Mr. Rodzianko, relations between Moscow and Washington now are very bad. Some politicians are even talking about a return to the Cold War period. Of course it’s not a Cold War. But, in this sense, how can you value current economic relations between the two countries?
Well, first off, it’s far from the Cold War. The Cold War is a comparison because relations are bad at the government level. But, a lot of things are different from the Cold War times. And probably, for me the most important thing is certain freedoms that Russians have today that they didn’t have back then. Primarily, the freedom to travel. The freedom to choose between more than just Pepsi and Coke. (Smiles)
Right. That’s a good point! (Smiles)
The economy is a market economy. There is competition, there is choice, there is private enterprise, there is the opportunity for Russians to open their own businesses and it’s being done. So, it’s a very different country, a very different time and a very different Cold War – if it is a Cold War. Now, the second part of your question: How do I evaluate the economic relationship between Russia and the United States? American business in the last 25 years has grown quite a bit in Russia. I always like to say, you can’t spend a day in Russia without being touched by an American company’s product or service. We can start with the large accounting firms, the Big Four, the Mars bars that are everywhere. The goods and the jeans that are available that used to be a big prize and were smuggled in. Now, they are clearly here – well, they are made in China for both the US and Russia: the same jeans, from the same place, the same brands. So, just in terms of everyday presence it is a very big presence, a noticeable presence. McDonald’s, Subway, Procter & Gamble, just to name a few, Pepsi, Coca Cola, I have already spoken about, and all the other products that come with them,they are all here. And what we found is when the relationship deteriorated… Well, first of all, it’s perceived to be a largely US-driven deterioration where Europe is the passenger pulled by the US locomotive. Whether that is, or is not, actually the case doesn’t matter – that is the way it is perceived. I have often had to face the criticism that the US is forcing sanctions on Russia at no expense to itself. All of it is at Europe’s expense. Because look at the figures for US business involvement in Russia. They are very trivial. It doesn’t cost the US anything. And that is based on official trade statistics and official investment statistics. But those official trade and investment statistics don’t reflect the actual visible presence of US business here. So, we had the question: How could it be that there is so much business here, and yet the official statistics are so insignificant? And so, we did a survey and we posed a question to companies that we identified as US-based multinational companies. We took the largest 140 companies in our list of companies and asked them to answer some questions such as:How much have you invested in Russia? How much do you trade with Russia, and how much of your trade with Russia goes from the US as opposed to third countries? 59 companies responded, and just those 59 companies have invested 50 billion USD.
50 billion. Now, the official statistics say something like 14 or 15 billion USD total investments by all US companies since the Soviet Union collapsed, or since the Russian Federation was formed, to put it more constructively. And what that says is that the official statistics is missing a lot of investment. It’s clear that multinational US companies keep their money in lots of subsidiaries in different countries and don’t have to invest from the US. So, actually, American investment in Russia is much larger than cross-border US-to-Russia measured investment is - number one. Number two, on trade, almost three quarters of all trade by American companies is done through third countries. So, if you look at the official statistics, the peak of trade between the US and Russia in 2013 was at 40 billion USD. And then figure that three quarters of that was done outside. If you multiply that by four, you might get something more in the lower end of the range of European trade. So, what that says is that the actual presence is quite a bit larger than the official statistics would tell you. And that is consistent with just living in Russia and observing the presence. Now, the politics clearly don’t add enthusiasm, that’s for sure. And even companies that continue to invest and continue to grow, don’t put it in the front pages of the newspapers. And they do - our companies are continuing to invest. We asked that question as well. And the investment volumes last year and this year are bigger than they were two years ago. And in a very different direction. If you look at the 50 billion number, half of it was in oil and gas energy. If you look the plans for 2016, half of it is in manufacturing and a very small percentage in oil and gas. Now, that’s not a complete figure, that’s just an indication. We know that there are more investments done in oil and gas that we don’t know about, or that we didn’t hear about in our survey. But the point is that there is movement toward localization. There is movement and investment by our American companies into Russia, into developing their market share, into expanding their business presence. And there’s very little enthusiasm to go and write about it in The New York Times.
