Business Ukraine 7/2017

ISSUE 07/2017

POST-HABSBURG NATION Austria in Ukraine: how Viennese vision and a shared Habsburg inheritance helped Austria to become one of Ukraine’s biggest international investors

BUSINESS UKRAINE ISSUE 07/2017: This month we offer a special focus on Austrian-Ukrainian bilateral ties. Since the early 1990s, Austria has emerged as one of the key international investors in Ukraine.

A combination of innovative Austrian investment strategies and cultural closeness rooted in a shared Habsburg inheritance have helped to strengthen ties between the two countries.

Ukrainian History is Europe’s Great Blind Spot The international media will embrace all things Bolshevik this autumn as the world marks the centenary of the Russian Revolution. Audiences can expect everything from gushing feature articles about early Soviet cinematography to edgy op-eds on the place of propaganda posters in twentieth century art history. Amid this deluge of Communist kitsch, the one thing we are unlikely to see is serious analysis of Ukraine’s 1917-21 statehood bid and its considerable relevance to the geopolitical tensions of today. Instead, the Ukrainian independence struggle looks set to be airbrushed out of the Bolshevik spectacular, much as it has been for the past hundred years. Ukrainian history will remain the great unknown of the European narrative.

This is both an error and a missed opportunity. It is an error because events in Ukraine decisively shaped the outcome of the Russian Revolution. The Ukrainian theater played a central role in the fighting that engulfed the Russian Empire after 1917, while Bolshevik opposition to Ukraine’s independence bid exposed the old-school imperial instincts behind all the sexy Soviet sloganeering. It is a missed opportunity because the international community could clearly benefit from a greater awareness of Ukrainian history. The current geopolitical confrontation over Ukraine has driven the world to the brink of a new Cold War, yet the underlying historical currents at work in Ukraine itself remain widely misinterpreted and misunderstood. Even now, after three and a half years of intensive coverage, numerous commentators find nothing wrong with portrayals of Ukraine’s Revolution of Dignity and the Kremlin’s subsequent hybrid invasion as part of a wider geopolitical struggle between Russia and the West, with Ukraine cast in the role of hapless pawn. Such thinking not only denies Ukrainians agency. It also diminishes one of Europe’s long-running independence struggles and perpetuates what is arguably the continent’s most glaring historical oversight.

One of the biggest single barriers to a better understanding of Ukraine’s place in the broader European historical narrative is the habit of treating Russia as a country rather than an empire. For many years, Western journalists and historians have spoken of “Russia” when they are actually referring to the Tsarist Empire or the Soviet Union. Accounts of WWII are a particularly good example of this practice at work. Western histories of the war routinely refer to Soviet forces collectively as “the Russians”. We learn that “the Russians” suffered twenty seven million losses before taking Berlin. Meanwhile, there is scant reference to the millions of Ukrainians who fought in the Red Army. The scale of Ukraine’s human and material losses during the conflict defies comprehension, but the country barely gets a mention. This staggering omission

demonstrates the sheer size of Europe’s Ukraine-shaped blind spot.

Some historians are already fighting back on Ukraine’s behalf. Yale’s Timothy Snyder, who has long led the field in the study of Ukraine’s blood-drenched twentieth century history, informed Germany’s Bundestag earlier this year that from Hitler’s point of view, the purpose of WWII was the conquest of Ukraine. Snyder argued that this emphasis on Ukraine should be central to our understanding of the entire conflict. Instead, attention focuses on the wartime experiences of “the Russians”, while Germans are encouraged to feel a moral obligation towards the modern Russian state.

Another of the historians providing much-needed fresh insight into Ukrainian history is Anne Applebaum, whose latest book focuses on the horrors of the manufactured famine that served as the centerpiece of Stalin’s genocidal 1930s “War on Ukraine”. Applebaum’s book is a timely addition that places the famine within the broader context of the Soviet campaign to crush the Ukrainian peasantry and intelligentsia. However, it is noteworthy that even the most favorable reviews have treated the book’s contents as new and revelatory in nature, highlighting just how obscure this apocalyptic episode remains. If they had known more about the famine, global audiences would probably not have been so unprepared for the fake news epidemic unleashed by the Kremlin since 2014. They would have been familiar with the dark power of Kremlin fakery thanks to an awareness of the way the Soviets covered up the 1930s famine in Ukraine, which remains the most elaborate and successful fake news operation in world history. Instead, this well-worn Kremlin strategy was widely hailed as an entirely new form of warfare altogether.

Ukraine’s rise to global prominence since 2014 has taken many by surprise and exposed gaping holes in Europe’s collective memory. It will inevitably take time for popular perceptions of Europe to accommodate these changes.

For the time being, there is modest progress. International audiences are belatedly beginning to recognize that Ukraine is not Russia, but there is still considerable resistance to the idea of Ukraine as a fully-fledged member of the European community. Eventually, Ukraine’s European credentials will become self-evident even in Russia itself.

Until we reach that point, Europe will struggle to formulate a coherent policy towards a country whose awkward emergence challenges the entire continent’s understanding of its own history.

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

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austria in ukraine

Austria in Ukraine

Austrian innovation and investment underpin strong bilateral relationship rooted in shared Habsburg history Since taking up her post in Kyiv in 2015, Austrian Ambassador to Ukraine Hermine Poppeller has grown used to examining the legacies of Ukraine’s period as part of the Habsburg Empire. Whenever she visits the Ukrainian regions that once formed part of the sprawling Habsburg domains, local officials love to show her the buildings of the era.

“I get the sense that Ukrainians are increasingly taking pride in the Habsburg heritage we share. More and more Ukrainians are engaged in studying the Habsburg period and taking an interest in preserving this cultural inheritance,” the Ambassador observes.

On the day when she meets Business Ukraine magazine, Ambassador Poppeller is just back from a trip to Chernivtsi, the dreamy southwestern Ukrainian city with one foot in the Balkans that once ranked among the great cultural crossroads of the Habsburg realm. The city’s exotic past is still tangible in Habsburg architectural gems like the city’s opera house and its memorably eclectic Hogwarts-style National University complex. Ambassador Poppeller says she was also able to sense echoes of the openness and tolerance that have come to characterize the relatively benign Habsburg era. When viewed against the grim and bloody backdrop of the twentieth century’s nationalist and ideological empires, the patchwork Habsburg Empire has taken on an air of almost quaint inoffensiveness. Nowhere is this truer than in Ukraine, where subsequent tragedies have served to cast the Habsburg period in a particularly favorable light. “One can still feel this open spirit in Chernivtsi today,” Ambassador Poppeller says. “It is an openness rooted in the old traditions of everyday tolerance among different ethnic and religious groups living together. Just look at all the famous writers and poets who flourished in this vivid intellectual climate of multicultural tolerance.”

Austrian Investors Head East

Ambassador Poppeller speaks of the shared Habsburg past as a source of pride for con8

About the interviewee: Hermine Poppeller is the Austrian Ambassador to Ukraine temporary Ukrainians and Austrians alike, arguing that this common heritage can serve as a bilateral bridge while also help-

ing Ukraine along the road to closer integration with the wider European community.

Austria’s Habsburg inheritance has already :

austria in ukraine

“I get the sense that Ukrainians are increasingly taking pride in the Habsburg heritage we share. More and more Ukrainians are engaged in studying the Habsburg period and taking an interest in preserving this cultural inheritance” : played a role in the development of bilateral

business relations, serving as a spur to eastwards expansion since the early 1990s as Austrian investors led the post-Soviet push beyond the Iron Curtain. Despite a population of just under nine million, Austria has consistently featured among Ukraine’s top ten investor nations, currently occupying fifth position in the annual ranking. This disproportionate prominence is part of a broader regional investment strategy promoted by Vienna that dates back to the end of the Cold War and drew also on cultural affinities rooted in the Habsburg epoch.

“Some Austrian companies have always enjoyed good ties with the nations of the former Eastern Bloc,” offers Ambassador Poppeller. “There is a shared cultural awareness rooted in the Habsburg experience. As a neutral country during the Cold War itself, Austria was also in a good position to take advantage of the new business opportunities that arose in the 1990s. Austria had become home to significant communities from Eastern Bloc countries thanks to waves of immigration following the 1956 Hungarian Uprising, the 1968 Prague Spring, and the Solidarity movement in 1980s Poland. This helped to create the conditions for Austrian investment following the end of the Cold War. Once the Iron Curtain fell, Austrian businesses quickly began to prioritize eastward expansion.”

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The first markets to feel the effects of this Austrian investment outreach were the country’s immediate Warsaw Pact neighbors. The second wave included countries like Ukraine, with Austrian banks and insurance companies leading the charge. It was not only this feeling of “a shared past” but also the competence and excellence of Austrian industry, technology and craftsmanship that has helped Austrian business to perform so well in foreign markets, stresses the Ambassador. “We take pride in the fact that Austria tops the country ranking of “hidden champions per capita”, companies who are world leaders in what they are producing, some of them very specialized high tech companies.”

Reforms and Rural Regeneration

In common with most of the Kyiv diplomatic community, Ambassador Poppeller identifies corruption and rule of law concerns as the major obstacles to further international investment, a verdict that leads her place judicial reform at the top of Ukraine’s current priorities. “The Association Agreement with the European Union has created an entire reform agenda that will bring the country into line with EU standards. This is necessary because there are still a lot of laws that are relics of the Soviet era. Nevertheless, the most important issue remains

the reform of the courts. This is crucial in order to generate a sense of trust among both Ukrainian citizens and international investors. Many potential investors currently shy away from Ukraine because they do not want to risk the uncertainties of the Ukrainian court system.” She believes an anti-corruption court may be the best solution, at least in the medium-term until the overall court system can be fully overhauled. “Ukraine now has a number of new institutions that are doing a relatively good job of investigating corruption, but if you cannot then bring suspects to court and achieve convictions, it does not instill trust.”

One of Austria’s specific contributions to the reform process is a rural development program designed to raise standards of living in Ukrainian village communities via the establishment of cooperatives. “Developing rural areas is a very Austrian objective.

We Austrians tend to look after the countryside,” says Ambassador Poppeller. One particularly eye-catching project involves support for an agricultural cooperative set up by a group of ATO veterans in the countryside north of Odesa. Another features a dairy production cooperative in a village close to Chernivtsi that helps families with their own livestock produce cheese for regional markets. “We see it as a way of giving rural Ukrainians an opportunity to earn a :

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: living without having to migrate to towns

and cities,” she explains.

Ambassador Poppeller is particular engaged by the idea of providing Ukraine’s conflict veterans with help reintegrating into civilian society, something she recognizes as a major challenge for the country as it seeks to move beyond the current conflict footing. She has paid numerous visits to frontline communities close to the conflict zone, giving her first-hand insight into the scale of the human suffering in eastern Ukraine. “This conflict needs to end today and not tomorrow,” she says. “I know it is not up to Ukraine alone, but the international community must continue efforts to resolve the conflict. The living conditions for those living close to the fighting are awful, especially for the poor and the elderly.

It is a very sad situation.”

Cultural Diplomacy The ongoing military conflict in the country has done much to color perceptions of Ukraine among Austrian audiences, serving to deter potential investors and creating the unduly dire impression of a war-torn land.

Ambassador Poppeller recognizes the inevitability of such negative generalizations and says she would like to see greater efforts made to promote alternative Ukrainian narratives among international audiences. “Military conflict is never good for a country’s reputation but there are ways of countering these damaging perceptions.” She identifies the country’s contemporary cultural wealth as one of Ukraine’s strongest image tools and stresses that this could prove particularly potent in Austria itself. Numerous Ukrainians have gained considerable prominence in the world of Austrian classical mu-

sic and already serve as informal cultural ambassadors. Official informational support could help to amplify this effect. Thirty-nine year old Ukrainian Oksana Lyniv is a great example of the potential for cultural outreach of this nature. Lviv prodigy Ms. Lyniv has attracted international headlines and garnered considerable Austrian media attention following her recent appointment to the prestigious post of chief conductor at the Graz Opera and Graz Philharmonic Orchestra. “Promoting people like Oksana Lyniv as representatives of today’s Ukraine is a great way of challenging and changing perceptions about contemporary Ukrainian realities,” Ambassador Poppeller says. “Ukraine has an abundance of cultural talent performing all over the world. These personalities can play an important role in connecting the country to the rest of Europe.”

Cultural Connection: Austrian Ambassador to Ukraine Hermine Poppeller pictured with Ukrainian classical music superstar Oksana Lyniv who recently took over as chief conductor at the Graz Opera and Graz Philharmonic Orchestra in Austria

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Changing banking culture rooted in reforms Shock therapy has transformed banking landscape and created a more predictable environment

About the interviewee: Gerhard Boesch is First Deputy Chairman of the Board at Raiffeisen Bank Aval Anyone complaining about the slow pace or superficiality of Ukraine’s post-Maidan reform process clearly does not have the country’s banking sector in mind. Since 2014, Ukraine’s banking system has undergone an unprecedented overhaul that has seen decades of corrupt practices confronted. Around half of the country’s banks have since closed or been forced out of business, while those that have survived the reformist purge now find themselves in a new regulatory environment altogether. As First Deputy Chairman of the Board at Raiffeisen Bank Aval, Austrian Gerhard Boesch has witnessed the transformation of the Ukrainian banking sector from the inside. He offers an upbeat but qualified appraisal of the results thus far.

Mr. Boesch is one of the most seasoned international figures in the Ukrainian banking industry today. He has been in Ukraine with Raiffeisen Bank Aval since 2006, when he was among a wave of foreign bankers to arrive during a post-Orange Revolution flurry of international investment into the Ukrainian financial sector.

Over the intervening eleven years, he has witnessed numerous periods of major turbulence. However, he says the changes since 2014 represent by far the biggest shift in Ukrainian banking culture to date.

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NBU Drives Reform Agenda The Austrian is quick to give credit to the National Bank of Ukraine (NBU) for driving the ambitious reform agenda of the past three years. He believes the decision to appoint a new team of reformminded professionals to senior positions within the NBU in 2014 was decisive, paving the way for breakthroughs that have surprised even the most optimistic of observers. “The National Bank of Ukraine now has a different institutional DNA,” he reflects. “I would go so far as to say that five years ago, there was a broad consensus internationally that the NBU was probably the worst central bank in the region. This perception has undergone a complete transformation. While it may not necessarily be universally regarded as the best in the region, the NBU is now seen as the institution that has made the biggest and fastest progress.”

The NBU’s readiness to close dozens of prominent Ukrainian banks has made a particularly strong impression. In a cultural climate where the top one percent often behave with an air of complete impunity, the closure of banks tied to some of Ukraine’s wealthiest citizens has been a rare example of rules trumping influence. “It was a positive shock to see that the NBU was strong enough and independent enough to go after some quite prominent oligarch-

Lack of Protection Limits Lending

One of the biggest tasks facing the revamped Ukrainian banking sector is to boost lending. The sharp economic shocks of 2014-15 have now given way to a period of steady growth, but the gains of the past eighteen months remain extremely modest given the low starting point of the current upward trend. A lack of access to financing is widely cited as one of the factors preventing a more robust recovery, but Mr. Boesch believes this is a challenge the banking sector cannot address in isolation. He sees it as part of wider problems with the legal environment that require comprehensive solutions on a national scale. “We need to restart lending in order to move beyond the current period of economic stabilization.

Banks have to play a bigger role in taking the country towards a stronger economic recovery. This is not currently happening. The key obstacles are weak rule of law and lack of creditor protection.

It is still too easy for borrowers to avoid repaying loans, so banks are inevitably cautious. This means that we restrict ourselves to a much smaller number of loans that we theoretically could. If we had more confidence in our rights as creditors and if we felt protected by the courts, we could lend to far more people. In that sense, it is very much part of the broader fight against corruption. In order to change this situation, many institutions have to deliver. Ultimately, it is a task for parliament.” If the right protections were in place, he is in no doubt that the loan portfolios of Ukrainian banks would soon begin to expand rapidly. “The clients are there,” he says.

A Changing Banking Culture

The shock therapy of the past few years has radically altered the Ukrainian banking industry and changed the way the sector as a whole operates. While Mr. Boesch acknowledges the need to achieve key monetary policy targets such as lower interest rates and the reduction of inflation to manageable levels, he feels comfortable speaking about the industry in terms of a new era. “We have witnessed a change in culture within the banking industry.

All the particularly problematic banks have been closed and the rules of the game are now different. This is not yet a perfectly level playing field but we are much closer to achieving that result.” He points to the NBU’s greater emphasis on communications strategy and openness as evidence of this changing climate. “There is a new sense of predictability from the national bank. Ukrainian banks have a clear idea of the regulations they must meet and an understanding of the thinking behind the policies adopted by the NBU. It is now possible to talk to the regular, which was never the www.bunews.com.ua

case in the past.”

Mr. Boesch believes this cultural shift is also evident among banking customers. “Client behavior has changed for the better in recent years,” he says. “They now tend to have a much better understanding of the need for greater transparency over issues like company ownership. This has been a top down process enforced by the regulator, but it is no longer so difficult to explain it to clients. They are increasingly recognizing that if they want to run a modern business and cooperate with professional banks, they must also change their behavior. There is an understanding that if the Westernization of Ukraine continues, they will have to adapt accordingly. In the final analysis, they are coming to realize that this is in their best interests. It is a very welcome trend that shows the country is moving broadly in the right direction.”

As attitudes towards banking services change, Ukrainians are also returning to the country’s banks in larger numbers. While Mr. Boesch points out that Raiffeisen Bank Aval traditionally serves as something of a safe haven during periods of economic instability, he acknowledges that confidence in the banking sector has long been an issue. This lack of faith in Ukraine’s banks made it into the international headlines in late 2016 when e-declarations revealed the vast wealth that many MPs and civil servants kept in cash. Bank closures have done little to bolster the reputation of the industry, but the growing sense of economic stabilization has led to an increase in the number of people entrusting their money to banks. “What we have seen over the past six to twelve months is that deposits are coming back to the banking system.

This growing client base has allowed banks to reduce the interest rates they offer without losing deposits. Confidence is clearly higher than it was a year ago and this leads to greater demand for banking services. If you choose to keep your money under the mattress, this brings certain risks while you also miss the benefits of interest payments.”

austria in ukraine

owned banks. This sent out a very strong signal to the remaining banks that they need to comply with the regulations of the industry,” says Mr. Boesch.

Despite this encouraging assessment, he recognizes that much still work remains before the reform process is complete. Nevertheless, the framework put in place by the NBU has succeeded in aligning Ukraine with broader European monetary policy trends.

“It is still far too early to say ‘mission accomplished.’ We are not there yet, but the policy mix is now in place. The NBU is no longer an outlier in terms of monetary policy. This has broad implications not only for the banking sector but for macroeconomic stabilization in general.”

Existing Banks Likely to Expand

With a growing client base and newfound functionality, could the Ukrainian banking sector be on the verge of attracting a new wave of international investment? As one of the few remaining veterans of the generation of international bankers to arrive in Ukraine during the mid-2000s, Mr. Boesch thinks a repeat is unlikely. “I don’t foresee a new wave of international banks entering the Ukrainian market anytime soon. Most of the major international banks are already here. As confidence increases, you are more likely to see existing international banks doing more and expanding their presence.”

