Quote: There is an old saying: “Where there are two Ukrainians, there will be three hetmans.” Hetmans were the leaders of Ukraine’s traditional Cossack hosts and the proverb reflects the divisive politics of Ukraine’s past.
Modern-day Ukraine’s politics are no less fractious or confusing to the outside world. In the past 29 months, Kiev has seen five different governments, including two under pro-Russian prime minister Viktor Yanukovich and two under pro-western prime minister Yulia Tymoshenko, who is now in office. Such volatility is hardly surprising. At the height of the 2004 Orange Revolution, Ukraine seemed to have three presidents: lame-duck authoritarian Leonid Kuchma; his anointed successor Viktor Yanukovich, who claimed victory amid evidence of vote fraud; and Viktor Yushchenko, the reformer who swore himself in as president and eventually won a re-run election. At times, political tensions have been accompanied by signs of rampant corruption.
But, amid the turmoil, Ukraine has seen steady economic growth with gross domestic product rising at an average of 7.4 per cent a year since 2000. Personal incomes have risen and property prices have soared.
Increasingly, domestic and international business people have learned to discount the political tensions. Observers have come to understand that sharp struggles have contributed to democratic development, political pluralism, free media, and the absence of political persecution.
Business naturally would prefer predictability, stability, and the opportunity to work issues and legislation through a consistent team of decision-makers. Yet Ukraine has seen more continuity in its economic policies than lurches to the left and right.
As Alexander Motyl, a professor at Rutgers University in New Jersey, sees it: “Ukraine’s fragmented politics amounts to a weak state. If it’s too weak that can be bad for business. But if the state is preoccupied with its own affairs, that can be quite good for business.”
Big business is well represented in all three leading political forces – the Yanukovich-led Regions party, the pro-Yushchenko Our Ukraine bloc, and the Yulia Tymoshenko bloc – which cumulatively account for nearly 90 per cent of the seats in the legislature. A study indicated that about 40 per cent of deputies in the last parliament came from business backgrounds. With minor differences, Ukraine’s three major political leaders all respect the market system and are sensitive to business interests.
In one sense, the growing influence of business on Ukraine’s parties is a by-product of the intense political struggle. Since 2000 there have been two presidential and three parliamentary elections, as well as numerous local contests. The frequent elections generate a need to finance increasingly expensive campaigns. In turn, business leaders leverage financial support into a direct presence on party lists and influence over party programmes. As a result, the big parties all espouse business-friendly centrist economic policies when in office.
Some business people use their clout to lobby for narrow interests and at times exploit political influence for special advantage, and a disproportionate business presence in politics may damage pluralism over time. Some are not shy to bribe politicians and bureaucrats alike.
But in recent years, the business community’s role in politics has largely been salutary. Most of the business community quietly threw its support behind the Orange Revolution, seeing in Mr Yushchenko a leader who could help the country escape from the corrupt ruling elite. When, last year, a showdown between President Yushchenko and Mr Yanukovich, who was then prime minister, threatened to spiral out of control, business intervened.
Ukraine’s richest man Rinat Akhmetov, a patron of the Regions party, pressed for a ballot-box solution. When the verdict came in, he helped ensure his party accepted defeat.
But business is becoming increasingly worried about rising inflation, which, as well as being economically damaging can be socially disruptive. Instead of tackling the problem co-operatively, the president and prime minister are quarrelling as they prepare for the January 2010 presidential election.
In practical terms this means too little is being done to tame inflation, meaningful privatisation is stymied, and populist promises proliferate.
For a country that has shed its authoritarian past, dispersed power and checks and balances make sense. Yet the new system is not working properly, despite several attempts at constitutional reform. Political leaders still view politics as a matter of constant struggle.
http://www.ft.com/cms/s/0/93db761e-1fc1-11dd-9216-000077b07658.html
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Thursday, May 15, 2008
Visit our new Ukraine English News site
A vast amount of Ukraine news from several different news sites. Also a world news and a Ukrainian language news page. Also includes a new forum. Join us now.
