News2biz UKRAINE, 6 January 2011, No 8

The bi-weekly business report by Bonnier

MANUFACTURING Norwegian IT consultancy Sofa manufacturer Ambiente: successful Itera to open new centers sales from East to West PAGE 3 Itera will open two new operation FINANCE centers in Ukraine and expand the one Piraeus Bank strengthens its positions at in Kyiv. Kyiv will remain the front office, PAGE 4 home and Ukraine while other locations must provide cost FOOD & AGRICULTURE efficiency that clients are so keenly loo- Pig producer Halychyna Zahid invests, king for these days. PAGE 9 looks to buy another farm PAGE 6 PROPERTY & CONSTRUCTION Komodor logistics park Lviv, one of the hosts of UEFA Euro 2012, nearly full now enjoys construction boom PAGE 7 Here to stay: Lviv is the place where Danish business community has Komodor logistics park near Kyiv is RETAIL & SERVICE planted its flag in the ground. Picture: news2biz COVERAGE ON LVIV: PAGES 2,3,6,7,10,13,14 about to sign up two new tenants, Burger King eyeing Ukrainian market, which will bring the park's occupancy new fast food chain welcome PAGE 10 Where have all the Danish businesses gone? rate to 90%. Successfully expanding IT & MEDIA tenants are also expected to bring joy to Danish Mita-Teknik finds Ukrainians Gone to Lviv every one. the happy host. PAGE 12 skillful and ambitious PAGE 10 To put together this special publication, news2biz UKRAINE TRANSPORT & LOGISTICS visited Lviv to take a close look at the activities of the local Danish Most important updated Ukraine buys 10 Hyundai trains to give key figures in this issue PAGE 11 business community. The editor met with several of the 43 Danish speed to Euro 2010 visitors PAGE 16 firms now operating in the region and learned what gives them Real estate prices ENERGY & ENVIRONMENT Stocks PAGE 17 PKN Orlen to develop hydrocarbon the competitive edge. Regional data PAGE 18 reserves in Ukraine PAGE 12 SEE ALL KEY FIGURES PAGES 16–18 ECONOMY & POLITICS Money moves via Cyprus Ukraine's key developments in 2010: More to come: cooperative FDI in Ukraine as of 01.10.2010 ALSO IN THIS ISSUE: PAGE 15 from protesters to reforms Others ▶ Shoe manufacturer SIKA intro- Lviv attracts investors Cyprus The Danish Business Assiciation is about to duces new models each year PAGE 3 Sweden ▶ EBRD enters UkrSibbank, brings France Bonnier Group/Äripäev publishes similar business reports on Po- sign a memorandum of cooperation with know-how to the table PAGE 5 UK land, Latvia, Lithuania, Estonia and China. As a subscriber you Lviv governmental and tax authorities. German ▶ Ukraine may soon launch indus- Austria have access to your country report ten years back through our on- y trial shale gas production PAGE 13 DBA is determined to invite more Danish Russia Holland line archives at www.news2biz.com. Multiple user access available investors to the region, but would like to ▶ Forget China, come to Ukraine, - write [email protected] or phone +372667 0251. Source: State Statistics Committee of Ukraine says director of HRT's plant PAGE 14 see the cumbersome red tape go. PAGE 13

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REGIONS venturesome – and have been MANUFACTURING manufacturing, to start production, turning Lviv into a Danish haven in etc.," Lars Vestbjerg recollects. "In Lviv: Danish haven in Ukraine since then." addition, it was a problem to refund SHOEMAKING Ukraine "Eight years ago, there were just VAT." Some 1,000 years ago, it was the five Danish companies operating in SIKA safety shoes: from Baltic and Black Sea and the Dnieper Lviv. Now, our association unites 43 Jutland to Galicia and… Common problems River that played the pivotal role in firms in the region and is about to As it took him almost a year to the development of international back to Europe expand further to the neighbouring tackle all those problems, he realised trade in Eastern Europe. The so- Lars Vestbjerg came to Lviv back in Ivano-Frankivsk, Ternopil and Volyn that all the locally-based Danish called Trade Route from the March 2003 to manage SIKA regions," says Lars Vestbjerg, businesses had the same problems Varangians to the Greeks allowed Footwear Ltd, a daughter company chairman of the board of the Lviv- and it would be reasonable for them Scandinavian traders to not only of SIKA Footwear A/S, the family- based Danish Business Association to unite and put the consolidated establish a direct prosperous trade owned manufacturer of working and (DBA, see page 13 for more details), pressure on the local authorities. with Kyivan Rus' and Byzantium, but safety shoes founded in the Danish to news2biz. Still, as he was proposed to head also prompted some of them to town of Herning as early as 1870. the Kyiv-based European Business settle in the territory of the present- "SIKA manufactured its footwear Association (EBA), the idea of day Ukraine. Thank you Lars! in Estonia from 1997 to 2006, but in forming DBA was to wait for better Today, it is Trans-European The conversation took place shortly the course of time it turned out to be days. transport corridors and international before Christmas in the Lviv office of too expensive to operate in Estonia air services that connect people SIKA Footwear Ltd (see the story and the company decided to throughout the continent. So it is no below) managed by Lars Vestbjerg. outsource elsewhere," he explains. wonder that Lviv, the largest city of He had kindly invited the Western Ukraine located just 70 km Ukrainian editor to Lviv to meet him Looking for lower costs off the EU border and featuring an and the local Danes and the "To be competitive you are supposed own international airport and well- invitation was gratefully accepted. to have lower production costs, i.e. developed transport and logistics So this issue is mainly about Lviv cheaper labour force and logistics, so infrastructure, has given home to a and its hospitable Danish residents, we acquired the premises of a large Danish business society their successes and problems. former electronic factory in Lviv to throughout the past decade. start production here," the general manager of SIKA Footwear Ltd goes The production of SIKA, moved Danes the Pioneers on. from Estonia to Ukraine in 2002. "Danes were among the first foreign In 2002, when SIKA started Photo: news2biz businessmen, who saw the true relocating its production from Esto- value of our region's geographical nia to Ukraine, the Lviv-based In 2007, SIKA's Lviv production location back in the 1990s," says workshop had only 28 employees facilities reached its historical Nazar Bychyshyn, director of the and was capable of producing just maximum output of 208,000 pairs Lviv-based garment factory of around 25,000 pairs of shoes and and the shoe producer relocated the Danish HRT (see page 15), clogs a year. remaining production orders from its explaining the high number of "At that time, we had to get subcontractors in Estonia to Ukraine. Danish companies operating in the permissions for almost everything: SIKA's strategy for the following region. "They have proved to be true news2biz editor: It was a fruitful to reconstruct our facilities, to use year saw Ukraine as not only the business pioneers – vigorous and trip despite the frost. Photo: news2biz the building for footwear production site, but also a possible 3 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

sales market. As the limited hotels and restaurants, food "50% of our products are to Actona, the Danish company production area halted the output production and agriculture, building delivered to Europe, mainly to selling more than 2m chairs, growth, the company was going to and construction, metal processing, Scandinavia, through our parent 342,000 dining tables, 475,000 sofas start building a new factory on a transport etc) in Scandinavia, company Actona," says Denis and 260,000 office chairs each year. suitable land plot. However, the Germany, France and Benelux. McNally, general director of global recession started the very Ambiente Furniture, to news2biz. Growing demand same year. If the shoe fits… "On the other hand, we have also Taking advantage of its strong been long cooperating with IKEA, In 2009, SIKA's production Output of footwear in Ukraine, mln pairs financial potential, Actona started volume decreased by approximately who sells our sofas under its brand investing in improving Ambiente's 8% because of the downturn, but the 25 and at very competitive prices in production efficiency and quality. As following year the shoe producer Russia." the factory extended its upholstery, managed to quickly recover and cover and model range and reduced reach the 2008 level. 20 delivery time, it resulted in a "We have succeeded, because our growing demand for its products. down time for developing new So Actona increased Ambiente's models is rather short," Lars 15 production area by 50% to 6,500 2007 2003 2005 2004 Vestbjerg explains. “We introduce 2006 2008 2009 sq.m and doubled its production five-six new models each year and Source: State Statistics Committee of Ukraine capacity to 11,000 seats per month they are very well sold." in just one year. The company's staff grew from 70 employees in 2006 to "In addition, we are pretty "We would also like to see our 280 in 2009. flexible in terms of the production shoes and clogs sold locally, as well quantity and are always ready to as in Russia, one day,” Lars meet our clients' needs," he states. Vestbjerg says. “Hopefully, these Denis McNally: IKEA sells our sofas "Finally, we know the system here industrial markets will expand under its brand in Russia. Photo: news2biz [in Ukraine] and can minimise our enough to show strong demand for expenses even though everything our products." Ukraine is much closer has significantly grown in price since According to him, Ambiente We have talked to our arrival." Furniture was originally founded by to our European and Lars Vestbjerg [email protected] two Danes, who had previously ”Russian customers than Tel +380 322 521 288, +380 67 674 68 66 (mobile) taken a shot at business in Slovakia. China, while the Fact In May 2005, they acquired a FURNITURE PRODUCTION cattle farm and rented 10 ha of land production costs in the 75 Ambiente's Ukrainian-made in the village of Kolodentsi near two countries are Lviv. It took them about half a year people are currently employed by sofas demanded in Europe to complete all the formalities, comparable. SIKA in Ukraine. and Russia alike design the would-be factory's project Denis McNally, general director of Ambiente Furniture Unlike SIKA (see the story above), and start the renovation of the Today, SIKA is one of the Ambiente Furniture, the sofa acquired premises. In May 2006, the "Apart from Ambiente in Ukraine, strongest companies in Western manufacturer based in the village of factory was officially launched. Actona has two upholstery factories Ukraine employing 75 people and Kolodentsi some 30km north of Lviv, Having invested some EUR 3m in in China, Actona Sofa Corporation, supplying its products to a wide ran- halves its export deliveries between the project, in April 2008 the which started as a joint venture in ge of sectors (medical treatment, the western and eastern markets. founders sold, however, the factory 2005 and is fully owned by Actona 4 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

