Swedish business in Ukraine on upswing

Swedish business in Ukraine on upswing

Given all the big-name Swedish brands that are present in Ukraine, such as Volvo, Ericsson, Oriflame, SKF and Scania, it’s surprising that, by the raw figures, Sweden is not one of Ukraine’s ...

In fact, it’s not even in the top 30.

But with retail giants H&M and IKEA getting ready to open their doors in the second half of the year, Swedish-Ukrainian business relations are definitely on the upswing.

The last two years have been the best for Swedish exports to Ukraine since 2011, reaching $400 million in 2017, while Ukraine’s exports to Sweden hit a record high — $89 million — pushing bilateral trade closer to half a billion dollars.

“It’s the best time ever — (even) before the 2008 crisis we never received so many calls,” told Bohdan Senchuk, the president of the Swedish Business Association in Ukraine.

Bad times pass

That’s quite a change since 2011, when trade between Ukraine and Sweden started to trend downward. Things hit rock bottom in 2014, with the EuroMaidan Revolution that removed President Viktor Yanukovych from power and the start of Russia’s war. The ensuing economic shocks took a heavy toll on Swedish business in Ukraine.

While no Swedish companies quit the country, some, such as Tetra Pak, a food packaging and processing company, took some hard hits: the company had to close its plant in Kyiv’s Podil district at the end of 2016.

Back in March 2015, the company told the Kyiv Post that it would be good if it finished the year with no more than a 10 percent decline. The company said then that main problems were the hryvnia devaluation (as Tetra Pak’s raw materials were imported from Sweden), the low purchasing power of customers and a lack of progress in tackling corruption in Ukraine.

The trend was so negative that Business Sweden, a promotion agency 50 percent owned by the Swedish government and 50 percent by private companies, had to close its Ukrainian office — leaving Senchuk without a job.

“After 2014 it was evident that the Ukrainian economy couldn’t buy Swedish solutions,” he said. “2014 and 2015 were quite difficult (years) for Swedish companies.”

Soon after, however, Senchuk opened the Swedish Business Association in Ukraine, which is now about a year old and has 10 members so far. Altogether there are around 100 Swedish companies in Ukraine, spread over a range of economic sectors.

But despite the uptick, Ukraine remains a miniscule part of Sweden’s economy — only 0.3 percent of Sweden’s total exports go to Ukraine, mostly machinery and industrial equipment. Ukraine’s share of Sweden’s total imports is hardly noticeable at 0.1 percent.

That said, Sweden’s exports to Ukraine last year exceeded its exports to European Union countries like Bulgaria, Romania, Slovenia and Croatia, and are similar to its export volumes to Iceland, Slovakia and Latvia.

SKF success

SKF Group, a bearing production company, is one of those seeing growth. The company has since 1998 invested more than 120 million euros into the Lutsk Bearing Plant, and SKF Ukraine’s net sales have grown by 33 times since then. Last year, the company’s sales amounted to Hr 2 billion, which translated into a net profit of Hr 214 million.

Vladimir Tsybulsky, the managing director at SKF Ukraine, says that the main reason for the company’s growth last year was the increase in the production of vehicles in the European Union.

“In 2017 our sales volume increased by 17.9 percent, and production increased by 16.2 percent,” Tsybulsky told the Kyiv Post. “But the main… catalyst was the growth in the volume of production of trucks in Western EU countries.”

SKF Ukraine’s exports account for over 96 percent of overall sales, with about 80 percent of that going to Germany. Their leading customer is carmaker Volkswagen, followed by truck makers MAN, Meritor, Scania and others.

Today there are around 1,400 Ukrainians working at the plant, and 100 staff members were added over the last two years. It is one of Ukraine’s top taxpayers, paying Hr 386 million ($14.8 million) in 2017.

Tsybulsky, who has been working at the Lutsk Bearing Plant for 42 years, and who was there long before it was purchased by SKF, says the plant probably wouldn’t have survived had the Swedes not taken it over.

“Honestly speaking, without SKF I’m not sure if the plant would have survived, because the most important thing that SKF gave us… is a market, because we wouldn’t get access to such clients by ourselves,” he said.

Tsybulsky also said there had been a change in the attitudes of the workers, as they are now included in “making decisions, (are) involved in production, and are motivated.”

That change in attitude is now paying off: on May 17, SKF’s headquarters decided to invest further into the Lutsk plant, with plans to set up new production lines. Tsybulsky would not disclose the amount of investment, saying it was a commercial secret.

While its Lutsk plant is only one of 108 factories SKF has, spread over 29 countries around the world, its Ukrainian division is an important link in the global supply chain.

“In this sense, (SKF) depends on us a lot,” Tsybulsky said.

Scania sales

Last year was also a good one for Swedish truck company Scania: In 2017, it sold 330 trucks for more than $40 million, which was a 93 percent increase compared to the previous year.

Håkan Jyde, the managing director for Scania Ukraine, who took over the position this past fall, told by e-mail that the truck maker was expanding its operations in Ukraine.

“In 2017 we opened new service stations in Poltava, Vinnytsia and Mukachevo, and since the beginning of 2018 we operate a new dealership of our own in the city of Kramatorsk,” Jyde said.

Scania is a global company operating in more than 100 countries. Its Scania Ukraine branch, established 20 years ago, currently employs 150 people.

“We do expect moderate growth in the market for heavy vehicles” this year, Jyde said.

But to maintain even this modest forward momentum, Ukraine will have to have “transparent rule of law in all sectors of society,” and even though there has been some progress, “it needs to be speeded up further,” he said.

And while exports are growing, more than 40 percent of Swedish exports to Ukraine in 2017 came from just one supplier — Westinghouse’s Swedish plant, which exports power generation equipment and parts. And Westinghouse’s share could grow further: in January, the company reached agreement on supplying nuclear fuel for seven out of the 13 nuclear reactors in Ukraine from 2020 to 2025.

More companies

Meanwhile, more Swedish companies are entering Ukraine’s market — for example Assistansepoolen, a Swedish janitorial service company, which started doing business in Ukraine this January.

A Swedish food processing company is also to enter Ukraine soon, Senchuk said.

“And there’s an acquisition that has started that we’re involved in, but I can’t mention (the name) until the acquisition transaction is finished.”

To boost business activity further, the Embassy of Sweden in Kyiv is to host the 7th Sweden-Ukraine Business Forum on June 14. Representatives of top-level Swedish companies will be in attendance at the forum, looking for more investment opportunities.

Up to 250 people are expected to attend the event.

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