16:01 21.12.2017

Absence of the rule of law and corruption are problems for investors in Ukraine - Swiss Ambassador

19 min read
Absence of the rule of law and corruption are problems for investors in Ukraine - Swiss Ambassador

Exclusive interview with Swiss Ambassador to Ukraine and to Moldova Guillaume Scheurer for the Interfax-Ukraine News Agency

To what extent do violations of the 'silence regime' in Donbas affect the implementation of humanitarian projects there?

In Switzerland humanitarian assistance to Ukraine has been already priority since the beginning of the conflict in 2014 till now, of course if we speak only about humanitarian assistance and we don't speak about cooperation elements of the strategy that we have for Ukraine for 20 years. But following the conflict and difficult humanitarian situation immediately after the beginning of the conflict we started humanitarian assistance program. Today is already 4 years of humanitarian assistance. What we see is on the one hand a conflict that is continuing, ongoing. It’s not a forgotten conflict but nevertheless we see many donors getting away from the urgent needs that we see in Ukraine. That's a problem. We see that appeals made by the ICRC, the UN agencies are not well responded.

We still have a very difficult situation, the needs are still too high unfortunately. The needs are not going down but the capacity of agencies to react is limited.

Then new crisis that have made the media to put an emphasis on new problems, also dramatic, for example Syria, Africa, others. Some of those catastrophes are made by men, some of them made by nature but they have caused less readiness by donors to give money.

Locally in my case the readiness of the Swiss government to continue to play an important role is still the same, as the Minister of Foreign Affairs Cassis mentioned.  We urged to pay greater attention to, and to take seriously into consideration the plight of the civilian population affected by the conflict in Ukraine and we urged the participating states engaged in alleviating the humanitarian consequences of the conflict and we decided as well to give a special new contribution for the winterization program of UNICEF. There are some special needs in winter and all agencies are coming with their special appeals and Switzerland responded with 500,000 CHF to this appeal in favor of UNICEF winterization efforts. At the same time, we also indicated, and this is a trend which is good for Switzerland, that we will not diminish our aid, but keep it at the same level or maybe even increase a little bit humanitarian assistance. Because this is precisely moments when the consequences of the conflict are still active that donors participating from other states need to continue showing solidarity with the population. So the conflict is ongoing, very hot. The population not only along the contact line but certainly the population that lives on both sides of the contact line is directly affected by the conflict but also at least five million people inside the country are also affected directly by the conflict, I mean of course the internally displaced people (IDP). So the conflict is still a humanitarian tragedy and I think it is important for all of us to do everything we can together with Ukrainian authorities of course to reduce the suffering of the people.

 

Are you satisfied with the cooperation between Ukrainian authorities, in particular the Ministry of Temporarily Occupied Territories and Internally Displaced Perons?

We are very satisfied frankly speaking in particular with Minister Chernysh. He has facilitated to a very great extent the delivery of humanitarian of assistance. So it's a very good concrete cooperation that helps in important transit, regulations, and duties. There has been a very big help from Minister Chernysh himself very often and certainly from the whole Ministry as such. So are all ministers that have been involved. So government reaction to the Swiss humanitarian assistance is very good.

In your opinion, what steps should the Ukrainian government take to resolve the conflict in Donbas?

The road is clear - it's the Minsk process. It's also clear that there are several parties in the Minsk agreements. And I think everybody has to play a correct role in the Minsk process to be successful. The obligation of the Ukraine government and obligations of other parties to the agreement are clear. They just have to be fulfilled but the first condition is certainly on both sides is the ceasefire that needs to be respected. Without a ceasefire it will be just impossible for the Minsk process to go on and for the next steps to be followed.

But some politicians criticized the Minsk process for inefficiency…

Peace is difficult. If you look at all the peace processes of the last years outside Ukraine, you will see that peace needs a lot of concession, a lot of efforts, and a lot of very global comprehensive future views. I just give you an example of the peace process in Colombia that took many years. The government at one point has to make a first step of trust that has to be reciprocated of course as it was the case in Colombia. There were many moments where we thought the peace process will collapse where it stopped, where it even went back a few steps a few years. Some people were desperate but in the end you will always see the light in the end of the tunnel – very strong leaders that were ready to carry the peace process further. So the peace process is never easy.

