State and business, elections and economy, investment attractiveness and titanium market of Ukraine.
We spoke with Andriy Brodskyy, a successful businessman with over thirteen years of experience in the field of ilmenite mining and processing, the owner and CEO of Velta LLC, about mutual dependence and coexistence of these concepts, the possible results of 2019 elections in Ukraine and the most critical changes needed to the Ukrainian legislation.
What does success mean to you?
One of the main components of the success formula, both mine and the company’s, is constant development. Another issue is what conditions there are for such development…
Does Ukrainian business currently enjoy comfortable conditions?
It is almost impossible to develop a business in Ukraine nowadays. First of all, because of corruption, no matter how trivial it may sound. And this is not about classic corruption, when an official demands five or ten thousand dollars… It was the case before. Now when you go to an official he doesn’t talk about money or other incentives, he just doesn’t do anything. His functions are limited solely to the protection of the interests of the businessman who appointed him to this position. He doesn’t care about the rest. Do you need a permit? No one will just give it to you. You have to keep coming back for months, and the response you hear would be: “You don’t like something? Go to court.” Indeed, courts are working better now and you can obtain justice, at least from our company’s experience, but litigation can take years and court decisions still need to be implemented…
But in the last few years there have been much talking about changes for the better and advancements…
Talking, right… But in my opinion, the development of Ukraine is nowadays paralyzed. This can also be seen in GDP growth, which officials mention with such a pride. Sure, there is a growth, but it also includes rising gas price (for the population as well) and the money that Ukrainian labor migrants transfer to their families from abroad. These figures make up a large part of GDP growth. When analyzing what is said deeper, it turns out to be different. There is a video intensively shared on the Internet, which says that more than one hundred factories have been built and commissioned in Ukraine over the past four or five years. They have really been built. And I, as a person who built the whole production complex, can say that the state does not have its fair share in it. Factories are not being built quickly in any country; it must take five to ten years from having an idea to actually implementing it. And the fact that the commissioning of these factories happened in the last few years does not mean that the current government had somehow facilitated it. They only prevent business in Ukraine from developing.
Why so?
This is due to the total corruption in the new form, which I mentioned before. It is very difficult to accuse an official of corruption these days, because there are powerful business groups behind the entire ministries and services that prevent others from developing. Without changing this system, there are not many prospects in Ukraine.
There will be two election campaigns in 2019 in Ukraine. How will these processes affect the economy, in your opinion?
These processes will definitely affect the economy, but, I would say, not so much the processes as the result will matter. If nothing changes, Ukraine will face a slow stagnation. Any change in power, especially when it comes to the president and parliament, entails serious and drastic changes in the economy with consequences, which are most likely to come in the second half of the year. Default is a possible consequence of the upcoming elections. Default of external liabilities, in particular. And the sharp change on the foreign exchange market…
Is it good or bad for Ukraine?
The fact is that it is quite good. Moreover, we can have big problems if the default will not happen. I think this is a necessary surgery. You know what happens if you don’t treat peritonitis – it is better to operate and remove the cause of the inflammation to be healthy in a few days rather than waiting for the fatal consequences. This is precisely the case for our country.
In your opinion, is there anyone among the current presidential candidates who will be able to rule the country effectively?
Any candidate who becomes president will change the country according to his or her belief as to what it should be like. I do not believe that the system can be changed dramatically, but I hope that evolution and transformation for the better will take place. However, I do not expect the revolutionary changes like the ones that occurred in Georgia fifteen years ago.
That means that the situation will improve after the elections…
Yes, if we will have another president, but not immediately. First, we will need to survive a certain economic shock and after that to observe a recovery.
Getting back to the subject of your business – the titanium market – what is it like today? And to what extent is ilmenite mining an attractive investment for Ukraine?
If we speak of foreign investors, Ukraine is nowadays absolutely not attractive in terms of investment. First of all for the reasons I’ve mentioned previously. The titanium industry is a part of the whole economy of our country, and foreign investors just do not consider it, and neither the rest of the sectors. If we speak of domestic investments – the privatization of the state’s share of the titanium industry, then I believe that our state is not able to manage it effectively. This is illustrated by the fact that the assets placed on auction for privatization are almost exhausted, and the scandals that unfold around the industry are not contributing in any way to the investment attractiveness.
What makes ilmenite valuable?
Titanium is the basis for plastic, paints, food additives, and medications. Some part of the feedstock goes to the production of metallic titanium, without which no planes would fly and no important implants or prosthetics could be made. Space explorations would be impossible without titanium. Elon Musk boasted about his missile carrier, which he managed to land saving the titanium grid fins – the most expensive part of the rocket.
If ilmenite reserves in Ukraine are getting depleted, what are the prospects for further development? Are the new deposits not discovered, or not developed?
