Distributed by USA TODAY Thursday, September 22, 2011 2 Our World Insert is produced by United World. USA TODAY did not participate in its preparation and is not responsible for its content UKRAINE Era of reforms and stability Our World T WO DECADES ago, the Ukrainian na- tion emphatically declared itself an in- dependent state from the former Soviet Union. On August 24, 2011, leaders from around the world, including Barack Oba- ma, Dmitry Medvedev, Nicolas Sarkozy and Hu Jin- tao, among many others, sent President Viktor Yanukovych Independence Day greetings in a show of international support for the anniversary. The following day, in an article for the Wall Street Journal, President Yanukovych presented his view of Ukraine today as a “modern and dynamic coun- try in which small-business ownership is on the rise, creativity is thriving, and the market is picking up after a difficult recession. In the last year alone, for- eign direct investment increased by 35%.” Recording positive GDP growth of 4.2% in 2010 would be considered quite good for any given coun- try. For Ukraine, however, it represents a triumphant upturn for the economy after a demoralizing 15% drop in 2009, and a morale-boosting achievement for the new government. The global financial crisis of 2008-2009 caught Ukraine in the middle of an ongoing feud between the parliament, the government and the president. “It was evident when the crisis started that all three branches of government needed to unite to form one collective strategy to confront it head on, but this didn’t happen,” explains Prime Minister Mykola Azarov, who also blames the former administra- tion’s absolute populist strategy, the absence of a Minister of Finance and the fact that “none of the reforms that were so desperately needed for the country were implemented.” The government headed by Mr. Yanukovych, which came to power in late February 2010, has rescued the republic from what could have been a catastrophe. His administration immediately formed a coalition, established the power hierar- chy in the regions, and laid out serious reforms to balance the budget, restore financial stability and attract investment. “The state apparatus became operational,” says Andriy Klyuyev, First Vice Prime Minister and Minister of Economic Development and Trade. “We’ve made considerable progress in matters related to total deregulation of the econ- omy, simplifying the leg- islative environment for business. We’ve reduced by one-third the num- ber of ac- tivities that re- quire spe- cial government licenses. We’re taking serious steps to simpli- fy business reg- ulation. We’ve introduced con- cepts like a ‘one- stop shop’ for investors. We’ve created a special- ized investment promotion agency, and today it is represented in every region of Ukraine.” He adds that the government has been restruc- tured, eliminating outdated ministries and adopting EU standards. Economic growth is holding steady above 4%, and the Economist Intelligence Unit predicts GDP growth of 4.6% for 2011. According to Mr. Klyuyev, even higher growth could be attained if the agri- cultural sector is able to metaphorically recover ground lost last year to droughts. Other sectors Mr. Klyuyev and Mr. Azarov highlight for their poten- tial are engineering, metallurgy, energy (including shale gas and renewables), transport, and tourism – especially relevant now due to the election of Ukraine as co-host of the UEFA Euro 2012 soccer tournament along with Poland. Hosting such a high-profile competition has en- tailed a massive drive to significantly boost Ukraine’s infrastructure, with new stadiums, improved rail links and widespread road upgrades taking shape. In April 2011, Deputy Prime Minister and Infra- structure Minister Borys Kolesnikov promised that an additional UAH 2.4 billion ($302 million) would be allocated from the state budget for the con- struction and reconstruction of roads in Ukraine’s Euro 2012 host cities of Kyiv, Kharkiv, Donetsk and Lviv. (Poland’s four host cities are Gdansk, Poznan, Warsaw and Wroclaw.) According to the Prime Minister, “We have built 1,500km (932 miles) of modern motorways this year. In next year’s first quarter, we’ll have completed con- struction of all highways for Euro 2012. It will then take eight hours of comfortable travel from the west to the east of Ukraine. If we work at such a pace we’ll have European quality roads in 10 years.” With the economy enjoying positive growth, the government is in an improved position to continue forward with the much-needed reforms. Oleg Popov, CEO of System Capital Management (SCM), Ukraine’s largest and most successful holding com- pany, says, “Now we feel quite optimistic about the future of Ukraine because our government is no longer engaged with short-term projects and victo- ries exclusively, but with long-term development perspectives elaboration and the reforms that the country needs as well.” The major ones under way today include: the land reform, which will greatly enhance the flow of in- vestment into the country and boost agribusiness; the pension reform, key to unlocking further fi- nancing from the International Monetary Fund; and a new tax code that Borys Kolesnikov, Deputy Prime Minister, described in an interview with the Financial Times as “one of the most liberal tax codes in Europe.” Ukraine’s economic comeback and political sta- bility have done nothing but enhance the republic’s relations with the international community, and the government would like to see increased coopera- tion with the European Union and the United States. “Our partnership with the U.S. is important not only in a bilateral context but also for our relations with international financial institutions and other international organizations,” comments Olexander Motsyk, Ukrainian Ambassador to the U.S. Mr. Motsyk says that his country boasts a mar- ket of almost 50 million, “a very convenient” geo- graphical location, and a highly educated population that translates into great potential for technology development. In the Wall Street Journal, President Yanukovych also pointed out: “Not only does my country boast an educated labor force and a rich foundation in sci- ence and technology, but we also serve as a bridge connecting European, Russian and Asian markets.” However, Ukraine's partnership with the West is far from limited to only economic and strategic in- terests. According to the President, “It also includes a shared culture of values and a commitment to democracy, human rights and international peace.” President VIKTOR YANUKOVYCH Prime Minister MYKOLA AZAROV A UNITED WORLD SUPPLEMENT PRODUCED BY: Katrin Oberin, Jamie O’Connor and Maggie Kay Rubenstein UNITED WORLD WOULD LIKE TO THANK Dimitri Vasylev and Graham Stack A more extensive version of this report is available at: www.worldfolio.co.uk
Transcript
Distributed by USA TODAYThursday, September 22, 201122
Our World Insert is produced by United World. USA TODAY did not participate in its preparation and is not responsible for its content
UKRAINEEra of reforms and stability
Our World
TWO DECADES ago, the Ukrainian na-tion emphatically declared itself an in-dependent state from the former SovietUnion. On August 24, 2011, leaders fromaround the world, including Barack Oba-
ma, Dmitry Medvedev, Nicolas Sarkozy and Hu Jin-tao, among many others, sent President ViktorYanukovych Independence Day greetings in a showof international support for the anniversary.
