Italian-Russian Chamber of Commerce is an organization actively promoting business ties between the two countries and maintaining their stable economic relations throughout whatever hardships of the contemporary turbulent world. Based on its formidable experience, the Chamber is getting ready for breakthrough advances in expanding bilateral cooperation and bringing it up to the most elevated levels of technology. Mr. Vincenzo Trani, President of Italian-Russian Chamber of Commerce, shared his profound insights and pioneering development ideas with Invest Foresight.
Italy and Russia have quite long-term relations which are not dependent on different and difficult political situations between the two countries. Italian-Russian Chamber of Commerce is already in its 55th year of operation. Over those years we have seen many different stories and many difficulties. Let’s recollect 1964 when the Chamber was established. At that time, relations between Russia and Italy involved just three or four large corporations like Fiat or Eni and few other companies. Today, the relations are effected not through just one entity in Russia but through all of government agencies. Unfortunately, on the Italian side the government is more temporary at this moment. Previously, there used to be the same leaders for ten, fifteen or twenty years, but nowadays every two years there is a change of government.
Relations between Italy and Russia are based on the people and are not based any more on any political party. People living in our countries like each other. Italians like Russians, Russians like Italians. People of both countries understand they can not live without each other. Russians understand they can not live without Italian sweets, Italian cloths, Italian wines while Italians understand they can not live without oil and gas from Russia, and now they are coming to understand that there are some other important assets that Russia can bring, like the assets we need to digitalize Italian business.
It is people who really manage the political life of the countries and there is no political life without people. That’s why ultimately, irrespective of who’s ruling the country, our relations are always very good and very long-term.
Today, we are living in a better situation than in 2014, so we can say that we survived in that difficult situation that emerged between Europe and Russia. People have overcome that uneasy situation of 2014 and we are now ready for a next step. The latest news on exchange of prisoners between Russia and Ukraine was good news. The presence of some Ukrainian politicians at the Eastern Economic Forum in Vladivostok was per se a good signal and a positive sign. Frequent phone calls among the leaders of the European Union, the US and Russia are giving more positive expectations to Italian and Russian peoples and businesses. That’s why I would expect that in this more favorable climate we can develop our business a bit better than over the past years.
Yet there is no reason to be relaxed and do nothing, whereas there is a reason to better understand what else could be done. What I think is important to understand is that everyone has to be a channel of communication in one’s position, be it an entrepreneur, a journalist, or myself as President of Italian-Russian Chamber of Commerce. Everybody has to play one’s part in that communication between the two countries. If everyone does one’s best, we will for sure operate in full transparency, we will ensure a proper development of our countries and a proper state of our communication. That is the basis for any business and any relations.
We are in a situation and in a world where mass media play an important role. In many countries paper-based media are no longer as important as in the past, but there are some print media that continue to be important, like The Financial Times. Unfortunately the role played by The Financial Times is not at all a transparent one. Some four weeks ago the paper published an economic analysis by its journalist of the economic situation and environment in Russia. Because of the rallies happening in Moscow, the claim was made those rallies were occurring mostly because of the harsh economic situation in the country, which is not true.
Yet if true details and facts are assessed and economic situation is analyzed, we will not see this kind of a picture, but a picture which is much better that presented by The Financial Times. At that very same time, the very next day Fitch, a most important international rating agency, stated exactly the opposite, as it awarded a higher rating to Russia which again was a confirmation that the ideas of The Financial Times’ journalist in presenting the information distributed by The Financial Times were not based on a truly reliable information, not based on figures but on emotions and political views the journalist has.
Obviously, everybody has a right to have one’s own political views, but we are not authorized and shall not use our own views to distribute improper information about a country or a certain economic situation, the information which is not true and is not supported by figures. I think that is important.
In my capacity of the Chairman of Italian-Russian Chamber of Commerce I have to take care of the communication between the two countries and of the image of both countries. To maintain our activities and to develop business ties between the two countries, I have to ensure that Italians have a proper access to information, but such kind of an article was sending Italian entrepreneurs a wrong message, that is why I had to put down on paper my views and to demonstrate that in some respects the claims which appeared in the newspaper were wrong and thus entrepreneurs could be misled by that information and could make wrong decisions. They could decide not to invest in Russia any more, or leave Russia, or postpone their approach to Russia in terms of business.
One can imagine the costs of such mistakes. Misleading information can be very expensive, especially for small and medium-sized enterprises which can not afford to make several attempts. It is my task to protect the reputation of the countries that are members of our Chamber of Commerce.
That is why I think it is very important to diversify the communication relations worldwide, as when we have communication through one channel only, over one brand only, then there is a risk. So the communication should go through many different channels, many different newspapers, many different media which will always help the truth to reach the audience in a proper way.
