The Tolaram Group has announced plans to pour $28 million into modernizing its Horizon Pulp and Paper factory outside Tallinn. The World Bank-backed International Finance Corporation will chip in a $7.2 million loan and the Finnish Leonia Bank has promised $9 million. The package also includes loans from two Latvian banks and direct investment from the Tolaram group
The Horizon factory is a Baltic success story, and a stark contrast to the failing Dauteks textile plant in Latvia, which Tolaram turned over to a local operator last week. At Horizon, Tolaram ended a 57 year tradition of state ownership by acquiring the bankrupt plant from the Estonian government in 1995; since then, Tolaram has invested $12 million in the factory, and has captured a 25 percent share of the Estonian market in toilet paper for its "Daisy" brand. Throughout, the company has relied on support from the International Finance Corporation, a "bank" whose imperative to make money is balanced by a concern for the development of fledgling capitalist economies.
Tolaram's Baltic chief, Urmas Reimand, cites two main factors in making Horizon a model of post-Soviet industrial renewal. First, Tolaram was able to retain most of the previous management, who Reimand describes as "very much targeted to the success" of the plant. Currently, the plant is run primarily by locals, with only four expatriates remaining from a transition team of advisers and administrators.
In contrast, Reimand says, foreign-born administrators at Latvia's Dauteks plant were unable to work with the local management. Instead of including Latvians in the company's management, the foreigners "started to hire more and more expats to control one or another field of activity. The number expanded and expanded, but this was not the solution," Reimand said.
The other reason for Horizon's success, Reimand says, comes with the territory. Forest covers astonishingly high percentages of each of the Baltic States, a situation unusual in most developed nations. And paper mills rely on the availability of cheap wood. "The forestry sources are available and quite reasonably priced," Reimand says.
Close as Horizon is to the forest, it also benefits from the west side of Baltic geography, the port of Tallinn and the Baltic Sea. Horizon's foreign exports have nearly tripled since 1996, sending small pieces of the Estonian forests to 36 other nations, and exports now account for 50 percent of Horizon's revenues.
As a result of booming exports and aggressive local marketing, Horizon started showing profits in the beginning of 1997, and moved into the realm of net profits the next year.
The plant, which employs 560 in the town of Kehra, was a strong candidate for two rounds of support from the IFC, which balances business principles with its role in developing a country's economy. "Both have to be there for an investment: a high development impact together with sound business," said the Washington-based investment officer who works with the Baltics, Marge Karnar.
The IFC's latest investment will go toward Horizon's plan to bring pollution levels down to European standards. The latest round of investments will also drive Horizon's plans to compete in European and American markets, where, as expatriates never fail to notice, standards for toilet paper are somewhat higher.