Dirty Money

What do Klyuyev, Yanukovych, Ty­moshenko, Akhme­tov, Kurchenko, Fir­tash, & Kolo­moisky have in com­mon? They all turn up in in­ves­ti­ga­tions into sus­pected money laun­der­ing.

Kyiv Post - - FRONT PAGE - By Natalia Datskevych datskevych@ kyiv­post.com

The COVID-19 pan­demic trig­gered a sharp global eco­nomic down­turn and some of the hard­est times in decades.

But from hard­ship, new op­por­tu­ni­ties arise.

For Ukraine, one of them is the chance to cap­i­tal­ize on the trend of Euro­pean com­pa­nies seek­ing to build production ca­pac­i­ties closer to the Euro­pean Union bor­ders. Ger­man com­pa­nies are no ex­cep­tion.

Alexan­der Markus, chair­man of the Ger­man-Ukrainian Cham­ber of In­dus­try and Com­merce, an as­so­ci­a­tion with 165 mem­bers, be­lieves that if Ukraine will seize these op­por­tu­ni­ties and fix its ma­jor prob­lems, such as its weak rule of law and en­demic cor­rup­tion, there is a good chance to at­tract many for­eign in­vestors.

“Op­por­tu­ni­ties in Ukraine today are re­ally huge be­cause the global value chains are chang­ing and will be chang­ing more,” said Markus in his Sept.18 in­ter­view with the Kyiv


Mak­ing prod­ucts for E.U. coun­tries in Asian coun­tries such as China or Viet­nam is al­ready viewed by Ger­man com­pa­nies as risky be­cause of the on­go­ing pan­demic lock­downs and lo­gis­ti­cal is­sues. They need a “backup plan” and are look­ing for new production sites while ask­ing the mil­lion-dol­lar ques­tion: Where to go next?

Markus is ob­serv­ing an­other clear trend among Ger­man com­pa­nies –cen­tral Euro­pean coun­tries such as Poland and are be­com­ing less prof­itable due to grow­ing la­bor and production costs.

These two trends can help Ukraine to turn op­por­tu­ni­ties into real suc­cesses.

But Ukraine has to po­si­tion it­self to cap­i­tal­ize on “the ad­van­tages com­ing from dif­fer­ent changes,” said Markus.

Busi­ness re­la­tions

Trad­ing ties be­tween two coun­tries are strong — among the 27 mem­bers of the Euro­pean Union, Ger­many was Ukraine’s top trad­ing part­ner last year. In 2019, the trade turnover reached $9.4 bil­lion, a 17.3% share among all of Ukraine’s E.U. trad­ing part­ners.

How­ever, over the past few years, the num­ber of Ger­man com­pa­nies op­er­at­ing in Ukraine slightly de­creased due to the global cri­sis and is now around 2,000, ac­cord­ing to Markus. Over­all, Ger­man com­pa­nies in Ukraine em­ploy 55,000–

60,000 peo­ple with the big­gest share — nearly 60% — in the au­to­mo­tive sup­plier in­dus­try, work­ing at plants of com­pa­nies like Leoni and Kromberg&Schu­bert lo­cated in western Ukraine.

At the same time, in Rus­sia, which has waged war on Ukraine since 2014, the num­ber of Ger­man com­pa­nies is three times higher and their cham­ber of com­merce has some 900 mem­bers.

But those com­pa­nies that al­ready chose Ukraine to build their fac­to­ries did not change their mind even af­ter at­tempts to lure them to Rus­sia.

“We have a com­pany that is build­ing a sec­ond plant here and when they were in the process (of de­cid­ing) they re­ceived of­fers from dif­fer­ent Rus­sian cities to come there,” said Markus.

Markus is sure that there is a whole pro­fes­sional net­work of peo­ple in Rus­sia “screen­ing what Ger­man com­pa­nies are do­ing in Ukraine” and they are ag­gres­sively mak­ing their pro­pos­als with de­tailed plans of tax and profit pref­er­ences in or­der to lure them.

But many com­pa­nies say that they “will never in­vest in Rus­sia” be­cause it is “too risky and it has no demo­cratic devel­op­ment.”

