CIS region: CIS-express

The minor countries of the CIS region have attracted less interest than their larger, louder neighbours but this is still a valuable region

While international business coverage of the Commonwealth of Independent States (CIS) has often been dominated by Russia, Ukraine and Kazakhstan, the other members of this vast and emerging economic region covering Central and Eastern Europe, the Caucuses and Central Asia have not lain idle.

A key trend in the region has been that global CIS-centered transactions and projects now always cover more than one country.

“Nothing is purely Russia anymore – it’s Russia-plus,” observes Irina Paliashvili, president and senior counsel of the RULG-Ukrainian Legal Group and founder of the CIS Local Counsel Forum. “It could be the usual suspects of Ukraine, Kazakhstan or Belarus, or someone wanting to invest in a Russian company with something in Tajikistan or Armenia – there’s always a tail attached.” 

In the European bloc, dominated by Ukraine and Russia, investors are increasingly looking to Belarus as a foothold from which to cover the region.


“The workforce is cheaper and well-educated,” enthuses Anna Rusetskaya, head of M&A and corporate for Egorov Puginsky Afanasiev & Partners in Minsk. “It’s an ideal environment to establish and move further east.”

At the same time, the customs union established between Belarus, Kazakhstan and Russia in November 2009 is proving a hot topic. The impact of closer harmonisation is being felt not only in areas such as anti-monopoly but also in fields such as trademark and IP protection where there have been
intensive consultations between countries and their professional associations.


“If there are no borders between these three countries, that leaves a lot of questions,” observes Dennis Turovets, managing partner of Egorov’s Minsk office.

With the Belarusian state owning 70 per cent of the main industries, moves towards privatisation appear to be gaining ground, with a World Bank-initiated pilot project targeting eight state-owned companies for privatisation concluding in 2015.

Attracting investors to the region is important, but “with the state having such a big presence in the local economy, no big deals will be done without some kind of approval, either formal or informal, from the government,” says Rusetskaya.

Following the economic crisis in Belarus in 2011 that saw a huge devaluation of the national currency, firms are now seeing not only a big rise in litigation and arbitration but also a huge increase in banking and finance work, although one area that has yet to recover is capital markets.

A further development for business lawyers is that, since April, they cannot represent clients in court unless they become advocates. This is seen as an attempt to use business lawyers to modernise the advocate system inherited from Soviet times and both Turovets and Rusetskaya have become advocates, seeing it as a positive.

“We haven’t seen any decrease in our practice,” notes Rusetskaya. “On the contrary, we now get referrals from other advocates in cases we didn’t even plan to take on.”

Moldova a barrel

In Moldova, the landlocked minnow of the CIS in Europe, a process of economic liberalisation means the influence of the state is less
pronounced. However, tensions between ruling pro-Europe parties and the communist opposition over the past three years has “really slowed down business development”, says Alexander Turcan, managing partner of Turcan Cazac. “It added to the recession.”

Unlike many other regional players, Moldova has not had oil and gas reserves to help it through the downturn.

“We may not have an oil and gas practice but we do have a wine and spirits practice,” quips Turcan, referring to the Moldovan wine industry that accounts for around 20 per cent of GDP.

Instead of M&A activity, which has seen a downturn in much of the CIS, there has been PPP work in areas such as renewable energy, healthcare and agriculture, driven with help from the International Finance Corporation (IFC) and the European Bank of Reconstruction and Development (EBRD).

“These are important clients to firms in our region,” notes Turcan.

Throughout the recession bank financing has remained active, not just from the IFC and EBRD, but also from other institutional investors. There have also been significant infrastructure projects, with consortia from Finland, Portugal and Italy establishing projects to build roads, water and sewerage, thermal heating and urban transportation in major cities.

An important development is the return to an export-orientated economy that was lost following the break-up of the Soviet Union and the collapse of business relationships between the newly independent states.

