Russia Beyond the Headlines #9

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Life after 40: Discrimination in the workplace

Tatarstan: New solutions to the oil curse

Can a new sports mascot unite the nation?

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WEDNESDAY, SEPTEMBER 14, 2011

NEWS IN BRIEF

Fashion Designers from the post-Soviet states are finding cult followings in the Big Apple

Plane Crash Devastates Kontinental Hockey League On Sept. 7, a Russian-built Yak-42 airplane carrying one of Russia’s most popular hockey teams, Yaroslavl Lokomotiv, crashed 160 miles north of Moscow. Forty-four of 45 people on board were killed, including several foreign players and Canadian coach Brad McCrimmon. Lokomotiv played in the prestigious Kontinental Hockey League, which consists of 24 teams from five countries. The accident is part of an ongoing series of disasters in Russia that has brough aviation safety under major scrutiny from President Dmitry Medvedev.

See a video tribute to the team at rbth.ru/13394

Developments in Russia’s energy distribution

AP

In honor of New York Fashion Week, RBTH talks to emerging designers from post-Soviet states who are making some waves in Manhattan.

of civilizations; creative artists reveal the fierce duality of being both Eastern and Western. Yet today’s designers from the former Soviet Union are also buoyed by two decades of open borders, the endurance of the petrodollar and Russians’ penchant for the pursuit of beauty.

NewYork is the ultimate frontier for designers from Russia and the former Soviet republics. Russian-born designer Alexandre Plokhov, whose label Cloak has reached cult status, is returning to New York after three years in Milan, where he also designed menswear for Versace. Plokhov’s eponymous brand will be

STEPHAN RABIMOV SPECIAL TO RBTH

It is a rare moment in fashion to encounter a fresh point of view.

But 20 years after the fall of the Iron Curtain, designers from Russia and emerging post-Soviet markets are garnering attention — even in New York — for their new perspectives and experimentalism on the catwalk. Russian style exemplifies the complex phenomenon known as the clash

launched at Barney’s in September, and longtime Vogue editorin-chief Anna Wintour recently graced him with a visit to his showroom in the Flatiron District.“This is my home,” an elated Plokhov said.“I love this city and the opportunities it represents.”

One of Kazakhstan’s leading designers Kuralai Nurkadilova hopes to present her KURALAI Fall/Winter collection in February 2012 during Mercedes-Benz Fashion Week at Lincoln Center.

In Central Asia creativity and craftsmanship are fueled by rich cultural heritage and ready access to some of the world’s finest

cotton, wools and hides. These designers also seem to benefit from the growing geopolitical interest in the region.

New York City is the ultimate stage to launch a designer’s international profile since it provides unrivaled worldwide access to key decision makers.“Designers who think they’re ‘artists’ are attracted to Paris. Designers who want to be about fine craftsmanship flock to Milan. Those who want to do business and make money come to New York,” said Mickey Boardman, editorial director at Paper magazine.

CONTINUED ON PAGE 7

EAST NEWS

Fashion’s Final Frontier

Russian designer Lena Vasilyeva’s spring/summer 2011 collection shows some swagger on the catwalk. PostSoviet designers are looking to New York to create an international business profile, according to Paper magazine’s editorial director, Mickey Boardman.

Stocks Russia hopes to improve its attractiveness to foreign investors by simplifying the system

Moscow Exchanges Go Two for One By year’s end Russia will have one stock exchange. Will it help Moscow become an international financial hub, or stifle competition?

ANTON MAKHROV

For the past 15 years, the Micex (Moscow Interbank Currency Exchange) and R.T.S. (Russian Trading Systems) exchanges have been fierce competitors. But by the end of this year, Micex will have swallowed its principal rival. The deal, in which roughly 35 percent of R.T.S. will be paid for in cash and the other 65 percent exchanged for Micex shares at a coefficient of 3 to 1, was announced at the end of June and was approved by shareholders from both companies on Aug. 5. R.T.S. has been valued at 34.5 billion rubles ($1.23 billion).

Proponents of the merger maintain that it will make the Russian market more attractive to foreign investors, who were put off by the system of two exchanges.

“The merger of R.T.S. and Micex, the creation of a united

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The merger of the RTS and Micex exchanges may improve stock market infrastructure.

structure, raising its standards of corporate management and holding an I.P.O., a quality I.P.O., will help raise the organization’s capitalization and increase the liquidity of the Russian market,” said Alexei Ulyukaev, the first deputy chairman of the Russian Central Bank.

Market players are, however, skeptical about the merger.“The only way to attract Western investors is to raise the quality of the services we offer,”said trader Dmitry Belchenko. “And development is impossible without competition.”

“The only thing pushing the market to develop was the competition between Micex and R.T.S.,”said Anatoly Gavrilenko, chairman of the oversight committee at the Alor Group of Companies. “All new products appeared on the market thanks to competition. The market worked fast because R.T.S. had to compete with the developing Micex market.” Proponents of the merger respond that development at the London Stock Exchange is not hindered by the absence of domestic competitors.

Nord Stream, a gas pipeline directly linking Russia and Germany underneath the Baltic Sea, came online on Sept. 6.When fully operational next year, it will allow Russia to largely bypass Ukraine’s network in exporting gas to Europe, avoiding previous winter supply disruptions that resulted from Ukraine’s refusal to pay market prices for gas.

Meanwhile, oil giants Rosneft and ExxonMobil partnered to explore oil fields in Russia’s Far North.

The deal also gives Rosneft unprecedented access to oil exploration in North America and could generate up to $500 billion in investment, according to Prime MinisterVladimir Putin. ExxonMobil has effectively replaced BP as Rosneft’s partner.

Read an expert opinion on the “gas war” at rbth.ru/13396

Government Gives Away Land to Large Families An initiative originating from the Ivanovo region has become federal policy as Russian families with more than three children become eligible to receive free plots of land under a new law. The plots will come from land currently owned by federal and municipal authorities.

“We see this as a serious step toward developing low-rise housing in Russia,” said Elena Nikolaeva, President of the National Agency for LowRise and Cottage Construction.

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Murder in Dagestan: a blow to peace in the Caucasus RBTH.RU/13291

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Are we safer 10 years after the Sept. 11 attacks?

RBTH.RU/13389

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Employment For many positions in Russian companies, experienced candidates need not apply, even for management roles

Midlife in Middle Management THE POLLS

Is Age a Barrier to Finding Work?

Two-thirds of russians reported age discrimination in finding a job, according to kommersant Dengi’s online poll. More than two thousand readers participated in the study over the course of a week at the beginning of august.

The problem of age discrimination is especially acute in Russia, where corporate culture does not value professional experience.

19 potential employers, but when they found out that I was 55, 14 of them openly admitted that they had age limits.”

According to Michael Germershausen, managing director of the Antal Russia recruitment company, vacancies for qualified specialists and middle- and upper-management staff are few and far between for job seekers in the 45 to 50 age range.

“Employers still prefer young specialists for most roles,” said Germershausen. “The main reasons for this are the problems of the older generation — their inadequate grasp of modern economics, their weak knowledge of foreign languages, and the fact that it is hard for them to adapt to modern corporate culture and management style. For example, the unofficial age limit for midlevel professionals in the finance sector is 35-38 years. People think that if the candidate is already in his or her 40s and is not yet a director, then they are either not professional enough or they lack ambition.”

Olga Rybakova, a project man-

Alexei Boyarsky kommersant

“Vacancy for general director – under the age of 40 … head of sales department – under the age of 35 … office-manager – under the age of 30 … ” On the recruitment Web site Superjob.ru, 54 percent of the jobs advertised include age as a criterion for potential candidates.Yevgenia Shatilova, project manager at Rabota. ru, said age preferences are listed in 75 percent of job advertisements, and even if age is not specified, in most cases it is implied.

“I have three separate degrees — in teaching, law and management. Starting in 2002, I was head of an H.R. department, and I was constantly building on my qualifications,”said Ludmila F.“Now, I am looking for a new job and I have sent my C.V. off to 34 recruiters. But I didn’t specify my age on my C.V. I got replies from

ager at the Consort Group H.R. consultancy, suggested that the main reason specialists older than 45 have problems finding work is not their shortcomings as professionals, but the fact that young managers are immature in their outlook and wary of employing people older than themselves.

“They do not know how to build a relationship with them,”Rybakova said.“And they confuse professional activity with unresolved personal conflicts they have with

bers of] the older generation often have a lot of experience in a specific area,” said Alexei Zaikin, deputy C.E.O. of business development at the Solid Investment & Financial Company.“For example, a 50-year-old candidate applying for the role of asset manager might come with a whole client base.”

“The management of foreign companies — especially in German and Japanese companies — often prefer mature candidates,”

Employers still prefer young specialists; sometimes they find it simpler to deal with inexperienced workers.

The average salary peaks around the 40-year mark; after this, income plateaus or goes down.

their parents, so they find it simpler and easier to deal with people younger than themselves.”

said Germershausen.“One of the international companies stipulated that candidates for the role of senior legal consultant had to be above the age of 36, even though similar positions are being filled by people as young as 29 in other companies. The same thing is often happening

The old guard But older job seekers should not give up completely. There are positions out there in which age is a distinct advantage. “[Mem-

Politicians For today’s parliamentarians, going door to door with leaflets is so 20th century

Politics Enters the Matrix This year’s campaign season has seen more battles being waged online, as politicians struggle to appear sincere while fighting off spammers.

Anna Redyukhina

kommersant

Special to RBTH

Dmitry Gudkov’s blog brought military officers into the streets to demand apartments that they were promised.

in her own words

Anna Stupina

DuMa deputy for Moscow’s Nothern District; elected at an age of 21

press photo

Anna Stupina, the youngest Duma deputy of Moscow’s Northern District, is proud of the fact that she broke into politics when she was 21 entirely through social networking.

Stupina is riding a new wave of successful political campaigning on the Internet. As the struggle for political power migrates to the virtual world, Russian politicians have turned social networks and their own Web sites into the new soapbox, the new town meeting and the 21stcentury walk-in office.

This year, the Internet has become much more than a campaign tool: Once in office, Duma deputies began using the Internet as their virtual receptionist and home office. Many also use it to help bring constituents together around a single issue. For Dmitry Gudkov, leader of the youth wing of the Just Russia party, “the Internet gives you direct access to the people, enables you to get feedback and react in real time.”

In May, Gudkov organized a rally demanding that the authorities deliver on a promise to provide apartments for military officers and their families after reports that some were still basically homeless. A thousand people turned up on Pushkin Square, and they got a swift response: “The head of the Defense Ministry’s housing department had to apologize and promise to rectify the situation,” Gudkov said.

