FIFTH COLUMN: Investment By Foreigners Still Alive and Well




T he conventional wisdom is that foreign business is sick of Russia. Last year's default and this year's corruption scandals have done enough to keep foreigners from doing business with Russians for years. I wonder if that is really so.


Next year, direct foreign investment in Russia will be low again, says Karl Johansson, managing partner of Ernst & Young in Russia, who represents foreign business on the Foreign Investment Advisory Board.


In the first quarter of this year, this huge country received just $600 million in direct foreign investment, according to the Economics Ministry. That's 20 percent less than in the first quarter of 1998. And Johansson said most foreign companies in Russia are still busy restructuring their operations rather than investing because the August 1998 financial crisis has changed the market so dramatically.


It is difficult to argue with Johansson, who knows what he is talking about. It is even more difficult to argue with statistics. But sometimes anecdotal evidence is as important to the full picture as statistics and expert opinions.


Every other day I get news of another foreign-financed factory opening or another Western industrial giant eyeing the Russian market. Maybe these new enterprises do not register on the Economics Ministry's scale because they are not huge or because the money has not arrived yet, but there seems to be no holding them down.


A yogurt factory financed by a private German investor has just opened in Voronezh. It cost about 4 million Deutsche marks ($2.4 million) to build. Then there was the juice-packing plant built by the Latvian company Gutta near Moscow for $8 million. There are plans by Electrolux to invest $80 million in the assembly of washing machines in the Nizhny Novgorod region.


The Czech bus producer Karosa is trying to revive its production program in Tatarstan. Subway is opening new restaurants. IKEA is finally looking for staff for its giant furniture store in Khimki. Schwarzkopf & Henkel has started making shampoo near Nizhny Novgorod. These are just a few things that have happened in the past couple of weeks, and I am sure I cannot remember them all. No foreign investment? There must be something wrong with the way these things are measured.


I am not even talking about all the Russian projects that are starting up all over the place with mostly Russian capital - and often with the help of small foreign loans and investments in the form of equipment. Life, as we have all noticed, goes on despite corruption in the Kremlin and defaults by the Finance Ministry. The West still has a very practical interest in Russia. Western businesses, large and small, still see a huge consumer market here regardless of "who lost Russia" in the grand political scheme of things.


In a sense, watching this microeconomic activity is like comparing real life outside your window to the official poverty statistics. Observers noted long ago that though Russians are very poor according to every yearbook, a suspiciously large number of them wear furs and drive nice cars. It may sound trite, but life is too complicated to be described with figures and general concepts. Especially in business, there is always a sizable fifth column of entrepreneurs who defy conventional wisdom.


Leonid Bershidsky is the editor of Vedomosti.