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Architecture

Balancing the books: how will Russia fare in the post-Kudrin era?

Farewell to arms: Russia says goodbye to the Kalashnikov

Stalin’s ‘Sisters’: Moscow still loves its postwar skyscrapers

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Business itar-tass

Politics

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Tuesday, October 25, 2011

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Tax Huge rises in duty will bring billions into government coffers, but will hit drinkers and smokers hard

Nation prepares for double vodka Igor Vyuzhny russia now

Russia – a country that already has an aggressive anti-alcohol policy – may soon see prices for vodka and cigarettes undergo a massive rise. Deputy Finance Minister Sergei Shatalov announced last week that the minimum price in the shops for half a litre of vodka will rise from 98 to 180 roubles (£3.65) in 2014, while the cheapest cigarettes will more than double in price to 40 roubles (81p) a pack. This increase was planned by Alexei Kudrin – who was finance minister until last month – along with President Dmitry Medvedev, after findings revealed that high excise taxes do help reduce alcohol consumption. The findings coincided with both the government’s and the Kremlin’s ambitions to tackle problems associated with alcohol, as well as the Finance Ministry’s urgent need to reduce the widening budget deficit. Addressing the State Duma, Mr Shatalov reiterated that excises are in for annual indexation by 40 to 45pc overthe next three years. The indexation of excises on strong

alcoholic drinks will generate an extra 135bn roubles (£2.7bn) of revenue in 2012, and as much as 250bn roubles (£5bn) by 2014. Excise duties on beer and wine are also due for a significant rise, which will bring in tens of billions of roubles in extra budget revenue. The Finance Ministry expects a rise in tobacco taxes to yield an additional 429bn roubles (£8.7bn) by 2014. The struggle against binge drinking was first launched by then USSR General Secretary Mikhail Gorbachev back in 1985, when he simply closed down most wineries, alcohol factories and shops selling alcoholic drinks. Within three years, he had successfully cut alcohol consumption by approximately 27pc and reduced alcoholrelated deaths by 12pc. More recent anti-alcohol measures have been less drastic. They include a ban on selling strong alcoholic drinks (over 15pc proof) at night, and a ban on taking alcohol on public transport. In a further measure aimed at decreasing consumption among young people, a ban on beer advertising will be imposed in 2013, when selling beer on street stalls will also become illegal. Alcohol and tobacco producers argue that the high taxes will not cut alcohol consumption. They predict that,

New satnav system to go global

Thirst principles: measures in place include a ban on the sale at night of strong drinks – such as vodka

as Russia’s Customs Union partners Kazakhstan and Belarus have lower alcohol and tobacco taxes, the excise rises will encourage smuggling and benefit the black market, which is already said to account for around 30pc of alcohol and tobacco sales.

But the government is determined to tackle the black market, too. In February, it imposed a ban on relocating alcohol without notice and introduced transportation licensing to “eliminate any possible loopholes for companies producing and selling

counterfeit alcohol products or using shadow companies to sell fake products”.Experts hailed the proposal as a means to improve transparency and reduce the illegal share of the market. And the measures haven’t stopped there: under the pre-

text of protecting the nation’s health, a bill has been submitted to the State Duma on introducing a state monopoly on the production and sale of ethanol, proposing to restrict its production only to plants with state-run stakes of at least 51pc.

Technology Anti-ballistic missiles could be used to defend the Earth against deadly incursions from outer space

Medvedev ‘interested’ in new strategic shield A new ABM proposal promises protection from asteroid strikes as well as missiles, according to Russia’s ambassador to Nato. Alexander Gabuyev

Kommersant

Having failed to extract a legal guarantee from the US that its Europe-based ABM (anti-ballistic missile) facilities are not directed against Russian nuclear forces, Russia is hoping to overcome its fears with a bold new plan. The newspaper Kommersant has learnt that a missile initiative – code-named Strategic Defence of Earth,

Prices to come down as new hotels go up A survey by hotel.info has revealed that Moscow’s hotels are, on average, the second most expensive in Europe. Moscow was placed between Oslo and Copenhagen in the survey, with average prices calculated at 6,051 roubles (£124) per night. But the recent surge in hotel construction should provide more lower-priced options for tourists and business visitors. This year, three new hotels have opened their doors, and another four will follow in the forthcoming months. In 2012, 14 new hotels are due to open in Moscow’s city centre. According to long-term plans announced by the Moscow Tourism Committee, by 2020 Moscow should boast 535 hotels, offering a capacity for 150,000 visitors at a time.

ria novosti

Tough anti-alcohol tax measures designed to tackle problem drinking will result in vodka costing almost twice as much by 2014.

News in Brief

Star Wars revisited: Strategic Defence of Earth echoes Reagan’s SDI plan

recalling the Reagan-era Strategic Defence Initiative – is being discussed in Moscow. The project proposes a joint system involving the US and Nato and is designed to protect the whole planet against not only missiles, but also asteroids, debris from comets and other threats from outer space. According to Kommersant sources, the idea was put forward by Dmitry Rogozin. President Medvedev’s special representative on anti-missile defence policy, Mr Rogozin is also Russia’s permanent ambassador to Nato. The proposals are said to be

reminiscent of the American Star Wars project, in that the system would monitor the space around the Earth and have striking capabilities to destroy any threatening objects as they approach. “Currently, the US missile defence system is aimed exclusively at protecting the country against missiles launched from somewhere in the Middle East,” said a diplomat close to the project. “The new plan involves bringing together air, missile and space defence.” A Kommersant source added: “Missile defence is currently being promoted by Washing-

ton as a configuration just to solve the global problem of shielding America and its allies against missile threats. Our concept offers them an even more global challenge: to save the world. And it won’t be alone, but together with us. “There is already an archetype for this in American culture. Remember the movie Armageddon, where Bruce Willis saves the Earth along with the Russian [cosmonaut] Lev Andropov, who hangs around the universe in a trapper hat with a wrench continued on PAGE 2

Next week, Russia is planning to deploy four Glonass-M navigation satellites to add to its orbital group of 23 operating units. This will enable it to provide global coverage for the first time since 1995. Glonass is Russia’s version of the US Global Positioning System (GPS) and the planned Galileo positioning system of the EU. It is developed from a radio-based set-up built in the days of the Soviet Union. To provide global coverage, it needs 24 functioning satellites and two or three in reserve. The use of hybrid signal receivers simultaneously from both navigation systems helps reduce the time and improve the quality of global positioning, according to reports by news agency RIA Novosti. Meanwhile, Apple’s new iPhone 4S, which went on sale in mid-October, is the first globally sold smartphone to support the Russian Glonass navigation system along with GPS, says the company’s phone manual.

In this issue Opinion

ria novosti

Putin & Medvedev How will the cards fall under the ‘New Deal’? Turn to page 6

Politics & Society

Russia now www.rbth.ru

Presidency The leaders’ proposed role-reversal continues to fuel much speculation

Putin takes driver’s seat as tandem rolls on Analysts are studying the motivations behind the rulers’ proposed reshuffle – and trying to predict the potential outcomes.

reuters

Face value: Mr Medvedev is seen as a democrat and a liberal, and Mr Putin as a conservative supporter of strong government

that Mr Putin is returning as the “supporter of modernisation and development, not stagnation”. Mr Orlov told news agency RIA Novosti:“A new Putin is returning to Russian politics. This Putin is the supporter of modernisation, positive change, and a new approach to creating a new interface for communication between the authorities and society.” Mr Putin’s article in Izvestia, in which he suggests creating the Eurasian Common Economic Space based on the Customs Union of Russia, Belarus and Kazakhstan, has also provoked heated debate. Many observers sounded the alarm bell, seeing this as something akin to the recreation of the Soviet Union. Mr Putin, however, dismissed those concerns, stating that Russia had no imperial ambitions in postSoviet regions. According to Vladimir Zharikhin, deputy director of the CIS Institute, the idea of creating the Eurasian Union is fully compatible with the emerging geoeconomic situation. “The post-Soviet nations have realised that

THE POLLS

Tandem decision on top job

SOURCE: FOM

president of the Centre for Political Technologies, this makes it clear to everyone that Mr Putin is behind the wheel, and that it was up to the PM to decide whether Mr Medvedev should seek another term or not.“Vladimir Putin has many reasons to run for presidency, but one of the main reasons I think is his belief that the system he had created requires political stability to survive. Apparently, Putin was not sure whether Medvedev could maintain it, with its modernisation and political reforms,” he said. Vladimir Putin’s bid for a third presidential term was met with mixed reactions from global politicians. Many foreign media organisations reported concerns that Russia could see yet another period of political stagnation – typical of the Soviet Union under Brezhnev. Mr Putin, however, rushed to allay these fears, and rejected the comparison as absurd, saying that none of the postwar Soviet leaders had worked as hard as him or Medvedev. According to political analyst Dmitry Orlov, it is clear

The leaders’ plan to swap roles has not affected their popularity. The latest Levada Centre poll shows that 68pc and 62pc of Russians approve of Mr Putin and Mr Medvedev’s work respectively.

globalisation is, in fact, taking the shape of large economic clusters,”he said, going on to explain that Mr Putin’s initiative is an important part of his election campaign.“He has begun to outline the external perimeter of Russia’s strategy for the next few years.” The Russian media have created a distinct image for each of the ruling tandem members. According to public.ru,

the online library of Russian media, Mr Medvedev is largely seen as a democrat, liberal and patriot, whereas Putin is thought of as an experienced politician, a conservative and supporter of a strong government. Moreover, many experts predict that the idea of a tandem may soon lose its appeal, claiming that Mr Putin will simply concentrate most of the power in his own hands – again.