since March 2007, and Actona Sea- "There is a certain extent of red national relations, tells news2biz latest technology available, in an ting Ltd, which was acquired in Au- tape in Ukraine as there is about the aim of the move, his effort to provide its customers with gust 2009," says Denis McNally. everywhere, but the only really company's strategy in Ukraine and the best service available as well as serious problem we are facing here other relevant and interesting to reduce operational costs. now is the VAT reimbursement," he things. emphasises. "Everything else can be ▶ What is, in your opinion, the cur- managed in this country." ▶ What was the reason of expand- rent state of the Ukrainian banking "As far as the Ukrainian sofa ing the authorised capital of your system and what are its future market is concerned, it is very Ukrainian subsidiary? prospects? fragmented and local players do not The main reason that led to the Actona has increased production welcome newcomers. If you want to strategic decision of increasing Currently the Ukrainian banking space of Ambiente. Photo: Actona enter this market, you have to part- Piraeus Bank ICB's authorised capital system shows clear signs of stability. ner a large retailer, such as JYSK, for was to further improve the quality of The liquidity issues that the banking As the latter has the production instance, who has been dramatically our portfolio and to strengthen the system faced in the recent past seem area of 50,000 sq.m and 600 expanding its local presence lately," positioning of Piraeus Bank in the for the worst part to be over, and employees, it is meant to produce Denis McNally points out. local market. optimism is returning to the the bulk of Actona's product range markets. We have talked to The financial indicators show (corresponding to 400 containers Denis McNally [email protected] that Ukraine is slowly but steadily Hopefully, this optimism will be per month at its full capacity), while Tel +380 32 299 34 44, +380 67 370 41 31 (mobile) moving towards achieving the reflected in the real market the former with 16,000 sq.m and critical mass required to drive the conditions as well and it will allow around 400 people is to focus on market back to growth and the business to grow further. manufacturing some cheaper models FINANCE expansion, and via the capital (about 22,000 seats every month). increase, Piraeus Bank will be ready "The sofas produced in China are CAPITAL EXPANSION to support the growth by financing delivered directly to Actona's healthy businesses. customers in Europe, the USA and Piraeus Bank strengthens Australia, as well as to the grip at home, in Ukraine ▶ What is Piraeus Bank’s general de- warehouses in Denmark, the United In December last year, Piraeus Bank, velopment strategy with respect to Kingdom and China," general one of the largest Greek lenders with Ukraine? director of Ambiente comments. a strong presence in Southern and Our main focus is to provide our "However, Ukraine is much closer to Eastern Europe, decided to increase customers – corporate customers our European and Russian its equity capital by EUR 800m to and individuals – with innovative customers than China, while the strengthen its market positions both banking products and services of Ilias Milis: Piraeus Bank will be production costs in the two countries domestically and in the operating high quality as we do in all the ready to finance healthy busi- are comparable." countries. countries where Piraeus Bank nesses. Photo: Piraeus Bank Earlier that year, Ukraine's operates. Fact Piraeus Bank ICB, which is part of One of the key areas that we will ▶ Do you believe that the bank con- Piraeus Bank Group, increased its focus in the near future will be the solidation is one of the most promis- 4x authorised capital by UAH 232m to enhancement of the e-banking ing trends of the Ukrainian market UAH 742m. services. and will Piraeus Bank be one day increase was posted by Ambiente in Ilias Milis, Piraeus Bank Group's Towards this direction Piraeus prepared to merge or acquire an- terms of staff. deputy managing director for inter- Bank ICB will be investing in the other lender? 5 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

The Ukrainian banking market tional Commerce Bank (renamed NEW INVESTOR Directors and is due to be finalised currently consists of a large number into Piraeus Bank ICB). BNP Paribas sells 15% in in Q1 2011, subject to necessary of banks that in the after-crisis era At the end of September 2010, UkrSibbank to EBRD legal and regulatory approvals. will look for ways to strengthen their Piraeus Bank Group had an "This is going to be our first position in the local market, either international network of 10 banks, Having consolidated 99.99% in equity investment into a major by entering into strategic alliances or 21 companies and 882 branches UkrSibbank, Ukraine's fifth largest Ukrainian bank with a diverse client by mergers & acquisitions. (361 in Greece and 521 abroad) and bank in terms of assets, France's BNP base," says Anton Usov, EBRD's The fact that few large players employed a total of 13,414 people. Paribas Group has sold a 15% stake principal adviser in Ukraine, to in its Ukrainian asset to the enjoy the lion's share of the market news2biz. European Bank for Reconstruction will force smaller players to invent Fact and Development (EBRD) for USD ways that will allow them to Moving on to bigger fish diversify their positioning by 82m. Earlier EBRD used to acquire stake offering flexibility and better 54 The deal is part of the strategic in smaller domestic lenders, such as customer services. partnership agreement completed by Kredobank, Megabank and Piraeus Bank constantly monitors branches have been opened in the parties on the back of the recent ProCreditBank, as the major and evaluates local markets in an Ukraine by Piraeus Bank. increase of UkrSibbank's capital by Ukrainian banks were not, according effort to identify early on the USD 382m. to him, interested in EBRD's opportunities that will facilitate in As of 30 September 2010, the presence. achieving its goals in the local mar- bank's total assets were EUR However, as BNP Paribas has ket. 57.559bn, equity capital amounted bought out UkrSibbank's stake from - - - to EUR 3.362bn, the clients' deposits, repos and retail bonds its former partners (24.5% from Ernest Galiyev in 2009 and 18.6% Established in 1916, Piraeus issued made up EUR 30.027bn, net loans reached EUR 37.960bn. from Oleksandr Yaroslavsky in early Bank went through a period of state- December 2010), EBRD's long-term ownership and management (1975- Piraeus Bank ICB has 54 experience in operating on the branches in Ukraine and covers the 1991) before it was privatised in Ukrainian market coupled with December 1991. Since then, it has country's 14 regions, providing a full western business standards may now continuously grown in size and range of banking services to be of good use to UkrSibbank's new individuals, small and medium-sized activities combining its organic French managers. enterprises and corporate clients. growth with taking over other Anton Usov: We have our own As of 30 Septemeber 2010 the lenders. know-how. Photo: EBRD bank's assets were UAH 3.483bn,

equity capital reached UAH Expansion launched According to the agreement, 762.904m, the clients' deposits stood By June 2000, the Bank became one EBRD is going to provide a financial at UAH 842.223m, credit and This is going to be our of the three largest private banks in package of around USD 220m to investment portfolio made up UAH Greece and in early 2005 started its UkrSibbank, consisting of a ten-year first equity investment 2.372bn. expansion in Southeastern Europe USD 140m subordinated loan and a ”into a major Ukrainian We have talked to and Eastern Mediterranean markets. purchase of 15% of UkrSibbank's bank with a diverse In 2007, Piraeus Bank Group Ilias Milis [email protected] shares. expanded its international presence Tel (0030) 210 333 5675 The transaction has already been client base. in Ukraine by acquiring the Interna- approved by the EBRD Board of Anton Usov, EBRD's principal adviser in Ukraine 6 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

It is expected that the new in- 33.17bn, corporate customers' funds Halychyna Zahid started its activity In his opinion, the Ukrainian vestor will not only provide the bank at UAH 8.18bn and individuals' in Ukraine in 2006, when it acquired agrarian sector needs governmental with the necessary resources, funds at UAH 12.27bn. a 417 ha farm, including 47 ha of support for its steady development. expertise, technical assistance and The bank's regional network the production area inside fence, in "The government is supposed to access to its international network, currently numbers around 750 the village of Kavsko, some 70 km boost domestic food producers, just but will also be able to develop branches and outlets throughout southwest of Lviv. like it is done in Russia. Instead, the UkrSibbank's corporate management Ukraine. "Since that time, we have almost Ukrainian authorities cannot find a and new business directions. We have talked to doubled the farm's annual capacity long-awaited solution to the VAT "We have our own know-how, Anton Usov [email protected] to 100,000 heads," the general reimbursement and other pressing which we would like to introduce in Tel +380 44 277 11 00 (switchboard) manger states, "and are now going problems," he emphasises. the fields of trade financing, real to add some 3,200 ha of production We have talked to sector crediting and energy area." Ole Jorgensen [email protected] financing," says Anton Usov. FOOD & AGRICULTURE Tel +380 324 530 792, +380 67 673 74 44 (mobile)

