What is the best businesses to start in Ukraine in 2018?
Ukraine economy has been growing since 4-th quarter 2015. And the economic growth accelerates. Both companies and individuals have more confidence and more prosperity in this country. Beginning from 2017 we see more and more foreign individuals and entrepreneurs coming to Ukraine in order to create a capital. Some are coming to promote services, some do make trading or production. This state has a big potential. Beginning from 2014, despite the conflict with Russia, many needed and painful reforms has been conducted. Current Ukrainian government make a huge job in order to boost up economic growth. Although still many changes must be done. Consider that beginning from 2016 VAT tax return problem was solved. Government procurement system and regulations now allow to minimize bureaucracy and corruption. So if you are reading this article and you have some interest to make money in this prosperous country, but still don’t know what sphere to move in, CLC is happy at least to advise.
Ukraine has more than 1/3 of the most rich soil in the world. For centuries Ukraine was called the breadbasket of Europe. Now we have all the potential to become a granary of the world. This country is one of the top 10 main agriculture commodities producers. As of 2018, Ukraine use only 30% of agriculture potential. Considering population and economy growth in many countries (especially India and China), climate changes and consumption growth, it can be a good investment. In 2015 agriculture became number one sector in Ukraine GDP contribution. Still it is not developed and diversified enough and there is a lot of work to do and a lot of money to make. Other good thing is that agriculture sector can give needed raw materials at a good price for food industry. That is why Ukrainian poultry, cheese and milk products, sweets, meat and other food productions are growing. Consider also that there is EU as one of the biggest markets nearby.
You do not have to lease the land and buy tractors to work in agriculture sector. There are thousands of possible businesses that are related to agriculture to be made. Like fertilizers and agriculture commodities trading, transport services, consulting, supply of needed equipment and technologies, logistic and storage services, intermediation etc. Also there is a high demand for construction services in agriculture sphere. Many companies that do have a good production still need grain elevators, barns, hangars etc. Ukrainian government intend to boost up local manufacturing and use needed legal tools for this (like in 2017 there was an additional tax for export of sunflower seed in order to increase Ukraine sunflower oil production).
But if you are ready to start farming in Ukraine, please consider that agriculture land can be only leased. It is not allowed to acquire agriculture land even for Ukrainian individuals and companies. But there is a big offer of fields to lease. You can find such in any part of Ukraine. Also there are many medium and small agriculture companies that are being sold due to bad management or some other reasons.
This is the most fast growing sector of economy. More than 40% of our clients that order a company registration in Ukraine intend to make an IT business. There are many IT factories under construction in Ukraine. This country is one of the best for it outsourcing. Employment in information technology field has been tripled since 2012. Ukrainian IT sphere yearly demand for employees grow is 15-20 %. The biggest problem is that there not so many Ukrainian that do speak English good. Some of our clients even start learning Russian or Ukrainian language with the aim of good communication. But tax rates (5% revenue tax and 0% VAT) are very favorable. Medium monthly salary for advanced programmers is $1850 in Kyiv and $1650 in Lviv and Kharkiv. Ukrainians are very clever, fast learning and creative people. The cost of real estate is also very cheap that help to reduce spending. For example, monthly rent in a business center in Kyiv is $ 20-40 per square meter. In suburbs of Kyiv and smaller cities medium cost is $10 per square meter.
Ukraine population is more than 42 milion. But our economy depend on import and most of energy resources (such as oil, natural gas and oil) are imported. There is a special tax regime for biofuel and other renewable fuel production in Ukraine. We do have a feed-in tariff for solar, wind, biomass and hydro electric production, which is one of the best in Europe. Renewable sector in Ukraine is booming. The bad thing that to go into this business you need to act fast, because the tariff depend on time of commissioning of power station. Than sooner the power station will be constructed and connected to energy supply system, than higher the tariff will be.
Although the break down of Soviet Union was more than 26 years ago, still there are many state owned companies, factories and assets in Ukraine. Most of such assets do not have a good management. Most of Ukrainian state-owned businesses are not effective at all. But good management and good owner can make such assets as profitable. Beginning from 2018 the big privatization was launched in Ukraine and thousands of businesses are offered to investors. The sale of such assets is to me made through public auction, which is the only way to get the real price for a business. The good thing for investor is that any way all the assets will be underestimated because many capitalists are afraid to invest in Ukraine due to conflict with Russia. Also in the case of litigation, parties may sue in the High Court of London and disputes resolution will proceed under the British law. This is made in order to provide more guarantees and more confidence for investors. Although there is a rising interest to invest in this country and as it was mentioned before there is much more confidence and prosperity.
Consider that there are two privatization lists of companies: list of small companies and list of big companies. Among big one, you can find big power stations, energy supplying companies, chemical factories (even monopolists in certain field), coal mines and other mining companies, hotels and insurance businesses. These enterprises has a potential to generate billions of dollars profit, but for decades were used in order to enrich a small group of people that control it. But most of these assets get dotations from the state budget and do not generate profit, but only debts. Some businesses (like President Hotel in Kyiv) are profitable already. We think that this is the good way to acquire an existing business with needed ground and basis for profit.
Ukrainian employees are the cheapest in Europe. In 2018 medium monthly wage in Ukraine was 50% less than in China. So if you do intend to make a production of goods nearby huge market (European Union) Ukraine can be a good solution. Logistics with Europe is good. For example, distance from Kyiv to Vienna or Prague is not more than 1350 kilometers (840 miles). Other importaint fact is the cost of real estate, wich is also very cheap. Total cost to construct a plant in Ukraine can save a lot of investor’s money.
We hope that this information was useful for you and we hope that you will find success, growth and prosperity in Ukraine.
Anatoliy Thor, Managing Partner