Grey2White Initiative

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(Article Reprinted by Popular Demand)

Hypothesis:

Given Ukraine’s current economic and geopolitical situation, one of the most beneficial  steps the US government, business and NGO community can take, is to encourage significant external and internal direct investment into the country’s economy.

Although the US Government has had some success in attracting and supporting American direct investment into Ukraine, those investment amounts are far from sufficient. US investors new to the Ukrainian market are wary of the country’s reputation for corruption, difficulty in doing business, threats from Russia and lack of financing options.

A second and much more viable economic development option, would be to support and enable direct investment by the successful Ukrainian business people who have amassed sufficient capital and are much more comfortable and adept in investing in their home market.

One problem with pursuing that option are high Western standards, which often preclude US government development agencies and public US investors from working with this potential class of investors.  This is due to the fact that for the last twenty-five years, practically all business people in Ukraine had to operate under a certain set of conditions widely considered “grey” and in many cases “black” in the West.

Some of these “grey” conditions are lack of financial transparency, inadequate corporate governance, use of yellow press, use of cash, as well as offshore accounts to conduct operations, bribery and use of adverse political influence.

In their attempts to succeed, some folks in Ukraine went beyond previously acceptable business norms and crossed the proverbial line even further by engaging in criminal “black” behavior – graft, extortion, corruption, tender rigging and illicit drug trade.

To date, these grey conditions have presented significant challenges for the IFIs, development agencies and regulated financial US investors. Yet, it is vital to recognize the necessity to find an acceptable solution that allows Ukraine’s economy to reap significant benefits from the anticipated increase in direct investment and low-cost, long-term financing.

It is also very important to understand that the proposed Grey2White (G2W) initiative aims to broaden and scale up very important development and capacity building work already undertaken over the last quarter century by IFIs, such as IFC and EBRD, USAID; development agencies such as OPIC and USTDA and financial investment communities. Those initial efforts, although quite effective, focused on a relatively small sample of Ukrainian companies and were undertaken during a different stage of the country’s development.

Initiative

The G2W initiative will only work with those companies and individuals, who will be able to create meaningful economic impact in Ukraine, after undergoing the conversion process.  G2W will not in any way target those convicted of the “black” behavior, as their reputation gap is un-bridgeable within the scope of the project.

Thus the question becomes, is it possible for US stakeholders to create an environment and a broad platform from which so-called “grey” Ukrainian businessmen seeking to utilize US financing, equipment, services and franchises, as part of their major investment programs, become “bankable” under Western standards? If the answer is “Yes.”This type of conversion will provide hundreds of millions, if not billions of dollars in direct economic benefit and enhanced geopolitical security to Ukraine and the US.

If the answer is “No,” these businessmen will either be forced to forgo the planned capital investments, or seek alliances with other grey, or black global actors in countries like Russia, China, Brazil, Iran, etc.

It is the fundamental belief by the creators of the proposed initiative that given a concerted effort by the US and Ukrainian stakeholders to develop and implement realistic procedures to increase corporate transparency, introduce financial standards, address any existing reputation issues head-on and provide reputable outside management and board oversight, it is possible within short to medium time-frames to bring these so called “grey” businessmen and their respective projects up to elevated western standards, mitigate investment and reputation risks and affect substantial economic growth in Ukraine.

Thus we hereby propose the following:

Select three-four financially viable projects sponsored  the “grey” Ukrainian actors and use them as a pilot to develop, refine and implement an effective conversion strategy to bring that project up to acceptable Western standards.

From the government side, we propose to involve the US Commercial Service, USTR, US Embassy, Ukrainian Embassy, Cabinet of Ministers of UA, members of the US Congress focused on UA issues, OPIC, regional Governors and local administrations in Ukraine, IFC, USTDA and the US EXIM Bank (when that Agency resumes its activities in Ukraine).

Among the NGO stakeholders we would like to see US-Ukraine Business Council (USBC), AMCHAM, Transparency International, Freedom House, Atlantic Council and US Ukraine Foundation. Additionally, reputable international law firms, audit firms, press, appropriate private individuals, corporate off-takers, financial market regulators, as well as relevant providers of US goods and services should be involved.

