Back to Path

18 months a long journey. During this time, I have been very busy helping to launch 'ScentAir', worldwide ScentMKT leader, in former East bloc. From Prague to Alma-Aty, from Moscow to Zagreb. Again experiencing new emotions. Meeting new people, new challengues. As a whole, project has been/is very succesful and it is very interesting and encouraging to see how a new concept as Scent MKT enters in those countries. Few years ago, so far from western world and today, some of them, as Estonia or Poland pacing faster than many other western counterparts.There's a lot of experiences to be shared with readers. I promise to catch up with you till end of this year. Also, I would like to review how things are developing economically and politically in those countries. Most of what happenned is what we expected. Anyway, there is lot to talk about, specially about 'reborn' superpower Russia and its influence on neighbouring countries.

Protection of local consumers

When referring to homologations, certifications and test required to import into former USSR countries, we can always remember about some company which has faced a long nightmare to get through all this process in order to bring some product to these countries.

Again, Baltic States do comply with EU regulations, that means that process is quite strict but clear and companies do not face 'unexpected' problems due to local authorities. All becomes much more complicated when we refer to Belarus, Ukraine, Kazahstan and Russia.

In these countries, usually applies a partially updated system of certification called GOST, through several institutes and organization some at state level, other at regional or local level, which makes all quite untransparent. Once, company understand where it should address and which legislation applies to its product, starts a long 'negotiation' to simplify this process and make it as cheaper and faster as possible. That normally means that companies pay an official fee and some 'stimulating payment' to speed up process. In other case, things can become very complicated and slow.

Companies which are involved in import of raw materials or semi-product for their production processes in these countries, sometime face a very 'annoying problem'. State protects local producers  making very difficult to import analogical products from abroad. Companies do usually look abroad due to the low quality standards that sometimes provide local suppliers. But when importing, standards of quality , custom duties and barriers are very tough which can sometimes jeopardize the future of the company in the country.

Commercial agreement between these countries will probably help to speed goods movement between them but we have to see if this will not mean that move problems will appear for companies trying to import products from EU or other countries.

Some steps forward have been taken in Russia to improve situation creating a slightly more clear legislation. Unfortunately, Belarus and specially, Ukraine, have done nothing to ease situation.

Our main concern, refers to the products that get to the shelves of supermarkets and shops which can be sometimes very harmful for population's health. Specially all what refers to food, health, chemical, construction products MUST comply with standards accepted worldwide.

The fact that a lot of goods are smuggled means that these goods do nor pass any control of quality and sometimes, specially products coming from China, are dangerous for local people.

We would like to see local goverments cracking on this problem, implementing a more transparent system, basically, to protect its own people against companies and people which try to sell goods in these countries which should not be imported in any case. Besides, efforts should be made to ease serious companies, all steps to import in order to produce or sell worlwide standard products in these countries.

Gambling business in former CIS. Past and future

  First of all, let me tell you that due to my past involvement in this business, probably, my views might not be as objective as should be, but anyway, you will get a bulk of information which I wish will be interesting for you.

  Let me start saying that 'Gambling business' is former CIS is as other business spheres. Do not expect to have criminal mob or gangs around it less or more than they are involved in any profitable business.

 All started by the mid 90's when first slot machines appeared in the Baltic States and Moscow...rapidly, with a very primitive regulation being in force, as in many other spheres again !!, people who started that time were able to grow fast and capitalize, investing further in opening Saloons and Casinos which already were fullfilled with very modern machinery. Step by step and in different ways, local goverments started to issue regulations to control more tightly this business. New systems were implementated to control income and assure that tax were paid by companies involved. Licenses, Tax per machine, tax per location etc.. were the most common ways of  taxing in the business.

In countries like Estonia, Lithuania, Belarus, Moldova state tried to limit growth, banning 'street operation', that means machines being installed in each bar or cafe. In Latvia legislation was more permisive. In Russia and Ukraine till beginning of the 2000's we could not see a strong growth in the business, mainly due to limitations in street operation. At some point, situation changed and this two countries had probably the fast growth of machinery park...by end of 2008 in Ukraine approx. 200000 machines were being operated in the market. In Russia, amount was probably much higher ( there's no reliable statistics ).

