Business in Ukraine

In Ukraine, bitter divorces among the country’s influential and rich elite are just starting to make headlines of their own

Twice-divorced real-estate tycoon Donald Trump knew how to get out clean.

Along with a hand in marriage, he offered his former partners expensive accessories: pre-nuptial agreements. Ivana Trump and Marla Maples, with $25 million and $1 million in farewell dowries, respectively, even wished him well with his new brides.

The painful divorce cases of the rich and famous, such as Trump, have been splattered all over tabloids in the West for decades. In Ukraine, such bitter splits among the country’s influential and rich elite are just starting to make headlines of their own. Juicy divorce details, assets in contention and even family photographs dominate the pages of such paparazzi publications as www.tabloid.com.ua

Yet the process of divorcing a mogul in Ukraine remains a far cry from tales of glitter, fortune and fame seen in the West. Most Ukrainians see marriage contracts as urban legends from Hollywood films with no relevance to local realities.

“But when you leave home and cannot come back because of guards at the door … then it is serious,” said Marharyta Chervonenko, drawing a line through her 18 years of marriage.

Marharyta Chervonenko, ex-wife of politician and affluent businessman Yevhen Chervonenko, may have ushered in an era of tabloid celebrity divorces with her bitter split after 18 years of marriage (Photo UNIAN)

She married a big shot. Her ex-husband is Yevhen Chervonenko, an affluent businessman and former car racer. He is also a former transportation minister and was governor of Zaporizhya Oblast. Now he supervises preparations for the Euro 2012 soccer championship to be co-hosted by Ukraine and Poland.

The Chervonenkos got divorced in 2007 without benefit of a prenup that would spell out how to divide the considerable assets. They went along with the “all-is-fair-in-love-and-war” scenario, so the split has become quite nasty.

“Since then, I have been through raider attacks, bankruptcy and threats,” she said. “He once told me that I broke up with the system, not just him.”

Fearing she would be left with nothing after divorce, Marharyta launched a fight over the couple’s assets two years ago along with a public campaign to defend her rights and help others in similar situations.

Under Ukrainian law, divorcing couples must split everything they accumulated in marriage 50-50 – unless there is a contract, of course. The Ukrainian rich, however, rarely list assets in their own name. They declare only small official incomes, a path that leads to a lot of mystery and insinuations in turbulent times.

The Chervonenko case seems to be just like that.

When the former racer landed in politics, he transferred some of his businesses to his wife’s name, she said. Their properties had a different story.

In court, a judge managed to revoke Marharyta’s rights to their house in a prestigious Kyiv suburb and her mother’s flat in Yalta. The ex-husband, however, was not a beneficiary.

A former friend who had officially given these properties as presents to the Chervonenko family suddenly decided to take them back and won the case.

Marharyta did not give up and continues appealing the verdict. Her daughter from a previous marriage also filed a lawsuit against her former stepfather, alleging that he denied her entry to the flat where she is still formally registered.

Yevhen Chervonenko refused to comment on personal matters.

This messy case is likely to drag on.

“These processes take years,” said Zoryslava Romovska, author of Ukraine’s Family Code.

“A defendant pretends he is sick, and then his lawyer is sick. Then, they are both on a holiday and so it goes in circles.”

According to Justice Ministry statistics, every second marriage ends in divorce in Ukraine. But, strangely enough, prenups are still frowned upon.

“A prenup will not guarantee you love, but it will ensure stability,” Romovska said.

For instance, a husband moves in with his wife into her flat. Under civil law, he can live there indefinitely. However, authorities will make him leave in the event of divorce, if there is a contract. Contracts can be beneficial in other ways, too, spelling out responsibilities.

“You cannot contract how many times a week you should kiss each other,” laughed Romovska. “However, no one can stop you from specifying that a woman is responsible for raising children and a man for making money.”

A prenup is free in form, she added, and lawyers usually include whatever the couple thinks is important. Family law does not clarify the division of responsibilities. It says that only material rights can be discussed in a contract. But its author, Romovska, argues that domestic duties have a direct relationship to the joint assets.

An average prenup costs Hr 800. However, even lawyers ignore them.

One lawyer who might have wished he had a prenup is Serhiy Vlasenko, famous for defending Victor Yushchenko’s case in the Supreme Court during the disputed 2004 presidential vote. On the waves of the Orange Revolution, the popular uprising, Vlasenko set the stage for Yushchenko winning the presidency.