I'm not saying there is no alternative to the Minsk process but it's a good agreement, I think. But it has to start with ending the exchanging fires to give a chance to Minsk process.

What is the volume of humanitarian aid provided to Ukraine in 2017, in particular in the field of drinking water purification??

The main idea of Swiss humanitarian assistance is to support as directly as possible the population on both sides of the contact line. At the same time, when you give humanitarian assistance it is important that authorities on both sides call to respect all principles of international humanitarian law. In particular it's connected with infrastructure: water, pipelines, energy stations and so on. That has been on purpose targeted. This is something that cannot be accepted it's against international humanitarian law and this is something we also advocate. It's not only direct actions towards the population but we also try to raise the responsibility for breaking international law. It’s something that is very important.

What we have done in the 2017? It's roughly what you can achieve in Ukraine in the field of humanitarian assistance with not too much money. The Swiss donation is a little bit more then 3 million CHF a year, but divided into several main objectives one of them is water. That's the key. We know that without water there is no life. In addition in winter without water very often you don't have heating system. So we work with the “Voda Donbasa” in particular. Switzerland has helped to secure access to drinking water for some 3.9 million people on both sides of the contact line. This company is very important. What we delivered concretely was a little bit less than two thousand tons of chemicals for water treatments, because water has to be purified to be drinkable.

Then special mobile units that can in different places of the water pipeline check the quality of the water to avoid infection. We also gave technical equipments for checking leaks, special lab equipment to enhance operational capacities of “Voda Donbasa”. So water was the main issue in 2017 as well as it was in 2016 and we will continue to donate to this field.

The other priority is medical equipment. People are suffering, and the hospitals on both sides of the contact line need medical equipment, in particular something very vital is cardiographs and something quite unique that was able to be made by Switzerland it was devices for testing tuberculosis. It is very important because tuberculosis is a highly contagious disease and equipment that they had was destroyed because of the conflict. So nowadays they have new equipment that can detect tuberculosis in 24 hours and not two or three months as it was the case of the previous equipment. 12 hospitals were equipped with medical equipment in Mariupol, Kurahovo, Donetsk and Luhansk.

 

How do you work with the non-controlled territories?

We go directly. We cross the contact line at official check points with very good cooperation of the Ukrainian government. We cross often with trucks when we bring 2000 tons of chemicals. This is very important for humanitarian reasons and also for political reasons because it's something that reconnects the two sides.

We also work in the field of demining. It is also very important to work with unexploded ordnance. We see very often victims of mines along the contact line. We will certainly continue our support in 2018.

What is your assessment of the decentralization reform in Ukraine?

Frankly speaking we are very pleased with the excellent cooperation with the ministers in charge. There are many positive reforms in Ukraine and certainly decentralization is one of them. It's not too much spoken about because it's a little bit less visible sometimes, especially here in Kyiv. But it's something going more through the regions and you don't feel it like you do with health reform or pension reform. We see excellent results of decentralization by the feedback from the regions. The fact that they have more financial autonomy is really good. We see the municipalities have really excellent understanding about their new financial capacity that they are receiving and put money directly into actions, for example for new schools, roads, clinics and so on. We still see a lack of action by some municipalities. Sometimes they don’t know what to do with this money that they are receiving directly. This is something we are working on. But those are exceptions; the high majority has excellent results. I think that citizens realize that decentralization is positively influencing their everyday life.

There's still much to do to strengthen the system, make it better. But if you think what has been done in less than two years, you understand that a lot has been achieved.

Ukraine has passed legislative acts required for launching the healthcare reform. What is your opinion on this reform?

We work very efficiently with the acting minister Suprun and the whole Ministry of Health. We are absolutely convinced in the reform she started, that has been adopted by the Rada. We think this reform goes in the right direction. There is no other alternative. It's a very good reform.

Healthcare reform is also generally speaking a priority for Switzerland since we have started our technical cooperation with Ukraine. First part of the program that is basically ending now was very much focused on women and young children, pregnancy. That is what we can do without the reforms, some actions that you can do outside the main political reform, and this was for many years a Swiss priority - working with the doctors, nurses and hospital managers to help pregnant women and children. And in this sphere a lot of things have been achieved. I just would like to mention one thing: in Ukraine the mortality of children by the age of one year has been strongly decreasing over the last years. Of course it's still high by international standards: it's 7 out of 1000 children. But before it was 14. So it's a very good result. It's not everything due to the Swiss commitment, of course, but we really worked together with Ukrainians and I think our part was in a way important. We don't have a top-down approach; we work jointly in a very cooperative manner together with Ukraine.

