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Spotting potential partners: Interview with Russia’s trade representative

  10:36

Russia’s drive to further diversify and privatize its economy presents major opportunities for Czech businesses, Alexander Turov says

An expert on economic and trade relations, Alexander Turov has headed the Russian Trade Representation in the Czech Republic since 2009 foto: Česká pozice

In the wake of the economic crisis, Czech exports to western markets have stagnated or shown minimal growth; bilateral trade with Russia, however, has climbed well above pre-crisis levels. According to Czech Statistical Office (ČSÚ) figures, in 2007 Czech exports to Russia were worth Kč 57.6 billion while in 2010 the figure rose to Kč 67.4 billion. Russian imports to the Czech Republic have also grown: In 2007, Russian imports to the Czech Republic were worth Kč 114 billion, and in 2010 – Kč 129.75 billion.

Machining tools, engineering tools and equipment, and transportation units and machinery comprise the majority of Czech exports to Russia. In light of Russia’s drive to modernize and diversify its developing economy, demand for Czech goods and services should only rise. At the same time, the share of Russian non-energy/raw materials exports, though still small at under 20 percent, is showing steady growth.

Alexander Turov, head of the Russian Trade Representation in the Czech Republic, explains in an interview with Czech Position the tasks the representation fulfills, speaks about the current opportunities in Russia for foreign businesses, and assesses the current state of Russian–Czech trade ties.

Q: One of the tasks of Russian Trade Representations is to attract investment to Russia. How does the trade representation in the Czech Republic realize this task? Do you actively inform Czech companies about investment opportunities in Russia?

A: Attracting investments is one of the priority tasks of the Trade Representation. In doing this, the Trade Representation fulfills important informational and consultation functions in the first phase of preparing investment projects. It is our task to search for ‘[We select] prospective Russian commercial partners that can be depended upon when implementing joint investment projects.’companies (not necessarily Czech ones) that have investment potential and the aim to expand their business into Russia. At the same time, the Trade Representation selects prospective Russian commercial partners that can be depended upon when implementing joint investment projects.

To this end, the Trade Representation holds seminars and conferences on a regular basis in Prague and other towns in the Czech Republic dedicated to various sectors of the economy where there’s potential for cooperation and representatives of Czech and Russian business circles; also administrations of Russian regions are invited.

At these events, concrete information is presented about prospective investment projects in Russia and the specific characteristics of industrial and innovational activities of individual economic zones in the Russian regions. At the same time, Russian representatives receive detailed information about potential Czech partners, establish initial contact with them, get to know about their production capabilities and the specifics of their enterprises (presentations and excursions are organized).

The Trade Representation also plays a significant role during the actual realization of investment projects. In line with the principles of market economics, decisions on the realization of projects are taken by the Czech and Russian partners independently. Nevertheless, if some problem or other arises, both the Czech and Russian partners turn to the Trade Representation for help and support in finding a resolution. In this area, the Trade Representation coordinates with Czech state bodies and reaches agreements with the relevant ministries and state institutions of the Russian Federation.

Q: Last November, the Russian government announced a five-year plan for the privatization of state-owned shares and assets. In your view, are there assets which could be of particular interest to Czech companies? If so, which assets in which sectors?

A: In November, 2010, the Russian government approved the Privatization Plan of Federal Property and the conditions thereof for the years 2011–2013.

In addition to shares in large state-controlled companies, the plan includes shares in 854 stock companies, 57 of which were classified as strategic with a value of over 16 billion rubles. This doesn’t include the 10 largest stock companies for each of which a separate decision will be taken. It has not yet been specified in which years the assets in these 10 largest companies will be sold. 10 percent of the shares in the bank VTB will be sold this year, but the exact timeframe has not yet been set.

The government has specified that the privatization process must be conducted with maximum openness and transparency and to this end the Ministry of Economic Development is planning to create an open-access information resource which will include a register of federal property owned by the state, reports of key performance indices, the extent of state involvement and also the conditions of the privatization and information about the leasing of federal property.

The privatization process is open to both Russian and foreign investors. Financial analysts are forecasting an improvement in the world economy in 2011, which in turn will increase investor interest in developing markets and Czech companies have all the prerequisites to be active and successful participants in this process. It’s possible to say with some degree of certainty that the most attractive assets for foreign investors are in the infrastructure and financial sectors.  

Q: What results or effects of cooperation on trade and in the technological sphere between Czechoslovakia and the Soviet Union until 1989 do you perceive today? Does this experience somehow work to the advantage of Czech companies active on the Russian market?

