You're reading: World in Ukraine: Ukraine could capitalize on sanctions against Russia

Finland’s economic output last year totaled $270 billion, dented by its support of European Union sanctions against Russia for Moscow’s war against Ukraine.

The Scandinavian nation of 5.4 million people shares a 1,340-kilometer border with Russia, but has managed to avoid conflict with its neighbor even though Russia has violated its airspace during snap military exercises – an infraction that triggered Turkey’s shoot-down of a Russian fighter jet on Nov. 24. Lots of trade ties are being severed, moreover, between Finland and Russia.

Ukraine could use the situation to its advantage. But its inability to curb corruption and get its economy on track means that Finnish investments aren’t as robust as they could be.

Exports make up over a third of Finland’s gross domestic product, with some $200 million going to Ukraine. Finland, meanwhile, imports about $100 million in goods from Ukraine.

About 70 Finnish companies operate in Ukraine, a reflection of the still evolving relations.

Jukka Laikari, head of the Finnish Business Association Ukraine, says that Ukraine and Finland are not making use of the potential available for doing business. “There should be much more in trade relations,” Laikari said.

The Nordic country mainly exports paper and chemical products, oil and machinery, whereas Ukraine exports metals and chemicals to Finland.

“Nothing has changed actually in the past 10 years. These are the same product categories as at the beginning of the 2000s,” he said.

The lack of meaningful changes in post-revolutionary Ukraine is the main reason for the stagnant business relationship. “The biggest issue for Finnish companies… is related to the value-added tax and customs,” Laikari said.

Hannele Tilk, the managing director of Leinonen Ukraine, an advisory and audit firm based in Helsinki, agrees.

The VAT reform “was totally not thought-through, and technically (the electronic online component) wasn’t ready,” Tilk said. “And when it was launched, many companies were very confused about what to do, and how to reclaim their money.”

The reform process is taking too much time and changes in legislation happen “just so a decision is made,” she said.

Simplifying the tax system and reducing import-export duties would be a good start, the managing director said.

Other problems are related to closing a business. “We have had a case where the client wanted to close down their businesses,” Tilk said. “The restrictions on closing down and taking out profit are, I would say, ridiculously complicated.”

For the time being, investors are making “careful movements,” where most activity is put on hold until the business climate improves, Tilk said.

Some Finnish companies present in Ukraine are: Fiskars, Valio, Finncrisp, Abloy and Suunto. The main estate of ousted ex-President Viktor Yanukovych was nicknamed “Honka,” because it was designed by the eponymous Finnish company, a leading manufacturer of log frame wood houses.

Laikari’s 200-member business association, created six years ago with an office in Lviv and another in Helsinki, has been dormant but hopes to restart activities in spring.

Laikari is mainly interested in Lviv Oblast now because of its growing information technology sector.
Finland’s economy is hurting for various reasons, including its principled stand on sanctions against Russia.

“The reality is that a lot of Finnish companies have actually drawn back from the Russian market or they are taking huge losses in the Russian market,” Laikari said.

Ukrainian President Petro Poroshenko speaks with Finnish President Sauli Niinisto during a meeting on Aug. 16, 2014 in Kyiv. (AFP)

For example, Finnish retailer Stockmann sold all of its seven department stores in Russia, Reuters reported on Nov. 27.

“I think that people have lost their confidence or trust in the Russian authorities or government, because regulations tend to change very quickly and without notice,” Laikari said.

Sergii Malynovskyi, country representative of Finpro Ukraine and the Caucasus, a public Finnish promotion and investment agency, says that Ukraine is becoming an alternative to the Russian market in the paper and pulp industry.

Companies leaving the Russian market see Ukraine as an alternative. “They are trying not to go (back) to Russia.”

But Ukraine shouldn’t expect new Finnish investors soon.

“This is something that I’m a little bit concerned about,” Laikari said. “Finns actually should be more active in the Ukrainian market, (knowing) that Ukraine is actually logistically very close to Finland.”

The situation is even worse for Ukrainian investments into Finland, Malynovskyi said.

“For all these nine years I’ve been working at Finpro, I haven’t seen a single Ukrainian company interested in investing in Finland even come to us and ask us for advice,” he said.

Finland at a glance
Total area: 338,145 square kilometers
Population: 5.4 million
Government type: Republic
Chief of state: President Sauli Niinisto (since March 1, 2012)
Head of government: Prime Minister Juha Sipila (since May 29, 2015)
GDP: $270 billion (2014)
GDP per capita: $49.541
Main sectors of the economy: metals and metal products, electronics, machinery and scientific instruments, shipbuilding, pulp and paper, foodstuffs, chemicals, textiles, clothing.

Ukrainian-Finnish relations:

Trade: $300 million (2014)
Exports from Ukraine to Finland: ferrous metals, nuclear reactors, boilers, machinery, paper and cardboard made-up textile articles, mineral fuels, crude oil and refined products, products made from ferrous metals, furniture.
Exports from Finland to Ukraine: paper and cardboard, plastics, polymeric materials, ferrous metals, fertilizers, mineral fuels, crude oil and refined products, nuclear reactors, boilers, machinery, electrical machinery, pharmaceutical products.
Finland foreign direct investment in Ukraine: $98.8 million
Main business partners: Nokia, Kone, M-Real, Rautaruukki, Orion Pharma, Konekreyns, Lumen.
Sources: World Bank, Central Intelligence Agency, State Statistics Service of Ukraine, Embassy of Ukraine to Finland.

Kyiv Post staff writer Ilya Timtchenko can be reached at [email protected].