Crisis Casts a Pall Over U.S. Firms’ Investment Plans
American companies with investments in the Soviet Union were closely monitoring their operations Monday, while analysts said the coup that toppled President Mikhail S. Gorbachev was unlikely to have a significant impact on the U.S. economy.
For the moment at least, most U.S. companies were continuing to do business--albeit with caution. McDonald’s said its fast-food restaurant in Moscow remained open Monday, while General Motors had not changed its plans to develop engine parts for a Soviet auto maker. Pan American World Airways, the only U.S. carrier with regular flights to the Soviet Union, said a flight went off on schedule Monday, but travel agents said they were worried that upcoming tours might have to be canceled.
Analysts said the coup would almost certainly cast a pall over future investment in the Soviet Union, even if it ultimately fails. “In this climate, with the uncertainty, I would say attracting new investment is virtually impossible,” said Abraham Becker, director of RAND-UCLA Center for Soviet Studies.
Becker said the new government may try to renegotiate existing deals with foreign-based companies, an act certain to discourage continued foreign investment.
In Europe, where business relationships with the Soviet Union are more extensive than in the United States, anxiety was high. German businessmen could only hope, for instance, that existing ventures would survive. “We’re assuming our export deals were signed with Soviet industry and not with Gorbachev,” said one German exporter.
In overall economic terms, the coup’s impact on the United States is extremely small, experts said. Total foreign investment in the Soviet Union since 1989 is a mere $3.15 billion, according to PlanEcon, a Washington consulting firm. U.S. companies have invested a just $360 million in 247 projects in the Soviet Union in that time.
The political upheaval, however, could have its most dramatic effect on U.S. grain producers if the United States imposes economic sanctions. The U.S. government had promised to back $1 billion in Soviet grain purchases from U.S. farmers--support that analysts say is now in question.
But the biggest loser of all, analysts agreed, is the Soviet Union, which badly needs foreign investment to revive its ailing economy. Here is an industry-by-industry rundown of U.S. investment in the Soviet Union and how the coup has affected various U.S. businesses there:
Autos
General Motors and Ford have ventures in the Soviet Union, and company representatives said Monday that they were watching events in that country closely.
Ford said it is reviewing plans to ship car engines to the Soviet Union under a $41-million agreement signed in July. The first shipment of 72 engines was scheduled for later this month but may be delayed. “We have to wait and analyze the situation at that time,” said Ford spokeswoman Lin Cummins.
The nation’s No. 2 auto maker is also reviewing plans to ship vehicles to dealerships it jointly owns with Soviet partners in Moscow and in the Ukraine. Ford has shipped 299 European-made cars and minivans to the dealerships so far this year and had expected to ship 1,000 for all of 1991.
General Motors has a 2-year-old, $1-billion deal to provide 100,000 to 150,000 engine-control systems annually to Volga Auto Works. GM spokesman Jack Harned said the systems are under development in the United States and won’t be installed for another year.
Harned was optimistic that the venture would continue, despite Soviet politics. GM’s customer, Volga Auto, “is a Soviet company that has been in business a long time through old and present regimes,” said Harned.
Food Services
Representatives of McDonald’s and Pepsico’s Pizza Hut unit were reporting no significant disruptions to business Monday at their Moscow restaurants, despite a chaotic situation in the streets.
McDonald’s opened its restaurant in Moscow amid much fanfare 20 months ago, and on Monday patrons gobbled down Big Macs in near-normal quantities, said Peter Barrister, a spokesman for the Soviet venture.
McDonald’s has an agreement to open 20 more restaurants in the Soviet Union, but even before the coup, there were no plans under way for a second restaurant, Barrister said.
Pepsico spokesman Kenneth Ross said the company’s ventures in the Soviet Union were also operating normally. Besides two Pizza Hut joint ventures in Moscow, Pepsico has 25 bottling franchises throughout the Soviet Union. Under a 1974 barter agreement with its franchisees, Pepsico supplies Pepsi syrup in exchange for Sotlichnaya Vodka.
“We have over 20 years of experience in the Soviet Union and have been through a number of (political) changes. Our approach is to wait and see how things shake out,” said Ross.
Agriculture
U.S. farmers have much at stake. The coup has cast doubt on the Soviet Union’s grain deal with the United States, threatening $1.1 billion in grain sales.
The Bush Administration is considering whether to impose tough new economic sanctions on the Soviets, raising the possibility that the United States might withdraw an offer to guarantee credit for Soviet grain purchases from U.S. farmers. It is not likely the Soviets could buy the grain--mostly corn, soybeans and wheat--without the U.S. government’s financial backing.
