| UKRAINE BUSINESS NEWS - TWELVE ARTICLES |
 FDI Down 14.3% in 2010; New ways to lure investors; Mr. President, where's the FDI?;
GDP to grow 6.5%; Public debt $54 billion; Amb Motsyk meets with U.S. businessmen;
New Peace Crops volunteers; Annual appeal for the elderly; INDEX OF ARTICLES ------ 2. NEW WAYS TO LURE IN INVESTORS 3. BUSINESS: MR. PRESIDENT, WHERE'S THE FDI? 4. GOVERNMENT FORECASTS GDP WILL GROW TO 6.5% IN 2012-2013 KYIV - The net inflow of foreign direct investment in Ukraine January through September 2010 was $2.547 billion,which was 14.3% down on the same period last year,the State Statistics Committee has reported. The total volume of foreign direct investment in Ukraine as of October 1 reached $42.512 billion,which is 6.4% up since the start of 2010. The committee said that foreign direct investment per capita was $926.70. Due to the sale of capital to non-residents from other countries and outflow of investment,the capital of investors from the United State fell by $88.8 million,from Iceland it fell by $29.3 million due to the sale of capital to non-residents from other countries,and by $21.6 million due to the exchange rate difference and capital outflow from Britain. The sectors that saw the greatest increase in foreign capital over the period were financial companies ($1.684 billion),trade,auto repairs,domestic appliances and personal supplies ($237.6 million) and real estate, engineering and business services ($215.7 million). Investment in Ukraine last year came from 124 countries. The largest investor countries,the total share of which was estimated at over 82% of the total investment,were Cyprus ($9.579 billion), Germany ($7.006 billion), the Netherlands ($4.083 billion), Russia ($2.956 billion), Austria ($2.667 billion), Britain ($2.287 billion), France ($1.752 billion), Sweden ($1.732 billion), the British Virgin Islands ($1.426 billion), and the United States ($1.218 billion). About $1.84 billion in direct foreign investment went into food,beverages and tobacco production,$5.657 billion into metallurgical and finished steel production,$1.193 billion into chemical and oil and chemical sectors,$1.156 into engineering industry,and $802.2 million into the production of other non-metallic mineral goods. Financial institutions accumulated $14.115 billion (33.2%) in direct investment,for real estate,engineering and business services the amount was $4.535 billion (10.7%),and for trade,auto repairs,domestic appliances and personal items the sum was $4.455 billion (10.5%). As of October 1,2010,Ukrainian companies received $5.913 billion in loans from direct investors. The largest amount of investment was received from Cyprus ($2.063 billion),Germany ($718.4 million),the Netherlands ($586.1 million),Britain ($293.8 million),Austria ($258.6 million),and France ($175.6 million). Total FDI,including borrowed funds came to $48.424 billion as of October 1,2010. In January-September 2010,Ukraine made $640.5 million in direct investments in the economies of other countries,mainly in the form of monetary payments. Ukraine made direct investment of $6.851 billion in other countries,including $6.539 billion in EU countries (95.4% of the total),$217.5 million in fellow CIS countries (3.2%) and other countries $95.3 million (1.4%). Ukraine made direct investments in 47 countries,particularly Cyprus (92.8%). Loans from Ukrainian direct investors totaled $129 million on October 1,2010. Total direct investment in other countries,including loan capital,totaled $6.981 billion. Commentary: by Tomas Fiala, Managing Director, Dragon Capital KYIV - Two years of the global economic crisis have resulted in a sharp decline in foreign direct investments (FDI) into Ukraine, according to the State Statistic Committee. Over the period July 1, 2005 - July 1, 2006 the amount of FDI into Ukraine’s economy grew by US $9.32 bn - from US $9.06 bn to US $18.38 bn. By July 1, 2007 it had increased by another US $5.79 bn, i.e. up to US $24.17 bn, by July 2008 - a record sum of US $12.28 bn, reaching the level of US $36.45 bn The difference is explained mainly by a decrease in capital investments by non-residents of US $534 mn (due to a withdrawal of capital, re-assignment of capital to residents, etc.) and also taking into account fluctuations in foreign currency exchange rates, the negative effect of which was US $681.6 mn. Among Ukrainian regions the leaders in FDI growth over the first 6 months in 2010 were Kyiv (US $721.5 mn) and the Dnipropetrivsk oblast (US $117 mn). The largest decrease in FDI volumes was observed in the Ivano-Frankivsk oblast (by US $125.1 mn). [1] First of all, the increase in foreign capital was registered in companies engaged in financial activities (US $591.6 mn) and also those engaged in commerce and renovations (US $84.5 mn), metallurgical production and production of ready-made metal fabrics (US $73 mn) and real estate, leasing, engineering and rendering services for entrepreneurs (US $55 mn). [3] The geographical structure of increases in FDI is no less significant. Over the first 6 months of 2010 the volumes of capital