With the appointment of the new government, Ukraine has reached a time of political stability. This new government will be addressing macroeconomic issues, such as how to move Ukraine up in global business rankings. How do you think Ukraine can create a friendlier business environment and move Ukraine up in this ranking?

MR. VITALIY BOYKO: The first step Ukraine should take is getting rid of its tainted reputation. The biggest problems were political instability, instability of the national currency and something we used to have but hope not to have in the future: corruption. Naturally investors want the rules to be the same for everybody and not to change. So far this cannot be guaranteed in the Ukraine, so right now the most realistic way to do business here is together with a Ukrainian partner.

This is because the mentality of Ukrainian business people is different to Western business people. Foreign companies that are starting to operate in our market are usually connected to our mentality, whether Russian, Israeli or American companies but founded from someone from former USSR, or companies or from developed markets but working together with Ukrainian partners.

I would not say that Ukraine is ideal for foreign investment at the moment and my words would be backed up by the 99% of investors who are not entering the market. I can see that the first steps in improving our reputation are being taken. In politics we may expect two ways of development for the situation, either stability for a long time or a similar situation that we are seeing in Egypt.

I think right now we are moving toward the first situation. What is happening to the Ukrainian national currency is that it is stabilized together with the political situation, because I believe it used to be a weapon of contradicting political forces.

But, now political stability will ensure a stable currency. In the fact the Ukrainian economy became the battlefield for Ukrainian politics. It was really artificial, they were creating a situation to portray more of a downturn in GDP than what was really in place. I hope stability will continue and be supported by our officials and this way it will improve our investment atmosphere. Our company consults with cabinet ministers and this is the first time in Ukrainian history that a private consultant company has been invited to consult. In the future we will also be consulting with the City Council of Kiev.

In 2010 the economy grew by 4.1% and the Prime Minister and the First Deputy Prime Minister both expect a solid growth of 5% in 2011 and 2012. In your opinion, which sectors will be leading this economic growth?

MR. VITALIY BOYKO: I believe industries, as they traditionally occupy more than a quarter of Ukrainian GDP. Secondly, the agriculture sector, because our rich soils should start working more and occupy a larger share of the Ukrainian economy, followed by retail and services; in this field we are behind the U.S. market. We also have a very underdeveloped Real Estate market due to financial problems, as many construction projects that had already started were forced to terminate.

One of the main reforms is the new tax code. Profit taxes are to fall from 25% to 17% and VAT from 20% to 17%. How can these benefit the real estate sector?

MR. VITALIY BOYKO: Tax changes are in place and will come into effect in five years so they are yet to show any positive effect. It is not the type of reform that can change things overnight. Nevertheless, it is a really good step to simplify the tax system and lower taxes. Our system is very heavy and difficult to understand which leads to violations from both the taxpayers and the monitoring bodies. However, this taxation reform did not touch upon the most burning issue for all businesses: income tax, which is interesting to the majority of taxpayers.

The law of regulation on urban development for the construction industry was adopted in mid January. The bill is aimed at reducing and simplifying the pyramid procedures from around a year and a half to two or three months. What is your opinion on this law reform?

MR. VITALIY BOYKO:  We have worked with Georgian companies and they used specialists from the U.S. and again I think that these changes are moving Ukraine in the right direction. They were absolutely necessary but still bring problems in the beginning. Right now these changes are aimed at simplifying procedures in developers business and reducing corruption. However, at the beginning although there is law there is no procedure, which could lead to corruption.

After the global economic crisis participants in the commercial Real Estate sector had to deal with a slump in rental rates of 25% to 40% and vacancy rates of around 15% to 20%. However Business Monitor International believe that rent and yields are stabilizing and toward the end of 2010 the Real Estate sector should be recovering slowly. How exactly did the economic crisis affect this sector and what measures need to be taken to kick start its growth?

MR. VITALIY BOYKO: There are four main sectors of Real Estate, first there are commercial and trade Real Estate and during the crisis the vacancy rate was around 5%. It did not go up and right now it is at 1%. In Kiev there are 700,000 square meters of Real Estate in trade centers with a potential of 1 million square meters. We have a deficit and when there are no vacant spaces the price goes up.

Our calculations show that this deficit will stay this way until 2013. The way we see it is if by 2013, if all the projects that have been announced are completed by the due date the market will be satisfied which may lead to lower prices. Until then Kiev will have high rental rates of 58 to 60 dollars per square meters. In terms of office Real Estate the vacancy rate was up to 19% with a lowering of rental rates.

This vacancy rate was mainly due to foreign companies leaving the Ukrainian market and the number of investment projects decreased together with many Ukrainian companies also reducing business. For this market the main goal is to try and fill premises that have been empty for a long time. It used be 90,000 square meters of empty spaces now it is less than 50,000.

The Real Estate market will again become more interesting when investors come back to Ukraine and the investment climate improves. A few words about the dwelling market: in Ukraine it is 21 square meters per person, in the U.S. it is 70 and Europe it is 40. We have a huge deficit for dwelling Real Estate - it is not developing due to the difficulty in getting a mortgage; rates are at around 18%. Any developer that can provide mortgage loans at lower rates would be very successful in the Ukrainian market.

To Be Continued...