Free­dom & Friend­ship

Kyiv Post - - Front Page - (AFP)

As Ukraini­ans and Amer­i­cans cel­e­brate an­other sum­mer of in­de­pen­dence, the sky over Manhattan is lit up by the an­nual Macy's fire­works on July 4 in Wee­hawken, New Jer­sey.

It was April 2018, and Andy Hun­der was in Wash­ing­ton, D. C. He dropped into a CVS phar­macy and pur­chased a few Milka Oreo choco­late bars.

Then he headed off to give a pre­sen­ta­tion at the Wash­ng­ton D. C. of­fice of law firm Baker McKenzie. There, Hun­der whipped out the choco­late bars, much to the sur­prise of his au­di­ence.

“On the back it ac­tu­ally says ‘Made in Ukraine,’” he told the Kyiv Post, re­call­ing the meet­ing.

Hun­der, pres­i­dent of the U. S. Cham­ber of Com­merce in Kyiv, had come to D.C. to pro­mote Ukraine as an in­vest­ment des­ti­na­tion. The Milka story il­lus­trates the kind of com­mer­cial con­nec­tions he is work­ing for.

The choco­late bars came from a fac­tory in the city of Tros­tianets in Ukraine’s eastern Sumy Oblast, where Mon­delez In­ter­na­tional pro­duces Oreo cook­ies. From there, they crossed the At­lantic Ocean, went through U.S. cus­toms, and found their way to a dis­play near a CVS check­out aisle in the U.S. cap­i­tal.

To any­one fa­mil­iar with U.S.-Ukrainian bi­lat­eral trade, the Milka story is clearly the ex­cep­tion rather than the rule. But many be­lieve that it doesn't have to be. As Ukraine grows more sta­ble, Amer­i­can busi­nesses in­creas­ingly see op­por­tu­ni­ties in the coun­try. And some Ukrainian firms are even eye­ing the far-off and chal­leng­ing U.S. mar­ket.

Full speed ahead

In 2017, to­tal bi­lat­eral trade be­tween the U.S. and Ukraine reached roughly $3.35 bil­lion, ac­cord­ing to Ukraine’s state sta­tis­ti­cal agency. Ukraine has a sig­nif­i­cant trade deficit with the U.S., with im­ports at $2.25 bil­lion.

But over the last sev­eral years, trade be­tween the two coun­tries has grown and, while it may not be a record high as it was in 2008 at $4.8 bil­lion, the gen­eral pic­ture is pos­i­tive, an­a­lysts say.

Af­ter the EuroMaidan Rev­o­lu­tion that drove Pres­i­dent Vik­tor Yanukovych from of­fice and Rus­sia’s in­va­sion in 2014, Ukraine’s gross do­mes­tic prod­uct, GDP, nose­dived to $91 bil­lion from $183 bil­lion, a deep re­ces­sion ac­com­pa­nied by a sharp two-thirds drop in the value of the cur­rency.

Now the sit­u­a­tion has sta­bi­lized, both po­lit­i­cally and eco­nom­i­cally. Re­forms in the coun­try may still leave much to be de­sired, but the gov­ern­ment has taken sev­eral im­por­tant steps to ease the way for in­ter­na­tional busi­ness.

In April 2017, af­ter years of ex­port- ers strug­gling to get their value added tax, or VAT, back, the gov­ern­ment launched a new trans­par­ent on­line sys­tem reg­u­lat­ing VAT re­turns.

In De­cem­ber 2017, a law passed lim­it­ing the po­lice’s abil­ity to search com­pa­nies’ of­fices. And on July 4, Pres­i­dent Petro Poroshenko signed a new cur­rency law de­signed to

make Ukraine more at­trac­tive for in­vestors and sim­plify pro­ce­dures for Ukrainian com­pa­nies abroad.

These changes and the broader sta­bi­liza­tion have had a no­tice­able ef­fect on the in­vest­ment cli­mate.

“We’re pick­ing up on the mood of U.S. busi­ness,” says Mor­gan Wil­liams, di­rec­tor of the U.S.-Ukraine Busi­ness Coun­cil, a non-profit trade or­ga­ni­za­tion based in Wash­ing­ton D. C. that pro­motes bi­lat­eral trade ties. “Whether ex­pand­ing or get­ting in­volved in Ukraine for the first time, the mood is more pos­i­tive.”