As they seek to increase their footprint on the Ukrainian market, these international banking brands will draw on the tough lessons they have learned since the heady days of the 2000s. “Investments in the banking industry in 2005-2008 tended to be driven by very unrealistic expectations of how fast Ukraine would converge with European standards. Adapting to reality was a painful process and you could argue that many banks are still traumatized by the losses they incurred, making them overly pessimistic,” says Mr. Boesch.

“Nevertheless, this experience has equipped us to analyze the country more realistically. It is has allowed us to find a sustainable model for growth without taken too many risks. This is a near ideal position to be in.”

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austria in ukraine

Ukraine and Austria: completing each other Common interests and complementary strengths create considerable cooperation opportunities

About the author: Olexander Scherba is the Ambassador of Ukraine to Austria At times, Austrians can sound like masters of understatement, integrating the words “our small country…” into every second sentence. Well, even geographically, the country is not actually that small. As you get to know Austria better, you will also see in these people a history, culture and heart that is bigger than life itself. In terms of cooperation with Ukraine, Austria is already a major partner. In terms of mutual opportunities and shared interests, it is a giant. it sometimes seems to me as if God created Austria out of a huge Lego set: mountains and lakes, forests and fields, cities and villages - everything is built with love, and for some reason it all fits together, right down to the smallest detail. Blessed by nature in so many ways, hardworking Austrians have made much more of their good fortune. Ukrainians are hardworking too. Their country has the same natural wealth, and they also want to make more out of it!

Making more out of what we already have is what today’s Ukraine is all about.

It is a desire to break away from the sad routine of our history. Making a bet on a new winner, the European project.

Ukraine is hungry for success and ready to roll up its collective sleeves to reach it. Austria, in turn, has already arrived. It is a success in virtually every possible way, but continues to reach out in search of new horizons. This makes our two countries a good match. Ukraine can become Austria’s new horizon. Together with our geographic proximity, common history, and dedication to Europe, we share common interests. Did you know that Austria’s nickname in West Ukraine is “Grandma Austria”?

For almost 30 years, Ukraine has supplied Austria’s Voest Alpine, one of Europe’s largest producers of premium steel, primarily supplying German car producers. These steel products rely on iron ore pellets produced by Poltavski GZK. This means that most German-made cars, with the help of Austria, actual16

ly originate from the Ukrainian town of Gorishni Plavni, where these ore pellets come from. Just think about it. Thirty years of cooperation. Despite changes in governments and even epochs. This cooperation is worth up to EUR 750 million per year.

Another striking success story: Austrian investments in the insurance business in Ukraine. Two Austrian companies currently dominate the market: Uniqa and Vienna Insurance Group. Like two Kenyan runners leading an Olympic marathon, they switch places at the top of the field, with premiums constantly growing, year after year, decade after decade.

The same goes for the banking and financial sectors, where Raiffeisen Aval has weathered all the storms of the last decades and always landed on its feet.

When I arrived in Austria in late 2014, Raiffeisen was suffering from the loss of many branches in the wake of the Russian occupation. “Too bad we didn’t sell the Ukrainian part of our business when we had the opportunity,” the leadership sighed. Two years later, they do not sigh anymore. They say Ukraine has successfully turned the corner and, “we wish we had the same numbers as we have in Ukraine in other countries.” Banking is just the beginning. You can see success stories across the board. Fischer Sports in Mukacheve (did you know that most of the world-famous Austrian Fischer skis are made in Ukraine?), Agrana Fruit in Vinnytsya (not one, but two major plants supplying Europe with bio juices), the recently opened “Beehive” honey plant near Cherkasy, and many more. Did you know that Ukraine is Europe’s number one producer of ironing boards and one of the leaders in the windsurfing board market? Yes, this is an Austrian investment too, by Nils and Tobias Grolitsch, two brothers from Carinthia who just out of curiosity stopped by in Ukraine in the early 2000s and stayed for good.

Ukraine abounds with opportunities, both big and small. Austria knows it.

Austria was among the first to believe in Ukraine. This has been the case ever since 1991, when Ukraine regained its sovereignty. It has not always been plain sailing. Every time there was optimism, there was also disappointment. This makes Austrian investors extra cautious. They know both the potential and the pitfalls of Ukraine, including corruption and bureaucracy. It is up to Ukraine to prove that things are now different. The time for investment has come.

Why now? What is different this time? Well, a number of factors. Reforms are kicking in. In the last couple of years, Ukraine underwent major structural changes in the fields of taxation, state procurement, banking, and energy. Massive reform of the justice sector is about to change the functions and perception of the court system in the country. Many new people have entered government.

They themselves expect results.

With its world-famous fertile black soil, Ukraine is already a leading global player in the agro-market. With the relevant technologies and investments it can easily double, triple, or even quadruple the country’s current agricultural output. This is only one segment of the economy. Ukraine can feed the world.

It can provide new momentum to the European economy. Just look at the map.

Today’s Ukraine has more access to Europe than ever before in the form of the EU Association Agreement. Perhaps even more importantly, Europe has even more leverage on Ukraine than ever in the form of the same agreement. Civil society is making itself felt and the Ukrainian economy is on the rebound. Trade with Austria grew by around 15% in the first half of 2017. This is an indication of the progress underway in Ukraine. Austria will remain a strong partner as the country moves closer to Europe and develops deeper economic ties.

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Karl von Habsburg on Ukraine’s European roots “Future generations will realize how important Revolution of Dignity was for development of Europe”

ily’s former domains in Ukraine?

History was one of the main themes of our education. It was very important for my father to teach us history, especially the history of our family in different parts in Europe. He was in contact with Wilhelm von Habsburg, so I know about him from the stories my father told us.

What role can Ukraine’s Habsburg heritage play in the country’s European integration?

I would say it is cultural heritage and a cultural link to Central Europe. History is always an important basis. In terms of Ukraine’s European integration, I see the Euromaidan movement and the Revolution of Dignity as the main elements.

About the interviewee: Karl von Habsburg is the current head of the House of Habsburg and the oldest grandson of the last Habsburg Emperor Charles I Karl von Habsburg is the current head of the House of Habsburg and the oldest grandson of the last Habsburg Emperor, Charles I. Business Ukraine magazine asked him how his Habsburg heritage has influenced his understanding of contemporary Ukrainian nation-building efforts and why he thinks Ukraine’s Revolution of Dignity is such a significant event in modern European history.

The international media often views Ukraine through the prism of the country’s Soviet and Russian imperial past. To what extent do you think we can talk of contemporary Ukraine as a post-Habsburg as well as a post-Soviet society?

One of the Russian legends states that there is no Ukrainian nation and Austria created Ukraine in the final stages of WWI. It is a fact that (Habsburg Prince) Archduke Wilhelm was very pro-Ukrainian and supported the country wherever he could, but I would say that these claims are just Russian propaganda. Ukraine has a long European tradition stretching back to the Kyiv Rus, whereas the Russian Empire can be seen as the result of the Mongol Khanate. The Ukrainian state first emerged at the end of WWI and Austria supported it. The western parts of Ukraine were formerly part of the Habsburg Empire and influenced by the culture of this multi-national empire. Soviet influence might be still present in some structures in the modern Ukrainian political system, but the country is carrying out major reforms.

As the current head of the House of Habsburg, what kind of reception have you received in Ukraine and what are the most common questions you encounter from Ukrainians?

The reception in Ukraine has always been very friendly. Some people who know history ask about Archduke Wilhelm and other Habsburg family links to Ukraine, but the main conversation I have in Ukraine is about political reforms and the question of European integration.

Growing up in the House of Habsburg, what did you know of your fam18

During your travels in Ukraine, have you identified any discernable social or cultural differences between regions that were formerly part of the Habsburg Empire and the rest of the country?

Yes, of course one can still see the old border. You can also see these differences in other countries that were partly Habsburg and partly within other empires, for example in the Balkans. Mentalities of people do not change in a period as short as 100 years. However, these differences are not as strong as some people might have expected or hoped. Ukraine did not split in two when Russia started its aggression. People in the eastern part of the country are not interested in falling back into Russian rule. They know that they belong to a European tradition and not to the traditions of a Khanate.

As somebody with ancestral ties to Ukraine and experience of contemporary Ukraine, how would you describe the country to colleagues in Austria and elsewhere in the EU? This is a question worthy of an entire book. What I try to explain is the different roots of Ukrainian and Russian tradition, to make clear that there is a difference and that the roots of Ukraine are definitely European. Kyiv had links to Central Europe when Moscow was still under the control of the Golden Horde. The second point is that the Ukraine of today is a country carrying out reforms, a country that has its own culture, language, and proEuropean orientation. People educated before the end of the Cold War did not learn about Ukraine. We learned about Europe and the Soviet bloc. This makes for very intense discussions, as you can imagine.

Many people saw Ukraine’s 2013-14 Revolution of Dignity as an attempt to embrace European values. In a rapidly changing Europe, is it still relevant to speak of shared European values at all?

Yes, we have to speak about European values like personal dignity, personal liberty, and personal responsibility. We must talk about property rights, about family, the obligation to care for our friends and neighbors, about the rule of law, which is the first duty of the state. We have to talk about the principle of subsidiarity. The state must not behave in the paternalistic style of the Soviet era. People have their freedom and responsibility just as a family has its freedom and responsibility. Europe is based on these values.

If we forget about them, Europe has no future. It will take some time, but the next generation will come to realize how important the Revolution of Dignity was for the development of Europe.

austria in ukraine

Strong economic ties between Austria and Ukraine Prominent Austrian investor presence in Ukraine reflects longstanding bilateral business ties

Austria and Ukraine have enjoyed a good bilateral economic relationship for many years. Austrian businesses have been intensively engaged in the Ukrainian market since Ukraine gained independence in 1991. Bilateral trade between the two countries has generally developed in a positive and promising way, although due to macroeconomic circumstances, there have been periods of temporary decline in trade figures over the years. The current trend is positive. In the past year, Austrian exports to Ukraine rose by almost 20% to reach a total volume of more than EUR 400 million.

Positive Trade Trajectory

Austrian exports to Ukraine comprise a wide range of items including pharmaceuticals, pulp and paper products, and many kinds of machinery and equipment for sectors such as the agricultural and food processing industries. The volume of Austrian imports from Ukraine recently surpassed Austrian exports moving in the opposite direction. In 2016, Austria imported goods from Ukraine with a total value of more than EUR 490 million, representing an annual increase of 2.8%. Traditionally the most important goods imported to Austria from Ukraine include iron ores and slugs as well as textile products. In the first two months of this year, bilateral trade between Austria and Ukraine experienced additional increases. Austrian exports to Ukraine went up in this period by another 21.9%, while Austrian imports from Ukraine rose by 15.7%.

The interest of Austrian companies in the Ukrainian market is evident in the fact that Austria currently ranks among the ten biggest foreign direct investors in Ukraine. In addition to Austrian investments in various industrial fields such as the production of skies, fruit concentrates, packaging materials, and labels, there is also a strong focus of Austrian investments in the Ukrainian financial sector. Raiffeisen Bank Aval as well as various Austrian insurance companies including Vienna Insurance Group, Uniqua and Grawe are all prominent names in the Ukrainian financial sector. As well as financial services, there are also numerous other services offered by Austria-related companies which are active with their own offices in Ukraine, such as tax and legal services as

well as logistics and personnel recruiting services. Meanwhile, Austrian consumer goods such as the crystal products of Swarovski, energy drinks of Red Bull, and Darbo jams are present on the shelves of Ukrainian stores across the country.

West Ukraine in Focus

In geographical terms, Austria business interests are mainly concentrated in the area in and around Kyiv. In addition to the Ukrainian capital and surrounding region, there is an especially strong presence of Austrian companies in West Ukraine. This part of Ukraine is closest to Austria in terms of both geography and history. Besides its historical ties and proximity to Austria, West Ukraine also offers the necessary natural resources for companies that need wood for their production processes.

Alongside bilateral trade and investment activities, Austrian companies can also offer a lot of technical knowledge and assistance that is particularly relevant for the modernizing industrial processes underway in today’s Ukraine. This includes the necessary technologies for the modernization of hydropower stations and steel works.

Advantage Austria

The Austrian Federal Economic Chamber, represented in Ukraine by the Advantage Austria office, has paid attention to the Ukrainian market since the early days of the country’s independence. The Austrian Federal Economic Chamber opened its Advantage Austria office in Kyiv almost 25 years ago in order to promote economic relations between Austria and Ukraine and to assist Austrian companies with their internationalization efforts by carrying out market research, providing advice, and organizing a variety of

About the author: Hermann Ortner is the Commercial Counselor at the Austrian Embassy in Ukraine 20

business events. These events include “Austria Showcases”, networking events or participation in industrial forums and trade exhibitions. For example, an Austrian Pavilion participated in the important agricultural exhibition “Agro Animal Show” which was held in Kyiv in February. In May, Austrian technology was present at the “Wood Processing” exhibition in Lviv.

In May 2017, an economic mission headed by the Vice-President of the Austrian Federal Economic Chamber, Mr. Richard Schenz, visited Kyiv. Participating representatives of Austrian companies had B2B talks with Ukrainian business people in order to identify further possibilities for economic cooperation. At an accompanying Economic Forum, senior experts addressed bilateral economic and finance-related issues. In parallel to this Forum, the 13th Joint Commission AustriaUkraine took place at the ministerial level. Bernadette Gierlinger of the Austrian Federal Ministry of Science, Research and Economy headed the official Austrian delegation in the Joint Commission. Her counterpart on the side of the Ukrainian Ministry of Economic Development and Trade was Deputy Minister Mykhailo Titarchuk.

In order to provide representatives of Austrian companies in Ukraine with a platform where they can regularly meet and exchange business ideas, our Advantage Austria Office is continuously organizing business cocktails and “Austrian Business Circles” featuring presentations about tax or legal issues and other important themes. These “Austrian Business Circles” take place in Kyiv and Lviv.

There are also regular bilateral business events in Austria organized by the Austrian Federal Economic Chamber with the aim of strengthening business ties between both countries. At the end of October 2017, another “Forum Ukraine” will take place at the premises of the Austrian Federal Economic Chamber in Vienna. A Ukrainian business delegation from the Ukrainian Chamber of Commerce and Industry is set to take part in this Forum in order to exchange business knowledge.

Due to long-standing and productive bilateral economic relations as well as the proximity of both countries, we are convinced that there is a great chance to continue and further intensify cooperation between Austrian and Ukrainian businesses for the mutual benefit of both sides.

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Insights for potential Ukraine investors

CMS experts offer analysis for international investors looking to enter the Ukrainian market Ukraine. While many of these barriers regrettably remain in place, the fast-developing business environment makes it crucial for potential investors to constantly monitor the situation and keep abreast of new opportunities. The following brief analysis aims to provide international investors with insights into the current situation as they consider starting business operations in Ukraine.

Entering the Ukrainian Market

About the authors: Anna Pogrebna is a Partner at the Kyiv office of CMS Reich-Rohrwig Hainz.

Maria Orlyk is a Partner at the Kyiv office of CMS Reich-Rohrwig Hainz Ukraine’s rich land, generous resources, advantageous geographical position and industrious people make it a naturally attractive investment destination. For many years, the country benefited from this attractiveness.

However, the international business and investment communities have responded cautiously to the period of political instability and economic recession following Ukraine’s 2014 Revolution of Dignity and the subsequent tragic developments in Crimea and the eastern regions of the country. Many foreign businesses have chosen to press the “pause” button or limit their investments into the country.

A limited number of market exits have also taken place.

Nevertheless, in the past two years the Ukrainian reform process has given cause for guarded optimism. Despite numerous controversies and the slow pace of some reforms, this optimistic mood continues to gain momentum in business circles.

Multiple international ratings and surveys reflect the growing consensus opinion that post-Maidan Ukraine is making progress. Ukraine moved up three places to occupy eightieth position in the latest version of the World Bank’s annual Doing Business survey, building on gains from the previous year. This positive result is largely 22

attributable to improvements in the quality and level of investor protections.

According to a recently published survey conducted by the European Business Association, in the first half of 2017 Ukraine saw its investment attractiveness reach a six-year peak. Meanwhile, at the end of August 2017, research group Institutional Investor placed Ukraine at the top of the EMEA list for potential investment based on the results of a survey carried out among more than 150 investment companies. Ukraine also ranked as 2018’s number one destination among investment industry professionals seeking new investment opportunities. In line with these positive trends, Ukraine also recently climbed four positions in the World Economic Forum’s Global Competitiveness Index.

This mounting international recognition indicates that Ukraine remains very much on the radar for foreign investors. It also highlights the fact that the business environment continues to demonstrate high levels of adaptability in response to the challenging and fast-changing economic and social environment in the country.

These changes include a range of government initiatives to improve the business climate and remove various barriers to doing business in

Before entering the Ukrainian market, most foreign investors typically face the question of which legal form of business presence to choose.

The two most common options for a foreign company looking to establish a business in Ukraine are a separate legal entity in the form of a limited liability company (“LLC”) or a representative office (“RepOffice”).

When it comes to choosing between an LLC and a RepOffice in Ukraine, there are a number of considerations to take into account. A RepOffice is usually established to carry out marketing, promotional, and other auxiliary functions on behalf of the foreign parent company. It is less clear whether a foreign parent company may also conduct trade or business through a representative office. However, “commercial” representative offices that serve as the equivalent of “branches” in most other countries are quite common in Ukraine.

If a RepOffice acquires “commercial” status, its activities become taxable in Ukraine on a general basis, including financing received from the parent company. Moreover, a “commercial” RepOffice is recognized as a permanent establishment of the parent company for taxation purposes in Ukraine, and is therefore not eligible for any tax incentives or tax holidays envisaged by Ukrainian legislation. Additionally, a RepOffice does not enjoy the status of legal entity in Ukraine and may therefore face difficulties when obtaining the required licenses or permits for some types of business activities.

There are also important differences between the two options in terms of liability. The parent company is fully liable for the RepOffice’s activities and commitments, while shareholders of an LLC are only liable for the LLC’s commitments to the extent of their capital contributions to its

Financing a Ukrainian Subsidiary

In our experience, most investors chose to establish a subsidiary in the form of an LLC. While there is no minimum capitalization requirement for an LLC, contributions to the charter capital are commonly used to finance the subsidiary’s activities during the initial stages of its operation. However, in light of the existing restrictions on the withdrawal of capital from Ukraine, investors are typically alert to the risk of not being able to repatriate their investments. In response to these restrictions, they look for an alternative way of financing their subsidiaries.

Additional available options to finance an LLC include intercompany or third party loans. All loan agreements between Ukrainian borrowers and foreign lenders are subject to mandatory registration with the National Bank of Ukraine prior to the disbursement of funds, and fall under limitations in terms of maximum applicable interest rates. In light of these requirements, any investor should carefully consider the time required for such registration, as well as the loan repayment terms and schedules, before opting for a shareholder loan scenario. Debt-to-equity swaps are not yet available to Ukrainian LLCs. This makes the immediate conversion of a shareholder loan into equity impossible. However, draft laws designed to allow debt-to-equity swaps for LLCs have already been registered with the Ukrainian parliament. Their adoption is expected in the foreseeable future.

