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Simon Book

Belarus in Focus 2014 Winners: Lukashenko’s Lucrative Offers

Daniel Krutzinna is a management consultant in Minsk. One day the German came to Belarus in hope of revolution. In the meantime it has become obvious that this remains open for the time being. Yet he makes business. And what a business.

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Simon Blatt’s article was announced a winner in the Professional category by the Jury members of Belarus in Focus 2014 competition.

Read the short review of all winner articles:
“Belarus in Focus 2014: Before the Award Ceremony” by Felix Blatt

Belarus in Focus 2014 International Journalism Competition Award Ceremony
15 April 2015

Life and business as usual. Lenin Square metro station in 2014. Author: my Life, the Universe and Everything, source: Flickr

Life and business as usual. Lenin Square metro station in 2014. Author: my Life, the Universe and Everything, source: Flickr

At the end of this long autumn day he finally finds the opportunity to do some fundamental thinking. He looks at a little pond in front of his window, into which a stocky, chubby man was sinking his body. He is the owner of an estate outside the city gates of Minsk, is just coming out of the sauna and waiting for his business friend Krutzinna. But this wants to make one comment about Belarus first. “You must not come here and try to change the system. It is the way their system works. You have to try to make business with the system”, says Krutzinna. This is his niche. But more on that later.

Krutzinna’s story is unique. Not because the German came years ago from the West to seek his fortune in the East. Many did so. But precisely because he came here. To Minsk, Belarus.  Into a system, which does hardly allow market economy. Which lives socialism and – as a military state – suppresses every yearning for freedom. Here Krutzinna succeeded as a management consultant: Almost no other foreigner has as good connections in the scene of politburo and state-owned companies as he does. Almost no one else has understood to adapt as well as he did to this, well, special environment. And that’s why it is worth following this man for a moment, to understand making business in the Europe’s last dictatorship works.

Whoever wants to defeat the dictatorship, initially has to overcome the traffic jam in Minsk. For several minutes Daniel Krutzinna’s taxi is standing already on Dzerzhinsky Prospect and does not move forward. The shift in the state-owned companies starts at half past nine, everybody wants to get to work at the same time. So does Krutzinna. The 39-year-old is on his way to a start-up-center in the city center. His clients invited him to breakfast, it is supposed to be discussed how young companies can develop further.  Once he finally arrived, the wiry German – born in Hesse – rushes in, shakes hands, types on his blueberry. His consultancy company Civitta invests ten million Euros here – EU subsidies from a fund, which shall help the founders. “The start-up scene is developing very well here”, says Krutzinna and bites into a sloppy croissant. “The biggest problem for these young people is the market access. If you did not study in one of the state universities or if you are not part of a state-owned company, you just lack the contacts.” And probably also know-how. Hardly anyone speaks English. Here the Silicon Valley is farer away than the Russian Space Station MIR.

Protest or Adaptation

This is what Krutzinna is here for. Seven years ago he came to accompany foreign companies into the Belarusian market: Ukrainians, Poles, Germans. It worked well. Dictator Lukashenko dictated to open up towards the West. Out of the sudden they were talking about privatization, about contracts with the EU. Krutzinna bought banks for his clients, insurances, cement factories and food concerns. He laid the foundation for his success: contacts. “My topics were privatization and market entry. However then came the 2010 crisis.”

December 19, 2010, is an ice-cold winter day in Minsk. The people of the presidential republic are called to elect a new president. Nobody doubts that Alexander Lukashenko will win. But almost 80 percent consent – that was too much. On the Election Day the crowd gathers at the October Square of the capital. Up to 40,000 are there. It is the largest gathering since Lukashenko took office. The people demand new elections, the resignation of the president, try to storm the palace. Lukashenko strikes back brutally. He lets police and special force march out to disperse the masses by beating. Only well towards midnight the situation calms down, hundreds of oppositionists are locked away. Brussels is outraged. Since then: political ice age.

In these days everything changes for Krutzinna. The man who studied international cooperation in Potsdam and Harvard, who learned at Shell and Capgemini and who started up his own business in Minsk, suddenly faced the grimace of the dictatorship. Over the night all the interest of the West ceased. No company wants to get involved into business with a ruler who lets his people being beaten up. Krutzinna had to take a decision: Going away out of protest or staying and coming to terms with it.

