine to increase bilateral trade with the United States, it needs to be able to attract mid-sized companies as trading partners, not just large, global, resource-driven companies. These companies will only enter the market in meaningful numbers if the business climate significantly improves, as they do not have the financial and legal resources needed to mitigate

About the author: Lawrence Pixa is a Foreign Service Officer with the US Department of State serving as the Bilateral Trade Officer at the U.S. Embassy, Kyiv, Ukraine. Prior to his diplomatic career he worked 20 years as a software developer and business strategist for the U.S. National Aeronautics and Space Administration (NASA) and Microsoft Corporation. the risks associated with corruption and intellectual property rights (IPR) violations.

U.S.-Ukraine relations march forward

Ukraine is facing challenges on multiple fronts: the highly visible war against a determined aggressor in the East, and the less visible, but more insidious challenge of the battle against endemic corruption.

Here we see the frontline in the struggle between the old Ukraine and the new Ukraine. Ukraine is indeed undertaking difficult, life-changing, futurechanging reforms in every ministry, in every city and town, and in every organization. This long process requiring difficult and sometimes unpopular changes has just started, and the United States has led the way in assisting the new Ukraine.

The U.S. Government is working to deepen its trade and investment relationship with Ukraine to support efforts to restore vitality and prosperity to the economy, despite the recent economic and political

challenges. After a two-year break, the U.S. Trade Representative (USTR) and Ukraine’s Ministry of Economic Development and Trade convened the fifth meeting of the U.S.-Ukraine Trade and Investment Council in May 2015 to discuss steps to improve the business environment in Ukraine. This council also works to increase commercial and investment opportunities by identifying and removing impediments to bilateral trade and investment flows. At the working level, the United States and Ukraine maintain a productive, regular dialogue through a Trade Experts Group.

The way forward on trade and investment

Ukraine has grappled with long-standing challenges to attract foreign investment, in part due to corruption and shortcomings in the rule of law. The war in the east has added to these problems; lost productive capacity and infrastructure in the Donbas region will take time to rebuild. However, there

“In order for Ukraine to increase bilateral trade with the United States, it needs to be able to attract midsized companies as trading partners, not just large, global, resource-driven companies.”

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prepares the Special 301 Report annually under Section 301 as amended of the Trade Act of 1974.

The Special 301 reporting process identifies trade barriers to U.S. companies and products due to the shortfalls in the IPR laws (i.e. copyright, patents and trademarks) and their enforcement. Each year, USTR identifies countries that do not provide “adequate and effective” protection of IPR or “fair and equitable market access to U.S. persons that rely upon intellectual property rights.” Ukraine has been identified a “Priority Foreign Country” (PFC) in the report two times – a designation reserved for countries judged to have inadequate IPR laws.

A PFC country may be subject to sanctions as well.

Ukraine is currently on the Special 301 Priority Watch List – a slightly improved status from PFC. The question at hand is: will Ukraine be designated PFC a third time?

Ukraine continues to host some of the largest Internet pirate sites in the world. Countless rogue collecting societies operate in Ukraine that illegally collect royalties but do not distribute those royalties to any legitimate rights holders. Experts believe that a significant number of broadcast and public performance market places are unlicensed.

There is also rampant use of unlicensed business software throughout Ukraine’s public and private sectors. In addition to digital piracy, Ukraine’s

many open-air markets continue to sell counterfeit products, illegal copies of recorded music, films, digital games, and computer software. The lack of IPR protections in Ukraine also affects its closest neighbors where insufficient border enforcement allows pirated material to flow freely into and out of Ukraine. These challenges facing Ukraine in the IPR protection space are long-standing and welldocumented – concrete signs that IPR reforms are progressing and taking hold are yet to be seen.

The job of reforming IPR protections in Ukraine is daunting but not insurmountable. While there are many entrenched interests struggling to maintain the status quo, the United States stands with the people of Ukraine in their efforts to reform and battle corruption by providing ongoing technical assistance to improve the overall trade and investment relationship. While Ukraine has made great strides in improving its business climate, tackling corruption, and strengthening corporate governance, there is still more work to be done. The United States supports Ukraine every step of the way in deepening bilateral trade and engaging with our Ukrainian partners to improve the business climate, which is essential to promoting economic success, attracting foreign direct investment, and ultimately creating an environment in which the businesses and the people of Ukraine can prosper.

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are opportunities for Ukraine to realize some quick wins that would improve the overall investment climate; tantamount among them is the protection of intellectual property rights (IPR). IPR protection encourages private investment in research and development, foreign direct investment, promotes and rewards innovation, supports small and medium-sized enterprises, and more generally benefits consumers and society by ensuring products (i.e. software, pharmaceuticals and agricultural goods) are genuine and safe. U.S. economic development has benefited tremendously from IP. The U.S. economy depends heavily upon IP-intensive industries such as software, computer and peripheral equipment, audio and video equipment manufacturing, newspaper and book publishers, pharmaceutical and medicines, agriculture, semiconductor and other electronic components, and medical equipment. The U.S. Patent and Trademark Office estimates that IP-intensive industries provide 40 million American jobs (24.7 percent of the country’s total employment) and contribute approximately USD 5 trillion – or 35 percent of GDP - to the U.S. economy. In light of these statistics, it is logical for IPR protection to be a critical consideration in all U.S. trade relationships.

The Special 301 Report on IPR features prominently in the U.S.-Ukraine trade relationship. USTR

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

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American trainers inspired

by Ukraine’s Patrol Police U.S. backs creation of new police force changing the way Ukrainians think about law enforcement

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merican support has been a crucial component behind the launch of Ukraine’s popular new Patrol Police, which first took to the streets of Kyiv in summer 2015 before appearing in a number of additional Ukrainian cities. The Patrol Police service is widely regarded as the public face of the new Ukraine, quickly earning a reputation for credibility that stands in stark contrast to the poor public image of Ukraine’s existing law enforcement agencies.

As a result, the officers of the Patrol Police currently enjoy unheard-of approval ratings, reflecting a widespread hunger for change among the Ukrainian population. America has been intricately involved in financing and creating the new Patrol Police service, providing USD 15 million in funding while assisting in the selections, vetting, training and equipping of Patrol Police officers. Thirty active duty U.S. police officers from Nevada, Ohio, Texas and California have trained and mentored the new Police Patrol cadets. In an addition to these trainers, U.S.–funded police experts have advised on the legal framework for police reform in Ukraine, including on the Patrol Police, in addition to advising on training curriculum, operational guidelines, leadership and career development, and equipment needs. There are currently over 4000 patrol officers operating in Ukraine. By mid-2016, this figure will rise to 16,000 patrol police officers covering every oblast in Ukraine, including Donetsk and Luhansk.

The Patrol Police launch is widely regarded as one of the few clear successes of the stuttering Ukrainian reform process, but question marks remain over how this relatively small force of untainted law enforcement officers can transform a service that has long been regarded as one of the most institutionally corrupt in Ukraine. Business Ukraine magazine spoke to Christopher Smith, the Director of the Bureau of International Narcotics and Law Enforcement at the U.S. Embassy in Kyiv, about the Patrol Police initiative. Mr. Smith shared his impressions of the role the service can play in the broader transformation of the country, and explained why many of the U.S. police officers involved in the training process have been inspired by what they have encountered.

The new Patrol Police service represents a small proportion of Ukraine’s law enforcement services. How effective can they be in changing the broader relationship between the public and law enforcement in Ukraine?

Their impact has already been transformational. To imagine that a country that less than 18 months ago experienced a revolution sparked and driven by police brutality, now has a Patrol Police force with a public approval rating of 85%, is a miraculous achievement that Ukrainians should be proud of. We are proud to have a played a role in this critical first step, which has now opened the door to the complete overhaul of the National Police and Ministry of Internal Affairs.

Have you been surprised by the generally positive response from the Ukrainian public to the introduction of Patrol Police services?

No – but all of us, both in the Ministry and in INL, have been very pleased! In my view, part of the reason this reform has been so successful is because it was undertaken in direct response to the demands of the Ukrainian people to transform the relationship between citizens and police along Western lines.

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The introduction of Ukraine’s patrol police has been likened to similar reform efforts in Georgia in the 2000s. To what extent did you learn from the experiences of Georgia and other case studies when developing the plans for Ukraine’s patrol police?

The context in Ukraine was very specific and this project was tailored together with our Ukrainian partners to fit the specific demands on the ground. Our partners in the MOI and those on the project team learned general lessons from others’ experiences, but the reason we were successful is because we focused so much time and so many resources on recruiting the right Ukrainians into the Patrol Police force. I am constantly amazed by the new generation of Ukrainians driving the reform agenda here, and the reform succeeded because the Ministry tapped into that transformational group of young people who want to build a better future for this country. This project gave them the chance to do so by building a new, Western-model police force.

The training period for members of the Patrol Police force has been relatively short. What challenges did this limited timeframe present?

The vast majority of Patrol Police officers are new to policing and came from outside the system. This has allowed us to quickly make the break way from corrupt practices, but at the same time it meant the project team had to train thousands of officers virtually from scratch. The basic training period was truncated because of the need to deploy these officers as quickly as possible, but training continues and one of the features of this program is that it introduces the concept of career-long professional development and training. It is also important to remember that the intense selection and vetting process through which these officers matriculated has ensured that Patrol Police personnel meet very high standards in terms of leadership, judgment, integrity, and motivation. Even with shortened basic training, they perform well beyond expectations – as proven by the sustained public support for the Patrol Police service.

What kind of feedback have you received from American trainers working with Patrol Police recruits?