Work Permits for Foreign Nationals

Except for individuals possessing permanent resident status in Ukraine, all foreign nationals seeking employment with Ukrainian companies www.bunews.com.ua

must acquire a valid work permit. Furthermore, it is practically impossible to employ a foreign director at the initial stage of incorporation of a company in Ukraine. The most common solution to this obstacle is the appointment of a Ukrainian national as company’s interim director until the foreign director is able to obtain a work permit.

Managing a Ukrainian Subsidiary

Irrespective of whether the company manager is a Ukrainian or a foreign citizen, shareholders will be naturally concerned with vesting the management of the company with specific, and often limited, powers. Achieving the appropriate limitation of powers for local management is something a shareholder should seriously consider as a sensible precaution. This may relate to issues like pre-authorization of certain transactions and expenditures or the conclusion of contracts. Establishing limits is possible through proper wording of the company charter and management contracts.

Incentives for Foreign Investment

As part of efforts to attract more investment to the country, the Ukrainian government has introduced a range of different incentivizing tools and measures designed to make Ukraine more appealing as an FDI destination. For example, until 2021 newly established taxpayers can benefit from “tax holidays” as long as they have an annual income of UAH 3 million or less and meet a series of additional requirements. These include a payroll featuring at least two statutory minimum wages per employee (currently UAH 6400) and involvement in a priority area of the economy that the Ukrainian government is looking to incentivize such as the export of IT products and services. Meanwhile, the import of any assets as an in-kind charter capital contribution by a foreign investor is currently exempt from customs duty in Ukraine. However, if these assets are then subject to resale within a threeyear period after import, the company is obliged to pay the exempted amount of import duties plus additional VAT.

Contracts with Ukrainian Companies

When contracting in Ukraine, one should remember that contracts with Ukrainian counterparts should always be in the Ukrainian language, while bilingual contracts have also become an increasingly common practice. Although most of the agreements are executed in

plain written form, certain types of contracts require notarization and even state registration.

In the course of ongoing reforms, Ukraine has managed to achieve great transparency in terms of accessibility to public data. Most state registers (such as the Unified State Register of Legal Entities and Individual Entrepreneurs, the State Register of Proprietary Rights to Immovable Property, State Register of Encumbrances over Movables, the Unified Register of Debtors, the Automated System of Enforcement Proceedings and others) are now available online and accessible by any interested party. This allows easy background checks on Ukrainian contractors.

This precaution is highly recommended in order to avoid unpleasant surprises in future.

austria in ukraine

charter capital.

In terms of costs and timeframes, registration of a RepOffice is more expensive and time-consuming compared to registration of an LLC. An LLC is usually registered within 24 hours and becomes fully operational within a couple of weeks following submission of all the required documents. Meanwhile, the minimum statutory term for the registration of a RepOffice is 60 business days. In practice, it usually takes about three months for a RepOffice to become fully operational. Making the right choice from the very beginning is crucial as changing status further down the line can be problematic. A RepOffice cannot be “transformed” (re-registered) into an LLC or vice versa once registration is complete.

Limitations and Restrictions

Ukrainian law generally treats Ukrainian and foreign investors equally. However, potential international investors should be aware that in some industries certain limitations on foreign nationals do apply. For example, Ukrainian legislation imposes a maximum shareholding threshold of 35% for foreign investors in Ukrainian information agencies. Additionally, foreign investors domiciled in offshore jurisdictions (listed by the Cabinet of Ministers of Ukraine in special regulations) and in the Russian Federation do not have the right to establish television and radio broadcasting companies in Ukraine.

Always a Solution

Because of the many regulatory restrictions that are still in place, international investors continue to encounter difficulties when pursuing their business interests in Ukraine. This inevitably leads to frustration and raises questions about the practicalities of managing a successful business in what remains a relatively challenging jurisdiction. At the same time, most of the problems and difficulties investors encounter prove to be manageable and solvable.

Businesses have a habit of finding legal ways to adapt to the existing limitations of the Ukrainian business environment and mitigating their negative consequences.

As the current reforms move closer to completion in a wide range of areas including corporate regulations, the judiciary, land reform, and the privatization of state property, this will further contribute to the improvement of the investment environment. Investors can look forward to increasingly simplified business operations in Ukraine and additional levels of comfort as they seek to develop a presence in this exciting and dynamic market.

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austria in ukraine

Austrian investors enjoy warm welcome in West Ukraine Historical ties help Austrian businesses feel at home in formerly Habsburg regions of Ukraine Austria has a special place in the hearts of West Ukrainians. While modern Ukraine and Austria do not have a common border, West Ukraine was once part of the Vienna-based Habsburg Empire. This shared past has created synergies in the present that help to make the region a popular destination for Austrian investment.

Many of the characteristics most commonly associated with today’s West Ukraine are rooted in the region’s Habsburg heritage. The comparatively liberal nationality policies of the Empire in fields such as education, culture, and local affairs played a major role in the preservation of Ukrainian identity throughout the western regions of the country at a time when it was coming under attack elsewhere.

Business ties between Austria and West Ukraine stretch back centuries and have enjoyed a new lease of life since the fall of the Iron Curtain. Numerous institutions are currently working to foster closer bilateral business ties, including the Honorary Austrian Consulate in West Ukraine.

Variously viewed as a platform for cooperation, an institution for rights protection, and a networking platform, the Honorary Consulate seeks to bring Austria and West Ukraine closer. As the Honorary Austrian Consul in West Ukraine, I have responsibility for six regions: Lviv, Ternopil, Ivano Frankivsk, Volyn, Rivne, and Zakarpattia. This role is both a great honor and a major responsibility.

My professional background as an attorney specializing in international law is particularly relevant as I seek to strengthen bilateral ties. For many years, much of my legal practice with Arzinger law firm has focused on protecting the rights of Austrian investors in Ukraine, structuring Ukrainian-Austrian business relations, and supporting Austrian clients in real estate transactions, financing deals, migration and other matters.

West Ukraine’s Investment Appeal

Western Ukraine boasts numerous objective advantages that make it an attractive investment

target. Broad improvements to Ukrainian legisla-

tion are helping to improve the business climate throughout the entire country, but there are geographical, economic, social and other factors that make West Ukraine particularly appealing.

Lying at the crossroads of historic trade routes, West Ukraine has long been one of the great gateways to Eastern Europe and beyond. This has helped to make the region attractive to Austrian companies seeking to expand their international reach. Well-developed road, rail and air connections link West Ukraine to Austria and other Central European hubs.

Human resources are an integral part of the region’s economic appeal. West Ukraine can offer investors access to a workforce with high levels of university education and experience working or studying internationally. The historic diversity of Western Ukraine, coupled with its crossroads status, mean that language proficiency is excellent.

The region’s skilled workforce is highly cost-competitive with some of the lowest average salaries in Europe. Unsurprisingly, international ventures involving everything from manufacturing and agriculture to call centers and R&D departments are present across West Ukraine.

Historic ties to Central Europe are also evident in West Ukraine’s famously European approach to business and local governance. Many international investors cite this as a key advantage. It certainly helps to make Austrian investors feel comfortable.

The region’s typical Habsburg architectural styles add to this sense of Mitteleuropa familiarity.

Europe’s Final Frontier

Unlike most other European countries, Ukraine still represents the chance to tap into relatively unoccupied or underexposed internal markets

in a wide range of niches. When combined with West Ukraine’s quintessentially European credentials, this allows the region to offer investors the best of both worlds. Leading investment segments include financial and insurance services, manufacturing and printing, mechanical engineering, real estate, transportation, storage, and retail. With Ukraine seeking greater energy independence, alternative energy is being widely tipped as an investment opportunity. It is also impossible to ignore the region’s internationally acclaimed IT sector, which is mushrooming across West Ukraine and becoming a major engine of economic growth. Close proximity to the EU coupled with a highly skilled workforce and competitive costs make West Ukraine one of Europe’s most dynamic IT environments. Tourism is among West Ukraine’s most attractive prospects.

With tourist numbers rising steadily each year, related businesses including everything from hotels to leisure activities have a good chance of securing attractive returns.

Real estate and construction are also promising opportunities popular among Austrian investors. While residential property typically involves relatively small individual investments, major infrastructure projects promise lucrative revenues.

West Ukraine currently lacks sufficient office space, international hotels, and entertainment centers.

International investors are likely to fill this gap in the coming years.

Close to the EU and far from the conflict zone in the east of the country, West Ukraine is widely recognized as Ukraine’s most attractive investment option. Austrian investors have long been in the vanguard of the region’s international economic development. This trend will gain further momentum as Ukraine’s European integration continues.

About the author: Markian Malskyy is Honorary Consul of the Austrian Republic in Lviv and a Partner at Arzinger law firm where he serves as Head of West Ukrainian Branch

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austria in ukraine

Austrian investors attracted by “Made in Ukraine” brand values Competitive costs and a highly skilled workforce among factors attracting Austrian investors to Ukraine Kyiv and Vienna-based investment consultant Sven Henniger currently advises international investors looking to develop business in Ukraine.

Mr. Henniger can call upon years of prior experience as an executive in Kyiv, providing him with unique insight into the key issues on both the sides of the bilateral business bridge connecting Austria and Ukraine.

He spoke to Business Ukraine magazine about the future of Austrian investment in the country and explained why he believes the “Made in Ukraine” brand can capture Viennese imaginations.

What are the most interesting segments of the Ukrainian economy for Austrian investors today?

That is a good question but I would be hesitant about narrowing the

scope of Ukraine’s investment potential too much. Every investment is unique and I think it is crucial to explore the specific business model each individual investor has in mind for Ukraine. Not all will be a good fit for the current Ukrainian market and business environment, while different approaches may produce different results in the same sector.

Having said that, in broad terms I see agriculture, IT, and production outsourcing as the main drivers of all international investment into Ukraine. A combination of competitive labor costs and the availability of highly skilled employees also makes Ukraine attractive to Austrians looking to outsource R&D or administrative functions. The appeal of production outsourcing is particularly strong in the west of the country close to the EU border, where many Austrian companies have established a presence. This trend looks set to gain momentum in the coming years. I am aware of a couple of companies that have already developed plans along these lines. They are now waiting for the right moment to enter the Ukrainian market.

What should Ukrainian businesses be doing to make themselves more attractive to potential Austrian investors?

The main concerns for all foreign investors, including Austrians, are weak rule of law, excessive bureaucracy, and pervasive corruption.

Tackling these issues is a national priority and it is the responsibility of every single company operating in Ukraine to contribute to this process. Individual Ukrainian businesses looking to attract Austrian merger and acquisition interest need to focus on transparency and compliance. If they offer products or services, these must be globally competitive in terms of both pricing and quality. There are also differences in the business cultures of the two countries that can sometimes create obstacles to investment.

The Austrian approach to doing business is very much results oriented, whereas in Ukraine the emphasis is still often on relationships.

How do Austrians perceive the “Made in Ukraine” brand?

In order to explain my opinion on this issue, I will need to take a few steps back in time and offer a broader perspective. The “Made in Ger-

many” branding (I would place “Made in Austria” on the same level) was first introduced by Great Britain in the nineteenth century in order to protect domestic markets from what the British then saw as cheap and inferior imported German goods. Today, the global prestige enjoyed

by German and Austrian manufacturing of all kinds makes this strategy seem retrospectively absurd.

I believe the “Made in Ukraine” brand has similar possibilities to become associated with excellence. In certain sectors, this is already the case. For example, the world’s largest transport aircraft, the Antonov An-225, is “Made in Ukraine”, as are many other world class Antonov aircraft. The Ukrainian IT sector is another example where “Made in Ukraine” has become synonymous with quality and competitiveness.

The world’s leading IT outsourcing players have long understood the combination of talent and cost effectiveness available in Ukraine, with many establishing representative offices and R&D centers in the country. Austrian investors know this. Elsewhere in the tech sector, hundreds of startups with great global potential are only lacking the necessary financial support.

For many Austrians, “Made in Ukraine” also means impressive agricultural output. This is no longer limited to raw crops alone, with Ukrainian companies increasingly investing in complex production lines to add value and produce higher margins. Austrian companies can play a role in this process by providing state-of-the-art technologies and financial support. Ukraine’s reputation as one of the world’s most fertile regions can help to attract investment and is well worth promoting internationally.

Another area where perceptions of the “Made in Ukraine” brand are rapidly improving is the fashion industry. Ukrainian designers have enjoyed considerable international exposure and acclaim in recent years, while fashion labels such as Arefeva have established a street-level reputation in Austria and other European markets. This sort of exposure can do wonders for the visibility and status of “Brand Ukraine”.

How has the ongoing conflict with Russia affected perceptions of Ukraine among Austrian investors?

While I am acutely aware of the ongoing tragedy in the Donbas region, I think it is also important to recognize that the conflict is regional in character and unlikely to move beyond the current frontlines. This helps to provide a much-needed sense of perspective to the issue. Nevertheless, the conflict has clearly had a significant impact on the country as a whole and on the Ukrainian investment climate in particular.

Country risk is one of the main issues facing foreign investors anywhere in the world, and armed conflict is the ultimate risk factor. The specific impact of the conflict has varied from industry to industry but it is inevitably a consideration for all Austrians considering Ukraine as a potential future investment destination. Having said that, the conflict is no longer as prominent in the Austrian media as it was in 2014 or 2015.

It would now be good to see more Ukrainian success stories promoted in the international media as a way to counter lingering and inaccurate perceptions of Ukraine as a war-torn country.

About the author: Sven Henniger (s.henniger@hwc.com.ua) is a Partner at Kyiv and Vienna-based Henniger Winkelmann Consulting

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austria in ukraine

Ukraine’s transformation creates investment opportunities Ukrainian narrative can appear daunting but historic change also means unprecedented potential should increase noticeably, while corruption should decrease dramatically if not disappear entirely.

Impressive Antimonopoly Progress

About the author: Timur Bondaryev is Managing Partner at Arzinger law firm Ukraine is passing through an historic process of political, economic, and social change. These challenges have definitely impaired our economy, but they have also induced the government to initiate urgent structural reforms in the country that have served to strengthen national institutions while opening up investment opportunities in a number of strategic sectors.

Industries like agriculture, IT, energy and pharmaceuticals now offer significant growth potential.

Meanwhile, major shock therapy has transformed the banking industry, with the strongest banks remaining in a reformed sector that stands on stable foundations. We also now witnessing the introduction of broadly discussed and much anticipated reforms to Ukraine’s judicial system, along with business-friendly changes to antimonopoly and corporate legislation.

Judicial Reform Underway

The judicial reform agenda launched in Ukraine in 2016 aims to remove unprofessional, corrupt and politically engaged judges from the judiciary.

Instead, the election of judges will be on a competitive basis. Other innovations include the introduction of tools such as “electronic courts” and “electronic justice”. Judges will see a substantial rise in salaries but will face dismissal if they are unable to account for their personal wealth or refuse to do so. Coming milestones along the road to reform include the removal of political influence from both the High Council of Justice and other bodies that control the judiciary.

Another positive change is the newly established institute of private bailiffs, which will operate along with state enforcement officers. In this newly competitive environment, the quality of enforcement 28

The whole system of Ukrainian competition regulation has considerably improved over the past few years. One of the most striking changes has been the increased levels of transparency at the AMCU (Ukrainian Antimonopoly Committee). This does much to create a better business climate in Ukraine.

Recent improvements in AMCU fines calculation practices are particularly noteworthy. The AMCU has developed fine recommendations that provide transparent and predictable guidelines for both the AMCU and the business community. Merger notification thresholds have also risen significantly. At the same time, we have seen the introduction of a simplified merger notification procedure for transactions that do not effect competition. The reform of Ukraine’s antimonopoly regulations is a major step on the path towards best EU practices and the standards set out in the EU-Ukraine Association Agreement.

Changes to Corporate Law

Ukrainian corporate law is now encountering significant reformation aimed at further liberalization of the activities of private companies and, in parallel, improving corporate governance, transparency and the accountability of public companies. This multi-faceted process should help to attract foreign investors by establishing understandable and comprehensive rules governing the domestic market.

For the past two years, a wide range of obsolete legislation has given way to new regulations. Investors can now benefit from a number of legal tools previously unavailable in Ukraine that increase their ability to protect their rights. Care has been taken to make sure these new tools are properly applied.

For example, corporate agreements can now allow partners to establish detailed rules governing the operation of joint projects, but this requires considerable effort in order to draft the requisite legal documentation.

Sustainable Real Estate Development

The Ukrainian real estate industry has been going through tough times over the past few years but signs of recovery are now increasingly visible.

A number of outdated Soviet-style construction

regulations have given way to contemporary best practices, while we have also witnessed the removal of numerous regulatory barriers. The taxation of property transactions now benefits from greater clarity, while the creation of publicly available unified property registers has boosted transparency in the sector. Construction regulations have undergone reform towards best global practices, while real estate planning application procedures have undergone considerable simplification. All these measures have boosted confidence and investor interest in the sector.

Energy Investment Opportunities

The Ukrainian energy market has been undergoing significant change for the past few years, with serious steps taken to liberalize the Ukrainian gas market. In a bid to end gas dependence on Russia, Ukraine has developed ambitious plans to boost domestic production. For the first time in its history, Ukrainian state-owned gas production company Ukrgasvydobuvannya has signed contracts with a number of foreign gas drilling companies.

Meanwhile, the entry of gas traders to the Ukrainian gas market reflects the sector’s growing competitiveness and investor appeal. Additionally, the planned unbundling of the country’s gas transmission system operator should lead to further energy sector transparency.

The Ukrainian electricity market has undergone considerable liberalization while favourable new legislation has made the renewable energy sector far more attractive to investors. Ukraine’s quest for energy independence is a matter of national security, creating a wide range of business opportunities in the renewables sector. The removal of subsidies and rising household energy tariffs have also led to mounting interest in energy efficiency.

Looking Ahead

We believe the ongoing changes taking place in Ukraine will meet the needs and expectations of the business community. It is no exaggeration to say that the existence of a fair and effective judiciary system, along with an understandable legislative environment including corporate, antimonopoly, and banking legislation, are preconditions for future economic growth. Given the developments currently taking place, we believe that what some still regard as a period of crisis is actually the ideal time for investment.

austria in ukraine

Introducing the Ukrainian-Austrian Association New association seeks to strengthen existing bilateral ties and overcome business barriers

through joint initiatives in the cultural, business and social spheres. In the business sector, our emphasis will be very much on fostering focused B2B relationships in the areas that matter most for both countries. Ukraine and Austria already enjoy a thriving bilateral business relationship, but there are huge opportunities for the further expansion of cooperation. This means identifying potential gains and working with existing business and civil society organizations to bring Ukrainians and Austrians together and create platforms for direct communication.

Overcoming Cultural Barriers to Business

About the author: Alfred F. Praus is President of the Ukrainian-Austrian Association. For further details about the UAA, please visit www.ukrainianaustrian-association.com or email info@ukrainian-austrian-association.com The ties linking Ukraine and Austria stretch back for centuries and encompass everything from politics and the arts to cuisine and coffee shop culture.