from Russia grew by US $323.4 mn, which constituted nearly 2/3 of the total increase in FDI into Ukraine (65.2%). US $300.8 mn of that amount can be attributed to companies engaged in financial activity. In particular, in May Sberbank of Russia increased the authorized capital of its subsidiary in Ukraine by UAH 1.47 bn (US $186 mn). We can expect a continuation of Russian penetration into Ukrainian banking sector. At least in June, Director of the Strategy Department of Sberbank of Russia Dmitriy Tarasov said the bank has plans of purchasing one of the largest Ukrainian banks. The sum of the deal could be anywhere from US $1-5 bn, according to expert estimates. Cyprus is in second place behind Russia in terms of the increase in FDI into Ukraine over the first 6 months of 2010 at US $150.7 mn. It is no secret that investments from Cyprus are in most cases virtually domestic investments, though they are transferred from companies registered in Cyprus. Investments from Cyprus into Ukraine’s sector of non-financial operations and services increased by US $77.3 mn, US $75.7 mn were invested into metallurgy and US $44.9 mn - into the mining industry. At the same time, investments fell by US $46.7 in the chemical and petrochemical industries and by US $41.7 mn in the financial sector. On the whole, FDI into Ukrainian industry in the first half year of 2010 fell by US $226.5 mn due to the exchange rate difference and the withdrawal of capital. In the only sector of industry in which a considerable growth, namely metallurgy, it was secured by investments from Cypress. METALLURGY: GOVERNMENT SHOULD APPLY STIMULATING MEASURES As First Assistant Director of the National Institute of Strategic Studies Yaroslav Zhalilo pointed out, the traditional methods of state support such as indirect subsidies through low prices of raw materials, energy sources, gas, transportation services etc., devaluation of currency as a way of boosting export and financial and fiscal preferences for the sector may give a temporary stimulus, albeit fraught with a number of negative consequences. In particular, such an approach does not create stimuli for increasing productivity, innovations, securing new markets and production of new types of products or the application of energy-saving technologies and may contradict the obligations Ukraine assumed upon being accepted to the WTO. In Zhalilo’s opinion, instead the competitiveness of Ukraine’s metallurgy sector must be increased through tax breaks on revenues channeled towards reinvestment, tax breaks on the import of energy-saving equipments and special lines-of-credit for modernization. The expert says stimulating demand for metallurgy products on the domestic market is yet another imperative measure. OBTAINING A PLOT OF LAND COULD TAKE UP TO THREE YEARS In terms of the indicator of the simplicity of being issued a permit for construction, Ukraine is in second to last place out of 182 countries according to statistics of the World Bank. On the other hand, as the Director of the Human Development Research Department at the Institute of Demography and Social Research Larysa Lisohor, the share of employees with a higher education working for companies in the HoReCa sector (18%) is considerably lower than it is in the overall economy (30%) and the share of employees that go through professional training is 5-6 times lower than in other sectors of the economy. Clearly, the shortage of qualified personnel has a negative impact on the quality of service and, accordingly, on the efficiency of labor in such companies. Meanwhile, only certain companies have the wherewithal to organize professional training of personnel. At the same time, Lisohor says at the moment not a single division of the State Tourism Service and Resorts or the Ministry of Culture and Tourism are not engaged in the development of professional skills and personnel potential in the tourism industry. HOTEL, RESTAURANT, CAFE AREA UNDERDEVELOPED Be that as it may, this comparison with the EU speaks of another factor: this sector in Ukraine has considerable growth potential, but in order for it to be realized the state must simplify the terms and conditions for investors to run a business and create stimuli for the development of a system of specialized education, i.e. learning courses and institutions. The increasingly likely postponement of next parliamentary elections until October 2012 will give the authorities a much needed breathing space to proceed with these unpopular but long overdue measures, particularly in the fiscal, pension and energy spheres, and those will definitely bear fruit if carried out as promised. We currently expect Ukrainian GDP to grow by up to 5% in 2010 and 4.5% in 2011, making the country one of the fastest-growing in the CIS and Central and Eastern Europe. ---------------------------------------------------------------------------------------- Mark Rachkevych, Kyiv Post, Kyiv, Ukraine, Sat, Nov 27, 2010 KYIV - Recent figures released show that promises by President Viktor Yanukovych to boost investment into Ukraine by bringing political stability and reforms have yet to bear fruit. FDI FLOW REMAINS MINISCULE COMPARED TO NEIGHBORING COUNTRIES The mount of FDI inflows (into Ukraine) is not enough to speed up the economy's modernization," said Vitaly Vavryshchuk, an economist at the Kyiv office of BG Capital. UKRAINE RANKED LOW IN INTERNATIONAL RATINGS "This isn't to say that reforms are bad or coming too slow. It's just that the way they're being carried out does not correspond to what investors are used to seeing in more investor-friendly countries," Pashaver said. NOTE: The ISTIL Group/Kyiv Post, www.KyivPost.com, is a member of the U.S.