Better en­vi­ron­ment, more in­vest­ments

While Ukraine po­si­tions it­self as a coun­try with ideal con­di­tions for the agrar­ian in­dus­try, there are only 50 Ger­man farm­ers grow­ing wheat, corn, rape­seed, beets and sun­flow­ers across the coun­try.

The largest Ger­man in­vestors in Ukraine are in the whole­sale and re­tail sec­tors, like the Metro Cash&Carry su­per­mar­ket chain or man­u­fac­turer of build­ing ma­te­ri­als Knauf. Other com­pa­nies de­cid­ing to go into lo­gis­tics such as HHLA port of Ham­burg, which is build­ing a 150-mil­lion-euro con­tainer ter­mi­nal at the Odesa Sea Port.

But most of the com­pa­nies from Ger­many that have en­tered Ukraine dur­ing the last 15 years are not fo­cus­ing on Ukraine’s do­mes­tic mar­ket. They are con­cen­trated on pro­duc­ing in Ukraine but then ex­port­ing abroad.

The main rea­sons? Ukraine has low pur­chas­ing power, a volatile ex­change rate, tax is­sues and an un­sta­ble po­lit­i­cal sit­u­a­tion.

It all can be changed only “if Ukraine tack­les two or three topics — a reli­able frame­work for the rule of law, no re­turn­ing of bribery and cor­rup­tion, a se­cure com­plaint sys­tem ( through which is­sues are ac­tu­ally re­solved),” Markus said. If so, more Ger­man and in­ter­na­tional com­pa­nies will en­ter the coun­try.

Cur­rently, only one of five Ger­man com­pa­nies would choose to en­ter Ukraine given that they also have the op­tion to en­ter Poland, Ser­bia or Ro­ma­nia.

When it comes to con­ces­sion projects in sea ports and other in­fra­struc­ture ini­tia­tives that are am­bi­tiously ad­ver­tised by today’s Ukrainian gov­ern­ment, Markus did not hear about ma­jor in­ter­ests from Ger­man com­pa­nies.

He says the in­vest­ments for such long-term projects are too risky for most Ger­many com­pa­nies.

The same could be said of Ukraine’s large-scale pri­va­ti­za­tion. Ac­cord­ing to Markus, Ger­man in­vestors would con­sider such projects only if Ukraine would show at least a few ex­am­ples of fair pri­va­ti­za­tions of big in­dus­trial en­ter­prises, and the winner would be a well-known in­ter­na­tional com­pany with a good rep­u­ta­tion.

“We don’t have it un­til now. We have pri­va­ti­za­tions but with win­ners that are ‘ no name’ com­pa­nies,” he said.

En­ter­ing Ger­many

The cham­ber not only helps Ger­man com­pa­nies to en­ter Ukraine but also Ukrainian com­pa­nies in­ter­ested in Ger­many’s mar­ket.

For Ukrainian com­pa­nies, Ger­many’s most at­trac­tive sec­tors are in­for­ma­tion tech­nol­ogy,

ma­chine-build­ing, food and feed man­u­fac­tur­ing, Markus said. Be­hind them are the tex­tile, fash­ion, and cre­ative in­dus­tries.

But the main prob­lem of Ukrainian com­pa­nies that want to en­ter Ger­many is that most of them think they will fail even be­fore en­ter­ing. He of­ten hears from Ukrainian busi­ness­peo­ple say­ing “no one is wait­ing for us there.”

It is a part of the larger is­sue of Ukraine where peo­ple don’t be­lieve in their coun­try and them­selves, he says.

“If they are go­ing as tourists and telling that the coun­try is chaotic, cor­rupt, if they are telling neg­a­tive sto­ries and don’t be­lieve in them­selves, noth­ing will change,” said Markus. Ev­ery per­son has to “al­ways be an am­bas­sador” of their coun­try.

Cul­tural com­mu­ni­ca­tion dif­fer­ences be­tween Ger­man and Ukrainian part­ners can also cause mis­un­der­stand­ings, Markus says. The ap­proaches are dif­fer­ent, yet this is not only unique to Ukraine, but com­mon to most other Eastern Euro­pean coun­tries.

In Ger­many, for ex­am­ple, ev­ery phone dis­cus­sion is fol­lowed by an email that con­firms the dis­cus­sion while in Ukraine a phone con­ver­sa­tion typ­i­cally will suf­fice, ac­cord­ing to Markus.

