Doing business in Romania is child's play compared to Ukraine
by Oliver Meister
May 2004
Of the 20-25 flights I make to Romania each year, a significant minority involve having to chat (briefly) to some poor guy from the UK who has a minor horror story or, more normally, a grumble about doing business in Romania and the atmosphere within which has to be done. Being a lawyer (somewhat notionally these days) this chat invariably involves corrupt judges and slow court cases and a general lack of redress when it comes to getting stuffed by local partners.
As a director working with a local partner where problems did exist a few years ago, but happily no longer, I am familiar with how these can arise, and more importantly, how they can be prevented or resolved.
A strong legal basis for an initial partnership in Romania is critical. The number of stupid people who hand over vast sums to strangers in Romania (they wouldn't dream of handing over such amounts to the couple at the end of their road in suburbia back in the UK) without adequate documents in place is staggering.
When a practicing lawyer in Romania we dealt with a British multi-millionaire farmer whose Romanian corporate vehicle was a set of papers given to him by a chap he met in Braila for $500. As this was cheaper than my (admittedly outrageous) fees for setting up a new clean company he ended up having to travel to Braila on a number of occasions to amend the company's statutes and generally obtain stamps and permits which cost him a small fortune in money and time. When partner problems arose the Braila Trade Registry was unsurprisingly unhelpful (as was I due to a lack of payment of my fees ñ still outstanding to this day, seven years later).
This didn't put off the farmer who clearly followed the typically British business maxim of ìlook after the pennies and the pounds will look after themselvesî. Never was there a more stupid expression. Following this philosophy he went on to import machinery with false valuations and invoices to avoid paying customs duties, with more hi-tech IT equipment coming in suitcases. This also accommodated another UK businessman's theory that they should in some way not have to pay import tax in Romania. Why not?
Corrupt officials rarely supply perfect solutions and when this man's equipment went missing and he was trying to establish ownership, these crude forgeries and other documentary irregularities came back to haunt him. He, and many others, couldn't bear the idea of paying what the law required along with offering monthly salaries a little more than they would offload in a Bucharest dancing club or restaurant in a night.
One of the (minority of) clever foreign businessmen in Bucharest (in property with strong local partners) first introduced me to the expression ìpenny wise, pound stupidî. Follow this when looking at deals in Romania and you have a good foundation for success. If a deal adds up to 1000 per cent returns in two years because of cheap labour and equipment/resources then you are probably paying too little for labour and the supply costs will be fattened before they reach you by either local partners or their friends in the field you are focusing on.
These kind of problems pale into insignificance compared with the problems that I have seen in Ukraine, the second country that my company operates in and for which I have responsibility.
My last trip involved an evening shooting Kalashnikovs with our bodyguards who livened up the evening by adding to the firepower with a couple of pistols that I had previously not noticed were tucked into their belts. These guys are all extremely pleasant and friendly but, in accordance with their training in Israel would probably take the head off anyone trying to give me unwelcome attention in one of the many unbelievably high quality restaurants that fill this capital of one of Europe's poorest countries.
Both the bodyguards and luxury distractions available to those that can afford it have a flip side that makes Romania a totally safe and relatively simple place to make your fortune. No conversation can happen with 95 per cent of the businesses in Kiev without having, firstly, a great local partner. These are next to impossible to find as there is little that Johnny Foreigner can bring to the table.
In Romania a foreign partner can bring funding, skills and access to Western markets. These are neither required nor appreciated in Ukraine. Our TV channel there, Studio 1+1, is one of the top two and its most popular programmes are Russian produced soap operas. Almost no American series work, and only blockbuster Western movies can (at vast prices) compete with Russian language programmes.
The Ukrainians view Romania as a piece of countryside that does little except produce food and make bad quality cars. A big factory in Ukraine makes Sidex look small and the ego which goes with the biznezmen that run these places (the President used to run the biggest missile factory in Eastern Europe that turns over $1 billion a year) makes the implementation of normal business practices next to impossible.
After spending a week in Ukraine, coming to Romania feels like doing business in Italy. Not entirely clear and clean but something approximating it. Those that imagine that Romania cannot transform from what it was to what the EU is - which is very different to what the UK is - should have a bash at investing in Kiev to understand the minimal barriers to making money that exist in Romania.
Its not necessary to have the best contacts money can buy to do well here but its worth getting some good advice and doing a little digging on any prospective partners you may wish to work with (only if absolutely necessary) to establish a firm base before putting your hand too deeply into your pocket. At least in Bucharest no one arrives at your office after a fantastic year to make you an offer you can't refuse to sell up for the price of a pack of local cigarettes. They do in Kiev if you're not careful.
Stupidity is never rewarded, whether in Romania or elsewhere. But a simple idea well executed still has five years to carve out something before the EU floodgates open.
Oliver Meister is a lawyer with CME, the majority owner
of Pro TV.