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Books on Ukraine
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Update No: 319 - (26/07/07)
US Navy and Sea Breeze hosted by Ukraine
If there is one thing that makes Putin see red, it is the US nosing about and
brazenly strutting around in what he, and Kremlin hawks, regard as their
backyard, Ukraine, the very home of the original Rus. All Russian patriots burn
with indignation at the now annual event, Sea Breeze, when NATO flaunts its
military and naval muscle right under the noses of the Russian Crimean Fleet.
The U.S. Navy continues to build multinational partnerships and improve maritime
domain awareness - a key component of Chief of Naval Operations Adm. Mike
Mullen's "1,000-ship navy" concept - in the Black Sea during the
ongoing Sea Breeze exercise in Odessa, Ukraine, the very city where one of the
greatest events of the Bolshevik Revolution took place eighty years ago on the
Odessa steps, hallowed by Eisenstein in film. Putin's new hard line is scarcely
surprising in the circumstances. It as if the Russian Atlantic Fleet made a
showing in force outside Boston on the anniversary of the Boston Tea Party or
flew the flag at Yorktown on the anniversary of the battle of the same name. At
least that's how it appears in patriotic Russian eyes.
Sea Breeze is now a traditional annual exercise hosted by Ukraine. The
decade-old training exercise focuses on shipboard and damage control training,
said Cmdr. Darryn James, a 6th Fleet spokesman.
About 1,000 of the exercise's 2,500 participants come from Ukraine, with the
U.S. Navy and Marine Corps providing about 700 people, James said. The remaining
representatives come from 11 other countries: Armenia, Azerbaijan, Canada,
Georgia, Germany, Greece, Latvia, Macedonia, Moldova, Romania and Turkey, all
NATO members. There are 12 participating ships, including the American
guided-missile destroyer Donald Cook, and air assets from several nations. NATO
is also actively courting Ukraine, Moldova and Georgia. The Black Sea risks
becoming a NATO lake.
Protestors, mainly representing Ukraine's Communist party, were present on the
harbour front in Odessa, James said, but the numbers were small, and the
protests were peaceful. There is a certain resignation among local Russians, but
tringed with strong indignation. Sea Breeze is all about reminding the Russians
who won the Cold War, they aver, a fact that rankles still.
Vice Adm. John Stufflebeem, 6th Fleet commander and deputy commander of Naval
Forces Europe, visited Odessa on June 12th, James said. Stufflebeem attended a
reception with Ukrainian Vice Adm. Victor Maximov, the exercise director, and
other military officials. Stufflebeem was recently nominated to become director
of the Navy staff at the Pentagon.
Capt. Chip Walter, Naval Forces Europe's team leader for the Black Sea region
and commodore of Combined Task Force 67, told the Navy Times that such exercises
as Sea Breeze help show "America's interest" in the Black Sea. The
multilateral partnerships are focused on peacekeeping and humanitarian
assistance missions, Walter said, but also on bolstering maritime domain
awareness, or MDA.
Yushchenko: Ukraine's Image Tarnished by Power Struggle
Ukraine's President Viktor Yushchenko acknowledged in early July that a bitter
two-month power struggle between him and the prime minister had tarnished the
country's image. Yushchenko spoke of the 'loss of Ukraine's image due to the
non-constitutional processes in parliament which stemmed from quarrels and
conflicts," at a news conference. "Europe would like to see that
Ukraine can emerge from the crisis itself while respecting democratic
principles," he said.
The crisis started on April 2nd, when Yushchenko, who is seen to be pro-Western,
issued an order to dissolve parliament and hold early elections. His rival,
Prime Minister Viktor Yanukovych, leading the pro-Russians, declared the order
illegal and appealed to the constitutional court.
The rivalry between Ukraine's leaders dates back to the Orange Revolution of
2004, when mass protests helped bring the pro-West Yushchenko to the presidency,
overturning a flawed vote initially granted to Moscow-backed Yanukovych.
The international community expressed serious concern during the latest power
struggle, particularly after Yushchenko and Yanukovych briefly sparred for
control of the country's security forces.
After hours of tense negotiations, the president and prime minister finally
struck a deal on May 27th, agreeing to hold elections pending a series of legal
amendments in parliament to prepare for the polls.
