Last year PROMETEY agroholding opened a branch in Egypt and started selling Ukrainian agricultural products to local flour millers and feed manufacturers. During this time the company has expanded its team and product range, started importing technical salt and oranges from Egypt, leased a port terminal and intends to build its own terminal there. The company has not abandoned its investment plans in Ukraine either. Since the beginning of the full-scale invasion, the company has lost 8 elevators, so now it intends to recover the lost storage volumes. It is the elevator business and export to Egypt that brought it the most profit last year.
Latifundist talked to Rafael Goroyan, Chairman of the Supervisory Board of PROMETEY, about the peculiarities of doing business in Egypt, competition on this market with Russians and problems of Ukrainian business, in particular, non-recovery of VAT.
Latifundist.com: PROMETEY has been operating in the Egyptian market for almost a year now. What prompted you to develop your business in this country?
Raphael Goroyan: I thought a lot about building a business in another country even before the full-scale invasion. However, due to certain risks, I was not ready to take the first step. And if it wasn't for the big war, I would hardly have done it.
But in the spring of 2023, the situation in the Bosphorus began to deteriorate. The Russian inspection was using all available means to detain ships heading to Ukrainian ports. Then four large companies defaulted. Imagine the situation: we had a hard time getting the goods into the port, had to wait for a ship from the Bosphorus, and had to ship the goods in a day or two, but the ship turned around. It turned out that wheat in Russia had fallen in price and the buyer refused our goods. I bought it from Russians. Now we are suing these companies in GAFTA and we know that we will win.
But let's go back to 2023. I have a lot of goods and debts on my hands. I see that in times of war, even a first-class international company does not worry about its image and boldly defaults. And I realized that to avoid default contracts and insure such risks, I needed to go into local sales. That's how the business in Egypt was born. Now we make more than 50% of our sales to Egypt.
Latifundist.com: Have you assembled a full-fledged team there?
Rafael Goroyan: Yes, we have. We have 13 people working there. We rent an office of 200 square meters. We have recently completed the renovation. We also bought an office space of 600 square meters, which is still under construction.
Latifundist.com: Who are your customers in Egypt?
Rafael Goroyan: These are flour mills and feed mills. We have a complete sales chain. Here, in Ukraine, we have built good relations with agricultural producers: in exchange for grain, we offer seeds, plant protection products and fertilizers at our Agromarket elevators. We also have our own logistics. That is, we buy agricultural products here, transship them through our elevators to ships and send them to Egypt. And there we sell directly to the consumer.
This is how multinational companies make money. They have their branches and factories in Ukraine and, for example, a trader or a group of traders in Egypt. It's a completely closed cycle - from producer to consumer. And the company accompanies all these cycles and makes a profit at each stage. Although this profit is not very large, it is enough to ensure the company's revenue and normal functioning.
Latifundist.com: In one of your interviews, you said that the Egyptian market is difficult, to put it mildly. How did you find approaches to local producers?
Rafael Goroyan: It was a difficult period in the company's life. And for me personally. There were difficulties at every step. You see, this is a different country, a different mentality and culture. It has a different business climate, everything is different. For example, contractual relations between partners. They have everything established between them. And here we are strangers. They did not let us in for a long time. Even the multinational company Viterra does not enter the market directly, but sells through partners. We went directly to the seller. We sell only on a prepaid basis. In addition, warranty checks work there. And it's quite difficult when a person has to entrust money and prepayment.
Latifundist.com: Is the reception warmer already?
Rafael Goroyan: Yes, only after a certain period of time did they gradually start letting us into their small family. And now we have become full-fledged members of this market. I can even say with certainty that PROMETEY has a serious impact on pricing in the Egyptian market. Yes, we have made a lot of bumps in the road, but this season, I am sure, we will reach the profits we have planned.
Latifundist.com: What problems did you face at the beginning of your work in this country?
Rafael Goroyan: For example, we waited almost a year for an export and import license. At the time when we were just entering this market, local legislation did not allow a Ukrainian company to own 100% of the shares. We were forced to work through locals, and it was a mistake.
Latifundist.com: Egypt has constant problems with the currency. You once said that there is even a barter system there.
