Ukraine

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February, 2012

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TABLE OF CONTENT...
Background/History................................................................................................................................................ 5 Geography............................................................................................................................................................. 11 Population ............................................................................................................................................................. 14 Government........................................................................................................................................................... 19 Economy ............................................................................................................................................................... 23 Communication..................................................................................................................................................... 52 Transportation ....................................................................................................................................................... 88 Military ..................................................................................................................................................................93 Transnational Issues.............................................................................................................................................106 World Health Organization Profile ..................................................................................................................... 111 Amnesty International......................................................................................................................................... 119 United Nation Development Program ................................................................................................................ 126 Bibliography ....................................................................................................................................................... 140

Figure 1 The Baptism of Grand Prince Vladimir................................................................................................... 6 Figure 2. St Andrew's Cathedral ............................................................................................................................ 7 Figure 3 Kievo-Pecherskaya Lavra........................................................................................................................ 7 Figure 4 Pectoral. ................................................................................................................................................... 8 Figure 5 Sophia Oranta .......................................................................................................................................... 8 Figure 6: Map of Ukraine .................................................................................................................................... 11 Figure 7 Relief map. ............................................................................................................................................ 13 Figure 8 Ethnic composition of Ukraine.............................................................................................................. 15 Figure 10 Ethno-linguistic map of Ukraine. ........................................................................................................ 16 Figure 9 Ethnic Ukrainians in Ukraine (2001) .................................................................................................... 16 Figure 11 Population of Ukraine (in millions) from 1950 to 2009...................................................................... 17 Figure 12 Verkhovna Rada Main Session Hall.................................................................................................... 19 Figure 13 National Flag of Ukraine. .................................................................................................................... 19 Figure 14 Ukraine: Coat of Arms ........................................................................................................................ 20 Figure 15 Yuliya Tymshenko(former prime minister) and the President of Ukraine Viktor Yanukovich.......... 21 Figure 16 Parties and blocs in Ukraine ................................................................................................................ 22 Figure 17 Hryvnia, national currency, Banknote................................................................................................. 30 Figure 18 Main Macroeconomic indicators ......................................................................................................... 33 Figure 19 Real GDP Growth Percentage Points .................................................................................................. 33 Figure 20 Ukraine's Goods Export....................................................................................................................... 34 Figure 21 World Carbon Steel Prices .................................................................................................................. 34 Figure 22 Ukraine: Production Of Mineral Commodities ................................................................................... 37

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Figure 23 Grain Harvest....................................................................................................................................... 38 Figure 25 Net FDI................................................................................................................................................ 39 Figure 24 Consumer Sentiment Index ................................................................................................................. 39 Figure 26 Fiscal Deficit ....................................................................................................................................... 40 Figure 27 The Global Competitiveness Index 2011-2012 rankings and 2010-2011 comparisons...................... 42 Figure 28 The Global Competitiveness Index 2011-2012................................................................................... 42 Figure 29 The Global Competitiveness Index 2011-2012: Basic Requirements................................................. 43 Figure 30 Ukraine: World Back Rating ............................................................................................................... 43 Figure 31 World Bank Breakdow ........................................................................................................................ 44 Figure 32 Ukraine - Strength and Weaknesses .................................................................................................... 45 Figure 33 Selected Indicators, by Topic .............................................................................................................. 46 Figure 34 The Global competitiveness Report - World Economic Forum.......................................................... 47 Figure 35 Global Competitiveness Index in Detail.............................................................................................. 48 Figure 36 Teledensity compared with population ............................................................................................... 57 Figure 37 Regional levels of mobile penetration, Q3 2007 ................................................................................. 59 Figure 38 Effective mobile price per minute in a sample of Eastern and Central European countries, 2007 ..... 60 Figure 39 Mobile penetration and Total Outgoing Minutes of Use in Ukraine................................................... 60 Figure 40 Economic Impact of the mobile communications industry in Ukraine. .............................................. 61 Figure 41 Mobile value chain in Ukraine in 2007(UAHs millions) .................................................................... 62 Figure 42 Productivity impact of mobile communication.................................................................................. 63 Figure 43 Increasing Intangible benefits enjoyed by consumers in Ukraine...................................................... 63 Figure 44 Mobile operators' market shares over time.......................................................................................... 65 Figure 45 Mobile connections and mobile penetration in Ukraine over time. .................................................... 65 Figure 46 Percentage of prepaid and postpaid customers for each operator (2007)............................................ 66 Figure 47 ARPU levels over time, UAHs............................................................................................................ 66 Figure 48 Earnings and Subscriber base.............................................................................................................. 67 Figure 49 Vkontakte.ru overview. ....................................................................................................................... 76 Figure 50 Odnoklassniki.ru overview.................................................................................................................. 77 Figure 51 Twitter overview. ................................................................................................................................ 77 Figure 52 Facebook overview............................................................................................................................. 78 Figure 53 Ukr.net overview. ................................................................................................................................ 78 Figure 54 Livejournal overview........................................................................................................................... 79 Figure 55 Number of Credit cards. ...................................................................................................................... 79 Figure 56 Web money.......................................................................................................................................... 79 Figure 57 Programming languages in Ukraine. ................................................................................................... 87 Figure 58 Railway map of Ukraine...................................................................................................................... 89 Figure 59 Odessa port .......................................................................................................................................... 91 Figure 60 Officers and MiG-29 fighter planes of the Ukrainian Air Forces ....................................................... 93 Figure 61Threats and Challenges in the Sphere of National Security and Defense ............................................ 96 Figure 62 Functional Components of the Security and Defense Sector of Ukraine ............................................ 97 Figure 63 Armed Forces’ Command and Control Elements’, at the end of 2010 ............................................... 98 Figure 64 International cooperation 2007-2010 .................................................................................................. 99 Figure 65 Bilateral cooperation with countries defense institutions.................................................................. 100 Figure 66 Multi-lateral cooperation in 2010...................................................................................................... 100

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Figure 67 The List of forces and means defined for participation in the Planning and Review Process .......... 101 Figure 68 Operation capabilities development of NBC unit ............................................................................. 102 Figure 69 Participation of Ukrainian Contingents and Personnel in Peacekeeping Operations 2010............... 104 Figure 70 Diplomatic relations of Ukraine ........................................................................................................ 107 Figure 71 Ukraine: WHO health profile (part 1) ............................................................................................... 111 Figure 72 Ukraine: WHO health profile (part 2) ............................................................................................... 112 Figure 73 Mr. Oliver Adam, UN Resident Coordinator in Ukraine .................................................................. 119 Figure 74 Evaluation of the HIV/AIDS Situation in Ukraine as of the End of 2008 and Forecast Indicators for 2015.................................................................................................................................................................... 138

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Background/History

Identification Ukrainian nationhood begins with the Kyivan Rus. This Eastern Slavic state flourished from the ninth to the thirteenth centuries on the territory of contemporary Ukraine, with Kyiv as its capital. The name Ukraine first appeared in twelfth century chronicles in reference to the Kyivan Rus. In medieval Europe cultural boundary codes were based on a native ground demarcation. Ukraine, with its lexical roots kraj (country) and krayaty (to cut, and hence to demarcate), meant "[our] circumscribed land." The ethnonym Rus was the main selfidentification in Ukraine until the seventeenth century when the term Ukraine reappeared in documents. This ethnonym of Rus people, Rusych (plural, Rusychi ), evolved into Rusyn , a western Ukrainian self-identification interchangeable with Ukrainian into the twentieth century. Ruthenian , a Latinization of Rusyn , was used by the Vatican and the Austrian Empire designating Ukrainians. History overview The territory of Ukraine was a key center of East Slavic culture in the Middle Ages, before being divided between a variety of powers. However, the history of Ukraine dates back many thousands of years. The territory has been settled continuously since at least 5000 BC, and is also a candidate site of the origins of the Proto-Indo-European language family. The horse was first domesticated on the territory of Ukraine. The first identifiable groups to populate what is now Ukraine were Cimmerians, Scythians, Sarmatians, and Goths, among other nomadic peoples who arrived throughout the first millennium B.C. These peoples were well known to colonists and traders in the ancient world, including Greeks and Romans, who established trading outposts that eventually became city-states. Slavic tribes occupied central and eastern Ukraine in the sixth century A.D. and played an important role in the establishment of Kyiv. Kievan Rus Prince Volodymyr converted the Kievan nobility and most of the population to Christianity in 988. Situated on lucrative trade routes, Kyiv quickly prospered as the center of the powerful state of Kievan Rus. In the 11th century, Kievan Rus was the largest state in Europe. Conflict among the feudal lords led to decline in the 12th century. Mongol raiders razed Kyiv in the 13th century. From the 13th to the 16th century, Kiev was under the influence of Poland and western Europe. During that time, Ukrainians began to conceive of themselves as a distinct people, a feeling that survived subsequent partitioning by greater powers over the next centuries. Ukrainian peasants who fled the Polish effort to force them into servitude came to be known as Cossacks and earned a reputation for their fierce martial spirit and love of freedom. Page 5

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The negotiation of the Union of Brest-Litovsk in 1596 divided the Ukrainians into Orthodox and Ukrainian Catholic faithful. In 1654, Ukraine asked the czar of Moscovy for protection against Poland, and the Treaty of Pereyasav signed that year recognized the suzerainty of Moscow. The agreement was interpreted by Moscow as an invitation to take over Kiev, and the Ukrainian state was eventually absorbed into the Russian Empire. The 19th century found the region largely agricultural, with a few cities and centers of trade and learning. The region was under the control of the Austro-Hungarian Empire in the extreme west and the Russian Empire elsewhere. Ukrainian writers and intellectuals were inspired by the nationalistic spirit stirring other European peoples existing under other imperial governments and were determined to revive Ukrainian linguistic and cultural traditions. Taras Shevchenko (1814-1861), national hero of Ukraine, presented the intellectual maturity of the Ukrainian language and culture through his work as a poet and artist. The Russian Government, however, imposed strict limits on attempts to elevate Ukrainian culture, even banning the use and study of the Ukrainian language. When World War I and the Russian revolution shattered the Habsburg and Russian empires, Ukrainians declared independent statehood. In 1917 the Central Rada proclaimed Ukrainian autonomy and in 1918, following the Bolshevik seizure of power in Petrograd, the Ukrainian National Republic declared independence under President Mykhaylo Hrushevskiy. After 3 years of conflict and civil war, however, the western part of Ukrainian territory was incorporated into Poland, while the larger, central and eastern regions were incorporated into the Soviet Union. The Ukrainian Soviet Socialist Republic was officially created in 1922. Ukrainian culture and education flourished during the twenties, but with Stalin's rise to power and the campaign of forced collectivization beginning in 1929, the Soviet leadership imposed a campaign of terror that ravaged the intellectual class. The Soviet Government under Stalin also created an artificial famine (called “Holodomor” in Ukrainian) as part of his forced collectivization policies, which killed millions of previously independent peasants and others throughout the country. Estimates of deaths in Ukraine from the 1932-33 Holodomor alone range from 3 million to 7 million. When the Nazis invaded the Soviet Union in 1941, some Ukrainians, Figure 1 The Baptism of Grand Prince Vladimir. particularly in the west, welcomed what they saw as liberation from Page 6

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Communist rule, but this did not last as they quickly came to understand the nature of Nazi rule. Nazi brutality was directed principally against Ukraine's Jews (of whom an estimated 1 million were killed), but also against many other Ukrainians. Babyn Yar in Kyiv was the site of one of the most horrific Nazi massacres of Ukrainian Jews, ethnic Ukrainians, and many others. Kyiv and other parts of the country were heavily damaged.After the Nazi and Soviet invasions of Poland in 1939, the western Ukrainian regions were incorporated into the Soviet Union. Armed resistance against Soviet authority continued as late as the 1950s. During periods of relative liberalization--as under Nikita Khrushchev from 1955 to 1964 and during the period of "perestroika" under Mikhail Gorbachev--Ukrainian communists cautiously pursued nationalist objectives. The 1986 explosion at the Chornobyl (Chernobyl in Russian) nuclear power plant, located in the Ukrainian SSR, and the Soviet Government's initial efforts to conceal the extent of the catastrophe from its own people and the world, were a watershed for many Ukrainians in exposing the severe problems of the Soviet system. Ukraine became an independent state on August 24, 1991, and was a co-founder of the Commonwealth of Independent States (CIS) following the dissolution of the Soviet Union, although it has not officially joined the organization. Although final independence for Ukraine was achieved in 1991 with the dissolution of the USSR, democracy and prosperity remained elusive as the legacy of state control and endemic corruption stalled efforts at economic reform, privatization, and civil liberties. A peaceful mass protest "Orange Revolution" in the closing months of 2004 forced the authorities to overturn a rigged presidential election and to allow a new internationally monitored vote that swept into power a reformist slate under Viktor YUSHCHENKO. Subsequent internal squabbles in the YUSHCHENKO camp allowed his rival Viktor YANUKOVYCH to stage a comeback in parliamentary elections and become prime minister in August of 2006.

Figure 2. St Andrew's Cathedral

Figure 3 Kievo-Pecherskaya Lavra

An early legislative election, brought on by a political crisis in the spring of 2007, saw Yuliya TYMOSHENKO, as head of an "Orange" coalition, installed as a new prime minister in December 2007. Viktor YANUKOVUYCH was elected president in a February 2010 run-off election that observers assessed as meeting most international standards. The following month, the Rada approved a vote of no-confidence prompting Yuliya TYMOSHENKO to resign from her post as prime minister. The president, Viktor Yanukovych, is expected to keep a grip on power in 2012-15, including through control of parliament and the government. Public disillusionment with the president, however, may boost the opposition. Relations with Russia have been tense, owing to gas disputes and Ukraine's stated intention to push for deeper economic links with the EU. If relations with the EU continue to deteriorate, Russia will have a better chance to gain greater influence over the Ukrainian economy. Page 7

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Urbanism, Architecture, and the Use of Space A prototypical architectural tradition was found by archeologists studying ancient civilizations in Ukraine. Excavations of the Tripillya culture (4,000–3,000 B.C.E. ) show one- and two-room houses with outbuildings within concentric walled and moated settlements. The sophisticated architecture of Greek and Roman colonies in the Black Sea region in 500 B.C.E. –100 C.E. influenced Scythian house building. The architecture of later Slavic tribes was mostly wooden: log houses in forested highlands and frame houses in the forest-steppe. The Kyivan Rus urban centers resembled those of medieval Europe: a prince's fortified palace surrounded by the houses of the townsfolk. Tradesmen and merchants lived in suburbs called posad. Stone as a building material became widespread in public buildings from the tenth century, and traditions of Byzantine church architecture—cross plan and domes—combined with local features. Prime examples of this period are the Saint Sophia Cathedral in Kyiv (about 1030s) and the Holy Trinity Church over the Gate of the Pechersk Monastery (1106–1108).Elements of Romanesque style, halfcolumns and arches, appear in Kyivan Rus church architecture from the twelfth century, principally in the Saint. Cyril Church in Kyiv (middle-twelfth century), the Cathedral of the Dormition in Kaniv, and the Saint Elias Church in Chernihiv. Ukrainian architecture readily adopted the Renaissance style exemplified by the Khotyn and Kamyanets'-Podil'skyi castles, built in the fourteenth century, Oles'ko and Ostroh castles of the fifteenth century, and most buildings in Lviv's Market Square. Many Ukrainian cities were ruled by the Magdeburg Law of municipal self-rule. This is reflected in their layout: Lviv and Kamyanets' Podil'skyi center on a city hall/market square ensemble. Ukrainian baroque architecture was representative of the lifestyle of the kozak aristocracy. At that time most medieval churches were redesigned to include a richer exterior and interior ornamentation and multilevel domes.The most impressive exponents of this period are the bell tower of the Pechersk Monastery and the Mariinsky Palace in Kyiv, Saint George's Cathedral in Lviv, and the Pochaiv Monastery. A unique example of baroque wooden architecture is the eighteenth century Trinity Cathedral in former Samara, built for Zaporozhian kozaks. The neoclassical park and palace ensemble became popular with the landed gentry in the late eighteenth century. Representative samples are the Sofiivka Palace in Kamianka, the Kachanivka Palace near Chernihiv, and the palace in Korsun'-Shevchenkivskyi. Ukrainian folk architecture of the seventeenth and eighteenth centuries shows a considerable influence of baroque ornamentation and neoclassic orders while preserving traditional materials like wood and wattled clay. Village planning remained traditional, Figure 4 Pectoral. centered around a church, community buildings, and marketplace. The Page 8
Figure 5 Sophia Oranta

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streets followed property lines and land contours. Village neighborhoods were named for extended families, clans, or diverse trades and crafts. This toponymy, dating from medieval times, reappeared spontaneously in southern and eastern Ukrainian towns and cities, such as Kherson, Mykolaiv, and Simferopol that were built in the eighteenth century. Throughout the nineteenth century and into the beginning of the twentieth century, the empire architectural style came to Ukraine from the West. Modern urban planning—a grid with squares and promenades—was applied to new cities. At the beginning of twentieth century, there was a revival of national styles in architecture. A national modernism combined elements of folk architecture with new European styles. A prime exponent of this style is Vasyl' Krychevs'kyi's design of the 1909 Poltava Zemstvo Building.Soviet architecture initially favored constructivism as shown in the administrative center of Kharkiv and then adopted a heavy neoclassicism pejoratively called totalitarian style for major urban centers. Post-World War II architecture focused on monobloc projects reflecting a collectivist ideology. However, contemporary Ukrainians prefer single houses to apartment blocs. The traditional Ukrainian house has a private space between the street and the house, usually with a garden. Striving for more private space people in apartment buildings partition original long hallways into smaller spaces. Dachas (summer cottages) are a vital part of contemporary Ukrainian life. Laid out on a grid, dacha cooperatives provide summer rural communities for city dwellers. Etiquette Social interaction in Ukraine is regulated by etiquette similar to the rest of Europe. Some local idiosyncrasies are a personal space of less than an arm's length in business conversations and the habit of drinking alcohol at business meetings, a relic of Soviet times.

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Religion Religious beliefs are central to Ukrainian culture. Ukraine experienced a revival of many religions: Ukrainian Orthodox, Ukrainian Catholic, Protestantism, Judaism—including Hasidism—and Islam. The constitution and the 1991 Law on Freedom of Conscience and Religion provide for separation of church and state and the right to practice the religion of one's choice. Ukrainian Orthodox clergy are educated in divinity schools such as the Kyiv Theological Academy. The Ukrainian Catholic Church, banned in Soviet times, needs priests and provides a wide array of educational programs at the Lviv Theological Seminary. Protestant denominations, principally Baptists and Seventh-Day Adventists, train their ministers with the assistance of American and Western European mission programs. The numerically small Roman Catholic clergy is assisted by pastoral visitors from abroad. Since the time of independence, Jewish rabbis have been completing their studies in Israel. Muslim clergy is educated in Central Asia and Turkey. Ukrainian Orthodox and Catholic Churches share historic, ritual, and national heritages. Popular culture incorporated many ancient pagan rituals into a folk version of Christianity. Orthodox priests still perform exorcisms by the canon of Saint Basil the Great. The Holy Virgin icon and the spring of the Pochaiv Orthodox Monastery are believed to have miraculous healing powers. Zarvanytsia in western Ukraine is a place of holy pilgrimage for Ukrainian Catholics. The grave of the founding rabbi of Hassidism, situated near Uman', is a pilgrimage site for Hasidic Jews.

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Geography
Area total: 233,089 sq mi (603,550 sq km) countr y com par iso n to th e worl d: 46 The largest country wholly in Europe.[15]) land : 93% 579,330 sq km water : 7% 24,220 sq km co mp arat iv e : slightly smaller than Texas Geographic coordinates 49 00 N, 32 00 E The Outermost Points of Ukraine’s Territory: In the north: Petrivka (village, Chernihiv oblast); In the south: Cape Sarych (Autonomous Republic of Crimea); In the west: Chop (town, Zakarpatia oblast); In the east: Chervona Zirka (village, Luhansk oblast). Maritime claims: territorial sea: 12 nm exclusive economic zone: 200 nm continental shelf: 200 m or to the depth of Evaluation extremes: lowest point: Black Sea 0 m highest point: Hora Hoverla 2,061 m Total Land Boundaries: 4,558 km. Coastline: 2,782 km Neighboring Countries: Bordered by (clockwise) Romania (169 km), Moldova (939 km), Romania (362 km) and Hungary (103 km) on the southwest, Slovak Republic (90 km) on the west, Poland (428 km) on the northwest, Belarus (891 km) on the north, and Russia (1,576 km) on the north and on the east. Climate: temperate climate is Crimean The climate of Ukraine is mostly continental. A subtropical Mediterranean prevalent on the southern portions of the Peninsula. The average monthly Terrain: Almost the entire country of Ukraine is a flat plain, with elevations generally below 350 m . Most of Ukraine consists of fertile plains (steppes) and plateaus. The Carpathian Mountains intrude at the extreme west, and on the southern coast of the Crimean Peninsula the Crimean Mountains are located. The highest point in Ukraine is Mt. Hoverla in the Carpathians, with an elevation of 2061 m. Land use: Ukraine has extremely fertile blackearth soils in the central and southern portions, totaling more than a half of the territory. According to the estimates, arable land is 56%, permanent crops: 2%, meadows and pastures: 12%, forest Page 11

Figure 6: Map of Ukraine

temperature in winter ranges from -8° to 2° C (17.6° to 35.6° F), while summer temperatures average 17° to 25° C (62.6° to 77° F). The Black Sea coast is subject to freezing. Precipitation generally decreases from north to south; it is greatest in the Carpathians, where it exceeds more than 1500 mm (58.5 in) per year, and least in the coastal lowlands of the Black Sea, where it averages less than 300 mm (11.7 in) per year.

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and woodland: 10%, other: 20%. In 2008 irrigated land was 21,790 sq. km Inland Waterways: Most major rivers flow south to the Black Sea; they include the Dnipro River in central Ukraine, the Southern Bug and Dnestr rivers in the west, the Donets, River in the east, and the Danube in the far south. The Western Bug flows northward through the western part of the country and joins the Vistula, which empties into the Baltic Sea. Total renewable water resources: 139.5 cu km (1997) Fresh water withdrawal (domestic/industrial/agricultural) Total: 37.53 cu km/yr (12%/35%/52%) per capita: 807 cu m/yr (2000) Natural hazards: n/a Natural resources: (iron-ore, coal, manganese, natural gas, oil, salt, sulfur, graphite, titanium, magnesium, kaolin, nickel, mercury, timber, arable land)According to the experts, Ukraine contains approximately 5 per cent of the total mineral resources. Ukraine has deposits of more than 80 types of mineral. The Donetsk Basin contains huge reserves of high-quality coal and the nearby ironore deposits of Kryvy Rih are equally rich. Other Overview

Ukraine's mineral resources include manganese, mercury, titanium, chromium, nickel, bauxite, uranium, phosphate, sulfur and peat. Development of the above mentioned mineral resources under concession agreements along with transportation and refining of oil and gas are among the most promising areas for foreign investments Environment - current issues inadequate supplies of potable water; air and water pollution; deforestation; radiation contamination in the northeast from 1986 accident at Chornobyl' Nuclear Power Plant Environment - international agreements party to: Air Pollution, Air Pollution-Nitrogen Oxides, Air Pollution-Sulfur 85, AntarcticEnvironmental Protocol, Antarctic-Marine Living Resources, Antarctic Treaty, Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Desertification, Endangered Species, Environmental Modification, Hazardous Wastes, Law of the Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution, Wetlands signed, but not ratified: Air Pollution-Persistent Organic Pollutants, Air Pollution-Sulfur 94, Air Pollution-Volatile Organic Compounds Geography – note strategic position at the crossroads between Europe and Asia; secondlargest country in Europe

At 603,700 square kilometres (233,100 sq mi) and with a coastline of 2,782 kilometres (1,729 mi), Ukraine is the world's 44th-largest country. It is the largest wholly European country and the second largest country in Europe (after the European part of Russia, before metropolitan France).[i][5] It lies between latitudes 44° and 53° N, and longitudes 22° and 41° E. The Ukrainian landscape consists mostly of fertile plains (or steppes) and plateaus, crossed by rivers such as the Dnieper (Dnipro), Seversky Donets, Dniester and the Southern Buh as they flow south into the Black Sea and the smaller Sea of Azov. To the southwest, the delta of the Danube forms the border with Romania. Its various regions have diverse geographic features ranging from the highlands to the lowlands. The country's only mountains are the Carpathian Mountains in the west, of which the highest is the Hora Hoverla at 2,061 metres (6,762 ft), and the Crimean Mountains on the Crimean Page 12

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peninsula, in the extreme south along the coast.[101] However Ukraine also has a number of highland regions such as the Volyn-Podillia Upland (in the west) and the Near-Dnipro Upland (on the right bank of Dnieper); to the east there are the south-western spurs of the Central Russian Uplands over which runs the border with Russia. Near the Sea of Azov can be found the Donets Ridge and the Near Azov Upland. The snow melt from the mountains feeds the rivers, and natural changes in altitude form a sudden drop in elevation and create many opportunities to form waterfalls of Ukraine. Despite this, the country faces a number of major environmental issues such as inadequate supplies of potable water; air and water pollution and deforestation, as well as radiation contamination in the north-east from the 1986 accident at the Chernobyl Nuclear Power Plant. Recycling toxic household waste is still in its infancy in Ukraine.[102] Climate Ukraine has a mostly temperate continental climate, although a more Mediterranean climate is found on the southern Crimean coast. Precipitation is disproportionately distributed; it is highest in the west and north and lowest in the east and southeast. Western Ukraine receives around 1,200 millimetres (47.2 in) of precipitation annually, while Crimea receives around 400 millimetres (15.7 in). Winters vary from cool along the Black Sea to cold farther inland. Average annual temperatures range from 5.5 °C (41.9 °F)–7 °C (44.6 °F) in the north, to 11 °C (51.8 °F)–13 °C (55.4 °F) in the south.[109] Natural resources Significant natural resources in Ukraine include: iron ore, coal, manganese, natural gas, oil, salt, sulfur, graphite, titanium, magnesium, kaolin, nickel, mercury, timber, and arable land.

Figure 7 Relief map.

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Population
Net migration rate: -0.09 migrant(s)/1,000 population (2011 est.) country comparison to the world: 120 Urbanization: urban population: 69% of total population (2010) rate of urbanization: -0.1% annual rate of change (2010-15 est.) Sex tatio: at birth: 1.065 male(s)/female under 15 years: 1.06 male(s)/female 15-64 years: 0.92 male(s)/female 65 years and over: 0.49 male(s)/female total population: 0.85 male(s)/female (2011 est.) Ethnic c groups: Ukrainian 77.8%, Russian 17.3%, Belarusian 0.6%, Moldovan 0.5%, Crimean Tatar 0.5%, Bulgarian 0.4%, Hungarian 0.3%, Romanian 0.3%, Polish 0.3%, Jewish 0.2%, other 1.8% (2001 census) Religions: Ukrainian Orthodox - Kyiv Patriarchate 50.4%, Ukrainian Orthodox - Moscow Patriarchate 26.1%, Ukrainian Greek Catholic 8%, Ukrainian Autocephalous Orthodox 7.2%, Roman Catholic 2.2%, Protestant 2.2%, Jewish 0.6%, other 3.2% (2006 est.) Languages: Ukrainian (official) 67%, Russian 24%, other (includes small Romanian-, Polish-, and Hungarianspeaking minorities) 9% School life expectancy (primary to tertiary education): total: 15 years male: 14 years female: 15 years (2008) Page 14

Age structure: 0-14 years: 13.7% (male 3,186,606/female 3,014,069) 15-64 years: 70.8% (male 15,282,749/female 16,673,641) 65 years and over: 15.5% (male 2,294,777/female 4,682,865) (2011 est.) Median age: total: 39.9 years male: 36.7 years female: 43.1 years (2011 est.) HDI 0.710[6] (high) (76th) Population: 45,134,707 (July 2011 est.) country comparison to the world: 28 Population growth rate: -0.622% (2011 est.) county comparison to the world: 224 Birth rate: 9.62 births/1,000 population (2011 est.) country comparison to the world: 198 Total fertility rate: 1.28 children born/woman (2011 est.) county comparison to the world: 211

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Education expenditures: 5.3% of GDP (2007) country comparison to the world: 48 Nationality: noun: Ukrainian(s) adjective: Ukrainian HIV/AIDS - people living with HIV/AIDS: 350,000 (2009 est.) country comparison to the world: 17 HIV/AIDS - deaths: 24,000 (2009 est.) country comparison to the world: 15 Literacy: Definition: age 15 and over can read and write total population: 99.4% male: 99.7% female: 99.2% (2001 census) Unemployment, youth ages 15-24: total: 14.9% country comparison to the world: 76 male: 15.2% female: 14.5% (2005) Major cities - population: KYIV (capital) 2.779 million; Kharkiv 1.455 million; Dnipropetrovsk 1.013 million; Odesa 1.009 million; Donetsk 971,000 (2009)

Figure 8 Ethnic composition of Ukraine.

Death rate: 15.74 deaths/1,000 population (July 2011 e6st.) country comparison to the world: Infant mortality rate: total: 8.54 deaths/1,000 live births country comparison to the world: 158 male: 10.71 deaths/1,000 live births female: 6.23 deaths/1,000 live births (2011 est.) Life expectancy at birth: total population: 68.58 years country comparison to the world: 150 male: 62.79 years female: 74.75 years (2011 est.) adult prevalence rate: 1.1% (2009 est.) country HIV/AIDS comparison to the world: 44

Overview According to the Ukrainian Census of 2001, ethnic Ukrainians make up 77.8% of the population. Other significant ethnic groups are the Russians (17.3%), Belarusians (0.6%), Moldovans (0.5%), Crimean Tatars (0.5%), Bulgarians (0.4%), Hungarians (0.3%), Romanians (0.3%), Poles (0.3%), Jews (0.2%), Armenians (0.2%), Greeks (0.2%) and Tatars (0.2%).[2] The industrial regions in the east and southeast are the most heavily populated, and about 67.2 percent of the population lives in urban areas.[167][168] Page 15

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Demographic crisis Ukraine has been in a demographic crisis since the 1980s because of its high death rate and a low birth rate. The population is shrinking by over 150,000 a year. The birth rate has recovered in recent years from a catastrophically low level around 2000, and is now comparable to the European average, but would need to increase by another 50% or so to stabilize the population. In 2007, the country's population was declining at the fourth fastest rate in the world.[169] Life expectancy is falling. The nation suffers a high mortality rate from environmental pollution, poor diets, widespread smoking, extensive alcoholism, and deteriorating medical care.[170][171] In the years 2008 through 2010, more than 1.5 million children were born in Ukraine, compared to fewer than 1.2 million during 1999–2001 during the worst of the demographic crisis. Infant mortality rates have also dropped from 10.4 deaths to 8.9 per 1,000 children under one year of age. This is still high in comparison, however, to many other nations. According to the United Nations poverty and poor health care are the two biggest problems Ukrainian children face. More than 26 percent of families with one child, 42 percent of families with two children and 77 percent of families with four and more children live in poverty, according to United Nations International Children's Emergency Fund. In November 2009 Ukrainian human rights ombudsman Nina Karpacheva stated that the lives of many of Ukraine’s 8.2 million children remain tough.[172] According to the Constitution, the state language of Ukraine is Ukrainian. Russian, which was the de facto official language of the Soviet Union, is widely spoken, especially in eastern and southern Ukraine. According to the 2001 census, 67.5 percent of the population declared Ukrainian as their native language and 29.6 percent declared Russian.[210] Most native Ukrainian speakers know Russian as a second language.
Figure 9 Ethnic Ukrainians in Ukraine (2001)

Figure 10 Ethno-linguistic map of Ukraine.

