BUSINESS IN RUSSIA 2014
Stockholm, 16th of September 2014 Mikael Johansson, Trade Commissioner Russia and Central Asia BUSINESS SWEDEN – GLOBAL PRESENCE WE MAKE IT EASIER FOR SWEDISH COMPANIES TO DO BUSINESS ABROAD AND WE MAKE SWEDEN MORE ATTRACTIVE TO DO BUSINESS WITH
BUSINESS SWEDEN 2014-09-16 2 KAZAKHSTAN IS THE LARGEST ECONOMY IN CENTRAL ASIA
Astana KZT KAZAKHSTAN UZB KYR TUR TAJ Almaty
• Area: 2 724 900 km² • Capital City: Astana • FDI: USD 18 billion (2012) • Inhabitants: 17.0 million (June, 2013) • Main Cities: Astana, Almaty • Total Export (2011): USD 88 billion • Inhabitants/km2: 6.1 (2011) • Currency: Kazakh Tenge (KZT) • Total Import (2011): USD 38 billion • Religion: Islam (70%), Orthodox • GDP: USD 183 billion (2011) • Main Exports: mineral oils & fuels, metals, Christianity (20%), Other (10%) • GDP Growth: 5.4% (2013) chemicals, food products • Constitution: Presidential Republic • GDP Per Capita (PPP): • Main Imports: machinery & equipment, chemicals, mineral oils & fuels, metals • President: Nursultan Nazarbayev USD 13,029 (2012) • Prime Minister: Serik Akhmetov • Gross average wage 2012: • Languages: Kazakh, Russian USD 844/month • Inflation 2012: 6% Source: SCB, Economist Intelligence Unit, UN Trade, Ministry of Statistics Republic of Kazakhstan
BUSINESS SWEDEN 16 SEPTEMBER, 2014 3
KAZAKH RAILWAYS – COMPLETITION OF LIFE CYCLE SETS PACE FOR NEW DEVELOPMENT
Kazakh Railways is one of the largest state enterprises in the country with over 140 thousand employees Given that Kazakhstan is the 9th largest country in the world, its limited direct sea access and navigable waterways, the structure of production of raw materials, underdeveloped road infrastructure, uneven distribution of productive force make the railway infrastructure important In the period up to 2020 more than 54% of freight cars of the current Company’s fleet, 68% of main-line locomotives, 82% of switch engines and passenger cars will be written off due to the end of service life These challenges will partially met by: 3 BUSD annual investments in to railroad infrastructure by 2020 - 1,400 km of track will be added to the network In 2013 french railway specialists Systra has been awarded a contract to design and supervise the construction of Kazakhstan's high-speed rail link between the capital, Astana, and the city of Almaty. 1,050 km double track in length "Aktobe rail and beam plant" is being currently constructed. The total project cost is estimated at USD 367.6 mln. Including equipment In the period from 2004 to 2012 there was a significant renewal of rolling stock when KTZh acquired 31 thous. of freight cars of which only more than 21 thous. of them were purchased over the past two years Cooperation has been established with the world's largest corporations, such as «General Electric» (USA), «Alstom Trasport» (France), «Tulpar-Talgo» (KZ-Spain). As an example, Alstom plant plans to deliver 295 new passenger and freight locomotives to KTZh until the end of 2020 Investments in energy efficient solutions
BUSINESS SWEDEN 2014-09-16 4 RAILWAY DELEGATION TO ASTANA, 3-4TH DECEMBER
Cooperation background with Temir Zholy In 2012 business Sweden has conducted a railway delegation to Kazakhstan EBRD Initiative 2014
Goal of the delegation The main goal of this delegation is to provide information on available projects in which Swedish companies could participate and arrange meeting with potential partners, through B2B, B2G and mingling/matchmaking events
BUSINESS SWEDEN 2014-09-16 5 PROGRAM
