Ukraine has it all, proven resources (the good), trade barriers (the bad) and corruption (the ugly). In spite of the challenges to doing business in Ukraine – foreign companies are in the market – small, medium and large companies all recognize the vast potential of the Ukrainian market. Many have been doing business in Ukraine for more than 15 years.

As the 2nd largest country in Europe, Ukraine is sitting at a cross roads, and is potentially the richest country in terms of resources, in all of Europe - across the board.

Land area of 233,000 sq/miles, 53% of which is arable black soil that has yet to even approach full agricultural production capacity.
Diverse mineral resources in quantity such as iron ore, coal, manganese, natural gas, oil, salt, sulfur, graphite, titanium, magnesium, kaolin, nickel and mercury.
Established industrial development in the coal, electric power, ferrous and non-ferrous metals industries; machinery and transport equipment, chemicals and food processing industries.
Human resources – a population of approximately 46 million, with a literacy rate of 99.7% where most adults have a secondary or higher education.
Ukraine is also a member of the WTO since 2008 – a clear indicator that Ukraine intends to be part of the international business community.

Unfortunately, Ukraine inherited a Soviet style bureaucracy that has stifled economic development and stymied the best efforts of three successive governments (since independence) to stimulate economic development. Add to the mix corruption that is so entrenched, it’s impossible to tell where the government ends and the corruption begins.

Following the world financial crisis in 2008-2009, Ukraine’s economy contracted by15%. In 2010, external demand is beginning to fuel a recovery, despite policy-related risks and concerns about fiscal policy. Unpredictability, the lack of transparency and persistent corruption inhibits investment, but U.S. and other foreign companies continue to enter the market. In 2010 the American Chamber of Commerce in Ukraine (ACC) welcomed 119 new members, the U.S.-Ukraine Business Council (USUBC) added 40 more. Although some of these firms were not new to the Ukrainian market, their decision to join these organizations was evidence of their commitment to remaining in the market.

U.S. companies in Ukraine are performing well. They are continuing to invest, albeit at relatively conservative levels, with a watchful eye on amendments to existing and new legislation designed to increase State revenues and to improve the business and investment climate – the unpredictability factor. Most U.S. companies are actively involved in the ACC and the USUBC who both actively engage the Government of Ukraine (GOU) on issues affecting the business and investment environments.

Market Challenges

There are numerous challenges for foreign companies interested in the Ukrainian market, which are best summarized by the:

The World Bank’s Annual Doing Business Report that lists Ukraine at 145 out of 183 countries for ease of doing business, down from 143 in 2010. For the full report go to: http://www.doingbusiness.org/data/exploreeconomies/ukraine/.
Transparency International’s Corruption Perception Index ranks Ukraine at 134 out of 173.
The 2011 Index of Economic Freedom gives Ukraine a score of 45.8 (equating to “repressed” economically), ranking its economy 164 out of 183. For the full report go to: http://www.heritage.org/index/Country/Ukraine

These low scores put Ukraine in last place in Europe (43 countries), below Russia and lower than the world average. The economic crisis did set Ukraine back after years of steady economic growth. However the crisis is not the sole reason for such a low standing internationally. State intervention continues to interfere with private sector development, as does:

A regulatory infrastructure that is overly burdensome and not remotely transparent.
An underdeveloped financial sector.
A bureaucratic legal and regulatory system.
Poor rule of law enforcement which encourages seeking arbitration outside Ukraine.
IPR and Trademark infringement is commonplace.
Unpredictability- the Grain Quota and routine Customs re-evaluation of imports are a couple of examples.
Widespread corruption in the public and private sectors.

Market Opportunities

Market opportunities are most often inspired by an out of the ordinary need, for instance: the Euro-2012 Football Championship to be co-hosted by Ukraine and Poland in June 2012. This event has inspired the Government of Ukraine to identify the following opportunities in order to comply with the UEFA requirements for host countries:

Airport and ground handling equipment.
Security equipment and management services.
Creation of national emergency response system (aka. 911 call center).

Ukraine’s agriculture sector -- which has yet to approach its potential – has the natural resources to play a dominate role in improving the global food security situation. The GOU estimates that achieving this goal will require major purchases of:

Modern agricultural machinery.
Modern grain storage and cold chain systems.
Food processing and packaging equipment and technologies.

To deflect the impact of importing expensive energy to supply and enhance energy security needs and to improve energy efficiency, the GOU intends to:

Implement a large-scale energy efficiency program in both the industrial and consumer sectors.
Modernize thermal and hydro power generation capabilities.
Open up off-shore energy opportunities.
Begin unconventional gas exploration.
Utilize wind and solar power generation.

The National Projects for Ukraine are priorities of the Government of Ukraine. (Note: funding to be identified):

Construction of an LNG Terminal on the Black Sea. (Note: the tender for this feasibility study was announced in Feb 2010.)
Construction and management of solid waste treatment plants in 10 Ukrainian cities.
Power of Energy -Developing alternative energy sources such as wind and solar power plants.
Open World - Providing 1.5 million net-books for Ukrainian school students.
Clean Water –Providing water purification systems in all Ukrainian cities.
New Life – The development of modern neo-natal centers in 27 regions of Ukraine.
Danube Corridor- The development of multi-modal transportation infrastructure in the Danube delta area.
Olympic Hope –The development of winter sports infrastructure in Western Ukraine.
Affordable Housing -- Building new, affordable housing in major cities.

Market Entry Strategy

First, schedule a meeting with the U.S. Commercial Service office in Kyiv, Ukraine to take advantage of our business counseling services. Second, schedule a meeting with the ACC to learn about the experience of U.S. companies already on the ground doing business in Ukraine. Keep in mind:

Ukraine is not a market for first time exporters.
Beware of corruption in the guise of facilitation
If you have concerns about protecting your intellectual property – this may not be the market for you at this time.
Due diligence is essential
Engaging local legal counsel is highly recommended

Depending upon your business plan/model you can successfully mitigate risks. The unpredictability factor is more difficult to deal with – it requires a great deal patience and determination to resolve issues created sometimes unintentionally due to GOU intervention. See Chapter 3: Selling U.S. Products and Services for specific information about using an agent or distributor, establishing an office, joint venture licensing, etc.

In addition, please take note that all our market research is available in the U.S. Government Export Portal, free to registered users. Just login and read it!

Other Reporting :

USDA Foreign Agricultural Service: Exporter Guide

Protect Your Intellectual Property

IPR Toolkit

Print | Last Updated: 6/23/11 7:32 AM