Working Within the System

After years of political and state stagnation in the aftermath of the Orange Revolution, trust in the Ukrainian government is very low. Many Ukrainians see their government as selfish, corrupt and exerting a level of control over business activity that is far too intense and at the same time ineffective in providing a fair, competitive environment. Dealing with the government can be a dizzying experience for any company, largely because there are so many competing factions and agencies within the government and such a variety of local, state and regional administrations.

As mentioned above, Ukraine is a divided country, so political connections with the more pro-Western officials in Kiev and the western parts of the country could backfire on a company also trying to work in the eastern or southern parts of the country, which are more pro-Russian. Foreign businesses wanting to avoid being politicized should be aware that, in Ukraine, geography matters; where a business operation is established can leave an indelible mark on that business and affect its future operations elsewhere. Having a more consolidated government in Kiev does suggest that these conditions could ease up in the next few years, though Ukraine has a hard time changing habits that have been entrenched in its culture for decades.

Beyond government, the primary factions in Ukraine are the country’s financial-industrial groups -- the oligarchs. These are no more than a few dozen men who made their millions (or billions) by fleecing the state or each other in the aftermath of the Soviet collapse. Most control some sort of vertically integrated series of businesses in steel, agriculture, energy and media. For the foreseeable future, the oligarchs will remain a dominant part of Ukraine’s economic landscape, though their power will rise and fall with politics in the country, since most oligarchs are allied with one political figure or another.

Most foreign lending institutions, particularly multilateral ones, avoid contact with the oligarchs. Investors coming in, however, often find themselves stepping onto the oligarchs’ self-perceived turf. As Ukraine develops new business sectors like IT, the oligarchs will have less knowledge of those fields and less of a claim over them, though their control over certain regions of the country means there are other ways to cross their paths.

Corruption

Although local laws prohibit bribery, extortion and corruption, all three are common in the Ukrainian business environment. According to the World Bank, nearly 63 percent of business owners in Ukraine resort to such methods when dealing with regulatory authorities. Transparency International estimates that Ukrainians pay nearly 20 percent of their income in bribes. When a U.S. business operator resorts to bribery to facilitate his business operations, there is little the U.S. Embassy can do to assist that operator in any resulting business or legal dispute.

Businesspeople operating in Ukraine report that those who choose to bribe officials are very conscientious about it. First they make sure that whoever is seeking a bribe actually holds some leverage over the business. Bribing someone completely unrelated to a business’ interests has been known to set up blackmail situations in which money can be continually extorted. Cash, whether in U.S. dollars, euros, hryvnia or rubles, has been the best medium for bribery in Ukraine, but in situations where law-enforcement observation is an issue, many businesspeople have used luxury items such sport utility vehicles and jewelry.

Labor

The Ukrainian labor force is highly educated but lacks many of the skills necessary to operate in a modern technocratic economy. Consequently, the country’s labor market is driven entirely by supply, and most foreign firms operating in Ukraine, particularly small- and medium-sized businesses, cite labor shortages as a chief threat to their survival. Shortages are particularly acute among sales agents, engineers of all types, IT specialists, personnel managers, project managers and financial specialists. This is a regional issue, as the level of education and modern technical skill rises the further west in the country one goes. Kiev sees the highest level of skill, while the rest of the country is exponentially behind.

The first reason for such a gap is that the global economy has grown in size and advanced technologically since the Soviet collapse, but the Ukrainian educational system has either regressed or stalled. The result is that, while Ukrainian workers have a high educational level, they have not been able to update their skills very much over the past two decades. The second reason for the gap is demographic: Ukrainian birth rates are abysmally low and the country has the fastest growing HIV/AIDS population in Europe.

Meanwhile, labor unions in Ukraine have a tumultuous relationship with the government, with most labor concerns unrecognized by any court system. Labor unions are not guaranteed the right to strike or to engage in collective bargaining. However, there is a mentality of “worker obedience” in Ukraine left over from the Communist era. Worker strikes and employer lockouts, common in the late 1990s during the economic crisis, have been rare over the past five years.

Overall, the largest problem specific to the IT sector is the labor pool. Compared to other sectors, IT labor costs can be two- to three-times higher as businesses are forced to develop the necessary yet hard-to-find skills through in-house training. This requires braving Ukraine’s bureaucratic maze, since most types of training require government licensing. Consequently, strong retention programs are necessary to prevent the loss of skilled employees to an increasingly expensive labor market. Intern programs are also highly recommended because they allow employers to keep the most promising individuals. In Ukraine, typically, about half of all interns stay on staff after their program is completed.

Security

Unlike most of the other former Soviet states, Ukraine has no major security threat. There are no international territorial disputes, acts of terrorism or wars. Although it does provide a base for Russia’s Black Sea Fleet on the Crimean Peninsula, Ukraine is not part of, nor does it intend to join, any major military alliance like NATO or the Collective Security Treaty Organization.

