APPENDIX 27
Memorandum submitted by British Invisibles
BRITISH INVISIBLES
British Invisibles (BI) is a private sector
organisation with 30 years experience of representing the UK's
financial services industry throughout the world. Its membership,
numbering around 90 companies or institutions, is drawn from across
the spectrum of the UK's financial, legal and related business
services including, in addition to corporate members, trade and
professional associations, exchanges and markets, the Bank of
England and the Corporation of London. BI operates on a "not-for-profit"
basis and is principally funded by its members' subscriptions.
BI works in four key areas:
— helping overseas governments and
companies access the expertise, advice and funding available from
its members;
— encouraging greater liberalisation
of international trade in financial services;
— promoting the UK as a healthy and
well-regulated environment for financial services business; and
— promoting better understanding of
the financial sector's contribution to global business and the
role of specific services within the sector.
ACTIVITIES OF
BI MEMBERS IN
RUSSIA
For the purposes of this memorandum some 20
members known to be active in some way in the Russian market in
the "invisibles" sector were consulted. They were invited
to comment on the following issues:
— level and effectiveness of diplomatic
representations;
— awareness of commercial potential;
— support for British business;
— foreign policy aspects of economic,
financial and technical relations.
Written responses were received from six and
a further five gave comments orally. To preserve confidentiality
actual company names have not been used below but in total the
responses covered the accountancy, legal, investment banking,
commodity dealing and financial exchange sectors.
There are no comprehensive statistics available
to record invisible trade flows. Indeed some financial and legal
sector companies guard closely the details of newly-won business
for fear of alerting competitors. BI activities in the area are
driven by the wishes and requirements of its members who, for
the Russian market, come together regularly in a CIS Advisory
Group, which was also consulted for the purposes of this inquiry.
The generally positive political developments
in the Russian Federation and CIS regions as a whole over the
last nine years or so have resulted in steadily increasing prospects
for greater trade in the "invisible" sector. However
BI members were agreed that the various financial and other problems
facing Russia itself, culminating in the currency crisis of August
1998 have had severe repercussions on their willingness to engage
actively in that particular market. There is a perception that
the market reforms there have failed to a considerable extent.
As an example, the sharply devalued rouble and steep fall in share
prices have tended to make new privatisation deals financially
unattractive.
A consensus view emerged from the BI members
consulted that, for Russia to become an attractive investment
location with all the associated business opportunities that implies
for legal, accounting and other services, the following criteria
would need to be met:
— a "level playing field"
for foreign companies attempting to operate in Russia;
— competent Russian managers;
— reduction in bureaucracy.
A couple of comments from members may help to
set the difficulties of doing business with Russia in context
and also put into perspective the degree to which the British
Ambassador and his commercial staff can be realistically expected
to provide a framework to make such activities more likely to
succeed. A leading investment banker and BI member, active in
Russia for several years, likened the business process there as
akin to "embarking on a long voyage where the ports-of-call
and the final destination are regularly changed, the vessel is
leaking, rusty and in need of repair and, if that was not enough,
the crew have stolen some of the passengers wallets!" Another
BI member, this time a leading multinational law firm with an
office in Moscow, defined a Russian share as "an exotic type
of option which may be converted into equity one bright and shining
morning in the (uncertainly defined) future."
BI'S OWN
INVOLVEMENT WITH
THE REGION
There have been no recent outward BI missions
to Russia; this reflects the curent perception by members of the
reduced likelihood of winning viable business there. They are
well aware of the strengths and weaknesses of the Russian market.
Working closely with British Trade International and the FCO,
in October 1999 British Invisibles organised a well-received half-day
seminar in London on the political, trade, investment and legal
aspects of doing business with Russia. The FCO provided a senior
political analyst to speak at the event and answer questions.
BI also recently arranged a City dinner for the Directors of ARCO
, the Russian Agency for Reorganisation of Credit Organisations,
and BI members.