Russia’s parliamentary elections are only a few months away, and experts say that this year’s campaign will play out in large part in the virtual world. Some of the observers stress that regulation should be the next step in online politics.

''

The most interesting thing about my campaign is that I haven’t spent a single kopeck, which is quite possible at the local level.”

As of now, the political Internet in Russia“is partly regulated by the mass media laws and partly by election regulations. However, that is related only to the Internet sources that are registered as mass media,” said Andrey Sharomov, senior public relations director of the Grayling communication agency. “Blogs and social sites are regulated the least,” he said.

photoxpress

Russian recruiters often refuse to consider candidates over 40 for top positions.

“The blogosphere is one of the favorite playgrounds of ‘black P.R.’ of Russian politics. The rules of the game in this sphere are not regulated by the law,”said Valery Sidorenko, an Internet/P.R. consultant in Moscow. Spam technologies such as bots, mailings and fake bloggers riding top ratings are all utilized in an average “black P.R.” campaign. The Russian government is working on measures to enforce Russian law on the Internet, according to Ilya Ponomarev, co-chair of the information policy, communication and technology committee.

A bill is expected to be finalized this fall.

The importance of being earnest It was only three years ago that “politicians using the Internet targeted the media. Now they target voters,” said Alyona Popova, an e-government specialist.

At the same time, confidence in traditional media channels is waning.“Financial and industrial groups are buying up media conglomerates, which brings in an element of media manipulation,”said Maxim Mishchenko, a State Duma deputy and leader of the Young Russia movement.

“People no longer trust organi-

zations; they trust the people within the organizations.”

Russian politicians have quickly learned how to market themselves. The most salient feature for a politician is to appear real, which is not a simple task. “In the 1990s, it was fashionable to hire P.R. managers and press secretaries to communicate with the general public. In 2011, a politician has to conduct communication via Internet himself,” said Mishchenko.

The secret to success on the Internet is to be informative. Moscow City Duma deputy Kirill Schitov said: “You have to write exclusive pieces yourself, give your assessment and thus provoke comments.”

Alyona Popova advises her clients to closely monitor their online presence and to watch out for trolls, who create fake profiles to discredit public figures.

The online audience loses interest once it detects a fake or the work of a brand manager instead of a politician.“There is a scramble to get into the top 10 to15 pages of LiveJournal,”said Gudkov.“Phony bloggers, who did not exist before the elections, top the ratings, but they command no trust among the public.”LiveJournal, the most popular social network of bloggers in Russia, has 4 million subscribers and 20 million monthly visitors.

This spring, LiveJournal was under multiple hacker attacks that corrupted its operations, and many blogs, including the blog of President Dmitry Medvedev, were unreachable.“This is a way to destroy LiveJournal and manipulate its readers,” said Ilya Dronov, Director of Product Development at SUP Media, which owns LiveJournal.

But Dmitry Gudkov argues that any attempts by the government to control what is going on in the Internet are doomed. “If the authorities shut down somebody’s blog, the blog becomes even more popular.”

In a separate poll conducted under similar conditions by E-executive. ru, 87 percent of persons aged 3035 reported never experiencing age discrimination. That number fell to

with positions such as sales director in foreign corporations.”

But according to Olga Savosko, H.R. director of B.C.S. Financial Group, not everyone can develop a career in mid-life.“After the age of 50, finding work is possible if you have substantial professional achievements under your belt and you have occupied top positions in well-known companies,” Savosko said. “Alternatively, you could be a specialist in a niche area, or perhaps you would have good business connections that the company needs. But your chances of finding work on the open market are otherwise pretty slim.”

A uniquely Russian problem In general, there are two main paths that lead to financial and career success: the path of the manager and the path of the skilled professional. But in Russia, the career ladder is not well developed in many sectors. For most companies, business is organized in such a way that highly skilled professionals just aren’t

23 percent for persons over 50, with 41 percent of that group describing “some” age discrimination and more than a third (36 percent) reporting “very frequent” age discrimination.

The numbers for persons aged 30-35 were 1 and 12 percent, respectively.

According to Moscow-based lawyer Evgeny Ustin, proving age discrimination (which is illegal in Russia) is difficult. “The decision [not to hire a candidate] is formally based on talks with the applicant and tests. This definitely strengthens the argument of the employer in case the matter goes to court,” he said. “I’ve never seen a case of discrimination in hiring brought to court in Moscow or St. Petersburg,” he added.

needed. In the absence of real competition in a corrupt economy, a manager only needs people who are happy to do their allocated jobs and nothing more.

As a result, the qualifications ceiling for nonmanagement roles is reached between 30-35.

If an employer has not become a manager by 35, then it is unlikely he or she will continue to advance professionally. According to data collected at Superjob.ru, the average salary of various age groups grows steadily with age and peaks around the 40-year mark. After this, income seems to plateau, and in some cases it even goes down.

Even though in the West it is also harder for a 50-year-old to find a job than it is for a 30-yearold, companies in all sectors need staff with different levels of experience. As long as Russian companies frown on innovation and reward people who do what is expected but nothing more, middle age job seekers will continue to hear: “We have a young team — you wouldn’t be suitable.”

Piracy Working within the law to change it

Pirate Party Looking for State Support The Russian Pirate Party was started to fight illegal downloading. Why aren’t the authorities taking their cause more seriously?

Alexander Vostrov Special to RBTH

Google founder Sergey Brin once characterized Russia as Nigeria with snow, referring to the high level of corruption. But when it comes to intellectual property, Westerners associate Russia with another African country: Somalia. Unlike their counterparts south of the Sahara, Russian pirates do not take ships hostage, but according to the rights holders of illegally downloaded music, movies and software, the damage they cause is significant. Piracy is believed to be the reason many Western media products do not reach Russia in their licensed versions. However, Russian piracy has a human face; moreover, it’s a progressive face. The pirates do believe users should pay for content — if they are able to do so.

“You see,” said Stanislav Shakirov, head of the Russian Pirate Party, “there are Web sites such as ivi.ru, or, for example, fidel.ru.

The former is a free collection of licensed movies; the latter charges for watching a certain amount of money (its subscription is about $ 20 per month). Me and many of my friends would gladly pay through pay-per-view or any other system if it is simple, convenient, at a reasonable price and there’s no need to bother with torrents.”

So, what’s the problem? According to statistics, the number of users on illegal-content Web sites is constantly growing. Shakirov believes the attitude is the

root of all problems.“We have no normal payment culture.”

According to members of the Pirate Party a revision of the current cash flow distribution system is a trade-off that will satisfy everyone: It will help protect users’ rights to copyright, and authors will be earning even more than today. But to get this kind of system, the pirates say state support is needed — in particular, the abolition of criminal prosecution for breach of copyright.

“What kind of copyrights do they mean?”asked Boris Turovsky, a representative of the International Pirate Party. “Russian officials must respect international free licenses and help implement them in full.” Otherwise, the International Pirate Party says, the current policy sets a double-standard. The Russian branch agrees:

Piracy is believed to be the reason many Western media products do not reach Russia in their licensed versions.

Reform should start from the above. Only then competitive business models emerge and users will finally understand what they must pay and to whom.

But the Russian government is skeptical about such initiatives.

And it is clear that the authorities have no understanding of what these “angry young men” want. Not long ago, the Ministry of Justice denied the Russian Pirate Party official registration.

The reason? Article 227 of the Criminal Code, which deals with responsibility for an attack against a ship or riverboat.

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Regions Republic blends multiculturalism and modernization In Kazan, the capital of Tatarstan, the local Kremlin houses both a Russian Orthodox Church and a Mosque.

Tatarstan’s High-Tech Transformation

lori/legion media

Ben Aris

business new europe

“Twenty-three percent of all traffic fines in Tatarstan are paid electronically,” said Nikolai Nikiforov, Ta t a r s t a n ’s g r i n n i n g 29-year-old minister of I.T. and communication, sitting in his office atop the glitzy glass skyscraper that forms the I.T. park in downtown Kazan.

Nikiforov is exuberant about his eGov program, which allows access to 25 types of government services — including paying taxes, scheduling weddings and obtaining a passport — via the Internet. “We lose hundreds of millions of man-hours a year on bureaucracy,” said Nikiforov.

In June, users of the eGov program completed a million transactions using the system, a fourfold increase from January. For the 48 percent of households without Internet access, touchscreen terminals across the city offer easy access to the system.

Islam Religion adds motivation for investors

Republic Capitalizes on Its Muslim Heritage The Muslim-majority region has proved to be an interesting investment destination for funds with Muslim shareholders or that are based in Muslim countries. nick watson

business new europe

Although there has been much speculation about Muslim investors moving into Russia, the situation has been one of all talk and no action — until now.

Two Islamic funds have recently launched operations in the Muslim-majority Republic of Tatarstan. The first is the Malaysian private equity firm AmanahRaya Capital Group, which has launched several projects the republic. In the 1990s, most foreign investors headed straight for Moscow. The game changed after 2000, however, and

Kazan was known as a center of learning during the Soviet era, and it still churns out many of Russia’s best engineers.

“The companies here are advanced, and the level of technology is as good as anything I have seen in Europe,” said Nor. Russia’s regions have become the new frontier; Kazan caters to the 80 million Russians that live in the cities lining the Volga River.

“We bypassed Moscow and came to Kazan, as it offers the most attractive investment climate,”said Dato Ahmad Rodzi Pawanteh, AmanahRaya’s managing director.

The fund’s first project was the Kazan Halal hub, which imports halal meat and other products for the region’s Muslim majority.

Once established, the fund financed the construction of a halal meat processing plant in Baltash, 62 miles from Kazan, where local producers can also bring their meat to be processed according to Islamic rules. The latest phase of the project set up an Islamic fund management company that will invest in halal-related projects. The management company will also hold a pilgrimage fund to finance a Hajj for local residents.

“We have been very successful with this sort of fund in Malysia,

and it was an obvious product to bring to Tatarstan,”said Pawanteh.

“But we are also working with the local government to raise funds on a private equity basis to bring in foreign investment to the region.”

According to Pawanteh, the local government has been very active in promoting foreign investment in the region, and has taken a stake in these funds as a way of reassuring foreign investors that it is willing to share the risks with investors.

The second fund that recently established itself in Tatarstan is the Foras International Investment Company, which represents Saudi money and has launched a classic investment vehicle together with the newly established Tatarstan International Investment Company, or TIIC. The $50 million fund will focus on the region’s strengths in bio-technology, nanotechnology and I.T. The company was inaugurated in June; the founding investors have already contributed $10 million and are in the process of raising the balance.

