Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 14 - Evidence
OTTAWA, Wednesday, September 30, 2009
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:30 p.m. to study the rise of China, India and Russia in the global economy and the implications for Canadian policy.
Senator Consiglio Di Nino (Chair) in the chair.
[English]
The Chair: Honourable senators, two or three other senators have confirmed they will be in attendance, but we have a quorum, and our witnesses have been waiting for a period of time. Out of courtesy, we should commence the meeting.
I would like to welcome everyone to the Standing Senate Committee on Foreign Affairs and International Trade.
Appearing before the committee today from International Business Group Ltd. is Irina Bobrysheva, President; and Bernard Borg, Chairman.
International Business Group Ltd. is a Canadian-owned consulting company that assists Canadian companies in their business in Russia. IB represents the Moscow Chamber of Commerce and Industry Canada, as well as representing the Chambers of Commerce for the Komi Republic, a state in North Central Russia, and Primorsky in Eastern Russia. IB is the only private organization to represent the Chamber of Commerce and Industry of the Russian Federation.
Ms. Bobrysheva earned from the Moscow State University a degree in "world economy" and then later, in 1987, received her PhD designation. Mr. Borg is a safety professional in comprehensive practice, with over 26 years of experience in the petroleum industry.
Welcome to the Senate. I believe that Mr. Borg will be first to speak.
Bernard Borg, Chairman, International Business Group Ltd..: Good afternoon, honourable senators. It is a pleasure to be speaking before you this evening.
I have read most of the briefs presented to this committee by other witnesses, and it is certainly a who's who of the international trade world. I will make comments and then open the floor to questions.
My involvement with Russia and international trade started about four years ago. My core business, Signal Safety & Training, was losing market share to companies that had the ability to bring people in from other countries, such as Australia, the U.K., et cetera. Therefore, I needed to either export or find a new source to hire qualified people. Our niche market in the oil industry is narrow and highly specialized, so it is difficult, even now, to find people.
Having decided that, I started working towards it and ended up in Moscow where Ms. Bobrysheva was helping with all of the things I had to do to start business there. I offered her a job to come to Canada as the international business development manager, and she accepted. Since then, we have created IB Group as a new company that specializes in joining Russian and Canadian businesses and working out all of the issues that arise.
In the first part of my brief, I will talk a little bit about the World Bank. The World Bank has an ongoing study that is published yearly about doing business. The ease of doing business ranks 183 economies from easiest to hardest, and there are ten areas they look at: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.
With respect to the handouts, I will not go through all of the graphical information and background information, but I want to point out a couple of things.
Russia today ranks 120 in the 183 countries the World Bank looks at. India is ranked 133 for difficulty of doing business, and China is around 89. This list is dynamic in that people lose and change positions. It does not mean that reforms are slow; it means that other countries are faster.
Within the G8 countries, Canada, France and the U.S. remained at the same ranking, whereas Italy lost four places, Japan lost two places and Germany and the U.K. both improved by two and one places respectively.
One of the interesting things I discovered is that in the area of enforcing contracts, Russia is ranked 19 in ease of doing business and Canada is ranked 46. Russia actually scores significantly better than Canada in enforcing contracts.
When you compare all the categories in the G8, you find that Russia is not the best and not the worst. They are in the middle ranks. There are only two categories where they are the weakest in terms of ease of doing business, one is construction permits and the other one is trading across borders. It is my understanding and belief that with the fall of the Soviet Union, they ended up with a fractured set of regulations, and with various states and different levels of governments and their regulations, it is simply difficult. That is where we recognized our business opportunity, to help Canadian and Russian companies sort through the bureaucracy and make things happen.
The World Bank has done reforms since last year, and some of them include speeding up liquidation, legal status, securing of creditors, corporate income tax was reduced from 24 per cent to 20 per cent and property registration has been expedited by introducing new documentation in lieu of inventory documents and custodial maps.
As was mentioned in the introduction, our company is now the only private organization in Canada to represent the Chamber of Commerce and Industry of the Russian Federation, and the president, Ms. Bobrysheva, is presently the official representative in Canada.
About a year and a couple of months ago, I became the U.S. and Canada representative for the Moscow Committee for Science and Technology. The Moscow Committee for Science and Technology is a similar organization to the Alberta Research Council. With the fall of the Soviet Union, scientists were given funding from government and private sources to do pure research. Now they are at the point where they are commercializing some of their discoveries, such as environmental equipment and things that we do not expect of Russia.
We have a number of agreements in place with organizations in Russia. We have mentioned the chambers of commerce and so on. We also have an agreement with the Centre for Business and Unity Recruitment Services, so we are able to help Canadian companies recruit Russian people. In the oil industry, in particular, engineers were a shortage in Alberta. They may not be as short today, but they certainly were a couple of years ago.
I would like to emphasize that these are not simple partner relationships but are in the form of bilateral agreements. We are probably up to 50 Russian companies that we actually have discussions with, both governmental and non-governmental, as well as private companies. We can help approve a whole level of relationships with organizations that want to work with Russia and for Russian companies that want to work with Canadian companies.
