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In the last decade it has become obvious that the chart of investment activity in Ukraine has its recurrence.

The first outburst in the form of 6% growth of investments in fixed assets was marked in 1998. Then default and economy reviving devaluation followed.

The second peak was in 2000-2001 -14 and 21%. The year of elections 2002 brought reduction of business activity. And next peak, again for two years - 31 and 28% in 2003 and 2004. 2005 was a year of power changing. A revival began already in 2006, when an increase of investments was by19%. And for three quarters of 2007 this increase came to 28,5%. So there is a logical question: if from the end of 1990 the investment activity in Ukraine can be described as two years high growth - one year slow-down should we expect that in 2008 there will be serious reduction of investments and in consequence of this process should some corresponding corrections in business plans be undertaken ?

Especially taking into consideration the fact that by now there has already been many talks about the possible overheat of the Ukrainian economy. Our research shows that the real pre-conditions for the overheat might exist only in the financial sectors of economy.

The high increase of investments as well as growth of production are by far not taking place everywhere - not in all regions and not in all industries.

For example, up to 80% increase in an industrial production in 2007 was provided for by means of only three industries - metallurgical, machine-building and food industry.

In the meantime considerable influence on the economy growth of the past year was rendered just by investment demand. Exactly it, stimulated by building, transport and mechanical engineering industries (or rather, by orders of the machine builders from other industries), rendered substantial influence on a metallurgical production. The second important description of investment activity now is a substantial growth of foreign direct investment (FDI). First and foremost foreign investors stimulate the market of mergers and acquisitions (M&A), and sometimes even its overheat in separate industries, for example in a bank sector. Besides, often exactly foreign investors incite an investment import that is an import of the imported equipment, that renews capital assets substantially. At the same time experts estimations indicate that up to half of FDI present now are in fact reinvestments, in other words, resumption of assets that had been brought out by domestic business earlier. By the way, frequently large financial-industrial groups appear to be the customers of the imported equipment suppliers.

For example, in order to modernize metallurgical factories, that is conducted by leading foreign engineering companies. On the whole the facts of capital recurrence and warming-up market of M&A by foreign investors accentuate current tendency: a country from the net-exporter of investments (withdrawal of capitals) becomes their net-importer. Leading companies in increasing frequency aim to enter the oversea markets of holdings, although there will not be any IPO breakthrough in 2008, as it was assumed before.Probably up to $3 milliards will be attracted in a coming year via IPO, that will amount to 9% from the expected volume of investments in the fixed assets. Many companies aim to attract facilities in the internal market, for example, at the expense of additional emissions and corporate bonds. As yet the structure of investment sources did not suffer considerable changes. Still more than 60% of investments is carried out by means of personal funds. Most likely in 2008 the growth of investments will be slow , though it will retain its quite high rates of about 15%. Its important however, that a high-quality change happened in the past year - the allotment of basic stock accumulation amounted to more than a fourth of GDP, confirming the investment orientation of the Ukrainian economy.

The main problem now lies in scantiness of resources for investing, most enterprises do not have the personal funds.

early as at the beginning of 2007 the savings - investments balance has reached not simply negative, but quite a considerable dimension of 11% from GDP), in other words the volume of the attracted facilities is also becoming limited.

Delimitation of corporate sector becomes wider. Middle business becomes stronger, owing to mergers and acquisitions. Financial-industrial groups strengthen specialization, fighting for dominant positions on markets. Finally, small business develops at the same time, in spite of growth of competition from the side of foreign investors and middle business. The competition is growing, markets are being saturated. That is why it is important for potential investors not to make a mistake while choosing one or another enterprise, region, industry. This special project is devoted to providing them with primary information. Our research is based on the public and confirmed information, the basic sources of which are State Statistics Committee of Ukraine, National Bank of Ukraine and the Ministry of Economy, and also estimations of branch organizations. For several companies the published information is used. Correlations of inter-branch balance are taken into account in the own forecasts of industries development. The same correlations lay the foundation of industries growth patterns coming from the rejections of a particular branch risks. We estimated the investment appeal of industries by letter-sign indexes. A letter expresses a risk estimation for investing (A - is a low risk, B - middle, C - high), and a sign appears to be a potential for growth (+ - high potential, - - below the average). Its significant that in such appraisals the main emphasis should be placed more on possibility for new investors, but not on the condition of industry in general. In addition, non-formalized risks were also being taken into account. And in case of assessment of growth not only rates were taken into consideration but also their stability.

