Russian Investors See a Red Flag

By Darwent, Charles | Chief Executive (U.S.), June 1996 | Go to article overview

Russian Investors See a Red Flag


Darwent, Charles, Chief Executive (U.S.)


As photo opportunities go in an election year, Workshop Seven beat baby-kissing hands down. Crammed with gleaming Ilyushin jets, the plant-at Voronezh, Russia, 300 miles south of Moscow-has been touted by the Yeltsin administration as a model for Russia's bright commercial future. There has, however, been a technical hitch of late. Workshop Seven's planes have no avionics. Inconveniently, they also lack engines. Both are due from American suppliers-Rockwell Collins and Pratt & Whitney, respectively-but both have been delayed pending the resolution of unspecified financing problems.

The symbolism was too good to pass up, and Gennadi Zyuganov, leader of Russia's Communist Party and President Yeltsin's chief rival in this month's presidential election, didn't try. People may have had to queue for bread under Communism, he observed during a trip to Voronezh in April, but the longest queue in Yeltsin's Russia is "the one for the cemetery."

More interesting than Zyuganov's lumbering insults, though, were the things he did not say. There were no jibes about the perfidious nature of privatization, nor the fickleness of foreign investors. Indeed, Zyuganov sounded eerily like his adversary. "We have to keep all forms of ownership," noted the one-time apparatchik, to uproarious applause from the workers at Workshop Seven-a reference, presumably, to the 70 percent of Russia's former state sector now in private hands. Three months earlier, at the World Economic Forum in Davos, Switzerland, the bornagain Communist had endorsed the "necessity" of foreign investment to Russia's economic recovery, albeit unenthusiastically.

If Zyuganov sounds oddly Yeltsinesque, it is not simply a rightward shift in his thinking. Yeltsin also has taken a lurch to the left, and for the same reason: votes.

But it is on Zyuganov that all eyes are currently fixed-and none more keenly than those of would-be foreign investors. This is not simply because he is an unknown quantity, nor because he is tipped to win. If Russia's macroeconomic vital signs are scarcely frisky, they are nonetheless healthier than they have been since 1989. While GDP fell by 4 percent in 1995, this compared favorably with a 32 percent fall between 1991 and 1994. Inflation has bottomed out at 3 percent a month, where it ran at more than 16 percent a year ago.

The real consumption of Russia's 148 million people meanwhile has been growing steadily since 1992, bringing a glint to the eye of such Western blue-chips as Johnson & Johnson and Colgate-Palmolive. …

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