Экспертное мнение

EXPERT OPINION

Take a moment to appreciate our team’s personal vision of business

  • All
Learn more +

Banks have long ruled the show on the financial market. So long that it seems as if it’s always been the case. Well, all of a sudden we have the fintech startups ready and raring to go. It took some ten years for these small projects to become large companies and grow in some investment and clients. They even managed to attain the impossible and move banks from their lofty perch.

Some already say that banks will disappear leaving the way for progressive solutions. Well, perhaps it is going to happen in some very distant future but definitely not tomorrow morning. Or even afternoon.

Unsuccessful attempts at ignoring

2007-2008 brought a serious mortgage crisis to the USA. It gradually grew into the financial and economic one covering the entire world. The crisis hurt banks a lot causing their mass bankruptcy.

Of course, they could not give loans in such conditions not even mentioning any types of deposit accounts. The same banks remaining afloat had to abandon the lending services being under the pressure from regulators.

Unlike the online lending services (P2P), which hardly depended on anyone. Anticipating its advent, the very first of them had appeared in the U.S. a year or two before the crisis kicked in. Take Prosper and Lending Club for example.

At the start, they were treated with caution at first just like anything new. Yet after the crisis, borrowers flooded those two. So, we can see the history behind the finest hour of P2P platforms and financial technologies as a whole.

Banks have ignored this potential competitor for a long time considering it too small of a fish for their stock. And they had every right to do so. After all, the value of largest fintech startups ranges from $500 million to $5 billion now, while the value of Wells Fargo exceeds $250 billion. The difference if self-evident.

Still, financial technologies showed an incredible growth almost immediately. Even now it offers a great many of progressive solutions. For instance, applications for money transfer, insurance registration, services for designing investment portfolios.

There are digital banks allowing to solve a wide range of financial issues. Working with them is easier and faster than with a conventional bank since you do not need to stand in a queue, fill some application forms, etc. You don’t even need to go anywhere, just run your application.

However, the fintechs went even further and started developing complex B2B solutions. There are already algorithms for countering the money laundering for example.

Investments in the fintech grew 10 times between 2010 and 2015. At the same time, the industry caught the attention of regulators. Contrary to the banks expectations, not only did they not impose any restrictions but contributed to its growth. For instance, the European PSD2 (Payment Service Directive) has granted access via API to the data on account balances in any bank allowing them to make payments and transfers to third-party companies. In Europe and USA, regulators create the so-called “sandboxes” – special areas free from regulatory pressure to test the fintech products.

All this in itself is a red flag for banks. And, perhaps, the last decisive factor for them was the outflow of young clients.

Young people do not like the conservatism of traditional financial institutions, which is expressed both in the service and in the digital products they offer. They are much more compelled with the ease-of-use and availability of fintech solutions.

As the Facebook IQ and MasterCard surveys taken in 2016 show that 93% of young people do not trust banks in the USA. Another 45% reported their readiness to abandon their services and enjoy only the fintech solutions. That is a big blow for conventional financial organisations since it is largely the millennials that constitute the largest consumer group. In these circumstances, banks needed to change something. Which they did.

In recent years, we can see potential competitors becoming partners and uniting to develop joint projects. Many banks even buy the successful fintech developments. For example, a popular digital bank Simple was bought by the BBVA.

It is fair to say that involving the youth is not the only reason for cooperation. Both parties receive other benefits in this case as well.

United we stand, divided we fall

The cybersecurity issue is one of the core issues when it comes to innovation. Alas, fintech solutions cannot guarantee the entire security for users.

That is why many still do not trust these technologies using them only for solving short-term tasks (such as getting a loan or money transfer). Users mostly avoid more serious projects, namely from the B2B segment, preferring to work with banks that have long proven themselves in this business. As a result, fintech companies lose a significant portion of income.

Banks, in turn, can expand their client base using financial technologies and enhance the service quality. Notably, with the access to accounts via API they can be servicing both their own and other clients using their interfaces.

Thus, the need for two parties cooperating is obvious and rather a matter of time. Slowly, this time comes.

Now, over a half of the largest world banks use fintech solutions one way or another. Generally, they use the works in cloud technologies and big data analytics.

For instance, HSBC uses the best practices of the fintech Tradeshift, which is based on the Ribble protocol allowing to conduct various types of financial transactions remotely.

The Canadian Imperial Bank of Commerce has entered into an agreement with the Borrowell allowing clients to obtain instant credits. Scotiabank followed in this example along with the startup Kabbage. These examples are many and there will be more in the future.

That means that the ice broke up. The snowball is rolling, the process is irreversible. Still, we are yet to find out the way it ends. Perhaps banks will be entirely taken over by fintechs or, perhaps, fintechs become some sort of financial IT giants. For now, all we can do is wait and monitor the situation further.

