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Russia and France marking a special year in special diplomatic relations

Since the whole of 2010 has been declared the Russian Year in France and French Year in Russia, with several events laid down to commemorate it as special year in both countries, we, the authors of this business report, have decided not ‘to reinvent a wheel,’ but instead simply review all aspect of the past and present relations between these two countries under the prism of programs earmarked for realization within the frameworks of this unique project throughout the year. 


Indeed, the unprecedented scale and importance of this project for Moscow and Paris is underscored by the fact that almost 2,000 vital joint programs and events will be held between Russian and French government agencies, business communities and cultural organizations in politics, business, economy and culture. It, therefore, goes without saying that this special year in the bilateral relations offers a unique opportunity to assess all aspects — historical, cultural, business, economic and investment — of the ongoing cooperation between these two countries. It should be noted here that such division is artificial, because it is impossible, and, indeed, not necessary, to draw clear-cut boundaries between these issues, as this arbitrary classification is nothing but a journalistic attempt to systematize the achievements, goals and challenges facing these countries in the 21st century.


Specifically, all the above-listed objectives are parts of the programs laid down for the commemoration of the Russian-French Year in 2010, whose main goal, according to Jean de Gliniasty, the French ambassador to Russia, is to further consolidate the ties between the two countries and their continuous striving towards forging of deeper partnership in all fields of bilateral diplomacy. “All the programs earmarked for realization within the Russian-French Year project are aimed at helping citizens of our countries to know each other better, enable them to boost not only the existing level of cooperation, but also to seek new cooperation formats for further deepening the scope of the traditional friendship between our countries.”


The historical aspect: the origin of bilateral relations 


Today, it is difficult to find two other European countries like France and Russia, whose destinies have been so much interwoven by centuries-old ties of mutual friendship, and whose lifestyles, arts and cultures have reached such a level of interpenetration and mutual enrichment that they have all long become integral parts of each other’s folklores, traditions and languages. 


The origin of this mutual attraction for one another can be traced to 1717, when the first Russian ambassador came to France to present his diplomatic credentials signed by Tsar Peter I to the King of France. This historic step marked the official beginning of the diplomatic relations between Russia and France. 


However, despite the fact that since then many changes had taken place both in these countries and, indeed, in the rest of the world, one thing in the relations between the two European powers, according to both countries representatives, has remained constant throughout all the epochal changes, and this is the unrelenting and sincere aspiration of the two nations towards true and mutual friendship and beneficial cooperation in all areas of bilateral diplomacy. These are frequently manifested either within the framework of bilateral, pure Russian-French, joint cooperation platforms or within much larger multilateral cooperation formats aimed at seeking solutions to regional problems in Europe and geopolitical challenges via joint actions in such organizations as the UN, World Bank, G8, G20, IMF, etc. 


Philippe Pegorier, the trade counselor at the French Embassy in Russia: “France is not only a very beautiful country for tourism and shopping, but also an attractive land for doing business and making investments.”


Cultural aspect of cooperation


The level of cultural development in any society always reflects its ‘soul and system of values.’ Therefore, it was not surprising that cultural programs were the curtain raiser, or the headliner, of the high-profile events devoted to celebrating the French-Russian Year in 2010. This was evident in the fact that the official start of the year-long celebrations was kicked off at the Louvre Museum in Paris, where French President Nicolas Sarkozy and his Russian counterpart, President Dmitry Medvedev, opened the ‘Holy Russia Exhibition’ in March. On display were over 450 unique and rare exhibits, including some of the most revered of Russia’s religious and historic icons, from leading museums and libraries’ special collections. 


Later, in June, Russian and French Prime Ministers Vladimir Putin and Francois Fillon opened the Russian National Exhibition (RNE), featuring Russia’s outstanding achievements over several years, at the famous Grand Palace in Paris. Speaking at the official opening ceremony, Putin expressed hope that the National Year celebration events and program would further deepen rapprochement between both countries and enable them to seek new avenues for establishing more effective and sustainable cooperation in long term perspectives. “This is one of the key events being organized within the frameworks of the Russian Year in France,” Putin noted. “Here, all French citizens can acquaint themselves not only with the achievements that Russia is proud of today, also but with its possibilities that are directed at the 21st century.” 


