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Vote Monitors Planning Ahead for March 4

Revitalizing Russia’s Rust Belt with American Help

Where Adventure Runs Into Souvenirs

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ILIA VARLAMPV

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WEDNESDAY, FEBRUARY 8, 2012

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NEWS IN BRIEF

Business An ambitious promise by Putin to simplify doing business in Russia sounds too good to be true

Economic Liberalization Drive Divides Analysts

Political Protests Continue More than 175,000 people from across the political spectrum turned out despite bitter cold temperatures on Feb. 4 to participate in rallies in Moscow. The opposition movement sponsored a rally in support of fair elections in Bolotnaya Square while pro-Kremlin activists gathered at Pokolonnaya Hill and members of the LiberalDemocratic Party of Russia met at Pushkin Square. Members of the opposition have scheduled another protest for Feb. 26, one week before the March 4 presidential election. Read more about Russian political activism at rbth.ru/protests

Rail System Improvement to Benefit Travelers

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Vladimir Putin wants Russia to rise dramatically in World Bank rankings, but any quick changes to the system are likely to be superficial. BEN ARIS, ROMAN VOROBYOV BUSINESS NEW EUROPE, RBTH

In a speech to The Russia Forum, an annual investment conference in Moscow, presidential candidate and Prime Minister Vladimir Putin announced that if he is elected president on March 4, his administration will push for Russia to rise a full 100 places, to 20th, on the World Bank’s Ease

of Doing Business survey.“Russia is among the top five countries in terms of potential for attracting foreign investments,” Putin said,“but it is in a shameful 120th place in terms of investment climate.” The prime minister said he plans to do this by reducing energy waste by a factor of four, reducing the time required to file a tax return by a factor of three and creating the position of ombudsman for business to look out for the rights of entrepreneurs. Vadim Dymov, the owner of a network of meatpacking plants,

welcomed the idea of an ombudsman, but doubted whether a single person can make a real difference in the system.“Of course such a person is needed,”Dymov said.“I am absolutely convinced that, in a country where the share of small- and medium-sized businesses is very low compared to other countries, law enforcement bodies should protect the rights and interests of entrepreneurs.”Dymov added that, in his opinion, the state has enough tools for protecting entrepreneurs, but they are not effective enough.

Outside the creation of the ombudsman, the prime minister’s plan seems to target indicators in cases in which it lies within the government’s power to change Russia’s poor scores via administrative reforms.Without a deepseated shift in business culture, however, this could become simply a pro-forma exercise. Natalia Orlova of Alfa Bank said:“Unfortunately, Putin’s goal is too ambitious to be achievable: A 100-step improvement would require a complete reform of the current political and economic framework.”

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Former Finance Minister Alexei Kudrin, who has been offering to act as a mediator at recent protests in Russia, spoke at The Russia Forum 2012, an annual conference held in Moscow and sponsored by investment bank Troika Dialog.

Soon it will take only nine hours to travel by train between Moscow and Berlin. During a rail expo in Brussels at the end of January, Russian Railways head Vladimir Yakunin announced that his company had purchased new track gauge changeover systems that will allow trains to continue into the European Union without having to stop and readjust the gauge at the border. Previously the trip took around 25 hours. Read more on Russian Railways’ plans at rbth.ru/14263

Russian Software Will Take on Windows After several months of development, Russia’s National Software Program — the Russian operating system that is intended to replace Windows on computers in public agencies and schools — has been approved by the Ministry of Telecommunications. Russian officials hope that, in due course, the National Software Program will reduce the amount currently spent on software licences by as much as 80 percent or 1.72 trillion rubles ($55.3 billion).

Investment Twenty-five areas around Russia are attracting development with business-friendly policies

A Place Where Everyone Is Special A Russian or foreign company, if it qualifies as a “resident” of a special economic zone, can save up to 30 percent of the cost of setting up a production unit. ANATOLY MEDETSKY THE MOSCOW TIMES

ITAR-TASS

As if tax relief isn’t alluring enough, the Russian government’s Special Economic Zones — a state company that manages 25 business-friendly locations around the country also known as special economic zones — now offers new services to net international firms. Investors no longer have to build their own facilities, but can ask Special Economic Zones to do it for them, said the company’s chief executive, Oleg Kostin. The investor then rents the space. For investors, this setup removes the risk of wasting construction costs on a business that might not take off. It also spares them the hassle of operating a building. “For us,” said Kostin, “it offers “a chance to attract a large company.” The rental revenues could pay for the construction within eight

years. And, as the buildings are constructed to a standard design, the facilities could be used for other companies if the original firm pulls out. Nokia Siemens Networks said the rental proposal was essential in its decision to site its plant in the special economic zone in the

Tomsk Region, said Kristina Tikhonova, Nokia’s chief executive for Russia, through an aide. The Nokia joint venture, in which the foreign company is majority owner, will produce telecommunications equipment at a plant that opened at the end of 2011, just months after the part-

Corporate offices were built in the Neudorf special economic zone in St. Petersburg thanks to policies including tax breaks.

ners signed a tentative agreement in March to work together. Special Economic Zones offers the ready-made rental option in four zones in which investors have expressed interest: Tomsk, St. Petersburg, the Alabuga zone, located in Tatarstan and Zelenograd, a Moscow suburb that is formally a district of the city. In addition to the rental service, locating a facility in one of the special economic zones has other benefits. If a Russian or foreign company qualifies as a“resident” of one of the zones, it becomes eligble for tax relief, customs benefits and immediate access to utilities. A council run by the Economic Development Ministry and made up of its officials and top executives from state-controlled banks and state corporations holds the ultimate power to admit companies as residents of Russia’s 25 zones.The companies have to meet conditions that include the application of advanced technology and potential to make products that replace imports. CONTINUED ON PAGE 4

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Elections New organizations hope to prevent fraud in the March 4 presidential vote

Vote Monitors Taking It To the Polling Place

VIEWPOINT

The Russian Opposition Must Carefully Consider the Company It Keeps Eugene Ivanov

RosVybory, a project of blogger Alexei Navalny, is just one of many organizations preparing to monitor the March 4 presidential election.

SPECIAL TO RBTH

YULIA PONOMAREVA THE MOSCOW NEWS

IN FIGURES

3,000

violations were reported during the Dec. 4 State Duma elections according to Russia’s Central Election Commission. AP

Anticorruption crusader Alexei Navalny has taken his battle against graft to the polls, launching a project called RosVybory to recruit monitors for the March 4 presidential election. The new initiative will deploy election monitors to the most fraud-prone precincts — ones where violations were registered in the Dec. 4 parliamentary elections or where the ruling United Russia party received a suspiciously high percentage of the vote. As part of RosVybory, Navalny is also recruiting lawyers and creating mobile brigades of volunteers to catch voting irregularities. Since the law allows only candidates, parliamentary parties and the mass media to send monitors to precincts, Navalny is negotiating the participation of RosVybory volunteers with the Communist Party of the Russian Federation and the Just Russia party as well as independent candidates in regions where municipal elections will be held alongside the presidential vote. RosVybory coordinator Georgy Alburov said he is certain that negotiations with the parties will be a success:“All parties want fair elections. They’re short of monitors and will be eager to take on ours.” Alexander Lebedev, manager of Just Russia’s election day activities in Moscow, plans to deploy at least three monitors to each city precinct. He said that many volunteers joined his group after the December protests against vote fraud, adding that at least 40 percent of his monitors are new.“Earlier, people took this job only if they got paid,”said Lebedev. “Now, there are more who agree to work for free.” Monitors undergo special training to prepare them for the job. “The main aim of our training is to explain to monitors how to prevent a violation, not how to kick up a fuss and write a complaint — these are useless in our system,” Lebedev said. “At lectures, we use a ballot box, telling people that at some point it’s going to be stuffed, so they must keep their eyes peeled all the time.”

MOST READ Russian for Immigrants rbth.ru/14240

Alexei Navalny (right) has founded a new project, RosVybory, to fight violations in the upcoming presidential election.

Helping Russians Find Their Voice The right of independent, civic observers to witness elections is enshrined in the Russian Constitution of 1993. However, this provision was mostly ignored until 2000, when the nongovernmental organization Golos (Voice) was founded. This organization, which is not backed by any political party, works to educate voters and supervise elections. It also maintains hotlines staffed by volunteers to record reports of

voting irregularities. In 2011, Golos, along with several media organizations, created a Web site that features an interactive map of election violations. Since the December 2011 protests against election fraud, new groups have been founded to take part in vote monitoring including the League of Voters. The organizations hope to give civil society more of a voice in the electoral process.

tion Commission allowed monitors to film as long as they did not use hidden cameras. “Even the [evidence] of a media representative or [videos] from webcams will be considered by courts as circumstantial evidence,”Lebedev said.“But they’ll still say that everything was filmed at rented apartments.”

them all up, compiled the ‘Churov list’ [of election officials caught fixing the vote] and are now fighting in the courts.” With the exit ofYavlinsky, only Prime Minister Vladimir Putin, Just Russia’s Sergei Mironov, the Communists’ Gennady Zyuganov, Vladimir Zhirinovsky of rightwing Liberal-Democratic Party, and billionaire Mikhail Prokhorov remain in the race. Yabloko may still be able to send its monitors to precincts as representatives of its publication, Yabloko Rossii, said party spokesman Igor Yakovlev, but even this would restrict Yabloko’s ability to monitor the elections. “Even though the statuses of monitors and of representatives of the mass media are very similar, in real life the latter are more often kicked out of polling stations,” he said. Nevertheless, RosVybory is counting on Yabloko. It will also cooperate with independent vote monitoring association Golos. Said Alburov, “They share their training materials with us; they’re a great help.”

A Role for Yabloko monitors

The number of monitors joining Just Russia may increase, given that the Central Elections Commission has barred the leader of the liberal Yabloko party, Grigory Yavlinsky, from taking part in the election. Under current law, this decision means that monitors from Yabloko can no longer watch the polls. “The only reason Yavlinsky is being barred from the race is the need to get rid of Yabloko monitors,”wrote popular LiveJournal blogger Andrei Malgin. “[Yabloko] did their job better than others in the parliamentary elections,”Malgin said.“They registered more violations, summed

Video training

Monitors are also taught to use cameras in order to record violations. Lebedev, however, does not believe this is an effective way to challenge vote results. Only media representatives have the right to film at polling stations. For the Dec. 4 State Duma elections, however, the Central Elec-

7,800

violations were documented by the N.G.O. Golos on an interactive online map. The group has launched a new map in preparation for the presidential vote.

people across the country have been punished due to violations reported during the State Duma elections.

