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Special Report

Business

Feature

The Arctic heats up — in more ways than one

Skolkovo Innovation Center attracts attention on the road

For this fashion trend, everything old is new again

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This special advertising feature is sponsored and was written by Rossiyskaya Gazeta (Russia) and did not involve the reporting or editing staff of The New York Times.

WEDNESDAY, DECEMBER 19, 2012

NEWS IN BRIEF

Holidays To find that perfect New Year gift, be prepared to spend a lot of time waiting in line

Ready for the New Year

Reset on the Rocks U.S.-Russia relations took a turn for the worse in early December after the U.S. Congress approved the Magnitsky Act, which imposes visa and financial sanctions on a number of Russian officials reportedly involved in the death of lawyer Sergei Magnitsky in 2009. In response, the Russian State Duma is considering a similar law banning travel to Russia by lawmakers who voted for the Magnitsky Act and those involved in the prosecution of Russian arms dealer Viktor Bout. Government officials, however, say that cooperation between the countries on such issues as drug trafficking will continue.

New York Exchange Focuses on Russian Investment

GETTY IMAGES/FOTOBANK

LORI/LEGION MEDIA

last from Dec. 30 to Jan. 8 this year, a week and a half of midwinter bliss and the envy of citizens of many Western countries, where only Christmas Day and New Year’s Day are federal holidays. Also, unlike in many Western nations, in Russia it’s New Year rather than Christmas that’s the main winter holiday. This tradition is rooted in the Soviet past, when religious holidays were phased out and substituted with secular ones. In moving the focuse from Christmas to NewYear,

Inspired by the old saying, “The way you see the New Year in is the way you will live it,” Russians are prepared to splurge during the holiday season. YEVGENY BASMANOV SPECIAL TO RBTH

Russian city streets, shopping malls and businesses are aglow with decorated fir trees, lights and tinsel, reminding the locals once again that the long New Year’s break is coming. The official New Year holiday break in Russia will

For many Muscovites, the only way to ring in the New Year is standing in the falling snow, near St. Basil’s, listening to the chimes from the Kremlin clock tower.

the customs of decorating a tree, celebrating a special day with family and exchanging gifts was just moved to a different date. “Although I consider myself a religious person, New Year was always far more important for me than Christmas,” said Irina Popova, director of a small ad agency in Moscow.“You can’t have the feast, the gifts, the holiday atmosphere, the champagne and the smell of tangerines without the chimes of the Kremlin clock at midnight.”

Popova seems to be one of the few Russians who have prepared for the holiday in advance:“I hate the rush at the stores, the long lines and all that bustle, so I prefer to buy everything before the crowds come, or do it online.”This last option is not yet widespread — the share of online shopping in Russia is still only 5 percent — but lines in stores grow exponentially, especially during the peak period from Dec. 15-24. CONTINUED ON PAGE 8

The NewYork Stock Exchange celebrated its second annual Russia Day on Dec. 3. First Deputy Prime Minister Igor Shuvalov was in attendance along with Deputy Finance Minister Anton Moiseev. The half-day conference covered Russia’s economic outlook, investment opportunities, capital markets and privatization program. “Russia Day at the N.Y.S.E. is a unique opportunity to raise awareness of the growth of the Russian economy and discuss opportunities in our corporate sector,” said Shuvalov in a statement released by N.Y.S.E./Euronext.

Prokhorov: Russia’s Batman? Standing 6’7’’ and with a fortune that places him near the top of Forbes magazine’s list of the world’s billionaires, Mikhail Prokhorov is already a larger-than-life figure, but his outsized personality has recently taken on a new dimension. The businessman-turned-politician often described as a billionaire playboy is now the hero of his own comic book — Orbit: Mikhail Prokhorov, published by Bluewater Productions. The book highlights the major events in Prokhorov’s life, including his purchase of the Brooklyn Nets, and describes him as a “real-life Bruce Wayne.”

Gemstones Russian diamond monopoly signs a long-term contract with a Tiffany subsidiary

Something New in a Little Blue Box long-term agreement will make our partnership permanent and serve to increase the supply of diamonds to Tiffany.” Laurelton Diamonds, which is based in Belgium, has its own diamond-cutting facilties in that country as well as several countries in Africa. The deal with Laurelton is the latest indication of a significant shift for the Russian firm away from its traditional focus on selling its rough diamonds to professional cutters. Now the company is instead targeting players in the jewelry market. In addition to the Tiffany deal, in midNovember AlRosa signed a longterm contract with Chow Tai Fook Jewellery Group Ltd, the leading jewelry manufacturer in China. The contract is worth almost $100 million a year. AlRosa’s movement towards jewelers is good news for international buyers, but not so much for locals since more highquality diamonds will be sold abroad.

AlRosa is shifiting its sales focus from diamond cutters to jewelry manufacturers in a move that is likely to benefit international buyers.

Russian diamond monopoly AlRosa has signed a three-year contract with Tiffany & Co subsidiary Laurelton Diamonds, which will initially be worth about $60 million a year. The signing ceremony took place on Nov. 28 in Moscow. During the ceremony, AlRosa C.E.O. Fyodor Andreev said: “For AlRosa, it is a priority to enter into direct long-term contracts with major companies involved in the manufacturing of final products — polished diamonds and jewelry. And we are pleased that the number of our regular customers is now joined by such a global brand with a long history, as Tiffany. In recent years, Laurelton was on repeated occasions among AlRosa buyers of rough diamonds under oneoff contracts. The signing of a

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ELENA KISELEVA KOMMERSANT

More of what glitters at Tiffany boutiques will soon come from Russian sources.

CONTINUED ON PAGE 5

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Politics & Society

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International Russia’s G-20 presidency could increase the importance of Brics in global decision-making

A Year to Reform the Global Economy

Russia will hold the presidency of the G-20 from Dec. 1, 2012 until Nov. 30, 2013. The G-20 summit will be held in September in St. Petersburg.

Russia’s G-20 presidency will focus on traditional economic issues, with a priority on reevaluating contributions to the International Monetary Fund.

IN THEIR OWN WORDS

Vladimir Putin PRESIDENT OF RUSSIA

YURY PANIYEV SPECIAL TO RBTH

" AP

We believe that the Russian presidency’s main task will be to focus the G-20’s efforts on developing measures to stimulate economic growth and create jobs. What will this require? We think the answer is clear: investment incentives, trust and transparency in markets, and effective regulation. These priorities will be at the heart of the discussion.

Sergei Ivanov CHAIRMAN OF THE ORGANIZING COMMITTEE FOR THE PREPARATION AND SUPPORT OF RUSSIA’S G-20 PRESIDENCY IN 2013 AND CHIEF OF STAFF OF THE PRESIDENTIAL EXECUTIVE OFFICE

The goal is to make the economies more predictable. To do so, we need to resolve debt issues and problems faced by oversight authorities, because oversight of the banking sector has not been effective. There are fake banks that are in fact money laundering operations. This poses major economic problems, not only for Russia, but for all G-20 countries.

ITAR-TASS

From Dec. 1 until Nov. 30, 2013, Russia will hold the presidency of the G-20, the club of the world’s biggest economies. The G-20 accounts for 90 percent of global G.D.P., 80 percent of world trade and two-thirds of the world’s population. According to Ksenia Yudayeva, Russia’s G-20 sherpa and head of the P re s i d e n t i a l E x p e rt s ’ Directorate, the G-20 summit will be held in St. Petersburg on Sept. 5–6. Early bilateral meetings were, however, held in Moscow in midDecember, and Russia has already formally presented its presidential priorities to an international conference on Promoting Economic Growth and Sustained Development. President Vladimir Putin announced in a recent address that “the main task of the Russian presidency will be to concentrate the efforts of the G-20 on developing measures to stimulate economic growth and create jobs.” In line with these priorities, Rus-

sia intends to discuss such traditional G-20 agenda items as the state of the world economy, job creation, reform of the world monetary system, stability of the global energy markets, promoting international development, strengthening multilateral trade and combating corruption. Russia is proposing two new themes: investment financing as the basis for economic growth and job creation, and modernization of national systems for state borrowing and sovereign debt management. Yet, the key issue the presidency needs to address is to restore investor confidence, said Finance Minister Anton Siluanov. It is easy to understand his worries. Economic growth in the locomotives of the global economy, including China, is still slowing down. The southern countries of the European Union are in recession. Not surprisingly, major investors are not in a hurry to lose money in the crucible of another crisis. The majority of developing countries, especially in Latin America, are the most affected. Siluanov is sure that restoring investor confidence is crucial for meeting the challenge of jumpstarting economic growth around the world.

