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  • Ukrainian banks started using IBAN
  • Weekend Shoppers Drive Economic Growth
  • As a Big Kyiv Mall Opens, Dragon Buys its 3rd Kyiv Center
  • Higher Salaries, Wage Remittances Boost Retail Spending
  • Foreign Brands Invade
  • Muscular Hryvnia Spooks Policy Wonks
  • Bad News for Kolomoisky: US IMF Vet to Chair PrivatBank Board
  • Bloomberg: Ze to Copy Poland’s Free Market Growth Path
  • Hrvynia Rises 10.7% Against the Dollar This Year
  • Gov’t Property Sales Go Unchecked by Courts
  • Optimism Unnerves Media Pundits
  • Real Wages Up 18%
  • 2 Million Ukrainians Work Abroad
  • Dragon Buys Commercial Real Estate in Kyiv and Lviv
  • Corn and Fruit Grow
  • Pigs Plummet
  • Rozetka Opens Virtual Travel Agency
  • US Trident Wins 50-year Oil and Gas Contract for Ukraine’s Black Sea Block

On Monday, Ukrainian banks started using the IBAN, an International Bank Account Number. Mandatory in the EU and in 12 other countries, the alphanumeric identification number allows for the harmonizing of EU and Ukrainian payments systems. Usage will be phased in, starting with all new accounts this week and all money transfers after Nov. 1.

With retail the main driver of Ukraine’s economic growth this year, 44 major retail projects are underway in Kyiv, placing on the nation’s largest market 1.3 million square meters of new leasable space, reports the Ukrainian Trade Guild. “The lion’s share will open before the end of 2020,” reports the real estate consultancy. The retail vacancy rate is to rise above the current level of 5.5% and outdated shopping centers are expected to close. Several shopping centers owners are investing in modernizations, said Konstantin Oleinik, UTG’s head of Strategic Consulting. By contrast, Kyiv’s retail vacancy rate in 2016 was 12%.

River Mall, one of Kyiv’s largest new shopping/entertainment centers, opened its Planeta Kino multiplex cinema. Under construction for five years, the $140 million mall has 62,000 square meters of leasable space: retail – 55,000; business center – 4,500; and water park – 4,000 Located on Dniprovskya Embankment, the mall has restaurants with river views and underground parking for 1,550 cars.

Dragon Capital is acquiring its third shopping center in Kyiv, Smart Plaza Obolon. Opened six months ago in an affluent northern residential area near Minska metro station, the shopping and entertainment center has a gross leasable area of 9,000 square meters. Around Ukraine, Dragon now owns five shopping centers, with a total retail portfolio of 170,000 square meters, says Tomas Fiala, Dragon’s CEO.

An average vacancy rate of .01% for the first half of 2019 is claimed by Arricano Real Estate Plc, a Ukrainian shopping center company with shares listed on the Alternative Investment Market of the London Stock Exchange. “This is a result of the systematic work, innovative approaches, and competent management in recent times,” says Arricano CEO Mykhailo Merkulov. Arricano owns and operates five shopping centers, a 49.9% shareholding in Sky Mall, and land for three more sites.

Retail trade grew by 10% in real terms in the first half of this year y-o-y, reports Ukraine’s State Statistics Service. With consumer confidence high after the decisive second-round presidential vote, retail jumped 14% in June y-o-y. In the regions, the highest retail growth in 1H19 occurred in Vinnytsia – 18%; and Cherkasy and Odesa -16%. Concorde Capital’s Evgeniya Akhtyrko writes: “The retail boom is being fueled by fast growth in personal income…We expect real retail to increase 8-9% yoy in 2019 (vs. 5.8% yoy in 2018).”

Raiffeisen Bank economists Mykhailo Rebryk and Andreas Schwabe write:The main driver in the current phase of the economic cycle is the recovery of private consumption after the deep slumps in purchasing power in the recent past. Demand is boosted by strong growth of nominal and real wages in double-digit territory, increases of pensions and social transfers, substantial remittances from millions of Ukrainians working in Poland and other (eastern) European countries (€4.5 billion or 5% of GDP of remittances in January to May 2019 alone) and finally, the return of bank lending activity, with consumer loans growing by 18.7% year-on-year in May 2019.”