Golos executive director Lilia Shibanova said her association will also hold training sessions for RosVybory monitors. Alburov said his group has scheduled video training and will hold lectures and meetings with experts. In the meantime, Golos is facing problems of its own. It was notified that its Moscow office would have power cut off from Jan. 25 through March 6 due to repairs, and in mid-January its landlord, the Literaturnaya Gazeta publishing house, said it would revoke the organization’s lease as of Feb. 1, although the lease was good until August. Following a media campaign in defense of Golos, the publishing house reviewed its decision and said it would allow Golos to stay in its offices until Feb. 24. Shibanova said that the organization also had yet to suffer through any power cuts. Originally published in

ichael McFaul, the sixth U.S. ambassador to post-Soviet Russia, arrived in Moscow on Saturday, Jan. 14. On Monday, his first day on the job, McFaul met with Russian Foreign Minister Sergei Lavrov. The next day, McFaul invited a group of Russian politicians and civil-society activists for a short meeting at his residence. McFaul came to Moscow at a challenging time in U.S.-Russia relations: The reset, of which he is widely considered one of the architects, has obviously stalled over a host of difficult issues, such as European missile defense and Russia’s position on Syria and Iran. Making things worse, anti-American rhetoric has been on the rise in the past few weeks after Prime Minister Vladimir Putin accused U.S. Secretary of State Hillary Clinton of inciting the anti-government protests that swept Moscow and other Russian cities in December. Complicating McFaul’s life even further are the presidential elections taking place in both countries. It seems almost certain that no serious decision concerning U.S.-Russia relations can be made or even contemplated until after Putin’s expected inauguration in May. Given the lack of warmth between Putin and U.S. President Barack Obama, it’s also unlikely that Putin will move quickly to establish solid rapport with him until Obama is re-elected. Moreover, should a Republican president move into the White House next January, the very fate of the reset will become uncertain. And it is not at all certain that a Republican president will keep McFaul in Moscow. It’s therefore conceivable that even in the best case scenario, McFaul won’t be extremely busy with his ambassadorial duties this year. In the worst case scenario, this year will be his last. But let’s not forget that Michael McFaul is not only one of the architects of the reset; he’s even better known as one of the leading U.S. experts in democracy promotion. Speaking of McFaul at the swearing ceremony, his new boss, Secretary of State Hillary Clinton, said: “Few Americans know Russia or know democracy better than Mike McFaul. And I can think of no better representative of our values and our interest in a strong, politically vibrant, open, democratic Russia, as well as a deepening U.S.-Russian partnership.” Was it by accident that Clinton mentioned“democratic Rus-

sia”before“a deepening U.S.-Russian partnership?” By sending McFaul to Moscow, the Obama administration is trying to appease the critics of the reset who charge that its benefits came at the expense of what they call“Russia’s deteriorating human rights situation.” Evidently, the attempts by the administration to show that the focus of its Russia policy is shifting to human rights issues have not been lost on Obama’s critics. Mark Kirk, the hawkish senator from Illinois who voted for McFaul’s confirmation, said that he was the right man for the job: “I will be supporting his nomination also because he will be good in working with the opposition and human rights communities in Russia.” And “working with the opposition” is exactly what McFaul is going to do in Moscow, as his second day on the job clearly shows. Being aware that he may not be able to buttress his reputation as an architect of the reset, McFaul may have decided to use his new position to advance his credentials as an expert on democracy promotion. For future use. While McFaul’s objectives for his date with members of the Russian opposition might be well understood, the same can’t be said about his Russian sweethearts. Sure, their loyalty to McFaul, who always showed his support for

Michael McFaul is not only an architect of the reset; he is also a leading U.S. expert in democracy promotion. them, is commendable. But now that hundreds of thousands of ordinary Russians around the country have hit the streets, it’s time for the opposition leaders to realize that they have another, more important, constituency to care about; it’s time for them to reassess their priorities — and to learn how to explain them. The Kremlin likes to point to the marginal character of the Russian opposition: no single leader, no unified platform and no brazen ideas. This is true, but the opposition does exist, and for the first time ever, it may even have broad public support. In order not to lose the moment, the opposition leaders must rapidly grow up. Generating ideas and creating platforms may take years. Learning fundamental lessons of good behavior shouldn’t take this long. This is one of them: Always consider very carefully from whom you accept a date. Even if you enjoyed it, it could still turn out to be bad for your reputation. Eugene Ivanov is a Massachusetts-based political analyst who blogs at The Ivanov Report.

Society Public opinion polls show that the qualities Russians want in a leader are scarce in the country’s political class

Politicians At Odds With Society’s Values Sociologists have determined what political values are most highly prized in Russian society — and few of them are embodied in Vladimir Putin.

An Ideal Government, And How the Candidates Stack Up

IRINA NOVIKOVA

REUTERS/VOSTOCK-PHOTO

MOSKOVSKIYE NOVOSTI

According to sociologists, justice, equality and honesty are the features Russians want to see in their government. Many doubt that presidential candidate and current Prime Minister Vladimir Putin can deliver all of these, but nevertheless his approval rating continues to grow. According to Vladimir Petukhov of the Sociology Institute at the Russian Academy of Sciences, today’s society demands effective government institutions, legal equality, morality and younger political leaders. Petukhov believes these demands were formed in 2010, when Russians witnessed the government’s inefficient handling of wildfires. Since then, he says, alienation between society and the state has increased, resulting in ordinary people distancing themselves from any participation in government. Igor Zadorin of the Tsirkon Research Group says that the authorities have not responded to the evolving needs of society; rather, the government is still try-

The Russian Constitution (right) represents an ideal government.

ing to fulfill expectations of the last decade. Tsirkon has identified five main features of an ideal government: concern for the common people, justice, legality, lack of corruption and honesty. According to Zadorin, these are the features lacking in Russia’s current governmental structures. The demands for social justice and equality show that there remains a need in Russian society for a liberal political party. But the current crop of liberal politicians is unacceptable to most

potential voters, according to Mikhail Mamonov of theVTsIOM polling agency. Its latest forecast is that the left-wingYabloko Party’s Grigory Yavlinsky, were he allowed to run, would win 2.1 percent of the vote, while businessman Mikhail Prokhorov would receive 2.3 percent. According to VTsIOM, 28 percent of Russians believe democracy is the best form of government, while 19 percent would choose socialism and 8 percent, communism.

SOURCE: TSIRKON RESEARCH GROUP, VTSIOM, LEVADA CENTER

Zadorin claims that none of the candidates in the upcoming presidential election can offer a program that meets the demands of the majority. Petukhov agrees that at least Vladimir Putin cannot, saying that the prime minister is not strong enough for the advocates of an iron fist, but is too autocratic for the liberal-minded. Even so, according to VTsIOM, Putin’s approval rating has gone up 10 percent since December. The latest surveys show that 52 percent of Russians plan to vote

for Prime Minister Putin in the March 4 presidential election. In the opinion of VTsIOM’s Deputy General Director Konstantin Abramov, Putin’s growing approval rating reflects the reaction of some Russians to the protest rallies and the fear of instability. Olga Zdravomyslova, a sociologist with the Gorbachev Fund, believes it is too soon to say that Putin’s popularity is really growing since VTsIOM’s findings are challenged by other studies. For example, polls from the Levada

Center show Putin’s approval rating at 42 percent.Vladimir Putin cannot meet either the demands of the creative class for democratization or the demands of the paternalistic majority, Zdravomyslova said, giving her opinion that his popularity is only a result of the inability of Russian society to offer up a viable alternative. Originally published in

most read New Monument Marks Chelyabinsk’s 275th Anniversary rbth.ru/13413

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Regions Once a partially closed region centered around defense manufacturing, Chelyabinsk is now looking for investment

Revitalizing Russia’s Rust Belt, One Partner at a Time

lori/legion media

During the Soviet era, Chelyabinsk was a partially closed region full of weapons factories. Today it is hoping to attract foreign investment.

This industrial center on the border between Europe and Asia is counting on foreign investment to revitalize its manufacturing base.

Russia, but seem especially acute in the Chelyabinsk Region. Located 1,000 miles east of Moscow in the Ural Mountains separating Europe and Asia, the city of Chelyabinsk celebrated its 275th anniversary in 2011. During the Soviet era, parts of the region were closed off from the outside world because large clusters of tractor, weapons and metallurgical producers were concentrated there. Chelyabinsk also housed some of the country’s most sophisticated nuclear weapons labs. Privatization and the economic chaos of the 1990s hit Chelyabinsk hard. As state defense orders dried up, the city’s heavy industries suffered; its few civilian products could not compete on the free market. By 1994, when foreigners were first allowed to visit Chelyabinsk, many factories had not been paying workers’ salaries for months. “It’s hard to imagine there was only one hotel catering to foreigners in the ’90s,” said Dwight Bohm, an American executive who worked as general director of Metran after the company was purchased by Emerson.“I couldn’t buy a single book to read in Eng-

artem zagorodnov

russia beyond the headlines

In 1992, amid the chaos of economic shock therapy, a group of engineers at a struggling defense plant in the city of Chelyabinsk saw the opportunity to apply its skills in the newly formed free market. The result was Metran, currently one of Russia’s largest producers of measuring transmitters and home to American technology giant Emerson’s Global Engineering Center. Metran employs over 1,000 people and, as owner of hundreds of Russian and international engineering patents, follows the motto “international quality at a Russian price.” Unfortunately, most of Chelyabinsk’s metallurgical and defense-oriented factories did not make such a smooth transition to the free market. Industrial decay, outdated infrastructure, pollution and monotowns — cities that are economically dependent on a single factory — are major problems for the whole of

Annual Foreign Direct Investment

Largest Foreign Investors

lish in those days. Many people I met had clearly never seen a foreigner before.” Russia’s 1998 financial collapse was followed by an economic boom, which fueled demand for Chelyabinsk’s metallurgical products and raw materials. This in turn led to the development of a local service economy as stores, restaurants and boutiques sprung up to meet demand.

Chelyabinsk governor Mikhail Yurevich wrapped up a weeklong visit to the United States in late 2011 with meetings in California and Illinois, where he fielded questions about Russia’s investment climate and copyright laws from representatives of major U.S. corporations such as Google and Bank of America. The official was on a mission to convince

Competing With Each Other and the World

What is the greatest misconception foreign investors have about doing business in Russia? The level of corruption.Yes, there is corruption. But I’ve worked in Asia and South America and can say that it’s no worse here. The

AGE: 64 studied: petroleum management

Dwight K. Bohm completed degrees at the U.S. Naval Academy in Annapolis, Md., and the University of Kansas in Lawrence in Petroleum Management. In the 1990s, he served as president of OhkuraRosemount Japan Co. and representative director of Fisher-Rosemount Japan Co. in Tokyo. He later worked as vice president of Daniel Middle East & Africa before coming to Chelyabinsk in 2004.

stereotype that corruption is everywhere in Russia and that you can’t trust anyone is just not true. You need a good process, good leaders and good mechanisms in place. On the other hand, there is excessive bureaucracy.We often have to have a bunch of documents signed, sealed and stamped. But these things are evolving over time. The governor of the Kaluga Region, Anatoly Artomonov, has been

known to give out his personal cell phone number to investors in his region. Did you feel a similar level of support in Chelyabinsk? There is a desire among the regional leaders to provide that level of support, but we never had the governor’s cell phone. I know my successor has access to his staff. The regional governments know they’re in competition with the rest of the world and each other to attract investors, and I know the Chelyabinsk Region makes a huge effort to compete with neighboringYekaterinburg. The governor’s office has always been very supportive of what we do.

