— David, we are meeting in difficult times, The level of trust between Russia and the USA has fallen sharply, first because of the Snowden scandal and now because of events in Ukraine. There is even talk of sanctions against Moscow. How do Western businessmen react to all this?
About David James
He graduated from the Institute of Chartered Accountants of England and Wales and Cambridge University. He specialised in linguistics, Slavonic studies and political studies. He speaks 12 languages, and is perfect in English, Polish, German, Russian and French.
He worked as an accountant for Hillier Hopkins, as internal audit manager in European countries for Cleanaway Europe, and as the financial director of the Russian TV company DTV. He has been with Baker Tilly since 2009. He held the positions of international contacts partner of Baker Tilly Poland, international contacts partner of Baker Tilly Czech Republic, and since July 2013 he has been national audit director of Baker Tilly Rusaudit.
— I would be telling a lie if I said that they are indifferent to it. But all the same, I hope they are thinking somewhat differently. Firstly, businessmen understand that the media have to compete in the market for sales. And to do this they sometimes have to seek out enemies, to look on the seamy side. The more newspaper scandals there are the higher the circulation. Hence the fairy tales like the broken toilets or wolves roaming round the hotel at the Olympic Games in Sochi!
Business has no reason to malign Russia. Business is based on cooperation. And an experienced businessman will never take such fables at face value. He will sift out the tendentious information. He will prefer to see with his own eyes or to ask those who are themselves doing business in Russia. Therefore those Western businessmen who actually went to Sochi will surely have realised that it is possible to invest money there.
Of course, the roots of the present political tension lie much deeper. And although it will hardly be a return to the Cold War, I remember a good Russian saying: “War is war, but dinner still has to be served regularly.”
Business has no reason to malign Russia. Business is based on cooperation.
So business has to secure this “dinner”, to make a profit. It is getting more and more difficult for foreigners to make a profit at home. Another factor is that Western banks have practically stopped giving credit for business. They gave credit to private individuals for cheap property and got rich in the process. This is one of the reasons for the recession, the financial crisis. Against this background, no political storms can suppress interest in Russia. Its economy is growing – not by much, true, but growing. The private sector, in which foreigners can invest, is developing. And it is hardly likely that anyone will give this up for the sake of politics.
— Foreigners are traditionally fearful about corruption in Russia.
— I can say that Russia now has much stricter anti-corruption laws than many other countries. Of course, the struggle against corruption is not bringing instant results. But again, businessmen understand that corrupt practices in state institutions are not a purely Russian phenomenon. Incidentally, many people are amazed today at the corruption which has been revealed in the European Union. For me, this was no surprise. A year ago I took part in the IFAC Forum of Firms in Vienna, where among other things the prospects for investments in the post-communist countries were discussed. Many were afraid to invest because of corruption. But I drew attention at this forum to the fact that according to the Transparency International index of perceived corruption, most of these countries, though not in the top ten, were in a “better than average” position. And if you don’t invest in these countries, where do you invest? In my opinion, my hint was well received.
I think such forums should be held more often in Russia too. Particularly now, when politics is prevailing over economics. It is important to clarify positions, to get to know each other better. And it is second nature to clever people to learn and check everything thoroughly before acting.
Russia now has much stricter anti-corruption laws than many other countries.
Many in the West fear the excessive influence of the Russian state on business. These fears are also greatly exaggerated. If it had no influence at all, the big “sharks” would be snapping up everything. You have to have a sensible combination of anti-monopoly measures, independent courts and fair and efficient taxation. All these exist to some degree or other in Russia. And I don’t think that this course is going to change in any way. For people to be willing to pay taxes, they must not be too high. And the Russian income tax rate is one of the lowest: 13%. In the European Union it is much higher. The VAT rates are lower in Russia too.
— Baker Tilly Rusaudit facilitates the development of the business of foreign companies in Russia. How does this work? How does the conversation usually start?
— We start with a warning: your competitors are already operating here, and there are quite a few of them. But if you are afraid of competitors today, tomorrow they will come to your market and put the squeeze on you there, because the profit they get in Russia is high enough for them to do this. Because Russia’s potential is enormous. If you put it off, you could lose out altogether.
Many in the West fear the excessive influence of the Russian state on business. These fears are also greatly exaggerated.
And then I remind them of the difference, for example, from Asia. In Europe there are only three cities with a population of over ten million, namely London, a major financial centre; Istanbul, which is on the threshold of the European Union and acts as a bridge between Europe and Asia; and Moscow, which could also be called a bridge, but between the huge markets of East and West. There are very many Chinese and Japanese goods and firms in Moscow, far more than is believed in the West. And to enter Eastern markets, you have to go to Singapore or Hong Kong. You only have to come to Moscow to arrange cooperation.
