- Qatar Gas to Ukraine in 2020
- Construction up 21%
- Lviv Office Space to Double by 2021
- As E-Commerce Booms, Nova Poshta Increases its Delivery Offices by 43%
- Ze Bump: Ukraine Warrants Rise 30% After May Inauguration
- Foreign Business Press Looks at Zelenkiy Sweep
- Retail up 14%, Industry Flat
- Zelenskiy Party to Control Rada
- Ze Issues Decree Against Corporate Raiding
- ArcelorMittal Complains of Government Raiding
- Azov Ports Lose Cargo to Kherson
- Crop Yields up 10%
- Ze Wants ‘Economist’ PM
- Pro-Western Parties Sweep Rada Vote
- Concessions Coming: Highways, Cargo Terminal for Boryspil
- 10% More Hotel Rooms for Kyiv
Preparing for a potential cutoff of Russian gas on Jan. 1, Ukraine is negotiating the supply of Qatari gas to Greece’s sole LNG landing terminal. This gas would get to Ukraine via Bulgaria and Romania, on the Trans-Balkan pipeline. Earlier this year, Qatargas delivered the first load of gas to Greece’s newly modernized and expanded terminal, Revithoussa, near Athens. “We are working to ensure that gas supplies to Ukraine from the southern direction via the Trans-Balkan gas pipeline could be made already from January,” says Sergiy Makogon, director of Ukrtransgaz. For safety reasons, Turkey does not allow LNG tankers to pass through the Bosporus, which cuts through the center of Istanbul.
After Tuesday’s auction, foreigners now own 9% of Ukraine’s government hryvnia bonds, up from 1% at the start of the year. These foreign holdings are the equivalent of $2.8 billion.
As of Monday, Ukrainian exporters had fulfilled 2019 duty-free quotas for exporting nine food products to the EU: apple juice, butter, corn, cereals, flour, grape juice, honey, starch, and wheat. This time last year, Ukraine had used up seven of its quotas. During the first five months of this year, Ukraine’s food exports to the EU rose 37% y-o-y, hitting €3.1 billion. With Britain’s new Prime Minister Boris Johnson promising Brexit by October, a working group is studying a UK-Ukraine free trade pact. Ukraine is Europe’s largest food exporter. Britain is Europe’s largest food importer.
Japan and Saudi Arabia have approved the import of raw milk and dairy products from Ukraine, reports Ukraine’s State Service for Food Safety and Consumer Protection. Although the national dairy herd is gradually declining, Ukraine ranks third in the world for exports of casein, or milk protein, fifth for butter, and eighth for dried milk.
Europe’s hot weather this summer is expected lower water levels on the Danube, cutting cargo and passengers to Izmail. Last year, the port handled 5% less cargo than than the forecast 4.7 million tons due to late summer limits on shipping in the middle and upper Danube. After the Danube hit record low levels in August, Budapest lost €300,000 due to reduced cargo handling. Lower water levels also could cut Danube cruise ship traffic, just after Izmail inaugurated a $2 million, EU-standard river passenger terminal. Based in Izmail, the Ukrainian Danube Shipping Company has four cruise ships plying the river this summer, with several going the full 1,000 km “Alps to the Black Sea” route.
A free-market development path for Ukraine in the 2020s is advocated by Vladislav Rashkovan, a leading candidate for the “economist” kind of prime minister that Zelenskiy has called for. “Our task: to ensure growth at the level of 4–7% for at least the next 10 years, in order to show a reduction in the gap with the main neighboring countries – Poland, Slovakia, and Hungary,” Rashkovan deputy executive director for the IMF, writes in Novoe Vremya. Privatization, deregulation, breaking up monopolies and modernizing education for the future economy are the “long-awaited structural reforms that can give Ukraine a chance for an economic breakthrough,” he writes.
Ukraine has a “unique chance” to make free-market changes that will more than double its growth rate to 7% a year, Anders Åslund, an economist with decades of experience with Ukraine, writes on the Atlantic Council UkraineAlert blog site. Calling for Zelenskiy to establish “rule of law and property rights,” Aslund says: “Ukraine should grow by 7% a year given that Ukraine has gained access to the big European market. Ukraine needs to raise its investment ratio from 20% of GDP to 28-30% of GDP to grow that fast.”