Two of the things necessary, of course, are the desire and the need to work with Russia as well as the need for qualified people. In Russia, you will find there are business culture nuances that would surprise us. Hardly any Russian businessmen use voicemail, which is kind of amazing. They will not leave or take messages. Add that barrier to the language and the time zones, and simple things like that can really get in the way.
What we have spent our time doing is creating a system of work to assist companies in both Russia and Canada get together and work together. I must say, from the Russian side, there is increased interest in Canada. The Russian Federation, in general, is doing similar things to what we are doing today; they know they have to work globally and support international trade and commerce, and they are facing some of the same difficulties as Canada, such as jobs leaving the country and other countries having lower labour costs. There are big similarities between where we are, where they are and where both countries want to go.
We have come up with a couple of conclusions. First, what are the basic elements of the development of business relationships between Canada and Russia that are important; and, second, what must we do to achieve successful results?
There are three kinds of main ideas here. First, we need objective, unbiased and fresh information on the state of affairs in Russian political, economic and social spheres. We are finding that the western mass media in general tends to have a biased point of view with Russia. Most of the NGOs I work with, and so on, have a strange view. People base their ideas of Russia on 50 years of Hollywood. The reality is completely different.
For example, in this week's Calgary Herald there was a news article by Debrorah Yedlin on September 25, 2009 with the heading: "Russian gas play shows desperation." She said:
But why any company would consider investing in Russia, which still doesn't have a system of laws that allow any sort of recourse when something goes wrong, is more than puzzling.
That was this week and it is not correct. We know for a fact with the Russian chamber that they go quickly to the World Bank for third party mediation. They have a system of getting through it quickly. They also want to get in the World Trade Organization, and so on. Our press is putting out their stories that meet the public perception of the big, bad Russian bear and all the movies we watch. That is a disappointment. We have noticed that over and over again throughout our work with Russia.
The second item is pragmatic. There is little in the way of literature or information or business directories or things like that whereby Canadian-Russian companies can start making a connection. We are advocating, both from the Russian and Canadian sides, that, somewhere, this piece of work must be developed. In the oil and gas industry, there is a directory of who is who, contact names and numbers, and so on.
The third one regards finding potential partners and getting authentic data. We have a term called "due diligence" when doing background checks. For any business that wants to do contractual work in Canada, the United States or in any country, you need to know whether you have a reliable partner. The Chamber of Commerce and Industry of the Russian Federation has a registry of reliable partners. Russian companies have had to pass a number of stringent tests to get on the list of reliable partners. The chamber will provide corporate profiles and increasing detail right down to the financial information about these companies so that you know you have a company that has passed a number of benchmark tests. Social responsibility is a requirement, as is financial stability, time in business, and all the things that we expect from a Canadian company.
The Chamber of Commerce has a special department that is the owner of this registry. They are now the Department of Economic Security and Anticorruption. One of President Medvedev's priorities is to rid the country of corruption. Reading recent Canadian news, we seem to have our own issues. However, the Russians have taken steps to rectify this image and are actively pursuing efforts to get rid of both real corruption and the perception of it.
One of the things that we hear from Russia is that they would like to see such efforts in Canada as well. Russian businesses have the same questions that Canadian businesses do. They want to make sure they have a reliable Canadian partner. They need background checks and so forth.
Recently, the Chamber of Commerce and Industry of the Russian Federation asked us to pursue bilateral agreements with the Canadian Chamber of Commerce and the Canadian Manufacturers and Exporters. We are pleased to say that we have had meetings with both those organizations this week.
I would now like to share some general information about the Russian chamber. The Russian Chamber of Commerce is not like the Canadian Chamber of Commerce. The Russian Chamber of Commerce is a non-profit organization. It is a non-governmental organization but it has some legislative power. While it is not directly involved in licensing companies, it has more actual power than the typical Canadian Chamber of Commerce.
The chamber in Russia has a number of objectives. They are looking at expanding in the areas of high technology. They have done a lot of work as far as representing and protecting business interests. They have a lot of involvement in patents, intellectual property protection, and so on. They participate in building up service infrastructure; they establish and cultivate links with foreign partner organizations; and they will not only certify Canadian companies to work in Russia but also provide the interface to Russian companies. They will market Canadian companies. They market on a number of levels. The simple level is, "Yes, I am interested and I am in this industry. I want a partner." Throughout the regional Chambers of Commerce, that information is circulated and if there is interest, they bring it forward. They encourage the principles of civilized conduct of business and social responsibility in the business environment. There are a number of large Canadian companies, I think in the gold sector in particular.
Part of the agreement is to look after some social infrastructure. If you understand the history of Russia, when the Soviet Union crashed, so did everything. Doctors were unemployed and some large companies took the responsibility of providing for their own employees.
Those are my opening comments. I hope that you will ask us questions. We will certainly share our experiences honestly.
