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This supplement is produced and published by Rossiyskaya Gazeta (Russia) and did not involve the news or editorial departments of The Wall Street Journal RTSI

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For each of you, there is a Russia of your choice Saturday, November 23, 2013

in this issue

Investment Two Russian companies sell shares in Moscow and London, with more on the way

Politics & Business

World Bank Rankings Russia earns plaudits for pro-business reforms page 2

Business & Politics

Russia and the U.S. Shale Oil Revolution

A shake-up in energy markets

Burgers Not Borsch? U.S. Dining in Moscow

Russian Firms Raise Billions Russian firms tapped equity markets in Moscow and London in October, raising billions as the appetite for IPOs increased and equity prices rallied. More statecontrolled assets are slated for sale, but the timeline is uncertain. David Miller

Russian Business Insight

Russian companies raised billions of dollars in public stock offerings in October, showing that the country remains a fertile source of fresh equity for capital markets as en-

thusiasm for IPOs rebounds among U.S. and international investors. Russia’s state-controlled Alrosa, which produces just over a quarter of the world’s diamonds, listed 16% of its shares on the Moscow Exchange, raising a total of $1.3 billion. Moscow-based lender Tinkoff Credit Systems pulled in just over $1 billion selling shares on the London Stock Exchange. The offerings come as investors show renewed interest in IPOs, particularly in the U.S. October was the busiest month for U.S.-listed IPOs since the pre-crisis year of

2007, according to The Wall Street Journal, as 33 companies raised more than $12 billion. U.S. investors, including the Lazard asset management group, bought as much as 60% of the shares sold by Alrosa, according to Reuters. Siberian Diamonds The Alrosa deal opened up an area of the diamond trade that has long been under tight Russian government control. The world’s largest diamond producer, Alrosa mines rich deposits in Siberia accounting for 26% of

global production. Its main rival, South Africa’s De Beers, is in second place with 22%. “It is no surprise that the Alrosa issue was successful,” says Chris Weafer, founder and senior partner at Macro Advisory. “It is a unique asset.” Investors in Alrosa included Oppenheimer Funds Inc. and the Russian Direct Investment Fund. “The fact that the deal was oversubscribed, and the quality of the investors, are proof that the sale was successful,”said First Deputy Prime Minister Igor Shuvalov, in Moscow. Observers said officials had hoped that holding the Alrosa sale inside Russia would help lure international players into the country’s stock exchanges. “The deal went well and created interest in the Moscow Exchange on the part of foreign investors,” Alexey Germanovich, a director at state-controlled airline Aeroflot, told Russian news agency RBC. continued on PAGE 6

Aviation Russia’s newest civilian plane maker makes its foray into the North American market

Sukhoi Comes to the Americas The first civilian jetliner to be designed and built in Russia since the collapse of the Soviet Union debuts in North America, amid hopes for an aviation renaissance.

was both a powerhouse and a pioneer of international aviation. But after the collapse of the USSR, Russia saw its clout in aviation slip away in the economic downturn of the 1990s. More recently, a revival in Russian aircraft manufacturing has seen the production of civilian planes increase from a low of five in 1996 to a projected 40 units this year. Helicopter construction has bounced back to 330 this year, from 26 in 1998.

Artem Zagorodnov, Amaia Aldamiz Rbth

Russia’s bid to regain a foothold in the global aircraft-manufacturing market passed a major milestone this fall, as the first Superjet 100

press photo

completed its debut flight in North America. Mexico’s Interjet has become the first North American airline in history to operate a Russian passenger plane, which will soon start serving destinations in the United States as well as in Latin American countries. Sukhoi, the company behind the Superjet 100, has been manufacturing military aircraft for decades. But the Superjet is something new: an attempt, by Russia, to build a civilian aircraft that can compete with the world’s best. “The international aviation market has been dominated by four manufacturers for decades: Airbus, Boeing, Embraer and Bombardier,” says Interjet’s CEO, Miguel Aleman. “Now Sukhoi Civil Aircraft is offering competition.” The Soviet Union, during its peak,

Interjet currently operates the first two of its 20 ordered Superjets.

The Superjet 100 aims to compete with rival models from Brazil’s Embraer and Canada’s Bombardier by being less costly to build and operate. “The Sukhoi Superjet’s performance will be watched very closely,” Jose Luis Garza, managing director of Interjet, told RBTH.“It is the first Russian plane to receive an EASA safety certificate and come to the North American market, which is dominated by other manufacturers,” he said, referring to the European Aviation Safety Agency, an international regulator. Today, there are over 30 Superjets in operation, by Russian carriers Aeroflot, Yakutia, Gazpromavia and Moskovia, as well as Indonesia’s Sky Aviation and Laos’ Lao Central Airlines. continued on PAGE 4

page 3

Money & Markets

Targeting Inflation Bucking the trend as the Fed pushes stimulus measures page 6

OPINION

Snowden as Dissident: History’s Lessons Does Snowden’s story resemble Solzhenitsyn’s? page 7

Feature

What Would Vladimir Putin Do in Sochi? The President’s imagined take on the Olympic city

fotoimedia

Russian Deputy Prime Minister Igor Shuvalov (left) and Alrosa President Fyodor Andreev celebrate the company’s IPO on the Moscow Exchange.

photoxpress

Fast-food chains and “New American Cuisine” catch on

page 8

Don’t miss RBTH’s new guide on Russian NHL players!

Coming in November!

Politics & Business

News in brief

Russian business insight

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International Banking body says Russia’s efforts to improve its business climate are working

• Russia has “made progress” in improving the quality of life of its citizens over the past decade, the OECD says in a report. The average Russian household has disposable income of $15,300 a year, a significant improvement on earlier results, although it remains below the OECD average of $23,000. Income inequality remains too high. • French food group Danone has signed a deal to co-fund the construction of Russian dairy farms. The deal sees it team up with local player Damate to try to secure long-term milk supplies in the fast-growing Russian market.

World Bank: Russia Tops China, India Russia moves ahead of its fellow BRIC countries in the World Bank’s latest Ease of Doing Business ranking, as the country fights to attract international investment.

• Russian President Vladimir Putin was rated the most powerful person in the world by Forbes. The poll saw him overtake U.S. President Barack Obama. This year is turning out to be a remarkable one for Putin, as the West languishes in an economic mire and plunges from one political mess into another: Snowden, Syria, spying and government shutdowns. • German engineers Siemens Gas Turbines Technologies has set up a joint venture with Russia’s Power Machines to build a €275 million factory to produce gas turbines in the Leningrad Region. • Energy publication Platts says Gazprom, Rosneft and Lukoil are among the 10 biggest energy companies in the world. • Moscow is expecting $8 billion in foreign investment next year, going into hotel, real estate, high-tech production cluster construction projects and a metro extension. • Moscow has witnessed a 25% reduction in traffic volumes since the city’s mayor introduced paid parking last month.

Photoshot/Vostock-photo

• Russian economic growth is flagging, but the e-commerce sector is booming. The Russian Internet industry will account for 1.5% of the country’s GDP in 2013, says Mikhail Seslavinsky, head of the Federal Agency on Press and Mass Communications. • Russia wants to begin drafting a deal on visa-free travel with the EU early next year. That deal requires the EU to make a “political decision to begin negotiations on drafting the agreement,” Deputy Foreign Minister Alexei Meshkov said. • Opposition blogger Alexei Navalny had his five-year sentence on embezzlement charges suspended: a victory for opposition forces. • Russia may spend 40% of its Reserve Fund on infrastructure in the coming years to avoid economic stagnation, the Economic Ministry says. That implies spending of $37 billion. • A new $30 million high-tech fund was launched in Moscow this month. Flint Capital will invest into “fast-growing markets of considerable size.” Founded by former executives of financial group Finam Global, the fund hopes to return 45%. This is the fourth fund to set up in Russia since the start of the year. • The list of Russian state officials obligated to declare their family income has more than doubled, to include all CEOs of state-owned enterprises. The heads of 63 companies, including the oil major Rosneft and gas giant Gazprom, are included. • Russia’s state-owned Vnesheconombank will create a “fund of funds” to invest in Russian SMEs, as part of the government’s plan to boost economic growth. The development bank will work with the Chicago-based investment manager Adams Street Partners. • Russia will double its domestic borrowing to 880 billion rubles by 2016, the finance ministry said. Russia is currently running a small surplus, but is expected to have a deficit from next year. • Russia plans to spend 2 trillion rubles by 2020 to develop the Arctic, a senior government official said. Environmentalists spoke out against the idea.

Russia’s current ranking in the index out of 185 countries. Russia jumped 20 places in this year’s survey.

Artem Zagorodnov Rbth

Russia has jumped 20 places in the World Bank’s Ease of Doing Business survey to number 92 out of 185 countries, following a concerted reform effort and widespread improvements in access to electricity, according to a new report from the international body. This result brings the country closer to meeting President Vladimir Putin’s goal of taking Russia to 20th place from 120th place by 2018, through a series of “road maps”designed to reduce bureaucracy and red tape. This is the first tangible sign of success, as recognized by a major international body. Russia edged ahead of China in the index, which placed at number 96, and placed higher than any of its peers in the so-called BRIC club of large emerging economies, comprising Brazil, Russia, India and China. Brazil moved up two notches to 116th place, while India dropped three places to 134th. “Improving the investment climate is a top policy priority for the Russian authorities, and local entrepreneurs are seeing the results,” said Augusto Lopez-Claros, director, global indicators and analysis, World Bank Group, in a statement accompanying the study.“Businesses dealing with obtaining electricity connection in Moscow now face fewer delays, more streamlined procedures and lower fees, thanks to the regulatory and procedural improvements in this area on the federal and Moscow level.” Russia is among the top 10 mostimproved countries in the survey this year, and is among the 10 economies advancing the most toward global good practices since 2009.

