Ukraine business and investment

Telecommunications--VOIP--Investment--Ukraine--Amitelo AG

2006-05-16T12:26:00.000+03:00

The Swiss telecommunications group Amitelo AG intends to expand its presence in Eastern Europe and enter the Ukrainian and Latvian communications markets.

"Latvia and Ukraine will link up to the joint network first," Amitelo said in a release distributed in relation to the purchase of the British telephone company Panacall Ltd. by Amitelo's German subsidiary Amitelo Deutschland GmbH.

Amitelo made this purchase to expand its services, in particular IP- telephones, and strengthen its position on the markets of the Middle East and Asia, the release says...

There's more in the release. I don't know much about this market but if it can break the monopoly in Ukraine on calling prices, that's a good thing. Prices here for calling to the US vary from $.49 to $2 per minute. Skype of course if for free unless that is you have to pay so much per megabyte, which we do. But it is still cheaper.

Energy conservation--Ukraine--$100 million budgeted for 2006

2006-05-09T15:10:00.000+03:00

Ukraine has budgeted $100 million for energy conservation measures this year. Two projects are highlighted in the article.

Maxim Burtovy, director of an energy savings company called Energy Alliance, is trying to put together a project to capture more waste heat from an electricity-generating station and pump it into the city's heating system. He estimates that doing so could cut gas consumption by 500 million cubic meters a year, worth about $47.5 million at the price Ukraine currently pays for gas from Gazprom, and twice that on world gas markets.

If all former Soviet-bloc nations used such heat-and-power "cogeneration" to the extent that Western Europe does, says the International Energy Agency, 80 billion cubic meters of gas a year could be saved. That would be equal to the entire annual gas usage of Germany, the world's third-largest economy.

Soviet authorities actually had the same plan for this city -- in 1986. The coal-fired power plant bought two turbines, and authorities designed a new Dnieper River bridge with built-in pipes that would carry hot water from the power plant to the city center. But before it could be built, the Soviet Union fell. Then there was no money for the pipes, and the bridge was built without them. So now, while one turbine does pump hot water from the power plant to 250,000 people on the plant side of the river, the other turbine sits in storage.

Mr. Burtovy wants to raise money to install the second turbine, a boiler and hot-water pipes along the bridge, at a cost of $20 million to $50 million, depending on the scope of the project. Up to 500,000 more people then would get their heat from the electricity plant, allowing some gas-fired boilers to be switched off. Energy Alliance would be paid with part of the energy savings. The firm is looking for more such projects in Ukraine.

The power plant's managers are enthusiastic, as are local authorities. An energy-conservation plan they drew up endorses tapping the power station for more heat as one of its major projects. "Since the gas crisis, they got serious," says the plant's director, Andrei Krepak.

Across the river, a Swedish engineering company, Alfa Laval AB, is working on another part of the city heating system. The firm is close to finishing installation of about 250 heating substations to regulate the temperature and flow of hot water moving to apartment blocks. Doing so could cut the city's gas consumption for heating by 10% to 15%, according to Alfa Laval's Ukraine director, Gennadiy Rudenko. There were plans for energy efficiency before, he says, "but the time for investment recovery was so long they didn't make sense. That's changing."

These are the kinds of projects that are possible. But there are many others that are needed here. That means a lot of opportunities for firms specializing in conservation.

Agriculture--Beef--Genetics--Quality Control--McDonald's supplier expanding cattle operation

2006-05-05T07:12:00.000+03:00

This is interesting. The company that supplies beef to McDonald's is expanding its cattle ranch operations here some place close to Kiev.

I must say that the beef available here in most stores is better now than it was when I first got here. But that is not to say that it can't be improved. It still can and by a lot. That may have to do with other types of operations that might need to be created more from the round up like feedlots and the like. But one of the big problems in the past has been that the beef has come from played-out dairy cattle. That must be changing now to some extent because the quality has become better. But better is a relative thing.

The other problem has been genetics. That has been true particularly in the dairy industry and I can't see that other industries would not have the same problem. (It has been true of agriculture generally. A lot of the plant and grain varieties have not been the best genetic stock. That is changing slowly.) Better genetics would be a good thing.

