Canadian businesses look at energy, real estate, logistics and aerospace
The cultural and emotional ties between Ukraine and Canada, home to 1.2 million people who trace their roots to Ukraine, are stronger than business ones. Cumulative Canadian investment in Ukraine stands at $72.4 million, a small part of Ukraine’s $49 billion total from foreign sources. The partial cause is corruption and slow pace of reforms.
“We would like to see faster changes, but at least we see some positive trends,” said Zenon Potichny, board director of Shelton Petroleum oil and gas company, and president of the Canada-Ukraine Chamber of Commerce.
There are some bright spots, among them, large companies like Canadian Tire retail chain are hiring outsourcing help from Ukraine, especially information technology services.
If the two nations sign a bilateral free-trade agreement under negotiation, the economic ties should intensify.
Here are some of the promising industries:
Energy, including oil and gas, are among the most interesting sectors for bilateral cooperation, Potichny says. Canada is the fifth largest oil and gas producer in the world.
Canadian-Swedish Shelton Petroleum has already invested nearly $8 million in Ukraine since 2001. Its Lelyaki field in Chernihiv Oblast, developed with state-owned Ukrnafta, brought in only $1-$1.5 million in 2014, half the usual revenue, because of the drop in oil prices, while extraction taxes rose from 39 to 45 percent in Ukraine. One of their two offshore wells near Russian-occupied Crimea is now on hold.
Potichny says that when these taxes are lowered and the central bank removes hard currency restrictions, particularly on paying dividends abroad, Shelton will look for new opportunities to expand.
Canada’s Iskander Energy, an oil and gas exploration and development company, had to stop operations in May 2014 when fighting intensified in the Donbas, where all three of the company’s licensed sites were located.
“Everything that we invested, $15 million, this is the money that at this point I don’t know if we will ever recover,” company president Jaroslav Kinach says. “Our strategy now is to protect what we have and wait until Employees of Meest Express, a Canadian-owned parcel delivery service, sort packages at a terminal in Kyiv on June 24. (Volodymyr Petrov) the war is settled, until at least some certainty is established in eastern Ukraine, because our shareholders are not prepared to invest any money into Ukraine at this point of time.”
Metals & mining
Shareholders of Black Iron, a Canadian iron ore exploration company with operations in Kryvyi Rih Oblast, are also not yet prepared. Although far enough geographically from the war, the company has been struggling with legal and bureaucratic issues for the last three years, many involving its attempt to purchase 2,600 hectares from the state.
If the purchase goes through and the project happens, it would create 2,000 direct jobs and up to 8,000 indirect jobs over the next 20 years, the company’s president and CEO Matt Simpson says. With $68 million invested to date, the company has not started mining operations. This would require an additional $1.1 billion.
“We don’t want to spend a lot more money on the project until we know that (the current) government is genuine and willing to help us resolve those issues,” Simpson says. “Ukraine’s new government needs to focus on ensuring that existing foreign investors in Ukraine are successful to help restart the economy by attracting further foreign investment.”
Other Canadian businesses in Ukraine are more firmly rooted.
Although 2014 was tough for Toronto-Kiev, a mixed-use real estate complex, the development is doing better than the market average, says Yuriy Kryvosheya, president of the Canadian-Ukrainian joint venture.
Canadian Ambassador to Ukraine Roman Waschuk called the complex, which will host the Canada Day celebration on July 1, a “visible symbol of the very real presence of Canadian investment… in Ukraine.”
Waschuk estimates the investment at more than $50 million. It comprises 83,000 square meters and includes a Holiday Inn hotel, offices, restaurants, stores and underground parking. A 30 percent growth in occupancy in 2014 was largely attributed to the low base rate of 2013, as the property was only commissioned in 2012, Kryvosheya says.
The Canadian logistics company Meest Express, part of the Meest Group, managed five-percent growth in 2014 despite the loss of branches in the east and Crimea and the hryvnia’s devaluation. Meest was created in 1989 to transport aid and commercial cargo from the diaspora in Canada and the U.S. to Ukraine. Meest Group plans to invest an additional $3 million in chain development, marketing and information technology in 2015. It has already invested some $30 million to date and employs about 3,000 people.
Meest, like other companies, is “waiting for talks about fighting corruption to start being implemented,” according to deputy CEO for commerce and marketing Oleg Kalenskyi.
Promotion, a group of outsourcing companies in Ukraine, provides up to 70 percent revenue for its parent, KSV Consulting group founded in Toronto in 1998.
The company’s internal staff of 70 in Ukraine provides outsourcing, recruiting, IT and human resources
Waschuk noted promising bilateral contacts in aerospace, “which relate to the need of major Ukrainian producers to find new propulsion, avionics and other partners,” for which Canadians are wellequipped. A thriving aerospace community in Montreal, in particular, is now seeking new opportunities in Ukraine.
Yuriy Kryvosheya, president of the 83,000 square-meter Toronto-Kiev real estate complex, stands near the entrance to the Holiday Inn hotel, which is part of the development, on June 25. (Kostyantyn Chernichkin)