Siberian Climate Is Warm For Investors, Native Says
TO enterprising Western investors, Vladimir Kvint recommends looking toward Siberia. But don't wait, says the Russian economist, "it is necessary to invest now."
Dr. Kvint, a lecturer at Fordham University's business school and a consultant to Western companies, was raised in Siberia. Starting at age 14, he worked his way up through state enterprises, finally directing large companies in Nirilsk and Krasnoyarsk.
Of the 7,000 foreign joint ventures in the former Soviet Union, 650 involve United States companies, Kvint says. But 60 percent of the joint ventures are based in Moscow and St. Petersburg. "The only raw material those cities have is bureaucrats," he jests.
Siberia and the Russian Far East have a wealth of natural resources, including wood, oil, coal, gold, minerals, and a developed transport and shipping infrastructure. "Every day," Kvint says, "Siberia produces more oil than Saudi Arabia, Iraq, and Kuwait taken together."
"American businessmen say that there is no population in Siberia, just permafrost," Kvint says. Yet "Siberia has the same population as Canada, about 25 million people."
Siberians are already enthusiastic about private enterprise, he adds. Many people living in eastern Russia are the children and grandchildren of prisoners and kulaks, wealthy farmers banished to Siberia during Stalin's collectivization.
"There is almost no political risk of investing in these regions because the population strongly supports Western investment," Kvint says. In the former Soviet republics, power has devolved from Moscow to local politicians and enterprise managers.
Siberia also stands to benefit from new international trade routes that will pass through Russian territory. It is 2.5 times less expensive to send cargo from Vancouver to Europe via the Arctic Seaway than through the Panama Canal, according to Kvint. The Arctic Seaway is also the shortest route from Europe to Asia, costing half as much as shipping through the Suez Canal.
"It is just 80 miles between Chukotka [Siberia's northeast corner] and Alaska," Kvint adds.
Kvint recently studied 100 companies that had set out to form a joint venture in the republics of the former Soviet Union. Only eight have succeeded. The key problems, Kvint says, are:
* Working with the wrong partner. Mismatched goals and needs derailed more than one-quarter of the projects.
* Currency exchange problems. Western companies have trouble gauging the value of fixed assets (factories and equipment).
* Not knowing who was in charge. "Many companies had trouble because they decided that it was enough to meet with [former President Mikhail] Gorbachev. They didn't understand the very important role of local government, business leaders, and the new political force in Russia - public opinion."
* Legal glitches. About 10 percent of the deals failed because of misunderstandings about Russian laws. Business regulations are changing quickly. American companies usually have difficulties because they use American lawyers, Kvint says.