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Sunday Times: Russia –a land of risk takers

August 19, 2007

Lured by a booming economy, businessmen from the West are flocking back to Russia to enjoy a high-octane lifestyle

Mark Franchetti in Moscow

AS his colleagues from senior management pushed him into a Soviet-era military helicopter, it didn’t take the British entrepreneur long to realise that his first business trip in Russia would be unusual.

Shouting to make himself heard over the clatter of the rotors, one of his colleagues warned him to move away from the machine’s rear ramp as it often opened accidentally in mid-flight.

After thundering for more than an hour over the snow-covered wilderness of Russia’s far east, more than 7,000 miles and nine timezones from Britain, one of the Russians on board slid open the side-door, pulled out a pump-action shotgun and began firing at reindeer scrambling on the ground below.

“One of the guys with us was a local millionaire businessman who’d recently launched a beer brand with his portrait on the bottle label,” said the British entrepreneur.

“After he killed a reindeer we flew lower and I was told to jump out to help haul it in. I plunged into snow up to my chest and wrestled to help retrieve the dead animal. I was covered in blood and in the midst of a snow and ice storm kicked up by the rotor blades as everyone was yelling round me. I thought I was going to freeze to death.”

Apart from the reindeer hunt, other episodes from the three-day trip included a drunken night in a sauna with prostitutes and a rowdy karaoke contest with the Briton’s Russian partners.

“It’s after that first trip, when I returned to head office in Moscow, which by contrast seemed tame, that I fully began to appreciate that doing business in Russia would be profoundly different from what I was used to back in Britain.

“The rules of the game are not the same here. It’s byzantine, crazy and unpredictable. It’s not easy to get things done – but it’s exciting.”

Nine years after Russia’s financial crisis, in which the rouble was devalued, the government defaulted on debts worth billions and Western businessmen rushed for Moscow’s drab airport, foreign “bizinessmeni” are back in force.

Lured by a booming economy, which is growing at more than 6% a year, a market increasingly awash with petrodollars, and a society which every month has more to spend on consumer goods, businessmen from the West are flocking back to Russia. Personal income taxes, which are only 13%, are an added attraction.

There are now some 400,000 Westerners working full time in Vladimir Putin’s Russia – a small figure compared with other emerging-market economies, but a record for a country that until only 16 years ago was all but closed to foreign businessmen.

From multinationals to family-run enterprises or single individuals joining Russian companies, Westerners are increasingly seeking a way into Russia’s markets. And whereas in the early 1990s American and European companies – with the exception of oil giants – rarely ventured outside Moscow, now they are branching out as far as Siberia.

British business investment in Russia reached more than £2.5 billion in the first nine months of last year, making Britain the largest single investor among G7 countries. The figure is expected to be much higher this year as investment reached more than £1.5 billion in the first quarter. Sales of British-made cars to Russia – Britain’s largest export market – totalled £476m in 2006, an increase of 37% on the previous year.

Bilateral trade between the two countries has trebled over the past five years and Britain is the world’s third-largest destination for Russian investments.

By contrast, the surge of business activity comes as diplomatic and political relations between the two countries have plunged to an all-time low since the end of the cold war over the death in London last year of Alexander Litvinenko – the former KGB agent killed with polonium 210 in a Japanese restaurant.

Putin’s government, keen to exploit its new economic muscle, has also taken a hard line with multinationals, especially in the energy sector. Last November Royal Dutch Shell was forced to sell control of its £10 billion Sakhalin II oil-and-gas venture to state-controlled Gazprom, and in June, TNK-BP, the Anglo-Russian joint venture and Britain’s single largest investment in Russia, was similarly obliged to sell its stake in the east Siberian Kovykta gasfield.

Coupled with the fallout over Litvinenko’s death and Moscow’s refusal to extradite to Britain Andrei Lugovoi, the prime suspect in the murder, it might be imagined that Western companies would start to shun Russia.