EBRD: largest investor MEAT PRODUCTION SPO ▶ EBRD is the largest financial in- Largest Danish investor in MHP attracts USD 165m vestor in Ukraine. As of 1 December Lviv region to buy new farm through SPO 2010, it had committed over USD As the European meat industry is Yuriy Kosiuk, the principal 5.7bn through 208 projects, includ- breaking new ground in Eastern shareholder and CEO of Myronivka ing more than USD 1bn of capital Europe, the Danish-owned pig Hliboproduct (MHP), Ukraine's and debt funding provided to the producer Halychyna Zahid has largest poultry and major grain banking sector since the beginning become one of the two largest Halychyna-Zahid has invested EUR producer, has sold his 10% stake in of the financial crisis. Danish investors in the Lviv region. 30m in the reconstruction of its the company in the course of its SPO ▶ Owned by 61 countries and two "We have invested around EUR Ukrainian farm. Photo: Halychyna-Zahid held in December last year on the intergovernmental institutions, 30m in the reconstructions and re- London Stock Exchange (LSE). EBRD supports the development of equipment of our Ukrainian farm Before the transaction he market economies and democracies Operating at its full capacity over the past five years," says Ole since 2008, the enterprise sells controlled some 75% of MHP's in countries from Central Europe to Jorgensen, general manger of shares, with the remaining 25% free- Central Asia. Landrace, Yorkshire and Duroc Halychyna Zahid, to news2biz, youngsters (weighing 20-25 kg floated on the LSE. adding that his company may each), as well as fattens up porkers. "We are very pleased to have purchase another farm in Ukraine in The farm features state-of-the-art successfully completed this What is more, EBRD's entrance in some three or four years. production technologies and placement, which has increased our UkrSibbank's stake will help BNP equipment, has its own feed mill and public float by almost 50% and Paribas decrease its expenses linked Doubling capacity a laboratory for analysing ready- should provide for an increase in the with the acquisition of the remaining According to him, Halychyna Zahid made food or ingredients. trading liquidity of our GDRs," Yuriy interest in UkrSibbank. has been backed by two funds, the "While Ukraine imports pig meat Kosiuk is quoted as saying by MHP's UkrSibbank was set up on June Danish Investment Fund for Central from Europe, we produce the very press release. 18, 1990. As of 1 November 2010, and Eastern Europe (IØ) and the same meat of the highest European MHP's strategic goal is to expand its net assets stood at UAH 44bn, Nordic Environment Finance Corpo- quality for the Ukrainian market," its annual chicken meat production equity capital at UAH 4.72bn, loan ration (NEFCO) established by the Ole Jorgensen declares proudly. from 350,000 to over 550,000 and investment portfolio at UAH five Nordic countries. tonnes by 2015. To achieve this, the 7 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

company is going to build Vinnytsia and sunflower, as well as to increase Lviv and the region shall be coming winter Olympic Games 2022 in Broiler, the poultry plant to be its grain export volumes, MHP pleted already this year. the mountainous Lviv region. launched in the town of Ladyzhyn declared its readiness to expand the According to Volodymyr Gubit- In December last year, Viktor (Vinnytsia region) in four stages by land bank to 300,000 ha by the end sky, vice chairman of the Lviv state Yanukovych met Jacques Rogge, the 2018. of 2010 and up to 400,000 ha by regional administration in charge of president of the International Olym- 2013. the Euro 2012 preparations, the No- pic Committee (IOC), and declared Fact In November last year, MHP vember-December 2011 period shall ambitions to develop the necessary acquired three farms in the see the launch of Lviv's new stadium infrastructure in Lviv and the Carpa- 35% Khmelnytsky region with the total and airport terminal, as well as put- thian Mountains irrespective of the land bank of 12,000 ha. In October ting into operation 156 km of new IOC decision on the place of the increase in revenues was posted by 2010, the company purchased yet and reconstructed motorways. 2022 Olympic Games. MHP in the first 9 months of 2010. another grain producer in the same region, who used to control more Olympic dream As each of the plant's phases is than 11,000 ha of land (see "We are dreaming of hosting the capable of producing 110,000 news2biz UKRAINE no. 4, page 5) Olympic Games in Lviv. However, no tonnes of chicken meat per annum, MHP unites a total of 20 matter the result of Lviv's qualifying, it is planned that MHP will be able enterprises producing poultry, beef the works we have planned will be to increase its current annual and sausages, grain, potato and accomplished and the infrastructure production of 350,000 tonnes to vegetable oil. to be developed in the Carpathian exceed 550,000 tonnes, once the During the first nine months of Mountains will be in use for the plant's first two stages have been put the last year, MHP increased its Olympic movement," he said. into operation in 2014. gross revenues by 35% year-on-year The new stadium in Lviv will have a to USD 676m, while its bet profit From his part, Jacques Rogge no- seating capacity for 33,400 specta- grew by 54% to USD 158m. ticed Lviv's potential and noted that tors. Picture: Euro 2012 News the Ukrainian authorities had five

years ahead to get prepared to the

qualification (to be held in 2015). PROPERTY & The works' budget exceeds UAH 7.3bn this year alone. Still the in- CONSTRUCTION vested funds are likely to pay back BUILDING MATERIALS rather soon. By the estimate of Sig- EBRD enters Ukraine’s INFRASTRUCTURE maBleyzer, one of Eastern Europe's leading private equity fund manag- Lafarge, assets in Lviv rgn Lviv region: an ever-lasting ers, the volume of foreign direct in- The European Bank for Reconstruc- construction boom? vestment in Ukraine is expected to tion and Development (EBRD) is As one of Ukraine's four host cities grow from USD 4.5bn in 2010 to prepared to pay EUR 100m for a of the forthcoming UEFA Euro 2012, USD 7bn this year, mainly due to the stake in the Ukrainian subsidiary of MHP will produce over 550,000 Lviv has been experiencing a true Euro 2012 projects. the French building material pro- tonnes of chicken meat a year. construction boom. Although the Lviv's current preparations may ducer Lafarge SA. Photo: Sven Arbet/Äripäev European football tournament is not end with the Euro 2012 though. According to EBRD principal ad- scheduled to start in June 2012, all The point is that the Ukrainian viser Anton Usov, a relevant frame- In an attempt to saturate the the largest infrastructure develop- president Viktor Yanukovych seems work agreement was endorsed on 14 growing internal demand for maize ment projects being carried out in to be obsessed with the idea of stag- December 2010 in Paris. 8 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

Its is expected that the Ukrainian sq.m of gypsum board a year) in the The Golden Arches opened its As a result, the market supply subsidiary will not only develop its Donetsk region. There is also a fro- first restaurant in Ukraine back in shrank substantially, while the excising quarry and distribution zen project, Bukovina Building Ma- May 1997, being the first demand for inexpensive fast-food, businesses in Ukraine, but will also terials (aimed to explore sand and international fast-food operator to already undersaturated, was rapidly serve as a platform for the future gravel fields in the Chernivtsi re- have appreciated the huge potential growing. expansion (through both new acqui- gion). of the almost 50-million European That could not last forever and sitions and green-field projects) into market (see new2biz UKRAINE no.1, the Ukrainian market saw the arrival other East European markets, such page 8). of the world's leading pizza deliverer as Russia, Belarus, Serbia and oth- RETAIL & SERVICE Domino's Pizza in October last year ers. (see news2biz UKRAINE no. 4, page Earlier EBRD reported about the FAST FOOD MARKET 8). planned creation of the holding Burger King vs. local Rather symptomatically, before company named Lafarge Aggregates coming to Ukraine, Domino's had Eastern Europe, in which it would market king? firmly established its presence on the acquire a minority stake (with the Ukraine's fast-food market seems to neighbouring Russian market, the entire project estimated at EUR have recovered from the economic pattern to be likely followed by 300m). recession, which has somewhat other global fast-food chains. At changed its trends though. least, the US-based Burger King Lafarge SA: feeling the recession bite It is a strong and undersaturated Corp. seems to be the first in this demand that remains unchanged Lafarge SA’s 2009/2008 performance and improvement indica- McDonald's opened its 70th restau- imaginable line. and attracts new players. Catching tors, in millions of EUR rant in Ukraine. Photo: McDonald's the trend, Burger King may be soon 2009 2008 ready to enter the market. Burger King Sales 15,884 19,033 Since then, the company has Having appeared on the Russian Operating income 2,477 3,542 invested more than USD 100m of Market king market just in early 2010, Burger Free cash flow 2,834 2,113 own funds in the development of its King Corp., the world's second In late December last year, nation-wide network and indis- Net debt 13,795 16,884 largest fast-food chain, has, McDonald's Ukraine opened its first putable dominance on the Ukrainian Net income group share 736 1,598 according to its Russian subsidiary restaurant in the country's south- fast food market. Net earnings per share 2.77 7.19 director Yana Pesotskaya, already eastern industrial city of Mariupol, Net dividend 2.00 2.00 found one more franchise partner in having invested around USD 1.5m in New players Source: Lafarge SA the project. the country and is going to double The advance of McDonald's brought With its floor space exceeding the number of its Russian outlets. the fast-food culture into Ukraine Having entered the Ukrainian 490 sq.m, the new restaurant is In the meantime, Burger King and catalysed the birth of a handful market in 1999, now Lafarge is rep- situated on the ground floor of the Corp. has also been negotiating its of locally-owned fast-food chains. resented in the country by the fol- Ukraina shopping mall in the centre arrival in Ukraine. According to However, the global downturn lowing three enterprises: Mykolaiv of half-a-million strong Mariupol. Vitaliy Boyko, director of the screened out the least professional Cement Plant in the Lviv region (an- "This is our 70th fast-food outlet Ukrainian Trade Guild (UTG), his players, while McDonald's was nual capacity of 1.4m tonnes), La- in Ukraine," says McDonald's company has been in talks with forced to change its tactics after farge Road-Metal Ukraine (two Ukraine's PR director Mikhail Burger King Corp., Galeries 2008 and shift emphasis from quarries with the total capacity of Shuranov to news2biz. "Earlier in Lafayette, Harvey Nichols, New launching new sites to revamping 4.6m tones) and Lafarge Gypsum 2010, we opened a new food court Yorker, Starbucks, Decathlon, H&M, the existing ones. Ukraine (capable of producing 15m in Kyiv's Sky Mall shopping mall." Armani Cafe, Nordsee and other 9 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

