RNS: Can Russia and France get back to business as usual?
Alexander Turov: First, how should we define ‘business as usual’? If it means cooperation at the pre-sanctions level, then it would be beneficial both for Russian and French companies. The $11.6bn trade volume in 2015 is not satisfactory, but I believe it will grow in the coming months.
But our trade is unlikely to be the same as it was before. Energy resources used to comprise more than 80% of our total exports. Now the structure of our exports is changing. Last year, our non-oil exports increased and the importance of conventional energy is diminishing. Of course, this substitution is not going to happen overnight.
Russia has been making a comeback in the agricultural sector, in which it was a key player at the beginning of the 20th century. We’ve been meeting with representatives of the Russian National Union of Grain Producers regularly and in 2014-2015, our grain export increased to 25mn tonnes.
With regards to prospective trade and economic cooperation with France, we expect to return to the the 2010-2013 volume, exceeding $22bn. Furthermore, the quality of our products has improved thanks to advances in our technology and innovation.
When it comes to energy, we’re not in favour of market speculation. The price of oil will naturally spring back to previous levels but we’re not staying put, instead we're trying to diversify our economy.
Non-oil exports increased last year?
The export of highly processed goods increased significantly. The value totalled $428.3mn, soaring by 55.4% compared to 2014. These products make up 7.5% of our overall trade volume, which is a twofold increase in a year. The numbers could’ve been even larger, given the potential of our technology sector, but still reflect profound changes in trade.
The aim is to increase non-commodity exports by 6% in 2016.
In 2015 France was Russia's 13th largest trade partner. At that time Russian-French trade volume dropped in comparison with 2014 by 36.1%, or $11.6bn. At the same time, Russian exports fell by 24.6%, or $5.7bn, while their imports slowed by 44.3%, or $5.9bn.
The $200mn trade deficit reflects a positive trend, given the low energy prices. In 2014, for example, the deficit was $3.1bn.
In 2015 mineral goods (primarily energy) made up most of our exports to France. That’s 82.6% of all exports. Machinery, equipment and transport made up 3.9%, while chemical goods represented 5.3%, metals and derivatives were another 5%, and timber, cellulose and paper products contributed 1.4% to the total.
Compared with 2014, the value of our core export commodities to France decreased: petroleum products by 46%, natural gas by 7.4%, crude oil by 41.9%, wood and paper products by 31.2%, and metal by 4%. At the same time, machinery, equipment and vehicles exports grew by 57.5%, (including an 84.5% increase in the export of turbojets), automatic control equipment by 65%; chemical products by 19.2% (including inorganic chemical products, it increased by 14.5%), and mixed fertilizers saw a 75% spike.
The imports profile in 2015 was as follows: machinery, equipment and vehicles (43.2%), chemical products (37.2%), food and agricultural goods (7.6%). The share of metals and their by-products was 3.3%, while wood and paper products made up 1.2%.
Imports in different sectors rose too: medicine by 44.3%, perfume by 27.6%, cosmetics by 25.9%, vehicle parts by 46.9%, aircraft by 85.5%, industrial and laboratory equipment by 12.4%, ferrous metals by 41.8%.
Do the French want to import anything from Russia which they are not already buying?
The competitive environment has become more favourable; many goods produced in Russia can now rival their counterparts in quality and price on the world markets. This is due not only to the weak national currency, but also the policies of industrial modernisation and integration into the global production chain over last decade. For example, on 15 April, Airbus announced that their purchases of Russian products would reach €500mn in 2017, €200 mn higher than today. The announcement came after a meeting of the Minister of Economic Development Alexei Ulyukayev at MEDEF with representatives of French business.
What are they interested in?
Parts, assembly units, aircraft components, etc. For us, cooperation in the aircraft and space industry is a priority. Our manufacturers focus on in-depth collaboration. We started off supplying titanium, semi-finished components; now it will be finished parts. Russian exports are growing both in monetary terms and by value added share. The composite structure has also improved thanks to increased machinery and equipment share.
Do you think Russia-EU free trade agreement is possible?
