Country Profile 2014
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CONTENTS 1. AGRICULTURE ....................................................................................................33 Agricultural sector overview ................................................................................33 2. BANKING & FINANCIAL SERVICES ............................47 Banking sector, anti-money laundering set-up and currency control regime ................................................................................47 The car market: a banker’s view ......................................................................60 3. CUSTOMS REGULATION ................................................................65 Transfer pricing and customs valuation ..................................................65 4. FMCG MARKET ..................................................................................................69 Growth of illicit tobacco trade in Ukraine represents an unintended consequence of tobacco industry regulation .......69 Ukrainian beer, kvass and cider market overview ..........................73 Overview of the Ukrainian soft drink market .....................................77 5. ENERGY ............................................................................................................................79 The peculiarities of legal regulation of production sharing agreements ......................................................................................................79 M&A in the energy industry .................................................................................82 6. HEALTHCARE ........................................................................................................84 Healthcare sector overview ....................................................................................84 Health check: is Ukraine fit for work? ........................................................89 7. HOSPITALITY AND TOURISM ...............................................95 Hospitality and tourism sector overview .................................................95 8. HUMAN RESOURCES, LABOR & EMPLOYMENT ...........................................................................................98 Labor market in 2013 ..................................................................................................98 Expats in Ukraine: legal aspects of their employment and residency in Ukraine .......................................................100 9. INFORMATION & COMMUNICATION TECHNOLOGIES ...............................................................................................102 The Ukrainian IT market: the future starts today ..........................102 Cloud computing trends in Ukraine ..............................................................105 Ukraine is Eastern Europe’s best destination for IT outsourcing ...........................................................................109 10. INSURANCE MARKET ...........................................................................115 Ukrainian insurance market review: current situation, main trends, and forecasts ....................................................................................115 11. INTELLECTUAL PROPERTY RIGHTS .........................118 Is the customs register of intellectual property objects a remedy for protecting IP owner rights or a profit-generating instrument for patent trolls?...................................118 12. INVESTMENT POLICY ............................................................................120 The road to recovery .....................................................................................................120 13. LEGAL SYSTEM ...................................................................................................128 Legal system overview .................................................................................................128 Corporate governance as a key to business efficiency ................133 14. LOGISTICS AND TRANSPORTATION .......................137 Liberalizing the air transportation market in Ukraine ............137 The Ukrainian automotive market: problems and outlooks ...............................................................................................141 15. REAL ESTATE DEVELOPMENT .............................................143 Office, retail and warehouse markets overview 2013 ...................143 16. TAXATION ....................................................................................................................150 Criminal liability after a tax audit and the new Criminal Procedural Code of Ukraine ...................................150 Handling tax disputes in Ukraine ...................................................................155 The new transfer pricing law: Ukraine aims at improved tax transparency ..............................................................159 Creating tax efficient Islamic finance solutions in Ukraine ................................................................................161 Global trends through a Ukrainian prism www.chamber.ua 1 AGRICULTURE AGRICULTURAL SECTOR OVERVIEW Agribusiness is the Ukrainian economy’s leading sector. tion level in the not too distant future, Ukraine’s blue and yellow flag accurately depicts the unique versus the 45/60 million tons produced part that agriculture plays in the national identity, showing a nowadays. Such a goal is realistic, but it deep blue sky over shining yellow boundless fields of wheat requires a lot of investment, more stabil- and sunflower. Ukraine’s agricultural potential is due to a ity in land resource use, better protection combination of exceptional ecological, geographical, and his- of investments, and more stable rules for torical factors. Experts foresee a 100 million ton grain produc- importing and producing inputs. Ukraine has the potential to be the world’s leading grain basket First of all, Ukraine has the lion’s share of the best “black earth” their wide range of abundant nutrients, soil in the world. Ukraine’s famous “chernozem” accounts good water retention capacity, and stable for more than 30% of all such soil in the world, well in front structure. After the severe drought of the of Argentina in the southern hemisphere and Canada, Rus- summer of 2012, Ukraine’s grain harvest sia, and certain central European countries such as Rumania decreased by only 10% to 20%; in other and Bulgaria in the northern. These soils, which can in some countries, a majority of the crop would places be deeper than 1.5 meters, are extremely fertile due to have been lost under such conditions. Million hectares Ukraine land acreage 60 Agriocultural land 42,8 Arable land 32,5 Chernozem 60% Another illustration of this soil’s resistance to pressure is Ukraine’s geographic position has made that the heavily mechanized Soviet agricultural industry did it the funnel end of a very large grain ba- not destroy fertility. Nor has tremendous decrease in fertiliz- sin that also includes the extensive grain ers use since Ukraine’s independence led to miserable yields. areas of Russia, Kazakhstan, and Belarus. Railway and river networks converge in Ukraine’s continental climate provides acceptable water re- Ukraine’s Black Sea ports, the only ones in sources, even if the south of the country is exposed to a real the region that are deep enough for heavy risk of severe drought once every five years and if there are ships, notably Panamax ships. Odessa port late spring frosts that can damage winter crops and delay and neighboring ports such as Illitchivsk or spring crop seeding. But these unfavorable climatic condi- Youzhnyi are rapidly developing their load- tions can make Ukrainian traders more influential on the grain ing capacities. River and sea barges can ac- markets, as they can use the uncertainty of expected yields cess these ports from either the Don River, late in the season and growing volatility to their advantage. which opens up the Russian hinterland, The southern part of the country, along the Black Sea coast or from the Danube, which connects the and through Kirovograd, is the most risky in which to grow Black Sea area with Central and Northern cereals and has a limited yield potential for corn and sun- Europe. Ukraine intends to promote a new flowers grown without irrigation. More than two million “silk road” thanks to its location at the very hectares of good soil was still under irrigation during the intersection of the main commercial roads Soviet era in that part of the country, but very few of those to Asia, the Middle East, Africa, the Medi- irrigation networks have survived. terranean Sea, and the Atlantic Ocean. 33 www.chamber.ua Agricultural structure and farmland use Since the first privatization of agriculture in the 1990s, farm- port after the devaluation of that time. ing structures have gone through a considerable evolution, one Most of them are vertically integrated, that has produced the three types of farms existing at pres- producing poultry, sugar, or flour. In or- ent. More than five million tiny farms using less than 20% of der to feed their cattle or their plants, Ukraine’s total farmland are producing 80% of Ukraine’s milk such enterprises had to control crop pro- and vegetables and its various fresh food products. Without duction and to respect the crop rotation, credit or investment, and in spite of low prices, these basic units which compelled them to try and acquire remain rather stable. Their evolution is determined only by the more land. They also opened