22 September 2011 Interview to United World
By Making My Company Big And Competitive, I Make Ukraine Big And Competitive
With the globalised economy in mind, Ukrainian billionaire Dmitry Firtash discusses the future for his company and his country
United World: To start with, let us talk about the economy as now is the time to implement crucial economic reforms. Ukraine is now beginning to recover from the economic downturn. Being one of the leading investors in Ukraine, in your opinion, what sectors will be leading the economic growth? As the political stability settled in Ukraine, what role does it play?
Mr. Dmitry Firtash: First and foremost, political stability is the required precondition of economic stability. The system of governance in Ukraine has been streamlined for it to become much more efficient. President Yanukovych is firmly committed to implement the necessary reforms, and has set concrete goals that need to be achieved. In my opinion it is the only right way to go. And we can see that the situation in Ukraine is improving. President Yanukovych set the goal for Ukraine to enter the group of 20 major global economies and it is a very ambitious benchmark. It might be too ambitious, but this is what Ukraine should be aiming for, and the President rightfully set this goal. In my opinion this goal is realistic and can be achieved.
It is also important to understand that the rate of economic recovery in Ukraine substantially depends on what is happening elsewhere in the world. Ukraine cannot be isolated from the processes in the global economy. Speaking of the leading drivers behind the economic recovery in Ukraine, since the Soviet times, we have had traditionally strong sectors of economy which have been the pillars of economic growth and remain as such. These sectors are the chemical industry, machinery building, metallurgy and agriculture. These sectors are heavily export-oriented. For example, in metallurgy around 60 to 70 percent of output is exported, while in the chemical industry it is up to 80 percent. Therefore the state of the world markets is very important for us, as it determines operating rates of Ukrainian enterprises and the foreign currency influx to Ukraine. Still the political stability which has settled in Ukraine is very important. It has enabled domestic businesses to plan for 4-5 years ahead, whereas in recent years we could plan only for a year ahead.
United World: We are witnessing that the new administration is committed to meet the current economic challenges. Tax regulations have been significantly revised in particular. What has changed in the dialogue between the public and private sector?
Mr. Dmitry Firtash: Perhaps the most significant change is that the voice of the private sector is being heard by the public sector. Today the dialogue between the government and Ukrainian businesses can be compared to a two-way traffic. President Yanukovych understands and respects the position of business. He is conscious that it is not the bureaucrats who make the economy stronger, and he is trying to reverse this bureaucratic machine. The President asks the business community what they need and advises the Cabinet of Ministers accordingly.
And the new tax code is a good example of this dialogue between the public and private sector. It is fair to say that this tax code is not perfect, and I do not agree with certain provisions. But it is normal that you have to make certain sacrifices. Because the government’s job is to fill the budget, while the businesses need to earn money to reinvest in the economy. President Yanukovych acted as an arbitrator who reconciled interests of the two parties. So this tax code is the compromise between interests of the public and private sectors. The fact that the voice of the business is being heard means that the government acknowledges and respects the role business plays. And it is fair to say that it is the private sector which really builds the economy. So it’s important that the voice of business has finally been heard.
United World: Speaking of Group DF, it was established in 2007 to consolidate business interests in the chemical industry, energy and real estate sectors. Currently you continue to consolidate nitrogen fertilizer producers. What will this consolidation bring?
Mr. Dmitry Firtash: Globalization has reached a very large scale and it is very hard to look at Ukraine separately from the rest of the world. Group DF plays its role in uniting the potential of Ukrainian industry with the aim of restoring Ukraine’s positions on the markets to which Ukraine traditionally exports, and also to expand to new high-technology markets. It is an unfortunate trend that Ukraine has been losing its positions on the global markets over recent years. Looking at the nitrogen fertilizer market, in the Soviet times Ukraine supplied up to 17 percent of the global consumption, while currently Ukraine’s share does not exceed 3 percent.
There are six nitrogen fertilizer producers in Ukraine. In the Soviet times, these and the other Soviet producers were managed by the government, which acted as the single supplier of all fertilizers produced in the USSR to the European and world markets. This made USSR a strong global competitor. When the Soviet Union collapsed, the Ukrainian producers were privatized and bought by different businessmen. Only one producer remained in the state ownership, while the other five had five different private owners. These five private owners could not come to an agreement with each other, and because of this Ukraine was the loser in the end. A very fierce competition on the domestic market was a disadvantage both to producers and consumers.