And from French side, an exclusive exhibition, aptly termed, “Art de Vivre a la Francaise” or “The Art of living in France,” featuring the best French interior designs, will take place at the Moscow Manezh Expo Center in October. 


Military and political aspects


One of the most closely followed issues on the Moscow-Paris agenda today in the defense sector is Russia’s declared intent to acquire Mistral, the French Navy’s unrivalled, world famous amphibious assault ship, and the French government’s consent to consider the possibility of selling such unique military warship to Moscow. This is very important, taking into account the high sensitivity of the deal in terms of protection of national and geopolitical interests as well as military and strategic defence issues not only between the two parties directly involved in the unprecedented military warship deal, but also those of their neighbors and partners, both in and outside Europe, who are also keenly following this new development in the military cooperation between Moscow and Paris.  


This is why the fact that negotiations on this issue are going in the first place, according to representatives of both countries, underscores the level of trust between the Kremlin and Elysee Palace, especially taking into account the fact that the contract also envisages a possibility of a simultaneous transfer of some really unique and advanced technologies in the field of modern warship building and related defense sectors. “I hope that the ongoing negotiations would be crowned with success and become the symbol of trust between our countries,” Medvedev noted, commenting on the deal. From his side, Sarkozy has called Paris’ readiness to sell the warships “one more additional political signal indicating France’s recognition of Russia as its strategic partner.”


The deal, apart from pure military and political aspects, also has some complementary socio-economic components. To start with, each warship carries a tentative price tag of 400mln euros to 500mln euros, and Russia has declared to acquire, at least, four units, thus bringing the monetary value of the deal to between 1.6-2bln euros in cash. Besides, if everything goes according to plans, two warships are to be built in France, while the other two will be built under a license at the St. Petersburg-based Baltiysky Plant, according to sources close to negotiations. In practice, this means the creation of thousands of new jobs in the shipbuilding and interrelated industries both in France and Russia, a development that carries a significant social value, especially in the current conditions of global economic depression. 


Eric Chatard, Air France’s general manager for Russia & CIS: “It’s a duty for Air France, which is a sort of a bridge linking up our two great nations, to participate in the Russia-France Year events and help contribute to their overall successes.


In the geopolitical aspect, both Kremlin and Elysee Palace have in recent years been displaying unprecedented mutual understanding on acute and sensitive international issues — from the tense situation in Afghanistan, the reasons for and those responsible for inciting the current global economic crisis, the proposal for a new international safety architecture and post-crisis economy to the Iranian nuclear program, etc. Medvedev has attributed this commonness of vision on all these issues and their possible solutions to the fact that both Russia and France share a similar system of values and criteria for assessing global issues. “This is because we have a unified system of communication and a common scale of values. Besides, we are also always open for friendship and cooperation.”


All these factors have made the diplomatic relations between Russia and France special, hence their ability to understand each other better. This, probably, also helps explain France’s frequent successes in playing the role of a buffer between Russia and the West, smoothing out the bumps between both parties on different issues, where they have divergent views. A recent example of this was France’s role in positively diffusing the strained relations between Brussels and Moscow in 2008 after the aggression of Georgia against South Ossetia. According to experts, it was the balanced, far-sighted, and most importantly, the objective position of the president of France, as the head of state of the country that held the EC chairmanship at the time, which helped secure speedy normalization of the situation in conflict zone and eradication of the unnecessary tensions between Russia and EU. 


Sarkozy himself hinted that ‘some forces in the Western political establishment had wanted a totally different outcome’ from the crisis, when he said at a press conference that he “had not listened to some of our partners that said that it was not necessary to go to Moscow” to seek resolution to the conflict. According to experts, if another European politician with an obvious or latent Russophobic view was in place of Sarkozy, and there are so many of such politicians in the EU, then Brussels, and indeed, the whole West, would have taken an unreasonably harsh position on Russia on this issue.       


