The Russian invasion has significantly eroded distribution and transportation capacity in Ukraine. The Kyiv School of Economics (KSE) estimates total damages and losses to transportation infrastructure total $31.3 billion and $17.7 billion, respectively. The regions most acutely impacted are Donestk, Luhansk, Chernihiv, Kharkiv, Kherson, Kyiv, and Zaporizhzhia.
The state-owned railway company, Ukrzaliznytsia, manages the nation’s rail network. Ukraine’s rail network ranks third in Europe by distance with 21,700 kilometers of rail and connections to Belarus, Russia, Moldova, Romania, Hungary, Slovakia, and Poland. Ukrainian highways link to pan-European corridors via the following highways: Gdansk-Odesa; Brussels-Dresden-Krakow-Kyiv;Venice-Budapest-Lviv-Kyiv; and Helsinki-Saint-Petersburg-Gomel-Kyiv-Chisinau-Bucharest-Thrace.
The invasion has severely damanged and disrupted railroad infrastructure and operations in Ukraine. Millions of displaced Ukrainian civilians and businesses have used the railway system to evacuate and it has been instrumental in the transportation of supplies and equipment to regions experiencing active fighting. As of September 1st , 2022, over 500 kilometers of railroad bed have been damaged and 110 stations have been damanged. However, Ukrainian railway operators are focusing on maintenance and repair efforts to maintain railway services despite continued damage to key infrastructure. Railroad recovery and reconstruction will remain a priority as Ukraine seeks to losses offset export income from blocked seaports by boosting trade via rail to the EU.
Road infrastructure is critical to domestic and intrernational transportation in and through Ukraine and totals over 170 thousand kilometers of roadway. Four of the ten international transport corridors pass through Ukraine, including motorways such as Kyiv-Chop and Kyiv-Odesa. As such, road quality significantly affects transport efficiency and the overall competitiveness of the Ukrainian economy. While a thorough survey is not possible until active fighting has ceased, at least 25 thousand kilometers of roads and 315 bridges have been critically damaged by the war. Further, roughly 40% of roads in the occupied territories have been damaged. Repairment efforts have been made more difficult due to losses in the road construction industry. Given the scope and disruption of the invasion, KSE estimates that reconstruction efforts of damaged roads could take 3 to 5 years. Damage to road infrastructure is most heavily concentrated in the eastern regions of the country, and road infrastructure in the western regions remains intact.
Historically, thirteen Ukrainian seaports (Berdyansk, Bilhorod-Dnistrovskyi, Chornomorsk, Izmail, Kherson, Mariupol, Mykolaiv, Odesa, Olvia, Reni, Skadovsk, Ust-Dunaisk, and Pivdennyi) and eight river ports processed container and bulk imports. In 2020, before the war, 5.6 million tons of cargo passed through Ukrainian ports.
The war has caused about $500 million in damage to water transportation infrastructure. The ports of Mariupol, Berdyansk, and Skadovsk are under Russian occupation and the port of Mykolaiv is shut down. Further, there is no commercial traffic currently taking place on the Dnipro River – previously a waterway experiencing double digit growth in cargo traffic. Ports on the Danube River remain operational, and have increased turnover fourfold from pre-war levels.
There are two types of customs bonded warehousing in Ukraine: 1) customs bonded warehouses, and 2) temporary storage customs bonded warehouses. An importer can use the latter to temporarily store goods that are subject to certification, awaiting sanitary, environmental, or other entry approvals, or awaiting customs clearance in Ukraine.
Like all countries, Ukraine monitors import-export flows that pass through its borders. The current Ukrainian customs regulation mandates to execute customs declarations for export or import operations. Refer to a list of licensed Ukrainian customs brokers.
According to the latest available data from Ukrainian State Statistics Service, Ukraine’s retail trade turnover in 2020 was UAH 1,202 billion ($45 billion), 10 % growth compared to 2019. Less than half of the overall retail market is controlled by chains, reflecting the considerable development opportunities in Ukrainian retail.
Fast Moving Consumer Goods (FMCG) - Retail superstore chains are available in the main Ukrainian cities and primarily specialize in FMCG, consumer electronics, Do-it-Yourself (DIY), automotive parts and accessories, cosmetics and toiletries, pharmaceuticals, and health care goods.
The major international investors in the Ukrainian retail FMCG market are METRO GROUP (Germany), Auchan (France), Consul Trade House UAB (Lithuania) and Spar (Netherlands). In 2020, REWE Group completed the sale of its Billa supermarket chain in Ukraine to UAB Consul Trade House, the owner of Novus Ukraine – one of the leading Ukrainian food retailers. Billa was the first international food retailer to open in Kyiv in February 2000, and had since grown into a network of 35 supermarkets in Kyiv, Kyiv region and Zhytomyr.