Another important problem the G-20 must face is state debts, which in many countries exceed 100 percent of G.D.P. It is no coincidence that debt issues will be high on the agenda of Russia’s G-20 presidency. Siluanov said that Moscow will suggest the possibility of designing specific debt reduction programs. He added that the formula for calculating International Monetary Fund (I.M.F.) quotas would also be discussed during the Russian presidency. At the moment, Russia’s share in the I.M.F. capital is 2.8 percent. The United States contributes 17 percent. Said Siluanov,“G.D.P. should be the decisive factor in distributing quotas.” This approach is shared by the Brics nations, the United States and some other G-20 members, but small European countries have objected because they fear their I.M.F. quotas would be drastically reduced. According to Siluanov, the current distribution of I.M.F. quotas does not reflect realities: the emerging countries are not what they were even 5–10 years ago, he explained:“So it is natural for such countries to want more clout with the I.M.F. and the world financial system.” Incidentally, a new feature of the Russian presidency will be a Brics summit to be held on the fringes of the St Petersburg G-20 summit. Brics already has a hefty package of promising proposals for reorganizing key international institutions, above all financial and economic ones. In promoting reform of the international financial architecture, the Brics countries have more than just their own interests in mind. Said Vladimir Davydov, director of the Latin America Institute at the Russian Academy of Sciences, “Brics has within its purview much broader interests of all the emerging economies and emerging countries. Proof of this is the program for reforming the I.M.F. and the World Bank proposed by the Brics countries. It would strengthen the position of the whole group in the key international finance management structures.” Gennady Chufrin of the Russian Academy of Sciences’ Institute of International Economy and International Relations said that Russia, as the president of the G-20, would have an excellent chance of enhancing the role of Brics in the current balance of power.“At present, we see an obvious pro-Western tilt in the activities of the I.M.F. and the World Bank,” Chufrin said.“That tilt needs to be corrected in favor of the developing countries and Brics, and Russia as president of the G-20 has such a chance.”

VIEWPOINT

G-20 Needs Organization and Ambition Fyodor Lukyanov JOURNALIST

he G-20 is not the G-8. It possesses greater legitimacy because of its broader representation of different countries. The G-20 is an annual gathering of heads of state representing the world’s largest economies. It is a product of the panic that gripped the international community in the fall of 2008. In the wake of the Lehman Brothers bankruptcy and the general financial collapse, governments began frantically looking for a way to calm people’s fears so as not to make the situation worse and gain time to develop a plan of action. The presence of many countries with different types of economies and political systems gives the discussion additional legitimacy. The G-8 group has no such legitimacy since it was created as an exclusive club for the West and, in essence, has remained just that. Russian officials have already named the main priorities for t h e G - 2 0 ch a i r m a n s h i p : strengthening financial stability, reducing government debt, stimulating growth and fighting unemployment. But the defining aspect of Russia’s G-20 chairmanship is likely to be the Brics summit slated to take place in St. Petersburg on the sidelines of the main event. Although Brics has yet to become a consolidated center for making decisions about global issues, the specter of such a center continues to trouble countries in the West. Much depends on the organizational abilities and ambitions of the chairing nation. France under Nicolas Sarkozy made titanic efforts to show that it was not simply offering an arena for meetings, but genuinely leading the world process. During this year’s chairmanship of the APEC forum, many people noticed that the relevant Russian ministries showed themselves to be capable conference organizers, and that these conferences arrived at the necessary consensus. At the G-20 meetings, these organizational talents will be every bit as useful.

Education More and more Russian students are interested in earning M.B.A.s, but local offerings leave much to be desired.

Learning How to Manage Russian business schools look to improve their credibility through international certification and partnering with well-known programs abroad.

Business Education in Russia

ALEXANDER KILYAKOV

SPECIAL TO RBTH

Unlike traditional higher education, business education is still something of a novelty in Russia. There was no such thing in the Soviet Union, so the concept is only about 20 years old. And like the beginning of independent business activity in post-Soviet Russia, business education got off to a chaotic start. In the first place, most business schools were only nominally legal. Many operated without proper licenses, asking student to shell out $20,000– 30,000 to complete a full course in a few months in exchange for some kind of official-looking certificate. Since consumers were just as inexperienced and unsophisticated as budding entrepreneurs, many actually paid for such an education. At the same time, state universities began trying to piece together actual business curriculums, taking an academic perspective on the subject. Today, the market is quite a different place. The top providers of business education in Russia are affiliated with the country’s top universities. The business schools at Moscow State University, St. Petersburg State University and the Academy of National Economy educate almost half of the business students in the country. The Skolkovo School of Manage-

SOURCE: RUSSIAN ASSOCIATION OF BUSINESS EDUCATION

Students hard at work at the Skolkovo School of Management.

ment positions itself as an elite school and accepts far fewer students. In total, there are around 80 licensed business schools in Russia. Tuition varies from $90,000 at Skolkovo to $5,000 at some small regional institutions. Students should expect to pay about $60,000 for a complete course at a large, respected business school. However, no Russian business school has been licensed by all three of the major international regulators of business education. The world’s best schools boast that they have been certified by American, European and British regulators. None of Russia’s business schools has Amer-

Russian students treat the money paid for an M.B.A. as an investment and want to know when and how it will pay off. ican certification; the Graduate School of Management of St. Petersburg University is about to become the first school in the country to obtain a European license; and 12 Russian business schools hold British licenses. According to several of the schools’ directors, this is not necessarily a mark against the quality of the education they offer. Rather, it has

to do with the specifics of the Russian market. For example, they argue that it doesn’t make sense to introduce some of the standards generally accepted in the West either because of local business peculiarities or the mentality of managers. Just like in other countries, most M.B.A. students (78 percent) are mid- or senior-level managers. According to the Russian M.B.A. League, half of the students have enrolled in an M.B.A. program because they believe it will help advance their careers. One way Russian business students differ from those in other countries is the fact that 80 per-

cent of them pay for their education out of their own pockets and not with the help of their employers. What’s more, many students ask their schools not to tell their employers that they are taking classes – many of them hope that this education will help them get a better job elsewhere. Students often ask business schools to provide them with some kind of business plan for their futures. These students treat the money paid for an M.B.A. as an investment and want to know when and how that investment will pay off. However, instructors stress, there is never a definitive answer to that question. Said Ser-

gei Myasoyedov, chairman of the Russian Association of Business Education,“It makes sense to get a business education if you’re already a manager; it’s a waste of money if you are working in a low-level position.” According to the Russian M.B.A. League and the Superjob. ru web portal, 40 percent of business school graduates receive a promotion within two to five years of graduation.This number reaches 60 percent for specialists and mid-level managers. Business education in Russia differs very little from M.B.A. programs in Europe or the United States. It is comparable in terms of curriculum, duration and costs. Russian business education credentials have been traditionally met with caution abroad. Recruiting experts mostly attribute this to the poor reputation of the country’s business education in the 1990s. According to an expert at Headhunter who preferred to remain anonymous, “A large number of ‘fake’ schools discredited Russian education at the end of the last century, and that’s why many international companies are still wary of Russian M.B.A. degrees.” He believes that it will take another 10 years or so to overcome this entrenched stereotype. One way many Russian institutions have found to get around this is to create a joint program with an accredited European institution and essentially issue two diplomas to their graduates, their own and that of their partner school.

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The Arctic The top of the world is heating up — both literally and figuratively. What does it mean for geopolitics? The Russian Arktika class nuclear powered icebreaker “50 Years of Victory” sails through the Arctic Ocean.

Lifting the Ice Cap PRESS SERVICE

SPECIAL TO RBTH

The increased melting of the ices in the Arctic creates an opportunity for increased economic activity in the region, and the change has not gone unnoticed by regional players. Between 2006 and 2009, the five countries that directly border the Arctic Ocean — Canada, Denmark, Norway, Russia and the United States — adopted national Arctic development strategies. The other three countries that have parts of their territories beyond the Arctic Circle — Sweden, Finland, and Iceland — soon followed suit. Today, even countries that are far from the Arctic, such as China and India, are increasingly active in that part of the world. In December 2012, the Russian International Affairs Council (RIAC) presented its proposals for an international roadmap of Arctic cooperation. According to Andrei Zagorsky, head of the Arctic project at RIAC, there are several main reasons for economic development of the region — energy first among them. “Vast energy resources are probably the most important reason for the Arctic economic development,” Zagorsky said. “High energy prices and technological advancement made shelf oil and gas drilling there potentially profitable.” According to some estimates, 58 percent of the hydrocarbons located under the world’s oceans are located in the Arctic, and the growing demand for energy has brought global attention to the region. Major players in the oil and gas industry including Shell, Statoil, Total, Gazprom, Rosneft and BP have ambitious plans for the Arctic. The melting of Arctic ice has also gradually opened cargo shipping routes across the Arctic between the Atlantic and Pacific

their exclusive right for seabed resources exploration in a stretch of the seabed adjacent to their shores in a zone up to 350 nautical miles, if they prove that it is a continuation of the continent. Russia and Norway have already claimed their extended continental shelf in the Arctic region while Canada and Denmark are preparing to do so. Although most of the natural resources are located in undisputable exclusive

The law of the sea

The new accessibility of Arctic resources has raised the previously frozen issue of who owns the Arctic.

The new accessibility of Arctic resources has raised the previously frozen issue of who owns the Arctic. The 1958 Convention on the Continental Shelf and the 1982 United Nations Convention on the Law of the Sea state that nations have the right to a territorial waters zone of 12 nautical miles and an exclusive economic zone of 200 nautical miles. In an exclusive economic zone, a country has sovereign rights for the purpose of exploring natural resources. Nations can also claim

economic zones and continental shelves, some may still be located in the open sea and available for exploration by other countries. Another issue that has a potential for disputes is jurisdiction over shipping routes. Both Russia and Canada claim their northern sea passages are historic

routes that need to remain under national rather than international control. National control would not prevent vessels from other countries from using the passages, but they would have to inform national authorities in advance to get permission. The lack of clarity over territorial and economic rights in the Arctic is part of what stimulates countries to be active in the region. In the Arctic Ocean nations, the adoption of Arctic strategies has been followed by other legal, symbolic, economic and security activities. In 2007, Russian submersibles put a national flag on the seabed beneath the North Pole; Canada, Norway and Russia have announced the modernization of their military forces in the Arctic; and Denmark is also creating its own Arctic Command. Yet, said Zagorsky, “There is hardly any space for security competition in the region. All countries would get more from cooperation, and the challenging Arctic conditions are very conducive to it.”

