NEWS
Business in Ukraine: The Long Journey from Politics to Reality
A few weeks ago, more than 250 Danish companies gathered for a conference at Industriens Hus to learn about the possibilities of doing business in Ukraine. Both the Ukrainian First Lady and several Danish and Ukrainian ministers were present at the opening. It was yet another conference in a long series about the many opportunities to increase trade and investment in Ukraine, despite the war in the eastern and southern parts of the country.
The government has allocated hundreds of millions of DKK through various funds for loans and guarantees. However, it's one thing to have good intentions, earmarked funds, conferences, and handshakes with ministers, and another to motivate Danish companies to take action. For many Danish companies, it's a big decision to take the plunge.
"There's considerable hesitation. Danish companies, irrespective of size, are the ones tasked with taking the lead, and we're currently pausing to await the ideal project and timing," says Thomas Gaardbo, director at Linka Energy. Linka Energy has sold biomass plants to Ukraine on several occasions before the war.
"It would be beneficial if, through these numerous funds, assistance could be obtained to mitigate investment risks because no one knows how the war will unfold. Ukrainians are nice people and very eager to get started, as life goes on for them. But it's a huge uncertainty. And we just need to find the right opportunity," says Thomas Gaardbo.
Ukrainian companies themselves seldom have the opportunity to generate sufficient capital to ensure growth and employment, There are also restrictions on moving capital in and out of the country because the Ukrainian government wants to prevent money from leaving the country.
The Danish Investment Fund for Developing Countries, IFU, is one of the sources of loans and funds for Danish companies ready to invest in Ukraine.
"We reduce the risk for Danish companies wanting to invest in Ukraine by either providing part of the equity or loans," says Søren Peter Andreasen, acting CEO of IFU. However, he is aware that the political risk in Ukraine is unusually high compared to the investments that IFU typically undertakes.
"We are in talks with EU and American partners who can provide, for example, insurance against political risk, but it's not something we're using yet," says Søren Peter Andreasen.
The Danish Parliament has allocated 140 million DKK for Ukraine through IFU, and Andreasen anticipates that this amount will suffice for the remainder of the year. Then politicians will have to consider future financing.
To date, IFU has 16 active investments in Ukraine, with several new ones added in the past year.
Danish companies can also seek assistance from The Export and Investment Fund of Denmark (EIFO), which provides Danish businesses with access to a loan and guarantee program of up to one billion Danish crowns. This initiative is specifically aimed at fostering trade and investment relations with Ukraine.
Maj Winther Møller, the sales director at the international technical service company Eryk, has actively engaged in Ukraine conferences and serves as the public representative for Eryk concerning Ukraine.
"It's very political, and it mostly stays at the level of talk," says Maj Winther Møller.
“Getting things done in Ukraine isn't as straightforward as in many other European countries, so determination and commitment are crucial. For most Danish companies, it's not an absolute necessity to operate in Ukraine, so it becomes a sort of choice," she says.
She points out that Eryk almost needs an employee to go through and understand the opportunities for public support and help to get started in Ukraine.
"It's not so transparent and seems a bit like a lottery. We support Ukraine and have employees who have gone home to participate in the war. While many advocate for immediate action, we're still uncertain about the specific steps to take," says Maj Winther Møller.
Chairman of the Danish Business Association in Ukraine and Director of Sika Footwear, Lars Vestbjerg, has been conducting business in Ukraine for the past 20 years. He observes that the speeches and efforts of Danish politicians have yet to yield results.
"The government's initiatives regarding Ukraine have not yet borne fruit, and it will probably be a long proces. The war is a significant factor. We will have to wait for developments in the war-affected areas. If Ukraine launches an offensive over the summer, then things might pick up. If not, frankly, not much is likely to happen," says Lars Vestbjerg, who is based in the Western city of Lviv.
On a daily basis, he and other companies struggle with the extensive mobilization of Ukrainian soldiers, which results in businesses losing employees. Everyone is affected. Several companies consider moving production out of the country for the same reason.
The Confederation of Danish Industry (DI) firmly believes that initiating actions now can be advantageous.
"Once stability returns to the country, there will be a rush of activity. So you might as well be proactive, for example, by establishing partnerships," says DI consultant Cindy Christensen.
"There may be some who are waiting for the situation to unfold, but many are already operating, and some companies are actively crossing the border back and forth. Ukrainians really want to cooperate," she says.
In both Denmark and the EU, there are numerous business-oriented initiatives aimed at rebuilding Ukraine. The many initiatives are not so much about rebuilding bombed buildings as pushing the entire peaceful part of Ukraine in a more developed and digitalized direction. Cindy Christensen emphasizes that there are significant opportunities for Danish companies within several sectors, especially energy, IT, agriculture, and green solutions in general.
According to Info Sapiens/Transparency International, the war is the primary concern among Ukrainians, followed by corruption.
“It's difficult for Danish companies. A lot of money is earmarked by politicians, but where will all these funds go? Can we expect the money to go where it's supposed to? We need to be able to talk about this. You risk having to go through several officials to get things done or having to hire a consulting firm that knows how to operate in the country," says Jan Lund, director of Søby. Søby has been selling agricultural equipment in Ukraine for years.
Lars Vestbjerg also emphasizes that bribery is a real problem in Ukraine.
"Ukrainians have a different culture. That's just how it is. It will take at least a generation to change that. But one shouldn't be too afraid of it either. As a Danish company, you can go a long way with the attitude that bribery is not something we engage in. That there should be other, proper solutions," he says.
“Through the Danish Ukrainian Business Council, we organize presentations on anti-corruption. It's evidently an issue like in many other parts of the world. We advise companies to seek assistance from DI or the embassy in selecting a partner, because forming a partnership with a Ukrainian company differs from that with a German one. That's the reality," says Cindy Christensen.
Umbra Communications and Intelligence cooperates with private German consulting firm Schneider Group, which has a branch in Ukraine with more than 40 employees. Schneider Group assists foreign companies with business setups, legal matters, taxes, accounting, payroll and Employer of Record support, and HR.
https://www.schneider-group.com/en/
May 4 2024
Birgitte Dyrekilde
Umbra Communications and Intelligence