Business aspect of bilateral cooperation


It is a well-known fact that productive external economic activities are possible only between countries, where there are no irresoluble negative issues, and conditions, when political leaders are on a ‘first name basis’ with each other, as it in the case with the contemporary Russian and French leaders, are additional positive signals for the business communities in such countries to undertake full-scale development of business relations.


Edi Perisic, the CEO of Sodexo in Russia: “Sodexo adopts and implements socially responsible business principles in its operations all over the world.


Thus, speaking about the importance of political contacts for boosting business cooperation, Philippe Pegorier, the trade counselor at the French Embassy in Russia, noted that frequent contacts at the level of our countries’ top leaderships have had positive impacts on the intensity of the economic cooperation between Russia and France. “All these frequent political contacts mean that a green light is shining brightly for our bilateral relations, including in the business sector.” 


One of the clear signs of the shining ‘green light’ for businesses is evident in the fact that the governments of both countries have long declared each other’s economy a ‘top priority and strategic market’ for long-term investments. This stems from the fact that both Paris and Moscow believe that these ties would be further strengthened by the National Year programs, which will lead to further activation of business interactions. Both governments clearly understand that modern diplomatic relations that lack broad-based economic ties in an era of increasing globalization of foreign economic activities between nations can only lead to stagnation and fruitlessness of efforts.  


This is why the two countries have made decisions aimed at further activation of their ongoing economic cooperation via launching new projects. Thus, calling on the Russian and French strategic investors to increase investments and companies’ mutual capitalizations, Medvedev once again reiterated that Kremlin has long declared France one of its priority business partners. “Thanks to this status, French companies were able during the crisis-ridden 2009 to invest almost $10bln, not a bad figure for a crisis-devastated year.” 


Similarly, the Elysee Palace also views the Russian market as a top priority, strategic economy for France and French companies to boost their foreign investment activities. “Russia, together with China, India, Japan and the United States, is currently among the top five priority foreign economies holding special business interests for France,” Christine Lagarde, the French minister for economy, industry and employment, said. “This policy, with respect to Russia, means the execution of a series programs and projects specially designed to broaden French businesses, investments, innovations, etc. in the whole country, not just Moscow and St. Petersburg, as usual, but also in other big Russian regions and cities.”


Dmitry Demidenko, the CEO of Skif Consulting: “We are like an outpost in the process of attracting foreign investments into Russia by helping to simplify the inflow of capital and the entire investment procedures for clients.


It is pleasing to note here that the most Russian and French companies see it as an honor and national duty to participate in further development of business and other relations between their countries. Thus, commenting on the importance of corporations’ participation in forging closer business ties, especially in 2010 declared a special year in both Russia and France, Eric Chatard, Air France’s general manager for Russia & CIS, noted that participation in such events, especially in this year, is both an honor and duty for Air France, which is the main ‘aerial bridge’ between these two great countries. 


A similar view is also held by Dmitry Demidenko, the CEO of Skif Consulting, a Russian legal and audit company, which, amongst others, has close business ties with French companies: “It is no secret that people like it, when interactions with them are done in their native languages. This is why we have, as a policy, mostly bilingual employees, who, first and foremost, can speak French in addition to Russian,” he added, noting that the simultaneous declaration of 2010 a National Year in both countries will significantly boost the relations between them. 


Trade aspect of bilateral cooperation 


According to official data, mutual trade between Russia and France trade is characterized by positive dynamism, evident in the fact that their gross annual trade turnover had increased by over five times between 2001 and 2008 had to peg at over $22bln at the end of 2008, with France, according to Russia’s statistics, ranking eighth among Russia’s top European countries. However, it should be noted that the trade indices are lopsidedly in favor of Russia, partly due to the differences in customs’ imports/exports assessment methodologies


One more reason behind the gaping lopsidedness in the mutual trade figures in favor of Russia, according to the French economics minister, can be attributed to French businesses CEOs’ lack of and/or inadequate information about the real economic situation in Russia and the new possibilities the country offers for business activities, including those belonging to foreign corporations. Using the traditional diplomatic reciprocity principle, one can say the same is also true about their Russian partners regarding France and its current business opportunities.  


