Ukraine now has a grand total of 18 industrial parks, following the addition of Pavlohrad Industrial Park to the national register by the Ukrainian Economy Ministry on Feb. 14.
But that’s de jure. De facto, Ukraine has, in the last four years, seen plans for 28 such parks. Most of them are still desperately looking for investors as they try to build up their infrastructure.
Money is not the only shortage. Knowledge of industrial parks remains weak. Only six of the planned 28 have managed to open their gates. The others, some officially registered as industrial parks and others not – are only under construction. Nobody knows when they will finally be launched.
This situation is a direct consequence of an unhealthy investment environment in the country, says Mirotske Industrial Park CEO Stanislav German.
“The market is sickly and immature still, but I‘m in – someone has to do it here.”
Millionaire Vasyl Khmelnytsky, owner of the unfinished and unregistered Bila Tserkva Industrial Park, agrees. “Investment activity in Ukraine leaves much to be desired,” he says.
Industrial parks are umbrella companies that cluster various industries together. They are usually built in green zones in suburbs, and have roads or railways that connect them with nearby cities or seaports. They are often located away from urban areas to allow for greater space. Successful ones create new jobs and stimulate economic activity in targeted regions.
Immature market
Mirotske’s German looks to Romania, Turkey, Poland and the Czech Republic for inspiration, noting that these countries have hundreds of industrial parks due to better tax incentives and customs policies.
Roughly speaking, industrial parks are umbrella companies that allocate other space to other firms on the premises they run. They are usually built in green zones in suburbs, and have roads or railways that connect them with nearby cities or seaports.
The light or heavy industry firms that move to the parks only have to pay rent for the space and provide their own equipment. There’s no need for them to build facilities from scratch, pave roads or install, say, electricity or gas lines – the lessor manages all that for them.
Typically, the companies in industrial parks form business clusters, such as food manufacturers, chemicals companies, building materials producers, information technology firms and so on.
“These are territories for investment,” says Igon Nykolyn, the director of Ukraine’s Association of Industrial Parks, a public organization. “Business should think only about production, not about how to pay bribes to obtain a land lot and get all sorts of permits.”
Offering perks
The government and local authorities are in favor of building such parks, as it gives them the chance to relocate industrial zones from urban areas to the suburbs, create new jobs and stimulate economic activity in targeted regions.
But it may take more than five years for results of such policies to become visible, and even longer for industrial park owners to break even.
So in order to support this promising industry, the government is offering perks, such as lowering land rents and even funding the building of communications (roads, electricity, water, gas lines and data cables) for registered industrial parks.
Local governments around the country have responded by initiating a total of 17 industrial park projects around the country.
But that figure doesn’t impress Nykolyn. “Each oblast (Ukraine has 24 oblasts) could have two or three industrial parks. They’re a tool to bring in investment and jobs.”
And Mirotke’s German is skeptical about the prospects for the industrial parks registered by the local authorities. He believes only privately initiated industrial parks – like his Mirotske or Khmelnytsky’s Bila Tserkva – have a chance of thriving. The reason? The government lacks the money to build top-class parks that would attract investors.
While the Ministry of Local Development has budgeted just $160,000 for building infrastructure for industrial parks in 2017, local governments are spending even less – only $24,000.
German, by contrast, has already plowed more than $10 million into his own venture.
“Those initiated by the government are stillborn,” he says. “These parks are territories of not less than 15 hectares, with infrastructure – that costs money. It’s impossible to do without a special financial program.”
Mirotske CEO Stanislav German talks to the Kyiv Post with a blueprint of his planned industrial park on March 30 in Kyiv. (Anastasia Vlasova)
No incentives
And even these modest financial injections and other assistance from the government come with strings attached.
The government will only provide help if the project is at its initial stages of breaking ground, with constructers preparing to provide utilities and erect premises, says Andrii Melnyk, the director of the investment department at the Economy Ministry.
According to him, parks that were built earlier don’t qualify for any help from the government and can’t be included in the register if they have already started building.
Bila Tserkva’s Khmelnytsky thinks these perks won’t help anyway. He believes that Ukraine’s priority should be to adopt the kind of stimuli used by Poland and Turkey to bring investors to the country – a broad range of tax and customs incentives, along with a simplified regulatory regime.
“Then it would be possible to compete for investors, even despite the risks inherent in Ukraine,” he said. “But currently there are no incentives like this here.”
The table shows top industrial parks included in the list compiled by the Economy Ministry and measured by the size of the land alloted to them.
