Should Corruption in Ukraine be Legalized?

Corruption

Should corruption in Ukraine be legalized? As I ask this question, I can almost see many people who follow Ukrainian politics raise their eyebrows. I can also see many, especially members of the outspoken Ukrainian Diaspora, beginning to seethe. Yet, after two and a half decades of watching Ukraine fight, and mostly lose, battles against epidemic corruption, and realistically not seeing no other credible options to turn the tide, I turn to the only principal, which works well when trying to combat a very strong and seemingly unbeatable opponent. It is a millennium-old Judo principle, which states “use your opponent’s strength to your advantage”, or as I like to say, “when pushed, instead of pushing back, pull.”  In this case, corruption is the proverbial opponent we are looking to defeat.

Government corruption in Ukraine is deep, well entrenched and akin to a massive granite mountain. Not to be too simplistic, but it can generally be divided into two basic categories. The first is corruption perpetrated by the influence of the powerful interests who direct budget flows, or rig supply and privatization tenders. The second type is corruption perpetrated by the underpaid bureaucrats (ministry clerks, prosecutors, and customs and tax agents). They extort money from businesspeople and from the public by either helping them expedite, or by running interference, as these folks try to navigate through the arcane systems of byzantine rules and regulations, which permeate Ukrainian life.

Although corruption in Ukraine has always been an issue, recently, certain young reform factions, with support from Western (primarily US) donors, have attempted to combat government corruption head on. Attempts to install Western and progressive Ukrainian Ministers to head the corrupt Ministries have failed. Not a single one of those ministers remains in power after one year.  Unfortunately, but predictably, they were all consumed and spat out by the system they tried to reform. These people were set up to fail, as it is impossible for a handful of even the brightest people to defeat a monolith without having a strong backing of the population, support of organized political parties, sufficient finances and true support from the country’s business and political elites. As the saying goes, “we can only help those who want to help themselves.” It seems Ukrainian bureaucracy is not yet ready to help itself. The general population is also not at the level where it keeps up constant pressure for change. The people of Ukraine have bravely risen up during Maidan revolutions, but the after effects of their protests did not produce desired meaningful changes (e.g. post Orange Revolution government rift, Yanukovich presidency).

The idealistic thinking and mentality of some Western ministers who thought they could and singlehandedly tried to alleviate corruption and change the Ukrainian bureaucracy, is nothing but naive. I was privileged to know some of these intrepid warriors and their advisory teams. They certainly possessed the skills and the desire to change the system. Yet, they were very ill-equipped and did not have a realistic grasp on how badly the corruption cancer metastasized.  In some cases, the reformers’ desires to radically break the system led to opposite effects. I have seen Ministers require tenders, where none were needed (or legally required) just to display a corruption fighting banner. The irony of the whole thing was that Ukrainians have learned to rig and beat many “fair and open” tenders, so these Ministers’ misconstrued demands were a double whammy.  I have also seen a large state company paralyzed with fear of action on a terrific project, because the management was afraid that a minister would interpret a legal sole-source procurement, as corrupt.

These ministers, advisors, governors, investigative journalists and many other extremely well-meaning and reform minded folks also have failed, or modestly succeeded in their attempts to introduce e-government procurement, create a new police force, reform Prosecutor’s General office and the GPU and reform the Customs Service. It certainly was not for lack of trying, patriotism, or incorruptibility. All this got me thinking as to:

  • why there is such rampant corruption in Ukraine?
  • whether efforts to eradicate it are doomed?
  • if there is a better way to solve the problem?

 To answer the first question, we need to look at couple of factors, which amplify graft in Ukraine. Although corruption exists pretty much everywhere in the world, in Ukraine, a confluence of factors makes it particularly pervasive and damaging to the economy. A very low pay scale for public servants, very large gap between the salaries of civil servants and budget funds, which are expended in public procurement, external financings, aid and donor contributions. Thus people of means, seeking to corrupt the system, get greater leverage in influencing low-paid bureaucrats. These bureaucrats (especially the ones steeped by the Soviet system of graft) operate with impunity because the enforcement branches are corrupt and so on. The whole system is infested and needs complete structural overhaul.