Meanwhile, in the contemporary context relations remain close. Comparatively small Austria is one of the leading investors in Ukraine, enjoying particularly prominent representations in the banking, insurance and industrial sectors.

Cultural connections are also a prominent feature of today’s Ukrainian-Austrian relationship, with Ukrainian performers held in particularly high esteem by Austrian classical music enthusiasts.

Thanks to the advent of the EU-Ukraine Association Agreement, this already robust partnership looks poised to grow even stronger. In order to take bilateral ties to the next level, we decided recently to establish the Ukrainian-Austrian Association (UAA). Fittingly, the UAA was officially registered as a non-profit organization in late summer 2017, shortly after the final ratification of the EUUkraine Association Agreement in Brussels. We chose to see this as a positive portent.

Introducing Austrians to the New Ukraine

The core mission of the UAA is to foster greater civil society relations between Austria and Ukraine at all levels. Within this framework, we also hope to be able to introduce Austrian audiences to the historic transformations taking place in post-Maidan Ukraine. We recognize there is no substitute for personal contact. By sharing our Ukrainian experiences with our Austrian colleagues, the UAA membership will take on the role of a persuasive advocate for the new Ukraine. At a time when Ukraine is seeking to overcome decades of negative coverage and image ambiguity, positive and constructive insights into the realities of living and working in the country can be particularly valuable.

The UAA seeks to be a two-way street, offering Austrian audiences first-hand accounts of today’s Ukraine while also bringing both countries closer together 30

This support for better business connections will extend to individual investment projects and cooperation initiatives. Despite the progress made in recent years by Ukrainian companies towards greater European integration and adoption of EU standards, it is still often possible to identify differences in mentality and expectations that can serve as barriers to business between potential Ukrainian and EU partners. Cultural clashes can still sometimes derail what would otherwise have been perfectly workable (and highly profitable) joint endeavors. Our objective is to help Ukrainian and Austrian businesses overcome these obstacles wherever possible. We plan to offer training programs for Ukrainian companies on practical subjects like the preparation of business proposals and investment plans. The aim is to provide these insights to the Ukrainian business community in partnership with the Ukrainian Chamber of Commerce and Industry, and to empower the next generation via cooperation with Ukraine’s leading business schools and universities. There is no reason why commercial cooperation opportunities should fall victim to relatively minor and avoidable differences in approach.

Engaging Kyiv’s International Community

In addition to bilateral activities, UAA also aims to play an active role within Ukraine’s dynamic international business and civil society sector. The association has already been invited to join the recently established International Council of Business Organizations and Chambers of Ukraine, which was set up in spring 2017 and unites business organizations from Germany, France, the UK, the US, Turkey, China and Ukraine. We will also welcome membership applications from beyond Ukraine and Austria. We received over 20 membership enquiries before the UAA was officially registered, suggesting considerable interest in the initiative and enthusiasm for greater AustrianUkrainian engagement.

As President and Chairman of the Management Board, I will share my experience as a senior executive at several multinationals, together with insights garnered from over ten years of living in Ukraine. The Austrian side of UAA activities will be directly overseen by Stefan Haboeck, who will also occupy a position on the UAA Board of Directors. As a newly founded association, we are both honored and thrilled to announce the participation of former ViceChancellor of Austria Dr. Erhard Busek as President of the UAA Supervisory Committee. His kind involvement will provide a significant boost to the association’s activities while adding weight to our initiatives. Dr. Busek has a long record of activities in support of Eastern European ties with the European Union.

His readiness to take on a role with the UAA reflects the high level of interest in strengthening bilateral ties with Ukraine. We aim to contribute to this process in a way that will increase mutual understanding, boost business cooperation, and bring Ukraine closer to the heart of Europe.

Read the case study online www.schneider-group.com/success-stories

Successful Business Setup in Ukraine with The Swiss company VigoHealth contacted SCHNEIDER GROUP with the request of setting up a unique fitness studio in Kyiv offering training for body and soul. SCHNEIDER GROUP successfully realized the concept and has been supporting VigoHealth since then with accounting and tax, General Director function services, legal and management compliance issues. If you also want to set up your business in Ukraine, contact SCHNEIDER GROUP. Yuri Donets Director kyiv@schneider-group.com +380 / 44 / 490 55 28 | www.schneider-group.com

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Why independent Ukraine is the ultimate post-Habsburg nation

Habsburg Empire helped foster a sense of Ukrainian identity and rooted the country firmly in Europe Twenty-six years since it first gained independence, people still routinely refer to today’s Ukraine as a post-Soviet country. The Soviet experience, together with the Russian imperial epoch that came before it, are widely accepted as the definitive historical foundations underpinning the modern Ukrainian state. This highly Kremlin-centric perspective on Ukrainian history completely ignores the major roles played by numerous other powers in the formation of the Ukrainian nation, such as the Polish-Lithuanian Commonwealth and the Ottoman Empire.

Of all the empires to leave their mark on Ukraine, the legacy of the Habsburg Empire is one of the most important and enduring. From the palaces of Vienna, the Habsburg monarchy oversaw a sprawl-

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ing multiethnic empire that encompassed much of Central Europe and lasted until the end of World War I. For over a century, this empire included large swathes of today’s western and southern Ukraine. The Habsburg Empire’s Ukrainian subjects prospered under relatively tolerant Viennese rule. While their fellow Ukrainians across the border in the Tsar’s domains suffered from successive language bans and policies of relentless Russification, the Habsburg Ukrainians enjoyed significant degrees of local self-government and were able to develop Ukrainian-language media and literature alongside the emergence of a Ukrainian political culture. This period of growing Ukrainian national consciousness under the Habsburgs helped fuel the failed statehood bids of 1917-21. Throughout

the Soviet era, it transformed Habsburg Ukraine into an incubator of the Ukrainian national idea.

Since 1991, this idea has slowly but steadily taken root across the whole country, remaining an important factor in Ukrainian identity politics to this day. Business Ukraine magazine spoke to Ukraine’s leading Habsburg Empire historian, Ihor Zhaloba, about the importance of the Habsburg inheritance for Ukraine’s ongoing nation-building efforts.

With his splendid beard and cultured air, Mr. Zhaloba would not look out of place in a nineteenth century sepia portrait of Habsburg grandees. He is widely acknowledged as Ukraine’s leading authority on Habsburg issues and speaks with the enthusiasm of somebody who has the pleasure of indulging their academic curiosity on a daily basis. :

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www.bunews.com.ua

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: Over the past quarter of a century, he has spent

years trawling through the imperial archives in Vienna and in his native Bukovina, piecing together the day-to-day realities of life in Habsburg Ukraine. The picture that has emerged is one of social tolerance and casual multiculturalism long before the term became politically fashionable in the Western world.

This is not the conclusion Mr. Zhaloba was expected to reach when he first began researching Ukraine’s Habsburg past as a Soviet undergraduate student in the early 1980s. At the time, the study of Ukrainian history suffered from the joint ideological constraints of Marxist-Leninist dogma and Great Russian chauvinism. Professors expected their students to denounce Habsburg rule in Ukraine as a classic example of oppressive colonialism. “We were supposed to acknowledge that the Habsburg Empire was actually far worse than the Tsarist Empire, where Ukrainians at least had the distinction of being oppressed by their fellow Slavs,” he quips.

“The Habsburgs were not just imperialists. They were also foreigners!”

Despite the limitations of the period, Mr. Zhaloba was able to find evidence in the Soviet archives that contradicted the official party line. His source was impeccable: the writings of Vladimir Lenin. “I found a quote by Lenin in his book about the Balkan Wars where he says of the Habsburg Empire: “Even in this most backward of European countries, the people are guaranteed much more freedom than in Russia.” It was the first time any of my professors had come across this line of argument. They were not thrilled. It contradicted the official Soviet narrative in which everything was utterly miserable until West Ukraine joined the USSR in the 1940s. Everyone agreed on the wickedness of the Habsburg era, but nobody could satisfactorily explain where all the wonderful buildings came from.”

The collapse of the USSR in 1991 freed Mr. Zhaloba from the absurdities of ideologically driven Soviet history and allowed him to split his research time between Vienna, Kyiv and his hometown of Chernivtsi, where the Habsburg legacy is writ large in the city’s stunningly eclectic architectural ensemble. He identifies Chernivtsi’s National University Complex as being of particular interest. In recent years, this imposing collection of buildings has earned the nickname “Ukrainian Hogwarts” for its resemblance to Harry Potter’s fictional wizard school. However, to Mr. Zhaloba, the complex’s real importance lies in its symbolism. Dating back to in the second half of the nineteenth century, it originally served as the Residence of the Bukovinian and Dalmatian Metropolitans of the Eastern Orthodox Church. “It is amazing that the Catholic Habsburgs allowed this impressive Orthodox pal-

ace to be built at all. This makes it a monument to the values of religious tolerance they promoted.

I’ve read German-language accounts of Habsburg Chernivtsi that suggest this was something people understood at the time as well.” As a monument to multicultural tolerance, the Chernivtsi National University Complex is indeed hard to beat. As well as celebrating what was in imperial terms a minority religious denomination, it also features Star of David decorations on a clock tower cupola - a tribute to the local Jewish community’s contributions to the construction of the complex.

Mr. Zhaloba believes this climate of tolerance is one of the major legacies of the Habsburg era in Ukraine. In terms of historical importance, he places it alongside the idea of an independent Ukrainian state that first took root during the period of Viennese rule. “What we see today is the beautiful architecture they left behind, but these buildings are far from the only things the Habsburgs gave to Ukraine. They also introduced Ukrainians to the politics of consensus and European parliamentary traditions. Habsburg rule gave Ukrainians the chance to develop as a political nation, gaining experience in regional administrations and in Vienna itself. Many of these Ukrainian politicians would go on to participate in attempts to create an independent Ukrainian state during the Russian Revolution. There were also pro-Ukrainian dissident movements in central and eastern Ukraine throughout the Tsarist period, but they tended to be more isolated and subject to physical destruction. Unlike under the Tsars, the Ukrainian political traditions that first flowered in Habsburg Ukraine were able to enter the social mainstream and proved resilient enough to outlive the entire Soviet era. In fact, it would be fair to say the Ukrainian state that emerged in 1991 was built on foundations dating back to the Habsburg Empire.”

To prove his point, Mr. Zhaloba refers to the spreading support for pro-Ukrainian candidates in successive Ukrainian presidential elections since the fall of Soviet Communism. When Ukrainians voted for their first independent head of state in 1991, the only regions to back the Ukrainian dissident candidate Vyacheslav Chornovil were three of the country’s former Habsburg regions in West Ukraine. By the time of the 2004 Orange Revolution, pro-Ukrainian Viktor Yushchenko was able to claim majority support throughout Central Ukraine. In the 2014 presidential vote, pro-Ukrainian candidate Petro Poroshenko topped the polls throughout the entire country. “These presidential elections demonstrate the step-by-step expansion of the Ukrainian vote as support for Ukrainian national identity and sovereignty has moved eastwards. This is also a vote for Ukraine’s European identity. Thanks to

Habsburg Ukraine, the central parts of the country have remembered their own European roots that date back even further to the epoch of the PolishLithuanian Commonwealth. The whole country has now embraced this idea to a degree that would have seemed fanciful in the early 1990s.”

Critics of Ukraine’s post-Soviet identity politics have often accused West Ukraine of exerting a disproportionate influence on the national agenda since 1991 at the expense of the country’s Russophile contingent. Mr. Zhaloba prefers to see the ascendency of Ukraine’s European identity as a natural and inevitable process reflecting the preferences of a generation brought up in a world where the soft power of the European Union has replaced the harsh realities of the Iron Curtain. “Just look at how Ukrainians love to visit Lviv and Chernivtsi,” he says. “They enjoy these colorful and diverse former Habsburg cities. It is only natural that they would then want to implement the same European qualities in their own hometowns.”

The picture painted by Mr. Zhaloba of a tolerant and diverse Ukraine embracing European values and consensus politics is a PR man’s dream and a Kremlin apparatchik’s worst nightmare. Many would question whether modern Ukraine is actually capable of living up to this idealized image, but few would argue that it closely matches sentiments first introduced into Ukrainian society during the era of the patchwork Habsburg Empire. As today’s Ukraine grapples with the identity issues raised by the Kremlin’s hybrid warfare and Putin’s “Russian World” propaganda, Mr. Zhaloba believes the country’s Habsburg inheritance has never been more relevant. “Notions of Ukraine’s European identity that first gained currency in Habsburg Ukraine are now found all over the country,” he says. “In the final analysis, the greatest legacy of Habsburg Ukraine may be independent Ukraine itself.”

About the interviewee: Ihor Zhaloba is Head of the Institute of International Relations and International Law at Grinchenko University and Co-Chair of the Austrian-Ukrainian Historical Commission

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WEST UKRAINE’S LIFESTYLE GUIDE

The best of Lviv since 2008

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Austrian Honorary Ambassador of Lviv

Paul Tomandl aims to contribute to the rise of West Ukraine as an international tourism destination

is basically the same as the city’s broader agenda – to promote Lviv as a tourist destination and as a venue for corporate events.”

Austrian Ambience

About the interviewee: Paul Tomandl is president of REISEWELT UKRAINE and Honorary Ambassador of Lviv City When Austrian Paul Tomandl first arrived in Ukraine in 2003, he never imagined he would find himself named as an Honorary Ambassador of the country’s cultural capital just over a decade later. Upper Austria native Mr. Tomandl originally came to Ukraine to take up an executive role at a waste management project. This position saw him travel extensively across the country for around a decade. “This traveling gave me great insight into the natural beauty and hidden charms of Ukraine. It also provided me with a good idea of the situation in the hospitality sector,” he recalls.

The events surrounding the Euro 2012 football championships in Ukraine served to convince Mr. Tomandl of the country’s international tourism potential and led him to establish Lviv-based travel and events company REISEWELT UKRAINE. He has since developed the company’s agenda to include everything from outdoors adventure holidays in the Carpathian Mountains and the Danube Delta to glitzy corporate events in Lviv’s splendid palaces and venerable concert halls. Many of Reisewelt Ukraine’s customers come from Austria and Germany in search of an authentically Ukrainian experience. VIP corporate clients have included 36

the likes of FC Bayern Munich, Kia Motors, and Konrad Adenauer Stiftung.

Ambassadorial Invitation

The invitation to become an Honorary Ambassador for Lviv came two years ago. Mr. Tomandl says it was both a surprise and an honor. He sees it as an opportunity to contribute to the evolution of the city as an international tourism destination. “When I received the Honorary Ambassador invitation from the municipal authorities in November 2015, it really made me feel welcome and let me know that my efforts to promote Lviv had not been in vain. It came at a difficult time for the city when many members of the foreign community were leaving due to the challenging economic environment. I had decided to stay and to work with the local community to improve the situation, so it was doubly gratifying to receive such recognition.”

Being an Honorary Ambassador has raised Mr. Tomandl’s profile and amplified his existing efforts to promote Lviv internationally. “It is a chance to do something positive for the city,” he says. “As an Honorary Ambassador, I should be a beacon, somebody who is both prominent and well respected.

My strategy as Honorary Lviv Ambassador

Like many international visitors to the capital of West Ukraine, Mr. Tomandl raves about the city’s enchanting ambience and fairytale architecture. His Austrian roots only add to this infatuation, lending Lviv’s lazy boulevards and pastel facades a familiarity that has helped him to feel comfortable from the very beginning of his Ukrainian odyssey.

“There is a coziness and congeniality about the city that I simply love. As an Austrian, I feel completely at home here. So many things remind me of Austria, from the historical buildings and the big wooden doors to the urban layout and the small side streets.

I must also point out that Lviv coffee often tastes better than Viennese!”

Lviv is widely seen as Ukraine’s tourism capital, leading the country in terms of touristfriendly policy and attracting increasingly enthusiastic reviews in the international media.

After more than a decade of promotional efforts by the Lviv City Council and private sector partners, the city now regularly features among the top new European tourist destinations as is often referred to as the next Prague or Krakow. Mr. Tomandl has witnessed the improving Lviv tourism environment firsthand but remains convinced the best is yet to come. “Lviv is not yet a genuinely major player on the international tourism market.

It is still something of a hidden gem but it can offer memorable moments, authentic interaction, friendly welcomes and fantastic cuisine. We try to make sure our guests encounter these qualities while in Lviv. The city has incredible charm and an amazing historical ensemble of styles and influences from different epochs, combined with all manner of high-tech innovations driven by today’s booming Lviv IT scene. I personally appreciate the development of the city in recent years. We are clearly moving in the right direction. Sometimes this process is as bumpy as the cobblestones of Lviv’s ancient streets, but the road to progress is never smooth anywhere in the world!”

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Charity with Austrian roots helps disadvantaged Ukrainian kids SOS Children’s Villages provides emotional and educational support to Ukrainian children and families

For close to 70 years, SOS Children’s Villages has built families for millions of orphaned, abandoned and other vulnerable children in 135 countries. The charity seeks to provide children with the love and long-term support needed to realize their full potential, including a stable family, quality medical care, and a robust, ongoing education.

Based on an Austrian model first established in 1949 by Hermann Gmeiner in order to care for war orphans following World War II, SOS Children’s Villages has expanded to support children in dozens of countries around the world including Ukraine. In 2016 the charity helped 492,000 children and young people through family strengthening programs and provided support for almost 85,000 children and young people who cannot live with their families and need quality alternative care in 571 SOS Children’s Villages around the globe.

Kyiv and Luhansk Focus

In Ukraine, SOS Children’s Villages supports at-risk children and families through two types of support programs: SOS Family Strengthening Programs (FSP) and Family Based Care (FBC) for orphans and children removed from parental care. The charity’s Ukrainian work is currently concentrated in the Luhansk and Kyiv regions, where it has hundreds of families enrolled in FSPs and 30 children in Luhansk region FBC Programme. Meanwhile, an SOS Children’s Village located in Kyiv Oblast’s Brovary provides long-term care to 85 children as well as offering the unique service of short-term family care.

SOS officials explain that the organization is committed to holistic care and the personal empowerment of children and families. Education, health, and emotional well-being are critical to work they do. They operate with a clear understanding of the pedagogical framework of Maslow’s Hierarchy of Needs: you cannot teach a child to read when they are malnourished, physically ailing, or emotionally distraught. Therefore, when children and families are enrolled in SOS programming, the charity seeks to address their immediate needs. With time and individualized support, the children begin to trust, to heal, to learn, to grow, and then to flourish. Through the charity’s FSPs, social workers, staff and volunteers conduct door-to-door home visits to assess needs, monitor progress, celebrate successes, and determine additional support services for en38

rolled families. SOS officials say this operating structure is an example of what makes the charity uniquely qualified to implement robust programs while retaining the trust of local communities and monitoring long-term impact.

Corporate Support

SOS Children’s Villages has been able to expand internationally from its Austrian roots since 1949 thanks to consistent support from wealthy donors and the corporate world. The first prominent supporter was the German-British philanthropist Beatrice von Boch-Galhau, wife of the largest shareholder of the ceramic manufacturer Villeroy & Boch. She became friends with the at-thetime unknown Hermann Gmeiner in the post-war years. She then employed some of her private fortune to pay for the first Kinderdorf in Germany, which was located in Merzig Hilbringen. She also used her husband’s political connections to promote the SOS Kinderdorf idea and help overcome initial resistance from local officials.

