Auto components market:Ukraine’s potential & strategic moves

International conference for Ukraine’s automotive industry development AutoPROm

November 4th 2013, Kyiv

Sergiy YevtushenkoHead of InvestUkraine

2

AUTOMOTIVE MARKET OF UKRAINE

3

Passenger car market overview

• Second largest passenger car market in the CIS

• New sales reached 238 thousand units, 15% y-o-y rise, 40% of the 2008 level

• Market growth is expected due to: Low density of cars (191 cars/1000 people) High average age of car (17 years) Growing purchasing power

index

Source: UkrAutoprom

2008 2009 2010 2011 20120

100

200

300

400

500

600

700

-100

-60

-20

20

60

100

600

170 170207

238-72%

0%22%

15%

New passenger car sales, 000 unitsChange, %

4

New passenger car sales

• Strong and growing demand on imported passenger cars

• Value of imported cars – USD 3.3 bn. in 2012

• Largest importers of cars to Ukraine: Russia, Germany, Japan, China, South Korea, UK, Romania, Czech Republic

Source: UkrAutoprom

2008 2009 2010 2011 20120%

20%

40%

60%

80%

100%

42% 36% 33% 29% 21%

58% 64% 67% 71% 79%

Produced locally Imported

5

Major car producers

CKD - complete knock-downSKD - semi-knocked-down

Source: Deloitte & Touche USC

Bogdan12,000 units/year

2

3

Evrokar14,500 units/year

4

KrASZ3,200 units/year

ZAZ40,000 units/year

SKD

1

SKD

CKDSKD

SKD

CKD

6

2012

Auto components manufacturers

450 auto components suppliers, 50 are of foreign origin. Most of the components produced by international suppliers are exported.

7

WHY UKRAINE?

8

Location

Automotive clusters units produced in 2012

• Central Europe* – 3.15 mln

• Russia – 1.9 mln

• Turkey – 0,57 mln

*Czech Republic, Hungary, Poland, Romania, Slovakia

Infrastructure

• 4 international transport corridors

• 18 sea ports

• 11 river ports

• 22 000 km of railways

• 170 000 km of roads

Pan-European transport corridors 2012

Logistics Performance Index (LPI*)

*LPI is an interactive benchmarking tool created and implemented by the World Bank International Trade and Transport Departments, with Finland's Turku School of Economics (TSE).

• Ukraine has moved from 102nd to 66th place in 2 years.

• The most significant progress has been reached in:

ability to track and trace consignments

efficiency of customs clearance process

quality of logistics services

• Ukraine has overpassed Greece (68), Latvia (76), Georgia (77), Russia (95).

1 155 – worst rank2 5 – best score

Source: World Bank

Year 2012 2010

Rank166 102

Score22,85 2,57

Timeliness3,31 3,06

Tracking & tracing3,15 2,49

Logistics competence2,85 2,59

International shipments

2,72 2,79

Infrastructure2,69 2,44

Customs2,41 2,02

Labor

11

Source: KPMG

Ukraine

Romania

Russia

Hungury

Slovak Republic

Poland

Czech Republic

0 200 400 600 800 1000 1200 1400

380

671

836

1073

1108

1157

1374 • Ukraine is very competitive in the costs of labor

• Machinery and equipment construction employs 240,000 people

• Production of electronic and optical equipment employs 150,000 people

Average salaries, USD2012

12

2012

Students in technical schools

300,000 students in technical Universities

13

Processing raw materials scheme

Raw materials

Products

No dutiesNo taxesNo quotas & licensing

Processing within 365 days:

Assembling Disassembling Modernization

Taxes

14

Ukraine

Russia

Slovak Republic

Czech Republic

Poland

Romania

Hungury

Europe average

0% 5% 10% 15% 20% 25% 30% 35%17%

34%

19%

21%

20%

20%Indirect Corporate Individual

Source: KPMG

• Tax rates in Ukraine are lower than Europe’s average

• Among mentioned countries:

2nd lowest indirect tax 2nd lowest corporate tax 4th lowest individual tax

• USD 1.7 bn. of indirect taxes were refunded in 2012

(58% automatically)

Conclusions

15

• Ukraine has high potential for auto components manufacturing

• Current situation confirms an interest from international companies to Ukrainian market

• Ukraine’s strategy is to:

Create efficient auto components market Attract foreign car manufacturers Become a strong member of automotive Eastern

European cluster

Thank you

11 Velyka Zhytomyrska St.03032, Kyiv, Ukraine+38 044 270 63 10info@investukraine.com

Sergiy YevtushenkoHead of InvestUkraine