A difficult and testy political relationship over the last few years has meant that Russia has not been the first country many British firms have considered as a potential export destination. But despite the political backdrop, the trade relationship remains important with many firms successfully investing and trading. Our mission at the Russo-British Chamber of Commerce (RBCC) is to help build links between UK and Russian companies, creating and highlighting opportunities to trade and invest to the benefit of both sides and to help expand the UK and Russian economies. We also work to explode many of the myths and preconceptions that exist in the UK and in Russia and to persuade British firms that Russia is an export destination that should not be ignored (and vice versa). According to the UK’s Office of National Statistics, the bilateral trading relationship in goods and services was worth approximately £15 bln in 2019. That’s a significant amount and there’s more potential but it still can be a tough sell.
A change in the UK’s leadership in July 2019 ended a period of political stasis. With EU exit now a fact, government trade policy shifted to encouraging UK firms to look outside its traditional EU trading partners for new markets. This should mean that business becomes more receptive to countries that had hitherto not been a priority. What we have learned from talking to businesses around the UK is that they are generally unaware as to the opportunities and the extent of the Russo-British trading relationship with over 4,000 UK VAT-registered companies doing business with Russia – many enjoying a profitable partnership. From Q2 2019 the Chamber observed an increase in enquiries about Russia as an export destination, which manifested itself in a rise in new members. Without overstating the case, the Chamber was looking forward to 2020 with a sense of optimism that it had not had felt for some time.
This optimism did not appear to be misplaced. In amongst a busy bilateral program the Chamber held a successful conference in February with UK and Russian partners from the Skolkovo Foundation at Cambridge University discussing Smart City and digital health technology. COVID-19 was being talked about but it was still seen as mainly a Chinese issue. This, of course, proved not to be the case. Although it feels that we have been in crisis mode for a very long time, the lockdown in the UK was only fully introduced on 23 March with Russia following a week later with the start of the non-working week.
Q2 results will reveal the true extent of the damage that COVID-19 has done to the UK and Russia’s economies but the initial signs are not good. What is clear is that its impact on business will a have longer legacy than its immediate medical impact.
As a Chamber we represent business from all sectors and all sizes. We are proud to count major corporates among our members. But we’re also proud of the number of small and medium sized enterprises that are a core part of the RBCC. The problems facing our Russian and UK SMEs and larger members are very similar and are also sector specific. As is well known the hospitality and tourism industries have been particularly hard hit. For some, the crisis has led to an uptick in business and again these are well known and include for example on-line business and retail services and medical supplies. Overall, however, the majority of members are managing their way through the crisis, taking the action they can to ride it out. Some of course are simply aiming to survive.
A survey carried out by the British Chamber of Commerce (BCC) in April found that 18% of those surveyed had less than a months’ worth of cash in reserve with 44% holding 1–3 months’ of cash reserves. Only 6% reported having over 12 months’ worth of cash in reserve.
Business Chambers, including the RBCC, are also having to re-think how they do business. Chambers have typically relied on physical events to generate a large percentage of their revenue. Adapting to a new reality where there may be no demand for such events for some time to come will be a challenge. We don’t have the answers yet. We have found significant demand for high quality on-line events. And, in the midst of the crisis and with a raft of important legislation being brought in at high speed by both the Russian and UK governments, business chambers are playing an important role in highlighting areas where this legislation is not having the intended effect.
In Russia and the UK, the various business associations are working in a much more coherent and coordinated fashion than has hitherto been the case. I believe that together we are raising important issues, which are being listened to by the respective governments. In Moscow a number of business associations have jointly raised the issue of equal access to Russian Government financial support by SMEs and “systemic” companies that have foreign ownership. This is an important issue. The reasons for structuring the financial support in this way is very understandable but is also contradictory to the government’s broader efforts to attract foreign investment. Another issue has been the impact that the travel embargo of Foreign Highly Qualified Specialists (HQS) is having. This has meant that a number of foreign managerial HQS are not in Russia at work, despite having both a valid work permit and visa. This will undoubtedly be having a significant effect on the productivity of a number of Russian companies and again is the sort of issue that organisations such as ours can raise effectively.
The same is true in the UK. A major concern has been the 14-day quarantine period for air passengers arriving in the UK. The reasons for introducing it are perfectly understandable but the effect the suspension of corporate travel will have on investment into the UK and its economic recovery is a real concern and something that needs to be flagged to government. As a result a number of bilateral chambers like the RBCC have coordinated there lobbying efforts through the BCC to raise this concern with the Department of International Trade asking for a regular 3-weekly review of this policy and a continued search for smarter ways of achieving the same effect.
These are undoubtedly extremely anxious and uncertain times and it will be some time before the full economic impact of the virus is fully understood. One positive is that once the crisis is over both the Russian and UK governments will be looking to support increased trade and investment. That should provide new impetus to remove barriers and seek out new opportunities. That should benefit both UK and Russian firms, our two economies and ultimately contribute to the prosperity of the Russian and British people.
By Alf Torrents, RBCC Executive Director