The most common thing I hear from our U.S. trainers and advisers is deep respect and admiration for their counterparts in the patrol police. Frankly speaking, many of our team members return home to America inspired by what they hear from these young recruits and officers, who embody the patriotism, commitment to excellence, and desire to make a difference that defines the new Ukraine.

The Patrol Police are seen by many as the public face of Ukraine’s reform efforts. How did your training program address this need to make a positive impression on the Ukrainian public?

Our training program focused on the need for the Patrol Police to protect and serve the public. This includes the need to respect and engage with the community in order to fulfill the natural role of a good police officer. Their popularity is an organic feature that we didn’t prepare them for, but we hope that the www.bunews.com.ua

america in ukraine

training they received on community policing and how to respectfully interact with citizens continues to have a positive impact.

The uniforms of the patrol police have attracted significant media and public attention, with many drawing parallels to NYPD cops. Can you tell us a little more about how the uniforms were designed and where they are produced?

The uniforms represent the cutting edge in international standards for quality, comfort, and functionality for law enforcement officers. A change of visual representation was critical to breaking with the past of the old ‘militsiya’, but it also represents the professionalism of the well-trained and highly-motivated law enforcers in the Patrol Police. They are professionals and they should look like professionals.

Ukraine’s patrol police have become social media celebrities and selfie stars. Is there a danger that this good-natured interaction with the public could lead to an erosion in authority?

November 2015

No, we have not seen that. Quite the opposite: nothing increases a police officer’s natural authority more than when the public looks up to them. A Ukrainian friend of mine told me that his young daughter wants to be a Patrol Police officer when she grows up. He said he never could have imagined this in the past.

The shift in public perception toward the police – especially among younger people – is an indication that the relationship between citizen and police has truly changed for the better in Ukraine.

The patrol police operate on a daily basis within existing law enforcement structures. What measures are in place to prevent new recruits from picking up bad habits?

The bottom line here is that the National Police will conform with Patrol Police standards and methods – not the other way around. The successful reform practices developed through the Patrol Police project will now be used to overhaul the entire Ukrainian police force, under the direction of Khatia Dekanoidze, the new Chief of National Police, who played a central role in establishing the Patrol Police.

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America House emphasizes innovation

New U.S. outreach hub seeks to bolster Ukraine’s high tech potential and promote culture of inclusion Stepping inside Kyiv’s America House is like entering a particularly large high tech startup in Silicon Valley. The interior of the building is achingly modern, with corridors decorated by bright and cheerful pop art murals depicting icons of Americana and inspirational can-do quotes. Clocks on the wall remind you of the different time zones stretching across the vastness of the United States. Meanwhile, a 3D printer hums and buzzes in the background as young Ukrainians work away on tablets or relax with their smartphones on colorful beanbags.

The parallels with a dot.com business environment are no accident – promoting high tech endeavors is one of the key objectives behind this state-of-the-art American outreach hub.

Kyiv’s America House opens its doors to the public in May 2015. It is the flagship of the U.S. government’s ‘Windows on America’ initiative involving centers across Ukraine. International cultural centers in Ukraine have traditionally focused heavily on literature, essentially serving as foreign language libraries and venues for academic discussion. The America House approach is strikingly different – in place of shelves filled with books, visitors find multipurpose spaces capable of hosting everything from Skype seminars and conversation clubs to computer training and panel discussions.

Highlights from the first six months of activities have included guest appearances from the likes of internationally acclaimed American author and journalist Anne Applebaum, a ‘living library’ session with members of Ukraine’s new Patrol Police service, and a powerful photo exhibition featuring some of the most dramatic images from the conflict in east Ukraine. In addition, there is a firm emphasis on facilitating technological experimentation and bolstering Ukraine’s knowledge economy.

“We have tried to create a space where we can introduce technology and enable innovation in Ukraine,” explains Christi Anne Hofland, the Director of America House in Kyiv. While all ages are welcome, she says the emphasis is on providing high tech insight and knowhow to the younger gen-

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eration of Ukrainians. This approach has helped attract attention in Washington D.C., where State Department officials view Kyiv’s America House initiative as a potential model for future American outreach efforts in other parts of the globe.

Older enthusiasts of all things American should not be put off by the focus on the emerging generation of Ukrainians, as anyone can attend America House events.

Attendance is free of charge, as is membership. As well as high tech initiatives, Kyiv’s America House also offers a range of regular events that mirror U.S. Embassy policy priorities including support for civil society, good governance, diversity and equality. The venue seeks to be innovative in everything it does, offering socially themed theatrical performances and freestyle English-language conversation groups where participants engage in non-traditional activities such as composing the lyrics for songs.

Ms. Hofland arrived in Kyiv earlier this year to take on the role of Director at America House, but she is no stranger to Ukraine.

Her first experience of the country came

back in the mid-1990s, when she accompanied her father to Kharkiv, where he was a Fulbright scholar. More than a decade later, she then returned to the country on a Fulbright scholarship of her own, living in Odesa in 2008. Next came a stint at the Catholic University in Lviv and an internship at the U.S. Embassy in Kyiv. Ms. Hofland speaks with obvious enthusiasm about interacting with Ukrainians at this crucial period in the country’s modern history, and says she finds developing local partnerships the most exciting aspect of her work. “It’s an amazing time to be in Ukraine – especially in a role where we can be involved in the country’s progress,” she reflects.

America House

6 Pymonenko Street, Kyiv Tel.: +38-095-2790688 www.americahousekyiv.org info@americahousekyiv.org Open hours: Tuesday-Friday: 12:00 – 21:00 Saturday: 10:00 – 18:00 Sunday-Monday: Closed www.bunews.com.ua

america in ukraine

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November 2015

Official newsletter of the American Chamber of Commerce in Ukraine November 2015

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

“Money is made by discounting the obvious and betting on the unexpected” is the advice of one of the world’s top 30 wealthiest people, the 7th richest American on the planet.

Last month, this business magnate revealed an investment in Ukraine and the launch of the Ukrainian Redevelopment Fund. Billionaire philanthropist George Soros announced on November 18 the acquisition of a stake in Ciklum, a leading Ukrainian software development company. George Soros made this step because he believes in Ukraine’s bright future and in the prospects of IT sector.

As Ukraine’s economy has, arguably, hit rock bottom and with a transformation period of reforms critically needed, the country becomes more attractive for the international business community. George Soros hopes that his investment will also serve as an example for other investors and Ukraine will soon attract more international capital.

“The worse a situation becomes, the less it takes to turn it around and the bigger the up-

November 2015

side”, Soros has said before.

Ukraine is in desperate need for profound and rapid reforms. We at the AmCham in Ukraine are in constant and continuous dialogue with government officials highlighting the need and urgency for change and drastic anti-corruption measures.

As a President of the American Chamber of Commerce in Ukraine, I meet potential investors on a regular basis. They are actively researching available opportunities, observing regulatory changes, analyzing current situation in Ukraine. Those who invest in the country when it hits rock-bottom will reap tangible financial rewards with every inch of economic improvement.

The DCFTA (Deep and Comprehensive Free Trade Aagreement) with the EU will come into force on January 1, 2016. It is another opportunity for Ukrainian businesses to enter the markets of the European Union. I have had the pleasure in meeting several interested investors during Investor’s Day in Lviv, held on November 19th. Many are excited about the prospects of manufacturing industry. Johanes Hahn, Commissioner for European Neighborhood Policy & Enlargement Negotiations, who also attended the event, expressed his firm belief in the potential of Ukraine and Lviv city in particular.

To attract foreign investments, Ukraine has to tackle one of the biggest problems it currently faces – ubiquitous corruption.

I regularly attend conferences and work-

shops designed to eradicate this public enemy. On November 9th, I spoke at the “Securing Ukraine’s Future: Winning the Fight against Corruption” conference at the Atlantic Council in Washington DC on a distinguished panel of experts including Ukraine’s most renowned rock star Slava Vakharchuk, CitiBank Ukraine CEO Steve Fisher and EBA Executive Director Anna Derevyanko.

We were all united in one strong message against corruption.

As November marks Thanksgiving Day, this year the American Chamber of Commerce was delighted to present our 2015 Thanksgiving Awards to people and organizations that have been making real change in Ukraine: Finance Minister Natalie Jaresko – for delivering fiscal and financial stability and Ukraine’s foreign debt restructuring; ProZorro – for establishing transparent and effective public procurement and anticorruption mechanism; Eka Zguladze – for successful reform of the National Police in Ukraine; EBRD – for boosting investment into Ukrainian economy, as well as to Ukraine’s top mobile phone operators Life:), Kyivstar and Vodafone – for launching Ukraine’s 3G GSM network service.

When asked why George Soros is investing in Ukraine and why now, the billionaire replied: “It’s an investment in what I call the ‘New Ukraine’ – Ukrainians who are young, well educated, and eager for their country to break from the past and to build an open society.”

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interview

Turkish Airlines expanding in Ukraine

Turkish Airlines Deputy Chairman and CEO Temel Kotil, PhD, eyes new Ukraine destinations

What role does Ukraine play in the Turkish Airlines regional strategy for Eastern Europe and the CIS? As a country with one of the largest territories and biggest populations in Europe, coupled with its rich natural resources, Ukraine plays a very important role in the Turkish Airlines strategy for Eastern Europe and the CIS. Historically, Ukraine and Turkey have always enjoyed very strong trade and economic relations. Ukrainians are well-educated and intelligent people; they like travelling for both business and pleasure.

With our network of flights to 111 countries and 283 destinations worldwide, including new services to San Francisco and Miami inaugurated in 2015, Turkish Airlines is the biggest airline in the world in terms of destinations. This year, for the fifth time in a row, Turkish Airlines was recognized as ‘Best Airline in Europe’. Our fleet is the youngest in Europe. In this context, Turkish Airlines can meet the expectations of Ukrainian passengers and international passengers seeking to travel to Ukraine. We believe in Ukraine’s bright future and plan to continue expanding our services in Ukraine.