Because it’s not fashionable.
What do you mean?
The public discourse. The propaganda in the US is very much anti-Russian, and in Russia - very much anti-American. And so the fact that companies are continuing to invest in growth doesn’t fit the propaganda. It doesn’t match. It means, you know, somebody is wrong.
Okay, I got it.
Companies would prefer the saying, “money likes quiet”, “business likes quiet”. Business would rather brag about its bottom line and its dividends and its stock price than about, “hey, we grew our business in Russia by 20 percent”.
Hmm, that’s really a good point. Let’s imagine how will the results of the coming elections in the United States influence relations between Moscow and Washington? What will happen if Mr. Trump wins and if Mrs. Clinton wins. (The interview was conducted before the US elections)
Let’s start with Mrs. Clinton.
Because it’s easier to predict. If you read the newspapers and you read the surveys it looks like her chances look better. I’m not an expert on it. But the experts say her chances are better.
When I asked an expert what he thought the probability was he thought 60 percent Clinton, 40 percent Trump. Which is still a pretty healthy uncertainty, right? But with Clinton it’s much clearer because she’s been a part of the establishment. She’s been an acting politician. She has been the Secretary of State. Now, what do I expect from her? Nothing much constructive compared to where we are today. If anything, perhaps initially a harder line. More demands on Russia. More threats of sanctions. That said, I think there’s a limit on how much the US can get the world to impose sanctions and how long they can continue. And particularly, in a place like Russia, which is a bigger economy than any of the other countries that in the past recent history have been subject to sanctions. We always say to the US government, and the US government acknowledges the point, is that it’s not our business to tell you whether or not sanctions should be done. That’s your business. Our business is to tell you don’t do them unilaterally. If you’re going to do sanctions, do them as a coordinated matter and don’t try to get ahead of your soldiers. Don’t leave us as the only players in the field and the only damage will be to our business interests if the US imposes a unilateral sanctions regime. And the response in Washington is that they understand that it’s very important that it’s a coordinated action and not a single unilateral action. So far, that’s been the theory and the practice. With Hillary Clinton, probably, that will continue. But there’s at least a chance, with her, that has signaled a harder line, that she might even be willing to do something without participation by others. I’m not sure. That’s the risk. I wouldn’t imagine much difference between the policy then and now. And realistically, there’s still a few months before the change of power, and the situation that she inherits, when she inherits it if she’s the winner, will also have a lot to do with determining what actions she might or might not take. Specifically, the situation where there’s more chance of flux, like the Syrian situation, which is the one that’s now being spoken about more as the reason for imposing stricter measures and stricter sanctions on Russia. Although I’ve heard the theory that that’s just a tactic in order to get the old sanctions extended at the same level.
And what about Mr. Trump?
Mr. Trump is much more difficult to predict. Mr. Trump has said a lot of different things. Initially he said… he makes this point which is different from the consensus on foreign policy of the US foreign policy elite, which is, “We’ve got to stop spending our money in 80 different countries where we have military. We can’t police the whole world. We can’t afford it.” That’s actually a very real statement. But the way he delivers it, he goes, “Let the Japanese fight for themselves and let the allies who don’t pay their way, leave them in the dirt”. That’s the colorful side of him coming out. The real message is, of course, true. How long can the US continue to try to be the policeman for the world with its budget problems? That’s the real message, on one side. On the other side, he says, “You know, hey the Russians are bombing ISIS. Great! Good for them. Let’s let them do it. We need that done.” This is a different view of the foreign policy of the US in the Middle East from the current view. Now, why is it different? I don’t even know because I can’t begin to understand what it is. So, there’s that issue. Then the issue of, “I’ll speak to President Putin. I think we can get along. Let’s try to be friends instead of enemies.” That sounds encouraging. That sounds really good. I’d love to see that happen. And then the next week he says, “And if they fly close to our ships we’ll blow their planes out of the air.” So, you know, the range of possibilities is very, very wide. So, the bottom line is much more difficult to predict. And there’s no real basis on which to judge how he will actually behave as president because he hasn’t been in a position of elected office ever before, which is part of his attractiveness. The mood in the US is – get rid of the politicians, they messed up. That’s his main assent.
