Ernesto Ferlenghi: 'The topic of sanctions is more complicated for Europe than Russia'
The director of the Association of Italian Entrepreneurs in Russia about his roots in Bashkiria, high unemployment in the Apennines and his upcoming visit to Tatarstan
A visit of a delegation of Italian entrepreneurs to Tatarstan was to take place on 20 September. The delegation consists of members of the Association of Italian Entrepreneurs in Russia Confindustria Russia. They were going to meet with Tatarstan President Rustam Minnikhanov, visit the Investment Development Agency and talk with representatives of Tatarstan businesses. In an interview with Realnoe Vremya on the threshold of the visit, President of the association Ernesto Ferlenghi told us about the model that is used to create Russian-Italian joint ventures, the link between the fall of Russian-Italian commodity turnover and anti-Russian sanctions and why he is called ''Russian Italian''.
''In 6 months of 2017, the commodity turnover between our countries has increased by 27%''
Your association has been created just recently, at the height of the action of anti-Russian sanctions, so to speak. Is there any link between these events?
We made a decision to create the association more than two years ago. The idea was quite simple. Our Russian partners told us that they needed ''one window'' that would enable them to reach a potential partnership with Italian companies within the new Russian import-substituting concept. Our advantage is that over 90% of Italian companies around the world are in our association. This is why we can offer our Russian partners a model that they use to look for potential partners or investors in Italy with our help.
Anti-Russian sanctions also were one of the reasons for the creation of the association. Probably the topic of sanctions is more complicated for Europe than Russia. If we look at certain Italian companies that have been working with Russia for more than 50 years, in numbers, their export losses have totalled about €7 billion since 2014. Italian export to Russia has considerably decreased. I can't say that sanctions are the cause. Of course, the fall of oil prices that reduced from $115-116 per barrel to $30 and the ruble rate's fall played their role. Russian companies started to invest in production less. Due to the growth of the euro and dollar rate, the price of Western equipment for Russian consumers has at least doubled.
President of the Italian-Russian Commercial Chamber Rosario Alessandrello said that Italy already lost €11-12 billion of export to Russia and 200,000 jobs because of the Russian counter-embargo.
True. In such conditions, we thought about the creation of an organisation that would not only provide support to Italian companies entering the Russian market but also work with Russian partners to maintain a favourable investment climate in the country and develop long-term, partnership contacts between business representatives of our countries and government bodies.
What is the commodity turnover between Russia and Italy like today? Is it reducing?
It reduced by 35% to $20 billion in 2016 in comparison with 2015. Russian exports to Italy also decreased by 45%. This happened because of the decline in oil and gas prices.
But if we analyse the latest data for 6 months in 2017, the commodity turnover between our countries has increased by 27%. Such a growth is linked with the better economic situation in Russia. GDP is growing, oil prices are stabilising. What is more, Italian businesses are not afraid of sanctions anymore, they adapted and continue working with Russian companies.
How many Italian-Russian joint ventures have been created in Russia?
About 60 ventures have been created recently. About 300 joint ventures worked in Russia before the imposition of sanctions. Then their number reduced to 150, and now they amount to 220-230.
Could you name the most successful Russian-Italian joint ventures?
A Russian-Italian joint metalwork factory Konar-Cimolai operates in Chelyabinsk. It is located at Stankomash industrial park. Speaking about big joint projects, it is a joint venture of Italian Eni and Rosneft. Now they have joint projects in the exploration and production of hydrocarbons and oil refining. These companies also fulfil joint projects in Egypt. It is a great example of business cooperation and development.
You talk with Italian entrepreneurs. What do they think of the anti-Russian sanctions?
The majority of businessmen doesn't understand these sanctions. They think the sanctions are unfair. Each time I go to Italy I am asked about life in Russia. Then, having visited Russia, Italians are surprised a lot when they see that business here is like across Europe. In answer, I say: ''Why did you think it was different?'' They reply: ''We read in the media that one is afraid of running a business in Russia.''
''The business becomes Made with Italy, not Made in Italy''
What do you think are the most prospective areas for economic cooperation between Italy and Russia?
Russian oil and gas supplies account for up to 45% of the Russian-Italian commodity turnover. Mechanical engineering has up to 40% of Italian exports to Russia. But big changes have happened in this business.
Italians and other Europeans used to produce equipment and export it to Russia. Now, this scheme is not topical. Now they need to work on another strategy. Foreigners need to localise their factories in Russia within the Russian import-substituting policy. The business becomes Made with Italy, not Made in Italy. Businesses gradually get used to this new model and understand that there is no other way back. The joint ventures that are created here work according to the new model by increasing the localisation rate. For instance, Tecnimont got the first contract for works at $4,3 billion. Minimisation of purchases in Russia is one of the conditions of the contract. The companies that offer not only more favourable prices but also localise their factories in Russia win tenders. But it would be good if the Italian companies that work here found a Russian partner to share risks. The Italian side can bring its know-how and knowledge to this partnership while the Russian one can help get the contract.