Famous after appearing on television during the legendary court case, Vlasenko married a model and socialite, Natalya Okunska.

Although it was not his bride’s first marriage and she had children, the lawyer failed to arrange a prenup. Accusing each other of adultery and assault, they divorced last September. Okunska hooked up again with her previous husband, himself high in political echelons and father of one of her children.

“It’s all over the papers, I have nothing to add,” said Vlasenko, chary on words.

In earlier interviews, he denied beating his wife and specified that he provides for the children in line with a financial agreement they had. Okunska, however, is complaining that she was exploited and then left with nothing.

Romovska said in cases like these, there could be psychological reasons behind the mess.

“Like any other divorcees, the women of oligarchs are left with a scar,” said Romovska. “Despite a car, a house and a dacha left by their husbands, they keep lamenting for their former status and money.”

Not all of them, however. A Ukrainian dancer who married a distant cousin of Sophie Lauren, the famous Italian actress, said she wanted neither.

“We bought a wedding dress and a tuxedo with my own money,” said Olga Kopitsa, now 32, reflecting on her marriage with Roberto Skala, now 35. “I thought the rest would come in its own time.”

At a concert in Pisa, he spotted her on stage and in a few months they got married. When Kopitsa got pregnant, they moved in with his family in Naples. She claims to have felt like a prisoner there.

“He rarely worked and only partied with friends,” she recalled. “His family watched my every step. I was allowed a bath only once a week and could only watch TV until nine in the evening.”

She finally escaped on the pretense of a holiday in Ukraine. Kopitsa said all she wanted was a divorce to start a new life at home. But without a marriage certificate, it seemed impossible. With the help of the Italian Embassy in Kyiv, she located their marriage certificate and then divorced under Ukrainian law. In Italy, however, she may still be considered officially married. “We didn’t have a prenup. We had nothing,” she shrugged.

Skala was not immediately available for comment.

Most lawyers, however, recommend a contract in the event of marriage to foreigners, since divorce laws vary wildly. The Economist magazine even published “A Globetrotters Guide to Divorce” for those born in one country, married in another and working somewhere else.

In Ukraine, a woman was traditionally blamed for divorce. High-profile cases were hushed up. Across the ocean, things were different. Backed by the prenup, Trump wife No. 1 wrote a self-help book for divorcees. Trump wife number No. 2 co-starred in a reality show “Ex-wives Club.”

Marharyta Chervonenko seems to have started a trend by going public with her version of “The War of the Roses,” the 1989 Hollywood hit movie starring Michael Douglas and Kathleen Turner. She founded an organization called “I Am Strong” to help abandoned wives. She says in marriage she felt like a horse running in a circus arena. She now claims to be better off helping others get over the same.

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LONDON - The days of easy credit may be over for American investors, but nobody seems to have told Ukrainian billionaire Rinat Akhmetov. The coal and steel magnate’s holding company Metinvest received a loan of $1.5 billion on Thursday, the largest ever given to a private Ukrainian firm, courtesy of four major European banks.

Metinvest, which produces over 20% of Ukrainian steel, said that the syndicated loan of $1.5 billion would be used to upgrade production facilities and develop new technologies. The company added that it hoped to invest $4 billion in its businesses over the next five years.

“The loan is unique in many respects,” said Metinvest’s Chief Financial Officer Sergei Novikov. He said it was the largest credit ever given to a private Ukrainian company, and that the margin on the loan was a record 1.7% premium to the London interbank offered rate, or Libor.

The banks teaming up to lend the money are ABN Amro (nyse: ABN - news - people ), BNP Paribas (other-otc: BNPQY - news - people ), Deutsche Bank (nyse: DB - news - people ) and ING (nyse: ING - news - people ). The first slice of $1 billion, received on July 23, will be backed up by a $500 million line of credit.

The loan also points to the “attractiveness of Ukrainian companies in the international market for syndicated loans,” according to Sergei Boichenko, BNP Paribas’ head of financing for the Commonwealth of Independent States. The Commonwealth was formed in 1991 and currently contains 11 former republics of the Soviet Union.

Despite the political turbulence of Ukraine, characterized by revolving-door governments and an awkward co-habitation between arch-rivals Prime Minister Viktor Yanukovych and President Viktor Yuschenko, its economy has been on the up since it first registered economic growth in 2000. Between January and April, gross domestic product grew by 7.9% year-on-year, and overnight interest rates have fallen 1.5 percentage points to 8.0% since 2005.