Today, corporate partners offer support via an array of Corporate Social Responsibility (CSR) projects that also seek to engage local communities. SOS in Ukraine has worked on a range of CSR initiatives together with corporate partners including P&G, Beirsdorf Ukraine, Porsche, Eurogold, Aushan Ukraine, Oriflame, Raiffeisen Bank and others. The charity enjoys a strong partnership with the Austrian Embassy in Ukraine and officials expressed their gratitude to Commercial Counselor Hermann Ortner for providing SOS officials with regular networking opportunities at Austrian events. Relations between SOS and many of the Austrian companies active in Ukraine are currently taking shape and charity representatives hope the Austrian business community will come to play a major role in the further development of the SOS Children’s Villages story in the country.

Would you like to mobilise your company’s people, knowledge or resources to help disadvantaged children and young people in Ukraine? To learn more about opportunities to partner with SOS Children’s Villages please contact nataliya.drobot@sos-ukraine.org

Representing Ukraine at the European Forum Alpbach Since 2014, IB Interbilanz together with Kyiv Initiative Group Alpbach (KIGA) has been hosting a Scholarship Program for young IDPs (internally displaced people) from Eastern Ukraine. This program has allowed IDPs from the Donbas area and annexed Crimea to participate at the annual European Forum Alpbach, held in Austria.

Journalists, scholarship holders, ambassadors and politicians are regularly invited to participate in “Fireside Talks” at the European Forum Alpbach where they address a variety of topics related to the situation in Eastern Ukraine and the integration of the country into the European

Union. These events aim to inform European society about the situation in Ukraine firsthand and to demonstrate the interest of the country in a European future.

We would like to express our great respect and sincere gratitude to our participants for the invaluable support they offered to the Ukrainian youth:

We are proud of the many Ukrainian scholarship holders who have represented their country at the international level in this manner, demonstrating their intention to contribute their best practice to the building of a strong Ukraine.

Gerhard Mangott

The topic of this year’s “Fireside Talk”, which took place on 26 August 2017, was, “Conflict and cooperation in Ukraine. Lessons from the past, challenges for today, visions for the future”.

Ambassador of Ukraine in Austria

Eastern Europe expert from the University of Innsbruck

Aleksandr Scherba Vitaliy Portnikov Ukrainian journalist

Christian Wehrschuetz ORF correspondent Together with internally displaced persons from Eastern Ukraine and Crimea, these participants analyzed the future political and economic developments of Ukraine, together with the impact of the conflict on Ukraine itself and on Europe.

Executive Appointment: Dmytro Donets appointed as leader of the Dispute Resolution Practice at PwC Legal Ukraine On September 20, Dmytro Donets joined the Attorneys Association “PwC Legal” Ukraine as a Partner and led the Dispute Resolution Practice.

Dmytro is a senior tax lawyer with extensive experience in dispute resolution, as well as a profound knowledge of corporate taxation (including financial accounting and reporting), transfer pricing, investment structuring and profit repatriation issues.

His expertise comes from more than ten years of working as a tax consultant and two years of experience in leading the tax dispute department of the State Fiscal Service of Ukraine (SFS).

While working at the SFS, Dmytro managed the tax litigation and precourt appeal functions, both at headquarter level and regional level (overseeing around 2,000 employees in total).

Prior to joining the SFS, Dmytro spent about 7 years with DLA Piper Ukraine as a Senior Tax Associate. In this capacity, Mr. Donets advised local and multinational clients on various tax, customs and regulatory issues, and assisted clients in the course of tax audits and post audit negotiations with tax authorities.

“During my time at the SFS, my colleagues and I managed to implement

a number of projects, and we established a dialogue with the business community so that the Service is not solely looked upon as an exclusively punitive body. However, I now feel the need to change profession – it’s time to move in a new direction. I see an opportunity to share the practical experience I received while working with the SFS, with the private sector. This involves high-level consulting on the preparation of tax documentation, qualified preparation procedure for tax audits, assistance in the development of protection strategies, and the defence of clients’ interests in disputes with the tax authorities,” Dmytro Donets said. “During my time with government agencies, I used to collaborate with the legal and tax teams of PwC Ukraine, and I was really impressed by their professionalism. I look forward to working with my new colleagues and to ensuring the firm’s continued growth and the protection of our client’s businesses”.

Andrey Pronchenko, Managing Partner of PwC Legal Ukraine, said: “We are happy to welcome Dmytro to our team. Dispute Resolution and solving tax disputes is one of our key practices. PwC Ukraine established this practice in 2008, and during this time we significantly expanded our client portfolio and strengthened our position in the market – an achievement which has been recognized regularly in key national and international ratings. I am pleased to have appointed Dmytro as our Dispute Resolution Practice Leader and I am convinced that his experience and expertise will assist our clients operating in Ukraine in many ways in the years to come”.

Sowing the seeds of Ukraine’s agrarian future Andy Hunder, President of the American Chamber of Commerce in Ukraine

Ukraine is widely known internationally as an agricultural powerhouse.

Ukrainian agriculture represents 42,5% of the country’s total export and agricultural lands constitute 70% of the territory of the country. Today Ukraine is #1 sunflower oil exporter globally and world #2 grain exporter. Being an essential part of agrarian sector, seeds represent a highly competitive industry with advanced technological capabilities and focus on innovation. Since the 1990s, due to the prevalence of favorable conditions for growing crops, the seeds industry has been showcasing massive potential and international companies have launched their businesses in Ukraine.

Safeguarding Ukraine’s seeds industry The American Chamber of Commerce in Ukraine has an established and functioning Seeds Committee. Its objective is to establish an efficient and predictable regulatory system in order to ensure the clear and transparent admission of novel crops and innovative crop protection products (CPPs) to the agricultural market of Ukraine. The Committee’s activities aim at stable functioning of the seeds industry of Ukraine and production intensification. It is possible only through improvement of the process of plant varieties and CPPs’ registration and seeds certification in Ukraine as well as support of the IPR legislative and regulatory initiatives in combating CPPs’ and seeds counterfeits.

Seeds certification & plant registration

According to the Canadian Seed Growers Association, certified seed is the product of a production process designed to deliver specific plant

breeding achievements to farmers and the food industry. In other words, it is true-to-type. The use of certified seeds is crucial as it have lots of advantages such as varietal purity, guaranteed quality assurance and new genetics. That is exactly why the more transparent and simple the certification system of Ukraine will be, the more access to new opportunities the country’s agricultural market in general will have. Meanwhile, the majority of Ukrainian bylaws, that regulate plant varieties registration, are currently under development. This state of affairs does not contribute to the well-being of the sphere, on the contrary, minimizing business opportunities of seeds companies and deprives of development. Thus, experts of Chamber Member Companies are actively engaged in this process as it’s high time to make it transparent and bring legislation in accordance to the best international practices.

Crop Protection Products: innovation or ruination?

It’s impossible to imagine the seeds sphere without a crop protection system, which protects crops against all harmful organisms or prevent their harmful effects. The inability to import unregistered crop protection samples for the state trials in Ukraine is a big trade barrier for international companies today. Hence, business calls to open an access to innovative plant protection products for the national agrarians in order to accelerate innovations in Ukraine. Another crucial issue, which is very acute in Ukraine, is destruction of obsolete pesticides. As of now, Ukraine has a lot of issues with utilization facilities and they require significant modernization.

Strategically, Ukraine should find investors to build new specialized facilities for pesticides destruction, using international ecological standards, which will help to deal with pesticides in eco-friendly way inside the country.

There is a saying – as you sow, so shall you reap. Thus, Ukraine’s seeds system should be in line with the internal needs of the market, taking into account market trends, changes and tendencies of the global grain market and modern production technologies. The use of highquality sowing material and high-yielding plants is one of the main factors for the intensification of production. There is no doubt that simplification of seeds certification and improvement of legislative framework for plants and CPPs’ registration is a key to sustainable functioning and amelioration of the national seeds industry.

39

Oschadbank upgrades

from Soviet standards

to the premium league

State-owned bank expands high-end services amid growing Ukrainian demand for premium banking larger rooms also offer conference facilities. Examples of Ukrainian contemporary art decorate the entire Center, with clientele able to purchase anything that may take their fancy. The interior concept is the work of designer Sergiy Makhno, who sought to combine the traditional values of financial conservatism with the innovative mood of today’s transitional Ukrainian society. The result is a funky yet functional facility that neatly encapsulates Oschadbank’s post-Maidan reinvention.

Premium Appeal

About the interviewee: Danylo Merkulov is the Head of Private and Premium Banking at Oschadbank They say that while money talks, wealth whispers. There is more than a hint of this gentlemanly discretion on display at the new Oschadbank Premium Banking Center in Kyiv. Located in the Ukrainian capital’s stylish Vozdvizhenska district, this Premium Banking Center functions as a flagship for the stateowned financial institution’s shift away from the no frills approach inherited from the Soviet era towards the more sophisticated service standards of today’s consumer culture. However, it is a flagship without a flag. In keeping with the bank’s discrete approach to premium wealth management, there are no flashing neon lights or bold branded logos to draw the attention of passersby.

Instead, the entrance features inconspicuous yet imposing plain black masonry and glass paneling. The Center also boasts its own secure underground car park, allowing clients to come and go completely unnoticed if desired.

Once inside, guests encounter a VIP vibe more commonly associated with the First Class lounges of the world’s busiest airport hubs. A series of private banking rooms come complete with individual cashier counters, while some of the 54

Oschadbank entered the growing Ukrainian premium banking services sector in spring 2016 as part of the wholesale changes taking place at the bank following the early 2014 arrival of Andriy Pyshnyy as Chairman of the Management Board. Progress has been fast, with a 59% increase in premium banking clients and 61% growth in premium assets between June 2016 and June 2017. It is not hard to see why the premium segment holds such allure for Mr. Pyshnyy and his reform-minded team. While the number of premium banking clients currently represents just 1% of Oschadbank customers, they account for around 33% of the bank’s total assets under management.

Many of these premium customers are existing clients who have taken advantage of the upgraded services on offer, explains Oschadbank’s Head of Private and Premium Banking Danylo Merkulov. “Around 65% of our premium and private banking account holders were already existing clients who have increased their deposits once they learned we were launching premium and private banking services,” he says. “They are attracted by the security guarantees we can offer as a state-owned institution, together with the range of upgraded services on offer. As the economy stabilizes, there is also a general shift away from storing wealth in bank vaults towards returning money to bank accounts.

This offers greater returns coupled with lower risks. The country is changing and the banking system is changing with it. People see these processes taking place and want to be part of it.”

Nationwide Expansion

The Premium Banking Center is Kyiv is the first of a series planned by Oschadbank. The location of this inaugural Center reflects the current concentration of premium and private banking clientele in the Ukrainian capital, which Mr. Merkulov estimates as accounting for approximately 40% to 45% of the overall domestic market. Similar Centers are set to open in Kharkiv and Odesa over the coming year as part of an expansion agenda that will also see 66 Premium Zones opened in existing Oschadbank branches by the end of 2018.

To qualify as a premium banking customer with Oschadbank, clients require a minimum of UAH 1 million in deposits, with the larger figure of UAH 2.5 million necessary to meet the requirements of the private banking category. The

Photo credit: Sasha Medvedev

banking

current clientele is surprisingly young given the typical perceptions of wealth concentration in Ukrainian society. “The most well-represented demographic at present are 35 to 45 year olds,” says Mr. Merkulov. “Around two-thirds of our VIP banking clients are males. This includes a broad selection of backgrounds ranging from ‘old money’ dating back to the post-Soviet transition, to company owners, corporate executives and the CEOs of leading mid-sized SMEs. We are also seeing growing numbers of IT professionals and other entrepreneurs in sectors like computer games production seeking premium services. We try to tailor our services to meet the specific needs of each group.”

Growing Demand

He estimates that the domestic market for VIP banking is still far from saturated, offering the figure of approximately one million Ukrainian households and counting. “Up to one-third of this number do not yet identify as premium banking clients or may have previously chosen to deposit their money with several different banks. One of the key tasks for Oschadbank over the coming period is to engage with this client pool. Our expectations for the segment are quite high. We expect to see significant further market expansion and anticipate this growth will take place at a faster rate than current government forecasts for national GDP growth. According to our forecasts, annual increases of 10% in the market for premium banking services is an optimistic but plausible scenario. Over the next five years, we see particularly strong potential for new premium clients to emerge in particularly dynamic sectors of the economy like agriculture, infrastructure, energy, and IT.” In order to appreciate the full significance of Oschadbank’s expansion into the VIP world of premium banking, it is important to appreciate the changes that have taken place at the bank since 2014. In the aftermath of Ukraine’s Revolution of Dignity, an entirely new management team took over at Oschadbank with a brief to reinvent an institution viewed by many as the www.bunews.com.ua

epitome of Soviet-style state-owned inertia. The launch of premium banking services is part of an ambitious agenda that also includes a new focus on SME support and a complete overhaul of the bank’s vast nationwide network of branches. “The development of premium services has allowed us to deliver a range of different messages to different stakeholders,” says Mr. Merkulov.

“For international partners such as the EBRD, it has helped us to demonstrate that we are not just a mass market savings bank but are also capable of working in different segments and expanding our business model. In the space of less than two years, we have managed to launch an entirely new service. The example of premium banking gives our international partners an idea of our ability to transform the entire bank. Meanwhile, our clients also see that we are prepared to adopt specialized approaches to meet their personal requirements. We are giving them the right to choose and sending a strong message that they are important to us.”

English-Language Ambitions

Since the launch of Oschadbank’s premium banking services, the focus has understandably been very much on domestic audiences. However, Mr. Merkulov says the bank also hopes to attract international clients seeking VIP banking options in Ukraine. “The majority of our current clients are local residents but we have already begun proposing our premium banking services to international audiences,” he says. “We would like to be the bank of choice among nonresidents as well as Ukrainian nationals. We have already started the process of hiring English-speaking managers in Kyiv. Ultimately, we would like to have several special locations staffed by English-speaking managers where foreign clients can feel completely comfortable. This would be a logical extension of the services currently on offer to our premium banking clients. There is no reason why non-residents should not also have this option. After all, we are here, we understand your needs, and crucially, we speak your language.”

55

banking

Banking on Ukraine’s SME sector

SME focus allows ProCredit Bank to expand loan portfolio despite stagnant Ukrainian financing market

About the interviewee: Viktor Ponomarenko is General Manager of ProCredit Bank in Ukraine A lack of loans is currently hampering Ukraine’s economic recovery. However, one bank has succeeded in defying the banking sector’s informal industrywide financing freeze by concentrating its efforts on the SME sector. Thanks to a focus on small and medium-sized enterprises (SMEs), ProCredit Bank grew its loan portfolio by 50% in 2016, representing an increase of approximately EUR 100 million. The bank is on course to post similar progress in 2017, with a 25% loan portfolio rise already achieved in the first seven months of the year.

SME Specialization

ProCredit Bank General Manager in Ukraine Viktor Ponomarenko is clear that the key to this success is the bank’s SME specialization. “We’ve been able to concentrate our attention almost exclusively on the needs of the SME sector,” he says. “When you have this level of specialization, it enables you to offer higher quality of service than when you are trying to meet the diverse needs of a wider market. It also gives us a flexibility that some larger banks do not possess. We understand our customers and provide services that are specifically adapted to the current Ukrainian business environment. We are fast, too. New SME customers who have joined the bank in the past few years tend to appreciate the speed of our decision-making.”

This tailored approach has made ProCredit the go-to bank for many of the country’s entrepreneurial classes as they seek financing for the investments necessary to prosper in a changing business environment. Many Ukrainian companies are currently facing the challenge of upgrading their operations in order to enter new international markets. This is particularly relevant within the context of the Ukraine-EU Association Agreement (EUAA), which provides Ukrainian companies with free trade access to EU markets but obliges them to bring their operations into line with European Union regulations. As the bank’s client base has expanded in recent years, Mr. Ponomarenko has noted a growing number of companies seeking financing in order to tap into these EU opportunities. “A very visible portion of our customers have expanded their operations or invested in areas directly related to EUAA free trade. It has created lots of opportunities and incentives for financing. Based on my own personal interaction with medium-sized Ukrainian companies, I can confirm that most of them are currently thinking about upgrades to meet EU standards.

Since 2015, we have begun cooperation with hundreds of well-known Ukrai56

nian brands in the medium-sized company category. These companies have already succeeded in selling themselves to Ukrainian consumers. They now require additional investment before they can begin the process of exporting to EU markets. The process is already underway.”

Within the SME segment, ProCredit Bank has further identified three priority areas: agriculture, production, and renewable energy. These three sectors all have major growth potential and look particularly well placed to benefit from the repositioning currently underway across the Ukrainian economy. “All these industries are crucial to Ukraine’s transition,” says Mr. Ponomarenko. “In the coming years, we expect them to play a very important role in the development of the Ukrainian economy. We are already noticing that manufacturing companies are increasingly ready to invest in fixed assets. This will allow them to upgrade and expand their operations. There is a gradual shift away from the tendency to use financing primarily as working capital, which only maintains existing levels of production. Now we are witnessing more investment loans and longer term planning.”

This specialist focus requires considerable niche knowledge and equally specialized staff. ProCredit Bank employees do not begin communicating directly with clients until they have completed a year of selection and training, with much of this preparation undertaken at the German-based bank’s international affiliates throughout Central and Eastern Europe. Mr. Ponomarenko acknowledges the challenges of identifying staff with the requisite understanding of fast-evolving sectors such as agriculture and renewable energy, but says the bank has so far been able to resolve this via a combination of targeted recruitment and specialist training. He believes this will become less of an obstacle as more and more Ukrainians recognize the benefits of expertize in these growing sectors. “The issue we face at the moment is the fact that many intelligent and educated Ukrainians are not particularly motivated to develop their careers in this direction. However, once they come to appreciate that renewable energy will play a key role in the future of the Ukrainian economy, we will see more and more people becoming engaged in the industry.”

Competition Welcome

The impressive figures posted by ProCredit Bank have served to highlight the potential of the SME sector and inevitably attracted the attention of other major players in the Ukrainian banking sector. Mr. Ponomarenko says he welcomes the prospect of more competition and sees growing attention towards SMEs within the banking industry as both inevitable and healthy for the Ukrainian economy as a whole. “Competition already exists and this is important in order to help maintain the quality of services on offer. Ultimately, market demand is too large to be met by just one or two banks. Ukraine needs a larger number of banks offering professional services to SMEs in order to create a balance between demand and supply.” Despite the striking growth rates posted

by ProCredit Bank over the past two years, Mr. Ponomarenko is confident that there is still considerable room for additional increases in the bank’s loan portfolio. “Our record of growth gives us reason to expect further growth. There is definitely a market for new loans,” he says. The bank is currently working to make sure it is institutionally prepared for additional expansion in 2018. “The demand is there. We want to attract new customers and we have the capacity to accommodate new customers,” Mr. Ponomarenko concludes. “We are preparing for additional growth. We are hungry for customers.”

banking

Time for Ukrainian exporters to discover trade finance Ukraine has the banking tools to fuel further export expansion but they remain underutilized

About the author: Vladislav Berezhny is Director of the Correspondent Banking and Structured Finance Department at Credit Agricole in Ukraine Ukraine’s banking sector currently offers a wide range of sophisticated contemporary services but in some areas, the available banking tools remain underutilized. One of the most striking examples is the lack of awareness regarding the advantages of trade finance services. Given Ukraine’s growing global reach and a strong economic emphasis on international trade, trade finance could play a major role. However, it remains largely overlooked.

