UKRAINE:

Sectors of interest and opportunities for investment

Milan, 14 November 2016

ITALIAN EXPORT TO UKRAINE

60° place - destination market for the Italian export.

4° destination market for the Italian export in Europe not EU-CIS

€ 271, 2 mln – potential increase of the Italian export by 2019

Source: SACE

ITALIAN EXPORT TO UKRAINE IN SECTORS IN 2015

27% 7%10% 23%

18% 9% 6%

Mechanical engineering Wood products Other

Textile and clothes Chemicals Metals

Source: SACE

Other

consumptions

ITALIAN IMPORT FROM UKRAINE

Source: SACE

€2,1 mld: -5,5% compared to 2014.

Italy – the second main importer of agricultural and food products from

Ukraine in the EU (after Spain): 13,5%.

Main imported products:

Iron & steel

Cereals

Animal/vegetable fats & oils

Oil seed

Fertilizers

Food waste, animal fodder

Wood

Salt, sulphur, stone, cement

Raw hides excluding furskins

OPPORTUNITIES FOR INVESTMENT

AGRI-FOOD SECTOR

INFRASTRUCTURE

OTHER SECTORS

AGRICULTURE IN UKRAINE

Counts for around 10% of the country’s GDP and provides job to 2.8 million people

Every 5-6 person, who

has a job in Ukraine,

works in agriculture

(15%)

Agriculture export in the first 7 months of 2016

40,8%2016 is a record

year for Ukraine

(by volume of

exported grain)

Ukraine’s place in the world’s agriculture exports ranking

In the first 7 months of 2016 Ukraine exported €7.2 million worth of agriculture products,

while the value of agriculture imports to Ukraine fell by €5 million.

Source:

KyivPost

AGRI-FOOD SECTOR

What are the STRENGTHS of Ukraine’s agri-food sector?

Production potential: Favourable agri-climatic conditions

1/3 of world’s stock of the most fertile black soils

Favourable geographical position: Location between large markets in the East and West and with good access to North Africa and Asia

Modern farming sector: Large agriholdings use up-to-date technologies (no-till, GPS, remote sensing etc.) to manage their

operations

Export orientation: Important global exporter of agricultural commodities; established structures and partners for

commodity export

Infrastructure: Developed railway lines and main connecting roads infrastructure; location on the Black Sea, year-

round ice-free ports and navigable rivers to handle large vessels

Favourable conditions for livestock and food processors: Availability of domestically produced grain as well as of cheap labour.

AGRI-FOOD SECTORWhat are the WEAKNESSES of Ukraine’s agri-food sector?

Lack of access to credit, especially for small and medium farmers: Undeveloped agri-finance infrastructure (share of agriculture loans: 5,9%)

Lack of investment capacity and loan availability

European Investment Bank: an €400 million investment program

Low productivity: Relatively low productivity in agriculture and agri-processing (10-12% of the standing crop is lost

due to outdated equipment)

Inadequacy of some national food hygiene and safety standards: Require adjustment to international norms

Inflexible land market: Moratorium on farmland market sales and purchases

Insecure property rights

Export composition: Mostly commodities

Lack of processing industry and high value added export

Undeveloped rural infrastructure and low education in rural areas: Lack of qualified staff and of skills for modern managerial practices and modern technologies

AGRI-FOOD SECTOR

Two main group of producers: AGRICULTURAL ENTERPRISES and “HOUSEHOLDS”.

“HOUSEHOLDS”: More than 4 million

Each of them has 2.8 hectares of land (on average)

Produce food primarily for subsistence needs

Manage 38% of the Ukraine’s total agricultural land

Account for nearly 45% of the country’s GAO (Gross Agricultural Output)

PRIVATE AGRICULTURAL ENTERPRISES can be divided into corporate agricultural

entreprises and farm enterprises.

Represent registered legal entities

14, 724 corporate agricultural enterprises, each cultivating 956 hectares of arable land (on

average). Generate 46,5% of the total GAO.

40, 856 farm enterprises (mainly run by individual farmers), each cultivating 105 hectares of

arable land (on average). Generate 7,6% of the total GAO.

STATEOWNED AGRICULTURAL ENTERPRISES: Generate only about 0.9% of the GAO.

Data: 2014

AGRI-FOOD SECTOR

What are the OPPORTUNITIES of Ukraine’s agri-food sector?

Global market development: Growing global population (increased demand)

Growing demand for bioenergy

Agriculture trade increase for processed, quality, high value products (food preparations, dairy, …)

Trade opening: Association Agreement: EU market opportunities

Technology transfers from the EU

Investment opportunities: High capital returns in some agricultural sectors

Productivity increase: Substantial room for productivity improvement (yields increase)

Human capital and attractiveness of farming: On-going education reform

Increasing number of people willing to engage in farming

INFRASTRUCTURE: TRANSPORT

What are the STRENGTHS of Ukraine’s transport sector?