How have the past two years of political instability in Ukraine affected your expectations for the Ukrainian market?

On one hand, we have had to stop our s ervices to Simferopil and Donetsk as a result of the situation in Ukraine. On the other hand, last year we also launched a new service with flights connecting Kherson to Istanbul. The results of this new route show that despite the challenging climate, the decision to expand was the right one. The Kherson route proved immediately popular. Within a short space of time, we expanded the service to include daily flights. Our expansion continues. On 28 December, we will begin a new service to Zaporizhzhia. We have also upgraded the type of aircraft employed on our Kyiv services in order to increase seating capacity. Times of crisis can be times of opportunity. We have demonstrated that this is true in the context of today’s Ukraine, given the positive results we have managed to achieve thanks to the steps we have taken over the past two years.

Based on your experience of air travel industries in emerging economies, which segments 30

About the interviewee: Turkish Airlines Deputy Chairman and CEO Temel Kotil, PhD of the Ukrainian air travel market do you expect to register the most growth in the coming few years?

The Ukrainian air travel market has very big potential. We believe that the number of passengers of scheduled flights will continue to grow. Turkish Airlines aims to contribute to this growth by offering passengers excellent levels of service and access to our global network at reasonable prices.

Passengers are increasingly opting for scheduled flights over charter flights when going on vacation. Meanwhile, more and more passengers plan their trips online. We are seeing strong grow in online ticket sales. We anticipate that scheduled flights and online travel agencies will register the most growth.

Turkish Airlines has a particularly strong regional presence in Kyiv and Odesa. Which other regions of Ukraine do you regard as the most interesting for further expansion?

Turkish Airlines is not only represented in Kyiv and Odesa. We are also represented in Dnipropetrovsk, Lviv, Kherson and will soon have a presence in Zaporizhzhia. We are the biggest foreign carrier in Ukraine in terms of passengers and destinations. Unfortunately, we cannot agree that we have a sufficiently strong presence in Kyiv and Odesa, although we are interested in expanding this presence. We currently fly to Kyiv 16 times a week and to Odesa 11 times a week, but this volume of flights is not sufficient to meet Ukrainian market demand.

For the last three years, we have regularly informed our Ukrainian partners of our desire

to boost the Turkish Airlines presence in Kyiv and Odesa, but for the moment, the number of flights to these key destinations remains unchanged. We are still hopeful that in the near future we will have the opportunity to increase our flight frequencies.

Turkish Airlines is positioned as a premium carrier at a time when many airlines are moving towards no-frills services. How do you intend to maintain a balance between competitive pricing and quality service?

The exceptional geographical position of Istanbul enables us to reduce our costs considerably while maintaining our award-winning services. As the CEO of Turkish Airlines, I have to stress that we never compromise on the quality of the product we offer. Thanks to Turkish DO&CO company jointly owned with DO&CO, we are able to offer top class catering blended with traditional Turkish hospitality.

Do you anticipate introducing any additional flight services in response to the recently introduced mutual bans on direct air traffic between Russia and Ukraine?

Turkish Airlines has been interested in increasing its Ukraine services for a long time, regardless of recent geopolitical developments in the region. As long as we receive the relevant permits, we are ready to increase flights to Kyiv, Odesa, Dnipropetrovsk and Lviv while also launching services to new Ukrainian destinations. Our motto is ‘Widen Your World’. We hope to give Ukrainian passengers the opportunity to do just that. www.bunews.com.ua

investment

Insuring your investment in Ukraine International investors must ensure to insure against multiple risks if they want to succeed in Ukraine

Post-revolutionary Ukraine is increasingly appearing on international investment radars. After two years of political upheavals and conflict, there are signs that the country’s economy is finally on the road to recovery, with the promise of a new European-style business environment helping to make Ukraine one of the most potentially attractive destinations for investment in the region. At present, the majority of potential investors continue to adopt a wait-and-see attitude, monitoring the situation for indications that the ambitious government reform programme will enjoy the requisite political backing to genuinely transform the Ukrainian business climate.

There are already indications that the Ukrainian economy has turned the corner and that structural reforms are beginning to bear fruit. The country jumped 13 places in the influential annual World Bank ‘Doing Business’ report this year, while a range of international financial bodies and ratings agencies are predicting a return to Ukrainian GDP growth in 2016. These positive trends are certainly welcome, but investors who choose to develop a presence on the Ukrainian market will continue to face a range of potential threats that could upset their calculations.

Risks facing investors

International investors entering the Ukrainian market face three major risks: physical loss of property, financial losses, and the loss of title to the object of investment. Insuring against these risks is possible but it requires a tailored approach that will cover the specific needs of each individual investor. A wide variety of insurance instruments is available to cover the risk of physical damage. These instruments include property damage insurance for all kinds of real estate, industrial facilities, equipment and so on.

You will also find cargo insurance options, insurance for construction sites, and special coverage for crops and cattle. The common feature in all these cases is that the risks covering physical damage are impartial in terms of the host country.

Limited options on the Ukrainian market

Financial losses call for much more complicated types of coverage. Contrary to the situation in more developed economies, the Ukrainian insurance market does not boast a wide range of options. The most common policies are business interruption insurance (BI) and advanced loss of profit insurance (ALOP), with the latter being requested by investors far more rarely than BI coverage. Both products are tailored to cover losses of income and neither is sold separately by insurers. BI policy covers an investor for the loss of income incurred due the shutdown of the insured facility caused by unforeseen circumstances as stated under the principal property damage agreement, while ALOP policies cover similar losses due to delays in completing construction

projects caused by unforeseen circumstances insured under a principal CAR (contractors’ all risks) agreement.

Crop-yield insurance cannot be ignored in this regard, as it provides an indirect way of insuring against financial losses. As an essential tool for agribusiness investors, its gist lies in the obligation of the insurer to cover the difference between insured and actual crop yield, this way indemnifying the investor for the loss of profit subsequent to insufficient yields.

Theory and practice

All the other financial and commercial insurance products offered by Ukrainian insurers tend to resemble nothing so much as demo versions of similar insurance coverage actively working in Europe, the USA, and other mature markets. In practice, this means that a number of companies have terms and conditions written for policies such as trade credit or debtors insurance, but actual coverage is either refused outright, if we are talking about reputable insurers of international standing, or its wording eliminates the possibility of indemnification altogether. The latter is often applicable to small insurance companies issuing such policies within packages requested by lending institutions. Title insurance is not immune to the same issues. Actual coverage can only be purchased in Ukraine for mortgaged apartment owners, as contract value can only be covered by the insurer without transferring risk to reinsurers.

Insuring against political violence

From the point of view of international investors interested in entering the Ukrainian market, all of the abovementioned insurance products share one common flaw. They do not normally cover any damage caused by terrorism, military actions, riots, nationalization, confiscation and other civil instability. While no coverage can be found in Ukraine for the unilateral actions of the government aimed at nationalizing, confiscating or expropriating property owned by foreign investors, there is still a silver lining. Recent events in Crimea and east Ukraine have facilitated the drawing up of an insurance product called Full Political Violence. This insurance agreement protects against aggressive actions resulting in war, mass riots, revolutions, strikes, or sabotage. It goes without saying that this is not the cheapest coverage available on the market, with insurance rates equaling around 1 % of the insured property’s value. Moreover, the logic runs, such coverage can only be provided in regions that do not currently suffer from the risks in question.

Finally, it should be added that fear has a hundred eyes. Wary investors won’t line up to offer the Ukrainian economy significant cash inflows until both the government and parliament secure peace within the country, implement effective reforms to eliminate corruption, and maintain a stable currency exchange rate. Ukraine needs to become a truly investor-friendly nation before it can expect to develop along modern European lines. There is evidence that the political classes are finally steering the country in the right direction, but investors would nevertheless be wise to ensure they are insured before entering this exciting but high-risk emerging market.

About the author: Alexander Saus is a Managing Partner at BritMark, a national insurance broker operating in the Ukrainian market since 2004 which is currently working with over 180 companies and organizations in Ukraine.

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energy

Baltic energy independence should inspire Ukraine Lithuanian LNG terminal has changed the dynamics of energy policy in the entire Baltic region As the country enters its second post-revolutionary winter heating season, Ukraine continues to be unable to develop a competitive and cost effective energy mix for domestic consumption. In recent weeks, Naftogoz CEO Andriy Kolobev has stated that he believes Ukraine can leave Russian gas out of its energy supply considerations and only purchase from Europe by 2016. The country’s political leaders have also voiced similar plans to end reliance on Russian supplies. This is a very ambitious goal in the absence of a more established and diversified supply source.

Learning from Lithuania

In early October, the International Republican Institute (IRI) with the support of the United States Agency for International Development (USAID) brought a delegation of Ukrainian municipal leaders from the cities of Mykolaiv and Kherson in southern Ukraine to the coastal city of Klaipeda on the Baltic Sea. The objective of the trip was to visit examples of Lithuania’s thrust for energy independence and see the role played in the process by foreign investment.

One of Ukraine’s biggest neighborhood cheerleaders, Lithuania continues to punch above its weight in the region. The Lithuanian government has managed to demonstrate through both rhetoric and results how to make the transformation from dependency on Russian energy supplies. Lithuania has been able to retake the initiative to create an energy policy that benefits not only domestic consumption but also boosts the country’s export economy as well. In addition to national policy and large-scale government initiatives at the local level, Lithuanian cities are also taking the initiative to attract foreign investors into the energy sector - from converting municipal waste in Vilnius and Klaipeda into heat and electricity, to a floating LNG terminal on the Baltic Sea delivering globally purchased gas to Lithuania’s domestic grid.