The INVESTMENT PROBLEM can be discussed on different levels. It is possible and it is needed to talk about the lacks of legislative base, bad investment climate in a country. But it is often useful to go down below and to understand a simple truth: if you produce unneeded commodity, why do you think that you should be in funds?

Who would pay you for this goods? For a company ready to work for whoever, except consumer, money appear to be a very expensive resource. If we talk about the investment appeal of company in general, we should not forget that it is an integral description, taking into account the prospects of development, profitability of investments and level of risks.

Appraisal of investment appeal of company is in many respects a subjective process, although during its course different methods are being used, for instance, mathematical analysis of different numerical indicators of company activity.

mIn general case during the appraisal a few factors are taken into account, united by such a subjective concept as appeal .

It is an attractiveness of products ( that we began this talk with), informational, innovative, financial, territorial attractiveness. All of this factors are being taken into consideration by investor. The attractiveness of products for him is determined by its competitive ability at the market, by the value of existent and potential service, degree of diversification of commodity. The informative attractiveness of company is determined above all by its image, and also by the reputation of brands which it possesses. Value of given component in the investment appeal of company is growing constantly, therefore we talk about it right after a product.

An innovative attractiveness is mentioned here because without it in modern terms it is impossible to talk about efficiency of not only long-term but also medium-term investments. The financial attractiveness of company for an investor consists in the receipt of stable economic effect from financial and economic activity. If this effect is unstable, an additional risk appears, which investors dont like much. A territorial attractiveness in a number of cases may perform as decisive factor while making a choice. Other indexes can be pulled up, but if a factory is located in an unsuccessful place, transferring it is impossible. Besides, we shouldnt forget that attraction of investments is an ordinary commercial bargain. A company or business-project performs in it as a commodity, and investor appears as a purchaser, therefore commodity must be properly prepared for the transaction. The results of necessary independent marketing researches should be attained, quality of corporate management and account should not be set too high level of administrative risk, and legal aspects of enterprise activity also should not cause questions. In addition, it is desirable to conduct advertising and PR-campaigns, workings in bargains favour. All these things are of microeconomic level, but they assist in the substantial increase of investment appeal of company. We would like to finish with what we began: main component of investment attractiveness is the demanded commodity. Very often a brand serves as the object of purchase. In other words this is an aggregate of feelings, folded in the minds of users in regard to a specific commodity.


The main feature of the industry is the very large dissatisfied demand, especially in the segment of the commercial real estate.

It attracts into the industry not only the new players but also the investors. In common, since 2005, about a fourth of the investments into the industry is foreign. The main risks in the industry are tied to the price change on raw material and administrative procedures. The raw material price increase is bound up with the lag behind development of building materials production from building industry. Administrative risks depend on the opacity of the authorization procedures, land allotment and private revision by the local authority decisions as for the land allotment.

On the whole, the general risk of the industry is rather high, but potential profits are high the same. In addition, the situation in the industry depends on the prospects of beginning the large-scale infrastructural projects (for example, roads building). Growth of house-building for the first three quarters of 2007 made 21.5%, for all this a city building part grew to 74.5%. Profitability of house-building in the capital achieves to 70-80%. Under the half of new buildings is bought with bringing to the bank credits. A speculative part in the capital habitation market grew short from 20-30% in 2005-2006 to 5-10% at present.

