— Mr. Harms, firstly, with your permission, a clarification question: apart from everything else, you hold the post of speaker of the world network of German foreign chambers of commerce. What does this post involve?
— German business abroad is supported through a network of bilateral chambers of foreign commerce. Today they cover 90 countries. This network is self-managing and self-regulating. In each region of the world, the chambers operating there select their speaker, i.e. their official representative who on their behalf discusses and decides on questions connected with the specifics of the operation of German companies there.
— Discusses with whom?
— With the authorities, business associations and other German organizations. The regional representatives in turn select one speaker, to whom is delegated the authority to speak on behalf of all the foreign CFCs, representing their interests in Germany.
— So, for example, only you have the right to discuss general problems with Frau Angela Merkel?
Michael Harms. Born in Dresden in 1964. Graduated from Moscow State Institute of International Relations in 1991 and then from the Berlin Free University. He began his professional activities in Philips Medical Systems as a sales manager in Hamburg and Moscow. He worked in the German Business Cooperation Bureau in Berlin, in 2000 became a member of the board of the East German Committee of the German Economy. In 2001-2003, he was Executive Secretary of the Consultative Committee for Entrepreneurial Activities within the framework of the Stabilization Pact for South-East Europe in Brussels. Since 2007 he has been head of the German Economic Mission in the RF and Chairman of the Board of the Russo-German Chamber of Foreign Commerce. Since 2012, he has also been the speaker of the worldwide network of German chambers of foreign commerce.
— That is perhaps too categorical. But for example, I am certainly the one who deals with our Minister of Economics when questions concerning the activities of the CFC network arise.
— The Russo-German chamber currently has 848 members, German and Russian. Which are the more numerous?
— Seventy per cent of the chamber’s members are German firms, about 20 per cent are Russian and 10 per cent are companies from both countries. Although this is a very arbitrary division: many companies with German capital operating in Russia are not registered as German legal entities, but, for example, as Russian ones.
— What are the dynamics of the membership base? Has it been expanding or contracting recently?
— How many German companies altogether are working in Russia today?
— Are many of them based in Moscow?
— Moscow is the clear leader: there are more than 3,000 of them in the capital. There are about another 760 in St. Petersburg, and the rest are in other regions.
— You first came to Moscow during perestroika. You have observed just about all the periods during which the modern Russian economy was formed. Do you think that the present is the most difficult period for German business in Russia, or have there been worse?
— There have been worse. For example, in the nineties business was much harder. If you take out the politics, the present difficulties are just a combination of circumstances forming a crisis, connected in particular with the fall of the prices for oil and other resources. It is a crisis which in another situation people would just calmly get through. Actually we consider, and always say, that in recent years, conditions for doing business in Russia have improved considerably. And German goods are valued here, and we have very close links, many joint ventures. Of course politics are causing us a lot of trouble just now by introducing uncertainty and lack of confidence.
— According to the Federal Statistical Office of Germany, trade turnover between Russia and Germany fell by 11.7% in 2014. Is that all because of sanctions?
The decision to create the Russo-German Chamber of Foreign Commerce was taken in April 2006 in the course of Russo-German inter-state consultations at summit level in accordance with an agreement between V.V. Putin, President of the Russian Federation, and A. Merkel, Chancellor of the Federal Republic of Germany. On 5th December 2007, the Union of the German Economy in the RF, by a decision of a meeting of its members, was transformed into the bilateral Russo-German Chamber of Foreign Commerce (CFC - Deutsch-Russische Auslandshandelskammer, AHK). The official opening of the chamber took place in Moscow on 14th December 2007.
All German companies interested in establishing close economic relations with Russia and all Russian firms seeking an outlet on the German market are eligible for membership of the Russo-German CFC. At the present time, 848 companies are members of the Russo-German CFC, more than 90% of them being small and medium businesses. The chamber is financed by members’ contributions.
The Russo-German CFC aims to help German companies, primarily small and medium businesses, to open offices in Russia, sort out relations with the administration, facilitate the establishment of business contacts between Russian and German companies, and advance new projects.
The CFC offers firms market study services and assistance in reaching the stage of entering the markets in both countries, seeking business partners, personnel and territory for the development of a business and support in founding new firms, as well as running career path development courses. Each year the chamber holds more than 100 different events with the participation of its members. Work is done within the framework of branch committees and working groups organized by the chamber.
The CFC offers various services on a commercial basis (legal support, organization of conferences, visits and so on) through the local branches of its subsidiary DEInternational, which is today operating in 80 countries. In Moscow, the subsidiary branch is the “German Economic information Centre”, founded in 2004.
— I don’t think so. According to our estimates, if you call the effect of all factors on our economic relations 100%, sanctions account for no more than 20%. The main reasons are the fall in oil prices, the worsening of international market conditions and the devaluation of the rouble. And of course the general geopolitical uncertainty.