And lender BNP Paribas has first-hand experience of Ukraine’s tempting growth environment: in 2005 it acquired a controlling stake in UkrSibbank, the fourth-largest bank in Ukraine. And on Friday, BNP joined forces with French insurer AXA to buy 99% of Ukrainian insurer Vesko, the sixth-biggest in the country.

Rinat Akhmetov, owner of Metinvest and SCM Holdings, is Ukraine’s richest business oligarch and has been accused in the past of shady dealings in the criminal underworld and tax evasion. (See “Ukraine Builds Tax Case Against Billionaire”)

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Ukraine’s mining and smelting sector, which accounts for one-fifth of the country’s national budget, reacted sharply to the global financial crisis with the price of square billets (the base product of metallurgists) dropping from US $1,200 per ton in March-June to US $570-600 by mid-October. The seasonal slump in business activity in Islamic countries, which are major consumers of Ukrainian metal, also had an impact on the metallurgy sector.

In addition to that, the Ukrainian domestic market experienced stagnation caused by a reduction in construction volumes and the growth rates of machine-building, which accounts for the lion’s share of demand for metallurgy products in the country.

One more negative and probably the most important factor is continued and uncontrollable rise in the prices of raw materials and transport costs inside the country. Since April 1 the price of iron ore raw materials rose 60-70%. On the wave of steady growth in the prices of metal products, metallurgists managed to painlessly compensate for the growth in raw material costs. Be that as it may, consumers of raw materials have ended up in dire financial straits. Besides that, Ukraine’s railway administration UkrZaliznytsia raised the cost of rail transport of products of the metal mining industry by 70-80%.

As a result, Ukrainian metallurgists are forced to cut back their presence on the market by halting production and suspending investment programs. For example, the Donbas Industrial Union (DIU) announced the curtailment of all of its investment projects in Ukraine. Meanwhile, the corporation had planned investments of US $2 bn into the Alchevsk Metallurgical Plant and US $1.2-1.5 bn into the Dnipropetrovsk-based Dzerdzhynskiy Metallurgy Plant.

Accordingly, the reduction in investments will result in wage cuts and a major layoff of employees.

As the COB of the Mariupol Ilyich Metallurgy Plant Volodymyr Boiko said, the wages of the plant’s employees were cut by 5-10% in September and will be cut even further.

Meanwhile, ZaporizhStal, Arcelor Mittal Kryviy Rih and DIU have all announced plans of cutting employee wages or layoffs.

At the end of this summer metallurgy enterprises turned to the government for assistance. Of the list of requests, tariffs were lowered for railway transport and targeted mark-ups on the price of gas were temporarily cancelled.

The remaining orders of Premier Yulia Tymoshenko have not been executed for a variety of reasons, mainly due to bureaucratic red tape. When the situation reached critical point in mid-October the premier proposed a number of additional measures to stabilize the mining and smelting sector. In particular, starting October 1 payment for railway transport services will be deferred to the end of the year for a separate list of enterprises, a zero targeted mark-up for the consumption of gas will be introduced and a moratorium on raising electricity tariffs will be set for those enterprises.

Though these tactical measures of the government will alleviate the burden on metallurgy enterprises, they will not resolve the industry’s systemic problems. Industry expert believe the roots of the crisis lie in the structural imbalance of the mining and smelting sector, the underdeveloped domestic metal products market and the unpredictability of government policy.

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Ukraine’s parliament on Wednesday gave initial approval to legislation crucial for receiving an emergency loan from the International Monetary Fund, as forecasts of the country’s financial crisis grew gloomier.

The government hopes the $16.5 billion loan will help avoid a meltdown as it struggles to defend the fallen national currency and a shaken banking sector.

Lawmakers in the 450-member Verkhovna Rada, which has been paralyzed for nearly two weeks due to a political standoff, voted 248-2 to pass the bill in the first of two required readings. Other lawmakers didn’t vote.

Central bank chairman Volodymyr Stelmakh warned Wednesday that the aid, which still needs to be approved by the IMF board, is vital to help avert a default on foreign lending by the nation’s banks and large corporations.

Volodymyr Stelmakh warned that the failure to secure the IMF loan will lead to “a moral discrediting, understand it, and the announcement of default.”

“It will concern every Ukrainian,” Stelmakh said at a news conference.