The Chair: Thank you, Mr. Borg. Ms. Bobrysheva, were you going to make some comments?
Irina Bobrysheva, President, International Business Group Ltd.: I would like to add to the speech of my partner about our company.
Our company provides to Canadian businessmen more than one or two services. We created the system about how to do business in Russia, and we created the basic relationship with the most important Russian organizations in government and the private sector. We help Canadian businessmen come to Russia and to feel comfortable like in their own country.
Senator Wallin: I wish to thank our guests for being here today. These are a couple of obvious questions that you have touched on such as the World Bank, and so on. Despite media preconceptions and some of the myths of corruption and cultural nuances, is it fair to say that the problems in your mind are fundamentally bureaucratic?
Mr. Borg: Yes, that's a fair statement. From the Canadian side, it is an immense bureaucracy and the World Bank supports that. A lot of it is bureaucratic. For example, the Canadian embassy has tried for 20 years to build a new embassy in Moscow. They were delayed in so doing because they did not know to whom they should talk. I was at a meeting with the Moscow city government when we mentioned that. They said, "We have known about this for a long time but no one has called us." Obviously, an embassy is a federal responsibility, but building in Moscow is a city planning responsibility.
No one knew how to work it through the system. I am not sure whether the embassy is under construction, but that is our understanding of what happened there. That is plain bureaucracy.
Senator Wallin: What kind of advice can you give to our government agencies?
We did a study earlier this year of the EDC, the Export Development Corporation, for example. Are there things you see from your vantage point that we do not get when it comes to doing business there?
Mr. Borg: That is a broad statement. I certainly did not get everything when I first started. Perhaps I was naive when I started out. However, I am a small business and look at what we have accomplished in four short years to make real connections at these levels, so it is absolutely possible.
It would have been absolutely impossible without Ms. Bobrysheva's assistance and with her existing contacts and people. Ms. Bobrysheva, by the way, was the deputy minister of small business development in 1991 in Moscow, so maybe Russian capitalism is due to Ms. Bobrysheva's work with business planning and small businesses. People came in and wanted to make a bakery or something like that and through the Moscow city government, through Ms. Bobrysheva and her department, things developed.
Senator Wallin: I am thinking specifically of something like EDC, which is an independent body, though it does have public funds at its disposal.
Mr. Borg: Russia is a huge country and how do you know where to start? Through our meetings with the Russian chamber, we learned about the trade mission. Comments were made to the effect that Team Canada went and there was lots of flag waving and lots of agreements to agree but no one did anything real. It seems that there is a gap in getting from the idea stage to the production stage.
Part of it is that if it becomes difficult, businesses will tend to go elsewhere. It is that simple. I think the Russians understand that their system is difficult and they are certainly trying to reform it. I am not sure if I have answered the question.
Senator Wallin: I will ask a specific one. In our notes, there was an article with a comment by Tye Burt, president of Kinross. This issue has come up with China and Russia and some particular places: You go in, you have to have deep pockets and a lot of patience, but maybe even then it does not work.
Do the Russians understand that there has to be a friendlier atmosphere or maybe some compensation for companies that go in and invest a lot and then the deal is not done for whatever reason? Those kinds of obstacles have stymied a lot of business, except the very large and wealthy companies that have 20 years to sit there and wait.
Mr. Borg: That is right. Kinross is a good example. They can get permits for mines in average time in the developed world. It can be done. It is a question of having the right people working the details, and understanding the nuances of the bureaucracy, the sequencing that has to be done and so on.
Bureaucracies are designed to slow people up. That is almost the purpose of them. Even in Canada, to get a permit to develop an oil sands mine takes years and years. As things are going, it may not always happen. It is not a lot different but it is a bigger unknown. A lot of this work can be done up front before you invest heavily.
I know what you are alluding to. I forget the term for it, but it is about guaranteeing investors and those things.
Senator Wallin: Yes, where there is some green-light response if you have invested so much. In most business deals, there would be a percentage or something that would come back.
Mr. Borg: I know that Russia wants to get into the World Trade Organization so all the mechanisms there would be part of that. I think that this may be a topic that needs to be brought up with them and specifically say, "This is what investors want."
The Chair: You just asked a question one of us should have asked: What do investors want?
Mr. Borg: Profit; a company is a mechanism to generate profit.
The Chair: To be able to achieve the goal of profit, they need certain fundamentals. In your opinion, what should they be looking for in Russia, and can they get it?
Mr. Borg: I think they can get it. The discussions with the Russian federal government, state governments and the chambers of commerce have all been very positive. They certainly understand their need to get into global trade. They understand the reluctance of investors. I think it was a week or 10 days ago that Mr. Putin had a meeting with 10 of the largest oil companies to develop another gas field.
One of the things to understand when going to Russia is that the days of 1,000 per cent profits are over. Do not expect that. Expect to get a fair and balanced deal.
Shell ran into trouble on the Sakhalin Island because there was no Russian ownership. Then the capital costs were doubling and there would never be any royalties. The sister plant with Exxon Mobil had no troubles because their deal was 52 per cent Russian ownership going in.
