Swiss busi­nesses pros­per, but new in­vestors wary

Kyiv Post - - Business - BY YULIANA ROMANYSHYN [email protected] Pop­u­la­tion: Head of gov­ern­ment: GDP: Main in­dus­tries: Bi­lat­eral trade: Ex­ports from Switzer­land to Ukraine: Ex­ports from Ukraine to Switzer­land: Swiss in­vest­ment in Ukraine:

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.

Swiss out­sourc­ing

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.

Pa­per in­dus­try

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.

Glass lead­ers

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)

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