Dangerous. Unpredictable. Strange. Those are the three words that pop up in Western investors’ minds when they think of the Russian business world, a top international consulting firm said Tuesday. And what image comes to mind? A blundering rhinoceros, apparently.
As Russian companies seek to invest abroad, they are increasingly finding that the cold cash they have accumulated from commodity sales and other businesses is not always enough to unlock the doors of Western markets.
Frustrated by that idea, several top business leaders and government officials argued at a round table about how to streamline the country’s foreign investment and who was to blame for the small international footprint of Russian business.
“Many Russian companies are not working in a professional way in international markets,” said Boris Jordan, the CEO of the Sputnik Group, an investment and advisory company.
Jordan said even though the state actively supported some foreign deals, such as Severstal’s failed bid for Arcelor, government support was not enough to overcome the wariness of foreign investors about the lower levels of transparency and questionable corporate governance of Russian companies.
Yet, foreign investment will be crucial as Russian businesses seek larger markets for their products in comings years. “It’s difficult to break through the borders to the customers; it’s easier to buy a factory,” said Alexander Livshits, head of international projects at Russian Aluminum.
From 2005 to 2010, Russia is expected to invest almost $80 billion abroad, second only to China among developing countries, according to a study by the Economist Intelligence Unit presented Tuesday.
To succeed at that level of foreign investment, however, Russian companies must overcome prejudices rooted deeply in the Western financial world. Only one in 10 global business leaders in the Economist study agreed Russian companies were “world-class competitors.”
More than 80 percent of the business leaders surveyed said Russia could improve its image abroad by focusing on corporate governance, transparency and business ethics. Business leaders with experience working in the country were even more likely to highlight these qualities as weaknesses in Russia.
Tony Thompson, head of KPMG’s Moscow advisory business, told the round table he had asked his London colleagues to describe their impressions of Russian companies the day before, and they came up with the words dangerous, unpredictable and strange.
Then he displayed on two monitors a drawing of the animal that he saw as summing up those qualities: the rhino.
On the bright side, Thompson said, Russian companies are starting to attract attention for their vision, decisiveness, and ability to generate cash for investors.
Business leaders at the round table strongly objected to what they saw as Western stereotypes, insisting foreign banks and bondholders would not lend their money to Russian firms without an acceptable level of financial disclosure.
“If somebody is afraid of something, he should stop reading Western newspapers,” Livshits said.
But a recent report from Standard & Poor’s said most Russian companies work to become just transparent enough for an IPO or a eurobond sale, but not more. Largely because of this, the average transparency score of Russian companies here increased only marginally, to 53 percent from 50 percent, over the last year.
Severstal’s failed bid for Arcelor shows that though the blessing of the Kremlin may be more than enough to guarantee domestic deals, international mergers require a more nuanced courting of Western minority shareholders.
“For [Arcelor] investors, it was not clear why Severstal was proposing this. No one communicated with the shareholders,” Jordan said.
But the business leaders disagreed Tuesday about how much the government was doing to support business at home and abroad.
“If somebody could work out the level of support of the Russian government for Russian business, it would be in the very last place,” said Mikhail Delyagin, expert adviser to the Institute for Globalization Studies.
Billionaire Aeroflot shareholder and State Duma Deputy Alexander Lebedev agreed that the state had not been particularly helpful in dealing with recent business problems with the authorities in Ukraine. “There is no system that Russian companies can use — it’s not there,” Lebedev said.
But Pyotr Aven, president of Alfa Bank, said: “We are not having any problems in Ukraine like Alexander was talking about.” Alfa Bank owns a subsidiary in Ukraine.
Altimo, the telecom arm of Alfa Group, recently acquired a multibillion-dollar stake in Turkcell, Turkey’s leading mobile phone provider.
“I don’t deny that we have been helped,” Aven said. “That was not possible to do without the government’s support.”
Livshits also said the government was helping the business climate.
“I fully agree with Pyotr — the government is doing much more for business than it used to,” he said.
Indeed, President Vladimir Putin recently met with Viktor Vekselberg, the principal owner of SUAL, just before the aluminum company announced a merger agreement with Oleg Deripaska’s RusAl.
Sergei Kupriyanov, spokesman for state-controlled Gazprom, said his company had also benefited from government support in brokering domestic and international deals.
Still, Gazprom faced opposition from British ministers and others in Western Europe after reports that it intended to take over Britain’s Centrica energy company.
“Somehow the possibility of acquiring Centrica irritated public opinion,” Kupriyanov said.
In the long run, investors will become more comfortable with Russian companies making acquisitions abroad as they start to accumulate longer track records internationally, round table participants said.
