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Monday, September 7

Ukraine Beckons Belarus IT...China’s Skyrizon Moves to Arbitration with Ukraine over Motor Sich...Middle East Becomes Ukraine’s Top Poultry Export Market...Real Wages up 5%...Corona Spreads: Ukraine Now Has Europe’s Third Fastest Rate of New Infections...
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

Recruiting Belarus IT workers – Ukraine’s Digital Transformation Ministry has opened a special web portal for Belarusian IT specialists who want to move to Ukraine and has hired Denis Aleinikov, a Belarusian lawyer who developed a special, low tax IT zone in Minsk. “About our initiative to support IT professionals living in Belarus…there is technical support, which works 24 hours a day and already helps specialists from Belarus,” Mykhailo Fedorov, Ukraine’s digital minister, said Friday while introducing Aleinikov to reporters. Of the 4,500 Belarusians who have fled to Ukraine to escape the police violence in Belarus, more than 300 are IT workers, Fedorov said.

Aleinikov is to help the Rada draw up a low tax, liberal labor law IT park similar to the Hi-Tech Park he helped build near Minsk. The park now has 880 registered companies. Last week, President Zelenskiy signed a decree giving the Rada 90 days to draw up legislation. “The Presidential Decree is public support, the political will for this project to move forward faster,” Fedorov said Friday. “We will create the world’s most comfortable economic zone with low taxes, legal employment, high wages. Favorable conditions for startups and entrepreneurs.”

With this investment regime, Fedorov aims to create an additional 450,000 IT jobs in Ukraine by 2025, generating $12 billion in economic activity. Last year, Ukraine’s IT exports grew 30% yoy, to $4.2 billion. Currently, Ukraine’s 4,000 IT companies employ 200,000 specialists. Short of staff, Ukrainian companies look north to Belarus where 60,000 IT specialists work in Minsk alone.

“Belarusian tech companies leave their country amid protests, move to Ukraine” headlines a Kyiv Post article featuring interviews with Belarusian IT workers who are moving or considering moving south. After the largely discredited Presidential vote of August 9, 168 IT workers were arrested in protests. Since then, the internet has been repeatedly turned on and off. Over 2,500 IT executives and workers signed an open protest letter to President Lukashenko. “People can’t focus on work because of the constant stress,” George Kachanouski, founder of Scootapi, says from Minsk. “Many companies plan to relocate temporarily now, but if the dictatorship wins, then for good.”

German Chancellor Angela Merkel’s government is signaling that the poisoning of Russian Opposition leader Alexei Navalny, could imperil the Nord Stream 2, the Russia-Germany Baltic pipeline. German Foreign Minister Heiko Maas, told Bild am Sonntag newspaper said he hopes that Russian non-cooperation in the investigation would not force Berlin to “change our stance” on the pipeline. With the exception of the far right, political parties across the spectrum have called on Merkel to freeze Germany’s participation. The Financial Times reports from Berlin that the 1,230 km pipeline is 88% complete. Former German chancellor Gerhard Schröder, chairman of the Nord Stream shareholders’ committee, told a Bundestag committee in June that the pipeline total cost will be €12 billion.

China’s Skyrizon company has notified Ukraine’s Justice Ministry that it intends to start international arbitration against Ukraine over access to the Motor Sich aircraft engine factory, reports UNIAN. Noting that it bought 56% of Motor Sich shares in 2016, Skyrizon is demanding $3.5 billion in damages for being unable to enter the factory complex for the last four years. Skyrizon argues that moves by Ukraine’s State Security office and Anti-Monopoly Committee violate the China-Ukraine investment protection treaty adopted by both countries in 1992.

During the first half of this year, Ukraine’s poultry exports were virtually constant in volume – 212,300 tons – but down 12% in monetary terms, to $271 million, reports Poultry World. At a press conference in Kyiv, Sergey Karpenko, executive director of the Union of Poultry Breeders, warns  that a government plan to create a new agency to replace Gosprodpotrebzlyuzba, the state food safety regulator, could disrupt exports as new certificates will have to be negotiated with the veterinary agencies of importing countries.

