Olga Skrypchenko, Regional Finance Director of the Black Sea region (Ukraine, Russia, Kazakhstan) of the Cofco International company.
Cofco International Group is one of the biggest state-owned export corporations in the world, which deals with Chinese food facility. It is represented in about 140 countries. Besides the grain business, Cofco operates in other industries related to the production and cultivation of food products.
For Cofco, Ukraine is a strategic and long-term country, which supports the company in strengthening its positions in the world market. Ukraine is an investment object in terms of the infrastructure development, river transport, elevators construction. Cofco allocates sufficient money to the infrastructure development. Memorandums between the governments were signed and support by the Chinese Embassy is being provided.
The company has invested into the Ukrainian economy over 200 million USD during its activity in the market. These are investments in upgrading oil processing plant in Mariupol, in the construction of a grain terminal for reshipment of grains and oil-plants in Mykolaiv Commercial Seaport, in elevators in the Kherson, Donetsk and Dnipropetrovsk regions.
Risks
Ukraine is considered as rather high-risk country, because there are frequent illegal checks conducted by various state agencies. These things prevent from doing business. Furthermore, the problem is that the grain market is not 100% white: approximately 70% is an official market, 30% of the market needs “bleaching”. The black market prevents agrarian companies from forecasting the harvest volume, profits and losses, income and expenses, as well as causes significant damages to the government in the form of unpaid taxes. So, the agrarian business in Ukraine is under the pressure of taxing and law-enforcement authorities.
We are the company, which follows all the rules, but dishonesty of our counterparties often creates problems. Constant changes in the legislation, especially in Tax Code, also prevent work, and reduce stability of business processes.
However, the biggest financial risk is the dramatic change of the exchange rate, which we hedge, using local credit tranches to cover the difference.
For Europeans, Ukraine is a high-risk country. Despite this, Ukraine is an interesting market for investors, because pay-off period is 3-5 years, while the same period in Europe will be considerably longer reaching up to 15-20 years.
Business realities
Probably, five years ago it was easier to work. Because the budget of Ukraine was more full, which reduced the number of inspections. At the moment, few times per month, we have requests from taxing and law-enforcement authorities about this or that counterparty. This is due to the fact that we reimburse VAT, and when there is a check of counterparties, then the tax office has questions or suspicions, connected with unknown origin of the goods, so they try to prove the non-commodity of the illegal purchase.
That is why entrepreneurs are forced to prove, that they operate only within the legal boundaries, and this is incomprehensible for an international investor.
Please read: Doing business in Ukraine during the period of political instability: what to focus on
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