US investors miss Yeltsin’s Russia

When economic reforms started in Russia, US companies were enthusiastic about buying Russian enterprises at give-away prices. Further, such enterprises were successfully closed that allowed foreign businessmen to take their produce out of the country, as they were not satisfied with import substitution in Russia. When customs duties were overstated, Russia couldn’t afford import any more. However, some foreign businessmen still preferred to develop production in Russia. Others, on the contrary, gave up, and Russian businessmen finally got control over the enterprises. And now, when these Russian businessmen are rather successful in the business, Americans suddenly declared that they are also concerned with it. 

America’s Sawyer Research is trying to restore its ownership of the quartz glass enterprise in the Russian city of Gus-Khrustalny. At that, US media have launched a hysterical campaign concerning torments of naive American investors in corrupt Russia. As the company is the world’s leader in quartz production, the whole of the US Department of State got involved in restoration of the enterprise. US Ambassador to Russia Alexander Vershbow visited the Vladimir region, where the enterprise is situated, and gave an interview to a famous Moscow newspaper.

According to Izvestia, Sawyer Research is an absolutely privately owned enterprise since 1983, its owners are unknown. At the end of the 1980s-beginning of the 1990s piezoelectric production was practically unprofitable. Moreover, natural quartz, that is one of the most widespread minerals on the planet, became a strong rival to it on the market. Sawyer Research bought 23% shares of the quartz glass enterprise in 1994. On the contrary, the local administration of Gus-Khrustalny says, Americans got a complete ownership of the enterprise. In fact, US investments were not enough even to cover operation needs. Arrears of the enterprise were increasing, especially for electric energy consumption. Russia’s ROEL Consulting bought back the debts of the enterprise and initiated bankruptcy proceedings. 
However, it was perfectly evident that Americans didn’t plan to develop the enterprise. However, Sawyer reached an agreement with the first bankruptcy manager of the enterprise and got a workshop for growing artificial quartz on a 25-year lease with the right of subsequent redemption. It is perfectly clear that the workshop is the essential section of the enterprise. This kind of privatization is so much typical of Russia at the beginning of the 1990s, when it was used in about 90% of privatization cases. It should be mentioned here that Russian officials dealing with privatization learnt of this scheme from American advisors of Yegor Gaidar and Anatoly Chubais. In fact, this privatization scheme is an instrument of American economic imperialism. It took about ten years before Russian businessmen understood how to restore property privatized that way. Within the same period, Russian industry turned out completely ruined. Foreign businessmen invested in their enterprises in Russia nothing at all, instead tried to obtain greatest profits and then gave them up. And when now foreign businessmen complain about corrupt Russians who try to deprive them of their enterprises (which they abandoned themselves), the complaints are not convincing at all, moreover, they only cause more aggression in Russians toward foreign businessmen. 

It is to be mentioned here that Russian businessmen have finally become experienced to see which enterprises can make a profit, and which at the same time are left lying around loose. Currently, when they enjoy support of the Russian government, they are even more successful with it. As soon as Russian businessmen declared their strongest wish to restore profitable production at the quartz glass enterprise, the bankruptcy manager was substituted. Last year, the lease contract with American businessmen was declared invalid, and appeals against the decision from the US side were turned down. Finally, the enterprise got aRussian owner.

At the same time, Americans don’t give up: having won no support in Russia, they hope to bring the case on the international level and already launched a campaign in the US media. Director of the American company Garry Johnson told in an interview to Cleveland’s The Plain Dealer, he estimated losses suffered in privatization of the quartz glass enterprise at $8 million. However, principles are more important for the USA in this case, American businessmen want to find out who actually rules over Russia.

Other American media are practically of the same opinion. At that, American readers who are unaware of the Russian reality, probably believe that cases concerning the quartz glass enterprise and  Ilim Pulp Enterprise are one and the same. And they probably don’t understand that the situation is not a mafia banditism at all. It is not clear for them that the enterprise with big debts for energy supplies can bring no profit at all. And there is no chance to avoid payment of the debt. Moreover, debts of the enterprise are bough by a Russian company, the bankruptcy proceedings were completed in accordance with the legislation. That is why there is no sense to consider the case as a political conflict and allege that corrupt ministers rule over Russia.

It is a sure fact that Russian laws are currently more perfect and correspond to the international norms. Unlike in the era of Boris Yeltsin, these laws are strictly observed in the country. And American investors seem very much disappointed with the fact that Russians now are more law-abiding than before. On the other hand, they can’t any more have business in Russia and invest more and more money in it. If Americans think that investing in Russia is unprofitable, Russian oligarchs can do it instead of them under the direction of Vladimir Putin.

The visit of the US Ambassador Alexander Vershbow to Gus-Khrustalny brought some results. In any case, Americans had produced  quartz and exported it. When they left, the enterprise lost clients on the international markets, and this is against the background of a scanty demand for this product on the domestic market. The US Ambassador thinks, creation of a Russian-American joint enterprise would be a nice way-out. New owners of the quartz glass enterprise plan to manage without American help. They say, functioning capacity of the enterprise currently makes up 70%, and monthly earning is $300,000 (it is expected to reach $450,000 by the end of the year).

ROEL Consulting managers say, the enterprise can bring up to $2 million per year with the 100% functioning capacity. And this is the level when competent governmental authorities will focus attention on the enterprise. Artificial quartz is currently a strategic product necessary for computers, cell phones, and so on. ROEL Consulting says it is ready for negotiations with the former American owner. At the same time, the Russian company is working on establishment and registration of a foreign trade branch establishment. At the end, strategic materials are attractive not for Americans only.
Dmitry Slobodanuk

For reference:

Annual production of artificial quartz makes up 650 tons in the USA, 400 tons in China and 230 tons in Japan. Russia has three quartz producing enterprises, total production of artificial quartz may reach in Russia 570 tons per year. According to the estimates of the research institute for synthesis of mineral resources, world’s demand for piezo-quartz makes up 2,500 tons per year, that is 450-500 tons above the supply. According to <b>Allied Business Intelligence</b> forecasts, the market of quartz-based micro-chips will be increasing by 11% every year. Experts say, construction of a modern enterprise producing quartz in the USA will cost about $70 million. It means, enterprise that is already functioning is more attractive for investors.

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Author`s name Michael Simpson