Russia presents an exciting business opportunity for Jersey, although one which should be approached with caution, according to Martina Baletkova of Barclays Wealth International Private Bank.
Ms Baletkova was one of five panellists at the recent Barclays Wealth ‘Russia – What’s it to you?’ panel discussion facilitated by BBC News reporter Sarah Montague. The other panel members included Senator Philip Ozouf, Minister for Treasury and Resources, Kathy Gillen from Moore Stephens, James Ruane from Mourant Ozannes and Ogier’s Nick Ward.
The panel discussion, which was attended by around 40 local business people, highlighted the volume of business currently being carried out with Russian organisations and individuals by Jersey-based firms as most audience members and panellists indicated that the country is currently one of their largest growth markets. Panellist James Ruane confirmed that the economic outlook for Russia may not be as impressive as for China, for example, but the volume of business being conducted with Russia outstrips the amount being carried out with any other emerging market. When asked by an audience member to rank, in order of importance four upcoming growth markets, Mr Ruane confirmed that Russia is his priority for the next two years, to be followed by China and India and then Africa.
A key question posed by Ms Montague was why Russian companies and individuals choose Jersey as a jurisdiction with which to do business – it was concluded that they do so for several reasons. Preservation of wealth is a priority for many and having the ultimate ownership in the Island is an effective way of achieving this. Russia is relatively unpredictable, in part due to its political situation, and at any time financial and corporate regulations could change, having an impact on individual and corporate wealth. The economic environment is also unstable leaving the Russian stock market particularly volatile. Russian business people also want to be associated with Jersey’s ‘whiter than white’ reputation due to the many accolades that the Island has received internationally for being a well regulated and respected financial centre they do not move their assets in order to avoid paying domestic taxes, they do so for wealth preservation. In addition, Jersey offers a financial benefit in terms of corporate tax neutrality – incorporating a company or structure in the UK for example, can result in UK tax liabilities, even though all of the assets are outside the UK, whilst in Jersey corporation tax is set at zero per cent. Ms Montague said that nearly a quarter of HNW Russians lost millionaire status last year, primarily due to exposure to the Russian stock market and because they were highly leveraged.
Due diligence and transparency were common themes at the debate. Panellists pointed out that doing business in Russia is expensive as there is a vast amount of due diligence work to be carried out and in fact, in some cases, Russian business is ultimately turned away. However, on balance, the risks are rewarded as once secured, Russian companies can be very loyal. Nick Ward pointed out that although the Russian political system is making the right noises about cleaning up its act and exposing corruption, he questions its ability to do so. Despite this lack of confidence in seeing a shift in culture, the panel members were all confident that doing business in Russia is still worth the risks.
‘We are seeing a new wave of wealth’ said Ms Baletkova, ‘a wave which has been achieved by modern entrepreneurs, of which there are many in Russia,’ a point which was reiterated by Kathy Gillen. Ms Gillen went on to say that these new entrepreneurs are either not familiar with Trusts or, where they are, they find the concept difficult to understand or do not like the constraints of such a vehicle. As such, she is finding that there is a great deal of interest in Jersey Foundations from Russian business people.
Richard Corrigan, Director, Wealth Intermediaries and Wealth International, Barclays Wealth, said of the debate: ‘It has been an extremely interesting evening and I would like to thank our panellists for their contributions to the lively and thought-provoking discussion. We hope members of the local business community in our audience leave with a better understanding of some of the challenges of doing business with Russian clients and are encouraged by the rewards and opportunities highlighted at this event.’
Key facts about Russia
• Since Putin came to power in 2000, the middle class has grown from 8 million to 55 million
• There are only 130,000 mortgages in Russia
• In 2009 nearly a quarter of Russian high networths lost their millionaire status
• 40% of Russian wealth is offshore
• Russia is the world's third largest oil producer and has the world's largest oil reserves
• According to a Standard & Poor's survey, Russia is the 10th most attractive place in the world to do business. China, Brazil and India make up the top three.
• There are approximately 1,500 banks located in and around Moscow
• Russia has a 13% flat tax rate*
*Facts according to the panellists taking part in the debates. These facts were not provided by Barclays Wealth.
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Issued by Lisa Gutcher, One Strategic, t: 01534 488899, e: email@example.com
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Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate banking, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs approximately 147,000 people. Barclays moves, lends, invests and protects money for over 48 million customers and clients worldwide.
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