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AWT Bavaria: uneasy way to investments in Ukraine

A lot is being said these days about attracting foreign investments to the economy of Ukraine. Neither less attention is paid to problems preventing these much desired money streams from flowing to our country. Three core obstacles on the way of foreign investors to Ukraine are typically marked out: political instability, cumbersome and imperfect legislation and taxation system, notorious bureaucracy and corruption. Yet Ukraine remains attractive for investments. Alexandr Timofeev, Director General of AWT Bavaria, an official importer of BMW, Mini, Alpina and Rolls-Royce cars in Ukraine, told Legal Weekly in an exclusive interview about his experience with investments and prospects for development of the automotive market in Ukraine.  Question: Mr Timofeev, how can you explain your company’s lasting and successful work on the Ukrainian market?  Answer: There are many reasons for this, and the main is quality and prestige of cars we import to Ukraine. They are loved for their technical perfection, beautiful design and quality of materials. The other important component of our company’s success in Ukraine is the company’s activity itself as AWT Bavaria enjoys colossal experience of being an importer in Ukrainian realities. We have already been working in this country for 10 years. Of course, we must thank for our success to our close cooperation with the manufacturer and being a part of a big team called BMW. Without the manufacturer’s support and full understanding we would not have been able to achieve such results. Besides, we invest in development of our business rather significant money. For instance, during only the last year we invested more than 5 million Euros in promoting our brand on the market. Furthermore, as an investor we strictly obey all laws of Ukraine and this is a basic principle of our work here.   It is extremely important that any investment project is carefully developed and all requirements and particularities of local legislation have been thoroughly considered and taken into account before any investment has been made. Q: What problems have your company faced when investing in Ukraine?  A: Investing in Ukraine is a pretty complicated procedure because we are limited by unstable legislation. Nonetheless the Ukraine’s market has been steadily developing. Actually, if a year ago Ukraine rated ninth in Europe in terms of sold new cars, now it is rated the seventh. All these factors witness to our country being a rather interesting market for any investments provided that they are justified, safe and secured. And to enjoy this ‘investment style of life’ we need partnership with good lawyers. I believe that everybody should be a professional in their area of practice. While ten years ago every company would employ an in-house lawyer who could provide it with efficient legal support, unfortunately now it is simply not enough. These days we need to have handy a very good law firm that could provide a wide range of legal services. I suggest that all potential investors form a partnership with a reliable local law firm. It should also be mentioned that any issue pertaining to legal matters may pose significant risks to a business. That is exactly why we have been working with the Salkom Law Firm for almost eight years. In our opinion, this law firm, being one of the leaders of the Ukrainian legal market, provides our business with all necessary legal support. Besides I personally believe that good lawyers are those lawyers who can prevent any threat from happening.  That’s why we together with our partner (and I have every right to call the Salkom Law Firm our partner) review every likely situation, analyse laws and regulations to avoid any possible financial risks that might arise in the future. It is better to spend money on professional lawyers now than lose more in legal costs tomorrow. Q: In your opinion, is a foreign investor in Ukraine effectively protected in legal terms? What underlying potential problems can be faced by investments in our country? Please, share with us your experience of working on the Ukrainian market.   A: The thing is that in a month after I started working at AWT Bavaria the company’s accounts were arrested, the office was closed and the investors were almost ready to make a decision to wind the company down. Nevertheless we have managed to resolve these problems and of course we have been helped immensely by lawyers of the Salkom Law Firm.  Later our company has suffered from instability of the Ukrainian legislation.  For instance, due to ambiguities of Ukrainian tax law various problems have been occurring all the time. Nobody doubts that the tax authorities must collect taxes and we naturally wish to avoid paying more than we have to according to law. One of the key features of working on the Ukrainian market is that any investor has a lot of trouble with hiring and training staff. The other problem is that the Ukrainian land market is still in embryo. We had to spend a lot of efforts, money and time to obtain legal and indisputable title deeds to land plots. The matter is that the local land market is interesting, first of all, for various intermediaries and brokers who are striving to earn some money on executing documentation. This spells trouble for any business and, unfortunately, big automotive companies are not exempt. Hence it is rather difficult to buy land in Ukraine and foreign investors are reluctant or just afraid to build on rented land. There are also purely automotive troubles incurring due to instability of the country’s economy, and one of them is presence of grey automotive market. The other problem is the environment. European countries have mandatory standards for carbon limits in vehicle emission but Ukraine is still far behind Europe. But nonetheless I believe that in the nearest future we will be forced to apply the same strict limits for CO2 emission to both local and foreign car manufacturers as cities will continue to grow. Environmental issues must be treated seriously.  Q: Is the problem with grey import pressing for you as an official importer? Probably, you suffer great losses because of such car sellers?  A: It is quite difficult to fight against grey dealers but at the same time we can not just ignore them. Without any doubt, as at today the losses reach millions of Euros if you multiply a number of vehicles sold on grey market by a profit that could have been gained from the sale of one car, and on average the profit can be from 20 to 25 per cent of a car price. We want equal conditions for all importers, both companies and individuals. Unfortunately this requirement quite often is not met simply because the interests of grey dealers are being lobbied by various state structures. I would like to emphasise that the grey dealers are called so because they use such schemes and technologies which allow them to minimize taxes but not because they import vehicles without official contracts. In the matter of fact a grey dealer is a company that has been opened solely for the purpose of selling a certain quantity of cars 25 per cent cheaper. This firm does not undertake any obligations to clients, and a buyer who purchases a car from a grey dealer benefits only from a cheaper price. The official importers aim at creating a system of service centres and provide their customers with necessary technical support of high quality.  Q: What is more profitable – selling cars or servicing them?  A: Selling cars and servicing them bring approximately the same level of profit. Many businessman underestimate car services in terms of its profitability. This business is getting more and more profitable provided that it is properly organised. By the way, we have a very good and expedient system for delivery of spare parts. If a car is broken a spare part must be delivered within the shortest term and without any delays. Judging from our long experience of working on the Ukrainian market I can responsibly say that subject to proper organisation and management any business can be quite profitable in our country. Q: Please tell us about development of your dealership network. How much money one needs to invest to organise a modern BMW dealership in Ukraine? A: There are no exact figures. You must consider a price of land which varies from region to region. For instance, to establish a dealership in Kiev millions of dollars will have to be raised. In any other city, to take Zaporozhie as an example, an investment will be much smaller. In any case, an automotive business is rather expensive pleasure.   Primarily AWT Bavaria, being an official importer of BMW, Mini, Alpina and an official dealer of Rolls-Royce in Ukraine, is engaged in selling and servicing vehicles through a dealership chain present in all big regional centres of Ukraine. But as to date AWT Bavaria has its own dealerships only in Kiev. Dnepropetrovsk and Zaporozhie. All other dealerships are financially independent but must comply with all requirements set out by the manufacturer. Yes, we do have indeed very strict rules applying to corporate style and relations with customers. All these rules have been standardised and formalised as internal regulations and by-laws that are mandatory to obey by all members of staff. If you visit any of our auto salons you will see the unified corporate style, which seems to me as pretty good. Besides I would like to mention that our company plans to build a big automotive centre in Kiev, we also have plans for developing several objects in Dnepropetrovsk and Zaporozhie. These plans are quite ambitious, are not they? But considering the growth rate and conditions for development of the automotive business in Ukraine it is rather natural and expected. The automotive market in Ukraine is developing and if it were not profitable to invest in nobody would have made any investment. Nonetheless only those who understand exactly what they are doing will succeed. There is no easy money in this business! By Mykola LARIN, Legal Weekly













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