Arctic Resources and Maritime Boundary Lines

SOURCE: WWW.CDU.RU

Shipping New route on the top of the world

Trading Pirates for Icebreakers The melting of the polar ice cap could bring significant savings for international shipping firms — which might result in better prices for consumers. OLGA SENINA SPECIAL TO RBTH

A new route recently appeared on international commercial shipping maps. Known as the Northern Sea Route (N.S.R.), it stretches for 3,500 miles, taking ships through the Kara Strait off Russia’s northeastern coast to Canada’s Providence Bay. Although the route has been known for some time, during the Soviet era it was closed to foreigners. And even despite climate changes, it remains ice-bound for part of the year. An ice lane for super-heavy vessels was opened only in 2010. This route is a third shorter than the traditional route from Asia to Europe via the Suez Canal. It reduces the transit time on the benchmark RotterdamYokohama route from 35–38 days to 20–23. Vladimir Mikhailichenko, director of the Non-Profit Partnership for Coordination of the Use of the Northern Sea Route, explained the advantages of the northern route this way: “The Atlantic is full of storms, and the Gulf of Aden, pirates. If you’re afraid of pirates, you face a 45– day trip around Africa.The N.S.R. saves time and money. Icebreakers are par for the course, but the cost is comparable with the Suez Canal passage, while the expensive insurance required for carriage of goods through icy waters is offset by the risks of a

INTERVIEW IGOR CHESTIN

“Development ... Could Provide Energy Security”

“Hydrocarbon production in the Arctic is hype”

Robert Blaauw, senior adviser for Shell’s Global Arctic Theme, talked to Kommersant correspondent Alexei Ivanov about development of the Arctic and his belief that the time to start is now. Has the time really come to develop the Arctic’s resources? Can’t the global economy make do with resources available in the deposits that have already been developed? According to Shell’s forecast, global demand for energy will double between 2000 and 2050. Renewable sources of energy, even if used on a larger scale, will only meet around 30 percent of demand, meaning that the world will still depend on the extraction of mineral energy resources. The world’s population is growing, but the availability of resources is not. The U.S. Geological Survey announced in 2008 that the Arctic contains around 22 percent of the world’s undiscovered oil and gas reserves. A reasonable development of those

could provide energy security for the world’s growing population. Do technologies exist today that ensure safe oil production in the Arctic? Shell conducts its design and testing at the most advanced level based on forward-looking technology, including blowout preventers with dual shear rams and an emergency shutdown system. On the one hand, this is a very cost-intensive environment, but on the other, it has enormous potential. Drilling in the Arctic isn’t something new. It has been going on for decades. There’s a wealth of accumulated experience, and the industry is well aware of the risks involved in geological exploration. We are continuously improving technology to prevent oil spills, to reduce the environmental footprint of our facilities, and to increase work safety. We are also actively developing technology driven by the specifics of Arctic operations. We know that open-water seismic work can be

PRESS PHOTO

INTERVIEW ROBERT BLAAUW

HIS STORY NATIONALITY: DUTCH HOMETOWN: THE HAGUE STUDIED: CIVIL ENGINEERING

Since joining Shell in 1980, Blaauw has worked in roles in commercial and general management across the globe. In 2002, he moved to Shell’s headquarters, where he now manages the operational, technical, social and environmental challenges specific to the Arctic.

harmful to marine wildlife, especially commercially harvested species. That’s why we have implemented a set of measures to mitigate such risks. One such method is to conduct seismic work on ice, which allows seismic exploration to be done in wintertime rather than on open water.

Igor Chestin, director of W.W.F. Russia, the Russian office of the World Wildlife Fund, talked to Kommersant correspondent Ilya Arzumanov about the expediency of developing offshore hydrocarbon resources in the Arctic. Is it possible to extract natural resources safely in the Arctic? It is possible in a number of regions that are not covered with ice for at least two warm months of the year. Production has long been underway in all ice-free Arctic shelf sections, primarily in the North Sea, which is the birthplace of all offshore production technologies. How accurate are the data on the explored offshore reserves? It’s impossible to say so far if there are commercially viable hydrocarbon reserves there. Exploratory drilling is being planned all over the Arctic. A long-term offshore development program is being developed and exploration

costs calculated. In any case, fullfledged development will take 15–20 years to begin. The Arctic will probably become substantially warmer in those years. Will this help the development? The warming is unlikely to make the development easier — it will shorten the ice season in the Arctic rather than eliminate it. What about Russian companies with offshore production technology? Russian companies have zero technology in the Arctic because they have no experience. Gazprom and Rosneft are planning to carry out exploration in partnership with foreign firms. But the problem remains. The technology for drilling in the Arctic is far from perfect, and there’s also a shortage of skilled labor. What’s more, not a single company in the world has the technology to eliminate potential oil spills under the ice. Does it make sense to start develop-

GETTY IMAGES/FOTOBANK

ALEXEY DOLINSKIY

oceans. The Northern Sea Route goes along Russia’s northern cost and remains the shortest sea route between Asia and Europe, while the Northwest Passage is a route along the northern shore of North America. Russia’s Gazprom has already started using the North East Passage for exporting liquefied natural gas (L.N.G.) to Japan. PricewaterhouseCoopers reports that the route may take up to 1 percent of the $1 trillion trade between the E.U. and Asia.

Ice remains a concern for shipping on the Northern Sea Route.

confrontation with pirates on the southern route.” Recently, Mikhailichenko’s organization measured the speed of passage through the N.S.R. of 15 super-heavy vessels: the vessels took 7-22 days, depending on the weather conditions and the exact route. Daily maintenance outlays per tanker come to $40,000-50,000, so choosing the N.S.R. over other options could result in significant savings. The route could be used for the transportation of container goods, coal, and metal, according to Andrei Shenko, an analyst at Investkafe. To increase the route’s commercial appeal, a permanent fleet of icebreakers needs to be established to keep the route open year round. By 2020, Russia plans to build three shallow-draft diesel icebreakers at a cost of 25 billion rubles ($789 million), and a new nuclear icebreaker for 20 billion rubles ($631 million).

KOMMERSANT

The warming of the Arctic region has opened up a new competition for resources, particularly oil, gas and rights to lucrative shipping channels.

HIS STORY NATIONALITY: RUSSIAN HOMETOWN: MOSCOW STUDIED: BIOLOGY

Chestin graduated from the biology department of Moscow State University in 1985. He also studied environmental control at the University of Manchester. Chestin defended his Ph.D. in zoology in 1991. He has been with W.W.F. Russia since 1994.

ing the Arctic now? Hydrocarbon production in the Arctic is hype that has no economic basis and is dangerous for the environment. Hydrocarbon production could kill the bioresources we actually depend on. Some 90 percent of the fish we catch comes from the Barents, Okhotsk and Bering seas.

Business

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Economy After a year spent focusing on integration and consolidation, Russia looks forward to 2013 TNK without BP

For Business, a Year of Growth and Change

6.5% Inﬂation rate

The Russian economy marked three major events in 2012 — accession to the W.T.O., the end of TNK-BP and the country’s first APEC presidency.

2.8%

3.7% G.D.P. growth

NIKITA DULNEV RUSSIA BEYOND THE HEADLINES

Welcome to the club One of the economic highlights of 2012 for Russia was its accession to the World Trade Organization. It took Russia 18 years to become a member of the world’s main trade body. Agreements on the majority of issues were reached fairly quickly, but three major categories stalled the process for years: the automobile in-

Russia turns east

Key Economic Indicators — So Far Although economic figures for 2012 will not be available until the first quarter of 2013, the numbers so far look good. The G.D.P. for the first nine months of the year grew 3.7 percent compared with 2011 and industrial output grew 2.8 percent while the unemployment rate fell to 5.3 percent and inflation held at 6.5 percent.

AFP/EASTNEWS

Russia spent all of 2012 waiting for a crisis that never came. Though the economy cannot be said to be in ideal shape, Russia’s G.D.P. for the period from January–October 2012 grew 3.7 percent compared with the same period last year; industrial output has increased by 2.8 percent year on year; investments in basic assets are outstripping forecasts at more than 9 percent; and unemployment continues to fall. Today, Russia’s unemployment level stands at about 5.3 percent, roughly 4 million people, according to estimates from the International Labor Organization. In October 2011, the unemployment rate was 6.4 percent.

Industrial output

The buyout by Rosneft of BP’s share in the TNK-BP company was the biggest M&A deal of the year. The state-owned oil company offered $17.1 billion plus 12.86 percent of its shares at the market price of more than $10 billion in exchange for 50 percent of TNK-BP, making the total sum of the deal $27 billion. For almost 10 years,TNK-BP was one of the most controversial companies in Russia. Set up in 2003 as a joint venture of the Tyumen Oil Company (TNK) and BP on the basis of parity, the divergent interest of the shareholders caused problems almost from the very beginning. Rosneft plans to buy out the Russian partners as well, finally putting an end to the saga.