With movie theaters helping shopping centers compete against online shopping, Multiplex-Holding, Ukraine’s largest movie theater chain, is increasing its screens by almost 30% this year, to 166, Vitaliy Pysarenko, the company’s general director, said at a recent retail conference in Kyiv: “This year we have a huge construction program.” Holding 40% of national market share, Multiplex aggressively expands online sales – from 5% in 2015 to over 50% today.

The entry and expansion of international brands also fuel Ukraine’s shopping boom. Last year, Sweden’s H & M opened its first two Ukraine stores, in Kyiv. Now the company plans to open two more stores in Kyiv, one in Kharkiv and one in Dnipro. In River Mall, Germany’s Adidas is opening Adidas and Reebok stores, Spain’s Women’s Secret and Springfield are opening stores, and Intertop Ukraine is opening Ukraine’s first standalone store of American outdoor brand The North Face.  Earlier this year, Decathlon, Claudie Pierlot, Missha and Weill opened in Kyiv shopping centers.

Denmark’s JYSK, the furniture, and home goods store chain, plans to double its Ukraine stores to 100 by the end of 2023. In May, the company opened its 50th store, in Chernihiv, part of the plan to open one new store a month this year.

Sweden’s IKEA is recruiting 100 employees for its first Ukraine store, now scheduled to open in Kyiv at the end of this year. Ikea was to open earlier in the new Ocean Mall shopping center, but the developer ran into delays with obtaining permits.

London’s DC Evolution is working with UTG to develop and build a $100 million, 105,000 square meter project on the southern edge of Dnipro. Positioned to draw shoppers from Zaporizhia, one hour to the south, the project includes 52,000 square meters of retail, five apartment buildings with a total of 500 apartments and parking for 1,500 cars.

Three new shopping centers are to open in Odesa this year, adding 59,000 square meters of leasable area, reports UTG. Last year, three centers opened, adding 50,000 square meters. For the next five years, 16 projects have been announced. If built, these centers would double the city’s current retail space, to 900,000 square meters. Due to corruption and bureaucratic controls, retail in the Black Sea port lags the nation, ranking sixth in Ukraine for retail space per 1,000 inhabitants. Next year’s opening of the long-delayed airport runway is expected to increase international tourism.

The hryvnia briefly strengthened past the psychological mark of 25 to the dollar, triggering debate over a currency that has risen by 10% against the dollar this year. For today, the central bank has set a target rate of UAH 25.02 to the dollar – the strongest exchange rate in three years.

What is happening now borders on criminal negligence on the job,” Roman Sulzhyk, a newly appointed government member of the PrivatBank supervisory board, wrote on Facebook. “The strengthening of the hryvnia should have been stopped at the level of 26-27 to the dollar.” Finance Minister Oksana Markarova appeared to concur in part, writing on the post: “The Ministry of Finance has been talking about this for several months. But we are not influencing the policy of the NBU.”

At the National Bank of Ukraine, a key official said Ukraine has “a floating, not a fixed hryvnia exchange rate” and the central bank’s role is only to smooth out sharp exchange rate fluctuations. To brake the hryvnia’s appreciation, the central bank bought $1 billion in July, the official, Sergiy Ponomarenko, director of the central bank’s open market department, told Interfax-Ukraine. So far this year, the central bank has bought $2.5 billion on the interbank foreign exchange market – double the amount purchased during the first seven months of last year.

Foreign investment this year of $3 billion in Ukraine’s hryvnia bonds, coupled with high commodity prices, are the main factors creating a strong hryvnia, Ponomareko and other experts say. Wednesday’s quarter-point reduction in the US prime rate, to 2.25%, is likely to spur to investors to look for better returns elsewhere. At Tuesday’s weekly auction, the Finance Ministry sold a record UAH17.2 billion, the equivalent of $688 million, for yields varying between 15.45% and 16.5%. For comparison, Ukraine’s prime rate is 17%. At this level of investment, the Finance Ministry needs to raise only $600 million from foreign creditors to get through this year.

Sharon Easky, a former expert advisor to the IMF and to U.S. Treasury’s Office of Technical Assistance, was elected Wednesday head of the PrivatBank Supervisory Board. The IMF and the US government watch PrivatBank closely as Igor Kolomoisky, the former owner, tries to win back control through the courts. The IMF and the US firmly supported the December 2016 nationalization of the bank, Ukraine’s largest bank. Finance Minister Markarova congratulated Easky and the new Board, saying: “PrivatBank should be stabilized, improved, developed and returned to the market through privatization by 2022.”

