BUSINESS DRIVES UKRAINE'S EURO-ATLANTIC INTEGRATION
Private sector moves Ukraine forward

By Morgan Williams
"Welcome to Ukraine" magazine
Kyiv, Ukraine, 2 (44), May 2008, p. 48-51

Ukraine's Euro-Atlantic integration is first and foremost today being driven
by the private business community in Ukraine, Europe, and the United States.

Ukraine's aspirations for Euro-Atlantic integration, to be a major member
of the world's community of strong, democratic, independent, prosperous,
private business sector driven nations, will be realized largely through the
present leadership and investments from the business community and then
hopefully with some real support later from the politicians and government
leaders.

The meeting of the USUBC with the Minister of Economy of Ukraine
Bohdan Danylyshyn took place in downtown Kyiv, in the conference
room of the offices of SigmaBleyzer on March 19, 2008.

While the politicians of many countries, including Ukraine, argue and debate
about whether Ukraine should ever be given a MAP for eventual NATO
membership and when, if ever, Ukraine will have the opportunity to join
the European Union the Ukrainian and international business communities
are moving ahead very rapidly with large-scale economic and business
integration.

This integration is being accomplished in spite of a general lack of new
reforms being implemented by the government and the high level of political
instability that has existed for the last several years which has hurt the
number of new jobs created, the level of wages, and the creation of wealth.

ECONOMY SHOWS ROBUST GROWTH

The Ukrainian economy in 2007 continued to show robust growth,
demonstrating strong resilience to energy price shocks and a solid
immunity to political instability and global financial turmoil, according
to The Bleyzer Foundation's latest monthly Macroeconomic Report.

According to preliminary estimates of the State Statistics Committee of
Ukraine, GDP grew in 2007 by a real 7.3% year-over-year (yoy) to about
UAH 700 billion ($140 billion), notably exceeding the 6.5% yoy growth
expected at the beginning of the year.

With average real GDP growth of 7.8% per annum over the last five years,
Ukraine was among the fastest growing economies in the region.

In 2007, economic growth was underpinned by buoyant consumption and
investment growth as well as a favorable external environment. Private
consumption was the leading factor contributing to GDP growth in 2007.

In turn, it was supported by a continuing credit boom and strong growth
in real disposable income of households (up by 12.8% yoy in 2007).

Despite a prolonged period of political instability, the strong increase in
investment demand was driven by the growing need to renovate existing
production capacities in order to meet growing input costs and intensifying
competition, as well as infrastructure expenditures and realization of
Greenfield projects.

In 2008, the Ukrainian economy is expected to grow by about 5.5%.
Slower real GDP growth compared to 2007 will reflect a 38% increase
in the cost of imported natural gas as well as more difficult forecasted
external conditions.

The only major move by the government of Ukraine in the economic
area has been to finally, after many years of delays, complete all the
necessary requirements for membership in the World Trade Organization
(WTO). Membership became a reality this month.

MIDDLE CLASS PURCHASING POWER AND SKILLS

Ukraine now has a large middle-class that has real purchasing power
and the range of the skills needed for large-scale business development.
They are creating a new wealth building capacity in Ukraine.

This new middle-class has developed since independence in 1991 and
has had the opportunity for international education and job experience.

This is an exciting and challenging time for young people
in Ukraine who now have the opportunity to gain wealth the old
fashioned way, by earning it....not by basically stealing it, gaining it
though political connections or by engaging in outlandish corruption
schemes.

In March I attended a Ukrainian Investment Conference in London
sponsored by the Adam Smith Institute.  Almost 800 people attend
the Conference with over 500 of them coming from Ukraine.  The
attendees from Ukraine were mostly young to middle-aged citizens
who wanted to do real business, not just sit around and talk about
when Ukraine might join NATO or become a member of the EU.

They are not driven by foreign policy and governmental agendas but
by their interest in building their businesses by creating jobs, hiring
people, borrowing funds, selling services, having adequate salaries,
increasing sales, and showing strong earnings at the end of each year.