With cheap money into the first row

It is the question which every democracy has to face day: Is it acceptable to get involved with scoundrels to make a difference? Or is it better to publicly demonstrate rejection, even if you slam every door by doing so? Of course, it is self-righteous to expect from Krutzinna to simply turn around and go back to Germany. Why shouldn’t the whole excitement fade in a few months? But is it permissible to throw one’s attitude to morality and values simply overboard? Is it permissible to continue the same way and thereby supporting a power that expels political foundations out of the country, that tries to intimidate Western journalists and puts oppositionists into working camps? It is this kind of questions that plague Krutzinna in these days. But regarding politics he remains silent.

Finally he takes a decision. Better first row in Belarus, than backbencher in Germany. Krutzinna extends his business, looks for a Belarusian business partners, joins together with the Baltic consulting company Civitta, gains Belarusian customers. And the system starts to value him: “It is cheap money what all the companies particularly want here. The interest rate in Belarus is 32 percent. We help the companies to receive cheap Russian and European loans”, says Krutzinna. Suddenly, he offers something which Belarus urgently needs.

One of his contracts comes from a mineral water factory. By subway and bus it goes to the outskirts of the city, to the “Minsk Soft Drink Company”. Just after the wall came down the state-owned company became part of the property of the workers. Everybody received a share. They managed the company smartly, produced for Coca-Cola-Lemonade under license. At one point, however, the US-beverage giant decided to open its own fabric. Minsk-Soft-drinks got into financial distress, loans were taken out at excessively high interest rates. The company groaned. But a letter puts the company over the edge: By a Presidential Decree Lukashenko dictated the company to take care about one of the discontinued huge kolkhozes of the city. Besides, they were supposed to rebuild their logistic so that trucks would not have to rumble through the city. Suddenly there were debts, huge fallow land, new laws. And no future. The company was on the brink of extinction.

Bio-Lemonade for Europe

Krutzinna opened a heavy steel door. He put on a white lab coat himself and leads the production himself now. The new filling installation comes from Europe. “Germany, Italy and France deliver the best machines”, he answers loudly against the noise. In the air lies the smell of orange lemonade. FunFun is the name of a beverage that is being produced here at the moment, alternating with Bela-cola. “We just copied the Cola-products. For people, who prefer buying local lemonade”, says Krutzinna. He steps over thick pipes and slips through conveyer belts. All seems a bit forced into this dark factory building from soviet time, but the plant runs undisturbed.

Initially the director Anatoly Artukhovsky did not want to hear anything about the help that the German offered. He tried to solve the problems of his company himself. But at a certain point he had to give up. Where should he even no from how to do that kind of work: applying for EU-funding? Until then his money came from the national banks in Minks. Now he was supposed to suddenly take on with the European Bank for Reconstruction and Development in Luxemburg. So Krutzinna came, cleaned out the whole production range, wrote his business plan according to Western standards and developed a presentable concept. It worked: Within a few months the loan commitment actually came in with 7.5% percent interest instead of 32. Now, it was time to let it expand. Krutzinna is currently on the supervisory board of the company. In the coming year, the director says proudly, he wants to go with him to Germany to a food fair to present his specialty: Belarusian birch sap. Best bio-quality, for export to Europe and America.

For the Ministry of Economic Affairs, this story is unpleasant: A president who almost ruined a company in a surprise coup, so that it has to be rescued by Europe. These kinds of stories disturb the new Belarusian legend, which Natalia Nikandrova is filing.  She enters the sparse meeting room exhaustedly. The tall woman has just come out of a meeting of the “Department of Privatization”. She reaches out her hand, pushes her hair behind her ears, looks for an explanation. Something like this case is a complete exception, she affirms. And besides that everybody who feels unfairly treated could  go to the court.

 Watch manufacturing company Luch: rescue by privatization

Nikandrova is the new boss of the Belarusian investment agency. For six year she has been with Ernst&Young in Lithuania, then she built up the Baltic Dependence for Velux-windows. So now Lukashenko has brought her to the Ministry of Economic Affairs to finally attract investors. At the moment she is planning a big meeting in New York. In the heart of the free world the 42-year-old wants to convince backers of the merits of the dictatorship. Eight state-owned companies, explains Nikandrova, are offered for sale. The first ones for years. A unique opportunity. There must be interest in the West. “We need modernization, we need technology, we need investments”, she says. “But the politics of our government is to maintain the social standards. We guarantee every citizen their bread on the plate.”