Is Ukraine doomed? That depends on whether radical attempts of wishful thinking, unsustainable reforms, populist solutions and political farce continue. As people who have been on crash diets, tried to kick a habit cold turkey, or tried to undertake a massive change mostly with lip service PR, but without real resources and commitment know, these solutions almost never work.cropped-ukrainefi180profile_page_1.jpg

So what needs to be done? The biggest asset, which Ukraine has today, are its people born in the 80’s, or after the fall of the Soviet Union. These folks grew up in a freedom-loving Ukraine and connected to the rest of the world. They are mostly free of the Soviet corruption malaise (although strong evidence exists that current Ukrainian corruption has permeated Ukraine’s higher education system in the last twenty years and many students are very comfortable with bribing teachers for good grades). Yet, despite these obstacles, and with the understanding that human nature will never change and some corruption will always be there, we can reasonably expect corruption in Ukraine to subside with every subsequent generation.

Meanwhile, in the medium term, it is reasonable to start chipping away at the corruption from many sides. Gradually introduce reforms, decrease rules and regulations, reform the tax code and completely overhaul Ukraine’s prosecutorial branch GPU, substantially increase public service salaries, and introduce international audits of select tenders. Eliminate tariffs and, most importantly, continue to raise the stakes for the powerful business and political elites by expanding their access to western markets and financial systems, thus raising the stakes for them in terms of reputational and real risks in case they are implicated in corruption.

In the short-term, it is worth looking at the lobbying and advisory/support institutions of the US as an example. Their structure should provide a very clear framework as to how our country has legalized activities normally considered corrupt. Setting up regulated lobbying firms, expediting firms, and shifting mindsets of the bureaucrats on being able to make money at such lobbying firms after leaving the public service, are just some of the tools, which may be employed to legalize corruption. This is the carrot. 

The stick should be greatly increased punishment for those who break the rules, with prosecution being handled by outside independent arbitrators, the accused having the burden of proof and expense of their own legal defense in an international neutral venue. 

Many countries and states have legalized vice and illegal activities in order manage them. Holland and Australia legalized prostitution, the state of Colorado marijuana, Nevada gambling. All such efforts have been largely successful, generated billions in taxes and dealt with massive public problems according the judo principle mentioned above.

So if the future powers to be in Ukraine and in the West start looking at the eradication of the corruption problem through a 30-50 year prism and start managing the transition gradually while legalizing some of the corruption, Ukraine stands a chance to finally realize its true potential.

 

 

 

 

 

Seasons Greetings and Best Wishes in the New Year!

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Export Champions! webinar – Transforming Your Company into an Export Powerhouse with Cutting-edge Financing.

Export Champions! – Transforming Your Company into an Export Powerhouse with Cutting-edge Financing.

Join us for a webinar on July 07, 2015 at 3:00 PM EDT.

Register now!

https://attendee.gotowebinar.com/register/4402376754828717314

Fi3E BadgeExport Champions™ is a new program, which allows small and mid-size US manufacturing companies to vastly boost their export sales by utilizing cutting-edge export credit and capital markets financing for international opportunities.

Using actual case studies of the three US companies, whose export revenues from just three projects total over $525 million, as the result of their foresight to deploy financing techniques traditionally reserved for large companies and mega projects, Broad Street Capital Group and representatives of various US Government and private trade and project financing institutions, will empower other US small and midsize companies to successfully compete for large export business opportunities.
“Today, we are witnessing a paradigm shift in the way US small and mid-size companies are able take advantage of sales opportunities, which are two or three times their annual revenue.” said Alexander Gordin, Managing Director of the Broad Street Capital Group. “The key, is a carefully structured project, which is developed with specific long-term, low-cost financing solution in mind from the beginning” said Gordin. Featured Image -- 2741

The Export Champions™ webinar is a one hour introductory presentation during which participants will learn: 
which foreign markets and buyers to target, 
how to correctly develop a financeable transaction, 
which financing tools and programs to utilize, 
how to put together a correct team of advisers, 
utilizing external economic and political factors to gain an advantage, 
how to mitigate risks along the entire transaction life cycle

After registering, you will receive a confirmation email containing information about joining the webinar.