This is a way for them to further control quality too which is a must here. We buy cheese at our place because we like it. But we can buy the same cheese from the same factory and it will taste like anything from mozzarella to Swiss to cheddar. Not good quality control. And that is true for other products also. Quality management doesn't seem to be a high priority right now.

Ukraine has been a producer oriented market. That is changing to some extent but it is slow. Ukrainians have traditionally taken what they were given and not done much about it. Some are demanding better quality and are voting with their money but more need to. And if they had the quality in the first place, maybe they would understand just what they were missing.

Some companies do have a high quality but they are in the minority right now. That will change as consumers get more sophisticated and more and more sectors open up to competition from foreign companies.

Opportunity--Agricultural machinery

2006-05-02T09:13:00.000+03:00

This is from the US Government:

Overview
According to various resources, an immediate demand to replenish the physically depreciated farm and processing equipment in Ukraine is estimated at $5-10 billion, with an annual supply of $1-2 billion worth of farm equipment.

Experts estimate the current level of physical depreciation of agricultural machinery and equipment at 70-80 percent, compared to 55-60 percent in 1999. Approximately 40 percent of tractors are 15-25 years old. The need to replace basic farm machinery is becoming critical.

Best Prospects/Services
There are about 40 manufacturers of agricultural machinery in Ukraine, which still supply a significant part of UkraineÂs agricultural machinery, in particular, ploughs, harrows, cultivators, seeders and sprayers. Production facilities at most agricultural machinery plants are currently being utilized at levels ranging from 15 to 30 percent. The price of domestically produced agricultural machinery is not cheap, because of inefficient and outdated manufacturing technologies. All this makes local machinery less attractive for agricultural companies.

Western European firms actively operate in the Ukrainian market. They understand that despite the obstacles to doing business in Ukraine, the potential for hard currency agribusiness exports is great.

U.S. agricultural machinery has a good reputation in Ukraine. The list of U.S. manufacturers includes AGCO Corporation, Massey Ferguson, John Deere, Caterpillar, and Case/New Holland. They offer a full range of equipment and parts, including spare parts, for cultivating, growing, harvesting and transporting, as well as equipment for livestock production. While U.S. machinery is well represented in Ukraine, there are still good opportunities for U.S. companies to enter the Ukrainian agricultural machinery market. Existing critical demand for reconditioned (used) machinery is worth mentioning as well.

Opportunities
The supply of second-hand machinery from Europe has gradually decreased, and with the dollar exchange devaluation, this opens more opportunities for American exporters of used agricultural machinery. There is currently a critical demand for dependable farm machinery due to the lack of reliable domestic manufactures. High-quality U.S. equipment can have a positive impact on Ukrainian agricultural productivity. Ukraine also offers excellent opportunities for US companies to expand to other regional markets such as Russia, other CIS countries, and new European Union (EU) member countries in Central and Eastern Europe. Doing Business In Ukraine: A Country Commercial Guide for U.S. Companies, US Foreign Commercial Service and US Department of State.

I will just add that I have seen the deterioration firsthand. It's a joke that farmers in the US use bailing wire to keep things going, but here it really isn't a joke. A lot of the machinery is very old and what often happens is that one tractor or harvester is cannibalized for parts for the others to keep them running.

The other point is that the companiess here that manufacture agricultural machinery cannot keep up with demand. They put out just so many a year and that's it. So it can be tough to get what you need in the market here anyway. And the quality is suspect. Most would prefer foregn brands, though there is a concern that they might not be able to get them fixed if there is a problem. But that's a service problem that could be solved easily.

Retail--Strong retail market

2006-05-02T08:57:00.000+03:00

From a report by AT Kearny:

Few countries have shot up the Global Retail Development Index (GRDI) rankings as quickly as rising star Ukraine. Jumping from number 11 last year to third place this year, the country offers a booming retail market, stable economy, proximity to the European Union and scant competition. Although Ukraine still poses its share of challenges, it won’t be long before international retailers begin to move more aggressively into this promising space.