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Fertility and natal policies The current birth rate in Ukraine, as of 2010, is 10.8 births/1,000 population, and the death rate is 15.2 deaths/1,000 population. The phenomenon of lowest-low fertility, defined as total fertility below 1.3, is emerging throughout Europe and is attributed by many to postponement of the initiation of childbearing. Ukraine, where total fertility (a very low 1.1 in 2001), was one of the world's lowest, shows that there is more than one pathway to lowest-low fertility. Although Ukraine has undergone immense political and economic transformations during Figure 11 Population of Ukraine (in millions) from 1950 to 2009. 1991–2004, it has maintained a young age at first birth and nearly universal childbearing. Analysis of official national statistics and the Ukrainian Reproductive Health Survey show that fertility declined to very low levels without a transition to a later pattern of childbearing. Findings from focus group interviews suggest explanations of the early fertility pattern. These findings include the persistence of traditional norms for childbearing and the roles of men and women, concerns about medical complications and infertility at a later age, and the link between early fertility and early marriage.[175] To help mitigate the declining population, the government continues to increase child support payments. Thus it provides one-time payments of 12,250 Hryvnias for the first child, 25,000 Hryvnias for the second and 50,000 Hryvnias for the third and fourth, along with monthly payments of 154 Hryvnias per child.[138][176] The demographic trend is showing signs of improvement, as the birth rate has been steadily growing since 2001.[177] Net population growth over the first nine months of 2007 was registered in five provinces of the country (out of 24), and population shrinkage was showing signs of stabilising nationwide. In 2007 the highest birth rates were in the Western Oblasts.[178] In 2008, Ukraine emerged from lowest-low fertility, and the upward trend has continued since then, except for a slight dip in 2010 due to the economic crisis of 2009. In total, Ukraine has 457 cities, 176 of them are labeled oblast-class, 279 smaller raion-class cities, and two special legal status cities. These are followed by 886 urban-type settlements and 28,552 villages.[121] Ukraine produces the fourth largest number of post-secondary graduates in Europe, while being ranked seventh in population. At the 1994 International Conference on Population and Development (ICPD) in Cairo, 179 countries, including Ukraine, agreed that population and development are inseparably linked and that population issues have paramount importance for Page 17

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national and international development 130. In so doing, the conference adopted a 20-year Programme of Action which Ukraine, in partnership with UNFPA has focused on. The overall situation in Ukraine with regard to population and development is characterized by the UNFPA and by the Government of Ukraine as a demographic crisis, due to a combination of factors including low birth rates, high mortality, poor health (including reproductive health and the health of children), decreasing longevity, population aging, income stratification/poverty and labour migration. Having peaked in 1992 at 52.4 million, Ukraine’s population has since decreased to 45.96 million as of 1 January 2010 which amounts to a decrease in population of 6.28 million people (or over 12%, in 18 years). According to the UN, 80% of this decrease is a result of depopulation, while 20% is attributed to migration movements. The demographic situation is especially critical in rural areas of Ukraine, where in the two thirds of the regions mortality ratios exceed the rate of birth twofold. Average life expectancy at birth in Ukraine is 68.27 years (2007-2008 calculations) and has significant gender disparities: for men it is 62.51 years and for women it is 74.28 years. The share of older persons in Ukraine remains steady for a number of years: about one fifth of the population reached the age of 60, which is comparable with the European averages. Ageing is much faster in rural areas than in urban settlements due to rural-urban migration of younger population. There are gender disparities in ageing: the youngest men live in towns and cities, while the oldest women live in villages – one third of ruralresiding women are above 60. The total “demographic load” (proportion of people of non-working age to 1,000 people of working age) in 2001 was 723 i.e. 629 for cities and towns and 950 for rural settlements. People above working age constituted 57% of the demographic load while in 1989 they were only 44%. According to population projections, by 2050 every third resident of Ukraine will be over 60. The HIV epidemic has an impact on Ukraine’s demography through its effect on the morbidity and mortality rates. The majority of all HIV infections are among those in the most active reproductive age (20-34). The disease affects their capacity for childbearing, and Ukraine has persistently declining birth rates. Given the shrinking size of the young adult groups and the persistent demographic decline, even modest increases in adult HIV prevalence rates could result in a strong long-term demographic impact.

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Government
Dnipropetrovs'k, Donets'k, Ivano-Frankivs'k, Kharkiv, Kherson, Khmel'nyts'kyy, Kirovohrad, Kyiv**, Kyiv, Luhans'k, L'viv, Mykolayiv, Odesa, Poltava, Rivne, Sevastopol'**, Sumy, Ternopil', Vinnytsya, Volyn' (Luts'k), Zakarpattya (Uzhhorod), Zaporizhzhya, Zhytomyr Note: administrative divisions have the same names as their administrative centers (exceptions have the administrative center name following in parentheses) Independence: 24 August 1991 (from the Soviet Union); notable earlier dates: ca. A.D. 982 (VOLODYMYR I consolidates Kyivan Rus), 1648 (establishment of Cossack Hetmanate) National holiday: Independence Day, 24 August (1991); note - 22 January 1918, the day Ukraine first declared its independence (from Soviet Russia) and the day the short-lived Western and Greater (Eastern) Ukrainian republics united (1919), is now celebrated as Unity Day Constitution: adopted 28 June 1996 Constitutional changes to reduce the powers of the presidency relative to parliament took effect at the start of 2006, giving parliamentarians the leading role in forming the cabinet. However, the transition to a

Figure 12 Verkhovna Rada Main Session Hall

Country name: Conventional long form: Ukraine conventional short form: none local long form: none local short form: Ukrayina Government type: republic Capital: name: Kyiv (Kiev) geographic coordinates: 50 26 N, 30 31 E Flag description: two equal horizontal bands of azure (top) and golden yellow represent grain fields under a blue sky time difference: UTC+2 (7 hours ahead of Washington, DC during Standard Time) daylight saving time: +1hr, begins last Sunday in March; ends last Sunday in October Administrative divisions: 24 provinces (oblasti, singular - oblast'), 1 autonomous republic* (avtonomna respublika), and 2 municipalities (mista, singular - misto) with oblast status**; Cherkasy, Chernihiv, Chernivtsi, Crimea or Avtonomna Respublika Krym* (Simferopol'),

Figure 13 National Flag of Ukraine.

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more parliamentary system sparked power struggles between the president and the government. Following an appeal by the new president, Viktor Yanukovych, in late 2010 the Constitutional Court rescinded the constitutional reform of 2006. The president can now determine the candidacy of the prime minister independently of parliament, and also has the right to appoint and dismiss cabinet members. The president can now dismiss the government without parliament's consent. Legal system: civil law system; judicial review of legislative acts Suffrage: 18 years of age; universal Executive branch: chief of state: President Viktor YANUKOVYCH (since 25 /02/2010) head of government: Prime Minister Mykola AZAROV (since 11 March 2010); First Deputy Prime Minister Andriy KLYUYEV (since 11 March 2010);Deputy Prime Ministers Borys KOLESNIKOV and Serhiy TIHIPKO (both since 11 March 2010) cabinet: Cabinet of Ministers nominated by the president and approved by the Rada(For more information visit the World Leaders website ) note: there is also a National Security and Defense Council or NSDC originally created in 1992 as the National Security Council; the NSDC staff is tasked with developing national security policy on domestic and international matters and advising the president; a Presidential Administration helps draft presidential edicts and provides policy support to the president elections: president elected by popular vote for a five-year term (eligible for a second term); election last held on 17 January 2010 with runoff on 7 February 2010 (next to be held in 2015)election results: Viktor YANUKOVYCH elected president; percent of vote - Viktor YANUKOVYCH 48.95%, Yuliya TYMOSHENKO 45.5%, other 5.6 written in 1862, were revised in 2003 National symbol(s) trident (tryzub)

National anthem: name: "Sche ne vmerla Ukraina" (Ukraine Has Not Yet Perished) lyrics/music: Paul HUBYNSKYI/Mikhail VERBYTSKYI note: music adopted 1991, lyrics adopted 2003; the song was first performed in 1864 at the Ukraine Theatre in Lviv; the lyrics, originally
Figure 14 Ukraine: Coat of Arms

Legislative branch: unicameral Supreme Council or Verkhovna Rada (450 seats; members allocated on a proportional basis to those parties that gain 3% or more of the national electoral vote; members to serve five-year terms) elections: last held on 30 September 2007 (next must be held in 2012 or sooner if a ruling coalition cannot be formed in the Rada) election results: percent of vote by party/bloc Party of Regions 34.4%, Block of Yuliya Tymoshenko 30.7%, Our Ukraine-People's Self Defense Bloc 14.2%, CPU 5.4%, Lytvyn Bloc 4%, other parties 11.3%; seats by party/bloc - Party of Regions 175, Block of Yuliya Tymoshenko 156, Our Ukraine-People's Self Defense 72, CPU 27, Lytvyn Bloc 20

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Judicial branch: Supreme Court; Constitutional Court Political parties and leaders:Block of Yuliya Tymoshenko-Batkivshchyna (BYuTBatkivshchyna) [Yuliya TYMOSHENKO]; Communist Party of Ukraine or CPU [Petro SYMONENKO]; European Party of Ukraine [Mykola KATERYNCHUK]; Forward Ukraine! [Viktor MUSIYAKA]; Front of Change [Arseniy YATSENYUK]; Lytvyn Bloc (composed of People's Party and Labor Party of Ukraine) [Volodymyr LYTVYN]; Our Ukraine [Viktor YUSHCHENKO]; Party of Industrialists and Entrepreneurs [Anatoliy KINAKH]; Party of Regions [Viktor YANUKOVYCH]; Party of the Defenders of the Fatherland [Yuriy KARMAZIN]; People's Movement of Ukraine (Rukh) [Borys TARASYUK]; People's Party [Volodymyr LYTVYN]; Peoples' Self-Defense [Yuriy LUTSENKO]; PORA! (It's Time!) party [Vladyslav KASKIV]; Progressive Socialist Party [Natalya VITRENKO]; Reforms and Order Party [Viktor PYNZENYK]; Sobor [Anatoliy MATVIYENKO]; Social Democratic Party [Yevhen KORNICHUK]; Social Democratic Party (United) or SDPU(o) [Yuriy ZAHORODNIY]; Socialist Party of Ukraine

or SPU [Oleksandr MOROZ]; Strong Ukraine [SERHIY TIHIPKO]; Ukrainian People's Party [Yuriy KOSTENKO]; United Center [Viktor BALOHA]; Viche [Inna BOHOSLOVSKA] Political pressure groups and leaders: Committee of Voters of Ukraine [Aleksandr CHERNENKO]; OPORA [Olha AIVAZOVSKA]

International organization participation: Australia Group, BSEC, CBSS (observer), CE, CEI, CICA (observer), CIS (participating member, has not signed the 1993 CIS charter although it participates in meetings), EAEC (observer), EAPC, EBRD, FAO, GCTU, GUAM, IAEA, IBRD, ICAO, ICC, ICRM, IDA, IFC, IFRCS, IHO, ILO, IMF, IMO, IMSO, Interpol, IOC, IOM, IPU, ISO, ITU, ITUC, LAIA (observer), MIGA, MONUSCO, NAM (observer), NSG, OAS (observer), OIF (observer), OPCW, OSCE, PCA, PFP, SECI (observer), UN, UNCTAD, UNESCO, UNIDO, UNMIL, UNMISS, UNWTO, UPU, WCO, WFTU, WHO, WIPO, WMO, WTO, ZC

Political forces at a glance Ukraine is a middle-income country in Eastern Europe with a history of cultural, social, economic and political development spanning several thousand years. For almost 20 years since its independence Ukraine has started to transition itself to a market economy and has focused on reforming and modernizing its economy and governance as well as ensuring equitable distribution of benefits of economic growth and overall social justice. As noted by the Government of Ukraine, the
Figure 15 Yuliya Tymshenko(former prime minister) and the President of Ukraine Viktor Yanukovich

country has significant geopolitical potential: an advantageous geographical location, favorable climate, unique natural resources and high level

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of education and training of the population. Ukraine is a republic with a unicameral parliament otherwise referred to as the Verkhovna Rada, a President and a judiciary. In February 2010 Viktor Yanukovych (leader of the Party of Regions faction in the Parliament of Ukraine and the then leader of the Official Opposition) was elected President of Ukraine. His Election Programme envisaged system reforms with the following key priorities: economic reform, social protection reform (demographic revival of the nation), and healthcare reform and, as such, these priorities have been reflected in a “State Programme for Economic and Social Development for 2010”. The government is based on a parliamentary coalition between the Party of Regions (PoR) of the new president, Viktor Yanukovych, the Lytvyn Bloc of the parliamentary speaker, and the Communist Party of Ukraine (CPU). The coalition, which has 235 votes in the 450-seat parliament, also includes a number of individual deputies from the opposition Our Ukraine-People's Self-Defence (OUPSD; formerly aligned with the previous president, Viktor Yushchenko) and the Yuliya Tymoshenko Bloc (YTB) of the previous prime minister. The current government replaced the outgoing one—which was based on a parliamentary coalition between the YTB, the OU-PSD and the Lytvyn Bloc—in March 2010,
Figure 16 Parties and blocs in Ukraine following the January-February presidential election. In April the Constitutional Court ruled the coalition constitutional after a challenge by the opposition.Next elections: The next parliamentary election will be held in October 2012 and the next presidential election is scheduled for October 11th. Yuliya Tymoshenko, the former prime minister, was sentenced to seven years in prison. She has also been barred from holding public office for three years.She has been on trial since June 2011 for abuse of office after signing the contract between the state oil and gas company Naftogaz Ukraine and Russian energy giant Gazprom. At the time, Gazprom had increased the price of gas by 40 per cent and Ukraine was under pressure to solve the impasse in order to supply national needs. Tymoshenko struck a deal struck with Russian President Vladimir Putin that the prosecution alleges caused the state a loss of $194.6 million. It also alleges that she did not get the approval of th Cabinet of Ministers for the decision. There are two other cases pending against Yuliya Tymoshenko. On 30 December 2010, she was charged for abuse of office over the receipt of 180 million Euros from the sale of a greenhouse gas quota to a Japanese company. She is also charged with having delayed signing an order in December 2009 for the customs clearance of 1000 Opel Combo cars. The delay allegedly resulted in a budget loss of $4.6 million. The conviction has not completely derailed negotiations over an association deal with the EU including free trade, but it has killed hopes of any implementation in the near term. This may push Ukraine closer to Russia.

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Economy
Overview After Russia, the Ukrainian republic was far and away the most important economic component of the former Soviet Union, producing about four times the output of the nextranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied the unique equipment (for example, large diameter pipes) and raw materials to industrial and mining sites (vertical drilling apparatus) in other regions of the former USSR. Shortly after independence in August 1991, the Ukrainian Government liberalized most prices and erected a legal framework for privatization, but widespread resistance to reform within the government and the legislature soon stalled reform efforts and led to some backtracking. Output by 1999 had fallen to less than 40% of the 1991 level. Ukraine's dependence on Russia for energy supplies and the lack of significant structural reform have made the Ukrainian economy vulnerable to external shocks. Ukraine depends on imports to meet about three-fourths of its annual oil and natural gas requirements and 100% of its nuclear fuel needs. After a two-week dispute that saw gas supplies cutoff to Europe, Ukraine agreed to 10-year gas supply and transit contracts with Russia in January 2009 that brought gas prices to "world" levels. The strict terms of the contracts have further hobbled Ukraine's cash-strapped state gas company, Naftohaz. Outside institutions - particularly the IMF - have encouraged Ukraine to quicken the pace and scope of reforms. Ukrainian Government officials eliminated most tax and customs privileges in a March 2005 budget law, bringing more economic activity out of Ukraine's large shadow economy, but more improvements are needed, including fighting corruption, developing capital markets, and improving the legislative framework. Ukraine's economy was buoyant despite political turmoil between the prime minister and president until mid-2008. Real GDP growth exceeded 7% in 2006-07, fueled by high global prices for steel Ukraine's top export - and by strong domestic consumption, spurred by rising pensions and wages. Ukraine reached an agreement with the IMF for a $16.4 billion Stand-By Arrangement in November 2008 to deal with the economic crisis, but the Ukrainian Government's lack of progress in implementing reforms has twice delayed the release of IMF assistance funds. The drop in steel prices and Ukraine's exposure to the global financial crisis due to aggressive foreign

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borrowing lowered growth in 2008 and the economy contracted more than 15% in 2009, among the worst economic performances in the world; growth resumed in 2010, buoyed by exports. External conditions are likely to hamper efforts for economic recovery in 2011.Ukraine's compliance with the IMF's terms was extremely poor. In July 2010 the new government sealed a new IMF program, totaling US$15.2bn over the next two and a half years. Fiscal consolidation will be a priority. Improving the situation of the almost bankrupt state energy firm, Naftogaz, is vital. A deal with Russia in April 2010 lowering the price of gas imports will help, but domestic gas prices will probably need to be raised again after an initial 50% increase in August 2010. Shoring up the banking sector is also a focus under the IMF program. Medium-term challenges include improving the poor business climate. Taxation: Personal income is taxed at 15% and 17%. The corporate tax rate is 23% and value-added tax (VAT) is 20%. Foreign trade: Ukraine remains dependent on Russia for most of its energy imports, and Russia is still an important market for Ukrainian metals and machine-building. Ukraine has nevertheless made progress in diversifying into new markets, including the EU and Asia. Exports to Europe exceed those to Russia, but are dominated by products of low value added. Looking back at the first two decades of transition, the overwhelming sense is of a country performing well below its potential. Ukraine has a vast opportunities to benefit from the next phase of globalization given its enviable geographic location, abundant natural resources, and educated labor force. The country will require deep fiscal and structural reforms to realize its full potential. The decisions that Ukraine’s leaders take now and over the next three years could make the difference between a low-growth, muddle-through scenario and a scenario of rapid modernization, turning Ukraine into a powerhouse in Eastern Europe. By now Ukraine has to tackle its fiscal crisis to restore macroeconomic credibility and create fiscal space for investments needed to support private sector growth. Also, country needs to improve its investment climate and fix the financial system to attract private sector investment. And, of course, Ukraine needs to tackle the problems with public sector governance through deep public sector, judicial and administrative reforms. Undoubtedly, 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 companies are in the market – small, medium and large companies all recognize the vast potential of the Ukrainian market. Many have been doing business in Ukraine for more than 15 years. As the 2nd largest country in Europe, Ukraine is sitting at a cross roads, and is potentially the 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 to even approach full agricultural production capacity. • Diverse mineral resources in quantity such as iron ore, coal, manganese, natural gas, oil, salt, sulfur, graphite, titanium, magnesium, kaolin, nickel and mercury. • Established industrial development in the coal, electric power, ferrous and non-ferrous metals industries; machinery and transport equipment, chemicals and food processing industries. • Human resources – a population of approximately 46 million, with a literacy rate of 99.7% where most adults have a secondary or higher education. • Ukraine is also a member of the WTO since 2008 – a clear indicator that Ukraine intends to be part of the international business community. • Unfortunately, Ukraine inherited a Soviet style bureaucracy that has stifled economic development and stymied the best efforts of three successive governments (since independence) to stimulate economic development. Add to the mix corruption that is so entrenched, it’s impossible to tell where the government ends and the corruption begins. The analysis of economic developments over the last decade shows that Ukraine has built up a number of fiscal and banking sector vulnerabilities, and thus faces serious challenges, as discussed below. On the fiscal side: ■ Ever increasing public infrastructure needs (including repairs to existing deteriorated infrastructure) were estimated by the World Bank’s Public Finance Review (PFR) (2006) to require USD100 billion between 2006 and 2015. Given the type of basic infrastructure needed, this would imply at least tripling the current level of public infrastructure spending of 2 percent of GDP (average 2000-8). ■ Despite more than doubling import gas prices in foreign currency, a significant depreciation of the UAH, and double-digit inflation over the last three years, utility tariffs have been adjusted only marginally since 2006. Domestic household utility tariffs (mainly for gas and heating) are well below cost recovery. In the absence of a program of tariff increases, Naftogaz and utility enterprises may risk bankruptcy whilst infrastructure deteriorates, causing more inefficiencies and further fiscal pressures. ■ Ukraine’s demographic trends and the already large population of pensioners (more than 14 million) present significant sustainability challenges. The unreformed pension system and Ukraine’s aging population threatens short-term fiscal viability (with growing deficits that are becoming un- financeable) and long-term sustainability (by 2020 there will be almost one pensioner for each contributor in the system, and the ratio will Page 25

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worsen sharply after that). Yet many pensioners receive a small pension in nominal terms. Reforms are needed to protect current and future pensioners and ensure reasonable pension payouts that are more in line with contributions. ■ The rapidly aging profile will also place pressures on service delivery (see World Bank PFR II), burdening the public health care system, particularly in the area of long-term care. These trends also affect the education system that has shrinking cohorts of students. In education, quality needs to be improved to build up the skills demanded by the economy, but without spending additional resources. This will require a shift away from the Soviet-era input norms to pure student financing through the existing intergovernmental financing systems, which can only be done through staffing and network rationalization. The process of staffing and network rationalization is at the core of the reforms in both the health care and education systems. ■ Given the already high average tax burden and high marginal rates on direct taxes, fiscal space cannot be achieved by increasing tax rates or with tax administration procedures that deter self compliance. This is particularly true while VAT tax exemptions and international double taxation treaties and loopholes continue to erode the tax base, and VAT refund arrears hinder exporters in a moment when the economy needs them the most. On the contrary, it is important to create a more stable and less onerous tax system that has a broader base and attracts investors. ■ With large fiscal deficits (and quasi-fiscal deficits), public and publicly guaranteed debt will continue to grow. Without corrective measures this could impact the costs of external financing to the whole economy over the medium term as capital markets become more selective. ■ All of the above needs to be tackled whilst gradually reducing the footprint of the government in the economy, to crowd in the private sector. On the banking sector side: ■ The banking sector is undercapitalized and vulnerable to even minor shocks and to further increases of unrecognized NPLs. ■ Transparency needs to be improved to regain trust. The system continues to be plagued with lack of information on individual bank operations and results (the disclosure of which is common practice internationally). Lack of transparency in relation to ultimate bank ownership reduces trust and hampers effective supervision. ■ Lack of trust, coupled with the consumption boom, has also been driving domestic savings down. Ukraine’s savings level as a share of GDP has declined steadily since 2004. Page 26

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■ The interference of vested interests slows the rehabilitation process and reduces the value of time-sensitive assets in problem banks. More broadly, the existing representation of commercial banks in the supervisory council of the regulator hinders governance. ■ Regulation remains weak, despite progress made in 2009. ■ The banking sector needs consolidation to intermediate domestic savings more efficiently. In its current composition, with more than 175 banks (many of them small banks with significant connected lending operations), and without stronger prudential regulation including countercyclical provisioning practices, the system will be less resilient to future shocks. The key constraints to growth are the following: ■ Ukraine’s limited and deteriorated infrastructure is unable to support private sector growth. Public infrastructure needs are large and essential to support growth. Low levels of public infrastructure spending are at the core of the problem. But there is no fiscal space to increase public investments. ■ Macroeconomic imbalances and concerns, particularly regarding fiscal policy, have kept capital in flows away. ■ Marginal rates on direct taxes are high. Although the average tax burden is not significantly higher than in other European countries, it is high compared to countries with the same level of income and other emerging economies. Compliance costs are also high for taxpayers (including frequent and burdensome inspections). ■ While access to finance was not an issue prior to the crisis, it has come to the fore in the context of sharp deleveraging in the banking sector. ■ Ukraine has low returns to education, which could imply that labor constraints are not binding on growth, but the data may be problematic due to wage compression and underreporting of income. Other evidence suggests that a shortage of technical skills is a growing obstacle to firm growth, especially for more dynamic businesses. ■ There are significant deficiencies in real estate (including land), contractual, and intellectual property rights. ■ Regulatory and other barriers to entry are high. Entry and operation costs are particularly burdensome for growing export sectors. ■ Governance and corruption concerns are a key issue discouraging FDI The evaluation of selected sub-sectors in the manufacturing, services, and agriculture sectors showed the following main constraints by sector: Short-term issues: ■ Lack of financing (for both working capital and investments): all sectors. ■ VAT refund arrears: agriculture, food processing, steel, machine building, exporters.

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Structural issues: ■ High tax rates and burdensome tax administration inspections: all sectors. ■ Inadequate transport and energy infrastructure: metallurgy, machine building, agriculture, food processing, and energy. ■ High transport tariffs and weak reliability: metallurgy and agricultural production. ■ Inadequate export logistics infrastructure: agriculture, food processing, wholesale and retail trade. ■ Land policy issues: agriculture, food processing, wholesale and retail trade. ■ Institutional and regulatory framework that imposes high entry and exit barriers and high operational costs, and consequently limited competition: all sectors (except banking). ■ Intellectual property rights: machine building, sophisticated (light) manufacturing of durable goods. ■ Inadequate technical skills: steel and machine building. The key micro underpinnings of growth in the economy point to the following: ■ Barriers to entry and exit hamper the economy’s ability to allocate resources efficiently and thus drag down productivity growth. Entry and exit rates of firms are low compared to other countries. Barriers to entry and exit related to the regulatory and legislative framework may explain poor firm dynamism. The moderate reforms undertaken have not done enough to stimulate firm dynamism. In the service sector, entrants are on average more productive than incumbents, which suggests high entry barriers. The average firm that exits the market (across sectors) does so with an extremely low productivity level. While it is normal that firms exit with lower productivity levels than the average incumbent, in the case of Ukraine this gap is extremely large, indicating weak market selection incentives that allow firms to survive at low levels of productivity for a long time. ■ Indicators proxying concentration and competitive pressures suggest low levels of competition in Ukraine’s economy. Competition in the manufacturing sector seems to have increased only marginally since 2001, while heavy industry competition has been stagnant or declining. High mark-ups prevalent in the business/service sector indicate a lack of competition. This is consistent with evidence of high entry barriers and high margins in the wholesale and large retail and transport sectors gathered from case studies. ■ Export concentration is high compared internationally, and a large share of exports (metals and chemicals) remains exposed to price volatility. ■ Ukraine had favorable export sophistication relative to its income level in 2000, but progress has been slow since then. Key competitors have left Ukraine behind with faster progress in sophistication. The basket of products exported to CIS countries is more sophisticated than that exported to non-CIS countries, but heavy industries like machine building are losing market share to other competitors in Russia (its largest market), which in turn places further pressure to improve product sophistication. ■ The number of newly exported products seems to be in line with other comparator countries, but with lower success rates over time. ■ Technology absorption is particularly critical to increase productivity and sophistication in a “within-thefrontier” country such as Ukraine. But technology absorption seems low. A weak intellectual property rights regime, weak rule of law, and an unlevel playing field deters foreign investors from engaging in joint ventures with local investors in technology-intensive sectors, particularly manufacturing. Licensing of technology and off-the-shelf technology purchasing are underexploited. Moreover, adherence to globally-recognized standards is low. Page 28

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■ More than two-thirds of existing (Sovietera) standards are not harmonized with the EU—a market where Ukraine has large upside potential. Infrastructure and metrology equipment issues are part of the problem in improving standards. But more important are the reforms needed around the harmonization of standards and the control bodies with redundant mandates and a culture of rent-seeking. ■ Ukraine’s historically renowned innovation system is under-performing and slowly fading out due to a weak alignment of property rights and economic incentives, weak linkages with the private sector, and an aging cadre of scientists. ■ Labor skills are becoming an important obstacle for firm growth, particularly for fast-growing firms. This problem is more acute for technical positions in the manufacturing sector (mainly heavy manufacturing). There seems to be mismatch between the skills provided by the education system and labor demand. One-third of respondents in the Ukrainian Labor Market Survey claim that they are performing a job that either requires a different ffield of education or/and a different level of education. ■ Ukraine ranks poorly on logistics and trade facilitation infrastructure and other behind-the- border issues. The top problems are outdated or insufficient infrastructure, expensive and nontransparent freight tariffs in the transport sector, burdensome cross border procedures, and inadequate warehousing space and storage facilities (including cold storage). The sector and micro analyses undertaken shows that Ukraine seems to be trapped in a self-perpetuating low equilibrium of high entry barriers, low competition, limited incentives for technology adoption, low export diversification and sophistication, and high vulnerability to commodity prices. This vicious circle hampers the structural transformation of the country’s economy while key comparator countries move ahead, and cripples the aspiration of achieving higher per capita income levels and living standards for Ukraine’s citizens. These problems are compounded by patronage and capture in many of the interactions of the public sector with businesses and citizens. The public sector is large—the general government alone spends roughly 47 percent of GDP. Ukraine scores low on public sector governance, despite some improvements. Regulatory bodies, inspection and control agencies, government procurement, line ministries, and state-owned enterprises (SOEs) are heavily intertwined with the activities and the non-tax costs incurred by the private sector. Significant uncertainties about contract enforcement and fairness in the rule of law hold back foreign direct investment (FDI) needed to modernize the economy. Reforming the public sector requires reducing its size and breaking the power of entrenched interests, to provide better public services to citizens and foster genuine competition. Investment climate and fiscal reforms will not be effective without undertaking at the same time deep public sector and administration reforms. Page 29

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MACROECONOMIC INDICATORS Labor force - by occupation: agriculture: 15.8% industry: 18.5% services: 65.7% (2008) Unemployment rate: 8.1% (2010 est.) country comparison to the world: 93 8.8% (2009 est.) note: officially registered; large number of unregistered or underemployed workers Population below poverty line: 35% (2009) Household income or consumption by percentage share: lowest 10%: 4.1% highest 10%: 22.6% (2008) Distribution of family income - Gini index: 27.5 (2008) country comparison to the world: 128 29 (1999) Investment (gross fixed): 19.1% of GDP (2010 est.) country comparison to the world: 129 Budget: revenues: $39.62 billion expenditures: $49.89 billion note: this is the planned, consolidated budget (2010 est.) Taxes and other revenues: 29% of GDP (2010 est.) country comparison to the world: 96 Budget surplus (+) or deficit (-): -7.5% of GDP (2010 est.) country comparison to the world: 180 Page 30

Figure 17 Hryvnia, national currency, Banknote

GDP (purchasing power parity): $305.2 billion (2010 est.) country comparison to the world: 40 $292.9 billion (2009 est.) $343.8 billion (2008 est.) note: data are in 2010 US dollars GDP (official exchange rate): $136.4 billion (2010 est.) GDP - real growth rate: 4.2% (2010 est.) country comparison to the world: 88 -14.8% (2009 est.) 1.9% (2008 est.) GDP - per capita (PPP): $6,700 (2010 est.) country comparison to the world: 133 $6,400 (2009 est.) $7,500 (2008 est.) note: data are in 2010 US dollars GDP - composition by sector: agriculture: 9.4% industry: 33.6% services: 57% (2010 est.) Labor force: 22.02 million (2010 est.) country comparison to the world: 29

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Public debt: 42.3% of GDP (2010 est.) country comparison to the world: 68 34.7% of GDP (2009 est.) Inflation rate (consumer prices): 9.4% (2010 est.) country comparison to the world: 197 15.9% (2009 est.) Central bank discount rate: 11.97% (31 December 2010 est.) country comparison to the world: 28 10.25% (31 December 2009 est.) Commercial bank prime lending rate: 15.869% (31 December 2010 est.) country comparison to the world: 20 20.863% (31 December 2009 est.) Stock of narrow money: $36.41 billion (31 December 2010 est.) country comparison to the world: 50 $29.27 billion (31 December 2009 est.) Stock of broad money: $74.96 billion (31 December 2010 est.) country comparison to the world: 58 $60.71 billion (31 December 2009 est.) Stock of domestic credit: $108.1 billion (31 December 2010 est.) country comparison to the world: 47 $101.3 billion (31 December 2009 est.) Market value of publicly traded shares: $39.46 billion (31 December 2010) country comparison to the world: 63 $16.79 billion (31 December 2009) $24.36 billion (31 December 2008) Agriculture - products: grain, sugar beets, sunflower seeds, vegetables; beef, milk

Industries: coal, electric power, ferrous and nonferrous metals, machinery and transport equipment, chemicals, food processing Industrial production growth rate: 11.2% (2010 est.) country comparison to the world: 18 Electricity - production: 172.9 billion kWh (2009 est.) country comparison to the world: 22 Electricity - consumption: 134.6 billion kWh (2009 est.) country comparison to the world: 22 Electricity - exports: 4 billion kWh (2009 est.) Electricity - imports: 6.73 billion kWh (2008 est.) Oil - production: 82,000 bbl/day (2010 est.) country comparison to the world: 54 Oil - consumption: 296,000 bbl/day (2010 est.) country comparison to the world: 44 Oil - exports: 114,000 bbl/day (2009 est.) country comparison to the world: 62 Oil - imports: 301,900 bbl/day (2009 est.) country comparison to the world: 35 Oil - proved reserves: 395 million bbl (1 January 2011 est.) country comparison to the world: 54 Natural gas - production: 20.26 billion cu m (2009 est.) Page 31

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country comparison to the world: 30 Natural gas - consumption: 44.16 billion cu m (2009 est.) country comparison to the world: 19 Natural gas - exports: 2.8 billion cu m (2009 est.) country comparison to the world: 34 Natural gas - imports: 26.7 billion cu m (2009 est.) country comparison to the world: 11 Natural gas - proved reserves: 1.104 trillion cu m (1 January 2011 est.) country comparison to the world: 25 Current account balance: -$2.884 billion (2010 est.) country comparison to the world: 169 -$1.732 billion (2009 est.) Exports: $52.19 billion (2010 est.) country comparison to the world: 52 $40.39 billion (2009 est.) Exports - commodities: ferrous and nonferrous metals, fuel and petroleum products, chemicals, machinery and transport equipment, food products Exports - partners: Russia 24.1%, Turkey 5.9%, Italy 4.7% (2010) Imports: $60.9 billion (2010 est.)

country comparison to the world: 43 $44.7 billion (2009 est.) Imports - commodities: energy, machinery and equipment, chemicals Imports - partners: Russia 33.9%, China 8.5%, Germany 8.1%, Poland 5.4%, Belarus 4.1% (2010) Reserves of foreign exchange and gold: $34.58 billion (31 December 2010 est.) country comparison to the world: 45 $26.51 billion (31 December 2009 est.) Debt - external: $99.51 billion (31 December 2010 est.) country comparison to the world: 38 $93.15 billion (31 December 2009 est.) Stock of direct foreign investment - at home: $53.3 billion (31 December 2010 est.) country comparison to the world: 52 $46.81 billion (31 December 2009 est.) Stock of direct foreign investment - abroad: $2.803 billion (31 December 2010 est.) country comparison to the world: 65 $2.067 billion (31 December 2009 est.) Exchange rates: hryvnia (UAH) per US dollar – 8.0264 (2011) 7.9111 (2010) 7.7912 (2009) 4.9523 (2008) 5.05 (2007) 5.05 (2006)

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2006 Real GDP Growth, % yoy Fiscal Balance, % GDP* Consumer Inflation, %, eop UAH/$ Exchange Rate, eop Current Account, % GDP Gross Int. Reserves, $ bn Foreign Gov't Debt, % GDP Foreign Private Debt, % GDP 7.3 -0.7 11.6 5.1 -1.5 22.4 11.0 39.6 7.9 -1.7 16.6 5.1 -3.7 32.5 8.7 47.4 2.3 -2.0 22.3 7.7 -7.0 31.5 9.2 47.1

2007 -14.8 -8.8 12.3 8.0 -1.5 26.5 20.5 68.1 4.2 -6.5 9.1 8.0 -1.9 34.6 25.5 63.8

