Last week a delegation of Japanese businessmen who work in Western Europe visited Ukraine. Their visit, partly organized by the Japan External Trade Organization (JETRO), was a logical continuation of a workshop held last year in Dusseldorf. Whereas last year Japanese entrepreneurs were only listening to accounts about our country, today they have visited Transcarpathia, Kyiv, and Donetsk, where they met with Ukrainian government representatives and foreign businessmen who work in this country. Japan has the world’s second most powerful economy after the United States. With the enlargement of the European Union, Japanese investors are looking more closely at adjacent countries, including Ukraine. Geographical proximity to the EU and low labor costs are some of the factors encouraging Japanese business to this country. In his interview with The Day , Ambassador Extraordinary and Plenipotentiary of Japan to Ukraine, Kishichiro AMAE, discusses the prospects of bilateral economic cooperation and ways of integrating into the world economy.
“How important is the growth of the GDP in attracting Japanese investors to this country? What other factors should be taken into account?”
“It is gratifying to note that Ukraine’s GDP grew by 13.4% between January and September 2004, compared with last year. This is a tremendous success, and one of the highest economic growth figures in Europe. At the same time, one must be cautious because consumer goods prices are already on the rise, as is inflation. The price of meat has jumped by 38% since the beginning of the year. These kinds of expenditures are hard on pensioners and ordinary people. I know that Prime Minister Viktor Yanukovych recently announced pension hikes. Although pensioners are pleased with this, they already feel that the rising prices will eat up this increment, and they hope that the government will pursue a balanced economic policy.
“From the investor’s viewpoint, one must note two factors. The first is the enlargement of the European Union. The EU is now next door to western Ukraine, and foreign investments in your economy, including Polish ones, are growing, although not as fast as they were projected. This is due to the second factor: all the investors — Europeans, Japanese, and Americans — are taking a wait-and-see attitude because of the political situation in Ukraine. Who will be the next president? What economic policy will the new government be pursuing?”
“How are existing Japanese investment projects in Ukraine faring?”
“The main Japanese investment project in Ukraine is the Yazaki plant in Transcarpathia, which produces automobile electrical wiring. This means new jobs: over the past year, the enterprise has engaged a thousand more local workers. In Kremenchuk the Japan Tobacco International Company has invested $600 million in a cigarette factory.
“Another large Japan-assisted project in Ukraine, but of a different kind, is the reconstruction of Boryspil Airport. Ukraine is going to draw a $171-million soft loan as part of governmental aid, with interest of 1.5% per annum over 30 years, with the first ten years being a grace period. Within a month, the two governments are going to sign a loan agreement subject to ratification by the Verkhovna Rada of Ukraine. Today the central terminal at Boryspil can handle 900 people per hour at peak times. Aerosvit has decided to build its own terminal by 2006, which will be able to handle 1,000 more passengers. The Japanese loan will also help build another terminal on the other side of the existing one by 2009, which will have the same handling capacity as Aerosvit. Today, Boryspil Airport is below the E category on the international scale. Once the ‘Japanese’ terminal is commissioned, this rating will rise to C. Should this experience prove successful, we will be ready to launch even larger projects.
“Let me give you an example. A five-kilometer railway tunnel is being constructed under the Bosphorus. Turkey requested the Japanese government to issue a similar loan of almost a billion dollars for this project. This is a huge amount of money. Before that, the Japanese government gave Turkey credits worth 4 billion Yen. I would like Japan and Ukraine to cooperate as actively in the field of loans, for your country needs to develop its infrastructures and environmental protection. It is common knowledge that the environmental situation in Ukraine is very bad, but something must be done to improve it.”
“Apart from political uncertainty, what do you think is standing in the way of more active cooperation between Ukraine and its foreign partners?”
“Japan has proved that we believe in the future of the Ukrainian economy, as we do not issue loans to countries that are unable to guarantee repayment within thirty years. The Japanese government and private firms rate Ukraine’s economic prospects highly. The Japanese insurance agency NEXI (Nippon Export and Investment Insurance) is implementing a government insurance program for overseas business. It is also prepared to assist Japanese businesses in Ukraine. So we hope that Japanese investments in your economy will increase next year.”
“And how would you assess the chances of integration between the Ukrainian and European economies? How can we reach the united Europe faster than Turkey did?”
“I don’t know much about the economic situation in Turkey. However, I do know that their annual per capita income is $3,500, while in Ukraine last year it was $970. Naturally, the economy does not consist of GDP and per capita income alone. I believe you have a tremendous chance: what must contribute to Ukraine’s success is its borders with EU countries, on the one hand, and the CIS, on the other, as well as its access to the sea. You should continue producing competitive items and updating industrial technologies. Other countries, too, including Turkey, Russia, and Romania, are investing in production systems, expertise, and technologies.
