FP&A in Russia and the CIS: Holding on to Progress
As someone who was born in Russia and grow up in the Ukraine it’s difficult to maintain a wholly-impartial stance to recent developments, especially when one has close connections both with individuals who strongly support the stance adopted by Vladimir Putin and others who are equally opposed. However, when travelling to Russia earlier this month for the latest meeting of the Moscow FP&A Club I resolved that the scheduled topic of ‘Rolling Forecasts’ would be strictly adhered and the session would not stray into the minefield of politics.
Nevertheless, the meeting inevitably offered a reminder of the strong progress that both the Moscow and Kiev FP&A Clubs have made in just a short period since their inception, which now stands in danger of being forfeited. The 2 April gathering in Moscow was attended by 28 professionals, both native Russians and expats, and the companies represented included Nokia, PepsiCo and others. It was an excellent, very dynamic discussion and as usual it was only time that was restricted and not the exchange of ideas.
The current grim political reality reasserted itself only at the end of the evening at the networking session. Talk turned to the fragile situation and the uncertainties hanging over the future of the Ukraine. Perhaps most discouraging was our inability, due to this volatility, to provide members with a specific date for the Club’s next meeting. However, those present expressed confidence that the situation would ultimately resolve itself; indeed a few individuals were generous enough to offer their company’s office as a venue for future meetings, to spare the Club the expense of hiring a hotel.
Against a gloomy backdrop, it’s gratifying that Club members appreciate the free exchange of ideas and personal experience that the meetings engender; also the fact they are free of the sales pitches from vendors that typically form part of many conferences and events. That we are meeting a definite need was evident from the fact that the audience for FP&A meetings regularly comprise a mixture of new faces and those who have attended before and are impressed enough to return.
It is also encouraging that the potential for FP&A certification to develop further in Russia is immense. Unlike in Western Europe, companies generally do not actively promote it, so individuals must meet the expense of studying and taking the exams from their own resources. However, for those who have attended prestigious establishments such as the London Business School or Chicago University’s Booth School of Business the price is worth paying. Financial professionals in Russia who work for Western organisations are typically better remunerated than the average worker – as is reflected in the tax rates levied on them.
The demand for FP&A certification in the region also extends far beyond Moscow. The certificate is regarded as an international passport to professional success, rather than a country-specific qualification and therefore generates keen interest across the region.
Feigned Indifference
It would therefore be tragic if political tensions were to halt, or even reverse this progress and the advantages were lost. This attitude was reflected in the mood during the networking session at the 2 April meeting. Russian financial professionals are typically not outspoken and they choose their words carefully. However, it was very evident that they do not share the nationalistic fervour that has supposedly gained hold among many of their countrymen. They hope that the political situation will not deteriorate further, they want foreign investment in Russian companies to be maintained, they want to continue to travel freely internationally and they wish for their children to have the same opportunities. Nor do they wish for Russia to exploit its position as a fuel exporter, as falling prices will inevitably be damaging to businesses.
In short, reports that Vladimir Putin’s hard-line policies have the support of as much as 80% of the population can be taken with a large pinch of salt. Even before the current political situation the rouble (RUB) had suffered significant devaluation, as was evident from Moscow shop prices during my most recent visit. Anyone who holds a senior position can appreciate the potential impact of sanctions on Russia imposed by the West and is concerned, so Russia’s supposed indifference to any economic penalties that may be levied against the country is no more than a pretence. The European Union’s (EU) trade with Russia in 2012 amounted to £280bn (by contrast the figure for the US was just one twelfth of that total). Educated FP&A professionals are therefore alarmed by the potential impact on their companies’ profitability.
Already, while companies’ established operations have yet to be seriously affected, new projects and developments have either been put on hold, or seem increasingly unlikely to progress beyond the planning stage. On a more personal level, financial professionals in the Ukraine have lost their jobs as Western banks shut down their operations due to the uncertainty. Hopefully, this could be lifted if Ukraine is able to go ahead with elections on 25 May as planned. Indeed the country’s acting premier, Arseniy Yatsenyuk, is hopeful that the economy can stage a recovery within two years if the threat of invasion recedes.
If there is any positive sign within such a discouraging scenario it is that tough conditions force companies to optimise each of their processes. This can only help to advance the cause of FP&A, with skilled individuals being more in demand than ever. Despite the short-term volatility, there is reason to hope that these professionals can help Russia develop an improved tax structure and more attractive business rules, which in turn will attract more inward investment.
What are the characteristics of the typical Russian senior financial professional/chief financial officer (CFO)? Typically he or she is relatively young – between the age of 30 and 35, adaptable and can survive tough economic conditions. Many will be too young to remember the hyperinflation that Russian companies had to contend with 20 years ago, but they will have learned from older colleagues about the challenge posed by such conditions. Many of them write regularly on financial issues, which show them to be highly analytical so they will survive whatever new challenges the months ahead might present.
Although not a treasury professional myself and not in a position to forecast what will happen, the World Bank has said that the Russian economy’s gross domestic product (GDP) could contract by as much as 1.8% this year if the standoff between Russia and the West over Ukraine escalates. Separate reports suggest that the country’s production levels could decline by 10% and those of the Ukraine as much as 15%.
It’s obviously a severe disappointment that the future of the Moscow and Ukraine FP&A Clubs remain shrouded in uncertainty until the political situation resolves itself. However, in the meantime members can access webinars and some have even proved willing to travel to events in cities abroad, with Ukraine members present at last week’s meeting in London. So recent developments are a setback, but the cause of FP&A remains strong.