Jul 05, 2005: Blue Russian Skies for Business

By Bob Dole

To read the papers, you would think Russia had reverted to communism, renationalized its industries and caused foreign businessmen to panic and run for the borders.

The imprisonment of Mikhail Khodorkovsky and the crushing of Yukos have undoubtedly had a chilling effect on U.S. and Western investment. These apparent illegalities clearly call into question the independence of the judiciary and Russia‘s commitment to the rule of law.

Nevertheless, American companies doing business in Russia are unfailingly bullish about the future and see the Yukos affair as an aberration. Their biggest fear is not being closed down and having their assets stripped by the state - a prospect they view as exceedingly remote - but rather a diminished foreign capital flow into Russia because potential investors believe all the apocalyptic warnings.

At a recent Moscow breakfast, two dozen U.S. businessmen based in Russia implored me to let U.S. policymakers, opinion-shapers, and potential investors know Russia is not only wide open for business but that, in most sectors, business is booming and opportunities for expanding market and profits are better than ever.

Russian household income is rising, and the ruble is stable. Business owners are no longer selling out to foreign investors, but are retaining blocks of shares for themselves. The quality of midlevel Russian management is improving, and foreign companies in Russia are filling more and more management positions with Russian citizens.

Land is being privatized, and agribusiness is growing exponentially. Some venture capital funds are reporting returns so high they call to mind the U.S. high-technology bubble of the late 1990s - only this is no bubble. A major U.S. accounting firm reports 78 percent of Western companies in Russia plan to continue investing at the same rate or greater over the next two years.

The American Chamber of Commerce in Russia already has 800 members, and continues growing. One successful venture capitalist told me foreign businesses "have liberty to do what they want to do" and that, even if the Kremlin were ill-intentioned, it is simply too weak to obstruct foreign business. Another told me foreign companies win 78 percent of tax cases brought against them by the state.

All this is cold comfort to the Yukos owners, but it stands in stark contrast to the reams of reports of falling skies all over Russia. The country has some of the world‘s greatest natural and other resources, and, even after the robber-barons‘ exports of capital, many remain unfaithful.

Of course, the U.S. businessmen with whom I met in Moscow know the Yukos affair is not Russia‘s only problem. These representatives of our top companies didn‘t get where they are today by being Pollyannas. Russia is not the new Singapore. Often, there are great risks to floating capital in these largely uncharted waters. Oil prices are too high. Corruption is endemic in many quarters, and may even be increasing overall.

Unlike in every other Western country, life expectancy is falling. Only half of Russia‘s men live to retirement age. More than 300,000 Russians die each year in accidents of one kind or another. Russia also has developed the functional equivalent of an underclass subsisting on pensions averaging only $50 monthly.

The U.S. businessmen with whom I talked would like to see the Russian government address these issues by continuing its political and economic reforms, while initiating strong efforts to combat corruption, ensure transparency in every sector and increase the percentage of gross domestic product spent on health care. They would also like to see greater official U.S. support for business development and investment in Russia.

They complain French and German government leaders march hand-in-hand together into Moscow with their businessmen, while U.S. investors enjoy support at the U.S. Embassy level.

A good start from the U.S. administration and Congress would be to draw a line in the sand to mark an end of the Khodorkovsky affair. Bush should inform Putin further persecution of the Yukos principals, or similar attacks, could have serious and tangible consequences. Our countries can mark a new beginning of a U.S.-Russian business partnership of almost unprecedented potential.