The Middle East has displaced the EU as the top destination for Ukrainian chicken meat, reports The Poultry Site. The change is due partly because of new EU quotas and an avian flu outbreak in Vinnytia in January. In the first half of this year, the biggest markets were Saudi Arabia – 18%; the Netherlands – 17%; and UAE – 12%. For MHP, Ukraine’s largest producer, poultry exports were down by 10% during the first half, to 170,553 tons. Last year, MHP’s exports were up 25% yoy, to 357,400 tons. 

The number of new filings for unemployment aid have dropped steadily: from 149,000 in April to 68,000 in July, reports the Ministry of Economic Development, Trade and Agriculture. Since the government adopted corona quarantine measures in mid-March, the government has paid $272 million in benefits to 432,000 people, about $630 per person.

Real wages were up 5% in July yoy, reports the State Statistics Service. The biggest growth sectors, in nominal terms, were: medicine and social services – +18% yoy; and IT and telecom – +14.4% yoy.

ICU writes: “The recovery of wages confirms a quite rapid exit of the labor market from the coronavirus-induced recession. The rebound of workers’ income is also evidenced by the high growth rates of retail trade and production of consumer goods.”

After a record week of coronavirus infections, Prime Minister Shmygal vowed that there will be no repeat of last spring’s lockdown. “We understand, both the government and the state leadership, there can be no second lockdown in Ukraine — most countries realize this,” he told a business forum Friday evening at Kyiv’s UNIT.City. “Closing down the country over the quarantine as it was in the spring, is impossible.”

Even with Sunday’s dip to 2,107 new cases, Ukraine’s ranks third in Europe for new cases, behind only France at 7,071, and UK at 2,988, according to Worldometer’s Coronavirus tracker. Worldwide, Ukraine ranks in 9th place for new infections. Despite this surge, schools last week opened across Ukraine, with the exceptions of 5% of the nation, which is classified ‘red.’

Starting today, two regional capitals, Ivano Frankivsk and Ternopil, are classified red. In advance, the mayors of both cities sued the Cabinet of Ministers in Kyiv District Administrative Court. The list published by the Cabinet of Ministers shows that most orange and red areas are in Western Ukraine. Although Kyiv city registers about 300 new cases a day, it is classified yellow, largely due to the large population.

One upside of Ukraine’s increasing infection rate: the Health Ministry has reduced its list of ‘red’ zone countries to 35. Red zone countries – those with recent infection rates above Ukraine’s 80/100,000 – include the US, Israel, France, Spain, Croatia, Moldova, and Romania. Travelers from these countries have to self-isolate until they test negative for Covid-19. Ukraine’s borders are largely closed to foreign travelers until the end of the month. Due to Ukraine’s high infection rate, foreign travel and foreign flights from Ukraine are restricted.

The new spread of the virus has hit home for many Ukrainians with the news of the hospitalizations in Kyiv of two well-known figures. Filaret, the 91-year-old Patriarch of the Ukrainian Orthodox Church of Kyiv Patriarchate was in stable condition Friday at a Kyiv hospital. Yulia Tymoshenko, the 59-year-old leader of the Fatherland political party, emerged last week from intensive care. “Fighting off a serious disease for almost two weeks alters the perception of reality,” she wrote on Facebook from a Kyiv hospital. “Although recovery is still a distant prospect, now there is an opportunity to return to normal life, step by step.” She signs off: “Thank you and hug you tight. Everything will be fine!”