http://www.ukraine-english-news.com/
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http://www.ukraine-english-news.com/
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Ukraine energy scheme backers revealed
Quote: Quote: A company owned by Ukraine’s richest man, Rinat Akhmetov, revealed on Thursday it was one of three financial backers for a strategically important hydrocarbon project whose fate was cast into doubt this week by Kiev’s prime minister. DTEK, Mr Akhmetov’s energy holding, revealed at a press conference in Kiev that it held a quarter interest as financial backer in a Black Sea exploration project led by Houston-based Vanco Energy Company. Vanco’s other two partners, each also with 25 per cent, were identified as Shadowlight, owned by Russian businessman Evgeny Novitsky, and Integrum Technologies, a subsidiary of an undisclosed Austrian investment holding. The investors came forward days after Yulia Tymoshenko’s government pulled Vanco’s licence to explore a vast 12,900km field off the Crimean peninsula. In identifying its financial backers, Vanco officials said they hoped to end speculation triggered by Ms Tymoshenko this week that Russia’s Gazprom, or partners of the Russian energy giant, could be involved. Vanco officials called for fresh negotiations with her government to restart the project. But Oleksandr Hudyma, energy adviser to Ms Tymoshenko, said the project’s fate remained very much in the air, saying: “The ownership question remains a conspiracy. It is still very unclear who has interests in this project, and who represents whom.” Vanco inked a production-sharing agreement last year when Kiev’s government was headed by the Moscow-friendly Viktor Yanukovich, considered to be a political ally of Mr Akhmetov. Delayed by 18-months of negotiations, the agreement represented the first sizable natural gas and oil exploration project on Ukraine’s Black Sea coast. Ms Tymoshenko pulled the licence this month, citing concern that Gazprom could, through partners, gain a hidden interest in the project that was originally intended to diversify energy supplies by boosting domestic production. Ms Tymoshenko also suggested past governments might have compromised Kiev’s “national interests” by yielding such a large field and unjustifiable proceeds to a single group. Vanco’s senior vice-president, Jeffrey Mitchell, expressed hope a compromise could be reached, suggesting the project could “generate energy independence” for Ukraine. Heavily dependent upon gas and oil imports from Russia and Central Asia, Kiev’s economy has struggled in adjusting to three stiff natural gas price increases in as many years, and rising oil costs. Experts say Ukraine holds significant amounts of untapped reserves. Vanco’s financial partners denied speculation raised by Ms Tymoshenko this week that their companies could be holding talks on selling their stakes to Gazprom. But Mr Mitchell struggled to identify the beneficial owner of Integrum Technologies, saying: “I plead ignorance.” Eckert Gerhard, a Vienna-based lawyer representing Integrum, refused to identify the beneficial owners or parent group. Mr Novitsky, a top executive at Russia’s Sistema diversified holding, said he was the owner of Shadowlight, which he described as an investment fund. Mr Hudyma accused Mr Yanukovich’s government of handling negotiations with Vanco last year on a production-sharing agreement in non-transparent manner. He suggested parties in the project today could have ties to close associates of the former prime minister. Earlier this week, Ms Tymoshenko criticised her political rival, President Viktor Yushchenko, suggesting he may have backed the Vanco project ignoring possible drawbacks.
http://www.ft.com/cms/s/0/c75a078e-22a1-11dd-93a9-000077b07658.html
.
http://www.ft.com/cms/s/0/c75a078e-22a1-11dd-93a9-000077b07658.html
.
Visit our new Ukraine English News site
A vast amount of Ukraine news from several different news sites. Also a world news and a Ukrainian language news page. Also includes a new forum. Join us now.
http://www.ukraine-english-news.com/
.
http://www.ukraine-english-news.com/
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Ukraine Becomes WTO Member
Quote: Ukraine has become a member of the World Trade Organization.
Presidential press service disclosed this to Ukrainian News.
Ukraine has become the 152nd state in the organization.
"The date will become history of our state, as the day when Ukraine was acknowledged as a member of the world's economic commonwealth by the international society," the report reads.
The talks on Ukraine's accession to the WTO have lasted for 14 years.
While this time, Ukraine has held bilateral consultations on access to commodity and service markets with 52 states-members of the organization, endorsed over 50 laws needed to bring Ukrainian legislation in a line with WTO requirements.