The framework of the proposed initiative shall be as follows:

  • Initial Sponsor/Project assessment and preliminary due diligence
  • Project selection and stakeholder awareness and involvement
  • Project G2W Team building (attys., directors, advisers, auditors, suppliers, investors etc.)
  • Full due diligence and implementation plan for the Western financial, FCPA and governance standards
  • Investor cultivation and underwriting of the financing package
  • Project development and implementation
  • Monitoring and compliance

To kick off the proposed initiative, we propose an intensive education and awareness-building campaign designed to simultaneously involve all the stakeholders.

After the initial buy-in into the initiative is secured, work will begin on developing the pilot projects.

During the pilot project phase, the G2W pilot project team will be seeking to achieve specific and tangible goals:

  • Fully assess the existing reputation risks, possible political influence issues, suitability for OPIC/IFC financing and Political Risk Insurance for the US project participants
  • Prepare a legal due diligence report by a world-class law firm
  • Recruit highly reputable and competent outside board members to the Project’s Board
  • Design a comprehensive PR/IR strategy to inform stakeholders of the project and its ongoing developments
  • Design and implement transparent financial audit, reporting and management accountability standards
  • Develop ways to tangibly measure economic effect of the pilot project
  • Continue to promote the initiative and seek to move it from the pilot project phase to full-blown implementation.

(to be continued)

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Broad Street Capital Group’s new assignments in Ukraine total over $300 million

Ukraine - Proprietary Fi180 Country Profile - page 1 of 4(June 15th, 2016, London, UK)  Broad Street Capital Group announced today that it will act as the Financial Developer and Exclusive Financial Adviser on two complex, high-profile financing assignments in Ukraine. The underlying projects for these assignments deal with Ukraine’s energy security, food security and infrastructure development.

In the first assignment, Broad Street Capital Group , will serve as the Project’s Financial  Developer, and will be part of a mandated financing consortium, which will consist of a major banking institution, a Development Agency of the US Government, a US lending trust and an internationally renowned law firm.  The financing consortium will evaluate and structure a cutting-edge $250 million capital markets transaction to finance US supply and construction contract to build a national energy safety facility to be located in the Kyiv region of Ukraine.

In the second assignment, Broad Street Capital Group will serve as the exclusive Financial Adviser, whose role will be to secure up to $75 million in long-term debt financing, provided by a development agency of the US Government.  The funding will be part of the financing required to develop and construct a major grain terminal in the Odessa region of Ukraine.

“We are delighted to serve as financiers for these two cutting-edge projects” stated Alexander M. Gordin, managing director of Broad Street Capital Group. “Our assignments should serve as catalysts and spark broad-based financing of worthy infrastructure projects. The financing climate in Ukraine has been extremely challenging over the last few years, but despite continued difficulties, the prognosis is quite optimistic. We look forward to being part of Ukrainian financial renaissance, as that country rebuilds itself and finds a way to regain its economic footing.”

 

About Broad Street Capital GroupWP_20130620_022

Based in the World Trade Center’s Freedom Tower in New York City’s financial district, Broad Street Capital Group is an international private merchant bank, which since 1988 has served several foreign governments, multiple state-owned companies, as well as SMEs in emerging markets. The Firm focuses on arranging project financing in the $50-500 million range, providing political risk mitigation, export management services and cross-border market development advisory. Although the Firm has clients ranging from Bangladesh to Oklahoma, its primarily geographic focus is on the countries of Eastern and Central Europe and Central Asia.

The  firm works closely with all trade and development agencies of the U.S. Government and Export Credit Agencies of several European and North American countries.  Since its inception, Broad Street Capital Group has been involved in several high-profile cross-border transactions in IT/telecom, aerospace, healthcare,  energy generation, food security, nuclear safety, hospitality and franchising sectors. The firm’s current advisory portfolio exceeds $675 million.  For more information, please visit www.broadstreetcap.com, or contact Rustem Tursynov at info@broadstreetcap.comBroadStreetCapitalGroupServices_Page_1

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.

 

 

 

 

 

Face The Dark Side

Can you handle the flip side of the coin when doing business abroad?

dibujo 02My last LinkedIn® post addressd issues of overt corruption. Here, I address issues of conduct and human behavior that can engulf you like quicksand and hamper your ability to do business in a foreign country. I am talking about malaise, self-interest, fear, greed and jealousy, to name just a few of the obstacles. Unless you thoroughly understand the issues and characters behind particular transactions, markets and business dealings, you will have an extremely tough time doing business abroad. Things that make perfect business and social sense on the surface will not get done. Your offers of lowering prices, increasing efficiency, bringing prosperity to the population in your chosen market will be enthusiastically received at the top, even announced to the world, and then fizzle in the execution and die a slow death.