2008 4.0 -4.0 10-11 8.0 -4.5 35.0 24.5 56.4

2009 4.0 -3.0 9.0 8-8.5 -4.5 31.0 23.0 50.0

2010

Figure 18 Main Macroeconomic indicators

* Includes implicit pension fund deficit (credits from unified Treasury account (state budget) to cover pension fund expenditures) for 2007-2008 and Pension Fund and Naftogaz imbalances since 2009, excluding bank recapitalization and VAT bonds OVERVIEW Real GDP grew by 4.4% yoy in 1H 2011 (3.5% yoy in 2H 2010). This growth was broad-based, driven by robust domestic consumption, strong investments, and solid exports. But the outlook for 2H 2011 has recently worsened due to: • deterioration of global economic growth prospects; and • weakening consumer demand. Therefore, our GDP growth forecast was revised slightly downwards to 4.0% both in 2011 and 2012 Ukraine will be affected by the international slowdown through the following channels: I. Exports: a) Weaker growth in main trading partners may reduce their imports. b) This may put a downward pressure on commodity prices, including steel – Ukraine’s main export commodity;
Figure 19 Real GDP Growth Percentage Points

II. Sector Inter-dependence: Page 33

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a) Metallurgy accounts for 25% of total industrial production and production of many other industries and sectors are tied to it. b) But performance of other sectors may compensate. III. Foreign Capital: a) The health of Ukrainian banks depends on European banks: due to higher global risk aversion, European banks may be more reluctant to maintain past external debt rollover ratios; b) FDI and External Debt inflows may be below potential I. Exports: (a) Growth in Main Trading Partners Demand for Ukraine’s exports is likely to weaken in 2H 2011. Exports to Russia and other CIS countries may slow Figure 20 Ukraine's Goods Export due to: • Weaker growth in Russia, economic downturn in Belarus; • Trade restrictions, imposed by Russia during June-July 2011, and which were automatically imposed by other members of the Customs Union. • There is continuing turbulences in MENA region. The second largest market for Ukraine’s exports, the EU, will also experience slow downs, even though exports to the periphery are small. • Turkey may also grow at a slower pace, due to its close ties with EU. • Slower growth in the CIS, EU and Turkey will affect Ukrainian exports. Exports: (b) Commodity Prices Slower global GDP growth will reduce not only world demand for commodities, but also their prices, including the price of steel. In fact, from May to July 2011, steel prices already fell by 6%. Although during July steel prices were higher than last year, the full-year increase in steel prices will be lower than projected at the beginning of the year. Ukraine’s exports and industrial production will be affected as they closely follow steel price trends. They will have lower growth rates than initially anticipated. II. Sector Inter-dependence: (a) Metallurgy Metallurgy accounts for 25% of total industrial production and drives the performance of many other sectors (1st chart). • From Jan-July 2011 Ukraine’s metallurgy grew by about 11% yoy, though output suffered large fluctuations during the year. • Similar trends were observed for the coke industry, non-energy mining etc., which are closely tied to metallurgy. Ukraine was a major world producer of such minerals as bromine, gallium, graphite, iron ore, manganese ore, pig iron, steel, titanium concentrates (ilmenite and rutile), and titanium. The country had large coal
Figure 21 World Carbon Steel Prices

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reserves but was dependent on imports to satisfy most of its petroleum and natural gas demand. Ukraine was also an important transit country for natural gas and petroleum from Central Asia and Russia to Europe (apodaca, 2010; Corathers, 2010; Fenton, 2010; Gambogi, 2010; Jaskula, 2010; Jorgenson, 2010; Olson, 2010). Structure of the Mineral Industry As in many of the countries that had made up the Soviet Union, ownership and control of mineral production facilities in Ukraine are not always completely transparent, but understanding the ownership issues is important for understanding the actions of industry participants. According to news reports, Ukrainian companies or their owners often established holding companies outside of Ukraine in order to purchase mineral production facilities and control their activities through indirect ownership. Therefore, when discussing a particular company, news reports often referred to companies as being “controlled by” instead of “owned by” another entity to avoid an unnecessarily detailed explanation of the ownership structure. This report and table 2 use this method to show the companies that actually control various facilities without showing specific shareholders. A good example of this indirect method used to control mineral production facilities was the PrivatBank Group’s control of Ukraine’s manganese production and of virtually all Ukraine’s ferroalloys production. The PrivatBank Group’s control of Ukraine’s two manganese mining companies at Marganets and Ordzhonikidze and three ferroalloys plants at Nikopol, Stakhanov, and Zaporozhye was widely reported, but the exact nature of ownership was difficult to determine. The shares of most of these facilities were owned by a number of privately held companies based in Cyprus that were widely reported to have been owned by the principle shareholders of PrivatBank, which gave the PrivatBank Group effective control over the facilities without having direct ownership of them (table 2; Ignatenko, 2009). Another important aspect of the structure of the Ukrainian mineral industry was that major production facilities were usually controlled by Ukrainian conglomerates with financial and industrial assets (know as financial-industrial groups) or by Russian companies. The leading Ukrainian financial-industrial group in terms of production of mineral commodities was System Capital Management, which controlled assets in finance, power generation and distribution, telecommunications, media, and real estate in Ukraine, and, through its holding company, Metinvest B.V. and through Donbass Fuel and energy Co. held important mining and metals production facilities. In 2009, companies owned by System Capital Management and Metinvest accounted for about 42% of coal production in Ukraine, an estimated 40% of iron ore production, and about 24% of coke and crude steel production, JSC Makevskii iron and Steel Works was removed from the list of crude steel producers as it seemed to have stopped production of crude steel in 2008 but continued to produce rolled metal products. The plant was obtained by Metinvest in 2007 when Smart Holdings of Ukraine sold its mining and metallurgical assets to Metinvest (table 1; Metinvest B.V., 2007; 2010, p. 2, 42; Donbass Fuel and energy Co., 2010, p. 38; System Capital Management, 2011). In the beginning of January 2010, the shareholders of the industrial Union of Donbass Corp. (iSD Corp.) completed the sale of 50% plus 2 shares in the company to a group of three Russian investors. ISD was Ukraine’s second ranked steel producer after Metinvest, and, in addition to its Ukrainian steel plants in alchevsk and Dniprodzerzhinsk, iSD owned steel plants in Hungry and Poland. One of the russian investors was identified as the owner of the Carbofer Group, which was based in Switzerland, but the other two investors were not officially named and news reports suggesting their identity could not be confirmed. The Russian state-owned bank Vnesheconombank financed the deal (Asankin, Chernovalov, and Kalnysh, 2010; Neverov, 2010). Page 35

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Figure 22 Ukraine: Production Of Mineral Commodities

e -estimated; estimated data are rounded to no more than three significant digits; may not add to totals shown. revised. do. Ditto. -- Zero. 1- Table includes data available through January 18, 2011. 2 – secondary in addition to the commodities listed, other minerals may be produced, but available information was inadequate to make reliable estimates of output. 3- reported figure. 4 - includes secondary 5 - ilmenite production statistics include information from production at only the irshansk GOk and Volnogorsk State Mining-Metals Complex. Productiondata for OOO Valki-ilmenit were not available, but it may produce an additional 50,000 metric tons per year of ilmenite concentrate. 6Figures were converted to barrels from metric tons (t), which were reported as follows: 2005—4,414,000 t; 2006—4,506,000 t; 2007—4,459,000 t; 2008—4,168,300 t; 2009—3,916,600 t. 7Figures were converted to barrels from metric tons, which were reported as follows: 2005—17,189,000 t; 2006—13,525,000 t;2007—13,283,000 t; 2008—10,717,000 t; 2009—10,959,000 t.

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Figure 23 Grain Harvest

II (b) Performance of Other Sectors could compensate • Agriculture grew by 9% yoy amid a generous harvest: Ukraine collected 48-50 million tons, the third highest harvest in its history. • Other sectors were supported by robust investment and consumption. • Construction went up by 14% yoy in Jan-Jul 2011, mainly thanks to budget financing of large infrastructure projects. • However, in June-July both private consumption and investments showed moderation, which may continue during the year as noted in next slides. Ukraine has 42.9mn ha of arable land, of which 75% is used to harvest crops. Individuals own land, and can use it to grow crops themselves or lease it to agro companies on a long-term basis (three-to-five years). We consider this type of relationship as transparent and price-driven, which has been reflected in increased lease prices in recent years For land to become tradable, two primary legislative acts are required: Law on Land Market and Law on Land Registry, both of which must be passed by the Rada. In the meantime, there is ongoing activity to develop a single land registry and draft amendments to the other legislative acts. Lease rate inflation and the absence of a guaranteed right to buy leased land are the two biggest concerns for Ukraine’s agro companies. It is expected that lease rates will reach $110-120/ha/year by 2012. Land lease contracts are usually very simple and include only basic terms, like lease period, lease rate and the pre-emptive right to buy land when it becomes tradable. However, such contracts give no guarantee to the lessee to buy land, as the owner is free to sell its land to the highest bidder. Over the 2006/2007 season, Ukraine produced 33.5mnt of grain, of which 4.2mnt was accounted for by grain. This is a rather modest crop, given the country’s potential to produce up to 60mn tpa. Ukrainian agro business lacks the financial resources to replace its 90%-depreciated machinery and spend the required working capital (on items such as quality seeds and fertilizers) to ensure high yields. Consumption and Investment Page 38

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Real wage growth decelerated sharply from about 10% yoy in 1Q 2011 to less than 2% yoy in June. Although the Government wants to increase public sector wages in 2H 2011, fiscal constraints may not allow it. Also slower export and industry growth may affect employment and private sector wage growth. However, the recent revival of consumer credit (+18% yoy in July) will support private sector consumption. Private investment activity remains rather weak (excluding investment in inventories) mainly due to sluggish bank credit to private companies. In fact, the 16% yoy increase in credit to legal entities as of June 2011 was achieved mainly due to a 180% yoy rise in loans to state-owned companies. III Foreign Capital: (a) Health of Banking System The external debt of the banking sector stood at $28 billion as of April 2011, with half of it is due within a year. There are 56 banks with foreign capital in Ukraine, of which 21 banks are Figure 24 Consumer Sentiment Index 100% foreign-owned. European banks hold about 30% of Ukrainian banking system capital. So far, foreign mother banks have provided substantial support to their Ukrainian subsidiaries. Nevertheless, the banking sector of Ukraine was a net exporter of capital (repayments exceeded new borrowings) during both 2010 and 1H 2011. High exposure of the European banking system to the Euro zone sovereign debts and intensified global risk aversion may make it more difficult for Ukrainian banks to maintain high debt rollover rates. This may affect the ability of local banks to provide credits.

Figure 25 Net FDI

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III Foreign Capital: (b) FDI and External Debt FDI inflows remain low despite decent economic recovery. Uneven reform progress and increased investors’ perceptions of more complicated business environment explain subpar FDI inflows to Ukraine. Sovereign and quasi-sovereign borrowings on foreign markets were the main source of BoP financial account surpluses in 2010 and 1H 2011. Intensified global risk aversion may adversely affect foreign capital inflows Ukraine’s BoP and Hryvnia Outlook Due to weaker exports but still high imports, Ukraine’s CA deficit may widen to 4.5% of GDP in 2011. The financial account may be under pressure due to high debt financing needs and strong population demand for foreign currency. In 2011, net population purchases of foreign currency amounted to $7 bn. However, foreign creditors still believe Ukraine is less risky than some countries in the EU periphery In addition, high level of NBU gross international reserves ($37.8 billion as of end-July 2011) should provide some confidence. Hence, we do not expect massive capital outflows from the country. The Hryvnia exchange rate to US Dollar should remain stable in 2011. Fiscal Policy State budget revenues exceeded original estimates, rising by 47% yoy in 1H 2011 (in nominal terms). The Figure 26 Fiscal Deficit revenue increases resulted from: selected tax rate increases (excises, rent payments, etc.); a general improvement in the economic situation in 1H 2011; a change in tax administration rules after Tax Code enforcement. As expenditures grew by only 6% yoy, the state budget deficit amounted to about 1.7% of period GDP. Despite announced increases in budget spending in 2H 2011, the state budget deficit target of 2.7% of GDP looks realistic. However, due to the authorities’ reluctance to raise natural gas tariffs to the population and higher energy prices, Naftogaz will face above-target deficit. Reform Progress and Cooperation with the IMF Ukraine’s progress in implementing IMF conditions is mixed: • The 2011 state budget law was amended in June to keep broad fiscal deficit target at 3.5% of GDP. • However, natural gas tariffs were not raised as planned. As a result, Naftogaz deficit may reach 1.3% of GDP, almost twice as high as the initial target. • The Pension reform bill was approved by the parliament on July 8th. However, it introduced increases in pension payments unacceptable to the IMF. The President still has not signed it into law. • During May-June, the domestic currency market was liberalized and NBU independence was ensured by eliminating a requirement to mandatorily purchase government bonds issued for recapitalization purposes.

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• Due to lack of full implementation of these conditions, the IMF program funding to Ukraine has been suspended since March. • The next IMF mission is now expected in late October. • Though currently there is no fiscal need for IMF funds, the presence of the IMF would increase the country’s resilience to adverse external shocks. Short Term Outlook Despite weaker export prospects, real GDP should increase by 4% in 2011. Without additional compensatory measures to sustain Naftogaz, the broad fiscal deficit target of 3.5% of GDP will be missed in 2011. It is therefore unlikely that the IMF program will be revived this year. But the country seems firm to continue fiscal consolidation, though at a slower pace than initially expected. If so, the country may be able to manage its vulnerabilities without the IMF funds in the short-run, provided that: The EU debt crisis is contained and European banks can roll-over debt; The world economy avoids another recession that would depress Ukrainian exports and reduce steel prices. Due to slower GDP growth, lower pressure from international energy prices and good harvest, inflation will ease to 10-11% yoy in 2011. The Current account deficit will widen to 4.5% of GDP in 2011, but external financing needs will be manageable, allowing the Hryvnia to remain stable. Medium Term Outlook In 2012, the Ukrainian economy is likely to grow below its potential at 4% yoy. This growth will be supported by private consumption, fueled by election-driven budget spending, and export of services (due to the hosting of the Euro 2012 football championship). Depreciation pressures on the Hryvnia, stemming from high external financing needs and gradual loss in competitiveness (as inflation in Ukraine remains much higher than in its main trading partner countries), should materialize with the exchange rate moving to 8.0 -8.5 UAH/$ by the end of 2012. After the 2012 Rada elections, there will be 3 years without elections that could allow for the implementation of reforms to improve the business environment. The signing of a FTA with the EU may become a locomotive of future growth and a strong driver of structural changes in the economy. However, there is a risk of increasing Russia’s pressure on Ukraine to join the Customs Union; but so far the Ukrainian government has been clear that it will only agree to a TFA with the CU and pursue deeper trade relations with the EU.

HIGHLIGHTS OF UKRAINIAN PERFORMANCE
After falling 16 places over the last two years—one of the steepest declines of all countries, which

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reflects the many economic and political challenges the country has faced in recent years—Ukraine reverses the trend and moves up 7 positions this year. The country continues to demonstrate a number of competitive strengths. A well-educated population, flexible and efficient labor markets, and a large market size continue to set a good base for the country’s future growth performance. On the other hand, despite its impressive reform agenda, no real improvements have been measured in the country’s weak institutional framework (131st) or in its highly inefficient markets for goods and services (129th), which stifle competition and prevent entrepreneurship from flourishing. In this context, it is hoped that the country’s accession to the World Trade Organization (WTO) will further contribute to intensifying competition in the country by reducing both trade barriers and domestic obstacles. Priority should also be given to continuing the stabilization and development of its financial sector (116th), building on recent reforms.

Figure 27 The Global Competitiveness Index 2011-2012 rankings and 2010-2011 comparisons.

Figure 28 The Global Competitiveness Index 2011-2012

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Figure 29 The Global Competitiveness Index 2011-2012: Basic Requirements

World Bank and International Finance Corporation Rankings for Ukraine The following is how Ukraine ranked out of 183 countries studied (The complete study is available)

Figure 30 Ukraine: World Back Rating

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Economic Growth Poverty Economic Structure Demography and Environment Gender

Between 2003 and 2007, real GDP grew at an impressive average annual rate of 7.8 percent, driven largely by strong export earnings, high domestic consumption, and efficient use of capital and labor. In the longer term, Ukraine’s demographic problems threaten growth prospects. With rapid growth, the incidence of poverty fell from 31.7 percent in 2001 to 7.9 percent in 2005. In 2003, the income share of the bottom 20 percent was among the highest in the world. Agriculture’s share of GDP has declined while the share in services has risen to almost 57 percent of GDP in 2006.

Because of low fertility rates and emigration, Ukraine’s population is rapidly declining, and the ratio of elderly to working-age population is rising steeply, straining the public purse. Gender parity is excellent in education and nearly as good in labor force participation. An unusual disparity of nearly 12 years in life expectancy in favor of females reflects the high incidence of male alcohol abuse and health problems. The budget deficit is within the EU ceiling, but the levels of taxes and government spending are extremely high. Spending strongly favors transfer payments that spur consumption, not investment. In addition, inflation is far above the EU and benchmark norms. Red tape is a serious impediment to private sector growth. In 2008, Ukraine ranked 139th of 178 countries in the World Bank’s composite Doing Business index. Governance improved in recent years but remains poor in absolute terms. Corruption is also a major problem. The banks and the stock market show remarkable growth, and the insurance sector is expanding. But there are problems with credit risks, negative real interest rates on loans, thin trading in the stock market, a weak bond market, poorly developed private pension industry, and deficiencies in the underlying institutional framework. Export volume declined in recent years, and remittance receipts remain low, while import demand has soared. As a result, Ukraine’s current account switched from surplus to a deficit of 8.1 percent of GDP in 2007, funded mainly by private capital inflows. The de facto peg of the hryvnia to the U.S. dollar creates stability and competitiveness risks. Overall infrastructure quality is in line with benchmarks, particularly ports, roads, and railways. Internet and telecommunications networks are expanding rapidly. But improvements are needed in air transport and electricity supply. A clear commitment to science and technology is seen in most science and technology indicators. The main problem is weak protection of intellectual property rights. Ukrainians enjoy nearly universal access to improved water and sanitation, and low maternal mortality and child malnutrition. Still, life expectancy of 68 years is low by benchmark standards, and Ukraine has the highest HIV rate (1.4 percent) in Europe and Central Asia. Ukraine has a strong commitment to tertiary education, though net enrollment rates at the primary and secondary school levels lag well behind EU standards. The workforce contracted by 0.4 percent per year from 2000 to 2007. But labor force participation is high, unemployment is low and falling, and real wages are rising rapidly. Labor productivity in agriculture is very low compared to labor productivity in industry and services, but it is improving. Nonetheless, sustained efforts are needed to boost productivity and efficiency.
Figure 31 World Bank Breakdow

Fiscal and Monetary Policy Business Environment Financial Sector

External Sector

Economic Infrastructure Science and Technology Health

Education Employment and Workforce Agriculture

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UKRAINE: STRENGTHS AND WEAKNESSES—SELECTED INDICATORS Selected Indicators, by Topic Growth Performance Real GDP growth Growth of labor productivity Investment productivity, Incremental Capital-Output Ratio (ICOR) Poverty and Inequality Income share, poorest 20% Demography and Environment Population growth, annual percent change Elderly dependency rate Gender Life expectancy at birth, gender differential Gross enrollment rate, all levels, gender differential participation rate, gender Labor force differentialMonetary Policy Fiscal and Government expenditure, level and composition growth Money supply Composition of money supply growth (credit to rate private sector) Inflation the Business Environment Ease of Doing Business ranking Control of Corruption Index Financial Sector Domestic credit to the private sector Interest rate spread Real interest rate Legal rights of borrowers and lenders Stock market capitalization rate External Sector Export growth, goods and services Foreign direct investment, percent GDP Concentration of exports Current account deficit, percent of GDP Gross private capital inflows, percent GDP Debt service ratio, percent exports Strengths X X X X X X X X X X X X X X X X X X X X X X X X X X Page 45 Weaknesses

Figure 32 Ukraine - Strength and Weaknesses

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Selected Indicators, by Topic
Economic Infrastructure Roads, paved, percent of total Air transport infrastructure index Quality of electricity supply index Science and Technology Expenditures on Research and Development, percent GDP IPR protection Health HIV prevalence Access to improved sanitation Access to improved water source Maternal mortality rate, per 100,000 live births Prevalence of child malnutrition, weight for age Education Net secondary school enrollment rate Youth literacy rate Gross tertiary enrollment rate Employment and Workforce Growth of the labor force, annual percent change Unemployment rate Agriculture Agriculture value added per worker Agricultural Policy Costs Index
Figure 33 Selected Indicators, by Topic

Strengths
X

Weaknesses

X X

X X

X X X X X

X X X

X X

X X

Note: The chart identifies selective indicators for which performance is particularly strong or weak relative to benchmark standards.

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Figure 34 The Global competitiveness Report - World Economic Forum

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Figure 35 Global Competitiveness Index in Detail

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Acceleration the growth – recommendation of World Bank and IFC The diagnostic of the economy undertaken points to 3 key reform areas needed to accelerate growth in the short term: fiscal stabilization, business entry (and exit), and banking sector rehabilitation. Over the medium term, reform also needs to focus on three areas: deeper fiscal and investment climate reforms complemented by public sector governance reform. In short, the objective is to turn Ukraine into an economy where the footprint of the state is smaller and more even handed, and where the private sector thrives and invests as a result of the pressures of competition rather than the perks of state connections. In the short term The objectives of fiscal reforms in the short term and their linkages to accelerating growth are to: • secure stability through a prudent fiscal stance to attract investors back to the country; • adequately pay VAT refund arrears to support the export sector; and • lay the foundations to generate fiscal space for public investments that would support employment and growth. On the expenditure side this can be done by initiating structural pension reform and increasing energy tariffs. This process should be mindful of adequately funding well-targeted social assistance programs to protect the poor from the downturn and future reforms by reallocating funds from poorlytargeted programs. On the revenue side, reforms can expand the tax base by eliminating tax exemptions and curtailing loopholes in the enterprise profit tax (EPT), such as double taxation international treaties. Measures on the revenue side also bring about a more balanced adjustment between citizens and firms. These measures constitute the first step in a process of saving and reallocating fiscal resources toward more productive and growth-enabling uses The objectives of business entry/exit reforms in the short term and their linkages to accelerating growth are to: • enable a healthy reallocation of resources in the economy from declining sectors and firms to more resilient sectors and new firms, which would help to generate employment and growth; and • remove key obstacles to business entry and exit to attract FDI and encourage domestic investors with resources to start new ventures. In the short term, credible reforms need to be taken to generate enough momentum in licensing, permits, standards, and certification. Bold measures on business entry will not only help employment but also help to build confidence in the economy and credibility in the reform process. The objective of banking sector rehabilitation is to secure stability, enable intermediation, and prepare the sector for future shocks. Access to finance through the banking sector is not likely to be a constraint to growth over the medium term, but in the short term, the economy cannot afford another year of drastic deleveraging. Rehabilitating the sector is essential to secure stability and recovery. Reforms require a renewed effort to tackle the legacies of the past and strengthen regulation and transparency to regain trust. While progress has been achieved over the last year (e.g., setting up the process of recapitalization, providing the regulator with resolution tools), significant pressures and threats face the system today: unrecognized NPLs may rise, there is still a large number of weak small banks that cannot intermediate effectively the declining amount of national

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savings, and supervision and regulation is not ready to prevent another crisis. Recapitalizing the system whilst increasing its transparency is essential to the rehabilitation process. Beyond that, regulation and supervision reforms should help to make the financial sector more resilient to shocks whilst being a reliable source of financing for a growing domestic economy. But the authorities should move quickly as the window of opportunity for reforms in the sector is closing. These three reform challenges are inter-related. Without fiscal reform, macroeconomic stability and a sustained recovery will not be possible and investors will remain risk averse toward Ukraine. Without private investment (through new entry) to fuel the recovery, fiscal consolidation will be more difficult, and banks will struggle to find viable lending opportunities in the real sector. Without a stable and properly capitalized banking sector and regained trust among depositors, banks will not have the resources and the strength to support private businesses. Because of these interlinkages, all three reform areas must be tackled simultaneously, and with strong up front measures. In the medium term To sustain growth, deeper investment climate, fiscal, and public sector reforms will be needed. With capital markets likely to remain more selective and risk averse than in the past, Ukraine’s growth will have to rely on significant productivity gains. These gains can result from a more dynamic entry and exit of firms in the economy, more competition, and greater sophistication and diversification of Ukraine’s export basket. At the same time, this requires dealing with the large backlog of public infrastructure investments and improving efficiency of public services (to foster a highly skilled labor force) to support productivity and export growth. This will require deeper fiscal reforms and the continuation of the fiscal reallocation process described above. Finally, to achieve sustained growth, the public sector will need to be streamlined and reformed, eliminating red tape, securing property rights, and strengthening the rule of law. The objectives of deep investment climate reforms and their linkages to sustained growth are to: • lift barriers to entry and exit to improve competition and productivity growth; • increase and sustain FDI to foster technology adoption, modernization and productivity growth; and • foster product diversification and sophistication to enable Ukraine’s exports to become more resilient to shocks and sustainably support stronger growth. Reliance on foreign savings to finance explosive domestic consumption will not be an option in the current conditions of tight credit. But deep policy improvements to strengthen the institutional framework for business and continuing the process of modernization in key sectors of the economy will help to accelerate and sustain productivity growth over the medium term.

The objectives of deeper fiscal reforms and their linkages to sustained growth are to: • create fiscal space for public investments so infrastructure can sustainably support private sector growth; • gradually reduce the footprint of the public sector in the economy to crowd in the private sector; • improve efficiency and quality of service delivery for Ukraine’s citizens; and • secure the sustainability of public finances and social insurance.

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The objectives of public sector reforms and their linkages to sustained growth are to: • improve citizen and investor confidence in the country’s rule of law and economy; • sustainably attract FDI that can help modernize the economy as opposed to just short-term in flows in search of high rents; and • reduce red tape, abuse and corruption in regulatory and control agencies that hamper private sector investment and growth. Tackling public sector and institutional reforms is necessary to improve governance and gain the trust of investors and citizens. Red tape, burdensome regulation, allegations of corruption and abuse, insecure property rights, a perception of weak rule of law, poor governance of SOEs and limited accountability are core problems hampering Ukraine’s prospects as a place to make long-term investments. Tackling these problems will require radical reforms in the way the government interacts with business and with citizens: a change in role from a controller to an enabler of markets and welfare. Public sector reforms are closely linked with investment climate and fiscal reforms. Public sector reforms will require a public administration reform program that rationalizes redundant state control agencies and redundant roles within the government itself, which should be done in parallel to investment climate and regulatory reforms. Tackling the problem of oversized public sector employment should be done in parallel to fiscal reforms in social services, such as the optimization reforms in health and education. These reforms would require drastic improvements in transparency, governance, and incentives for SOEs, in parallel with fiscal and public financial management reforms. Significant reforms are also required in the judicial system to level the playing field. Sustained increases in FDI over the medium term from countries that can help to push Ukraine’s export diversification and sophistication will depend heavily on these reforms. Public sector reforms are complex. Sustained and high level of political leadership will be needed to carry them through.

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Communication
continue to lag; the mobile-cellular telephone system's expansion has slowed, largely due to saturation of the market which has reached 120 mobile phones per 100 people international: country code - 380; 2 new domestic trunk lines are a part of the fiber-optic Trans-AsiaEurope (TAE) system and 3 Ukrainian links have been installed in the fiber-optic Trans-European Lines (TEL) project that connects 18 countries; additional international service is provided by the Italy-TurkeyUkraine-Russia (ITUR) fiber-optic submarine cable and by an unknown number of earth stations in the Intelsat, Inmarsat, and Intersputnik satellite systems Telephones – main lines in use: 13.026 million (2009) country comparison to the world: 20 Telephones - mobile cellular: 55.333 million (2009) country comparison to the world: 20 Telephone system: general assessment: Ukraine's telecommunication development plan emphasizes improving domestic trunk lines, international connections, and the mobilecellular system domestic: at independence in December 1991, Ukraine inherited a telephone system that was antiquated, inefficient, and in disrepair; more than 3.5 million applications for telephones could not be satisfied; telephone density is rising and the domestic trunk system is being improved; about one-third of Ukraine's networks are digital and a majority of regional centers now have digital switching stations; improvements in local networks and local exchanges Overview Ukraine’s possesses a significant telecoms market due to its large population. Competition is improving as alternative operators engage in infrastructure-based competition due to lack of an effective last mile network access regime. Wireless local loop and fibre operators have been most active in this area. Page 52 Broadcast media: TV coverage is provided by Ukraine's state-controlled nationwide broadcast channel (UT1) and a number of privately-owned television broadcast networks; Russian television broadcasts have a small audience nationwide, but larger audiences in the eastern and southern regions; multi-channel cable and satellite TV services are available; Ukraine's radio broadcast market, a mix of independent and state-owned networks, is comprised of some 300 stations (2007) Internet country code: .ua Internet hosts: 1.098 million (2010) country comparison to the world: 42 Internet users: 7.77 million (2009) country comparison to the world: 38

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However the incumbent remains the dominant player, with the regulatory environment more likely to improve once privatization of the incumbent is completed. Drawing upon numerous statistics, this report provides a concise overview of the Ukrainian telecoms market, including brief profiles of major operators, telecom network infrastructure in the country and network developments which are underway. Telephone Ukrainian telephone network stayed practically undeveloped till recently. The situation is being changed within last years and old equipment has been updated. The results are noticeable in big cities and their suburbia, where new digital telephone exchanges have appeared. At the same time, the part of old equipment remains non-upgraded and quality of the connection can vary very much. In little towns and countryside the connection can be very poor. Some villages might have only one telephone to serve the whole built-up area. Phone usage charge at hotels is often 2-3 times higher than phone companies’ tariffs. With Ukrtelecom still a de facto state monopoly, the situation regarding interconnection is so heavily regulated that the cost of calls from fixed phones to mobile phones is decided by Government decree and the redistribution of incomes from such calls is based on agreements between Ukrtelecom and the mobile operators. This rate is currently 0.6UAH per minute (or approximately 0.10 Euro). These agreements between Ukrtelecom and mobile operators are signed on a yearly basis. At the present time, it is difficult to obtain data on interconnection between telephony operators because all sides have an interest in not revealing the actual conditions of their agreements. There is also no public information available regarding the existence of complaints regarding interconnection regulation. Interconnection is governed by Chapter IX of the 2003 Law on Communications and the subsequent draft NCCR Order on Interconnection and Calculation among Operators. The Law on Communications requires operators to provide other operators willing to conclude an interconnection agreement with the information required for negotiation and to offer interconnection terms that are at least equivalent to those proposed to other operators (Art. 58). The NCCR is authorized to intervene in cases of failure by parties to negotiate (paragraph 19, Art. 18). For fixed-to-mobile interconnection, the termination fee is 0.25 UAH (0.04 Euro) per minute. The price of call termination in the mobile-to-fixed market is decided by commercial agreement between the parties, but the tariff cannot be more than 0.25 UAH (0.04 Euro). Mobile to mobile interconnection is purely a matter for commercial negotiation. Charges for call origination and other telecommunication services are subject to the control of the Antimonopoly Committee (AMC) of Ukraine in cases where the charges are deemed to have a significant social impact. For instance, on 28 October 2005 the AMC adopted a decision recommending mobile operators abolish sign-up charges for users. The fact that the number of mobile subscribers exceeds the number of fixed subscribers in Ukraine was the basis for the argument that this intervention was needed. This issue of interconnection is being addressed by the NCCR as a matter of priority, in order to deal with non-transparency in the interconnection regime. According to Article 59 of the Law on Communications, the incumbent operator is required to publish an RIO annually in the official journal of the NCCR. The offer should include the current list of interconnection points, technical requirements and economic terms. However, Ukrtelecom has not yet published an RIO, as the Law on Page 53

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Communications requires it to, since the Rules on Interconnection have not been adopted yet by the NCCR. The NCCR is drafting the Rules of Interconnection and these are currently available for public discussion on the NCCR website (http://www.nkrz.gov.ua/ua/docs/pravila_v3.zip (Ukrainian language only)). Until Ukrtelecom’s monopolies are weakened (and a decision on this issue is expected in the near future), there is little possibility of the introduction of carrier selection and carrier reselection. Running parallel to Ukrtelecom’s monopoly are the illegal international voice services. As early as 2001, some estimates put the percentage of illegal international voice services in Ukraine as a percentage of total voice traffic as high as 10 percent. Such problems often indicate issues with regulation or competition in the marketplace. However, this situation is changing and there are now several private operators, such as Optima, that are in the process of developing their own infrastructure. Ukrtelecom revenues from the different services on offer were as follows: Long distance calls revenue – 2,633.9 billion UAH (427.39 million Euro) or 49.86 percent of total revenue; local fixed calls revenue – 1,317 million UAH (213.71 million Euro) or 24.3 percent of total revenue; international call revenue – 950.7 million UAH (154.27 million Euro) or 18 percent of total revenue; IP – 156.417 million UAH (25.38 million Euro), or 2.96 percent of total revenue.17 Other services such as paging made up the remainder. No attempt has been made to calculate losses from the illegal termination of voice calls in Ukraine. Ukrtelecom offers a termination rate for IP calls of 0.75/0.77 US$ (0.62/0.63 Euro). It is not known how many (if any) IP telephony companies avail of this offer. Ukrtelecom sold to Epic Services Ukraine for UAH10.57 billion; telecom revenue expected to grow 5% for 2011; EU concerns of independent judiciary; regulator market data to August 2011; operator data to June 2011.Fixed telephony penetration has been steadily rising, and currently stands at 23.2 percent, with mobile at 84.9 percent. As these figures are significantly lower than in developed countries, there appears to be significant growth potential. Ukrtelecom has been working extensively with Cisco to upgrade IP services on its network, including for VoIP functionality, and is developing a next generation network. Fixed line telephone density was 24.3 percent as of 1 January 2006. However, this figure conceals a large urban/rural digital divide. Tele densities range from 45 percent in Kyiv to 9 percent in villages and small towns, and even less in more remote regions. Numbering The Department of Communications and Informatisation (part of the Ministry of Transport and Communications) develops and manages technical policy for numbering allocation. The NCCR provides a management function for numbering policy through liaison with operators. Under the 2003 Law on Communications, administration of numbering resources is divided between the “Central body of the executive government in the communications sphere,” which is responsible for legislation and policy regarding numbering, and the NCCR, which is responsible for assessing requests for numbering resources and ensuring that the relevant rules on use of numbers are respected and has the power to withdraw numbers, if necessary. Planning work is currently underway to overhaul both the fixed and mobile numbering resources used in Ukraine in order to take account of increased use of both networks. The number allocation procedure is regulated by the Law on Communications.