Too true, too true. There is cash around and not all that many goods for it to chase, relatively speaking. That makes Ukraine a real attractive place for retailers.

So what's stopping you?

Diamonds--Ukraine

2006-04-20T10:06:00.000+03:00

I didn't know there was diamond potential in Ukraine. But apparently there is. Learn something new every day, no?

Retail--Profits--Kraft Foods--Ukraine

2006-04-20T09:59:00.000+03:00

Profits are up for Kraft Foods partially on the strength of sales in Ukraine (and some other countries.) That is good news. There is a lot of growth potential here.

Oil--Natural Gas--Exploration--Black Sea--Ukraine

2006-04-20T09:52:00.000+03:00

This from Bloomberg News

Vanco Energy, an American-based oil-exploration company, won a bid for licences to pump oil and natural gas in Ukraine's part of the Black Sea, seeing off competition from Exxon Mobil and Royal Dutch Shell, the Ukrainian government said.

Looks like they might be on their way to opening up the basin to investment. This is encouraging news. And welcome news because Ukraine has been and still is so dependent on Russian energy. That did not serve them well this past January when the gas was turned off. The threat of cold winters can focus the attention of even bureacrats, looks like.

There is some mystery about this company noted here.

Ski industry--Ukraine--Investments

2006-03-07T09:30:00.000+02:00

What does a young man fresh out of college in the poverty-stricken Carpathian Mountains of western Ukraine do with his life?

Selling mushrooms by the roadside, a common career path here, was not quite what Yuri Dobrovolsky had in mind. It would be better, he thought, to start a ski area.

So, too, did a number of well-heeled investors. With master plans from Canada, high-speed lifts from Austria and $125 million in start-up capital, Mr. Dobrovolsky's Bukovel resort is the most significant investment in the region.

No great claim for this distant land of weathered wood houses and horse-drawn carriages in this Ivano-Frankovsk oblast, or administrative region. But if investment plans for the next few years are met, Bukovel will be one of the largest ski resorts in the world, with more guest accommodations than megaresorts like Whistler, in British Columbia, or even Vail.

Plans call for a total of $1 billion to be invested by 2010, when the resort will have 26 lifts and 75 miles of trails, said Mr. Dobrovolsky, now 31. The airport in nearby Ivano-Frankovsk is slated for expansion to handle international visitors.

Bukovel, while hundreds of miles from a major international city, lies at the heart of a vast area of rapidly developing economies and a growing middle class that thirsts for amenities. In fact, skiing is a good indicator of a developing middle class, said Don Murray, vice president of Ecosign, one of the world's largest mountain resort designers and creator of Bukovel's master plan.

My wife and I wanted to purchase some property in this very spot in West Ukraine. We had visited the town and had seen the beauty of the area and wanted something there for us to use and as an investment. The pity of it is that we didn't do it. Now the prices are no doubt sky high.

In any event, there is a lot of room for more investment in the area for lodging, places to eat, and other businesses that feed off the ski industry. The whole area is largely undeveloped so there is opportunity all around.

Beautiful area.

Natural Gas--Exploration--Ukraine-- Fifteen Companies to Bid on Prikerchensky Block in the Black Sea

2006-03-03T10:52:00.000+02:00

RIGZONE - Fifteen Companies to Bid on Prikerchensky Block in the Black Sea

As many as 15 companies will bid for the right to sign a production-sharing agreement (PSA) covering the Prikerchensky oil and gas section on the Black Sea shelf, Ukrainian Prime Minister Yury Yekhanurov told a March 1 Cabinet meeting.

The companies include Tupras, Hunt Overseas Oil Company, ExxonMobil, Shell, Chevron and Petrobras, Yekhanurov said. Ukraine could increase gas production to 30 billion cubic meters (bcm) annually if the project comes off, he said.

Might present some opportunities for suppliers.

