Analytical overview ESTONIAN INVESTMENT RELATIONS WITH THE EASTERN PARTNERSHIP COUNTRIES
Raul Mälk, Senior Research Fellow, ECEAP
1. EU FDI IN EASTERN PARTNERSHIP COUNTRIES
After ten years of Eastern Partnership (EaP), it is possible to say that the investments flow between the EU and Partnership countries is still rather1 limited . The potential for investments has not yet been fully used. Looking forwards to post-2020, it is clear that further progress in investments is one of the crucial elements of the development of the EaP and relations with the partner countries.
The European Union has concluded Association Agreements and Deep and Comprehensive Free Trade Area agreements with Georgia, Moldova and Ukraine. Membership in the Eurasian Economic Union affects EU economic relations with Armenia and Belarus.
Investment activity between EU and the six Eastern Partnership countries has been influenced during the past decade by the global economic crisis, political tensions including the Russian war against Ukraine from 2014, Armenia-Azerbaijan war in 2020, the business climate and the problems with the rule of law in six countries.
In the World Bank’s Ease of doing business index, the six EaP countries have improved their standings – Georgia is now (surprisingly) 7th, Azerbaidjan 34th, Armenia 47th, Moldova 48th, Belarus 49th and Ukraine 64th among 190 economies. For comparison, Estonia is 18th, Poland 40th, Hungary 52nd and Romania 55th2. However, despite such high rankings, the economic progress is still modest, and the living standards in most of the EaP countries are relatively low. The indexes tend to overestimate the legal acts and underestimate the real implementation.
1 – This analysis covers only issues of foreign direct investments (FDI), and it does not elaborate portfolio investments etc.
2 – http://documents.worldbank.org/curated/en/688761571934946384/pdf/Doing-Business-2020-Comparing-Business- Regulation-in-190-Economies.pdf
1 There is a need to develop investment legislation in partner countries and implement it correctly and impartially both on the national and local level. Especially crucial is fighting against corruption and nepotism. In this area, EaP countries positions in the world are much worse. In the Transparency International’s Corruption Perceptions Index Georgia is again at the highest rank – 44th, Belarus is 66th, Armenia 77th, Moldova 120th, Ukraine and Azerbaijan share 126th position. Also for comparison, Estonia is 18th, Poland 41st, Hungary and Romania share 70th position3.
Except Azerbaijan with its high income from oil and gas, other five Eastern Partnership countries are in pressing need of outside investment resources.
There are only a few studies of the EU and Eastern Partnership investment relations. The European Parliament think tank prepared in 2018 upon request of the Euronest parliamentary assembly economic committee a report “Foreign Direct Investment in the EU and the Eastern Partnership Countries” by Mario Damen4. His main conclusions were that EU investments in these countries are limited, do not grow significantly and were only 0.3- 0.6 per cent of the total amount of the EU-28 FDI during 2013-165.
In September 2020 OECD published a report “Investment Perspectives in Eastern Partner Countries”6. This report examines recent developments in foreign direct investment in Eastern Partnership countries, without looking into investor countries in particular. It also considers FDI regulations, investment promotion activities, investment facilitation, investment tax incentives, and responsible business conduct. The stock of inward FDI in EaP countries has grown considerably over the period 2007-18- from around 30% to 55% of GDP7. In Georgia, FDI stocks had doubled from 55% of GDP in 2007 to over 100% in 2018. Azerbaijan, with FDI stocks now at almost 70% of GDP, has also witnessed significant growth over the decade. The other countries in the region have experienced more modest growth, with FDI remaining between 35% and 43% of GDP. In Moldova, FDI’s share in GDP shrank over the decade, from 50% in 2007 to just over 40% in 20188. OECD reports general conclusion is not optimistic about the future: “FDI in Eastern Partner (EaP) countries has grown considerably over the last two decades, and is associated with greater innovation relative to domestic investment, but it remains below its potential in comparison to neighbouring regions, and will likely suffer as a result of the coronavirus (COVID-19) pandemic and related economic disruptions”9.
This analytical overview looks at Estonian FDI in Eastern Partnership countries in general and available company-level data; and more general information and some company-
3 – https://www.transparency.org/en/cpi/2019/results/table
4 – https://www.europarl.europa.eu/RegData/etudes/IDAN/2018/570489/EXPO_IDA(2018)570489_EN.pdf
5 – Ibid, p 11
6 – http://www.oecd.org/investment/Investment-perspectives-in-Eastern-Partner-countries.pdf
7 – Ibid, p 6
8 – Ibid, p 12-13
9 – Ibid, p 9 2 level information about FDI from Partnership countries in Estonia. The author uses both Estonian and EaP countries official FDI data, which sometimes differ significantly. Company- level information is mostly based on media materials and also on company websites and annual reports. On numerous occasions, it was impossible to control the correctness of the media articles, especially on the level of the details.
2. PROBLEMS WITH DATA
Detailed analysis of foreign investments in Eastern Partnership countries is a complex challenge.
The first problem is a lack of data. Estonian central bank country-specific statistics cover only Ukraine and Belarus and does not include separate data for Georgia and other EaP countries. European Commission DG Trade data and Eurostat does not reflect the role of particular EU member states in Eastern Partnership countries. Data from EaP countries about FDI is comprehensive only in Ukraine and Georgia. Unfortunately, there is little use for our study of UNCTAD EaP countries fact-sheets, which are oriented towards their investment relations in the region, but not with the EU countries10.
The second problem is related to the use of third countries registered firms or using third- country financial institutions for providing investments to the EaP country. For example, from small Cyprus, the FDI to Ukraine, according to the Ukrainian official statistics, was at the end of June 2020, around 15.5 billion USD from a total of 50.3 billion USD11. A significant part of that money is of Ukrainian origin. Return of the Ukrainian capital back to home is also part of the FDI from Netherlands, Luxembourg and some other countries. Part of the investments comes from well-known tax-havens.
Business-friendly policy in Estonia also led to the establishment here of wholesale trade companies from Ukraine, Belarus and even for some time from Azerbaijan, which mostly works virtually, as the goods do not enter Estonia. During the last years, a new business model appeared in the IT-sector and start-up activities. Often it is connected with the Estonian e-Residency programme12 – business people obtain Estonian e-Residency and use it to establish here a headquarters for the company which uses Estonian business environment and is a foothold in the EU. At the same time, the scale of the investment is often small, and the number of employees also minimal, even zero. The owners of such companies are firms registered somewhere at the British Virgin Islands or some other place with liberal taxation regime and use of English business law and language in legal proceedings. Their formally Estonian investments at home are in many aspects similar to the return of capital through Cyprus. The spread of such practices complicates the analysis of the Estonian FDI relations
10 – https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx
11 – https://bank.gov.ua/en/statistic/sector-external/data-sector-external#5
12 – https://e-resident.gov.ee/ 3 with particular Partnership countries.
The third problem is the role of political factors. Except for Belarus, all other EaP countries statistics are in some way affected by the issues of territories in the military-political conflicts.
The fourth problem is related to business secrets. Often companies do not publish data about their particular investments, costs of the takeover of other firms. Sometimes they invest directly from headquarters, sometimes through their branches in some country, in this case, in Estonia. Investors turned more and more tightlipped for journalists about their investments and especially financial results, except of course stock exchange-listed companies which are much more open because of the regulations. Companies were reluctant to provide data also for this analysis. The author is aware that in some cases, there are missing substantial elements in the picture this paper presents about company- level activities in EaP countries. The nominal value of the investment may change during the years a lot because of the changes in company build-up. There are challenges in courts over ownership of some projects in EaP countries, and it is sometimes not so evident what situation is the basis for the statistical data.
In conclusion, we must always consider FDI data with some doubt. It is at the same time essential field of economic relations, and we have to analyse it notwithstanding all the listed issues.
3. UKRAINE
3.1 GENERAL OVERVIEW OF THE EU AND ESTONIAN FDI
The most significant amount of FDI to the Partnership countries goes from the EU to Ukraine as we see from Chart 1. Taking into account the size of the country and its economy it is natural. Five other Partnership countries have received a relatively modest amount of EU FDI, especially if we exclude the particular case of Cyprus from which to the EaP countries often returns local money. The general tendency during the last years was stability if not stagnation of the stock of the EU investments in these countries. Chart 1 reflects data for EU-27, so takes into account Brexit. Figures for some countries were significantly bigger for EU-28; for example, UK firms have large investments in Azerbaijan energy sector.
4 Chart 1: EU-27 direct foreign investments in EaP countries, billion euros, 2018, stock, data from DG Trade, European Commission13
Among the Estonian FDI destinations, Ukraine is according to the Bank of Estonia data 9th (as of 30.9.20)- from a total of 8706 million euros, Estonian FDI to Ukraine were 170.2 million euros14.
Total foreign investments in Ukraine dropped signifi cantly as a consequence of the war that started in 2014. State Statistics Service of Ukraine data about FDI presents investment fi gures as 53.7 billion USD for non-occupied territories on 1 January 2014 and 38.4 billion USD for 1 January 2015, so the diff erence is 15.4 billion USD15. Because of the war and occupation, Ukrainian data shows 5.6 billion euros FDI loss from the EU during 201416, but it seems that the data is not very sound.
The loss of investments happened not only in the immediate confl ict area but also in large economic centres of Ukraine. Most remarkable is that the FDI to the city of Kyiv decreased during 2014 from 25.8 billion USD to 17.9 billion USD - minus 7.9 billion USD17.
Association Agreement and DCFTA with the EU (2014) and their implementation, together with some reforms, moved Ukraine closer to the EU, but the reforms were not systematic. Weaknesses in the legal sphere and infl uence of oligarchic groups neutralised some progressive undertakings.
13 – https://ec.europa.eu/trade/policy/countries-and-regions/statistics/
14 – https://statistika.eestipank.ee/#/et/p/146/r/2293/2122
15 – http://www.ukrstat.gov.ua/
16 – Ibid
17 – Ibid
5 From 2015 foreign investment activity in Ukraine stagnated and in some parts of the country, the outflow continued. In total, the amount of the FDI (without occupied territories) was at the end of 2015 43.8 billion USD and the end of 2019 51.4 billion USD18. For comparison in small Estonia at the end of 2019, the FDI amount was 24.8 billion euros19.
There are also other problems related to the changes in Ukrainian statistics, which make following the FDI more complicated. State Statistics Service of Ukraine (SSSU) website declares: “Due to the National Bank’s revision of data on foreign direct investment for the period 2015-2019 (https://bank.gov.ua/ua/news/all/natsionalniy-bank-udoskonalyuye- obchislennya-statistiki-pryamih-inozemnih-investitsiy ) and their release on June 30, 2020 on the National Bank web site, data from the state statistical observation over investment of external economic activity for the period January 1, 2016 – December 31, 2019, are irrelevant. Since Q1, 2020 the single body responsible for foreign direct investment data dissemination is the National Bank (https://bank.gov.ua/ua/statistic/sector-external/data- sector-external#1).” For Estonia the figures of the data from the National Bank are some per cents higher than previous SSSU figures, now declared “irrelevant”. So the Ukrainian data is represented using two charts (Charts 3 and 4).
Most of the additional investments to Ukraine during last years are the investments from Cyprus and the Netherlands, a large part of the flow of the capital from these countries is of Ukrainian origin and return to the homeland.
So it is now vital for Kyiv to return the trust of investors towards Ukraine in general, not only in the Eastern part of the country, where the negative tendencies remain inevitable until the war continues. Besides the war, there are also other reasons – above all problems with the rule of law, illegal takeovers of enterprises and the general business climate. The reforms progressed, but their influence was not significant enough to make a big difference. From 2019 the new administration in Ukraine has continued the reforms, and there is some positive investments news. However, it is too early to talk about principal change for foreign investors, who remain wary.
European Business Association (EBA), Dragon Capital and the Center for Economic Strategy (CES) surveyed foreign investors in Ukraine in late October 2020. 48% of foreign investors surveyed believe that Ukraine’s investment attractiveness is declining, 42% do not see significant changes, and only 9% see improvements. The “lack of trust in judiciary” was named the main obstacle to foreign investment for the first time in five years, while “widespread corruption” was in the second place. Distrust of the judiciary and corruption also are significant barriers, followed by the monopolisation of markets and the seizure of power by oligarchs, cumbersome and unstable legislation20.
18 – https://bank.gov.ua/en/statistic/sector-external/data-sector-external#5
19 – https://statistika.eestipank.ee/#/en/p/146/r/2293/2122
20 – https://eba.com.ua/en/nedovira-do-sudovoyi-systemy-posila-1-mistse-sered-pereshkod-dlya-inozemnyh-investytsij/
6 Chart 2: Estonian FDI stock in Ukraine21, end of the year, million euros, Bank of Estonia22
Chart 3: Estonian FDI stock in Ukraine, million USD, beginning of the year, State Statistics Service Ukraine23
Chart 4: Baltic States FDI stock in Ukraine, million USD, the beginning of the year and end of 2019, National Bank of Ukraine24
21 – It is not entirely clear, how the Estonian statistics refl ect the occupied territories of Ukraine, it seems that Estonian FDI there is not part of the data similarly to the Ukrainian statistics
22 – https://statistika.eestipank.ee/#/et/p/146/r/2293/2122
23 – https://ukrstat.org/en/operativ/menu/menu_e/zed.htm
24 – https://bank.gov.ua/en/statistic/sector-external/data-sector-external#5 7 As we see from Charts 2,3 and 4, Estonian and Ukrainian data about the stock of the Estonian FDI in Ukraine is in the similar range around 250 million euros at the end of 2019. Among the three Baltic States, the biggest investor in Ukraine is Estonia, according to the Ukrainian data.
