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DESIGN & ENGINEERING

New Year 2016

Official ‘Denmark in Ukraine’ Sponsor

DENMARK IN UKRAINE

Special focus on Danish business in Ukraine including everything from LEGO toys to energy efficiency innovation

Also inside: Monthly American Chamber of Commerce in Ukraine Newsletter


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BUSINESS UKRAINE: NEW YEAR 2016 Denmark is a major investor in Ukraine with a commercial presence covering a range of sectors including everything from pig farming to alternative energy. This month we explore Danish investment in Ukraine and speak to many of the executives representing the Scandinavian nation in Europe’s largest country.

DESIGN & ENGINEERING

New Year 2016

Official ‘Denmark in Ukraine’ Sponsor

DENMARK IN UKRAINE

Special focus on Danish business in Ukraine including everything from LEGO toys to energy efficiency innovation

Also inside: Monthly American Chamber of Commerce in Ukraine Newsletter

2016: the year Ukraine’s Euro dream came true

Ever since the collapse of the USSR, Europe has fulfilled the role of utopian ‘other’ in the Ukrainian imagination. While nothing in the post-Soviet world ever seemed to function as it should, abstract notions of a just and plentiful Europe came to serve as an aspirational ideal. Expensive Ukrainian apartments were marketed as ‘Euro renovated’, high end restaurants boasted of their ‘Euro cuisine’, and almost anything of any quality was branded as ‘Euro standard’. Europe became a synonym for the ‘normal country’ Ukrainians wanted to live in. In light of this long-running love affair with all things European, it is hardly surprising that so many Ukrainians rushed to embrace the vague but December 2015

enticing idea of European integration. As a result, Ukrainian politicians of virtually every persuasion have long felt obliged to publicly pledge their support for a European future. Meanwhile, Russian opponents of the process have found themselves deprived of any plausible counter arguments and reduced to absurd homophobia and, ultimately, military aggression. Ukraine’s enthusiasm for European integration proved so great they even staged a revolution to make it happen, and became the first people in history to die beneath the yellowstarred EU flag. 2016 is the year in which this dream finally becomes a reality. January sees the full implementation of a free trade zone, and at some point in

summer 2016 visa-free EU travel is expected to be introduced. These are not minor achievements. Free trade and freedom of movement are arguably the two greatest benefits the EU can offer. Indeed, millions of Euro skeptics within the EU will surely view Ukraine’s Brussels partnership with some envy, regarding it as a far better model for cooperation than their own much deeper involvement in the European experiment. These developments have the potential to transform every aspect of Ukrainian society, but they are not a panacea for the country’s many deep seated problems. In reality, Ukraine’s 2016 European breakthrough is merely the start of a new era in the country’s development. If Ukraine is to make the transition successfully, Euro standards must become the everyday norm rather than the exception, and Ukrainians must start seeing themselves as equal partners in the European community of nations. The door is finally open, but the journey is only just beginning. Peter Dickinson Business Ukraine

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Denmark in Ukraine Ambassador Christian Dons Christensen says Ukraine can learn from Denmark’s energy evolution Denmark is a global alternative energy leader and many Danish companies are already active as investors in this sector in Ukraine. What aspects of the Ukrainian alternative energy industry hold the most promise for Danish companies and how can Ukraine learn from the Danish energy experience? Denmark is a world leader both in the alternative energy sector and in the energy efficiency sector today thanks to the processes we have been through over the past 40 years. Four decades ago, Denmark was in a position very similar to Ukraine today. We were completely dependent on fossil fuels. Traditionally we had relied on coal, but we had turned almost entirely to imported oil from the Middle East. The energy crisis of the 1970s forced us to rethink our strategy and we focused our efforts on two areas – renewable energy sources and energy efficiency. The results of this process can be seen today in Denmark’s leading position. We are particularly strong in wind energy and see huge potential for the further growth of wind farms in Ukraine – especially in southern Ukraine, where conditions are ideal. We are also global leaders in technologies to produce biofuel and exploit biomass – a sector offering extensive opportunities for Ukraine with its agricultural riches. Both wind power and biomass investments require long-term predictability in order to become profitable. If Ukraine can create the right environment for investment, it will be possible to gain huge advantages. Denmark has also benefited from energy efficiency policies, allowing our economy to grow without parallel increases in energy consumption. This has only been possible thanks to efforts to promote energy efficiency, making it economically attractive for companies to develop and adopt efficiency measures. We see huge potential in Ukraine for the energy efficiency initiatives that have proved so successful in Denmark, and we are eager to share our experience with our Ukrainian friends. We have established the Ukrainian-Danish Energy Center within the Ukrainian Energy Ministry, which is a unit with a long-term advisor provided by the Danish government offering advice on energy sector strategy and planning. In the same way, Danish companies offer innovative solutions in a large range of CleanTech areas. Ukraine now has the benefit of being able to learn from others: There is no reason Ukraine should 6

About the interviewee: Christian Dons Christensen is Ambassador of Denmark to Ukraine, Georgia and Armenia repeat the mistakes of others, including Denmark. Denmark was in many ways a first mover in energy innovation. Ukraine can be a fast mover, if it acts wisely.

How do you expect full implementation of the EU-Ukraine Association Agreement free trade zone in 2016 to impact on Danish-Ukrainian commercial ties? The most important aspect as far as both Danish and Ukrainian companies are concerned is the fact that Ukraine is taking on a commitment to implement EU standards on a wide range of trade issues. These standards have already been enormously successful in fostering trade within the EU’s internal market. Ukrainian companies will now benefit from greater compatibility to other European markets. For Danish companies, this standardization will create predictability and establish a level playing field. One key concern of Danish companies looking to enter Ukrainian markets is unpredict-

ability. Part of this is the traditional impact of vested interests on the Ukrainian business environment. Removing this uncertainty will make Ukraine a far more attractive investment option. During political discussions, we often encounter the semi-mythical idea of Ukrainian exceptionalism – the belief in a set of circumstances unique to Ukraine that we must take into consideration and accommodate. This approach is misleading and unhelpful. In reality, if you create a level playing field here, investors will come. What are the key concerns you encounter when communicating with Danish businesses present in Ukraine, and those eyeing potential entry into the Ukrainian market? The top concerns are lack of security for investments and rule of law issues. There is a clear sense that things are moving in the right direction, but much remains to be done. There are also concerns over excessive bureaucratic red tape and adminwww.bunews.com.ua


The Danish government has recently launched a new programme to support greater Danish investment in Ukraine. What are the main goals

of this initiative? Danish engagement with Ukraine involves both governance support programmes and the promotion of Danish private sector ties. Both are important to create the kind of development that benefits people and businesses alike. For many years, the Danish government has run investment funds that help Danish companies establish a presence in new markets. For the next four years, we will have established a specific Ukraine investment facility worth EUR 4 million. Danish companies must co-finance these investments to a minimum of 50%, so this investment fund is worth at least EUR 8 million for the Ukrainian economy. We decided to provide this additional financial support to promote Ukraine as an attractive investment environment because interest is currently high but there is also considerable caution due to the challenging circumstances in the country.

Many Ukrainian companies are currently looking to develop new relationships with EU partners and realign their businesses towards European markets. How can Ukrainian companies make themselves attractive to potential Danish partners? My message to Ukrainian companies looking to ex-

pand in Europe is to be trustworthy, to think longterm, and to be visible. You have to have considerable stamina and need to be ready to go through 20 potential partners before you find somebody who is interested in developing cooperation. Ukrainian companies need to appreciate that potential Danish partners have the whole world to choose from when it comes to placing their investments. Ukrainian companies need to be proactive and they need to be persistent.

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istrative discretion over the issuance of licenses, customs clearance and so on. Too much appears to be up to individual civil servants to decide, rather than being subject to clear processes and transparent timeframes. Despite these issues, I am broadly optimistic about the improving investment climate. Whenever I meet potential Danish investors, one of the biggest hurdles I have to overcome involves perceptions of Ukraine as a war zone. Thanks to media coverage of the fighting in the Donbas, many outside of Ukraine have the impression that the whole country is experiencing military conflict, when in reality only a small part of the eastern region is affected. Security is not actually a major issue for Danish companies entering the Ukrainian market – instead, I tell potential market entrants they primarily need to consider commercial and political issues. I advise them that they need to weigh the pace and complexities of continued political and economic reforms against the prospects of gaining from entering the Ukrainian market at this stage, while also acknowledging the challenges that still exist.

You took up your post in Kyiv in summer 2015. During your first few months in Ukraine, what has surprised you most about the country? I served in Denmark’s Moscow Embassy for four years at the turn of the millennium and this experience formed the basis of my initial expectations when coming back to the former Soviet Union. What has surprised me most about Kyiv is how livable and European the city is. It is a hugely charming and very pedestrian city. Friends and family tend to visit me with reservations based on the media coverage of the conflict in east Ukraine, but they always leave full of positive impressions. The cobbled streets, golden domes, and general city layout, together with friendly Kyivan attitudes and the café culture, make it an enormously comfortable city to live in.

IFU provides risk capital to companies wishing to do business in Ukraine and other emerging markets. We invest in projects with Danish investors or a Danish economic interest via equity or loan financing with 6-8 years’ investment horizon and bring on board our experience from 54 investments in Ukraine and hundreds of projects in Eastern Europe. For further information please contact:

Copenhagen: Lisbeth Erlands, Vice President, +45-33-637527, le@ifu.dk Kyiv: Olexiy Parkhomchuk, Investment Director, +380-67-6328221, opa@ifu.dk

www.ifu.dk December 2015

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LEGO expanding in Ukraine despite crisis Instability of past two years has not stopped iconic Danish toy producer from growing How long has LEGO been present in Ukraine? LEGO products first entered the Ukrainian market in 1993. From that point onwards until 2010, we catered to the needs of our customers via a network of local partners and distributors. In February 2010, we opened a dedicated Ukraine sales office and began direct operations later that year.

How have LEGO sales developed in Ukraine since your market entry and what are the current annual sales figures? If we compare sales figures for 2009, which was the last year before we opened a direct sales office, and the figures for 2015, then our turnover in Danish krone is now nine times larger. This growth has come despite the extremely challenging conditions facing the Ukrainian economy over the past two years. In terms of concrete numbers, retail sales in 2015 are expected to total approximately UAH 450 million. How many retail partners does LEGO have in Ukraine? We currently operate directly with 20 retail partners, while the rest of the market is served via our sole distributor.

What are the most popular LEGO products in Ukraine? Before I answer this question, it is important to first clarify how we evaluate popularity. Is it in terms of volumes sold, or in terms of the value of the items sold? If we are talking about sales volumes, then our most popular items are LEGO minifigures. If we are referring to value, then the LEGO Police Station is the sales leader on the Ukrainian market – a position it has already occupied for a number of years. This trend mirrors global markets, where the Police Station is also an evergreen item enjoying enduring popularity. Which regions of Ukraine generate the most LEGO sales? Kyiv naturally generates the biggest share of nationwide sales. Interestingly, Odesa region has occupied the number two position for the past several years, despite the fact 8

About the interviewee: Anatoliy Kuzminskyy is LEGO Ukraine Country Manager that it is not the number two region in terms of population.

How does the Ukrainian LEGO market compare to other regional markets? We are slightly behind other CEE markets in terms of many of the main business parameters such as market share, but we are catching up with regional trends quickly and expect to have reached the same levels as other regional markets within the next two years.

How has the instability in Ukraine over the past two years affected your business? These last two years have not been easy for any of us and have been the cause of many new grey hairs for our colleagues in corporate finance. However, we have managed to convince our colleagues not to jump to conclusions and persuaded them to place

their trust in our local expertise. As the result, we have managed to stay almost flat in terms of Danish krone revenues, while our growth in UAH has been well above the market average. This had allowed us to increase our market share significantly. We have similarly ambitious plans for 2016 and are confident that our business plan is strong enough to help us reach our targets. What LEGO item do you expect to be your biggest seller in Ukraine during the New Year holiday season? As you may be aware, Episode VII of Star Wars is the big movie release for the holiday season. The global toy business – including Ukraine – has very high expectations related to the release of this film. In terms of the 2015 holiday season, we expect the Star Wars line of LEGO products to be the top sellers. www.bunews.com.ua


Your Promise. Delivered.


denmark in ukraine

Customs service reform could boost shipping industry Maersk optimistic about Ukraine market despite high tariffs and challenges of transitional period Danish shipping giant Maersk has been present in Ukraine for more the 20 years, having first entered the market in 1993. Today, the company is active in the Ukrainian container business under three brands: Maersk Line, Safmarine, and Seago Line, while also maintaining a separate division focusing on crewing. Business Ukraine magazine spoke to Maersk Ukraine Managing Director Stefan Clenciu about customs service reform, EU free trade and the need for Ukraine to become more competitive in relation to its Black Sea neighbours.

Where do you see the biggest strategic opportunities for the international shipping industry in Ukraine? Ukraine has major growth potential and economic growth cannot take place without parallel development in the shipping industry, as there is a strong correlation between the two. It is enough to recall the 2000-2008 period in Ukraine, when the economy was experiencing dynamic growth. This pattern of consolidated growth was matched by similar expansion of the country’s container business. Rates of growth were incredible during this period and exceeded 30% year after year. The current political instability in the country means that the Ukrainian economy is now in difficult position, but there are also encouraging signs of positive changes and increasing interest from investors. We are optimistic about the future of the Ukrainian shipping industry, and the container business specifically.

How important for Maersk are the current efforts to reform Odesa port customs services? Our clients have been waiting for reform of the Ukrainian Customs Service for a very long time. It has the potential to bring about a major improvement in the country’s business environment. Whatever is good for our customers is good for us, so naturally we support this reform process and participate wherever our involvement is helpful. How has the Maersk presence in Ukraine been affected by the political and security instability of the past two years? 10

About the interviewee: Stefan Clenciu is Managing Director of Maersk Ukraine The last two years have been really challenging for the country and a range of major events have taken place, but we have not interrupted our services or stopped our activities for even a single day throughout the whole period. We have given promises and commitments to our customers that we need to deliver. Are you expecting to see any impact on the international shipping industry as a result of the EU-Ukraine Association Agreement which comes into force in January 2016? The implementation of the Association Agreement could have some impact on our operations but we are not expecting any big changes. Ukraine has a long border with the EU so we can expect growth in land transportation and limited growth in shipping.

The current Ukrainian government has prioritized improving the business climate in the country. Which reform areas would Maersk like to see the Ukrainian government focusing on? Many things have already been done and we are really pleased to see positive changes being implemented in the country. Nevertheless, there is a lot more still to do as Ukraine is undergoing a journey

of transformations. The world economy is very dynamic and globalized, which means that there is a clear an open competition between countries for investments, technology, and cargo flows. Ukraine needs to define its own place in this environment and to become more competitive. Unfortunately, Ukraine is currently losing out in the Black Sea region. Comparatively speaking, Ukraine is a much more expensive place for shipping industry companies to do business in, because state tariffs are far higher than in other Black Sea region countries. Inevitably, this impacts directly on transit cargo flows as companies are eager to save as much money as possible. We discuss this issue every time we meet with the Ministry of Infrastructure or the Administration of Sea Ports, and hope they will take the necessary action in this area.

