Once Cautious, U.S. Firms Mean Business in Russia
After more than a year of deep skepticism, leaders in the U.S. oil, agriculture and defense-conversion industries have concluded they now can negotiate specific business assurances and policies in Russia to make investments in that nation practical.
The executives, representing industries that the Russians have identified as the most critical to their economic development, say obstacles that had made Russia a bad risk for their capital are giving way at a faster pace than expected since last year’s political upheaval.
U.S. business leaders say they now see hard evidence of a new climate that is both friendly to Western investment and increasingly responsive to the demands by foreign firms for specific changes in the Russian legal and financial systems.
“We are ready to do deals, and they say they are ready to do deals now too,” said Thomas Urban, chairman of Pioneer Hi-Bred, a major U.S. seed producer based in Des Moines, Iowa. The company has been talking with the Russians about building several seed-producing facilities.
“We see a very eager country,” added Jeremy Oury, Russian project manager for Rotec Industries, an Illinois company planning to hire former Soviet soldiers to produce housing in Russia for soldiers returning from Eastern Europe.
This shift in U.S. corporate opinion toward Russia is being closely watched by U.S. and Russian policy-makers. In the two years since leaders Mikhail S. Gorbachev and, later, Boris N. Yeltsin began implementing economic reforms to push Russia toward a market economy, U.S. companies have been guarded about the opportunities for business investment and profit there.
The political chaos of the past year, highlighted by the failed coup last August, served to deepen the fears of U.S. businesses about making major commitments in Russia.
But moves by companies in such fields as oil and agriculture--for which Russia has the most to offer because of its vast natural resources--could be a sign of broader business connections to come.
New Russian efforts to entice Western firms into completing agreements also are beginning to impress U.S. government and business leaders.
Earlier this week, in a deal that attracted widespread attention in the oil industry, the Russian government agreed to waive a $4-a-barrel export tax in order to seal a $3-billion drilling project with Houston-based Conoco. Russian negotiators cut through confusion, red tape and cumbersome trade laws that had blocked such flexibility until very recently.
“They have told us they want to get out of the regulation business,” said Max Pitcher, Conoco’s executive vice president for exploration and production. “There has been a paradigm shift. The leadership welcomes Western investment and is trying to clear the way for partnerships.”
Business officials caution, however, that serious problems still must be resolved by the Russians before U.S. private investment can spread beyond a few targeted projects in high-priority industries.
Low-level bureaucrats, both in Moscow and in local governments, still can kill Western projects by imposing unacceptable delays. The Russian ruble remains unstable and cannot be converted to other currencies, so bartering still dominates. In addition, Russia’s domestic property laws are not yet sophisticated enough to give many Western firms the confidence that long-term investments will be protected from sudden political mood swings in Moscow.
“There are a lot of deals hanging,” waiting for further reforms in Russia, said Matthew Sagers, an analyst with Plan Econ, a Washington-based research firm specializing in Eastern European and Russian issues.
But a series of trade and economic agreements over the past week between the United States and Russia, along with a new push by the Bush Administration to provide federal financial and insurance guarantees for U.S. ventures in Russia, has underscored the growing belief among U.S. business executives that Russia may finally be ripe for business opportunities.
Not only did the United States extend most-favored-nation trade status to Russia this week, but the two sides also agreed on treaties covering a wide range of critical business-law issues.
For the first time, Washington and Moscow now see eye to eye on such things as copyright, patent and trademark infringement rules, the protection of foreign investor profits on projects in Russia, and the need to give foreign businesses access to such resources as office space and telecommunications. The Russian government even agreed to slash taxes on foreign companies to make Russian business projects more attractive. It also plans to make the ruble convertible to foreign currencies starting July 1.
Bush Administration officials say the new agreements and federal subsidies should clear the way for a significant expansion of U.S. investment in Russia.
“This will provide a more stable environment for traders and investors,” said Thomas Duesterberg, assistant secretary of commerce for international economic policy. “So the question becomes, ‘Can you close deals and make money?’ But we think Yeltsin and his team have gone a long way to convince U.S. business that Russia is now a good opportunity.”
The results have been striking in recent weeks as Russian officials have made increasingly urgent appeals for U.S. firms to make business proposals. This week, 300 U.S. business officials met with Yeltsin and other Russian officials in Washington; five major business projects were announced, and executives around the country expressed a growing desire to get into Russia before their rivals from Europe and Japan outflank them.
“We are just taking our first step here,” said Robert A. Hefner, chairman of the GHK Co., a firm based in Oklahoma City. GHK said this week that it reached agreement with the Russians on a $20-million project to repair about 100 wells in the decaying Russian oil industry. “But we are already planning a much broader relationship” with local oil enterprises, Hefner added. “I do indeed think we can do business with them.”
The sudden burst of interest could finally help the United States catch up with Europe in Russian business development, according to business officials and outside analysts.
