UKRAINE'S MACROECONOMIC OVERVIEW AND OUTLOOK
Economic Growth
2002 GDP up 4.1% y-o-y and should grow 4.0% in 2003. Strong exports and rising domestic consumption help industrial output. 2002 agricaltural production grew only 1.9%.

Public Debt
External debt grew by 0.8% in 2002, total public debt was up just 0.9%. Despite no IMF lending repayments to the Fund were on schedule. Ukraine failed to attract planned loans from the World Bank and EBRD but completed Paris Club debt restructuring. Ukraine should have no problems servicing debt in 2003. Eurobonds perform remarkably on the back of economic growth.

External Sector
9M02 trade surplus up 65% y-o-y, to USD 1.1 bil., thanks to expansion to new markets. 2003 trade surplus seen at USD 0.6 bil. 9M02C/A surplus up 69% y-o-y Cumulative FDI reached USD 5.0 bil. By October 2002

Fiscal Policy
Ukraine posted strong budget revenue growth in 2000-2002 and its first-ever budget surplus under IMF standarts in 2002. An unrealistic spending target and tax debt write-off behind the 2001 budget deficit. 2003E consolidated budget deficit at 0.1% of GDP.

Monetary Policy & the Hryvnia
Soft monetary policy was behind rapid monetary expansion. The NBU`s F/X purchases pushed the monetary base up but helped raise foreign reserves and prevented the hryvnia from appreciation

Inflation
2002 CPI down, PPI up. 2003E inflation manageable.

Credit Ratings
Major rating agencies upgraded Ukraine in 2001and again in 2002 although S&P then cut its outlook to "negative". R&I upgrades, others maintain their ratings in 2003.

Ukraine's Major Macroeconomic Indicators

UKRAINE MACROECONOMIC OVERVIEW
Economic Growth
In 2002 the Ukrainian economy posted its third consecutive year of recovery following a protracted post-Soviet decline.

Fiscal Policy
The government`s fiscal performance has improved in recent years. Nevertheless, there are still some areas of concern.

Monetary Policy
The National Bank of Ukraine (NBU, the central bank) has followed a generally appropriate monetary policy over the past two years.

Inflation
The slight consumer price deflation recorded year on year at the end of 2002 reflects an unusually sharp decline in food prices and the government`s resistance to raising utility price tariffs.

Exchange Rates
Since early 2000 the hryvnya has strengthened by around 5% in nominal terms against the US dollar.

External Sector
Ukraine`s current account registered a record high surplus of US$2.1bn for the first nine months of 2002, and is expected to remain in surplus in coming years.

Conclusions
Despite concerns over the policymaking environment, it`s unlikely that Ukraine will reverse the reforms achieved since early 2000 or halt further progress completely.

Key Indicators

INVESTMENT CLIMATE IN UKRAINE
Conditions for Foreign Direct Investments
Ukraine has attracted only USD5.2 bil. Of foreign direct investments since 1991, less than 13% of ita last year`s GDP or USD 107 per capita, which makes it one of the most underfunded countries in terms of foreign capital in the whole Central and Eastern Europe.

Government Policies for Trade and Investments
The FDI environment still far from perfect, but improving noticeably. Foreign investments protected by law, but red tape obstructs enforceability. Government subsidies curbed Trade regulations have been simplified but certification remains a problem. Entry to the WTO expected by 2004

Taxation
The new Tax Code calls for lower tax rates and simpler taxation system as the current regulations are not investor-friendly. Regular withholding tax is 15% but provisions in double taxation treaties may prevail over standard rules

Investment Incentives & Guarantees
Investment protection is guaranteed by law. Additional guarantees are stipulated in over 50 bilateral treaties. Incentives for foreign and domestic investors are largely the same and not industry-specific.

Special Economic Zones
Almost two dozen freee economic zones and priority development territories established (Special Economic Zones, Territories of Prioritized Development). By 2010 total investments in freee economic zones is forecasted to reach USD 16 bil.

Restrictions & Regulations
Although government permission is not required to set up a business foreign ownership is restricted in some industries and local permits along with over 60 types of licenses may be hard to obtain. Legislation restricts acquisition of monopolies.