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According to Article 70, “numbering resources are provided to [a] telecommunications operator for the period of validity of its licence without the right to sub-allocate these numbers to other operators.” The sub-allocation of numbers has been used in other countries to facilitate the use of geographic numbers for VoIP, an option that is therefore not available in Ukraine. Nevertheless, telecommunications providers are able to exchange numbering resources amongst themselves, based on contractual agreements. Before the development of independent private telecommunications operators, Ukrtelecom had an exclusive right to telephone numbering resources. However, this situation is changing and now there are several private operators, such as Optima, that are in the process of developing their own infrastructure, and obtaining their own numbering resources directly through the NCCR. Neither fixed nor mobile number portability is currently available, although all of the main mobile operators have expressed support for mobile portability to be implemented. Non-geographic numbers, such as national local call or premium rate services, have not yet been developed in Ukraine. In the near future the subscribers of mobile operators will be able port their number between operators if Bill N 2047 is successful. This bill aims to amend the list of obligatory services provided in the context of the Law on Telecommunications. Whether or not consumers will be charged a fee to port their numbers is not yet clear. Rights of Way and Facilities Sharing/Collocation Every three years, the Parliament of Ukraine approves the activities proposed under the National Program for Informatisation, which includes infrastructure development decisions taken at national and local levels. The Report of the Parliament No. 3075-IV, adopted on 4 November 2005, concerning the approval of tasks of the National Program for Informatisation for 2006-2008, obliged the Cabinet of Ministers to provide an economic analysis of the financial resources needed for the planned projects, so that the costs to the state could be included in the State Budget. The 2003 Law on Communications offers the NCCR a variety of tools to ensure competitive neutrality with regard to building communications infrastructure. According to current legislation, all telecommunications operators have the right to build telecommunications networks in accordance with a Plan that has been approved by the Ministry of Transport and Communications (MTC). The procedure for approving the Plan is the following: • The telecommunications operator should develop a Plan for the building of the telecommunications network; • The Plan should be sent to the MTC for review and approval; • After the plan has been approved, the operator should ask the owner of the cable man-hole (Ukrtelecom or the local government) to approve the construction. The procedure applies equally to all communications companies regardless of size. However, as the requirements are somewhat complex, there is a risk that only larger companies, with the resources to tackle these requirements, are in a position to build telecommunications networks cost effectively. Once the procedure Page 55

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for approving the Plan has been completed, the telecommunications operator needs to secure building permission. The procedure for obtaining permission to build a network is set out in Article 10 of the Law on Telecommunications, and includes: • Having the relevant communications license; • Obtaining permission for land use; • Obtaining permission from the local authority to build the network (based on the decisions approved by the local communications, architecture, and health authorities). Often, rather than rolling out their own networks, telecommunications operators and providers use the networks built by local community companies, particularly TV providers, which also provide low cost Internet services. Tariff Policy Article 67 of the 2003 Law on Communication sets clear rules regarding the cost orientation of services, meaning that the legal basis for bringing about a competitive market in the local call and international markets is in place. The Law states that: “Tariff regulation on the telecommunication market of Ukraine shall be based on the following principles: • Tariffs shall be based on the cost of these services and considering the profit earned; Tariffs shall depend on the quality of telecommunication[s] services; • Telecommunication[s] operators/providers shall not set dumping or discriminatory prices; • Cross funding of one telecommunication service [to the benefit] of another shall be avoided.” NCCR has drafted extensive rebalancing measures, with a 70 percent reduction in the cost of international calls and an increase in local rates. Line rental is set to increase by between 200 and 300 percent (up to 18UAH/3 Euro to 28UAH/4.5 Euro). International tariffs are being reduced by between 17 and 69 percent, while national long-distance calls are being reduced by between 13 and 17 percent. Despite these price adjustments, tariff rebalancing per se has not been implemented in Ukraine.

The incumbent telecommunications operator (Ukrtelecom) fulfils its universal service obligations through its low fixed prices (prices for local and regional calls are below cost for Ukrtelecom subscribers) and the development of its fixed network to cover the entire territory of the country. The profit from international calls covers losses from local and regional calls and ensures the company’s viability. Mobile operators’ prices are not regulated, as the market is deemed to be competitive. Page 56

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Cost Accounting In the absence of liberalization and requirements for cost-based access to the monopoly provider’s network, there is little need for an efficient cost accounting system at present, as Ukrtelecom calculates all costs. However, as mentioned above, the 2003 Law on Communications does require services to be based on cost orientation in order to ensure the possibility of fair competition in the market. Therefore, the NCCR will need to develop some form of consistent methodology to ensure that this aspect of the law is respected. However, nothing has yet been published at the time of writing.
Figure 36 Teledensity compared with population

Universal Service

By “universal” services the Law on Communications understands “a minimum set of services of standardized quality determined by the Law, accessible by all the consumers on the whole territory of Ukraine” (Article 1). The exhaustive list of the universal services in Ukraine comprises: “landline telephone (local, long-distance and international) communication services, (except for services provided using wireless access facilities), including emergency call services, information services, communications that use payphones and trunk-call offices, facsimile and telegraph communication” (Article 62). According to the Law on Communications, specific services should be available for all consumers living on Ukrainian territory. These universal services include fixed telephone connection for local, long distance and international calls, emergency and directory services, payphone services, and facsimile and telegraph services. The approach with regard to universal service is based on the Concept for a Universal Services Fund, which is outlined in the draft Report (No. 8448 of 14 November 2005) of the Parliament on the Approval of the Recommendations of the Parliament Hearings on Information Society Development in Ukraine held on 21 September 2005 and the Concept on Telecommunications Development. According to the Law on Telecommunications (Article 64), the development of universal services should be outlined in the Concept on Telecommunications Development, subject to approval by the Cabinet of Ministers. The latest version of the draft Concept on Telecommunications Development, dated 1 August 2005, was prepared by the Ukrainian Research and Scientific Institute of Communications and submitted to the Cabinet of Ministers. The approval process was disrupted by preparations for Parliamentary elections in Spring 2006. Universal service is based on tariffs fixed by the Government. While the legal basis for universal service is clear, the implementation of this legislation has not been prioritized to date. A universal service fund has not yet been established and the methodology for funding any such initiative has not yet been developed. It is worth noting that mobile operators are already subject to a levy on their income to contribute to the national pension fund. The Ukrainian authorities are addressing universal service in a pragmatic way, not dissimilar to the approach taken in Russian legislation. They are taking measures to ensure at least communal access to communications networks, providing a basic level of access to citizens before building up to more comprehensive universal service measures. Pilot projects have been launched, the experience from which should form the basis of future work in Page 57

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this area. In addition, plans were announced to provide low-cost access to the Internet in the major cities of Ukraine using WiMAX technology. Three national and two regional 5.74Ghz-5.67Ghz licenses are in the process of being auctioned. Directory services and access to emergency services (fire, police and ambulance) are only available for fixed network users. Mobile networks are not connected to emergency call centers. Universal services for disadvantaged users are not yet included in Ukrainian law. The right to receive an invoice for telephony services was introduced by the 2003 Law on Communications. Tariffs for universal services are to be regulated by means of introducing either maximum or fixed rates (according to Article 66(2)(1) of the Law on Telecommunications). Under legislation in force since 1 January 2005, the NCCR has had the right to impose the obligation on companies with nationwide monopoly status, and on companies looking to develop services to consumers in regions needing universal service support, to develop and provide universal services to consumers. The mechanism for the compensation of losses incurred as a result of fulfilling this obligation is to be determined by the Cabinet of Ministers of Ukraine (Article 64(5)). Local Loop Unbundling At present, there appears to be little likelihood that local loop unbundling will be mandated by the Ukrainian central government, as there are other priorities which are considered more urgent. Leased Lines Official statistics regarding the use and availability of leased lines in Ukraine are not currently available, as these data are not collected from market players by state authorities. Alternative telecommunications providers are dependent on leased lines as Ukrtelecom owns the majority of the infrastructure and many alternative providers do not have sufficient resources to build their own networks and consequently have to rely on Ukrtelecom’s network. This is particularly true for the lower-cost end of the market. Private operators usually develop their own networks for business customers and they are not generally interested in the less lucrative residential market because of the high cost of building communications channels. According to data from operators in Kyiv, installation costs can range from 420 Euro in areas with above average (by Ukrainian standards) infrastructure to 2,500 Euro in more underdeveloped regions. Individuals or smaller businesses obviously cannot pay for such services at these rates. At present, only cable television distributors provide the opportunity for smaller entities to have a comparatively fast, always-on connection to the Internet. Such a connection costs approximately 25 US$ (20.6 Euro) per month. This comparatively low price is due to the fact that this service can be provided with relatively low levels of additional investment by the cable ISPs.

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Local experts report that, “99 percent of providers rent [leased lines] from Ukrtelecom, and only some carry their own lines. However, a customer will feel the difference, if he/she tries the channels of different providers. Carrying capacity, external channel quality, the “last mile” (meaning quality of a cable laid to the customer), as well as technology for signal transmission in the cable and the equipment used all have an impact on the Internet quality. The qualifications of the provider’s personnel also play a big role. One supplier of services to mobile phone operators in Ukraine told the study team that difficulties (cost, in particular) of using leased lines in Ukraine have resulted in other options being sought, such as wireless backhaul services which, while expensive to install, are an attractive option when long-run costs are taken into account. Interconnection with the public switched network is subject to state regulation governed by the Order of the State Telecommunication Committee of 7 June 2002, No. 120. The price for the provision of a connecting line is 333.33 UAH (54.09 Euro) per month. Prices for long distance and international calls of local operators made via Ukrtelecom lines are regulated by the Order of the Ministry of Communications of 21 November 1996, No. 234, on the basis of revenue sharing. This depends on the number of lines, equipment used, and administrative costs. In Ukraine, DSL is used by Internet Service Providers as high speed leased lines. HDSL is the most widespread technology used for this purpose, reaching 2Mbps data exchange speeds in both directions. A new company in the Ukrainian market, Datagroup, is building out a 1,800km fibre optic network, which it will use as the basis to provide wholesale services to other communications operators and ISPs, taking advantage of Ukrtelecom’s problems in dealing with current demand. Eurotranstelecomm has also recently joined the wholesale market. This new level of competition has lead to significant price reductions, by up to 90 percent in some cases (not reflected in the table above). Datagroup and Ukrtelecom deny suggestions that prices are now below cost. Mobile Phone Networks Ukraine’s mobile market has experienced exponential growth since 2002. Mobile subscribers increased from 3.7 million in 2002 to over 57 million in 2007, growing at an average 70% per year. Penetration levels are one of the highest in the region and mobile connections now outnumber fixed line connections by 5 to 1.

Figure 37 Regional levels of mobile penetration, Q3 2007

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Mobile services are the preferred method of communication in a country where fixed line penetration stood at 23% of population in 2005. Mobile services have therefore contributed to overall telephony penetration and have helped bridging the communication gap between rural and urban areas. In addition, by providing a universal and reliable telephony services, mobile services have promoted economic development and direct investment in the country. Mobile coverage is now effectively universal as 99% of the country’s territory is served by at least one operator and Minutes of Use (MOU) peaked at 150 per month in 2007. There are currently five mobile operators in Ukraine, competing to deliver low tariffs and innovative services to consumers. The average price of an outgoing call has dropped by nearly 80% in the last five years. Effective mobile prices per minute are among the lowest in Eastern and Central Europe. However, in 2007 subscriber growth declined significantly due to a saturated market: five million new connections are estimated for 2007, compared to over 18 millions in 2006.

Figure 38 Effective mobile price per minute in a sample of Eastern and Central European countries, 2007

Figure 39 Mobile penetration and Total Outgoing Minutes of Use in Ukraine

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The maturing voice market has caused voice average revenue per user (ARPU) to decrease by over 70% in the last four years. In response, operators have shifted focus towards the mobile data market, with EDGEtechnology services recently introduced and MMS services. 3G (third generation) has yet to be launched by the MNOs. Licenses were awarded to the fixed line operator UkrTelecom in 2005, which launched 3G services in November 2007 in five cities. Ukraine lags behind most of other countries in Eastern and Central Europe in terms of the development of 3G networks and the take-up of services. However, this situation could be reversed following the issuing of 3G licenses and a swift network build out. Issuing additional 3G licenses may also speed up the roll out of mobile broadband and could assist the Ukrainian government in achieving higher internet penetration. The Ukrainian communication market has benefited from foreign investors taking a long term interest in Ukraine. Their presence increases the likelihood of additional investment as: • Foreign mobile operators bought technical expertise and attracted business partners, for example network equipment suppliers, to register businesses in Ukraine; • Mobile operators have contributed to raise the quality of services allowing investors to rely on optimal coverage in a country with low fixed lines penetration. The presence of a reliable communication system is regarded as a factor in attracting foreign investment; and • Foreign investors have a “signaling effect” of generally increasing investors’ confidence about Ukraine. Mobile operators face a high level of direct and indirect taxation in Ukraine. Operators are subject to mobile specific pension fund contributions of 7.5% of subscriber revenues. This contribution does not apply to fixed lines. In addition a similar type of pension fund tax applies to handset revenues (1.5%) and, along with the required $2 per handset permit necessary to import handsets, is a tax ultimately paid by consumers. The economic impact of the mobile sector in Ukraine in 2007 is UAH 37bn, representing 5.9% of total GDP. In 2003 the estimated impact represented 2.9% of the GDP.

Figure 40 Economic Impact of the mobile communications industry in Ukraine.

Figure 40 shows the three different effects of the mobile industry’s economic impact: • Supply-side effects: value-add and employment from direct and indirect firms in the value chain; • Demand side effects: productivity increases resulting from people using their phones for business purposes; and • Intangible benefits: the social benefits enjoyed by consumers. Page 61

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In addition, the contribution of the mobile sector has been significantly increasing over the last four years and that the mobile industry employs almost 120,000 Ukrainian full time employees (FTEs). This compares with 75,000 FTEs in 2003. Employment directly by MNOs is estimated to have increased by around 9000 FTEs in 4 years. These workers receive work shadowing, apprenticeships and other formal training and receive the opportunity to work in a competitive environment. Kyivstar has been named the best employer in 2006 by business magazine Dilavoi and by an international consultancy firm. Supply side impact of mobile communications The supply side impact of mobile communication is formed of three components: • Direct effects: the value added and employment created by the MNOs themselves; • Indirect effects: the value add and employment created by other parties in the value chain; and • Multiplier effects: the knock-on impact of the direct and indirect effects on the rest of the economy.

Figure 41 Mobile value chain in Ukraine in 2007(UAHs millions)

Government revenues under the form of direct taxation, regulatory fees and mobile-specific pension fund contributions constitute 75% of the value add. This proportion is higher than for other countries due to the mobile-specific taxes and pension fund contributions which apply to subscribers’ revenues and to imported handsets, as well as to the high level of social contributions. Kyivstar is the biggest taxpayer within the Kiev region. Page 62

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Demand side impact

Figure 42 Productivity impact of mobile communication

Labour productivity increases in both urban and rural areas as workers can communicate continuously with trade partners. The mobile phones have had a strong impact on the following sectors: • Small trade and import/export businesses, for example in the Odessa seaport. Mobile communications proved a powerful tool to estimating demand, updating estimates and finding new customers; • Logistics for large companies, in particular for internal communications and transportation; • Transport sector in urban areas: a number of cab drivers companies have started coordinating actions through mobile phones. Consumer benefits

Figure 43 Increasing Intangible benefits enjoyed by consumers in Ukraine.

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The intangible benefits of mobile communications enjoyed by consumers can be estimated using a ‘willingness to pay’ analysis. By combining data on usage and data on prices, we find that usage increase and price decreases create growing net benefits for consumers over time. Social benefits generated by mobile communications in Ukraine include: • The contribution of mobile communications to the democracy development and to the openness of society; • The contribution to developing interpersonal and family communications; • The promotion of social cohesion through the use of Location Base Services (LBS) and child tracking devices; • The extension of communications to users with low education and literacy, particularly elderly people living in rural areas; and • The extension of communications to those on low incomes. Other benefits In addition to the benefits estimated above, MNOs in Ukraine contribute to various groups in society through a number of Corporate Responsibility projects. Charity related programmes organized by MNOs include schemes aimed at helping orphan children, particularly in the Chernobyl area, by providing administrative help to orphanages and by funding IT courses. Other projects provide help to social centers for invalids, such as the Kiev Polytechnical Institute, and to elderly people in retirement homes, particularly in rural areas, who are provided with opportunities of communication. Conclusions The Ukrainian mobile sector has experienced exceptional subscriber growth since 2002 and creates a substantial and increasing proportion of the country’s economic value. It estimated to have contributed 2.9% of GDP in 2004, increasing to 5.9% in 2007. In 2007, approximately 119,000 FTEs were employed directly and indirectly by the industry. The impact of the communications is demonstrated through supply side and productivity impacts. However, consumers have also benefited from an increased range of services and falling prices. The average price per minute is estimated to have fallen 50% in 3 years. The fall in prices has been accompanied by an increase in coverage levels and this has contributed to the general accessibility of mobile services. By continuing to grow its subscriber base and provide new services, the mobile sector may be able to increase its GDP contribution. A regulatory and licensing regime that combines international best practice with local considerations would be supportive of this growth opportunity25. For example, the issuing of additional 3G licenses would allow for further service innovation including the delivery of data connectivity to larger proportion of the Ukrainian population. In addition, the government could further support the sector’s development through fiscal policies consistent with the remainder of the economy, notably a review of the current pension funding requirements. Background to the mobile market Ukraine’s mobile market has experienced exponential growth since 2002. Mobile subscribers increased from 3.7 million in 2002 to over 57 million in 2007, representing an annual growth rate of over 70%. Penetration rates are above the average in the region. There are several companies serving cellular connection in Ukraine: • UMC(MTC) - National operator of cellular connection. Standard: GSM 900 Page 64

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• • • • • •

Kyivstar GSM - National operator of cellular connection. Standard: GSM 900/GSM 1800 DCC - covers Kyiv, Odesa, Crimea, Donetsk, Kharkiv, Dnipropetrivsk, Zaporizhzhya and some other regions of Ukraine. Standard: D-AMPS Golden Telecom - covers Kyiv and Odesa. Standard: GSM 1800 WellCom - Kyiv only. Standard: GSM 900 Beeline - covers some Ukrainian regions. Standard: GSM Life:) - covers some Ukrainian regions. Standard: GSM

Figure 44 Mobile operators' market shares over time.

Figure 45 Mobile connections and mobile penetration in Ukraine over time.

Mobile services are the preferred method of communication in a country where fixed line penetration has always been low. Fixed line penetration was 23% of population in 2005, when mobile penetration started to increase, and today mobile connections outnumber fixed lines by 5 to 1. Mobile coverage is now effectively universal: 99% of country’s territory is served by at least one operator. Usage has increased to over 150 Page 65

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minutes of use per user per month in 2007 and is generally higher than in other countries in the region. Aggressive competition in the mobile market has delivered low tariffs and increasing innovation to consumers in a very short time. Mobile prices dropped by around 80% in the last five years. However, the Ukrainian mobile market is maturing and penetration reached 100% in 2006. Mobile operators began offering prepaid services in 2003 and by 2007 prepaid connections represented 93% of all subscribers. Prepaid SIM cards have proved more popular than fixed line or postpaid subscriptions. They do not require a bank account to receive access and customers can buy low value vouchers once to activate and use a prepaid SIM. This practice is common in Ukraine for most pre-paid customers.

Figure 46 Percentage of prepaid and postpaid customers for each operator (2007)

Figure 47 ARPU levels over time, UAHs.

Falling prices have caused voice average revenue per user to decrease. The figure below shows that ARPU levels have decreased by over 70% in the last four years. The drop in ARPU levels and the mature voice market has caused operators to shift focus towards the mobile data market, with EDGE-technology services recently introduced and with MMS services launched. Page 66

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Figure 48 Earnings and Subscriber base

As was previously stated, Ukraine’s mobile market is highly competitive due to a number of mobile operators offering services via GSM, CDMA and WCDMA/HSDPA networks. Mobile broadband services present the next growth opportunity given the saturated mobile voice market although the major GSM operators are hampered by lack of licenses to offer 3G services. Into this market opportunity has stepped Ukraine’s CDMA operators, which initially offered fixed-line services but have since moved into the mobile market, launching mobile broadband services. Ukraine is also home to a nascent mobile content and applications market, with future growth largely dependent on mobile data uptake. Russia’s Vimpelcom announced on 11 November 2005 that it had bought the mobile operator Ukrainian Radiosystems (URS) for 231.3 US$ million (191.16 million Euro). The subscriber base of URS amounted to 51,200 people at the end of 2005, or less than 1 percent of mobile users in Ukraine. URS has a GSM900 license that covers the entire territory of Ukraine, which has a population of approximately 47.8 million. URS also has a GSM 1800 license that covers 23 of Ukraine's 27 administrative regions (excluding the city of Kyiv and the Kyiv, Dnipropetrovsk, and Odessa regions). Ukrainian radio systems (URS) provides services in GSM-900 under the brand names WellCom and Мoby. The NCCR has decided to limit the number of licenses available to new subscribers for the CDMA standard in the 800 waveband. There are four companies in Ukraine operating in the CDMA standard: ITC, CST-invest, Velton Telecom and Intertelecom. All of these operators are working in CDMA-20001x and they offer, in addition to telephone services, a full range of digital telephone communication services and fast data transmission. According to the CDMA Association, the total subscriber base for CDMA rose by 43 percent in the year to June 2005. Mobile users of Astelit’s network (marketed under the trademark “life:)”) will have the opportunity to be the first in Ukraine to experience 3G services. An EDGE service offering connection speeds of 236kbps is already on the market. Such offerings will also help life:) to better understand user expectations for high-end services. For life:), EDGE is a transitional migration step to 3G.46 According to life:)’s strategy, EDGE based services will be available in the largest cities, in areas of heavy data usage and in city centers. EDGE was made available in Kyiv, Odesa and Dnipropetrovs’k on 25 March 2005. life:) intends to continue its expansion of EDGE coverage in Ukraine. UMC recently awarded a tender to the Kyiv company Priocom to develop its IP/MPLS infrastructure to boost its capacities for GPRS, EDGE, advanced IP services and in preparation for the launch of 3G services. A range of 2.5G and 2G data services are also available on the market. However, prices are somewhat prohibitive bearing in mind the income levels in the country (WAP per minute 0.30UAH or 0.04Euro; GPRS per megabyte 5UAH or 0.81Eur at peak times, and 1UAH (0.16 Euro) off peak).48 No statistics regarding the take-up of such services are available. As an indication of the extent of mobile coverage, Kyivstar claims a territorial coverage of 97 percent, with a population coverage of 98 percent. Page 67

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Mobile phone penetration is growing at a precipitous rate in Ukraine, increasing from 42.48 percent (based on industry figures) at the end of 2004, to 64 percent50 at the beginning of 2006, and rose to 84.9% by 30 September 2006. The standard methodology for calculating subscriber numbers in Ukraine is to count contract customers together with prepaid customers who have had at least one piece of incoming or outgoing traffic on their phone in the preceding three or six months (depending on the operator). Mobile-specific taxation The mobile sector in Ukraine is subject to heavy sector-specific taxation. Mobile specific taxes in Ukraine include: • A pension fund contribution of 7.5% of an operator’s subscriber revenues. This contribution acts de facto as a second VAT on mobile revenues. This tax applies across other goods in Ukraine, such as alcohol and tobacco, which have very different features to mobile services. However, a similar contribution does not apply to the fixed operator. As a result this tax distorts competition between fixed and mobile operators, potentially affecting areas of the country where mobile network operators act as universal service providers. • Handset-specific taxes. These are a pension fund contribution of 1.5% of the value of the handsets imported, paid by handset importers and a $2 permit paid on each handset imported in the country. These taxes contribute to inflate the price of handsets and cause a large number of handsets to be imported through parallel and unofficial channels. Satellite Services There are a number of companies providing Internet access via satellite technologies in Ukraine. These include Ukrsat, Infocom-SK, Spacegate, Adamant, LuckyNet, Ukrnet, and Itelsat. Excluding Infocom-SK, these are all private operators (several of these companies are resellers). Ukrchastotnagliad, the Ukrainian frequencies supervisory centre, reports that 86 operators have licences to provide satellite communications services in Ukraine. Despite the large number of operators on the market, however, satellite telecommunications in Ukraine may be limited due to low income levels. The Government is nevertheless deploying a digital satellite television and radio broadcasting system, which will also be used for Internet services. Ukraine has joined the Inmarsat, Intelsat, Global Star, Thuraya and Orbcomm satellite networks. Currently, there are five licenses for direct satellite communications services. In Ukraine, access to satellite communication is divided into reception and transmission of information. The reception of information by satellite is available to anyone, without the requirement for a license or permission for use of radio frequency. The necessary receiving equipment is available to anyone willing to invest in it. For the transmission of information (for example, the use of an Page 68

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Internet access service), it is necessary to have permission to use the frequency, which acts as a brake on the development of this market sector. Furthermore, satellite communications equipment is subject to certification, which takes around half a year to process by the authorities. This market is not considered promising for those providing services to the private or small business user, since data link bandwidth is limited and Internet Service Providers that use this method cannot compete in terms of price or speed. The narrowness of the market is explained by the fact that full uplink and downlink services via satellite communications are comparatively expensive for the end user, because users have the option of purchasing Internet access services at significantly lower prices from cable operators. For this reason, satellite communications services are generally targeted at large corporate clients. The Ukrainian Research and Academic Network (URAN) connects 90 universities and research institutions. The main operators of the network are the European Integration Centre Ltd and public enterprise, UARNet. The network includes access points in 16 oblast (regional) centers and uses Ukrtelecom leased lines with data rates of 64kbits/s to 8Мbits/s. Status of the National Regulatory Authority (NRA) The National Committee for Communications Regulation (NCCR) was set up in April 2005 as the independent national communications regulatory authority of Ukraine. As it is not possible under the Ukrainian legal system to have an executive body that operates completely outside Government, the NCCR functions under the authority of the President of Ukraine, thereby, in principle, ensuring its independence from Government. After some uncertainty regarding the sources of funding for the NCCR up until the end of 2005, a budget of 23.1 million UAH was allocated for regulatory activities for 2006, with a further 2.6 million UAH allocated specifically for the management of the reorganization of spectrum (see the section on spectrum below). As the NCCR has not been in operation for very long, it is difficult to say with certainty whether it has, or will have, sufficient funds to carry out its assigned tasks. The key tasks of the NCCR are to: • introduce proposals to governmental bodies regarding legislation, other normative legal acts and standards in the sphere of telecommunications; • develop and approve Regulations and other normative legal acts within the limits of its authority and oversee their implementation; • supervise the telecommunications market;

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issue licenses and registrations in the scope of telecommunications services; distribute, assign and keep records of number resources, issue and cancel permits to use numbering resources, and manage the use of number resources; • oversee the quality of telecommunications services and satisfy users’ demands; • regulate telecommunications tariffs and settle disputes among telecommunications operators, as appropriate; • issue permits to telecommunications operators and providers to set specific tariffs for disabled and socially disadvantaged persons for public telecommunications services; • support the legal provision of public telecommunications services; • obtain statistical reports from telecommunications providers and operators as established by legislation; • obtain documents, statistics and other data, as established by legislation, from central and local executive Governments, the executive Government of the Autonomous Republic of Crimea, and local Governments; • adopt decisions within the limits of its authority, which must be adhered to by providers/users of the telecommunications market; • apply administrative penalties to providers/users of a telecommunications market in a manner described by legislation; • submit materials to the Anti-Monopoly Committee of Ukraine in cases of violation of the legislation on the protection of competition; • take legal action following complaints regarding violations of telecommunications legislation by business entities who operate in the telecommunications sector; • regulate the interaction of operators when telecommunications networks interconnect; • create favorable organizational and business conditions for attracting investment in telecommunications; • ensure equal terms and conditions for all market players; • ensure dispute settlement among telecommunications operators and providers with interconnected telecommunications networks; • keep a register of telecommunications operators and providers; • cooperate with corresponding regulatory bodies in other countries; • publish an official bulletin, which includes normative legal acts, news and other information; and • fulfill other responsibilities, envisaged by the Law on Communications, other laws, and normative-legal acts. There does not appear to be any overlap between the administration of telecommunications by the Government and that of the NCCR. Again, it is difficult to tell at this early stage if there will be any practical issues regarding the division of labour between the Ministry and the NCCR, or the speed with which they will Page 70

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be addressed should they arise. The study team is not aware of any staff from the telecommunications incumbent being seconded to work for the NCCR, although (somewhat inevitably and not necessarily causing a problem for the independence of the commission) there are former incumbent staff working at the top levels of the NCCR. Until the NCCR has been in operation for more time and has dealt with significant consultations or disputes, it is difficult and possibly misleading to speculate on its likely effectiveness. Cable Services According to data provided by the Cable TV Union of Ukraine, there are approximately 300 cable operators providing services to approximately 12 percent of Ukrainian households. Only 10 percent of these have access to broadband services and only half of these actually avail of it. Annual growth is, according to this data, only 3 percent. However, against this lackluster background, cable provider Volia is already offering advanced “triple play” services (television, Internet and telephony), with a subscriber base of over 735,000. Cable Networks Despite the fact that the regulatory environment (see licensing above) is somewhat difficult for cable operators, there are cable networks available in most large cities in Ukraine. The Kyiv operator Volia, which has been offering advanced “triple play” services for some time now, being a significant example of the potential for the sector. According to the State Statistics Committee, the revenue of the cable operators increased by 5.6 percent from 42.099 million UAH (6.8 million Euro) to 44.448 million UAH (7.2 million Euro) in 2005. Cable Regulation Despite the extensive powers of the NCCR, the regulation of cable communications has not been put squarely and unequivocally into its remit. Ukraine has an extensive cable television network (when compared with other CIS countries). However, the further development of cable television has been hampered by a lack of relevant legislation, meaning licensing and overall management of the industry is very complex. Based on current legislation, the Ukrainian cable television industry is administered by several government entities. The division of authority and responsibilities is a nebulous issue not only for foreign investors but also for industry specialists. There are at least four government agencies that exercise direct control over the industry: • The Department for Communications of the Ministry of Transportation (the former State Committee for Communications); • The National Council for Television and Radio Broadcasting; • The Ukrainian Centre for Control of Radio Spectrum; • The National Commission for Communication Regulation; Ambiguous and outdated legislation leads to confusion and conflict; for instance, cable television services are currently licensed by the National Council for Television and Radio Broadcasting, although the latest legislation delegates this authority to the NCCR. However, because the NCCR has not yet taken over all of its responsibilities, its functions are supposed to be performed by the Department for Communications of the Ministry of Transportation. Numerous court hearings, decisions and counter decisions do not make the situation better. Moreover, the Antimonopoly Committee of Ukraine views cable television operators as natural monopolists, and delegates regulatory authority over their industry tariffs to local administrations. Average monthly tariffs established by city authorities vary from 0.85 Euro to 5 Euro. Based on the above user fees,