Natural Gas--Ukraine to Boost Gas Output by 50% to Cut Dependency

2006-02-27T08:13:00.000+02:00

Ukraine to Boost Gas Output by 50% to Cut Dependency

Ukraine, facing price increases from natural gas suppliers Russia and Turkmenistan, will seek to raise its extraction of the fuel 50 percent this year to reduce its dependence on Russia, Prime Minister Yuriy Yekhanurov said.

"We can extract at least 30 billion cubic meters of gas per year,'' Yekhanurov said Saturday in the central city of Poltava in remarks broadcast by Ukraine's Channel 5 television...

Ukraine wants to invest in gas and oil extraction in Libya, Egypt and the Black Sea together with international oil companies.
Ukraine will spend $100 million exploring for gas and oil this year, according to the government's budget.

Telecommunications--Ukraine--Ukrainian mobile phone saturation

2006-02-21T11:13:00.000+02:00

Apparently mobile telephone use in Ukraine has hit 66%:

The number of mobile subscribers (valid SIM-cards) in Ukraine reached 31 million as of 31 January, up from 30.4 million in December 2005, according to figures from Advanced Communications & Media. Mobile penetration went up to 66 percent from 63.8 percent on 31 December 2005. Kyivstar has a market share of 45.5 percent, followed by UMC which has a 44.4 percent share of the market. Astelit has a 8.7 percent share of the market and Wellcom has a 0.8 percent market share.

Telecommunications--Fiber Optic network

2006-02-16T09:26:00.000+02:00

DataGroup to Deliver DWDM Network in Ukraine With Cisco.

Cisco Systems® (NASDAQ:CSCO - News) today announced that Ukrainian telecommunications company, DataGroup, is introducing a new portfolio of high-capacity services based on the Cisco® ONS 15454 Multiservice Transport Platform (MSTP). The new 6500 km countrywide fibre-optic network will provide the dense wavelength-division multiplexing (DWDM) backbone for delivering Ethernet-based services in all regional centers of Ukraine. In addition, it will help enable DataGroup to take advantage of the reconfigurable optical add/drop multiplexer (ROADM) capabilities of the Cisco solution to speed service delivery to clients.

The Ukrainian company aims to deliver a new portfolio of services ranging from high-speed Ethernet connectivity and carrier interconnect services for the Ukrainian and Pan-European market, to managed storage area network (SAN) extension services. The new infrastructure deployment will form a key part of DataGroup's overall IP Next-Generation Network (IP NGN) architecture supporting service delivery.

Ukraine-Agriculture-Soybean production

2006-02-16T09:21:00.000+02:00

Ukraine: soybeans exports increased 11 times from last year. The total crop increased from 363,000 tons in 2004 to 611,500 in 2005.

This is significant because Ukraine has been an importer of soy protein. Looks like that might not remain the case.

Banks and Banking--Bank Acquisitions Ukraine

2006-02-14T09:42:00.000+02:00

Emerging Markets Economic Briefings notes:

The news of another large Ukrainian bank about to be acquired by one of the leading European financial institutions seems to confirm the trend that foreign bankers are willing to bet on Ukraine, and to do so in spite of political instability ahead of the March parliamentary elections.

I was talking to an analyst the other day who is working with a couple of banks about the banking sector here. He said that there are acquisitions taking place but he thinks they typically overpay. A lot of that is not knowing the financial history here. For example, one of the problems he finds also in the banking sector here is that a lot of banks have what essentially non-arms length loans that is loans that have been made to related third parties is how he put it. This has happened because most bansk started as a repository for a large company's cash. In other words, most banks were wholly owned by large companies here and there was no separate identity. A foreign bank looking for an acquisition here needs to be careful of that.

This said, there is a lot of room to grow here and there is a need for competition. A typical mortgage here is around 18% and there is a kind of inflation formula factored in. And a lot of services that banks offer in the West do not exist here. Checking accounts are unheard of, for example. If a person needs to pay on a mortgage, for instance, he either has to have an account in that bank or take cash to that bank to pay for it. Nothing else is available for use.

