LOGISTICS OF EXPORTING TO EURASIA SERIES

Commercial News Ukraine Report

July 31, 2007

Author: Sergiy Polovenko, BISNIS representative in Kyiv, Ukraine

The report summarizes commercial, political and business development news in Ukraine for July 2007. The information is received from the Ukrainian news agencies (UNIAN, Ukranews, Interfax-Ukraine, Ukrinform, Ekonomicheskie Izvestiya), regional periodicals (Kyivpost, Korrespondent, Kyiv Weelky), PR departments, and web-cites of the regional governments and local companies.

Some of the figures listed in the text are in local currency – Hryvna (UAH). Current exchange rate is 1 USD = 5.05 UAH.

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Ukraine Economics:

World Bank improves GDP growth estimation in Ukraine. A 6% GDP growth and a 9.7% inflation was predicted by the World Bank in 2007 while the earlier 2007 estimations were of 4.5% GDP growth and 10.7% inflation. World Bank experts also admitted to no significant impact of a political crisis on economic development of Ukraine. In their opinion, Ukraine is a country with a huge potential and attractive investment conditions.

Ministry of finance guarantees that an average wage in Ukraine in 2008 will increase to 1,654 UAH (approx. 320 USD), which is by 17% more year-over-year. According to the Ministry, the predicted inflation in 2008 will amount to 6.8% and the GDP growth will total 7.2%. Incomes of enterprises will rise to 147 billion UAH, export and import will grow by 20.4% and 15.5%, respectively. Negative trade balance should be lowered to 3 billion USD.

The State Department of Veterinary Policy has imposed a ban on poultry import from Malaysia in view of reported bird flu.

Ukraine has imposed a ban on import of sheep from Romania in view of the registered scrapie virus.

State Department of Veterinary Medicine has lifted a ban on poultry import from Turkey. According to the latest data, Turkey managed to cope with bird flu spread on its territory. Meanwhile, Ukraine permitted poultry import from Turkey under keeping to all the rules. The State Department of Veterinary Service imposed a ban on poultry import from Turkey in October 2005.

Agriculture:

Direct damages, suffered by farmers in view of drought are evaluated at 200 million USD as Ukraine faced a varying whether, from a sever drought to heavy rains which caused damages at 1.1 million hectares. The drought engulfed one third of agriculture lands. Experts predict the 2007 crop at 27 to 33 million tons, against 34.3 million ton in 2006.

The Government has allocated 2.5 million UAH from the state budget for support of the agricultural complex. The 2007 state budget envisages 6.6 million UAH for development of the agricultural complex, which is by 40% more year-over-year.

The European Bank for Reconstruction and Development (EBRD) will advance a credit to the tune of 10 million EUR for the "AgroInvest" company (Zholkva city, West Ukraine).The credit funds will be used in building in Yahotyn (Central Ukraine) a contemporary grain storage elevator to the volume of over 100 thousand tons.

Banking:

The European Bank for Reconstruction and Development has provided a syndicated loan to the "KredytPromBank" of 100 M. USD to grant loans to non state-run organizations and financing energy preserving projects. The EBRD granted the credit for two years and this is the largest credit, which has been recently available for five leading banks, or international banks in Ukraine.

Energy:

Alternative Energy:

A group of German businessmen, who have visited four districts of the Dnipropetrovsk region, got interested creating a production unit for rape processing into bio-diesel. A working group has been created to elaborate the issue. The parties view the final result in construction of a plant to annually process 400,000 tons of rape. Some 80,000 tons of rapeseed is grown in the region with 1.5 t/ha productivity. Hungary, Turkey, Poland and Germany presently buy rape from the region's growers at some 1,800 USD per one ton.

Infrastructure:

The World Bank will grant Ukraine a credit of 140 million USD for 20 years for reconstruction of water supply system in Lviv, Ivano-Frankivsk, Odesa and Donetsk, Public Utilities. The relevant protocol was reached on July 6 with the WB leadership. The protocol should be approved by the World Bank Council. The credit will be allocated in 2008.

The World Bank will allocate 140 million USD to re-equip water channels. Development of the public utilities center is supposed to be fulfilled by means of the budget and private investments

Investment:

World Bank estimates the Foreign Direct Investments growth by 2012 up to 175 USD per a Ukrainian citizen per year and advises to invest into industries, which observed less investment flow, namely transport, agriculture and IT-technologies. World Bank experts estimate that by 2012 the annual FDI flow would constitute 8.2 billion USD. Kyiv, the capital of Ukraine, is named as the most investment attractive destination, though the further investment flow areas to be considered are in regions of Ukraine.

Industry:

EBRD (European Bank for Reconstruction and Development) has granted a long-term credit of 8.8 million USD to a major producer of ceramic bricks Slobozhanska Building Ceramics Company. The credit is to be used for constructing a plant to produce porous brick blocks. The plant is to be situated nearby Kyiv, the capital of Ukraine. CJSC Slobozhanska Building Ceramics, one of the biggest Ukrainian ceramic bricks producers, established in 1997 with the support of Western NIS Enterprise Fund (US) and later in 2004 purchased by Austria’s Raiffeisen Investment AG (RIAG) and MARA Beteiligungserwaltungs GmbH plans to double its capacities to 240 million bricks per year after completion of investment program by the end of 2009.

A new model of the An-38-120 is being elaborated by the Antonov Aircraft Design and Manufacturing Complex (Ukraine) together with the Novosibirskiy Aviation Production Union (Russia). The parties intend to test and launch the new model, shortly. As many as 11 planes will be sold in advance. Serial produce of the Anb-38-120 is predetermined for cargo and passenger transpiration to Asia and Latin America. The An-38-120 will be designed to land on ice, snow and rocks. According to experts, the market faces a need of these planes at 370 items.

Retail:

Metro Cash&Carry Ukraine (a subsidiary of German Metro Group) plans to build its second shopping center in Odessa. This is the first step in the plan of developing its shopping chain on the coasts of the Black and Azov Seas to address growing tourist infrastructure in the region. The Metro Cash&Carry Ukraine, having 14 shopping centers in Ukraine, has increased its turnover by 81.68% from 276.5 million EUR to 615 million EUR in 2006.

Real Estate:

Absolute Capital Management Fund, Great Britain, plans to invest 75 million Euro to develop a trading center in Odessa. A 185,000 square meter trading and entertainment center is to be constructed within 2008-2009 period frame.

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov).