Loving the Urals the French Way

14.07.2009 — Analysis

Amongst all the foreigners the French seem to be the most critical of the ways of conducting business in the Urals. Claude Crouail, the Consul General of France in Ekaterinburg, said in the interview to RusBusinessNews that this is connected to their large-scale plans for investments.

- Mr Crouail, what are your general impressions of the Urals region and its economic potential?

- I have worked here for almost two years. My work here predominantly is the promotion of the French business and the simplification of the visa issuing system.

It is an objective fact that the Urals Federal District does have big potential, 70% of Russian oil and 90% of gas is produced here, not to mention industry, in particular metallurgy. This is why there are serious reasons to come here and to invest into the local economy.

However, there are large obstacles for foreigners trying to conduct business in the Urals. At the official level there are bilateral agreements being signed on the collaboration between France and Russia. However, the concrete steps in the economy are not as easy as that. Maybe it has to do with the fact that the Urals was off limits for foreigners during the whole of the soviet period and there were very few contacts.

There were times, however, when the French did come to the Urals and Siberia in the end of XIX century. French banks and engineers were involved in the construction of the Tran-Siberian Railway. After which there was a long period of the region being closed for foreigners, up until the nineties. The uneasy attitude towards foreigners still remains here, I feel it regularly.

Since the defence industry did and still does take a significant place in the structure of the economy, the wariness towards foreigners can be observed frequently. I would have liked for the security issues not to involve the entire range of spheres of economy. The most recent contract, signed in Nizhniy Tagil between Russian and French businessmen is encouraging (Agreement on continuing to install the French Thales Optionic cameras on tanks T-90S made for export – note from the editor).

Everyone knows that in the soviet times there were large industrial enterprises here, but in the nineties, as a result of privatisation many of them had new proprietors and they have not been renovated or modernised. As a result many plants today ceased production and found themselves in a blind end - their products cannot compete due to high production costs. Old plants consume vast amounts of energy and use a lot of labour force. As these plants have nota undergone modernisation during the economic boom from 2000 to 2008 they face very serious difficulties now.

While in Europe it is easy for an investor to find a site with good infrastructure, here it is not easy to find good environment.

- It must be cheaper than in Europe, must it not?

- No, it is not cheaper. The idea that if you are a foreigner, you must be rich and thus you can fork out the money remains. This is why negotiations take a long time rather often.

- What kind of sites or facilities are of interest to the French in the Urals?

- France has know-how in many spheres. On the whole enterprises invest, for instance, into Chinese economy, or, in order to expand the sales market, for example, into Russian economy. The Urals is becoming a large market in terms of the economic development and thus is of a great interest for our companies.

However, there are problems with land allocation, cargo transportation, services connection (electric power, gas, water) etc. You have to negotiate with every authority and this is happening with a light blackmail for backhanders. When a foreign investor comes he finds himself in some sort of squeeze rather soon. This is why many French entrepreneurs having seen the situation here for themselves begin reconsidering or just leave. This is because all this is too complicated for them, not easy to understand.

Russia has a very serious competitor for investments, China, which adheres to very flexible policies toward each and every investor. This is why when the conditions for business are too complicated, foreigners leave Russia and go a bit further – to China and the Far East.

- Does the Sverdlovsk Oblast administration and the Governor himself not help foreign investors?

- They do. But the Oblast authorities are very high. They have many ideas and good intentions. Locally, however, every administration or private structure has its own understanding of how to work with foreigners. It would be ideal for any enterprise to contact only with commercial structures and not with political.

The opportunity to come and work here is only open for large companies now. They can afford to employ consultants who will study, in great detail, the entire situation and help companies act with more confidence.

I must say that this is needed not only for foreign investors. By the way, there will be no real competition in the Urals region, without the development of small and medium-sized businesses which all over Europe create diversity and comfort, which in turn would mean the prices will remain high. The development of hotel business is an excellent example. The well-known hotel chains coming to the market create competition which drives the prices down and improves choice.

- Do you think that the prices are high in the Urals?

- Yes. Everything – clothes, footwear, and even the everyday consumer goods – is very expensive This because the economy lacks flexibility and competition. There are whole industries here which are completely monopolized by influential businessmen. And business has to be free.

- Do French businessmen often complain to you regarding the conditions for business here?

- No they do not complain. Many of those who came to the Urals for the first time simply do not come ever again. Others, on the other hand, fall in love with the region.

- Which industries are of the highest interest to French companies in the Urals?

- At the moment many large French companies are well represented in the Urals - Lafarge, Lessafre, Areva T&D, Schneider Electric, Auchan…

There are plans for the development of the Ekaterinburg airport Koltsovo. It is situated on the crossroads of many air carriers. So far there is not enough capacity to receive and process cargo, despite the fact that there is a need for it. Three French companies demonstrated interest in the development of transport logistics in Koltsovo, transporting cargo from Europe to China via Ekaterinburg.

- What are the prospects for the collaboration within the defence industry?

- We do have some points of contact. Some countries - producers of arms work in cooperation. For instance, the Americans, the English, and the Israelis actively collaborate. France, like Russia, works independently. This is why we should work together in this sphere, possibly. We can boast some success stories already.

- What schemes do French companies use for the promotion of their products, technologies, and investments in the Urals?

- The French Ministry of Foreign Trade helps the promotion in the foreign markets to some extent. It is understood, however, that if a company decides to implement an investment project abroad, then this company does so with own resources and the State is not involved. The Embassy can just monitor the compliance with the conditions of the implementation of large projects.

There are exceptions, however. If a project is capital-hungry and would lead to the coming of other French companies of adjacent industries, then this project may obtain guarantees of the French Government. The only time this happened in the Urals was with the construction of the hotel Hyatt Regency Ekaterinburg. When this project was implemented, floor surfaces, furniture, and all in-house equipment were shipped from France.

- How active is tourism from the Urals to France? What are the dynamics of numbers of visas issued?

- We started issuing visas in Ekaterinburg one and a half years ago. We issued around 16 thousand permits in 2008. This year, due to the crisis, it is likely that we will be unable to increase this number, remaining on the same level. In the firs half of 2009 we issued 6,500 visas.

There is potential for the increase, as many Urals people have never been to the Western Europe. We advertise our country and first and foremost we try to explain to Russian tourists through tour operators, that there are more acceptable holiday destinations pricewise in France than Nice, Courchevel, and Paris. There are a lot of regions rich in historic monuments and cultural traditions.

These are, for instance, regions in the South-West of France from Bordeaux to Toulouse, Bretagne and Normandy in the West, where there is the Atlantic, wonderful air, remarkable cuisine and wines. It is all both high quality and inexpensive.

In the Urals we work with practically all serious tour operators, there are about 80 of them. Amongst these 10 specialise in tours to France, these are the companies which give us the most work in visa processing.

The interview has been prepared by Pavel Kober