According to the statistics, EU countries account for half of Russia's foreign trade. The question of a common economic area is still on the agenda. This idea, initiated by the Russian president, will facilitate the transition of the economy to a new, global level.
In the expert community the dialogue is conducted between the executive authorities and diplomats. But the political situation at the moment is not especially pleasant. The world is tense, geopolitical conflicts quickly escalate into wars, the terrorist activity in Europe is extremely high, terrorist threats have been consuming new countries, delaying economic integration.
I reckon there will be no progress while the sanctions against Russia are in place. Once the sanctions phase is over, we could work something out.
Do French companies support lifting of sanctions?
On January 25 in Moscow the Franco-Russian Economic, Financial, Industrial and Trade Council (CEFIC) had a meeting for the first time in three years. It was revived at the political level owing to proactive position of French business community to lift sanctions. In late March, the "Franco-Russian Dialogue" General Assembly took place. All the members of this association are leading French and Russian business people who form the basis of national economies. Almost all of them support removing the sanctions, which undermine the very essence of a market economy, free trade, and violate the rules of fair competition.
At the MEDEF round table, along with the Russian Minister of Economic Development there were representatives of more than 20 major companies, including Engie, Renault, Airbus, Societe Generale and others: and not one of them sided with sanctions. The sanctions are adding to rising unemployment in Europe, and huge losses for agricultural companies.
How are French farmers losing out?
Before sanctions, Russian imports from France were about €200-250mn. Since the introduction of our anti-sanctions measures, I believe French farmers have lost about half a billion Euros. These estimates are not gratifying, and we did not want to harm anyone specifically. Our response was in line with international practices and diplomatic customs. These measures have, however boosted our domestic agriculture.
How many people have been laid off?
Based on the data of Austrian researchers, about a million across Europe. European sanctions played the main part: in other words, the sanctions hit Europe too.
Were French companies able to find new markets?
French entrepreneurs are very active. There is an elaborate system of state export support measures, including an extensive network of "Business France" offices around the world. They're looking for new outlets, but that's not a simple task. Besides, other countries start developing their own production. For example, China now produces and exports wine, which, by the way, does not fall into the category of sanctioned goods.
It’s much easier to lose than gain a market. I recently met with the Serbian ambassador. Producers from Serbia are putting European sanctions to good use. They have replaced a number of European and French products on the Russian market, such as meat and dairy products, fruit, etc.
Could sanctions be partially lifted in summer?
It’s simply a political issue and will not be resolved instantly. Sanctions will hurt the European and world economies if they are not phased out soon. They contradict WTO rules, fair competition, and antimonopoly legislation. They add to the financial burden and distort economic planning.
To break the deadlock in the future, sanctions must go. Pressure on businesses should be eased before it’s too late. It will happen sooner or later, but some companies might have ceased to exist by then. Governments will also be carrying a heavier social burden.
At the moment the US and EU are working on trade partnership. How will it reflect on Franco-Russian relations?
For our part, we have the Eurasian Economic Union, which brings in five countries: Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. I’d be very careful about signing the TTIP. The US and EU are two huge, global markets, but the WTO prohibits the discrimination of imported goods due to their origin. Such a huge economic area, I think, will not make other WTO members very happy. Not everyone in France welcomes this agreement.
Can such partnerships threaten the WTO?
Any such union benefits its participants and presents risks for outsiders. So I’d first begin by assessing the partnership's compliance with existing WTO principles. Moreover, we shouldn’t forget that not every country has joined the WTO.
If the purpose of such a union is to derive benefits from large-scale growth, then it is probably counterproductive for whoever joins in. France, it is expected, will lose entire industries and face a severe crisis in agriculture after going down the path towards TTIP.
But on the other hand, the Eurasian union had a clear goal, that is, to create transparent rules on foreign trade, to facilitate cooperation with overseas partners and to create new possibilities.
How did French business respond to the Dutch referendum on EU-Ukraine association agreement?