Learn more +

No matter how people try to be modern, progressive, independent from the weather and seasons, the natural cycles affect us same as our ancestors. Celebrating the New Year is the tradition we can easily take as an evidence. Ancient pagans put a start to it originally and the holiday served as a symbol for ending one cycle and starting a new one.

These beliefs have not disappeared even now. We are still building new plans for the new year, evaluate results of the previous one, and try to realise the things we have actually accomplished or left out for another year. For this reason, we can see the increasing number of workshops, training sessions, and lectures on planning for the next year. Each is going to tell that annual objectives should align with the life priorities and facilitate implementation of the long-term goals (yes, these should be set as well). Moreover, they are going to explain why analysing the current situation and summing up the year results is so important.

Annual Report as the essence of long- and short-term planning

In business planning, the methods shaping your objectives, the ways of accomplishing those will have a various format and different frameworks, while the general principle will remain the same: analysing the current situation, defining the state you want to arrive at in the future, and determining specific steps to implement the plans. The only difference is that business planning is more dependent on the calendar year, which is driven by the need for submitting annual financial reports. An Annual Report is an efficient tool for summarising the results, formalising the strategy, and setting objectives for the future according to the strategy selected.

An Annual Report is a multifunctional document allowing to solve plenty of problems: describing long-term targets, business development prospects, management plans; substantiating the current business model and legal structure of the business; explaining the performance results with the context taken into account; providing unaudited indicators; describing investment programmes and their potential effect; presenting a team of managers, as well as the management approaches; describing the company policy and accomplishments in socially important matters, etc. Let us take a closer look at the Annual Report role in planning from the stakeholders’ standpoint.

Foundation for trustful partnership with investors

An Annual Report, namely, its financial and strategic elements show investor how appropriate his/her funds are allocated. It also serves as a portfolio for attracting new investors. An Annual Report shows the company’s commitment to its strategy and principles, provides an analysis of the company’s accomplishments over the previous year focusing on both its strengths and weaknesses and the plan to mitigate the risks.

Investors expect proofs that the company is governed reasonably, as well as the proofs of its highly competitive and promising nature. Sections describing the management team allow evaluating its professionalism, understanding how effectively these people can manage investments. For an investor, it is just as important as the company indicators since no one would be eager to trust their money to strangers.

To protect their own investments, investors also want to be confident that the company is working on a prospective market. An Annual Report contains relevant sections that give an idea of the product development plans, studies, company developments, and its future potential.

Opportunities for mutually beneficial cooperation with partners

A successfully prepared Annual Report, first of all, can help your company stand out among competitors and, thus, reinforce your market standing, increase the brand loyalty. This, in turn, will serve as a signal to partners that they can build long-term beneficial relations with your company rather than entering small deals to obtain short-term benefits. For your company, this would mean discounts, more favourable terms of supply, participation in new joint projects.

Quality assurance for products/services

Information that b2b clients mostly expect from an Annual Report and in the trust-demanding areas such as banking and insurance. Clients want to ensure the reliability and quality of the products and services needed for their own businesses, as well as to get an assurance of your company’s reliability and viability. Information on the strategy, studies, and developments helps clients integrating their own business with the policy of your company and thus, establishing the further cooperation. Moreover, clients want to make sure investments are made in the quality and manufacture and that your company guarantees them a number of benefits.

Enhancing staff involvement

An Annual Report displays the results of staff performance, informs on the strategy, shows each officer’s contribution to achieving certain strategic aims, as well as the company development. In taking its further steps, a company shapes the image of progressive business, which can offer other employees a safe future, development prospects, professional growth. Annual Report can assist in generating a positive vision of your company among the would-be experts, who are yet to find their professional self.

Analysing the company activity and evaluating the strategy relevance by the management.

In preparing an Annual Report, the management will detect current problems in the company, activities with a low return rate, its strengths and weaknesses, existing and potential synergies. A solid Annual Report will serve as a basis for further strategic solutions.

Obligation of implementing the published plans

The plans that no one is aware of except for some officers inside the company and the plans written on paper and then pronounced openly are poles apart. The publicity of plans will encourage their execution. And should actual results deviate from the projected ones, it is better to analyse the reasons such deviations occurred and provide an unbiased substantiation of the inconsistencies between the anticipated and actual internal or external environment, other than to avoid publicity at all. The management able to reflect on its errors reinforces the stakeholder’s trust and his/her estimate of the management professionalism.

If personal planning aims at summing up and finishing the planning before New Year’s Eve, business planning generally starts the production of the Annual Report immediately after the New Year holidays.

Let all your dreams come true this year but do not forget about the SMART principle since it helps to transform the chaotically generated ideas into attainable goals!

