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Ukraine: The Kyiv Trap--Doing Business In Ukraine

Kyiv, 22 November 1996 (RFE/RL) -- American Greg Perchatsch came to Ukraine more than three years ago to work in the U.S. Embassy as a security systems officer. Responsible for military aid and security systems support to the government in Kyiv, he soon became widely acquainted with governing and business circles.

So when the post of manager in Ukraine for the U.S.-based telecommunication giant Motorola became available, Perchatsch submitted a resume for the job. Motorola snapped him up.

In Ukraine, a country with one of the worst records in Eastern Europe for attracting foreign investment, Motorola already is a large player. Now the company is bidding to become a colossus there. It has announced plans to invest $500 million in a country-wide mobile communication service. That would equal about half as much as all other foreign investment in Ukraine since the Soviet Union's collapse in 1991. The company's announcement quotes Manager Perchatsch as saying, "We couldn't be happier."

Happiness is a quality in as short supply as telephones among foreign businesspeople in Ukraine in 1996. Still, Perchatsch may have some foundation for his good cheer.

Motorola's partner in the venture, Ukrainian Radio Systems (URS), won a license last year to operate a Ukrainian GSM (Global System for Mobile Service) network with a consortium of European companies. The deal fell through last September, when the government reopened the license for competing bids, and changed other conditions.

URS searched for a new partner. URS President Victor Kravchenko says he picked Motorola because Motorola has mobile operations throughout the world (nine other GSM companies), and because Motorola already understood the Ukrainian market.

The joint Motorola-URS announcement says the venture plans to start the new service in the capital city Kyiv, possibly late this year, and begin expanding countrywide next year. The announcement says the system, to be called "Flash" eventually will cover all major population centers.

The announcement doesn't say so, but Perchatsch and Motorola also have substantial cause for worry. The negative experiences of URS's frustrated partners of last year are what foreign business in Ukraine have come to expect.

The Geneva-based research firm Corporate Resources Group completed a survey this month to determine the best and worst cities in the world for expatriates. The worst: Sarajevo in Bosnia, Tashkent in Uzbekistan -- and Kyiv. Another survey, this one by international deliveries firm DHL Worldwide Express, says that Kyiv rates among the costliest East European capitals for business.

One problem is simple economics. The country is living with a crippling two percent per month inflation rate, and the value of the currency, the hryvna, is dropping internationally despite continual central bank intervention. But problems go deeper. Even Central Bank Director Viktor Yushchenko acknowledged recently at a conference of international bankers that the country's licensing and tax policies inhibit foreign invesment.

Ivan Lozowy directs the Institute of Statehood and Democracy, a non-governmental, non-partisan research and educational institute in Kyiv. The institute publishes "The Rukh Insider," a bi-monthly newsletter covering politics, organized crime, political leadership and similar issues. Some of the institute's financing comes from foreign telecommunications interests.

Lozowy says that most Western businesspeople, accustomed to "established, transparent procedures" for doing business, become frustrated in Ukraine. They complain that they can't get anyone in the country to make a final, official decision.

Here's the main difficulty, as Lozowy puts it: "The fact is that what the Ukrainian side, whether a private businessman or government bureaucrat, is after is their cut. Anyone in a position to decide something relies upon this, and not their salary, for their livelihood."

Lozowy contends that GSM companies like Motorola, competitors like Digital Equipment Corportation and Hughes Communications, who are unwilling to maneuver in this atmosphere of insider deals, buddy networks, and corruption, operate under severe competitive handicaps.

Motorola's Greg Perchatsch disagrees. The greatest problem foreign businesses face, he says, is in knowing and interpreting the law.

"The longer you are here, the more you understand how to interpret the statutes," he says.

What about the widespread charges of ubiquitous corruption? Perchatsh puts it this way: "You hear a lot of people say a lot of things. Motorola doesn't operate that way."

He says his own values and his company's internal culture as well as U.S. law work to assure Motorola doesn't compromise. As to URS, he says Motorola sought diligently for an honest local partner and was satisfied it had found one.