Batyr Annaiev, the Chairman of the Management Board of S-Engineering, made a presentation on the online conference

Batyr Annaiev, the Chairman of the Management Board of S-Engineering, made a presentation on “The potential of Ukrainian engineering and how best unleash it” during the online conference. This is the webinar “International Cooperation and Integration into Global Chains” of the Industry4Ukraine Anti-Crisis Analytical Centre.

Also, among the speakers and participants in the discussion are representatives of the Ministry of Economy, the Chamber of Commerce and Industry of Ukraine, the Institute of Economic Forecasting of the National Academy of Sciences of Ukraine, relevant associations, the Ministry of Education and Science and leading market participants.

Conference recording can be viewed here.

Batyr Annaiev’s analytical article on the situation of the Ukrainian engineering services market and measures that Ukraine should take to develop that industry, you can read on the Industry4Ukraine website or below:

The potential of Ukrainian engineering and how to best reveal it

“Since its inception, S-Engineering has been focused on the production of equipment and the provision of engineering services (development of project documentation, software, adjustment work) according to international standards, with an orientation to the world market. S-Engineering is already part of the supply chain ecosystem, supplying its products to the countries of Central and Eastern Europe” said Batyr Annaiev, Head of the Board of S-Engineering.

To be integrated into the global supply chain processes, it is necessary to comply with European quality standards, both of the product itself and of its production processes. For S-Engineering, the main coaches have always been its customers. For the first time, a complex and lengthy technical audit by S-Engineering took place in 2009. Then a tender was won at one of the oil companies included in the Italian concern ENI for the construction of a power unit, a primary oil refinery, with a design capacity of 22.5 thousand barrels per day. Nine specialists of the concern spent a week and a half at the S-Engineering factory, conducting an audit of production processes, project management procedures, staff qualifications, and the legitimacy of the software products used. Today, this practice of conducting client audits for S-Engineering is the norm. It is worth adding that every year S-Engineering undergoes a technical audit according to the strict criteria of Siemens AG, which are set, among other things, for European companies.

The competitiveness of S-Engineering products is determined by the following criteria:

• High coefficient of price / quality ratio of the product, which was achieved, including due to the localization of production in Ukraine, forming the maximum added value. At the entrance to the production process – a sheet of metal, at the exit – finished products. The company imports part of the components.
• High level of engineering competence of staff. Work in an environment of international requirements, rules, standards and production norms. Use of software products and the same tools as in the EU countries.
• Own innovative developments. The company has an R&D department in which 7 people are involved, most of whom have academic degrees. Today, S-Engineering has three patents of its own and two technologies, including SENUMAC – the technology for managing the conveyor line of bulk materials. This is an intelligent algorithm that independently selects the optimal mode of loading grain or ore onto a vessel per unit of time. The technology allows to increase productivity by 10.5% and save electricity consumption by 11% when transhipment of grain at sea terminals.

This example is interesting because the first client that SENUMAC was interested in was a marine terminal with foreign capital (now Cofco Agri). Then, this technology was introduced by a company from South Korea at a terminal in Mykolaiv. In general, today in Ukraine SENUMAC technology operates at marine terminals with a total design capacity of 6.5 million tons, another 12 million tons are in operation.

The problematic issues of the engineering services market, equipment production include:

• Inconsistency of Ukrainian norms and requirements with engineering standards applicable in the territory of the European Union.
• Inaccessibility (high cost) of loan programs for financing projects. Lack of support from banks in Ukraine, high financing rates. For example, in 2018, S-Engineering won a fairly large tender in Algeria. And at the stage of completion of negotiations, the customer announced that the tender would be given to another company that offered its own financing of the project.
• The imperfection of the regulatory framework formalizing financial relations between suppliers and manufacturing enterprises. In the supply chain system, sometimes you have to work with customer equipment (tolling schemes). Theoretically, this form of relationship is possible, but in practice it does not work, and you have to arrange the goods as ordinary imports with all the necessary procedures. And when paying VAT there is a gap in cash flow, and this does not increase competitiveness.
• Low image ratings of Ukraine in the international arena. For example, if a Ukrainian company at the tender stage provides a price 5-7% lower than European similar offers, then the customer will most likely choose a company from Europe.
• Long delivery times. If Polish enterprises, which, by the way, are also S-Engineering customers, receive cargo from Germany in a few days, a maximum of a week, then for a Ukrainian company the delivery time is initially more than one and a half to two times.

