Analytics

Ukraine — Sweden: the centuries-old traditions of cooperation are continuing

During the times of Kyivan Rus people which came from Scandinavia, the Vikings, were often called Varangians. In the 19th century, according to the chronicle, they had not only strong trade but also political relations with Russia (it is worth mentioning that the wife of Yaroslav the Wise, princess Ingigerda, was the daughter of Swedish King Olof Skötkonung). The Varangians (they are also Scandinavians) who lived in the northern part of the European continent, are essentially dozens of large and small nationalities, on the basis of which the states existing on the map of modern Western Europe were later formed. Now, the Scandinavian Peninsula, this ancient cultural and historical area, is represented by a group of financially and economically powerful countries — Norway, Denmark, and Sweden. The latter, thanks to fundamental social reforms and the reorientation of its economy from the raw-material direction to industrial development (technology and mechanical engineering, chemical industry, the introduction of high technologies) — the so-called Swedish model — occupies leading positions at the socio-economic level among all European countries.

The Swedes have created a great state continuing the good trade tradition, economic and cultural cooperation with Ukraine in the current context.

About Sweden

The official name is the Kingdom of Sweden. Being a neighboring country with Norway (west), Denmark, Germany and Poland (south), Finland and the eastern Baltic countries, having access to several seas (North, Baltic, Gulf of Bothnia) with easy access to open waters (ports of Gothenburg, Stockholm, Helsingborg, Trelleborg), Sweden occupies a significant part of the Scandinavian Peninsula. This is a unique country primarily due to the main purpose of its economy — the welfare of the human, but not excess profit. Nominally, the country is ruled by a monarch, but contrary to established stereotypes, principles of democracy, not of autocracy, are important for him.

With the population of slightly over 10 million, the state’s GDP exceeds $551 billion (2018), and the average annual income per capita is $53,873 (2018). According to the World Bank, the country is 12th in the ranking of the most convenient international trading partners. Thus, the strategic location in the European part of the continent in the neighborhood with the most developed countries, maritime connections with quick access to the Atlantic (the port of Gothenburg is able to receive tankers with a deadweight up to 200 thousand tons), significant economic and political stability make this country attractive for the most diverse cooperation.

For many years, the country’s economy depended on the extractive industry (its raw material component). Only in the 1980s, as a result of a series of crises, the main direction of economic development was the transition from mining (iron ore) and its processing (ferrous metallurgy) to the introduction of advanced technologies in the production of electrical goods, transport and communications, chemical and pharmaceutical industries.

Among the global Swedish companies, it is worthwhile to highlight a number of mainly machine-building, energy and telecommunication areas (also light industry), some of which are already present in the Ukrainian market: ABB, Atlas Copco, Oriflame, Saab AB, Saab Automobile AB, Scania, Volvo, Ericsson, TELE2, AB Electrolux, Tetra Pak, Alfa Laval, SKF, H&M. The country is not far behind the introduction of high technologies developing new markets (in particular, computer games and Internet applications). Responding promptly to the international situation, the Swedes reoriented themselves to modern economic sectors, loudly announcing themselves not only in the industrial sector, but also in digital technologies and telecommunications. As an example, Skype (software for Internet telephony, a child of Swedish, Danish, Estonian entrepreneurs and programmers sold to the American company eBay), μTorrent (client program for file sharing, a developer is Swedish programmer Ludvig Strigeus), Spotify (music streaming service launched by Swedish company Spotify AB). Video games created by domestic IT specialists have been on top positions in world ratings for several years (Mojang Studio, Dice, Paradox Entertainment, Nintendo Concern). In some institutions of higher education of the country (for example, universities in Gotland, Skövde) a new subject “Video game development” was introduced, also began large-scale studies of the relevant market.

The high level of industrialization of the country is harmoniously combined with large natural landscapes: 10% of the country’s territory is occupied by lakes, another 65% is covered with forests. Arable land makes up only 8% of the total area of the country, but despite this (as well as a powerful industrial component), intensive agriculture, mainly livestock and feed production, is well developed in Sweden. Due to the significant forest area, the pulp and paper industry, as well as the production of fiberboard, other building materials, and chemical products are also developed.

Noteworthy, the country is fully self-sufficient in the main types of raw materials, even exporting it: it is the main supplier of iron ore to European countries.

