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Thursday, December 17

$100 Million Venture Fund Hunts Ukrainian IT Startups…Silicon Valley, NASA and Turkey Invest in Ukraine Tech…American University in Kyiv Aims for 3,900 Students by 2026…$75 Million Plan for a New River Port for Kyiv…EBA Survey: Ukraine’s Courts Scare Away Foreign Investors
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

Investment company Quarter Partners has launched an IT venture fund, promising to invest $100 million in Ukrainian startups or international ones with Ukrainian ties. Acting as an ‘angel investor,’ the fund provides funding from the pre-seed round to Round B, when a company expands its market “with maximum value and a sustainable business model,” Denis Valvachev, CEO and Managing Partner of the fund, QPDigital, said in a press release. Focusing on IT-logistics, digital healthcare, game development, blockchain and artificial intelligence, QPDigital already has invested $2.6 millions into six startups.

Kyiv deepfake startup RefaceAI has raised $5.5 million from Silicon Valley investors, Roman Mogylnyi, a co-founder, wrote on Facebook. Since launch last January, the face-swapping app has been downloaded 70 million times. Entertaining for the coronavirus shut in generation, Reface now ranks among the top apps on the AppStore and Google Play. Mogylnyi believes the technology will open up a new era of ‘gamification’ of movies and sports.

NASA has signed a $9.8 million contract with a Ukrainian-American aerospace company to launch small satellites for space research, reports the U.S. space agency. Firefly Black, a unit of Max Polyakov’s Firefly Aerospace, would launch the miniature satellites into low earth orbits for research.  With its workforce of 310 divided between Texas and Polyakov’s native Dnipro, Firefly Aerospace is also developing a robotic moon lander for NASA’s Moon Payload Program. Next year, Firefly plans to test launch from California its Alpha rocket, a two-stage missile capable of placing a 1-ton payload into low earth orbit.

Antonov Airlines has carried its largest satellite to date – a 55-ton Space X communications satellite — from Toulouse, France to Titusville, Florida, home of the commercial airport serving the Kennedy Space Center. Ukraine’s preeminent air cargo company used an An-124 Ruslan to fly the satellite 7,300 km, near the upper flight range for that size payload.

Forty Belarusian tech companies and 2,000 IT workers have moved to Ukraine in the four months since protests erupted after Alexander Lukashenko claimed to have won the Presidential Election. The Belarusian service of Radio Svoboda reports from Kyiv on Ukraine’s effort to recruit Belarusian IT workers and companies, detailing salaries, taxes and work permits.

Turkey’s top military procurement official Ismail Demir has signed agreements in Kyiv for the technology transfer and joint production of attack drones and corvette warships, Ukraine’s Defense Ministry announced Monday. The small warships would be used by both countries for coastal patrols in the Black Sea. Following Demir’s visit, Serdar Huseyin Yildirim, Head of the Turkish Space Agency, announced a Turkey-Ukraine agreement for joint production of satellites and rockets, reported DefenseNews, a Washington-based news site.

Separately, Al-Monitor, another US-based new site, reported that in the second half of November Ukrainian forces tested Turkish-made Bayraktar TB2 combat drones over the Sea of Azov and around Kramatorsk, Donetsk region. Last month, Ruslan Khomchak, Commander-in-Chief of Ukraine’s Armed Forces, announced that Kyiv is considering buying five of the drones. At the same time, UkrOboronProm and Turkey’s Baykar Makina, manufacturer of the Bayraktar drones, decided to form a joint venture for Ukraine to domestically produce 48 TB2 drones. Military analysts say these drones helped Azerbaijan win last month’s war between Armenia and Azerbaijan.

The new UK-Ukraine trade agreement has been ratified by both countries’ parliaments and will take effect on January 1, 2021 Taras Kachka, Ukraine’s Trade Representative, wrote on Facebook. The new pact allows for free trade in farm products not subject to quotas. Seen as a stopgap measure to put in place before Brexit takes effect two weeks from now, the new deal is already slated for renegotiation in 2021.

Former US Envoy to Ukraine Kurt Volker is spearheading an ambitious project to open next September at the American University in Kyiv. Announced this week, the new University aims to enroll 3,900 students and bring in $26 million in tuition fees by 2026. Offering US-standard education in Ukraine, the new university is being developed with Arizona State University and Cintana Education, a public benefit corporation that works with ASU on international education. According to a recent survey by Ernst & Young, 87% of Ukraine’s employers do not believe that higher education meets current needs, and 91% of Ukrainian students said they would study in English at a Ukrainian-American university in Ukraine.

