The age of sanctions for Russian capital in Latvia?

Relations between Latvia and the Kremlin have been as chilled as the frosty wind on the street. What do investors from Russia doing business here think and how do they feel about the geopolitical pressures affecting their activities and plans?

In the pre-election campaign season a candidate later elected to the 12th Saeima declared: in light of the external political circumstances it would be prudent to set a complete moratorium on investments from Russia. So as not to create new threats to security.

So presumably this beginner-politician drew a relieved sigh of satisfaction when the media reported on the stalled rebirth of the meat processing plant Triāls or the Valmiera technopark development project helmed by Gazenergostroj president Sergey Chernyin. The reasons for the interruption given were both the general political climate but more specifically – the ban on imports of food products from the EU by Russia (as the main export market for the sausages should have been the great neighboring market to the east).

Banks with questions

Not long before the decision to halt the projects, Chernyin himself told regional Russian-language newspaper Biznes&Baltija: “If the geopolitical situation affects relations with specific Russian investors simply because they’re from Russia, then we would likely exit these projects and just sell it all.” He then further pointed out:

“Banks with Scandinavian roots have begun posing some odd questions – like, regarding my positions as to the situation in Crimea.”

However, LSM was unable to ascertain any of the businessman’s plans for the technopark or about attitudes among the respective Latvian and Russian public and private structures with regard to his business interests. The otherwise loquacious Chernyin simply declined to respond to such questions.

As far as can be concluded, the Scandinavian banks’ sudden wave of curiosity is no unique event. On the condition of anonymity, another source among Russia-based owners of Latvian enterprises shared an almost identical episode with LSM. It is possible that such surreal coincidences are not widespread, as no other investors or high-level managers of companies with significant Russian capital have come forward with any such stories.

Russian “Pobeda” in Ventspils

Co-owner Andrej Muravjov of the limited liability company Pobeda Confectionery (set to launch a chocolate line in mid-2015, employing a staff of 75 in Ventspils) told LSM: “It’s a complicated political situation right now, a lot of propaganda from many sides, yet we understand that at regional government, local government authority, small- and mid-size business levels nobody is interested in confrontation, all want the same single thing – a diplomatic resolution, the renewal of cooperation and development.”

He denies ever having felt a negative attitude towards him from official or private partners or regulating authorities in either Latvia or Russia.

However his activity in Latvia has only just begun, whereas one of the owners of fish-processing plants Kolumbija Ltd and Roņu 6 (according to public records, employing together more than 350 people), former Muscovite now relocated to Liepāja Igor Krupnyik has been here a long time now.

He could draw some deeper comparisons, if there were any to be made: “In Latvia I have not felt absolutely any changes. At least not among the level of people and organizations with whom I have dealings.”

“In our city we are dealt with in a very tolerant way, despite Kurzeme being, as I understand, a most passionate region of the land, nationally-speaking. From the state structures everything is in order, too. On the other hand, as long as we’re operating properly and paying taxes, why start acting suspiciously towards us?”

On the Russian side, however, the attitude has indeed changed – of course not against Krupnyik personally, but towards Latvian (and European) companies in general. In every respect, according to this seafood-sector entrepreneur, a fully laden cargo of product shipped there used to pass customs in three or four days. Now the whole cycle is taking longer than a week, he claims.

“The controlling authorities no longer have their formerly favorable demeanors. The inspections have gotten more strict, the procedures more time-consuming,” he said.

The Latvian Trade and Manufacturing Chamber affirmed to LSM that some of its members have begun to lodge complaints about logistics problems with regard to exports to the east.

Baltic Crystal, in the words of board member and minority shareholder Andrey Mihailov, doesn’t even trade with Russia and therefore neither the breakdown in its multilateral relations nor the plunging-ruble crisis have affected the factory.

Mihailov’s holdings besides the multi-crystal sapphire-maker Baltic Crystal began with Dobeles Dzirnavnieks grains-processor, the recipient of an income-tax gratuity for large-scale investments (according to creditweb.lv, in 2013 its assets exceeded €9.5m, of them €7.8m in equipment).

A safe harbor

Spokesmen for banks with founding capital comprised of Russian investor assets also affirm: the sector regulator and official structures have not shifted their attitudes in any way, or begun to show signs of looking more suspiciously now at them than before.

“I’ve felt nothing negative with regard to our prime shareholder being a citizen of Russia, heard of no such thing. On the contrary – the fact that we have an international team here, based on reviews, has been received most favorably. But all in all, dealing with official business, the agents care about the quality of the banking service, not the citizenship of the owners,” Norvik Banka president Oliver Bramwell told LSM (owner Grigory Guselynykov has more than €62m sunk into this growing financial institution).

In the words of Bank M2M Europe chief executive Robet Idelson (formerly Latvijas Biznesa Banka, owned solely by Andrey Vdovin), the current situation is perhaps even competitively advantageous, as instability in Russia prompts the wealthy citizens to actively seek safe harbors, one of which happens to be Riga.

Yet none of this means there isn’t some effect felt by Russian business interests in Latvia as a result of the chilling slippage of affairs between EU and Russia, with its specific economic problems.

In the end, Russian capital in Latvia is experiencing the same difficulties as purely locally-based enterprises, which one way or another are dependent upon our eastern neighbor.

So, for instance, dairy-processor Food Union (largest shareholder – Andrey Beshmelynycy) has the bulk of its product under the influence of the embargo, the same crisis felt by multi-sector food group Daugava (67% owned by Gogoļ-Mogol Dva), which with many other companies is suffering from the fall in the value of the ruble.

But, as one of LSM’s surveyed business owners remarked, the worst effect by far upon business is the sense of absolute lack of preconception as to how the situation will develop further, when everything is entirely in the hands of the politicians.

 

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Economy
Economy