Experts hailed the parliament vote. “This is very good,” said Olena Bilan, a macroeconomics analyst with Dragon Capital Investment bank. “This will give a positive sign to foreign investors.”

IMF mission head Ceyla Pazarbasioglu told reporters Wednesday that to get the loan Ukraine must maintain a prudent fiscal policy and launch structural reforms.

“They understand the challenges and the need to act,” Pazarbasioglu said after meeting with lawmakers and government representatives.

Pazarbasioglu said the IMF board has not set a deadline for a board meeting to give final approval for the loan and will give Ukraine time to pass the bills.

Ukraine is struggling to defend the national currency, the hryvna, which has fallen over 20 percent, and a banking sector hit hard by a crisis confidence and the global credit crunch.

Ukraine’s severe financial crisis has been further complicated by a fierce standoff between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko which has left the parliament in a deadlock. Tymoshenko is fighting Yushchenko’s order to hold early parliamentary elections in December, in which she risks losing her job and her faction has paralyzed parliament’s work for nearly two weeks.

Yushchenko’s top aide Oleksandr Shlapak said Wednesday that Ukraine would plunge into a recession next year with economy contracting by 2 percent. Ukraine’s economy has been growing at an average 7.4 percent over the past few years.

In the absence of foreign currency flowing into the country, the hryvna plunged to a new low Tuesday trading at 6.35 on the foreign currency exchange Tuesday. The currency stood at 6.3-6.4 to the dollar in morning trading at the exchange Wednesday.

Ukraine is one of hardest-hit by the financial crisis among emerging markets. Output in the steel industry, which accounts for 6 percent of gross domestic product and 40 percent of the country’s exports, is down by 30 percent because of falling global demand.

That has widened the trade deficit to $12.5 billion so far this year. A run on banks has stripped the banking sector of $3.4 billion this month.

The country’s stock market lost more than 75 percent this year. The main stock exchange saw moderate losses Wednesday, after recovering 2.73 percent Tuesday.

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Over the last several years, we all witnessed the Economy Ministry losing its positions in the state hierarchy as it was edged out by the powerful and ambitious Finance Ministry. Economic forecasts made by the Economy Ministry were quite often altered; high-ranking officials were not interested in state programs on social and economic development drafted by the Ministry.

How will the Economy Ministry do now, after appointing a young new head who is not very experienced in public work, but as a famous scientist has his personal vision of basic economic processes? Will the new management of the Ministry manage not to be snowed under with paper work and focus on the main goals?

The new Minister of Economy, Bohdan DANILISHYN, is optimistic: there are good ideas and people in the Ministry, and if there is a necessity to strengthen some department then there are a lot of competent specialists in Ukraine. We offer the first interview with Bohdan Mykhaylovych as the head of the Economy Ministry to our readers.

— It is certainly necessary to solve present-day problems, but we shouldn’t forget that the main functions of the Ministry of Economy are implementing the state economic policy, defining long-term development strategies, and regulating foreign trade and integration processes, — says Danilishyn.

Bohdan Mykhaylovych Danilishyn was born on June 6, 1965 in the village Tserkvyna in the Ivano-Frankovsk region.

He graduated from the Ternopol State Pedagogical Institute and finished post-graduate course at the department of production potentialities studies at the National Academy of Science. He is a Doctor of Economics (1997), a Professor (2003), and a Corresponding Member of the National Academy of Science (2004).

Bohdan Mykhaylovych is the author of more than 150 scientific works.

He was in charge of the group drafting the small Ukrainian towns’ development program. He also took part in drafting the Conception of state regional policy and General plan of Ukrainian territory.

Before appointment to the post of the Minister of Economy on December 18, 2007, he was in charge of the department of production potentialities studies at the National Academy of Science.

There are a lot of interesting projects connected with transforming our economy and with obligations defined in the Kyoto Protocol as well as with stimulation of innovation activities. All current medium-term tasks are quiet ambitious. However, in order to have a realistic opinion about long-term prospects it is necessary to know at least approximately what the national economy should be like in 2030.

— Who will support you in this?

— I should note that the Prime Minister understands this. In addition to what is defined in the program on government’s actions “Ukrainian break-through is for people not for the politicians,” we plan to prepare a long-term development strategy for the period up to 2025 and resume medium-term forecasting.

— Does this mean that Danilishyn is trying to resume a state plan?

