Alexis Rodzianko: For us, the ASI is a big ally

Alexey Rodzyanko, President of the American Chamber of Commerce, shared with us his views on the business climate in Russia

Mr. Rodzyanko, tell us a little about yourself. How did you end up in Russia, and what did you start your activities with in our country?

I was born in New York but my parents and grandparents had arrived in New York only two years before I was born. They came here from the postwar Europe, where they became refugees for the second time in the 20th century. First, it was the revolution and the Civil War in Russia; my father’s family then went to Yugoslavia, and my mother’s family – to Estonia. During the Second World War, they became refugees for the second time. Different paths led the both families to Munich in 1945-46. There my parents met and got married, and in 1949 they came to America. Just a few months after moving, my elder brother was born, then me a year later, then my younger brother and two more sisters.

You've got quite a large family…

We were five, we grew up together. We did not arrive alone but together with all the cousins on my mother’s side and many on my father’s side. They were 7 from my mother’s side, and 6 brothers and sisters from my father’s side. Most of them ended up in the United States. In my childhood, there was Russian language around me and I spoke Russian until I went to school. In 1995, when I had 14 years of experience as a banker in New York, there was a restructuring in the bank, and I was offered to move to London. At the same time, I received an offer to go to Russia, to open a new bank, a startup. It was only natural that working in London was a more reliable option but based on my memory of the past, I decided that I should go to Russia.

Had you ever come to Russia before?

I had. I was a translator during the first years after the university, and visited the Soviet Union for eight times. When I became a banker, I was responsible for business development in Eastern Europe, including Russia, so I came here several times. Later, from 1991 to 1995, I was a manager for trade and developing markets and visited Russia again. In September 1995, I came here and was involved in development of a startup until December 1996. Then I was offered a job in J.P. Morgan—to head the Russian subsidiary and to form a team, which would work in this market, and I did it. I formed a team in London, and we arrived in Russia on August 3, 1998, two weeks before the collapse, the recession and the moratorium. I am not sure if we were lucky or not. We saw the situation pretty well and understood that there would be problems. So we reduced our risks in Russia without undue delay. Later on, I spent many years in the banking business. I was a banker, and when I decided that it was enough and I could retire, I was offered to become a candidate for the position of President of the American Chamber of Commerce.

It was 2013, did you easily change your field of activity?

Not so easy because to be a banker means to look at a very wide range of activities and you may not be an experienced specialist in one particular area but you have quite good awareness of the overall situation. In this sense, a banking career is a good preparation for work in a business association. On the other hand, it is completely different because it implies social activity: I’m like a mediator between the Russian and American authorities, their interests and the interests of the business. To be honest, I am lucky because it is an opportunity to engage in social activities, which I haven’t dealt with before but my ancestors used to be engaged in.

Your great-grandfather?

Yes, who was Chairman of the State Duma in tsarist Russia.

You became President of the American Chamber of Commerce. What did you already have by that time in the organization?

I was very lucky, we were members of this Chamber when I was head of J.P. Morgan and then, when I was working in Deutsche Bank. My predecessor, Andrew Sommers, during the years of his work raised the significance of the Chamber. It was taken as serious political advisor with respect to the business, as an advisor who can and should be listened to.

I became heir to a rich and successful tradition, which had to be preserved and not lost. I remember 2013 when I attended the interview and I already felt that it could happen. I thought it would be rather difficult because even then the relationship between Russia and the United States were not the best. In fact, it turned out that the relationship between the Chamber and the government were very good and constructive. They remain so up to now because it’s our job to improve the business climate for our companies and thus, we improve the business climate in the country as a whole. For us, the ASI (Agency for Strategic Initiatives – the editor’s note) is a big ally. We hope that we also are a useful partner for you. We are fighting for one and the same thing. Most of the members of our Chamber are representatives of the companies with American origins, and this gives a distinct point of view, which is also required, also appreciated and we are its bearers.