-Ukraine Business Council (USUBC), Wash, D.C., www.USUBC.org. ---------------------------------------------------------------------------------------- Interfax Ukraine Business Express, Kyiv, Ukraine, Mon, Dec 13, 2010 KYIV - The Ukrainian government forecasts that the growth of Ukraine's gross domestic product (GDP) in 2012-2013 will accelerate to 6.5% every year, from 4.5% in 2011, according to the explanatory note to Ukraine's national budget for 2011. According to the document, the forecast of Ukraine's economic development in 2012 and 2013 takes into consideration the influence of tax reform, the government's new social and economic policy aimed at invigorating the processes of national production modernization, an improvement in the business climate, the creation of favorable conditions conducive to investment, and the positive results of Ukraine's hosting the Euro 2012 European Football Championship finals. The government's forecasts hold that inflation in 2012 and 2013 will slow to 7.9% and 6.2% respectively, down from 8.9% in 2011. The increase in real wages in 2012 and 2013 is foreseen at 6.4-6.5%, which is in line with real economic growth and the level of labor productivity (by 6% per year on average). According to the note, the national budget deficit limit may fall to 2.5% of GDP in 2012 and 2% of GDP in 2013. The government also aims at stabilize the national debt at not more than 45% of GDP by the end of 2013 and 2014. The government also sees receipts from privatization in 2012 and 2013 at up to UAH 10 billion per year. UkrInform - Economic News online, Kyiv, Ukraine, Mon, Nov 29, 2010 Experts expect public debt to grow to USD 54 billion (40% of GDP) by the end of this year, including at the expense of USD 1.6 billion as the second tranche of a loan from the International Monetary Fund. According to Oleh Ivanets, an analyst at the Art Capital investment group, after a four-month rally in June-September 2010, when the government increased public debt by USD 2 billion each month (loans from VTB and the IMF, VAT bonds and Eurobonds), in October, as expected, there was a full lull. "As for projections, then we have slightly downgraded our forecast for public debt by the end of this year, from USD 55 billion to USD 54 billion. The reason is that the earlier announced plans to conduct an additional capitalization of banks (UAH 24 billion) were postponed because of disagreements in this issue with the IMF after reports in the media that a significant portion of funds earlier directed to recapitalize banks has been used improperly," Ivanets said. At the same time, a loan of USD 2 billion will most likely not be returned to VTB this year, the expert said. Other important funds, namely, the next tranche of the IMF loan (USD 1.6 billion) and loans from the European Bank for Reconstruction and Development and other European institutions for EURO 2012 infrastructure projects (over USD 1 billion) are to be raised before the end of this year. In particular, the European Bank for Reconstruction and Development allocated USD 450 million to Ukravtodor in November, and the company is to receive another USD 450 million as part of this project from the European Investment Bank. Experts from Eavex Capital expect public debt to resume growth in the next two months, and, depending on the needs and appetites of the government, it will reach USD 52-55.5 billion by the end of 2010. Even if the government decides to repay USD 2 billion received from Russia's VTB Bank, this should be compensated by the second tranche of the IMF, which is expected in December 2010, experts said. In addition, the government may additionally place domestic bonds worth USD 2.5 billion in order to cover the budget deficit. Eavex Capital's experts also expect publicly guaranteed debt to rise by USD 0.6-1.2 billion at the expense of guarantees to state-owned companies, including to Ukravtodor. As of September 30, 2010, Ukraine's gross public debt increased to USD 51.09 billion, from USD 48.305 billion as of late August 2010. Embassy of Ukraine to the USA, Wash, D.C., Monday, Dec 6, 2010 The meeting was attended by several dozen USUBC member companies, including Boeing, Cargill, Bunge, Case New Holland, Microsoft, DHL, Chevron, Citigroup, ExxonMobil and others. In their comments representatives of U.S. companies admitted that despite the problems that still exist, the business situation in Ukraine improves steadily. The businessmen noted the effectiveness of meetings with the Ambassador of Ukraine as a mechanism of communication with the Government of Ukraine. Ambassador of Ukraine Olexander Motsyk and President of the U.S.