Lenna Koszarny, the CEO of private equity fund Horizon Capital, has no time for claims that Ukrainians are just not born businesspeople.
“I disagree that Ukrainians are not entrepreneurial,” Koszarny says. “I think the Ukrainian soul craves freedom. And freedom from a business standpoint equals entrepreneur.”
She says that there are many opportunities awaiting Ukraine in the European Union market.
She’s positive about Ukrainians in no small part because of her background — her grandparents, both ostarbeiters (slave workers taken from Eastern Europe by the Nazis during World War II), were raised in eastern Ukraine and ended up in Canada looking for better prospects.
But her enthusiasm for Ukraine doesn’t blind her to the many problems of doing business in the country.
One of the biggest of these, she says, is getting financing for startups, given that it is unrealistic for a business to take out a loan with a 22 percent interest rate, the benchmark rate established by the National Bank of Ukraine. “If you had access to capital, you would see just an explosion in terms of small- and medium-sized enterprises in Ukraine,” Koszarny says.
Focusing on SMEs
Her firm manages $600 million in three funds with primary investments in Ukraine – the Emerging Europe Growth Fund, the Emerging Europe Growth Fund II and the Western NIS Enterprise Fund. Over the past two decades, these funds have invested $400 million in 40 small- and medium-sized companies in Ukraine. This financing created jobs for more than 30,000 people and unlocked over $1 billion in capital for these portfolio companies over the past two decades. Now, many of these companies have set the EU market as a major priority.
Examples of EU success
One example is Kerameya, a clinker brick manufacturer in Sumy with 70 percent of the nation’s brick market.
Traditionally, Kerameya exported to Russia and other post-Soviet countries, but recently it started to pivot its exports towards the EU.
“Recently we entered distribution relationships with German and Polish distributors. So we are just starting to ship the first train loads to those markets,” Koszarny says. The transportation costs are high, considering the bricks’ weight, but with 65 percent hryvnia devaluation, energy efficiency and competitive labor costs, the company has a cost advantage.
Ergopac, a household products company, also exports to the EU, to countries like Romania, Bulgaria and the Baltics, supplying their retail chains. Before, Russia was its primary market, but not anymore.
“It really first took that mindset change, that discussion with shareholders and with management saying ‘Look: we need to get into the EU markets, we have a competitive product, we have high quality, we’ve invested in quality, let’s hire the right people, the right export director,’” Koszarny says.
One more example that Horizon Capital financed is Moldovan wine company Bostovan. The company now sells to 25 European countries, which account for 70 percent of its sales, with the rest being mainly sold to the Middle East and Africa. Nothing is sold to Russia.
“We used to almost exclusively sell to Russia,” Koszarny says. “It’s a great example, because it shows that a pivot is possible.”
Path of least resistance
Pivots are hard to do, but in the end the results are higher margins, more diversified sales and a stronger company, Koszarny says. But first, the domestic “comfort zone” mentality has to be overcome.
“Ukraine has always had a very large domestic market, and that’s where companies focused,” she says, pointing out that Russia and post-Soviet countries were the primary focus. “It was easy to go that way.”
Koszarny says it was the path of least resistance – staying with the familiar even if the gains are much lower and unstable. “To go to somewhere uncertain, unknown, you’ve first got to change your mentality yourself, you’ve got to overcome your fears,” Koszarny says.
Goodbye Russia
Koszarny says that Ukraine’s 10 percent gross domestic product drop last year was mainly due to with the contraction in household consumption. In addition, Russia’s trade blockade is forcing companies to look towards the EU.
“The kinds of companies that we’re investing in, they’ve always been progressive-minded, they want to capture new markets, they see the value of raising their quality,” Koszarny says. “There are thousands of these companies in Ukraine that have started to pivot or are now pivoting, and this is definitely where the nimble and flexible are going to outpace the large and slow.”
Because of the recent introduction of the Ukraine-EU free trade agreement, Ukraine’s market has easier access to the union’s single market of 508 million consumers.
Export goals
Building new relationships, expanding networks, learning new languages, bringing people onboard who have expertise in specific markets and upgrading technology – these are some basic steps Koszarny advises Ukrainian companies take in order to eventually enjoy the EU market’s benefits.
As for the Ukrainian government, its priority should be to create a sustainable business environment, such as cutting bureaucracy and building competitive access to infrastructure for the reliable and efficient movement of goods, Koszarny says.
Playing the bandura
Koszarny’s Ukrainian background gives her a special bond to the country, and underpins her work in business today.
“To me it’s a mission, the intersection of my life,” Koszarny says of her job. “I never regret it, I love it and I want to stay.”
She has much in common with many of the 1.3 million Ukrainian diaspora living in Canada.
“I went to Ukrainian Saturday schools, I learned to play the bandura, I performed in bandura ensembles, I sang in church choirs, I went to bandura summer camps, I had lots of Ukrainian friends growing up,” Koszarny says.
Right now she is on board of the Ukrainian World Congress, a non-profit organization that united over 20 million Ukrainians worldwide. As part of her volunteer work, Koszarny has helped to distribute Canadian deliveries of thousands of boots and uniforms to the Ukrainian army.
