The EBRD along with the E.U. are helping enterprises improve production and processes, adapt to E.U. standards and become more competitive in new export markets.
Georgia, Moldova and Ukraine have signed Association Agreements with the E.U. that foresee the establishment of a Deep and Comprehensive Free Trade Area (DCFTA) between each country and the E.U. The DCFTA allow the countries access to the E.U.’s internal market in selected sectors and gives E.U. investors the same regulatory environment in the associated country as in the E.U.
Georgia signed its Association Agreement on June 27, 2014, and it took effect July 1 of this year. Ukraine’s Association Agreement has been provisionally applied since November 2014, and its DCFTA has been provisionally applied since Jan. 1 of this year. Moldova’s Association Agreement has been applied provisionally since Sept. 1, 2014.
The EBRD is providing finance to small and medium-sized enterprises in all three countries, supported by the E.U. with a risk-sharing model.
“The DCFTA creates unique opportunities for small and medium-sized enterprises in Ukraine, Georgia and Moldova to export to the E.U., with stable and predictable preferential access to the largest market in the world,” said Johannes Hahn, E.U. Commissioner for European Neighborhood Policy and Enlargement Negotiations. “At the same time, the new framework requires firms to make the necessary investments and to set up the right conditions to comply with higher technical standards involved and to encourage new business relationships.”
Alain Pilloux, the EBRD’s vice-president policy and partnerships, added, “These are game-changing investments for local businesses in the three countries. They bring long-term benefits to companies and, more widely, to economies – modern production processes, better services, more competitive businesses. The EBRD supports these vital steps toward economic integration.”
In Ukraine, the DCFTA contains three pillars: opening markets through the progressive removal of custom duties and restrictions on services and public procurement; ensuring fair competition by safeguarding intellectual property rights, workers’ protection, and disciplines on use of subsidies; and laying the groundwork for gradual alignment of norms and standards.
The E.U. is Ukraine's largest trading partner, accounting for more than 40% of its trade in 2015. Ukraine accounts for 0.8% of the E.U.'s total trade, with a turnover of €1.16 billion in 2015. Ukraine exports to the E.U. amounted to €12.7 billion in 2015. The main Ukraine exports are raw materials (iron, steel, mining products, agricultural products), chemical products and machinery.
“Agricultural production plays a vital role for Ukraine’s economy,” said Kees Huizinga, chief executive officer of Kischenzi. “For us, a fair share of our income is driven by export sales. Free access to the E.U. market offers us a great prospect for continuing to grow our business.”
Kischenzi’s main business derives from growing grain, oilseeds and vegetables, which it sells to international traders.
“There is a lot of competition in the agribusiness sector,” Huizinga said. “We have to use innovative farming techniques to obtain the best possible results and ensure that our activities are sustainable for many harvesting seasons to come.”
Such methods include precision agriculture, which uses soil sampling and other techniques to help farmers manage variations between or within fields and achieves the best possible returns while preserving precious resources.
The EBRD provided Kischenzi with a loan of $5 million to help the company purchase modern equipment, such as cultivators and new combine harvesters, to meet its ambitions.
The company exports large share of its production outside Ukraine, with increasing off-take by the E.U. The potential for growth is large. The transaction is supported by the E.U. with a risk-sharing guarantee on a first loss basis as part of the EU4Business initiative.
In Moldova, leasing services are still in their infancy but provide more and more businesses with a viable financing option.
The EBRD and E.U. help small firms build up their export chances by supporting Total Leasing & Finance. To help a company expand its portfolio for small and medium-sized enterprises, the EBRD provided an E.U.-backed risk participation in a loan granted by local partner bank Mobiasbanca. This enabled the company to receive a larger loan and for a longer term to invest in industrial and agricultural equipment.
This, in turn, made their business clients more competitive in the local economy and for export markets. Most of their clients would not have been able to acquire necessary equipment other than by leasing it. Many companies are small producers and the new equipment helps them to manufacture higher-quality goods, which they may then export to France, Germany and other countries.
The E.U. is Moldova's biggest trade partner, with 62% of its exports destine to the E.U. Key E.U. exports are machinery and appliances, mineral products, transport equipment, and chemical products.
In 2015, E.U. imports from Moldova continued to grow. Total imports increased by 5%, to €1.22 billion. Among goods imported are mainly textiles and textile articles, machinery and appliances, vegetable products and other foodstuffs and beverages.
These projects are part of a wide range of activities to support the private sector to make the most of the free trade area with the E.U. They include providing local entrepreneurs with the necessary know-how to grow their business, training local partner banks and improving the business environment through policy dialogue with relevant government authorities.
Furthermore, the EBRD in May 2016 started providing €380 million in loans and trade guarantees to local partner banks and other financial institutions for on-lending to businesses, while the E.U. is making available €19 million for technical assistance, investment incentives and risk-sharing.