"War discourages investors much more than corruption." Interview with entrepreneur Sergiy Lishchyna on how Ukraine's business climate has changed for the better

Photo: Yehor Bondarenko

Photo: Yehor Bondarenko

Sergiy Lishchyna is one of the most non-public businessmen in the country. At the same time, he ’s created an empire for the production of building materials. Lishchyna has significant stakes in the Izovat mineral wool production plant, in other woodworking assets, several plywood factories, and Ukrainian Saw Mills (USM).

Lishchyna began to do business in Ukraine in late 1990s. Then he traded in chemical raw materials, gradually moving to the sale of finished products, such as building materials. During this time, he managed to build factories and survived a raider attack from cronies of ex-Ukrainian President Viktor Yanukovych. He later helped finance the Ukrainian army and collected the largest antique library from the scripts of Ukrainian classics.

Staying in the background until recently, the businessman decided to talk about his business and what is happening on the building materials market just now. The Page was the first media to speak with Lishchyna.

– What is happening on the building materials market now?

– Demand for many building materials fell by 40% compared to 2018. This is due to the presidential and parliamentary elections. Political uncertainty led to a decrease in construction volumes, which, in turn, reduced consumption of building materials. This, of course, is not a crisis in the construction market, but nonetheless, the figures are indicative. We expect that in the fourth quarter the situation will level out and there will be some growth.

– Let 's talk about specific markets. You have a large woodworking business. What is happening there?

– 2019 has not been an easy year. As a co-owner of several plywood factories and USM, I see that we have entered into some kind of systemic crisis. Today we are not able to compete with Belarusian products. Prices for plywood raw materials in Belarus are much cheaper, giving them an opportunity to dump. Ukrainian forest husbandries raised prices for plywood producers. At the same time, the European market slumped, reducing their appetites, and the Ukrainian market is full. I hope that this will not continue for so long, and our forestry enterprises will support domestic producers.

– Does it have anything to do with smuggling?

– I think this may be one of the factors. My personal belief is that it is more related to timber smuggling. Most of the stolen is "unaccounted for " and sold for cash. If everyone worked in the same conditions, everything would be fine.

– What types of products are supplied from Belarus?

– Virtually all types of plate materials, including plywood. At the same time, Ukrainian plywood factories have been idle for several months in a row, starting from May. In my opinion, it is worth taking measures to limit access of similar products from Belarus to the Ukrainian market. If we go along the path of anti-dumping investigations, we will achieve nothing. They can last for months, while the dynamics of plywood imports from Belarus are simply disastrous. While in 2015, 848 meters of cubic plywood were imported, during five months of this year it was only 17,052 cubic meters.

– Why should Ukraine limit the import of raw materials from Belarus?

– Well, you see most Belarusian producers of plywood and chipboard are part of the Belarusian Forest Company state concern. And it as a state-owned company has the most favorable conditions. It is the source of foreign exchange currency earnings. For example, wood prices in Belarus are 40% than in Ukraine. This leads to dumping. This allows not only actively displacing Ukrainian products in foreign markets, but also importing them into Ukraine.

Also, according to our information, enterprises belonging to the Belarusian Forest Company are actively funded by the specially created State Development Bank. In fact, the sale price does not matter to such enterprises. They can sell their products at a loss, if only to achieve the goal of attracting foreign exchange earnings. Our doors our wide open to Belarusian imports. Moreover, the import duty rate is zero, while even in the European Union there is an import duty for this category of products.

– Well, who is stopping Ukrainian enterprises from setting a low price for their products?

– In Ukraine, unfortunately, there are inadequate prices for domestic forest products. This applies to plywood raw materials, and technical raw materials, and raw materials for lumber. Belarus deliberately offers low prices for timber raw materials, since it understands how it works, how important it is for the producer to be able to lower the price. In addition, for them, the receipt of foreign currency earnings is critical. It ’s the same for us. Commodity prices in Russia are slightly higher. But Ukraine has the highest prices, which completely excludes the possibility of competing in foreign markets. Even worse, we are losing the domestic market under the onslaught of cheaper imports.

At the same time, I assure you that the enterprises of Ukraine ’s State Forest Agency are well aware of the prices, including for finished products (plywood, chipboard or sawlog ), just as players in foreign markets are well aware of our internal situation. But they continue to keep prices low to suit themselves. As a result, they will suffer when there will be no one to consume all the wood they harvest. This is because all Ukrainian wood processing will be significantly reduced or even dead.

You need to understand that the competition for wood products exists on foreign markets. The more expensive Ukrainian plate materials, the more expensive Ukrainian furniture is. And Ukrainian products directly compete with Russian and Belarusian products in European markets. Therefore, everyone loses. In addition, our electricity prices have risen by 20% since July. No matter how bad Rotterdam Plus formula was, the prices before the energy market reform had been lower.

– The ban on imports is an extreme measure...

– There is no need to be shy of radical measures, no need to be afraid to protect and support your domestic producer by any means – otherwise, it will simply die.

– You are a co-owner of Izovat, it is one of the main producers of mineral wool in Ukraine. Tell us about trends in this area.

– In 2018, the market was developing dynamically. We doubled production and built a new line. European manufacturers had a deficit of mineral wool, so we got an opportunity to supply our products. Today, there is overproduction in the EU. In Ukraine, meanwhile, everything is balanced. Nevertheless, here we also have import problems with Belarus. Their import is more than 50% of the total amount.