What is the medium-term MAERSK strategy for Ukraine? Our medium-term strategy is rather simple: we aim to continue growing our business in Ukraine while focusing on best service delivery for our customers and opening up new opportunities for them. With our unrivalled geographical coverage, we can provide access to even the most distant markets for Ukraine businesses. www.bunews.com.ua


denmark in ukraine

Danish investment focuses include energy, agriculture and IT

From pig farming to IT innovation: over 300 Danish companies are active in today’s Ukraine There are currently approximately 300 Danish companies active in Ukraine. Denmark is regarded as the largest investor in western Ukraine, where more than fifty Danish companies operate, employing around 5,000 people. However, the majority of Danish companies are based in and around Kyiv. The geographical spread of Danish business activities in Ukraine reflects the diversity of Danish economic activity in the country. In Kyiv and other major Ukrainian cities, most Danish companies focus on providing goods and services to the country’s large urban populations, whereas in western Ukraine many are primarily attracted by low local costs and close proximity of the EU. Danish companies can be found in virtually every sector of the Ukrainian economy. Three of the key areas of Danish activity in Ukraine are energy efficiency, agricultural innovation, and IT outsourcing.

Energy efficiency expertize

It is a well known fact that Ukraine is currently facing major challenges in terms of the country’s energy supply security and lack of energy efficiency. This is not only a matter of supplies to heavy industry, but also relates to inefficient electricity grids with technical losses twice as high as EU standards – mainly due to deterioration and lack of maintenance. As a global leader in the spheres of energy efficiency and alternative energy, Denmark has much to offer Ukraine as the country looks to rethink its energy policies. The Danish Embassy and Danish manufacturers of energy technologies are already actively promoting Danish energy technologies in the country, with the emphasis firmly on renewable and sustainable energy options. Denmark’s status as an alternative energy global leader is a relatively recent phenomenon that is the result of policies adopted over the past 40 years. For much of its modern history, Denmark had previously been dependent of fossil fuels. By the beginning of the 1970s, this primarily meant oil imported from the Middle East. A change in energy strategy became necessary following the energy crisis of 1973, which exposed the strategic risks of continued reliance on Middle Eastern oil alone. Thanks to this strategic energy shift, sustainable sources now meet a significant portion of Denmark’s current domestic energy requirements. In terms of energy efficiency, there has also been considerable progress in Danish policy in recent decades. Since the 1990s, Denmark has managed to record significant and sustained GDP growth while at the same time decreasing greenhouse gas emissions and stabilizing low rates of energy usage. It is clear that Denmark has something to offer Ukraine in this sector, and the process of sharing Denmark’s energy experience is already well underway. In 2015, our two nations established the Danish-Ukrainian energy centre with the objective of increasing cooperation and contributing to the goal of a more independent, sustainable, and, energy efficient Ukraine. While still too early to predict the overall outcome of this energy centre, it is worth mentioning that we have already seen substantial improvements and benefits for both our countries in terms of research

into energy efficiency and consumption. We are confident that this collaboration will prove to be a great success as it continues to develop in the coming months.

Agricultural innovation

There is no denying that Denmark takes great pride in the country’s agriculture, with over 60% of the country developed for agricultural use. Danish engagement in the agricultural sector of Ukraine focuses on several large pig and dairy farms, including three that rank among the leaders of their respective segments on the Ukrainian market. As part of Denmark’s European Neighbourhood Programme, which seeks to help support the development of the Ukrainian economy, Denmark has also been offering training to Ukrainians in Danish agricultural practices for a number of years. Even during these turbulent times, Ukraine’s agricultural sector has continued to post steady growth, making agricultural investments among the most profitable in Ukraine. This dynamic performance has attracted the attention of Danish companies looking to export processing technologies, farming equipment, food supplements and more to Ukraine. The current resilience of the market is in line with agriculture sector performance in previous years. This is partly due to solid fundamentals. As well as a strong and growing domestic consumer market, Ukrainian agriculture has excellent production conditions and export opportunities. Low costs mean the potential for high profit margins is significant. There is also room for growth. Since the collapse of the Soviet Union, Ukrainian agriculture has experienced significant drops in output that have yet to be fully restored. This points to the further potential of the sector. In order to realise this potential, Ukrainian foodstuff producers must invest in new technologies and equipment in order to increase both the volumes produced and the quality of output. Unsurprisingly, this is an area of great interest for Danish companies and one where cooperation will continue to grow in the coming years.

IT engineering and software development

In this globalised and technological world, developments within the software and IT engineering industries make the news on an almost daily basis. Increasingly, Ukraine is among the countries making this news. Ukraine is widely recognised as a global IT outsourcing leader, with a vast pool of talent growing by an estimated 10,000 programmer graduates each academic year. Unsurprisingly, there is already an abundance of English-speaking software developers in the country, including numerous Danish IT companies. Danish IT businesses have been quick to embrace Ukraine’s IT potential – after all, Ukraine is geographically far closer to Denmark than many of the more traditional Asian outsourcing and software development centres, while salaries levels remain considerably lower than in Denmark itself. These factors have combined to help make Ukraine attractive as both an outsourcing option and base for extra IT capacity. It is not uncommon for Danish companies to complement the activities of their own IT departments in Denmark with Ukrainian IT specialists who are increasingly becoming virtually integrated into Danish organisations and companies.

About the author: Tetyana Kobchenko is export advisor at the Royal Danish Embassy in Kyiv.

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Promoting a more caring corporate culture Novo Nordisk has been pioneering Ukrainian corporate social responsibility for over two decades The idea of corporate social responsibility is currently very much in fashion among Ukrainian business circles, but it remains a relatively new concept for many in the country. Danish pharmaceuticals giant Novo Nordisk is one of the pioneers of corporate social responsibility in Ukraine, with a track record of initiatives stretching back to company’s Ukraine market entry in the early 1990s.

Harvard Business School recognition

Denmark’s Novo Nordisk has an international reputation as an innovative employer and market leader in corporate social policy. This status was underlined in emphatic fashion in autumn 2015 when Harvard Business School named Novo Nordisk CEO Lars Rebien Sorensen as the world’s top performing CEO in its influential annual ranking. For the first time in the award’s history, this recognition was specifically linked to Novo Nordisk’s environmental, social, and governance performance as measured by investment research firm Sustainalytics. This culture of corporate social responsibility has always been a part of the company’s working environment in Ukraine, and remains an integral element of the Novo Nordisk approach in the country. Business Ukraine magazine spoke to the General Manager of the Novo Nordisk Representative Office in Ukraine, Alexander Boiko, about the range of socially focused activities his team engage in beyond their everyday pharmaceutical responsibilities. Novo Nordisk is a global leader in diagnosing and treating diabetes, so it comes as little surprise that a significant portion of corporate social activities focus on raising awareness of diabetes. The Novo Nordisk teams are often present at events that allow them to reach large numbers of the Ukrainian general public, setting

up booths and distributing information at sports events, folk festivals and other large gatherings around the county. “This has allowed us to reach more than 30,000 people in the past two years alone,” Mr. Boiko says. Other initiatives include diabetes awareness campaigns on TV and via outdoor advertising. Perhaps the most novel aspect of this awareness drive is the participation of the company’s distribution partners, who carry information about diabetes awareness on their vehicles, bringing the message to drivers across the country.

Financial, social and environmental components

Mr. Boiko explains that the company’s philosophy is based on the so-called ‘triple bottom line’ approach, involving financial, social and environmental responsibilities. “Environmental responsibility on the largest scale could mean reducing CO2 emissions, but on a local scale it can also be applied to the more efficient use of resources,” Mr. Boiko says. The social component of this triangular philosophy encompasses everything from cleanups of hospitals and playgrounds to support for cultural events such as international cinema festivals. Crucially, the company’s corporate social agenda

in Ukraine is set by staff members rather than dictated from above. “Social commitments have become part of our company ethos. We realized that in order to foster a genuine culture of corporate social responsibility within the company, it was crucial to delegate the initiative to employees and not simply leave it up to management to take the lead. Today we have an informal ‘Take Action’ committee of employees that works to develop all our social activities before coming to senior management to evaluate what kind of support we can provide. This approach has been the key to the success of our social responsibility activities,” Mr. Boiko offers.

Award-winning approach to diabetes awareness outreach

Pioneering corporate social responsibility in Ukraine is not a thankless task. The Novo Nordisk Ukraine office has already received international recognition for its efforts, winning the corporation’s inaugural annual ‘Take Action’ award back in 2003 for diabetes awareness outreach work conducted by employees in Kyiv Oblast. This award still occupies pride of place in the reception area of the company’s Kyiv offices, highlighting the importance attached to this aspect of the Novo Nordisk corporate philosophy in Ukraine.

About the interviewee: Alexander Boiko is the General Manager of the Novo Nordisk Representative Office in Ukraine and Moldova

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Energy efficient house by Denmark’s VELUX offers a glimpse into the future of residential Ukraine

Energy efficiency has never been more important for Ukrainians, and a showpiece house in Kyiv region offers inspiration for a new generation of properties designed to use less energy while finding greater harmony with the surrounding natural environment. The OptimaHouse property, located 20km beyond the Kyiv city limits, utilizes technologies and knowhow from Danish company VELUX Ukraine. The OptimaHouse building is designed to house a family of four, and boasts 128 square meters of interiors that combine the three elements of the Active House Radar: comfort, energy efficiency, and environmental impact. Many of the design features are self-explanatory. For example, numerous large windows feature in the design in order to maximize natural light in the house while reducing the need for electric lighting, thus boosting feel-good ambience while cutting down on household electricity bills. Hybrid ventilation systems are deployed to guarantee high-quality air supply, while environmentally friendly features include reduced water consumption and the use of recycled building materials. December 2015

denmark in ukraine

The ultimate in energy efficient accommodation

The project’s energy-saving achievements are likely to prove its most eye-catching aspect. The OptimaHouse building is designed to meet 45% of its daily energy needs via renewable sources, with solar, wind and thermal energy access built into the property. Meanwhile, reductions in wastage and an emphasis on efficient energy usage have managed to cut down energy consumption needs by 65% compared to standard modern constructions of comparable size. This innovative property may well offer a glimpse into the future of Ukrainian residential architecture. After years of heavily subsidized gas supplies to residential buildings, Ukrainians are currently facing the shock therapy of a rapid switch to market prices. This challenging transition – made urgent by the collapse in ties with erstwhile monopolist energy supplier Russia – has provided unprecedented impetus to the drive for greater energy efficiency in residential Ukraine. Innovators in this sector can expect to receive increasing attention as Ukrainians seek long-term solutions to their rising domestic energy bills while also becoming more demanding in terms of the quality of their living environment. 15


denmark in ukraine

Danish culture in Ukraine Danish cultural outreach includes everything from film festivals to innovative architecture Denmark has an active cultural presence in Ukraine as part the country’s international cultural exchange activities. The cultural activities of the Embassy in Kyiv are currently guided by the 2014-16 Action Plan, which was drawn up by the International Cultural Panel of Denmark. This Action Plan identifies three key focuses for activity: sustainability, children/young people, and dialogue/democracy/participation. In addition to these thematic focuses, Danish cultural activities also include specific celebrations like this year’s 150th anniversary of 20th century Danish composer Carl Nielsen, whose music is considered part of Denmark’s cultural heritage. To mark this classical music anniversary, the Danish Embassy partnered with Ukraine’s National Philharmonic and local Danish businesses to stage a Carl Nielsen concert featuring two young and promising Danish musicians – one of whom we hope to see again in Ukraine at the Gogol Fest in 2016. The first Danish film footage was shot in 1897, so it is fair to say that moviemaking has a long tradition in Denmark. Danish films have a strong international following and can be enjoyed at a number of Ukrainian film festivals including the country’s annual Children’s Film Festival, International Short Film Festival, Scandinavian Panorama, Danish Film Festival and, last but by no means least, the annual Molodist Film Festival.

Architectural innovation

Danish architecture is at the forefront of contemporary global trends in fields like energy conservation, sustainable city development, and urban planning. A number of Danish architects have participated in Ukraine’s CANactions Architecture Festival. Cooperation in this field is ongoing and hopefully will expand to include cooperation with the CANactions School for Urban Studies. The Danish Embassy successfully cooperated with students from the Taras Shevchenko University during the 4th Catharsis International Student Theatre Festival. During the festival, an exhibition was staged that explored the reasons behind ‘The Happy Danes’ by portraying a society with the notion of trust at its core. Future collaboration with the Borys Grinchenko Kyiv University is also planned. There is also longstanding cooperation with the Scandinavian Gymnasium in Kyiv, which maintains strong, friendly relations with the Gymnasium of Naestved in Denmark, as well as with the Ukrainian-Danish Friendship Association.

Coming soon

On the drawing board for the first half of 2016 are two ambitious events: First up is the Nordic/Baltic Art Exhibition, which has been made possible by cultural support from the three Baltic and four Nordic countries as well as local sponsors. This exhibition will go on view at the National Art Museum of Ukraine from 18 March 18 until 22 May. Nordic, Baltic and Ukrainian artists will explore the notion of identity in differ-

ent ways - nationally, politically, territorially, socially and by gender. Denmark will be represented by two artists. A Musical and a Broadcast for Reconciliation choreographed by the Danish Theatre C:NTACT with participation of a Ukrainian theatre director, a Ukrainian NGO, and scores of local youngsters, will be shown in May in Kharkiv before touring the rest of Ukraine. C:NTACT uses culture – both theatre and musical expression - as a vehicle for change. This performance will be a platform for Ukrainian young people from all walks of life to express themselves and grow in the process. Meanwhile, a banner exhibition entitled ‘1864 – from Enmity to Reconciliation’ will portray the long road towards reconciliation starting with the war of 1864 in Southern Denmark until the present day. This combined musical and broadcast project is backed by MyMedia, a media support programme under Danish management and financially backed by Denmark. Since the Maidan Revolution, MyMedia has been one of the main supporters of reforms at Ukraine’s First Channel. Most notably, a group of Danish experts from Denmark’s Radio and TV channel TV2 spent a month in Ukraine working with their local colleagues writing a comprehensive plan for the reform of First Channel’s newsroom. MyMedia also supports initiatives in media and journalism education, offering media literacy courses to thousands of Ukrainian children aged 13-17. The MyMedia website, which covers the activities of the group’s many partners as well as publishing important material on media and politics, is the fastest growing journalism website in the region. For further information, please contact Natalia Domanska on +38-063-2229663.

About the author: Carina Mylin is Attache and Consul at the Royal Danish Embassy in Kyiv. She has worked in the Danish Foreign Service since 1976 with postings in Cairo, New York, Moscow, Jeddah/Riyadh, Kuala Lumpur, Ankara, and Riga.

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Denmark dominates Lviv expat business scene

Danish businesses have largest international presence in west Ukraine and have own association

Expats based in Kyiv will no doubt be familiar with the European Business Association, or EBA. The EBA is also active in Lviv, but here the dominant international trade organisation is arguably the DBA, or Danish Business Association. Denmark’s dominance of the west Ukrainian expat business scene is certainly one of the more curious quirks of Ukraine’s international investment environment. Dating back to an initial influx of Danes in the 1990s, the Danish business community in the west Ukraine region has grown organically and inexorably ever since. Relatively close geographical proximity has played a role, while the region’s famously European ambience has also helped, but the key factor in attracting so many Danes to west Ukraine seems to have been the presence of other Danes. Business Ukraine magazine spoke to DBA Founder and President Lars Vestbjerg about Lviv’s Danish contingent and asked him why so many fellow Danes choose to set up businesses in the west of the country.