Some prominent Estonian investors in Ukraine use the services of the intermediaries from Cyprus and other countries. It is challenging to sum up the full data for Estonian real FDI in Ukraine. The author’s very rough estimate is that the total amount of FDI in Ukraine from Estonia is somewhere around four to five hundred million euros.
According to the available information, Estonian FDI is significant in retail and wholesale trade, real estate development, manufacturing industry and also increasingly in the IT sector.
3.2 SHORT HISTORY OF ESTONIAN INVESTMENTS TO UKRAINE
The first wave of Estonian investments went to Ukraine in the second half of the 1990s and the beginning of the new century. Estonian-Ukrainian investments protection agreement was concluded in 1995, Free Trade Agreement in 1995, avoiding double taxation agreement in 1996. The FTA was unique as it abolished all tariffs mutually. There were numerous problems with the implementation of the agreement, but it still was a significant stimulus to economic relations.
Many investments of the 1990s were small, often tied to existing trade relations. Estonian firms had very limited resources, and it led to numerous small investments whichwere not able to survive at the large and volatile Ukrainian market. In hindsight, investors’ understanding of the Ukrainian market was not correct. Both Estonian investors and their Ukrainian partners worked in turbulent conditions, many companies in Estonia and Ukraine changed owners, were closed down or went bankrupt.
Let’s look at some examples of investments from that period. Estonian AS ETK Sisustus opened in 1997 a joint enterprise with local company Torgovõi Dom Obolon named ESTO Partner25. AS ETK Sisustus went bankrupt in 1999. Estonian advertising company Age Com controlled by Hans H.Luik had a branch in Ukraine from 1996 which used Saatchi & Saatchi trademark26. Its office in Ukraine had in 1999 22 employees27. Estonian dairy products companies AS Ühinenud Meiereid (worked from 1996 until 2002) and Mulgi Meier announced in 1997 (later part of the first company) that they will build milk factories in
25 – https://www.aripaev.ee/uudised/1997/03/06/etk-sisustus-loi-firma-ukrainas (in Estonian)
26 – https://www.aripaev.ee/uudised/1996/08/08/reklaamikontsernis-age-com-on-uued-juhid (in Estonian)
27 – https://www.aripaev.ee/uudised/1999/05/12/hans-luigel-edukas-reklaamifirma-ukrainas (in Estonian)
8 Ukraine28. Estonian real estate firm OÜ Falgi Vara opened its representation in Kyiv in 1998, located then in the same building with Estonian Embassy29. It was soon closed down as the owner had economic difficulties in Estonia. Most of the companies do not exist any more. Many plans remained just plans, and others were short period attempts to gain a foothold.
Several Nordic companies entered Ukraine then using their Estonian branch. For example, Rannila Oy from Finland at the beginning of 1990s entered Ukraine through its Estonian branch AS Rannila Profiil. Its Ukrainian subsidiary was Rannila Kyiv30. In 1998 they opened besides wholesales representation also a roof materials factory. Rannila was part of the large conglomerate Rautaruukki Oy, which is now represented there through Ruukki Ukraine LLC31. In 2014 Rautaruukki merged with Swedish SSAB32.
The second Estonian FDI wave from the middle of the first decade of the century involved Estonian EU full membership from 2004, more substantial planning and bigger ambitions, presence and services of Scandinavian banks working in Ukraine as in Estonia. It was a period of optimism among the Western investors about Eastern European countries economic prospects as many of them had a period of growth, including large Russia.
Estonian-Ukrainian political relations were progressing, and political exchanges were frequent, especially during President Viktor Yushchenko’s period 2005-10. There were several top-level visits; on some occasions, business delegations accompanied political leaders.
Estonian investors were now more experienced. Because of the economic boom in Estonia, they had much larger financial resources to invest than in the 1990s. Hundreds of Estonian firms were in Ukraine able to network with similar partners as at home as they entered together. It was in some sense an attempt to replicate 1990s move to Latvian and Lithuanian markets. Nevertheless, Ukraine was a much bigger and more complicated challenge, and it did not work out similarly for many investors. Smaller investments were often even more successful as the big ones because the latter met serious competition from local businesses, often using their influence in state structures and illegal methods.
From 2008 the situation changed radically. Russian war against Georgia caused a general decline in interest to invest in Eastern Europe. The global economic crisis forced western companies to close down their activities at more risky markets. Many Estonian firms also had to fight for survival and concentrate their efforts at home. Ukraine went through a deep
28 – https://www.aripaev.ee/uudised/1997/09/22/uhinenud-meiereide-odav-plaan-ukrainas (in Estonian)
29 – https://www.ohtuleht.ee/19733/falgi-vara-kinnitab-ukrainas-kanda (in Estonian)
30 – https://www.aripaev.ee/uudised/1998/02/16/rannilal-tehas-ukrainas (in Estonian)
31 – https://rautagroup.com/en/portfolio/ruukki-en/
32 – https://www.reuters.com/article/us-rautaruukki-ssab/steelmaker-ssab-to-buy-nordic-rival-rautaruukki-for-1-6-billion- idUSBREA0L09N20140122
9 economic crisis, and its consumers demand dropped drastically. Estonian entrepreneurs’ collective effort to gain positions in Ukraine ended, but more successful and economically more robust firms remained there.
One of the examples of closing down because of the overestimating its chances and economic crisis is Estonian sports retail company Sportland International Group. It worked in Ukraine through TOV Sportland Ukraine where Estonian firm had 90% ownership, starting with the opening of two stores in 200633, in 2009 it had in Ukraine nine stores34. Then Sportland had to close some shops because of the severe economic crisis reduced customer demand35. It became clear that the Estonian company was overly ambitious in its international activities, and it led to troubles during the crisis. From the beginning of 2010 a restructuring operation started, SIG maintained only its business in the Baltic States, but Group’s Ukrainian and other firms were closed. In 2014 British Sports Direct International obtained 60% of the SIG shares36.
We can find examples of a short living presence in Ukraine during the second half of the previous decade in the real estate, construction and construction materials industry sectors. Estonian real estate company Arco Vara started to work in Ukraine in 200637. It was not successful and sold its part in Arco Ukraina Valduste OÜ in 200938. From 1993 (or 1995) Estonian ASi Vestoris worked on the housing construction market. There is no data about the activities after the 2008 economic crisis. Leader of the company Ivo Liiv then complained about the challenging economic situation in Ukraine39. One more example from construction materials industry- from 2005 to 2010 Estonian AEROC Aktsiaselts (now Bauroc AS) worked in Ukraine together with Russian partner LSR Group in AEROC International. They built two plants of concrete construction materials, but finally, partners separated the business into two parts, an Estonian firm is not present in Ukraine40 .
There are also examples from the area of digital services and digital media. Estonian leading media portal AS Delfi opened in 2007 a news portal in Ukraine www.delfi.ua41. Norwegian Findexa controlled the company through Interinfo Holding SCA. A couple of months later
33 – https://arileht.delfi.ee/news/uudised/sportland-laieneb-jouludeks-kahe-uue-poega-ukrainasse?id=51068749 (in Estonian)
34 – https://www.kaubandus.ee/uudised/2010/02/02/sportland-jai-ule-eelmisel-aastal-rekordkahjumisse (in Estonian)
35 – https://www.aripaev.ee/uudised/2010/09/02/sportland-jookseb-endiselt-suure-kahjuminumbriga (in Estonian)
36 – https://tark.legal/en/sportland-restructuring-and-sale-of-majority-stake-to-sports-direct-international/
37 – https://www.aripaev.ee/uudised/2006/04/02/huvi-ukrainas-ari-ajada-kasvab (in Estonian)
38 – Äripäev, 8.12.2009, Börsiuudised (in Estonian)
39 – https://www.aripaev.ee/uudised/2008/11/27/ari-ukrainas-keerukam (in Estonian)
40 – https://www.aripaev.ee/uudised/2011/04/24/aeroc-taas-eestlaste-kaes (in Estonian)
41 – https://www.aripaev.ee/uudised/2007/06/06/delfi-plaanib-ukrainas-kumne-parema-portaali-sekka-jouda (in Estonian)
10 the Norwegians sold AS Delfi to Estonian Ekspress Grupp AS42. Estonian Ekspress Grupp AS sold LLC Delfi, which operated internet portal delfi.ua to SIA Delfi Holding in 201443. The main reason to leave was lack of profit after investing 2 million euros during six years of operations44.
Estonian real estate internet portal City24.ee opened after its start in Estonia (2005) in 2006 also a similar portal in Ukraine45 which was run by TOB City24. Estonian City24.ee belonged to Finnish Alma Media46. Business in Ukraine was closed in 201047.
The third period of intensive Estonian investments in Ukraine followed the economic crisis and lasted from 2011 until 2014. It was driven by those investors who were able to survive and use the opportunities of the period of rapid economic growth in Ukraine after the end of the crisis. 2010-13 statistic from Estonian and Ukrainian sources differs, Estonian data shows the rapid growth of the investments, Ukrainian statistics only moderate growth (see Charts 2 and 3). Nevertheless, the challenges of the business climate, corruption and nepotism remained there, and it led to the withdrawal of the Scandinavian banks from Ukraine, which was a reason or a signal to several other businesses to leave.
Both big Swedish banks dominating the Estonian and Baltic markets - Swedbank and SEB - moved to Ukraine in the middle of the first decade of the century, using their Baltic subsidiaries. It was a signal to enterprises in other sectors - the “home banks” are now in Ukraine, and it makes your work smoother and efficient. It was not only Scandinavian banks entering Ukraine, in 2007, but around 30% of Ukrainian banking market was also in the hands of foreign firms - Citibank, Raiffeisen Bank, Commerzbank, BNP Paribas48.
SEB Bank entered Ukrainian market buying Bank Agio in 2004. It was done through SEB daughter bank in Lithuania Vilniaus Bankas 49. In 2007 SEB also purchased a 97.3% stake in medium-size Ukrainian bank Factorial Bank for an estimated 120 million USD50. After some
42 – https://www.baltictimes.com/news/articles/18475/
43 – https://www.aripaev.ee/uudised/2014/03/26/delfi-muus-ukraina-tutarettevotte-aktsiad (in Estonian)
44 – https://www.aripaev.ee/uudised/2014/02/21/ekspress-grupp-lopetab-ukrainas-tegevuse (in Estonian)
45 – https://www.aripaev.ee/uudised/2006/05/16/city24-avas-portaali-ukrainas (in Estonian)
46 – https://www.webwire.com/ViewPressRel.asp?aId=9339
47 – https://www.almamedia.fi/docs/default-source/investors/Financial-reporting/en/2010/annual-review-2010. pdf?sfvrsn=774908ed_2
48 –https://www.aripaev.ee/uudised/2007/11/18/rootsi-pangad-laienevad-ukrainas (in Estonian)
49 – https://www.aripaev.ee/uudised/2005/01/31/wallenberg-laheme-vene-pangaturule-balti-tutarpankade-kaudu (in Estonian)
50 – https://www.aripaev.ee/uudised/2007/11/18/rootsi-pangad-laienevad-ukrainas (in Estonian)
11 troubled years, SEB announced November 2011, that it had agreed to sell its Ukrainian retail business, joining other Western banks scaling back operations in Ukraine. SEB bank was then the country’s 55th by assets, only had minor operations in Ukraine. Ukrainian- owned Eurobank bought SEB’s retail business for an undisclosed price51.
In 1996 Estonian Hansapank announced intention to work in Ukraine, using its Latvian subsidiary’s representation there52. Besides bank business, Hansapank group member Hansa Capital Grupp offered in Ukraine financial services, such as car leasing, equipment leasing and others. Its success was limited. In 2005 Swedbank became full owner of the Hansapank, it changed the name in 2008. In 2007 Swedbank bought an ambitious 13th- largest bank in Ukraine TAS-Kommerzbank for $735 million53. There were statements about aim to have more than a million customers in Ukraine. The plan was to serve a growing middle class, as it happened in the Baltic States. However, soon started the economic crisis, and the middle class in Ukraine mostly disappeared. The bank had significant losses from loan operations to retail customers because of the high part of the loan-takers were not able to pay back. In 2009 there was news that Swedbank wishes to sell its business in Ukraine54. It spent around one billion USD to enter the Ukrainian market and was then 20th biggest bank in Ukraine. In September 2011 Swedbank announced that it leaves retail banking in Ukraine and remains from 2013 active only in the corporative banking sector55. According to the media, local analysts declared that Swedbank had to spend an additional 600 million USD in Ukraine so rescue the business56. Finally, in April 2013 Swedbank announced full withdrawal from Ukraine and sold its banking activities and property57.
