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Interview

with Chris Gilbert, Russia Director, Russo-British Chamber of Commerce

15.12.2009 / Energyboardroom

What is so special about the UK-Russia relationship? The history between the two countries has been very sentimentalised. What’s contained in the content of this partnership, and what makes it so unique?

I wouldn’t say that it is sentimentalised as such: it’s true that there is a slight rose tint to relations between Russia and Britain, but if anything this is because our trading history goes back so far – there is a concrete base under the romance. It surprises a lot of people to learn that the first trading agreement between Russia and England was signed in the middle of the 16th century, between Ivan the Terrible and Elizabeth I.

Today, I think one of the things that helps relations in a cultural context is that both countries are at the edges of Europe. We are both European countries, but not in the same way that a continental European would consider themselves European, and that unites us. There are many other cultural similarities, such as our rich literary histories, our imperial pasts, even royal bloodlines. Prince Michael of Kent, the RBCC’s patron, is the great-nephew of Nicholas II.

In a business context, that undoubtedly helps. Russians are always interested in working with the British because initially we find each other slightly enigmatic – remember what Churchill said – and then we are generally surprised by how much we have in common. That’s one of the main positive drivers of business between the two countries at a human level.

It seems as though business relationships have been going from strength to strength in recent times, but diplomatic relations between the two countries have dipped. To what extent do the UK’s business interests here help to pull that relationship back up?

At the moment, things seem to be on a long-overdue upward vector politically between the UK and Russia. There have been political problems, for reasons that we are all aware of. The previous ambassador to Russia, Sir Tony Brenton, when talking at one of the RBCC’s events at the height of the political storm, said that he found his job was going in two directions: the business side of his job was going fantastically well, but the political side was obviously difficult.

Business tends to get on with it, and will always survive. You can’t say that a downturn in political relations won’t affect business, but what the RBCC has always observed is that business circles continue working together in spite of the problems – after all, we were founded in 1916! There was an acknowledgement that because the two countries were working together, it was necessary for them to get on a little better, and talk through some of the differences and then move on.

A good example of that was David Miliband’s visit at the start of November 2009, when he acknowledged that there were political differences, but for the sake of business and better relations put that aside. Do you see that continuing?

I hope so. There were two Miliband visits this year, one by David and the other by his younger brother Ed, the Minister for Energy and the Environment. The latter visited in the middle of October 2009, and made his brother David’s easier in some ways, because he made it clear that his position and Britain’s position is that the world needs Russia and Russia needs the world, and so there has to be some kind of dialogue. Russia is a vitally important energy supplier, and has a potentially huge positive impact to make on the global environment, because it occupies so much of the world’s landmass.

When David Miliband came at the beginning of November, it was a very important summit, because it was the first bilateral face-to-face meeting between the two foreign secretaries, Lavrov and Miliband, since Jack Straw came to Russia in 2004. Five years is a long gap, although it’s not like diplomatic relations broke down entirely: there were still ambassadors in both capitals throughout the period.

In the UK, the press attitude to Russia is generally quite negative. How do the RBCC go about selling Russia to the British?

I agree that there is a Russian stereotype that still persists, and will for many years to come. Some of it is lazy journalism; some is a lack of research. Russia is not an easy place to do business, but by no means is it the most difficult. In the Chamber, we talk about the three Ps when working in Russia: patience, persistence, and preparation.

You have to respect this market – it is very different from others. It’s one thing when a company goes to work in China, say, or India, because they are expecting it to be completely different from anything they’ve seen before. Russia is obviously not as different as an Asian market might be, but there is a different way of working here. Where a lot of companies go wrong is that they either overestimate or underestimate the difference in day-to-day business here, and this is something you will only learn to get right through experience.

The RBCC gives advice to its members and puts them in contact with reliable partners who we’ve known for a long time. The important thing with the chamber and why I’m proud to work for it is that because we are bilateral, we sit with a foot in both camps, and so we can explain to the Russians that the British are slightly different and sometimes can be illogical in their behaviour, and say the same thing to the British when they come here.

Do you think in some ways the UK has as much to offer Russian companies as Russia has to offer UK companies?

Without a doubt. The RBCC’s membership base is composed of an almost equal split between Russian and British or international companies. What we have to offer each other is obviously different. Russia is still an enormous emerging consumer market, as well as being a vitally important supplier of energy, raw materials, and manufactured goods. The manufacturing sector is still woefully underdeveloped here, and is still suffering from the deprivations of the 1990s, but in the Soviet period, the USSR was one of the great industrial powers of the world. The UK is a consumer of manufactured goods – our manufacturing sector is not the same scale as it once was. Today, the UK is largely a service and finance based economy, and this is where we can offer know-how and experience. We have a long history, as most European countries do, of being a democratic, capitalist economy. Russia can adopt our best practices and learn from our mistakes: the main thing is that we maintain this dialogue, and that we understand that the mutual relationship can only benefit both sides.

The geographical size of Russia is something that UK companies may take some time to adjust to. What kind of measures do you have in place to not only help place these companies with partners in the regions, and to fully explore the potential of Russia, but to help them accommodate to the situation here?