When you took office, American companies were, of course, present on the Russian market. However, the market situation has changed, and the composition of the members of the Chamber, the composition of the market may have changed. Do you have any data, any statistics?

We do have the data but the statistics on the members of the organization and the statistics on which players left and which remained active in the market mismatch. Back in 2012, with the high oil price and in full absence of any sanctions there was still an imminent growth recession. Economic growth in Russia was significantly slowed down due to the fact that the dividend from oil had already been utilized and further structural changes were needed, which the ASI is actually engaged in. The ASI, if I’m not mistaken, just started its activity at that moment.

Yes, ASI just started to take its first confident steps...

In my opinion, the main challenge for Russia is its own, internal business culture, for other factors are temporal. The oil price may fluctuate, no country can determine the destiny of the world oil price, relations with the US and Europe are also changing over time, and moreover, the relationship is no business of ours or that of the business community's. But they affect the business community, they change it.

We hope, we are confident that diplomats and heads of state will eventually agree, will remove stressful moments and we’ll get back on track. And when it happens, the main question will remain: what business climate exists here? In this sense, there are great achievements, and big steps have been taken. A foreign entrepreneur coming here looks at the business climate and the market potential as he was called here by his major clients, other companies. He comes here because he has a business plan and he must implement it. And the business climate is sometimes a critical factor for implementation of this plan.

And another point is the concept of an “American company” and a “Russian company”. The business has already moved far away from those concepts of national boundaries that we all live in. Take, for example, a major American industrial company General Electric. This business earns more than 60% of its revenues, of its net earnings, outside the United States. 20 years ago, the situation was vice versa. This pattern is repeated from time to time. A simple example: do you have an iPhone?


Whose product is this?


Do you know where this product can be seen in the trade statistics of Russia? It is import to Russia from China. China assembles these phones using components coming to China from all over the world, mostly from the USA. But in trade statistics, the USA has a zero part in each iPhone, which, probably, every third Russian citizen has got in his pocket. This is one small example but there are a great many of them. It is convenient to call a company an American, European, French or German company because you have to call them somehow (he laughs) but in reality they are global companies. They are as Russian as they are Chinese or American. It is important to understand this. I say this to show that business cares about climate in each country of operation, and considers each country its own.

The United States Department of Commerce has its statistics on direct investments of American companies in Russia, which amounted to $14 billion. This is little or nothing. At the same time, a representative of a company with American origin told me that they invested $9 billion in Russia. How is this possible? Very simple, because they invest from Luxembourg, China, from anywhere and it does not get into the American statistics.

But if decisions are made on the basis of such statistics, it turns out that they “see” only the visible part of an iceberg and do not see what is actually happening. At meetings, I hear: “You are a representative of American business but sanctions do not mean anything to you. And Europeans have larger interests.” This is because a very large part of American “corporate” trade goes through Europe or China, Japan or other countries.

However, there are constraints that do not allow foreign businesses to come and invest in the Russian economy…

There are several constraints. Business comes here to make money but when the market is “compressed,” it becomes more difficult to do that. There is no such thing that business won’t come. Someone does come but it happens in certain spheres where the devaluation of the ruble helped rather than interfered. And, of course, the constraining factor here is relations, geopolitics. Three weeks ago an announcement was made that Russia wanted to return to the Eurobond market. I used to work in this area and I understand that in the last two years Russia has greatly reduced its debt burden. The main question of an investor when buying the bonds - will I get money in the future, will this promise be kept? In Russia, today's answer is yes! First of all, Russia is able to do it, and secondly, it is interested to do it. Investors have great interest in the Russian bonds and their purchase is not prohibited by sanctions. But when plans on Eurobonds were announced, there were calls in the United States and European countries to their “senior bankers” which strongly advised against purchasing them. This is an example of how geopolitics impedes investments.

In my opinion, mostly giant American companies are present on the Russian market. Are small and medium-sized enterprises also going to come here?