Estonian LHV Pank opened its representation in Ukraine in 200658. It was soon closed down without any significant activities as a result of the change of the LHV corporative structure. So smaller LHV avoided the losses in Ukraine being more conservative than the large Swedish Banks.
One example of an attempt to create a foothold in Ukraine during that period was a sizeable Estonian construction firm Merko AS. Its daughter Merko Ukraine LLC worked in Ukraine
51 – https://www.kyivpost.com/article/content/business/swedens-seb-bank-pulls-out-of-ukraine-117239.html
52 – https://www.aripaev.ee/uudised/1996/10/29/hansapank-laiendab-aktsiakapitali (in Estonian)
53 – https://majandus24.postimees.ee/1218190/swedbanki-avantuur-ukrainas-ja-venemaal (in Estonian), Swedbank Expands Its Baltic Reach, Buys Ukraine’s TAS-Kommerzbank, Wall Street Journal, 7 February 2007
54 – https://www.aripaev.ee/uudised/2009/05/13/swedbank-peab-ukrainas-muugiplaane (in Estonian)
55 – https://www.aripaev.ee/uudised/2011/09/20/swedbank-lahkub-ukraina-jaepangandusturult (in Estonian)
56 – https://www.aripaev.ee/uudised/2011/10/18/swedbank-kandis-ukrainas-suurt-kahju (in Estonian)
57 – https://www.aripaev.ee/uudised/2013/04/01/swedbank-lopetab-tegevuse-ukrainas-ja-venemaal (in Estonian); https:// www.kyivpost.com/article/content/business/swedbank-finishes-deal-to-sell-ukrainian-subsidiary-to-key-shareholder-in-delta- bank-324082.html
58 – https://www.aripaev.ee/uudised/2006/05/24/lhv-on-eilsest-kohal-ukraina-turul (in Estonian)
12 from 2010 to 2013 without significant results59.
Another short term presence example is AS Hansab, which opened a daughter company Hansab TOB Ukraine in 200960. The mother company sold it in 201361 but continues to work in Belarus. They offered services for financial institutions, including payment terminals and cash- machine services.
Estonian data showed a drop about one-third of the Estonian FDI to Ukraine in 2014 when the war started. During the years after 2014, there was not much progress in Estonian investments to Ukraine. Some Estonian projects were severely influenced by the war, because of the property located in Crimea or Eastern war-zone. Ukrainian currency went through rapid devaluation period. Many of the foreign-owned firms were closed down, as they were not able to work in such conditions. Some Estonian projects were objects for an illegal takeover of takeover efforts.
The arrival of the new Ukrainian President and Parliament in 2019 created some hopes, and there is a positive trend in foreign trade between the two countries. It is challenging to say yet that the new reforms changed the dynamics of the Estonian investments. After all, the influence of new legislation and other measures appears after some time, as it takes time to prepare the business decisions. Statistics and information from the companies confirm only a few new investments but the withdrawal of some old ones. COVID-19 crisis in 2020 also has its economic consequences which force the businesses to make immediate decisions.
Bank of Estonia data shows a remarkable decrease of Estonian FDI in Ukraine during this year- from 276.8 mill euros at the end of 2019 to 170.2 mill euros at the end of September 2020. For historical comparison- at the end of 2013, the stock of Estonian FDI in Ukraine was 343.8 million euros 62.
3.3 OVERVIEW OF THE INVESTMENT ACTIVITIES IN UKRAINE
3.3.1 Real estate development and construction
The most significant and successful Estonian-led investment in Ukraine is Arricano Real Estate PLC. It is the leading developer and network operator of shopping and entertainment centres (SECs) in Ukraine. Valuation of its property portfolio was according to the 2019
59 – https://www.ehitusuudised.ee/uudised/2010/12/28/merko-ehitus-asutas-ukrainas-tutarfirma (in Estonian)
60 – https://www.aripaev.ee/uudised/2011/01/31/ukrainas-kanda-kinnitanud-hansab-sihib-valgevenet (in Estonian)
61 – https://issuu.com/hansabgroup/docs/ar_for_web
62 – https://statistika.eestipank.ee/#/et/p/146/r/2293/2122
13 Annual Report at the end of last year 289.3 million USD. During 2019 the company’s rental income increased by 19% to USD 30.4 million63. In September 2013, Arricano completed a successful IPO and listed on the AIM-market of the London Stock Exchange. The registered address of Arricano Real Estate PLC is at Limassol, Cyprus. However, Arricano Real Estate PLC is related to one of the leading Estonian investors Hillar Teder through Retail Real Estate OÜ, which owns 55% of the shares64. There are also some other Estonian investors among the significant shareholders, so the Arricano Real estate PLC is firmly underthe control of the Estonian capital. However, it is in the statistical data as FDI to Ukraine from Cyprus. Before Arricano, Hillar Teder worked in Ukraine from 2006 with O’key Ukraina retail network, owned by Expert Capital from Estonia65. In 2010 it went bankrupt66.
Arricano Real Estate PLC four malls total lease area is more than 180,000 m². Arricano owns the following SECs: City Mall, Zaporizhzhia; Sky Mall (minority interest) Kyiv; RayON, Kyiv; Prospekt, Kyiv; Sun Gallery, Kryvyyi Rih67. There is an ongoing dispute about the majority shares of Sky Mall in Kyiv; the case is presented later in this analysis.
Company’s 2019 Annual report notes the three development sites in Lukianivka (Kyiv), Petrivka (Kyiv), and Rozumovska (Odesa). The company expects to complete the upmarket Lukianivka project in 202268.
Estonian construction company Nordecon AS has worked in Ukraine for 20 years and has a daughter company there named Eurocon Ukraine TOV69. In 1997 the Swedish company Baltic Beverages Holding (BBH) got involved in the construction of a production department of Beer and Beverage Plant Slavutich an Estonian construction concern Nordecon (at that time AS Eesti Ehitus). In 2003, during the implementation of the construction of the third object in Ukraine – Zvenigorod Cheese Factory in Cherkasy region for the French company Bongrain – management of the concern concluded that it is a high time to enter the Ukrainian market as a new brand named Eurocon Ukraine TOV. The portfolio of Eurocon has included production facilities, logistics centres, large shopping centres, apartment complexes, hotels and business centres70. Nordecon has established during the years several limited life-cycle
63 – https://arricano.com/storage/reports/622.pdf
64 – Ibid.
65 – https://www.kyivpost.com/article/content/business/kyiv-economic-court-opens-case-of-bankruptcy-of-ok-65005.html?cn- reloaded=1
66 – https://www.aripaev.ee/uudised/2013/09/15/teder-peab-ukrainas-vastu (in Estonian); https://www.aripaev.ee/ uudised/2007/10/10/teder-ukrainas-polnudki-klassikalist-kaupluseketti (in Estonian)
67 – https://arricano.com/en/about#klucevye-fakty
68 – Ibid
69 – http://eurocon.com.ua/en/
70 – http://eurocon.com.ua/en/projects/projects-in-ukraine/
14 project-related companies in Ukraine besides Eurocon. It cooperated with some Estonian firms in Ukraine. Nordecon total sales in Ukraine progressed initially well- in 2002 the sales were 1,2 million euros, in 2003-1.8 million euros, in 2004- 3.1 million euros, in 2005- 9.1 million euros, in 2006- 13.8 million euros, in 2007- 27.8 million euros, in 2008- 28.2 million euros71.
As many other Estonian companies in Ukraine Eurocon had tough years during the economic crisis and after that. Nordecon total sales in Ukraine declined sharply-in 2008 28.2 million euros, in 2009- 4.7 million euros, in 2010- 2.4 million euros, in 2011- 0.4 million euros and 2012- 0.3 million euros72. In 2013 Nordecon considered leaving Ukraine73. Next troubles arrived with 2014 war, but the company was able to survive but on a limited scale. In 2019 Ukraine was 5% of Nordecon all sales74. Nordecon 2019 Annual report declares that “our business activity in Ukraine decreased somewhat. We continue to be conservative about projects. We enter into a contract only when it is certain that the risks involved are reasonable, given the circumstances. Real estate development activities which require major investments remain suspended to minimise risks until the situation in Ukraine improves.”75
3.3.2 Construction materials industry
Estonian Krimelte OÜ established a subsidiary in Ukraine in 2009. Krimelte OÜ is a leading international manufacturer of construction chemistry products such as insulation PU foams, sealants, adhesives, caulking materials, various surface treatment and cleaning products. The company was founded in 1994. Its continually expanding export market currently comprises of more than 70 countries. Krimelte is now part of Wolf Group76. Wolf Group has the production units in Estonia, Spain and Russia. There are sales branches in the Baltic States, Ukraine, Romania, Russia, Spain, France, Portugal and the United Kingdom77. LLC Krimelte Ukraine is only a sales-oriented company, so the Estonian investment is not substantial.
Estonian specialists and Estonian branches participated in the first period activities of some Scandinavian countries construction materials companies in Ukraine, and some then entered the business on their own.
71 – Marek Joost Eesti ehitusettevõtete rahvusvahelistumine AS Merko ehitus, Nordecon AS ja Koger Projektijuhtimise OÜ näitel, Tartu Ülikool, Magistritöö, Tartu 2013, p 87 (in Estonian)
72 – Marek joost, Op cit p 87
73 – https://www.aripaev.ee/uudised/2013/02/13/nordecon-kaalus-ukrainast-lahkumist (in Estonian)
74 – https://www.aripaev.ee/borsiuudised/2019/05/09/nordecon-kasvab-hoogsalt-korrumpeerunud-ukraina-ehitusturul (in Estonian)
75 – http://www.nordecon.com/images/source/Nordecon_Annual%20report_2019.pdf
76 – https://www.wolfgroupweb.com/
77 – https://www.krimelte.com/en/krimelte-about/
15 In 2016 leading Finnish painting materials company Tikkurila Oy decided to change its business model in the Ukrainian and Belarussian markets and sold the entire share capital of its subsidiaries in Ukraine and Belarus to a company established by Tikkurila’s Estonians-led local management. The new company continued the distribution of Tikkurila’s products in both countries. The combined revenue of the two companies to be sold was approximately EUR 12 million in 2015, and the number of employees totalled 9078. Tikkurila sold its factory and sales branch Kolorit Paints LLC for 6.8 mill euros to Estonian company FarbaHouse79. The company Kolorit Paints LLC has a production unit in Ukraine which sells 4 million litres of materials annually. They also have distribution networks in Ukraine and Belarus, and also a distribution centre in Moldova. It has 32 retail outlets all over Ukraine. Kolorit Paints LLC annual turnover is around 12 million euros and a number of employees over 300 according to its promotional presentations80.
Sadolin, one of the brands of AkzoNobel group, entered the Ukrainian market through Estonian Akzo Nobel Baltics AS in the middle of the previous decade. It is one of the leading companies in the area of paints and related construction materials. Estonian enterprise ES Sadolin AS (established in 1987) became part of the AkzoNobel in 1995. From 2011 the activities of AkzoNobel group in the Baltic States and Ukraine are arranged through its Estonian company81. There is a network of Sadolin Home Interior Centres- Kyiv (3), Dnipro, Kharkiv, Lviv, Vinnytsia and Rivne82. Amount of the investments is not public, and it is also not clear are they reflected in statistics as FDI from Estonia or Netherlands (AkzoNobel headquarters).
Eskaro AS started in 1993 paint and varnish production in Estonia and was 100% Estonian owned83. It entered the Ukrainian market in 1995. From 2001 to 2007, they opened 18 commercial branches in large regional centres. Since 2008 Eskaro AS is a member of the Eskaro Group AB holding which has headquarters in Sweden. Formerly Estonian investment has turned into a Swedish one as the controlling stake in Eskaro AS was sold to the Swedish Eskaro Group AB. LLC Eskaro Color headquarters is near Odessa, from 2013 there also works a new factory, which was built for 6.7 million euros84. On the territory of Ukraine,
78 – https://www.globenewswire.com/news-release/2016/05/02/835169/0/en/Tikkurila-to-change-its-business-model-in- Ukraine-and-Belarus.html
79 – https://delo.ua/business/tikkurila-prodala-zavod-pod-kievom-318971/
80 – The work of the company is reflected on different websites: https://kolorit.ua, https://tikkurila.ua, https://farbmann.ua
81 – https://www.sadolin.ua/ru/about-us (in Russian)
82 – https://sadolin-id.com/uk/nashi-saloni/
83 – https://www.aripaev.ee/uudised/2005/07/03/varvitootja-laiendas-oma-valdusi (in Estonian)
84 – https://www.nefco.org/case-studies/investments-in-paint-factory-in-ukraine/
16 there are about 150 painting studios “Eskarocolor”85. In November 2020 Flügger group A/S from Denmark agreed to invest in Eskaro group gaining 70% of the shares in Eskaro Group AB, which will continue to develop as an independent business unit86.