A: In many ways we are indebted to what was done together by both countries prior to 1989 for the current state of Russian-Czech cooperation. We consider foreign trade and foreign economic cooperation as an essential component of the economies of our countries, and the period until 1989 was an objective part of its creation and formulation. Many foreign companies, including Czech ones, currently active on the Russian market have drawn on accumulated experience. It goes without saying that the effective work of the largest companies from both countries using infrastructure networks would be unimaginable today without what was ‘In all, 24 nuclear reactors and 74 steam generators have been assembled and built with the participation of Czech enterprises’ accomplished previously.

Nevertheless, scientific-technological progress and the social transformations of the recent years have substantially broadened the possibilities for development of mutually beneficial foreign economic cooperation. And I think that it is a task for us in the present day to effectively harness those achievements.

As an example of successful use of those achievements, I would like to mention the participation of Czech companies in the construction of nuclear power plants, namely the 3+ generation of pressurized water reactors with power of 400 MW and 1,000 MW. In all, 24 nuclear reactors and 74 steam generators have been assembled and built with the participation of Czech enterprises. For example, components of Czech firms are incorporated in the Kalinin Nuclear Power Plant [due to be launched into service later this year].

Q: Can it be advantageous for companies from other countries to enter the Russian market with a Czech partner?

A: In recent years, the most successful projects have been realized with participants from multiple countries. Such examples are not limited to industry and provide a whole series of bright examples, such as the Large Hadron Collider.

I would also like to point out that the new Boeing 787 Dreamliner was made possible thanks to the participation of specialists from a whole range of countries, including Russia, of which few people are aware. For example, the chassis of the new Boeing 787 was designed by Russian specialists and made from titanium alloys prepared at a Russian factory in the Sverdlovsk region. The nose of the aircraft and about a third of the fuselage is built and produced with the participation of Russian specialists.

I’m convinced that cooperation between multiple countries has synergic effects and consider that with a well-organized business, the participation of other countries can have a fundamentally positive effect.       

Q: In the autumn of 2009, Russian President Dmitry Medvedev published the article ‘Forward Russia!’ which is also known as his manifesto for the modernization of Russia. In the article, Medvedev writes that Russia must achieve a ‘leadership strategy’ in the following spheres: high technology; energy production and consumption efficiency; improvement of nuclear and information technologies; development of land and space in formation communication infrastructure; and modern medicine. What role does the Trade Representation play in the pursuit of these goals?

A: As you probably understood from my answer to a previous question, since the time of Comecon and close ‘Czech science and manufacturing are not stagnant and have a lot to offer to Russian producers ...’Russian-Czech cooperation in various sectors, Czech equipment is highly valued in Russia. Czech science and manufacturing are not stagnant and have a lot to offer to Russian producers for the modernization of enterprises in the many spheres mentioned in your question. And somebody needs to be the reliable link between the Czech offer and the Russian demand. The significance and role of the Trade Representation lies herein. It is a state organ directed by the Ministry of Economic Development, one of the main driving forces of modernization in Russia.            

The Trade Representation also supports Russian high-tech manufacturers and providers of services in this sphere. In this context, it’s worth pointing out the nuclear energy sector: the supply of nuclear fuel to the nuclear power plants in operation in the Czech Republic—Dukovany and Temelín—and the preparations within the Czech-Russian consortium for the tender to build the third and fourth reactor blocks at Temelín.

The Trade Representation’s tasks to establish more intensive contacts between our countries’ economic entities in the high-tech sphere would be hard to achieve without the modernization of our own organization. We aim to raise the productivity of our personnel through training, and we recruit not only people with experience working in state institutions, but also from the commercial sector and people with a western business education. These measures help improve our understanding of modern business processes and the needs and capabilities of our clients: It helps us to see and understand interesting directions in modernization and to offer our partners the best solutions for them.

Q: According to official Czech statistics, 84.1 percent of Russian exports to the Czech Republic (with a value of $4.3 billion in the in the first 10 months of 2010) are energy and fuel goods. These figures are an indication of Russia’s mineral wealth, but at the same time, the country’s dependence on the energy exports — primarily oil and gas. In your opinion will this percentage change significantly in five to 10 years?

A: The Czech Republic is a large consumer of Russian raw materials and has considerable transit potential; the country is an important trade partner for Russia in the CEE region.

According to Czech statistics for the first 11 months of 2010, energy products accounted for 82.4 percent of Russian exports to the country, whereas in 2009 they accounted for 86.8 percent. This indicates that a gradual decline in the share of energy products in the overall volume of exports. It’s in our interests to increase non-raw materials exports from Russia.

It’s worth noting that — despite the global financial and economic crisis and the sharp decline in Czech- Russian bilateral trade in 2009 — the export of Russian machining tools and engineering equipment to the Czech Republic has continued to grow uninterrupted.‘It’s obvious that the possibilities for increasing Russian exports through energy goods and raw materials are practically exhausted.’  