A lot of UK companies come to Moscow, which is almost like a country in itself, and find that it’s such a huge market here, that they are happy to remain in Moscow. However, until the crisis hit, most of the big regional centres, the million-plus cities, their economies were developing at a faster rate than either Moscow or St. Petersburg. You have to put that in the context that Moscow’s retail turnover is still far in excess of that of the next ten cities put together, including St. Petersburg, but there certainly is a lot of potential in the regions.

The RBCC opened its St. Petersburg office in 2004, because we could see that there was an increasing level of business there. That office has been a permanent presence ever since, and will remain so. At the moment, it’s probably a little early for the RBCC to be thinking about opening up an office in Yekaterinburg or other regional cities, but what we want to do is to start taking companies out the regions.

What I want to do hopefully in the first part of 2010 is take some companies out to the Urals region, and show UK companies the opportunities there. There has been a lot of talk about the potential of the regions from both the Russian and the international side, but there needs to be more activity there, and the only way to start that is to take people out there so they can see it with their own eyes.

You mentioned that the UK has moved its economy towards finances and services, and we see that in the oil and gas industry as well. UK companies really have their strengths in providing services to other companies, and there are plenty of opportunities to do that in Russia, which has the natural resources but at times not the skills to develop them properly. How do those complementarities work for your members?

Most of the big oil companies on the international side are members of the chamber: BP, TNK-BP, etc., but most of our SME members are service providers, whether they are consultancy companies, or legal and financial services. It is this exchange of service and product that is happening increasingly between Russia and the UK.

It’s in everyone’s interests if we encourage this. I was in a meeting last week with an English businessman who has been working here constantly since 1966, and he now runs a consultancy company that aims to channel these UK-based service providers, product and equipment suppliers who have been built up because of North Sea oil, and are now looking for new markets to enter. This is a perfect example of the opportunities that are here.

Because of certain stories in the media, there are a lot of UK companies who are reluctant to work in Russia. They think they would like to come here, and know there are opportunities, but are a little hesitant, as they see it as a leap into the unknown. They see even large companies getting into difficulties in Russia, and don’t understand where these difficulties have started, because it’s sometimes very difficult to drill down to the root of the problem. Shell’s problems in Sakhalin a couple of years ago are a perfect example – a small company sees Shell in trouble, and wonders how they can possibly succeed here.

You mentioned that the UK is a know-how service economy. Obviously in the booming economy, Russia was very easy to sell services for IPOs, financing etc. obviously the market is changing now, but I’m sure the British are creative enough to reinvent themselves. What are the trends today, with these companies that used to sell IPO services, and financial and consulting services. What are they doing today?

London has two Mayors: the elected political London Mayor, and the Lord Mayor of the City of London. The Lord Mayor is elected every year by the companies in the City, and is the ambassador for the UK financial services sector. 2006 saw the first visit of the Lord Mayor to Russia. Russia was suddenly the London Stock Exchange’s largest customer, and the Corporation of London reacted very positively to that, and started making an annual trip, and this year the trip went ahead as usual. There is still the interest there, and even against the background of the crisis, the consensus of opinion was that we had to maintain the contact, because crises don’t go on forever.

We still call London ‘Londongrad’, because there are so many Russians companies there, – and so many Russians, for that matter. London has always been a favourite destination for Russians, and when it became such a good business destination, particularly after the Sarbanes-Oxley Act of 2002, those companies who would automatically go the New York Stock Exchange suddenly realised that the compliance criteria in the UK were much more appealing, and generally not through any lack of transparency in the Russian company but through lack of age. London is very good in the fact that it is flexible. We cannot reinvent ourselves, but we can adjust to new markets quite quickly, and so London became the first point of destination to for Russian companies to float their shares.

One of the best things about Russian businesses is that they learn very quickly. They have had to, because there has only been a capitalist economy for eighteen years. In spite of all the ups and downs in that period, the progress that has been made has been remarkable. In terms of where the relationship between Russian companies and the financial services area will go on is without a doubt form the UK point of view as well, Russia is still a priority market.

From a certain point of view, Russians tend to be seen as a very cold people. I’m sure that British people wonder about the type of businessman they will have to deal with here in Russia. At a human level, what tips would you give on how to do business with the Russians?

The human level is very important, perhaps more important than it is in the West. It’s something that we always make a point of at the RBCC: that we don’t just work with companies, but also with people.

The idea of the British being conservative is something of a myth. We can be, but generally there is an element of reserve, which you don’t get with some other European countries, which is again part of the similarity between the two countries. If you break through the shell of a Brit, you can find a completely different person underneath. In my experience the Russians are like that as well. They expect a certain level of reserve, but once the Russian has dropped his guard – and will generally do so first – then his counterpart must do the same. Furthermore, once you have gone through that first shell, and you are taken into their confidence, then that is yours to lose. If you then let them down, the barrier goes back up and twice as thick. In fact I think that is behind some of the political issues: there have been occasions when both sides feel let down by the other, and it takes a long time to build bridges.

In the energy sector, there is the same double-edged sword. Russia knows it has enormous reserves, and it can’t necessarily access and develop all of those reserves itself. It needs to let foreigners in, but it doesn’t want to be exploited by them, nor does it want to be seen as an oil and gas cow. This is why we see these, for want of a better word, mood swings at an international level.

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