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cable television companies say that they cannot afford to produce their own programming as well as pay television companies for the programmes they distribute. Operators can also offer individual packages that could include more channels or other value-added services (Internet, security, etc.). In these cases the fee is not limited. Licensing and Authorization The procedure for the licensing of telecommunications services is regulated by the 2003 Law On Telecommunications, as well as by additional guidelines issued by the NCCR. The Law specifies that local, inter-city and international telecommunications services, as well as mobile telephone communications and television and radio broadcasting, must be licensed. Under the Law On Telecommunications, the basic principles for the licensing of telecommunications service provision are as follows: creating open market conditions; acting in the best interests of society and service providers; equal access; efficient use of resources; promotion of new technologies; and the attraction of investment. The NCCR is responsible for establishing the terms and conditions of licenses and ensuring compliance. • Licensing for fixed telephone communications costs as follows: • International (covering the whole territory) – 1,700,000US$ (1,404,958 Euro) • Intercity - 68,000US$ (56,200 Euro) • Domestic:  With network capacity of up to one thousand telephone numbers – 320 US$ (264 Euro)  With network capacity of up to ten thousand telephone numbers – 1,600 US$ (1,322 Euro)  With network capacity above ten thousand telephone numbers – 9,600 US$ (7,934 Euro)  With use of wireless access – 19,600 US$ (16,198 Euro)  With use of wireless access based on DECT technology -1,000 US$ (826 Euro)  In rural areas – 730 US$ (603 Euro)  Audio-text – 700 US$ (579 Euro) A license for mobile telephone service provision varies in accordance with the frequency involved and the size of the region in question. Prices range from 170,000 UAH (27,500 Euro) for the cheapest region in the 300-470 MHz band to 340,000 UAH (55,171 Euro) for Kyiv in the 1.7-2.2GHz band. On 16 May 2001 the Ukrainian Government introduced licensing of VoIP with 15-year operational licenses at a cost of up to 899,300 UAH (146,000 Euro). The term of the license (except for VoIP, which is as described above) is determined by the NCCR and cannot be less than five years. For each type of telecommunications service, the NCCR is obliged to issue special instructions on the technical and bureaucratic parameters the enterprise should respect and what documents would be needed to confirm that the parameters have been met. The CDMA operators have asked the NCCR to issue them with a license for national roaming. Victor Frolov, the director of the executive committee of the CDMA Association of Ukraine, says that CDMA is available in 11 regions of Ukraine and the operators are ready to work together. When compared with the previous situation, the 2003 legislation on licensing has greatly improved certainty for operators, as it is now impossible for the NCCR not to respond (actively or passively) within the time period specified in the law (one month) to license applications. This replaces the system where businesses had to wait indefinite periods to get responses from official bodies. In April 2006, the NCCR decided not to grant further GSM-900 and GSM-1800 licenses, meaning that Golden Telecom will not be able to operate in the Kharkov, Lvov and Dnipropetrovs’k regions, although Astelit, Kyivstar and UMC do have licenses to provide services there. A range of licenses were awarded to URS, Kyivstar, Astelit and UMC for GSM-1800 services in a number of regions. Market players in the telecoms sectors are divided by the Law on Communications into “operators” and “providers”. Under Article 1 of the Page 72

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Law, “providers” do not have the right to maintain or operate networks. Operators are divided into mobile operators, fixed operators and fixed wireless operators. Mobile operators need to obtain a license for the activity of provision of phone services and for the frequencies they use, fixed operators must have a license for local, national and international services and fixed wireless providers need the same licenses as fixed operators as well as a frequency license. The legal status of VoIP providers has so far been neglected. Within the context of the current definitions, they could be judged to be “operators” and therefore be liable to the same licensing procedures as the categories of operators listed above. This obviously creates a degree of uncertainty in the market. Spectrum Radio spectrum is managed in Ukraine by the Ukrainian State Centre for Radio Frequencies (also referred to as “Ukrchastotnaglyad”), under the authority of the State Committee on Communications and Information. The overall management of spectrum in Ukraine is in a state of flux, however. In due course, a body called the State Telecommunications Inspection (STI) will be established, under the supervision of the NCCR, to oversee spectrum management. Until this happens, the State Centre for Radio Frequencies will continue in its present role. Radio spectrum is managed in line with the Radio Regulation annexes to the Convention of the International Telecommunication Union, which was ratified by the Ukrainian Parliament in 1994, as well as through some national regulations such as the Radio Frequency Resource Act of 2000. Frequencies are licensed in compliance with the 7 February 2001 Cabinet of Ministers resolution number 112 on the Procedure for Issuing Licenses for the Use of Frequency Resources in Ukraine. According to Article 20 of the 2004 Law On Radio Frequency Resources of Ukraine, the National Frequency Distribution Table (NFDT) governs the distribution of radio frequency for general (regular) and special usage. The list of special subscribers of radio frequency resources in Ukraine consists of: • Departments and organizations in the Ministry of Internal Affairs; • The Ministry for Emergency Situations and the Chernobyl disaster; • The State Administration for Border Control; • The Administration for State Security; • The State Department for Corrections; and • The Ministry of Transport of Ukraine, for the use of radio electronics by joint civilian and military management systems for flight traffic and flight support. • Non-state subscribers of radio frequency resources in Ukraine are divided into the following groups: • Commercial entities that are using radio frequency resources in order to provide telecommunications services, except for the purpose of television broadcasting; • Commercial entities which are broadcasting television programmes by using their own or rented radio electronics means; and • Technology and amateur radio users (private individuals and registered businesses, which are using Ukrainian radio frequency resources without providing telecommunications services). The NFDT currently in force, which was adopted by the Cabinet of Ministers on 12 October 1995 (order no. 803), distributes frequency as follows: • 0.4 percent - for civil usage; • 27 percent - for military usage; • 72.6 percent - for joint military and civil usage (in practice – for military usage). Page 73

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According to the Ministry of Transportation and Telecommunications’ press-release of 22 November 2005, the Cabinet of Ministers approved the decision for the usage of 76 percent of previously military radio spectrum for the provision of 3G services by civil operators. Additional 3G licenses will be sold by the NCCR to private operators on a competitive basis, although these may not be issued for some time. Currently there are commercial Wi-Fi networks that provide services to the public. Technologies using standards IEEE 802.11a and IEEE802.11b are being used in Ukraine, according to the licenses issued by the State Communications Committee of Ukraine, and permissions are granted by the "Ukrchastotnagliad" (Ukrainian Frequencies Supervisory Body). Equipment needs to be certified in compliance with Ukrainian legislation. Each piece of equipment is subject to technical evaluation, in accordance with the 5 October 2000 Order 154 of the State Communications Committee. Ukraine is not planning allow use low-power devices for Wi-Fi technologies without licenses and corresponding permits. Ukraine has not allocated and is not planning to allocate radio frequencies for the unlicensed use of Wi-Fi or similar technologies. Today Wi-Fi networks, operating in the 2400-2483,5 MHz frequency, are used in Ukraine to provide the public with wireless access to the Internet. More than 200 Wi-Fi licenses have been issued in recent years and all oblast regions have now exhausted their resources in the 2400-2483.5 range. The 34003700 MHz frequency range is used by Ukrtelecom and RRT Consortium for radio relay. Internet Overview Internet is developing fast in big cities of Ukraine. Plenty of cyber cafes and clubs provide Internet connection at 1-2 USD per hour. Some hotels offer Internet connection in the rooms, delivered to the room via Ethernet network usually. It is recommended to keep a twisted-pair Ethernet cable with RJ-45 connectors with you if you plan to connect your laptop to the hotel network. Dial-up access is about 0.50 - 1.00 USD/hour. Usually, connection speed is a bit slow and depends much on the quality of telephone line. In some cases, Internet access is barely possible if using an old-fashion analogous phone line. Computer penetration is limited by the low average wage, since a computer costing 420 Euro would cost approximately 19 percent of an average annual gross salary, for example. While the government has passed legislation regarding the expansion of e-government services, little progress on practical implementation has been made. However, the development of e-government is part of the EUUkraine Action Plan, along with other information society initiatives, such as e-health and e-education. The ITU also supports the development of e-health in Ukraine, as part of its wider efforts on this issue. Ukraine’s score dropped from 3.79 (out of 10) to 3.51 from 2004 to 2005 in the Economist e-readiness rankings, achieving its best mark for business environment (5.49) and worst for consumer and business adoption (1.8). In 2006, Ukraine improved slightly, up to 3.62, while dropping a further four places, down to 61st (from

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57th in 2005 and 2004). The IT outsourcing market accounts for USD 544 million. There are 800 IT outsourcing companies employing 14,000 IT specialists. Since 2000, the Ukraine has become an attractive outsourcing destination in Eastern Europe providing software development services to clients in the US and Western Europe. Ukraine is also an attractive location for offshore/near-shore companies, home to many subsidiaries of international companies like IBM Ukraine, Comarch, Microsoft, SAP, Aricent, ISM eCompany, Magento and Ciklum. Ukraine has several home-grown ICT companies. Whereas initial outsourcing investment focused on Kyiv (40 percent of FDI projects) companies_ are now focusing on second tier cities such as Lviv and Kharkiv as potential investment destinations. The Ukrainian Hi-Tech Initiative and IT Ukraine are the associations representing the IT-BPO industry in the country. The proposed National “e-Ukraine” Programme went through its first reading in Parliament in February 2006. The previous draft Law on the Enforcement of the National “e-Ukraine” Programme for 2006-2015, developed by the Government of Mr Yanukovich, failed to receive the necessary majority in Parliament at the hearings held on 15 December 2004, possibly due to the political upheaval taking place at the time. While little concrete progress on implementing the Programme has been made until recently, there is range of legislative instruments in place to support it once it is adopted. These include: • The 1998 Law on the National Programme of Informatisation; • The Cabinet of Ministers Decision of January 2005, appointing the Minister of Transport and Communications as the National Executive Manager of the National Programme on Informatisation; • The Cabinet of Ministers Decision of April 2005 on the National Strategy for Development of Electronic Communications, the Establishment of the Commission for Telecommunications Regulation and the Adoption of the e-Ukraine Programme; • The Cabinet of Ministers Decision of May 2005 on the Fulfillment of the EU Ukraine Action Plan in the Information Society field; • The Parliamentary Recommendations of September 2005 on Information Society Development; • The Presidential Decision of October 2005 on Urgent Tasks for the Implementation of Advanced Information Technologies; • The adoption in November 2005 by the Parliament of the National Programme of Informatisation Tasks (which lists the tasks but does not assign budgets); • The Government Decision of December 2005 on the National Programme on ICT in Education and Science 2006-2010. The total budget for this programme is 1855 million UAH (30 million Euro). The new plan for 2006-2015 covers the development of the network, development of human potential and the propagation of information technology. Key priorities of the new plan include the introduction of the most upto-date technologies into all aspects of life in Ukraine, improvement of computer literacy levels and the creation of a communications infrastructure to integrate the country more effectively into global networks. The National Informatisation Programme, agreed each year since 1998, serves more as a short-term planning exercise than a national development plan. We can see that many sites that are a popular or have high traffic in Ukraine are in fact Russia originated. Russia websites have located themselves according to these developments to close the gap in Ukraine. The reason is that Ukrainian people write and speak Russian as I have mentioned. In the years 2001-2008, the growth rate of internet in CIS countries was 400%, while internet growth in Page 75

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Ukraine is around 2500%. In 2008, the money spent for Online Advertising in Ukraine was $ 23 Million. Number of Skype users is 4 million. Every month, more than 200 thousand users are registered. According to Bigmir.net’s October report;
• • • • •

total internet users in Ukraine:: 13 Million 138 Thousand (In September: 12 Million 338 Thousand) Internet population is mainly gathered in 8 regions. Kiev city has the highest rate with 58.8%. the total time spent on the internet In October: 4 billion 538 million 358 thousand minutes Search engine usage: 62% Google, 28% Yandex and 4% Mail.ru constitute the first 3. However, when we look only at Ukrainian users Google’s use of rate is at around 75%. The internet population mostly searches cars and related content that are in the top 30. In general, we most searched words link to listing website. (Automobile, real estate, business Portals, etc.)

Social Network Penetration Vkontakte.ru (vk.com) Number of total users: 46 Million, Number of Ukrainian users: 5 Million (every second 1 user signs up)

Figure 49 Vkontakte.ru overview.

Odnoklassniki.ru Number of total users: 40 Million, Number of Ukrainian users: 2,1 Million

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Figure 50 Odnoklassniki.ru overview.

Twitter Number of total users: 50 Million, Number of Ukrainian users: 25 Thousand

Figure 51 Twitter overview.

Facebook Number of total users: 288 Million, Number of Ukrainian users: 175 Thousand

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Figure 52 Facebook overview.

Ukr.net Number of total users: 4 Million, Number of Ukrainian users: 3.5 Million

Figure 53 Ukr.net overview.

Livejournal Number of total users: 23 Million, Number of Ukrainian users: 3.5 Million

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Figure 54 Livejournal overview.

Overview of E-Commerce Number of Credit Cards Date 01.10.2008 – 31.12.2008 01.01.2009 – 31.03.2009 01.04.2009 – 31.06.2009
Source: National Bank of Ukraine (NBU) Figure 55 Number of Credit cards.

1 transaction at least 38.5 Million 30.6 Million 29.6 Million

Active, not expired 45.3 Million 44 Million 44.3 Million

Web Money

Figure 56 Web money.

Graphic: UAH trading volume and turnover rate by years.

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• • • •

In 2008 700 million UAH trading volume was done by 1 million 370 thousand registered users via the Web Money. Number of users who have made Minimum 100 and over processes, Kiev: 62,000 Ukraine: 255.000 Web Money access points, Kiev: 3681 Ukraine:15.756 Commission rate is 0.8% per transaction and money transfer to the account takes 1 business day.

Portmone
• • • • • •

Monthly number of transactions: 500,000 They are not working like PayPal. You do not have to pay to register and can pay with all credit cards. Commission rates are between 4% and 5% and change according to products sold. Money transfer to the account takes maximum 2-3 days. If high trade volume is reached, commission rates are arranged again. 3D Secure (optional) use is available. You can make your interface design for payment screen

Portmone User Penetration
• • • • • • • •

81% Male, 19% Female Age range; 24-32: 32%, 30-35: 30%, 36-40: 12% 66% Married, 29% Single 33% does not have any children. 20% has children between 1-5 ages. 37 % Senior/Manager, 24% Professional/Specialist/Director, 15% Owns a workplace, 11% are Engineer 24% work in large companies in Ukraine and 23% work in international companies 64% own their own apartment, 15% live in rental flats 90% use the Internet every day

Mobile Penetration • • • • • • 2009 September the number of mobile users: 55.5 million (70.4% increase compared to August) according to UKR Telecom (UMTS) reports, in September internet access via mobile phones has increased by 50%.• The number of mobile phones sold in Ukraine in the 3. Quarter is 1.21 million units. (30% increase compared to 2008) The number of active mobile users in Ukraine is 30 million. 97% of individuals between the ages of 1655 in Kiev use mobile phone. 19% of them use internet using mobile devices every day. Revenues of Internet providers in July are 1.8 billion UAH (44% increase compared to 2008) Total earnings are 999.7 million UAH (80% increase compared to 2008) Mobile operators have begun to make investment as Internet Providers after September. Government opens 3G tender (15-year license, renewal) for 400 million UAH in order to give support. In addition, it gives 25 MHz Spectrum Radio Signal as incentive gift. Mobile operators’ income in July-August is 18.6 billion UAH (5% increase compared to 2008

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REGULATORY ENVIRONMENT FOR ONLINE SERVICES Digital Signatures Electronic signatures in Ukraine are governed by the Law on the Electronic Digital Signature and the Law on the Electronic Document (both from 2003). However, up until mid-2005, these laws proved generally ineffective due, inter alia, to the fact that the certification of e-signature verification centers, which is required by these laws, was so complex that it was impossible for businesses to be accredited. In addition, the certification of such centers was delegated to the Security Service of Ukraine (SBU). On 1 July 2005, the central National Electronic Digital Signature certification body was established. Ukraine is the first among the countries of the CIS to introduce a central certification body. This carries out accreditation of key certification centers. Commercial and State certification centers can now provide electronic digital signature services for citizens, the state, private establishments and enterprises. Within the first six months of the new body coming into operation, ten centers had applied to be accredited, with the Ukrainian National Information Centre being the first body to be officially accredited. It is hoped that electronic digital signatures will allow citizens to save time when dealing with state authorities, and allow the state authorities to provide services more efficiently. Esignatures from government bodies are offered as an option for signing official documents: citizens can choose whether to receive a digital signature with the help of the Internet or to use traditional signatures. The roll-out of digital signatures by state authorities is still at a very early stage. Payment Systems Electronic commerce is still undeveloped in Ukraine, partly due to the lack of adequate electronic payment systems. However, the population does show signs of moving away from a cash-dominated society. At the beginning of 2006, the number of credit cards issued totaled 12,196,527 Mastercard credit cards and 18,243,259 Visa credit cards.78 The annual turnover on Visa cards was $10,8 bn (8.9 bn Euro), twice as much as in 2005. Maestro card payments in Ukraine also show significant growth. The number of Maestro cards in circulation reached 8.15 million at the end of June 2005, representing a 53.2 percent growth over 2004. Debit cards using the Maestro payment system are now accepted in over 40 thousand shops. Despite this recent growth in electronic payment systems in Ukraine, innovative online payment systems, such as those which have been developed in Armenia, have not yet been developed or adopted in Ukraine. Nevertheless, according to the Cabinet of Ministers Report on the implementation of the National Programme for Informatisation, 18 million dollars (14.9 million Euro) worth of goods were sold via the Internet in Ukraine in 2004. The purchase of computers and computer parts/consumables accounted for over half this figure. Internet Access Internet usage is growing, albeit from a low base, and is hindered by the comparatively high cost of dial-up access and limited PC ownership. The Economist Intelligence Unit has suggested that, while Internet usage is normally assessed at about 8% in Ukraine, the most recent research available suggests that this figure may be significantly higher. Internetworldstats.com puts the figure at 11.4%. Official statistics for August 2006 put the number of Ukrainians who accessed the Internet in the course of the previous month at 10.9%. The most used search engines are google.com (37,85 percent) and yandex.ru (32,0 percent). According to Bigmir.net research in 2006, half of Ukrainian Internet users from Kyiv, with inhabitants of the other main cities counting for over half of the remainder. Users from other large Ukrainian cities with a population of one million or more Page 81

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(Dnepropetrovsk, Odessa, Kharkov, L'vov, Donetsk, Zaporozh'ye) represent 32.16 percent of Ukrainian Internet usage (not including Kyiv). Users in the remaining regions of Ukraine equal 14.21 percent of Internet visitors. The region with the lowest level of Internet use, at 0.21 percent, is the Rivnenskaya region. Users in Kyiv also generate a significantly higher amount of traffic in terms of page views. Most of the top 10 websites in Ukraine are search engines (Google, Yandex and Meta being the top three, the rest being traffic measurement sites). Top searches are focussed on academic and leisure activities. The number of hosts in Ukraine is now more than 94,000. Regarding Internet usage, according to research conducted by Volia cable company, most Ukrainians use the Internet for business purposes. Volia’s research showed that: • 87.6 percent of respondents consider Internet usage for business purposes as justified from a commercial point of view; • 48.9 percent of enterprises have already been connected to the Internet for one or two years, 34.6 percent for more than three years, and 15.4 percent for less than a year; • 62.2 percent of enterprises are currently working online using dial-up and only 32.4 percent use alwayson connections. • 54.3 percent use their sole phone line for dial-up Internet access. Ukrtelecom has recently taken concrete steps to encourage the mass take-up of broadband services. In March 2005, there were only 10,000 DSL lines in Ukraine. At that time, DSLAMs had been installed in 450 locations in Ukraine, and work was underway with Cisco to provide capacity to permit a 1000 percent increase in DSL subscribers by the second half of 2006. Public Internet Access Points (PIAPs) Various efforts have been made to boost Internet access via PIAPs. For example, the US Embassy gave grants of over 1.4 million US$ (1.17 million Euro) to libraries for this purpose in the period from 2001-2004. Also, the UN Development Programme and the German International Migration and Development Centre have joined forces with local organizations to develop training and support for the creation of PIAPs in Ukrainian schools, the intention being to boost both IT in education and improve the level of Internet access in schools. Pilot projects have also been launched in an effort to improve universal service provision in remote areas. There are over 3,000 computer clubs and cafes in Ukraine (equating to one for every 16,000 people in Ukraine) Wireless Internet Access Wireless Internet access is developing slowly in Ukraine, partly due to the fact that Wi-Fi is licensed spectrum. Ukrtelecom is planning to launch Wi-Fi services in the larger towns and cities in Ukraine, while other ISPs are beginning to launch WiMAX services. Luckynet, provides a range of high-speed wireless broadband access services. A Wireless Internet Association was established in order to deal with a wide variety of perceived problems with launching wireless services in Ukraine including conflict resolution, legal framework, illegal Page 82

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content, and harmonization of standards and norms. According to feedback from the Ukrainian Mission to the EU, the Ukrainian Government is keen to support the roll-out of WiMAX services, in order to ensure low-cost Internet access for as many citizens as possible. A new plan for the management of spectrum was adopted in April 2006, detailing the management of resources for Wi-Fi, WiMAX, 3G and other relevant technologies. Services are being launched by a joint venture of Networks by Wireless (UK) and PAN Telecom (Ukraine)/PAN Wireless. On 9 October 2006, Kyivstar began offering Wi-Fi services to its customers via smartphone, laptop or pocket PC. UMC has also shown interest in providing Wi-Fi services. The maximum data transfer rate is 54 kb/sec. The consumer sends a premium rate SMS, either for a “sample access”, allowing just one Mb of download capacity, or full access, which is sold in increments of 5Mb. Ukraine is one of the few countries prohibiting or prohibitively taxing IP telephony, Wi-Fi, and WiMAX networks, both public and private. The restrictions on advanced communications technologies in Ukraine are very unusual. The provision of advanced communications services in Ukraine is difficult. Providers of VoIP have to engage in a complex and costly process of obtaining a license, as do Wi-Fi providers. Some analysts argue that these laws emanate from Ukrtelecom lobbying to curb or eliminate competition in the ISP and voice telephony markets. Wireless local loop (WLL) operator Telesystems of Ukraine is planning to invest around 180 US$ million (149 million Euro) to roll out CDMA2000 1xEV-DO technology in the next three years. Telesystems already offers WLL connections using EV-DO on a trial basis in Kiev, following a rollout in partnership with Chinese equipment provider Huawei Technologies. It has signed contracts with LG, Pantech, ZTE for the construction of a nationwide network, with the aim of launching commercial services in Kiev, Odessa and Dnepropetrovsk in the near future. The NCCR is in the process of auctioning five licences for WiMAX broadband services, following interest by thirty operators. Technological Systems (a subsidiary of Comstar– United) has received a licence for the provision of WiMAX-based services in the 5.4 –5.7 GHz range through a regional tender. It is believed that this licence cost $0.8m (0.66 million Euro). Ukrtelecom has chosen Nokia to provide network equipment for its planned 3G service. Nokia will also provide equipment for Utel’s W-CDMA network, which will initially be launched in Kiev. AVAILABILITY OF ONLINE SERVICES The EU-Ukraine Action Plan for 2005 foresees the widespread use of electronic communications services by business and administration, in particular in the health and education sectors (e-Commerce, e-Government, eHealth, e-Learning), via the provision of advanced infrastructures, the development of local content and the introduction of pilot projects initiatives. Ukraine ranked second highest among the four countries in this study included in The Economist E-readiness rankings 2005, with a total score of 3.51, scoring best in business environment and worst in consumer and business adoption. In 2006, Ukraine improved its score and achieved 3.62 points, albeit while dropping from 57th to 61st overall in the table of 68 countries. E-Commerce E-Commerce is developing very slowly in Ukraine. The low level of Internet penetration in the country is a key problem, with the most optimistic estimates suggesting that there are 6.5 million Internet users,115 which equals approximately 13 percent of the population. Finally, the legal framework for e-commerce is also still lacking, although improvements are being made. The leading Ukrainian online retailer city.com.ua receives approximately 8,000 hits daily. Page 83

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Domain name registrations Apart from the 47 geographical (such as kiev.ua) domains, there are seven generic suffixes for organizations registered in the .ua domain, according to their type: com.ua - commercial organizations; gov.ua-government agencies; net.ua - suppliers of network services; edu.ua – educational organizations; org.ua - other organizations (not commercial), in.ua for individuals and dominic.ua for the community of Dominican friars. The .ua domain is managed by the UA NCG (Network Coordination Group). There has been a steady increase in the number of domains registered under .ua. For example, under .com.ua, the total number of domains increased from 31,153 in 2004 to 42,489 in 2005 and reached 54,187 by September 2006. The overall number of domains under .ua increased from 133,907 in 2004 to 169,644 in 2005 and had already reached 211,478 by September 2006 E-Government One of the key aims of the National Informatisation Programme, which is prepared by the Ministry of Transport and Communications each year, is to develop the use of ICT in central governmental bodies. Overall coordination is exercised by the Ministry of Transport and Communications. The Cabinet of Ministers Resolution of 24 February 2003 (N208) on the Development of Electronic Government and the Order of the State Telecommunications Committee of Ukraine of 15 August 2003 govern the development of access to egovernment services by citizens and businesses. The list of e-Government legislation passed in Ukraine, albeit all under previous regimes, is very long. The Government portal lists a total of over forty different acts passed in the course of the past seven years, half of which were passed in 2003 and 2004. Since 1998, the Ukrainian Government has produced a number of legal documents requiring state bodies to publish information about their activity on the Internet. There is a functioning Government portal, which is a gateway to the existing sites of state departments, but much work still needs to be done. For example, only 12 percent of city authorities have websites. Legally, all state departments are supposed to have websites on the Internet. These websites are not currently interactive, focusing instead on information provision about the department, its leaders and operational procedures. With recent developments in the use of electronic signatures in Ukraine, possibilities are increasing for more user-friendly interaction with government services. For the moment, however, most government websites are “one way”, with functionality improving. An example of the planned improvements is that the Ukrainian tax authorities are planning a new improved web based service. The tax administration of Ukraine is undertaking a pilot project which allows company tax account reports to be accepted in electronic format. These reports are provided on floppy diskettes, as there is still no online submission. One basic problem is that in Ukraine there has been little or no practical implementation of the Law on Electronic Digital Signatures, which makes the introduction of online e-government services more difficult. This situation is currently undergoing change (see above on digital signatures). The government of Ukraine does not have nationwide programs governing the use of software in public administration, including regarding the use of open source software. Microsoft has signed an agreement with the government of Ukraine, under which it will provide software to government institutions at one-third of the market price. The agreement reflects a longterm preferential pricing scheme for government bodies. E-Health E-Health has a long history in Ukraine: there is a long tradition of e-health theory development in Ukraine, although it is still not very widespread in practice. The Ukrainian telemedicine website, maintained by the Page 84

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Donetsk Institute of Traumatology and Orthopedics lists fourteen telemedicine centers, twenty-three institutions which carry out “teleconsultations”, and five online pharmacies. The Department of Informatics and Telemedicine of Donetsk has also developed a distance-learning tool. The Centre for Telemedicine of Ukraine has provided half of the best practice models listed on the website of the International Society for Telemedicine and e-Health. E-Learning E-learning is somewhat limited in Ukraine, although this is one of the items that are being addressed by the EU-Ukraine Action plan, and EU funding is already being used to establish some resources. For example, an Electronic Media Resource Centre is being established with the help of the EU Tempus programme. The only Ukrainian member of the European Distance and E-Learning Network is the Inter-regional Academy of Personnel Management. Approximately 52 percent of secondary schools have computer equipment, while only 14 percent of them have Internet access. There are wide regional variations regarding access to IT in schools Statistics from official sources indicate that there are 30 million mobile users, which indicates an average penetration rate of approximately 64 percent. Internet Access Networks As mentioned above, Ukraine’s score in the Economist e-readiness rankings was 61st in the list of 68 countries. Within the Eastern European area, Ukraine was 12th out of the 14 countries covered, ahead of only Kazakhstan and Azerbaijan. Bytemobile, Inc., a global provider IP service provider for mobile networks, is working with Astelit to develop its EDGE+ and GPRS+ services. This will provide accelerated Internet access, which Astelit hopes will provide it with the fastest available Internet access without using 3G technology. Opportunities for ADSL have been very limited to date and, to the extent that they are available, this is usually through the incumbent. In 2005, Cisco and Ukrtelecom announced a major programme of upgrading IP links between the capital and regional centres as well as of further extending the upgrading of Ukrtelecom’s capacity to provide ADSL. A range of independent companies offer dial-up Internet access, in addition to Ukrtelecom. Furthermore, in June 2006, the NCCR launched a tender for use of WiMAX frequency. There is already one WiMAX provider on the market – Ukrainian High Technologies – providing services in Kyiv and Kharkiv. The company has plans to roll-out services nationwide. Satellite Operators Satellite providers such as Lucky Link provide Internet access services. Lucky Link offers connection speeds of 512kbps, and VSAT connections at a speed of 256kbps downstream and 64kbps upstream. In addition, Thuraya offers satellite telephony and GPS services.

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Production of IT Services Ukraine’s information technology market is valued at between 800 million US$ (660 million Euro) to $1 billion US$ (826.5 million Euro).There is a perceptible, ongoing increase in demand for the production of IT products for export. Exported Ukrainian IT services totaled 70 million US$ (57.85 million Euro) in 2003 and 100 US$ (82.64 million Euro) in 2004. By the end of 2005, this figure was estimated to have reached 150 million US$ (123.97 million Euro). Telecommunications market revenues constituted 6.8 percent of GDP in the first nine months of 2005, according to the State Statistics Committee. The State Statistics Committee of Ukraine has also conducted an analysis of the operating systems used by almost 70,000 organizations in Ukraine. Their findings are as follows: 71.9 percent use Microsoft Windows; 20.7 percent use DOS; 5.9 percent use Linux; 1 percent use Unix/Fix; 0.1 percent use Os/2; 0.1 percent use OC EC/CBM EC; and the remaining 0.4 percent use other operating systems. Ukraine is slowly emerging as a low cost hub for high quality software development. The producers work mostly alone or in small groups on outsourced projects ordered from abroad. These activities are usually not reflected in official statistics. There is growing interest among Ukrainian computer companies to establish software production centres that could participate in international software development projects. Financial Development of the ICT Sector Communications Investment in fixed capital in the communications sector continues to grow. The Ukrainian State Statistics Committee reports a growth of 19.8 percent in fixed capital investment between the first nine months of 2005 and 2006. Incomes from mobile services in the first ten months of 2006 were 49.5% up on the same period in the previous year, while fixed services (urban, rural and long-distance) decreased by a little over one percent. This decrease was mainly due to a decline of 6 percent of the largest part of that market, long distance and international telephony. Revenue from the telecommunications market from January – September of 2006 can be broken down as follows: • Urban telephone network services – 2086,8 million UAH (338.6 million Euro); • Rural telephone services – 162,1 million UAH (26.3 million Euro); • Long distance & international – 4657,5 million UAH (755.8 million Euro); • Mobile services – 14279,4 million UAH (2317 million Euro). Information Technology No Ukrainian companies have made a significant impact on the international technology industry. Siemens, Ericsson and Nokia are leading suppliers of network equipment for the fixed and mobile markets. With an estimated total turnover of 450 million US$ (372 million Euro) in computer hardware sales and 125 million US$ (103 million Euro) in ICT services, the information technology industry is comparatively small. The industry provides ICT products and services through several distinct economic activities, including consulting services, software development, data processing, database development, technical support and repair, and other computer-related services. The most common IT activities include: enterprise resource planning, customer relationship management software, specialized management and accounting software, antivirus software, ecommerce applications, and industry-specific solutions. According to the Ukrainian Association of Software Page 86

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Developers (UASWD), over 1,300 legal entities are engaged in activities connected with software development, production, and distribution with another 900 companies involved in the import, assembly, distribution, and support of computer hardware. Multinational companies now reflect a much larger percentage of the industry, representing approximately 60 percent. Local registered firms make up about 30 percent of the market, and the remaining 10 percent comprises small, shadow market groups working primarily on small offshore orders for software development. The IT industry in Ukraine complains about a range of structural problems that prevents it from developing further. These include competitiveness problems cause by low-cost Russian imports, an alleged lack of government leadership to prioritize and support the sector, and inadequate infrastructure. The leaders of the programming languages remain the same. C#, Java, PHP. JavaScript are becoming important. Development on pure C becomes marginalized while Scala is showing a great future. Here are the complete results.

Figure 57 Programming languages in Ukraine.

Mail Services of the Ukrainian State Mail are inexpensive but prove again the name of "snail". Delivery within Ukraine takes 3-7 days, mail to/from foreign countries reach addressee in about 2 weeks. Therefore, it might be a good idea to use a courier delivery for faster and more effective services. The majority of International couriers have Ukrainian branches. The most popular here is DHL. When sending a parcel to Ukraine it is worthwhile considering that valuables, cassettes, floppies, compact disks, etc. are subject for Customs' clearance. Therefore, it is advisable to avoid sending the above objects.Customs clearance may cause lots of bureaucratic troubles and monetary expenses as a result of Custom's taxes. Food, plants and animals are prohibited content for mailings to Ukraine, unless the recipient has a special permission from state authorities. Having been a part of the Soviet Union, Ukraine had a unified mail system.