Mobile telecommunications--Cell phones

2006-02-04T09:36:00.000+02:00

More from the US Department of Commerce on mobile telecommunications:

Mobile Communications
Five Ukrainian operators - UMC, Kyivstar GSM, Golden Telecom GSM, DCC, and Wellcom - offer wireless mobile services in Ukraine in the following standards:
GSM900/1800 (UMC, Kyivstar GSM, Wellcom, Golden Telecom GSM), and D-MPS
(DCC). Late in 2003 the mass media announced that a major Turkish investor will form a joint venture with DCC to deploy a third nationwide GSM network. In the second half of 2004, JV Astelit started deploying the network. Wellcom was also actively expanding its existing network to cover new territories and regions.
In 2004 wireless mobile communications (MC) for the first time became the biggest subsector of the telecom industry in Ukraine. From January - October 2004 MC revenues amounted to UAH 7.58 billion or $1.43 billion, which is almost 100 percent
more than for all of 2003 (UAH 3.83 billion or $736 million). These revenues represent 43.59 percent of total telecom industry revenues. This successful financial performance for the first time ranks MC as the first communications sub sector in terms of revenue ahead of the longdistance and international wire line communications that historically led other industry sub sectors. The number of MC customers also doubled reaching 12 million (compared to 8-10 million customers of wire line telecom services). The market penetration for MC is 25.5 percent.

Thee mobile phone industry has been characterized by a lack of competition much like a lot of other sectors in Ukraine. This has been the case because the mobile phone companies havee been owned by person's close to the prior regime of Kuchma. They were and are "oligarchs," a term used here to describe them, the original meaning of which comes close to describing what they are. They have/had political clout as major owners of businesses. For this reason, they have been able to limit any competition. That is one reason why cellphone rates remain so high--no competition.

But, much like everything else in Ukraine, this is slowly changing. One of the major political figures sees fighting the oligarchs as the main problem in Ukraine. This is a typical solution here. The problem though is that it most often means state power meddling in economic affairs. What is really needed is transparency, openness and rule of law. If they concentrated on these, and they are slowly moving that way, the oligarchs would cease to be a problem.

Even so, there are still investment opportunities in mobile telecommunications in Ukraine. And equipment to support mobile telecommunications is an area of opportunity.

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Telecommunications--An Overview

2006-02-04T09:18:00.000+02:00

The following is from the US Department on telecommunications in Ukraine

Telecommunications and IT are important infrastructure sectors for Ukraine. The revival of the Ukrainian economy after 2000, as well as foreign and domestic investments in telecommunications made over the last 10 years, has brought marked changes in the Ukrainian telecom industry, particularly in mobile wireless and Internet. Obsolete analog networks are circumvented by a growing number of wireless mobile and fixed "overlay" networks. During January – October 2004, telecom industry revenues reached UAH 17.41 billion or $3.28 billion (compared to $2.54 for all of 2003). The average level of teledensity reached 24 percent. Revenues from long distance and international calls account for 28 percent of total services provided by the industry. Two leading wire-line operators Utel and Ukrtelecom process 95 percent of long distance and international calls. The local loop accounts for 13 percent of industry services. Private wire line telecom providers are slowly overcoming Ukrtelecom’s monopoly, although their market share is still too small to trigger major changes that would reshape the market.
A lack of transparency and slow decision making in licensing and frequency allocation, continuing delays with privatization of Ukrtelecom, ongoing disputes between telecom authorities and private telecom operators seriously hurt the
development of the whole telecom industry which is far behind the rest of the national economy in its movement toward liberalization, transparency and openness for foreign investments. INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2004. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

The last paragraph is splash of cold water that can sober up investors wanting to deal here. But this was written last year and there continues to be headway made against these problems. It is interesting to note that Russian investors see Ukraine as a real land of opportunity in telecom (and all other areas for that matter.) They deal in a country that has had and continues to have in a number of ways the same sorts of problems as Ukraine. So they may have the stomach for more risk and are able more to operate in this kind of environment. But they are still investors and still businesses looking to maximize profit and to minimize risk. What is it they know that you don't know? Details at 11.