international operators over the Founded in Miami, Florida in king for new market on the back of "We expect to open up in Lviv in possible lease of floor spaces (totally 1954, today the Burger King system the sales recession in the USA and Q2 and in another location in 30%) in the Kyiv-based Ocean Plaza operates approximately 12,000 Europe. Ukraine in Q4 2011," says Anders H. (131,000 sq.m of GLA). restaurants in all the US states and According to some experts, the Lier, CEO of Itera Consulting, to in 73 countries and U.S. territories full saturation of the Russian and news2biz. "The second location has worldwide. Ukrainian fast-food market is not not been decided yet, but we are Approximately 90% of Burger expected earlier than 2012, but if aiming at somewhere in the Eastern King restaurants are owned and people's incomes grow, the full part of Ukraine." operated by independent saturation will keep running away. We have identified franchisees, many of them family- We have talked to Ukraine as a potential owned operations that have been in Mikhail Shuranov [email protected] ”market for the business for decades. Tel: + 380 44 230 09 22 In 2008, Fortune magazine Andrea Ungereit-Hantl [email protected] Kyiv will be a high-end expansion of the Burger Tel +49 89 63804 211, +49 172 8965148 (mobile) ranked Burger King Corp. among operations and front King brand. America's 1,000 largest corporations office, whereas the focus Andrea Ungereit-Hantl, Burger King Corp.'s communications & and Ad Week named it one of the ” IT & MEDIA public affairs manager for Central Europe top three industry-changing in Lviv and the third advertisers within the last three

decades and it was recently IT EXPANSION Ukrainian location will "In the course of normal recognized by Interbrand on its top Itera to launch two new be cost efficient produc- business, Burger King Corp. 100 Best Global Brands list. continuously reviews its worldwide operation centres in 2011 tion. restaurant portfolio and makes The listed Norwegian IT consultancy Anders H. Lier, CEO of Itera Consulting strategic decisions regarding Deemed to expand Itera ASA has great plans for expansion of the brand based on According to Mikhail Shuranov, Ukraine in 2011. The company, According to Mr Lier, the new many factors, including possible Ukraine's fast-food market will which is present with one back-office operation centre will have a staff of development opportunities, market certainly keep growing, as the pre- operation in Kyiv with app 50 staff, 100-150 per centre and the staff conditions, restaurant profitability, sent-day supply barely meets half of will open two new operation centres number in Kyiv will be in the 50 to consumer research and overall the existing demand. and expand the one in Kyiv. 100 range. brand presence," says Andrea Ukraine's and specifically Kyiv's "Kyiv will be a high-end opera- Ungereit-Hantl, Burger King Corp.'s growth potential (at least 180 tions and front office, whereas the communications & public affairs restaurants more) is often compared focus in Lviv and the third Ukrainian manager for Central Europe, to with that of Moscow. Indeed, the location will be cost efficient produc- news2biz, when answering the Russian capital's fast-food industry tion," says Mr Lier. question of her company's possible has been rapidly developing in the The motivation for finding other arrival in Ukraine. recent years. locations in Ukraine besides the "Based on these criteria, we have The annual growth is estimated capital is cost pressure from clients. identified Ukraine as a potential by Russian experts at 15-25% and "We feel a continuous pressure market for the expansion of the even 30% for 2010, when Moscow's on costs and we have to match that. Burger King brand and we are fast-food market was entered by We expect to have 30%-50% lower currently evaluating the opportunity Burger King Corp. and Dunkin Anders H. Lier: We expect to open cost outside Kyiv when looking at in more detail." Donuts, the transnational giants loo- up in Lviv in Q2. Photo: Itera both staff and location costs." Also it 10 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

is a question of availability of quali- WIND TURBINE are not only skilled and competitive, set to widen its products' application fied IT people. Mita-Teknik in Ukraine: but also ambitious and proactive," area. Itera just won an IT management from R&D to sales? Rostyslav Nakonechnyy says. "While continuing to develop contract for the Norwegian insurer "Finally, we all speak Russian in wind turbines controllers, we are Skuld from another Norwegian IT With all Lviv's advantages, it is the addition to Ukrainian and English." also planning to apply our house. The contract is worth NOK city's educated and well-trained technology to other industries. Thus 25m, but even though this forms a people that are its true virtue and Mita-Teknik has recently significant part of Itera's 2009 turn- greatest treasure. As the two manufactured a control system for a over of just above NOK 400m, it will universities based in Lviv foster combined heating electric station in not have any direct consequences for highly-qualified engineers and Denmark," Rostyslav Nakonechnyy the Ukrainian operation. designers, the city became the site of states. the first research and development "As we develop complete control division established by Mita-Teknik, Always on the move concepts for single machines, plants the Danish developer of wind "No, not as such. However, we are and remote surveillances, our turbine control systems, outside its continuously, due to the cost-cutting projects are rather resource- home country in 2003. pressure from clients, looking over intensive. So we have been heavily "While during 2006-2007 the our business and moving impacted by the global crisis," he Danish company set up similar Rostyslav Nakonechnyy: Ukraini- standardised processes to our back recollects. "During the six months subsidiaries in India and China, the ans are not only skilled, but also office location," says Mr Lier. following the 2008 downturn, 90% Ukrainian branch remains its largest ambitious. Photo: news2biz Itera, which in addition to Nor- of the orders we had got hung up. overseas R&D division," says its way also has operations in Sweden Back then we realised that contracts managing director, Rostyslav and Denmark, turned over NOK If everything goes according to are not always performed." Nakonechnyy, to news2biz. the plan, the sales office may, in his 412m and made a profit of NOK opinion, be opened already in a 21m in 2009; with 370 staff. Fact The Itera group is made up of the Awards to be proud of couple of years. companies Itera Consulting, Itera "In late November 2010, Mita- "Lately, there have been much Networks, Itera Gazette, Cicero Con- Teknik won a prestigious national talk in Ukraine about the 15-20% sulting and Compendia. award in Denmark – Ernst & Young's forthcoming start of industrial The Ukrainian operation serve as Entrepreneur of the Year 2010 – and production of wind turbines in the revenue growth is expected by Mita- back office functions for the entire was named the best Danish growth country. Hopefully, it will have Teknik in the coming years. group and the head of the Ukrainian company on the export markets," he finally started by that time," he operations, Igor Mendzebrovski is continues. "Here, in Lviv, we are believes. Still, Mita-Teknik managed to VP Global Outsourcing at Itera ASA. very proud to have contributed to As far as the other post-Soviet promptly adjust its business to the We have talked to achieving this success." states are concerned, Russia's Far new economic agenda and emerge Anders H. Lier [email protected] According to him, Lviv is also East, Belarus and Georgia seem to be from the crisis with a healthy result. Tel +47 95 284 360 (mobile) likely to host Mita-Teknik's sales the most promising markets, According to its annual accounts, the office, once the company decides to according to him. company ended 2009/2010 with a launch one in the post-Soviet So far Mita-Teknik has had its slightly higher activity than in countries. sales offices in the USA, Germany, 2007/2008. "This would be a logical choice, Italy and Spain, i.e. the leading Even though the gross profit since Mita-Teknik already has its global manufacturers of wind decreased from DKK 274m in subdivision in Lviv and Ukrainians turbines. However, the company is 2008/2009 to DKK 117m in 11 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