Technology Ballot papers to be scanned electronically

special to russia now

What next for Mr Prudence? He is credited for policies that protected Russia from the worst of the financial crisis. But will they remain in place without Alexei Kudrin?

Polls apart: the SAS system is unique to Russia

programme was launched specifically to introduce electronic vote counting, establish a secure network for data transfer and storage, and construct infrastructure for remote voting via mobile phone for those who cannot attend polling stations. This is particularly important in

a country the size of Russia, where in some regions the closest inhabited locations might be hundreds of miles apart. Many polling stations are now equipped with webcams. In theory, voters can watch the counting of votes without leaving their computers. But the effectiveness of this measure is limited by internet penetration rates: according to Yandex, Russia’s most popular search engine, just 40pc of the population aged 18 or older (that is, those eligible to vote) has access to the web. One of the major technical innovations that will be in operation for the December State Duma (the lower house of the Russian Parliament) elections is an optical-scan voting system. All you have to do is bring your ballot to the scanner for the Russiawide data network to record

all the information from it. This, of course, increases processing speed but, more importantly, it also helps prevent fraud at polling stations. In previous elections,“ballot stuffing” has been observed, but not a single fraud case has ever reached the courts. Now, if violations occur, there is documentary evidence to prove it. In Britain, following the chaos last year when long queues outside certain polling stations left some people unable to vote, there have been calls to introduce electronic voting systems. However, the British Electoral Commission has expressed concerns about the security of the systems, and other concerns have been raised about the cost of them. So, for the time being at least, British votes will continue to be cast and counted manually.

Russia’s widely respected finance minister, Alexei Kudrin, decided to quit just days after Prime Minister Vladimir Putin and President Dmitry Medvedev announced their intention to swap jobs. Citing a string of disagreements with Mr Medvedev, Mr Kudrin said:“I do not see myself in a new government.The matter is not only that no one has offered me the job. I feel that the disagreements I have will not allow me to join this government.” Alexei Kudrin is credited with stabilising the Russian economy and creating the foundation for the strong economic growth of the last decade. The departure of“Mr Prudence”, as he has been dubbed, raises two questions: will he come back to government at some point? And does his departure mean that there will be a dramatic change in the cautious fiscal policy he came to personify? “I don’t think this is the last we have seen of Kudrin,”says Nikolai Petrov, research fellow at the Moscow Carnegie Centre. “I wouldn’t be surprised to see him back as prime minister next year.” It is widely believed that, after 11 years in the job, Mr Kudrin wanted to step down – but would have stayed on if offered the position of prime minister. His disagreements with Mr Medvedev over plans for a dramatic increase in spending are well known. “It is clear that Kudrin chose to leave because he did not want to be a prime minister-in-waiting for the next decade,” says Lilit Gevorgyan, a political analyst with IHS Global Insight. “But he also left because he was in disagreement with Medvedev over plans to spend $65bn on the military over the next three years.” The fear that many investors and businessmen have expressed following Mr Kudrin’s departure is that his prudent economic policies will be abandoned. “On the policy side, in a sense Kudrin has not done as well as he used to [lately] because the pressure to spend has grown in recent years,”says Sergei Guriev, the Dean of Russia’s New Economic School, pointing out that the price of oil – a necessity for the federal

continued from page 1

and a bottle of vodka.” One of the key elements of the Russian proposal, according to Kommersant’s sources, is to put the new space defence system under the control of the United Nations. If adopted, the sys-

tem would certainly resolve Moscow’s concerns about the Euro-ABM system. But experts believe that Russia’s new venture has little chance of changing the course of negotiations with Washington over missile defence. “This approach has the

right to exist. But it does not affect the other ABMs America is currently building in Europe,” Fyodor Lukyanov, editor-in-chief of the journal Russia in Global Affairs, told Kommersant. According to the newspaper, the concept has been presented to President Dmitry

Medvedev. After reading the document, the president is said to have written the word “interesting”on it. He has instructed Dmitry Rogozin and foreign policy presidential aide Sergei Prikhodko to refine the proposals. Mr Prikhodko was unavailable for comment, while

Dmitry Rogozin declined to speak to Kommersant. Mr Medvedev’s interest in the initiative comes as no surprise to one expert, who claims that “Dmitry Medvedev likes different innovations. The bolder and more creative the idea, the better chances it has of pleasing the president.”

Mr Kudrin resigned after a fall-out with the president

ELECTIONs On election day, citizens of the Russian Federation living in Great Britain can vote at any of these three polling stations: Embassy of the Russian Federation 6/7 Kensington Palace Gardens, London W8 4QP

December 4, 2011 elections for the Russian State Duma

Trade Delegation of the Russian Federation 32-33 Highgate West Hill, London N6 6NL Consulate General in Edinburgh 58 Melville Street, Edinburgh EH3 7HF The polling stations will be open from 8am till 8pm GMT.

QUESTIONS & ANSWERS

Vladimir Churov

head of election commission

Plan to save the Earth with missiles

economist with Prosperity Capital Management. “Kudrin’s actions provided the stable macroeconomic platform that Russia so desperately needed. His policies will be broadly maintained because they have been successful and, in the aftermath of the 2008 crisis, were acknowledged as successful – even by many of his former oil-lobby detractors.” Mr Putin highlighted the closeness of his relationship with his former finance minister during a speech at the annual VTB Capital investment conference earlier this month. He said that Mr Most analysts are Kudrin would remain part confident that of the team – but didn’t specKudrin’s successful ify a role. “He is, no doubt, policies will not one of the best specialists, not only in Russia, but also in be undone the world,”said Mr Putin.“He policies will not be undone. is a friend of ours and a perUnder one of his plans, the sonal friend of mine.” Russian oil industry pays The Kudrin-Medvedev row taxes equal to around 90pc has highlighted a sea change of crude export revenues over in Russian politics. Under $28 per barrel, and these pro- Boris Yeltsin, Russian policeeds are placed in a stabi- tics was all about who held lisation fund. It was this fund raw power; but, increasingly, that was used to cushion under Mr Putin, political batRussia from the worst of the tles are fought over policy. financial carnage in 2008. At According to Mr Halligan, the same time, Mr Kudrin the spat demonstrates that used the windfall oil receipts “Russia’s nascent democrato repay almost all of Rus- cy, while still very much a sia’s national debt. As a re- work in progress and far sult, the debt-to-GDP ratio from perfect, is already cafell from 160pc in 2000 to pable of generating more meaningful public debate on about 10pc today. “Kudrin’s views weren’t pop- fiscal policy in the run-up to ular. But then-president crucial elections than many Putin backed him to the hilt,” of the much older democrasays Liam Halligan, chief cies in the western world.” budget to break even – has risen from $23 [per barrel] in 2007 to $118 today. With western Europe teetering on the edge of another crisis, the Russian economy is already feeling the pain caused by growing uncertainty. In the first week of October, the Russian stock market sold off heavily, returning valuation to the same levels as 2008, and capital flight has picked up dramatically. However, most Moscowbased analysts are confident that Mr Kudrin’s successful

kommersant

It was during the blighted year of 1994 (when the budget for all of Russia was commensurate to that of New York City alone) that the State Automated System (SAS) Vybory (“Elections”) software was developed in Russia. It was tested a year later. Prior to its introduction, electoral rolls were printed on typewriters and ballot papers were handcounted (in 1993, for example, it took 12 days to count the votes). The speedy development and launch of the system was helped, of course, by Soviet technological innovations. But world-leading IT com-

panies HP, Oracle and Cisco Systems also contributed. “With the creation of the SAS Elections software, we became pioneers. And to this day, not a single country in the world has a system like ours,” said a very proud Mikhail Popov, head of the Federal Centre of Information Technologies under the Central Election Commission of the Russian Federation. Mr Popov may be somewhat exaggerating the importance of his creation. But there is one fact that’s hard to dispute: SAS has served more than 20,000 election campaigns at various levels without significant technological failures. In 2009, President Dmitry Medvedev proposed that the system be upgraded to enhance the transparency of the electoral process and to strengthen public confidence. Last year, a relevant state

itar-tass

Hi-tech polls get vote of confidence Alexei Morozov

Kudrin Former finance minister is a tough act to follow

business new europe

special to russia now

Electronic voting systems are now part and parcel of Russia’s elections, while British votes continue to be cast and counted manually.