At some point, prices of commercial Real Estate in prime locations and outskirts were biazed by the fact that Gambling Operators had a very aggressive comercial policy to catch stake of the market. At evenings, you were not sure if you were in a shanty Las Vegas or in some ukranian or russian cities. Meanwhile, goverment collected very much needed revenues from gambling business and efforts were being done to agree a Law which would be convenient for the State and for the operators. All this, crack down, for a cocktail of reasons which meant business was fully forbidden in Russia and Ukraine from 2008-2009. Specially, in Ukraine, situation was very dramatic for companies that had payed for a License for 5 year which was ending non sooner that april 2011. PM Julia Timoshenko decided to pass this law which left 250000 people without a direct job and many bars in a very critical situation after loosing income from this business. Besides, State lost these revenues in a time of very deep crisis. Before that, President Putin in Russia also decided to forbid gambling, which probably influenced Timoshenko's decision.

I have been trying to understand the motivation which were behing this decision. Frankly speaking, I have not a answer but I would like to mention some possible reasons:

1.Political: Banning is supported by more than 50% of the population. It allows Goverments to present themselves in front of citizens as people who are doing the best for the moral and future of their countries.

2.Gambling Monopoly: States wants to control ALL income generated by this sphere. National Lottery is the main example of income for them. Plans are done to create 'state controlled' zones for Casinos. Licensing will be of course, based not in economical but political basis which will be based on corruption at very high level of administration. Bribes will decide who is involved in this sphere.

3.Eliminate and Create: Some people might have been very interested to ban gambling business to allow it after some years but having already new companies involved in it. Basically, to have its own people controlling this sphere.

4.Online gambling: Big companies involved in online gambling, Sport-betting and Poker mainly, have a big interest for banning this sphere of business. Once this happens, players have the ONLY option to play in international well-known sites, which have their companies located in 'off shore countries', allowing them to pay nothing or very low taxes in countries where players are based. As a result they have a huge amount of money to 'arrange' legislation in countries where they find the 'enthusiastic support' of local politicians and goverments.


Bearing in mind situation today and changes brought by @gambling, in my understanding, countries as Russia and Ukraine should take a more serious approach in this question. Living in a globalized world, they have to realize that they will not be able to stop local people betting. In such a case, they have to implement the best legislation as possible in order to minimize loss of taxes due to money flowing abroad through @gaming sites. Probably, the best way to do that, is to allow companies, street operators, @gaming operatort to workate in the country, creating a reasonable taxing level convinient for both parts which will benefit State. Besides, this will create a lot of new jobs for people involved in these spheres which requires technical support, law and accounting advice etc..

As the time being, we do not have any information which shows that this might happen at short term, although even World Bank has recommended it to increase state revenues. Meanwhile, illegal gambling business is being run by local mobs with support of local authorities and Russian, Ukranian, Belorussians, Lithuanians, Estonians keep on gambling is sites located abroad which do not pay any tax to Russia, Ukraine, Belarus, Lithuania or Estonia. Is this situation to continue what we would like for future years ?

Education+Middle Class: Road to success

When analyzing the evolution of the economy in the last 20 years in the countries of the former Eastern bloc, we see that the countries that have been most successful have been those which, regardless of major corporations,  have created a network of medium and small companies, backed by a population with a high rapid adaptation to new technologies and a great interest in opening to the outside. As a result of this evolution, appeared a middle-class, which is the engine of growth in the country and main responsible of growth in domestic demand. Slovenia, Czech Republic, Estonia, Lithuania as opposed to countries that have not been able so far to establish a middle-class. 

 While these countries have devoted their efforts to create conditions to facilitate that middle-class could create new companies and projects in a supportive, friendly environment with clear legislation, a simplified bureaucracy, infrastructure and adequate security in some countries, we have seen as power groups, the old Soviet /communist burocracy took control of wealthness of the country and have raised a number of structures in place to discourage investment and initiative in the country, which have been blocked, hindered and even extorted.  

 We should not be surprised that some countries in Eastern Europe, as referred before, show much better figures than countries from Meriodional Europe such as Greece or Portugal. Higly skilled populations with strong  willing to face the challenges of what we call  'global economy'.  