The following day, in an article for the Wall StreetJournal, President Yanukovych presented his viewof Ukraine today as a “modern and dynamic coun-try in which small-business ownership is on the rise,creativity is thriving, and the market is picking upafter a difficult recession. In the last year alone, for-eign direct investment increased by 35%.”
Recording positive GDP growth of 4.2% in 2010would be considered quite good for any given coun-try. For Ukraine, however, it represents a triumphantupturn for the economy after a demoralizing 15%drop in 2009, and a morale-boosting achievementfor the new government.
The global financial crisis of 2008-2009 caughtUkraine in the middle of an ongoing feud betweenthe parliament, the government and the president.“It was evident when the crisis started that all threebranches of government needed to unite to form onecollective strategy to confront it head on, but thisdidn’t happen,” explains Prime Minister MykolaAzarov, who also blames the former administra-tion’s absolute populist strategy, the absence of aMinister of Finance and the fact that “none of thereforms that were so desperately needed for thecountry were implemented.”
The government headed by Mr. Yanukovych,which came to power in late February 2010, hasrescued the republic from what could have been acatastrophe. His administration immediatelyformed a coalition, established the power hierar-chy in the regions, and laid out serious reforms tobalance the budget, restore financial stability andattract investment.
“The state apparatus became operational,” saysAndriy Klyuyev, First Vice Prime Minister andMinister of Economic Development and Trade.
“We’ve made considerableprogress in matters related to
total deregulation of the econ-omy, simplifying the leg-
islative environmentfor business.
We’ve reducedby one-third
the num-ber of ac-t i v i t i e sthat re-
quire spe-cial governmentlicenses. We’retaking serioussteps to simpli-fy business reg-ulation. We’veintroduced con-cepts like a ‘one-
stop shop’ for investors. We’ve created a special-ized investment promotion agency, and today itis represented in every region of Ukraine.”
He adds that the government has been restruc-tured, eliminating outdated ministries and adoptingEU standards.
Economic growth is holding steady above 4%,and the Economist Intelligence Unit predicts GDPgrowth of 4.6% for 2011. According to Mr. Klyuyev,even higher growth could be attained if the agri-cultural sector is able to metaphorically recoverground lost last year to droughts. Other sectors Mr.Klyuyev and Mr. Azarov highlight for their poten-tial are engineering, metallurgy, energy (includingshale gas and renewables), transport, and tourism– especially relevant now due to the election ofUkraine as co-host of the UEFA Euro 2012 soccertournament along with Poland.
Hosting such a high-profile competition has en-tailed a massive drive to significantly boost Ukraine’sinfrastructure, with new stadiums, improved raillinks and widespread road upgrades taking shape.In April 2011, Deputy Prime Minister and Infra-structure Minister Borys Kolesnikov promised thatan additional UAH 2.4 billion ($302 million) wouldbe allocated from the state budget for the con-struction and reconstruction of roads in Ukraine’sEuro 2012 host cities of Kyiv, Kharkiv, Donetsk andLviv. (Poland’s four host cities are Gdansk, Poznan,Warsaw and Wroclaw.)
According to the Prime Minister, “We have built1,500km (932 miles) of modern motorways this year.In next year’s first quarter, we’ll have completed con-struction of all highways for Euro 2012. It will thentake eight hours of comfortable travel from the westto the east of Ukraine. If we work at such a pace we’llhave European quality roads in 10 years.”
With the economy enjoying positive growth, thegovernment is in an improved position to continueforward with the much-needed reforms. Oleg Popov,CEO of System Capital Management (SCM),
Ukraine’s largest and most successful holding com-pany, says, “Now we feel quite optimistic about thefuture of Ukraine because our government is nolonger engaged with short-term projects and victo-ries exclusively, but with long-term developmentperspectives elaboration and the reforms that thecountry needs as well.”
The major ones under way today include: the landreform, which will greatly enhance the flow of in-vestment into the country and boost agribusiness;the pension reform, key to unlocking further fi-nancing from the International Monetary Fund; anda new tax code that Borys Kolesnikov, DeputyPrime Minister, described in an interview with theFinancial Times as “one of the most liberal taxcodes in Europe.”
Ukraine’s economic comeback and political sta-bility have done nothing but enhance the republic’srelations with the international community, and thegovernment would like to see increased coopera-tion with the European Union and the United States.
“Our partnership with the U.S. is important notonly in a bilateral context but also for our relationswith international financial institutions and otherinternational organizations,” comments OlexanderMotsyk, Ukrainian Ambassador to the U.S.
Mr. Motsyk says that his country boasts a mar-ket of almost 50 million, “a very convenient” geo-graphical location, and a highly educatedpopulation that translates into great potential fortechnology development.
In the Wall Street Journal, President Yanukovychalso pointed out: “Not only does my country boastan educated labor force and a rich foundation in sci-ence and technology, but we also serve as a bridgeconnecting European, Russian and Asian markets.”
However, Ukraine's partnership with the West isfar from limited to only economic and strategic in-terests. According to the President, “It also includesa shared culture of values and a commitment todemocracy, human rights and international peace.”
President VIKTOR YANUKOVYCH
Prime Minister MYKOLA AZAROV
AA UUNNIITTEEDD WWOORRLLDD SSUUPPPPLLEEMMEENNTT PPRROODDUUCCEEDD BBYY:: Katrin Oberin, Jamie O’Connor and Maggie Kay Rubenstein
UUNNIITTEEDD WWOORRLLDD WWOOUULLDD LLIIKKEE TTOO TTHHAANNKK Dimitri Vasylev and Graham Stack
A more extensive version of this report is available at: www.worldfolio.co.uk
Perhaps the most significantchange is that the voice of theprivate sector is being heard bythe public sector. Today the di-alogue between the governmentand Ukrainian businesses canbe compared to two-way traffic.President Yanukovych under-stands and respects the positionof business. He is conscious that
it is not the bureaucrats whomake the economy stronger, andhe is trying to reverse this bu-reaucratic machine. The Presi-dent asks the businesscommunity what they need andadvises the Cabinet of Ministersaccordingly.