From the Editor: Belarus’ strongman Lukashenko may have soured on the IT industry after they became a pillar in the national awakening against his 24-year rule. Now, he may provide the world a reminder of how mobile IT can be. A few years ago, when I was getting consular work done at Ukraine’s Embassy in Bangkok, I chatted with a Kyiv programmer who was happily working for a Kyiv company – and living on an island in the Gulf of Thailand. One of my sons, William, has an IT startup in Brooklyn, NY. He employs two programmers in Ukraine, one in Lviv and one in Dnipro. His business partner is a Belarusian living in Sofia, Bulgaria. Many IT workers live by the motto: have modem, will travel. With Best Regards Jim Brooke

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Monday, August 17 – “This will be the beginning of your end…” – Belarus President Aleksandr Lukashenko

Belarus Bends, Ukraine Watches...Ukraine Invites Belarus IT Workers to Move Here...Exports to China Double...Chinese State Co. Wants to Build Deepwater Port in Ochakiv, a Historic Chokehold on the Dnipro...Kharkiv’s Yaroslavsky Offers to Raise $1 billion to Revive City’s Aircraft Plant...Kolomoisky’s Airplane Shell Game?
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

“This will be the beginning of your end, you will go down on your knees like in Ukraine,” Belarus President Aleksandr Lukashenko warned 40,000 supporters in Minsk Sunday, rebutting calls for his resignation. A few hours later, participants at mass opposition rally of 220,000 chanted for Lukashenko to go. After a week of violent police attacks on protesters, policing was light. Workers at key state factories walked out on Friday. Today, state television workers threaten to strike, demanding an end to censorship.

On Saturday, Lukashenko asked President Putin for Russia to intervene militarily. But, according to the Kremlin readout of the call, Putin only promised to keep talking to the besieged 65-year-old leader. In Belarus, protesters do not call for withdrawal from two Moscow-led organizations – the Eurasian Economic Union and the Collective Security Treaty Organization. Without an anti-Moscow slant to the Belarus protest, some analysts drew parallels last night to the 2018 revolution in Armenia. They predict the Kremlin will work with a Belarus democracy movement that does not take aim at Russia.

“Why Vladimir Putin Is Unlikely to Invade Belarus,” headlines an Atlantic Council piece by Anders Aslund, a veteran observer of the region. “While it is impossible to rule out a Russian military intervention, there are numerous good reasons to presume that it will not take place,” Aslund, a Swedish-American economist, writes Sunday from Washington. He cites: Putin’s dislike for the Belarusian leader; Lukashenko’s loss of popular support, and, possibly, security forces support; and “so far, no slogans against Putin or Russia have emerged.” He concludes: “The Kremlin should be able to live with that.”

Belarus is Ukraine’s fourth largest trading partner, largely a transit country for goods restricted by the Russia-Ukraine trade war. Despite this close economic relationship, President Zelenskiy probably will not travel to Grodno, Belarus on Oct. 8-9, for an annual bilateral trade and investment conference. Ukraine’s Foreign Minister Dmytro Kuleba told UA: Ukrainian Radio on Friday: “Until the situation in Belarus stabilizes, it would be reckless to announce any visit or initiative.”

Eying Belarus’ dynamic IT industry, Ukraine’s Digital Transformation Minister posted an appeal to Belarus IT companies and specialists to relocate south of the border — to Ukraine. “Belarus has been going through one of the deepest political crises in its history,” Mikhalo Fedorov posts on his Facebook page. He says that, under a new recruitment program, foreign IT specialists can get their Ukraine work permits in 5-7 days – “that’s all.” Noting that this year’s quota is 5,000 “highly qualified IT specialists,” he says the national distribution is: Dnipropetrovsk, Odesa and Lviv regions – 600;  Kharkiv – 700; and Kyiv – 2,500.

A near doubling of exports to China reduced Ukraine’s trade deficit to $1.3 billion for the first half of this year, the lowest level in recent years. The State Statistics Service reports exports to China rose 93%yoy to $3 billion, to Poland dropped 14%, to $1.5 billion; and to Russia dropped 17%, to $1.3 billion. Overall, Ukraine exported $22.9 billion worth of goods and imported $24.2 billion. For imports, Ukraine’s imports from China dropped 7%, to $3.6 billion; from Germany dropped 17%, to $2.5 billion; and from Russia dropped 43%, to $2.2 billion.

