BISNIS Bulletin, June 2003
by Michael S. Considine
Small and medium-sized enterprise (SME) development is burgeoning in Ukraine, with growth occurring in virtually all industry sectors. The SMEs play a significant role in economic stability and market transition of the country, employing more than 57 percent of the labor force (some 12 million jobs). The vast majority of SMEs are newly created enterprises, often attracting workers migrating from larger industry sectors as privatization and restructuring take place. It is notable that women operate nearly 30 percent of Ukraine’s SMEs. The health of the SME sector is directly connected to other encouraging economic indicators in Ukraine, such as real wage increases and the purchasing power of the population at large, and the sector holds opportunities for U.S. companies.
Agribusiness is a particularly strong sector for SMEs. With land privatization taking hold and recent record crop harvests, many opportunities have arisen in food processing and packaging. Some examples highlight the SME success in this sector:
The bottling and canning plant of Darl Company in Odessa produces and packages carbonated natural fruit drinks. This company was started with minimal capital, but in just a few years it has carved out a significant share of the regional beverage market. Production is near capacity, and the owners are looking toward a new phase of diversification and expansion. The firm is now ready to add to its equipment stock and increase production.
A small plastics factory near Komsomolsk, Leomi Original, produces plastic bags and packaging material used in the food and beverage industry. This company has a nationwide contract to supply plastic packaging material to one of Ukraine’s largest beer producers. Leomi Original has developed a market niche and is ready to diversify and expand.
Another dynamic small enterprise in Ukraine is operating in a different sector in the Odessa region. Intercom, a small telecommunications provider, has 3,000 subscribers, serves six villages and provides both wireless and wireline voice/data services. The company handles the rural telecommunications needs of its largely agribusiness clientele. Intercom, recognizing a demand for value-added services, has designed a program to expand its network and offer more tailored data services for the agribusiness community.
Meanwhile, many SMEs in Ukraine are now entering into a new phase of the business cycle. Having solidified their positions in the local, regional, or even national market during 3-5 years of operations, they are seeking to expand and improve capital in order to increase market share. In this regard, there is a tremendous interest in U.S. equipment and know-how. U.S. manufacturers are well respected in various industry sectors, but largely underrepresented in Ukraine.
The SME environment has improved significantly in the past the few years, but more changes are needed to create a favorable business climate. Further progress is expected later this year through improvements to the customs code, tax compliance legislation, the appeals process for businesses in the court system, and effective enforcement mechanisms for the courts. As the legal and regulatory framework, as well as access to finance, continues to improve the environment for SMEs, this sector will continue its rapid and sound growth cycle.
Financing of SMEs, traditionally a challenge, is beginning to improve. Regional banks are beginning to develop better financing programs for local companies. One prime example of this effort comes from Nadra Bank, which operates in several regions, including the Odessa region. In Odessa, Nadra Bank has worked closely with local companies of all sizes to provide trade finance. In addition, a number of programs run by both the government and private sector are providing trade and project finance for the SME sector. The European Bank for Reconstruction and Development, International Finance Corporation, and U.S. Export-Import Bank are all examples of U.S. or international initiatives that assist SME development. Through a combination of loan guarantees and/or financing these facilities, as well as others, offer more options to U.S. and Eurasian firms seeking to do business in the region. (For more information on banks and how deals are financed in Ukraine, see the BISNIS Finance Survey at www.bisnis.doc.gov/bisnis/fq2003/Ukraine/Ukraine.htm).
U.S. companies can take advantage of opportunities arising from the growing strength of Ukrainian SMEs in many industry sectors in virtually all regions, including agribusiness, information technology, retail products, machinery, electronics, pharmaceutical/medical, and more. An excellent way for U.S. businesses to find export leads and information of promising Ukrainian companies is through the BISNIS Search for Partners and Trades & Tenders programs. For more information on the BISNIS leads programs, visit http://bisnis.doc.gov/leads.
Michael Considine covers Ukraine for BISNIS in
Washington, DC.
For more information on Ukraine, visit BISNIS Online at http://bisnis.doc.gov/ukraine.
[BOX INSET]
American Chamber of Commerce, Kiev
www.amcham.kiev.ua
Association for Promotion of International Business and Development, Kremenchuk - www.apibd.com.ua
U.S. Agency for International Development ww.usaid.kiev.ua
U.S. Commercial Service, Kiev www.buyusa.gov/ukraine/en
Western NIS Enterprise Fund - www.wnisef.org
Ukraine Country Commercial Guide 2003
www.bisnis.doc.gov/bisnis/country/030311Country GuideUkr.htm
BISNIS program to market a U.S. company in Ukraine
www.bisnis.doc.gov/expolink
Ukraine IT/Telecom update
www.bisnis.doc.gov/bisnis/country/030214UkrIT-teleUpdate.htm
This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)