Issue: Jan 2011


Focus on Ukraine automotive industry - Invest Ukraine



Focus on Ukraine automotive industry - Invest Ukraine

by Malcolm Babbin

Ukraine is one of the fastest growing economies in Eastern Europe. Reflecting this growth, foreign direct investment into the country is on the rise, and automotive companies, always on the lookout for attractive manufacturing destinations, are not far behind.
InvestUkraine, an independent non-profit investment agency, acts as a coordinator between the government and investors, with the automotive sector as a key strategic focus.
Automotive Industries (AI) spoke to Bohdan Danylyshyn (BD), Ukraine’s Minister of Economic Affairs.
AI: How important is the automotive industry to Ukraine’s industrial progress?
BD:
One job in the automotive industry provides a further seven to eight jobs in industries such as metallurgy, petroleum, electronics, electrical engineering and  machine-tool building. The importance of the auto industry in Ukraine has been recognized by the Verkhovna Rada and the Cabinet of Ministers of Ukraine. They set in place a number of regulatory and legal systems that facilitate investment in the industry. From 2000 to 2007 Ukraine’s automobile market was intimately interconnected with developmental trends in the economy, its structural changes, growth in the population’s wellbeing, and a surge in the country’s defense capability and the necessity to improve technical conditions of the automobile fleet.
The volume of automobile sales on the domestic market is expected to reach about 800,000 automobiles and buses by 2015. Ukraine has a considerable export potential for automobiles and buses. While in 2006 the country exported 38,900 cars, this figure grew to 68,600 cars in 2007 – a growth of 76.4 per cent.
AI: What kind of support can automotive companies expect from the Ukrainian government if they want to invest in your country?
BD:
Ukraine has vast possibilities for foreign investment promotion – the level of our people’s skills and education is extremely high, which means that scientific-technical and industrial potential is considerable. In Ukraine, all entities of investment activity, irrespective of their forms of ownership and business, are legislatively guaranteed equal rights in carrying out investment activity (unless the law provides otherwise), the retaining of terms under which the investment was made, and the protection of investment.
AI: How safe is the investment climate in Ukraine for overseas investors?
BD:
In Ukraine, foreign investors enjoy the same rights as domestic investors. To enhance protection of foreign investment, the 1965 Washington Convention on the Procedure of Settlement of Investment Disputes between the States and Foreign Nationals was ratified in 2000. The intergovernmental agreement – ‘On Facilitation and Mutual Protection of Investments’- has been signed along with 70 other countries. In January 2008, the Council of Investors was set up under the Cabinet of Ministers of Ukraine to ensure the formation of strategy and mechanisms of interaction of the bodies of state authority with representatives of foreign and domestic businesses, and to establish a constructive dialogue between the authorities and investors, as well as to introduce measures aimed at increasing the efficiency of state policy in the sphere of investment activity.
AI: Investors have been cautious in the past of Ukraine’s volatile political situation – what would you say to them?
BD:
From the moment Ukraine acquires membership in the WTO, the Ukrainian side will fulfill all of its commitments undertaken within the framework of negotiations on accession to this organization. Ukraine’s ratification to the WTO should go through by July 4, 2008, and 30 days later the country should be a fully-fledged member of the WTO. Ukraine is working on integration into the European Union after its accession to the WTO, and is in talks with the EU regarding the establishment of a free trade zone. Active involvement in the international integration processes and the course towards European integration of the economy will require stable economic growth of our country.
Automotive Industries (AI) also spoke to Ihor Nikolaiko (IN), Director of the Ukrainian State Agency for Investment and Innovation. 
AI: What are some of the plus points of doing business in Ukraine for an automotive manufacturer?
IN:
The actual development of Ukraine’s economy in 2006/2007 proved the ability of the business sector to solve problems arising in the process of production due to both increase in raw material prices and changes in taxation and administration of taxes. The intensification of economic processes in Ukraine largely depends on the effectiveness of the state investment policy and the availability of a favorable investment climate.
Lack of domestic sources of financing to maintain steady economic growth, the need for experience of economically and technologically developed countries, and the necessity to expand production and raise the level of employment, ultimately require the involvement of foreign financial resources.
The opportunity of conducting the Euro 2012 football championship in Ukraine will foster changes in the country’s business environment by lowering the administrative barriers and improving the investment climate; in fact, the entire economic map of the country may be changed due to changes in infrastructure, real GDP growth, and improvement of the international image of Ukraine.
AI: What kind of incentives does Ukraine offer automotive companies?
IN:
In 2008, the government approved one of its most attractive privatization plans, judging by the importance of entities offered for privatization. In particular, the list of economic entities whose state-owned shares are subject to priority sale, as well as state-owned enterprises and open joint-stock companies that are subject to priority preparation for sale in 2008, includes share packages in the strategic and monopoly enterprises such as 67.79 per cent in Ukrtelekom, and 99.5 per cent in the Odesa-based Port Plant - 27 per cent of the six regional power generating companies.
AI: How developed is the automotive supplier industry in Ukraine?
IN:
By 2015 Ukraine will annually produce up to 500,000 cars, 45,000 trucks and 20,000 buses. The production capacities that can be reached by 2009 will allow for production of about 400,000 cars, 18,000 trucks and 11,000 buses.
Ukraine will have to continue to maintain a high rate of constructing its own production capacities for automobile manufacture. The policy of attracting sizable investments must continue, which will require the creation of attractive conditions for investors. Special attention should be given to the truck market. Of 122,000 trucks registered in 2006, 115,000 were imported.
The industry received regulatory and legal support from the State, which enabled the production to grow, starting from 2000. This increased the rate of employment of the Ukrainian population and the amount of revenues to the budgets of all levels. From 2000 to 2007, the production of motor vehicles increased nine-fold in Ukraine. The production of motor vehicles of the Ukrainian make grew almost ten times. Thus, 380,000 cars were manufactured and assembled in 2007, which is up 42 per cent from 2006, and 9,083 buses, which is up 19 per cent from 2006.
AI: Describe Ukraine’s auto industry compared to the global auto industry.
IN:
The priority development of the automotive industry as a science-intensive and integrating industry ensures the creation of new workplaces, implementation of high technologies, mastering the production of new quality materials, and in general, has proved itself well during the formation of the industry and the economy of Germany, Japan, Korea, Turkey, as well as other countries. In Germany, for instance, the automotive industry ensures up to 10 per cent of the entire rate of employment. This formed the basis for creating a development strategy for the automotive industry of Ukraine. Globalization of the world economy and European integration have posed a question to Ukraine about its own geopolitical positioning, because the correct answer will provide for successful economic development of the country and its ability to integrate into the global environment with maximum efficiency.

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