— I don’t want it to be a Soviet-type state plan like we had in the Soviet Union where state planning overstepped all possible limits. Nevertheless, it is very important for me to create an efficient system of forecasting. Plus, we intend to strengthen the Ministry’s role in the state rental policy and in the system of nature management.

We have much to do in the international business sector; we want to intensify our export potential, especially high technological export, and to harmonize the country’s foreign trade system on the whole. We are not satisfied with foreign manufacturers entering the Ukrainian market using illegal means.

— The main problem of all your predecessors was that the government practically neglected their programs on social and economical development of the country. They were always forced to tailor the programs to suit the budget when it actually should be vice versa. What gives you the grounds to consider that you will be able to fight the Finance Ministry?

— I don’t think that we need to fight with anybody. Every ministry has its own functions. We just need to define the authority and responsibilities of every department clearly and form a constructive system of cooperation between them.

Unfortunately, the Ministry of Economy has lost its key role in implementation and financing of the state programs over the past years. Notwithstanding the fact that it is the Economy Ministry that drafts, approves and controls the fulfillment of the general state strategy, the function of financing such strategically important components as the state programs is given to the other department. If we are responsible for some strategic task then we should have all necessary tools to fulfill this task.

As a result, there are about 200 state programs (including programs for development of regions, industries and the public sector), which are not connected to the key priorities of the state and are financed selectively. It is now necessary to review the entire program portfolio and make it comply with strategic goals of the state.

— It seems like we have returned back to 2000 or 2001 and are talking with Vasyl Vasyliovych Rogovoy – the matter concerns the same plans and programs: there are a lot of programs so they have to be optimized. Why don’t we make a decisive step and leave just ten state programs instead of 200?

— Ten is not enough. First of all, we should agree on the state’s long-term and medium-term priorities with civil society. And then, we should connect all the programs with these priorities and see which of the state programs it is necessary to abolish.

Concerning Vasyl Vasyliovych… He is not the only person who occupied the post of the Minister of Economy before me; there were some other ministers too. I want to use their experience as much as possible and move further.

— Are you going to reorganize the Ministry?

— No, we will use the existing structure. However, we plan to strengthen some departments.

— What are your ministry’s priorities for this year?

— There are five priorities for this year: the first is to join the World Trade Organization and to start the creation of a free trade area between Ukraine and the European Union. The second is to define the most important state programs for this year and to strengthen control over their implementation. The third is to fulfill the state policy on stock and insurance markets, namely to defend the rights of minor shareholders, to establish the fundamental basis for the normal work of the stock exchange and for the development of the insurance market. The fourth is to develop a favorable regulatory environment for business. The fifth is to form an effective rental policy.

— What changes should we expect regarding the rental policy?

— It is obvious that the rental component is insufficient in our country. Our state as an actual owner of resources receives less than it is due because intermediaries receive most of the rental payments.

I am sure that it is necessary to establish order in all spheres connected with natural resources. As a specialist in nature management I think that we have to strengthen this sector.

— Does this mean the Ministry of Economy will try to acquire the function of licensing the usage of natural resources?

— I wouldn’t lead everything to licensing since licensing is a part of the system of economic relations. The details of the rental policy are still to be discussed and made concrete. It is important to create such economic ground that would make this sector rational and transparent, i.e., as the Prime Minister of Ukraine says, to make the rules of the game equal for all the players.

— And how can all these things be done in practice? How can we overcome the resistance of the interested parties, which have their representatives in the Verkhovna Rada and the government?

— It is well-known that any idea is just an idea until it is supported by the masses. And we have always come to an agreement on different questions with the Finance Ministry so far.

— When did you come to an agreement with the Finance Ministry? The 2008 state budget was adopted without a program on the social and economical development of Ukraine. Is that an agreement?

— It is not only this year when the budget was adopted without a program on the social and economical development. We are working on this question now.

— What is your opinion about experts saying that the program on government’s actions “Ukrainian break-through is for people not for the politicians” doesn’t have any concrete plans and terms, only populism?

— I disagree. The program on government’s actions is first of all a political document that includes key directions for the state policy. It will be followed by a distinct plan of actions that will concretize the tasks stated in the program.

— So it will be possible to see the government’s activities in figures soon, won’t it?

— Yes, in the plan of actions. It is being prepared now, and we hope that it will be proclaimed soon after the Verkhovna Rada approves it.

