Russian boom to benefit Irish firms

Growing affluence of middle class presents opportunities for entrepreneurs, writes Chris Stephen in Moscow.

With its gas disputes, spy sagas and cooling relations with the West, Russia might seem like the last place to go to set up a new business. But Tipperary banker Michael Madden wants you to think again.

At a business conference in Dublin today, he will outline his extraordinary success in building a consumer finance operation from scratch.

When he arrived in Russia in mid-2004 he had, in his words, nothing more than "a pen, a piece of paper and a good idea".

The good idea was that Russia's new middle class was starved of chances to borrow money for consumer goods. Less than two years later, the chief executive of Bank Renaissance Capital can boast 440,000 customers on its books.

And Madden is not the only one. Today's conference, The New Russia: Perspectives and Opportunities for Ireland, is designed by the Irish embassy in Moscow as a wake-up call to Irish business about the booming Russian market - and the need to get in ahead of the competition.

"We need people in Ireland to forget the 1990s stereotype and focus on the business potential of today's Russia," says Ireland's ambassador in Moscow, Justin Harman.

The ambassador says the embassy is gearing-up for a "joined up" approach to working with Irish firms coming to Russia.

Keynote speakers today are Minister for Foreign Affairs Dermot Ahern and BP chairman Peter Sutherland, both of whom will be urging Irish businesses to grab the business opportunities.

"There's a whole section of the population that you can define as a middle class," says Mike Hogan of Enterprise Ireland, which gives support to entrepreneurs arriving in Russia.

"People on the ground who know the mechanics of doing business here are doing well."

So can Russia be described as the Slavic Tiger? The statistics say yes. Car imports have risen from 43,000 in 2000 to 350,000 today; laptop sales in the same period have moved from 41,000 to 610,000 and advertising revenues from $760 million (€629 million) to $3.9 billion today.

Consumer loans have jumped ninefold in the same period to $17 billion and mobile phone penetration, in a country with a poor landline infrastructure and 11 time zones, is a staggering 85 per cent.

Furniture retailer Ikea reports that its megastores now popping up across the country do the same level of business as those in its home country, Sweden. Meanwhile, the government's tough fiscal policies have kept inflation low and public spending in check.

Plenty of Irish companies have already taken full advantage of this boom: Anglo Irish Bank is established in Moscow in the lending sector, Anam, Cibenix, IconX and Openet Telecom are among telecoms firms doing a roaring trade, and consultancy services are provided by ESB International, Kentech, Mercury, Murray O'Laoire and the PM Group.

"There is a lot of talk about China and India, but look at Russia," says Hogan. "It's got the biggest population of Europe and its only four hours away by air, right on Europe's doorstep."

Add in food exporters and retail firms, accounting for a roaring trade in beef and fish exports, and the picture looks rosy.

The reason for this boom is to do with rising prices for oil, gas and other raw materials: Manufacturing remains in the doldrums - see how long it takes you to find a "made in Russia" stamp on products in the shops.

Nevertheless, Russia's middle class is increasingly affluent and for all the political controversies - such as the furore over the prosecution of Mikhail Khodorkovsky, the millionaire owner of the Yukos oil group - Russian president Vladimir Putin has brought much needed stability to a country still recovering from the chaotic 1990s.

The Kremlin has simplified the tax law, reformed customs and cut the amount of paperwork that you need to open a business, from more than 30 forms to something like a dozen.

It has also become easier to open a wholly-owned foreign company - no more of those dodgy joint ventures in which the local sleeping partner seems to be doing just that.

In the capital at least, mafia shoot-outs are a thing of the past, as are bread queues, and nowadays, Moscow boasts some of Europe's priciest eateries.

However, red tape is still a problem, as is bribery. Indeed, non-governmental organisation Transparency International reports that Russia is getting more corrupt, not less, and is now near the bottom of its annual world corruption table.

Yet, despite the problems, the outlook remains good, according to one of Moscow's longest-standing Irish businessmen, Steve Conway, founder of two restaurants and Moscow's main Irish bar, Silvers.

"Big multinationals are setting up production here, Nestlé, Mars and so on," he says. "It's only when companies start doing that that you have a realistic economy."

Silvers, located near the Kremlin, has become a sort of talking shop for the expatriate business community to share advice and tips, a key stopping-off point for new entrepreneurs, which can count Bertie Ahern and three Dublin mayors among its visitors.

Conway says that the early days of the pioneers have gone and property prices mean that you can forget about opening bars and restaurants. But more sophisticated enterprises are still up for grabs.

Nevertheless, Russia remains culturally very different from the West. "A thing you might do on the phone back home can take four hours out here," he says.

He also advises taking a look outside Moscow: regional cities such as St Petersburg, Voronezh and the Siberian capital, Novosibirsk, are booming, and are attracting ever more foreign companies.

It is in these centres that business is seeing its most frenetic growth, with foreign hotel chains, credit card companies and business service agencies scrambling to get a piece of the action.

Diplomats in Moscow say that Irish companies are losing out in what is a highly competitive market. Enterprise Ireland offers a full range of services including advance promotion, business advice and meetings with potential clients, but so do other EU governments.