-Ukraine Business Council (USUBC) Morgan Williams agreed on establishing the practice of monthly meetings of the American business community with the Ambassador. Ukrainian News-on-line, Kyiv, Ukraine, Thu, Dec 9, 2010 KYIV - Seventy-nine Americans have been sworn in as Peace Corps volunteers in Ukraine under the project Teaching English as a Foreign Language. The volunteers went through a ten-week preparatory training in Kyiv region and in Chernihiv region. They will be working in Ukrainian secondary schools, higher schools, normal schools and institutes of teachers' postgraduate education for two years. In the opinion of Ambassador Tefft, this will help active study of the English language by teachers, pupils and students, and also achieve success in professional and career development. United States Peace Corps Director for Ukraine Douglas Teschner, who was attending the ceremony, noted the event to be a very important step in the Ukrainian-American relations. "This is a very significant day for the relations of Ukraine and the United States," he said. The U.S. Ambassador and Peace Corps Director thanked Ukrainian authorities for the assistance provided, and assured they would keep granting all-sided support to Ukraine further on. As Ukrainian News earlier reported, the United States Peace Corps in Ukraine was founded in May 1992 by then presidents of Ukraine Leonid Kravchuk and of the United States George Bush. It is financed from the American taxpayers' money. In Ukraine the Peace Corps works in three areas: teaching English, developing communities, and developing youth. WASHINGTON, D.C. - The following is the annual appeal letter from Katie Fox, President, American Friends of Survival, on behalf of the poor elderly in Ukraine. Those on fixed incomes have been hard hit, especially in Kyiv, an increasingly high priced European city. Our Kyiv pensioners receive the equivalent of between $114 and $195 per month to cover food, clothing, housing and medical costs. Yet food alone costs $150-170/month. LINK: http://www.usubc.org/site/recent-news/re-annual-appeal-for-ukrainian-elderly FOR SURVIVAL INFORMATION BROCHURE: http://www.usubc.org/site/files/For_Survival_Brochure_2010.pdf --------------------------------------------------------------------------------------- Interfax Ukraine, Kyiv, Ukraine, Wed, December 8, 2010 He said at a conference dedicated to Ukraine and organized by the Economist newspaper, together with the Foundation for Effective Governance that the result of the agreement on partnership in hydrocarbon exploration and extraction signed with Naftogaz in 2005 on parity terms is very small: around $1 million has been invested. "I see a small appetite for the partnership: progress with Naftogaz is less than we expected," Daele said. He said that the leadership of Naftogaz Ukrainy changed with each government reshuffling, so time was needed to meet with new managers and convince them of benefits of cooperation. He said that relations with the present leadership of the holding are becoming more and more business-like. He said that Naftogaz needs partnership with large international oil and gas companies, as it allows it access to technologies, financial resources and western standards of doing business. "We continue growing as quickly as the situation on the market allows," he told Interfax-Ukraine. He added that Shell did not change its investment strategy towards Ukraine during the financial crisis. As reported, Naftogaz Ukrainy and Shell Exploration & Production Services (RF) B.V. signed an agreement on cooperation in December 2005. According to the agreement, Shell is to work on 10 fields with licenses belonging to Naftogaz Ukrainy. NOTE: Shell is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.USUBC.org. Ukrainian News Agency, Kyiv, Ukraine, Thu, Dec 9, 2010 KYIV - Shareholders of the ArcelorMittal Kryvyi Rih mining and metallurgical plant (Dnipropetrovsk region) at their meeting on December 9 appointed Rinat Starkov to the post of director general. A well-informed source announced this to Ukrainian News. Starkov has been acting director general of ArcelorMittal Kryvyi Rih since August 2, 2010. Starkov graduated from the Moscow State Institute of International Relations, specialty International Economy, and also got an MBA degree at Clemson University, United States. As Ukrainian News earlier reported, the Arcelor Mittal Kryvyi Rih mining and metallurgical plant in July 2010 dismissed Jean Jouet as director general. Jouet has worked as the director general of the enterprise since January 2008. Mittal Steel Germany GmbH owning 95.1266% in the plant is part of the Arcelor Mittal international holding. Arcelor Mittal Kryvyi Rih is Ukraine's biggest rolled steel producer specializing in long-length rolled steel production, in particular, the production of rod iron and fittings. NOTE: ArcelorMittal is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.USUBC.org. Interfax