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Tea Party Divided by Export-Import Bank

William Schubert, president of a small infrastructure export firm outside Houston, identifies himself as a Tea Party Republican. Credit Michael Stravato for The New York Times

Their mission: to rid the firebrand Republican senator of his ardent desire to kill the federal Export-Import Bank, which they said would greatly harm the export-driven small businesses that Mr. Cruz of Texas often extols.

The result: failure.

“At the end of the meeting, there were a lot of angry Texans there,” said Mr. Schubert, who identifies himself as a Tea Party Republican. “We didn’t come there to talk the talking points. We were there to talk the complexities of international trade.”

Senator Ted Cruz of Texas. CreditAlex Wong/Getty Images

In the last two weeks, the battle over whether to save it or let it die has begun in earnest.

For conservatives, frustrated by their failure to overturn the Affordable Care Act or stop President Obama’s immigration policies, killing the Export-Import Bank has taken on enormous importance. They do not have to overcome a presidential veto or beat a Democraticfilibuster. They simply have to refuse to bring it to a vote. Republicans have no excuse, warned Michael A. Needham, chief executive of Heritage Action for America, one of the groups demanding the bank’s demise. “All Congress has to do is nothing, which they have proven themselves to be pretty good at,” he said.

The business leaders who seek a reprieve, many of them Republicans, are in disbelief and are promising retribution.

“Crony capitalism, crony capitalism, that’s all they ever say, over and over again,” said Randy Barsalou, a Republican and an owner of BCH Trading Company, a small lumber exporter in Hot Springs, Ark. Mr. Barsalou is pressing his state’s congressional delegation to support the bank. “If my guys don’t get behind this, I can tell you I won’t be voting for them,” he said.

For Republican lawmakers, the calculation is that killing the bank is not likely to hurt them politically. Powerful business groups like the U.S. Chamber of Commerce and the National Association of Manufacturers might say they ardently support the Export-Import Bank, but other Republican positions on low taxation and light regulation will keep them from exacting a price on Republican lawmakers for the bank’s death. That is one reason Republican presidential hopefuls like Jeb Bush, the former governor of Florida, who once supported the bank, and Gov. Scott Walker of Wisconsin have recently joined Senators Cruz, Rand Paul of Kentucky and Marco Rubio of Florida in embracing its demise.

Still, the chamber, the National Association of Manufacturers, the Aerospace Industries Association and 46 other business associations assembled the Exporters for Ex-Im Coalition. The coalition flew in more than 650 small-business leaders, suppliers and local chambers of commerce members for 400 meetings with representatives, senators, staff members and committee aides on Capitol Hill on Feb. 25.

On Jan. 28, Representative Stephen Fincher of Tennessee introduced legislation to reauthorize the bank for five years, gathering 57 Republican co-sponsors. Heritage Action responded last month with automated telephone calls in the districts of 31 of those Republicans, blasting them for supporting “a slush fund for corporate welfare.”

Business groups and the bank’s biggest beneficiaries, like Boeing, General Electric and Caterpillar, have hired lobbyists and consultants. Conservative groups like the Koch brothers’ Americans for Prosperity are rallying the Tea Party grass roots.

Starting this month, Americans for Prosperity has committed to spending “well into the six-figure range” to kill the bank, said Levi Russell, a spokesman for the group. That will go for television and digital advertising, phone banks, direct mail and activist visits to lawmakers’ Capitol Hill and district offices. The targets are 93 House Republicans who they see as willing to block action on the bank’s reauthorization, enough to commit a majority of the Republican majority to the bank’s demise.

“Before, there were two kinds of people: people who didn’t know it exists and people who love it because they use it,” Mr. Russell said of the bank. “This year, the education component is done. We’re now in position to ramp up the grass roots side.”

Randy Barsalou, an owner of a lumber exporting company, is pressing for support of the bank.Credi tJacob Slaton for The New York Times

So will Club for Growth, a well-financed conservative political action committee, which vowed on Wednesday to back any members of Congress who opposed the Ex-Im Bank if they were attacked by any establishment groups.

On the day of the pro-bank “fly-in,” Representative Jeb Hensarling of Texas, chairman of the House Financial Services Committee, which has jurisdiction over the bank, wrote a letter to all Republican members proclaiming his opposition to its reauthorization and, in effect, telling them not to listen to the business leaders at their doors. Less than 1 percent of 1 percent of small businesses benefit from Export-Import Bank, he wrote, while American taxpayers’ money goes “to help foreign corporations, including businesses that are owned by the governments of China, Russia, Saudi Arabia and the United Arab Emirates.”