“We are focused on the Volga region and the attractive investment climate the government has created here with tax breaks and incubators,” said Amizan bin Mohd Nor of Foras. “One of the most attractive elements in this region is the high level of science and engineering, especially in things like civil aviation.”

Kazan was known in the Soviet era as a center of learning, and its universities still churn out many of Russia’s best engineers.

It is also home to a flourishing aviation industry as well as a burgeoning automotive sector.

“We have 20 projects in the pipeline, and 80 percent of them are brownfield that we will develop over the next three years,” said Nor.“But probably the most prospective are in the technical aviation sector.”Nor said he can’t reveal the details of the projects yet as they are still in negotiations, but that he is particularly excited by a project to make aviation rescue vehicles.

“The companies here are advanced, and the level of technology is as good as anything I have seen in Europe,” said Nor. “And the trouble with Europe is it is a highly saturated market. In Russia, we can easily find companies where we can really increase the value, with willing buyers in the Middle East and beyond.”

“We could have offered the contract for developing eGov to pricey foreign software engineers, but chose locals instead,”said Nikiforov. “Eighty percent of the system was developed right here, and now the companies are marketing their products in other parts of Russia.”

I.T. currently accounts for 3.5 percent of Tatarstan’s economy, but Nikiforov says the republic is aiming for 7–10 percent, like its peers in the developed world, by 2016. “The tools we have for this — technoparks, venture funds and universities — are nothing individually,”said Nikiforov. “They are part of a single ecosystem we must develop systematically.”

Sergei Yushko, general director of a neighboring technopark called Idea, agrees.“We’ve existed for seven years,” he said,“and a day hasn’t gone by that I haven’t felt the complete backing of local authorities.”Idea was founded on the territory of an abandoned defense plant in 2004 with the aim of creating jobs in high-tech sectors of the economy. By providing two key services to local startups — cheap rent and sound business advice — the technopark “graduated” enough firms within three years to become self-sus-

taining; by 2007, its companies were paying enough taxes into the local budget to repay the start-up capital.“For the last four years, we’ve been independent of the regional budget, and this is important,”saidYushko.“Our experience proves technoparks are a viable model for economic development in Russia.”

Yushko explains that most of the companies at Idea provide engineering services, software design or Web design. After three years, graduates of Idea have the option of leaving the territory of the technopark altogether, usually securing bank loans independently to acquire office space, or moving into its business park, where rent is no longer subsidized. There, neighbors will include the local R&D branches of international behemoths such as G.E., Honeywell and Siemens.“The foreign companies come first and foremost for the qualified personnel,”said Yushko.

“I’m a believer in the unpopular notion that we don’t need factories in Russia,”Yushko said.

“Production will eventually be moved to where you have cheap labor, like China. Our advantage is people and their ideas.”

Still, that’s also one of the

greatest challenges to high-tech companies in Tatarstan.“We want to build an ‘I.T. village’ outside Kazan based on the Skolkovo model in Moscow,”said Nikifirov, referring to Russia’s equivalent of Silicon Valley located in a village near the capital.“By our best estimates, we’ll need to house 20,000 I.T. specialists there to get this sector of the economy as large as we want it. Tatarstan currently has 5,000 such specialists.

We’ll have to attract 15,000 from other regions of Russia.”

Thinking locally In another part of Kazan, an industrial park called Khimgrad became the first such project in Russia to be internationally certified by representatives of Ernst & Young and Knight Frank. Khimgrad focuses on polymer and chemical production and, unlike the technoparks, it seeks to take advantage of underdeveloped raw materials in Tatarstan. “We produce a plethora of polymers in Tatarstan, but these are typically exported and then re-imported with much added value,” said the park’s manager, Airat Gizzatullin. “At Khimgrad, we

don’t work with technologies of global or even national significance; we’re just focused on modernizing the local economy and establishing efficient supply chains.”

Khimgrad offers fully equipped facilities, business solutions and tax breaks to investors — both Russian and foreign — willing to set up production.“Only a complete ecosystem can structurally change Russia’s economy on the scale that our country’s leadership talks about,”said Nikiforov.

“That’s what we’re trying to do in Tatarstan, and we began earlier than other regions.”

But a lot of work remains to be done.“When we asked investors five years ago what we needed to do for them to come, they said, ‘Build a new airport!’ It was a funny response, but carried a lot of truth.”Today, a sign hangs over the shoddy building that services both domestic and international flights to Kazan: “New terminal to be completed in 4th quarter of 2011.”

Read the blog of an expat working in Tatarstan at rbth.ru/blogs/brave

In figures

3.5 %

of Tatarstan’s regional economy is based in information technology.

The republic hopes to increase that amount to between 7 and 10 percent.

7 years Sources: Russian State Statistics Service, Tatar-Inform

Gross regional product (GRP) growth has largely rebounded since the global economic crisis.

Interview Linar yakupov

The Tatarstan Investment Development Agency, headed by Linar Yakupov, provides investors with a one-stop shop for all their government needs, and offers assitance that guides investors from start to finish.

What else does your agency do?

We have two primary functions — to attract foreign investment and to improve the business cli-

mate; they are related, of course.

In addition to promoting Tatarstan as an attractive destination for foreign capital and helping investors who come here, we also lobby business-friendly legislation in government. We have all the tools to do this, as we report directly to the president and prime minister.

We’re currently working on the creation of a regional investment fund in Tatarstan that would hedge part of the risk faced by investors. This is very important because, unfortunately, despite all our rhetoric, Russia is not the most attractive destination for investment. Tax breaks are great, but poor governance and the perceived high level of political risk still scare off a lot of capital. And many changes have to be implemented at the federal level, as the investment climate in Tatarstan depends a lot on the country as a whole. We hope the legal framework for the fund will be in place by January 2012.

have gone by since the Idea technopark was established. The park is now financially independent of local authorities and regularly graduates new companies.

prove road quality in Tatarstan already.

Improving Infrastructure to Attract Investment

ria novosti

Tatarstan is setting an example for the rest of Russia by combining entrepreneurship with government support to create self-sustaining technoparks.

What would you like to see the federal government do to improve the business climate in Russia?

Both Tatarstan and Russia are in very lucrative geographic positions between Europe and Asia.

We need to build roads across the breadth of the country to take advantage of it. To demonstrate the seriousness of our intentions to investors, we need to show we are able to provide such basic infrastructure.

I lived in Malaysia in the ’90s.

They were able to build a network of high-quality roads in a very short period of time and open up previously isolated parts of their country to an influx of industrial parks. China did the same thing, and has attained very high levels of economic growth as a result. The Russian government needs to announce such a plan; we’ve had “national projects” in health care, agriculture, housing and education. They should announce one in road construction. We’ve done a lot to im-

What are your best success stories so far?

The Alabuga SEZ has attracted scores of Russian and foreign investors to the point that its board is considering increasingly large projects every year. I’m also thinking of [truck maker] Kamaz’s joint ventures with Daimler and other companies, [Russian passenger car manufacturer] Sollers’s launching of a Fiat assembly line (with major plans for Ford), and Isuzu.

Fujitsu-Siemens makes hardware and software here, and has seen explosive growth. Their clients include some of the world’s largest corporations, like Volvo and Pepsi. They have created serious competition for similar ventures in India.

We are actively working on developing major aviation and helicopter factories in Tatarstan, which have been here for decades and offer enormous potential for generating value-added products and developing the local scientific base.

That is why we call on investors not to see us only as a source of chemicals and raw materials, but also as a high-tech and manufacturing hub with a highly skilled workforce.

Interview by Tim Gosling

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ECONOMY in brief

Consumer Marketing Finding out what people want is not easy

Companies Teach Russians Western Ways Western companies spend millions of dollars to conduct marketing campaigns aimed at selling products that many Russians never imagined needing.

Khristina Narizhnaya The Moscow times

Soviet women washed dishes with soda and salt for decades, while men never heard of deodorant and teens scrubbed their pimples with soap and water. Not anymore. Western consumer goods companies have flooded what remains in many aspects a virgin market, spending tens of millions of dollars to research consumer habits and conduct increasingly elaborate marketing campaigns aimed at selling products that many Russians never imagined needing.

The companies, such as Reckitt Benckiser, a British consumer goods firm that recently rolled out an advertising campaign for Calgonit dishwasher tablets, view their efforts with an educational slant. “We are launching a comprehensive brand campaign to raise awareness for Reckitt Benckiser in Russia,” said Andraea Dawson-Shepherd, Reckitt Benckiser’s senior vice president of corporate communications.

Polish consumers, for example, spend six times more on dishwashing tablets, because dishwasher penetration in Russia is

soap and water just a little more than a decade ago.

The best marketing campaign, however, doesn’t guarantee a product’s success. After the Calgonit TV commercial, Reckitt Benckiser rebranded the dishwashing tablets as Finish.Reckitt Benckiser hopes for 15 percent annual growth in Russia and the Commonwealth of Independent States, and to double sales by 2016.

Unilever, the British-Dutch consumer goods giant, found that the amount of deodorant the average Russian uses per year is less than one unit, which is considerably less than in Western Europe, saidYegorYevteyev, senior brand

In trying to sell new products, foreign companies have to change traditional consumers’ perceptions.

Today’s Russia is a lot like the post-Reagan U.S.; the consumer service industry is in its infancy.

dean of the Higher School of Economics’ School of Business and Marketing. She said Western companies have succeeded in some areas, such as replacing soda and salt with dishwashing detergent.

“If someone doesn’t have it, it’s like, are you cheap?”she said. The same goes for Clearasil, the antiacne treatment made by Reckitt Benckiser. Most teenagers now use Clearasil, instead of plain

manager for Rexona, a deodorant brand owned by Unilever.

This is a huge opportunity for the company, which has blanketed Russian television airwaves with a Rexona deodorant commercial in which blond and beautiful pop starVera Brezhneva asks, “What do you do to be perfect?”

Before kicking off the campaign two years ago, Unilever surveyed Russian women on who they believe to be the perfect woman — successful, beautiful and feminine — and they chose Brezhneva. “When advertising personal care products,” said Yevteyev, “we try to educate the consumer on the necessity of following the basic rules of hygiene.”

Before releasing products on the market, companies conduct much painstaking research, and often adjust their merchandise to customer tastes. Company representatives watch shoppers in stores, distribute questionnaires, visit consumers in their homes and hold forums to study shopper behavior.

Nestlé Studies Russian Consumers

press photo

Nestlé opened an innovation center in Russia last year to study customer behavior more closely. The center includes a mock shopping area, a kitchen and special rooms to make drinks. The company invested a total of $35,000. Nestlé has put out several products to meet the needs of the Russian consumer looking for healthier food, including ice cream called 48 Kopeks modeled on a Soviet-era brand and Bystrov Prebio instant hot cereals.

