Relations between Spain and Russia: The Best is Yet to Come

Santiago Iñiguez. Dean. IE Business School

12 April 2011

There is a plethora of opportunities in Russia for Spanish companies in sectors that include renewable energies, infrastructures, finance, telecommunications, tourism, and even real estate.

Most Spaniards have a superficial knowledge of Russia based on cultural aspects such as literature, music or ballet. Similarly, the vision most Russians have of Spain is limited to Spanish folklore and cultural clichés, the most oft cited being Don Quixote, flamenco and the positive aspects of our climate and cuisine. Such superficial knowledge of other countries perhaps represents the first phase of globalisation: we draw on stereotypes, reports and quick guides which provide an incomplete, biased vision of other nations. In the specific case of Russia and Spain mutual ignorance is justified to a certain degree by the distance between the two countries, which are located on opposite sides of Europe. Moreover meagre trade relations were initiated only 30 years ago and are significantly less developed than the relations Russia maintains with other European countries, or even European regions.

The recent histories of Russia and Spain have interesting parallels. The autocratic regimes of both countries have evolved into democracies, and both have had to adapt their political and institutional structures, promote economic modernisation, and tackle the threat of terrorism. These similarities have possibly contributed to a greater understanding between representatives of both countries. According to political and diplomatic sources, relations between the countries are excellent, as evidenced by the empathy in recent bilateral meetings which resulted in the signing of a strategic partnership agreement between Spain and Russia during President Medvedev’s visit to Spain in 2009.

Furthermore, Rodriguez Zapatero’s government has given its firm backing to the transformation of the “Partnership & Cooperation Agreement”, which had governed relations between the EU and Russia since 1997, into a new, and more ambitious agreement entitled “Partnership for Modernization”, aimed at boosting economic, political, and cultural integration as well as integration in the field of security.

“Russia-Spain 2011”’ affords an excellent opportunity to understand each country more deeply and develop business relations. In addition to intense diplomatic exchange which will take place in the coming months, and the organisation of cultural activities, it is essential to promote business and trade relations. One of my firmest convictions is that the thing which most unites different countries, which best promotes convergence, integration and global understanding, is good business. Difficulties in the arena of international politics are resolved via great trade initiatives. The best antidote for the clash of civilisations is the launch of new enterprises and multinational business ventures. That is why the programme for the Russia-Spain Year features bilateral meetings between businesspeople – a golden opportunity to explore common interests and seek appropriate institutional support. New joint ventures will bring Spain and Russia closer together.

The Russian economy is tenth in the world in terms of wages, with an average GDP growth in the past decade of close to 6%. It has now consolidated itself as a key component of BRIC. However, growth is expected to slow to an average of around 4% over the next two years. President Medvedev has announced plans to launch a series of measures to boost growth in order to come closer to the 8% threshold of the BRIC cluster, including the opening and liberalising of various sectors, investment in major infrastructure programs, combating fraud and corruption and a commitment to high value-added sectors such as new technology and telecommunications. It also aims to encourage the creation of strategic alliances between companies in Russia and other countries, with the aim of developing projects in strategic industries.

President Medvedev has sent interesting signals over the last few months regarding the development of a culture of transparency and legal security in Russia. In recent interviews and speeches, he emphasizes the centrality of democracy and the independence of the judiciary, which his government has fostered by raising judges’ salaries and establishing stiffer penalties for corruption. He also stresses the importance of legal culture governing the business world and a respect for contractual relations. Although this may seem normal in other countries, in Russia it is not so clear cut, as it did not come under the area of influence of Roman law or nineteenth-century codification which was characteristic of the rest of Europe. It is significant that Medvedev, at 45, is one of the youngest political leaders in Europe. He lectured in Civil Law at the University of St. Petersburg, and wrote the first manual about the subject in the post-communist era, which is still used by students. Certainly, things have changed in Russia compared to the situation ten years ago, and even though cultural change requires long implementation cycles, the current circumstances show a gradual improvement in conditions related to transparency and certainty to be able to conduct business.

It is interesting to note that key priority sectors for investment in Russia include infrastructure, telecommunications, energy and finance. Several Spanish companies, regardless of their size, can explore development opportunities in these sectors and identify initiatives for geographical and operational diversification.

For its part, Spain is also an interesting destination for investment by Russian companies, although present circumstances may seem adverse. The Zapatero government is doing its homework and pushing for reforms on several fronts, which will have a significant impact in the medium term - improving taxation, productivity and workforce flexibility, which in turn will provide opportunities for foreign entrepreneurs. In fact, good business opportunities for Spain are already being discussed among investors who anticipate an improvement in the economy in the medium term, once the Eurozone has stabilised.
In addition to potential synergies which may arise in sectors such as energy, where Russia is the champion in energy reserves and Spain the pioneer in renewable energy, or construction and infrastructure, where Spain boasts some of the more established multinationals, in the areas of finance and telecommunications, opportunities may also arise for partnerships in tourism, food, or even the much-maligned real estate sector. Spain is the “California of Europe”, and it would be a mistake to confuse funding issues faced by Spanish public and private institutions with the true value of Spanish real estate assets in the medium and long term. Actually, there is more synergy in business opportunities between both countries than the obvious ones. It is entirely possible that in the field of trade relations between Russia and Spain the best is yet to come.

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