WHAT'S NEW ----- 
About The Portal To Russia -----
Email Dr. Palms
THIS DOCUMENT IS IN FOUR PARTS. THIS IS PART II
HOUSING POLICY REFORM--URBAN INSTITUTE
The Urban Institute housing project was successful. It supported reforms
already underway, used an experienced contractor with staff in country,
installed local nationals in high-level positions, focused its efforts on
both the federal and local levels, and contained elements that made it
sustainable. Therefore, this project will likely have sustained benefits
as legislation is implemented and new Russian institutions expand the
pilot projects into other areas.
SECTOR PROBLEM
Russia's housing sector
has been beset by housing shortages, production inefficiencies,
maintenance problems, and deterioration. This situation occurred
primarily because the state had a monopoly on housing. For example, it
(1) used standardized apartment buildings constructed by state-owned
companies, (2) controlled apartment construction and maintenance, (3)
financed all state housing from state assets, (4) almost totally
subsidized housing and maintenance, (5) guaranteed low-cost housing, and
(6) distributed housing through waiting lists. In addition, because the
Soviet government had not raised rents since 1928, rents covered less than
5 percent of the cost of operating the apartments in 1990. The problem
was exacerbated when the Russian Federation government stopped paying for
maintenance cost of apartments and they fell into disrepair. In addition,
the Federation devolved the housing assets and responsibilities to
municipalities as a way of relieving itself of the burdens associated with
managing the apartments.
Russia initiated housing reforms in 1991 when it allowed its citizens
to privatize their apartments at little to no cost. This action set
the stage for establishing a private housing sector.
This information was obtained from (1) USAID's Housing Sector Reform
Project for the NIS and (2) the Urban Institute's report, The Russian
Housing Market in Transition.
PROJECT OBJECTIVES
USAID signed its first contract for housing sector reform with the Urban
Institute in September 1992 for $5.8 million. This 2-year contract
required the Institute to provide draft legislative and financial advisers
to help Russia develop market-oriented housing programs and legislation.
Other Institute advisers were expected to conduct pilot projects on (1)
rent reforms and housing allowances for the poor, (2) privatized housing
maintenance, (3) condominium associations, and (4) mortgage lending. It
was also expected to provide targeted training to those implementing
reforms and develop local institutions to sustain and expand the reforms.
Specific objectives and milestones were incorporated into the project
design.
PROJECT APPROACH
A USAID team that included Institute representatives met with their
Russians counterparts in early 1992 to determine their reform priorities.
From 12 to 15 meetings at both the national and municipal levels in Moscow
were needed to clarify Russian reform priorities. To help focus Russian
priorities, the team used a "menu" of reforms based on experience in
housing reforms in Hungary and developing countries, and then focused on
one or two priorities to demonstrate results quickly and build confidence.
The Russian priorities were formalized through agreements signed in March
1992 with USAID, the City of Moscow, the State Committee on Architecture
and Construction, the Ministry of Finance, and the Ministry of Economy.
The team sought joint agreements with the three ministries agencies to (1)
ensure it would not become captive to any one ministry, (2) ensure
broad-based agreement on reform priorities, and (3) reduce governmental
impediments to reform. The Russian counterparts showed their support for
the project by providing the Institute with free office space, which is
highly unusual due to the scarcity of office space in Moscow.
The team's strategy was to work at the national level to help draft
legislation that would shape and codify reforms. In addition, it planned
a series of local demonstration projects to determine the effectiveness of
the designs in the Russian context. The team augmented these efforts by
providing training in Russia and the United States. A key strategy was to
take advantage of the Russian reforms already underway and try to create
"win-win" situations for the government and its citizens.
The Institute's staffing policies were also important to its approach. It
provided two long-term resident advisers, including the Program Director,
who were located in Moscow. The Director said using advisers who were
permanently located in Russia rather than "fly-through" consultants helped
establish trust with their Russian counterparts and enabled them to
respond immediately. The Institute also employed five Russian housing
experts. Short-term U.S. advisers were used on an as-needed basis. The
Director said that using local Russians in key positions was critical to
establishing trust with the Institute's Russian counterparts. The large
Russian staff also was less expensive than U.S. consultants.
CONTRACTOR PERFORMANCE
The Institute achieved its objectives of helping to develop housing
legislation. According to the Russian Federation Housing Director, the
Institute's assistance was critical in drafting the 38 laws, decrees, and
regulations that have been implemented. These included laws and
regulations on property rights, housing finance, rent reform, housing
allowances for the poor, privatized maintenance, condominiums, and
mortgage lending. The Institute is now the government's principal housing
adviser.