Construction was up 21% y-o-y in the first half of this year, reports Lev Partskhaladze, deputy minister of Regional Development, Construction, and Housing. While residential was down 2%, non-residential – largely office and retail – was up 35%. From January to June, $2.6 billion worth of construction was underway in Ukraine. Kyiv accounted for almost one-quarter of that amount.
Driven by IT demand, Class A and B office space in Lviv will nearly double over the next three years, hitting 378,000 square meters, calculates UTG, the real estate consultancy. “Growing office space demand, triggered mainly by the IT sector has led to a shortage of quality space in the market, a decrease in vacancies to 2.2%, an increase in rental rates, and, unthinkable years earlier, a surge in developer activity,” writes Oksana Gavrilevich, a UTG analyst. Reviewing projects nearing completion and in the pipeline, she gives these figures: 2019 – 56,400 square meters; 2020 – 31,500; and 2021 – 88,200.
Ferrexpo plc, the Swiss-based commodity trading, and mining company with iron mines in Ukraine increased its investments during the first half of the year by 71% y-o-y to $47.5 million. In March the company delayed publication of its results pending an investigation into charitable donations in Ukraine. The company trades as FXPO on the London Stock Exchange.
Blanketing Ukraine, Nova Poshta, the delivery company, opened 1,200 new branches during the first half of this year, increasing its network by 43%, to 4,000. By June, one-third of its 8 million customers had used the company’s new mobile app. With international shopping increasingly popular, the privately-owned company registered these increases in deliveries: from the US up 20%; from Britain up to 86% and from Poland 200%. During the first half of the year, the Kyiv sorting center handled 46 million parcels, up 34% over the same period last year.
With the US the largest source of parcel imports, Nova Poshta reports that the top three e-commerce companies for its clients are: eBay – 28%; Amazon – 22%; and 6 pm – 13%. The average parcel check is $66, and the average weight is 1.6 kg. The most active buyers are men — 59% — and aged 25-34 years — 53%. The most popular stores are Carter’s, H&M, and Victoria’s Secret. “Most often, buyers buy clothes and shoes, children’s clothes, gadgets, cosmetics from abroad. They are attracted by prices, which, as a rule, are lower than in Ukraine, a large selection and good quality of goods,” says Yuriy Benevitskiy, director of Nova Poshta International.
With business growing by 20% a year, Nova Poshta is building seven high volume parcel sorting centers, each costing €10 million. The first two, in Kyiv and in Khmelnytskyi, feature Dutch Vanderlande equipment capable of sorting 8,500 packages per hour. Next, in line for the regional sorting centers are Lviv and Kharkiv.
After Kyiv Boryspil could not handle the cargo flow last Christmas, Ukrposhta has diversified its international cargo import/export points, adding Lviv, Odesa, and Kyiv Sikorsky. The state postal system is working with LOT Polish and Turkish Airlines to handle the international cargo flow. Last year, Ukrposhta processed 34.4 million international shipments.
Faced with a surge in international e-commerce, Ukraine lowered by one third – to €100 euros – the value of a parcel one person can receive duty-free. Above that value, a new 20% tax is levied. Last fall the Finance Ministry proposed lowering the duty-free level to €22 but backed off in face of popular opposition.
Facing strong investor demand, the Finance Ministry again lowered yields in its weekly government bond auction. Deciding to sacrifice one-third of demand, the Ministry lowered all yields, by a range of 20 to 75 basis points, compared to levels of one week earlier. For investors, the flavor of the week is 3-year bonds. Demand hit UAH 5.5 billion – four times more than last week’s level. Overall, the hryvnia equivalent of $271 million was sold, roughly comparable with the two other auctions this month. On the secondary market, Ukraine’s sovereign Eurobonds continued Tuesday to ride a post-election rally.
