Expert Corner with Klaus Mangold: Germany is Russia's natural modernization partner

Between July 13-15, 2010, German and Russian business leaders, NGO representatives and politicians met in Yekaterinburg for the 10th Petersburg Dialogue.  Modern Russia talked to the head of the German industry delegation, Klaus Mangold, who chairs the "Committee on Eastern European Economic Relations" (the main organization representing German businesses active in Eastern Europe, Russia and Central Asia), about the Dialogue, Russia-Germany relations and the government’s modernization strategy.

The global economic crisis had a severe impact on trade relations between Russia and Germany: Russian exports to Germany fell around 33 percent in 2009, and German exports to Russia more than 35 percent. Since then, however, the global economic situation has improved. What is the outlook for bilateral economic relations this year?

Following the global economic and financial crisis, Russia will regain its footing faster than expected. Current forecasts predict growth of 4 to 7 percent in 2010. The economic recovery will also have a positive effect on German-Russian trade. I hope that we can soon match the record year of 2008 when we had a trade volume of €68 billion.

The Russian government has embarked on a comprehensive modernization strategy which aims to transform and diversify the Russian economy by promoting innovative sectors and attracting foreign investments. Where do you see the role of business in this process, and particularly the role of foreign businesses?

For years, Russia’s growth has been driven by increasing revenues from oil and gas exports. The current recovery should not hide the fact that Russia’s competitiveness has decreased over the past 3 years. The country must overcome its huge dependence on commodities trade and develop an innovative middle class if it wants to assert its position among the BRIC countries. Because of its industrial strength, Germany is the natural modernization partner for the Russian industry.

More specifically, what do you think of proposals geared to foreign investors recently announced by the Russian government, including abolishing capital gains tax for long-term investment and easing the visa regime for highly-skilled foreign workers?

The better conditions are for foreign investors in Russia, the more know-how the country will attract. In this regard, there is still need for improvement, including on the visa issue. In the long term, the EU and Russia should work towards the mutual abolition of visas. It is also important that Russia changes the complex registration requirements for foreigners. All our surveys show that this, in addition to customs problems, is the biggest source of annoyances.

What other obstacles remain to taking German-Russian, and more generally EU-Russian, business relations to the next level? How can they be overcome?

Investors need legal security. Strengthening the rule of law in Russia therefore remains an important challenge. This also includes the fight against corruption. President Medvedev has made both issues a priority for his presidency. In addition, we need a quick entry for Russia into the WTO – something which is long overdue. This would create more reliability for foreign investors and would certainly trigger an investment boom.

Russia and the EU recently launched a “Partnership for Modernization,” identifying a number of common challenges to be addressed through a joint, cooperative approach. What do you expect from this partnership? What are the most promising sectors for cooperation? 

The EU modernization partnership in fact takes its lead from German-Russian co-operation. Here, we have already been speaking of a modernization partnership for some time now. For me, a modernization partnership is a concentrated collaboration in growth sectors. This includes renewable energies and the issue of energy efficiency, but also the car industry, the health industry and agriculture, where Russia possesses enormous potential. The Skolkovo project near Moscow, where an ideal infrastructure for high-tech companies will be created for more than €3 billion, is also very exciting. Certainly, German companies will participate in this project, too.

Founded in 2001, the St Petersburg Dialogue is one of the most important civil society platforms linking Germany and Russia. What have been its main achievements so far? And how can the Dialogue - and civil society in general - contribute to achieving the goals of the Russian-European Partnership for Modernization? 

In the past, contacts between Russia and Germany were always highly political. The Petersburg Dialogue made it a matter of course. Perhaps, this is its biggest merit. Over the years, networks have been created and further strengthened. The best example is the foundation for German-Russian youth exchange an idea that came from the Petersburg Dialogue and was implemented thanks to industry funding. Through the foundation, we put thousands of teenagers from both countries in touch with each other every year. In the future, this will bear rich fruit for the social and economic development of both countries.