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He described growth in the mobile sector over
the last three or four years as "fantastic,"
doubling every year. Telenor now holds 56.5 percent
of Kyivstar, the leading provider in Ukraine,
with the rest of the shares held by Russia's Alfa
Group. Telenor has invested $3b over ten years.
It now has 23 million subscribers, and signs up
20,000 new ones a day. Annual turnover is $2b
and EBITA (earnings before interest, taxes and
amortization) is 60 percent.
Moe pointed out that early business plans were
extremely cautious. Telenor staff who studied
Ukraine expected mobile phone penetration to reach
only two percent after 10 years, "and the
board of directors thought that was too high,"
he said. The board should be happy today, since
the Kyivstar investment is Telenor's most profitable
subsidiary out of the 12 it's established in various
parts of the world.
Moe makes no bones about the difficulties his
company has faced, and continues to face. Alfa
Group has contested Telenor's shareholding and
failed to act on an international arbitration
ruling in Telenor's favor. Alfa has used the long-established
Russia-Ukraine relationship to try to influence
Ukrainian courts in its favor. But, so far at
least, Telenor is holding firm and doing fine.
Moe had several words of wisdom for investors.
He said the first priority is "protection
of your ownership rights." Full control (100
percent shareholding) is ideal. Second, be sure
to use good legal and accounting advice. "We
are spending much more on professional advice
than we do normally, but it is worth it,"
he said.
Asked if all the hassles have been worth it, he
answered without hesitation: "Absolutely!"
Moe noted that for new investors, the main challenge
is to create positive interest. "After that,
there are so many positive things." Among
those things, "all the main parties are business
friendly," he said, despite their differences
on foreign policy.
What's more, a Telenor subsidiary, EDB has purchased
two Ukrainian IT companies, and plans to use Ukraine
as its global center for IT development. It made
the move after looking at other candidates around
the world, such as India and China. Moe says Ukraine
was chosen because of "the very high theoretical
competence" of Ukrainians in the industry.
Clearly, with improvements there would be more
investment. Anna Derevyanko of the EBA summed
up what her members are looking for: "Stronger
rule of law and better quality public administration."
She noted that the courts system is "not
very transparent" and that judges have a
lot of leeway interpreting the law.
Jorge Zukoski, the president of the American Chamber
of Commerce and an 11-year resident of Kyiv, agreed
that his 550 members, who together represent "the
vast majority of foreign investment in Ukraine,"
are looking for better implementation of laws
and better administration. Sectors of interest
to US companies range from agriculture and financial
services to broadband.
As Ukraine's economy matures, businessmen seek
more and more professional services, creating
opportunities for young people, and driving consumer
spending.
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Ukraine today
is a country of contradictions. In some parts
of the country there are few cars on the streets
and most of those are Soviet-era Ladas and
Moskvich, or old compact models imported from
Europe. Then there is Kyiv, with its streets
packed with a mixture of European and Japanese
cars, including a surprisingly large number
of top-of-the line brands, such as Bentley,
Porsche, Mercedes, Lexus, BMW and Audi.
Some folks are doing well. Many not so well.
The gaps are enormous.
One of the best people to explain this phenomenon
is Jorge Intriago, a partner at Ernst &
Young, one of the top international accounting
and consulting firms, and an 11- year resident
of Kyiv.
The pyramid he drew of Ukraine's population
shows the following rough breakdown:
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Five percent are top earners. This
segment includes 30 oligarchs, or
major business figures. They are each
worth between several hundred million
and several billion dollars. Just
beneath them, in the same top tier,
are what he calls 'mini-oligarchs'.
The 'minis' are businesspeople in
the $100-300 million bracket.
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Ten percent
belong to the next tier, which is made
up of a rapidly- expanding group of
wealthy professionals and businesspeople.
Typically, these executives and entrepreneurs
are making in the range of $500,000
a year, while many do even better. As
the market economy matures, their skills
are in high demand, and they can demand
excellent compensation.
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Twenty-five
percent Intriago puts in what he calls
the Middle Class. These are Ukrainians
with a household income of $20-30,000
a year.
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Sixty percent, though, live on a
household income of about $6,000 a
year, barely enough to survive. And
at the bottom of
this segment you have people earning
much less, including pensioners getting
about $100 a month, barely
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enough to purchase
food essentials, and people in rural areas
and poor parts of town that have not yet benefited
from Ukraine's economic boom.
"Wealth flows down," Intriago explained.
As people at the top seek to expand their
businesses, they need more and better professional
services, feeding the demand for talented
people in the professions and in smaller firms.
"Investment is fueling middle class growth,"
he noted. And with the demand for talent so
strong, he said "It is a totally one-sided
market, an employee market."
He noted that the amount of investment flowing
into Ukraine is not recognized by the practice
of only recognizing capital as investment,
ignoring the often much larger amounts provided
in the form of loans to the companies receiving
the investment. "There is at least 70
percent more foreign direct investment than
reported officially," he said.
As vice president of the European Business
Association for seven years, he is very familiar
with the cons as well as the pros of investing
in Ukraine. Noting the trend of less government
interference since the Orange Revolution,
he said "a government that does not participate
in business is the best of all."
The things that worry businesspeople and would
dampen investment include imposition of price
controls, as Russia is doing now, or reprivatization
of former state assets in the name of reversing
corruption.
He noted that once Ukraine enters the World
Trade Organization, which is expected next
year, the European Union has promised to open
free trade negotiations. This would mean that
companies could manufacture at low cost in
Ukraine, and sell into the huge European Union
market freely.
Experience has shown that economies that integrate
with the European Union, whether through membership
or trade agreements, tend to improve in the
distribution of wealth.
"The business community is very optimistic,"
Intriago said. |
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