Ukraine’s unsuccessful LNG efforts

Ukraine has long struggled to get its act together with its own LNG plans. The most recent setback came in 2013 under the Yanukovych administration, following a public signature ceremony between the Government of Ukraine and an alleged representative of the Spanish natural gas utility company, Gas Natural Fenosa. This fiasco ended when Gas Natural Fenosa officials announced that their ‘representative’ was actually a ski instructor from Barcelona whom the company claimed did not represent them. Gas Natural Fenosa said that they had not committed to the investment in Odesa and, in effect, the deal was dead. Inevitably, rumours swirled of Russia’s Gazprom swooping in to kill the deal under the table. Whatever the reason behind the U-turn, after this public embarrassment, no new serious attempt to attract LNG investment has been mounted. This lack of LNG activity comes despite Prime Minister Yatsenyuk stating that energy independence would be a key policy reform for the new government in 2014.

From energy dependency to energy exporter Back in Lithuania, the march towards energy independence is taking place at a different pace. At the municipal level in the coastal city of Klaipeda, Finnish investment and technology in the city is improving ecology, providing financial incentives for private tenders on municipal waste collection, and generating clean energy for homes and businesses. The entire supply chain for this operation involves Lithuanian, Finnish and Norwegian partners.

Just off the coast of Klaipeda, the appropriately named Independence, a hulking 290-meter ship, rides at anchor in the Curonian Lagoon. It stores liquefied natural gas (LNG) and is also designed for the regasification of LNG for commercial use and export. The Independence is a game changer not only for Lithuania – it changes the energy situation for the entire region.

When the terminal became operational on 3 December, 2014, Lithuania became only the fifth country in the world to be using such technology.

Lithuania’s ability to purchase liquefied gas globally, regassify it itself, and then pump this gas into its national grid circumvents its previous reliance on the fixed infrastructure of pipelines and monopolistic purchase/pricing agreements. Reselling gas onwards to inland customers or serving as a transit terminal for other regional buyers are strong economic advantages for Lithuania.

Time for a Ukrainian LNG terminal

In light of these regional examples of energy innovation and foreign investment, there should be much thought and discussion on not only exploring how to initiate such projects in Ukraine, but also of how to put together a clean local business environment with professional managers and visionaries who are not only serving their own personal shortterm financial interests.

This requires strong national leadership, setting a clear energy diversification strategy that puts the national interest above individual interests, and an established and enforced rule of law that protects both foreign investors and innovative local leaders and municipalities.

About the author: Michael R. Druckman is the Ukraine Country Director for the International Republican Institute (IRI). You can follow him on Twitter at @MikeDruck

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Watering the Ukrainian breadbasket

Mechanized irrigation can transform Ukrainian agriculture and radically boost crop yields Change is occurring in post-revolutionary Ukraine and this process is having far-reaching implications for the country’s vast agriculture sector. Once known as ‘the breadbasket of Europe’, post-Soviet Ukraine had struggled to maintain that title in recent decades. The country is steadily strengthening this position through the growth and export of key crops with potential for continued dramatic increases. However, considerable investment is still required if the agriculture industry is to finally reach its potential.

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Ascending agricultural superpower Agriculture is an important part of Ukraine’s economy, making up 9.3 percent of the country’s GDP while constituting 17.2 percent of employment and 26 percent of national exports according to World Bank figures. The country’s main grain crops include wheat, barley and corn, which have been steadily increasing in demand. In fact, in the 2008-2010 growing season, Ukraine was the world’s largest barley exporter, occupying 30 percent of the :

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agriculture

November 2015

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: world barley trade. If these positive trends continue, Ukraine grain

exports are projected to continue experiencing growth in the foreseeable future, with the potential for Ukraine to become the world’s leading grain exporter.

Grains are not the only Ukrainian crops that have seen substantial production growth in recent years. Its main oil crops, sunseeds, rapeseeds and soybeans, have also seen growth, with Ukraine currently producing 20 percent of the world’s sunseed crop. Much of these increases can be attributed to excellent growing conditions. The majority of the country’s regions have highly fertile soils, favourable climates, able growers and ideal export locations. However, the yield potential in Ukraine is largely underutilized due to a lack of modernization in agricultural practices. In other words, these impressive figures could be significantly more impressive with the use of the right technologies.

Wanted: irrigation infrastructure overhaul

One key avenue of opportunity for Ukrainian agriculture is better irrigation. Where mechanized irrigation equipment once stood in many Ukrainian fields, only irrigation infrastructure remains today. During the Soviet era, irrigation was widely used throughout the country, not limited to the south as it is today. There were about 30 million hectares of arable land, 2.2 million hectares of which were irrigated. This irrigation infrastructure grew by approximately 100,000 hectares per year. Today, many elements of this irrigation infrastructure are still in place and functional with proper maintenance. While the irrigation machines from this era are now obsolete, much of the surviving infrastructure could theoretically be paired with new irrigation centre pivots or linear (lateral move) machines and used once more.

Reducing risk whatever the weather

With crop yield as the main driver for the country’s production growth and the amount of farming acreage projected to remain relatively stable, installing modern irrigation equipment is an important step toward the continued development of Ukraine’s agribusiness.

Much of Ukraine’s crops are currently grown using dryland farming, making favorable weather conditions key to successful yields.

This puts the country’s strategically crucial farming industry at the mercy of the elements. Such risks are inevitable in any agricultural undertaking, but better irrigation can reduce the level of risk exposure significantly. Sergiy Melnychenko, territory sales manager at Valmont Irrigation in Eurasia, explains, “If we start to irrigate in the area like we used to in Soviet times, we can double the production in southern regions of Ukraine. It has huge potential.”

An increase in irrigated land could allow for the potential Ukrainian harvest of an additional 10 million tonnes of grain – regardless of weather conditions. Broken down into smaller terms, if a grower were to yield 1.5 tonnes of alfalfa from each hectare of dry land, that grower has the potential to yield 4 to 5 tonnes of alfalfa on the same amount of land using mechanized irrigation. This increase in yield would create a more reliable food source for livestock and significantly raise the export potential for Ukraine’s agricultural sector without requiring farmers to expand fields.

Feeding a growing global population

This trend towards irrigation growth is already taking place on a global scale. An increase of 40 percent in global food production over the last 50 years has come almost exclusively from irrigated 38

About the author: Aaron Schapper is Vice President and General Manager of International Irrigation and Global Engineering for Valmont Irrigation (www.valleyirrigation.com) farmland, while rain-fed agriculture has remained largely unchanged. In fact, while only 20 percent of the world’s cropland is currently irrigated, it yields 40 percent of all food production and 50 percent of all crop revenue. A continued increase in irrigated farmland is necessary to achieve high enough yields required to feed a growing world population.

These global patterns could work in Ukraine with equally impressive results. The American example is informative. In the centre of the United States, the state of Nebraska saw a yield of 10.5 tonnes/hectare of corn on irrigated land compared to a yield of 4 tonnes/hectare of corn on dryland. This resulted in an average of USD 614.97 more in revenues per irrigated hectare compared to dryland hectare.

Mechanized irrigation is ideal for many of Ukraine’s key crops.

Proper irrigation technique would result in efficiency rates of about 75 to 95 percent. If more mechanized irrigation machines were installed, Ukraine could see similar yield results as the U.S.

Investing in irrigation

Some growers have already begun taking advantage of the existing but unused Soviet-era infrastructure in Ukraine, updating it with new mechanized irrigation equipment. However, the price of this investment is often a concern for many growers, while others simply do not have access to sufficient sources of financing. Recognizing that the tremendous agricultural potential of Ukraine plays a critical role in contributing to global food security, the World Bank is currently engaged in discussions to finance projects for growers to gain access to the network of canals throughout Ukraine that are left over from the Soviet era. Additional talks are underway to develop a legal framework for secure land ownership. These initiatives hold great promise for the future, although the extent of the World Bank’s investments has not yet been solidified.

With so many advantages, Ruediger Claas, general manager at Valmont Irrigation in Eurasia, said the biggest benefit of investing in mechanized irrigation equipment is the return on that investment. “If you’re purchasing irrigation equipment, it’s a fast return on investment, and it’s a kind of insurance against being reliant on rainfall,” Mr. Claas concludes. www.bunews.com.ua

Networking events

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Leading Ukrainian law firm Asters joined forces with the U.S.-Ukraine Business Council in mid-November to host an iconic art exhibition within the framework of the ArtAsters project. The exhibition featured 74 artworks of artists from across Ukraine who cooperate with Lviv’s Iconart Gallery of Contemporary Sacred Art. The Iconart Gallery was established in 2009 and aims to bring the timeless beauty of icon art to modern generations of Ukrainians and international audiences. It specializes in the contemporary artistic interpretation of Ukrainian spiritual topics in today’s cultural context. Over the past six years, the gallery has developed a substantial network of artists throughout Ukraine. It is the only gallery of contemporary sacred art in Ukraine focusing primarily on the spiritual and religious dimensions of contemporary art. The ArtAsters initiative dates back to 2009 and is designed to showcase contemporary Ukrainian artistic talent. ArtAsters events are hosted regularly at the Asters offices in downtown Kyiv, attracting audiences drawn from the international business, political and diplomatic communities.

November 2015

networking events

Asters Presents Icon Art from Lviv

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Fryday Networking at Hilton Kyiv Hotel Hundreds gathered at Kyiv’s Hilton Hotel in November for the latest installment in the popular Fryday Afterwork networking parties. Fryday is a global networking franchise with Ukrainian roots. The original Fryday events were hosted in Kyiv in 2010 before expanding internationally.

