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. Last Updated: 07/27/2016

Multinationals Say Russia Needs a Makeover

MTPrime Minister Mikhail Fradkov, flanked by Central Bank chief Sergei Ignatyev and Economic Development and Trade Minister German Gref, addressing FIAC on Monday.
Russia needs to take better care of its image abroad if it wants to compete for foreign investment with other developing countries like China and India, senior executives from leading multinationals said Monday.

The government should figure out how to bring its often negative image into line with the more positive reality of doing business in Russia, said a number of members of the Foreign Investment Advisory Committee.

FIAC is a forum that for the past decade has been bringing together government officials with the leaders of 25 large, long-standing investors, including BP, Nestle, ExxonMobil and Deutsche Bank.

"Other regions of the world, China especially, have become favored destinations for investment," said Jim Turley, chairman of Ernst & Young Global, who co-chairs FIAC with Prime Minister Mikhail Fradkov.

"Global competition for investment dollars is heightening, and with the heightening of global competition, image is very important."

Last year, Russia received a mere $6.8 billion in foreign direct investment, compared to China's $53.5 billion, according to Renaissance Capital.

FIAC also made some more expected recommendations, calling on the government to continue administrative reforms, bring stability to the banking system, and improve tax and accounting practices.

Participants singled out the need for Russia to clamp down on excessive bureaucracy if it wants to compete for investment.

But for the first time in its 10-year history, FIAC created a special working group dedicated to boosting Russia's image.

"Russia needs to put forward its own strengths better," said Ralph Kugler, president of Unilever and coordinator of the "Image of Russia" working group.

Countries like China and India "might have lower labor costs," Kugler said. "Russia, on the other hand, might have a higher standard of education."

The working group discussed surveying investors at home and abroad to identify and address barriers to investment.

"There was a general consensus between the foreign investors and the government about the fact that the perception of Russia didn't align with the reality of the investment climate in Russia -- and that that perception needed to be moved," said Grant Winterton, Coca-Cola's general manager for Russia.

The final communique also recommended that the government complete a plan to spread awareness among foreign investors that political and economic risk is dropping.

The plan calls for putting Russia in the limelight by sending government officials abroad to meet with potential investors; holding conferences on key regions or industries; and publishing information about business developments in the regions.

Not all the executives gathered in the President Hotel agreed that a government-run media offensive is what Russia needs, however.

"So many opportunities are missed because of the wrong perception from abroad," said Michel Perhirin, chairman of the board at Raiffeisenbank. But, he added, "I don't believe a media campaign could be extremely effective."

Perhirin said that a better way to dispel myths about the country would be to let foreign executives come to Russia and see the reality of doing business here on their own.

A few FIAC members suggested that the country's image is not the key to attracting investment.

"Investors look beyond image into more concrete realities," said John Barry, president of Shell in Russia. "We don't take image into account when we're making $10 billion investments."

Barry said for him the most important conclusion to draw from the FIAC meeting was that top government officials are taking big investors' suggestions seriously.

He said Shell is pushing government regulators to implement tax reforms that will help facilitate capital-intensive oil drilling farther afield from cheaper, more accessible locations.

Issues like that are having a bigger effect on most investors than negative headlines about Yukos, Barry said.

Igor Tabakov / MT

EBRD president Jean Lemierre, left, and Ernst & Young chairman Jim Turley, right, participating in the investment forum Monday.

"People are looking beyond Yukos," he said. "They're looking at the legal system, the tax system, and getting that [investment] environment right."

Other participants said that the government has indeed been improving its dialogue with the foreign business community.

"Particularly these last few years, under President [Vladimir] Putin, we've had superior representation from government at [FIAC] meetings," said senior vice president of United Technologies Corp., Ruth Harkin.

"There's a real eagerness in the government to attract foreign investment."

Established in 1994 as a venue for foreign investors and government officials to share investment concerns, FIAC has had a big impact in pushing a number of reforms.

Recently, FIAC members helped the government rework the Customs Code and corporate taxation.

FIAC meets annually to discuss pending legislation and its effect on foreign investment.