Davos discoveries. Why and how Butkevych's company enters into the “blue ocean” of rare resources
The key topic of the 2020 World Economic Forum was “new capitalism” as the solution to all stakeholders’ troubles - from social to environmental. There are plans to set it up in the Ukrainian reality in the mining business. How is that possible? We talked to BGV Group top manager, Serhii Voitsekhovskyi, who spoke at Davos.
Serhii Voitsekhovskyi (BGV Group) at the Untapped Potential: Ukraine As Europe's Next Industrial Powerhouse panel in Davos
What does Ukraine share with oceans? With economic potential, the answer becomes apparent. Ukraine is a country saturated with "blue oceans". They give this name to the industries and market segments with no competition, set laws of the game, and with standards yet undeveloped and unknown. In simple terms, the "blue oceans" mean opportunities. Investment company BGV Group is one of those companies that are exploring the empty niches of our country's economy. We heard it on one of the panels at Ukraine House Davos. Serhii Voitsekhovskyi, a member of BGV Group's Board of Directors, believes that focusing on new untapped markets has many advantages, more so in Ukraine, a developing economy.
Who is the BGV Group?
What makes BGV Group interesting is its approach to doing business. It's an investment company owned by a well-known Ukrainian businessman, Hennadii Butkevych. He is the founder and co-owner of ATB Corporation, one of the largest Ukrainian retailers with over 20 years of history and 60,000 employees in 22 regions. But BGV Group is a different story for Butkevych. At the moment, ATB operates only in the Ukrainian market, as opposed to BGV Group, that is a broader business that goes beyond one country and believes in developing Ukraine as an estimable part of the global economic system.
Nowadays, the company focuses on mining geological resources available in Ukraine and their smart use within the state. For BGV Group, it means creating products with high added value.
"Sadly, the world market mostly perceives Ukraine as a country, which, on the one hand, has an ever-growing potential, and on the other, is a large user of international financial assistance and a supplier of raw materials processed in more developed countries. We would like to and will create a fresh approach. We focus on a high value-added product and are firmly against being in the commodities market – commerce of raw and semi-complete material. Our vision is of stockholders and investors. We realize that Ukraine is not only rich because of the large area and great geographical location, not only rich in the agriculture sector but also rich in minerals and resources that can create unique businesses."
"Why did we choose such a niche? We are looking for projects that are unique in the market." Photo: Rubryka
One of the leading values of the company is corporate responsibility, in particular, environmental responsibility. When asked about how the company plans to combine incompatible things – ecology and resource development, Serhii Voitsekhovskyi replied: "We cannot not take this responsibility. When you build a house, you never do it for it to collapse or be dangerous. Any dangerous business is a) short-term, and we consider only the medium and long-term businesses, and b) it can't be integrated into developed international economic systems. Environmental safety is a leading global trend. We are used to the fact that production is usually an environmental disaster, but it's easier for us to avoid it because we work from scratch. We won't just pay attention to an issue of environmental safety. It will be a foundation."
About areas of company activity
Picking up on unique businesses, one of the promising resources for the company is, for instance, graphite. BGV Group considers it an opportunity to develop the field of energy conservation and battery creation, which is a relevant field around the world. It's a unique opportunity for Ukraine to become a local manufacturer to Europe, which is now searching for ways to reduce its dependence on Asian markets.
Another direction in the company's work is associated with the potential market for producing rare-earth metal alloys. Any company, which is a part of the BGV Group, holds a license to extract beryllium – a material used in high-accuracy alloys for aerospace, computer, and other modern industries. The global beryllium market is largely linked to the United States, and only a few countries have this mineral. It is a great opportunity for Ukraine. But the company faces a list of problems, including a location secrecy issue. We inherited the tradition of secrecy from the USSR: "Any secrecy creates opacity, and opacity scares away," says Serhii. "We know that post-Soviet countries have preserved secrecy when other countries are trying to work with more open countries. Fortunately, the 'confidential' label doesn't apply to everything. Over time, this story will end." Besides, the country is already taking steps towards a much better situation for doing business. There are open auctions for the sale of resource development licenses – approaches are changing. According to Serhii Voitsekhovskyi, a land reform that removes the moratorium on land sales will positively impact the investment climate in the country and will add confidence and opportunities to businessmen.
"An investor is extremely reluctant to enter a business or state where he doesn't understand how he can secure his right to private ownership of an asset." Photo: Rubryka
One more direction of the company's work is related to uranium ore mining and further production. Here, BGV Group also remains true to its philosophy of producing high value-added products. Nuclear power plants in Ukraine need fuel and we import it, from Russia, in particular, whereas we have undeveloped reserves. Working with uranium reserves in Ukraine is relevant because today technology has taken a big step forward, making small nuclear reactors much safer than traditional nuclear power plants. Ukraine has every chance to become a country that implements this technology with success, establishing itself on the world market. "We signed a memorandum with a well-known American corporation that is a leader in developing this technology. So, we are confident that the results will be soon, we see the potential."