2009/2010, Mita-Teknik closed the guarantees of the Ukrainian km/h, while the rest of the trains are one of Komodor's three owners, to financial year with profits after tax government. The remaining funds not capable of producing velocity news2biz. of DKK 37m. The company has no will be provided by the Ukrainian higher than 120 km/h. Before Christmas, Komodor interest-bearing debt and the national railway operator Ukr- In terms of average speed, the signed up another tenant, Ukrainian available funds are satisfactory. Zaliznytsia. new trains are supposed to maintain Nova Linia, one of the country's big- For the coming years, Mita- 120 km/h compared with 100 km/h gest construction materials and Teknik hopes to grow by 15-20% a Passenger numbers to peak for the regional expresses and just home-improvement supermarket year as a result of an increased Since the passenger transportations around 40-50 km/h for all the other chains. The lease for 5,430 sqm will activity level expected in the wind in Ukraine are, according to the passengers trains. enter into force from February 2011. industry. country's infrastructure minister Bo- Last year, UkrZaliznytsia made a Mr Hiekka adds that Komodor is Started up in an Aarhus' garage ris Kolesnikov, expected to reach its test run of the so-called Western happy to have Nova Linia on as a back in 1969, Mita-Teknik is today peak during the UEFA Euro 2012, Express aimed to link Kyiv and Lviv client, especially since the company the market leader in manufacturing the first six contracted trains (for (see news2biz UKRAINE no. 1, page is expanding so rapidly. wind turbine control systems. The 400 passengers each) will be 12) and was planning to launch it company has around 230 employees delivered to Ukraine before the first within the preparation of the worldwide, while its export share is football tournament and the country's railway infrastructure for close to 100%. remaining four after it. UEFA Euro 2012. We have talked to As the new trains are capable of As the high-speed train operation Rostyslav Nakonechnyy [email protected] making 160 km/h, they are requires using special locomotives Tel +380 322 420 434, +380 50 430 50 46 (mobile) supposed to substantially reduce the and rolling stock, the Ukrainian excisting travel times. Thus it is infrastructure ministry and Hyundai planned that the Kyiv-Lviv route will Corporation have agreed to launch, TRANSPORT & LOGISTICS be covered within 4.5 hours, Kyiv- in the course of time, a joint Kharkiv – 3.5 hours, Kyiv-Donetsk – production of dual-system loco- EXPRESS TRAINS 5.5 hours and Kharkiv-Donetsk motives in Ukraine. Ukraine buys 10 Hyundai within just about 2 hours. electric trains for Euro 2012 UPTURN IN LOGISTICS Ukraine's infrastructure ministry has Fact Komodor to sign two major signed a contract with Hyundai Cor- leases, fill 90% of space poration for the purchase of 10 400 Partly Finnish owned Komodor logis- Risto Hiekka: We see an increasing interregional electric trains, which tics park just outside Kyiv is about to interest in the services provided by are meant to secure the high-speed passengers will be carried by each of sign up two new tenants which Komodor. Photo: viro.org communication between Kyiv, Lviv, the new trains purchased for UEFA would increase the rented-out space Kharkiv and Donetsk, the four Euro 2012. ratio from 2/3 to 90% of the park's Founded in 2000, Nova Linia op- Ukrainian cities to host the UEFA 69,000 sq.m lettable area. erates 17 DIY stores across the coun- Euro 2012. Today, Ukraine's fastest "Yes, we see an increasing inter- try. Nova Linia's fast growth will Under the contract, 85% of the passenger trains connecting the est in the services provided by Ko- continue as in September 2010 the deal's entire amount (USD 260m) capital of Kyiv with some of the modor. We hope to close the deals company secured financing from will be covered by the 4.5% 10-year largest regional centres, such as shortly, and one of them is a very IFC, a member of the World Bank credit of the Republic of Korea's Kharkiv and Dnipropetrovsk, can large one," says Risto Hiekka, CEO Group, to build three new hyper- Export and Import Bank against reach the maximum speed of 140 of Finland's Vicus Capital Advisors, markets – in Kyiv, Donetsk and Feo- 12 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

dosiya on the Crimea – an invest- ENERGY & pert opinions prepared by partners local partner, which should facilitate ment worth USD 50m. Nova Linia ENVIRONMENT under the agreement. further analytical work." has been a tenant at Komodor since "Due to confidentiality agree- Orlen seeks to catch up with its

March 2009. ments we cannot disclose the names main competitors in the region, GAS EXPLORATION In September 2010 Komodor of our potential partners at this Hungary's MOL and Austria's OMV, signed a 11,380 sqm lease agree- PKN Orlen to seek hydro- point. The same goes for the esti- which chose to develop their up- ment with the Ukrainian electronics carbon reserves in Ukraine mated value of our investments in stream capabilities a few years ago. retailer Eldorado (see news2biz Apart from exploration projects, Poland's leading oil firm PKN Orlen the country – it is too early for that." UKRAINE no 5 page 11). In addition Orlen is to invest in power genera- and the Ukrainian Ministry of the to Nova Linia and Eldorado, PKN Orlen is currently engaged - tion. By the end of 2011 the com- Environment have signed an agree- through its subsidiary Orlen Up- Komodor's tenants include Germany- pany is to choose partners and gen- ment on cooperation in exploration stream - in four exploration and headquartered CENTOS Central eral contractors for a gas-fired and production of hydrocarbons in Logistics and Ukraine-based Lux production projects: in the Latvian power plant in Wloclawek and select Ukraine. section of the Baltic Sea shelf, where Logistic Service. a location for another investment of In accordance with the agree- it is cooperating with Kuwait Energy this type. ment, Orlen will be able either to Company, in the vicinity of Sieraków Fact work under new licenses or to (60km northwest of Poznan), where jointly develop hydrocarbon reserves it is operating jointly with PGNiG, Ukraine is endowed with significant 32 already appraised by its Ukrainian and in the Lublin region, where it is resources of crude oil and natural gas. partners. carrying out another two projects Three petroleum basins have been kilometres west of Kyiv is where one individually. identified in its territory: finds Komodor Logistics Park. Analyses will tell The company holds a total of ▶ Dnieper-Donets Basin (Poltavsky "Our experts are currently carrying seven licenses, under which it is ap- Basin), where the in-place unap- Komodor Logistics Park, situated out detailed analyses, which will de- praising conventional deposits with praised resources, as estimated by 32 kilometres west of Kyiv on impor- termine the final shape of PKN Or- gas-condensate potential, as well as international experts, amount to tant E-40/M-06 highway, has been len's future operations in Ukraine. unconventional deposits, primarily 150m tonnes of oil and 850 bn cb.m fully operational since November Besides our own aspirations, the lat- shale gas. The work is currently at a of gas. 2008 and is considered to be among ter will depend also on local condi- stage of initial exploration and ▶ North Carpathian Basin (covering Ukraine's largest and most sophisti- tions, legal framework, and offers preparations for drilling, which Or- also parts of Poland) is the oldest cated logistics facilities with a total submitted by the Ukrainian side. We len Upstream has scheduled for next petroleum basin in operation. warehouse floor area of 59,530 sqm. are interested in both new licenses year. ▶ Black and Azov Sea Basin, which Built to the Class A modern ware- as well as pre-appraised projects," comprises both onshore and off- house standards, Komodor also fea- Orlen's Joanna Puskar tells shore areas lying within the tures 3,650 sqm of office and 5,770 news2biz. Rowing upstream boundaries of Ukraine. So far, it is sqm of mezzanine space. Under the co-operation agree- "Our entry to Ukraine is in line with the least explored of the Ukrainian In addition to Vicus, Komodor is ment, Orlen and its Ukrainian part- PKN Orlen's upstream segment de- petroleum basins. owned by Czech PPF Real Estate and ners are to jointly conduct explora- velopment guidelines," says Joanna London and Hong Kong based Cube tion and production projects, related Puskar. "The reserves are located in In order to finance its new un- Capital Limited. to both conventional deposits and Eastern Europe and there are pros- dertakings, Orlen is to sell its chemi- We have talked to shale gas. A decision on any equity pects for expansion of the product cal subsidiary Anwil and its stake in Risto Hiekka [email protected] involvement will be preceded by and portfolio. We have established rela- the mobile operator Polkomtel. By Tel +358 92 522 8200 (switchboard) based on in-depth analyses and ex- tions and signed agreements with a the end of February, the company is 13 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

to decide whether to sell also its enlist the support of large ECONOMY & POLITICS UEFA EURO 2012," says Lars Lithuanian business Orlen Lietuva, international players. Vestbjerg explaining the local which Orlen's CEO Jacek Krawiec re- According to the information bureaucrats' stance to news2biz. BUSINESS ASSOCIATIONS ferred to as a "bad, flawed, unneces- revealed at the Toronto Stock Ex- "Otherwise they will be replaced." sary investment" at a recent meeting change (TSE), the TSE-listed East Danish businessmen to help with journalists. West Petroleum Corporation (EWP, Lviv authorities attract FDI "We paid USD 2.8bn for the Canada), which explores oil fields in The Danish Business Association Lithuanian refinery and invested an- western Romania, has agreed with (DBA) uniting Danish companies other USD 0.7bn into the business. Kuwait Energy Company to jointly operating in Western Ukraine (see In order to get a satisfactory return, explore the Ukrainian depths. page 2) is planning to sign a memo- the plant should be earning PLN 1bn randum of cooperation with the a year, but there is no way to Foreign interest governmental and tax authorities of achieve such a result," Krawiec After the information release, the the Lviv region on 21 January 2011. added. share price of EWP, which possesses In October 2010, DBA signed a We have talked to: necessary exploration technologies, similar document with the Lviv City Joanna Puskar [email protected] has reportedly gone up by 5.5%. Council (see news2biz UKRAINE no. 4, page 14), but now the association Tel: +48 22 778 01 01 (direct) That was not the first time that is, according to its head Lars foreign companies showed their Lars Vestbjerg: DBA plans to sign a Vestbjerg, about to go further and interest in coming to Ukraine memorandum of cooperation with SHALE GAS delegate its highly-experienced (with though. In June 2010, Poland's Lviv region's authorities. Photo: news2biz at least eighth years of work in Ukraine may see industrial Kulczyk Oil completed the Ukraine each) representatives into a shale gas production soon acquisition of 70% in the Ukrainian "I proposed the Lviv authorities dedicated working group to be Ukraine has Europe's largest reserves gas explorer KUB-Gas. to set up a single window six years formed under the new agreement in of shale gas, according to Nadra ago, when heading the European Earlier last year, the UK- order to advise the local officials on Ukrainy, the country's state-run Business Association in Ukraine," he registered Cadogan Petroleum attracting foreign investment. company in charge of geological recollects. announced the purchase of the survey. They are concentrated Canadian Momentum Energy, which "If they manage to facilitate the mainly in the western part of used to possess licences for the gas entrance of foreign investors into Ukraine, the Lviv and Volyn regions, exploration in the Lviv region. Ukraine, establish a green corridor close to the border with Poland, As his country borders both on the border, etc., this will whose own reserves are estimated at Poland and Ukraine and also If investors do not have definitely improve the investment 1.36tn cub.m of shale gas or half the depends on the gas supplies from an already established climate." total EU reserves. Russia, in early 2010, the Belarusian ”network, it will be The industrial production of president Aleksandr Lukashenko Inviting colleagues difficult for them to shale gas may not only put an end to requested the Belarusian prospectors "We are going to invite more Danish Ukraine's dependence on the gas to find shale gas in the country. operate in Ukraine. companies to Ukraine through our imported from Russia, but also The industrial production of Lars Vestbjerg, head of the Danish Business Association association and I know several firms, dramatically change the situation on shale gas in Europe may seriously chiefly from the IT sector and metal the global markets. affect Russia's monopoly in the seg- "They are interested in the processing, which are prepared to To start the industrial ment of oil and gas supplies to the growing foreign investment, come here already now," the DBA production, the country will have to continent. especially now, before the coming head reveals. "However, there are 14 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