Why is Lviv the unofficial capital of Danish Ukraine and how many Danes currently live and work in western Ukraine? The fact is the majority of Ukraine’s Danish production and manufacturing companies are currently located in western Ukraine, as are a range of other Danish companies and other businesses with Danish investment. The first Danish investors appeared in the early 1990s in the immediate aftermath of Ukrainian independence. The community began to grow at a faster pace from 2000 onwards, and today the DBA has 56 member companies. I first began working on the concept of setting up a Danish business organization in 2004, but initially decided to establish an EBA representative office in Lviv instead. This allowed us to work with companies and investors from a range of countries. Between 2005 and 2010, there was a sharp rise 18

in the number of Danish businesses entering the west Ukraine region. This made it natural for me to shift my attentions towards an organization specifically focused on the interests of the growing Danish business community in the region. The end result was the foundation of the DBA in 2010. From the very beginning, the organization has been based in Lviv. Danish investment in west Ukraine is focused in a number of sectors including textiles, footwear manufacturing, timber, furniture, IT, pig farming and agriculture, consultancy, renewable energy and outsourcing. There are currently around 40 Danish expatriate professionals based in the Lviv area.

What are the main activities of the DBA? The DBA is primarily a business organization and not a social organization. The main thrust of our activity is to establish strong and mutually productive relationships with the state authorities. These relationships can help both sides cooperate and find solutions to problems that act as barriers to Danish investors operating in Ukraine or looking to enter the Ukrainian market. The DBA has signed several memorandums in western Ukraine leading to successful outcomes, allowing Danish investors entering Ukraine to feel both welcome and safe. In short, we support any activities that lead to greater cooperation with Denmark, Danish products or Danish knowhow. In addition to our focus on business, one of our key social focuses is charity work. The DBA backs a number of initiatives providing care and support for orphans and handicapped children. How has the DBA evolved over the years as an organization? In 2010 when the DBA was first established, the initial challenge was to create the right foundations for future development and to support the development of ‘best business practice’ in the region. The DBA signed a memorandum on cooperation

with the state authorities in these early days that confirmed official support for DBA member companies to conduct their businesses according to Ukrainian legislation. The Danish mentality is to pay lots of tax as part of the recipe for a successful and profitable business. The authorities have long recognized this approach to taxation. It has helped to build trust and garner support. There is no escaping the fact that we have encountered problems with the local authorities in the past in terms of support for foreign investment, but over time, state officials have become familiar with the Danish philosophy of playing by the rules. This has brought its own rewards. Cooperation with the authorities has actually grown stronger over the years and we no longer encounter major problems. Danish investors can enter the west Ukrainian market in any segment of the economy and feel safe as part of the DBA community. Lviv residents are fond of celebrating the city’s markedly ‘European’ mentality when compared to the rest of Ukraine. Does your experience as President of the DBA lead you to support these claims? Absolutely. In my experience, Lviv is Ukraine’s most European city in every sense!

What are the most common inquiries you receive from Danish companies looking to enter the Ukrainian market? The most common question I get asked by potential investors or market entrants is whether it is possible to operate a business safely in Ukraine. I tell them that it is essential to have good partners who have an excellent understanding of Ukrainian legislation. I advise them that doing business in Ukraine is not like doing business in Denmark. If they wish to succeed, they will need to adapt to the Ukrainian legislative environment. Recently, www.bunews.com.ua


What could Ukraine do to attract more Danish companies to invest in the country? It would be good to see the state work to simplify processes and eliminate administrative burdens. The authorities could also be more open to the outside world and invest more time creating a positive image of Ukraine. Local officials are very active in this direction, but we do not see enough of the President going public with positive statements about Ukraine. It would be relatively easy for him to promote Ukraine by visiting Denmark with a delegation of commercial advisors and representatives from the business community.

How has the instability of the past two years affected the Danish business community in the Lviv region? The Danish community has always stood together and we try to address major challenges collectively as a team under the umbrella of the DBA. It has been difficult to accept that we must pay for the Russian invasion in the form of the new military tax – plus continued salary payments for young men called up to serve in the Ukrainian armed forces – while businesses operating in the shadow economy do not face such additional costs. There is a sense that we pay too high a price for our ethical business practices. On the other side of the coin, the devaluation of the national hryvnia currency over the past two years has created new opportunities for international business, serving to attract foreign investors looking to export from the country.

How has the current challenging and dynamic environment in Ukraine affected attitudes towards the country among potential Danish investor companies? Many of the Danish companies that I am in contact with have opted to switch to ‘standby’ mode. The mood is one of ‘wait and see’. Others

About the interviewee: Lars Vestbjerg is the President of the Danish Business Association

have chosen to enter other emerging markets in eastern and central Europe. Nevertheless, I also have the impression that many of the foreign companies that are already present in Ukraine – including Danish companies – are investing and developing bigger and bigger projects a present. There are also signs that the negative impact of the east Ukraine conflict on international perceptions may actually be in decline. The international media appears to have long since lost interest in the conflict and turned its attentions elsewhere. This makes a big different to the way Ukraine is viewed by outside audiences, including potential investors. More and more newcomers are contacting the DBA to inquire about market conditions. We regularly provide analysis about the current Ukrainian investment climate to these potential new investors. I am particularly encouraged by the strength of the Ukrainian IT sector, which appears to be very stable and able to attract small and mediumsized companies.

denmark in ukraine

many inquiries have related to the conflict in east Ukraine. I advise them to stay away from the conflict zone, register with the Danish Embassy and join the DBA. Others often want to know about the human resources available in Ukraine. They ask whether there are enough educated and skilled people. This is easy to answer: Ukraine has a highly developed education system and an extremely well educated workforce. It has been a centre of high tech and heavy industry for decades. No matter what sphere you are looking to enter, you will find the staff you need here in Ukraine.

Carlsberg Ukraine Named ‘Best Employer’ in Ukraine’s FMCG Sector Carlsberg Ukraine topped FOCUS Magazine’s Best Employer ranking in the Fast Moving Consumer Goods category

According to a poll published on the website of FOCUS Magazine, Carlsberg Ukraine received the most votes among respondents voting in the ‘Best FMCG Employer’ category. Organisers invited readers to participate in the poll and vote either for their current employer, if they were satisfied with working conditions, or for any other company they had heard positive feedback about from its employees. For the purposes of the poll, the organisers produced a preliminary list of companies from different industries. Categories included manufacturing, trade, agriculture, IT and telecoms, catering, pharmaceuticals and more. Last year, Carlsberg Ukraine also received recognition as one of the best employers in Ukraine – this time in the Capital 500 ‘Best Employers Rating’. It is also worth recalling that Marina Ivantsova, Vice President Human Resources at Carlsberg Ukraine, was included in the 20 leading HR Managers of Ukraine ranking according to a survey conducted by Delo.UA website in June of this year. Oleg Sorochan, editor of Money section of FOCUS Magazine: “The main purpose of the poll of the best employers in Ukraine among our readers was to determine who are regarded as the most attractive employers among the market leaders in various sectors of the economy. More than 6,000 Ukrainians voted in this year’s poll. Such a great response is indicative of the significant levels of interest people have in securing comfortable and well-paid employment. The poll results show that there are a lot of companies with good working conditions in Ukraine.” Marina Ivantsova, Vice President Human Resources at Carlsberg Ukraine: “By topping the FOCUS Magazine poll, our company has once again confirmed its status as one of the best employers in Ukraine. People are the main asset of the company, so we strive to provide employees with not only a competitive working environment, but also with opportunities for training, career growth and development. It’s nice to see that other Ukrainian businesses are increasingly focused on HR, thus earning recognition from their employees and future applicants for vacancies in their teams.”

December 2015

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Don’t Mention the War

Danish investor Thomas Sillesen: there is so much more to Ukraine than geographically limited conflict Veteran Danish entrepreneur Thomas Sillesen could be forgiven for feeling somewhat cynical about investing in Ukraine. Together with his partners at Danish engineering company BIIR, he opened a Ukrainian office in Luhansk in 2013. Within a year, the city had become the centre of a Russian-backed separatist uprising, leaving his original business plans in disarray. Rather than bemoan this bad luck, Mr. Sillesen relocated his entire team to Odesa and set up an office in the Black Sea port city. He is now hoping to expand the company’s Ukrainian engineering outsourcing services in the coming year and double his Ukrainian staff, with additional plans to branch out into other sectors of the Ukrainian economy such as energy efficient residential construction. This resilience is rooted in the firm conviction that Ukraine has a crucial role to play in the future development of the European economy and offers greater growth potential than any other regional market. Mr. Sillesen argues that today’s Ukraine is a land of opportunity for investors who are prepared to look beyond the negative headlines of conflict with Russia. Business Ukraine magazine caught up with the Danish businessman in Kyiv and asked him why he remains bullish about Ukraine’s potential at a time when many investors continue to sit on the sidelines. You provide engineering services for many of the biggest industrial groups in Denmark and outsource some of this work to your Ukrainian office. How do you address any security concerns your customers may have about working in Ukraine? “I try to explain how geographically restricted the conflict in Ukraine is. If we were sitting in Warsaw and there was fighting taking place in Rotterdam, would we be concerned? I don’t think so. The distances are similar in Ukraine. Once they learn about the size of the country, our customers gain a sense of perspective and realize it is not dangerous to operate in Ukraine.” You have spoken critically about media-generated perceptions of Ukraine as a war torn land and argued that Ukrainians should do more to emphasize what the country can offer rather than dwelling on the confrontation with Russia. Is now the right time to shift attention away from the conflict in east Ukraine? “It is a challenging situation because on the one hand, Ukraine clearly needs to keep the conflict in the public eye in order to maintain support from in-

ternational partners like the European Union. On the other hand, there is so much more to Ukraine than the conflict in the Donbas and the occupation of Crimea. Sitting here in Kyiv, the only indication we have that there’s a war on is the occasional billboard featuring a soldier. Other than that, Kyiv is like any other major European city – maybe even cooler than most. This is the message that Ukraine needs to get out to global audiences. Focusing on the conflict or on other negative aspects of the confrontation with Russia is actually counterproductive. Putin may be a bully, but if you focus solely on this message then those who agree with you will merely have their opinions confirmed, while those who disagree will not change their positions. The majority of people, most of whom are somewhere in the middle, will simply be bored by yet more talk about Putin. They will lose interest in Ukraine. This is why it is much more important to stress the positive stories coming out of Ukraine. This is a very cool country – far cooler than many Ukrainians seem to appreciate. I have travelled all over the world for decades and my time in Ukraine has been some of the most fun I have ever had.” Based on your experience over the past two years of operating in Ukraine, how confident are you that the country will be able to make the transition towards greater European integration? “The conflict has actually created reform opportunities because it has burned bridges between Ukraine and Russia, forcing Ukraine to turn decisively to the West. The support the West provides comes together with obligations to reform. The results of these reform processes are not always immediately visible, but we are beginning to see signs of major change. The latest official statistics are already indicating a return to economic growth. I think this trend will only get stronger and stronger. I am probably more optimistic about Ukraine than most Ukrainians. I think this is a fantastic chance to create a better country. What’s happening in Ukraine at the moment is by far the biggest geopolitical event since the fall of the Berlin Wall. Here we have a population fighting for a better life, and we can help them get there.”

Your Ukrainian office focuses on engineering outsourcing work. How competitive is Ukraine in this sector compared to outsourcing powerhouses such as India and China? “We were initially cautious about defining Ukraine’s outsourcing advantages ourselves, but one of our customers actually did it for us. They informed

“I am probably more optimistic about Ukraine than most Ukrainians. I think this is a fantastic chance to create a better country. What’s happening in Ukraine at the moment is by far the biggest geopolitical event since the fall of the Berlin Wall.”

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denmark in ukraine

Thomas Sillesen (second left) pictured in Odesa with Danish and Ukrainian colleagues us that based on their research, they could confidently outsource low complexity tasks to India and China, while medium and high complexity tasks could be handled in Ukraine, and very high complexity tasks needed to be addressed in Denmark. In other words, they found that our Ukrainian office offers virtually the same skill levels as we can in Denmark. As well as these professional skills, cultural affinity is also important, as is the mundane but relevant factor of compatible time zones. It is awkward to work with people on the other side of the world who are going to bed as you are waking up and vice versa.” Many outsourcing companies emphasize Ukraine’s cultural affinity and close proximity to the EU as one of the county’s main selling points. How straightforward has it been to establish a professional dialogue between your Danish and Ukrainian colleagues? “In terms of professional knowledge, we soon found that our Ukrainian engineers were every bit as technically skilled as their Danish counterparts. What they lacked was the irreverent Danish attitude towards company hierarchies and the ability to ask awkward questions. Questioning things is crucial to the Danish business approach – it is one of the ways we are able provide our customers with innovative approaches. Our Ukrainian staff took some time to get used to this concept, but now they are completely comfortable with the idea of voicing their opinions and have become ideal employees. People considering Ukraine as an outsourcing option need to disregard the classical business school approach and stop focusing exclusively on traditional elements like costs. A good new outsourcing project is not only about balancing budgets but also about getting the right people. If you go to Ukraine, you will get the right people – highly motivated, loyal, and skilled staff. Finding the right December 2015

team is more important than figures on a balance sheet. I can say with confidence that our Ukraine team is outstanding. It is by far the best office in our company.”

In addition to your engineering presence in Ukraine, you also have plans to expand into the fledgling energy efficient housing sector. Why have you identified this specific niche as an investment opportunity? “The growth of the Ukrainian energy efficiency sector over the coming decade is going to be crazy. There is massive demand and there are huge potential gains to be made. A more energy efficient approach will reduce energy dependence on Ukraine’s neighbours, while the country will also become richer due to reductions in energy wastage. It will be a challenging transition period for some people, but there is also great potential to benefit from the experiences in this sphere of Denmark and other European countries. Instead of starting at the bottom, Ukraine has the opportunity to join the European learning curve.” There is widespread recognition that foreign investment has a crucial role to play in Ukraine’s integration into the European economy, but FDI has actually decreased in many sectors since the Euromaidan Revolution. What is your message to European investors who are unsure whether now is the right time to enter the Ukrainian market? “This will be a top place for European business in the future. We can see from the Polish model how their standard of living has dramatically improved since setting out on the road to European integration. The potential for growth in Ukraine is arguably even greater thanks to a great work ethic, high levels of education and the resources of the country. Most of all, you have a population here in Ukraine that wants change.”

