Ukraine as manufacturing hub
Boosting value and reaching global market
Introduction
Yuliya Kovaliv Head of Office, National Investment Council of Ukraine
As a result of changes in global geopolitical and international trade contexts, Ukraine emerged on investors’ radars as one of the key manufacturing hubs in Europe. Its beneficial location, well qualified labor force, affordably priced utilities, extensive transport infrastructure, and profound background in manufacturing make the country very attractive for export-oriented businesses.
Historically, Ukraine had one of the strongest expertise in machine building among Eastern European and CIS countries. Designed and manufactured in Ukraine, sea vessels and railcars, motor vehicles and aircrafts were used domestically and exported across the world. Ukraine is known as designer and producer of a number of record-breaking machines like AN-225 Mriya – a famous aircraft with the highest carrying capacity and one the largest wingspan in the world. Up till now, expertise remains one of the principle advantages of Ukraine.
In 1991, Ukraine gained independence and followed the course of economic reforms. Liberalized markets and free-trade agreements with 46 countries (the last one signed with Israel in January, 2019) resulted in the growing significance of Ukraine as a regional hub and improved its access to the global supply chain. Figures speak for themselves: export volumes in 11 months of 2018 grew by almost 10% and reached $43 billion, with exports to the EU taking over 42%. Now Ukraine is committed to further strengthen its position in the European and global manufacturing industry.
For investors, opportunities are vast – from automotive spare parts production and food processing to shipbuilding and aerospace industry. Since 2014, over 150 new plants and factories were launched in Ukraine, 83 of them with participation of foreign investors. Some 58 more are under construction. We believe it is just the beginning.
Office of National Investment Council, supported by European Bank for Reconstruction and Development, provides a platform for public-private dialogue bringing together representatives of business community and key multinational companies, international financial institutions and Ukrainian Government. We are open for investors who plan to expand their business and add Ukraine on the map of production facilities. This report provides a brief outline of the whole variety of investment options in manufacturing. We hope it will be a useful tool to get the broad picture of the industry and its subsectors and make the right choice.
3 Market overview: Why Ukraine
4 2019 | National Investment Council | Manufacturing Market overview: Why Ukraine
Strategic geographic location, developed transportation network, high-skilled labor force, low production cost: all of these make Ukraine a great manufacturing hub.
Macroeconomic overview
Since 2016, Ukraine’s economy has been steadily recovering. Following 16.4% cumulative economic de- cline in 2014-2015 caused by Russian aggression in the Eastern part of Ukraine, GDP grew by 2.4% in 2016, 2.5% in 2017 and expected to grow by 3.4% in 2018.
Based on the intense economic reforms and inherent competitive advantages, Ukraine is expected to achieve higher rates of economic growth in the coming years. Its big promising market and integration with EU has great opportunities for increase in consumption and investments, particularly in manufacturing.
Real GDP rate Period: 2012-2020 Score: %, y-o-y
0.2 0.0 3.8
3.0
-6.6 3.4 2.5 2.4
-9.8 2012 2013 2014 2015 2016 2017 2018 2019F 2020F
Source: State Statistics Service of Ukraine, Ministry of Economic Development and Trade
Real GDP rate Period: 2012-2020 Score: %, y-o-y
5
0 2012 2013 2014 2015 2016 2017 2018 2019F 2020F -5
-10 Ukraine Eastern Europe European Union
Source: International Monetary Fund
5 Market overview: Why Ukraine
Ukrainian economy has been growing 12 quarters in a row
Reforms and regulatory policy in financial sector resulted in dramatic reduction of both external and internal economic imbalances. Inflation has been successfully slowed down as well.
International reserves have been increased substantially to USD 20.82 billion updating a 5-year record. They are sufficient to meet government’s obligations and cover current operations of National Bank.
International reserves Period: 2014-2018 Score: billion USD
20.82 18.81 15.54 13.30
7.53
2014 2015 2016 2017 2018
Source: National Bank of Ukraine
Inflation rate Period: 2014-2020 Score: %, y-o-y
43.3
24.9
12.4 13.7 9.8 7.3 6
2014 2015 2016 2017 2018 2019F 2020F
Source: National Bank of Ukraine, International Monetary Fund
6 Ukraine in international ratings
2019 | National Investment Council | Manufacturing 7 Ukraine in international ratings
Ease of doing business by World Bank
The Ease of doing business ranking is developed by the World Bank Group. Higher ranking normally indicates better, usually simpler, regulations for businesses and stronger protections of property rights.
Ease of doing business Period: 2014-2019 Rate: out of 190
76 71 83 80 96 112
2014 2015 2016 2017 2018 2019
Source: World Bank, Doing Business Reports
30 41 56 in Dealing with position № in Starting № + Construction since 2014 a business Permits
Ease of doing business (compared to other developing countries) Period: 2016-2019 Rate: out of 190
38 39 50 59 60 61 71 67 72 83 80 76 77 100 130 130
2016 2017 2018 2019
Source: World Bank, Doing Business Reports
8 Ukraine in international ratings
Global Innovation Index
Global Innovation Index is the result of a collaboration between Cornell University, INSEAD, and the World Intellectual Property (WIPO). Index provides detailed metrics about the innovation performance of 126 countries and economies around the world.
Global Innovation Index Global Innovation Index Period: 2016-2018 (compared to other developing countries) Rate: out of 126 Period: 2018 Rate: out of 126
43 49 43 57
50 74 56
2016 2017 2018 Ukraine India Romania Greece
Source: World Intellectual Property Organization Source: World Intellectual Property Organization
EBA Investment Attractiveness Index
Investment Attractiveness Index is the European Business Association’s research project which reflects the status of Ukrainian business climate based on expert evaluations provided by top-managers from member companies.
EBA Investment Attractiveness Index Period: 2012-2018 Rate: out of 5
3.15 3.1 3.07 2.88 2.85 3.03 2.72 2.74 2.65 2.66 2.56 2.57 2.39 2.5 2.51 2.18 2.19 2.14 2.12 2.12 2.17 1.81
I II III IV I II III IV I II III IV I II III IV I-II III-IV I-II III-IV I-II III-IV 2012 2013 2014 2015 2016 2017 2018 2018
Source: European Business Association
9 Ukraine in international ratings
Human Capital Index
The World Economic Forum’s Human Capital Report ranks 157 countries on how well they are developing and deploying their talent.
position out No. 50 of 157 countries
Human Capital Index (compared with other developing countries) Period: 2018 Rate: out of 130/130/157
50 48 42
114
Ukraine India Bulgaria Greece
Source: World Bank, Global Human Capital Report
10 Location and infrastructure
2019 | National Investment Council | Manufacturing 11 Location and infrastructure
Ukraine is the largest country in Europe by area, and 7th by population. Its favorable geographic location makes the country a natural transportation link between Europe, Russia and Central Asia
Area: Population: 603,000 km2 42.3 million people
Key economic sectors: Borders: Seas: Poland, Slovakia, Hungary, the Black sea and Romania, Moldova, Russia the Sea of Azov (borders with Turkey, Bulgaria, Georgia, Russia)
12 Location and infrastructure
Association Agreement with Eurasian Hub, Trade World Trade the European Hub to the EU, Organization Union, Deep and Middle East and Asia Member Comprehensive Free Trade Agreement with the EU
Free Trade Agreements with: EU, EFTA, Canada, Georgia, Israel, Macedonia, Montenegro, totally covering 46 countries. On-going negotiations with Turkey
Transportation network
Ukraine has the most extensive railroad network in Europe handling a substantial part of passenger and freight traffic. Country’s road network is no less extensive, it covers all the territory and makes deliveries possible to any point of destination. Low cost, developed deep-water ports and upcoming reconstruction of river waterways will help maritime transportation become worthy alternative to its rail and road counterparts.