Investors want it fair and balanced where both sides will win, and then the doors will open up. In general, Russian business people felt they were taken advantage of in the early 1990s with all the one-sided agreements with 1,000 per cent profits, and now they are more reluctant. They are a lot tougher and smarter than they were 15 years ago so it is a little harder to work on. However, fundamentally, I think there is a huge opportunity.
Senator Mahovlich: In the 1970s, I was doing business with Pepsi Cola. They made a deal with the Russians to sell their vodka in the United States and for that, the Russians could have the Pepsi syrup. However, what they did is, say there was an ounce of syrup in each bottle of Pepsi, they put in half an ounce and shipped it out. The quality was not there, according to Pepsi Cola, but the Russians did not know because they never had Pepsi before. Has that matter been ironed out? Can you get a Pepsi Cola in Russia these days?
Mr. Borg: Yes, you can and Coca Cola, so you can do the taste test.
Senator Mahovlich: Are there many McDonalds now in Russia?
Mr. Borg: A lot, although it is a fundamental difference in our culture. There are relatively few fast food places in Moscow. They do not have Tim Hortons, and culturally I do think that is what they want. They want to have a cup of coffee, and it is more about the social aspects of dining out.
There are not the fast food restaurants we see here, but if you want to call Pizza Hut in Moscow — it is the same number with a different area code — you can do that. There are no international products that you cannot find in Russia. That has amazed me.
For example, I drink Canadian whiskey. You can find Canadian whiskey on the shelves along with Russian vodka in Moscow. I discovered that the Russian people really like Canadian whiskey when they taste it. They said they had no idea it was this good. They expected it to taste like scotch or bourbon. We are finding that there are many Western things, especially in Moscow. It is a huge international city.
In 1972, it was the hockey game. That was a long time ago. The country has gone through a revolution since then.
Senator Mahovlich: They have ironed out a lot of things.
Mr. Borg: We talk about ethics and corruption at all our meetings with the Russians. As a Canadian business, I want an honest, reliable, ethical and socially responsible company. That is what they are offering back. There are — no question — unscrupulous people around the world and if you look closely, you can find them.
Senator Mahovlich: In 2002, a hotel in Moscow owned by Canadians was taken over. Has that been ironed out?
Mr. Borg: I think Prime Minister Harper spoke to President Putin directly about that issue. It has been solved. That is the reputation. Things like that were happening and they were not fair or right.
Senator Mahovlich: Frank Stronach is now involved in selling cars. He hopes to sell a lot of cars in Russia. I believe he has got Russian partners.
Mr. Borg: Yes. One of the banks is financing the venture; which one?
Ms. Bobrysheva: It is Sberbank and Magna.
Mr. Borg: Ms. Bobrysheva's car in Russia was an Opel. Now, maybe she can get an Opel in Canada.
Magna International is an amazing story to start from lowly beginnings and now he is an international car manufacturer. There are success stories. There is no question; they are big ones.
Ultimately, it is the smaller business that drives economies in many countries. We get the big "good news" stories, but many other small "good news" stories are happening too.
Senator Stewart Olsen: Where do you see the most interest? Is it our interest in doing business in Russia or Russia's interest in doing business with us?
Mr. Borg: Based on the inquiries we have before us today, it is Russian business that is more interested in doing business with Canada. We are currently searching for Canadian partners in the forestry industry, the agriculture industry, the mining industry and the oil and gas industry.
When looking for Canadian partners in, for example, the mining industry, they simply were not interested. They would not return messages.
In the forestry industry, 80 per cent of Russia's softwood lumber is sent out in the form of trees — round logs. The logs are put on a factory ship and by the time it arrives in Japan, it is lumber. Then they buy it back as furniture. They have decided that value-added work means you have to process forest products in your own country.
With softwood lumber, a huge opportunity exists for integrated cooperation in development and getting the forestry industry back to where it used to be in the 1970s. Denmark is not happy because they get the round trees. They have the value-added.
Canada used to do that 75 years ago. We only sold trees, not lumber. Russia is going through some of the pains that we did. That is an opportunity.
Mostly, the interest is coming from the Russian side.
Senator Stewart Olsen: When reading through the brief, I see mostly resource-based opportunities. Are there any other opportunities in marketing, for example, in our health industry or technological industries?
Mr. Borg: The health industry is interesting. Doctors in Moscow make house calls. They have two systems — a public system available to everyone and a private system. If you want to get to the head of the line, you can pay to see the doctor.
Our tour guide in St. Petersburg was telling us about a problem with her leg. She went to the public system, but did not like the answer. Therefore, she paid $50 to go to the private system and it was the same doctor. He thanked her for the money, but did not change his mind.
Perhaps Canada could learn something from them. That is a really hot point, but at least we are not having the debates that our neighbours are to the south. They have taken health care to an unreal debate.
