Investing in Eastern Europe – Ukraine

Investing in Eastern Europe  – Ukraine

This is a summary prepared to provide an initial taste and background about the Ukrainian market and demographic information of its people. It is an introduction aimed at prospective investors in Eastern Europe who are looking for sound advice prior to entering the main East European markets. My company “Bathyscaphe LLC” offer consultancy services that will deliver detailed information on specific subjects, especially specific areas of business, and most importantly, guide the prospective investor through the mystery that often surrounds East European countries. Our aim, with this document and future consultancy, is to clear up all misinterpretations and perceptions about business and market conditions in Ukraine that lead to doubts. To introduce prospective investors to the best advisors in Ukraine, whom have many years experience in aiding entry to this market flawlessly, and will help and offer sound and trusted advice to interested companies and individuals alike.

David Payne                                                                                                                 Marketing & Communications Specialist, has prepared this introduction, with 20 years experience working in and living in Russia and Ukraine.

What we can do for you:

Areas of investment where we can offer immediate solutions, information and due diligence, provide detailed reports and consultation prior to entering or investing in Ukraine:

Our offer

  • Solutions defined, both objectively and professionally, with a knowledge base built from twenty years experience whilst working and living in Russia and Ukraine.
  • Our offer to supply detailed information covering the specific areas of business where you require information to aid investment.
  • We offer access, in all areas of business, to local and international specialists based in Ukraine.
    • Conduct research with specialists providing specific areas of knowledge.
    • Direct contact with international specialists in law, finance, planning, building, land and building development for rent or purchase or construction.
    • Direct contact with international specialists on specific requirement for import, customs and excise, taxation, banking and investment.
    • Access to specialists in all communication areas.
  • We will go to Ukraine, on your behalf, and conduct accurate immediate research or develop reports defining up to date information on your specialist area of business interest, and areas that might affect business investment.

Areas of research include:

  • Market entry.
    • Importing product or service,
    • Finding Importer and distributor
    • Set up office, shop or factory.
    • Supply detailed information about the current market
    • Analysis of competition
  • Consult and introduce specialists who would identify a specific market segment, distribute goods or services and prepare off the shelf sales support, in the shortest period with the least problem. Identify the best agencies that can hire and train the best staff.
  • Provide consultancy on the advertising PR and communications industry.
    • Advertising consultancy, market demographic, market analysis, segment analysis, strategic and tactical solutions, and specific to the UA market condition.
    • PR services with access to national and regional press clubs, all influencer and amplifier groups. Strategic planning.
    • Print and Production services
    • TV and Video production services
    • Exhibition and event strategies.
  • Provide the best solutions for marketing product or business with optimum communication.
  • We will provide the supporting solutions if your client has invested in Ukraine, we provide the solution if there is a fast track need to support your company’s or your clients business operation. We provide the solution if you have limited knowledge of the country, media and communication differences, demographic and cultural differences, and there is a need to formulate and provide solutions quickly and effectively.
  • Our priority is to support you and your client or aid in a client’s entry to this lively market.

Our operation offers all needs to achieve these goals with appropriate solutions. We have the best associates in Ukraine to aid comfortable turnkey investment solutions.

It is important to have some basic knowledge about the ethnicity of the region and cultural associations and differences. The next section outlines a glimpse of this region.

About Ukraine its Geography and demographic heritage

Position Ukraine is situated in the south-eastern part of Central Europe and has its own territory, language, government, national emblem, flag and anthem.

Ukraine; Ukrainian Україна transliterated: Ukrayina, is a country that is the heart of the Slavic peoples and tribes/nations of Central and Eastern Europe. Ukraine borders the Russian Federation to the east and northeast, Belarus to the north west, Poland, Slovakia and Hungary to the west, Romania and Moldova to the southwest, and the Black Sea and Sea of Azov to the south and southeast, respectively. It has an area of 603,628 km², making it the second largest contiguous country on the European continent, after the Russian Federation. 

Demographic Population 45,633,600 (1 January 2012)

Current vital statistics The number of births during the months of January–July 2012 increased by 19,071 over the same period in 2011, the birth rate for January–July 2012 was 11.2 per 1,000 population, an increase over 10.5 during January–July 2011 and 10.7 for January–July 2010. These figures begin to overturn the decline in population and specifically the birth rate in the late 90’s.