Metran Senses a Future Both Local and Global Metran was a Urals success story long before it was acquired by U.S.-based Emerson. The company remains committed to its hometown even as it works on global problems.

What accomplishments are you most proud of during your tenure in Chelyabinsk? My view going into Russia was: “This is going to be really difficult.” How well our integration with Metran went was the most satisfying thing of all. I saw some of our young leaders develop very rapidly, and being their mentor was very gratifying. I left knowing that the company was in very good hands in terms of the Russian leaders that were in place. At Emerson, my colleagues now point to the project at Metran as an example of how a merger should be done. How has the investment climate changed since you came to Chelyabinsk? It’s improved. Carbo Ceramics came to Chelyabinsk after us and their experience was very different than ours — it was a lot smoother. A part of the problem is that we occupy a federally owned building; a lot of the issues we face are connected to this. Prepared by Vladimir Bartov

American manufacturers to bring production to Chelyabinsk. Just as important to his region’s future, Yurevich was also on hand to foster an internship program for Chelyabinsk State University students at various American companies, a program supported by the Washington, D.C.-based American Councils for International Education.

Technology Innovation and development help attract investment

Mikhail Volkov

russia beyond the headlines

“This sensor equipment for measuring reservoir depth was developed at our R&D labs here in Chelyabinsk, but it’s going to be manufactured in the U.S., Europe and China,” said Yevgeny Filippov, general director of Metran’s engineering center. As he spoke, Filippov proudly gestured at a Metran-150 electronic pressure sensor on the floor of the sprawling 21,500-square-foot former Pribor defense factory, a few miles outside the Urals city of Chelyabinsk. This is the product for which Metran is famous throughout Russia. The

sensors provide critical pressure readings in extreme conditions. “It’s irreplaceable to any company or person regularly operating a pipe, be it in the oil and gas industry, or even a nuclear plant,” Filippov said. The Metran-150 — which ranges in price from $400 to $1,000 dollars per unit — was named one of Russia’s 100 best products by the Moscow-based Academy of Quality Problems in 2010. In a nearby laboratory, Metran’s scientists test new sensors under development for withstanding humidity, pressure and temperature. “Metran is nationally famous for being the first to implement

press photo

What are the greatest challenges you faced in doing business in Chelyabinsk? Communication and, specifically, business meetings were a huge problem in the old days.The meetings were unproductive and usually involved someone standing and reading from a piece of paper before a large, glazed-looking audience. Moving from that to an environment where you would have people giving key messages and exchanging ideas was difficult.

press photo

Why was Chelyabinsk chosen as the location for Emerson’s Global Engineering Center? There was already a successful group of engineers with experience in product development that worked in the same environment as we do. We were also happy to see that their R&D people worked near the factory that mass-produced the final product — this is always important. Finally, we realized that setting up a similar center in Moscow would have been too expensive. The costs would have made it uncompetitive.

His story

eign investment annually, with a large chunk coming from Finnish energy giant Fortum Corp, which has an ambitious investment and production program in the region. “I found the problem was not a lack of interest among international investors — they’re actively looking for projects in emerging markets like ours. The problem is a lack of creative ideas on our part,”said Ovakimyan.“No more than 10 percent of the proposals we’ve received from local entrepreneurs seeking to attract capital were feasible.” The global financial crisis was another setback for Chelyabinsk’s factories and mills. The most optimistic forecasts point to the region returning to its precrisis $23 billion regional domestic product later this year. “What we’re trying to do is take advantage of the production capacity and facilities we already have instead of selling off plots of land for new developments,” Ovakimyan said. Meanwhile, Metran’s factory in central Chelyabinsk is already showing signs of preparation for a big 20th anniversary celebration this year.

A Future in Education

Interview dwight k. bohm

American Dwight K. Bohm served as general director of Metran in Chelyabinsk from 2004 to 2010, after U.S. tech firm Emerson bought the Russian company. His time in Russia followed a career as a business executive in South America and Asia. He spoke to Russia Beyond the Headlines about his experience doing business in Russia.

In 2010, President Dmitry Medvedev appointed 41-year-old lawmaker Mikhail Yurevich as governor of the Chelyabinsk Region. In 1997,Yurevich was named Man of the Year in Chelyabinsk at the tender age of 28 for his managerial skills at a local agricultural holding.The former businessman takes the public relations aspect of his new job seriously, traveling to the U.S., Europe, China and Japan to court investors. “We need a new industrialization in Chelyabinsk, or, in modern parlance, we need to attract investments,”Yurevich said. “I’m not just talking about setting up new factories, but modernizing the industrial base. We have to catch up with developed economies.” Yurevich appointed Alexei Ovakimyan, 38, as his deputy for investment projects. Before taking on the job, Ovakimyan founded a successful private consulting company.“It was clear from most of our meetings with foreign investors that they had never heard of Chelyabinsk before.They didn’t even know we existed,” he said. Since 2008, the Chelyabinsk region has managed to attract an average of $3 billion in direct for-

Metran scientists test new sensors at a facility outside Chelyabinsk.

the latest technologies in their field,” said Natalia Orestova, the editor-in-chief of Automatization in Production, a Moscow-based magazine about the industry. Metran was founded in 1992, when a group of local engineers decided to combine scientific knowledge with managerial skill and founded their company in a decaying factory. Metran became an official Russian dealer of products made by Emerson in 1996, and was acquired by the St. Louis-based company in 2004. In 2007, Emerson unveiled its Global Engineering Center on the grounds of Metran. The center currently provides product support services and R&D to Emerson’s global network. Despite its global reach, Metran remains committed to its hometown. Since 2005, Metran has provided one- and two-year paid internships to students at the South Urals Federal University (SUFU), also located in Chelyabinsk, and known for its strong science curriculum. “Our cooperation with SUFU has allowed Metran to tap the local talent pool and keep our best from moving to other parts of Russia or abroad,” said Filippov.“The students know they have a stable, yet dynamic work environment waiting for them at Metran when they graduate.”

Business

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Venture Capital More and more Russian venture funds are taking on start-up companies at the earliest stages

Venturing Out to Grow Businesses — and Profits Venture capital funds are springing up in Russia, investing both money and know-how into innovative ideas in return for shares in a future company.

Search engine giant Yandex has recently invested into venture funds.

Yuliana Petrova

kommersant Sekret firmy magazine

Since 2010, small venture funds have started to emerge, positioning themselves as business incubators.

reuters/vostock-photo

“Comfortable office space in the center of Moscow, nifty silver MacBooks and shiny iPads, $150,000 for your prototype but, most importantly, advice from leading I.T. entrepreneurs and investors.”This promotional material is an important recruitment tool for the Farminers venture fund. Founded by Igor Matsanyuk, a veteran of the Russian gaming market, and Alena Vladimirskaya, director of the Pruffi recruiting agency, Farminers offers startups free offices and $150,000 for equipment and salaries. In return, the participants are supposed to supply Farminers with interesting projects, specifically online programs for the mass market that can be finalized within three to six months. In November 2011, Farminers selected its first 15 projects out of 1,500 applications, and the plan is to launch them within six months. Farminers General Director Maxim Matveyko expects the fund to process around 35–36 projects annually. The lucky candidates will be able to work on their projects under daily guidance from project managers and Farminers experts. In return for its support, Farminers will acquire a 40 percent stake in each project fostered. The firm aims to sell all portfolio projects to other investors within six months. So far, there has been relatively little investment in Russian companies during early venture capital financing stages. According to the Russian Venture Capital Association, such investments amounted to $151 million in 2010, or 6 percent of total direct investments. Of this amount, a mere $19.5 million was invested in companies at the seed and start-

these companies will be able to complete what would otherwise take them 9 to 12 months,” said TexDrive partner Andrei Kessel. In November 2011, the accelerator fund chose 10 startups out of several hundred applications. Each of the 10 participants in the acceleration program will receive $25,000 right away and another $125,000 during the final phase of the project, in exchange for a 10 percent stake. After that, TexDrive promises the chosen ones $1 million from American angel investors. The funds make it clear that this symbiosis of a mentoring investor and a start-up means that entrepreneurs should be ready to share their intellectual property rights. For example, Farminers will register intellectual property to a third company in which the fund will own 40 percent and the start-up the remaining 60 percent.

Total Capitalization of Venture Funds

source: www.allventure.ru

up stages, and this was spread out among 29 companies. But since 2010, small venture funds similar to Farminers have started to emerge in the market, positioning themselves as business incubators, accelerators or project factories. Some examples include Fast Lane Ventures, Glavstart, Bricolage, TexDrive,

andYandex.Factory. They all look for promising start-ups that could benefit from instruction in good business practices. Unlike in more mature markets, these venture funds have also had to incorporate training into their support, since many Russian innovation companies have little to offer besides their ideas.