some bureaucratic barriers, such as Cyprus, Germany invest the most impossible for the China-based So in his opinion, Ukraine's key the protracted VAT reimbursement, Direct foreign investment in Ukraine as of 01.10.2010 exporters," says Nazar Bychyshyn, competitive edges are its low labour which hamper their arrival." who has also happened to work for costs and advantageous geo- Others Cyprus Ambiente Furniture (see page 3) and graphical location, which allows the Lviv-based Danish-Ukrainian J&L local producers to maintain low lead Strategy of Lviv Oblast till 2015 Sweden Consulting, to news2biz. time and flexible export policy. Four strategic goals: France "On the contrary, Ukraine "This is especially the case for the ▶ 1. Lviv oblast is a region of sus- UK borders the EU and the local Lviv region, which is located in the tainable economic and entrepreneu- Germany Austria manufacturers are able to export country's western part and has rial development. Russian The their products in any ordered traditionally, since Soviet times, ▶ 2. Lviv oblast is a gateway of Federation Netherland quantity," he goes on. "Our factory been a large centre of light Ukraine into the EU. Source: State Statistics Committee of Ukraine can, for instance, manufacture and industry," he says. ▶ 3. Lviv oblast is a region of highly deliver to our European clients 100 qualified people, innovation poten- We have talked to models of this or that product tial and technologically advanced Lars Vestbjerg [email protected] ranging from 50 to 1,500 pieces companies. Tel +380 67 674 68 66 (mobile) each, while it is just unimaginable ▶ 4. Lviv oblast is a region of clean for a Chinese exporter." Ukraine borders the EU and attractive natural environment, OUTSOURCING and the local culture, tourism and recreation. European outsourcing: Source: Investment portal of Lviv region ”manufacturers are able Ukraine vs China to export their products China is the globally renowned DBA was founded in January last workshop of the world. However, as in any ordered quantity. year and is aimed to give full it specialises in the large volume Nazar Bychyshyn, director of the textile garment factory of Helge support to the Danish businesses production, this gives Ukraine a Rasmussen Textiles operating locally in their relations unique chance to conquer the niche with the governmental bodies. of short-series manufacturing on the "Now, the Lviv-based producers are

European continent, believes Nazar recovering after the first wave of the Lobby is a must! Bychyshyn, director of the Lviv- global economic crisis that severely "Networking, lobbying and based knitted textile garment factory hit Ukraine and are gaining communicating is a need in a of Helge Rasmussen Textiles (HRT), Nazar Bychyshyn: Ukraine has a momentum in their development country like Ukraine," the DBA head the Danish manufacturer of private- chance to conquer the niche of again," Nazar claims. affirms. "If investors do not have an label products. short-series manufacturing. "Throughout the past five years, already established network, it will 2010 has proved to be the best year be difficult for them to operate in Any quantity welcome Photo: news2biz for HRT in terms of production Ukraine."' "China's major markets, the USA and volumes, even though our volume of He believes that despite all the the EU, are thousands of miles away According to Nazar Bychyshyn, it orders dropped by 20% and our staff available problems and the heavy from the world's workshop. It is su- takes his company just a couple of shrank from 350 to 170 during the impact of the global economic crisis per-large ocean-going container months to fully switch to a new crisis," he states. experienced by the country, Ukraine ships that deliver China-made production cycle compared to half a According to him, the remains interesting to investors. products to their customers, so small year necessary for a Chinese devaluation of the Ukrainian batch manufacturing is simply counterpart. national currency – one of the 15 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

consequences of the global recession Far East, while the accessories are seemingly strived to do just the reduced, their top officials simply – has proved to be of use for the bought in the Far East, Europe and opposite… reshuffled. Ukraine-based exporters. increasingly inside Ukraine to keep There were a lot of various ▶ 15 December: the Prosecutor Gen- prices competitive. events in Ukraine last year. The most eral’s office brought an action Lid on costs Placement prints are produced at important ones were the following: against former prime minister Yulia "Since our expenses have not grown one of HRT's close partners... a Tymoshenko, accusing her of misus- locally and the production value has Danish-owned company also placed ▶ 21 April: Ukrainian and Russian ing state funds. The latter re- decreased, the financial result has in Lviv. presidents agreed to prolong the sponded blaming the incumbent improved," he explains. We have talked to presence of the Russian navy in Se- president for persecuting his politi- vastopol, Crimea for the 25 years cal opponents. Founded as an Ikast-based Nazar Bychyshyn [email protected] following 28 May 2017. In exchange, ▶ 23 December: a new chairman of family-owned business back in 1935, Tel +380 50 370 88 21 (mobile) Russia consented to shave the gas the National Bank of Ukraine was Helge Rasmussen Textiles (HRT) price for Ukraine by 30%. The appointed. The banker is dubbed came to Lviv in 2003. EVENTS The company turned a non- Ukrainian opposition failed to ob- “The Yanukovych family’s personal residential building of 5,500 sq.m Ukraine 2010: key struct the move in parliament. cashier”. into a factory capable of developments ▶ 1 August: the government ad- ▶ 30 December: the State Budget for vanced the gas price for households 2011 was published in the press. It manufacturing 1.5m pieces of The past year was seen by many by 50% despite the April agree- envisages a deficit of UAH 38.84bn, children's clothes a year, 95% of people in Ukraine as a year of hopes. ments. 28.2% less than the year before. which are delivered to well-known The crisis-ridden economy showed ▶ 27 October: Ukraine and Russia European private labels, such as first signs of recovery. The agreed to set up joint ventures in Bestseller, C&A, Molo, Name JT and presidential elections were expected the aircraft building and nuclear en- others. to put an end to a long-lasting cold ergy industries. While intending to war in the corridors of power. establish a similar structure in the The newly elected president has HAPPY NEW YEAR! Ukraine vs China: wages running away gas sector, the two sides have failed indeed put an end to the "domestic Average monthly wages in China and Ukraine, in USD to come to terms so far. calamity" in the country's highest ▶ 18 November: a New Tax Code China Ukraine offices. Having consolidated an 400 passed. The controversial document immense power, Viktor Yanukovych provoked street protests held from 300 has at the same time assumed an 22 November to 3 December. The 200 immense responsibility for the businessmen and self-employed political and economic situation in 100 people, who came to Kyiv from all the country. 0 over Ukraine, made the president veto the Tax Code. 2007 2002 2003 2005 2004 2006 2008 2009 No dreamland ▶ 2 December: a new version of the Sources: ukrstat.gov.ua, stats.gov.cn The latter has in the meantime Tax Code passed. remained far from ideal. While ▶ 3 December: the protesters’ tent The factory has cutting, promising an economic camp in downtown Kyiv was dis- embroidery, sewing, controlling, breakthrough, tax holidays for the mantled by the police. packing and designing capacities. All small business and the general ▶ 9 December: the president the necessary fabrics are imported "improvement of the life already launched an administrative reform. from Poland, Turkey, Italy and the today", the new government has While the number of ministries was 16 | No 8 | 6 January 2011 | © Bonnier Group/Äripäev | UKRAINE