3rd of December Morning session: Introduction to the program and to the transport sector of Kazakhstan: Business Sweden, Embassy of Sweden in Astana, Asian Development Bank, Siemens, Talgo, General Electrics etc. Lunch Visit to the National company “Kazakhstan Temir Zholy” – Kazakh Railways Presentation of the Temir Zholy and projects Swedish railway companies’ presentations Round Table Discussion – Deregulation of the Swedish Railway and other relevant topics BTB Meetings Dinner buffet (Temir Zholy, Embassy of Sweden, Business Sweden, Siemens, Talgo, General Electrics, Asian Development Bank) 4th of December Meeting with the Ministry of Industry and New Technology / Alternatively B2B Meeting Meeting with the Ministry of Transport and Communications / Alternatively B2B Meetings Lunch B2B Meetings Dinner (Temir Zholy, Embassy of Sweden, Business Sweden, Siemens, Talgo, General Electrics)
BUSINESS SWEDEN 2014-09-16 6 AGENDA
Key facts, current situation and trade sanctions Business Climate Survey – Russia 2014 Business Sweden in Russia Railway delegation to Kazachstan - 2014
BUSINESS SWEDEN 2014-09-16 7 BUSINESS SWEDEN – GLOBAL PRESENCE WE MAKE IT EASIER FOR SWEDISH COMPANIES TO DO BUSINESS ABROAD AND WE MAKE SWEDEN MORE ATTRACTIVE TO DO BUSINESS WITH
BUSINESS SWEDEN 2014-09-16 8 RUSSIA – A LARGE NEIGHBOURING MARKET…
#8 economy #2 oil and gas 143 M consumers in the world producer in the world
11 time zones largest country in the world only one hour away
BUSINESS SWEDEN 2014-09-16 9 …WITH MANY YEARS OF STRONG TRADE GROWTH…
Chemical Others Automotive 14% Imports to Sweden from Russia, SEK billion related goods spareparts 10% 7% Exports from Sweden to Russia, SEK billion Trade Balance, SEK billion Light vehicles 26% 40 Machinery and ICT eq. 20 43% 22.7 28.9 27.6 23.7 23,6 16 17.9 14 20.8 0
-20 -24.8 -45,5 Wood and -33.1 -29.2 -31.5 -61.7 articles of -44.4 -64.8 Other metals Others -40 wood 2% 12% -50.8 1% -60 Iron and steel -80 1% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Crude oil Chemical 76% products 8%
EXPORT TO RUSSIA HAS GROWN BY 500% SINCE YEAR 2000! THERE ARE 350 DAUGHTER COMPANIES IN RUSSIA
SOURCE UN CUSTOMS STATISTICS
BUSINESS SWEDEN 10 …THAT HAS RECENTLY SHOWED A “DARK SIDE”
Experiencing economic difficulties
Showing acts of protectionism
Demonstrating signs of aggression
BUSINESS SWEDEN 2014-09-16 11 AND THERE ARE STRONG VOICES AGAINST RUSSIA
”Jag har gjort affärer i Ryssland. Jag skulle inte göra det i dag. Det är en ren affärsbedömning. Det är för riskabelt. Sannolikheten är mycket stor att du förlorar allt. Det är svårare att bedöma var Ryssland kommer vara politiskt och ekonomiskt och två till tre år.” Dagens Industri, 2014-09-06
BUSINESS SWEDEN 2014-09-16 12 RELATIONS WITH EU AND US BEGAN DETERIORATING LATE 2013…
WINTER 2013-2014 SPRING – SUMMER 2014
Yanukovych refuses to sign EU Unrest spreads to Eastern Ukraine association agreement Separatists take control of large Protests in Kiev areas Yanukovych leaves Ukraine Sanctions are imposed in three steps against Russia from the EU Annexation of Crimea and the US Demands for sanctions against Russia The Russian government responds with counter-sanctions against EU Russian Federation deploys large amount of troops along the The armed conflict prevails until Ukrainian border today
BUSINESS SWEDEN 2014-09-16 13 …RESULTING IN SANCTIONS AND COUNTER SANCTIONS
EU AND US SANCTIONS ON RUSSIA RUSSIAN COUNTER-SANCTIONS
167 Russian individuals and legal entities on Russian sanction list on a limited number of sanction lists US citizens Investments and activities related to transport, From August 7, 2014, Russian one year ICT, energy and natural resources in Crimea import ban on fruit, vegetables, meat, fish, prohibited milk and dairy products from the USA, EU, Embargo of arms and dual use materials Norway, Canada and Australia Restriction of technologies in deep water, arctic or off-shore oil projects Financing of Russian state owned banks on SANCTIONS longer terms than 90 days AND COUNTER- SANCTIONS POSSIBLE FURTHER SANCTIONS POSSIBLE FURTHER COUNTER-SANCTIONS Widening sanctions regarding tech towards the Restriction of overflights through Russian oil sector airspace Travel bans and asset freezes for more individuals
