Germany's Treuhand Woos Western Buyers (cf: ...But Foreign Firms Are Slow to Invest in the East)

THE government agency with the unique job of selling off former East Germany's vast state businesses is outgrowing its chaotic start-up.The lobby of the central offices of the Treuhandanstalt, or Trustee Agency, is a clue to the change taking place. It is a long, marble hall in Berlin's largest, most imposing office building - former headquarters of the Nazi Luftwaffe. Two years ago, under communist rule, this lobby was dimly lit and largely empty. Last June, shortly after the Treuhand moved in, a lone reception desk was placed squarely in the middle. Now the lobby fits its status as entryway to the world's largest holding company: On the right, behind a long counter, six receptionists receive the day's visitors. On the left, under modern track lighting, businessmen lean forward from generously stuffed, black leather armchairs, quietly discussing last-minute details.

Not a normal business The marble walls display a slick exhibit on the Treuhand, including a telling quote by its energetic president, Birgit Breuel: "We want to make ourselves superfluous as soon as possible." Ms. Breuel points out that the Treuhand is not a normal business. (See interview, right.) Its job is to finish privatizing the remaining 6,500 concerns under its trust and to eventually sell itself out of business. Since its beginning in June 1990, it has privatized more than 4,000 concerns and sold thousands of smaller businesses, such as corner grocery stores, hair salons, and restaurants. It has taken in 13.8 billion marks ($8.3 billion) in sales, and secured 720,000 jobs and 85.2 billion marks ($51.6 billion) in future investments. Just a year ago, the Treuhand employed only 300 people. It didn't have complete files on the concerns under its trust. It didn't know their worth. Then the Treuhand's second president in one year, Detlev Rohwedder, was assassinated in April by the Red Army Faction, a leftist terrorist organization. Since then, under the direction of Breuel, formerly a finance director in west German state government, its staff has grown to 3,000 (plus 15 regional offices for the privatization of small and medium-sized businesses). Its data bank on its firms is more or less complete. It has imported experienced west Germans to head its departments. On average, the Treuhand sells 15 to 20 businesses a day, which would put it out of business in about five years, says spokes-woman Ulrike Grunrock. Although the Treuhand still has 2,000 investment applications pending, it is now functioning smoothly enough to begin actively marketing its wares. "Before, we would not have been well advised to drum up additional business. We were unable to deal with what we had," says Helmuth Coqui, director of the Treuhand's regional office for the Berlin area. "But now we're in better shape. We are sitting down and thinking through who we could contact," especially foreign investors. The Treuhand is the most criticized institution in Germany. Rudolf Zwiener, an economist at the respected German Institute for Economic Research in Berlin, has coauthored a highly critical report on the Treuhand. He says that, "after one and a half years, the Treuhand still has no concept." It must invest much more in rehabilitating the firms under its trust to make them more attractive to buyers and give them a better chance of surviving in the medium term, he says. Investors complain the Treuhand moves too slowly, and east Germans have labeled it a job killer. The Treuhand has shut down 700 businesses so far and it estimates 500,000 people will be laid off by year's end. The Treuhand has also come under heavy criticism for selling companies at far below market value. The Berlin prosecutor, for instance, is investigating a Treuhand department head for allegedly selling an electronics company to a group of investors for 1 deutsche mark. The Treuhand's resident state prosecutor is investigating about 300 cases involving various improprieties, says Ms. Grunrock. The Treuhand, meanwhile, is building up audit and controlling departments. Mr. Coqui guesses about 20 percent of the thousands of deals done by the Treuhand were "dumb." Of these, about 5 percent "should never have been done," he says. And of that 5 percent, about one-tenth were criminal. Part of the reason, he says, can be attributed to a "wild east" business spirit which prevailed in the first months of the Treuhand. Much of this is now under control, Coqui says, but he warns of a serious problem at Treuhand headquarters, which is organized according to industry sector. Young professionals who have left their careers in west Germany for a stint at the Treuhand, will be biased toward buyers from their industry sector back home - especially if they expect to return to work in that industry. "It's a terrible conflict of interest," he says. Opinions differ over whether the "best buys" for investors are now gone. "Certainly, a lot of the good deals are gone, but don't make the mistake [of thinking] that they are all gone," says Wolfgang Vehse, director of International Relations for the Treuhand. Quick sales have followed quick profits: Consumer goods manufacturers, restaurants, glass and ceramics, machine-tool and auto makers, and construction industries have sold first. Breuel says investors today are in a better position, because they can buy pieces of large concerns that the Treuhand has broken up and reorganized. Before, they were faced with giant conglomerates. She says the Treuhand is a flexible negotiating partner, willing to compromise on such issues as debt or the costs of cleaning up environmental damage.

Treuhand's obstacles Several sectors of the economy are an enormous challenge for the Treuhand to privatize: industries facing a world glut, such as shipbuilding and textiles, or industries that are technological dinosaurs, such as chemicals. As in most communist countries, these industries are concentrated in geographic regions, so that whole local economies will go under if the firms are allowed to die. For political and social reasons, the Treuhand has committed itself to keeping some of these industries going. For example, it has decided - in agreement with the federal government and the European Community - to preserve four shipbuilding ports on the Baltic Sea, albeit with a drastically reduced work force. In cases like this, the Treuhand is more concerned with a potential buyer's investment and development plans than with the price. "We can't give these companies away, but the price is influenced by how many jobs a buyer will create and how much he is going to invest," says Bernhard Schroder, responsible for privatizing the textile industry, which will shrink from 300,000 workers to 60,000 by year end, and possibly to 40,000 next year. In the end, the Treuhand likely will be stuck with factories nobody wants. "We don't think about this too much," says Breuel. "We don't have time to think about this."