Friday, 19 October 2007

Irish lead a second eastern front

Russia’s economy is now picking up again less than a decade after the stockmarket crashed and the rouble hit rock-bottom levels. And, as Jason Corcoran discovers, some of the Celtic Tiger’s best business brains are helping the Russian Bear back on its feet

To Russia with love Irish players: (from below right to left) Sean Quinn bought his first shopping centre in Russia, Derek Quinlan is developing a 100,000 atrium on Nevsky Prospekt, Chris Weafer is chief strategist at Russian bank Uralsib, Minister for Trade and Commerce John McGuinness and John Ronan of Treasury Holdings have two major developments in St Petersburg.

Irish Independent

By Jason Corcoran in Moscow

Thursday October 18 2007

Moscow-based Irish businessmen still have nightmares about the 1998 financial crisis when the rouble collapsed, the fledgling stock market crashed and the government defaulted on its bonds.

The resulting meltdown sent most of them fleeing to Moscow's Sheremetyevo Airport. Nine years later, the Irish are coming back tempted by Russia's consumer spending boom, a fast-growing middle-class and a more stable economic and political climate.

In the 1990s, Irish investors were some of the foremost pioneers during Russia's new era of perestroika. Aer Rianta forged the way by opening duty-free shops, bars and hotels in Moscow through a joint venture with the Russian airline Aeroflot. Many small to medium sized enterprises, involved in everything from hairdressing to butchering, followed to take a chance in what they called the "Wild East".

Mike Hogan, Enterprise Ireland manager for Russia and the CIS, is witnessing a new wave of Irish businessmen arriving in the capital on his second stint in the country.

"The first influx in Russia in the early 1990s resulted in a high number of Irish living and working in Moscow, but this probably reflected the then moribund nature of the Irish economy, where our chief export was still our people," he says.

"This second wave reflects a different Ireland, where our chief exports are now our capital and our world class products and services.

At the vanguard

"While there may be fewer Irish on the ground in Russia today than heretofore, their presence is much more tangible."

In the vanguard of this new influx are Ireland's richest men and their property development operations.

Ireland's wealthiest man Sean Quinn last month forked out an estimated $150m (€106m) to buy his group's first shopping centre in Russia. The new 120,000 square metre Avrora Centre in the Urals city of Ufa is scheduled to open later this year and follows a number of other high profile investments in Russia by Quinn.

Quinn Property Management is the most prominent Irish investor in Russia having spent some €100m on a chain of DIY hypermarkets, as well as €75m on a logistics park.

His group has also completed office projects in Moscow and the Ukrainian capital of Kiev and is also constructing large-scale logistics projects in Moscow, Rostov-on-Don and Kazan. The Caspiy Centre, a six-storey business block near Moscow's main airport, is due to open in the middle of next year.

A spokesman for Quinn said: "Overall, the group operations in Russia and Eastern Europe are proving very successful with a strong pipeline of high-quality projects coming down the line."

Quinn's investments in Russia alone are believed to amount to €2bn. The group declined to comment.

John Ronan and Richard Barrett's Treasury Holdings have two major developments underway in Russia's second city St Petersburg, a plush golf complex costing €200m and a €500m residential scheme for over a 1,000 homes in the grounds of St Catherine's Palace.

Quinlan Private, the wealth management group headed by former tax inspector Derek Quinlan, is developing a 100,000-square-foot Atrium on St Petersburg main street Nevsky Prospekt with its US partner Golub & Company.

Ireland's a major player

Property developer Paddy Kelly is always mentioned as a potential major player in the Russian market but sources close to Kelly say that while Russia is one of the countries he looks at, his interest is still very preliminary.

Irish direct investment into Russia is now leapfrogging much larger countries.

Russia's Economic Development and Trade Minister Elvira Nabiullina last week told Irish ambassador Justin Harman that Ireland was the 12th largest inward investor to Russia in 2006.

Rosstat, the federal statistics service, indicated that this position has improved further with Irish investors pumping around $2bn (€1.5bn) into Russia during the first quarter of this year. This puts Irish investment at $4.4bn, placing it sixth in the list of countries who have invested in Russia.

Minister for Trade & Commerce John McGuinness was in town last month for a trade mission to help strengthen and create new commercial ties between the two countries.

McGuinness said: "This is my first visit to Russia and it certainly feels like home. Signs of affluence and progress everywhere ... the traffic jams are spectacular, even better than the ones we have in Dublin. Perhaps the length of the traffic jams should be one of the measures of success of an economy."

