Ukraine And Canada: Bridging The Distance
The skyline of Niagara Falls, Canada is seen from Niagara Falls, New York on July 3, 2016. While 7,000 kilometers apart, Ukraine and Canada are united by blood ties — 1.4 million Ukrainian-Canadians. Canada remains one of Ukraine's biggest political supporters and, since the start of a free trade agreement on Aug. 1, 2017, commerce is inching up, although still under $300 million annually. Moreover, since June 6, three non-stop flights weekly in each direction between Toronto and Kyiv by Ukraine International Airlines have given new impetus to tourism and trade.
Canada is host to one of Ukraine’s largest diaspora communities and is one of Ukraine’s top supporters as Kyiv faces down Russia's war in its fifth year.
But in bilateral trade, Canada is barely in the top 50 of Ukraine’s partners (45th, in fact) with turnover worth $293 million in 2017, despite the advent of a free trade agreement on Aug. 1.
There's a lot of catching up to do for two countries with completely different economic situations. Ukraine, with 42 million people, has a gross domestic product of a little more than $100 billion, while Canada — with six million fewer people — comes in at $1.6 billion.
The trend is moving in the right direction, helped by the presence of 1.4 million ethnic Ukrainians in Canada.
An example of this can be seen at ELEKS, a top 10 Ukraine information technology software engineering and consulting services firm that serves Fortune 500 clients such as BNY Mellon and Autodesk.
“Our relationship with Canada started three years ago,” Andriy Krupa, chief compliance officer at ELEKS, told the Kyiv Post.
The company has signed a contract with a large Canadian retail enterprise. “Since then, we’ve started building the relationship with the country, we’ve had customer visits here, and we had our people going to Canada,” Krupa said.
ELEKS, a company with 1,200 employees, mostly located in the western Ukrainian city of Lviv, is now thinking of opening up a small office in Canada to continue expand- ing its client base in the region.
“It’s a very interesting market and I think we can relate to that first of all in terms of culture,” Krupa said. “It seems they would like to have Ukraine succeed (politically and economically) and are doing their best to make it happen… So this builds reciprocity.”
This good will has also helped one of Ukraine’s biggest food producers, Chumak, over the past 15 years that it has been exporting its products to Canada.
“The core business is around what is called ‘ethnic distribution,’ as there are a lot of people in Canada of Ukrainian origin,” said Chumak export director Orest Rozhankivsky.
Chumak partners with two distributors that target the Canadian diaspora market with Ukrainian-made ketchup, mayonnaise, sauces, juice, sunflower oil and more.
But the diaspora market is worth less than $100,000 in annual revenues for the company, or only 2 percent of its overall exports. And it’s been difficult for the Ukrainian company to expand beyond that.
“We understand that diaspora is… a rather limited market,” he said. “Of course we are also trying to be on the ‘real’ Canadian market, which is not so easy.”
The main reason for that is that the market is already quite saturated.
Chumak thought that by entering the Canadian market it would be successful simply if it had a good quality and tasty product at a competitive price.
“But unfortunately it’s not like that, because there are so many products on that market that already fit those requirements, so you need something more, you need to establish contacts, break through this wall, and that’s not so easy.”
Denys Krasnikov, the vice president of the Ukrainian League of Industrialists and Entrepreneurs, or USPP, a union of businesses and organizations, says that that
the Canadian market in general is much more closed to foreign goods and services than some other countries, because of non-tariff barrier regulations.
“Many additional requirements for foreign products are supported by domestic business associations and local producers; and sometimes these are really unexpected for foreign producers,” Krasnikov told the Kyiv Post.
Canadian partners will require more information about a foreign product compared to many other countries, and will ask to see certificates proving the quality of the product and production process.
“They (will) try to understand the history of the company, its owner’s portfolio and origin of the capital,” Krasnikov said. Even if you have a competitive product and good price, if you do not meet their requirements, you don’t have a chance for cooperation.”
Krasnikov is hopeful though, and says that more Ukrainian companies will adapt their products to Canadian market requirements. He predicts that “some of them will play a significant role there.”
Rozhankivsky, however, said it has been easier for his company to enter the market in Canada than the one in the United States. Chumak has benefited from help from trade organizations in Canada as well as a more “positive attitude towards (Ukrainians),” he said.
