Yuriy Radkovets
Germany as a Driving Force of the Ukrainian Economy, or Ukraine's Main Investor and Trade Partner of Ukraine
With the collapse of the Soviet Union, one of the main Western partners of Ukraine in the investment and trade-economic spheres became the Federal Republic of Germany — the most powerful country in Europe, which shows a special interest for our state.
Since 2010, the leading advisory and coordinating body dealing with the promotion of mutual economic interests of the two countries has been the Delegation of German Business in Ukraine. It is a commercial structure — namely, the representative of the Association of Chambers of Commerce and Industry of Germany, operating under the mandate of the Ministry of Economy and Energy of the Federal Republic of Germany.
In October 2015, in Berlin, the Delegation, together with other partners organized a Ukrainian-German business forum, which became the biggest economic event in Germany dedicated to our state. The forum was concluded a bilateral agreement on the basis of the German-Ukrainian Chamber of Industry and Commerce, which was a prerequisite for release of cooperation between Germany and Ukraine to a new level.
First of all, it made it possible to intensify the investment activity of German business in Ukraine, which is already ahead of most of our other foreign investors. So, at the beginning of 2016 the total volume of German investments in the Ukrainian economy amounted to about 5 billion Euros. By this index, Germany is ahead of the United States, China and Russia, and is second only to Cyprus — an international offshore zone, through which goes capital from many countries, banks and corporations (including international ones).
Currently, German investors are very interested in the Ukrainian construction industry, light industry, electrical engineering, production of spare parts for vehicles, as well as in agriculture. Major German companies, already working in Ukraine, and having their businesses in our country, are as follows:
Klingspor Ukraine — the leading manufacturer of abrasive tools and materials in Ukraine, including sanding equipment and diamond-cutting disks. The products go to both, the Ukrainian and foreign markets. The main plant is located in Velyki Mosty of Lviv region;
KNAUF Gypsum Donbas — the most modern in the world and in Ukraine German company for producing gypsum boards, decorations and dry mixes. Mainly oriented to the Ukrainian market. The main factory is located in Soledar of Artemivsk district, Donetsk region. Today it is in the frontal zone, which complicates its work;
Picard Ukraine — an enterprise for production of modern German quality leather goods. Most of the products are supplied to the German and other European markets. The main company is located in the town of Mukachevo, Trans-Carpathian region;
Forschner Ukraine — a plant for production of the circuit of electrical harnesses for German automotive vehicles of different types, including passenger cars, intercity buses and construction equipment. The plant is located near the city of Svaliava, Trans-Carpathian region on the basis of the former TV plant “Electron”;
Henkel Bautechnik Ukraine — an enterprise for production of building materials. Mainly oriented to the Ukrainian market. The plant is located in the city of Vyshgorod, Kyiv region.
Close cooperation with German manufacturers, especially in car building, is maintained by a number of Ukrainian enterprises with the national and the German capital, in particular:
Industrial Association “Karpaty” (“Carpathians”) — a manufacturer of electrical equipment for German car-building companies, including Porsche, Mercedes and Volkswagen. It is located in Ivano-Frankivsk;
a subsidiary of the international manufacturer of electronics TE Connectivity — Tyco Electronics Ukraine — a manufacturer of connectors and electrical harnesses for German automobile companies BMW, Opel and Mercedes. It is located in Ivano-Frankivsk;
BADER Company in Ukraine — makes car covers for the Volkswagen and Audi group of companies. The enterprise is located in Horodok, Lviv region;
Enterprise “Tochprylad” — a manufacturer of electrical harnesses, acoustic instruments and electronic equipment for German companies BMW, Mercedes and Volkswagen. Located in the city of Mukachevo, Trans-Carpathian region;
a subsidiary of the German company KOSTAL — Kostal Ukraine — produces electronic equipment for German automotive companies BMW, Mercedes and Volkswagen. Located in the city of Pereyaslav-Khmelnytskyi, Kyiv region;
a branch of the international cable manufacturer Sumitomo Electric Bordnetze — Sumitomo cable plant — supplier of equipment for the German company Volkswagen and other European car companies. Facilities are located in the cities of Ternopil and Chernivtsi;
a branch of the German company Bosch — Bosch Ukraine — a manufacturer of starters and other electrical products for German companies BMW, Mercedes and Volkswagen. Located in Krakovets, Lviv region.
