Sergiy Tsivkach, Executive Director of UkraineInvest. Photo: UkraineInvest.

The global supply chains are changing, and companies are looking for new places for their production. Ukrainennu spoke to Sergiy Tsivkach, Executive Director at UkraineInvest, about how more foreign companies choose Ukraine. 

According to several analysts, China has been the powerhouse for the world’s production of goods for years, but that might be changing. Since the pandemic, companies have seen the risks of having too long supply chains. In addition, the escalating political crisis between China and the U.S. has also made some companies concerned, and more companies are trying to reduce their CO2 footprint, where one way is to reduce transportation. 

Ukrainenu has heard that some companies are considering Ukraine if they decide to move their production away from Asia and China. Ukrainenu sat down with Sergiy Tsivkach, Executive Director of UkraineInvest, to find out what he is experiencing right now.

We hear stories about the disruption of global supply chains. For example, we have heard that there is supposed to be a significant influx of German companies to Ukraine at the moment. What do you see at the moment?

“We’re working on a nearshoring strategy at UkraineInvest because we can see that tendency is growing. It was happening before 2020, but 2020 was a triggering point because, during the pandemic, I think about 20 percent of European companies experienced that their contracts were not fully implemented or at appropriate quality or were not delivered on time from Asia. So that triggered the tendency in the European Union on the concept of Second Asia. And we do see attention from European companies. According to UkraineInvest estimates, due to relocation, Ukraine can attract investments from 550 to 1 billion USD per year.”

“We think that this will continue because the forecast is that about up to 15 percent of businesses, which are situated in Asia, will be relocated to central and Eastern Europe within the next three to five years. So, Ukraine has some good chances to become one of those countries that can host manufacturing facilities.”

If you compare what’s going on now with 2019. Is it then increasing?

“It is increasing. When we look at the first quarter of 2021, we can also see a strong recovery. According to the National Bank of Ukraine estimates, Ukraine will receive $3 billion of investments this year, and the Ministry of Economy says it will be up to $5 billion. The FDI inflow in the first quarter of 2021 amounted to $1486.19 million.”

“We hope that this figure will increase because the current regulations to help this development are rapid. We haven’t seen so many structural reforms before. Among them: simplifying business regulations, starting gradual land market reform, large-scale digitalization of public services, adopting the Law on Inland Water Transport and relaunching privatization of state-owned enterprises due to which the State Property Fund of Ukraine was able to attract UAH 3 billion in 2020, and this year the plan provides for raising up to UAH 12 billion. Improving the law on concessions led, in particular, to the conclusion in 2020 of the most significant concession agreement in the history of Ukraine’s independence worth 3.4 billion UAH between the Qatari company QTerminals and Ukraine’s Olvia seaport. The business climate improved significantly, which allowed Ukraine to jump up 48 ladders in the Doing Business ranking since 2014 and now occupy the 64th place out of 190. And many more to come. We also see state support for investment projects, which has never happened in Ukraine before. The Presidential Law “On State Support of Investment Projects with Significant Investments” provides investors with an investment of more than 20 million euros, incentives of up to 30 percent of the total investment.”

And what do the companies say when they come here? 

“The companies usually want to check around 10-12 things. For example, can they have access to the labor force? Is this labor force cost-effective for them? If they need raw materials, can they get a license to get this material? And logistics very important as well. Ukraine is now doing the Big Construction project initiated by the President, significantly developing Ukraine’s infrastructure. I just came back from eastern Ukraine and can say the roads are now of European quality. We can see a tendency that automotive companies want to locate their new facilities in Ukraine. And not mainly in Western Ukraine, but also in Eastern Ukraine, where they have more extensive access to the labor force. Not many automotive companies are there yet, so they want to be pioneers in some way.”

What do you answer when these companies also asked about access to the labor force? Some companies are concerned about whether they can find enough workers. 

“We have this issue in Ukraine, but this is not only an issue for Ukraine. If you look at the European Union, they also have problems with access to the labor force. It’s hard to find people in the EU, but it is a different story in central and eastern Ukraine, which has a lot to offer in terms of access to labor.”

“We are now in contact with companies, which will be opening facilities with the employment of 2,000 to 3,000 people. Ukraine has more than 100 R&D centers owned by or working with global companies. Many of them have significantly expanded the number of employees or/and opened new offices.” 