And the foreign markets were forgotten altogether. Each individual company was quite small and unable to compete on the global market. At some point most of these owners understood the need to change tactics. There were only two options – either to get out of the business completely, or to buy the other producers and consolidate those into a single and powerful force. After some time, all the owners understood that Ukraine could preserve the potential of its nitrogen fertilizer industry only through uniting all the producers. But this is quite a difficult business, as around 70 to 80 percent of the costs of nitrogen fertilizers production is accounted for by gas costs. For this reason no one really wanted to buy. The decision to go ahead with asset consolidation was not an easy one for us, but we took this decision. We have acquired four nitrogen fertilizer producers and now we are implementing a unified strategy. We have created this pool that gives us a voice in the dialogue with the domestic and foreign markets.
We are waiting for the Ukrainian government to initiate the privatization of the Odessa Port Plant, as this producer is very important for our strategy. If we can coordinate the work of all the producers, then Ukraine will become one of the leading nitrogen fertilizer suppliers in the world. I believe we have the necessary potential to reach this goal.
United World: So you have consolidated four major nitrogen fertilizer producers in Ukraine and are ready to participate in privatization of the Odessa Port Plant to further strengthen your Group. How will this influence the market as a whole? What is the outlook for your chemical holding?
Mr. Dmitry Firtash: What we are talking about restoring Ukraine’s position on the global nitrogen fertilizer market. The rapid growth of this sector in the 1970-s enabled the USSR to hold the leading position on the global market for a long time. In many ways this leadership was achieved thanks to the producers operating in Ukraine today. But the consequent collapse of a centralized management system and disintegration of these producers greatly compromised Ukraine’s position. We want to restore these ties through consolidation which in turn will restore Ukraine’s position on the global market. We are looking to consolidate a major international holding company with a strong position in the world. Even today we export fertilizers to more than 100 countries worldwide. Today we see that the global market is such a fiercely competitive environment, that the only way to survive and grow is to consolidate. In the region this strategy is also adopted by the Russian and Belorussian producers, and it is aimed to strengthen their positions. Now we are in discussions with major Russian producers with a view to develop a joint sales strategy for the global markets. Now that we have a favorable business climate in Ukraine we are also ready to further expand our business interests abroad.
The chemical industry is like a drug for the soil. President Yanukovych in his latest speech at the United Nations hailed agriculture as one of the key sectors of Ukraine’s economy. Ukraine is rich for fertile land and agricultural traditions that span many centuries, and I’m convinced that agriculture will be very important for Ukraine’s future. Another competitive advantage of Ukraine is its geographical position, as Ukraine has access to markets with a population of more than a billion people. The success of Ukraine’s chemical industry will greatly determine the future of its agriculture, and the Ukrainian government understands this.
The Ukrainian agricultural sector consumes a limited amount of fertilizers not because they do not need more fertilizers, but because they have financial constraints. In February this year the Prime Minister’s held a meeting attended by the First Deputy Prime Minister, Minister of Agriculture, myself and directors of our fertilizer producers. Perhaps for the first time since the Soviet governmental economy plans, together with the Ukrainian government we drafted a plan outlining the volumes of fertilizers that domestic agriculture needs to consume. Because this spring Ukraine faced a problem where domestic farmers required fertilizers, but the domestic outputs had already been contracted, mostly for export. So we developed a programme for three years covering the supply of Ukrainian farmers with the necessary amount of fertilizers with a 20 percent discount. Once this plan had been developed and the farmers saw real support, we were able to predict that nitrogen fertilizer consumption will increase 5 times over the next 3 to 5 years. This is beneficial for me, as the domestic consumption will grow. This is beneficial for the farmers because this discount will enable them to consume more fertilizers which in turn will bring them good crops. This is also beneficial for the government because of an increase in the gross domestic product, as well as in tax and foreign exchange incomes. And to develop such a vital programme we simply needed to sit down and reach an agreement. But this kind of an agreement could not have been possible before, because there were 6 different owners pursuing their own interests, and they could not reach compromise.
United World: Does the government support your efforts to restore Ukraine’s positions on the global fertilizer markets?