The Institute also achieved its objectives of establishing pilot projects
in four areas: rent reform and housing allowances for the poor,
privatized maintenance, condominiums, and mortgage lending.
RENT REFORM AND HOUSING ALLOWANCES
The Institute helped the City of Moscow develop a program that would raise
rents over a 5-year period until they covered all the costs of operating
the apartments. To reduce resistance to rent increases, it tied
maintenance improvements to the increases so citizens would see an
immediate improvement in their housing conditions. In 1994, the
Federation initiated a national 5-year program to increase tenant payments
to cover the full operating costs. The Institute also helped the
Federation structure a program in which the municipalities began providing
housing allowances to the poor.
PRIVATIZED MAINTENANCE
The Institute helped introduce competitive private maintenance for
municipal housing. It conducted training sessions, organized the
competition to select private firms, and conducted a study tour to the
United States so officials could see private maintenance activities. In
March 1993, three private maintenance firms assumed management of 2,000
apartments in Moscow, and in October 1993, Moscow's mayor extended the
program to all areas of the city. By 1994, over 60,000 apartments were
under privatized maintenance, far surpassing the project's goal of 2,000.
CONDOMINIUM ASSOCIATIONS
The Institute's goal for the condominium pilot was to lay the legal and
procedural groundwork by 1994. However, it surpassed this goal and helped
to create 24 functioning condominium associations in Ryazan'. The
regulations it helped develop were instrumental in registering the first
condominium association in Moscow.
HOME MORTGAGES
To address mortgage-lending problems, the Institute developed
mortgage-lending facilities at several banks; limited lending has begun.
For example, the Institute helped Mosbusinessbank, Russia's third largest
commercial bank, to make home mortgage loans and provided assistance in
all phases of operations, including legal documentation, underwriting,
loan servicing, mortgage loan instrument development, and risk management.
The Institute then expanded its work to eight other banks and provided the
necessary materials to other banks to expand and sustain mortgage lending.
However, hyperinflation has precluded lending to most Russians.
RESULTS
The Institute's critical assistance helped transform Russian priorities
into workable legislation and pilot projects. Although the Russians are
responsible for the pace of reforms, the Institute has helped effect
systemic changes in Russia's housing sector. It helped pass far-ranging
laws that have codified reforms. The program to raise rents and provide
subsidies for the poor, which is being implemented across the country, is
a fundamental change for the government and its citizens.
The project has a strong sustainability component. Over the next several
years, it plans to institutionalize the reforms by expanding the number of
demonstration projects and developing private maintenance organizations,
condominium associations, and mortgage banks. In addition, it created
procedures manuals, explanatory guides, and other necessary documentation
on implementing rent increases, beginning privatized maintenance, creating
condominium associations, and developing mortgage lending. The Institute
has distributed more than 25,000 of these documents, mostly to local
governments.
The project has won high praise from USAID and Russian officials. The
USAID Mission Director in Moscow called the project one of the most
successful ones he had ever seen. A USAID official in Washington said
that, for the money, no USAID project has had more macroeconomic impact.
The Russian Federation Housing Director noted the Urban Institute's
tremendous influence on the government, and Russian citizens working in
maintenance, condominium associations, and mortgage lending also praised
the project.
Despite the program's progress, most Russians have yet to benefit from the
reforms. This is because the reforms are relatively recent, are
tremendously complex, and face opposition by antireformists; they are also
being implemented in a country with no tradition of market-based
decisions. Private land ownership rights are still generally uncertain,
housing and construction mortgages are generally unavailable, additional
laws and regulations are needed, and most apartment buildings are still
maintained by state organizations. In addition, factors beyond the
housing sector, such as macroeconomic and political instability, slow the
transformation to a fully developed privatized housing sector.
USAID MANAGEMENT
USAID successfully managed the contract. It determined the Russians'
reform priorities, incorporated these into its reform plan, and listed
these in its contract. USAID selected a contractor with experience in
both the sector and region and is effectively monitoring the reforms
through regular contacts with the contractor and Russian counterparts.
Both USAID-Washington and USAID-Moscow agreed on the housing strategy.
USAID also had the contractor develop measurable goals in its annual work
plan. USAID then measured the contractor's progress by comparing its task
orders to the deliverables.
VOUCHER PRIVATIZATION--DELOITTE & TOUCHE
As part of Russia's privatization effort, Deloitte & Touche established a
national system of centers to process millions of vouchers that Russians
received and used in the privatization process.
Overall, the Deloitte & Touche voucher privatization project was
successful, with a few exceptions.
