Canada-Ukraine trade deal: What exporters should know, from EDC experts

Canada-Ukraine trade deal: What exporters should know, from EDC experts

As Ukrainian Ambassador Andrii Shevchenko describes it, trade between Canada and Ukraine is “peanuts.” But the envoy hopes that will change when the Canada-Ukraine Free Trade Agreement (CUFTA) comes into force Aug. 1.

Two-way trade in 2016 was a paltry $372 million and Shevchenko thinks Canada, a G7 country, and Ukraine, a country of 45 million consumers, can do better.

Export Development Canada’s experts also see opportunities. Olga Vovk, EDC’s Senior Regional Manager responsible for Western Europe and Ukraine, said she sees some in agri-food, “where both countries are extremely strong,” as well as with equipment across the entire value chain, from port terminals to silos to grain storage and harvesting. Oil and gas is another sector where Canadian companies can offer everything from drilling rigs to pipeline equipment.

ICT is a fast-growing sector and Ukraine is a recognized IT outsourcing hub. Indeed Canadian companies already enjoy IT support from Ukraine-based specialists.

Renewable energy is yet another sector that has potential, Vovk added.

“Ukraine is ramping up its wind, solar and biomass capacity,” she said. “There’s a strong commitment from the Ukrainian government on renewable energy. For the next seven to 10 years, there will be many attractive investment opportunities underpinned by incentives such as cash-back credits for consumers for the green energy they generate. However, the country needs further reforms to align with international standards and make deals bankable and attractive to international investors. Some opportunities will be attractive for SMEs and smaller investors, but large-scale wind and solar parks will require a commitment from debt providers to be carried through, she said.

Vovk’s colleague, Senior Economist Richard Schuster, said foreign direct investment offers potential. For example, if Ukraine’s agri-food exports are to increase, Canadian companies could plug in to the processing and distribution side. He said the FTA will help with contract enforcement, but questions remain about government interference.

“That still has to be tested,” he said. “Right now, Ukraine still exports the bulk of its agri-food to the former Soviet Union and Western Europe, but that could change dramatically. Rich countries in the Persian Gulf, such as Saudi Arabia, Kuwait, Qatar and UAE, are all major food importers, as is China. Despite the potential, the agri-food sector is not efficient.”

To that list, the ambassador would add pharmaceuticals because, while Ukraine is one of the world’s most literate countries, immunization rates are very low.

“When immunization catches on, there will be a huge market for it,” he said.

Public procurement is another big area — Shevchenko estimates Ukraine puts out about 4,000 tenders per day.

“We’re still transforming to a free-market economy, so public procurement will be huge, not just with agencies, but also state-owned enterprises, including railways,” he said. “It’s like a Pacific Ocean of opportunities with $14.6 billion per year in procurement. Canadian companies will not only bring us good quality work, but they’ll help us fight corruption, which we’re very serious about. In the last two years, we’ve introduced ProZorro, a new system of procurement, which we’re very proud of. Once you’re in the system, you have as much chance as any other company.”

Regarding agricultural lands, he said government will likely offer long-term leases to encourage foreign companies with the technology and money to help Ukraine make its land more productive.

Finally, the ambassador sees opportunities in aerospace. Ukraine is known for building the world’s biggest cargo planes, the An-225 and An-124. But that’s not all. For instance, the smaller Antonov 132D is jointly produced by Antonov and Canada’s own Pratt & Whitney.

“It has Canadian engines and it’s a good example of how we can co-operate,” he said, and added that one Antonov plane can carry up to 20 tonnes of cargo and can land on short, unpaved paths, such as those in the Arctic.

The opportunities, it seems, are many, but EDC experts caution that they come with caveats.

Schuster said Ukraine is known for poor governance. Corruption is a well-known challenge, fully acknowledged by the government. The IMF has laid out an agenda that among others includes land reform, pension reform, progress on privatizing state-owned entities and, most important, progress on the anti-corruption front. CUFTA offers an element of predictability.

“There’s an opportunity,” Schuster said, “but keep in mind your risk.” For example, he noted that once implemented, land reforms will kick-start improvements in the agri-food sector as foreign investment moves in and boosts productivity, but without significant progress on the anti-corruption front, risk remains elevated.

Schuster said Ukraine’s government is moving in the right direction, but by Canadian standards, it has a far way to go.

Vovk noted that Ukraine has been undergoing transformation in a number of sectors.

“There have been a number of programs carried out by the IMF and the European Bank for Reconstruction and Development, where we’ve seen restructuring taking place across state-owned companies, oil and gas being one, so we hope to see corporate governance and strategic and financial management more in line with Western standards,” she said. “There are a number of tenders in oil and gas that will hopefully be carried out in a more transparent way than in the past.”

Privatization is another area that offers opportunities, but it also requires reforms and transparency. The government has been transforming its processes to make them more transparent, and the international investment community will welcome these changes in the anticipated privatizations.

Categories Editor's Pick, Exporting

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