“The best way to level the playing field for American exporters and manufacturers is not with taxpayer subsidies, guarantees and politically driven lending, but instead with more opportunity,” he wrote. “A pro-growth agenda — including fundamental tax reform, American energy independence, cutting burdensome red tape and reducing abusive lawsuits — will do more to help our exporters, manufacturers and small businesses than the Export-Import Bank ever could.”

The business leaders who use the bank say they are baffled at such vehemence. The bank operates on fees it charges its users and, so far, has made money for the government. More important, it has created jobs — many of them. The bank contends that through its export financing, it has helped maintain 1.2 million private sector jobs since 2009.

Acrow Corporation of America makes the modular, prefabricated bridges that helped win World War II and now proliferate in developing nations. But customers in countries like Cameroon and Zambia cannot readily get private bank loans for large infrastructure projects without backup. European and Chinese competitors have their own government-backed export credit agencies. Acrow, which is based in Parsippany, N.J., has the Export-Import Bank, said Paul Sullivan, the company’s director of international business development.

“We are already hearing from customers that our competitors are in their offices saying, ‘You cannot rely on an Acrow bridge deal because their financing mechanism is not likely to stay alive,’ ” Mr. Sullivan said. He suggested that the death of the bank would cost 200 jobs, many at Acrow’s manufacturing plant in Pennsylvania. “For us to pull another arrow out of our quiver, it’s irrational, it’s terrifying and it’s inappropriate when one considers the reality of the global marketplace today.”

Mr. Barsalou of BCH Trading uses the Export-Import Bank differently. To finance lumber exports, his company needs upfront cash that customers in Greece and Egypt will not provide, nor will his Wells Fargo Bank, without the Export-Import Bank’s guarantee.

“They say banks should do that,” he said, referring to opponents of the Export-Import Bank. “Well, banks don’t do that, and that’s the reality.”

To the bank’s opponents, such opinions are almost beside the point. Supporters might trot out small-business owners like Mr. Barsalou, but the bank’s big efforts are on behalf of big companies. It is, after all, derisively called the Bank of Boeing.

“I have no doubt Boeing, G.E. and Caterpillar will continue to thrive as great American companies if Ex-Im goes away,” Mr. Needham, of Heritage Action for America, said.

Mr. Hensarling, the chairman of the House Financial Services Committee, has taken to posting the “Egregious Ex-Im Bank Deal of the Day,” like one aiding mining projects in the Democratic Republic of Congo, which he said one human rights group had labeled the “rape capital of the world.”

Mr. Russell, of Americans for Prosperity, said, “Sometimes when you’re the beneficiary of something that’s helping your business, you personally, it’s hard to look at something objectively.”

Here’s how to properly shake hands in 14 different countries

 Business Insider

In Brazil and the United States, a firm handshake is expected. This would be off putting in the UK, as the British like to greet each other with a lighter handshake.

Every country has a unique set of customs, and it is important to recognize and respect cultural differences, especially when conducting business around the world.

We created a helpful guide for handshake etiquette across 14 countries, thanks to information from BBC and Mental Floss:

BI_graphics_handshaking (1)

(Business Insider)

Maintaining Export Advantage in the Face of a Rising Dollar: Part 2

The path to becoming competitive in the international export space.In my previous post, I outlined the first two steps of the five-step framework that would enable U.S. exporters to maintain their competitive edge in the face of rising U.S. dollar, which makes all U.S. goods and services more expensive abroad. Those first steps were to recommit to exports and expand markets served.

Below, I describe the remaining three steps: READ MORE

Faeroe Islands Boom by Selling Salmon to Russia

Tiny territory dodged sanctions between Moscow and West over Ukraine

SØRVÁGUR, Faeroe Islands—As the tit-for-tat economic confrontation between Russia and the West nears its first anniversary, there are plenty of losers: associates of PresidentVladimir Putin barred from going to the U.S., European farmers banned from selling fruit to Russia, and German electrical-equipment companies that have lost a fifth of their Russian sales.