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Ukraine leads region in LEGO learning

Iconic Danish toys prove valuable classroom aids for Ukrainian kindergarten teachers Since LEGO first began manufacturing building bricks for children in 1949, the company’s distinctive produce has found its way into every corner of the world. Today, you can also find the iconic Danish construction toys in a growing number of Ukrainian kindergartens, where they play an innovative role in promoting teambuilding and other essential skills among the next generation of Ukrainian school kids. LEGO kit first began appearing in Ukrainian classrooms in 2010, when the country launched a ‘play-based learning’ project via a joint Memorandum between the LEGO Foundation and Ukraine’s Ministry of Education. The project initially covered three kindergartens and three primary schools in Kyiv. It has since grown to incorporate a total of 63 kindergartens in Kyiv, Dnipropetrovsk, Odesa, Kharkiv and Lviv. Further expansion will see an additional 55 kindergartens joining the programme in early 2016. More than 24,000 Ukrainian children have so far participated in the project, with this number set to rise as the initiative grows in the coming year. Participating kindergartens or preschool institutions receive free LEGO DUPLO Play Boxes and LEGO Play Boxes from the LEGO Foundation, while teachers are provided with training to help them understand the power of play and integrate the bricks into their daily educational routine LEGO

Foundation Programme Manager Oksana Roma explains that the key goal of the project is to encourage kids to develop social interaction skills at an early age. “The project is designed to promote teamwork, communication, empathy, and creativity. We want to empower children to become creative and engaged lifelong learners. In the meantime, LEGO serves as a tool to help improve literacy and numeracy skills of children” she says. When Business Ukraine magazine paid a visit to Kindergarten 655, located deep in Kyiv’s Left Bank residential regions, the kids certainly seemed to be enjoying the process of interacting with each other through LEGO. They performed a number of tasks in teams and in tandem, enthusiastically recreating constructions put together by teachers and demonstrating initiative to build their own variations and complete a range of tasks. The project benefits from the LEGO Foundation’s provision of kit and educational expertise, but it is ultimately dependent on teachers to implement it in the classroom. Ms. Roma confirms that the Ukrainian teachers engaged in the project have shown a particular aptitude for adapting and developing aspects of the project to the local environment, while also thriving in an environment that allows them to seize the initiative in ways at odds with the prevailing post-Soviet mindset of strictly regulated teacher-pupil interaction. Galina

Technical Studios for Future Engineers

Malevich, who is a teacher at Kyiv’s Kindergarten 655 as well as being the LEGO Foundation’s ‘Master Trainer’ for other teachers in the Ukrainian capital, concurs. “Before, we were used to much more rigid systems and educational approaches. The LEGO Foundation project has introduced more freedom for both teachers and children. It has helped foster a sense of initiative. The children develop problemsolving skills, gain in confidence, and become much more communicative with each other,” she says. While the LEGO Foundation also runs similar ‘play-based learning’ initiatives in South Africa and Mexico, much of the curriculum present in Ukraine has been developed locally with direct input from Ukrainian educators. As a result, the country has become a regional flagship for LEGO’s educational initiatives, with other CEE nations now looking to gain inspiration from Ukraine’s success. In September 2015, a delegation from LEGO Hungary spent time studying the educational programmes introduced in Lviv kindergartens, while LEGO’s Polish office is also looking to build on Ukraine’s educational experience. The Kyiv teachers engaged in the initiative are excited by this international attention and proud that it is showing the country in a positive light. “We’re happy to providing our colleagues in the region with inspiration. It is good for Ukraine’s image,” concludes Ms. Roma.

Ukraine boasts the world’s only network of LEGO technical studios where preschool to college age kids can explore engineering, architecture, robotics and design via LEGO kits and unique curriculums. The ‘Inventor’ Learning Studios initiative, based on LEGO Education sets, began with the opening of the first studio in Kyiv in 2009. It has since grown to include 11 studios nationwide, with five in Kyiv and the others split evenly between Dnipropetrovsk, Kharkiv, and Lviv. More than 5000 kids are engaged in the initiative now. The skills they learn have direct practical application, not least thanks to ties developed with Kyiv’s National Architecture University. While some go on to develop their skills at undergraduate level, others maintain ties with the studios, becoming tutors to the next generation themselves. 22

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denmark in ukraine

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December 2015


8 Years of Ukrainian History n Politics: Anyone looking to take the pulse of Ukrainian democracy needs to look beyond the bright lights of the capital n n  Industry: Outdoor sector leading advertising market upswing n Interview: Walid Arfush on the need to shake up state TV n 

n Politics: As President Yanukovych consolidates grip on power is Ukraine’s fledgling democracy strong enough to survive? n n  Real Estate: New re-registration process eases developer concerns n Franchising success of Ukraine’s pop art pizza king n 

Volume 4, Number 3 March 2010

Volume 4, Number 4 April 2010

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www.bunews.com.ua

VICTORY

wanted:

green shoots

Russia’s regional resurgence receives a fresh boost on the eve of Victory Day celebrations as Ukraine’s new government agrees to 25-year Sevastopol lease extension in return for cheap gas supplies

With a new government in place in Kyiv and international markets finally showing signs of modest growth will spring 2010 bring with it evidence of a Ukrainian economic recovery?

CHAMBER

NEWS

The Chamber Newsletter is produced in association with:

CHAMBER

NEWS

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

September 2011 www.bunews.com.ua

November 2014 www.bunews.com.ua

SPECIAL ISSUE: LVIV IN FOCUS CONECTING TO THE EU MAINSTREAM CITY BRACES FOR EURO 2012 DEBUT LEMBERG CHIC: LVIV FASHION WEEK INTERNATIONAL AIRPORT ON ARRIVAL BRAIN OF UKRAINE: TRY OUR PUB QUIZ

LURE OF LEOPOLIS MONT WANTED: EURO RE ‘European’ in hailed as the most New parliament this EU integration optimism? entary Elections: justify 2014 Ukrainian Parliam- will the new intake of MPs the country’s history

Also inside: Monthly American Chamber of Commerce in Ukraine Newsletter

Also inside: Monthly American Chamber of Commerce in Ukraine Newsletter

Chamber News is supported by:


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

Reigniting the Flame of Hope Andy Hunder, President of the American Chamber of Commerce in Ukraine

Joe Biden gave a historic speech to Ukraine’s Parliament on December 8. Vice President of the United States urged Ukrainian MPs to act decisively in reforming the country. Biden spoke mostly about the courage of the Ukrainian people, their unquenchable thirst for dignity, decent living conditions, genuine respect, to which every human being on planet Earth is rightfully entitled. He frequently used the words of faith, such as “hope” (10 times), “future” (9 times), and “opportunity” (8 times). Not surprisingly, the word “corruption” was pronounced even more – 11 times. Apart from political turbulence and Russian intervention, corruption is number one threat to Ukraine’s sustainable growth. Joe Biden assured MPs that Ukraine is not alone in the struggle against corruption: “You have the unwavering support of the United States of America and the American people -- including nearly 1 million proud Ukrainian Americans...” 2015 Chamber Official Service Providers:

December 2015

In early November, AmCham presented the results of the Corruption Perception Survey. According to the poll, the majority of business representatives haven’t noticed any significant progress in the light of fighting corruption since March, 2014. Most business leaders believe that the absence of political will is the key obstacle to eliminating corruption. Despite the lack of tangible results to date, reform in anti-corruption realm is happening. Specialized state bodies (National Anti-Corruption Bureau of Ukraine, National Bureau of Investigation) have now been set up, The Chief anti-corruption prosecutor and detectives have been appointed. Joe Biden fairly admitted, that “It’s not enough to set up a new anti-corruption bureau and establish a special prosecutor fighting corruption. The Office of the General Prosecutor desperately needs reform. The judiciary should be overhauled… Oligarchs and non-oligarchs must play by the same rules.” The American Chamber of Commerce in Ukraine has constantly stressed the importance of judicial reform, as well as the need to decrease red tape and further deregulate the Ukrainian economy. We acknowledge that corruption is a multi-faceted problem and many aspects of it should be taken into consideration. To combat corruption in the financial sector Ukraine has to ensure transparency in tax collection and budget spending. This year, Ministry of Finance of Ukraine introduced VAT electronic administration and E-data portal that facilitates

public control over national financial resources. Moreover, state bodies now actively use ProZorro, new era platform for equitable procurement. ProZorro significantly cuts the price of products and services. Greater transparency, achieved with the help of modern technology, has brought a saving of 2 billion hryvnyas to the state budget. Our recent corruption perception survey shows that 51% of respondents are optimistic about the prospects of anti-corruption fight in 2016. To date, establishment of Police Patrol Service is named the biggest success in this area. “We’ve taken so many critical steps already. But all of you know there’s more to do to finish this race. Not enough has been done yet.” – noted Joe Biden, recognizing certain progress. As long as Ukraine keeps pressing forward, it can rely on Western support. The US plans to commit approximately $190 million in new assistance to support Ukraine’s ambitious reform agenda. We asked Ukrainian businessmen what should be done to tackle corruption in Ukraine. Most respondents (72%) advised to replace the entire staff in the most problematic governmental bodies. Second popular solution is about providing proper compensation to public servants. Nearly half of pollees emphasized the importance of stricter punishment. Closing his public address, Joe Biden motivated Ukrainians to seize the opportunity: “It may be your last moment. Please for the sake of the rest of us, selfishly on my part, don’t waste it… Build a better future for the people of Ukraine.”

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2015

THE YEAR IN REVIEW Decommunisation Law Targets Soviet Past Saakashvili in Odesa • FALL OF DONETSK AIRPORT

BLOCKADE OF CRIMEA • Novorossia cancelled EU VISA-FREE BREAKTHROUGH • Jaresko

Secures Debt Restructuring

Ukraine qualify for Euro 2016 • MINSK II PEACE PLAN 3G LAUNCH SHAKES UP TELECOMS SECTOR • Debaltseve withdrawal

HYBRID WAR • Klitschko Loses Heavyweight Title IT Sector Boom Continues UKRAINE-CANADA FREE TRADE DEAL

• George Soros Invests in Ukraine

• KHARKIV REELECTS MAYOR KERNES

Patrol Police Become Social Media Sensations • Dnipro Reach Europa League Final

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Former Georgian President takes on Odesa role and emerges as national anti-corruption crusader The most daring appointment of 2015 in Ukraine was undoubtedly President Poroshenko’s decision to place Mikheil Saakashvili as Governor of Odesa Oblast. Mr. Saakashvili’s appointment was announced at the end of May, and he has rarely been out of the national headlines ever since. His achievements on the ground in Odesa have been modest, but his impact on Ukrainian politics has been disproportionate when compared to his theoretically limited regional role.

2015 in review

Saakashvili becomes Ukraine’s most popular politician

Campaigning against continued corruption

Over the past half year, the Georgian has launched a one-man crusade against continued corruption among the Ukrainian political elite. He has repeatedly named names and confronted many of the most senior figures in the government - notably Prime Minister Arseniy Yatsenyuk. This combative approach has proved hugely popular with the Ukrainian public. Opinion polls have regularly positioned Mr. Saakashvili as the country’s most popular – or perhaps least -hated – politician. His popularity has withstood a barrage of assaults – both from unfriendly Ukrainian media controlled by forces allied with his political opponents, and from Russia. Mr. Saakashvili is regarded as one of Vladimir Putin’s most outspoken personal enemies, and the Russian leader has been predictably withering in his criticism of the Saakashvili role in Ukraine. Closer to home, those targeted by his anti-corruption accusations have sought to undermine his credibility, with frequent references to the abuse of office charges he faces in his native Georgia. None of this seems to have made any discernable impact on Ukrainian public opinion. At a time when Ukrainians are desperate for change and eager to see signs of an end to the deep-rooted corruption of old, Mr. Saakashvili has emerged as the one politician who says what the majority of the country is thinking. His perceived lack of involvement in the institutionalized corruption schemes that characterize the oligarchic Ukrainian political model has also helped to boost his credibility among ordinary Ukrainians. Unlike most of the Ukrainian political elite, Mr. Saakashvili does not have the shadow of great personal wealth hanging over him, forcing opponents to resort to petty smears and sexual innuendo instead.

Ukrainians reject xenophobia

The Georgian’s popularity stands as testament to Ukrainian multicultural tolerance and serves to undermine attempts to portray the country’s post-Euromaidan national awakening as a xenophobic lurch towards extremism. Various attempts to demonize Mr. Saakashvili as a foreigner have led to widespread condemnation – so much so that those questioning the Georgian’s right to meddle in Ukrainian affairs have been forced to publicly backtrack. Mr. Saakashvili is just one of a number of foreigners to have been granted Ukrainian citizenship and appointed to high office since the Euromaidan Revolution. As a former head of state, he is by far the most high profile member of Ukraine’s foreign legion. He has used this status to great effect throughout the second half of the past year. December 2015

Will Saakashvili become PM? What does 2016 hold for Mr. Saakashvili? Ever since his appointment as Odesa Governor, pundits in the Ukrainian capital have openly debated his next move – presumably to a senior government position in Kyiv. His Odesa role is widely regarded as a stepping stone and a way of introducing him into the rough and tumble of Ukrainian politics. It is only a matter of time, most believe, before he is appointed to a ministerial position, or perhaps even takes Arseniy Yatsenyuk’s place as Prime Minister. Many are even surprised to find him entering the New Year still based in the Black Sea port city at all. Talk of a switch to Kyiv may still be premature. Ukraine’s US and EU partners have both made their preference for Ukrainian governmental stability clear, while the removal of PM Yatsenyuk would almost certainly spark fresh parliamentary elections. This means that immediate changes at the top table of Ukrainian politics are probably not on the cards. Instead, Ukraine’s priority must be a period of relative stability that will allow reforms to take root.

Anti-corruption party expected

In line with this scenario, Mr. Saakashvili will likely spend early 2016 in Odesa. He will continue to act as an anti-corruption crusader, and will continue to build up his own political base in the country. Work on a Saakashvili-eld political party already appears to be well underway, and there can be little doubt that he would poll strongly in any preterm parliamentary elections. He can probably count on the support of numerous MPs within the recently formed anti-corruption faction of President Poroshenko’s parliamentary party, while he is likely recruit a range of fresh faces from business and civil society if he does indeed establish a distinct reformist party. Mr. Saakashvili’s appointment of 26-year-old Yulia Marushevska in autumn 2015 to head the Odesa Customs Service was a clear indication of his attitudes towards personnel issues. Ms. Marushevska has no experience in public administration but is a Western educated and media savvy figure untainted by corruption – exactly the kind of candidate Mr. Saakashvili will seek if, as expected, he forms his own political party in the coming year. 31


Ukraine meets targets for visa-free EU travel European Commission backs visa-free access for Ukrainians but hurdles remain amid immigration fears

The European Union’s executive body, the European Commission, gave Ukrainians an early Christmas present in December 2015 by officially backing plans to end visa restrictions on Ukrainians within the EU’s visa-free Schengen Zone. In order for the decision to become law, it now requires the backing of the European Parliament and each of the EU’s 28 member states. The confirmation process is expected to last between four and seven months, and comes without any guarantee of successful conclusion. However, the announcement of European Commission support means Ukrainians will in all likelihood secure visa-free travel at some point in summer 2016. The European Commission stamp of approval came following a painstaking process that had seen Ukraine meet a long list of reform criteria in order to qualify for visa-free access. Numerous points on the reform checklist have yet to be fulfilled by Ukraine, but officials in Brussels decided in late 2015 that enough had been done to warrant recommending an end to visa restrictions.

End of the informal iron curtain?

News of the visa breakthrough was greeted with jubilation by many in Ukraine. President Poroshenko has made visa-free travel one of the symbolic cornerstones of his European integration strategy, arguing that visa-free access would provide ordinary Ukrainians with tangible evidence that the losses and sacrifices of the past two years have not been in vain. Visa restrictions have long been 32

a sensitive issue for Ukrainians, with relatively high rejection rates, tough administrative requirements, and degrading application processes leading many to complain about the continued existence of what amounts to an informal iron curtain. Ukrainian access to the rest of Europe has actually deteriorated since the collapse of the original iron curtain in the early 1990s. The expansion of the EU in 2004 and the subsequent growth of the Schengen Zone in 2007 meant Ukrainians faced growing difficulties even when travelling to neighbouring former Warsaw Pact countries.