$3 trillion the size of Russia’s economy in purchasing power parity, recently recognized as the world’s fifth-largest.

the number of places Russia jumped ahead in one year in the category of ease of access to electricity.

Electricity and Borders Russia made significant progress in improving access to electricity, jumping ahead 71 places in that category, the World Bank says. It has also advanced 29 places in the ease of registering property. Its weakest sectors remain construction permits, where it languishes in 178th place, and trading across borders, ranking 157th. Oleg Budargin, CEO of the Federal Grid Company, notes that, in electrical reliability as measured by the number of outages, Russia has already surpassed many developed countries. Outages in Russia last an average of 0.9 hours, compared to 1.7 hours in Europe and 3.3 hours globally. “We’ve reduced the cost of an electricity connection by three times to around 3,000 rubles [about $93] today, from 9,500 rubles in 2009. This has led to a subsequent increase in applications, to 416,000

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Connection to the electrical grid costs a third of what it did in 2009.

in 2012 from 200,000 then,” Mr. Budargin says. Alexei Komissarov, head of Moscow’s Department for Industrial Policy and Entrepreneurship, expressed gratitude for progress that had already been made on the ground, saying:“In Moscow we set up a special customs point for hightech equipment that allows it to be imported in six hours rather than several months like before. It’s very important for the city in attracting hi-tech companies here.” Eurasian Union A number of experts have pointed out that Russia’s common economic space with neighbors Belarus and Kazakhstan – set to become fully operational in 2015 – could push companies to invest there instead of Russia to better take advantage of the 170 million consumer market. Belarus took 63rd place in this year’s study, while Kazakh-

stan came in 50th, making the need to reform all the more urgent. Kazakh President Nursultan Nazarbayev suggests expanding the Eurasian Union to include countries like Turkey and Armenia. “I haven’t heard of a single major company relocating to either of those countries from Russia since the Customs Union [predecessor to the Eurasian Economic Union] came into being,” countered Alexander Ivlev, EY’s country managing partner for Russia. “In Russia we have a growing middle class and better margins. Plus our tax system meets the standards international investors expect.” Real Work Still Ahead “The easiest work is behind us,” said Andrei Nikitin, head of the Agency for Strategic Initiatives, which has been tasked with developing and implementing roadmaps to meet Mr. Putin’s target.

Investment St. Petersburg diversifies economy away from tourism toward cars, IT and more

Arts Capital, Meet Motor City St. Petersburg has long been Russia’s artistic center. Now the city is reinventing itself as a top investment destination on the heels of Russia’s WTO membership. Arkady Ivanov

Special to Russian Business Insight

St. Petersburg, Russia’s “Venice of the North,” is renowned for its canals and high culture, as the host of the Hermitage art gallery and the Mariinsky ballet. Less visible to the tourists who stroll beside the canals on long evenings, as the far-northern summer sun stubbornly refuses to set, the city is also re-inventing itself as a top investment destination on the heels of Russia’s WTO membership. President Vladimir Putin, a St. Petersburg native, has taken pains to keep his home town in the spotlight, using the city as a backdrop for high-profile international events whenever possible, including last summer’s G20 summit. In 2012, this city of over five million people attracted $10.7 billion in foreign investment, nearly double the previous year’s figure, and hopes to hit $12.5 billion this year. The city’s economy grew 4.5% last year to $70 billion, faster than Russia’s national average, and its industrial production index hit 104.3%, among the best rates nationwide. Its key economic sectors include shipbuilding, automobile manufacturing, food production, radioelectronics, pharmaceuticals and metallurgy. Many of these are clustered around various parts of the city, with entirely new clusters - such as one focused on creative industries - now in the pipeline.

Photoshot/Vostock-photo

Car Cluster The town that thinks of itself as the country’s artistic capital is also morphing into Russia’s Motor City, as foreign car manufacturers rush in. Last summer, Russia tipped past Germany to become Europe’s largest car market.

alexandr petrosyan

itar-tass

• The Central Bank of Russia’s fight against inflation suffered a setback after September’s rate rose from 6.1% to 6.3%, despite the decision to keep rates high.

in figures

shutterstock/legion-media

Russia’s “Venice of the North” is rapidly re-inventing itself as a center of commerce and industry.

Total car production soared 50% in St. Petersburg last year to reach 389,000 units, and a rising share of vehicles was exported to neighboring countries. Ford was among the first foreign giants to open a factory near St. Petersburg, in 2002, joining forces with Russia’s Sollers to build a factory that now cranks out 300 cars a day. The facility passed the 500,000 mark last summer. Toyota opened a factory in St. Petersburg in 2007, with a $133 million investment, followed by GM ($303 million) the following year. Nissan ($200 million) came next in 2009 and Hyundai ($650 million) followed in 2010. Transportation New transportation arteries have been critical to attracting the carmakers to St. Petersburg. A new $7 billion Western HighSpeed Diameter highway now links St. Petersburg’s port with European markets in the Baltic states and Scandinavia. Over half of the funds for this were provided by private

investors, as the city served as a pioneer for public-private partnerships in Russia. This December, the new $1 billion terminal of Pulkovo airport will begin operation and facilitate an increase in passenger traffic from eight million to nearly 20 million by 2025, making it one of Europe’s busiest air hubs.

The Western High-Speed Diameter highway was the first successful publicprivate partnership in Russia. In another first for Russia, the terminal has been constructed entirely with private money. It will be operated by a consortium that includes German Fraport AG, as well as VTB Bank of Russia. Tourism In the face of this activity, St. Petersburg is still the city whose entire downtown area was declared

a World Heritage Site by the United Nations Educational, Scientific and Cultural Organization, better known as UNESCO. St. Petersburg used the recent G20 summit to further increase its potential, hitting six million tourists annually in 2012 for the first time - an increase of over 12% from the previous year. The Future To diversify its economy, the city has launched a series of technoparks and incubators for small and medium-sized enterprises (SMEs) in recent years. Meanwhile, the manufacturing sector remains the largest contributor to the city’s budget at nearly 40%. St. Petersburg’s Governor Georgy Poltavchenko has emphasized the need to foster innovation in the sector. “This is confirmed by the fact that St. Petersburg was recently named Russia’s most innovative region [in a nationwide vote],” he said. This article was prepared in cooperation with the St. Petersburg Committee for External Economic Relations.

Business & Politics

Russian business insight

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Restaurants McDonald’s is being followed into Russia by Johnny Rockets and Schlotzky’s Deli

American For Dinner? It’s Burgers, Not Borsch Russians’ taste for American food has brought robust profits to franchise chains and sparked a dining trend for “New American Cuisine” in Moscow. Rbc Daily

Franchises on the march Yum! Brands Inc., which owns the Pizza Hut and KFC brands, along with Taco Bell and Long John Silver’s, is pushing hard into Russia. “For the past two years, Russia has had the highest same-store sales growth out [of] our 20 business units around the world,” Yum! chief executive David Novak said in a letter accompanying the company’s 2012 annual report. Yum! aims to double its presence in the territory of the former Soviet Union to around 460 loca-

• Gas giant Gazprom is the most valuable brand in Russia, brand-consulting agency Interbrand says. Valued at 1.3 billion rubles ($40 billion), the brand is worth 50% of all Russia’s other brands combined. The next three names on the list are all mobilephone comapnies: MTS, Beeline (VimpelCom) and Megafon. • Chinese foreign direct investment (FDI) into Russia is at $4.9 billion, up 40-fold over the past eight years. China invested $250 million over the first seven months of this year. China is also Russia’s number-one trade partner, with $88 billion turnover last year.

Johnny Rockets is one of the latest American newcomers to the Russian restaurant market.

“Russia had the highest same-store sales growth of our 20 business units around the world,” wrote Yum!’s David Novak.

McDonald’s first opened its doors in Moscow in 1990.

tions by 2015, and increase annual revenue to $1 billion, Reuters reported earlier this year, citing the head of Yum! in Russia, Oleg Pisklov. Russia isn’t the only emerging market in which Yum! is seeking new customers. The company recently announced plans to spend $10 billion over seven years adding new locations in countries like Russia, China,Vietnam and Brazil. “In the United States, for instance, we have 58 restaurants for every million people,” Mr. Novak told Bloomberg News in an interview in October.“In emerging markets, it is two.” The Soviet Happy Meal McDonald’s Corp. – Yum! Brands’ chief competitor – was an early mover into Russia. The establishment of its flagship location at Mos-

cow’s Pushkin Square in 1990 was a symbol for many Russians of the transition from socialism to the free market. Back then, the concept of fast food in Russia was so novel that guests often stole the restaurant’s plastic food trays as souvenirs. When that first location opened its doors more than 20 years ago, the restaurant reportedly served 30,000 customers on its first day, many of them waiting in line for as long as six hours. Since then the company has sought to build on its lead, expanding to 356 restaurants in Russia in 2012, from 189 in 2007. Growth in Russia has been one of the main drivers for European revenue in 2011 and 2012, according to McDonald’s most recent annual report, along with strong sales in the U.K.

