The American Chamber of Commerce in Ukraine has been described as a catalyst for reforms and innovation. It is one of the most active internationally oriented business communities in Ukraine, representing more than 600 member organizations. And with sea changes taking place in Ukraine’s government, the American Chamber of Commerce in Ukraine’s president is actively and successfully pushing for mutually beneficial reforms in the country that will increase investment and improve the overall business climate. Here, he outlines why American companies are taking an interest in Ukraine, how reforms have made the country more attractive for investment, and what remains to be done to secure a positive economic outlook
In April 2015, you were appointed as president of the American Chamber of Commerce in Ukraine after an influential career in public affairs, communications and government relations in Ukraine. Tell us more about the history of the organization.
The American Chamber of Commerce has been in Ukraine for over a quarter of a century, and last year President Donald Trump sent us a nice letter on the occasion of our 25th anniversary. After Ukraine proclaimed independence in 1991, embassies and businesses started opening and soon after they got together to create the American Chamber of Commerce. Today, we have over 600 members and affiliated parties. Our strategy is quite simple. Number one is B to G – being the voice of business to government. Number two is B to B – being the platform where our members can promote their products and services amongst the membership. The third is called B to U, business to Ukraine, which focuses on promoting Ukraine as an investment destination. In terms of B to G, the relationship we have today with the government is the best it’s ever been. The people have changed and the communication has improved. It is a much younger government and many people have come from a business background. In terms of technology, the government is very skilled at using social media. It was a Facebook post that started the revolution. This gives us the advantage of being able to communicate with government officials through social media and often get responses back within an hour. I’m a member of the National Reforms Council, along with the president, the prime minister, the head of parliament and cabinet ministers. I’m at the table getting the voice of business across, and I can say that the government is listening in terms of what needs to change and what is changing. We have 45 full-time staff and the majority is focused on policy and helping businesses. We also have a network of 42 American chambers in Europe, where we learn best practices and make connections. Recently, we had our internal elections in the Netherlands and I was elected treasurer, so now Ukraine is at the table. That’s good because in Washington they like to say “if you’re not at the table, you’re on the menu.”
How important is U.S. investment for the country today and where do you see it going?
It is important and there are many opportunities for more. We have seen the recent signing of the $1 billion GE deal to provide locomotives. We’re also seeing companies like Westinghouse enter. Sixty percent of Ukraine’s energy is generated by nuclear, and the company is now supplying the nuclear fuel for the power installations. In September, we will see the opening of the Cargill deep-water sea terminal, a $150 million investment. Bunge, an American agricultural company, has also invested $250 million so far in their facilities. Ukraine is an agricultural powerhouse, a world leader in sunflower production and exports, as well as in grains and corn. It is really a matter of getting the infrastructure in place to get the product from the fields to global markets. Another huge American agricultural company, Archer Daniels Midland, also operates in Ukraine. With all of Ukraine’s potential and history as the breadbasket of Europe, agriculture is very important, as are food and beverage companies. I’ve mentioned Oreos, but Coca-Cola and PepsiCo also have plants in Ukraine that are doing very well. Investments have also been made in healthcare and medical equipment. I think once the companies are here, they stay, understanding the opportunities and benefits of being here. Showing the success of these companies is the best way of showing the reality of Ukraine.
Uber has also just announced that it is setting up its Central and Eastern European headquarters in Kiev. What does that example mean for other companies?
The first message that sends is that people here are very qualified. Ukraine is a low-cost geography so you can do many things here with qualified people. We’re seeing other companies that have regional headquarters in Kiev, and also a wave of IT and outsourcing companies opening up across the country. All the in-car systems of Mercedes and BMWs are being programmed here in Ukraine. IT is booming and a very interesting sector.
Going back to the GE deal with Ukraine to supply 30 freight locomotives to Ukrainian Railways, what are your thoughts on the significance of this agreement?