The most interesting indicator and one of the most important for the state development is an almost complete absence of corruption. According to the data of the international anti-corruption movement – Transparency International – in 2018, Sweden ranked 4th in the Corruption Perceptions Index (CPI) in the ranking of the freest countries from this phenomenon (after Denmark, New Zealand and Finland). Ukraine ranks 120th between Malawi (South Africa) and the Maldives…

It is worth reminding that in this country social standards are among the highest in the world, with almost no corruption and a fairly high level of wages. At the same time, a new standard has been approved, according to which firms and institutions switch to a 6-hour working day and a 5-day working week.

Common interests

Sweden, being a member of the EU since 1995 (despite its non-aligned status, joined the fourth “wave” of the EU enlargement, but retained the national currency together with the UK, Ireland and Denmark), approved the “Export Development Strategy of Sweden” («Sweden’s Export Strategy») in 2016. The purpose of the strategic program is active integration into the world economic community. The markets of 26 countries including Ukraine, which are priorities for cooperation, were identified. It should be noted that the list is presented not only by economically developed countries (USA, Germany, Great Britain, etc.), but also by developing countries from Asia and Africa (the overwhelming majority). Such a choice was motivated by the fact that the latter’s markets are growing rapidly and thus, in the near future, will become quite promising for the export of Sweden. Naturally, this program immediately analyzes the difficulties that Swedish exporters will face in most of these countries: low economic freedom, corruption, legal instability, other obstacles, but at a social level… In 2013, to speed up the integration processes, was created jointly with the efforts of the government and representatives of the business circles of Sweden, a special company Business Sweden, which mission is to promote, first of all, its export business, as well as to attract foreign investment into the country’s economy. Currently, the organization has offices in 57 countries of the world.

However, Sweden looks at the outside world through the prism of its political model of the state and builds its business relations accordingly. For example, if we take the structure of Swedish aid to the Ukrainian state institutions of governance in 2016, the priorities were as follows:

  • State administration, human rights, gender equality — $12.2 million
  • Humanitarian aid — $5.9 million
  • Environmental protection — $ 3.5 million
  • Banking and financial services — $3.2 million
  • Production and supply of energy — $2.5 million
  • Education — $534 thousand
  • Communications — $486 thousand
  • Social infrastructure and services — $94.9 thousand
  • Business and other services — $34.8 thousand
  • Healthcare — $26.9 thousand
  • Trade policy and tourism — $6.4 thousand

Taking into account that Sweden allocates about $800 million for humanitarian aid from the state budget, obviously, Ukraine is not a priority in this area. However, on the other hand, comparing the financial indicators of such aid from other European countries, after the Orange Revolution, Sweden has become an important donor of Ukrainian reforms in various fields and the main task of aid is to deepen Ukraine’s integration with the EU. For 12 years (2005-2016), the maximum aid provided by Sweden to Ukraine is 2011 ($41.7 million), and the minimum is 2005 ($2.9 million).

There is one interesting document signed by the governments of the countries on March 11, 2015 — “Agreement between the Government of Ukraine and the Government of the Kingdom of Sweden on development cooperation”. According to it, to implement the “Strategy for the cooperation of Sweden on reforms with the countries of Eastern Europe, the Western Balkans and Turkey for 2014-2010”, and to facilitate the integration of Ukraine into the EU, Sweden committed itself to finance a number of relevant social programs. In 2017, the Kingdom allocated to Ukraine 234 million SEK ($24.658 million) for their realization including the project “Gender Budgeting in Ukraine”, “The Program for the Restoration and Development of Peace” (territories affected by military actions in Eastern Ukraine), the development of e-governance. Thus, Sweden is represented in Ukraine not only in the business perspective, but also as a partner in the social and cultural development of Ukraine.

Swedish companies in Ukraine

In terms of investment in Ukraine among European countries, Sweden ranks 10th. As of January 1, 2019, foreign direct investment from Sweden amounted to $341.8 million (1.1% of total FDI in the Ukrainian economy). However, since 2010, Sweden’s FDI in Ukraine has been steadily falling. The most dramatic decline was in 2013-2014, it was caused by political destabilization in the country and the beginning of the Russian military aggression against Ukraine.

Last year, there was a slow yet positive dynamics of trade turnover: Ukrainian exports grew by 0.3%, imports — by 6.9%. As of 2019, more than 100 Swedish companies are operating in Ukraine. For comparison, there are about 2500 German companies and 4000 with German capital; In Russia, about 1000 Swedish companies were opened, of which 200 are in Moscow and St. Petersburg.