“New American Cuisine” Yet the interest in American food extends beyond franchises. Trends in“New American Cuisine,”including farm-to-table dining, are also hip in Moscow now. Last fall, the Ferma & Williamsburg food kiosks founded by Russian chefs Fedor Tadatyan and Maxim Livsi appeared in Moscow’s Gorky Park, serving burgers with rosemary aioli, onion jam and sausages. The kiosks also sell farm products, such as quince jam and roasted flax-seed paste. This week, the company opened a restaurant called Farmer’s Diner on Moscow’s Lesnaya Street — a type of gastro-pub with a rotating menu and burgers as staples. Neither Mr.Tadatyan nor Mr. Antonovsky have plans to expand into Russia’s regions, preferring to focus on the Moscow market.“Opportunities for development are huge here,” says Mr. Antonovsky. One of the main obstacles facing restaurateurs in the center of Moscow is high rent, however. Mr. Tadatyan, who has visited New York 25 times and plans to open a gastro-pub there, says the idea that American food is unhealthy is simply prejudice:“Brooklyn fashion is a global trend.”

• An arrest warrant has been issued for the former deputy head of Russia’s state real estate registry. Sergei Sapelnikov fled the country three weeks prior to being sacked from his post at Rosreestr. He is suspected of stealing 2.5 billion rubles ($75 million). • Greenpeace activists arrested on an offshore platform in the Barents Sea have been transferred to pre-trial detention in St. Petersburg.

slava petrakina

• Aeroflot has applied to list in the U.K. and U.S. The Russian flag carrier is looking to place its American depository receipts on the London Stock Exchange and the New York Stock Exchange. The sale represents a restart of the privatization program that has been on hold due to poor market conditions. In June, the government, which currently holds 51%, said it wants to reduce its stake in the national airline to a blocking interest of 25%.

reuters

Just a few years ago, the concept of American food in Russia meant one of two things: either McDonald’s, or the expensive, exclusive restaurants where the Western expatriate business community gathers to rub elbows. Today, it’s a brave new world for American dining in the heart of the former Soviet Union. Hotdog stands, steak houses, and other American-styled eateries abound in Russia’s capital city, while a number of U.S. fast-food franchises are targeting the country’s 144 million consumers for aggressive expansion. Last month, the famous NewYork burger chain Shake Shack and bakery franchise Wetzel’s Pretzels announced plans to enter Russia. When they do, they’ll join Papa John’s Pizza, Subway,T.G.I. Friday’s, Burger King and others who have already touched down and are starting to spread out. American food is sometimes seen as outré or gauche in Western Europe, but for some consumers in Russia, it has become downright trendy. Franchises are expanding here – but so is “New American Cuisine,”a malleable style that revolves around interpretations of traditional American dishes. “It’s more about the fashion for comfort food – food that you can take in the paper packaging for takeout,” says Danila Antonovsky, co-owner of a New York-inspired Moscow eatery called The Meatball Company, which at first glance looks as if it could have been airlifted from one of the hipper neighborhoods in Brooklyn. “This is a consequence of the interest in all that is New York.”

News in brief

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Yegor Antoshenko and david miller

• Oil company Total will sell its stake in Russia’s giant gas field Shtokman to Gazprom, it has been reported. The deal would see the French company follow Norway’s Statoil out of the project. • Russian President Putin has said he doesn’t rule out standing for the presidency again in the 2018 elections. • The International Monetary Fund cut its forecast for Russian growth to 1.5% for 2013 from 2.5%, and to 3.0% for 2014 from 3.25%. • Global media giant Viacom has re-taken control of MTV Russia after years of franchising the brand to local license holders, and will re-launch the channel on October 1. The channel was formerly run by oligarch Vladimir Potanin’s ProfMedia, which has set up its own rival and dropped the MTV contract. • Nomos Bank owner Alexander Nesis says his United Wagon Company may hold an IPO on the London Stock Exchange in three years’ time. Nesis heads the ICT group of companies. Investors into the Nomos IPO in April 2011 were outraged when he sold the bank a year later at less than the flotation valuation.

Energy The historic increase in U.S. oil and gas production is shaking up global energy markets

U.S. Oil Boom Creates Market Shockwaves The U.S. shale revolution is challenging traditional energy exporters like Russia to diversify and seek new markets in Asia.

David miller

Special To Russian Business Insight

The boom in U.S. oil and gas production is sending shockwaves through global energy markets, as large exporters like Russia reexamine their development strategies and seek to gauge the impact. The U.S. has rocketed past Russia and Saudi Arabia to become the world’s largest producer of oil in 2013, New York-based energy consultancy PIRA said in a report released in October. U.S. production, including natural gas liquids and biofuels, has risen by 3.2 million barrels a day since 2009, an all-but-unprecedented rate of expansion, PIRA said. The increase in U.S. energy liquids output through the shale revolution “has been nearly unparalleled in the history of world oil,” PIRA said. “Only Saudi Arabia in 1970-1974 raised its production faster.” The increase has led Russian policy makers to focus on their traditional customer base in Europe, abandon more ambitious and expensive projects like the Shtokman

offshore natural gas field, and shift their strategy for exporting liquefied natural gas (LNG). Russia once viewed the U.S. as a prime marketplace for sales of gas in its super-cooled, liquefied form, which is transportable overseas by tanker. Now, Russia is loosening export restrictions for LNG as it prepares to compete in international markets with U.S. gas exports. On Oct. 30, Russia’s government passed a law allowing companies other than national-gas monopoly Gazprom to export LNG, in a move aimed at spurring independent production and locking in customers before U.S. LNG exports come online. Russia is hoping to double its share of the global LNG business to 10% by 2020. “Let’s hope that this [new law] will create additional scope for the whole energy industry and allow us to secure a footing in fast-growing economies,” Prime Minister Dmitry Medvedev said, according to Reuters. Independent producers are jumping into the action. Russian oil giant Rosneft is planning to produce LNG with ExxonMobil in the country’s far-eastern Pacific coastal area. Novatek, Russia’s largest independent gas producer, is working with France’s

Total and China’s CNPC to develop LNG facilities in Russia’s farnorthern Yamal Peninsula. Producers in the U.S. began developing shale oil technology during a period of high oil prices, before the recent recession. Although growth rates are expected to slow, PIRA forecast the U.S. would increase its lead over Russia and Saudi Arabia until 2020 and maintain its lead past 2030. “The United States’ position as the largest oil supplier in the world looks to be secure for many years,” PIRA said. Gazprom officials have said they believe tanker-borne U.S. LNG ex-

ports to Europe won’t be competitive when compared to low-cost Russian pipeline deliveries. “In the U.S., the price of gas does not cover the average cost of its production,”Alexander Medvedev, Gazprom’s deputy CEO, told the Platts news agency in October. “If you bake bread at a certain price and sell it at half the price, what can you say about such a business model?” The U.S. Energy Information Administration said the U.S. and Russia have been roughly even in terms of total combined energy production in 2011 and 2012, but that the U.S. pulled ahead in 2013.

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Special Report

Helicopter Construction

The Russian aviation industry’s revenue surpassed the trillion ruble mark (around $30 billion) this year, up from around $10 billion in 2008. This is a stark turnaround from a post-Soviet slump, following a consolidation of most producers into the United Aircraft Corporation in 2006. Helicopter production (above) is likely to surpass Soviet levels next year, with the Mi-8 transportation helicopter accounting for around half of sales. It is used in over 50 countries and is one of the world’s most produced helicopters.

Civil Aircraft Construction

While the production and export of military planes (such as the Su-35 fighter, pictured right) has broken records recently, civil aircraft has been slower to recover. This is partly due to outdated Soviet technologies in civil aviation that meant the industry had to be built almost from scratch. This year, Russia is expected to produce a record 40 civil aircraft largely thanks to the success of the Sukhoi Superjet project (the first Russian passenger jet to enter the North American market). In total, Russia’s aviation industry employs over 350,000 people in production, design and management.

Passengers Carried by Russian Airlines

Aero Space russia named one of the Fastest Growing Markets world-wide for air-travel demand

russia takes to the skies Russia’s air-travel market is growing at an extraordinary rate, due to the nation’s consumers making room in their budget for air fares. David Miller

Special to Russian Business INsight

The domestic aviation market in Russia is expanding faster than the global average: consumers in Europe’s largest country by population are now flexing their spending power, despite a slowdown in overall economic growth. Russian domestic demand for air travel grew 12% year-on-year in September, compared to 5% globally during the same period, the International Air Transport Association (IATA) said in a report released in October. Russia’s commercial passenger market has quadrupled since 1998, to nearly 60 million passengers last year from 15 million, according to World Bank figures. Meanwhile, a recent market forecast prepared by major airplane manufacturer Airbus predicted that Russia will be the sixth-biggest market in the world for new passenger aircraft deliveries over the next 20 years.

ity increased at an annual average growth rate of 9.1%,” the report continued. By contrast, the IATA report showed U.S. domestic traffic rising 1.4% in September year-on-year, while European carriers’ international traffic had climbed 3.4%. Meanwhile, Chinese domestic traffic grew 10.6% compared to 2012. Russia once boasted the largest single airline in the world in Aeroflot, during its aviation heyday under the Soviet Union. That was before air-travel demand and aircraft manufacturing went into a steep decline during the economic turmoil that swept the country in the 1990s, following the end of Communism. But as energy prices recovered in the early years of the new millennium, Russia - with its massive exports of oil and gas - witnessed a resurgence in demand for consumer items, from automobiles to mobile phones and also including air travel. While Russian economic growth has slowed this year to a projected 1.8%, reflecting slackening global demand for Russian raw materials exports, domestic retail spend-

ing has been more resilient than the overall economy, rising 3% in September and 4% in August, official statistics say. The company that was once the official carrier of the Soviet Union, Aeroflot, survived the downturn and has held on to its position as Russia’s largest airline. The state reduced its ownership stake in Aeroflot to 51%, and in 2012 the company served 116 destinations and achieved $8 billion in revenue.

