The presence of Soviet-foreign joint enterprises operating in the Soviet Union is beginning to be felt in the Soviet market, although in a very small way.
About 1,300 joint ventures were registered with the Ministry of Finance through last February. Nearly 1,000 of them are said to have been formed during 1989.
According to State Statistical Committee data, 250 joint enterprises began to operate during the first 9 months of 1989. Of that, 184 produced goods valued at about 500 million rubles for Soviet consumers and 70 million rubles for export.
About 400-450 joint ventures are likely to be operating by yearend 1990, Nicolay Denisenko of the State Foreign Economic Commission of the U.S.S.R. Council of Ministers told conferences in the U.S. last February.
"Hardly anyone expected the number of joint enterprises formed after adoption of this legislation (3 years ago) would begin to grow so fast and even at an accelerating pace," said an article published Mar. 16 in the Vyshka (Derrick) daily newspaper in Baku, Azerbaijan.
Combined authorized capital of the joint enterprises has reached 3 billion rubles, of which 43% is foreign capital investment.
VENTURES BREAKOUT
Soviet joint enterprises with West German companies number 151, Finland 121, the U.S. 110, Austria 76, Great Britain 75, and Italy 68.
Joint venturers hail from 54 countries, including 23 western nations, 22 developing countries, and nine Socialist nations.
The writer of the Vyshka article, I. Ivanov, deputy chairman of the state foreign economic commission, also said the size of individual joint ventures is getting smaller. About 60% have authorized capital of less than 1 million rubles, whereas in April 1989 this proportion was only 49%.
"The fact that the share of foreign capital in the overall authorized capital of joint ventures grew from one third in 1988 to more than two fifths in 1989 speaks well of (foreign) confidence in the U.S.S.R. as an investment target," Ivanov wrote.
That's because the number of joint ventures in which cooperatives participate is increasing faster than those with participation by state enterprises, he wrote.
The 1,800 Soviet partners in joint ventures included 564 state enterprises, 320 producer associations, 257 cooperatives, 120 scientific-research institutes and design bureaus, and 160 administrative agencies.
CAPITALIZATION FALLS
The trend to reduced size of the average joint enterprise has been steady, said Rafael Nagapetyanc, a department head in the Soviet Ministry of Finance.
Average statutory fund declined to 2 million rubles at the end of 1989 from 6.3 million rubles at the end of 1987. The foreign share of joint venture capital investment fell to an average 900,000 rubles from 2.2 million rubles during the same period.
Nagapetyanc said, "Most likely the trend can be accounted for by a general unsatisfactory state of economy, the absence of any tangible results of the carried out economic reforms, and a substantial rate of growth in absolute and relative terms of the number of joint ventures offering all kinds of services and which do not need any substantial capital at the initial stage.
"Their number is up to 60% from the total number of joint ventures, and the sizes of capital declared for investment by Soviet and foreign partners exceeds one third of the aggregate statutory fund of all joint ventures."
SOVIET TRADE BALANCE
There is no indication that joint enterprises in the U.S.S.R. had any significant effect on Soviet exports in 1989.
The state statistics committee reported that the value of Soviet 1989 exports totaled 68.2 billion rubles, up 1.1 billion rubles or 1.7% from 1988.
The value of Soviet imports last year totaled 70.2 billion rubles, up 7.9% from the 1988 level.
Total Soviet foreign trade was 138.4 billion rubles, compared with 132.1 billion rubles in 1988.
The U.S.S.R. last year had a negative trade balance of 2 billion rubles, compared with favorable balances of 2.1 billion rubles in 1988, 7.5 billion rubles in 1987, 5.7 billion rubles in 1986, and 3.3 billion rubles in 1985.
Before last year, the U.S.S.R.'s previous negative trade balance was in 1976.
AVOIDING CONFLICT
Foreign capital is avoiding areas of international and domestic conflict, Ivanov said.
About 544 of the joint enterprises are based in Moscow, which Ivanov said helps them avoid infrastructure inadequacies involving roads, communications, power, and personnel.
Very few are in Azerbaijan, Armenia, Moldavia, Uzbekistan, and Lithuania.
"It is equally clear that when investing capital, a (foreign) firm wants to operate in the (U.S.S.R.'s) entire market and not in its narrow segments," Ivanov said.
PlanEcon Inc., Washington, D.C., said the single most popular line for joint ventures is production and assembly of personal computers and programming. As of last Oct. 1, 122 joint ventures were involved in this type of business.
DIVERGENT IDEAS
U.S. and Soviet entrepreneurs expressed different goals in a study of joint enterprises by the U.S.-U,S.S.R. Trade and Economic Council.
About 73% of American respondents said the main reason to participate is access to the Soviet market, said Ninel Vosnesenskaya, professor of law, Institute of State and Law, U.S.S.R. Academy of Sciences.
The market was widely referred to as "the last untapped market in the world."
About 45% of the American respondents cited competitive pressures.
Other reasons, such as equipment sales and inexpensive sourcing, seemed not to be very important to U.S. firms.
This raises a noteworthy conflict with the goals of 1987 Soviet joint venture regulations, which are to attract foreign capital, equipment, technology, and management skills, expand Soviet exports, and reduce Soviet imports, Vosnesenskaya said.
Soviet respondents were interested in joint ventures mainly because they offered greater flexibility in the Soviet market than a 100% Soviet enterprise. They were less interested in the availability of foreign capital.
"Thus, they also were not focusing on the joint venture regulations, perhaps a reflection of their strong opposition to the 'command economy,"' Vosnesenskaya said.
Neither understood the others' reasons for being interested in joint ventures.
PARADOX CITED
An article in a February 1990 issue of Trud (Labor), the Moscow daily newspaper published by the All-Union Central Council of Trade Unions, questioned whether the growth rate of joint ventures is sufficient.
It blamed a lack of more vibrant growth in joint venture formation and success squarely on the Soviets and their economic system.
It pointed out that about 20,000 enterprises with participation of foreign capital were set up during the past 5 years in China and the number continues to grow.
"The interests of our foreign partners are clear. They are seeking profits, new markets, sources of raw materials, skilled but cheaper labor, technical ideas, tourist opportunities, etc.," the article said.
Soviet partners in joint enterprises most urgently seek to "obtain new opportunities for their own development and break away from the tenacious command administrative economic system of the U.S.S.R.," it said.
Soviet partners, squeezed by existing legislation, strive to set up a joint enterprise, sometimes at the cost of concessions to the foreign partner or without adequate examination of the prospects of joint activity.
Such deficiencies are fodder for opponents of joint ventures.
"In this way, under the pretense of fighting for social justice, they cover up their not entirely unfounded fear of being deprived of the layers of authority. After all, joint ventures are not subject to command from above."
EFFECTS TO BE FELT
The article said establishment of a number of joint ventures is contingent upon development of a reliable production base, and thus a perceptible effect can be expected from their operation only in 1990-91.
The operating practices of joint ventures are more progressive than Soviet methods, the article said.
Specifically, they formulate a production program, establish funds-particularly to reward good work-select suppliers and customers, and establish contract prices.
The joint venture is allowed to send personnel on missions abroad more frequently, buy elegant foreign automobiles, acquire fashionable consumer goods, and grant high salaries to enterprise officials. "One also can't overlook prestige considerations that are tempting even for large state enterprises, not to mention cooperatives, which are now out of favor."
Copyright 1990 Oil & Gas Journal. All Rights Reserved.