“This is why China developed so fast. Many Japanese companies set up their own businesses in China and hired local employees, but the Chinese then established their own enterprises based on this experience. Ukraine has a good foundation-educated and highly skilled specialists-for high-tech development.
“The state must in turn help foreign investors by improving tax policy and setting up a proper infrastructure. China, Korea, and the countries of Southeastern Asia have set up special economic zones. I have seen them: they have oil and gas pipelines, electric power, and water. I have also visited so-called special economic zones in Ukraine. Unfortunately, these are zones in name only. They say there is a special area across the road. I asked where the power supply line was. They replied, ‘If there is a plant, we will put in electricity and build a water supply system.’ However, that will be too late. You must establish an agency that would be in charge of attracting foreign capital and creating special areas. The President of Ukraine has signed a decree to this effect, but it has not been implemented.
“The Japanese company Toyota and France’s Peugeot recently decided to build a huge automobile plant in the Czech Republic. This will give a strong impetus to the local economy. To implement this project, the Czech government formed a five-man task force. They toured Japan for three years and negotiated with the Toyota management. Now Toyota is looking at Russia. It is unfortunate that similar negotiations were not set up with Ukraine.
“The high-tech you mention can be also applied to the defense industry. Some Ukrainian politicians say that NATO membership will ‘kill’ our defense sector. Do you think that cooperation with the West in the hi-tech field will be to Ukraine’s detriment and that we should cooperate instead with Russia, Belarus, and Kazakhstan?”
“It’s difficult to say, because I am not a defense industry expert. However, your Kolchuha radars, for example, are of very high quality and very cheap, which makes them competitive. I do not think that NATO membership will undermine your defense industry. Why did the Ukrainian government want to maintain partnership with NATO? Because the old defense system needed reforming. In my opinion, this reform has just begun and must go on. And although I don’t know if your country will be a NATO member, I think that cooperation with the alliance can be very important for your defense capability.”
“Last summer Ukraine and Japan signed a long-awaited agreement on technical cooperation and grants. What prospects does this open up?”
“I highly appreciate the effective work your government did to reach this agreement. The talks started last spring; they signed the document in June this year and the Verkhovna Rada of Ukraine ratified it in July. Japan has been conducting similar negotiations for three years with some of Ukraine’s neighbors. We are now going to set up a Japanese center at Kyiv’s Polytechnic Institute based on this agreement. A new building with an area of about 1,000 square meters will be built in a year’s time. We are prepared to hand over Japanese technologies to the center and invite your specialists to study in Japan. Moreover, they can study technologies and Japanese management in our country. You know American management very well, but our management system has different rules, so it would be useful to know them. Of course, we can also transfer our experience of economic development, achievements, and mistakes. For example, like the USSR, Japan did not pay adequate attention to environmental protection in the past. This led to very grievous consequences for our nature and people. It took huge budgetary funds to normalize the situation. Every year we invite Ukrainian coal miners to study mine safety techniques in Japan. In addition, we can offer educational programs in antimonopoly studies, industrial cost-effectiveness, etc. Now, in conjunction with Ukraine’s Ministry for the Economy and European Integration, we are drawing up a list of subjects that are of interest to your country.
“My dream is to set up a hi-tech college at KPI National Technical University. Japan opened a college like this in Poland nine years ago. Every year it produces 1,500 graduates, 85% of whom find good employment in various places, including Japan. Moreover, their employment percentage is higher than that of Warsaw University graduates.”
“You often travel throughout Ukraine. Outside of Kyiv, what has impressed you the most?”
“The main impression is the kindness of the Ukrainian people. I recently visited Chernihiv oblast, where we installed a boiler room for the secondary school in the village of Pakul, which has not had heat for the past three years. We did this under the Chornobyl Revival and Development Program, an integral part of the UN Development Program for Ukraine. We are now implementing a $73,000 project to assist paramedic, obstetrical centers, and outpatient clinics in 27 villages of Zhytomyr oblast, where about 8,000 Chornobyl resettlers reside. I will see to it that the equipment is handed over as soon as possible, because winter is round the corner.”
“Could you give me an example of a “Ukrainian success story”?”
“Yes, I would like to single out the cooperation between the Transcarpathian leadership and Yazaki. This is a very impressive project. If the local authorities only thought about lining their pockets, the investors would soon leave this region. In this case, however, the cooperation was extremely effective. I wish that regional governments would share with each other their experience of cooperating with investors. So far, nobody wants to help ‘rivals’ from other regions. It would be a good idea to set up a coordinating center in Kyiv, and if your government chooses to invite Japanese businessmen for consultations, we will naturally meet you halfway.”