Sukhoi Comes to the Americas Continued from Page 1

Over 200 more have been ordered by carriers in Italy, Switzerland, Russia, the U.S. and other countries.

The recovery of the aviation industry has been buoyed by a quadrupling of passenger traffic on Russian carriers over the past 15 years. Annual growth has been approximately 15% during this period (considerably ahead of global averages), fueled by a sixteen-fold nominal increase in incomes during the same period and average annual GDP growth around 7%. The world’s leading plane manufacturers - Boeing, Airbus, Bombardier and Embraer - are benefiting vastly as Russian carriers modernize their fleets with the latest models.

“We are seeing a more positive environment for air-travel demand,” said Tony Tyler, IATA’s director general and CEO, in a statement that accompanied the agency’s report. The report revealed “better performance of key emerging markets,”including Russia, China and India, Mr. Tyler said. Airbus stated in its report that it expects air-transportation demand world-wide to be spurred by expanding emerging-market economies, as well as a rising global middle class. The company predicts that domestic Chinese air traffic will outstrip U.S. demand by the year 2031. The Airbus report also points out that flight capacity in the Commonwealth of Independent States, a regional organization of former members of the Soviet Union that includes Russia and Central Asian countries, has been growing steadily for more than a decade. “Higher economic growth in emerging markets will drive growth in air traffic,” Airbus says in the report. “Between 1998 and 2011, domestic and intra-CIS passenger capac-

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A comeback for Sukhoi The Superjet’s debut in North America is a comeback not only for Russia, but for the project itself: it experienced a grave setback in 2012 when a demonstration flight crashed in Indonesia, killing 45 people. Blame for the incident was later placed squarely on pilot error, rather than on any technical problem with the plane itself. An official report later concluded that the plane had crashed into a mountain after the pilot, who was not familiar with the area, ignored an automatic warning. Still, the high-profile disaster threw the aircraft’s future into question. Interjet’s subsequent decision to order five more Superjets, bringing its total order to 20 aircraft, just two months after the crash, was a much-needed vote of confidence in the project. Miguel’s Superjet Sukhoi’s dream of entering the North American market was real-

ized thanks to Miguel Aleman, the 46-year-old CEO of Interjet, Mexico’s second-biggest airline. Mr. Aleman was the first international entrepreneur to believe in Sukhoi’s foray into civilian aircraft. Mr. Aleman stunned the global aviation community by choosing the not-yet-built Superjet over well-established rivals Bombardier and Embraer in early 2011. “It’s the best plane we’ve had,” Aleman says.“The problems we’ve encountered are minor and not of a mechanical or technical nature. Compared to the Embraer, [the Superjet] is lighter and more technologically advanced. It’s 2.5 times cheaper to operate than its competitors and consumes 10% less fuel. It’s also easy to fix.” By choosing to commit to 20 Superjets on top of Interjet’s existing fleet of fewer than 40 Airbus 320s, Mr. Aleman tied the fate of Mexico’s second-largest carrier to the success of the Superjet. Founded in 2005, Interjet now serves 33 destinations, including Miami, New York and San Antonio. “Not many people know that the Russians built the world’s first supersonic plane, but then sold the rights to France and England after financial problems,” Mr. Aleman told Russian business daily RBC.

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Sukhoi has a global reputation for military aircraft, such as the Su-35.

“Then they built the world’s largest plane, the An-224. When my father learned in the 2000s that a Russian manufacturer was developing a new commercial aircraft, he became very interested.” The first Sukhoi Superjet was transferred to Interjet at Paris’ Le Bourget Air Show in June, after which the plane underwent the mandatory flight testing before it entered the commercial arena. While final assembly of the Superjet takes place in Russia, many of its parts come from all over the world. For example, Boeing has acted as Sukhoi’s chief consultant on the project, while Italy’s Alenia Aermacchi owns 25% of the joint venture.

Enough of the plane’s components come from Europe to ensure that its purchasers, including Interjet, qualify for loans from European Union export banks. American companies produce the electrical system, running gear, wheels and brakes. Alex Davies, a transportation writer for Business Insider, wrote after seeing the plane at Le Bourget:“A Mexican airline and a Russian plane-maker have made lowcost flying comfortable.” “At the end of next year, we’ll launch [Superjet] flights from the Yucatan peninsula to Miami, and to other international destinations in Central America,” Mr. Aleman announced.

The Russian Space Race Goes Private

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Russia’s first private satellite prepares for lift-off, boosted by a $20 million investment. David Miller

Russian business insight

When the Soviet Union launched Sputnik, the world’s first satellite, in 1957, it kicked off the Space Age and pushed the race for superpower status with the United States out into the cosmos.

Ever since then, exploring outer space has been pretty much a game that governments play. But even as Russia continues to funnel billions of dollars a year into Roscosmos, its own version of NASA, and develops plans for an unmanned visit to the moon in 2016, private Russian investors are finally getting in on the act. This winter, Dauria Aerospace will launch the first private Russian space satellite, known as DX-1, aboard a Soyuz-2 carrier rocket. The spacecraft will serve for navigation and identification of ships on oceans and rivers, and cost about $3 million. Korea’s Samsung Electronics will equip the control room that tracks the satellite. “With this project, we have proved that a private company is able to take the path from design to launch of a satellite,” Dauria Aerospace founder Mikhail Kokorich said in a statement.

“The vast experience of our team and advanced design allow us to be pioneers of private space.” The satellite will also test technology and software, with an eye on creating a“unified development platform for small spacecrafts” in order to allow the production of a new generation of satellites, according to the same statement. The move comes on the heels of a $20 million investment in Dauria by the international technology venture-capital firm I2BF Global Ventures in October. SpaceX, founded by PayPal entrepreneur Elon Musk, became the first private company in history to ship cargo to the International Space Station, in 2012. Virgin Galactic, part of Richard Branson’sVirgin Group, plans to market spaceflights to well-heeled tourists. Dauria’s approach is different, but its goals are also ambitious. Dauria’s business plan involves manu-

facturing relatively cheap satellites costing under $10 million, with a production time of less than a year. It plans to launch four satellites in the near future, two of which – Sagitta and Perseus – are to be launched next year, while Pyxis and Auriga are due to be launched between 2015 and 2017. The company forecasts that annual turnover will be in excess of $1 billion per year by that time. Thus the company will, according to Mr. Kokorich, recoup its setup costs “almost immediately.” Read more about Dauria Aerospace and see pictures of the company’s construction labs and satellites. rbth.ru/ 30969

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In Focus

International Aircraft Makers Set Their Sights on Russia

R Fly to Russia...Visa Free! The Russian Ministry of Culture has tabled a legislative initiative to allow visitors from 20 foreign countries including the U.S., China and several members of the European Union a visa-free stay of up to 3 days, provided they book a departure ticket with a Russian air carrier. The measure would apply to 11 international airports, including three in Moscow, one in St Petersburg, one in

Kaliningrad, one in Sochi and several in the Far East. In St Petersburg, a similar measure is already in force for arrivals by sea. The move is expected to boost tourism and trade links in Russia’s largest cities just as it did in St. Petersburg over the last several years and enhance the attractiveness of its hubs between the West and Asia.

Budget Travel Russia is changing laws to give budget carriers a piece of the booming market

Russia’s No. 1 Airline, Aeroflot, Launches Discount Carrier Aeroflot, Russia’s largest air carrier and the former national airline of the Soviet Union, is seeking to tap the country’s growing market for budget air travel. Ivan Bartov

Special to Russian Business Insight

Helping Aeroflot Help Itself Creating a discount air-travel market in Russia may ironically help air carriers promote premium service, says Oleg Panteleev, analytical department head of the Aviaport research agency. “Once the difference between a cheap ticket and a more expensive

Ulyanovsk is a key aviation center where the world’s largest cargo plane is manufactured. The deal with Bombardier will create jobs, said Governor Sergei Morozov. If a definitive agreement is reached, a firm-order contract for 100 Q400 NextGen aircraft would be valued at around $3.39 billion, according to a statement by Bombardier. Rostec has yet to decide which manufacturer’s aircraft – Bombardier, or its European rival ATR – will be assembled there, the region’s strategic development and innovation minister Alexander Smekalin said, adding that he hoped the first aircraft would be built within the next two or three years. In June, the American defense contractor AAR Corp. announced that it had signed a letter of intent for a tentative two-phase commercial aviation project that would, if successful, include an aircraft parts distribution and logistics center and a commercial aircraft maintenance facility, to be based in the southern Volga city. Another manufacturer, Russia’s Vityaz Avia, also plans to build aircraft in Ulyanovsk’s special economic zone, starting next year. Vityaz, in partnership with Canada’s Viking Air, wants to build up to 24 DHC Twin Otter 400 19-seat turboprops for use by local Russian air transport operators, Vedomosti has reported. RIA Novosti

Viewpoint

Snowden’s Good Fortune: Russia’s Improved Airports

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Sheremetyevo Airport is designed to handle up to 64 million passengers by 2030.

Aeroflot received a World Airline Award from Skytrax after being voted Best Airline in East Europe by customers.

