Many of you have probably heard the old saying that Russia’s two biggest problems are it’s roads and fools. Generally the comment was considered a reference to the poor state (or lack) of passable roads throughout the vast Russian hinterland. This saying is just as relevant today, although increasingly the focus is not so much on the condition of Russia’s roads but their expense.

Officialdom and analysts have started to increase their attention on what most have known for some time: the multiple layers of corruption, bureaucracy, non-transparency, and every possible combination of these factors have made roads in Russia the most expensive in the world. Ben Aris recently published an op-ed in The Moscow Times discussing the cost of roads in Russia relative to other markets.

According to Ben, a kilometer costs roughly $2.2 million in China, $6 million in the US, $7 million in the EU, and $17.6 million in Russia. Moscow weighs in at over $51 million per kilometer. That’s almost 10x more than the cost in the United States!

And even this isn’t the max. According to an analyst at VTB, the MKAD (Moscow’s ring road) cost about $100 million per kilometer to construct. Considering the average speed you’re able to drive on the MKAD during rush hour, that is one VERY expensive parking lot. This would be an excellent opportunity for the Russian government to help drive the country’s overall economic and infrastructural development, but this too seems to be squandered in the mire of corruption and bureaucracy–in short, the “fools” referred to in the old Russian adage.

The Kyrgyz-North America Trade Council is hosting a briefing with President Otunbayeva this Thursday in New York at the offices of Chadbourne and Parke.

Contact me for a discount code to get $100 off the entrance fee.

Join us for our upcoming webinar on agribusiness opportunities in Kazakhstan. Given liberalized legislation aimed at attracting direct investment in the sector and agricultural land itself, the opportunities in this market are not only for equipment exporters.

Join myself as well as experienced local legal counsel and a representative of the North Dakota Trade Organization who will discuss the legal and business environment as well as success stories of US businesses in this market. Details below. Register here!

September 22, 2010

11 am EDT (U.S.)/9 pm Almaty

Agribusiness Opportunities for U.S. Business in Kazakhstan

Organized by AmLaw Group and Grata Law Firm

With the support of the Embassy of the Republic of Kazakhstan

Participation is free, but space is limited.

Register by going to Agribusiness Opportunities in Kazakhstan Registration

Nikita Khruschev may not have made the right decision in trying to plant corn in the Kazakh steppes, but he was a visionary in one respect: the great agricultural potential in Kazakhstan. The Kazakhstan government is increasingly focusing its efforts on diversifying the economy beyond extractive hydrocarbons and minerals, and agribusiness is high on the list.

U.S. companies are increasingly becoming aware of the opportunities, although lack of information and transparency has hindered market entry thus far. Join us for this webinar as we work to bring down those barriers and discuss the market opportunities for equipment and service exporters and investors. Kazakhstan businesses are eager to apply the latest technology and know-how to create a modern agribusiness sector. What are the regulatory liberalizations intended to attract foreign investors and strategic partners? What areas are most promising for equipment exports and investments? And learn about the largest delegation of Kazakhstani companies coming to an agribusiness industry event in September and what they’ll be looking to buy from U.S. firms.

Event Agenda:

• Welcome and Introduction by Charles Raether, Managing Partner, AmLaw Group, Washington, D.C.
• Presentation of legal regulation issues by Arlan Yerzhanov, Partner, New York office of Grata Law Firm

• Summary of Big Iron Event and Agribusiness Success Stories from North Dakota: Presentation by Larry White, International Agribusiness Manager, North Dakota Trade Office
• Presentation by Anuar Kurzhikayev, Embassy of Kazakhstan

• Roundtable discussion and Q&A of market opportunities in agribusiness among presenters

Of the hundreds of ambassadors in Washington, D.C., how many actually have his or her own blog? The only one I know of is Ambassador Idrissov at the Embassy of the Republic of Kazakhstan who is using his blog to more directly dialogue with the American people.

We recently did a webinar together with the participation of the Kazakhstan Embassy, and the event attracted the attention of Ambassador Idrissov, who blogged about the embassy’s first webinar. Another one is planned for the latter half of September focusing on agribusiness opportunities in Kazakhstan. Stay posted for detailed on that event.

For those interested, it’s still not to late to register for the USA Eurasia Business Conference in Omaha which we’ll be attending. Big line-up of diplomats, speakers and participants for anyone interested in business in Eurasia.

Leave it to the Moscow Times to come up with a splashy series of guides on how to do business in Russia (as if this could be summarized in a few chapters). For those in the more advanced category, they recently came out with “Russia for the Advanced.” What qualifies one for “advanced” standing isn’t quite clear to me. Perhaps a minimum of 5 years of uninterrupted residence in the country, or the ability to drink a liter of vodka without falling under the table, or the ability to fearlessly deal with a Russian border guard scrutinizing your visa and passport 15 times before letting you through without breaking a sweat. For those less initiated, there is the starter volume “Russia for Beginners.” I guess one never should overdose on one’s exposure to Russia and take it step by step.