Learn more +

President Petro Poroshenko has recently stated that the minimum salary In Ukraine can make ₴4,100 as soon as in 2018. Even though it sounds tempting, Ukrainian reality prevents us from branding it a step into the bright future. This issue is a double-edged sword.

What can we see now

In 2016, the Verkhovna Rada adopted a bill on increasing the minimum salary doubling it from ₴1,600 to ₴3,200. This led to peculiar consequences:

— The first disappointment from innovations came when people realised that 3,200 is the amount they get without the income tax deduction. After taxes, the employee would get much less – ₴2576. Against the backdrop of utility costs and product prices increasing, such increase in salary no longer seems significant.

— Increasing the minimum salary created problems for budget organisations. Their budgets were not increased, while the organisations were demanded to raise minimum salary. To replenish the budget, chief officers had to take various measures. Such as redeploying their manpower with minimum salary so it continues to work part-time. Other enterprises (private ones as well) had to cut their staff so as to pay the remaining officers the minimum salary required.

— The business, in turn, had to pay more taxes. It is the unified social tax (UST) we speak of that an employer pays for each salary paid. Now, with the minimum salary of ₴3,200 it accounts for ₴704.

— Doubling the minimum salary also added around 2-2.5 percentage points to inflation in 2017. These figures were presented by the National Bank of Ukraine. However, they clarified that in reality, employers were not expected to raise the real income of workers and it was rather the matter of dragging them from the shadow sector.

— Tax deductions from salaries increased, which is logical. According to the State Fiscal Service of Ukraine, the personal income tax (PIT) collected increased by 40% more and the unified social tax — by 20%.

— In turn, the Ministry of Economic Development and Trade reports a downturn in the shadow economy. It is that very trend that the President of Ukraine had referred to when he suggested increasing the minimum salary up to ₴4,100 in 2018.

Then we have an abnormal pattern as a result. In fact, the real improvement in living standards has not brought the increase in minimum salary, albeit resulted in some positive trends.

What can the ₴4,100 minimum salary change?

Given the positive trends in unshadowing and increasing tax deductions, the government decided to continue raising the minimum pay. Hence is the Poroshenko’s assumption about the minimum pay of ₴4,100 possible as soon as in 2018 rather than in 2019 as was planned originally.

One could hardly argue with that: Ukraine actually has the resources needed for such an increase in salaries. That becomes obvious if we look at the balance dynamics on the Treasury Single Account – the balance there has not gone below ₴40 bn. over the last three months.

In other words, the country has something to spend.

Unfortunately, there are no guarantees that this experiment will end up well:

— Firstly, increasing the minimum pay to 4,100 will inevitably cause the inflation to grow, which is going to exceed the projected indicators in 2017 (12.2%-13.7% by the year-end 2017 with the projected 9-11%). The inflation, in turn, will drive the further hryvna depreciation. Since the only instruments for combating inflation and devaluation the National Bank has is the discount rate, its increase will make it impossible to lower the interest rates on loans.

— Secondly, the tax burden on business will increase and that means more reasons for businesses to enjoy the benefits of shadow economy. Employers will be more eager to risk with off-the-books employment introducing an hourly pay, redeploying their manpower to work part-time, cutting the staff, and using other saving schemes. In the long run, all this can eventually result in unemployment and a new boost for shadow economy.

— Increasing the minimum salary should be aligned with the gain in production. If there is no gain in production, then companies cannot pay new salaries. They will simply have nothing to pay them with. Which, once again, will result in the business shadowing or its liquidation. The latter largely applies to small-sized enterprises.

— Finally, I would like to note that the IMF does not endorse the minimum pay increase. The previous double increase was criticised there as well while awarding Ukraine with another loan tranche nevertheless. This time, however, it may not be the case given that our government has not met a number of other requirements set by the Fund.

Learn more +

Soviet times did not favour private landowners and so there were none of them. Farmlands were owned by peasant communes — kolkhozes. In independent Ukraine, private farming was allowed, albeit people were not permitted to sell the land plots they owned. In both cases, the result remained the same: the economy was stalled, the budget was losing profits, people were unable effectively manage their land resource.

Shadow land market does exist

It may be sad to admit it but it’s true. In 2016, nearly 65,000 ha of land was leased on the emphyteusis terms. Almost the same amount was leased long-term for 50 years. From the legal standpoint, such transactions constitute a sale de-facto.

It gets worse since their number grows exponentially. According to the Ukrainian Club of Agrarian Business (UCAB), there were around 14,000 transactions entered in 2016 and 2,800 transactions — in 2015. It means that the shadow turnover of agricultural land grew by 80%. By the end of 2017, UCAB experts expect the shadow schemes in land sales to hit 40,000.

If such tendencies continue, it will take 5 years before the land plots change their owners even with the land moratorium in place.

How to fix this situation?

