April 2018 GSS Press Group Securities Services Monthly In this issue Ukraine AT A GLANCE Ukraine Small steps that make the difference 2 TALKING POINT Yuriy Butsa Deputy Minister of Finance 4 MARKET ROUNDUP 6 SOCIETY Ukraine's unique places 10 CONTACT US 12 IMPRINT & DISCLAIMER 13 Reform promise ATTILA‘S PHOTO BLOG 14 Located between different spheres of publication may have noticed already that This document is intended for geopolitical interest, Ukraine has been en- there is news about improvements to the institutional investors only. meshed in armed conflicts which dominate market environment nearly every month. the newsflow. But with this issue of GSS Press, we would like to shed a light on the On a somewhat macabre note, our colle- reform progress the country has been ma- ague Katherine Yevtushenko points out that king. A courageous new approach puts an Chernobyl has turned into the number one end to over-regulation and excessive bu- attraction for international visitors to Ukrai- reaucracy, which is most beneficial to the ne. She suggests a number of other places development of the economy. promising a more comforting ambience such as the Optimistic Cave or the Tunnel Bohdana Yefremova, Head of GSS Ukrai- of Love. ne, sums up the results of the reform pro- gram. From talking with Yuriy Butsa, Depu- Kind regards, ty Minister of Finance, we could understand Attila Szalay-Berzeviczy how determined the government in Kyiv is Executive Director in that respect. Attentive readers of this Head of Group Securities Services GSS Press | April 2018 1 AT A GLANCE UKRAINE Small steps that make the difference Ukraine continues strengthening its econo- mic shape, while eagerly working on far- reaching reforms. The restoration of the paying capacity of both the corporate sector and private households was accommodated by the mo- derate economic growth of 2.5% in 2017, the National Bank of Ukraine (NBU) has stated. Ukrainian banks kept expanding their loan portfolios both for individual and for corporate clients. Capital investments, more attractive for foreign investors. Based citizens were required to obtain individual by the official statistics, surged by 22.1% on their full understanding of what needs licenses, they can now invest abroad. Mo- (against 18% in 2016). to be improved, a number of practical reover, the intentions to replace the archaic steps have been taken. Among them was system as a whole have materialized in the Other positive factors include the high level the liberalization of the outdated FX con- draft law “On Foreign Currency”, which, of consumer activity, a rapid growth (over trol system. In 2017, the NBU continued after consultations with market participants, 20%) in construction and IT, strong dyna- gradual deregulation in this area and lifted was submitted to the Parliament. The bill is mics in machine building, food production, a majority of the restrictions introduced in based on the idea that everything which is the light industry as well as the chemical 2014-2015. In addition to that, repatriati- not forbidden shall be allowed. It is expec- sector. Also, Ukrainian exporters are enjo- on of income from government bonds was ted to unblock flows of capital to the benefit ying the extended presence of Ukraine in simplified. Unlike in the past, when local of investors and local market participants. the EU markets due to the free trade zone. The figures may not be extraordinary, how- ever, the fundamental changes which are going on, require some time to show full effect. In addition to the long-term projects already started in the past, the year 2017 brought the initiation of important reforms in education, the pension and health care systems as well as the legal framework to develop the energy sector and agriculture. Decentralization is another important pil- lar, prompting initiatives to elevate of the role of the regions. Focus on financial markets development With respect to financial markets, the au- thorities are committed to making them GSS Press | April 2018 2 AT A GLANCE For majority shareholders this means a de- crease in administrative expenses, stream- lined decision-making process and mitiga- ted risks regarding blockades by minority owners stretching their rights. On the other hand, the minority owners obtained the possibility sell their shares at a fair price. Based on the new legislation, squeeze-out procedures have already started in some 45 companies, and more are expected to come. All these are gradually changing the in- vestment environment. However, further growth is subject to completion of the re- forms already started as well as the cou- rage to initiate other necessary changes, including unpopular ones, still in this pre- election year. Bohdana Yefremova Head of GSS Ukraine Shaping the future of the stock market Corporate governance gradually improving Last year, the local regulators signed The emphasis on corporate governance a Memorandum of understanding