Duma elections: knowns and unknowns http://rbth.ru/13522

ben aris

Alexei Ilyin

The beginning of the parliamentary election campaign has been marked by a number of resounding statements from the country’s leading politicians, stirring up Russia’s political scene. The announcement by President Dmitry Medvedev at the Congress of the United Russia party that he was nominating Prime Minister Vladimir Putin to be president was one such statement. This was closely followed by Finance Minister Alexei Kudrin’s resignation. Subsequent in-depth interviews given by the president and prime minister have attracted the close attention of the world’s media; political analysts are now guessing at what is behind the tandem’s recent decisions and trying to predict how Russia’s political system will change as a result. The Putin-Medvedev reshuffle immediately gave rise to speculation that the job swap had been agreed upon four years ago, on the eve of the previous presidential election. Indeed, Vladimir Putin seemd to confirm this in his interview to three national TV channels. However, IgorYurgens, chairman of the management board at the Institute for Contemporary Development (where Mr Medvedev chairs the board of trustees), thinks it unlikely that an agreement was made in 2007. In an interview in Kommersant, Mr Yurgens said the ruling tandem had to agree to the swap under the pressure of various circumstances, noting that Mr Medvedev only recently made it clear he was ready to run for another term in office. The president went on air to explain the rationale behind his decision, maintaining that it was because Mr Putin was the most powerful politician in the country with a rating slightly higher than his own. According to Igor Bunin,

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section sponsored by rossiyskaya gazeta, russia Distributed with THE daily telegraph TUeSDAY_OCTOBER 25_2011

Tatarstan’s hi-tech transformation http://rbth.ru/13410

infrastructure Impressive new stadiums and facilities are springing up in Kazan, making it a world-class venue for major sporting events

Sports capital of Russia is playing a blinder, says tennis ace Safin The capital of Tatarstan is reaping the rewards for its investment in sports facilities as it now attracts prestigious international competitions.

A decade of growth and transformation

Alexander erastov

special to russia now

The Tennis Academy is impressive, indeed. A giant yellow ball sits atop the long, slightly curved roof, as if bouncing off a giant racket. Not only does the new 8 5 , 0 0 0 - s qu a re m e t re (102,000-sq yd), 3,200-seat sports complex meet world standards, but, according to International Tennis Federation president Francesco Ricci Bitti, it also “exceeds” the international requirements. It has already hosted many international competitions, including the Davis Cup, Kazan Kremlin Cup and the Tatarstan Open. “Moscow would also benefit from such a centre but it is the only one of its kind in Russia,” says Safin. Kazan’s sports facilities are not concentrated in one place but scattered around the town to make them better accessible to people. That said, there is an “epicentre” – the University GamesVillage, situated next door to the Tennis Academy, which has many sports facilities including a brand-new swimming pool. We meet Rafis Burganov, Tatarstan’s youth, sports and tourism minister, who says: “Kazan hosts a lot of sports events, and it’s very impor-

Khristina Narizhnaya the moscow times

Open to all: Tatarstan’s president, Rustam Minnikhanov, has ensured that local people can access all the new sports venues – including the Tennis Academy

Universiade – a study in sporting excellence In two years’ time, Kazan will host the 27th World University Games, or Universiade (which takes its name from the words “university” and “Olympiade”). From July 6-17 2013, more than 13,500 sportsmen and women and members of delegations from 170 countries – plus about 100,000 fans – are expected to come to the competition. Aged between 17 and 28, all competitors are students in higher education,

post-graduates and graduates from up to two years preceding the Games. More than half the athletes are also Olympic competitors. The event, which takes place every two years, is second only to the Olympics in size and significance. Russia has hosted the University Games just once before, in Moscow in 1973. The Games in Kazan will set a record for the number of sports contested, with

competitions in 27 separate disciplines. As well as track and field athletics, swimming, football, boxing, tennis and volleyball, five other sports have been included in the programme for the first time: chess, badminton, belt wrestling, the Russian martial art of sambo, and rugby sevens. Russia is hoping that the Universiade in Kazan will be a successful prelude to the 2014 Winter Olympics in Sochi.

tant for us not to be mere spectators but to practise sports actively ourselves. I see this as our main goal, rather than putting Kazan on the map as a sports capital. “We’ll be able to call ourselves a sports capital when not only our clubs win a lot of awards, but the number of active sportsmen among our townsfolk tops that of any other Russian city.” Indeed, Kazan’s local teams are already doing well. In addition to the success of its ice hockey club, Ak Bars – twice winner of the Gagarin

Cup – its football club FC Rubin and its volleyball club Zenit Kazan are teams that play to full houses, and are all increasingly assertive on an international level.

However, they are already being put to good use. As part of the preparations for the Universiade, Kazan will host various European and World championships. And the Universiade are, themselves, preparation for the 2015 Fina World Aquatics Championships. “We observed both events in China this year and saw that the aquatics championship is a very serious event”, Mr Burganov said.“It is, in fact, the fourth highest-rated sports forum after the football World Cup, the summer

Fulfilling the legacy

As with Olympic Games stadiums, the Universiade legacy requires that all facilities created for the game should continue to be used appropriately after the competitions are over. The facilities will be used by the local community, especially by local students.

The Universiade in numbers

Olympics, and the Athletics World Championships.” Kazan will also host some matches in the 2018 World Cup at the stadium being built for the Universiade. Indeed, several important fixtures were happening in Kazan on the day I visited: Russia was taking on Brazil in the Davis Cup World Group Play-offs; FC Rubin were entertaining the championship leaders Zenit; and a stage of Russia Cup circuitcar racing was taking place elsewhere in the city. “The funny thing is, this is just an

ordinary day in Kazan”,said Safin. “All in all, I think Kazan is Russia’s sportiest city after Moscow, leaving all the others far behind.” Safin sums it up: “Add to this the natural beauty of the place. Look at the picturesque Volga river running a l o n g s i d e o u r u n i qu e [and World Heritage-listed] Kremlin.” So, the 100,000 tourists and fans expected from 170 countries for the Universiade will have some exceptional sightseeing to look forward to in between the competitions.

Fair shares with a Muslim heritage nick watson

business new europe

Tatarstan’s mosques now stand harmoniously side-byside with Orthodox churches, but it is traditionally a Muslim region and it still has a Muslim majority. This, coupled with the region’s huge development potential, makes it a good proposition for Muslim investors. Two Islamic funds have recently launched operations in Tatarstan. The first is the Malaysian private equity firm AmanahRaya Capital Group, which has already launched several projects in the republic. “We bypassed Moscow and came to Kazan, as it offers the most attractive investment climate,”says managing director Dato Ahmad Rodzi Pawanteh. The fund’s first project was the Kazan Halal Hub, which imports halal meat and other products for the region’s Muslim population. 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 Malaysia, and it was an obvious product to bring to Tatarstan,” says Mr Pawanteh. “But we are also working with local government to raise funds on a private equity basis to bring in foreign investment to the region.” According to Mr Pawanteh, 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 them. The second Muslim fund to establish itself recently in Tatarstan is the Foras International Investment Company. Representing Saudi money, it has launched an investment vehicle with the newly established Tatarstan International Investment Company. The $50m fund

A culture of tolerance

alamy/legion media

The Muslim-majority region of Tatarstan has proved to be an attractive investment destination for funds – for both Russian Muslims and foreign investors based in Muslim countries.

Readers of the Sovietsky Sport newspaper named Kazan as the sports capital of Russia in 2009. But the city prefers to be known as the country’s “third capital”, and in 2009 registered the right to brand itself as such with the Russian patent office. The tourism industry is rapidly developing in the city where Tolstoy and Lenin spent their student years. New attractions include a water taxi station on the historic Sviyazhsk Island and Kamskiye Fields campsite and spa. Billions of roubles have been invested in the republic’s manufacturing industries, which include mining, oil, chemical and agricultural production, as well as factories that produce helicopters and boats among other things. Small businesses, like shops and distributors, are flourishing, accounting for 25pc of the region’s economy – significantly higher than the 20pc national average. Their local share will swell to 34pc over the next four years, according to the Tatarstan president Rustam Minnikhanov.  In a recent study by the New Economic School and consulting firm Ernst & Young, Kazan is said to have the most favourable climate for entrepreneurs of all Russian cities. And according to Mr Khaliullin, small businesses will have plenty of room to grow as long as the Tartarstan president continues actively to support business and promote foreign investment in the area.

Worshipped: the Kul Sharif Mosque stands in the grounds of Kazan's Kremlin

One of the most attractive elements in this region is the high level of science and engineering will focus on the region’s strengths in biotechnology, nanotechnology and IT. The company was inaugurated in June; the founding investors have contributed $10m, and are in the process of raising the balance.

“We are focused on theVolga region and the attractive investment climate the government has created here, with tax breaks and incubators,” says 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,” he adds. In Soviet times, Kazan was a centre of learning, and its universities still churn out many of Russia’s best engi-

neers. It is also home to a flourishing aviation industry and automotive sector. “We have 20 projects in the pipeline, and 80pc of them are brownfield that we will develop over the next three years,” says Mr Nor. “But probably the most possibilities are in the technical aviation sector.” The details of these projects are still under negotiation, but Mr Nor is particularly excited by a project to make aviation rescue vehicles.“The companies

In the 19th century, Tatarstan became a centre of Jadidism, an Islamic movement that preached tolerance of other religions. However, after the October Revolution, religion was outlawed. Today, 52pc of the 3.8 million population are Muslim, with Sunni Islam the most common faith. The Russian Orthodox Church is the second largest active religion with an estimated 1.6 million people. Tolerance of other religions still prevails: at all public events, both an Orthodox priest and an Islamic mufti are called upon to be present.

here are advanced, and the level of technology is as good as anything I have seen in Europe,” he says. “The trouble with Europe is that 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.” To help investors, Sukuk (Islamic no-interest bonds) are to be launched in Tatarstan soon.