Comprehensive measures are the answer here. It goes without saying that the first step to take is settling the land moratorium issue. Obviously, it has to be lifted and a land market must be created. It is what time, logic, and common sense demand to do. Yet how exactly should this market look like is the million-dollar question. This situation has many problem points. One of them is that lifting the moratorium would result in large investors buying all land at rock-bottom prices.

Ukrainian agricultural holdings already increase their land banks. The growth in M&A transactions in the agricultural complex can serve as an evidence to that. There were 16 in 2017 and 11 in 2016, which is many times more than in any other industry. This way, companies try to accumulate as many agricultural assets as possible before their prices grow once the land reform is adopted.

Let us not forget about foreign investors as well. They are also interested in Ukrainian chernozems (a black-coloured highly fertile soil — translator’s note) and unlike the local enterprises, they have much more money. And unlike local enterprises, foreign investors give Ukraine only the raw-export role due to the unstable political situation in the country. Most of their money is aimed solely at developing the storage capacity (grain elevators, loading terminals, etc.) rather than the production base. Almost all foreign companies investing in Ukraine work in the following principle: Risoil S.A (constructed a grain terminal), Cofco Corporation (constructed a grain terminal), Bunge Ltd (constructed a loading terminal), etc. They benefit much more exporting cheap raw materials from Ukraine, manufacturing a product in their country and selling it at an overcharged price. If the land market starts working now with no account of the situation above, it will only benefit foreign companies. Thus, Ukraine will lose a significant share of profits. To avoid this, we need thought-out reforms.

And the transparency as well. After all, even if buying land using the shady schemes is possible with the moratorium in place they will not disappear once the moratorium is lifted. Unless efficient control means are introduced. These particularly may include:

— adopting the law on the turnover of agricultural land containing all the rights and obligations of land market players, while striking a balance between the interests of business and society;

— implementing an e-auction system to show the data on all processes in the purchase/sale of land and data on the parties involved;

— creating an electronic database with the newest land prices will help landowners be well-informed on the prices and reduce the risk of selling their land dirt-cheap.

In the long run, it would be great to have an agency able to control the sales and purchase of land and prevent agricultural lands from real estate development or other inappropriate needs. Finally, it is necessary to create a compelling image of the country in the eyes of foreign investors and convince them that things are not as bad to invest in certain areas of the agroindustrial complex only. To achieve this, it is essential to solve the corruption issue, adopt a reasonable land law and develop an effective presentation of the country, namely, by using the thought-out financial and non-financial reporting prepared by qualified auditors.

Bottom line

Given these premises, it is self-evident that solving the land issue is entirely in the hands of authorities. It depends on the decisions they take, regulations they see adequate enough to adopt, and the way they secure transparency and efficiency of the land market. Since the adoption of the land reform and land market has already been delayed for 15 years, immediate results are unlikely.

It is worth mentioning, however, that the land issue itself is a critical and hot topic not only in Ukraine. Even in Germany, there are regions (GDR area), where issues regarding the sales and purchase of farmland are not entirely solved and remain problematic for at least 20 years.

Learn more +

According to UN estimates, the total population will grow up to 9.1 billion by 2020. To feed everyone, the food production must increase at least by 70%,

Only new technologies can secure a boost that big. Fortunately, the world has already gotten the innovative solutions for agrarians and some of them originated in Ukraine.

Innovations against pests

There is only one pest control instrument – pesticides. They are efficient but harmful to both the parasites and the environment.

That said, calculating the exact amount of poison substance to be sprayed on a certain field is almost impossible since no one knows the exact number of pests in such field. Thus, there is an unreasonably great number of pesticides getting into the soil with all the negative factors it entails.

Yet the newest IoT technologies (Internet of things) allow solving this problem.

For instance, the American Semios manufactures so-called “smart traps” to protect grain from pests. They represent a network of containers equipped with sensors and each of them is situated in certain areas at the field.

Traps calculate the number of pests in their area separating the harmless insects from crop eaters.

As soon as the latter grow in number to a critical point, the system notifies the user through a mobile application.

With this data, calculating the amount of poison substance required is not so difficult anymore.

It is worth noting that Semios traps are also equipped with sensors tracking the soil temperature, humidity, and the health of plants. This, first and foremost, allows identifying the signs of plant disease beforehand and secondly, tracking the soil humidity and thus, build irrigation schedules more efficiently.

Spensa and Ericsson also manufacture such systems. The first is designed for monitoring apple trees and the second one — for vineyards.

All three developments are already used in practice, mainly in the USA and Western European countries.

Smart irrigation systems

Spanish scientists have developed an intelligent irrigation system called Waterbee. It is a network of sensors placed over the entire site.

These devices check the soil conditions occasionally, its humidity, friability, saturation with various substances, etc.

Areas with lowest indicators get irrigated automatically.

According to developers, implementing the WaterBee system reduces the water consumption by 40%.