“There are almost no Russian companies at later development phases that are suitable for investing, so we have to raise what we have,”said Dmitry Repin, general director of the Digital October innovation technologies center. Arkady Moreinis, founder of the Glavstart fund, agrees. “The ideas our authors bring to us and the projects they ultimately work on are absolutely different,”Moreinis said. Each of the 13 companies his fund has taken on has received $100,000 from Glavstart in return for a 40 percent stake. Fast Lane Ventures is a slightly different kind of fund. It generates projects itself and then invites start-ups to join in. The online footwear shop Sapato.ru is considered its most successful project. This winter, TexDrive will launch a series of biannual threemonth accelerated development programs, during which about 70 Russian and 30 foreign mentors will give marketing, management and economics advice to young innovators. “During this period,

Nearly all private venture funds confine themselves to a narrow range of industries: the Internet, software, mobile and cloud services. It is simpler to review such projects, and they offer quick results. This predisposition, however, means that companies working in other economic segments — medicine and pharmaceuticals, for example — must rely on state financing. These start-ups can receive venture financing from four sources: RussianVenture Company’s seed investments fund, the Fund for the Promotion of Small Business in the Scientific and Technical Sphere (Bortnik Fund), the Fund for the Promotion of Venture Investments in Small Scientific and Technical Companies in Moscow and, finally, the Skolkovo Fund. But these funds do have money to go around. Although venture investment funds were a long time coming to the Russian market, today, an innovator can find a place to grow an idea. Originally published in

A Place Where Everyone is Special continued from PAGE 1

Since the inception of Special Economic Zones in 2006, the effort has drawn 272 businesses whose declared total investment stands at 308 billion rubles, or $9.9 billion. They are mostly Russian companies, but include such multinational corporations as Japanese tire maker Yokohama Rubber, French industrial gases producer Air Liquide, Danish construction materials manufacturer Rockwool, Swiss drugs company Novartis and the U.S. flexible display developer Plastic Logic. Foreigners did inspire the new rent-a-plant proposal, but they generally don’t get special treatment at Special Economic Zones, said Kostin. Russian residents dominate at the moment because they are better aware of the opportunity, Kostin said. In order to reach out to overseas companies, Special Economic Zones is promoting itself through large international consulting firms and a subscription to a Financial Times service that alerts users to corporate announcements about Russia. “We hope that we will have many foreign companies, too,”he said. Investors won’t find greater benefits anywhere else in Russia, Kostin said. Governors may offer some similar tax incentives, but unlike Special Economic Zones, they have no power to cancel customs duties and lack the federal financial prowess to build electricity and heating lines and create other services on sites, he said. For the four zones that specialize in research and development, the government offers discounted payroll taxes. Every special economic zone also houses offic-

Russia’s 25 Special Economic Zones (SEZ) Span the Country

source: eng.oao-oez.ru

es of various government agencies, should investors need to contact them quickly. “We believe the package of services that we can offer is unique,” Kostin said. In fact, the tax breaks, which last for at least five years, all come at the expense of regional and local budgets that normally collect the taxes on land, vehicles and corporate property. The profit tax, which is normally 20 percent, is reduced to 15.5 percent for zone residents — but the cut comes at the expense of the regional budget. The federal government will still get its full 2 percent portion. Governors can also slash the regional slice of the profit tax by

In Figures

$9.9 billion

has been invested into special economic zones since their inception in 2006. The 25 zones are located in a wide variety of Russian regions.

500 million

rubles must be invested for a company to receive the maximum reduction in profit tax in the Moscow Region special economic zone.

4 percent and reduce the corporate property tax, said PavelVasin, a Moscow-based associate at German law firm C.M.S. But they provide such incentives only if they view the investment as significant — a notion that varies from region to region, he said.

272

companies have been founded in special economic zones. Most of these are Russian firms, although the number of foreign firms is rising.

In the Moscow Region, home to two research and development special economic zones, the authorities grant profit tax relief if an investor invests upward of 500 million rubles ($16.2 million). A lower property tax comes into play if property value rises above

300 million rubles ($9.7 million). Industrial zones require investors to cough up at least 3 million euros ($3.9 million), while port zones look for 10 million euros ($10 million) or more. But potential investors may opt to set up business elsewhere in Russia anyway if the consideration of being closer to their customers or suppliers outweighs the benefits of the zones, Vasin said. “There are geographical preferences,”he said.“An investor may base his decision on logistical rather than fiscal advantages.” Air Liquide had nothing but accolades for the Alabuga industrial zone where the company launched the first phase of its 35 million euro ($45.5 million) plant last year. “We are very happy,”said Dmitry Kuznetsov, director for strategic projects at the company’s Russian office.“Everything they have on paper materializes in life. “It’s not one of those initiatives that occasionally declare one thing and result in something else.” Air Liquide — which sells its gaseous oxygen to a German-Russian fiberglass producer also located in the Alabuga zone — especially valued the opportunity to connect to the electricity supply free of charge, Kuznetsov said. Outside the zones, the price tag for this connection could be hundreds of millions of rubles ($3 million to $16 million), especially in the industrial regions where Air Liquide typically seeks to locate its energy-intensive plants. Exemptions from the customs duties and the value-added tax on imports reduced the costs of components imported to build the plant, Kuznetsov added.

ECONOMY in brief Offshore Investments Under Investigation In response to large-scale anticorruption protests in December, the Russian government has made a decision to crack down on the use of offshore havens by businessmen as a means to avoid taxes and siphon off money. Anton Ivanov, the chairman of Russia’s Supreme Arbitrage Court, said that last-minute revisions to the country’s civil code completed as of Feb. 1 will force offshore companies to reveal their beneficiaries. Sergei Sarbash, a member of the presidium of the Supreme Arbitrage Court, added that if an offshore does not reveal its true beneficiaries, the individuals acting on behalf of the company will be liable for company actions.

Troika Dialog, Sberbank Merge One of Russia’s most famous financial brands, Troika Dialog, has disappeared following the completion of the investment bank’s sale to state-owned retail banking giant Sberbank. The integration will provide Sberbank access to corporate and private banking segments and expand its access to foreign markets. Troika Dialog exemplified Russia’s capitalist expansion in the 1990s, and its acquisition by a state-owned bank is indicative of the role the state plays in the Russian financial sector today.

Ford to Suppliers: Move to Russia U.S. car majors General Motors and Ford are encouraging their suppliers to invest in Russia. Both companies already have a presence in the country and need to increase their use of domestically produced parts to continue receiving tax breaks under a law passed last year requiring manufacturers to source 60 percent of their components locally by 2015. Ford has already persuaded Lear Corp. and Johnson Controls, Inc. to open factories in Russia to support local production of the Ford Focus.

GLOBAL RUSSIA BUSINESS CALENDAR 9th annual Krasnoyarsk Economic Forum feb. 16–18, 2012 Krasnoyarsk, Russia

The theme of this year’s forum is “Time for Strategic Initiatives.” Experts will discuss the issues related to the development of Russia in the next electoral and investment cycle, focusing on the strategic changes Russia needs in order to grow. The forum will start with the opening of an exhibition entitled: “Investment, Innovation, Infrastructure: The Future of Siberia.” Also included in the three-day event is a youth forum for young managers from across the country. ›› en.krasnoforum.ru/

5th Annual Structured Trade & Export Finance in Russia and the C.I.S. Conference March 28–29, 2012 Marriott Moscow Royal Aurora, Moscow, russia

Industry players from Russia and abroad will discuss the eurozone crisis and its impact on trade and finance in Russia and the C.I.S. The creation of the new Eurasian customs union and how to finance commodities firms will also be part of the discussion. ›› euromoneyseminars.com/

Find more in the Global Calendar

at rbth.ru

Russian Women Doing Business Their Way March 14

most read The World Needs an Economic Renaissance rbth.ru/14302

Russia BEYOND THE HEADLINES

section sponsored by rossiyskaya gazeta, russia www.rbth.ru

Money & Markets

Investment Banking An economic recovery in Europe could result in unexpectedly high returns on Russian stocks Investors look to Russia’s benchmark R.T.S. index for signs of future growth.

Investors are optimistic about Russian macroeconomic fundamentals in 2012, even though many analysts anticipate a rough first half of the year. Ben Aris

Special to RBTH

Investors have started 2012 bullish on Russia — the country’s benchmark R.T.S. index was up 10.2 percent by Jan. 23 — but analysts believe that the first half of the year will be difficult as Europe continues to struggle with debt issues. “The markets are upbeat, for now,”said Marcus Svedberg, chief economist at East Capital, the biggest retail fund investing in Russia,“and the consensus is for a good second half of the year. But things are already starting to look pretty good.” Many Russian brokerages believe that the R.T.S. index will keep within the current range of 1,400–1,500 points until the end of 2012, reported Russian journal Kommersant Dengi in the middle of January, due to an economic slowdown in Europe externally and political turbulence surrounding the March presidential election internally. But the more optimistic observers believe these risks are overstated. Russia’s biggest investment bank, Troika Dialog, which has just been taken over by stateowned retail behemoth Sberbank, surprised Russia-watchers by revising its end-of-year target up to 2,200 in the middle of January, which would mean a whopping 60 percent over the course of the year. Clearly, much depends on how well the rest of Europe deals with its problems. Said Chris Weafer, head of

strategy at Troika Dialog, “If we get that crisis-rebuild scenario in Europe and elsewhere, then the case for Russian market out-performance in the second half of 2012 and into 2013 will be boosted by the fact that the next government is expected to take a more proactive and pragmatic route to improve investment in the economy.” Alex Kantarovich, an equity strategist with J.P. Morgan, agrees. “The Russian market has outperformed other global emerging

“The Russian market has outperformed other global emerging markets in spite of the political turbulence.” markets from the October trough in spite of the political turbulence,” Kantarovich said. “This trend should have long legs: Russia’s discount to global emerging markets remains abnormal and may contract on easing risk aversion and earning surprises [at companies].” Liam Halligan of Prosperity Capital Management (P.C.M.), the largest foreign investor into Russia, said that investors are bored with sitting on the sidelines on huge piles of cash and are starting to be tempted back into the market by the bargains on offer; P.C.M. was one of the few funds in the world to see a net inflow of new money in 2011, said Halligan; the company earned $300 million Almost all investment banks working in Russia have the same strategy for 2012: pick solid value stocks in the first half of the year,

R.T.S. Figures Show a WIld Ride in 2011

source: www.rts.ru

while investors are still wary of risk. Power company E.On Russia and regional supermarket chain Magnit are two of the most popular names in this category. Tactical defensive stocks are those that pay high dividends, such as oil producer Bashneft, or those in counter-cyclical sectors, like gold producer Polymetal. Then, as the economy starts to recover in the second half of 2012, investors are widely expected to start buying growth stocks, favoring sectors such as real estate, media, commodities and the Internet. Popular companies in this category include C.T.C. Media, gas producer Novatek and search engine company Yandex. Sberbank is universally the top pick for growth among brokers. Despite the slowdown, Russia’s banks put in a record-breaking year for profits in 2011; Sberbank accounted for most of the sector’s

In figures

60%

growth in Russia’s benchmark R.T.S. index is the optimistic scenario for 2012 predicted by investment bank Troika Dialog.

10.2%

is the amount the R.T.S. index was up over 2011 as of the end of January, although investors expect it to decrease.

$300 million

was earned by Prosperity Capital Management (P.C.M.) in 2011. It is the largest foreign investor into Russia.