It is good that in Ukraine, the topic of reshoring (production migration) has begun to be actively discussed. In fact, this issue has been discussed for many years in Europe, but now it has become more relevant than ever. S-Engineering was a member of the CEE Procurement & Supply Forum in 2017 in Prague. And even then, such countries as Bulgaria, the Czech Republic, and Poland were considered as production locations. It is noteworthy that the forum had a whole section – Added value & CEЕ supply chain, this is just about such as S-Engineering – a company that is already creating added value in Ukraine. Today there is a lot of talk about the need to create a Ukrainian product and pay taxes in Ukraine. But in essence, enterprises are limited to the fact that they carry out, as a rule, a large-knot assembly of imported components and put the marking “made in Ukraine” on the product.

According to Batyr Annaiev, Head of the Board S-Engineering, Ukraine needs to take a number of measures to motivate the transfer of production here and create a new one:

• create a favourable business climate for reshoring, including legal protection of the investor;
• to simplify the design of the opening of production of foreign manufacturers in Ukraine (import of fixed assets, obtaining permits);
• create preferential conditions for taxation of producers in Ukraine;
• additionally, motivate enterprises to buy a product of a Ukrainian manufacturer: due to tax incentives, preferences for investors when creating investment objects using domestic equipment;
• to support the Ukrainian manufacturer: to protect the national component in the manufactured products. For example, in carrying out a project to modernize the railway in the Republic of Kazakhstan, S-Engineering, in accordance with the norms and requirements of the legislation of Kazakhstan, had to produce part of the equipment in the territory of their republic. And S-Engineering fulfilled these requirements, although all the equipment could be produced in Ukraine;
• develop and implement a state investor lending program for purchases of Ukrainian production, as well as issue grants for the development of Ukrainian production;
• support export (similar to the Hermes program in Germany);
• cooperation of Ukrainian manufacturers in the implementation of foreign projects;
• create specialized industrial clusters with tax incentives (an analogue of the free zone in the Dubai, UAE);
• complete the process of bringing production norms and standards in Ukraine to the requirements of the EU. At the same time, one should not be afraid that European companies, when entering the Ukrainian market, will compete with Ukrainian companies. In exchange, domestic production companies will receive disproportionately more – the EU market for enterprises from Ukraine.
• To formulate a funding program for universities for cooperation with large manufacturers for practical training of students. Indeed, today in Ukraine, in spite of a rather good basic technical education, there is an acute shortage of personnel. To prepare a qualified specialist in the field of industrial automation, some programming courses are not enough. This requires knowledge of physics, electrical engineering, mechanics, 3-4 years of study at a university and several years of work at the enterprise. S-Engineering has long become a training production site for students of ONAPT and ONPU. And by facing with a personnel problem, wishing to develop an engineering education system in Ukraine, S-Engineering presented ONAPT with a laboratory for automation and electric drive with modern equipment from world manufacturers.

“Thus, production / science / finance / fiscal policy – all of these should become a motivating factor for global manufacturers to place part of their production in Ukraine. It is important that this be a highly qualified, technologically advanced production with the formation of maximum added value in Ukraine,” Batyr Annaiev emphasizes.

It is by the combined efforts of all market participants and with the support of the state that the production ecosystem in Ukraine is created. The main thing is that people, specialists stay to work in Ukraine and develop the economy of our country.