Topchishvili: The major problem Western investors face in Ukraine is the availability of qualified personnel. More precisely, their absence G

The major problem Western investors face in Ukraine is the availability of qualified personnel. More precisely, their absence

–  What should be done to make the Ukrainian market attractive for foreign investments?

– Topchishvili: – I don't believe Ukraine is “unattractive”. On the contrary, this market has always been an interesting one for analysis, observations and “mindful” investments.

I reviewed US-based media coverage of Ukraine for the last month and found some pretty impressive numbers. The country is growing and a lot of indicators are very representative of that. For example, export of commodities increased by 25% as of the end of last year. You are ranking #1 in export of grains to the EU. Your export of agricultural products grew 20% in the first quarter of 2019 alone. Tourism as an industry grew 250% in 2018. With such growth rates, political risks don't play as dramatic a role anymore. Your risks are as high as those of any other emerging market, but potential returns can be significantly higher than any of the mature markets can offer. People understand that and are ready to work with that.

– Could you outline the issues you see as critical for foreign investors considering entering the Ukrainian market?

– There are at least five major problems that I or my colleagues have experienced firsthand. The most crucial one is human capital – or the lack thereof, to be precise. There is talent in the market but it is quite scarce for such a big country with so much potential. If we are talking about professionals with respectable track records and real experience on a global dimension, then it's practically nonexistent. And this is a gigantic problem for the market. While this problem exists in all Eastern European markets, the situation in Ukraine is far more alarming.

The reason why is because today it is not feasible for a high-level professional to work in Ukraine. A young analyst or investment banker with 5-7 years of working experience in London or New York can bring in 200K a year. And an experienced professional with a couple of exits in the western world may be looking at a seven-digit motivation package.

Unfortunately, Ukraine can't sustain such a level of compensation. It's not a minus or plus. It's a reality. It's a tough reality that will inevitably affect the new Presidential Administration when they will start searching for qualified talent. Young, successful Ukrainians either migrate/immigrate to the West or end up under the “umbrella” of powerful oligarchs. I witnessed that a lot.

– How do you see a solution?

– You need to grow and mentor your local talent, as well as develop and advance your educational and training systems. You have to build the market, and set and sustain the vector for national development and integration into the global market. In other words, Ukraine must think and care about the growth and motivation of its people.

– Now, what is the second issue Western investors face coming to Ukraine?

– A toxic reputation and negative track record among even the most successful and qualified professionals, is a huge issue. Regardless of your credentials and experience, any affiliation or association with a powerful clan or figure, or public or fiscal service, even in the past, can be seen as a red flag for western elites. I have to highlight here that I am speaking about investment activities, not your political environment.

There are plenty of examples, unfortunately. I’d prefer not to point fingers but I have to say that one very serious European Fund based in London is still waiting for the right opportunity to invest a billion dollars in the Ukrainian oil and gas sector. Thus far they have been unable to find a reputable project because teams and their leaders don’t pass the due diligence process. Who wants to take a risk investing in such a project, especially given the existing political risks? No one is looking to work with toxic people from Eastern Europe in the US either, given the scandals that are still fresh in the minds of American elites. 


– What are the remaining three critical issues?

– Issue # 3 is the “rules of the game.” Laws are applied selectively in Ukraine. Nepotism, preferential treatment, and everything along those lines is absolutely typical for Ukraine. Local businessmen say, “I’ll take care of it” to the western investor, for whom this specific phrase is considered a sign of something to stay away from.

Issue #4 is market liquidity. The market is small, unstable and unpredictable. Liquidity is almost nonexistent, which makes the market pretty dangerous territory for any non-local investor. That is why people tend to invest not into ventures but into infrastructure or commodities tradable outside the country, which “guarantees” returns even if the local market shrinks. In other words, if one invests in a local business, regardless of the industry (oil and gas, pharma, tech, etc.), the exit is totally unpredictable especially when local oligarchs are passive and western banks and international strategic players stay away from the market.

And issue # 5 is the banking system. This is a huge factor holding the whole economy back since from one hand, its bureaucracy tortures local businesses while not offering any actual support, access to adequate service, financial instruments, lending, etc. It’s not a banking system per se; it’s more of a controlling and punitive vehicle.  

These five things are what I and my partners from the US see and experience in this market. That is not by any means some exhaustive analysis or diagnosis. It is my personal subjective outlook. 

– Doesn’t the existence of “grey areas” attract and compel investors? 

– Katamanze: Honestly, based on my experience, solid western businesses are pretty mindful of their reputation and they strongly prefer the long-term perspective as opposed to any immediate benefits and preferential treatments.

– Givi, would you agree?

– Topchishvili: Absolutely! It is important to understand that differences in business culture and ethics comprise one of the major factors that discourage investors. If I am investing my money, my ultimate goal is the return on my investment. So, what I expect is a critical mass of alignment with my prospective partners and ventures I’m investing in, on the cultural and ethical level. That means that law is the same for everybody and contractual arrangements and procedures are transparent and superior to some unspoken conventions such as “trust me,” “that’s how it works here,” “we paid and it will be solved,” etc.