Moscow’s political turmoil is matched by chaos in the fledgling private sector. Laws, taxes and regulations change overnight. The concept of private property has not completely taken hold, and ownership often is vaguely defined. Foreign businessmen find themselves caught between rival government factions. Some of them also are preyed upon by organized crime in an increasingly lawless society. Worst of all, from the foreign investor’s point of view, is the country’s runaway inflation-currently about 25 percent a month-and its lack of a convertible currency, which makes it difficult to bring profits home.
Many Russians do not welcome foreign investors; the egalitarian ethos of the former Soviet Union has made “entrepreneur” more or less synonymous with “speculator.” Gennady Zyuganov, leader of the Russian Communist Party, which retains a small beachhead in the Parliament, complains about foreign “businessmen, little bugs, who are crawling to Russia thinking it is a new El Dorado.” “There’s a philosophy here that if it’s good for business, it must be bad for the country,” says Lance Roulic, a manager at Polaroid’s Russian operation, which assembles cameras and printed circuit boards.
The American co-owners of the Liggett-Ducat cigarette factory in Moscow learned that the hard way. Not long ago, they concluded that their Russian factory director wasn’t up to his job and suggested to their partner, the Moscow city government, that he be fired. City executives–reform-minded supporters of Boris Yeltsin–agreed. But in Russia, nothing’s that simple. The director appealed to the anti-Yeltsin city council. He stirred up the factory’s 1,000 workers, many of whom were already disgruntled over an American plan to move to a new plant outside the city. The workers went on strike for weeks as the director hunkered down in his office, protected from the Americans by armed guards. The city council supported him, and eventually the Americans had to back down. The manager was reinstated. The Americans, who have sunk $7 million into a new office building, now have to renegotiate their entire contract.
Russia’s petroleum industry has attracted the biggest investments from foreign companies. But oil companies have been hit hard by export tariffs that were imposed despite promises of duty-free status. And the Russian oil industry is near the point of collapse because of all the political and economic chaos. Production has dropped sharply, and about 30,000 wells are standing idle.
If the Russians want to attract more investment, they will have to stem inflation and stop printing money to subsidize inefficient state-owned enterprises. They will have to develop stable laws and sound business practices. “It’s romantic to say, ‘Let’s invest in Russia,’ but if there’s no code of law or ethics, the money will be wasted,” warns Mats Engstrom, president of California Sunshine International, who says his company lost half a million dollars when the Russians reneged on a caviar contract. Some American businessmen also say they need financial help from Washington if they are to keep up with their European and Asian competitors. Peter Walsh, president of Kiser Research, a consulting firm that specializes in Russia, argues that Washington should provide tax credits for investment there. Otherwise, he says, U.S. businessmen will walk away from deals in Russia. “Americans are gaining reputations as tire-kickers,” he says. There’s not yet enough incentive for them to put their money where it might do Russia some good.
