As Black Sea neighbors, Ukraine and Turkey are historically linked trading partners.
In recent years, more than 600 Turkish companies have invested nearly $3.1 billion across Ukraine’s economy, with $1 billion of those investments coming in the past five years, making Turkey Ukraine’s third largest investor.
However, Turkish companies continue to encounter major problems in Ukraine that Zelensky’s government hopes to solve in the near future. The most urgent priorities include expanding rule of law and the fight against smuggling and gray imports, which bring losses to the state treasury and undermine investment.
“Reliability and investment protection are key points for attracting new [investments],” said Zafer Ozbay, president of the Union of Industrialists and Businessmen of Turkey and Ukraine.
Turkish investors operating in different sectors of Ukraine’s economy have identified several specific issues that need to be fixed as soon as possible.
Mobile regulation
Lifecell, Ukraine’s third-largest mobile operator, has been fully owned by Turkish operator Turkcell since 2015. Turkcell had heavily invested in lifecell’s business activities for over a decade.
The mobile operator once operated under the brand name life;) and almost 45% of its shares belonged to Ukraine’s richest businessman, Rinat Akhmetov. In 2015, Turkcell acquired his shares and rebranded the carrier.
“We are talking about more than $2 billion in investments over the last 14 years,” said Ismet Yazici, lifecell’s CEO.
The mobile operator currently services nearly 10 million SIM cards, around 70% of which are replenished monthly. Yazici says no one in Ukraine can count the number of subscribers in Ukraine’s market, since there is no mandatory personal registration.
According to the GSM Association, which represents the interests of mobile network operators worldwide, as of 2019 150 governments require proof of identity to purchase a SIM card.
There’s nothing similar in Ukraine yet.
“The number of customers is the biggest speculation. If I tell you we have 20 million subscribers, you have zero chance to prove that it’s not true,” Yazici said.
Moreover, since Ukraine does not require proof of identity to purchase a SIM card, the mobile market is an open door for traffickers, terrorists or other black market operators.
Since Ukraine does not require mobile companies to report how many subscribers are active users, Yazici complained that even Ukraine’s Anti-Monopoly Committee has no clue how many subscribers there are. As a result, the committee has not been able to investigate monopolies in the mobile market.
“Our biggest problem is not having a competitive market. The largest operator (Kyivstar) says it has 26 million subscribers, the second (Vodafone) – 20 million subscribers,” he said.
“When you don’t define the monopolistic power holders in any market, you cannot ensure free competition.”
As a result of the monopolistic position of the two major mobile operators, Ukrainians had to wait 10 years for 3G and more than five years for 4G, he believes. In many rural areas, there is still no proper mobile internet.
“We believe that the market should fix all these childhood diseases. Without fixing them, we can’t go any further, we cannot grow,” said Yazici.
Market regulations differ significantly in Turkey and Ukraine.
“It’s like day and night. The deepest darkness is here, with no support for newcomers. The market is full of entry barriers which are totally against the spirit of competition,” he said.
Yazici credits the country’s new leadership with accelerating the pace of reforms. However, he is more interested in results than efforts.
“I want to be optimistic, but if anything is going to happen, it should start within the next couple of months. If nothing is changing in fundamental issues in the market, then it will never change,” he said.
Still, existing barriers will not stop Yazici’s efforts to conquer the market.
“We’ll continue investing in our 4.5G network, we’ll continue our focus on digitalization,” he said.
Legislative stability
Turkish investment company Emsolt was among the first to recognize Ukraine’s renewable energy potential.
“We entered the Ukrainian market by the end of 2016 and nobody from Turkey even knew that there was a solar market in Ukraine,” said Emsolt managing partner Alper Tuncer.
A few years ago, Turkish investors did not see Ukraine’s renewables as an attractive market, believing its solar radiation is insufficient to generate power, according to Tuncer.
The attitude has changed quickly.
“We see great interest in solar projects in Ukraine from Turkish companies,” said Atakan Ildemir, general manager at Elephant Consulting, which works with small and medium-sized Turkish businesses coming to Ukraine.
Emsolt’s will have 31 megawatts of capacity by the end of this year in three different projects, and total investments have already reached around 25 million euros.
“We wanted to balance our risks, that’s why we invested in three different regions — Dnipro, Khmelnytsky and Zhytomyr,” said Tuncer.
Another 70 megawatts are in the pipeline, but the company has not yet committed its investments.
Tuncer said that lack of financing is one of Ukraine’s major problems, not only for renewables but also for doing business in general. Financing should be available not just from the European Bank for Reconstruction and Development or the International Financial Corporation, but also from local banks.
“The first rule to operate in the country is proper financing. Local banks (in Ukraine) don’t take enough part in financing for foreign investors,” he said.
Lack of legislative stability is another major problem. “Every couple months there is a discussion of legislation for renewables,” said Tuncer. He added that while the new government looks favorable for investors, a question mark hangs over the renewables sector.
In 2020, an auction system for renewables projects will replace existing renewables feed-in tariffs. Companies fear that there will be cuts to the tariffs beyond those already announced.
“The governments can change, but the new government should follow the policies that made us invest in this country,” said Tuncer. “You cannot rapidly change everything in the country, especially the legislative promises a previous government already declared.”
Source: IMF, State Statistics Service of Ukraine
Land market
Ali Bulut, owner of agricultural firm AgroZeta, which operates 4,000 hectares of rented farmland in Kherson Oblast, has had no major problems in the past 15 years. But now he is concerned about the pending land market reform expected next year.
“There is no confidence in future investments,” said Bulut, who is also a vice chairman of the board at the International Turkish-Ukrainian Business Association.
He currently has land rent agreements for the next 10 years, but he is afraid that when the land market opens, another firm will buy out the land.
“In any case, there will be trouble,” he said.
Bulut feels that he cannot sign long-term contracts with his clients due to the uncertainty. He has also avoided investing in agricultural equipment for the past few years.
“If in the next two-three years they buy this land, what is going to happen with my equipment?” he asked.
Meanwhile, Bulut gets five or six phone calls per week from Turkish investors looking to buy the land. “They are very interested in southern Ukraine to raise fruits and vegetables,” he said. They are also looking into Ukraine’s potential EU membership as an opportunity to bypass export quotas on products like tomatoes.
Another problem Bulut sees is the lack of renters, partly due to the specter of giant agroholdings poised to take over small farms and monopolize the market. “It’s not clear how this monopoly will be resolved,” he said.
Bulut forecasts that, if the long-awaited free trade agreement between Turkey and Ukraine is signed, trade could mushroom from 2018’s $4 billion to $20 billion.
However, not every sector will benefit. Turkish farms can sell wheat for around $250-$270 per ton, while wheat in Ukraine costs around $150 per ton.
“It’s going to be a big problem for Turkish farmers,” said Bulut.
On the other hand, the Ukrainian textile, metallurgical and building materials industries will struggle to compete with Turkish producers.
SMEs
Small and medium enterprises (SMEs) from Turkey have shown increased interest in operating in Ukraine, especially construction companies.
“Ukraine can develop in a good way (with the help of Turkish construction companies), since, for example, the country couldn’t finish bridges because of corruption,” said Atakan Ildemir.
As soon as the new government can reduce corruption, new Turkish business in Ukraine is virtually guaranteed. “It will be much clearer for investors from Turkey to get into it,” he said.
Ildemir believes that digitization is also a great idea, but the government should also provide English versions of state websites. Administrative service centers in Ukraine usually also lack specialists who can explain necessary information in English to foreign businesses.
Still, he remains optimistic.
“Everything is going to be better. Day by day, we see the difference. Everything is becoming easier,” said Ildemir.