Favourable geographical position

Crossroads of the most important ways of world trade and the shortest transport

routes in Eurasian region

Ukraine is a European country which has the longest transport corridors and great

transit potential.

Transport network of Ukraine includes:

22 thousand km of railway routes;

170 thousand km of automobile roads;

2,2 thousand km domestic navigable waterways;

13 sea ports, 4 fishing ports and 11 river terminals;

21 airports (2 – public property, 14 – communal property, 5 – other forms of

property).

INFRASTRUCTURE

What are the OPPORTUNITIES of Ukraine’s transport sector?

Ukraine-European Union Association Agreement:

Integration of the national transport system into the trans-European system

Transport as one of the key areas of cooperation (Art. 368: facilitate the restructure

and renewal of the transport sector in Ukraine, gradual harmonization of

standards and policies).

Transport Panel of the Eastern Partnership:

Facilitate the improvement of transport links between the EU and its immediate

neighbours.

Transport Strategy of Ukraine up to 2020:

Engage investments and develop a public-private partnership.

INFRASTRUCTURE

Priority areas of infrastructure of Ukraine for investment:

RAILWAY:

Railway transport of Ukraine is a leading industry in the road transport complex of

the country, providing 82% of freight and almost 50% of passenger traffic carried by

all modes of transport.

Operational network of railways: about 22 thousand km, 45% of which are electrified.

By the volume of freight transportation Ukrainian railroads rank fourth on the

Eurasian continent, only behind the railways of China, Russia and India

“We see the interest of foreign investors in synergy with the Ukrainian railway

“Ukrzaliznytsia”, and I believe that this company, which is among five largest railway

companies in the world, can give fantastic dividends for those who will become a

strategic partner of Ukrzaliznytsia in the production of locomotives, rolling stock, rail

infrastructure, high speed lines.”

Volodymyr Omelyan, Minister of Infrastructure of Ukraine

INFRASTRUCTURE

RAILWAY:

Creation of network of interrelated logistic centers and multimodal terminals in

the greatest junction points, and checkpoints on the State Border of Ukraine and EU

countries;

Engineering, financing, renewal, usage while building new and reconstructing current

railway gauges, stations, pedestrian bridges and tunnels, passenger platforms

and other objects used for passenger service on public-private partnership conditions;

Construction of high-speed railway corridors;

Procurement of freight cars and usage of rolling stock:.

The Ukrainian Railway has a strong deficit in freight cars: at least 10 thousand freight

cars (some experts even say the need is for 40 thousand freight cars).

90% of the total freight rolling-stock fleet is old and worn out (usual operating cycle

= 20-25 years).

Deficit of freight cars for coal (transportation from ports to thermal power stations

warehouses) and grain transportation (today: circa 13 thousand cars, for normal

exploitation: need for other 15 thousand cars).

Considerable delays with revamping of locomotives.

INFRASTRUCTURE

AUTOMOBILE ROADS:

Construction of new automobile roads through concession and mechanism of

public-private partnership;

Engineering, implementation and application of national transport model while

planning and developing transport infrastructure strategy;

Conduct of automobile roads with geoinformation technologies.

SEA AND RIVER TRANSPORT:

Development of new and dredging of current waterways and seaport waters to

provide unimpeded passage of watercrafts with big deadweight;

Engineering and usage of river terminals, flood-gates and dredging;

Modernization and construction of port infrastructure objects on conditions of

the long-term lease, concession, public-private partnership, joint operating

agreements, other investment agreements;

Engineering and adoption of energy-saving technology on sea transport,

installation of facilities to produce alternative fuel;

Navigational support of shipping on domestic waterways and operative

technology communication.

INFRASTRUCTURE

AVIATION:

Development of the system of current airports, runways on airports and their

infrastructure;

Transfer of possession and use of airport property on conditions of concession;

Renewal of aircraft.

“Aviation - it's also what we are jointly evolving with the international financial

institutions, international airlines, but here is important support of the business and the

voice of business in Brussels. They should say clearly that: Yes, open sky with Ukraine

is needed. It is necessary for the business and taxpayers. We want to fly freely in Ukraine

and the European Union.”

Volodymyr Omelyan, Minister of Infrastructure of Ukraine

CONCLUSIONS

So…what are the opportunities for doing business

in Ukraine?

Production system: low costs, good quality (possibility to export)

Closeness to Europe + sustainable transport costs

Sales market: small % of rich people, a growing market (in a few years)

2016 – a year of recovery for Ukrainian economy

International donors aid: budget support, investments and private sector.

Most of the investments support is aimed at improving basic public

services: water supply, sanitation, heating, power, roads, social protection

and healthcare, private sector development

Recovery will depart from agri sector and infrastructure.

THANK YOU!

CONTACTS

Strategia & Sviluppo Consultants Srl.

Via Copernico, 38

20125 – Milan, Italy

Email: f.zucca@strategiaesviluppo.com