From Moscow To Minsk: Investing For The Long HaulDavid Greising
Investors looking for a quick buck should stay away from the former Soviet Union. Political fragmentation and a severe credit crunch have frozen near-term business prospects colder than the Moscow streets.
But for investors with patience, the Commonwealth of Independent States may be worth the wait. "It's going to be several years at a minimum before we see any positive benefits come out of there," says Michael LaTronica, analyst at Martin Simpson & Co. in New York.
Even so, a few companies have seen immediate rewards from the CIS. Philip Morris shipped 20 billion cigarettes to the former Soviet Union last year. Estimated operating profit: $100 million. Rival RJR Nabisco shipped 17 billion cigarettes, netting an estimated $40 million profit. Now, both companies are negotiating for further sales on a republic-by-republic basis.
One simple investment approach: If you like a stock for its present fundamentals, consider its CIS ambitions as a possible long-term positive factor. Also, note that making an investment now in the former Soviet Union is a sign of long-term thinking by managements of such companies. "If you believe that 300 million people is a worthwhile market that you don't want to be shut out of, then you have to invest now," figures Dwayne Andreas, chairman of Archer Daniels Midland. The grain giant expects to spend $50 million on soy-processing plants in the CIS over the next two years.
Others are likely to benefit as well. Amoco has plans for production from oil fields in Kazahkstan and Azerbaijan, assuming negotiations with the republics progress. Telecommunications companies stand to gain from the need to improve communications.
Payment remains the biggest question for companies scouting opportunities from Moscow to Minsk. Seed giant Pioneer Hi-Bred International built a $10 million conditioning plant in Rovno two years ago and constructed another in a joint venture with a Soviet company. "So far, we've gotten paid for our efforts, but we're not so sure about the future," said Vice-President James Ansorge. Still, companies and investors who stick it out in these tough times could eventually see the profits roll in like a St. Petersburg blizzard.
SETTING SIGHTS ON EX-SOVIETS Company/Commonwealth investments ARCHER DANIELS MIDLAND Spending $50 million on soy processing plants over next two years JOHNSON & JOHNSON Pursuing joint ventures for manufacturing health care products PEPSICO Continuing $3 billion expansion of bottling plants; opening Pizza Huts PIONEER HI-BRED Owns $10 million seed conditioning plant in Rovno DATA: BW