The project focused on national reforms, but some areas had lower
Russian participation than expected.
Deloitte & Touche kept USAID and the State Committee of the Russian
Federation for the Management of State Property (GKI) informed
of project progress but did not meet some of its reporting
requirements.
Deloitte & Touche met its amended objective of setting up 30
centers, but many were underused.
Several factors contributed to the overall success of the project. The
Russian GKI helped focus assistance efforts and identified problems when
USAID had minimal field presence. Further, the omnibus contract system
allowed the contractor to institute a rapid roll-out as well as adjust the
scope of work when warranted. In addition, using existing Russian
agencies and using staff and equipment for follow-on activities increased
the project's effects and sustainability.
SECTOR PROBLEM
Because the state controlled Russian enterprises, which were generally
large and monopolistic, the private sector was virtually nonexistent. The
legal and regulatory framework to create the new system was not in place;
few citizens had entrepreneurial experience or exposure to western
management, accounting, and marketing concepts; and no capital market
infrastructure existed
In August 1992, President Yeltsin announced plans to privatize Russia's
large and medium-size state-owned enterprises. Within weeks, distribution
of privatization vouchers began, with each Russian citizen eligible to
receive one voucher. The sale of the enterprises was expected to reduce
the need for massive state subsidies, begin to reduce inefficiencies, and
eventually lead to higher productivity and innovation as shareholders
demand profits.
Voucher privatization was the initial step in the overall privatization
process and was used to transfer ownership from the state to private
individuals. Unlike the approaches used in some Central European
countries, Russia chose to privatize enterprises before restructuring
them. The process is therefore not complete: restructuring must still
take place before the enterprises can function in a market economy. This
may be difficult because management and workers received a majority of
shares and can resist taking the painful steps necessary for
restructuring.
We obtained this information mainly from USAID's project
memorandum for private sector initiatives, GKI's annual report, and
the World Bank document, Russia: Creating Private Enterprises and
Enterprise restructuring typically involves organization and management
changes, choice of product markets, development of marketing and
distribution capabilities, and reductions in staff.
PROJECT OBJECTIVES
The voucher-clearing centers allowed individual Russians and investment
fund managers to more easily buy shares via electronic transfers in
enterprises located in remote areas. Without the centers, people would
have had to physically transport vouchers to other parts of the country.
There was also a fear that regions would not let outsiders, including
foreigners, buy shares in highly visible enterprises, thereby allowing
insiders and local bureaucrats to control the process.
The specific objectives of the project required Deloitte & Touche to
establish 35 functioning centers in various Russian cities to verify,
process, and cancel voucher receipts. The project was carried out under
two separate contracts at a total cost of $4.1 million. The initial
contract (as amended) required the contractor to establish 20 centers by
the end of 1993, and a task order under the omnibus contract required 15
more before March 1994. This would give citizens enough time to process
their vouchers before the privatization program ended in July 1994. USAID
and GKI, the Russian agency overseeing the national privatization effort,
hoped that many of the centers would develop into institutions, such as
registrars and depositories, in the capital market infrastructure. The
number of vouchers the centers were to process was not defined.
PROJECT APPROACH
USAID worked closely with GKI on project design, which called for Deloitte
& Touche to develop 4 pilot centers and then establish 16 more after
successfully setting up the pilot sites. To provide broader geographic
coverage, USAID and GKI decided to extend the project and have Deloitte &
Touche set up 15 more centers. Consultants from another USAID contractor,
the Harvard Institute for International Development, worked with GKI to
design and monitor the project.
Deloitte & Touche established a permanent office in Moscow in June 1990
and opened a separate office for this project in early 1993. It worked
closely with GKI in Moscow and GKI's local offices in various Russian
cities to identify appropriate cities for the centers and suitable
partners. Deloitte & Touche then imported computer equipment, established
accounting systems, and installed the software and telecommunications
systems needed to facilitate voucher transactions. Teams of Deloitte &
Touche staff then traveled to the cities to train center staff, install
and test the equipment, and test the software and telecommunications
systems. The contractor hired Russians to assist with these efforts and
usually supplemented the work of Russian agencies, typically banks,
already working in related fields.
CONTRACTOR PERFORMANCE
Under the first contract, Deloitte established all 20 centers before its
deadline. Under the second contract, USAID and GKI reduced the number of
centers from 15 to 10 and extended the deadline by 3.5 months because of
implementation delays. The delays took place because of problems with
equipment procurement and Russian government customs clearance;
difficulties locating viable agencies to act as centers; and problems at
the local level. For example, some centers collapsed when their
leadership changed or chose not to participate on a national scale for
local political reasons. Both parts of the project were completed under
budget.