Election tally for Rinat Akhmetov, Ukraine’s richest man: one down, two up. Boris Kolesnikov, a partner of a magnate, was not reelected. Two other allies of Akhmetov, Vadim Novinsky, a co-owner of Metinvest, METINV, and Musa Magomedov, CEO of Metinvest’s Avdiyivka Coke Plant, were elected.
Concorde Capital’s James Hydzik writes: “The losses among businessmen are among the largest surprises in this electoral cycle. They also point to the tectonic shift in Ukrainian politics over the last decade, when the loss of a seat by a top businessman would have been inconceivable.”
Summer shopping is off to a strong start with retail turnover surging 14% y-o-y in June, reports the State Statistics Service. The sales jump follows a 28% percent jump in consumer confidence in April and May, to 82.4 points, the pre-crisis levels of 2012-2013. Overall, retail trade grew by 10% y-o-y in inflation-adjusted terms during the first half of this year, to about $20 billion. Consumer demand is a big driver of this year’s expected 3% GDP growth, fueled by 10% y-o-y real growth in salaries and strong flows of wage remittances from Ukrainians working in the EU.
Industrial production grew by 0.5% y-o-y during the first half of this year. After increases in March-April-May, production fell by 2.3% y-o-y in June, reports the State Statistics Service. By contrast, agricultural production grew by 5.8% during the first half. Last year, industrial production grew by 1.1% over 2017.
President Zelenskiy appears to have won 60% of the seats in the Rada, making him Ukraine’s first-post independence leader to enjoy an outright parliamentary majority. After his Servant of the People party won 43% of Sunday’s vote, candidates affiliated with the party did surprisingly well in the 199 single-seat districts.
This should give the new President unprecedented power to pursue his free-market, modernizing agenda – creating an independent court system, cutting regulations, automating processes to cut corruption and auctioning off many of Ukraine’s 3,000 state companies. Beyond his immediate party supporters, his pro-Western outlook is shared two-thirds of the voters: Servant of the People – 43%; Poroshenko’s European Solidarity – 8%; Tymoshenko’s Fatherland – 8%; and Vaharchuk’s Voice – 6%. Among the five parties that will enter parliament, the lone pro-Russian party, Opposition Platform won 12% of votes.
To combat corporate ‘raiding’, Zelenskiy signed a decree Monday to protect property rights by ordering upgrades in software used by notaries. This would involve setting up a trigger system for operations with high risks of fraud, the capture of photo and video images of people using notaries and improved password protection. “The question of raiding has become one of the most painful for business,” says Oleksiy Goncharuk, deputy head of presidential administration. “According to various estimates, over the past six years, more than 3,000 [company thefts] have taken place.”
Appealing to foreign investors, Zelenskiy says in a promotional video: “My vision is to have Ukraine as one of the fastest-growing emerging economies in Europe.” Speaking mildly accented English, the actor-turned-president says his team “wants to inject economic growth into the country’s DNA. We need to change a lot here, fire nonprofessionals and hire professional ones, deregulate industries, simplify rules, improve the infrastructure.”
Kherson port, the closest Black Sea alternative to the Azov, handled 31% more cargo during the first half of this year compared to the same period last year. Grain was up 32%, to 461,920 tons. Ferrous metals were up 21%, to 225,390 tons.
South Korea’s Posco International inaugurated in Mykolaiv port last week a terminal capable of storing 140,000 tons of grain at one time. Working with Ukraine’s Orexim Group, Posco executives discussed with port administration officials the possibility of investing in three other berths. Posco officials say the port investments in Ukraine contribute to South Korea’s food security.
With average crop yields jumping by 11% y-o-y, Ukraine’s crop farming output grew 19% y-o-y in the first half of this year, compared to the first half of 2018, reports the State Statistics Service. The surge in yields are attributed to good weather and to an injection of capital into the countryside to due last year’s record 70 million ton grain crop. As of Monday, 23.5 million tons of early grains have been harvested.
Ukraine’s food exports to the EU were up 50% in May, compared to May 2018, reports the European Commission. Exporting €6.5 billion worth of food to the EU during the 12 months ending in May, Ukraine is enjoying far faster growth rate than the three other major suppliers, the United States, Brazil, and China.