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Bank net profits are generally up for the first half y-o-y. With profits converted to dollars, here some leaders: Alfa-Bank (Kyiv) up 2.3 times, to $36 million; Ukrgasbank up 28%, to $11 million; Oschadbank up 4-fold, to $5 million; and Raiffeisen Bank Aval down 13%, to $89 million.

The former mayor of Warsaw will become Ukraine’s Business Ombudsman this fall. Marcin Svenczycki, currently a member of Poland’s parliament, earlier served as Poland’s minister of international economic relations. He will succeed Algirdas Šemeta, a Lithuanian economist who has held the job for almost five years.

In nearly five years of work, the Ombudsman’s Council has saved businesses $700 million, Šemeta, the outgoing Ombudsman, told reporters Wednesday. Fielding 5,865 formal complaints since starting work in December 2014, the Council reports that the leading source of complaints are: the State Fiscal Service, the National Police, local authorities, the Prosecutor General’s Office, and the Ministry of Justice. During the second quarter of this year, the number of complaints from foreign investors and large enterprises decreased.

The EBRD could loan $80 million to Kernel as part of a $300 million syndicated loan to finance working capital for procurement, storage, transportation and sale of grain for export. The EBRD will review the loan to the agro giant at its Sept. 4 board meeting.

With the IMF as ‘strategic partner,’ President Zelenskiy’s plans an aggressive program of selling state companies, privatizing state banks and creating Ukraine’s first farmland market, Oleksiy Honcharuk, the 35-year-old head of Zelenskiy’s economic team, says in an interview with the Bloomberg headlined: Ukraine Turns to Blueprint That Transformed Ex-Communist Europe. Honcharuk, considered a leading candidate for Prime Minister, outlined a free-market path for Ukraine that worked in the 1990s for the nation’s western neighbors – Poland, Hungary, and Slovakia.

“The banks should be sold first,” Honcharuk said, referring to four state banks that account for 70% of Ukraine’s non-performing loans: Oschadbank, Ukreximbank, Ukrgasbank, and PrivatBank.  “I want 10 big systemic banks to enter Ukraine.” Finance Minister Oksana Markarova and the current central leadership are to be retained as the government moves toward a fiscal surplus and negotiates a 3-4 year IMF program, said Honcharuk, previously the head of an EU-funded think tank. To not lose momentum, a farmland market should be launched, with World Bank help, by the end of this year.

To inject market practices into state companies, minority stakes could be put up for sale in Ukrzaliznytsia, the national railroad, and Ukrposhta, the postal service. Honcharuk said the new government will be formed in August and the Rada will convene in early September. The Bloomberg interview moved markets, pushing Ukraine’s GDP-linked warrants up for the 15th day, hitting 85.85 cents, a record since they were issued in November 2015.

To move state property into private hands, government entities plan a series of sales and leases for August. Liquidating properties of failed banks, the National Bank of Ukraine is putting up for sale the Shevchenkovsky business center, a 16-story, 15-year-old, Class B office and retail tower on Odesa’s Prospekt Gagarina. Separately, the Guarantee Fund is selling six apartment offices in historic buildings in Kyiv – one on Pushkinska and five others on Khreschatyk Passazh.

At Kyiv Boryspil airport, the State Property Fund will lease 13 properties – ATMs stations, shops, bank offices, car rentals, offices, and business class lounge facilities. Four more properties go up for lease at Lviv airport. Last week, the Guarantee Fund sold $17 million worth of assets of failed banks. Judges appear to be reading the election returns, refraining from blocking sales.

To synchronize the EU and Ukrainian electricity networks, the EBRD is loaning €149 million to Ukrenergo to buy 26 transformers and to upgrade 12 high-voltage substations. The investment also will strengthen Ukrenergo’s capacity to balance surges of wind and solar power coming onto Ukraine’s electricity grid. The money also will go to aligning Ukraine’s practices with the EU’s 3rd Energy Package. The electricity market launched on July 1 is designed to promote electricity trading between the EU and Ukraine. Last Monday, Finance Minister Markarova signed an order to convert Ukrenergo into a private joint-stock company. This move should bring some market practices to the management of a state company that operates the nation’s main transmission lines, national and international.

