Doing Business in Ukraine: 2011 CountryCommercial Guide for U.S. Companies
INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S.DEPARTMENT OF STATE, 2010. ALL RIGHTS RESERVED OUTSIDE OF THE UNITEDSTATES.
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Chapter 1: Doing Business in Ukraine
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Market Overview
Ukraine has it all, proven resources (the good), trade barriers (the bad) and corruption(the ugly). In spite of the challenges to doing business in Ukraine – foreign companiesare in the market – small, medium and large companies all recognize the vast potentialof the Ukrainian market. Many have been doing business in Ukraine for more than 15years.As the 2
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largest country in Europe, Ukraine is sitting at a cross roads, and is potentiallythe richest country in terms of resources, in all of Europe - across the board.
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Land area of 233,000 sq/miles, 53% of which is arable black soil that has yet toeven approach full agricultural production capacity.
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Diverse mineral resources in quantity such as iron ore, coal, manganese, naturalgas, oil, salt, sulfur, graphite, titanium, magnesium, kaolin, nickel and mercury.
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Established industrial development in the coal, electric power, ferrous and non-ferrous metals industries; machinery and transport equipment, chemicals andfood processing industries.
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Human resources – a population of approximately 46 million, with a literacy rateof 99.7% where most adults have a secondary or higher education.
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Ukraine is also a member of the WTO since 2008 – a clear indicator that Ukraineintends to be part of the international business community.Unfortunately, Ukraine inherited a Soviet style bureaucracy that has stifled economicdevelopment and stymied the best efforts of three successive governments (sinceindependence) to stimulate economic development. Add to the mix corruption that is soentrenched, it’s impossible to tell where the government ends and the corruption begins.Following the world financial crisis in 2008-2009, Ukraine’s economy contracted by15%.In 2010, external demand is beginning to fuel a recovery, despite policy-related risks andconcerns about fiscal policy. Unpredictability, the lack of transparency and persistentcorruption inhibits investment, but U.S. and other foreign companies continue to enter the market. In 2010 the American Chamber of Commerce in Ukraine (ACC) welcomed119 new members, the U.S.-Ukraine Business Council (USUBC) added 40 more.Although some of these firms were not new to the Ukrainian market, their decision to jointhese organizations was evidence of their commitment to remaining in the market.
U.S. companies in Ukraine are performing well. They are continuing to invest, albeit atrelatively conservative levels, with a watchful eye on amendments to existing and newlegislation designed to increase State revenues and to improve the business andinvestment climate – the unpredictability factor. Most U.S. companies are activelyinvolved in the ACC and the USUBC who both actively engage the Government of Ukraine (GOU) on issues affecting the business and investment environments.
Market Challenges
There are numerous challenges for foreign companies interested in the Ukrainianmarket, which are best summarized by the:
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The World Bank’s Annual Doing Business Report that lists Ukraine at 145 out of 183 countries for ease of doing business, down from 143 in 2010. For the fullreport go to:http://www.doingbusiness.org/data/exploreeconomies/ukraine/.
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Transparency International’s Corruption Perception Index ranks Ukraine at 134out of 173.
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The 2011 Index of Economic Freedom gives Ukraine a score of 45.8 (equating to“repressed” economically), ranking its economy 164 out of 183.For the fullreport go to:http://www.heritage.org/index/Country/Ukraine These low scores put Ukraine in last place in Europe (43 countries), below Russia andlower than the world average. The economic crisis did set Ukraine back after years of steady economic growth. However the crisis is not the sole reason for such a lowstanding internationally. State intervention continues to interfere with private sector development, as does:
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A regulatory infrastructure that is overly burdensome and not remotelytransparent.
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An underdeveloped financial sector.
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A bureaucratic legal and regulatory system.
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Poor rule of law enforcement which encourages seeking arbitration outsideUkraine.
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IPR and Trademark infringement is commonplace.
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Unpredictability- the Grain Quota and routine Customs re-evaluation of importsare a couple of examples.
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Widespread corruption in the public and private sectors.
Market Opportunities
Market opportunities are most often inspired by an out of the ordinary need, for instance: the Euro-2012 Football Championship to be co-hosted by Ukraine andPoland in June 2012. This event has inspired the Government of Ukraine to identify
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