Logistics Performance Index 2018 by World Bank
LPI International Logistics Tarcking Country Year Customs Infrastructure Timeliness Rank shipments competence & tracing Germany 2018 1 1 1 4 1 2 3
Italy 2018 19 23 18 21 24 18 17
Poland 2018 28 33 35 12 29 31 23
Hungary 2018 31 27 30 43 38 26 32
Romania 2018 48 80 51 48 47 41 39
Croatia 2018 49 39 46 58 45 61 47
Bulgaria 2018 52 42 64 41 55 59 65
Ukraine 2018 66 89 119 68 61 52 56
Moldova 2018 116 124 141 90 122 142 82
13 Location and infrastructure
Roads Railway
443,000 km of road network 20,900 km operational length of railways
169,500 km of public roads 3,800 locomotives
8,600 km of international road routes 168,000 freight wagons
19 European road routes 3 international railway corridors pass through Ukraine
Port infrastructure
13 sea ports
263 berths with 40 km length
Draught up to 19 m – port Yuzhny, 14 m – port Chernomorsk, 13 m – port Odessa
2,100 km of inland waterways
9 101
101 9 2 0 101 0 0 0 viv iv 0 ar iv 1 0 0 0 10 0 0 0 9 0 0 0 ni ro 0 0 0 onets 0 1 10 9 1 essa 9 10 10 9
Roads Railway Sea port
14 Location and infrastructure
Port infrastructure
M olaiv lvia e tia rs Mariu ol er ians u n erson esa enic es Illic ivs a ovs il oro nistrovs
eni erc I mail ev atoriia eo osiia evasto ol
alta
Source: Ministry of Infrastructure of Ukraine
Ukraine holds a leading position with the most powerful port potential within the Black Sea region. In Ukraine, there are 13 sea and river ports with capacity over 230 million tons, as well as great potential for greenfield projects along the coastline.
The most important Ukrainian deep-water ports Odessa, Chernomorsk and Yuzhny are located in the north-western part of the Black Sea and account for over 62% of the entire freight turnover of Ukrainian commercial ports. These ports offer the best access routes and ensure 11.5 – 19.0 m draught. Other ports in Ukraine handle vessels of considerably lower draught. Major container terminals in Ukraine are also located in the ports of Odessa, Chernomorsk and Yuzhny.
In 2018, about 135 million tons of cargo with over 73% of exports were transshipped through Ukrainian ports.
At the mouths of the largest Ukrainian rivers, Dnipro and Yuzhny Bug, there is another cluster of commercial seaports, namely Mykolaiv, Kherson, Olvia. They handle both bulk and general cargo.
Founded in 2013 as a result of the maritime industry reform in Ukraine, the Ukrainian Sea Ports Administration (USPA) works to efficiently manage state property in seaports, to create mechanisms for attracting investments in port infrastructure, to accelerate its development and ensure stable business performance.
Currently, USPA invests in two vital projects:
dredging of Yuzhny SP approaching canal, which will allow to load vessels up to 260,000 tons reconstruction of Bug-Dniprovsky-Lyman Canal (BDLC) to increase draught to 13.5 m for vessels in sea ports in Mykolaiv region
135 million 800,000 19 meters tons of TEU of cargo transshipped transshipped by container maximum draught by ports in 2018 terminals in 2018 in Ukrainian ports
15 Location and infrastructure
Railways
Chernigiv
Lutsk Sumy Rivne Kyiv Zhytomyr Kharkiv Lviv Ternopil Poltava Khmelnytskyi Cherkasy Vinnytsia Ivano-Frankivsk Luthansk Uzhgorod Kropyvnytskyi Dnipro Chernivtsi Donetsk Zaporizhzhia Lviv South Western Mykolayv Kherson Southern Odessa Odesa Near-Dnipro Donetsk Sevastopol Simferopol
Source: Wikipedia
Ukraine’s railway is a backbone of Ukrainian transport system and Ukrainian economy in particular. With almost 20,900 km of rail tracks, Ukraine ranks 2nd in the CIS and 7th in Europe by traffic volumes. Ukraine’s railway is №4 in Europe and Asia after China, Russia and India. The workload of Ukrainian railway is 3-5 times bigger than that of other European countries.
The country ranks 2nd in the CIS and 4th in Europe in terms of passenger transportation. About 47% of the railway operational network is electrified, compared to 51% in Russia, 47% in China, 29% in India and 18% in Belarus. Track width is 1,520 mm.
The territory of Ukraine is crossed over by three Rail Transport Corridors – № 3, № 5 and № 9. Going along the Danube river, Pan-European Transit Corridor № 7 is linked to Ukraine through the ports of Izmail and Reni. Currently, the length of Ukrainian national rail transit corridors is 3,162 km. Moreover, transport along with the international transit TRACECA (Transport Corridor Europe-Caucasus Asia) corridor has been further developing.
3,800 locomotives 20,900 km 58 % 340 Mt 168,000 freight railcars operational length share of railway freight of railways transportation in transportation cargo turnover in volume Ukraine
16 Location and infrastructure
E95 Roads E85 E101
E38 E373 E101 E373 E85 E95 E101 E372 E40 Kyiv Lviv E40 E40 E40 E40 Kharkiv E583 E471 E40 E50 E50 E58 E105 E40 E50 E95 E504 E50 E85 E583 E50 Dnipro E50 E40 E573 E50 E50 Donetsk E58 E81 E584 E50 E105 E584 E58 E95 E58 E58 E58 E58 E581 Odessa E97 E105 E87 E87 E105 E97
Source: Wikipedia
Ukraine has significant potential for motorway development due to its location on the intersection of multiple transport corridors. There are two corridors of the Trans European Transport Network which go in Ukraine’s direction:
the Rhine-Danube Corridor passes through the waterways of the Rhine and the Danube, with an important branch from Munich to Prague, Žilina, Kosice and to the Ukrainian border; the Mediterranean corridor running from the Iberian Peninsula towards the Hungarian-Ukrainian border.