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Transportation
Pipelines: gas 36,493 km; oil 4,514 km; refined products 4,211 km (2010) Railways: total: 21,684 km country comparison to the world: 12 broad gauge: 21,684 km 1.524-m gauge (9,854 km electrified) (2010) Roadways: total: 169,496 km country comparison to the world: 30 paved: 165,844 km (includes 15 km of expressways) unpaved: 3,652 km (2010) Waterways: 2,185 km (most on Dnieper River) (2010) country comparison to the world: 41 Merchant marine: total: 160 country comparison to the world: 40 by type: bulk carrier 4, cargo 123, chemical tanker 1, passenger 5, passenger/cargo 5, petroleum tanker 9, refrigerated cargo 11, specialized tanker 2 foreign-owned: 1 (Iran 1) registered in other countries: 197 (Belize 6, Cambodia 37, Comoros 10, Cyprus 2, Dominica 2, Georgia 15, Liberia 16, Malta 30, Marshall Islands 1, Moldova 12, Mongolia 1, Panama 11, Russia 12, Saint Kitts and Nevis 10, Saint Vincent and the Grenadines 12, Sierra Leone 5, Slovakia 7, Tuvalu 1, Vanuatu 3, unknown 4) (2010) Ports and terminals: Feodosiya (Theodosia), Illichivsk, Mykolayiv, Odesa, Yuzhnyy

Airports: 425 (2010) country comparison to the world: 19 Airports - with paved runways: total: 189 over 3,047 m: 12 2,438 to 3,047 m: 51 1,524 to 2,437 m: 24 914 to 1,523 m: 5 under 914 m: 97 (2010)

Airports - with unpaved runways: total: 236 2,438 to 3,047 m: 3 1,524 to 2,437 m: 7 914 to 1,523 m: 12 under 914 m: 214 (2010)

Heliports: 7 (2010)

Mariupol',

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Overview All transportation in Ukraine except for automobile transportation is regulated by the Ministry of Infrastructure, formerly the united Ministry of Transportation and Communications. The automobile transportation is regulated by the State Automobile Inspection (DAI) of the Ministry of Internal Affairs. The Ministry of Infrastructure includes several transportation and communication related administrations and inspections that supervise various specialized state companies. The public transportation within cities are regulated by their local administrations which are appointed by the President of Ukraine, while submitting their reports to the related ministries of the Cabinet of Ministers of Ukraine. Some of the non-military transportation is also regulated by the special State Space Agency of Ukraine (DKAU). The energy-related transportation such as a pipeline gas is regulated by the Ministry of Fuel and Energy. The share of the transport sector in Ukraine's gross domestic product (according to Goskomstat) as of 2009 was 11.3%. The number of workers employed in the sector is almost 7% of total employment. The transportation infrastructure of Ukraine is adequately developed overall, however it is obsolete and in need of major modernization. A remarkable boost in the recent development of the country's transportation infrastructure was noticed after winning the right to host a major continental sport event the UEFA Euro 2012. The approval and implementation of a national transport strategy is a precondition for a EUR 65 million EU budget support program in the transport sector. The advantageous geographical position of Ukraine allows for the location of a number of International Transport Corridors on its territory, in particular:
• • •

Figure 58 Railway map of Ukraine

Pan-European transport corridors № 3, 5, 7, 9; Rail Co-Operation Corridors (ORC) № 3, 4, 5, 7, 8, 10 and European Transport Corridors - Caucasus - Asia (TRACECA) and Europe - Asia.

In 2009, Ukrainian infrastructure provided for the transportation of 1.5 billion tons of cargo and 7.3 billion passengers. As the global financial crisis took hold and demand for major export commodities in 2009 fell, the volume of freight traffic decreased by 17,6% when compared with figures from 2008; passenger transport fell by 12,7%. Today the transport sector in Ukraine generally meets only the basic needs of the economy and population. The level of safety, quality and efficiency of passenger and freight transport, as well as the infrastructure's amount of energy usage, and the technological burden it places on the environment do not meet modern-day requirements. Due to the low level of demand, the country's existing transit potential and Page 89

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advantageous geographical position is not fully utilized. There is thus a lag in the development of transport infrastructure, transport and logistics technologies and multimodal transport. All this has made Ukraine uncompetitive as the high costs of transport across the country make the cost of production in the country uncommonly high. With an underdeveloped transport and communication infrastructure, Ukraine has not managed to capitalize on its unique geographic location as a transit country between various importers and exporters. As such Ukraine continues to underutilize its transit potential. Despite the high degree of coverage, the quality of the transportation infrastructure and equipment is not in line with international standards. Since November 2009, a draft comprehensive transport sector development strategy up to 2020 is being developed. The draft strategy envisages that the Ministry will elaborate and submit to the Cabinet of Ministers shorter-term strategy implementation program until 2015. Railways The railways are managed by a state railway company Ukrzaliznytsia which also is a state agency. Note that industrial railways and metros in cities are managed locally on a regional level. The length of the railway network Ukraine ranks third in Europe (21.7 thousand kilometers of railways). Ukrainian trains are usually capable of speeds up to 160 kilometers per hour, as the number of railway passengers and freight climbs, the country expects to see a significant improvement in the quality of railway transport. In addition to this the government expects to make huge investments in the railways in preparation for Euro 2012. However, there is currently not enough line capacity provided on routes to the south and the Crimea. Network length: (2010)
• •

22,000 km (13,670 mi) broad gauge of 1,520 mm (4 ft 11 5⁄6 in), ~10,000 km (6,214 mi) electrified (3 kV DC and 25 kV AC) 201 km (125 mi) of 1,435 mm (4 ft 8 1⁄2 in) standard gauge, electrified

There is also a network of suburban and regional train routes for type of local transportation connecting smaller settlements with big cities. A railway reform program for the period 2010-2015 was approved in December 2009 and provides for a separation of the government's regulatory function from the operational function of the national state-owned railway company. Public Roads The development of public roads in Ukraine is currently lagging behind the pace of motorization in the country. During 1990-2010 the length of the highways network hardly increased at all. The density of highways in Ukraine is 6.6 times lower than in France (respectively 0.28 and 1.84 kilometers of roads per square kilometer area of the country). The length of express roads in Ukraine is 0.28 thousand km (in Germany - 12.5 thousand kilometers in France - 7.1 thousand kilometers), and the level of funding for each kilometer of road in Ukraine is around 5,5 - 6 times less than in those locations. This is due to a number of objective reasons, including that the burden of maintaining the transport network per capita is significantly higher than in European countries because of Ukraine's relatively low population density (76 people per square kilometer), low purchasing power of citizens (1/5 of the Eurozone's purchasing capacity), relatively low car ownership and a the nation's large territory. Page 90

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The operational condition of roads is very poor; around 51.1% of roads do not meet minimum standards, and 39.2% require major rebuilds. The average speed on roads in Ukraine 2 - 3 times is lower than in Western countries. Waterways Ukraine has 4,400 km (2,734 mi) of navigable waterways on 7 rivers, most of them are on Danube, Dnieper and Pripyat rivers. All Ukraine's rivers freeze over in winter (usually December through March) interrupting navigation. The river transportation is supervised by the Ukrrichflot (http://www.ukrrichflot.com/) which combines four major and one minor river ports along the Dnieper river and its estuaries. The major part of sea connection is made via the Black sea ports of Odessa, Sevastopol and Yalta. The passenger vessels sailing between the Crimea peninsula and Odessa do not have stable schedule and rates, currently. Therefore tickets for these cruises and ferries are Figure 59 Odessa port hardly bookable. The major part of ferries serves Istanbul, Turkey destination. They provide with several categories of accommodation, meals, entertainment programs, etc. On the top of it, ferries make cargo transportation including cars, vans etc. • Total: 193 ships (1,000 gross register tons (GRT) or over) totaling 862,690 GRT/963,550 metric tons deadweight (DWT)

Ships by type: bulk carrier 6, cargo ship 145, container ship 3, passenger ship 6, passenger/cargo ship 4, petroleum tanker 9, refrigerated cargo ship 11, roll-on/roll-off 7, specialized tanker 2 (2007)

The Ministry of Transport and Communications is currently elaborating a national maritime safety concept. The subsequent development of a detailed implementation plan is expected to take until 2012. Regulatory alignment with international standards progresses slowly; the Ukrainian flag was still on the 2008 black list of the Paris Memorandum of Understanding on Port State Control.

Aviation The aviation section in Ukraine is developing very quickly, having recently established a visa-free program for EU nationals and citizens of a number of other 'Western' nations, the nation's aviation sector is handling a significantly increased number of travelers. Additionally, the granting of the Euro 2012 football tournament to Poland and Ukraine as joint hosts has prompted the government to invest huge amounts of money into transport infrastructure, and in particular airports. Currently there are three major new airport terminals under Page 91

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construction in Donetsk, Lviv and Kiev, a new airport has already opened in Kharkiv and Kiev's Boryspil International Airport has recently begun operations at Terminal F, the first of its two new international terminals. Ukraine has a number of airlines, the largest of which are the nation's flag carriers, Aerosvit and UIA. Antonov Arilines, a subsidiary of the Antonov Aerospace Design Bureau, is the only operator of the world's largest fixed wing aircraft, the An-225. Major airports are: Boryspil Airport, Dnipropetrovsk Airport, Donetsk Airport, Odessa Airport and Simferopol Airport. Majority of big cities in Ukraine has air connection with Kiev. Tickets for domestic flights for non-Ukrainians might be more expensive than for Ukrainians. Best air connection with other countries goes via Kiev. Some domestic flights are not very reliable in terms of schedule - it is a good idea to make sure that the flight you have chosen is made on regular basis. Please, note most domestic air tickets can be obtained in Ukraine only. Transport corridors and international integration Ukraine plays a strategic role concerning integration into trans-European transport corridors in the region. Ukraine has also shown interest in establishing a common aviation area between Ukraine and the EU, the negotiations on which are ongoing. Transport sector development in Ukraine in the light of movement of goods and people is also closely linked with cross border and customs related issues as Ukraine is an important transit country connecting the EU with Russia, the South Caucasus and Central Asia (TRACECA corridor). The transit cargo traffic between Europe and Russia through Belarus is five times higher than that through Ukraine. Ukraine ranks 102nd among 155 countries as per logistic efficiency index of the World Bank, in this regard the main problem area is inefficiency of customs procedures (135th place out of 155) As regards infrastructure investments, Ukraine signed a loan agreement with the World Bank, in April 2009, for a project on roads and safety improvements (EUR 370 million), and a railway modernization project (EUR 653 million) is still in the pipeline. EBRD has provided loans for financing public transport projects in Kyiv and Odessa. Ukraine ranks 79th among 155 countries as per transportation infrastructure quality, according to the World Bank rating. The surface/pavement of roads requires constant repairing, there is no high speed railroad communication, the technological reequipment in the sea ports is necessary, in particular, the development of container terminals, the airports modernization is required as well as the air navigation service.

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Military
Supreme Yanukovych Commander-in-chief Viktor

Minister of Defence Mykhailo Yezhel Chief of the General Staff & Commander-inChief Colonel General Hryhorii Pedchenko Military branches: Ground Forces, Naval Forces, Air and Air Defense Forces (Viyskovo-Povitryani Syly, VPS) (2010) Military service age and obligation: 18-25 years of age for compulsory and voluntary military service; conscript service obligation - 12 months for Army and Air Force, 18 months for Navy (2010) Manpower available for military service: males age 16-49: 10,984,394 females age 16-49: 11.26 million (2010 est.)

Figure 60 Officers and MiG-29 fighter planes of the Ukrainian Air Forces

Note 1.1. Principles of foreign policy … non-participation of Ukraine in military and political alliances, priority of participation in the improvement and development of the European collective security system, continuation of constructive partnership with the North-Atlantic Treaty Organization and other military and political blocs concerning all matters of mutual interest. Note 1.2. Main principles of national policy in the sphere of national security and defense • strengthening national defense capability, increasing responsibility of State Power Agencies at all levels for the proper training and maintenance of state security; • reforming the Armed Forces to ensure their maximum effectiveness and the ability to respond immediately to potential threats to Ukraine; • gradual transition to the manning of contractedpersonnel, primarily in specialties that define units’ combat effectiveness; • equipping the Armed Forces with the newest items of military equipment and weapons; • providing social support for Service personnel and their dependents

Manpower fit for military service: males age 16-49: 6,893,551 females age 16-49: 8,792,504 (2010 est.)

Manpower reaching militarily significant age annually: male: 246,397 female: 234,916 (2010 est.)

Military expenditures: 1.4% of GDP (2005 est.) country comparison to the world: 109

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Overview After the dissolution of the Soviet Union, Ukraine inherited a 780,000 man military force on its territory, equipped with the third-largest nuclear weapons arsenal in the world. In May 1992, Ukraine signed the Strategic Arms Reduction Treaty (START) in which the country agreed to give up all nuclear weapons to Russia for disposal and to join the Nuclear Non-Proliferation Treaty as a non-nuclear weapon state. Ukraine ratified the treaty in 1994, and by 1996 the country became free of nuclear weapons. Ukraine took consistent steps toward reduction of conventional weapons. It signed the Treaty on Conventional Armed Forces in Europe, which called for reduction of tanks, artillery, and armored vehicles (army forces were reduced to 300,000). The country plans to convert the current conscript-based military into a professional volunteer military not later than in 2011. Ukraine has been playing an increasingly larger role in peacekeeping operations. Ukrainian troops are deployed in Kosovo as part of the Ukrainian-Polish Battalion. A Ukrainian unit was deployed in Lebanon, as part of UN Interim Force enforcing the mandated ceasefire agreement. There was also a maintenance and training battalion deployed in Sierra Leone. In 2003–05, a Ukrainian unit was deployed in Iraq, as part of the Multinational force in Iraq under Polish command. The total Ukrainian military deployment around the world is 562 servicemen. Military units of other states participate in multinational military exercises with Ukrainian forces in Ukraine regularly, including U.S. military forces. Following independence, Ukraine declared itself a neutral state. The country has had a limited military partnership with Russia, other CIS countries and a partnership with NATO since 1994. In the 2000s, the government was leaning towards the North Atlantic Treaty Organization, and a deeper cooperation with the alliance was set by the NATO-Ukraine Action Plan signed in 2002. It was later agreed that the question of joining NATO should be answered by a national referendum at some point in the future. Current President Viktor Yanukovych considers the current level of co-operation between Ukraine and NATO sufficient. Yanukovich is against Ukraine joining NATO. During the 2008 Bucharest summit NATO declared that Ukraine will become a member of NATO, whenever it wants and when it would correspond to the criteria for the accession. The Ukrainian armed forces are largely made up of conscripts. The total personnel (including 41,000 civilian workers) numbers at the end of 2010 will be 200,000.The branch structure is as follows:
• • •

Ground Forces: 73,300 personnel Air Force: 46,000 personnel Navy: 15,000 personnel

Ukraine maintains a number of Guards units, tracing their traditions from Soviet Armed Forces service. A list can be seen at List of guards units of Ukraine. Women make almost 13% of the armed forces (18.000 persons). There are few female high officers, 2,9% (1.202 women). Contractual military service counts for almost 44% of women. However, this is closely linked to the low salary of such positions: men refuse to serve in these conditions when women accept them. Page 94

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Summary of development of the armed forces of Ukraine in 2010

The main event of 2010 that had a decisive impact on the security situation was the announcement of Non-Bloc status by Ukraine1 that foresaw, in particular, full participation of Ukraine in common European and regional collective security systems, membership in the European Union while maintaining good neighborly relations and strategic partnership with the Russian Federation, other CIS and world countries (Note 1.1). The principles of national policy were defined in the sphere of national security and defense, on implementation of which major efforts of the MOD and the GS were focused in 2010 (Note 1.2). Challenges and threats to Ukraine’s national security in the military sphere2 were determined on the basis of comprehensive analysis of national and foreign situations conducted during the year. The State Officials paid particular attention to issues concerning preventing the decrease in the Armed Forces combat readiness level, provision of their daily activities and social protection of Service personnel, namely: • for 2010 the task to stabilize the situation in the Armed Forces and to ensure financing of high priority • activities was defined for the MOD3; first stage of initiating administrative reform in MOD Head Office and the • Command and Control Bodies of the Armed Forces was conducted; • legislation to increase the penalty to citizens who breach their active duty commitment The fine was increased from three to five times for breaching military registration rules by persons subject to draft or conscript personnel, non-appearance in the military commissariat without reasonable excuse or late submission to the military registration authority of information concerning change of residence, education, place of work, position, and interruption of training classes in institutions of the Defense Assistance Association of Ukraine and vocational schools. • patronage over military units, military education institutions and organizations of the Armed Forces was reconstituted in order to assist in resolving issues of enhancing the prestige of military service, social and cultural needs of Service personnel6; • pensions of persons retired from military service were increased at the expense of allowances for special conditions of service related to the maintenance of nuclear weapons; • functions and tasks of the Inspection on Control over the Functioning of Military Formations of the Main Defense Policy Directorate and Law Enforcement Bodies of the Presidential Administration were specified; • “Ukroboronprom” State Economic Association was established to increase efficiency of the administrative activity in the sphere of development, production, implementation, maintenance, modernization and disposal of weapons, military and special equipment and ammunition. • The allowance was increased in order to encourage Service personnel to military service. In 2010 the amount of monthly allowance to contracted Non-Commissioned Officers (NCOs) was raised, that increased their allowance by 29% to 35% compared to 2009. An additional monthly allowance to aircraft and shipboard Service personnel was determined and the average size of the monthly allowance was raised in December, that enabled an increase on average of 20% to 23% in the allowance of Service personnel. Timely decisions and measures of State Officials in 2010 made everything possible to Page 95

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stabilize the situation in the Armed Forces and further reform. However, implementation of tasks to improve the Armed Forces’ combat readiness requires significant resources and full consolidation of State Power Agencies and society. Internal and external challenges and threats, with high level of probability and impact on Ukraine to 2025 were defined within the framework of the Strategic Defense Review and an analysis of the security environment.

Figure 61Threats and Challenges in the Sphere of National Security and Defense

Taking into consideration the comprehensive response of all state agencies to threats in the sphere of military security, it was proposed to transit from the irrelevant at this time definition “State Military Organization” to the definition “Security and Defense Sector of Ukraine”. The latter’s functional components include: Defense Forces, Security Forces, non-governmental agencies that may be involved in the interests of security and defense. Transformation of the State Military Organization into the Security and Defense Sector and legislative consolidation of this term will enable the adjustment of the priorities of the State Security and Defense Policy more effectively and timely, optimally merging military and civil opportunities of all components of the system of national security for preventing and neutralizing existing and potential military threats, and supporting the defensive potential of the State at the level that ensures the military security of Ukraine. Page 96

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Figure 62 Functional Components of the Security and Defense Sector of Ukraine

Command and control system of the armed forces, organization, manpower and equipments In 2010 due to decisive actions of the State leadership as a whole, Ukraine managed to create a background for stopping destructive processes in the Armed Forces, favorable conditions for renewal of Forces’ combat readiness, gradually increases in both training level and equipping forces with materiel. The new State Comprehensive Program of Reforming and Developing the Armed Forces 2011-2015 is being developed based on the results of defense policies and the Strategic Defense Review, according to the National security and Defense Council decision. Page 97

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Improving the Command and Control System of the Armed Forces was accomplished by developing its key features: Command and Control Elements; Command Posts, the Armed Forces Single Automated Command and Control System (SAC2S) elements and replacing the communications systems with digital communications. The development of the single automated Command and Control System continued: • Strategic level – MOD, General Staff, Logistics, Armaments, Main Directorate of Operational Support; • Operational level – Services’ Commands, Joint Operational Command, Army Corps’ Commands, Air Commands, Naval Operations Centre and Coast Guard Troops Centre; • Tactical level – Brigades and Regiments’ Commands.

Figure 63 Armed Forces’ Command and Control Elements’, at the end of 2010

During 2010 effective mechanisms continued to be develop for the Armed Forces’ Command and Control System and its integration in the renewed State Command and Control System. The MOD and the Armed Forces are implementing the government’s Administrative Reforms. The priority was given to optimizing the military Command and Control Elements’ organization and strength, removing overlapping functions and tasks, and reducing running costs. The command and control system of the Armed Forces is capable of ensuring continual and robust control over units, their routine activities as well as peacekeeping contingents. In 2010 the significant achievement in renovating weapons and equipment serviceability enabled improvement in the materiel capability provided to units. The establishment of effective mechanisms of military-technical cooperation in the defense sphere enables the modernizing and renovating of the whole Armed Forces inventory of arms and equipment. Page 98

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International cooperation, peacekeeping activity and arms control International cooperation was implemented in terms of the State’s new political direction defined by the Law of Ukraine “On Principles of Internal and External Policy” and directed at implementing Non-Block status. The MOD’s main efforts were concentrated on strengthening and deepening relations with leading international organizations and leading countries, initiating with them constructive political-military, military-technical cooperation on mutually favorable conditions as well as developing good-neighborly cooperation with the Russian Federation and other neighboring countries with the aim of creating an atmosphere of trust, stability and security around Ukraine. In 2010 the MOD cooperated with defense institutions of 55 countries. In total 711 activities took place (Figure 3). MOD, GS and Armed Forces leaders conducted about 150 meetings. As a result, 3 inter-governmental and 15 inter-agency treaties with 12 countries were signed. Accordingly, international cooperation was directed at: • creating conditions to implement Ukraine’s EU membership course, widening its participation in regional cooperation and promoting national interests regionally and globally; • increasing operational capabilities of the Ukrainian Armed Forces, enhancing the interoperability with leading nations armed forces, widening participation in international exercises, peacekeeping and anti-terrorist operations; • improving the legal basis for international cooperation, implementing specific program and international technical support projects; • intensifying disposal of surplus rocket and ammunition depots as well as rocket fuel components, sustaining cooperation in disarmament, arms control, and proliferation of weapons of mass destruction.

Figure 64 International cooperation 2007-2010

Deepening bilateral cooperation with MODs of strategic partners, neighboring countries and leading nations remains an important activity of the MOD. During the year 2010 the main attention was concentrated on

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fulfilling agreements within acting treaties and further improvement of mutually beneficial interaction at the bilateral level. Priority directions of bilateral cooperation are: • interacting with EU- and NATO-countries; • developing relations with strategic partners: the US, the Russian Federation and Poland; • widening traditionally active cooperation with Germany, UK and France. In 2010 the number of bilateral cooperation activities exceeded the previous year. The most activities were with US, UK, Canada, Russia, Lithuania, Germany, Belarus, Turkey, France and Italy. Development of international cooperation, including defense cooperation, between Ukraine and the US remains one of the main directions of the State’s external policy. Establishing effective bilateral cooperation with Ukraine’s Figure 65 Bilateral cooperation with countries defense institutions strategic partners, neighboring countries and leading countries remains one of the priority directions of the State’s external policy and is considered by Ukraine an civet mechanism of developing mutually beneficial relations between countries and preventing military conflicts. Successful implementation of multi-lateral cooperation activities within international and regional organizations on security, stability and strengthening trust is one of the main components of international defense cooperation. In total during the year 220 activities took place, representing 31 % of the total number of activities. Cooperation with the European Union The State’s external policy main priority is providing Ukraine’s integration to European political, economic, legal and security environment with the aim of European Union membership. That is why military cooperation with the EU in 2010 was practically oriented and is considered to be an important direction of Ukraine’s new defense policy. International defenses cooperation provides a stable pillar within Ukraine’s overall foreign policy and is aimed at the implementation of the country’s strategic course towards full membership in the European Union and integration in the European security system. Page 100

Figure 66 Multi-lateral cooperation in 2010

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According to 2010 year’s results the Ukrainian Armed Forces, in general, are ready to accomplish designated tasks. The necessary conditions for the situation to stabilize and maintain capabilities to renew combat readiness were created.

During 2010 Ukraine-EU military cooperation was conducted in terms of: • widening the format of political-military dialogue between political- military leaders of Ukraine, EU Military Committee and EU Council Secretariat; • reforming and implementing Common Security and Defense Policy; • training experts in the Common Security and Defense Policy; • preparing Ukraine Armed Forces assets for EU Battle Groups (BG) and achieving interoperability of designated units for participation in joint military exercises and peacekeeping operations under the aegis of EU; • establishing collaboration and participation in the work of EU structures and agencies (European Defense Agency, European Security and Defense College, EU Security Research Institute); • using Ukraine’s capabilities in air transport during EU operations. Successful implementation of EU cooperation plans in the military area gives a possibility for the Ukraine’s Armed Forces to reach a new quality and enhance common capabilities for participation in EU operations. Ukraine continues a constructive partnership with NАТО aimed at solving priority tasks of Armed Forces development, providing stability and security in the world through peacekeeping operations, and ensuring Ukraine’s readiness to participate in such activity by developing appropriate level of interoperability of the Ukrainian Armed Forces with those of NATO member-states. The format of such cooperation was maintained and continued throughout 2010. By carrying out its international obligations Ukraine is proving itself a predictable country and reliable partner. According to the ANP-2010 Action Plan the MOD participated in 246 activities, in 215 as a responsible executive body, in 31 as a co-responsible Figure 67 The List of forces and means defined for participation in the Planning and Review Process executive body. Of these activities 126 were “completed” (51 %), 69 “partially completed” (28 %), 11 “not completed” (4 %) and 7 activities “cancelled” (3 %). The NATO-Ukraine Individual Partnership Program is a practical mechanism for exchanging experience between the armed forces of Ukraine and Alliance members and partners. It has enhanced the level of cooperation in a number of directions: military education and training; command, communications and informational systems; standardization; interoperability; and logistics. In 2010 Ukrainian Armed Forces representatives took part in a total of 55 program activities: 31 courses; 7 seminars and workshops; 6 exercises; 3 working meetings and NATO expert visits; and 8 conferences and meetings. In 2010 Ukraine’s participation in the NATO Program on Air Situation Data Exchange was extended, with the signing in May 2010 of a Memorandum of Understanding between the MOD and the General Staff of the Turkish Armed Forces and the Supreme Allied Command Operations. According to the Memorandum Air Page 101

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Situation Data Exchange will take place between the Ukrainian Air Force Command Post “South” and the Control and Notification Center of the Turkish Air Force in Erzurum. Another format of cooperation between Ukraine and NATO is participation of the Armed Forces in the Planning and Review Process in the framework of the “Partnership for Peace” Program. The main efforts of the MOD and GS were concentrated on training designated forces and means for interaction with EU and NATO nations’ armed forces in peacekeeping, search and rescue and humanitarian operations. Thus, partnership with NATO remains one of the priority directions of Ukraine’s defense policy, and the MOD and the Armed Forces are ensuring high level political-military dialogue between Ukraine and NATO and undertaking efforts to continue constructive partnership on issues of common interest.

Figure 68 Operation capabilities development of NBC unit

Cooperation in the framework of other international and regional organizations is an important direction of Ukraine’s defense policy and one of the State’s mechanisms for providing security in support of an atmosphere of stability and mutual trust in Europe and the world. In accordance with obligations undertaken by Ukraine the Armed Forces continued in 2010 to actively participate in peacekeeping missions under the aegis of the United Nations (UN). The most significant contribution in this area is being made by the 56th Detached Helicopter unit in Liberia and Cote d’Ivoire. At the time Service personnel are serving as peacekeepers in UN missions in the Democratic Republic of Congo, Kosovo, Liberia and Sudan. Ukraine is a permanent member of the Organization of Security and Cooperation in Europe (OSCE) Forum for Security Co-operation. One of the most important and successful directions of OSCE-Ukraine cooperation in the politico-military sphere in 2010 was the implementation of the OSCE-Ukraine project on rocket fuel (mélange) disposal in the framework of the OSCE Document on Stockpiles of Conventional Ammunition from 2003. Ukraine considers cooperation with the Commonwealth of Independent States as an important direction of external policy in the post-Soviet space. During the year MOD delegations took place twice in work of the CIS

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Defense Ministers’ Council. Taking into account the status of Ukraine as an observer summary meeting documents were not signed. The active participation of the MOD and Armed Forces in the activities of international security organizations helps to ensure international security in Europe and the whole world and supports the creation of a zone of stability and mutual trust around Ukraine. Ukraine is conscious of its responsibility to preserve international peace and security and remains an active participant in international peacekeeping activity. In 2010 Ukraine maintained the format of Armed Forces participation in international peacekeeping operations and ensured the practical realization of the Strategy of International Peacekeeping Activity4. In the course of the year 858 Service personnel participated in peacekeeping contingents and 133 served as peacekeeping personnel. Altogether Service personnel took part in 11 international peacekeeping operations in 8 countries.Ukraine’s participation in peacekeeping operations, including NATO operations in Kosovo, Afghanistan and the Mediterranean Sea, furthers the national interests of Ukraine and helps to support international peace and security. It also increases the level of combat training of Service personnel, enabling them to obtain combat experience, and helps the Armed Forces to achieve interoperability with the forces of other nations participating in international peacekeeping operations. Efforts in verification of Armed Forces activity were focused on ensuring all parties’ adherence to arms control agreements, including the Open Skies Agreement, the Treaty on Conventional Armed Forces in Europe, the Vienna document of 1999 as well as bilateral inter-governmental agreements between Ukraine and Slovakia, Hungary, Belarus and Poland aimed at additional confidence-building and security measures. The status of implementation of international agreements and conventions in the sphere of arms control in 2010 was the same as in previous years and was characterized by the high level of attention paid to verification activities on the territory of Ukraine without the right to refuse and an increase of the number of neighboring counties’ representatives in multilateral inspection groups. Page 103

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Figure 69 Participation of Ukrainian Contingents and Personnel in Peacekeeping Operations 2010

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Fulfilling Ukrainian obligations under international arms control agreements furthers the development of the European security system and the integration of Ukraine within this system. Conclusions 2011 is declared the “Year of Technical Readiness of Arms and Equipment and Training of the Professional NCO Corps”. The main priorities of the Armed Forces development are as follows: • Implement effective system to support combat readiness; improve arms and equipment technical servicing; increase technical knowledge level of all Service personnel; achieve readiness to accomplish the tasks of Joint Rapid Reaction Forces, Special Operations Forces and Air Defense Duty; create and develop professional NCO Corps, promote its role in military staff management and further optimize their multi-level training system; • Improve strategic planning of engagement of the Armed Forces; complete the Strategic Defense Review; and develop the State Program for the Armed Forces Development 2011-2015; • Optimize the Armed Forces and operational formations command and control system with operating support, material and technical support; develop unified automated Command and Control System and transfer to digital communication system; • Modernize and renovate armament and equipment, first of all of the Air Force to provide increasing effectiveness of reconnaissance and control of Ukraine’s airspace; • Undertake Administrative Reform in the MOD and the Armed Forces, improve management and eliminate overlapping functions and duties; • Re-organize in full the military education system, re-organize and optimize its elements, and supply the Armed Forces with trained personnel; • Support social guarantees to Service personnel, their families, Armed Forces’ employees and other eligible to social protection from the MOD; • Fulfill Ukraine’s international military commitments, implement Non- Block status, strengthen militarypolitical, military-technical and military cooperation with international organizations and nations. Page 105

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Transnational Issues
Disputes – International: 1997 boundary delimitation treaty with Belarus remains un-ratified due to unresolved financial claims, stalling demarcation and reducing border security; delimitation of land boundary with Russia is complete with preparations for demarcation underway; the dispute over the boundary between Russia and Ukraine through the Kerch Strait and Sea of Azov remains unresolved despite a December 2003 framework agreement and ongoing expert-level discussions; Moldova and Ukraine operate joint customs posts to monitor transit of people and commodities through Moldova's break-away Transnistria Region, which remains under OSCE supervision; the ICJ gave Ukraine until December 2006 to reply, and Romania until June 2007 to rejoin, in their dispute submitted in 2004 over Ukrainian-administered Zmiyinyy/Serpilor (Snake) Island and Black Sea maritime boundary; Romania opposes Ukraine's reopening of a navigation canal from the Danube border through Ukraine to the Black Sea

Illicit drugs: limited cultivation of cannabis and opium poppy, mostly for CIS consumption; some synthetic drug production for export to the West; limited government eradication program; used as transshipment point for opiates and other illicit drugs from Africa, Latin America, and Turkey to Europe and Russia; Ukraine has improved antimoney-laundering controls, resulting in its removal from the Financial Action Task Force's (FATF's) Non cooperative Countries and Territories List in February 2004; Ukraine's anti-money-laundering regime continues to be monitored by FATF Overview of Foreign Relations Ukraine considers Euro-Atlantic integration its primary foreign policy objective, but in practice balances its relationship with Europe and the United States with strong ties to Russia. The European Union's Partnership and Cooperation Agreement (PCA) with Ukraine went into force on March 1, 1998. The European Union (EU) has encouraged Ukraine to implement the PCA fully before discussions begin on an association agreement. The EU Common Strategy toward Ukraine, issued at the EU Summit in December 1999 in Helsinki, recognizes Ukraine's long-term aspirations but does not discuss association. On January 31, 1992, Ukraine joined the thenConference on Security and Cooperation in Europe (now the Organization for Security and Cooperation in Europe--OSCE), and on March 10, 1992, it became a member of the North Atlantic Cooperation Council. Ukraine also has a close relationship with NATO and has declared interest in eventual membership. It is the most active member of the Partnership for Peace (PfP). Page 106

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Relation with CIS states Ukraine maintains peaceful and constructive relations with all its neighbors; it has especially close ties with Russia and Poland. Relations with the former are complicated by energy dependence and by payment arrears. However, relations have improved with the 1998 ratification of the bilateral Treaty of Friendship and Cooperation. Also, the two sides have signed a series of agreements on the final division and disposition of the former Soviet Black Sea Fleet that have helped to reduce tensions. Ukraine became a member of the Commonwealth of Independent States (CIS) on December 8, 1991, but in January 1993 it refused to endorse a draft charter strengthening political, economic, and defense ties among CIS members. Ukraine was a founding member of GUAM (Georgia-Ukraine-Azerbaijan-Moldova).In 1999–2001, Ukraine served as a non-permanent member of the UN Security Council. Historically, Soviet Ukraine joined the United Nations in 1945 as one of the original members following a Western compromise with the Soviet Union, which had asked for seats for all 15 of its union republics. Ukraine has consistently supported peaceful, negotiated settlements to disputes. It has participated in the quadripartite talks on the conflict in Moldova and promoted a peaceful resolution to conflict in the post-Soviet state of Georgia. Ukraine also has made a substantial contribution to UN peacekeeping operations since 1992.

