Innovation and Opportunity Ukraine the Basics Country Capital - PowerPoint PPT Presentation

Innovation and Opportunity

Ukraine – the Basics Country Capital Kyiv transformation: Area 603,700 𝒍𝒏 𝟑 pro-Western Population 42 mln (3/2019) government focused on Government Unitary improvement of Parliamentary Presidential business climate Skilled Currency Ukrainian hryvnia (UAH) human capital: Exchange rate USD/UAH 27.2 (2018) 130,000 engineering GDP (PPP) $369 billion (2017) graduates Real GDP 3.3% (2018) Most cost annually growth efficient Economy Major industries: energy, manufacturing metallurgy, chemical industry, platform in manufacturing, massive high- Europe tech industrial base, world player in agriculture, fast Ideal location: developing IT sector Eurasian hub Foreign 17 FTAs with 46 countries (EU, for production, EFTA, Canada, Israel, etc.) relations trade and human Strategic goals: European and capital Euro-Atlantic Integration Sources: State Statistics Service of Ukraine, National Bank of Ukraine, World Bank

Transformation Ukraine

Transformation Ukraine More reforms enacted in 5 years than in previous 23 Strategy 2020 According to the World Bank since 2010 Ukraine has done more to improve its business climate than any post-communist country (CEE+CIS) IV. GROWTH AGENDA Reforms effect: III. STABILIZATION & 2017= ↑ 2.5%, 2018= ↑ 3.3% TRANSFORMATION - I. UKRAINE UNDERGOING Key 2017-2018 reforms adopted TRANSFORMATION Institutions-building Judicial (including Law on Anti-Corruption Court) Macroeconomic stabilization w/IMF support Health ($3.9 bn approved for 2018-2019) Education Decentralization Pensions (IMF compliant) Banking sector reforms Privatization/SOE reform II. CRISIS - > 90 out of 180 “pocket” banks closed Energy 20% GDP Anti-corruption court / Business Ombudsman Law on Currency 60% UAH De-regulation Law on Concessions 7% of territory occupied Transparency / Prozorro Law on Inland Waterways $15K on current a/c (!!) Gold reserves > 1 mo imports EU-UA Association Agreement – DCFTA EU vector The Canada-Ukraine Free Trade Agreement Visa-free regime with 90 countries The Israel-Ukraine Free Trade Agreement 2014 2017 (including Schengen zone) 40.6% share of exports to the EU in 2018 adopted underway

Ukraine Launched Many Structural Reforms Ahead of its Peers Implemented in other countries Implemented In progress Slovak Rep. Anti-Corruption Ukraine Georgia Poland Colombia Poland Public Ukraine procurement Public sector Georgia Slovak Rep. e-system New police Poland Georgia Ukraine Singapore Colombia Judicial Georgia Ukraine Singapore Slovak Rep. Poland reform Colombia Economy Georgia Ukraine Slovak Rep. Singapore Colombia Deregulation Energy Energy Ukraine Slovak Rep. Poland Georgia reform Start of +1 year +2 years +3 years +4 years +5 years >5 years reforms

Economic Effect of Anticorruption Measures Tax administration: Public procurement: ~$1B annually ~$1.1B annually Gas market: Open data: ~$3.1B annually ~$0.7B annually ~$6B savings or ~6% of GDP annually Sources: Ukraine’s Fight against Corruption: the Economic Front (Economic Assessment of Anticorruption Measures Implemented 2 014-2018)

As a Result, Economy is Growing for 13 Consecutive Quarters Shadow Economy, % (percentage of GDP) GDP Growth, % 40% (comparing to respective period in previous year) 34% 32% 32% 3.30% 2.50% 2.30% 2.20% 2015 2016 2017 2018 1Q2019 2015 2016 2017 9m 2018 Industrial Production Growth, % Total Exports* Growth, % -9.80% (comparing to respective period in previous year) (comparing to respective period in previous year) 16.8% 12.3% 10.2% 2.80% 1.60% 0.40% 2015 2016 2017 2018 1Q2019 2015 2016 2017 2018 1Q2019 -3.9% -0.90% -26.8% -13% *total exports includes exports of goods and services Source: State Statistics Service of Ukraine, Ministry of Economic Development and Trade

Our Progress is Confirmed by Rise in International Rankings EBA Investment Attractiveness Index Doing Business Index (index, as at Year End) (place) 3.07 3 71 76 2.9 81 80 96 2.6 2015 2016 2017 2018 2019 2015 2016 2017 2018 Global Innovation Index Human Capital Index (place) (place) 43 24 50 26 56 64 31 2015 2016 2017 2018 2015 2016 2017 Sources: World Bank, European Business Association, World Intellectual Property Organization, World Economic Forum