The company starts all its projects "from scratch". In business, it's called "greenfield". All company's mining projects are like that. They start a project without even thinking about the actual mining of resources. Before that, they need to go through the obligatory stages of work as research, confirmation of deposits, quantity-quality evaluation, estimation of mineral enrichment or purification method, final product determination, etc. Here it's important to adhere to international work standards – "to be part of the global economic system" – explains Voitsekhovskyi. It's easier for from-scratch projects to follow such standards. That is their advantage. All the work stages may last from one to three years. Serhii told us that the company is now at various stages of implementing various projects and is close to the start of mining and the next stages of work with graphite and uranium. The company plans to complete the preparation phase, this year (2020).
Serhii Voitsekhovskyi believes, for Ukraine, developing a manufacturing industry can be the way out that will bring people back from abroad, providing competitive jobs, and create new successful businesses within the country. Ukrainian resources and potential that has remained untouched till now will be to the use.
Untapped Potential: Ukraine As Europe's Next Industrial Powerhouse panel in Davos
Davos conclusions
We met with Serhii Voitsekhovskyi right after returning from the economic forum in Davos – the experience was still fresh. Of course, we asked him what leading messages were left to Ukraine to discuss in Switzerland.
First, it has finally become clear it's necessary to ensure top transparency in Ukraine and the openness of the authorities. "We welcome everything that the government does, and creation of more market competition, openness, and fighting against corruption. Our business is very interested in this."
Second, there was a lot of talk about Ukraine's openness to foreign investment. "We are for attracting investment to the Ukrainian market. But I have another vision. When you want to create something, you first make an effort to create it and only then ask someone to help you. Investors will help people ready to work a lot solo. Thus, through our example, we show that we are ready to work a lot on our own: to invest, to bear significant risks, when working with greenfield projects. I believe that the authorities, first, should take care of local investors with a solid business reputation and achievements if they want to attract large foreign investors. We have to create conditions for investors to want to work with our future projects. Working with the future is always unknown. Uncertainty involves risks. The government and local investors' task is to do that."
Serhii positively views the Davos Forum and its significance for Ukrainian business: "A lot of new contacts made, a lot of new ideas and platforms for projects created. Forum is often an opportunity to communicate with Ukrainian investors. Surprisingly, at Davos, distant mountainous Switzerland creates an opportunity for Ukrainian businessmen to sit down to talk again, make sure they're on the same page, and draw the conclusions. I think that is a brilliant solution. Interaction is never too much, sometimes it's not enough."
"In Davos, we saw windows of opportunity for our company, and we will use them shortly." Photo: Rubryka
Unlocking Ukraine's potential
People talk about Ukraine's potential each and every year. It seems it's growing even bigger. Both local and foreign investors are not so interested in the current situation in the country as the trend of development it shows.
"In my opinion, we see positive, correct, and optimistic dynamics. GDP has grown over 4% in the last two quarters of 2019. That is very good. Although, some negative events happen. Is everything fine? No, not everything. We encounter many positive actions, but also many declarations. We hope that these declarations will turn into actions. "
Serhii recognizes a cluster approach as one of the ways to achieve Ukraine's potential. The cluster is now one of the most efficient forms of coordinating local innovation development when on the market there are no longer competing individual enterprises, but entire complexes. "We believe in creating value when 1 + 1> 2. It works." Such a development logic is present, for example, in the wine clusters in France or the metallurgical clusters in Germany.
"Science and R&D play an important role in our activities. There are a lot of smart and talented people in Ukraine. The problem is that some of them have gone to work abroad, and we usually underestimate those who stay in the country. We actively invest in teams of specialists crucial for implementing our lines of business and open to innovation in related industries. If we worked according to the cluster logic, the efficiency of investments would be higher."
There are also clusters in Ukraine – real and potential. The IT cluster in Lviv is well-known, and the Zhytomyr region claims to be promising in geological exploration and development. A cluster of rare earth metals and alloys may set up there. However, building clusters is not just a business goal. Several authorities must take part in the process: government, business, academia, society. "This is a system, collaborative work. The underlying thing in the system is the management of the laws of the game and settings. That is the role of the government. But if the business doesn't speak out and carry out various projects, as our company does, who will be a member of this system? Everything depends on the public."
Serhii Voitsekhovskyi / Photo: Rubryka
At the Davos Forum, President Zelenskyi called Ukraine a wonderland, hoping for a new economic miracle. We asked Serhii what his opinion was.
"I believe in miracles. But I also think that they result from significant efforts made by people, businesses, and countries to make the miracle happen. Therefore, Ukraine has a great opportunity to create an economic miracle. To do that, we need not copy or mimic somebody. We just need to draw correct conclusions. The cultural, economic, and geopolitical context is radically different in Ukraine. Does our country have opportunities? Of course, it does. We do believe in the projects that are in works right now, and we consider them to be big opportunities for the country. Will we seize the opportunity? Tough question. We are optimistic and believe in the country, in ourselves, in the market, because we can overcome the difficulties for the miracle to happen."
