CONSTRUCTION AND BUILDING MATERIALS
MARKET IN UKRAINE
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.
This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)