CONSTRUCTION
AND BUILDING MATERIALS MARKET IN UKRAINE
By
Oleksandr Zavhorodniy – U.S. Commercial Service Specialist for Construction, and
Andriy Vorobyov, BISNIS Ukraine Representative
July
10, 2001
SUMMARY
The
Ukrainian market for building materials offers sound opportunities to
exporters. The developing Ukrainian
construction industry is looking for new supply sources and contacts. Domestic production of building
materials is lagging due to high-energy costs, obsolete technology and aging
facilities. These conditions have
increased prices for locally produced products, which in turn have provided
opportunities for Western products.
The
Ukrainian market for building materials is highly competitive. German, Italian, Scandinavian, French,
and Spanish exporters are aggressively promoting their products. Many well-known European brands are
represented at construction shows held in Kyiv. However, distribution systems are still
in the process of development. Even
major distributors are not able to serve as one-stop shops and consumers spend
time searching for a product, quality, and price. Price and quality are the decisive
factors in consumer preference.
Ukrainian
distributors focus on high profitability, which seriously impacts the
marketability of U.S. products. To
reduce prices and increase competitive advantages, several European companies
have established joint manufacturing of building materials in
Ukraine.
Local
building contractors use materials of foreign origin and new technologies. Building materials of German, Italian,
Austrian, Spanish, French, and Scandinavian origin have gained a strong presence
in the Ukrainian market. U.S.
building products have increased their market share, but remain a small
percentage of the overall building materials market.
Kyiv
is well supplied with imported building materials. Pricing for building
materials in more remote areas is higher then central and western Ukraine,
although the gap is decreasing.
Kharkiv, Dnipropetrovsk, Donetsk, Lviv, Odessa, and Zaporizhzhya offer
potential for foreign exporters and investors interested in expanding operations
into Ukraine. Cooperating with
importers located or oriented to industrial regions of Ukraine may be advantages
for U.S. exporters.
Building
materials include a broad product range.
This report focuses on the promising building materials market for
interior application: rock wool insulation, paints, wall and floor covering
materials (linoleum, carpeting, ceramic tiles and
wallpaper).
A.
MARKET HIGHLIGHTS & BEST PROSPECTS
1.
Market
Profile
In 2000, Ukrainian domestic producers of
building materials, manufactured UAH 3799.6 million (USD 691 million) worth of
product, this is 15% more than in 1999.
But this increase does not reflect a development in the sector, since
prices for domestic products rose by 20%.
In quantity, domestic production actually dropped by 9% for the year
2000.
In
most cases local production of building materials satisfies the need of the
construction industry for reduced pricing, when compared to imported
products. But this price
differential is decreasing, making room for the importation of foreign building
materials.
Suppliers
of imported building materials from German, Italian, Turkish, Austrian, Spanish,
French, Scandinavian, Slovenian, Czechoslovak, and Polish companies have gained
a strong presence in the Ukrainian market.
By comparison, U.S. building products have increased their market share,
but remain a small percentage of the overall building materials
market.
During
spring and fall the demand for building materials is higher than in the
winter. Winter construction and
renovation projects typically stop due to unfavorable weather. Because of the low demand for building
materials, prices for these products also decrease
temporarily.
Ukraine
regionally, is well supplied with imported building materials. Regional prices for imported products
vary only slightly. The highest
sales for building materials have been recorded in Kharkiv, Dnipropetrovsk,
Donetsk, L'viv, Odessa, and Zaporizhzhya.
Joint ventures with importers located in the industrial regions of
Ukraine may be lucrative for U.S. building material
exporters.
2.
Statistical
Data
MARKET SIZE TABLE FORMAT (US
DOLLARS MILLIONS)
|
|
1999
|
2000 |
2001 |
Projected Average
Annual Growth Rate for Following 2 years (%) |
|
Import
Market |
537 |
567 |
577 |
1% |
|
Local
Production |
600 |
691 |
700 |
1% |
|
Exports |
335.8 |
409.5 |
412 |
1% |
|
Total
Market |
801.2 |
848,5 |
865 |
2% |
|
Imports from
U.S. |
12 |
18 |
18 |
|
Last Year's Import Market
Share (Percent for Major Competitors and US):
US: 2-3%; Spain 14%;
Germany: 12%; Italy: 10%; Turkey: 8%
SOURCES (Note: Reliable, complete, and
accurate statistics on production, imports, and exports of sporting goods are
not available in Ukraine.
Information contained in this report relies on sources that include
government publications, opinions of industry participants, and unofficial U.S.
Embassy estimates.)
3.
Best Sales
Prospects
It
should be highlighted that NOT ALL imported building products have marketing
potential in Ukraine. Low market
desire is evident for imported cement, bricks (domestic production is abundant),
clay roofing shingles (customers desire metal shingles or asbestos roofing
materials), asphalt shingle, bituminous sarking and tar paper.
Moderate
market desire is evident for metal roofing components (there are seven metal
producers able to fulfill demand, although fixtures, sheeting and anti-corrosion
components for production are imported).
There are however, imported metal shingles available from Finland,
Sweden, German and Poland. The
Ukrainian State Statistics Committee indicates 600 thousand square meters of
metal shingles were sold in Ukraine in 2000. Local producers feel that the demand
will increase to 2 million square meters in the near future. A square meter of metal shingle
presently sells for USD 7.00 to USD 20.00.
In
cement, dry mixes are available (local producers are numerous but the quality is
not always acceptable. Moreover,
local production of mineral binding materials (gypsum and lime) is on the
decline, stalling production.
Nearly all-local manufacturers import chemical binding, conditioning, and
coupling agents, (the prices of which have begun to rise).