It is significant in that it’s a big contract – $1 billion. Ukraine desperately needs to modernize the railways, so this is a step in the right direction. It can take up to four days to get products across the country. Why? Because of the lack of rail cars and locomotives. So this will be a shot in the arm in terms of modernization. It’s a positive deal, but the next stage is to actually have assembly of locomotives here in Ukraine. This is extremely positive and will be a win-win for everyone and the entire economy, including the steel, cement and agricultural sectors.
What perceptions of Ukraine do you find among fellow Americans?
I think Ukraine has an image problem. When you speak to companies outside of Ukraine, what they know is what they see in the media. We monitor what’s coming out of the Ukraine every day, and the majority of stories are negative. If it bleeds, it leads. But when we get out of our media bubble and go around the region, we talk to businesses and they tell us that things are positive. Last month, I was in Sumy, a town 45km from the Russian border and where there is a big chocolate factory. Previously, their main markets were Ukraine and Russia, but in 2014 they had to shift their business away from Russia. Now they make Oreos; all the Oreos in Western Europe are made in Ukraine. Last year we went to a CVS in the United States and saw that the Oreo chocolate milk bars they sell there are made in Ukraine too. Another success story I just encountered was the privatization of the Ukraine steelworks. Now, they’re exporting to 65 countries. Many skyscrapers coming up across North Africa and in the Gulf countries are being built with Ukrainian steel. From steering wheels for Bentleys to balls for Range Rovers, Ukraine is increasingly behind global products. We are also seeing the economy pick up. Over the two years 2014 and 2015, we saw GDP contract by about 16 percent. But now we’re seeing moderate GDP growth. It was 2.3 percent last year, and this year it’s expected to reach more than 3 percent. We are optimistic. We also live in the 21st century and propaganda is extremely powerful. Ukraine has been under attack as part of this hybrid war against Ukraine. We have a war in the East, cyber-attacks and also the propaganda war. So we have to fight that and try to understand where the truth is. Things are changing, but a lot remains to be done to really get that message across to investors. How do you do that? By showing examples and tangible cases.
How important is FDI for Ukraine to reach those growth targets, and what are you doing to attract it?
Ukraine needs FDI now more than ever. Last year, the number was around $2 billion, which is still quite low – around 2 percent of GDP. The economy needs more investors coming here, so we need to create that environment. Every day we have companies looking, but not quite signing. I think the biggest concerns are still rule of law – the assurance that if there are disputes, companies can get a free and fair hearing. Elements of these concerns are addressed in the privatization law that was recently signed, and parts of it will be able to be reviewed under the law of England and Wales. That’s a positive step forward. The corruption perception is still an issue. It always comes up, and we are quite vocal in terms of changing that. We have our three Ps – prevent, publicize and punish. Prevention mainly involves paying decent salaries to government officials and introducing electronic services, where you can do your tax returns online without the risk of kickbacks. In terms of publicizing, civil society has done a very good job, as has the media, in shaming corrupt officials. But work remains to be done on the final P – punish. We still need to see that, which is why the establishment of an anti-corruption court is extremely important.
The Ukraine government’s reforms are such that it is virtually building a new state. Which of those implemented so far have been the most important, in your view?
We’ve seen several successes. Last April, there was a new system of refunding value-added tax (VAT), which is very important for exporters. It was a massive change because over the last 20 years there had been elements of corruption and it simply wasn’t working. Now, we see that it is working. Another thing is a new law addressing the harassment of business. Other tax reforms that have taken place are also very positive. Now, enshrining the rule of law is key, and giving assurances to investors that they will have a level playing field in Ukraine.
Where do you see the country within the next three to five years?
The surveys are showing the number one aspirations for Ukrainians is for the war to stop. That is very important. It’s really getting to that tipping point. Twenty years ago, Poland was at a similar starting position. Positively growing and moving forward from here is not rocket science; it’s about having the right people to do this. A lot of mindsets are shifting and fighting the figurative cancer that has blocked investment over the years. But it can be changed. It’s very achievable through working together with the government and getting the message across. I think we can see more investment coming in, something that is pivotal for economic growth.