In non-residential building in 2007 considerably (on 12%) cut the works of energy and industry enterprises building, pipelines, communication and electricity transmissions lines (on 11%) as well as. But was increased the volume of roads building (on 22%) and grows the trade areas building. Highly perspective is the creation of logistic objects, including the subsequent rent. In similar projects the leasing company Immorent Ukraine invested $11 million last year, and $44 million will add in coming. So, the controlling block of shares of Brovarskyy constructions building factory was sold for $6 million and the purchase transaction of controlling block of shares of Dneprospetsstroy joint-stock company was estimated in $1 million at all. The sector of real estate operations, fast-growing and attractive for investors, is bound up with building. During 2005-2006 the particular activity was shown by foreign investors who invested $1 billion and strongly warmed up the market (in 2007 inflow of foreign investments considerably decreased). For example, the Irish Quinn Group paid $80 million for the controlling block of shares of capital business-centre Leonardo and $59 million for the department store Ukraine. For the controlling block of shares of capital shopping centre Pyramida investors with British registration paid $25 million. Slightly cheaper were estimated the shopping centres on the capital outskirts: the controlling block of shares of Kvadrat on the Gnata Yury Street sold for $8 million and the Darnytsa department store for $4 million.

Last year increased the part of large buyers. So, the British London & Regional properties paid for the Globus in a centre of Kyiv about $200 million and for the business-centre Podol-Plaza - $50 million. Swedish Heritage Properties International paid for 55% Mandarin-Plaza closed joint-stock company no less than $500 million. The volumes of new 2008-2009 invest projects will be considerable no less. It can be noticed after the example of DEOL Partners company projects which plans to attract about $463 million in development of the office-hotel centre in Borispol and $488 million in shopping-entertaining centre Mall of Ukraine not far from Kiev. Leading Ukrainian developers attract the resources on the stock markets. The XXI Century company became a pioneer here. The holding TKC in the middle of the current year will make a loan by credit notes on $50 million. The Kyiv Donbas Development Group has already attract $130 million on IPO in London.


MAIN FACTOR of industry growth is an increase of population profits, in fact greater part of products is consumed by households.

As predicted, growth of consumption of households in 2008 will not be less than 9%, and such rates will be saved in a few subsequent years.

One should take into account that near one sixth of food industry products goes to the export. Ukraine’s joining to WTO may positively influence on export growth, however it would lead also to the increase of import, that will constitute a menace for domestic producers. If we talk about basic risks, this industry strongly depends upon prices o f raw materials supplied by agriculture. That means that this industry is indirectly prone to the climatic risks. In addition, prices on many types of agricultural products will be growing steadily. One should also take into consideration the factor, that labor payments in this industry make about 7% of expenses, that stands below the average index in economy.

It facilitates the expansion of production. The admission in industry in most cases is simple. State government are being applied just in a few directions, especially tobacco and alcoholic production only (in a price aspect - also bakery). Chief obstacle for development is low quality of raw material. Also a meaningful factor is a high level of competition in most of sub-branches. As a result, there is high activity in the field of mergers and acquisitions: in 2006 - approximately fifteen considerable transactions were conducted, with total value of over $310 million and as a result of the first half of 2007 – this industry took the second place on volume of M&A bargains. Only the basic transactions of past year were totally appraised in $1billion.

At the same time, for the level of concentration in Ukrainian food industry it is still a long way off to the achieved mark in more developed economies, so the high activity of M&A will be saved.