The fact that the voice of busi-ness is being heard means thatthe government acknowledgesand respects the role businessplays. And it is fair to say that itis the private sector which real-ly builds the economy. So it’s im-portant that the voice of businesshas finally been heard.
My goal is to establish an ef-fective dialogue between Ukrain-ian businesses, trade unions andthe government. This is very im-portant for Ukraine because on-
ly with a shared vision togethercan we secure stability and de-velopment in the country.
It is crucial to utilize theUkrainian scientific potentialwith the maximum efficiency.Today science has no access tothe real sector of the economy,to the production. Implementa-tion of innovations is neither fi-nanced by the government, norby businesses. And this createsa disaster. The scientists inno-vate, but implement nothing. Onthe other side, Ukrainian indus-
try desperately needs these in-novations. So this is anothersphere where it is crucial to de-velop an efficient public-privatepartnership.
Definitely not. It should besaid that the majority of indus-trial units within the group werehistorically conceived as the lead-ing force behind the social andeconomic development of re-spective localities and even re-gions. Some of these industrialunits completely maintain wholecities.
Just imagine if this enterprisewere to stop – people no longerreceive income, the budget isempty – a social catastrophewould be inevitable. And thereare eight such enterprises in ourgroup now. You can imagine theresponsibility I bear on my shoul-ders. So, on the one hand I havemy own ambitions related to thegrowth of my business. But onthe other hand these ambitionscoincide with the ambitions of
the government. By making mycompany big and competitive, Imake Ukraine big and compet-itive.
Supporting the CambridgeUkrainian Studies initiative isonly natural for me. First andforemost, I am a Ukrainian. Thisis where I live and where myfamily lives. This is also whereI have invested a lot of money.So I care about Ukraine’s fu-ture. It is important for me thatUkraine keeps developing andthat our country is well knownand respected around theworld. I want the world to knowmore about Ukraine, about ourpeople, about our rich cultur-al heritage.
Group DF is a private holdingcompany of Ukrainian busi-nessman and billionaire Dmit-ry Firtash. It was establishedin 2007 in an effort to meet aninternational standard of op-eration and to present the op-portunity for Ukraine torecover its position on theglobal markets, specifically inenergy, chemicals and real es-tate.
“Globalization has reacheda very large scale and it is veryhard to look at Ukraine sepa-rately from the rest of theworld,” says Mr. Firtash, CEOof Group DF (GDF). “GroupDF plays its role in uniting thepotential of Ukrainian indus-try with the aim of restoringUkraine’s positions on themarkets to which Ukraine tra-ditionally exports, and also toexpand to new high-technol-ogy markets.”
GDF controls many com-panies across these sectorssuch as key players Centragas,EMFESZ, Zangas andOSTCHEM Holding AG.OSTCHEM Holding AG is aholding for a number of chem-ical companies in Eastern Eu-rope that deal with materialsranging from mineral fertiliz-ers, organic acids, titaniumdioxide, and soda ash. It holdsalmost half of Crimea Titan,one of Europe’s largest titani-um dioxide producers.
In the energy sector, GDFcompanies EMFESZ and Cen-tragas have played a signifi-
cant role in industry develop-ment. In 2004, RosUkrEnergowas established, where GDFowns 50% through CentragasHolding AG. RosUkrEnergodistributes gas from CentralAsian states to Ukraine andEuropean Union countries.The establishment of this venture formalized GDF’sbusiness relationship withGazprom, the Russian energycorporation, which owns the
other half of RosUkrEnergo. GDF recognizes that there
are many profitable opportu-nities through the gas inter-mediary business; however,GDF believes that the need fordiversification in Ukraine is es-sential for the success of thecompany and for the advance-ment of the country’s economy.The combined revenues for allGDF’s subsidiaries totaledsome $4.6 billion in 2006 andin the future, GDF aims to in-vest in other businesses thatprovide opportunities for con-siderable returns for the groupand for the country.
“At our group we pay a lot
of attention to developing thehuman capital in Ukraine andpreserving the environment.We implement vast ecologyand energy saving programswhich help preserve ecosys-tems and the health of people.We support scientific researchand implementation of inno-
vative solutions in production.We also promote technical sci-ence among the population ofUkraine,” says Mr. Firtash. “Allof this is an investment intoUkraine’s future. So in this re-spect our interests also coin-cide with the interests of thegovernment.”
A shared vision,an effectivedialogue
Group DF provides opportunities torestore Ukraine’s market positionsInternational holding company Group DF invests inthe future of Ukraine by implementing corporate social responsibility initiatives and expanding GDFbusinesses
Group DF CEO Dmitry Firtash aims to take on the chal-lenge of establishing stability and development in thecountry by means of building a common vision amongstUkrainian businesses, trade unions and the government
Group DF is active in energy, chemicals and real estate
DMITRY FIRTASH, CEO of Group DF
‘GROUP DF BELIEVESTHAT THE NEED FORDIVERSIFICATION INUKRAINE ISESSENTIAL FOR THESUCCESS OF THECOMPANY AND FORTHE ADVANCEMENTOF UKRAINE’SECONOMY’
Any problem can open newopportunities. In response tothe reduction in consumerlending, foreign banks inUkraine started to lower theirpace of development, whichgave us a chance to strengthenour position and prove our-selves as market leader.
We quickly changed ourstrategic philosophy in orderto grow transaction profits, andas quickly as possible, weswitched over to a new modelof “payment bank”, rather thanjust a lending or deposit bank.Our focus on processing small,but numerous, consumer pay-ments triggered the modern-ization of technologies andimplementation of innovations,including the “No Coins” sys-tem that allows traders to givesmall change in electronic for-mat. This cuts the expenditureson storage and turnover ofcoins.
We offered a whole new setof modern services for retailconsumers, such as remote ac-count access, non-contactbanking and cellular payments.