Senator Stewart Olsen: Your recommendation would be to approach with caution. The opportunities are there and you can have an expectation to be treated with fairness.
Mr. Borg: Absolutely. When you say approach with caution, it is the same level of caution you would approach a company in Saskatchewan from Alberta. You approach business with caution. It is a risk; it takes some investment; and you need a payoff.
Senator Wallin: It is the other way around now.
Mr. Borg: Yes. Senator Wallin is from Saskatchewan.
The Chair: We obviously have a lot of government resources — federal and provincial, but mainly federal — being expanded to increase trade and investment around the world. What kind of a job is our government doing in Russia?
Mr. Borg: I do not think they are doing a very good job. The only mission we have is in Moscow. The other mission was closed. For example, I was at a meeting with the Moscow Chamber of Commerce. They said, "When you go back to Canada tell your guys that we invite them every year to come to economic talks and so on." They call trade missions in Moscow and no one ever goes.
Typical of a number of government departments, people are overworked and understaffed. That is the reality of the world today. We were talking with the Government of Alberta last week and if the recession had not hit, Alberta was planning to open a trade office in Russia. Having on the ground presence in Moscow or in the regions is critical. People want to talk face to face.
The Chair: Regarding small- and medium-sized enterprises, do they have similar, bigger or fewer problems?
Mr. Borg: I am a small business. If I was any smaller, perhaps I would be unemployed. With the recession in Canada and all the programs, the only one I will qualify for is the increase in EI fees.
Small business everywhere has the same issue. Credit is always an issue. You are the jack-of-all-trades. Yet, small business is nimble on its feet. We can do amazing things simply because we have to.
The Chamber of Commerce in Russia is a supporter of small, medium and large business. They tend to focus on the small to medium businesses. Exxon Mobil probably does not need our help. The big money companies can do it on their own. It is the small to medium ones that need assistance in making things happen.
Senator Downe: To clarify, your company represents the Russian Chamber of Commerce in Canada, is that correct?
Mr. Borg: Yes.
Senator Downe: Are you paid by them?
Mr. Borg: No. We represent them. They have a schedule of service and fees. We can charge their fees with a mark-up. Ms. Bobrysheva's position is a voluntary one. We have a cooperation agreement. While we are the representative, we are not supported by any government organization in Canada or Russia, or any financial institution. Whatever we have done has been totally self-financed and done on our own.
Senator Downe: Thank you for that. I have a document from our information that indicates your president is a staff member of the Russian Chamber of Commerce and Industry. Is that not correct?
Mr. Borg: What is the correct term for your position?
Ms. Bobrysheva: You can find my position under item No. 2 in the information about the Russian Chamber of Commerce. The chamber has official offices in different countries. There are about 17 offices each with a staff. They work permanently in these countries. There are about 10 temporary, non-staff representatives who are volunteers. We do not have salaries in the Russian chamber, but we are officially appointed by the president of the Russian Chamber of Commerce and have a special authority document for our work. We work under the regulations of the Russian Chamber of Commerce.
My main task is to help Canadian businesses. I provide the services of the Russian chamber, and these services are free. Many Canadian businessmen come to our office in Calgary and I consult with them and give them information. I conduct research using the Internet. I ask the different departments of the Russian chamber to send me specific information for Canadian businesses.
I can say that I am like a babysitter for those people who have no idea about Russia at all, about how to start their business or how to find Russian partners. It is important for them to find the right people and the right company. Trust between businessmen from the beginning is most important. We use the services of the Russian Chamber of Commerce and the Department of Economic Security to check the financial situation of companies, to ask the president or general director for historical records and for information on future prospects.
As a representative, I help businessmen with decisions about whether it would be good for them to work in Russia or whether they should find another place. For any business, small, medium or large, we try to give businessmen enough information to make their own decisions. Business is a risk everywhere, and companies like to find the place, country or the economy where investments become profitable quickly. This is the basic economic law.
Senator Downe: I appreciate that overview of what you do, and I am sure it is a very helpful service. However, you have been appointed by the Chamber of Commerce and Industry of the Russian Federation as the staff person in Canada.
Ms. Bobrysheva: I am a non-staff representative. I am temporary.
Senator Downe: So you are temporary staff, appointed by the Chamber of Commerce and Industry of the Russian Federation to Canada?
Ms. Bobrysheva: Right. This is on page 9.
Senator Downe: You moved from Moscow to Calgary to take up that position?
Ms. Bobrysheva: No. I was invited in 2006 by Mr. Borg to work in his company, Signal Safety & Training. His company works with Canadian oil companies and provides engineering services. Mr. Borg wanted to work with Russian companies. It is an interesting story how he found me in Russia. He came to Moscow in 2005 and we started to talk about how he could organize his relationship with Russian oil companies. I told him that it is difficult for me to understand the situation of his company in Calgary and that I had never before worked in this branch of the economy. For me, it was difficult in that period of time to understand his business plan.
