From slate to metal, Finnish companies help Ukraine.
Ukraine, one of the world’s most corrupt nations, might benefit from closer ties with Finland, one of the least corrupt ones. But, alas, the nation of five million has focused its trade and investment relations much more closely on Russia.
The land of thousands of lakes and islands, Finland has managed to preserve its beautiful nature and is ranked as one of the most eco-friendly countries in the world. Finland is 80 percent covered with forests, making it one of the largest producers of wood.
As much as 40 percent of Finnish exports to Ukraine are paper and paperboard. The biggest Finnish paper mill companies operating in Ukraine are M-Real International, Stora Enso Ukraine and UPM Kymmene Corporation.
Tarja Paivarinne
“Export from Ukraine is [at] a very low level, mainly steel,” says Tarja Paivarinne, who heads Finish business promoter Finpro in Russia, the Baltic region and CIS countries. The contrast with Russia is sharp. “We have very big business in Russia. It’s 16 billion euros total trade annually. Here we have only 500 million euros.”
About 100 Finnish companies currently do business in Ukraine, with 10 of them having invested in local production. Finnish companies have been active primarily in the Ukrainian construction business.
“The construction sector in the former Soviet Union countries has been a very important sector for decades, because these countries are more or less construction sites,” said Finpro’s Paivarinne.
Some of them helped build up Ukraine offering their expertise in high quality construction. Finish company Ruukki has long been a standard-bearer in the roofing and siding niche in Ukraine. Since early 1997, when the company entered the market, they became a symbolic Finnish investor in construction.
“The reason to come here was very simple. If you look at the condition of roofs in Ukraine, after the Soviet Union they were mostly covered with slate,” recalls Yuriy Obukh, director of Ruukki in Ukraine.
Nation’s trade with Finland is low, although the Finnish presence is steadily rising with several top businesses.
Given this, Ruukki found opportunities in providing its products for a nation of 46 million people, forcing them to invest in local production. “Since the year 2000, the market has been growing up to 50 percent per year.
This was one of the main reasons to build a big plant here, because we could not handle the demand for our product with old production site.” Ruukki now runs two plants in Ukraine, employing 360 locals.
The new plant, which cost Ruukki 17 million euros, took a hit – like almost everyone else – with the global financial crisis. “After the crisis, the structure changed, with very little investment going into construction,” explains Ruukki’s Obukh.
Despite the odds, Ruukki managed to survive the crisis and is now earning some profit and growing rapidly compared to the previous year. “But it’s not due to the market, but thanks to restructuring of the company. We don’t see a market revival,” Obukh added.
Preparation for the much-discussed Euro 2012 football championship in June is also generating some demand for Ruukki’s products. One of their biggest recent orders was for the new Terminal D at Boryspil airport, being built to handle a large number of tourists arriving for the event as well as an expected increase in travelers expected in future years.
Yuriy Obukh
Other Finnish companies running local production in construction include Tikkurila, a paint and coating company; KoneCranes, which makes cranes and elevators; and Finprofile, a roll-forming and metal-working machinery. Finprofile, a Kharkiv-based factory recently acquired by Finnish Macring group.
Another recent investment was by Finland’s Hartwall Capital, which bought a stake in Crimea-based Inkerman, one of Ukraine’s largest wine producers. Together with other owners, they plan to more than double Inkerman’s wine production in the next five years.
Hartwall Capital belongs to the famous Finnish family Hartwall, which some believe owns a stake in Leopolis, a five-star hotel and shopping center, both in Lviv. Hartwall’s family interest in Ukraine goes all the way back to 1928, when the business started to produce mineral water in Odessa.
Finland is also the homeland of Nokia, the mobile phone leader on the Ukrainian market with a 52 percent market share. Naturally, telecommunications account for a good share of exports to Ukraine – 24.1 million euros in 2010.
The main obstacles for Finnish businesses working in Ukraine are customs for importers and value-added tax refunds with local producers. Currently the state owes Ruukki Hr 50 million in VAT refund.
“Ukrainian and other CIS countries’ mentality considers an investor as a capitalist who has to pay an entrance fee for coming to this market,” says Ruukki’s Obukh. “They [Finns] don’t understand [this corruption].”
Kyiv Post staff writer Maryna Irkliyenko can be reached at [email protected].