The report also said that the WTO opens wide opportunities for Ukraine to speed up development of national economy. In this, Ukraine receives favourable trade regime in relations with 151 countries, opportunity to use international instruments on settling trade conflicts, and opportunity to take part in elaboration of rules of international trade.
http://www.ukranews.com/eng/article/122625.html
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Presidential press service disclosed this to Ukrainian News.
Ukraine has become the 152nd state in the organization.
"The date will become history of our state, as the day when Ukraine was acknowledged as a member of the world's economic commonwealth by the international society," the report reads.
The talks on Ukraine's accession to the WTO have lasted for 14 years.
While this time, Ukraine has held bilateral consultations on access to commodity and service markets with 52 states-members of the organization, endorsed over 50 laws needed to bring Ukrainian legislation in a line with WTO requirements.
The report also said that the WTO opens wide opportunities for Ukraine to speed up development of national economy. In this, Ukraine receives favourable trade regime in relations with 151 countries, opportunity to use international instruments on settling trade conflicts, and opportunity to take part in elaboration of rules of international trade.
http://www.ukranews.com/eng/article/122625.html
.
Growing in spite of the politics
Quote: While it has not made any fundamental changes in Ukraine’s geopolitical position, the post-2004 leadership has also managed to secure admission to the World Trade Organisation, the promise of an early start to talks on a free trade agreement with the European Union and a vague pledge of future Nato membership. Russia has increased gas prices and raised the volume on its anti-Ukrainian rhetoric but has proved unable to stop a perceptible westward shift in the country’s external relations.
For the pro-western Mr Yushchenko and Ms Tymoshenko this is clear progress. For the Moscow-friendly supporters of Mr Yanukovich, the picture is less positive. But they too are happy with the country’s economic advances and support Ukraine joining the WTO and getting closer to the EU – although Nato is a different matter.
Many Ukrainians end up ignoring politics altogether – or wishing that they were better served by their leaders. As Oleh Rybachuk, president of the Euro-Atlantic University in Kiev, says: “Our country is welcome in the world. But those who are running the country at the moment get a vote of no confidence.”
To be fair, Ukraine’s leaders are not entirely to blame for the lack of political stability. They are working in a system created during the Orange Revolution, with built-in political and legal contradictions. Mr Yushchenko triumphed in the disputed 2004 presidential election by a fairly narrow margin, backed by voters in the west and centre, but opposed by Mr Yanukovich’s supporters in the Russian-speaking east. The Orange team of Mr Yushchenko and Ms Tymoshenko then split, with Ms Tymoshenko winning the lion’s share of the political support, leaving the president bitter and increasingly vulnerable to political attack.
Under the deal which settled the 2004 election dispute, the presidency lost a considerable chunk of its powers to parliament, but not nearly enough to turn Ukraine into a parliamentary democracy. There are constant arguments about the relative powers of president, government and parliament.
Four changes of government and two parliamentary elections have failed to clear the air. Now, Mr Yushchenko is pushing for a constitutional reform to recover some of the president’s lost powers, while Ms Tymoshenko and Mr Yanukovich want to go in the opposite direction and boost parliament’s prerogatives. Hryhoriy Nemyria, the pro-Tymoshenko deputy prime minister for international integration, says: “The most successful countries from central and eastern Europe all adopted a parliamentary system. The alternative system in the post-Soviet region is the super-presidential system. It is important for Ukraine to avoid this temptation.”
At a recent press conference, Mr Yushchenko said he was not against a pure parliamentary system in principle, but insisted Ukraine was not ready for it. He referred to a parliament in which many lawmakers function as agents of influence for oligarchs as an “unstable institution”. The motivations driving politics in the parliament are “not yours or ours”, he said at a press conference on April 24.
It is impossible to predict how this debate will end. The only certainty is that the next presidential election, due in early 2010, is already figuring prominently in the minds of the leading forces. According to opinion polls, Ms Tymoshenko would have a good chance of unseating Mr Yushchenko, with a 25 per cent support rating, compared with the president’s 7 per cent. Mr Yanukovich is her most serious contender with about 23 per cent support, according to a March poll conducted by Kiev’s Research & Branding Group.