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networking events

Danish Business Community in Lviv Welcomes New Ambassador West Ukraine is the primary focus of Danish business activity in Ukraine and home to the Danish Business Association (DBA), one of Ukraine’s largest and most active chambers of commerce. Members of the DBA gathered in the west Ukrainian capital city Lviv in late November to welcome the new Danish Ambassador to Ukraine Christian Dons Christensen, who took up his post in Kyiv in mid-2015. Ambassador Christensen spoke of his cautious optimism for further Danish business expansion in Ukraine despite the current challenging environment, stressing that most available indications suggest the worst of the economic crisis is now over. Danish consulting companies active in west Ukraine concurred, pointing to rising interest in Ukrainian opportunities from Danish investors over the second half of 2015.

November 2015

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networking events

International Crowd Flocks to Podil’s Pink Freud

November 2015

Over 300 socialites from Kyiv’s international business community gathered in Podil for a special ‘Friday the Thirteenth’ Fryday networking party in mid-November. The venue for this popular event was the recently opened Pink Freud mixology bar, which is situated in a covered courtyard in Kyiv’s picturesque riverside Podil region.

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Selling Brand Ukraine to international tourists Ukraine could be tourist industry leader but government must help raise country’s profile Ukraine boasts many of the attributes traditionally associated with thriving tourist destinations, including an abundance of historical monuments, natural attractions ranging from virgin forests to untouched mountain landscapes, untold miles of sun-kissed coastline, and a deeprooted culture of hospitality. This favourable state of affairs should have led to the development of a highly profitable tourist industry in postSoviet Ukraine. Instead, the country’s best-known visitors are currently the euphemistically dubbed ‘tourists’ from Russia who have brought war and destruction to the industrial east of the country.

Russian military intervention is not solely responsible for independent Ukraine’s failure to capitalize on its undoubted tourist potential. Prior to the Kremlin’s hybrid war, any online search for Ukrainian tourism options would have been topped by references to sex tourism, reflecting the image problems that Ukraine continues to suffer from. Poor infrastructure, shortsighted government policy and a chronic lack of international awareness have all also played their part in preventing the development of the Ukrainian tourist trade.

With the country now at a crossroads in its modern history and searching for new economic models, the development of the Ukrainian tourism industry is once more up for discussion. A new generation of Ukrainians are attempting to capitalize on a range of natural and circumstantial advantages that many believe are capable of transforming the situation and gaining a far greater slice of lucrative international tourism markets. Selling Ukraine to international audiences has never been easy, but the growing sense of national identity within the country following the Euromaidan Revolution has helped focus attention on what Ukraine has to offer the outside world.

Samopomich (‘self-help’) Party MP Anna Romanova is at the forefront of efforts to reform Ukraine’s tourism industry. Part of the new batch of young MPs to enter the Ukrainian parliament following the October 2014 general election, 30-year-old Ms. Romanova currently heads the parliamentary subcommittee for the development of tourism, resorts and recreation. A former Deputy Mayor in the historic north Ukrainian city of Chernihiv, she wrote her doctoral dissertation on the value of location branding, and is speaks with a combination of passion and frustration about the potential of ‘Brand Ukraine’.

Is wartime the right time to promote tourism?

2015 has seen the number of foreign visitors to Ukraine plummet, and Ms. Romanova attributes this decline to widespread perceptions that the whole of Ukraine is a warzone. She sees changing these perceptions as an immediate priority, and hopes that embassies in Kyiv can play a role by relaxing travel warnings advising potential tourists to avoid the country. “Lots of people seem to think that the entire country is at war, while in fact the conflict only affects a very small percentage of Ukrainian territory,” she says.

Much of the initial skepticism Ms. Romanova has encountered has come from those who argue that – regardless of the geographical extent of the actual conflict zone – wartime is no time to attempt tourism promotion initiatives. Unsurprisingly, she disagrees, and says that she has received considerable support from former Georgian President turned 46

About the interviewee: Anna Romanova is an MP with Samopomich Party and Chair of the Parliamentary Subcommittee for the Development of Tourism, Resorts and Recreation.

Odesa Governor Mikheil Saakashvili, who enjoyed considerable success promoting tourism to Georgia in the immediate aftermath of the 2008 Russian invasion. “He said that now is exactly the right time to push Ukrainian tourism, much as it is also the right time to promote Ukrainian investment opportunities,” she reflects. “We can learn from countries like Israel, where the state actively promotes tourism despite the presence of constant security concerns.”

Hryvnia drop makes Ukraine a bargain destination

The devaluation of the Ukrainian national currency has served to make Ukraine an economically attractive destination for foreign visitors. While prices in the hospitality sector have risen significantly over the past year, these increases have been far smaller than the drop in the real value of the Ukrainian currency, making the country one of the cheapest destinations in Europe. In order to take advantage of this increased competitiveness, Ukraine needs first to become more visible. Ms. Romanova is frustrated at the lack of government funding for tourism promotion, and complains about the complete lack of budget funding in 2015. The key challenge, she believes, is to expose international audiences to Ukraine. Personal experience has demonstrated that those who visit the country are rarely disappointed, with the vast majority pleasantly surprised by what they find. “Foreigners are always impressed. The problem is many locals don’t realize what a potential goldmine they are sitting on,” she says.

Ms. Romanova identifies health tourism, eco-tourism and so-called ‘sentimental tourism’ as three specific areas where Ukraine could excel. She points to the experience of Poland in attracting Germans whose families used to live in what is now Western Poland – a business model Ukraine could apply to the Poles themselves. Medical tourism is already a growing niche in today’s Ukraine, but Ms. Romanova thinks not enough is being done – partly because clinic directors are www.bunews.com.ua

Outdated attitudes prevent focus on profitability

Ms. Romanova is currently working with government officials and private tour operators to create new legislation that can boost the growth of the tourism industry while also securing government support for the sector. She is encouraged by plans to finance major road construction across the country in the coming few years, bringing with it the promise of greatly improved infrastructure. However, an even bigger battle must still be fought to change local attitudes towards tourism, which Ms. Romanova claims are still often rooted in Soviet notions of spending to impress rather than generating revenue streams.

The Chernihiv MP believes the Ukrainian tourism sector can bring in USD 10 billion per year, but says she regularly encounters managers of tourist attractions who are more focused on preserving ‘historical integrity’ than creating a profitable business model. “Ukraine has dozens of wonderful castles in very good condition but they are barely used,” she says. “One complex director even proudly told me he had removed the souvenir shop in order to preserve his site’s ‘historic aura’. When I suggest to them that they host weddings and corporate events, I tend to be met by looks of pure horror. They are convinced that event-hosting will lead to the ruin of their historic landmarks, despite the fact that this is standard practice throughout Europe.”

Time for Ukrainians to explore Ukraine

The crash of the hryvnia has not only made Ukraine a cheap destination for foreign visitors – it has also made international tourism

November 2015

prohibitively expensive for many Ukrainians. This presents opportunities for greatest domestic tourism – a sector that offers the promise of economic and social gains. The potential for Ukrainian destinations to benefit was highlighted in summer 2015, when the Black Sea resort city of Odesa enjoyed its busiest season in living memory as Ukrainians flocked south, attracted by Odesa’s bars, beaches, and vibrant nightlife scene. The ‘Odesa effect’ was also felt elsewhere along Ukraine’s Black Sea coastline, despite the close proximity of the region to Russian occupation forces in Crimea and Putin’s proxy army in the eastern Donbas.

Most Ukrainian tour operators have long overlooked domestic tourism. Instead, the focus has traditionally been on destinations like Egypt, Turkey, Greece and Bulgaria. For the generation of Ukrainians who grew up in the Soviet era when foreign travel was forbidden to all but the privileged few, spending holidays abroad carried with it a social status that was attractive in itself. With the novelty value of foreign holidays now significantly diminished and local facilities increasingly competitive compared to their international counterparts, domestic tourism could well be one of the key growth sectors in the coming few years.

Ms. Romanova believes that this process will pay social dividends, helping Ukrainians to understand their own country better and debunking many of the regional myths that have helped fuel divisions and prevent historical wounds from healing. “People used to believe that you would be beaten for speaking Russian on the streets of Lviv, but as more and more Ukrainians visit Lviv they learn that this is nonsense,” she argues. “Very few people in west Ukraine have visited east Ukraine and vice versa. If more people had spent time travelling within the country, we might have been able to avoid the conflicts of the past two years. Domestic tourism can help unite Ukraine.”

tourism

generally appointed on the basis of their medical skills and often lack the entrepreneurial savvy to organize a successful medical tourism business model or promote their services on competitive international markets.

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Ukrainian mortgage market remains undeveloped but holds huge potential for real estate sector It is widely assumed that currently nobody in Ukraine uses a local mortgage to finance a home purchase, and available figures support this assumption. By some estimates, less than 2% of home sales on the Ukrainian real estate market in 2015 involved the use of a mortgage. A couple of years ago, it was quite common for foreign clients to inquire about the possibility of obtaining a local mortgage to buy property in Kyiv. Lately it is rare that anyone in the real estate business encounters this inquiry from individual home buyers – especially foreign investors, who tend to be savvier and never ask about mortgages anymore. Word has clearly gotten out - do not expect to finance buying a home in Ukraine with a local mortgage.

This was not always the case. In this article, I will review the brief history of mortgage lending in Ukraine, explore the obstacles to its restoration and future development, and look at the benefits that the development of a healthy mortgage market would bring to Ukraine’s real estate sector and economy as a whole.

November 2015

real estate

Mortgage lending in Ukraine A brief history of mortgage lending in Ukraine

Historically mortgage lending in Ukraine was always concentrated in the capital Kyiv. From 2001 to 2007, the hryvnia currency was stable at about UAH 5 to the dollar. Meanwhile, inflation was moderate, home prices were rising rapidly, and mortgage rates were relatively low, all of which stimulated the housing market.