Rafael Goroyan: We had to barter for some of the products we supplied there. At that time, there was a lot of inflation there, we couldn't buy a dollar, so we started importing oranges and salt to Ukraine. And then Dubai invested in Egypt's economy and the dollar leveled off. Now it is tightly controlled. However, we continued to import these products.
Latifundist.com: Salt? Wow.
Rafael Goroyan: Don't be surprised, we currently occupy about 25% of the technical salt market in Ukraine and plan to develop this area.
Latifundist.com: What about oranges?
Rafael Goroyan: Ukrainians are getting used to Egyptian oranges. In general, they are considered the best in the world in terms of sugar and taste. They contain the least chemicals and are large in size. Therefore, if you see Egyptian oranges in the supermarket, it is definitely brought by PROMETEY. They are slightly more expensive than the Spanish and Turkish ones that Ukrainian consumers are used to, but I assure you that they are much tastier. And they are also stored longer.
Latifundist.com: Do you plan to carry anything else?
Rafael Goroyan: We have been delivering some watermelons and grapes. But we did not have time to seize the moment for vegetables. Now our team has been trained and next year, I think, we will also import vegetables from Egypt.
Latifundist.com: Let's go over it again, are the products you bring to Egypt exclusively Ukrainian?
Rafael Goroyan: We bought some in Brazil, but now we work only with Ukrainian products.
Latifundist.com: They feel quite comfortable in Egypt. How do you manage to compete with them?
Rafael Goroyan: The biggest challenges are wheat, oil and sunflower meal. But our team finds gaps and knows what products they have a shortage of.
What is our advantage? We have a full range of products so that our traders can work comfortably. When a buyer comes to us, just like in a store, they receive a full list of products and cover their immediate needs. Wheat of all grades, food fodder with different proteins, barley, corn are the products that are constantly present in our assortment. It is also important to get into a position to buy cheaper in order to sell more expensive there. But retail and distribution still have their own solid margins.
Latifundist.com: In what products is Russia not a competitor to Ukraine?
Rafael Goroyan: Corn. About 60% of corn grain comes from Ukraine. Russia barely has enough for its domestic needs.
As for wheat, it is our biggest competitor. Egypt has a population of 120 million and consumes 25 million tons of grain annually. In the region where we operate, there are 120 flour mills, both large and small. Egyptians are very fond of flour products. They eat them for breakfast, lunch, and dinner. That's why our traders are in direct contact with flour mills.
Latifundist.com: Who are our competitors in oilseeds?
Rafael Goroyan: In soybeans, Argentina and Brazil. We supply only 15% of the Egyptian market with soybeans.
Latifundist.com: Recently, PROMETEY announced that it had rented a port terminal with two warehouses with a total storage capacity of 60 thsd tonnes in the Egyptian port of Alexandria. Do you have any plans to build your own terminal?
Rafael Goroyan: We have such plans. Our sales volumes already allow us to build our own terminal, which will pay off in 5-7 years. We are currently looking for a place for construction.
Latifundist.com: How developed is the port infrastructure in Egypt?
Raphael Goroyan: The shore is state-owned, and private businesses have no right to build elevators on the berth. They are built outside the port. The distance can be 2-5 km. But this is not a problem, as agricultural products are loaded onto trucks very quickly there. They can transship 50 thousand tons per day without having their own terminal on the shore.
Latifundist.com: In your opinion, what experience could the Ukrainian business adopt from the Egyptian one and vice versa?
Raphael Goroyan: Ideally, Ukrainian business has a lot to learn from Egyptian business and vice versa. But the difference is in the mentality. Egyptian business is not used to contractual relations. They use the word “merchant”. I wouldn't say that they don't cheat each other, but they try to prevent it. They are very religious people, most of them Muslims. Ramadan lasts for a month and a half. Local businessmen are also believers and observe all the holidays. This has a great impact on business. What could they learn from us? Speed. To make customs clearance and payments faster. So far, it takes them a lot of time. We occasionally get into a demurrage there, but most of the time it is due to the human factor. They do everything very slowly.
Latifundist.com: Tell us about your business in Ukraine. What areas do you plan to develop
Rafael Goroyan: We are planning to invest in the elevator business. We want to return the volumes we had before the full-scale invasion. Back then, we had 34 elevators. Now, due to the shelling and occupation, we have 26 left. So it turns out that the machine can produce 20% more, but the engine does not pull. We either have to downsize the company or buy more elevators. We chose the second option.