Technologies are not thoughtof entirely by IT. Technologiesare a fundamental under-standing of what the clientneeds and how we can providethis with maximum conve-nience for the client, not for thebanker. Innovations should bean area of development in-volving the entire personnel ofthe bank. The “No Coins” sys-tem started with a questionfrom one of our clients. The di-rector of a large retail networkcomplained: “Why do I have topay almost double the price oftheir nominal value, for the col-lection of small coins?”
The search for an answer ledto the introduction of an ab-solutely new technology called“Electronic Change”. Instead ofsmall coins, the client receivesan electronic voucher equal tothe amount of change or thechange is automatically trans-ferred to the account, which islinked to their cellular phone.
The banking culture inUkraine also lags far behindWestern Europe and the U.S.However, in order to really at-tract and provide services tosuch numbers of clients (as oftoday we have more than 10million unique ongoing con-tracts), it is necessary to focuson the newest technologies.And when talking about newtechnologies, I am not refer-ring to the reproduction or im-itation of well known servicesin the West; I’m referring to re-ally new, unique, innovativetechnologies never seen beforeanywhere in the world.
I can give you a very recentexample: this year we have be-come the first bank to launchthe unique service of instantmoney transfers between Visacards. Now this transaction on-ly takes roughly 3.5 seconds –and the recipient has the mon-ey.
How are Ukrainian Facebookusers different from those inRussia or USA? I think if you tryto use the services of our bankon Facebook, you will like it.Today our Internet paymenttechnologies that help operateaccounts are becoming social-ly oriented. Our online-bankPrivat 24 is accessible to anyuser through Facebook, iPhone,or any other electronic com-munication platform.
Here in Ukraine, people liketo talk, which makes cell phonesand social networks very pop-ular. Wireless Internet and cel-lular telecoms have reached thelevel where it is possible andcomfortable to use bank ser-vices on your phone or com-puter. Clients find it convenientto have the bank so nearby, andwe actively implement paymentapplications for social networks.
By the way, our payment ap-plication for Facebook was thefirst payment facility on socialnetwork sites anywhere in theworld.
According to the recent stud-ies of the banking market, to-day one of every three clientsof the Ukrainian banking sys-tem is a client of PrivatBank,and one of four considers Pri-vatBank to be their principalbank. Our share of the marketof plastic cards is about 50%.For ATMs, we account for morethan 30% and for POS-termi-nals, we account for more than60%.
At the same time, there is po-tential for our further develop-ment in Ukraine, and ourobjectives are ambitious: everycompany and every citizen inUkraine has to have the possi-bility to easily and quickly opena PrivatBank account or use thebank’s services.
There are more than 8,300miles separating our offices inChina from Great Britain, thisis one third of the length of theequator. We plan to developour infrastructure, and there isno international expansion “the
Ukrainian way” in it. Our development strategy in
other countries stipulates theprovision of services to the na-tives of Ukraine, tourists, andfinancial migrants, where theylive and work. This is like a partof Ukraine for our former andcurrent compatriots abroad.According to different esti-
mates, there are 5 to 7 millionUkrainians working outside ofUkraine.
We already have branches inItaly, Cyprus and Portugal, weare opening a branch in Ger-many, and we have a bank inRussia. At the same time, wecooperate with large westerncorporations. For example,
one large company in Portu-gal has recently opened €3million credit with PrivatBank.Today we have a clear visionof what we can offer to ourlarge number of clients abroad.
As for the secret of our suc-cess, there is no special “recipe”that we follow which guaran-tees us a successful result.From the very beginning, itwas our aim to create a highquality retail bank and we nev-er once intended to sell it dur-ing the financial boom of2004-2007.
Another distinctive featureof our group is its indepen-dence from external markets:today our lending programsare fully secured by internaldeposits, credit-deposit ratiobeing 104%, while our maincompetitors have a 230-250%or sometimes even a 350% ra-tio. They depend heavily onthe resources of the interna-tional market, first of all,through parent companies.PrivatBank is the only largeUkrainian bank with 100%Ukrainian capital and a trulyhigh level of customer confi-dence. All these factors com-bined make it possible for usto retain leadership positions.
The global financial crisis se-verely affected Ukraine’s bank-ing sector. Liquidity dried up,millions in deposits were with-drawn and inter-bank lendingfroze. Several banks declaredbankruptcy, while others wererestructured.
According to KonstantinVaysman, chairman of FirstUkrainian Internat ionalBank , the change, albeitslow, f inally came aboutwith the new government
“Recovery was slower thanin Russia, for example, as goodsigns for recovery started therein 2009, whereas here this onlyshowed in 2010,” he says. Theeconomic comeback and stabi-lization, he adds, came “from ateam sharing the same valuesand looking for a very stable andprosperous country.”
Fedir Yaroshenko, Ministerof Finance, explains that the cur-rent administration’s effectiveeconomic reforms served tosteady the financial system. “Wehad an empty budget and se-vere economic problems. Thegovernment has managed to
achieve very high results in thisvery short term,” he adds.
While several reforms arecurrently underway, the first tobe implemented was the newtax code. “Investing in Ukraineshould be very profitable, as per-sonal income tax is very low atjust 15%, which is very favor-able in comparison with otherEuropean countries,” claimsPetro Poroshenko, head of thecouncil at the National Bank ofUkraine, the republic’s centralbank. “Corporate tax is just 17%and VAT will be lowered to 17%or 18%, whilst at the same time,most European countries areincreasing taxes.”
Mr. Poroshenko points outthat despite these advantagesfor investors, Ukraine must stillimprove transparency and tack-le the high complexity of the taxsystem in order to create a morebusiness-friendly environment.
Whereas Ukraine’s banks suf-fered losses of some $4 billionin 2009, statistics show that 2010losses were closer to just $1.6 bil-lion. “We can see that confi-dence is being restored
step-by-step as people are start-ing to make deposits in thebanks again and figures indi-cate that there was 26.4% growthin deposits last year,” commentsOleksandr Sulyayev, presidentof Sparta Investment Group andmember of the Ukrainian As-sociation of Investment Busi-ness.
Established in 2005, Spartaprovides a full range of invest-ment services, including assetmanagement, wealth manage-ment and investment banking.The group, which considers it-self a kind of army fighting forits clients’ well being, weath-ered the financial crisis ratherwell and in 2010 subsidiary Spar-ta Capital was named Best Un-derwriter by The Bankermagazine. Sparta’s authorizedcapital of $8.5 million allows itto manage funds in the amountof $53.3 million.