The results are politically motivated if anything. But everyone understands that the association with such a populous country and odd economic model could have a negative effect. So it's not even a wake-up call, it’s a warning signal. The referendum results in the Netherlands were expected in France. People stated their wish loud and clear. The prospects of Ukrainian economy remain opaque.
If the referendum were to take a place in France, what would the outcome be? Do the French care at all?
They do care. They’re very proactive on these kinds of issues. When I just moved to France in 2014, I saw mass protests defying gay marriage. Whole families poured onto streets. I reckon the referendum results would be similar.
Is EU-Ukraine association likely to be put on hold?
Ukraine’s economy is not ready for cooperation with EU on such a scale. Dealing with Ukraine is clearly a political move.
Have French companies shown any interest in Novatek’s Arctic-LNG project? French Total, in particular.
The Arctic is an immense treasure trove. The Russian government adopted a special state program for the "Social and economic development of the Arctic zone of the Russian Federation for the period until 2020". Foreign companies' first consideration is the economic viability of being involved in Arctic development. When the oil price goes up, the hydrocarbon market increases, and they invest in such complex projects. When the price falls, they quit. But multinational companies are looking deeper, so the interest in long-term, large-scale projects is there.
Total and Novatek cooperate closely on the Yamal-LNG project. Total has a 19% share in Novatek and 20% in Yamal-LNG. The CEFIC meeting in January gave a boost to many projects, including this one. There’s also an active Russian-French working group on energy issues, where these projects get reviewed during sessions.
I don’t want to delve too much into Total’s part in Arctic-LNG. The plant construction will start in early 2018 and, as Russia has raised no barriers for French companies having an Arctic presence, the interest is clearly there.
Alexei Ulyukaev mentioned that Yamal-LNG would be financed by French banks this year. When will this happen?
We’d like this agreement to be signed at the Saint-Petersburg International Economic Forum in June. I hope Emmanuel Macron, the French Minister of Economic, Industry and Digital Affairs, will be able to take part. He was officially invited during talks with Alexei Ulyukaev before the CEFIC meeting.
What impact did the terrorist attacks in France have on investment activity?
France still remains a leader in terms of attracting investments. Paris might have lost ground to other cities but is still among the top five in the world. The Paris attacks changed the perception of the city around the world and new threats can pop up at any moment. But businesses, like everyone else, have voiced solidarity with Parisians and are not backing out of their plans. Hermitage, for example, has planned the construction of two towers in the La Défense district, as part of the "Grand Paris" project. But the project was affected by sanctions as long-term financing of Russian banks in the European financial markets came to a halt.
Has the flow of tourists to Paris suffered?
Yes. The number of Russian tourists has decreased by 30%. The depreciation of the rouble has been a factor as well: even before the terrorist attacks, during the first nine months of 2015, the number of tourists fell by 94,000, or 21%.
Besides, domestic tourism is on the rise in Russia, climbing by 30% last year. Some of my acquaintances are happy to explore Russian cities, ahead of going to Europe. You can find more quality hotels and better infrastructure.
Did the trade mission assist Roskosmos in the Yukos case?
A centralized group of lawyers, the International Centre for Legal Protection, has been put in place for this purpose. It works closely with Russia’s Ministry of Foreign Affairs and the Ministry of Justice. The Ministry of Economic Development is also involved. The trade mission has contributed to the case by cooperating with the Russian Embassy in France against the illegal seizure of property and accounts.
No, Yukos, obviously, cannot stop our cooperation in space (which is marking its fiftieth anniversary this year), but it can still hurt. This issue was discussed by the working group at the CEFIC meeting late last year in Paris. Given the complex nature of the trial and appeals, it could become a prolonged process.
Can the trial jeopardise relations between the country?
It has already caused damage. Every rocket launch requires a lot of capital. If this money is taken away, the launch is cancelled. So the industry and everyone involved suffer greatly.
Roskosmos has won the case. Is everything over now?
I don’t think this chapter is closed. But I have no doubt we will prove our point.
Has there been any legal action by former Yukos shareholders against the trade mission assets?