Ukraine’s agricultural sector offers insight into the potential for further export growth. The sector is currently experiencing steady increases in production. For every category of agricultural produce, Ukraine is seeking to expand yields, improve quality, and boost export volumes. The foreign currency revenues generated by increasing exports of grains, oils and meats are having a positive impact on the Ukrainian economy as a whole, driving growth and creating much-needed stability.

This success reflects the relative openness of the Ukrainian economy and the country’s large international trade turnover. Ukrainian imports and exports actually exceed GDP. In other words, more than half of the products produced in Ukraine are bound for export. Similarly, over 50% of the goods required on the domestic market come from international markets.

Ukraine’s agribusiness sector is at the forefront of the country’s export efforts and at first glance appears to be a major beneficiary of globalization processes. The high quality agricultural products Ukraine is able to produce at competitively low prices have found enthusiastic markets all over the world. Nevertheless, Ukraine’s foreign trade remains inefficient and this applies just as much to the relatively buoyant agribusiness sector as to other areas of the economy.

The key stumbling block hampering Ukraine’s international trade is financing. As any importer or exporter will tell you, the key to the successful development of the business is access to finance. This is not just a matter of loan availability. Traders seek regular access to affordable financing during the trading process. In addition to this crucial financial role, banks can also help to reduce the risks inherent in any transaction with regard to non-delivery, non-payment or product quality issues. This is the essence of trade finance.

Such banking services are ideal for the Ukrainian market but Ukrainian companies have yet to appreciate the advantages they offer.

This shortcoming is evident in the current interaction between Ukrainian 58

businesses and the banking sector. At present, Ukrainian banks are simply not sufficiently involved in business financing. Total loan volumes barely amount to 30% of GDP, whereas the global norm is parity. Indeed, in many of the world’s most developed economies, loan volumes are far greater than GDP. This is not down to any fundamental flaws. Ukraine’s international traders have all the prerequisites to serve as the ideal clients for the country’s banks, which in turn could create the conditions for growth. The life cycle of transactions tends to be short, while contracts revolve around finished goods or products produced on a regular basis and with demonstrable market demand. Due to these favorable factors, the risks involved are much lower than those associated with investment projects. Banks also gain from the fact that international trade uses common documentation standards and delivery conditions, with the nature of financial communications dictated by the practicalities of the SWIFT system.

What specific benefits can Ukrainian banks offer to Ukrainian businesses engaged in international trade? Exports are the obvious place to start. Loans in Ukraine are much more expensive than in developed and stable economies.

It therefore makes sense for the bank and the client to seek ways of transferring the financing of international trade transactions to a more convenient jurisdiction. This can also help to secure stability and enable companies to expand into new markets effectively.

In order to achieve these goals, it is important to analyze all the details of the export transaction in question: what is the country of delivery, where is the buyer company registered, what is its financial status, and which banks does it cooperate with? Based on the answers to these questions, you will be able to plan financing options and ask a new set of specific questions tailored to meet the specifics of the transaction.

Does the buyer have an existing credit line with a bank? Is the buyer’s bank ready to issue payment guarantees or letters of credit? Is there a suitable bank ready to finance the transaction given the presence of a guarantee or letter of credit?

Likewise, banks are able to work with clients to reduce the cost of imports.

In order to achieve this goal, it is important to consult with the bank prior to signing any contractual agreements. This is worth emphasizing because once documentation has been signed clients often find themselves constrained by contractual obligations and no longer have the time or opportunity to seek out the best possible commercial apparatus.

Importers should analyze which bank or banks the seller uses and explore the possibilities of deferred payment with the help of a letter of credit, guarantee or bill. The importer’s Ukrainian bank should be able to offer a competent assessment of whether its partner banks abroad can provide such instruments. It is also well worth investigating whether there are export insurance programs available in the country of origin, and exploring whether these are applicable.

Other things being equal, any transaction using trade finance should be significantly cheaper than the price of a standard credit. Based on international experience, the savings compared to direct borrowing could range from 20% to 50%. This makes trade finance a potential game changer for the Ukrainian market. It remains a relatively unknown quantity, but as Ukrainian companies continue to broaden their global horizons, trade finance might have a much more prominent role to play.

20/10 2017 НСК «ОЛІМПІЙСЬКИЙ»

ВЕ ЛИКИЙ ФЕСТИВА ЛЬ Д ЛЯ МА ЛОГО БІЗНЕСУ

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

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

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

квитки на get.delo.ua

Ліцензія НБУ №148 від 05 жовтня 2011 року

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

legal

Acquiring assets of troubled banks: risks and opportunities Adult supervision advised: asset auctions are appealing but buyers should proceed with caution

About the author: Andrey Dovbenko is the Managing Partner at Evris law firm Since 2014, the National Bank of Ukraine has withdrawn about 85 banking institutions from the market. Bit by bit, their assets are being sold by a special state institution, the Deposit Guarantee Fund (DGF). With prices much lower than their true market values, these assets may seem at first glance like coveted prizes. However, if we look at the figures, we will see that according to a variety of different estimations, the DGF manages more than UAH 470 billion in assets, while only UAH 5 billion was raised from the sale of assets over the past three years. What is the reason behind this striking difference? It seems that some of the candies may actually be rotten. The task is to identify the sweet ones.

Each week the DGF puts bank assets worth UAH 4 to 8 billion up for sale.

There are generally not very many bidders. DGF representatives have said publicly that they have to put some assets to auction several times before getting results. Meanwhile, assets estimated at UAH 470 billion by the Fund itself may actually have market value closer to UAH 97 billion. Around 80% of these assets are receivables involving various corporate borrowers’ property as collateral.

Assessing Risk

Can we really say this is not an issue and forget that many of these assets could be toxic? This could be an option, but I think the topic requires careful consideration. In many ways, the situation requires a warning similar to those placed on children’s toys. You should not eat the small parts, but after you have read the manual, you can begin playing. Understanding the risks is not a reason to stop in itself. However, it is crucial to identify risks in order to take maximum advantage of the situation. When viewed in its broadest context, this is actually one of the challenges of a creative economy.

The sale of relevant assets is taking place in economically favorable circumstances. I should also note that legislative amendments that came into force early this year have expanded the list of persons who can take part in auctions for the sale of receivables. So from now on, any legal and natural person, except for borrowers and guarantors for the relevant loans, can acquire receivables. Due to these changes, in the near future the market for receivables 60

of insolvent banks is likely to become more active.

Any potential buyers need to take into account the fact that the Fund’s efforts to make asset sales more compelling, such as moving auctions to Prozorrro platforms, have failed for a variety of reasons. At some point, this situation will change because significant portions of the available assets are genuinely interesting. Given the current situation, the acquisition of assets from liquidated banks is attractive because of what are often extremely profitable terms of sale. Even now, I observe how many large Ukrainian banks, as well as foreign investors, show strong interest in acquiring these assets. The benefits from their acquisition often remain attractive even when possible risks feature in the equation.

As I have already mentioned, asset auctions have switched to governmentrun e-trade platforms. This means that the subject of any trade could be both the assets that are of direct interest to the buyer, and the receivables secured by collateral (mortgage) of the relevant assets. Proceeding from this, I see two main ways of acquiring the assets of troubled banks: buying them at auction or foreclosure on them (as collateral) after acquiring the receivables. In both cases, the acquirer needs to be aware of the risks in order to avoid seeing a good deal turn into many years stuck in the courts.

Legal Challenges

The main risk arising from the acquisition of assets directly at auction is a judicial appeal by a former owner of the assets. This conflict can last for years and offers the prospect of an uncertain future. It is worth noting that 13 banks from the list of bankrupt Ukrainian banks have already established to the satisfaction of the courts that their liquidations were illegal. In addition, future legal challenges could include the temporary return of assets to the previous owner, where they could then face transfer to other legal entities, which can make the return of such assets impossible.

Obtaining assets due to foreclosure on collateral (mortgage) after the acquisition of receivables is also associated with certain risks. Current Ukrainian legislation provides the convenient option for the buyer of extra-judicial foreclosure on collateral (mortgage) property through property rights. However, following the implementation of these procedures, the previous owners can still initiate an eviction lawsuit.

The acquisition of assets in the form of real estate is often associated with additional risks. For example, the property could simultaneously hold several mortgages or there could be problems with technical documentation (unauthorized extensions, unauthorized renovations). Uncovering these risks requires detailed research prior to acquisition.

When acquiring an asset in the form of the corporate rights to an enterprise, there is always a risk that the enterprise’s real financial condition, including arrears to third parties and other debts, could be subject to concealment.

This means that any such transaction must include a thorough prior audit of the enterprise.

Acquiring bank assets is a risky game where the main task of a potential buyer is to obtain as much information as possible prior to any purchase.

What any purchaser really needs is a partner organization that can provide effective support in the process of acquiring the assets of troubled banks. We all are living in an era of change and the banking sector is no exception. This can be a positive process, but smart business people must look to use the opportunities presented by this changing environment to their advantage.

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Ukrainian VAT compliance in a global context

IT solutions can help reduce time spent on VAT returns but regulatory stability is crucial

The world we live in is increasingly dominated by information technology and IT solutions. The move towards IT optimization is particularly noticeable in the business world, where the implementation of IT solutions into operational processes allows companies to save time and resources. However, there are limits to the benefits these technological breakthroughs can provide. This is particularly true when it comes to electronic systems designed to ease the process of tax compliance. While these systems can lead to significant efficiency gains, they cannot succeed in isolation if other factors continue to create barriers to simpler tax compliance. Global trends related to VAT compliance reflect this reality and offer insights for Ukraine as the country seeks to improve its business climate.

VAT as Economic Indicator

One of the most widespread taxes in the world today is Value Added Tax (VAT). In 2015, 162 countries applied VAT (including alternative forms of consumption taxes), and the number of countries continues to grow. In Ukraine, VAT generates 39% of budget revenues. Both businesses and end consumers pay VAT. However, while VAT payment is a quick and trivial process for consumers, the procedure of VAT payment and compliance for Ukrainian businesses is in need of improvement.

Based on the results of the “Paying Taxes 2017” rating, the PwC tax team has prepared a special review: “VAT compliance: the value for business and how technology can help”. This review offers analysis on why it is easier to pay VAT in some countries than in the others, and what role technologies can play in improving the situation.

Why are tax payment processes so important for the economy of every country? Primarily, this is because the relative ease or complexity of paying taxes serves as one of the indicators of a business environment’s efficiency. The less time and money spent on reporting, the more resources a business can invest in growth and development.

Secondly, in today’s global economy, capital flows freely to wherever it receives the best treatment. Thirdly, strong and attractive economies gain greater influence over government regulatory policy, with the authorities increasingly obliged to take the tax compliance suggestions of businesses into account. This is why large investments gravitate towards places where the complexity of the taxation system does not outweigh the expected benefits. This becomes a self-perpetuating process, as businesses then push for an even more straightforward tax system.

Ukraine’s Poor Performance

There is currently a worldwide trend to reduce the amount of time required for VAT compliance. During the period from 2008 to 2015, this annual figure declined by 22 hours on average. In Ukraine, the figure fell by 33 hours. This is a positive result but it remains relatively insufficient, given the overall number of hours spent on VAT compliance in Ukraine. In absolute terms, the figure for Ukraine still stands at 199 hours per year. The figures are much lower among Ukraine’s nearest neighbours (Belarus - 39, Romania - 54, Moldova - 55, Slovakia - 84, Hungary - 96, Poland - 98). Ukraine’s figure is also almost 62

four times higher than EU standards. The average amount of time required for VAT compliance in EU countries dropped from 74 to 56 hours between 2008 and 2015. At the same time, among the most developed countries of the EU, this figure is less than 50 hours per year.

Georgia, a country that recently began serving for Ukraine as a beacon for economic liberalization, has cut the time spent on VAT compliance almost in half over the same period, with the total falling from 180 to 94 hours.

In our opinion, constant changes serve as disruptive and constraining factors preventing the improvement of this indicator in Ukraine.

These include significant annual changes to the country’s Tax Code, the introduction of the electronic VAT administration system, and other changes to VAT accounting rules. In particular, it is worth noting that the forms of VAT return and VAT invoice change almost every year. This is much too frequent. Even the implementation of simpler reporting forms requires businesses to spend additional time adapting to the new rules.

Cost-Cutting Technologies

Data from around the world demonstrates that VAT compliance time decreases more rapidly in those countries that introduce IT solutions for this purpose. The logic behind this trend is simple. Let the technology perform this function, while humans focus on thinking and other creative processes.

In 2015, electronic VAT reporting and compliance systems were in use in 76 of the 162 countries applying VAT. The introduction of electronic reporting systems has led to drops in VAT administration time of more than 100 hours per year in countries including Armenia, Morocco, Senegal, Algeria, and Brazil. In this respect, Kenya leads the pack: following introduction of an e-reporting system, it has achieved the largest reduction in this indicator, with the figure falling to 81 hours instead of the previous 300 hours. This reduction took place 3-4 years after the introduction of IT systems because the business community required some transitional time to adapt to the new system. Special service centers provided training to taxpayers to assist with this adaptation process.

These successes are impressive, but it is worth stressing that introduction of an IT system for VAT compliance may have a very limited effect if other factors within the business environment remain unchanged.

This is evident in the example of Brazil. Despite having an electronic VAT system in place for 7 years, the number of hours required for VAT compliance in Brazil has declined from 1374 to 1189 hours, which is still the highest in the world. Despite a certain level of automation, VAT accounting in Brazil remains complicated by the fact that the country has a rather intricate VAT system in place. There are four types of VAT with different rates and accounting rules. They are payable at the local and national levels and include monthly reporting. In addition, the tax rules in Brazil change every year, which results in companies constantly having to analyze new changes. The most striking contrast to the confusion in Brazil is Switzerland, where taxpayers need only eight hours for VAT compliance, which is the lowest total of all analyzed countries. This achievement is down to the highly automated Swiss VAT payment. VAT

legal

reporting is quarterly, and a single basic VAT rate is in place. In addition, Switzerland’s tax legislation is stable.

With this in mind, the introduction of an electronic VAT administration system in Ukraine in the middle of 2015 is unlikely to have a significant impact on the country’s standing in the Paying Taxes rating. On the one hand, the introduction of this system should reduce the time spent on VAT compliance by limiting paperwork (since VAT invoices are now exclusively electronic). At the same time, at the initial stages, the transition to registering VAT invoices in the system requires additional time to adapt. The technical deficiencies of the system have also increased time expenditure, as taxpayers must perform the regular procedure while dealing with technical issues. Stringent requirements also serve to increase the time VAT payers must spend on this process.

It would be too optimistic to expect a significant reduction in Ukraine’s VAT compliance time due to the introduction of the electronic VAT administration system. Provided the country’s current tax legislation remains unchanged, we should be able to witness a gradual improvement of the Ukraine’s indicators in upcoming years as taxpayers become more accustomed to the system and the system itself is improved. However, the current version still requires taxpayers to perform a significant number of potentially automatable actions.

Simplifying VAT Compliance Improving the VAT compliance process in Ukraine requires modernization of the existing software so that taxpayers can quickly and easily work with large volumes of tax data and automate the preparation and filing of reporting without the need for manual checks. At the same time, significant progress in this unachievable without the development of the market for accounting and tax software. Therefore, the respective software should be developed professionally based on the results of public tenders and ideally under conditions of real competition.

In addition to this process, the state can also quickly facilitate the simplification of VAT compliance by easing the requirements for mandatory requisites of the VAT invoice. A strong positive signal for taxpayers could be sent by introduction of a moratorium on tax audits of input VAT confirmed by registered VAT invoices.

In conclusion, it is worth emphasizing that the above measures will only have a significant effect under conditions of relative tax legislation stability. Ukraine’s tax system has considerable potential for development and simplification but this will require legislative changes.

The traditional practice of adopting crucial changes with immediate implementation in most transactions and without ample time for analysis and subsequent adaptation of accounting systems is unlikely to lead to effective reform of the tax system.

About the authors: Viktoria Tymoshenko is Director of Tax and Legal Services and Tax Reporting and Strategy Leader at PwC Ukraine.

Yuliya Shyshko is Senior Tax Consultant at PwC Ukraine.

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Canadians invest in Ukrainian solar energy TIU Canada sees opportunities in CUFTA deal and Ukraine’s attractive renewable energy market Ukraine’s international economic alignments are undergoing major changes. For obvious reasons, the media focus since 2014 has been largely on the country’s geopolitically sensitive pivot from Russian to EU markets. However, Ukraine also is branching out far beyond the European Union and broadening its commercial horizons in an unprecedented manner. One of the biggest breakthroughs of the past year in this direction has been the ratification of the Canada-Ukraine Free Trade Agreement (CUFTA).

This free trade deal paves the way for a strengthening of bilateral business ties between two countries that have long been close allies in the international arena. Canada is home to one of the world’s largest Ukrainian diaspora communities and was among the first countries to recognize Ukrainian independence in 1991. The advent of CUFTA now paves the way for far greater commercial cooperation.

South Ukraine Focus

One of the first major projects to take advantage of these new free trade opportunities is a Canadian solar energy plant currently under construction in the southern Ukrainian city of Nikopol. The ten megawatts project by TIU Canada is valued at around EUR 10 million. It is the first in a series of plants planned by the Canadian company for the sundrenched region north of the Black Sea. Groundbreaking at the Nikopol plant site, which is located on land adjacent to the Nikopol Ferroalloy Plant in Dnipropetrovsk Oblast, took place in summer 2017. The plant will begin operations in mid-autumn. In the coming months, TIU Canada aims to start construction of an additional solar energy plant in nearby 64

Kherson Oblast and begin work on three more in Mykolaiv Oblast. The target is to reach 20MW to 50MW of production by June 2018.

TIU Canada CEO Michael Yurkovich says a combination of factors drew his company to the Ukrainian renewables sector. He cites the country’s energy policy reforms and highly competitive green energy tariffs as key incentives, while also pointing to the advantages presented

by CUFTA and the natural strengths Ukraine boasts as a solar energy producer. “TIU Canada was set up specifically to capitalize on the Ukrainian renewables market, the country’s energy reforms, and the Canada-Ukraine free trade agreement. Under the government of (Canadian Prime Minister) Justin Trudeau, we saw increased efforts to try to improve Ukrainian market access for Canadian companies. At the same time, Ukraine is among the top six countries in the world in terms of solar radiation. All this made it a very interesting market to be part of.”

