Creating and Managing International Joint Ventures

By Arch G. Woodside; Robert E. Pitts | Go to book overview

9 Development of International Joint Ventures in Russia: Risks and Opportunities

Vladimir L. Kvint

For 74 years of Soviet history, foreign economic activity was a monopoly of the state. Even state enterprises and industrial ministers were not authorized to have direct business relationships with foreigners. All foreign trade and foreign business cooperation belonged exclusively to two state executive bodies, the Ministry of Foreign Trade and the State Committee for Foreign Economic Ties. The former was responsible for all export and import activities, while the State Committee was responsible for Soviet investment abroad, such as construction of a cement plant in Iraq, a ferrous metallurgical facility in India, and a nickel plant in Cuba. The great majority of this activity is now in the form of unpaid debt to Russia from these countries. The total amount of debt to Russia is $64 billion, while Russian debt to foreigners is $80 billion. All activity of the state, however, was the result of political, not economic, decisions. Thus, in terms of economic implications, it was not until 1986 that foreign bodies were permitted to own property within the Soviet Union, with the exception of embassies and some foreign government trade representative offices. When foreign investors like FIAT went to Russia in 1966-1970, this was not a true form of foreign investment, but rather a trade transaction, as the USSR government bought the plant.

Inefficient economic mechanisms virtually exhausted all the natural resources that were easily extractable or harvestable. More and more inputs were required to extract the same output, which led to diminishing returns. In the USSR and its satellite countries, it was necessary to garner resources from an ever expanding geographic area; to exploit the East and North; to dig deeper to try to maintain output. The industrial structure of the USSR was based on the extensive economic model. Even Western European countries came to this meadow; Germany, France, and Italy started to drink from the river of natural gas flowing through the Siberian pipeline. Finland continued to receive its

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