Wil­liams says his slo­gan is “full speed ahead.” He is try­ing to con­vince U.S. com­pa­nies that the time to in­vest in Ukraine is now. In the past, com­pa­nies have de­murred, wait­ing for a more op­por­tune mo­ment. But this can mean an end­less de­lay, Wil­liams says.

“We’re telling [U.S. com­pa­nies], ‘Don’t wait un­til all the prob­lems are solved, be­cause they’re never go­ing to [all] be solved,’” he says. "But we still think Ukraine is a very suc­cess­ful mar­ket.”

While new in­vestors may take some coax­ing, those who are al­ready here have a more pos­i­tive out­look. Ac­cord­ing to a sur­vey by the Amer­i­can Cham­ber of Com­merce, 67 per­cent of its mem­bers saw their busi­nesses grow in 2017. And 82 per­cent plan to ex­pand in 2018.

From agri­cul­ture to IT?

One thing hasn’t changed sig­nif­i­cantly in Ukraine: the main­stay in­vest­ment in­dus­tries. Agri­cul­ture and in­fra­struc­ture pro­vide top op­por­tu­ni­ties for Amer­i­can com­pa­nies.

This sum­mer, Cargill, to­gether with MC Cargo, is set to launch a grain ter­mi­nal at Port Yuzhny in Ukraine’s Odesa Oblast. For­mer U. S. com­pany Mon­santo (bought by Ger­man Bayer for $63 bil­lion on June 7) plans to open a new fac­tory to pro­duce corn seeds in Zhy­to­myr Oblast. DuPont Pi­o­neer pro­duces sun­flower and corn seeds in the Poltava re­gion.

And West­ing­house Elec­tric now pro­vides fuel for seven out of Ukraine’s 15 nu­clear re­ac­tors, al­low­ing Ukraine to re­place Rus­sian fuel with a less po­lit­i­cally sen­si­tive al­ter­na­tive. Holtec is in­vest­ing in spent nu­clear fuel stor­age, a project that can save Ukraine $2-$2.5 bil­lion over 10 years.

Com­pa­nies al­ready present in Ukraine are also ex­pand­ing. Later this year McDon­ald’s will open a new branch in Ternopil, a first for the city.

And lit­tle is static in Ukraine: new in­dus­tries are al­ways emerg­ing. The al­ter­na­tive en­ergy com­pany EuroCape has re­ceived $400 mil­lion in fi­nanc­ing and po­lit­i­cal risk in­sur­ance from the U. S. Over­seas Pri­vate In­vest­ment Cor­po­ra­tion to de­velop Za­por­izhia Wind Park - a project pro­jected to power 780,000 homes, ac­cord­ing to Eurocape.

Ukraine’s IT sec­tor also plays an im­por­tant and grow­ing role in bi­lat­eral trade with the U. S. The in­dus­try is heav­ily re­liant on out­sourc­ing projects, in which Ukrainian firms carry out con­tracts for West­ern com­pa­nies.

The U. S. is one of the top three sources of these con­tracts, ac­cord­ing to Sofia Be­lenkova, who heads the Kharkiv IT Clus­ter. “For 70 per­cent of the com­pa­nies, [the U.S.] makes up more than 80 per­cent of the mar­ket tar­get­ing,” she says.

But while out­sourc­ing is a “good mon­ey­maker,” there is much more to Ukrainian IT, says Jaroslawa John­son, CEO of the West­ern NIS En­ter­prise Fund, which in­vests in small and medium busi­ness in Ukraine and Moldova.

The fund is par­tic­u­larly in­ter­ested in “Ukrainian com­pa­nies that are de­vel­op­ing apps so that Ukraine can be a startup na­tion,” she says.

Ukrainian goods, Amer­i­can mar­ket

IT is per­haps the in­dus­try with the eas­i­est ac­cess to the Amer­i­can mar­ket. In an in­creas­ingly glob­al­ized world con­nected by the in­ter­net, Ukrainian firms can work with U.S. part­ners from a dis­tance, some­times with­out even a face-to-face meet­ing.