BI provides the secretariat for the LOTIS (Liberalisation
of Trade in Services) committee which inputs members' views on
liberalisation of trade matters into the WTO (World Trade Organisation)
negotiations at high level. In this context we are keen to encourage
the Russian Federation to move forward positively in the negotiations
to gain accession to the WTO. This would bring Russia into the
international rules-based trading system which WTO members subscribe
to. From our point of view it would enhance the opportunities
for UK based financial and other service providers further to
develop sound business relationships with the Russians. It will
also help those in Russia who wish to establish a well-run open
market economy.
BI has good relations with both the FCO and
British Trade International and indeed has secondees from both
organisations. BI is working closely with the commercial sections
of FCO overseas Posts to ensure that the new BI website, which
can be accessed by members through a password, contains up-to-date
information on the financial and general "invisible"
scene in the country concerned. Posts are cooperating in a state-of-the-art
system which will eventually enable them to input new data directly
onto the website. The Moscow Embassy Commercial Section has responded
enthusiastically to this opportunity and will be working closely
with BI on it. FCO and British Trade International are also cooperating
with BI in the setting-up of so-called local advisory groups in
selected markets, including Russia. The plan is that these groups
will meet regularly to identify problems or obstacles to invisible
trade affecting more than one company in their area, as a precursor
to working with BI and HMG to ameliorate the difficulties.
ROLE AND
POLICIES OF
THE FCO IN
RELATION TO
THE RUSSIAN
FEDERATION: SPECIFIC
COMMENTS BY
BI MEMBERS
General
One member, a leading accountancy firm, (Member
A) provides a wide range of audit, accounting, tax, financial
advisory and management consultancy services to some of Russia's
largest organisations and has several hundred people employed
in four business centres across Russia, including Moscow. Commenting
on the effectiveness of UK diplomatic representation in Russia,
the senior partner concerned said that the Ambassador, Sir Andrew
Wood, had facilitated a number of highly informative missions
to Russia which provided access to, and lasting contact with,
highly placed Russian political leaders and officials. Member
A commented further; "these contacts have made a significant
contribution to our gaining a better, more balanced understanding
of the situation in Russia and this has contributed to more informed
investment decisions. The (London) `round-tables' and other briefings
organised by the CBI, chaired by Lord Marshall and including contributions
form Sir Andrew Wood have also been informative. The larger of
these events have enabled many UK companies to benefit from Sir
Andrew's insights into Russia. Sir Andrew Wood is well-informed
about the political situation in Russia and has a reasonably good
understanding of the business environment."
Member A commented further: "However the
experience of our Moscow office is that UK embassy staff in Moscow
are not particularly effective in supporting British business
and compare unfavourably with some other countries' diplomatic
and commercial representation (eg USA, Germany, Holland, Finland
and Ireland.) The British Embassy were slow to respond to a request
to arrange for a fact-finding tour to the UK for senior Russian
business people in order to support an important EU TACIS-funded
proposal. UK Embassy staff do not appear to seek the views of
British businesses on commercial issues. In contrast Treasury
Department staff at the US Embassy regularly seek the views of
our partners in Moscow on developments in the financial sector."
Member A observed that "British commercial
representatives tend to be career FCO civil servants whereas a
number of the staff in the Treasury Department of the US Embassy
seem to spend a few years in the foreign service as a part of
a wider career in the financial sector". According to one
of A's British partners in their Moscow office, the UK Embassy
does not inform British businesses about what it is doing to ameliorate
obstructions to invisible trade such as taxation regulations.
In contrast the US Embassy was thought to be assiduous in informing
their nationals about what it is doing in this respect.
Member B (large commercial bank; with a representative
office in Moscow for many years); reported that they had had numerous
bilateral meetings with the Embassy and always found them to be
helpful and able to give "prettey good support" but
powerless to influence the Treasury eg in the key area of getting
better ECGD cover for project finance business. The attitude of
ECGD to Russian business contrasted badly with that of the US
Exim Bank, with which Member C was familiar through the activities
of a banking partner. Export interest from Member B's UK clients
interested in the Russian market had dwindled substantially since
1995.
