Thriving against adversity
Pan Piotr can count himself lucky. He has been formally unemployed ever since the collective farm in his native village of Piotrowiec - in the north-eastern corner of the country - went bust in the early nineties. Yet his industry and skill in the shuttle trade with the nearby Kaliningrad region of Russia has allowed him to maintain a measure of affluence by local standards.
Then the border - due to become the European Union's eastern frontier in April next year - was more or less closed to small-time traders, such as pan Piotr, with the introduction of visas in October this year. The source of livelihood for people like him dried up overnight, providing a foretaste of the historic change in this country's relations with its eastern neighbors.
According to a recent European Bank for Reconstruction and Development (EBRD) transition report on EU enlargement, relations with the former Soviet states due to become the Union's neighbors is one of the most serious challenges facing the EU in the coming years.
"There is a danger that EU expansion may reinforce the marginalisation of some (of the former Soviet) countries," the report reads, "so they remain on the fringes of the international economy with relatively little FDI and little opportunity for legal migration." Willem Buitler, the Bank's Chief Economist, sees a moral obligation for the Union and its members to help avoid the danger, though he also points to "enlightened self-interest."
"You don't want a collection of failed states on your borders," he says. The problems facing bootleggers such as pan Piotr provide a sense of how real the threat of disruption is.
By one estimate, as much as a tenth of Kaliningrad's population - as well as many on the western side of the border - depended on the shuttle trade as their main source of income. While the proportion is certainly smaller in this country's other eastern neighbors, Vasily Dolgolev, the Governor of the Brest region of Belarus, estimates that bootleggers made as much as 70 percent of the four million crossings of the border with Poland in 2002. The Ministry of Economy says that as much as $700 million (zł.2.7 billion) worth of goods flowed through the border with Belarus in unregistered exports. Since the introduction of visas, which cost Russians and Belarussians €10 (zł.47) each, the cross-border traffic has dropped by two-thirds. The source of livelihood for many people in this country and its eastern neighbors dried up overnight. Many did not see it coming.
Earlier this year, pan Piotr was even able to buy a jacuzzi, fulfilling a dream his wife had nurtured ever since watching the Dynasty TV series. The luxury item turned out to be too big to fit in the couple's flat, but they were happy to keep it in the cellar as a status symbol. In October, however, the couple decided to return the jacuzzi to the shop, but it was not accepted. The thing that would have been obvious just a month earlier, selling it off in Kaliningrad, was also impossible. While pan Piotr's tribulations with his jacuzzi could perhaps provide the basis for a comedy script, that does not make his concern any less real.
"I don't know what the future holds, or where our next dinner is going to come from," he said. And he is not alone.
"Russian small- and medium-size enterprises would very much like to know that the terms of trade and transit are going to change (following accession)," says Margerita Prokopienkova of the Kaliningrad Center for Certification and Methodology. "We need to adapt to these changes but there are no answers as yet, so negative and nervous sentiment among Russian businesses is on the rise."
The Russian government, unfortunately, is not in a helpful mood on the issue. Last week, the Foreign Minister, Igor Ivanov was in Warsaw to negotiate the legal framework governing the countries' trade relations in the wake of accession. As of May 1 next year, the bilateral trade treaty of 1993 will be automatically revoked. The Polish government, backed by the EU, wants Russia's Partnership & Cooperation Agreement (PCA) with the Union to be automatically extended to new member states. Russia, however, disagrees, asking for transitional arrangements.
"Even Belarus and Ukraine do not have a problem (with the automatic extension of PCA)," says Arancha Gonzalez, a spokeswoman for the EU trade commissioner. "That is why we are not intending to enter into any negotiations on the issue with Russia." Such a tough stance may not be an option for this country. Włodzimierz Cimoszewicz, the Foreign Minister, agreed with his Russian counterpart on this issue. In a statement issued after the two Ministers' meeting, the parties announced that they had agreed to conduct further negotiations.