As we see, the presence of “Varangians” in Ukraine is still extremely low. Although the presence of large Swedish companies in Ukraine has intensified in recent years (in 2018, the largest companies IKEA and H&M finally “entered” to the country’s market) and also trade: as stated last year, during a meeting with Foreign Minister of Sweden M. Wallström, Deputy Prime Minister for European and Euro-Atlantic Integration of Ukraine I. Klimpush-Tsintsadze, in 2017, the trade turnover increased by 4.2% compared to 2016 and was $510.9 million (however, the amount is extremely small).

Let’s analyze some of the largest companies operating in Ukraine to understand the trends, directions and areas of activity.

Scania

The largest Swedish manufacturer of trucks, buses and marine engines was founded in the early ХХ century. The main production facilities are located in Sweden, France, and the Netherlands.

In Ukraine, the company has actually existed since 1993, and since 1998 as the national distributor of Scania Ukraine. In the same 1990s, the development of the dealer network, which is now represented by 11 centers that sell and service Scania vehicles, began to develop. Today, service workshops are open in many Ukrainian cities: Odessa, Poltava, Vinnitsa, Mukachevo, Kramatorsk. On average, the company sells about 400 Scania vehicles per year in Ukraine.

Ericsson

The main activity of the company is the deployment and maintenance of mobile networks, as well as the production of related equipment. In 180 countries of the world, communication networks are powered by Ericsson equipment. Also, the company produced its own mobile phones, and then with Sony, to which subsequently has sold its business share.

In the first quarter of 2019, the firm returned to a net profit of 2.3 billion SEK (last year it suffered losses of 837 million SEK in the same period).

Directly on the territory of Ukraine, the company has been operating since the end of the 19th century: in 1893, it established the first telephone exchange in Kyiv, and after three years the same station was installed in Kharkiv. Probably, historically formed traditions of good cooperation have contributed to the fact that in several years after the declaration of independence by Ukraine, in 1995, Ericsson opened its own office in the country. Today, the company in Ukraine is represented by two offices (Kyiv and Lviv) with more than 300 employees.

Oriflame

A cosmetic company which sells skincare products and cosmetics; produces more than 1000 products (factories are located in Dublin, Delhi). It works in 63 countries of the world using the method of direct sales (the volume of which exceeds $ 1.5 billion a year), for which a network of more than 3 million consultants around the world has been created. In the last 15 years, the turnover of the company grows annually by 20-30%.

It has been present in the Ukrainian market since 1993. From the first years, the number of independent consultants (in fact, distributors of the company’s products according to the scoring system of the number of goods sold and the attraction of new consultants) has begun to grow rapidly. Subsequently, a special step-by-step program was developed (updated annually), the “Website of Independent Consultants” was created with the possibility of registering your own cabinet, an extensive delivery system organized: through service centers (in large cities), service points (practically in every city), courier delivery (remote settlements from administrative centers).

Tetra Pak

The company is the world leader in the production of packaging, packaging machinery and equipment for the processing of liquid food products, as well as a supplier of cardboard packaging for liquid products. Founded in 1951 (the history of the company creation “stretches” from 1929, from the company Akerlund & Rausing established in Sweden, and the first one in Scandinavia for packaging production), today operates in 170 countries and has more than 20 thousand employees. Annual turnover exceeds €10 billion.

In Ukraine, the company was one of the first foreign companies which activities began before the country’s independence was declared, in 1989. The company actively developed in different directions: in 1992, a new factory was opened, the following year was established the company for conducting marketing operations, and in 2003, a new line of the printing press appeared. By the way, it was in Ukraine that the production of Tetra Fino Aseptic aseptic bags which are now widely known in the country for dairy products, began for the first time.

AB Electrolux

One of the world’s leading manufacturers of electrical and gas equipment for domestic and professional needs. Founded in 1910 in Stockholm as Elektromekaniska AB, the company currently sells more than 60 million products annually in 150 countries worldwide. The number of Electrolux employees is about 60 thousand. Revenues fluctuate around € 13 billion annually.

