Russia reconquers Eastern Europe via business

More than 20 years after Soviet tanks and soldiers pulled out of then-Czechoslovakia in Eastern Europe, Russian influence is on the rise in what was once its imperial backyard. Where guns and bullets failed, rubles are succeeding.

Local governments are selling off state assets to plug gaping budgetary holes as the global financial crisis bites. Western corporations are tightening belts and selling off some assets in the region. Stepping into the void are eager Russian businessmen, some backed by the Kremlin, as money trumps lingering suspicions from decades of Moscow-led Communism.

From the downfall of the Soviet Union in 1991 until 2008, Russian investment to Eastern Europe totaled a paltry $2.4 billion over 17 years, according to the United Nations Conference on Trade and Development (UNCTAD). The total for just the past three years has already reached $2.8 billion.

"These firms are highly profitable now, and they've realized the Russian market is not enough," says UNCTAD researcher Kalman Kalotay. "They're looking elsewhere to grow their businesses. Plus they're getting support from the Kremlin, which realizes Russian business can help pursue the state's strategic interests."

Vaclav Petricek, the chairman of the Czech Cham­ber for Economic Ties with the Commonwealth of Independent States, says the Czechs and other Eastern Europeans have put aside grudges to pursue business interests.

"It's the free market at work," Mr. Petricek says. "Rus­sian investors are benefiting from the current global financial crisis, which has caused problems to some European firms. Of course, we have to watch to make sure no one comes to dominate sensitive sectors, like energy."

Shopping spree

Russians have been on a shopping spree in the region.

In July, Russia's largest state-run bank, Sberbank, which has close ties to Prime Minister Vladimir Putin, bought out the Eastern European division of an Austrian bank. Announcing the acquisition, German Graf, a former economics minister, boldly stated: "This is our first step in transforming Sberbank into a global bank."

Another state-held Russian bank is reported to be courting Czech magnate Petr Kellner to buy a 10 percent stake in one of the Czech Republic's very successful credit agencies.

Russia's second-biggest bank recently paid some $141 million for a majority stake in Bulgaria's state tobacco company. And Russian Railroads is eager to buy out rail-cargo businesses in Poland and Slo­vakia, according to Bloomberg. The Rus­sian oil concern in Poland is in the running to buy the government's majority stake in a refinery in the Baltic port of Gdansk.

Spreading clout

Russians are also using their vast oil and gas reserves to spread clout. At the forefront is Gazprom, one of the world's largest energy companies. The Russian gas giant supplies about 25 percent of the natural gas sold in Western Europe. In Eastern Europe, the percentage is higher: Bulgaria and Slovakia alone depend on Gazprom for 90 percent of their gas.

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