In the past, when we lived in the period of the Cold War, we remembered that communication was really an important matter, but then we forgot about that, as we were convinced that in the Facebook era you can avoid spending a lot of time on this matter, The reality is, we were wrong. It is important to keep attention on the communication channels if we want our countries to be properly developed and if we really want to obtain and provide reliable information to our entrepreneurs in both countries.
Speaking of the investment climate in Russia, it may be noted that in every country there is always something that can be done better. I would say that investment climate in Russia is in general quite positive. Entrepreneurs and investors always find here a market which is certainly a premium one. Most of them, especially Italian entrepreneurs that are investing in Russia, are mainly happy with the results. I refer to both large and small investors. Majority of investors from Italy are small and medium investors, they are already quite satisfied with the results because small and medium business is always independent of the political turmoil. Generally, it is hard to destroy the environment for the small and medium enterprises, one would have to actually destroy the whole country.
Small Ukrainian businesses, for instance, keep functioning in Russia and survive because small enterprises are always so strong and so stimulated to do business, that with their internal strength they can even do business with Russia via Belarus. But obviously that is not what we would like to see in the future.
As for large Italian companies, they are predominantly content with the yields, the investors are mostly satisfied with the premium that this market is generating. Since 2014, I have not seen any Italian companies or investors leaving Russia. In some cases, I have seen obviously a decrease in efficiency or revenues, however, the investment climate is continuing to be interesting, though it could be much better.
In this respect I have to tell the truth that I continue to be upset when I observe the situation like the one happening to Mr Michael Calvey. I continue to be unhappy when I see a different approach by some institutions in the country, as far as a longer-term vision is concerned. But to be honest, since we all remember the past, situations like that are not as frequent now. If one goes back to the 1990s and even 20 years back, situations of this kind were seen on a daily basis. Mr Calvey’s situation has become so high profile since occurrences like that are not any longer habitual, as it used to be in the past.
True, the country could do much more to improve the investment climate. However, a lot has been done and the investment climate is rather favorable toward foreign investors who feel they are welcome in this country. They understand that they are even more protected and more safe than local investors – which is not common anywhere abroad. Generally, every country rather tends to protect its own investors from foreign investors. In this country it continues to be quite the opposite.
Clearly, one has to follow the rules and understand in what sector investments are intended to go. If one invests in a strategic sector, then obviously the country has to protect itself and close some areas and sectors for foreign investments. But if one invests in sectors which are not strategic, or are open for investors, I have to tell the truth: I have not seen any major troubles for Italian investors even though Italian-Russian Chamber of Commerce has this as its task, to protect investments of Italians in Russia and to protect investments of Russians in Italy.
We have another important task to do, that is, to explain to people that even if they are foreigners, they are not allowed to do all what they believe is correct. Unfortunately, that happens very often. We have to explain that entrepreneurs are not always right. It has to be explained to Italian entrepreneurs. It also often has to be explained to Russian investors in Italy.
There are different Russian investors in Italy, and most of them are not happy. Those investors include companies, private individuals, and those who are called oligarchs in Italy but not very common any more in Russia. There are many of those who are investing in Italy. Many people make private investments in houses, while others invest in infrastructure as well. Among them, there are some very well known names, but we have to protect their privacy, especially as there are some negative experiences. There were some unfortunate Russian investments in infrastructure business in Italy, in railways, alternative energy and in the oil business. Unfortunately, those investments were not bringing the yields expected by Russian investors. Regretfully, that is predominantly happening because of a low level of knowledge of the country, of the knowledge of Italy by Russian investors. But such knowledge is very essential. Russians generally think that European countries are open countries, and that they know everything about the countries where they are going to invest, but regrettably that is not true.
It is not only difficult for Italians or foreigners who come to do business in Russia, to understand Russia. Absolutely the same difficulties are faced when one approaches a new country, especially a European country that appears to be very open but in reality is not. There are several limitations and several rules that are not written, still, they are there. One has to understand the habitus of the local governments and the local people and the difficulties that one can find in any region while regions may be different from each other. So our job is not only to solve problems, but is to help entrepreneurs in avoiding ones. It is sad that in the past Italian Chamber of Commerce did not play an important role, or, I would say, it did not play any role at all for Russian investors investing in Italy, because in the minds of many people Italian-Russian Chamber of Commerce is to help Italian companies to come to Russia, not Russians going to Italy, but this is not true, because our Chamber of Commerce is Italian-Russian and we work in both directions. This is something which I consider to be a really key focus.
