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BUILDING CAPITALISM
by Padraic Sweeney

So what difference do U.S. Government assistance programs make
for your business in the Newly Independent States (NIS) of the
former Soviet Union?  More than you probably realize.  Aggressive
trade and investment promotion, privatization of NIS economies,
and private-sector development are steadily improving the NIS
business climate.  Thousands of entrepreneurial new NIS companies
are becoming U.S. firms' customers, distributors, licensees, and
investment partners.  U.S. exporters and investors are already
benefitting from growing NIS sales and investment opportunities. 

Trade & Investment: The Foundation
U.S. economic assistance goals in the NIS are nothing less, in
the words of Deputy Secretary of State Strobe Talbot, than "to
help dismantle the edifice of state-owned enterprise...and
replace it with the institutions of market democracy."  To
achieve these goals, U.S. assistance is increasingly shifting
toward promoting trade and investment as the foundation for
normal economic relations.  As a result, the Export-Import Bank
of the United States (Exim Bank), the Overseas Private Investment
Corporation (OPIC), the Trade Development Administration (TDA)  
and the U.S. Department of Commerce (DOC) have been granted
substantial new resources to support U.S. firms doing business in
the region.

Exim Bank now supports U.S. exports to Russia, Kazakhstan,
Turkmenistan, and Uzbekistan.  In 1994, the bank provided $1.3
billion in medium- and long-term financing and short-term
insurance coverage for $1.4 billion in U.S. exports to Russia,
and recently signed an agreement with Gazprom, Russia's gas
production and distribution company, that will support up to $750
million in exports of U.S. equipment.

OPIC operations in the NIS will expand in 1995.  Defense
conversion will receive special emphasis, with $500 million set
aside for projects in this area.  OPIC also supports a series of
private equity funds, with partners such as Paine Webber,
Auburndale, and others, that leverage billions of dollars in
private capital.  OPIC has provided more than $2.2 billion in
support for U.S. investments in the NIS, primarily political risk
insurance, although about one-third of this amount has been
project finance.  OPIC will receive an additional $60 million in
1995 for its NIS programs.

TDA provides funding for U.S. companies to carry out feasibility
studies in emerging markets, has funded studies in the NIS worth
nearly $44 million.  TDA will receive an additional $17 million
in 1995 to assist U.S. companies in the NIS.  The U.S. Department
of Commerce will receive $9 million in 1995 for trade-related
programs (see COMMERCE IN THE NIS, Page 3; for detailed
information on financing call BISNIS at (202) 482-4655).

Privatization
In Russia, the most aggressive NIS country in transforming its
economy, the initial stages of privatization are now complete. 
Most heavy industry and virtually all of the service, wholesale,
and retail trade sectors are now privately owned.  Some 40
million Russian citizens have become stock-owners, 40 percent of
Russian households own their own homes, and 15-20 million new
Russian consumers have become affluent enough to buy imported
products on a regular basis.

Ongoing assistance efforts in Russia are aimed at strengthening
what Walter Coles, USAID's Chief of NIS Privatization Programs,
calls "the enabling environment" that private companies need to
succeed.  This environment includes capital markets, land
markets, and fair and transparent regulatory and tax systems--
institutions that will make it easier and more lucrative for U.S.
companies to do business in Russia.  

As capital markets mature, Russian companies will use them
increasingly to raise funds for new investment, through initial
stock offerings, collateralization of assets, and other standard
financial techniques.  The creation of land markets will help
Russian companies raise capital by enabling them to sell land--
which many possess far in excess of their needs--as an additional
source of financing.  Private banks will be able to secure
investments with property, including land, giving foreign direct
investment a major boost.  A stronger regulatory framework will
strengthen investors' control over sometimes uncooperative
Russian management of newly-acquired companies.

Better Partners for U.S. Business
Many Russian companies can now offer their traditional products
and services at a profit for the first time ever, as a result of
privatization, making them much better partners for U.S. firms
than their Soviet predecessors.  International Business
Communications Systems, Inc. (IBCS), of Sharon, Massachusetts,
for example, has established ventures with local telephone
companies in Russia that now operate as for-profit businesses,
rather than as administrative divisions of Rostelecom (Russia's
largest long-distance and international carrier and an IBCS
partner).  "Privatization has given our local partners new ways
to earn revenue," according to IBCS Chairman Jim Hickman. 
"Before, the regional divisions of Rostelecom received little
money for their participation."

Newly-created Russian businesses are also making themselves felt
in the market.  For example, private-sector importers,
wholesalers, and retailers--most created since 1989--moved
virtually all of the $500 million in U.S. processed foods  
imported by Russia in 1994.  Likewise, private Russian airlines
acquired most of the aircraft and parts exported to the NIS last
year.  

USAID's ROLE
The principal goal of USAID privatization efforts is to foster a 
fair, transparent, and competitive business environment for all
participants--the sort of environment in which productive,
innovative U.S. companies can flourish.  Working closely with the
Russian government, USAID designs and executes pilot programs
that can be applied successfully nationwide without outside
supervision.  Major privatization steps supported by USAID to
date include:
     *--Mass and Small-Scale Privatization, which transferred the

    assets of more than 20,000 medium-to-large Russian
     companies, and some 80,000 small local service enterprises  

  into the hands of millions of private Russian citizens. 
     *--Demonopolization, which freed producers, distributors,   

 and consumers to compete in a market-oriented business     
environment, and opened the market to entirely new
     companies.

     *--Capital Markets, whose development is establishing the   

 commercial and regulatory infrastructure privatized
     enterprises need to restructure their ownership and
     operations in response to shareholder demands.  

     *--Cash Sales, which are negotiated on a case-by-case basis,

    will give very large, strategic industrial companies
     financial resources to help them survive in a market
     economy.

Promotion of normal trade and investment have become the
principal focus of U.S. assistance efforts in the NIS.  This
focus builds on the vital privatization and private-sector
development programs of USAID.  For more information on how your
company can take advantage of U.S. Government trade promotion
activities, call BISNIS at (202) 482-4655.
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