Ernesto Ferlengi: ''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 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 Italian Entrepreneurs in Russia Confindustria Russia. They were going to meet with Tatarstan President Rustam Minnikhanov, visit the Investment Development Agency and talk to representatives of Tatarstan business. In an interview to Realnoe Vremya on the threshold of the visit, President of the association Ernesto Ferlengi told 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 in 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 said to us that they needed ''one window'' that would enable them to reach 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 reason for it. Of course, the fall of oil prices that reduced from $115-116 per barrel to $30 and the ruble rate's reduction 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 grown at least twice.
President of the Italian-Russian Commercial Chamber Rosario Alessandrello told that Italy already lost €11-12 billion of export to Russia and 200,000 working places because of the Russian reciprocal embargo.
It did. 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? Is it reducing?
It reduced by 35% to $20 billion in 2016 in comparison with 2015. Russian export to Italy also decreased by 45%. It was linked with the reduction of 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 business is not afraid of sanctions anymore, it adapted and continues working with Russian companies.
How many Italian-Russian joint ventures have been created in Russia?
About 60 ventures have been created in the recent time. About 300 joint ventures worked in Russia before imposing the 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 factory making metal constructions Konar-Cimolai works in Chelyabinsk. It is located in Stankomash industrial park. Speaking about big joint projects, it is a joint venture of Italian Eni and Rosneft. Now they have joint projects in exploration and production of hydrocarbons and oil refining. These companies also fulfil joint projects in Egypt. It is a great example of cooperation and development of the business.
You talk to Italian entrepreneurs. What do they think of 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 in all 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.''
''Business becomes Made with Italy, not Made in Italy''
What are the most prospective areas for economic cooperation of Italy and Russia, in your opinion?
Russian oil and gas supplies account for up to 45% of Russian-Italian commodity turnover. Mechanical engineering has up to 40% in Italian export to Russia. But big changes have happened in this business.
Italians and other Europeans used to produce equipment and exported 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. Business becomes Made with Italy, not Made in Italy. Business gradually gets used to this new model and understands that there is no other way back. The joint ventures that are created here work according to the new model by increasing the localisation level. For instance, Tecnimont got the first contract for contractual work 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 – help get the contract.
The Russian market is interesting for western companies. I have never seen such tax concessions that 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 – Belarus, Kazakhstan, Armenia and Kyrgyzstan.
Your association signed a cooperation agreement with the Russian Ministry of Industry and Commerce. How will this document help to Italian entrepreneurs?
I thank Minister of Industry and Commerce of Russian Denis Manturov for signing this agreement. What does the ministry do for us? Not only 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 working group was created where ministries and associations were included. Workers of the Ministry of Industry and Commerce help us understand how the Russian market develops, provide information about Russian regions, explain specifics of Russian legislature. Our requests have never been denied. We also provide support to Russian delegations in a similar way while organising their visits to Italy. We hold meetings with local manufacturers. Apart from the Russian Ministry of Industry and Commerce, we work with Opora Russia, 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 services of other export and credit agencies. We work with not only Italian but also Russian banks – VTB, Sberbank.
''Not only 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 working places because of the sanctions. Who suffered the most?
Italy lost working places not only in factories in the north-east of the country that traditionally worked with Russia. Now they are closing. Those enterprises that can't presuppose how fast Russian demand for their products will be back. Quite a dramatic situation has arisen in Italy: the unemployment level is 11,5%. The most terrible thing is that the unemployment level among the young is high. In the category of people under 30 years, the unemployment level reaches 37,5%. It passes average European indicators. The statistics show that they are not only young people who lost their job but also those who did not begin working. Often they don't look for a job anymore. Such a picture is a characteristic of southern Italy. The arisen situation needs to be changed, reforms are needed for it. Now attempts to overcome the negative trend are made. The latest data say 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 level, 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 1/3 of 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, Russian 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 guys who graduate from universities in Italy to participate in 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 of 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 perform our duty in front of the Italian and Russian business. I am sure that Russia and Russian people are unique. We need to improve relations together.
''The experience that foreigners use in Russia can be very useful''
The share of small business in GDP in Italy reaches 75%. In Russia, it is three times less. How can such a big share of small and medium 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 to optimise costs in logistics, investments. And such enterprises don't compete but complement each other. By the way, the 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 working places.
Although taxes for business in Italy are much higher than in Russia – at 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 guarantee in bank loans.
''Taxes for business in Italy are much higher than in Russia – at 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 bodies 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 Communist. As my dad came from a poor family and could not pay his studies, he did not refuse 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. Future students were sent to Switzerland by train. Then a group of 10 young guys reached Baltic states and turned out in Moscow then. In addition, they said they were an Italian sports team. My dad 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 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 the University of Rome Tor Vergata in Roma in the Faculty of Mathematics, Physics and Natural Science, 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 a 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 on Russia in Eni Group since April 2014.
Since December 2008, I have been a member of the board of director of FGC UES PJSC as independent director. I was the chairman of the board of directors of this company. It was unique experience for me, I met a big number of talented people and always tried to offer ideas for further development of the company. They were connected with participation in tenders, procurement procedures. 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 right 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 business. 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 mentioned. 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 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 businessmen 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 who build health facilities will come – about 15 companies in total. The visiting programme 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 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 so. 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.