With dynamic growth in construction and other markets in Ukraine, German companies are flooding the domestic market with products and services. Germany is also Ukraine’s leading European importer, trailing only Russia, whose import value is mainly derived from energy.

German businesses are drawn to Ukraine by the size of the country, the population's growing purchasing power and the growing demand for high quality goods and products. Compared to Western European markets, which are mature, Ukraine offers great opportunities for business growth for commercial and manufacturing companies. With dynamic growth in construction and other markets in Ukraine, German companies are flooding the domestic market with products and services.

“Ukraine’s construction sector is one of the most dynamic market segments, which increased dramatically during the last several years,” said Andrii Pavlyk, general manager of Knauf Insulation Ukraine. “The demand is really high for new residential and commercial buildings, along with the renovation of old housing, which boosts the development of the construction materials markets.”

With a population of over 46 million people, Ukraine is the largest European country by land mass and has a rapidly growing economy. “Eastern Europe, with Russia and Ukraine, represents important countries to provide substantial growth for our group operators,” noted Axel Hluchy, managing director of METRO Cash & Carry Ukraine. According to the results of a Planet research report, Ukraine’s retail market grew by 22 percent last year alone.

Opening their first outlet in Ukraine in 2003, METRO Cash & Carry now operates 19 wholesale outlets in 14 Ukrainian cities, with a total investment since opening the first store of over $530 million and a turnover in 2007 of nearly $1.3 billion, according to Hluchy. As the Ukrainian retail market matures and begins to emulate the Western models, the more German investors expect to gain in market share, Hluchy added.

But, apart from fast growing sectors like construction, agriculture and retail, there are some that demonstrate that Ukraine is still far behind most European countries. “One trend which is still very slowly taking place but which has to gain more importance is the need for environmental sustainability and protection,” noted Rudolf Hartmann, managing director of OSRAM Ukraine, a lighting manufacturer.

Another trend important for clients is experience. That is the key to success for German companies in Ukraine. Most German companies have distinguished histories and arrive here with excellent reputations and find it easy to find Ukrainian partners.

“There isn’t such a big interest in the origin of the business partner any more. When choosing a partner, investors pay more attention to their experience in the market,” explained Yana Gorelina, managing director for Scholz & Friends Kyiv.

Generally speaking, the investment climate is favorable for German businesses operating in Ukraine, market insiders say. But there are numerous problem areas that have to be worked around. Major German manufacturers striving to enter a new business area have difficulty finding modern, energy-efficient partners. “Energy saving is the most crucial issue that needs immediate action, first on the governmental level,” explained Pavlyk. “Energy efficient approach in all industry sectors will benefit companies that manufacture and sell high quality products, consumers who use these products, and the country’s economic development.”

The notorious Ukrainian legal system still hampers operations in the market. German businesses lament the widespread arbitrariness and shifting of rules by authorities and bureaucracy. “This makes any investment a risky undertaking. This, however, is being compensated by the market’s huge potential,” said Kaijo Meyer, general manager of LION-Group.

But there is a bright side to the difficulties of doing business here. “Ascension of Ukraine into WTO will lead to overall liberalization of the market, adding more market stability and transparency,” said Hluchy. This will benefit all, especially foreign investors. Ukraine’s participation in WTO will be monitored with great interest by German and other foreign investors in Ukraine. “In the first quarter of 2008 alone, the level of foreign direct investment considerably outpaced last years indexes,” said Andryi Gotun, accounts director at Scholz & Friends Kyiv. This means that the material incentive of foreign investors increased permanently, and it ensures a steady inflow of foreign capital.

Describing demand in Ukraine, all market insiders agreed that it is as high as in European countries. But again, there are problems that need immediate solutions. One of the main obstacles for German companies are Ukraine’s Soviet era customs procedures. “If it was not for this obstacle, I believe our fleet of trucks would be larger than it is today,” noted LION’s Meyer. Ukrainian customs negatively affects all businesses operating in the country, particularly the day¬to¬day arbitrariness of their decision making, Hartman emphasized.

Regardless, Ukraine, now a WTO member, is exhibiting more transparency and attractiveness to German companies and their international competitors. "Clearly, membership in WTO and attempts of current Ukrainian leaders towards membership in the EU are declaring to the world Ukraine's intentions to move forward on a positive path," said Gorelina.