Betting on the revival of river cargo, the KPS Group is drawing up plans for a 5-year, $75 million project to build a multimodal port capable of doubling Kyiv’s river cargo volumes by 2027. With rail and highway access, the site would be on 16 hectares of industrial land in Telychka, immediately south of Pivdennyi Bridge, Kyiv’s southernmost bridge. KPS Group has a lease on the land, is drawing up feasibility studies and is talking with potential foreign investors, Serhiy Ovchinnikov, the company project manager, told the Center for Transportation Studies.

“Only 1 in 10 CEOs expect the investment climate to improve in 2021,” is the bleak headline on a survey of 101 managers in Ukraine conducted for European Business Association by Vasil Kisil & Partners law firm. Ukraine’s ‘investment attractiveness index’ has fallen to 2.4 points out of a possible five, the lowest level since 2013, reported the EBA. Two thirds of executives polled said Ukraine’s investment climate worsened in the second half of 2020, compared to the first half. Looking ahead, 45% predicted the climate will get worse in 2021, 45% said it will not change, and 10% said it will get better.

A dysfunctional judicial system and government corruption were cited as the top two investor turnoffs. “94% of respondents believe that a weak judicial system is one of the reasons for Ukraine′s low investment attractiveness,” said Andriy Stelmashchuk, managing partner of Vasil Kisil. Anna Derevyanko, the EBA’s executive director since 2003, said: “Enough time has been wasted, so now the country needs proper decisive actions to improve the business climate and economic development.”

Editor’s Note: In the 1980s, when I worked in West Africa, I wrote a story for The New York Times on how entrepreneurs used tribal connections to get small business loans in a country where trust was rock bottom in the Western-style courts. (Read: “Informal Capitalism Grows in Cameroon.”) That path only works in a low level economy where kinship ties are strong. If Ukraine wants to have a modern economy, attractive to foreign investors, it will have to bite the bullet and build a modern, EU-standard judiciary. Otherwise, crippled by a lack of capital, Kyiv could be left behind, lampooned as ‘Douala-on-the-Dnipro.’ With Best Regards, Jim Brooke

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Wednesday, December 2

Ukraine Supplies Half of EU’s Migrant Workers...EU Nations Invest to Upgrade Ukraine’s Border Crossings...Brazil and Ukraine Explore Arms Production Partnerships...Turkey and Ukraine Explore Investments in Ports, Roads and Rail...Foreign Investors Tiptoe Back to Hryvnia Bond Market
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

Highlighting Ukraine’s emerging role as the EU’s reserve labor pool, Ukrainians accounted for 55% of the 1.2 million first time residence permits granted last year to all non-EU citizens for work in the EU, according to a new Eurostat report. Last year, 660,000 Ukrainians received these first time work-related permits, a 19% jump over 2018. This was 13 times greater than the next labor source – India, with 50,000 – and 16 times the third ranked country – Belarus, with 41,000. These numbers do not count Ukrainians who are in the EU on long stay visas or the back and forth flood of informal workers who take advantage of the 90-day visa-free regime.

The bulk of the 756,548 Ukrainians who got first time residency in the EU last year went to Poland – 79%. Spreading into the Baltics and around Central Europe, Ukrainians accounted for the top nationality of foreign workers granted residency in eight EU nations:  Latvia, Lithuania, Estonia, Finland, Poland, Hungary, Slovakia and the Czech Republic. In contrast to the fast growth of Ukrainians, EU ‘initial residence permits’ issued to all nationalities for all reasons increased last year by 6%, to 3 million.

With cross border traffic expected to rebound this spring, assuming vaccines diminish the coronavirus pandemic, EU nations are helping Ukraine upgrade its often outdated border crossings. In coming weeks, EU and Ukrainian experts are to complete a comprehensive survey of Ukraine’s border crossings with its seven land neighbors. Once reforms are adopted the EUwill support their implementation to enable border management agencies to offer better service delivery to people, promote regional cooperation, cross-border trade,” the EU’s mission to Ukraine said yesterday of the 3-year project.

Poland is lending Ukraine €100 million to upgrade the 13 land border crossings between the two nations. The 30-year, low interest loan also will help upgrade Ukraine’s road and rail approaches to the 535 km long joint border. Yesterday, the Rada finally approved enabling legislation for the loan. It was first agreed upon five years ago.