Yet local businesses do not seem to share politicians' concerns. Andrzej Głowacki, the president of the DGA Doradztwo Gospodarcze consultancy - which arranges finance for export contracts to Russia and other former Soviet countries - says that the company has not noticed any disruption in trade following the introduction of visas to Russia, Ukraine and Belarus. He adds that businesses have been able to adapt to the changing political climate and he does not anticipate serious problems in the future.
The figures would seem to vindicate his optimism. Trade has soared ever since 1999, after taking a big hit in the wake of the Russian crisis. Export to Russia jumped by 25.6 percent to $1.33 billion (zł.5.2 billion) last year, though it is still at just 60 percent of its 1997 peak. The construction industry in particular has benefited from the booming Russian economy. Last week saw the announcement of several large contracts for local construction firms across the Eastern border. Mostostal Export is to build a $25 million (zł.97 million) office building in Moscow. The company has also signed a contract for a retail and entertainment center in Riazan, near the Ural mountains for $6 million (zł.23 million). Last Thursday, the Doraco development company announced plans to expand on the Russian market, which according to the company's spokeswoman, Dorota Pardecka, "guarantees higher margins than Germany," where Doraco has been active for the last few years.
The most important segment of trade between the two countries is, of course, the energy sector, which accounts for roughly 89 percent of imports from Russia. It is also a hot political issue, with the annex to the gas-delivery contract - signed by Deputy Prime Minister and Minister for Infrastructure, Marek Pol, in March this year - coming under fire. The media attention generated by the contract is also said to have been named by Andrzej Barcikowski, the Head of the Internal Security Agency, as one of the areas where foreign secret services are particularly active.
The energy sector also offers business opportunities in post-Soviet countries other than Russia. Even a destination as exotic as Turkmenistan has recently come to feature on local businesses' map. Last week a delegation of businesspeople visited the country with a view to negotiating oil and gas extraction contracts. Stanisław Adamiak, Chief Executive of Zomar, a coal distributor and one of the organizers of the trip, said that the firms interested in co-operation with Turkmenistan include Polish Oil and Gas Mining (PGNiG), Budimex and fertilizer producer Zakłady Azotowe Puławy. Last year, this country's trade with Turkmenistan amounted to little more than $3 million (zł.11.7 million), but this is bound to leap up if Puławy's plan to build a fertilizer factory there comes to fruition. The company's President, Zbigniew Kwiatkowski described the investment as "a very serious prospect."
It is not, however, in exotic places where the bulk of business opportunities in the lands east are to be found. Belarus may not be as despotic a dictatorship as Turkmenistan - elected "the world's worst place to live in 2004" by a poll of the Economist Intelligence Unit's experts - but it is certainly Europe's most oppressive country. That has not, however, stopped more than 250 joint-ventures involving Polish capital being set up there, as well as nearly 150 wholly-owned subsidiaries, according to the figures published by the National Chamber of Commerce (KIG).
Jean Lemerre, EBRD president, says that he saw room for Poland "to play an important and positive role in the Union's relations with some of its neighbors." Belarus is an example of a country which could be difficult to deal with and "this is where you come in. You naturally have very valuable experience in this area." The government has been active on this front, he adds, and businesses could also do more to pull their weight.
Until recently, large numbers of Belarussians and Ukrainians entered the country to work here illegally, decreasing differences in wages and the attraction of cheap labor to the east of the border. "All our seamstresses are off working in Poland or Slovakia," says Yaroslav Rushchyshyn, the owner of a clothing factory near Lvov in Ukraine. That, however, has already begun to change with the visa regime making it more difficult for illegal workers to get into the country.
Jim Rem, the clothes maker, has sought to exploit the emerging opportunity for cheaper labor, last year opening a sewing workroom with more than a hundred employees near Brest. The company's clothes are then exported to Russia, benefiting from the two countries' common trade area agreement. Inco Food is another company to open operations in Brest in recent times. Its meat processing plant imports its raw materials from Poland, while most of the products are sold in Russia.