China’s purchase of ship parts and R&D services for aircraft engines made it the largest buyer of military equipment from UkrOboronProm during the first half of this year. Of $145 million in sales, the biggest buyers from the state defense conglomerate were: China, Turkey, Pakistan, India, Jordan, Vietnam, Azerbaijan, Algeria, Morocco, and Ethiopia. Of all deliveries, 56% went to Asia-Pacific.

China Railway Construction Corporation is talking with Vadym Novinsky’s Smart Holding about building a deep water port at Ochakiv, a Black Sea port 60 km south of Mykolaiv city. A strategic chokepoint controlled by at least 10 different peoples over the last 2,500 years, Ochakiv is 3.6 km across from the Kinburn Spit, a position that controls shipping to the mouth of the Dnipro. Smart Holding reports the Chinese are discussing doubling the depth of the harbor, to 15-18 meters, building a 70 km rail spur to Mykolaiv, and building port terminals for grain and iron ore, two products that dominate Ukraine’s trade with China, now its largest trading partner.

Given Ochakiv’s strategic location, facing Crimea 100 km to the south, US Navy Seabees built last year a $700,000 operations center at Ochakiv for Ukrainian Navy. When construction was announced, Vladimir Zhirinovsky, the Russian nationalist politician, announced: “This is Russian land – Ochakiv.” Next year, several US-supplied Mark VI fast patrol boats are to be based at Ochakiv.

Last month, CRCC, China’s second largest state-owned construction company, signed a memorandum of understanding with Ukraine’s Infrastucture Ministry about modernizing Ukraine’s inland waterways. These are the Dnipro, which flows through Kherson, and the Southern Bug, Ukraine’s second longest navigable river, which passes through Mykolaiv. For both projects, the Chinese team was led by Li Junqiang, executive director of CRCC’s subsidiary CRCC14 Overseas Construction and Development Co Ltd., and Wang Chuang, deputy general director of CRCC’s 14th Bureau Group.

Nibulon, the largest shipper on the Dnipro, is building a Black Sea port complex in Ochakiv and restoring the fish canning factory. To supply the cannery with fish, crustaceans and mollusks from the Dnipro-Buzky estuary, Nibulon’s CEO Oleksiy Vadatursky writes on his Facebook page that he is considering building shallow water fishing vessels at Nibulon’s shipyard in Mykolaiv.

Fresh from announcing a deal with Chinese investors to take over Motor Sich, Ukraine’s jet engine factory, Alekander Yaroslavsky offers to raise $1 billion to revive the aviation plant in his home city of Kharkiv. Earlier, Yaroslavsky’s DCH group rebuilt the terminal of Kharkiv airport and revived production at the Kharkiv Tractor Plant. Kharkiv Aircraft Plant has not made a plane since 2014. It largely survives by making spare parts and performing maintenance. It owes $8 million in back salaries. On Friday, Yaroslavsky offered to raise: $100 million to pay off debts; $500 million to complete airplanes on the production line and to start new ones; and $400 million for design development.

Today, flights resume between Kyiv and Yerevan, Armenia and between Kyiv and Almaty, Kazakhstan. Air service to the two countries was suspended five months ago as part of the coronavirus travel restrictions.

Do the math: Ihor Kolomoisky’s Windrose airline is receiving its 14th aircraft, a leased ATR-72-600. Within a year, Windrose is to receive another five of these regional turboprops, bringing its fleet to 19. At the same time, Kolomoisky’s UIA is cancelling leases and cancelling orders. Currently. UIA’s fleet is down 33, with 14 in storage. In 2013, Kolomoisky’s airline Aerosvit filed for bankruptcy and several jets were transferred to UIA.

