Industrial parks have yet to take off in Ukraine although, at least on paper, the country possesses many of the characteristics such developments often rely on to attract investment, including cheap labor and cheap energy.
The country is also well-placed geographically, with the markets of Russia to the east and Europe to the west, as well as some 40 million consumers at home.
But the problem is that in Ukraine “there is no culture of industrial parks, no understanding of the entire process and no particular motivation to organize them,” according to Stanislav German, the CEO of Mirotske Industrial Park.
German’s own park 15 kilometers from Kyiv is among the 30 or so industrial parks in Ukraine which are in various states of development and functionality.
Nick Cotton, managing director at consultancy DTZ Ukraine, puts it simply: “There are no true operating industrial parks in Ukraine.” But this, he says, has less to do with a lack of understanding on the part of companies of the benefits of locating in such parks and more about a lack of financing.
“Poor political and judicial processes in Ukraine affect overall foreign direct investment confidence and critically restrict the appetite and capacity of banks to lend long term development finance,” he told the Kyiv Post. “This is critical for large developments such as industrial parks, which can take many years to develop slowly to maturity.”
Margus Vihman, chief operating officer at Port of Tallinn.
Outside help
Elsewhere in Europe the initial funding for an industrial park has in many cases come from the European Union, often in partnership with local or regional authorities. Such is the case in Poland, which can today boast of a dynamic industrial and technology park sector.
The country’s first such development, the Poznan Science & Technology Park, was founded in 1995. But from 2004, when Poland became of a member of the European Union, investment stepped up considerably.
“At the beginning it was mostly European money and there was a lot of money from local government,” said Marzena Mazewska, the president of the Polish Business and Innovation Centers Association, a Warsaw-based non-governmental organization which works to promote small and medium-sized enterprises.
According to Mazewska, in recent years E.U. funding has decreased significantly but the success of industrial parks means they now make enough money to support themselves and many firms still want to join them, even if they have to do so without financial help from the 28-nation bloc.
But foreign companies attracted to Poland a decade ago by the ready availability and low cost of labor now have reason to look elsewhere. The country’s economic success means the current unemployment rate of 8.5 percent is near its lowest-ever level in Polish post-communist history and wages have gone up.
“Some firms will go but many will stay in Poland because the legal, social and economic environment is quite good,” said Mazewska. “Once you weigh up the risks of moving, it can often be better to stay, although of course some will try to move east.”
Nick Cotton, managing director at DTZ Ukraine.
Mobile capital
The challenge of fending off global competition to attract foreign investment is something entirely familiar to Margus Vihman, the chief commercial officer at Port of Tallinn, Estonia’s port authority. The state-owned company manages an industrial park at Muuga Harbor, some 17 kilometres from the Estonian capital.
Vihman told the Kyiv Post that a great deal of investment has been made at the harbor so that it will stand out in what is a crowded marketplace.
“We don’t have many competitors in Estonia but of course all the ports of the Baltic Sea and the Black Sea are our main competitors,” he said.
“Our advantage is that we are close to Russia and we have very good connections to Scandinavia. Anyone ready to make investments there but who might be looking for cheaper labor conditions and slightly better tax conditions, they would be our target groups.”
Muuga Harbour’s proximity to Russia was a key factor for Belgian logistics firm Katoen Natie, which ships large volumes both to and from the country. The company’s managing director in Estonia, Mart Melles, says establishing operations in Russia itself was considered but ultimately rejected.
“We did a very serious study into establishing our own logistics center in Russia,” he said. “But we decided not to go there because the political and business environment is not acceptable.”
For similar reasons Ukraine does not currently feature on Katoen Natie’s list of potential investment destinations, with Melles citing the Kremlin’s military aggression against the country as the main stumbling block.
“It’s war over there, it’s a warzone. If they can stop the war in Ukraine first, then we might consider looking around to find out if it’s interesting for us or not,” he said.
Emulation not simulation
The success of industrial parks in neighboring countries has not gone unnoticed by Ukraine’s Investment Promotion Office. Ivan Yuryk, a relationship manager at the agency, believes that if Ukraine is to see similar results if will need to introduce legislation in order to deepen existing laws which grant businesses located in industrial parks preferential treatment in terms of administration, tax and customs.
But that, he says, is still only part of the puzzle, with foreign investors likely to hold off on entering Ukraine until they are convinced that fundamental values like the rule of law and the protection of property rights are being “maintained to the highest EU standards.”
