Fantastic opportunities: here and now

  • Fantastic opportunities: here and now
  • Fantastic opportunities: here and now
  • Fantastic opportunities: here and now
Issue 91, June 2016.
Fantastic opportunities: here and now 
 
Lviv is a miracle. Not many cities in the world may claim to have such a deep soul as ours. With its international ratings growing day-to-day, Lviv is definitely making it to the top. A city, where everyday a dozen of new creative start-ups appear and business opportunities are available on every step. In this article, we describe how Lviv made it and what will happen in the city’s business life in the years to come.       
 
The famous “Lviv is open to the world” saying of the Lviv City Council describes the city at its best. With West Ukraine being located at a number of international crossroads and having a colourful and often complicated history, has allowed Lviv to develop without any single, dominant industry. Almost no Soviet “heavyweight” industries survived the market economy and people found themselves in a complicated situation without any prior market-based knowledge or experience.      
 
What people did, sometimes without even understanding it, was to use the economic advantages that they had and specialized in what they were best at. Market economy has its terminology for all that, but we will not bore you with it and will instead look at it from a simpler perspective. Western Ukraine has the advantages of a) geographical proximity to other countries, b) historical heritage and c) intellectual human resources. So it’s easy as ABC you would say? Not really. It has taken some time before those “resources” evolved into a complicated full-stage end product. 
 
Geography is not only just an (often) mandatory subject in school; it is something that predefines existence and future in a certain environment. Being at the crossroads of trade routes with almost 800 years of history, Lviv has benefited from a good location. As in real estate, which we as lawyers deal with on a daily basis, the old “triple L” rule has played its role: location, location, location. That’s right, no cities are 100% equal. Our “neighborhood” has determined certain standards that local businesses aimed to achieve. So did it influence the people, which often migrated to work abroad in more developed or higher paying countries. Numerous foreign investors in adjacent regions relocated to the Western Ukrainian capital for a great business deal. The world’s best agrarian resources also bring much to the regional economy and help Ukraine achieve its high status in this industry.                     
 
History is also not just another (also often) mandatory subject back in school; it’s something that shows us how well did our ancestors thought about our well-being. In this regard, West Ukraine has much to offer. The UNESCO Heritage title speaks for itself. With its unique architecture and breathtaking experiences, Lviv has become one of Europe’s tourism gems. Food for thought is served on all streets here and mainly free of charge. Some of the world’s best inventions were conceived here and many generations have worked hard to establish our many cultural and educational facilities. 
 
Human capital is not just a part of the economy, it is indeed an object of incredible power. No artificial intelligence is as of yet as advanced as the human brain. When Leopolitans didn’t have to content with a planned economy any longer, our heads had to start working fast and independently. Being well-connected to other countries and speaking many foreign languages, we were able to attract attention to our labour resources. By temporarily or permanently migrating abroad, we developed different professional areas and now understand and try to make the best out of our strength and weakness.
  
Synergy and interplay of those three ABCs has brought Lviv to where it is now. Without claiming for certain in this rough overview that Lviv is the #1 city in Ukraine to live in, the city has an established reputation as a leading cultural and educational centre that brings to life many outstanding ideas. Today Lviv is a serious business outsourcing services hub and one of the main IT development and support centres in Eastern Europe, as well as a great place for manufacturing and a fantastic touristic location. 
 
Ahead of the famous Lviv Jazz Fest, we believe this is a sufficient introduction to the city for the uninitiated. A bigger challenge ahead is to determine what the city and region will look like in the future. For interest’s sake, we’ve decided to look into a crystal ball to determine to do that and, as a matter of disclaimer (being professional lawyers), we offer no certainties, only strong insight into the following.
 
Lviv and the West Ukrainian region will become stronger at its leading positions of IT, tourism, and manufacturing. We already see strong trends in business relocation here. If before business relocation was primarily from further abroad, we now see many companies moving here from neighboring regions and believe this trend will increase. With rising salaries in those countries, in an attempt to cut costs, more companies will relocate and choose to build their new homes here. Multiple successes of international call centres, accounting centres and middle-skilled production units will drive change in the local economy. With a pro-European mentality, operating a production in Ukraine is easier than ever.
 
