─ Johann, you have been living in Moscow for almost a quarter of a century...
─ Yes, I’ll soon be celebrating my silver jubilee!
─ You were not afraid of plunging into the Russia of the nineties, when things were not so easy here. Present-day Russia is another country. But the situation in the world is very complex. Would you do such a thing today?
About Johann Vanderplaetse
He was born in the north of Belgium, in Flanders. He graduated from the faculty of law at Ghent University. He has been living and working in Moscow since 1991. As Vice-President of the East European Department of the American industrial engineering company Emerson and President of the Russian-Belgian Club, he has travelled all over Russia, from Kaliningrad to Kamchatka. His favourite leisure activity is fishing near Astrakhan in the delta of the river Volga. His favourite Russian dishes include okroshka (kvass soup) and stroganina (frozen fish served cold).
─ Certainly! Although it is not easy now either. But it’s the same everywhere. You are right, Russia has changed a lot in a quarter of a century. After the collapse of the USSR, the country was only just opening up for foreign business. There was a crisis in every field, from which it seemed it would take a very long time to get out. But the Russians got out of it amazingly quickly. In Russia the economy is developing and the quality of life is improving. I can tell this is so, because it is taking place before my eyes. So yes, I would risk starting a business in Russia today, because the degree of risk is much lower and the opportunities are greater. Furthermore, I like the Russian way of thinking. Two main things attract me: firstly, it’s never boring here, and secondly, there is tremendous potential for the development of business in all fields.
In Russia the economy is developing and the quality of life is improving. I can tell this is so, because it is taking place in front of my eyes.
─ Could you list what you don’t like?
─ Most of all I dislike bureaucracy. Even in 25 years, it is impossible to get used to such a quantity of papers with stamps, and the gigantic reporting requirement. It’s better than it was, of course, but I think there is a lot more to do here. I’ll give you an example. Emerson has only six lawyers for the whole of the East European sector, but in Russia alone, it has 15! It’s the same with accountants. There’s no other way to get past the bureaucracy. Of course, bureaucracy is not an insoluble problem for large companies like ours.
We can permit ourselves to retain a whole army of lawyers and accountants. But it’s terribly expensive for small and medium businesses. And this scares off the entrepreneurs who are considering opening a business in Russia. Yet it is small and medium businesses which are the foundation of a healthy economy. Unfortunately, this is not yet happening in Russia, and this imbalance ought to be eliminated. Of course, no-one will ever entirely overcome corruption, and the situation now is much better than in the nineties, but it is still a considerable problem.
─ Do officials demand bribes from you?
Emerson, a company founded in 1890, is one of the largest international technological and production companies. Its headquarters are in St. Louis, USA. Its staff numbers more than 140,000, and its annual turnover is $25 billion. The company has invested considerable sums in the oil and gas market of Russia and the CIS. It has its own production facilities in Chelyabinsk.
─ Oh, how could you say such a thing? Russian officials have become scared, and for a long time now have not been making open demands. It’s just that they can still find a thousand reasons for not resolving your issue. But Emerson does not pay bribes on principle, and does not resort to dubious methods of advancing its interests. It is better to sell less than to have problems of any kind in the future and to spoil your reputation.
─ What can you say about the sanctions which Russia and the West have been actively imposing on each other in recent months? Where will this lead?
I take a philosophical approach to sanctions. I think one should not panic, but look ahead.
─ I take a philosophical approach to sanctions. As, by the way, do most Russians. They say that if we’ve got through revolution, war and perestroika, we shall easily get through sanctions too. I also think one should not panic, but look ahead. Remember that I was in Moscow during the default of 1998. Many foreigners said then that it would be the end of their business, and there would be nothing worth while left here. But just a few years later, the Russian economy was on the upsurge, and those who did not panic, but built a long-term strategy for their business in Russia, won in a big way. I think it will be the same now.
You know, when there is a storm at sea, from above everything is boiling and swirling about, and it all looks very terrible. But if you dive down, you find it’s calm down there. And business prefers to meet and come to agreement down in the depths, even if it’s stormy overhead. So it’s not worth while whipping up passions. I’d put it this way: the situation is tense, but not critical.
When there is a storm at sea, from above everything is boiling and swirling about, and it all looks very terrible. But if you dive down, you find it’s calm down there.
─ Has the storm not affected your company?
─ The oil and gas industry is our speciality in Russia. And we are undoubtedly perturbed by the fact that American companies can no longer export high-tech equipment to Russia, for example, of the sort that would enable us to extract hydrocarbons in the Arctic. On the other hand, if you study these sanctions carefully, you can easily become convinced that there is much in them that will just remain on paper. But even if this is not so, there is always a way out of the situation. Emerson’s policy in Russia is based on the idea that it is better not to import from abroad, but to produce here, in Russia itself.
An example of this is the Metran works in Chelyabinsk, where high-tech equipment is produced. More than a thousand employees work there, and we intend to double this figure. We are building a new production complex, which will open next spring. Ant the important thing is that this is not just “screwdriver assembly” of components brought in from abroad. More than 70% of our equipment consists of Russian component units. We have about 200 engineers in Chelyabinsk working on software. Thanks to them, we have already obtained 80 patents!
─ So it seems not all the brains have drained from Russia?
Today they can find work in their homeland, and that is a good thing. By the way, on the subject of sanctions: any sanctions are a splendid incentive to develop your own production. In Russia they have understood this and have pursued a policy of import replacement. And we have understood that our strategy of locating production facilities inside Russia has proved to be the right one.
Any sanctions are a splendid incentive to develop your own production. In Russia they have understood this and have pursued a policy of import replacement.
