Impact Investing in Ukraine – opportunities in a tough environment

February 24, 2021

Important to know

The following is the story of an investment by the Swiss Investment Fund for Emerging Markets (SIFEM), the Development Finance Institution (DFI) of the Swiss Confederation. SIFEM’s investment operations are managed by Obviam, a Swiss private asset manager with over 20 years of experience in impact investing and assets under management of over USD 1 billion.
In December 2020, Asteria Investment Managers announced a strategic partnership with Obviam. The merged entity Asteria Obviam will become operational around mid-2021, and Asteria Obviam will become SIFEM’s new Fund Manager.
For more information regarding SIFEM or its Fund Manager Obviam, please visit or

The context

Ukraine, a land of wide, fertile agricultural plains, with large pockets of heavy industry, has long played the role of geopolitical flash point. It was a cornerstone of the Soviet Union and in its nearly three decades since independence, it has sought to forge its own path. But this journey has not been an easy one. A political crisis in 2014, followed by the conflict with Russia over the Crimean Peninsula and parts of the industrialised east have spelt more trouble for Ukraine. The war and loss of industrialised territories threw the Ukrainian economy into turmoil. The local currency, the Hryvnia (UAH), lost 70 per cent of its value against the US-Dollar, with an inflation rate peaking at almost 50 per cent in 2015, and a GDP that shrank by more than half (in USD-terms). In the context of the conflict, Russia enforced economic measures and closed its market for Ukrainian goods entirely, including a transit ban.
Ukraine is a tough environment. But is also a very resilient country. With a GDP of over USD 150 billion and a population of around 40 million people, Ukraine is one of the largest markets in Emerging Europe and a priority country of Switzerland’s development cooperation. Despite adversity and strong headwinds, Ukraine presents some interesting opportunities for impact investing.

A first mover

The Swiss Investment Fund for Emerging Markets (SIFEM) is owned by Swiss Confederation and has the mandate to undertake impact investments which are in line with the United Nations Sustainable Development Goals (SDGs). In Ukraine, SIFEM has entered a partnership with 4i Capital Partners, a Ukraine-based private equity investment company, with the aim to support growth-oriented companies and thereby contributing towards SDG 8 (sustained and inclusive economic growth), and towards SDG 9 (sustainable industrialisation and innovation) by providing capital to a private equity firm, which has bolstered financial sector development in Ukraine and its environs.
The local investment team currently manages the Europe Virgin Fund (EVF), which was raised in 2009 with USD 57 million of committed capital and instrumental support from international finance institutions such as the SIFEM, the European Bank for Reconstruction and Development (EBRD), and the Black Sea Trade and Development Bank (BSTDB). SIFEM contributed USD 7 million to EVF.

Basic necessities: toilet paper and cough medicine – and how two companies overcame a crisis

The local investment partner, 4i Capital Partners, holds investments in several regional companies, including Ruta, a manufacturer of tissue products, and Sperco, a pharmaceutical producer of mainly cold and cough medicines.
Ruta, the main brand of a company called JSC VGP, is a leading hygiene tissue products manufacturer in Ukraine. The company was founded in 1998 and grew fast as an established napkin producer which then diversified its product portfolio to include toilet paper, paper towels and facial tissue. In 2011, the Europe Virgin Fund (EVF) supported Ruta with growth capital with the purpose of modernising the company’s production facilities. Today, Ruta counts 376 employees and boasts a high retention rate of 92 per cent amongst its production staff. Over the investment period, SIFEM’s capital contribution has thus far helped to support the net growth of around 100 jobs at Ruta.
The crisis of 2014 was a major challenge for Ruta. Before 2014, 30 per cent of the company’s revenues and 50 per cent of its profits came from exports to Russia and Kazakhstan. After the import and transit bans, these markets were no longer accessible to Ruta. In the ensuing years, Ruta worked hard to establish new markets in the Baltics, Poland, Germany, and other EU countries. By 2018, the sales volumes to Russia and Kazakhstan had been replaced with shipments to the EU and Ruta’s domestic market share rose from 10 to 18 per cent. The company became profitable again in 2018 and 2019 was the most successful year in its history as measured by net income.
Sperco is a Ukrainian generic medicines producer. Founded in 1995, the company has become one of Ukraine’s foremost producers of pharmaceuticals, particularly cold and cough medicines. From five employees initially, the company has grown to 432 employees today. The local investment partner invested through a 50 per cent stake two years before the crisis of 2014 – to support the company’s growth, which included an upgrade in its production capacity. Over the investment period, SIFEM’s capital contribution has thus far helped to support the net growth of around 100 jobs at Sperco.
Similarly to Ruta, the crisis of 2014 had dire effects on the company. The Ukrainian pharmaceutical market declined by nearly 50 per cent (in USD-terms) and the company’s net revenues dropped by 60 per cent from USD 23.8 million in 2013 to USD 9.7 million in 2015. Instead of cutting costs, 4i Capital decided to invest in Sperco during those challenging times and recruited a first-rate management team, including a new CEO, CFO, and COO. Under their leadership, Sperco increased market penetration, improved the terms of cooperation with distributors, and reviewed and improved the stock of raw materials and finished goods. In October 2016, Sperco also finalised its Good Manufacturing Practice compliance project, which was initiated in 2009 and cost nearly USD 13 million. As a result, Sperco was able to maintain strong operating margins and to preserve jobs. Sperco has been able to recover its pre-crisis revenues (in USD-terms) and profitability by 2017 and, similarly to Ruta, 2019 was the most successful year in the company’s history with an EBITDA (in USD) 4.5 times higher than at the lowest point in 2015.

COVID-19 – faced with yet another major challenge

In the wake of the conflict between Ukraine and Russia in 2014, and the subsequent loss of the Russian market on which they heavily depended, these portfolio companies had to overcome the challenge of completely reorienting themselves and having to find new markets. They did so successfully, but just as they were entering calmer and more profitable waters, the two companies had to face another major event as the current COVID-19 crisis is looming large over their future.
In 2014 as now, these companies are not alone. The local investment partner and SIFEM are doing their best to support and help them overcome yet another challenge, which will ultimately contribute to making the investee companies more resilient. Indeed, the financial strength of the companies has helped them to weather economic shocks and thus to preserve jobs and the incomes they generate. The past successes indicate that this is not likely going to change in the future.

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