Best
prospects include – (and features that make them
desirable)
a.
Linoleum
(imported linoleum has improved coloring, is greater than 2 meters wide),
b.
Carpet
and tufted floor covering (there is only one producer),
c.
Interior
ceramic tiles (imported tiles have improved coloring and size
variety),
d.
Wallpaper
(better quality and coloring),
e.
Insulation
(imported mineral wool has improved packaging, variety of sizes and pricing),
f.
Paints (local production is abundant for alkyd
penta-phthalic oil paints but production of acrylic paint is
developing).
The best prospect products
by respective harmonized system (HS) numeric codes are:
6806.10
Slag
wool, rock wool or similar mineral wool (including mixtures thereof), in bulk,
sheets or rolls).
5904
Linoleum,
cut to shape/or not; floor coverings of a coating or covering applied on a
textile backing.
5703
Carpets or other textile floor coverings,
tufted/or not.
6907
Unglazed
ceramic flags and paving, hearth or wall tiles; unglazed ceramic mosaic cubes
and the like, on a backing or not.
6908
Glazed
ceramic flags and paving, hearth or wall tiles; glazed ceramic mosaic cubes and
the like, on a backing or not.
3209
Paints
and varnishes (including enamel and lacquer) based on synthetic polymers or
chemically modified natural polymers, dispersed or dissolved in an aqueous
medium
3214
Glaziers
putty, grafting putty, resin cements, caulking compounds and other mastics;
painters' fillings; non-refractory surface preparations for facades, indoor
walls, floors, ceilings or the like
4814
Wallpaper or similar wall-coverings
B. COMPETITIVE
SITUATION
1.
Domestic
Production
Ukraine's
rich source of china clay (kaolin), limestone, fire clays, granite, gypsum, and
glass sands, enables large-scale domestic production of building materials. There are over 1000 domestic producers
of building material in Ukraine, 90 % percent of who are private, or joint stock
companies.
Quantitative
Production of Building Materials in Ukraine
|
Material |
1999 |
2000 |
Quantity |
|
Cement |
7441.1 |
6676.3 |
Thousand
tons |
|
Bricks
(baked or lime-sand) |
2435
|
2142 |
Million
units |
|
Metal
roof shingle
|
300 |
600 |
Thousand
sq. meters |
|
Clay
Roofing shingles, Imbrex, pantile |
111
|
159 |
Thousand
sq. meters |
|
Building
lime, masonry lime |
452.7
|
565.1 |
Thousand
tons |
|
Finishing
lime |
2915.6 |
2921.4 |
Thousand
tons |
|
Gypsum
rock |
311.5 |
303.9 |
Thousand
tons |
|
Gypsum
plasterboard |
4101.5 |
7254.7 |
Thousand
sq. meters |
|
Asphalt
shingle, bituminous sarking and tar paper |
24763.0 |
31893.3 |
Thousand
square meters |
|
Ceramic
wall tiles |
6000.6 |
6558.0 |
Thousand
square meters |
|
Exterior
or facade tiles |
716.3 |
407.8 |
Thousand
square meters |
|
Linoleum
and vinyl floor tiles |
3378.9 |
3278.4 |
Thousand
square meters |
|
Various
dry mixes |
24926.7 |
24881.4 |
Thousand
cubic meters |
|
Various
porous insulation |
490.7 |
404.3 |
Thousand
cubic meters |
The
production of mineral wool insulation is not commercially possible for Ukrainian
producers, due to the high-energy costs and outdated technology at production
facilities. In 2000, for the
estimated 100,000 cubic meters of locally produced insulation, dealers and
producers earned roughly US$ 3.5 million.
Wallpaper
The
"UkrBudMaterialy" Corporation (The
Ukrainian Building Materials) annually manufactures approximately 90 million
rolls of wallpaper, worth more than USD 130 million on the wholesale
market.
Local
manufacturers supply approximately 40 % (equal to USD 100 million in retail) of
the annual Ukrainian demand for wallpaper.
Ukrainian wallpaper manufacturers export nearly 50 % (for an estimated USD 30 million) of
their products to other CIS countries.
Noted
examples include:
a.
The Koryukov Factory of Industrial Papers exporting 33% of its products
to Russia;
b.
The Dnipropetrovsk joint venture "DneproMain" exports more than 50 % of
its wallpaper to Russia.
The
market price for wallpaper in 2000 remained unchanged from 1999. A ten-meter roll of locally produced
wallpaper retailed for:
a.
4-6
Ukrainian Hryvnya (UAH) or (USD 0.72 - USD 1.09) - for paper wallpaper,
b.
5-12
UAH (USD 0.9 - 2.18) - For vinyl covered wallpaper,
c.
10-20 UAH (USD 1.82 - 3.64)– For foam acrylic wallpaper.
Paints
and varnishes
There are nearly 40 local
paint and varnish manufactures in Ukraine.
Domestic Manufacturers who
are in operation include:
a.
Open Joint Stock company,
Dnipropetrovsk Lakokrasochniy Zavod
b.
Open Joint Stock company,
Symykhimprom
c.
Closed Joint Stock company,
Lakma
d.
Closed Joint Stock company,
Nifar (town of Nezhin)
e.
Closed Joint Stock company,
Elaks (Odessa)
f.
Closed Joint Stock company,
Raduga(vinytsya)
f.
Open Joint Stock Company, Spektr (Lutsk, Volyn Oblast).
Most paints in Ukraine are
alkyd (oil solvent, produced of penthpthalic components, white spirit, and other
organic solvents). They are produced in a paste form, (a solvent is needed
before use), and in liquid ready-to-use forms.
