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Morten Munch: Necessary to “soften” war, focus on concrete goals

Morten Munch in his office in Aarhus.  Photo: Natalia Slynko
Morten Munch: Necessary to “soften” war, focus on concrete goals
Morten Munch, the Honourary Consul for Ukraine in Denmark and business consultant in Ukraine, spoke with about problems and challenges for Ukraine, about corruption, war and prospects for EU membership.

You have been familiar with Ukraine for a couple of decades already as a business partner, as an advisor.  In your personal opinion, which basic problems stand in the way of the country’s development?

Concrete actions remain a big challenge for Ukraine. The President and the Prime Minister both regularly appear on television and social media, but many things are simply never accomplished. Everyone aspires to do the right thing, and this is constantly discussed in person and on television.

This is like a company where the director stands up and states that we need to move in this direction, and the lower level employees do what they always did.  Nothing is done to change anything.

I can give the example of cargo that reaches Ukraine and sits at the border for months. This is happening in a country at war, where these goods are urgently needed.  The person there talks about the need to pay taxes and levies. This illustrates the basic situation in Ukraine.

When I speak with people I know in the central and western regions of Ukraine, all are deeply disturbed that the planned reforms are not happening. All say: “Yes, we are counting on them.  We are ready to suffer the consequences, high energy prices and so on.”  But the reforms don’t happen.

We see this everywhere. Tax reform is occurring right now, but again people go and prevent businesses from working. This in spite of the fact that a law was passed which limits the frequency of inspections and requires solid justification for them. It is not enough to pick a company and say that we will come and have a look.

Less talk, more action

In all the time that I have known this country, Ukraine has had worthy goals. But they have always stalled at the negotiation stage, then many participants got involved, and discussions dragged on so long that in the end they couldn’t accomplish anything.

Ukraine lacks people prepared to make concrete decisions about certain issues and say “This should not be here, it should be there.” And then to go and do it.

Lviv as a pragmatic model of governance

There are many positive developments in Lviv, because they have a very pragmatic mayor. He has administrative success because he is not dogmatic. For example, the city needs 100 new buses and he needs to make a decision. The Lviv bus factory can produce them, but they are so expensive that it would take at least 10 years for the city budget to cover the cost. But you can buy used buses from Paris and the following day they will be cruising the city.  It may well be that they are not as pretty, and not painted yellow, but people will be able to get to work on time.  Many practical steps really are taken there.

There are some mistakes, but in any case, a good business environment has been created there, with many IT companies, massive outsourcing companies, because investors see it as a nice place for an office. They see it as a hospitable city which is ready to welcome them. In spite of the bureaucracy, you can see significant steps forward.  This year the situation is markedly better than last.

This progress is missing when, for example, you arrive in Kharkiv. In my mind, Kharkiv looks just as bleak as it did in 1996, when I was there for the first time. It lacks the dynamism which would enable the implementation of certain things. Although it appears that this city is indisputably successful, it lags enormously in many ways. There is a lack of lower-level professional managers, in the army they call them sergeant major, who guarantee soldiers rations, weapons and other things.

There is no more trust in what is shown on television

Do you mean to say that in the year following Euromaidan nothing has really happened in terms of reform and the business environment?

There is a lot of grandstanding on television. Take, for example, tax reform – business development depends directly on this – and someone says that we will immediately cut taxes in two. But this has nothing to do with halving taxes. The same amount of taxes is collected, but now they are not called the same thing, but instead are composed of two elements. This is understood even by the most established companies and they don’t believe what is said in Kyiv.  Just because it is stated on television doesn’t make it true.

Politicians are not trusted more just because they appear on television. What is currently decided in Kyiv has to influence every distant village. Otherwise, it is worthless. But if it does not help companies there, if every business needs to keep a bookkeeper on staff to handle taxes, then you have not eased their lives.

That’s exactly why a big test for Ukraine will be to translate these good intentions into something concrete. And that will be my principal advice: you should give up ambitions and concentrate on a few things, then make them work. Because only now you have the chance to change everything.

Corruption is closely tied to the administrative culture

As for corruption, it is much talked about in Ukraine, like in Europe. It is important to deal with it first of all, in order to make effective reforms in the country. What has changed in this respect?

I think corruption is tightly woven into the administrative culture. Until 2004 many things were very predictable in Ukraine. Everyone knew that there was widespread corruption and bureaucratic corruption. Someone says: “You need to wait three weeks”, and a person answers: “What if I bring you a bottle of cognac?” The reply is “Well in that case you can come in tomorrow.”

Everyone had great hopes when Yushchenko came to power in 2004. He indicated a desire to do something in the battle with corruption. He carried out administrative changes at all levels.  The problem was that inadequate managers came to power. They had no experience in this sphere. So they were open to taking money for their services. And the level of corruption multiplied. Some administrative aspects worsened, and they all knew that they could remain in power for at least four years. So they wanted to fill their pockets.

There should be transparency and straight lines

If not for the shadow economy, Ukraine would be bankrupt. Look at the official foreign exchange reserves, they have long been subpar. But everything works.

I don’t have a gift for prophecy, for predicting what will happen in the short term, but there should be transparency in actions, more straight lines, then you will be able to see this. That’s the first condition. Today, everything is really so twisted, and lawmaking is so horrible, that you can never concretely prove corruption. That’s why harsher corruption laws need to be enacted.

Denmark and Ukraine are equally bureaucratic

Denmark wants to help with legislative and judicial reform, with prosecution. What real input can Denmark make?