— We are going to drink champagne to cheer Ukraine joining the WTO on February 5, aren’t we?

— Everything is practically ready for signing the necessary documents by February 5. I should point out that today, the level of tariff protection in Ukraine is more than 80% of the level necessary for joining the WTO. Additionally, our average import duty is 6.5% when in order to join the WTO it should be 6.28%. This means that Ukraine is practically operating according to the WTO rules today.

— Concerning inflation, Tymoshenko said there would be a number of anti-inflation measures…

— There is a packet of anti-inflation measures. And it is quite concrete. However, all anti-inflation measures should be structured distinctly; this should be a joint policy of the government and the National Bank.

— What is your personal opinion about land dealings: should the land be for free sale or not?

— Land dealings and land policy should be treated very carefully and prudently. We know that the laws and regulations necessary for making land dealings civilized are not drafted yet.

— There are two points of view on land matter: land rentals or free purchase and sale of land. What do you prefer?

— I would prefer land rentals.

— Should the money from privatization be used for reimbursement of devalued deposits with the USSR savings bank or be invested into the national economy?

— I think that an effective investment policy is very important. Our economy needs to be modernized; this is written down in the program on the government’s actions. We all know that the capital assets of Ukrainian industry are badly deteriorated.

— What do you think about the situation with public procurement in Ukraine?

— I think that the defects in this sphere were caused by the amendments to the law on tender passed in March 2007. Yes, it was necessary to establish order in the system of public procurement. But order should have been established without involving structures not related to this sphere.

— Visiting Davos, the President of Ukraine said that is was necessary to draft an anti-crisis program that would minimize the consequences of world stock markets’ collapse in Ukraine. Do you think that this problem is of current importance today?

— If there are orders then it is necessary to execute them.

— Who invited you to work in the government?

— Yulia Volodymirivna. She asked me to turn the Ministry of Economy into a centre of economic reforms.

— How do you choose your deputies?

— According to their professionalism. You should agree that Irina Kryuchkova is one of the best macro-economists in Ukraine. Valeriy Pyatnitskiy will certainly stay, as he is the best in questions on the WTO. First deputy Serhiy Romanyuk is managing matters of regional economy development. First deputy Anatoliy Maksyiuta is well aware of financial systems and will help us to counterbalance our relations with the Finance Ministry. And I think that Valeriy Muntyian can cope with economical questions on the military industry.

— What will Viktor Panteleyenko, ex-vice-president of consortium Industrial Group, do?

— He will be responsible for the industrial and transport sectors of the economy.

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Kishor H. Sridhar is head of international business at the German IFAK Institute, which has been in Kyiv since 2007. The company evaluates cultural mentalities and their impact on consumer behavior. Before joining IFAK, Sridhar worked for the American Gallup Institute. Sridhar says Ukrainian businesses are slowly adopting modern market research techniques and still rely on old­fashioned approaches.

 

 Kishor H. Sridhar is head of international business at the German IFAK Institute, which has been in Kyiv since 2007.

KP: Please tell us briefly about the major trends currently driving Ukraine’s market research sector?

KS: The Ukrainian market is fast­moving and quickly adapts new approaches and technologies. We are overwhelmed on how well perceived innovative technologies are. Modern online shopping­shelf simulations are in demand as well as the new eye­tracking method that measures what people look at while they move along the street, at the shop or when reading a newspaper. This has definitely changed compared to a few years ago.

On the other hand, Ukrainian customer research still applies some rather old­fashioned approaches. We still do a lot of our work in classical ways, for example, person­to­person and telephone interviewing.

In Western European countries, the latter method holds a small share of the market research market but in Ukraine, it will remain a major source of data gathering for years to come.

 

KP: What are the major factors that are driving the market growth?

KS: The major factors are stronger competition in the consumer goods sector and a greater product diversification. It’s only natural that when competition increases and growth is harder to gain, companies turn to market research.

Knowledge and information are the keys to success and many Ukrainian companies know it. Companies without a detailed knowledge of their market or customers get left behind. This is a natural development. This also works for advertisement. With customers being flooded by advertisements, you need to make sure that yours stand out. We have seen a major growth in campaign testing in Ukraine over the past years.

 

KP: What are the main challenges that market researchers face today?