Several years ago, after Procter & Gamble research showed that there is no universal cleaner on the market, the U.S. company introduced Mr. Proper, the Russian version of popular American all-purpose floor cleaner Mr. Clean. The company also found that Russian consumers are very sensitive toward the smell of the produ c t s t h e y use.

Procter & G a m b l e ajusts the smell of household products such as laundry detergent, fabric softener and cleanser to make them more attractive.

There is more competition among companies now and a wider range of products, and Russian consumers have become more aware of what they buy, said Dale Clark, a retail and consumer specialist with PricewaterhouseCoopers. Advertising has grown significantly in the past 10 years but accelerated in the last five, he said.

Begemot advertising agency head Yulia Dydichenko said a new trend toward more sophisticated advertising emerged about a year ago. New products, such as flower-scented toilet paper and cosmetic products for men, are filling niches that had never existed in the country.

Today’s Russia, in terms of consumerism, is a lot like the postReagan United States of the early 1990s, when the vast consumer service industry was in its infancy, Komissarova said. As more products and services are offered, com-

www.sukhoi.org

The Sukhoi Superjet was the big winner at this year’s MAKS Airshow, which took place in August in the Moscow Region town of Zhukovsky. Delivery contracts were signed for more than 100 of the planes. The immediate future of the Russian aviation industry depends on the fate of Sukhoi’s Superjet 100 and the Tupolev Tu-204. The Superjet, the first Russian plane to be developed entirely during the post-Soviet era and passed an important milestone last month, successfully completing its first commercial flights under the colors of Armenian carrier Armavia. The second aircraft, the Tu-204, which flew for the first time in 1989 and looks much like the Boeing 757, is having difficulty reinventing itself; only 69 have been built in 20 years.

The overall contract trading volume for the Superjet stands at nearly $3.5 billion. Sukhoi is in talks to sell the jet to U.S. carriers Delta and SkyWest, reported The New York Times.

Despite the debut of Russia’s first fifth-generation military fighter — the T-50 — at this year’s MAKS, no major military contracts were signed.

Read more at rbth.ru/13325 ria novosti

very low, according to company research.

Reckitt Benckiser spends about 12 percent of its $440 million revenue from Russia and other former Soviet countries on consumer research, marketing and advertising, said Bruno de Labarre, the company’s general manager for the former Soviet Union.

In trying to sell these products, the company has to change consumers’ perceptions. In the case of Calgonit, it is changing women’s attitude toward washing dishes, which has always been considered a natural part of home life, said Tatyana Komissarova,

Super Deals for Superjets at MAKS Airshow

Pop star Vera Brezhneva is a model for Rexona in Russia.

panies will have to continue to innovate or fall behind. Russia will reach Western consumer standards very quickly, said Denis Shirikov, a retail analyst with Nielsen, which tracks consumer habits in more than 100 countries.

Branding Company takes home Cannes Lion for milk branding

Russian Marketing Firm Wins Global Recognition Alexei Andreev and Alexei Fadeev took a chance starting a business in the nascent branding industry in 1998, but recognition shows that their risk has paid off.

Daria Trosnikova

Thirteen years ago, the entire workforce of the Depot W.P.F. branding agency in Moscow consisted of just two people, and their work was unknown even in the advertising world. But now Depot’s founders claim that at least half of all the Russian brands widely known today have profited from their drawing board; their client list features major international companies such as Xerox and Nestlé.

What is the secret for launching a successful enterprise? Part of it is timing. In Europe and the United States, branded products and agencies dealing with branding started to appear more than 100 years ago, but in Russia the concept only arose with the arrival of branded products in the marketplace after 1991. During the Soviet era, consumers bought what was available when it was available without much thought as to the quality of the product itself, much less the way it was packaged.

In 1998, in spite of an economic crisis and a lack of funds and

press photo

Special to rbth

Depot W.P.F.’s branding of MLK milk won it international recognition.

experience, two young entrepreneurs with the acoustically compatible surnames of Fadeev and Andreev decided to turn these inauspicious circumstances to their advantage.

“We had a difficult task on our hands,” said Depot’s creative director, Alexei Fadeev. When we started, the concept of a brand didn’t exist — there were companies that dealt with everything, from business cards to TV commercials. So we decided to concentrate on something specific

ress photoxp

Agriculture Rebounds after Fires After a ban on grain exports, Russia is once again poised to become a leader on the global grain market

and, to start with, we chose packaging.”

Alexei Andreev added, “Of course, this decision was influenced by the fact that in our own way we were quite savvy. There was no way we could have become the No. 1 advertising agency according to conventional criteria, but we didn’t want to be No. 101, so we had to create a new niche.”

Andreev and Fadeev said that by their second month of operation, they had a constant flow of

“In our industry, a Cannes Lion is proof of your professionalism,” explained Alexei Andreev. work, and this workload has brought the company more than commercial success.

Now, the firm is awaiting the arrival of a Cannes Lion — the most prestigious award for advertising — currently making its

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way from France to Russia. Lions are awarded for creativity in both design and execution. The company won the Lion in this year’s festival for its work on the MLK brand, which sells organic dairy products. The design, which includes birch groves, grassy meadows and traditional wickerwork, was rendered in black-and-white pencil drawings.

Fadeev and Andreev are also two-time winners at the Epica Awards in Europe.

“In our industry, a Cannes Lion is proof of your professionalism,” said Andreev.“It takes a massive amount of work to win at this festival. It’s not enough just to think up a certain brand; the jury needs to know about the brand prior to the competition. It needs to have been recognized at a number of European festivals, like the Epica Awards, for example. And it also needs to be promoted.

“It’s a labor-intensive process.

As well as [working for] the competition, we are working for the real market, so it’s very difficult to do work that is worthy of a festival prize. Our work is geared towards the mass consumer market. And so, no matter how creative we are, there is inevitably some degree of generalization. So it’s great to find a client who is prepared to work with us towards the goal of a festival prize. We will literally track these people down. And when we find them, we suggest they try their luck at the festival.”

Added Fadeev, “When we see that a client has ambition and a niche product, we offer them the chance to do something a bit different. The client benefits, and we are able go to the festival. This is the only way to do it.”

DST Global Expands its Social Media Holdings Russia’s DST Global has expanded its social media stable with a $400 million investment in Twitter. The deal values the U.S. company at $8 billion, according to Bloomberg. The financing round is being used to cash out Twitter investors as the company tries to monetize its short-messaging service ahead of a bid to go public. An I.P.O. would bring Twitter into competition with other companies in which DST has an interest.

Read more at rbth.ru/13222

GLOBAL RUSSIA BUSINESS CALENDAR NYSE Russia Business and Investment Summit 2011 Oct. 27 – Oct. 28 new york stock exchange center new york, ny, u.s.a.

The Summit will offer a series of panels and one-on-one meetings with institutional investors, allowing attendees to explore investment expectations. Topics will include key trends of policy making, the regulatory environment and investment valuations. ›› www.irtinc.org/NYSE_RBIS

Adam Smith Russian Banking Forum nov. 28 – dec. 1 London, U.K.

In addition to addressing the most pressing industry concerns, this forum will feature a special day on risk management strategies. Executives from Alfa Bank, Sberbank and HSBC have already confirmed their attendance. ›› www.adamsmithconferences.com/ xr41bnee

Find more in the Global Calendar

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Money & Markets

05

MOSCOW BLOG

Scams Unscrupulous investment funds prey upon small investors who don’t know their rights

Russia’s Ponzi Problems

Foreign Investment Flowing Back into Russia Ben Aris

SPECIAL TO RBTH

A ILIA WARLAMOV

HIS STORY

Igor Kostikov

In July, Russia took in $87.7 billion of fresh investment – triple the amount from last year, according to Rosstat.

The Kremlin hopes Moscow City (right), Moscow’s financial district, will become a global financial hub.

BEN ARIS

BUSINESS NEW EUROPE

Igor Kostikov, former chairman of Russia’s stock market regulator, believes that protecting small investors from pyramid schemes masquerading as funds should be just as important to the Kremlin as developing an international financial center (I.F.C.) to attract a broader investor base. According to Kostikov, these schemes are widespread in Russia — and not only are there no laws to stop these scams, but no one in government is responsible for overseeing these funds.

Russia needs to develop a much broader investor base, but recent reforms to the investment infrastructure have failed to build trust among individuals who might invest directly into stocks.

“Creating an I.F.C. is not just a question of having a state-ofthe-art stock exchange,”said Kostikov.“Just as important — more important — is building a relationship with the small investors [in which] they trust the markets and funds to look after their money. That is still missing in Russia. Here, people invest once, get ripped off and walk away, never to return.”

In February 2011, Kostikov established the Union Of Financial Services Consumers (FinPotrebSoyuz in Russian). Its job is to help people who have been ripped off by unscrupulous investment fund scams.

“The investor can’t sue the Russian office, which it turns out has no legal connection with the club,” said Kostikov.

What makes these scams so insidious is that they don’t screw everyone over. The big clubs make real returns. they are told that the club made some mistakes and lost all its money. If the investors start inquiring why the fund went bust, they will quickly hit a wall.

“The investor can’t sue the Russian office, which it turns out has no legal connection with the club.

The Russian end of the operation is acting as an ‘agent’ and reselling the services of the fund that is registered in Cyprus, British Virgin Islands or somewhere,”explained Kostikov. “It is nothing more than a post box and is closed down when it has collected enough money. For most people, to pursue a claim against the company overseas is too expensive.

And even if they did, the contract that they signed in Russia probably has no standing overseas.”

No one is sure how much money retail investors have in these funds. According to the Russian business daily Kommersant, Russia’s mutual funds started taking in money again in the first half of this year for the first time in four years, but still only hold a pathetic $200,000 of total assets under management. Kostikov says there are no official figures, but estimates the value of the total retail investment business at about $300 million.

According to Kostikov, the

The pyramids The way it works is this: An investment club advertises in the press promising handsome returns to small investors, who then get in touch with the Russian office and sign a contract before investing their savings.When they come to withdraw their money,

Russia’s Largest Pension Funds

SOURCE: INVESTFUNDS.RU

scams are already generating tens of millions of dollars, but the state has done nothing to regulate the business; there is still no organ or laws to oversee or license investment clubs. In the meantime, the sharks are left to operate with impunity and can even run highprofile advertising campaigns in the local media.