3.3.3 Chemical industry and sale of chemicals
Elme Messer Gaas AS is the leading gas company in the Baltic region, it also works in Ukraine and Russia. Elme Messer Gaas AS was founded in 1999 as a joint venture of BLRT Grupp AS (Estonia) and Messer Group (Germany), its headquarters is in Estonia. The company operates in the field of industrial gas production (around 130 different gases available) and delivery. Its daughter enterprise in Ukraine works from 2004 87. Its investments reached 45 million euros until 2017 and then Elme Messer Ukraina OOO had 93 employees. The company distribution centres work in Kharkiv, Kyiv, Dnipro and three other locations88
German Addinol produces lubricants for industry and the automotive sectors. Addinol sells its products in Ukraine and other places in Eastern Europe through its Estonian company Addinol Lube Oil OÜ89. OOO Addinol Ukraina is the local company90 established in 2004 and owned 100% by the Estonian company. The size of the authorised capital is 16.5 million UAH91.
3.3.4 Transport and industry related to transport
Estonian investor Oleg Ossinovski company Skinest Finants AS bought in 2012 75% of the Ukrainian metal industry enterprise PAO Kremenchugskiy Zavod Metallicheskih Izdeliy92. He also owns from 2016 LLC Skinest Rail UA, active in railway transport93. In 2019 Skinest Rail rented out in Ukraine around 500 freight wagons. It also remoted the wagons it rented out94
85 – https://eskaro.ua/main/eskaro_ukraine/
86 – https://www.flugger.com/en/news/fl%C3%BCgger-gains-majority-stake-in-Eastern-European-paint-group/
87 – https://elmemesser.com.ua; https://www.elmetrans.ee/public/press-center/news-archive/77-blrt-grupp-expands-its- activities-in-ukraine
88 – https://elmemesser.com.ua
89 – https://addinol.ee/ (in Estonian)
90 – https://www.addinol.ua/ru/o-kompanii/informacija-o-kompanii/ (in Russian)
91 – https://youcontrol.com.ua/en/catalog/company_details/33134358/
92 – https://www.toostusuudised.ee/uudised/2015/02/06/vaata-kes-teenisid-toostuses-enim-dividende (in Estonian)
93 – https://www.skinest.eu/
94 – https://cfts.org.ua/news/2019/12/28/v_skinest_rail_rasskazali_skolko_vagonov_sdayut_v_arendu_v_ukraine_56782 (in Russian)
17 using local partners. In March 2020 representative of the company announced that they might open joint enterprise for repair services of railway cars in Ukraina, but it depends on the market situation95.
Another part of the BLRT Grupp AS Elme Trans also invested in Ukraine, but its activities are not so significant. The company offers carriage of hazardous goods (ADR), carriage of oversize load, carriage of overweight cargo, forwarding services. At the end of 2017, its investments were around 2 million euros, and the company had 46 employees96.
Estonian logistics company ACE Logistics established its daughter company in Ukraine in April 2020. ACE Logistics Ukraine LLC works in Kyiv. The company offers road, air and maritime transport services. At the end of 2019, ACE Logistics Group AS employed 170 people in Estonia, Latvia, Lithuania, Belarus and Finland and had a consolidated turnover of 34 million euros97. The size of the investment in Ukraine is not known.
3.3.5 Wholesale and retail trade, consumer goods production
Estonian garment company Baltika AS started to work in Ukraina in 2000, and Baltika Retail Ukraina Ltd had in 2005 12 stores98. It had very ambitious plans for 2006-8, increasing the number of stores from 15 to 38 and moving to bigger shops99. Because of the economic crisis, currency exchange rate volatility and other reasons Baltika AS development in Ukraine stalled, and it decided to change strategy. In 2014 Baltika AS sold its Ukrainian daughter company Baltika Retail Ukraina Ltd to local company Ellipse group. Also was signed an agreement that BRU continues to sell Baltika production for the next five years as a franchise, in 2018 the network of 10 shops was discontinued100. From 2019 Baltika AS is in the phase of radical reconstruction.
Silvano Fashion Group bought in 2012 Ukrainian textile wholesale company Trading Company “Milavitsa”101. (More about Silvano FG later in this analysis, as their main activities are in Belarus.) Another Estonian textile company Klementi established its subsidiary LLC PTA Ukraine in 2006 and opened there their first shop the same year102. Next year PTA
95 – https://cfts.org.ua/news/2020/03/20/estonskaya_skinest_rail_rassmatrivaet_variant_sp_po_remontu_lokomotivov_v_ ukraine_57879 (in Russian)
96 – https://www.elmetrans.ee/public/press-center/news-archive/77-blrt-grupp-expands-its-activities-in-ukraine
97 – https://www.acelogistics.ua
98 – https://www.aripaev.ee/uudised/2005/04/19/ukrainas-eesti-ettevotluse-vastu-suur-huvi (in Estonian)
99 – https://www.aripaev.ee/uudised/2006/03/30/baltika-votab-ukrainas-ette-agressiivse-laienemise (in Estonian)
100 – https://majandus24.postimees.ee/2778794/baltika-muus-oma-ukraina-tutarfirma (in Estonian); https://www. nasdaqbaltic.com/market/upload/reports/blt/2019_q4_en_eur_con_00.pdf
101 – https://www.aripaev.ee/uudised/2012/12/28/silvano-sai-ukraina-monopolivastase-komitee-nousoleku (in Estonian)
102 – https://www.aripaev.ee/uudised/2006/08/10/klementi-avab-ukrainas-esimese-kaupluse (in Estonian)
18 merged with Silvano Fashion Group103.
Investors Juhan Kolk and Urmas Past bought using their firm AS ZAP Invest a department store in Zaporizhzhya in 1999104. In 2006 it still belonged to them if the media report was correct105, but it was impossible to find any later information. In 2018 successor of AS ZAP Invest joined a large Estonian firm Alexela AS. As it was very passive during several last years, we may assume that it was not controlling investment in Ukraine any more.
Estonian Bellus Furniture OÜ has a factory in Ukraine near Lviv. Bellus sells soft furniture in 6 stores- 6 in Kyiv, one in Odesa and one in Kharkiv106. Interior salon “Scandinavian home” in Kyiv is Estonian-owned store, which besides Bellus furniture also sells items produced by other Estonian companies - 4ROOM, Narma, Skano and also Swedish rge107.
Estonian furniture producer Skano opened the first shop in Ukraine in 2007108, at the end of 2016 they had three shops109. In 2017 Skano Group AS sold its Ukrainian retail subsidiary TOV Skano Ukraina in 2017 “to a company with Estonian capital operating in Ukraine”. At the same time, Skano agreed on a distribution agreement with the buyer granting them the right to sell Skano furniture in the Ukrainian market110.
3.3.6 IT sector and digital services
LIFT99 Kyiv Hub is a start-up community co-working space in the heart of Kyiv111. Estonian LIFT99 founded it112. The hub involves an international community of founders, future founders and the key people in start-up teams, including freelancers and other creatives. Maybe the amount of direct investment is not significant; however, the collaboration of LIFT99 Tallinn and Kyiv hubs leads to many cooperation projects and investments between Estonian and Ukraine in the area of start-ups and IT.
RIA.com Marketplaces OÜ is a technology company with headquarters in Estonia which
103 – https://www.silvanofashion.com/attachments/article/67/2007_q3_en_uni.pdf
104 – https://www.aripaev.ee/uudised/1999/10/07/eestlased-viivad-miljonid-ukraina (in Estonian)
105 – https://www.postimees.ee/1550033/tartu-arisaurused-peavad-rantjeepolve (in Estonian)
106 – https://www.bellus.com.ua/contacts/
107 – https://scandinavianhome.com.ua/en/content/4-about-us
108 – https://arileht.delfi.ee/news/uudised/viisnurk-laieneb-ukraina-kaudu-euroopasse?id=17482441 (in Estonian)
109 - https://nasdaqbaltic.com/market/upload/reports/skn/2017_ar_en_eur_con_00.pdf
110 – http://www.baltic-course.com/eng/baltic_states_cis/?doc=128383
111 – https://www.lift99.co/kyiv-hub
112 – https://www.lift99.co/tallinn
19 specialises in trusted web marketplaces for vehicles and real estate. Group operates the largest Ukrainian online automotive marketplace (AUTO.RIA.com), online real estate marketplace (DOM.RIA.com), general classified RIA.com in Ukraine, general classifieds RIA. by in Belarus and DomRIA.eu in Baltics113. The company is owned and led by Ukrainians. It is an active participant of different IT sector activities in Estonia and visible in media. It has offices in Tallinn, Kyiv and Vinnytsia114.
AUTO.RIA (is a leading Ukrainian online automotive marketplace with its 74 million monthly browser and app visits, is not only the dominant automotive classifieds site in Ukraine but also the 9th largest automotive classifieds site in the world according to SimilarWeb ranking (https://auto.ria.com/)
DOM.RIA is a leading Ukrainian online real estate marketplace. DOM.RIA has over 178 thousand active listings of apartments and houses from real estate brokers and private individuals. DOM.RIA also has over 1,400 new developments objects (residential complexes) from real estate developers all over Ukraine. (https://dom.ria.com/)
RIA.com is the second-largest general online classified in Ukrainian. RIA.com has over 2 million active listings of anything from jobs to pets (https://www.ria.com/).
Wildix EE OÜ is headquarters of the holding of the large IT company in Estonia from 2018 and offices in several other countries115. The company moved the headquarters from Trento in Italy to Estonia looking for best business climate for an IT firm. The company develops browser-based Unified Communications solutions and VoIP products / IP PBX, for its clients in 135 countries116. Primary research and development centre of the company is working in Odessa from 2007117. Wildix also has an office in Lviv. There is no data available about the size of capital invested there.
Two more examples of Ukrainian owned IT enterprise having headquarters in Estonia but working mostly in Ukraine. One is Konversive Grupp OÜ118. The company does not have employees in Estonia. It started to work in 2018 and develops chat-bots for enterprises. The other is GlobalSource OÜ, which was registered in 2014. It also works in the IT sector and also seems not to have employees in Estonia. Estonian media reports that both have increased
113 – https://www.aripaev.ee/sisuturundus/2020/09/10/artem-umanets-riacom-marketplaces-uskumatu-aga-me-oleme- vallutanud-ukraina-hiiglasliku-turu (in Estonian)
114 – https://www.ria.company/
115 – https://tehnika.postimees.ee/4499699/itaalia-populaarne-suhtlusteenus-kolis-oma-peakontori-eestisse
116 – https://www.wildix.com/about-wildix/, see also https://odessa-journal.com/wildix-the-world-leader-of-unified- communications-and-webrtc-chooses-odessa-as-its-rd-center/
117 … https://www.wildix.com/ua/
118 – https://konversive.com/
20 their turnover during the last years119. They both represent the now typical solution for IT companies to use Estonian business environment for the headquarters, British Virgin Islands or another place for leading owner company and development centres in Ukraine.
Estonian Burfa Capital OÜ includes a group of enterprises. It has headquarters in Estonia and offices in Belgium, San Marino and Ukraine. One of the parts of the group is Codiv OÜ120 with Codiv Ukraine LLC as its Ukrainian branch121. The 2017 established company web materials are not very informative about the work in Ukraine. According to Burfa Capital OÜ main website, they build high load cloud systems in the field of blockchain and internet marketing. It also develops mobile applications. Burfa Capital OÜ was initially active mainly in the area of cryptocurrency mining, and during last years it has diversified its activities. Maybe the lack of information about group enterprises reflects the transitional phase of development.
Estonian car-sharing and food delivery company Bolt (formerly Taxify) works in Kharkiv, Kyiv, Lviv, Dnepr, Zaporizhzhia and Odesa122. Size of such companies’ investments, as a rule, is not significant, but their role in the service industry is visible. Bolt cooperates with the LIFT99 Kyiv Hub. This summer they got much publicity having a conflict with the City of Kyiv government over the scooters123.
3.3.7 Agriculture and food industry
Letofin AS is the Estonian wholesale company with long experience of commodity trading, including with Ukrainian feed corn124. Seedco Group was founded in 2014 in the partnership of Letofin Group and Ukrainian private investors for niche products like birdfeed and birdfeed ingredients. The company headquarters is located in Estonia together with Letofin AS. It has an office in Ukraine in Chernihiv. In summer 2016 Seedco launched a brand-new grain cleaning facility located in Ichnya in Chernihiv Region125.
Viravix Group OÜ is an Estonian engineering company active in the food processing industry, dosing and mixing of dry ingredients and explosion protection. It delivers technology solutions
119 – https://www.aripaev.ee/uudised/2020/12/06/need-eesti-firmad-kasvatasid-suvega-kaivet-ule-1000 (in Estonian)
120 – https://burfa.com/?gclid=CjwKCAiAq8f-BRBtEiwAGr3DgQG7USYlALZ6nrtl5BJBACs9CalE_ tzOpbsCZrOkrpViNYefPKVNUBoCQdIQAvD_BwE#home
121 – https://codiv.net/
122 – See https://bolt.eu/en/cities/kyiv/ and others.