But, in all the confusion, it is important to recall that the Orange Revolution has ushered in a genuine multi-party democracy with real conflicts and a free media. The fear that officialdom inspired under the presidency of Leonid Kuchma has gone.
That said, the courts have yet to be brought into the post-Orange Revolution world. Political leaders have failed to deal adequately with the criminal legacy of the past, notably the killing of muckraking journalist Hryhoriy Gongadze, the fraud involved in the 2004 election and Mr Yushchenko’s near-fatal poisoning.
People complain that corruption can be as bad as it was in Mr Kuchma’s time, especially on questions linked to the booming property and construction markets.
Moreover, the business oligarchs who acquired influence under Mr Kuchma have by and large retained their political influence.
Rinat Akhmetov, Ukraine’s richest man with assets of $7.4bn, according to Forbes, the US magazine, stands behind Russia’s wealthiest men in absolute terms. But, with Russia’s economy five times bigger than Ukraine’s, Mr Akhmetov has more domestic clout than his Russian counterparts.
Nor does he face the same pressures from the authorities that Russian oligarchs do from the Kremlin.
Yet, despite the political conflicts, the economy is growing fast, with gross domestic product growing at more than 7 per cent a year since 2000. This year, economists foresee a modest slowdown to 5-5.5 per cent, as investment decelerates slightly.
With GDP per head of only €2,100 ($3,200) there is still scope for further rapid economic growth. WTO membership is forecast to expand trade and investment as will closer ties with the EU. Foreign investors see opportunities similar to those in central Europe five to 10 years ago. Banking and construction are prime targets and rising world food prices are increasing the attractions of the agricultural sector, despite the bureaucratic hurdles facing investment in land.
Net capital inflows last year hit a record $15.8bn, including a 60 per cent increase in foreign direct investment (FDI) to $9.2bn. This year, FDI is expected to remain high, but inflows will decline due to the global credit crunch.
However, officials’ biggest concern is not declining GDP growth but soaring inflation, which hit 30 per cent in April. Global food and energy price increases are having a serious impact, as are domestic developments, including spiralling annual credit growth of 50 per cent in recent years, and sizeable increases in public spending on pay, pensions and welfare.
The government is revising the budget to cut the planned deficit from 2 per cent of GDP and the central bank has raised interest rates. The International Monetary Fund would like to see firmer action but the prospect of the next presidential election campaign leaves politicians reluctant to squeeze very hard.
Electoral considerations are also holding up structural reforms, including the long-planned liberalisation of the arable land market. It is also unclear how aggressively the government will pursue its privatisation programme, which includes plans to sell strategic stakes in energy companies and in Ukrtelecom, the telecoms utility.
For business, the biggest challenge is rising energy prices. Russia has raised the gas price from below $100 per 1,000 cubic metres in 2005 to nearly $180 this year. The price is expected to increase again next year.
So far, industry has coped, assisted by record prices for energy-intensive exports, including steel, pipes and chemicals. Companies have invested in energy efficiency but there is still room for improvement with output per unit of energy standing at one-third of central European levels.
In foreign policy, Ukraine’s biggest achievement is WTO membership which Kamen Zahariev, Ukraine country director for the European Bank for Reconstruction and Development, hails as “a historic event for Ukraine”.
As well as the economic benefits, there is the political gain of entering deeper into international trading networks and of doing so before Moscow, because now Kiev will have a say on Russia’s entry terms.
WTO accession will also trigger the start of intensive talks with the EU on a wide-ranging free trade agreement that will include steel and chemicals. Mr Yushchenko and Ms Tymoshenko hope that growing economic integration with the EU will eventually lead to political integration, though they accept this may be a long way off.
Nato accession is more problematic. Mr Yushchenko has pushed hard for Nato, knowing that it can, in the right conditions, be achieved much quicker than EU membership, which involves years of reforms.
Ukraine, together with Georgia, this year applied for a pre-accession Membership Action Plan. The MAP bids were turned down at Nato’s summit in Bucharest but they were given instead promises of future Nato membership and commitments to review the MAP applications late this year. Mr Yushchenko hailed this as “a victory” but he knows there is much to do if Ukraine is to make further progress towards Nato membership.