Yes. You already mentioned some American businessmen that are doing business here, but all of these are big names. What about small and medium-sized businesses?
There are much less American small and medium-sized businesses in Russia compared to SMEs from places like Germany. This is because, to be multinational, and to go so far from home, it’s just easier for the Germans where Russia is a neighbor. And from the US it’s, God knows where... But if they are suppliers to the large companies, then they’re quite often invited by the big companies to supply them in Russia. And they do. They do first by exporting to Russia. And then if the volumes weren’t, they can come and look at producing here and some of them have done that. So I would say that’s more a statement on medium-sized companies that have come here and will continue to come to Russia.
Could you give me some examples? Just a few.
I won’t give you names, but I’ll give you examples. The automotive industry and the second level of supplier – the people who make the brakes, the people who make the bearings, the people who make the wheels. They’re coming, they’re here. So, and again, multinational companies are multinational. Ford is as big probably in Europe as it is in the US so they have suppliers all over the world and they’ll bring the ones that are closer to them, or easier to convince. And by the way, General Motors, when it said that it was stopping its assembly of Opels and Chevroletsin Russia, and closing those facilities and closing that business, had a much bigger effect on German trade than on US trade because most of that was made in Germany. And, by the way, that actually was less related to Russia and more related to General Motors’ business in Europe overall.
What kind of advice could you offer to an American investor or businessman who is thinking of coming and doing business in Moscow and Russia?
Well, I would say one thing. First, it’s a very good time to be thinking about it because…
It’s a very good time?
A very good time. Because things are cheaper and more accessible and if you buy when it’s cheap you have a chance to sell when it’s dear. If you come in when the market’s at the bottom then you’ll have a chance to grow as the market recovers and that pattern is what we expect to see happen. That pattern in Russia repeats with quite a bit of regularity. So, I would say, first of all, in that sense it’s a good time. In the sense of, what are business conditions like, what it’s like to operate a business in Russia? If you are a foreign businessman and you have more than an individual, if you have a decent-sized business with enough administrative support, yes the rules here are more difficult here than they are in the US, but they are rules, and it’s possible to follow them, and it’s possible to operate here. And no one will, well, no one is a strong word, - your chances of being harassed are quite low. Russia is not a bad place to do business relative to lots of other places in the world.
Are you sure?
In the World Bank’s Doing Business ranking, Russia moved to 40th place this year, outperforming countries like Belgium, Italy, and Israel.
In your opinion, what does Moscow have to do to attract more businessmen, and to attract more tourists?
To attract more tourists, I think there are some simple things. Some of them are being considered for the time when the World Cup will be held here. And those are things such as coming into Russia for a week without needing a visa. Russia is very, very reciprocity-centric. And I would recommend Russia to think of itself first, and of reciprocity second. So if it makes sense for you to have tourists come here and spend money, make it easy for them to come here and spend money. Don’t try to make it hard for them to come here and spend money.
Like what? What should they do?
Like visa-free travel. And don’t make the other country reciprocate before you do that. So, if a US tourist wants to come here for a week or a month, give them the visa-free travel. And, advertise. There are all these tourist bureaus. Russia doesn’t advertise very much, it doesn’t talk about itself very much. It assumes that people know that it’s a great place to come. Well, that’s a strong assumption. Especially with the level of propaganda. I mean, people ask, I have heard this many times, I get asked it myself, “Is it safe there?”, “Is it okay?”, “Are you okay in Russia?” Well, I’m at least as safe in Russia as I am in London or in New York, and maybe safer. So, yes, I think Russia can take advantage of that or get that message out better than it does today.
So, to cut a long story short, what are the main obstacles that Moscow has to overcome?
Well, I think distance is one. Image is another. Global warming is a good thing, if it actually ever happens. It’s a little cold here. No, I mean, coming here in May to September is okay. Any other time, it’s pretty cold.
Let me ask you just some personal questions. Who and what inspires you in everyday life in Moscow?