123 – https://majandus24.postimees.ee/7039178/bolt-ei-noustu-kiievi-linnapea-kriitikaga-ja-jatab-toukerattad-tanavatele (in Estonian)
124 – https://www.letofin.ee/index.html
125 – https://www.seedco.com.ua/about.html
21 and projects from 2014126. Their branch in Ukraine is LLC Viravix Ukraine. Headquarters in Tallinn is a small office, the main activities of the company are in Ukraine.
Large Estonian-managed agricultural company Trigon Agri Group entered Ukraine in 2006; it also worked in Estonia and Russia. Investment firm Trigon Capital from Estonia mobilised finances mainly from Scandinavia and had own small participation. It established a significant presence in Ukrainian cereal farming, storage and trading operations and owned in 2010 170,000 hectares of land in Ukraine, Russia and Estonia. Trigon Agri Group operated then in Ukraine five separate elevators with the total storage capacity of the grain 322,000 tons. In the middle of this decade, the company started the reconstruction as the political and economic instability caused losses. Trigon Capital step-by-step moved out of the business, including the management. In March 2018, the company replaced the CEO and several managers, closed down Tallinn offices and successfully transferred all competencies to Kyiv office. In November 2018, the company’s largest shareholder Mabon (controlled by Petr Krogman, Chairman of BoD of Agromino, Denmark) increased its holdings in the company to 43% and announced a mandatory cash bid to acquire all remaining shares and warrants of the company. Today Agromino management is based in Ukraine and the Czech Republic127. In September 2020 the company decided to leave Nasdaq Stockholm Exchange, where it was from 2007. Currently, Agromino has in Ukraine four elevators with total storage capacity 121 thousand ton, 55.3 thousand ha agricultural land and a dairy farm near Kyiv with 1200 cows128. It was more Scandinavian entering the Ukrainian market with the support of the Estonian Trigon Capital than the real Estonian FDI.
3.3.8 Other services
CIVITTA International OÜ is working in Ukraine from 2013. The group is employing over 300 consultants in 24 offices across 15 countries. Company’s international headquarters is in Tartu, Estonia. Other CIVITTA offices are in Estonia, Latvia, Lithuania, Finland, Poland, Ukraine, Romania, Moldova, Russia, Belarus, Serbia, Slovakia, Bulgaria, North Macedonia and Denmark with a sales office in the United Kingdom129. LLC CIVITTA Ukraine works from 2013, with the hopes aim to help Ukraine’s government institutions and companies adapt to European standards. Today, the local office has 35 people. Areas of focus in Ukraine are government reforms adapting foreign practices from abroad, particularly in the areas of health care and transport. CIVITTA in Ukraine as in other countries also helps start-ups, SMEs and NGOs to attract public, non-public and EU funding. LLC CIVITTA Ukraine is also active in shaping the country’s start-up and innovation ecosystems. The team is involved in launching several incubators and accelerators, such as the Agro Hub. The team also works
126 – http://www.viravix.com
127 – https://www.agromino.com/about/
128 – www.fixygen.ua/news/20200716/agromino-podat.html
129 – https://civitta.com/company
22 in the corporate sector, with traditional management consulting services, data analytics, and organisational innovation programs130.
SupplierPlus Group OÜ, a financial technology company, based in Estonia was founded in 2015 (under the name Inwise) to ensure that companies participating in robust supply chains have easy and affordable access to working capital. The company operates two invoice financing platforms — Inwise.co for Supplier-led factoring and SupplierPlus.com for Buyer-led reverse factoring131. The company now has office also in Ukraine, but there is no information about the size of the investments 132.
US Invest AS is an Estonian private investment holding which belongs to Urmas Sõõrumaa. The formal central office is in Zurich (Switzerland). They have made several plans to enter Ukraine with different projects, for example, in retail trade, but some plans have not realised. In 2009 Urmas Sõõrumaa told media that he had bought some Ukrainian security firms with close to thousand employees133. Today US Invest works in Ukraine mainly through its security service USS Security Eesti AS, which has headquarters in Estonia and belongs to USS Group OÜ. The USS Security Ukraine has been operating since 2008. They have licenses to offer services in areas of physical security, technological security, installation of security equipment, video monitoring, installation and maintenance of fire alarm systems134. At the beginning of 2014, USS Security Ukraine had around two thousand employees135. Now, after difficult years, their presence is smaller. Among the USS Security Ukraine clients in Kyiv are also diplomatic representations of Estonia, Italy and Finland136.
Smaller firm OÜ The also has worked in the security services area137. They provided some services for the Eurovision Song Contest organisers in Kyiv in 2017. Their CEO Toomas Hirve is well known for his comments and analysis of the Ukrainian business climate in Estonian media138.
In 2009 Baltlander OÜ (74%) from Estonia together with then Dnepropetrovsk municipality
130 – https://civitta.com/company
131 – https://www.supplierplus.com/about
132 – https://supplierplus.com.ua/about
133 – https://www.aripaev.ee/uudised/2009/09/14/ukraina-turvaari-soorumaa-olekors (in Estonian)
134 – https://uss.ua/en/about-us/
135 – https://www.aripaev.ee/uudised/2014/03/11/soorumaa-palkab-ukrainas-juurde-kuni-500-turvatootajat (in Estonian)
136 – https://uss.ua/en/about-us/
137 – http://www.outhe.eu/company
138 – https://kroonika.delfi.ee/artikkel/78203200/intervjuu-ropp-korruptsioon-vaesus-ja-tume-tulevik-ehk-eesti-arimees- raagib-elust-ukrainas-rahvas-utleb-et-eurovision-on-pidu-katku-ajal (in Estonian)
23 (26%) started to work in firm ООО Budivelni Vidkhody. The company operates construction waste depositary. In 2016 the city left the company, which after that 100% belonged to Baltlander OÜ139. In 2018 Dnipro city government initiated court case to end firms agreements. The company was still active in June 2019 (Facebook site), its webpage www. sodt.com.ua does not respond now, but it is still a registered firm140. Another company belonging to Jüri Jaakson is IP Multistar – Dnepr which deals with leasing of the equipment besides OOO Budivelni Vidkhody in Dnipro141.
Some Estonian business people have started projects in different areas but found the Ukrainian business environment difficult. For example, well-known Estonian investor Tõnis Palts has initiated or participated in several projects in Ukraina but has had mostly negative results. He tried solar energy, taxi services mobile application, hotel and resort business142.
3.4 LONG-LASTING DISPUTES
Several Estonian projects in Ukraine had to face serious problems. Especially damaging has been the widespread practice of illegal takeover of the enterprises. Sometimes it is done by the local Ukrainian partners of Estonian businesses without which entering the market has been very difficult. Corrupt officials of local and national level government also played a role in some such cases. There are cases of selective use of legislation and control procedures by different agencies. Some investors are involved in lengthy and costly court processes.
The most publicised negative cases are a Kyiv shopping mall claimed by the property developing company Arricano of Estonian businessman Hillar Teder, payment of compensation for the closure of the casinos of Olympic Entertainment Group, and the state of play related to the Litus Maris project belonging to Estonian businessman Marcel Vichmann143.
Marcel Vichmann’s company Litus Maris planned to build a 12-kilometre promenade and an aquatic centre along an undeveloped seafront in the small town of Zatoka in the Odesa region of Ukraine in 2015 for €50 million. The local government accepted the project and
139 – https://dengi.informator.ua/2018/07/24/gorsovet-dnepra-hochet-vygnat-estontsa-s-poligona-stroitelnyh-othodov/ (in Russian)
140 – https://vkursi.pro/account/register?returnUrl=%2Fcard%2Findex%2Ftov-budivelni-vidkhody-34365747
141 – https://youcontrol.com.ua/en/catalog/company_details/34408502/
142 – https://arileht.delfi.ee/news/uudised/tonis-palts-hankis-1-17-miljonit-eurot-lisaraha-ukraina-luksuskuurordi- arendamiseks?id=58372220 (in Estonian); https://majandus24.postimees.ee/705868/palts-voin-vaikselt-ukraina- paikeseelektrijaama-projekti-siseneda (in Estonian); https://www.kinnisvarauudised.ee/uudised/2012/01/17/ukraina- elektrijaama-ehitavad-eesti-arimehed-soovivad-jaada-saladusse (in Estonian)
143 – https://news.err.ee/687320/minister-urges-ukraine-to-treat-large-estonian-investors-fairly
24 Vichmann’s company managed to build one kilometre of the promenade, after which the project got bogged down in problems related mainly to corruption and crime.
Arricano Real Estate, the core owner of which is Hillar Teder, wishes to get back its stake in the Sky Mall shopping centre in Kyiv. The conflict dates back to 2010, when Panorama Grupp, indirectly held by Teder, sold its 51 per cent holding in Sky Mall as Teder wished to raise additional money for development. The agreement on the sale of the shares contained a provision entitling the seller to buyback of the shares. The new owner has refused to sell the shares claiming that Teder has violated their agreement. The LCIA international court of arbitration in London ruled in 2016 that the shares must be returned to Arricano144, but this has not happened yet. In August 2020 Temporary Special Commission of the Verkhovna Rada of Ukraine on Protection of Investors’ Rights discussed the conflict and instructed General Prosecutor’s Office of Ukraine to investigate the situation with Arricano Real Estate PLC. The Commission published the decision on its website on 30 November 2020145.
In 2009, the parliament of Ukraine imposed an indefinite ban on the operation of casinos in that county and revoked all gaming operator licenses issued to casinos. As a result, the listed Estonian casino operator Olympic Entertainment Group had to close 24 casinos. OEG started its investments in Estonia 2004146. In 2008 the Group had around ten per cent of its turnover in Ukraine147. In 2013, Olympic reached an agreement with the authorities in Ukraine to set up a commission to review a claim for €38.5 million in damages. The matter continues to wait for a solution148. In 2018 Odyssey Europe AS became full owner of listed Estonian casino operator Olympic Entertainment Group. The real company to obtain OEG was the investment firm Novalpina Capital, and Odyssey Europe was just a company established for the takeover149. In August 2020, the President of Ukraine signed a Law “On state regulation of activities in the organisation and conduct of gambling” opening again possibilities to operate casinos 150.
Jüri Seilenthal, head of the department for economic affairs and development cooperation at the Estonian Foreign Ministry said in 2018 that since these matters have not been solved yet, it would be “very difficult” for him to advise Estonian businesspeople to invest money in
144 – https://www.aripaev.ee/uudised/2016/05/12/hillar-teder-sai-londonis-olulise-kohtuvoidu (in Estonian)
145 – https://www.rada.gov.ua/documents/tskVRU/tsk_zpInvest (the text of the decision is in Ukrainian)
146 – https://www.aripaev.ee/uudised/2009/11/15/ap-5-aastat-tagasi-olympic-sisenes-ukraina-hasartmanguturule (in Estonian)
147 – https://www.aripaev.ee/uudised/2011/02/28/olympic-marksonaks-oli-efektiivsus-ja-turuosa-kasv (in Estonian)
148 – https://news.err.ee/687320/minister-urges-ukraine-to-treat-large-estonian-investors-fairly
149 – https://news.err.ee/868547/odyssey-europe-completes-takeover-of-olympic-entertainment-group
150 – https://ukraineinvest.gov.ua/news/gambling-business-is-now-legalized-in-ukraine/
25 Ukraine151.
In November 2019 during a meeting with Ukrainian president Estonian president Kersti Kaljulaid again pointed to the need to protect foreign investments in Ukraine152. It indicates that the conflicts were again on the list on the high political level. However, there are no real changes in these long-lasting disputes at the moment of conclusion of this analysis.
4. BELARUS
During the first decade of the new century, many Estonian firms started to invest in Belarus. They had established themselves in most cases previously in Latvia and Lithuania. Immediate neighbour to Latvia and Lithuania Belarus but also Ukraine, and Georgia seemed to be the next step in their international advancement. Estonian firms also felt that Estonian EU membership strengthens their positions. Because of the much less active political relations between the countries and challenging business climate, the progress of Estonian investors in Belarus was slower. It was not many companies entering at the same time as it was in Ukraine.
Economic crisis, devaluations of the Belarus currency and demanding conditions of the state-dominated economy changed the dynamics at the turn of the decade. Estonian FDI in Belarus stayed on the same level for the whole period after 2010, as we can see from Chart 5 based on Bank of Estonia data. Information from Embassy, companies, and media shows that the investments from Estonia are mainly in the manufacturing industry and real estate development. There is much less information in the media about the activities of the Estonian firms there, on many occasions, they keep low public profile, especially Estonian companies owned by Belarus people.
National Bank of Belarus data about Estonian investments in Belarus at the beginning of 2019 is similar to Bank of Estonia data, which put Estonia to the relatively high ninth place among the then EU- 28 member states. According to the Belarus sources, Estonian capital was in 2018 involved in 196 Belarus enterprises153.