Of the 30 centers Deloitte & Touche set up, only 23 were used, and many of
these experienced relatively little activity. The lack of use was
attributed to delays in setting up some centers; limited public awareness
(centers were not responsible for advertising their services); limited
local interest in voucher auctions in other areas; Russian reluctance to
use electronic transfers; and a lack of compatibility between the project
goals and individual center goals.
Deloitte & Touche was responsive to GKI requests for project changes. The
task order was revised once it became clear that all 15 centers would not
be needed. In some cases, Deloitte & Touche went beyond the required
tasks at GKI's request.
Deloitte & Touche generally kept USAID and GKI informed with monthly
reports on progress and problems. However, some reports were not
inventory of the equipment it procured, which would have ensured the
accountability and tracking as required by the company's contracts.
RESULTS
The project is considered a success although not cost-effective. A
functioning national system was created in a short time, and according to
GKI, it handled over 70 million vouchers, nearly half the vouchers
processed in the program. People were able to buy shares in enterprises
located in remote areas. GKI noted that over half of the centers have
evolved into institutions that are now active in capital market
activities, such as share registrars and depositories. Our visits to
three centers verified that center staff and equipment are being used in
follow-on activities. These centers intend to become self-financing on a
fee-for-service basis when USAID assistance ends.
The scope of voucher privatization in Russia was unprecedented in scale
and speed. According to Russian and U.S. officials, USAID's support of
GKI and other Russian institutions involved in privatization activities
was crucial to this phase of the program. The Russian Privatization Center
estimated that 14,000 large and medium-sized enterprises were privatized
by July 1994; they employed over 60 percent of the industrial workforce.
Nevertheless, the overall effect of the privatization program on Russia
has yet to be determined. Enterprise restructuring has only begun,
monopolies still exist, and inadequate tax legislation makes foreigners
reluctant to provide badly needed capital investment.
USAID MANAGEMENT
USAID used an omnibus contract to plan and implement projects quickly. It
allowed USAID to respond quickly to emerging needs through task orders
that included specific objectives for narrowly focused, short-term
projects. USAID officials said this gave them the flexibility to change
directions quickly, move money into areas and projects making rapid
progress in reform, and adjust projects to meet emerging needs. Omnibus
contracts also allowed USAID to obligate a large amount of funding.
Deloitte & Touche has an omnibus contract for $41.5 million, with
subcontractors performing some of the work. However, the individual task
orders lacked an evaluation requirement. USAID officials said an
evaluation is planned only at the end of the omnibus contract, which ends
June 30, 1996.
We identified several USAID management problems. For example, USAID did
not design the project with quantifiable indicators to measure progress.
Although Deloitte & Touche set up 30 voucher clearing centers, the project
design did not specify the amount of activity expected at each center or
on a national scale. USAID-Moscow had limited information on the project,
such as key documents on Deloitte & Touche's initial contract or task
order, and accurate financial data for the project. USAID officials said
key documents had not been transferred to Moscow when management moved to
Moscow from Washington. Also, the physical distances involved, the
geographic distribution of project activities, and the lack of staff to
visit the sites left USAID uninformed about some Deloitte & Touche
activities. USAID officials said they relied heavily on GKI and Harvard
consultants to help monitor the project. Finally, USAID did not require
Deloitte & Touche to provide adequate inventory data on the $1.1-million
worth of equipment purchased with USAID funds. Not having this data
hindered USAID from using surplus equipment in other projects as planned.
THE COAL PROJECT--PARTNERS IN ECONOMIC REFORM
The coal project is achieving its primary objective of facilitating the
restructuring of Russia's coal industry and is opening the industry to
American technology and companies. The Russian beneficiaries expressed
appreciation for the assistance and found it useful. Due to the size and
cost of the restructuring, however, the Russian government must complete
the effort. If the World Bank approves a $500-million sector loan, this
project will have played a key role in restructuring the coal sector.
Although the project is meeting its objective, USAID did not provide
adequate oversight, did not fully understand the beneficiaries' needs or
opinions about USAID assistance, and did not know the extent to which the
project was meeting its goals.
SECTOR PROBLEM
Coal is an important component of Russia's economy. However, Russia's
coal sector suffers from declines in production and serious environmental
and safety liabilities, in large part because of the centralized
structures, subsidized pricing, Soviet-style management, and state
allocation system. To solve these problems, the coal industry needs to be
restructured.