But one winner can be found in the rough sea between Iceland and Scotland: the tiny Faeroe Islands.

Because these 18 wind-swept rocky islands aren’t part of the European Union, the volleys of sanctions and counter-sanctions have passed them by. Russia’s food-import embargo last year retaliating against countries that sanctioned it thus handed the fishing-dependent Faeroes a virtual monopoly in Russia for their biggest export: fresh salmon.

“We are the lucky ones,” said Atli Gregersen, an owner of salmon farming brand Hidden Fjord, who has only been able to supply four of a dozen Russian importers who came to his factory looking for fish.

 Russia’s retaliation against Western sanctions over Ukraine left the Faeroe Islands, a non-EU country, as the only place in the world able to sell Russia large amounts of fresh salmon. Photo: Gareth Phillips for The Wall Street Journal

As Russia and the West descend deeper into a Ukrainian standoff with echoes of the Cold War, countries not involved in the fight are taking advantage of a shifting world order and the Kremlin’s push for new alliances. China has been securing more natural gas from Russia, Turkey might benefit from a new energy pipeline, and Mr. Putin personally promised last week that Moscow would help Egypt develop its nuclear-energy program.

Perhaps the starkest demonstration of just how far-reaching the global economic shifts wrought by the Ukraine crisis have been can be found here in the North Atlantic. The Faeroe Islands are the only major salmon producer in the world that wasn’t hit by Russia’s counter-sanctions last August and is close enough to send fresh fish to Russia by boat and truck.

Since September, Russia, a salmon-loving country of 145 million people, has been importing just about all of its fresh salmon from the Faeroe Islands, which has a population of 50,000. The Faeroes’ salmon sales to Russia totaled 27 million pounds or $79 million from September to December, according to data released Thursday, representing more than 40% of its total salmon exports by value and up from just 7% in that period of 2013. The average price of fresh salmon sent to Russia—around $3.13 a pound at the current exchange rate—was about 25% higher in those four months than the average price of the fresh salmon the Faeroes sold everywhere else, according to government data.

Behind that lucrative spike in exports were months of diplomatic and business maneuvering by the both the Faeroese and the Russians, telling a story of one nation’s scramble to feed its people while it confronts the West—and another’s push for economic gain from the new East-West standoff. The Faeroes’ tale shows that the showdown over Ukraine has turned into a confrontation with global consequences, redrawing trade routes, scrambling alliances, creating new economic winners and losers, and touching off national debates over countries’ allegiances and values.

“People need to have food. Russia needs to have food,” Kaj Leo Holm Johannesen, the Faeroese prime minister, said in an interview, rejecting criticism at home and abroad that his efforts to build ties with Russia amid the crisis have undermined the islands’ traditional bonds with the West.

Hunching forward in his chair and swinging his fist through the air, the 50-year-old former fish salesman added: “Other people can think about something else, but they will never stop us to deliver food. Never.”

The Ukraine crisis brought a new opportunity—and a new test of Faeroese independence and of how it balances trade interests with its Western ties.

A year ago—the night of Feb. 21, 2014—the pro-Russian president of Ukraine, Viktor Yanukovych, fled Kiev after huge protests calling for closer ties with the European Union culminated in deadly violence. As the new government took a pro-European tack, Russia claimed that Russian speakers in eastern Ukraine were threatened. Russia annexed the Ukrainian peninsula of Crimea and, Western leaders say, started fomenting a separatist war in eastern Ukraine.

On July 17, Malaysia Airlines Flight 17 was shot down over eastern Ukraine with 298 people on board. Western governments believed pro-Russian separatists were responsible. The rebels have suggested Ukrainian forces downed the plane. On July 29, amid public outrage over the tragedy, the U.S. and Europe dramatically expanded their sanctions against the Russian economy. Among other things, the U.S. limited transactions with three major Russian state-owned banks while the EU banned trading in certain military-related goods and stopped exports of oil-production technology.

In August, Moscow retaliated, insisting Kiev was at fault for Ukraine’s bloodshed. It banned the imports of a wide range of food products, including fish, from the U.S., Canada, the EU, Norway and Australia. European economies felt the brunt of the pain from the sanctions volley and Russia’s broader economic woes. Germany, for instance, saw its exports to Russia in 2014 fall by around $7 billion—a decline of 18% from 2013. U.S. exports to Russia fell by just $369 million, a 3% drop.

