As I was
listening to the presentations and discussions by several large corporate
players focused on investments into the Ukrainian oil & gas and agricultural
sectors, I could not help but think that, as the government of Ukraine is
making a massive effort to attract U.S. direct investment from Fortune 500
companies and restart the IMF financing, it is leaving on the table billions of
dollars readily available debt and equity financing, as well as investment by
smaller strategic players.
There is an
entire medium-size business and project development sector in Ukraine that is
begging to be funded and there are funds readily available in the U.S. to fund
tens, even hundreds. of companies and projects in sectors ranging from
hospitality, food security and information communications technology to
agriculture and alternative energy.
Injecting
significant funding into this slice of Ukraine’s economy will generate
thousands of new jobs, increase corporate efficiency and productivity by
introducing latest Western technologies and production tools. It will also
create a multiplier economic effect which will reverberate throughout the
country’s business and consumer sectors. Yet, for the last couple of
years, only a tiny sliver of the entire American originated debt and equity
financings that could have been done in Ukraine has been completed. In
2011, the U.S. was in 10th place of all the countries that had foreign
direct investment into Ukraine, with only $1 billion invested.
The big
question is why? For those of us both in the U.S. government trade and development
agencies and in the private sector, who are focused on financing projects,
enterprises and trade, the answer is pretty simple – disconnect, distrust
and deficiency, or as I call them, the 3Ds.
There is disconnect
in understanding of Western financing process and of the requirements set
forth by the U.S. Government agencies and private financial institutions.
Many Ukrainian businessmen spend a lot of time and effort in putting together
sleek-looking presentations overloaded with information, setting up technical
models and writing business plans using pre-packaged software. Yet, most of
them fail to truly understand the needs and requirements of the American
financiers and their focus on project’s ownership, provenance, due diligence
etc. They also do not understand that unless they commit financially to the
capital raising process, they will not be perceived as serious players.
There is also a huge image problem that Ukraine has in the West. Although
some of it is well-deserved, a big part of it is gloom and doom that does not
accurately portray the situation in the country.
Then there
is distrust. Over the last two decades, Ukrainian business has been
pillaged by every type of Western con artist known to man. Many swooped in,
promised Ukrainian businessmen untold riches, massive credits and investments,
collected fees and then vanished. No wonder today Ukrainian companies are wary,
scared and mistrustful.
Finally,
there is deficiency. Deficiency of cross-cultural knowledge among
the process participants on both sides of the Atlantic; lack of early stage
pre-project funding and absence of an integrated well-defined and officially
endorsed process, which would nurture and properly prepare companies and
projects to be able to take advantage of all the available opportunities.
Estimates
are that in today’s environment only one of 20 potentially eligible projects
and companies seeking financing in Ukraine get funded. We at Broad Street
Capital Group have been working on solving the above-mentioned problems in
order to increase the quality of bankable projects for the last several years.
We assembled a group of leading international experts in the fields of risk
management, cross-cultural expertise, accounting and audit, corporate law, debt
financing, equity funding and media public relations.
Together, we
have worked to develop a streamlined preparation process to help companies
achieve their goals of cross-border market entry, international financing,
technology partnerships and foreign direct investment. The result has
been a comprehensive multimedia platform called Fluent In Foreign Business™,
which provides assessment, project screening, education, information resources,
quality networking opportunities and expert mentoring support to government
agencies, companies, investors, franchisors and project developers in over 100
countries.
What this
process needs to unlock a floodgate of financing to Ukraine is a modest amount
of Ukrainian government support. The government should use one of its
several investment promotion agencies to work with us in the private sector and
to offer official endorsement, information dissemination, and participation
leadership to encourage or even mandate Ukrainian businesses to take part in
the process without fear of being duped.
Simply given
the current portfolio of Ukrainian alternative energy, agriculture and information
communication technology projects, which we are reviewing, we can confidently
say that with just a modest amount of government support, combined with
corporate focus, training and financial commitment, Ukrainian companies can
attract at least Hr 15 billion ($1.875 billion) in low-cost debt, equity and
trade financing in the next 15 months.
This is more
than two times the amount that Ukraine to receive from all international financial
institutions in 2013 combined. Thousands of jobs and the multiplier effect
generated by this initiative will help the government strengthen its business
electorate base, improve the country’s investment image and its overall
economic condition.
Thus if
Ukrainian government officials are serious about improving the country’s
economic situation, they should closely look at the what is needed to unlock a
very significant slice of financial investment into a critical sector of its
economy.
American
businesses and professionals who are fluent in foreign business stand ready to
help Ukraine meet the challenge of successfully injecting Hr 15 Billion in 15
months. From Nov. 28-30, Broad Street Capital Group, along with Fluent In
Foreign Advisory Board will hold a briefing and project review sessions for all
interested companies, Ukrainian central and regional government authorities to
select projects eligible for the 2013 financing and inclusion into Hr 15 billion
in 15-month initiative.
Alexander Gordin is managing director
of the Broad Street Capital Group (a U.S.-Ukraine Business Council member since
2009) and the co-creator of the Fluent In Foreign enterprise, which publishes
Fluent Foreign online, Fi180 Global Business Atlas and weekly newsletter.
Since June, the edition has a dedicated section for Ukraine. An interview
with National Bank of Ukraine Governor Sergiy Arbuzoz appeared in the inaugural
edition of the publication. (http://fluentinforeign.wordpress.com/?s=arbuzov). Gordin has been active in Ukraine as a direct investor
since 1995 and as a financier since 1996. Gordin and the Broad Street Capital
Group have represented numerous Ukrainian government and private entities and
have been mandated for financing and political risk insurance transactions
totaling more than $1 billion.