Production in meat industry grew after 2007 almost on 20%, and at the same time growth in previous few years also was high - from-10 to 30%. Long-term trends of growth are foremost in the production of pork and meat of bird. Most market leaders have an annual turnover of approximately 300 million Hr, at the same time they serve as the main purchasers of productions.So, a company «Oryl-Lider» was sold for $88 million while middle poultry factories were bought considerably cheaper. «Kurgansky broiler» was purchased approximately for $30 million. Last year the Polish meat group of PKM Duda paid $16 million for «Rosan-agro», which already became the fourth meat-processing enterprise of this group in Ukraine. Unlike meat fish industry in Ukraine can not boast of considerable volumes. But dynamics of growth in recent years totaling 30-40%, impresses.Demand on the products of this sub-branch grows constantly, therefore it can be considered as a very attractive target for investments. In recent years, considerable growth took place in processing of garden trucks - 20-40%, however in 2007 rates went down approximately to 15%. In a long-term prospect even some exhaustion of growth backlogs is possible, but by far not in all directions. So, a year-on-year increase of juice production in 2004-2006 was located in an interval of 70-200 thousands tons, and in 2007 exceeded to 300 thousands tons.It is not surprising, that in a past year the owners of the leading Ukrainian producer of juices «Sandora» managed to sell it to transnational Pepsi at enough high price of $758 million. If in the production of juices the process of concentration is only entering in an active phase, on the contrary in oil industry oligopoly has already set in. The undoubted leader here is a transnational group “Cargill”, the volume of actualized investment projects of which exceeded $100 million in Ukraine. Second transnational player is Bunge who is seting in operation a new oil-extracting factory in Ilichevsk, that is very comfortable forsupplying with export products. Domestic players are also amalgamating. The group of «Kernel-trade» paid for Kharkov «Evrotek» $100 million and $20 million for Melovskoy factory of the purified oil. At the same time they announced their plans to attract up to $200 million due to GDP on the Warsaw exchange. Increase in dairy industry in 2007 was approximately 11%, that in one and a half-two times below than indexes of the previous years. At the same time in a long-term prospect the manufacture of dairy production will gr ow due to the increase of demand on the products of high redistributions, such as cheeses and prepared products from milk. The main problem remains deficiency of raw materials, 70% of which are being provided by private farmsteads.

Dependence on the Russian market of sale appears to represent a serious risk. The concentration of the leading Ukrainian groups proceeds very briskly, and transnational corporations are also active.So last year Belgian Lactalis Group acquired the dairy enterprises of «Fanny» corporation (for $40-45 million), and French Bel Group purchased cheese industrial complex «Shostka» for 50 million Hr. Now Bel Group prepares to invest in it $10 million during next three years. At the moment seven leaders of market are controlling half of all dairy goods production, and about 40% - belong to the Russian and west-european players.

In recent years the growth of production in bakery industry judging by productive characteristics has stopped, in particular due to state regulation of prices. With all this going on as a matter of fact the program that provides flour selling from State reserve to producers doesn’t work. Some players sell assets, if they are not primary (as at SKM). Prices on bread-baking plants are often reasonable: purchasing of Poltava bread-baking «Plant ?2» was estimated at $3 million, and bread-baking «Plant ?4» in Nikolaev was appraised approximately at $1,3 million. Sugar production in 2007 decreased by 24% after having reached its pick (2,6 million tons), due to renewal of raw material sources in 2006.

After the entry into WTO structural transformations are going to happen owing to removal of restrictions on supplying with reed raw material. Nevertheless considerable investment projects in this sub-branch are being carried out, for example, by «Ukrros» and «Astarta-Kiev» holdings. Expenses on acquisition of sugar-plants are reasonable. Lokhvitsky sugar-plant in Poltava region was sold for $10 million, while two sugar-plants in Khmel'nitsky region went away for $7 million. The growth in confectionary industry in 2007 has reached almost 10% due to increase of purchasing ability. Among leading companies are both transnational (such as Kraft Foods, Nestle) and domestic corporations (AVK, «Roshen», «Konti», «Reynford»). The latter (in particular nowadays) are realizing projects on modernization. Smaller players are also trying to struggle for the confectionary market.Since 2007 bakery holding of «T, and S.» has started building of local pastry factory in Crimea ($2 million) and prepares for the construction of factory in Odessa. Small and finished factories may be more costly - confectionary factory «Kondfil» in Khmelnitsky was sold for $4 million. The volume of transaction on the purchase of «Bukovina» and controlling block of shares of «Lutskkonditer» made up $14 million.Far more difficult now is to enter the beer market. The reason is in strengthening of concentration, that especially is more obvious in beer industry, where the stake of small (after the first four) players in 2007 has fallen down to 4%. As an answer «The Ukrainian beer group» project has arisen. It represents an association of four local breweries.The investments of the group into gradual building-up of facilities will amount to $30-35 million. For comparison: 80 million euro was directed on modernization of «SAN Inb ev Ukraine» in 2006. The steadily growing non-alcoholic market is also becoming more concentrated.