We have to help Russian companies in Italy and Italian companies in Russia, Russian investors in Italy and Italian investors in Russia. I am sure we could avoid many mistakes done and we could just translate and transfer the knowledge of Italy to Russians who are coming to invest there. However, there are always good and bad experiences in every investment. Some good experiences will be translated and will be used as good examples for other investors that will come, yet unfortunately there will be negative experiences as well. That is why I think that we have to work hard now to explain to Russian investors that Italy is an opportunity for investments.
So this will be our task as well, to convince people that even though there have been some mistakes, new mistakes can be avoided, and now we can help them in avoiding this kind of mistakes when investing in Italy. Exactly like we do today explaining to Italian investors that the negative experiences of some Italian companies in the 1990s or in the early 2000s were the negative experiences that were happening during the time very much different from today, which has passed anyway. So our job is not only to avoid that sort of problems that thanks God are less, but is mainly linked to foreseeing difficulties and supporting new businesses because this is a part of the plan now being implemented by and within Italian-Russian Chamber of Commerce.
My view and my plan is to make it a unique Chamber of Commerce based on the Russian-Italian relations or, more broadly, on the Russian-European relations. In my view, Chamber of Commerce should not be an entity which merely gives an advice. It should rather provide real help in developing business relations between the two countries. The program to be presented on September 23rd, is focused on four main subjects.
Point one is concentration on the support of small and medium-sized enterprises of both countries. I am convinced that we as Chamber of Commerce are less important for large companies. I am sure that Pirelli can establish direct relations here with Rosneft oil company, for instance, without my involvement, as they have enough staff and money to arrange a proper self-introduction. But there are thousands and millions of small entrepreneurs that need to open a market for themselves abroad and they need some support for that but are not ready to pay for that support. That is the role and scope to be kept in mind by the management of Italian-Russian Chamber of Commerce. Therefore, focus on small and medium enterprises is point one.
Point two is to help international trade and crossborder trade and business of the two countries. Unfortunately, due to the fact that we are not yet (but I hope that we will be some day) in an ideal environment, and there continue to be customs, and limitations, and duties between Italy and Russia, we will have to deal with those. For sure, the small and medium enterprises and entrepreneurs always face many difficulties in dealing with the customs, transport companies, logistics companies, and it is very important for them to negotiate a proper price, because when one buys Italian shoes in Russia, one has to be sure that the price does not increase too much because of the transportation costs or higher customs costs due to improper management. One has to be also sure that there is no fraud in the import/export deals, because when there are frauds, that puts limitation on a proper trade development. We as Chamber of Commerce have to stimulate and fuel trade activities and expand trade volumes by limiting those technical costs everywhere where they are uncovered.
We will therefore work on incorporating and launching two local, Italian and Russian, logistics companies that will help small entrepreneurs in selling their goods, as our local companies will fully manage the transportation, logistics and customs processes so that the shoes supplied from Italy will immediately be transported, customs taxes and duties will be paid, and the goods will be available to be sold in the Russian market through assistance of the Chamber of Commerce. So the Chamber of Commerce will create a green channel that will help small entrepreneurs to solve the main problems which today are the customs and transport.
The two logistics companies will be owned by Italian-Russian Chamber of Commerce. Making profit will not be the focus of the Chamber, the revenues should only cover the costs. The focus will be developing training and promoting business between the two countries. What will be the ultimate outcome of such activities for the Chamber of Commerce? It will be the growth of exports from Italy to Russia and from Russia to Italy. What is important, there will be a decrease in the costs of such processes for the goods to be transferred. That means that thanks to this support, the Chamber of Commerce will deal with outsourced logistics companies, and there will be a one common window for the exchange between Italy and Russia. We will thus get a better price from transportation companies, we will have a transparent process of dealing with the customs, and this will allow us to offer Italian entrepreneurs to deliver their products to Russia in a very transparent, fast, easy and cheap way. This is the second point of the project.
The thirds point is establishing a fund joined by constitutional investors and private entrepreneurs who are members of the Chamber of Commerce. Its task is funding a joint venture that will finance import and export operations of the entrepreneurs of both countries. It will support the traditionally non-bankable or non-easily bankable transactions. To keep it simple and to give an example, one can imagine how much trading between Italy and Russia is performed in amounts below €150K or €200K. There are many entrepreneurs selling goods or equipment of the total cost not more than €150K or €200K. In such cases, unfortunately, export agencies of both countries are not able to cover those transactions because it would be too costly, whereas the technical support of the government institutions is too heavy for them to engage in such transactions. But there really is a lot of those operations, so the fund will be tasked to support and to finance this kind of transactions.
