New Realism in Ties With Moscow

Soviet red tape and hard-currency shortages limit scope of economic cooperation with West. WEST GERMANY: DOING BUSINESS WITH SOVIETS

WHEN the Soviet Union invited West German businesses to help develop the mineral-rich Kola Peninsula last year, they expected a capitalist stampede. It never came.

Buried in the fine print of Moscow's proposal was the requirement that Western investors band together in a consortium - so profitable projects could cover for others expected to loose money.

``That's the kind of thinking German companies just won't accept,'' says Henning Aretz, former head of the Ost-Ausschuss, a West German industry committee that represents about 400 firms interested in doing business with the East bloc.

The episode illustrates the hard-nosed realism behind West Germany's burgeoning economic ties to the Soviet Union.

Even in the age of perestroika, Moscow's ambitious economic reform program, many West German business leaders complain about the restrictions they face when trying to do business with the East. For example, Soviet managers still have trouble getting hard currency to buy West German goods and Soviet red tape often hinders even the most straightforward joint ventures.

Such problems - together with the inherent weaknesses of the Soviet economy - are expected to limit the scope of Soviet-West German economic cooperation for years to come.

``We don't think the Eastern markets can be looked at very strategically,'' says Eberhard Posner, a spokesman for Siemens, the West German electronics giant that recently clinched a deal to sell more than 200,000 personal computers to the Soviets. ``The long-term potential is big, but the real number of projects they can pay for is very small.''

West Germany is by far Moscow's largest trading partner in the West. West Germany's total imports and exports with the Soviets last year amounted to $8 billion - equal to that of the United States, France, and Britain combined. West Germans also hold the lion's share of joint ventures with the Soviets - over 70 of the some 380 now under way.

Some West German businesses have already established a strong foothold. Salamander, the West German shoe company, has two joint ventures in the Soviet Union producing leather shoes for the Soviet market, and it can't keep pace with growing demand. Liebherr, an engineering firm, has a joint venture in Odessa building mobile cranes - including a model that is supposed to be built using the scrapped launching vehicles of Soviet SS-20 nuclear missiles.

But despite such successes, average West German investment in joint ventures is modest, while trade with the Soviets amounts to only 1.6 percent of West Germany's total foreign trade.

SPEAKING to West German businessmen during his visit to West Germany earlier this month, Soviet leader Mikhail Gorbachev blasted the trade figures - dubbing them ``ridiculously low'' for two giant economies that are virtual neighbors.

Mr. Gorbachev admitted that a ``lack of clarity'' in Soviet business regulations is part of the problem. During his visit to Bonn, the Soviet leader signed an agreement protecting West German investments from nationalization. He also pledged to push for more streamlining in the Soviet system.

But experts say the difficulties go much deeper. ``It's very hard to change the traditions of working and thinking which have developed [in the Soviet Union] over decades,'' says Mr. Aretz. ``That can't be wiped out in four years of perestroika.''

The Kola Peninsula project is a good example of this. The Soviets touted their plans - first announced in May of last year - as a plump opportunity for Western companies. It was an unusual offer, since this isolated Arctic region has long been off limits to Westerners because of its military importance. But Aretz says the initial Soviet requirements emphasized massive projects and smacked of centralized planning.

The West Germans talked the Soviets into dropping many requirements. A small number of projects - mostly involving minerals that can be mined and sold at a profit in Western markets - are now in the negotiating phase.

Ironically, some Soviet reforms have actually complicated business procedures. ``During the first years of Gorbachev, business went down, because we didn't know how to work in this new environment,'' says Mr. Posner, the Siemens spokesman. Posner says West German industry is now ``in a process of defining ways to do business.''

Even many Soviet officials admit they are juggling two separate systems - the new ``socialist market economy'' envisioned under perestroika and the deeply entrenched planned economy. For Western businesses, this can create confusion. Soviet managers can negotiate deals with foreign businesses, for instance, but they lack the hard currency often necessary to complete a transaction.

Working through such dilemmas can be difficult.

The Siemens computer sale, for instance, took months to negotiate and includes a formula whereby the West German firm gets its money in Western currency - but only as result of sales of Soviet chemicals to a British firm.

For now, however, West Germans are investing heavily in the long-term success of perestroika.

In some cases, this takes the form of West German training for Soviet managers. A new agreement signed by the Soviets and the West Germans earlier this month will bring up to 1,000 middle-level Soviet managers to West Germany for training each year, while many firms include training in the West as part of their joint-venture package.

In addition, some West German management consultants are finding more of their business in the East. For example, the Munich-based Roland Berger management consulting firm is helping to boost efficiency and trim costs at a huge Leningrad metal-working plant.

``The workers I've met [in Leningrad] are just as hard working as they are here,'' says Rolf Baeurle, one of Roland Berger's partners. The problem, he says, is infrastructure - the lack of tools and spare parts, for instance.

Meanwhile, the long slump in West German-Soviet trade appears to have ended. West German exports to the Soviets - after falling steadily for three years - grew last year by 20 percent. Exports in the first three months of this year surged 35 percent, compared to the same period last year.

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