In November 2018, Ukraine was included in the indicative maps of the European transport network TEN-T which means that transport infrastructure of Ukraine should integrate with the EU infrastructure and its developed links in the near future. Speed, quality, safety of multimodal transportation in Ukraine will comply with European standards.
Ukrainian public motorways are state-owned. The State Road Agency of Ukraine (Ukravtodor) is responsible for their functioning and quality. Ukravtodor is in charge with 123 thousand km of motorways, the rest is managed by regional authorities.
Roads constructed and repaired Period: 2010-2018 Score: km
4,000 3 800 3,500 3,000 2,500 2 100 2 008 2,000 1 601 1,500 927 1,000 569 626 312 500 102 0 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Road Agency of Ukraine 17 Qualified labor force and utilities at competitive costs
18 2019 | National Investment Council | Manufacturing Labor force and utilities
th 50 99.7 % 70 % 317
Human Capital Index out literacy rate secondary or universities of 157 countries higher education
Ukraine has a very well-developed higher education system, represented by state and private universities, academies and colleges, public science and research institutions, etc. This system also encompasses post-graduate and PhD programs.
Providing a full-cycle education process and offering diverse career prospects, a large network of educational institutions is mainly located in major cities such like Kyiv, Kharkiv, Odessa, Dnipro, Lviv, Zaporizhya. There are 520 higher education institutions in Ukraine, 277 of which are universities and academies.
There are over 1.6 million students with 390,000 graduates annually. Keeping a strong focus on technical disciplines, Ukraine remains the main generator of engineering labor force in CEE region.
Abundant and well-educated staff at a relatively low cost is an attraction for investors. This isalso proven by the number of R&D offices and laboratories launched in Ukraine in the last years.
International companies operating and expanding business in Ukraine require highly skilled personnel and set high standards for the entire local labor market. Over the past 10 years, command of English has become more widespread, becoming an integral part of the education system and for many – a key focus in personal development.
The average monthly salary in manufacturing industry is significantly below regional peers in CEE. At the same time, proximity to the large EU market makes Ukraine a competitive alternative to Southeast Asia and Eastern European countries.
Average monthly salary in Ukraine Period: 2010-2018 Score: UAH, EUR
UAH EUR 12000 350 10000 300
8000 250 200 6000 150 4000 100 2000 50 0 0 jul.11 jul.15 jul.13 jul.17 jul.12 jul.18 jul.16 jul.10 jul.14 oct.11 jan.11 apr.11 oct.15 jan.15 oct.13 jan.13 oct.17 oct.12 oct.18 jan.17 oct.16 jan.12 jan.18 jan.16 oct.10 apr.15 jan.10 oct.14 apr.13 jan.14 apr.17 apr.12 apr.18 apr.16 apr.10 apr.14
UAH EUR
Source: National Bank of Ukraine, State Statistics Service of Ukraine
19 Labor force and utilities
Average monthly salary (net) Period: 2017-2018 Score: EUR Ukraine Turkey Spain Slovenia Slovakia Serbia Romania Portugal Poland Norway Netherlands Moldova Republic of Macedonia Luxembourg Lithuania Latvia Kosovo Italy Hungary Greece Germany France Finland Estonia Denmark Czech Republic Cyprus Croatia Bulgaria Bosnia and Herzegovina Belgium Austria 0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000
Source: OECD, International Monetary Fund, ONIC analysis
Unemployed population Period: 2014-2018 Score: thousand people
9.3% 9.1% 9.3% 9.5% 8.6% 600 512.2 490.8 500 390.8 400 354.4 341.7 300 200 100 0 2014 2015 2016 2017 2018
% – Unemployment rate
20 Source: State Statistics Service of Ukraine Labor force and utilities
The first Ukrainian university (then – collegium) was founded in 1632by Metropolitan Peter Mohyla. The institution offered a variety of disciplines: foreign languages, philosophy, mathematics, astronomy, history, etc. Due to its high-profile faculty, the collegium received the status of a higher educational establishment. Currently, Kyiv-Mohyla Academy is well-known all over the world and is a part of numerous international university unions, such as the European University Association
According to British MoveHub, Ukraine is the most affordable country in Europe in terms of Kyiv is ranked living costs and is in top-10 cheapest countries among 438 European globally, with only Egypt and Pakistan being No. 392 cities by cost of living more affordable.
Source: Numbeo
Four-person family monthly costs Period: Jan 2019 Score: EUR
Lithuania, Vilnius Romania, Bucharest Poland, Warsaw Ukraine, Kyiv Estonia, Tallinn Czech Republic, Prague Croatia, Zagreb Bulgaria, Sofia
0.00 500.00 1,000.00 1,500.00 2,000.00 2,500.00 Source: Numbeo
Cost of living index Period: Jan 2019 Score: index (lower – cheaper)
Netherlands, Amsterdam 81.03 France, Paris 84.95 Germany, Munich 73.98 Lithuania, Vilnius 48.45 Romania, Bucharest 39.59 Poland, Warsaw 43.03 Ukraine, Kyiv 29.83 Estonia, Tallinn 53.17 Czech Republic, Prague 48.61 Croatia, Zagreb 51.49 Bulgaria, Sofia 40.51
Source: Numbeo 21 Labor force and utilities
Ukraine has comparatively cheaper utility rates among EU countries. Electricity tariffs are lower than in the EU. The price of electricity for the industrial consumers in Ukraine is 0.053 EUR/kWh, while in Eastern Europe the second lowest price is offered in Czech Republic and Bulgaria amounting around 0.07 EUR/ kWh, followed by Romania – 0.o86 EUR/kWh..
Up until 2014, Ukraine had some of the lowest prices for natural gas in Europe. However, followed by the beginning of the Russian aggression in Eastern Ukraine, the Government decided to gradually switch from Russian to European gas suppliers. Consequently, this led to the growth of prices. Nevertheless, current natural gas prices in Ukraine are still below the European average. Ongoing investments into the development of gas upstream in Ukraine are expected to result in reduction and stabilization of gas prices.
Natural gas price Period: 2017-2018 Score: EUR/Gj
12.00 10.76 10.39 10.96 10.19 9.64 10.49 10.00 8.88 9.26 9.21 9.34 8.80 9.41 9.41 8.53 8.53 8.61 8.57 8.27 8.51 7.99 7.80 8.00 7.29
6.00
4.00
2.00
0.00 Bulgaria Croatia Czech Estonia Hungary Ukraine Poland Romania Slovakia Slovenia Lithuania Republic 2017 2018
Source: Eurostat, State Statistics Service of Ukraine
Electricity price Period: 1H 2018 Score: EUR/kWh
Lithuania 0,0815 Slovenia 0,078 France 0,093 Romania 0,086 Poland 0,086
Ukraine 0,053 Estonia 0.088 Czech Republic 0,073 Austria 0,099 Bulgaria 0,074
0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.10
Source: National Energy and Utilities Regulatory Commission
22 Labor force and utilities
Fuel price Period: Jan 2019 Score: EUR/l
1.40
1.20
1.00
0.80
0.60
0.40
0.20 0.00 Bulgaria Croatia Czech Estonia Hungary Ukraine Poland Romania Slovakia Slovenia Lithuania Republic Euro 95 Diesel
Source: European Commission
23 Ukraine’s manufacturing subsectors
24 2019 | National Investment Council | Manufacturing Ukraine’s manufacturing subsectors
Manufacturing accounted for almost 14% of GDP in 2018, and the industrial production growth is expected to be 1.8%. Major manufacturing sectors include heavy industry (machinery, automotive, metallurgy and mining), light industry (textiles, wood processing, chemicals) and high-technology (aerospace).