The interests of the German automotive industry are also served by other Ukrainian companies, in particular: Kromberg & Schubert Ukraine — Lutsk, Volyn region, electronic products; SEWS Ukraine — Chernivtsi, cable products; W.E.T. Automotive Ukraine — Vinogradov, Trans-Carpathian region — seat-heating systems, sensors, automotive harnesses, etc.
The work of the above-mentioned enterprises contributes to the development of the Ukrainian economy, creating new jobs, attracting to Ukraine modern Western technologies, helping our country enter foreign markets. Besides, according to the legislation of Ukraine, as well as on its own initiative, German companies are actively involved in the development of local infrastructure, public utilities, health care and vocational training in the cities of their location. In many cases, it is the German manufacturing business that takes a leading role in dealing with these issues due to lack of Ukrainian state or local funds for the purpose.
At the same time, German businesses are also interested in other key sectors of the Ukrainian economy, in particular, aeronautical engineering and energy engineering. For example, the government and the military department of Germany highly value the experience of using the Ukrainian transport aircraft “Antonov” in the logistics operations of German troops in Afghanistan. In its turn, this is considered the basis for the implementation of joint German-Ukrainian projects in aircraft building.
At the same time important for Ukraine is the development of investment cooperation with Germany in the energy sector. First of all, we mean the participation of German investors in modernization of the Ukrainian gas transport system, as well as the creation of renewable energy and implementation of energy-saving technologies. These issues are addressed within the framework of programs of the so-called “energy efficiency platform”, which is being implemented with the participation of German Business Delegation to Ukraine, the German Energy Agency, the Committee on Eastern European Economic Relations and other interested organizations and structures. The Federal Ministry of Economy and Energy of Germany, as well as the European Bank for Reconstruction and Development help their activity.
In general, Germany is one of the leaders in the bilateral trade with Ukraine with the volume of more than 5 billion Euros per year.
The basis of Ukrainian exports to the Federal Republic of Germany is production of Ukrainian enterprises of metallurgical and chemical industries, as well as that of joint German-Ukrainian companies for production of automobile parts and certain kinds of light industry's products.
In its turn, the Federal Republic of Germany supplies to Ukraine engineering products, electronics and telecommunication technologies, as well as goods and raw materials of light, food, pharmaceutical and cosmetic industries.
The biggest German investor in this sector is considered to be the company Metro Cash & Carry. It has invested 550 million Euros into the development of modern supermarkets in Ukraine. Also in Ukraine are working, at least two thousand companies and businesses in the trade industry, in studying the markets, provision of legal assistance, business advice and so on.
In particular, among them are as follows: REMONDIS Ukraine (engineering, processing and recycling of secondary raw materials); GEA Westfalia Surge Ukraine (technologies of production of dairy products); O.L.T. Consult GmbH (consulting services for implementation of European projects in Ukraine); TÜV SÜD Ukraine LLC (independent industrial inspections, certification of equipment, personnel training); PETKUS Technologie GmbH (production of equipment for sorting, cleaning and storage of seeds); AMKm Academy for Management (Academy of Management); Arzinger (Law Firm to provide services in the spheres of corporate law, real estate, competition law, litigation and arbitration, and the like); BEITEN BURKHARDT (providing legal services in corporate law, real estate, restructuring and bankruptcy, tax and customs law); Würth Ukraine (supplier of fastening hardware and tools for the construction works); Demag Cranes & Components Ukraine GmbH (manufacturer and supplier of cranes and machinery); Office of Landesbank Berlin AG Ukraine (lending business projects); Roland Berger Strategy Consultants (providing advice on strategic management) and so on.
According to representatives of the German business, the main factors that make the activities of German investors in Ukraine profitable, are relatively low labor costs at its sufficiently high qualification and in general the European mentality. Besides, they point out the lower as compared with the European, costs of energy, land, water and other resources. They also take into account Ukraine's territorial closeness to Europe, which greatly simplifies and reduces the transport connection to the European Union member countries.