According to Ukrainian
statistics in 2000, domestic paint manufacturers produced 95,589 tons of paint,
which is 7,800 tons less than in 1999.
Local production of paint, over the last few years has been on the
decline. Domestic producers in most
cases, use Ukrainian raw materials.
Although for the production of “new water soluble and acrylic paints”,
raw materials are imported. Half of
all locally produced paints are for industrial use (machine building, furniture
productions, etc.) or exported to Russia and NIS countries. The other half, or
an estimated 45 thousand tons (USD 120 million in retail value), is sold for
renovation and construction use.
Linoleum
Floor Covering
Ukraine
annually produces an estimated 3 million square meters of linoleum. For this volume it earned an estimated
USD 12 million, which is 20 % of the market. In quantity, locally manufactured
linoleum controls only 30 % of the market.
Even though, five domestic plants have considerable production capacities
(for example, the Odessa factory "Bolshevik" is capable of producing 16 million
square meters of linoleum yearly, the Lutsk Paperboard and Ruberoid factory -
about 3 million square meters annually), last year, they produced only about 2
million square meters of linoleum.
The domestic sales product volume is very low and is practically
un-available in construction material retail shops. Jute base linoleum of 3-millimeter
thickness of Ukrainian origin sells for - USD 1.50 - USD 6.00. The average price for locally
manufactured linoleum is within the range of USD 1.40 - USD 5.50 depending on
the content of natural components.
Carpets
in Ukraine are produced by only one company, the JV Vinisin, in the town of
Kalush, of the Ivano-Frankovsk oblast.
The Vinisin Company is capable of producing over 1 million square meters
of carpeting, but the supply of raw materials (threads, dies, etc.) prevents
them from accomplishing this. Locally manufactured carpets have an estimated 20
% of the market. But in value the
locally made carpets are only 10 % of the market (estimated USD 4 million). The present average price for one square
meter of locally made carpeting is UAH 20.00 (estimated USD
4.00).
Currently, according to
Ukrbudmaterialy, Ukraine produces an estimated 7 million square meters of
interior and exterior ceramic tiles annually at a value of USD 14 million. To the local market Ukrainian producers
sell 6 million square meters, or 40 % of the market. In value, Ukrainian tiles only control
10 % of the market. Sales of
domestic products to the local market have remained constant for the last three
years. There are 10 local producers, the most successful are:
1.
Kharkiv Ceramic tiles
plants,
2.
Lviv Ceramic plant,
3.
Kiev Plant Keramik, and
4.
Keram Perlit closed Joint
stock Company,
5.
Agromat Production Company.
Locally produced tiles are
cheaper than imported ones. A one
square meter 200 by 250-millimeter tile cost UAH 17.00 – UAH 22.00 (USD 3.00 -
USD 4.00). Presently, local
production of non-porous floor tiles is not developed in Ukraine.
Experts indicate that local
production and sales of ceramic tiles in Ukraine has dropped. The decrease was
caused by the poor quality of Ukrainian tiles. The drop was caused by outdated
technology and poor production facilities, which are in need of
modernization.
2.
3rd-Country
Imports
In
value, imported mineral wool insulation materials accounted for US$ 16
million. Which is USD 4 million
more than in 1999. In quantity, Ukraine in 2000 consumed an estimated 400,000
cubic meters of imported mineral wool insulation.
By
variety, 55 % (USD 8.8 million) of the market belongs to basalt fiber wool. The remaining 45 % (USD 7.2 million) is
fiber glass wool. According to
market operators the market for insulation is expected to grow next
year.
Foreign
mineral wool is imported from Finland, Denmark, Germany, Poland, Turkey, Russia
and other countries. Construction
companies prefer to buy foreign mineral wool because of its quality, variety,
availability and packaging size.
The
most popular brands of glass wool are:
a.
Isover
(Finland)
b.
Ursa
(Germany).
c.
Rockwool
(Denmark) and Paroc (Finland) gained a strong presence in the Ukrainian market
for basalt mineral wool.
According
to Ukrainian experts these four brands together have a 60 % market share in
Ukraine for mineral wool insulation.
A
square meter of the cheapest mineral wool is offered for Ukrainian end-user
starting from USD 1.05, the most expensive one - starting from USD 5.00.
The
lowest prices for one square meter in USD are:
Paroc
1.30-1.40
Isover
1.25-1.30
Rockwool
1.20-1.20
Ursa
1.05-1.01
B.
Wallpaper
Ukraine
imports wallpaper annually for an estimated USD 150 (in retail prices).
By
wallpaper types –
45
% (USD 67.5 million) of all sales
are in the paper variety,
40
% (USD 60 million) of the sales are vinyl and silk-screened wallpaper,
10
%. (USD 15 million) primer or pre-coating wallpaper
5
% (USD 7.5 million) plaster-type
wallpaper
Imported
wallpaper is present in all outlets of local dealers. The brands available to
the Ukrainian consumer and countries they are identified with include:
a.
Seineks (Estonia),
c.
Raufazer
ASCreation, Rash, Marburg, Legokol, Erisman,
RollOver, Club Creation, Salubra,
Profi Line, Wallton
(Germany),
d.
Decori-Decori
(Italy),
e.
Vinilia,
Esta (France), Columb (USA),
f.
Arte
(Belgium),
g.
Vertex
(Czech Republic).
Pricing
for one square meter of imported wallpaper sold in Ukraine, is as follows:
a. Pure paper, USD 2.20 - USD
3.10
b. Vinyl covered, USD 2.70 - USD
4.20
c. Primer or pre-coating wallpapers USD
1.80 -USD 3.30
d. Plaster (paper pulp) wallpaper USD 2.00
-USD 6.00
Paper
and vinyl wallpapers are the most popular in Ukraine. Plaster (paper pulp) wallpaper is
available, but is not used because of cost, and application requires experience
hard to find in local construction companies.