For a start, opinion polls suggest that most Ukrainians oppose membership, even though they back EU entry. They favour the neutrality written into the constitution and are wary of irritating Russia. Mr Yanukovich’s Regions Party acts as a powerful focus for these sentiments.
Mr Rybachuk and other Nato supporters argue that opinions will change once the authorities roll out an information campaign.
They also expect to gain support from Russia’s persistent sabre-rattling towards Ukraine. Most Russians, including liberals, see Ukraine’s Nato moves as a betrayal of hundreds of years of common history. The Kremlin is also concerned about maintaining Russia’s military links with Ukraine, not least its presence in the Ukrainian Black sea naval port of Sevastopol where the Russian fleet is stationed under an agreement that expires in 2017.
Mr Yushchenko’s strategy is to talk softly where Russia is concerned but to work steadily towards fulfilling his country’s European ambitions.
His job would be a lot easier if he and political rivals could cooperate a little more.
The prospects of this happening before the 2010 presidential election seem minimal.
http://www.ft.com/cms/s/0/9a0e1adc-1fc1-11dd-9216-000077b07658.html
.
For the pro-western Mr Yushchenko and Ms Tymoshenko this is clear progress. For the Moscow-friendly supporters of Mr Yanukovich, the picture is less positive. But they too are happy with the country’s economic advances and support Ukraine joining the WTO and getting closer to the EU – although Nato is a different matter.
Many Ukrainians end up ignoring politics altogether – or wishing that they were better served by their leaders. As Oleh Rybachuk, president of the Euro-Atlantic University in Kiev, says: “Our country is welcome in the world. But those who are running the country at the moment get a vote of no confidence.”
To be fair, Ukraine’s leaders are not entirely to blame for the lack of political stability. They are working in a system created during the Orange Revolution, with built-in political and legal contradictions. Mr Yushchenko triumphed in the disputed 2004 presidential election by a fairly narrow margin, backed by voters in the west and centre, but opposed by Mr Yanukovich’s supporters in the Russian-speaking east. The Orange team of Mr Yushchenko and Ms Tymoshenko then split, with Ms Tymoshenko winning the lion’s share of the political support, leaving the president bitter and increasingly vulnerable to political attack.
Under the deal which settled the 2004 election dispute, the presidency lost a considerable chunk of its powers to parliament, but not nearly enough to turn Ukraine into a parliamentary democracy. There are constant arguments about the relative powers of president, government and parliament.
Four changes of government and two parliamentary elections have failed to clear the air. Now, Mr Yushchenko is pushing for a constitutional reform to recover some of the president’s lost powers, while Ms Tymoshenko and Mr Yanukovich want to go in the opposite direction and boost parliament’s prerogatives. Hryhoriy Nemyria, the pro-Tymoshenko deputy prime minister for international integration, says: “The most successful countries from central and eastern Europe all adopted a parliamentary system. The alternative system in the post-Soviet region is the super-presidential system. It is important for Ukraine to avoid this temptation.”
At a recent press conference, Mr Yushchenko said he was not against a pure parliamentary system in principle, but insisted Ukraine was not ready for it. He referred to a parliament in which many lawmakers function as agents of influence for oligarchs as an “unstable institution”. The motivations driving politics in the parliament are “not yours or ours”, he said at a press conference on April 24.
It is impossible to predict how this debate will end. The only certainty is that the next presidential election, due in early 2010, is already figuring prominently in the minds of the leading forces. According to opinion polls, Ms Tymoshenko would have a good chance of unseating Mr Yushchenko, with a 25 per cent support rating, compared with the president’s 7 per cent. Mr Yanukovich is her most serious contender with about 23 per cent support, according to a March poll conducted by Kiev’s Research & Branding Group.
But, in all the confusion, it is important to recall that the Orange Revolution has ushered in a genuine multi-party democracy with real conflicts and a free media. The fear that officialdom inspired under the presidency of Leonid Kuchma has gone.
That said, the courts have yet to be brought into the post-Orange Revolution world. Political leaders have failed to deal adequately with the criminal legacy of the past, notably the killing of muckraking journalist Hryhoriy Gongadze, the fraud involved in the 2004 election and Mr Yushchenko’s near-fatal poisoning.