The process of restructuring is both a problem and a solution because it
creates new challenges. The major areas that need to be addressed in
restructuring Russia's coal industry and transitioning from a centrally
planned to a market economy include reducing the numbers of mines and
miners as well as the amounts of coal produced and government subsidies.
In addition, the coal monopoly must be broken up, mines must be
privatized, and new relationships and agreements must be established
between management and labor. Efforts to restructure the coal industry
are complicated because the state-subsidized coal mines provide many
social services and may be the only source of energy or employment in the
areas where they are located.
Coal industry restructuring will take a heavy toll on miners and their
families as the industry streamlines its operations, mines are closed, and
miners lose their jobs. These same miners, who could lose their jobs as a
result of the Yeltsin reform program, were instrumental in bringing
Yeltsin to power in 1991. The mining community in Russia is still
considered a politically powerful force.
President Yeltsin took a major step toward restructuring Russia's coal
industry in July 1993 when he freed coal prices. Since that time, the
industry has made some progress. For example, approximately 72,000 of the
914,000 coal miners and others employed by the coal sector in 1992 left
the industry between January 1993 and June 1994. In addition, coal
production decreased by approximately 41 percent from 1988 to 1994. The
government also reduced subsidies to the coal industry by approximately 20
percent in real terms (i.e., taking inflation into account) between 1993
and 1994. Finally, the Russian coal industry closed 2 of its
approximately 273 mines, was in the process of closing 14 more mines in
1994, and is preparing to close 40 more in the future.
This information was obtained primarily from coal project documents and
officials; PlanEcon reports; the World Bank's report, Russian Federation
Restructuring the Coal Industry: Putting People First (Dec. 1994); and
the U.S. Department of the Interior's report, A Cost Comparison of
Selected U.S. and Russian Coal Mines (Sept. 1994).
PROJECT OBJECTIVE
As part of USAID's broader effort to assist Russia's energy sector, USAID
signed a cooperative agreement with the Partners In Economic Reform
(PIER), a private, nonprofit organization established to assist the coal
industries in Russia, Ukraine, and Kazakstan.
USAID signed the agreement with PIER for $6.9 million in June 1992 and has
increased funding since then to $8 million. The project's main objective
is to facilitate the transformation of the centrally planned and
controlled coal mining industry to an industry capable of operating in a
market economy. The cooperative agreement did not specify any measurable
goals or deliverables.
The scope of our evaluation is limited to PIER's activities in Russia.
PROJECT APPROACH
In 1989, U.S. coal representatives visited some of the coal regions of
the Soviet Union where miners were starting to form independent unions,
and between 1989 and 1991, groups of independent miners met with leaders
of the U.S. coal industry labor and management in the United States. In
June 1991, a memorandum of understanding, pertaining to continued
assistance, was signed by U.S. and Russian coal industry representatives.
During 1991, circumstances changed drastically. Boris Yeltsin was elected
President of Russia in June, the communists mounted a failed coup attempt
in August, and the Soviet Union dissolved in December. These changes
opened the door for a broad U.S. technical assistance program in Russia.
As part of this effort, the State Department announced the coal project in
a January 23, 1992, press release and signed a cooperative agreement on
June 25, 1992.
The coal project gained early acceptance because PIER targeted the project
at a problem (i.e., coal industry restructuring) that the Russians had
already identified and were struggling to address. In addition, PIER
established good working relationships. For example, PIER established a
coordinating office in Moscow and cooperation and development centers in
the Russian cities of Kemerovo and Vorkuta.
An American director heads the coordination office, and an American
director and a Russian codirector head the cooperation and development
centers. In addition, because the American staff lived in Russia, they
were able to develop and maintain long-term relationships with the Russian
government, coal industry management, and labor unions. The Russians
further demonstrated their support by donating rare office space for the
coordination offices and cooperation and development centers and donating
apartments for the American directors in Kemerovo and Vorkuta.
PIER staff worked closely with representatives from the Russian
government, coal industry management, and labor to (1) reduce the number
of mines and miners, (2) develop new sources of employment in
coal-producing regions to absorb displaced laborers, and (3) develop a
social safety net for those miners left unemployed during and after the
transition. PIER has cultivated cooperative efforts between government,
management, and labor to address problems associated with coal industry
restructuring. In addition to these efforts, PIER staff has helped build
commercial links between the Russian and American coal and coal-related
industries.
PIER has implemented the coal project in three countries--Russia,
Kazakstan, and Ukraine--under one cooperative agreement. PIER also
established coordinating offices and cooperation and development centers
in Ukraine and Kazakstan.
CONTRACTOR PERFORMANCE
PIER made progress in facilitating the restructuring of Russia's coal
industry and opening the Russian market to U.S. mining technology.
