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Doing Business in Ukraine:

2015 Country Commercial Guide for U.S. Companies

The Country Commercial Guide contains the following chapters:

  • Doing Business in Ukraine
  • Political and Economic Environment
  • Selling U.S. Products and Services
  • Leading Sectors for U.S. Export and Investment
  • Trade Regulations and Standards
  • Investment Climate
  • Trade and Project Financing
  • Business Travel
  • Contacts, Market Research and Trade Events
  • Guide to Our Services

Chapter 1: Doing Business in UKRAINE

Market Overview

The Ukrainian market is poised for renewed growth by 2016, guided by a motivated, reform-minded government that has dedicated itself to rooting out market inefficiencies, improving Ukraine’s business climate, and pursuing deeper economic integration into the global market.

Since the formation of a new government in November 2014, Ukraine has made promising headway toward a brighter economic future, instituting a more transparent government procurement system, simplifying business registration requirements, and beginning the process of harmonizing its business registration procedures with European Union laws. In the coming year, the government’s top reform priorities include judicial reform, the privatization of state-owned enterprises and the further reduction of regulatory burdens.

However, this forward momentum has been attenuated by a forced shift away from traditional trade markets in the East, a dramatic drop in economic output, a sharp currency depreciation, a continuing overreliance on commodity exports, and still-present issues related to endemic corruption, all of which are challenges that will need to be managed for Ukraine’s economic rebirth to come to fruition.

In addition, serious security concerns remain in Eastern Ukraine, specifically in portions of Luhansk and Donetsk oblasts, where continuing attacks by Russia-backed separatists have destroyed key infrastructure and resulted in thousands of deaths.

Understanding that Ukraine’s private sector will be the driving force keeping the economy afloat, the government has taken bold steps to turn the page on the past. In June 2014, Ukraine and the European Union (EU) signed the Deep and Comprehensive Free Trade Area (DCFTA) as part of Ukraine’s broader Association Agreement (AA).  Though the EU postponed implementing the DCFTA until January 2016, once in place, the AA and DCFTA will boost trade in goods and services between the EU and Ukraine by progressively cutting tariffs and by aligning Ukraine's rules with the EU's for multiple products. 

Market Challenges

Since the formation of a new government in November 2014, the Ukrainian Government has shown a newfound commitment to pursuing an ambitious reform agenda that could lead to an overall improvement in the business climate in Ukraine. This bodes well for economic development that was forestalled in the past by widespread corruption and a lack of reform.  Despite these positive developments, a variety of market challenges remain, including: 

  • An undercapitalized and unstable banking system
  • Limited export financing resources
  • Corruption, which, although designated as a priority for the new government, will take time and dedication to eliminate
  • High tax rates – though the payroll tax was lowered in early 2015, the total tax rate (52.9 percent) remains highest tax rate in Central and Eastern Europe   
  • Delayed VAT refunds - companies report that delays in VAT reimbursements are a major obstacle to doing business
  • Regulatory obstacles in agricultural sector - despite a number of reform efforts in this sector over the last year, implementation remains slow, leaving businesses to navigate an opaque and costly regulatory environment
  • Poor protection of property rights - intellectual property rights are almost universally not respected in Ukraine 

Hopefully, the efforts of Ukraine’s new reform government will reduce these challenges over the course of 2015.  Specifically, the government is aiming to implement wide-ranging tax reform in the second half of later in 2015 and implement a new electronic VAT system.  It has also introduced an action plan to address property rights issues.

Market Opportunities

While the pharmaceuticals market has suffered in the last year due to declining purchasing power among consumers, this market is expected to remain attractive due to an aging population and demographic trends. There is also an emerging political consensus on the need to introduce reimbursement and an insurance-based healthcare system, which will boost pharmaceutical expenditures in the long term.  Sub-sector best prospects include:

  • Analgesics and antibiotics
  • Anti-cancer
  • Vaccines
  • Cough and cold preparations
  • Vasotherapeutics
  • Hemostatic Agents

Medical equipment currently used in public hospitals is typically obsolete, having exceeded its period of use. In March 2015 the World Bank approved a $214.73 million five-year loan to develop medical infrastructure and improve the quality of health services in eight regions across Ukraine. This program will directly benefit suppliers of medical equipment. Sub-sector best prospects include:

  • Diagnostic imaging equipment (ultrasound, computer tomography, magnetic-resonance tomography)
  • Emergency medical equipment (ambulances, mobile hospitals)
  • Operating rooms
  • Telecommunication equipment for telemedicine
  • Laser surgery devices
  • Dental equipment and materials
  • Laboratory equipment

Because Ukraine’s enormous agricultural sector is under-equipped and much of its existing agricultural machinery is outdated, Ukraine’s agricultural machinery market is expected to remain attractive.  Sub-sector best prospects include: 

  • Food processing equipment, including, pork processing and packaging equipment, fruit and vegetables production equipment
  • Grain storage and handling equipment
  • Tillage equipment (cultivators, plows, disc harrows)
  • Feed and fodder production equipment
  • Used equipment
  • Fruits and vegetables production equipment

The conflict in the east exposed the Ukrainian armed forces’ lack of sophisticated defense equipment, leading the government to invest  $697 million to modernize the military in 2014.  Going forward, the government plans to spend $4 billion annually on defense through 2018 and $4.2 billion in 2019.  Companies in the well-established defense sector are looking for foreign partners to help modernize domestic production.  Sub-sector best prospects include:

  • Radar, radio communication, air defense systems
  • Rocket artillery weapons and munitions
  • Armored and automotive vehicles
  • Shipbuilding and marine equipment industry

In the light of the separatist conflict in eastern Ukraine, safety and security have become critical concerns for both government agencies and individual consumers and the government has placed a strong emphasis on counter-terrorism, homeland security, transportation, screening, and critical infrastructure protection. Sub-sector best prospects include:

  • Counter terrorism solutions
  • Border security equipment
  • Screening and X-Ray systems for airports, seaports, customs, and public facilities
  • Equipment for detection of explosives and drugs
  • Hardware, software and education related to cyber threats, malware, and terrorism. 

Market Entry Strategy

  • The ideal market entry strategy is to find the right partner. The Commercial Service in Ukraine offers a variety of matchmaking services for this purpose.
  • Do your due diligence. Commercial Service can help you with an International Company Profile (ICP), which provides a thorough assessment of a prospective company, including information such as its financial standing, as well as references from creditors and customers.
  • Start small, build a relationship, and test the market.
  • Don’t forget the Foreign Corrupt Practices Act (FCPA). It is a useful tool for you and your partner, providing a solid basis for building a transparent, aboveboard relationship.
  • As your business grows so will your business relationship.
  • Remember the Commercial Service is in Ukraine to support US business interests abroad – so take advantage of our counseling services.
  • Commercial Service can explain the processes of company registration, product certification, and licensing - whatever it takes to facilitate your market entry, including identifying financing sources if needed.
  • Getting up and running, the Commercial Service Team in Ukraine has significant experience helping US companies and their local partners with problems from clearing Customs, to promoting business to prospective clients. Our Single Company Promotion service provides valuable support and visibility for your company.
  • Stay in touch with the Commercial Service if you suspect or have identified potential problems. We can guide your company and direct you to helpful resources.

In addition, please take note that all our market research is available in the U.S. Government Export Portal, free to registered users. Just login and read it!

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