The beginning of the presence of the company in the Ukrainian market can be considered 2010 when Electrolux bought the Ukrainian household appliances factory in Ivano-Frankivsk from the Italian company. The following year the production of washing machines of the brands Electrolux and Zanussi has begun at a fully renovated enterprise. Capacities allow producing about 300 thousand units of equipment per year (for 2011-2015 600 thousand were produced), while the production of this Ivano-Frankivsk Electrolux plant is delivered to more than 25 countries of the world.

Chumak, Joint-Stock Company
(the company with Swedish capital)

One of the largest food producers in Ukraine with headquarters in Kakhovka. The president and co-founder of the company Karl Sturen (now the Honorary Consul of Sweden in Ukraine) who came to Kakhovka in 1994, started a business and founded Chumak several years later with Johan Boden (entrepreneur, director of corporate development). Subsequently, the Swede Hans Rausing (also the founder of the aforementioned Tetra Pak company) joined them.

The development of the enterprise is considered by many as an example of a great “success story”. Starting as a small business, the company has grown into a large-scale production with branches in Ukraine and a wide range of food products in several decades.

The number of personnel of the company is about 1.5 thousand people; up to 20% of the products are exported.

According the analysis, large Swedish companies, which once decided to invest in the Ukrainian market, successfully develop, create new production capacities allowing exporting to many countries around the world, including the European Union.

Disappointing figures

However, financial volumes in the trade and economic relations between Ukraine and Sweden are extremely small. In the Swedish export, Ukraine’s share is 0.3%, while imports are only 0.1%. In the Ukrainian trade with the EU countries, Sweden takes the 20th place (1.1% of the total trade between Ukraine and the European Union), besides, there is a significant trade deficit (Fig.1).

Fig. 1. Trade between Ukraine and Sweden (compiled by Gaidai D., Litra L. Foreign Policy Audit: Ukraine – Sweden, K., 2017. P. 22)

Almost 70% of Swedish exports to Ukraine are machines and mechanisms. Chemistry, paper and transport equipment are also being imported. Ukraine exports to Sweden almost five times less. The product range mainly consists of engines, wooden products, printed products, furniture and transport equipment.

From 2008 to 2013, Sweden has been investing in Ukraine $1-1.2 billion annually (a significant part of the investments goes to the processing industry), but from 2014, investments gradually decreased to $300-400 million.

However, as we see in Fig. 1, after the political events of 2012-2013 in Ukraine (a period of sharp decline), the trade dynamics between the countries is gradually increasing. In 2019, most likely, economic relations between the countries will not have a noticeable revival due to political uncertainty in Ukraine (presidential and parliamentary elections). However, there are prerequisites for the gradual improvement in economic ties in 2020, when stabilization of the institutes of governance in Ukraine will take place.

Problems and their causes

Ukraine and Sweden have all the material, technological and financial components which contribute to the most active trade and economic relations. Still, there is a significant problem that impedes this – the fundamental antagonistic difference between the countries in today’s established traditions and peculiarities of doing business. Based on the political credo of Sweden, business must be transparent and serve for human well-being; the legal system should be stable and aimed at improving the mechanisms of entrepreneurial activity and their effectiveness; the state, as well as its supervisory bodies, should maximally promote entrepreneurial activity both within the country and in the external economic environment.

Ukraine suffers from legal chaos and political instability; widespread corruption at all levels of government that threatens national security in its scope; judicial bias; extremely ineffective work of regulatory bodies which pursue only mercenary purposes.

Countries like Sweden, in the case of corruption in the administrative and judicial institutions of government in any country, are trying to distance themselves from it, curtail or completely cease economic cooperation. Not even political instability or military escalation in the east of Ukraine is a real reason for the lack of active economic cooperation, but total corruption. And neither Sweden nor any other democratic country will cooperate closely with such a country. A striking example of this is the Swedish company IKEA, a powerful furniture giant, which announced not only the opening of a wide network of stores in Ukraine but also the establishment of cooperation with local furniture makers ten years ago. However, the management of the company faced the need to pay huge amounts of bribes to Ukrainian officials, which forced the company to abandon its investment plans in Ukraine. It was an alarming bell for many entrepreneurs, not only from Sweden but also all European countries which planned to expand their business to Ukraine.

Ukraine, in the opinion of an exceptional majority of managers of international companies, is a very promising country in its trade, technology and production sectors, and if it solves the problem of corruption, then even an economic boom will be possible.

Please read: Doing business in Ukraine during the period of political instability: what to focus on

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