In Russia, opportunity still beckons – and so do the pitfalls – by Barrie McKenna and Nicolas Johnson (Globe and Mail – March 9, 2012)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

OTTAWA AND TORONTO— Vladimir Putin has a point when he says Canada is missing out on vast trade and investment opportunities in Russia. But it’s a far more complex picture than Russia’s newly returned President suggests.

The country’s de facto ruler since 2000 – president until 2008, Prime Minister since then, and soon to return as President after an election victory over the weekend – told The Globe and Mail in an interview in Moscow last week that he is concerned about how little trade there is between Canada and Russia, given the two countries’ similarities. Each country has vast stores of oil and gas, large agriculture sectors, and large mineral reserves, such as potash.

Two-way trade totalled just $2.8-billion last year – roughly half of what Canada did with Brazil and a quarter of trade with relatively tiny Hungary. Investment is also light: Canadian direct investment in Russia totalled less than $600-million in 2010, up 12 per cent from 2009.

But there’s a reason for that. For all its promise, Russia remains an exceedingly tough place for Canadians to do business – its potential undermined by distance, taxes, corruption, red tape and unpredictable investment rules, particularly in mining.

Toronto gold miner Alhambra Resources Ltd., for example, has found success in neighbouring Kazakhstan, but deliberately shuns Russia.

“Russia is too difficult. We wouldn’t go there,” said Ihor Wasylkiw, the company’s chief information officer, citing high taxes and regulation.

“Do you want to invest a billion dollars in a country where they can come to you one morning and say, Good morning, we’re taking over your company?”

Last month, Barrick Gold Corp. said it is pulling out of Russia altogether by selling its 20-per-cent stake in Highland Gold Mining Ltd. – a move analysts suggested was due the difficulties of operating there. Many other companies are waiting for investment rules to be relaxed, as Russia has pledged to do.

And yet several prominent Canadian companies are thriving in Russia – in mining and other sectors – including Magna International Inc., Bombardier Inc., SNC-Lavalin Group Inc. and Kinross Gold Corp. Beyond mining, the Canadian government has identified other key prospects in oil and gas services, food, agricultural equipment and building products.

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