Investors Banking on Second Half of 2012

loan growth by itself. In general, Russia’s banks are getting on with the job of rebuilding their businesses following the setbacks of the last two years. Russia’s oil pipeline monopolist, Transneft, is also being discussed as a good buy. The company’s investment program is coming to an end, after which it will generate billions of dollars in free cash flow, some of which the management said may be paid out as dividends in an effort to boost its attractiveness ahead of a possible privatization. Oleg Maximov, an oil and gas analyst with Troika Dialog, said, “We believe that Transneft is the only stock in our sector where the expected returns could realistically swell by several times over the next few years if management sticks to their promise to reward shareholders.” A.F.I. Development, a leading Russian developer, is another popular name. The office real estate market in Russia has already clawed back most of its pre-bubble gains, and there is a boom in warehouse construction as rents rise on the back of high demand from Western importers hoping to tap Russia’s burgeoning consumer goods sector. “We have recently increased our exposure to Russia for a number of reasons,” said East Capital’s Svedberg. “Fears about a hard landing in China are fading, while some of the work the E.U. did last year to contain the crisis is bearing fruit. But really the overriding motive is Russia is by far the cheapest market in the region with a large and growing consumer demand that will continue to drive the growth.” Russian equity will also perform well at some point, as equity valuations have rarely been this cheap. Currently the discount on Russian stocks compared to the other members of the BRIC is around 50 percent, according to J.P. Morgan — much cheaper than the usual 25–30 percent discount in normal times. But perhaps the most telling indicator is the oil price implied by the equity valuations: As Russia is heavily dependent on oil exports, the stock market gains and losses tend to move in lockstep with the vagaries of the international price of oil. In the boom years, Russian equities occasionally got ahead of the price of oil, however, the current low index level implies an oil price of $60 — way below the current price of about $100. In other words, Russian stocks have priced in a full-scale crash of the European financial system. Said Weafer,“Either the equity market is correct and oil is unsustainably high, or the equity market is trading with excessive fear. If the former, the current market valuation already reflects an oil price fall; if the latter, this is a good base for asset valuation recovery in the second half of 2012.”

Stocks Russia should be an attractive market for investors, but the country’s reputation is scaring them off

Investing in Russia may not be the easiest thing to do for an outsider, but the payoffs are well worth the trouble for most investors. Nikita Dulnev

russia beyond the headlines

It’s easy to make money playing the Russian stock market. A price fluctuation in excess of 2 percent is considered sufficient to alarm traders on a developed market, but for Russia, 1 to 2 percent is routine. The Russian market is among the cheapest in the world, and investors used to emerging economies have long been taking advantage of the discounts. Other investors have shied away from the country, however, put off by its lack of transparency and overall foreignness. But more and more, investors from developed economies are discovering the open secret that is the Russian market — with plenty of encouragement from the Russian government. Regulations allow shares to be bought in U.S. dollars; investment companies issue regular marketing surveys in both Russian and English; and the main R.T.S. index has a comprehensive English-language version of its Web site.

The Russian market is the most attractive of all the emerging economies in terms of its basic indices.“By the price-to-earnings [P/E] ratio and Ebidta, the Russian market is among the cheapest in the world,” said Oleg Achkasov, head of equity trading at V.T.B. Capital.“For example, the average P/E ratio in Russia is 5,

Foreign investors should not be afraid of working with Russian brokerages as they keep up with foreign regulations. compared with 8 to 10 in other emerging markets.” Achkasov said. He explained the discount as the result of Russia’s problems with governance and transparency issues. However, he continued, once these are resolved, the bargains are likely to disappear. Foreigners interested in trying their luck on the Russian stock market are first faced with the challenge of selecting a broker. While most foreign investors prefer to work with someone from their own country, local brokers say this is a mistake, as the foreign banks operating in Russia

do not make trading on the Russian market part of their core business. “They [the foreign banks] have worked here long enough; some have been successful, but their main source of income lies outside Russia,” said Achkasov. “In contrast, for us it as our key product; Russian companies have a broader product lineup, better contacts and deeper market analysis.” Achkasov added that foreign investors should not be afraid of working with Russian brokerages, as they keep up with foreign regulations and often have branches registered in Europe, the U.S., China and other countries that operate in compliance with the local legislation. After determining with whom to invest, an investor must consider what to buy. According to Alexander Parfyonov, an analyst at Unison Capital, like anywhere else, the answer is blue chips. “The Russian stock market, like any other, is a notion combining thousands of instruments and shares. The simplest and most reliable instrument is blue chips — the biggest companies, mostly oil, corporations. They grow steadily but slowly, i.e., the risks are lowest here but the yield is far from

getty images/fotobank

Buying on the Cheap Can Make Savvy Investors a Bundle

V.T.B. Capital was a deal for investors when it went public in 2007.

How P/E ratios show potential The price-to-earnings (P/E) ratio of a particular stock is the price of a share divided by the profit earned on that share over the course of a year. By aggregating these values (dividing total market capitalization by annual earnings), it’s possible to calculate the P/E ratio for stocks in a particular country. A lower value indicates a relatively undervalued market. Hence while Russia’s poor reputation among its emerging market peers keeps the price of stocks down, they perform well when compared to those of other BRIC members. Russia’s P/E ratio remains under 7, while India, Brazil and China have P/E ratios in the high teens.

the best,” Parfyonov said.“At the same time, the low-liquidity second and third tiers trade potentially high-yield securities of smaller companies that are not always transparent. Blue chips provided an average yield of 4 to 5 percent from January to September 2011, whereas in the third tier, yields averaged 20 percent.” Parfyonov suggests that Russia may become a more attractive option the longer the global financial crisis goes on.“Many of these securities will become a safe haven for their owners if the global economy slips into a new recession,”Parfyonov said.“Should the situation on the world financial market deteriorate and should the market value of stocks fall, these stocks will safeguard their holders against excessive losses and yield considerable profits when the situation gets back to normal.”

MOSCOW BLOG

Putin Has A Plan — But For After The Election Ben Aris

special to rbth

here are four burning questions to be answered in 2012.The first and most important is: Will Prime Minister Vladimir Putin allow a second round in the March presidential election? At this point, it is clear that if Putin tries to force his way back into office and win in the first round, he will clearly alienate the electorate further. To force the vote suggests that Putin believes he is running an autocracy, but as Charlie Roberson, chief strategist at Renaissance Capital, has argued:“Russia today is not an autocracy, but a weak democracy with authoritarian tendencies.” Russia is drifting slowly towards a more representative government. If the trend continues, then Putin will fail to get 50 percent in the first round, but win handsomely in the second.

Economists are saying that Russia needs a new economic model if it is going to continue to grow. Putin’s return to the presidency is the first and least-difficult challenge he has to face. In his “managed democracy”— which is now more or less equally divided between the “managed” and “democracy” parts — the question of who is prime minister will be just as important for Russia’s development. Economists are saying with one voice that Russia needs a new economic model if it is going to continue to grow. Putin said twice at the very end of 2011 that “4 percent growth is not good enough. We need 6 percent or 7 percent.”The consensus forecast for this year is 3.8 percent, so clearly Putin needs to do something radical to get the economy back on track. And so the second burning question is whether former finance minister Alexei Kudrin can return to politics as prime minister.This option could lead to faster and more radical reform; most of the credit for Russia’s fundamental strength today can be laid at Kudrin’s feet. This option also has the advantage (for Putin) of keeping political power inside the Kremlin’s ring fence around “democracy.” But both reformers and loyalists are skeptical of Kudrin. The third question is whether the opposition movement (such as it is) can find a leader to maintain itself as a political force outside of the Kremlin’s political ring fence. A real opposition would be cheered in the West, but is clearly antithetical to Putin’s ideas of how Russia should develop through 2024, so he will resist it with all the considerable means at his disposal. If the opposition does coalesce around a real independent leader, the reform process — both economic and political — will be more chaotic, but probably better for Russia in the long run.

In reality, Putin is a pragmatist who has always been intensely interested in his popularity. Despite Putin’s image in the West as an out-and-out dictator in charge of a kleptocracy, in reality he is a pragmatist who has always been intensely interested in his popularity. Therefore, the final question is whether Putin will come up with the sort of radical reform plan that Russia needs if he is to deliver on his promise for 6 percent to 7 percent growth. Again, despite his image, Putin is a committed reformer. He has said repeatedly his goal is to battle poverty and improve the standard of living for the average Russian — but he needs now to also address the middle class’s demands. Putin likely has a plan for this, but it may not become apparent until after the elections.

Opinion

Russia BEYOND THE HEADLINES

section sponsored by rossiyskaya gazeta, russia www.rbth.ru

Russia’s Economy Needs a Change of Strategy rbth.ru/14280

Do business and politics mix ? special to rbth

uch ado has been made about Republican presidential candidate Mitt Romney’s business experience. Some — including his Republican challengers for the presidential nomination — want to link him to Wall Street and all that entails. Others, however, maintain that such a business leader is needed to get American growing again and point to his role as co-founder and general partner of private equity firm Bain Capital. Niall Ferguson, the noted presenter and pundit, for instance, said recently on Bloomberg TV, to which he is a contributing editor, that Romney’s experience with start-ups and turnarounds was exactly what America needed. As a professor of business administration at Harvard Business School with conservative leanings, Ferguson might be expected to say that, but in his other capacity as professor of history at Harvard, he really ought to know better. Business education or success hardly guarantees success in politics: Running a country requires far broader skills than managing a business. In his Bloomberg appearance, Ferguson made no mention of the last Republican president, George W. Bush, who, despite his Harvard M.B.A. and business experience, blundered into war and ratcheted up America’s already massive national debt. And it was of course “business types” at financial institutions who facili-

niyaz karim

Ian Pryde

tated the huge amount of sovereign and personal borrowing that got the West into its current mess. Indeed, there is a strong argument that the narrow case-study approach to business education pioneered by Harvard Business School actually works against the broad strategic thinking necessary in politics and, indeed, in business. After all, precious few in business and finance noted the impending financial crisis until just a few years before it broke — despite steadily rising debt levels in the West. Students taking Politics 101 soon learn that most career politicians in Western democracies

have, in fact, studied law rather than business. Twenty-five of the 44 American presidents have been lawyers. In Russia, three of the country’s last four leaders studied law. (Incidentally, BorisYeltsin was trained as an engineer). Current President Dmitry Medvedev frequently points to his business experience when itemizing his qualifications, but this was largely confined to stateowned companies, and Medvedev lacks first-hand knowledge of private enterprise — perhaps one more reason that the country’s business and investment climate is so bad. Among the candidates in Rus-

There is an argument that business education works against the broad strategic thinking needed in politics. sia’s upcoming March 4 presidential election is Russia’s third-richest man, the multibillionaire businessman Mikhail Prokhorov. In summer 2011, Prokhorov took the reins of the pro-business Right Cause party in preparation for December’s parliamentary elections, but he quickly ran into trouble. His party colleagues accused

him of using the same authoritarian management methods he applied to his businesses in politics. After he was ignominiously ousted, Prokhorov claimed he had been set up by the Kremlin — the lawyers, it seems, had outmaneuvered the businessman. This was hardly surprising since the Kremlin earlier tamed those oligarchs of the 1990s with pretentions to political influence — Vladimir Gusinsky, Boris Berezovsky and, most famously, Mikhail Khodorkovsky. Undeterred by setbacks last summer, however, Prokhorov showed up personally at the Central Electoral Committee on Jan. 18 with boxes containing the two million signatures required to get on the ballot for the presidential vote. But we are unlikely to find out if Prokhorov would make a good president since, despite Russia’s nascent protest movement, Putin looks certain to be re-elected for a third term. Does business experience really help in politics? Certainly, some of the greatest leaders in world history have had none — Alexander the Great, Julius Caesar, Genghis Khan and Napoleon are just some examples, although many would argue that the brutality of the first three in particular disqualifies them from greatness. Nevertheless, business schools frequently turn to such great historical figures to find the secret of their“strategies,”“management techniques” and “leadership styles” and how they might be applied to business. But as the

German sociologist Max Weber pointed out a century ago, great leaders usually have an innate charisma that cannot be learned or acquired. An even more interesting and topical issue is the paradoxical question of whether business experience and degrees such as M.B.A.s qualify people for business at all. As early as 1980, Harvard professors William Abernathy and Robert Hayes characterized the then-new American management orthodoxy as“short-run financial criteria, corporate diversification and risk minimization and overreliance on marketing rather than production and technology.”Business Week criticized“paper management” — the shuffling of assets rather than knowing “the speed and feed of machines.” When the Clean Air Act was passed in the United States, the joke in Tokyo and Osaka was that while Ford and General Motors called in their lawyers,Toyota and Nissan called in their engineers. It is a paradox virtually no one ever notices that Japan and Germany, two of the richest and most successful manufacturing countries and exporters in the world, cannot muster one well-known business school between them. It seems that their businessmen are happy to work in their fields rather than try to teach others — or run the country. Ian Pryde is founder and C.E.O. of Eurasia Strategy & Communications in Moscow.

