Swiss businesses prosper, but new investors wary
Swiss businesspeople and their local partners say Ukraine is a land of opportunity. The challenge is how to realize that opportunity.
Swiss business is attracted to Ukraine by the country’s cheap but well-qualified labor force, its raw materials and its mineral resources. Cumulative foreign direct investment from Switzerland to Ukraine as of October reached $1.48 billion, according to figures from the Ukrainian state statistics service Ukrstat.
Switzerland is one of the richest nations in Europe, powered by its financial clout.
With 100 companies in Ukraine, Swiss citizens are actively taking part in changing Ukraine, especially in the medical and banking sectors. It also contributes $25 million annual in financial aid.
But economic factors, lack of state support and absence of rule of law are preventing new Swiss investors from entering the market.
Marco Mannhart, a Swiss entrepreneur with Ukrainian roots, established JK Development in 2009. Today his company provides customer support and marketing service to Swiss businesses, employing 100 workers in the western Ukrainian city of Lviv. It plans to double its staff within the next few years.
At first, Mannhart recalls, Swiss business had little trust in the quality of Ukrainian workers, but no longer. Ukrainians’ success in doing business abroad – people from the country were involved in launching the WhatsApp messenger service and the PayPal online payment system – helped build a bridge between the nations.
But Mannhart’s main office in Switzerland, which is responsible for quality, often has to reassure foreign clients about Ukrainians. “It compensates the negative image currently generated by Ukraine,” Mannhart said.
He said one Swiss employee can work much more efficiently than a Ukrainian one, which he attributes to differences in mentality and culture. But a Swiss employee costs from five to six times more than a worker in Ukraine.
“We can make money from this difference,” Mannhart said.
The economic turmoil of the last three years has affected JK Development, with well-qualified personnel leaving the company and moving abroad to look for better opportunities. The stress of Russia’s war is also taking its toll.
Mannhart said he has acquaintances that are ready to invest between $500,000 and $1 million in various areas, but they would currently prefer to go to Romania or Bulgaria, where law enforcement is better.
Ukraine has tremendous potential, he said, “but the problem is that you come with some amount of money and have to pay a 30 percent cut from every dollar. It’s so crazy!”
Mannhart thinks that citizens will determine Ukraine’s path – either they will decide to follow the law or they won’t.
In the Zhytomyr Oblast city of Malyn, Swiss Paper Mill Weidmann produces electrical insulation paper and cardboard.
The mill has a 140-year history, and has been owned by the Swiss company for more than a decade. Over the last five years, the parent company has been transferring its production from Switzerland to Ukraine, said the head of the factory’s board, Andriy Panchenko.
In 2016, Weidmann invested $5 million in renovation and relocation. Market experience and the support the company is getting from the Swiss Embassy is reassuring, Panchenko said.
“When we have a tax system and courts that behave unexpectedly and you cannot defend the rights of your business, as we have today, I wouldn’t be so optimistic about new investors coming,” he said. “But if you have support from the embassy, you can start a business here.”
His factory produces paper for export, leaving only 10 percent for internal needs. Some 30 percent of the goods still goes to Russia, “where there’s a big market.”
Weidmann provides 600 jobs in Malyn, a city of 30,000 residents. The mill also headhunts former Malyn citizens with experience in paper production who might be interested in moving back to their hometown, Panchenko said.
Another company that has been in business for over a century, JSC tropack Gostomel Glass Factory is cultural products, and paper. one of eight glass plants in Europe that are partly owned by Swiss Vetropack. Its Ukrainian branch is a leading producer of glass packaging on the domestic market, occupying a 31 percent share.
Swiss investments and experience helped the company to build a new glass furnace, modernize its production line, and improve standards, according to the company’s communications manager Irina Pinishchuk. Today, the plant’s three furnaces produce transparent, green and brown glass containers.
The glass factory, which has around 630 employees, is located in Hostomel, a northern suburb of Kyiv. As the production of glass bottles requires workers to have specific skills, it is difficult to hire professionals, as there are only two institutions in Ukraine teaching these skills, Pinishchuk said.
With a slowing domestic market, the company’s strategy has been to build an export network through Europe and other former Soviet countries apart from Russia.
Dependent on state
Ukraine’s crumbling road network raises logistics costs and reduces margins. In 2017, the government plans to allocate $1.1 billion to road repairs, according to Infrastructure Minister Volodymyr Omelyan.
That’s good news for the Ukrainian division of Swiss mechanical engineering company Ammann, which supplies road-making and repair equipment. The road construction industry in Ukraine is dependent on state contracts, according to Ammann Ukraine’s managing director, Anatoly Bytsenko.
The distribution office in Ukraine of the 150-year-old Swiss company was founded in 2008, and since then it has provided equipment to 10 asphalt plants in Ukraine. However, the pace of road construction and repair in Ukraine is a lot slower than in other countries that Ammann also supplies.
In 2016, the company saw a sharp rise in machinery repair work. But the company’s Swiss headquarters don’t have near-term plans to invest in the Ukrainian branch, Bytsenko said. The Asian market, particularly India and China, is booming now.
“This is only a prospect for the future,” Bytsenko said of his Swiss colleagues’ chances of investing in Ukraine.
Switzerland-Ukraine ties at a glance
8.3 million people (2015) President Doris Leuthard, since Jan. 1 $662 billion in 2016. machinery, chemicals, watches, textiles, agricultural products, precision instruments, tourism, banking, and insurance. Ukrainian-Swiss economic relations: $581 million in 2015; $293.6 million in first half of 2016 pharmaceutical products, machinery, chemicals, gemstones, jewelry, and watches. gemstones, jewelry, machinery, agri- $1.5 billion as of October. Sources: CIA World Factbook, World Bank, Ukrstat
A man works on a Vetropack glass plant line, producing glass for various drinks. Ukraine’s Vetropack Hostomel Glass Factory, partly owned by Swiss investors, produced three kinds of glass bottles in the Kyiv suburb of Hostomel. (Courtesy of Vetropack)
Slavomir Novak, head of Ukravtodor state transport agency, came from Poland to lead the renovation of roads in Ukraine. (Andriy Gudzenko)