As Europe’s economic heavyweight, Germany’s influence extends far and wide – including to Ukraine. After the sharp downturn in the wake of the global economic crisis that started in 2008, bilateral relations with Ukraine’s second biggest investor and trade partner are slowly climbing back.
Whether they will exceed pre-crisis levels, however, depends on Ukraine’s efforts.
Trade between Ukraine and Germany is on track to top $10 billion this year, a level not seen since 2008. Yet relations are far from even. Ukraine has historically been a consumer of German technology and equipment, a situation that persists today. Ukraine, in fact, buys almost four times more goods from Germany than it sells.
Investments are even more lopsided. As of mid-2012 Germany has poured $7.4 billion into Ukraine, according to the State Statistics Service, while Ukraine has only invested $9 million in Germany since independence.
After being strained by the financial crisis, ties are reviving. “Maybe this year we will come back to the pre-crisis level,” says Alexander Markus, Delegate of German Economy in Ukraine.
About 400 German companies are active in Ukraine. Markus said nearly half of those polled reported 10 percent growth in turnover in the last year, while another quarter of respondents experienced from 3 to 10 percent growth.
“If you ask (German) companies about the investment framework in the country, it is understandable that most of them will say it’s difficult,” says Markus. “But at the same time you have to ask how your business is going.”
Taking advantage of Ukraine’s location and low labor costs, some German businesses have production here, becoming among the nation’s top employers.
Leoni, a German producer of cable harnesses for the automotive industry, celebrated this year its first decade of operations in western Ukraine. Leoni employs 5,700 workers in Ukraine.
Wholesale giant Metro Cash & Carry provides 7,400 jobs. Having expanded its network to 28 stores in big cities, the German firm invested $673 million. The next target for the Metro Group is Ukraine’s retail market, which they plan to enter with their supermarket brand Real.
Unlike Metro, with 46 million potential customers, Leoni depends on European demand for auto wiring and cables. And that market is not strong at the moment, with automobile production going down.
German exports to Ukraine – particularly machinery and equipment – drive bilateral trade relations. “We are very good machine builders, (producers of) instruments (and) any kind of specialized machines,” Markus says.
The relationship has long traditions.
Siemens built the first telegraph line from Sevastopol in southern Ukraine to czarist Russia’s capital Saint Petersburg in 1853. “Maybe it’s the German company that has been in Ukraine for the longest time,” says Cornelius Granig, head of Siemens in Ukraine.
Siemens has since continued to play a leading role in Ukraine’s technological development, producing Kyiv’s first tramline, Lviv’s first power plant and bringing street lighting to Odesa. Nowadays, Siemens has a portfolio of companies operating in industry, energy, infrastructure and healthcare sectors, primarily in the business-to-business segment.
Among others, the company provides technologies for wind energy projects and modernizing factories, steel mills and coal mines at such companies as Metinvest’s Azovstal and ArcelorMittal’s Kryvorizhstal plant, according to Granig.
The company is also big on health care, producing medical equipment, from tomographs to hearing devices. “Everything that you see in hospitals that is modeling equipment can come from Siemens,” adds Granig.
While Siemens’ Ukraine operations are profitable, their turnover of $155.7 million in the latest fiscal year is still below pre-crisis levels.
Where business moved, legal experts followed. These include German law firm Noerr, which opened its Kyiv office in 2007.
“We were one of the first law firms which opened a business in Central and Eastern Europe shortly after the fall of the (Berlin) Wall,” says Mansur Rafsendjani, managing partner of the firm. “We started in Prague, Moscow, Budapest, Bucharest and so Kyiv was a logic step.”
Since then Noerr advised many other international clients, including Ukrainian companies. One of their recent deals was a purchase of a wind power plant producer in Germany by a Ukrainian company.
But the big companies are not always the engines of economic growth. “My guess is that some 85 percent of (German companies in Ukraine) are small and medium companies,” estimates Markus.
At present, however, these do not seem hasty to invest. “Large transactions have not been seen in Ukraine by us, because after the financial crisis and now with the political crisis, the German Mittelstand (the country’s economic backbone, composed of small and medium manufacturers) that are usually the trigger for investments, are very reluctant and careful,” says Rafsendjani. “What we see is that Ukraine is on the watch list.”
German organizations in Ukraine
Economic department of German Embassy
tel.: +38 044 247 68 11
Delegation of German Economy in Ukraine
tel.: +38 044 234 59 98
German Business Club
tel.: +380 44 498 49 96
Germany at a glance
Territory: 357,022 square kilometers.
Population: 81.3 million people.
Government type: federal republic.
Head of government: Chancellor Angela Merkel (since 2005).
GDP (purchasing power parity): $3.139 trillion.
GDP per capita (PPP): $38,400.
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: $9.5 billion in 2011. Germany is 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: $7.4 billion as of July 2012. Germany is Ukraine’s second largest investor after Cyprus.
Ukraine’s investment in Germany: $8.8 million as of July 2011.
Sources: CIA World Factbook, State Statistics Committee
Kyiv Post staff writer Maryna Irkliyenko can be reached at [email protected].
