European business leaders are ready to build trustworthy relations with Russia and are even ready to show European politicians how to do that. But will they succeed?
Italy's Ambassador to Russia Cesare Maria Ragaglini (center) during a discussion titled "A Roadmap for EU – Russia Rapprochement" as part of the 19th St. Petersburg International Economic Forum. Photo: TASS
Given the current political tensions between Russia and Europe, it’s only natural that economic relations between the two have started to deteriorate as well. After living for a year under sanctions, both sides see little progress in understanding each other. Both are intransigent, with Russia responding to any sign of additional sanctions with ever more controversial stances, such as the total elimination of European food imports sanctioned by the Kremlin.
Naturally, such mutual finger pointing causes concern in the business circles of both Europe and Russia. Indeed, the lack of trust is the core issue in relations between Europe and Russia. In such an environment of distrust, business cannot operate at its full capacity and, as a result, cannot bring about the type of economic interaction that might bridge the gap between Europe and Russia.
The annual discussion brought together CEOs of European businesses operating in Russia and working in the post-Soviet space.
The investment environment will continue to deteriorate without trust
All participants agreed that the lack of trust enormously affects business relations between the countries and prevents them from fulfilling their potential.
Philippe Pegorier, the head of Alstom Russia, Ukraine and Belarus, who has been working in Russia for the last 35 years and has been living in the country for about 20 years, stated that, “The lack of trust indeed lays at the foundation of the current tensions between Russia and Europe.”
Pegorier stressed the importance of economic cooperation between Europe and Russia and reminded the audience that European companies are deeply involved in Russia. After all, Russia is the third largest trading partner for the EU and the EU is the largest trading partner for Russia.
“Cumulative foreign direct investment (FDI) of the EU in the Russian economy total about $190 billion which comprises 75 percent of FDI in Russia. European companies created about 500,000 jobs in Russia. Obviously there is a lot to be worried about,” noted Pegorier.
On the other hand, businessmen noted that trade between Russia and the EU has dropped only 12 percent from the beginning of this year. However, EU-Russia trade from January to May 2015 decreased by 37.7 percent on a year-over-year basis.
Therefore the trend is not very optimistic. Even trade between Russia and China dropped by 30.5 percent during the same period in comparison with 2014. And this is happening despite Russia’s economic and trade pivot to Asia - and to China in particular.
The importance of intercultural understanding
Ulf Schneider, the head of German company Schneider Group, highlighted the issue of intercultural misunderstanding, which in his words, is the core of this lack of trust.
“We need to understand the mindset of a partner, the way how a partner thinks,” urged Schneider.
Nathalie Komatitsch, the head of Total Turkmenistan, echoed Mr. Schneider saying that, “You should always be ready to understand your partner – the seriousness of intentions should be clear.”
She also pointed out that only long-term projects could really lay down a solid foundation for trust since “time is essential for building it.”
Interestingly, all panelists agreed with a formula, articulated by Mr. Pegorier and Ms. Komatitsch: In order to build trust and have success you need to be Russian in Russia, French in France, German in Germany, etc.
The difference in thinking between business and government elites
It is quite clear that the search for who is right and who is wrong cannot be effective and cannot produce any positive and sustainable result. Also, it is clear that there are different opinions between Russia and the West and this should be taken as a matter of fact.
Pegorier noted that, with all the current tensions caused by the crisis in Ukraine, many say that Russian President Vladimir Putin has no feasible policy or even vision of the appropriate policy to pursue. That, as Pegorier argued, is very naïve to think. Acceptance of the different views and opinions is very important in any negotiating process. This is why Russia-EU talks should be based on mutual respect for different opinions.
Fabrice Cambolive, Vice President Sales and Marketing, Russia, Eurasia region, Renault, offered his vision for any successful initiative involving respect and trust.
“We need to pursue three things: clear strategy, long-term investments and win-win partnership – this will build trust and lead to success,” he said.
However, this rather obvious formula is not working so far, casting doubts on the ability of the parties to find a suitable compromise.
For their part, the young participants of the forum expressed their concerns with regard to the future of bilateral relations between Russia and France, especially considering anti-Russian sanctions and the Mistral controversy. In particular, they asked the panelists whether France’s official stance on sanctions and the issue of the Mistrals deal between Russia and France would spoil bilateral business relations.
However, business representatives argued that the Mistral deal is not a business deal; rather, it is a state contract made and resolved between the two leaders, President Francois Hollande and President Vladimir Putin. Therefore, it won’t affect French-Russian business ties.
Pegorier offered his opinion on the impact of the sanctions on Russia. He expressed discontent with the media and politicians who over-exaggerating the impact of the sanctions on Russia. He argued that the current economic slowdown of the Russian economy results from different factors, not only the sanctions.
According to Pegorier, the main reason for Russia’s weakened economic performance is the sharp drop in world oil prices and structural economic issues, with sanctions having only a minor impact. Pegorier also argued that, “The sanctions have more of a psychological impact on Russian rather than a real one.”
European youth was also interested in the influence that politicians currently exercise over business and how it contradicts with economic pragmatism. They asked whether European businesses have leverage on European politics with respect to sanctions.
Pegorier reassured these audience members that, “The Association of European Businesses in Russia lobbies its interests in Europe and we have leverage over governments. Moreover, it has already vocally expressed its dissatisfaction with current sanctions.”
Meanwhile, Komatitsch of Total argued that business should not oppose governmental policies and the official stance on sanctions as both, business and politics, are in the same boat.
However, she added that, despite political tensions and some pressure, Total continues investing in Russia and keeps discussing further opportunities there.
Ulf Schneider wrapped up the discussion by proposing that, “On the political level they are not able to articulate their current interests, therefore, politics should learn from business how to talk to partners and build trust.”