Estonia will help Ukraine install two electronic border crossing systems at two of Ukraine’s busiest land crossings – Chop with Hungary, and Uzhgorod with Slovakia. Using Estonian experience, the goal is to cut lines of cars and pedestrians, according to an agreement signed Friday by Estonia’s Prime Minister, Jüri Ratas, and Ukraine’s Prime Minister, Denys Shmyhal.

Brazil and Ukraine, two of the world’s second tier arms exporters, started discussing possible joint ventures yesterday, the start of a 5-day visit to Ukraine by executives of 13 from Brazil’s top arms producers. Led by Brazil’s Deputy Defense Minister Marcus Dego Rosas Pontis the delegation includes representatives from: Avibrás, Embraer, Imbel, Taurus, Kryptus, Atech, Condor, Nitroquímica, SLO3, Inspirar, Nanonib,  Senai Cimatec, and Akaer. The Brazilians discussed with their Ukrainian counterparts joint production and modernization of battle tanks; missile systems and air defense equipment; cybersecurity, ammunition, small arms, drones, aerospace, radar and satellite systems.

This week’s face to face meetings follow a video conference two months ago with the participation of UkrOboronProm executives and Rosas Pontis, who is Brazil’s director of Secretariat for Defense Products. “It will be a two-way road,” Ukraine’s  Minister of Strategic Industries Oleh Urusky wrote yesterday on Facebook. “Our countries are launching a new area of ​​cooperation that has great prospects.”

Ending a 2-day trip to Turkey yesterday, Prime Minister Shmygal told reporters that his delegation invited Turkish companies to participate in concessions for international highways and for two Black Sea ports. In meetings in Istanbul and Ankara, he invited Turkish investors to build high speed passenger rail lines, housing for Crimean Tatars displaced from Crimea, and modern city hospitals. Ukrinform reports that the highway section that Shmygal pitched to Turkish construction companies is the Brody-Lviv-Krakovets highway, a heavily trafficked, 250 km section of the M10 that now takes four hours.

As Ukraine’s defense partnership with Turkey extends to the air, the air forces of the two nations have discussed the possibility of data exchange “including airspace monitoring” under NATO’s Air Situation Data Exchange program, Ukraine’s Defense Ministry reports. Turkey is a member of NATO.  Both countries plan to develop gas fields in their sectors of the Black Sea. Ukrinform reports: “The parties agreed on possible mutual exchange of technical data for monitoring the airspace of exclusive economic zones, which will allow Ukraine to assess the situation in its own exclusive economic zone, preventing possible threats from the Russian Federation.”

With Turkish investors interested in buying one quarter of shares of jet engine maker Motor Sich, the original Chinese buyers plan to appeal their third rejection by Ukraine’s Antimonopoly Committee. Kharkiv’s DCH Group, minority partners of the Chinese group, say they are appealing the Committee’s latest rejection, saying it was based on ‘formalities.’

Defying the recession, Ukrzaliznytsia, the nation’s main cargo hauler, carried 7% more freight in November than in November of last year. Approaching the railroad’s target of 1 million tons a day, UZ carried 27 million tons during the first 29 days of November, reports the Center for Transportation Strategies. Domestic traffic, largely to the seaports, was up 21%, to 13 million tons. Turnover time for freight cars was cut by one third, to 7.8 days. Freight train speeds increased by 5%, to 35 km/h.

The Finance Ministry sold at auction yesterday the hryvnia equivalent of $93 million in government bonds. The 3-month bond was the most popular, accounting for 74% of sale, the Ministry reported on Facebook. It had a weighted average return of 9.89%. The return on 1-year bonds was 10.93%, up 17 basis points from one week earlier. The volume sold was only 16% of last week’s partly because the Ministry face $350 million worth of redemptions that week.

ICU gives this insight into the Nov. 24 auction: “For the first time since the end of February, foreigners’ portfolios rose during a week, albeit by a small amount. The increase amounted to just UAH182m (US$6m)… It looks like the main reason for such purchases is an increase in global demand for risk-on assets amid relatively moderate hryvnia exchange-rate fluctuations last weeks. This could provide incentive for some foreigners to purchase bills at primary market, given rates started at 10%, in expectation that the hryvnia will not weaken or even appreciate.”

Bolstered by fresh snow, Bukovel, Ukraine’s largest mountain resort, opens this weekend for skiing and snowboarding. “We invite you to the Ukrainian Carpathians,” Bukovel director Oleksandr Shevchenko writes on Facebook. “There is no virus here, just fresh air.” Actually, Ivano-Frankivsk region has recorded 36,434 coronavirus cases since mid-March. It is not known if ski areas will be affected by the general lockdown, forecast for late December.