Latifundist.com: Am I right to assume that you are looking at elevators in the central and western regions?
Rafael Goroyan: Since we have lost 8 elevators, we are certainly looking at safe regions. But it is not only the Center or the West. There are a lot of offers on the market, but the entrance price is also important. The elevator should be profitable. The southern regions are no longer paying off. Mykolaiv ports are not working, and this is a serious blow to the agricultural sector. They used to create serious competition with the ports of Odesa. And now logistics to Odesa ports costs $20 per ton and more. This hits the farmer's pocket hard. In fact, he pays for it and breaks even.
Latifundist.com: As for logistics, you have a large car and railroad car fleet. Is it a profitable business today?
Rafael Goroyan: At the end of the season, the fleet is idle and works at a loss. But during the season it makes a profit. On average, we make a small profit for the year.
The car park is still rented. We do not ship anything. Power outages will continue to affect the operation of the rolling stock for a long time to come. The stations are without lights and the cars are idle for a long time. Therefore, this direction is gradually and for a long time going into a loss. But we are not giving up on him yet.
Latifundist.com: How much has your production company changed crop rotation this year?
Rafael Goroyan: We work in the South, so we grow traditional crops for this region - wheat and sunflower. But barley was abandoned because it has a lower yield and a cheap price on the market.
Latifundist.com: What is the situation with land demining?
Rafael Goroyan: Only 500 hectares remain to be demined in Mykolaiv and partly in Kherson regions. These are the lands where the most intense fighting took place.
Latifundist.com: Do you export anywhere else besides Egypt?
Rafael Goroyan: We reduced exports to other countries. The main problem is the relationship with the state, namely with the tax service. I do not see that there is mutual understanding between the tax office and business. We are quite often in opposition with them. It is not normal. It is necessary to remove this tension.
It seems to me that during the war, those companies that did not leave Ukraine and business, protect it with all their might - heroes. After all, the agricultural sector worked either at zero or at a loss all last year. All directions, except ports and elevators. For example, only the elevator business allowed us to turn a small profit.
I want my partners to know that we lost 50% of our business. We managed this problem, but it cost us two and a half years of sleepless nights and painstaking work. Our partners and financial institutions that help us with loans should know this. There are still a lot of questions, but now we understand how to live on.
Latifundist.com: How does non-payment of VAT affect Ukrainian business and specifically PROMETEY?
Rafael Goroyan: Many people think that VAT is a profit for business. A company cannot physically export and earn 100% VAT. We get only 1-2% profit from this VAT. Therefore, the authorities must react harshly and finally reach some kind of understanding. Because if we lose this direction as well, transnational companies will leave the market. People must have a job, a salary. They stayed here instead of leaving.
Latifundist.com: How much was not refunded to you?
Rafael Goroyan: These are hundreds of millions of hryvnias. Now we are in court. But by the time these trials are over, inflation will eat up all those funds. We have, for example, non-return of VAT even before the full-scale war, when the dollar was 25 hryvnias. In my opinion, it is necessary for business and the tax office to sit down together and develop a certain work algorithm. After all, there is already a great successful case: when the "grain corridor" was closing, business and the government sat down together and voiced their vision of the situation, which will help to work further. We need to find a solution together.
Latifundist.com: You say that you started exporting less. So you only drive to Egypt now?
Rafael Goroyan: We can export to Egypt exactly as much as we can sell. And we began to passively export to other directions.
Latifundist.com: Does the elevator business and trade in Egypt seem to be profitable for the company today?
Rafael Goroyan: Yes, the main source of income is elevators. Next year it will be Egypt. We are growing there and we hope that we will realize all our ambitious plans.
Latifundist.com: Do you plan to conduct local trade in other countries in the future?
Rafael Goroyan: In Spain. This year, we will be engaged in preparations — company registration, obtaining licenses, renting a port terminal, and searching for traders. And next year we will fully enter this market.
Latifundist.com: No rush.
Rafael Goroyan: Yes, without haste, so as not to make the same mistakes that were made in Egypt. We were in a hurry to get to the Egyptian market, because the elevators were under fire and we had to sell the goods somewhere quickly. There is no such problem now, so we will weigh all our actions.