If you had left the ancient metropolis of Kazan in Tatarstan a decade ago and returned today, you would hardly recognise it. The city’s signature white-and-blue kremlin with both Islamic minarets and Orthodox onion domes still stands majestic, elevated on the bank of the Kazanka River. The European-style narrow streets with their baroque architecture and large Soviet blocks still remain. But an infrastructure overhaul has added whole new neighbourhoods to the area. The vibrant, pulsating city, which celebrated its millennium in 2005, now has a Metro, several sports arenas, one of the largest technoparks in Europe – Idea – and thousands of square yards of residential and office space – all built since 2000. Low-scale crumbling homes of brick and stone are being restored, coated with fresh paint and, in some places, are giving way to steel and glass high-rises. “The city is changing so quickly,”says lifelong Kazan resident Khaidar Khaliullin, 57, who is also president of the Association of Small and Medium-Sized Businesses of Tatarstan. “New projects are growing like mushrooms.”

interview linar Yakupov

The man who’s batting for Tatarstan The Tatarstan Investment Development Agency (Tida), headed by LinarYakupov, provides a one-stop shop for investors, offering them with information and advice. The agency also works to improve the business climate of the region in order to attract foreign investment. It does this by lobbying the government for business-friendly legislation. What is Tida working on now? 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. Many changes have to be implemented at the federal level to improve the investment climate in Tatarstan. We hope the legal framework for the fund will be ready by January 2012.

press service

World-class players

Investment into Russia’s ‘third capital’ has resulted in the development of new infrastructure and housing, as well as huge growth in business and industry.

press service

Looking out of the car window, I cannot help noticing how fast Kazan is being rebuilt. State-of-the-art sports facilities are sprouting up everywhere, even along the road leading from the airport to the city centre. The speed of development is being driven by the Universiade, or World University Games, which will be hosted here in 2013. Tennis great Marat Safin, a former world number one, Grand Slam winner and now a vice president of the Russian Tennis Federation, took me on a tour of the city’s sports venues, starting with the Tennis Academy. It is a 20-minute drive from the centre, provided there are no traffic jams – which seem to be frequent.“This is because of the numerous construction sites and road works that are being carried out in preparation for the Games. Let’s hope the traffic jams are temporary”, Safin says.

What are your best success stories so far? The Alabuga Special Economic Zone has attracted scores of Russian and foreign investors to the point that its board is considering increasingly large projects every year. [Truck-maker] Kamaz’s joint ventures with Daimler and other companies, as well as [car-manufacturer] Sollers’s launch of a Fiat assembly line have also been successes. How can the government help Fujitsu-Siemens, which improve the business climate? makes hardware and softBoth Tatarstan and Russia ware here for clients includare in very lucrative geo- ing Pepsi andVolvo, has seen graphic positions between explosive growth – creating Europe and Asia. We need to serious competition for simbuild roads across the ilar ventures in India. And breadth of the country to we are developing aviation take advantage of this. To and helicopter factories demonstrate the seriousness which offer enormous potenof our intentions to investors, tial for developing the sciwe must show that we are entific base. able to provide such basic We want investors to see that we are not only a source infrastructure. We’ve had“national projects” of chemicals and raw main health care, agriculture, terials, but also a hi-tech housing and education. The and manufacturing hub government needs to an- with a highly skilled worknounce such a plan in road force. construction. We’ve done a lot to improve road quality Prepared by in Tatarstan already. Tim Gosling

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Business & Finance MOSCOW BLOG

Interview Anton rakhmanov

Tidy up at home and the guests will come

Rocking Russian boat can ride out the latest storm Ben Aris

The troika dialog managing director outlines the changes

Nikita dulnev russia now

What sectors of the Russian economy do you think are most undervalued? The Russian market is currently the cheapest of the Bric (Brazil, Russia, India and China) countries. Compare Russia’s price/earnings ratio of 6 with Brazil’s 8.5, India’s 14 or China’s 15.The most undervalued companies are in our traditional industries, such as oil, gas, metals, and mining; even the consumer goods and tech sectors aren’t cheap in comparison. Why is the Russian market less pricey than others? Because Russia hasn’t been able to kick its oil habit. This makes for extremely high macroeconomic risk. Another problem is that the current price of oil is out of kilter with supply and demand. Most likely, investors don’t understand what a fair value of “black gold”really is amid uncertainty over money issues from leading central banks in the US and Europe. If the situation deteriorates further, the monetary authorities for the developed economies will print more money. The prospect of this happening makes commodities one of the few instruments investors will consider, as it is difficult to quantify the risks inherent in Russian stocks. Stimulating domestic demand and establishing a serious do-

mestic market for capital would stabilise the market situation and may serve as a catalyst to change. Of course, this also includes pension reform. If pension savings were invested more actively they would become a source of domestic market stability. Once we see that the US is not slipping into recession and Europe is successfully sorting out its internal problems, risk premiums built into current stock valuations in both emerging and developed markets should gradually diminish. This would allow Russia to start catching up with the other Bric countries.

appetites for risk improve. Until then, only second- and third-tier stocks with an intrinsic history will be in demand – such as large potential dividends, a buy-back process, or an M&A [merger and acquisition].

Foreign capital won’t come rushing into Russia until serious and qualitative changes take place

Russia has done little to establish and sustain the domestic market and consumer demand

Third-tier stocks are the most profitable yet the most risky, both in the West and in Russia. How actively are foreign investors buying them? Not at all. This must be the result of a diminished appetite for risk, since the second and third tiers are considerably less liquid, so the risks tend to be greater. The performance of the relevant indices clearly shows as much: the RTS Index has lost 6pc this year to date, while the RTS-2 is down 13pc. Investors are still fleeing into the dollar, particularly by scooping up US Treasuries. Russia’s third tier will remain undervalued until both domestic and external investors’

benefit from the merger.There won’t be a lot of foreign players, though, as the quantity and quality of international participants is determined by the current macroeconomic situation in the country. Big foreign pension funds and big capital won’t come rushing into Russia until reasonably serious and qualitative changes take place in our country. As I have said before, this requires establishment of a stable domestic capital market. Volatility has to subside.

The MICEX index and the RTS index plan to merge by the end of the year. What effect will this have on trading participants, especially foreigners? In theory, a united stock exchange should be good news, as it would provide deeper liquidity and be able to implement new and advanced technology faster. I hope very much that everyone will

What instruments do you believe the Russian market is critically lacking? It’s not any particular instrument that is lacking; it’s mar-

ket capitalisation and, especially, domestic capital. Though I wouldn’t deny that liquid derivative instruments are also in short supply. Several steps need to be taken to resolve this problem. Operations with derivatives should be regulated and spelt out in technical detail. Demand for those derivatives also needs to emerge.The legislation should allow stock market players, including mutual and pension funds, to invest in derivatives to generate actual investment demand for futures and options, rather than simply leaving it all to speculators. It is possible, even now, of course, to try to offer the market a sufficiently sophisticated derivative instrument, but it wouldn’t find any takers. It would be like trying to sell Bentleys in the Sahara. How do foreign investors generally view the Russian economy? Do they consider it a phenomenon, or just another emerging market, like China’s or India’s? Or do they see it as a developed market? Unfortunately, Russia’s commodity-based economy is not perceived to be very efficient with its operating and investment risks. If investors considered it a unique phenomenon, it would be trading at a premium rather than a discount compared to other emerging markets. It appears that there aren’t currently any macroeconomic conditions that will attract longterm and serious investments into the country. Russia has always been a hostage to the global situation.

itar-tass

needed to make russia more attractive to foreign investors Over-reliance on oil, underdeveloped domestic capital markets and lack of demand at home are all problematic, says Anton Rakhmanov.

biography Studies: Leeds Business School; Certification from the International Securities Market Association. experience: 15 years on the debt and equity capital markets and extensive experience

in wealth management. He joined Troika Dialog in 2010 after working at Renaissance Investment Management, where he oversaw an investment portfolio of blue-chip and second-tier securities worth £950 million.

Whenever instability increases on the global markets, Russia’s risks increase exponentially. The problem is that Russia has done little to establish and sustain development of the domestic market and consumer demand, something that China has been doing rather successfully and that Brazil has recently embarked on. Furthermore, Russia has yet to learn how to control domestic public spending; while it keeps increasing, the social and economic situation remains as deplorable as ever. Almost all social sectors, including education and health care, are under-invested. The ranks of public servants continue to expand, having almost tripled over the past seven years. All this comes down to a rather simple thing: the federal budget is balanced as long as oil costs $115 [per barrel].

What percentage of foreign investors are Asian, and what sectors do they prefer? While there are no hard numbers, their share is not that large. However, China has the greatest investment potential among Asian countries. The People’s Bank of China and the country’s treasury are among the world’s biggest investors after the US Federal Reserve. The interest of Russian investors and officials to Asian financial centres is growing. Two big events are held annually – the RussiaSingapore Business Forum and a similar conference in Hong Kong – both of which attract business people and government officials from Russia and Asia. The forum’s international status and its location in one of the world’s fastest growing regions make it perfect for promoting Russia’s investment appeal.