Tightening access to capital markets for Russian oil and defense companies
SOURCES: MANNHEIMER SWARTLING, INTERNAL ANALYSIS
BUSINESS SWEDEN 2014-09-16 14 …CAUSING NEGATIVE EFFECT ON RUSSIAN ECONOMY
GDP FORECASTS ARE REVIEWED Lower liquidity in the system DOWNWARDS Volatility of Russian Rouble, especially since 1Q2014, will add to increasing inflation. Effects as in 1998 or 2009 are not expected, Sanctions and international isolation come on although financing will be less accessible and more costly, top of an already ongoing economic slow-down construction projects and other investments will be put on hold in Russia. 1.3% GDP growth rate in 2013 is expected to deteriorate Capital outflow
5% FDI inflows to Russia have shrunk, combined with significant 4 capital outflow. The trend will maintain and have long-term effects 3 2 1 ? Increasing retail prices 0 Food supply shortages similar to 1980s should not be expected – 2011 2012 2013 2014f 2015f 2016f 2017f yet PPP is likely to decrease. Retail prices will gradually rise, outbound tourist flow is to decline. However, business always finds Reviewed forecasts Previous forecasts a way, e.g. “new” products like Belorussian mussels may emerge
EFFECT OF COUNTER-SANCTIONS ON WESTERN ECONOMIES IS LIMITED, ALTHOUGH MAY HAVE SIGNIFICANT IMPACT ON INDIVIDUAL COMPANIES
SOURCES: IMF, ROSSTAT, WORLD BANK, INTERNAL ANALYSIS
BUSINESS SWEDEN 2014-09-16 15 AGENDA
Key facts, current situation and trade sanctions Business Climate Survey – Russia 2014 Business Sweden in Russia Railway delegation to Kazachstan - 2014
BUSINESS SWEDEN 2014-09-16 16 PROVEN METHODOLOGY QUESTIONNAIRE AND INTERVIEWS WITH SWEDISH EXECUTIVES IN RUSSIA
The Business Climate Survey is conducted by Business Sweden in cooperation with Magnusson Law and Raiffeisen Bank The survey presents the perception of the business climate in Russia among Swedish companies operating in the market The survey was conducted using closed questions, yet some of the questions allowed respondents to write comments and recommendations The survey was finalized by carrying out in-depth interviews with selected respondents to get a broader understanding of their challenges in Russia The survey covers wide range of topics, including context, finance, processes and staff related challenges The results are based on answers of ¼ of all Swedish companies present in Russia The survey was conducted by Business Sweden during July-August 2014
BUSINESS SWEDEN 2014-09-16 17 BALANCED POOL OF RESPONDENTS
SIZE OF COMPANY BY TURNOVER, % OF RESPONDENTS 11% Micro <2 MEUR Respondents are experienced top 38% Small 2-10 MEUR executives, mainly Swedish nationals and 25% native citizens Medium 10-50 MEUR Large >50 MEUR Small, medium size and large companies participated in the survey 27% TURNOVER CONTRIBUTION FROM THE RUSSIAN Equal share of service, production and MARKET, % OF RESPONDENTS trading companies across different industries 19% 0-10 % 3% 10-25 % 8% 52% 25-50 % 50-75 %
16% 75-100 %
SOURCES (HERE AND FURTHER ON SLIDES 15 – 21): UNDISCLOSED RESPONDENTS, INTERNAL ANALYSIS
BUSINESS SWEDEN 2014-09-16 18 BUSINESS CLIMATE IS CHALLENGING…
78% indicate that it is difficult to find reliable business partners
73% consider the political risk to be high
70% have encountered corruption
66% consider product certification complicated
58% negatively affected by the current political development and the sanctions
BUSINESS SWEDEN 2014-09-16 19 …YET PROFITABILITY AND GROWTH POTENTIAL REMAIN HIGH. BRAND SWEDEN IS AN ASSET.
