1993: THE YEAR IN REVIEW: "Biznes" in Ukraine: growth slows down (12/26/93)

1993: THE YEAR IN REVIEW

"Biznes" in Ukraine: growth slows down

Business in Ukraine increased, but at a slower rate than in 1992 for several reasons. The value of the karbovanets continued to sink, hitting a value of 40,000 kbv to the U.S. dollar in mid-December before it rebounded. Unlike 1992, the new Western enterprises venturing into a young Ukraine slowed to a trickle. Most companies just did not see a promising business environment in a country that could not organize its economy and dedicate itself to free-market principles. But the bolder investors did post their shingles and claim their stakes, which in at least one case led to disaster. Other stories, and there were several, were much happier.

The first formal meeting of Junior Achievement-Ukraine's newly elected board of directors in January signaled the successful beginning of the popular organization's work in Ukraine exposing young people to Western business practices. Two Ukrainian Americans, Oksana Kurowyckyj of New York and Orest Komarnyckyj of Phoenix, Arizona, were responsible for spearheading the effort to organize the group in Ukraine, overcoming initial desires by JA International to locate the center in Moscow as a central office for all of the former Soviet Union. Besides a good amount of satisfaction, the two also got a marriage out of the deal.

A pizza purveyor went after Lviv's palates with the opening of the first pizza emporium in Lviv in April. Orest Jejna decided that the business he wanted to enter in Ukraine was pizza-making because he wanted pizza to be affordable to all. "We hope it's a bit of an exposure to Western living," he said. "How many times on a Saturday night did our parents say, 'Let's order a pizza'?"

Mr. Jejna's company, Jemar International, bought 70 percent of a local sandwich shop and then sold 30 percent of the shares to the six employees. He made his father his store manager.

Another business venture in Lviv has met with several tragedies after initially experiencing success. The Grand Hotel was the first major investment by Ukrainian Americans in western Ukraine. Its owner, Marta Fedoriw, had sunk $600,000 into renovating a building in Lviv and turning it into a world-class luxury hotel. But then her relative and hotel manager, Bohdan Melnychuk, was shot dead walking the street with his wife, who was the hotel's chief accountant. She was injured. Some suspect investor problems with the hotel may have had something to do with the shootings.

After the death, a libel suit was filed against Ms. Fedoriw in a Lviv court to add to her troubles. She has also faced problems with a partner who claims he is now the majority owner and at one point had moved into Ms. Fedoriw's offices in Lviv.

Another controversy was stirred by the largest ever Ukrainian trade show on American soil in December 1992, held at the Sands Exposition and Conference Center in Las Vegas. Attendees and participants bemoaned the fact that much of the convention's business was carried out in the Russian language. Others questioned why the show was held in Las Vegas, far from Ukrainian American enclaves generally found in the Midwest and the East. Comments were also made about the scant advertising in U.S. trade journals that some said was the reason for the lower-than-hoped-for turnout.

More business news flowed from Lviv as 1993 wore on when on February 20 the post-Communist society of Ukraine witnessed its first ever privatization auction with the selling off of 17 small business at a total cost of $390,000 (U.S.) - 20 times the amount the local authorities had expected. Nine of the 17 winners were employees or workers' collectives.

Five days later the first large-scale privatization of a government-owned enterprise took place with the selling of an Odessa meat conglomerate. "We think that leasing and the collective form of ownership are not the most efficient; we've had this for many years in our society. Many enterprises have finally understood that the next step is corporatization," said Volodymyr Priadko, chairman of the State Property Fund of Ukraine. The effort never really gathered much momentum and the collective form of ownership remains, and so does Mr. Priadko as chairman of the Property Fund.

Ukraine's airline industry, although still government-owned, did take-off, when Air Ukraine joined with the world's largest aircraft leasing company to expand its European market, and on April 9 secured a license to fly into the United States. Until then it had maintained relations with Russia's Aeroflot, allowing it entry into the U.S., although the two airlines had broken most links in December 1991. Guinness Peat Aviation is leasing two Boeing 737-400s and is a partner in the newly formed Air Ukraine International, considered Air Ukraine's offspring. GPA controls seven percent of Air Ukraine International.

By November, Air Ukraine had set up a New York headquarters on posh Fifth Avenue in Manhattan for its marketing division and U.S. operation.

Giant agricultural conglomerate Archer Daniels Midland Inc. announced on April 19 that it had signed a contract to deliver $100 million of soybean protein, soy-based milk powder and other food ingredients to Ukraine. The contract signed with ATON, a leading private enterprise in the former republic that operates in the construction, agribusiness and retail food sectors, called for delivery of the products through the first quarter of 1994. Archer Daniels Midland is a leading multinational buyer, processor and exporter of grain.

But while food in Ukraine was becoming more plentiful, it was also increasingly more expensive, as was everything else. By June this included Ukraine's international phone rates, which skyrocketed 5,000 percent on June 1. Calls to North America that until then had cost a mere 150 kbv a minute jumped to $2.50 per minute, while calls to Western Europe rose to $1.50 a minute.

But the increasing cost of doing business in Ukraine did not stop the U.S. Chamber of Commerce from celebrating its first anniversary in Kyyiv on July 3. In the last year, the Chamber has hosted 16 American congressional representatives, co-sponsored a benefit for the Ukrainian Art Museum and held seminars and monthly meetings on dozens of business-related topics. It also continued to make doing business in Ukraine a little easier for Americans.

Several firms took the plunge into the Ukrainian marketplace, including Benetton of Italy, famous for its knitwear, and Seagrams Inc. of Canada, whose gilded Madison Avenue-like store became a must-see for Kyyivans soon after its summer opening.

One person who believes privatization and free enterprise can take hold in Ukraine, but couldn't seem to convince his prime minister and was forced to resign before year's end as a result, spoke before the biennial convention of the Canadian Professional and Business Federation. Former Deputy Prime Minister and Minister of the Economy Viktor Pynzenyk, who still held the post at the time of his Winnipeg appearance, said some privatization had taken place in Ukraine, including 19,000 plots of land. He said entrepreneurs could start up a business in Ukraine for as little as $19.

But at least one U.S. educator, Dr. Myron Kuropas, an adjunct professor at Northern Illinois University, disagreed. He claimed that every business should have adequate risk capital before investing in this economically underdeveloped country. For several weeks after, he and Dr. Bohdan Hawrylyshyn of Ukraine's International Management Institute debated Ukraine's business climate on the pages of The Weekly.

Several European firms showed confidence in Ukraine's business climate, signing a contract to bring high-tech toys into a country whose buying power was shrinking rapidly. The German telephone company, Deutsche Bundespost Telekom, joined Telekom Denmark and PTT Telekom of the Netherlands in a joint venture with Ukraine that would bring a mobile phone communication system into the country. The rates were to be set at 40 cents per minute and 80 cents at peak hours. The installation charge was set at $450.

Another European joint venture was announced on September 14 to build an oil terminal in Odessa that would handle 40 billion tons of crude annually. The contract is believed to be worth $130 million to $150 million annually.

A $152,732 grant from the United States Information Agency allowed Rensselaer Polytechnic Institute researchers to continue setting up business incubators in Kyyiv and Lviv, which will study how to expand business in Ukraine.

On September 25, an association which has the potential for releasing much-needed credit into Ukraine, held its inaugural conference in Kyyiv. The Credit Unions of Ukraine conference was attended by now ex-Deputy Prime Minister and Minister of the Economy Pynzenyk and bankers from Ukraine, the U.S. and Canada. There it was noted that President Leonid Kravchuk had recently issued a directive on credit unions that would give their efforts a legislative base.

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