However, Ukraine is deemed by the U.S. State Department as a high-risk country for business security. This is because of corruption, but organized crime, petty crime and “hooliganism” are also common. Petty crime in Ukraine is prompted by poverty and exacerbated by the lack of police pressure. Tourists and foreign businessmen are often targeted by pickpockets, muggers and robbers. In Kiev, street crime -- often committed by gangs that rob foreigners at knifepoint -- does specifically target tourists and Westerners.

Hooliganism is a large problem in Ukraine, as it is in most of Europe, and is usually centered around football matches. Packs of drunken or angry youths storm the streets looking to destroy property or rough up pedestrians. “Skinhead” violence also is on the rise in the major cities, particularly on and around Hitler’s birthday (April 20). People of African or Asian descent are sometimes targeted during this time. Such hooligan and skinhead activity can include small bombs being detonated at banks or in parks, though the scale of such attacks has never been large. (It is important to note that acts of crime and hooliganism can be rather sophisticated, if not large in scale, since Ukrainians can easily obtain military-grade explosives on the black market.)

Politically motivated violence aimed at Westerners and Western interests has been known to occur following political disagreement between the West and either Ukraine or Russia. This was seen in 1999 during the U.S.-NATO military intervention in Kosovo, when Westerners were attacked on the streets in Kiev. The same is true for politically motivated attacks against Russia by pro-Western Ukrainians, such as the homemade bombing of a church in Zaporijia in July 2010 when Russian Orthodox Patriarch Kirill I was visiting.

Most violent crimes in Ukraine are linked to organized crime, though these groups rarely target Westerners. Still, dealing with Ukraine’s omnipresent organized crime is sometimes unavoidable. Organized-crime groups in Ukraine can operate by business sector or by geographic area, so businesspeople can find themselves being targeted by more than one group. Fighting these groups is not only costly but also dangerous, since most groups will not dwell long on the decision to eliminate competition or resistance with lethal force. Many Western firms employ security services, though this provides no guarantee of safety.

Human trafficking in Ukraine continues to be a problem, which was recently demonstrated by an agreement signed by the United States and Ukraine in February 2011 to fight human trafficking. It is estimated that since the fall of the Soviet Union, 100,000 Ukrainian citizens have been smuggled to Western Europe to work as prostitutes or indentured laborers. No information is available on whether foreign business travelers to Ukraine have ever been abducted and trafficked, and the U.S. Embassy has reported no known instances of any U.S. citizens being kidnapped.

According to the FBI, a major concern for foreign businesses, particularly those in the software sector, is that Ukraine has become a hotbed for cybercrime. In October 2010, several members of a major ring of cybercriminals were arrested in Ukraine and the United States after an FBI investigation found they had created a global cyberscheme using Trojan horses to steal more than $70 million. Even a leading Internet service provider (ISP) in Ukraine, Hosting.ua, was reportedly involved in hosting spam and malware. Organized crime is believed to be involved in Ukraine’s cybercrime trend.

Copyright theft in Ukraine is also commonplace. The International Intellectual Property Alliance reported in 2010 that copyright theft in Ukraine was “rampant and intractable,” with piracy rates in certain industries exceeding 80 percent. Openly operating in Ukraine, with billboards to promote them, are two of the world’s 15-largest BitTorrent file-sharing protocols, which are used to distribute pirated downloads over the Internet. Vendors in open-air markets sell pirated software, music and videos in the open. Even the Ukrainian government reportedly uses pirated and unlicensed software.

Police forces in Ukraine do not commonly employ English-speaking officers, which makes it difficult and time consuming for some foreign visitors to coordinate preventative security measures with, and report criminal activity to, local police. Many times, law enforcement agencies in Ukraine are part of the crime problem rather than the solution. With low salaries, poor training, corruption and lack of equipment, Ukrainian police forces are not considered highly reliable or effective. Indeed, the current situation in Ukraine favors criminals, not law-abiding citizens or foreign visitors.

Another security issue comes from federal security forces -- both Ukrainian and Russian -- which are omnipresent in Ukraine. The Ukrainian Security Service (SBU) and its Russian counterparts (the FSB and SVR) have close ties, and these services are considered the most powerful friend or enemy that anyone in the country can have. Foreigners should exercise good judgment in all situations that may involve SBU, FSB or SVR agents and keep in mind that these security services represent Ukraine’s anti-foreign and nationalist factions. Traditionally, the security services do not meddle in everyday businesses that are not deemed strategically significant. The one exception is technology theft, which these services often engage in, with Western firms as their primary targets.

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Дата добавления: 2015-11-16