Figure 70 Diplomatic relations of Ukraine

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Ukraine’s Key Partners Russia Kyiv’s relations with Moscow have, since 2004, reached an unprecedented low. Restoring a good relationship with Russia must therefore top the new President’s foreign policy agenda. Reestablishing a healthy relationship with Ukraine’s northern neighbor is an end in itself, but also a means: Brussels and Washington have tired of the political and economic instability caused by Ukraine-Russia spats, and both are looking to improve their own relationships with Moscow. At the same time, Russia itself has grown weary of what it sees as western interference in its sphere of influence, and it fears that other countries may emulate Ukraine’s decision to follow a different developmental model than its own. It will be up to Kyiv to avoid both unnecessary belligerence and the “unilateral loyalty” it has tended to display since independence. The European Union Ukrainians—both Ukraine’s main political forces and its population as a whole—favor EU accession, which is seen as a means of enhancing the country’s independence, territorial integrity, and economic and energy security. But Ukraine’s politicians seem unable to grasp what European integration demands of them, especially when it comes to crucial reforms. Years of unkept promises, political and economic instability, and a deteriorating relationship with Russia have seriously damaged Kyiv’s standing in the EU. Hence overcoming “Ukraine fatigue” in both Brussels and other European capitals will have to top the new President’s agenda. This will mean both pushing through internal reforms and developing more mature relationships with Ukraine’s foreign partners. The United States After years of being seen as a key counterweight to Russia in the former Soviet Union, Kyiv’s importance to the United States has shrunk considerably. With Washington falling prey to Ukraine fatigue and the Obama administration seeking to reset relations with Moscow, Ukraine has been reduced to a simple card to be played in resolving more important issues in US-Russian relations. The US is moving from an ideological, democracypromoting foreign policy to a more pragmatic, interest-driven one. If Ukraine is to maintain a healthy relationship with the US, it will have to grow out of its status as a mere beneficiary of American support into that of a true partner—one capable of bringing real assets to the table. Poland For Ukraine, the importance of maintaining close relations with Poland is based on four main concerns. First, it is essential that Ukraine enjoy healthy relationships with its neighbors. Second, Poland’s experience of EU and NATO integration holds important lessons for Ukraine. Third, economic cooperation between Ukraine and Page 108

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Poland holds great potential. And fourth, of all Ukraine’s neighbors, Poland is in the best position to enhance Ukraine’s security. Romania Ukraine’s relations with Romania have historically been difficult. Bucharest routinely uses the Romanian minority in Ukraine as political leverage. Romania is trying to raise its profile in the Brussels, while at the same time competing for the attention and resources of EU and NATO members. Controlled tensions with Kyiv are part of Bucharest’s bid for regional leadership, which only Ukraine is in a position to challenge. In addition, Ukraine and Romania have competing environmental and economic interests in the Danube basin, which Bucharest has been more skilled at pursuing. Moldova The Republic of Moldova is the smallest of Ukraine’s neighbors, but also the most troublesome. An undemarcated border, the frozen conflict in Transnistria, a Ukrainian community on both sides of the Dnister whose interests are not always defended, common challenges linked to neighboring Romania—all these prevent Kyiv from dropping Chisinau from its sights. The cornerstone of Ukraine’s policy towards Moldova is preserving the sovereignty and territorial integrity of this important neighbor. It is through this prism that the Transnistrian problem is seen in Kyiv. Belarus Belarus may be one of Ukraine’s main trading partners, but Kyiv’s relations with Minsk are prickly. “Europe’s last dictatorship” is intent on trying to play East against West while consolidating its position as a key transit corridor between the Black and Baltic Seas—not to mention using border issues with Ukraine as leverage on other matters. It is in Ukraine’s interest to improve relations with Minsk but any progress will have to be carefully thought out and coordinated with Ukraine’s western partners. Turkey Ukraine and Turkey are neither close allies nor rivals. Still, they are bound by significant trade and a sound political relationship. Turkey is one of the most important political players around the Black Sea, with one of the leading economies in the region and the second-largest military in NATO. Given their similar sizes, geographical proximity, and common interests, Ukraine and Turkey are ideally placed to develop “model” relations, based on equality rather than on dependence. But Ukraine’s leadership has yet to grasp the political and economic potential of this relationship. Page 109

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Georgia In the aftermath of the Rose and Orange Revolutions, ties between Ukraine and Georgia grew very close. Both countries are trying to withstand Russian intrusions, both intend to join NATO and the European Union, and both are active within GUAM. But today, both are also at low points in relations with their most important partners, and both are facing major political and economic challenges. Ukraine’s Priority Areas 1. Security Since the country’s failure to be granted a NATO Membership Action Plan (MAP) in 2008, Ukraine’s political elites have been in increasing disarray over what to do next. The country must better define the nature and substance of its relations with major security partners, namely the United States, the European Union, and Russia, before it can find its place in the European security system. Restoring relationships with its principal partners will be crucial not only to protecting Ukraine’s independence, but also to fostering the domestic political stability necessary for a constructive foreign and security policy. 2 Energy Security Energy has been Ukraine’s Achilles’ heel ever since the Soviet Union collapsed. To this day, not one of Kyiv’s strategic goals in this area has been reached, whether reducing the energy-intensity of GDP, increasing the extraction of domestic resources, diversifying supplies, or establishing a closed nuclear fuel cycle. Ukraine remains heavily dependent on Russian natural gas, and flawed contracts with Gazprom will leave it vulnerable for years to come. Kyiv will have much to do if it is to restore its credibility as both an honest customer and a reliable transit state for Russian gas. This will namely mean reforming its energy sector and adhering to its commitments under the Energy Community Treaty, which it has just joined. 3. Environmental Challenges Ukraine’s environmental record is checkered at best. Both its energy efficiency and its greenhouse gas reduction targets are among the worst in the world. But with its educated population and highly-developed industrial sector, the country also has great environmental potential—one that it could, with the necessary effort and the right strategy, turn into regional leadership. The mood in Ukrainian-Russian relations has often been affected by both subjective

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World Health Organization Profile

Figure 71 Ukraine: WHO health profile (part 1)

Life expectancy WHO estimates that a person born in Ukraine in 2003 can expect to live 68 years on average: 74 years if female and 63 years if male. Life expectancy for males in 2003 was five years shorter than in 1986. Life expectancy for females in 2003 was two years shorter than in 1989. Compared with the Eur-A averages for males and females, male life expectancy in Ukraine is 14 years lower and female life expectancy is 8 years lower. Life expectancy for Ukrainian males remains two years less than Eur-B+C average life expectancy, while for females it is practically equal to the average. WHO also estimates that Ukrainians spend about 12% Page 111

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Figure 72 Ukraine: WHO health profile (part 2)

(eight years) of their average life span with illness and disability. As the length of life increases, older people can respond with lifestyle changes that can increase healthy years of life. Correspondingly, health care systems need to shift towards more geriatric care, the prevention and management of chronic diseases and more formal long-term care. Since people are living longer, measures to improve health and prevent disease need to focus on people of working age. Population profile In mid-2003, Ukraine had about 48 million people. About 67% of them lived in urban areas, which is slightly above the Eur-B+C average rate. The percentage of the population 0–14 years old was relatively steady during the 1980s, but fell from about 21% in 1990 to 16% by 2003. The percentage is below the Eur-B+C average. At Page 112

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the other end of the age spectrum, the percentage of Ukraine's population more than 65 years old is above the Eur-B+C average. By 2030, an estimated 22% of Ukraine's population will be 65 years old and older. The birth rate in Ukraine was the lowest in Eur-B+C in 2003. For that year, the natural population increase in Ukraine was negative and the lowest of the Eur-B+C countries. Net migration for 2003 was slightly negative and below the corresponding Eur-B+C average Socioeconomic indicators Health outcomes are influenced by various factors that operate at individual, household and community levels. Obvious factors are, for example, diet, health behaviour, access to clean water, sanitation and health services. However, underlying health determinants of a socioeconomic nature also play a role in causing vulnerability to health risks. Here, the key factors are income, education and employment. Though moderately correlated and interdependent, each of these three determinants captures distinctive aspects of the socioeconomic background of a population and they are not interchangeable. Various indicators represent the key socioeconomic determinants of health. Income: absolute poverty, relative poverty and income distribution There is an income gradient affecting health: the poor generally suffer worse health and die younger than people with higher incomes. For instance, the latter are better able to afford the goods and services that contribute to health, for example, better food and living conditions. People are considered to be in absolute poverty if their incomes are not sufficient to purchase very minimal goods and services. The World Bank currently uses an absolute poverty line of US$ 2.15 and US$ 4.30 income per person per day to measure poverty in low- and middle-income countries of the WHO European Region (using 1993 international prices adjusted for purchasing power parity). While there is no certainty that the poverty lines measure the same degree of need across countries, the World Bank uses them as a constant to permit comparison. Many countries in the Region calculate their national poverty lines on the basis of a minimum consumption basket selected and priced according to the specific circumstances of the country. Relative poverty is an indicator of income level below a given proportion (typically 50%) of the average national income. In high-income countries, there are far more pockets of relative poverty than of absolute poverty. In Ukraine, in 2003, per person gross national income, adjusted for purchasing power parity (PPP) was US$ 5430, below the corresponding Eur-B+C average (US$ 6842). Household surveys conducted in Ukraine over 12 years, from 1988 to 1999, found that since 1988, when the absolute poverty rate was 1.6% (using the US$ 4.30 per person per day benchmark), the rates have been increasing. In 1999, the latest year for which data are available, 81.7% of the population lived on US$ 4.30 or less per day. That same year, 31.3% of the population lived on US$ 2.15 or less per day (World Bank, 2005). Another measure of relative poverty in terms of income is the Gini index. This presents the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of 0 represents perfect equality, while an index of 100 implies perfect inequality. The Gini index for Ukraine was 29.0 in 1999, the latest year for which data are available. The Gini indices for 15 Eur-B+C countries for 2000–2002 range from 26.2 for Bosnia and Herzegovina (2001) to 37.2 in Estonia (2000) (World Bank, 2005). Page 113

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Education Education tends to enhance an individual’s job opportunities. In so doing, it can improve income, which in turn affects health positively. Education can also give more access to knowledge about healthy behavior and increase the tendency to seek treatment when needed. A lower level of education – independent of individual income – is correlated with the inability to cope with stress, with depression and hostility and with adverse effects on health. School enrolment is an indicator of access to education. The secondary school net enrolment represents the percentage of the total population of official school age (defined nationally) that is enrolled in secondary school. In Ukraine, net secondary school enrolment in 2001 was 89%, compared to an 81.2% EurB+C average in 2000. The average net enrolment in Eur-A countries that year was 88.5% (UNESCO, 2005). Employment Being employed tends to be better for health than being unemployed, except for circumstances where employment exposes the individual to physical injury or psychological stress. National unemployment rates and rates for particular sub-populations are monitored to assess the extent to which people have or lack access to opportunities that would enable them to earn an income and feel secure. Vulnerability to health risk is increased by long-term unemployment, that is, continuous periods without work, usually for a year or longer; the socioeconomic status of an individual and of his/her dependents can slide as the period of unemployment increases. The total unemployment rate in Ukraine in 2001 was 11.1%, close to the Eur-B+C country average of 12.9% for that year, keeping in mind that national rates are based on estimates of people available and seeking employment and that countries have different definitions of labour force and unemployment. The percentage of young Ukrainians, 15–24 years of age, without work but available for (and seeking) employment was 24% in 2000 – the latest year for which data were available. In 2001, the Eur-B+C average youth unemployment rate was 25.2% (ILO, 2005). Life expectancy (LE) and healthy life expectancy (HALE) According to figures compiled by WHO (WHO, 2003c), a person born in Ukraine in 2003 can expect to live 67.8 years on average: 73.6 years if female and 62.3 years if male. In Ukraine, life expectancy (LE) for males is about 13.6 years lower than the corresponding Eur-A average, and 8.4 years lower for females. The Ukrainian male LE remains lower than the corresponding Eur-B+C average by 1.9 years, while for females it is practically equal to the average. In males, LE decreased during the period 1986– 1995 by 5.6 years, then increased for 3 years, and subsequently started a slow decline again. In 2003, it was less than in 1986, by 4.7 years, showing some departure from the Eur-B+C average LE. During the period 1998–2003, it stabilized. For Ukrainian females, LE declined by 2.7 years between 1989 and 1995, Page 114

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to reach the Eur-B+C average LE; it then increased for 3 years and stabilized. Its value in 2003 was 1.7 years lower than in 1989 In addition to LE, it is increasingly important to know the expected length of life spent in good health. WHO uses a relatively new indicator for this purpose – healthy life expectancy (HALE), subtracting estimated years of life spent with illness and disability from estimated LE. For Ukraine, WHO (WHO, 2003c) estimates that people can expect to be healthy for about 88% of their lives. They lose an average of 8.0 years to illness and injuries – the difference between LE and HALE. This loss is a little more than the Eur-A average (7.3 years) and the Eur-B+C average (7.6 years) Since females generally live longer and since the possibility of deteriorating health increases with age, females lose more healthy years of life (9.3 years) than males (6.8 years). Nevertheless, the longer LE for females in Ukraine gives them 8.7 more years of healthy life than males. At age 60 years, this difference reduces to 3.4 years: woman can expect 13.7 years of healthy life and men 10.3 years. Infant mortality Both infant and neonatal mortality rates in Ukraine are well below the corresponding Eur-B+C average rates; however, the latest infant mortality rate is twice as high as the corresponding Eur-A average rate. The United Nations Children’s Fund estimates that the infant mortality rate in Ukraine in 1995 was 20 deaths per 1000 live births (the official national rate was 15 deaths per 1000 live births), and in 2003 it was 15 deaths per 1000 live births (the official national rate was about 10 deaths per 1000 live births). Antenatal care is one of the most important services in health care. Nevertheless, it can be expensive, and interventions may be excessive, unneeded and unproven. A simplified model of antenatal care, based on evidence of benefit, is available. Maternal mortality The maternal mortality rate shows a clear decline, at a rate about four times higher than the Eur-A average rate, but well below the Eur-B+C average rate. The rate may be underestimated, though. According to WHO/United Nations Children’s Fund/United Nations Population Fund estimates for the year 2000, the maternal mortality rate in Ukraine was 35 maternal deaths per 100 000 live births, while the official national rate was close to 25 maternal deaths per 100 000 live births. Between 1990 and 2002, the maternal mortality rate in Ukraine fell by 32%, despite a peak rate in 1994 (about 33 maternal deaths per 100 000 live births). The maternal mortality rate would have to fall another 63% to reach the Millennium Development Goal target. More important than reaching the exact Millennium Development Goal for maternal mortality rates is that countries take concrete action to provide women with access to adequate care during pregnancy and childbirth. There are evidencebased initiatives proven to bring down the rates. Main causes of death The latest mortality rate for males in Ukraine is 6% higher than the corresponding Eur-B+C average rate, and the rate for females is about 3% higher. When compared with Eur-A average mortality rates, excess mortality in Ukraine is present in all age groups, the largest being in men 30–44 years old – who have mortality rates about five times higher then their peers in Eur-A. In females, the mortality rate differences are smaller than in males. In 2003, the main non communicable diseases accounted for about 80% of all deaths in Ukraine; external causes for about 11%; and communicable diseases for about 2%. In total 60% of all deaths were caused by Page 115

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diseases of the circulatory system and 12% by cancer. The mortality rate among males attributed to cardiovascular diseases is the third highest in European countries, and for elderly males and females (65 years old and older) the rates are the fourth highest. Ischaemic heart disease is the single biggest killer in Ukraine, being responsible for almost 40% of all male deaths in 2003 – more than double the Eur-A average rate (15%) and more than the Eur-B+C average rate (28%). Preventive care, delivered through a country’s primary care system, can reduce all-cause mortality and premature mortality, particularly from cardiovascular diseases. Burden of disease The burden of disease in a population can be viewed as the gap between current health status and an ideal situation in which everyone lives into old age, free of disease and disability. Causing the gap are premature mortality, disability and certain risk factors that contribute to illness. The analysis that follows elaborates on the burden of disease in the population. The isability-adjusted life-year (DALY) is a summary measure that combines the impact of illness, disability and mortality on population health. Cardiovascular diseases (CVD) and unintentional injuries account for the highest burden of disease among males, and CVD and neuropsychiatric conditions account for the highest burden of disease among females. Because mortality from neuropsychiatric conditions is minor, disability in daily living comprises the bulk of their burden on the population’s health According to the DALYs, tobacco and alcohol use place the greatest burden of disease on the Ukrainian male population, and high blood pressure and high cholesterol level place the greatest burden of disease on the female Excess mortality To some extent, the mortality pattern in Ukraine follows the alcohol policy in the former Soviet Union.As with the other former Soviet republics, Ukraine in 1986 showed a fall in the mortality rate from all causes, reflecting a reduction in deaths from CVD and external causes. This followed the introduction in June 1985 of a vigorous campaign to restrict, and thereby reduce, alcohol consumption (the so-called Gorbachov anti-alcohol campaign). Mortality rates reached a low point in males in 1986 and in females in 1989. Following economic liberalization in 1991, alcohol became more widely available and relatively cheaper than before 1985, and its consumption may have played a significant role in the further increase in mortality. It is estimated that, in the Russian Federation, alcohol was responsible for 19% of the premature mortality increase during the period 1992–1994; however there are no such estimates for Ukraine. These trends, and the evidence that supports the causal role of alcohol, are covered in more detail in Health in Europe 1997 (WHO Regional Office for Europe, 1998). Mortality trends in Ukraine show the same pattern as the Commonwealth of Independent States and Eur-B+C averages, with one noticeable distinction, which is the peak in mortality rate in 1995 rather than in 1994. After 1998, mortality again increased: in males the death rate rose 8.3% until 2003, and in females it rose 4.6%. The Health status 13 excess mortality in Ukraine in comparison with the Eur-B+C average has been almost stable since 1995, and in 2003 it was 5.6% in males and 3.4% in females. According to the latest figures, the mortality rate for males in Ukraine is 5.9% higher than the Eur-B+C average rate, and the rate for females is 3.4% higher. Across age groups, the variation in the relative difference in mortality is rather small; however, in Ukraine, children below 15 years of age have a lower risk of death (by more than 20%) than the Eur-B+C average risk for that age group. When compared with the Eur-A average Page 116

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death rates, excess mortality in Ukraine is present in all age groups, with the largest percentage in young men 30–44 years old, who have mortality rates about five times higher then their peers in Eur-A countries. Cancer Cancer accounted for about 12% of the deaths in Ukraine, which is similar to the Eur-B+C average rate (13%) and less than half of the average Eur-A cancer rate (28%). In Ukraine, mortality from cancer decreased in recent years in all age groups below 75 years old. There is a male–female difference in total cancer mortality: in males, total cancer mortality in Ukraine is at the average Eur-B+C level, and in females it has been lower for years. However, there is excess mortality in younger age groups that gradually disappears in older age groups (the mortality rate for females aged 15–29 years is the highest in European countries and the rate for males below 65 years is the fifth highest in Europe). Respiratory diseases In 2003, respiratory diseases accounted for 3.9% of all deaths in Ukraine. Male mortality rates for these diseases declined rapidly until 1990, then again during the period 1995–2003 (by 32%), and approached the Eur-B+C average rate; however, these rates are almost double the Eur-A average rates. Although this pattern appears in older men (65 years and more) and although the rate in 2003 for this group is at the Eur-A and EurB+C average rates in males below 65 years old, the mortality rate has declined so clearly, and in 2003 it was about five times higher than the average Eur-A rate. Digestive diseases Mortality from diseases of the digestive system has increased in males and females in Ukraine. From the beginning of 1990s, the male mortality rates have been above Eur-A average rates, and from 2000 on they have been at the level of the Eur-B+C average rates. The rates for females, however, have always been lower than Eur-B+C average rates, though they have been above Eur-A average rates since 2000. This pattern prevails in the population below 65 years of age, where the rates and changes are quite similar to those of the Eur-B+C average rates. In the population aged 65 years and older, the mortality rates show some decline and have always been below Eur-A and Eur-B+C average rates, being among the lowest in Europe: the rate for women is the fourth lowest. The increase in mortality rates in the population 25– 64 years can be attributed to increasing mortality due to chronic liver diseases and cirrhosis

Ill-defined causes Only 4.5% of deaths in Ukraine have a code from this group of ill-defined causes. In Ukraine, the mortality rate for this group is close to the Eur-B+C average rate of 4.9%. Mortality rates for these causes soared dramatically between 1988 and 1992 (in 1992 they were responsible for 11% of all deaths) – similar to the pattern in Belarus; between 1992 and 2000, however, the rates for Ukraine declined by 62% and have shown a rather slow increase since then. Page 117

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External causes Mortality from external causes doubled between 1986 and 1995; then it declined some, followed by an increase, though below the 1995 peak. The changes followed those of the Eur-B+C average rates, with the rates at a higher than average level in Ukrainian males and at the average level in Ukrainian females. In 2002, there was a striking drop (by half) in the mortality rate for males 75 years and older, and in 2003 the rate was at the same level. Premature mortality is a particular problem: for men 25–64 years old it is the third highest in Europe, and for women it is the fifth highest. In Ukraine, the main subgroup of external causes of death, in both males and females, is accidental poisoning. In males, accidental poisoning did not surpass suicide until 2001. The mortality rate for accidental poisoning for both sexes is the fourth highest in Europe, about 20% higher than the Eur-B+C average rate for males and about 5% higher for females. Mortality from suicides grew between 1986 and 1996, its value almost doubling during this period. The rate then levelled off, after which it showed some decline. About two thirds of this mortality can be attributed to alcohol poisoning, which is the second highest mortality rate due to alcohol in European countries, with Belarus having the highest. The second major subgroup of external causes of death, by sex, is suicides in males and events of undetermined intent in females. Deaths from suicides increased in males, by about 75% between 1986 and 1996, and have declined since then; the corresponding mortality rate is less than 10% higher than the Eur-B+C average rate. For females, the mortality rate for events of undetermined intent soared (more than doubling) during 1991– 1995; after a short decline, it again rose, in starts and stops and is now the third highest in Europe, about twice as high as the Eur-B+C average rate. Also, in males, the mortality rate for events of undetermined intent shows changes over time (almost tripling during 1991–1995) similar to those for suicide; the mortality rate for males for events of undetermined intent is the third highest in Europe, twice as high as the Eur-B+C average rate. Such a high rate for events of undetermined intent indicates inadequate coding of external causes of death and underreporting of some specific causes. For Ukrainian females, in 2003, suicides and road traffic accidents are relevant external causes. Suicides in females have declined since 1998 and are close to Eur-B+C average rate. Road traffic deaths, which have been increasing since 1999, have reached Eur-B+C average rates. Only the mortality rate for homicides is lower than the Eur-B+C average rate, and it has been declining since 1995. In females, other considerable subgroups of external causes of death are homicides, which recently showed slowly declining rates, and accidental falls, which have a quite stable rate, below Eur-B+C and Eur-A average rates. Page 118

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Amnesty International

Resident Coordinator Office: Mr. Olivier Adam, Resident Coordinator of the United Nations Ms. Olena Ovchynnikova, Executive Associate to UN Resident Coordinator Mr. Olivier Adam, UN Resident Coordinator in Ukraine since 1 August 2009 Appointed by the UN Secretary General Ban Ki-moon, Mr. Adam acts as designated representative of the Secretary General. He leads the UN Country Team of thirteen UN agencies and programs. In his letter to President of Ukraine, the UN Secretary General expressed his confidence that Mr. Adam’s appointment would further enhance the assistance that the organizations of the UN system are providing to the Government and civil society in Ukraine. The RC is the designated representatives of the United Nations SecretaryGeneral for development operations in Ukraine. He chairs the United Nations Country Team (UNCT), a common board of all heads of UN

Figure 73 Mr. Oliver Adam, UN Resident Coordinator in Ukraine

agencies working in the country. The RC leads and coordinates the United Nations' efforts to support the Government in creating and sustaining an enabling environment for the promotion of human rights, good governance and the improvement of the quality of life and the well-being of the people of Ukraine by reducing poverty, with a particular focus on the most vulnerable groups and regions. The UN Resident Coordinator Office has been established in line with the UN reform package unveiled by the Secretary - General at a special General Assembly session in September 1997. The reform package highlighted the need of establishment a new leadership culture and management structure at the United Nations, and strengthening of the UN Resident Coordinator System was defined as an important priority for action. With the increasing demands and complexity of Resident Coordinator’s functions and expectations of greater effectiveness, the UN Resident Coordinator has been provided with the support staff that comprised a Resident Coordinator Office (RCO). The purpose of the RCO in Ukraine is to coordinate the efforts of the UN Country Team operating in Ukraine to ensure provision of efficient and effective assistance to accelerate the country’s steady progress towards social and economic development, observance of the world’s democratic standards and facilitation of Ukraine’s-world integration process. The UN RCO in Ukraine consists of 4 units: The Coordination Support Unit is aimed at strengthening the support of the planning, development, management, monitoring and evaluation of UN programs emanating from the United Nations Development Assistance Framework, as well as providing support, policy advice and expertise to the UN Resident Coordinator and UN Country Team on the issues of human rights, civil society, aid coordination and resource

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mobilization. The Unit is responsible for ensuring coordination among the UN agencies in Ukraine through organization and technical support to regular UN Country Team meetings, organization and follow up to joint and collaborative activities, coordination of preparation and revision of the UN Country Team Annual Work plan and preparation of annual RC/UNCT Reports, support to joint programming processes and activities of the UN Theme Groups, etc. Communication and Public Information Unit’s mission is to communicate effectively UN global and national priority issues and to improve public outreach of the UN Country Team in Ukraine. The objectives of the unit include improving inter-agency cooperation in the field of communications and promoting "UN as one voice" in Ukraine as well as enhancement of e-outreach and strengthening of media relations, improvement of internal UNCT communications. Unit also assists in organization of public events on specific themes and observation of special UN and International Days’ The Private Public Partnership Unit aims at promoting corporate social responsibility of the private sector in Ukraine in the framework of the UN Global Compact, and at fostering the development of partnerships with the private sector for achieving the country`s specific Millennium Development Goals. The unit is also responsible for strengthening the capacity of the Ukrainian Global Compact network, improvement of the regulatory policy environment for corporate social responsibility and private-public partnership, and brokering partnerships between the UN County Team and private sector. The mission of the Security Unit is to ensure the safety and security of staff members of the United Nations system, their spouses and eligible dependants, and the property of the organizations. Amnesty International in Ukraine is a global movement of more than 3 million supporters, members and activists in more than 150 countries and territories who campaign to end grave abuses of human rights. The organization's vision is for every person to enjoy all the rights enshrined in the Universal Declaration of Human Rights and other international human rights standards. Amnesty International is independent of any government, political ideology, economic interest or religion. Amnesty International Reports Death penalty abolitionist for all crimes Life expectancy 68.6 years Under-5 mortality (m/f) 18/13 per 1,000 Adult literacy 99.7 per cent The human rights situation in Ukraine can be described as uneven at best. A relatively new country, independent only since 1991, Ukraine has struggled socially, economically, and politically in its transformation to a democratic and free-market system. Torn between the East and the West, Ukraine's geographic location further complicates its transformation. However, November of 2004 marked a potentially historic transformation in the human rights situation in Ukraine. In what is now commonly known as the "Orange Revolution" Ukrainians took to the streets after refusing to accept a fraudulent election, which lead to an unprecedented revote and the democratic election of Viktor Yushchenko. Additionally, in recent years the right of freedom of expression has also come under increased pressure from Ukrainian authorities. The abduction and possible killing of the investigative journalist, Georgiy Gongadze, is the most well-known of this abuse of

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press freedom. Finally Anti-Semitic and racist attacks have been reported throughout the country and the trafficking of women for sexual exploitation remains a serious concern.There were reports of torture and other ill-treatment in prisons and police custody. Prisoners and criminal suspects received inadequate medical care. Human rights defenders were physically attacked and faced harassment from law enforcement officers. Refugees and asylum-seekers were threatened with forcible return and other human rights violations. Police discriminated against ethnic minorities and peaceful demonstrators were detained and subjected to violence. Torture and other ill-treatment Allegations continued of torture and other ill-treatment in police custody. In March, the Human Rights Department within the Ministry of Internal Affairs, which had monitored police detention, was closed. It was replaced with a smaller division without a monitoring remit. Amnesty International is further concerned that individuals who have lodged complaints of torture or other ill-treatment have been subjected to reprisals including ill-treatment and intimidation by police in efforts to dissuade them from pursuing their complaints. On 1 July 2011, the European Court of Human Rights ruled that a group of prisoners had been subjected to torture and other ill-treatment when they were beaten in Zamkova Prison in Khmelnitskiy region in two separate incidents in 2001 and 2002. The beatings took place during a training programme for the Rapid Reaction Unit, a special group of prison guards called in to deal with unrest in prisons. Access to legal defense

Amnesty International is concerned that persons suspected of crimes are frequently not permitted access to a lawyer during questioning. The right to legal defense is set out in Ukrainian legislation, but Amnesty International is concerned that the law is not clear enough about when a person should be granted access to a lawyer. Article 21 of the Criminal Procedural Code of Ukraine states that detainees have the right to legal defense; it requires investigators, prosecutors and judges to make suspects aware of this right before the first interrogation. The Law on the Police states that detainees are entitled to a lawyer from the moment of arrest. However, there is wide disagreement as to when Until May 2006 the Department for the Enforcement of Punishments was a separate and independent body not subordinated to any ministry. It has now been put under the authority of the Ministry of Justice. Criminal Procedural Code, Article 21. Ensuring suspects, accused and those on trial the right to defense Suspects, the accused and those on trial have the right to legal defense. Those carrying out the investigation, the

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investigator, procurator, judges and court are obliged to explain to the suspect, accused and person on trial that he has the right to legal defense and to write a report to this effect The Criminal Procedural Code lists exceptional circumstances when the presence of a lawyer is required such as for children, and disabled persons deprived of their liberty, but otherwise access to a lawyer is expressly required only when specifically requested by the detainee. Also, Amnesty International is concerned about the lack of availability of legal aid throughout the country for persons who cannot afford to hire their own counsel. Ukrainian legislation only provides for lawyers’ associations to arrange legal services including legal aid and does not envisage the involvement of private legal practices in the provision of legal services for detainees. Yet in the majority of regions in Ukraine there are no lawyers’ associations. This means that investigators are themselves responsible for ensuring that detainees have the right to legal counsel, and there are no mechanisms for safeguarding this right. In its recently adopted resolution the Parliamentary Assembly of the Council of Europe (PACE) has also called on Ukraine to guarantee prompt access to lawyers and to ensure legal aid. Overcrowding In the letter to Amnesty International of 17 November 2005, the Ministry of Internal Affairs admitted that overcrowding in facilities where people are held prior to trial is a problem and stated that it was taking measures to increase the use of alternative measures. It has prepared recommendations for investigators concerning the use of Article 154 of the Criminal Procedural Code which refers to the use of bail deposits. The Head of the Department of International Legal Cooperation of the Supreme Court informed Amnesty International that legal mechanisms for the use of alternative measures were being developed. In addition, some changes to the criminal procedure code of Ukraine concerning the use of noncustodial sentences were reportedly being submitted to the Ukrainian parliament. Amnesty International is concerned that until these measures are implemented, many people will continue to be detained rather than being released on bail; and thus many will continue to be exposed to the risk of torture and ill-treatment in ITTs and police stations. In some facilities they are also at risk of contracting communicable diseases. Conditions in Detention In the letter to Amnesty International of 17 November 2005, the Deputy Minister of Internal Affairs admitted that conditions in ITTs were not in line with international standards: 13 per cent of pre-trial detention centers were not equipped with water and sewage facilities, one in four had insufficient natural lighting and lacked individual sleeping places, only one in five had an exercise yard and each detainee has only 2.5 square meters living space. A program of reconstruction has begun and the government has allocated 30 million Hryvnya (4,840 million Euros) to refurbish and build new pre-trial detention centers. However the Ministry of Interior informed Amnesty International in their letter that this amount is inadequate. Amnesty International is concerned that many detainees continue to be held in very poor conditions, which amounted to cruel and inhuman treatment.

Prosecutions of police officers

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Acts of torture or ill-treatment by police officers, when prosecuted, are prosecuted under two articles of the Criminal Code. Article 127 which criminalizes torture was added to the Ukrainian Criminal Code in 2001. In January 2005 the law was amended so that it expressly criminalized such conduct when committed by state officials. Until these amendments were adopted, this provision of the law only criminalized torture by private individuals. The definition of torture in the article is now in line with the definition of torture in Article 1 of the Convention against Torture. Police officers can also be prosecuted for exceeding authority or official powers under Article 365 of the Criminal Code. However, despite these legal provisions there are problems within the criminal justice system which make it difficult for victims to lodge complaints. Deaths in custody In January, the Deputy Head of the Department for the execution of sentences stated that health facilities in prisons were underfunded. Prisoners were not allowed out of prison for medical treatment outside the prison system.

Tamaz Kardava died in hospital on 7 April having been denied vital medical care. A Georgian citizen and a refugee from the conflict in Abkhazia, Tamaz Kardava was already suffering from Hepatitis C when he was detained in Ukraine in August 2008. He was allegedly tortured in Shevchenkovskiy district police station in Kyiv to force him to confess to a burglary. Medical reports confirmed that he had been badly beaten and raped with a police baton. For the last two months of his pre-trial detention he had been denied any specialized medical treatment for his condition, and his health worsened dramatically. On 30 March he spent six hours lying on the floor in the courtroom on a stretcher in Shevchenkovskiy Court in Kyiv. The judge refused his lawyer’s request to transfer him immediately to hospital.

Human rights defenders The work of human rights defenders and human rights NGOs was made more difficult as they faced obstruction in the courts and physical attacks. At least three human rights defenders were targeted in relation to their legitimate human rights work.

In May 2011, Andrei Fedosov, the chair of a mental disability rights organization, Uzer, was assaulted by unidentified men following threatening phone calls. Police refused to register his complaint and took no action. In July, he was detained for a day in relation to a crime allegedly committed 10 years before, when he was 15 years old. On 20 September the charges against him were dropped as it was proved that he was in a closed children’s hospital at the time and could not have committed the crime.