Chilean scientists have also created something similar. Their system, however, is designed for irrigation of blueberries, which is the leading export product in Chile.

The technology is based on wireless sensors. They analyse the status of plants and soil, compare them, and start the irrigation system. According to the published statistics, these technologies managed to save 70% of water.

New Generation Livestock

Innovative solutions are also getting developed for the companies involved in animal husbandry.

Some of them allow to monitor the cattle movement, others monitor the animal’s health down to their genetic characteristics.

Such a system – BovControl – is used in Brazil, for instance.

Autonomous tractors

It is worth mentioning: these technologies are still in the “near future” category. Still, various companies test their first prototypes as we speak.

One of the most interesting among them is an autonomous tractor Spirit by Autonomous Tractor Cooperation (ATC). It is able to drive autonomously and go around obstacles.

Most recently, Cognitive Technologies, a Russian company, started such development.

But the manned tractors also get smarter: Blue River Technology models, for example, are able to detect weeds among healthy plants and spray them with herbicides.

Drones are getting popular in agriculture as well. They are used for remote monitoring over the lands, as well as for spraying fertilizers or any substances that can scare pests off.

What good news does Ukraine bring?

Our country has a great number of startups able to offer IT solutions for agricultural business. eFarmer is among the largest. This developer created an application “Record Keeping”.

It allows you to monitor your field boundaries using GPS and study the state of cultivated lands remotely. Moreover, eFarmer has a solution allowing to turn a conventional tractor into a smart one by means of a special mobile device and a portable GPS antenna.

The startup AgryEye has created a multifunctional sensor for analysing the soil. It can identify a soil composition and vegetation condition.

AgTech Forum has also shown some interesting developments this year in Kyiv.

These are: Kray Technologies (world’s first industrial drone for chemical spraying for the field crops), Water Cloud (a machine for producing water from air), BioSens (sensor that scans foodstuffs for toxins), etc.

Future prospects

Maximum labour automation is a trend for the next several years in all professional areas not limited to the agriculture only.

Technologies aimed at the long-term storage and transportation of dairy products will also be relevant.

Even now, we can see smart grain and vegetable storehouses able to adjust the climate control system as they independently track the temperature of the harvest.

Vertical farms are a very much promising technology as well. They are basically greenhouses able to recreate all the conditions for plants to grow.

As a rule, plants are placed in special pallets located vertically one over another, which enhances the yields manyfold.

The American startup Plenty is the first to attempt implementing this idea.

Learn more +

On this issue, experts can be divided into two groups: optimists and pessimists.

The first ones are confident that the era of electric cars will begin in ten years and the oil prices will fall down to $10 per barrel.

The second group thinks that electric cars cannot affect the oil market for the next 50 years. Where is the truth? Most likely, it is where it often lies – in the middle.

Not all forecasts are created equal

The Volkswagen Group is planning to increase the share of electric vehicles sold up to 25% by 2025, while Renault-Nissan-Mitsubishi – up to 30% by 2022. These plans were announced by the Japanese Toyota as well.

If these three giants arrive at their aims, then the market will be literally flooded with electric cars in 10 years. Which are also going to be price-wise according to the last year study by Bloomberg New Energy Finance (BNEF).

The authors connect the trend for cheaper cars with the decrease in prices for batteries.

В 2016 году их стоимость снизилась на 35% и, по мнению аналитиков, продолжит снижаться дальше. По прогнозу авторов BNEF, цена электрических авто сравняется со стоимостью обычных уже через шесть лет.

In 2016, their value dropped by 35% and the analysts think it will continue to decline. According to BNEF, the price for an electric car will align with the fuel car as early as in six years. At the same time, the OPEC (Organization of the Petroleum Exporting Countries) provides entirely different numbers. According to OPEC, the share of electric vehicle sales by 2040 will only amount to 1% of the global economy. This forecast is supported by Ryan Lance, CEO of the major North American oil company – ConocoPhillips. He believes that electric cars will not have a significant effect on the economy in the next 50 years.

Of course, the reluctance of oil producers to believe in the early arrival of the green transport era is understandable: it is a sign of their business demise. On the other hand, they are not entirely wrong in their assessment either.

New energy brings new challenges

Moving to the new type of transport is quite a complicated and formidable task. It requires changes to the traditional infrastructure and, in a sense, a change in the attitude of people.

People should get used to driving in a new way. It comes easier in the Western countries, where the idea of ecological transport has been developing for a long time and electric vehicles are no longer uncommon. Local governments have contributed to this in no small measure. They see transitioning to electric cars as a good way to deal with the environmental pollution and that is why they encourage their people to purchase pursuing this trend by giving them grants and cutting taxes.

However, it applies only to dynamically developing states, which is not the case in less developed countries of Africa and South-East Asia. Most of them have virtually no legislation and infrastructure to use electric vehicles.