The top four national FMCG retailers in the market are the Fozzy Group, ATB Market, Retail Group, and Furshet.
Regionally, the top retailers include: Tavria V and Kopeika in southern Ukraine; LotOK in nothern Ukraine.
The most popular FMCG outlet formats that opened in Ukraine in the recent years were discounters, corner shops, and supermarkets. New international brands entered the Ukrainian market in 2020:
- b.young, Denmark, opened at River Mall
- FLO, Turkey, opened at Forum Lviv
- Vans, USA, opened at River Mall
- 4F, Poland, opened at Retroville
- The Athlete’s Foot, Switzerland, opened at Blockbuster Mall
- IKEA, Sweden, opened at Blockbuster Mall
Consumer Electronics and Household Appliance Chains: currently, the largest household appliances and electronics market players are Foxtrot, Eldorado , and Comfy. These chain operators sell most of the consumer electronics and household appliances through their retail outlets located throughout Ukraine.
“Do-It-Yourself” Chains - The national chain Epicenter remains the leading DIY player, with a market share of more than 50 %. The only foreign player in the market is Leroy Merlin, part of Groupe Adeo, which operates three stores in Kyiv. Swedish retailer IKEA entered Ukraine’s market, opening a store in Kyiv in 2019.
Branded Apparel and Footwear - Multiple national premium fashion outlet chains sell branded clothing and footwear including Argo, Helen Marlen Group, and Melon Fashion Group, Intertop is a Ukrainian chain for branded footwear. Automotive Parts and Accessories Chains - Three nationwide chains, Auto Trade Line (ATL), ZipAvto, and AIS, along with numerous independent retail outlets sell car parts and accessories. There are also regional wholesale chains like Planetauto, Stop -Transit, Pitstop, and Avtostiv.
Beauty and Toiletries Chains - The top four nationwide beauty chains in Ukraine include Eva (560 stores), DC-Watsons (440 stores), Prostor (280 stores), and Kosmo (106 stores).
Drug (Pharmacy) Chains – Pharmaceuticals are sold through more than 21,000 private and municipal pharmacies and pharmacy retail points. Private pharmacies dominate at 87.5 % of the market, while the remaining 13 % of pharmacies are owned by municipalities. Many regions and municipalities have been looking to expand or launch so-called ‘social pharmacies’, which stock essential medicines and charge little or no mark-up.
Consolidation levels in retail pharmaceutical sales in Ukraine are still low, with no chains that have a presence in all regions of Ukraine. The three largest pharmacy chains (Pharmacy-Magnolia, brand “Apteka Nyzkyh Tsin”), Med-Service Group and Titan (“Zdorovye” brand), account for only eight percent of total pharmacy sales. Given the low level of concentration in retail pharmaceutical sales, there is significant opportunity for international chains to enter the Ukrainian market.
Using an Agent to Sell US Products and Services
Identifying a reputable, reliable agent or distributor is vital to mitigating risk and achieving success in the Ukrainian market. In order to identify such a business partner, it is absolutely essential to conduct appropriate due diligence. Depending on your business plan, you may want to look for distributors that have nationwide capabilities, including those located in the major cities and regions of Kyiv, Kharkiv, Dnipro, Lviv, and Odessa. These regions are the most densely populated and important commercial centers of Ukraine.
Depending upon your long-term interests, using an agent or distributor is an excellent way to learn about the Ukrainian market, gauge market potential, establish connections, develop a customer base, establish a foundation for future expansion into new product lines, introduce new-to-market technologies, and develop product recognition in the market. To find a qualified potential partner, the Commercial Service recommends using one of our services, such as the Gold Key Service, to conduct initial screening and meet with potential partners, agents, or representatives. Attending or participating in Ukrainian trade exhibitions is another way to identify and gauge the qualifications of prospective partners. For more details on the trade exhibitions taking place in Ukraine, please refer to the U.S. Commercial Service in Ukraine.
The Commercial Service strongly advises against covering the Ukrainian market from regional offices in Europe. Ukrainians prefer to deal directly with local agents or representatives and subsequently an on-the-ground presence is crucial to successful business development in Ukraine. In addition, your Ukrainian partner can help you explore markets beyond Ukraine. Finally, given the ongoing war between Ukraine and Russia, several companies have reported that commercial relationships managed by regional offices in Russia have become very politicized and that information to U.S. headquarters companies regarding the Ukrainian market may be distorted as a result.