Geography The territory of Ukraine is mostly a level, treeless plain or “steppe”. There are the Crimean Mountains in the Crimean peninsula and the Carpathians in the west, but they are not very high (2600m). Mixed forests of pine and fir-trees, beeches, limes, oaks and elms cover the mountains, but the thickest woods can still be found in the northern part of the republic, in Volyn. Kiev and Cherkassy lie in the midst of Ukrainian southernmost pine forest. The main Ukrainian river is the Dnieper. It is one of the longest European rivers and one of the republic’s main sources of hydroelectric power. The Dnieper and its tributary the Ross had been the cradle of the Ukrainian and Russian people in time immemorial.

Weather The climate of the country is moderate Central Continental. Winter is rather mild for Eastern Europe, with no severe frosts but with regular snowfalls everywhere except the south. The rivers and lakes freeze in winter. The average winter temperature varies from    -20 Centigrade in the north to -3-5 in the south. Summer is quite hot and dry, with occasional showers and thunderstorms. The fertile black soil is well watered in spring and autumn and gets plenty of sunshine in summer.

Market

Main Product and export The country is rich in natural resources, such as iron ore, coal, coloured metals, oil, gas, mineral salts, clay and potential waterpower. It has developed a varied industry, concentrated mostly in and around big cities.

By city Kiev, Zaporozhye, Dnepropetrovsk, Dnyeprodzerzhinsk, Odessa, Kharkov, Lviv and Mickolayev amongst others have a history of diverse production, whilst Donetsk is the centre of the coal, coke, iron ore and steel industry. These cities produce aircraft and ships, lorries and buses, motorcars and locomotives, computer and electronic equipment, precision instruments and agricultural machines, TV and radio, chemicals and textiles and various consumer goods. Odessa, Sebastopol, Nickolayev, Kherson and Kerch are the main Ukrainian ports.

Oblast Ukraine’s ‘‘black soil’’ is rightly famous, a rich soil that is well known for its fertile qualities. Thirty percent of the world’s black soil is in Ukraine, and 42 million of the country’s 60 million hectares (231,660 square miles) is agricultural land where wheat, barley, rapeseed and sunflowers grow in abundance. Ukraine is one of the world’s richest agricultural nations being one of the world’s main centres of sugar production. It produces sugar both for its own needs and for export. International expertise and investment are developing a strong diverse agricultural market with Europe’s largest egg producer purely for the rearing of chicken (fresh, Frozen and pre-cooked) for home and international consumption.

In Soviet times, Ukraine was known as the breadbasket of Europe, the land that fed the world and provided one-fourth of the Soviet Union’s agricultural output. Today, the country’s agricultural industry represents almost 10 percent of the country’s gross domestic product, but its potential for growth remains vast.

Slavic Europe

Settlement by tribe By about 1500 BC, the area of land which now corresponds with south-eastern Poland and north-eastern Ukraine became home of the early Slavic tribes, which are commonly known as the Proto-Slavs. Studies prove that the present day Slavs are the descendants of these tribes. The experts refer to the Proto-Slavs as nomadic peasants who practiced primitive forms of agriculture. They were also hunters who pursued herds of prey for months.

The Slavs of today are the branches of the Slavic tree that was sprouted from the seed of Proto-Slavic tribes who inhabited the ‘Slavic Cradle’.

Ukraine The territory of Ukraine was a key center of East Slavic culture in the middle ages, before being divided between varieties 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 a candidate site of the origins of the Proto-Indo-European language family. The horse was first domesticated on the territory of Ukraine.

Culture Ukrainian culture refers to the culture associated with the country of Ukraine and sometimes with ethnic Ukrainians. It contains elements of other Eastern European cultures, as well as some Western European influences. Within Ukraine, there are a number of other ethnic groups with sizeable populations, most notably Russians. The Eastern Orthodox Church and traditions from Slavic mythology heavily influenced Ukrainian customs.

Ukraine has a shared culture with neighboring nations, dating back to the 9th century and the Land of Rus. Mutual influence is particularly apparent among the cultures of Russia, Ukraine, Poland and Belarus.

Wars influence on culture and language The territory of Ukraine has for many hundreds of years been usurped and split by domination, colonisation and indoctrination. Ukraine has suffered invasion by the Turks (Ottoman Empire), from Poland (Polish-Lithuanian Commonwealth), the Austro Hungarian Empire and from Muscovy, in recent years the Soviet Empire. These violent traumas had significant influence on the language, dialects and religion.