What makes these scams so insidious is that the operators don’t screw everyone over. The bigger clubs make some real returns and pay back the bulk of their investors, but they bolster the bottom line by simply stealing some of their investors money and using it to pay the rest. Moreover, this practice of padding profits by simply helping yourself to a small portion of investor’s money is widespread. Slightly less egregious, but still unethical, are overly aggressive sales people in established banks who sell more traditional products such as mortgages and car loans. The absence of regulation and a supervisory body means that salespeople push these products on customers even though they know many can’t afford them, simply to earn a bonus.

Even the giant state-owned Sberbank is prone to this sort of problem, although it has been responsive to consumer complaints.

“Sberbank has been one of the few banks that have fully cooperated with us [FinPotrebSoyuz],” said Kostikov. “The consumer complains to the regional branch, but if they don’t get anywhere, they come to us. We took these cases up with the head office here in Moscow. And in each instance, the consumer was refunded their money in a matter of days.”

The root of the problem is the average Russian’s almost total ignorance of his rights vis-à-vis financial services. Companies prey on debtors and intimidate them

KOMMERSANT

It’s not easy for Moscow to become an international financial center when the country’s banks and investment funds keep stealing small investors’ money.

AGE: 53 HOMETOWN: LENINGRAD STUDIES: POLITICAL ECONOMY

Kostikov headed the Federal Securities Market Commission (as the stock market regulator was then known) between 2000 and 2004.

In February 2011, he established the Union of Financial Services Consumers (better known by its Russian name of FinPotrebSoyuz).

FinPotrebSoyuz has no official standing and is funded by a few private sponsors. Its job is to help people who have been cheated by unscrupulous investment fund scams.

when things go wrong. Most of the established consumer credit banks have a well established routine for dealing with problem loans: The account is passed to a special department, which then offers to restructure the terms and pesters the clients with calls.

As the average personal debt in Russia is on the order of $900 — equivalent to a bit more than one month’s average salary — the recovery rate is fairly high, as most people can raise this sort of money from friends and family.

But, if a loan is deemed“irrecoverable”,the banks often sell them to a debt collection agency.“There is no regulatory authority and there is nothing in the personal bankruptcy law that covers debt collectors. They are completely illegal,” said Kostikov. “But almost everyone is unaware of this.”

Raising the levels of awareness is another challenge his agency hopes to take on.

Instability Russian stocks, like those of the rest of the world, are affected by the U.S. downgrade

VLADIMIR RUVINSKY

RUSSIA BEYOND THE HEADLINES

Alongside drops in other world stock exchanges, the Russian stock market has lost, on average, one-sixth of its capitalization since the beginning of August. By Aug. 25, the R.T.S. dollar index had dropped by 18 percent, and the Micex index, denominated in rubles, by 15 percent.

But, according to Evgeny Osin, chief economist with Finam Capital Management, “The Russian market has now stabilized.”Osin expects it to rebound late in the third quarter or perhaps the fourth quarter of 2011.

The recent slump in the Russian stock market was triggered

by Standard & Poor’s downgrading of the U.S. credit rating. Micex and R.T.S. beat the 2008 record daily falls by 5.33 percent and 7.56 percent, respectively. The market bounced back 6 percent between Aug. 10 and 17, before plunging again.

“Everything was plunging: It was Gazprom one day, Sberbank the next and Uralkali the day after,” said Andrey Kukk, Uralsib’s chief trader.

The main reason was that investors were shedding assets marked as risky in their portfolios and moving them into bonds with lower, but presumably guaranteed, yields.

Simultaneously, the markets have moved into a period of greater instability, with daily Micex fluctuations reaching 8 percent.

This has prompted experts to compare these leaps to the volatility of the market in 2008. Kukk attributes the wild fluctuations to speculative investors. “Every spike has been initiated by short positions on any good piece of news from any country,” he said.

This will continue, Kukk said, “until market players make up their minds about whether they are included in the current share prices.”Institutional investors risk less, trying not to lose anything.

According to Kukk, four main factors influence investors on the Russian stock market: “Fear of sliding into a second wave of global recession; fear of a wors-

REUTERS/VOSTOCK-PHOTO

Moscow Markets React to Global Panic The Russian equities market lost everything it had gained over a year this summer as investors sought security in cash and bonds.

Russian stocks are responding to global trends.

ening debt crisis in Europe; instability on the currency and commodity markets; and geopolitical instability.”

Osin points to one more factor: media reports with“a deliberately negative macro-economic and financial character that were reflected in the business climate indicators and investor mood on the market.”

Kukk says investors should rethink risk assessment:“What we see is a debt crisis, while investors move from shares to bonds, which is a paradox.”

Some market players think the stock market is on the way to a slow recovery. Big investment banks have accumulated lots of money in their accounts, but are not doing anything with it.

s one of the few fully functional economies left in Europe, Russia has foreign investors jumping in with verve. In July, the Russian market took in $87.7 billion of fresh investments — triple the amount from a year earlier, according to Rosstat (the state statistics agency). Is the tide turning?

It makes a good headline, but the number is actually a bit de-

The policy of the U.S. and European regulators remains committed to supporting economic demand recovery, which implies rising share prices, including in Russia, Osin pointed out.

“The recovery may be rapid, considering that the E.U. and U.S. have managed to resolve the situation, although it may have involved market shocks,” Osin said.

Analysts with the Alfa-Capital investment company think current Russian share prices are attractive for long-term positions.

Osin agrees: “Today, against the background of a stabilizing market, we see a certain very gradual increase in the number of those wishing to open a long position.”

So far, investors have no pointers in this country or abroad, and many volatile days may lie ahead.

“There is still a lot of uncertainty,”said Alexey Dolgikh, vice president of Troika Dialog. “Big investors are confused, and are sitting on cash. So, there will be a lot of volatility; the market is emotional, but we do not expect a slump.”

ceptive, as much of this money is profits reinvested by existing foreign investors, which is counted by Rosstat as foreign investment. Likewise, more of this amount is due to foreign loans made to pay for mergers and acquisitions deals and the reregistering of Russian businesses to foreign domiciles. Still, the result is indicative of a general increase by foreign investors in the Russian market.

About half of the general investment was actually shortterm credits (180 days or less) that accounted for $46.5 billion of the total. Short-term borrowing by Russian banks also accounted for about half of the borrowing, or $44 billion of the “investment.” But this number is also confusing, since much if not all of it is probably rich Russians lending to their own companies as a way of getting money into the country to support their assets now, but leaving a door open to get the cash back out again when things improve.

Even this trend, though, testifies to improving sentiment among Russia’s rich.

Starting in the last quarter of 2010, Russia experienced a sharp outflow. A total of $31 billion flowed left the country in the first half of 2011. In July, though, the tide turned and investments began to return.

What appears to be happening is that those oligarchs whose businesses are dependent on politics are salting away a little something, just in case the elections bring surprises. This doesn’t mean a change at the top, which no one expects, but potential changes just as damaging farther down the chain of command. As politically tainted businesses rely heavily on relations with bureaucrats, this sort of change can lead to an oligarch losing control of his business entirely. Indeed, Rus-

The economy will bounce back, as has been widely expected, albeit at a slower pace than anticipated. sian President Dmitry Medvedev has started a campaign to remove state officials from the boards of state-owned companies, and more of the same can be expected in the next year.

At the same time, asset prices are getting lower. The priceto-earnings ratio on stocks fell to a ridiculously low four during the worst of the recent sell off by the last week of August.

However, the economy continues to grow at around 4 percent, and the state’s forward-looking forecasts for oil remain at about the $100-per-barrel mark. At the same time, lending by banks was up by more than a quarter in the first seven months of this year. All this suggests that the economy will bounce back, as has been widely expected, albeit at a slightly slower pace than anticipated thanks to the external debt problems in the rest of the world.

For those businessmen doing “real” business, the investment climate is improving and the bold among them are going back to investing in their businesses — since the long-term goal of most businessmen remains to capture as much market share as they can while it is still up for grabs.

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JUMP-START THE ECONOMY WANTED: A nEW DEVELOPMENT PARADIGM of five main currencies — may be sound, but they are unrealistic, not only because of the resistance from the U.S. elite but also the disparities in the positions of the other major countries.

Robert Zoellick, the head of the World Bank, said recently that hard times lie ahead for the world economy. “The world is involved in a change of the international financial system, with such countries as China coming to the fore,” Zoellick said.

Although China does not count for much on its own, China and the U.S. today are two sides of

Stanislav Mashagin

he global system of credit ratings no longer works.

For years, these ratings deterred states from excessive borrowing, caused them to curtail social programs and public spending, and encouraged them to raise taxes. But Standard & Poor’s downgrade of the credit rating of the United States has not had the intended effect. Since the downgrade, demand for U.S. bonds, far from diminishing, has risen, while the interest rate has dropped.

Obviously, the greatest beneficiary from this latest change in the rules of the game is the United States itself. It is now absolutely clear that the U.S. Treasury Department can continue to borrow as much as it likes and to print money — and neither ratings, nor proposed legislation, nor fear of losses will prevent players in the global markets from buying the U.S. dollar. For one thing, they depend on it for assessing value and payments.

Moreover, U.S. Treasury bonds represent cash for financial institutions and major players; they are liquid, denominated in dollars and bring in interest.

I subscribe to Warren Buffet’s simple idea that the U.S. credit rating is still AAA and there is no reason to change it, because U.S. Treasury bonds must be paid for in U.S. dollars, which the Federal Reserve can print in any amount.

There is a real question, however, about the cost of these dollars. We can already sense the answer, as the value of money is rapidly changing. The process started by the U.S. will draw China, Europe, Russia and other states into a devaluation race if they want to keep their economies competitive.

As is often the case, this is both good news and bad news. The good news is that the current world financial and economic model can survive for a very long time without major upheavals.

The bad news is that you and I will have to pay for this stagnation. By devaluing money, states gradually reduce real incomes, hurting everyone, and above all, the poor.

Ideas about changing the very infrastructure of world finance — such as creating a central bank of central banks or replacing the dollar as the universal means of evaluation with gold or a basket

The modern concept of economic development and scientific and technological progress has exhausted itself. the same coin: They will either fall together or emerge from the crisis together, and China still has a margin of strength. China is, at long last, lifting restrictions on ownership of its debts via Hong Kong for foreign investors and appears to be loosening the link between the yuan and the U.S.

Stanislav Mashagin is deputy general director of the investment firm Ursa-Capital.

DIFFERENT CONSUMERS, SAME PRODUCTS Ian Pryde

SPecial to Rbth

I

n the 1990s, many economists in the U.S. and Europe predicted that the euro would fail.