In addition to enjoying the advantages of CUFTA and enhanced bilateral governmental cooperation, TIU Canada also benefits from being able to draw on Canada’s own energy sector experience, which is in many ways particularly relevant to today’s Ukrainian market. Ukraine’s post-2014 energy policy has borrowed from existing Alberta legislation, while the demands of the sector in Ukraine allow TIU Canada to apply experience gained by its parent company over decades of involvement in the Canadian energy sector. “When the IMF prioritized renewable energy in Ukraine, we recognized that the core competencies of Canada created considerable investment opportunities for us in Ukraine. We see strong parallels between Ukraine’s current energy independence efforts and the 1980s-2010s hydrocarbons boom in Canada,” says Mr. Yurkovich.

Ukraine’s current green energy tariffs are among the highest in the world and serve as a major contributing factor driving the sector’s investment appeal. While this is helping to draw attention to the renewables market in Ukraine, concerns remain that Ukraine’s current green tariffs policy may be subject to future review or reversal. Mr. Yurkovich acknowledges the potential risks this poses, but says the Ukrainian authorities have every reason to maintain favorable investment conditions in the market. He points to the fact that TIU Canada’s investments fit well with the Ukrainian objective of greater energy independence, while also helping the country to reach the IMF target of 11% renewables by 2020. An additional factor is the influx of business-friendly officials into the government apparatus since 2014. “We believe the government is listening and is aware of the opportunities,” he says. “We have met a lot of young people in the current government who are former bankers or have backgrounds as executives in the private sector. There is a lot of support for investment-friendly policies within the Poroshenko government that was simply not there under previous administrations. These are people with young families or those looking to start families of their own. They want to build a country that is capable of providing jobs so that their children will not have to seek employment elsewhere in Europe. This is their WWII moment, their defining cultural moment as a nation.”

This bullish approach to Ukraine’s transitional narrative is slowly gaining ground following a few years marked by post-Maidan hesitancy and watch-and-see policies. Mr. Yurkovich says the broad investment picture for Ukraine is looking increasingly attractive. “We are very strong proponents of Ukraine,” he stresses. “There are four main macro factors that serve as tailwinds for today’s Ukraine. These are market access to Europe, labor workforce scale and skill, raw material access points, and huge capacity to build a power pool and a manufacturing base. When you compare Ukraine to other countries in the region, the speed of reform has been impressive and there has been a focus on improving the business climate.”

sector makes sense as an investment and to demonstrate that a reputable foreign investor can succeed in the sector and make it through all of the necessary bureaucratic processes and associated risks.”

energy

Attractive Investment Environment

Canadian Brand Champions

Investing in Ukraine’s smaller cities means developing working relationships with municipal and regional authorities that in many cases have little or no direct experience of working with international investors. TIU Canada officials are broadly complimentary about their interaction with local authorities in Nikopol. “So far, relations have been very encouraging,” says Mr. Tabsh. “There are a myriad of factors to consider beyond the immediate economics of any investment project. One of these factors is the kind of relationship you can expect with the local authorities. In Nikopol they have been very friendly and excited about what we are trying to do.”

‘We’re their first experience of anything Canadian,” adds Mr. Yurkovich. He says he is particularly conscious of TIU Canada’s responsibilities as representatives of Canadian business in a region where they have acquired the status of trailblazers. “This pioneering position allows us to play an outsized role as Canadian brand champions and flag carriers. At the end of the day, we want the local community to be able to say, “We have heard a lot about all the Ukrainians in Canada. Now that we have actually met some genuine Canadians, we realize that they are chilled dudes.” Likewise, we hope to go back to Canada and tell people that Ukrainians are just like them. They drive pickup trucks and like to watch hockey and soccer on TV. We really want to foster greater understanding so that Canadians realize Ukraine is a great place that needs a friend and represents a great opportunity for Canada.”

Strategic Sector

With Ukrainian GDP set to grow for a second successive year and international rankings now consistently placing Ukraine on an upward trajectory, TIU Canada see their Nikopol investment as a pilot project that will leave them well-placed to take advantage of growing investment opportunities in the country in the coming years. It will also allow the company to play a role in laying the foundations for Ukraine’s future economic growth. “Our focus on the energy sector is no accident,” offers TIU Canada COO Hani Tabsh. “Ukraine’s long-term development plan requires stability of power supplies to show other manufacturing groups that it makes sense to enter the market. This Nikopol plant is the first step in that process. It will help to create stable power generation capacity in the regions and the ability to transfer power from region to region. The Nikopol plant is our pilot project to show that this is possible. Once we have completed construction of two or three more plants on this scale, we will start looking at larger plants in the 50 megawatts category.”

The choice of solar power was partly down to the naturally favorable conditions in Ukraine, and partly due to timeframe considerations. With Ukraine seeking to increase its share of renewables on the domestic market from around 1% to 11% by 2020, the clock is ticking and solar offers far faster returns than alternatives such as wind farms. “If you don’t have a surveyed site with all the wind studies done, developing a wind farm location can take over a year,” explains Mr. Tabsh. “With solar, you don’t have that kind of time lag. We are very keen to get started in order to show that the renewables www.bunews.com.ua

About the interviewees: TIU Canada CEO Michael Yurkovich (left) and TIU Canada COO Hani Tabsh (right) pictured at the official groundbreaking ceremony of the company’s Nikopol solar power plant in summer 2017

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medicine

From the Ukrainian battlefield to American hospitals

Ukrainian stem cell treatment seeks US launch following success helping wounded soldiers

After using adult stem cells to treat soldiers wounded in the Donbas, a Ukrainian biotechnology company is raising funds to bring its innovative tissue regeneration technology to the US market. Ilaya Medical Company, based in Kyiv, has filed for US recognition of its patent for a method of cultivating stem cells in the laboratory and is starting discussions with the Food and Drug Administration, the main American medical regulator, seeking approval to use its method to treat avascular necrosis of the hip. About 20,000 Americans are diagnosed with the condition, known as AVN, each year. Ilaya’s treatment method, which the company has used to help wounded Ukrainian soldiers regrow bone tissue and avoid amputations, uses adult stem cells taken from the patient’s own body.

AVN is the death of bone tissue due to a lack of blood supply. Although the main cause is not well known, there are several risk factors including steroid medications, alcohol consumption, and smoking. At the moment there is no “gold standard” for treating AVN of the hip, says Dr Duran Yetkinler, Ilaya’s partner in the US venture. After lengthy palliative care, the majority of patients end up having hip replacement surgery, which typically costs USD 30,000 to USD 50,000 and can significantly reduce the patient’s mobility and thus, their quality of life. “The work by the Ukrainian team is remarkable and really gives us a leg up in the FDA approval process,” Dr Yetkinler says. “Because of the clinical work they’ve already done, we’re in a different position from 66

somebody who just came up with an idea in the US and is starting from scratch. We have a better idea about how to approach the US clinical trials, which translates into a better chance of success.”

Before setting up the venture with Ilaya, Dr. Yetkinler, who holds MD and Ph.D. degrees, worked in medical technology in the US for more than two decades. His most recent position was a nine-year stint as president of Skeletal Kinetics, a producer of bone void filler cement.

Ilaya is in fundraising talks to build a laboratory in the US where it will also conduct clinical trials of the treatment method. “What we’re doing is taking a technology that’s been proven in a relatively little-known place and bringing it to the big stage,” says Dr. Yetkinler, who will apply his experience in working with the FDA in Ilaya’s bid to win approval for the technology.

Ilaya has honed its stem cell technology by working with soldiers wounded in the ongoing war against Russia’s hybrid army in Donbas. It has dozens of cases of successful treatment where soldiers who were told they would need amputations and prosthetics have been able to regrow bone tissue. A recent video from the company shows former patients running in a race in Kyiv.

Much of Ilaya’s work with the soldiers has been sponsored by People’s Project, an organization whose other work includes supplying Ukraine’s armed forces and volunteer battalions with items such as drones, materials to

build fortifications, and equipment for snipers and military divers.

Ilaya’s patented technology is based on taking adult stem cells from the patient’s own body rather than the embryonic stem cells whose use in research is highly controversial. Ilaya then cultivates the cells in a laboratory before injecting them back into the patient – a process that allows the body to heal itself. Many of Ilaya’s military patients have had bones shattered by bullets or shrapnel. By implanting stem cells on a scaffolding between two ends of a broken bone, Ilaya’s doctors are able to regrow bone over gaps as wide as 15cm.

Ilaya was founded in 2011 as a fertility clinic specializing in difficult cases. Later, its medical and scientific staff began using stem cells to treat causes of infertility such as Asherman’s Syndrome. The company’s Ukraine-based biotechnology laboratory is run by Dmytro Zubov, a biologist with 16 patents to his name. “Unfortunately, in Ukraine we’ve had a lot of opportunities to learn about regeneration of bone tissue that has been damaged by trauma,” says Mr. Zubov. “So we hope some good can come out of it for people in the US who are suffering from AVN. In fact, when you think about history, it’s not unusual that technologies originally developed for the military, like radar or GPS, end up improving everybody’s life.”

Mr. Zubov and his team are already researching other applications of the company’s technology for orthopaedic conditions, and if the AVN treatment is successful in the US, Ilaya will explore opportunities to expand into other areas. In addition to AVN and trauma, such as the soldiers have suffered, potential applications of stem-cell-based tissue regeneration include spinal hernias (slipped discs) and joint replacements.

Vitaliy Kriukov, director of Ilaya’s international operations, says Ilaya’s technology will have effects far beyond the field of medicine because the majority of patients diagnosed with AVN of the hip end up having prosthetic joints implanted and can have difficulty walking for the rest of their lives. “We hope our technology will have a much broader effect in society,” he says. “Our technology has the potential to save millions of dollars each year in disability payments, improve people’s quality of life, and keep them in the workforce.”

business news

GUF and ProCredit Bank to Expand SME Lending The German-Ukrainian Fund (GUF) and ProCredit Bank signed a loan agreement 5 September for the financing of Ukrainian small and medium-sized enterprises (SMEs). The agreement falls within the framework of the SME Promotion Program funded by the German Government through KfW and in cooperation with the European Union’s EU4Business initiative. It provides lending for SMEs in the Ukrainian national currency at a rate of 15% per annum.

The agreement focuses on SME loans for the purchase or modernization of equipment, the reconstruction of premises, and the replenishment of working capital in order to expand existing production or make new production possible. This latest initiative is part of broader German efforts to support the development of the Ukrainian SME sector, which is widely regarded as a major driver of sustainable economic growth. Greater access to credit is a key part of this support for the SME sector.

Sebastian Knoke of the Germany Embassy in Kyiv commented on the new agreement: “The German government has been continuously supporting the German-Ukrainian Fund since 1996 by providing long-term loans and grants for technical assistance. This SME promotion program is one such loan. It makes EUR 10 million available to SMEs through Ukrainian banks. I am happy that ProCredit Bank has joined this program and will be able to on-lend funds to SMEs in the local currency and on very attractive terms.”

ProCredit Bank’s General Manager in Ukraine Vitkor Ponomorenko welcomed www.bunews.com.ua

the bank’s role in the new initiative and said ProCredit’s strong loan portfolio growth in recent years served to highlight the need for such services within the Ukrainian SME sector. “There is definitely demand,” he commented. “This provides SMEs with access to a quality financial resource with loans in hryvnia.”

The SME lending program has a clear focus on the promotion of innovation.

Industries identified as priorities include agriculture, processing, and electricity supplies. It is hoped that the program will help Ukrainian SMEs to make the most of the opportunities presented by the free trade component of the Ukraine-European Union Association Agreement, which came fully into force on 1 September 2017.

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Investor Guide to Kyiv Real Estate How to get impressive returns on your investment in an opaque but exciting market

All investors everywhere are searching for the best possible returns. Meanwhile, real estate is the most trusted asset class for Ukrainians. Nevertheless, for a variety of reasons, foreign investors investing in Kyiv real estate often find that getting the best returns is hardly a straightforward process. One of the key problems they face is the lack of easily accessible property and price information. This imposes a steep learning curve upon investors who are unfamiliar with this market. To help foreign investors find value in Kyiv’s real estate market, this article provides tips on everything from property searches to where to buy.

Online Expertize

In Ukraine, trying to search for a property online without the help of an experienced broker can often be a fool’s errand. Unlike parts of the US or EU, Ukraine does not have a Multiple Listing Service that enables real estate brokers who represent sellers under exclusive listing contracts to share property information with the brokers of potential buyers or with other brokers who may wish to assist a seller’s agent with finding a buyer. The information about properties in an MLS is usually far more detailed than the content you could typically find online on a real estate portal. The information available 68

on Ukraine’s existing real estate portals is often fragmented, incomplete, and non-transparent at best. At worst, it can be false and full of scams.

Where Should You Buy?

Kyiv does not really have a downtown district in the classic sense of the word, although there are focal points for entertainment and public gatherings near the Khreschatyk/Maidan area. Unlike many major capital cities, Kyiv does not have a concentrated financial and commercial district either. Instead, business centers are scattered around the city. The most central and desirable neighborhoods include the Golden Gate area that serves as Kyiv’s unofficial diplomatic quarter. The Sofiivska Square neighborhood is the city’s most historic district and features many five-star hotels and government ministries, making it something like Washington DC’s Georgetown minus the shopping options. Near to Ukraine’s Parliament is the leafy and pricey Pecherski Lipki District. Just outside the center is Podil, an up-and-coming riverside district with lots of low-rise historical buildings, art galleries and hipsters. Many people now see Podil as Kyiv’s Brooklyn, where you can find all sorts of interesting buildings in various stages of reconstruction and gentrification. All these areas are prime Kyiv real estate locations where you can expect solid investment opportunities.

There is currently an acute shortage premium rental apartments available in downtown Kyiv that have been renovated to the quality, taste, and style expected by relatively wealthy expat tenants. Expats in the premium rentals segment are usually seeking apartments that are light and bright with neutral colors, furniture and decor that evoke Scandinavian minimalism.

Instead, in Kyiv they often find upscale apartments with garish, over-thetop renovations that scream of new money and general post-Soviet vulgarity. Bad design choices include things like baroque decor, overly fancy custom lighting, giant murals on the walls, excessively large jacuzzis, concept showers that are difficult to climb in and out of, and space-eating bidets in otherwise small bathrooms. The owners of flats with garish but overly expensive renovations are usually anxious to recover their costs, so they often set rental prices far above the market rate for such apartments, and are then baffled when advised to lower their offering price. Ostentation is not the only common problem in this segment of the rentals market. Sometimes an apartment can have a decent renovation for the most part, but it is clear that its owner ran out of money while trying to finish his renovation and ended up cutting corners to save costs. These typical shortcomings mean there is room on the market for sensible and stylish offerings that meet the needs of international clients.

Ukrainian Buyers Favor New Buildings

Perhaps it is only to be expected, but after years of living in poorly maintained buildings with dank, dark and dreary entrance areas, many Ukrainian buyers have a strong emotional bias in favor of apartments in new buildings. This bias is so strong that many local buyers in Kyiv are fully prepared to accept incredibly long commutes in return for the opportunity to buy into a new building instead of buying and renovating in an older building or deferring their home purchase until they can afford something closer to the city center. To many expats, this can seem a puzzling choice. The net effect of this local preference is that per square meter prices of new housing in and near Kyiv’s center are often far above the per square meter price of a fixer-upper in an historical building in Kyiv’s center. This is especially curious since apartments in new buildings are sold completely unrenovated (“shell and core”).

The advantages of investing in older property are potentially considerable.

Even after renovating a new apartment in the center of Kyiv, most investors can expect gross annual yields of just 5-8%. By contrast, if you buy and renovate the right fixer-upper in an older building in the Golden Gate district of Kyiv, you could achieve gross annual yields of 10-12% or more. These figures make this option an especially attractive opportunity for individual buyers and small property funds.

Renovation Challenges

The lack turnkey renovations in Kyiv’s new apartment buildings creates numerous challenges for investors. If you are an investor who prefers to invest in new buildings, then you should keep in mind that virtually no new apartment buildings in Kyiv are offering units with turnkey renovations. Instead, nearly all new apartments are totally unfurnished and come as “shell and core”. Due to this practice, new apartment buildings in Kyiv can remain construction sites for three to five years following initial completion, as apartment owners are often very slow to complete their renovations. Often, many Ukrainian buyers do not have sufficient funds to complete their renovation when they buy their flats.

Additionally, some buyers are speculators who are hoping to flip “shell and core” units on the secondary market, especially if they managed to buy-in at pre-construction prices. These drawn-out renovations can make life unpleasant and noisy for residents of new apartment buildings. The constant movement of builders in and out of buildings can also damage entrance areas and elevators, degrading the experience of living in a new building.

Buildings with competent facilities management personnel can help mitigate damage to common areas and control noise. They usually try to restrict renovations to business hours during the working week, and forbid work on weekends. However, fewer and fewer people work nine-to-five jobs anymore, and so it is very likely that if you live in a new building in Ukraine, you will hear the renovations of your neighbors. So if you’re considering buying an apartment in a new building to offer as a rental property, it makes sense to check whether your immediate neighbors have completed their renovations, especially those above and below the apartment you are considering buying.

real estate

Rental Market Opportunities

Derelict Opportunities

There is an astounding quantity of derelict historical buildings in prime central locations in Kyiv. If you are an investor who is looking for bigger and more challenging projects, then you should know that Kyiv’s Old Town and Podil district have scores of derelict historical buildings, many of which are vacant and in various states of advanced disrepair. These buildings generally date from the late nineteenth to early twentieth centuries. Many are street facing with prime locations and would be perfect for luxury condominium conversions, boutiques, art galleries and other mixed residential-commercial projects that would preserve the historical character of these attractive neighborhoods.

Conversions and renovations of these buildings are challenging but they are not impossible. However, such opportunities are only for doggedly determined investors who are prepared to hire a crack team of legal and real estate experts and spend several years working through numerous obstacles. Before you embark on such an exciting but Herculean task, you should know that Ukraine’s current regulatory environment does not make it easy to remove potential blockages. For example, if two or more powerful parties are involved in a dispute over a property in Ukraine, the government does not have the adequate legal mechanisms at its disposal to force a sale or reclaim the disputed property.

Old Apartments Remain Best Bet

To find the best returns on Kyiv’s real market, property investors should find an experienced broker to help them navigate the pitfalls of the property search process. The quickest way to secure solid returns on your real estate investment remains the purchase of a fixer-upper apartment in Kyiv’s city center (preferably in the Golden Gate area). Investors who are not interested in buying apartments in older buildings will have to content themselves with lower returns on their initial investments unless they somehow get lucky and are able to buy at pre-construction prices in the right location. Meanwhile, the investment potential for the urban renewal of historical buildings in Kyiv’s downtown is immense, but so are the challenges facing investors who are ready to take on this considerable challenge.

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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society

Investing in the education of Ukraine’s Roma youth Uzhhorod region leads the way in getting more Roma children to enroll at Ukrainian schools In post-Maidan Ukraine, many Roma citizens continue to face discrimination in accessing employment, education, and basic services. Education is essential for integrating Roma youth into a changing Ukrainian society. Ensuring Roma and other minorities are educated can help to make Ukraine a better, fairer, and ultimately more productive country.