Corporate Governance
Greenfield vs. Brownfield. No restrictions on business representation or acquisitions. Most foreign startups are either LLCs or JSCs. Division of authority between management bodies can be flexibly adjusted. Corporate governance legislation is outdated but new presidential initiatives set the track for improvement. The presidential decree is in line with OESD-approved corporate governance standards

Privatization
Over 60% of state-owned companies were privatized via employee buyouts and voucher privatization. Transparency is the SPF`s principal goal, but it`s not always achievable. Ukrtelecom privatization is yet to attract a strategic investor to the telecom sector with Russian companies among the top candidates. Energy sector privatization started in 1995-1999. Reputable investors were let in last year proving the benefits of transparent tenders. Majority stakes in nine oblenergos should be offered in 2003-2004 along with other companies.

Foreign Investments in Ukraine
FDI Inflow Unimpressive
Ukraine is one of the most underfunded countries in terms of foreign capital in the CEE region.

FDI Breakdown
The food sector stands uot in terms of FDI potential

FDI Statistics by Region

UKRAININAN HI_TECH SECTOR OVERVIEW
TELECOMMUNICATIONS
In the course of the last three years, telecommunications have been one of the fastest growing industries of Ukraine`s economy. Mobile communications and data transfer were the most dynamic segments of telecommunications in terms of revenue growth in 2002.

Fixed,line Telephony
Highlights
The characteristic of Ukrtelecom, Private Operators; Common Trends

Mobile Telephony
Highlights
Common Trends

Internet
Highlights
ISPs
ISP market (common trends)

TECHNOLOGY PC Hardware
Highlights
Common trends

IT Services
Highlights
Common trends

Computer Software
Highlights
There has been a significant growth in demand for modern information systems and various IT-services over the last two years. The Ukrainian corporate sector has entered a new stage of implementation of effective information interchange, data processing and storage after initial computerization.

Nanotechnology
Highlights
Ukraine enjoys significant potential in the nanotech research rooted in its success history in Materials Science. Common directions of Research in Nanotechnology International programs in nanotechnology Trends

Biotechnology
Highlights
The biotechnology sector is mostly represented by research at the National Academy of Sciences institutions.
The Quest for Biotech in the Pharmaceuticals Industry
The Developments in the Ukrainian Scientific and Research Institutions
Biosensors
Biotechnology with Agribusiness Application

Space technologies
The Ukrainian space industry is one of the key branches of the national economy. It`s involved in the development and manufacturing of competitive products for space and civil purposes with application of space technologies. "Sea Launch" Project
"Dnipro" Project
"Ground Surface Launch" Project
"Cyclone-4" Project

MEDIA Highlights Significant growth and substantial changes in the media structure and format in 2002 Share of TV budgets in the total market keeps growing, leveling of the market structure continues Print media at the stage of updating formats and appearance of new segments Radio undergoing reshuffle, several segments waiting to emerge Internet commercial potential low, Internet advertising considered supplementary

SUMMARY & CONCLUSIONS

INNOVATION INDUSTRY MARKET INFRASTRUCTURE IN UKRAINE

Innovation Industry Overview
INNOVATION INDUSTRY DEVELOPMENT AS THE PRIORITY OF THE State policy Opportunity rich innovations suply Low competitiveness of Ukrainian technology SMEs Challenges to Hi-Tech SMEs Entrepreneurship infrastructure

Technology Venture Capital
Investor interest in Ukraine high-tech sector is driven by a large technological and intellectual capital base and impressive technology resources. Some of the most promising segments within the high-tech sector for venture capital include communications, software, IT, and space industry technologies. Of late, an increasing number of emerging and young Ukrainian technology companies have been seeking financing through venture capital transactions.

Technology Venture Capital Industry Persrective
Further developement of the technology venture capital industry in Ukraine will depend on such factors as macroeconomic stability, improvement of corporate governance procedures, development of liquid stock markets and long-term capital sources. Such improvements will make investments in Ukrainian companies more attractive to venture capitalists.
Major Venture Capital and Private Equity Investors in Ukraine

INVESTING INTO THE UKRAINIAN HIGH_TECH SECTOR: LEGAL ASPECTS Introduction
Being a typical civil-law jurisdiction, Ukraine heavily relies on the enactment of laws and regulations that govern particular spheres of social and economic lives of Ukraine. Although a large portion of its legislation Ukraine inherited from the old Ukrainian SSR, during the past decade it has substantially been changed in order to reflect the Ukraine`s status of the new independent country and its transition to the free market economy.

