The Union Leader
News – August 1, 2004

Trade: Risks go with growth opportunities

By JERRY MILLER
Sunday News Correspondent

NEWINGTON – Armenia, Kyrgystan, Moldova, Ukraine, Belarus, Azerbaijan,
Uzbekistan, Tajikistan, Turkmenistan, Kazakhstan and Georgia.

These are the once captive nations of the `Evil Empire,’ the name given to
the former Soviet Union by President Ronald Reagan.

Their part of the world is known as `Eurasia,’ because these countries lie
between what is now Russia and China.

When the U.S.S.R. and communism fell in 1990, these nations, along with what
is now Russia, were left with virtually nothing except the desire to get out
from under the yoke of the government that repressed their rights and
desires for more than a half century.

The fall of communism brought with it severe economic dislocation. The
ruble, the Soviet Union’s common currency, was deemed worthless and the
banking systems were as worthless as the currency.

Jobs, once guaranteed by the government, disappeared en mass, with the
wholesale closing of government-owned factories, leaving millions with only
their wits to survive.

The elderly, once assured of government pensions, learned there was no money
to make good on the promises.

The industrial infrastructure, about which Soviet leaders boasted about
incessantly – Nikita Khrushchev once bragged `We will bury you’ – was left
in deplorable condition.

The legal system, which favored the state, had to be replaced.

For these countries, the transition to a more market-oriented economy has
certainly been harsh.

Initially, governmental bureaucracies, which controlled the economy, were
all that was left.

Fourteen years later, these nations, with hard to pronounce names, are still
in an economic struggle to survive.

Banking systems have been slowly recreated and new business laws have been
passed.

Industrial infrastructure is being built, a difficult task, given the
problems in getting international credit.

The ruble crisis, which began in 1998, is still a factor in several places.

Money, know-how

Perhaps the region’s greatest need is for investors, not only for the hard
currencies they bring, but also for their business expertise.

One way to attract investors is to engage in trade – and that’s why
representatives from Armenia, Kyrgyzstan, Moldova and Ukraine were in New
Hampshire last month at the International Trade Resource Center looking for
trading and joint venture partners.

`These countries are now all independent. They’re trying to make their way.
They’re in the process of transitioning to market economies and toward
democracy,’ said Ellen House, an international trade specialist with the
U.S. Department of Commerce Business Information Service for the Newly
Independent States in Washington, D.C.

`They’re all struggling with economic development and are trying to create
environments attractive to investors.’

The challenges

Getting to where they want to be hasn’t been easy. Old habits die slowly, if
at all.

In a few countries, what’s left of the former Soviet bureaucracy is still
sucking out the air, although in some places the sucking sounds are less
audible than in others.

Taxes are often confiscatory, while Soviet style corruption is alive and
well.

Banking systems remain weak, credit is limited and financing is hard to come
by, while accounting systems are often basic, if not rudimentary, when
compared to the West.

The demise of government controlled economies and the often painful
transition to market economies have also seen many nations’ Gross Domestic
Product figures plummet. In Moldova, the GDP is only one-third of what it
used to be

A middle class, critical to building consumption, is also hard to come by.

And in other places, there is double-digit inflation, draining what little
disposable income the people have.

The risks

Getting paid can also present challenges for U.S. businesses, according to
House.

`It can be a problem. You should be very cautious. It’s an issue that
requires a lot of attention.’

Some of these countries are still experiencing `political instability,’
according to House. However, there are no major separatist movements in the
region.

Asked about privatization, House responded, `It varies from country to
country.’

However, there is a good amount of progress being made, especially among
small and medium sized operations. Still, there is `some reluctance’ to
privatize major industries, including telecommunications, transportation and
oil and gas. Agriculture has also been slow to privatize.

In at least one nation, Belarus, little if any effort has been made to adopt
democratic principles or a market oriented economy, while Turkmenistan was
characterized by House as being `even worse.’

Why try?

So, in light of these difficulties, why do business in Eurasia? The answer
is simple. On the one had, they need everything. On the other hand, they
have a lot to sell.

The region also boasts an inexpensive yet well-educated workforce,
especially in the sciences, many of whom speak English, while literacy is
nearly universal.

American companies now do little business in the region. Between 1992 and
2003, U. S. investments in Moldova amounted to only $790 million.

In Kyrgyzstan, last year, foreign investments totaled only $157 million,
most of it coming from Russia, its largest trading partner, with smaller
amounts from Switzerland, Germany, England and China.

`This may not be the first region you might look at, but there are good
opportunities for experienced exporters who are looking for new markets,’
said House, whose duties include serving as country manager for Armenia and
Georgia. `They have a lot of needs, but not a lot of money.’

Hydro opportunties

`Our imports always exceed our exports,’ said Asel Sulaimanova, who works
for BISNIS in Kyrgyzstan, a nation with 5 million people wedged between
Russia and China, which is looking for places to ship locally made products.

Sulaimanova said her country is actively seeking hydropower investors, given
its number of rivers and the importance of hydroelectricity for
infrastructure development.

Kyrgyzstan is also hoping to attract tourists from the United States and
Europe.

Moldova, a country with 4.3 million residents, sandwiched between Romania
and Ukraine, is putting priority on its infrastructure and is seeking
joint-venture agreements with building equipment suppliers.

`Building equipment is very hot,’ according to Iulian Bogasieru, the BISNIS
representative there.

In Ukraine, a nation the size of Texas, once known as the Soviet Union’s
`bread basket’ because of its rich farm lands, opportunity areas include
agribusiness, food packaging, medical equipment, computers and building
materials.

Andriy Vorobyov, the BISNIS rep working in the capital city of Kiev, said
parts of the Soviet legacy remains. `There is much bureaucracy. It is
strong.’

There is also an `underdeveloped’ legal system that makes it difficult for
foreign investors to protect their interests, according to Vorobyov.

Still, international investments are growing in the Ukraine, led by American
and British companies, followed by The Netherlands, Germany and Russia. An
American chamber of commerce chapter now boasts more than 300 members.

`Business confidence in general is good, especially among small and medium
sized companies,’ Vorobyov added.

Ashland company

While the Granite State remains largely unrepresented in Eurasia, at least
one company, HydroSource, is giving the region a look. The Ashland-based
operation explores for and develops high yield ground water sources,
critical to agricultural, industrial and infrastructure development. Its
clients are primarily foreign governments and U.S. cities and towns.

Joe Ingari, a principal in the company, said while he has concerns about
political stability, worker safety and crime, the region, given its
industrial, agricultural and infrastructure needs, presents a growth
opportunity.

With experience in places such as Trinidad and Tobago, Montserrat, Antigua,
China, Sudan, Ethiopia and the United Arab Emirates – countries that include
significant Muslim populations – Ingari said it’s best to `keep a low
profile and don’t announce yourself.’

Given the threat of terrorism directed at foreign workers in several Muslim
nations – as well as Muslim annoyance at this nation’s invasion of Iraq and
its pro-Israeli foreign policy, Ingari said, `In general, we take more
precautions. We must make sure we know what’s going on, before we leap in.’

Risks, opportunities

Despite concerns, Ingari said for any company looking to boost its bottom
line, overseas work – including projects in places less than friendly to
American workers – is vital.

`If you want to find work,’ he said, `you run the risk of encountering
problems.’

Ingari said the former Soviet republics represent new areas for American
companies and, at least for now, may offer serious challenges some are
unwilling to take.

`I would think there would be reluctance on the part of many to go there,
especially if you have markets elsewhere. For us, it’s an opportunity to get
into another area of the world that we’re not yet in.’