Yet precious few pointed to the West’s huge debt in the late 1990s — or forecast that even higher debt after 2000 would not only lay low the euro, but also the U.S. and indeed the global economy.

On the contrary: Central bankers closed their eyes to burgeoning debt due to their focus on inflation, while the financial sector not only played along, but benefited greatly.

One exception was Peter Warburton, a British financial analyst whose 1999 book “Debt and Delusion. Central Bank Follies That Threaten Economic Disaster” is bursting with prescient sound bites and warnings. On Warburton’s reading, debt makes the West’s prosperity of the last 20–30 years illusory, despite all the new products around, such as plasma TVs, smart phones and tablet computers.

But government debt levels are actually much higher than usually quoted since they don’t include the huge unfunded liabili-

The Moscow Times

I

t might seem that the current economic downturn will be a repeat of 2008. As that crisis was quickly spreading around the world in early 2008, Russian officials claimed that the country was an “island of stability.” As a result, they did not believe that the global financial crisis would affect many in Russia. But the current crisis is the exact opposite.

Now everyone is talking about the contagion, while the crisis might have minimal effect on Russia.

The 2011 crisis is fundamentally different from the 2008 crisis. Now, there is no shortage of liquidity on the markets, and the main problems are connected with excessive government borrowing. While politicians take steps intended to win the public’s trust, economists increasingly realize the need to maintain an extremely loose monetary policy and allow inflation to increase to help restructure debt.

These economists are correct.

The United States and Europe cannot extricate themselves from the current situation without accelerating inflation. By simply allowing prices to rise while maintaining near-zero interest rates, citizens can be induced to spend, and companies to invest.

The West still has not grasped the depth of its problems; it has been here before, but is still stumbling. the U.S. and Europe to fix this colossal collective mess because economists have no new model — hardly surprising after confusing genuine growth with purchases made on debt and the scholasticism of their econometric models. And if Joe Public is clever, he will not only delever-

age, but remain deleveraged. That means a higher savings rate, but also lower demand and growth.

So, the market’s answer is to look to the emerging markets for growth — including the creditfinanced consumer booms that have been so disastrous in the West. Ironically, it was the Marxists who maintained that capitalism constantly needs new markets.

The West has still not grasped the depth of its problems. Whether S&P’s credit rating downgrade was justified, the wider issue is that the West has been here before, but is still stumbling.

In a recent CNBC roundtable called“Meeting of the Minds: The Future of Capitalism,”former G.E. C.E.O. Jack Welch claimed that as the U.S. saw off the Japanese challenge, it would meet China’s.

Well, yes, Japan’s economy has seen little growth for 20 years due to bad policy decisions, but this island, with just 125 million people and no oil, gas or coal has huge reserves, huge savings, huge monthly trade surpluses, excellent engineers and global leadership in a series of high-tech areas. The Japanese approach of going for market share rather than profit wiped out one sector after another in the U.S. and Europe — and yet it’s hardly mentioned in business school textbooks.

The West, on the other hand, has“squandered its resistance on a pocket full of mumbles such are promises” since World War II with sliding educational standards in the humanities, mathematics and the sciences and, more recently, massive grade inflation at our best universities.

India and China are now catching up fast. There is certainly no guarantee that the Asian giants can escape the low-income trap, let alone reach the sunlit uplands of Western development, but with around 1.3 billion people each, their sheer magnitude puts their challenge to the West on a totally different level than the earlier one from Japan.

Can the West in general afford to wait and see if the “rising tide lifts all boats”theory really works?

Or will it be submerged by The Rest long before that happens?

China’s far-sighted, long-term and rational strategy in particular stands in marked contrast to America’s anarchic “no one’s in charge” approach — just as the Founding Fathers intended. Europe is difficult simply because a continent of many nations finds it hard to reach agreement.

But in an increasingly competitive world where The Rest have cottoned to part of the West’s success, amateurism and political grandstanding is simply not good enough. If its elite cannot come together, the West’s future looks bleak indeed.

Ian Pryde is Founder and C.E.O. of Eurasia Strategy & Communications in Moscow.

ReTURN TO STABILITY Island Vladislav Inozemtsev

ties in health and pensions, a problem which will only get worse in the near future as the baby boomers age and the working population falls. If Western economies are in for a long period of stagnation, the problem will be even worse.

The current fears of a doubledip recession are hardly surprising. Despite the promising start by the G20 and periodic bouts of market optimism in recent years, the underlying structural problems of debt and huge trade imbalances remain unsolved. The financial sector is now looking to

niyaz karim

T

Special to RBTH

dollar, which may provide world players with an alternative measure of value and a saving instrument before this year is out.

But, most important, economists and advisers everywhere should look at the root causes of the economic turbulence throughout the world.

The modern concept of economic development and scientific and technological progress has exhausted itself. There is no longer any need to create anything new. There are already cars, planes, houses, telephones and computers that make life comfortable and livable. Their further improvement is only of marginal use to the consumer.

Until we work out a new development paradigm, there can be no serious growth. New ideas and creation of a new economy are possible in some areas such as medicine, ecology, space exploration and the oceans. But these areas need to be“made”interesting in order to get people involved.

As economist M. Khazin said, the current situation “consigns the most active and energetic people to a fairly bleak scenario: Increasingly, the idea is sneaking into the heads of many people that there is no room for them in this life.”

If the world is to continue to develop economically, it is necessary to change society, to create new values and motives that can, on their own, provide the basis for further economic growth.

The inevitable convulsions of the stock markets will also be felt in Russia, of course, but as major currencies devalue, investors will favor commodities such as gold that provide some protection against shocks, given their steady increase in price over the past 18 months. At the same time, the real sector will begin a steady recovery, although it might initially suffer some problems. Thus, the new crisis is unlikely to cause a drop in oil prices, which continue to be the bedrock of Russia’s economy.

At the same time, the possible outflow of investment from foreign currency markets in Europe and the United States does not threaten a substantial appreciation of the ruble. Unlike the Canadian and Australian dollars, the ruble has not risen in price as the U.S. dollar and the euro have declined. Because it is not a convertible currency, the ruble does not attract speculators, even though Russia’s economy depends more on raw materials than Australia or Canada.

What’s more, the extremely high level of capital flight that hammered Russian markets in 2008–2009 will likely not be repeated this time because a large portion of debt held by major private companies has been refinanced by the state. In addition, most investors who want-

ed to leave Russia have already done so.

The main risks for Russia are internal rather than external factors. First, Russia has not had to make budget cuts since the early 2000s. The government austerity measures that Western countries like Greece, the United States and the U.K. face have never even been considered in Russia.

The economic stability achieved

The United States and Europe cannot extricate themselves from the current situation without accelerating inflation.

by Vladimir Putin during his decade in power allowed for budgetary expenditures to grow by 18 percent to 23 percent annually since 2000. But if Russia remains dependent on commodity exports, it will be unrealistic to maintain that path of growth in state expenditures over the next five to six years. Such growth would depend on oil prices being well above $110 a barrel, which looks like a long shot now, given the overall slowdown in economic growth.

Further, it can be expected that Russia will increase imports by 30 percent to 35 percent annu-

ally, even while export value will grow only 10 percent to 12 percent. This negative trade balance will likely continue to grow through 2014–2015, even with all other factors being favorable.This will encourage growth in the country’s national debt, and because Western countries will certainly find ways to lighten their debt burden in the coming years, the perceived risk of borrowing will decrease, sparking rapid growth in Russia’s debt load.

All of these factors will make it possible for Russia’s leaders to maintain a semblance of stability through 2018. Even if they are successful, however, Russia will emerge from this period being more dependent on commodities exports and less competitive in the global economy.

In five to seven years, the West will have resolved its current problems, and the energy efficiency measures it implemented in 2006–2008 will have already started to shift the energy balance. When this happens, Russia will be faced with a major test, but thankfully for Putin and his circle that day of reckoning is still years away.

Vladislav Inozemtsev is a professor of economics, director of the Moscow-based Center for PostIndustrial Studies and editor in chief of Svobodnaya Mysl.

LETTERS TO THE EDITOR Cartoons and the Russian Bear I read the articles on Russian cartoon animation [RBTH August 2011,“‘Smeshariki’ Seeks Global Audience”] and my mind drifted to the Russian bear. I Googled “Russian bear cartoon” and got lots of cartooned bears. None of them had the “right” design or character. Words that come to mind when I saw the ones in the list were: lumbering, mean, hostile, stupid, confused ... and they were all poorly drawn in the sense that the bear has no strong character. Many of them looked like some political hack cartoonist in the 1800s.

At first glance, this may seem silly,

but Russia is stuck with the bear as its mascot. It is part of the image of the country. However, that mascot is — more often than not — in the hands of Russia’s detractors, who use it in negative ways. So, my thought is that by designing the bear it can serve the purpose of promoting an inspired Russia rather than a constant reminder of the past. By fixing/standardizing the image in the same way characters like Mickey Mouse and Bugs Bunny are standardized, the bear will not so easily lend itself to satire.

Max Ollie

New York, NY

Letters from readers, guest columns and cartoons labeled “Comments,” “Viewpoint” or appearing on the “Opinion” and “Reflections” pages of this supplement are selected to represent a broad range of views and do not necessarily represent those of the editors of Russia beyond the headlines or Rossiyskaya Gazeta.

Please send letters to the editor to US@rbth.ru This special advertising feature is sponsored and was written by Rossiyskaya Gazeta (Russia) and did not involve the reporting or editing staff of The new york times. web address http://rbth.ru E-mail us@rbth.ru Tel. +7 (495) 775 3114 fax +7 (495) 988 9213 ADDRESS 24 Pravdy STR., bldg. 4, floor 12, Moscow, Russia, 125 993.

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To advertise in this supplement contact Julia Golikova, Advertising & PR director, at golikova@rg.ru. © copyright 2010, ZAO ‘Rossiyskaya Gazeta’. All rights reserved. alexander gorbenko chairman of the board. Pavel Nigoitsa General Director Vladislav Fronin Chief Editor Any copying, redistribution or retransmission of the contents of this publication, other than for personal use, without the written consent of Rossiyskaya Gazeta is prohibited.

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New York: Post-Soviet Designers’ Final Frontier Two Designers to Know

CORRIE VIERREGGER

Alexandre Plokhov Plokhov’s gothic menswear line, “Cloak” had a devoted following, and his fans were distraught when the line was shuttered in 2007. The designer returns to New York this year with a Spring/Summer 2012 collection presentation at Barneys that includes deconstructed, slim jackets and asymmetrical tailoring.

COURTESY OF KURALAI

Kuralai Nurkadilova Beginning this fall, the Kazakh army will be outfitted with new uniforms designed by Kuralai Nurkadilova.