No, not only giant companies. There are medium-sized and small business here, as well. It is simply more difficult for them because they do not have such resources or such a rich portfolio to diversify risks. Large companies look at this market as a strategic one and say that it is now a difficult “cycle”—the oil price has fallen, the demand has dropped. We need to respond to the existing situation and to prepare for the time when the market will return: when the purchasing power of Russians will be restored, when the government will have the money required to implement infrastructure projects on the level, which existed two years ago.

There are companies, which left the market but these are rare exceptions. Almost all of them are here and all of them have rebuilt their business, have readjusted it to the conditions existing at the moment. A well-known example of General Motors: they have not gone, they have focused their presence on a higher price segment.

So, it's the sanctions that become a large obstacle for further business development. What can you say about the business climate in Russia? Does it influence the presence of foreign companies on the market?

Of course, the sanctions have their impact but in general, they may have a psychological effect rather than an actual impact. At the same time, the banking sector is very severely constrained by the sanctions. The main business for large American and European banks are major cross-border transactions, and they are suspended by the sanctions. The banking business is very strongly—directly and adversely—affected by the sanctions.

The largest project in the history of ExxonMobil—Arctic development together with Rosneft—has been frozen in a figurative and literal sense. On the other hand, the oil price collapsed after the sanctions and it may be not such a bad idea to postpone extraction of costly deep-water ice oil.

As for trade, industry and infrastructural projects—there is no direct effect of the sanctions, they are more affected by the oil price. Food manufacturers may have benefited since their European competitors were removed from the market through counter-sanctions. For them, as for the Russian producers, the competition is reduced.

For business, there are no enemy countries or friend countries. There are good and bad markets, important and unimportant ones. And there is a certain secondary factor: how will the “parents,” i.e. the government, look at it? If they clearly forbid it then the companies strictly comply, there is no other choice.

Another factor is the reaction in Russia to these sanctions. It is twofold. First, it is the understanding that we “can be cut off from all these iPhones,” and this is one of the motives of the localization subject. Second, “if we calculate what is left now, how can we live, who will produce products?” And, partially, an impulse to localization and import substitution is caused by these feelings.

Therefore, the sanctions restrain the business and give another reason to wait. If the oil price were $150 instead of $40, then business would come here in spite of the sanctions. On the other hand, there are a great deal of brains in Russia, a lot of good programmers and specialists in the sphere of high technologies. Now you can go to California, to the Silicon Valley and you will see that Russian is the second language there today. Why is it so? The climate is one explanation but not the most important. The main explanation is that if you want to monetize your ideas and developments, to create a company, to enter it into the market and sell to an investor, i.e. to get rich from your activities, it is not that simple on the Russian market, in the Russian environment. It is easier to sell a company registered in California or in Delaware though 90% of the staff, all the “brains” are in Russia, and the whole product was created here. Which suggests that there is something there, which does not exist here, something that allows to generate such a capital, to commercialize your ideas. And I don’t know what this is. There are different theories on this subject.

Do you have your theory on this subject?

I have two of them. First – people here do not fully believe that their businesses will not be taken away from them because there is a rich history of confiscations, which is not fully finished and which is reminded of from time to time, even in the recent past. Protection of private property, protection of intellectual property are still not at an adequate level here.

The second factor is psychological. If you look at sports, compare sports in Russia and the U.S. Both countries perform very successfully at the Olympics but how is this sport formed? In the U.S., this is a mass phenomenon, which athletes themselves “grow up” from. In Russia, it is a well-organized pyramid where selection is made at the age of 5-7. This testifies to the fact that there is a rigorous selection in Russia and no failure is taken easily. If you fail to do something, then they say “goodbye” to you. This can cut off those who simply develop more slowly. This culture has a very negative attitude to any failure. A mistake is punished more severely than in the United States. In America, if you’ve made a mistake, they will tell you “good job, nice try”. If a person failed to do something, he became bankrupt once, he will always have another chance. Look at Trump. He went bankrupt so many times and he still can become President of the United States (He laughs).

