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Country Commercial Guides for FY 2000: Ukraine Report prepared by U.S. Embassy Kiev, Released July 1999 Note*

Chapter I: Executive Summary

This Country Commercial Guide (CCG) presents a comprehensive look at Ukraine's commercial climate. Country Commercial Guides were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. Embassies through the combined efforts of several U.S. Government agencies. This Country Commercial Guide contains information as of the end of July 1999.

Ukraine, a country which is now on the eve of its eighth anniversary of independence (August) and its third presidential election (October), generally has followed a course of democratic development, social stability, and determined, but slow-moving economic reform. A tremendous amount of work still lies ahead -- particularly in the area of economic development and the creation of an economic environment conducive to implementation of true market forces. Progress continues to be relatively slow - whether the movement will be in a forward direction is largely dependent on the outcome and aftermath of the presidential elections.

The country, a land of over 50 million people with substantial human, technical, and natural resources, is an important emerging market at the crossroads of Central Europe, Russia, Central Asia, and the Middle East and holds great potential for becoming an important new market for U.S. trade and investment. A significant number of both large multinationals and smaller foreign investors are present in this challenging market. Ukraine's ultimate trade and investment potential will depend largely on the success of its attempts to accelerate the movement toward a market economy and develops a more conducive business environment.

Although Ukraine is taking steps in adapting its trade regime to conform to the World Trade Organization's (WTO) accession requirements, which will have a positive effect for U.S. investors and exporters, progress is slow and it is difficult to assess when ultimate accession will occur.

The most pressing economic problems currently facing Ukraine are of a structural nature: slow privatization; little industrial restructuring; an unwieldy governmental apparatus; a narrow tax base; over-regulation; significant levels of corruption; and a largely unreformed agricultural sector. These factors have caused over half of the economy to operate in the informal, or "shadow," sector.

While foreign assistance is crucial in this period of economic transition, official flows of assistance in the longer term should be dwarfed by private capital flows if Ukraine creates a more conducive environment for private sector development. Ukraine requires technology, management expertise and access to international markets that only private business can provide. Projected flows of tens of billions of dollars over the next several decades are not unrealistic.

According to official Ukrainian statistics, total foreign investments in Ukraine were valued at $2.8 billion through May 1999. The United States accounts for approximately 19% ($523.7 million) of the total and the Netherlands is a distant second at approximately 10% ($272.6 million). In spite of being number one, U.S. investment in Ukraine is very low compared to the American presence in other reforming economies in this region. Poland and Hungary, for example, have attracted roughly $5.5 billion and $4 billion respectively in U.S. direct investment. On a per capita basis, foreign direct investment in Ukraine is among the lowest in the region.

U.S. exports to Ukraine are also just beginning to take off. The $220 million total of 1995 increased to $394 million in 1996, on the strength of growing exports of agricultural equipment and high-tech informatics equipment. The 1997 and 1998 figures were still hovering around the $400 million level.

Over 250 U.S. companies are currently active in the Ukrainian market, either as investors, exporters, importers, or members of the legal or consulting sectors. A number of others are poised to enter the arena, while some already-entrenched American players are getting ready to expand their activities, but are waiting for evidence of further improvements in business conditions. Others are pressing ahead and, in fact, contributing to improving these conditions.

As can be seen from the line-up of firms active in the market now and research done by the Commercial Service of the U.S. Embassy, the most promising sectors for U.S. investment in Ukraine include: the food industry, energy, building materials, consumer goods, informatics, health care, transportation, environmental technologies, and tourism services. U.S. business could play a major role in providing capital investment and the know-how required to modernize and restructure Ukraine's economy, particularly in the above sectors. There is great potential in Ukraine, but U.S. businesses desiring to do business in the country must be prepared to deal with a very challenging environment.

To maximize Ukraine's potential, the government of Ukraine will need to press ahead in its efforts to privatize its economy; develop a business climate that is conducive to the rapid expansion of U.S. trade and investment (including extensive deregulation); limit tariff and non-tariff barriers to U.S. trade and investment; ensure fair access to the Ukrainian market for U.S. firms; increase awareness of U.S. business, products, and technology in Ukraine; and increase the U.S. business community's awareness of the market in Ukraine, as well as its needs and existing trade and investment opportunities.

The Commercial Service of the U.S. Embassy in Kyiv stands ready to assist American companies in each step of the way to successful exporting to and investing in Ukraine. Our offices provide a variety of services that range from assessing the market through our research services and consultations to providing advocacy support for finalizing investment or sales projects. We also offer facilities and business infrastructure support; bring Ukrainian businesspersons to the major trade exhibits in the United States through the International Buyer Program (IBP); develop structured one-on-one meetings through our Gold Key Service (GKS); conduct "Regional Outreach" programs throughout the oblasts of Ukraine; provide training opportunities in the United States to Ukrainian business managers through our Special American Business Internship Training (SABIT) program; and pursue contacts through our Business Information Service for the Newly Independent States (BISNIS) "Search for Partners" program.

The Commercial Service in Kyiv has the on-site coordinating function of the Committee on Trade and Investment (CTI) of the U.S.-Ukraine Binational (Gore-Kuchma) Commission. CS Kyiv also participates in the trade and investment promotional programs of the U.S. Department of Commerce's "Showcase Europe" program.

Country Commercial Guides are available for U.S. exporters from the National Trade Data Bank's CD-ROM or via the Internet.

Please contact STAT-USA at 1-800-STAT-USA, (1-800-782-8872) for more information.

Country Commercial Guides can be accessed via the World Wide Web at http://www.stat-usa.gov; http://1997-2001.state.gov; and http://www.mac.doc.gov.

They can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS (1-800-553-6847).

U.S. exporters seeking general export information/assistance and country-specific commercial information should contact the U.S. Department of Commerce, Trade Information Center by phone at: 1-800-USA-TRADE (1-800-872-8723) or by fax at: (202) 482-4413.

[end of document]   Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code. Next Chapter | Table of Contents | Country Commercial Guides Index