Moreover, Sparta’s diversifiedopen-end investment fund“Sparta Balanced” was the mostprofitable mutual fund last year,with an annual yield of over 36%in 2010.
Sparta’s reliability and pro-fessionalism has attracted bothlocal and foreign clients.
“We have long-term clientsthat we trust and work with,one of them is Boryspil Airport.Last year we made two issues for Boryspil, amounting toUAH500 million ($62 million),”says Mr. Sulyayev. “We also have
a large number of foreign in-vestors we consult and we sug-gest areas where they mightwant to invest in. This is posi-tive because it brings foreignmoney into our economy. Also,we’re seeing investors that leftthe country during the crisis arenow coming back.”
Apart from “Sparta Balanced”,
the group manages four otherfunds: “Sovereign Sparta” andthe AC Real Estate Fund (twoclosed non-diversified corpo-rate investment funds), AU As-cending (a closed diversifiedcorporate venture investmentfund), and “Sparta Galaxy” (aprivate non-diversified mutualfund venture).
The new government has seen through major reforms in Ukraine’s tax code
Despite the global recession, PrivatBank was able to continue making profits in the Ukrainian banking sector. Alexander Dubilet, CEO of PrivatBank, discusses how this bankwith 100% Ukrainian capital has participated in the world financial market and proven to be the ‘laboratory’ of banking sector innovations in Europe
‘WE OFFERED AWHOLE NEW SET OFMODERN SERVICESFOR RETAILCONSUMERS, SUCHAS REMOTE ACCOUNTACCESS, NON-CONTACT BANKINGAND CELLULARPAYMENTS’
‘OUR PAYMENTAPPLICATION FORFACEBOOK WAS THEFIRST PAYMENTFACILITY ON SOCIALNETWORK SITESANYWHERE IN THEWORLD’
‘TODAY 1 OF EVERY 3CLIENTS OF THEUKRAINIAN BANKINGSYSTEM IS A CLIENT OFPRIVATBANK’ALEXANDER DUBILET, CEO of PrivatBank
A bank that capitalized on the crisis
Financial sector rebounds,investor confidence restoredWhile government reforms help boost the financial sector, surviving private firms suchas Sparta Investment Group maintain high levels of quality from the pre-crisis era
Our World Insert is produced by United World. USA TODAY did not participate in its preparation and is not responsible for its content
Distributed by USA TODAY Thursday, September 22, 2011 55
UKRAINE
One of the leading manufac-turers of construction mate-rials in Europe,Germany-based KNAUF hasconsolidated its position inUkraine and other CIS coun-tries over the past twodecades, becoming a house-hold name among builders.
KNAUF entered theUkrainian market in 1996,bringing not only its world-class gypsum-based materi-als – namely plasterboardpanels – but also a full rangeof integrated services, in-cluding technical solutions,service and education. Indeed,KNAUF has published near-ly a dozen textbooks, whichhave been ratified by theUkrainian Ministry of Edu-cation and Science for use invocational schools.
KNAUF’s business abroad
includes a greater variety ofproducts, such as gypsum andcement plasters, ready-to-useliquid products (such asprimer coats) and equipmentfor their usage. However, ac-cording to AlexanderStarchenko, Representativeof KNAUF Group CIS, thislimitation presents huge po-tential.
“Only around 10% of allthis assortment of materialsand services is implementedin Ukraine,” he says. “That’swhy I’m sure that there willbe enough work in terms ofdevelopment of the compa-ny both for us and for ourchildren.”
When KNAUF began op-erations in Ukraine it en-countered an undevelopedmarket. Mr. Starchenko saysthat 15 years ago, the gypsum
boards accounted for just200,000 square meters. By2008, the volume had in-creased to 90 million squaremeters (m2). With a popula-tion of 46 million people anda busy construction industry,Ukraine is a well of potentialfar from drying up.
As Mr. Starchenko explains,“In the U.S. the consumptionof gypsum board liner isaround 9m2 per person. In Eu-rope, this figure reaches 4-5m2
per person. In Ukraine, it’s alittle bit more than 1m2.”
He adds, “Our big advan-tage is that we didn’t come tothe market that was alreadyformed; instead, we createdit ourselves. Ukraine’s largepopulation represents po-tential for us and is the foun-dation on which we have builtour market.”
Experts in gypsumWith more than 150 production sites worldwide, KNAUF has set it sights eastwards toUkraine, one of the most dynamic markets in the region
KDD Group holds a diver-sified portfolio of real es-tate projects comprisingoffices, residential, retail,hotels, and mixed-use
Like in many other countriesaround the world, Ukraine’sreal estate market took a directhit from the global recession.Banks cut back, sometimesdrastically, on financing andseveral companies defaultedon loans, causing many pro-jects to be put on hold for anindefinite period of time.
Working in the Ukraine’sfavor, however, is a glaring un-der-supply of quality spaceacross all major real estate seg-ments, especially when com-pared to other CEE andEuropean countries. Thosemarket players who have sur-vived the last few years arewell positioned to benefit fromthe high demand, the drop incompetition, and of equal im-portance, a decrease in pricesfor key construction inputs.For example, the price of ce-ment has fallen 35%, concreteby 36% and metal, 30%.
KDD Group is one com-petitor that has weathered thecrisis and is forging ahead withnew projects. Established in1994, KDD was one of the firstcompanies to develop mod-ern commercial and residen-tial projects in Kyiv. Today, thegroup has a diverse portfoliocomprising projects fromnearly all segments of the re-al estate market.
Completed developmentsinclude Kyiv-Donbass, one ofthe country’s first modern of-fice centers, located in Lev Tol-stoy Square; Vvedenskyresidential complex in the cap-ital’s prestigious Pechersky dis-trict; Diplomat-Hall, aresidential and office proper-ty complex finished in 2005;and the Botanic Towers, com-pleted one year later, com-prising a 25-storey residentialcomplex and a 12-storey busi-ness center.
Although KDD Group has
suffered some set-backs in project fi-nancing and has hadmore difficulty of latefinding a strategicpartner for a couplenew projects, themanagement has setrealistic goals and duedates for completion.