It was refreshing, exciting and very encouraging to be at the London
Ukrainian Investment Conference and experience the vitality and energy
one could see and feel. One could begin to realize that Ukraine is going
to make it, is going to succeed, is going to do what is needed to be
integrated into the Euro-Atlantic Community.

Many of the new Ukrainian businesses started in the 1990's are now
strong and large enough to export their goods and services, to invest in
countries like Poland and Romania. Ukrainian business has more money
invested in Poland than Poland has invested in Ukraine.

These new businesses are of interest to international businesses looking
for mergers, acquisitions or equity investments in Ukraine.  Pepsi-
Cola just paid over $600 million for the Sandora juice company.  A
French company also purchased a juice company in Ukraine for over
$200 million.

A considerable number of the new Ukrainian businesses are now
positioned to obtain a variety of financial services in Warsaw, London
and New York.  Ukrainian businesses are no longer just operating in
Ukraine but moving into the international business scene.

Companies like Kernel (agribusiness) and Ferrexpo (mining) have been
successful in securing large amounts of international capital. Volia Cable
(broadband) attracted more than $200 million from Providence Equity
Partners in Providence, Rhode Island.

The Ukrainian business community clearly understands the necessity
to be integrated into the international business community, especially
the Euro-Atlantic region, and is taking the necessary actions and
making this a reality.

INTERNATIONAL BUSINESS COMMUNITY

The international business community has finally recognized the
tremendous opportunities in Ukraine and are moving rapidly to
integrate their business operations into Ukraine.  Companies already
working in multiple countries, but not in Ukraine, are realizing they
do not want to be left out of a country with 47 million people. Ukraine
represents the largest emerging market in Europe today.

The grand opening of pharmaceutical production plant was launched
by the Ambassador of the United States William Taylor, chairman of the
board of directors of BTA Bank Muhtar Ablyazov, and president of
Max-Well Dr. Ken Alibek.  Max-Well is a USA company making a
major investment in Ukraine.

These companies have decided they had better start in Ukraine before
it is too late, before all the best opportunities are gone.  These
companies have decided they will find a way to operate in Ukraine
regardless of the political, legal and business environment.

European banks have invested billions of dollars these past three
years buying banks in Ukraine. This has been a real boost for
Ukraine and its highly underdeveloped and underfunded financial
institutions.

The European banks bring with them expertise, world-class
technology, modern accounting practices, access to international
money markets and thus adequate funds and in the long-run lower
interest rates, all of which are needed in Ukraine.

A business in France or Austria is more likely to be interested in doing
business in Ukraine if their bank is also doing business and providing
banking services in Ukraine.  This makes their entry into the Ukrainian
marketplace much easier. The European banks are bringing with them
a wave of expanded business investment in Ukraine.

A number of international lending institutions, most notably the European
Bank for Reconstruction and Development (EBRD) are strong in their
support for Ukraine's economic growth. EBRD is now averaging
placement of about $1 billion per year in funds to finance government and
private industry projects that in many cases have a major multiplier effect.

European consumer goods companies are also expanding their work
in Ukraine. Supermarket chains for food, consumer goods, household
and construction supplies are expanding throughout Ukraine.

The real estate market in Ukraine is attracting international investors
for office buildings, shopping centers, hotels, and  infrastructure
projects. Tourism projects are now gaining international interest.

Law firms in Ukraine are all busy with local and international business
clients and are expanding.  More international law firms are opening
offices in Ukraine. The law firms all tell me they are searching for lawyers.

IT companies are expanding and looking for new talent.  The IT industry
is also attracting considerable international investment. Hundreds of
millions are being invested by international investors in agribusiness
concerns who are leasing land, buying elevators and processing food.

UNITED STATES COMPANIES INVESTING IN UKRAINE

Westinghouse recently signed a new agreement that after ten years of effort
gives the company a five-year contract during which it will be providing
nuclear fuel to Enerhoatom, Ukraine's nuclear power generating company.

Dr. Kris Singh, President of Holtec International, Mr. Anders Jackson,
Vice President of Westinghouse, and Mr. Yuri Kovrizhkin, President
of Energoatom toast recent contract signings with two USA companies,
Westinghouse for supply of nuclear fuel and with Holtec for supply
of spent fuel transport systems. March 30, 2008.