As reforms will inevitably succeed, we are sure that the foreign business will very soon look more eagerly towards Ukraine. As of today, such major reforms have been enacted as: simplification of legal formalities, introduction of a transparent public procurement system, banking system reform, decentralization, deep judicial and anti-corruption reform, decrease in taxes, introduction of an online budget portal, restructuring towards an independent energy sector, improvement of national security and armed forces, introduction of new patrol forces, and others. The majority are already bringing very good results.              
             
Ukrainians have also made up their minds with regard to their geopolitical standing. With stronger armed forces than ever before, Ukraine is not afraid of further military conflicts. “Si vic pacem, para bellum” (“If you want peace, prepare for war””) as a wise person said long ago. We hope the worst is behind us, but in any case we have prepared well. While paying a high price for knowing your friends, Ukrainians are now more determined than ever in foreign policy and becoming among the world’s top democratic states.
 
It is already well-known that in 2014 Ukraine and the European Union concluded an Association Agreement aimed at the political association and economic integration of Ukraine with the EU. There are many companies that have already benefited from this agreement and have started to use new trade preferences to open up opportunities in Ukraine and the EU. Ukraine is also a member of the majority of the world’s most successful international treaties and the establishment of the rule of law has shown good results. To work effectively with foreign and domestic investors, the Lviv Regional State Administration opened the Office of Investment Policy in early 2016.
 
Areas that remains relatively undiscovered are healthcare and life sciences. While it will take some time for the Ukrainian medicine to catch up with international standards, a few private clinics operate in Western Ukraine and they do show some amazing initial results. Pharmaceuticals are often produced locally and only a few large, international players have acquired local brands. Another area that requires development is advanced agriculture techniques. Our soil is very fertile and very productive, which decreases the need for R&D without jeopardizing the quality of crops. Newer technologies will bring even higher profit margins.
As Ukraine fully realizes its energy risks, alternative energy sources will play a key role. Ukraine has adopted a number of favorable tax incentives to promote traditional and green energy production. The Ukrainian green tariff remains one of the best in the region and investors were even rewarded during the military conflict. 
 
While Kyiv enjoys a sufficient level of office spaces, cities in other parts of Western Ukraine are lacking. As of today, the majority of middle-price office centres enjoy nearly a 100% occupancy rate and prices continue to rise every quarter. This tendency will remain as good offices spaces remain sparse. 
 
Surprisingly enough Western Ukraine feels a shortage of certain food products. Beef and milk are just two examples. Dairy producers often complain on the shortage of milk supply in the region. Ukrainian beef is also often hard to find.  
 
Smart solutions for cities and general infrastructure projects will continue to develop, as will the economy. It’s no secret that smarter technology (such as a no-dig approach in pipe rehabilitation) may save millions to a city. Effective waste treatment and traffic management are also especially crucial. This kind of know-how will be in high demand in the future.        
 
Brand hotels chains are also not yet sufficiently present in the market. Only a small number of internationally-renowned hotels make their home here in Lviv. Entering the market first has obvious advantages, so expect the early mover to be more successful than the latecomer. 
 
Lastly, many fast food franchises may be still opened in the western part of the country. Kyiv enjoys a much higher ratio of internationally-known franchises that have yet to arrive in Lviv. As more of the population travels abroad, the recognition and acceptance of these brands will become more obvious.
 
We felt that we should outline the areas in which we feel there may be much of potential success. Having assisted almost 2000 businesses in the last 15 years in Ukraine, and having operated a branch in Lviv for nearly 10 years, we thought we’d share our knowledge in this very short review and hope you found it interesting and … encouraging! Good luck in your business in Lviv and area – here and now!       
     
 
Timur Bondaryev 
Managing Partner of Arzinger law office
[email protected]
 
Markian Malskyy, 
Partner, Head of West Ukrainian Branch of Arzinger law office
[email protected]