As Ukraine's top officials visited Germany on Oct. 23 to sign an agreement on launching the German-Ukrainian Chamber of Commerce, German Chancellor Angela Merkel made it clear that Ukraine must fight corruption if it hopes for stronger business ties.
With $6 billion in bilateral trade in 2014 and more than 1,000 German companies in Ukraine, Germany is Ukraine’s third largest trade partner after Russia and China. But all would be better if Ukraine combatted corruption more strongly.
“The dominant role of the oligarchs needs to be reversed, people need to be given transparency, corruption must be fought,” Merkel said on Oct. 16, according to Reuters.
A week later the chancellor said that Ukraine’s free trade pact with the European Union, which will come into force on Jan. 1, should provide a trade boost.
As another act of commitment, next year Germany will provide Ukraine €88 million in loans and €48 million in grants for the implementation of 20 projects covering such areas as energy efficiency, humanitarian assistance to internally displaced persons and economic development.
Nicolas Hempel, the deputy director of GIZ Ukraine, a German state-owned consultancy firm that will be coordinating almost half of those loans and grants, says that reforming Ukraine’s energy sector is priority.
“If the efficiency could be increased to European standards there would almost be no need to import vast numbers of gas,” Hempel said.
GIZ collaborates with the Ukrainian government by advising officials on various energy policies. They mainly tackle the problem with publicly-owned buildings – schools, kindergartens, hospitals – that are very energy inefficient.
Another GIZ project has been the restoration of Ukraine’s western city of Lviv. So far 1,850 households have benefited from the program where courtyards, balconies, staircases and entrance doors have been restored. This will also advance tourism.
Hempel says some German businesses see Ukraine’s challenging times as an opportunity.
Bayer, a German multinational chemical and pharmaceutical corporation, is one of them. The company, started in 1863, survived two world wars. Aliona Galkina, a head of legal department and compliance officer at Bayer, says that the problems with Ukraine is manageable. Operating in more than 150 countries, Bayer started operating in Ukraine since 1992. At the moment about 500 people, mostly Ukrainians, work in their Kyiv office. “Ukraine has a valuable asset of human resources,” she said.
Ricardo Giucci, of the German Advisory Group consultancy group, agrees. “Labor productivity is very high compared to wages. The EU is very near, so the transport costs are very low,” he said.
Giucci thinks Ukraine should focus on labor-intensive industries to take advantage of its low costs in this area.
But the fight against corruption and excessive bureaucracy is paramount.
“In Germany, if my company sells a service to another company, you need just an invoice. In this invoice you have all the details you need regarding this transaction… In Ukraine for such a transaction you need four pieces of paper.”
The non-transparent customs procedures, which pave the way for illegal imports, make business more difficult for those trying to operate transparently.
Giucci also sees hope in the engineering sector if privatization takes place.
“Many important companies in the engineering sector are still state-owned,” Giucci said. Privatization “should have been done many years ago.”
Giucci also hopes for a rollback of Ukraine’s emergency currency restrictions, which are onerous. On the bright side, Giucci said procedures for refunding value-added tax have improved.
Bayer’s Galkina put it this way: “Is it difficult to run business in Ukraine? Yes, it is. Are there many challenges? Yes, there are. But these are not the reasons to leave.”
Kyiv Post staff writers Ilya Timtchenko and Denys Krasnikov can be reached at [email protected] and [email protected].
