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The view from St Petersburg: John Faraci

With business and economic leaders gathering for the St Petersburg International Economic Forum Business RT spoke with International Paper CEO, John Faraci, about President Medvedev’s keynote address and Russia’s investment climate.

President Medvedev’s keynote speech at the St Petersburg International Economic Forum outlined his vision of Russian economic development, and discussed recent successes such as the successful IPOs of Yandex and Mail.ru.

Other topics include the development of a $10 billion state private equity fund a $30 billion asset sale. According to Medvedev, Russia’s Government will come up with particular figures and the list of the Companies involved in the near future.

“The government doesn't need such a large amount of property. The government has submitted its ideas for the schedule for privatization of major companies. The implementation of these plans is necessary but these plans are very modest. The government has until the first of August to adjust the scale of privatization in order to resolve this. I am sure we will be able to go through with the privatization in a modern, transparent way, in order to attract effective private investors and generate sufficient funds for the Russian budget.”

He noted that the Government in Russia should rather foster private business than act as an owner of the economy, with participation in international economic organizations a key part of that.

“Businessmen have a saying: markets are just like parachutes – they only work when they're open. And the case for Russia is that we will fall hard if our economy is not open. That’s why we will lower barriers for foreign investment and are looking forward to finalizing our membership of the WTO and OECD.”

RT:  Earlier today you met with President Medvedev, what did you take out from the meeting?

JF:“I think he emphasized what he said in his speech, he is committed to the new Russia.  He understands that Russia has to change, it’s part of the global world. I think Russia is moving in the right direction.  We have been in Russia now for 10 years and we see a lot of change, but there is still a lot of work to do.”

RT:  How would you rate Russia’s investment climate and the state’s efforts to improve it?

JF:“It is still difficult.  There is a growing market here.  International paper, in our joint venture with Ilim, is in the business of adding value to Russia’s resources and supplying products here in Russia and also exporting them to China, so I think the investment climate is getting better, but there is still a lot of work to do.”

RT:  In terms of that more work to do are the anti-corruption efforts and along those lines.  What do you think can be done in order to battle not only the real effect of that but also the perception of that insofar as it may be a barrier to doing business here?

JF:  “Well I think the best way to demonstrate that Russia is different is by, through success and by businesses actually succeeding in Russia.  We are right in the middle of a billion dollar investment program in our Ilim joint venture, and I would say we are managing.  It is tough but I think the President is committed.  The Russian President is committed to an economic environment that attracts foreign direct investment, and dealing with corruption is one of the issues which is a barrier."

RT:   Can you tell us a bit more about your expansion strategy in Russia?

JF:  "Well we formed a 50-50 joint venture with the Ilim Group 4 years ago, and at that time we committed to the Russian government, to the President, that we would invest a billion dollars over a couple of years to modernize and expand the facilities as part of the Ilim Group.  We are right in the middle of that expansion now, and it is the biggest expansion in the forest products industry in 30 years."

RT:  How will Russia’s accession to the WTO affect business?

JF:  “I think generally it is a good thing.  Russia is the only member of the G8 and G20 that is not in the WTO, it is the largest economy in the world that is not part of the WTO, and taking down trade barriers and putting Russia on an equal footing, as it should be with the other countries in the world, as part of the WTO, is going to be a positive, I think, for Russia and for all the other countries that are part of the global economic world.”

RT:As the CEO of International Paper, how specifically is business in Russia?  Do you think the country is well positioned to for the relative strengths and weaknesses of the country in order to move forward with your particular industry?

JF:“Russia, like a lot of developing economies it has got a lot of infrastructure investment they need to make in order to support a growing economy, and more investment.  So first there is infrastructure and then less regulation. Russia has still got a lot of regulations that slow down the productivity of capital, and things take longer.  I would say that those two specific things – infrastructure and regulation – would be two important things for Russia to do to spur foreign direct investment.   But I think it is doing pretty well, I mean we ship, in one of our businesses, 100% of what we make is sold here in Russia.  So we are in the paper business, so that’s a good barometer of economic productivity, and the other business we are in is a big exporter to China and obviously that’s doing well.”

RT:In particular to the paper industry though, along with the infrastructure, the resources, is there what you need here in order to make the product?

JF:  "Well certainly Russia is blessed with natural resources.  A third of the world’s softwood forest is here in Russia, and we manage that very responsibly.  The trees are growing faster than they are being harvested, and replanted.  So Russia has got what you need to make paper and packaging.  It has got fibre and energy, hydropower, so Russia has got the resources that we need to be an exporter to the rest of the world, of pulp and paper products."

RT:  And what is your take away so far of the forum?

JF: “Well every year the forum gets bigger.  I think this year, I just got here this morning, so I haven’t seen a lot of it, but it is well attended, you know that’s for sure, and the St Petersburg International Economic Forum has become a global event.  An important on for people doing business in Russia, and for people doing business all around the world.”