— Mr. Dubien, the Russian authorities never tire of appealing for foreign investors. Yet they still have doubts. Why?
— I would not take such a pessimistic view of the situation. French investors, at least, are actively going into Russia. The turning point came three or four years ago. Strange as it may seem, it happened at the time of the crisis. Direct French investments up to 1st January 2013 exceeded 12 billion euros. Now it is still more. France rose to third place for level of investments in the Russian economy, not counting investments from offshore companies. The major French players came to Russia, even if they were a little later than those of other countries. And they were of many kinds – banks, retailers, power generation and motor vehicle companies, chemical and agrarian industrial enterprises.
About Arnaud Dubien
After graduating from the Institute of Eastern Languages and Civilizations (INALCO) and the Paris Institute of Political Science (IEP), Ardnaud Dubien spent the period from 1999 to 2006 studying Russia and the CIS countries at the Institute of International and Strategic Relations (IRIS). After that he headed several publications devoted to the post-Soviet countries, including the Russian version of Foreign Policy magazine, and edited the analytical bulletins Russia Intelligence and Ukraine Intelligence. Apart from this, in recent years he has worked as a consultant at the French Foreign Ministry Centre of Analysis and Forecasting and several major French industrial companies. He is a member of the “Valdai” International Discussion Club.
— So the crisis drove them to it?
— This is in fact largely the case. The crisis does not hinder investments in Russia, it helps them. There are opportunities for making profits here. In spite of the objective difficulties, here there is still potential for growth . For example, take Bonduelle – not one of the biggest French firms; it produces tinned vegetables. Just imagine, a third of their total income comes from Russia. They started, like everyone else, by opening their office here, spent some time looking round, and then started their business. And the business went well. Muscovites have long since got to know Bonduelle peas and sweet corn. What’s more, they are all grown not in France, but in Krasnodar Kray. The tins are made on site, and so are the labels… Bonduelle has about 40 partner firms in that region. That means jobs and taxes which stay here, in Russia. In spite of initial fears, the earnings proved greater than in the European Union. It is profitable to operate in Russia. And even those in the Bonduelle management who had doubted the need to stake so much on Russia became convinced that this was their most successful project.
The crisis does not hinder investments in Russia, it helps them. There are opportunities for making profits here.
— Was Bonduelle’s example infectious?
— Decisions are taken on the basis of market circumstances. After all, a power generation company cannot be guided by the success of vegetable producers, nor vice versa. Each one acts independently, but they are all undoubtedly affected by the general trends. And Bonduelle is by no means the only example of successful investments. Many other French companies are operating effectively in the Russian market, and in widely different regions.
— For example?
— The French are building a sewage treatment plant at Nakhodka. French partners participated in the construction of the famous “Russki” cable-stayed bridge for the ATES summit in Vladivostok. In the Altay Kray, the leading region of Russia for cheese production, an International College of Cheese Making has opened. In Nizhni Novgorod, the cableway built by the French firm POMA solved an important transport problem. An analogue of the famous Paris food market Rungis is being built in St. Petersburg. The French aircraft firm Safran has already invested a billion euros in the Russian economy, and is considering the possibility of buying more assets. On the eve of the opening of the Olympic Games in Sochi, The Tver Rail Wagon Works and the French company Alstom completed a project for Russian railways to produce two-storey passenger cars, which are already in use on the Moscow line. This is far from a complete list. Economic trading relations between France and Russia are marked by the fact that we have a wide range of cooperation – from agriculture to space and the military-industrial complex. The paradox is that many do not believe that France is the third largest country for direct investments, or that there are far more joint Franco-Russian projects than American-Russian ones.
The paradox is that many do not believe there are far more joint Franco-Russian projects than American-Russian ones.
— Maybe they don’t get enough publicity?
— Very likely. Although everyone knows that Renault bought AvtoVAZ and the Société Générale acquired a controlling block of shares in Rosbank. The French company Total is developing Russia’s most promising oil and gas project in Yamal, and has contributed to the capital of the Russian “NOVATEK” group of companies. And take aircraft construction. The new Russian short-range passenger aircraft Sukhoi Superjet 100 has not only French avionics, but much else that is French as well. The engines are made in Rybinsk at a joint Franco-Russian enterprise. Several hundred French specialists live and work there. And again, not many people know that.
— How do you explain the increased interest of French investors in Russia?
— I notice that the Germans and Chinese also show an interest in Russia and are building up their presence here at an impressive rate. France is trying not to be left behind. Why ? Primarily because our products – from food to aircraft, trams, turbines for nuclear power stations, being built here in Russia by joint ventures – are in demand. The structure of French exports to Russia is worth noting. Two thirds are high-technology products, helping to modernise the Russian economy. This is the very thing which most greatly concerns Vladimir Putin’s team. The President of Russia has spoken frankly about this, including in the Valdai International Discussion Club. Whereas other countries supply Russia mainly with various consumer goods, vegetables and fruit, we do not limit ourselves to that, but try to put the emphasis on innovative exports. This does not remain unnoticed by Russian businessmen and state officials.
— How do you assess cooperation with Moscow? What makes the Russian capital attractive to French investors?
