Corruption hits under the belt

His diploma reads that he is a trained electronics engineer. His CV reads that he worked for Siemens in that capacity before starting his own business that would embrace electronics, energetics, engineering, marketing, and investment. Herr Hannebauer is using his academic knowledge accumulated in Germany also to secure foreign inland investment in Ukraine (he first found himself in Ukraine back in the early 1990s, so he has had time enough to upgrade this experience). He says back then the situation was hair-raising, with local mobs going full blast, acting hand in glove with local authorities, when no business could be done on a bona fide basis, when anyone attempting it had to fear for his close and dear ones. He had to flee to the West. He returned at the start of the next millennium, satisfied that business had received another chance [in Ukraine]. At present, he has two offices in Kyiv and Sumy, and keeps doing business elsewhere, focusing on attractive investment projects and locating prospective investors.

Says Veit Hannebauer: “If you think that investors come to Ukraine because they like this country and its working conditions, you have another think coming. They do so because I persuaded them to do just that, because I know this country inside out. I’ve studied everything there was to study about ways of doing business [in Ukraine] to meet the requirements of both legislation and [central] budget.”

The latter was a pain in Hannebauer’s neck. There were no loopholes. He says Germany’s IRS might well visit you one rainy morning and ask about doing business without registering any revenues, wondering about this line of business as your hobby. Then they would simply close your business.

Are you paying taxes in Ukraine?

“Of course I am, and I have been paying taxes in Ukraine and Germany… I have property, including real estate in Germany, and keep paying all taxes. In Ukraine, I’m not only a company owner. Until recently I was also an individual businessman. The newly enacted Tax Code discriminates against me as a nonresident. Now I can’t pay the uniform [business income] tax. Your Tax Code contains polarized clauses, with some allowing to do this or that business and others prohibiting it. In Germany this legal collision would be resolved for the taxpayer’s benefit. In Ukraine, the finance ministry appears to be acting like the proverbial ostrich, with no explanations forthcoming. How am I to interpret the term ‘nonresident’? Does this mean a foreigner? How about a foreigner who is doing business in Ukraine, paying taxes and all of his personnel – in my case a private businessman duly registered in Ukraine? I will have to fire my personnel before long because under your general taxation system I will have to pay 50 or more percent to all your social funds/foundations, along with 15 percent of company revenues. That’s more than demanded anywhere else in the world.”

What was your most effective investment project in Ukraine?

“My business experience in Ukraine numbers more than twenty years, including over a decade in terms of investments. Quite frankly, I can think of few effective projects, compared to other countries where the investment process is far more faster and effective. Therefore, I find it hard to answer your question. There are constant obstacles. I did have promising projects but those would be deadlocked by a political situation or by misunderstanding on the part of local authorities. Your country still fails to comprehend the importance of foreign inland investment, hard as this task may prove to be. As a matter of fact, I have carried out several small-time projects, including an Austrian company for which we did an analysis that allowed it to start doing business in Ukraine. Well, that was a sale transaction. I also remember the good farming equipment sales made by other partners. We’d combined efforts organizing an exhibit in Ukraine and helping certification paperwork. We have other projects in mind. They’re worth hundreds of millions of dollars, but there is the [Ukrainian] red tape; the larger the sum, the harder the way to implement it. Of course, after slipping thick envelopes into bureaucratic pockets, any such problem could be solved overnight. This isn’t the way I do my business. I’m using my stockholders’ money, sums earned by [some of those] people during their lifetime. Also, our management makes sure every cent is spent for the designated purposes.

“Men keep visiting my office demanding some interest payments. Naturally, I ask what I will receive in return. They say no one will bother me afterward. I may suddenly discover that some actually worthless property is suddenly ten to twenty times its original worth. Why?”

Have you experienced such complications in Ukraine only?

“Your mentality seems to have laid the foundations for such problems. I often have to call your ranking bureaucrats and every time I’m treated like one asking for a favor, whereas I’m actually doing Ukraine a big favor trying to bring here money and high technologies. Whichever bureaucrat [dumb even if bona fide civil servant] who answers my call fails to realize that Ukraine needs me, not the other way around. I have no need for such dumbheads because all they know is how to keep legally set procedures carried out. Ukraine needs me as bait for foreign inland investment; I’m the one who can talk people abroad into making such investments (something easier said than done); I’m the one who can interpret your post-Soviet mentality and explain the differences between the Ukrainian and European laws. For example, a US investor is accustomed to acting under US legislation. Moreover, this investor is programmed to act under the law. Once in Ukraine, this investor finds himself in a nontransparent [legal/administrative] environment. Even getting basic data about his counterparts turns out to be a difficult task. I have personally often received corrupt data, being unable to ascertain who owns which company, thus being unable to send reliable data to my business partners, people who would be willing to do business [in Ukraine].”