Of the group’s ninenew projects – total-ing a planned grossarea of some 29 mil-lion square feet –three are already un-der construction, andall are scheduled forcompletion between2012 and 2015. Oneof these, Sky Towers,is set to be “the biggest,most expensive andmost beautiful build-ing in Ukraine,” ac-cording to Alexander Levin,chairman of the Board of KDDGroup. “I do not think any oth-er companies in Ukraine havethe expertise and power tobuild something like this.”
A Hong-Kong based com-pany is responsible for the en-gineering and design of SkyTowers, which will include ahotel, a 27-floor tower and an8-storey underground park-ing lot. Adding to the project’scachet is the exclusive Swis-sotel group, who signed a let-ter of intent for the hotelproject last year.
Construction of KDDGroups’ PecherSky project, aplanned premium residentialdevelopment in central Kyiv,was suspended in late 2008due to a lack of funding fromthe bank. This past February,however, KDD announcedthat works had resumed andthat the project should be fin-ished by late 2012. PecherSkyis another attractive projectdesigned as a series of joined,cascading towers with 197apartments and nearly 39,000square feet of office space.
Over the past 17 years, KDDGroup has stayed abreast ofthe competition, thanks inlarge part to its prudent man-
agement, its focus on high in-vestment grade properties inprime locations, its strong cashreserves, and its cutting-edgeconstruction technologies.
The group has proven itselfa solid player in Ukraine’s re-al estate market and offers op-portunities for collaborationwith foreign investors. “Weare very open to foreign part-nerships, especially withAmericans because we wantthem to come over,” says Mr.Levin. “There is great oppor-tunity to develop here. Youonly need good partners.”
“Our shareholders and topmanagement speak Englishand we have good contacts inthe international community.Investors have to understandthat we are a big group andwe have survived and we arehealthy enough to survive,” ex-plains Tatiana Radomyslskaya,CFO of KDD Group.
“We manage our opera-tional costs and minimizethem as much as we can. Weare a good quality partner andinvestor. We know that themargin that can be generatedby this business is enough toshare with our partners. Nowis the right time to enter themarket,” she adds.
Building new Ukrainianmasterpieces
ALEXANDER LEVIN, Chairman of the Board ofKDD Group
Ukrtelecom is one of thetop Internet providers inUkraine and leads thecommunications market,covering around 71% ofthe local telephonemarket and 83% of thelong distance andinternational telephonemarket
Telecommunications haveplayed an increasingly impor-tant role in Ukrainian eco-nomic growth and GeorgiiDzekon, chairman of Ukrtele-com, believes that it is now pos-sible to see the significantfinancial advantages that haveemerged from the sector’s de-velopment.
“In today’s day and age, peo-ple are not able to survivewithout the Internet. Theycannot survive without ac-cess to broadband connec-tion for daily tasks such asshopping, buying theater tick-ets, or for education purpos-es,” he says. “The Internet isa part of nearly everyone’s dai-ly life and it is absolutely truethat telecommunication iswhat provides people withsuch connectivity.”
Due to the high necessityof the telecommunication in-dustry, Ukrtelecom was ableto make it out of the financialcrisis unscathed, and hasstayed buoyant throughoutthe downturn without havingto sacrifice much in revenueor in clients. “Regardless ofwhether we were facing a fi-nancial crisis, people did notstop text messaging, makingphone calls, or using the In-ternet,” says Mr. Dzekon.
Earlier this year, Ukrtele-com was privatized when Aus-trian investment firm EPICbought a 92.79% stake in thecompany from the Ukrainiangovernment. Sold for $1.3 bil-lion, it is the biggest privati-zation deal made under thisadministration.
The Union of EuropeanFootball Associations (UEFA)is also in need of Ukrtelecom’s
services and the Ukrainiancompany has recently signedto become the main telecom-munications provider for theUEFA Euro 2012 soccer cham-pionship in Ukraine, provid-ing land lines, cellularconnections, Internet service,Internet high-speed channelsand more. However, it is moredifficult to evaluate exactly howmuch the company will finan-cially benefit from the event.
“I know exactly how manymillions of dollars they need,I know exactly how much UE-FA is ready to pay us, and Iknow the gap in between thetwo numbers,” says Mr.Dzekon. “All other benefits outof this business may come lat-
er on and it is very hard to as-sess how much we may earn,but I do believe it will be a hugeevent and a huge opportunity.”
Despite all of the compa-ny’s recent activities, Mr.Dzekon encourages theprospect of Ukrtelecom andother countries to form mu-tually beneficial relationshipsthrough exchanges of exper-tise in the telecoms sector.“We have very close relation-ships with the leading Amer-ican companies working intelecommunications. Thereare billions of dollars intelecommunications equip-ment coming from the privatesector. Foreign companies areable to train their staff here inUkraine. We also have veryclose relationships with BritishTelecom and with DeutscheTelecom,” says Mr. Dzekon.
“People from the UnitedStates want to be able to reachUkraine for business needsor to reach friends and fami-ly. Due to this, companiessuch as AT&T, Verizon orSprint should sign an inter-connection agreement withUkrtelecom. We have manyinterconnection agreementswith all the largest Americancompanies.”
High-quality fixed, cellularand Internet services
GEORGII DZEKON, Chairman of Ukrtelecom, which boasts more than 843,000fixed broadband and 378,000 cellular subscribers. In 2009, it serviced 10.28million telephone lines
Our World Insert is produced by United World. USA TODAY did not participate in its preparation and is not responsible for its content
Distributed by USA TODAYThursday, September 22, 201166 UKRAINE
While the government ismaking plans to raiseagricultural productivity andattract investment, privatesector players – like PetroPoroshenko – are forgingahead with successfulbusiness pursuits
With vast tracts of extremelyfertile land, it is only logical thatthe agricultural sector has longbeen Ukraine’s biggest bread-winner. Nowadays, it accountsfor 16% of the GDP and em-ploys the same percentage ofthe workforce. In fact, Ukraineremains a largely agrarian na-tion, with approximately one-third of the population still livingin rural areas.