on a for listed Ukrainian companies is based on local market infrastructure, which envisa- newly introduced corporate agreements, ges changes to clearing procedures, a con- independent directors, as well as the deri- solidation of depository functions within a vative suit concept. With these instruments, modernized CSD and a number of other minority shareholders got better protection ambitious novelties. of their interests and additional measures to influence key corporate decisions. While the framework legislation is being drafted, this project has already started Moreover, squeeze-outs have become pos- off in practical terms. Particularly, the law sible as of last year. Considering that a vast which enables implementation of the nomi- majority of Ukrainian joint-stock companies nee concept passed the first reading in Par- were created in the course of the mass-pri- liament and is awaiting further approvals. vatization process, it is quite common that nearly 100% of a company’s shares are At the same time, the CSD is actively wor- concentrated with one single shareholder, king on modernizing its IT systems. The de- while the rest belongs to thousands of mi- pository is now in the process of defining nority owners. In this situation, the squeeze- respective business requirements, not with- out/sell-out mechanism allows to balance out active consultations with the market. the interests of shareholders. GSS Press | April 2018 3 TALKING POINT Attracting international investors Yuriy Butsa, Deputy Minister of Finance, presents the government’s comprehensive reform agenda, designed to support the economy as well as financial market development, to GSS Press. Mr. Butsa, in your opinion, to which extent has the investment climate in Ukraine im- proved over the past couple of years? Improvement of the investment climate is a top priority of the government and since 2014 many initiatives were implemented in this area. Our economy was overregu- lated, therefore we initially concentrated on cutting red-tape in multiple areas. For example, the number of permits needed to run a business was decreased twice and the number of economic activities subject to licensing shrank to 32. Rudimentary factors such as price controls for food were removed completely as well. Moreover, we decreased the need for busi- ness to communicate with the authorities through the digitalization of state services and simplified this communication by ope- view, was the introduction of an automated duties were abolished, we observe conti- ning one-stop shops. VAT-refund mechanism last year as this was nuous integration into the European value considered as the biggest problem for our chains with EU companies opening pro- All of this resulted in the significant impro- exporters over years. duction facilities in Ukraine. vement of our positions in the Doing Busi- ness rating, where Ukraine went up 36 We definitely don’t stop there and have In 2017 the level of foreign direct invest- places since 2014. ambitious plans for this year. Among them ments increased by 26% to USD 1.8 bn. are a simplification of capital controls, the The most actively invested areas were fi- What are the initiatives to simplify market reduction of the pressure of law enforce- nance and insurance, the industrial sector, entry for foreign investors? ment agencies on businesses and an im- wholesale and retail. This year we plan to At the Ministry of Finance, we have con- provement of intellectual property rights increase the amount of direct investments, centrated on the Tax and Customs reform, among others in the pipeline. in particular, thanks to the introduction of two areas which were often named as the a transparent privatization mechanism. We biggest cost factors for running a business. How have foreign direct investments de- regard the state participation in the econo- The number of taxes was decreased twice veloped recently? And where do investors my as excessive and plan to sell off many from 22 to 11 as well as the rates of some come from? of the state-owned enterprises with the goal of them which were not competitive compa- Today foreign investors are really interes- to raise around EUR 700 mn from privati- red to our neighbors. We also decreased ted in Ukraine. We have strong competitive zation in 2018. the cost of paying taxes through abolishing advantages such as a cheap but skilled la- various tax-reporting forms and moving to bor force, growing domestic demand and How would you evaluate the cooperation online reporting. the logistical benefits of proximity both to with the IMF? EU and Middle East markets. After DCFTA Our current program with the IMF is the The most important step in this area, in my with the EU was signed and most of the most ambitious in our history and it is hard GSS Press | April 2018 4 TALKING POINT ty. Now our goal is to demonstrate that we continue with this approach and that these achievements prove to be irreversible.