This is leaving the country's political life in limbo at a time of usually
quiescent politics, anyway, as people depart for their holidays, which more can
now afford to do, particularly the elite and the broadening middle class.
Middle class gaining greater visibility
While a middle class has visibly emerged in Ukraine in the last several
years, it currently accounts for only a small part of Ukrainian society, and is
still a far cry from being a girder of the nation's economy, as in other more
developed countries. But like Russia the real wealth… like political power
remains with the continuing power-holders, the former CP bosses, the owners of
capital, the senior managers, then and now.
A recent study shows that while the middle class in Ukraine currently accounts
for less than one-tenth of the country's population of around 47 million, more
than a third of Ukrainians subjectively feel themselves to belong to the middle
class.
The Kiev-based market, consumer and sociological research and consulting
organization Gorshenin Institute of Management Issues (KIMIG), which conducted
the survey among 2,000 respondents in the second half of April, found that 8.9
per cent of Ukrainians actually belong to the middle class.
By contrast, the middle class in most European countries on average accounts for
50-70 per cent of the population.
Of the respondents polled by KIMIG, 33.6 per cent, or more than one-third said
they saw themselves as middle class.
The French are coming to town
France is a notoriously self-contained country, which its inhabitants feel
deep down is the best in the world, the best climate and countryside, the best
cuisine and couture, the best language and literature, you name it the best is
French.
Not surprisingly, therefore, compared to business from other Western countries,
companies from France entered the Ukrainian market comparatively late.
Nevertheless, by the end of 2006, France placed eighth in the Ukrainian
government's official list of source countries for foreign direct investments.
Experts claim that bilateral cooperation between France and Ukraine has grown in
the last several years and forecast stable growth in terms of new investments,
trade turnover and the general development of French business in Ukraine.
According to the State Statistics Committee of Ukraine (SSC), France was the
second largest investor in 2006. Last year, French FDI into the Ukrainian
economy reached US$738.9 million - more than 16 percent of total FDI in 2006. In
the first months of the current year, the SSC ranked France in the eighth
position in its list of the 10 largest foreign investors.
According to official statistics, French capital has invested more than US$826.8
million in Ukraine to date. Insiders say that number is even higher. Pierre
Compagnon, economy adviser at the Embassy of the Republic of France in Ukraine,
did not confirm SSC's figure, saying that the exact amount is hard to estimate
because certain investments have made their way to Ukraine via third-party
countries. "I will provide one example: the purchase of Kryvorizhstal by
the English-Luxembourgian company Arcelor Mittal was made through Germany, which
placed this country in first place in the list of investors. Certainly, many
French investments have [similarly] reached their destinations and French
investors are strengthening their positions on the Ukrainian market," he
said.
Compagnon believes that the past year was particularly successful for both
countries, as trade exceeded US$1.1 billion. Since 2000, commodity turnover
between France and Ukraine has grown 2.5 times, he said. Nevertheless, France
occupies fifth position among the world's top exporters, with a market share of
2.2 per cent, but is placed eighth in Ukraine. Compagnon is convinced that
Ukraine could also increase exports to France significantly. "In general,
we have a great deal of work to do for our economic relations to reach a level
that would correspond to the economic potential of both our countries," he
said.
Ukraine has become an attractive market for French enterprises due to the
country's stable economy growth, Compagnon said. He believes that a substantial
and stable increase of investments requires considerable efforts in modernizing
legislation to increase the level of transparency. It is necessary to radically
simplify investment procedures and decrease the level of corruption, which is
the greatest bottleneck for business development, he said.
"As soon as these conditions are satisfied, foreign investors will start
bringing much more capital and technology to Ukraine... there are no reasons for
foreign investments to Ukraine to be below the level of investments to Poland,
for example."
Compagnon believes that Ukraine's imperfect legislation and judicial system need
to be reformed. He said that these are the primary hurdles that hamper the
development of French business in Ukraine. With a multitude of governmental
orders and differing court decisions, the system currently in place results in
long-term delays that are designed to facilitate bribery and other forms of
corruption, he said. "All of these issues do not contribute to a normal
business climate," he said.
