Lord Mayor of the City of London: Making Moscow a financial center

By the time I come to the end of my year-long term as the Lord Mayor of the City of London, I will have spent almost 100 days overseas; visiting countries and financial centers identified as key target markets by leading City firms, promoting the City as an attractive location for international investment and helping international firms to overcome any barriers that may be impeding market access. 

Russia is already an important gateway to numerous emerging markets and boasts an impressive agglomeration of leading global businesses including many of the largest international banks:

• JP Morgan,
• Goldman Sachs,
• CitiGroup, 
• Deutsche Bank, 
• Societie General, 
• Barclays as well as more than a dozen U.K.-based legal firms such as Clifford Chance, Allen and Overy, Linklaters and Herbert Smith. 
  

Our two countries already enjoy a fruitful economic partnership – Russia is the U.K.’s 12th largest export market whilst the U.K. is the largest foreign direct investor to Russia with 14.4 percent ($14,940 million) of the total investments and more than 600 British businesses operating there.

From a financial services perspective, the City of London has undertaken to build on these links, and during my recent visit I co-chaired the first meeting of the City of London – Moscow International Financial Centre Liaison Group with Alexander Voloshin. 

It may seem incongruous to be providing such assistance to a rival center, but given the global nature of the financial marketplace, it is vital that we maintain close links with Moscow and help to develop a business environment in which U.K. firms are both willing and able to invest.

However, if the Russian government is to achieve its stated aim and develop Moscow as an international financial center, it is clear there remain serious obstacles to overcome.

Challenges ahead 

In the recent Global Financial Centres Index report that looks at the relative attractiveness of financial centers from an industry perspective, London came out on top whilst Moscow lagged behind at 68.

A common feature amongst the world’s leading financial centers is that firms have confidence in them as places to do business – they are underpinned by a commitment to certainty, predictability and transparency, particularly with regards to the rule of law.

Russia on the other hand ranked 154 out of 178 on Transparency International’s Corruption Perceptions Index in 2010 and 123 out of 183 on the World Bank/IFC Ease of Doing Business report in 2011.

In addition, Moscow’s transport infrastructure also leaves much to be desired - it is a good job it is such a spectacular city because I certainly had plenty of time to survey the scenery from the comfort of my car! This may seem like a trivial concern but maintaining an efficient transport system requires constant investment and should be a priority for any modern financial center - not least for older cities such as London and Moscow which have to compete with the purpose-built, high-tech business environments of Asia and the Middle East. 

Fortunately, the Russian government recently announced plans to invest $1 trillion in upgrading the country’s infrastructure although its approach to Public Private Partnerships (PPP) remains largely undefined, with no unified federal law or body in place to provide a coherent framework. 

So long as Russia’s PPP projects continue to fall under the responsibility of a disparate group of bodies, they are unlikely to develop a consistent or efficient strategic program. In 2010, more than 350 PPP projects were identified and yet, of these projects, more than 200 were proceeding on a municipal level whilst only one was being managed at a regional level and two at a national level.

In contrast, and with more than 20 years’ experience of public-private partnership work, U.K. firms have all of the skills and expertise necessary to be at the forefront of this revolution. The new Moscow Mayor Sergei Sobyanin was quick to highlight the many opportunities that will be available as he seeks to kick-start the infrastructure redevelopment in his city.

Benefits of forging closer ties 

Of course my visit was not all about helping Russia to develop and modernize; I also wanted to demonstrate that the City remains open for business and, more specifically, that it can meet all of the business requirements of Russian firms.

Recent reports in the U.K. have suggested that Russian firms are increasingly reluctant to list in London, preferring to raise capital in the Far Eastern markets instead.

London has traditionally been the financial center of choice for Russian companies looking to raise capital - there are currently 45 of them listed on the LSE main market, with 17 more on its sister AIM market - and there is no reason this should not remain the case going forward. 

Whilst the appeal of other financial centers should not be underestimated, there can be no doubt that London’s capital markets offer unparalleled access to deep pools of liquidity and to an incredibly broad international investor base.

Clearly it is not just Russia that stands to benefit from the forging of closer ties between our two countries, particularly with regards to financial services. U.K. firms stand to benefit at an every stage of the process, be they infrastructure firms engaged in PPP or financial services firms able to operate in an increasingly open and stable marketplace.

That is why this visit was high on my agenda for my year in office and that is why I am sure it will remain a top priority for my successors in the years to come. 

Michael Bear is the Lord Mayor of the City of London, the financial district of London and a major international financial center.