We also put an emphasis on education. Over the last years, we had centers of education all over the country, specifically for doctors, nurses and medical managers to teach how to improve the quality of services for children and women. It’s continuing working.

Frankly speaking, very often the doctors don't speak very much with the nurses and with the managers; managers don't speak with the nurses, everybody was working in isolation. We cut those walls, so they started to speak. We have an excellent result. These people are the trainers now. Next, we have a ripple effect. Region to region.

We also decided to focus Swiss priorities on non-communicable diseases, basically healthy lifestyle. It is also an important part of preventive medicine. Today non-communicable diseases such as cardiovascular diseases and cancer are responsible for 90% of annual deaths in the country. Preventing and controlling these diseases requires greater public awareness of health, less tobacco and alcohol dependence, and better health services. A specific priority of Swiss cooperation in Ukraine is the prevention of non-communicable diseases. Promoting healthier lifestyles, along with preventive measures, will help curb diseases such as cancer and diabetes, as well as cardiovascular and respiratory diseases.

And we also continue our work in the field of information, education.

Could you point out Ukraine's failures and successes in the field of energy efficiency? What needs to be done?

We strongly believe in the importance of the energy efficiency for all countries, in particular for Ukraine. 2 out of 3 Ukrainians cannot afford to pay their energy bills. We believe that Ukrainian households could slash their energy bills by investing in energy efficiency measures such as window replacements or roof insulation. Under a Swiss initiative, more than 250,000 households were offered loans to invest in more energy-efficient homes. Globally we are the fifth biggest bilateral donor in Ukraine. It's a good result.

We understand that our money not big enough to change the whole country but we try to identify people or regions that have real willingness and capacity to change. For instance, we work with Vinnitsa, because it's a medium-sized city, where we saw the reaction of local authorities that want to implement our ideas and come up jointly with us. So we have Vinnitsa energy-efficiency project. Over the last 7 years we have given more than 21 million CHF for this project. We started with giving 160 trams for the city from Zurich. The idea was to reduce the traffic, to have better transportation system. Then we decided also to support the rehabilitation of the heating system of Vinnitsa. So we built, reconstructed, and co-financed three boiler houses, six new gas fire boilers, three wood fire boilers... Basically the whole heating system of Vinnitsa has been re-thought, re-built and re-put into practice. So now, 80% of the project is complete. But the result is that the city has become the first Ukrainian city to receive the European energy award. It's very difficult award to get, not many cities in Western Europe have it. It's becoming trendy to receive it.

The result: 27% of gas consumption has been reduced. It represents also a reduction of twenty thousand tons of CO2. It's important for the environment.

The same project we have in Zhitomir. It started later in 2014. And we expect Zhitomir will be the 2nd city in 2018 to receive this European energy award. The commitment for Zhitomir is 15 million CHF per year. Probably after the project we'll finish, we might choose a third or fourth city.

We also have a smaller project for only 6 million CHF for buildings and private houses.

We also have two projects with our international partners, like EBRD and Germany in Poltava and Chernivtsi.

What obstacles do Swiss investors see in Ukraine? How can they be removed? Do you have some success stories?

Yes, we have both: successes and problems. Switzerland is a very important, top-9 most important foreign direct investor. So, Swiss companies are present and active in Ukraine. What's very happy and proud that basically no Swiss company left Ukraine in the bad years: 2014-15. These were very difficult years for Ukraine and Ukrainians. Nobody left, everybody said: ok, let’s go through it and we'll stick to Ukraine, to the commitments to the workers, to the clients, to the customers, and we’ll continue working. Basically now, in 2016-2017 they are very happy that they have stayed. Globally they are making good business, could always be better, could be fewer problems to solve on a regular basis.

For instance, there is a production facility of Swiss company Vetropack producing glass bottles, very close to Kyiv. It’s working 24/7, two lines of production and if you see it’s really amazing. They are producing bottles, all colors and shapes.