Bad timing

The timing of Ukraine’s visa breakthrough is unfortunate to say the least. EU member states are currently engaged in a heated debate over immigration sparked by the 2015 influx of approximately one million refugees from war torn Syria. The Syrian refugee crisis has exasperated an already tense situation that has been steadily escalating since the start of the Arab Spring and the collapse of border controls in Libya in 2011. With European leaders under unprecedented pressure to stem the flow of immigrants from Africa and Asia, a lively debate can be expected over the desirability of granting an additional 45 million Ukrainians visa-free access to the EU. These immigration concerns are unavoidable but arguably misplaced. The visa-free terms being proposed for Ukraine will not include residency, social security or employment rights, meaning that any Ukrainians who wish to remain within the EU

beyond the 90-day visa-free limit would have to do so illegally. Ukrainians prepared to live under such conditions within the EU are either already doing so, or would likely be able to find other ways of achieving entry into the Schengen Zone.

Easy access would strengthen EU ties

The advent of visa-free travel would have farreaching implications for Ukrainian society. Greater access will break down cultural barriers and help to familiarize millions of Ukrainians with modern European standards while undermining the anti-EU myths and stereotypes promoted by Russian and pro-Kremlin media. Ukrainian businesses would also benefit from the ability to attend meetings, forums and trade events without having to go through the timeconsuming and bureaucratic process of applying for a visa. This easy business access is particularly important given Ukraine’s free trade agreement with the EU and the need to develop new commercial relationships. The benefits of visa-free EU access are also expected to stretch beyond the European Union itself. President Poroshenko has voiced hopes that the advent of visa-free travel to the European Union will lead to similar easing of visa barriers facing Ukrainians in a number of other countries. The Ukrainian leader cited South Korea and Mexico as examples, while also speaking of possible talks on visa liberalization with America, Canada and Australia. www.bunews.com.ua


Law enforcement revolution offers first street level evidence of post-Maidan reform process Ever since Ukraine gained independence in 1991, the country’s law enforcement agencies have consistently ranked bottom in surveys of public confidence. For many if not most Ukrainians, the nation’s police officers were nothing less than symbols of corruption. These overwhelmingly negative perceptions make the success of Ukraine’s new Patrol Police all the more remarkable. The Patrol Police service was first unveiled in Kyiv in summer 2015, with subsequent launches in a range of Ukrainian cities. There are currently over 4,000 patrol officers operating in Ukraine. By mid2016, this figure will rise to 16,000 patrol police officers covering every oblast in Ukraine, including Donetsk and Luhansk. They have replaced the country’s widely discredited traffic cops – long seen as the most corrupt of all Ukraine’s law enforcement agencies. The Patrol Police initiative has received considerable support from Ukraine’s international partners, with America taking a leading role in providing trainers drawn from within the U.S. police force. Recruits have received significantly higher salaries than their predecessors, along with a daunting mandate to serve as the public face of the new Ukraine.

From corrupt cops to selfie stars

The public response to the Patrol Police service has been emphatically positive. Whereas Ukrainians used to joke that the only people to avoid late at night were the police themselves, the officers of the new service have found themselves in demand for selfie photos with members of the public. Stylish uniforms have contributed to this popularity, as has a recruitment policy that seems to have emphasized youth and physical fitness alongside more traditional academic qualifications. The photogenic appeal of Ukraine’s new cops has also proved a big hit internationally, with the Patrol Police garnering more photo features and column inches over the past six months than any other aspect of the Ukrainian reform process in the international media. As well as looking good, the Patrol Police have also set a new tone in relations between law enforcement and members of the Ukrainian public. The emphasis during training has been firmly on public service, with particular attention paid to the kind of interaction that leads to mutual respect. This message seems to have resonated – since the launch of the Patrol Police, Ukrainian social media has been awash with personal accounts from people who have engaged with officers and found them to be polite, helpful and ethical – qualities that were rarely associated with the traffic cops they replaced. Initial surprise has since given way to respect. This has led to unprecedented levels of public confidence in the service, with surveys ranking the Patrol Police as by far the most trusted state body – no small achievement for a new institution that was basically rushed into service in an environment of national crisis. December 2015

New police force in 2016 Ukraine now aims to replicate the success of the Patrol Police as it overhauls the entire police service. The scale of the task is significantly larger, with officials looking to hire 130,000 new police officers to replace the existing force. This will require a vast recruitment and screening process, with former officers offered the chance of reapplying to join the new force and those accepted subjected to an extended trial period. Doubters continue to question whether Ukraine’s new law enforcement officers will prove any less corruptible than their predecessors, with cynics claiming that the changes are largely cosmetic. Nevertheless, the change in attitudes towards law enforcement that the launch of the Patrol Police has achieved is beyond question.

2015 in review

Patrol Police as the face of the new Ukraine

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Remembrance replaces totalitarian triumphalism Ukraine finally hits the right note with new WWII memorial holiday focusing on the victims Which country suffered the greatest WWII losses? Which country saw the most fighting during WWII? Which country fought the largest partisan independence war of WWII? Which country was to be the main component part of Hitler’s envisaged ‘Lebensraum’ empire? Which country gained the most territory from WWII? The answer to all these questions is – arguably - Ukraine. For over seventy years, this central Ukrainian role in WWII has remained almost completely unrecognized. For decades, the outside world was preoccupied with Cold War considerations, while the Soviets themselves adhered strictly to a collectivist approach. Until the collapse of the USSR, it was taboo for Communist historians to consider Ukraine’s WWII experience in isolation from the broader Soviet tragedy. Many academics still regard it as incorrect to speak of Ukraine’s WWII legacy, arguing that attempts to separate Ukraine from the rest of the Soviet Union are historically absurd. Nevertheless, the pivotal position of Ukraine as the main battlefield, chief victim, primary prize and major territorial beneficiary of WWII will cause future historians to ponder why nobody ever thought to call it ‘The Great Ukrainian War’.

2014 when it became the central narrative underpinning the Kremlin’s hybrid war in Crimea and east Ukraine. The Russian media portrayed Ukraine’s pro-democracy Euromaidan Revolution as a ‘fascist coup’, while the interim authorities in Kyiv were depicted as the heirs to Hitler. Posters promoting separatism in Crimea offered people a straight choice between the Russian flag and the swastika, while separatist forces in east Ukraine resurrected slogans from the fight against Nazism. This propaganda proved remarkably effective. Russians who flocked to fight the Ukrainian government openly spoke of emulating their Red Army ancestors, while far-left forces across Europe raised the alarm about an alleged ‘Nazi takeover’ in Ukraine. Even the symbol adopted by Putin’s proxy forces in Ukraine was borrowed straight from WWII. The orange and black St. George’s Ribbon worn by Putin’s unidentified hybrid troops in Ukraine is closely associated with the Soviet triumph over Nazism and has been actively promoted by the Kremlin for the past decade as part of a defiant modern-day victory cult designed to counter criticism of the USSR’s own crimes against humanity.

Anyone who wants to understand modern Ukraine must first confront the country’s staggering WWII inheritance. They must examine the many ways this monumental catastrophe changed the nation, and they must explore how Soviet-sanctioned attitudes towards WWII continue to shape people’s perceptions of what it means to be Ukrainian. Ever since 1991, echoes of WWII have served to shackle the nation’s post-Soviet search for an inclusive national identity. Meanwhile, the totalitarian choices of WWII have continued to haunt the Ukrainian political arena and polarize the population. Pro-European voices have routinely been labelled as fascists, while sacred relics of the fight against Hitler have been brandished to justify closer contemporary ties with the Kremlin and derail efforts to distance the country from the Soviet era. The result has been a never-ending series of memory wars that have achieved nothing except to distract the nation from the far more important task of actually building a functioning modern state.

Even before the adoption of Soviet WWII symbols by Russian-backed forces fighting in Ukraine, the continued prominence of the conflict in Ukrainian political dialogue had already served to make the annual 9 May Victory Day holiday a particularly awkward celebration. While the majority of Ukrainians take great pride in the defeat of Nazism, the holiday’s close associations with the Putin regime’s efforts to rehabilitate the Soviet Union and bolster Russian patriotism made many increasingly uncomfortable. In a bid to sidestep confrontation and distance itself from Kremlin-led Victory Day triumphalism, Ukraine introduced a new holiday in 2015 – National Remembrance and Reconciliation Day. The holiday, which was marked on the eve of Victory Day, came complete with a new symbol – the poppy. President Poroshenko positioned the move as part of broader efforts to leave Soviet dogmas behind and align the country with modern European traditions. The inaugural National Remembrance and Reconciliation Day saw a range of well-attended and poignant events across Ukraine. The gigantic Motherland monument in Kyiv served as the centerpiece for the holiday, receiving a giant poppy headdress to mark the occasion. While other attempts to distance modern Ukraine from Soviet tra-

Echoes of WWII

WWII used to promote Kremlin hybrid war

This exploitation of Ukraine’s WWII trauma reached a crescendo in

National Remembrance and Reconciliation Day

“Between the Bolshevik Revolution in 1917 and the death of Stalin in 1953, perhaps as many as fifteen to twenty million Ukrainians were killed by the Soviet and Nazi regimes. Ukraine was quite literally the epicenter of 20th century totalitarian terror.” 34

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2015 in review

ditions have provoked considerable social tension, there was widespread support for the move towards reconciliation inherent in the new holiday, with its overtones of national healing.

Remembering Stalin’s pact with Hitler

As well as switching the emphasis from military victory to remembrance for the victims of the conflict, the new holiday also pointedly referred to the dates of the conflict as 1939-45. This represents a complete departure from the Soviet practice of whitewashing Stalin’s 1939-41 alliance with Hitler and reducing the timeframe of the war to the 1941-45 conflict between the two competing totalitarian systems. Soviet histories generally chose to ignore the 1939 Molotov-Ribbentrop pact and the subsequent Soviet invasions of eastern Poland (today’s western Ukraine), Finland and the Baltic states. Instead, the Stalin regime was depicted as a victim of unprovoked Nazi aggression, while Ukrainians who collaborated with the invading Germans or fought both Nazi and Soviet forces were condemned as fascists and traitors. The reality of the choices facing WWII-era Ukrainians is far more complex than this black-and-white portrayal would suggest. Prior to the onset of Hitler’s Soviet invasion, Red Army forces in the newly occupied west of Ukraine had conducted a two-year reign of terror, executing thousands and deporting tens of thousands more. Meanwhile, the rest of Ukraine was still recovering from the 1930s Holodomor terror famine, an entirely manmade atrocity that claimed the lives of three December 2015

to five million rural Ukrainians. When viewed in this contemporary context, it is hardly surprising that portions of the Ukrainian population at the time may have viewed the invading Germans as the lesser of two evils.

Epicenter of 20th century totalitarianism

Ukraine’s 2015 decision to focus national WWII memorial events on the victims reflects a growing understanding of the country’s role as a hostage to the totalitarian regimes of Hitler and Stalin. In future years, this new perspective may yet evolve into a coherent narrative for the whole period, with Ukraine positioned at the epicenter of the entire totalitarian epoch of European history. Both Hitler and Stalin committed many of their worst crimes against humanity in Ukraine, leaving wounds that have yet to heal and changing the entire makeup of the country. The death toll will never be satisfactorily calculated, but between the Bolshevik Revolution in 1917 and the death of Stalin in 1953, perhaps as many as fifteen to twenty million Ukrainians perished. The scale of Ukrainian suffering in the first half of the 20th century defies comprehension, but this unrivalled totalitarian tragedy holds the key to understanding the challenges facing today’s Ukraine. The introduction of 2015’s National Remembrance and Reconciliation Day represented an important step along the road to national recovery, but far greater recognition of Ukraine’s totalitarian suffering is required before genuine closure can be achieved. 35


From Breadbasket of Europe

to Feeding the World

Agriculture Minister Oleksiy Pavlenko scores top marks for deregulation and market diversification The agriculture sector has been the Ukrainian economy’s undoubted star performer over the past year. Agricultural exports are up across the board, international investment is flowing into the sector, and industry insiders are full of praise for deregulation efforts that have significantly reduced both bureaucracy and corruption. Much of the credit for this progress must go to Agriculture Minister Oleksiy Pavlenko, who has applied his extensive business background to the post with immediate results.

Generational shift in Ukrainian politics

38-year-old Minister Pavlenko is part of the generational shift currently taking place in Ukrainian politics. A schoolboy at the time of the Soviet collapse, he is one of a new generation of Ukrainian leaders eager to play a direct role in the development of a nation that fits with their own European aspirations. As is the norm for the current crop of Ukrainian cabinet appointees, he is fluent in English and Western educated, having competed an MBA in the Netherlands. He also brings considerable private sector experience to his ministerial role, including a five-year stint with KPMG. Given his ministry’s outstanding performance and record results in 2015, Minister Pavlenko would be a strong candidate for ‘politician of the year’. He may not have the flare for self-promotion of Odesa Governor Mikheil Saakashvili or the headline-grabbing debt restructuring responsibilities of Finance Minister Natalie Jaresko, but in many ways, his contribution to the reinvention of the country over the past year has been more profound and far-reaching than that of any of his colleagues.

From activist to minister

As he prepared to mark the first anniversary of his appointment, Agriculture Minister Pavlenko sat down with Business Ukraine magazine to assess the results of his first 36

twelve months in office. Like many of the post-Maidan governmental intake, Mr. Pavlenko had never held office before stepping straight into a ministerial position. Asked whether he was concerned about his complete lack of prior governmental experience, he argues that it may actually have been

beneficial. “Not being overly familiar with the system as it was can be an advantage. It can help overcome obstacles by allowing me to look at things from a business perspective and bring things into line with the expectations of the business community.” Prior to his appointment as Agriculture Minister, he had been active in the Euromaidan protests and was part of the volunteer movement that sprung up in early 2014 to help provide for the underfunded Ukrainian armed forces. Ultimately, he says, it was his desire to help build a better Ukraine that persuaded him to swap the relatively cozy confines of the corporate world for the cutthroat challenges of work in the Ukrainian government. “It is easy to say that things are difficult or that the country is not moving in the direction we would want. I can recall so many occasions when I have spent time with friends, chatting in the kitchen about how bad things are. Now I have an opportunity to actually change something. This government represents a huge chance for the country.”

Deregulation helps defeat corruption

One of the key changes Minister Pavlenko has overseen in the past year has been the reduction in regulations governing every aspect of agricultural production and commerce in the country. Anyone with any experience of doing business in Ukraine will likely be able to share tales of how nonsensical and duplicate regulations have served as obstacles to business development and open invitations for corruption. The Agriculture Ministry has made significant progress in this regard during the course of 2015, cancelling a range of requirements on everything from veterinary

certificates to permit procedures. In a move that borrows from the successful launch of ‘Patrol Police’ services across Ukraine, a ‘Fish Patrol’ has also replaced the notoriously corrupt Fish Inspection Agency. Much like the Patrol Police, the new Fish Patrol relies on its young recruits to operate outside of the wellestablished corrupt schemes of the past. Minister Pavlenko is enthusiastic about the deregulation process, emphasizing that it has greatly reduced the scope for corruption within the agriculture sector. “According to industry estimates, we’ve managed to prevent corruption schemes worth UAH 12 billion related to sanitary controls alone,” he says. The removal or cancellation of duplicate regulations and unnecessary processes has also led to significant streamlining and helped to improve the business climate, leading to praise from various industry groups who have long campaigned for such measures. This process of deregulation will continue in 2016, with the removal of inefficient regulations in many cases taking place alongside the introduction of new regulations that are in line with EU standards. However, there are limits to the extent of the regulatory cull. “We will continue the process of cutting artificial regulations, but you can only deregulate so far before you start to pose a threat to the business environment,” Minister Pavlenko stresses.