When news of Russia’s retaliation came in, the Faeroe Islands’ Mr. Johannesen said he directed his staff to get an urgent message to Moscow: “We are not part of EU—we are totally outside.”

Faeroe Islands Prime Minister Kaj Leo Holm Johannesen, shown in his office, lobbied hard to expand salmon sales to Russia after Moscow stopped buying the fish from Norway, as part of tit-for-tat sanctions over the Ukraine crisis.
Faeroe Islands Prime Minister Kaj Leo Holm Johannesen, shown in his office, lobbied hard to expand salmon sales to Russia after Moscow stopped buying the fish from Norway, as part of tit-for-tat sanctions over the Ukraine crisis.PHOTO: GARETH PHILLIPS FOR THE WALL STREET JOURNAL

The locals here still speak Faeroese, a Nordic language derived from the tongue spoken by Vikings who settled the islands 1,200 years ago. The islands have been under Danish rule for almost all of the last six centuries, but negotiated a home-rule agreement with Denmark after World War II that grants the Faeroes trade independence while giving Copenhagen control of other aspects of foreign policy, the currency and the legal system. The islands chose not to join the European Union and to make trade policy on their own.

Selling fish through peace and war has long been the Faeroe Islands’ economic lifeblood. The tiny country supplied Great Britain in World War II and signed a fishing agreement with the Soviet Union in the 1970s.

These days, a grid-like underwater glow visible from the coastline highway in the winter darkness is evidence of a more recent boom: salmon farming. The circular pens are sometimes lighted from below to speed up the fish’s internal clocks. The choice salmon specimens sometimes end up sliced into sushi in Midtown Manhattan. The less attractive salmon often goes to fish processors who salt or smoke it. In all, the Faeroes are perhaps more reliant on fishing than any other country. In 2013, fish sales abroad represented 95% of exports and 40% of total economic output.

After Mr. Johannesen’s urgent message, it quickly became clear to the Faeroese that Moscow had no intention of boycotting them. Critical Russian food imports, including around a billion dollars a year of Norwegian fish, had just come to a halt. Trucks filled with fresh salmon were turning around on their way to the Finnish-Russian border.

The Kremlin needed the Faeroe Islands to feed its people—and to underscore the point frequently heard from government officials and state media that Russia could thrive even with reduced ties to Europe and North America.

 
“We had no way out,” said Azamat Yusupov, a supplier to high-end Russian restaurants who had previously relied on Scottish salmon and flew to the Faeroes days after the ban was announced.
Hidden Fjord welcomed Mr. Yusupov with a spread of sashimi and took him out to their marquee salmon farm, a set of roughly 500-foot-diameter rings of netting off the island of Vágar, framed by dramatic, rocky crags.
Mr. Yusupov was sold. He calls Faeroese farmed salmon some of the best he’s eaten and says he would consider staying with it once sanctions lift.
There was just one problem: Hidden Fjord still had no approval from Russia’s veterinary inspection agency, even though the company had first applied back in 2011.
A worker processes fresh salmon at the Hidden Fjord factory in Sørvágur. E
A worker processes fresh salmon at the Hidden Fjord factory in Sørvágur. PHOTO: GARETH PHILLIPS FOR THE WALL STREET JOURNAL

To try to smooth things over for Faeroese exporters, Mr. Johannesen decided to go to Moscow himself. He flew there with two aides on Sept. 7, kicking off one of the more unusual trips in Faeroese diplomatic history. Danish officials lived up to their legal obligations by helping organize the visit—even though the talks would help the Faeroes benefit from Russian sanctions targeting Denmark and others in Europe.

The Danish ambassador invited Mr. Johannesen for dinner at his Moscow residence. Mr. Johannesen brought along Dmitry Dangauer, the chief executive of Russian Sea Group, a fish importing giant. The next day, the Faeroese delegation arrived at the headquarters of Russia’s federal fishing agency to meet a phalanx of government officials and seafood-company executives.

After the meeting, the fishing agency announced that Russia had accelerated veterinary approval of Faeroese fish and promised the customs service would work closely with Faeroese officials.