We indeed have the deposits, and we can talk about them for hours. There are several types of them – placer deposits (sands) and primary deposits (rocks). Currently in Ukraine in general and by our company in particular only sands are being exploited. The difference between them is in the occurrence, mining and processing methods. Primary deposits are several or even dozens of times more expensive due to the construction cost of production facilities and mining. The market value of such products is unreasonably high. There are many such deposits in Ukraine with huge reserves – some of the largest in the world. These are the Stremygorod deposit of apatite-ilmenite ores, the Kropyvnyansk and Fedorivsk deposits in Zhytomyr region, the Nosachivsk deposit in Cherkasy region. There are very large reserves there, but the mining costs negate all the development perspectives. The development of new placer deposits in Ukraine is already underway, and Velta works on two of the four of them.
Is there a big competition in the titanium market?
The global titanium market is very small both in monetary and in quantitative terms (tonnage) compared to other markets. If iron ore extraction is measured in hundreds of millions of tons and billions of dollars, the global titanium market is much more modest – only ten million tons of ilmenite. Ukraine is an important but very small part of the global market.
In 2014, there were attempts to revoke Velta’s license and they repeated in 2018. Was it due to competition, politics or something else?
If we talk about competition in Ukraine, it is small. There is a state-owned United Mining and Chemical Company that produces about half of the titanium raw material in Ukraine. Velta is in second place with a share of production from thirty to forty percent. However, we have reserves for twenty years, whereas they, in contract, have maximum for two. Now we work as normal and the court ruled in our favor. If in 2014 the situation was triggered by unfair competition, last year it was just some unclear actions of officials with no specific purpose.
Did this situation affect the work of the company?
There were attempts to affect our work, but we were publicly vocal about them in the right time and, from a legal point of view, the truth was on our side.
You are planning to develop a titanium business in Israel. Does it mean that the construction of a processing plant in Ukraine is not profitable?
Our company’s development philosophy is based on the expansion of the raw material base and vertical integration. Velta holds a clear course for performing processing as an international company. The Ministry of Economy of Israel has somewhat rushed to publish the information on the prospects for the construction of the plant on their territory right after the first phase of negotiations. It is true that we want to diversify our activities, but continue to work in Ukraine. Although Israel does have special conditions and privileges for investors, it is still cheaper to build a plant in Ukraine, and we are seriously considering this opportunity. General design and technological work is currently ongoing. Our company will decide where the production facilities will be located after the presidential elections.
If you personally had the opportunity to change something in the country, where would you start?
I would begin with the investment law. Almost every country in the world offers incentives for business development. Moreover, they have attractive conditions for starting manufacturing business, creating new jobs and, as a result, bringing additional budgetary revenues. They also offer a free provision of land with the necessary infrastructure, a grant system and tax incentives. We discuss such opportunities with Israel and study investment proposals of other countries of the world. Ukraine is no worse; the issue is only the priorities of the country’s top leadership. I would also change the legislation of the stock exchange market. There is a good example of neighboring Poland, where the investment boom began 10-12 years ago making the Warsaw Stock Exchange one of the most popular stock markets in Eastern Europe. It happened after the law was changed, including the pension legislation. International pension funds were allowed to make deposits through the exchange. These changes in the stock market took Poland to a significantly new economic level. In addition, the judicial legal system of Ukraine needs to be changed. A good example is Kazakhstan, where judges from the Great Britain headed a new Commercial court. And as you know, they cannot be bribed. This is the first court in the CIS, whose work is based on British common law.
Has Russian military aggression affected your company’s production and distribution?
This situation is affecting the whole country in one way or another. As far as our company is concerned, we have no trade or other ties with Russia.
Do you plan to influence government processes from a particular public or political post? For instance, to run for the Verkhovna Rada?
At one time, I considered this possibility, but when the revolution started in 2013, I decided rather to continue doing business than to associate myself with politics. For the next ten to fifteen years I will definitely not consider entering politics or any executive agency. I am ready to participate in expert councils, to give recommendations and to express an objective opinion of the country’s development to those who are ready to really change something.
Which city of Ukraine do you like the most?
I was born and live in Dnipro, it’s my hometown and I love it the most. I often visit Kropyvnytskyi and Novomyrgorod, which is close to Velta’s mining and processing complex. We are actively helping to develop this small town, and I will continue these efforts in years to come. But I also feel really comfortable in Kyiv, and not because it’s the capital. This city has a special atmosphere, though I’m not going to move there either (Smiles – Ed.).
What is the formula of your personal success?
It has several components – the desire to progress, the ability to acknowledge own mistakes and make well-timed conclusions. It is important to confidently overcome difficulties and never give up.