As a result, and since the oil prices are falling, the demand for fuel cars in such countries will increase on the contrary. That has already been confirmed by the recent study of the International Energy Agency.

Moreover, a transition to the new type of transport will require plenty of electricity. Apart from the nuclear sources, the coal, oil, and fuel oil are used for this purpose now.

Coal is the cheapest of these. However, if we assume that electric cars flooded the market and oil price has fallen as a result, then it becomes the most efficient commodity to generate electricity.

Finally, there is a problem with the electric batteries. First, their production is still imperfect. We are promised that there will be ultralight batteries in the future based on graphene/MXenes capable of retaining the charge for a long time. But when they appear on the market is unknown.

So far, we have to settle for bulkier batteries that significantly increase the vehicle weight and are unable to sustain the engine running for several hours without charging.

Secondly, there is a problem with the worn-out battery disposal. They cannot be simply thrown away as they contain toxic substances. A well-designed and safe processing system for these batteries is needed, but it has not been invented just yet. Still, scientists work hard on this.

So, will the oil market collapse or not?

For now, it is difficult to answer this question clearly. On one hand, the rapid blooming of electric vehicles is anticipated in many developed countries already. And it will definitely come.

But new cars will hardly flood the market quickly and immediately. It is more likely to be a gradual transition, which means the demand for oil will not disappear overnight.

Perhaps, the most dangerous situation is that many governments accelerate the transition to new types of transport.

The USA and Europe toughen up the laws primarily related to environmental protection, which forces car manufacturers to increase their share of electric vehicles sold even though the technology itself is not fully “polished”. The Chairman of Toyota, Takeshi Uchiyamada has commented on this more than once.

He thinks that we need at least two or three technological breakthroughs for the electric cars to match the conventional vehicles in every aspect.

The business should not idle by as well

Even though the electric car market is struggling, it will continue developing and significantly affecting other economy areas such as non-ferrous metals market. The latter will grow in price substantially because they (nickel, cobalt, and copper to be precise) are widely used when producing batteries for electric cars.

Let’s not forget that many countries give special discounts to the purchasers of electric cars. Soon, these can also be introduced in Ukraine – the relevant bill is already registered in the Verkhovna Rada.

Yet again, ecological transport is a mainstream. It attracts consumer’s attention simply by ensuring the environmental safety. Thus, it is now very profitable to develop services associated with electric cars. For example, there are “green” taxi services in Ukraine now. They transport clients exclusively by electric cars.

Creation of charging stations is also on the front burner now: they are few in Ukraine and their number is insufficient even for that small number of electric cars already driving the roads. However, companies developing charging stations for electric cars are also few in Ukraine so far. In other words, the niche is free and it makes sense to fight for it given its potential.

Learn more +

The subventions distribution system has provoked a mixed reaction among the farmers themselves. People were particularly outraged by the fact that Myronivskyi Khliboprodukt gets most money being the most successful agribusiness in Ukraine.

Many people think that the owner Yurii Kosiuk gets a “gratitude” for his services this way because he was the Vice Chairman in the Presidential Administration not so long ago.

This reason is quite convincing given the Ukrainian realities. But it’s hardly the only one.

Subventions for farmers: distribution logic

This year, the Ukrainian budget provides for ₴4,774.3 bn. to be allocated for supporting the agro-industrial complex.

₴1.91 bn. of subventions were paid to farmers in the first semester, from which ₴809 mn. (the largest share) were allocated to Myronivskyi Khliboprodukt that works in two agrarian segments – horticulture and poultry husbandry.

That said, its net profit amounted to $210 mn. for the last 9 months, which was more than the vast majority of Ukrainian agrarian companies.

Another ₴141 mn. were allocated to Avangard, a poultry husbandry agriholding. The rest of the funding was distributed among other producers.

The companies engaged in the animal husbandry and gardening are traditionally among the underperforming Ukrainian companies by profits compared to the horticulture and poultry farming ones.

Such distribution of subventions seems rather illogical. Indeed, these payments are ought to stimulate the development of loss-making and underperforming enterprises in the first place. And we are doing exactly the opposite. Which brings us to a question: how come?

Of course, we can blame the corruption for everything. The fact that Yurii Kosiuk, the owner and founder of Myronivskyi Khliboprodukt, has ropes to the top echelons of power and held a high office not so long ago is indeed incendiary.

And even the owner of Avangard holding, Oleh Bachmatiuk, is no stranger to Ukrainian political elite: he was the Deputy Chairman of the Board at NJSC Naftogaz of Ukraine.

A conclusion on corruption schemes in this situation is self-evident. However, there’s also another explanation.

What goes around…

Let’s take a look at how the subvention distribution system is functioning now. And it works simple enough.