One of the biggest economic events of the year was Rosneft’s buyout of BP’s shares in TNK-BP.

dustry, agriculture and agricultural machinery. For a long time, Russia refused to cut duties on the import of automobiles, arguing that domestic producers could not compete against international giants. Eventually, an agreement was reached that cut the car import duty from 30 percent to 25 percent, and it will be cut further to 15 percent over the next

seven years. However, to make up for these lost taxes, the Russian government has introduced a disposal duty in its place. The idea behind this tax is that vehicles imported into Russia will sooner or later have to be disposed of at the Russian government’s expense and producers should pay for this. The strategy has already drawn criticism from the European

Union, which claims that the duty goes against W.T.O. rules. For agricultural machinery, duties have been cut from 15 percent to 10 percent (and for some categories to 5 percent). As regards agriculture, the approach is more differentiated, but overall Russia is cutting duties on nearly every kind of agricultural produce except for beef.

So far, the feared threat to domestic producers from W.T.O. accession has not materialized. The customs service maintains that the cut in duties has not led to a spike in imports. According to the European Economic Commission, the amount of imported goods in September (the month following accession to the W.T.O.) actually dropped compared with August.

In 2012, Russia took on the presidency of the Asia-Pacific Economic Cooperation organization (APEC) for the first time in its history. Russia chose four key topics for its APEC presidency: energy efficiency, the exchange of technologies, food security and logistics. All these issues were discussed at September’s APEC summit in the Pacific port city ofVladivostok, but logistics took center stage. Russia hopes to use the Trans-Siberian Railway as the basis for constructing an alternative transport channel to the Suez Canal, and discussed this possibility at the summit. However, the main agreement reached by the leaders of Asia-Pacific economies was to develop the region in accordance with a communiqué signed in Vladivostok after the meeting recognizing that the priorities of the global economy are gradually shifting towards Asia.

Skolkovo Russia’s innovation center goes on the road to expand its recognition

Skolkovo Promotes Start-Ups Abroad ALEXANDER VOSTROV SPECIAL TO RBTH

Throughout the fall and winter, representatives from Russia’s Skolkovo Innovation Center took part in a series of European startup festivals for venture capitalists. “Our organization’s image is no better in Russia than it is abroad,” said Pekka Viljakainen, start-up adviser to the president of the Skolkovo Foundation.“Ask any taxicab driver what Skolkovo is and he’ll probably say that it’s just another fishy state-owned entity. But we receive quite modest funding, and people are our main capital. These are the people who are doing their best to convince Western companies to

take Russian start-ups seriously. Trust me: two or three years down the road, they will start to be taken seriously here, too.” Viljakainen’s optimism is based on the list of Skolkovo participants taking place in the fairs. For example, IndoorGo, a company co-founded by the Urals Federal University and the Ariel University Center in Israel, has developed an indoor positioning service. Preliminary tests have shown that the algorithm makes it possible to position objects to within a few inches using just a smartphone and a wireless network. The system is intended for exchanging targeted information and gathering statistics on visitors to exhibitions, museums, supermarkets, shopping malls and other large indoor spaces. The company Toytemic also has something interesting to offer.“We have invented and implemented the concept of self-organizing

THE QUOTE

Pekka Viljakainen ADVISER ON START-UPS TO VIKTOR VEKSELBERG, PRESIDENT OF THE SKOLKOVO FOUNDATION

Russians still cannot grasp the idea of making money simply by inventing something. The mission of Skolkovo is to show people that they should not be afraid of starting their own business. Risk shouldn’t be confounded with danger. There’s always a risk; danger is very often just perceived.”

PRESS PHOTO

Companies affiliated with the Skolkovo Innovation Center have used trade shows around Europe to promote their businesses — and the center itself.

In October, Russian firms participated in Vienna’s Pioneers Festival.

sensor networks, where each element can be controlled remotely,” said the firm’s managing director, Yevgeny Smetanin. “Ideally, this kind of technology could be applied to autonomous research or, say, geological sta-

tions consisting entirely of robots. These networks could eventually be used on other planets or in conditions where humans can’t work. But this kind of robot equipment is still in its infancy right now, so we decided to im-

plement the networks in more developed sectors first.” What Smetanin means by“more developed sectors” is games; it’s no coincidence that Toytemic’s main platform is called Strategy on the Carpet. In layman’s terms,

this involves transferring computer strategies from virtual reality to real life. Toy soldiers with built-in chips can interact among themselves and carry out their owner’s orders. The commercial prospects for this invention are self-evident, according to Smetanin. The level of electric engineering in modern mass-produced toys is on a par with that of primitive robots. This means that Strategy on the Carpet could sell well, provided it establishes contacts with leading manufacturers. “That’s exactly what Skolkovo is all about,” said Viljakainen. “Take, for instance, Angry Birds. If you were told five years ago that it was possible to make millions by coming up with a game where multicolored birds hunt green pigs, you wouldn’t have believed it. That looked like nonsense back then. Now you can see that it is quite possible.”

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Money & Markets

Business Russia jumps eight places in World Bank rankings after President Vladimir Putin made improving the business climate a priority

Doing Business Just Got a Little Easier Improved procedures for filing VAT and less paperwork for obtaining construction permits contribute to making Russia a better place for business.

The 2013 Doing Business Rankings

ALEXEI SHAPOVALOV KOMMERSANT

THE NUMBERS

112 16

REUTERS/VOSTOCK-PHOTO

is Russia’s position in the Doing Business ranking, the highest Russia has ever been ranked.

days is how long it should take to clear Russian customs after reforms, down from 25.

Encouraging investors to take a new look at Russia is one of the government’s goals for 2013.

reform involved a simplification of the VAT procedures and the introduction of electronic tax services. Augusto Lopez-Carlos, director of global indicators and analysis at the World Bank, said that Russia’s current position was mainly determined by its“significant improvement”in tax payments and, to a lesser degree, progress in the judicial system and business registration procedures. Commenting on the rankings, Finance Minister Andrei Siluanov, who was responsible for imple-

menting the reform of the taxation system, said: “In the World Bank’s Doing Business rating, [the Finance Ministry] and the Federal Tax Service actively cooperated with the World Bank to deliver an objective assessment of Russia’s tax system and administration, so as to climb a few more places. I hope next year Russia will be able to significantly improve its standing as well.”

Orders straight from the top The zeal with which officials have begun to champion Russia’s po-

QUESTIONS & ANSWERS SERGEI BELYAKOV

Investment Crucial Not Just for Rankings, But Also for Living

KOMMERSANT

An increase in investment is crucial to Russia’s efforts to improve its Doing Business rankings, but the country faces challenges convincing investors of its competitive advantages. In an interview with Nadezhda Petrova of Kommersant Dengi, Deputy Minister for Economic Development Sergei Belyakov discussed what Russia can offer investors. The commercial environment is one of the factors that makes a country attractivetoinvestors.Currently,Russia has dropped to 112th place in the Doing Business ratings. Can we make it to 20th place? Honestly, it’s more important to me that the results of our work in simplifying business procedures be felt by the end user, by businesses. The content of the specific indicators is the basis for drawing up a road map, wherein everything is laid out showing when and what to do. It’s a decision-making document, actually. Four such road maps have already been adopted, and another set of four are in preparation. There will be 22 in all. They are the mechanism to improve our performance. The rating we achieve in Doing Business, it’s only the result. However, there’s a further conclusion to be drawn from the most recent World Bank report.We need to become substantially more active and result-driven in implementing the measures we’ve devised. Capital flees to the location where profitability is best and where costs and risk are lowest. We’re in a good position for profitability, but we have to radically reduce the risks and costs.

road maps have been prepared covering spheres in order to help Russia improve its business climate.

HIS STORY

A native of Moscow, Sergei Belyakov graduated from the Academy of the Federal Security Service in 1998 with a specialization in jurisprudence. After receiving his de-

gree, Belaykov worked for several firms, including Basic Element. He joined the Ministry of Economic Development in 2008. He served as an advisor to the minister on improving Russia’s investment image and then as director of the department of investment policy and development of public/private partnerships before becoming deputy minister in August.

But is that going to be enough? I would say the situation with investment is going the other direction, and it’s decreasing. Currently, the level of investment is dropping off in the U.S., and also in the Brics nations. In a crisis, people prefer to hoard and not invest, because investment

against the background of crisis involves risk. So it’s not only Russia. Last year, direct foreign investment totaled $52.3 billion. For the first three quarters of this year it adds up to $38 billion. I hope that we’ll hit a total of $52 billion by the end of the year, but

NATIONALITY: RUSSIAN AGE: 39 STUDIED: LAW

sition in the rankings is understandable: In May 2012, Putin issued a decree calling for significant improvements in Russia’s business climate. In regards to long-term economic policy, one of Putin’s instructions to the government was: “Take steps to significantly improve the ease of doing business.” Putin said that these improvements should be reflected in the country’s Doing Business ranking. The president wants to see the country move from 120th in 2012, to 50th in 2015 and 20th in 2018. this isn’t enough. The minimum investment we need to achieve is around $75 billion per year; this is what we need to achieve for the modernization of our economy. We can’t do that with federal funds alone. But the problems do not only concern foreign investment. We focus on foreign investment for two reasons. The first — there is always technology and expertise. It’s an essential tool to make the so-called technological leap. The second — foreign corporations and investment funds can choose where to invest. They seek the top returns for the minimum risk, and the economy where their funds are placed gets an additional boost for development. What about the competitive advantage offered by human capital and the quality of education? The level of human capital remains a significant advantage for Russia. On the question of how long that advantage will continue to work for us and how education standards are currently, I’m not inclined to idealize matters. Another downside is the mobility of the workforce. We have low unemployment, and that’s definitely a plus. But it’s a minus when it comes to the needs of a growing economy. And our population isn’t really mobile. Stimulating people to move from one region to another because new companies are opening there and job openings are coming up is almost impossible. Our behavioral patterns don’t stretch for the idea of such a quick relocation. It goes back to the Soviet economic methodology, when you were firmly attached to the place where you lived. In principle, we need to work on setting things up so that this kind of relocation isn’t a shock — so that it’s not only in Moscow and St. Petersburg that people can expect a decent standard of living, cultural infrastructure, medical services and education facilities. And that’s what the whole of this story of investment is about — so that a proper quality of life can prevail throughout the whole country.