All the more so, since the Moscow authorities have set course for turning the Russian capital into a major international financial and commercial centre. Here you have all the conditions for such a partnership. No less important is freedom of action. There is no dictatorship of big international corporations. After all, Snowden, whom I mentioned earlier, showed that the liberties of which we were so proud turned out to be myths. Russia is one of the few countries capable of showing true independence. So many businesses could well find refuge here, refuge for capital which it is hard to place in the West.
The Moscow authorities have set course for turning the Russian capital into a major international financial and commercial centre.
Of course you can try to find a tax haven, a quiet resting place, in some of the offshores. But they are all very small, whereas Russia is big, and is not liable to be influenced by numerous influential interests. In times like these, this is very important. The extortionate tax introduced in Cyprus on bank investments last year taught us a lot. Russians suffered there too, their investments became worthless in the twinkling of an eye. But most of them did not stamp our feet in rage, they took a philosophical attitude to what had happened. They did not blame the Cypriots, because they had suffered just as much. And that was sensible. If you think about the development of business in the long term, you have to look for a refuge free from storms. In this sense, investments in Russia are strategically justified. The important thing is not to get it wrong tactically: in choosing the industry, the region and your partner.
— How does Moscow look in this respect?
— The Russian capital has a great advantage in its size. In territory and population it is the equal of the Czech Republic. Add in the whole Moscow region, and it is equal to the Czech Republic and Slovakia together! But to return to politics, one cannot fail to sympathise with foreign business people in Ukraine. If those who came to power from Maidan stay there long, I do not think this will help the development of business in Ukraine. In choosing where to invest, you must not ignore the question of political stability in the country.
About Baker Tilly Rusaudit
The auditing-consultancy company Baker Tilly Rusaudit was founded in Moscow in 1992, and is now one of the biggest companies in the auditing and consultancy market. Its specialists are experienced in implementing major projects, including on a Federal scale. They know the specific features of the Russian market, they know international practice and have developed some unique projects themselves. Baker Tilly Rusaudit is part of the international association Baker Tilly International, the eighth largest international auditing network, consisting of 156 companies in 131 countries around the world.
— Which sectors of the Moscow market do you think are the most attractive for investments?
— All sorts of different ones: trade, education, services, construction. There is a real construction boom in Moscow just now. The city is allocating vast sums to the development of the transport infrastructure, and many Western firms are happy to take part in this. For example, a partner of mine from Ireland is successfully building high-class offices and reception areas. His clients recommend him to others, and his orders keep on increasing.
If those who came to power from Maidan stay there long, I do not think this will help the development of business in Ukraine
You know, Muscovites have a good appetite for Western goods. And this appetite persists in spite of the saturated state of the market. I think there will always be a demand here for language and business teaching programmes. There are quite good business prospects in the information technology field. Not to mention the fact that many enterprises, including in Moscow, need to replace obsolete equipment and introduce advanced Western technologies. What isn’t a field for investment?
— When you speak of Western goods, do you mean goods imported from the West or Western brands?
— Brands. The goods themselves may be made in China or even somewhere in Africa; there are many Chinese firms there now. Among the Chinese, fewer and fewer are willing to work for ten dollars a day. The middle class is growing rapidly there. Therefore many Western firms are exporting their products from there. It’s a pity, of course, that production is being reduced to such an extent in the West itself. But there will always be a demand for quality craft goods one way or another. A business acquaintance of mine in Spain produces excellent shoes, and sells them on average for €600 a pair. But in Russia they can be sold for €1000 a pair. Russians aren’t chasing after cheap goods any more. Permit me to recall another Russian saying: Saving pays twice over.
By the way, when I was working in Poland, I saw how the Chinese were trying to take part in carrying out large road-building projects. They tried very hard, but in vain. In the end, the contract went to the well-known Austrian firm Strabag Societas Europaea. I do not think the Russians are less discerning…
— David, you haven’t been disappointed in these half-year periods in Moscow, have you?
Muscovites have a good appetite for Western goods. And this appetite persists in spite of the saturated state of the market.
— One thing I would like to experience is a real Russian winter! Some foreigners don’t like it though. They say, not without reason, that what is health to a Russian is death to a German. Can you imagine, this winter it was actually colder in Warsaw than in Moscow! So I soon adapted to it, including to Moscow distances and the local transport. I think the most convenient form of transport is the Moscow Metro. I am not afraid to wander around Moscow at any time of the day or night. I walk with a pedometer, my daily standard is 10,000 paces. But in Warsaw, there were very few places I would risk walking about in the evening, and the same in London. But here I visit the Botanical Gardens and the parks, and feel completely at ease. It’s never rough here.