First, agrarian companies have to apply for a subvention to the Fiscal Service. Applications are received only from enterprises that produce no less than 50% of their agricultural products independently. Moreover, over a half of their profits should constitute the proceeds from primary agricultural products sold.

The list generated is to be submitted to the Treasury. Then, it analyzes every candidate’s solvency – the VAT amounts paid, to be precise. The calculations determining a subvention size are based on them. Companies giving a high VAT receive more subventions and vice versa.

This approach is really good in many ways. Namely, due to its transparency, which many politicians and experts have already noticed – from the Prime Minister Volodymyr Groysman to the Chief of the Chamber of Tax Advisors in Ukraine Olha Bohdanova.

Firstly, it prevents the representatives of shadow economy from intercepting the state payments.

Secondly, companies not directly involved in the agrarian sector (such as bakeries that do not produce agricultural products but process them instead) are denied in this opportunity, same as the enterprises engaged in grain crop farming.

The latter are officially excluded from the list of candidates to receive subventions as they do not need governmental support. And finally, the entire process of allocating money is now less tied to the decisions of bureaucrats, who can be bought. The economic performance of an enterprise is the determining factor.

Unfortunately, the system’s transparency is not enough to make it good. In this case, the calculation through VAT is ruining everything.

This approach benefits only those areas of agriculture that are able to survive regardless of the governmental support. It is the poultry husbandry I speak of, which is Ukraine’s second profitable industry after horticulture. The profits of poultry companies are stable and high, and thus, they pay a high value-added tax.

Therefore, the government simply wants to support those who give more money for the budget and replenish it the sooner the better, instead of waiting for the less profitable businesses to find their feet and generate high GDP.

From a business perspective, this approach is logical: it is better to invest something profitable other than some business ready to go down.

But in this case, it is not about private investments but the government ones. That is why such business approach may not be 100% correct in this case.

Most experts on agrarian markets still insist on changing the current system. As an alternative, it is proposed to calculate subventions based on the margin between tax liabilities of agricultural producers and a tax credit. Such approach would indeed allow the subventions to be distributed more evenly and, above all, make it seasonally adjusted.

By the way, the latter is something that the current subvention distribution system also takes no account for.

The specific nature of poultry husbandry is designed in such a way that they cannot sell their products all year long. The vegetable and fruit growers only prepare to get their harvest in the first semester, which they can only sell in the second one.

Hence the difference in their income, and thus in the number of subventions received.

Source: finance.ua

Learn more +

Annual Reports constitute an integral part of public companies.

They make them clear and transparent both for the investment community and for other market participants – buyers, suppliers, company officers.

Regulators from different countries are trying to form the reporting and disclosure requirements generally based on the practices of financially advanced participants, mainly such as the US Securities and Exchange Commission (SEC) and the British Financial Reporting Council (FRC).
We can observe a peculiar evolution in FRC as far as the requirements and guidelines for Annual Reports are concerned. The Council understands that corporate reports can be a powerful tool to attract funding and ensure that the initial investment assessment is conducted properly. Currently, a great emphasis is put on monitoring the company operation once the investment is finished and liabilities are fulfilled.

The Financial Reporting Lab (FRB) is designed to enhance relations between the companies and investors making them simpler and clearer.

How can the British experience be useful to Ukrainian companies?

The research and guidelines of FRB allow the Annual Report not only be attractive for investors but also to improve communication with the business partners. For example:

— convincing large suppliers of goods or equipment to provide advantageous company terms (discounts, deferred payments, etc.);
— draw attention and hold productive talks with new large buyers;
— find funding for an investment project;
— convince the owner not to change the company management and pursue the course of the current team.

However, the production of an Annual Report becomes a prerogative of both the public companies and the ones with solid capabilities to promote closed companies that interact with a limited pool of stakeholders.

What information do investors consider important to be in the Annual Report? According to the FRB studies, the information on the business model is considered fundamental for investment analysis and understanding of the company’s development prospects.

Defining the business model in the context of Annual Report – what the company does, how does it operate, and how the company generates a value.

What information do investors look for in the business model disclosures?

According to the FRB survey, which included 19 companies with a size from AIM to FTSE100 and 38 members of the British Investment Community, investors are most interested in: income and profit drivers, key markets and market segments, competitive advantages, etc. Many investors want to know about direct threats and market shares of the companies. Some expect a disclosure of information on the culture and values, investment plans, ROE, ROA.Basic RGB

business-model-attribute-structure-1

Core advantages of exposing a business model in an Annual Report underscored by investors:

— by making the business model understandable and detailed, companies avoid the risk of being misunderstood by investors and getting bad business estimates on their part;
— a demonstration that the company’s management understands its business and its key drivers raises investors’ confidence;
— a description and promotion of the business model essentials can significantly enhance the unified mindset inside the company.