C.
Paints and varnishes
According
to distributor estimates, Ukraine imports USD 180 million worth of paints,
annually. This amount is 60 % of
the total domestic consumption.
In
order to understand the internal dynamics of the market, the following
crosscutting statistics on paint types, uses and costs is
provided:
1.
By paint type:
a. 70 % (USD 126 million)- water emulsion
paints.
b. 15 % (USD 27 million) - enamels and oil paints,
c. 10 % (USD 18 million) - varnishes
d.
5 % (USD 9 million) - decorative plasters
2.
By cost: Depending on specifics and origin,
a. One kilogram of water emulsion paint,
for $.50-$5.00,
b. Enamel - $ 1.00 - $ 8.00,
c. Oil paint - from $ 1.30 - $ 10.00,
d. Varnishes and lacquers - $ 1.70 - $
11.00.
The
lowest paint prices are domestic and paints from Poland, Czech, Hungary,
Slovakia, Bulgaria, and Turkey,
Cost:
USD 1.20 - USD 5.00 per kilogram.
Average
price ranges are associated with paints from Germany ( DUFA, MIPA), Holland (SPS), and Canada (SICO).
Cost:
USD 2.50 - USD 7.00 per kilogram
High-end
imported paint brands sold in Ukraine are:
SADOLIN,
PINOTEX, CASCO, SYNTEKO,
Dutch (AKZO NOBEL),
Finland
(TIKKURILA),
England
(ICI),
Sweden (LANDORA, BEKERS),
Estonia
(VIVA COLOR),
Germany
(CAPAROL, CLASURIT).
Cost:
USD 4.00 to USD 9.00 per kilogram, but as high as USD 30.00 per
kilogram
D.
Linoleum Floor Covering
Annually
Ukraine imports 7 million square meters of linoleum at a cost of USD 55
million. In quantity imported
linoleum has an estimated 70 % of the market share.
In
cost this market share amounts to 85 %. Experts expect linoleum to remain the
basic floor cover in Ukraine. Though the tendency is for Ukrainian consumers to
prefer greater natural material content.
The
five largest dealers in Ukraine are:
1.
"ALART",
2."Dekorservis", 3."Skandi", 4."Budpostachobject” and 5."Iskrasoft".
These
companies offer primarily covering materials of
1.
Tarkett-Sommer (Sweden, France, Germany),
2.
Forbo
(Sweden),
3.
Gerflor
(France),
4.
Poliflor
(England) and
5.
DLW
(Germany).
The
companies indicate that a 3-meter wide by 3-millimeter thick linoleum from
Yugoslavia is in demand. But this does not preclude that other sizes do not
sell. Foreign linoleum of different
widths is attractive to customers - from 2,5 up to 3,5
meters.
Linoleum
of natural fibers (i.e. one having
a composition of cork oak) is in demand on the Ukrainian market. Representatives of the Kiev branch of
the Dnepropetrovsk Corporation “KorkStail and Co” sell USD 35 thousand worth
monthly.
Floor
covering linoleum comes in a wide price range, depending on producer, durability
and quality. An average domestic
producers sells linoleum for approximately USD 2.10 for 1 square meter. Prices for imported products are USD
2.50 - USD 10.00 for 1 square meter.
Retail
prices for one square meter of commercial or heavy-duty linoleum are as
follows:
a.
Single-layer heavy-duty vinyl linoleum of 1.5-2.0 millimeter thickness from
France costs USD 6.00 - USD 8.90.
b.
Multi-layer heavy-duty vinyl linoleum of 2.0 - 2.4 millimeter from France and
Sweden sells for USD 11.00 - USD 28.00
Retail
prices for one square meter of household linoleum are as
follows:
a.
Felt-based
linoleum of 3 millimeter thickness
from
Czech Republic - USD 3.50
b.
Jute
basis linoleum of 3 millimeter thickness
from
Yugoslavia - USD
3.50
c.
Pure
linoleum without base of 0.7 millimeter thickness
from
Germany -
USD 2.50
d.
PVC
base linoleum of 1.2-1.4 millimeter thickness
from
Germany
- USD 4.50
e.
Natural
base linoleum (40 % of a cork oak filling) of 2-2.5 millimeter thickness.
from
Germany
- USD 16.00 - 21.00
f.
PVC
base linoleum of 0.72-3.0 millimeter thickness
from
Germany, France - USD 25.00-USD 32.00
E.
Carpeting Materials
According
to Ukrainian distributors about 4 million square meters of carpeting are sold
annually for USD 40 million.
Imports account 85 % of this.
Numerous building material wholesaling companies sell carpeting from 10
foreign rug-carpeting manufacturers.
Carpeting
produced from polypropylene thread has 60 % of the sales in the Ukrainian
market. Carpeting made from
polyamide threads accounts for 40 % of the market.
45
% of the customers choose rug carpeting for office floor covering but only 15 %
of the customers prefer rug floor cover in their homes. In general, according to Ukrainian floor
covering wholesalers, rug carpeting has a 20 % customer preference when they
purchase floor-covering materials.
Leading
Ukrainian wholesalers are:
1.
Alart,
2.
Dekor
Servis,
3.
Stek,
4.
Merks
and
5.
Yeko-Kiev.
The
following brands are popular in Ukraine:
a.
Sintelon (Yugoslavia),
b.
Balta, DOMO, ITC (Belgium),
c.
Tapisift, Tecsom (France),
d.
Valeant, Show Industries (U.S.A).