When he invited me to work in his company, I understood that it would be difficult, particularly with the name of this company, to develop his business in Russia. I suggested that he think about forming another division in his company. Finally we made the decision to establish International Business Group. It is not only a problem with Signal Safety & Training, but many small Canadian companies do not have enough money for research or to create special divisions.
The goal of International Business Group, as a consulting company, is to help everyone believe that success is possible, to provide them information, to help them find the right Russian partner and to create relationships with government organizations in Russia. In Russia, still today, government organizations, like it or not, influence the development of business. Without their permission, it is difficult to start a business. I do not want to say that this influence is very strong, but it exists nevertheless.
Senator Downe: The Chamber of Commerce and Industry of the Russian Federation is non-governmental and non-profit. However, as you indicated earlier, they have 17 permanent and 10 temporary staff in offices around the world. How are they funded? Do they receive money from the Russian government?
Ms. Bobrysheva: No, they do not receive money from the Russian government. They have the same financial system as the Canadian Chamber of Commerce. They have members, and you can find out how many regional, local chambers of commerce are members of the federal chamber. They have a financial relationship with each other. That is the first resource.
The second resource is that they produce their own services. This is everywhere, in every chamber of commerce, at the regional and federal levels.
After that, they have their own business organization. They can conduct business and use the profit to achieve their goals.
These are the three most important financial resources of the Russian chamber.
Senator Downe: I assume that as a non-government organization, you, for example, would not have a diplomatic passport because you are not connected to government?
Ms. Bobrysheva: No, I am not a diplomat.
Senator Smith: I want to go back to a subject that Senator Mahovlich touched on, the hotel incident.
To take that as an example, go back to the 1990s when unbelievable things were happening, things being bought for a mere fraction and millions being put here and there in Zurich and everywhere, things which would never happen in a society with a sophisticated business culture. It takes years to establish a rule of law — and I am speaking in part as a lawyer here — a rule of law that is basically corruption-free, where legal rights can be enforced. What seemed to have happened was that there was no rule of law, and this hotel got scooped up. The Russian government realized that they could not have that kind of thing going on if they wanted to attract investment from other countries.
It takes some years to develop a sophisticated free enterprise business culture. It takes years to develop a bone fide rule of law where you are fairly free of corruption. I think what happened there is that the courts did not straighten that out. The government thought it was hurting them so they did various things and solved it because they did not want their reputation hurt.
I have the sense that these things are still regulated more by government decrees than by rule of law where rights are enforced in the courts, if necessary, that to some extent various departments or agencies can almost arbitrarily and unilaterally say, "Here is what is happening."
Do you think that is a fair characterization? Is progress being made toward a more sophisticated free enterprise system similar to that in Western Europe where you are not afraid of hijinks occurring?
Mr. Borg: I will try to answer. You must understand that in 1991 when Boris Yeltsin orchestrated a coup and hired the television to do the media spin, Russia went from a country where every piece of property, apartment and house was government-owned and there was no currency mechanism for people. You got a house from the government. You could get food, do everything; you had a spending allowance whereby you could go out for dinner with your family about once a week. Literally overnight it went to economic anarchy. There was no system.
I mentioned the problems in the softwood lumber industry. Under the Soviet Union they had a forest management system that worked well, but in this period of anarchy a group of people who got very rich. They are now called oligarchs. These people literally stole an oil field. Irina's parents were retired at that point. The person who was running the bank took the bank and all the money in it. They went from an integrated system under the communists to no system at all. In that period of anarchy there were opportunists. One oligarch is 42 and is the fourth richest man in the world, and was an orphan. He does not make anything. How do you to that? It was complete anarchy. People took advantage.
The government owned the apartment buildings. Someone came along and said, "I can figure out the system and I can own the apartment house," so he kicked everyone out and renovated. It has taken a number of years. Russia in 2009 is not the same as in 1999 and is certainly not the same as in 1991.
One of our agreements is with the Moscow union of lawyers. For example, through the chamber, mediation and rule of law there is a measure of copyright protection. I know of other countries that Canada works with that believe that "copyright" means right to copy. It takes a while for people to get into the system.
I have asked a number of people in Russia if they trusted the last election and they said, "Yes, the last election was a good one. We actually believed this time it was a good election." There have been 1,000 years of dictatorial rule and 10 years of democracy.
Senator Smith: It does not happen overnight.
Mr. Borg: It certainly does not. The Yeltsin period was one Russia, and the Putin period was another, and now the Medvedev period will be yet another Russia. This country is evolving quickly and in the direction we all want it to evolve in. The hotel incident is a lot less likely to happen now than it was then. Our protections, international arbitration, all those sorts of things are in place.
Senator Smith: In the late 1980s during the Gorbachev period, and earlier on, I got to know Yakovlev, who had been the ambassador here, quite well. I could tell you many funny, unbelievable stories. I am very much looking forward to our visit to see the differences.