Everything seemed to be in place for the emergence of a strong mortgage market, but the mass market for mortgage lending in Kyiv collapsed in the wake of the 2008 global financial crisis.

Personal incomes fell, housing was no longer affordable to many Ukrainians after years of rising property values, and mortgage rates rose sharply.

Prior to the 2008 crisis, many Ukrainian homebuyers had opted for dollar mortgages. Interest rates on these loans were lower than hryvnia loans and borrowers assumed that the hryvnia :

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: would remain stable. This proved to be a disastrous miscalculation.

The Ukrainian mortgage market never recovered from the shocks of late 2008. In 2014-2015, the situation with mortgages only worsened in response to political unrest, war, and the steep devaluation of the hryvnia.

Current state of Ukraine’s mortgage market

As of late 2015, borrowing costs for mortgages in Ukraine are prohibitively high, with fixed rates that are on average 25%+ per year.

Several factors contribute to this phenomenon. High inflation and lack of trust in local banks keep rates paid to depositors high. These high deposit rates increase costs of funds for banks and drive mortgage rates higher. Often it is difficult for banks to evict borrowers from their apartments for non-payment and sell these mortgaged properties. Mitigating this risk increases mortgage rates.

Many Ukrainian depositors keep their funds in the bank for short periods of 3-6 months, while on average mortgages mature in 20 years.

The general lack of long-term funds increases liquidity risks to banks.

This also needs to be priced into mortgage rates. Nowadays many homebuyers seek loans instead of traditional long-term mortgages, opting for bridge financing where they already have 80-90% of a property’s value in cash and intend to repay their loan in 6-12 months.

Foreign banks and hard currency lending

What about the idea that foreign banks in Ukraine could theoretically offer lower mortgage rates due to their large resource base? After all, these banks can access global financial markets for cheaper credit compared to the high cost of funds from local short-term depositors in Ukraine. This approach will not work because funds obtained abroad are in USD or EUR, while foreign banks in Ukraine must lend to local borrowers in hryvnia. Currency controls introduced by the National Bank of Ukraine also require banks to keep very small forex positions.

Added to this is a lack of demand. Given the recent instability of the local currency and the uncertainty about the security situation in the country, relatively few Ukrainians would be eager to take on a hard currency loan.

It is important to recall that banks in Ukraine are still burdened with a high level of bad/non-performing USD and EUR-denominated loans that were taken out prior to the 2008 financial crisis. In late November 2015, Ukraine’s Cabinet of Ministers approved a package of draft legislation to support companies and families that obtained hard currency loans, including a draft law to provide means-tested relief to approximately 37,000 ‘vulnerable’ citizens who took out hard currency mortgages to purchase their primary residence (as opposed to speculators). The hope is that this package of draft legislation will reduce the debt burden on companies and individuals and increase the supply of loans in Ukraine’s banking system.

The package will be submitted to the Ukrainian parliament for review in early December.

Other obstacles to mortgage lending in Ukraine In addition to the aforementioned currency and liquidity risks, another lending risk worth noting is credit risk. In Ukraine, many people derive a significant portion of their income from the country’s sizable informal economy. As a result of this dependence on the shadow economy, they are typically unable to provide proof of their income. Such people find themselves locked out of the mortgage market, but the economic reforms that would stabilize Ukraine’s economy and its currency would also theoretically decrease the size of this informal economy.

While proof of income and credit history checks are regarded as standard procedures for all mortgage lenders worldwide, with the recent tightening of mortgage lending, some Ukrainian banks are now also requiring that the borrower be no older than 60 or 65 years old at mortgage maturity. Mortgages in Ukraine have an average length of 20 years, which means that if the borrower is older than 40 or 45, he or she could be denied a mortgage on the basis of age alone. Other obstacles to the development of a healthy mortgage market in Ukraine include the absence of an effective mechanism for assessing property values, the lack of a mortgagebacked securities market, the lack of an electronic land inventory, weak foreclosure procedures and an unreformed judicial system.

Mortgage opportunities for Ukraine

In developed economies, mortgages represent a significant portion of household debt and support banking systems and financial markets through secondary markets and securitization of mortgages.

A healthy housing market drives the construction industry and generates employment. While the homeownership rate in Kyiv is high, average living space per person is low (less than half the EU average). There’s also a massive structural housing deficit. Kyiv is the capital of the largest country in Europe with a highly educated population of over 40 million people. Just try to imagine the scale and economic impact of restoring mortgages in Ukraine where most home purchases are ‘cash sales.’

What can we expect going forward?

Many bank analysts do not expect Ukraine’s mortgage market to change much in 2016. Currently an unstable hryvnia and high interest rates are the biggest obstacles to restoring the mortgage market.

In the past few months, the country has taken positive steps towards stabilizing its currency by securing an IMF aid package and averting default by re-negotiating with Western bondholders. The possible debt restructuring on hard currency loans to local borrowers is also a positive sign.

These are encouraging developments, but for the hryvnia to stabilize, Ukraine has to attract foreign direct investment that will increase the country’s capacity to generate hard currency export revenues. However, the hard work of implementing economic reforms and making Ukraine’s investment climate more attractive for foreign investors remains.

About the author: Tim Louzonis (tim@aimrealtykiev.com) is a co-founder of AIM Realty Kiev, a real estate agency that specializes in real estate for foreign expats. Tim is a long-time expat with Ukrainian roots; he first came to Ukraine as an exchange student in 1993 and returned in 2008

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Middle classes hold key to Ukrainian democracy Ukraine has achieved political pluralism but populism prevents genuine democracy taking root Veteran Ukraine watcher Brian Mefford has been living and working in Ukraine since the late 1990s and has held a number of positions with international organisations as a political analyst and advisor. He is currently a business and political consultant and Executive Director of the Committee for Open Democracy (COD), an international election monitoring organization. Mr. Mefford spoke to Business Ukraine magazine about the changes he has witnessed in the country over the past 16 years, and why he thinks the middle classes hold the key to the consolidation of Ukraine’s fledgling democracy.

You have been monitoring Ukrainian democracy for almost two decades.

How has the country’s democratic culture progressed over this period?

Ukraine has made progress over the 16 years I have worked here. However, the progress is not always noticeable in the short-term. With Ukraine you have to view things from the long-term perspective because in the interim there are often setbacks. Nothing in Ukraine is ever as good or as bad as it seems at that moment. If you take the long-term view then the progress is evident.

Many observers branded Ukraine’s recent local elections as a major step backwards to the kind of election violations and dirty tricks that were common during the pre-Orange Revolution era. Do you agree with this assessment?

Nationwide the election was comparable to last year’s presidential and parliamentary elections, which were conducted in a fair and democratic manner.

There were definitely problems in some areas this time, particularly in Odesa were results appear falsified, and in the Donbas where many cities were unable to hold elections.

Compared to the rest of the CIS region, Ukraine enjoys a relatively pluralistic political landscape in terms of competing political parties. However, most of these parties are based around individuals rather than ideas. How can Ukraine move away from the politics of competing personalities?

This is a key test for Ukraine as the politics are personality-based rather than principle-based. The long-term answer is to dramatically expand Ukraine’s tiny middle class through economic growth. When there is a prosperous middle class, people will vote for their principles rather than pick personalities. In the short-term though, it is important the current reforms are pushed through so that the public sees change. If people see real change for the better, then this will also hasten the shift toward principle-based voting.

You have been monitoring public opinion in Ukraine since the 1990s.

How have attitudes towards key issues such as Ukrainian identity and relations with Russia shifted during this time?

The Orange Revolution and the Yushchenko presidency solidified Ukrainian national identity as separate from Russian. Until that time, it was not fashionable to identify oneself as Ukrainian outside of Western Ukraine. More recently, Euromaidan and Putin’s subsequent actions have managed to solidify Ukraine’s European choice for the future. Until Euromaidan, Ukraine was trying to pursue closer European and Russian ties simultaneously. Now, the path for Ukraine is clearly to the West.

There is a growing mood of post-revolutionary disillusionment in Ukraine today that is eerily similar to the anticlimax following the 2004 Orange Revolution. Do you get the impression that Ukraine is headed for similar levels of disappointment this time round?

The public is growing increasingly angry over the lack of real reforms. So far, outside of the economic sphere, the reforms have been largely cosmetic rather than real. More importantly, the window of opportunity to conduct real reforms is closing. If major changes are not introduced in the next six months then Ukraine’s government will have wasted their opportunity to improve the situation in the country.

You have interacted with many of Ukraine’s international partners.

Do you think international understanding of the issues facing Ukraine is improving?

The West well understands Ukraine’s problems. Every country has problems though, and for too long Ukraine’s problems have been used as excuses not to reform. In America during the Civil War, Abraham Lincoln did not say that he would wait until after the war to free the slaves. Instead, he understood that turbulent times are exactly the best time to make major changes. Ukraine has experienced war and an economic recession. Now is the time to make fundamental reforms to improve the situation. Ukraine has the Free World united behind her. However, this support will not last forever and if Ukraine does not reform soon, this support will evaporate and Ukraine fatigue will once again set in.

Do you see NATO membership as a realistic medium-term goal for Ukraine?

Public support is now in favor of NATO membership and that is key. Just two years ago, the public was 2 to 1 against membership. Those numbers have now reversed in favour of NATO. Due to the war, Ukraine’s military is finally modernizing to meet NATO standards. Those are big changes in a positive way.

However, the issue of the Russian occupation of the Donbas and annexation of Crimea will need to be resolved one way or another before Ukraine has real NATO membership opportunities. Ukraine is still years away from NATO, but at least it is concretely moving in the right direction.

