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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Investor in a Socio-Paper Interior

25 May, 1999 - 00:00

Our government regularly stands on its knees before international financial
organizations to beg for new loans. What can you say, we need the money.
But then why do we trample on a foreign investor who brings us money, new
technologies, and marketing experience? Suffice it to recall the way our
government has tried to rob investors of privileges they are entitled to
by law! Meanwhile, there are also specific problems with enterprise/investor
relationships on the shop-floor level. This article illustrates the far-from-easy
process of mutual adaptation now underway at a large Ukrainian enterprise.

The water-reservoir dam was shaking under the pressure of water, and
the paper factory manager, or, to be more exact, chairman of the joint-stock
company board of directors, Serhiy Vasianovych was visibly agitated when
speaking about two air holes in the dam body through which water was leaking.

"Why on earth is it me? Why is it the factory?" he kept asking pointing
at the water surface, "The whole city takes this water, our enterprise,
like all the others, pays for it. But it is we, and not the city authorities,
who are responsible for the dam and bear the full cost of repair."

Before visiting the water reservoir, we dropped in at a kindergarten,
factory health center, a former children's recreation camp, and a laundry-and-bath
complex. We also went across the township belonging to the factory. We
were struck by the social aspects. The latter must have been the enterprise's
pride in Soviet times, for the factory used a sizable part of government
investment for these purposes. But now the social side is a burden on the
cash-strapped city, for it adds to the cost of production and thus dooms
the once highly profitable enterprise to a lingering death.

Chief production engineer Vasyl Yakymuk, who has only one entry in his
employment record, was complaining, while showing us around, that only
eleven out of nineteen paper-making machines and lines are operating today.
The rest have been shut down and partially dismantled: the factory, which
once produced the finest condenser-type and electrolytic paper for the
Soviet Union's military-industrial complex, is in decline. A foreign investor
is needed. But Mr. Yakymuk perhaps expresses not only his own view when
he says he does not pin great hopes on that. The workforce unit knows that
the investor, the Swiss company Weidmann, mostly specializes in electrotechnical
cardboard. Many suspect that all other production will be wound up.

However, superintendent of this "cardboard" shop Vasyl Yenko (the manager
characterized him as a highly-skilled expert) affirms that the advent of
Weidmann is the only acceptable way out, which will revitalize not only
shop No. 6 but also the whole factory. "By means of the Weidmann capital,"
says Mr. Yenko, "we will be able to get  ourselves straightened and
find some vacant niches on the market."

Weidmann, the object of so much talk at the factory, appeared in front
of me in the shape of a good-looking company vice-president Ms. Franziska
Studi. I told her one foreigner had spotted in Ukraine 19 obstacles for
investors. "The philosophy of our company," Ms. Studi answered, "is not
to count the number of obstacles but to solve the emerging problems." According
to Ms. Studi, the company remains "quite optimistic" in Ukraine.

Indeed, Weidmann was firm in pursuing its objective. After failing to
set up a joint venture in Malyn, it won a tender and got a 25% stake in
the enterprise. Then the Antimonopoly Committee gave its consent. The time
to pay the money arrived.

President of the Ukrainian Weicor Company (the name stands for Weidmann
Corporation), Doctor of Sciences, Vyacheslav Pokotylo told us, "I was hit
right in the heart by a phrase a certain lady official said. In response
to my surprise over slow preparation of a trifling document, she informed
me haughtily, "A complex process of coordination is in progress." This
process, Mr. Pokotylo notes, has cost Ukraine $20,000. When the contract
was in the making, the investor asked to be allowed to pay for the shares
in US dollars. No, only in hryvnias! In the meantime, the exchange rate
"jumped..."

In Malyn, Mr. Pokotylo paid special attention to the factory's social
facilities. The company decided to invest part of the money it had saved
due to our stupidity in such a way that people could feel it. The investor
needs to build bridges to the workforce.

Trade union committee chairperson Larysa Moiseyenko (the manager said
she measures the advantages of innovations by the possibility of supplying
employees with something free of charge, e.g., meat, vegetables, housing
heating, or apartments) thus answered my questions about the workers' mood
and fears over the prospect of losing jobs: "There are such fears, but
we pin hopes on the business plan and promises to ward off losses. We choose
to cooperate with the investor."

Under the business-plan and the investment program, Weidmann's $3.14
million is to be spent on improving the quality of insulation cardboard,
certifying the products according to the ISO 9002 standard, and organizing
the production of cardboard-based components and systems, which is designed
to raise the selling price of finished products, not raw materials. It
is also planned to invest in future types of paper products. Malyn will
be using Swiss know how. But Ms. Studi thinks the main thing is that the
factory will have at its disposal the company's own system of market research
and sales of its products in many countries. And it is hard to disregard
this. We are still able to make something good, but selling it is something
else.

For the time being, Weidmann buys a considerable part of Malyn products.
This enables the factory to pay wages and settle accounts with the budget.
(However, there is a 1.8-million-hryvnia debt for pulp). But, unfortunately,
the market situation has been markedly worsening since the beginning of
the year, for cardboard has fallen in price. Weidmann managed to hold back
old prices until May.

"Are you going to defend your price?" I asked Mr. Vasianovych.

"It is hard to answer in no uncertain terms. The overwhelming majority
of our funds go to the social sphere and to ensure an average wage of 170
hryvnias. Not more. So we have two options: to ignore the social sphere
and lay off the excess employees. As an economist I know we can implement
our program with half the number of people we have now. But who will dare
take such a step, especially on the eve of presidential elections? From
a purely economic viewpoint, I guarantee that if I had legitimate rights,
I would reorganize the enterprise in six months and improve the situation
by approximately a third. In our case, restructuring would mean we should
put all that works effectively on one side and the rest on the other."

The manager speaks through a bullhorn good words about trusting the
investor, and that he has become convinced of its serious intentions over
the past few months. What is left is to adjust the mechanisms of achieving
the goal.

The investor's representative gives a somewhat evasive answer to the
same question. In his opinion, the factory should not yet take any steps
on the social front that can cause discontent in the collective. The investor
fears that excessive radicalism in decisions will be construed by employees
as demands by Weidmann. But the latter is in any case not accepted by all.

Chief engineer Yuri Serebriakov is also in a rather skeptical mood.
He believes an enterprise that does not earn money for production has no
future. In his opinion, even rejecting the social sphere is "only a temporary
way-out followed by an impasse and a grinding halt." As to the investor,
the time will show. However, he is sure such investments will not help
the whole enterprise. Nevertheless, he does not object directly to selling
to Weidmann one more 25% stake: "The matter is complicated. If all this
benefits the enterprise, then it is clearly a good thing."

It is this "if," which we repeatedly heard in conversations about paper
and cardboard in Malyn, that makes us ponder why we so much dislike foreign
investors.

A very politicized lady, who dreams of moving to presidential suites,
has decided that when she comes to power, she will freeze payments to foreign
investors for three years and, at the same time will actively attract them.
World Bank advisor John Hansen thus commented on this intention, laughing:
"Does she really think they will come after that?"

 

Will Swiss-designed cardboard help revive the Malyn paper factory?
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