“Our Ukrainian pro­gram­mers are no worse, and of­ten bet­ter than their com­peti­tors,” says Denys Kras­nikov, vice pres­i­dent of the Ukrainian League of In­dus­tri­al­ists and En­trepreneurs busi­ness union. “But they are ready to work more and more ac­tively. As a re­sult, their pro­gram­ming prod­ucts of­ten win on price.”

But other ex­ports also have a shot. Ukrainian sun­flower oil, con­densed milk, honey, ketchup, and may­on­naise all have a cer­tain foothold in the U. S. Tra­di­tion­ally, they have been sold at eth­nic mar­kets ca­ter­ing to im­mi­grants from the for­mer Soviet Union.

But some are mov­ing into more main­stream su­per­mar­ket chains. There are also op­por­tu­ni­ties to pro­duce for these chains’ generic brands — called "pri­vate la­bels" — which are of­ten less ex­pen­sive than name brands and do not re­quire heavy in­vest­ments in mar­ket­ing, says Kras­nikov.

Ukrainian firms can also suc­ceed with what he terms “niche goods.” But this de­pends upon iden­ti­fy­ing prod­ucts where there is a sig­nif­i­cant price dif­fer­ence be­tween the U.S. and Ukraine and cer­ti­fi­ca­tion re­quire­ments are not overly oner­ous. Kras­nikov lists cer­tain chem­i­cal reagents, cos­metic creams, and tech­ni­cal de­vices as pos­si­ble ex­am­ples.

“Few know this, but many bot­tles of Bac­ardi around the world use alu­minum caps cre­ated in [Ukraine’s] Sumy Oblast,” Kras­nikov told the Kyiv Post. “They con­quered not only the U.S. mar­ket, but the world mar­ket.”

Chal­lenges

For all the prospects of U.S.-Ukrainian bi­lat­eral trade and in­vest­ment, there are also a num­ber of sig­nif­i­cant chal­lenges.

Ukrainian ex­porters face an up­hill bat­tle. Goods sold in Amer­ica re­quire ex­ten­sive cer­ti­fi­ca­tions and nor­ma­tive doc­u­ments, and the mar­ket is ex­tremely de­vel­oped and mo­bi­lized. Es­tab­lished com­pa­nies have done ev­ery­thing in their power to block new com­peti­tors, Kras­nikov says. More­over, with the hryv­nia still weak af­ter the 2014 eco­nomic crash, it is of­ten fi­nan­cially im­pos­si­ble for Ukrainian com­pa­nies to mar­ket their goods in the U.S.

Amer­i­can firms also have their own con­cerns about en­ter­ing Ukraine. In­tel­lec­tual prop­erty rights are still weakly en­forced, and many in­vestors worry about con­tin­ued cor­rup­tion.

Pow­er­ful state-owned com­pa­nies still strongly op­pose the en­try of com­peti­tors in the mar­ket and cre­ate ob­sta­cles for them, Wil­liams says. They make the busi­ness en­vi­ron­ment in the en­ergy and in­fra­struc­ture sec­tors par­tic­u­larly neg­a­tive.

For ex­am­ple, sev­eral mid-sized U.S. com­pa­nies are in­ter­ested in the hy­dro­car­bon in­dus­try in Ukraine. Most are quite suc­cess­ful, but not house­hold names, Wil­liams said.

They are “ready to come in and work in oil and gas pro­duc­tion,” he says. “But not in the hos­tile en­vi­ron­ment that now ex­ists.”

(AFP)

The Wall Street Bull sculp­ture is seen in the Fi­nan­cial Dis­trict on Dec. 8, 2016 in New York. Ukraine has a long way to go to have a stronger pres­ence in the U.S. mar­ket, with bi­lat­eral trade at $3.35 bil­lion in 2017, mainly U.S. ex­ports to Ukraine.

(Volodymyr Petrov)

Andy Hun­der, pres­i­dent of the Amer­i­can Cham­ber of Com­merce in Ukraine, speaks with the Kyiv Post in his of­fice in Kyiv on July 3.

Source: State Fis­cal Ser­vices of Ukraine

Mor­gan Wil­liams, pres­i­dent of the U.S.-Ukraine Busi­ness Coun­cil

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