There Has Been No Downturn in Russian-French Relations

Interview

France and Russia boast a truly long history of economic relations. Paris is one of Moscow’s ten largest trade partners, with turnover steadily growing even during the height of the global economic crisis. However, some experts insist that trade and economic relations between the two countries are on the decline. The prospects of bilateral economic ties became the topic of discussion with Arnaud Dubien, head of the French-Russian think tank Observo.

Interview

France and Russia boast a truly long history of economic relations. Paris is one of Moscow’s ten largest trade partners, with turnover steadily growing even during the height of the global economic crisis. However, some experts insist that trade and economic relations between the two countries are on the decline. The prospects of bilateral economic ties became the topic of discussion with Arnaud Dubien, head of the French-Russian think tank Observo.

Having met Mr. Hollande at the G8, Vladimir Putin noted there was a slight drop in Russia-France trade. Is it really so? Could you suggest possible reasons?

It’s true, but the explanation is quite simple. Last year we had several huge one-time deals, and in the absence of similar contracts this year we do face a minor decrease. Judging by information from economic counselors at the French Embassy, I would not call it a trend, neither midterm nor even short-term. This is not a tendency but a statistical event. Besides, from time to time consumption of Russian gas goes down. But on the whole, in 2013 bilateral trade turnover is likely to surpass the 2011 level, which means that the future trend is on the upward curve. Interestingly, turnover began growing during the 2008-2009 crisis when Russian overall foreign trade was on the decline, but not with France.

Photo: Arnaud Dubien

France is the third largest investor in Russian economy. Which sectors are most attractive for French capital and which lag behind?

For starters, I should make it clear that in 2011 and 2012, France was the third largest provider of FDI in Russia, but through offshore investments, which in essence is Russian money returning home.

Russian-French trade relations and French investments differ from those of other states since the French invest funds in diverse sectors, i.e. aerospace, defense industry, retail trade (I mean Groupe Auchan, Russia's largest foreign employer), farming, foods, infrastructure, utilities, automobile industry (Avtovaz-Renault), and banking (Rosbank-Societe Generale). All in all, total French investments amount to about 12 billion euro across the broad spectrum of Russian industries.

Of course, automobile industry and transportation as whole are something special. For example, Transmashholding and Alstom have set up a JV to manufacture locomotives. Transportation is France's strong point.

French investments in Russia are varied both industry-wise and geographically. Sanofi may boast extra-large projects in Russian regions. And coverage is expanding, as cooperation is extending not just to St. Petersburg, Moscow and Sochi, but to about 50 Russian entities. There have been huge projects even in the Far East, for example the French-built bridge commissioned on the eve of the Vladivostok summit.

What kind of measures should be taken to make the Russian economy more attractive for French investors and solidify the bilateral economic relationship?

First of all, I should say that judging by the number of French investors in your country, Russia is quite attractive, at least for major corporations. In 2012, European investors and operators working in Russia were surveyed, and 95 percent of them were willing to invest more money. At the same time, only half of those with no Russia experience expressed interest in jumping in. This means that if an enterprise comes to Russia, it never regrets the decision because the investment environment is good.

Accordingly, Russia's main problem is its perception, or its image. People are a priori afraid to go to there, especially small businesses which usually tag along after big companies, but rarely dare to invest in Russia from ground up and in the absence of partners.

This is not to say there is no room for improvement. For example, red tape is really bad. Survey respondents underlined bureaucracy, with corruption is definitely on the backburner. In other words, the perfection of the business climate should go hand in hand with improving Russia's image and its perception abroad. The point is truly sensitive.

On July 16 President Hollande prohibited shale gas development in France. Will this step affect Russian-French economic relations? Will it mean more Russian gas coming to France?

I don't think any consequences will follow. In fact, the decision just confirms the previous stance shaped by domestic politics. It comes from the Socialists and the Green that form the government. Over the past year, the president, the government and the Socialists as a whole have often neglected the Green's approaches and interests. So, shale gas ban seems to be a show of respect.

I don't think the measure will bring more imports of Russian gas. First, France has never relied on domestic gas. Second, French gas imports are quite strictly distributed between Russia, Norway, Algeria and other countries. Climatic factors do matter, I mean either warm or cold winter.

Do you see any possible changes in Russian-French economic relations during the Hollande presidency?

You know, each time France has a new president – Nicolas Sarcozy in 2007 or François Hollande last year – Russians invariably wonder whether the paradigm of political and economic relations will undergo a change. Normally, everything remains just the same because relations between major powers rest on national interests rather than on personalities. Relations do alter with time, although gradually.

As far I know, in 2007, Moscow was quite wary of Sarcozy who was keen on the word rupture that may have indicated an overhaul of domestic and foreign policies. But dramatic changes were not to come, and he gave up his attempts. By then Moscow understood that the paradigm was intact, and the dialogue sped along rapidly and effectively, although Sarcozy had been regarded as a pro-American figure.

Many questions emerged when Hollande won the election last year, since he had never commented on Russia or visited the country. Besides, the Socialist Party he has headed over ten years is hardly interested in Russia, while some of its figures are sharply critical. Hesitations were settled in the fall of 2012 when President Hollande appointed Jean-Pierre Chevènement as special representative to Russia. His record is impressive – former minister of the interior, defense and higher education, at the age of 35 chosen by François Mitterrand to author the Socialist platform. He is a genuine heavyweight and one of the few Socialists who has always been keen on Russia in the belief that the partnership should be a foreign policy priority. So the signal was quite positive. Mr. Chevènement is in charge of the overall relationship with an emphasis on economic diplomacy. Hence, there have been no negative signals from President Hollande.

However, there are certain limitations, i.e. the global crisis, France's domestic affairs, and slower economic growth in Russia. But negative signs are out of view. I would say that the situation is quite the opposite. During the past year, there have been more companies investing in France, among them Russian Railways, Uralvagonzavod and many others. Actually, during the past year the number of Russian investors in France has doubled. This is why the trend towards economic cooperation is more promising than disturbing.

The only thing I would like to underline is the presence (or absence) of milestone events in the bilateral relationship under President Hollande. Sarcozy launched many symbolic projects worth billions of euros. And now hopes are in the air about something new, something of major importance. In other words, Hollande's presidency is not yet associated with a momentous economic project in Russia. I do believe the two countries should try hard and launch a meaningful program. For example, such an impulse might come from the Moscow-Kazan rapid railway.

The Russian year in France and the French year in Russia seem to have been very successful, with visas issued to Russian citizens in a preferential mode. Will this be extended? Will France stand up for canceling the visa regime for Russians?

Actually, the year was really a success, not just in the cultural context. Many economic and political projects have been kicked off, which means that cultural diplomacy is no abstraction but something to help develop relations in other fields. As far as visas are concerned, in contrast to Russia's other key economic and trade partners, France is pushing Brussels to revoke the visa regime. Unfortunately, EU decisions suggest a consensus that renders cancellation irrelevant even if one of the 28 countries says no.

Interviewer: Daria Khaspekova, RIAC Program Coordinator