151 – https://news.err.ee/687320/minister-urges-ukraine-to-treat-large-estonian-investors-fairly
152 – https://www.aripaev.ee/uudised/2019/11/26/kaljulaid-ukrainasse-tehtud-investeeringud-peavad-olema-kaitstud (in Estonian)
153 – https://www.aripaev.ee/uudised/2018/07/06/eesti-kuulub-valgevene-investorite-esikumnesse (in Estonian)
26 Chart 5: Estonian FDI stock in Belarus, end of the year, million euros, Bank of Estonia154
It is too early to analyse the infl uence of COVID-19 crisis and related economic diffi culties, and also the current internal political turmoil in Belarus. Bank of Estonia data shows that Estonian FDI has decreased in Belarus- from 87.1 million euros at the end of 2019 to 79.2 million euros at the end of September 2020155.
Chart 6: Selected countries FDI stock in Belarus, 1.1.2019, Million USD, National Bank of Belarus
4.1 INDUSTRY AND WHOLESALE TRADE
One of the prominent Estonian companies working in Belarus is Silvano Fashion Group. It develops lingerie, beachwear and underwear. Branded products the Group sells through the wholesale channel, franchised stores and own retail operated under the Milavitsa and Lauma Lingerie retail chains. Silvano FG brands are well-known in Belarus. It also exports lingerie products to 23 diff erent countries, including Russia, Ukraine and the Baltic States.
154 – https://statistika.eestipank.ee/#/et/p/146/r/2293/2122
155 – https://statistika.eestipank.ee/#/et/p/146/r/2293/2122
27 Silvano FG manufacturing capacity is Milavitsa and Junona lingerie factories, Gimil factory for jersey and knitted garments all located in Minsk, Belarus and also Lauma Lingerie factory located in Liepaja, Latvia. Group’s main logistic centre is in Minsk, Belarus.
Silvano FG total assets were at the end of September 2020 41.6 million euros, 10.2% down from the end of 2019156. Group’s total sales amounted to 56.9 mill euros in 2019, representing the 8.5% decrease as compared to the same period for the previous year157. Its sales in Belarus in 2019 were 16.1 million euros. Silvano FG has 61 shops in the country, which is signifi cantly less than before. At the end of September 2020, SFG had 1777 employees, down from 1888 at the end of 2019 and 2073 at the end of 2018158.
Latest not so good business results of the company refl ect the diffi cult economic situation at its main markets, including Russia and especially the infl uence of the current Covid-10 crisis.
Chart 7: Silvano Fashion Group (www. https://www.silvanofashion.com/group/organization/)
156 – https://cns.omxgroup.com/cdsPublic/viewDisclosure.action?disclosureId=965038&messageId=1215970
157 – https://www.nasdaqbaltic.com/market/upload/reports/sfg/2019_q4_en_eur_con_00.pdf
158 – https://majandus24.postimees.ee/7121605/silvano-kaotas-pea-90-protsenti-kasumist (in Estonian)
28 A positive example of successful work in Belarus has been Vitebsk Sawmill, owned by Kaamos Timber (until 2019 Woodbakers AS), part of the Kaamos Group 159. It is (together with Silvano) the most significant Estonian investment in Belarus. Kaamos started to work in Belarus from 2004. In 2012, investment in Viciebsk reached 16 million euros. In 2019 Vitebsk Sawmill opened second sawing line. They expected in 2019 turnover of around 34 million euros. After 15 years of work, the enterprise is a prominent player of the Belarus timber industry with 200 employees.
The main issues the company faced in Belarus during the first years were related to the dominance of the state-owned enterprises and administrative decisions about the resources, in particular timber. Executives of the Kaamos Group met Belarus minister of forestry in 2018 trying to solve their problems. In 2018, its production was 170 thousand cubic meters and 95 % of it was exported, including to Estonian market. In April 2020 Kaamos Group announced further plans for Belarus- building with the EBRD loan a new plant near the city of Mozyr. The project costs 25 million euros. Kaamos Timber production capacity in Belarus rises from current 250 thousand cubic metres to 450 thousand cubic metres a year.
Kaamos also created in 2012 a company OÜ Mogipuu to work in the forests and supply raw timber to Viciebsk sawmill. In 2016 Äripäev newspaper reported that this company was not able to work in a state dominated Belarus forest industry and is not active any more160.
Kaamos Group is also active in the real estate development business, and Group’s leader was in June 2020 very optimistic and talked even about “breaking records”161, it was of course, before the political crisis after August presidential elections.
Another Estonian timber company Thermory AS also has a sawmill in Belarus, no detailed public data about this investment is available162.
Smaller Estonian timber company AS Memphis started their sawmill in 2002 also in Viciebsk region – city Verhnedvinsk. In 2005 they had 25 employees and produced 10 thousand cubic metres a year. Most of the production is exported, primarily to Estonia163. The company in Estonia has de facto closed down in 2019; there is no information available about the destiny of the sawmill in Belarus.
Another smaller player in Belarus timber industry was OÜ Estobir which had a sawmill in
159 – www.vitebsk-lesopilka.com
160 – https://www.aripaev.ee/uudised/2016/12/01/kaamose-mehe-voimas-lend (in Estonian)
161 – https://www.aripaev.ee/uudised/2020/06/28/korterite-muuk-on-tugevalt-pidurdunud (in Estonian)
162 – https://www.metsamajandusuudised.ee/uudised/2020/03/03/thermory-uus-juht-hakkab-burokraatiat-looma (in Estonian)
163 – https://www.aripaev.ee/uudised/2005/11/20/sylvesteri-endised-omanikud-saevad-valgevenes-okaspuupalki (in Estonian)
29 Minsk oblast during 2003-8. Because of the troubles in Belarus, the mother company went bankrupt164.
SOOO BetonKompleks provides Beton and its transport services in the Mogilev oblast, and it belongs to Estonian OÜ OperaPrima Holding165.
In 2016 leading Finnish painting materials company Tikkurila Oy sold its factory and sales branches in Belarus and Ukraine to Estonian company FarbaHouse. The company has a production unit in Ukraine and distribution networks in Ukraine and Belarus. The branch in Belarus is Unitary Enterprise «Кraski Kolorit» with headquarters in Minsk, and it deals with wholesale and retail sale operations. The company owns a network of colour salons166.
Estonian Eskaro AS, which is part of the holding Eskaro Group AB started to invest in Belarus in 1997 when production of Condor paint and varnish started in Brest Free Economic Zone167, where it was one of the first enterprises. From 2007 it is part of the Swedish Eskaro Group AB.
Estonian company Filter AS 168started to work in Belarus in 2004 and has from 2006 a branch there169. The company owners are of Finnish origin. During first years the branch in Belarus was one of the leading development engines of the company rapid growth. The company also works in Finland, Latvia, Lithuania, Russia and Bulgaria. FILTER specialises in delivering products, solutions and services in the field of energy and water.
European Agricultural Agency OÜ is an Estonian company which belongs to two Belarus business people. It works in the agricultural sector, predominantly in Belarus and has developed fast. One of the main areas of work is selling agricultural machines. European Agricultural Agency OÜ sales were last year 16.7 million euros and assets over 7 million euros170.
4.2 SERVICES AND TRANSPORT
It is also essential for other Estonian investors that Sorainen Law Office is besides three Baltic States also working in Belarus. They are specialised to work with business matters.
164 – https://dea.digar.ee/article/aripaev/2016/12/19/6.10, Toormeprobleemid Valgevenes viisid pankrotti (in Estonian)
165 – https://www.aripaev.ee/uudised/2016/12/20valgevene-pole-eestlasi-hellitanud (in Estonian)
166 – https://www.tikkurila.by/dlya_vashego_doma
167 – https://condor.by/kantakty/
168 – https://filter.ee/en/
169 – https://www.kaubandus.ee/uudised/2010/01/13/filtri-edu-voti-peitub-valgevenes (in Estonian)
170 – https://www.aripaev.ee/uudised/2020/10/01/valgevenelased-kasvatavad-kodust-ari-eesti-kehaga (in Estonian)
30 Sorainen Law Office publishes overviews of the developments in the country, which are a valuable source of information for investors171. Sorainen Law Office cooperated with EBRD and several major international companies like Google in their activities in Belarus. It also has worked with companies in their relations to the Great Stone business park.
Another active legal firm alliance in three Baltic States and Belarus is COBALT. Their history in Estonia dates back to 1990, in Latvia to 1994, in Lithuania to 2001 and in Belarus to 2008172. COBALT is also oriented to offer services to businesses.
CIVITTA International OÜ consultancy firm opened its office in Belarus in 2013. Currently, over 25 analysts and consultants are working in LLC CIVITTA BY. It is one of the leading management consulting and market research companies in Belarus. They work with private companies, large state-owned enterprises, international organisations and start-ups to whom they offer market research, data analytics, strategy, including marketing and sales strategy and business planning, digital transformation, implementation and PMO and other services173. LLC CIVITTA BY also hosts the largest PR and branding event in Belarus “Brand of the year”.
Baltic Ticket Holdings AS (Piletilevi AS) took over Belarus entertainment ticket selling company Kvitki By at the beginning of 2018. It had then 240 ticket offices all over the country. Again, no public data about the size of the investment. From 2013 the owner of Baltic Ticket Holdings AS is Russian PMI. They work with Estonian origin software. At the end of 2019, there was talk about Piletilevi AS takeover by Estonian UP Invest174. However, it did not happen or is still in the phase of consultations with the competition authorities of the Baltic States. UP Invest OÜ website175 does not mention ownership of the Piletilevi AS.
BREM property maintenance company website announces that they also have branches in Belarus, no other data is available176.
At the end of 2019 ERGO Insurance Company in Belarus was sold to the new Bulgarian owner Euroins Insurance Group. Before that 61.5% of the company was owned by the ERGO Baltic States units. Its capital was at the end of 2018, 5.2 million euros177.
171 – https://www.sorainen.com/publications/belarus-latest-legal-and-business-news/
172 – https://www.cobalt.legal/en/about/about/
173 - https://civitta.com/countries/belarus
174 – https://majandus24.postimees.ee/6802871/margus-linnamae-ostis-piletilevi (in Estonian)
175 – https://upi.ee/ (in Estonian)
176 – http://www.brem.ee/et/ (in Estonian)
177 – https://en.delfi.lt/business/ergo-group-exits-belarusian-market.d?id=81194923
31 Estonian logistics company ACE Logistics works in Belarus from 2011, and they own there company ACE Logistics BEL FLLC. In 2018 its part of the whole group sales was 4%.
Estonian bus company AS Lux Express which belongs to the Mootor Grupp opened its branch in Belarus in 2019178. It strengthened the company’s role as leading bus services provider on the regional lines with destinations in Finland, Russia, Baltic States and Poland.
4.3 IT SECTOR
Belarus had before the current political crisis fast-growing IT sector, which has been connected to the international markets and cooperates with foreign partners, including Estonian. Most visible investor Estonian IT company Helmes first established its daughter unit in Belarus. Afterwards, in 2018 Helmes bought rather big local company SolbegSoft, which added strong presence at the US market and many skilful programming staff to the Estonian company capabilities. As a result, Helmes has now twice larger market presence and can participate in large tenders179. According to the media, the cost of SolbergSoft was over 2 million euros180In September 2020 Helmes CEO Jaan Pillesaar announced that they have 450 employees in Belarus181.
Another Estonian IT company owned by Belarussian investors and having a strong presence in Belarus is Bamboo Group OÜ182. The company works in several countries, but most of the development work remains in Belarus where the company has a branch OOO “Bambu Grup” with research and development centre. They have more than a hundred employees183. As typical to the IT sector, the related FDI is not very large. One of the most well-known activities in Belarus is the platform of e-services for education Znaj.by184.
One of the most exciting Estonian telecom technology projects with Belarus was Modesat Communications OÜ, which was awarded as the most innovative enterprise in Estonia in 2009185. This start-up was created by Estonian and Belarus investors based on the technical
178 – https://www.aripaev.ee/uudised/2019/10/15/lux-express-laienes-valgevenesse (in Estonian)
179 – https://www.aripaev.ee/uudised/2018/10/08/helmes-vallutab-maailma-valgevene-kaudu?utm_source=copypaste; https://majandus24.postimees.ee/6423854/helmes-ostis-250-tootajaga-valgevene-ettevotte
180 – https://www.aripaev.ee/majandustulemused/2019/07/02/helmes-suurendas-kasumit-kolmandiku-vorra (in Estonian)
181 – https://arileht.delfi.ee/news/uudised/jaan-pillesaar-targad-tootajad-eestisse-ei-tule?id=91212413
182 – https://bamboogroup.eu/company-overview/
183 – https://companies.dev.by/bamboo-group-ou
184 – https://bamboogroup.eu/znaj-by-among-100-best-edtech-companies/, the website is https://znaj.by/
185 – https://www.tallinn.ee/est/ettevotjale/uudised?id=27657 (in Estonian)
32 solutions first prepared in Belarus. The company had a research and development centre in Gomel. It also worked in the US and Israel, involved Russian and Italian specialists186. There were expectations of a massive breakthrough in the world markets. It did not happen, and the company worked finally only in Estonia and the US before sold in 2012 to American firm Xilinx187.