Mr. Borg: We tell people who have never been to Russia, "Forget everything you think you know; it is completely different." One obvious difference I noticed the last time I went to Moscow is that police do not wear body armour and they go around by themselves. In Calgary they wear body armour and go in twos. If you start looking at negative things about Canada, we can certainly paint Canada as a horrible country. For example, within two blocks of our office there have been four murders within last two years; yet on a daily basis obviously we are a civilized, peaceful country. Russia wants to go there. The average person in Russia who obeys the rules and acts rationally will never be noticed.
I lived in a kingdom in the Middle East for a couple of years and you did not notice it was a kingdom. It never affected you on a daily basis. I ask people in Moscow what their priorities are. They say cost of housing, health care, traffic congestion, air pollution, and maybe now keeping their job. They have the same issues on a personal basis as we do.
Senator Smith: My first time there was in 1969 when you knew someone was watching you most of the time. You were entertained very well, but everything you said to anyone was reported. I was there in 1989 when the Berlin Wall was coming down. It is hard to describe the mood. It was incredible.
Mr. Borg: Mr. Gorbachev's idea of perestroika was well received by the average Russian person. Their disappointment was that he did not actually get it done. Then this period of economic anarchy happened for six to eight years where a few people stole the riches of the country. The hotel is a good example. Someone said, "I want the hotel" and took it.
Senator Smith: There is still a group of people who, every year, celebrate the memory of Stalin and those strong days of the war victory.
Mr. Borg: If you get a chance to go to museums in Russia, we all know about the Bolshevik revolution but they have kept the czar's baby clothes and have preserved all the artifacts. Russians have a strong sense of history and they do not want to destroy history. Bad or good, it is their history and they want to keep it. Many people say positive things about Stalin. It is a vast country and, at the very minimum, he kept it together.
Senator Mahovlich: Do they still visit Lenin's tomb?
Mr. Borg: Yes. I have not. It is in Red Square so you can walk by it all the time but apparently they do still allow visitors.
Senator Robichaud: How much of a barrier is language when Canadians want to do business with Russian business people?
Mr. Borg: It is certainly a barrier. The advice I get from Russians is learn to speak a few words of Russian absolutely correctly, but the language certainly is a barrier. English does not go as far in Moscow as it does in many other countries. On my first trip to Moscow I decided to take a walk. I thought if I stayed on one side of the street and did not make any turns I could walk as far as I wanted, and if I turned around and came back I would not get lost, because I could not read the signs. I was so focused I must have looked like a Russian because little old ladies would ask me for directions and I would have to say I speak English only. Irina taught me to say "I do not know" in Russian. Next time this happened I said I do not know and that was the whole conversation. I have had to learn enough Russian to say that I do not speak Russian. However, it is a barrier. Whatever you do at a high level, they will do it in English.
Agreements are signed in three languages, French, English and Russian, all certified correct. If a company wants to work in Russia, they will sign the agreement in French, English and Russian. Translation services are very good and quite inexpensive. Yes, it is a barrier, no question, and the time attitude makes it harder, but it can be done.
Ms. Bobrysheva: I would like to add something concerning languages. One Canadian businessman said that it is too bad in Moscow he could not read the name of the streets because all of them are in the Russian language, and he had trouble finding the right building. It sounds like a joke, but can you imagine countries with a language other than English putting up signs especially for tourists and businessmen in English?
Russian people are highly educated. Before the collapse of the USSR, we had free education. High school was free for everyone. You had to pass exams, and everything depended only on you. Before I entered Moscow State University, I had to pass four exams. I got excellent marks and became a student.
Now, we have a very small quarter for free education in institutes and universities, and most of the students have to pay money. Not every family can afford to pay, so all kids try to learn hard and to get the best marks. They spend many hours doing their homework rather than spending time with their friends or going out somewhere. They have focused on the English language now too, because they understand that the world has changed and Russians have to think about their future, working very closely with other countries, and they know that language is a key. It is not just foreign languages, but you have to find the right language for communication. You have to learn not only English but English business language. In these ways, our young people are doing very well.
I want to tell you a story about my son. When he was 14 years old, he asked me a question: "What do you think I should do in the future? What profession will be better for me in this situation in Russia?" Because I am an economist, I suggested that he follow my steps, and I sent him to the United States. He entered preparatory school, and he passed exams and was invited to seven universities. Finally, he graduated from Babson College, the best business school in the United States. He lived in Boston for about 10 years, but then decided he wanted to return to Moscow. I said, "You actually became American." After 10 years in a foreign country, his English was just perfect. I received many letters from his English language teachers saying that they were surprised by 100 per cent marks on his tests. He returned to Moscow in order to study and learn how the Russian economic system works so he could put it together and work in any country he wanted.
I give this example not because he is my son. There are many young people who do the same if their parents can afford to send them to study in another country. I know many Russians have successfully graduated from the University of Calgary and returned to Moscow. They are the potential future of the two countries doing business together. They know language. They know culture. They have friends here who in the future may become businessmen.
The Chair: I have exhausted my list, so I will put a couple of questions, specifically with respect to EDC, Export Development Corporation. In your opinion, are they active enough in Russia?