Mr. Dmitry Firtash: On the one hand, we have done a very good job by putting all those producers together and coordinating their activities, which is important for Ukraine. On the other hand, we have found ourselves in a rather challenging situation. Our company has domestic market share of less than 50%, while more than one-third of the domestic market is controlled by foreign producers. Still some concerns have been raised by the Antimonopoly Committee of Ukraine, and we are in negotiations with them. Evidently, the system and regulations in Ukraine have fallen behind in terms of understanding and meeting contemporary globalization realities. Global economic competition has become much tougher over the recent years. New ammonia production facilities have come into operation in Lebanon, Iran, Iraq, Trinidad and Tobago. It is forecast that around USD 80 billion will be invested in the fertilizer industry by 2015. Where does Ukraine stand? Ukraine can become a major global player only through consolidation of all the fertilizer producers. By operating separately, over the last ten years the Ukrainian producers have seen their combined global market share reduce from 17 to only 3 percent. These producers supply only 20 percent of their output to the domestic market, while 80 percent is exported. So the logical question is – why oppose consolidation if it is beneficial for Ukraine and its presence on the global markets? We can see that the Russian and American governments protect their economic interests and support the strengthening of their global market positions through sector consolidation. As Ukraine exports 80 percent of its fertilizer output, strengthening our global market position should also be considered a priority. And we believe that the Ukrainian government understands this.
United World: There is a general trend that the public and private sectors around the world reach a new level of engagement and relationship. The governments and businesses become ever more interdependent in the matters of economic security and growth. You have previously stated your intentions to create and develop a powerful titanium industry holding together with the Ukrainian government. What perspectives do you see for this public-private partnership?
The reason to cooperate with the government is very similar to the fertilizer market. Russia is the number one worldwide player in the titanium sector. Prime Minister Putin has been focusing on this sector quite a lot. The Russian government creates the necessary conditions and provides support to this sector. It is difficult for the Ukrainian government to provide the same support, as we do not have the same financial resources as the Russians do. Because of this, over the last several years Ukraine’s share of the global titanium sponge market was reduced by half. Therefore it is crucial to create a favorable environment in Ukraine, including the antimonopoly legislation. Ukraine has every opportunity to become a lot stronger in the titanium sector and even compete with Russia. Ukraine has an important competitive advantage, as around 20 percent of the global deposits of titanium ores are on Ukraine’s territory. As it currently stands, Ukraine exports raw titanium materials instead of exporting end products. But we can turn this around if we consolidate Ukrainian titanium industry assets into a vertically integrated company. Establishing such a company in joint ownership with the Ukrainian government would be an effective example of the public-private partnership. It is important to emphasize that the Ukrainian titanium producers are in desperate need of investment influx to modernize production capacities and acquire new technologies. The private sector can provide this investment but the major Ukrainian titanium producers remain in the public ownership, because these producers are strategic for the country’s economic security. Therefore it is only through uniting the potential of public and private sectors that Ukraine can reach its goal of becoming a major global titanium producer. I’m convinced that the public-private partnership is the only model that will enable Ukraine to modernize and restore the might of its industry and strengthen Ukraine’s positions on the global markets.
United World: Is the public-private partnership limited to business matters?
Mr. Dmitry Firtash: Definitely not. It should be said that the majority of industrial units within the Group were historically conceived as the leading force behind social and economic development of respective localities and even regions. Some of these industrial units completely maintain whole cities. For instance, Armiansk in Crimea has a population of 26,000 people. And 5,000 of them work at our Crimea TITAN enterprise, which means that almost every family in the city has a relation to this enterprise. Crimea TITAN contributes around 70 percent to the budget of Armiansk. Just imagine if this enterprise were to stop – people no longer receive income, the budget is empty – a social catastrophe would be inevitable. And there are eight such enterprises in our Group now. You can imagine the responsibility I bear on my shoulders. So, on the one hand I have my own ambitions related to the growth of my business. But on the other hand these ambitions coincide with the ambitions of the government. By making my company big and competitive, I make Ukraine big and competitive.
At our Group we pay a lot of attention to developing the human capital in Ukraine and preserving the environment. We implement vast ecology and energy saving programmes which help preserve ecosystems and the health of people. We support scientific research and implementation of innovative solutions in production. We also promote technical science among the population of Ukraine. All of this is investment into Ukraine’s future. So in this respect our interests also coincide with the interests of the government.
United World: Last year you were appointed Chairman of the Joint Employers’ Movement of Ukraine, which is quite appropriate considering your company is one of the biggest employers in Ukraine. What does this appointment mean to you?
Mr. Dmitry Firtash: It has not been an easy decision for me. I have never before been involved in any public activities, be it politics or work in the public sector. When I was invited to lead the Joint Employers’ Movement, it was emphasized to me that the Ukrainian private sector needs a leadership which will provide impulse for dynamic economic growth in Ukraine. My goal is to establish an effective dialogue between Ukrainian businesses, trade unions and the government. This is very important for Ukraine because only with a shared vision together we can secure stability and development in the country.
