Go East, Young Capitalist: Czechoslovakia

Article excerpt

As the Communist Manifesto is fast being replaced by the Free Market, a revolution is in progress in Eastern Europe. Some of these countries are on the verge of bankruptcy. Their political stability is questionable. Production facilities are agonizingly antiquated, and there is little or no infrastructure.

In addition, a communist mindset still haunts governmental and private actions: Words like profit, competition, dividends and corporations are dimly understood.

But the news is not all bad The literacy rate in Eastern Europe is high. There is a pool of brain power, a history of inventiveness, and low wage scales-about $100 per month for skilled labor.

In stacking up Eastern Europe's strengths and weaknesses, one thing is sure: The transition to capitalism will be a difficult task. Under the best of circumstances, change is feared by most people because it's filled with uncertainties, dislocations and generally deteriorating conditions before new habits and new ways of doing things are learned and then established.

This makes for some rough sledding for Western entrepreneurs. Still, there are rewards for careful investors, and Management Review can help you find them.

Last March, we were one of the first business magazines to cover this new market. And with this story, MR's Global Perspective column begins a special series examining Eastern Europe's most promising economies. Czechoslovakia leads off,- look for Poland and Hungary which will be covered in future issues.

-The Editors

Czechoslovakia may soon occupy the center stage for trade between East and West. It offers not only its own marketplace, but opens to Western entrepreneurs the marketplace of its largest trading partner, the Soviet Union.

Czechoslovakia first approved the concept of joint ventures with the West in 1985, and the recent revolution in Czechoslovakia and throughout Eastern Europe has made that concept a reality. At the past annual summer retreat of the Federal Reserve at Jackson Hole, Czechoslovakia's finance minister, Vaclav Klaus, said, "History is unfolding before our eyes, and with all necessary fears and risks we have to move forward very quickly."

Klaus has reason for his cautious optimism: At a stunning pace, restrictions that were, no longer are. Only half a year ago, for example, Czechoslovakia did not guarantee the repatriation of foreign profits. Now, all profits may be repatriated. At the same time, the Czechs have applied Western banking to curb inflation. In addition, government subsidies and price controls are being abandoned.

One further obstacle to a free market economy and international trade, the convertibility of Czechoslovak currency, is also on the government's checklist. At the beginning of this month, Czechoslovakia is scheduled to institute internal convertibility allowing businesses both inside and outside the nation's boundaries to convert currency freely in local banks.

Analysts agree that at this juncture Czechoslovakia is a particularly safe investment. Its debt of $7 billion is easily covered by its assets abroad and the debt is serviced by only 15 percent of foreign trade receipts. Tomaz Telma of the Washington, D.C.-based consulting firm of Plan Econ believes that Czechoslovakia could easily handle three times that amount of debt. Telma also believes that Czechoslovakia poses a prime opportunity for U.S. business.

AMERICAN MANUFACTURERS' BONANZA

Czechoslovakia is particularly desperate, at present, for goods and services in areas in which American industry is particularly strong. In order to meet the needs of its population, Czechoslovakia must create improved food processing and packaging. One need only glance at the average American supermarket to know that this is a field of American expertise. Medical equipment, communications equipment and computers of all kinds are other vital necessities Czechoslovakia will need if it is to bring its economy and standard of living on par with that of the Western world. …