Member C (large firm of solicitors with a Moscow
office); "somewhat difficult to comment, as our contact with
the FCO has been rather limited. Perhaps this is a reflection
on their effectiveness in Russia. In short neither the Embassy
nor the FCO has been of real help to our business activities here.
They started business and other briefings which were quite useful
on what seemed to be a regular basis following the crisis last
year but these now seem to have dried up. On the few occasions
we have needed to ask questions, mainly in connection with our
own activities, those we have spoken to have been reasonably helpful.
What most people here would find helpful would be for the FCO
to be more pro-active in passing on the knowledge that they no
doubt have about the country and various market sectors. Maybe
this is the case in relation to the visibles sector; it does not
seem to be the case in relation to the invisibles sector. Broad
bi-weekly meetings/briefings would be of help. Various business
clubs and chambers do something similar but these are more market
orientated; surely there is important information residing in
the FCO which could be passed on that would not be obtainable
from other sources. . .the FCO have not actively explained their
services; more consultation in relation to policy initiaitives,
inward visits etc would be of help. . .we seem only to be informed
about them when they have already been planned. Our competitor
countries seem to be more proactive and do these things better."
Member D (large financial exchange); "little
contact made this year with Russia (largely due to adverse financial
situation) . . . generally the FCO (including the embassy) have
been very helpful whenever we have requested assistance."
Member E (an important commodity exchange);
their activity with the Russian market is largely confined to
explaining the role of the exchange to Russian oil companies and
training Russian delegates, focussed mainly in London. Member
E felt that the range of services offered by the embassy was potentially
valuable but probably not appropriate for their activities at
present. They were not familiar with the Ambassador and could
not comment on him or his commercial staff.
Member F (a leading investment banker, offering
advice in Russia on mergers, acquisitions and privatisations;
trading in gold bullion; and FX trading) commented "the embassy
in Moscow is useful to us primarily in providing political background
for the business we do with the Russian Central Bank. The level
and effectiveness of UK diplomatic representation in Moscow is
high. The Ambassador himself is invariably extremely helpful.
For the type of business we do, there is little that the Commercial
staff can do to help us. This is partly because much of the work
we do on the gold bullion trading side is highly sensitive and
the same is true for any major privatisation advisory business.
It is certainly easier for diplomatic staff to help with the "visible
sector" than the "invisible sector". The FCO staff
as a whole would benefit from an increased opportunity to receive
work experience and training in commercial firms. The FCO at both
London and Moscow ends have been helpful as regards VIP inward
visits.
Visa and work permit procedures
Two or three members highlighted problems in
this area. Member A said "It is the new, young professional
middle class that is the greatest hope of those desiring reform
in Russia. This group of extremely bright, well-educated and highly
motivated young people has been the hardest hit by the August
1998 collapse. We, and other BI members, need to train our young
professionals in cutting edge international skills, and the crisis
here (in Russia) has presented an unprecedented opportunity to
do so now, and invest in developing skills to be brought back
(to Russia) when the upturn comes in a couple of years. We know
from direct experience that the procedure for obtaining non-contentious
visas and work permits for these temporary secondees is laborious
and more importantly, takes far too long (eg a secondment process
initiated in October 1998 resulted in the issue of the relevant
documentation in February 1999.) The principal difficulty appears
to be that each process is undertaken sequentially: security check,
visa procedures then work permit issuance. It would seem preferable
for all procedures to be undertaken simultaneously, if necessary
with some form of employer idemnity against the cost of wasted
effort for those few instances where the secondment is not approved
by the British authorities."
Member A further points out that "Russians
and the Russian authorities have a keen eye for such delays and
perceived discrimination, and invariably find a way to retaliate,
usually to the inconvenience of citizens of (what they regard
as) the offending country based in Russia. A simpler, quicker
system would we believe, appreciably ease a burden on business
here, and at the same time could warm relations with Russia. Similarly,
the `Chancellor's Scheme' under which `on-the-job' experience
was provided by enabling young Russian professionals to work in
firms in Britain, has recently come to an end. This scheme would
be particularly timely in current circumstances and its revival
might be considered." (these suggestions have been passed
to HMG earlier in the year by the firm concerned).