Cooperation, not Regulation Igor Shchegolev

Vedomosti.ru

ast month, the online world was abuzz with news that the U.S. Congress was debating the controversial Stop Online Piracy Act (SOPA) aimed at protecting American intellectual property, and that industry’s big boys Google, Facebook,Yahoo!, Twitter, Mozilla and eBay had joined forces to oppose the legislation. Until recently, Russia was on the receiving end of much of the criticism over online piracy because not everyone in the West understands the rules we follow. Some Western organizations believe that the Russian government might seek to tighten state control over the Internet.Yet this country is not even contemplating the possibility of blocking access to Twitter or Facebook in the event of social unrest, whereas some European countries have openly declared that they would apply precisely such a measure. If the Internet were blocked or censored, it would be robbed of meaning. So here in Russia, rath-

er than turning to the politicians, all questions and concerns involving cyberspace are instead turned over to industry experts. SOPA, while strongly opposed by the Internet community, is being tirelessly promoted by major American associations of intellectual property holders. This is because under the bill, all participants in the online community, from providers to research-

SOPA runs counter to democratic principles and is at odds with fundamental online freedoms. ers and even advertisers, would be obliged, at the demand of a copyright holder, to stop rendering services to a resource accused of piracy and to cut all links with it. But adoption of SOPA will only undermine the development of the Internet as a business space. The law could also be used as an instrument for censorship. This runs counter to democratic principles, and is at odds with the

position taken by U.S. Secretary of State Hillary Clinton, who advocates for fundamental online freedoms, especially when Twitter and Facebook are mentioned. The bill obviously seeks to bring the virtual world under the jurisdiction of a specific state. Under the SOPA procedure, not only sites with U.S.-based servers, but any resources to which U.S. citizens have access, may be blocked. And that means 99 percent of the Internet. Meanwhile, an ordinary user whose honor or dignity are compromised in a given Web publication has no right to demand that the resource be closed, or that even these specific materials be removed. A major cause for concern is the fact that the tightening of control over the content of Web sites could undermine cybersecurity. While some argue that the consequences of illegal and willful use of technologies, including for terrorist purposes, could be compared in scale with the damage caused by use of conventional weapons, or even weapons of mass destruction, the risk of this kind of behavior must be balanced

against the benefits to all of maintaining the Internet as a free and open space. An international code of conduct in cyberspace could go a long way towards checking the use of information technologies to cause harm to individual states and the world at large. The states that would join the code of conduct would cooperate in combating criminal or terrorist activities that use information telecommunications

failure to launch Ilya Kramnik

special to rbth

o mark the 50th anniversary of Yuri Gagarin’s first space flight, Russia declared the year 2011 the Year of Space. It was not the best year for the Russian space industry: There were 32 launches, and four of them failed. This puts the failure rate at 12.5 percent; only the first years of space exploration in the 1960s saw higher rates. The accidents suggest a systemic crisis in the Russian space industry. Can it be overcome? Thirty-two launches are scheduled for 2012, the same as last year. Nearly half of them either involve foreign partners or will be conducted exclusively on behalf of foreign customers. There

are no scheduled interplanetary flights for 2012 — however, Russia plans two flights to the moon by 2020, while in the long term, Russian space agency Roskosmos intends to establish a manned base on the moon. For the time being, the launches remain purely pragmatic: tests of a new Glonass satellite modification, projects ordered by foreign customers, and launches of transport and piloted spacecrafts to the International Space Station. The Phobos-Grunt accident was probably Russia’s most painful space failure last year, and its consequences are much more serious than originally appeared. Launch failures can happen to anyone, but when a project that has been in preparation for many years fails at an early stage because of what many specialists believe to be tech-

Letters from readers, guest columns and cartoons labeled “Comments” or “Viewpoint,” or appearing on the “Opinion” page 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

nical errors, there is good reason to step back and take a serious look at the situation. The problems with the Russian space industry appear even more alarming when it becomes clear that they were not caused by insufficient financing. While the space program did endure some lean times, over the past few years public funding of space initiatives has increased. Because there is no single explicit state strategy for the development of the space industry, however, the money is not spent in the most efficient way. The Russian space industry is based on a production chain that includes hundreds of subcontractors, and reforming it will require radical personnel, management and technical changes. Carrying out these reforms will require as much effort as it did

to create the entire space sector from scratch. The personnel problem deserves a special mention: The shortage of specialists and managers between the ages of 30–50 has become a real dilemma for Russian technological development, especially in the defense sector. Many of these specialists chose to abandon the space industry when they were young due to lack of funding. As a result, a considerable number of enterprises have been faced with the problem of transferring experience from the veterans who remained in the industry to young specialists just out of school. Lazar Kaganovich, the Stalinera people’s commissar, often said: “Every accident has a name and surname!” Even today, many are tempted to apply this principle

This special advertising feature is sponsored and was produced 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 7, Moscow, Russia, 125 993. Evgeny Abov Editor & publisher Artem Zagorodnov executive Editor elena bobrova assistant Editor lara mccoy guest editor (U.S.A.) olga Guitchounts representative (U.S.A.) andrei Zaitsev head of photo Dept Milla Domogatskaya head of pre-print dept maria oshepkova layout Vsevolod Pulya Online editor an e-Paper version of this supplement is available at http://rbth.ru.

Of course, full state sovereignty and the boundaries of national regulation, including of virtual space, must be inviolable. Not all states are ready to sign a legally binding convention on the Internet, but the nature of the Internet is such that, unless everyone adheres to such a binding agreement, the agreement will be ineffective. The Internet is so structured that just one or two states remaining outside the common system could allow someone to attack a critical infrastructure or violate intellectual propniyaz karim erty rights. technologies, including the Web, The Web requires that all states on the condition of respect for work together to seek new rules the rights and freedoms of citi- and new mechanisms for protectzens in the information space, in- ing cyberspace and renounce doucluding the right to search, ob- ble standards in order to prevent tain, transmit and disseminate a Web blackout. information in accordance with national laws. Igor Shchegolev is the Russian Punishment of those who have Minister for Communications committed offenses in the infor- and Mass Media. mation space must be proportionate. The same applies to the powOriginally published in ers and legal process concerning the facts of such offenses.

and point to those personally responsible for accidents, instead of making enormous time-consuming efforts to fix the actual problems. The Soviet Union only managed to create a functional space industry in the early 1960s when it gave up this practice. For example, no one was personally punished for the disaster on Oct. 24, 1960, when the R-16 missile

Only the first years of space exploration in the 1960s showed higher launch failure rates than 2011. exploded on the launch pad, killing more than 100 people including a strategic forces commander. By that time, the state commissions had a new system in place — meticulously analyzing each failed or “partially successful”launch in order to detect and eliminate weaknesses in the

system rather than to identify and punish the guilty. By the mid1970s, this approach had allowed the Soviet Union to attain an exceptional launch reliability rate of more than 95 percent. The decisions that will be made here and now will mold Russian astronautics for decades to come. Russia’s space program can and must be saved, and it will require a clearly formulated state strategy for its development, a detailed timeline to determine the fate of enterprises, and a face of cooperation and distribution of responsibility within concrete programs — orbital, lunar, Martian — just as was done 50 years ago. This plan, if fully implemented, will not have an immediate effect, but in a few years’ time, we will see positive results. On the other hand, the industry may be ruined if we keep looking for scapegoats and pouring in money without a systemic approach. Ilya Kramnik is a military analyst for theVoice of Russia.

To advertise in this supplement, contact Julia Golikova, Advertising & P.R. director, at golikova@rg.ru. © copyright 2012, Rossiyskaya Gazeta. All rights reserved. alexander gorbenko chairman of the board. Pavel Negoitsa 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. To obtain permission to reprint or copy an article or photo, please phone +7 (495) 775 3114 or e-mail us@rbth.ru with your request. Russia beyond the headlines is not responsible for unsolicited manuscripts and photos.

most read A Decembrist Descendant Returns to Restore the Past rbth.ru/14238

Dancing Around the Truth to Get Through Perestroika Russian director Dmitry Povolotsky remains connected to Moscow despite his two decades in New York. His filmography shows his love for both cities.

A Playwright Throws His Support To Putin John Freedman

his story

Dmitry Povolotsky

Xenia Grubstein

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NAtIONALITY: russian AGE: 41 studied: Choreography

At the age of 10, Dmitry Povolotsky was selected to attend the Bolshoi Ballet Academy in Moscow to study classical ballet. He later continued his studies at Juilliard where he received a B.F.A in dance and choreography. He performed for eight season with the Metropolitan Opera Ballet, and taught ballet at the Harlem School for the Arts before leaving the dance world to study film at Columbia University. He lives in Brooklyn.

shnikov,’ the huge round building was shot in Ochakovo-Matveevskoye. My neighborhood is like a mascot to me,” Povolotsky said. In 1989, Povolotsky’s mother told him that he should go to America “to become a man,” the director recalled. A solid student at the Bolshoi Ballet Academy, he became a scholarship student at Julliard, where he studied choreography and dance. Then he found filmmaking. “I always wanted to tell stories,” he said. “Because I was a dancer, I had to be silent most of the time, but I observed a lot, and always wanted to share all the weird, ugly, funny and sometimes phantasmagoric events I witnessed.”Povolotsky attended film school at Columbia University’s School of Arts, and his thesis work, a short film called “Pal/ Secam,” won the Film Division

original. He is an endless source of great, original and sometimes far out ideas,” Sigurdsson said. “As a director, he has a very unique view of the world and I hope he will keep sharing it with us in his films in the future. “ That seems to be Povolotsky’s plan. He makes a living directing commercials, and occasionally teaching choreography, but his focus is on film. One of his upcoming projects is a story about a Russian-American family, with a protagonist who could be Borya Fishkin 25 years after the events of “Baryshnikov.” “I like making comedies; I like when people laugh, ” Povolotsky said. “I’m not a very deep director. I’m pretty above ground, so it’s easier for me to establish contact with new people, especially a young crowd. I’m more of a clown — that must be the remains of my performing career.”

press photo

in “My Dad Barishnikov,” a ballet student starts a rumor to get ahead.