Ukraine is a major producer of heavy machinery and industrial equipment for different industry sectors such as metals and mining, agriculture, chemicals and transportation. Supported by a well-developed network of technical and research institutions, local manufacturing has a strong scientific and technological background. Heavy industry plays an essential role in the Ukrainian economy, with metals, mining and machine accounting for almost 48% of total exports.
However, subsectors, such as food and wood processing, and chemicals are outperforming Ukraine’s heavy industry in export sales with 51%.
With more than 2,300 enterprises and over 85,000 people employed, light industry has a great potential for development. The sector has been steadily growing three years in a row. Products are exported to 150 countries all over the world, more than 80% of that volume being supplied to the EU countries.
Industrial production rate Period: 2012-2020 Score: %, y-o-y
4.5 2.8 3.9 1.8 0.7 0.4
2012 2013 2014 2015 2016 2017 2018E 2019F 2020F -4.3
-10.1 -13.0
Source: State Statistics Service of Ukraine, Ministry of Economic Development and Trade
Industrial production rate, sector breakdown Period: 2010-2018 Score: %, y-o-y
20
0 2012 2013 2014 2015 2016 2017 2018
-20 Mining Manufacturing Agriculture
25 Ukraine’s manufacturing subsectors
Top-5 sectors contributing to GDP (nominal) Period: 2010-2017 Score: % of GDP
50%
40%
30%
20%
10%
0% 2010 2011 2012 2013 2014 2015 2016 2017
Wholesale and retail Manufacturing Agriculture Transportation and warehousing
Source: State Statistics Service of Ukraine
Export dynamics has been on the rise due to the growing prices for commodities of Ukraine’s origin on the world market and increasing export of services. The introduction of the Free Trade Agreements with the EU and intensified restrictions in trade between Ukraine and Russia led to the gradual shift in Ukraine’s exports. European Union has become the largest trade partner of Ukraine - the share of the EU in Ukraine’s foreign trade has reached 37.5%. This trend will strengthen in the future, due to reorientation of Ukrainian economy towards the Western partners.
Export dynamics by destination Period: 2010, 2016, 2018 Score: %
2018
2016
2010 37.5 31.9 25.5
48.5
59 European Union 55.4 26 Russian Federation 9.1 Other countries
7.1
Source: State Statistics Service of Ukraine
26 Ukraine’s manufacturing subsectors
1 Metallurgy
Ukraine is one of the major players on the world metal market. Represented by various industrial groups, metallurgy offers full processing circle, from mining and raw material enrichment to production of metals and alloys.
Strong position on the global market is mainly caused by the significant export orientation – about 60% of the total output goes abroad. Globally, Ukraine ranks №12 on the list of top steel producers and №4 on the list of net steel exporters.
More than 800 entities, including 19 large iron and steel works, 12 pipe-rolling plants, 10 refractory plants, a number of ferroalloy plants
21 million tons of steel produced annually
Largest deposit of iron ore reserves (19.8 billion tons)
Major steel producers Period: 2016-2017 Score: million tons
2016 2017 Rank Mt Rank Mt China 1 807.6 1 831.7 Japan 2 104.8 2 104.7 India 3 95.5 3 101.4 United States 4 78.5 4 81.6 Russia 5 70.5 5 71.3 South Korea 6 68.6 6 71 Germany 7 42.1 7 43.4 Turkey 8 33.2 8 37.5 Brazil 9 31.3 9 34.4 Italy 11 23.4 10 24.1 Taiwan 12 21.8 11 22.4 Ukraine 10 24.2 12 21.3
Source: World Steel Association
27 Ukraine’s manufacturing subsectors
Major exporters of steel in the world Period: 2017 Score: million tons
70 60.9 60
50
40 31.2 30 24.9
20 13.8 13.0 12.0 10 7.5 4.7 4.4 4.0 0 China Japan Russia Ukraine Brazil South Taiwan India Iran Belgiun Korea
Source: World Steel Association
Largest industrial groups:
Metinvest the largest industrial group in Ukraine, major owner of iron ore deposits;
Zaporizhstal - an integrated iron and steel enterprise of Metinvest, which holds leading positions in steel production in Ukraine. The design capacity of steel works allows to produce about 6.3 million tons of sinter, 4.2 million tons of iron, 4.07 million tons of steel, about 3.7 million tons of hot-rolled mill products, and about 1.2 million tons of cold-rolled mill products;
ArcelorMittal a multinational industrial company which operates an in-house mining and enrichment plant at its Ukrainian steel mill, ArcelorMittal Kryvyi Rih. The largest steel producer in the world;
Ferrexpo - a large iron ore pellet producer with mines in Ukraine and sales operations around the world. The company has been mining, processing and selling high quality iron ore pellets for over 40 years. Listed on the LSE and is a constituent of the FTSE 250 Index.
28 Ukraine’s manufacturing subsectors
2 Heavy machinery
Heavy machinery is one of the leading industries in Ukraine. The majority of machinery engineering enterprises are located in the Eastern and South-Eastern parts of Ukraine, regions with major concentration of raw materials and developed industrial infrastructure.
Machines and equipment are exported to 80 countries, including EU, India and China, with total value amounting to USD 3.9 billion (10m 2018).
Machinery production Period: 2013-2017 Score: billion USD
10.21 7.38 6.20 6.22
2014 2015 2016 2017
Source: World Steel Association
Majors:
Motorsich – one of the world’s leading companies engaged in development, 27,000 production, repair and maintenance of aircraft gas turbine engines and industrial EMPLOYEES gas turbines. Exporter to more than 100 countries; Sumy NVO – one of the largest machine-builders in Europe, manufacturing 6,000 equipment for oil, gas and chemical industries. Owns specialized plants equipped EMPLOYEES with the most advanced equipment and modern control facilities; Turboatom - one of the world’s largest designers and manufacturers of steam 5,400 turbines, hydro turbines, hydro valves for HPP and pumps. Its production capacities EMPLOYEES allow to produce steam and hydro turbines with total designed capacity of 8 million kW and 2 million kW, respectively per year;
HARP (Kharkiv Bearing Plant) – one of the major European manufacturers of 3,000 bearings and the only Ukrainian manufacturer of bearings for railway transport. EMPLOYEES HARP is a recognized leader in research and manufacturing of ball bearings and one of the leading suppliers to enterprises of transport engineering and railway industry;
Zaporozhtransformator - the largest enterprise in the CIS countries and Europe producing oil-immersed power transformers and electric reactors, having manufacturing capacity 60,000 MVA per year, concentrated within a single plant site.