We have already discussed this matter with a number of financial institutions and many of them will be happy to support Italian-Russian Chamber of Commerce that will be the promoter of such a fund. It will be sponsored, and promoted, and owned by the Chamber of Commerce which will manage – without any profit – its activity. The fund will be a third country entity, and main jurisdictions for funds in Europe are mostly Luxemburg and Ireland. These are the two countries that are mostly well known for funds management.
The Chamber of Commerce at the moment can not offer this kind of opportunities to its members, so it has to prepare itself for doing this, to hire the adequate staff to manage this process, to select outsourced companies that will offer their respective services, and obviously all the relevant infrastructure has to be built. So that is not an easy undertaking, but the scope and the results that we will obtain are definitely in line with the Chamber of Commerce’s scope.
Italian-Russian Chamber of Commerce will not derive any profit from this activity, yet the scope of the Chamber of Commerce will be fully performed, and ultimately we will thus support the increase in international trade between the two countries.
I hope we will get support of the two governments. From both the Italian and Russian sides I have got several assurances that they will provide relevant support, including financial.
For an institution, even relations with the customs are much easier, because not being a profit making company, being a not-for-profit organization, we are absolutely open and transparent to the government institutions so even the customs can immediately see who are our members, what are the transactions, what are the profits.
Besides, being transparent, we can also require transparency from the other side. Obviously, if we are not able to see an adequate transparency of the transactions, we will start sending letters to everybody – in order to obtain such a transparency. For us, as Chamber of Commerce, it is much easier than for an entrepreneur, especially a small entrepreneur, because nobody will read a letter from a small entrepreneur, whereas I am sure a letter sent by Italian-Russian Chamber of Commerce will eventually find its way to the right desk, should something happen.
Still, I think that will not really be needed since what is important, it is setting up a proper channel and showing that the channel is functioning as required. Then, no trouble will emerge.
The final point of the plan to be implemented by the Chamber of Commerce is an e-commerce marketplace platform that will help in distribution of Italian products and goods in Russia and of Russian goods in Italy. Through this e-commerce platform and the green logistics and customs channels we will help Italian and Russian goods to be sold abroad without any local presence of a company itself, because the Chamber of Commerce will take care of the digitalization process of selling and when there is a good logistics platform, one can use a digital selling channel as well, that is, a traditional e-commerce marketplace.
Italian goods compete with goods from many other countries and companies, but they always have advantages, have something special and interesting. An Italian marketplace certainly has some benefits. Obviously, today, operating an e-commerce platform does not mean you do not have relations with other marketplaces. In a globalized market one can not create an e-commerce platform without cooperating with Alibaba or Amazon. The market is open, but one has to apparently understand that today the scope is to help small and medium enterprises that are not yet using digital channels for sale, to help them use digital channels first. Second, to promote cross-border activity through digital channels explaining that it is easier than opening a shop and waiting for people to come to that shop. For Italian companies that are not yet digitalized, that is something which is really very important, because they will learn how to work in the new generation market that is coming.
Russia is already a digital market. Some cities of Russian such as St Petersburg and Moscow are very much digitalized while many companies in Italy are not digitalized yet. So for them it is not easy to approach this modern market. They have nice goods in some cases, and nice ideas, maybe they have nice prices as well, but they do not know how to communicate with the new generation clients. If we as Chamber of Commerce do not help them to approach this new market, they will lose. In fact, we do not have to tell them all they should come to Russia, but we are to help them in understanding the time is changing as well.
In the digitalized markets like Russia, like US and UK markets, if they do not learn how to go forward, they will die, or they will just be sold to other foreign companies. So it is our scope as Chamber of Commerce to train companies – to help them and to train them. An e-commerce platform is an excellent way of helping them increase their sales, but as well, of training them to work within a new logic of selling processes digitalization.
That is why these projects altogether are most important to be developed. I understand they are very difficult to implement, and we will for sure be the first Chamber of Commerce to apply this approach. I hope that all members of the Supervisory Board of the Chamber of Commerce will approve such a strategy on September 23rd. I believe it will be fully supported, because I have already had an opportunity to speak to many of them, I already have a positive approval of the Italian and Russian government institutions, I have already discussed the idea with many members of the Chamber of Commerce. To tell the truth, we have a lot of support, but the support we have from the Russian side is stronger.
We as Chamber of Commerce, being Italian and Russian, do not have to start from sketch. The experience in digitalization process in Russia is quite substantial. There are not many countries that have local operators capable of competing with Google, like Yandex does. There are not many countries that have digitalization of population as high as in Russia. And the cost of digitalization process in Russia is much lower than the European average. An IT specialist in Russia costs much less than an IT specialist in Europe. So the level of technicality of Russian solutions, and the level of complexity of processes, and the level of knowledge of the digitalization process in Russia is much more advanced than on the average in Europe and particularly in Italy.