The Russian market is interesting for Western companies. I have never seen such tax concessions Russia provides for foreign investors. What is more, a foreign company starts to make equipment here and gets an opportunity to not only enter the market of Russia but also that of the Eurasian Economic Union, for instance, Belarus, Kazakhstan, Armenia and Kyrgyzstan.
Your association signed a cooperation agreement with the Russian Ministry of Industry and Trade. How will this document help Italian entrepreneurs?
I thank Minister of Industry and Trade of Russia Denis Manturov for signing this agreement. What does the ministry do for us? Not only a search for Russian partners for Italian companies is important for us. We need information about investment programmes that exist in Russia, volumes of planned investments. This is why a joint task force was created where ministries and associations were included. Workers of the Ministry of Industry and Trade help us understand how the Russian market develops, provide information about Russian regions, explain specifics of the Russian legislature. Our requests have never been denied. We also provide support to Russian delegations in a similar way when organising their visits to Italy. We hold meetings with local manufacturers. Apart from the Russian Ministry of Industry and Trade, we work with Opora Russia, the Association of Industrial Parks, Business Russia and other organisations. The Russian Investment Agency helps us a lot. It advises what financial support mechanisms Italian companies working in Russia can use. If needed, we turn to SACE Italian export and credit agency, use the services of other export and credit agencies. We work with not only Italian but also Russian banks such as VTB, Sberbank.
''Not only a search for Russian partners for Italian companies is important for us. We need information about investments programmes that exist in Russia, volumes of planned investments.'' Photo: minpromtorg.gov.ru
“We say: 'Come to Russia!'"
Italy has lost over 200,000 jobs because of the sanctions. Who suffered the most?
Italy lost jobs not only in factories in the northeast of the country that traditionally worked with Russia. Now they are closing. Those enterprises that can't assume how fast Russian demand for their products will be back. Quite a dramatic situation has arisen in Italy: the unemployment rate is 11,5%. The most terrible thing is that the unemployment rate among the young is high. In the category of people under 30 years, the unemployment rate reaches 37,5%. It outstrips average European indicators. The statistics show that it is not only young people who lost their job but also those who did not begin working. They don't often look for a job anymore. Such a picture is a characteristic of southern Italy. This situation needs to be changed, reforms are needed for it. Now attempts to overcome the negative trend are made. The latest data says that the country's economy starts to recover for the first time in a while. But we also continue losing a lot. In terms of GDP, we have returned to the level we had over 15 years ago.
Where do Italians go to look for a job?
Our country got used to migration. After the war, many Italians migrated to South America. Today up to one-third of the citizens of Argentina are my former compatriots. There are many Italians in Australia. Later, they started to emigrate to not such remote countries, for instance, to England. But England has changed after Brexit. And the attitude to Europeans has changed there.
Do Italians go to Russia?
In Italy, Russia is the third most popular language. People learn it more often except English and French. This is why we say: ''Come to Russia!'' In our association, we started to sign agreements with Italian universities. First of all, with those that study the Russian language. We offer lads who graduate from universities in Italy to do an internship. We want them to continue working in Russia. Now there are hundreds of talented Italians who are ready to study and work in Russia.
How many Italians have already come?
About 50-60 people in the last year. They mainly have an internship here after institute or university. We try to help them here, though we don't receive any support from the Italian government. And our activity is based on the payments made by association members while the association's president doesn't receive any salary. We can say we do our duty for the Italian and Russian business. I am sure that Russia and the Russian people are unique. We need to improve the relations together.
''The experience that foreigners use in Russia can be very useful''
The share of small businesses in GDP in Italy reaches 75%. In Russia, it is three times smaller. How can such a big share of small and medium-sized businesses in GDP be explained? Does Italy have good conditions for entrepreneurs?
Geographically, our small cities are close to each other. And entrepreneurs used a cluster principle when creating their own business: in other words, certain spare parts were made in different cities that could be then used in one production. It allowed optimising costs in logistics, investments. And such enterprises don't compete but complement each other. By the way, Tatarstan's economy also uses the cluster principle. As for different concessions, there are very low interest rates for entrepreneurs in Italy, just 2,79% a year. Also, there are measures that free from a part of taxes if the enterprise increases the number of jobs.
Although taxes for businesses in Italy are much higher than in Russia, they are 43-45%. And if a company has been created recently, the state pays part of these costs. An interesting scheme was created for small companies whose commodity turnover doesn't exceed €5 million. They can use the support of the guarantee fund that provides them with a bank loan guarantee.
