Home / Don’t forget the ‘R’ in BRIC
Project part-financed by the European Union
By Andrew Cahn, CEO, UK Trade & Investment
I have just returned from Russia with a message: if you lead a UK company that wants to grow in today’s globalising world, you should be looking closely at Russia. The case for doing business with India and China is already well made. The case for Russia is a little harder but compelling all the same.
Some bare facts. Russia is a huge country bordering the EU with stable finances, average growth of 7% over the last ten years, a developing and dynamic market, a quickly growing middle class and a government among whose main difficulties is how to get money out of its overflowing coffers and into its decaying infrastructure. Russian GDP has grown by over two-thirds in seven years. It is now the tenth-largest economy in the world.
The World Bank in a report at the end of last year said Russia had, ‘Robust growth supported by high energy prices, large capital inflows, rising domestic demand and prudent macroeconomic management’.
Speaking to the British business community in Russia, I found a clear consensus: Russia is open for business and, in general, welcoming to UK business and expertise. Forget the Russia that was portrayed as a basket case in the 90s. It is a very, very different place nowadays. Oil at over $100 a barrel has seen to that. Moscow in particular is booming and must rank now as one of Europe’s most dynamically changing capitals. I was particularly struck by the huge number of shopping malls springing up across the capital and now in the regions, too.
In the early years of this century, the main driver of economic growth was the oil and gas sector. Despite sky-high hydrocarbon prices that is no longer the case. Think of it like this: growth is being driven by every time Ivan decides to leave his rust-belt factory and set up a business on his own. Communism was such a wasteful system and Russian industrial production so immense that there is still plenty of inefficiency still to be squeezed out of the remnants of the Soviet economy. Plenty to see continued growth in excess of 5% at least for the next three to five years. And it is the consumer leading the charge.
If UK companies are not convinced by where Russia is now, my advice would be: have a look where most economists expect it to be in 20 years time. Unless there is a major shock, Russia will likely be the largest market and the largest economy on the European landmass.
The UK has a mixed position in Russia. In financial services and oil/gas we are way out in front. Shell has put around £10billion into the Sakhalin project in the far east of Russia. BP has major investments. More than three-quarters of the Russian companies that list abroad have done so through the City of London. More than one-quarter of all IPOs through the City last year were Russian. UK exports of goods were up by 37% last year. But we should be doing more in Russia. More SMEs and UK mid-corps should be in Russia.
As the Russian economy races ahead, so the balance of business calculations has shifted. The question used to be: ‘What risks are we taking by being in Russia?’ It is increasingly becoming: ‘What risks are we taking by not being in Russia?’
So why not Russia? Some will have well-founded business reasons. It might not be the time right now. But if it is a question of negative perceptions driven by Cold War-era suspicions, might I politely suggest UK companies think again. Russia seems, somehow more threatening than India, China or Brazil. But to state the obvious, and for all its specifics, quirks and history, Russia is still a variant on a European theme.
Russia certainly seems to be making the national news for all the wrong reasons. Some of this is their own fault. But what gets missed from the media, as ever, is some of the good news, the increasing prosperity that most Russians feel. And from the point of view of UK Trade & Investment, the excellent opportunity for UK companies in Russia.
Of course, it is not all good news. Inflation is a worry. Like all rapidly developing emerging markets there are likely to be bottlenecks and uneven sector performance. And Russia, like other BRICs, is not always the easiest place for foreign companies to do business. There are still market access issues and developing the long-term relationships necessary to do business in Russia requires time, effort and patience. Improvements in the rule of law would help. Most in the UK business community in Russia will be able to tell a story or two about the complexities of dealing with Russian bureaucracy but most, if not all, will in the next breath tell of high profit margins and hard-working, capable and well-educated Russian colleagues.
My advice is invest some time in Russia. Explore the market and develop business relationships. Take some time to enjoy the culture and be aware of the history. Get some advice from my large and growing team at the Embassy. Patience is an absolute requirement and yes, there is bureaucracy and red tape, and yes, that can breed corruption. It is getting quite pricey. But visitors to Russia will find an endlessly fascinating and vast country going through one of the most exciting and vibrant periods of its history. It is an opportunity not to miss.