When I speak with Danish businesses, who are already here in Ukraine. I don’t hear so many complaints about problems here, and the problems they face, they seem to be able to solve. But there are still stories about court cases and corruption in Ukraine, which pop up from time to time. What do you tell foreign companies, which are interested in investing in Ukraine?

“I tell them that corruption is not a big problem here. I believe that the best promotion for bringing new investments is to show them the existing industry in Ukraine. The tendency of problems for companies in Ukraine is going down, and we see fewer companies experiencing obstacles. It is still happening from time to time, but problems are often related to some kind of misunderstanding.”

“In Ukraine, we still have some bureaucracies. In this regard, UkraineInvest helps companies receive documents and meet requirements, so they avoid problems. I’m sure that there are still some corruption cases out there, but we have a much more robust system against the corrupt system in Ukraine now. Another achievement is establishing the Bureau of Economic Security of Ukraine, which is very important because it will take care of the control of economic crimes from the different state bodies and concentrate on one specialist body. This will bring less of a burden on companies in terms of the prosecution of businessmen, and the bureau will make sure to only go after those who conduct business in an unfair way.”

“One of the main tasks of UkraineInvest is to deal with investor’s requests and problems. We are committed to providing investors with free of charge “one-stop support” consisting of reliable, current information and advice on doing business in Ukraine, guiding through government agencies at all levels and helping to resolve any systemic issues investors may face.” 

What role do you see that companies from Denmark and other Scandinavian countries can play in Ukraine?

“Denmark is one of Ukraine’s important partners in trade and investment. Currently, Denmark ranks 20th in terms of foreign direct investment in Ukraine. 30% of FDI was made in manufacturing, 21% in R&D, 16% in transport and logistics, 10% in agro-processing. We would like to see high levels of investments from Denmark in the future. In total, there are nearly 300 Danish companies successfully operating in Ukraine. That is what we want to see for all Scandinavian countries.”

“We want to see more food processing in Ukraine because the Danish companies are quite good at this. Also, when we talk about Scandinavian countries, we would definitely like to see more green energy. There are hundreds of companies here in Ukraine, but we definitely would like to see more. And we’ll be happy to talk and present the opportunities.”

Sergiy Tsivkach, Executive Director of UkraineInvest. Photo: Stefan Weichert

What are you doing to brand Ukraine as something different than corruption, war, and other issues, which is the picture that many have of Ukraine today?

“Last year was a bit of a stop for us and everyone else because of the pandemic. But at the beginning of this year, we have already been doing a strong informational campaign, and Scandinavian countries are in focus. These countries are very important for us because you have high-level technologies. You also have good long-term practices about how to run and manage businesses. Also, you have good access to funds, such as green funds, and we, therefore, see a lot of potentials.”

“It is maybe 10-20 times harder to promote good news for some reason. Media are not so interested in good news, so we have to do everything we can to let people see the great potential of Ukraine.”

“I see a lot of potentials when we can talk about agro-processing, metalworking, textile, logistics, and construction. Ukraine has excellent potential here. So, it is this kind of benefits that we need to explain to businesses in Scandinavian countries. Due to the number of competitive advantages such as unique location on the crossroads of the main trade routes between Europe, Asia, and the Middle East, highly skilled and cost-competitive workforce, and a wide selection of greenfields and brownfields, Ukraine has a chance to become the leading manufacturing and industrial hub.” 

“We have also started a decentralization reform so that our regions are more responsible for their development, and it is making everything much easier for businesses.”

Some companies are worried about the lack of supply chain in Ukraine, meaning that it is hard for companies to get everything that they need and that they often need to import it. What is being done to change this?

“We hear about this problem. We need to identify those sectors and go to factories and ask them about their issues to get a supply chain established in Ukraine. I’m always a bit upset when I see that some materials come from Hungary and not from Ukraine, when it is basic materials, such as screws, plastics, or other things which we could make here.”

“We need a special program to change this. We need to talk to companies already operating here and ask them what they buy abroad and whether they will be happy to buy this in Ukraine? If that is the case, we would then make a special offer to, for example, Danish companies or any other companies to try to produce those goods at a high quality.”