0% expressed intention to exit
60% consider the growth potential of business in Russia as good
consider profitability in Russia to be on par with or better than other 72% international markets
90% perceive that they are well treated as Swedish nationals
BUSINESS SWEDEN 2014-09-16 20 THE EXTERNAL RISKS INCREASED SIGNIFICANTLY
HOW DO YOU ESTIMATE THE RISK OF THE FOLLOWING? The recent developments have significantly Political Inflation Currency Cooperation increased the perceived risk among Swedish companies Inflation concerns have increased in the volatile 22% 27% financial environment 36% 38% 43% 44% Currency fluctuations create serious issues Counterparty risk is considered much higher 73% 75% 33% 25%
61% 36% 48% 44% “We have models to deal with all kinds of risks, but 45% the current political risk cannot be translated into a 39% 16% 16% risk premium” 21% 14% 11% 9% 12% 12%
2012 2014 2012 2014 2012 2014 2012 2014 Low Moderate High
BUSINESS SWEDEN 2014-09-16 21 …CORRUPTION IS STILL WIDELY ENCOUNTERED
HAVE YOU FACED CORRUPTION IN CONNECTION 70% of surveyed companies have faced TO YOUR BUSINESS IN RUSSIA? corruption in Russia 80% 64% of respondents stated that the fact of 70% 70% 67% corruption has not made them consider leaving the Russian market 60% 80% of companies have a functional code of 50% conduct 40% 29% 30% 19% “We don't take bribes and we don't give bribes. 20% Sometimes, however, we face unjustified 10% excessive fines from the tax department.”
0% 2012 2014 2012 2014 No Yes
BUSINESS SWEDEN 2014-09-16 22 ESTABLISHING A LEGAL ENTITY HAS BECOME EASIER
WHAT IS YOUR ASSESSMENT OF ESTABLISHMENT On average it takes about two months to PROCESS FOR YOUR BUSINESS IN RUSSIA? register a subsidiary in Russia 50% Establishment includes formation of company, 44% 45% registration, necessary licenses, working 40% permits, etc. 35% 32% 33% Corporate taxation is considered to be quite 30% favourable, only 7% have a negative view on 25% this issue 20% 35% of respondents don’t see any major issues 15% 13% due to the differences in accounting systems 10% 5% 0% 2012 2014 2012 2014 Easy Difficult
BUSINESS SWEDEN 2014-09-16 23 INTERCOMPANY CONTRACTUAL RELATIONSHIPS SEEM TO IMPROVE
TO WHAT EXTENT IS CONTRACT LAW FOLLOWED Half or respondents stated that contract law is IN RUSSIA ACCORDING TO YOUR KNOWLEDGE? generally followed (35% in 2012) 60% 67% of respondents answer that payment 51% terms are generally followed 50% Half of the participants had experience from the 40% arbitration courts, ⅓ of those experiences are 35% negative 30% 44% of respondents had negative experience of dealing with authorities 19% 20% 17%
10%
0% 2012 2014 2012 2014 High extent Low extent
BUSINESS SWEDEN 2014-09-16 24 ACCESS TO FINANCING FOR SWEDISH COMPANIES HAS IMPROVED
WHAT DO YOU THINK ABOUT THE BANKING SYSTEM IN TERMS OF…? Short term Long term Guarantees Local financing credits payments
16% 23% 25% 36% 39% 55% 63% 66% “Too high interests rates. But this is common for all 30% 44% Russia”
53% 32% 31% “Low customer focus”
“The banks are not the problem as much as the 12% 8% 31% currency control. Foreign banks follow it by the book 45% 40% […] which makes business life for us entrepreneurs 32% 30% 25% 26% 24% very difficult” 14%
2012 2014 2012 2014 2012 2014 2012 2014 Easy Moderate Hard
BUSINESS SWEDEN 2014-09-16 25 COMPLEX CERTIFICATION SYSTEMS MAKE PRODUCT APPROVALS A TIME CONSUMING PROCESS