Several years ago, a major international financial institution approved a sizeable ‎loan to partially ‎rehabilitate a badly deteriorated municipal water system in the Ukrainian city of Dnipropetrovsk. ‎Given the tremendous difficulties municipalities in emerging countries face in obtaining financing, an ‎announcement like this should have brought joy to the people everywhere in the city and in the water ‎utility authority itself. Instead it brought fear, intrigue, resistance and sabotage.‎

The Bank put out a tender for a project management company to implement the financing, for which ‎our firm co-bid with one of the world’s leading Dutch engineering consortiums. We were unsuccessful, ‎but in the process we uncovered a fascinating textbook case on how a dark flip side can seriously ‎interfere with what on its face appears to be a win-win situation.‎

As we started to interact with the officials from the water utility authority and the municipality, it ‎became clear that most of the senior officials and most of the 3,200 employees were opposed to the project. On the surface it made absolutely no ‎sense, as the project promised to improve the quality of the city’s drinking water, improve sewer ‎cleaning facilities, improve the water pressure of the residents, conserve water, and reduce water ‎main ruptures. Ostensibly, the reason for the resistance was a fear that the municipality would not be ‎able to repay its debt obligations without impacting its financial condition. Although a fairly valid ‎reason, it did not seem sufficiently compelling to justify all the intrigue and stall tactics that plagued the ‎project.

What was going on? Well, as part of the conditions for extending an economically viable loan, ‎the bank required that the debts be cleared from the balance sheet, the tariffs subsidies removed, ‎that international financial accounting standards be applied, and that periodic audits would take place. ‎This threatened to uncover a number of financial irregularities. Further, the accounting department would have to be reduced from 50 employees to ‎four and the entire staff would have to be pared down to 800 from 3,200 as part of transforming the utility from a bloated and inefficient Soviet-style organization ‎to a modern well functioning profitable enterprise.

‎But the project was still good and well-intentioned, right? Wrong! The municipal politicians did ‎not want to raise the water and sewer tariffs, because it would hurt them in the upcoming election. ‎Many workers were afraid of losing their jobs and illegal side businesses, and of having to work harder ‎in a leaner, high-pressure environment. And they were doing everything in their power to stall or ‎kill the deal. Their pay was low and the working conditions poor, but the workers in this case preferred the status quo. This is a very important lesson when working on the side of radical organizational change.‎

The Deputy Director who had championed the deal and was primarily ‎responsible for arranging the loan was now faced with significant and unexpected ‎resistance from a number of directions. As the financing process began, he eventually ‎lost his job and implementation of the loan sputtered.‎

Although our firm ended up not participating, we identified some critical concerns: (i) the need to communicate and win support of the key project ‎participants and constituents prior to commencing a project, (ii) the need to examine in advance the ‎organizational dynamics of the enterprise set to undergo significant changes, and (iii) the need to ‎extensively shape and counsel the organization to maximize the project’s chances for success.

LEARN WHAT TRULY STANDS BEHIND EVERY DEAL – from motivations of the parties, to ultimate beneficiaries, to whose interests will the deal cross to why are you being selected, or you will fail.

Here’s an example. A U.S. company proposed that a large bakery in Russia buy its baking mix for its products to simplify the production process and make it more cost effective. The U.S. executives were baffled when their offer was rejected. It turned out that the plant manager was systematically stealing eggs that were earmarked for baking from scratch. For her to switch to a ready-made mix would have meant the loss of side income (and it is hard to sell eggs as part of the bake mix on the black market).

Working on a large feasibility project, the project team initially encountered very strong resistance from local employees charged with providing assistance and information. We learned later that several other studies sponsored by various international financial institutions were performed earlier and none yielded in any measurable results, thus local employees had lost faith. But instead of open hostility the employees had adopted a passive-aggressive approach to solving what they saw as a major problem. Although on the surface they acted compliantly enough to appease their superiors, in reality they were not performing and were placing the entire project in jeopardy.

In some countries, politicians will often reject opportunities that would mean long-term prosperity for their constituents, such as infrastructure improvement or increased energy efficiency because the political system does not reward long-term decision making as much as it does short-term action that avoids unpopular measures against the electorate. Thus, short-term result harvesting behavior is rewarded instead of investment that can produce long-term benefits.