The first Ukrainian steam turbine for nuclear power plants was constructed and put into operation in 1958 by Turboatom. Since then, the plant has constructed over 2,000 turbines. Turboatom’s steam turbines are installed in 45 countries. The Ukrainian company supplies over 14% of total turbine power capacity and ranks 4th among the turbine construction companies across the world
29 Ukraine’s manufacturing subsectors
3 Heavy machinery
Ukraine’s automotive industry has become one of of total Ukrainian the fastest growing manufacturing sectors, owing spare parts exports to a favorable combination of increasing demand, availability of skilled workers, competitive salaries and 25 % for German integration into the European supply chain. automotive industry
Rapidly growing auto parts manufacturing clusters produce components for major European and global auto brands Since 2000, more than 20 global automotive companies have established production in Ukraine with more than 30 new plants and 40,000 jobs created Domestic production enjoys a market revival in heavy industry trucking, buses, trolley cars, farm tractors and related farm equipment
Ukraine has a good potential for significant development of the automobile industry. It has established metal, tires and plastics production, significant number of qualified personnel and constant increase in demand of finished goods.
Since 2015, 13 plants producing automotive parts have opened in Ukraine with the foreign investment involved (including 7 plants by German companies and 5 by those from Japan):
Bader (Germany) – In June 2018 the manufacturer of leather seats and other automotive $6 parts for Audi and BMW cars opened additional production capacities in Lviv region. The MILLION number of employees is about to expand from 660 to 1,200;
Leoni (Germany) – In September 2017 the manufacturer of auto parts opened its second $20 Ukrainian plant in Kolomyia, Ivano-Frankivsk region. Initially, the number of jobs at the MILLION plant is 700, with a possible further expansion to 5,000;
Kromberg&Schubert (Germany) – In 2015, the automobile wiring system manufacturer $12 working for European brands (Mercedes, Audi, BMW, Volkswagen) opened its second MILLION Ukrainian plant in Zhytomyr region. 3,200 jobs were created
Flex (USA/Singapore) – In January 2018, the world leader in contract manufacturing opened a new production line at a plant in Mukacheve, Zakarpattya. The total number of employees is 3,000
Fujikura (Japan) – started its first factory of electrical equipment and spare parts in Lviv in 2016
Some of the most reliable and well-known multi-purpose trucks KRAZ are designed and manufactured at KRAZ factory in Ukraine. More than 800,000 trucks have been made since 1961. Currently, KRAZ is supplying machinery for both civilian and military automobile industry
30 Ukraine’s manufacturing subsectors
4 Railcar manufacturing
Ukrainian railcar manufacturing has been growing extensively during the last four years. Due to an ambitious rail fleet renewal program by Ukrainian Railways (Ukrzaliznytsia), railcar production increased almost 5 times to 12,000 railcars per year to fulfill the demand. Following the development strategy 2021, Ukrzaliznytsia plans to purchase and construct more than 35,000 gondola cars.
Railcar manufacturing Period: 2015-2018 Score: railcars
12.000
6.831
2.811 1.054
2015 2016 2017 2018E
Source: State Administration of Railway Transport of Ukraine
Largest plants:
Kriukiv Railcar Building Works (KVBZ) – the largest railcar building enterprise in Ukraine. It designs and produces a wide range of rail vehicles, including passenger high-speed trains, coaches, metro cars, freight cars and military vehicles Dneprovagonmash – the second leading Ukrainian railcar design and building enterprise with the production capacity of more than 4,000 cars per year. The plans employs 4,000 people to design and manufacture 150 models of freight cars, including flat cars, gondola cars, hoppers, container carriers, etc.
The first Ukrainian high-speed electric train Tarpan was built in 2012 by KVBZ and launched in January 2013. Ever since, Tarpans have successfully transported over 12 million passengers
31 Ukraine’s manufacturing subsectors
5 Shipbuilding
Ukraine has a well-developed sea and river shipbuilding. The major enterprises are located in the Southern part of the country. The main center for marine shipbuilding is Mykolaiv where there are 3 major enterprises producing wide range of ocean and sea vessels. The second center is Kherson with two shipyards producing various types of sea and river vessels, port cranes and equipment. Capital repair and production of small vessels is carried out in Odessa, Chernomorsk and Mariupol.
Shipbuilding industry in Ukraine is focused on competitive export-oriented manufacturing. Its potential gets international marine companies involved into the development of the industry, because Ukraine has one of the largest marine industrial complexes in Europe, which includes:
8 11 5
shipyards with high-capability floating docks for marine engineering enterprises equipment which allows maintenance and local repairs, which produce about 20% of full-cycle construction of supported by experienced marine equipment, including modern vessels of all types engineering and other staff gas turbine engines
32 Ukraine’s manufacturing subsectors
6 Aerospace&aviation
Ukraine is one of the few nations with a well-developed aerospace industry, building civil, military and cargo aircrafts as well as supplying space technology. 17 specialized entities are involved in various aerospace programs. Since Ukraine gained independence in 1991, Ukrainian launch vehicles conducted 876 launches.
Ukraine has one of the world’s best expertise in aerospace
Home to the world famous Antonov design bureau known for designing the world’s largest airplane, AN-225 “Mriya” Serial producer of AN-178, a short-range medium-airlift transport A key supplier of turbine engines for aerospace industries worldwide Manufacturer of space launch vehicles, spacecrafts, as well as of space management, orientation and trajectory measurement systems Participant of the Sea Launch program alongside with USA, Russia and Norway Constructor of an expandable rocket carrier Zenit-2 used extensively in space launches from the platform 5 types of satellites were designed and produced in Ukraine Currently, the National Space Agency of Ukraine is working on further Sich series satellites and prospective Ukrselena series designed for Moon missions
Majors:
Antonov State Company – a leading Ukrainian aerospace manufacturer. Antonov built over 22,000 aircrafts, thousands of its planes are currently performing flights all over the world; YUZHMASH (Yuzhny Machine-Building Plant) – a full-cycle producer of spacecraft, missile systems and space launch vehicles. The plant owns quite strong in-house capacities including metallurgical, assembly, testing, welding, casting, forging and machining. The company has mastered and implemented a number of unique technological solutions. YUZHMASH does business in 23 countries.