European standards and world markets

The coming year will begin with the full implementation of the long-awaited EU-Ukraine Association Agreement. Agriculture is expected to play a significant role in the free trade dimension of this agreement, but critics have claimed that Ukrainian producers will continue to face severe limitations governing the volumes of agricultural produce they can export to EU markets. Minister Pavlenko recognizes these frustrations over the limits placed on Ukrainian agricultural exports, but stresses the broader advantages offered by www.bunews.com.ua


2015 in review

December 2015

37


the advent of the EU free trade agreement. He sees investment flowing into Ukraine as a direct result of the country’s EU free trade status, and argues that domestic food quality will also improve. Most of all, the implementation of the EU Association Agreement will open new doors for Ukrainian farmers across the world. “There are still lots of EU quotas in place, but for the first time we will have European certification for our exports, which opens up a range of additional global markets,” the Minister says.

New global markets for Ukrainian farmers

Global market diversification has been another of the key developments in the Ukrainian agriculture sector over the past year. The Kremlin’s widespread use of trade restrictions as a geopolitical tool in recent years has forced all Ukrainian industries to turn away from their traditional northern partner and search for new markets, but few have been as successful as the agriculture sector. Exports to Russia now represent just a few percentage points of Ukraine’s total agricultural exports, having fallen to a fraction of pre-Euromaidan levels. Minister Pavlenko says the agriculture industry is prepared for the imposition of a full Russian embargo and speaks with undisguised pride about the growing trade with partners such as Egypt, Saudi Arabia and China. Increased exports to China in particular have been widely cheered as one of the most strategically significant achievements of the past twelve months, paving the way for further inroads into this most attractive of national markets. Minister Pavlenko sees the breakthroughs of 2015 as merely the beginning of a grand expansion that will eventually see Ukraine take up its rightful place as one of the world’s leading agricultural superpowers.

Ukraine plays key role in global food security

Broader global trends would certainly seem to be playing into Ukraine’s hands, with growing populations facing increasing chal-

lenges to feed themselves at a time when the modernization of Ukraine’s famously fertile farmlands is increasing yields and boosting output. “At present, eight hundred and fifty million people on the planet are starving. According to the latest United Nations figures, the world’s agricultural exporters must double their exports by 2020 in order to meet growing demand. Ukraine can do it,” says Minister Pavlenko. “Ukraine is a crucial country for the food security of the planet. We are not just a breadbasket anymore, we are a food basket.” Selling Ukrainian agricultural goods internationally has arguably never been easier. Although the country’s reputation for agricultural excellence is not widely known beyond the borders of the former USSR, attitudes towards Ukrainian crops are positive and improving. As well as EU certification, Ukrainian agricultural producers are also able to offer the promise of organic non-GMO products. Minister Pavlenko identifies this non-GMO status as a key selling point for the country’s agricultural output. “We’ve been able to triple our exports to China thanks to this non-GMO branding,” he says.

Attracting the best of international investment Growing exports means growing foreign currency earnings. The inflows generated by Ukraine’s farm exports have provided the country’s struggling economy with vital foreign currency in 2015, with the agriculture sector responsible for 37% of total exports and over USD 8.8 billion in currency inflows. These positive indicators have helped boost confidence throughout the agriculture sector, leading to investments by domestic producers and international companies alike, despite broader concerns regarding Ukraine’s security prospects among many in the international investment community. “There are numerous positive signs,” says Minister Pavlenko. “Machinery companies are reporting increased sales during the autumn season. This shows that people believe in Ukrainian agribusiness. This year we have also attracted around USD 1 billion in international investment. The past year was the right time to invest in Ukrainian agriculture, and it is still a good time to invest,” he concludes.

“Ukraine is a crucial country for the food security of the planet. We are not just a breadbasket anymore, we are a food basket.”

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Networking events

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Kyiv Lions Club ended the year in style with the eleventh anniversary Presidentâ&#x20AC;&#x2122;s Gala Dinner. The evening was hosted in the ballroom of Kyivâ&#x20AC;&#x2122;s Hyatt Hotel. A total of USD 74,000 was raised for a range of Ukrainian charities focusing on children, the elderly, the handicapped, military hospitals and internally displaced people. The Kyiv Lions Club would like to thank all sponsors, particularly Kyivstar, Coca-Cola, Winner, Thomas & Adamson, The Macallan and Fred W. Finn.

December 2015

networking events

Kyiv Lions Club Gala Fundraising Dinner

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networking events

Kyiv Hosts Regional Real Estate Forum Real estate executives from across the region gathered in Kyiv on 25-26 November for the EEA Real Estate Forum co-hosted by the Ukrainian Real Estate Club and EuropaProperty.com. The event took place at Kyivâ&#x20AC;&#x2122;s riverside Fairmont Grand Hotel and offered focuses on the real estate markets in Ukraine, Belarus, Georgia, Kazakhstan, and Azerbaijan.

December 2015

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2015: the year the world woke up to Kremlin infowar Disinformation has proved an effective hybrid war tool for Russia but element of surprise is now lost Global audiences were totally unprepared for the information war unleashed by the Kremlin in early 2014. This resulted in a series of spectacular early successes for Russia, with an unexpectedly large number of international media outlets seemingly prepared to take Kremlin tales of ‘fascist Ukraine’, ‘oppressed Russian-speaking Ukrainians’, and a ‘CIAbacked coup’ at face value. At first, there was a sense of disbelief in Ukraine itself at the credibility the international press gave to these Russian narratives. Ukrainians had long been familiar with Russian attempts to portray their struggle for European democracy as a Nazi plot, but many had mistakenly assumed that such arguments would appear absurd to non-Soviet audiences. These assumptions proved misplaced. It soon became clear that declining faith in the mainstream Western media, combined with the popularity of internet-based anti-American and anti-globalist conspiracy theories, had created fertile ground for Russia’s counter-revolutionary version of events. A cocktail of factors ranging from the 9/11 Truther movement to the media role in the lead up to the Iraq War had combined to produce perfect conditions for a Kremlin information offensive. Nevertheless, the Kremlin’s initial gains have been subject to the law of diminishing returns. Russia’s MH17 disinformation efforts since July 2014 have been instrumental in undermining the initial successes of Moscow’s infowar. The Kremin’s brazen and often crudely bungled attempts to distort the MH17 investigation have forced millions of otherwise disinterested international observers to take Russia’s disinformation policies seriously, leading to a massive loss in credibility.

Disinformation and the hybrid war doctrine

With more and more outside observers encountering Kremlin media techniques, increasing numbers have begun to appreciate the sophistication of the current campaign and the implications for international information security. Slowly but surely, a picture has emerged of the premium position occupied by disinformation within the Kremlin’s hybrid war doctrine. It is no coincidence that when Russian forces seized Crimea and first marauded across east Ukraine in early 2014, the primary targets were often TV broadcasting towers. Over the past eighteen months, the ‘little green men’ doing the fighting in Ukraine itself and the so-called ‘Kremlin trolls’ invading the comment sections of Western media outlets have come to be seen as component parts of the same hybrid war effort.

Europe finally fights back

This realization has led to recognition of the need to respond. An international fight back of sorts has been gaining ground throughout 2015, with the sound bites of the previous year giving way to more concrete efforts. Rather than fighting propaganda with propaganda, attention has largely focused on the Herculean task of debunking the myriad myths and distortions promoted by the Kremlin. Many of the world’s most high-profile media outlets have produced detailed investigations into Kremlin disinformation strategies over the course of the past 12 months. As early as February 2015, the BBC reported, “Russian state TV’s coverage of the conflict in Ukraine does not simply contain onesided and often misleading propaganda. It also appears to employ techniques of psychological conditioning designed to excite extreme emo44

About the interviewee: Ukrainian journalist Margo Gontar is cofounder of Stop Fake tions of aggression and hatred in the viewer.” Other international media probes have focused on the activities of Russia’s so-called Kremlin troll factories, or the networks of Kremlin allies and agents tasked with inserting Russian talking points into the Western media debate. There have been numerous international forums and conferences dedicated to the Russian information war. Entire books have been published on the subject of Russia’s alternative reality media landscape – most notably UK author Peter Pomerantsev’s much praised ‘Nothing Is True and Everything Is Possible.” Retired Kremlinologists have suddenly found themselves back in demand. Institutions such as the European Union have also mobilized to debunk Russian disinformation. The most important development of the past 12 months has probably been the creation of the EU’s StratCom East initiative, which in November launched a weekly Disinformation Review that seeks ‘to show the European public the high amount of (Russian) disinformation attacks that target the European audience every single day.” The Disinformation Review is a small-scale operation involving a handful of fulltime staff working in tandem with a network of volunteer contributors. Even so, it still represents a significant departure from the EU’s traditionally cautious and offense-averse approach to relations with Russia. The willingness of the 28-nation bloc to agree to even this relatively minor counter-measure reflects the growing consensus beyond Russia that the Kremlin infowar poses an international threat.

Ukraine leads global infowar resistance

This shift in international attitudes towards the Russian infowar has been broadly welcomed in Ukraine, where efforts to debunk Kremlin propaganda date back to first days of the Euromaidan Revolution. As www.bunews.com.ua


West struggles to take infowar seriously

Ms. Gontar is a 27-year-old Kyivlanka and journalism graduate from the Ukrainian capital’s prestigious Mohyla Academy, which hosts the Stop Fake project. Like the majority of Kyiv residents, she is a native Russian speaker who finds Kremlin claims about the oppression of Russianspeaking Ukrainians baffling and infuriating in equal parts. She sees the EU’s new Disinformation Review initiative as a move in the right direction, but hopes that it is just the start of broader efforts to counter Russian disinformation. “It must be regarded as a huge step that they (the EU) are doing anything at all, after such a long period of inertia. It seems to take forever for those not directly affected by the conflict to respond. Part of the problem is explaining to people the danger of Russian fakes. They don’t necessarily take it seriously if they are not personally confronted by the results of this disinformation,” she says. Speaking in fluent and heavily British-accented English, Ms. Gontar expresses frustration over the slow speed at which the consensus-based democratic world often operates, but voices hope that the EU’s involvement is only the beginning. “I think there has definitely been a marked change in global attitudes towards Kremlin fakes since early 2014. It is an ongoing process and it is clearly going to take time to produce results. Now that it seems to have begun, hopefully it will develop a very strong momentum of its own.”

Russian imperial mindset

Debunking initiatives may help European audiences to recognize they are being systematically conned by the Kremlin, but such efforts are unlikely to lead to any dramatic changes in public attitudes within Rus-

sia itself. Support for Kremlin policy in Ukraine is sky high among the Russian public, while simplistic caricatures of captive and brainwashed Russian audiences fail to acknowledge the fact that there is no shortage of access to alternative news sources in Putin’s Russia. Ms. Gontar believes it is crucial to recognize that although the Kremlin exercises almost complete control over editorial decisions in the mainstream Russian media, the coverage this produces enjoys genuine popularity and is in many ways directly in step with public attitudes and expectations. Rather than setting the agenda, it plays on existing prejudices and exploits deeply entrenched worldviews. “All this talk of Ukrainian fascists is nothing new. It has been present in the Russian information space since the 1990s and has merely been given renewed prominence over the past two years,” she says. “The problem is not even necessarily rooted in attitudes towards Ukraine. It is really all about Russia’s imperial complex. The main difference between Russia and Ukraine is this imperial mentality. Ukraine is a victim of empire, whereas Russia is a victim of loss of empire.” She argues that this sense of historical injustice allows many in the Russian media to do things that they might otherwise find ethically unpalatable. “I get the impression that many people working in Russian state media see themselves as an extension of the Russian military. They seem to be motivated by a sense of mission and are imbued with the righteousness that comes from believing everyone is ganging up against them. On a psychological level, this probably helps them to suppress any doubts they may have about the credibility of their journalistic work.”

media

anti-government protests began to gain momentum in central Kyiv in December 2013, Russian TV crews reporting breathlessly about ‘neoNazi riots’ where awarded with plastic imitation Oscars by tongue-incheek Ukrainian activists. When Russian troops invaded Crimea in February 2014, these debunking efforts suddenly gained a sense of grave urgency. The most high-profile Ukrainian initiative to date remains the Stop Fake internet project. Launched during the early days of Russia’s Crimean invasion, it began life as a hastily constructed online resource designed to counter specific disinformation. Stop Fake has since expanded to include a range of platforms in different languages and popular weekly video roundups produced in both Russian and English. Business Ukraine magazine spoke to Stop Fake co-founder Margo Gontar about mounting international awareness of Russian disinformation policies, and asked her why she thinks Russian information strategies have proved so effective despite the mountains of evidence pointing to serious credibility issues.

Taking on the Kremlin media colossus

Stop Fake has built up a significant audience within the Russian Federation which Ms. Gontar says accounts for approximately one-third of all site visitors. Nevertheless, the numbers Stop Fake reaches pale into relative insignificance compared to the huge audiences enjoyed by Russian state TV. This poses significant questions over the effectiveness of such debunking strategies. Stop Fake videos regularly attract tens of thousands of YouTube views, but multiple millions watch the original fakes. Ms. Gontar accepts that proportionality is a problem, but says this does not discourage her in her work. “Even though we reach much smaller audiences, we are still making an impact. People often share our links. We are providing weapons for those who want to join the information war. The videos and articles we produce are evidence that can be used to confront those who defend Russian disinformation online.” Ultimately, she says she is also driven by her own sense of mission, along with the conviction that she is on the right side of history. “You need to have a sense of romanticism to do this work,” she explains. “If you are going to take on the colossuses of Russian state TV, you must believe that truth will eventually win.”

“The main difference between Russia and Ukraine is the imperial mentality. Ukraine is a victim of empire, whereas Russia is a victim of loss of empire.” December 2015

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Top five Kremlin fakes of 2015 Stop Fake’s Margo Gontar selects most memorable Russian media inventions of the past year Ukraine’s Hitler Banknote The Claim: On 12 January, Russian TV channel Rossiya 1 reported that Ukrainian political party Svoboda (‘freedom’) had proposed the introduction of a new 1,000 hryvnia banknote featuring a portrait of Hitler. The Reality: Apparently the source of this fake news story was a photoshopped banknote that was originally posted in the humour section of a Russian website. The fake was based on a genuine design proposal for a 1,000 hryvnia banknote – but the original design featured a portrait of Ukrainian author Panteleimon Kulish, not the German WWII dictator. Comment: The Russian media likes to depict Ukrainians as Nazi-style fascists and are clearly prepared to use any opportunity to do so – even when the source is clearly dubious.

France Condemns Turkey

The Claim: Russian news agency Sputnik reported on 27 November that French representative at NATO Jean-Baptiste Mattei had ‘harshly’ condemned the downing of a Russian Su-24 jet by the Turkish military. The Reality: Mattei himself refuted and mocked the Sputnik report. He commented on the official twitter page of the French Mission to NATO: “I discovered with surprise the article by the Sputnik news agency today, according to which I recently ‘made a harsh speech’ against Turkey. The remarks that Sputnik is attributing to me are pure fiction.” Comment: Twisting the words of foreign officials is a favourite trick of the Russian media. It was significant in this instance to see the official in question refute the comments attributed to him.