Russian analysts have created a series of road maps, developed with the government’s approval by the Agency for Strategic Initiatives (A.S.I.), to improve the country’s investment climate. According to the A.S.I., of the 16 road maps planned for completion in 2012, eight are currently ready and four have already been approved by the government. One of the areas of focus for 2013 will be on the issuance of construction permits. For this indicator, Russia is looking to

move from its current 178th to 86th place. Another area targeted for improvement is network connectivity, where Russia hopes to improve from from 184th to 130th. Simplifying customs procedures is also in the plans for 2013. A road map for customs clearance has been approved that sets a goal of a 60 percent reduction in the number of documents required to export commodities from Russia, along with a reduction in the timeframe for drawing up the necessary documents from 25 days to seven.

Tiffany to Sign Long-Term Deal with AlRosa CONTINUED FROM PAGE 1

Rumors about the negotiation of a possible long-term contract between AlRosa and Tiffany first appeared in 2007. In October of that year, Sergei Vybornov, then the president of AlRosa, announced that the company would sign an agreement with Tiffany by the end of 2007. The contract would be for five years. These plans failed to pan out, and since that time Tiffany has been involved in several one-off deals to purchase Russian diamonds, but has never been close to a long-term contract, according to an AlRosa source. Said the source: “Tiffany has always been interested in buying high-quality stuff typically qualified as lot selected. Until recently, this category of raw diamonds has been almost completely supplied to the domestic market. But AlRosa’s Russian customers then resold the diamonds abroad, so there was no sense in Tiffany-level customers buying diamonds from AlRosa directly. Today, the division into domestic and foreign markets has virtually disappeared.” The decision to no longer distinguish between domestic and international buyers was introduced into AlRosa’s sales policy in 2009. As a result, up to 70 percent of the company’s raw diamonds are sold via long-term contracts to customers all over the world. The policy change was approved by the Russian Federal Antimono-poly service in 2012. Sergei Goryainov, an expert at the Rough & Polished agency, which monitors the diamond market, said that he had also heard that the contract with Tiffany was expected to be for $60

ALAMY/LEGION MEDIA

PresidentVladimir Putin’s initiatives to improve Russia’s position in the World Bank and International Finance Corporation’s Doing Business rankings appear to be working. In the latest study, “Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises,” Russia improved its ranking by eight positions over 2012, finishing in 112th place out of 185 countries assessed by the World Bank. The 112th place ranking is the best that Russia has ever achieved. From 2010 to 2011, Russia managed to rise from 124th to 120th place out of 183 countries. To create the rankings, the World Bank and the International Finance Corporation use 10 equally weighted indicators to measure the ease of doing business in a country. Progress in each of these areas determines the country’s overall place in the rankings. In comparision with the last report, Russia improved in four indicators. In the paying taxes indicator, Russia moved up 41 places in the survey to 64th. However, in six indicators, including the protection of investors, Russia deteriorated slightly. In the run-up to the latest rankings, Russia implemented two reforms that improved the business environment; the country’s improved ranking owes much to both of them. The first reform worth noting is the abolition of multiple preconstruction procedures, which made starting new construction easier. The second

AlRosa is focusing on jewelers.

Tiffany has had several one-off deals to purchase Russian diamonds, but never a long-term contract. million a year in the first stage. “Apparently, we can expect significant changes in AlRosa’s customer base in the near future, as in a very challenging environment the company is focusing on attracting major global brands and geographical diversification of its sales,”said Goryainov.“Until 2009, AlRosa customers had been almost unknown except for Smolensk-based Kristall and Lev Levaev, as the company’s rough diamonds sales policy was absolutely nontransparent. Goryainov said that in the future, AlRosa will also have to change its product range strategy in order to appeal to the new customers.

Opinion

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A COLD REGION HEATS UP COOPERATION BETWEEN ARCTIC STATES IS A MUST Lev Voronkov SPECIAL TO RBTH

he Arctic zone is extremely rich in mineral, hydrocarbon and biological res o u r c e s . T h e U. S . Geological Survey states the “extensive Arctic continental shelves may constitute the geographically largest unexplored prospective area for petroleum remaining on Earth.”The survey also estimates that the Arctic holds 30 percent of the world’s natural gas and 13 percent of its oil. Most of the resources in the area are under the control of the Arctic coastal states. The 1982 U.N. Convention on the Law of the Sea assigned Denmark, Canada, Norway and Russia part of the Arctic shelf and an exclusive economic zone extending 200 nautical miles from their borders. No country outside the Arctic officially denies the legal rights of the Arctic coastal states, yet neither do such countries readily accept the current state of affairs. To speak out against the legal status of the Arctic space would be tantamount to calling for a revision of current international maritime law, the regime of the high seas and other universally recognized norms of international law. Although nonArctic states have not published any official documents about their strategy in respect to the Arctic, it does not mean that no such strategy exists. Rather, preference is given to diplomatic maneuvering, with a view to adopting indirect measures that could eventually lead to a change in the legal status of the Arctic space, allowing non-Arctic countries to gain a slice of the Arctic resource pie. This objective lies behind the rationale put forward by expert circles and the media for an international treaty on the Arctic, similar to the Antarctic Trea-

ty, but this ignores the fundamental differences between the unpopulated ice-covered continent and the vast expanses of open sea in the Arctic Ocean with terrestrial areas that are home to citizens of individual countries. Proposals have also been put forward to transform the Arctic Council — which operates as a consensus forum for high-level cooperation among the Arctic

Diplomatic maneuvering could allow non-Arctic countries to gain a slice of the Arctic resource pie. states and organizations of indigenous peoples — into an international intergovernmental organization. The creation of such an organization requires equal participation on the part of all Arctic and non-Arctic member states in governing the affairs of the region. Citing the global significance of the flora and fauna of the Arctic, they insist upon the establishment of a set of mechanisms for in-

ternational Arctic governance, but proposals on the creation of similar mechanisms of international governance for the Pacific or the Atlantic, for instance, are not forthcoming. The initiators of these proposals strive to create the impression that the Arctic coastal states cannot manage the region responsibly by themselves, which does not correspond to reality. These diplomatic maneuvers have not met with great success, but that has not put a stop to them. Stronger cooperation between the Arctic states will narrow the available room for such maneuvering. Developing the resource potential and transport capacity of the Russian sector of the Arctic requires huge investments that Russia alone cannot afford to make within a reasonable time frame. The involvement of the world’s largest companies in resolving these issues will assist Russia’s social and economic development and unlock its resource and transit potential for the benefit of the world economy. There is no viable alternative. LevVoronkov is a research fellow at the Nordic and Baltic Research Center at the Moscow State Institute of International Relations.

JUST A MATTER OF TIME BEFORE A REALLY COLD WAR Ilya Kramnik VOICE OF RUSSIA

he opening of the Arctic due to global warming only interested academics and journalists until recently. Now it attracts the attention of politicians and military leaders.The possibility of an aptly named cold war in the Arctic is being increasingly discussed. Meanwhile, the chiefs of the general staffs of the countries of the region go on holding meetings on the issue of maintaining peace and security in the Arctic. A regular meeting in Canada held in April was attended by military leaders of all Arctic powers, including Nikolai Makarov, chief of the Russian General Staff. The meeting took place against the backdrop of military revival in the region. In March, the NATO Cold Re-

SPECIAL TO RBTH

ussia’s economy should enter a new phase in 2013 — the country begins its first full year as a member of the World Trade Organization and has plans to pursue further modernization policies. How the new year will play out, however, depends largely on how the government responds to the changing demands of the global economy. At the height of the 2008 financial crisis, many observers believed Russia was destined to be trapped in a boom-bust cycle. Memories of the 1998 economic crash had not yet completely faded when the 2008 financial crisis hit, and experts widely believed its effects would be far worse. Although the crises were different in substance, it was not dif-

The active acquisition of polar resources and territorial disputes make the Arctic a very important region. their capabilities and at the very least gain extra points through information-psychological confrontation. Of course, no one wants a hot war. Moreover, the main forces of the potentially leading player, the United States, are currently concentrated very far away from the Arctic. They are tied up with Afghanistan and the growing confrontation with China in the Pacific, and the war in Iraq still makes itself felt. But the active acquisition of polar re-

Ilya Kramnik is a military expert and columnist for Voice of Russia and RIA Novosti. IORSH

