When the global business community looks to Russia as a potential business opportunity, they mostly watch the behavior of local investors to get a better idea of the country’s investment climate. And when those investors show a reluctance to keep their money in the country, it sends a negative signal to other Western capital. Bruno Balvanera, the head of the North West Federal office of the European Bank for Reconstruction and Development, talked to WEJ about how to overcome this new trend.
Bruno, in recent years, Russia is becoming more and more interesting to foreign investors, many of which are looking for large profits in a short amount of time. Why is that?
Most foreign investors in Russia make a profit by supplying the consumers and spreading other goods to various regions in the country. And investors focus primarily on the middle class. Evidence of this can be found in the automobile sector, household goods, consumer goods, and many other important sectors.
So investors come to Russia because of the growing middle class?
Yes, that is a very important factor for them. They take the growing income of middle class families into account when deciding where to put their money. In fact, a large amount of foreign investment is aimed at creating products and services for the domestic market. And once that market is saturated, foreign companies consider the possibility of exporting to third countries.
But there is also a belief, on some level, that it is difficult for foreigners to do business in Russia.
The Russian Government has been working on a number of important tasks over the past few years, and creating a favorable investment climate has been at the top of that list. Everyone understands that Russia, on a list comparing the quality and competitiveness of investment climates around the world, has a low ranking, mostly because of the corruption seen in the country. But measures have been taken to fight against corruption, and while these measures are only the beginning, experts expect to see results in 3-5 years. And one more thing – foreign investors need to pay attention to their Russian colleagues, and make sure they stay in the country.
That is not an easy feat, considering the amount of capital that leaves Russia every year.
If local entrepreneurs are increasingly taking money out of the country, there is something wrong with the country. Many Russian entrepreneurs look for ways to invest the profits they earn in Russia in other companies abroad, which is clearly not good. I believe that making an effort to attract domestic investments is no less important that creating ideal conditions for foreign investors. After all, Russian businessmen know the real situation in Russia, and they understand the country far better – the question is, with all this knowledge, do they really feel inclined to keep the money in the Russian economy?
So the problem lies mostly in perception? The world sees the behavior of Russian investors, misunderstand its intentions, and draw the wrong conclusions?
Well, the reality is not too good to begin with, as you well know. We often hear about incidents with businessmen in Russia, for example, and when potential investors are not actually in the country when they hear news like that, it seems much worse. And people who have important decisions to make in the international arena cannot really assess the situation correctly when they are reading the New York, London, or Paris newspapers.
Would you say the international press is biased against Russia?
I wouldn’t go quite so far, but the international mood is not too favorable for Russia right now – people from all over the world are expressing concerns about the high levels of corruption, questionable democracy, and what they perceive to be infringements of human rights. But the reality is that most people writing critical articles about Russia have never actually been to the country, and if they had, they would have a completely different outlook – in my experience, I have never met a foreign company that hasn’t been happy with their business here.
And the efforts of the EBRD in Russia help create that positive mood?
Our scope of work is very diverse, but our first priority is to support local investors, whether they are bankers or industrialists. And it is very important because, in the end, we support the development of Russia itself, instead of just trying to attract foreign investments. We have seven offices in Russia throughout all the regions of the country within the immediate vicinity of Moscow. We also have several spectacular success stories, as well as very large and beautiful investments projects that we have funded. As a bank, we conduct our operations in 33 Russian regions, but there are no regions in which we would not be interested, generally speaking.
When looking at other countries, which are the most active in attracting investments?
In the traditional view of the world, I’d have to say West Europe, the developed world, and rapidly-growing countries such as Asia or Latin America. However, some developed economies are now facing crucial problems, such as those the older economies faced, which were accustomed to evolving rapidly and who had a lot of money to spend. There is an extremely high level of debt, which is what we are seeing in Europe and in the United States now. Developing countries, on the other hand, are very good at attracting investments, most likely because those countries have low labor costs, low tax rates and customs benefits, and a large domestic market.
Can a country’s connections to the large market of another country have an influence?
Yes, this plays an important role as well. And many developing countries now, including Russia, are a source of investment for other countries. We are currently seeing Russian companies who invest in the United States, in major steel companies and engineering countries. Chinese companies buy assets in Africa, Asia, Russia, and the Latin American countries. And then Latin America goes and buys business in other countries.
Text: Anastasia Yakovleva