The attire will feature traditional Kazakh folk motifs and embroidery. KURALAI fashion collections underscore Kazakhstan’s desire to remain at the intersection of East and West.

IN FIGURES

80% COURTESY OF DEPESHA MAGAZINE

of Russian spending on luxury goods takes place in Moscow, although regions are courting luxury brands.

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Few Russian or postSoviet designers will make it to New York Fashion Week — this year.

The Nurkadilova collection heralds from Kazakhstan.

ilyeva got her start designing privately for some of country’s most beloved actresses. Her style epitomizes both Moscow’s sense of tradition and renewed self-confidence: classic silhouettes, bold palettes, no showoff gimmicks.

Success Begins at Home For centuries, Russia has been a premier producer and consumer of luxury fashion goods. From Vikings to Silk Road traders, diverse influences created the country’s sense of style. Russian experiments in fashion, however, have historically been heavy-handed: Peter the Great enforced a European dress code; Soviet ideology shunned all things Western. The collapse of the Soviet Union presented yet another set of challenges. During the Soviet era,

a dress sold in Siberia could be designed in Armenia and made from Uzbek cotton in Estonia. Suddenly, this transaction was a complex affair involving customs duties. Underperforming production facilities and difficult logistics have made foreign buyers skeptical about partnerships with post-Soviet designers, but now Russian fashion infrastructure is expanding, driven in part by the domestic demand for higherquality goods.

Biryukov is among a handful of Russian designers with a signature look and feel; the St. Petersburg resident stood by his “couture intellectuelle”and weathered many trend storms while nurturing a niche for sensuous minimalism.

At its pre-financial crisis height, Russia’s luxury spending was an impressive $8 billion. Slashed nearly in half, the market forced the withdrawal of brands such asVivienne Westwood, Alexander McQueen and Stella McCartney.

Now, it is steadily regaining volume, and these brands are making a cautious comeback. According to Moscow-based fashion consultancy Esper Group, in 2011 Russia’s luxury market is set to grow by 16 percent, outpacing the global rate of 10 percent. The country is on track to reclaim its position as the world’s fourth-largest consumer of luxury goods.

While 80 percent of the country’s luxury trade happens in Moscow, many regional centers are courting brand attention.

Rostov-on-Don, a vibrant southern city, boasts Salvatore Ferragamo, Sonya Rykiel and Pierre Cardin boutiques, with others on the way.“This momentum is exciting, but it does little for Russian designers. Our consumers traditionally place a premium on imported fashions. It creates an odd boomerang mentality. One must prove oneself overseas to get noticed here,”said Alina Matlashenko, editor at regional M.M.G. Fashion & Beauty magazine. The pressure to show abroad is intense, but those who manage to do so reap the rewards. And if the KURALAI collection debuts at Mercedes-Benz Fashion Week in New York next February, it will help put Kazakhstan on the world’s fashion map.

Additional reporting

by Alexey Timbul in Russia.

Andrei Konchalovsky: Calm in the Midst of Chaos John Freedman

R

ecently the Winzavod gallery in Moscow hosted a retrospective of Andrei Konchalovsky’s work, screening nine films, all of them made outside of Russia.

I believe I have met Andrei Konchalovsky just twice and both times are burned into my experience — not only my memory — as events of significance.

Of all of the impressions I carry of Konchalovsky and his work, perhaps this takes precedence over all: his extraordinary ability to be composed and present in the moment.

He demonstrated this composure when I interviewed him for a small documentary film I was making about Anton Chekhov. Konchalovsky’s “Uncle Vanya” is one of the finest cinematic adaptations of Chekhov ever made, and by 2007 he had set himself the mission to direct all of Chekhov’s plays on stage.

Konchalovsky asked me to meet him in a cavernous warehouse, small sections of which had been remade for his film, “Gloss,” into a chic penthouse.

I and my small film crew showed up slightly in advance of the agreed-upon time and so had ample opportunity to watch the director go over and over a scene in which a thug strikes a terrified young man across the face with a fashion magazine.

Deliberately, as though he had nothing but time on his hands and no other task in mind, Konchalovsky worked carefully with his cinematographer Maria Solovyova to catch just the right angle, just the right motion for the few violent seconds that would remain in his film after the editing process.

Without interrupting his work, he acknowledged my presence at one point and apologized, again, that I would have to wait until he was done. When he was satisfied with what he

What Would Pushkin Eat?

Here again was Konchalovsky, the artist fascinated by craft — in this case, the craft of living a life no matter how well or badly.

He spat out these hard, probing words about Chekhov almost as though they were poetry. He hit his consonants and drew out his vowels in such a way as to capture the rhythm of what it is to be cruel, cynical and unhappy.

Chekhov, he said, was his god.

And as he spoke, I could see him testing himself against the great writer and working to make me understand why that was important.

I recently looked at my film again to verify my quotes and once more I was struck by Konchalovsky’s complete and total involvement in the words he spoke at that specific moment in time.

Nothing cast, as the saying goes, like pearls before swine.

Mining for Love in a Dystopian Russian Future Phoebe Taplin

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AUTHOR: OLGA SLAVNIKOVA PUBLISHER: OVERLOOK/ DUCKWORTH PUBLISHING

I

NADIA POMERANTSEVA

ITAR-TASS

SPECIAL TO RBTH

Restaurateur Andrei Dellos shows off his flair for interior design at his restaurant, Turandot, in Moscow.

the restaurant business, the clients’ tastes and the local conditions.”

If the Brasserie Pushkin project gets off to a good start, Dellos will open three or four brasseries and, in early 2012, NewYork will get its own Café Pushkin gourmet restaurant.

“The project is very original for this market, and it’s likely that the restaurant will be interesting to consumers,” said Maxim Klyagin, an analyst at the Finam Management Company.

Dellos is financing the American project by himself; he estimates that opening the two brasseries will cost about $2 million, not including advisers’ fees.

Of all my impressions of Konchalovsky, this takes precedence: his ability to be composed and present in the moment.

BIBLIOPHILE

TITLE: “2017”

Moscow restaurateur hopes 19thcentury Russian cuisine in an historically informed atmosphere will be a recipe for success in the New York market.

This attitude may be why Dellos is not deterred by the fact that one of the locations he has rented for a brasserie is on 57th Street, next door to the famous Russian Tea Room.

The Dellos team has been working in New York for several months now and is at the stage of finding chefs and choosing suppliers. In Moscow, Dellos’s restaurants mainly work with farms but, in an unfamiliar market, he prefers to follow the advice of professionals.

“We will look for chefs on the local market, which will make it much easier to lure clients,” said Dellos, “because the local chef knows all the nuances of

and Solovyova had accomplished, he strode directly over to us and sat down in a soft director’s chair to talk.

Following a few hectic exchanges with assistants and a brief cell phone conversation or two, Konchalovsky settled into a 20-minute talk about Chekhov as though that is all he could possibly have on his mind. He answered my simplistic leading questions with thoughtful, expansive replies. It was as though he was sharing his love and respect for Chekhov in a private chat somewhere on a back porch.

Chekhov, Konchalovsky explained with conviction and a certain amount of admiring awe, “was very often perceived to be weak, shy and compassionate. It’s not [true] at all. [...] He was a womanizer. He was terrible with women — and with men. Very cruel. He was cynical and he was not happy because of that.”

Stephan Rabimov is the founder and editor in chief of Depesha Russian Lifestyle Magazine and C.E.O of Depesha, a communications agency.

Restaurants Andrei Dellos believes New Yorkers are ready for his unique brand

Andrei Dellos, one of Russia’s best-known restaurateurs, has decided to bring his unique, grand, old-world style to America.

“I don’t know how I can shock the Moscow public, so I decided to go west,” Dellos said, explaining the reasoning behind his decision to set up shop in New York.

This year, Dellos plans to open two brasseries and launch a confectionery factory on the outskirts of New York. The brasseries will be tailored specifically to the New York market, with a simplified menu that still adheres to 19thcentury traditions. The Brasseries Pushkin will also have a patisserie at the entrance.

The opening of the brasseries, scheduled for this winter, will be a litmus test of public taste.

“There are certainly no analogues to what we have conceived in New York; we have seen all the Russian restaurants here,”Dellos said.

He divides Russian restaurants in America into two types: holesin-the-wall opened by émigrés and Russian restaurants opened

by Americans that have nothing to do with Russian cuisine.

“Russian restaurateurs abroad have repeated the fate of Russian ballet,” said Dellos. “Having lost their ties with Russia, they changed irrevocably. Today, we offer the West genuine, classical Russian recipes.”

07

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THE MOSCOW TIMES

CONTINUED FROM PAGE 1

That is why South Korea, Argentina and a group of African countries have presented collective showcases here, attracting global attention to their fashion markets. Russian designers would do well to follow suit. “The anticipation and stakes are high. The potential for subsequent success and consequences of failure to impress are both measured in cold hard cash,” said Rubin Singer, a Manhattan-based American designer with Russian roots.

Few Russian or post-Soviet designers will make it to NewYork Fashion Week — yet. They cut their teeth at the fashion festivals at home: Between Moscow and St. Petersburg there are six fashion weeks. Occasionally, a star breaks through. Easily the most memorable debut in recent years belongs to Vardoui Nazarian. Influenced by Armenian architecture and culture, her shows are among the most anticipated each season.Vika Gazinskaya exploded onto the scene when one of her collections was presented to critical acclaim at the iconic Colette store in Paris. Her theatrical style is so distinct that “very Vika”is becoming slang for “cool” among fashionistas. Leonid Alexeev, who received the coveted St. Martin’s College of Art & Design diploma, chose to return home to launch his label.

While many young Russian designers end up trapped in national looks or folklore, Alexeev follows his own chemical muse.

His last collection was inspired by the process of breakdown in oils and acids.

Among those vying for the global spotlight are Russian fashion stars LenaVasilyeva and Oleg Biryukov, whose work appeals to the country’s elite while still trying to reach a mass audience.Vas-

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“I don’t know how I can shock the Moscow public, so I decided to go west,” Andrei Dellos said.

With luck, Dellos says, he will make back his investment in the first 18 months; with average demand, it will take between three and four years. Dellos would like to expand into other major American cities, but it all depends on New York.

“We are only interested in opening restaurants abroad if they are hugely successful,” Dellos concluded.

n the mythical Riphean Mountains, gem prospectors, called rock hounds, search for precious stones. On the streets of a Russian city, romance unfolds against the backdrop of the centenary of the 1917 revolution — seemingly a call to repeated violence. Olga Slavnikova weaves these parallel plots and settings together in “2017,” an ambitious, postmodern contribution to a revered literary tradition. Slavnikova’s strange, genre-defying novel, winner of the 2006 Russian Booker Prize, finally made it into English in Marian Schwartz’s luminous translation.

