Une russophile à Paris

For a number of historical and cultural reasons, the French and Russians have much in common including mutual appreciation and respect for each other. But what has always been striking to me as a French national - during the 1990s when I used to live in Russia or today when talking about Russia to investors and media representatives in France - is the fact that these cultural ties do not lead to more understanding in how to do business or how to invest in Russia. French Foreign Direct Investments in Russia amounted to only USD 0.4 billon in 2008, which is 9 times less than investments from the UK and 6 times less than investments from Germany. The bulk of our own French investor base has chosen to invest in our Eastern European Fund, considering our Russian fund to be far too exotic, while the EU convergence theme for Eastern and Central European countries is easier to grasp.

There is an information gap when it comes to the business environment in Russia and the bad news always seems to outweigh the good news. Public opinion in France tends to focus on the fact that the French retailer Carrefour has decided to withdraw from the Russian market, while at the same time choosing to ignore the immense success its competitor Auchan has achieved in the very same market.  Media remembers the alarming debts levels of some of the oligarch-owned companies in the middle of the crisis but fails to notice that the Russian banking system is strongly capitalized today. Investors are left with the long-standing memory that Russian GDP fell 8% and hardly believe the forecasted GDP growth of 5% for 2010. High debt was also a buzz word I heard during these two days, applying both to Russia and the rest of Eastern Europe, and it was a privilege to show how well most of our markets stand on this specific issue, both in terms of public sector and total debt to GDP, while also explaining the implications of low debt for future growth in these economies.  

I suppose that highlighting some of these favorable features is not only necessary in France but basically anywhere in the world. The information gap – leading to a high perceived risk – must be one of the reasons that Russia and many Eastern European markets today trade at an unjustified high discount compared to other emerging markets. This also explains why so little of the record-high inflows to emerging markets funds in 2009 (USD 80 billion) was invested in EMEA funds in comparison to inflows to Asia, Latin American and global emerging markets.