The government had identified opportunities for Irish companies in IT healthcare and pharmaceuticals, construction, engineering and the service sector, according to McGuinness.

The Minister spoke at a reception to announce the launch of the first direct flight between Dublin to Moscow. Russian airline S7 is to start flying to April next year in response to what it claims is growing demand from businessmen and tourists in both countries.

Russia is the world's largest producer of natural gas and one of the world's largest oil producers. It is currently the EU's largest provider of natural gas and this is a situation which it set to expand.

In the near future, Ireland will be more dependent on Russia as a key supplier of gas and oil, and as substantial provider of metals and raw materials.

As a quid pro quo, Ireland may be expected to help Russia's campaign to join the World Trade Organisation and ease its often fractious relationship with EU member states.

Some Irish companies have acquired industrial branches in Russia.

CRH's purchase of Scancem's operations in Eastern Europe gave them ownership of two readymix cement operations in St Petersburg while Smurfit Kappa owns a factory just outside the city.

Irish-registered oil and mineral exploration companies Aminex and Celtic Resources also have sizeable operations in Russia.

Irish businessmen and women have penetrated high echelons of Russia's corporate boardrooms in key sectors such as oil and gas and banking. Michael Madden, a Tipperary man, has built up Russia's third largest consumer lending business from scratch in four years. As chief executive of Renaissance Capital Consumer Finance, he presided over a business of 3,800 employees, with 2.5 million customers in 60 regions throughout Russia

Madden was instrumental in setting up American Express's first operations in Russia and first encountered President Putin in 1993, when he registered the credit card business in St Petersburg.

"Mayor Sobchak was hogging all the limelight during the Goodwill games at the time and Putin was his deputy. He was pretty impressive then but I never thought he would one day rule the biggest country in the world," says Madden, who is now working on new Russian projects.

Former Irish Life fund manager Chris Weafer is one of Moscow's most recognisable bankers through his frequent appearances on television and in the financial press. Weafer is chief strategists at Russian bank Uralsib, which he joined after a decade at rivals Alfa Bank and Troika Dialog.

Avril Conroy is one of a handful of expats to have made an impact in Russia's energy industry. She is general director of oil major BP's retail venture in Moscow and also chairs the Irish-Russian business association.

"This is a fantastic place to do business and it's getting better all the time in terms of the corruption, bribery and the red tape which used to be commonplace. I have been here 14 years and I am here as long as someone else can't do my job," says Conroy.

Further afield to Kazakhstan, Eddie Walshe, an Irish oil veteran with 35 years experience in oil and gas at BP and British Gas, was last year appointed as a director to the board of state-controlled energy giant Kazmunaigas before its listing on the London Stock Exchange.

Almost 30 years of business links with Moscow

Ireland's business links with Russia stretch back to the 1980s when the government started allowing the Soviet airline Aeroflot to use Shannon as a fuel stopover for trans-Atlantic jets.

A joint venture in duty free between Aer Rianta, the Irish Airport Authority and Russian state airline Aeroflot ensued.

Today, Aer Rianta still runs a profitable duty-free business with its Moscow Aerofirst operation consisting of duty-free shops at Sheremetyevo-2 international terminal, the Irish bar and onboard stores.

In 1991, Aer Rianta branched out by setting up the Soviet-Irish Trading Company (SITCO) with a local construction company. The partnership ran a number of supermarkets, a software company, a clothes retailer and Moscow's first Irish bar.

But SITCO struggled against increasing competition and it gradually turned into a loss-making operation. Aer Rianta sold out, with the Russian co-founders accusing the Irish partner of mismanagement.


Mike Hogan of Enterprise Ireland remembers the impact: "The small to medium-sized enterprises, who arrived on the back of Aer Rianta, got stung. That stuck in the local psyche of the investors from Clare, Tipperary and Limerick and they told others back home about big, bad, mad Moscow."

Despite Russia's thriving economy, Hogan says the Irish still have misconceived notions.

"There is a huge information void about Russia. People are still focussed on food queues," he says. "Someone coming from Dublin asked me recently if they should bring only dollars and whether ATMs or mobiles worked here."

Patrick O'Dolan, chief executive of broadband wireless company Moscom, is one survivor of the 1998 financial crisis who is now thriving again.

He was involved in the paging business employing 220 Russians. Within a week of the market's collapse, he was forced to pare back his staffing.

Today, O'Dolan provides wireless services to Moscow's big hotels. He also recently launched an office space provider competing with Regus and an internet cafe located next to Russia's first Starbucks in Ikea's Khimki Mega Mall.

"I have been there, got the t-shirt, lost it and own it back again," he says.

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