— With rare exceptions, it is via Moscow that French companies come to Russia. They have their head offices here too. By the way, in the nineties, they came through St. Petersburg as a rule. That was then the “bank window” to Russia.
With rare exceptions, it is via Moscow that French companies come to Russia.
Moscow is primarily a gigantic market. In “Valdai”, I talked with Sergei Sobyanin, the Mayor of Moscow. He quoted this figure: the Moscow conurbation, together with the oblast, has a population of 23,000,000. it is the biggest market in Europe! And all French enterprises, whether they make cars or produce tinned food, know very well that Moscow is where the power, finances and business partners are concentrated. Here is where they have to be found and persuaded. Altogether, Moscow’s share of Franco-Russian trade turnover is about 50%.
The “Great Moscow” project is being actively developed today. Here is another indicative example. In a recent competition for concepts of the development of the Moscow conurbation, the winner was the project of the French company Grumbach-Wilmotte, the producer of the “Great Paris” project. The French have something to share with Muscovites. This concerns not only architecture, but also models of managing the city economy and organising the transport infrastructure – not to mention how rapidly the French chain stores Auchan, Leroy Merlin and Decathlon are developing in Moscow. Virtually all Muscovites and many other Russians know these brands today. By the way, Auchan is now the largest foreign employer in Russia. 25,000 Russians work in its shops.
The Moscow conurbation, together with the oblast, has a population of 23,000,000. It is the biggest market in Europe!
A shop called Le Bon Gout opened in Moscow recently, specially for the French. After six months of living continuously in another country, many have feelings of culinary nostalgia. That is why, for example, there are shops in Europe for Russians, where you can buy Borodino bread or ice cream in a wafer cup. Many French people live in Moscow. Previously, when they went home, they brought trunks full of food back with them. Now they no longer need to do this, because of the shop, Le Bon Gout. Some French ex-pats, flying from Moscow to Paris for Christmas, take paté de foie gras with them – just imagine, from Russia to France!
— That’s a significant example. Does it not show that not only large and medium French businesses can come to Moscow, but small companies too? Is there a place for “the little ones” here?
— There is, and I know about 50 such French companies. As a rule, they began modestly. and now, some have already become “big ones”. But so far, on the whole, the “little ones” are still small. That is one of the problems. Nor are there that many medium French enterprises here. But that is true of France itself: our businesses are either very big or very small. And then, they are still afraid of going to Russia. Going into foreign markets seems risky to them.
The next stage in the development of our relations is the attraction of small and medium French enterprises.
The next stage in the development of our relations is this very attraction of those small and medium French enterprises which have something to offer the Russian consumer. I recently talked with representatives of the Desjoyaux company, which makes swimming pools. They are already trading in Russia, but through agents. And now they want to become properly established here, because they can see a free niche in the market. They are noticing the interest shown in their products. Sports, family and country-house swimming pools are very much in demand in Moscow and the surrounding area. And other markets in the world are either fully taken up, or they do not have very good prospects. For example, though there is interest in swimming pools in China, it is too far away. Incidentally, foreign investors are somehow losing interest in China, it is a country which is going out of fashion. French investors at any rate feel some disappointment. They invested too much there, and it has often proved unjustified. There is a very harsh local context there. It isn’t easy to find partners. Big money can be made there, but it is very difficult by any standards.
How do investors behave in such circumstances? They look at a map of the world and they see Russia! Maybe not a population of over a billion, but 143,000,000 is also quite a fair number. The middle class is growing, and so is consumption.
— How can Russia be made fashionable for investors?
— When someone sees that others are getting good profits here, he will ask himself: why shouldn’t I try it? But that is not fashion. To make itself fashionable, Russia needs a different image.
— That is exactly what you are doing. You are giving analytical support when required to the heads of companies which belong to the Franco-Russian Chamber of Commerce and Industry, you are speaking in the French National Assembly on questions connected with Russia. How much demand for this is there today?
— This is required in our countries by politicians, deputies and businessmen. Our job is to widen the circle of people interested in Russia. We presented our report “Russia 2013” in the National Assembly of France and at an international economic forum in St. Petersburg. The principle of our work is not to leave out anything important. Whether it concerns politics or the economy, whether it takes place in Moscow or in one of the regions, we try to see the whole picture of events. Everything interests us, even as far as changes in the powers of city mayors. After all, investors have to deal with specific people, they need to understand who these people are, and if they have prospects of power.
At the same time, we try to find out what is going on in France in all fields of her political and economic life. France and Russia have many common themes and interests, and we shall facilitate a considered and rational dialogue on these matters.
About the Observatoire Centre
The Franco-Russian Observatoire Analytical centre, created on the initiative of the Economic Council of Russian and French enterprises belonging to the FRCCI, began work on 1st March 2012. The centre’s aim is to attract the attention of the French élite, including politicians, businessmen, journalists, social activists and students, to Russia and her role in the modern world, to open up prospects of cooperation, and also to help those in Russian political and economic circles to gain a better understanding of what France is really like.