Given the scale of Russian expectations, do you regard Vladimir Putin’s ‘Novorossia’ project as a failure?

Putin badly miscalculated and thought that Ukrainians would welcome the Russian army with open arms. Instead, Ukrainians resisted because they fundamentally view themselves as Ukrainians and not Russians. Before the Orange Revolution, Putin might have had success with his Novorossiya project, but now the only way he will succeed is by military force. Former President Kuchma entitled his autobiography, “Ukraine is not Russia”. Turns out that was the smartest thing he ever said.

Can Ukraine and Russia rebuild relations while Putin sits in the Kremlin?

It will be extremely difficult to rebuild relations with Russia as long as Putin remains in power. Once Russia has a new leader, restoration of normal and constructive relations can begin.

Cosmos Ojukwu is a Kyiv-based Nigerian journalist who has been covering Ukrainian affairs for more than a decade

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media

Ukrainian media struggles with oligarch influence Media landscape still dominated by select few kingmakers despite continued market evolution It was the early 1990s and Ukraine’s Deputy Minister of Communications was asking why anyone would want to start a local radio station. To make money. Puzzled, he asked how a radio station could make money. Sell advertising. He contemplated for a full minute and then proclaimed, ‘It will never work.’ It often felt like few in Ukraine in 1992 knew more about commercial media than I did a 28-year-old American whose experience was limited to watching perhaps too many Saturday morning cartoons growing up. Hello to the world of Ukrainian television.

Copyright complaints and cultural acclimatization

One evening in those early days, a major Ukrainian TV channel was screening an American film – Julia Roberts and Richard Gere are never so quirkily romantic together as when both their voices are dubbed by a single gruff male baritone speaking Russian. Not long after the FBI Copyright Warning announced the movie’s beginning, the subtitle IF YOU ARE WATCHING THIS, CALL 1-800-NOCOPIES ran across the screen. I called. The operator asked how many others were watching along.

I told her I was not exactly sure, but estimated the audience to be about four million. The lady gasped and connected to a special extension – so special it only had an answering machine.

The Minister of Information then visited London, Europe’s media capital. He indignantly lectured senior executives of all the major TV and film studios. He had personally written the legislation combatting film piracy and they had no business questioning Ukraine’s commitment to fighting film piracy. He somehow forgot to mention that he was a co-founder and shareholder in the channel airing the Richard Gere movie.

The Soviets had learned that controlling the media means controlling the people. They just didn’t learn the details. One radio station in the early 1990s bribed local politicians by paying in airtime instead of via cash in suitcases: fame, influence, and prestige where treasured by the political classes and greedily accepted.

But only the few who

had access to media ratings knew that no one was actually listening to this radio station, except possibly the families of whoever was being interviewed.

Soon election victories where being attributed to deft use of television. Asked his prognosis on the next day’s election outcome, a senior Ukrainian TV executive of the early independence era quipped, ‘didn’t you hear? We decided 57%-37%.’ Here was a way to make huge cost savings on election research by simply deciding the outcome beforehand. Things have since become more sophisticated, but the basic principles established in the 1990s remain the same. The media certainly influences Ukrainian voters, but in an oligarchy, only a handful of voters really matter.

Advertising revenues attract unwanted attention

Ukraine’s commercial television market grew as fast as anyone would have expected in 1993- 1994, but this growth still succeeded in taking many in Ukraine by surprise. By 1995, advertising revenues from some of the biggest international corporations had grown so large that they were attracting attention from a range of interested parties including administration bagmen, scud missile dealers, and Russians. They noticed the advertising dollars rolling in, but did not yet quite understand the correlation of advertising to business. One major international corporation told state television officials, ‘we are the largest advertiser in the world therefore we want the lowest prices.’ The reply they got from the state television representatives was equally straightforward, ‘you’re the largest advertiser in the world, so you can afford to pay the highest prices.’ The result was a predictable impasse and another year without the world’s largest advertiser.

Media ownership issues

Gradually, Western media executives also noticed

the market growth in Ukraine, and realized that with the right partner they could do anything. This meant business without rules, with the ability to exert major influence over the government. Millions were invested. A few fancy jeeps where given to the right people to secure a TV license. Millions were also lost - business without rules makes investment longevity dicey. And from all this, Ukrainians learned from these rich, well-placed Westerners that there is money in media and you can ignore lectures about corruption as long as you have the right friends in Western capitals.

Ukrainian TV continues to play by these same rules. Two years ago, Ukraine’s advertising dollars could not financially support the dozens of existing TV stations broadcasting in the country.

Today, the Ukrainian media market has shrunk by 50% and yet there are still over 40 multiregional TV stations. All of these channels are owned or controlled by the top four Ukrainian oligarchs – except one channel owned by the President. A secret cartel controls TV advertising dollars. This cartel is so secret that only the entire advertising and media sectors have been clued in. The cartel inflates prices, unwittingly pushing advertising dollars to radio, digital and outdoor media. Oligarchs continue having to subsidize their TV channels in order to keep control of information. TV channel staff keep ‘liberating’ company money in clever sales and production schemes.

Oligarch infowar continues

Today, Russia wages information warfare against Ukraine globally. Meanwhile, Ukrainian oligarchs wage information warfare domestically. Putin says he is only really concerned about ethnic minority rights in east Ukraine. Ukraine’s oligarchs say they are only really interested in rule of law and no more corruption. There is little to suggest major changes to the media landscape in the next few years. Instead, Western governments will likely continue accommodating the oligarchy. As a result, the oligarchs can carry on driving away competition and international investment into Ukrainian television.

Freedom of the press will remain limited to the diverse views of Ukraine’s four or five richest men.

Limited public accountability will ensure there are limited government reforms, leaving the Ukrainian economy to languish.

About the author: Andrew Bain is an American businessman with more than two decades of experience in the Ukrainian media sector.

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Targeted by the Kremlin troll army Finnish journalist Jessikka Aro recounts her experience as investigator and victim of Russian infowar Russia’s infowar against Ukraine has rarely been out of the international media limelight over the past two years. This coverage has generally focused on Kremlin attempts to sow confusion and disguise the hybrid war in Ukraine by planting false narratives, flooding website comment sections, and sowing conspiracy theories. As a result, global audiences have learned about the existence of entire networks of socalled Kremlin troll factories, while marveling at the Russian media’s ability to manufacture entirely fake ‘news’ stories out of thin air.

Relatively little attention has been paid to parallel efforts by Kremlin activists to harass and discredit journalists seeking to expose the scale and extent of the Russian disinformation campaign. This underreported front in the infowar plays an important part in the wider conflict, serving to test the resolve of media professionals who are attempting to shed light on the Kremlin’s tactics. Finnish journalist Jessikka Aro, who works for the country’s Yle public broadcaster, has first-hand experience of the lengths pro-Russian activists are prepared to go in order to shut down the debate. For the past year, she has found herself on the end of a systematic hate campaign designed to destroy her professional credibility and scare her into silence.

Finland is a frontline country in the information battle raging over Ukraine. A former colony of the Tsarist Russian Empire, today’s Finland is an EU member state but not part of the NATO alliance. The Finnish experience during the Cold War is often held up as an example of the kind of acceptable geopolitical neutrality that Ukraine should be encouraged to adopt. Since the Ukraine crisis first erupted in late 2013, Russian infowar efforts in the country have sought to exploit suspicions about NATO while playing on anti-American sentiment and ignorance of Ukraine.

Attacks on Ms. Aro began almost as soon as she started reporting on Kremlin troll factories. The campaign against the Finnish journalist has since seen her vilified across a wide range of online platforms, harassed on social media, and subjected to abusive mobile phone calls and text messages – including one particularly distressing SMS claiming to be from her deceased father. Groundless accusations about her alleged professional misconduct have been forwarded to her colleagues and management at the Finnish national broadcaster, while senior members of the Finnish government have been informed of her supposed ties to foreign military and intelligence agencies. She has repeatedly been branded as a Russophobe, a media prostitute, and a NATO lackey, while also being accused of stifling free speech. Attempts to reason with the ringleaders of this systematic abuse have proved fruitless, producing offers to tone down the attacks coupled with demands that she cease her efforts to expose the Russian infowar and apologize.

Throughout it all, Ms. Aro has refused to bow to intimidation and has continued to report on Russian disinformation activities. She has spoken out publicly about the abuse she has suffered, becoming an unofficial spokesperson for journalists across the world who have been subjected to similarly coordinated campaigns of abuse and harassment.

Despite her negative experience at the hands of pro-Russian online activists, Ms. Aro says she has no regrets about taking on the Kremlin 56

troll army, and states that her commitment to investigative journalism remains unbroken. The Finnish reporter spoke to Business Ukraine magazine about the Russian infowar and explained why she thinks journalists require specific training in order to cope with the novel challenges presented by Kremlin trolls.

What made you decide to investigate the ‘Kremlin troll’ phenomenon?

Earlier on in my journalistic career, I served as a foreign affairs reporter. While in this role, I covered Russia as well as the issue of extremist propaganda. I have also studied and worked in Russia itself. I first read about the existence of pro-Russia trolls in the Russian and international media. In the autumn 2014, I noticed what appeared to be a new phenomenon - online pro-Russia propaganda trolls trying to influence not only Russian or international audiences, but also Finnish public figures. I decided to research this phenomenon because disinformation is a threat to Finnish freedom of speech and thus to our democracy. I decided that the best way to pursue this research was through a crowd-sourced investigation, so I invited Finnish people to share their experiences with me about pro-Russia trolls they had encountered online.

Did you ever feel physically threatened after you became a target of pro-Russian activists?