People complain that corruption can be as bad as it was in Mr Kuchma’s time, especially on questions linked to the booming property and construction markets.
Moreover, the business oligarchs who acquired influence under Mr Kuchma have by and large retained their political influence.
Rinat Akhmetov, Ukraine’s richest man with assets of $7.4bn, according to Forbes, the US magazine, stands behind Russia’s wealthiest men in absolute terms. But, with Russia’s economy five times bigger than Ukraine’s, Mr Akhmetov has more domestic clout than his Russian counterparts.
Nor does he face the same pressures from the authorities that Russian oligarchs do from the Kremlin.
Yet, despite the political conflicts, the economy is growing fast, with gross domestic product growing at more than 7 per cent a year since 2000. This year, economists foresee a modest slowdown to 5-5.5 per cent, as investment decelerates slightly.
With GDP per head of only €2,100 ($3,200) there is still scope for further rapid economic growth. WTO membership is forecast to expand trade and investment as will closer ties with the EU. Foreign investors see opportunities similar to those in central Europe five to 10 years ago. Banking and construction are prime targets and rising world food prices are increasing the attractions of the agricultural sector, despite the bureaucratic hurdles facing investment in land.
Net capital inflows last year hit a record $15.8bn, including a 60 per cent increase in foreign direct investment (FDI) to $9.2bn. This year, FDI is expected to remain high, but inflows will decline due to the global credit crunch.
However, officials’ biggest concern is not declining GDP growth but soaring inflation, which hit 30 per cent in April. Global food and energy price increases are having a serious impact, as are domestic developments, including spiralling annual credit growth of 50 per cent in recent years, and sizeable increases in public spending on pay, pensions and welfare.
The government is revising the budget to cut the planned deficit from 2 per cent of GDP and the central bank has raised interest rates. The International Monetary Fund would like to see firmer action but the prospect of the next presidential election campaign leaves politicians reluctant to squeeze very hard.
Electoral considerations are also holding up structural reforms, including the long-planned liberalisation of the arable land market. It is also unclear how aggressively the government will pursue its privatisation programme, which includes plans to sell strategic stakes in energy companies and in Ukrtelecom, the telecoms utility.
For business, the biggest challenge is rising energy prices. Russia has raised the gas price from below $100 per 1,000 cubic metres in 2005 to nearly $180 this year. The price is expected to increase again next year.
So far, industry has coped, assisted by record prices for energy-intensive exports, including steel, pipes and chemicals. Companies have invested in energy efficiency but there is still room for improvement with output per unit of energy standing at one-third of central European levels.
In foreign policy, Ukraine’s biggest achievement is WTO membership which Kamen Zahariev, Ukraine country director for the European Bank for Reconstruction and Development, hails as “a historic event for Ukraine”.
As well as the economic benefits, there is the political gain of entering deeper into international trading networks and of doing so before Moscow, because now Kiev will have a say on Russia’s entry terms.
WTO accession will also trigger the start of intensive talks with the EU on a wide-ranging free trade agreement that will include steel and chemicals. Mr Yushchenko and Ms Tymoshenko hope that growing economic integration with the EU will eventually lead to political integration, though they accept this may be a long way off.
Nato accession is more problematic. Mr Yushchenko has pushed hard for Nato, knowing that it can, in the right conditions, be achieved much quicker than EU membership, which involves years of reforms.
Ukraine, together with Georgia, this year applied for a pre-accession Membership Action Plan. The MAP bids were turned down at Nato’s summit in Bucharest but they were given instead promises of future Nato membership and commitments to review the MAP applications late this year. Mr Yushchenko hailed this as “a victory” but he knows there is much to do if Ukraine is to make further progress towards Nato membership.
For a start, opinion polls suggest that most Ukrainians oppose membership, even though they back EU entry. They favour the neutrality written into the constitution and are wary of irritating Russia. Mr Yanukovich’s Regions Party acts as a powerful focus for these sentiments.
Mr Rybachuk and other Nato supporters argue that opinions will change once the authorities roll out an information campaign.