I am not sure that Denmark can make a major contribution. We have the same level of bureaucracy as Ukraine. Take, for example, building permits. There is no difference between Denmark and Ukraine in this respect, the bureaucracy is the same. Ukrainians want to do everything at once, in order to be recognized by the international community. But this is only on the television screen.

Ukraine compared to the Polish experience

Experts say that Ukraine is now where Poland was 20 years ago.  Why are we not able to act like Poland?

I also think so. But clearly there needs to be a precondition. You need to begin by introducing free border crossing, which is a problem. Why is it easy to do business in Poland?  Because there you don’t have to issue some kind of documents to begin the transport of products into Poland. And you don’t have to argue with some Ukrainian customs officials who say: “Yes, but it is not packed with the crates specified on paper. They are 5mm shorter.” And then he should get 20 Euros, because the crates are 5 mm shorter but if you press them they become 5 mm longer.

That’s why first of all you need to remove these existing barriers to crossing the border. Secondly, when you implement tax reform, this should be real reform, not tales of how 22 tax categories were reduced to 11, when in reality the other 11 were just renamed. Investors are too clever not to notice. These are the two principal barriers.

The war should be “softened”

Although in Ukraine there is a third, which is impossible to forget – which is war, human tragedy, those who were killed. Yes, this is frightening, but you need to “soften” this with the support of those media which are interested in something other than war.

From everything you have seen on Danish television, has there been a single positive message from Ukraine in the last 3 months? None! There was news about the war, about Ukraine being on the brink of bankruptcy, about how it would ruin itself tomorrow. There is a whole slew of negative statements because the war predominates. Sooner or later people will tire of hearing about war. Then they will want to hear about what else is going on in the country.

You should speak about something besides war

When I read news, ¾ of it discusses war. So only a quarter remains for that which could attract investors and business.

We understand that the conflict will last until Russia establishes a land corridor with Crimea.  The same occurred with west Berlin, that’s why the conflict continued for many years.  The war should be “packaged” in some way, so that it’s possible to talk about other important matters.

Right now the main thing is to get administration which really works. You should have clear lines and understanding that decisions from Kyiv influence all regions.

Big challenges for Ukraine

Many say that this is a frozen conflict. This is very difficult psychologically, but many people say that Russia can further enlarge the conflict. This is a big challenge for the media. What do you think, how long will it last?

I think that you should look at the conflict in Luhansk and Donetsk in the same way as Crimea. This is the state of affairs, which Ukraine will not resolve alone and will not change. This will be the first thing to acknowledge; it will be necessary to say that we have a situation which we cannot resolve alone. Until then, you will not receive arms from the EU or USA. And it’s necessary to accept this situation.

The situation is that in the conflict zone there were 5 million inhabitants. 2 million were forced to resettle. Of those who remain, according to various assessments, 1 million are pensioners, 1 million are children and youth. So only 1 million remain to work or fight. Those who were forced to flee the war, they were mobile and able to work, they got new work in other regions.  Economically this is possibly the biggest problem, if Ukraine wins the war, because this will result in huge restoration costs.

Poroshenko himself said this: “The train stops at the platform, and we are not waiting for passengers who arrive late.” But the train has not even left. The train needs to be set in motion to show people that we will move forward and that we are on the right track. It may well be that there will be short stops along the way, but this is what democracy is, a trust in what is proclaimed. Democracy is the only form of governance that can undo itself.

Ukraine will be supported, remaining outside the EU

In Euromaidan, people stood for the entry of Ukraine into the EU.  Should Ukraine have such a goal, and how important is this for the country?

I don’t think there is a place for Ukraine in the European Union which we have today, because it is already extremely stretched and not in a position to deal with the differences that lie between the north and the south, east and west of the EU. Those conflicts that exist in relation to Greece, Italy, Spain and Portugal arose because they simply have a completely different idea about how to conduct public accounting and auditing.

Here in Denmark, it’s normal to expect that this should be accurate and objective. Germans also think this.  The Italians think that it only has to look outwardly pretty.

I just don’t believe that there is a place for Ukraine in the EU in the short or medium term.

I also think that Ukraine will be supported in many ways, remaining outside the EU. So it’s easy to get close collaboration. If we look at reconfiguration, it can occur in every possible way.  beginning with sockets, which should have European standards. Across industry, tools do not have CE markings (CE is the certification stamp of EU standards and approvals, ed), and that means that you need new machinery.

Ukraine has nothing which the EU lacks

Ukraine will never be able to carry out reforms independently. The countries of the European Union, which was first called the Coal and Steel Community, share strategic resources as a guarantee that there will never be a resource war. The inclusion of food and agriculture was also considered.

There was a notion of a resource union of the EU with Russia, to get energy from there.  But there was a misjudgment, because the EU does not have anything to share with Russia which Russia does not already have, because they have Siberia with every kind of resource.  And Ukraine has nothing that the EU lacks.

Ukraine needs to look objectively at EU membership. It will add nothing to what Ukraine already has, having signed the economic and political parts of the Association Agreement with the EU.

Greater focus on highly developed military industry

For Ukraine to succeed, it needs to reform the manufacturing sector, which continues to supply hardware for Russian arms. You have branches of industry which are almost as developed as the EU. But complete reform is imperative, to decline supplying Russia and other partners who have analogous weapons systems.

If Ukraine independently copes with this task, it may establish trade with the EU and have steady income. All countries that aspired to EU membership had GDP growth before entering the EU. So Ukraine should strive for that. You need to have goods that you can send to market.

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