KS: The main challenge for all market research players is the lack of willingness of their potential client’s decision makers to hear the truth. It is difficult to hear straight facts about what your customers think of your product, and what your market chances are, if the findings are negative. When you are ill, you don’t treat yourself, you go to a doctor for an honest evaluation. The same should be true for market research, but it isn’t. Many corporate decision makers prefer to use their own people for market research, but most lack modern know­how. Naturally, many base their findings on their bosses’ views. This is called alibi research.

If executives want to be successful, they need independent market research and consulting on which they can base their decisions. Good market researchers are comfortable telling the truth, and the findings are highly confidential, like any good doctor’s medical opinions. But this open­mindedness among the country’s executives still needs to develop. That is why only 15 percent of market research in Ukraine is done by independent market research companies. We are very sure that this will change quickly but this is something we as independent market research companies actively need to work on.

 

KP: So the demand for market research in Ukraine is underdeveloped?

KS: No it is not sufficiently developed. There are many international market research companies expanding into the Ukrainian market but opening offices does not guarantee the real demand is met. The Ukrainian market is a very dynamic yet special market. Demands are different in Ukraine so the main challenge for international market research companies is to adapt their approach to the country’s unique market and clients.

 

KP: What are the main differences in the research you do in Ukraine and Western companies?

KS: There are three major differences. First, it is the clients: Ukrainians are very dynamic, fast thinking and move quickly. In the West, in Germany for example, market research clients will plan weeks ahead. Projects in Ukraine come on short notice and require a quick turn­around.

The other difference is the way participants are interviewed. Cell phone usage rates in the Ukraine are on a very high level and landline penetration in the major cities is too. That is why telephone interviewing works well here. In the regions it is better to conduct market research in person. This communication mix will last for the next years to come. Last but not least are the challenges Ukrainian clients face and thus the fields of research. For example real estate research is very big in Ukraine, meaning the detailed evaluation of a location where a retailer plans his store, the evaluation of the area, the demographics around the store, family structure, income, mobility, etc. In Germany their meta­surveys continuously monitor customer behavior. In Ukraine data is gathered more on an individual, case­driven basis.

 

KP: What is your forecast for the development of the market research sector in Ukraine?

KS: The annual 30 percent growth rate will continue for the next 3 years.

Among the most areas in demand of market research will be in real estate, mobile communication, banks and retail.

In terms of technology we first have to fully develop telephone interviewing and the transition to internet data gathering will take another three to five years. The internet offers possibilities still beyond anything we have seen so far in market research. I am quite sure that online market research will catch on even faster in Ukraine than it did in the UK, Germany or France.

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Rank-previous year 99
GDP Growth 6.9%
GDP/Capita $6,900
Trade Balance $-3.9 bil
Population 46.0 mil
Unemployment 2.5%

After Russia, the Ukrainian republic was far and away the most important economic component of the former Soviet Union, producing about four times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied the unique equipment (for example, large diameter pipes) and raw materials to industrial and mining sites (vertical drilling apparatus) in other regions of the former USSR.

Shortly after independence was ratified in December 1991, the Ukrainian Government liberalized most prices and erected a legal framework for privatization, but widespread resistance to reform within the government and the legislature soon stalled reform efforts and led to some backtracking. Output by 1999 had fallen to less than 40% of the 1991 level.

Ukraine’s dependence on Russia for energy supplies and the lack of significant structural reform have made the Ukrainian economy vulnerable to external shocks. Ukraine depends on imports to meet about three-fourths of its annual oil and natural gas requirements. A dispute with Russia over pricing in late 2005 and early 2006 led to a temporary gas cut-off; Ukraine concluded a deal with Russia in January 2006 that almost doubled the price Ukraine pays for Russian gas. Outside institutions - particularly the IMF - have encouraged Ukraine to quicken the pace and scope of reforms.

Ukrainian Government officials eliminated most tax and customs privileges in a March 2005 budget law, bringing more economic activity out of Ukraine’s large shadow economy, but more improvements are needed, including fighting corruption, developing capital markets, and improving the legislative framework. Ukraine’s economy remains buoyant despite political turmoil between the Prime Minister and President. Real GDP growth reached about 7% in 2006-07, fueled by high global prices for steel - Ukraine’s top export - and by strong domestic consumption, spurred by rising pensions and wages. Although the economy is likely to expand in 2008, long-term growth could be threatened by the government’s plans to reinstate tax, trade, and customs privileges and to maintain restrictive grain export quotas.

Tags: Opportunities by Vitaliy Tretyakov
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