KEY FIGURES

INFLATION GROSS WAGES CONSTRUCTION PRICE INDEX

column A: average monthly wages in UAH; column B: indexed average wages, 100=2005 On monthly basis May '10 Jun '10 Jul '10 Aug '10 Sep '10 Oct '10 Nov '10 25% Year-on-year Month-on-month Q1 2010 Q2 2010 Q3 2010 100 = previous month 101.9 101.3 101.8 100.7 100.9 103.2 101.1 20% Sector A B A B A B 100 = same month prev year 115.8 117.0 118.7 118.4 117.6 118.6 118.3 15% Industrial production 2,312 287 2,519 313 2,682 333 10% Year 2003 2004 2005 2006 2007 2008 2009 Finance 4,247 527 4,545 564 4,727 586 5% 100 = previous year 120.2 125.6 123.5 123.1 135.3 111.3 Construction 1,433 178 1,689 210 1,915 238 0% Public administration 2,336 290 2,707 336 2,975 369 2 -5% Market volume in current prices, UAH m New residential buildings in 1,000 m Real estate activities 2,169 269 2,367 294 2,525 313 6000 3400 Jul 10 Sep 10 Jul 09 Jan 10 Nov 10 Nov Sep 09 Mar 10 Jan 09 May 10 Nov 09 Nov Mar 09 08 Nov May 09 Hotels and restaurants 1,330 165 1,460 181 1,518 188 3000 Transport, communications 2,534 314 2,661 330 2,889 358 Source: National Bank of Ukraine 5000 2600 National average 1,993 247 2,227 276 2,332 289 2200 PRODUCER PRICE INDEX Note: Wage accruals per pay-roll; Source: State Statistics Committee of Ukraine 4000 1800 On monthly basis May '10 Jun '10 Jul '10 Aug '10 Sep '10 Oct '10 Nov '10 CONSUMER PRICE INDEX 3000 1400 100 = previous month 104.4 99.5 99.8 100.9 100.1 102.4 99.7 column A: 100 = current 12 months; column B: 100 = previous month 1000 2000 100 = same month prev year 127.9 125.5 124.4 123.3 119.2 119.8 118.9 Aug '10 Sep '10 Oct '10 Nov '10 600 Year 2003 2004 2005 2006 2007 2008 2009 Sector A B A B A B A B Jul 10 Q1 '10 Q1 Q2 '10 Q2 '10 Q3 Sep 10 Mar 10 May 10 Q3 '09 Q3 '09 Q4 Nov 10 100 = previous year 107.6 120.5 116.7 109.6 119.5 135.5 106.5 Food, non-alcohol 108.8 99.9 113.2 104.4 113.0 100.5 111.4 100.1 Source: State Statistics Committee of Ukraine Note: Producer prices are prices of industrial goods excluding VAT and other taxes. Alcohol, tobacco 117.2 103.7 121.8 105.5 122.1 101.6 122.1 101.1 Source: State Statistics Committee of Ukraine Clothing, footwear 103.3 100.0 103.1 100.4 102.6 100.7 102.3 100.4

Housing, water, fuels 116.8 109.6 116.6 100.2 114.1 100.4 113.7 100.5 REAL ESTATE PRICES INDUSTRIAL OUTPUT INDEX 2 Transport 106.4 100.3 103.1 99.6 103.4 100.0 103.3 100.7 New flats, average price in Kyiv, UAH/m Commercial, average rent price in Kyiv, On monthly basis May '10 Jun '10 Jul '10 Aug '10 Sep '10 Oct '10 Nov '10 USD/m2; period 27 Dec 2010 - 3 Jan 2011 Communications 91.8 99.9 91.4 99.8 91.1 99.6 91.1 99.9 15500 100 = previous month 97.6 99.5 102.9 101.5 102.9 104.8 97.8 Gross CPI 108.3 101.2 110.5 102.9 110.1 100.5 109.2 100.3 Centre 100 = same month prev year 112.7 108.9 106.4 109.2 110.2 110.2 109.9 15000 Source: State Statistics Committee of Ukraine - office 21.63 Year 2003 2004 2005 2006 2007 2008 2009 14500 - retail space 36.89 100 = previous year 115.8 112.5 103.1 106.2 107.6 94.8 78.1 SENTIMENT INDICATORS 14000 Right coast (without centre) Source: State Statistics Committee of Ukraine Consumer confidence index Business outlook index 13500 Q3 2010 115.4 - office 14.74 120 Q2 2010 121.8 13000 - retail space 23.55 RETAIL TRADE 100 80 Q1 2010 115.6 at current prices Aug 2010 Sep 2010 Oct 2010 Nov 2010 12500 Left coast 60 Q4 2009 104.4 - office 14.25

Turnover in UAH m 48,788 47,110 51,682 47,744 40 Jan 11 Jan 10 Sep 10 May 10 Sep 09

May 09 20 Index 100 = previous month 101.7 98.4 102.2 97.5 - retail space 22.51 0 Note: National Bank of Ukraine has con- Index 100 = same month prev year 109.7 110.4 110.7 117.8 ducted a business outlook survey for a Number of transactions on secondary market Jul 10 Jul 09 Jan 10 Year 2006 2007 2008 2009 Sep 10 Sep 09 Mar 10 Nov 10 May 10 Nov 09

May 09 longer period of time, but publishes the Mar '10 Apr '10 May '10 Jun '10 Jul '10 Aug '10 Sep '10 Oct '10 Turnover in UAH m 129,952 178,233 246,903 230,955 Note: threshold of optimism = 100. Source: GfK index only since the end of 2009. Kyiv 345 350 378 321 376 390 407 389 Index 100 = previous year 137.8 137.2 138.5 93.5 Ukraine, International Centre for Policy Studies. Source: National Bank of Ukraine Source: realt.ua, Blagovest Real Estate Agency

CURRENCY INTEREST RATES STOCK EXCHANGE National Bank average rates 100 USD/EUR against UAH Average weighted annual interest rates on credits PFTS Ukraine Stock Exchange PFTS index as of 6 January 2011, change 9 Dec 2010 Recipient, currency Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 1300,00 EUR (left) 900 main list Price Change Change 987.80 100 USD 795.9000 ↑ Companies, UAH 14.82% 13.90% 12.95% 13.62% 13.84% 13.20% in alphabetic order 5 Jan 8 Dec end of '09 USD (right) 100 EUR 1051.6227 ↑ 1200,00 850 Companies, USD 11.26% 10.43% 9.71% 10.33% 9.58% 10.11% ↑ Alchevskiy Metalurg. Kom 0.23 + 28% + 64% Change 8 Dec + 12% ↑ 100 GBP 1239.6825 ↓ Households, UAH 25.30% 24.61% 28.10% 27.48% 26.63% 25.93% → Azovstal 2.99 + 8% + 12% Change end of '09 + 72% ↑ 100 DKK 141.1063 ↑ 1100,00 800 Households, USD 13.59% 11.39% 13.77% 10.69% 9.90% 11.17% ↑ Avdievsky Koksochim Zav 15.00 - 1% + 25% 100 SEK 117.7695 ↑ ↑ Centrenergo 15.02 + 2% + 58% PFTS closing index 100 NOK 135.0052 ↑ 1000,00 750 Kiev Inter Bank Offered Rate (KIEVPrime) as of 30 December 2010 ↓ Dniproenergo -- - the last three months Overnight 1 week 1 month 3 months 1,000 JPY 96.7276 ↑ Donbasenergo -- - 100 LVL 1488.9178 ↑ 10.75% 10.63% 10.75% 8.25% 1000 900,00 700 ↓ Enakiyvckiy Metalyrginiy Zav 188.33 + 12% + 12% 100 LTL 304.5710 ↑ Source: National Bank of Ukraine, Bloomberg 950 ↓ Interpipe Nizhnodniprovsky 8.17 + 1% - 11% 21 Jan21 01 Apr Jun10 10 RUB 2.6224 ↑ 19 Aug 28 Oct 06 Jan 900 → JSCB Ukrsotsbank 0.56 0% + 60% Source: National Bank of Ukraine 850 MONEY SUPPLY Krukivsky Carriage Works 36.49 - 2% - Mariupol Heavy Machineb. 10.82 - 45% - 800 in UAH m Jul '10 Aug '10 Sep '10 Oct '10 Nov '10 ↑ Motor Sich Jsc 3030.0 + 16% + 84% 750 CREDIT Monetary base 223,819 220,384 216,727 221,581 215,713 Poltava Gok 43.18 - 1% + 57% 700 The banks' net lending in UAH bn, loan stock by the end of period M1 269,281 271,303 275,424 277,682 276,374 5 Jan

↓ Raiffeisen Bank Aval 0.40 0% + 60% 7 Oct 6 Dec Type of loan Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Currency outside banks 175,080 175,103 174,814 175,226 173,332 6 Nov

- to private companies 457.52 462.21 453.58 463.28 488.24 M2 550,096 555,327 567,747 574,946 572,660 Stirol Concern -- -