There is a great heritage of Russian sci fi, most of it decidedly dystopian. Several recent novels have set their action a few years in the future to create a satirical alternative present: Tatyana Tolstaya’s “Slynx” and Dmitry Glukhovsky’s “Metro 2033” use post-apocalyptic scenarios.

Slavnikova flirts with the scifi genre. She winks at rejuvenating nanotechnologies and flashes a few holographic toys, but a more serious prognosis is found in ecological catastrophe, which is poisoning the mineral-rich Ripheans (reminiscent of Slavnikova’s native Urals).

The anniversary of the revolution reinforces the idea of a recurring national destiny. Many 19th-century Russian artists

embraced a rebirth of folk art and Slavic heroes. For Slavnikova, this stylistic nostalgia created a“historical dreaminess in their weak and impressionable heirs.” History becomes a virus and then an epidemic.

Slavnikova imagines a fake but bloody civil war, as inevitable as it is inauthentic. The striving for authenticity, rejecting the superficial sparkle of wealth and the “culture of copies,” is a keynote of the novel.

The protagonist, a gem-cutter called Krylov, relishes the transparency of quartz; his polishing is an attempt to reveal what he sees inside. Despite this background in a lovingly depicted trade, Krylov’s aimlessness nudges him towards the ranks of Russian literature’s famous superfluous men. The women in Krylov’s life are disappointingly allegorical. His wife,Tamara, is fleshy and glamorous, worldly and cynical, while Krylov’s lover, the mysterious Tanya, is slim and spiritual.

Krylov and Tanya’s poignant and fragile relationship recalls that of Anna and Dmitry in Chekhov’s “Lady with a little Dog” mixed up — in this case — with a spy thriller. Tanya is a frustratingly elusive character, identified with the legendary“Stone Maiden,”one of the rock spirits who occasionally threaten to lead the novel veering off into the thickets of magic realism.

Deep-rooted paganism and folklore are just two of the facets of Russian culture the book begins to explore.“2017”is packed so full of ideas and images it sometimes threatens to explode under the pressure. Its strength is in its linguistic subtlety and ingenuity.

Phoebe Taplin is the author of “Moscow Walks,” published by RIA Novosti and available this month.

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Symbols Team Russia represented by a new take on an old favorite

Ready to Roar into Action More than 20 years after a cuddly cartoon bear won the hearts of fans at the 1980 Moscow Olympic Games, the legendary symbol is reinvented for Team Russia.

the Internet and even crowd out the official logos on the uniforms of Olympic athletes. The aggressive bear will also hover over popular sports festivals, such as the Moscow International Street Basketball festival.

So far, developing the brand has cost $170,000, with the estimated advertising costs at $5 million. The figures are very tentative, as the final cost will depend on the scale of the project. The Olympic organizers are sure that the brand is worth the money, and that very soon the fighting bruin will be bringing money into the government coffers.

“Such brands are already working in many countries: Team USA in America, Ital Team in Italy and GB Team in Britain. These brands cost a staggering amount of money and advertisers cooperate with them actively,” said Fyodor Shcherbakov, managing director of the Professional Sports organization, which is responsible for raising money for the Russian Olympic Committee.

Shcherbakov predicts that if Russia’s professional sports federations join in promoting the Team Russia brand in 2011–2012, as much as $1 billion could be raised. So far, his agency has signed contracts only with the Russian Alpine-Ski and Snowboard Federation and the Golf Federation, but before the end of the summer, they hope to reach agreements with 10 more sports associations.

ANTON MAKHROV

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IN FIGURES

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Officials hope that a unified bear symbol will inspire players and fans at international sporting events.

of Russia’s professional sports associations have signed contracts to wear the new Team Russia logo. Ten more organizations are expected to sign agreements soon.

$1 billion

The closing ceremony of the 1980 Olympics featured Misha the bear.

The bear started appearing as a symbol of Russia in the 17th century when the Romanov dynasty began the country’s expansion eastward. Although bears are found in much of Russia, the presence of the animals was not actually the main reason that they came to represent Russia. As Russia expanded in th 19th century, British newspapers used the bear as a satirical metaphor for the country, symbolizing their own imperial ambitions with the much more “civilized” lion, as opposed to the unpredictable and lazy bear. The Olympic Bear Misha, however, was far from a symbol of prowling imperalism. In creating the symbol for the 1980 Olym-

pic Games, illustrator Victor Chizhikov was tasked with showing the “friendly face” of the Soviet Union.

He ended up doing much more, creating the first major Soviet sports mascot. Bears continue to hold a special place in Russia. The Mildberry Agency, which was hired by the government to develop an emblem for Team Russia, recently announced that it would use a bear. The agency heeded the words of President Dmitry Medvedev (whose surname means bear), who argued: “It is crucial to find some image that is shared by most Russians.”

American Team USA project was far less ambitious and therefore more authentic.”

How do sports fans feel about the new symbol? They seem to have the same mixed feelings as the experts. “I would wear such a bear cub, only without the words Team Russia and the ubiquitous tricolor, every day,” said

Anna, 20, as she left Moscow’s Luzhniki Stadium after watching a soccer game. Her boyfriend, Oleg, disagreed, arguing that the patriotic colors should be left in: “These aren’t clothes for the street or the gym; it is the battle colors for a stadium — to scream and shout and get crazy.”

Right now, the Team Russia

brand is known to just a few specialists. But in September, the bear will start its triumphant march across the country with a massive advertising campaign sponsored by the Olympic Committee. The face of the bear (who has yet to be named) will stare out from TV screens and billboards in cities all over Russia. It will invade

could be raised for the Games through the sale of Team Russia merchandise featuring the new bear, according to marketing experts.

$5 million

is expected to be spent on advertising the brand across Russia. Soon the bear will appear in television ads and stare down at fans from billboards along major roads.

“There is nothing wrong with the bear itself, but one wonders if the idea has been implemented well,”said Della Bezelyanskaya, director of the Chorus art center.“One gets the feeling that the authors were under pressure to come up with something new and startling, and that this pressure produced something artificial.The

PRESS PHOTO

1980 Moscow Olympic Games Mascot

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At the closing of the 1980 Moscow Olympic Games, thousands of spectators had tears in their eyes as they sang along with the unofficial anthem of the games, “Goodbye, our Gentle Bear.” To this doleful tune, the beloved Olympic mascot, a cuddly bear, was lifted into the Moscow sky by a bunch of balloons. Twentyone years later, the Olympic bear is back, although the intervening years have left their mark on the character and appearance of this legendary symbol. The Russian bear has become more aggressive, determined and has acquired business acumen. According to the Russian Olympic Committee’s plans, the Team Russia brand has more to do than unite athletes and fans.

It must also make money for the Olympic budget.

Casting the role of the new Team Russia mascot did not take long.

In late July, President Dmitry Medvedev announced that the country needed a new set of sports symbols with a universal appeal.“If it turns out well, our performance will be different,” the president said. As a result, in just over a month, the Mildberry Agency, which focuses on sports branding, came up with a new version of the old face of Russian sport. The designers decided that, rather than invent a new brand, the best idea would be to take an existing one and invest it with new meaning, the agency’s managing partner Oleg Beriev told Vedomosti.

Beriev argues that most Russians recognize the bear as a national symbol.Yet some wonder if the meaning the designers put into the new logo is the best one for an image meant to broadly represent Russia on the global stage.

“The image would be natural for a rugby or boxing team, the clear message being,‘We are Russia and should be taken seriously,’”said Alexei Andreev, co-president of the Association of Russian Branding Companies. “In any event, we have a brutal symbol, whereas in the modern world, strong nations tend to be ironic about themselves.”

Fans say they will wear the brand.

Sports Russia to host multiple international championships

With four major championships scheduled in its territory, Russia is pouring money into developing infrastructure — and not just sports facilities.

NICOLAS SELLITI SPECIAL TO RBTH

Russia’s drive to become a global sports destination does not stop at the Sochi Olympic Games.

Both before and after the 2014 Winter Olympics, the country will host sporting events that will boost its international prestige — and require staggering investment.

Following the Sochi Winter Olympics, the World Swimming Championship will take place in 2015 in Kazan (which is also hosting the 2013 world summer Student Games). In 2016, the country will host the World Ice Hockey Championship and, two years later, the soccer World Cup.

By moving four major international tournaments eastward over a four-year period, Russia is, in a way, rewriting world geopolitics.

But just as significant, the events require Russia to undergo a major infrastructure upgrade. Huge amounts of money are being invested under public-private partnership initiatives, and the bulk of the invest-

The country intends to use these events to put it on the map in the world of sports and to build from there. ments will be used to develop infrastructure rather than build sports facilities. Strategic projects such as ports, roads, tourist routes and railways are being

developed on the assumption that sporting events will ensure sustained economic growth in the country.

Not until after the 2018 World Cup will Russians be able to review the results of the work that is starting with the preparations for the Sochi Olympics. These two key events will cost about $37 billion, a veritable mountain of cash, most of which Russia has already raised. According to Dmitry Chernyshenko, head of the Sochi Organizing Committee, the 2014 Olympics have already raised a record $962 million. Vitaly Mutko, Russian minister of sports, says the World Cup will cost $23 billion. In that case, more than a third of the resources will be used to build express highways and ordinary, not sports, facilities.

Thanks to sponsorship by business tycoons, the country is

NIYAZ KARIM

Tournaments Open New Field in Geopolitical Game

By 2018, 13 Russian cities will have hosted major international sporting events.

in no danger of a financial backlash that might undermine the state budget as happened in Greece, where the cost of hosting the Olympic Games in Athens constituted the first step toward default.

The government’s plan for preparing for the Winter Olympics on the Black Sea coast calls for $14 billion in investment; twothirds will be put up by the state and the rest by private investors.

Gazprom alone will invest $185

million in the Russian Olympic team. Another $53 million will be needed for the construction of roads and railways, and yet more money will need to be raised to build a new airport.

To prepare for all these events simultaneously is a real challenge, especially given widespread doubts about Russia’s ability to follow through on its plans. But the country intends to use these events to put it on the map in the world of sports

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and to build from there. St. Petersburg is planning to bid for the 2024 Olympic Games. Marat Bariyev, the head of the Russian Olympic Committee, has said that he already has President Dmitry Medvedev’s support in the battle for the 2024 Olympics.

How Russia manages the events between 2014 and 2018 may be a significant factor in assessing the northern capital’s chances.

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