This year, exports to Belarus are expected to leap by more than 50 percent from last year's $260 million (zł.1 billion), while imports could grow by more than 60 percent from less than $230 million (zł.897 million), say Belarussian authorities. Should this dynamic continue, the shuttle traders of recent years could benefit from legal trade with the European Union's eastern neighbors in the not too distant future.
Then the border - due to become the European Union's eastern frontier in April next year - was more or less closed to small-time traders, such as pan Piotr, with the introduction of visas in October this year. The source of livelihood for people like him dried up overnight, providing a foretaste of the historic change in this country's relations with its eastern neighbors.
According to a recent European Bank for Reconstruction and Development (EBRD) transition report on EU enlargement, relations with the former Soviet states due to become the Union's neighbors is one of the most serious challenges facing the EU in the coming years.
"There is a danger that EU expansion may reinforce the marginalisation of some (of the former Soviet) countries," the report reads, "so they remain on the fringes of the international economy with relatively little FDI and little opportunity for legal migration." Willem Buitler, the Bank's Chief Economist, sees a moral obligation for the Union and its members to help avoid the danger, though he also points to "enlightened self-interest."
"You don't want a collection of failed states on your borders," he says. The problems facing bootleggers such as pan Piotr provide a sense of how real the threat of disruption is.
By one estimate, as much as a tenth of Kaliningrad's population - as well as many on the western side of the border - depended on the shuttle trade as their main source of income. While the proportion is certainly smaller in this country's other eastern neighbors, Vasily Dolgolev, the Governor of the Brest region of Belarus, estimates that bootleggers made as much as 70 percent of the four million crossings of the border with Poland in 2002. The Ministry of Economy says that as much as $700 million (zł.2.7 billion) worth of goods flowed through the border with Belarus in unregistered exports. Since the introduction of visas, which cost Russians and Belarussians €10 (zł.47) each, the cross-border traffic has dropped by two-thirds. The source of livelihood for many people in this country and its eastern neighbors dried up overnight. Many did not see it coming.
Earlier this year, pan Piotr was even able to buy a jacuzzi, fulfilling a dream his wife had nurtured ever since watching the Dynasty TV series. The luxury item turned out to be too big to fit in the couple's flat, but they were happy to keep it in the cellar as a status symbol. In October, however, the couple decided to return the jacuzzi to the shop, but it was not accepted. The thing that would have been obvious just a month earlier, selling it off in Kaliningrad, was also impossible. While pan Piotr's tribulations with his jacuzzi could perhaps provide the basis for a comedy script, that does not make his concern any less real.
"I don't know what the future holds, or where our next dinner is going to come from," he said. And he is not alone.
"Russian small- and medium-size enterprises would very much like to know that the terms of trade and transit are going to change (following accession)," says Margerita Prokopienkova of the Kaliningrad Center for Certification and Methodology. "We need to adapt to these changes but there are no answers as yet, so negative and nervous sentiment among Russian businesses is on the rise."
The Russian government, unfortunately, is not in a helpful mood on the issue. Last week, the Foreign Minister, Igor Ivanov was in Warsaw to negotiate the legal framework governing the countries' trade relations in the wake of accession. As of May 1 next year, the bilateral trade treaty of 1993 will be automatically revoked. The Polish government, backed by the EU, wants Russia's Partnership & Cooperation Agreement (PCA) with the Union to be automatically extended to new member states. Russia, however, disagrees, asking for transitional arrangements.
"Even Belarus and Ukraine do not have a problem (with the automatic extension of PCA)," says Arancha Gonzalez, a spokeswoman for the EU trade commissioner. "That is why we are not intending to enter into any negotiations on the issue with Russia." Such a tough stance may not be an option for this country. Włodzimierz Cimoszewicz, the Foreign Minister, agreed with his Russian counterpart on this issue. In a statement issued after the two Ministers' meeting, the parties announced that they had agreed to conduct further negotiations.
Yet local businesses do not seem to share politicians' concerns. Andrzej Głowacki, the president of the DGA Doradztwo Gospodarcze consultancy - which arranges finance for export contracts to Russia and other former Soviet countries - says that the company has not noticed any disruption in trade following the introduction of visas to Russia, Ukraine and Belarus. He adds that businesses have been able to adapt to the changing political climate and he does not anticipate serious problems in the future.