I think these two things are basic. These are the questions of psychology and organization of society. On the other hand, Russia had never played hockey and then decided to take it on, and become better than others because a decision was made that it was necessary. If there is a real political will, everything becomes possible. Does Russia need this? Does it seriously want to improve its investment climate or is it all just words? This is the main question.

And if we consider small components, in addition to the sanctions, what is business complaining of today?

Now the rouble is cheap and the exports from Russia became profitable. Many companies, especially large multinational ones, which produce something here, have localized their production to a certain extent. Now they can export through their chain to other countries. But it is not so simple to export from Russia. Russia has seriously progressed in the Doing Business rating but with regards to customs procedures it takes the 168th place out of 170 countries. This is an objective factor which is measured by the number of hours required to cross the border. Russia is behind the whole world for this objective export indicator. Why? We discussed one example with a company that goes through these procedures together with Russian Railways, which carries these goods and together with the customs service, which lets these shipments pass. It appears that transition to electronic document management is almost finished but the tax office has one requirement that each cargo must have a paper passport with a stamp of the inspector who is on duty on a particular date. And all is stopped without this piece of paper! Each paper should be sealed only in blue ink. All this information is already contained on the electronic media and the paper is required only to check the accuracy of the VAT refund... And there are many such details. I believe that eventually all these issues will be resolved.

I am talking about the problems here but there are so many good examples of success. Old practices still exist somewhere but there are directions where a lot has already been done and there’s just a step to make and there will be a significant rise in efficiency. It takes longer here to get a construction permit than in many other countries. On the other hand, I arrived in 1995 for a full start-up of an investment banking business. During a year, we started from scratch and became the fifth company in Russia. In New York, it is impossible to start from scratch and move up to become the fifth company. Here formation of the market took place, and there was an opportunity for a new player to take quite a considerable market share. Therefore, it is wrong to speak only about problems. The problems do exist and they must be resolved but it would also be wrong to say that they are not being solved.

At the beginning of the conversation I said that when I took my current office, I expected it to be hard but it turned out that relations with the government officials and with the state are fairly constructive. There are just no opportunities to act now, and we will have to wait for them.

Do you have any examples of a successful implementation of projects of American companies, which carry out their foreign economic activity in the territory of other member states of the EEU (Eurasian Economic Union)?

This Union is an important and new phenomenon as it expands the market. At least in theory – it gives an improvement, a possibility to choose the best investment climate in the entire Eurasian space. In fact, it creates sound and effective internal competition.

Second—it is a larger market, customs-free open trade in the market of not only 150 but 200 million people. The same customs procedures which lower Russia in the Doing Business rating: if they are revised and improved now that the Eurasian Economic Commission is doing this, it will be good both for the EEU and for us.

General Motors I mentioned above now assembles Cadillacs in Belarus. Someone from Russia started to export more. This means that the results are already obtained, and we believe that this is a very important new phenomenon.

Positive comments so far?

Yes. There are questions how realistic this is and how it will change the world but the possibility that it will happen and my impression of the seriousness of all participants testifies to the fact that this really helps and will help.

If an American business representative comes to you and asks whether it is worth to enter the Russian market, what would you tell him?

I would tell him that the Russian market comprises 150, and with the Eurasian Union – 200 million people. It is a big market: it is the next market after Asia, Europe and the USA. This is the market which is historically willing to pay for quality. This is the market, in which many companies operate successfully. This is the market, which is cheap now. On the one hand, you can easily enter it; on the other hand, you will find it difficult to develop your business under the conditions when the demand is “supressed.” But if you want to start, it is better to start from a low point than from a high one. As they say in business, “Buy low, sell high.” Investments are easier to make when prices are cheaper: when land is cheaper, when property is cheaper, when concrete, steel and oil – everything is cheaper. You, Americans, have the dollar as the base currency and now it is a very good chance to invest in a counter cycle environment!