Moscow’s Aviation Hub: Onward to Asia To meet the needs of its passengers, Aeroflot has established its own hub in Moscow - Terminal D at Sheremetyevo Airport, which came into service in 2009 as Russia’s first fully-fledged international air hub for SkyTeam passengers. The airport now offers convenient connections to other cities throughout the globe at competitive prices. Aeroflot claims transferring through Sheremetyevo saves traveling U.S. passengers up to two hours on certain destinations in Asia. The new terminal has 143 checkin counters, in addition to 30 that are specifically designated for transit passengers. It also offers six enhancedcomfort lounges, five children’s rooms, 25 shops and 18 restaurants working around the clock. The new terminal utilizes the latest Radio Frequency Identification system for baggage, which reduces the

one becomes evident, the value of high prices charged by premium airlines such as Aeroflot will increase,” Mr. Panteleev said. “They will be able to sell more expensive tickets, as customers will understand what they’re paying for. Plus, putting pressure on rivals by forcing them into exhausting price wars won’t hurt Aeroflot, either,” added Mr. Panteleev. From Soviet Legacy to Modern Airline Aeroflot’s move to establish a budget carrier in a nation where small regional airlines suffer a dubious safety reputation comes after a painstaking, laborious and seemingly successful overhaul of its own image. In a recent poll, Aeroflot was voted the best airline in Eastern Europe by customers, for which it received a World Airline Award from Skytrax at the 2013 Paris Air Show. It had previously been known for its aging air fleet and gruff service. The company switched to modern Boeing and Airbus jets from Soviet-made Tupolevs and Ilyushins, and today boasts one of the youngest fleets in the sky. One of the reasons previous budget carriers failed was that they were operating old aircraft and spent a lot of time servicing them. Dobrolet will initially fly eight new Boeing 737 Next Generation aircraft. Aeroflot introduced new uniforms and modernized the exterior design of its planes during a rebranding in 2006. That same year, the company joined the SkyTeam alliance. “Aeroflot introduced training

average time for handling by 50%. For business travelers, Aeroflot and SkyTeam have assigned three exclusive lounges in both the international and domestic departure zones, equipped with showers, work spaces, bars and other conveniences. On long-haul flights, Aeroflot operates brand new Airbus 330s and Boeing 777s with fully flat seats and fine wines in Business class. It recently unveiled a new class, called Comfort, which at a fraction of Business-class prices offers larger seats, a footrest and a Business-class food menu, and allows one extra piece of luggage. Sheremetyevo’s traffic has surged to over 26 million this year, from several million in the late 1990s, as the airport has become a global hub. Its masterplan foresees traffic of some 64 million passengers by 2030, with more expansions planned.

itar-tass

Aeroflot, Russia’s largest airline, plans to spend $100 million within the next two years on a new budget carrier that will offer regional flights for as little as 40% of the current market prices. When operations begin next year, the new airline, named Dobrolet, will serve several big cities in Western Russia, and may expand service to Kiev and Istanbul by 2016. The plan is the latest twist in Aeroflot’s long path from its birth as the national air carrier of the Soviet Union to its reinvention as an assertive market player - albeit one that is still majority owned by the Russian state.The name“Dobrolet”roughly translates from Russian as “good flight,” and is a reference to Aeroflot’s original name from when it was founded in 1923. The move comes as European low-cost competitors EasyJet and Wizzair set their sights on Russia. Both airlines added flights to Moscow for the first time this year. Aeroflot is hoping its current dominance of the Russian market will help it avoid the fate of the country’s two other attempts at budget airlines – Sky Express and Avianova, both of which went bankrupt. In a nod toward learning from previous mistakes, Aeroflot hired Avianova’s former CEO, Vladimir Gorbunov. In announcing the new airline, Aeroflot CEOVitaly Saveliev called on the government to press forward with legislative changes that will make running a budget carrier viable in Russia, including allowing airlines to sell nonrefundable tickets, charge baggage fees and hire pilots from other countries. “A Russian low-cost carrier won’t fly unless we harmonize our laws with global industry standards,” Mr. Saveliev says. Those legal obstacles have been cited by experts as key reasons budget airlines previously failed to take off in Russia’s booming aviation market, which has grown from 15 million passengers in 1998 to over 70 million last year, according to the Russian Civil Aviation authorities. Dobrolet will save on reclining seats and offer no business tickets, although passengers will have the option to upgrade to more comfortable seats and buy a basic lunch onboard.

ussian state-owned high-tech corporation Rostec will invest $100 million in an aircraft building factory in the Ulyanovsk Region, the local administration has said. Construction is set to begin next year, and the factory will be located in a special economic zone, the regional government revealed in a statement earlier this month. About half of the $100 million will be spent on infrastructure development, while the other half will be used for equipment and personnel training, the statement went on. A tender for the project is expected to be announced soon. Ulyanovsk Governor Sergei Morozov said that the project will make the region more attractive to investors and create new jobs. Rostec and Canadian aerospace company Bombardier announced in August that they had signed a letter of intent for the sale of 50 Q400 NextGen turboprop airliners, for use by Russian regional airlines. The two companies also signed a memorandum of understanding for establishing a final assembly line for the Q400 NextGen in the Ulyanovsk region, with an annual capacity of 24 aircraft.

The old Sheremetyevo terminal was built for the 1980 Moscow Olympics.

that included compelling candidates to memorize dialogues of pleasantries and reinforcing rules on smiling. Its success in improving service is being taken to heart by other companies in Russia’s consumer industries,” the New York

Times wrote this month in an article on customer service in Russia. The airline further boosted its image by recently becoming the official carrier of Britain’s Manchester United soccer team.

Artem Zagorodnov David Miller

Russian Business Insight

iding out in Moscow’s Sheremetyevo airport for weeks on end while dodging the press and pondering his fate was surely no picnic for American secret document-leaker Edward Snowden. But it could have been worse: at least he wasn’t hiding in the old Sheremetyevo. Russia has undergone a large-scale upgrade of its aging network of airports in recent years, a move which has transformed the country’s main entry points and regional hubs. In the wake of the economic downturn following the end of communism, Russian airports grew so threadbare that The Economist deemed them worthy of a scathing 2006 feature-length article entitled, “Kama Sutra and Feral Cats.” Take Snowden’s hideout, Sheremetyevo. “Sheremetyevo,” the magazine told its readers back then, “is war.” On a bad day, “the queue at passport control stretches almost to the runway,” it continued. As a result, “Landing at Moscow’s Sheremetyevo airport, first-time visitors may be unnerved to see their more experienced co-passengers limbering up, as if for a football match or gladiatorial combat. When the plane stops taxiing, or before, the Sheremetyevo regular begins to run.” However, the airport has gone through an extensive and costly upgrade over the past five years, which involved remodelling its interior, building three new marble-covered terminals and extending an express rail link to downtown Moscow. As a result, the airport’s traffic has surged, rising 16% in 2012 to 26 million passengers. The Mineralnye Vody airport in Russia’s Caucasus Mountains – which The Economist described as a “lower circle of hell” – has also been renovated. It now features the region’s largest congress hall in a modern glass building (still under construction) across the highway. In 2012 it surpassed the million passenger mark for the first time. A new airport in the Black Sea town of Sochi, which will host the next Winter Olympics, boasts a climatically appropriate outdoor grass courtyard, with a stylishly appointed coffee bar so that passengers can await their flights in comfort. The Russian government invested over $200 million into a new airport for Vladivostok, ahead of the 2012 APEC summit, and it is now among the most comfortable in all Russia. Passenger traffic has doubled since the upgrade. Meanwhile, St. Petersburg’s Pulkovo airport is currently testing its new $1 billion terminal, in preparation for a grand opening on Dec. 4.

Money & Markets

Pavel Vasiliadi

Special to Russian Business Insight

ussia has long been an active player on the international debt market – and in fact has strengthened its position since the crisis of 2008. Rising demand from a widening range of international investors, outstripping supply many times over, has spurred a growing volume of placements by Russian companies. Many issuers have proven themselves reliable borrowers, allowing them to make placements without special road shows. So why are Russian Eurobonds attractive for foreign investors? Their main advantage is high profitability, relative to debt instruments from other developing and developed countries. Compare Russian sovereign bonds in U.S. dollars (rated BBB, Baa1 and BBB by Fitch, Moody’s and S&P respectively) with 10 year U.S. Treasury bonds, and you’ll find they offer yields of about 4.3% and 2.5% respectively. This makes the returns from Russian debt almost 1.7 times higher than from U.S. bonds. Against the background of the individual BRICS countries – the large emerging economies of Brazil, Russia, India, China and South Africa – Russia also looks advantageous, although the degree of profitability is more comparable. The 10-year dollar-denominated bonds of Brazil (rated BBB, Baa2 and BBB) offer a yield of 3.95%, similar to the bonds of Mexico (rated BBB, Baa1 or BBB+), which are traded at a yield of 3.78%. In terms of yields, Russian bonds still trade at a premium to similar bonds of the BRICS countries that, in my opinion, is not warranted. Therefore there is, in my view, potential for growth, both in sovereign Eurobonds and in corporate ones. Take a look at the national debt. The ratio of Russia’s government debt to its GDP is about 11%. For comparison, Mexico, Brazil and South Africa have figures of between 35% and 38%. Developed countries, such as the U.S., Germany and France, have debt-to-GDP ratios of 107%, 57% and 84% respectively. This allows Russia to be more agile, and leaves a margin of safety in the event of a crisis in the global economy. It also has the world’s fourth-largest gold reserves, amounting to $520 billion. During the crisis of 2008, this helped Russia to cope with its financial and social obligations. The main risk, however – which is not related specifically to Russia – is an increase in dollar interest rates. The United States is, of course, the main news-maker here. Federal Reserve policy and other U.S. issues may result in sharp fluctuations, not only in the U.S. debt market, but, as a consequence, in the dynamics of the Russian Eurobond market. Pavel Vasiliadi is director of the analytics and riskmanagement department at the UFS Investment Company.

