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BUSINESS FOCUS - RUSSIA BUSINESS WITH RUSSIA GETS AN INFUSION; CONTACTS LOST AFTER THE FINANCIAL CRISES ARE BEING RESTORED

New blood flows in old trade veins

TRADE contacts with Russia today have mostly shrunk to the import of gas and crude oil to Slovakia. During the communist past, the Soviet Union was the biggest business partner of the country, at that time part of Czechoslovakia.
Slovak businessmen feel that today the huge, rising Russian market opens new perspectives. They would like to renew relations and join an international business community that is warming up to Russian customers.
Apart from the collapse of the Council for Mutual Trade and Help in the communist economic bloc, it was mainly after the financial crises in Russia in 1998 that many Slovak companies lost contacts with Russian partners through failed financial operations.

TRADE contacts with Russia today have mostly shrunk to the import of gas and crude oil to Slovakia. During the communist past, the Soviet Union was the biggest business partner of the country, at that time part of Czechoslovakia.

Slovak businessmen feel that today the huge, rising Russian market opens new perspectives. They would like to renew relations and join an international business community that is warming up to Russian customers.

Apart from the collapse of the Council for Mutual Trade and Help in the communist economic bloc, it was mainly after the financial crises in Russia in 1998 that many Slovak companies lost contacts with Russian partners through failed financial operations.

"There is always the possibility of building on past relations, and we are doing it. It is the role of the Economy Ministry to open the doors of the Russian regions to Slovak entrepreneurs," Miroslav Mečár from the international trade department of the Economy Ministry told The Slovak Spectator.

The current foreign trade between the two countries results in a deficit for Slovakia due to vast imports of raw energy materials. The reason is that the pipelines and almost the entire energy transport infrastructure of Slovakia are connected to this eastern partner.

According to the Economy Ministry, the trade deficit reached Sk87.35 billion (?2.16 billion) as of the end of 2002, which was Sk11.77 billion (?290.86 million) less than in the previous year. Basic energy materials represented about 88.5 percent of last year's imports from Russia.

Slovak imports lowered in 2002 by Sk11.59 billion (?286.41 million) to Sk93.85 billion (?2.32 billion). The country exported goods to Russia for Sk6.49 billion (?160.38 million), which is 3 percent more than in 2001.

While Russia contributes about 12 percent of overall Slovak imports, that trade makes up only about 1 percent of the country's exports.

Paper products, machines, transportation equipment, chemicals, and food products were the most successful on the Russian market last year.

"The biggest impact on our trade balance will always be oil, gas, and nuclear fuel deliveries. The trade deficit and our diversification strategy are reasons we should try to purchase oil and gas not only from Russia but also from Turkmenistan or Ukraine," said Mečár.

"However, we suppose that growing production in Slovakia will require even more energy deliveries from Russia," he continued.

The ministry assumes that Slovak businessmen will become more active on Russian territory and take advantage of opportunities appearing on the recovering Russian market.

The consumer needs of the Russian Federation and the whole Commonwealth of Independent States are not satisfied, and this means a great opportunity for consumer goods from world suppliers as well as Slovak production and commercial entities.

The vast territory of the Russian Federation offers possibilities for the development of business activities in road and railway transport and infrastructure, the automotive industry, and repairs and reconstruction.

"European Union countries, the USA, Japan, China, and also other [EU] candidate countries like the Czech Republic, Poland, and Hungary have also noticed [the opportunities of the Russian market].

"They are making efforts to find contacts and prepare themselves for future cooperation when political and commercial risks will be at a minimal level in that country," said Mečár.

Some Slovak entrepreneurs are trying to penetrate the Russian market, and have been successful. However, the market is still a bit tricky and Russian companies often require conditions that are difficult for Slovak producers to fulfil.

"Cooperation without personal contacts is almost impossible in Russia - despite faxes, the internet, and mobiles. Russian firms, "spoiled" by strong international partners, sometimes set difficult delivery conditions," the Hospodárske noviny daily recently wrote.

According to Mečár, although the centralised and strongly regulatory approach of the Russian state is gradually changing, contact with the federal and especially regional administrative levels still matter.

Quickly changing Russian legislation, regulations, and instructions can also be an obstacle to business.

Business missions to Russia organised by the Economy Ministry and the Slovak Chamber of Commerce could help to overcome such barriers.

"Slovak businessmen are very much interested in such missions. Last year seven business missions to Russia were organised, said Mečár.

"In 2004 we plan about nine. Additionally, the ministry, the Slovak Investment and Trade Development Agency (SARIO), and Eximbanka [the state bank supporting exports] are planning a seminar for April 2004 titled Let's do Business in the Russian Federation," he continued.

The missions usually take place along with the visits of Economy Ministry officials to the Russian Federation and meetings of intergovernmental commissions.

Slovak businessmen would especially like to develop cooperation with Russian partners in the machinery, electrotechnical, and chemical industries. Small and mid-sized entrepreneurs want to begin their activities in construction, the wood industry, and tourism.

Mečár thinks that Slovak businessmen should, in the coming years, concentrate on areas with a real chance for successful cooperation.

It is mainly the repair and modernisation of machinery products and construction facilities that Czechoslovak companies once delivered to the Soviet Union.

The boom of the automotive industry in Slovakia is also creating space for component deliveries for cars produced in Russia, as the country is trying to harmonise production with EU standards. There are big opportunities in agriculture and tourism too, said Mečár.

About 300 businessmen took part in the business missions to Russia last year. They have already seen that the easiest way to look for a reliable partner is through the personal negotiations at a meeting of a regional commission of the Russian Federation.

"This way the partner's reliability is guaranteed by the government and the ministry of a related region," added Mečár.

According to the Economy Ministry, Russian interest in cooperation with Slovak companies is growing. However, Mečár said that there was still a lack of information about Slovakia and Slovak companies.

He hopes that the situation will improve thanks to a more active approach by SARIO and the Slovak Tourist Agency, which has established an office in Moscow.

Despite existing barriers, there are concrete results of mutual cooperation. Slovak companies are usually the most successful when they directly operate on the Russian market, which is how they escape administrative obstacles.

The company Ruslan Domodevovo, established by the Slovak company CSM Tisovec, works successfully in Moscow repairing construction facilities. The joint venture Matador - Omskshina in Omsk produces 1.3 million tyres a year and not just for the Russian market.

Organising more business missions, delivering needed information from the state administration level to entrepreneurs, and pushing for liberalised conditions for Slovak companies in Russian tenders would be helpful, Mečár said, in the further development of business cooperation.

In tourism, he suggested, Slovakia should work more with Russian media and travel agencies in Moscow and the federation's regions, and Slovaks should be present in more local expositions and workshops.

"An important thing is to work out market analysis and strategies in cooperation with a Russian partner," he emphasised.

From May 2004, when Slovakia becomes a new member of the European Union, the conditions of mutual cooperation will be slightly changed, but the Economy Ministry does not think that this will hurt reviving business relations.

"Businessmen will always find a way to maintain advantageous relations. However, we need to renegotiate the mutual agreements and adapt them to the new conditions. This especially concerns treaties on the support and protection of investments and preventing double taxation," explained Mečár.

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