Russian and U.S. business leaders came together at the 2015 St. Petersburg International Economic Forum to reinvigorate their relationship and send a signal to policymakers that the economy should not be the victim of politics.
Participants of the 19th St. Petersburg International Economic Forum. Photo: RIA Novosti
Initially aimed at the Kremlin’s inner circle, Western sanctions have led to collateral damage for Russia-U.S. business ties. At the 2015 St. Petersburg International Economic Forum (SPIEF), participants discussed this topic in greater detail as part of the panel “Russia – North America: New Challenges and Strategies for Business Cooperation.”
The Russia-U.S. relationship is facing a lot of challenges and there should be “amendments” to it, said the moderator of the discussion, Alexis Rodzianko, President, American Chamber of Commerce in Russia, while highlighting that it is important “to keep our ties open.”
According to him, “there are some glimmers of hope in our relations,” with sanctions becoming more stable and less severe. He calls on Russian and American diplomats to “redouble their efforts” in finding common ground and reducing mutual hostile rhetoric.
Many experts at the panel admitted that, regardless of sanctions, Russian and U.S. businesses are still cooperating. Daniel Russell, President and Chief Executive Officer, U.S.–Russia Business Council, explains that this is primarily related to the background of American companies working in Russia. Most of them started doing business in Russia in the 1990s and have been there for a very long time. They survived the previous economic downturn and they will survive this one, Russell believes.
However, he regrets that today economic relations are really ”underdeveloped.” However, the potential is “untapped“: While Russia has “superb human capital,” the United States has technological and other resources.
Bernard Sucher, a member of the board of directors at Aton Group, admits that, “Russia has been an incredibly profitable market for companies that have ridden out the volatility of the last 24 years.”
“These companies endured crises in the past, did not panic, and have been rewarded well for staying the course,” he said in an interview with Russia Direct. “One of the reasons for that, by the way, is that such firms have well-diversified global portfolios; they also have experience in crisis management in other countries and very low costs of capital. This combination means that any crisis in any one country may actually be a welcome opportunity for growing and strengthening their local businesses.”
Sanctions are a two-sided coin for business
Anatoly Karachinsky, the president of IBS Group, seems to be optimistic about U.S. and Russian businesses to tackle the impact of sanctions. He believes that amidst the U.S.-Russia confrontation and its negative implications it is vitally important to “speak about positive things” and give inspiring examples.
He claims that Russian businesses keep working with American ones and, particularly, this refers to big businesses such as Boeing with capital-intensive projects. After all, once started, the development of a plane is hard to stop, because it involves huge investment and commitments, he argues, pointing to the temporary nature of politics.
“Boeing, ABM and Microsoft demonstrated wisdom. They understand that time will change everything,” Karachinsky said, adding that nobody will want to lose a return on investment.
According to Karachinsky, politics is hardly likely to overshadow the technological revolution, which could spur further collaboration.
In contrast, Valeriy Draganov, the president of Avtotor Holding LLC, sounds much more pessimistic. He argues, “Business is losing influence, adjusting to the political agenda.”
Last year he was more optimistic and downplayed the effect of sanctions on Russia’s business while overestimating politicians’ capability to come up with a compromise. Yet, this year he reassessed his views, with sanctions and U.S.-Russia geopolitical confrontation still affecting U.S.-Russia business ties.
“We need to keep calm and carry on, not to be tuned to the political agenda, but influence it,” he said, calling on Russian and American business to become active in reinvigorating their ties.
Meanwhile, John Wories, the president of Amsted Rail, expresses concerns about the impact of Russia’s import substitution on American investors. He claims that his business colleagues “are getting nervous” amidst the entire buzz around import substitution.
Russian officials are also pessimistic about business ties between Moscow and Washington. Oleg Fomichev, Russia’s Deputy Minister of Economic Development, says that business, which had been putting up with sanctions over the course of the past year, has started “slowing down” and “freezing relations” while waiting what will happen in the future. Such poor ties affect both economics and politics, he regrets.
“What is important now is not to lose the links that were established previously [between Russians and Americans],” he said. “It is getting harder to work abroad for both Russian companies and for their foreign counterparts — in Russia.”
That’s why the dialogue is vital in the current circumstances, Fomichev admitted.
Likewise, Paul Rollinson, the president of the Kinross Gold Corporation, a gold mining company that has been operating in Russia’s Far East during 20 years, is a strong advocate of dialogue and, particularly, youth exchanges, which, according to him, boost business in the long term.
As he said, his company is relentlessly avoiding politics in any partner countries while fostering business-to-business cooperation and local community relations in a country’s remote regions. The Kinross Gold Corporation applies the same strategy in Russia.
Participants of the roundtable "Russia-North America: New Challenges and Strategies for Business Cooperation." Photo: RIA Novosti
Social responsibility is above sanctions
Sergey Kravchenko, the president of Boeing Russia and CIS, argues that political rhetoric and media coverage doesn’t help big business at all, especially to those businesses that are related to long-term planning.
“The political crisis doesn’t depend on us, but it seriously increases nervousness and deprives us of predictability,” said Kravchenko, calling for more ways of communications.
He says that big business should straddle between the law regulating sanctions and social commitments for workers engaged in joint U.S.-Russia companies. The problem is that these sanctions affect hundreds or even thousands of people, which “make planes in America and then send them to Russia.” It is a matter of social responsibility to keep jobs and not to let them down, Kravchenko explains.
Sucher agrees. He argues that the very big Russian operations of some companies with Western origins means that “now multinational firms active here are staffed and led almost one hundred percent by Russians."
“These people lobby for their jobs and corporate HQs are generally sympathetic and long-term oriented,” he told Russia Direct.
Zakhar Smushkin, the chairman of the Board of Directors at Ilim Group, offers a stoic approach of how to deal with sanctions and geopolitical tensions. What Russia and the U.S. can do now is to wait, hedge risks, keep calm and carry on cooperating, regardless of the threat of a decrease in investment.
“It is just such a period that we should live through,” he concluded.
However, such an approach is hardly likely to resolve the problem and its major origins: U.S.-Russia differences over European security and, particularly, the Kremlin’s policy toward Ukraine, which resulted in the West imposing sanctions.
“The principal impact of sanctions first is as a signal to business people that ‘business as usual’ no longer pertains,” said Sucher. “Sanctions discourage new investment… Frankly speaking, decision-makers are likely to be concerned about their reputations if they approve investment into a country that has become this controversial.”