Real Opportunities in Soviet Union For Entrepreneurs With Right Stuff
At this very moment historic political sea changes are washing away the command economy blocs of Eastern Europe and re-shaping the Marxist-Leninist foundations of the Soviet Union. Can free marketers from the seafood industry in the West profit in its wake?
Probably not in the short run, but those entrepreneurial capitalists investing in longterm relationships could reap rewards. “There are still enormous risks,” warned Dr. Ulrich Nussbaum. “Legal and political conditions remain unsettled and change from day to day.”
The German managing director of Fish Development and Service Co., a Moscow-based joint venture subsidiary of Flamingo Fish, says there are a number of reasons to believe that great potential exists to make money behind the fallen Iron Curtain. Patience is required, however, along with a thorough knowledge of specific market requirements. It also helps to have connections able to cut through red tape and streamline the bureaucratic permit-securing process required to get into business.
Opportunity is knocking for those with vision, technical expertise and deep pockets. The Soviet Union is, after all, a whale of a seafood producer. Indeed, its sprawling though antiquated fleet catches more than 10% of the world’s annual harvest. Most is pulled from the Atlantic Ocean, which accounts for more than half of the USSR’s total high seas take and about one-third of the overall harvest.
Despite this heavy haul, there is not enough tonnage to meet the demand of Soviet citizens, whose per capita consumption of fish has reportedly slipped from 18.6 kilos five years ago to 17.6 kilos in 1988. This downtrend bodes ill for Moscow’s stated goal of putting 20 kilos in every pot by 1995.
Nussbaum listed three main reasons why the Soviet industry is in decline: reduced available resources in territorial waters; old fashioned catching and processing technology; failure of the price and distribution system.
While the USSR has one of the world’s largest coastlines, the biomass within its 200 mile exclusive fishing zone is not rich enough to feed an increasingly restless population intent on a better living standard. Little can be done to improve resources without first curtailing fishing and establishing quotas to allow stocks time to rebuild.
While the Soviets claim a huge fishing fleet of over 2,000 ships, plus 517 processing trawlers and refrigerated carriers, most of the aging vessels are between 20 to 30 years old. This is where foreign joint venture capital could play a pivotal role, as the cash-strapped USSR must look for partners to finance modernization of its catching and processing capability.
“This is a very big task which they cannot do by themselves,” said Nussbaum, “especially now following the unification of Germany.” The former East German shipyards, which had built and repaired vessels for the Soviets for the past four decades, no longer accept rubles for payment. Only hard currency is taken – something that is in very tight supply among Communist government paymasters.
Even if Soviet seafood landings improve measurably, though, one has to wonder how much of it would wind up on domestic dinner tables. While officially some 97% of the catch is consumed nationally, it is believed that much more than 3% is actually exported. Fishing organizations, it seems, are not keen on selling their catch in the USSR at prices below the cost of production when they can earn dollars, yen or marks by unloading tonnage abroad.
The industry was subsidized by the state to the tune of at least 2.3 million rubles in 1990, according to Nussbaum. Even at that, production of fish was relatively cost effective by Soviet standards as beef costs three times as much to buy as seafood, while pork is four times as expensive.
While Nussbaum’s joint venture with USSR catcher-processors was established chiefly to import raw fishery products into the European market, rising demand in Russia has greatly curtailed export activity. “So perhaps we will be selling to them one day,” the German businessman remarked.
Other opportunities for exporting seafood into the old East bloc are presenting themselves. Take Czechoslovakia, for example. With a population of 15.7 million and a $130 billion gross national product, its inhabitants enjoy a relatively high living standard based on per capita income of about $8,200.
While the landlocked country has no fishing fleet, aquaculture production represents 21,247 tons a year – of which 81% is carp. With annual deep-frozen fish sales rising from 90,000 tons to 120,000 tons during the past five years, imports have filled the gap.
“This tendency should remain stable for the next few years,” said Nussbaum, who put per capita consumption at 7.8 kilos. While low by West European averages, it is still in an early stage of development.
More convenience products such as fish fingers will be consumed in the next five or 10 years as Czechs are increasingly asking for the same items popular in the West today, advised Nussbaum.
Poland, unlike neighboring Czechoslovakia, has a large long distance fishing fleet which has for many years provided Europe and the USA with blocks for further processing. High-end species were sold for hard currency, while cheaper grades of pollock, herring, mackerel and sardines were sent to the home market.
But the export trade is now in decline for a number of reasons, including the fact that the Poles are demanding more food to eat. “This means that the country will become an important importer of seafood in the years ahead,” assessed Nussbaum. He noted that per capita consumption of fishery products in Poland has slid from 8.2 kilos in 1980 to 6.5 kilos in 1988.
For those interested in exporting fish, processing equipment or marketing expertise to the politically and economically evolving nations of Eastern Europe, the biggest problem to overcome may very well be how to get paid. In the near term barter arrangements or counter-trade will likely be the chief means of compensation, since the soft monies of those countries are not yet exchangable. But where there’s a will there’s a way to do business in one of the world’s last undertapped marketplaces.