''Taxes for business in Italy are much higher than in Russia, they are 43- 45%. And if a company has been created recently, the state pays part of these costs.'' Photo: vne-berega.ru
There is another novelty. Now entrepreneurs send all the information about a company — articles of association, constitutional documents, financial documents — to state agencies via e-mail. And every state structure must accept these documents via e-mail and reply within an established term. It is a new and unique approach for Italy.
You have been living in Russia for 20 years and you are already called “Russian Italian.” How did you come here? Was your road as a businessman in Russia difficult?
It is quite an interesting story and maybe topical because historical links between our countries don't break even if somebody wishes it. In Italy, the Communist Party has always had firm positions. My granddad was a partisan and my dad became a communist. As my dad came from a poor family and could not pay for his studies, he did not miss the chance when the party offered him to get a free education in Russia. But it was difficult to go from Italy to the Soviet Union. There were not any bilateral relations between educational establishments of Russia and Italy. And it was difficult to prove that my dad was really going to the remote country to get a higher education. But the Communist Party found an original solution. The future students were sent to Switzerland by train. Then a group of 10 young lads reached the Baltic states and turned out in Moscow then. In addition, they said they were an Italian sports team. My dad got married in Russia, my mum is from Bashkiria. After the studies, my parents decided to return to Italy. One of my sisters was born in Russia, the second sister and I were born in Italy.
But the links with Russia have survived. As a kid, I was in Soviet camps for children. As an adult, I travelled across the Soviet Union a lot. I have always considered Russia a unique country — big, united, mighty. In Italy, I studied at Tor Vergata University of Rome in the Faculty of Mathematics, Physics and Natural Sciences, got a degree in Physics. In 1995, I was offered to chair a TACIS project (Technical Assistance for the Commonwealth of Independent States) in Azerbaijan. Although I had a degree in Physics, at that moment I felt I needed to run a business. It is difficult to make a career at an Italian university. One needs to spend 15-20 years to become a professor. And scientists' salaries are not high. In the late 90s, I started to work in Russia. My life has been linked with Italian oil company Eni for almost 20 years. I worked in the Moscow representative office first, then as a regional director in Kazakhstan. From 2005 to 2014, I chaired the representative office of Eni in Russia and CIS countries, I was Eni's vice president. I have been a senior advisor to Eni Group on Russia since April 2014.
Since December 2008, I have been a board member of FGC UES as an independent director. I was the chairman of the board of directors of this company. It was a unique experience for me, I met a big number of talented people and always tried to offer ideas for further development of the company. I dealt with tenders, procurement. I think the experience that foreigners use in Russia can be very useful. Businesses of different countries continue having a constructive dialogue with Russian companies anyway.
''Tatarstan is recognised as one of the most economically developed regions of Russia''
Back to your visit to Tatarstan. Why was precisely our republic chosen by Confindustria Russia for visiting?
Tatarstan is recognised as one of the most economically developed regions of Russia. The support that they can get here attracts businesses. When speaking about the Republic of Tatarstan, Italian entrepreneurs have a very positive reaction. Let's speak about the information about the region. All the information about the development of the republic's economy, its investment projects are available on the republic's page. Contacts of all the key figures are provided. And as far as I managed to note, the Tatarstan president is a very active businessman.
What is the commodity turnover between Italy and Tatarstan like now?
It was $2 billion several years ago. But last year, it reduced to $650 million. The republic has about 20 joint ventures in the agricultural and industrial sector, production of oil and gas equipment and other sectors.
Who is going to come with you to Tatarstan?
The list of business people who would like to visit your republic was very long and did not have space for everyone who wished. Unfortunately, we had a limited number of delegation members. Oil and gas equipment manufacturers, oil and gas processors, construction and engineering companies including those that build health facilities will come — about 15 companies in total. The programme of the visit includes a meeting with entrepreneurs of the republic and visit to the Tatarstan Investment Development Agency besides the meeting with the Tatarstan president.
We want this meeting to become the first but not the last. I won't reveal the secret but I will say that over 60 prime ministers have changed in Italy in 55 years. We change the government almost every year. The political stability in Russia is a guarantee of stability of further commercial and economic cooperation with your country. Game rules for business are clear here and allow Italian entrepreneurs to feel comfortable. Many people in the world associate Italy with an excellent culture, fashion, cuisine. Yes, they are our forte. But we also produce high-quality equipment, have advanced technologies and knowledge that is needed for the creation of a successful business. We want to share it with Russian companies and build our common future together. I hope Europe will understand soon that Russia is its part and it has always been. We should not forget those victims that Russia had during WWII while freeing the world from Nazism. We live thanks to it. Italians love Russia. We will try to prove it during the visit to Kazan.