Country Risk: Ukraine

Official Name: Ukraine

Internet Domain: .ua
International Dialing Code: +380

Table of Contents

Location and Size

Located in Eastern Europe between Poland, Romania and Moldova on the west and Russia on the East, Ukraine’s area is approximately 603,550 sq. km. (233,000 sq. mi.), making it slightly smaller than Texas.

Government

Parliamentary democracy.

• Executive branch: chief of State-President Peter Poroshenko, head of government-Prime Minister Volodymyr Gorysman, Cabinet of Ministers selected by the prime minister except for foreign and defense ministers which are selected by the president
• Legislative branch: 450-member unicameral parliament
• Judicial branch: Supreme Court, Constitutional Court

Legal System

Based on civil law. Ukraine has not accepted compulsory International Court of Justice (ICJ) jurisdiction.

Local commercial courts of Ukraine have jurisdiction over disputes between legal entities, including foreign legal entities. Commercial courts are also in charge of administering bankruptcy cases.

Investors criticize Ukraine’s legal system for its inefficiency, burdensome procedures, unpredictability, corruption, and susceptibility to political interference. Even when favorable decisions are obtained, investors claim the decisions are sometimes not enforced.

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Economy

After being hit in 2017 by the suspension of trading relations with its eastern regions, controlled by Russian-supported separatists, the Ukrainian economy is growing at a faster rate in 2018, driven by both domestic and export demand. Household spending is once again set to be the biggest contributor. With elections scheduled for 2019, wages are likely to rise strongly, echoing the doubling of the minimum wage in 2017.

Leading Markets (2018): Russia 21.1%, Turkey 5.3%, China 3.8%

Leading Exports-commodities: Ferrous and nonferrous metals, fuel and petroleum products, chemicals, machinery and transport equipment, food products

Leading Suppliers (2018): Russia 28%, Germany 8.6%, China 6.1%, Kazakhstan 4.9%, Poland 4.9%

Leading Imports-commodities: Energy, machinery and equipment, chemicals

Top Industries: Coal, electric power, ferrous and nonferrous metals, machinery and transport equipment, chemicals, food processing

Top Agricultural Products: Grain, sugar beets, sunflower seeds, vegetables; beef, milk

Comparative Economic Indicators ” 2018

Data from CIA World Factbook

Credit and Collections

Dispute Resolution

For many years, the lack of adequate rule of law, fair and impartial dispute resolution mechanisms, and enforcement of domestic court and international arbitration decisions have plagued investment disputes in Ukraine. Currently, there is no single point of contact in the Ukrainian government to help resolve business and investment disputes involving foreign companies.

Most U.S. businesses have little confidence in Ukrainian courts. Commercial contracts may permit the parties to use international arbitration or specified foreign courts to settle disputes. Although Ukrainian legislation recognizes international arbitration decisions, in practice such decisions can be very difficult to enforce in Ukraine.

Ukraine enacted an international commercial arbitration law, which parallels commercial arbitration laws set forth by the United Nations Commission on International Trade Law. Ukraine is a member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitration Awards. However, enforcing foreign arbitration awards in the Ukraine is difficult as enforcement procedures are regulated by a number of statutes.

Risk Assessment

Coface Country Rating: D (high risk)
Coface Business Climate Rating: C (moderate to high risk)

Business Climate

Ukraine’s economy is burdened by excessive government regulation, corruption, and lack of law enforcement.

Market Access: Ukraine encourages foreign trade and investment. Foreigners have the right to purchase businesses and property, to repatriate revenue and profits, and to receive compensation in the event property were to be nationalized by a future government.

Customs and Duties: Imported goods entering Ukraine often must be “cleared” by a number of state bodies, some of which do not operate 24 hours a day, causing extended delays. Burdensome customs clearance procedures are a disincentive to investment in Ukraine.

Commercial law: The Ukraine has two codes covering commercial transactions which often directly contradict each other: (1) the Civil Code is generally market-oriented and modern; and (2) the Commercial Code, which is often contrary to market economy principles. In addition, both codes have gaps in regulation. The existence of these two codes creates uncertainty in planning and structuring transactions. Problems arising from these two codes also surface in the resolution of disputes, as the courts are unable to resolve the conflicting provisions, or are not able to fill in the gaps in regulation that arise from missing provisions in both codes. Another issue causing confusion is the fact that other commercial laws have not been harmonized with these codes.

Transparency of Regulatory System: Complex and vague laws and regulations, poor corporate governance, and weak enforcement by the courts has discouraged broad foreign direct investment in Ukraine.

Conversion and Transfer Policies: The Law “On Foreign Investment” guarantees the “unhindered transfer” of profits, revenues, and other proceeds in foreign currency after taxes and other mandatory payments. Foreign exchange is readily available at market-determined rates. However, repatriation of hard currency of over $50,000 (per transaction) must be approved by the National Bank of Ukraine, which charges a fee to review the transaction.

Economic Freedom: Ukraine’s economic freedom score is 51.9, making its economy the 150th freest in the 2018 Index.  Ukraine is ranked 44th out of 44 countries in the Europe region, and its overall score is lower than the world average.

Corruption: Corruption is another issue that has discouraged foreign direct investment in Ukraine. There is a high tolerance for corrupt practices throughout Ukrainian society and the country’s progress towards efficient standards of opposing corruption at federal and regional levels has been slow. Both petty and grand scale corruption thrive in Ukraine, and have a sustained impact on companies, state decision-making and the daily lives of citizens.

Political Violence: Ukraine is largely free of significant civil unrest. Occasionally, mass demonstrations occur in larger cities, usually sponsored by individual political organizations.

Business Protocol in the Ukraine

Although direct communication is valued in the Ukraine, there is also an emphasis placed on delivering information in a sensitive manner. Once a relationship has developed, people will then feel more comfortable speaking frankly. In general, Ukrainian business people are less formal than in many other countries.

Sources for further information on doing business in Ukraine

Ukraine’s Business Culture, TryUkraine

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Ukraine. For further information, contact [email protected].

This report represents a compilation of information from a wide variety of reputable sources.

Comparative Economic Indicators: CIA World Factbook