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Danish investment in Ukraine
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1 June 2011
As a small nation of less than 6 million people almost completely surrounded by the sea, Denmark has traditionally been a country focused on ties with the outside world. Even today, this Scandinavian nation continues to draw upon its maritime calling to make up for its lack of natural resources. Danes are by nature inveterate traders and this reputation has proved true in Ukraine, where over 100 Danish-owned companies have been established since the collapse of the Soviet Union.
From IT outsourcing to pig farming
Since 1991 Denmark has invested USD 1.3 billion in Ukraine. Although this is per se a sizable amount of money there is certainly room for improvement in this respect, given that Ukraine ranks as Denmark’s 40th most important market in the world – a figure which fails to reflect the huge potential for bilateral trade and investment. In 2010, 45% of Danish investments in Ukraine were concentrated in the industrial sector, followed by agriculture (33%) and wholesale trade (8%). More specifically, Danish companies operating in Ukraine are particularly strong in niche sectors. Examples of these sectors include the outsourcing of IT services (a fast expanding sphere), renewable energy and pig farming. Danish IT companies have outsourced services to Ukraine for a number of years as the country can offer qualified IT engineers located just one time zone away from Copenhagen. Pig farming may sound less like a niche sector, but the Danish companies in this sphere are among the most technologically advanced and record profits of up to 20%.
A West Ukrainian focus
Geographically, most Danish investments are located in Western Ukraine. The reasons for this concentration are manifold. The key factor here is geographical: most major West Ukrainian cities are located within 100km of the nearest EU border, making the region ideally placed to integrate its economy with its EU neighbours. Another reason is the presence of pre-existent infrastructures, as is especially the case in the textile industry. However, Danish investments are not limited to the West Ukrainian heartlands. To name a few big-name examples, Carlsberg owns Slavutich, one of the largest breweries in Ukraine. Global shipper Moller-M?rsk is a big player in the port of Odesa and recruits skilled Ukrainian crews for its world shipping operations. Meanwhile, the Donbass Arena in Donetsk was built with the aid of three Danish contractors, Danfoss (heating equipment), Grundfos (pumps) and Rockwool (insulation material). Last but not least, Danish furniture retailer Jysk is a household name across Ukraine.
Along the road to recovery
The recent global economic crisis has not led to a drop in Danish investments. Throughout 2009 and 2010 a steady, albeit diminished, flow of investments kept trickling into Ukraine – according to data from the Ukrainian State Statistical Committee, in the peak crisis year 2009 Danish investments grew by 0.5%. Now that the storm is over and production costs have been reduced and capacities freed up, Danish businesses are in an ideal position to expand. With a view to the future, there is still room for newcomers, as the middle class is projected to grow in scale in Ukraine, which in turn will lead to an increase in the demand for consumer goods. Another potential growth area is renewable energy; Ukraine’s energy consumption is 3-4 times higher than in the most advanced countries, and the upcoming increase in gas prices mandated by the IMF is likely to push the country towards a review of its energy mix. Once again, Denmark’s expertise in the field could come in handy – the Danish government has set an ambitious goal to establish a carbon-free economy by 2050, and there is an increasing pool of Danish companies focusing on renewables.
Danish investors seeking greater transparency, less red tape
Predictability and transparency are paramount to foreign investors. When doing business in Ukraine Danish companies face some challenges and the business climate has worsened significantly in this respect over the past year. Things that pose no difficulties in Denmark, such as customs clearance, are time-consuming in Ukraine and often require external intervention. Moreover, the complexity of Ukrainian legislation makes full compliance next to impossible, which exposes companies to increased scrutiny from state authorities. In some sectors including pig farming, local residents do not favour the establishment of such companies due to their environmental impact, although it is much less of a problem than most domestic farming.
Besides the Embassy, Danish companies operating in Ukraine are supported by Denmark’s Investment Fund for Central and Eastern Europe, which co-funds business projects by Danish businesses, and the Danish Business Association in Lviv, which comprises mainly Danish companies based in West Ukraine. Denmark strongly supports Ukraine’s goal of European integration. The signature of an Association Agreement and a Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union will bring the country closer to European standards, thus making it more predictable for foreign companies and boosting foreign investments. Driven by their entrepreneurial spirit, Danish companies will hopefully profit from an improved business climate and invest in a more confident manner in the Ukrainian economy, both in more traditional sectors as well as in cutting-edge industries.
Source: Business Ukraine
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