21 January 2014

Reducing the Jitter Factor

By Peter Necarsulmer, Executive Chairman, PBN H+K Strategies
Political disputes have the potential to make investors nervous. How can executives in Russia counter the jitters? 

Even in the case of investors with a long track record in Russia, their corporate headquarters are starting to question how much further to go. It puts the country managing director for these companies very much on the spot. A number of my clients and friends who run companies here comment on how much additional time they are having to allocate to keeping their corporate headquarters on side.

It’s for a combination of reasons: from the recent media reportage on the European Union, Ukraine and Russian to social issues such as legislation against gay propaganda.

It is still a country with greater opportunity on the risk reward equation, that stacks up better than other emerging markets and it is still quite untapped in terms of the non-resource economy.

More important in terms of reducing the jitter factor is discussing in detail the successes of other investors in this market. However, almost all continue to expand their businesses.
How does the strategic advice you give companies differ to what you would do abroad?
A big part of what we do with our clients is, in the first place, to understand the Russian national interest. We advise our clients not to do a deal and take it to the last signature on the piece of paper before they go and talk to the government. They don’t want to give them a surprise or find that the government does not view their investment or transaction favorably. That is different to most markets.

Having said that, while a lot of noise is made about politics, surface international politics very rarely will influence a business decision in this day and age.
Is there a beauty contest among Russian regions to attract foreign investment?
Yes. They are building out their infrastructure, social services and improving their quality of life and they need to attract investment. There is quite healthy and aggressive competition among a number of the regions to attract new investment not only through tax holidays and incentives but also by cutting red tape and bureaucracy. Unfortunately, I don’t think Russia has done a great job of managing its brand in terms of attracting investment. I believe the government knows this and is working on it.
This article originally appeared in The Moscow Times’ Russia – USA supplement on January 21, 2014.