Property Homeowners see the growth of a new bricks-and-mortar bubble

On the move: house prices rise again With house prices returning to pre-crisis levels, properties are pouring on to the market and abandoned building projects are being finalised. ben aris

itar-tass

business new europe

For many cash-strapped Russians, the global downturn offered a chance to buy a new home. But only if they were quick: the market has recovered sooner than expected and prices are already back to precrisis levels. Russia has a very high level of home ownership (around 80pc), but almost no one has a mortgage. This is because the state simply gave people the homes they occupied after the collapse of the Soviet Union, in what must be one of the biggest transfers of wealth in history. In 1990, Russians had an average of 16.8 sq m (20 sq yd)

Tall order: 80pc of Russians want to move, but few are able

of space per person. This property is worth around £1,900 billion today – about twice the value of the GDP. While eight out of 10 Russians say they want to move, very few are able to do so. There are only about 300,000 mortgage contracts in the whole country: less than half of 1pc of the population has borrowed from a bank to buy their home.“During the worst of the crisis, the top end of the market was not affected at all, as no one wanted to sell,” says Ekaterina Thain, founder of Chesterton Russia, a Moscow estate agency. “They didn’t want the cash as they had nowhere to put it. In business class, prices came down by 30pc, and in economy class they dropped by 50pc.” Any Russians with money ploughed it into real estate, the preferred asset class, dur-

Coca-Cola opens 15th plant in Russia

Coca-Cola unveiled its new production facility near the southern Russian city of Rostov-on-Don last month. The plant has the capacity to produce 450 million litres of soft drinks a year and is equipped with Russia’s largest waste-water purification facility. Currently, the plant is running only three production lines, but by 2014 all eight should be fully operational. However, even in its current mode of operation, the plant fills 78,000 bottles and almost the same number of cans per hour. Since its entry into the Russian market in 1994, Coca-Cola has invested more than £1.9 billion into the local economy, and plans

to invest the same amount over the next five years.“Today’s announcement underscores the Coca-Cola system’s long-term strategy of investing in Russia,” Coca-Cola CEO Muhtar Kent announced in a statement during the plant’s opening.

Domodedovo to become £2.46bn ‘aerotropolis’

An ambitious 10-year development plan to turn Domodedovo Airport into an “aerotropolis”was announced last month by the private airport’s operator East Line Group. An aerotropolis is a city built around an airport, as opposed a city with an airport on its outskirts. The new blueprint would effectively result in the rise of a new city on Moscow’s southern outskirts.

lori/legion media

Business in brief

East Line’s plans – which include a third runway, a revamped landing apron and expanded terminal facilities – are taking forward a concept that the airport’s management began developing in the late Nineties. Dmitry Kamenshchik, chairman of the airport’s board of directors, said Domodedovo forms the kernel of a “synergistic conurbation”of commercial development that could stretch up to 12 miles from the airport itself.

A nine-year project to upgrade the airport’s first runway, due to be fully completed this autumn, has already made Domodedovo the first Russian airport certified to receive the Airbus A380, and work on a third runway is set to begin in the first quarter of 2012, according to the Moscow Times. Also next year, construction will start on a five-year, £510 million renovation of the airport apron, the area where aircraft load and refuel, in a bid to increase the number of parking spaces. Documents recently distributed by the company show that the airport’s construction projects are expected to cost £2.46 billion — while privately funded development projects, including the hotel and the cargo village, will require an additional £266 million.

ing the worst of the crisis. Now the average price of Moscow residential real estate has soared – from around £572 per sq m in 2003, when mortgages first became available, to £2,540 in January 2010, and reaching £3,240 in August this year. And as Ms Thain points out, there is still a huge housing shortfall in Moscow, and the country as a whole.

Supply and demand

In the economic boom (from about 2006), real estate was a “get rich quick” deal for many businesses that poured money into ill-planned projects, says Darrell Stanaford, senior adviser for CB Richard Ellis Russia. According to Mr Stanaford, in the spring of 2008, over one million sq m of new office space was added to the city’s stock of 12 million sq m, so when

prices began to fall, the building projects came to a halt. The reanimation of the market was clearly seen in early September, when government statistics agency Rosstat reported a jump in July of construction volumes, up 17.8pc year-on-year after being moribund for most of the previous 18 months. Developers who had borrowed heavily to finance projects have largely restructured their loans – or lost their assets to banks – and are now raising fresh money to finish half-completed buildings that were abandoned during the crisis. “Before the crisis there were no vacancies and the trick was to do the deal fast before prices went up further – if you could get the building at all,” says Mr Stanaford. “Now there is supply – but the gap between supply and demand is closing fast.”

GLOBAL RUSSIA BUSINESS CALENDAR AtomEco Conference October 31–November 1, world trade centre, moscow

The focus of this two-day event is the latest trends and achievements in the fields of radioactive waste and spent nuclear fuel management, decommissioning, decontamination and environmental remediation. More than 600 representatives from 100 organisations, agencies, companies and R&D institutes will take part from Russia, USA, France and the UK. The timely resolution of these issues in the most cost-effective and publicly acceptable way has been making headlines recently, following the renaissance of nuclear energy – worldwide and, specifically, in Russia. http://atomeco.ru/english/

international forum ‘RUSSIAN REGIONS’: investment appeal and development strategies november 9–10, moscow

This forum has become the premier event among the regional state bodies of the country as well as international businesses that are interested in further strengthening mutually beneficial co-operation and investment in the economies of the Russian regions. The event is supported by the Chamber of Commerce and Industry of the Russian Federation. http://icenergy.co.uk/event51.html

Find more in the Global Calendar

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iquidity in the banking sector has been drying up over the past two months. It was a liquidity crunch that caused the crash in 2008, when the Russian government was forced to bail out the banks to the tune of $66bn (£42bn) to keep the financial sector afloat. The banking sector did survive (unlike in 1998), thanks to the now-ousted finance minister, Alexei Kudrin, who ensured Russia had about $600bn in reserves. Now, liquidity is drying up again. If liquidity goes negative, bankers will start worrying about who is going to go bust, and that will mean lending between banks will freeze again. So, are we headed for the abyss? Certainly Russia is in a dangerous place, as confidence is clearly fading fast. It looks increasingly likely that the EU is going to try to ring-fence Greece, and then let it default. This jolt will knock Russia’s confidence and could send it over the edge. However, if the shock does come, Russia is better prepared now than it was in 2008. Firstly, knowing a shock is coming is half the battle, as one of the reasons that the crisis hit Russia so much harder than Western economies was that the 1998 devaluation was fresh in everyone’s mind. So, they simply stopped doing business until it was clear how the crunch was going to play out. The fact that Russia’s economy bounced back so fast will go a long way to muting the impact this time – if the crisis comes. Secondly, Russia is in a much stronger economic position than it was going into 2008. Then, most of the damage had already been done by the borrowing binge that preceded the

collapse. Russian banks and companies had tapped international capital markets during the boom years. Worse, many companies had used their shares as collateral, which led to so-called“margin calls” during the very worst of the crisis. This time round, there will be few, if any, margin calls, as the 2008 crisis squeezed all these deals out of the market. Big companies have started to borrow again, but another difference from the crisis has been that the debt profile of Russian companies and banks is much better now than it was two years ago. Companies have lengthened the maturities of their loans to medium-term debt, while swapping a lot of their foreign borrowing for rouble loans. The banks are dominated by the state, so the government is in a stronger position to restructure debt

The fact that Russia’s economy bounced back so fast will go a long way to muting the impact this time if it needs to do so. But everything will depend on how well the EU manages the Greek problem. Surely, opting for a controlled Greek default is an extremely risky strategy and one that the more nervous emerging markets, such as Russia, will not welcome. Banks are built on trust, and defaults are, by definition, a betrayal of that trust. A controlled devaluation is the logical route, but if it is badly managed then fear could get ahead of the control mechanisms. If this fear is large enough, even healthy banks can go bust. There is plenty of room for surprises, and these could easily lead to a meltdown. Ben Aris is the editor and publisher of Business New Europe.