AN-225 “Mriya”, an aircraft with one of the highest carrying capacity and one the largest wingspan in the world, was designed by the Antonov Design Bureau in Ukraine in 1980. At the time of a massive space program being unfolded by the Soviets, AN-225 was used as an air-carrier for Buran space shuttle
33 Ukraine’s manufacturing subsectors
7 Industrial parks
There are 49 industrial parks registered in Ukraine.
iv ar iv viv
ni ro
onets
essa
Industrial park framework:
IVITY: A: IOD: D: CT RE R N A A PE LA from for industrial usage only; R&D and >30 land owned by state or manufacturing 15 to local community can be years sold to park participants 700 ha
Industrial park targets: Advantages for industrial park participants: Creation of favorable conditions for Funding of park infrastructure projects by Budget Fund manufacturing for Regional development Adaptation of new technologies Industrial park participants are excluded from the share and approaches participation in the development of local infrastructure, Development of local infrastructure which is up to 10% of construction value Investment attraction Exemption of import duties for equipment, materials Creation on new workplaces and spare parts not produced in Ukraine and imported Support for small and medium for the purpose of the development of industrial park businesses and business set-up within industrial park
Other government support: Exemption from payment of import duties for the purpose of investing on the basis of signed contracts or as a contribution to the authorized capital of an enterprise with foreign investments Up to 0% import duties for goods originating from the member-states of the WTO, or from countries with which Ukraine has concluded bilateral or regional agreements on the most-favored-nation regime, including EU and Canada Exemption from import payment for equipment, which use renewable energy sources Providing the minimal rental rate for the lease of land and communal property by local authorities Support by local authorities for obtaining all permits and other documents necessary for the project implementation Allocation of funds from local budget to finance development and construction of engineering networks in industrial park 34 Regulatory framework
2019 | National Investment Council | Manufacturing 35 Regulatory framework
Business set-up
The most common forms of corporate entities used for doing business in Ukraine are limited liability companies and joint stock companies. Other types of corporate entities (such as additional liability companies, full liability companies and private enterprises) are rarely used in sizeable business operations.
LLC is a private company in which the investors participate LLC through ownership of so-called participation interest, expressed as a percentage of the LLC’s total equity capital
General overview of LLCs in Ukraine Participation interests cannot be publicly traded, are not deemed to be a security under Ukrainian law
Setting-up an LLC
An LLC can be State registration is completed registered online within 24 hours upon submission of all the required documents
Preparatory stage, including drafting There is no state fee documents of incorporation can be for the registration completed within 2 weeks
Rules regarding ownership
An LLC can be entirely owned by foreign investors (there are very limited restrictions on foreign ownership of companies in certain sectors such as media and agricultural business)
36 Regulatory framework
Management The highest authority of an LLC is a general meeting of its participants
The executive body of an LLC is a general director or a board of directors, headed by the general director
A foreign national can be appointed to the position of a director, subject to obtaining by such foreign citizen of the employment permit with the Ukrainian state employment authorities and tax ID number with the Ukrainian tax authorities. These procedures are not burdensome and usually takes up to 1 month
Management bodies are accountable to participants of an LLC and subject to fiduciary duty
It is possible to institute a supervisory board in an LLC upon the relevant decision of its participants
Flexibility of corporate governance
All principal issues related to operation of a private company are to be governed by the charter or corporate agreement rather than by law
Charter or shareholder agreement may provide rules applicable to disposal of shares to other shareholders or third-parties, execution of pre-emptive rights or waiver of pre-emptive rights, etc.
Shareholders’ agreements may provide for drag-along and tag-along clauses
37 Regulatory framework
Ukrainian law provides for private and public JSCs; whilst shares in the capital of a public JSC must be admitted to JSCs trading on at least one stock exchange and can be issued in Ukraine to the general public, a private JSC may issue shares only by way of private placement
Capital requirements
The minimum amount of authorized share capital for the year 2019 is 5,2 mln UAH, approximately USD 183,4 thousand. The founders may use cash, property, proprietary and non-proprietary rights, securities (except for the promissory notes and debt securities issued by The founder must pay at least 50% of the JSC) to pay for the shares in authorized share capital for the company to be authorized share capital legally allowed to carry out its business activities
Shares JSCs can issue ordinary shares and preference shares
Ordinary shares- give their owners rights to distribution of company’s income via dividends, to participate in the company’s business operations and to receive a portion of its property in the event of winding-up of the company
Preferred shares- give their owners priority rights over the owners of ordinary shares and voting rights on a number of issues as specified by law or the company’s charter and/or shareholder’s agreement. There are several classes of preferred shares, granting specific rights to their owners
38 Regulatory framework
Management The highest body of a JSC is a general meeting of shareholders, which must be held at least once a year as a matter of Ukrainian law
The executive body of a JSC is a board of directors or a sole director
A foreign national can be appointed to the position of a director, subject to obtaining by such foreign citizen of the employment permit with the Ukrainian state employment authorities and tax ID number with the Ukrainian tax authorities. These procedures are not burdensome and usually takes up to 1 month
Institution of a supervisory board is statutory required for the JSC with 10 or more shareholders. If the JSC at least 50% owned by the state or state-owned entity, the supervisory board must have at least 2 independent directors
An internal audit body - supervises the activities of executive body and audits company’s financial operations
Regulatory framework
JSCs are regulated by the National Securities and Stock Market Commission, the issue of any shares, including in the capital of a private JSC, must be registered with the Securities Commission
Flexibility of corporate governance
Majority of the principal issues Shareholders may enter into shareholders related to operation of a JSC are to be agreement to regulate (i) voting at the governed by the charter or corporate general shareholders meeting (ii) sale agreement rather than by law and purchase of shares agreed instances, pursuant to the agreed terms procedures (iii) deadlock resolution mechanisms (iv) procedure for exercising pre-emptive rights or waiver of the pre-emptive rights
39 Regulatory framework
Taxation
Ukraine ranks 54 out of 190 countries in Taxation in Ease of Doing Business ranking
General overview and rates
companies are subject to corporate income tax (18% standard rate), value added tax (20% standard rate, 7% reduced rate), and payroll related taxes: personal income tax (18%), unified social contribution (22%), and military duty (1.5%)
in addition there are 2 local taxes additional rental payments and excise and 2 local mandatory fees tax are applicable to hydrocarbon (rates vary based on a region) extraction, the tobacco and alcohol businesses, and car dealers
Residency rules and taxable income residents- legal entities incorporated in Ukraine and operating under Ukrainian law;
non-residents- legal entities incorporated in a foreign jurisdiction and operating under the laws of a foreign jurisdiction.
residents are taxed on its worldwide income received or accrued within the reporting period.
non-residents are taxed on its income received form the commerce and business activities in Ukraine and on non-business income received form Ukrainian sources.