Despite the current economic problems in Ukraine as a result of Russia's armed aggression, German experts predict that the Ukrainian economy and the market can be resumed in the nearest future — from 2016 onwards. According to German side's estimates, a powerful positive factor that will contribute to bringing Ukraine out of the economic crisis and to the development of its relations with the EU will be the practical implementation of the Association Agreement and creation of the free trade area between Ukraine and the European Union.
Therefore, Ukraine is a more attractive partner for German investors than China and other developing countries, despite certain costs of doing business.
At the same time, German experts have mentioned a number of serious problems that significantly interfere with further deepening of investments, trade and economic cooperation between Germany and Ukraine.
First of all, such problems include the high level of corruption of the Ukrainian authorities. According to German experts, after the change of leadership of Ukraine in 2014, the corruption almost does not fall from the top, but clings to the middle and lower levels.
The second key problem in Ukraine, from the point of view of German experts, is the imperfection of its legal and judicial system. In this context, German business is most likely dissatisfied with the opacity of the Ukrainian legislation (constant and unpredictable changes in the “rules of the game” on the Ukrainian market), as well as with the inability to effectively (guaranteed!) defend their rights in Ukrainian courts. Although there are some positive changes in terms of possible winning by German businessmen of cases in courts of the second and further levels.
And finally, the third and most dangerous problem for German business in Ukraine is the ongoing armed conflict in the Donbas, and the threat of Russia's large-scale military invasion of Ukraine. Thus, a certain number of German companies operating in Donetsk and Luhansk regions have stopped their work due to the uncertainty of the legal field of the occupied territories, as well as the loss/destruction of the material and technical base because of the combat actions, “expropriation” by militants and Russian competitors.
Besides, the Russian military aggression against Ukraine with a full-scale economic war on the part of Moscow, have considerably aggravated the economic situation in Ukraine. There emerged significant additional problems for foreign businesses and investors. Due to the nature of German business in our country, first of all it concerns the reduction of the consumer potential of the Ukrainian market as a result of complications of the work of Ukrainian enterprises, as well as reducing the purchasing power of the population.
These trends have caused reducing of trade between Germany and Ukraine (already in 2014- by more than 30 %). First of all, suffered losses German imports of cars and other machinery products, as well as exports to the Federal Republic of Germany of products of Ukrainian metallurgy and chemical production. Due to the ongoing Russian armed aggression against Ukraine, similar problems also occurred in 2015.
At the same time, the above-mentioned risks of German business activities in Ukraine are compensated by the German government through the implementation of special government programs, which, in particular, provide for the insurance of German investments in our country and give them certain guarantees.
The German government's support for German business in Ukraine allowed somewhat to minimize the outflow of the German capital. In fact, none of the German companies — producers of real goods and services — has left the Ukrainian market since the beginning of Russia's aggression.
At this, the prospects for the resumption and further development of the German economic activity in Ukraine are guaranteed by the powerful potential of the German economy, showing stable positive dynamics of growth. Despite the economic problems in Europe, in 2015, Germany's GDP grew by 1.7 %, which was a record figure for the last 4 (four) years.
Besides, Germany is one of the main financial donors of Ukraine. In 2014, in connection with the armed aggression of Russia against Ukraine, Germany's direct financial assistance increased three times — up to 96 million Euros. In 2015, the German government increased the amount of financial assistance to Ukraine by almost 1.5 times — up to 136 million Euros. At this, 88 million Euros were allocated for projects of bilateral financial cooperation in the form of loans and 48 million Euros — for projects of non-repayable financial assistance.
At the same time, the Federal Republic of Germany, as the Presidency of the “Big Seven” (G7) in 2015, acted as the chief lobbyist for the provision of financial aid to Ukraine by the International Monetary Fund. This position of the Federal Republic of Germany with the support and assistance of the United States, allowed Ukraine to obtain a loan from the IMF in the amount of approximately 3 billion US dollars. In its turn, this allowed our country not just to avoid default, but to create conditions for the resumption of its economic development.
