Is Ukraine the perspective player in the market of outsourcing?

After the events known as "orange revolution", Ukraine predicts new economic prospects, development on model of new members of EU (Poland, etc.), substantial growth of foreign investments (in 3-4 times in 2005), etc. If recently only large investors (ERDB etc.) felt comfortably in country, which are capable to protect their interests independently, now Ukraine expects mass arrival of medium and small investors. It can be explained as influence of a trend to carry manufactures from the countries of "Old Europe" and the USA in developing countries. And in Ukraine there is something to offer in competition with other countries for "outsourcing streams of investments":

  • the low level of salary wages (up to 200$ in the industry) combined with high qualification of the personnel;
  • “historically” easy access to the markets of Russia and other CIS countries;
  • potentially liberal access mode to the markets of the EU’s countries (now access to the EU market of textile production and metal is already facilitated, in near-term outlook creation of free trade zone  is supposed);
  • the favorable geographical location;
  • the liberal legislation in the sphere of labour and ecology protection;
  • the low prices for raw material, energy carriers, ground and rented floor spaces. 

It is possible to name among the problems which until recently frightened off investors and which new authorities are going to solve the nearest 1-2 years the following:

  1. A high level of corruption and bureaucracy.
  2. Unstable legal field, vulnerability of capitals.
  3. Serious discrepancies between national and European legislation.
  4. High level of intervention of the state in economy.

To "residual risks" of business dealing in Ukraine it is possible to attribute problems solving of which demands long process of "treatment":

  • "residual bureaucracy and corruption" (local state administrations cannot be changed in 1-2 years);
  • weak infrastructure;
  • weak home market and low purchasing capacity of the population.

But one of the main advantages of Ukraine though the paradoxical thing is that it will not become a member of EU even in medium-term prospect (only after 2010 or 2015). It actually guarantees to the investor low expenses for a payment and will allow state authorities to be more flexible concerning the legislation and other conditions, important at decision-making on placing of manufacture.

The basic inflow of investments to opening manufactures is expected in branches in which expenses for a payment are significant and requirements to qualification are average (textile, steelmaking, food, etc.). The following cases are successful:

  • the bakery " IST Balt Baykers " (Ukraine, Dnepropetrovsk), baking bakery products for restaurants McDonald's, began to export salty bagels "Bagls" to England and Netherlands. At present it delivers bagels to England (about 800 thousand pieces per month) and to Netherlands (100 thousand pieces per month) in restaurants of chain McDonald's. Earlier the bakery delivered bagels only to Sweden (in 2002 McDonald's invested in creation of a bakery about 5 million dollars).
  • In 2001 «Damen Shipyard’s Group» (Holland) has acquired a shipyard "Ocean"  ("Damen Shipyard’s Ocean" Ltd). As of the beginning 2005 the enterprise is profitable and is loaded for some years forward by orders on ship construction.
  • The American investors invest 10 million dollars in creation of a furniture factory in the Western Ukraine. Investors are sure in perceptivity of the project on manufacture of furniture for export to the EU countries. Investors think that successful geographical location of a factory, presence of qualitative raw material and rather small expenses for work will provide them competitive advantages in long-term prospect.

However the country will be in a fever because of "breaking" at carrying out of reforms, elections to parliament, transition with presidential-parliamentary to parliamentary-presidential republic, etc. up to 2006.  Therefore many foreign investors will be in a condition of expectation watching development and improvement / deterioration of an investment climate in Ukraine on such events, as:

  1. Getting of the status of the country with market economy (it is expected by the end of May 2005).
  2. Cancellations in the USA Jackson – Vennik’s amendments (the project of a cancellation of the amendment is already sent to the Senate).
  3. The introduction of Ukraine into WTO in 2006.
  4. Creation of free trade zone with EU.

However investors, with an operational experience in the markets of new members of EU and CIS (it allows them on the basis of the experience to predict development of the markets of Ukraine rather precisely), already now not waiting positive signals, enter into the market of Ukraine in hope "to skim the cream off", till significant increase of the prices for the real estate (in current 2005 predict increase of the prices for 15-20 %), land, increase in wages, etc. did not begin changes typical for the countries in which significant inflow of investments after the crisis period is observed. Do not miss your opportunity to catch the last Ukrainian train out of town!