Member F (investment banker) "the stringent
requirements regarding visas are sometimes a hindrance; but the
UK Embassy has on occasion facilitated their issue". Member
G (general financial consultancy) noted a problem with visa issuance
on both sides but remarked that the British side, including the
embassy, were thought to be heavy handed in dealing with bona
fide business people in comparison to the French, German and Americans.
"G" remarked; "we do lose business to these countries
though the visa section, as Russians feel affronted, insulted
and deterred from coming to London. This is compounded on arrival
when they find themselves dealing with a different ministry as
regards immigration at the airport. If the FCO and British Trade
International cannot help or be knowledgeable in business they
should at least facilitate meetings and visits in both directions."
Conclusions
Compared to the other recent Select Committee
inquiries (CEE and Transcaucasus), to which BI members have contributed
generally upbeat comments both about the work of the FCO Posts
and about commercial prospects generally, their responses on the
Russian Federation and the work of the Embassy in Moscow were
slightly more downbeat. There is no doubt that BI members, in
common with British companies in the "visibles" sector,
have had their fingers badly burned in Russia recently. They recognise
that there are still opportunities but that there is a long uphill
struggle through a dense undergrowth of obstacles, some inherited
eg taxation problems and bureacracy and others more sinister and
deliberate. This contrasts with the task facing Western firms
in some of the CEE and Transcaucasian countries, as highlighted
in earlier BI memoranda.
It may be that these contrasting situations
colour BI members' dealings with the respective embassies. While
the Ambassador in Moscow, Sir Andrew Wood, received high praise
from the members consulted, they were a little more stinting in
their recognition of the work of the Commercial Section there,
which is of course larger than the commercial sections of the
former satellite countries commented on earlier. While some members
said the level of efficiency of the Moscow diplomatic staff was
high, others were somewhat more critical, citing slow response
times and lack of commitment compared to US opposite numbers.
Visa processing for visiting Russian businessmen was identified
by several as an area where improvements could be made without
sacrificing the necessary security, but this would need authority
from FCO and Home Office Ministers.
BI members have recently received a presentation
by Sir David Wright, head of the newly created British Trade International,
about the changes and improvements to be expected eventually from
the merger of the trade promotion activities of the DTI and the
FCO. BI members tend to be amongst the more sophisticated exporters
and larger members frequently have their own comprehensive research
and intelligence departments. This, coupled with the frequently
confidential nature of the deals they are involved in, lessens
the demands they make on embassy staff. On the other hand when
they do require help or advice it will be at high level and on
difficult areas. If they are disappointed with the response once,
they will tend not to use the service again; in the case of multinational
firms, they know what is on offer from the other national commercial
services eg the US, and will not hesitate to take their queries
there.
The creation of British Trade International
was warmly supported by BI members, who contributed evidence to
the original Wilson Committee which recommended the new body.
However this means that members' expectations of the new organisation
are correspondingly high.
There is no doubt that Russia is a difficult
market for the West. The feeling amongst several of the members
we polled is that the FCO representation there could be more proactive
in helping BI members and others carve out a share of the market.
Part of the problem, as identified in earlier reports, is that
the "invisible" sector is by definition more esoteric
than the "visible" and thus sometimes harder for the
non-specialist to grapple with; participation by FCO commercial
staff in "City" familiarisation courses could help and
BI plays an increasing role in actively encouraging this, working
with the Corporation of London and others.
BI members will also be looking to see what
British Trade International and the Posts abroad can do in the
case of Russia to encourage what they see as a more progressive
attitude on matters such as ECGD cover and visa support. BI fully
recognises that the sheer complexity of the Russian market makes
it that much harder for the Posts there to make positive progress
in servicing the requirements of the "invisible" exporter.
However for the future BI will be working closely with the FCO
Posts in Russia, both through the members of our fully-fledged
CIS Advisory Group in London and through the nascent BI Local
Advisory Group in Moscow, to ensure that the obstacles facing
the invisible exporter can be examined and steps taken to remove
them.
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