Imagine what an analogous guide about the United States would contain: What is the difference between Fox News and MSNBC?  Why are Americans obsessed with counting calories but we’re the most obese among developed nations? Why is health care the most expensive in the world in the U.S., yet far from being the best? And why are parents so obsessed with the athletic performance of their children while they are increasingly failing to learn the essentials needed to compete globally? I’m just not sure there are clear answers to these questions, but it would be an interesting read.

Reuters recently reported that Wal-Mart is in negotiations to acquire the Lenta retail chain in Russia. Wal-Mart has long sat on the sidelines, vying for an optimal market entry vehicle. We shall see whether their patience will pay off, although Wal-Mart missed the bottom of the market as retail sales are recovering. Carrefour bailed out of the Russian market last year within a year after entering, citing limited growth prospects. That was probably an incorrect conclusion although it may have been a necessary decision given financial and global market considerations at the time.

The Financial Times had an interesting article recently about the challenges of doing business in Russia (and which I posted on AmLaw’s Facebook page and LinkedIn page). Yes, yes, the Western media does have a predisposed negativity towards Russia that is discussed ad naseum in various forums and sites. And for the most part they’re right. Nevertheless, doing business in Russia IS in fact a challenge, so there’s no sense in ignoring this reality.

And yet, in reading this piece, one common thread comes through: despite all the corruption, blatant abuse, and Kafka-esque sagas from Khodorkovsky, Chichvarkin, and on down, nearly every major multinational that has entered the market has decided the costs of leaving are greater than staying.

A sidebar in the FT article highlights the success story of John Deere in launching its plant outside Moscow in 9 months–no small feat considering comparable projects in China take 70% less time and cost 1/2 as much. And John Deere is already planning on increasing its investments in Russia by another $500 mln. over the next 5-7 years.

I recently ran across this nifty IPO Tracker for CIS markets by The PBN Company.

Russia continues to dominate all other CIS markets in terms of past and future IPO volumes. PBN made reference to a Kazakhstani “IPO Renaissance.” That might be putting things a bit too optimistically, since previously there really wasn’t much of an IPO market in Kazakhstan to begin with. But 7 Kazakhstani companies are considered to be potential candidates for IPO’s this year. Certainly an improvement over 2009, and further efforts are being made to improve Kazakhstan’s investment image–beyond, of course, a Borat sequel!

The Wall Street Journal recently posted an interesting article that echoed a premise we’ve been long promoting: the great opportunities that exist for investors interested in obtaining US permanent residency through the  EB-5 program.
The post in the WSJ quotes a few colleagues of mine in discussing this often overlooked visa category. And what great opportunities EB-5 visas offer for those with money to invest to receive a green card very quickly.

And next month we’ll be at the biggest EB-5 conference to date in Boston, building upon our contacts with the Regional Centers and other related specialists with whom we work to ensure our clients find the best program and investment for their needs.

Chinese investors were the Number 1 recipient of EB-5 visas in 2009, receiving 1,979 of them. Russian citizens accounted for only 60 visas last year, placing them in the Number 8 spot. Considering how many billionaires from Russia there are on the Forbes list, this obviously is not reflective the number of eligible applicant investors.

What, may you ask, do Skolkovo (the latest government-driven initiative to create a Russian version of Silicon Valley) and Peter the Great have in common? Probably a lot more than initially meets the eye.

Thomas Friedman’s recent opinion article in the NY Times touches upon this in his broader analysis of the recent spy scandal where he quotes commentary by Leon Aron from the American Enterprise Institute. In particular, Mr. Aron writes:

“Importing ideas and technology from the West has been a key element in Russia’s ‘modernizations’ since at least Peter the Great in the early 18th century. … But Russia has tightly controlled what it imported: Machines and engineers, yes. A spirit of free inquiry, a commitment to innovation free from bureaucratic ‘guidance’ and, most important, encouragement of brave, even brash, entrepreneurs who can be confident they will own the results of their work — most certainly no. Peter and his successors sought to produce fruit without cultivating the roots. … Only a man or woman free from fear and overseers can build a Silicon Valley. And such men and women are harder and harder to come by in Russia today. … Disgusted and scared by the lawlessness and rampant corruption. … Russian entrepreneurs are investing very little in their country beyond their immediate production needs.”

I think his fruit analogy is very illustrative and a telling metaphor that seems to be a common thread in Russia’s history. Creating the fruit without cultivating the underlying roots that play such a crucial role in providing the long-term sustenance for a healthy commercial and political environment is a policy destined to failure, as history has shown repeatedly and not simply in the Russian context.