Mr. Borg: In a word, no. We are finding it more difficult to grow our business on the Canadian end right now than the Russian end. It has taken some time, and because we are all self-financed, we could not do this instantly and hire a big staff. Over the three years, we have progressed, and it is only this year that we began representing the Russian Chamber of Commerce, so it has been an evolution. We are working on the Canadian side to get to know these various agencies and make the connections. We are thinking of ourselves as building bridges between two countries, and it will be a toll bridge with a modest fee. The question about whether Irina is getting paid by the chamber is a valid one. The terminology is confusing. There is no question.
Our business niche is connecting Russian companies and Canadian companies, then offering our services to make that happen. For example, if somebody wanted to import Canadian whiskey into Russia, we would become an expediter, and there is usually a percentage fee based on the number of containers. Our commerce comes from that source. Certainly, we are pursuing Canadian organizations, and Russia has asked us to make these connections happen.
The Chair: If you were able to write a recommendation for our report, particularly as it relates to the involvement of the Canadian government and the appropriate departments, International Trade and Foreign Affairs, what would you recommend be done that is missing now?
Mr. Borg: The one thing that keeps coming to mind is having the presence on the ground in the country where you want to do trade. That seems to be critical.
For example, Canada is one of the most difficult countries for Russian businessmen to come into. Our visa system is 30 to 35 days, and then you may be rejected. Until recently, you were expected to hand over your passport for 30 days, and a businessman will not do that. Commercially, if I want to get to Russia in a hurry, I pay a higher fee for a visa, and within 24 hours I can have one. I am Canadian, so I do not know what it is like for a Russian to get into Canada, but we have heard this complaint a number of times. Even our Canadian mission said, "If you get to talk to politicians, bring this issue up," and the Russian government has said the same. The visa system for Russian businessmen is a big barrier. If you could do one thing, that would be it: Fix the visa system.
Ms. Bobrysheva: We have already mentioned that there is not enough information about Russia in Canada and vice versa. I was surprised when I came to Canada to find that there is nothing about the Russian Federation.
If you search, you can find articles in specific magazines or small articles in newspapers, but most of the time it is a copy from another edition. It is not a Canadian point of view or it is not accurate information. I was disappointed about it because Russia has many beautiful stories and accomplishments. Russia has many things to share with Canada, and we have to write about them. We have to inform people. Only after that, will people be interested in doing business in Russia or in another country or not.
As we said in business, it is a private sector. We cannot tell people to go and do business in Russia. We have to inform businessmen about the risks, where the profits will be, how quickly you can get a return on your money, the kind of difficulties you will face in Russia. For example, is the language barrier real or not? People have no idea. They come to Russia and they have to know who they can talk to in English? After that, they have no idea what doors they have to open. They may need a consulting company, like International Business Group, to help in the Russian situation, in the different regions, or with services provided by the chambers of commerce, again in the different regions. Canadian businessmen have started to use the chambers of commerce, using email, making phone calls or writing personal letters.
That would be my recommendation. We have to focus on questions of information. At the beginning of my work here in Canada, when we started to create this bridge between the two countries, we suggested to the Calgary Chamber of Commerce and the Moscow Chamber of Commerce that we create an international information project, and we did it in 2006. We called it "Moscow Information Centre," "Moscow" because at that time we could not call it "federal" as we worked only at the local level. It was a pilot project and we received many letters, from more than 30 countries, from different companies and people who said: Thank you very much for this information. We know that you do not have enough financial support and you do not have enough staff, but what you have done is useful and we can now get the necessary information about the three biggest regions of Russia: Moscow, Komi Republic and the Primorsky region.
I want to stress the Komi Republic because it is the richest oil and gas region. For our business in Alberta, in Calgary, it is a very important region for doing business with Canadian oil companies.
The Chair: Ms. Bobrysheva and Mr. Borg, on behalf of my colleagues, I want to express our gratitude for appearing before us and giving us your thoughts, which will be useful to us as we go forth. In a matter of 10 days or so, we will be going to Russia. Your information will be of great assistance in that vein.
Mr. Borg: Thank you. It has been a pleasure and an honour. This is my first attendance before a Senate committee and my first trip to Ottawa. It has been a wonderful experience.
We would like to make an offer: We would be glad to provide assistance if there is anything we can help you with on your trip — for example, a meeting with the Russian Chamber of Commerce. I know you will enjoy your trip. It is an amazing country. If you go with an open mind and look around, it will surprise you.
I am not sure of the protocol, but we have a small gift from the City of Moscow government to present to the committee, if that is appropriate.
The Chair: Yes, thank you.
While this is taking place colleagues, I want to inform you that I have extended an invitation for a luncheon a week today, next Wednesday, to Ambassador Mamedov of the Republic of Russia. Our committee members, particularly those travelling to Russia, will get an official memo once it is confirmed. I urge any of you who can attend to let us know so we can make the appropriate arrangements in the Parliamentary Restaurant, or wherever we find ourselves.
(The committee adjourned.)