Despite its attractive natural and human resources, Ukraine has been a disappointing investment destination for Switzerland, one of the world’s richest nations.
The mountainous country of nearly eight million people has earned its fortune primarily because of its financial sector.
Its policy of neutrality during both world wars helped it preserve and multiply the money stashed there.
Cumulative foreign direct investment from Switzerland to Ukraine as of 2010 stood at nearly $1.4 billion, according to figures from Switzerland’s central bank. But it could be much bigger, Swiss businessmen say.
Even though banking is usually the first thing that comes to mind when thinking about Switzerland, the country’s biggest presence in Ukraine is with sweets and chocolates via Nestle, the giant food producer.
The company has increasingly raised its stakes in emerging markets, including Ukraine, as part of its global strategy.
Throughout its 18-year presence on the Ukrainian market not only did the company manage to establish its international brands, but it also acquired three major local ones: Torchyn culinary products; Mivina, which makes Asian style instant noodles; and Lviv-based Svitoch, one of the region’s oldest confectionary factories. Altogether, Nestle has invested about $300 million in Ukraine.
“We grew exponentially from a very small company to one of the largest companies in Ukraine in the FMCG [fast-moving consumer goods],” says Maurizio Patarnello, managing director of Nestle Ukraine.
Along with acquiring manufacturing sites, the company built another distribution site and invested continuously in modernization. The investments paid off in the form of double-digit sales increases. In 2011 alone, the company’s sales soared by 23 percent, reaching nearly $600 million.
“In 2011 we managed to achieve the best business growth results of all Nestle markets in Europe,” Patarnello says. “Partly it’s due to the economic growth of 5.5 percent, which I don’t think you would have found in Italy or France that were either flat or in recession.”
Maurizio Patarnello, managing director of Nestle Ukraine
Nestle is one of only a few examples of Swiss companies that seized the opportunity. Along with Ukraine’s notoriously investment unfriendly climate, another failure is on the promotional level, says Heinz Heise, founder of Dr. Heise Consulting, a Swiss-registered company that advises international retail businesses willing to enter the Ukrainian market.
“When I say in Switzerland that I’m working in Ukraine, people think it’s four hours away, behind the Iron Curtain and they have no idea how many people live here,” Heise says.
Originally, Heise first came to Ukraine as a consultant at the request of German retail giant Metro Cash & Carry to set up their first store in 2002. Since then, he has advised other clients such as Real, Praktiker and Grohe.
Consultant Heinz Heise
But in the last couple of years “we were not able to attract even one Swiss company to do business in Ukraine,” Heise compains. “The image [of Ukraine] is not attractive. And there was nearly nothing done from the Ukrainian side in terms of PR activities on the Swiss market.”
Meanwhile, established large companies continue to boost their presence in Ukraine. Nestle has recently launched a Lviv-based center that provides financial and human resource services for nearly 20 Nestle offices in the former Soviet Union.
“We also plan to [provide services] for Greece and Hungary from Lviv,” Nestle’s Patarnello added.
Nestle is one of 10 or so large Swiss companies working in Ukraine. Others include Novartis and Roche, which are among the world’s biggest pharmaceutical companies, each with a significant presence in the Ukrainian pharmaceutical sector.
The majority of Swiss companies work via agencies or representative offices, which means they mostly import their products instead of having a full-fledged company presence. Meanwhile, there are about 50 small-sized Swiss companies working in Ukraine, according to Dietmar Kuck, managing director of UKRcham, the Swiss-Ukrainian Business Chamber that is based in Switzerland.
But the majority of Swiss companies work via agencies or representative offices, which means they mostly import their products instead of having a full-fledged company presence.
Among those companies are Credit Suisse, Novartis and Roche. “Swiss want to sell, not to invest,” Kuck explains.
Besides Nestle, Lviv has managed to attract a big chunk of Swiss investments with Kronotec, a manufacturer of wood-based panels investing more than $100 million in local production of furniture materials.
Some significant Swiss investment has also come into Zhytomyr Oblast’s Malyn, a small city with just 30,000 inhabitants. The Weidmann company has poured more than $100 million into three local production sites – a paper mill, insulation components and electrical technology.
Nearby in the same city, Eurogold invested more than $10 million in manufacturing household items.
Two glass production factories with Swiss investments are owned by Glas Trosch and Vetropack. Each has invested more than $50 million into their Ukrainian businesses, according to UKRCham, the Swiss-Ukrainian Business Chamber.
Kyiv Post staff writer Maryna Irkliyenko can be reached at [email protected].
Switzerland at a glance
Territory: 41,277 square kilometers
Population: 7.7 million people
Government type: confederation
Head of government: President Eveline Widmer-Schlumpf
GDP (purchasing power parity): $340.5 billion in 2011
GDP per capita (PPP): $43,400 in 2011
Main industries: machinery, chemicals, watches, textiles, precision instruments, tourism, banking and insurance.
Ukrainian-Swiss economic relations:
Trade: $667.3 million in 2011
Exports from Switzerland to Ukraine: pharmaceutical products, machinery, chemicals, gemstones, jewelry and watches.
Exports from Ukraine to Switzerland: gemstones, jewelry, machinery, agricultural products and paper.
Swiss investment in Ukraine: nearly $1.4 billion by 2010.
Ukraine’s investment in Switzerland: no data available.
Sources: CIA World Fact book, Swiss Embassy in Ukraine