From the Editor: What looks like the end game of Belarus’s Lukachenko promises to be entertaining to watch this week.  But in the slow days of August, take a step back for a long look at Ochakiv and who has controlled that narrow entrance to Ukraine’s hinterland. Recorded history starts around 6th Century BC with the Thracians and Scythians. Then came Pontic Greeks, Imperial Romans, Mongol Hordes, Moldavian Kings, Genoese merchants, Crimean Tatars, the Ottoman Empire, a Wallachian Prince, and, in 1788, the Czarist Russians, with an American naval officer, John Paul Jones, commanding the Russian fleet. In the Crimean War, an Anglo-French fleet took command of both sides of the strait in 1855. From 1941-1944, Romanians again occupied Ochakiv. Given the China’s proposal to double navigable depths and build modern terminals in a city with a population of 14,000, one wonders if they are playing the long game in a city that some dismiss as a backwater. With Best Regards Jim Brooke

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Thursday, August 13 – Cabinet of Ministers of Ukraine: 200 More State Companies to be Privatized

200 More State Companies to be Privatized...Plans for a $3 billion, 150 km Kyiv Ring Road...Ze Signs Derivatives Law...Flights Leave Kyiv Sikorsky Half Full...
James Brooke
by James Brooke
UBN Morning News is reported and written by James Brooke, a former New York Times foreign correspondent and Bloomberg Moscow Bureau Chief

About 200 more state companies will be transferred to the State Property Fund for privatization, the Cabinet of Ministers decided yesterday. The companies are either unprofitable or are used “for various shady schemes,” Economy Minister Ihor Petrashko told reporters after the meeting. At the same time, the government is cutting by one third – to 200 – the proposed list of state companies exempted from privatization, Prime Minister Shmygal said during the Cabinet Meeting.

Until the coronavirus pandemic started, several foreign investor groups had planned to come to Ukraine this summer to study state companies scheduled for sale. Dmytro Sennychenko, head of the Property Fund, estimates that about half of Ukraine’s 3,000 state companies are bankrupt and will be liquidated. The others will be sold at public, electronic auctions, largely as is. To help foreign investors, the Fund has set up a bilingual Ukrainian-English website with ‘data rooms’ on each property up for sale. To speed the sale of distilleries from Ukrspirt, the state alcohol producer, the Cabinet of Ministers yesterday passed a key package of regulations setting sale conditions.

Ukravtodor presented yesterday a project to build $3 billion, 150km, three quarter circle Kyiv ring road. Designed to intercept traffic about 40 km outside capital, the bypass would link all major international highways that converge on Kyiv – from Kovel, Lviv, Odesa, Boryspil, Kharkiv and Chernihiv. Designed to carry 300,000 cars a day, the bypass road would include a new, 6 km bridge over the Dnipro, to be built south of Pivdenniy (South) Bridge. At the presentation, the national highway agency announced a tender for the first of six sections: a 35 km stretch between the Kyiv-Lviv and Kyiv-Odesa highways. If full financing can be arranged, the new ring road could be completed by 2030.

A US company is negotiating with Mykolaiv regional authorities to build a $250 million waste recycling plant for the entire region, Alexander Stadnik, regional head, tells NikVesti, a local news site.  For convenience, the plant would be located in Nova Odesa district, in the center of Mykolaiv oblast, reports Delo.ua. Stadnik did not identify the company, but said it is ready to start investing.

Fighting to preserve a joint venture with a Chinese company to control Ukraine’s aircraft engine maker, Ukraine’s DCH conglomerate told Reuters and NV business news site yesterday that it has signed an agreement to buy “more that 25% of shares” in the company, Motor Sich.  Addressing fears that design and production would move to China, DCH, a Kharkiv-based group, told NV: “DCH will have the right to veto key business decisions.” NV speculated that joint venture idea was developed last November during a meeting in Kharkiv between Oleksandr Yaroslavsky, owner of DCH, and Jack Ma, founder of China’s Alibaba Group. DCH says Ukraine Antimonopoly Committee should decide on the case by the end of this year.