Our buildings belong to the Russian Federation. They are a federal property, enjoying diplomatic immunity. They are shielded by the Vienna convention against any claims. So we have nothing to worry about.
But court officials visited the residential building of our diplomats and trade representatives. After showing them an embassy note and explaining that the building is owned by the Russian Federation, they left quietly. We haven’t seen them since and hope not to.
France’s Ministry of Finance is preparing a bill on states' integrity. It will supposedly limit the rights of creditors, who can legally seize foreign assets in France. Could this draft legislation become useful?
The bill definitely exists and we have to take a closer look at it. It is indeed handy and prevents the abuse of rights. We were lucky to deal with well-mannered officials, but there have been instances of police break-ins.
Have you discussed the Yukos claims with Alexei Ulyukaev?
Every issue that concerns trade and economic relations gets due attention.
Has French business expressed interest in Crimea?
Would companies like to come to the peninsula?
Certainly, even traditional French industries, like winemaking, find it appealing. French winemakers love Crimean wines. This was shown recently during a tasting ceremony at the ambassador’s residence. If you consider the history of France’s winemaking, it’s a good sign. But sanctions are keeping the business on a tight leash.
Does it mean we shouldn’t expect the French in Crimea as long as sanctions are in place?
Well, not entirely so. It is not just Russian companies can work in Crimea, but any foreign investor who has legal safeguards in place. There are Russian companies owned by French investors who are not exposed to sanctions.
Other than wine, what industries in Crimea appeal to the French?
Winemaking is only one sector. There is a future in developing tourist infrastructure. Puy du Fou has a lovely theme park in France. Another such park is planned for the Moscow region and one for Crimea. There is great interest in creating energy facilities, power transmission lines and similar infrastructure.
But again, the sanctions have to go, as they will hamper any upcoming projects.
Should French companies be worried about Russia’s import substitution policy?
The policy is not about replacing imported beer with locally produced kvas (traditional non-alcoholic beverage). It’s not import substitution. The goal is to create market competitive goods. We want to make high-tech products ourselves. To achieve this we need technology, therefore the first step in import substitution is buying from abroad.
We need financial instruments and the support of organizations like COFACE, a global risk insurer. Therefore I believe that French companies would be inclined to take part in the process. They already gain profit from production facilities in China. The same could be done in Russia. It doesn’t mean we’ll start exporting products to France which we were buying from them before. No, we’ll be producing together with the French to sell to other countries, for example Germany.
Which French companies want to localise their production in Russia?
We are working with the Federation of Engineering Technologies and always invite them to participate in our machine-tool manufacture programs. There are very good prospects and high demand. So I would name mechanical engineering, pharmaceutical and agro-industrial sectors as our priorities.
Have you noticed a reverse trend? Are Russian companies eyeing the French market?
Negotiations are underway and interest is keen. There’s an Investors Council lead by the Russian ambassador to France. The trade mission, in cooperation with the "Russian Export Centre", has the task of creating a trading house. Before you promote Russian goods, you need to create a distribution network and the trading house would play this role.
There are a few companies negotiating the acquisition of French assets, including in the car parts field. The motive behind buying foreign plants is to better integrate Russian enterprises into global production and distribution chains. It’s not an easy road of cause. French taxation is one of the reasons. Russian special economic zones offer better conditions than here, but to integrate globally, acquiring high-technology firms in France shouldn’t be ruled out.
How many Russian companies will come to France this year?
We have no plans at the moment. But when the sanctions are reduced and conditions are more favourable, there will be those willing to do business in France. Perhaps we’ll be seeing this in the second half of the year.
More or less than 10?
I reckon way more. We’re talking about mid-size and large business.
Have any Russian-French projects been put on hold?
Yes. Faurecia, a global producer of car parts, is one of them. It is rapidly growing in Russia and we like its business approach. The lower demand for cars has led to lower demand for parts, so the company has to reassess its risks. There’ve been examples, i.e. Danone, when companies had to sell their facilities. This is a common restructuring process, that nonetheless helps to keep firms afloat.