— Christopher, to start a business in Russia in 1995, a foreigner had to have a certain amount of courage…
— It’s good that you realise that. I recently held a master class on entrepreneurship in a Moscow college, and one student said that I had been lucky, because it was a lot easier and simpler to start up in the nineties. It’s true that in a certain sense, there really were more opportunities then. The market had only just been formed. But, I’m sorry, in those times, competitors were simply murdered.
In fact it was quite simple. I saw great opportunities to use my knowledge and capital in Russia, so I took the risk. I was 25 years old and I didn’t know a word of Russian. I was literally feeling my way around to find some sort of connections and contacts. In two years, I learned a lot and set up my own business.
I saw great opportunities to use my knowledge and capital in Russia, so I took the risk.
But are there fewer opportunities now? At that same master class, I took a paper cup from a student and read on it that it was made in England. But doesn’t Russia have its own forests? Wouldn’t it be possible to make the cup here? It was just that no-one had thought of it. That’s the answer to that question. Anyway, you can learn what’s special about business in Russia directly on the internet. Or come to that, with the help of your magazine. But in 1995, there was nothing, apart from the Moscow Times…
About Christopher van Riet
Christopher van Riet is the managing director of RadiusGroup.He graduated from Pennsylvania University with a BSc in psychology and gained a BSc in economics at Wharton School. Before moving to Russia, he worked as an investment banker in the company Donaldson, Lufkin and Jenrette.
He has been in Russia since 1995. During that time, he has brought more than one billion dollars into the country’s economy. He worked in the companies Alliance-Menatep, Daiwa Securities, Dixy Retail Ltd. and several other businesses. While he was the financial director of the airline Transaero, he increased its capital by $125,000,000.
Christopher van Riet is a member of the council of the American Chamber of Commerce in Russia, the RF Chamber of Commerce and Industry and the Young Presidents’ Organisation in Russia.
— Recently, the Russian authorities conducted an international competition for the development of the Moscow conurbation. One of the most interesting projects was considered to be the concept of airport-served technology complexes round the airports near Moscow. The South Gate industrial part project you are working on fits into this very well.
— If that is so, we would be very pleased. Throughout the world, business life is concentrated round major airports. The authorities of Moscow and Moscow oblast sensed this in good time, and concentrated on attracting foreign investors. I can say that RadiusGroup is one of the biggest investors in the Moscow region. And when we created South Gate, its nearness to Domodedovo Airport was a significant factor. It’s possible to fly here from Europe, quickly conduct negotiations or resolve some issues, and fly back again, all within a few hours. Saving time is very important to foreign investors. Time is money.
About the South Gate project
The South Gate industrial park is 20 minutes travel to the south of Moscow and 30 minutes from Domodedovo International Airport. This location meets perfectly the most exacting requirements of production, logistics and product distribution for companies which have to locate their business near Moscow.
The South Gate park is rated Class A. It is managed by a Western company, and enables the big players in the market to expand and consolidate their activities in Russia in full compliance with the best international standards (the park was the first one in Russia to be certified to BREEAM standards).
Today 134,000 of its 650,000 sq.m. are in use. Further expansion of this ambitious project is anticipated.
But you don’t have to fly back, you could stay. Therefore our job, within the framework of the South Gate project, is to do away with the problem of the lack of modern property for foreign businessmen, so that this is a place where they can buy or lease a first class office and a comfortable apartment.
— Is there a high demand for this?
— There certainly is. Many foreigners require property in and around Moscow. For example, the German firm Hartmann Group, a producer of medicinal products, which has traded with Russia for many years, decided to arrange its production right here. And we provided it with this opportunity. Other foreign companies could follow the same path, including some which are not so large. The market in Russia is developing rapidly. Literally everything is in demand. And it has proved in practice that it is extremely profitable to open your own production line here.
Our job, within the framework of the South Gate project, is to do away with the problem of the lack of modern property for foreign businessmen.
— Surely the Hartmann Group must have had some doubts about whether it was worth getting involved in Russia?