President Zelenskiy signed a law creating the legal and regulatory framework for derivatives – the financial instrument that helps to provide hedging opportunities against prices, interest rates or currency rate movements. Scheduled to go into effect next July 1, the law would allow such derivatives as swaps, which will allow Ukrainian banks, farmers and manufacturers, to hedge their foreign exchange exposures. Required under the IMF’s current standby agreement with Ukraine, the law was drawn up by the National Securities and Stock Market Commission working with experts from the EBRD.

Timur Khromaev, head of the Commission, said of the derivatives law: “It represents a big step forward in creating the conditions in which our economy can move to a more sophisticated stage of development.” Matteo Patrone, EBRD’s regional Managing Director said: “The new law will contribute to the establishment of a derivatives market in Ukraine. This is a major step forward to putting Ukraine on investors’ radar screens.”

The day after President Zelenkiy signed the law legalizing gambling, Parimatch, the largest betting company in Ukraine, announced that it will bid for hotel casino licenses in Ukraine. Founded in Kyiv in 1994, Parimatch has moves largely online, accepting bets on sporting events, e-sports, elections, show business, Eurovision and the Nobel Prize. With 1,600 employees, the company largely operates in Ukraine, Belarus, Kazakhstan, Russia and Cyprus, where it has its headquarters.

The Finance Ministry raised the equivalent of $366 million in its weekly government bond auction Tuesday – virtually the same amount as one week earlier. To keep, hryvnia rates from rising, the Ministry rejected the equivalent of $75 million worth of bids. Interest rates were little changed with 4-month bonds going for 7% and 2-year bonds going for 10%. By contrast, the Ministry satisfied 26 of 27 bidders for 1.5 month USD-denominated bonds at 3.6%.

Concorde Capital’s Evgeniya Akhtyrko concludes: “There is no improvement in the sentiments of the broader circle of market players regarding the risk level of UAH debt at the moment.”

Planes left Kyiv Sikorsky Airport half full last month. In July, Kyiv’s right bank airport handled 1,314 flights — 48% the number of flights of one year earlier. But the number of passengers was only 52,400 – 20% the level of one year earlier. The most popular international destinations were: Warsaw; Tivat, Montenegro; London Luton; Minsk; Dalaman, Turkey; Wroclaw, Poland; Bodrum. Turkey; and Tirana, Albania.

SkyUp Airlines returned in July to 50% of its pre-coronavirus traffic levels. Operating 704 domestic and international flights from Kyiv Boryspil, the low cost airline carried 96,407 passengers in July.  Of its regularly scheduled foreign destinations, Albania was more popular than Bulgaria. For charters, Turkey was more popular than Egypt.

Air Astana resumes flights between Almaty and Kyiv Boryspil next Wednesday. From Almaty, the Kazakh national carrier flies to 26 destinations, including Beijing and Delhi. Air Astana suspended flights to Ukraine five months ago.

The day after President Zelenskiy signed a law giving tax breaks to foreign film productions, Kyiv City officials announced a list of streets to be closed Aug. 12-25 for the filming of a Jean-Claude Van Damme film — ‘The Last Mercenary.’ Since most of this Netflix ‘comedy action movie’ takes place in France, it appears that Kyiv will be dressed up to look like a French city. Van Damme, a Belgian, is known to American fans as ‘The Muscles from Brussels.’

From the Editor: The attitude at the Kyiv headquarters of the State Property Fund is to move state companies out the door. Fund Head Sennychenko is frank that he has neither the time nor the resources to clean up 3,000 companies before sale. For Eastern Europe, this will be the region’s last big privatization sale (assuming Tyrannosaurus Rex prevails in Belarus). For investors in Ukraine, all Sennychenko can promise is transparent presentations and honest auctions. Properties will be presented as is, poison pills and all. Compared to the Wild East, shoot ‘em up days of Russia’s privatizations in the early 1990s, Kyiv-in-the-time-of-corona is mildly inconvenient, but not a physical risk. With Best Regards Jim Brooke