Mykola Stetsenko, managing partner, AVELLUM
Foreign investors often have misperceptions about doing business in Ukraine. Below, I debunk the 5 most common myths, as well as 3 more that reflect the most recent improvements in the business climate.
Myth 1 - It is hard to register a business in Ukraine
On the contrary, with simple documents required everywhere in the West, you can register a business in less than a day in Ukraine. In fact, you can do it in just 2 hours at the notary’s office or even online. Obviously, you will need to have documents on the owner and the power of attorney for the representative who does the registration, but shareholders do not need to come to Ukraine. The most common business form is a limited liability company (LLC), but you can also register a branch, a partnership, or a corporation. Approximately 9,000 LLCs are incorporated every month in Ukraine.
Myth 2 – Shareholders’ agreements don’t work in Ukraine
On the contrary, shareholders agreements (SHAs) were introduced into Ukrainian law two years ago and have now become very common. While the court practice has not formed yet, the SHA under Ukrainian law may include all of the common instruments that investors like under English law, such as options, tag along and drag along rights, deadlock resolution clauses, veto rights, and irrevocable powers of attorney. Moreover, the Ukrainian LLC Law provides a lot of flexibility to support the SHAs.
Myth 3 – Ukraine does not recognize foreign judgments
Wrong. Ukraine is a party to the 1958 New York Arbitration Convention and it regularly enforces foreign arbitral awards. Moreover, Ukraine also recognizes foreign court judgements based on the principle of reciprocity, which in practice means that any foreign court judgment will be enforced unless the other country refused to recognize Ukrainian court decisions in the past. Even more so, Ukrainian courts grant interim measures in support of foreign arbitration. There is a wide array of interim measures, including attachments of assets and negative injunctions, that a court may grant. It may grant an interim measure as quickly as within 2 days.
Myth 4 - Foreigners cannot do farming in Ukraine
In reality, major foreign corporations farm more than 649,000 hectares of land in Ukraine. For instance, NCH from the U.S. farms a land bank of roughly 396,000 hectares, while SALIC from Saudi Arabia operates about 195,000 hectares. Besides, numerous small foreign farmers have built successful farming businesses in Ukraine. In addition to farming, major grain traders (the so-called ABCD) have large operations in Ukraine and actively invest in the storage and shipping infrastructure, such as silos and port terminals. Finally, several Ukrainian agricultural “blue chips” such as Astarta, Kernel and MHP are listed in Warsaw and London.
Myth 5 – Privatization is not happening in Ukraine
This one is harder. Indeed, everyone is waiting for a dozen major state-owned companies to finally be privatized. However, during this summer alone, Ukraine privatized more than 140 small state companies and rundown real estate. Nearly 2,000 privatization auctions for small-scale assets were launched during the nine months of 2020 and resulted in roughly $60 million revenues. It is almost a fivefold increase compared to the respective period in 2019. This summer, a landmark hotel property (Dnipro Hotel) was sold via an electronic auction and most recently 6 spirit plants were put on sale.
I am also happy that a few old bottlenecks were finally resolved in 2020. Here they are:
Myth 6: Agricultural land in Ukraine is under the moratorium
Of the 60 million hectares of land in Ukraine, 42.7 million (approx. 70%) are agricultural land. Until recently, Ukraine indeed prohibited the sale of most of the agricultural land (under the so-called land moratorium). However, in April 2020, the Ukrainian Parliament lifted the long-standing moratorium on private agricultural land sales, albeit with certain restrictions and limitations. Ukraine will launch its land market on July 1, 2021. These restrictions will be gradually lifted by 2024. While foreigners still cannot buy land, the land reform sparked a lot of interest among strategic investors, who bet that all restrictions will eventually be gone once the market stabilizes.
Myth 7: Concessions and private-public partnerships are not working in Ukraine
Only in the last two years, two major concession projects were launched under the new Concessions Law, namely concessions of the Olvia and Kherson seaports. The tenders were transparent and compliant with the best industry practices. In total, Ukraine currently has 132 effective PPP projects. Furthermore, the Ukrainian Government announced future concessions of 1,500 kilometers of highway roads, three airports, three seaports, and seven railroad terminals.
Myth 8 – Gambling is prohibited in Ukraine
Until August 2020, Ukraine had a total ban on gambling. However, the new Gambling Law introduced regulation of the gambling market and set requirements for its participants. It permitted gambling games in casinos, online casinos, offline and online betting, gambling at slot machine halls, and online poker gambling games. Obviously, a gambling operator must satisfy high license requirements for capital, shareholders, equipment, personnel, and location. Nonetheless, foreign gambling operators are already closely watching this market.
The article was originally published by Kyiv Post newspaper on 16/10/2020