Agriculture, Investments, Latvia, Markets and Companies

One of the main reasons to be noted here is dishonesty of cooperation partners and the high level of corruption in several countries, which stands in the way of justice and successful business. Being unwilling to conform to such a system and support it, we have no other choice than to examine the possibility of leaving these markets.

Obviously there are many stumbling blocks in business. Often these are our own mistakes or just coinciding circumstances, but unfortunately sometimes we also encounter dishonest actions on the part of other entrepreneurs — our cooperation partners. To our own surprise, we were blindsided by the methods of operation employed by the local Ukrainian managers of a respectable American investment company.

A little over 12 years ago we were approached by financial investment fund New Century Holding (NCH Capital) from the USA, which, at the time, did not have any agricultural experience in Ukraine, but wanted to set up funds and expand its investments in the agricultural sector. They were looking for reliable partners with experience and a Western approach. NCH Capital was reluctant to set up partnerships with local businesses.

At the time, we had already established two successful businesses. We began working with NCH Capital and founded a joint venture in Ukraine — Golden Sunrise, which was based on our already functioning companies founded before. Even more, we were actively encouraged to go in on this partnership by Kārlis Cerbulis, head of the NCH Capital office in Latvia.

We signed an investment agreement with them, which provided that we would cooperate as equitable partners: the investment fund would finance the project, whilst we would ensure production and manage the day to day business.

Under our management and based on our experience, Golden Sunrise grew to be a very successful and profitable company, managing over 30,000 hectares of agricultural land. The model of our operations became the basis for the further development of NCH Capital in the agricultural sector of Ukraine, setting up new funds and farms.

Unfortunately, in the past couple of years everything started to change. NCH Capital gradually began overtaking control of our joint venture, using questionable methods, nonetheless. They set up off-shores, from which our company was forced to take loans and purchase raw material at inflated prices, while selling them our products at prices below market value, thus syphoning off part of the company’s profits. This was followed by an absolutely unacceptable staff policy and the illegal take-over of the company’s management.

NCH Capital took full control of the company, came in and fired the director, replacing him with their own. All the logical consequences then ensued: minutes of meetings that had never happened, selling off of products, taking out loans, which we were never informed about. It was basically an illegal takeover. This has a significant impact on the value of our business in Ukraine compared to what it was just two years ago. As a result, we have undertaken several legal actions and informed the authorities.

We never imagined that something like this could be expected of a respectable American fund, which has invested more than a billion US dollars in Eastern Europe. We naively believed that collaboration with NCH Capital would be our opportunity for honest business in Ukraine, in line with Western business practices. The complete opposite turned out to be true.

Taking into consideration that Americans hold the principle of honest business in such high regard, I do not know if the investors of the fund approve of such actions. But their behaviour tells a different story.

The assets of the investment fund come from universities and pension funds. Respectable companies invest their money in this fund. I doubt that they are aware of how this money is managed down the line.

Of course, we have tried to resolve the matter through negotiations, but that is not possible if the other party is not on board. So far, we have not been able to come to any understanding. I suppose that could be the shareholders’ approach: abide by the highest business standards in the US, but turn a blind eye to what the managers of the fund’s assets do anywhere else.

What can we learn from this case? Entrepreneurs can never, ever let their guard down and lose vigilance, despite the seemingly good reputation of their business partners, especially in countries where the business environment differs from what we are used to in Latvia.

It is true that there are plenty of obstacles to business development in Latvia, as well, but they can be overcome. Furthermore, the business environment here is constantly improving, and that is an important positive difference to Ukraine, which lets us look to the future with optimism.