World in Ukraine: Ukraine has one true blue (and yellow) friend in EU
31 May 2012 |
Ukraine’s special relationship with Sweden dates at least back to the 18th century, when the two allies attempted to resist the czarist Russian empire.
The effort ended in defeat during the 1709 Battle of Poltava, dashing Ukraine’s hopes for independence and marking a decline of Swedish power.
Strong bilateral relations have stood the test of time.
Sweden, a Scandinavian nation of nine million people, has managed to become one of the top 10 investors in Ukraine. Roughly half of $1.7 billion of capital settled in the banking sector, with Swedbank and SEB bank entering the Ukrainian market during the booming pre-crisis years.
Unfortunately, the purchase of TAS-Commerzbank by Swedbank for $735 million was recently named as the most unsuccessful acquisition on the Ukrainian banking market by Forbes magazine Ukraine.
In 2007, when the deal was sealed, TAS-Commerzbank was owned by Sergiy Tigipko, now a deputy prime minister. At the time, the bank was rated as the nation’s 19th biggest by assets. After the banking sector was hit hard by the world financial crisis, during which the Ukrainian hryvnia lost almost half of its value, troubled loans cost Swedbank almost $1 billion in losses.
Swedbank shifted its focus from retail to corporate banking, closing 140 branches and firing hundreds of people.
SEB bank also experienced similar, but smaller-scale troubles after having acquired AGIO and Factorialbanks before the crisis. “SEB bank spent less money because it bought AGIO bank earlier, when its price was not as hyped up as it happened to be with TAS-Commerzbank,” recalls Eduard Terpytskyi, the president of Swedish-Ukrainian Business Club and chief economist at SEB bank.
Despite the losses, Swedish banks are still committed to the country.
“The focus changed from retail banking to corporate,” said SEB’s Terpytskyi. “It's a step back, but those banks decided to stay in Ukraine.”
The timing was much better for two young Swedish entrepreneurs, Carl Sturen and Johan Boden, who came to Ukraine in 1994 and two years later started the Chumak food processing company.
Today Chumak is a symbol of Western investor success in Ukraine. The company occupies a leading positions in its sector and provides jobs for about 1,000 people, the majority of whom are in southern Ukraine’s Kakhovka, where the company’s production is located. “The whole [area] of Kakhovka has become the vegetable Mecca of the former Soviet Union,” said Sturen.
Altogether around $50 million has been invested in Chumak. Like most businesses, Chumak took a hit during the crisis, but managed last year to recover to the pre-crisis turnover level of $65 million. The forecast for this year is optimistic, with projected $80 million in turnover.
But what makes Chumak different is that it is “sometimes more Swedish than a Ukrainian company. I would say that Chumak has the flattest Swedish-Scandinavian structure than some other companies,” Sturen said. Unlike the post-Soviet hierarchy of a boss making all the decisions, the Swedish management model emphasizes initiative, freedom and responsibility on all levels.
Gunilla Hult, country manager in Ukraine for the Swedish Trade Council, noted other business ties with Soviet roots. She said Tetra Pak, the Swedish food packaging producer, began investing in the late 1980s. “We have had historic links to the region,” Hult said.
It was Hans Rausing, who was head of Tetra Pak at that time and a big fan of Central and Eastern Europe, who helped Sturen and Boden set up Chumak in the mid-1990s.
Gustav Hultgren, a banker from Sweden, first came to Ukraine to help set up a financial department for Chumak. Today, he’s started a convenience store business akin to 7-Elevens in other nations. He says starting retail business can be easier in Ukraine than Sweden.
“A lot of people here are complaining [about] fire, safety, health standards…If I look at the amount of inspections here and in Sweden, it’s nothing here,” Hultgren said. “The health services in Sweden would probably close 95 percent of all restaurants in Kyiv.”
Other big Swedish companies that have invested in local production include Electrolux, which produces household appliances in Ivano- Frankivsk and SKF, which produces roller bearings in Lutsk. “One of the latest success companies is actually Oriflame, and one of their most important markets is Ukraine,” said Hult.
On the down side, furniture giant IKEA with Swedish roots is one of the most famous cases of a big international company bypassing Ukraine because of corruption in the allocation of land plots by authorities.
In an interview with Russian Reporter magazine in March 2010, Lennart Dahlgren, the former director of IKEA in Russia, answered reporter’s question as to whether Russia is totally corrupt.
“I worked in a country compared to which Russia is whiter than white. It’s Ukraine, a totally corrupt country. That’s why IKEA didn’t stay there…anyway why would a land plot in Kyiv cost three times more than in Moscow or in London?”
Chumak’s Sturen agrees, noting that his firm has been lucky “because we’ve invested in sectors which are not so corrupt.”
Overall, however, bilateral trade is not large.
Ukraine and Sweden have export-oriented economies, with competing commodities.
“Sweden does not really need our main export commodity,” said Terpytskyi from the Swedish-Ukrainian Business Club. “Sweden is producing more competitive products on external markets in general, including [to] Ukraine.” As a result, Swedish exports to Ukraine are almost six times bigger than Ukrainian exports to Sweden.
Human interaction between the nations is a strong point.
“All Swedes I’ve met feel very welcomed in Ukraine,” Sturen said. “I don’t know what it is, but Swedish-Ukrainian mentalities fit somehow. Being Swede in Ukraine is actually very comfortable.”
Territory: 450,295 square kilometers
Population: 9.1 million people
Government type: constitutional monarchy
Head of government: Prime Minister Fredrik Reinfeldt
GDP (purchasing power parity): $379.4billion in 2011
GDP per capita (PPP): $40,600 in 2011
Main industries: iron and steel, precision equipment (bearings, radio and telephone parts, armaments), wood pulp and paper products, processed foods and motor vehicles.
Ukrainian-Swedish economic relations:
Trade: $650 million in 2011
Exports from Sweden to Ukraine: engineering products, semi-manufactures, food, chemical products, raw materials and fuels.
Exports from Ukraine to Sweden: fuels, chemical products, food, raw materials, semi-manufactures and engineering products.
Swedish investment in Ukraine: $1.7 billion as of 2011
Ukraine’s investment in Sweden: no data.
Sources: CIA World Fact book, Swedish Trade Council