Despite Ukraine’s promise, Swedish investors wary

Sweden is Ukraine’s biggest economic partner in Scandinavia. But there’s still a lot of room for growth — and for Ukraine to gain the trust of the Swedish business community.

In 2018, the two countries’ total trade turnover in goods and services reached a modest $694.3 million, or 0.6 percent of all of Ukraine’s international trade, according to the Ukrainian side. The Swedish side puts the bilateral trade figure lower, estimating it at $415 million last year, dominated by Swedish exports to Ukraine.

Overall, however, bilateral trade in goods increased by 7 percent last year compared to 2017.

But the Swedish-Ukrainian business story is also one strongly affected by Russia’s war in Ukraine. Bilateral trade is affected by Moscow’s annexation of Crimea and invasion of the Donbas in 2014.

In 2013, before the war, recession and revolution, trade stood at $687.38 million. It peaked in 2008 with trade in goods only at $801.3 million.

Today, more than 100 Swedish companies operate in Ukraine, according to the Ukrainian Embassy in Sweden. Among the most recognizable are H&M which entered the Ukrainian market in 2018, Volvo, Scania, SKF, and Sigma Software. Another Swedish giant, Ikea, confirmed that it plans to open its first store in Kyiv soon.

But Russia’s ongoing war gives Swedish businesses the jitters. Many remain hesitant to invest in Ukraine, according to Anders Ostlund, founder of Ukraina Invest, which provides services for Swedish companies interested in doing business in Ukraine.

“We know that the front line is some 10 hours driving from Kyiv,” Ostlund told the Kyiv Post. “It’s great suffering, (but) it’s not moving away from eastern Ukraine.”

Apples for Sweden

In 2018, Ukraine’s exports to Sweden totaled $171.4 million. Meanwhile imports from Sweden were roughly three times higher, reaching $522.9 million, according to Ukraine’s State Statistics Service.

“On a national level, it is a very small amount. Sweden is much more distant for Ukrainian exports compared to other countries,” Olexandr Mashynets, commercial and trade officer at the Embassy of Sweden in Kyiv, told the Kyiv Post.

Still, important Ukrainian sectors are indeed selling their goods in Sweden. One is agriculture.

Last year, Ukraine exported some 37,000 tons of apples to more than 60 countries globally.

Sweden was the third most popular destination — taking over 9 percent of apple exports — after Belarus (40 percent) and Moldova (14 percent), according to Ukrsadprom, the Ukrainian fruit and berry association.

“I think this is due to an adequate balance of quality and prices for Ukrainian products. The Scandinavians are frugal and not ready to pay for poor quality,” said Yuriy Vakhel, the association’s head.

Because of its unique climate, Ukraine is only one of three countries in Europe that can grow premium quality apples. The other two are France and Italy.

Additionally, Ukraine can compete with those two countries both in terms of price and logistics, according to Andriy Yarmak, investment officer at the Food and Agriculture Organization of the United Nations.

“In Sweden, retail prices are high and people prefer good quality premium apples, and Ukraine is very competitive pricewise in this premium segment,” Yarmak said.

For Swedish importer Hebe Frukt & Grönt, Ukrainian apples were an incredible discovery last year. The company now sees huge potential in importing Ukrainian fruit.

“We received the correct quality and the right color and size, with a fantastic taste!” Daniel Larsson, Hebe’s head of purchase, told the Kyiv Post. “We will definitely continue to import apples from the ‘garden of Europe’ in the future, and we have even considered expanding into other kinds of fruits and berries.”

Hebe has been importing a diverse supply of apple types from Ukraine.

“So far we have tried Gala, Golden Delicious, Granny Smith, Fuji and Florina, but there are so many more that it’s worth putting in efforts to launch on the Swedish market,” said Larsson.

Yarmak also forecasts increased imports of fresh produce this year, including fresh berries.

No rules, no game

But despite Ukraine’s efforts to attract more foreign investors over the past five years, major obstacles remain. That is particularly true when the destination is Sweden.

Besides Russia’s war, Ukrainian companies struggle to meet the Swedish market’s high standards and certification requirements, according to Mashynets.

More critically, the country’s extensive internal corruption is bleeding the economy dry and continues to repel investors.

“Everybody wants to see transparent rules of the game, to see that the level of corruption tends to decline toward Sweden’s level of almost zero,” said Bohdan Senchuk, president of the Swedish Business Association in Ukraine.

“Unfortunately, Ukraine is not showing good signs here,” he added.

According to Ostlund, there appears to be less “low level,” everyday corruption in Ukraine today than there was five years ago. But it is the non-transparent judicial system and courts that many Swedish companies operating in Ukraine despise.

“One company had around 90 court sessions over a simple commercial matter from 2013 to 2014. To (the Swedish company), this looks strange and they are confused,” Mashynets said.

For Swedish businesses, stability, clear laws and long-term prospects are very important, according to Tahir Musayev, commercial director of the Grain Alliance, a Swedish agricultural company operating in Ukraine.

“Often something is discussed for a long, long time, and then the opposite of what is discussed is adopted in law,” he said.

For Musayev, who works for a company with 57,000 hectares and that exports almost everything it produces — soy, corn, wheat, sunflower — the issue of transporting grain to sea ports still leaves much to be desired.

“We have not yet developed a transport market with a Western understanding of responsibility, where there will be no losses along the way, and the delivery will be made within the (agreed-upon) time frame,” he said.

Meanwhile, unlike the Grain Alliance, few Swedish companies succeeded in agriculture in Ukraine.

“(Companies) were not prepared for dealing with Ukrainian bureaucracy, corruption and the problem of getting financed,” Ostlund said.