— Lots of doubts! Fixed ideas about bears roaming the streets in Russia, and people lapping up cabbage soup with a bast shoe, are still floating around. Western businessmen analysing the local market see how many prospects it offers and are amazed by its scale. But they are afraid they will not be able to get through all the bureaucratic procedures in Russia for opening their own business, or overcome the corruption. The Western propaganda machine tirelessly churns out myths and fairy tales about Russia, and they are mostly horror stories. When Western businessmen look at the figures, they like them very much. They are impressed with the way the economy is growing and the standard of living is rising here. But when they read a tale of woe in some magazine or watch the latest horror story on TV, the idea of opening a business in Russia fades away like a dream.
Of course, there are more and more successful examples of carrying on a business in Russia, and they help disperse the myths. But unfortunately, many foreigners are not capable of making an objective assessment of all the pros and cons of operating in Russia, although it is not difficult to do this, because the facts are there.
The Western propaganda machine tirelessly churns out myths and fairy tales about Russia, and they are mostly horror stories.
I always quote the example of TNK-BP. The opinion that BP lost by coming to Russia persists in the West. However, BP invested eight billion dollars in this joint venture in 2003, and ten years later got back nineteen billion. In other words, its investment had more than doubled in value. Then Rosneft acquired 50% of the BP shares for 27 billion dollars. Forty-six billion dollars clear profit in ten years! Is that a loss? So I advise all my fellow countrymen to forget the tall stories and myths about Russia and to look first at the facts and figures.
I advise all my fellow countrymen to forget the tall stories and myths about Russia and to look first at the facts and figures.
— BP is a big business. But what can smaller businesses expect in Russia?
— Not only giants like BP, but also smaller businesses, can reckon on a stable profit. There are plenty of examples here too. Including from my personal experience. I was one of the investors in the Russian trade network Dixy. I invested 43 million dollars in it in 2004. It wasn’t just my assets, but those of other foreign investors too. I had to do a lot of work on organising the management of that company. But after only three years, we sold our shares on the open market for $240,000,000. Was that a bad investment? Of course it was difficult at first. Disputes arose with the Russian partner. But the result exceeded all expectations.
— That’s also quite a big business. Let’s lower the boom a bit.
— OK. I have just invested in a Moscow company with a turnover of less than one million dollars. I have known its manager for ten years. He procures cleaning equipment in Europe for various enterprises and installs it here. Why is this a good prospect? Because previously, Russian manufacturers did not give much thought to ecology. Times are different now. The ecological requirements are a lot stricter. And Russian businessmen themselves have come to understand how important ecology is. Ecology has always been a priority for us. Not for nothing did the RadiusGroup industrial park win the international BREEAM ecology award. Green buildings have higher liquidity. This means you can rely on a profit if you invest in cleaning equipment. And although this is just a small niche product in Russia up to now, it will grow dramatically.
RadiusGroup conducts developer and investment activities in the field of warehouses and production premises. It works with major international companies.
It was founded in 2006 by managing directors Christopher van Riet and David Simons. RadiusGroup offers flexible and responsible risk management, and also financial solutions for the acquisition, building and leasing of property, and asset management. RadiusGroup clients include such big corporations as Hartmann Group, John Deere, Volvo Trucks, Iron Mountain and others.
— To what else should one draw the attention of foreign investors intending to open a business in Moscow?
— To the nature of their relations with their partners. This is much more important in Russia than, for example, in America with its highly developed legal system. If American partners are in dispute about something, as a rule they will take it to a court which will make a ruling. This practice is not yet very widespread here. Relations in Moscow have to be handled very delicately and attentively. Think about who you’re dealing with. Make sure you get some kind of guarantees. This won’t be easy. And you have to be prepared for this. And also for the fact that the rules of conducting business in Russia sometimes contradict themselves. Take the rules for registration, obtaining work permits and so on. You may find yourself dealing with one branch of the authorities today and a different one tomorrow, and they each have their own requirements.
If American partners are in dispute about something, as a rule they will take it to a court which will make a ruling. This practice is not yet very widespread here.
But why did I invest in this cleaning equipment selling project? Not only because I have known my partner for a long time, and trust him. It’s just that he’s really good at his job. He sees how an industry is developing and can work it all out. Capital is not just money. It’s also knowledge. Incidentally, my partner is also a foreigner. Like me, he came to Russia to work 17 years ago. And he has also learned, with Germanic pedantry, how to overcome all the pitfalls of Russian bureaucracy. He doesn’t ask “Why isn’t it all as simple and understandable here as it is in Germany?”, because the answer is obvious: because this isn’t Germany, it’s Russia.