Specifically, PIER
worked closely with the World Bank to evaluate Russia's coal
industry and develop a restructuring plan;
conducted detailed studies of employment, unemployment, and social
programs; government subsidies; labor demand; a social safety net, job
creation, and mine planning; and enterprise debt in the Russian coal
industry;
established a coal-bed methane recovery center;
mediated discussions between U.S. and Russian officials on equipment
certification in an effort to open the Russian market to U.S. high-tech
safety equipment;
established a program to facilitate U.S. private sector investment;
hosted approximately 150 representatives of the Russian government and
coal industry in the United States where they participated in meetings and
negotiations with World Bank officials, training seminars, and meetings
with U.S. coal industry representatives;
provided training material and conducted seminars in Russia concerning
mine safety, labor-management relations, mining and mine management in a
market economy, and small business development in Russia;
implemented a transition assistance program focused on developing a viable
social safety net and creating new jobs; and
provided $200,000 worth of U.S.-manufactured mine health and safety
equipment to Russian miners.
The Russian beneficiaries (i.e., government, labor, and management) we
contacted in Russia stated that the coal project was well-targeted,
timely, and beneficial. In addition, they all wanted the project to be
continued and expanded.
This program, the PIER-Coalition of American Business in the New
Independent States in Coal Extraction, Processing, Transportation, and
Utilization, is intended to promote joint venture and commercial
activities between U.S. and NIS private sector counterparts in coal and
related industries.
RESULTS
PIER has made several contributions to systemic reform. One of the
clearest contributions is its work in facilitating a $500-million World
Bank loan. By providing U.S. coal industry experts, PIER facilitated the
World Bank's work in Russia; contributed extensive analysis of the coal
industry's problems; built consensus among Russian government, management,
and labor representatives; and brought representative Russian delegations
to the United States to negotiate with the World Bank. The World Bank
acknowledged PIER in its 1994 report for contributing to the Bank's work
in Russia.
PIER helped establish relationships between Russian and U.S. coal mining
and equipment-manufacturing firms. According to the beneficiaries, these
relationships will help Russia attract capital investors and gain greater
access to U.S. expertise and technology so that it can begin to produce
coal efficiently and compete in a market economy. PIER also facilitated
the sale of millions of dollars of non-USAID-funded U.S. mining equipment
in Russia. PIER formed a consortium of U.S. industry representatives to
help create a viable private coal industrial sector. The consortium is to
assist coal managers and technicians in operating in a market economy,
identify ways that private U.S. firms can participate in restructuring
the coal industry, establish NIS-U.S. joint ventures, and promote the
consortium's services so it can become self-sustaining.
Finally, PIER worked with Russia's Fund for Social Guarantees to implement
a transition assistance program focused on developing a viable social
safety net and creating new jobs. PIER also brought in U.S. experts to
provide small business education to miners and helped mining communities
develop business proposals that can be presented to the Russian-American
Enterprise Fund, Russian banks, and other sources for eventual financing.
According to a World Bank official, to receive a loan from the Bank, the
Russian government must meet the Bank's conditions, one of which requires
developing a restructuring plan. The Russian government provided the Bank
with an initial restructuring plan and is currently refining the plan to
address the Bank's concerns.
USAID MANAGEMENT
USAID started to implement the coal project before it had established a
USAID mission in Moscow; consequently, the USAID project officer in
Washington managed the project. Since the coal project was established
through a cooperative agreement, without quantifiable indicators, PIER
designed and implemented the project without direct oversight and control
by USAID. PIER provided the required monthly program performance reports,
annual work plans, and annual progress reports to USAID, which then
reviewed them. PIER's staff communicated regularly with USAID and felt
they had a good reciprocal working relationship.
Despite some success with the project, USAID did not meet its monitoring
and evaluation requirements. Although the USAID staff should have
regularly monitored the project, they visited the Russian project sites
three times between June 1992 and February 1995. Two of the visits
occurred after we began our review. USAID officials said a lack of staff
prohibited more frequent visits. In addition, USAID did not conduct the
annual assessments or midterm evaluation as required and thus lacked an
objective basis for evaluating PIER's activities and accomplishments.
This, coupled with a lack of quantifiable indicators, hindered USAID's
ability to independently determine the project's impact on coal sector
restructuring.
Cooperative agreements, similar to grants, are awarded to nonprofit
organizations whose activities are consistent with USAID objectives.
USAID is not expected to exercise a substantial degree of operational
control, but is responsible for approving the implementation plans,
budgets, and subgrants of the organizations' programs.