“Very of­ten a Ger­man writes a long email and the Ukrainian part­ner doesn’t un­der­stand why he is read­ing this email be­cause they’ve al­ready agreed on ev­ery­thing by phone or Skype,” he said.

An­other is­sue of busi­ness co­op­er­a­tion be­tween the two coun­tries has to do with Ukraine’s brand man­age­ment abroad.

For ex­am­ple, Markus named a Ukrainian en­tre­pre­neur who wanted to sell in Ger­many bub­liks, tra­di­tional Eastern Euro­pean bread rolls. He wanted to sell these un­der the brand Roma, which sounds like Italy’s cap­i­tal. As it turned out, Roma was the name of the en­tre­pre­neur’s son.

“If you are very fa­mous you can say this and ev­ery­one wants to know the name of your son, but if you are not so fa­mous maybe it won’t work,” he said.

No rose-col­ored glasses

While most Ukraini­ans had high hopes last year for the new gov­ern­ment formed by Ukraine’s co­me­dian- turned- pres­i­dent Volodymyr Ze­len­sky and for rapid sys­temic changes in the coun­try, the Ger­man busi

ness com­mu­nity in Ukraine was more skep­ti­cal and had “no big ex­pec­ta­tions.”

These not-so-big ex­pec­ta­tions hap­pened to be cor­rect as Ukraine has re­cently been mov­ing back­wards with many of its eco­nomic and le­gal re­forms, es­pe­cially af­ter Ze­len­sky ap­pointed a new gov­ern­ment in March.

“This gov­ern­ment is not de­vel­op­ing a strat­egy, a road map, an ac­tual plan. It’s al­ways re­act­ing to some­thing,” he said.

The same prob­lem was af­ter the EuroMaidan Revo­lu­tion de­posed Pres­i­dent Vik­tor Yanukovych in 2014, when there was a be­lief that strate­gic re­forms could be dis­cussed and im­ple­mented pub­licly.

“It doesn’t work. Be­cause if you have too many dis­cus­sions you will never do any­thing,” said Markus.

In Ukraine, Markus said “the turbo regime is lack­ing a clear strate­gic plan.”

Since the pre­vi­ous gov­ern­ment has been fired in March, the Ger­man busi­ness com­mu­nity has been cau­tious. They be­came ex­tra care­ful when they wit­nessed this sum­mer the fir­ing of pro­gres­sive re­form­ers like the head of Ukraine’s Cus­toms Ser­vice Max Ne­fy­o­dov, Ukraine’s Fi­nance Min­is­ter Ok­sana Markarova and cen­tral bank Gov­er­nor Yakiv Smolii.

“That was a sit­u­a­tion when we had a big ques­tion mark.”

The FinCEN Files, a leak of se­cre­tive bank doc­u­ments, ex­poses both global banks and their in­ter­na­tional clients in mov­ing $2 tril­lion in dirty money across the world. No­to­ri­ous Ukrainian oli­garchs and politi­cians are among those im­pli­cated. The Ukraini­ans who ap­pear in the files in­clude, from left, busi­ness­man An­driy Klyuyev, former Ukrainian Pres­i­dent Vik­tor Yanukovych, former Ukrainian Prime Min­is­ter Yu­lia Ty­moshenko, bil­lion­aire oli­garch Ri­nat Akhme­tov, Yanukovych’s al­leged front­man Ser­hiy Kurchenko, fugi­tive oli­garch Dmytro Fir­tash and oli­garch Ihor Kolo­moisky.

Alexan­der Markus, chair­man of the Ger­man-Ukrainian Cham­ber of In­dus­try and Com­merce, speaks with the Kyiv Post on Sept. 18, 2020. As the head of the 165-mem­ber as­so­ci­a­tion, he be­lieves that Ukraine has new op­por­tu­ni­ties for at­tract­ing more Ger­man in­vestors amid global changes caused by the COVID-19 pan­demic.

The view on HHLA con­tainer ter­mi­nal in Odesa Sea Port. Based in Ham­burg, Ger­many, the com­pany since 2015 has in­vested $150 mil­lion in the port’s largest con­tainer ter­mi­nal.

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