Author: Pavol Prikryl
Source: Obchod (Trade), attachment Logistika (Logistics), 05.2008, page 16
Even though Eastern Slovakia is anticipating a boom in logistics projects, many investors are already looking even further east.
Ukraine, Slovakia’s largest neighbour, has undergone major political and economic changes. It is 12 times larger than Slovakia in terms of land area, and its population of 50 million people represents a very important market. “Ukraine has a sophisticated rail network and, unlike us, they have access to the sea,” explains Peter Richter of Sollaris Developer Company, an Arca Capital partner. Although it is difficult to compare the Ukrainian road network by Western European standards, it is relatively well-developed. Add to this the inexpensive labour and, above all, the proximity of Russia, a major world power, and it is obvious that investors turn frequently and seriously towards Ukraine and the possibilities there. Arca Capital, a Slovak financial group, has already invested in Ukraine.
Kiev calling
Through its subsidiaries, Arca Capital has been operating in Ukraine for three years. After thorough analysis, a decision has been taken to start operations in the area of development and real estate. A special priority is larger areas where the current land usage can be altered, with a corresponding increase in land value. “Limited transport lines of communications between Slovakia and Ukraine require that we concentrate our activities in the Kiev area instead of Western Ukraine”, says Mr Richter. Construction of the Mitnica Logistics Centre is the company’s latest activity. The logistics centre will be situated on a 32-hectare block of land approximately 30 kilometres from Kiev, directly on the Kiev–Odessa international route. The L-shaped ground is adjacent to the E95, Ukraine’s busiest motorway, carrying 28 percent of the country’s transportation volume. The future construction site is composed of two parts divided by a 50-metre-long common boundary. Such composition allows construction activities to be divided into two separate phases.
Two projects
The first phase will take place on the southern portion, with the planned construction of two logistics halls covering areas of 20,000 and 40,000 square metres, respectively. The compound will include also an administrative building designed for the operations of the logistics centre. The second phase will be built on the northern grounds where three logistic halls, with areas of 18,000, 20,000 and 26,000 square metres will be developed. The premises will include all services necessary for undisturbed operations, including compound security and a camera security system. The first phase investment is approximately 60 million euros, with the total Mitnica Logistic Centre investment rising to 105 million euros. The construction should be completed in 2010. The Mitnica project is the second logistics project in Ukraine prepared by Arca Capital. The first was the acquisition of grounds at the Brovary location. “We will complete the 6.4 million euro construction of Logocentrum Brovary logistics centre at the crossing of two motorways, literally a few kilometres from the airport and, at the same time, 10 kilometres from Kiev’s northwest city limits. After the ground preparations and necessary technical documentation have been completed, the construction of both logistics centres, with a total area of 200,000 square metres, will commence. We have not defined the use of Brovary yet,” Mr Richter explained. Some smaller centres are likely to be developed there. “We do not rule out the possibility that some portion of these facilities will be used for goods packing or re-packing,” says Rastislav Velič, Arca Capital’s financial manager. “Within the Brovary centre, we are thinking about a shopping complex development on one part of the grounds, backed by the Logocentrum logistic centre on the adjacent portion of the area,” adds Mr Richter.
Enormous potential
The area of logistics is still under-developed in Ukraine. “Current logistics is based on the requirements of the supermarket chains or linked to the trade itself,” Mr Velič explains. He thinks, however, that within the greater Kiev region (approximately 5.5 million inhabitants), logistics facilities will spring up rapidly. “It is really just a matter of time. There were half a million square metres of logistics areas projected in this area in the last year alone. This year it’s already one million square metres,” says Mr Velič. All Ukrainian cities with populations close to one million people, of which there are eight, possess such possibilities. This provides an interesting contrast to western standards, by which a settlement begins to be logistically interesting when it reaches a population of 20,000 inhabitants. In other words, the potential for logistics is huge in Ukraine.
From non-standard to standard
Ukraine may be a future gold-mine for investors but a lot of water will have to flow down the Dnepr River before a logistics facility is erected there. Firstly, it is necessary to find suitable sites. “The analysis builds on the fact that there are transport corridors and connections around each large city. This is the basis for identifying suitable logistic sites or nodes,” Mr Velic explains. Then you need patience. “The Ukrainian environment requires an initial ownership relations analysis, which is quite an interesting process,” adds Mr Richter. In other words, the ability and willingness to change land-usage for a given location is a complicated and time-consuming process. An infrastructure connectivity analysis is the last, but not the least important, stage. Furthermore, it is necessary to ensure that the investment partners, as well as operators or future clients of the logistics facility, respectively, are prepared. “These processes are running together. We often talk about the art of transforming the non-standard conditions to the standard ones that are acceptable by Western European business and investment circles,” Mr Richter reasons. They have a certain business etiquette, therefore they are reluctant to enter into a non-standard environment.
A fast tempo
Ukraine is waking up. Experts are convinced that the country can expect a significant boom in logistics facilities. “The development business has been developing alike in all post-communist countries. With the arrival of foreign supermarkets, the logistics segment will grow even more important,” Mr Velic explains. He believes that a massive influex of foreign investors to the Ukrainian market is just a matter of time. “Their arrival will introduce new production controlling and operating management practices. Hand in hand with this, the development of standard logistics centres and nodes will also become necessary.” Sea access, relatively sophisticated railway communications, including those towards Russia, as well as the size of the population, provide the foundations for the progress of Ukrainian logistics at rocket-like speed. Indeed, it is just a matter of time before financially demanding logistics facilities, such as intermodal transportation terminals or large logistics centres similar to that in Graz, Austria, will materialise. “This is, however, a game for the big players, such as those from Germany, from the so-called petro-countries or Southeast Asia,” adds Mr Velic.