- to households 252.33 241.31 229.34 221.32 218.76 - Time deposits 280,815 284,025 292,323 297,264 296,286 Sumske Nvo Im. Frunze -- - - to others 15.76 15.25 14.76 13.48 14.65 M3 550,941 556,176 568,810 576,046 574,070 ↑ Zakhidenergo -- - Total 725.61 718.77 697.68 698.08 721.65 - Net foreign assets EUR bn 78,438 90,010 114,789 107,673 105,972 ↑ Ukrnafta 594.18 + 51% + 252% Source: National Bank of Ukraine Monetary base: Ukrainian currency emitted by the central bank and money on accounts held ↑ Ukrtelecom 0.55 - 13% + 20% with it. M1= currency outside banks + demand deposits M2= M1+ time deposits (lnc in foreign cur- Yasynivskiy Koksohimichniy Z 4.52 + 17% + 35% rencies) Source: National Bank of Ukraine Note: PFTS index 100= 1 October 1997 Source: PFTS TRADE Ukrainian exports and imports according to commodity groups Ukraine's eight largest markets for trade of goods, ranked according to Jan-Oct 2010 in USD bn EXPORTS in USD bn IMPORTS in USD bn EXPORT IMPORT Jan-Oct 2010 Share Jan-Oct 2009 Share 2009 Share Jan-Oct 2010 Share Jan-Oct 2009 Share 2009 Share Jan-Oct Jan-Oct No Country Share 2009 Share No Country Share 2009 Share Non-precious metals, metal products 14.145 34.5 10.477 33.1 12.824 32.3% 3.254 6.8 2.190 6.1 2.681 5.9% 2010 2010 Mineral products 5.453 13.3 2.975 9.4 3.891 9.8% 16.749 35.0 12.137 33.8 15.675 34.5% 1 Russia 10.742 26.2 8.495 21.4% 1 Russia 17.563 36.7 13.236 29.1% Machinery 4.551 11.1 3.893 12.3 5.003 12.6% 6.317 13.2 4.955 13.8 6.270 13.8% 2 Turkey 2.378 5.8 2.127 5.4% 2 China 3.685 7.7 2.734 6.0% Agricultural food products 7.585 18.5 7.533 23.8 9.529 24.0% 4.498 9.4 3.914 10.9 4.952 10.9% 3 Italy 1.924 4.7 1.228 3.1% 3 Germany 3.637 7.6 3.852 8.5% Chemical products 2.747 6.7 2.026 6.4 2.501 6.3% 5.073 10.6 4.165 11.6 5.316 11.7% 4 Belarus 1.476 3.6 1.259 3.2% 4 Poland 2.249 4.7 2.170 4.8% Light industry products 0.902 2.2 0.855 2.7 1.032 2.6% 2.153 4.5 1.508 4.2 1.817 4% 5 Poland 1.394 3.4 1.213 3.1% 5 Belarus 2.010 4.2 1.693 3.7% Wood, wood products 1.435 3.5 1.203 3.8 1.469 3.7% 1.627 3.4 1.329 3.7 1.636 3.6% 6 Germany 1.230 3.0 1.248 3.1% 6 USA 1.388 2.9 1.286 2.8% Other goods 4.182 10.2 2.690 8.5 3.454 8.7% 8.183 17.1 5.709 15.9 7.088 15.6% 7 India 1.066 2.6 1.152 2.9% 7 Italy 1.053 2.2 1.140 2.5% TOTAL 41.0 100% 31.7 100% 39.7 100% 47.9 100% 35.9 100% 45.4 100% 8 China 1.025 2.5 1.434 3.6% 8 Hungary 0.957 2.0 0.678 1.5% Source: State Statistics Committee of Ukraine

GDP Reports for professionals at current prices UNEMPLOYMENT GENERAL INFORMATION doing business Period Real growth GDP in UAH m GDP per capita Current account Registered unemployed (ILO), in ‘000 and % of population in working age Population: 45,700,395 Currency: Hryvnia (UAH) in Eastern Europe & China year on year current prices in UAH in % of GDP 2500 number (left) % (right) 15 Q3 2010 3.4% 303,705 - - 2200 12 In power: President Viktor Yanukovych. Most Q2 2010 5.9% 262,365 - 1.3% 1900 9 seats in parliament Party of Regions (34%, PM news2biz Mykola Azarov), Block of Y. Tymoshenko (31%). Q1 2010 4.9% 218,125 - - 0.7% 1600 6 AS Äripäev, Pärnu mnt 105 Elections: 2012 parliamentary, 2015 presidential Q4 2009 - 6.8% 261,730 - - 1300 3 EE-19094, Tallinn, Estonia Most important tax rates Q3 2009 - 16.0% 251,263 - - 1000 0 phone: +372 667 0251 fax: +372 667 0265 e-mail: Income tax: individual 15%, corporate 25% 2009 - 15.1% 914,720 19,862 - 1.5% [email protected] Q1 10 Q2 10 Q3 10 Q1 08 Q1 09 Q2 08 Q3 08 08 Q4 Q2 09 Q3 09 09 Q4 VAT: 20% 2008 2.3% 948,056 20,495 - 7.0% web: www.news2biz.com Source: State Statistics Committee of Ukraine Social tax: up to 35% Source: State Statistics Committee of Ukraine, National Bank of Ukraine news2biz POLAND news2biz UKRAINE CURRENT ACCOUNT REGIONAL DATA news2biz LITHUANIA in USD m 2007 2008 2009 Oct 2010 Nov 2010 Output Monthly wages (UAH) Unemployment New dwellings news2biz LATVIA Trade balance - 10,572 - 16,091 - 4,655 - 1,317 - 956 Ukraine's regions Jan-Nov 2010 * Jan-Nov 2010** Jan-Sep 2010*** 2009 news2biz ESTONIA 2 Services, net 2,420 1,741 2,633 235 324 Industry Agriculture Amount Index* in '000 % ‘000 m % to ‘08 news2biz CHINA Direct investments, net 9,218 9,903 4,654 466 725 Autonomous Republic of Crimea 111.2 99.4 1,966 117.0 59.1 6.7 387.3 93.2 Investments, companies, market trends, Current account balance - 5,272 - 12,763 1,801 - 907 - 508 Cherkasy 117.9 107.6 1,817 120.3 62.9 10.8 144.8 88.7 key figures. Source: National Bank of Ukraine Chernigiv 99.8 86.9 1,689 116.4 54.5 11.6 104.8 51.5 Published on-line every 2 weeks. Chernivtsi 108.7 103.3 1,744 116.5 35.2 9.9 164.8 45.2 Independent news research since 1991. FOREIGN DIRECT INVESTMENT Dnipropetrovsk 117.2 101.4 2,345 120.9 116.6 7.5 170.4 38.9 On-site journalists in Poland, Ukraine, Lithuania, in USD m Donetsk 113.5 100.3 2,510 120.2 188.5 9.3 173.0 39.6 Latvia, Estonia, Sweden and China. On quaterly basis Q2 '09 Q3 '09 Q4 '10 Q1 '10 Q2 '10 Q3 '10 Ivano-Frankivsk 95.3 100.1 1,901 117.9 47.4 8.7 380.6 73.7 in Ukraine 1,439.1 625.9 1,435.2 - 19.4 394.7 2,109.8 Kharkiv 106.3 86.0 2,029 114.3 96.4 7.6 427.5 192.0 Publisher Bonnier Group/AS Äripäev Ukrainian DI abroad 1.8 - 35.6 32.1 569.9 - 29.0 87.1 Kherson 98.9 103.6 1,703 116.6 47.5 9.6 75.2 32.7 Year 2004 2005 2006 2007 2008 2009 Khmelnytsky 104.4 97.8 1,756 117.4 54.1 9.4 266.1 86.3 in Ukraine 2,252.6 7,843.0 4,717.3 7,935.4 6,073.7 4,410.4 Kirovograd 112.2 103.6 1,795 118.7 43.5 10.0 66.5 51.8 Ukrainian DI abroad 32.6 20.9 23.8 5,953.3 6.5 20.2 Kyiv (Kiev) 108.2 97.4 2,252 115.0 59.2 7.9 680.1 58.4 Source: State Statistics Committee of Ukraine Lugansk 105.6 90.2 2,239 121.1 78.0 7.7 35.1 14.1 Lviv 100.5 95.6 1,914 116.6 92.2 8.3 391.6 50.2 Editor-in-Chief Kertu Ruus [email protected] KEY ECONOMIC DATA FORECAST Mykolayiv 108.4 101.0 2,091 117.9 48.4 9.0 86.2 53.6 Senior Editor Peter Kyhn [email protected] 2010 2011 2012 Odesa 105.4 108.4 2,014 115.9 65.0 6.3 537.2 63.4 Indicator Newsdesk Ukraine Oleksandr Gavrylyuk IMF Swedbank IMF Swedbank Swedbank Poltava 114.6 92.6 2,064 121.0 68.6 10.3 155.5 59.5 [email protected] GDP change 3.7% 3.5% 4.5% 4.5% 4.8% Rivne 131.3 101.8 1,924 121.6 60.5 12.4 98.3 56.9 Customer Service Andrejs Visockis Consumer prices (inflation) 9.8% 18% 10.8% 9% 9.3% Sumy 91.2 91.7 1,841 117.2 58.2 11.5 138.6 69.7 [email protected] CA balance, % of GDP - 0.4% - 0.5% - 1.3% - 1.5% - 2.1% Ternopil 102.3 93.6 1,627 117.2 50.8 11.3 146.2 48.0 Sources: IMF, Swedbank Vinnytsia 105.9 100.9 1,757 118.1 76.4 11.0 171.5 47.4 Subscription prices e-access Volyn 125.7 101.5 1,664 118.2 40.1 9.1 138.7 71.1 3 months (5 issues) EUR 260 COUNTRY RATING Zakarpattia 141.8 96.2 1,809 118.1 52.5 9.5 169.2 43.0 6 months (10 issues) EUR 460 Agency rating outlook Zaporizhzhia 106.9 101.6 2,156 118.4 64.7 7.9 101.2 46.6 12 months (20 issues) EUR 790 Fitch Ratings B stable Zhytomyr 109.1 101.4 1,755 119.5 60.8 10.9 88.8 35.9 Standard & Poor's B+ stable National average 110.6 98.7 2,205 117.5 1,722.3 8.7 6,399.6 61.0 This edition completed 6 January 2011 Moody's Investor Service B1 stable * Index 100 = same period of the previous year. ** Data refer to enterprises with 10 and more employees; preliminary data. Next issue on-line 20 January 2011 Source: Investment agencies *** ILO, working age