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Daily Telegraph: Britain could lose out, warn Russians

Daily Telegraph Moscow photograph

Two policemen stay on guard outside the British Embassy in downtown Moscow
 
By Russell Hotten, Industry Editor
Last Updated: 12:27am BST 21/07/2007  

Russia’s most powerful business lobby group has warned that British firms will fall out of favour with Moscow following the current diplomatic row, perhaps losing out on big contracts and facing tougher scrutiny from the tax and regulatory authorities.

Alexander Shokhin, president of the Union of Industrialists and Entrepreneurs (UIE), also said that if the dispute escalates, Russian firms intending to float in London could review their plans, while firms already on the Stock Exchange may switch to other bourses if politics demanded it.

The strength of Mr Shokhin’s comments caused surprise, but also some alarm given the importance of the UIE in Russian business life. The body is Russia’s equivalent of Britain’s CBI, representing the country’s major companies and with billionaire entrepreneurs Oleg Deripaska, Viktor Vekselberg, Alexei Mordashov, and Vladimir Potanin on its board.

In an interview with the RIA Novosti news agency, Mr Shokhin warned that British companies now faced more frequent inspections from the tax officials and regulators as sentiment in Moscow turned against British business.

“If events develop… Britain’s trading floors traditionally favoured by Russian companies, including state-run companies, would start losing ground, and Continental exchanges will obtain an opportunity to attract Russian companies to their bourses.” He added: “Perhaps, under broadly equal conditions, some companies may fail to win tenders.”

There are about 400 UK companies operating in Russia, including household names like Marks & Spencer and Mothercare. BP, Royal Dutch Shell, British American Tobacco, and Cadbury Schweppes are estimated to have invested a combined $15bn (£7.3bn) in Russia in the six years to 2006. Britain invested about $3.1bn in Russia in the first three months of 2007.

The London Stock Exchange is the primary overseas destination for Russian firms seeking to raise capital, with six companies listing this year worth $12.2bn. There are 42 Russian companies on the LSE and Alternative Investment Market, and they are due to be joined later this year by mining giant Rusal in what would probably be London’s biggest IPO of 2007.

Mr Shokhin said that the travel of both Russian and UK executives could be affected. He said that the UK’s decision to refuse entry visas to Russian officials could be easily applied to the executives of Russia’s state-owned enterprises.

“There is nothing to stop the British from saying that managers of state-owned corporations are also state officials. In addition, many officials who sit on boards of directors will fail to enter the UK as their companies’ business will require.”

Andy Scott, CBI director of international and UK operations, said the comments were a surprise, but that there seemed to be mixed messages coming out of Moscow about the impact on business.

“It is important that we carry on business as usual, and separate business from politics,” he said. His fear was that there is an anti-British sentiment in Moscow that would impact on commercial relations.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/07/21/cnrussia121.xml

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