COMMENT

No pain no gain – for East and West alike Alexey Moiseev

specIAl to russia now

he question of Brics (Brazil, Russia, India, China and South Africa) countries, in particular Russia, offering Europe salvation evokes historical parallels. Among others, we are reminded of how Emperor Nicholas I’s troops rescued the Austrian Empire from popular uprisings in 1848-9. It seemed then that Russia was, in the words of the emperor,“the most powerful country in the world”, just as it had been in 1814, after Russian troops entered Paris. But even then, Russia’s military strength concealed the urgent need for modernising its economy, which only occurred a full seven years later in the aftermath of the Crimean War. The Crimean campaign revealed that behind the brilliant façade was an economy that, overall, could not match up to those of Britain and France. A somewhat similar façade exists today. The country has almost no external debt, falling inflation, a respectable rate of economic growth, a balanced state budget, current account surplus, and huge international reserves. But just as it did almost 200 years ago, all of this conceals the same urgent need for modernising Russia in nearly every area of life. However, in contrast to Emperor Nicholas I, our current leaders, Prime Minister Vladimir Putin and President Dmitry Medvedev, speak openly about it. So then, can Russia help Europe? Yes, but not so much with money. Yes, the Brics have astronomical foreign exchange reserves, which can, and probably should be invested in Eurozone bonds – if those ap-

pear, after all. But Russia’s experience during the second half of the Nineties shows that foreign financial aid reduces the incentive for tough reforms, generates hope that all problems will resolve themselves and, most importantly, only makes the inevitable decline more difficult. Herein lies the answer to the question of what countries like Russia can do to help Eurozone nations: it can offer the benefit of its experience. In Russia in 1998, it had long been hoped that foreign financial aid would somehow solve all the problems, but that didn’t happen, and in August of that year the gov-

In times of financial crisis, there is no alternative to painful reforms – no one can save you from that ernment defaulted. After that, it became clear that there was no one else to depend on. Tough financial reforms were carried out, backbreaking social obligations were scaled back and, in general, the country finally realised that it had to roll up its sleeves and get to work. It was against this background that a political consolidation of society took place, which allowed the reform process to continue. As a result, Russia had its highest period of growth for almost 40 years, which was only partially – and only in the later years – the result of high oil prices. Russia’s experience has shown that in times of financial crisis there is no alternative to painful reforms – and no one can save you from that. Alexey Moiseev is head of macroeconomic analysis at VTB Capital.

Comment & Analysis

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Technology: innovation waits for a ‘Sputnik moment’ http://rbth.ru/13523

control and compromise: the enigma of vladimir putin Dmitry Babich

special to russia now

he“new deal”between Vladimir Putin and Dmitry Medvedev, which effectively brings the former back to the Kremlin for the next six years, was a tremendous disappointment for the majority of Russia-watchers in the mainstream western media. In Russia, the negative reaction was much more muted. The registered opposition parties – primarily the communists and the social-democrats from the Fair Russia party – expressed their dissatisfaction with a sense of doomed near-indifference (“We did not expect anything else from the Kremlin”). The only members of the Russian elite who were indeed disappointed and vocal about it were several people from President Medvedev’s entourage, who had obviously planned on careers during their boss’s second term in office.These people felt themselves snubbed. So why did Mr Medvedev prefer to snub them (and a lion’s share of Russia’s liberals with them)? Which holy truths did they ignore? The answer is – the main ones. Political scientist Stanislav Belkovsky has singled out the two main priorities of the Russian elite since the “revolution”of 1991. First, to preserve political stability; second, to get the new Russian elite integrated into the western elite – but not at the expense of the first priority. Translated to normal human language, this means that the Russian elite is ready to cooperate with the west, as long as that co-operation does not jeopardise its grip on

power. In other words, it does not want to repeat the fate of Mikhail Gorbachev, who was the first Soviet leader to be invited to a G7 summit in the summer 1991 – in return for actually relinquishing his power inside the Soviet Union. The first priority spawned a sort of code of behaviour among the Russian elite’s members.The first rule in this code is to prevent by all means any sort of conflict among various groups inside the elite, especially if faced with pressure from abroad. Several months before becoming president in 2008, Dmitry Medvedev published an interview in Expert magazine where he analysed the collapse of the Soviet Union and tried to draw lessons from it. One of his main conclusions was that the Soviet Union was destroyed by a conflict inside the Politburo and inside the Soviet political elite in general. The future president was intent on not repeating the experience of Gorbachev. He has kept his promise until now, avoiding by all means a conflict with Vladimir Putin, so much anticipated (and, perhaps, secretly desired) by the mainstream media and elites of the west. In fact, in the framework of the system created after Medvedev’s election in 2008, Prime Minister Putin and President Medvedev divided not only powers, but also priorities. Mr Putin was responsible for the first priority – running the country’s internal politics and economy in a way that would preclude

any possibility of destabilisation. Mr Medvedev took for himself the second priority, rather ceremonial duties of making Russia attractive and open to the west, to a degree that does not endanger its internal political stability. The west was disappointed: a Gorbachev-style conflict inside the elite never happened. Moreover, it also transpired that Mr Putin’s economic policy actually had legs.

Thanks to the huge stabilisation fund and some rather liberal economic policies, Russia survived the 20082009 global financial crisis. Mr Putin managed to create the Customs Union of Russia, Belarus and Kazakhstan. Thanks to that union, bilateral trade between Belarus and Kazakhstan increased sixfold, and the two countries’ trade with Russia is also

rapidly growing, according to the information of Svetlana Glinkina, a senior researcher at the Institute of Economy at the Russian Academy of Sciences. Does all of this make Mr Putin an “old-style Soviet leader”? No. Unlike the Soviet leaders, Vladimir Putin has nothing against integration with the west – if it does not threaten the country’s political stability. Unlike the Soviet leaders of yesteryear or the communist opposition of today, he does not dream of the rebirth of the Soviet Union. The Eurasian Union, recently suggested by Putin, is actually an economic union of sovereign states, open to the rest of Europe and the United States for co-operation and even integration. In fact, it was under Putin that Russia shed some of the last vestiges of Soviet attitude to its neighbours. Under Putin, Russia stopped subsidising former Soviet “fraternal republics” with cheap energy exports. Ene r g y relations between Russia and Belarus, Russia and Ukraine, as well as other new independent

states, were put on firmer financial footings. Under the Putin-Medvedev tandem, Russia stopped responding to calls for military assistance from the former Soviet republics. When Kyrgyzstan appealed for Russian intervention in 2010 to quell ethnic violence in the city of Osh, Russian troops never left their barracks. The Russo-Georgian war in South Ossetia in 2008 was no exception to that rule: Russia was simply protecting its citizens (90pc of the Ossetian minority in Georgia have Russian citizenship). In fact, it was a war for the first priority of the Russian elite, since a Saakashvili victory would have inevitably led to a loss of face in the North Caucasus and subsequent destabilisation. Despite all of these facts, the west continues to view Mr Putin negatively. Maybe it is time for a change? After all, the two contradictory priorities of the Russian elite and its present unity were both products of western policies. Unlike Poland or Hungary, Russia was not offered a clear European perspective; there was nothing to argue about for “liberals” and“isolationists”inside the Russian elite. There was only one route to survival left: “sovereign democracy”.This meant staying together, keeping power, and waiting for the west to sober up to Russian realities – just exactly what Putin and Medvedev are doing. Dmitry Babich is a political commentator for news agency RIA Novosti.

Russian compass swings east Fyodor Lukyanov

gazeta.ru

veryone is trying to guess how Russia’s foreign policy might change afterVladimir Putin takes over as president. Most expect Putin’s Russia to resume its anti-western policy. In this respect, it is symbolic that Putin’s first visit in his new capacity as president-in-waiting was to China, and that, in his first keynote article, he offered to create a Eurasian Union of ex-Soviet nations. The question of how the “western" and“eastern”combine in Putin’s vision is much more subtle and complex in nature. In the eyes of many observers,“Putin-2” (of the second term, from 2004-2008) completely overshadowed“Putin1” (of the first term, 20002004) with his strongly pro-western agenda: from close co-operation and prospects for European integration to concessions to the United States (the closure of military bases in Cuba and Vietnam, position on Central Asia, and so on) and advances to Tokyo on settling the Kuril Islands dispute. The result, however, was disappointing. Who should be

Whatever Moscow’s relations with the US and Europe, China is Russia’s major neighbour held responsible for those failures is a question open to debate. In retrospect, one can hardly blameVladimir Putin for not trying to bring Russia into the western orbit during his first term.The lack of the desired result helped

Letters from readers, guest columns and cartoons labelled “Comments”, “Viewpoint” or appearing on the “Opinion” and “Comment & Analysis” pages of this supplement are selected to represent a broad range of views and do not necessarily represent those of the editors of Russia Now or Rossiyskaya Gazeta. Please send letters to the editor to UK@rbth.ru

rebrand Putin-2 as the author of the anti-American speech in Munich. The foreign policy message of Putin’s second term was: “So you don’t want to treat us like equals? Then I’ll make you…” And he did. What was the role of the east – especially China – in Russia’s foreign policy of the 2000s? The early Putin, despite his multi-faceted approach, was largely pro-western – in the sense that Moscow’s foreign policy was focused on ties with the US and Europe. At the same

time, Russia was also building ties with Asia, especially China and India, creating regional structures of varying cohesion, from the Shanghai Co-operation Organisation to the Bric alliance. Moscow was making it clear to the United States (in terms of military and political activities) and Europe (in terms of energy) that it had alternatives. On certain subjects the west listened carefully and expressed concern; on others it would simply brush Moscow’s claims aside. There is still a tendency to see Russia’s Asian policy as a means for putting pressure on Europe. Yet this has become irrelevant for one simple reason: whatever Moscow’s relations with the US and Europe, China is now Russia’s major neighbour, wielding a strong influence and likely to wield an even stronger one. Vladimir Putin is not one of those who is fascinated by China, and he is fully aware of the risks inherent in the rapid and very impressive growth of the Asian neighbour. But he also understands that Russia will have to seek ways for peaceful and friendly coexistence with Beijing; there is not another growth and development engine in Asia that could rival China.

