Soviet drive for third-world raw materials gathers steam
The groundwork has been laid by the Soviet Union and its East European allies for a major thrust into strategic Western and third-world markets. Almost unnoticed the Soviets and their COMECON partners have laid the foundations for a new trading empire in the developing world.Skip to next paragraph
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In a Western multinational-style operation they have discreetly set up more than 600 companies. In the West they have concentrated on trading operations. In the continent of Africa their target is strategic raw materials and minerals -- a prize that the West is also aiming for to fuel its industries into the 21st century.
Up to now, many politicians and businessmen have been mesmerized by the military aid that Eastern Europe has given to the developing world -- $23 billion from 1955 to 1977, according to the US Central Intelligence Agency.
But research by East European specialists shows that COMECON, the East European trading bloc, realizes the heyday of arms aid to liberation movements is coming to an end. And instead the East bloc is turning to organized, coordinated multinational trade.
The prize is no longer ideological solidarity, but the potential markets of the developed and developing nations and a stake in one of the richest raw material treasure houses of the world -- the African continent.
Coordinated operations by some COMECON members have been under way for only 15 years at best. Yet Western Europe was in Africa centuries ago. So Eastern Europe's recent progress is significant not only for Western companies and governments but for the impact it will have on restructuring North-South trade.
In Budepest in November 1978 African specialists from socialist countries met and advised East bloc governments and the COMECON secretariat that "economic relations with the developing countries should be coordinated more precisely" and that a detailed program should be drawn up.
The trading emphasis seems to be on selling surpluses from Eastern Europe that cannot easily penetrate "capitalist" markets -- either because of tariff barriers or politico- military barriers in the European Community (EC) or in the United States, for example. Goods are often of poor quality, another market barrier in the West. Because of shortages of foreign exchange, bartering often suits communist and developing countries.
In order to sell you need outlets. Published estimates show there are only about 12 Western companies in COMECON countries with Western equity. But, by the end of 1978, at least 359 COMECON companies had been set up in countries that are members of OECD -- the Organization of European Cooperation and Development. Research shows at least 185 instances of the same thing in developing countries, and 75 of those were in Africa.
Financially the numbers position is reversed. The COMECON companies in Western nations represented fixed assets of $500 million, whereas those in the developing world were worth nearly $4 billion. Whereas in the OECD nations the emphasis was on service, marketing and manufacturing, in developing countries 92 percent of fixed assets were in resource development such as mining.
Through recent billion-dollar purchases of mining companies, multinationals like British Petroleum and Exxon are seeking control over vital raw materials -- exactly the same target as COMECON. COMECON industrialization has led to a gargantuan demand for raw materials. Third-world links therefore focus on mining, extraction, and processing; intermediate processing for the home market; and final processing abroad for the home market.
One way of financing these operations is through the 22 or so COMECON banks, insurance, and leasing companies. In 1978 their total assets were estimated at over $9 billion -- 78 percent represented by 11 Soviet companies. The Moscow Narodny Bank, London, and the Banque Commerciale pour l'Europe du Nord in Paris, alone had combined assets approaching $6 billion.
The establishment of diplomatic relations, followed by official visits, have produced joint ventures in black Africa. A similar drive is occurring in Latin America.
Two-thirds of the 600 or so COMECON multinational companies have been formed since 1970. Increased sophistication is evident from diversification of investment and new start- ups and expansion through reinvested profits and local borrowing rather than new capital from the home economy of the COMECON state concerned.