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30Aug91 UK: EDITORIAL COMMENT - WEST MUST WAIT UNTIL RUSSIAN DUST SETTLES. (2 OF 2)

In Czechoslovakia, further along the road in its transition to a market economy, the government put in place a moratorium in which people and organisations could file their claims on ownership of land and property. The moratorium has had a devastating effect on economic activity, and construction in particular. But the definitions of who owns what which will result from it are seen, both in Czechoslovakia and internationally, as essential before development can take place.Then there are the currency problems. The old systems worked from the premise that the rouble - and the other Eastern bloc currencies - was priceless when in fact it was internationally all but worthless.One of the ironies of the present instability is that the Soviet Union used to be regarded as one of the world's more reliable payers.The problem over currencies have meant, in construction, that most of the projects of recent years which have attracted foreign involvement and investment have been able to offer some form of guaranteed payment by generating their own foreign currency revenues.Hotel and airport developments have been seen as less risky for foreign companies, because they will attract foreign customers who will pay in real money rather than the local coinage. Factory and industrial development comes further down the list of 'safe' investments, but some UK companies have taken on Soviet work in the expectation that the goods the factory produces will be traded internationally, generating foreign currency.But for a large part of the construction industry's normal workload, the potential for generating real money revenues is limited or non-existing. Housing, commercial development for service sectors, and infrastructure projects are all in this category.At some stage, the Soviet Union, or new republics which rise from its ashes, will have to tie their currencies into world exchange mechanisms. But these will be brave decisions because the internal consequences of correcting years of overvaluation of the rouble will be dire.In Poland, which has gone further than the other former Comecon countries towards putting the zloty on a sound footing, the joke is that under the old system, the people had money in their pockets, but there was nothing to spend it on in the shops. Now the shops are full, but the pockets are empty.The implication for UK construction companies tempted to move into this new market is that caution is going to be necessary, at least until the political and economic uncertainties are clearer. Even then, the work may not be as great or as lucrative as some of the optimists suggest.There is some danger in regarding the Soviet Union - and its former satellites - as equivalents to under-developed Third World countries or as newly-industrialising countries. While there may be deficiencies in some areas of technology, there is little evidence of any lack of local capability in construction. Foreign involvement in Soviet construction may be restricted to supplying managerial skills and financial muscle.The watchword for companies is 'caution'. The Soviet Union has undoubtedly embarked on a period of massive political and economic change. It's a period of massive cultural change too, in which the attitudes of the factory managers I met two years ago cannot survive.Until the process of change has run its course, though, and new systems are in place, the Soviet Union is likely to be an unstable place in which to do business.