And, of course, if Russia wants to upgrade its Far East region, it can hardly do so without China. Lofty phrases about modernisation and technological alliance with China – a new topic apparently inspired by Putin’s visit – mean in practical terms institutionalisation of the existing model: Russian raw materials in exchange for Chinese products. The issue is the conditions, not the essence. Instead of dreaming about SiliconValleys, Russia should go ahead with real modernisation, focusing on efficient use of raw materials and market diversification, in terms of both geography and product range. In other words, it is not the US and Japan that should be chosen as models, but rather Australia and Canada – as highly developed nations whose growth is based on plentiful natural resources. In this sense, China is vital, with its steadily growing consumption and significant surplus of cash. Vladimir Putin has made no secret about his view of hydrocarbons as Russia’s main resource and guarantor of political weight throughout the 21st century. However, in contrast with Europe, where Russia has been pursuing a

This eight-page pull-out is produced and published by Rossiyskaya Gazeta (Russia), which takes sole responsibility for the contents. Internet address www.rbth.ru Email uK@rbth.ru Tel. +7 (495) 775 3114 fax +44 (20 3070 0020) ADDRESS 24 Pravdy STR, bldg 4, Floor 12, Moscow, Russia, 125 993 evgeny abov Editor & publisher konstantin fets executive editor alena tveritina editor Olga DMITRIEVA editor (UK edition) shauna massey guest editor (uk) Paul Carroll, brett lampitt subeditors (uk) Andrey zaitsev head of photo dept milla domogatskaya head of pre-print dpt ilya ovcharenko layout e-Paper version of this supplement is available at www.rbth.ru. Vsevolod pulya online editor.

pipeline diplomacy and policy since the Sixties, it is only just beginning to feel its way in Asia. One such overture is Moscow’s recent proposal that Pyongyang becomes Russia’s main partner in constructing a trans-Korean gas pipeline, in exchange for a rethink on the nuclear programme and a peaceful settlement.Yet Russia’s ability to promote its goals in this way is rather limited: whereas in Europe Moscow has a solid footing, it is only just beginning to gain political weight in Asia. But there is no other way. Putin’s visit to China, in his new capacity as future president, turns a new page. His next term’s agenda will be dominated by efforts to develop a model of peaceful coexistence with Beijing – one that should work for decades to come. Soon, commentators will have to change tack and stop seeing visits to Beijing in the light of Russia’s ties with Europe and the US. Rather, they will consider whether Russia can use its contacts in the west to strengthen its position in China. Fyodor Lukyanov is chief editor of the magazine Russia in Global Affairs.

Working towards a new unity Sergei Markedonov

special to rn

he year 2011 is full of landmark anniversaries, and most of them are associated with the collapse of the Soviet Union. The most important lesson of the past two decades has been understanding that the act of dividing up a union doesn’t in itself solve the issues of sustaining newly independent states or guarantee their future prosperity and social harmony. Regardless of their attitudes towards their common past and each other, the former Soviet republics were linked by thousands of different threads that have proven difficult to sever once independence was gained. Consequently, since 1991, they have constantly fluctuated between integration processes and centrifugal tendencies. An article by Prime MinisterVladimir Putin published in Izvestia on October 4, 2011 sets out his vision for improving relations between Russia and the independent states. The article’s title is telling: A New Integration Project for Eurasia – A Future That is Born Today. Although Putin’s text deals with quite a specific integration project, the Common Economic Space, which is scheduled to launch in January 2012, it also raises some broader issues. The fact that Putin’s article appeared on the eve of a new election cycle, after the prime minister announced his presidential bid, means that it is being viewed as his agenda for the region. Because of this, the article has been subject to scrutiny both at home and abroad. But this isn’t just about Putin’s ambitions. In the 20 years since the collapse of the USSR, the West has viewed any attempt by Moscow to bolster its activities in post-Soviet territories with caution. This explains the hard-line response from Washington and its Nato allies in recognising the independence of Abkhazia and South Ossetia (the first case of redrawing inter-republican borders since 1991), as well as their reluctance to work with the Collective Security Treaty Organisation (CSTO) which is perceived as a tool of Russian domination rather than as a structure for integration. Added to that, Nato is suspicious of Russian military presence anywhere in the former Soviet Union. It sees Russia’s “strengthening presence” in Eurasia as a bid to restore Soviet hegemony. Has Putin’s article helped galvanise those fears? Or has it made a case against alarmist approaches to Russian foreign policy and foreign trade? On the one hand, Putin has unequivocally stated that his proposed model of economic integration has nothing to do with the USSR.“It would be naive to try to revive or emulate something that has been consigned to history, but these times call for close integration based on new values and a new political and economic foundation,”Putin wrote. At the same time, the Russian PM pointed out that the Common Economic Space will be based on the principle of open borders between its members – hence his remark about the needlessness of erecting border lines between Russia and Kazakhstan, a boundary comparable in length to the USMexican border. Moreover, if there are any comparisons made in Putin’s article, they are with the EU and the European integration model. Mr Putin emphasised the need not only for close examination of the EU’s experience, but also for co-operation between a new, integrated post-

Soviet entity and the world’s leading economies in both the West and the East. The article is free of both nostalgia for the Soviet past and a confrontational attitude towards other countries and integration projects. It pays great attention to the Commonwealth of Independent States (CIS), by virtue of it being the oldest and bestknown integration project. Many of the prime minister’s assessments appear spot-on. Looking back, it’s clear that the CIS structure has helped solve problems, such as dividing up the Soviet military legacy, establishing national armed forces, recognising borders, co-ordinating immigration policy (ensuring visa-free travel), implementing an energy pricing policy and recognising Soviet education diplomas across the CIS. However, certain problems have led to stagnation in the CIS’s development and undermined its effectiveness. These include trade wars between member states, and the political tensions that have contributed to revisions of immigration policy. On top of that, the CIS’s internal integration mechanisms have been blocked by a system of bilateral relations between the newly independent states, which have become a higher priority for them. Georgia’s withdrawal from the CIS in 2009 set a precedent for reconfiguring the structure. And there is no guarantee that bilateral relations won’t become an obstacle for integration within the Common Economic Space as well. In general, the article over-

The act of dividing up a union doesn't in itself solve the issues of sustaining newly independent states or guarantee their future prosperity and social harmony

Nato is suspicious of Russian military presence anywhere in the former Soviet Union seeing Russia's 'strengthening presence' as a bid to restore Soviet hegemony looks the important issue of fragmentation of the postSoviet territory. But what should the Russian project for Eurasia be if it isn’t modelled on the Soviet example, and doesn’t lend itself to the framework of European integration? This question remains unanswered. Whatever one personally feels aboutVladimir Putin or Russia’s foreign policy, Moscow holds geopolitical and economic leadership in the territory of the former Soviet Union today. But this leadership is based on history, and its continuation is not automatically guaranteed. In order to maintain it, instead of a “mechanism for a civilised divorce” (to quote Putin’s own assessment of the CIS back in March 2005), new and effective integration processes are needed to give a fresh impetus to both the internal development of new independent states and to their co-operative aspirations. But in order for this to work, a serious reflection on the mistakes of the past and how to properly address them is needed. Sergei Markedonov is a visiting fellow at the Centre for Strategic and International Studies in Washington, DC.

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Architecture Despite postwar deprivation, no expense was spared in the construction of Moscow’s grand skyscrapers Video and slide show at www.rbth.ru/13591

Architectural legacy: three of the Seven Sisters, the Hotel Ukraina (right), the Ministry of Foreign Affairs (left of the hotel), and the building on Kudrinskaya Square (far left) GEOPHOTO

Stalin’s statuesque ‘Sisters’ still stand tall on the Moscow skyline Built by Stalin as symbols of victory and a new era of Soviet power, the colossal Seven Sisters still impress amid newer high-rises.

beautiful marble staircases and was the tallest building in Europe until the exhibition centre at Frankfurt-onMain was completed in 1990. In today’s money that would add up to around £415 million – more than the 2 billion roubles set aside to rebuild war-ravaged Stalingrad over a period of five years. Roughly the same amount was spent in total on the construction of the other six buildings. These monumental skyscrapers surround the centre of the city like a fortress wall, and themselves resemble fortresses. All follow a similar style: a dominating central tower that narrows in stages to the top, flanked in a more or less strict order by wings. However, the structure of each building differs, as does the architectural detail and the lavish decorations of their towers, statues and bas-reliefs. Influences range from Renaissance and baroque to Russian church architecture and Gothic. The architects tried to guess what would appeal to Stalin, who was said to be fond of the Gothic style. However, they didn’t always manage to please him: the Ministry of Foreign Affairs building was originally designed without a spire, but the dictator insisted on having one. So a special lightweight spire, made in the same colour as the skyscraper, had to be perched on top with supports descending five floors. After Stalin’s death in 1953, the architects asked the new First Secretary, Nikita Khrushchev, for permission to undo this Stalinist act of despotism. But

TINO KYUNTSEL

SPECIAL TO RUSSIA NOW

In the grey days of the Soviet era, workers raised in the spirit of atheism needed a little inspiration from time to time. And, while they had the luxurious pioneer camp Artek in the Crimea, the grand Exhibition of Economic Achievements in Moscow, and the lavishly decorated Moscow Metro to uplift their spirits, the communist paradise on Earth was yet to arrive. Soon after the end of the Second World War, in defiance of all doubters, a grandiose new architectural project was launched. Joseph Stalin,“the father and friend of all Soviet architects”,as he was called at the All-Union Congress in 1946, undertook a colossal construction project designed to convince the Soviet people, and the whole world, of the victorious Soviet power’s increased self-awareness. In early 1947, the Council of Ministers adopted a resolution for the construction of eight skyscrapers (one of which was never built). At 1pm on September 7 of the same year, during the celebration of Moscow’s 800th anniversary, the first stone of each skyscraper was laid in a special ceremony.

