LVIV OBLAST, Ukraine — Lviv Oblast has a lot to offer. Located on the western edge of Ukraine, its capital, Lviv, is closer to Warsaw than to Kyiv, and offers a cheap, well-educated labor force that has given it a competitive advantage for years.
But this advantage has been thrown into sharper relief by Ukraine’s free trade agreement with the European Union, which canceled a slew of duties and tariffs between the two markets.
Automotive parts manufacturers, textile and furniture producers, and IT firms and tourists stand to benefit from this agreement.
Overall, Lviv Oblast has one of the best investment rankings in the country. The region was ranked second after Vinnytsia in 2017, according to the Institute for Economic Research and Policy Consulting.
And European manufacturers are especially eyeing its workforce.
Cheap labor, EU business
The majority of new European entrants in Lviv Oblast over the past two years have followed a specific, profitable model: take raw materials from across the EU border, make them into finished goods with Lviv Oblast’s cheap workforce, then return them to Europe as finished products, according to Maryana Lutsyshyn, a European Business Association manager based in Ukraine’s west.
Businesses in the car parts market, especially, are taking advantage of this approach.
“The automotive sector looks around the world for the best option in terms of plant construction expenses, labor force among other (factors),” Lutsyshyn said.
“That’s why they came to Ukraine as we are waiting for them with open hands.”
New investments like this created 20,000 new jobs in the oblast during 2016–2017, according to Roman Matys, the head of the investment department of Lviv’s regional state administration.
Having more businesses in the region has a “domino effect” — it attracts new businesses.
“It’s the presence of other businesses here that makes the business environment (more attractive),” Lutsyshyn said.
What also helps is the improvement of infrastructure, and local officials promoting the region as a good destination for investments abroad.
War veteran Mykola Stetskiv and his wife Ivanna work on their small strawberry farm in Lviv Oblast on June 13. (Oleg Petrasiuk)
Seats for elite German cars
German automotive manufacturer Bader is a longtime Lviv Oblast standby. The company came to Ukraine during one of the first waves of foreign investment to the region, in 2006.
It produces car seat covers for BMW and Audi. It waited for 12 years to open its second factory. And when Bader first entered Ukraine it had to build everything from scratch.
“It was a ‘green fi eld’ here, and we had to start from it,” said director Andriy Pavlun, who has been working at Bader since it opened.
Today, the company owns a factory in Horodok, almost 30 kilometers west of Lviv, and recently opened a plant in Kozhychi village.
It plans to launch a new production line at that plant, as the company recently received an order to make seats for Mercedes S-class and Maybach type vehicles.
Even though Ukraine’s frequently unstable political situation would seem to throw a wrench in investor’s plans, Pavlun says the bigger challenge is finding a big enough labor force.
Today, the factory employs some 4,000 people, and will add more than 1,000 once the new production line is complete.
Its raw material — cow leather — comes from abroad. Once in Ukraine, the leather needs to be cut, sewed, decorated, and arranged in the shape of a seat.
Sometimes workers make custom seat covers for individual client orders — such as seats with embroidered initials.
Overall, the Ukrainian manufacturing plant assembles seat covers for 2,500 cars per day and then sends them to Bader’s warehouse in Poland. Staff have to be trained to work with leather.
Though western Ukraine was once famous for its sewing factories, not much remained after the Soviet Union collapse. “There are no people who sew leather here,” Pavlun said.
Some had experience sewing clothes but a seat is a different thing.
Heading west
Bader’s employees also learn how to operate modern machinery.
But this poses a danger: Once they acquire a certain skill level, these workers often look for better opportunities in Poland.
In fact, many people in the region go to Poland in search of better jobs. More than 500,000 Ukrainians went to work in Poland during 2015–2017 for short and long-term opportunities, the State Statistic Service reported.
“There are hundreds of Ukrainians working today at Bader’s factory in Poland and the number is growing,” said Pavlun.
To attract more labor force, Bader increased its salaries in Ukraine in March.