In sector of mineral water ten leaders have control almost over two thirds of sales. Thus the stake of the main leader IDS Group (TM «Mirgorodskaya», «Morshinskaya» and others) totaling since 2007 more than a fourth of the market will grow even higher due to the purchase of «Akva-Eko» (TM «Truskavetskaya») fr $10 million. And for the capital company «Rosynka» in 2007 French Orangina Group has already paid $60-65 million. The existing concentration is caused by high promotion costs, that only market leaders can afford (for example, the publicity budget of IDS Group in 2007 made up about $2 millions). It is especially difficult to enter the alcoholic market. After merger of LVZ «Khortitsa» and the Odessa cognac factory (TM «Shustov») four leaders («Khortitsa», «Nemirov», «Soyuz-viktan», «Olympus») are controlling over 90% of the market. Investment projects are very costly in this sector: on construction of a new factory of «Praym» «Olympus» has spent $47 million. Concentration in vine-making industry is lower; however, risks of other kind are present: after joining WTO a considerable market saturation with import products is going to happen. Although foreigners are already coming here: last year controlling block of shares of Kiev Champaign factory «Stolychniy» was purchased by the German-Austrian group Henkell & Sohnlein for $14 million.


On the whole basic risks of light industry are low.

Major risk is related to the high competition, increasing first and foremost due to the considerable volumes of shady import from the Asian countries (the «white» import has practically not increased during the last two years). In addition the competition is intensified by the low barriers of entering into industry. High share of labor costs (making up about 20% ) in total expenditures constitute another reason of risks. It is also necessary to take into account the high level of technical risk of industry because of a low production volume: annual level of products’ realization that made up 0,5 milliards of UAH was overcome quite recently in the year 2005. We should also take into account a considerable amount of investments carried out during 2005-2006, that permitted to strengthen up productive base, sufficient to cover the increase of demand.

Nowadays investment activity has stabilized: for the first half-year 2007 the increase of FDI amounted to only $4,7 million.

However, demand on domestic products, in spite of considerable growth of population profits, is now very limited. Scantiness of demand leads to relatively low rates of price advance on the products usually coming to 4-6% per year. Among producers (mainly small and middle enterprises) the level of competition is very high and at the time being there are no price regulations. Frequently the development of many companies goes by means of filling up of new niches. Many enterprises find themselves as participants of so called “giving” schemes making high-quality products for oversea markets. Such orders can make up to 70% in output of leading garment factories employing 100-200 workers producing about half a million articles per year. The risk of such schemes depends on key customers, therefore many producers aim to diversify both the types of orders and markets of sale. Frequently big garment factories sew clothes for the known European brands in the most different segments (Escada, Hugo Boss, Marks&Spencer, Max Mara, Steilmann and other). Among such ga rment factories can be named the Tinyakov’s factory Kharkov, in Kremenchug, such enterprises as «Dana», «Karo», «Tysmenitsa», «Youth» and others. Obviously in 2008 all of them will keep steady positions. On the whole export growth of the light industry products during the last two years will remain stable at the level of 7-9%, however sales are growing not only on the west-european markets but also in CIS countries. Potential investors should take into account that it is simple enough to enter the light industry. There are no considerable administrative or resource limitations. However textile production will undergo certain adjustments on many foreign markets.

Such regulatory limitations will be strongly reduced after Ukraine’s joining WTO. Indeed in this case competition will increase owing to lifting of restrictions on import.

Particular examples testify the costs of entering the market. Well-known Russian company «Gloria Jeans» acquired 85% of Lugansk «Firma «Style» stocks for about $10 million. Further development of retail business, including expansion of clothes shops networks will substantially facilitate for producers the distribution in 2008. Often such networks are producer-oriented , but it is by far not always the case in Ukraine.

The possible decision can arise by combining of own production and sales network. One of the successful examples of such combination is Odessa Arber Group. Investments in light industry can appear a relatively inexpensive decision for diversification of business, especially in solvent and/or border-line regions.

However it is important to take into account that you will have to compete not only with the leaders of domestic market but also with import products, and in this case, in all segments of market.


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