Lee Ranson, managing partner, Eversheds
Opinion: The Russian Bear is calling, but approach with caution
26 September 2011
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The spotlight of foreign investment is shining brightly on Moscow following a recent trade visit that saw the announcement of £215m worth of deals and the creation of almost 500 UK jobs.
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Russia is a capital-rich market with masses of natural resources, making it attractive to international investors. But it is not without its challenges. It has a complex and uncertain regulatory framework, there is a perception of corruption in the corporate ranks and, given the recent raid on BP’s Russia-based offices, some businesses are nervy.
But times are changing. Russia’s economy is growing and the international business community, bruised by economic difficulties in the West, is turning eastwards for new opportunities. The energy and manufacturing sectors are particularly attractive, and UK Trade & Investment (UKTI) figures show that exports to Russia rose by 51 per cent in 2010 and 63 per cent in the first six months of 2011.
Russia is very much front-of-mind for the business community due to the recent visit. Eversheds was one of 24 participating organisations that included representatives from BP, British Airways, Ernst & Young and Rolls-Royce. We gained a valuable understanding of the dynamics of business and the economic route map Russia is following.
Our itinerary was packed. Following a briefing at Downing Street we arrived to a full schedule of meetings with leading Russian businesses as well as First Deputy Prime Minister Shuvalov. The business representatives were also able to share best practice and local market knowledge.
As a firm, the visit gave us the chance to hear more about Russia’s review of its legal system, the outcome of which could bring significant changes. With the opportunity to advise both international clients and Russian businesses, the country is an attractive place for legal firms. However, the review could restrict the ability of foreign firms to advise companies on Russian law, which would be a significant retrograde step.
The review is also expected to suggest measures to tackle corruption in the legal system. A report is expected in early 2012, but any implementation is likely to be postponed until after the country’s presidential elections in March.
One thing that was underlined during the visit was the level of preparation required to ensure that an organisation embarks on investment in Russia with its eyes open. This is a capitalist economy in its relative infancy, with a fast-changing business environment that can be affected hugely by political changes at both the national and state levels.
The challenges for business were discussed at length during the trip and it is clear that networking with companies that have already invested in Russia is not only beneficial, but essential. Uncertainty regarding rates of corporate tax and an extremely strict regulatory environment from an employer’s perspective are just two of the challenges. Wide fluctuations in economic activity (usually connected to the oil price) add a further interesting dimension.
The consensus among delegates was that the ability to steer a company through various levels of bureaucracy is essential and that this can be helped by having a good balance between Russian and ex-pat employees in the organisation.
Being part of this delegation provided a unique insight into the Russian market – both the opportunities and the potential pitfalls. But one this is for sure, as coined by as Danny Corrigan, chairman of TheCityUK Russia Working Group: “The great Bear of Russia is awakening.”
Lee Ranson was part of the recent UK trade delegation to Russia