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Investment--Telecommunications--More Ukrtelecom

2006-02-04T09:10:00.000+02:00

I don't have the link right now but after I made the last post, I read that Ukrtelecom will have a valuation of around $7 billion. It would be interesting to know who is doing the valuation and what it is based on. Are they valuing the assets of Ukrtelecom? The future profitability of the company? The problem again is what I posted the last time: competition is moving rapidly; Ukrtelecom is moving slowly.

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Telecom--Investment--Ukrtelecom

2006-02-03T12:28:00.000+02:00

The government is taking steps to make the local telecommunications monopoly more attractive to investors. UNIAN-News from Ukraine

Ukrtelecom is the state owned telecommunications monopoly that was due to be sold this year. The sale was delayed for some reason probably political. (There was some talk about keeping some strategic assets in government hands--that could have been it.) It is a company like any other state company, bloated, inefficient and with customer service not much different than you would get from the local office of bureaucrats. (Actually, these are bureaucrats. Duh.)

And they are faced with some pretty good competition these days. It takes from 6 months to a year last time I checked to get a telephone installed by Ukrtelecom and you have to go to their offices to order it up. But a local company called Golden Telecom will come to your house, sign you up, and after you pay their deposit, about $50, you get your phone in about 2 weeks. And there are other companies out there that offer phone service too.

And the mobile phone is pretty much standard for everyone now, in the city that is. Everyone has one and, though it is pretty pricey per call, about $.25 per minute, is used by people pretty extensively.

The point is that Ukrtelecom value may be dropping as we sit here because competition may be passing it by. Delaying the sale means value drip, drip, dripping away.

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Gas--Acquisition--Canadian company acquires Ukrainian gas exploration company

2006-02-02T09:49:00.000+02:00

A Canadian company, Transeuro, acquired a Ukrainian company, Pivdenspetsbud to get access to the rights to exploit a gas field in Western Crimea--Transeuro Announces Acquisition in Ukraine. (Here's a map of the Crimea.)

The rights were acquired by the Pivdenspetsbud through Joint Activity Agreements with a third party company, Crymgeologia. Crymgeologia is the company that holds the license to exploit the gas field.

I don't know for sure, but Crymgeologia sounds like a government or quasi-government entity that you often are left dealing with here.

The gas bearing zone is around 4000 meters. That is more than 12000 feet down. No company here has the technology to drill down that far absent some involvement from Western companies. So they are keen to get outside help and investment. $650,000 seems to be a small price to pay to get in on it. There will be some headaches for them of the regulatory variety but, notwithstanding those, the price looks like a bargain.

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Energy Investment-Oil and Natural Gas--Business Profile

2006-02-01T10:12:00.000+02:00

Here's a company working in the oil and gas sector in Ukraine profiled in the article Resource Investor - Energy - An Opportunity in Ukrainian Oil & Gas?

The article mostly reads like a press release and it is a bit of a tough slog through it. It touts the contacts the company has, an important thing here. And then some interesting information:

A mix of workovers and new drilling is characteristic of Cardinal's development plans for its various assets across Ukraine. Many of the country's existing oil & gas wells are poorly completed and can often benefit from workovers either to restore production where total failures have occurred, or to raise output levels where these sit below their potential.

Cardinal uses mostly Ukrainian equipment hybridised with certain Western components, which keeps costs lower than would otherwise be the case and should improve effectiveness, as local equipment tends to be outdated and ill constructed. However, given the absence of Western oil & gas service companies in Ukraine, use of adapted local equipment is a convenient option for Cardinal.

Apparently, some wells have played out for reasons that aren't stated but are being re-worked by Cardinal. That must mean making them productive with new methods or with their hybridized equipment. That equipment is a hybrid of Ukrainian equipment augmented by the addition of Western components. They argue it saves money and I bet it does.

Equipment used here is mostly old. Not much has gone into investing in new equipment. And there isn't much of an industry to produce new equipment and the equipment that is produced tends to not be up to Western standards though it is serviceable in a general way. And there are no companies manufacturing pumping equipment capable of producing at levels below 6000 feet. That must be the reason for the Western components.

