NOTHING VENTURED

Ernesto Ferlenghi:

There is no reason to fear Russia

Confidustria Russia, an association of Italian companies in the RF, held its annual general assembly, which peaked the interest of foreign business community representatives. Suffice it to say that over 300 business people attended the assembly.

This time around, the main topic of the Confidustria Russia general assembly was the economic challenges facing the country. Reputable speakers talked about a wide range of issues, trying to answer two of the most pressing Russian questions: What can we do and who can we blame?

However, the event kicked off with some bad news.  Ernesto Ferlenghi, President of Confindustria Russia, an association of Italian companies operating in Russia, offered everyone in attendance his condolences with respect to the fact that the legendary Squadra Azzurra, Italy’s national football team, had lost a match to the Swedes and will not be competing in the World Cup for the first time since 1958. Of course, this is a tragedy for all football fans, but especially for the Italians and Russians. After all, the next World Cup will be taking place here.

Fortunately, the people gathered at the Confindustria Russia general assembly didn’t feel defeated for long. As soon as Mr. Ferlenghi said the name of Massimo Carrera, the head coach of the Moscow Football Club Spartak who was in attendance, everybody cheered up and applauded.

“In 2017, under Massimo Carrera’s management, Spartak became the champion of Russia for the first time in 16 years and won the Super Cup. It’s a great example of localization,” Ernesto Ferlenghi said, smiling.

Yes, localization is the primary goal of Italian and all other foreign companies currently operating in Russia. And the best investments are investments in human capital. Because, as everybody knows, staff is the solution to all problems. So far as localization is concerned, it’s important to point out that Italian companies see it as an opportunity to expand from Russia into other countries. And this isn’t limited to CIS countries.

During his presentation, Mr. Ferlenghi stressed that, in spite of the new economic conditions related to western sanctions, there is a solid foundation for further development of relations between the two countries. This foundation is the many years of mutually beneficial cooperation between Italy and Russia. Today, Italian business people just need to be a bit more persistent when it comes to looking for and finding new partners. Otherwise, they risk being overtaken by the Chinese, for example, who are very active on the Russian market. “There is no reason to fear Russia,” Ernesto Ferlenghi said, adding that, from a political standpoint, Russia “is the most stable country in the world.”

From an economic perspective, there has also been a lot of progress in Russia in the past three years. It is much easier to start a business in Russia now than ever before. Among other things, this is the result of a more stable exchange rate, a transparent tax system, and the more lax customs barriers. Russia moved up to 35th place in the 2017 Doing Business rating. Just a year later, Russia placed 40th in this rating, which is put together annually by the World Bank and the International Finance Corporation.

Trade with the European Union has also increased by 25-20 percent compared to the year before, which has had a positive effect on the attitudes of European business people. It looks like we’re bouncing back from the crisis. Another two metrics serve as testament to this fact: the Russian car market has doubled, and demand for construction equipment grew by 60 percent in just the last quarter of this year. Citing these two facts, Dr. Frank Schauff, the CEO of the Association of European Business, still noted that even though things are getting better, the situation is still far from perfect. Talking about the new sanctions, which were introduced by Washington this summer, he pointed out that they have been particularly harmful for European companies, not to mention the fact that Washington’s sanctions are now law, which means that they are much harder to lift.

One fact was cited to illustrate just how serious the economic sanctions are. When the major bank Paribas failed to adhere to the sanctions Washington imposed on Iran, it was fined 9 billion dollars. Of course, that makes everybody else more hesitant to follow suit. It prevents a lot of European companies from doing business in Russia. But not all of them, of course.

For example, Philippe Roger, Deputy General Director at Leroy Merlin, was particularly optimistic during his presentation toward the end of the Confindustria Russia general assembly. He reminded the audience that retail is a great reflection of the state of the economy, since it has to do with the general population’s purchasing power. In 14 years, Leroy Merlin opened 1,700 stores in Russia and continues to open another 16-17 every year! According to him, this was decided back in 2011, and the company is adhering to its original plan. In 2016, 17 Leroy Merlin stores were opened in Russia. Another 16 were opened in 2017, with the opening of yet another 15-16 stores scheduled for next year. At the end of his presentation, Philippe Roger optimistically said: “The sanctions did not affect us. We invest 400-500 million euros here every year. We are confident in the Russian market, and in Russia’s stable development.”

 

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