RD Interview: Alexis Rodzianko, president and CEO of the American Chamber of Commerce in Russia, explains how foreign investors in Russia are adjusting to the country’s economic challenges.
Participants at the 2016 Eastern Economic Forum in Vladivostok. Photo: Vladimir Smirnov/TASS
Russia Direct recently sat down with Alexis Rodzianko, president and CEO of the American Chamber of Commerce in Russia, to understand how foreign investors in Russia are adjusting to the country’s economic challenges and whether they are ready to invest in the much-touted Far Eastern region.
Russia Direct: With Russia facing serious economic challenges as a result of falling oil prices, Western sanctions and the country’s structural economic problems, how are Western and American businesses adjusting to the recession in Russia? How are they going to do business in Russia in a period of political tension and a great deal of uncertainty?
Alexis Rodzianko: First of all, the challenges in Russia are serious, but Russia is a country that is cyclical. Therefore, companies that have been working here for many decades, some of them for over a century, have seen and been through even more dramatic events than what we are living through now. What they have done during the recession, which is largely caused by the falling oil prices and the decline of the ruble’s value, is that they have looked at their costs, they have looked at their products, and they have adjusted.
In my experience, companies in 2016 generally are doing better than they expected and indeed are profitable in Russia. The profits are not what they used to be, the growth is not what it used to be, but they are adjusting and they are profitable. The other piece of it, the geopolitical problems, of course are issues that play out for a longer time and affect the mood of business.
They look at the horizon and they say that they have been through worse before, and will get through this as well. Russia is a strategic market, where companies do business and will continue doing so. They have to adjust to the circumstances, and they are doing so.
RD: According to the report of the American Chamber of Commerce, most investors continue to rank Russia in the Top 10 in their global investment portfolios. Which sectors and industries have been more stable and attractive for foreign direct investment so far and why?
A.R.: The king of all foreign direct investment (FDI) historically has been the oil and gas sector, the energy business. But when we look ahead we see oil price low and investment by that sector down. Investments in the other sectors, which make up 50 percent of total investment in Russia, are the ones that are getting more attention. Particularly, manufacturing looks like it will be attracting more of it.
Alexis Rodzianko, President and CEO of the American Chamber of Commerce in Russia. Previously, he spent three decades working as a banker in New York and Moscow. Rodzianko held senior positions in IFC Metropol, Credit Suisse, Deutsche Bank, and JP Morgan in Moscow from 1995 through 2013. Photo: Francesco Rossini
RD: Russia is actively promoting its Far East. To what extent can this region be attractive for U.S. investors? What are the odds of Russia’s Far East and the American West stepping up their economic cooperation?
A.R.: The fact that the Russian government has made it a priority to invest in the infrastructure and development of the Far East is an important signal. The Russian government’s infrastructure projects are the main source of orders for American business, and that is the opportunity that will be taken.
The success of infrastructure development will lead to further development of the Far East. And the more developed it is, the more active its economy, the more likely trade is to resume between the U.S. West and the Russian Far East.
RD: Economic factors sometimes can contribute to alleviating political tensions between countries. For example, economic ties between the U.S. and China minimize the odds of their confrontation. In your view, why have Russia and the U.S. failed to establish such kind of economic cooperation?
A.R.: We have to look at the size of the economies. The Chinese economy is much larger. It is developed on the basis of an export-driven model where manufactured goods and consumer goods in the U.S. are a major source of demand. This partnership is a much deeper and a bigger one, and it has served to attenuate the geopolitical differences between the two countries.
The U.S. and Russia do not trade directly as much, but Russia is an important market for American multinational companies, which operate in many jurisdictions. That is part of what is a more lively integration between U.S. companies and Russia.
The fact that U.S. companies invest from abroad, trade from abroad tends to understate the actual depth of cooperation, and that understatement leads to a miscalculation on the part of politics. There should be more of an impact from the relationship, because the relationship is more important than what the official figures will indicate.
RD: Aside from political risks stemming from the situations in Syria and Ukraine, what else can hamper U.S.-Russia trade relations?
A.R.: The oil price being low and the ruble being down are the major factors why demand in Russia is weak. When consumer demand is weak, it makes it less likely for companies to sell their products. It makes it more expensive to purchase a product with hard currency. Inputs with a hard currency base are part of production, so improving the economy and making it more diversified would help.
A stronger ruble and a higher oil price would also have a positive contribution. Leaving that aside, geopolitics certainly do not act in favor of trade, and we look forward to the time when the relationships will be much better.
RD: What can be done by the private sector in both countries to improve U.S.-Russia trade relations in the future?
A.R.: I think that what can be done is already being done. Publicizing success stories — and there are success stories that do not get publicity — is something that would help. It is a very difficult task, even in the best of times: Good news from Russia are not very interesting. We have to find ways of working the good news into the bad news, and maybe that is the answer.
Jokes aside, though, we’ve been trying to put across the scale and value of those relations. To that end, we’ve run a survey to chart the scale of U.S.-Russia trade and investments. What we seek to achieve is to raise awareness of the politicians on both sides of the issue, to show what is at stake.