PIER also provided USAID with periodic financial reports, and an
independent accounting firm audited PIER's financial statements in 1992,
1993, and 1994.
SMALL BUSINESS DEVELOPMENT--UNIVERSITY OF ALASKA
The University of Alaska met most of its project objectives while
encouraging systemic reform, but to date the project has not become
self- sustaining. The American staff live in Russia and have built
trust with Russian officials and institutions, and Russians support
the project with personnel and in-kind contributions.
SECTOR PROBLEM
New enterprises are a major source of new jobs for most economies.
However, the development of new enterprises in Russia has been hampered by
years of central control of the economy, excessive rules and procedures
for establishing a business, and the lack of entrepreneurial skills.
PROJECT OBJECTIVE
To help promote the growth of small, private businesses and alleviate
unemployment, the United States supported the creation of multipurpose
business development centers in several Russian cities. These centers
provided training and advisory services to small businesses and worked
with local governments to create a hospitable environment for private
business growth. USAID's goal is that the centers eventually be operated
by trained Russians on a self-financing, fee-for-service basis.
The American Russian Center (ARC), established by the University of Alaska
in Anchorage through an USAID cooperative agreement, was one of the first
contractors in USAID's program to establish new businesses. The program's
two phases, conducted over 2 years, cost about $5.1 million. The
agreement called for ARC to provide small business training, develop
Russian business activities in specific geographic areas, and develop
business ties between the Russian Far East and the United States.
ARC's initial objectives were to establish a headquarters at the
University of Alaska and two field centers, as well as to train a specific
number of people. A subsequent work plan called for ARC to establish two
more centers while expanding its program in the two original centers.
Specific objectives included increasing (1) the number of Russians trained
in modern business methods, (2) the number of viable Russian small
businesses, (3) access to both U.S. and Russian technologies, (4)
U.S.-Russian business ties through ARC field and business information
centers, and (5) U.S. business activity in the Russian Far East.
Creating Russian institutions that would be sustainable after USAID
assistance ended was also an objective.
PROJECT APPROACH
From its headquarters at the University of Alaska, ARC worked closely with
Russian partners to establish business training centers in four Russian
cities. In each city, ARC had a local educational or academic institution
as a partner. This partnership was reflected in the American and Russian
codirectors and staff at each center and in-kind contributions such as
free office space from the institutions.
ARC's American staff have had a long-term commitment to Russia. Full-time
staff spoke Russian fluently, lived in the cities where the centers were
located, and had business experience in the region. They were complemented
by short-term American teachers who taught a 1- or 2-month course as well
as by itinerant teachers who taught a 1-week or weekend course in one city
and then moved to another city. These courses were taught with
interpreters.
ARC's core program was an evening course that taught such skills as
accounting, marketing, and management that were necessary to write a
business plan. This course lasted 1 or 2 months, depending on the center,
the time of year, and the targeted clientele. It was supplemented by
short seminars in the host cities and extension seminars in outlying
cities and was targeted at specific business sectors, such as bankers
lending to small businesses. Russians and Americans, both resident and
visiting, taught the courses and seminars. The centers also provided
business counseling for Russians trying to set up their own small
businesses. The training centers charged a relatively low fee for its
courses and seminars.
Participants who excelled in the training center programs were invited for
advanced training in Anchorage. They were selected, in large part,
through the business plans they wrote during their core course. In
Anchorage, they attended a 5-week course that explored topics from the
earlier training in more depth, and toured stores, manufacturing
facilities, and offices in the Anchorage area. The 5-week course was
followed by 2 weeks of either internships in local small businesses or
more extensive business tours tailored to the participants' interests.
CONTRACTOR PERFORMANCE
ARC successfully fulfilled its first year's work plan targets, and then
received $3 million for a second year's activities (fiscal year 1994) from
USAID after a March 1994 evaluation of the initial $2.1-million project.
USAID also stipulated that, in fiscal year 1995, ARC must match USAID's
funding. ARC established business training centers in four Russian
cities: Yuzhno-Sakhalinsk, Yakutsk, Khabarovsk, and Magadan. It
established the Yuzhno-Sakhalinsk and Yakutsk centers in the fall of 1993
and Khabarovsk and Magadan centers in the fall of 1994. In May 1995,
USAID agreed to provide ARC with an additional $1.5 million, even though
ARC had not raised any matching funds.