In every foreign country, every opportunity has a flip side. Of course, many situations back home are also complex and nuanced and have underlying currents and flip side issues. But in foreign countries, the political uncertainties, organizational dynamics, local culture, and socioeconomic standing of the country magnify the subtleties and intensify the consequences.

Effectively combating or sidestepping flip side issues requires a thorough understanding of the situation. You need to earn the respect of the folks whose help you will want to enlist in resolving the underlying issues. Credibility, clearly defined issues, and open and ongoing communication are essential. Both positive and negative information needs to be communicated promptly, overtly, and without any bias. And try to break down the problem into small incremental challenges so that you can work diligently to achieve defined milestones.

People in countries where difficult and tumultuous conditions are a way of life tend to be jaded when it comes to promises of a better life and are generally much more cynical than people in developed countries.

People in developed countries also have a completely different frame of reference and values set. For instance, no one in the U.S. would think of bringing burned-out light bulbs from home and replacing them for good light bulbs from the office. But this kind of thing used to happen all the time in the former Soviet Union. Not many people in the U.S. would think of stealing flowers placed on a grave and reselling them, but it happens to this day in countries like Moldova where, to prevent flower theft, people break stems in half before placing them on graves.

When a country is converting from a state run economy to a free market, there are always members of the working population that are pathologically afraid of losing their jobs. Very often, fundamental organizational dynamics and culture are overlooked and overshadowed by the commercial issues such as sales and financing. So it is critically important to address the organizational culture if you are trying to acquire, privatize, or rehabilitate an existing business that has its roots in state or municipal ownership.

When trying to sign contracts that were endorsed or approved by top government officials, don’t be surprised if you and your company find yourselves hitting the proverbial glass ceiling when you try to move the project towards its conclusion. Once again, it is important to really understand why.

An obvious answer is that bureaucrats may be looking for payoffs or favors, both serious no-nos, but more often than not these contracts are directly opposed to someone else’s interest and unless you figure out how to align the various interests, the project will not go anywhere because these forces and motivations are more potent than a simple corrupt payoff.

Other, sometimes less obvious, factors involve political, nationalistic and anti-U.S. sentiment. Here, you need to pay attention to external considerations, which may affect your business dealings and which, if not handled properly, may result in frustrating delays, wasted money, and lost opportunities.

Many emerging markets have created alliances with countries whose influence disproportionately affects the balance of economic power. For instance, China has successfully taken several African and Asian countries into its fold. Russia, in an attempt to regain some of the economic influence it lost in post-Soviet days, created a Customs Union with Belarus and Kazakhstan and renewed its Sevastopol naval base lease in Ukraine. These are alliances that provide natural advantages for their participants to the detriment of just about everyone else.

Nationalistic considerations are often of a protectionist nature and are designed to help emerging markets develop their internal manufacturing bases by favoring bids for products and services produced locally. Oftentimes, however, powerful local politicians or businessmen are behind the implementation of these tactics simply to keep out competition, gauge prices in the market, and enrich themselves through unfair procurement practices while wrapped in a national flag. China and India are both shining examples of strong nationalistic tendencies in some of the hottest manufacturing sectors. You can applaud their desire to advance their economies by creating their own technology and manufacturing bases, but to ignore the interests of the “darker” local forces behind such initiatives would be simply naïve.

Anti-U.S. sentiment also must be considered when doing business in a foreign country. Although it is not nearly as pervasive as the political or nationalistic sentiment, anti-U.S. sentiment is a dirty little secret in some very surprising places. Some multilateral financial organizations in which the U.S. is a prominent member have demonstrated clear anti-U.S. bias over the years by not awarding contracts and senior positions to Americans. I came face to face with it over years of representing Motorola in the former Soviet Union. And while this now global company has been identified as “born in the USA,” I have personally observed numerous cases of Russian decision makers and procurement officials handicapping the company’s offerings simply because of its American origins.

As you may infer, having reliable information gathering mechanisms in place is critical to understanding the flip side issues and the players involved. Make lots of friends and acquaintances in the rank and file, such as the clerical and administrative staff of the ministries and municipalities, hotel concierges, drivers, and middle managers of organizations with which your company intends to do business.