Editor’s Note: The story behind the story: The outburst by Oleg Tatarov against the National Anti-Corruption Bureau, may have been prompted by a bribery investigation of him by the agency, reports Ukrainska Pravda and the Kyiv Post. Tatarov, a former Interior Ministry official under President Yanukovych launched a verbal tirade against the agency just as President Zelenskiy was telling the IMF and Western ambassadors that the agency hashis administration’s full support. To smooth things over, Zelenskiy’s office hurried out a statement saying that the attacks were Tatarov’s “personal opinion.” Timothy Ash opines from London: “The Zelenskiy team needs to step up big time to unblock IMF financing…it will require a Biden presidency to re-engage with Ukraine for this to happen.”  With best regards, Jim Brooke.

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Monday, October 26

Turkey Becomes Ukraine’s New Best Friend...List of Arms Joint Ventures Gets Longer...Ukraine Benefits from Belarus Brain Drain...Klitschko Gets Covid – and a Nov. 15 Runoff...Four of Ukraine’s Big Five City Mayors to Face Runoff
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

Turkey and Ukraine seem “to be edging toward a strategic partnership that could challenge Russia’s standing in the Black Sea region,” Metin Gurcan, a former Turkish military advisor, writes in a highly detailed article for Al-Monitor, a Washington-based English-Turkish regional affairs news site.

Ukraine today stands out as Turkey’s chief partner in a series of critical military technologies such as turbo prop and diesel engines, avionics, drones, anti-ship and cruise missiles, radar and surveillance systems, space and satellite technologies, robotic systems, active and passive armor protection systems and rocket engines and guidance systems,” writes Gurcan, who served as a Turkish military advisor in Afghanistan, Kazakhstan, Kyrgyzstan and Iraq before writing his Phd dissertation on Turkey’s changing military. “Technological cooperation between the two sides has dramatically increased over the past two years, laying the ground for a techno-scientific alliance with far-reaching implications for the geopolitical balance of power in the Black Sea basin.”

Highlights:

  • Drones: A new joint venture between between Ukrspecexport and Baykar Makina, manufacturer of Bayraktar combat drones “will finally resolve the Turkish defense industry’s long-running shortcomings in engine production.”
  • Space and intelligence satellite technologies. “Ukraine agreed to transfer technical knowledge to Turkey to boost Turkey’s fledgling space agency and a satellite research and development lab at Roketsan, Turkey’s leading state-owned manufacturer of missile and rocket engines and satellites…Havelsan and…Ukroboronprom have already signed a deal to cooperate in the production of satellite technology.”
  • Motor Sich engines: “The sale of about a quarter of the shares of Ukraine’s engine manufacturer Motor Sich to Turkish firms, coupled with terms regarding know-how transfer, Turkey’s sale to Ukraine of surface-to-sea Atmaca anti-ship missiles with a range of 200 kilometers — a development that might change the geostrategic balance in the Black Sea region at the expense of Russia if both Ukraine and Turkey deploy those systems on their coastlines…Ukrainian assistance for jet engine development in Turkey’s TFX fighter jet project.”
  • Airlift: “Turkey’s recent military involvement in Libya and other conflict zones has underscored a pressing need for a jet engine-powered airlifter and Ukraine’s AN-178 aircraft is being considered as an option.
  • Tanks: “Ukraine might also help in overcoming the protracted engine problem in Turkey’s Altay national tank project, including the prospect of Ukraine supplying the diesel engine and other components of the first batch of tanks.”
  • Navy ships: “The two sides also began discussions on the prospect of joint ship maintenance and even Ukraine’s purchase of Turkish MILGEM-type frigates and gunboats.”

Looking ahead, this Ankara-based military analyst sees: “Bilateral cooperation in the defense industry field might lead to joint military exercises and training enhancing the interoperability of the Turkish and Ukrainian militaries — a prospect that could alter the geostrategic balance in the Black Sea region. Moscow is doubtless keeping a close eye on the growing Turkish-Ukrainian rapprochement.”

Turkey is considering financing the completion of the second Ukrainian An-225 Mriya cargo plane, the world’s largest aircraft, Oleh Urusky, deputy Prime Minister – Strategic Industries Minister, said Friday at a press conference at Ukrinform, the state news agency. Ukrinform reported that Urusky “also reminded that during the visit of the President of Ukraine to Turkey in October, a document was signed outlining the parties’ intentions to launch joint projects for the construction of warships, UAVs and all types of turbine engines.”