 However, other countries have established and attracted investment from big corporations, but have been unable to create a dynamic and open country. As a result, social differences have become larger, the middle- class virtually does not exist, and future growth prospects are much more limited. Romania and Bulgaria, although EU countries,- had all the tools and support for the transition-, today, are clearly not progressing as expected due to problems realted basically to corruption in political and judicial level. Others, such as Belarus or Ukraine, unfortunately, consolidated power structures not interested to develope freedom and democracy and create simple state structures to serve the population.

 This list of 'winners' would place countries such as Slovenia, Estonia, Czech Republic. In a second group could include countries such as Latvia, Lithuania, Hungary, Slovakia, Poland, Serbia, Croatia, Montenegro. Already in another category, for social, cultural, political, historical etc. .. would be a group of countries such as Romania, Bulgaria, Belarus, Ukraine, Moldova, Macedonia, Albania.  In a special category, we would locate Kosovo as 'pseudo-country' controlled by criminal gangs which will obviously in the coming years remain isolated.  
 
 At a time when some people are calling for policies which will mean low wages, less welfare state as a recipe for overcoming the crisis, a look at Eastern Europe shows that only with education, reasonable wages  and strong-efficient states structures, we can expect to have a stable economic growth at mid-term that comes accompanied by an improvement in living conditions of the population of these countries. Otherwise, what shall we need growth of a country for ? 
 
 It is not difficult to forecast that those countries that have adopted the prescription of more education, order, prosperity and less bureaucracy+corruption in the coming years,  no matter international background, will consolidate its model with strong middle classes and stable growth.   

Short and Sharp

I have been out for 5 months...which is actually a lot for a blog. No excuses. I did not write as I really had not much  to comment.

Actually, my general perception of overall situation has not changed. Anyway, I will make some remarks, just for you to be sure that blog is still alive as blogger keeps on breathing.

Regarding Ukraine, I have to say that our worst forecast have been confirmed. Any remarkable change has been introduce in the country, except new regulations which have create an atmosphere of panic and demotivation to invest and launch any new business except for those which are very close to structures of politicial power. Nothing has been done to reduce corruption and private money is not flowing on to the economy but just looking for 'short-term operations' in Ukraine. Some civil works, infrastructure construction is being done to make-up the country before Euro 2012. That should be over in few months. That's all.

  The confidence between consumers, the purchase power has not improved except for those appointed as new 'public servers' in the new administration.I have to say that either Goverment changes it orientation and attitude towards its own people and economical situation or country will continue to slip down towards a dark future. Social, political unrest will damage even more economical growth...and State Budget can not be longer relaying on foreign loans to execute its payments. It has to get income from big corporations which are operating in the country and stop pushing on small and middle size business which is trying to recover after 2009 crisis. It has to control customs as it is not doing ( nothing has changed from previous days ) and has to crack on 'law kaos' as regulations are not enforced and corruption is fully spread in the law system.

  There are some good signs of recovery on construction, on the lower residential segment, where 'cash' operations allow market to be more active than in middle and high class segment which are not showing signs of recovery as financial sector is not providing the required financing for middle and high amount operations.

 Agriculture is showing strongly and investment on this sector, based on the plans for land privatization which this goverment is going to undertake, should allow this sector to show the strongest growth in the country.

 Equipment seems to be sold at good pace to Russia and other CIS countries.

 Anyway, as it is mentioned on the link I enclose above, unfortunately, we can not say that things have improved in terms of  'business friendship' in Ukraine.

http://www.domik.net/novosti/kak-inostrancy-ocenivajut-ekonomiku-ukrainy-n136778.html

As I promised when I started this blog, from now on I will try to focus my attention on other former USSR republics, while Ukraine takes its time to decide to move on the direction to prosperity or it finally consolidates as the eastern border of EU and the 'eternal promised land'.

UCRANIA:FUTURO INCIERTO

  He estado pensando largamente acerca de la idoneidad de escribir este artículo. Sinceramente, se me hace muy difícil escribir en un blog, en mi blog, sin trasmitir a los lectores, aquellos pensamientos que pasan por mi cabeza cuando analizo la realidad de Ucrania.