A vista of triumph

The end of opulence

Stalin’s death put an end to the principle that “the eye should delight” as quickly as the “father and friend of all architects” had disposed of the Soviet avant-garde in the Thirties. Khrushchev declared war on Stalinist extremes in city planning. Now, everything would be sacrificed to functional understatement. Rapid construction of mass housing began, as a result of which many city dwellers received separate apartments for the first time in their lives. In the Russian mind, however, Stalinist skyscrapers still equal quality, while Khrushchev’s matchbox-size apartments equal quantity.

Construction of the Seven Sisters was completed under Khrushchev. But the eighth skyscraper – the one that was intended to be the most impressive of all, located next to Red Square and soaring up to 275 meters (900ft) – never materialised. Instead, on the foundation of the would-be Zaryadye Administrative Building, the Rossiya Hotel was built, the largest hotel in Europe, which was demolished in 2006. Fate was not kind to Stalin’s planned Palace of the Soviets, either, which was to be in the classical “Stalinist Empire” architectural style. Its 420m tower was to be crowned with a 100m statue of Lenin, but construction was suspended during the war.When Khrushchev learnt how much it would cost to complete, he supposedly said:“Better build chemical combines [chemical/ radioactive plants] instead.” But in place of the palace, an enormous outdoor heated swimming pool was built. In the Nineties, the pool was replaced by the Cathedral of Christ the Saviour (the original cathedral having been pulled down in 1931). Today, the Seven Sisters have lost some of their old lustre. In the two residential buildings, the elevators break down from time to time, while the residents – members of the intelligentsia, pilots and cosmonauts – must accept that their new neighbours are hardly high society any more. Nevertheless, the Seven Sisters’ statuesque presence across the city provides a grandiose aura and serves as a constant reminder of an era gone by.

Sample the Seven Sisters Moscow tourists keen to experience a Stalin-era, Gothic, high-rise hotel with panoramic views can book a room in either the Hotel Leningradskaya or the Ukraina (now respectively owned by international groups Hilton and Radisson). With their five-star ratings, they offer luxuries such as swimming pools, health clubs and international cuisine, while still recalling the Soviet era thanks to their opulent decor. Rooms cost around $300 for the Hilton and $500 for the Ukraina (now called the Radisson Royal). For a lower price, try the heat of summer in July and August or the New Year holidays.

THE NUMBERS

240

metres: the height above ground of the pinnacle of the spire on the Moscow State University building – the tallest of the Seven Sisters by 34m.

The Hotel Ukraina, once the largest hotel in Europe, has been restored to its former glory – with a little modern style and comfort added. ALENA TVERITINA RUSSIA NOW

Palatial: Stalinist decor adorns the Hotel Ukraina

The Hotel Ukraina (or the Radisson Royal Hotel as it is now called) has always been distinct from the other Seven Sisters. Unlike the closed ministries and residential buildings, this hotel allows anyone to stroll in and admire its stunning panoramas – which is what legendary cosmonaut Yuri Gagarin did back in 1961. The Ukraina is also one of the oldest and most celebrated of the Seven Sisters.When it opened in 1957, it was the largest hotel not only in the

2,500 9,000 pounds: the average monthly rent paid for a standard threebedroom apartment in the Kotelnicheskaya Embankment residential building.

people (approx) from all over the USSR who participated in the construction of the Hotel Ukraina alone. Even today, it is the tallest hotel in Moscow.

The Seven Sisters compared: height and floors

QUOTE

Natalya Dushkina PROFESSOR AT THE MOSCOW ARCHITECTURAL INSTITUTE

The Seven Sisters were the first large-scale construction in Europe after the war, and the first to bring skyscrapers to Europe. They were seen as a symbol of a country reborn, and returned a sense of scale to a city that had been hit badly by the war and by the destruction of the old city under Stalin. Recently there have been calls by Russian and German preservationists for the buildings to be put on the World Heritage List."

Grand hotel: the iconic Ukraina is reborn as an ‘oasis of elegant luxury’

RUSLAN SUKHUSHIN

The first skyscraper was completed in 1949, and all seven were completed within 10 years. Later known as the Seven Sisters, these buildings became: Moscow State University on Sparrow Hills; two government buildings, including the Ministry of Foreign Affairs; two residential buildings; and two hotels, the Ukraina and the Leningrad. In the postwar period, these symbols of a new era, shining with magnificence, seemed like something fantastic.Their architectural slogan was“We can!”– trumpeted from a city whose residents, faint from hunger, lived in cramped communal apartments. Supervision of the skyscrapers’ construction was initially entrusted to the notorious KGB chief Lavrenty Beria (who was also in charge of creating the Soviet atomic bomb project and was executed in 1953). Beria was rumoured to have installed spying devices in some of the rooms. The actual construction of the Sisters was carried out by thousands of prisoners from the Gulag, as well as German prisoners of war. For each building, a different technique was used to stabilise the ground under the foundations. The costs incurred were of secondary importance. Some 2.6 billion Soviet roubles were spent on Moscow State University alone – which has

Khrushchev refused, wanting the spire on the Ministry to remain as a “monument to Stalin’s stupidity”. Contemporaries were immediately struck by the resemblance of these StalinistGothic monuments to certain American precursors, such as the Manhattan Municipal Building, which was completed in 1914. Given this resemblance, it was hard to understand the ideological statement made by the buildings.The dialectical explanation was that capitalist temples of trade had been studied in detail and used as a foundation, the objective being to give them a completely new meaning. Historian Karl Schlögel wrote in his book Moscow:“The new skyscrapers recreated the skyline, giving it a new vertical emphasis once held by the numerous churches and bell towers of the city so recently destroyed.”

USSR, but in all of Europe; to this day it is Moscow’s tallest hotel. The observation deck that once occupied the 29th floor has gone, but the views can still be enjoyed from the fashionable restaurants at the top. The spectacle begins in the main lobby, where you get a bird’s-eye view of Moscow – from the golden domes of the Kremlin churches to the boats on the Moscow River. But there are no glass towers on the horizon, as this is a view of Moscow in 1977, immortalised at the time in a huge diorama. Measuring 16m x 9.5m x 6m (52ft x 31ft x 20ft), the piece was created for a national exhibition in NewYork City. At the time, US astronaut Neil Armstrong wanted to buy it, but

in those days Soviet Moscow was not for sale. In 2007, it was bought at auction by the Ukraina’s new owners, the Rezidor Hotel Group. After a major, three-year renovation, the hotel has

It now has all the elements of a five-star hotel, but the old trimmings still remain been transformed into an oasis of elegant luxury. Its layout and interiors have been changed – it now has all the elements of a modern five-star hotel, such as boutiques selling luxury brands – but the old trimmings, made of natural and

traditional materials, such as marble, Karelian birch and onyx, still remain. The spirit of the Stalinist era is unobtrusive yet palpable everywhere: in the lobby’s massive crystal chandeliers and the expensive curtains draping the tall windows; in the green glass lampshades and the hush of the library, where volumes of Marx and Engels are housed. On the newly-restored ceiling is a spectacular painting entitled:“Celebration of Labour and the Harvest in Hospitable Ukraine”. “Our Japanese guests are especially thrilled by this,” the receptionist remarks. “One tourist even lay down on the floor to get a better shot of it.” Some 1,200 paintings by Soviet artists adorn the walls of the hotel, the most famous by Polenov and Deineka. “Many of our foreign guests ask to buy these paintings,” says Natalia Kalinina, who has worked with the Ukraina’s management for more than 30 years.“But they are the pride of the hotel and are not for sale. “One day, in 1991, we received a letter from England

saying: ‘I stayed at your hotel in March 1988 and remember a beautiful painting showing children playing in the snow… I would very much like to buy it from you. If you cannot sell it to me, then I would be grateful for a photograph of it.’” Natalia had the painting photographed and sent it to the English admirer. In reply, she received a letter of thanks and a family portrait taken in front of a canvas – a copy of the painting. Part of the hotel’s wings are given over to private residential apartments, occupying 11 storeys. Like those of the other Seven Sisters residential buildings, these apartments have housed plenty of Russian celebrities: singers, writers, actors and scientists. In the late Fifties, an ice rink was installed in the inner courtyard of the hotel, where the future Olympic ice-skating champion Ludmila Pakhomova practised. The Ukraina’s Olympic connection lives on: the hotel now boasts a 50m swimming pool and a fitness centre where coaching in different sports is given by former Olympic champions.

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