They also expect to gain support from Russia’s persistent sabre-rattling towards Ukraine. Most Russians, including liberals, see Ukraine’s Nato moves as a betrayal of hundreds of years of common history. The Kremlin is also concerned about maintaining Russia’s military links with Ukraine, not least its presence in the Ukrainian Black sea naval port of Sevastopol where the Russian fleet is stationed under an agreement that expires in 2017.
Mr Yushchenko’s strategy is to talk softly where Russia is concerned but to work steadily towards fulfilling his country’s European ambitions.
His job would be a lot easier if he and political rivals could cooperate a little more.
The prospects of this happening before the 2010 presidential election seem minimal.
http://www.ft.com/cms/s/0/9a0e1adc-1fc1-11dd-9216-000077b07658.html
.
Visit our new Ukraine English News site
A vast amount of Ukraine news from several different news sites. Also a world news and a Ukrainian language news page. Also includes a new forum. Join us now.
http://www.ukraine-english-news.com/
.
http://www.ukraine-english-news.com/
.
Wednesday, May 14, 2008
UKRAINE 2008: Tide starts turning as foreigners eye market
Quote: Ukraine's hot real estate market has in recent years caught the eye of investors across the globe. Surging demand has produced some superior returns over the past eight years, with annual growth in prices at double-digit rates.
Most of the beneficiaries over the past decade have been privileged domestic investors who snapped up flats and land in a frenzy, often at very low prices. Many who managed to close several acquisitions, typically with cash, turned into millionaires overnight.
Many of the commercial and residential development projects have, until recent years, been backed by domestic business groups. The tide is turning, however.
Since 2004, larger inflows of foreign investment have poured in, bringing the market its first structured investment vehicles and the first global real estate operator.
About $500m poured into the commercial real estate market last year, according to the Kiev offices of Colliers International, the property consultant.
Much of the action is still in Kiev, the capital. But activity is spreading fast to five other cities with populations of 1m or more, says Nick Cotton, who heads the Kiev offices of DTZ.
"With over $820m transacted on the investment market in Kiev, 2007 became a record year for direct investment into property. Office property preserved its leading role with the highest share of investment transactions estimated at about 60 per cent, followed by 33 per cent in retail," says Mr Cotton.
"In 2007 strong investor appetite combined with a shortage of stock, and an improved risk weighting resulted in yield compression being demonstrated at sub-10 per cent upon the sale of prime property," he says.
The figures are small compared with other emerging markets but mark a significant increase in activity.
"The property investment market in Ukraine, though still immature by western standards, has continued demonstrating increasing activity and is becoming more sophisticated," Mr Cotton says.
The first structured investment instruments, such as real estate funds, appeared just last year offering international investors exposure to this fast-growing market. Private placements and IPOs by newly established real estate funds raised $664m last year, according to Tomas Fiala, head of the Kiev-based investment bank Dragon Capital.
Residential flats that a decade ago were selling for about $50,000 have reached astronomical levels, typically more than $2,500 per sq m.
Such prices are enough to make Kiev one of the world's 20 most expensive cities in terms of property prices.
"Lack of income-producing investment grade properties in Kiev, combined with significant demand, results in vendors' high price expectations which are often perceived as irrational.
"This forces investors to follow more diversified strategies and to consider possibilities to enter joint ventures and forward finance deals, and expand to regional centres of Ukraine and, even to the smaller cities with populations of more than 200,000," says Mr Cotton.
Demand, particularly for quality residential and commercial space, will remain high in the near term, says Arie Schwartz, who heads Seven Hills, the Ukrainian arm of Scorpio Real Estate, founded by Benny Steinmetz, the Israeli property mogul.
In 2007, Seven Hills unveiled $1bn investment plans for Ukraine. The group has since launched construction of a residential real estate project in Kiev, and has three other projects in the pipeline for the capital, including mixed residential-commercial concepts.
"We have plans to enter each major city with more than 150,000 residents," Mr Schwartz says.
"I'm 32 years old and I keep joking that I will probably retire here. I will be here for a long time as we plan to invest billions of additional dollars into the Ukrainian market."