  Creo que hacemos un flaco favor al país, si miramos hacia otro lado, obviando la realidad. Voy a ser muy claro: lamentablemente, la sensación de todos aquellas personas con las que tenemos relación profesional o personal y que están mas o menos vinculadas a Ucrania, es que el país está cayendo por una rampa hacia no se sabe bien donde.

  Las causas de tal situación son simples de formular y muy complejas de eliminar. La corrupción en todos los niveles de la Administración, común a todos los partidos, la inseguridad jurídica total de las personas o inversiones en Ucrania, colocan a este país en una situación que o empieza a solucionarse en el C/P o acabara llevando al país a la ruina.

 La falta de recursos de la Administración pública, parcheada con los créditos públicos del FMI o los privados, básicamente de bancos rusos en base a criterios políticos, puede llevar al país durante este año 2011, a una situación insostenible.

 La falta total de transparencia en todos los niveles, la inexistencia de unas cuentas públicas, auditadas de una manera fiable, la sombra que siempre envuelve las actividades del Banco Central, la incertidumbre que pesa siempre sobre la realidad de la grivna ( UAH )....sobre la realidad de la masa monetaria...todos estos factores, hacen muy difícil que una empresa o empresarios tengan una actitud positiva en referencia a todo lo que supongo invertir en Ucrania en el terreno productivo. Solamente, florecen las empresas o empresarios dedicados a la economía especulativa, con grandes capitales, que aprovechan la debilidad del país y incertidumbre que sobre el pesa, para especular en cualquier de los terrenos ( cambio divisas, agrícola, inmobiliario etc...).

 Como ejemplo de lo que decimos, para que entiendan que no exageramos, un informe del Banco Mundial, en relación a la facilidad para gestionar la fiscalidad de la empresa, situaba a Ucrania en el lugar 181 detrás de países como el Chad, la Rep. del Congo etc...

 El nuevo Cogido Fiscal de Ucrania, la gran actuación del Gobierno nacional para demostrar a las instituciones internacionales que hay una intención de cambiar las cosas, a C/P lo único que ha producido es una reacción en contra en todas las PYME ante la absurdidad de multiplicar la fiscalidad en un situación de profunda depresión económica como en la que se encuentra el país. Mientras tanto, las grandes empresas, siguen evadiendo impuestos a paraísos fiscales, las fronteras y sus aduanas son el reino del contrabando etc...

 Los empresarios tanto locales como extranjeros están absolutamente descolocados en esta situación, y la situación de incertidumbre es tal que es prácticamente imposible encontrar empresas con nuevos proyectos para el 2011 en Ucrania. Si a esto le añadimos la presión por parte de los organismos vinculados a los órganos de control del Estado en material fiscal y legal, llegando en muchos casos al chantaje, es evidente que Ucrania puede sufrir un nuevo proceso de fuga de capital y emigración de su población mas capacitada, como ya paso en los primeros años de la década de los 90 del pasado siglo.

 En un contexto con unas finanzas públicas que se aguantan solo por la ayuda exterior, en tanto que el Gobierno no puede cumplir en sus planes de ingresos para el 2011, una ausencia total de entrada de inversión extranjera por las causas ya mencionadas, excepto empresas vinculadas al poder político ruso, las expectativas para este año son muy poco esperanzadoras.

 El riesgo de una nueva devaluación de la UAH, hasta ponerla en niveles de 1 $ = 15 UAH, evidentemente, puede llevar al país a una espiral de inflación y empobrecimiento de su población, que hace difícil de predecir cuánto tiempo el gobierno actual será capaz de mantener la paz política y social en el país.

 Ucrania, sus políticos, sus habitantes, tienen que llevar a cabo una gran reflexión como país, una 'gran catarsis' y revisar su modo de hacer de los últimos 20 años. La privatización de los activos públicos, especialmente tierras, inmobiliarios, productivos han permitido a una parte importante del país vivir durante este anos en un nivel de vida no acorde al nivel de desarrollo infraestructural, económico del país. La productividad del país es muy inferior a cualquier país de los que se pondrían como ejemplo. Ucrania no es competitiva. Los salarios son bajos pero la productividad ínfima, la fiscalidad altísima, los costos 'inesperados' altísimos...