Compagnon believes that, although the current political situation in Ukraine is
complex and may harm investment confidence, the country continues to be
economically attractive to foreign investors "I recently returned from
Paris where I have participated in a seminar about Ukraine. This seminar
gathered over 130 people. Similar events in France as well as meetings of the
Trade and Industry Chamber organized by the [French] embassy's Economy Mission
are extremely useful, particularly today, when all these political difficulties
in Ukraine are widely commented upon by the media. This raises the concerns of
French companies about the [investment] attractiveness. The French Embassy in
Ukraine together with the Ukrainian Embassy in France must make the efforts to
explain that the Ukrainian economy and politics develop separately and the
country remains attractive for business despite administrative
difficulties," he said.
According to Compagnon, about 140 French companies have branches or
representative offices in Ukraine. This number has grown considerably in the
last few years, he said, and this growth has turned into a trend. "For
example, the entry of Auchan, one of Europe's retail business leaders, will
surely send a signal to other companies," he said. In March of this year,
France's Auchan Group announced plans to open 10 hypermarkets throughout Ukraine
within the next two years.
Compagnon said that 25 per cent of French companies currently operating in
Ukraine work in the services sector. Investments in agricultural, food
processing, industrial equipment and consumer goods each stand at approximately
15 per cent, he said.
Both France and Ukraine have economies in which the agrarian and industrial
sectors play important roles, Compagnon said. France has established a presence
in Ukraine's agriculture sector. One example he gave was French dairy giant
Lactalis. In 2004, that company purchased the Ukraine-based operations of
American Food Master International, including the Bilosvit dairy in Cherkasy
Region that produces the President brand of milk and dairy products.
International food company Groupe Danone entered the Ukrainian market in 2006 by
acquiring the Rodych Dairy Plant based in the southern Ukrainian city of Kherson.
In May 2002, France's Malteurop acquired the Chernihiv-based Desna Malt House
for 2 million euros. In April of this year, France's Bel Group purchased the
Shostka City Milk Plant in Sumy Region.
According to the SSC, food production is the second largest area of interest for
French investors in Ukraine. The primary area of investment for French business
remains the financial sector: France's BNP Paribas recently acquired a
controlling stake in one of Ukraine's largest banks, Ukrsibbank, for US$500
million. In the past year, French bank Credit Agricole purchased a 98 per cent
stake in the Kiev-based Index-bank for US$260 million.
Karl Hepp de Sevelinges, head of the Kyiv office of France-based legal firm Gide
Loyrette Nouel (GLN), believes that the official amount of investments
calculated by the SSC is greatly underestimated. He explained that countries
like Cyprus, listed as a leading foreign investor in Ukraine, are used by
investors (including French investors) to reduce taxes when transferring money
to Ukraine. Sevelinges estimates that there are around 500 French companies
currently operating in the country and forecasts the expansion of the French
business presence in Ukraine. "There was an investment conference in Paris
in June and it was an occasion to see new investors and investment plans...
there are many companies that are interested in this country," he said.
GLN established its office in Ukraine in 2006. GLN Kiev provides advisory
services to investors wishing to set up business in Ukraine and to those
companies that are already established on the market. According to Sevelinges,
who specializes in international investments, around 60 per cent of GLN's
clients in Ukraine are French companies. Like many foreign investors, French
companies began actively entering Ukraine after the Orange Revolution, which had
a positive impact on the country's investment climate, Sevelinges said.
"French companies came quite late to Ukraine. They're always a little bit
late compared to other investors, like the Germans, for example… But once they
do come, they often come together. And this began happening in 2005-2006,"
he said.
Sevelinges said the current political crisis has had little impact on the
economic situation in the country. He said that many of his company's clients
share his opinion that, despite political instability, Ukraine remains an
attractive investment market. "No French [investment] project has been
abandoned," he said, "This country needs investments. And this is key
for everybody."
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CONSTRUCITON
Ukraine to create new ammunition disposal sites
Ukraine is planning to create new ammunition disposal sites with an annual
scrapping capacity of 200,000 tonnes, the press service of the industrial policy
ministry announced on July 5th.
Ukraine intends to scrap 2.47 million tonnes of ammunition by 2018, while the
existing disposal sites can utilize just 127,100 tonnes per year, it said. The
ministry acknowledged that the existing disposal sites operate at just over 20
per cent of their actual capacity. Ukraine lacks technologies for the scrapping
of highly dangerous ammunition such as bombs stuffed with amatol, hexogen and
mixed explosives, it said. The Ukrainian Defence Ministry's ammunition storage
facilities are overloaded by about one-fifth of the permitted storage capacity
and storage conditions leave much to be desired, it said.