A deal to increase Ukraine’s poultry exports to the EU by 2.5 times was signed Tuesday by Stepan Kubiv, Minister of Economic Development and Trade. Within the first seven months of this year, Ukraine has used 75% of its poultry quota, estimates Ukraine’s Agrarian Club. The new quota comes after European chicken farmers complained that MHP, Ukraine’s largest poultry producer, was using a ‘loophole’ to go over the export quota to the EU. The solution was to close the ‘loophole’ and raise the export quota.

With private investment, Ukraine can increase by 50% the volume of cargo handled by its top 10 sea ports, Raivis Veckagans, CEO of the Sea Ports Authority. Ukraine can handle 200 million tons of cargo by 2038, Veckagans told reporters Tuesday at a press conference called to back laws sent to President Zelenskiy. The laws would cut costs and speed up cargo handling, improving Ukraine’s ranking for competitivity, he said.

Boosted by a 34% jump in food exports, cargo handling at the nation’s ports was up 15% in July, compared to one year ago. Iron ore was up 30%. Containers were up 19%. The fastest-growing ports are Pivdennii (Yuzhne) — up 29%; Chornomorsk – up 22%; Odesa – up 12%.

Ukrainian public optimism has reached the highest level in eight years, according to the latest survey by the Rating Sociological Group. Of 2,000 people interviewed during the second week in July, 35% said the country was heading in the right direction, the highest since 2011. About 39% believe the country is going in the wrong direction, also an 8-year low.

This optimism unnerves Ukraine’s pessimistic intellectual elite. “What concerns me [is the] optimism,” Mykhailo Minakov, the Kennan Institute’s Senior Advisor on Ukraine, said in a recent telephone briefing with analysts on Ukraine’s elections. “So far, we have an unprecedented level of optimism among the Ukrainian population about the development of [the] country. We’ve never had it like this, according to the sociological polls, in all the 28 years or from [the] the early 90s….Which makes it a very big responsibility of the current winners, of President Zelenskyy and his party, not to spoil the challenge.” Concorde Capital analyst Zenon Zawada sees relief ahead: “We are confident that this optimism will evaporate by the year-end.”

Real monthly wages rose 18% y-o-y in June, reports the State Statistics Service. The current average wage is UAH 10,783, or $420. Donetsk saw the largest increase – 28%, following by Sumy with 20%. In the highest wage region, Kyiv, residents are paid almost twice as much as in the lowest wage region, Kirovohrad – UAH 15,650 versus UAH 8,574. With investment rates low, a key driver of wage growth is competition with wages in Poland.

About 3.2 million Ukrainians permanently work abroad, about 18% of the nation’s economically active population, Hromadske reports, citing a new macroeconomic study drafted for the Finance Ministry. Last December, in a nationwide poll by Rating, 35% of the 40,000 respondents said they want to work abroad. About one third said they want to earn money to open a business in Ukraine.

Dragon Capital won two ProZorro electronic auctions, committing to pay nearly $7 million for two commercial properties at prestige addresses in Kyiv and Lviv.  In Kyiv’s Podil district, Dragon will pay $2.4 million for the former headquarters of Kievan Rus bank, a 1,400 square meter building at Khoryva St. 12-a, behind the Bursa boutique hotel. In Lviv, Dragon will pay $4.5 million for a total of 945 square meters for the ground floor and basements of three buildings on Market Square – Rynok 19, 20 and 21. Lviv Mayor Andriy Sadovy said: “Transparent, open and public. Today Lviv has sold the most expensive lot in the history of the city – 945 square meters on Market Square for Hr 116 million.” 

Chinese investors primarily are interested in IT and infrastructure projects, Anatoly Kinakh, president of Ukraine’s Union of Industrialists and Entrepreneurs, said after meeting in Kyiv with a 10-company delegation from the Chinese Association of Enterprises. Participating companies included: Shandog Kunlun Road and Bridge Engineering Co. Ltd., Zhuhai Henglong Real Estate Co. Ltd., and Tongling Huacheng.

After Ukraine’s corn exports to the EU doubled during the last marketing year, Ukrainian farmers increased their area planted in corn by 9%, Pro-Consulting reports. In addition to Europe, China may also improve as a market due to the trade war with the US. Last year, corn accounted for half of Ukraine’s record 70 million grain harvest and 60% of its grain exports.

Farmers have threshed 30 million tons of early grain, largely winter wheat reports the Agrarian Policy and Food Ministry. The Ministry predicts the nation will match last year’s bumper harvest of 70 million tons.

