Despite the bad press it has been receiving, Russia is emerging as a place with the potential for great business opportunity. Jim Hawtin reports.
THIS week the Russian nation is recovering from its major elections held over the weekend.
Elections in are no mean feat. Across the nation that spans eight time zones there were 1,100 international observers stationed at 93,000 polling stations.
Logistics, however, was not the main question on the lips of those familiar with Russian politics. Neither were bona fide results from the normally uneventful elections.
The real question is whether the poll’s winner will be good for the former superpower’s economy and business sector.
Australia’s Ambassador to the Russia Federation, Lesley Rowe, who was recently in Western Australia, said he believed the answer to this question was a resounding “yes” and that there were emerging opportunities for local businesses in the former USSR despite the bad press it continues to receive.
Construction, manufacturing and processed food are all high on the agenda for Australian trade representatives, though the biggest opportunity in Russia lies in oil and gas, he said, with the Pacific coast region around Sakhalin offering incredible development for service providers.
Big business and Western interests are concerned about a return to a more authoritarian rule after last month’s arrest and jailing of Mikhail Khodorkovsky, the billionaire head of Russia’s largest oil company, Yukos.
Mr Rowe told a recent WA Business News Meet the Ambassadors breakfast that he did not believe president Vladimir Putin planned to interfere in past privatisations where Russia’s super-rich “oligachs” took control of vast sectors of the economy.
Instead, he said Mr Putin was simply acting to keep the oligachs political power in check as he sought to reform some elements of the system – such as corporate governance.
Few would relish a return to the days of central control, even though Australian trade was very strong under Russia’s centralised economy, and the aftermath of the fall of communism drove many Australians away.
“The experience early on of people going in and investing and doing business (after communism) in Russia was not a particularly happy one for many,” Mr Rowe said.
“They got the wrong business partners, they got the wrong industries, they did not do due diligence and people got their fingers very badly burnt.”
Mr Rowe said current trade figures were a lot lower than what was being achieved in the 1980s, however, the potential Russia currently offered Australian businesses was “unfulfilled”.
“For those of you who have been [to Russia] you will see many changes have taken place in the last 10 to 15 years,” he said.
According to the Energy Information Administration, a statistical agency of the US Department of Energy, last year Russia’s gross domestic product grew by 4.3 per cent. It was the country’s fourth consecutive year of economic expansion, surpassing average growth rates in all other G8 countries.
The growth has been fuelled primarily by energy exports which now account for almost 20 per cent of Russia’s GDP.
Increased government encouragement of Russian oil production and relatively high world oil prices during this period has made the Russian economy dependent on its oil and natural gas exports and concerns many analysts. Today trade between Australia and Russia is valued at around a lowly $200 million.
It constitutes mainly bauxite, however, lately there had been increased interest shown by more Australian companies, Mr Rowe said.
Amcor has a successful paper manufacturing business based in Moscow; Bovis Lend Lease is managing several small projects and quite recently wines and foodstuffs, particularly from WA, have been making inroads into Russia.
Mr Rowe said there were opportunities for Australian companies in the oil and gas industry and dry-land agriculture as well as those associated with infrastructure building, wine making and food production.
Mr Rowe said while there were opportunities in these areas he highlighted the oil and gas industry, pointing out a 30-year, $A100 billion oil and gas development of the east coast of Russia.
Although parts of the Sakhalin development had come on-line recently, he said it still held great potential for Western Australian businesses.
“These are oil and gas projects the like of which you won’t find in many parts of the world,” Mr Rowe said.
“And one of the great advantages [for Australian] companies going in and doing business with these consortiums is that you are doing business with western companies following western business ethics and western business rules.”
However, Mr Rowe warned there were still issues associated with establishing trade or a business in Russia.
He said the Russian judicial system was still problematic, as was the level of corruption, and stressed the importance of making the right local business partnerships when doing business in Russia.