So we have a company having success re-working old wells using hybrid equipment which saves them money. Sounds good to me.

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Business--Investment--Why should I invest (do business) in Ukraine?

2006-01-31T13:26:00.000+02:00

Why should I invest in Ukraine?

The biggest reason is that Ukraine presents investors with a lot of growth potential. In a number of countries, growth has stagnated, competition is up and margins are low. But things are different in Ukraine. Wages are increasing which means more buying power and, even though new and diverse products have just begun to appear in the market, competition is low in many sectors. This means maximal gains with minimal relative investment and makes all industries in Ukraine growth industries.

Ukraine is a country of 48 million, on a par with France, and the largest country of any in Europe (excepting Russia.) The people are highly educated and work long hours and extended days-- sometimes six days per week. Though growth has slowed this year from a high of about 13% (the highest of any country) last year to around 3% this year, analysts conclude that a growth rate of 8% is possible and sustainable long-term. And last years high rate shows at what level the economy can perform, given the right kinds of incentives.

But what about the re-privatization talk? Doesn’t that mean that any investment in any business in Ukraine might be re-privatized by the government? Why would anyone invest under those circumstances?

It is true that the government has been a bit schizophrenic in the past on the signals it has sent out about what will be re-privatized and what won’t be. Originally there was talk of close to 3000 businesses that would be investigated for potential re-privatization. That was the figure floated by the Prime Minister. But Yuschenko, the president, who has the authority right now, says that it would not be more than 29. Other reports suggest that 40 are being investigated at this point. To be perfectly honest, this back and forth by the government made investors nervous. And rightly so. To invest in a business just to have it taken out from under you in a government bid to get a fair market value is not going to breed confidence. And, in what is the bigger problem, it undermines confidence that the government will ever really respect private property rights. Will title ever be good in a country that can re-privatize when it feels it should and feels it can?

The reality has been different than what was proposed. The administration saw what it was doing and reeled in the rhetoric and lowered the number of businesses to be privatized. There has been only one to date. Kryvorizhstahl, the largest steel mill in Ukraine was re-privatized and sold to a European company. And there is some indication that nickel company might also be sold. But that is the extent of it.

The re-privatization issue, however, only affects those who are looking to invest in a company here in Ukraine. It does not affect those who are looking to establish a company presence and to market their products in Ukraine and the surrounding region. All of these efforts are not affected by re-privatization at all.

What about corruption? Isn’t Ukraine considered one of the most corrupt countries on the Transparency International’s Corruption Perception Index, higher even than Russia and some of the countries of Africa? If it is that corrupt, how then can we possibly do business in Ukraine?

It is true that Ukraine has been marred by corruption both in the government and in business. As a matter of fact, there has been little distinction between government and business in Ukraine in the past. Many who have been involved in business have sought the patronage of someone powerful enough to ease their way on the one hand or who could let them to buy up government assets at “fire sale” prices on the other. A lot of wealth in Ukraine has been acquired in these ways.

Corruption was the major reason for the Orange Revolution. Though a lot of people have been involved with it, they have become tired of it. And Yuschenko has made it a high priority with his new government. He has instituted some important reforms in this area and is working on others. A lot more needs to be done to deal with it but the important point is that something is being done about it for the first time ever.

But saying that corruption is a problem in Ukraine is really a bit misleading. The corruption has to be put in context to understand just what the problem is and what a company might face when it deals in Ukraine. The fact is that corruption is a problem in many of the countries of the world. And it is in many of these countries that investors routinely invest and companies routinely set up to do business. Investors and companies find out that in doing business in other areas of the world, areas such as Latin America, the Middle East, Asia and Africa, and in specific countries like Mexico, India and China, for starters, corruption is an issue. The fact that corruption is an issue in these countries and areas means that it must be planned for by company management and dealt with when it comes up for a company to be able to succeed. And, by and large, companies and investors do this in these countries and regions.

Ukraine is not any different. Corruption is an issue and must be planned for and dealt with the same way. That it might be more or less than one country or another will not affect that planning or the company approach.