MAKING PREDICTIONS FROM A CLOUDY CRYSTAL BALL Alexei Zabotkin

sponse exercises were held in the area between Sweden and Canada and involved 16,300 troops. The next month, Russia’s air force conducted the Ladoga 2012 exercises in Karelia, which involved more than 50 aircraft. The Russian and NATO maneuvers are conducted in pursuit of one goal. With the growing accessibility of the region, all the key players want to demonstrate

sources, territorial disputes and the imminent expansion of navigation along the Northern Sea Route make the Arctic a very important region and, in the future, a hotter one. The atmosphere at major maritime crossroads has always been difficult — witness the Mediterranean, the Horn of Africa and the Strait of Malacca. If the Arctic becomes such a crossroads, and this seems very likely, then conflicts will quickly appear. How they will be resolved depends on the willingness of the parties to defend their interests. Russia has expressed its readiness, as it plans to expand its Arctic infrastructure. At least 20 border posts must be built in the near future in order to protect the polar domains and control them. Some of them will be located next to the bases of Russia’s Emergency Situations Ministry and the Russian Ministry of Transport that are currently being deployed to support the Northern Sea Route. The other frontier posts will be located on islands. Uninterrupted communication with the mainland will be provided through a special satellite system that is being developed specifically for this purpose. Frontier posts will act as the first layer of protection of Russian interests in the Arctic. If necessary, they can be supported by the Northern Fleet, a part of the air force and the Arctic Brigades of the Ministry of Defense. Almost all of the countries of the region already have or are in the process of forming special Arctic contingents, which are adapted for operations in the Arctic. For the time being, possible conflicts in the Arctic remain the subject of theoretical debates and of computer games, as demonstrated by the recently published game Naval Warfare — Arctic Circle, which is based around a possible war between Russia and NATO in the Arctic using naval and air forces. C u r re n t ly t h e world’s leading players are too busy fighting the global economic crisis to make this story a reality. We can only guess how the situation will change in the next decade.

ficult to question the ability of a commodities-based economy lacking diverse financial markets to resurrect itself for the second time in less than 10 years. Today, however, the situation looks very different. Economies around the world, including those of China and the United States, are either slowing down or remain in a state of stagnation, and while Russia’s economy has also experienced a cool-down of its own since the second quarter of 2012, it has done so in the most orderly fashion. Russia learned many lessons from 1998, and in the 10 years between that crisis and the next one, the government put into place the right instruments and policies to prevent another crash of the same scale. For one thing, the Russian Central Bank established a more robust monetary policy, which allowed for exchange rate flexibility. The boom-bust experiences of the 1990s and 2000s

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stemmed from either de jure (1998) or de facto (2008) fixed exchange rates of the ruble. To combat against the 2008 crisis, the Russian Central Bank induced significant stress tests for domestic liquidity conditions, and, hence, sudden stops in local credit. By now, though, these changes are ancient history. Starting from 2010, the Russian Central Bank demonstrated an increasing level of latitude toward the scale of currency fluctuations, so even if external economic conditions worsen sharply, as some analysts fear may happen in 2013, the depreciation of the ruble would act as a buffer to the real variables. And while some of this shock, were it to happen, will still be felt in Russia (especially since 75 percent of the country’s exports are commodities), the consequences for the economy as a whole would be much milder than past experience suggests.

Russia’s G.D.P. for 2013 is currently expected to be in the range of 2–2.5 percent. Inflation, which inched higher early in 2012, has showed some signs in recent weeks of rolling over yet again. If this is the case, then the Russian Central Bank could consider easing monetary policy in the spring, or even earlier. Such eas-

Russia learned many lessons from 1998 and put instruments in place to prevent a crash of the same scale. ing would be possible even as the Central Bank strives to bring Consumer Price Index inflation down to 5–6 percent range. By the end of 2013, economic growth would most likely have expanded to 3.5–4 percent, which is widely seen by analysts as the proper

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estimate for Russia’s current longterm growth potential. The crucial question is whether Russia is capable of attaining an even higher growth rate. Russia’s economy grew by over 7 percent a year for nearly a decade. However, a considerable level of this growth has since been attributed to the redeployment of idle resources — both capital and labor — after the depths of the 1998 crisis. This process has been repeated since the 2008 crisis. As of October, Russia’s national unemployment rate stood at 5.3 percent, a post-Soviet record. Therefore, superior growth outlook for Russia can rely significantly on an increase in productivity by Russia’s relatively strong employment level. This has been one of President Vladimir Putin’s key arguments since his inauguration in May. However, an increase in productivity growth will require a major expansion and upgrade of Russia’s capital stock. One of Putin’s first acts as president was to sign a decree to increase the investment-to-G.D.P. ratio from 20 percent in 2011 to 25 percent in 2015 and to 27 percent in 2018. This decree and other public statements since are clear declarations that in order to attain this goal a radical enhancement of

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Russia’s investment climate is urgently required. It is the government’s aim to deliver the first tangible results of this sentiment in 2013, which in many ways will determine the structural growth outlook and the nature of Russia’s next business cycle. In fact, the government can take credit for some notable achievements in 2012 that have helped pave the way for a more modern economy. These include the institutionalization of the budget rule, which requires the federal budget to balance at the 10 year average of oil prices; the long-overdue creation of the Central Depository; a government decree requiring state-owned companies to pay a 25 percent dividend; and continued progress on the privatization of state companies. These are all commendable steps along the designated path of modernization. That said, it is yet to be seen if the momentum behind these efforts is unstoppable. Until these measures are fully realized, it may seem possible, yet elusive, for a more optimistic 5–6 percent growth objective to remain on the other side of the proverbial dark glass. Alexei Zabotkin is head of investment strategy atV.T.B. Capital.

CORRECTION The article entitled“Trying to Live on Bread Alone,”which appeared on Page 1 of the Nov. 21, 2012, edition of Russia Beyond the Headlines, had an incorrect byline. The author is Ilya Dashkovsky. Russia Beyond the Headlines regrets the error.

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Culture

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Theater Stella Adler, who popularized the Method in the U.S, lives on in her namesake studio

IN MEMORIAM

A Methodical Approach Remembered

Galina Vishnevskaya More than Just a Great Voice Raymond Stults THE MOSCOW TIMES

XENIA GRUBSTEIN

PHOTO CREDIT CAROLINE VOAGEN NELSON (3)

SPECIAL TO RBTH

Stella Adler, a grand dame of 20th century American theater, traveled to Paris in 1934 to meet Konstantin Stanislavsky. Their meeting helped transform the way acting was taught in the United States. Adler, who died 20 years ago on Dec. 21, popularized the Stanislavsky Method, a system of teaching drawing on an actor’s own experiences and emotions. For more than half a century, it was the well from which all great American actors drank. Said Tom Oppenheim, Adler’s grandson and the artistic director and president of the Stella Adler Studio:“She was awesome. Inspiring. Scary. She never wanted to be called grandma; we called her Stella. So she wasn’t a typical grandmother. She loved her family and was the center of it, without question.” Oppenheim said that he watched Adler teach, and her script interpretation class was so popular that 300 people once gathered in a NewYork synagogue to see her. Today, the Stella Adler Studio of Acting takes up two stories in a building on the outer edge of New York’s Flatiron District. Since its founding in 1949, the school has changed locations several times, but now has 20,000 square feet of space and about 400 full-time students; many more study part-time. Among the Studio’s alumni are Marlon Brando, Robert De Niro, Benicio Del Toro, Salma Hayek, Harvey Keitel, Mark Ruffalo, Susan Sarandon and Martin Sheen. Born into the family of Russian-Jewish immigrant Jacob Adler, one of the founders of professional Yiddish theater, Stella Adler began her career in acting when she was four years old in a production of“Broken Hearts.” She had appeared in more than 100 plays by the time she joined The Group Theatre of Lee Strasberg, Harold Clurman and Cheryl Crawford as a founding member in 1931. Studying the Method with Konstantin Stanislavsky in Paris changed her life, according to her grandson. “My sense is that before that she was skeptical of the idea that your personal past is the primary source for your work,”

know the voice of Galina Vishnevskaya, who died on Dec. 11 at the age of 86, only from recordings. But I count myself fortunate to have become fairly well acquainted with her during the final decade of her life, both as a neighbor for several years in the House of Composers on Gazetny Lane near the Kremlin and from interviews and numerous other encounters at the Opera Center on Ostozhenka Street that bears her name. Vishnevskaya was an enormously talented singer and actress. But had she not also possessed an almost superhuman will and determination, she might never have gained the renown she eventually enjoyed, both at home and throughout the musical world. Born in Leningrad (now St. Petersburg) in 1926, Vishnevskaya grew up in a poor and dysfunctional family, survived the wartime siege of her native city, was denied academic musical training and almost miraculously overcame a tubercular infection that threatened to end her singing career. In 1952, following eight years on the operetta stage in Leningrad, she boldly, and without much prospect of success, took an opportunity to audition for the Bolshoi Theater. She found herself not only hired but almost immediately debuting on the Bolshoi stage as Tatyana in Pyotr Tchaikovsky’s“Eugene Onegin.” Over the next 22 years, Vishnevskaya became the principal attraction of opera at the Bolshoi, performing more than 30 roles, notably — in addition to Tatyana — Violetta in GiuseppeVerdi’s“La Traviata”; the title roles in Verdi’s “Aida, Giacomo Puccini’s “Tosca” and “Madame Butterfly”; and Natasha in Sergei Prokofiev’s“War and Peace.” She also met with great success in major opera houses abroad, beginning with

Konstantin Stanislavsky and his Method may have been unknown in the U.S. without the work of Stella Adler, who died 20 years ago this week.

Today, the Stella Adler Studio in New York’s Flatiron District has more than 400 full-time students.