Tymoshenko Sexually Harasses Yatsenyuk

The Claim: On 22 October, Russian TV channel Zvezda posted a report on its website claiming Ukrainian Prime Minister Arseniy Yatsenyuk had accused Batkivshchyna Party leader Yulia Tymoshenko of sexual harassment. The story was attributed to an alleged interview given by Yatsenyuk to the Russian service of Radio France internationale (RFI). The Reality: The RFI Russian service immediately denied producing any such report and condemned Zvezda for making up the sexual harassment story and attributing it to RFI. Comment: This is an example of the way Russian media seeks to discredit Ukraine by belittling its politicians. Attributing stories to respected international media outlets is also a popular tactic designed to give Kremlin fakes added credibility.

American Missiles in Luhansk

The Claim: In July a number of Russian media outlets including Russia Today, Tass, Ria Novosti, Zvezda, and Sputnik News reported the discovery of American surface-to-air missiles in a Luhansk airport storehouse. The claims were based on a video of the alleged discovery. The Reality: This was a particularly poorly staged fake. The weapons had clearly not been manufactured in the U.S. and featured numerous spelling mistakes and other irregularities. Interestingly, some of the mistakes can also be found in the computer game Battlefield 3, suggesting that the fakers had created their ‘American’ missiles using the game. Comment: This was another transparent attempt to implicate America in the east Ukraine conflict.

Dead Child in Donetsk

The Claim: Russian TV channel NTV reported in April 2015 that a 10-year-old girl had died in Donetsk following Ukrainian artillery fire. The Reality: BBC journalists decided to investigate these claims and produced a detailed report. BBC reporters visited the local morgue, spoke to local residents and attempted to find any evidence of the deceased child. Eventually, they were able to speak to one of the Russian journalists who had reported the death. He told them that the girl did not actually exist and admitted they had been forced to report this fake story. Comment: Atrocity propaganda is a common feature of Russia’s Ukraine coverage. Such claims generate strong emotions and make it easier to demonize the Ukrainian military. 46

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Kyiv: +38 (044) 490 76 00 Lviv: +38 (032) 253 70 00 www.amcenters.com


Glossy diaspora publication celebrates anniversary

Ukrainian Chicago magazine seeks to entertain while serving as a flagship publication for U.S. diaspora Early 2015 saw the launch of a new glossy magazine targeted at the large Ukrainian-American population in the Chicago area. Ukrainian Chicago magazine is published by Chicago-based multimedia company VIDIA, which also runs the Ukrainian diaspora news outlet www.vidia.org. It offers a range of content including coverage of events within the diaspora community, articles on cultural and social issues, and interviews with prominent Ukrainian-Americans and friends of Ukraine. Ukrainian Chicago magazine began life in 2011 as a blog on the Chicago Tribune website before eventually launching as a stand-alone title. The magazine is a bilingual (English and Ukrainian) publication available in digital and print formats. Complimentary copies can be picked up at a range of distribution partners throughout the Chicagoland area, while magazines are also mailed out to subscribers across North America. According to the magazineâ&#x20AC;&#x2122;s publishers, the digital version has proved popular among international Ukrainian audiences, with an online readership concentrated in the U.S., Canada, Britain, Russia, Poland, Italy, Germany, Australia and Spain, as well as Ukraine itself. As the publication marks its first anniversary, Business Ukraine magazine spoke to co-founder Yuriy Figel about the concept behind Ukrainian Chicago magazine and his plans for further expansion in the year ahead. What role do you see Ukrainian Chicago magazine playing in the life of Chicagoâ&#x20AC;&#x2122;s Ukrainian dispora population? This is a publication the Ukrainian community has lacked for a long time. The magazine aims to facilitate tighter bonds between Ukrainian-Americans and new immigrants, between those who speak English and their Ukrainian-speaking peers. We also strive to promote Ukraine and the community via engaging stories and eye-catching design, as well as by organizing attractive events with A-list guests that everyone wants to attend. What kind of editorial balance do you aim to strike between cultural and community coverage versus political and historical commentary? We only write about interesting stuff and only cover exceptional

community events. If a story is engaging enough to retain the reader, whether it is political, historical, or cultural, we will consider writing about it.

Can publishing and media projects targeted at the North American Ukrainian diaspora be commercially viable? Let me put it this way - publishing targeted solely at the Ukrainian diaspora is not a commercial venture. It can be viable to the point where it covers some or the majority of the expenses involved, but it still requires ongoing funding from other projects. What has been the community response so far to the arrival of Ukrainian Chicago magazine? We have been thrilled and grateful for the amazing response to the magazine within the community! We received an enormous amount of positive feedback via email, phone calls, and social media. The publication has generated plenty of buzz in the media and on social platforms such as Facebook and Twitter. This is a clear and strong indication that we have hit a home run with our decision to launch this publication. How have the past two years of revolution and war in Ukraine shaped attitudes towards identity within the North American Ukrainian diaspora? The historic events in Ukraine have had an ob-

vious and unmistakable unifying effect on the Ukrainian diaspora. People have become much more active. They are proud of Ukraine and the Ukrainian people.

Will Ukrainian Chicago magazine seek to build ties with other Ukrainian diaspora communities in North America? Could there be further publications in the pipeline? The publication already caters to other Ukrainian communities in America. The magazine is an experiment to test the market for such products. If our experience reveals that strong demand exists, there may very well be further publications coming up. The Ukrainian Chicago magazine itself may also evolve into something completely different.

Do you see Ukrainian Chicago magazine playing a role in introducing Ukrainian culture and Ukrainian issues to audiences beyond the diaspora? Absolutely! This is part of our vision for this project. We are already reaching readers well beyond the Ukrainian diaspora and our feedback suggests they love exploring Ukraine and its culture by flipping through the pages of Ukrainian Chicago magazine. Weâ&#x20AC;&#x2122;d like to make this publication as interesting to our readership as possible, therefore any feedback is extremely valuable and we encourage our audience to engage with us on social media.

About the interviewee: Yuriy Figel (y.figel@vidia.org) is the co-founder of Ukrainian Chicago magazine 48

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Improving Ukraine’s investment attractiveness Legal sector can contribute to the ongoing reform process and help transform Ukraine in 2016 The current volatile situation in Ukraine generates major challenges for business. Prospective international investors are reluctant to fund the country’s economy, while existing capital providers are constantly facing difficulties associated with non-transparent, inconsistent, contradictory and mostly excessive statutory regulation, and, in some cases, absence of regulatory control whatsoever. The government is pledging to fully support measures intended to promote business development and bring in foreign investments. In particular, at a recent meeting with representatives of member companies of the American Chamber of Commerce in Ukraine and European Business Association, the Minister of Economic Development and Trade, Aivaras Abromavicius, stated that 84 of 201 excessive barriers to doing business have already been removed. The minister mentioned that the removal of 89 more barriers is underway, and the next stage will be a complete renewal of Ukraine’s regulatory base.

Reforming the regulatory system

Unfortunately, Ukraine still ranks as low as 83 in the World Bank’s Doing Business 2016 rating, despite certain progress compared to the previous year that saw the country climb 13 places. Ukraine’s investment attractiveness at a time of conflict and uncertainty represents a complex issue that may not necessarily be resolved by simply adopting a number of progressive legislative acts. Reformation of the country’s regulatory system is one of the major tasks for the government as it seeks to restart the economy and attract investments. It is essential to reduce the number of regulations, enhance regulatory efficiency, reduce budgetary expenditure for the state bureaucracy, and guarantee government protection of entrepreneurship and property rights in line with European standards and practices.

Promoting Ukrainian exports

The issues in need of most urgent resolution include creation of an adequate statutory framework for financing investment projects at interest rates compatible with international practice, and establishment of a domestic development bank along the lines of the experience in countries like Germany and Japan. Currently at the draft stage is the Draft Law “On Export Credit Agency” providing for the formation of a special authority responsible for insuring and financing export operations, which will help Ukrainian exporters to access foreign markets. If formed, such an authority will certainly facilitate the promotion of domestic products on world markets and increase their competitiveness. Another reliable tool for stimulating investments may be the development of Ukrainian industrial parks, which is a convenient mechanism to raise funds and create jobs. The Law of Ukraine “On Industrial Parks” has been in place since 2012, but it requires amendment to eliminate corruption barriers, incentivize local authorities, and apply the relevant experience of creation and management of industrial parks on terms favourable to investors in some of Ukraine’s European neighbours. In the current situation, it is crucial to create a legal platform for the implementation in Ukraine of the European regulatory model, which implies reduced regulatory and supervisory functions of central and local governments and, instead, greater business self-regulation, with an increased role for business associations, trade organizations, chambers of commerce and industry, and so on. 50

About the author: Armen Khachaturyan is Senior Partner at Asters, a leading Ukrainian full-service law firm with one of the longest track records on the country’s legal market.

Positive signs It is important to acknowledge that, notwithstanding the slow pace of reforms, some very important steps have already been taken. A recent example is the Law of Ukraine “On E-Commerce” signed by the President in late September 2015. For the last three years, this legislation had been the subject of extensive discussion. Although certain expectations of businessmen, lawyers and the public were not reflected in the final draft of the law, the mere fact of its adoption sends a positive signal to prospective investors and proves that the most advanced business methods are being implemented and supported by the government.

Key role for legal community

Ukraine’s legal community must become actively involved in improving the investment image of Ukraine. On the one hand, this may be quite efficiently done by constructive criticism of existing drawbacks and the drafting of better bills. It is worth emphasizing the efforts of many law firms under the auspices of the U.S.-Ukraine Business Council (USUBC) to prepare a White Paper containing recommendations on the improvement of statutory regulation in all areas of law. A second updated version of this important document has been finalized recently, and there is hope that it will serve as a set of guidelines for lawmakers and government officials responsible for making decisions. On the other hand, lawyers, especially practicing attorneys, must be proactive in keeping their clients and potential investors advised of those positive changes occurring in Ukraine’s legislative and regulatory environment. At Asters, we regularly update our English language brochure “Doing Business in Ukraine”, outlining the main features of Ukrainian law and explaining key regulatory developments. So much remains to be done to revive the Ukrainian economy. Lawyers need to take special responsibility since legal knowledge and expertise are crucial in reforming Ukraine’s business climate. This reform process will revitalize the country’s economy and secure the nation’s progress. We all know what should be done – the lawyers who joined the government in different positions, those who consult with governmental structures as outside advisors, mostly on a pro-bono basis, and those who are advising their clients regarding the best legal business practices. So let’s make it happen in 2016. Together we can contribute meaningfully to Ukraine’s success. www.bunews.com.ua


finance

Can Ukraine become a bitcoin bastion? IT-exceptional Ukraine could easily serve as a regional model for virtual currency innovation Today’s Ukraine has become home to one of the largest bitcoin communities in Europe, but the relationship between Ukrainians and the world’s first virtual currency is in all probability still in its infancy. Ukraine currently ranks among the top 10 countries in the world in terms of the number of global bitcoin nodes. Up to 25 of the 100 top bitcoin startups have what could be termed as Ukrainian origins, or feature a development centre here in Ukraine. As a result of these trends, Kyiv is already regarded by many as one of world’s top five crypto currency capitals. There is every indication that the Ukrainian love affair with the world’s most prominent virtual currency will only grow. Ukraine has great potential for bitcoin and blockchain technology development, thanks to the sheer number and quality of IT specialists and IT companies the country currently boasts.

Ukraine lacks bitcoin legislation

According to the relevant European Court of Justice ruling, bitcoin is a legal currency and all bitcoin transactions are VAT exempt. Bitcoin is already recognized as a commodity and a financial tool in most developed nations including the USA. At present, the virtual currency does not enjoy such official status in Ukraine. All we have are a series of rulings passed down by the National Bank of Ukraine. In Ukrainian legislation, bitcoin is not regarded as emoney but as something else, something new. There are no restrictions on the use of bitcoin, but there is a lack of tools available for Ukrainian companies looking to use the currency in their business. Thanks to this somewhat ambiguous status, bitcoin usage in Ukraine is largely restricted to individuals rather than businesses.

Ukrainian bank offers bitcoin acquisition service

However, times are changing. In the beginning of December, the largest bank in Ukraine – PrivatBank – announced plans to start a bitcoin acquisition service for all customers. It is the first bank in the world to embrace bitcoin in this manner, and bank officials state that they plan to offer the service both in Ukraine and throughout Europe. Meanwhile, on 13 December, Kuna Bitcoin Agency launched a crowd sale of crypto shares in the soonto-be-launched Ukrainian Bitcoin Exchange. The minimum required number of bitcoins were collected in less than five hours. These two examples highlight the high levels of interest in the bitcoin phenomenon amongboth Ukrainian consumers and financial sector professionals alike. They offer an indication of where the bitcoin market may well be heading elsewhere in Europe.

World’s hottest investment option? Bitcoin and blockchain – the technology underpinning the bitcoin virtual currency – are hot topics across the international media, financial and banking sectors. Many regard the sphere as the greatest global investment option in terms of percentage growth rates, and this has inevitably attracted the attention of some of the biggest players on the international market. The National Bank of Ukraine is no exception, with NBU experts taking a particular interest in blockchain technologies. This is very much in line with the general NBU interest in fintech innovation. Blockchain technologies might end up actually becoming bigger than bitcoin itself. More and more companies are investing in blockchain research and development, with leading finance nations including the UK government putting significant sums into the blockchain basket. Other financial sector giants such as Citigroup, Barclays and UBS are testing their own crypto currencies – a trend which highlights the interest in this technology.

Ukraine could be virtual currency leader

Ukraine has every opportunity to be at the cutting edge of this growing global blockchain and virtual currency revolution. Thanks to a weak local currency coupled with excellent IT resources and a population that is extremely open to innovation, the stage is set for a leading role if the right regulatory environment is established. It could serve as a tool for economic growth for the coming two decades, transforming the way Ukrainians do business and the way people perceive Ukraine on the international stage.

About the author: Michael Chobanyan is the founder of Kuna Bitcoin Agency and Bitcoin Foundation Ukraine

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Tel. +38 (044) 359 06 61 www.aimrealtykiev.com Email: contact@aimrealtykiev.com Chat aimrealtykiev https://www.facebook.com/aimrealtykiev • AIM Realty Kiev serves Kiev’s luxury and upmarket segments and specializes in high-end residential real estate for foreign clients • AIM provides a full-cycle of real estate services to tenants and buyers and owners and sellers, including long-term rentals and tenant search, property purchases and sales, property management, leased office space, facility and asset management • AIM’s founders are foreign professionals, who have over 15 years of real estate experience in Ukraine and the expertise to help you

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Kyiv apartment hunting guide Key issues to look out for if you are seeking to enter the Ukrainian residential property market There are a number of key questions every potential apartment buyer in the Ukrainian capital must ask. Is now a good time to buy an apartment in Kyiv because of currency devaluation? Are we near the market bottom? (Answers: yes for the savvy buyer, and yes, we’re probably approaching the bottom). Where to buy in Kyiv? What is the investment story for Kyiv real estate? (Many factors make residential real estate attractive, chief among them are the structural housing deficit in living space per person in Kyiv and that real estate is by far the most trusted asset class for the majority of Ukrainians.) And what will be necessary to restore Ukraine’s mortgage market? (Analysts don’t expect the market to revive in 2016 mainly due to the unstable hryvnia exchange rate and high interest rates, so cash sales will continue to represent nearly all of home purchases). All of this is helpful background information for those considering whether to begin a property search in Kyiv. In our real estate practice we’re often contacted by foreign buyers who have decided to buy something but are new to Kyiv’s market. While these buyers bring with them varying levels of knowledge. However, few are aware of the market’s many nuances. Below we’ve attempted to distill our experience into a brief Kyiv apartment hunting guide that will provide you with insight on some Ukraine-specific aspects of buying property here, especially the housing search and due diligence processes.

