German businessmen on prospects of economic relations with Russia

How do foreign investors take the prospects, which are opening up for them in Russia after the presidential elections?  “The Nezavisimaya Gazeta” daily quotes the forecast by the chief economist of HSBC group who says that the investors are scared by the coming 2012 election and new political risks linked with the change of the head of the state[1]. However, the recent opinion poll carried out among the German entrepreneurs working on the Russian market does not confirm this statement: the overwhelming majority of them (64%) expects positive shifts in the economic development, 25% expect stagnation and only 4% predict the economic decline.  

The data was provided on February 6 by the Committee on Eastern European Economic Relations and Russian-German Foreign Trade Chamber, two organizations, which organized the poll. Both organizations are experienced in providing the assistance to German businessmen working in Russia. The Committee on Eastern European Economic Relations as a joint organization entrepreneur unions of Germany interested in the development of business with the USSR was founded 60 years ago, in 1952. Only in January 1955, the Supreme Council of the USSR issued a decree to remove a juridical state of war between the USSR and Germany and in September the diplomatic relations between the USSR and the German Federal Republic were established. The founders of the Eastern Committee of Germany Economy were the Federation of German Industries (BDI), the Association of German Banks (BdB), the German Insurance Association (GDV), the Foreign Trade Association of the German Retail Trade (AVE), as well as the German Confederation of Skilled Crafts (ZDH). Each of these associations comprises a number of smaller unions and associations. For example BDI comprises 40 industrial unions[2]. The Russian-German Foreign Trade Chamber now comprises 820 members.

The Committee on Eastern European Economic Relations opinion polls and Russian-German Foreign Trade Chamber annually (in the end of the year) conducted opinion polls among German entrepreneurs to define the business climate in Russia. The form includes several standard questions and the answers to these questions on the results of 2008, 2009 and 2011 are given in the table below.

Assessment of the business climate in Russia as viewed by German entrepreneurs 
 (percentage of the total number of respondents)

 Complied using the data from: http://www.ost-ausschuss.de/russland

Thus, by now 2/3 of German entrepreneurs assess Russia’s business climate as good or very good (in 2009 only one of five respondents gave such estimates), and the same share of entrepreneurs plan to increase the number of employees at their enterprises in Russia. The similar picture is with the assessments of changes of business climate over the year: about 40% of entrepreneurs in 2008 and 2011 marked improvements while in 2009 only 12% were so optimistic. In 2011, the number of those who did not notice changes in business climate reached 45% (in 2008 this share was 28%, and in “critical” 2009 - 15%, while 73% noted the worsening of the business climate).

For the moment the financial and budget crisis of the euro-zone is the main concern for the German economy. In 2011, Germany’s exports to the countries of the euro-zone rose by 8.6%, total exports - by 11.4%, exports to Russia - by 30%; the imports were: 12.9%, 13.2% and 26% respectively[3]. This means that the trade with Russia is growing much faster than the trade with the euro-zone and other countries.  

 The last poll, the ninth, regarding the business climate in Russia was conducted in December 2011. The organizers wanted to know in particular, how political situation influences the economy and the prospects of the bilateral relations. Unlike biased Western politics, the German businessmen are positive or neutral about the possibility of the third presidency of Vladimir Putin: 45% of the respondents do not expect any changes in the business climate. As for the rest of the respondents 30% hope for positive changes and a smaller part 25% worry that it will worsen. The head of the Committee on Eastern European Economic Relations Eckhard Cordes wished the current Russian Prime Minister success with the upcoming elections and said that his nomination as the candidate was an encouraging piece of news. This is obvious: stability is of crucial importance for entrepreneurs and the representatives of the German business elite link stability in Russia with “Putin’s return”. In an interview with SPIEGEL ONLINE, Gerd Lenga, the head of the Russian department of Knauf, a well known producer of construction materials, said that Putin’s re-election will “ensure further stability in the country which cannot be said about other political forces” [4].

German entrepreneurs take the growing political activity of the Russian people as a new possibility for development, as an incentive for the implementation of necessary modernization. At the same time the lack of evident progress on the way towards modernization of the Russian economy arouse concern among some German partners and they propose different ways to tackle this problem. The red tape is seen by 35% of companies as the main obstacle on the way to modernization. 28% believe that the lack of a convincing concept of modernization has negative impact, 10% think that conservatism of the population hinders the attempts of modernization from the top.

Among the factors, which facilitated the progress of modernization in Russia in 2011, German entrepreneurs name the government’s support of the investors (35%), investments in hi-tech projects (31%) and the signs of the division between business and the government (14%). 12% participants of the opinion poll also noted the improvement in the work of educational institutions.

Thus, despite negative expectations of most of the Western politicians regarding the upcoming presidential elections in Russia, and by contrast to forecasts made by the officials of banking groups such as HSBC the German entrepreneurs optimistically assess the economic prospects of Russia and the future of the German-Russian economic relations. They are also positive about the formation of the Eurasian Economic Union by Russia, Belarus and Kazakhstan.  27% expect positive results from in this project, 63 % do not expect any significant impact the new association can make on their businesses.