Why do business in Moscow?

Source: Exec Digital UK

Date :08/04/2008 15:07:46

In a new series, Exec examines the pros and cons of the world’s leading business destinations. First up, it’s Moscow, at the heart of Russia’s unique brand of accelerated capitalism.

By Sam Wright

Moscow’s stock has never been higher. With the Iron Curtain well and truly down and the Rouble crisis due to celebrate (if that’s the right word) its tenth anniversary later this year, the city has firmly left its Soviet-era image behind. In fact, it has created a whole new one to replace it, where oligarchs and swish new redevelopments exist alongside a booming shadow economy.

And as you would expect from a city that has the worlds largest number of billionaires - 74 to New York’s 71 and London’s 36 - there’s extravagant wealth on display. Moscow has profited most of all from the upturn in Russia’s fortunes, thanks to a quirk in which corporate taxes are paid to the local governments in which the firms hold their headquarters. With most of the country’s big energy players - including Gazprom - based in the capital, it has arguably claimed a disproportionate amount of its natural resource success.

Like most of Russia, there’s a fierce patriotism that’s hard to miss, so on a practical level be careful of making criticisms until you are sure that your associate agrees. Corruption, bureaucracy and contract killings are definitely not subjects to broach early on in a meeting.

Positives Moscow prides itself on being a focal point for world business and it’s hard to deny its credentials. All the big multi-nationals are present and correct, including Goldman Sachs, Merrill Lynch and Lehman Brothers. There’s also the Moscow International Business Centre. Admittedly, it’s not expected that this massive one kilometre square development will be finished until 2020, but the $12 billion program is an accurate indicator of the country’s ambition.

At a more immediate level, there’s also a hugely appealing flat personal income tax rate of 13 percent, which is, according to a Mercer Human Resource Consulting survey, the second most attractive personal tax system in the world after the UAE.

Foreign investment is, broadly speaking, doubling year-on-year, and while the focus is unashamedly on large enterprise, the Russian Government is beginning to encourage small and large business. It’s worth remembering that trade in Moscow is not just confined to oil and gas either. Outside the natural resource sector there are also strong machine building and chemical industries, particularly in synthetic plastics, rubber resin and tires. There’s also, unsurprisingly, a booming luxury goods market, including the Millionaire Fair, ‘the largest exhibition of goods and services offered by the world luxury industry’, as well as a healthy technology sector.

Negatives Getting in can be difficult enough. All visitors to Russia need an official invitation, either personal or business. Both are time-consuming - and the latter expensive – and give a taster of the bureaucracy that can be expected to follow. Remember that it is obligatory to carry your passport with you at all times…

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