The opposite appears to be the case. Aberdeen Property Investors, the British fund, has recently announced that it will invest more than £500m in Russia.

For Westerners however, even for those fluent in the language and its culture, doing business in Russia can be both exhilarating and mystifying. One European with more than 10 years’ experience in the country did not think twice when he was made a lucrative offer to join a large Russian company closely linked to the state – his pay package is considerably larger than similar offers in the West.

In a practice that in the West would spark multi-million-pound lawsuits but is not uncommon in Russian companies, his phones are tapped by the group’s in-house security team, which is staffed by former KGB officers. A close aide of the company’s chief executive sits in on most of his meetings, almost certainly to report back. The foreign manager also suspects he is occasionally followed outside the office.

“I was pretty surprised when one of my colleagues said he could not recall what was said in a private business meeting and one of our senior managers said that was not a problem as he could retrieve a transcript,” said the Westerner. “I have no doubt that even my e-mails are monitored.

“After I was hired it took me three weeks before I got to see my boss. The queues to get an audience with him can get so long that people within the company are known to bribe the boss’s secretaries to jump the line.”

As the country’s economy continues to boom, so does corruption, which has gone from rampant to endemic – but in most cases it does not appear directly to affect Western businesses.

While Russian authorities say they are keen to attract more foreign investors, in practice they have recently made the process that Westerners have to go through to move to Russia even more Kafkaesque. Before being granted a work visa, nonRussians now have to pass a string of medical tests, including for Aids, most sexually transmitted diseases and even leprosy. Drug tests are now also required.

Equally frustrating are the complex bureaucracy and management hierarchy, legacies of the Soviet Union’s state-run system. On his first day at work a British manager employed by a large Russian insurance company had to sign for every item in his office, including his waste-paper bin. He was later asked by one of his bosses why he had been hired. “I’m in charge of attracting big foreign investment,” he said – but in fact he had no idea.

At the end of every working day he has to hand in the key to his own office to a security guard who keeps it in a special tube sealed with a wax stamp. Colleagues working in the same office often refuse to take his calls unless he has first cleared his request with their boss.

In another Russian company, a senior manager recently suggested introducing a system that would require his top advisers to fill out a written application form whenever they wished to see him.

“People in the office think there is something very suspicious about the fact that I keep my office door open and walk round to talk to my staff,” said one American working with Russians. “By nature, Russian managers are instinctively secretive and like to barricade themselves behind a double door – preferably padded.”

But in Russia, where most foreign businessmen agree the key to success is not what one knows but whom one knows, the right connections can often cut through red tape far more speedily than in the West. Andrew Paulson, an American who has been doing business in Russia since 1993 and who launched some of the country’s most successful home-grown glossy magazines, recently met a wealthy Russian by chance at a private dinner.

“I’d never spoken to him before and we got into a conversation about the internet,” recalled Paulson. “We were kicking a few ideas round and after just three subsequent meetings of serious talks he agreed to invest £10m into a project without even a business plan. Go do something great, he said. Russians are not crazy but they are brilliant risk takers.”

Another Briton with years of experience in Russia added: “Russians achieve things despite the system and always as a result of some heroic last-minute effort when everything seems lost. They learn fast and the days when foreigners could come and teach them something are pretty much over.”

Even some foreign businessmen who lost everything in the 1998 financial crash have found it hard to stay away. John Warren, a British entrepreneur who first moved to Moscow in 1991, was once shot in the neck by a Russian border guard. Undeterred by the risks, he went on to become the country’s largest exporter of sunflower seeds only to lose nearly £7m in the 1998 rouble devaluation.

But he came back to Moscow after only nine months, started a sausage-making business in his kitchen with £30 and now owns the only business to sell British sausages there.

“For all its problems, Russia is an amazing place to do business,” he said. “It’s full of opportunities and there’s a feeling you can pretty much achieve anything, a mushroom ground to start any kind of enterprise. You never quite know how the day is going to pan out. Anyone with a sense of adventure would find it exciting.”

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article2283032.ece

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