Russia awaits investors from the BRICS countries

When it comes to fostering foreign trade relationships with the BRICS countries, Russian companies are most attracted to China and India. Around two years ago, a published OECD forecast suggested that, by 2060, these two countries will account for 46 percent of the world's GDP. These are the countries that need to be put at the heart of the measures to be planned and implemented with a view to attracting foreign capital to Russia. 

Close economic ties with China and India are nothing new for Russia - they date back as far as Soviet times. However, in those days, investment flowed in the opposite direction: commercial and industrial facilities were constructed in India and China with technical and financial backing from the Soviet Union. Today, the scale of economic cooperation between the countries is on the rise, while China has become one of the key investors in the Russian economy. According to the Bank of Russia, last year's figures put the volume of Chinese investment in Russia at USD 1.28 billion, double what it was the previous year. 

Even so, a look at the potential for investments shows the current levels to be well below par. At the moment, we do not observe many investors lining up to inject their money into our country's economy. There are several objective reasons for this. One is the political differences with western countries, which to some degree are affecting the overall climate for investment in Russia. Another reason is the habit, common for foreign businessmen away from the west, of preferring, for many reasons, to take their time when investing. They tend to examine matters in depth before giving the green light to a project.

If we look at the upside to this situation, the increased tension between Russia and the West may (indeed, already has) become a decisive factor promoting cooperation with the BRICS countries. Investments from emerging countries may allow Russia to make up for its losses on other markets. These are the opportunities that Russia should be starting to take advantage of here and now.

Over the past ten years, much effort has been put into attracting investors to Russia: the institution of Special Economic Zones was established and this continues to be developed; the Russian Direct Investment Fund was created; the Foreign Investment Advisory Council was formed; and the Federal Law "On the procedure for making foreign investments in business entities of strategic importance for ensuring national defence and state security" was adopted. This last piece of legislation remains in effect and is currently being fine-tuned. However, as potential investors note, when they are deciding whether to invest funds, the key factors are a solid legal system and the economic stability of the country. For Russia, there is great room for improvement in these areas. The main difficulties include tax legislation, which is constantly changing, and amendments to the legal regulation of the areas which are of highest relevance for foreign investors: civil, migration, anti-trust, and currency legislation. Often, investors lack knowledge or understanding of Russian legislation and the practice of applying it, which represents an obstacle to forging business ties. For this reason, foreign investments need legal support to be provided from the very beginning. 

It is logical to suppose that the most effective development will be seen in the sectors and industries in which investment is attracted that receives support at the governmental level. Chinese business traditionally takes a keen interest in our country's oil and gas industry. However, it is no secret that we have rather complicated rules in place for granting foreign investors access to this industry in order to develop offshore fields. They may become involved in certain projects to a limited extent and only if Russian companies are also participating. 

Despite its vast territory, China lacks natural resources. This creates an opportunity for cooperation with Russia also to be developed in this area. At present, the largest agreement Russia and China have entered into is at the state level, with Gazprom and CNPC having come to a long-term arrangement for gas to be supplied on a large scale. For many decades, most electric power in China has been generated using coal-fired power stations. This is a major factor behind the poor environmental conditions the country now faces. For this reason, Chinese investors are taking a keen interest in the technologies associated with developing alternative sources of energy and protecting the environment. It is natural gas that China is planning to use to make up for the coal it is refraining from using.

Chinese developers who have gained vast experience in construction and who have at their disposal cutting-edge technologies in this sector are also demonstrating an interest in the Russian market. We see that agricultural land is also on their radar. Russian realities dictate that there is potential for working together in this area: we are seeing significant progress in terms of regulation in the industry with, for example, considerable amendment being made to legislation dealing with land reform. These are developments that will work in favour of business. Moreover, it has become easier for foreign investors to enter the Russian market thanks to the real estate prices, which (in foreign currency terms) have dropped. 

As for India, at present cooperation is being extended in the military field, which is materialising in supplies of heavy vehicles and weaponry. In addition, Russian business is actively working together with Indian pharmaceutical companies in carrying out joint research and development of medicines. Cooperation is also developing in the power industry and the machine building sector. 

Differences in mentality can represent a serious challenge when relationships are being built with business partners from other countries. Specific historical and cultural issues inevitably lead to misunderstandings, doubts, concerns, and even mutual distrust. This is especially so when a party is encountering such issues for the first time and lacks an understanding of its potential business partner. For example, Chinese business people tend to be somewhat impassive when they make decisions, can take time before coming to trust new partners and often prefer to develop their business on the basis of personal ties. They place a greater value on personal relationships in business, often adopting a tough attitude during negotiations, and they reserve a major role for the government to play in business relationships. What we might call technical difficulties can occur: for example, not all Chinese people use postal services, with many preferring to conduct business correspondence via local social networks customised to resolve business issues. 

We have discovered that China generally has a different legal culture, and it is crucial that a lawyer understands this if he or she is undertaking work relating to this country. For example, when concluding contracts, Europeans specifically agree on all numbers, conditions and timeframes. Once this is done, there is an assumption that the agreement is to be observed. Chinese business people, on the other hand, often rely on verbal arrangements and personal relationships while treating legal agreements in purely formal terms. We believe that the rules and approaches to be adhered to are determined by the environment in which business is done. As regards working in Russia, it should be remembered that, whatever misunderstandings may arise between partners from different countries, the only way to protect business interests in the case of disputes is by means of legal instruments.