Ukraine, Kyiv, Ukraine, Thu, Dec 9, 2010 As reported, the Stockholm Arbitration Tribunal has put off until December 31, 2010 hearings on a case on the renewal of licenses owned by Vanco Prykerchenska Ltd (the British Virgin Islands) for the development of the Prykerchenska oil and gas field on the Black Sea shelf and a production sharing agreement. This was stated in the prospectus of an issue of eurobonds by state-run company Financing of Infrastructural Projects, which were issued against state guarantees. "If the sides fail to strike an amicable agreement before December 31, 2010, arbitration litigation could restart," reads the prospectus. It took more than a year to agree on a draft PSA, which was finally adopted by the government in October 2007 and signed in the presence of the former President Viktor Yuschenko. The Environment Ministry in December 2007 issued a license to Vanco Prykerchenska for geological prospecting, research and the commercial production of oil, gas and gas condensate at the Prykerchensky field. Later, the ministry found that a number of violations of Ukrainian laws were committed during the tender and when the license was issued to Vanco Prykerchenska, as well as evidence of infringements by Vanco International of some PSA clauses. In April and May 2008, the government cancelled the license of Vanco Prykerchenska and withdrew from the PSA. Vanco went to the international arbitration, simultaneously offering the renewal of cooperation under the PSA to the government of Ukraine. Vanco Prykerchenska is owned in equal shares by Vanco International, DTEK Holdings Limited of Ukrainian businessman Rinat Akhmetov, Shadowlight Investments Limited of Russian businessman Yevgeniy Novitsky, as well as Integrum Technologies Limited. NOTE: Vanco Exploration Company is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.USUBC.org. U.S.-Ukraine Business Council (USUBC), Wash, D.C., Mon, Dec 13, 2010 WASHINGTON, D.C. - A important new book, "Ukrainian Artists in Paris, 1900-1939," by Vita Susak of the Lviv Art Gallery, in Lviv, Ukraine was launched at a reception sponsored by The Washington Group (TWG), www.TheWashingtonGroup.org, and the U.S.-Ukraine Business Council (USUBC), www.usubc.org, in cooperation with the Embassy of Ukraine to the USA in Washington, D.C., Friday, December 10, 2010. "Ukrainian Artists in Paris, 1900-1939," is the first systematic and comprehensive examination of the role and substance played by Ukrainian-born emigres to France in this time period. A great deal has been written about this time and place, this great cultural upheaval that changed so much in the world of art, but the Ukrainian contribution to that time and place has rarely been imagined. Until now. Vladyslava Bondarenko, Counselor, Cultural Section, Embassy of Ukraine, welcomed over 50 guests to the Embassy. Andy Bihun, President, The Washington Group (TWG) and Morgan Williams, Director, Government Affairs, Washington Office, SigmaBleyzer Private Equity Investment Group, who serves as President of the U.S.-Ukraine Business Council (USUBC), brought opening remarks about the ongoing work in the USA to promote Ukrainian art and culture. LIDIA LYKHACH, DIRECTOR, RODOVID PRESS Rodovid director Lykhach said the book has been published in Ukrainian and English. A French-language version is being prepared in collaboration with the Institute francais d'Ukraine in Kyiv and will be published soon according to Lidia. Lidia then introduced the author of the book, Vita Susak, Lviv, Ukraine. AUTHOR VITA SUSAK Susak said this is the first detailed look at the contribution of artists from Ukraine to the phenomenon known as the “School of Paris.” At the same time that Picasso, Modigliani and Chagall were working in Paris, many artists from Ukraine were also living and creating art there, among them Alexander Archipenko, Mykhailo Boichuk, Sonia Delaunay, Sophia Lewitska, Vladimir Baranoff-Rossiné, and Hannah Orloff. Ukrainian events that took place in the French capital are discussed against the general background of the “School of Paris.” The book’s Appendix includes a dictionary of Ukrainian artists in Paris featuring more than 250 individuals, as well as a chronology of Ukrainian events in Paris, both covering the years 1900-1939. "Vita Susak's book is groundbreaking because it shows art of Ukrainian origin in its various aspects within the framework of what is always called the School of Paris. She recreates the cultural context in which artists of Ukrainian background worked and outlines the more important biographies. Her book should serve as a reference work," Jean-Claude Marcade, Le Pam, France, wrote in the Forward to the book. They work cooperatively with authors and partners in specific projects and are always interested in acquiring new texts. Please contact Rodovid to discuss ideas concerning your publishing project PURCHASE OF RODOVID PRESS BOOKS LINK: http://www.usubc.org/site/recent-news/book-launch-ukrainian-artists-in-paris-1900-1939 ---------------------------------------------------------------------------------------- |