– They say that this is actually a Russian product, not a Belarusian one.

– I don ’t have clear evidence that Russian goods under the Belarusian brand name come to Ukraine. There are precedents when Belarusian manufacturers tried to sell their goods a little cheaper than Ukrainian goods. We are trying to convince them not to dump. But I think that we need to start an anti-dumping investigation regarding the mineral wool, otherwise we will not be able to exist.

– Why did you even get into thermal insulation?

– I traded chemical products and was engaged in woodworking. At first, I was far from the production of thermal insulation. And then an interesting story happened: I accidentally got to a conference where my neighbor who turned out to be my future partner managed to convince me that there is no production of stone wool in Ukraine, and that such production is very promising. He argued that this was a product of the future, and that a factory was needed. By the way, at that time, there was not a single production line indeed. Russian manufacturers were quick, they were the first to build a plant in Cherkassy, and we were already pulled up by the second echelon. Everything was done from scratch. It was quite risky because we did not understand anything in this market but had invested more than EUR 30 million.

– How long did the project take to pay off?

– We counted on three to four years. But since we entered the market after the crisis of 2008, it took six years.

– How do you evaluate the program of energy efficiency and insulation of houses in Ukraine?

– There were several programs, there were warm loans. Unfortunately, they did not have much influence on the thermal insulation market, but gave a certain advantage to manufacturers of windows and boiler equipment. There was also a lending program for budgetary organizations. There we saw an increase – a 20% increase in the consumption of thermal insulation. Unfortunately, everything stopped in mid-2018 after a big program to create an energy efficiency fund was announced. Everything stalled on the eve of the presidential election. Probably no one wanted to take responsibility for spending funds. Although it should bear certain fruits, since it is 200 thousand residential buildings, which should be insulated since 2020.

– Speaking of Russia, is it necessary, in your opinion, to close the Ukrainian market of mineral wool from products from Russia?

– I am for fair and healthy competition in any business. You just need to define clear rules for the game. If we have 10% duty for Ukrainian goods in the Russian Federation and 5% for their goods, then this is simply nonsense in the current conditions. The duty should be at least increased.

– What should the new Prime Minister do in order for business to work better and begin economic growth?

– It ’s the August lull. Nevertheless, look what happens to the national currency. It is getting stronger. There is no need to artificially keep it that way. It ’s better to step back and let the market regulate everything.

– How many people work at your enterprises?

– 2,500-2,800 people. Izovat employs 420 people. The average salary is UAH 15,000 per month. 

– Tell us how have you created your business?

– I was born in a family of chemists, a chemist by training. In 1992 I graduated from the Kharkiv Polytechnic Institute, spent a year in America and returned home. At that time in Ukraine there was a window of opportunity. If a person had skills, he could achieve something. I started with trading in chemical materials, specializing in organics. Adipic acid was an interesting product (polyurethane, nylon was obtained from it ). Then in Ukraine there were two producers — Rivne Nitrogen Chemical Plant and Severodonetsk Nitrogen Plant. We had been selling adipic acid to China and South Korea. But over time, the business died, as the Chinese established their own production and began exporting it to world markets.

But we are chemists, and found a new niche – formalin, urea-formaldehyde resin. That 's how we gradually came to woodworking, since urea-formaldehyde resin is used in the production of chipboard. At that time, these industries did not work properly. In 1998, they acquired the Nadvirna Forest Chemical Plant. At first, we suffered and did not understand why we needed this. Then we bought a plywood factory. The market quickly emerged. Western corporations came, but a rather large share remained with Ukrainian companies. We have somewhere around 30%.

– In your opinion, it is better to focus on one direction in business?

– I believe that it is necessary to work in those segments that are profitable. However, there are nuances here. For example, builders now experience uncertainty associated with the latest elections. The business is in a serious slump, and sales are down. The thermal insulation market also dipped – minus 40% compared to 2018. But on the other hand, a new Prime Minister will appear tomorrow, the budget, the rules of the game will become clear, and construction and sales will begin again. You just need to be able to be one step ahead.

– How has the business climate in the country changed since 2014? Is it easier to work?

– Definitely, it has become easier to work and grow. For example, until 2014 we were under pressure for a certain period. Under Yanukovych it was tough. It was very hard times. On the woodworking market, the Antimonopoly Committee initiated cases of collusion between chipboard manufacturers. No one knew where it would take us. Fortunately, some of us waited for it to end, while people from the old team did not find new managers for their business. It was scattered, belonged to various companies — Swiss, Austrian. The ambassadors of Switzerland and Austria were even involved, and we avoided big problems.

– And now are there systemic risks for business? For example, raiding, as it was under Yanukovych.

– I don ’t think so, no. We have become much more civilized in this regard. Of course, we see in the news that all kinds of things happen. But I think that the percentage of gross raiding has dropped to almost zero.

– What is worse for the investment climate: war or corruption?

– In my opinion, Western partners have adapted quite well to the current conditions in Ukraine and corruption no longer scares them. This is such a hackneyed topic, a hobbyhorse which certain politicians saddle. Corruption exists, but there is a lot less of it. I hope this trend continues. I think the war is the biggest worry. 

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