WHAT DO YOU THINK ABOUT THE PROCESS OF Product certification is considered complicated PRODUCT CERTIFICATION? by half of the respondents 60% Several standardization and certification 49% systems are in effect 50% 43% GOST standardization system is often criticized 40% for outdated requirements With formation of the Customs Union (Russia, 30% Belorussia, Kazakhstan) in 2011, new Technical Regulations are gradually enforced 20%
9% 10% 8%
0% 2012 2014 2012 2014 Simple Complicated
BUSINESS SWEDEN 2014-09-16 26 COMPLICATED CUSTOMS PROCEDURES CREATE ADDITIONAL TRADE BARRIERS
WHAT IS YOUR OPINION ABOUT THE CUSTOMS PROCEDURES IN RUSSIA? 70% 59% 60% 54% 50%
40%
30%
20% 11% 9% 10%
0% 2012 2014 2012 2014 Simple Complicated
BUSINESS SWEDEN 2014-09-16 27 FINDING RELIABLE BUSINESS PARTNERS IS DIFFICULT
HOW EASY/DIFFICULT IS IT TO FIND RELIABLE English skills of local partners is still considered BUSINESS PARTNERS IN RUSSIA? to be poor (55% vs 66% in 2012) 50% 47% It is difficult to obtain information from Russian 45% authorities (58% vs 54% in 2012) 40% Financial company information is considered 34% 35% difficult to obtain (53% vs 69% in 2012) 30% 25% 19% 20% 17% 15% 10% 5% 0% 2012 2014 2012 2014 Easy Difficult
BUSINESS SWEDEN 2014-09-16 28 RECRUITMENT OF SKILLED STAFF REMAINS AN ISSUE
WHAT DO YOU THINK ABOUT THE AVAILABILITY OF SKILLED LABOR IN RUSSIA? Managers Sales Development Production The demand for qualified workers is high in Russia Unemployment is low among skilled staff in major cities 38% 35% 42% 44% Cost is high for top talents 51% 53% 54% 58% Loyalty is an issue
24% 30% 19%
27% 34% 31% 45% “One big problem is to trust own people in the 29% administration so they don’t make agreements 39% 38% 35% with raw material suppliers for taking back commission” 19% 16% 13% 15% 11%
2012 2014 2012 2014 2012 2014 2012 2014 High Moderate Low
BUSINESS SWEDEN 2014-09-16 29 DESPITE THE CHALLENGES, MAJORITY OF THE SWEDISH COMPANIES PLAN FURTHER EXPANSION
DO YOU PLAN REGIONAL EXPANSION IN THE PRIORITIZED REGIONS: NEXT 3 YEARS? All cities with > 1 million inhabitants
80% Siberia (Krasnoyarsk and Novosibirsk) 65% Far East (Vladivostok and Khabarovsk) Oil and gas regions (Tyumen and 35% Nizhnevartovsk) 20% 2012 Southern Russia (Rostov and Krasnodar) 2014
Yes No St. Petersburg
”We are already represented in about 50 Russian cities” Moscow
”Deeper penetration of full area, new expansion in Far East, Siberia and South Central region”
BUSINESS SWEDEN 2014-09-16 30 RUSSIA IS A DIFFICULT MARKET, YET OPPORTUNITIES FOR GROWTH AND PROFITABILITY REMAIN
Challenges have increased compared to our earlier surveys The effects of the current crisis are expected to NOW IS THE TIME TO remain for several years SHOW WE ARE STAYING, Entry barriers are high WE STAYED ON THE Growth plans despite tougher conditions MARKET IN 1998 AND IN Higher than average profits and market potential are key motivation factors 2009 AND GOT A LOT OF RECOGNITION FOR THAT
Undisclosed respondent
BUSINESS SWEDEN 2014-09-16 31 AGENDA
Key facts, current situation and trade sanctions Business Climate Survey – Russia 2014 Business Sweden in Russia Railway delegation to Kazachstan - 2014
BUSINESS SWEDEN 2014-09-16 32 THE BUSINESS CLIMATE IN RUSSIA IS DEFINITELY NOT EASY. IT MIGHT GET WORSE BEFORE IT WILL GET BETTER, BUT EVEN IN THE TOUGHEST TIMES THERE IS BUSINESS TO BE MADE.