State Matters

Growth and Profits: When the State Is in The Driver’s Seat Chris Weafer

Special to Russian Business Insight

ussia no longer has the command economy of the Soviet era, but it has not yet evolved into the open and entrepreneurial style typical of a developed nation. State policy still creates an important backdrop to economic activity. In almost every country, some industries are highly regulated because they are deemed critical to the well-being of the economy. Thus, in Russia, the state is the key determinant of how some strategic sectors will grow. This year, one of the state’s key priorities is to cut annual inflation to below 5%. To help achieve that, the government is holding back both electricity and gas tariff increases. This directly impacts profitability, investment return and plans for capital expenditures. This tight control is unlikely to change for the foreseeable future. In emerging economies, there is no doubt a closer relationship between the government and the independent agencies, such as the Central Bank. The government gives tighter guidelines and more obvious guidance than is usual in developed economies. This is normal because developing economies need more policy intervention. In Russia today, we see that the main priority of the government is to maintain both fiscal and monetary stability against a perceived backdrop of external uncertainty. That means the currency is being closely managed and interest rates remain high as inflation is slowly pushed down. As a result businesses will have a relatively stable but low-growth environment and a high cost of borrowing. Next year, assuming the perception of global risk is less, the government is expected to relax its tight monetary stance and push for lower interest rates. Budget spending is set to rise 4% in 2014 and 10% in 2015 and here, also, we may see more incentives to boost investment and entrepreneurial activity. But it will be the government’s choice as to when that change takes place, when it feels comfortable allowing greater fiscal, monetary and budget risk. Not before. Chris Weafer is a founder and senior partner at Macro Advisory, a consultancy for foreign investors in Russia.

Russian Firms Pull In Billions from Offerings continued from PAGE 1

Russian stocks have rebounded in recent months, alongside a rally in global equities, as the U.S. Federal Reserve held off tapering its bond-buying economic stimulus plan. Russia’s MICEX stock index is up about 20% from its lowest point this year in June, and up about 10% since the beginning of the year. The Alrosa offering is the biggest sale of Russian equity since state-controlled Sberbank, the largest bank in Eastern Europe, sold a 7% stake in 2012. From Beer to Credit Cards Tinkoff Credit Systems, known as TCS, priced its IPO at $17.50 per global depositary receipt in London in October, valuing the firm at $3.2 billion. The company was founded by Russian entrepreneur Oleg Tinkov in 2007. That year, the bank issued its first credit card and sold a stake to Goldman Sachs. Goldman Sachs was among the sellers in the TCS London IPO, reducing its stake to 4.5% from 12% and raking in $226 million. Today, TCS is a top-three credit card issuer in Russia, with a 7.7% market share and over 3.5 million credit cards issued, according to the company. Tinkov, the son of a Siberian miner, has run an eclectic range of businesses, including self-branded breweries, bottled beer, frozen foods, restaurants and an electronics retail chain. TCS is cashing in as Russian consumers’ spending power grows and incomes rise in Europe’s largest country by population. In recent years the country has emerged as Europe’s largest retail market for products ranging from automobiles to children’s toys to mobile phones.

Oleg Tinkov celebrates the success of his bank’s London IPO.

Unsecured lending to Russian households expanded by as much as 50% last year. Selling Shares: Moscow vs. London Observers say that Alrosa may one

Oleg Tinkov, The Legend The son of a Siberian miner with a degree from the St. Petersburg Mining Institute, Oleg Tinkov has come to be known as one of Russia’s most eccentric and creative billionaires. He opened a microbrewery bearing his own name in the 1990s – a time when Russian beer was renowned for being of poor quality – which became enormously successful. After introducing international standards and an aggressive marketing campaign, Mr. Tinkov sold his company to Belgian InBev for €167 million in 2007. One of the company’s advertisments had featured a racy sex scene

and was pulled off the airwaves. Mr. Tinkov reinvested the money into Russia’s first internet bank, Tinkoff Credit Systems, which IPOed on the London Stock Exchange this week. The billionaire has recently tinkered with the idea of launching his own airline, with the ambition of turning Russia’s booming aviation market “upside down.” When he was asked by VentureVillage.eu to reveal what most inspires him, Mr. Tinkov responded: “Family. I am proud of being Russian and Siberian. And I was always inspired by Henry Ford.”

day follow TCS to a listing abroad, in London or New York. “Alrosa has now established a beachhead on the local exchange,” Mr. Weafer says. “I would expect to see further sales of the state’s

equity in the company as it establishes a public track record; and as investor appetite for both Russia risk and unique assets, such as diamonds, grows in the future.” Russia accounts for roughly a quarter of foreign IPOs on the London Stock Exchange. In recent months, the government has scaled back plans to privatize legacy state-run firms from the Soviet era. Tens of billions of dollars in Russian state-owned assets have been earmarked for sale, but the program has been on hold for much of this year as Russian equities have fluctuated. The Finance Ministry had originally planned to raise $13.5 billion from equity sales in 2013, but then trimmed its forecast to just $1.5 billion. “Every sale of state equity chips away at the problem,” says Mr. Weafer. The Alrosa sale “is a relatively small step in terms of the $100 billion list of assets which needs to be sold,” he continues. “But at least every successful placing helps counter the concerns that there is no appetite for Russian state assets and boosts the arguments made by the reformers within government.” Alrosa remains controlled by the federal and regional authorities. The national government holds 43.9%, while the region of Yakutia maintains a 25% stake. Various Yakutia municipalities hold an additional 8%. The Russian national government and the regional government of Yakutia each sold 7% of Alrosa, while Wargan Holdings, which is an Alrosa subsidiary, put another 2% on the block. Information from Business New Europe magazine was used in this report.

Global Diamond Production

Natalia Mikhaylenko

Russian Bonds: Short on Risk, Long On Reward

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Inflation Elvira Nabiullina has disproved critics who didn’t believe in her political independence

Russian Central Bank Takes Aim at Inflation As global policy makers pursue stimulus policies to spur growth, Russia’s new central bank chief doubles down on the fight against inflation. Yulia Ponomareva

Russian business insight

Russia’s central bank is holding interest rates steady and targeting inflation despite a slowdown in economic growth, bucking a global trend as central bankers in the U.S., Europe and elsewhere pursue economic stimulus. Russia left its benchmark oneweek repo rate unchanged at 5.5% for the 14th straight month in October. Meanwhile, inflation ticked upwards to 6.3% in October from 6.1% the month before, reversing its previous downward trend. Russian economic growth is set to decline to 1.8% in 2013 from 3.4% in 2012, according to a forecast by the World Bank, prompting some observers to call for the central bank to shift toward a more pro-growth platform. Opinion polls show that rising prices remain a top concern for Russians. A survey released by the central bank in October showed that 77% of Russians expect prices to rise faster than their incomes next year. The Russian central bank chief, Elvira Nabiullina, who took over from Sergei Ignatiev in June 2013, has led the charge against rising

olesya kurpyaeva / rg

Elvira Nabiullina has headed Russia’s central bank since June.

prices, shifting the bank’s strategy toward inflation-targeting rate adjustments, away from Mr. Ignatiev’s focus on the ruble. “Ignatiev’s principal tool was currency, either increasing or decreasing the supply of Russian or overseas currencies in the country’s economy,”says Daniil Markelov of the analytical agency Investcafe. “The new head of the central bank has put the main emphasis on working with refinance rates.” “The central bank has the potential, by setting interest rates, to reach a point where inflation is decreasing,”Ms. Nabiullina said in a recent interview on state-owned television channel Rossiya-24.

“We are expecting inflation to be at 6% at the end of this year. Reducing this still further by one percentage point over the course of the next year is very realistic.” The U.S. Federal Reserve has pushed stimulatory measures aimed at accelerating economic growth ever since a financial crisis started a global downturn six years ago. While some observers have warned that the Fed’s moves may eventually lead to inflation, the U.S. consumer price index rose only 1.2% in the 12 months through September, giving U.S. policy makers freedom to maneuver.