Between the fall of 1993 and January 1995, ARC's Yuzhno-Sakhalinsk and
Yakutsk Business Training Centers offered four cycles of evening courses,
lasting 1 or 2 months, that trained 211 Russians--thereby exceeding the
first year's work plan goal of 200 participants. The two centers also
provided individual business counseling to 300 Russians; the work plan's
goal was 200. In addition, the two centers offered 7 extension seminars
to 103 Russians in outlying cities. The training centers in Khabarovsk
and Magadan had only recently completed their first evening courses.
ARC sponsored 19 technical assistance seminars, meeting the first year's
work plan goal of 15 to 20 seminars. Four seminars on banking drew 180
Russian bankers, and 8 seminars on hair salon management drew 250 women
from throughout the Russian Far East. Forty construction managers from
Yakutsk participated in training on cold weather construction methods.
This seminar led to the government of Yakutsk testing
American-manufactured plastic piping to replace its existing steel piping.
Between the fall of 1993 and January 1995, 71 Russians completed the
advanced business training courses at the University of Alaska. This
exceeded the first year's work plan goal of 50. In total, ARC trained
1,646 Russians in its USAID-financed programs through January 1995.
On a more systemic level, ARC developed a database of U.S. and Russian
businesses in the Russian Far East and provided assistance or information
to U.S. and Russian businesses working throughout the region.
ARC generally coordinated its activities with other U.S. government
programs located in cities of the Russian Far East, but there were a few
exceptions, particularly when contractors worked in separate sectors. For
example, in Khabarovsk, where ARC established a center in late 1994, the
local American codirector did not know the local environment project
director until we visited. ARC officials in Anchorage were, however,
working with CH2M Hill staff to link the projects.
ARC also has a U.S. Information Agency grant that it uses to sponsor
exchanges.
RESULTS
The ARC project will contribute to systemic reform on a regional basis if
it can become financially self-supporting. USAID recognizes that creating
small businesses in the region will push the Russian government to be more
responsive and further develop the area's nascent capitalist economy.
The centers help Russians who come to Anchorage from their relatively
isolated cities to meet each other and develop business contacts with
other Russians as well as Americans. By drawing entrepreneurs from cities
throughout the Russian Far East, ARC has helped build a network of private
small businesses that can generate business for one another and for the
region.
Once the USAID funding ends, ARC's partnerships with Russian institutions
will be the key ingredient to sustaining its work. The directors of the
Russian institutions plan to continue the program. For example, the Rector
of the Far Eastern State Transport Academy, ARC's partner in Khabarovsk,
plans to establish a permanent school based on the activities of the
project. Kray and oblast' government officials are also highly supportive
of ARC. However, despite the Russians' desire to continue the program,
most of these institutions currently lack the means to support an entire
local ARC operation.
Further, in an April 1994 evaluation report, USAID questioned whether ARC
would be able to support itself. Other donors have not yet stepped
forward to replace USAID. According to ARC's director, the problem lies
in the newness of the project and the project's focus on Alaska and its
businesses. The ARC director said the project plans to include more
business internships and tours in the rest of the United States. The
director believes that this expanded scope will increase ARC funding
because large U.S. institutions and enterprises have the funds and
business interests in Russia to provide long-term support. If USAID
assistance had ended with fiscal year 1994 funds, the U.S. side of ARC
would have been curtailed and U.S. personnel in Russia would have been
withdrawn.
Except for Khabarovsk, each of the cities was closed to foreigners before
the collapse of the Soviet Union.
USAID MANAGEMENT
USAID officials played a significant role in designing the project.
Because the University of Alaska had no previous USAID contract
experience, USAID sent an official from Moscow to Anchorage to help with
the project's design, which has proven to be effective.
Under a cooperative agreement, USAID has relatively limited management and
monitoring responsibility. ARC provided good progress reports to USAID.
USAID-Moscow has adequately managed and monitored the project.
USAID-Washington has maintained a duplicate document set so that it can
respond to U.S. inquiries.
When it was considering further funding for ARC, USAID sent an evaluation
team from Moscow to Yakutsk, Yuzhno-Sakhalinsk, Khabarovsk, and Anchorage
in March 1994. The team's report became the basis for USAID's continued
funding of ARC. Within the amendment that provided the fiscal year 1994
funding, USAID included a clause stating that USAID would provide $1.5
million in fiscal year 1995 if ARC raised $1.5 million in matching funds.
However, in May 1995, USAID agreed to provide the $1.5 million even though
ARC had not raised the matching funds.
ENVIRONMENTAL POLICY AND TECHNOLOGY CH2M HILL
CH2M Hill is an integral part of USAID's $35-million environmental policy
and technology program. In September 1993, USAID awarded CH2M Hill a
Go to TOP of this page
RETURN to Palms' Lobby
RETURN TO HOME PAGE