With agronomists forecasting annual grain crops of 100 million tons in the mid-2020s, Evrovneshtorg is increasing its Mykolais terminal to handle 4 million tons. “Evroneshtorg will take a leading position, not only in Mykolaiv region but also in the Black Sea-Azov basin,’ Sergei Gunko, company head and director of EVT Grain, said last week at a ceremony marking EVT’s 20th anniversary. Translated as Europe Foreign Trade, EVT ships grain for Louis Dreyfus, Soufflet Négoce, Cargill, Glencore, and Austria’s VA Intertrading.

Fruit exports were up 16% by value during the first half of this year y-o-y, pacing last year’s 17% growth, reports Ukraine’s Agrarian Economic Institute.  Apples and pears were up 75% to 42,000 tons. Walnuts were up 74% to 33,000 tons. Frozen fruits were up 28% to 18,000 tons. Of the $116 million in sales, the biggest buyers were: Turkey – $18 million; France – $11 million; Poland – $10 million; Belarus – $9 million; Iraq – $7 million; Italy and Greece – $5 million; and Germany $4 million. The EU buys about half of Ukraine’s fruit and berry exports.

The number of pigs in Ukraine may plummet to 1.7 million by 2025, less than one-third of the 5.9 million counted last year by the State Statistics Service. From 200 to 500 farms annually phase-out pigs, largely because the farms are inefficient and cannot afford sanitary controls needed to fight African Swine Flu, reports the National Association of Pig Breeders. The future belongs to large industrial farms with more than 5,000 pigs, predicts the Association.

After Ukrainians filed petitions last week with President Zelenskiy to restore train service to Crimea and air service to Russia, Rosavitsia, Russia’s air navigation agency said it is open to talks with Ukraine’s new government about restoring air links with Ukraine. Since flights were cut almost four years ago, Ukrzaliznytsia’s trains to Moscow have become the railroad’s most profitable routes. Ukraine’s SkyUp discount airline estimates Crimea residents account for one-third of its passengers from Kherson, the closest Ukraine-controlled airport to the peninsula. Under sanctions laws, flights from Crimea can only go to Russia.

Ukraine’s largest online store, Rozetka.ua is launching a ‘virtual’ travel agency – Rozetka.Travel. Without visiting a travel agency, clients can buy tickets for charter tours to Egypt, Greece, Turkey, and other popular no-visa destinations. Positioning itself as a potential rival for JoinUp!, the nation’s largest travel operator, Rozetka has already created links with major tour operators: Anex Tour, TUI, Tez Tour, Pegas Touristik and Mouzenidis Travel.

US company Trident Acquisitions has won the competition for a 50-year contract to explore and produce oil and gas from Ukraine’s offshore Dolphin block, nearly 10,000 square kilometers in the northwest corner of the Black Sea’s continental shelf. One year ago, Trident raised $201 million in an IPO on the NASDAQ. The CEO is Ilya Ponomarev, a former Russia Duma Deputy. In the 1990s, he worked at Yukos and Schlumberger. In May, he received Ukrainian citizenship. One contender for the production sharing agreement, Azerbaijan’s Caspian Drilling Company, withdrew its application under pressure from Russia, says Igor Nasalik, Ukraine’s Energy Minister. Trident offered to invest $200 million in the Dolphin block for the first five years – 3.5 times the minimum set by the competition – and to drill at least seven exploratory wells.

The Cabinet has authorized the Finance Ministry to attract €250 million in loans from Cargill Financial Services International, the financial arm of the US grain conglomerate. The loans would be €100 million for two years at 5.15% per annum, and €150 million for five years at 6.25% per annum, Ukraine’s official gazette, Uryadovy Courier, reports Friday. The Cabinet resolution was three weeks earlier.

Concorde Capital’s Alexander Paraschiy writes: “It’s positive that the Finance Ministry has an option to borrow from a private international company, but it will not necessarily use such an option … The rates on Cargill loans look in line with the rates at which MinFin attracted its EUR-denominated Eurobond in late June (6.75% for the seven-year bond). However, since that time, yields on Ukrainian international bonds have plunged (yield to maturity on the seven-year bond was 6.0% on July 9, and it’s 5.0% today), making the Cargill loan not much attractive now.”

The original English version is from our partner UBN – Ukraine Business News. For more information and news archive, go to: www.ubn.news.