The figures would seem to vindicate his optimism. Trade has soared ever since 1999, after taking a big hit in the wake of the Russian crisis. Export to Russia jumped by 25.6 percent to $1.33 billion (zł.5.2 billion) last year, though it is still at just 60 percent of its 1997 peak. The construction industry in particular has benefited from the booming Russian economy. Last week saw the announcement of several large contracts for local construction firms across the Eastern border. Mostostal Export is to build a $25 million (zł.97 million) office building in Moscow. The company has also signed a contract for a retail and entertainment center in Riazan, near the Ural mountains for $6 million (zł.23 million). Last Thursday, the Doraco development company announced plans to expand on the Russian market, which according to the company's spokeswoman, Dorota Pardecka, "guarantees higher margins than Germany," where Doraco has been active for the last few years.
The most important segment of trade between the two countries is, of course, the energy sector, which accounts for roughly 89 percent of imports from Russia. It is also a hot political issue, with the annex to the gas-delivery contract - signed by Deputy Prime Minister and Minister for Infrastructure, Marek Pol, in March this year - coming under fire. The media attention generated by the contract is also said to have been named by Andrzej Barcikowski, the Head of the Internal Security Agency, as one of the areas where foreign secret services are particularly active.
The energy sector also offers business opportunities in post-Soviet countries other than Russia. Even a destination as exotic as Turkmenistan has recently come to feature on local businesses' map. Last week a delegation of businesspeople visited the country with a view to negotiating oil and gas extraction contracts. Stanisław Adamiak, Chief Executive of Zomar, a coal distributor and one of the organizers of the trip, said that the firms interested in co-operation with Turkmenistan include Polish Oil and Gas Mining (PGNiG), Budimex and fertilizer producer Zakłady Azotowe Puławy. Last year, this country's trade with Turkmenistan amounted to little more than $3 million (zł.11.7 million), but this is bound to leap up if Puławy's plan to build a fertilizer factory there comes to fruition. The company's President, Zbigniew Kwiatkowski described the investment as "a very serious prospect."
It is not, however, in exotic places where the bulk of business opportunities in the lands east are to be found. Belarus may not be as despotic a dictatorship as Turkmenistan - elected "the world's worst place to live in 2004" by a poll of the Economist Intelligence Unit's experts - but it is certainly Europe's most oppressive country. That has not, however, stopped more than 250 joint-ventures involving Polish capital being set up there, as well as nearly 150 wholly-owned subsidiaries, according to the figures published by the National Chamber of Commerce (KIG).
Jean Lemerre, EBRD president, says that he saw room for Poland "to play an important and positive role in the Union's relations with some of its neighbors." Belarus is an example of a country which could be difficult to deal with and "this is where you come in. You naturally have very valuable experience in this area." The government has been active on this front, he adds, and businesses could also do more to pull their weight.
Until recently, large numbers of Belarussians and Ukrainians entered the country to work here illegally, decreasing differences in wages and the attraction of cheap labor to the east of the border. "All our seamstresses are off working in Poland or Slovakia," says Yaroslav Rushchyshyn, the owner of a clothing factory near Lvov in Ukraine. That, however, has already begun to change with the visa regime making it more difficult for illegal workers to get into the country.
Jim Rem, the clothes maker, has sought to exploit the emerging opportunity for cheaper labor, last year opening a sewing workroom with more than a hundred employees near Brest. The company's clothes are then exported to Russia, benefiting from the two countries' common trade area agreement. Inco Food is another company to open operations in Brest in recent times. Its meat processing plant imports its raw materials from Poland, while most of the products are sold in Russia.
This year, exports to Belarus are expected to leap by more than 50 percent from last year's $260 million (zł.1 billion), while imports could grow by more than 60 percent from less than $230 million (zł.897 million), say Belarussian authorities. Should this dynamic continue, the shuttle traders of recent years could benefit from legal trade with the European Union's eastern neighbors in the not too distant future.
