Engaging the Russian bear

FIRST the Chinese dragon, then the Indian tiger. Now Singapore Inc is going after the Russian bear. And as in the case for China and India, Singapore's private sector will not be far behind. The pattern has become familiar. A powerful Singapore delegation led by a high-profile minister will descend on the targeted country. They will open doors and smooth the way for business dealings.

Government-linked companies will follow suit to take on big infrastructure projects. Then Singapore companies will arrive in droves.

So it was no big surprise when it was announced last October that Russia had turned to Singapore for help in building a special economic zone (SEZ). The announcement came as Minister Mentor Lee Kuan Yew was leading a team to Russia, his first visit in 15 years.

SEZs, like industrial parks, are a Singapore specialty. Singapore has helped to develop SEZs in Indonesia, Vietnam, India and China. And it has used the expertise and reputation gained as its Trojan Horse in emerging markets.

Singapore's economic engagement with Russia - which has a large population of 145 million with deepening pockets - has already picked up. Trade between the two countries jumped 13 per cent to $1.32 billion last year, making Russia Singapore's 38th largest trading partner, according to International Enterprise Singapore, the government's trade promotion arm.

Singapore buys mainly refined petroleum products, aluminium and steel from Russia and sells it telecommunication gears, computers and related accessories. More visible - and also perhaps more significantly - government and business exchanges between Singapore and Russia have stepped up as both played hosts to a rising number of visiting delegations, including the visits led by Mr Lee in October and Trade and Industry Minister Lim Hng Kiang a little earlier.

Tourism traffic between the two countries is also increasing with the re-introduction of a direct air link, courtesy of Transaero Airlines. And last week, Singapore Airlines (SIA) started flying to Moscow, the Russian capital. 'When SIA goes in, they must have done their sums,' says Alphonsus Chia, the deputy chief executive of IE Singapore's external economic agency. 'We can expect more businessmen to fly up and down (between Singapore and Russia).

Adds Douglas Foo, CEO of Apex-Pal, which owns the Sakae Sushi food chain: 'It's a significant part of the infrastructure.'

Until recently, flying from Singapore to Russia was restricted and took a roundabout route.

The Russian and Singapore governments seem determined to clear the hurdles and push for greater economic linkages between their countries. Later this month, IE Singapore will co-host a major Russia-Singapore business forum where Mr Lee and Mr Lim as well as Russian Trade and Economic Development Minister German Gref will help 'demystify' Russia, sell its economic potential and offer tips on breaking into the Russian market.

'Russia is far away but we can still do business with it,' Mr Chia says. 'Russia is not just about oil. The country is big but there are cities growing quite well.'

Says Mr Foo of of Apex-Pal: 'It's not an easy market, partly because of its language. Also, the country is still evolving. The rules, licences, policies - they are not crystal clear.'

Yet Apex-Pal is looking to start its sushi chain in the country. Highlighting the rising affluence in Moscow, which boasts the third largest number of billionaires after America and Germany, Mr Foo says of Russian diners: 'They won't blink an eye when blowing US$100 on a meal. It's normal for them.'

Other Singapore companies have already taken the plunge - and seem to be doing well. Food Empire, which is listed on the Singapore Exchange, has cornered the Russian market for three-in-one coffee mixes. Amtel supplies 35 per cent of the passenger tyre market there. Singapore companies also have a presence in Russian transport and logistics, electronics and engineering and trading sectors.

Agencies like Fitch, Moody and Standard & Poor's have raised Russia's ratings to investment grade, which should encourage investors to put more money in the country.

Indeed, bearish is not a word one would associate with Russia - after how its economy performed in the past six years. The Russian bear has been charging like a bull, chalking up strong growth year after year.

The economy expanded by 7.2 per cent to US$581.4 billion in 2004. Foreign direct investment jumped 40 per cent to US$9.4 billion. These numbers mirror, especially, the fast development in the manufacturing, real estate and services sectors.

IE Singapore, which is beefing up its presence in Moscow to help Singapore businesses venturing into the Russian market, has identified promising businesses for Singapore companies in automotive, food, property development and infrastructure services and information technology and electronics.

IE Singapore's Mr Chia cautions that Russia's tough weather, culture and language will pose a serious challenge to Singapore investors. While taking on a Russian partner can help, he stresses: 'It's important to insist on and do due diligence, thoroughly preparing and reviewing the contracts and insisting on following the law.

'While Russia is a different negotiating environment, it is not that different as to forgo proper business prudence,' Mr Chia says. 'Also, invest time and effort to do proper research and study, develop a proper business plan before venturing into the market.'

IE Singapore advocates Singapore companies, especially the smaller players, banding together to minimise risks and speed up group learning - and it is backing consortiums to be formed under IE Singapore's iPartners programme