According to Chiricli, a charity that assists Roma and advocates on their behalf, a quarter of the Roma population in today’s Ukraine are illiterate. This lack of formal education serves to isolate Roma communities from wider Ukrainian society, while also limiting opportunities to receive government social assistance and interface with the authorities productively. The impact this has on Roma communities is clear when looking at employment opportunities. Many Roma spend their lives involved in difficult, low-paying and often exploitative physical labor due to a lack of other options. This too increases their marginalization from society and fuels asocial behavior from generation to generation.

Access to education is, in policy if not practice, equal for all Ukrainian citizens. The reality is often different. It is also important to note that Roma face more obstacles to education than other minorities. The vast majority of Roma families live below the poverty line and struggle to pay for school supplies or comply with the widespread practice of unofficial but expected monthly contributions to the upkeep of the school.

Families may also worry about the discrimination their children will face at school. As one Roma parent puts it: “Is it worth sending our child to a school where he will be humiliated by teachers in front of the whole class and his peers will laugh at him?”

Learning from the Transcarpathian region

“Educating Roma requires new approaches in teaching methods and creative instruction,” explains a teacher from Uzhhorod in Ukraine’s Transcarpathian region. “Quite often, teachers perceive Roma children as “special”, believing they need only to write and read. This approach is incorrect. Although all children are different, this does not mean that Roma children are less capable of learning.”

The Transcarpathian region is one of the most diverse in Ukraine and hosts the country’s largest Roma population. Whereas enrollment of Roma students is stagnant throughout most of Ukraine, in recent years it has been increasing in the Transcarpathian capital city Uzhhorod. The city has a vibrant civil society that includes numerous Roma professionals.

One such professional is Denys Varodi, director of Uzhhorod’s School No. 13 and head of the “Heart with Love” charity that helps foster children, troubled adolescents, orphans, disabled persons and children from needy families in the Transcarpathian region.

School No. 13 in Uzhhorod is an example of a school where only Roma children study.

Since children in this school have the same cultural background, they feel protected and more comfortable than in mixed school environments. However, the model is not ideal in that Roma children do not integrate through interaction with their non-Roma peers. This does not contribute to understanding between Roma and non-Roma. In fact, in many ways it “preserves” segregation in society and the distinction of “insiders” and “outsiders”.

Recognizing this, the International Renaissance Foundation has provided funding for the “Heart with Love” Charity to launch a program encouraging Roma families to send their children to the local schools closest to them. Mr. Vorodi, together with a psychologist and a teachercoordinator, work with Roma children four times a week, host additional classes in preparation for lessons, teach in an after-school group, and conduct outreach in the Roma community. According to Mr. Varodi, it is crucial to establish personal contact with Roma families. Family relationships are one of the core values of Roma culture. Making connections between families, teachers, and school leadership is key to increasing enrollment and retention.

Mr. Varodi invites teachers from other schools to School No. 13 to learn about Roma children, their educational needs, and how best to instruct them. Eight teachers have given classes to Roma pupils at School No. 13 including the head of the Uzhhorod Department of Education Oksana Babunych, who credited these exchanges with helping her colleagues to meet the needs of their Roma students.

Civic organizations, charitable foundations, Roma groups, and faithbased organizations are all involved in promoting access to education for Roma children in Uzhhorod. Working together, they have developed a regional strategy for educating Roma youth. As an example, the Charity Fund “Welfare” has launched seven-month courses during which teachers and psychologists work with children to prepare them for school. Uzhgorod City Council Member Myroslav Govrat regularly visits Roma settlements to communicate with Roma families and leaders about education and other issues. The church also plays an important role in encouraging families to enroll their children and keep them in school. Most Roma in the region are religiously observant and take the guidance of clergy on education and other issues seriously.

The Transcarpathian experience indicates that when local government, local schools, and civil society work together with Roma families, enrollment of Roma youth in Ukraine’s education system will increase. These results can be replicated across Ukraine. The treatment of minorities such as Roma, including their access to education, remains an important indicator of the quality of Ukraine’s democracy and its European integration. Local initiatives like those in Uzhhorod provide Ukraine with an indication of the possibilities on the national stage.

About the authors: Roman Zymenko and Bryan Schaaf represent the Chiricli Roma Women’s Fund. For more information or to get involved, visit Chircli’s Facebook page or email Zola Kundur at kondurzola@yahoo.com

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Ukrainian Hotel Sector Review Business Segment Heads East Premier Hotels and Resorts MD Irina Sidletska says Kharkiv, Sumy and Poltava set to benefit as business sector drives further Ukrainian hospitality industry growth over coming year

About the author: Irina Sidletska is the managing director of Premier Hotels and Resorts What key tourism trends have you noticed at Premier Hotels and Resorts during the 2017 spring and summer seasons?

As a leading player in the Ukrainian hospitality business, Premier Hotels and Resorts keeps track of the latest international tourism sector trends and seeks to implement the latest innovations in Ukraine. Over the past few years, we have registered the growing impact of the global shift towards digitization with a rising percentage of online sales. The spring and summer 2017 seasons have been no exception.

Customer support services are also moving increasingly towards applications such as Viber, Telegram and Facebook as popular platforms for client communication. Viber coverage inUkraine is already around twenty million users. Chat bots have entered our everyday lives and in many instances have replaced people.

In 2017, we registered website mobile traffic growth of 10% compared to figures for 2016. Official statistics provided by Google tell us that 44% of internet users in Ukraine are mobile devices users. This is also evident in the growth of online and social media purchases in 2017. The trend towards mobile usage among customers highlights the importance of developing mobile versions of

websites and mobile applications.

Online reviews are another aspect of the digitalization trend that is increasingly affecting consumer decision-making when it comes to choosing a hotel or place of accommodation, with sites like TripAdvisor having a significant impact. Meanwhile, video content now plays a prominent role in corporate communication with audiences via social media and offers the potential to influence consumer choices.

All these trends are a reminder that potential tourists are getting more digitally literate in their decision-making processes. This highlights the importance of keeping pace with international expectations. The digitalization trend applies particularly to the hospitality sector as we look to build on Ukraine’s growing global competitiveness.

In the first half of 2017, Kyiv hosted two major international events: Ice Hockey World Championship matches and the Eurovision Song Contest.

These headline-grabbing events underlined Kyiv’s tourism potential, but it is crucial to make sure the Ukrainian hospitality industry is offering maximum digital convenience 365 days a year.

What is the most common feedback you receive from international guests?

As the market leader in Ukraine, Premier Hotels and Resorts includes a diverse collection of hotels rated from five-star to three-star and located in 12 towns and cities across the country.

Expectations and feedback differ from city to city and from hotel to hotel. However, one common feature we can note is that guests are becoming more demanding and attentive to details. Positive feedback includes comments on the convenient location of our venues as well as great breakfasts, high levels of customer service, polite, friendly staff, and demand for local cuisine and craft products. In terms of our breakfasts, international guests in particular are enthusiastic about our “Fresh Organic Traditional” concept.

This breakfast menu includes a range of national Ukrainian dishes along with traditional regional delicacies differing from venue to venue depending on the hotel’s location. Dishes feature local produce grown in ecologically clean conditions,

nurtured by the hot Ukrainian sun, and nourished by the vitality of Ukraine’s legendarily fertile soil.

Premier Hotels and Resorts operates the largest network of hotels in Ukraine and is present across the country. How does the tourism industry differ from region to region throughout Ukraine?

There have recently been growing indications that the Ukrainian hotel market is entering into a period of recovery and adaptation to the changed economic conditions in the country.

The contribution of regional markets to this process has been particularly striking, with growth keeping pace with the rebound in Kyiv itself. We see Kharkiv, Sumy and hotel sectors in other eastern regions actively developing. Elsewhere, hotels in southern and western Ukraine are posting positive dynamics.

More people are now flying to Ukraine and within the country. The largest regional increase in air traffic this year has been in western Ukraine, with Lviv International Airport recording a 29% rise in passenger numbers. The figure for Kyiv currently stands at 19%, while Odesa has welcomed 9% more airline passengers.

Due to the rising domestic tourism market, seasonal demand for hotels in the Odesa, Lviv and Zakarpattia regions is rising, while the popularity of out-of-town tourism complexes is also growing.

Meanwhile, the economic and political changes of the past few years have driven significant growth in interest in Kharkiv as the new focus of business and diplomatic activity in the east of the country.

Sumy has also emerged as a business sector focus, while the hospitality sector situation in Poltava, which is located between Kyiv and Kharkiv, is stable and holds considerable promise. In the Ukrainian cities with the strongest business and investment focus such as Kyiv, Kharkiv, Sumy and Poltava, between 65% and 80% of all hotel clients are from the business community. In these cities, the number of international tourists has not increased significantly so far this year.

The most realistic medium-term forecast for the Kyiv hospitality sector is probably continued

promotion

stabilization. There is unlikely to be any major increase in international tourism numbers in the near future, so the higher end of the market will not experience any significant changes in current levels of demand. We do anticipate further growth in the number of domestic tourists, but this will make an impression primarily on the budget end of the hospitality market.

The Lviv hotel industry is currently undergoing changes as local competition grows and other cities gradually catch up with the West Ukrainian capital city’s impressive tourism credentials.

The number of hotel guests in Lviv rose by 27% year-on-year in 2016 according to the Lviv Region Main Statistical Office, but there are now signs that earlier increases in hotel occupancy rates are under pressure from the significant growth in the quantity of hotels. Another factor threatening to weaken demand for Lviv hotel accommodation services is the increase in prices for Ukrainian tourists, many of whom now prefer to opt for alternatives such as the rising number of hostels of apartment rentals on offer. Foreign visitors are less sensitive to price increases. However, more and more of Ukraine’s international tourists are now looking beyond the well-trodden boulevards

of Lviv and seeking out new destinations in the country. We anticipate further growth in the Lviv hotel market over the medium-term, leading to even tougher market competition.

One of the most positive developments of the past twelve months for the West Ukrainian tourism industry has been the emergence of better transportation connections, both in terms of air and rail. This has made Lviv and the surrounding region far more accessible and appealing to international visitors.

Throughout 2016 and 2017, Kharkiv has been in great demand as a venue for corporate events.

This has been particularly striking in relation to major pharmaceutical and agricultural companies. This trend is more noticeable than in Kyiv due to the lower capacity of the city’s hotel offer.

Kharkiv has also seen increased tourism inflows from Turkey, with a growing number of organized tour groups. This has led to rising hotel occupancy.

On Ukraine’s Black Sea coastline, Odesa continues to attract growing numbers of tourists from across the world. The official figures for 2016 put the number of visitors to the city at around two million people, but many believe the real total is significantly higher. Over the past 12 months,

Odesa has welcomed guests from 114 countries, while also serving as an increasingly popular domestic tourist destination for Ukrainians. The top nationalities visiting Odesa over the past year according to data compiled by Kyivstar are Russians (16%), Moldovans (11%), Belarusians (4%) and Americans, Israelis and Germans (tied on 2%).

Unsurprisingly, the most popular month for the Odesa hotel industry was August, while the quietest time of year was December. The recent summer season did not set any records in terms of hotel occupancy, but this was largely due to the increased offer on an Odesa market that now includes emerging segments like hostels and apartment hotels.

In conclusion, we believe the growth of businessrelated hotel bookings in Kharkiv reflects the eastwards shift of the business focus in Ukraine.

Similar patterns in Sumy highlight the positive development forecast for the eastern Ukraine region as a whole. Ukraine’s traditional tourism industry capital Lviv is looking at a period of stabilization that could lead to a mild hotel market recession as significant increases in the quantity of hotels on the market have a negative impact on demand.

Credit Agricole Continues Expansion of New Branches On 28 September, Credit Agricole unveiled the second of the bank’s new model branches. This latest branch on Kyiv’s Left Bank is close to Levoberezhna Metro Station. It offers a range of new service innovations and is part of a nationwide program that will eventually see upgrades at more than 150 of the bank’s branches across Ukraine. The opening of the new Left Bank Credit Agricole branch follows the presentation of a flagship branch in Kyiv’s riverside Podil district in late spring 2017. Credit Agricole CEO in Ukraine JeanPaul Piotrowski said the bank’s new model branches are part of CA Group’s global three-year strategy that places customer relations at the center of its priorities. “This new model includes a new digital offer and a new style of live

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communication between the bank and clients, while providing high levels of confidentiality and multichannel access from the outlet,” he commented.

Galyna Zhukova, Member of the Board of Credit Agricole Bank in Ukraine responsible for retail business, network and digital, said this new model branch would soon be joined by further additions. “Credit Agricole plans to continue opening new model branches in Kyiv and other major Ukrainian cities this year. From 2018, the larger-scale transformation of our nationwide network will accelerate. Naturally, the concept of our new format branches will not remain static. It will continue to evolve through feedback from customers. We welcome your input and will work to meet your needs.”

networking events

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Ukrainian Exporters Set Sights on American Supermarkets The Export Promotion Center of the Ukrainian League of Industrialists and Entrepreneurs (ULIE), together with the United Exporters Club, welcomed guests to a business cocktail reception at Almondo Restaurant and Club in Kyiv on 12 September as part of preparations for an October trade mission to the US geared towards boosting exports to American supermarkets. The Washington DC mission is in cooperation with the Ukrainian Embassy in the US and the Food Marketing Institute (FMI). In his keynote speech, ULIE Vice-President Denys Krasnikov said Ukrainian producers participating in the 11-13 October trade mission would benefit from direct contacts with

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distributors and supermarkets and would be able to learn more about the nuances of doing business on the American market. Ukrainian Ambassador to the US Valeriy Chaly joined the cocktail reception via Skype and spoke of the huge potential for greater Ukrainian foodstuffs exports to America, pointing to 150% year-on-year export growth in the first half of 2017. The trade mission to Washington DC seeks to bring Ukrainian companies together with American buyers, supermarket chain executives, and local distributors. For further details, please call +38 044-2720246 or e-mail info@ uspp-export.com.

networking events

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Number Twenty One

by DBI Unveiled in Podil Kyiv’s latest hospitality hub welcomed guests for an official presentation evening in early September. Number Twenty One by DBI is the latest addition to the portfolio of Swiss-based hotel management group DBI Hotels and Resorts, which also includes the Ramada Encore Kiev. The hotel, formerly known as “Impressa”, has undergone a complete rebranding and international upgrade.

It is located in the Ukrainian capital’s riverside Podil district and offers a selection of 18 rooms and suites with unique interiors. The venue’s restaurant, The Kitchen 21, can accommodate 40 guests.

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networking events

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networking events

Celebrating Mexican Independence in the Ukrainian Capital International expats and local professionals enjoyed some fiesta fun on 16 September as Fryday Afterwork celebrated Mexican Independence Day. The event took place at the newly-opened Dos Amigos

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Tex-Mex Restaurant on Saksahanskoho Street in the heart of the Ukrainian capital, with guests enjoying a light-hearted evening of networking, music and tequila to traditional cries of “Viva Mexico!�

and finally...

Hipster Kyiv Rebrands as the New Berlin Kyiv has long struggled with image woes, but the city has now discovered a brand that appears to be eminently sellable. The ancient Ukrainian capital is currently busy reinventing itself as a hipster hub and self-styled ‘New Berlin’. Activist MP Sergiy Leshchenko’s take on this newly discovered swagger was the talk of September’s YES Conference in Kyiv. “We may be poor but we are sexy in a very boring Europe. We are not going anywhere,” said Leshchenko. His quote ended up receiving more coverage than the geopolitical pontification for which the conference is famous.

This shift in emphasis is perhaps understandable. After almost four highintensity years of revolution and war, exhausted Ukrainians could be forgiven for preferring parties to politics. However, there is enough substance behind Kyiv’s recent rebranding to suggest the Ukrainian capital may be the real deal.

The hipster Kyiv vibe begins and ends with the city’s thriving bar and nightlife scene. Once a domain dominated by a classless cast of sex tourists, glamor girls and wannabe bandits, the Ukrainian capital’s diverse nocturnal options are now the subject of rave reviews from the kind of publications that pride themselves on being well ahead of the cool curve. Inevitably, the seedier side of Kyiv’s clubbing scene is still alive and well, but it is no longer the only show in town. Going out options are now both varied and vibrant, while increased international interaction has put paid to the old trendsetter time lag that once left Kyiv venues feeling dated and parochial.

Daytime Kyiv also looks increasingly like a hipster city. One of the boom industries in recent years has been the barbershop sector, with an explosion in bearded Kyivites providing a steady flow of customers to new salons springing up across town. Fashion is another local industry to receive a massive post-Maidan boost. Ukrainian fashion designers have leveraged the increased media spotlight since 2014 to become genuine global brands, with leading publications like Vogue regularly providing coverage of the formerly rustic and garish Ukrainian fashion scene. Nor is this merely an ethno-fad rooted in temporary enthusiasm for Ukraine’s love of folksy embroidery.

Kyiv designers have scored big international hits thanks to innovative designs, with Ksenia Schnaider’s funky “Demi Denim” combo jeans hailed as one of the looks of the past year. Meanwhile, closer to home, the patriotically and pragmatically driven “Made in Ukraine” craze has helped a whole new generation of Ukrainians break into the retail fashion market. Outlets like the downtown Kyiv department store, “Vsi. Svoi” (literally, “All. Ours.”), have found success by providing a platform for this emerging local talent.

The explosion in street art has amplified the hipster ambience, with formerly dull Soviet architecture transformed into giant canvases featuring works by some of the most celebrated muralists in the world. Since 2014, the Ukrainian capital has become the standard-bearer of Eastern Europe’s street art scene, attracting considerable media coverage and leading to the

launch of specialized mural tours of the city.

Entire districts are getting in on the hipster act, with the riverside Podil region now routinely touted as Kyiv’s Brooklyn. Once a somewhat shabby but elegant backwater of side streets and courtyards close to the gentle magnificence of the Dnipro River, today’s Podil is now a hive of hipster activity replete with achingly modern IT offices and popup emporiums.

Kyiv’s hipster reinvention is helping the city to sell itself as an attractive filming location. A number of European pop stars have shot videos in the city over the past twelve months, while the recent launch of an Apple Watch advert filmed at Kyiv’s Central Railway Station generated considerable buzz. The Ukrainian capital still has a long way to go before it is able to attract big budget Hollywood blockbusters like its Central European neighbors, but the city is already developing a reputation for stylish locations and highly skilled production crews.

What does being “The New Berlin” mean to the average Kyivite? The mounting hipster hype swirling around Kyiv is just one aspect of the growing selfconfidence evident throughout Ukrainian society as the country steps out of Russia’s shadow and lays claim to a place at the European table. This long overdue process can help to counter years of negative coverage and unwelcome associations. Ukraine was once synonymous with the worst excesses of the post-Soviet world, but it now has the opportunity to rebrand itself as a fun and fashionable destination for people seeking the next big thing.

The city’s affordability and relative lack of international exposure will both come in handy as Kyiv seeks to capitalize on the whole “New Berlin” label.

However, fashion is notoriously fickle and the clock is already ticking. It is surely only a matter of time before the next city pops up from obscurity and declares itself “The New Kyiv”.

Letters to the editor: editor@bunews.com.ua Advertising inquiries: +38-067-4032762 Business Ukraine is distributed every month at a wide range of leading business centres, hotels and restaurants in Kyiv and throughout Ukraine as well as on incoming flights to the Ukrainian capital.

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

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