As discussed in Chapter 24 of my book “Fluent In Foreign Business”, treating people well, being polite, attentive and honest goes a long way everywhere. Write a thank you card to a secretary in a ministry, call a local department supervisor on his or her birthday, and remember the name of the janitor or security guard. You will be surprised at how much information will eventually start flowing your way. Always consider the source, but as you piece information together from various sources, an accurate picture will usually start to emerge and the dark flip side will slowly, but clearly, reveal itself.

Reprinted from Fluent In Foreign Business. Edited by the author. All rights reserved 

Trade Gap Narrows Sharply as Imports Tumble

Economists Bump Up Second-Quarter GDP Forecasts

WASHINGTON—The U.S. trade deficit narrowed more than expected in June amid a sharp decline in imports, a development that is likely to boost economic-growth readings but raises a concern about domestic demand.

The U.S. trade deficit shrank 7% to a seasonally adjusted $41.54 billion in June from May, the Commerce Department said Wednesday. That was the fastest contraction in the gap since November. Imports fell 1.2% in June, the steepest decline in a year, while exports increased 0.1% to reach a record high.

The smaller gap than projected has many economists expecting the government to upgrade its measure of second-quarter gross domestic product later this month. The trade deficit has shrunk about 6% since March; a narrower trade deficit generally supports economic growth.

Forecasting firm Macroeconomic Advisers now projects GDP, the broadest measure of goods and services produced across the economy, expanded at 4.2% rate in the quarter. Other economists project as high as a 4.5% gain. Last week, the Commerce Department said second-quarter GDP expanded at 4.0% annual pace.

The latest data also may support third-quarter growth. Imports, especially outside of oil, surged in April and May but fell back in June. “A further correction is likely over the next two months,” said IHS Global Insight economist Patrick Newport. “As a result, imports will be a much smaller drag on growth than they were in the second quarter.”

But the trend isn’t entirely positive. It suggests importers may not be confident that U.S. consumers will ramp up spending in the second half. That runs counter to the Commerce Department’s measure of consumer spending, which increased steadily during the second quarter.

The June decline in imports was led by decreased U.S. demand for consumer goods, cars and car parts, and foreign oil.

“The broad-based declines in import activity seem at odds with the narrative of improving domestic demand,” said TD Securities economist Millan Mulraine.

Growth in consumer spending eased in the first quarter and exports fell, contributing to the economy contracting at a 2.1% rate. Those factors reversed in the second quarter, supporting the rebound in growth.

Exports rose sharply in May and held those gains in June. The small June improvement was led by increased foreign demand for U.S. cars, consumer goods and services, which include travel and intellectual-property use.

The numbers coincide with improved growth in China this spring and a stabilizing European economy. However, unrest in the Mideast, Africa and Ukraine could pose headwinds to global trade.

The U.S. trade ledger with Russia fell in June amid an escalating sanctions battle over the conflict in Ukraine. Exports plummeted 34% on the month to the lowest level since January last year. Imports from Russia fell nearly 10%. Russia, however, accounts for a relatively small share of total U.S. trade.

Trade with China, the No. 2 U.S. partner, has expanded modestly this year. The U.S. trade gap for goods with China widened 4.9% through June, compared with the same period a year earlier. That is only slightly larger than the 4% overall growth in the goods-trade deficit.

The goods deficit with European Union expanded 15.2% in the first half. The gap with Canada, the largest U.S. trading partner, widened this year. But the gap with Mexico, Japan and Brazil narrowed during the first six months of 2014.

—Ian Talley contributed to this article.

Write to Eric Morath at eric.morath@wsj.com and Jonathan House atjonathan.house@wsj.com

In these trying times a “Do It Yourself” approach to export financing is fraught with peril

1308 pose 9Financing large complex export projects and transactions through Export Credit Agencies, such as the US Ex-Im Bank, is difficult at best and impossible at worst.  Hundreds of moving parts, byzantine structures, political considerations, legal quagmire, shipping and logistics challenges, along with financial considerations, extensive due diligence, host country laws, licensing and public relations are just a few of the factors involved in this year-plus long process. Add to that geopolitical risks a la Ukraine, Russia, or Iraq and the process can befuddle even the most sophisticated practitioners. Thus it is vital to have a highly experienced team of financiers, lawyers, shippers, technical specialists and ECA compliance folks to work with committed exporters and buyers in order to develop and nurture such transactions to success.