On Oct. 30, the Fed said it would continue purchasing $85 billion a month in bonds, to encourage borrowing and spending in the economy, and left its key short-term interest rate near zero. Many independent analysts predict the Fed will continue buying bonds into 2014. The European Central Bank cut its main interest rate to 0.25% from 0.5% in a surprise move earlier this month, as inflation in the euro zone declined to 0.7% in September, below the ECB’s 2% target. While many central bankers around the world are emphasizing growth, Russia’s counterparts in emerging economies India and Brazil have raised interest rates in recent months. On Oct. 29, India raised its benchmark repo rate for the second month in a row to 7.75%. In early October, Brazil raised its key interest rate for a fifth straight time to 9.5%. “Both the government and the central bank understand that we need a new kind of economic growth,”Ms. Nabiullina said in her latest interview for the television channel Rossiya-24. “Growth should be based on raising economic efficiency, labor productivity and economic diversity. This is the principal objective of the central bank’s monetary policy,” she added. The U.S. Federal Reserve said in October that it will likely hold its target interest rate near zero so long as unemployment remains above 6.5%, as long as the forecast for inflation remains does not exceed 2.5%. Read the full story at www.rbth.ru/30959

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the past as prologue Dmitry Babich Analyst

Natalia Mikhaylenko

here are many interesting similarities between Edward Snowden and the famous Russian dissident writer Alexander Solzhenitsyn (19182008). The most recent example is the interview Snowden gave to the New York Times, explaining his actions and denying rumors that he had passed U.S. secrets to Russian and Chinese spies. This interview came too late, having taken place several months after the Snowden hysteria peaked. In the same way, Solzhenitsyn’s return to Russia in 1994, 20 years after his exile from the Soviet Union, was viewed by many as a belated one: it should have taken place in 1989-1991, as the Soviet state was collapsing. In the interview, Snowden explained that he did not consider his action anti-American, and that he did not carry any sensitive documents after releasing the information on the National Security Agency’s surveillance programs to journalists in Hong Kong. He also defended himself against the accusations of working for Chinese or Russian intelligence, stating that he had carefully protected sensitive data from the Chinese intelligence officers because he had studied Chinese intelligence intensively and was well aware of its capabilities. Snowden added in the interview that the NSA knew he had not revealed any secrets to the Chinese. For Snowden’s reputation, these explanations also came too late – which brings up another comparison to Solzhenitsyn. For several months during the spring and summer, U.S. officials mounted an aggressive campaign against Snowden, calling him a traitor and hinting at possible material interests he might be pursuing by making his revelations in Hong Kong and Russia. Solzhenitsyn was also very careless in terms of personal PR: instead of protecting himself against the accusations of treason mounted against him by the Soviet authorities, he always talked about the global problems of Russia and the world in general, never revealing details of his personal life or otherwise catering to the public’s curiosity. The disparity between Solzhenitsyn and Snowden is in form, not in substance. In the 1950s and 1960s, when Solzhenitsyn wrote his best books, people still read epistolary novels, with letters written by an author of fiction.

In Snowden’s time, people prefer the real thing – genuine email messages leaked into the Internet. But the authorities in both cases reacted the same way. Both the Soviet authorities in Solzhenitsyn’s 1970s and the American authorities in 2013 did not deny that the revelations were true. The authorities just said that the two authors were presenting atypical phenomena. Leonid Brezhnev could not deny the existence of the Gulag labor camps, but he said that they were “deviations from the way of Socialist law” and “individual mistakes.”In the same way, the NSA’s defenders in the U.S. said that the PRISM surveillance program was targeting terrorists. They

added that it was unfortunate if some ordinary citizens were sometimes eavesdropped on, but this was not the standard practice - even if the “individual mistakes”could be counted in millions, just like in Solzhenitsyn’s revelation about the whole “archipelago” of labor camps. Both Solzhenitsyn and Snowden were criticized by some of their compatriots for revealing their findings to foreigners and not to their own domestic officials. And the people who helped Solzhenitsyn transfer the manuscripts of his novels abroad had problems with the KGB, just as U.S. and British authorities have put pressure on the journalists who helped Snowden reveal his secrets.

And finally, of course, both men found some support and understanding abroad. Yet Solzhenitsyn was exiled to West Germany by Brezhnev, who feared the negative publicity that might result from a trial. Snowden was already on the run in China when he began publicizing his revelations, as the U.S. authorities fought to bring him home for a trial. In the case of Snowden, the saying indeed holds true: history is repeating itself not as tragedy, but as a particularly Orwellian type of farce. Dmitry Babich is a columnist for Voice of Russia radio and has commented Russia affairs for the BBC, RT and Russia Profile.

the new burger diplomacy Dominic Basulto Journalist

uring the Cold War, the opening of the first McDonald’s in central Moscow in 1990 - just months before the collapse of the Soviet Union - became a metaphor for America’s cultural triumph over tired Soviet dogmatism. Over the next 20 years, McDonald’s would open dozens of locations across Russia, becoming the new face of American capitalism to millions of Russians, who were coming into contact with the West for the first time. If former Soviet President Nikita Khrushchev and his U.S. counterpart, the then vice President Nixon, had their version of “kitchen diplomacy” in the late 1950s, then Presidents Reagan and Gorbachev had what can only be referred to as “burger diplomacy.” That was then, this is now. The “burger diplomacy” of the new generation will most likely involve something like Shake Shack – the phenomenally popular upscale burger joint founded by Danny Meyer in New York City that has become something of

that the average member of the Russian elite and the average member of the Western elite now perhaps have more in common with each other than they do with their fellow citizens. A member of the global elite in New York likely understands the concerns of a fellow member of the global elite in Moscow better than the concerns of a farmer in Iowa. They are ed-

a cultural phenomenon. What started with one location in Madison Square Park in New York has now expanded both nationally and internationally. There are Shake Shack locations in Washington - including one close to the Russian Embassy - and another opening soon in Moscow, on the city’s flashy Novy Arbat. While talking about“burger diplomacy”may seem out of place among the high-level diplomatic meetings that take place in Moscow,Washington and Geneva, “burger diplomacy” actually holds a greater lesson: the new young elites emerging in New York, Moscow and Washington have more in common than we might imagine. They increasingly have the same educational backgrounds, the same travel experiences and the same leisure preferences. In January 2011, Chrystia Freeland of The Atlantic wrote about“the rise of the new global elite”,a group of high-powered jetsetters that travel effortlessly between the world’s major capitals, vacationing in Abu Dhabi, buying espresso in Rome and dining out in New York. As wealth differentials continue to grow in societies around the world, a key takeaway is

Russian and Western elites have more in common with each other than with their fellow citizens. ucated at the same schools, work for the same global companies, holiday in the same locations and, yes, eat the same burgers. The opening of Shake Shack in Moscow is the latest step in the flattening of the world for the people at the top of the economic pyramid. We could just as easily be talking about Starbucks and Apple instead of Shake Shack – just

Ben Aris

Journalist

hile the rest of the world is fixated on trying to spur growth, the Kremlin is concentrating on the deeper problem of persistently high inflation. It is a brave bet that assumes Russia will be lifted out of its economic slowdown by organic growth next year. The first question that springs to mind is: will it work? The short answer is that, despite the recent disappointing data, Russia has some really big fundamental advantages – and not just its massive $500 billion-plus cash pile (although that helps a lot, of course). Low unemployment, low debt levels and rising incomes all combine to put Russia in a totally different place from the rest of the world. On balance, there is a good chance that the bet will pay off – and if it does, then Russia will be much better placed to put in many years of strong growth. But first the bad news. After almost a decade

of 6%-8% gross domestic product growth, much has been made of the economy now effectively stagnating. Nominal GDP growth over the first six months of this year was a meagre 1.5%. One reason is that the Central Bank of Russia has kept interest rates high, making borrowing unaffordable for many companies, while the rest of the world has cut rates to near zero in order to spur growth. Another reason is that the government has, perversely, chosen now to implement its version of austerity, imposing the first real budget cuts in a decade and reducing its oil price assumptions used in the budget. Russian government spending has been rising by between 20% and 40% a year for most of the past decade, but this year spending was slashed 5% in real terms. Despite the economic slowdown, the CBR is probably right to focus on bringing down inflation over boosting growth. One of the reasons Europe has to do something about its lack of growth is so that it can grow its way out of its current debt hole: between 80% of GDP and 130% for most coun-

This Supplement is produced and published by Rossiyskaya Gazeta (Russia) and did not involve the news or editorial departments of The wall street journal web address http://rbth.ru E-mail us@rbth.ru Tel. +7 (495) 775 3114 fax +7 (495) 988 9213 ADDRESS 24 Pravdy STR., bldg. 4, floor 7, Moscow, Russia, 125 993. Evgeny Abov publisher artem Zagorodnov Editor olga Guitchounts representative (U.S.) ANDREY SHIMARSKiY Art director andrei Zaitsev head of photo Dept Milla Domogatskaya head of pre-print dept Ilya ovcharenko layout an e-Paper version of this supplement is available at www.rbth.ru. To advertise in this supplement contact Julia Golikova, Advertising & PR director, at golikova@rg.ru

iorsh

Russia’s Brave Bet on Organic Growth

tries on the Continent. Even the U.S.’s debt burden is now over the unsustainable 100% of GDP. By comparison, Russia’s sovereign debt/GDP external debt is only about 14%. A second reason is that unemployment across Europe is extremely high, with youth unemployment in countries like Spain at over 50%

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as we could have been talking about Pepsi and Levi’s instead of McDonald’s a generation ago. The transition from Big Mac to Shake Shack has important implications for the way we think not only about relations between the U.S. and Russia, but also geopolitics in general. A whole new generation of “hardworking, highly educated, jet-setting meritocrats who feel they are the deserving winners of a tough, worldwide economic competition” are changing the way we think about the world. If the former paradigm for understanding the world was developed versus underdeveloped country, or West versus East, or democracy versus authoritarianism or capitalism versus communism, something very new is emerging in capitals around the world, linking New York and Washington with London and Paris, but also Moscow, Mumbai, Rio and Shanghai. How that plays out in foreign affairs – and specifically, in U.S.-Russian relations – is yet to be seen. Dominic Basulto is the U.S. Editor of Russia Direct. He created the first ever iPad travel guide to Sochi and taught at Moscow’s first MBA program.