Ivan Prostakov, the head of Russia’s Trade Mission in France, was more categorical in his assessment of the mutual trade data, noting that existing parameters of bilateral trade do not truly and comprehensively reflect all the aspects and ranges of the levels of economic and business relationships between our countries. “In my view, the most important thing is what is really happening in our relationships, and that is the ongoing industrial cooperation and other capital intensive mutual projects that are not always included in the overall statistics reflecting all the commercial activities between our countries.” 


In this aspect, Prostakov says some projects such as those being realized in the so-called “sensitive and strategic areas” are of special importance. These include such spheres as the aeronautics industry, where France has already ordered 14 Soyuz spacecrafts for about $1bln; the aviation industry, where there are joint ventures making engines for Russia’s Superjet-100 planes and also production of spare parts for Aerobus. Others include the energy industry, where different cooperation agreements had been signed between top Russian and French energy companies. 


Similarly, assessing the positive results of the bilateral cooperation between France and Russia in the past decade, the French prime minister noted that the bilateral trade turnover between the two countries had risen by several times since 2000. “Specifically, we are talking about broad and comprehensive cooperation, especially in the auto, aerospace and energy industries,” the prime minister added. He also noted that France is currently exploring all prospects capable of boosting the existing level of French companies’ investments in Russia, including in its Far-East region. “This is because Russia and France are strategic partners.” 


Hugues Laurent, the business development director at FM Logistic in Russia: “I would say that our success recipe comprises a hard working spirit, excellent corporate values, respect for and understanding of customers’ needs.”


A practical manifestation of this strategic partnership is the recently penned agreement between Gazprom and GDF Suez that will significantly increase the latter’s gas import volumes from Russia. Besides, France has also recently become a key shareholding partner in Russian gas pipeline projects, a partnership that is expected to increase France’s shipment of Russian gas in five years’ time to 1.5bln cubic meters per annum.


Mutual investments and capitalization 


France is one of the key sovereign investors in the Russian economy, evident from its seventh place ranking with $8.7bln invested in Russia in 2008, according to Rosstat’s data, a sum, which according to Medvedev, was further increased to $10bln at the peak of crisis in 2009. “This is very important, as the most progressive form of activization of economic cooperation does not only envisage a mere exchange of goods and services, but also mutual capitalization of our companies and economies.”


Today, there are about 470-500 companies with different shares of French capital in Russia. These include such corporate giants as the Peugeot-Citroen Group, the ongoing cooperation between Renault and AvtoVAZ and retailer Auchan. Others include insurance giant AKSA, Gazprom-GDF Suez’s joint investments into various projects as well as Gazprom and Total’s plans to make joint investments in the Bolivia energy industry. One of the largest foreign players in the banking sector is Societe Generale, which had acquired the controlling stake in Rosbank for $2.33bln, a record sum of investments committed to a Russian bank by foreign corporations.


It is impossible within this business review framework to list all the French companies that are currently operating in Russia today, as are also their exact sums of investments, first and foremost, due to the traditional dynamic nature of investment processes. However, as a guide, suffice it to note that the total volume of investments of all French companies in Russia today is measured in tens of billions of euros, a sum that makes similar Russian companies’ investments in France pale significantly by comparison


In other words, unlike France, which is among the Top-10 countries with the largest investments in Russia, the position and exact sum of Russian investments in France are very difficult to determine due to their extremely low values, a reality that that does not reflect the highly robust political component of the bilateral cooperation between the two countries. For example, the lion’s share of the over $114bln invested by Russian companies in foreign countries’ economies in 2008 was routed to Switzerland, Cyprus and United States, while only a paltry sum of this gigantic amount was invested in France, a country that is internationally recognized as one of the world’s best and most attractive economies for foreign investments


Such factors as highly developed infrastructure, a favorable investment regime for foreign capital, etc., which have made France the world’s third most attractive destination for foreign investments, after the United States and Great Britain, have yet to be fully exploited by the titans of Russian capitalism. However, some experts see another reason for the currently low-profile presence of Russian investors in France in the high level of competition among foreign investors, thus constituting a major stumbling block on the path of a massive outflow of Russian investments into the French economy. This is because there are currently over 22,500 foreign companies in France from leading Western countries such as the United States, Germany, Great Britain, Netherlands, Italy and Spain. 