Italy is unfortunately one of the last European countries in terms of digitalization. 60% of Italian population do not buy and have never bought goods or services online. Many people in Italy do not use any messengers or chats. It is quite the opposite in Russia. As Chamber of Commerce we can work in promoting exchange of experience between the two countries. We believe we can do this as it is not difficult. It is a good opportunity to increase exchange of experience between the two countries and to increase not only volumes of business, but of knowledge transacted between the countries.
Russian IT solutions and hi-tech services may well be supplied to Italy. One of the most successful experiences of Russian business in Italy is Kasperski Lab. Kasperski is an absolute leader in Italy in antivirus products. There are no restrictions on the company operation or its products. In fact, it is the cheapest solution and the most appropriately technically developed one. And this is not because of any dumping, not because of any political reasons since Kasperski is a private company and everybody knows it. It is all due to the price. The cost of an IT specialist, an average salary of an IT specialist in Russia is much lower than in Europe. That is why the accounting product for companies, 1C, is now doing its first steps in Italy selling software for accounting processing. As a technical specialist and a banker I know 1C program very well. There is no comparable product in Italy. Nothing similar exists there. 1C ensures an accounting process which is fully manageable and permits an easy change from one format to another. It is a common model which can be used for different businesses. One can spend more to develop it or use the simplest option without spending a lot of money. It can be used at large and very small companies. The product is unique and can only be found in Russia. There is no equivalent product in Italy and now 1C is expanding quite actively there.
In turn, Italy has other things it can give to Russia and we as Chamber of Commerce are on this big highway between the two countries and we have to facilitate the transfer of knowledge, of goods, of experiences, and of people between our two countries. So I am certain that the two sides of this highway should have a lot of traffic.
These are only few examples. I think that there are many others that we can easily discover. As we will help developing both countries, we will obviously bring to Russia all kinds of expertise, but the IT expertise should come to Italy from Russia, because it is cheaper, it is more efficient, and finally, I do not believe that Italy has so many secrets to hide, especially small and medium enterprises do not have secrets to hide from Russia or the US. Maybe large companies will never use Russian IT solutions, but I think we should focus on small and medium-sized business. When they pay for services, they should not pay much money but should get good quality. That’s what we must work at. Large companies can choose their own strategy as they have money for that.
Today, bilateral trade volumes are about €9 bln which is not a lot. I strongly believe that potentially it could double and be €10 bln more. It will take couple of years to reach such a result. However, I do not think this is the main parameter we should use. As President of Italian-Russian Chamber of Commerce I am confident that we can feel really happy only when volumes of investments are much higher than the volumes of trade.
When we look at volumes of goods transacted, that is something that is a short-term development. Someone is buying, someone is selling, and once done, it’s done. I like joint ventures. I like when in Russia we can produce something which is manufactured not in Italy but with Italy, and then sold in Russia, or back in Italy, or elsewhere. There are several examples. Take beautiful Italian-made outerwear all ladies dream of, furs. The best furs come from a joint experience of Italian and Russian companies. The animals come from Russia, initial processing is done in Russia, final processing is made in Italy, and then the products are sold in Italy, in Russia and in other countries. I think we should further develop such processes. Possibly, with more attention to environment since environment is important for both countries and for many other countries as well.
I really would like to see more and more development of joint ventures and direct investments in both countries, as this is much more interesting and more long-termed than just trade. Yet however, trade is important and we have to support mutual trade because we will never have joint ventures if enterprises are not able to first of all sell their products. Nobody will ever think of launching a manufacturing facility in Russia if there is no market. To understand that there is a market, one has to first sell one’s product. That’s why an e-commerce platform is very important, that’s why a logistics platform is also important, as we have to help people and enterprises to understand there is a market in Russia. When one brings and sells goods in Russia through an e-commerce platform, they can be distributed not only in Russia but in all countries of the Eurasian Customs Union. That is the main aspect.
Italian small and medium-sized enterprises will thus have an opportunity to enter a market and test a market of 170 mio people. Once they try and see they can sell their products, then they can elaborate on joint ventures and launch local production. Otherwise, if we do not concentrate on trade, then obviously nobody will ever open factories.
I therefore intend to do my best for all these plans to come true, but evidently all these things and projects require joint efforts. Ideas are important but not so valuable as their implementation, especially when it is accomplished together with other people. The most important task will be to start implementation of the ideas together with all embers of Italian-Russian Chamber of Commerce, all institutions, and the governments of the two countries.