Ukraine is responding to Global Trends Ukraine is Top-5 110+ supplier of organic products to EU R&D centers in Ukraine owned by multinational corporations Over 130,000 new engineering graduates annually 17 FTAs with 46 countries including DCFTA with EU

We See Restoration of Investment Activity After sharp decline in 2014-2015, net FDI inflow reached $3.7 billion during 2016 – 2018, reflecting a systemic renewal of investment activity FDI in Ukraine, $ billion 10.0 5.5 4.4 3.8 5.0 2.9 2.5 1.9 - 2013 2014 2015 2016 2017 2018 -5.0 Economic Crisis growth -10.0 -15.0 Gross FDI inflow Net FDI inflow Source: State Statistic Services of Ukraine *According to new methodology, data on FDI for 2018, in contrast to the previous periods, include Ukraine banks’ reinvested i ncome amounts (calculated by the NBU on the basis of the retained gaining / losses data according to the share of direct investor participation in their capital)

Ukraine’s Competitive Advantages

Ukraine Competitive Advantages – Labor Competitive Labor Costs 1 2 Skilled Human Capital Average Salary*, USD Top European Countries by Number of (as of Jan 2019) Engineering Graduates, 1370 1310 thousand people 1260 1210 1170 130 105 93 4.2x 75 71 66 56 48 39 350 Ukraine Romania Hungary Slovakia Poland Czech Republic *salary includes employee social security tax, personal income tax and/or other employee taxes, if any Unemployment Rate, % 3 Shrinking Work Force in CEE Problem of (as of Dec 2018) 8.8% • historically low unemployment rates work force 6.1% availability in 5.3% • dependence on seasonal workers from Ukraine 3.9% 3.7% 3.3% (~2 mln Ukrainians temporarily work in Poland) CEE • migration of CEE natives to Western Europe Ukraine Romania Hungary Slovakia Poland Czech Government Support 4 Republic Ukrainian government reforms are encouraging Ukrainians to stay and work at home stable increase in implementation of vocational education program decrease in wages • business involved in educational program development payroll taxes • first success stories in cybersecurity, sea transportation and agriculture education Sources: http://www.tradingeconomics.com

Ukraine Competitive Advantages – Utilities Natural gas, EUR/KWh Electricity, EUR/KWh 0.0304 0.0289 0.1166 0.0257 0.0256 0.0246 0.0243 0.0876 0.084 0.0831 0.0733 0.0595 Ukraine Romania Hungary Slovakia Poland Czech Ukraine Romania Hungary Slovakia Poland Czech Republic Republic Sources: https://ec.europa.eu/eurostat; http://www.nerc.gov.ua/; https://tradingeconomics.com (data for 1 st half 2018)

Ukraine Competitive Advantages – Taxes CPT Rate, % VAT Rate, % 27% 21% 19% 19% 23% 18% 21% 20% 20% 16% 19% 9% Ukraine Romania Hungary Poland Slovakia Czech Ukraine Romania Hungary Poland Slovakia Czech Republic Republic Payroll tax rates Social Security Tax (Employer) Social Security Tax (Employee) Personal Income Rate, % Rate, % Tax Rate, % 32% 35% 35% 34% 25% 22% 24% 22% 22% 18% 19% 15% 14% 13% 10% 11% 2% 0% Ukraine Romania Hungary Poland Slovakia Czech Ukraine Romania Hungary Poland Slovakia Czech Ukraine Romania Hungary Poland Slovakia Czech Republic Republic Republic Sources: http://www.tradingeconomics.com

Key Sector Opportunities

Key Sector Opportunities Innovative Agribusiness Manufacturing IT / R&D Oil&Gas

Key Sector Opportunities – Innovation Technologies 110+ 15 % create their own 2 nd the product largest export service industry R&D centers owned by multinational > 4,000 corporations tech companies $337 M The ITC industry is now a 15 % work as an in-house center major driving force of work as an in-house center total value of venture capital for the parent company for the parent company Ukraine’s economy deals in 2018 18 IT service providers in the 2018 Global Outsourcing-100 % 100+ 70 provide IT services to a wide range of clients Fortune 500 companies have chosen Ukrainian IT services 184k+ software developers (the number is expected to rise to 250k by 2025)

IT Clusters in Ukraine Kyiv Kharkiv 300+ IT companies 400+ IT companies 40k+ IT specialists 25k+ IT specialists Lviv 250+ IT companies 20k+ IT specialists Odesa Dnipro 150+ IT companies 170+ IT companies 8k+ IT specialists 9k+ IT specialists IT clusters From more concentrated to less