Free trade agreement
The Canada-Ukraine Free Trade Agreement, which came into force on Aug. 1 last year, has also helped.
Adam Barbolet, senior trade commissioner and commercial counselor for the Embassy of Canada in Kyiv, says that deal has noticeably contributed to bilateral trade, and in a unique way.
“Normally you would expect to see… trade of more (types of goods) but not necessarily a higher volume,” Barbolet told the Kyiv Post. “But actual volumes are also going up — it’s not just more types of things that are being traded… And that’s in both directions.”
Barbolet says that the CanadaUkraine Trade and Investment Support project, or CUTIS, has played an instrumental role in this. The support "has been quite active in telling the story of Ukraine in Canada. Commercial relations are expanding beyond just diaspora groups, it’s really a business-to-business kind of a relationship that’s starting to develop,” Barbolet said.
Most of the Ukrainian compa- nies collaborating with Canada are small- to medium-sized ones, in key industries like IT, footwear, confectionaries, clothing, and furniture.
For example, since 2017, Ukraine has bought up Canada’s entire surplus supply of candied cranberries.
“The Ukrainian confectionary industry used to buy American cranberries, dry them, candy them and then process them,” Barbolet said. “What they found was that it was more economical… to buy them directly from Canada as candied cranberries. They had wanted to buy 500 million tons, but we don’t have 500 million tons.”
And when Ukrainian companies enter Canada, they demonstrate that Ukraine can make high quality products that whet Canadians’ appetites to invest in Ukraine.
Today the embassy’s economic section has an unprecedented number of investor projects in the pipeline, totaling more than $1.5 billion in foreign direct investment.
Ontario-based private merchant bank Forbes & Manhattan’s investment in the Kryvyi Rih iron-ore project has been responsible for $1.2 billion, renewable energy company TIU Canada is planning to invest $100 million this year, and Brookfield Asset Management is pumping tens of millions of dollars into the Lviv IT Park, a 10-hectare office park.
“We’ve never seen anything like this…,” Barbolet said. “We’re starting to see an increase in commercial confidence in the country.”
Another example is Colonnade Ukraine, a non-life insurance company, owned by Canadian Fairfax Financial Holdings since 2015.
Igor Verich, the company’s business development manager, says that the company has been growing every year at approximately 15–25 percent.
“Last year we were able to collect Hr 180 million in gross payments, making up to 1 percent of the whole insurance market,” Verich said.
While there are a lot of projects to keep the embassy and CUTIS busy, overall trade figures are still quite low, which makes them quite volatile. For example, Canadian exports to Ukraine dropped by around 60 percent, or by $57 million, in JanuaryApril compared to the same period of 2017. The reason — coal. “(Coal) is now coming from the United States rather than from Canada,” Barbolet said. Back in 2017, U. S. Xcoal Energy & Resource signed a deal with Ukraine’s Centrenergo to deliver steam coal.
But Barbolet says that there have been conversations about Ukraine starting to purchase Canadian coal again, “so we could very well see those numbers resurge.”
If the coal factor is excluded from the overall trade, then trade is up by 126 percent, he added.
Another Ukrainian company that has been benefiting from the recent pickup in trade is Postmark Ukraine, an online clothing store that exports to Canada.
“We’re coming into our third year now, and it’s starting to look on the up,” said Postmark’s owner, Lana Nicole Niland. “Mostly ( our clients are) Ukrainian diaspora, but not only.”
Niland expects her business to earn around $100,000 by the end of this year, approximately double the amount it made in 2017.
All of Postmark’s clothing is made in Ukraine, delivered from various vendors across the country.
And thanks to companies like hers, Niland sees trade relations improving.
“Of course we still have a long way to go, but (Ukraine) is becoming a more transparent, democratic place to live and to do business,” she said. “There will come a time where Ukraine is no longer the Wild East, as it is now.”
Canada’s gross domestic product of $1.6 trillion has much to offer for Ukrainian businesses. But the two nations don't rely on each other economically. Canada ranks only as Ukraine’s 45th largest trade partner with $293 million in 2017. A free trade agreement, in effect since Aug. 1, 2017, is boosting the total. (AFP)