ZHYTOMYR OBLAST, Ukraine — When Artem Sachuk, 33, was interviewed for a position of the head of the new Zhytomyr Region Development Agency, he set a goal to attract at least $1 million to the region during his first year.
Sachuk got the job, and nine months later. his leadership showed the first results: The agency recently closed a deal on $1.5 million in private investment into gravel and stone production at the Nova Rudnya granite deposit.
The establishment of the agency led by Sachuk, who has experience in law and consulting, is part of the region’s administration’s wider efforts to attract more investors.
Located in northern Ukraine, Zhytomyr Oblast is a leading agricultural region, rich in forests and mineral resources such as granite, stone, and amber.
Yet, its economic potential isn’t fully untapped. Last year the region attracted $250 million in foreign direct investment, exported $590 million — or only 1.4 percent of Ukraine’s total exports — according to Ukraine’s State Statistics Service.
The bustling oblast of 1.25 million people also boasts a rare trait for Ukraine — political harmony. Its governor, local council members, and Zhytomyr’s city mayor belong to the same political party — Petro Poroshenko Bloc.
“Political stability and harmony between different powers is important for sustainable development,” the region’s governor Ihor Gundych says.
Zhytomyr region enjoys a lot of interest from foreign investors but some are dissuaded by the shortage of land plots with basic utilities such as water supply, gas, and electricity. Building the necessary infrastructure is time-consuming and expensive, creating a dilemma: local authorities aren’t ready to spend public money on equipping land plots for prospective investment projects while investors don’t want to wait.
“Foreign investors are used to European industrial parks where they get land plots with all the necessary utilities and transportation access,” Sachuk says. “Zhytomyr authorities are slowly realizing what investors need.”
The demand for ready-to-use land plots for industrial development resulted into a growing popularity of industrial parks in Zhytomyr region.
Registered in 2016, Zhytomyr-East industrial park occupies 24 hectares outside of Zhytomyr and is now available for use. A 42-hectare industrial park project in Korosten is still in its development stage and needs to attract $60 million in investments for its infrastructure. A 30-hectare privately-owned industrial park Ukrekolain in Novohrad-Volynskyi offers “all-inclusive” services to businesses — from land plots with basic utilities to warehouses, production units, factories, a rail terminal, and a logistics center.
One of their clients, Cersanit, a Polish tiles and sanitary ware manufacturer, is a major business in Zhytomyr Oblast that has invested 140 million euros and employs 1,200 people.
“We chose Zhytomyr (Oblast) for three reasons: proximity to Kyiv, its main highways, (proximity to) borders, which is important for logistics, and raw material deposits which lower the cost of our production. Also, we were allowed to buy a land plot,” said Cersanit plant manager Zbyslaw Krowiak.
As Ukraine is slowly crawling out of the economic crisis of 2014–2015, Krowiak claims it is the best time to invest.“Ukraine is a risky but promising market,” he said.
Besides economic volatility, one of the main concerns of potential investors about Ukraine is property rights protection, says Sachuk. “Memory of raider attacks lives on,” he says. “We find that it’s easier to work with existing investors who want to expand rather than attract new ones.”
Today, Zhytomyr region hosts 430 companies with foreign investment operating in a variety of sectors from mining to manufacturing and processing.
Like Krowiak, many of these companies value Zhytomyr Oblast’s transportation transit advantage thanks to the railroad junction and M06 highway, which is a part of the European route E40. In addition, the main city Zhytomyr is only 130 kilometers, or a two-hour drive, from Kyiv and 175 kilometers from the Ukraine-Belarus border.
What the region lacks is an international airport. The existing airport in Zhytomyr currently services cargo planes but not passenger flights. So the authorities are looking for $20 million to build the runway as well as capital investments into aircraft, hangars, and fueling stations.
The governor Gundych said that this year his administration received a record Hr 1.5 billion ($57.4 million) from the State Road Fund to repair roads as local authorities were given more autonomy to decide which roads are a priority to fix. But “the main problem is the shortage of companies that can do quality roadworks,” Gundych said.
Zhytomyr Oblast hasn’t been spared from the migration wave that has driven skilled workforce out from Ukraine for years but it hasn’t been as large as in western regions.
Currently, Zhytomyr region has some of the lowest average salaries Hr 5,836 ($222) in the country, and to stop the exodus of young people and skilled workers, investors have to pay competitive salaries, the region’s officials say.
To stop the brain drain, Zhytomyr Oblast’s administration also works closely with universities and technical colleges to help them prepare specialists that the market needs. “We listen to businesses who tell us what kind of specialists they need and then communicate this to educational institutions,” Gundych says.
The governor wants foreign investors to come to his region and promises support but also says that companies should take responsibility in fighting labor migration and improving the quality of life for Ukrainians.
“Zhytomyr people have to earn what they deserve,” he said. “I don’t want foreign businesses to grow their profits by paying low salaries.”