I think just the average Russian person. The spirit of the average Russian in what has been a tough, tough two years is just not broken. That’s impressive. That people say, hey, it’s tough, but it’s been tougher. I think that impresses me the most.
And tell me please just a few words about your passion. I mean, the Moscow Polo Club.
Well, I love the horses and I love the sport and the sport is probably the most adrenaline-inducing sport that I’ve ever, ever played. And the other one, it’s a little bit like golf in that, you know, I’m 65 and I can still play polo because the horse’s legs are 5 years old and I don’t have to run on my own legs, I can let the horse run.
And how often do you train?
Well, it’s three times a week from May through September and then it’s three times a week from mid January to mid March. And then, of course, riding horses is something you can do pretty much all year long. But playing, we organize the playing practices in those two blocks. In the cold winter, at holiday times, I’ll go to Florida and play there. It’s quite nice.
As I understand it was you who introduced Russians to the sport.
It wasn’t me who introduced it to them, but I was part of bringing the very first horses that came here to the club. And within two years I became the owner of that club. So yes, in the last 13 years, I suppose about 11 of them I’ve been the owner of the Moscow Polo Club.
And also head of the Russian Polo Players’ Federation.
The Russian Polo Players’ Federation is a member of the Federation of International Polo (FIP) and we have been for the last 12 years. And yes, I represent Russia. But Russia’s participation is very small. I really look forward to the day when it becomes a sport that somebody really cares about.
You mean an Olympic sport?
Well, it was an Olympic sport, and it is an Olympic sport on the long list but it hasn’t been played since 1936. The last Olympic gold medal was won by Argentina in 1936 in Berlin. And then after the war, the first Olympic games after the war were in England, which is the home of modern polo, but all the polo fields were turned into air strips and most of the players were shot down on airplanes during the war. So, there weren’t that many, there wasn’t an ability to do it. Now, FIP, the federation, is about 30 years old and its objective is to make polo an Olympic sportagain. And they’re trying. And I think eventually it should happen. The leaders in the sport today are Argentina, the United States, Great Britain, Brazil, France, Spain, Italy, Germany and India.
And where’s Russia?
Russia is very new in the sport. Russia hasn’t developed that much. We would be, probably, somewhere near the level of the central European countries, like Hungary, Poland, maybe a bit below, behind them, but close.
So as I understand your aim as the head of the Russian Polo Federation is to put Russia among the leaders.
Well, that would be great. Of course that’s my aim, but it’s unrealistic. That’s the aim for my children and for their children.
And what’s your aim as a head of the American Chamber of Commerce.
Well, to help our member companies, and those are American companies and international companies and Russian companies, to some extent, to have a better business environment. Anything we can do to advice, to assist, to encourage the creation of a better investment and better business environment in Russia is our objective. Of course we’re not alone. We work with RSPP, with Delovaya Rossiya, with ASI, with the European associations, AEB – Association of European Business, with the Canadians, German and the French clubs and the Japanese. We have similar positions on many issues. Every country group has its specifics but I think in many, many cases we work together and that’s our objective as well – to work well together, to make this a better place to do business.
Let me ask you one last question: What are your main achievements?
My main achievements?
In everything. In polo, in business…
In polo, in business and in life. Well, I’m pleased I got to 65 years old and I have a family and I have grandchildren. And that’s probably the best achievement. It’s a great, great pleasure to see them grow up, to see them develop, to see them do well. I think in terms of my career in Russia, I’m very pleased I had the chance and opportunity to live and work here for almost 20 years. And I’m very pleased to have the chance to actually try to, in the American Chamber, to serve both my companies and the country of my ancestors.
Thank you very much. Good luck.
Nice talking to you.
Thank you very much.
Ernesto Ferlenghi: Pour your heart into doing business in Russia
“Our objective is to convince Italians that, in spite of the sanctions, the drop in oil prices and ruble devaluation, you can and should continue to work in Russia.
Isaac Kalina, Minister of the Government of Moscow and head of the Department of education of the city of Moscow, answered our questions in an exclusive interview with Capital ideas.
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