During a period when all types of fossil fuel have immense problems relating
to costs and environmental impacts, this new contract will allow Ukraine to
enjoy for the first time a competitive situation for the fuel needed for its
large and increasingly important nuclear power generating facilities.

For the first time in Ukraine's history as an independent nation, it has a
second source to compete with the Russian company that had previously
been the exclusive nuclear fuel provider. This program has cost over
$60 million with the cost being covered by the U.S. Department of
Energy and Westinghouse.

At the same time as the Westinghouse contract, Ukraine signed an
amended contract with Holtec International for the provision of the
technology needed for Ukraine to provide its own nuclear waste storage.
This contract has broad ranging implications for a variety of reasons.

First, the provision for internal storage of nuclear waste will save enough
money to pay for the entire cost of the Holtec contract in just two years.

In addition, Holtec will work with Ukraine to develop the ability of local
producers to manufacture nuclear waste containers. Ukraine gets not only
a solution to a major problem, but also develops manufacturing capacities
that greatly enhance its technological potential in this classic win-win
situation. The Holtec investment will total over $250 million.

Vanco International of Houston, TX, was awarded the first contract to
do deep water drilling in the Black Sea.  This was a major breakthrough
for international energy companies and will provide $350 to $500 million
in investment.

Ukraine's Ambassador to the USA Oleh Shamshur, U.S. Ambassador
to Ukraine William Taylor, Morgan Williams at a recent USUBC meeting
in Washington, D.C.

Companies like Coca-Cola, P&G, AES, ADM, Bunge, Cargill, Horizon
Capital, Kraft, WJ Group, Kyiv-Atlantic, ECdata, Shell, Marathon, Siguler
Guff, Cisco, UPS, Dipol Chemical International, P&G, Halliburton,
EPAM Systems, SigmaBleyzer, the Atlantic Group, ALICO/AIG, Maxwell
USA and Och-Ziff Capital Management Group are also continuing to
expand their investments in Ukraine.

OVERSEAS PRIVATE INVESTMENT CORPORATION (OPIC)

However, I must point to an extremely frustrating situation that
continues after almost ten years to blight Ukraine's relations with the
Overseas Private Investment Corporation (OPIC), an economic and
business development agency of the U.S. government.

OPIC was in the past and could be again a major contributor to Ukraine's
ability to underwrite foreign direct investment through its programs of
political risk insurance.

In addition, OPIC has a number of investment funds that could be energized
in a very short time to provide as much as $500 million in funding for SME
projects, if certain hurdles could be breasted.

In spite of years of discussion, the government of Ukraine refuses to accept
the responsibility to do what is necessary to negotiate an acceptable
settlement to a small debt [U.S. $17 million] going back to 1999.

There have been commitments to deal with the OPIC matter during previous
governments and the new Tymoshenko government has signaled its willingness to deal with the issue. However, as of this date, years of talk have come to nothing and OPIC still remains closed to Ukraine.

INTEGRATING UKRAINE INTO THE WORLD

In spite of these and other distractions, the domestic and international
business community continues to drive the agenda, integrating Ukraine
into the world. In spite of self-serving actions by politicians in some
cases and even business-hostile actions in others, Ukraine continues to
make progress in building strong businesses.

Serhiy Tyhypko, Swedbank Board Chairman, and Morgan Williams
at the meeting of the Investors Council at the Cabinet of Ministers of
Ukraine. Kyiv, March 18, 2008.

We are now living in one of the most important periods in Ukraine's history
as an independent nation. We hope for greater understanding, support and
real action from Ukraine's politicians, but with or without them, the
business community is leading the way to move Ukraine along the way to
its rightful place as one of the great and prosperous nations of the world.
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Williams is director of government affairs, Washington office of the
SigmaBleyzer Emerging Markets Private Equity Investment Group and
serves as president of the U.S.-Ukraine Business Council (USUBC).  He
has been active in the economic and business development of Ukraine
since 1993.
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LINK: www.wumag.kiev.ua