BUSINESS SWEDEN 2014-09-16 33 BUSINESS SWEDEN IS READY TO ASSIST SWEDISH COMPANIES DURING THE CHALLENGING TIMES
Certification and Maria Alevtina compliance Balobanova Zaytseva
Executive search and HR Mikael Teo Johansson Vares
Finance and capital markets Andreas Giallourakis
Analysis and strategy Ekaterina Yulia Tatiana Joar Ksenia Pravdina Golubeva Motkova Lind Makarova
Stakeholder management Elena Anastaisa Alma Kaplieva Chekalova Baimuldina
BUSINESS SWEDEN 2014-09-16 34 KAZAKHSTAN AND AZERBAIJAN CENTRAL ASIA IS RAPIDLY DEVELOPING
Two rapidly growing economies in CIS with clear future potential
Oil and natural resources economies also building out infrastructure and focusing on diversifying their countries
Kazakhstan will host the World Expo in 2017
Business Sweden has an office in Almaty, Kazakhstan, and carried out a number of promotion events and individual assignments
Business Sweden is also working increasingly with the growing Azerbaijan market
BUSINESS SWEDEN 16 SEPTEMBER, 2014 36 SECTOR SPECIFIC PROMOTION ACTIVITIES 2014 CONTAIN MATCHMAKING WITH TARGETED STAKEHOLDERS (GOVERNMENT AND B2B)
SECTOR DATE, LOCATION EVENT
SYMBIOCITY October 8 – 10 Delegation to Samara Region The delegation aims to promote SymbioCity and SymbioCare SYMBIOCARE Samara & Tolyatti concepts, includes visit to LADA factory Suppliers to retail seminar in Russia October 15 RETAIL Seminar for opportunities for Swedish suppliers to retail in Moscow Russia
October 20 – 23 Swedish pavilion and Sweden Day at forestry industry FORESTRY exhibition Lesdrevmash Moscow Swedish pavilion in one of key forestry trade fairs in Russia
November 20 SymbioCity seminar in Saint Petersburg SYMBIOCITY St. Petersburg Seminar and matchmaking with leading developers and construction companies of St. Petersburg
KAZAKHSTAN October Kazakhstan seminar in Sweden MARKET Stokholm Presentation of Kazakhstan and its business opportunities
October & December Railway delegation to and from Kazakhstan RAILWAY Delegation of Swedish suppliers to railway sector carried out in Stokholm, Astana two parts – in Stockholm and Astana, Kazakhstan
BUSINESS SWEDEN 16 SEPTEMBER, 2014 37 AGENDA
Key facts, current situation and trade sanctions Business Climate Survey – Russia 2014 Business Sweden in Russia Railway delegation to Kazachstan - 2014
BUSINESS SWEDEN 2014-09-16 38 WE MAKE IT EASIER FOR SWEDISH COMPANIES TO DO BUSINESS IN RUSSIA WWW.BUSINESS-SWEDEN.SE
BUSINESS SWEDEN, MOSCOW ul. Prechistenka 40/2, building 1, 6th floor RU-119034 Moscow
Tel : +7 495 788 11 30 Fax :+7 495 788 11 31 [email protected]
BUSINESS SWEDEN, ST. PETERSBURG Sweden House, ul. M. Konyushennaya 1/3, office B44 RU-191186 St. Petersburg
Tel : +7 812 329 25 93 Fax: +7 812 329 25 97 [email protected]
BUSINESS SWEDEN 2014-09-16 39