“I always wanted to tell stories, to share all the weird, ugly, funny and phantasmagoric events I witnessed.”

and Student Choice awards at the 2008 Columbia University Film Festival. It received a Grand Prize at the major Russian film festival Kinotavr that same year, and was featured in the 2009 Sundance Film Festival International Short Films program. These awards helped him establish connections in the film world, and when his screenplay for“My Dad Baryshnikov” was ready, he promptly found producers. “I left New York to shoot in Moscow a couple of years ago and ended up living there for 18 months,”he said. He returned to New York and fell in love with it all over again. “But I’m leaving again soon, to work on my next project,” he said. Director Hafsteinn Gunnar Sigurdsson, who met Povolotsky while studing film directing at Columbia, admires his colleague’s perspective. “Dmitry is truly an

the moscow times

n early January, Nikolai Kolyada, one of the nation’s most respected playwrights and directors, joined Prime Minister Vladimir Putin’s presidential campaign inYekaterinburg. The move brought forth a flurry of accusations, counter-accusations and even a bit of petty vandalism that horrified Russia’s theater community. “I joined Putin’s election campaign because I believe we cannot find a better leader. I will vote for him; that is my right. All others on offer seem absolutely unworthy to assume such a position,” Kolyada said, according to RIA-Novosti. Reactions came swiftly. So virulent were the attacks on Kolyada on his LiveJournal page that he temporarily closed it down, and on the morning of Jan. 13, Kolyada found that his theater had been plastered with photographs of Putin with lipstick traces all over his forehead. Expressing fears for his own safety and that of his company, Kolyada called on the police to find the culprits and ward off further attacks. Four days later, the vandals came forward themselves. Vyacheslav Bashkov, a member of Movement AgainstViolence explained why his organization carried out the midnight raid. “Unlike other members of Putin’s support group, Kolyada, until the very last moment, had been an authority figure for this city, the region and the country,” Bashkov said.“No one expected him to do something like this. Society is extremely disappointed.” More fallout came when Pavel Rudnev, a longtime colleague and collaborator of Kolyada’s on many projects — including the playwright’s prestigious Eurasia play competition — openly broke ranks with him after Kolyada posted a television news clip on his LiveJournal page showing Russian op-

Translator, Novelist, Activist

TITLE: “He-Lover of Death,” “The Diamond Chariot”

Grigory Chkhartishvili was a successful translator before he became a famous mystery writer named Boris Akunin. Now he’s taking on another challenge. konstantin milchin special to rbth

In 1970, a geography teacher in a Moscow school was distributing country names to his students for an assignment. The assignment was quite simple: The students had to collect newspaper clippings about specific countries. One of the students got Tunisia, Ecuador and Japan. Soviet newspapers regularly wrote about the first two, mostly about the heroic struggle of the local working class against capitalist exploitation. But they wrote virtually nothing about Japan, until one day the student came across the news that a Japanese writer had attempted a coup. And that’s how Grigory Chkhartishvili, now known as Boris Akunin, became interested in Japan. Since then, Akunin has undergone several major metamorphoses. At first, his life looked like that of a typical Soviet intellectual in the humanities: He studied languages at Moscow State University and later worked as a translator. He translated from Japanese and English, and, iron-

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ically, his most famous translations were of the work of Yukio Mishima, the very writer whose failed coup attempt made such an impact on him. In the 1980s and 1990s, Russia saw a boom of Japanomania, largely thanks to the efforts of Akunin and other Japanese studies experts. And that’s when it happened. “I wanted to change my life. I suddenly felt that I was tired of everything I had at that time. I had to find an occupation that better corresponded to my inner self. I had reached the ceiling with my translations. I realized that I would never break through it, and to keep working for 50 more years at the same level was clearly not for me,”Akunin said in an interview with Russky Reporter magazine. And just like that, the famous translator transformed himself into an astonishingly popular fiction writer. In 1998, he began writing historical novels under the pen name B. Akunin. Readers later dubbed him “Boris.” Akunin took a scientific approach to his transformation from translator to writer. He attributes his success to a few elements that appear in all his work: a charismatic protagonist, a serial narrative, and, finally, a kind of literary game with the reader.

Boris Akunin has undergone several metamorphoses. At first, his life looked like that of a typical intellectual. Like most Russians, before the elections of December 2011, Akunin did not see himself in politics. ers can trace the detective’s evolution through the stories. The series was originally the domain of intellectuals. Said one reader, who preferred to remain anonymous, “These detective stories are written by a Japanese-Russian translator. He is one of us; you can read these books. I wouldn’t read a detective story written by just anyone.” On his blog and in interviews, Akunin has repeatedly criticized

AUTHOR: boris akunin PUBLISHER: OriON BOOKS

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Akunin’s protagonist is Erast Petrovich Fandorin, a Russian Sherlock Holmes with German roots, an intellectual and athlete who is infinitely noble and honest. Akunin has written 14 books about Fandorin so far and read-

Many have expressed support for the playwright. The company of the New Art Theater in Chelyabinsk publicly declared that they stand firmly behind Kolyada. Appearing on a television talk show, a visibly exasperated Kolyada explained why he chose to support Putin’s candidacy. “I don’t want to wake up March 5 in another country,” he said. But a series of quotes posted Jan. 12 on a blog on the Web site Grani.ru clearly imply that Kolyada’s support for Putin may have come about because he received a government grant last year to move his theater into a new home. Kolyada is quoted as saying, “Under the circumstances I don’t think we need renewal. Putin behaves like a boss.” Kolyada continued, “You know, we won that tender entirely honestly. But I thought, ‘Kolyada, the government is giving you a building for your theater, they do something else for you, and you’re going to be in the opposition?’”

Dickensian Russia and a Fiercely Exotic Japan Special to RBTH

“I joined Putin’s election campaign because I believe we cannot find a better leader. I will vote for him; that is my right.”

Read Russia

Phoebe Taplin

position politicians visiting the American Embassy in Moscow for a meeting with Ambassador Michael McFaul. The event was seized on by many in the blogosphere as proof, or, at least, a suggestion, that the Russian opposition is taking orders from the U.S. government. “Nikolai Kolyada posted the already well-known news report of opposition leaders arriving at the American Embassy,”Rudnev wrote on LiveJournal. “‘I commented, ‘I also go the American embassy. Is that horror and shamelessness, too?’” It is worth noting that the copious comments on Rudnev’s post almost invariably express regret, rather than anger, over what has transpired.

Rbth continues its column on AUTHORS WHO will be FEATURED at Bookexpo America. The event, scheduled for June 4–7 in New York City, will highlight russian literature.

Literature Can one of Russia’s most famous novelists engage intellectuals in politics?

Theater Plus

Cinema New York director reflects on his Russian adolescence in new film

Dmitry Povolotsky’s recent film, “My Dad Baryshnikov,” tells the story of 14-year-old ballet dancer Borya Fishkin, whose puberty coincides with the tumult of perestroika. In hopes of being accepted in the cutthroat subculture of ballet, Borya creates a fanciful story that he is the son of Mikhail Baryshnikov, the Soviet dancer who defected to the United States in 1974 and charmed the world. Director and writer Povolotsky, a graduate of the Columbia University School of the Arts and a New Yorker for two decades, broadly based the narrative on his own experience as a dance student in a chaotic Moscow as the world his parents and teachers knew began to fall apart. “I was a restless child,”he said, “and very curious. I remember my childhood very well; it was a good childhood. Only now I’m beginning to understand that I grew up in a country that doesn’t exist anymore.” “My Dad Baryshnikov”opened in Russia in the late fall and quickly earned the affection of viewers as well as critics. Film trade publication Variety wrote that the film “is an endearing crowd pleaser with plenty of [festival] export potential; it could even work as a specialty theatrical item in the right hands. The critic also said that calling the film “Goodbye, Lenin!” meets “Billy Elliott”doesn’t do the work justice. But the comparisons do let potential viewers in on the pleasures of this film. Even after living in New York for two decades, Povolotsky is still attached to his old neighborhood in Moscow, where he maintains an apartment. He refers to himself as“a pal from Ochakovo-Matveevskoye, Moscow’s Southwest.” The district, located right by the city’s well-known artery, Kutuzovsky Prospect, has been transformed. Today it is one of Moscow’s coveted neighborhoods with luxury condominiums. But some Soviet-era buildings and a forest still co-exist with the new elite. “I like to film there. In ‘Bary-

Culture

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From left: Boris Akunin with Ikuo Kameyama, dean of the Tokyo Foreign Languages Institute; at work in his study; speaking at Bolotnaya Square

Vladimir Putin and the current Russian political system. Like m o s t R u s s i a n s , h o w e v e r, before December 2011 Akunin did not see himself in politics. But then came the parliamentary elections, followed by the rally at Chistye Prudy on Dec. 5, and then the dispersal of the Triumfalnaya Square rally on Dec. 6. By Dec. 10, Akunin had turned from a writer and blogger into a public political figure. The story of Akunin’s involvement in the movement is the stuff of legend. The writer was in his house in St. Malo, France, writing a new book, when he suddenly jumped up, drove 300 miles to Paris and caught a flight to Moscow, where he appeared before a crowd of 50,000 at the Dec. 10 Bolotnaya Square rally. In his speech, Akunin proposed establishing a coordinating council for the opposition. He became a member of the council, first on a temporary basis and then permanently. His involvement may soon lead to another occupation— translating the frustration of Russia’s intellectuals into action.

estselling novelist Boris Akunin, whose real name is Grigory Chkhartishvili, has been an authoritative supporter of the recent protests in Russia. Like the fictional detective he created, the author opposes wrongdoing wherever he perceives it. When his LiveJournal account was hacked recently by an obscene blogger, he told news agency RIA Novosti, “Every action causes a reaction; when you oppose somebody miserable and revolting, they react in a miserable and revolting fashion.” Akunin, born in Georgia in 1956, has become one of Russia’s most successful writers. He is best known for a series of clever, tsarist-era thrillers, which have become hugely popular both in Russia and abroad. The brilliant first novel appeared in 1998 and was published in English as “The Winter Queen” in 2004. These historical whodunits, featuring the understated detective work of diplomat-turned-sleuth Erast Fandorin have been a hit ever since, despite a few of the stories lapsing into a predictably formulaic pattern. English translations of the last two in the series, “He-Lover of Death” and “The Diamond Chariot,”were released at the end of 2011.