Yet oftentimes in their desire to either save money, or driven by false sense of familiarity with the process, the exporter clients prefer to undertake what I call a “home depot” do-it-yourself approach to ECA financing.  During times of relative geopolitical normalcy this approach primarily works for those companies that have extensive experience dealing with ECAs in structuring complex export transactions. During times of political instability such approach is certainly doomed for all novices .

Although there are multiple players in the export finance industry and they range from the largest global banks, law firms and shipping companies, to small brokerage firms and advisors of different stripes; the world of export finance is fairly small with all players of substance knowing each other well and for many years.  For a newcomer exporter venturing into this world, the complexity of the process and the capabilities of the players are not well-known and oftentimes they are misled and misguided.  Thus after taking a hard look in the mirror and forgoing a do-it-yourself approach to complex export financing, the next step any company should take is to really understand the workings of the export finance industry, capabilities of the players, and the importance of an integrated approach of putting together a complete finance, legal, compliance and logistics team early on.

Selection of the financial advisor should not be based on the name alone, but on that advisor’s experience in the target market to be served by the exporter, his or her experience in handling complex transactions and the ability to add value to the process. Good advisors will oftentimes save the exporter such large sums during the structuring and implementation of the process, that their fees pale in comparison.  Once the advisor is selected, the exporter should let him or her invite the other team players into the process. There is a big difference between the exporter being totally committed to the process and working very hard to assist the advisors by supplying the needed information in the timely manner, helping to obtain necessary licenses, interfacing with the buyer etc and having the exporter venture into the process on his/her own. The first approach will lead to the successful financing and the latter will certainly lead to a painful and expensive failure.Fi3E Badge

“Fly Me To The Moon” UA-USA Air & Space Forum Program Announced

Alert! An International Business Development Opportunity

We are pleased to announce an all-star roster of speakers and panel participants for the upcoming “Fly Me To The Moon” UA-USA Air and Space Cooperation Forum. Do Not Miss one of the most anticipated Air and Space events of the year, as a high level delegation led by the Deputy Chief of the National Space Agency of Ukraine, presents Ukraine’s capabilities in the Air and space Arena and discusses cooperation options with US companies.  Register Today!

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“FLY ME TO THE MOON” Ukraine-USA Air & Space Forum Invite

 

Alert! An International Business Development Opportunity

Do Not Miss one of the most anticipated Air and Space events of the year, as a high level delegation led by the Deputy Chief of the National Space Agency of Ukraine, presents Ukraine’s capabilities in the Air and space Arena and discusses cooperation options with US companies.  Register Today!

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U.S. Trade With Russia Grows in March Despite Ukraine Crisis

By ERIC MORATH, WSJ.com

Rising U.S.-Russian tensions and escalating threats of sanctions didn’t derail trade between the two Cold War rivals in March, the same month Russia annexed the Crimea region of Ukraine.

Exports of U.S. goods to Russia rose 9% in March from the prior month, compared to a decline in the same month last year. That’s according to non-seasonally adjusted figures deep within Tuesday’s report from the Commerce Department on international trade.

Meanwhile, imports from Russia rose 36% in March from February, stronger than the 25% monthly gain a year earlier.

Exports to Russia were up 10% from March 2013, while imports rose 2% from a year earlier. Much of the monthly change came from a surge in exports of civilian aircraft and autos.

Month-to-month figures on trade with individual countries can be extremely volatile and are not always representative of current economic and geopolitical conditions. Still, the March developments in U.S.-Russia trade were more in line with global trends than a falling out between trading partners.

For example, U.S. exports to the European Union rose 17% in March, and imports increased 20%.

Russia doesn’t rank among the top 15 U.S. trading partners, according to the Commerce Department. So far this year, total trade with Russia ranks just ahead of Ireland, and behind that of Colombia and Thailand.

Russia supplies oil, metals and fertilizer to the U.S. and imports American machinery, vehicles and food. U.S. trade with Ukraine is much smaller.

(Ian Talley and Ben Leubsdorf contributed to this post.)

 

Is Ukraine a new Titanic?

“What happens in Ukraine will have global impact.”

308fbb9Recent events in Ukraine have shaken the entire world. Armed conflicts in the middle of Europe and redrawing of the borders under the barrels of heavy military equipment in the 21st century seemed surreal. All this as human civilization was becoming more sophisticated and technologically advanced READ MOREUkraine - Proprietary Fi180 Country Profile - page 1 of 4

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