Canada: The Consistent Attractiveness Of Russia: Notes From The American Chamber Of Commerce Annual Investment Conference 2013 In Moscow

Last Updated: June 17 2013
Article by David Aylen

Most Read Contributor in Canada, October 2018

Forever burdened with the journalists' penchant to pick on Russia but embrace the other BRICS, Russians do what they always have done: persevere.  It's business as usual. In fact, the highly dramatized reports on the political tensions in Russia have little or nothing to do with the thriving business opportunities which continue to grow in a country of 140 million consumers. This was the underlying theme at AMCHAM's 13th Annual Investment Conference held in Moscow in April 2013.

When it comes to the United States, its relationship with Russia is an "undervalued stock" and is "working much better than people think" said keynote speaker Michael McFaul, U.S. Ambassador to the Russian Federation.

While acknowledging that their politics differ on many issues, McFaul pointed out that USA-Russia policies are very much aligned as regards counter-terrorism, the situations in Iran, in North Korea and Afghanistan and most importantly, as regards their mutual interests in developing stronger ties in bilateral trade and investment. With the 2012 election year behind them, trade and investment are a top priority for both Presidents Obama and Putin.

McFaul pointed out that, while the governments in each country can do what is needed to facilitate trade, it is up to American (and Russian) businesses to seize the moment and take advantage of investment opportunities. He emphasized that his Government is also promoting Russian investment in America – something that they had discouraged 20 years ago.

Ernst & Young, one of the event sponsors, used the event as a platform to promote its 2012 Attractiveness Survey which points out that, while Western European and North American economies remain consistently flat or decreasing, Russia, China and Brazil are still on the upswing.1

Russia has huge reserves of natural resources. It has an educated and low cost labor force with the highest literacy rate anywhere in the world. It has a fast growing middle class of avid consumers. With the recent creation of a free trade zone with Kazakhstan and Belarus the consumer market is now well beyond 140 million people. And in 2012, Russia finally joined the WTO. In manufacturing, Ford, John Deere, Airbus and many others are here. In consumer services, McDonald's, Subway, Starbucks, Dunkin' Donuts, Cirque du Soleil are well established in Russia. In retail, the leading shopping malls host the likes of GAP, Banana Republic, Media Markt, Auchan, Ikea, Metro, Marks & Spencer and countless others. In the hospitality industry you will see Hyatt, Hilton, Ritz, Marriott, Holiday Inn, Inter Continental etc. In food and oral care Mars, P&G, Nestlé, Colgate, Unilever and Henkel, Pepsi and Coca-Cola make and sell their leading brands in Russia. In TV and film, Disney, Fox and others locally produce content intended for Russian audiences and American films are now released simultaneously in Russia.

A few of these success stories were told at the 2013 AMCHAM Conference. The impressive list of distinguished corporate executives, who took the time to share their perspectives on the modern Russia, included:

ExxonMobil Russia's President, Glenn Waller, who reaffirmed to the audience the fact that, on the global stage, Russia is now the most important country in the energy sector. Technology development in this sector will be the lifeblood of future business, he said. This includes importation of foreign technology and developing new technologies at home. Developed nations with a strong presence in the energy sector, such as the United States and Canada, are well positioned to benefit from projects in Russia.

DuPont Russia's Managing Director, Jiri Lang, said that his company is firmly established in Russia and expects to see growth and new business in bio-based industries, in the auto sector, in road construction and in the railroad infrastructure development sectors where DuPont is a supplier. In the automotive sector alone the expectation is that Russia will some day soon overtake Europe in terms of new cars and trucks for consumers.

Mondolez RUS (previously Kraft) Director General, Romeo Lacerda explained that, even though the growth of available consumer income has begun to decrease, the demand and growth in the fast moving consumer goods sector is still increasing and Nielsen forecasts even more growth. In part, this can be attributed to a growing middle class, which, in 2005 was 18% of the population, in 2011 was 25% (i.e.  35M people, the total current population of Canada) and in 2020 is expected to be 35% of Russia's 140M people.

PepsiCo Russia's Senior VP, Silviu Popovitch disclosed that Pepsi has already invested $9B in Russia. Their strategy has been to leverage their international brands and at the same time, build strong local Russian brands. According to their surveys, 42% of Russians, as contrasted with 23% of Americans, believe in the proposition: "the more I buy the happier I am". Russia is inherently a consumer culture. He concluded by saying that Russia is one of the most attractive markets for potential income growth in the FMCG sector.

Yet the World Bank's Doing Business survey still ranks Russia at no better than 120th place behind China and Brazil. There are obvious areas for improvement: reforming the unattractive political regime, seriously committing to eliminate corruption, enhancing the still weak physical infrastructure and facilitating, not discouraging, entrepreneurship.

One area where Russia is committed to continuous improvement is in respect to intellectual property enforcement. A specialized IP Court has just been constituted. This court, much like the US Court of Appeals for the Federal Circuit, will review lower court and tribunal decisions relating to infringement and validity. In its 2012 IPR Action Plan, the Russian Government committed to the United States to improve enforcement in areas such as internet piracy, anti-counterfeiting and improved efficiency in border controls.2 This is a great leap forward for foreign investment.

Footnotes

1  "Positioned for Growth, Ernst & Young's Attractiveness Survey RUSSIA".

2   Office of the United States Trade Representative announcement at: http://www.ustr.gov/node/7982

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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