“Stella brought the idea that a person on stage is actually a human being,” said former student Anthony Zerbe. Oppenhiem said. “That was someting that felt wrong to her; it felt limiting and inhibiting.Yet she kept going and wanted to study from the primary source. That’s who she essentially was.” Five weeks with Stanislavsky gave Adler a dramatically fresh perspective on the Method. When she came back to The Group Theatre, she started teaching it with new understanding. Alex Purcell, a second-year student at the Studio said: “Her method is usually compared to the Strasberg technique. The difference is whether you are working from your imagination — that’s Adler technique — or your memories, which is Strasberg’s.”

According to Ron Burrus, a Stella Adler Studio teacher and one of her former students, “the whole point is the movement of the action inside of the actor before he speaks.” Former Adler student Anthony Zerbe said: “The Method is a generic term that doesn’t mean anything; everybody plays it their own way. Stella was certainly someone who defined that time and inspired it. She brought the idea that a person on stage is actually a human being. And that had never happened before in the theater.” She didn’t like students to take notes, but insight into her teaching can be found in a new book entitled “Stella Adler on America’s Master Playwrights,”the second of a two-volume set compiled by Barry Paris from Adler’s lectures, which was released in August. After Oppenheim took over in 1994, his main concern was keep-

ing the Studio a living expression of Adler, so the whole thing “wouldn’t become a wax museum devoted to her memory.” To him, the essence of her work was the idea that actor and human being are synonymous. The mission of the studio is to create an environment that values humanity first, bringing art and education to the community. The Studio’s outreach division gives at-risk youth an opportunity to study acting for free, and the chance for a few talented students to earn a scholarship to the studio. To Oppenheim, that is a way of commemorating not only Stella but also her father, Jacob, and the wholeYiddish theater tradition. “In a sense, it comes out of the same impulse Stella had when she reached out to Stanislavsky,” he said. “Just a feeling that we have much to teach and much to learn. Maybe more to learn than teach.”

Take a Look at These Books PHOEBE TAPLIN SPECIAL TO RBTH

Phoebe Taplin SPECIAL TO RBTH

AUTHOR: MIKHAIL SHISHKIN PUBLISHER: OPEN LETTER

any people say Mikhail Shishkin is Russia’s greatest contemporary novelist. His work is rich and complex; his style is uniquely textured and allusive. His 2005 novel, “Maidenhair,” appears this month in Marian Schwartz’s virtuosic English translation. His latest, “Pismovnik,”will follow next spring. Shishkin said in a recent speech at Oxford University that an author is “a link between two worlds.”The hero of “Maidenhair”is — as Shishkin himself was — an interpreter for the Swiss immigration authorities; this character is also an interface between realities. The novel opens with a reference to Xenephon, which the interpreter is reading during his breaks, and then plunges into a series of interviews with asylum seekers, often from Chechnya, recounting horrors. Both questions and answers morph into a series of evocative monologues, interspersed by memories, letters to the interpreter’s son, or extracts from the diaries of a Russian singer of whom the interpreter was once meant to write a biography. Her personal loves and tragedies give the novel a human core. “Maidenhair” is not light reading. The interlocking narratives fuse and fragment in this literary masterpiece, whose ambitious goal encompasses the recreation of language in order

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For all those budding interpreters and Russophiles, there are some colorful books available for bilingual (or would-be bilingual) toddlers. The Russian-English book set (Milet, 2011) is a box full of bright pictures with simple words in two languages. There is the usual baby-book emphasis on colors, numbers and opposites, but there are also books on animals, fruit and vegetables or household words. These chewable board books also feature jobs, music and sports. milet.com For a slightly older age range, but still definitely aimed at young children, Aleksandra Efimova’s “Nutcracker Ballet” (Orchid, 2011) is part of a series of stories, activity books and accessories featuring well-loved ballets. The author, calling herself“Miss Aleksander,” says the story of this Christmas classic teaches kids bravery and imagination. growingthrougharts.com For any little kids lucky enough to be taking a trip to Russia, Megan Worthy’s multi-awardwinning“Bronte and Frank go to Moscow” (Worthy Hen, 2010) could be perfect. It combines a children’s city guide, sticker-rich activity pack and a picture book story, and even comes with a metro map, jet lag tips, a CD of songs and a box of crayons for

Unwrap some Russian literature this Christmas.

porates elements of generic “Russianness”(snowy forests, beetroot soup, felt boots, dachas and diamonds) into a modern teenage adventure story aimed at girls from 8–13. It starts in a boarding school with the classic orphaned girl, wishing she could be transported from her “beige” life of bossy headmistresses and physics tests into “the land of palaces and poetry”. Her wish comes all too true when a mysterious Russian woman sends Sophia and her friends on a school trip that is quickly derailed among

the frosty birch trees. A “Polar Express”–style steam train journey becomes a sinister Narniawith-samovars journey through a snowy wonderland.Sleigh rides on frozen canals, skating on lakes and white wolves howling in the woods — courtesy of a glamorous princess in a rambling, dilapidated mansion — are all part of the fun. For readers who prefer nonfictional heroes, Jamie Doran and Piers Bizony’s “Starman: The truth behind the legend of Yuri Gagarin” (Bloomsbury, new edition 2011) was reissued last year to coincide with the 50th anniversary of the first human space flight. This account of the cosmonaut’s life and death is part biopic and part detective story. It’s aimed at adult readers, but it is simply and compellingly written.

Vishnevskaya was a talented singer, but she also possessed an almost superhuman will and determination. In my first encounters with Vishnevskaya, I was somewhat intimidated by her formidable presence and rather stern countenance. But on further acquaintance, especially in a pair of lengthy interviews, I discovered a very warm-hearted individual with a mischievous sense of humor. And perhaps above all in my memories of her over the years was the deep and very sincere concern she displayed for the young singers of her Opera Center and for the present and future of the operatic art. The death of Vishnevskaya inevitably brings to mind the oftquoted lines written 51 years ago by the poet Anna Akhmatova after hearing Vishnevskaya in a radio broadcast sing the magical aria from Brazilian composer Heitor Villa-Lobos’s“Bachiana Brasileira”No. 5. Akhmatova’s lines defy literal translation. But what she wrote ofVishnevskaya was essentially this: With a voice of such power and charm, it is not a grave that lies ahead of you but a mysterious staircase leading upward.

BIBLIOPHILE

TITLE: MAIDENHAIR

completing the activities on the plane. bronteandfrank. com. There are several books of Russian fairy tales available with illustrations by the brilliant Ivan Bilibin. “Vasilisa the Beautiful and Baba Yaga” (The Planet, 2012) is a typical offering. The classic tale, t r a n s c r i b e d by nineteenth century folklore collector, Alexander Afanasyev, is teamed with Bilibin’s decorative paintings. Fo r a f a r more grownup take on Russian storytelling, older kids might check out the brand new “Russian Magic Tales” (Penguin, 2012). There are plenty of Afanasyev’s traditional folk tales, but there are also stories by Russian authors from Alexander Pushkin to Andrei Platonov. Cathryn Constable’s whimsical “Wolf Princess” (Chicken House, 2012) incor-

her debut in 1964 at Teatro alla Scala in Milan as Liu in Puccini’s “Turandot.” The singer’s days at the Bolshoi ended abruptly in 1974, when she and her famed cellist husband, Mstislav Rostropovich, were sent into exile, principally for giving shelter at their dacha to the writer Alexander Solzhenitsyn. Sixteen years later, by which time Vishnevskaya had retired from the stage, she and Rostropovich were welcomed back to their homeland. And a few years later — again with great will and determination — she set about creating the Opera Center, which, since its opening in 2001, has quite successfully prepared young conservatory graduates for careers on the operatic stage.

The Little Images That Come to Signify So Much

Literature Some new Russian-themed releases are perfect for putting under the tree

From ABCs for babies to existential adventures for young adults, there’s a great selection of Russia-related books for children out there this year.

to express truths about love and death, loss and happiness. One idea that weaves its way into each of the stories is that “whoever can be happy right now, should,” and that pain and joy are connected: “True enjoyment of life can only be felt if you’ve known suffering.” Whole pages without paragraphs catalogue the minutiae of personal recollections, the details of life that mean nothing and everything. The“Maidenhair”of the title is a fern that grows wild among the Roman ruins the interpreter visits with his wife. This delicate, green weed “grew here before your Eternal city and will grow here after.” It is one of many recurring images that come to signify so much, like the disappointingly muddy River Tiber, representing reality: “You have to love that Tiberian world!” the interpreter’s re imagined teacher tells him towards the end. Shishkin started“Maidenhair” more than a decade ago, but had to rewrite it when he moved to Switzerland where he “translated words into destiny.”It has less in common with self-conscious postmodernism than with the fresh experiments of the early 20th century. Shishkin’s work has been described as “refined neomodernism”. His dense, lyrical prose suggests the influence of “Ulysses,” but Shishkin objects that “Joyce doesn’t love his heroes;”in“Maidenhair,”love is the crucial answer to most of the hundreds of questions. There is sometimes an unbearable intensity as the metaphors sprout and writhe throughout the novel. But however difficult they are, to read or to summarize, it is hard to wish the 500 breathtaking pages of“Maidenhair”any fewer than they are.