According to Czech statistics, in 2009 machines, engineering and transportation equipment worth $160 million was imported to the Czech Republic from Russia, representing 2.9 percent of Russian imports to the country. This was $60 million more than in 2008, which was Russia’s most successful year ever for exports. In the first 11 months of 2010, imports to the Czech Republic of the given group of goods reached $257 million, representing almost 4.2 percent of total Russian imports.

This trend indicates that the modernization of production facilities in Russia is influencing growth in the proportion of non-raw material exports and engineering production.

It’s obvious that the possibilities for increasing Russian exports through energy goods and raw materials are practically exhausted. Because of this, it’s essential to transform cooperation onto a new level through expanding investment and cooperation in innovation, equipping corporations involved in production with state-of-the-art facilities, technological processes and through exchanging licenses and know-how.

The Czech Republic is an example of how effective support of exports, including a flexible banking credit system, has a positive influence upon the export of industrial goods. 

Q: Today, what significance does the Czech Republic have for large Russian enterprises? Is it a minor Central European nation or is the country considered as a regional center?

A: As a country realizing much of its industrial-economic potential, and given the relative stability of the country’s banking sector — preserving the country’s national currency proved to be a significant stabilizing factor during the financial-economic crisis — the Czech Republic has positioned itself as a country capable of conducting a balanced foreign-economic policy.

When considering the countries of the former socialist bloc, the Czech Republic is undoubtedly of considerable importance to the largest Russian companies. A range of Russian companies realize projects in this country.

These include: the Evraz Group, which has owned the metallurgic works Vitkovice Steel since 2005 (100 percent of capital); Stanko-Impeks – which owns the machine engineering company Škoda Machine Tool (100 percent of capital); since 2006, the pipeline producer Chelyabinsk Tube-Rolling Plant (Chelpipe) has owned the company MSA [Moravia-Silesia region] which produces various industrial valves, including for nuclear power plants; the Urals Mining and Metallurgical Company (UGMK-Holding) has held a 51 percent stake in the small aircraft producer Aircraft Industries (formerly LET) since 2008.

Other larger Russian companies actively expanding their activities in the Czech Republic include the gas distribution company Vemex and Lukoil Czech Rep. which operates a chain of petrol stations here.

However, we must not forget that each state in the CEE region is a unique and valued partner for a whole range of Russian companies. A considerable number of projects are realized in Poland and Hungary with which trade was worth $18.7 billion and $7.5 billion, respectively, for Russia in the first 11 months of 2010 (according to Russia’s Federal Customs Service statistics – customs.ru). For the Czech Republic, the figure was $7.8 billion.

Nevertheless, thanks to its foreign trade policy, the possibilities available to foreign investors, and also thanks to the country’s geographical position and its transport network, the Czech Republic has all the foundations to claim a leading role in the CEE region.

Q: In some political and business circles in the Czech Republic there exists a certain wariness about Russian companies and their methods. For example, in a recent interview the government’s commissioner for the Temelín expansion project, Václav Bartuška, said, “Russian companies export corruption.” Is he right or is this ‘black PR’? What could Russian companies do to improve their image in the Czech Republic?

A: It’s difficult for me to comment on Mr. Bartuška’s words without knowing the full context. As for export, we all know that it’s not possible to export goods or services for which there isn’t demand. The government of the Czech Republic has made its position on‘The best way to strengthen image is to diligently fulfill one’s obligations.’ corruption absolutely clear and we know about the measures taken in the most publicized cases. As far as I can remember, the cases of corruption reported by the Czech press over the past few years involved the delivery of goods from western, not Russian companies.

The signal has been clearly given that there’s no place for corruption in the Czech Republic, and Russian companies continue to do business here with considerable success.

In Russia there’s the Council for Countering Corruption headed by President of the Russian Federation Dmitry Medvedev [formed in 2008].

Can — and moreover should — Russian companies improve their image in the Czech Republic? The best way to strengthen image is to diligently fulfill one’s obligations. Is it necessary to conduct special campaigns? That’s up to company owners to decide. As far as I’m aware, they [Russian companies] conduct important charity functions in the Czech Republic without turning them into ‘media events’ or “elements of cheap propaganda” as it’s sometimes called in the papers.

Alexander Turov graduated from the Moscow Institute of Foreign Relations in 1984. In the same year he entered the Soviet Ministry of Foreign Economic Relations. For the duration of the 1990s he worked as director of various Russian firms in Moscow and St. Petersburg. After qualifying as a diplomat from the Academy of the Russian Ministry of Foreign Affairs he returned to state sector in the field of economic and trade relations. In 2004 he became an adviser to the Russian government’s economic and finance committee. In 2006 Mr. Turov became deputy head of the Trade Representation of the Russian Federation in Slovakia, where he remained until moving to the Trade Representation in the Czech Republic in 2009.      

        

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