Ukraine, with a population of 46 million, is still a huge blip on the radar of various multi-national companies looking to get bigger returns on their investments. However, their capital remains mostly at bay since market entry is a challenging task, even for the business world’s giants.
“Foreign companies have had a notoriously difficult time entering the Ukrainian market because of the high level of corruption at all levels of government, the complicated tax and regulatory environment, unbridled corporate raiding, and weak law enforcement,” explains Anton Usov, senior advisor at the European Bank for Reconstruction and Development in Ukraine.
“And without the rule of law to ensure property rights, companies are leery about doing business here,” he added.
Usov believes the new government led by Prime Minister Arseniy Yatseniuk is on the right track to improving the business climate. Multinationals engaged in agriculture and food processing show the most interest in large-scale investments, along with such support industries as transport and logistics, noted EBRD’s senior advisor. Due to banking confidentiality rules, Usov wouldn’t name them. However, Kraft Foods and Nestle are already on the market, as are dairy producers Danone and Lactalis, among others.
Ryanair
The European Union transportation sector’s announcement on April 14 that Ukraine could sign the “Open Skies” agreement before June 5 should clear the way for low-cost airlines to enter the market. Initially, the agreement, which liberalizes rules for the aviation industry, was expected to be signed on March 14, but the overthrow of ex-President Viktor Yanukovych’s regime led to the postponement of this.
Irish low-cost carrier Ryanair back on Sept. 13 announced that it would begin operations in Ukraine after the country joined Open Skies. Ryanair had talks about flying routes to three Ukrainian airports in Kyiv, Lviv and Donetsk.
“We are in talks with many airports, and always keep the door open for future routes,” the company said. While Ukraine has been on Ryanair’s radar for some time, the airline has only recently begun negotiating with local airports because of the government’s stated intention to free up the air carrier market in Ukraine.
The Irish carrier’s Vice-President Michael Cawley said that “many Ukrainians use the services of the company located near the border with the Polish city of Rzeszow. We know that these people like what we offer, they like our prices. We would like to make a direct flight connection from Poland to Ukraine, but unfortunately cannot do that.” Differences in the EU’s and Ukraine’s regulatory environment are quite a substantial obstacle for doing business in both of these directions.
IKEA
The experience of Swedish furniture giant IKEA reveals that one should have a long-term strategy for working on the Ukrainian market. According to Forbes, IKEA Group declared its interest to enter Ukraine in 2005 amid a construction boom in the capital.
Company founder Ingvar Kamprad flew to Kyiv to meet with then-President Viktor Yushchenko and announced that he was willing to invest $2 billion in a Ukrainian project that would become the largest in Europe. Site conflicts with Kyiv mayor Leonid Chernovetsky in 2006-2009 caused IKEA to buy a 64 acre site near Odesa. However, local bosses wanted “incentives” to accelerate the granting of permits, the company said, which the company refused to pay. Then, the bottom fell out of the construction market and IKEA left the country altogether by 2010.
IKEA Group Media Relations Manager Ylva Magnusson told the Kyiv Post that “the IKEA Group has no immediate plans to open stores in Ukraine and we don’t have any mail order outlets. We acquired a site in Odesa in 2009 with a long-term perspective of potentially establishing retail operations in the future. This is a normal procedure in our expansion process.”
PayPal
The growing market for electronic transactions has led several international e-payment systems to carefully wade into Ukraine despite the underdeveloped banking regulatory environment, on top of the usual challenges. California-based e-payment system PayPal is currently working on receiving all the necessary licenses for conducting business in Ukraine.
On Dec. 5, 2013 the global e-payment leader PayPal had enough permits and licenses to open a part of its system in Ukraine, according to head of Business Development for Europe, Middle East and Africa Corrado Tomassoni. “At the moment, Ukrainian users cannot withdraw money from their accounts in the payment system, but they can replenish them with a bankcard to pay for purchases on foreign online stores,” he said.
PayPal told the Kyiv Post that a Ukrainian client must find a Ukrainian bank that has credit or payment cards that are accepted by PayPal for the system to work. However, the remainder should come soon, PayPal said. “Now, we just need to get a banking license for processing electronic payments and we are actively engaged. In the European Union and the U.S. licensing is easier,” said Tomassoni, adding that Ukraine’s accession to the European Union could accelerate this process.
The Ukraine experience for PayPal is not unlike that in Serbia and Egypt, which received full access to the system in stages that lasted several months.
Only two payment systems are recognized by the National Bank of Ukraine: Alfa-Bank’s Maxi and Fidobank’s MoneXy, according to the law firm Lavrynovych & Partners. In addition, many banks conduct operations with such non-National Bank of Ukraine-approved electronic money as Yandex and WebMoney.
Kyiv Post business journalist Evan Ostryzniuk can be reached at [email protected].
