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Investment and Trade Potential

 

Ukraine continues to demonstrate impressive economic success: its economy has grown by more than 12% in 2004. Since the year of 2000, average annual growth rate makes 8.4 %. Public debt to GDP ratio decreased from 48 % in 2000 to 27 % today, debt service as a share of exports is below 5 % now. Industrial growth for the same period is 12.5 %. Positive balance of foreign trade in goods amounted to 3.2 billion. USD. Trade turnover with USA has increased three times as much and reached 3 bin. USD.

 

The new Government of Ukraine makes great efforts to prevent overheating of its economy, strengthen its financial sector, further reform tax system, enforce anti-monopoly policies and improve pension system. Business climate has been improved and it is reflected in a significant increase in domestic investment and productivity. Current account has recently demonstrated healthy surpluses; our international reserves have also significantly increased from 7.5 bin. to about 9.5 billion USD in the beginning of last year.

 

The Government together with private sector work on improving the transportation infrastructure and accelerate research and development activities in order to approach to an economic model based predominantly on knowledge and innovation. After almost a decade of production collapse our industrial capacities in many sectors are still used quite insufficiently. Introduction of a reasonable 13% flat income tax rate, simplified taxation of small businesses combined with pension reform and reduction of enterprise profit tax rate by 10%, accompanied by certain expansion of tax base and recent improvement in tax administration have helped to reduce the volume of unofficial economy.

 

Based on recent strong economic performance, the Government’s activity which envisages substantial increase in real household incomes has strong social dimensions. Transition and economic growth should bring tangible results to ordinary people, and this is main political objective of Ukrainian Government. Main focus of the government’s efforts is concentrated at addressing social dimensions of market reforms, fighting poverty and corruption, improving transparency and governance at all levels, reform and modernization of the municipal utilities sector.

 

The victory of Mr. Viktor Yuschenko in the third round of the presidential election encouraged investors and it resulted in rapid growth of Ukrainian bonds quotation. Quotations of indicative Ukrainian bonds which expire in 2007, in the end of last year increased by 0,625 points up to 107,250 per cent of the face value with 7,397 annual per cent yield.

 

On January 5, 2005 the Ministry of Finance of Ukraine has placed bonds of internal governmental loan and attracted 543 million Ukrainian Hryvnia to the state budget. Non-residents have purchased a significant amount of the bonds. It displays foreign investors' trust in the obligations of the state as a result of macroeconomic stability and favorable mid-term prospects of GDP growth. Prominent banks expressed their willingness to be a lead-manager of Ukrainian external borrowing in 2005, including Citigroup, Deutsche Bank, JP Morgan, ABN AMRO Bank NV, Dresdner Kleinwort Wasserstein Bank, Nomura. Last annual rate on T-bonds (2004 with repayment in 2011) was only 6,875 %. Profitability was 10 - 11% in the year 2000.

 

The change of power in Ukraine is most likely to spur foreign capital investing in Ukraine’s economy. Volumes of direct foreign capital investment will significantly rise. The European Union is interested in establishing closer relations with Ukraine because the President - elect, Viktor Yuschenko, has a western mentality and will make efforts towards Ukraine's more active European and Euro-Atlantic integration.

 

Just a few points of Viktor Yushchenko's Program include:

 

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To create 5 million new jobs.

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Establish a system of government contracts and public works with the purpose of creation of new jobs.

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Destroy all barriers for those who want to start a private business and support their personal initiatives.

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Decrease credit rates. To secure guaranteed access to credits for small and medium businesses.

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Promote development of advanced technologies in order to ensure Ukraine's presence on international labor markets.

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Increase volume of foreign investment in Ukraine's economy ten times as much. It will promote creation of new jobs and development of new technologies.

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To increase the state budget by decreasing taxation.

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Decrease taxes. If taxes are fair, they will be paid by each citizen. Share of shadow economy will decrease resulting in the rise of budget revenues.

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Decrease taxation of the salary fund – in five years it will not exceed 20%.

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Simplify taxation procedures making them transparent.

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Separate business from government; protect entrepreneurs from extortion. End the practice of using law-enforcement for exerting pressure on businesses.

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Put an end to corruption in tax administration bodies; raise salaries for honest professionals. Disband State Tax Militia – there is no need for this repressive body.

 

For years the United States has used to work with Ukrainian Government which was ambivalent regarding reforms. Mr. Yushchenko will bring to office a commitment to genuine transformation. As he defines his reform priorities, we are expecting that the United States should reconsider its assistance programs in order to help us make early tangible progress.

 

Investments and trade will be more than assistance. They will consolidate a growing economy and improve life of Ukrainian people. New Ukrainian Authority will improve Ukraine's business climate. Fair and transparent rules will increase foreign investments in Ukraine from its current level of $7.8 billion. Ukraine also defines a road map to bring Ukraine into the World Trade Organization this year and improve market access for Ukrainian products.

 

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