Ukrainian President Volodymyr Zelensky this week again met with business leaders of another country, this time in America.
But on only his third foreign trip as president, Zelensky sat down last summer for two hours with 30 German business representatives in Berlin after his talks with German Chancellor Angela Merkel.
In the room for the June 18 meeting was Alexander Markus, chairman of the 150-member German-Ukrainian Chamber of Industry & Commerce. He is based in Kyiv.
He said Zelensky, in response to questions from the Deutsche Bank representative, gave answers that are still very much relevant today.
One question was whether Zelensky will respect the independence of the National Bank of Ukraine. Zelensky replied yes.
The other question was about PrivatBank, the state-owned bank that used to belong to billionaire oligarch Ihor Kolomoisky, who is accused of looting $5.5 billion from the bank through insider loans. Now Kolomoisky, who denies bank-fraud allegations, is suing to get the bank returned to him and seeking compensation through the courts.
With all eyes watching how Zelensky will treat Kolomoisky, on whose 1+1 TV channel the president’s comedy show gained popularity and with whom he met in the President’s Office on Sept. 10, Zelensky assured the group that he would do the right thing regarding PrivatBank.
“He stated that the former owner of PrivatBank will not get any kopecks from the government while he is president,” Markus recalled. “This is very clear, but we all know the Ukrainian reality. What will come with another court decision?
“He was very open,” Markus recalls of the Berlin meeting with Zelensky. “What I liked very much is that he said I’m here to listen. I’m not here to tell you your business, just tell me your challenges. The attitude was very positive and the German business is actually very positive, but waiting. We don’t get 10 phone calls from German investors every day. We’d like to.”
He said that Germans are curious and excited about Zelensky, and he is careful to explain the new leader as not simply a comedian but also a successful entrepreneur.
Waiting for rule of law
German companies are well-schooled in Ukrainian realities. An estimated 2,000 German companies employing 60,000 Ukrainians, many making automotive parts for export in western Ukraine, are doing business in the country. Some Germany companies started more than 20 years ago.
In rough terms, trade between Germany and Ukraine hit $8 billion in 2018, with German exporting $5 billion to Ukraine’s smaller, but growing, $3 billion in exports to Germany.
The stories of the hardships and corruption in Ukraine have kept new German investment at roughly $1.7 billion, unchanged over many years. But Markus notes that the figure represents only fresh capital — not the substantial additional investments of existing German businesses in Ukraine.
The figure could be much higher if Ukraine would fix its courts.
Instead, German businesses “have to invest a long of management resources” trying to fight off, in court and elsewhere, one legal infringement after another — ranging from attacks on intellectual property rights to raider attempts and a host of other transgressions that reflect a business climate that is still far from ideal. He cited one of the absurdities: A court accepting as evidence a copy of a document notarized in 2013 in Luhansk, an eastern Ukrainian city now under the Kremlin’s control, making it impossible to verify the document’s authenticity.
Aside from the legal issues, German companies are also being confronted with the “brain drain” of Ukrainian workers to places such as Poland, the Czech Republic and Hungary.
‘They have to deliver’
Markus first came to Ukraine in 2006 and soon witnessed the gridlock that came with the tandem of President Viktor Yushchenko and Prime Minister Yulia Tymoshenko.
“You always had two centers of power: Tymoshenko and Yushchenko. If they are against each other, they are losing time because they are going in different directions. From my point of view, a powerful government with the support of parliament is not bad. There are risks, sure, but on the other hand, now they can’t blame anyone. Now they have to deliver.”
He said the prescription for success was well-known when he first arrived 13 years ago, if the Ukrainian government would have “just started doing it…but it did not happen, unfortunately.” He hopes Zelensky will get five years to make progress. But said that if the new government disappoints, “I don’t know what will come then.”
Early parliamentary elections won by Zelensky’s party in July, rather than waiting for the scheduled October ones, were also a plus, he said. “Ukraine would have lost much more time had the parliamentary elections taken place in October,” he said.
Change in attitude
For Ukraine to really attract more investment, it needs to tout success stories so that others with capital are willing to take the risk, especially for high-end investments in technology and other innovative ventures.
Self-confidence helps, he said. He said Berlin went through a period in the 1990s when residents were talking down the capital, which was suffering from high debt and high taxes. A marketing campaign “Be Berlin” promoted the capital’s diversity and strength, he said, and helped change attitudes about what is now one of the hippest and most prosperous cities in Europe.
The same could do wonders for Ukraine.
“We all have to work on it. If people don’t leave the country and we work on it, maybe after five years, we’ll have a changed country,” Markus said. “The big challenge I see today is the attitude of Ukrainians to the country. If Ukrainians don’t believe in their country, maybe no one else will.”
Ukrainian confidence, he said, may help erase the doubts of hesitant capitalists who “have to be very sure” before making big investments.
Those Germany companies that have invested in Ukraine, he said, are fortunate to have little encounter with Ukraine’s oligarchs.
“Monopolization is not so much a topic,” he said. “In renewables, there’s really not monopolization anymore,” unlike during ex-President Viktor Yanukovych’s era, when the Klyuyev brothers, Andriy and Serhiy, and billionaire oligarch Rinat Akhmetov controlled the renewable energy sector.
“German business is just not engaged in any spheres where you could meet these monopolistic structures,” he said.
Decentralization
Markus has been impressed with the way in which Ukraine has empowered regional and local governments with greater taxpayer money. “It was maybe the biggest achievements of the last two years,” he said. But “it is also an achievement where you didn’t hurt anyone.”
He also said that Ukraine has improved in reducing but not eliminating the rent-seeking, shadow economy that flourished under Yanukovych and his predecessors, when wealth mainly flowed upward to the ruling elite.
But to make a real breakthrough in fighting corruption, Ukraine’s government and society must confront and defeat vested interests stifling the nation’s development. “In the end, no one will believe that Ukraine is really fighting corruption if no one is going to jail, and it should not be (just) a political enemy.”
Former German Ambassador to Ukraine Christof Weil, who served from 2012–2016, “always said he would wish for more political bravery,” Markus said. “In the end, if you want to change a special system, at some point you have to make decisions that are directed against interest groups and certain people and you will have a conflict.”