Deductions and depreciation generally, all expenses are deductible if they constitute expenses under the financial accounting standards, however some limitations may apply to certain expenses
depreciation applies to all capital assets, including fixed and intangible property, expect for land, fixed assets under conservation, non-business assets and goodwill
40 Regulatory framework
Double taxation regime Ukraine has tax treaties with the following countries:
Algeria Estonia Jordan Mongolia South Africa
Armenia Finland Kazakhstan Montenegro Spain
Austria France Korea (ROK) Morocco Sweden
Azerbaijan Georgia Kuwait Netherlands Switzerland
Belarus Germany Kyrgyzstan Norway Syria
Belgium Greece Latvia Pakistan Tajikistan
Brazil Hungary Lebanon Poland Thailand
Bulgaria Iceland Libya Portugal Turkey
Canada India Lithuania Romania Turkmenistan
United Arab China (PRC) Indonesia Luxembourg Russian Federation Emirates
Croatia Iran Macedonia Saudi Arabia United Kingdom
Serbia and Cyprus Ireland Malaysia United States Montenegro
Czech Republic Israel Malta Singapore Uzbekistan
Denmark Italy Mexico Slovakia Vietnam
Egypt Japan Moldova Slovenia
Withholding tax standard rate of withholding tax in Ukraine is 15 per cent, however it may be considerably reduced by virtue of one of the 74 effective double-tax treaties
withholding tax generally applies to dividends, interest, royalties, income (except for capital gain) on the sale of real estate and on profits from the sale of securities
payments for freight services are subject to the withholding tax at a general rate of 6 per cent
interest payable under a syndicated loan through the organizing bank may be subject to reduced withholding tax rates under the relevant double tax treaty with the jurisdiction of residence of each participating bank.
41 Regulatory framework
Getting Land
General overview lend use rights can be obtained through one of the following avenues: (i) entering into long term lease agreements, (ii) acquisition of a company, holding land property or land use rights, (iii) accusation of the real estate, that would entail automatic acquisition of the accompanying land plot
Land lease agreements
long-term lease there is no specific leasing land from the state agreements for period requirements for or local community would up to 50 years leasing land from require prior decision of the are available a private entity or state body or the body of individual local self-governance.
Registration formalities the newly allocated land plots are subject to registration with the state registry. Such registration can be done online within a 14-business day term
land lease agreements as well as other agreements on use of land are subject to registration with the state registry of rights to immovable property. Such registration can be done online by submitting a scan copy of the agreement
42 Regulatory framework
Since 2014, the number of permits for business reduced from Licencing 143 to 84
As a matter of Ukrainian law, there are 33 types of business operation subject to mandatory licensing:
Alcohol manufacturing Professional services on Banking Financial services and retailing, tobacco the capital markets products retailing Business activities in the Television and radio Production of industrial Educational services sphere of electricity broadcasting explosives Pharmaceutical Production and repair of production, Construction of certain Telecommunications firearms pharmaceutical import categories of buildings activities and retailing Production of hazardous Activities of the banks of chemical substances Veterinary practice umbilical blood and other Medical practice listed by the Cabinet of human tissues Ministers Cultivation of plants listed Commercial fishing in Intermediary services for Fire safety services as narcotic substances waters outside Ukraine’s job placement abroad and precursors thereof jurisdiction Transportation of oil and Travel organizing Activities on the natural Issuance of lottery oil-products through activities gas market mainline pipelines Transportation of Business activities related passages and hazardous to manufacturing and Centralized water supply Foreign economic activity freight, international supply of interception and water transportation transportation of equipment passengers and cargo Generation of thermal Production of veterinary power, transportation and Security services Disposal of wastes drugs supply of thermal power
Procedure for obtaining a licence:
possible to licenses are issued in application package includes file for licence a 10-business-day filled-in application form, online term as of the date of ID documents of the company’s application director and documents listed in the licence requirements for specific business activity
Ukrainian law mandates that the in case of acquisition of a Ukrainian list of documents stipulated in company, or restructuring thereof, it’s respective licence requirements is licences and permits remain in force, exhaustive and licensing authorities provided that the company continues cannot demand submission of any to comply with their terms after the additional documents or information acquisition is completed 43 Further sector reforms
44 2019 | National Investment Council | Manufacturing 44 Further sector reforms
IMPROVING UKRAINE’S POSITION IN DOING BUSINESS RANKING BY WORLD BANK
In order to systemize actions needed to improve Ukraine’s position in Doing Business ranking, in January 2018 the Government approved Action Plan on Implementing Best Practices of Good and Effective Governance as reflected by the World Bank “Doing Business” ranking. The plan is being implemented on a rolling basis and encompasses deregulation and liberalization measures across various sectors such as business set-up, enforcement of contracts, landing and financing, investment protection, resolution of insolvency, procedure for receiving permits for construction, international trade, accounting and taxation. The plan needs to be updated based on the current position of Ukraine in the ranking, and further priorities of the country. They include deregulation, including regulation for business set-up, implementation of Insolvency Code adopted in 2018, improvement of procedures related to connection to the grid, etc.
IMPROVEMENT OF CUSTOMS CLEARANCE PROCEDURES
Implementation of the Law on Improvement of Customs Procedures and Introduction of the “Single Window” at customs (the Customs Single Window Law) which was adopted by the Parliament in October 2018
The Law provides for overall digitalization of customs paperwork and launch of a unified e-database which can be accessed remotely by various controlling agencies. The database will allow to proceed with inspection procedures online, on a risk-assessment basis. According to the Law, customs officials are required to use e-system for documentary exchange and cannot demand submission of papers which can be filed online. Customs clearance procedures should take no longer than 2 hours, while importers are no longer required to present phytosanitary certificates for all cargo categories (except food products). The Law also abolishes compulsory radiological examination of cargo. Implementation of the Law requires amendments to by-laws as well as improvement of customs digital infrastructure which is expected in 2019.
Adoption of the Law on Authorized Economic Operators (AEO)
The law aims at approximation of Ukrainian regulations with the EU customs procedures as required under Ukraine-EU DCFTA. Ukrainian AEO program is based on the Customs-to-Business partnership introduced by the World Customs Organization (WCO) and implemented in the EU. AEOs will be able to obtain certificates for customs simplification, security and safety or a combination of the two. Candidates for AEO should meet the requirements, similar to those in the EU, such as: (i) compliance with customs legislation and taxation rules, (ii) appropriate record and books keeping, (iii) financial solvency, (iv) proven practical standards of competence or professional qualifications, (v) appropriate security and safety measures. Ukrainian AEO certificates shall be recognized in all customs offices in Ukraine and are eligible for mutual recognition in the EU pursuant to Article 80 of the Ukraine-EU DCFTA. Adoption and implementation of the Law will ensure more transparent and quicker custom clearance procedures.
FURTHER IMPROVEMENT OF CONSTRUCTION PROCEDURES
Abolition of share contribution to the development of infrastructure
The draft law canceling mandatory share contributions by developers to the local budgets has been approved by the Government and is being considered by the Parliament. The Law aims at abolition of the currently applicable obligation for developers to contribute up to 10% of cost estimate for non-residential buildings and up to 4% of cost estimate for residential buildings to the local budget for the development of infrastructure. Adoption of the Law will decrease costs of construction and significantly deregulate construction procedures.
