Ukraine: Potential Sectors for Danish business

Report
Evergreen and challenging opportunities
at the big market next to EU
Seminar Export Steps
Why does somebody run a business in Ukraine?
 A limited choice globally; limited finance; overestimated S-E Asia
 45 m of retail customers
 2012: import of goods USD 90 bln; GDP USD 176 bln;
 Geographical proximity to EU and former USSR markets
 High retail prices (meat, clothes prices = EU prices)
 Relatively low cost of labor, agro land rent and some other resources
 Relatively understandable national culture, similar to Eastern European
patterns
 Relatively easy access to Ukraine for EU citizens (no visa for short term
visits)
 WTO member (2008), DK-UA Double tax avoidance convention
 100% mobile connection coverage
 41% internet penetration
 Attractive margin rates, higher than in developed countries, and high risks
Most perspective sectors of the UA economy
 Agricultural production and Food processing
 IT – outstaffing, outsourcing, software development
 Energy Efficiency / Renewable Energy / District Heating
 Retail trade (2012: USD 98 bln turnover (food + non-food) after 14% y/y
growth)
 Health Care products
 Outsourced processing – a new revival in textiles and wood / metal
processing
Most perspective sectors of the UA economy: Agro Production and
Food Processing
 1/2 of national export
 Agro land is not for sale; unstable legal environment
 1/3 of black soil of the world; 50 m ha of arable land in Ukraine
 Annual production of grain 45-55 m tonnes of grains (2013 harvest is at 55 m)
and annual internal consumption of 25 m
 High profitability of farming business in Ukraine. The good players reach on
average EUR 450 EBIDTA/ha
 Ideal geographic localization of Ukraine close to its major off takers (Europe,
Middle East, Turkey, North Africa, China) with easy access to sea
Most perspective sectors of the UA economy: IT Software
Development, e-commerce
 One of global top 10 software development players (~ USD 1.5 bln / year
export)
 30 thousand of IT developers
 ~ 10 Danish owned IT companies
 IT companies demonstrate 15-25% growth annually
 Outsourcing to Ukraine:
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Software development
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Call centers
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Accounting / reporting
o
IT support
 Favorable tax regime for IT companies and IT developers
 41% of population internet penetration, mostly social networks
 15% of population use smart phones
 Rapidly growing volume of on-line trade and services inside Ukraine
Most perspective sectors of the UA economy: Energy Efficiency /
Alternative Energy
 Highly energy-intensive economy - need for energy efficiency and
diversification of resources
 High dependence on import of gas and oil from Russia
 District heating is very much depreciated and needs huge investments
 Ukraine is one of 20 biggest CO2 emitters in the world with >1% of global
emissions, whereas its economy is 0.2% of the global economy
 State support - green tariffs - rates comparable to EU levels
 National grid obliged to connect renewable sources to the network
 Guaranteed off-take by the State Energy Company through 2029
 0% customs duty ; 0% VAT on equipment imports through 2019, but
minimum local content must be observed: 15% in 2012, 30% in 2013 and
50% in 2014 (???)
 Shale gas agreements with Shell and Chevron
Most perspective sectors of the UA economy: Retail Sector
 Population of 45 m people
 A number of consumers can afford purchasing high-quality food products
 Food trade outlets exceeded 48,000 in 2012
 Approximately 10-15 % of all Ukrainian gas stations (~ 7,000) have stores that
sell packaged food products
 Urban life style changes increase demand for semi-finished and ready-to-cook
products
 Frequently changing trade legislation and policies often impact trade. Import
tariffs were lowered by WTO accession but threatened with hikes “to protect
Balance of Trade.”
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Rapid development of local manufacturers of ready-to-cook products creates
tough competition for similar imported goods
 Difficulties in finding a reliable partner or distributor
Most perspective sectors of the UA economy: Health and medical
sector
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A lot of smokers in UA but HEALTH is IMPORTANT
Big market of 45 mln people
Local state health support is weak
A lot of professional companies are in the sector
Good reputation of Danish medicine
Pharmaceuticals
Equipment
No state support for new and modern technologies
Registration of the pharmaceuticals
Challenges to expect
 Ever changing regulations
 Ruined roads
 Unreliable municipal infrastructure
 Larger businesses experience smaller problems in Ukraine
 Strong competition from Ukrainians, Russians, Middle East and China
 Typical Europeans’ mistakes: Ukraine is like Texas in 19th century – take it
seriously, apply your professionalism, be persistent
Ukraine has proved to be a difficult country to do business in/with
 High level of corruption, too complicated taxation (22 different taxes),
weak investor protection
 Malfunctioning and politicized court system
 Lack of support from local authorities, extortion via “charity”
 Low European languages proficiency, underdeveloped business culture
 #137 out of 183 World Bank’s most recent Ease of Doing Business
ranking (#152 in 2012)
 “2 hours of flight away / 30 years behind”
Danish Business on the map of Ukraine
Who does run a business in Ukraine?
Sell in UA (i.a. via local representation)
Maersk Line
Novo Nordisk, Coloplast, Lundbeck
Danfoss
Grundfos
Cimbria
Rezidor (8 hotels / 1900 rooms in UA)
JYSK (14 stores)
Vestas (~60 x 3 MW turbines by 2013)
Kamstrup, Logstor
Rockwool, H+H
Lego Ukraine
DSV, ICT
Grene
Velux
Skov, Skiold
Haldor Topsoe
ECCO
Produce in UA (via subsidiaries)
Carlsberg (3 breweries; USD 500 m investments)
Danosha + 3 other DK groups of agri investors
(~20,000 sows)
Ciklum (software production, 2,000 IT people)
SimCorp (software production)
Auditdata (software), CDM (software)
Dolle, Gangsø
Sika Footwear
Jahn & Jensen Products (import of food products to
UA)
Danish Textiles, Raitex
What Denmark can do to protect and develop Danish business in
Ukraine?
 Danish Embassy/Trade Council in Kyiv:
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Evaluating market opportunities / market research
Partner search, negotiations
Organizing the meeting programs and seminars
Lobbying
Defending the interests of Danish companies working in Ukraine
Highlighting the activities of the Danish companies in Ukraine
 Relatively large, organized and active Danish/EU lobby
 Danish Business Association (Lviv)
 Nordic/Scandinavian business clubs
 EBA (European Business Association)
 AmCham (Amercian Chamber of Commerce)
 EKF export guaranteeing
 State-owned IFU is ready to come up with additional financing
Thank you!
Tetyana Kobchenko
Commercial Advisor
[email protected]
+38044 2001268
+38067 4415717

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