Being Chairman of this movement, I initiated close interaction between the scientific and business circles with the aim of active implementation of innovative solutions into Ukraine’s economy. Ukraine’s share in the global hi-tech production 20-25 years ago was around 7 percent, but now it is less than 1 percent. I am hopeful that jointly we will resolve a whole raft of problems that have been accumulating over the last 20 years. Restoring the prestige of technical professions and increasing the quality of technical education are among these problems that we tackle. It is crucial to utilize the Ukrainian scientific potential with the maximum efficiency. Today the science has no access to the real sector of the economy, to the production. Implementation of innovations is neither financed by the government, nor by businesses. And this creates a disaster. The scientists innovate, but implement nothing. On the other side, the Ukrainian industry desperately needs these innovations. So this is another sphere where it is crucial to develop an efficient public-private partnership.
I have signed two agreements for cooperation, one between the Joint Employers’ Movement and the Association of the Chancellors of Ukrainian Higher Technical Education Institutions. The other is between Group DF and the National Technical University of Ukraine 'Kyiv Polytechnic Institute'. We as employers are committed to assist the scientific circles with securing on the legislative level a system that will bring significant rewards to the scientists for the implementation of their innovations. We are also in negotiations with Ukrainian educational and scientific institutions about the modernization of their technical facilities, because the vast majority of laboratories have not been upgraded since Soviet times.
Another problem is that since the collapse of the Soviet Union a dramatic misbalance in the Ukrainian system of education has appeared. Now we have lots of managers and lawyers. All too often young people graduate from institutes and end up on the street, because they cannot find jobs in their professions. At the same time, we desperately lack welders, technologists, engineers, foremen, because the vocational system has nearly completely collapsed. So the government pays a lot of money to teach these students, but no one needs them when they graduate. The economy does not need these people. Obviously, this problem exists not only in Ukraine but in many other countries as well. But our aim is to turn this situation around in Ukraine.
The quality of school education requires improvement too. For this reason, this year we have been pursuing a systemic approach to supporting chemistry learning at schools. The first recipients of this support were the Ukrainian chemistry Olympiads prize winners. We have also instituted personal grants for teachers having trained these students. Furthermore, we will be donating up-to-date chemistry labs to schools teaching the Olympiads prize winners. We are also providing sponsorship support to the Ukrainian team participating in the International Chemistry Olympiad. This year, our boys’ and girls’ performance and impressive awards score became a very decent representation of Ukraine. I believe each of them will make his or her contribution into the development of both chemical science and industry.
United World: Group DF is committed to implementing vast corporate social responsibility initiatives. In addition to that, you also give private support to a number of other charitable initiatives, such as the Ukrainian Studies programme at the University of Cambridge. Why do you support these initiatives?
Mr. Dmitry Firtash: Supporting the Cambridge Ukrainian Studies initiative is only natural for me. First and foremost, I am a Ukrainian. This is where I live and where my family lives. This is also where I have invested a lot of money. So I care about Ukraine’s future. It is important for me that Ukraine keeps developing and that our country is well known and respected around the world. What does the world know about Ukraine? I want the world to know more about Ukraine, about our people, about our rich cultural heritage. It was not by chance that I’ve chosen the University of Cambridge. Over 800 years of its existence the University of Cambridge has accumulated colossal experience in developing prominent scientists and leaders. Even its atmosphere and environment contribute to new scientific advancements. For many years there existed programmes dedicated to studying cultures and languages of many different countries, including Russia and Poland. But there was no such programme dedicated to the study of Ukraine, much to my disappointment. So in 2008 we have started the Ukrainian Studies as a pilot project. It started off with Ukrainian language and culture courses. Later the annual Cambridge festival of Ukrainian film, cultural evenings and public lectures by prominent researchers on Ukraine have been added to the programme of events. Today the Cambridge Ukrainian Studies programme has become a powerful Ukrainian cultural centre. Each year we have around 50 students from different countries studying Ukrainian language and culture. In partnership with the University of Cambridge we have secured Ukrainian Studies for many future generations. In 2010 this programme was established on a permanent basis. This news has seen a very positive response from inside and outside of Ukraine.
I am planning to further develop our partnership with the University of Cambridge. Starting from this year, the Cambridge-Ukraine Studentships programme will enable the most talented students from Ukraine to complete one-year Masters courses at the University. And I’m convinced that both these programmes will reap great rewards for Ukraine.