The“he-lover”in question from “He-Lover of Death”could be any number of characters — from a bandit prince to a rags-to-riches underdog/hero. The hero Senka’s adventures in the 19th century slums of Khitrovka are part “Oliver Twist,” part “Treasure Island.”The discovery of a horde of antique silver bars leads to a transformation in the tradition of “Great Expectations.” This gruesome tale lapses into the familiar mixture of action and intrigue with a distinctly moral undertone. The protagonists discover criminal gangs and murders, but also come to see the world more clearly. Disguised as Jews, they encounter anti-Semitism; dressed as a girl, Senka learns about sexual harassment. Set during the Russo-Japanese war, “The Diamond Chariot” involves bombs, spies and murder on the Trans-Siberian express. The novel really comes to life, though, when it takes the reader back to Fandorin’s early days as a young diplomat in Japan. Each chapter ends with a haiku, which must have been a nice challenge for translator Andrew Bromfield. The haikus summarize the mood of each scene with poetic images such as“early plum rain”and“the scent of irises.”Akunin elegantly combines Russianness with Japanese exoticism. The narrative is writhing with concubines, opium addicts, gambling dens and haunted Shinto shrines. In this vivid setting, many mysteries are laid bare, among them the secret of the author’s pen-name. Akunin, readers learn, is the Japanese word for villain.

Feature

Russia BEYOND THE HEADLINES

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Entrepreneurship Applying geological principles to retail pays off for businessman at the intersection of serious travel and souvenir shops

kommersant

Products for Adventure and Just Looking Cool

Expeditsiya stores feature an atmosphere as eclectic as their offerings.

Anastasia Zhokhova Forbes Russia

Alexander Kravtsov, the man behind the Expeditsiya brand, spends his time traveling the world looking for products for his shops, which offer an incongruous combination of serious equipment for outdoor activities and novelty products. So far, Expeditsiya’s combination of highly efficient logistics and an original assortment of goods has proved to be extremely successful. Today, there are around 360 Expeditsiya stores across Russia, Ukraine, Belarus and Kazakhstan. The company’s annual revenue is close to $100 million, with a profit margin of around 20 percent. Most of the products are made in Southeast Asia, but Kravtsov also owns a factory outside Moscow where some of the goods are assembled. The Expeditsiya story began in 2005, when Kravtsov quit his job in the household chemical industry and drew upon his training as a geologist. When geologists are looking for minerals, different geological maps of the same area are placed on top of each other, and drilling begins where the contours meet. Kravtsov decided to build

his business where the tourism and souvenir industries overlapped. And this position in the market is perhaps the secret of Kravtsov’s success: The brand has virtually no competitors. Expeditsiya occupies the middle ground between the outdoor retail sector and the gift sector, and the main players in neither of these markets see Kravtsov as one of them.

Kravstov that he had bumped into a couple of strangers in the middle of nowhere in Russia’s Far North, and they, like him, were were wearing orange Expeditsiya T-shirts. According to Kravtsov, the tourism component of the brand is built on “genuine life experiences,”and Kravtsov will be the first

His Story

Ruyan Company Profile

Alexander Kravtsov

According to Kravtsov, the tourism component of the brand is built on “genuine life experiences.” “Kravtsov’s company is geared towards a more light-hearted breed of outdoor tourism,” said Dmitry Sazhin, marketing director of sporting goods chain AlpIndustria. Alexander Osadchy, general manager of gift chain LeFutur, agreed:“The team at Expeditsiya has been very shrewd and has managed to develop a new niche.” All goods and services that come under the Expeditsiya brand are generally divided into three sections: “before and after the trip,” “on the trip” and “fun.” Kravtsov associates the first category with a certain nostalgia for travel in and around Russia. For the trip

itself, Expeditsiya sells outdoor activity equipment that can also be used in everyday life such as camping mugs, utensils and flashlights. The “fun” part of the business means the famous orange Tshirts with humorous captions on the back, a kit for sex“in extreme conditions” and various knickknacks. A customer once told

kommersant

Alexander Kravtsov has managed to create a profitable space for himself in the retail market selling items people never knew they wanted.

press photo

The Expeditsiya brand also sponsors one of the largest offroad winter races in the world.

to admit that the souvenir and novelties section of his business is not the result of his own ideas. In fact, Kravtsov has introduced a ban on innovation. “We prefer to keep an eye on what’s out there, take what we find into our business, and not waste time and energy on thinking up new products,” he said. For example, Kravtsov and his managers once went to a Hong Kong restaurant where one of the rooms was made of ice; Kravtsov now plans to install a similar room in one of his three Expeditsiya restaurants, located in Moscow, Nizhny Novgorod and Minsk. On a trip to the United States, the businessman bought a map of the world on which the owner can mark the countries he has visited

Nationality: Russian AGE: 44 STudied: Geology

Alexander Kravtsov, born to music teachers in the Siberian city of Salekhard, learned at an early age to hunt — and to play chess. His varied interests are embedded in his business philosophy, which mostly involves pursing whatever interests him at any given time.

by rubbing out the background; today, he has a similar item as part of his own product range. Absurd as it may seem, the chain does not spend a single kopek on advertising. The company’s ubiquitous orange T-shirts have been enough to make the brand known. Kravtsov said the success of his company also relies on a constant renewal of the range of goods on offer, with new products forming 35-40 percent of the company’s revenues. That said, Expeditsiya’s most popular products continue to sell well for up to five years. Competitors from related sectors say that the well-selected range of goods on offer in Expeditsiya stores is one of the keys to the company’s success. “If they continue to uphold their clearly defined image, Expeditsiya stands to grow and prosper in years to come,”said AlpIndustryia’s Sazhin. But LeFutur’s Osadchy believes that no matter how good the idea, times move on, and if Expeditsiya wants to continue to expand its business and increase its profits, it has to start concentrating on other commercial ideas. According to Kravtsov, the company is currently planning to expand in terms of geography rather than concept. Expeditsiya is now setting its sights on foreign markets. In 2011, Expeditsiya products started to appear in Singapore and Holland. As for new directions and new ideas:“We are in a position where we could take a roll of toilet paper, put a whistle in there, label it as a special camping kit, and slap on a price tag of 500 rubles ($16),” said Kravtsov.“We’d have no problem selling it.” Originally published in

Source: www.e-xpedition.ru

Traditions Non-Russians now dominate the clientele in North America’s growing number of commercial Russian-style bathhouses

Banya Finds an Appreciative New Audience Lena Smirnova

The Moscow Times

Well-muscled and menacing at first glance, former Soviet soldier Pavel Dukhkin might be the last person you’d want to have beating you with tree branches, although that is exactly what his job is. A resourceful immigrant to Canada, Dukhin has built a Russian banya on his multi-acre property in a Vancouver suburb, which he shares with Vancouverites who might need a steam. Among Soviet immigrants in North America, Dukhin is a member of the fortunate minority who own their own banyas, while others can only pine for steam and curse common shower stalls for their inadequacy. But things are looking up. As more and more émigré entrepreneurs open com-

mercial banyas across the continent, Russians and locals alike are lining up to revel in the ancient tradition. When Dukhkin first came to Vancouver eight years ago, a Russian friend invited him to go to a sauna on the top floor of a highrise apartment.“There were probably other Russians living in this building because someone had ripped out the thermostat,”Dukhin said. “Usually you’re not supposed to have temperatures of more than 80 degrees [Celsius]. We went to 100 (212 ºF).” Dukhin decided to build his own banya when he moved to a large land plot in 2007. About six months after moving to the property, Dukhin was steaming in his own banya. He started inviting friends over as soon as he had the roof up. Gradually, the banya turned into a business. A visit is priced at $150 for three hours regardless of how many people participate. The price includes a veniki beating for two,

in their own words

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A long-standing Russian tradition gets a new life in North America, thanks to resourceful immigrants willing to share beatings with friends and neighbors.

What is a Russian Banya?

Israel Odessky

An unknown bather shows off the typical elements of a Russian banya.

“A Russian person loves the banya. It means relaxation. It is something for the soul.”

owner of a russian communal banya in Brooklyn, New York.

Dmitry Lerner

We taught the Americans how to steam. Now They steam better than Russians.”

manager of the Wall Street Bath & Spa, new york city.

and you get to take the bunched branches home with you as a souvenir. Dukhin’s banya is one of the many commercial banyas that are now open in North America. The Russian bathhouse on Gravesend Neck Road was built in 1979 and

http://english.ruvr.ru

A Melting Pot of Clients Westerners with a thirst for exploring other cultures are displacing Russians as the top customers in many banyas. In fact, 90 percent of the clientele at the Wall Street Bath & Spa in Manhattan’s Financial District were not born in Russia. “We taught the Americans how to steam,”manager Dmitry Lerner said. “They steam now better than Russians.”

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is the oldest in Brooklyn, N.Y. On average, about 250 guests stew there for three to four hours on the weekends. “The idea was right,”said owner Israel Odessky, of his decision to open a communal banya.“A Russian person loves the banya. It means relaxation. It is something for the soul.”

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Even in his small banya, Dukhin maintains a steady stream of customers. To increase authenticity, Dukhin undergoes a costume change before he serves his clients. He puts on a Soviet-style hat with a star on the front and claps two flower-embroidered kitchen mittens together to hustle a client, Igor Zemtsov, into the heated room. Dukhin follows him in with a wooden bucket of hot water in containing two veniki. A few minutes later the only sound that can be heard is the whipping of the twigs as they beat against Zemtsov’s body. “The most important thing is that you don’t get cold,” Dukhin teases as the beating intensifies. Zemtsov emerges from the room with steam rising from his body and a relieved smile on his face.

The banya tradition in Russia dates back to the 11th century. It usually consists of a sauna, parilka (a furnace-heated steam room) and cold pool. Although there are established traditions, people also develop their own routines; the banya experience is meant to be a personal cleaning ritual. At the beginning of the bathing process, the small room — traditionally a wooden shed, but brick structures and even modified closets will do in a pinch — is heated by an electric or wood-burning stove to well over 80 degrees celsius. Copious amounts of water poured on the heat source bring the humidity up to about the same level. A visit to a banya begins with several rotations in and out of the steamy room to allow the body to warm up. This cycle culminates with banya aficionados beating each other with bunches of birch or pine branches, called veniki, as a form of massage. Depending on the bravado of the participant, the banya visit could finish with a plunge in cold water or a roll in the snow. This ritual is meant to stimulate sweating, cleanse skin, heal wounds, relax muscles and relieve stress. Read the full version at www.rbth.ru/14164

Catch the vibes of Moscow After only a day of boiled, gulashed, grilled, sausaged, souped and dried Reindeer (jerky) you really start missing good old cow-based food items.

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