Another company, a little bit further, called Geberit. It produces instruments for bathroom. It also works 24/7.  Very successful production but of course they have problems like that they could have in any country. Doing business is not an easy task. There are some problems you cannot avoid in business activities. But some problems could be avoided. Sometimes you have overregulation, overbureaucracy, corruption. Corruption is still really an issue.

I have heard stories you know about direct and indirect corruption. But the point is certainly the compliance of Western companies is really high. I really believe that western companies, Swiss and others, they obey to a zero corruption system. They have really strict rules all over the world that they have to respect.

But what I heard for example about fire alarm systems. An inspector comes and says that your system is not according to the laws and regulations. The Swiss company says OK, we will make it according to the regulations. There's a margin of interpretation into regulations. But the inspector is always pushing for something more, so the Swiss company will obey and will pay the full system. It's a big money that doesn't go into the production but goes into the fire system. It is necessary to protect the workers and Swiss company will do it. The problem is sometimes they push the limits too high at the same time you see another company around the corner that has only a fire extinguisher and a bucket of water. So one company is investing hundreds thousands of dollars and another company is investing $5. And the playing field is not level. So one company receives, and that's an indirect corruption incentive to reduce the price, because probably they pay the fire inspector some money not to have the correct fire system. And this is the thing that I heard back from the companies. It's not a problem only for Swiss companies but also for German, Italian, French and others.

 

Ukrainian…

Oh yes and Ukrainian. Exactly. But certainly the message here is that corruption is an issue. The rule of law is an issue. It’s the fact that respect for the rule of law is not given yet. Those are the two elements where many business people are a little bit hesitant to come to Ukraine. They can deal with competition, with business issues, production problems but those two issues and they're have little way to interact positively. And they don't like this because they're in the hand of the local authorities, or judges, or inspectors, or whoever. So the message is: please change that, protect and help those companies that are already in Ukraine to stay. It's necessary of course to attract more companies and the efforts of the government are very good. But the first priority would be to protect companies that are already in Ukraine, after that you will attract more additional companies, because they speak together.

Last year we had a problem with a Swiss company having an artificial problem created by an inspector. At one point the problem became grave, and it's not the first time. After that headquarters decided: OK, price to continue is too high. We leave. It’s impossible to do business in those circumstances. We will close the office.

Luckily the reaction of the central authorities was very fast and positive: to cancel all the administrative decisions that have been taken.

You know it's a big company with contacts all over the world. If they leave, the message is catastrophic for Ukraine. Because everybody will realize who is leaving.

Luckily the responsiveness is good but we should prevent those problems from the beginning.

I think a very useful initiative is a business ombudsman founded by EBRD with also the Swiss money for instance and other donors. The ombudsman is doing a very good job, he has very good lawyers working with him, very efficient and they can really interact with the ministries on an eye-to-eye basis, so they help us a lot. I think this is something that improves the business environment in Ukraine and companies also understand his good actions.

What is the level of cooperation between Switzerland and Ukraine in the identification and arrest of assets obtained illegally in Ukraine and transferred to Switzerland?

Switzerland has reacted immediately after the departure of Mr Yanukovych and all the assets of people connected with the previous government were frozen. It's not so much and I don't think it's billions, it's roughly 70 millions CHF but it's important money. So this money has been frozen in 2014, but for the legal system it's a little bit of a problem. We understand that most certainly this money was illegal but you have to prove it or the other one has to prove that they are legal. Money was frozen for 3 years until 2017, now we decided to prolong the freeze of course because we work well with Ukrainian authorities. We received a lot of information we requested. There are many exchanges between Swiss and Ukrainian authorities, but it is complex because the schemes used to channel the money to Swiss banks accounts were very difficult. It goes via the other banks, other countries, other companies, names, people, dates… You have to follow the tracks of the money to clearly prove that it was illegal.

We will continue freezing the money until you go to the court, after that we will defreeze the account and give the money back to Ukrainians. That we were doing before with other countries.

A few months ago we gave back money to Nigeria that had been stolen by the president of Nigeria 15 years ago. The process took 15 years, but assets were frozen in the banks to the moment when we gave them back. We have the patience and strength, willingness to go through as long as cooperation with Ukrainian authorities continues to be the same. I have no doubt it will go successfully to the end but we need to go to the court, because it takes a legal decision. We have to apply the rule of law in all the cases.

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