Mr. Johannesen later told a Faeroese newspaper, “It was an extremely constructive meeting. Maybe one of the best meetings I’ve ever had.”

Danish Foreign Minister Martin Lidegaard said his government understood the Faeroes’ decision to continue exporting fish to Russia. But, he added, Denmark and the EU expected the Faeroes “to refrain from exploiting the situation by significantly increasing their export of goods to Russia that are subject to embargo.”

E

On Sept. 11, Hidden Fjord finally dispatched its first-ever shipment to Russia: 19 tons of salmon bound for St. Petersburg. By thenBakkafrost , the largest Faeroese salmon producer, had received Russian veterinary approval for an additional factory. Its share price on the Oslo stock exchange surged, in part because of Russia, an analyst said. A Danish newspaper noted Bakkafrost’s rally had created the first Faeroese billionaire family as measured in Danish kroner: Bakkafrost CEO Regin Jacobsen and his mother Oddvør, the two largest owners of Bakkafrost stock (although in dollar terms their combined shares are worth just under $200 million).

While Russian imports of frozen Chilean salmon have also surged, just about all of the country’s imported fresh salmon this fall came from the Faeroes, according to Russian government data and research firm Customs Inform.

The future is uncertain: Demand could decline with the fall of the ruble, and Russian officials have signaled they may lift the food embargo in exchange for concessions from the West. The Faeroese hope the premium segment of the market they target will be less affected than the average Russian consumer by economic travails, and that even if Russia ends the embargo, the islands will have won new customers for the long term.

Regardless, for some Faeroese, the sanctions’ economic boon and the prime minister’s efforts to strengthen ties with Russia raised uncomfortable questions. Was the country crossing the line from legitimate economic pursuits to “stabbing the West in the back,” as Sjúrður Skaale, a leading opposition politician here, asked?

Mr. Jacobsen, the Bakkafrost CEO, has said the Russian embargo allowed his company to build up a new customer base and to demand higher prices—but even he voiced concern about actively seeking to boost the Faeroes’ business with Russia during the Ukraine conflict.

“It does not come to the Faeroe Islands to speak out too much in this,” said Mr. Jacobsen. “If we speak out, we should speak out as a part of the West.”

Mr. Johannesen, who became prime minister in 2008, makes no apology for his actions. Asked about Mr. Jacobsen’s criticism, he shot back: “If he should speak as part of the West, then he would not export a kilo to Russia.”

Write to Anton Troianovski at anton.troianovski@wsj.com

Maintaining Export Advantage in the Face of a Rising Dollar – Part 1

It has been a great run for U.S. exporters. The Department of Commerce just announced that our nation’s exports of goods and services were $2.35 trillion in 2014—a record for the fifth year running. Yet clouds are gathering on the horizon, as the economic growth in many foreign markets, specifically those in the emerging and frontier category, has been slowing. Some markets like Russia and Ukraine are set to experience outright GDP contractions brought on by political upheaval.

The single biggest threat facing U.S. exporters is ironically the rising U.S. dollar, which continues to strengthen significantly as the result of the improvement of U.S. economy in the face of the international weakness.

How can U.S. exporters maintain their competitive position and continue to play a leading role in the international export space?strategies for US exporters

While there is no magic bullet and the process is a comprehensive long-term endeavor, below, most U.S. exporters can use the following five-step approach to maintain and expand their exports, while swimming upstream against the rising dollar:

  • Recommit to exports
  • Expand the markets served
  • Offer open account terms and buyer financing
  • Reduce focus on price
  • Use available resources more effectively

Recommit to exports.

Despite its undisputed success in the export arena, the U.S. as a nation has been a very anemic exporter. Unlike in countries such as Germany, the Netherlands or Chile, where exports have for years been part of the business’ DNA due to the small size of the home markets, a great number of companies in the U.S. have been treating exports as an afterthought to their domestic sales strategies. Other than the Fortune 500 companies, the majority of U.S. companies export to fewer than three markets. The primary export drivers are either organic demand from overseas, natural affinity of the owners to a particular country, commonality of language or geographic proximity.
In good times, as we know, the tide raises all boats, yet in the face of the upcoming slowdown, it is vital that U.S. companies recommit to exports in a strategic fashion.