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ENERGY
Ukraine to fit NPP with Russian reactors
Ukraine plans to fit the future third and fourth generating units of the nuclear
power plant in the city of Khmelnytsky with modernized Russian VVER reactors,
state nuclear power company Enerhoatom said on July 5th, Interfax News Agency
reported.
"We plan that the final construction should involve the use of VVER
reactors with the corporate participation of the Russian Federation and other
countries and the possible acquisition of licences for those generating units
for building units of this kind on other sites," Interfax News Agency
quoted Enerhoatom First Vice-President for Economic Policy and Corporate
Development, Nykyta Konstantinov, as telling reporters in Kiev.
However, the fourth generating unit of the Southern Ukrainian Nuclear Power
Plant will be equipped with a PWR reactor, Konstantinov said.
PWR reactors are manufactured and used in Europe, the United States, and South
Korea. "Naturally, they will be modernised reactors with heightened
security standards," Konstantinov said.
When the VVER and PWR reactors have been installed at the two plants, Ukraine
will decide which type to use for future units, he added.
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FOREIGN INVESTMENT
EBRD could invest in Ukrainian telecom, pharmaceuticals
The European Bank for Reconstruction and Development (EBRD) is considering the
possibility of investing some 30 million Euro in the capital of one
telecommunications company and one pharmaceutical company in Ukraine, Kamen
Zakhariyev, the EBRD director for Ukraine, told Interfax News Agnecy.
"We are currently looking at the telecommunications industry, where there
is one possibility [for investment] this year. In addition, we are looking at
retail in the sphere of pharmacies. In total, the bank could spend about 30
million Euro" on these projects, he said. The EBRD is also continuing talks
on joining the capital of several medium-sized Ukrainian banks, although it has
yet to reach final mutual understanding with the owners of these banks, he said.
The EBRD is the largest investor in Ukraine. At the end of January 2007, the
bank had provided more than 2.87 billion Euro in financing to more than 130
projects in the country.
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FOREIGN TRADE
Trade turnover with China could hit US$10bn by 2012
Trade turnover between Ukraine and China could reach US$12 billion by 2012,
Chinese Ambassador to Ukraine, Zhou Li, said in an interview with the 2000
weekly on July 6th.
"The Chinese authorities have never treated Ukraine as a minor state. We
attach significant importance to cooperation between our countries. It has been
developing at a fast pace. Ukrainian-Chinese trade turnover grew from hundreds
of millions of US dollars to US$4.16 billion in 2006, and it is growing by no
less than 20 per cent per year," Zhou Li said. China "is the fourth
largest exporter for Ukraine. The main entries on the list of exported goods are
engineering products, equipment, spare parts, textile, including final products
and resources, and electronics," he said. Ukraine ranks third among CIS
member states, as far as volumes of trade with China are concerned, Zhou said.
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MINERALS & METALS
Metinvest says yet to decide on Stelco buy
Ukraine's Metinvest steel group said it has yet to decide whether to acquire
Canadian steel producer Stelco. The Globe and Mail quoted industry sources and
analysts as saying that Metinvest was thinking of buying Stelco. "We're
looking at all possible investment opportunities, if they arise, including
Canada's Stelco. However no decisions to be involved in buying or investing in
the company have yet been reached," Metinvest's press office said.
Ferrexpo`s capitalisation soars 37% on LSE
Ferrexpo plc, which controls Poltavsky GOK, Ukraine's biggest producer of iron
ore pellets, had a market capitalization of US$2.32 billion on the first day of
trading following the company's initial public offering on the London Stock
Exchange (LSE), New Europe reported.
The shares closed the first official day of trading on the LSE on June 20th at
GBP1.9203 a share, valuing the company at GBP1.164 billion. Ferrexpo placed the
shares at 140 pence per share, which put the company's market cap at GBP848
million (US$1.671 billion), recently. Thus, the company's value soared 37.2 per
cent in a just under a week. The company sold 152.098 million common shares in
the IPO and raised GBP213 million. The sponsor and global coordinator of the IPO
is JP Morgan Cazenove Limited (London) along with the London branch of Deutsche
Bank AG. JP Morgan Cazenove Limited is also the group's financial advisor.
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