Now, a seamstress is paid Hr 10,000 ($380) a month, exceeding the region’s average salary of Hr 7,400 ($280).
Halyna Vozna has one the most important jobs at the factory — she stitches the part of the seat that covers an airbag.
Each seat has a bar code identifying the factory as well as the person who did the stitching in case of a car accident. Vozna has to stitch 120 units a day.
“It’s difficult because you have to pay attention to everything,” she said.
A cabin crew crosses the road in front of Lviv International Airport on June 12. The airport saw a 50 percent increase in passenger flow in January-May 2018. (Oleg Petrasiuk)
Italy, a popular direction for Lviv airport
Although Lviv is not so far from Warsaw, to get there from the EU, businesspeople and tourists often have to go through an overloaded border crossing — sometimes standing in line for eight to nine hours.
The modernization of the Lviv Danylo Halytskyi International Airport is meant to ease this congestion.
Lutsyshyn says that the airport’s international flights have been increasing, mainly due to growing tourism in Lviv, but also from more people coming for business trips.
“We need airplanes so people don’t have to go through the (land) border,” Lutsyshyn said.
Since Ukraine’s visa-free regime with most EU countries was introduced back in June 2017, Lviv’s international airport has seen a 50 percent increase in passenger flow — almost 500,000 traveled through the airport from January to May, compared to the same period of last year.
Airport General Director Tetiana Romanovska said that it is mostly because of new flight routes. For example, Italian low cost airline Ernest introduced two new flights to Rome and Milan that started to operate in August, in addition to routes servicing Venice, Naples, and Bergamo.
The airline has 15 flights per week from Lviv to Italy, an attractive job destination for Ukrainians.
“This is only the beginning of our expansion from the Italian capital,” Chady El Tannir, Ernest Airlines’s business developer, said about the Rome-Lviv route.
Andriy Moskalenko, a deputy head for development in Lviv’s city council, said Italians are only 1 percent of the guests staying in Lviv’s hotels, but is hopeful that more flight options will increase this number.
“Lviv is actively developing to host more conferences and business meetings, and such flights make Lviv accessible for science and business missions, and business partners,” Moskalenko said. Romanovska also plans to connect Lviv to Amsterdam and Paris with direct flights.
After that, transatlantic flights to Canada and the U.S. can enter the market, since there is demand. In addition, five new flights from Irish low cost carrier Ryanair will start operating from Lviv to Poland, Germany, and Great Britain in September.
This will also create competition for Hungarian WizzAir, whose flights are usually sold out.
Strawberry enterprise
But not all businesses that have entered Lviv during the past year are international and big.
Mykola Stetskiv, a war veteran who has fought against Russian aggression in Ukraine’s east, returned from Donbas in March 2015 and launched his own company — strawberry farm FainaBerry (“faina” meaning “good” in Ukrainian), located in the village of Novosilka, some 25 kilometers north of Lviv.
Not without difficulties, his small enterprise just started to turn a profit in June.
“Now I think my war is here, it’s in economic development, (and) in motivating other people, giving them a possibility and understanding that their country can be built differently, with a strategy,” he said.
Stetskiv received a piece of land from the government for serving in the army — a small plot on a hill covered with bushes, without any infrastructure nearby.
He then rented almost a dozen plots located next to his, all of which had also been gifts to veterans.
With the help of grant money from Ukraine’s State Employment Service, he started planting strawberries.
“It’s all made with my money and by my hands,” said Stetskiv, who has never done agriculture before.
Stetskiv, a father of five, has two helpers on the field — his wife Ivanna and a local woman. FainaBerry farm allows visitors to taste and purchase berries for Hr 30–50 per kilogram. The berries are organic since a certified fertilizer is used, Stetskiv said.
He also has a greenhouse with some vegetables and greenery. But although the state provided him with a land plot, Stetskiv didn’t get any additional help with the infrastructure.
There is no electricity or water on his land, but only a petrol generator and a self-made dirt road. But he has plans to fix it himself.
“I get more inspired when I see people who come here and their attitude,” he said. “I understand that I am doing the right thing.”