Ukraine is ranked pretty high on the Corruption Perceptions Index of Transparency International. This is true. And a lot is made of the fact that, of 146 countries rated by Transparency International in its Corruption Perceptions Index of 2004, Ukraine comes is ranked number 128. (Mexico, on the other hand, comes in at number 67, China at 71, and India at 91.) Some find it significant that this is near the likes of Zimbabwe, Sudan and Bolivia.

And this Corruption Perceptions Index is taken seriously by any number of institutions and people. This is also true. The problem with it, though, is in taking it too seriously, that is, taking it as anything more than an attempt at a ballpark determination about countries and corruption.

In the first place, it must be understood that though there is every attempt in the world to base these rankings on objective criteria, they are not. It is not called the Corruption Perception Index for nothing. It is on the perceptions of those who do business or deal in a given country or countries that these rankings are based. And these are not the same people doing business in each country, something that would give at least a kind of benchmark to that subjectivity if it were the case. They are different people with different perceptions about things. So there is a problem with taking this as a real precise measurement of actual corruption in the Ukraine for this reason alone.

As the report itself says

Why is the CPI based only on perceptions?

It is difficult to base comparative statements on the levels of corruption in different countries on hard empirical data, e.g. by comparing the number of prosecutions or court cases. Such cross-country data does not reflect actual levels of corruption; rather it highlights the quality of prosecutors, courts and/or the media in exposing corruption. The only method of compiling comparative data is therefore to build on the experience and perceptions of those who are most directly confronted with the realities of corruption. (Transparency International Corruption Perception Index 2004, p. 6.)

In other words, they do not rely on empirical data because they do not have any empirical data to rely on that would be of any use. So they settle for what they can get-- the opinions of those who work and do business in these countries.

In the second place, Transparency International could not take these rankings all that seriously either as a reliable indication of the degree of corruption in a given country. They themselves have made this case:

Is it right to conclude that the country with the lowest score is the world’s most corrupt country?

No. The country with the lowest score is the one perceived to be the most corrupt of those included in the index. There are almost 200 sovereign nations in the world, and the latest CPI ranks 146 of them. [1] (Transparency International Corruption Perception Index 2004, p. 6.)

The fact is that corruption is corruption wherever it is found and it means increased difficulty in doing business in any country where it is found. This is true no matter where the country is located on the index (except, of course, in countries at the top where all are agreed that corruption is an insignificant problem.) Companies need to plan for the inevitability of corruption whether they deal in China, India, Greece, Saudi Arabia, Mexico, -- or Ukraine.

And, it can be dealt with.

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[1] The Corruption Perceptions Index for 2003 was more candid:

Is it right to conclude that the country with the lowest score is the world's most corrupt country?

No. The country with the lowest score is the one perceived to be the most corrupt of those included in the index. The CPI is based on polls that are snapshots in time and reflect both opinions and experience. Furthermore, there are almost 200 sovereign nations in the world, and the CPI 2003 ranks only 133.

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A beginning

2006-01-30T09:35:00.000+02:00

It looks like Ukraine won the revolution but still needs to win the war. Hundreds of thousands took to Independence Square more than a year ago to protest the corrupt election of a hand-picked successor to President Kuchma, a president who ruled with an iron fist, an iron fist, that is, encased in velvet. (It left no bruises.) The people won a new round of elections and Victor Yuschenko, the opposition's candidate poisoned to keep him out (or as a sick and cynical attempt to reduce the appeal his good looks represented--can't tell at this point and it almost killed him) by person or person's unknown, won. And Ukraine has been struggling ever since to free itself from the grip of the prior regime and its corruption. There have been some successes and those successes continue.

All of this affects business. Ukraine needs more investment and there is tremendous opportunity here. With an economy that started on the ground floor, so to speak, as this has, growth can be phenomenal and we are seeing that kind of growth right now in retail, for one example. But there needs to be more information out there for potential businesses and investors on Ukraine and the Ukrainian market as well as on the environment for business here. That is the purpose of this blog. We will seek to provide that information and in doing so provide the context that is needed for investment and business to come to Ukraine.