 Si en los próximos meses, el país no experimenta un cambio radical de actitud en su manera de actuar en todos los niveles sociales, Ucrania está condenada a ser gran gigante pobre en medio de Europa. Su población condenada mayoritariamente a la pobreza y a la emigración ( esencialmente a Rusia ) y su economía condenada a ser absorbida por las grandes empresas siguiendo el modelo sudamericano.

 Este blog ha nacido con la intención de hacer creer a la gente en los nuevos países del Este, pero lamentablemente, la realidad supera nuestros deseos y no podemos escondernos. Esperemos que aquellas personas que puedan tener una responsabilidad en ese cambio que demandamos, entiendan que no existe ningún otro camino si quieren sinceramente llevar Ucrania a la senda del crecimiento y la prosperidad.

UKRAINE: POLITICAL AND ECONOMICAL FREEDOM

There's been a lot of uncertainess on UAH stabilitity during the last 2 years. When global crisis started, central bank was forced to depreciate local currency in front of USD 60% to today's actual exchange rate ( 8 UAH = 1 USD ). During last year, a lot of rumours were around regarding the collapse of the local currency. State could not manage to level income and expenses of national budget, and fears of Central bank of Ukraine using the increase of monetary mass ( M1 ) as a way for the State to be able to execute payments of pensions and debts in the inside market were very frequent.

During 2010, state buget reached a record high deficit of 11% and inflation went higher than expected reaching double figures. At some point, during last summer, new goverment was facing a very strong problem due to the shortage of revenues to be able to pay expenses.

At that point, Goverment had 3 possible solutions:

a.Issue of  10 year State Bonds.
b.Look for Private Creditors on the International Banking Arena.
c.Ask IMF for new trench of the agreed loan for Ukraine.

Each of this options depended on the attitude of the Ukraine Goverment towards political and economical questions which would satisfy possible lenders.

Financial markets did not recieve very enthusiastically the announcement of the new issue of SB. For these reason, Ukraine Goverment decided to cancell this plan as yield was rating up to 8,75% year which was not acceptable, in our opinion with the right decision, for the Ukranian Goverment.So, Goverment had 2 options left.

With a much more pragmatical approach on their relationship towards Russia, new Goverment  has been able to ease problems with Kremlin, which has opened the possibilty to collaborate more closely with russian state and private organizations. As a result of that, VTB agreed to lend at a very political 6,7% year interest rate a loan of 2 bilion $ which has been recently extended for another 6 months which has eased situation and pressure to the UAH.

From the other side, IMF approved during last August 2010 a loan of approx. 15 bilion $ at a 3% year rate which helped the Goverment to secure its financial stability for 2010.

Both loans, are based on strong promises from Ukranian authorities to undertake reform which will not be very popular and could harm its popularity. Goverment has to tackle the main problem which remains the fact that, at least, 50% of economy continues on the shadow. New legislation and more control should improve this situation. From the other side, State has been 'forced' to privatize part of its more 'strategical' assets including Ukrtelekom and some heating and electricity distribution utilities. Obviously, companies and persons favoured by this process will be related to the decision taken to provide these loans to save state financial stability during 2010. It is difficult to say, if it has been a good decision by the Goverment, but the urgency of the situation did not allow them to analize possible 3rd options.

Goverment and politicians seem to have understood that either they are able to stabilize State Budget increasing revenues and controlling increases of expenses or their independence to take decisions will be seriously jeopardize.

State Budget for 2011 forecasts an increase on revenues around 10,5% and an increase of expenses of 4,6%, in an scenario with a GDP growth of 4,5% and an expected inflation of 8,9%. It is hard to see how this results will be obtained...specially what refers to inflation as increase of prices of energy at international level will have consequences on prices at local level. Rergarding revenues, we will have to ckeck success of measures taken by Goverment in order to increase income with companies and private persons still under pressure from economical crisis and lack of financing due to previous collapse of local banking system which has seen its international sources of financing being dramatically reduced.

If these goals are reached, Goverment will be able to finish 2011 with a State deficit of 3% which would be a very satisfactory result bearing in mind situation during previous 2010.

In case these results are not obtained, Ukraine could enter a very dangerous spin down, being forced to depreciate again its currency, being unable to control its inflation and facing a situation where it would be unable to run its own political and economical strategy but the one being dictated by those ones who would be financially rescuing it.