Flush with a strong showing in Sunday’s Rada vote, President Zelenskiy said he would choose as Prime Minister a “professional economist” who hasn’t held that job or led a party. That fits the description of former Finance Minister Oleksandr Danylyuk, who has expressed interest in the post. Zelenskiy also said he would reach out to Svyatoslav Vakarchuk, the country’s most popular rock singer, to form a pro-Western government for Ukraine in August.
Detectives of the National Anti-Corruption Bureau of Ukraine searched the headquarters of ICU investment bank as part of an investigation into the Rotterdam + formula for pricing coal. ICU posted on its website that it had earlier complied with all requests for information and denounced the search as “an attempt to exert pressure on it, which has an obvious political context.” The bank is seen as affiliated to former President Poroshenko. Valeria Gontareva was chairwoman of ICU until June 2014, when she became governor of the National Bank of Ukraine, a post she held for three years.
By the end of June, electricity generation from renewables hits 585 million kwh – almost three times the level of one year earlier. Renewables share of national electricity production hit 5%, compared to 1.8% one year earlier. Excluding large scale hydro, Ukraine’s installed capacity of renewable energy is: solar — 2,640 MW; wind – 777 MW; biogas – 66.4 MW; and biomass — 51.3 MW.
Working on early grains, farmers have harvested 21.6 million tons or almost one-third of the total forecast 2019 crop of 70 million tons. Farmers have threshed 6.2 million hectares of grains or 63% of the early sown area, reports the Agriculture Ministry.
To speed up construction of major highways, Zelenskiy proposes opening tenders to foreign companies. “Shall we will make a plan in the near future to give the construction of priority roads to leading Western companies,” he asked Friday at a road infrastructure meeting in Kyiv. Also on Friday, Zelenskiy invited a Chinese delegation to build a toll highway around Kyiv. Earlier, Slawomir Novak, head of Ukravtodor, said that this fall the highway agency will hold a competition for Ukraine’s first road concession – a 70 km toll road between Lviv and Krakovets, on the Polish border.
Construction of a new cargo terminal for Kyiv Boryspil is the subject of a new tender by the Infrastructure Ministry. By Aug. 19, applications are to be submitted for building and operating the cargo terminal for 25 years. Last year, airport officials failed to act in face of rapidly rising air cargo traffic and were forced to suspend air cargo service during the Christmas-New Year’s holiday. Since a new terminal will not be built in time, airport officials plan to use temporary measures to cope with the annual year-end rush.
The Israel-Ukraine free trade pact ratified last week by the Rada will stimulate Israeli investment in Ukraine, Natalia Mikolska, Ukraine’s former chief trade negotiator, tells UNIAN. “The agreement will give the green light for cooperation between Ukrainian and Israeli enterprises in many areas: high-tech, engineering, processing equipment for the food industry,” she says, noting that dozens of Israeli IT companies already work in Ukraine. This fall, Israel’s Knesset is expected to ratify the pact. Trade expert predicts that implementation will fuel a 10% increase in bilateral trade every year.
Construction of a new, free access road to Odesa port is the goal of a new task force composed of Ukraine’s Sea Ports Authority and the City Council. After Odesa banned big trucks from city streets, Euroterminal presented itself as the only road alternatives. However, this private company charges $17 per truck, a levy that hikes logistics costs and contributes to the port’s comparative decline.
Peugeot Citroen Ukraine has opened six dealerships in Ukraine this year: Dnipro, Kharkiv, Khmelnytskyi Kharkiv, Lviv, and Zaporizhia. The French company plans to increase its sales five times this year, to 1,100 new cars and commercial vehicles.
Although Kyiv’s hotel occupancy rate only inched up by 1.6% in the last year, to 53%, STR, the global hotel industry research organization, reports that the number of hotel rooms in the construction pipeline represents a 10% increase. In Lviv, the increase is 9%.
The original English version is from our partner UBN – Ukraine Business News. For more information and news archive, go to: www.ubn.news.