The 1648 Ukrainian Cossack Hetmanate rebellion and war of independence under Hetman Bogdan Khmelnytsky, which started an era known as the Ruin, undermined the foundations and stability of the Polish- Lithuanian Commonwealth. The nascent Cossack state, the Cossack Hetmanate, usually viewed as precursor of Ukraine, found itself in a three-sided military and diplomatic rivalry with the Ottoman Turks, who controlled the Tatars to the south, the Commonwealth of Poland and Lithuania, and the rising Russia to the East.

The reconstituted Ukrainian state, having fought a bitter war with Poland, sought a treaty of protection with Russia in 1654, which set the path for Ukraine being influenced by Russian successive governments. It was truly not until Independence in 1991 that Ukraine found its real identity, language, religious associations and internal influences again. These have been powerfully protected to the present day.

Individuality Ukrainians are very individual, demographically by region, with strong ties to their tribal heritage, recent Cossack history, and to the historical figures who shaped the nation, its ideals and doctrines. They are a proud and genuine people who protect their recent independence strongly.

Social gatherings have a long history in Ukrainian culture, and so do traditional holidays Ivano Kupala, Maslenitsa, amongst many others. “Razom nas bahato nas ne podolaty” is a popular cultural and political statement of both traditional and modern Ukrainians. It translates as, “Together we are many! We cannot be defeated!”

Religion is practiced throughout the country. Eastern Orthodox Christianity and Eastern Catholicism are the two most widely practiced religions. The Ukrainian Orthodox Church is the largest in the country.

Food is an important part to the Ukrainian culture. Pork is the staple meat for most Ukrainians and their kitchen. Popular foods in Ukraine include Salo (pork fat) borscht (national soup), Sarmale (stuffed cabbage leaves) Chicken Kiev  (adopted but not developed in Ukraine), Pierogi (small pies stuffed with various fillings and fried), Vareniki (stuffed small dumplings of ravioli) amongst others. Typically bread is a core part of every meal, and must be included for the meal to be “complete.” Travel and sampling of more exotic foods abroad is making Ukraine a great potential for specialist food product import.

Wine and Sparkling Wine (Champagne) vineyards are prolific in many areas of Central and Southern Ukraine, with many international wine experts helping vineyards to improve and diversify their grape vine. The national drink is without a doubt Vodka or Horilka as Ukrainians classify their vodka, which is now in major cities competing with other global strong alcohol such as whisky. Special foods are used at Easter, as well as Christmas. During Christmas, for example, it is the tradition to have a twelve-course meal. Included at Easter are the famous Pysanky which are coloured and patterned eggs. Making these eggs is a long process, and they’re used for display at the centre of the table rather than consumed. Ukrainians often toast to good health, linger over their meal, and engage in lively conversation with family and friends.

Sport Ukraine greatly benefitted from the Soviet emphasis on PE, which left Ukraine with hundreds of stadiums, swimming pools, gymnasiums, and many other athletic facilities. Football is the most popular sport in Ukraine. The top professional league is the Vyscha Liha also known as the Ukrainian Premier League. The two most successful teams in the Vyscha Liha are rivals FC Dynamo Kyiv and FC Shakhtar Donetsk.  Although Shakhtar is the reigning champion of the Vyscha Liha, Dynamo Kyiv has been much more successful historically, winning the UEFA Cup Winners Cup two times, the UEFA super cup once, the USSR Championship a record 13 times, and the Ukrainian Championship a record 12 times; while Shakhtar only won four Ukrainian Championships and one and last UEFA Cup.

Ukrainian brothers Vitaly Klychko and Volodymir Klychko have held world heavyweight champion titles in boxing.

Ukraine made its debut at the 1994 Winter Olympics. So far, Ukraine has been much more successful in the Summer Olympics (116 medals in five appearances including London) than in the Winter Olympics (Five medals in four appearances). Ukraine is currently ranked 35th by the number of gold medals won in the All-time Olympic Games medal count, with every country above it, except for Russia having more appearances. Other popular sports in Ukraine include handball, tennis, rugby union, gymnastics and ice hockey.