The sharp surge in purchase prices and rental rates is tapering off, but real estate experts do not expect a sharp downward correction in the immediate future. Demand consistently exceeds supply, particularly for commercial space, where the most growth is expected.
"Demand is high, but prices are not sustainable in the long term. We will see corrections in the future as more projects, particularly of higher quality, come to the market," says Mr Schwartz.
"Do not expect a bubble-bursting situation though. It will be a gradual correction with time."
Scorpio is, for now, the only big real estate developer on the Ukrainian market. But others are destined to arrive soon, according to Mr Schwartz.
"The market is full of scouts from leading developers and funds. Everyone is looking at the country," he adds.
http://search.ft.com/nonFtArticle?id=080514000158&ct=0
.
Most of the beneficiaries over the past decade have been privileged domestic investors who snapped up flats and land in a frenzy, often at very low prices. Many who managed to close several acquisitions, typically with cash, turned into millionaires overnight.
Many of the commercial and residential development projects have, until recent years, been backed by domestic business groups. The tide is turning, however.
Since 2004, larger inflows of foreign investment have poured in, bringing the market its first structured investment vehicles and the first global real estate operator.
About $500m poured into the commercial real estate market last year, according to the Kiev offices of Colliers International, the property consultant.
Much of the action is still in Kiev, the capital. But activity is spreading fast to five other cities with populations of 1m or more, says Nick Cotton, who heads the Kiev offices of DTZ.
"With over $820m transacted on the investment market in Kiev, 2007 became a record year for direct investment into property. Office property preserved its leading role with the highest share of investment transactions estimated at about 60 per cent, followed by 33 per cent in retail," says Mr Cotton.
"In 2007 strong investor appetite combined with a shortage of stock, and an improved risk weighting resulted in yield compression being demonstrated at sub-10 per cent upon the sale of prime property," he says.
The figures are small compared with other emerging markets but mark a significant increase in activity.
"The property investment market in Ukraine, though still immature by western standards, has continued demonstrating increasing activity and is becoming more sophisticated," Mr Cotton says.
The first structured investment instruments, such as real estate funds, appeared just last year offering international investors exposure to this fast-growing market. Private placements and IPOs by newly established real estate funds raised $664m last year, according to Tomas Fiala, head of the Kiev-based investment bank Dragon Capital.
Residential flats that a decade ago were selling for about $50,000 have reached astronomical levels, typically more than $2,500 per sq m.
Such prices are enough to make Kiev one of the world's 20 most expensive cities in terms of property prices.
"Lack of income-producing investment grade properties in Kiev, combined with significant demand, results in vendors' high price expectations which are often perceived as irrational.
"This forces investors to follow more diversified strategies and to consider possibilities to enter joint ventures and forward finance deals, and expand to regional centres of Ukraine and, even to the smaller cities with populations of more than 200,000," says Mr Cotton.
Demand, particularly for quality residential and commercial space, will remain high in the near term, says Arie Schwartz, who heads Seven Hills, the Ukrainian arm of Scorpio Real Estate, founded by Benny Steinmetz, the Israeli property mogul.
In 2007, Seven Hills unveiled $1bn investment plans for Ukraine. The group has since launched construction of a residential real estate project in Kiev, and has three other projects in the pipeline for the capital, including mixed residential-commercial concepts.
"We have plans to enter each major city with more than 150,000 residents," Mr Schwartz says.
"I'm 32 years old and I keep joking that I will probably retire here. I will be here for a long time as we plan to invest billions of additional dollars into the Ukrainian market."
The sharp surge in purchase prices and rental rates is tapering off, but real estate experts do not expect a sharp downward correction in the immediate future. Demand consistently exceeds supply, particularly for commercial space, where the most growth is expected.
"Demand is high, but prices are not sustainable in the long term. We will see corrections in the future as more projects, particularly of higher quality, come to the market," says Mr Schwartz.
"Do not expect a bubble-bursting situation though. It will be a gradual correction with time."
Scorpio is, for now, the only big real estate developer on the Ukrainian market. But others are destined to arrive soon, according to Mr Schwartz.
"The market is full of scouts from leading developers and funds. Everyone is looking at the country," he adds.
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