Baltika Breweries, Part of the Carlsberg Group, Announces Three Conditions to Boost Russia’s Investment Appeal

april 15, 2016

On 14-15 April, Moscow welcomed Global Conference for the Growth of Investment capital in Russian Economy InvestRoss-2016. Baltika Breweries, part of the Carlsberg Group, introduced its own vision for the prospects to enhance the investment climate in the country and offered to adopt effective ways driving the trust between business and government.

In Large Business session: Investment Strategies, held on 14 April, companies discussed prospects of Russian economy as a subject of investment interest of the global and national business. Using brewing industry as an example, Alexey Kedrin, VP Corporate Affairs of Baltika Breweries, demonstrated the critical role that constructive dialogue between business and government play for the long-term investment strategies of large companies.

The Carlsberg Group, owner of Baltika Breweries, has been investing in Russian economy for many years. Since the company has got into the Russian market, its investments exceeded USD13 bln. The Carlsberg Group has recently completed its global strategy for the term until 2022. One of its key priorities for the period is to improve business performance in Russia. Despite the fact that throughout the recent years, Baltika’s share in the total operating profit EBIT of the Carlsberg Group dropped to 16%, Russia still remains the largest market for the Carlsberg Group and plays a crucial role for it.

In general, brewing and related industries in Russia create about 443,000 jobs (directly and indirectly). In view of the induced social and economic effect, it is obvious that the total contribution of the brewing industry in the employment can reach 649,000 jobs. The above figures show the strength of the social and economic links and seamless integration of the brewing business into the structure of the Russian economy.

Still, the more stringent regulation of business affects the investment climate. The worsened performance in the brewing industry after beer was classified as spirits can serve as an example of poor and out-of-balance approach to regulation. The outcome was a continuous market slowdown during 2008-2015 when Russian beer market declined up to 30%. As a manufacturer of excisable goods, the industry demonstrates lower budget revenues even amid the increased excise duties on beer. Baltika Breweries alone showed dropped tax revenues in 2014-2015 by RUR15 bln. It is obvious, that due to such conditions, the investment interest declines, there are more factors for investors to look at markets whose growing economy helps implement the boldest investment projects.

Alexey Kedrin, VP Corporate Affairs: "We see that we have to seek a compromise – on the one hand, to implement a reasonable concept of the government to reduce alcohol abuse and share of liquor consumption, on the other hand, not to create artificial barriers for business growth. We identify three pillars essential for this approach: efficient cooperation (not interaction, not dialogue, but namely cooperation) of business and government in terms of plan implementation. It deals with better regulation assessment, the use of principles evaluating the actual impact of the governmental regulation on business, and common roadmaps. It is time to adopt the principles of smart regulation in the country. The second is trust. The government, business and society should trust each other. Administrative barriers, tougher governmental regulation amid the recession are radical ways to undermine the already fragile trust of business in the government. The recession will pass, while the lack of trust (meaning the reluctance to invest in challenging innovative projects) remains. At last, the third pillar is balance. Traditionally, the stability of each system lies in its resilience. One can stay resilient if it preserves balance. Here, it is a balance of interests. Today, we have no tool helping to fit business strategy in the strategy of the state. Business in Russia has an enormous investment potential, but its use is inefficient as the government fails to include it in its plans and estimates it just looking back."

According to experts, there are preconditions for improvement. However, we need some volition of all stakeholders that predetermines the readiness to pursue compromise and solutions suiting all participants: business, government and society.

***

JSC Baltika Breweries, part of the Carlsberg Group, is one of the biggest Russian FMCG companies; from 1996 it has been No. 1 on the Russian beer market. Baltika owns 8 breweries in Russia and has a wide brand portfolio. The company is a significant part of Carlsberg Group and its Eastern Europe region, which also includes Azerbaijan, Belarus, Kazakhstan, Ukraine and Uzbekistan. Baltika Breweries is a leading exporter of Russian beer: its products are represented in more than 75 countries around the world, the company accounts about 50% of all Russian beer exports.

Move Up