Estonian RIA.com Marketplaces OÜ operates general classifieds website RIA.by in Belarus188. The web platform uses the same model as the ones in Ukraine189. (The activities of RIA.com Marketplaces OÜ are described in part 3.3.6 of this report)
Estonian car-sharing company Bolt operates in Minsk190. No public data about the investments are available.
Estonian Hansab Group works in Estonia, Latvia, Lithuania, Finland and Belarus, all together it has nine enterprises. It offers security, payment and automatisation solutions (for example cash machines and payment terminals) to banks, transport enterprises, trade companies and public authorities. Hansab offers consulting, software development, integration, sales of hardware, project management and after-sales services191. Hansab moved to Belarus in 2012 after establishing itself also in Ukraine192, where it does not operate any more - Hansab TOB Ukraine worked in 2009-13193. It is a small representation194, not a large enterprise, however, so the investment is minimal.
Not all the projects were successful or lasted long. Large Estonian construction company Nordecon (previously Eesti Ehitus) had development projects in Belarus, but they closed their last activities in there 2011 as a result of the economic crisis195. Then Estonian owned Olympic Entertainment Group opened very first casino there in 1962006 . It left Belarus
186 – https://majandus24.postimees.ee/22118/skype-i-meeste-firma-saab-uue-juhi (in Estonian)
187 – https://www.err.ee/352010/asi-muus-tehnoloogiafirma-modesat (in Estonian)
188 – https://www.ria.company/
189 – https://www.ria.by/
190 – https://bolt.eu/et/cities/
191 – https://www.hansab.ee/et/ettevottest (in Estonian)
192 – https://arileht.delfi.ee/news/uudised/ukrainas-kanda-kinnitanud-hansab-sihib-valgevenet?id=39424367 (in Estonian)
193 – https://pdfslide.net/reader/f/hansab-group-annual-report-2015 (in Estonian)
194 – https://pdfslide.net/reader/f/hansab-group-annual-report-2015 (in Estonian)
195 – https://www.aripaev.ee/uudised/2011/05/11/nordeconi-kahjum-neli-senti-aktsia-kohta (in Estonian)
196 – https://www.aripaev.ee/uudised/2009/11/15/ap-5-aastat-tagasi-olympic-sisenes-ukraina-hasartmanguturule (in Estonian)
33 closing its only casino in 2017 after several years of diffi culties197 and below expectations fi nancial results.
5. GEORGIA
Estonian investors started to look for investment opportunities in Georgia after the revolutionary events in 2003. Estonian investments in Georgia were according to Georgian National Statistics Offi ce around 5 million USD before the Russian aggression in 2008. After several years of standstill after 2014, the FDI infl ow from Estonia is visible (look to Chart 7) but on the lower level than to Ukraine and similar to Belarus. According to the Georgian Statistical Offi ce data, Estonian FDI stock there is 98.5 million USD198. For some reason, FDI in Georgia are not separately refl ected at the Bank of Estonia public website but included among other countries category. Estonian FDI in Georgia is according to the Georgian offi cial statistics larger than Latvian or Lithuanian (see Chart 8). We also have to remember that many investments in Georgia arrived through other countries like Cyprus, Netherlands, AUE or Panama so that the full picture is probably diff erent.
Several Estonian investors were looking for projects in Georgia as they hoped to use regional connections with Armenia and Azerbaijan. This approach did not work out; the political situation in the Southern Caucasus area is complicated.
Estonian investors in Georgia stress the need to know local strong cultural traditions, including the famous Georgian hospitality, and ways to do business, the importance of personal relations and fi nding good local employees199.
197 – https://www.aripaev.ee/borsiuudised/2018/03/01/lati-jatkab-olympicu-kasumivedurina(in Estonian
198 – https://geostat.ge/en/modules/categories/191/foreign-direct-investments
199 – https://www.aripaev.ee/uudised/2011/04/20/usk-kaukaasia-eestisse-vangub?utm_source=copypaste (in Estonian)
34 Chart 8: Estonian FDI infl ow in Georgia, Georgian Statistical Offi ce, Mill USD200
Chart 9: Baltic States FDI stock in Georgia 31 December 2019, Georgian Statistical Offi ce, Mill USD201
The biggest Estonian investor in Georgia is Skinest Group led by Yevgeni Ossinovski, which is active in railway transportation and services, energy and real estate development202.
Skinest Group with other partners has invested signifi cant sums into development of the Tbilisi Hill residential area together with a golf course. The project covers the area of 331 hectares. At the opening of the construction of Tbilisi Hills Golf & Residences Yevgeni Ossinovski declared that the total costs of the project are around one billion euros. Investments before the start of the works were 33 million euros. The fi nal goal of the project is 500 family houses and 2500 apartments203. Among the partners are also Estonian investor Marcel Vichman, and Kaamos Group, which participated in the preparation of the project204.
At the end of 2017, there was information that Skinest Group invested in Georgia around 60 million euros. They also had setbacks - for example, Skinest Group made an unsuccessful investment 32 million euros into railway business to transport oil products to Bathumi port, which they had to withdraw later205. Group website still refl ects that they have some railway business in Georgia (LLC Skinest Rail Georgia)206.
200 – https://geostat.ge/en/modules/categories/191/foreign-direct-investments
201 – Ibid
202 – https://forbes.ge/news/5065/The-Investor
203 – https://www.aripaev.ee/uudised/2018/06/09/ossinovski-ja-vichmann-ehitavad-gruusias-rikaste-linnaosa (in Estonian)
204 – https://www.aripaev.ee/uudised/2018/09/26/ossinovski-gruusia-miljardiprojekt-sai-nurgakivi (in Estonian)
205 – Ibid.
206 – https://www.skinest.eu/en/who-we-are/about-us.html
35 Skinest Group owner Oleg Ossinovski and his partner Marcel Vichmann entered hydropower stations sector. Skinest Hydro is a holding company, whose subsidiary companies develop, build and operate hydro energy plants in Georgia. In September 2013 Yevgeni Ossinovski told Estonian Äripäev newspaper that he plans to invest 150 million euros to the Georgian energy market and build 100 MW power generation capacity in 5 years207. The main sites of investment were the 6.6 MW Kintrishi hydroelectric power station and the 17.5 MW Lakhami hydroelectric power plant. Kintrishi HPP is currently under operation. Skinest Hydro AS has for now exited Lakhami HPP project208. In 2018 the company owned three power stations209. The results of the work are more limited than the original statements.
Estonian investor Marcel Vichmann in 2018 reported about the conclusion of the profitable housing project Jikija House in Tbilisi, including 27 apartment houses210. From 2007 he works in Georgia through LTD P.t.t. Tbilisi.
Estonian real estate company Port Artur Grupp started in 2007 to create an industrial park near Tbilisi and bought 60 ha of land211. War in 2008 and economic developments have led this project to freeze.
Estonian construction and real estate firm Kaamos Group has been on some occasions active on the Georgian market. Still, no detailed data is available except the participation in Tbilisi Hill project212.
Estonian businessman Urmas Grauen bought a hotel in Bakuriani. Every after some years there was news about the hotel closed and waiting for better business conditions. He knows Georgia well as an experienced alpinist with many Georgian connections213.
Real estate business in Georgia has had many problems with public authorities - changing conditions about the use of the land for one or other type of buildings, not fulfilling agreements about the construction of communications and roads214.
OÜ Germund Hulgi buys nuts from Georgia from 2005, and the company is delighted with the results of the long-term activities. Their owner Aivar Vomm also tried a hand in real
207 – https://www.aripaev.ee/uudised/2014/01/07/miks-oleg-ossinovski-gruusias-energiasse-investeerib (in Estonian)
208 – https://www.skinest.eu/hydro-stations.html
209 – https://www.aripaev.ee/uudised/2018/06/09/ossinovski-ja-vichmann-ehitavad-gruusias-rikaste-linnaosa (in Estonian)
210 – https://epl.delfi.ee/lp/marcel-vichmann-naitab-gruusias-taset?id=82719293 (in Estonian)
211 – http://www.kinnisvaraturg.ee/?c=uudised&aeg=&a_id=13057&agr=1 (in Estonian)
212 – https://www.aripaev.ee/uudised/2016/12/01/kaamose-mehe-voimas-lend (in Estonian)
213 – https://www.aripaev.ee/uudised/2011/04/20/usk-kaukaasia-eestisse-vangub?utm_source=copypaste (in Estonian)
214 – https://www.aripaev.ee/uudised/2011/04/20/usk-kaukaasia-eestisse-vangub?utm_source=copypaste (in Estonian)
36 estate business, but it failed because of the in the economic crisis related to the 2008 war215.
Estonian dairy and meat products company Maag Grupp opened its shop in Tbilisi in autumn 2010. The company considered it as a foothold to enter the market and introduce Estonian products to the customers216. There is no further information about the investment.
Estonian car-sharing company Bolt operates in Batumi, Kutaisi and Tbilisi. No public information about the details of the investment is available.
6. MOLDOVA
Estonian investments in Moldova are small and not reflected separately in the official statistics of the countries.
One of the few examples of Estonian business presence is Estonian finance services company AS luteCreditEurope217. It operates in Moldova from 2008 and does it through 100% owned subsidiary ICS OMF luteCredit SRL in Moldova218. Since opening IuteCredit is actively developing, following the objective to be a leader in consumer lending. In 2012 it was the third-largest in consumer loan focused microfinance organisation in Moldova, with 5% market share in the segment. This subsidiary had at the end of 2019 ten representations in different Moldovan cities, and it offers microfinancing services to private customers- unsecured consumer loans, and also car-secured loans. In 2019 gross portfolio of the subsidiary in Moldova was 48.1 million euros. It had in Moldova 106 employees at the beginning of 2020. At the end of the 2019 investment of the parent company in Moldovan subsidiary was 16.4 million euros219.
CIVITTA International OÜ also works in Moldova since 2014. CIVITTA Moldova works with government, state agencies and organisations, as well as with development partners. They offer management consulting services within technical assistance projects (especially evaluations and impact assessments), EU funding applications, start-up support services and business plan preparation, market research, as well as privacy compliance, consulting220.
215 – https://www.aripaev.ee/uudised/2006/05/28/kaubavahetus-gruusiaga-pusib-pahklitel (in Estonian)
216 – https://www.aripaev.ee/uudised/2011/04/20/usk-kaukaasia-eestisse-vangub?utm_source=copypaste (in Estonian)
217 – https://iutecredit.com
218 – https://iutecredit.com/md
219 – https://iutecredit.com/wp-content/uploads/2020/04/AnnualReport_compressed.pdf
220 – https://civitta.com/countries/moldova
37 Estonian company FarbaHouse owned company Kolorit Paints LLC has a distribution centre in Moldova, and its main activities are in Ukraine and Belarus221. Distribution centre means a minimal amount of investments.
Moldova is the only EaP country without Estonian car-sharing company Bolt representation.
7. ARMENIA
Estonian investments in Armenia are still minimal. Statistical Committee of the Republic of Armenia earlier reflected numbers small figures 8.3 and 8.4 million drahms on its website for 2018, but not any more. There is no Estonian official data.
From April 2019 Swedish Hydroscand Group, using its Estonian representation Hydroscand AS, opened a representation in Yerevan, Hydroscand Armenia222. Previously Hydroscand had entered in 2015 Georgia, also using its Estonian subsidiary. Hydroscand offers a complete range of hoses and fluid components and is one of the world’s leading companies in this area. It is not clear was the investment made directly from Sweden or during Estonian subsidiary.
An Estonian investment firm Gild Arbitrage informed in 2008 investors about its participating in Armenian mining industry worth nearly 20 million euros. Estonian media reported that it worked through Cyprus firm Melorama Holding. Both Armenian and Estonian media published several materials, asking whether the investment was real and whether some prominent local officials were involved in some questionable activities223. Estonian Financial Inspection at the end of 2009 fined Gild Arbitrage because it provided investors false statements about its investments to Armenia. It later became known that besides Gild Arbitrage the company of Estonian investor Marcel Vichmann First Telecom Trading (liquidated in 2016) also had stakes in Armenian Gold industry through Melorama Holding224. Ownership relations in the Armenian mining industry are very complicated to analyse, so it is impossible to confirm or deny Estonian participation there today. Mining is an essential part of the Armenian economy – around 30 % of its exports are products form this sector.
Car-sharing company Bolt works in the city of Yerevan from the beginning of March 2020. Amount of the investments is not known, but most probably it is minimal.
221 – https://kolorit.ua
222 – https://www.hydroscand.com/com_en/newspost/hydroscand-expands-to-armenia
223 – https://ekspress.delfi.ee/kuum/gildi-riskifondi-salajased-investeeringud-armeenias?id=27690909 (in Estonian)
224 – https://ekspress.delfi.ee/kuum/valetamise-eest-trahv-1000-korda-vaiksem-kui-armeeniasse-tehtud- investeering?id=28296089®=0
38 8. AZERBAIJAN
Estonian investments in Azerbaijan are also minimal.