There’s no Soho in Kyiv

On the surface, the home buying process in Ukraine seems just as straightforward as in most Western countries, and many would-be buyers begin their search without engaging the services of a real estate agent. Usually during our first contact with buyers, we encounter people who are frustrated or confused – they are having trouble finding what they are looking for and advertised price information does not seem to make sense to them. Our initial conversations often start with educating the buyers about Kyiv’s neighborhoods. Many Western notions of what constitutes the city centre or downtown do not really apply to Kyiv. You will not find the equivalent of London’s Soho or New York’s Theatre district in the Ukrainian capital. There is a government district - leafy Lipki in Pechersk. Golden Gate is home to Kyiv’s unofficial diplomatic quarter. Sofiivska Square is the city’s most historic district, with many five-star hotels and government ministries, making it something like Washington DC’s Georgetown minus the shopping options. Podil is an upcoming and coming district that is popular with a young and artsy crowd. After introducing client to Kyiv’s neighborhoods, we help them understand the different

types of housing stock in Kyiv. We strongly suggest that foreign buyers avoid Khruschevkas, Brezhnevkas and other post-Stalin period Soviet buildings due to their size and poor construction quality. Instead, we encourage buyers to consider properties in Stalinkas and Tsarsky (Pre-revolutionary) buildings, which offer apartments that are usually spacious with quality construction. These solidly built buildings are clustered in the city’s central districts, and many pre-revolutionary buildings are historical monuments with original designs. Of course, not all buyers are looking for an older building. To those Western buyers who want to buy in a new building, we often spend considerable time explaining why despite the economic crisis in Ukraine, sale

prices for new buildings in Kyiv’s central districts remain higher than they would expect (this is due to strong local demand and a deficit of living space in the city). One specific note about lofts. Foreign buyers frequently ask us to help them find loft-style apartments. These are hard to find in Kyiv, and even though the city has many buildings that would be good candidates for loft conversions, this real estate product isn’t really being widely developed for Kyiv’s market – at least, not yet.

Navigating the Kyiv property market

Background briefings on neighborhoods and available real estate products help home buyers refine their search requirements, informing them about what exists on Kyiv’s market and what types of properties are within their budget, so they can begin or relaunch their property search. Screening properties in Ukraine that are advertised online is an art form in its own right that’s usually best practiced by locally-based real estate agents. There is simply no substitute for experience and local knowledge. Unfortunately, online property listings in Ukraine are a minefield filled with scams. Problems can include listed properties that are not available or listed at the wrong price, and often you’ll find fictional properties that are advertised just to gain a buyer’s contacts. In general, real estate information in Ukraine is fragmented and often incomplete. There is no such thing as a multiple listing service (MLS) along the lines of resources you’ll find in Western countries. This means that the property search process in Ukraine can take much longer than in more developed markets. When sorting through initial property search results we often advise clients to avoid already-renovated apartments as they are rarely suitable for Western tastes; such apartments often feature a heavy-handed Baroque ‘classic’ style and the materials quality used to renovate bathrooms and kitchens often leaves much to be desired. In most cases, it is preferable to find to find a fixer-upper or an unrenovated ‘shell and core’ option in a new building. It is also important to keep in mind that Ukraine is a low-trust society, which means that your real estate agent will often need to contact many people just to arrange a single viewing of a property. Often seller’s agents do not have access to a property’s keys without the owner

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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real estate

being present. This whole situation can create numerous headaches since many interested buyers will often want to view a property several times, and arranging each visit can often seem like trying to gain an audience with the Pope.

Ukraine-specific due diligence

After a buyer has selected a property for purchase, a home inspection report will often reveal any potential problems with an apartment’s infrastructure or construction, such as standard problems with water or electricity, including insufficient wiring to support the appliances of a modern home. These reports can also uncover things like the existence of original wooden floor beams in pre-revolutionary buildings and Stalinkas that can add to renovation costs since they would need to be replaced prior to any renovation. Alternatively, a buyer may discover that he is buying an apartment in a protected building (an ‘architectural monument’). This can also make renovations more complicated and expensive. Protected elements can vary from a building’s facade to its balconies, or even its interiors (for example, an apartment might have original ornate ceilings and so on). Other elements of the due diligence process for home buying in Kyiv are much more Ukraine-specific. Your agent should check that everyone has unregistered from the property. Ukraine has a ‘propiska’ administrative system under which residents must register their residency at a physical address. Often it is possible that someone registered at the property could be living abroad. All owners should sign off on a property’s sale. Multiple ownership can often exist as a legacy from housing privatization after Ukraine gained its independence and it is possible that an owner could be living aboard. We have also seen cases when.an owner was mentally incapacitated and lacking the ability to provide legal consent. There should be no liens or debt against the property, and all ownership documents should be in order. One example of a problem here is when the current owner is unable to prove December 2015

how he/she paid for the property. An apartment’s floor plan should in order. Like some other European countries Ukraine has a system of official registered floor plans--this means that additions and certain changes/renovations to a property must be registered in the official floor plan. Strange as it may seem, even changes to non-load-bearing walls must be registered. Privatizations of attics, ‘technical floors’, and other elements that have been added to a property must also be recognized in the official floor plan. Often floor plans must be brought into compliance prior to completing a sale.

Final words of advice

The search process for property in Kyiv can be exhausting and the due diligence process must be exhaustive to avoid painful surprises. After completing due diligence, the next steps include assembling documents, opening a bank account in Ukraine to deposit money for your purchase, transferring funds, making payment, and registering the sale. A word of caution here - to avoid currency losses, don’t transfer money to your bank account in Ukraine until you’ve completed the due diligence and you’re certain the sale will close. Due to currency controls, 75% of transferred funds are converted to hryvnia the day they arrive in your bank account. To avoid a nasty tax surprise, buyers should make sure to find out whether the seller has owned his/her property for three or more years. Often a buyer will agree to cover part or all of the taxes on a home sale. Usually these taxes amount to 2% (1% government tax and 1% pension fund). However, there is a 5% anti-speculation tax on properties owned less than three years and currently there is also an extra 1.5% temporary war tax on top of this tax. So in cases where a seller has owned his property for less than three years it is perfectly reasonable for the buyer to insist that the seller cover all or most of these taxes. It is much better to address this issue earlier in negotiations instead of having things collapse at the last minute. 55


Ukrainian arts icon Ivan Marchuk goes global Landmark international exhibition of Ukrainian artist’s works to tour Europe and America in 2016 Ivan Marchuk is among the most renowned artists in Ukrainian history and 2016 will see his works given further international exposure with an exhibition tour of Europe and North America. Meanwhile, residents of Kyiv who would like to gain more insight into the Ukrainian master’s works can view a selection of his paintings at Triptych: Global Arts Workshop, an art gallery located on Kyiv’s famous Andriyivskiy Uzviz. Marchuk, who was listed among the ‘100 Living Geniuses’ by the UK’s Daily Telegraph newspaper in 2007, is one of only a few Ukrainian artists to achieve global recognition and financial success during his lifetime. An unofficial artist persecuted by the Soviet authorities, he emigrated to Australia in 1989, lived in the US and Canada, and returned to Ukraine in 2001 to superstar status. Today he is an international brand with a distinct Ukrainian flavour, capable of representing Ukraine as a wellspring of extraordinary artistic talent. However, his life-long dream of a Marchuk Museum that could become a top tourist attraction for Ukraine’s capital has yet to come true, despite being promoted by a succession of presidents and oligarchs. In the absence of the long-awaited Marchuk Museum, I decided to establish the first semi-permanent exhibition of the globally acclaimed artist’s work in Kyiv. It was inaugurated on Ukrainian Independence Day, 2015. The paintings on display in Kyiv are part of my private collection. Vibrant and dynamic, these canvases are metaphysical studies spanning over a decade, and have never been previously shown to the public. In 2016, they will tour Europe and North America to celebrate Ivan Marchuk’s 80th anniversary. The Department for Cultural Diplomacy of Ukraine’s Ministry of Foreign Affairs has spoken in support of the project, underlining the importance of non-state initiatives in representing Ukraine abroad.

Reluctant patriot, reclusive socialite

Marchuk is a household name among Ukrainians the world over, and a global artistic phenomenon. The painter is famous for inventing pliontanism, an intricate technique that involves the ‘dabbing-on’ of paint. He has exhibited all over the world, including exhibitions in the UNESCO building in Paris and the Ukrainian Institute in New York. The mischievous sage is an obsessive guardian of his works, which are coveted by collectors and institutions alike, with over 4000 paintings to date. An eccentric and contradictory figure, he is the only Ukrainian artist to achieve worldwide recognition in his lifetime and then choose to return to Ukraine. Outspoken and critical of the establishment, he professes his love for the Ukrainian land, but not the state of Ukraine. His art speaks in archetypes intrinsic to the trauma that lurks in the Ukrainian subconscious: rural scenes, abandoned cottages, broken eggshells and

musical instruments, animal totems such as the horse and the crow, field flowers, maidens, and characters from Taras Shevchenko’s poems, as well as non-figurative works of great intensity. Ivan Marchuk was born in 1936 in Moskalivka, a picturesque yet remote village in the Ternopil region of western Ukraine. Gifted from a young age, Ivan studied at the now-famous Ivan Trush College in Lviv. His work was considered too avant-garde, which led to tensions with faculty and fellow students alike. Marchuk nonetheless continued an obsessive search for his own inimitable style. He drew heavily from Ukrainian folk art, especially the craft of weaving, which engendered his pliontanism, or ‘weaverism’. When the opportunity to emigrate finally presented itself in 1989, Marchuk fled to Australia. There he settled comfortably among the Ukrainian diaspora in suburban Sydney. ‘It was paradise to me,’ he recalls. ‘For the first time in my life, I was able to work without fear by the expansive calm of the ocean. I often wish I’d stayed there.’ Marchuk spent many years living abroad, moving from Sydney to New York and then Toronto. The émigré experience was enriching: he not only familiarized himself with some of the finest art collections in the world and met some of the leading curators, artists, and art critics of our time, but also gained an insight into the commercial dimension of a flourishing art world. However, in 2001, shortly after witnessing the terrorist attacks of 9/11, he returned to his homeland. When asked what motivated this unorthodox move, he cited the shock of global terror, and confessed that he ‘missed the sumptuous warmth of Ukrainian women’. In Ukraine, superstar status awaited him. Although his work was not recognized by the Ukrainian establishment until the years of independence, he was awarded a series of prestigious national awards upon his return. In 2006, he was admitted to the Golden Guild of the Rome Academy of Contemporary Art. Today, Marchuk lives in Kyiv, working tirelessly to reach his lifetime target of 5000 works.

About the author: Myroslava Hartmond is owner of Triptych: Global Arts Workshop (34 Andriyivskiy Uzviz) Ukraine’s first private fine art gallery since 1988. She is also a Research Associate of the Centre for International Studies, University of Oxford, where she explores the role of cultural diplomacy in Ukraine.

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sport

Rebrov leads Dynamo to Champions League Promised Land 2015 has been a good year for Dynamo Kyiv coach Serhiy Rebrov. Over the past twelve months, the pint-sized former Dynamo striker has led the Kyiv club to their first championship in six seasons and steered them through the group stages of the Champions League for the first time since the turn of the millennium. Once best known as the less glamorous half of Dynamo’s stunning Shevchenko-Rebrov attacking partnership of the late 1990s, he is now winning over a new generation of admirers as a successful manager in his own right. Rebrov’s Champions League breakthrough has been particularly sweet. It has served to silence critics who had sought to downplay his domestic success by portraying it as primarily the product of arch rivals Shakhtar Donetsk’s disruptive exile from war torn east Ukraine. In truth, Dynamo’s domestic decline had been down to a number of long-term factors, including but not limited to the emerging dominance of Shakhtar Donetsk. The Kyiv club never really overcame the loss of the talismanic Valeriy Lobanovskiy, who managed Dynamo from the mid-1970s until 1990 and again from 1997 until his death in 2002. Lobanovskiy oversaw Dynamo’s rise to the top table of European football and is widely recognized as one of the great geniuses of the modern game. The innovative Ukrainian trainer’s influence at the club is hard to overstate – quite simply, he was Dynamo Kyiv. It is perhaps enough to note that his statue now stands outside the club’s home stadium, which bears his name. For a succession of subsequent Dynamo managers, this legacy has proved impossible to follow. After decades of continuity, the loss of Lobanovskiy threatened to destroy the entire Dynamo dynasty. Initially eclipsed by the rise of Shakhtar Donetsk, in recent years the club had actually begun to fall behind the likes of Metalist Kharkiv and Dnipro Dnipropetrovk. Many began to whisper that Dynamo were in terminal decline. The club was experiencing an unprecedented slump when Rebrov took over as caretaker

Dynamo Kyiv manager in April 2014, having slumped to fourth place in the national championship. He was widely seen as a stopgap appointment who would oversee things until Dynamo could recruit a big name manager with an international pedigree. It certainly didn’t help that he was replacing Oleh Blokhin, another former club legend who had starred during the Lobanovskiy era only to fail when tasked as manager with bringing back the glory days. The Dynamo job was Rebrov’s first managerial position and there was little in his background to suggest he could turn the ailing club around. Nevertheless, after leading Dynamo to the Ukrainian Cup in his first month, the club offered him the manager’s job on a permanent basis. It was clearly a gamble, but he was at least a popular figure within the club and well loved by Dynamo fans thanks to his exploits during Kyiv’s last real period of international success. For a few seasons in the late 1990s, Dynamo Kyiv ranked as one of the best sides in Europe. Rebrov was one of the stars of a team that made it to the Champions League quarterfinals and semifinals in successive seasons. His partnership with Andriy Shevchenko was regarded as the most potent in world football. When Shevchenko

departed for Milan in 1999, it was Rebrov who carried Dynamo beyond the group stage of the Champions League in the following season. His ten goals in the 1999-2000 campaign remain a remarkable personal achievement, helping him to earn a place among the top fifty all-time Champions League top scorers. Rebrov’s subsequent career failed to live up to the promise of these early golden years. He proved disappointing at Spurs and West Ham in the English Premier League and played without great distinction in Turkey and Russia. Dynamo Kyiv remained his true love, and he was welcomed onto the backroom staff following retirement in 2009. Few had any idea he would go on to occupy the manager’s seat. Rebrov has already achieved more than expected in his fledgling managerial career. He will be looking to build on this momentum in February when Dynamo face Manchester City as this year’s Champions League enters the knockout stages. The first leg will be played behind closed doors in Kyiv as part of a UEFA sanction for racial violence at Dynamo’s group stage clash against Chelsea. This is uncharted territory for most of today’s Dynamo squad, but for the club’s diminutive manager, it will be more of a homecoming.

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Business Ukraine December 2015