45 Further sector reforms
MAKING CONNECTION TO THE GRID EASIER
Implementation of the Methodology on Calculating Fee for Connecting to the Transmission and Distribution System that has been adopted by the energy regulator
According to the new regulation, the basic rate for connection to the grid is 3480 UAH/ kW (VAT excluding, approximately 112 EUR) for all transmission operators until the end of 2020. Regulation provides incentives for connection of large electricity plants to the high-voltage grids by setting a discounted connection rate and a discounted connection rate for electricity producers. The new methodology will apply starting January 2019 and is expected to improve procedures related to connection to the grid and ensure transparent pricing mechanism.
REFORMING STATE INSPECTIONS OF BUSINESS
The Government is implementing a risk-based approach for state inspections aiming to decrease the number and duration of inspections. The decision includes introduction of a public integrated inspection database, which encourages more transparent, predictable and accountable activities by state bodies. The system provides open online access to information about state supervision measures and schedule of state inspections for the current year.
An approved methodology determining the frequency of authorized business inspections has been adopted. The methodology ensures a unified approach to the measurement of risk inspections might have towards economic activity and introduction of the frequency of planned state supervision. It also introduces unified forms of documents, drafted as a result of state supervision measures. Further steps will be focused on implementation of the risk-based approach and integration of all inspection agencies into the database.
FURTHER LIBERALIZATION OF CURRENCY CONTROL
The Parliament passed the Law on Currency that comes into effect in February 2019.The law replaced restrictive post-soviet regulations and introduced liberalized rules of currency control.
Pursuant to the Law international business transactions below the UAH 150 000 threshold shall not be subject to currency control. Further, the law enables non-residents to open accounts with Ukrainian banks and use such accounts for cross-border and local currency transactions. Cross- border FX transfers can be operated via banks, non-banking financial institutions, or post offices holding respective NBU licenses. Certain transactions can be settled in a FX on the territory of Ukraine. The Law implies mild sanctions for violating currency regulation and introduces clear criteria for currency-control restrictive measures, whereby such measures must be proportionate, necessary to address the risks to the financial stability, well-substantiated and temporary. The Law stipulates market self-regulation principle aimed at introduction of floating exchange rates.
The National Bank of Ukraine introduced a number of liberalization initiatives to supplement the Currency Law. As of February 7, 2019 special sanctions for breaching terms of payments in cross border transactions will be abolished. Further, the time period for settlement of export- import contracts will be extended to 365 days (instead of currently applicable 180 days). With macroeconomic growth and increase of foreign currency reserves, NBU will further proceed with liberalization of currency regulation.
46 Further sector reforms
APPROXIMATION OF TECHNICAL REGULATIONS WITH THE EU STANDARDS
As of January 2019, Ukraine have withdrawn 12 090 interstate standards (GOST/ГОСТ), developed before 1992, meaning the abolition of over 90% of previously applicable outdated technical standards. Instead, Ukraine progressively transposes the corpus of European standards (EN) as national standards, including the harmonized European ones as required under article 56 of the Ukraine-EU DCFTA.
Government is expected to further develop legislation on technical regulation, standardization, conformity assessment, market surveillance, metrology and accreditation concerning the provisions, which regulate circulation of industrial products in line with the EU acquis. The remaining GOST regulations will be eliminated by 2022.
IMPLEMENTATION OF THE EUROPEAN PRODUCT LABELLING RULES
The law on Food product packaging was adopted by the Parliament in December 2018. The law aims at alignment of Ukrainian packaging with the relevant EU regulations. The law provides clear rules regarding the information that must to be placed on packaging such as shelf life, country of origin, storage and ingredients that may trigger allergies or intolerance. The similar technical regulation concerning the packaging of cosmetic products is being developed in line with the EU standards. The relevant by-laws are to be introduced and adopted in 2019 to comply with EU regulations.The Government will also proceed with implementation of EU standards into labelling of goods.
47 Recent success stories
48 2019 | National Investment Council | Manufacturing Recent success stories
ArcelorMittal, the largest steel producer in Ukraine, attracted EUR 350 million financing from EBRD and European commercial banks in 2017. The loan will be used for investment in ArcelorMittal’s plant in Ukraine – modernization of current operations, expanding production, improving ecological standards. In 2018 the $680MILLION company announced further USD 286 million to be invested in production modernization in Ukraine
Leoni, the cable supplier for major automotive companies, launched construction of their second plant in Kolomyya, Ivano-Frankivsk region, investing around USD 20 million. The $20 number of jobs is going to rise to 5,000 till 2020 MILLION
Fujikura plans to open its third cable manufacturing location in Ukraine. The company plans to expand staff to 6,000 employees. In the recent years the company opened two plants in $80 Lviv and Nimiriv MILLION
In May 2018, world leading producer of ski and scuba diving equipment HEAD signed a USD 80 million deal on building a new plant in Ukraine $80MILLION
Unilever will expand production localization in Ukraine in 2018-2019. At the recent meeting with the President the company confirmed intention to further invest in its facilities
Sarantis Group acquired Ergopack, the leading player on the Ukrainian household goods market. Ergopack pioneered production of household products in Ukraine in 2001 and currently is the second largest player in the local arena
49 Recent success stories
UBC Group (top-3 global producers of beverage coolers) invested EUR 10 million in the first stage of construction of the refrigerator production plant Greencool. The second stage will involve another EUR 10 million of investments. The projected sales volumes from the first stage of the plant are 400 million UAH per year, and after €10 the second stage is completed (approximately MILLION in 2019-2020), they will grow to 700 million UAH per year, provided that additional 1,000 new jobs are created
In June 2018, the manufacturer of leather seats and other automotive parts for Audi and BMW cars launched additional production capacities in Lviv region. The number of employees is $6 expected to grow from 660 to 1,200 MILLION
In 2015, the automobile wiring system manufacturer working for European brands (Mercedes, Audi, BMW, Volkswagen) opened its second Ukrainian plant in Zhytomyr region. $12 3,200 jobs were created MILLION
In January 2018, the world leader in contract manufacturing opened a new production line at a plant in Mukacheve, Zakarpattya. The total number of employees is 3,000
50
Produced by the Office of the National Investment Council of Ukraine which is supported by the European Bank for Reconstruction and Development
For any questions or comments please contact [email protected]
This report has been prepared by the Office of the National Investment Council for information purposes only. Although the information in this report comes from sources we believe to be reliable, and although we have made every effort to ensure its accuracy at the time of publication, we make no warranty, express or implied, of this report’s usefulness in predicting the future performance. Nor should this report be regarded as a complete description of the macroeconomic situation and markets regulation in Ukraine.
Office of the National Investment Council doesn’t do or seek to do business with companies covered in its research reports.
Any investment decision made on the basis of this report shall be made at the investor’s sole discretion, and under no circumstances shall Office of the National Investment Council or any of its employees or related parties be liable in any way for any action, or failure to act, by any party, on the basis of this report.
This report, or any part of it, is free to reproduce, distribute and quote, referencing Office of the National Investment Council is required.
Source of photos: Shutterstock