Gold Rush In Russia

On the flight to Moscow the man in the next seat is buried in a slender volume called Petrochemicals for the layman. Another is painstakingly copying business cards into an electronic diary. The talk is of greenbacks, rubles and the hardships of life in Moscow. The mood is 1990-style gold rush fever.

It isnt hard to understand why the international bankers and businessmen are swarming all over Russia. Once upon a time the Russians were totally self-reliant and their oversized factories made everything from shoes to combine harvestors. But now the giant factories are virtually idle. Russia now imports everything from toothpaste to shoes and soft drinks. And companies are flocking to Russia to sell everything from life insurance to Johnny Walkers super premium Gold Label.

 

The bankers too are tripping over each other to lend money to Russian mega corporations even if a straightforward set of accounts cant be put together. American bankers are taking bumpy helicopter rides around the Urals to determine whether ex-apparatchiks can run mining firms and turn in a profit.

The powerhouses of the oil world are looking at a slightly different prize. Theyve got Russias sleeping giants like oil and natural gas company Gazprom in their sights. Gazprom has the worlds largest reserves of natural gas and has been conservatively valued at $37 billion. Some bankers reckon it could be worth around $90 billion which would put it on par with the worlds largest oil majors. Gazproms American Depository Receipt issue last fortnight was five times oversubscribed.

But does anyone worry that it is notoriously difficult to do business in Russia? Apparently not. For one thing everyone from the giant state corporations downwards is broke and therefore nobody pays their bills. And that isnt all. As it makes the transition from communism, Russia has amazing gaps in its infrastructure. The distribution system is rickety to say the best. And last year it was impossible to get warehouse space for love or money. Some Indian companies like the fast growing Agio Corporation have bought into the warehousing business in a big way.

Amidst the clatter of international business nobody appears to care about the precarious political situation that is going from bad to worse. For starters theres Russian President Boris Yeltsin who has just undergone a heart bypass; Then theres maverick soldier-turned-politician Alexander Lebed who was recently kicked out from government. Lebed manipulates the media masterfully and holds press conferences at the drop of a hat. In opposition, most observers say he could be far more dangerous than he was as the countrys security chief.

With or without Lebed, the government has its hands full. A few weeks ago President Yeltsin got up from his sickbed and went on television to launch a battle against tax dodgers. The biggest tax dodgers, ironically, are the giant corporations like Gazprom which cant pay up because they are owned large sums by customers. According to Russian government figures Gazprom owes 15 trillion rubles in back taxes. Other state companies like heavy machine manufacturer Uralmash owes $29.6 million to the government. Uralmash, in turn is owed $40.7 million by customers.

The tax imbroglio has had a devastating fallout down the line. Since the corporate world cant - or wont pay its taxes, the government in turn, cant pay pensions and salaries. Millions of Russians - from miners in the Urals to nuclear physicists have been waiting months for their salaries. The latest figures show that overdue wages and benefits stack up to $7 billion (40 trillion rubles).

The optimists and, believe it or not, there are plenty of them say that the economic scenario is brightening. They point out that inflation is down from last years runaway 190 per cent to a more manageable 30 per cent. Besides that the other economic indicators are looking good. Even in these tough times Russia has a $66 billion trade surplus.

The chief economist of the World Bank in Moscow, Vladimir Konovalov says: Russias natural resources have bankrolled communism for 70 years. It will do the same for this lot.

So what lessons are there in all this for India. Well, the fact is that international bankers and businessmen arent afraid of taking risks if there is an adequate return. Compared to Russia an investment in India is almost laughably safe. But the bankers are scouting for opportunity in Russia on a scale that India has not begun to see yet. The lesson perhaps, is an often repeated one things have to move more quickly.

Looking at it from another angle theres the question of how Indias businessmen are faring in this scrum of international capitalism. The answer is not particularly well. Once upon a time India businessmen had a special relationship with Russia but that was in the days of Gosplan and managed trade. Today they have to fight against the worlds biggest brands.

Even in the tea business where India should have an edge over the rest of the world it is losing ground. In the old days Russia, which is the fourth largest tea drinking nation in the world, bought all its tea from India. Now Indias share of the market is down to 60 per cent and it facing an aggressive challenge from countries like Sri Lanka and even Indonesia.The result is that two-way trade is down from a peak of $5 billion to around $2.2 billion this year. It is expected to rise swiftly but that depends on India businessmen showing more initiative than they have in the recent past.

Meanwhile, other countries are moving in aggressively. Lufthansa runs eight flights a day to Moscow from Germany and they are all jampacked. Even the Turks have moved swiftly and pushed two way trade from next to nothing to $8 billion. One Turkish construction company was called in to rebuild the Russian Parliament after it was destroyed in 1991 by Yeltsins tanks.

Of course, it is easy to understand why international businessmen are willing to bet their shirts on Russia. Here is a virgin market of 146 million people whove been starved of consumer goods for 70 years. Throw in a shortage of almost everything from warehouses to marketing professionals. The result is marvellous opportunity to make a fast buck.