The
price for imported carpeting varies from UAH 30 ( USD 6.00) to UAH 70.00 (USD
14.00) for one square meter.
Carpeting made of polyamide thread costs from USD 6.00 up to USD 16.00
per square meter
1.
Low nap carpeting of two to five-meter width is sold by Belgium and Yugoslavia
manufacturers. One square meter of such carpeting cost UAH 18.00 – UAH 24.00
(USD 3.27 - USD 4.36).
2.
Canada, Belgium, U.S.A., and Yugoslav suppliers sell medium nap carpeting of
three to five meter width. One square meter of such carpeting costs UAH 30.00 –
UAH 50.00 (USD 5.50 - USD 9.10)
3.
High nap carpeting supplied from Canada, Belgium, France and the U.S.A., usually
three to five meters wide and priced at UAH 37.00 – UAH 130.00 (USD 6.72 - USD
23.70)
Recently,
bright, colorful carpeting has received little demand. A floor covering with ornamentation and
varying nap height has become popular.
According to the market, an
estimated 7 million square meters of imported tiles were sold in Ukraine, for
USD 126 million in 2000. In 1999
this figure was 10 million square meters for USD 120 million in retail
costs.
According to Ukrainian
statistics, Spanish tiles have 40 % of the imported market, followed by Italian
(15 %) and Turkish tiles (10 %).
Ceramic Tile Trademarks sold
in the Ukrainian market are:
-- Spain: Colorker Venus,
Sanchis, Gubossa, NovogresItalgres, El Molino, Gaya, Mapsa,
Metropol;
-- Italy: Marazzi, Valverde,
Sichenia, Casalgrande, Pedana, Caesar, Cercom,, ArtisticoDue,
Saicis;
-- Turkey:
Kalebodur,Yurrtbay, Sogut Seramik
-- Czech Republic: Rako,
HORNI, Briza
-- Slovakia:
Kerko
-- Poland: Ceramika,
Paradyz,Nova Gala
-- Germany: Meissen,
Vileroy&Bosch, Agrob Buchtal, Steuler
-- Russia:
Welor
-- Romania:
Sanex
-- Belarus: Keramin, Elma,
Belaz, Berezabudmaterialyt
-- Lithuania: Dvarcioniu
Keramica
Ukraine varies in
consumption preference of types of tiles. Nearly 70 % prefer wall ceramic tiles,
while only 30% desire floor tiles.
a.
Up to UAH 10 (USD 1.80 per square meter) –
65 % of the market – USD 60
million – Czechoslovakia, Turkey, Belarus, Ukraine and some Spanish and Italian
tiles.
b. UAH 40 – UAH 100 (USD
7.27 – USD 18.20 per square meter)
- 20 % of the market- USD 30
million Germany, Spanish, Italy
c. UAH 100 - UAH 200 (USD
18.20 – USD 36.40 per square meter) 10 % of the market - USD 40 million ( In
1999 - USD 35 million) Germany, Italy, Spain
d. UAH 200 (USD 36.40) and
more - 1 percent – 10
million
Imported tiles sell for 2-3
times the domestic varieties.
Imported tiles purchased for USD 10.00 per one square meter, are sold by
Ukrainian dealerships for USD 23.00 – USD 30.00.
3.
U.S. Market
Position
In
the past several years, American companies have become stronger in the Ukrainian
building materials market. However,
German, Italian, French and Scandinavian companies have a strong influence in
the Ukrainian building materials market. American companies prefer to work
through established Ukrainian distributors. However, there are only a few Ukrainian
distributors who represent products produced in Europe under U.S. technology or
by U.S.-European joint manufacture.
Ukrainian distributors advertise such products as being of European
origin. It is therefore difficult
to determine the origin of U.S. products in the Ukrainian market. In addition, the U.S. Commercial Service
–Kyiv or BISNIS are not aware of all U.S. companies operating in the Ukrainian
market.
U.S.
- origin products, available in Ukraine is not as broad as that of those from
Germany. Products being offered by
U.S. companies include: false ceilings, doors and windows, roofing materials,
panels, sun-protection films, roofing materials, lighting systems, insulation
materials, vinyl floor tiles, carpet and tufted floor cover materials. Currently, the following U.S. building
materials companies are represented in the Ukrainian market:
Armstrong
(drop ceilings), AIDCO (insulated windows),
Black&Decker
(electric tools, De Walt, Elu, BBW, Piranha,
Black&Decker
trademarks), Celotex (drop ceilings),
Certain
Teed Corp. (sidings), Dryvit Systems (Insulation),
Englert
(aluminum panels with acrylic covering),
Georgia
Pacific (panels), General Electric (lighting systems), Liquid Nails (nails),
Ondura (roofing materials),
Southwall
Technologies, Inc. (insulated windows),
TELEDYNE
LAARS (swimming pools),
Solarmax
(sun-protection window films),
Solar
Guard Intern. (Sun-protection and energy-saving films),
Stanley
(electric devices). Columbus (wallpaper),
Show
Industries (carpet and tufted floor cover).
Several
joint U.S.-Ukrainian manufactures have started operating in the past few
years. They deal with the
production of insulated windows and doors.
1.
Ukr-West Window Ltd. is a joint venture between the American Industrial
Development Corporation (AIDCO) and Production Association Orizon of Smela,
Cherkassy Region, Ukraine. The
joint venture produces energy efficient Polyvinyl chloride (PVC) windows and
doors using U.S. technology, equipment, and materials. Ukr-West Window imports PVC extrusions
and window and door components from the United States and Europe. All cutting,
welding, and assembly of the PVC frames is done at the Smela
plant.