Conclusions and how this history and heritage affects investment Ukraine is a traditional market and in line with its long history and heritage is heavily influenced by matriarchal society, older female opinion on health welfare and life style, and secondly by tribal hierarchy, the tradition of the hetman. Ukrainians are slowly becoming individualised and moving their alignment to western ways of living. Ukrainians are always looking for, and aspire to, new ideas, better quality of everything from food to clothing to homes and cars. But they often fall back to traditional methods of running and developing their lives historically imbedded in strong family influences and ties.

Business through the nineteen nineties proved to be a period of unstable infighting and wealth creation often dominated by groups trying to control their areas of influence, often illegally and physically. Many Ukrainians were not satisfied with developing one business but often took over many different businesses purely to increase their wealth and influence, a stereotype that can be related to their tribal history defined by the Hetman era of history.

Laws Early independence made certain that the basis of judiciary, constitution and law to cover the needs of the new state were passed through the RADA (Parliament) to create a stable and well-controlled society. Over the years the influence of businessmen, entering politics, has destabilised, twisted many laws in favour of their wealth creation and control. For instance you cannot send money from the country without approval from the appropriate authority, but you can send money to your immediate family member (wife) with unlimited restriction on the amount for her to secure her lifestyle in her adopted place of living.

Many understand that the judiciary is subject to bribery, which can lead to difficulty in gaining fair and immediate decisions. But if the law is properly followed, perseverance wins the legal argument. Constant changes in legislation mean that a legal and financial expert needs to be part of your team. Failure to comply with changing laws can lead to complication.

Tax The tax authorities are extremely strict in how they ensure full taxes are collected. In the nineties common tax police raids would account for inordinate amount of heavy entry to business premises, lost time to a business, whilst an ‘on the spot’ tax audit was instigated. This often led to seizure of computers and items were impounded until the authorities were satisfied. This has lead to much criminal bribery and corporate raiding as an offshoot, and is beginning to force the new middle classes away from Ukraine. One should not fear these problems as good quality accountancy and financial support from large international accountancy and legal firms help to guide the investor in the right direction.

Banking The banking sector boomed in the early millennium during the buoyant years inviting many international banks to invest in or purchase small Ukrainian banks. The banking sector is heavily controlled and regulated by the government and National Bank of Ukraine. These controls and transparency has led to a highly well organised and professional sector.

Corporate raiding This practice has been a major problem in Ukraine where Ukrainian business entities see an advantage and profit from a forced takeover. The Embassies in Ukraine and many international lawyers have been fighting for many years to implement real legislation to stop this hideous practice. Many International companies now use good sound advice and support from investment banks to offset this possibility.

Government and Policy The few Ukrainian governments that have ruled the country since 1991 have fallen fowl of lack of insight awareness or petty politics. The most hopeful sign that could have led to true democracy started with nationwide rage, caused by the rigged Presidential election, post the Kuchma era. Viktor Yanekovich was ousted as the President elect, for cheating and manipulating the vote. Victor Yushenko took office for four years.

Known as the Orange revolution, its name derived from the orange armbands worn by a high majority of citizens showing support for the Yushenko camp. It proved to be a mess, as many of its parliamentery supporters fought for their own position and personal gain in the ensuing Parliament. This was greatly highlighted by the differences between the President and premier minister Yulia Timoshenko. The Orange revolution collapsed at the next election when Yushenko was humiliated in defeat and Yulia lost her chance of victory mainly due to over confidence. Viktor Yanukovych won, even though the majority of citizens understood his corrupt nature. Since his election he has manipulated the constitution and law of Ukraine in his favour, where some believe he is trying to build a Putin style government (mini dictatorship) to the west of The Russian Federation. Prime Minister, Mykola Azarov, is pushing hard to improve foreign investment, from the west, and increase stronger ties to the EU states, with many new laws helping investors in agriculture and industry in general.

Trust Trust is not an ideal that should be openly offered in the market, caution at all times and strong business acumen will create a stable environment for your business to grow.

Would I invest? Yes I would, and already have twice,1998 and 2008, as a partner in one of the largest advertising agencies in Ukraine at that time, and recently in a start up offering full marketing communications support. It is not difficult to invest and not difficult to do business in Ukraine. It takes hard work and a solid foundation from the beginning, but offers lucrative rewards. Ukraine is a very creative hard working nation and I would not hesitate to endorse support for investment in this country.

Countries: Eastern Europe and Ukraine
Topics: Export Concept, Finance, and Getting Started
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