If grain sales to the Soviets are prohibited, some U.S. farmers stand to be hit by a “double hammer,” said a spokesman for the Illinois Farm Bureau. Many face getting lower prices for crops that were reduced as much as 60% by drought in the Midwest.
Grain prices tumbled in commodities trading on Monday, on expectations that Washington would suspend the program to guarantee credit for Soviet grain purchases.
Paul Drazek, international trade specialist for the American Farm Bureau Federation in Washington, said it is “too early in the game” to know what effects the coup will have on agricultural trade, but he noted that the Soviets’ need for farm products will not disappear.
“It doesn’t matter what government is in place,” Drazek said. “They still need to feed their people.”
Although not a large grain producer, California has a stake in Soviet trade. In 1989, agricultural exports from the state’s ports to the Soviets totaled just under $45 million. Half of that was wheat and half was almonds.
Aerospace and Defense
The U.S. aerospace and defense industries, which have undergone a painful restructuring in response to shrinking Pentagon budgets, may see the government more reluctant to cut military spending in the wake of the Soviet coup.
However, industry analysts ruled out any overall increase in defense budgets or a major military buildup in response to the ouster of Soviet President Mikhail S. Gorbachev.
“We can expect this event to act as a brake on the downward trend in the defense budget, but it may not reverse the trend,” said Michael Rich, vice president for national security research at RAND.
In fact, El Segundo-based Hughes Aircraft said the course of events in the Soviet Union is not expected to change the aerospace firm’s ongoing efforts to wean itself off of Defense Department contracts and build up its commercial business. By the end of the decade, Hughes expects defense contracts to account for 50% of revenue, down from the current 70% level.
“The situation is far from being resolved, but we are not anticipating any change in the strategy as far as the build down in the U.S. defense industry,” said Hughes spokesman Richard Dore.
Travel
Most airline analysts said it was too early to tell if the fast-paced events surrounding deposed President Gorbachev will have a major impact on air travel to the Soviet Union or other Eastern European cities.
The biggest impact for the airline industry will be if “higher oil prices translated to higher fuel prices,” said Stephen Dexter, an airline analyst with Kemper Financial Services. “If the spurt in oil (prices) is sustained then the agony the airline industry is going through will be intensified.”
Tourism didn’t suffer any immediate impact, though that could change at any time. Pan American World Airways, the only U.S. airline with year-round direct service to the Soviet Union, said Monday it had no plans yet to change its flight schedule overseas. The airline operates six weekly flights to Moscow--from New York and Frankfurt, Germany--in conjunction with Soviet airliner Aeroflot, said spokesman Alan Loflin.
Loflin said a regularly scheduled flight from New York went smoothly on Monday. He said there were no plans yet to cancel a flight today or Wednesday to Moscow.
Only two or three people cancelled their reservations Monday to the Soviet Union, he said.
Major travel agencies said no trips have yet been cancelled but that the situation could change rapidly.
“We’re taking it an hour at a time and see what happens,” said Bhavani Chandramouli, marketing manager for New York-based General Tours Inc. “We’re getting a lot of calls from travelers and travel agents.”
Times staff writers Martha Groves in San Francisco and Eric Young, Jesus Sanchez and Paul Feldman in Los Angeles contributed to this story.
Investing in the Soviet Union As of February, 1991, U.S. investment in the Soviet Union amounted to 11.4% of all foreign investment. A total of $360 million was in direct investment, and $250 million was in joint ventures. Some of the deals with U.S. companies include: Company: Chevron Investment: Reached a tentative agreement to develop the Tengiz oil field in Soviet Republic of Kazakhstan. Company: Ford Investment: Signed a $41-million deal in July to supply diesel engines to Soviet auto maker Moskvich. Company: General Motors Investment: Two-year, $1-billion deal to provide engine-control systems to Volga Auto Works. Company: Gillette Investment: Signed a joint-venture agreement in March to make razor blades, shaving products anddisposable razors in the Soviet Union. The project is expected to get under way in 1992. Company: Magnetek Investment: Early this month entered into a joint venture to market Soviet-built generators and turbines in the U.S. Company: McDonald’s Investment: Opened a restaurant in Pushkin Square in January, 1990, after a $50-million investment that includes a food processing plant and supply network. Company: Occidental Petroleum Investment: Backed out of $6-billion petrochemical project on Caspian Sea. Company: Pepsico Investment: Operating in the Soviet Union since 1974, the company produces Pepsi at bottling plants operated by Soviet partners.