“We are attracting the suppliers of Ikea, for example, not Ikea itself,” adds Turcan. “Where Moldova comes in is as a supplier to big brand names – that’s its niche.” 

Caucasus competencies

It is a different story in Azerbaijan. With Georgia’s economy stagnating and Armenia’s continuing isolation from its Turkish and Azerbaijani neighbours, Azerbaijan overshadows the Caucasus.

The country’s huge oil and gas reserves helped it through the financial crisis.


“After languishing throughout the 1990s and until 2006,” remarks Ted Matheny, legacy head of Dentons’ CIS practice, “Azerbaijan has entered a rapid and strong growth phase driven by oil and gas, but there’s also increased investment in real estate and infrastructure.”

The largest M&A deal of the past 12 months saw Hess Corp sell min-ority stakes in fields in Azerbaijan to India’s Oil & Natural Gas Corp for $1bn (£640m), but Gunduz Karimov, Baker & McKenzie’s Baku office managing partner, expects M&A activity to increase following presidential elections next month.

The decision in June of operators of the largest natural gas field in Azerbaijan – including BP, Statoil, and Azeri state energy firm SOCAR – to choose the Trans-Adriatic-Pipeline to carry gas to Europe across Greece, Albania and Turkey means even more cross-border and compliance work. SOCAR, among other Azeri companies, is establishing presences in Turkey, Switzerland and the Netherlands.

Gunduz Karimov

Asked whether recent prospects of a peace deal between Azerbaijan and Armenia over the disputed region of Nagorno-Karabakh might change the legal market Karimov points out that “there is no correlation, resolving that conflict and business are completely separate – business is completely off that

Affairs of state

In Central Asia, outside of Kazakhstan, the economy continues to be difficult. In Uzbekistan, for example, despite a GDP approaching that of Belarus and the signing in April of an investment treaty with Russia and in May of the CIS free trade zone agreement, lack of privatisation and restrictions on access to foreign currency has long hampered investment.

“Unfortunately, there’s not a lot of interest among investors for making major investments in Uzbekistan, particularly for businesses outside the natural resources sector,” says Almaty-based Baker & McKenzie partner Curtis Masters.

A worrying trend is the large number of comprehensive audits being conducted by state law enforcement, in particular the prosecutor’s office. Targets have included a mobile phone operator owned by Russian technology conglomerate AFK Sistema, the Uzbekistan arm of Danish drinks company Carlsberg and UK mining company Oxus Gold, and the investigations have resulted in huge fines, penalties, suspensions of licences and in some cases bankruptcy.

“These have had a chilling and negative effect on many foreign companies operating in Uzbekistan or contemplating operating in Uzbekistan,” warns Masters. “It has become a large practice for us advising international companies on the scope of inspections being conducted by state law enforcement authorities as well as on the resulting litigation and international arbitration.”

The mood of those investors has been further dampened by moves by the Uzbek parliament to amend a law adopted in the 1990s guaranteeing the rights of foreign investors which implied that Uzbekistan consented to international arbitration, to state that Uzbekistan does not consent to such arbitration in the absence of a specific agreement with an investor agreeing to arbitrate any disputes.

Arbitration has also offered a rich seam of work in Turkmenistan for US firm Curtis Mallet-Prevost Colt & Mosle.

“We opened our office in Ashgabat in 2011 at the invitation of the government,” says Ali Gursel, managing partner of the office, “and the majority of the work we undertake is international arbitration.”

Curtis Mallet-Prevost is currently working on seven arbitrations for the government of Turkmenistan, two of which recently concluded favourably for the government.

Whole in one

Despite the continuing dominance of the traditional powerhouses in the wider CIS region and several emerging challengers there is “still a coherence” to the region, Matheny insists.

“Although there are big differences deriving from the presence or absence of natural resources, agricultural capabilities and whether there is sufficient population and wealth to support various types of economic development, it still makes sense to talk about the region as a whole,” Matheny concludes.