Investment Regime
Ukrainian legislation provides that foreign investors enjoy national regime of investment activity in Ukraine. Foreign Investments (foreign investors are entitled to certain privileges and guarantees under the Foreign Investment Law provided that their investments have been duly registered with the appropriate local state authorities.

Investment Vehicles
Applicable Ukrainian legislation provides for a large variety of potential investment vehicles all of which can be grouped into two principal categories: corporate and contractual.

Investment Fund/Mutual Funds
The Law of Ukraine "On Institutes of Mutual Investment (Contractual and Corporate Investment Funds)", dated 15 March 2001, (the "Investment Funds Law") provides for a special kind of legal vehicles designed specifically for purposes of carrying out portfolio investment activity.

Securities
Ukrainian legislation recognizes the following types of securities: shares of capital stock, bonds of domestic or external state borrowing, municipal bonds, corporate bonds, treasury bills, deposit certificates, investment certificates, promissory notes and bills of exchange, and privatization securities.

IT/C Legislation
Although not that developed as in Western jurisdictions, Ukrainian technology and communications legislation currently is trying to catch up with the rapid development of the respective industries in Ukraine. Information Technologies: E-Commerce, E-Banking, The Internet and Domain Names, Protection of Domain Names, Administration of the Ukrainian ccTLD System, Court of Arbitration for the Internet-Related Disputes, Software Development and Protection, Outsourcing of Software Development, Software Register, Encryption Technology. Communications: Radio Frequency Resource, Telecommunications, ISP Services.

Technology Transfers/ Innovations
Dual Purpose Goods and Technologies, Technology Transfers, Technology Innovations, Technoparks.

Intellectual Property
Ukrainian intellectual property legislation is one of the most comprehensively regulated branches of Ukrainian legislation nowdays. It affords protection, inter alia, to copyright and neighboring rights, inventions, utility models, industrial designs, trademarks and service marks, appellations of origin, layouts of integrated circuits, etc. Copyright Protection of Right in Software, Protection of Right in Databases

Protection of Information in Automated Databases
The protection of infomation in automated databases is subject to the Law of Ukraine. The Automated Databases Law establishes principles for the regulation of relations between the parties involved in the processing of information in automated databases and the use of such information by third parties.

Industrial Property
Patents for Inventions and Utility Models
Protection for patents for inventions and utility models in Ukraine is granted in accordance with the Law of Ukraine. Ukraine follows the principle of universal novelty in granting patents. Protection of Trademarks
Protection of rights in Layouts of Integrated Circuits ("Mask Works")

Taxation
The general principles of the Ukrainian tax system, as well as the types of taxes and duties which may be levied in Ukraine, are defined in the Law "On the Taxation System". Corporate Income Tax
Taxation of Non-Residents
Taxation of Permanent Establishments
Value-Added Tax
CIT, VAT, Land Tax and Customs Privileges for Technology Innovation Projects
CIT, VAT, Customs and Currency Privileges for Technoparks

Softpress Titles
Softpress - the leader of Special Interest and Business Press Market
Chip Magazine - to be ahead of Your Time
Communication World Magazine - Telecommunications Working for You
Hi-Tech Magazine - For Smart and Stylish
Telemir Magazine - Business and Broadcasting Technologies
Telecom Magazine - Corporate Solutions in Practice
DK - Zvyazok - weekly Newspaper
MM Money & Technologies - The Magazine for Those, Who Decides
Office - The magazine of Effective Manager
Telecom/IT/Office-Navigator: Business Solutions
The fourth Sector Media Center - New approach to PR in Hi-Tech Internet Consulting & Communications (ICC)
IT ware community ( http:/itware.com.ua), PhotoWare

Companies Profiles

Yellow Pages Accounting & Audit
Computer & Accessories
Consulting
Customs institutions & Services
Exhibition organizations
ISP
Investment & Securities
Legal Services
Public Organizations
Software
State & Government
System Integration, Solutions
Telecommunications