— The new Moscow authorities are trying to remove unnecessary administrative barriers impeding business. Have you felt the effects of this?
— Of course I have. Since the new mayor Sergei Sobyanin took office, it has become easier and simpler to communicate with officials of the Moscow administration. In Luzhkov’s time, the issue of permits for building, connecting up to mains supplies and many other matters were not transparent, the game was played to completely incomprehensible rules. Now much has changed. Sobyanin himself invites foreign businessmen to a dialogue, opening up wide opportunities for them. He understands the importance of foreign investments. And we can feel it. But everything is not going to change at once, it takes time. Furthermore, much depends on Federal legislation. Anyway, it’s already clear that they want to attract foreign investors to Moscow primarily in the field of transport construction and assimilating the territories of former industrial areas, i.e. to solving the problems faced by the Moscow authorities.
Since the new mayor Sergei Sobyanin took office, it has become easier and simpler to communicate with officials of the Moscow administration.
— Which sector in Moscow is the most profitable from an investment point of view?
— You can’t assess profits without assessing risks. In my view, the quickest profit is offered by the Russian Internet. Some people are doing well there. One example is Yandex. But great opportunities are accompanied by great risks here. Investments often fail to produce any positive result. That’s why I prefer the property sector. Here in Russia, I have dealt with retail, logistics and much else besides. I attentively monitor all sectors not connected with natural resources. And from this point of view, property is the most reliable business. It interests not only foreigners. In Russia, and particularly in Moscow, more and more rich people are investing their money in this particular field. And this means in good convenient apartments of interesting design. Those players who offer a quality product for sensible money in this market obtain a good profit.
It must be understood that Moscow and Moscow oblast comprise 30% of the Russian economy. But the sales market is not limited to the capital region. Let’s say that our partners in the South Gate project are manufacturing and selling agricultural equipment, which is mainly in demand in the south of Russia, in the black soil zone. So why have they set up shop right next to Moscow? Because here you can find better qualified personnel, a better social structure, more cultural facilities and the opportunity, for example, to give your children a good education. Possibly something will change in this situation later on. But for the time being, foreign investors consider that their first stop in Russia really must be in Moscow.
It must be understood that Moscow and Moscow oblast comprise 30% of the Russian economy. But the sales market is not limited to the capital region.
— How much do you need to get into Moscow and Moscow area property?
— Even to acquire one apartment is a good investment. If you acquire several apartments, you can rent them out and recoup your investment in a certain period of time. Incidentally, the Moscow authorities have proclaimed their intention of developing the rented housing market, what is known as income housing, as it used to be in Russia even before the Revolution. This is also a good investment. Developers in Russia can feel at ease, with a yield of 10-20% per annum over three to five years.
European developers have carried out a splendid project called “Pokrovskiye kholmy” (Pokrovsky Hills), where more than 100 townhouses have been built. The property was leased to Russian and foreign entrepreneurs and a solid income was obtained. What’s more, alongside this settlement for foreigners they have built the sort of environment in which they feel at home. And this project has also paid for itself.
In just the same way, any product or service which improves the lives of Russians will pay for itself. After all, the struggle for a better quality of life has only just begun in this country. For example, a new baby has recently been added to my own family. And I have noticed that in the centre of Moscow there is nowhere to leave him under supervision so that I can go shopping with my wife or have a quiet cup of coffee. This is a great field for investments, and quite small ones at that! A completely free niche for a small business.
Any product which improves the lives of Russians will pay for itself. After all, the struggle for a better quality of life has only just begun in this country.
Incidentally, it is even profitable to keep money on deposit in Russia at the present time. In America, you won’t get more than 0.25% annual interest. In Russia, even in the Savings Bank, they’ll give you two to four percent in dollars. If I invest in America and buy an apartment there, the best I can expect is a 5-7% yield. In Moscow it’s 10-20%. And that’s without taking profits tax into account. Take Gerard Depardieu, for example. True, when he got his Russian passport he knew the quickest way of getting past Russian red tape.