– a potentially explosive situation. In Russia, unemployment is at 20-year record lows. Thirdly, the standard of living in the West is falling, with per-capita incomes in the U.S., for example, falling $1,000 a year for the past five years. In Russia average incomes continue to rise, although growth rate has slowed this year. Thus, the average Russian hasn’t really been affected by the crisis or subsequent slowdown. Anyone who wants a job has one. Pay continues to rise. Another crisis seems remote. However, having lived through almost a decade of hyperinflation, Russians have a deeply ingrained fear of inflation, which also eats into their savings; savings they rely on for old age in lieu of a properly functioning pension system. High inflation is Russians’ biggest concern, with 68% of respondents putting it as worry number one in a poll by the Levada centre research organization earlier this year. The government has a lot more time and space to deal with its economic problems than the rest of the world. It has chosen to deal with the deep structural problem of inflation first, banking on a global recovery as the stimulus to spur growth, rather than trying to engineer it with rate cuts and stimulus programs. Ben Aris is the Editor-in-Chief of Business New Europe, a Moscow-based magazine focusing on business in Eastern Europe.

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Dagomys T e a Houses Strong and aromat

Travel Russia’s Olympic capital is more than sand and snow

ic Krasnodar made from tea is grasses that grow in the tains of Soch mouni. Vladimir Pu to entertain tin serves th foreign dign is drink itaries in th tea houses. e Dagomys These are lo ca the villages ted in the hi Loo and Dag lls between omys, 10 m Mr. Putin ha iles from So s served the chi. he famous past ady ambros ia to many presidents, ministers an From the st d chancello art of their rs. construction 1970s, the D in the midagomys tea houses wer to hold rece e planned ptions of fo reign delega a place whe tions in re everything had a distin Russian flavo ct r—the tea, th e blini, the pirozhki and the samovar .

Putin’s Guide to Sochi — Or, The One He Might Write Vladimir Putin, president of Russia, is no shrinking violet. He skies. He glides through the air with Siberian Cranes on national television. He once dragged ancient amphorae from the bottom of the Black Sea. Clearly, this is a man who knows how to have an epic vacation. So if, in his spare time,Vladimir Putin heads to a summer residence in Sochi, then anyone con-

sidering a visit to the Black Sea resort town for the Winter Olympics will want to check out the president’s favorite spots. Surely Putin, a leader famous for his exotic pastimes, must know the best things the city has to offer. For example, a few years ago the Russian president launched a revival program for leopards in the Western Caucasus mountains, during which he personally released a young female leopard into a more spacious enclosure. The cat and her offspring are known as“Putin’s leopards,”and the leopard has become one of the symbols of the Winter Olympics. The Presidential leopards can today be seen in Sochi’s nature reserve.

Krasnaya Polyana

Krasnaya Polyana is especially dear to the Presiden t. The village is located in a beau tiful place, in the upper reaches of the Mzimta River. Everyone know s Mr. Putin is an avid skier: he personally inspects the track here each snowy winter.

Bocharov Stream

Sochi Station

The President often holds meetings on his train while travelling to Sochi. So the next stop on the presidential tour is the stunning Sochi station, which in 1975 was voted the most beautiful train station in Europe. The three-story building has three courtyards and a 180-foot tower, upon which a 16-foot-wide clock is mounted. Each digit on the clock face corresponds to a sign of the zodiac, or a constellation. Rumor has it that the architect who designed the station was connected with a secret society that studied the occult, although you don’t have to believe that rumor to appreciate the station’s beautiful arches and palm trees.

mer residence, The President’s sum located in the cenis ” m, ea Str “Bocharov i. If, tric dis t of New Soch ter of the city, in the oVin to off , you wander while taking a stroll Presithe ere wh als loc the gradnaya Street, ask ident nce is—any Sochi res dent’s summer reside l get wil u yo ly like un is y. It will show you the wa the in ilt bu s e residence wa inside, of course. Th Soviet the of es ari nit dig en 1930s, at a time wh here. hchev—vacationed Union—Stalin, Khrus re he e tim nd spe Boris Yeltsin liked to . In 2006, Putin on the tennis court sident .S. brought then-U Pre re. George W. Bush he

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Winter Theater and Festival Hall

Olympic University

The Kinotavr international open film festival is held in the Winter Thea ter every year, and Mr. Putin goes to the Festival Concert Hall to see his favo rite Russian band, “Lubeh,” perform live in concert. He also likes to watch the live student stand-up comedy competition, known as “KVN,” here.

/soch rbth.ru

UniverThe International Olympic r the seanea hi Soc of ter cen sity, in the sident. Mr. Pre the to port, is also important nt of the Inside -pre then the with r Putin, togethe s Rogge, que Jac tee, ternational Olympic Commit ersity building univ the of e bas the at laid a capsule the head of the Russian in 2010. In September 2013, mining its auditoria. On exa ally son per , state was here attended by teachting the opening day of the mee es, President Puntri cou 14 from ents ers and stud was the main ty ersi tin stressed that the univ arian heritage. anit hum es’ Gam the object of experience, c mpi Oly Here, based on the eduetic athl of ion erat gen a new . ned trai cators will be

Bilaterial Ties Russia’s Transaero is making inroads into the United States through partnerships with Virgin America and JetBlue

Russia’s No. 2 Airline Expands U.S. Offerings Transaero, Russia’s second-biggest airline, is expanding into the U.S. amid growing trade and a relaxed visa regime between the two countries.

2013, 20% more U.S. visas were issued in Russia than in the same period of 2012. Under rules proposed in November, nationals of 20 countries including the U.S., EU and China can stay in Russia for 72 hours visa-free.

Mikhail Volkov

On horseback $2.50 for a pony or horse ride Izmaylovsky Park, which has its own stables, offers trips on horseback or horse-drawn carts on weekends, Fridays, and bank holidays, between 11 a.m. and 7 p.m. There are two pick-up points in the Central and Northern sections of the park.

new ways to see Moscow for those tired of walking and taking bus tours

press photo

Special to Russian Business Insight

Transaero has recently signed interline agreements with JetBlue and Virgin America that will allow passengers from 40 U.S. destinations to conveniently travel to Moscow via New York or Los Angeles, and on to a number of cities across the C.I.S. The deals are“an important step in expanding Transaero’s global route network,” said Transaero CEO Olga Pleshakova. Although political relations between Moscow and Washington have been strained in recent months over issues ranging from Syria to Edward Snowden, economic ties between the two countries have advanced. “Two-way trade increased from $9.3 billion in 2002 to $40 billion

Transaero’s U.S. flights arrive at Vnukovo, the closest airport to Moscow’s downtown.

a decade later,” said Dan Russell, president of the U.S.-Russia Business Council. Meanwhile, traffic on Transaero’s three existing direct routes to Moscow from Miami, NewYork and Los Angeles reached 190,000 last year and increased 11% during the first nine months of 2013. A code-sharing agreement with Singapore Airlines also covers a

Cycling $27, inclusive of bike hire It has long been possible for tourists to hire a bicycle in Moscow, but proper guided cycling tours have appeared only recently. Several cycling clubs now offer a whole range of services, from simply cycling around the city center with a guide, to cycling quests, with real adventure on offer. For schedules and prices in several foreign languages, please visit moscowbiketours.com

direct route from Houston to Moscow, while a similar deal with Virgin Atlantic offers travel from the U.S. to Moscow via London. Connecting flights from North America are also available through interline agreements with United Airlines and Canadian WestJet. The two countries reached a simplified visa deal in September 2012. In the first six months of

Trolleybus $2.50 for a 1-hour trip

Economyclass roundtrip tickets on Transaero between New York and Moscow typically start around $700, with business class going for over $2,300. With a fleet of 100 aircraft servicing 240 routes, Transaero – voted “Best Airline in Eastern Europe”in 2012 and “World’s Most Improved Airline” in 2013 at Skytrax’s World Airline Awards – is Russia’s largest privately-owned carrier. The company is also Russia’s only airline to make airline rating agency JACDEC’s list of top 30 safest carriers globally, at number 16.

Retro steam engine $23 per trip

An unusual trolleybus, with invited artists playing the guitar and performing songs by famous singers, plies a route along the Sadovoye Koltso ring road, which circles the historic center of Moscow. Once the concert is over, the Blue Trolleybus turns into a regular one; the posters, speakers and microphones are removed, and the trolleybus goes back to the depot.

A real steam engine built in the late 19th century offers a tour of the Small Railway Ring around Moscow. The trip starts at the Rizhskaya railway station, and offers views of the Novodevichiy Monastery, the Moscow City high-rise towers, the Ostankino TV tower, the All-Russia Exhibition Center, and the Botanical Gardens.

The timetable of the trips is available in Russian on the Blue Trolleybus website at http://www.sin-troll.ru/or by calling +7 (499) 760-21-56, +7 (926) 215-48-49.

The timetable and other details of the trips are available in Russian at http://retropoezd.ru The regular service operates only on weekends, but a trip can be booked in advance for weekdays as well by calling +7 (495) 608-01-58.

reasons to know transaero

Transaero is the only Russian or U.S. carrier offering first-class service on regular direct flights between the two countries.

Transaero was the first Russian carrier to offer in-flight Internet. By the end of this year, the airline will have 30 aircraft in its fleet equipped with online broadband.

In 2015, Transaero will become the first airline in Russia, the C.I.S. and Eastern Europe to operate the Airbus 380, the world’s largest airliner with a capacity for 652 passengers.

Retro tram From 2.5 euros for a 15-minute trip to 120 euros per hour for hiring the whole tram The history of the Annushka, the affectionate name given by Muscovites to the old Tram Route A, dates back to 1911. This was the first electric tram to appear on the streets of the Russian capital. Many years later the Annushka was upgraded with a small café right inside the tram. Passengers can now have a tasty snack while watching the historic center of Moscow from the tram windows. The upgraded tramcar can take several different routes around Moscow. The most popular one covers the distinct high-rise towers built in the southwest of Moscow during the Stalin era, and magnificent old architecture in the city center.

en.travel2moscow.com/where/visit/