“Investors are interested in seeing long-term, predictable scenarios,” said Stanislav Naumov, director of economic analysis and planning at the Industry and Energy Ministry.
While the Severstal case shows how Russian companies are experiencing image problems in more mature markets, they may have an edge on their competitors in emerging markets, where business conditions more closely resemble those here, round table participants said.
Livshits said RusAl was a “young shark” that was more adaptable than the “old sharks” in developed countries.
The above is a report of a Moscow-based english language daily on the recently concluded round table discussion.
Theme: “Russian companies global expansion: source of capital or potential risk?”
THE INCOGNITO RUSSIA?
Умом Россию не понять. Аршина обшим не измерить. У ней особенная стать. В Россию можно только верить. Феодор Тютчев.
Umom Rossiyu ne ponyat. Arshina obshim ne izmerit. U neiy osobennaya stat. V Rossiyu mojno tolko verit. Feodor Tyutchev.
The above is an old Russian adage first written in Russian language and re-written using latin alphabet so that the reader can understand how it is read or sounds in Russian. Now the translation.
Russia can not be understood by logic or the rational mind. Russia can not be measured with Arshina. Russia is a
pecuilar country. You should only have faith (or believe )in Russia.
Feodor Tyumchev. 19th century Russian writer.
This very old Russian adage in essence means that Russia and its inhabitants can not be understood by simple logic or standard human behaviour. Russia is not like any other country. Russia is unique. It is so big that you can not even use Arshina to measure it. You should just have your faith in Russia, and no more. Arshina is an old measuring instrument – like the british yard – used as standard of measurement in the past before the introduction of the S.I. units.
This expression indeed summarises the history and life of its people despite the fact that it was first written in the 19th century.
For example, during the second World War, despite all the odds: badly trained and equipped army, large casualty, hunger e.t.c. nevertheless, Russia was able to overcome these odds, and defeated the German fascist army. The heroism the red army displayed during one of the bloodiest and most fierce battles to free Leningrad from German blockade occupies a prominent place in the history of WW 2.
The outcome of the war changed the course of world history, politics, economy, demography and geography for good. Stalin practically dictated a new world order to Roosevelt and Churchill at Yalta. It could be argued that many African countries, including Nigeria were able to achieve their independence from their evil and hypocratic colonial masters as a result of the victory of the Soviet Red Army.
Many Africans that took part in WW2 on the side of The Allied Forces came to the conclusion that the europeans were not as invincible as earlier thought. The war prooved that the europeans were afterall human too, and not supernatural. The movement for the emancipation of Africa intensified after the end of WW2. It was very bloody in the North. After sustaining a big human casuality, DeGaulle eventually had to give up his ambition of annexing Algeria to France for good. He was forced to give Algeria its independence.
Perhaps, the most heroic post-war feat was the ability of The Soviet Union not only in rebuilding its economy from scratch, but its emergence as a stronger and richer country. After the war, a strong and invincible army equipped with the most modern ammunitions and equipments was formed. Within a very short period aluminium, steel, metallurgical, machine building plants ware churning out planes, trains, submarines, automobiles, helicopters, agricultural equipments, electronics appliances e.t.c The Soviet Union embarked on capital, labour and technological intensive and demanding projects like construction of dams, power stations, telephone stations, roads, railway lines and stations, houses e.t.c.
It is worth mentioning that The Soviet Union was able to achieve these feats within the limits of its budget, and without any ‘Marshall Plan’ like in Europe that was designed for western european countries – by The US – in order to overcome the damage of the war to their economy.
The success of Russian sportsmen and women is another mystery for many, most especially the west to fathom. Up till now, it is still beyond the comprehension of the west how Russians who are assumed to be badly fed, with outdated sports facilities, unfavourable climatic condition for training, and very little support from the government still manage to dominate in international sports events.
A Russian man seeing you for the first time can approve of your marrying her only and beatiful daughter. He can spend lavishly at your wedding. The same man that handed her daughter to you; just 1 or 2 years ago, for no cogent reason may threaten to kill you if you ever come near his daughter again, irrespective of the fact that she has already given birth to a baby for you.
In short Russians are ‘unpredictable’ in all sense of the word. Undoubtedly, based on my protracted surgeon in Russia, it is possible to write not just a book on Russia, but volumes of books if necessary. However, the purpose of this article is not to write a book about Russia, but to tell the readers about Russia only in the context of Transparent International’s Bribe Payers Index and Russia’s global expansion, most especially into Nigeria. We will try to unveil ‘the iron curtain’ and take ‘a peep’ into Russia; which to many is incognito.
TO BE CONTINUED