The agricultural sector hasgone through several transitionsthrough Ukraine’s history, how-ever, and today, reforms are onceagain changing the industry’sprofile. “The agricultural sectorwas very contradictory for 130years, and that is why the pop-ulation is quite confused aboutits development,” explainsMykola Prysyazhnyuk, Ministerof Agriculture.
“Under the Tsar before therevolution, we had a system thatwas very much like feudalismand during the Soviet era, wehad collectivization. Now wehave a system that cannot bedefined. It is vital for us to studyour experience and new tech-nologies to develop a model thatis appropriate and effective forUkraine’s agricultural sector to-day.”
The minister’s goals, he says,is to increase productivity andgrain harvests. “Our index isquite low at the moment andwe need investment to do this,”he adds. “My goal is to create avery friendly investment climatefor international grain tradersso that they can work withUkrainian farmers to grow, har-vest and process grain, and sellit.”
Petro Poroshenko, Head ofthe Council of the National Bankof Ukraine (NBU) and a highlysuccessful businessman, callshis country’s agricultural sector
a highly profitable “sleeping gi-ant,” and agrees that productiv-ity must be raised, especially inorder to address food deficitsboth at home and throughoutthe world.
In addition to working withNBU since February 2007, Mr.Poroshenko has also served asSecretary of the National Secu-rity and Defense Council (2005)and Foreign Affairs Minister(2009-2010).
Predating his political career,however, is his famous incur-sion into the cacao bean busi-ness, which led to his nicknameas the ‘Chocolate King’. In the1990s, he united the variousbusinesses he’d acquired overthe years into the Roshen group,today the largest confectionerymanufacturer in Ukraine andmarket leader in the whole ofEastern Europe.
Roshen’s sales in 2010 rose astaggering 32% from the previ-ous year, to over $1 billion. Mr.Poroshenko attributes this suc-cess to investments in moderntechnology and equipment andthe company’s diversification indifferent markets both in salesand production. He also saysthat the company’s strategy to
“deliver the taste andquality of premiumproducts at an af-fordable price hashelped us achievesuccess and stayahead of our com-petitors.”
He continues: “Thethird important fac-tor is that the confec-tionary market is verycompetitive with thepresence of leadingWestern brands, suchas Kraft, Nestlé, Mars,etc. This competi-tiveness and trans-parency of the markethelps us to be easilyunderstandable, prof-itable and successful.” Indeed, Roshen has
been named Ukraine’sMost Reputable Com-pany by the GlobalReputation Pulse Pro-
ject three years in a row. And notdoes Roshen satisfy the sweettooth of millions of consumers,Roshen will soon delight chil-dren with its new tourist at-traction in Vinnitsa. “Thisinvestment includes the tallestfountain in Ukraine, a theater, alarge embankment and park,but most groundbreaking of all,there is a completely uniquechocolate museum,” says thebusiness mogul. “We used tech-nology from Disneyland, so chil-dren no longer have to travel toDisneyland in Paris, Florida orCalifornia to visit their dream-land. And this is just the firststage. Our aim is to create ‘ab-solute happiness’ for children.”
Although he is no longer di-rectly involved in Roshen’s man-agement, Mr. Poroshenko doeskeep busy as member of theboard of the UPI Group, for-merly called Ukrprominvest.UPI is one of the largest nationalcorporations with more than 30enterprises active in a wide va-riety of sectors – including con-fectionary (Roshen is one ofUPI’s most important busi-nesses), food products, agricul-ture, machinery, automotive,shipping and leisure.
Agriculture and the tastybusiness of chocolate
Ukraine is one of the world’smajor ‘breadbaskets’, harvestingand exporting enormousquantities of grain. In late May,the government dropped theexport quotas it had put intoplace in fall 2010 to ensuredomestic food security after apoor harvest.
Robert Brovdi, generaldirector of Khlib Investbud, astructural trade-exportsubdivision of State Food andGrain Corporation of Ukraine,comments on his company’sactions to modernize theagricultural sector
If speaking about the agri-cultural sector in particular,the government has a deliber-ate plan that will allow thecountry to reach its strategicgoals. The plan is to double thevolumes of gross output ofgrain and animal products dur-ing the next five years and, insuch a way, to increase exportpotential of the agrarian sec-tor of the Ukrainian economy.One of the important instru-ments for the achievement ofthis goal is the work of the StateFood and Grain Corporationof Ukraine, created in 2010.
We share the objectives de-clared by the government,which consist of increasingproductivity and doublinggross output of agriculturalproducts in Ukraine. Ourcompany is one of the first tolead by example, demon-strating new ways of short-term investment in the sector.
Today, farmers and otherproducers have many prob-lems that they are not able tosolve by themselves, whichprevent them from cultivatinggood harvests. First of all, loansin Ukraine are still expensive,
there’s a lack of modernagricultural technolo-gies and access to highquality seeds for sowing,grain-harvesting ma-chinery is outdated, andthere is an acute short-age of fertilizers andplant-protecting agents– a regular agriculturalproducer simply cannotafford the necessary ma-terials.
Meanwhile, there arealso trading companiesthat sell agriculturalproducts on the foreignmarkets. These compa-nies appear only whenthe harvest is gathered;they do not take any partin harvest cultivation,they do not bear anyrisks, and are ruled inthe relations with theagricultural producersonly by their own inter-ests and by the conjunc-ture of world grain prices.This is why the governmentwants to attract traders whopropose to invest from thevery beginning of the processof harvest cultivation, not on-ly after harvesting.
At Khlib Investbud, our cur-rent activity consists of whole-sale purchases of grain on thedomestic market, filling of thestate intervention fund, fulfill-ment of foreign economic con-tracts, as well as completion ofintergovernmental agree-ments. In this way, next year weintend to demonstrate a goodexample of complex integra-tion in the production of grain– from sowing to harvesting,storage, processing, and real-ization. This process will notbe quick, but right now KhlibInvestbud is introducing in-novations such as forward con-tracts among farmers.
At the moment we haveagreements with 750 grain el-evators which are involved inthis program. They are locat-ed in such a way that farmerscan deliver their products tothe nearest elevator. The farm-ers who sign forward contracts
are given concessional termsfor buying fertilizers, whichmeans a 20% discount for thiskind of product.