Dozens of Belarusian IT companies and at least 2,000 Belarusian workers have moved to Ukraine in the three months since Alexander Lukashenko violently cracked down on post-election protests, according to Ukraine’s Digital Transformation Ministry. The moves include hundreds of workers for Wargaming, developer of such world famous online games as World of Tanks, World of Warships and World of Warplanes, Oleksandr Borniakov writes on Facebook.

Other companies moving employees include PandaDoc, Viber, and Gismart. Each arriving worker generates $100,000 in foreign currency earnings, Ilya Neshodovsky, director of the Ukraine’s Institute for Socio-Economic Transformation, tells Deutche Welle. This would mean an extra $200 million for Ukraine.

After the disputed election, Ukraine’s labor short IT industry immediately courted workers and companies from neighboring Belarus. A trilingual website – in English, Russian and Belarussian –BelarustoUkraine.com – touts the advantages: 180-day visa-free stay, residency permits in three days, and tax rates about half the level of Belarus rates. Earlier this month, President Zelenskiy enshrined these perks in a special law. Ukraine’s European Association of Software Engineering embellishes the recruiting pitch noting that member companies have 500 job openings and that IT salaries in Ukraine are generally higher than in Belarus.

With Lukashenko determined to cling to power, 45% of Belarussian startups surveyed by Imaguru say they plan to leave. One year ago, the IT industry in Belarus, employed 55,000 people, accounted for 22% of exports, and six percent of GDP. In addition to the police violence since the Aug. 9 presidential election, there have been regular Internet shutoffs, losses of service that cost the industry millions of dollars and several damage its reputation for reliability.

Meest, the cargo delivery company, is launching direct air cargo service between New York and Lviv, Rostislav Kisil, president of Meest Group, said at a welcoming ceremony for a LOT Polish Boeing 787-9 Dreamliner. The Lviv-based cargo company is working out frequencies and which air company will be the main carrier. Tatiana Romanovskaya, the airport director said: “From now on, Lviv airport is becoming not only a passenger, but also a cargo aviation hub.” Before corona pandemic, the airport had a passenger route network of 50 destinations – three domestic and 47 international.

Starting today, 40 Ukrainian cities and regions enter the strictest ‘red’ quarantine zone, a nearly 60% increase. Kyiv remains ‘orange.’ Here are some ‘red’ cities : Boryspil, Chernihiv, Chernivtsi, Ivano-Frankivsk, Kharkiv, Khmelnytskyi, Mykolaiv, Poltava, Rivne, Sumy, and Ternopil. ‘Red’ means no mass events.’ Nationwide, the Health Ministry registers 61% occupancy rate for hospital beds allocated for coronavirus patients. Most patients are treated at home.

On Friday, the number of registered new infections hit 7,517. Watching the numbers rise steadily, President Zelenskiy on Thursday moved his trigger level for a new quarantine to 15,000 cases, from 9,500 one week earlier.

Kyiv Mayor Vitali Klitschko announced that he tested positive for coronavirus on Saturday, the day before he faced voters in the mayoral race. “I feel good, but I must self-isolate,” he wrote on his Telegram channel. “I will be working from home.” Kyiv registered almost 600 new cases daily last week.

An exit poll by Ukraina 24 and Savik Shuster Studio, indicates that Klitschko won 46% of the vote yesterday, meaning he will have to take part in a ruff vote on Nov. 15. His challenger is not known. Of Ukraine’s big five cities – Kyiv, Kharkiv, Odesa, Dnipro and Lviv – only Kharkiv Mayor Hennady Kernes is believed to have won an outright victory yesterday.

Editor’s Note: Boring does not make news. But only a small slice of yesterday’s local elections is captured in today’s Kyiv Post stories: Local election violations: Fake polling stations, missing booths, naked Femen activist and Zelensky’s election day opinion poll marred by poor planning, chaos. As a favor to a friend, I am an international observer down here in Kherson, where I (delusionally) think I am escaping Covid. Outfitted with an observer card, stamped with an impressive Tryzub, and aided by Victoria, an equally impressive trilingual interpreter, I visited four random polling stations yesterday. At each station, the poll director was polite and professional. Political party pollwatchers looked bored. The biggest problem was a universal one: elderly voters who arrived without their reading glasses. With Best Regards, Jim Brooke.