Establishing an Office
A foreign company interested in starting a business in Ukraine has the option of forming a joint stock company, a limited liability company, a wholly-owned subsidiary, or a representative office. It is also possible to work in Ukraine through joint venture/cooperation agreements and investment funds/mutual funds. For regulatory and taxation purposes, representative offices are considered to be independent legal entities, with some exceptions. A representative office can carry out marketing, promotional, and other auxiliary functions, but it cannot sell goods or services. The Commercial Service recommends establishing a wholly-owned company in Ukraine if you intend to carry out manufacturing or other significant local commercial activities. A foreign legal entity may have both a representative office and a wholly-owned subsidiary. A limited liability company is the most popular form of a legal entity in Ukraine as it can conduct a broad range of business activities.
The Department of Trade and Economic Cooperation within the Ministry of Economic Development and Trade handles the registration of local offices of foreign companies. The process can take up to 60 days following the submission of all required documents and upon payment of the one-time $2,500 fee. For more information, please contact the Section of Foreign Representative Offices at the Department of Trade and Economic Cooperation within the Ministry (email: firstname.lastname@example.org, phone: +38 (044) 596-68-43).
To register a representative office of a foreign business entity, you must submit the following documentation:
- An application for registration of a representative office in free form
- A notarized extract from the trade (banking) register of the country, where the foreign business entity is officially registered (Certificate of Incorporation)
- A notarized reference from the banking institution where your account is officially kept, with the signature of the bank’s primary officer
- A power of attorney to carry out representative functions issued under the laws of the country where the Head office of the foreign business entity is officially registered
- The protocol of the establishment of representative office in Ukraine and the appointment of the Representative Director
- Passport information and ID number of the head of representation
- The lease agreement of representation’s legal address
All documents should have an official corporate stamp, be translated into Ukrainian, and the translation should be notarized. The documents should be issued no earlier than six months before submission to the Ministry. A full listing of the documents necessary for registration of a representative office please visit the website of the Embassy of Ukraine in the United States of America. All documents should be notarized by a notary at the place of issue and legalized in a consular institution of Ukraine in the United States. We recommend that U.S. companies work with local law firms, consultants, or business advisory services to ensure a smooth registration process. The Commercial Service can provide you with a list of local law firms.
U.S. companies can find professional personnel for their Ukrainian operations through many experienced local and international recruitment agencies operating in Ukraine.
For the latest Investment Climate Statement (ICS) which includes information on investment and business environments in foreign economies pertinent to establishing and operating an office and to hiring employees, visit the U.S. Department of Department of State’s Investment Climate Statements website.
Because Ukrainian businesses currently have limited access to financial resources, more Ukrainian companies are seeking to establish joint ventures (JV) with foreign investors as a means of accessing financing. However, concerns remain over whether Ukraine has succeeded in establishing a sufficient legal framework to protect foreign investors. U.S. companies pursuing this option should employ local legal counsel and seek to structure their entity as an offshore business organization where international laws apply.
According to a Law No. 222-19, “On Licensing of Types of Economic Activities,” adopted on March 2, 2015, and amended on December 15, 2021, the business activities set below are subject to licensing (full list of business activities subject to licensing is available at Verkhovna Rada of Ukraine (Parliament).
- Granting guarantees and suretyships
- Financial leasing
- Trust management of financial assets
- Specific types of insurance as defined by the legislation
- Lending funds with their further return
- Granting loans including financial credits
- Administration of private pension funds
- Administration of financial assets for purchase of goods for groups of purchasers
- Property management for financing constructions or real estate transactions
- Professional activity in securities market
- Transportation of passengers, dangerous goods and hazardous waste by river, sea, road, rail and air transport, international carriage of passengers and goods by road vehicles;
- Security guard activities
- Tour operator activity
- Brokering in employment abroad
Import and export licenses are required for some goods. The list of goods covered by the licensing regime and the license terms are updated annually by the Cabinet of Ministers. The current list of such products can be found in the Resolution of the Cabinet of Ministers of Ukraine No. 1018 On Approval of the List of Products subject to Import and Export Licensing and Respective Quotas for 2021, dated December 28, 2020.
As of 2021, the list includes: pharmaceuticals, paints and lacquers, dyes, hygiene products, cosmetic products, pedicure and manicure products, shaving aerosols and deodorants; lubricants, waxes, shoe polishes, insecticides, solvents, silicone, fire extinguishers and the chemicals that fill extinguishers; refrigerators and freezers, air-conditioners, humidifiers, and other selected industrial chemical products; fungicides, insecticides, herbicides, and plant growth adjusters.