— Purely from the point of view of the moral climate in Moscow and the regions as it affects the chamber and your companies: has it changed recently?
— I can’t complain in that respect. The Russian authorities take a very positive attitude towards us. They value us and German business. They do what they can to keep politics out of our relations with each other. That is our position too. Therefore we continue to conduct an excellent dialogue with the Moscow, regional and Federal authorities. We all understand the significance of foreign investments to create jobs, to develop technologies and from the point of view of tax collection.
In fact it is not so much a question of relations, but of what is actually being done to improve the investment climate. To compare Moscow with the other regions is probably not quite right. But we can name the leaders among the regions – namely Kaluga and Ulyanovsk oblasts, and Tatarstan. That is where they are most concerned about investors, and have created their development corporations and industrial parks, working on the “single window” principle.
— A few years ago, discussing the investment climate in Russia, you said in an interview: “The most important thing in Russia is the uncertainty. There should be clear regulation, so that entrepreneurs know that an approved standard with be valid for 10 years, for example, so that investors can adapt and build their strategy”. How do you assess the situation today? Again, leaving politics out of it.
— The situation has undoubtedly improved. The extent of legal regulation has increased. The is shown both by the ratings, including international ones, and by our own practice. There are still problems, of course. But I have now been working in Russia for almost eight years on the trot, and a can confirm that progress is very noticeable.
— How difficult is it today for a Western businessman to open a small or medium business in Moscow?
1. Get to know the country.
Don’t think that working in Germany and in Russia amounts to the same thing. Each country has its own specifics.
2. Establish personal relations with partners.
Good relations with the people with whom you are working play a very important part in Russia.
3. Become a member of the Russo-German CFC.
The experience accumulated by your other colleagues could be very useful to you.
4. Study the Russian market.
It is not enough just to read reviews and expert assessments. To understand the processes, you have to see them with your own eyes.
5. Come here for the long term.
You will not achieve great results quickly. You must have patience.
— It is not difficult at all.
— All right, let me put the question another way. What difficulties can a German entrepreneur expect to face in Russia?
— Firstly I would like to say that the problems for foreign businesses in Russia as they are currently being described in the West are greatly exaggerated, to put it mildly. There is no need to whip up passions! This is not just my opinion. I meet with a variety of experts who know the world markets well. If for example we take Holland for comparison, then yes, the situation in Russia is worse. But if we look at the BRICS countries – Brazil, India or China – then Russia does not look at all bad by comparison. To open a business, develop it, to work at it, and without corruption, is quite possible here. This is how most of our entrepreneurs work.
The most important thing is to find a market, your niche, to offer the right product, to find your client. To convince him that you are a reliable partner. That though German goods are more expensive, they are better. This takes time and skill. However, these are all just the complexities of the market. But opening a firm, obtaining support in a region – none of this is difficult today.
— What attracts the Western investor to the Russian market today? What are its main advantages?
— The main advantage is that Russia is a large strategic market, and until very recently, it was a growing market. One of the few growing markets in the world. No-one can say for certain at present, but I think that after a little time, a year or two, the market will return to growth.
Furthermore, the rouble is very cheap today. It is difficult to export from the eurozone to Russia, goods have become expensive. On the other hand a company or a plot for an enterprise can be bought cheaply here, and production is quite cheap too if you use Russian components. This also give a Western producer the opportunity of putting a “Made in Russia” mark on his products. In the conditions of an import replacement strategy, this is very important. In my view, these are the two most important incentives for an investor planning to put money into Russia today.
— But is this motivation effective? Are there German firms which are now ready to open production in Russia?
— I don’t want to name specific companies, because the final decisions have not yet been taken. But there are projects on which serious work is in progress, There are not as many of them as there were before, but they do exist, and they are being developed taking the incentives I have mentioned into account.
— Can you give an example of a German investor who has already invested in such a project?
— A factory for producing precision metal-cutting machine tools, built by the German company DMG-Mori Seiki, will be started up in Ulyanovsk at the end of September. This is the first really large investment in the engineering industry, Tens of millions of euros.
— So despite the crisis, you would still not advise entrepreneurs coming to the chamber to wait till the storm ends and sunny weather returns to the economy?
— Well, if we assume a company comes to me now with the idea of opening a large motor vehicle assembly plant in Russia, I would probably say: gentlemen, the motor vehicle market has fallen by half, you should think very carefully about this and recalculate everything several times.
But if a firm were to come and say that it had been doing very well selling its equipment to enterprises in the Russian oil and gas complex, but that it was now much more expensive, and the clients were considering going for Russian-produced equipment... So invest and localize production here! I am sure that the policy of import replacement is a serious matter, and will continue for a long time. And from the point of view of the Russian leadership, it is absolutely the right policy: any country wants to increase its own production. So if it is economically beneficial to you, it makes good sense to localize.