There
are two additional joint American-Ukrainian manufacturers of windows and doors
in Ukraine:
3.
Best International (Zaporizhzhya)
produces plastic-aluminum insulated windows and doors, using materials imported
from the U.S., Canada, and Europe, and
4.
Interwindows (Odessa) produces windows,
doors, and related aluminum products.
5.
Since 1997, the American Company "OTIS" has been operating a joint venture
"Ukr-Otis" for the manufacture of modern elevators in Kyiv. This joint venture can easily meet the
demand of Ukrainian collective end-users and construction project
developers.
6.
In 1998, the Western NIS Enterprise Fund invested in the renovation of the
Slobozhanska Budivelna Keramika (Slobozhanshchyna Construction Ceramics) plant
in the Sumy Oblast. The plant was
shut down in 1996 and was badly in need of investors. The plant was modernized with a modern
mass mixing machine, forming complex, and two mills for clay mass preparation
work. The plant's new production
capacity equals 30 million items annually.
Bricks produced at the plant will be packaged to prevent them from
absorbing water. This joint U.S.-Ukrainian manufacturing venture will work to
satisfy the increasing demand of the Ukrainian market and
neighboring
countries.
In
the last few years, a distribution network has developed. The largest concentration of
construction companies is centered in Kyiv. In Kyiv there are approximately 460
contracting firms, 230 design firms, and 400 distributors of building materials
and trading companies.
Western-standard
apartments, offices, and supermarket renovation remains a lucrative business in
Kyiv. Approximately 80-90% of the
building materials used in renovations are of foreign origin, which doubles the
cost of renovations. The remaining
building materials are purchased from Ukrainian manufacturers. Generally, building materials account
for 56% of the overall cost of a construction project. Building material prices (both
domestically and foreign made) have increased dramatically in the past few
years. This has led to a
significant increase in the cost of construction.
End-users
of building materials can be classified into two major
groups:
direct end-users and indirect end-users.
Direct
end-users
may be sub-divided into general consumers and collective consumers. General
consumers shape the market into two distinct spheres: (1). The market for the
"average" Ukrainian citizen, and (2) the market for the "nouveau
riche."
The
general consumer in Ukraine expects construction materials of good quality, but
within an affordable price range.
Many average consumers are renovating their apartments and "dachas"
(summerhouses) on their own. The
most frequently requested products include wall coverings, floorings, ceramic
tiles, paints, insulated materials, and bathroom and kitchen fixtures. General
consumers primarily purchase these building materials in specialized retail
stores. Unfortunately, not all the
products shown in catalogs or on display may be available for sale. Thus, the consumer is unable to find all
materials necessary for a renovation.
Because of the high prices charged at small specialty shops, bazaars
still keep a hold on distribution of inexpensive building materials. In Kyiv alone, there more than a dozen
bazaars where building materials of local, Polish, and Turkish origin may be
purchased for a reasonable price.
Ukraine's
"nouveau riche" includes both Ukrainian and Western businessmen who demand
Western-standard office and living space (which often goes for US$1,000 per
square meter). Typically, new residential construction uses expensive imported
materials; apartments are elaborate, consisting of at least 5-6 rooms. This new "elite class" is spending large
amounts of money on the construction of new, single-family luxury "cottage"
homes, which boast spacious rooms and gardens, swimming pools, high fences, and
state-of-the-art security systems.
This sub-group of general consumers prefers to renovate their residential
premises with the assistance of local or foreign construction
contractors.
Direct
collective end-users include private local and foreign companies, Ukrainian
state-owned companies, institutions, and organizations. Local and foreign private companies
operating in the Ukrainian market are on the rise, due to the demand for
renovation and construction services.
Collective end-users use the services of local or foreign construction
contractors. The general cost of
construction services often includes the estimated cost of building materials
before the contract is signed.
Price, quality, and style in modern construction design, as well as the
preferences of clients play a major role in the final cost of a construction
project.
Indirect
end-users
Local
and foreign construction contractors are indirect end-users of building
materials. These are private and
state-owned local contractors and foreign private contractors. Contractors are the prized category of
customers for distributors of building materials, since they buy in volumes and
on a regular basis. Usually, foreign contractors sub-contract to small Ukrainian
companies or employs local construction specialists. There are roughly more than
a dozen foreign construction contractors in Ukraine who deal with the
construction and renovation of state-owned property, commercial property, single
family homes, industrial premises, and warehouses. Some of these contractors provide
architect, design, and consulting services. Others prefer to work with completed
designs. Austrian, British, German, Polish, South Korean, and Turkish
contractors have been active in the Ukrainian construction market.
1.
Perry & Associates is a U.S. company that has a strong foothold in Ukraine's
building materials and construction market;
2.
"Kyivmiskbud" company is one of the largest Ukrainian state-owned contractors of
construction services;
3.LKS
company (a German-Ukrainian JV) is a leading private
contractor.
The
Ukrainian supply system for building materials differs from the West. Buyers must deal with a collection of
small, poorly- organized stores who are characterized by low inventories, poor
customer service, and high prices.
Utilizing distributors helps to expand foreign supply links and the
assortment of products.
There
are approximately 10 leading building materials stores:
1.
Remax,
2.
Buddetal
(German-Ukrainian JV),
3.
Skandi
(Swedish-Ukrainian JV),
4.
Dom
Ekspo,
5.
Domostroy,
6.
Vist,
7.
BudMax,
8.
Agromat,
9.
Enran,
and
10. Sergo.
Consumers
rate these stores high based on stock availability, assortment, price, and
customer service. Major
distributors work through their own network of shops and usually conduct
wholesale and retail trade directly from their warehouses. Distributors of windows, doors, roofing,
flooring materials, and drop ceilings often provide installation and
after-installation / repair services for consumers. There are a few "elite" stores located
in the center of Kyiv, but prices are nearly double the average retail
prices.
