'In the West There Is a Lot of Cash but a Lack of Ideas'
Few European businessmen come to Russia to work here on the permanent basis; especially, if their business has to do with such an area as legal services. The French investor Alexandre Garese came to Moscow right after his graduation from Sorbonne and has had no regrets whatsoever. Garese explains why it is more attractive in Russia than in the West, how he works under sanctions, and why he wants to invest in Kazakhstan and Ukraine.
You have been living and working in Russia since you’ve started with a small law office here in the turbulent 1990s. Many Russian businessmen, including high-profile ones, have left this country and are now living in London, or Israel, or New York. Why did you decide to stay in the foreign country?
Garese: It has always been interesting to work in Russia, and it is getting more and more interesting with every new project (laughs). Seriously though, when I was growing up in the 1980s in France, I heard a lot of talk about the Soviet Union. But the country was closed to us, and very few people managed to visit it. And I felt really attracted by it. In the early 1990s after my graduation from Sorbonne I was offered a job at the Russian Embassy and immediately agreed. The more I discovered the country, its culture, habits and people, the more I liked it. The most important thing for me then and now has been a sense of great opportunities. In Europe in the early 1990s it seemed like everything had already been accomplished and all the places in the sun seemingly had been occupied, and just a few prospects remained for the future development. Besides, Russia can boast its prominent and strong culture and tries to keep up its traditions, world outlook and lifestyle.
It seems, the USSR had a romantic air about it when you left your motherland...
Garese: True, that’s a given (laugh).
So, you were never afraid of the Redland in its worst sense?
Garese: You see, in the West there were definite signs of one’s belonging to a particular class of society manifested in everything from clothes to manners and behaviour. Say, you go by underground and see no difference in faces of a 20-year old man and a 50-year old man. As if nothing has changed in their lives during these 30 years. It was never the case in the USSR. The faces there could tell you a whole story, as well as about a person’s character, depending on his or her life experience. And I loved that.
Were your expectations lived up to? Have you ever regretted about staying in Russia?
Garese: Frankly speaking, when I was twenty, I had no far-reaching plans. But surely I never felt bored. During the time here, I have gained tremendous experience.
How did you establish business relations? How did you make up your mind with whom to work in the 1990s? Did you tell it by face?
Garese: Naturally, not (laugh). Jokes aside, thanks to my education and experience I began getting interesting job offers. I wanted to work on large-scale projects and with major structures. So I told my potential clients, “Tell me about your challenges, and I will see to it.” Actually, I have been actively working as an expert for 25 years and dealt with some really ambitious tasks. For instance, I have knowledge of international law and participated in the project of settlement of the Soviet state debt. The scope abroad was different then, i.e. inheritance or divorce cases, and there were few truly ambitious offers. If you had both the will and the desire, in the Post-Soviet Russia you could achieve anything, anything you wanted. Most of Russian population stayed at home, and people did not understand at all what was happening in the country. But those who wanted and were able to run a business, had tremendous opportunities. I’ve built an excellent law practice here.
Were you ever afraid to have practice here?
Garese: I was too young to understand the degree of threat or to have time to get scared. It was like in a movie.
If we compare the current conditions for doing business in Europe and in modern Russia, are there still opportunities for growth?
Garese: In my opinion, there are still more opportunities in Russia today than in Europe. Now there are tools for protecting your capital here, as well as corporate legislation. A big advantage is low income tax rate. In France, for example, not everyone is able to cope with a 50 percent income tax. Just a tiny percentage of the population does it, a large number of people evade the tax code and do not pay taxes at all or pay very little. Moreover, just like in Russia, the payments to various social funds are underpaid, which also increases the tax burden. The biggest problem for business in Russia today is the limited access to foreign financing due to tensions in the foreign policy. But everyone understands that this is a temporary situation. On the other hand, this encourages entrepreneurs to grow relying on their own strength. I can give you an example - my chain of Volkonsky Bakery Cafes. There we are urged to constantly increase our quality. In Russia, the salaries of employees are lower, but the efficiency of labor is also lower, so it is necessary to hire more people, spend money and time on training. At the same time, I find it very convenient to have my family office in Moscow. I have my team here, which is arranges everything for my work in all countries, like tax, real estate and partnership issues. I am proud of my management team here, in Russia; they are highly-qualified and efficient people, and in this sense it is more advantageous to have my office here.
In addition to legal practice, you currently have projects in hospitality (restaurants, a business club) and a media project. Are you planning to do something else in Russia?
Garese: I am currently considering the possibility of investing in agriculture. Nowadays many people suffer from allergies to some types of food, for instance, gluten (contained mostly in cereals - Gazeta.ru). There are many similar types of allergies that didn’t exist in the past. The thing is that during the last 150 years chemical plants have created fertilizers that allow one to gather heavy crop of grain. However, this grain is actually “sterile” and they cannot be sawn again. In the West, in the U.S. and Canada it is impossible to cultivate grain for sowing, because it is protected by intellectual property rights, and for breach of those one will face criminal prosecution. And those rights belong to large agricultural holdings. In Russia and in Ukraine, however, it is possible to grow these types of grain. And they are important to create high-quality anti-allergic products. Now we are considering the possibility of buying agricultural assets in Russia and in Ukraine to grow cereals. We are planning to invest about € 20 million in Ukraine and € 50 million in Russia.
You are running business in three countries - France, Russia and Ukraine. Are you looking towards the CIS countries? Are there any prospects there?