No, but when people are constantly agitating against you and being encouraged to abuse and defame you online, it is quite possible that someone might also take it upon themselves to commit physical violence against you.

How have the activities of pro-Russian activists affected the public debate in Finland over the war in Ukraine?

In various ways. My investigation has revealed that they have silenced many Finns by creating an atmosphere of fear and anxiety amongst people who criticize Russia online. They have mixed up what is true and what is not true, creating a sense of division between Finns as well as distrust among the public in general. One of the most alarming findings of my research was that Kremlin activists have succeeded in turning some ordinary Finns into pro-Russia propaganda distributors. While this is cause for concern, it is also important to stress that plenty of Finns have not been affected by the disinformation or trolling in any way.

Some commentators have claimed that the primary goal of Kremlin disinformation is not actually to convince anyone of Russian viewpoints, but rather to confuse audiences and sow doubt. What do you see as the key objectives of the pro-Russia activists you encountered?

In my investigation I identified a range of different goals. Creating confusion and doubt are just a few of the key objectives. They also try to justify the acts of the Russian political leadership and defend their agenda to both domestic and foreign audiences. They try to create an inflated sense of public support and attempt to give the www.bunews.com.ua

media

impression that there are more genuine members of the public backing Russian policies than there actually are. They also have more focused political goals that are specific for individual countries or tailored towards certain audiences. For example, one goal among Finnish audiences is to create a divide between Finland and the other EU countries. Another goal is to influence Finnish politicians and persuade them to take decisions that are favorable to Russia’s political interests.

Have you been in contact with any journalistic colleagues in other countries who have been similarly targeted?

I have been in touch with other Finnish journalists who have also been targeted and who have been exposed to similar methods. They have been attacked by the same propagandists and by the same kinds of anonymous profiles on Twitter and Facebook. The experiences of November 2015

these Finnish journalists are similar to mine up to a certain level, but the campaign against me seems to have been the most aggressive and systematic.

Based on your personal experience, what is the best way for journalists to counter the infowar tactics employed by the Kremlin?

Journalists need to receive training in order to help them identify and counter infowar activities, and to enable them to work in hostile situations and environments. Journalists also need to acknowledge that they might find themselves targeted psychologically. They need to prepare themselves for such an eventuality. It is important to understand that this harassment is not targeting you as an individual. It is an attack on the important journalistic work you are doing. The most important lesson of all is that journalists should not stop covering sensitive topics because of outside pressure.

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Kyiv Street Art Revolution Explosion of modern art murals gives post-revolutionary Ukrainian capital a hip European feel Two years since the outbreak of the Euromaidan protest movement, has Ukraine actually moved any closer to the rest of Europe?

On the geopolitical level, the signing of the EU-Ukraine Association Agreement has brought the relationship between Ukraine and the EU to an entirely new level. Meanwhile, on the national level there is less concrete evidence of a decisive shift towards European values, with ambitious reform commitments sitting uneasily alongside attempts to maintain the corrupt old status quo.

Signs of the emergence of a new, European Ukraine are easiest to identify at street level – especially in Kyiv itself. Civil society is thriving, with a cult of volunteerism making itself felt in every sphere of life from defence and central government to human rights and support for the country’s internally displaced population. The Ukrainian capital has also witnessed an explosion of hipster hangouts over the past two years, as the ostentatious opulence of post-Soviet chic has given way to a brand of bearded Bohemianism that is culturally far closer to Berlin than Moscow.

Beyond the beards, perhaps the most visible indication of this growing Europeanization has been the ever-expanding array of contemporary street art creations that currently decorate Kyiv’s Soviet-era architecture.

Kyiv becomes a giant canvas

Since the fall of the Yanukovych government in February 2014, the Ukrainian capital has become a giant canvas for a dizzying ensemble of street artists including local talent and many of the biggest names on the global street art scene. Some artists have sought to capture the mood of national awakening that has gripped Ukraine since the Euromaidan Revolution, while others have attempted to inspire the public with more apolitical creations. Painting styles have generally been contemporary, with Ukrainian folk motifs featuring heavily.

The pictures they have produced stand in stark contrast to the Soviet-era practice of decorating buildings with giant Communist Party slogans in praise of the proletariat. Instead, the emphasis is now firmly on free artistic expression and individuality. Kyiv’s once drab Soviet facades have been transformed into platforms for creativity and colour, generating a contemporary feel that sits surprisingly well with the Ukrainian capital’s ancient aura.

Activist art

This ongoing flurry of artistic activity has already resulted in a collection of monumental street art capable of rivalling anything Eastern Europe has to offer. It is a collective achievement involving artists, activists, building owners and enthusiastic city officials. Such public-private sector creative cooperation would have been significantly more difficult during the post-Soviet years, when a ‘can’t do’ mindset dominated thinking and fostered an instinctive fear of change among many state officials.

The growth of street art is one specific area where Kyiv Mayor Vitaliy Klitschko has been able to make his mark on the Ukrainian capital and live up to his billing as a ‘European Mayor’. The former boxing world 58

heavyweight champion has offered his support for a series of Kyiv murals and personally welcomed international artists to the city.

Mayor Klitschko has cooperated with numerous activists involved in the growth of street art in Kyiv. One of the most active groups is the CityArt initiative, which is backed by Klitschko as well as being supported by a number of private donors. CityArt project producer Anastasia Drizo says the recent fashion for monumental street art is part of broader efforts to transform Kyiv into a modern European capital capable of rivalling more established cultural centres inside the EU. “We want Kyiv to be just as interesting for tourists as cities like Prague, Paris and Barcelona. Contemporary street art is a great way to transform old buildings and brighten up the city centre. It has the potential to stimulate people intellectually and broaden horizons,” she explains, adding the CityArt initiative is guided by the slogan ‘In Art We Trust’.

Street artists inspired by Ukraine

Despite receiving a number of requests from the owners of recently constructed buildings, Ms. Drizo explains that only drab and dilapidated buildings are selected for CityArt projects. Ukrainian and international artists are then invited to produce artworks at selected sites, with global street art aristocrats such as Australians Fintan Magee and Guido van Helten among the many to have added to Kyiv’s open-air art exhibition over the past year. Activists provide the artists with space for their creations, but the themes of the pictures are generally left up to the artists themselves. “Street artists are not commercially driven. You cannot hold tenders among them or ask them to work to order,” explains Ms. Drizo.

Ultimately, Ms. Drizo hopes to be able to offer tours of Kyiv street art as part of the standard tourist package. Kyiv has long had a wealth of historic landmarks for visitors to explore, but the advent of the street art phenomenon in the Ukrainian capital has added a contemporary twist to the traditional tourist trail. She sees the growing number of murals as part of the move towards a more European urban environment, and is confident it will help attract visitors while also making them feel more at home in the city. “Street art is a short cut to the modern European mentality,’’ Ms. Drizo concludes. www.bunews.com.ua

culture

November 2015

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sport

Ukraine set to avoid Russia at EURO 2016

Ukrainian national team have qualified for the UEFA European Championships for first time ever November saw a first for Ukrainian football when the national team made it through the dreaded playoff stage and qualified for the 2016 UEFA European Championships. Prior to this two-legged victory over Slovenia, Ukraine had previously fallen at the playoff stage on five separate occasions, and had only ever qualified for a single tournament – the 2006 World Cup in Germany.

Ukraine’s sole previous appearance at a European Championships came in 2012, when the country qualified automatically as co-hosts along with Poland.

Ukraine fans will learn which sides the national team faces in the group stages of next summer’s tournament on 12 December, when the EURO 2016 draw takes place in Paris. The good news is Ukraine will not have to deal with a potentially explosive encounter against Russia – at least not during the group stage. UEFA officials have taken the sensible precaution of placing the two teams in the same pot for the draw, meaning that they cannot end up in the same group. If both teams make it through to the knockout stages of the tournament they may yet meet, but Ukraine fans can look forward to the group stage with geopolitical concerns left to one side.

Avoiding Russia takes some tension out of the draw, but there will be no easy matches for Ukraine at EURO 2016. Many pundits regard the European Championships as significantly more competitive than the World Cup, which tends to suffer from the inclusion of Asian and African teams that often to struggle to compete with the European and South American powerhouses of world football. In contrast, the European Championships tend to produce far tighter encounters and have a history of upsets, with little Denmark winning EURO 1992 and unfancied Greece triumphing at EURO 2004.

Ukraine’s hopes of EURO 2016 success will be pinned on Dynamo Kyiv talisman Andriy Yarmolenko and Sevilla star Yevhen Konoplyanka. The

pair offer explosive attacking options and both boast considerable international experience. Konoplyanka is now plying his trade in the Spanish top flight after dazzling during Dnipro Dnipropetrovsk’s 2014-2015 run to the Europa League final, while Yarmolenko is increasingly turning heads with his performances for Dynamo Kyiv in the Champions League.

For many long-suffering Ukraine fans, simply being at EURO 2016 will be reason enough to celebrate. Few supporters have endured as much heartbreak as fans of the Ukrainian national team, but qualification for next summer’s championships in France goes some way to making up for the playoff disappointments of 1997, 1999, 2001, 2009 and 2013.

UEFA EURO 2016 FINALS DRAW

EURO 2016 draw will take place in Paris on Saturday 12 December at 19:00.

EURO 2016 draw structure: six groups of four teams – one team from each pot.

POT 1: France, Spain, Germany, England, Portugal, Belgium POT 2: Ukraine, Russia, Italy, Switzerland, Croatia, Austria POT 3: Czech Republic, Sweden, Poland, Romania, Slovakia, Hungary POT 4: Turkey, Republic of Ireland, Iceland, Wales, Albania, Northern Ireland

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Registration: KV 15006-3978PR Published by: Open Borders Media Director: Susanna Dickinson

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