US businesses keep cool in Russia
There are no overt shows of bonhomie or new investment commitments at the recent annual business summit
As the crisis in Ukraine was spiralling into war a year ago, the Obama administration pressured US business leaders not to attend Russia’s glitzy annual business summit. This year, they were back — but with Russia’s economy entering a deep funk, few of them were doing much business.
Many said that the Obama administration had not pressed them to stay away this year.
“They’re not excited about US companies coming here, and on the other hand they’re less vocal about it,” said Alexis Rodzianko, the president of the American Chamber of Commerce in Russia. “It moved from a campaign to make sure no senior US executives came here to a don’t-ask-don’t-tell policy. Don’t embrace Putin in front of the cameras.”
The Americans who are coming are aware of the grim economic outlook and tend not to be in search of deals, he said. “Things are shrinking here. Business is way down compared to last year,” he said.
But a State Department official did frown on the presence of top US business leaders at the conference. “We expressed our concerns and encouraged CEOs not to attend,” said State Department spokesman John Kirby. “There was no pressure, no threats. Ultimately, it was up to the CEOs to decide whether they would attend.”
This year’s lacklustre gathering reflected the mixed results of US and European efforts to isolate Russia after it annexed Ukraine’s Crimean Peninsula. Russia remains the world’s 10th-largest economy and an important market for US businesses, even as low oil prices and sanctions push it into a recession that may linger.
Of the US business leaders who did attend the conference, many said they had travelled to Russia to defend the investments they have already made, not to put new money into the country. The festivities — once extravagant — had a notably subdued air, with Russian business stalwarts saving their cash for more pressing needs than spectacular ice sculptures.
Follow the money
American executives said they had simple reasons for coming to the forum, which is a bit like Russia’s version of the annual meeting of the World Economic Forum in Davos, Switzerland. Russia “is a top 10 world economy. Follow the money. It’s not very difficult,” said Johan Aurik, chairman of A.T. Kearney, a US consultancy.
“I am here not because we saw this massive business opportunity last year, but to support our team,” he said. He said that many companies that consulted A.T. Kearney for advice about the Russian market were trying to find ways to cut costs, since the Russian economy contracted by more than 2 per cent over the last year.
A.T. Kearney is not expanding its business in Russia, Aurik said, and has reassigned some of its Moscow-based consultants to focus on projects in other countries.
A handful of US businesses sent their top executives, including Pricewaterhouse-Coopers and the Boston Consulting Group. Big European companies, including Shell, BP and Danish beer maker Carlsberg, also sent their leaders, while many more Western companies sent lower-level executives.
Some Western business leaders appeared to be striking an awkward pose between representing their businesses and not wanting to appear too eager to profit from a country that is entangled in a grinding geopolitical conflict with Europe and the US. Western sanctions against Russia have cut off funding from the country’s banks and hit the energy sector, but they allow deals in most other areas of the economy.
Gas pipelines
At the forum, Royal Dutch Shell’s chief executive, Ben van Beurden, signed an agreement with Gazprom for a massive joint project to build underwater natural gas pipelines between Russia and Germany. He smiled for Russian photographers and gave his Russian counterpart, Alexei Miller, a bearhug. But he made no public statements and ducked questions from reporters, speed walking into a private meeting with another major Russian oil company.
Other companies’ executives also were reticent about their activities at the forum. “Alcoa has a strong presence in Russia and remains committed to develop its business in the region but in the current context we do not feel it is appropriate to share views on the investment environment for Western companies in Russia,” Sylvain Lhte, vice-president of governmental affairs for Alcoa Europe, the European branch of the US aluminium company, said.
US diplomats stayed away from the forum, but their European counterparts did not. One ambassador from a European Union country said he was not there to promote his country’s businesses but because it was a convenient place for rapid-fire meetings and diplomacy.
A handful of elected EU leaders also visited. Greek Prime Minister Alexis Tsipras, whose country is in the middle of crucial last-ditch negotiations to avoid a drastic default and expulsion from the 29-nation euro currency zone, popped up in St Petersburg on Friday. He met with Russian President Vladimir Putin and declared in a brief speech that he was visiting the forum rather than negotiating in the EU capital of Brussels because the world was “multipolar”.
Indispensability
That appearance was a boost to Putin, who has been eager to show off Russia’s indispensability to world affairs and also to split EU leaders on the question of sanctions.
But in his own appearance at the forum, Putin offered few specific plans to develop Russia’s economy. Many analysts and investors painted a gloomy picture of Russia’s economic future, saying they saw few efforts to free the country from a dependence on oil revenue.
“At the end of last year, many people, as you know, predicted deep crisis in Russia, and this has not happened,” Putin said, boasting that Western sanctions and Russian counter-sanctions have given his country a chance to develop self-sufficiency.
Despite the larger US presence at the forum, some longtime pillars of the American business establishment in Russia are pulling out, in a sign of a fundamental shift in US attitudes toward the Russian market. An entire generation of young, ambitious Americans flowed to Russia in the aftermath of the 1991 break-up of the Soviet Union; now they have almost all left.
“About four of five folks who were here five years ago are gone,” said Bernard Sucher, a member of the board of directors of Aton, a Moscow-based investment bank. He is an American who has lived in Moscow for more than 25 years — but he said he is moving to Miami next week.
“Everybody starts with the phrase, ‘Well, it’s better than we expected’,” Sucher said, describing attitudes among the people he met at the forum. “But the honest answer to the question is that things are worse, and they’re getting worse.”