Nataliia Osadcha, Co-founder of S&P Agency, Investment Risk Advisor.
Published specifically for Kyiv Post Doing Business.
Ukraine is a unique country both geographically and economically, which is only at the stage of its economic development. The process of privatization of state enterprises is not completed, there is no free sale of agricultural land, the state economy has only started to form, the market is not structured, and players are constantly changing. Therefore all these factors make Ukraine attractive for investors.
At the same time the unstable political situation, the presence of a military conflict, constantly changing legislation, the lack of transparency in the judiciary, corruption and the absence of the rule of law create very high risks for foreign investors of loss of their investments and/or assets in Ukraine. At the same time, high rates of profit and return of investments make a difficult choice for foreign business: to risk and earn or to forget about Ukraine until it meets the generally accepted international norms of doing business.
In our opinion, there is a perfect time to enter the developing market of Ukraine. Anyone who uses this opportunity competently can get a good market share, access to cheap resources and qualified personnel, highly liquid asset and/or business.
At the same time, the “aggressive” environment that has developed in our country should not be underestimated. Raiding is a widespread phenomenon. It costs much less to “wring out” high-yielding business in Ukraine than to create it from scratch and develop it.
Is it possible to fight against raiding, illegal seizures of business or corporate conflicts in Ukraine?
We are perfectly convinced that it is possible but financial and time costs during the conflict will be quite large, the outcome is difficult to predict, and the risk of losing assets is huge. “To win the war without engaging the battle”, and to exclude the possibility of future raider seizure and/or corporate conflict even at the stage of preparing for investments- that is another approach to business we offer.
“Rescuing” business in Ukraine from corporate raiding and corporate conflicts for more than 10 years, we have developed expertise that allows us to accurately “forecast” the probability of loss of assets, as well as to “see” how it will happen for a particular business and when.
Usually foreign investor is not able to calculate the specific “business environment” in Ukraine. He has no proper experience in dealing with Ukrainian government agencies and does not have prebuilt protection for his business. In addition, he makes “unforgivable mistakes” during the course of his business activity and gives an opportunity to opponents (an opponent is often a state or/and its bodies) to use and develop these errors in a serious problems. Further, it becomes more and more difficult to prove one’s rightness as the conflict develops. The risk of loss of assets or loss of business grows with cosmic speed.
Our experience gives us a reason to convince the business that it is possible and necessary to minimize investment risks at the “zero” stage. First, we study the terms of investment, the legal basis of ownership, and the corporate structure of the enterprise, which is supposed to be created (for example in partnership with the Ukrainian side). We issue a forecast of the probability of property loss and/or the onset of a corporate conflict, the approximate time frame for such losses and a list of existing “holes” in business protection, based on the received information and our expertise. We always give our recommendations and step-by-step action plan for preventing risks of our clients if there is an opportunity to minimize them. And we honestly recommend them not to invest in this particular project and on such terms if it is impossible.
Such calculation and minimization of risks at the investment stage significantly reduces the probability of “problems” that arise after the entrance to the Ukrainian market when the business is already created, operating and bringing a stable income. The symptomatology of such problems is quite diverse ranging from conflicts with partners (if there are any) to large conflicts with state bodies.
Symptoms of serious “problems” of foreign companies are often manifested in the form of criminal cases that are opened against the company or/and its officials. There are some examples from our practice: criminal cases on the fact of causing damage to the state (if the business somehow entered into economic relations with state entities); criminal cases on the abuse of authority by state officials (is the business acquired assets from state property) or criminal cases of unauthorized seizure of land (despite the fact that the company had a lease contract).
As an example, there is a case of Risoil S.A., Swiss company that produced a grain terminal in the Black Sea port, and made a lot of noise in press and international investment community. Honestly, it was one of the most difficult cases in our practice. In order to avoid the technological disaster and prevent the landslide, the investor began construction of a retaining wall that had to preserve not only his property, but also the state enterprise. The process of such construction work slightly outstripped the issuance of documents of land leasing, which was in the process of removing the company since 2014.
According to calculations of Risoil S.A. such inaccuracy could entail exclusively administrative fine, but it turned out differently in real life. This circumstance became the basis for the initiation of a serious criminal case, which created problems not only for the economic activities of the company, but also for its top officials and company`s owners. The investigation was conducted by the Prosecutor General Office of Ukraine; cascades of searches were also conducted, both in the company itself and in counterparties. There were seized a huge number of documents that were not related to the company itself, and also interrogations and examinations were conducted etc.
It took one year of painstaking work , more than hundred motions of PGU and more than 60 appeals to the court, official assistance to diplomatic missions, international organizations and media in order to bring the conflict back to legal plane and settle it in favor of the company. Believe us that a year is a very fast and serious result for this kind of complex conflicts, because often they can last from five to seven years, completely paralyzing the work of business.
Usually it becomes increasingly difficult for the investor to prove his rightness when the confrontation with the state authorities is already in a rather serious stage of exacerbation. Both sides have at their disposal evidence proving violations of opponents, and it is fairly predictable to say, whom the court will believe. Therefore, the calculation of their risks is the necessity of today’s realities. Counting it, you deprive your opponents of even the slightest opportunity to create a problem for your business. Unfortunately, today we have to “save” business more often than to work for minimization of risks at the start. However, it is common for a person and business to learn from his mistakes. One of the existing options is to be always one step ahead of opponents, not giving them even the slightest opportunity to approach business. And we help our clients to realize it and to outsmart the system.
«S&P Investment Risk Management Agency» owns the exclusive copyright of the information in this article. The author has the sole right to control the use of this material. It means the prohibition of using this information without our consent. The term “information” means texts, comments, photos, images, and other materials. Any use of the information or any part of this article without the written permission of the author is prohibited. The term “use” means copying, adaptation, re-writing, modifications, etc. In the case the irregularities are detected, the author has the right to copyright protection in accordance with the procedure established in Article 50-53 of the Law of Ukraine «On Copyright and Related Rights».