Economic and finance heavyweight the United Kingdom is one of Ukraine’s biggest foreign investors. Yet the British-Ukrainian economic relationship isn’t all it could be, held back by a poor business climate in Ukraine and sluggish growth in Britain.
Cumulative foreign direct investment from the UK to Ukraine has almost reached $2.5 billion as of the end of the first half of 2012, according to the State Statistics Service website. This makes Britain the sixth biggest investor in Ukraine.
Bright spots in bilateral relations notably involve Ukraine’s oil and gas sector, which has long been of interest among companies with British ties. Shell, British Petroleum, CBM Oil and JKX, with their Poltava Petroleum company, are among the nation’s biggest players in oil and gas exploration and production, as well as distribution.
Royal Dutch Shell, an Anglo-Dutch multinational oil and gas company, won a tender in 2012 for the exploration of a large gas field in eastern Ukraine, in Donetsk Oblast’s Yuzivska area, which could hold up to two trillion cubic meters of gas. Symbolically, the city of Donetsk itself was founded by British national John Hughes in 1869 and, in fact, was originally named Hughesovka.
Shell also won a tender this year (in consortium with other international petroleum companies) for the exploration of offshore deepwater reserves in the Black Sea’s Skifska field. If signed, the contracts could lead to hundreds of millions of dollars in investments and move Ukraine toward greater energy independence.
To provide legal service for such major deals, British law firms’ expertise was called on. “When oil and gas stopped being a local game and turned into an international game with oil majors coming in, we were very well-positioned in the market to take advantage of that,” says Daniel Bilak, managing partner of Kyiv office of CMS Cameron McKenna law firm.
Coming to the Ukrainian market at the crest of the wave in 2007, the company had to adjust its operations to the financial downturn in 2008. But flexibility paid off for Cameron McKenna, which recently celebrated its fifth anniversary in Ukraine. It has been recognized in the energy, infrastructure, agribusiness and consumer products sectors. Its clients include Nestle, the European Bank for Reconstruction and Development and Shell.
“Clients have certain expectations when they come to us, they are used to the kind of service they get in London and they expect to have exactly the same kind of service given to them here,” said Bilak.
Real estate has been a strong part of the two countries’ economic relations. While there’s no official data as to how much Ukraine has invested in Great Britain, prestigious real estate in London has been popular with Ukrainian oligarchs. In a 2011 ranking of London’s ten most expensive houses by the Sunday Telegraph, spots number two and four are occupied respectively by billionaire tycoon Rinat Akhmetov with his penthouse in Knightsbridge’s One Hyde Park, bought for $218.2 million, and Elena Pinchuk, daughter of ex-President Leonid Kuchma, who owns a 10-bedroom villa in Upper Phillimore Gardens, Kensington worth $128 million.
Nor is this a one-way street. “British tend to have more presence in (Ukraine’s) real estate sector than arguably any other foreign (nationals),” says Nick Cotton, managing director of DTZ, a global real estate adviser.
Besides DTZ, real estate British companies operating in Ukraine include London & Regional Properties, which owns the Globus downtown shopping center and the Podil Plaza business center; ARGO Real Estate Opportunities Fund, which owns Riviera shopping mall in Odesa; property consultant NAI Pickard and others.
DTZ was the first multinational real estate consulting company to open an office in Ukraine. “We came to the market back in 1994 when major multinational firms and even diplomatic missions were operating from hotel suites,” recalls DTZ’s Cotton. “And of course now we see a market where we have full blown office centers, retail malls and so on.”
Over the years DTZ was involved in such transactions as the purchase of Ukraina shopping center by the Quinn Group, the Aladdin shopping center by Meyer Bergman, the sale of eight office buildings in the city center on behalf of Unibail Rodamco and others. “These are big figures, we’re talking … up to $100 million (worth deals),” adds DTZ’s Cotton.
Since the real estate bubble burst in the wake of the global financial crisis DTZ has seen its fees fall. Just as the legal services market, the real estate sector is only starting to recover, both Bilak and Cotton say.
In the meantime, while affected by growing limitations on the tobacco business, one company that has seen its profitability improve beyond pre-crisis levels is Imperial Tobacco, the biggest British company in Ukraine.
In 2002 Imperial Tobacco came to the Ukrainian market through the acquisition of a Kyiv-based factory together with one of the oldest Soviet cigarette brands Prima, as part of their global purchase of Reemtsma company.
Since then Imperial Tobacco has invested some $117 million in its production plants, doubling its staff to 1,100 people. “The whole structure of our business has changed from predominantly Soviet-type unfiltered cigarettes to the vast variety of filters and packaging formats that we have now,” says Eugene Walsh, general manager of Imperial Tobacco Ukraine.
According to a September issue of Korrespondent magazine, Imperial Tobacco is the tenth-biggest taxpayer in Ukraine, with Hr 4 billion paid in 2011. British American Tobacco is another major British company operating and investing in Ukraine.
Altogether there are more than 100 British companies working in Ukraine.
Yet London, Europe’s biggest capital market, has been less popular with Ukrainian companies lately. The last Ukrainian company to go public on the London Stock Exchange’s main market was Ukrainian billionaire Oleh Bakhmatiuk’s egg company Avangard in 2010.
“There haven’t been a lot of IPOs since 2010. Period,” says Cameron McKenna’s Bilak.
DTZ’s Cotton says: “Before we were doing a lot of evaluations for listing purposes on the London Stock Exchange. While that business line has ceased, we’re still doing a lot of evaluations but nobody is now listing in London.”
The United Kingdom
Territory: 243,610 square kilometers.
Population: 63 million people.
Government type: constitutional monarchy.
Head of government: Prime Minister David Cameron since May 2010.
GDP (purchasing power parity): $2.29 trillion in 2011.
GDP per capita (PPP): $36,600 in 2011.
Main industries: machine tools, electric power equipment, automation equipment, railroad equipment, shipbuilding, aircraft, motor vehicles and parts, electronics and communications equipment, metals, chemicals, coal, petroleum, paper and paper products, food processing, textiles, clothing, other consumer goods.
Ukrainian-British economic relations:
Trade: $2.97 billion in 2011
Exports from the UK to Ukraine: professional instruments, pharmaceutical products and road vehicles
Exports from Ukraine to the UK: iron, steel, vegetable fats and oils, animal feed and petroleum
UK’s investment in Ukraine: $2.5 billion as of July 2012.The UK is Ukraine’s sixth largest investor.
Ukraine’s investment in the UK: no data available
Source: UK Trade and Investment, State Statistics Service of Ukraine
Kyiv Post staff writer Maryna Irkliyenko can be reached at [email protected]