Even
the highly ranked stores lack a choice and brand name products, and as a result
they also lack a choice of quality and price. Stores often cannot provide consumers
quantity and an assortment of products.
There are no one-stop shopping centers where consumers may find a range
of products and services to meet their needs. To find specific building materials, or
even basic ones, consumers must spend tremendous amounts of time in multiple
stores.
Some
contractors have direct supply contracts with foreign or local
suppliers/manufactures of building materials. Unfortunately, materials selected
at stores may not actually be available.
Purchase orders may be placed with delays of up to one month in the
actual delivery of the product.
However, only contractors are serviced on the basis of a purchase order,
with the full amount being paid on the day of the purchase order. This practice
creates difficulties and delays in construction project implementation. General customers are not "privileged"
to purchase orders, and must be satisfied with the assortment and prices
available to them.
Familiarizing
Ukrainian customers with a new brand name requires an advertising campaign. Participation in construction shows or
exhibitions is effective in advertising building material products. Distributors of building materials and
those established in the market often participate in construction
exhibitions. Approximately 30% of a
show's participants are foreign exporters, seeking cooperation with Ukrainian
trading companies.
There
are approximately 500 advertising agencies in Ukraine. Many of them perform a
range of services that Western companies are accustomed to. Ukrainian television and radio
advertising is on the rise and is considered a good form of advertising in
Ukraine. Newspaper advertising
remains popular, with half of the space in journals and publications consisting
of advertisements. There is a range
of publications devoted to construction and building materials industry. Foreign exporters may consider
advertising in the following publications, available in hard copy and websites:
a.
"Budmaister"
magazine,
b.
"Construction
newspaper,"
c.
"Inform-Bulletin
of Derzhbud of Ukraine,"
d.
"Our
Home" magazine,
e.
"Odessa
Budivelna,"
f.
"House"
magazine,
g.
"Construction
and Reconstruction" newspaper, and
h.
"Market
for Construction Materials" register.
Construction
companies and distributors may also take advantage of advertising in such
foreign publications as the local English language newspaper "Kyiv Post". An advertising campaign may also include
newsletters mailed directly to potential customers.
E. IMPORT CLIMATE
1. Certification
The
certification procedure for building materials is mandated within the UkrSEPRO
state certification system.
According to the law, approximately 50 different building materials are
required to be certified in Ukraine.
These include products, which may have harmful effects on human life and
health, or those that may effect the durability of constructions made of them.
The certification of other building materials may be implemented on a voluntary
basis, or if the certification of products is stipulated by the terms of a
partnership / supply / purchase contract.
2. Taxation
Ukrainian
import-export operations are subject to various taxes,
including
but not limited to: customs duties, import duty, and value-added tax. Building materials are not subject to
excise duty and import licensing. A
0.015% customs duty is ascribed to all imported goods, regardless of type or
quantity. A value-added tax (VAT)
is levied at 20% and is based on the customs value of the invoice. The import duty differs and largely
depends upon whether or not a similar item is produced in Ukraine. The import duty, the customs duty,
and the VAT are payable at the time of customs clearance.
Import
duties for building materials do not exceed 20%. Currently, the customs duty rates for
best prospect building materials are as following:
CUSTOMS
DUTY RATES
----------------------------------------------------------------
Mineral
wool:
6806.10.0000 Slag wool, rock wool and similar mineral
wool (including mixtures thereof), in bulk, sheets or rolls –10
%.
Linoleum
5904
Linoleum,
whether or not cut to shape; floor Coverings of a coating or covering applied on
a textile backing, whether or not cut to shape–10 %
Carpet
floor cover
5703
Carpets
and other textile floor coverings, tufted, whether or not made-up –10
%
Ceramic
Tiles
6907
Unglazed
ceramic flags and paving, hearth or wall tiles; unglazed ceramic mosaic cubes
and the like, whether or not on a backing -10 %
6908
Glazed
ceramic flags and paving, hearth or wall tiles; glazed ceramic mosaic cubes and
the like, whether or not on a backing -20 %
Paints
3209
Paints
and varnishes (including enamels and lacquers) based on synthetic polymers or
chemically modified natural polymers, dispersed or dissolved in an aqueous
medium - 10 %
3214
Glaziers
putty, grafting putty, resin cements, Caulking compounds and other mastics;
painters' fillings; non-refractory surfacing preparations for facades, indoor
walls, floors, ceilings or the like –20 %
Wallpaper
4814
Wallpaper and similar wall coverings – 25 %
Regulations/Standards
Since
1992, "Derzhbud" has attempted to create a national legal system in the
construction industry, to coincide with international regulations. The creation of this system will
formulate and govern export/import transactions with foreign countries. A classification system of state
standards and regulations was initiated and started in Ukraine. The Committee plans to complete the
development of the system of standards by the end of 2001.
With
laws and regulations constantly changing, customs brokers have become important
mechanisms to facilitate customs procedures. Brokers are responsible for preparation
and the submission of all documentation, including certificates issued by local
authorities. Broker fees vary,
ranging from USD 200 to USD 300, depending on the value of a contract. Duties and import taxes are usually
defined in the contract between the importer and exporters. New-to-market exporters are advised to
consult with an attorney concerning the latest applicable duties and to
carefully select a qualified customs broker, who is able to save an enormous
amount of time, money, and aggravation in getting products to the
purchaser.
In
addition to customs controls, goods and other items that cross Ukrainian customs
borders are subject to sanitary, veterinary, radiological, and ecological
controls, stipulated in Ukrainian customs regulations. Goods will be "customs cleared" only
after passing these requirements.
