German ambassador sees uptick in economic ties with Ukraine

German Ambassador to Ukraine Hans-Jurgen Heimsoeth is not new to Ukraine.

He spent three of his 30 years in the diplomatic corps in Ukraine.

In his interview, Heimsoeth told the Kyiv Post about Ukraine’s chances for signing association and free trade agreements with the European Union, the basis of his nation’s special relationship with Russia and also German sausages and beer in Ukraine.

Kyiv Post: How would you assess political, economic and cultural relations between Ukraine and Germany? Is the glass half full or half empty?

HH: The glass is more than half full. There is no question about it. We are approaching the 20 year anniversary of the opening of our embassy in Ukraine. It was the first embassy which opened here. We have stable political relations.

We have had a clear upswing in economic relations. Germany is one of the biggest investors in Ukraine – almost 16 percent of FDI [foreign direct investment] in Ukraine is German. At the same time the potential is much higher and is by no means exhausted.

KP: What are the major issues keeping relations strong and what are the weak points?

HH: One strong point first of all is that Ukrainians and Germans have good relations. Many Germans live in Ukraine, and a lot of Ukrainians live in Germany. I would say that there are also some positive points in the economic field.

There are structural reforms that are being addressed by this government, which have not been addressed before: pension reform, tax reform. There were some problems I don’t hear very much about any more like VAT [value-added tax] reimbursement. But all in all, it’s not a good sign that even in the last year and a half no big new companies have decided to invest here. The fact is that, unfortunately, Ukraine still seems to be a closed shop.

KP: Many say that Germany will always take a pro-Russian position on Ukraine. Is this true or not?

HH: I read your editorial last week about “German power” [issue #36, Sept. 9]. But I think the approach was not completely correct. Business, of course, is [what] important for Germany. You have to see that German business is really invited into Russia.

There’s the Saint Petersburg – Moscow train built by Siemens; there’s Volkswagen invited to go into in-depth production. So there are attractive offers. It’s not all gas. Of course, gas plays a role, but we are on our way to diversification in means of gas transport and also in means of gas production and resources.

But it’s the economy and business as a whole [that keep German-Russian relationships strong]. And here Ukraine offers much less. So it’s not that there is a political decision of ‘Russia first.’ But Russia offers a lot of attractive business to German companies and sees, at the same time, that this helps modernize Russia itself.

KP: How serious is the risk of Ukraine stumbling on signing the free trade and association agreements, because of the trials of the opposition?

HH: Of course the court proceedings, which have now been ongoing for many months in some cases, have raised doubts among some members of west European parliaments.

Can we in the same time sign the association agreement which sets up European standards and have pictures of [ex-Prime Minister Yulia] Tymosheko in jail? How does it fit together?

Our governments aim at coming to terms with the DCFTA [deep and comprehensive free trade area] and the association agreement by the end of this year. I do hope that it will be signed. It’s difficult to make forecasts. There is an interconnection between what is happening in this country and the signing of the agreements.

KP: If Ukraine does not show progress on the democracy front, do you think Germany will be one of those EU countries that will not ratify the association agreement?

HH: Germany and Germans in general very well understand the importance of Ukraine for the European Union. And I think very much will have to happen [for] Germany not to ratify this agreement. We are going to work [so] that this association agreement is ratified.

KP: What about economic relations between Ukraine and Germany?

HH: German-Ukrainian economic relations are again in an upswing, but we have not yet recovered [from the crisis]. We have about $7 billion [in cumulative foreign direct] investments. This is after Cyprus [the] highest investment in Ukraine, ahead of the Netherlands and Russia. But it has not been rising very high lately.

As to trade turnover, we had 6 billion euros [$8.2 billion, according to Germany Embassy statistics] in 2010. The 2011 numbers will probably be better, but I’m still not sure that we will come back to figures [which existed] before the crisis.

There might be some ‘disinvestment’ ahead by one of the major German companies. But this is not due to the difficult economic situation but to the regional authorities in Cherkassy Oblast not sticking to commitments, trying instead to find a better deal for themselves.

KP: What are the biggest German investors in Ukraine? What sectors are they most interested in?

HH: The last big investment was [made] by the Commerzbank reinvesting into the Bank Forum [March, 2010]. But since then, investments have been more low-key.

There are some German companies which have a high work force in Ukraine – over 6,000 workers in Striy [city in western Ukraine] by Leoni, [a German auto wiring company.] There are big investments in the construction industry by Heidelberg Cement, by retailers Metro Group, Real.

KP: What major hurdles do German investors face in Ukraine?

HH: Very important is the corruption question. German companies have high standards of compliance. And when they feel that they only can come to terms by corrupt means, this will not work. I think this is one of the major reasons why German companies still stay back.

Here I think the Ukrainian media has a task to become the fourth branch of government in the country, taking their share in fighting corruption. The other is, of course, the question of legal contacts and the courts.

KP: Are there any significant Ukrainian investments in Germany?

HH: The number of investments is slowly developing. [There is a] new investment now in Saxony-Anhalt [by] one of the big Ukrainian businessmen. He was so impressed by the way his investment was invited, accompanied and helped all along the way until the contract was finally signed.

KP: What do Germans think of first when it comes to Ukraine?

HH: [Heavyweight boxing champion brothers] Vitali and Wladimir Klitschko.

KP: Are the Klitschko brothers, who speak fluent German and spend much of their time training and boxing in Germany, the main ambassadors of Ukraine in Germany?

HH: They are seen as ambassadors of Ukraine [and] in a certain way they are also ambassadors of Germany in Ukraine. I think they are really committed to improving German-Ukrainian relations, but also to improving the situation in Ukraine itself.

KP: Last question and it’s a tough one. Have you found good sausages and beer in Ukraine?

HH: Yes, just yesterday evening we had a nice festival, brought German wine and there were good German sausages. If you have the right ingredients you can also make German sausages in Ukraine. I feel absolutely fine and not alienated in any way. I think Ukrainians and Germans are very close in many fields and love the same dishes.

Territory: 357,022 square kilometers
Population: 81.5 million people; Germany has the largest population in the European Union.
Government type: federal republic
Head of government: Chancellor Angela Merkel (since 2005)
Gross Domestic Product: 2.14 trillion euro [$2.94 trillion] GDP – per capita: 26,040 euro [$35,700] Main industries: among the world’s largest and most technologically advanced producers of iron, steel, coal, cement, chemicals, machinery, vehicles, machine tools, electronics, food and beverages, shipbuilding, textiles

Ukrainian-German economic relations

Trade: 5 billion euro [$6.8 billion] in 2010. Germany Ukraine’s second largest trade partner after Russia
Exports from Germany to Ukraine: machinery, transport equipment, chemical and electrical products
Exports from Ukraine to Germany: textiles, clothing, metals, alloys, hardware and chemicals
Germany’s investment in Ukraine: 5.4 billion euro [$7.4 billion] as of 01.07.2011. Germany Ukraine’s second largest investor after Cyprus
Ukraine’s investment in Germany: 7.2 million euro [$ 9.9 million] as of 01.07.2011
Sources: CIA World Fact book, State Statistics Committee

Kyiv Post staff writer Maryna Irkliyenko can be reached at [email protected].