The Learned Council of the Observatoire includes 14 generally recognised experts from France and Russia. A Political Council at the centre operates under the chairmanship of Jean-Gabriel Arqueros.
The basic publication of the centre is its “Yearbook”, which provides expert advice on the current situation in Russia covering a wide range of political, economic, social and cultural questions. The report is published in several languages.
Apart from the main report, we produce other analytical products. And we see that monitoring of the Russian regions is in the most demand. Investors are interested in knowing what is going on there. This is why, for example, an Italian delegation visits Chelyabinsk or Saratov. This is normal market analysis. Just imagine, 600 people attended our presentation in the National Assembly of France. There was the sort of queue you used to get for sausages in the Soviet Union! That’s how much interest there is in Russia.
— Arnaud, you have painted a very optimistic picture. Nevertheless, what still hinders the development of Franco-Russian relations as a whole?
— There is a certain negative political background, but it does not hinder the development of economic relations. I would identify several factors. One short-term one, depending on a combination of circumstances, is Syria. Everyone wants to see peace there. They understand, both in the Elysée Palace and in the Kremlin, that the war has to be ended. But there are different approaches to the personality of the present President of Syria. Fortunately after the acceptance of the so-called Putin Plan, the military scenario has receded. In spite of all the public statements and agreements, it is not yet certain that “Geneva-2” will take place and will solve this problem, but passions have cooled.
The Syrian factor cannot be ignored, but we must look further. That is why the Observo centre has prepared 20 proposals for the development of long-term partnership between Russia and France. My own favourite proposal is to invite Russia as a guest of honour to the military parade on Bastille Day, 14th July 2014. After all, we were allies in two world wars. (From the Editor: After this interview, it became known that François Hollande has invited all the countries which took part in the First World War to participate in the parade, so Russia has been invited to the parade).
All the other proposals are directed in one way or another towards us having more active contacts and offering our experience to each other. And there is no doubt that this is mutually beneficial. There is tremendous need for modernisation in Moscow now, in housing, roads and transport. And if French specialists working with Russian partners are now building the Moscow-St. Petersburg motorway, that means they can build a lot more too. A project for a ring railway round the Russian capital is being developed. That is, it is not just a matter of deliveries or of producing equipment of some kind in Russia, but of solving urgent transport problems. We have experience in solving them, and specific proposals exist. Furthermore, since the expansion of Moscow, it is intended to develop whole industrial clusters here. And we have long had a system of such clusters, there are about 60 of them. They are combined on the territorial and industrial principle. Here too we can be useful to each other, because in France itself, the biggest of these clusters is already cramped, and they are thinking about which countries to go to and with whom they should cooperate. Many of them are looking at Moscow and the surrounding region.
— Which fields are the most attractive for investment in Russia. What still remains uncovered in Moscow?
— It is always possible to offer something new and more competitive. For example, the fastest internet communication in the world has been set up in France between Paris and Lyon. Why could not the same be done in Moscow? They want to create a major financial centre in the Russian capital. There could be many applications for our mutual efforts here. As for investment attractiveness, virtually all the French companies represented in Moscow are making good profits. I even find it difficult to single something out. Furthermore, much depends on technology, the combination of circumstances, price surges on the stock exchanges and so on. Today it is more profitable to invest in one thing, tomorrow it will be something else. In any case, all investors coming to Moscow reckon on making a profit. And as a rule, they are right.
The times when you could simply sell something in Moscow are over. Today you need to invest in production.
The times when you could simply sell something in Moscow are over. Today you need to invest in production, and produce a joint competitive product. Just imagine, one Frenchman came to Russia about 20 years ago, opened a pig-breeding complex near Lipetsk, then began producing special breeds for such complexes for other enterprises, and opened the second stage of his own complex. He now holds very good positions in the market. He has invested 50,000,000 euros and intends to increase his investments to 80,000,000 euros. Would he have got involved in all this if it were not profitable?
A year ago, an opinion poll was taken among European investors. Those already operating in Russia were asked if they would invest here again. And those thinking of coming here were asked if they thought they would put their ideas into practice. It turned out that 90% of those who had already invested in Russia were intending to increase their investments. But of those who were still thinking about it, only half intended to open a business in Russia. What is the conclusion? When you are actually here, you have a better idea of this country’s potential. But when you are still over there, at home, you continue to be afraid of something. It is important to pass this critical point. As a rule, those who have come do not regret it. And I don’t mean those who fled hurriedly from France like our famous actor…
— Since you mention him, what can you say about the Gérard Dépardieu factor? Is this more a matter of PR, or is it a real desire to find a more attractive base for his capital?
— It was an impulsive step on his part, and unfortunately it ended up as something negative. Negative for all concerned: for himself, for Russia and for France. Such behaviour is unworthy of such a great actor. But it is not typical of Franco-Russian relations. Anyway, he’ll return one of these days, because he is 100% a Frenchman.
You need to come to Russia not as Dépardieu did, on the spur of the moment in the style of Cyrano de Bergerac, with no artistry, but in a well-thought-out and conscientious manner. Not harmfully to yourself or your historic Motherland. Although a touch of artistry is necessary all the same. We are French, after all!