─ The Russians say: “a holy place does not stay empty” – equivalent to “Nature abhors a vacuum”. So if the Russians do not assimilate the riches of the Arctic with Americans or Europeans, their place will be taken by Asian partners, in particular the Chinese…
─ You are right. These are lost opportunities. The biggest project of the last few decades is the assimilation of the Arctic Shelf by Rosneft and Exxon Mobil. It is in the interests of both Russia and the West to develop this project. But I must admit I have some doubts about the equal value of replacing Western oil extraction technologies with Chinese ones. China has no experience of oil extraction in the Arctic. BP, Total, Exxon Mobil and other Western companies do have such experience. The Arctic contains one of the last major oil and gas fields. It is a colossal project, and no sanctions ought to interfere with it being put into effect. I hope this is understood on both sides of the ocean.
─ Big businesses will surely come to some agreement ─ there’s too much money involved. But could sanctions be an obstacle for medium and small businesses?
─ I think they could. The point is that American businesses are considerably less well represented in Russia than European ones. And the share of small and medium businesses in Russia is considerably higher in the structure of European businesses in Russia than in the structure of American business. Therefore sanctions are primarily unbeneficial for the Europeans. They have already backfired in the cessation of food deliveries to Russia.
─ So does this mean that now is not the time to enter the Russian market? It would be better to wait?
─ No, precisely the opposite. The experience I have accumulated over these years suggests to me that long-term planning and long-running projects are essential in Russia. And they require time to get them going. If a foreign company does not run away from here during a period of political difficulties, the Russians will undoubtedly appreciate it. And they will appreciate it even more if a company is not afraid to come here in such a difficult situation. That is to say, today’s risks will become tomorrow’s economic capital. Why wait? You have to take the opportunity of becoming established in the market while the storm is raging. The business remains profitable, after all. Otherwise Emerson would have left long ago…
─ However, many Western companies prefer to establish themselves in the Asian market, in that same China…
─There is a big market in China or India, and it is more profitable to work there if you’re talking about significant volumes of sales. But the profitability is higher in Russia. Here the proportion of the middle class with incomes comparable with European ones is constantly growing. Many people continue to think that in Russia, you can only make a lot of money in Moscow and St. Petersburg. By international standards, those with an income of $1500 per month are considered middle class. And it was a revelation to me to learn that, for example, the number of people with such an income is greater in a Russian region such as Bashkortostan than it is in all Bulgaria.
Today’s risks will become tomorrow’s economic capital. Why wait?
Western investors are rushing to go to Bulgaria, but for some reason they never think about the existence of Nizhni Novgorod or Chelyabinsk oblasts, where there is a high proportion of middle class people. If I were to ask my fellow Belgian businessmen where Bashkortostan is, they wouldn’t even be able to tell me. Many of them continue to consider the Russian regions depressed, failing to see the real changes that are taking place there.
─ Now I understand why you went so far, to Chelyabinsk…
When we acquired Metran there, it was quite a small company. And why Chelyabinsk? The South Urals State University, with which we cooperate, is a very strong factor there. The shortage of qualified engineers is a worldwide problem, and thanks to the University, we are solving it. It is also not unimportant that plots for building production facilities in the Urals are much cheaper than in Moscow. Wage costs and leasing costs are lower there too. The living expenses of our staff are much lower than those of their colleagues living in Moscow. At the same time, everything is fine as far as logistics and transport are concerned. Finally, it is easier to achieve good relations with the local authorities there.
─ So it’s better not to get involved with Moscow?
─ I didn’t say that. It’s better to get production going in the regions, but to have your head office in Moscow, as Emerson and hundreds of other companies do. Furthermore, Moscow, with its gigantic population, is a colossal market for new goods and services. Entrepreneurs interested in investing in Russia are always applying to the Russian-Belgian Business Club. They are seeking free niches which can bring a profit. For example, at one of the recent meetings I was asked why there is hardly any Belgian chocolate on Moscow counters. Or if there is any, it costs a fabulous amount. Belgium, as you know, is a real chocolate paradise! There’s a free niche for you. Saturate the Moscow chain stores with excellent Belgian chocolate. What’s more, it’s only a little over three hours by air from Moscow to Brussels.
Moscow, with its gigantic population, is a colossal market for new goods and services.
I can’t deny that many potential investors are worried by the slowing down in the growth of the Russian economy. Growth of GNP, according to the forecasts, may fall from 4-5 per cent in previous years to 1.5 per cent. Sanctions have nothing to do with this. The slowdown began before the events in Ukraine. The reason is something else. For all these years, they have been talking in Russia about the diversification of the economy, but the country continues to export mainly oil, gas, timber, diamonds and metallurgy products. There are few high-tech products marked “Made in Russia” in the West. There are notable exceptions like the “Kaspersky Laboratory”, but they don’t have any decisive influence yet.
─ Can Western investors help Russia diversify its economy? Could interests coincide here?
─ Undoubtedly. This is just what Emerson is doing in Chelyabinsk. We are building a “little Skolkovo” there, on the lines of the high-tech business centre in Moscow. And there is a realistic possibility of creating such innovation clusters in other regions.
Russia lacks good-quality PR in the West.
I must say that Russia lacks good-quality PR in the West. Granted, on CNN you get an American view of the world. But they often show video clips about the investment potential of Kazakhstan, Azerbaijan and other countries. So far, Russia is investing very little in publicising its investment attractiveness. “Russia Today” is a good project, but it is clearly not enough. Powerful media resources should be put to work, investment tours should be organised. Then we would have fewer myths and more truth.