The greatest proof of its suc-cess is that we were able tocomplete its first stage in justone month. As of April 29,Khlib Investbud had signed1,168 forward contracts withagricultural producers for asupply of 860,000 tons of ce-reals at total cost of UAH1.5billion ($187.5 million).
The average lot of purchas-es was 740 tons, whichdemonstrates that predomi-nantly middle and small pro-ducers were involved. Aftersigning indicated contracts,each one received 50% fromthe value of the future har-vest, as well as fertilizers andfuel at preferential prices. Infact, the agrarians received aninterest free loan for sixmonths. I’m sure that this formof work will be popular andhighly approved of by the pro-ducers – which is why it hasa good future in Ukraine.
Collaboration translatesinto modernization
ROBERT BROVDIGeneral Director of Khlib Investbud
PETRO POROSHENKO, Head of the Council ofthe National Bank of Ukraine
As one of the largest confec-tionary manufacturers inUkraine and the Russian Fed-eration, KONTI has had hugesuccess in producing a variety ofproducts ranging from wafersand sponge cakes, to biscuitsand caramel. Founded in 1997,the group has grown tremen-dously, earning a place amongthe three major confectionarysuppliers in Ukraine, with a13.5% share of the national mar-ket. The group sells its productsin 17 countries across Europeand Asia in addition to selling onthe national market. KONTIhas produced almost 300 prod-ucts to date, all made from highquality materials that are eco-friendly and do not contain ge-netically modified organisms(GMO).
The group prides itself on thequality of its products, whichare produced with high-techmachines, manufactured byleading European producers.KONTI recently took 27th placein the international rating of con-fectionary companies. Generaldirector of KONTI, Oleg Logvi-nov, would like to credit this inpart to the most important fac-tor in the group’s dealings, whichis the practice of making quickand correct decisions. “We con-stantly invest into the sector, andas a result, 100% of what we pro-duce has changed its structure,switching to new, more tech-nological
and innovative products,” hesays. “These products differ con-siderably from those that exist-ed before. As of today, thepercentage ratio of new productsto the old ones is around 50:50.On one side, we change prod-ucts within our market andmake them more attractive. Onthe other side, the market isgrowing by means of an increasein the average price of the prod-uct, which means more choco-
late content and a more whole-some product.”
To maintain quality standardsand to make its products moreattractive to consumers, KON-TI has developed a very dis-tinctive approach by carefullyselecting and working closelywith producers of their compa-ny equipment to find better tech-nologies and practices, helpingKONTI become a company thatprovides innovation.
“As of today, the market is de-veloping both in terms of mar-keting and retail, and we shouldnot be so far ahead of the con-
sumer. We should march in stepwith him, outrunning him a lit-tle bit and constantly introduc-ing new products to the market,”says Mr. Logvinov.
KONTI openly welcomes in-vestments and mutually benefi-cial cooperation, especially withpartners interested in joining thecompany’s distribution network.“I must mention that differentcompanies develop in differentways,” explains Mr. Logvinov.“We work only with bank loans.We don’t want to be placed onthe stock exchange, nor do wewant to sell the company pieceby piece. As management andshareholders of the company, wehave high expectations for thisoutlook, taking into account ouraggressive development andquick growth.” On average,KONTI expands around 35-40%each year, and leads an active in-vestment policy which allowsfor the introduction of innova-tion technologies and active de-velopment.
The company has big plans toexpand and strengthen its posi-
tion in the market through ag-gressive investment. The com-pany’s investments in Ukrainealone have amounted to about$200 million. KONTI also builtanother factory in Kursk in 2010,in which another $100 millionwas invested. With a $150 mil-lion investment plan in place forthe Kursk factory for the nexttwo years, investments willamount to $450 million.
The group has hopes to be-come one of the 10 best com-panies in the next 10 years,producing chocolate and con-fectionary products all aroundthe world, as well as expandingto other markets. KONTI notonly creates new workplacesand develops their product;now the group’s interests alsolie in purchasing existing en-terprises in a range of markets,likening themselves to transna-tional companies like Nestle orKraft.
“On one hand, they constructabsolutely new production fa-cilities. On the other, they buyalready existing companies with
good market share,” says Mr.Logvinov. “Up to today, we havenot invested in the purchasingof other companies as our com-pany was only buying produc-tion sites. However, it isexpected that by 2014 theturnover of the company will bemore than $1 billion, and forquicker development, the pur-chasing of other enterprises willbecome necessary.”
In addition to setting its sightson enterprises outside of itsniche, KONTI also focuses itsenergy on giving back to thecommunity, already providingover 3,000 people with stablejobs. KONTI is one of the maintaxpayers in Konstantinovka,the city of the company’s firstproduction site. Here, KONTIalso contributes to social pro-jects, already having built achurch, supporting a soccerteam, as well as a school wheresoccer players are trained. “Wecan confidently state that atleast in Konstantinovka, KON-TI is the pearl of the city,” saysMr. Logvinov.
Our World Insert is produced by United World. USA TODAY did not participate in its preparation and is not responsible for its content
Distributed by USA TODAY Thursday, September 22, 2011 77
UKRAINE
‘THE MARKET ISGROWING BYMEANS OF ANINCREASE IN THEAVERAGE PRICE OFTHE PRODUCT,WHICH MEANSMORE CHOCOLATECONTENT AND AMOREWHOLESOMEPRODUCT’
‘IT IS EXPECTEDTHAT BY 2014 THETURNOVER OF THECOMPANY WILL BEMORE THAN USD 1BILLION, AND FORQUICKERDEVELOPMENT, THEPURCHASING OFOTHER ENTERPRISESWILL BECOMENECESSARY’
Priding itself on its quality and its investment into the community, KONTI hopes to become one of the best confectionary companies in the world. As well as selling chocolateand confectionary products across borders, the group has big plans to expand and strengthen its market position through aggressive investment strategies
KONTI Group CEO Oleg Logvinov was accompanied by Alexander Mikhailov, governor of Kursk region, and Yuri Papakin, general director of KONTI-RUS at the openingof the group’s logistics center in Kursk, Russia in late 2008
