27 October 2011
Kyiv Post publishes commentary by Ilona Zekely on Austria-Ukraine trade and investment partnership

Small Austria is big in Ukraine with investment

The western part of Ukraine belonged to the Austro-Hungarian Empire, which dissolved after World War I, another global conflict that saw Ukrainians fighting on two sides.

While those memories are dim, modern-day relations are characterized by Austria's role as a major trade and investment partner - especially in banking. The financial presence includes Raiffeisen Bank Aval, Erste and Bank Austria.

"We have seen a lot of investments in the financial sector, not only banks, but also insurance companies. Raiffeisen Aval, Erste Bank and UNIQA ranked as top Austrian businesses," said Ilona Zekely, an Austrian citizen and partner with Egorov, Puginsky, Afanasiev and Partners.

Austrian companies also operate in construction, agriculture, transportation services, logistics and more. In fact, around 250 Austrian companies are doing business in Ukraine. Some of them have a strong regional influence, such as Graphia, a cigarette-packing producer in central Ukraine's Cherkasy.

EPIC, an Austrian investment company that experts think represents Ukrainian business interests, made a big splash early this year as the sole bidder for Ukrainian state telecommunications company Ukrtelecom, for which it paid about $1.3 billion. Technically, however, the investment came from EPIC's subsidiary in tax-friendly Cyprus.

Gregor Postl, commercial counselor at the Austrian Embassy, says that a number of Austrian investments are done via offshore tax havens such as Cyprus, making it "difficult to follow exactly which investment that technically came from Cyprus, originally was from Austria."

As with many other nations, Ukraine's bilateral investment with Austria is a one-way street - with very little Ukrainian investment ($5.1 million) flowing into Austria. "We would be happy if Ukrainians would not just invest in the form of buying some houses or setting up holding structures," said Postl of the Austrian Embassy.

Ukraine's main exports to Austria are metals, ore and wood. At the same time, Austrian exports to Ukraine are more diversified finished products - pharmaceuticals, machinery and equipment.

By the end of 2008, bilateral trade turnover reached its peak at $2.2 billion, but slumped almost by half the following year.

The 2011 figures are expected to reach pre-crisis levels.

The Austrian Embassy's Postl said Austrians understand Ukrainians better, thanks to their shared past. "We have our history. Part of Ukraine was for nearly 150 years part of the Austrian empire and, from there, long relations are still ongoing," Zekely agreed.

Austrian banks and businesses had also been instrumental in associating with Ukrainian businesses that don't have the highest standards of transparency.

Raiffeisen Investment, a Vienna subsidiary of the Raiffeisen banking group, had business with the Swiss-registered gas trader RosUkrEnergo in the early years that obscured Ukrainian ownership.

For the first years of RosUkrEnergo's activity, Raiffeisen Investment portrayed itself as 50/50 owner along with Russia's Gazprom. It was later revealed that Raiffeisen Investment was acting as a front for two businessmen that are close to the inner circle of Ukrainian President Viktor Yanukovych: billionaire Dmytro Firtash and Ivan Fursin.

A recent acquisition of the largest state-owned telecommunications operator, Ukrtelecom, by a relatively smaller Austrian company, EPIC, has also raised eyebrows. Neither Zekely nor Postl commented on those issues.

Kyiv Post staff writer Maryna Irkliyenko can be reached at irkliyenko@kyivpost.com.

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Ilona Zekely

Ilona Zekely

London, Kyiv, Moscow