Garese: Yes, there are prospects there. We are considering participation in an oil and gas project in Kazakhstan, the production of hydrocarbons. But due to the crisis in Russia, less investors are willing to invest in Kazakhstan assets, which negatively affects the business climate throughout the CIS. On the other hand, oil prices have stabilized, and there is not much cash in Kazakhstan, and one can compete for very good oil and gas fields. Mostly, oil. Such a project will require significant investments. But I have partners in Europe who are ready to invest in such a project under favorable conditions.
Are you planning to attract loans?
Garese: All projects in my company Garese&Associates - the chain of Volkonsky Bakery Cafes, Kuznya Restaurant Club in St. Petersburg, Cooker’s Gourmet Cafe - are done without loans from banks. If we talk about oil and gas and agricultural sectors, I am indeed considering the possibility of attracting external financing. We are now negotiating with financial structures, including Western ones. In the West, there is a lot of cash that people are willing to invest, but either there is a lack of ideas, or the niches are occupied.
Did the war of sanctions have any impact on your business?
Garese: If we speak about Volkonsky Bakeries, and not only them, we had imported a lot of products till 2014. That’s why after the sanctions and counter-sanctions had been introduced, the whole restaurant business suffered the same difficulties. Still, within the past two years we managed to find Russian suppliers for as much as 70 percent of the raw materials used in our production.
Last year the name of Alexandre Garese was mentioned in connection with a notorious story of the apartments of Dmitry Rogozin, the Russian vice president. The flat was estimated at 500 million rubles (which Rogozin himself repulsed). In the same story Alexander Babakov, a State Duma deputy, and Yevgeny Giener, a businessman, were mentioned. What connections do you have with these people? And what is true about this story, and what is a lie?Garese: This story has nothing to do with me whatsoever. Moreover, when the deal was concluded, I was not the owner of Minimal Technology any longer. I was one of the founders of Minimal Technologies in the branch of corporate rights services, that’s why the journalists used my name in connection to this story. But, actually, it’s a factual error. The company was bought from me by an English businessman. And later I stopped representing the client’s interests and had nothing to do with the story with the apartments. Let me give you a wider context. In the late 1990s I had clients, who were rather well-known businessmen, and I consulted them on international laws, including ones linked to real estate business. In the early 2000s I helped Alexander Babakov to structure privatization deal of one of the major energy assets in Ukraine (the mass media considers Babakov to be the beneficiary of VS Energy that own energy assets in Ukraine - Gazeta.ru). Since the World Bank and some American financial structures were among the participants in the deal, expertise in the sphere of international law was needed. In this case I worked on success fee basis; it means, the consultant gets its fee only in case of successful completion of the project. As a result, all parties benefited from it, and energy resources consumers received a company that is still efficient. The project itself, though not at once, allowed me to get a reasonable income and became one of the major sources for my private investments used later.
In the early 2000s you were on the Board of Directors of PFC CSKA Moscow and represented interests of Bluecastle Enterprises Ltd that owned 49 percent of the club. Are you still the main owner of Bluecastle?
Garese: These days, no. Yevgeny Giener (who is the main owner of PFC CSKA Moscow) asked me to help him with structuring of the football club. If we think about the state Russian clubs were in 1990s and 2000s, we will understand that it demanded a lot of efforts. In 2001, I entered the Board of Directors of PFC CSKA Moscow and became its independent member. We managed to improve financial state of the club and build up reliable processes within its management team. I hope, I partly deserve my credit for winning the 2005 UEFA Cup. Apart from significant financial results, this project gave me a wonderful experience in management. Despite the fact that I sold my block of shares of the club, I still keep track of the club’s performance.
You are the co-owner of projects in several different areas. Which of them do you consider the most lucrative?
Garese: If we speak about the businesses that are already functioning, it is Volkonsky Cafes Chain. This project has grown a great deal during the previous years. We now have 60 cafes in Russia and Ukraine, franchising partners in the Russian regions are joining us. Kuznya Restaurant Club, that is on New Holland Island in St. Petersburg, is also rapidly developing in terms of its future prospects.
The Kelia Business Club project, is it a hobby for you?
Garese: Russia, unlike the West, is not yet accustomed to business clubs. But the culture of networking and business communication in an informal environment is already successfully developing. Russian businessmen who survived the metamorphosis of the 1990s are gradually adopting the best of European culture. In this case we strive to follow the best traditions of such famous clubs as London's Soho House & Co or the New York’s Norwood Club. By the way, there were similar institutions in Russia even during the times of Catherine the Great - merchant clubs and assemblies. We’ll see, if we can revive this tradition. Anyway, I'm quite satisfied with how the project is developing. Kelia is not a hobby or a charity but rather a strategic investment. To me it is actually not a choice of either-or: business or law practice; law practice is very much in my focus.
You must be having a very tough schedule. Do you manage to have rest with your family? What do you usually di in your leisure time?
Garese: My wife and I have six kids, and the elder one has recently entered a Moscow university. In our free time we are trying to be with our kids, though, not all of them live in Moscow, that’s why we have to travel a lot. In my leisure time I enjoy playing horse polo and go in for yoga. By the way, I’m considering a small business in this sphere. I like collecting art. I have pieces by European artists, and I am also interested in Ancient East. Here, in Russia, I couldn’t but fall in love with Russian paintings, there are really interesting pieces by Soviet artists. Recently I have bought a large collection of Kukryniksy, an artistic group of Soviet graphic artists. Maybe one day I will exhibit these works that will definitely find their fans among admirers of Soviet realistic art.