Many investors believe that business models should be more detailed other than those that are currently included in an Annual Report. However, only 1-3 pages are allowed for this content. The majority of investors agree that there should be more specific, concise and essential information provided both textually and graphically with a balance struck between these two.

How do business models presented in the statements of Ukrainian companies for 2016 meet the expectations of European investors? Will we see progress in reports for 2017?

Learn more +

Online lending is a rather new service to Ukrainian market. And it can soon become of the most promising ones. But on a condition that several key problems hindering its development are solved.

Subtleties of Ukrainian online credit system

Usually, a person who needs money wants to get them as soon as possible. In this view, an opportunity to get a loan almost in half an hour without living home is very tempting. That is why the online credit market, which offers exactly that, is tipped to bring a great future.

The experience of such global companies as Lufax (China) or Zopa (UK) shows that an online credit business can bring a huge profit ensuring an annual income gain of 300 to 700%. Many Ukrainian businessmen seek to replicate the success of their foreign colleagues.

It is worth noting that banks, being the traditional operators of online lending, are gradually leaving this niche. Now that they have more problems with transitioning to IFRS, they will simply have no time to deal with the online credits. It gives green light to other businesses, whose activities are unrelated to banking. These businesses are financial and credit companies, credit unions, pawnshops.

There are also some new interesting IT projects in the Ukrainian online credit market (such as Beyond Broke – a service for purchasing goods from online stores on credit). All these businesses actively take the cleared seats by offering various interests and due dates. Ukrainians have much of a choice.

Yet this huge number of companies is difficult to control. The law prescribes that the online credit market must be supervised by the National Commission for the State Regulation of Financial Services in Ukraine. It has not paid much attention to this segment even before, and after the outburst in entrepreneurship occurred it may not be able to keep track of everyone. Alas, the shadow economy benefits wonderfully from such conditions.

However, it is too early to say that the industry is saturated. All because there is a high turnover (using the HR parlance) in the online credit industry. Companies come and go, while their place is immediately occupied y other enterprises, most of which do not stay up long. The reason behind such inconsistency is trivial: entrepreneurs blinded by the prospect of quick profits have little thought of the subtleties of the online credit system. Sooner or later, they make gross mistakes bringing their business to a state hardly recoverable from.

Overall, 90% of the companies in the Ukrainian online credit market fail – according to statistics provided by Ihor Shevchenko, a banking expert, on his blog.

A credit of trust is limited

There are still not many people willing to get loans online in Ukraine. Most consumers are simply afraid of the risks involved, afraid of encountering fraudsters in fact. And from what we can see above, they are not entirely wrong.

Therefore, the problem of engaging clients is also rampant for Ukrainian companies involved in online crediting. It requires orchestrated marketing campaigns and therefore certain financial investments from the business.

Not all is lost

Yet despite the accumulated problems, the online lending in Ukraine continues developing. According to the studies conducted by Ukrainian E-commerce Expert, the non-banking online credit market grew threefold in 2016.

Moreover, the experts from Ukrainian E-commerce Expert conducted a survey among consumers and found out that over a half of respondents (67.9%) are not aware of the online credit existing. 16.7% have already used that service at least once. For comparison: a similar survey conducted in 2015 showed that only 9% knew of online lending.

Much of the positive trends in remote lending occurred as a result of activity of the National Bank of Ukraine, which aimed to create a cashless economy. The key objective of this policy is to raise the number of cashless payments in Ukrainian economy, which positively affects the development of online lending in turn.

Pros of online lending

Getting a loan online is quite a quick process free of any paperchase. A customer only needs to visit the company website offering this service, register, fill out the form and chose the credit terms. The entire procedure takes 20 to 30 minutes. Then the money enters the client’s account. It is very convenient indeed.

Among the other advantages of online lending is the client’s ability to access multiple organizations and then choose those that will process his request more quickly or offer more favorable credit terms.

Finally, an online credit system enables you shopping at online stores if your account lacks money to make a purchase. It is very convenient for many, especially on the eve of big holidays, when the demand for shopping is increasing dramatically and waiting for the payday is not an option.

Cons of online lending

Firstly, there is a high risk running into fraud. Fraudsters often use online credit services to fool Internet users into divulging their personal data about their wallet and credit accounts.

But the business takes risks as well. After all, malevolent lenders have been there all the time. But even the modern Ukrainian legislation, unfortunately, has not yet outlined the regulations on subtleties of this issue. This brings us to the second disadvantage of the online credit system: it focuses mostly on consumer loans.

A startuper wishing to get funds for developing his/her business has no gain here. At least, in the case of legal remote lending systems as they usually offer loans of 5 to 15 thousand hryvnas. The maximum loan a client can obtain using this service first time does not even exceed 3 thousand hryvnas.

Go up