Leonid Dvorkin, the CEO of AFNOR Rus: “The deficiencies in today’s Russian standardization system and other shortcomings do not only reduce Russian companies’ competitive capabilities, but also increase their operating risks.


It, therefore, goes without saying that life for any ‘newcomer investor in the French economy, especially from Eastern Europe, in such a well-established community of strategic foreign investors, will not be very easy in all aspects. However, one of the rarest exclusions is Stroimontazh, a Russian construction giant, which has set up a subsidiary Hermitage Immobilier in Paris, project, which according to Pavel Shinsky, the CEO of the French Chamber of Commerce and Industry in Russia, has been so successful that the company is currently fighting for a leading role in its market segment in the French economy.


Other notable exceptions include Nikolai Tsvetkov, the owner of the Lomonosov Porcelain Factory, who had acquired French companies Deshoulieres and Porcelaine de Sologne. Other include Wine Trust, a Russian liquor company, which bought French cognac production plant Croizet Eymard in 2007, and finally, a company affiliated with highly the influential Russian business tycoon, Sergei Pugachyov, which has bought French gourmet food group Hediard, the oldest retailer of luxurious grocery goods in Europe. But, apart from these laudable episodic cases, Russian investments in France are mostly non-systematic, and sometimes, are not always done directly from Russia, but via third countries such as Luxemburg, Cyprus and Switzerland or through affiliated foreign corporate entities affiliated with Russian oligarchs’ business empires. A policy that helps explain the infinitesimally low volume of direct investments from Russia in the French economy.   


Commenting on this negative trend for Russia, Yuri Stetsenko, the director of the European Countries Affairs Department at the Russian Economic Development Ministry, noted that such gaping disequilibrium in the volumes of mutual investments between Russia and France should become the main focus of the economic aspects of the events laid down for marking the National Year in both countries. “This is because there is an urgent need for us to seriously boost our investment components of our bilateral cooperation, first and foremost, through significantly increasing mutual direct investments.” 


It is comforting to note here that the question of how to increase Russian investments in France is being solved at the highest level. For instance, the issue is on the agenda of the Russian-French Commission on Bilateral Cooperation, which has already drawn up a special program aimed at boosting the inflow of Russian investments into the French economy. According to the authors of this program, both governments see boosting the growth of mutual investments “as an obligatory ground for forging higher economic growth and development of productive partnership relations.” 


One conclusion that is obvious from this is that Paris and Moscow, despite their centuries-old diplomatic relations and activation of contacts in recent years, still have to lots more to do before they reach what experts in international relations usually refer to as a ‘full diplomatic nirvana’ in their ongoing bilateral cooperation. 


However, there is no doubt that such objective, though extremely difficult at the moment, can be attained by both Kremlin and Elysee Palace. This aptly brings to mind the words of former French leader, Charles de Gaulle, who once said that “the Russian-French union usually becomes more particularly important at the most pivotal moments in history.” The relevance of these words cannot be overemphasized today, given the complexities of the current situations in the global economy and the stringent international and geopolitical challenges facing humanity today.


Indeed, it is difficult to find more appropriate and eloquent expressions than these words of one of the greatest sons of France, whose actuality has not diminished even in present days, to fittingly describe the current privileged status of the ‘special diplomatic relationships’ between Paris and Moscow today. Such relationships based on a similarity of objectives, centuries-old ties and the fruitful nature of the ongoing strategic cooperation will not only contribute to further strengthening of ties between Russia and France, but should also enable them to successfully exit the current global economic crisis as global pacesetters and also contribute to finding lasting solutions to the challenges currently facing humanity, which require joint efforts from all major international partners, such as those that currently exist between Moscow and Paris.