Russia is in need of foreign investment in a variety of sectors, and it’s not as hard as many Americans might think to do business in the country, said John Hammond, an attorney who has spent the last 15 years there.
Corruption, lax legal enforcement and bureaucratic red tape are still major issues, but all have improved, and none should keep companies from looking at Russia’s opportunities, said Mr. Hammond, a partner at the Moscow office of European legal and tax firm CMS.
American companies invested a meager $92 million in Russia in 2009, largely because they have the faulty perception that it’s too difficult to do business there, he said during a briefing at Miller & Martin PLLC‘s Atlanta office.
The U.S. traded about $23.5 billion last year with Russia, less than it did with Thailand, a small nation with less than half of Russia’s population.
Many U.S. companies are fawning over China because of its huge population, but for some businesses, Russia actually might be a better fit, Mr. Hammond said.
Projected at 2.9 percent growth this year, Russia can hardly match China’s flashy gross domestic product numbers, but it still represents a sizable untapped market that in some ways presents fewer roadblocks for investors.
For instance, unlike in China, profits made in Russia can be repatriated freely. Also, it’s possible to do business in Russia without a local partner, Mr. Hammond said, which is almost unheard of in China.
For consumer goods companies, Russia’s 140 million people present a huge opportunity, he said. In China, though the middle class and the appetite for luxury goods are growing, most of the country’s 1.3 billion people save what little money they earn. Russians are different.
“Russians love to spend money, and they love to spend money on expensive, shiny, glittery things,” Mr. Hammond said.
Russian leaders know the country needs to quickly diversify its oil-based economy, and they are beginning to realize that they need foreign expertise and money to do so, Mr. Hammond said.
The country is offering incentives to draw foreign automakers and is looking to update its Soviet-era infrastructure by building new roads, railways and airports.
Particularly promising fields are energy and power generation, where American firms like Atlanta-based GE Energy can not only offer turbines and other equipment, but also know-how about boosting efficiency.
It’s not so much that the oil-rich country has gained a green consciousness. In fact, renewable sources “are not really on the radar,” Mr. Hammond said. It’s really about conserving more oil and gas domestically to free up supply for the export market.
He also singled out manufacturing, agriculture, food, financial services and R&D outsourcing as fields in which American companies would be well-suited to benefit from Russia.
Mr. Hammond did offer some words of caution. Corruption is still a problem, though it has consistently improved over the past 15 years, Mr. Hammond said. He added that Russian President Dmitry Medvedev has made tackling corruption a major priority.
Still, Russia has work to do, especially in turning around public opinion. In last year’s Corruption Perception Index published by a group called Transparency International Russia’s ranking fell from 146 to 154.
It’s a similar story with Russia’s legal system. The laws on the books are good, but enforcement is still spotty, and judges’ capacity for interpreting the law hasn’t kept pace with other legal reforms, Mr. Hammond said.
Judges are “constantly playing catch-up and sort of learning by doing,” he said.
In addition, red tape provides many occasions for bribery and other business quagmires, which means Russia is not the place for under-capitalized entrepreneurs.
“You have to have the resources in order to counter decisions that will take place” as a result of corruption, Mr. Hammond said. He gave the example of a foreign client meeting with a Russian regulator who mentioned in the same breath how little he got paid and how he had authority to shut down the business.
Eric Joiner, co-founder and vice chairman of AJC International, an Atlanta-based global exporter of poultry and other meats, told GlobalAtlanta that the company’s main struggle in Russia is dealing with the “unpredictability of federal regulations.”
Case in point: Russia banned U.S. poultry for six months earlier this year. On the surface, the ban was a protest against U.S. producers rinsing chickens with a chlorine wash, but many saw it simply as a bargaining chip in other negotiations with the U.S.
Mr. Hammond can be reached by email at john.hammond@cmslegal.ru.
For more information on CMS, visit www.cmslegal.com.
For more information on Miller & Martin, visit www.millermartin.com.