Refugees, asylum-seekers and migrants Asylum-seekers in Ukraine continued to be at risk of arbitrary detention, racism and extortion at the hands of the police and return to countries where they would be at risk of serious human rights violations. An inadequate asylum system left them unprotected. Page 123

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Despite some positive measures which have been taken in the past two years aimed at preventing torture and other ill-treatment, Amnesty International considers that many of the concerns expressed by the Committee following its examination of Ukraine’s fourth report in 2001 are still pressing and some of the Committee’s recommendations are yet to be implemented. In particular, there have been further deportations to Uzbekistan of members of the Uzbek opposition, who were at risk of torture; there continue to be allegations that police illtreat and torture detainees with the aim of extracting confessions; the authorities fail to carry out prompt, impartial, independent and thorough investigations into allegations of torture and other ill-treatment; there is a lack of clarity about when a detained person can exercise his right to access to a lawyer, and as a result detainees are deprived of their right to legal counsel; overcrowding and a high incidence of tuberculosis in pretrial detention centers continues to be a problem. In January 2011, the EU-Ukraine Readmission Agreement came into force for third country nationals. According to the agreement, EU states can return irregular migrants to Ukraine providing they entered the EU via Ukraine. According to the International Organization for Migration, between January and July, 590 people were returned according to the terms of the Readmission Agreement. There were reports of migrants being beaten or otherwise ill-treated while in detention. Furthermore, although the Readmission Agreement is intended to apply to “illegal aliens”, asylum-seekers were reportedly among those returned.

At the end of the year four asylum-seekers from Uzbekistan – Umid Khamroev, Kosim Dadakhanov, Utkir Akramov and Zikrillo Kholikov – were in detention awaiting extradition to Uzbekistan. All four were wanted in Uzbekistan on charges including membership of an illegal religious or extremist organization, dissemination of materials containing a threat to public security and order, and attempts to overthrow the constitutional order. They would risk torture and other ill-treatment if returned. In July, the European Court of Human Rights made a formal request to the government not to return the asylum-seekers to Uzbekistan until their case had been considered, but withdrew this request upon assurances that the men would not be returned until they had exhausted all stages of the asylum process.

Racism Police continued to apprehend and detain people because of the colour of their skin.

On 29 January 2011, three plain-clothes police officers approached two Somali men, Ismail Abdi Ahmed and Ibrahim Muhammad Abdi, outside their apartment building, and asked them to produce their documents. The police officers then reportedly forced their way into the apartment, searched it without a search warrant, and punched one of the occupants. The police officers removed US$250 from the pocket of a pair of jeans belonging to Ibrahim Muhammad Abdi. Throughout the search, the police officers called the Somali men “pirates”. On 13 February, two of the same police officers returned to the apartment. They told the Somali men living there that they wanted to film them retracting the public statements they had made about the search. The Somalis refused to open the door and, after several hours, the officers left.

Refugees, asylum-seekers and migrants

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Asylum-seekers in Ukraine continued to be at risk of arbitrary detention, racism and extortion at the hands of the police and return to countries where they would be at risk of serious human rights violations. An inadequate asylum system left them unprotected. In January, the EU-Ukraine Readmission Agreement came into force for third country nationals. According to the agreement, EU states can return irregular migrants to Ukraine providing they entered the EU via Ukraine. According to the International Organization for Migration, between January and July, 590 people were returned according to the terms of the Readmission Agreement. There were reports of migrants being beaten or otherwise ill-treated while in detention. Furthermore, although the Readmission Agreement is intended to apply to “illegal aliens”, asylum-seekers were reportedly among those returned.

At the end of the year four asylum-seekers from Uzbekistan – Umid Khamroev, Kosim Dadakhanov, Utkir Akramov and Zikrillo Kholikov – were in detention awaiting extradition to Uzbekistan. All four were wanted in Uzbekistan on charges including membership of an illegal religious or extremist organization, dissemination of materials containing a threat to public security and order, and attempts to overthrow the constitutional order. They would risk torture and other illtreatment if returned. In July, the European Court of Human Rights made a formal request to the government not to return the asylum-seekers to Uzbekistan until their case had been considered, but withdrew this request upon assurances that the men would not be returned until they had exhausted all stages of the asylum process.

Freedom of assembly

In May and June, 2011 peaceful demonstrators protesting the illegal felling of trees in Kharkiv were beaten by members of the “Municipal Guard” (commercial security guards employed by the City Council. Some were later refused medical treatment, including Liubov Melnik who was hospitalized after being beaten by “Municipal Guards”. She was reportedly asked by Municipal Guard personnel to deny that she had been beaten by the guards, but had injured herself by falling. The hospital then informed her that there were no more beds and discharged her and, subsequently, three Kharkiv hospitals refused to treat her. On 2 June, demonstrators positioned in the trees were injured when loggers started to cut them down.

Demonstrators described how the police stood by while the guards beat protesters and journalists without intervening. On 28 May, between 10 and 12 people were detained for approximately eight hours by the police before being brought before a judge. Andrei Yevarnitsky and Denis Chernega were sentenced to 15 days’ detention on 9 June for “malicious refusal to obey a law enforcement officer”, although video footage of the events shows the demonstrators leaving with police officers peaceful.

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United Nation Development Program
UNDP is the UN's global development network, advocating for change and connecting countries to knowledge, experience and resources to help people build a better life. We are on the ground in 166 countries, working with them on their own solutions to global and national development challenges. As they develop local capacity, they draw on the people of UNDP and our wide range of partners. UNDP helps developing countries attract and use aid effectively. In all our activities, we encourage the protection of human rights and the empowerment of women. In Ukraine, four development focus areas define the structure of UNDP’s assistance activities. These include democratic governance; prosperity, poverty reduction and MDGs; local development and human security; and energy and environment. In each of these thematic areas, UNDP tries to ensure balance between policy and advocacy work, capacity building activities and pilot projects. UNDP established its presence in Ukraine in 1993. Joint efforts of UNDP and the Ukrainian Government and people were directed to introduce and promote the main principles of democratic governance at all levels, through support of administrative reform and encouraging civil society to participate in the decision making process. Programmes on small and medium enterprises and development of social assistance projects contributed to the country's economic development. UNDP also advocates the concept of sustainable development as an essential policy, and emphasizes the importance of developing a network of NGOs in environmental areas. After initially experiencing great difficulties in transition, 2001 was a turning point in Ukraine's history as an independent nation, after positive economic change in Ukraine in recent years. The Second Country Cooperation Framework, signed cooperatively by UNDP and the Government of Ukraine at the beginning of 2002, is focusing special attention on the issue of human development in Ukraine. UNDP in Ukraine continues making the difference by supporting the Government to achieve European standards in policies, institutional capacity and practices through transformation of the relationship between the state and citizens, effective decentralization, vibrant private sector in a market economy, empowerment of citizens to enjoy equal access to quality services, fulfillment of their human rights and prosperity. UNDP pursues this goal in a common framework and programmatic synergy with UN agencies, donors and stakeholders, using flexible and modular deployment of world class international and national expertise and knowledge to harness global best practice, promote gender equality, build capacities and establish networks for a sustainable knowledge-based society fully integrated into the global economy.

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In June 2005 the United Nations system in Ukraine and the Government of Ukraine signed the United Nations Development Assistance Framework (UNDAF) elaborated on the basis of a recent Common Country Assessment. Following this common strategic framework, UN agencies have agreed to coordinate their programmes/projects and elaborate joint initiatives and plans with the Government of Ukraine for the period of 2006-2010. As a result, UNDP along with other UN agencies operating in Ukraine focuses its programming on four major areas for future action: (1) institutional reforms that enhance outreach to enable all people to fulfil their human rights; (2) civil society empowerment to enable all people to access services and enjoy their rights; (3) health care and health services with a special focus on raising quality and accessibility; (4) prosperity through balanced development and entrepreneurship. In August 2006 Ukrainian Government and UNDP signed the Country Programme Action Plan 2006-10. This Plan is a collective, coherent and integrated response to the national development priorities. The document also furthers our mutual agreement and cooperation, taking into account the realization of the Millennium Declaration, Millennium Development Goals and other UN conventions to which the Government of Ukraine and UNDP are committed. It sets up a number of development actions to improve living conditions at the country level.Having celebrated the seventeenth anniversary of independence in 2008, Ukraine appeared as a country with a greater sense of freedom and a stronger feeling of national identity. Among the countries of the former Soviet Union, Ukraine firmly stands out in its commitment to European values, pluralism, freedom of speech and vigour of various non-governmental actors. However, this progress remains delicate and needs to be consolidated. In August 1996 the Government of Ukraine and the UN Development Programme signed a new Country Programme Action Plan for 2006-2010. According to this Plan, UNDP works closely with the leadership of Ukraine at the central, regional and local level to advance democracy, promote economic growth and improve the living standards of Ukrainians. Guided

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by the Millennium Declaration and human rights-based approach to programming UNDP undertakes efforts to empower people to address current challenges, starting with village communities, schools and local government offices, all the way up to the central level institutions of the state. Since 2005 UNDP's activities in Ukraine have grown both in the scope of activities as well as in financial terms. Several new initiatives were launched alongside a number of ongoing projects that started before 2005. Currently, UNDP has 19 ongoing projects in Ukraine. From about USD 9 million portfolio in 2005 it grew to over USD 23 million delivered in 2006 and got to over USD 26 million in 2007. Four development focus areas defining the structure of UNDP-led actions include: • Democratic governance and access to justice: Corruption, unclear division of constitutional powers and responsibilities, the lack of transparency, accountability as well as poor quality of public services all these challenges were brought into focus during the "Orange Revolution". Addressing these issues remains among the top priorities of Ukraine's political leadership. Responding to this challenge, UNDP supported public administration reforms, anti-corruption and accountability initiatives; justice and human rights protection; decentralization and development of local governance as well as gender equality. A large part of our management resources was devoted to implementation of EU-funded projects in the area of border management. Prosperity, poverty reduction and MDGs: UNDP provided Ukraine's leaders with continuous policy support in designing and implementing economic reforms. It offers its assistance in the area of promoting economic growth, furthering market reforms and advancing WTO accession processes. The UNDP country office in Ukraine helped to build national capacities and delivered expert advice in economic and social policy reforms. With UNDP leading global MDG advocacy efforts, the UNDP country office in Ukraine actively works to help Ukrainian partners anchor their national development strategies in MDGs and to strengthen capacity to ensure their policies and budgets match the demands of achieving the goals. Moreover, UNDP experts apply area-based development approaches and strengthen HIV/AIDS prevention efforts. Local development and human security: With strong support from the donor community, UNDP managed to significantly expand the activities of the existing area-based development programmes, namely Chornobyl Recovery and Development Programme, Crimea Integration and Development Programme and Municipal Governance and Sustainable Development Programme. While each of the programmes addresses the specific needs within a certain area, all the programmes rely on community mobilization as a primary method to promote local development. This approach puts a strong emphasis on: community empowerment and regeneration, building the spirit of activism and social inclusion. As a result, it contributes to the improvement of self-governance by encouraging a dialogue between local authorities and communities, thus enabling joint prioritization and response to common development needs. The ABD methodology proved to be equally effective in both urban and rural areas for mobilizing the communities to improve local infrastructure, generating self-employment and promoting entrepreneurship, and developing social services (particularly educational and medical).In total, over 2005-2006 alone 538 communities were assisted, 419 community-based projects were implemented, and 11 municipalities joined partnership with UNDP. Energy and environment: UNDP cooperates with the national and local levels of government, private sector and civil society to promote sustainable development policies and ensure their practical application. Moreover, UNDP supports the Government of Ukraine in meeting its international environmental commitments, particularly on fighting climate change and preserving biodiversity across Page 128

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Ukraine. We promote participatory approaches in environmental governance at the municipal level and assist the Government in addressing one of its key challenges - energy efficiency. In each of these thematic areas, UNDP tries to ensure balance between policy and advocacy work, capacity building activities and pilot projects. UNDP's flagship initiatives and achievements in the last two years include the creation of the Blue Ribbon Commission for Ukraine which has to date released three reports with policy recommendations; our Gender Programme; assistance to Chornobyl-affected regions and significant expansion of our programme in Crimea; and the very successful Municipal Governance Project the results of which, and the interest of local partners, have exceeded our expectations. At present, UNDP-led local development programmes are implemented in 11 regions (oblasts), 39 districts (rayons), including all 14 districts of the Autonomous Republic of Crimea and 17 districts in Chornobyl affected areas, as well as 22 municipalities across Ukraine. A major expansion of community-based assistance was launched in the beginning of 2008 with the financial assistance from the EU within the "Community-based Approach to Local Development" Project. Moreover, UNDP in Ukraine conducts activities on youth, drug policy and HIV/AIDS, coordinates the Millennium Development Goals team within the Ministry of Economy of Ukraine, supports donor coordination, and offers grants to human rights organizations. Last but not least, we are very pleased to have contributed to establishing many partnerships in the sphere of energy efficiency, with the Esco-Rivne project being a well known success story and a model for replication in other municipalities. The success of UNDP programmes is a result of the commitment and excellent cooperation of Ukrainian counterparts and beneficiaries of UNDP-led projects. In delivering development assistance in Ukraine, we draw on the global experience and knowledge of our global network of experts and country offices. We also rely on partnerships with bilateral and multilateral donors to implement UNDP projects. UN Country Team

UNICEF United Nations Children’s Fund UNHCR United Nations High Commisioner For Refugees UNFPA United Nations Population Fund UNAIDS Joint United Nations Programme on HIV/AIDS WHO World Health Organization Operations

UNODC United Nations Office on Drugs and Crime IAEA International Atomic Energy Agency ILO International Labour Organisation IOM International Organization for Migration IFC International Finance Corporation IMF International Monetary Fund WB World Ban

Headed by the Deputy Country Director for Operations, the Operations section of Ukraine Country Office consists of five units: • The Finance Unit is responsible for planning, management, effective delivery of financial services, oversight, financial recording/reporting, and implementation of effective internal control on financial matters. The Human Resources Unit handles tasks related to management of contracts, performance and talent management, benefits and entitlements and succession planning. The Procurement Unit is responsible for procuring goods and services, managing bids and tenders, and maintaining an up-to-date database of suppliers. The General Services Unit supports the overall smooth running of the Country office and includes registry, protocol and transport. Page 129

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• •

Procurement of goods and services This functions entails sourcing suppliers using UNDP's procedures, i.e. EOI (Expression of Interest), ITB (Interest to Bid), RFP (Request for Proposal), RFQ (Request for Quotation). This is followed by creating supplier profile in the system and loading them as approved vendors. The vendor database is also managed continuously by the procurement unit. Registry and Information Management Handles all received mail and packages mail for dispatch/sending through a pouch system, as this function services not only UNDP but all UN Agencies, updates electronic documentation site, and manages physical filing in accordance with the Global Filing list. Identifies files ready for archiving and move them appropriately. Protocol The Protocol unit deals with accreditation of internationally recruited staff members by the National Department of Foreign Affairs, in accordance with the bestowed to them by the department. This includes: Application for the diplomatic identity card Application for the temporary residence permit (including accompanying family members and domestic helpers). Permission to purchase/import/export motor vehicles. Permission to register diplomatic vehicles. Application for Tax refunds and rebates. The function also processes the deregistration of all accredited officials and their property when they leave the country, assigned to another country. ICT The Information Communications and Technology team provides support to management information systems within the UNDP country office and sister agencies. Transport Official vehicle services with dedicated drivers

UNDP Ukraine Programs

Prosperity, Poverty Reduction and MDGs 1Governance of HIV/AIDS in Ukraine 2Millennium Development Goals Project 3Social Inclusion of People with Disabilities through Access to Employment 4Agricultural Policy for Human Development 5Belarus, Ukraine, Moldova action against drugs 6Blue Ribbon Commission Analytical and Advisory Centre 7HIV/STI Prevention among Uniformed Services in Ukraine 8Strengthening Educational Capacity of Kyiv National Taras Shevchenko University 9Transfer of IT Technology to Ukraine Ongoing Ongoing Ongoing Closed Closed Closed Closed Closed Closed Page 130

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Democratic Governance 10Civil Society Development Programme 11Equal Opportunities and Women’s Rights in Ukraine 12Legal Empowerment Project: Fostering Full Enjoyment of Land and Property Rights 13The European Union Border Assistance Mission (EUBAM) 14Consumer Society and Citizen Networks 15Establishment of JI Secretariat in Ukraine 16Integrity in Action: Governance Programme 17Marketing Democracy Project 18Support to Civil Service Reform in Ukraine Ongoing Ongoing Ongoing Ongoing Closed Closed Closed Closed Closed

Local Development and Human Security 19Community Based Approach to Local Development 20Crimean Regional Development Agency Support Project 21Human Security Monitoring and Public Dialogue for Socio-Economic Development and Conflict Prevention in Crimea 22Municipal Governance and Sustainable Development Programme 23UNDP Crimea Integration and Development Programme 24Chornobyl Recovery and Development Programme 25Human Security for Ukrainian Youth 26Youth Social Inclusion for Civic Engagement in Ukraine Ongoing Ongoing Ongoing

Ongoing Ongoing Closed Closed Closed

Energy and Environment 27GEF Small Grants Programme in Ukraine Ongoing Page 131

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28Removing Barriers to Greenhouse Gas Emissions Mitigation through Energy Efficiency in the District Heating System, Phase 2 29Sustainable Development Programme of Lugansk Region 30Transforming the Market for Efficient Lighting 31UNDP - GEF Dnipro Basin Environment Programme 2nd Stage: 'Implementation of the Dnipro Basin Strategic Action Programme for the reduction of persistent toxics pollution' 32UNDP/GEF Strengthening governance and financial sustainability of the national protected area system in Ukraine 33Conserving globally significant biodiversity and mitigation/reducing environmental risk in Ukraine’s Carpathian region 34Energy Efficiency in Ukraine’s Educational Sector 35National Capacity Self-Assessment for Global Environment Management in Ukraine 36UNDP-GEF Dnipro Basin Environment Programme - PDF B Stage
Figure 39 UNDP Ukraine

Ongoing

Ongoing Ongoing Ongoing

Ongoing

Closed

Closed Closed Closed

About MDGs In September 2000, the largest-ever gathering of world leaders ushered in the new millennium by adopting the Millennium Declaration. Ukraine also took the responsibility of reaching the Millennium Development Goals till 2015. The global MDGs were adapted to the Ukrainian context taking into consideration the particularities of the country`s development. The global MDGs were adapted to the Ukrainian context taking into consideration the particularities of the country`s development. They were translated into 7 priority areas and 15 specific long-term targets.

Goal 1: Reduce poverty Target 1.A: Eradicate poverty according to the criterion of US $ 5 (PPP) per day by 2015 Target 1.B: Decrease share of poor population (according to the national criterion of poverty 4) to 25% by reducing the number of poor among children and employed people Target 1.C: Decrease by 10 times by 2015 the number of people whose daily consumption is below the actual subsistence minimum Page 132

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Goal 2: Increase access to quality life-long education Target 2.A: Increase enrolment rates in education Target 2.B: Raise the quality of education

Goal 6: Ensure gender equality Target 3.A: Ensure gender representativeness at the level of no less than 30–70% in representative bodies and high-level executive authorities Target 3.B: Halve the gap in incomes between women and men

Goal 4: Reduce child mortality Target 4. A: Decrease the mortality rate among children up to 5 years of age by one-fourth

Goal 5: Improve maternal health Target 8: Reduce maternal mortality by at least 17% Target 9: Reduce the mortality rate of children under 5 years by at least 17%

Goal 6: Reduce and slow down the spread of HIV/AIDS and TB Target 10: Reduce the rate of the spread of HIV/AIDS by 13% Target 11: Reduce the number of TB cases by 42%

Goal 7: Ensure sustainable environmental development Target 7.A: Increase by 2015 share of the population with access to centralized water supply, inter alia 90% of the urban population and 30% of the rural population Target 7.B: Stabilize by 2020 greenhouse gas emissions at 20% below 1990 levels Page 133

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Target 7.C: Stabilize pollution of water reservoirs by 2015. Stabilize at the level of 8,500 million tonnes per year the volume of sewage disposal to surface water reservoirs, million cubic meters per year Target 7.D: Increase forest cover of the territory of Ukraine to 16.1% and area of nature reserve territory by 2015 Enhance the network of nature reserves, biosphere reserves and national natural parks to 3.5% of the overall territory of Ukraine and to 9.0% of the overall area of territories and objects of the natural reserve fund

In Ukraine, following the advocacy and capacity-building efforts of the UNDP team, the Millennium Development Goals (MDGs) were nationalized in 2003 and are now used to track progress in government policies and programmes. This year marks a decade of progress towards the MDGs. The results have been uneven across all Goals and within regions and nations. Ukraine has reduced absolute poverty and has made progress in achieving the targets set for education, maternal health and child mortality. At the same time, the relative poverty rate remains unchanged and reducing gender inequality continues to be an area where progress needs to be achieved. While meeting the environmental Goal is proving to be a challenge, the rapid growth of HIV infections, the increase in AIDS-related mortality and the spread of tuberculosis also remain critical areas in reaching the MDGs. While it is clear that these are challenging times for all countries, and in particular for Ukraine, achieving the MDGs is possible, given an adequate level of commitment, efforts and resources. Creating effective national policies and developing capacities and ownership are essential to further empowering the people in Ukraine and improving their standards of living. There is a range of tried and tested policies that can help Ukraine reach its commitments. These policies include fostering inclusive economic growth, ensuring equal access to quality health and education and scaling up HIV/AIDS and tuberculosis interventions. Improving social protection targeting, increasing employment opportunities, fostering climate change mitigation and focusing on biodiversity conservation must continue to be regarded as absolute priorities. MDGs progress in Ukraine Goal 1: Reduce poverty Out of 8 Global Millennium Development Goals, Poverty Reduction is by far the number one goal and priority for Ukraine. The share of population whose daily consumption is below 5,0 USD, measured as average PPP, decreased to 3,8% in 2008 (9% in 2005). The official data indicates that in 2010 26,4% (in 2005 – 27,1%, in 2009 27.0%) of Ukrainian population was below the poverty line (using the official definition of poverty line as 75% of median daily expenditures per adult). Based on the national criterion, from year to year, the poverty level among households with children traditionally exceeds that among the households without children by 1.72.0: 33.1% against 19.7% in 2008. The direst situation among families without children is traditionally observed in households where all members are older than 75. The highest poverty level for the period from 2000 is registered within these groups in 2008, at 29 percent. This shows a direct decrease in the purchasing power of the minimum pension payment, since people from the older age groups cannot earn an income Page 134

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additional to their pension income. Rural poverty increases from year to year – by now, a huge gap exists between urban and rural areas. Under stable conditions, some decrease in poverty indicators at the national level based on the relative criterion is observed in cities compared with in rural areas. The poverty level in rural areas was almost twice that of urban areas (38.2 percent against 21.5 percent) according to 2008 data. The high poverty level among the employed population is caused by problems in the labour market, such as its inability to ensure decent work conditions and acceptable wages, and also by maintenance of a large number of lowproductivity and marginal working posts. The high share of expenditure on foodstuffs within the structure of household expenditures is one of the basic features of the low level of living standards and the significant incidence of poverty among the Ukrainian population. One-third of the country’s population (according to 2008 data) spends around 60 percent of their budget on foodstuffs. In addition to the monetary dimension of poverty, Ukraine is characterized by a significant degree of deprivation, or poverty of living conditions. According to the survey conducted by the State Statistics Committee of Ukraine in October 2007, 28.6 percent of the population suffer deprivations simultaneously in four or more dimensions, including: improper living conditions; limited availability of social services; lack of property; shortcomings in health care; impossibility to have a proper rest; etc. Rural inhabitants experience deprivations related to poor infrastructural development more strongly than urban inhabitants. Every second rural household suffers from inadequate access to emergency medical assistance and other public services, and every third from the lack of a health care institution close to their place of residence and regular transport.

Goal 2: Increase access to quality life-long education Providing life-long education in Ukraine requires coordinated actions to improve the educational system both qualitatively and quantitatively to correspond to today’s needs. The main problems in adapting the educational system to the current situation are: (1) decrease in access to and lack of quality of education to meet current needs; (2) non-compliance of the education system with the needs of the labour market and discrepancy between the training of specialists and employers’ demands; (3) inefficient state financing mechanisms, while budget expenditures on education are constantly growing; and (4) overly centralized administration. It is necessary to improve the efficiency of funds, which are currently spent mostly on the maintenance of educational institutions and not on improving educational outcomes. Education is a fundamental sector for the transition to an innovative model of economic development so educational system should be reformed to ensure a new quality of education, especially of higher education.

Goal 3: Ensure gender equality On 8th September the Verhovna Rada adopted the law on “Equal Rights for Women and Men and Realization of Equal Opportunities”. The number of unemployed women is higher then of that of men; the ratio of average wages of women as a percentage of that of men in 2009 was at the level of 77,2%. Problems of gender inequality in Ukrainian society are: high levels of employment and educational and professional training of women are accompanied by insignificant representation of women in decision making. Women are Page 135

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underrepresented in political life, higher levels of public administration and management of economic organizations. There are high levels of professional gender segregation, i.e. concentration of women and men in positions of different levels and in different spheres of economic activity. And there is a significant gender gap in the population’s income level, as well as feminization of poverty. Ukraine’s unfavourable position on this indicator is determined by representation of women in the Parliament: during the entire period since independence, their share among Members has not exceeded 8 percent and, during 2002–2006, it even decreased to 5 percent. At the same time, women occupy on average around 30 percent of parliamentary seats in the EU. Since wages are the major source of income for the population, the gender gap in this field leads to an excessive risk of the feminization of poverty, since women dominate in the vulnerable categories of the Ukrainian population (one-parent families with children and the elderly living alone). Although data on the intra-family distribution of incomes disaggregated by gender are almost inaccessible, since the household is the focus of research in the national statistics system, analysis of family incomes depending on gender of the household head identifies some gender differences, which grow in single-person households. In particular, from a gender point of view, women of retirement age living alone experience the highest risk of poverty in Ukraine. Problems of unequal opportunities for women and men in Ukraine are not limited to socio-political life, the labour market and income levels. Numerous gender inconsistencies are present within the sociodemographic sphere and are related to the health and life expectancy of the population, family legal relationships and issues of family violence, labour migration, including illegal migration, and also human trafficking. There is a large gender gap of 12 years in terms of average life expectancy of the population (average life expectancy at birth is 74 years for women against 62 years for men), which remains a significant indication of inequality. The major component of this gap is made up of losses of men at the most productive age, that is, the extremely high mortality rate among men of working age. In particular, according to demographic calculations, as of 2008, the probability of not living until 60 years of age was 39 percent for boys of 16 years of age against 14.5 percent for girls of the same age. External reasons play a significant role in this ‘male’ mortality, which may be eliminated with an improvement in lifestyle.

Goal 4: Reduce child mortality A decrease in infant mortality was observed in 1995–2009 (except for in 2005 and 2007): from 14.7 per 1,000 live births in 1995 to 9.4 per 1,000 live births in 2009. Ukraine started to apply new standards for assessing the criteria for the perinatal period and live and stillbirths on 1 January 2007. The infant mortality indicator decreased in 2008, and in 2009 it amounted to 9.4 percent. Today, more than half of infant deaths are caused by specific conditions emerging during perinatal life. When adding these causes of death to overall congenital development defects, the share becomes three-fourths of the overall number of deaths of children of up to one year of age. Infant mortality is a determining factor in Ukraine in the death rate of children of up to five years of age. The probability of dying decreases sharply when a child reaches one year of age. The major reason for differences between Ukraine and developed European countries with respect to mortality of children of up to five years of age owes to external reasons, i.e. those that can be prevented. Page 136

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Goal 5: Improve maternal health

A decrease in the maternal mortality level has been observed in Ukraine, from 24.7 per 100,000 live births in 2000 to 15.5 per 100,000 live births in 2008. However, a comparison of values on the indicator throughout 2000–2008 is impossible, since from 2005 Ukraine has been coding mortality data according to the International Statistical Classification of Diseases, Tenth Revision. Indicators calculated before and after this are not comparable. In general, by assessing monitoring data, conclusions can be made on progress towards this Goal. Trends on global indicators in relation to achieving this Goal in Ukraine are fully satisfactory. Almost all deliveries in the country (99 percent) occur in health care institutions with qualified staff. Contraception has also spread: according to data from the Medical and Demographic Survey of the Ukrainian Population of 2007, two thirds (67 percent) of married women use contraception. Compared with the same survey in 1999, the level of coverage of contraception has remained almost unchanged, but a positive trend has occurred – there is increased usage of contemporary methods rather than traditional ones. A relatively low birth rate among teenagers is observed, at around two cases per 10,000 girls of up to 14 years of age inclusively, and slightly more than 13 cases per 1,000 of girls of 15–17 years of age inclusively. Almost all mothers are provided with pre-delivery care by qualified medical workers, with an insignificant difference observed between urban and rural areas.

Goal 6: Reduce and slow down the spread of HIV/AIDS and TB HIV /AIDS and tuberculosis are among the most complex socio-political and medical problems globally. The scale of the HIV epidemic continues to grow in Ukraine. From 1987 to 1 January 2010, 161,000 cases of HIV infection were registered. The highest number of new HIV infection cases for the entire period was recorded in 2009 – 19,840; 31,241 people have been diagnosed with AIDS since the beginning of the epidemic and 17,791 individuals have died. According to the State Statistics Committee, 22,824 people died in 2005–2009 from diseases caused by HIV. The estimated prevalence of HIV infection among the adult population of Ukraine is one of the highest in Europe, at 1.33 percent in 2010, or 360,000 adults aged 15–49. According to UNAIDS and WHO criteria, Ukraine’s HIV epidemic is classified as a concentrated epidemic. The use of injection drugs remains one of the main transmissions channels. Scaling up antiretroviral therapy will lead to an increase in the survival rate resulting from a decrease in AIDS morbidity and mortality levels in the future and, accordingly, to an increase in the number of people living with HIV/AIDS. HIV prevalence among adults of 15 years of age and older will continue to grow, with a forecast decrease in the number of new HIV infections and a stabilization in the number of people dying as a result of AIDS.

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2010 Total number of people living with HIV (adults from 15 years 360,000 of age) HIV infection prevalence (adults aged 15–49, %) 1.33

2013 376 ,000

2015 377,000

1.41

1.43

Estimated number of new HIV infections

32,000

27,000

23 ,000

Estimated number of deaths owing to AIDS

21 ,000

22,000

22,000

Figure 74 Evaluation of the HIV/AIDS Situation in Ukraine as of the End of 2008 and Forecast Indicators for 2015

Source: Developed with the participation of the Ukrainian Centre for AIDS Prevention of the Ministry of Health of Ukraine, WHO in Ukraine, International HIV/AIDS Alliance in Ukraine and UNAIDS in Ukraine, 2009.

Tuberculosis A deterioration of the tuberculosis epidemiological situation began in 1990; 1995 was considered the beginning of the full-fledged tuberculosis epidemic. Tuberculosis incidence grew continuously from 1995–2005 and increased from 41.8 to 84.4 cases per 100,000 population. At the same time, significant political support for the control of tuberculosis, and improved efficiency of resource use, including a significant increase in financing, led to some positive results. In recent years, a decreasing trend has been observed in relation to indicators of morbidity and mortality from tuberculosis. Today, however, the tuberculosis situation remains critical in Ukraine: more than 30,000 new cases are recorded each year. A significant portion of the impact is on poor and socially marginalized populations, whose numbers increased in Ukraine during the economic crisis. Unemployed individuals of working age represented 53.1 percent of those who became ill with tuberculosis for the first time. The tuberculosis incidence rate increases in penitentiary institutions, which is facilitated by the high concentration of prisoners in cells and by unsatisfactory nutrition.

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Goal 7: Ensure sustainable environmental development Intensive development of production causes disturbances in the equilibrium of the environment, which intensify socio-economic problems. Increased consumption of non-renewable energy resources contributes to the pollution of the environment, especially of water resources and the atmosphere, the shrinking of forested areas and fertile soils and the disappearance of individual species of plants and animals. This has negative impacts on the state’s natural resource potential and the population’s health. Problems with the collection, use, disposal and removal of waste of all types of hazard have increased. Furthermore, the network of natural reserve territories and objects is expanding at a slow pace. Low-waste resources and energy-saving technologies have not been introduced sufficiently in Ukraine. The quality of drinking water is decreasing as a result of the gradual pollution of fresh water sources, the deterioration of water outflows and water supply and the use of outdated water treatment technologies and other unsatisfactory technical conditions. A country’s progressive and dynamic development relies on inclusive economic growth, giving greatest consideration to the population’s needs and interests. It should also fully consider the population’s incentives to engage in productive labour activities, to help people realize their own potential as well as obtaining decent remuneration for their labour. Reforms are only successful when the Goals and the targets are aligned with the population’s interests and expectations. The UNDP Ukraine-MDGs Project has been successfully implemented and aims at helping the Government accelerate the achievement of the MDGs in Ukraine. The Project mainly focuses on the development and adaptation of new methods and approaches that will translate the MDGs into operational targets of government policy. The important country stakeholders for the MDGs are the Ministry of Economy (Project's key partner and MDG focal point at the national level), line ministries, regional authorities, non-governmental organizations, business communities, academia, and the media. UNDP offers support in building local government capacity to foster regional development. Besides assisting decentralization and poverty reduction, capacity must be built at the local level to develop strategies and plans for regional development, sustainability, and good governance. Achieving national MDGs is possible but only through further economic policy development in line with the MDGs, bringing some policy changes and joint efforts at the country's both central and local levels. These should be based on the further formation of sound market liberalization mechanisms, strengthening political democracy, human potential development, national and cultural pluralism and other self-regulation mechanisms existing in well-developed civil society.

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