Most of the FDI in that country have gone to oil and gas industry - out of the total FDI of 77.8 billion USD into Azerbaijan’s economy between 2000 and 2017, 66.8 billion USD, or 85.9 per cent, went to the oil sector, while 19.9 billion USD (14.1 per cent) went to the non-oil industry225.
Car-sharing company Bolt works in three Azerbaijan cities - Baku, Ganja, Sumgayit226. No data about the size of investments are available.
For more than a decade, Estonian investments into Azerbaijan land property got extensive coverage by the media. From 2006 Estonian business people put their money into land near Baku in Pirshagi. Gild Bankers organised emission of the bonds for 16.5 million euros. The land property was not officially validated, and as a result, both money and land were lost. Azeri partner falsified documents and stole a large part of the capital, and the local court sentenced him to prison227. Creditors initiated in 2010 bankruptcy of the Seaside Residence Baku OÜ. The court proceedings in Azerbaijan continue.
9. EASTERN PARTNERSHIP COUNTRIES FDI IN ESTONIA
Total Eastern partnership countries’ FDI in EU countries is small. In the three Baltic States, their involvement is more significant than in other parts of the Union. Geographical proximity, business ties from the Soviet period, numerous diasporas are the main reasons for that.
Ukrainian investments in Estonia have grown significantly (see Chart 9). At the end of 2019 Ukrainian FDI in Estonia were 306.5 million euros, at the end of September 2020 299.6 million euros228, so they are bigger than Estonian statistical FDI in Ukraine but less than the whole Estonian investment presence there including investments through Cyprus.
One of the prominent Ukrainian Law firms - Ilyashev & Partners has an office in Tallinn
225 – Azer Mehtiyev, Foreign Direct Investment in Azerbaijan’s Economy: Current Status, Development Trends and Challenges, Baku Research Institute p2 https://bakuresearchinstitute.org/foreign-direct-investment-in-azerbaijans-economy-current- status-development-trends-and-challenges
226 – https://bolt.eu/en/cities/
227 – https://www.aripaev.ee/uudised/2014/02/06/merevaatega-tung (in Estonian)
228 – https://statistika.eestipank.ee/#/et/p/146/r/2293/2122
39 (Ilyashev & Partners Õigusbüroo OÜ)229. It played a leading role in the creation of Ukrainian- Estonian Chamber of Trade (Ukraina- Eesti Kaubanduskodu MTÜ) together with Elme Messer Gaas at the beginning of 2019230. The Chamber hasn’t has been able yet to prove its ability to serve as a broad platform for enterprises. We will see its real potential after the Covid-19 crisis is over.
The most well-known involvement of Ukrainian capital in Estonia is Nitrofert AS, a nitrogen fertilisers’ plant in Kohtla-Järve. It belongs after complicated ownership change process, involving British Virgin Islands, Cyprus, Luxembourg to the Ukrainian company Ostchem Holding, owned by businessman Dmytro Firtash. Nitrofert can produce 180,000 tons of liquid ammonia and 220,000 tons of urea annually231. In 2008, it used 210 million cubic metres of natural gas from Russia, around a quarter of Estonia’s annual gas consumption. It consumed around 3–5% of electricity generated in Estonia232. In 1998, Nitrofert had approximately 600 employees, and in 2013 the company had 462 employees. As of January 2020, the company had, after not working for several years, only 48 employees. There was the information in January 2020 that the owner wishes to close the plant and transfer equipment to Ukraine233. On the Ostchem website, there is no information about troubles with Estonian enterprise. The company informs that there are 500 employees in Nitrofert AS234. It is not clear how Estonian FDI statistics reflect the capital of this enterprise.
One of the first Ukrainian investments was daughter bank of the INKO bank - INKO Balti pank. At the end of 1995, the mother bank in Ukraine lost control over it to residents235.
Ukrainian Versobank bought a bank in Estonia in 2012 from its previous Cyprus owners. On 26 March 2018, the European Central Bank revoked the licence of Versobank AS at the request of the Estonian Financial Supervision Authority. Under the law, Versobank AS (in liquidation) may no longer provide financial services. The main reason for the radical decision was bank violating the legislation against money laundering, terrorism financing and also rules for providing banking services in other EU states236.
229 – http://attorneys.ua/en/offices/; https://uecc.ee/ilyashev-partners-oigusburoo-ou/
230 – https://uecc.ee/et/esileht/ (in Estonian)
231 – http://www.ostchem.com/en/o-kompanii/proizvodstvo/nitrofert
232 – https://majandus24.postimees.ee/82819/nitrofert-ei-saa-eesti-energialt-hinnaalandust (in Estonian)
233 – https://pohjarannik.postimees.ee/6882816/nitroferdi-omanik-kaalub-seadmete-uleviimist-kohtla-jarvelt-ukrainasse”; https://www.err.ee/1028985/nitrofert-kaalub-vaetisetehase-ukrainasse-kolimist (in Estonian)
234 – http://www.ostchem.com/en/o-kompanii/proizvodstvo/nitrofert (in Russian)
235 – https://www.aripaev.ee/uudised/1996/01/04/aastavahetus-vottis-endaga-kaasa-viis-eesti-kommertspanka (in Estonian)
236 – https://majandus24.postimees.ee/4451163/versobank-pandi-kinni-mida-peaksid-tegema-panga-kliendid (in Estonian)
40 Viking Trading OÜ gained wide attention in 2018 when a three employees grain trade company had turnover over 200 million euros. Its rapid growth continued in 2019. The owner of Viking Trading OÜ is LNXA Holding, which sole owner is Ukrainian businessman Oleksii Gavrylov237. The company was founded in Estonia in 2015 and is a member of GAFTA (Grain and Feed Trade Association, UK, London). The website declares that company grain export turnover is about one million tons per year238.
In a similar way wholesale trade company Solifinance OÜ is operating in Tallinn, but its main activities are in Ukraine. Owners Oleksandr Gogol and Pavlo Adamets are from Ukraine239.
In 2017 Ukrainian food delivery company eda.ua bought through its Lithuanian branch for around 0.5 million euros Estonian Mychef.ee240. Lithuanian branch went bankrupt next year, and the Estonian firm was also closed down241.
Ukrainian large IT company ELEKS from Lviv opened its representation in Estonia to offer its programming and other services in the whole Northern Europe242. ELEKS Operations OÜ started under challenging conditions of Covid-19 crisis, so it is too early to say is the project successful.
There are several start-up companies from Ukraine registered in Estonia because their owners used the Estonian e-residence scheme.
It is difficult to find information about Belarus investments in Estonia. At the end of 2019, Belarus FDI in Estonia amounted 81.2 million euros and at the end of September 2020- 102.7 million euros243. Belarus capital is invested mainly in wholesale and retail trade, especially transit trade. In May 2018 there were close to 600 enterprises in Estonia with Belarus participation informs Estonian Embassy in Minsk website244. Many firms are small, and they often do not publish very much information about the activities, so it is impossible to find data about them from open sources.
237 – https://www.aripaev.ee/majandustulemused/2019/07/10/kolme-tootajaga-ettevote-kasvatas-kaibe-215-miljonini (in Estonian)
238 – https://www.vikingtrading.ee/
239 – https://www.aripaev.ee/uudised/2009/12/08/rikaste-top-suhkru-toel-kerkinud-ariimpeerium-juri-vips (in Estonian)
240 – https://www.aripaev.ee/uudised/2017/06/27/ukrainlased-panid-eesti-toidukullerisse-raha (in Estonian)
241 – https://arileht.delfi.ee/news/uudised/ootamatult-uksed-sulgenud-mychefi-kliendi-kommentaar-kontrollige-oma- partnereid-nad-jatsid-meile-suuri-summasid-maksmata?id=84783493 (in Estonian)
242 – https://tehnika.postimees.ee/6803789/ukraina-uks-suuremaid-it-ettevotteid-laieneb-eestisse (in Estonian)
243 – https://statistika.eestipank.ee/#/et/p/146/r/2293/2122 (in Estonian)
244 – https://minsk.mfa.ee/et/eesti-ja-valgevene-suhted/majandussuhted (in Estonian)
41 The highest-profi le Belarusian capital company in Estonia is Bamboo Group OÜ. Itisa founded in 2002 international group of IT assets operating in more than 20 countries. The company is headquartered in Tallinn, Estonia and has branches in Tallinn (Estonia), Minsk (Belarus), Nairobi (Kenya), Kuala Lumpur (Malaysia)245. The Group is registered on NASDAQ OMX. Bamboo Group OÜ off ers a wide range of IT-services to the business customers in more than 20 countries. The company is an active player in the Estonian IT community246.
From 2006 until 2013 another Belarus IT-company ITransition used Estonia as a base to move on with internationalisation, they established for this purpose a company ITransition Estonia OÜ247. Today ITransition is not present in Estonia any more, the company headquarters is in the US, from the Baltic States they are active in Lithuania248.
Chart 10: Ukrainian and Belarus FDI in Estonia, million euros, Bank of Estonia
21.2.2018 news agency Trend published an interview with Deputy Secretary-General for Business Development of Estonian Ministry of Economic Aff airs Viljar Lubi. He mentioned that Azerbaijani investments to the Estonian economy have already reached 2.2 million euros, and they are mainly attracted to the retail business and real estate. “There are 16 Azerbaijani companies in Estonia and the same number of Estonian companies working in cooperation with Azerbaijan. A number of Azerbaijani companies from logistics, consultations, IT and restaurant spheres also open their branch offi ces in Estonia,” he said249. 2017-18
245 – https://bamboogroup.eu/
246 – https://www.aripaev.ee/arvamused/2015/11/09/vladislav-herchykau-bamboo-group-eesti-it-ettevotted-vajavad-rohkem- julgust (in Estonian)
247 – https://www.teatmik.ee/en/personlegal/11324415-ITransition-Estonia-O%C3%9C
248 – https://itransition.eu/
249 – https://en.trend.az/business/economy/2863667.html;
42 Azerbaijan’s state oil company Socar had a trading office in Tallinn- Socar Trading Services Tallinn OÜ. It had at the beginning very ambitious goals but was closed soon as a part of the reconstruction of the company in changed international oil market conditions250.
10. SOME FINAL THOUGHTS
The Estonian experience of investing in Eastern Partnership countries has several success stories and also some negative examples. Investors have to be flexible as the business climate in six states is different. Their economic relations with other countries have also very much connected with their internal and external policies.
Active search for investment opportunities in the Eastern Partnership countries started in the middle of the first decade of the new century after Estonia joined the EU. Many companies have established their presence in Latvia and Lithuania and were looking for new challenges. Economic boom created free financial resources for investments at home and abroad. Many Estonian business people found that the situation in EaP countries was similar to our 1990s, and they had the experience to work in such conditions. Maybe 10-15 years ago, there was some truth in such an approach but not for long. It led to investment projects connected with more risk ready business people in Estonia, who felt that they are prepared to enter new specific markets. The new reality arrived in the middle of the second decade when many investors abandoned their dreams of a large foothold in the Eastern Partnership area. They were not able to break through nepotism and corruption.
The flow of investments from Estonia to the EaP countries is now stable and not significant, except for Ukraine. Estonian FDI in Moldova, Armenia and Azerbaijan remain minimal. There is a small group of Estonian investors who were able to be successful during the period and stay there, but several projects were closed down or sold off. New investments are made only after careful consideration, and companies avoid big risks. During last years we have seen growing activities in the IT sector, especially in Ukraine and Belarus.
The measures against money laundering have influenced investment activities in the EaP Countries. This fight is important and necessary, but sometimes it also makes it very difficult to work with any partners in the EaP countries, because the European and US banks are afraid of new punishment by the authorities because of the financial dealings with partners in Eastern Europe.
Today, there is capital from many other countries present in all Eastern Partnership countries - not mainly from Russia as 10-20 years ago but also from EU member states, US, China,
250 – https://www.aripaev.ee/uudised/2018/06/15/aserid-lahkuvad-eestist (in Estonian)
43 Turkey and other countries. So, Estonian investors have to be ready for tough competition and fight for qualified specialists, especially in the IT-sector.
COVID-19 crisis has led to the efforts of many international companies to re-arrange their supply networks to reduce dependence on Asian producers. It is a good chance for Eastern Partnership countries to attract new FDI. Eastern Partnership countries need serious progress with structural reforms, strengthening of the rule of law and other steps to convince European investors and Estonian investors in particular in the future.
Recent OECD report rightly points out: “EaP countries have made considerable strides in reducing regulatory barriers to FDI, establishing legal frameworks for entry and establishment that are attractive to foreign investors. Access to, and clarity of, laws and regulations that affect market access and treatment conditions applicable to foreign investors can be improved, and may make the FDI regimes of EaP countries less opaque to potential investors.251” On the other hand, Estonian investors need to be flexible to be able to succeed in new conditions.
Raul Mälk Senior Research Fellow 11.December 2020
The Estonian Center for Eastern Partnership (ECEAP) does not take collective positions. This analytic overview, like all publications of the ECEAP, represents only the views of its author.
251 – http://www.oecd.org/investment/Investment-perspectives-in-Eastern-Partner-countries.pdf
44 45 46