Ukraine as extended production facility for global and components manufacturers

Elena Chepizhko

Head of Government & External Relations GROUP Global factors that determine the low cost production

Low cost of can integrate production YES into the global value Integration into chains as the “second High added global value value: China” in low cost chains production. YES, > 70% Potential LOW COST Global production using PRODUC high-tech developments TION Low logistics and the world's leading High level of costs “know-how” under employment: YES, 1=6 Industry 4.0 approach Presence of YES own and participation in manufacturing global value chains base / proximity to sources of raw materials YES

2 Global automotive trends: Ukrainian choices

Alternative 1 Global production using the Added value resource base and low-skilled up to 14% labor

Alternative 2

Ukraine – the second China in low Added value cost production Global production using high-tech >50% developments and the world's leading “know-how” under Industry 4.0 approach 3

* World Bank data 2013 Exemplary case

74 factories around the world extended production facilities built under low cost 37 production principle 4 Ukraine as low cost production site

Developers of automotive Extended production facilities technologies (OEMs)

Germany China Slovakia Czech Republic

USA France Turkey Romania

Japan South Korea China Ukraine?

5 Competitive advantages of Ukraine Logistics

international 4 transport corridors

seaports 18 (including Crimea) 11 river ports 22 kilometers of k. railways

170 kilometers of road k.

6 Competitive advantages of Ukraine Costs

Average monthly salary in industry 2683 (EUR) Low cost of labor and resources 1767 compared to most European countries 1100 833 825 767

220

Germany Spain Portugal Slovakia Czech Russia Ukraine Republic

Natural gas Electricity (EUR/KWh) (EUR/KWh)

0,042 0,04 0,037 0,197 0,034 0,032 0,026 0,134 0,138 0,131

0,088 0,062 0,067 0,008

7 Germany Spain Portugal Slovakia Czech Russia Ukraine Germany Spain Portugal Slovakia Czech Russia Ukraine Republic Republic

UkraineInvest data Competitive advantages of Ukraine Taxation level

Income tax rates (%)

14,5-48 Low rates 0-45 19-45 of main taxes

compared to most European 19-25 countries 18 15 13

Germany Spain Portugal Slovakia Czech Russia Ukraine Republic

VAT rates Corporate tax rates (%) (%) 23 30 30 21 21 20 20 19 18 25 21 20 19 18

8 Germany Spain Portugal Slovakia Czech Russia Ukraine Germany Spain Portugal Slovakia Czech Russia Ukraine Republic Republic

UkraineInvest data Competitive advantages of Ukraine Production costs

[EUR] Estimated costs per 1 fully built vehicle 2 500

2 000

1 500 4x lower than in Germany

1 000

500

0 Germany Czech Republic Slovakia Turkey Ukraine

Labour Overhead Energy

9

Company data, EUROSTAT http://ec.europa.eu/eurostat/ Competitive advantages of Ukraine Export opportunity to the EU

EU Ukraine

Tolling: Duty free Tolling: Fully built up vehicles components and technologies (assembly, production of components): import  Duty Free (tolling/ inward processing)  Tax Free  Free from Quotas and Licensing DCFTA: Duty free import from EU DCFTA: Duty free export to EU from 2019 from 2022

10 Incentives for Electric Vehicles

1st step Taxation level for electric vehicles in Ukraine in 2018

import duty since 2016 more than 0% after 10% 20% VAT since 2018 decrease of production 0% after 20% and import cost for electric vehicles excise duty since 2018 due to Ukrainian 0 EUR after 190 EUR government incentives

11 Incentives for Electric Vehicles

nd Substantial changes expected within 15-years Electric 2 step Vehicles Strategy

VAT and import duty up until 2028 on import of spare parts for electric vehicles 0% production Relevant bills excise duty up until 2028 and on import of bodies (including cabs) for №8159 0% electric vehicles production №8160 are awaiting pension tax up until 2028 consideration in 0% on purchase of electric vehicles the Parliament

profit tax up until 2032 for extractors of lithium, manufacturers of 0% batteries and electric vehicles

12 Ukrainian passenger car market Key figures

Ukrainian passenger car manufacturer companies 2 (2016 – 2017)

average level of production capacity 4% utilization (2017)

passenger car park 9,1 (2017) mio Eurocar PrJSC 1 SKD (Skoda)

2 Corporation CKD (, Bogdan, JAC) Ukrainian passenger manufacturing capacities amount 3 ZAZ PJSC CKD, SKD (ZAZ) to 400 k units per year. 13 Ukrainian car industry Potential

additional working places in supporting industries cumulatively are created by one working place in car 6 production

cars per thousand people – the number of cars per 202 capita

19,6 years is the average age of car park

place currently occupies the import of foreign cars in 3 development of negative trade balance of Ukraine 14 Indicators of the World vs. Ukraine

of the EU’s GDP is the share of the 4% automotive sector

of the EU employed population is 5,7% employed in the automotive sector

Direct automotive Share in GDP manufacturing employment (%) (k employers)

Germany 14% Germany 850,9

Slovakia 12% Russia 470 Poland Hungary 10% 178,3 Czech Republic 159,7 Czech Republic 7% Hungary 88,5 Poland 4% Slovakia 66,4 Russia 0,5% Ukraine 7,8 Ukraine 0,4%

15 Automotive cluster in the Western Ukraine

Well-known international producers are already here,

of the wiring harness for the European automotive 75% industry is produced in Ukraine that creates the potential for localization of car production

Western Ukraine Ukraine Slovakia

Hungary

16 Industrial parks - opportunity for high value added production location

Solomonovo Industrial Park – high-tech development and production center, in particular for automotive industry.

Existing preferences:

1 Already existing facilities and infrastructure

2 Exemption from a “regional development participation payment”

Additional Taxation and Customs preferences upcoming 17 Expansion of global companies to Ukraine

Jabil Tyco Electronics, Bader

W.E.T. Automotive Ukraine

Kromberg & Schubert Ukraine, LEONI, Sumitomo Electric Bordnetze Bader-Aunde, Yazaki-Ukraine Delphi, Groclin-Karpaty Fujikura Groclin Flextronics

2002 2003 2004 2005 2006 2007 2008 2012 2013 2015 2016 2017

SEWS Ukraine Kostal Bader, LEONI, Delphi SE Bordnetze, Forshner, Kromberg & Schubert, ODW Elektrik, Fujikura (2 plants), Bosch Prettl Group

35 >45k >400mio EUR 18 plants employees investment Skilled labor force

Employees in Ukrainian automotive Structure of unemployment production by education

of unemployed Ukrainians have 80% higher education & Ukrainians are involved vocational and in vehicle manufacturing 7.8k. technical education

Ukrainians are involved 33k. in electric and electronic equipment for vehicles EUROCAR is officially supporting manufacturing the employment of Ukrainians at VW Group plants and engaged in training and skills matching of personnel for VW Group

19 State Statistics Service of Ukraine, State Employment Service of Ukraine data Opportunities for Ukraine

Using Ukraine can

1 Efficient supply chain integrate into integration due to convenient logistics global value chain, 2 Skilled labor force and lower (on average) labor costs compared to European turning into cost countries competitive extended production site for global 3 Government promotion of vehicle manufacturers, electric vehicles and presence including those producing in Ukraine of lithium deposits electric vehicles. used in the manufacture of batteries for electric vehicles

20 Thank you for attention.

Eurocar plant video:

Contacts of Eurocar Group :

Tel/fax: +38 (044) 490 10 70, 490 10 80 | Mob.:+380503341438 | E-mail: [email protected] | Elena Chepizhko