Odessa revives its investment offering

Visitors to an unremarkable, low-rise workshop in the cobbled back streets of Odessa, a bustling city with a population in excess of 1 million on Ukraine’s Black Sea coast, typically see workers in white labcoats putting finishing touches to ceramic vases, trophies and light fittings.

But those who go deeper into the warren of rooms contained within the headquarters of Kwambio, one of Ukraine’s hi-tech start-ups, witness some remarkable medical innovations.

“We started off making unique, decorative ornaments for customers in North America, Europe and Australia,” says Oleksandr Starovit, the firm’s youthful, check-shirted product manager, demonstrating a 3D ceramic printer which replicates human bones alongside mantelpiece knick-knacks.

“But we have since moved into medical applications for accident victims. Our idea is to replace damaged body parts with ceramic implants. This is totally different from a
metal implant, as it is accepted as a true part of the body.”

Room for improvement

When he first came to the southern city of Odessa from Ukraine’s capital of Kiev three years ago, Mr Starovit was pleasantly surprised to find “a dynamic and changing city with tech initiatives and growth”, fuelled by entrepreneurial IT engineers.

The feeling among this business community is that whereas there is no shortage of ideas in the city, local authorities could be doing more to attract foreign investment, which for a long time lagged behind both Kiev and the western city of Lviv.

In the nearby administration building, regional governor Maksym Stepanov, his office walls festooned with traditional Ukrainian folk art, describes a programme to boost SMEs. Initiatives include reducing finance costs and helping SMEs prepare registration documents in a country burdened by bureaucracy.

“We need to help these smaller players put their goods on the world’s shelves as part of the export economy,” says the suited and bespectacled Mr Stepanov, who has tried to boost the manufacturing of Ukraine’s dairy products and wines, the majority of which are produced in the Odessa region.

The governor’s role includes creating conditions conducive to foreign investment, which he says has risen during the first two years of his tenure. Mr Stepanov has overseen nearly $500m in foreign investments, including a $150m factory built by soya bean oil manufacturer Delta Wilmar and a $150m grain terminal constructed by Odessa’s MV Cargo with US agricultural importer Cargill.

Sipping a cup of aromatic Chinese herbal tea, Mr Stepanov smiles knowingly when talking about interest in the region’s seven ports from Chinese companies including Hutchison Ports, which started operations in Odessa in July 2018. “We will help these investors build factories and infrastructure. It is very important for us to act as their ‘nanny’ and provide them with maximum comfort,” he says.

Leaving tensions behind

Odessa has always been Ukraine’s most outward-looking and cosmopolitan city, currently home to 133 different nationalities, which have for the most part peacefully co-existed. However, it fell victim to sporadic separatist incidents stirred up during 2014, when 48 mainly pro-Russian activists were killed in a fire after months of skirmishes between pro-Ukrainian and pro-Russian demonstrators. Both regional and city authorities talk about establishing who was responsible, yet none of the alleged arson’s perpetrators have been apprehended.

“This wound, these memories will always be with us,” laments Mr Stepanov. “It is very important for society that the story of these events is fully revealed.”

These days the city seems free of tension and has become a major tourist destination, famed both for its beaches and cultural festivals, now that nearby Crimea, annexed by the Russian Federation in 2014, is no longer accessible to international or Ukrainian visitors.

Mr Stepanov’s governorship of the region succeeded that of Mikheil Saakashvili, controversial former president of Georgia. Mr Saakashvili had been a confidante of Ukranian president Petro Poroshenko, but was ousted for apparently harbouring his own presidential ambitions. Widely perceived as a Poroshenko loyalist, Mr Stepanov smiles wryly when describing his own “very different operating style” to the previous governor’s. “You can already see some results of my work in terms of infrastructure and investments,” he adds.

Investment hub

City mayor Gennadiy Trukhanov, who holds court in Odessa’s historical central quarter, close to the iconic Potemkin Steps, is a very different beast, seen as a broker who keeps peace between the city’s powerful clans, with a background in the private security industry.

The former Soviet army captain paces the city administration building dressed in jeans, a cotton nautical-style jacket and canvas shoes. His staff follow his lead with similar ‘smart casual’ uniforms.

“Odessa is becoming Ukraine’s number one city for foreign investors,” says Mr Trukhanov, who is proud that his city is now on the radar of ratings agency Fitch. “Ten years ago, our city had no rating at all. Today we can receive funds from international bodies such as the EBRD and the European Investment Bank.

“In four years, we have reached the same level as Lviv, Kharkiv and Kiev. We are now taken seriously,” adds Mr Trukhanov, who today oversees an annual budget of Hrv10bn ($360m), as Ukraine's cities are gradually granted more financial autonomy from Kiev in line with the country’s process of decentralisation.

Interested parties

Odessa received investment of Hrv4.6bn towards the city’s crumbling infrastructure in the first six months of 2018 alone. Czech and South Korean companies, in addition to the international institutions, are investing in projects including power cables and trams. Chinese, German and French partners are also waiting in the wings. Mr Trukhanov, a former employee of Russian oil giant Lukoil, is particularly proud of the contract recently signed by US firm Louis Dreyfus with the Ukrainian Sea Ports Authority to establish a new multi-commodity grain terminal, set to open in mid-2019.

“We know how to get investors into Ukraine. But it’s not so easy in practical terms. Some people don’t want them here,” he says, claiming “powerful city business and political rivals” want to discredit him through accusations of financial impropriety, which he vehemently denies.

Mr Trukhanov sees deployment of technology and transport as vital to polishing up the appeal of the city he describes as “the pearl of the Black Sea”.

“Our main wealth is our soil, and its harvest of corn, wheat and sunflowers,” he says. “All we have done previously is to take them out of the country and sell them. We need more plants to process these goods in Ukraine. This is our challenge.”