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RUSSIA BEYOND THE HEADLINES

MOST READ At Ornament Factory, It’s Christmas All Year Round rbth.ru/14165

SECTION SPONSORED BY ROSSIYSKAYA GAZETA, RUSSIA WWW.RBTH.RU

Fashion The latest trend in Russian winter footwear is actually a reboot of an old tradition ITAR-TASS

How to make Russian felt boots The word “valenki” derives from “valenok,” which means “to felt.” Traditional valenki are made by rubbing together raw wool fibers until they begin to felt. The first piece of material is placed on a boot mold and additional pieces of wool are felted and attached to the original piece of wool with a felting needle until the material covers the mold. The boot is left on the mold for at least 24 hours until it hardens. Once the boot is hard, it can be embellished with embroidery or decorations either by sewing patterns into the felt or pressing dyed, felted material into the upper of the boot. About 4.5 million pairs of valenki are produced in Russia annually.

Valenki Get a Makeover and Make a Comeback nority among fashion-conscious Muscovites. Everywhere, people were wearing Uggs. “I didn’t want to buy Uggs for two reasons,” Nemirova said. “First, it is not that easy to find real Uggs. Our shoe stores are filled with fake ones. Second, everyone is wearing Uggs.” Although Russians have been wearing valenki for centuries, they lost much of their appeal for Russia’s urbanites in the middle of the 20th century. Traditional valenki were made of dried sheep’s wool and had no hard soles. They were usually produced only in black, gray or white, and to protect the valenki from mud, they had to be worn with rubber

Valenki, worn for centuries in villages, have come back into fashion for modern Russian urbanites thanks to an unlikely intruder — the trendy Australian brand Ugg. EKATERINA ZABROVSKAYA RUSSIA BEYOND THE HEADLINES

A few years ago, Russian journalist Natasha Nemirova proudly posted in her Internet blog some pictures of her latest fashion find: a pair of valenki — traditional Russian felt boots — colored white, with blue flowers embroidered on them. At the time, Nemirova’s decision to choose valenki for her winter wear put her in the mi-

overshoes — not a particularly attractive look. And so as more options became available to fashion-conscious consumers, valenki were replaced in Russian cities with lighter, more waterresistant boots. Then, Uggs entered the Russian market.They quickly became known as“Australian valenki”because of their strong resemblance to the traditional Russian footwear, and suddenly designer felt boots were making their way into the pages of fashion magazines. “This started three or four years ago,”said Lev Larin, owner of an Internet store called Uggi-Valenki. “Valenki today are on a new wave of popularity. They used to

PHOTOGALLERY

Check out the production process for valenki.

be shapeless, felt footwear; today they are real felt boots. They are stylish, they are beautiful. Most importantly, they have soles.” Today, valenki come in various colors and are embroidered with designs ranging from ones aimed at children to elaborate modernist concepts. They can be decorated with print or made with fur trim. They are not just keeping Russian city dwellers’ feet warm in winter; they are customized pieces of folk art. “They are popular among

Consumers More and more Russians are embracing wine and wine culture

New Options for Toasting the New Year Many Russians may still break out a bottle of Soviet champagne on Dec. 31, but the growing trend toward high-end wines indicates that a change in the market is at hand. ANTON MOISEENKO

More than 40 percent of all alcohol in Russia is sold in the two weeks before NewYear’s Eve, and while vodka sales continue to take the lion’s share of this percentage, an ever-increasing segment is made up of high-end wine. Russians’ drinking habits have changed noticeably over the past decade. In the 1990s, expensive wines and Champagnes were exclusively the domain of the new rich, who appreciated them more as a status symbol than a quality product. Today, oligarchs may still serve Petrus as their table wine, but the main shift from beer and vodka to wine is taking place in the growing class of young professionals. This cohort, mostly made up of top and middle managers at both Russian and multinational companies, have traveled and studied abroad, and have brought back from their experiences the idea that wine culture

SPECIAL TO RBTH

The shift from beer and vodka to wine is taking place in the growing class of young professionals. is something worth exploring. During a recent tasting in the offices of a multinational law firm based just outside the Kremlin walls, a participant who preferred to remain anonymous said: “We are stuck in our offices for 12 hours a day; we are office inhab-

itants. We need this to know that there’s life outside the walls of our company.” Wine education has become a popular way to socialize out of the office, too. In addition to wine tastings offered by wine importers, restaurants and cooking schools have begun including wine and food pairing courses in their curriculums. In the past several years, cooking classes have become very trendy in Moscow, and with the expansion of interest in wine and spirits, instruction in what to drink with what

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you cook was a natural addition to the market. And for those who prefer to go out, Moscow’s restaurant and bar offerings continue to expand. A major trend in the Moscow restaurant scene in 2012 was the increase in the number of wine bars — small, intimate spaces that offer a wide selection of wines by the glass. Wine pricing is usually the Achilles’ heel of any Russian restaurant; the exhorbitant mark-up means that only people able to splurge can order a bottle on the premises. One Western trend that could allow customers to enjoy an affordable bottle of wine with their meals — the corkage fee — has yet to make it to Russia. Of course, that just means that many Russians prefer to drink at home — particularly on New Year’s Eve, which many people spend with family and friends, talking over drinks in the kitchen. On New Year’s, in Russia as elsewhere, most people prefer to celebrate with a sparkling wine, but those who toast the NewYear in Moscow with a glass of true Champagne remain in the minority. The most popular drink for the evening is the cheap, sweet Russian sparkling wine known as Soviet champagne; Italian Asti is also popular. The number celebrating with a bottle of Cristal remains small, although this is still a good thing for the market overall: In the near future, Russia is bound to become one of the world’s fastest-growing markets in the Champagne category.

Is the world really ending this year?

1. Valenki are featuring in magazine fashion spreads. 2. Embroidered valenki 3. Valenki with leather trim 4. Valenki in the traditional style with attached rubber overshoes.

young and old, rich and poor,” Larin said.“There is a great variety of models — short and tall; for slim feet or for stout ones; with narrow or wide tops. Some of them (have) flowers or snowflakes to appeal to a younger audience. Some valenki are more traditional, black or white. The choice is indeed tremendous.” Denis Detkovskii, head of the sales department at the Russian footwear producer Elche, claims that his company was the first to produce“the new valenki,”or city valenki. “Our company started produc-

ing them three years ago,” Detkosvkii said.“There was nothing like today’s valenki on the market back then. Three years ago, our designers created new models and developed new looks. We started showing them at various exhibitions, and people got truly interested.” The city valenki were relatively inexpensive and very light. He added: “They are coming to take Uggs’ place!” The competition between Uggs and valenki has been attracting plenty of popular attention in Russia. Various groups on social networks and blogs are consumed by the debate over which is more hip. Larin, from the Uggi-Valenki Internet store, even included a counter on his Web site to show the sales of Uggs compared with those of valenki. “The competition is very tight,” Larin said. “They are battling neck and neck.” Tatyana Efimova, who is from a family who have been felting valenki for 15 years, agrees with Larin.“I do feel that valenki are getting more popular today,” she said.“People are no longer afraid of the word ‘valenki.’ They enjoy wearing them.” Efimova and her family make valenki with no hard soles, but even this long-time producer from the central Russian Republic of Chuvashia has succumbed to the new trend of decorating the valenki with embroidery and buttons. Also, they have been selling their valenki with silicone seethrough covers, which look much more attractive than their traditional, black predecessors. “One day, seamstresses started buying valenki from us,” Efimova said. “I first watched them doing their job, then came up with my own ideas and started embroidering them myself. Today, I employ several seamstresses.” Valenki are becoming popular outside of Russia, too, Efimova said:“Last year, we were contacted by an American wholesale company who suggested that we should produce valenki for the American market. But this was way out of our league, and we refused.” But others may jump at the opportunity to compete with Uggs globally. Detkovskii, of the Elche footwear company, said his company is exploring the possibility of entering foreign markets in the near future.

Russians Looking Forward to a More Prosperous 2013 CONTINUED FROM PAGE 1

According to a survey by Deloitte, this year Russians will spend 8.6 percent more on the New Year holidays than in 2011. Experts suggest that this is because they have stronger confidence in their future than they did last year; half of the survey respondents view the economic situation in Russia as stable. On average, Russians spend $500 on celebrating the winter holidays — 35 percent less than in Europe, where the average is $770. But given the 120 percent difference in per-capita G.D.P. between the E.U. and Russia, this figure looks far more impressive. Russian shoppers are prepared to splurge for the holidays, and not just on gifts and food. It is becoming increasingly popular to go on vacation for the New Year break. Slightly more than half of those who spend their holiday abroad chase the sun. Many Russians head to Egypt, where tour packages start at $400 for the week. Ski holidays are also popular, although the price for this type of vacation is substantially higher. Vadim Nesmeyanov, the 30-year-old founder of an I.T. start-up, is among those leaving snow to find more snow.

“My family has been going to Chamonix for about three years now. There were only four of us in the beginning, but now our group has grown to 12 people, and we need to find a chalet that is big enough. If you book early enough, the cost of flights and accomodation shouldn’t be too high — around €1,500 ($2,000) for 10 days,” Nesmeyanov said, adding, “Plus, traveling to Europe during the holiday sale season is an excellent opportunity for shopping; I can buy a new iPhone.” According to the Deloitte poll, a new smartphone is one of the most desired gifts this New Year. Forty percent of respondents would like a new phone; fifty-six percent said they would be happy with cash. However, most poll respondents said they planned to give cosmetics (42 percent) and candy (38 percent) as presents. Inexpensive household appliances like slow cookers and juicers are also in demand. Russians don’t like to go out on NewYear’s Eve; more than 80 percent prefer to entertain guests at home or visit friends in their homes. But not everybody can share in the bliss or afford to forget about work: More than 11 percent of Russians work through the holidays.