The entities responsible for each control (i.e., ecological, etc.) are
located in areas adjacent to customs points. After customs control has been passed,
the inspecting entity stamps the customs declaration. The importer/freight forwarder of
building materials should submit the following documents to the Ukrainian
customs authorities:
- The signed
contract;
- A cargo customs declaration
with the description and value of the goods,
terms of payment (i.e., cash, bank transfer, barter, etc.), and the terms of the
shipment. If payment is made by
bank transfer, the name of the bank, address, and account number should be
included;
- A certificate of
quality;
- A certificate of origin with
production and expiration dates;
- A certificate issued by a
foreign inspector stating that relevant quality controls have been completed in
the country of origin.
Imported
products are subject to compulsory certification in Ukraine. The certificates may be of two types:
(a)
a
certificate of acceptance of foreign certification issued by a Ukrainian
certifying agency, or
(b)
A
certificate of conformance issued by a Ukrainian agency upon certification of
goods. To apply for certification,
the following documents issued outside Ukraine confirming the goods conformance
to specific requirements are to be submitted to the Ukrainian-certifying
agency:
- An application stating that
the company wishes to certify the imported goods;
- A certificate of
conformance;
- A standard (technical
conditions) of production and the procedures for
certification;
- A certificate of
accreditation of the testing laboratory;
- A protocol/summery of
tests;
- A certificate of quality
control systems;
- A certificate of origin
(manufacturing);
Building
materials, which include in their composition hazardous materials are subject to
labeling in Ukraine. The labels
should be in Ukrainian and should include information on the manufacturer,
product ingredients, and expiration dates for quality control
purposes.
Pricing
Price,
in addition to quality, is becoming a decisive factor in attracting the
Ukrainian customers. However,
suppliers of western-made building products in the Ukraine keep prices at a high
level. This quest for high
profitability can seriously impact the marketability of U.S. products. These suppliers target "elite" customers
– recently emerged "nouveau riches" and contractors. Exporters with a focus on quick product
turnover should consider the purchasing power of the average Ukrainian
customer.
There
are a number of factors that influence the determination of a price in
Ukraine. Generally, the wholesale
price of the Ukrainian importer 3X exceeds the initial purchase price. If a distributor operates through a
network of specialized and department stores, the price will increase by 25%,
which is taken by the stores as a commission.
Ukrainian
importers prefer to buy on 30-60 days balance payment term, Letter of Credit
payment term, or consignment term.
CS-Kyiv strongly recommends initial sales be on the basis of 100%
prepayment. After a U.S. exporter
ensures the reliability of a Ukrainian partner, the U.S. company may be advised
to consider other terms. U.S.
exporters can also take advantage of letter of credit terms, which means that a
foreign supplier gets the payments only after the shipment arrives at the
Ukrainian port of destination and passes customs
clearance.
F.
DISTRIBUTION/BUSINESS
PRACTICES
Foreign
exporters entering the Ukrainian market prefer to work with local partners, who
can provide valuable insight that might be missed by the foreign exporter. However, finding a reliable and
competent distributor is one problem in Ukraine.
If
a U.S. company plans to engage in a long-term business relationship with its
Ukrainian partner, it is advisable to get to know the potential business
partner. We recommend that U.S.
exporters check the reliability and credit history of a potential partner
through international firms providing financial and credit history on foreign
firms before finalizing a contract with a Ukrainian partner. There are local companies that produce
Dun & Bradstreet reports.
BISNIS has also compiled a list of companies that perform due diligence
services in the NIS. This is highly
recommended for partnership deals in the NIS.
Financing
Credit
in the Ukrainian private sector is scarce, and commercial banks remain
risk-averse. The lending rates are
high and loans remain short-term.
Commercial bank loans are for 90 days or less, with most terms being 30
days or less. This precludes loans
from Ukrainian commercial banks for most transactions, a problem affecting
business in Ukraine. There are no
restrictions on the prepayment of import contracts.
The
safest method for receiving payment for a U.S. export is through an irrevocable
letter of credit (L/C). To carry
out hard currency transactions, a bank must be authorized by the National Bank
of Ukraine (NBU). Authorized
Ukrainian commercial banks are members of SWIFT (Society for Worldwide
Inter-bank Financial Telecommunications).
U.S.
exporters who request cash-in-advance payment (usually through money orders or
certified bank drafts) need to be aware that many Ukrainian companies are
strapped for cash and may need time to obtain funds. U.S. exporters, who are flexible in
financing sales to Ukraine, enjoy an advantage in the market.
Sources
of credit for export purposes:
1). Bankers’ Association for Foreign Trade (BAFT). BAFT is an association of banks dedicated to fostering and promoting American exports, international trade, finance, and investment between the U.S. and its trading partners.
2). U.S. Small Business Administration
(SBA). Although, SBA does not have
a program designed for the NIS, qualified U.S. companies doing business in the
region may apply for SBA financing.
3). The Export-Import Bank of the United
States (Ex-Im Bank) is an independent U.S. Government agency. The Ex-Im Bank helps to finance the
overseas sale of U.S. foods and services.
Bank programs for Ukraine include short-term and medium-term coverage for
sovereign risk transactions.
4). U.S.
companies seeking financing for the export of goods or services with at least
51% U.S. content should also consider participating in BISNIS FinanceLink Program. BISNIS
FinanceLink facilitates linkages between U.S. exporters seeking financing for
deals where a buyer or partner has been found and U.S.-based financial service
companies providing financing. Go to http://bisnis.doc.gov/bisnis/finlin3.htm
This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)