To succeed in this endeavor, U.S. firms must make exports an integral part of their sales mix. Whether through building internal export departments or outsourcing to export management firms, the focus on international sales must be relentless and deep. Companies developing or expanding their in-house export departments should invest in training, product adaptation, international network and market analytics. Managers responsible for exports in organizations, along with top management, must make ongoing efforts to follow events in target markets and understand the culture and business customs and attempt to learn as much of the foreign language as possible.  Departments not directly involved in exports should undergo inclusionary training to ensure that exports do not become orphans within the organization when it comes to issues such as service, exchanges, spare parts supply, collections, payments and financing.  READ MORE

U.S. Export Volume Expected to Climb in 2015

rice-exports
Written by Michael White, GlobalTrade.com

Baltimore, MD –   U.S. exports are expected to grow by $88 billion or 5 percent, in 2015, despite tepid global GDP growth, according to a research report just released by trade credit insurance provider, Euler Hermes.

According to the company’s latest Economic Insight report, the U.S.’s biggest export gains in 2015 will come from Canada, China and Mexico.

The report also projects strong export increases to smaller countries in Asia, Latin America and the Middle East, “reflecting recent rapid growth in these emerging markets, while also providing the U.S. with more diversification in its export composition.”

Export gains will primarily come from the agrifood, chemicals, energy and mechanical sectors. Textiles and ferrous metals show the smallest increases as the U.S. has become a much smaller player globally within these industries.

As U.S. energy companies are expected to start exporting natural gas globally by the end of 2015, revenues from this sector could be significant, growing from $16 billion in 2012 to $42 billion in 2040 or nearly 1 percent of GDP.

The planned 2016 expansion of the Panama Canal, which may double its capacity, “will also boost U.S. trade by allowing larger ships to carry exports from the U.S. through the canal, significantly reducing costs and making those exports more competitive.”

The U.S.’s largest trade deficit is with China, but several factors could shrink it, especially as China pivots toward a more domestically driven economy, and as the U.S. natural gas boon and favorable labor conditions have reduced China’s competitive wage advantage to the point that a growing number of companies are opting to ‘in-source’ their manufacturing.

In the coming year, the value of the U.S. dollar is expected to rise in 2015 making U.S. exports more expensive and less competitive with export financing faces several challenges, including tight lending conditions and risk-averse bankers.

Rising rates in 2015, the report says, “may make financing more costly and/or harder to obtain, especially given fragile global growth and geopolitical uncertainty.”

In addition, global business insolvencies “are expected to fall 3 percent, a much slower rate than 2014’s decrease of 12 percent.”

At the same time, insolvencies still remain 12 percent above 2007’s pre-crisis levels, meaning that exporters will need to continue stringently evaluating their partners for insolvency risk.

To further promote U.S. exports, two major trade agreements – the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership – are currently being negotiated.

Both agreements  are being structured to reduce the burden of Customs, regulations, tariffs and taxes, lower barriers to trade, and allow increased access to new markets.

“Demand for U.S. exports is, of course, dependent on the strength of the global economy,” said Dan North, senior economist for Euler Hermes Americas.

“While the global economy is set to enter its fourth straight year of lackluster growth, the U.S. economy continues to grow and many of our industrial sectors are showing strength both at home and abroad.”

U.S. Relaxes Rules on Cuba Travel

A tourist bus in Old Havana on Thursday. U.S. law forbids tourist travel to Cuba but several tour operators said business has been booming.
A tourist bus in Old Havana on Thursday. U.S. law forbids tourist travel to Cuba but several tour operators said business has been booming. ENRIQUE DE LA OSA/REUTERS

The U.S. will allow eligible citizens to travel to Cuba on the honor system, eliminating a requirement for many to seek prior approval and making visits easier for thousands of Americans, according to details released Thursday.

U.S. law forbids tourist travel to Cuba. Under the law, U.S. citizens may visit only if their travel fits into one of a dozen categories, including family visits, humanitarian work and journalism, and many eligible travelers have needed a license from the U.S. government to visit, in addition to obtaining a Cuban visa.

Under the new policy, an administration official said on Thursday, citizens still may only travel to Cuba for eligible purposes, but they will no longer need a U.S. government license to do so.  READ MORE

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