Krutzinna has already experience what this means in practice. In the afternoon another customer’s visit is scheduled. This time it goes deep into the old Soviet Union, into a huge industrial district, in the center of the city. Here the watch manufacturing company Luch resides in, once one of the twelve big watch factories of the Soviets. It was the only one to survive. In the Director’s office a young, broad-shouldered Armenian welcomes us. Azat Margaryan is 26 years old and – that’s probably true/fair to say – a winner of globalization. His family controlled the “Franck Muller Group”, a Swiss watch producer that overtook Luch from the Belarusian state.

Also Luch passes to the employees in 1991. In the 60es and 70es they were very important, in 1976 they even won the gold medal at the Leipzig’s watch fair. But after the wall came down the employees realized how difficult it was to bring Eastern design on Western wrists in the declining market. To compensate the dwindling earnings they sold buildings, initially one, then two. Meanwhile the factory site looks from above like a holey Swiss-cheese. At some point the state had to help with loans, took over the company little by little. This was the beginning of the years 2000.  Shortly after Krutzinna was asked to find a partner in the West. He found the Franck Muller Group, Azat Margaryan moved into the Director’s rom.

Investments in machines are not worthwhile

Shift foreman Ivan Ivanovich greets his visitor heartly. With both hands he shakes Krutzinnas outstretched hand. He looks like a Russian nuclear researcher from the Cold War period: long white cloat, snow-white, sparse hair, small round glasses on his nose. Well, they certainly do not practice raket science here. But they take great effort. Ivanovich guides us through his fabric, through narrow passages, dark halls with worn out sitting areas, through breathtakingly narrow staircases and worn out crossings. All here is still as it was that time, 1956, when Luch came into the business.

Since then around 700 men and women work on wrist-watches in the principal factory in Minsk. “We still make everything in handwork”, says Ivanovich. “Here nothing comes from China.” So women sit with monocles on their eyes on worn out work benches and put hands on faces of watches. On a milling machine a lonely man makes the finest tiny screws out of a long piece of metal, with which the watches are finally assembled.

“We want to tear down all this here”, boasts the Armenian Junior Manager in his office while pointing at a model of the watch factory. The fabric is completely owned by him but earning money is something he will really do with the property. The Ministry of Economic Affairs has tied the selling to the condition not to dismiss any of the 700 employees; also the salaries should remain the same.

In Belarus full employment always has to rule. “We could forget about an automated production”, says Krutzinna. “In this case we would have had to many people.” Therefore investments are done, not in machines, but in buildings. Where there are factory halls aging today, should soon stand three huge towers: offices and exclusive apartments. “This is going to be fantastic”, says Margaryan and grins.

Avoiding modesty

Maybe you should just not have any scruples in this business, at this place. Maybe people like Margaryan and his family, who make businesses with the dictator, should not intimidate you. Maybe you also just have to force yourself not to overthink too much to be successful. “For big investors it is certainly difficult in Belarus – if you have to explain yourself every year to your shareholders”, says Krutzinna. “It is very good, however, if somebody is entitled to a say in the company.” One could also see it in this way: In a dictatorship dictators are the most successful.

In front of the Luch factory gates, a dark car stops. The driver gets out, stands in the autumn sun, lights up a cigarette. Krutzinna comes to him, gets into the car. It goes out of the city to the estate of a business friend. The boss of the mineral water factory has invited him in the morning to eat and have a sauna – and enjoy the evening. Krutzinna is looking forward to it. There are good and solid Belarusian dishes. The business partner speaks about the crisis in Ukraine, complains that the Germans interfere in it. Putin, he says, just takes what he is entitled to. Then he disappears into the sauna. Krutzinna follows. They laugh a lot.

While cooling off on the veranda, he looks into the distance. “You are indeed walled off here. I miss my relatives and friends. I don’t really have anything in common with my first 32 years of life,” he says thoughtfully. “But you also get used to playing the first fiddle, having access to decision makers. In Germany I would have to be much more modest.” And this is really foreign to his nature.

Translated from German by Adriana Brzoskowski

This article was first published on Handelsblatt

Simon Book
Simon Book is a German journalist who writes for Handelsblatt. After studies in journalism and training at the “Deutsche Journalistenschule” in Munich, he wrote for Financial Times Germany until it closed down. He is a winner of the Hugo-Junkers Price for Outstanding Aviation Journalism and Econsense Price of the German Economy-Forum.

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Simon Book is a German journalist who writes for Handelsblatt. After studies in journalism and training at the “Deutsche Journalistenschule” in Munich, he wrote for Financial Times Germany until it closed down. He is a winner of the Hugo-Junkers Price for Outstanding Aviation Journalism and Econsense Price of the German Economy-Forum.

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