Ukrainian legislation is being upgraded, with several problems being removed.

“Unfortunately, the rules of the game in Ukraine prove very changeable. Worst of all, some of your bills are passed being postdated. This practice is inadmissible in Europe. Take your Tax Code. The lawgiver allowed the business community half a year to study the text before its enactment (January 1), but the Code started working twelve rather than six months ago. There are many other such examples.

“I think that Ukraine is throwing monkey wrenches in its own works, above all by forgetting who needs who. Investors will never slip envelopes into bureaucrats’ pockets. Investors and their money are meant to give a fresh impetus to business [in Ukraine] on a mutually advantageous basis. Doing business in the West, getting 4-5 percent in return is considered normal. In Ukraine, they want 30 percent, right there and then. In return for what? So no one gets in their way. Unless this situation is changed, I doubt there will be any progress in Ukraine, and I can foresee big problems next year.”

Have you had to deal with corruption in Ukraine?

“Your corruption is rampant. No one denies its existence. I would describe it as brazenly apparent. Worst of all, this corruption has engulfed the higher echelons of power. As a bona fide businessman, your corruption hits me under the belt.”

You are still interested in Ukraine. Why? Perhaps because this country is in for upgrading/modernization, particularly in the energy sector?

“Ukraine must have its energy sector overhauled, considering that your power substations’ measuring transformers are more than forty years old. Your prospective investors are anxious, so the Ukrainian side must come up with firm and encouraging initiatives. Above all, one shouldn’t overstate Ukraine’s potential. This potential won’t buy you anything because it can be implemented or lost. Austria’s population is smaller than that of Ukraine, yet Austria’s GDP is many times that of Ukraine, considering that the modernization cycles are shorter by far than those in Ukraine. Your country should look for partners, investors prepared to help your modernization process.”

Germany has decided to close down its nuclear power plants. Do you think Ukraine should follow suit?

“If one can invest in alternative energy sources, why not discard such potentially dangerous source as nuclear power plants? Here the situation is almost similar to gas supplies; we buy nuclear power raw materials from other countries. In Ukraine, the nuclear power plants generate almost one half of the electricity consumed by this country. Ukraine is theoretically rich in uranium deposits (no confirmed data available). We are prepared to help you. I could find investors, but this remains a hush-hush political issue. Ukraine must realize that foreign investors aren’t idiots; they won’t accept anything they’re offered; they can read, they can put two and two together, they can think things over. Trying to get investors interested in Ukraine’s biomass projects would be futile, considering the gas price subsidies.”

Dou you pay more for gas in Germany?

“In terms of your currency, your regular consumer pays a bit more than a hryvnia per cubic meter of gas, while his German counterpart pays about six hryvnias. Germany, however, has to pay less for the imported [natural] gas than Ukraine. I don’t know about your specialists negotiating the deal with the Russians, but our specialists and businessmen seem to be way ahead of yours. Maybe some game is being played, maybe some are simply filling their pockets. Anyway, German experts on renewable energy sources, like solar, wind, and biomass ones, can work on their projects. None can do so in Ukraine because such alternate projects attract no investors, what with your low gas prices. And so no foreign inland investment prospects in this domain. To solve this problem, you will have to adjust the gas price and lift all subsidies. You should raise your wages and salaries or aim your subsidies at those who’re trying to master the renewable energy sources, thus economizing on gas consumption. I don’t think that people in Ukraine know about gas heaters that keep the water hot using their own spent gas. Such gas heaters were developed in Germany simply because the law made this peremptory.”

Any recommendations for Ukraine?

“You have to nullify your gas subsidies, step by step, and then spend the money reasonably. If you let your population use this money to winterize their apartments, install energy-saving boilers and heaters, then you will use this money more effectively than it is being used. You should have fewer restrictions and more motivating clauses; lesser bureaucratic control over business. Quotas and licenses – these are all bureaucratic means of feathering their nests. Nor does Ukraine need any monopolists. You have to support a free market and normal competition – and you must do this as a series of coordinated measures; you must do one thing, then the next one, otherwise nothing will work. Another piece of advice: Never regard a foreign investor as your enemy because these investors can bring you money and [better] technologies. Also, remember that the people who pay are entitled to control the way their money is being used.”