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Days before the Opening Ceremony, get the latest Sochi coverage in our special section!

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Saturday, February 1, 2014

IN THIS ISSUE

Sochi 2014 The resort city on the Black Sea has been transformed for the Olympics

Russia Pulls Out All the Stops for Winter Games

POLITICS & BUSINESS

U.S.-Russia Trade Talks Moscow proposes a new round of dialogue PAGE 2

MONEY & MARKETS

Russian Stocks Analysts see modest gains in 2014, with an eye on valuations PAGE 3

SPECIAL REPORT

Sochi 2014 Who to Watch, What to Look For

Russia is gearing up for the most expensive Olympic Games of all time, amid complaints about corruption and concern over potential terrorist attacks.

DOMINIC BASULTO SPECIAL TO RBI

If hosting the Olympics were a competition, Russia would be cruising for gold in at least two categories: spending and security measures.

With a record price tag to exceed $50 billion, Russia is hoping the event will do no less than kickstart economic development in its southern coastal region. At the same time, officials are pursuing unprecedented security initiatives aimed at ensuring the Games runs smoothly in the face of terrorist threats.

Some observers have called Sochi itself — a subtropical coastal city dotted with palm trees, a city that had less pre-existing infrastructure than most Olympic cities have prior to selection — a challenging venue for the Olympic Winter Games in the first place.

“You’d have to spend a long time searching the map of this huge country to find someplace with no snow,” Russian opposition leader

REUTERS

The Black Sea resort town of Sochi is bracing for the start of the 2014 Olympic Winter Games on Feb. 7, hoping to showcase the “new Russia”

GETTY IMAGES/FOTOBANK

Boris Nemtsov quipped. “Putin found it.”

Nemtsov was exaggerating: mountains near Sochi do, indeed, get snow. But his comment underscored the ambitiousness of the project.

Many in Russia’s leadership, including President Vladimir Putin, seem to feel the country’s prestige is on the line.

When the world tunes in to watch the Sochi 2014 Winter Olympics, the Kremlin wants viewers to see futuristic, state-of-the-art stadiums sitting next to the sea, breathtaking views from world-class ski resorts in the snow-capped Caucasus Mountains, and a sprawling new Olympic Park that’s bordered by subtropical palm trees.

The aim is to formally introduce a “new Russia” to the world as a great power and a modern economy, two decades after the fall of the Soviet Union.

The challenges of Sochi What makes Sochi’s transformation all the more ambitious is that none of this infrastructure even existed a few years ago.

Indeed, the finishing touches on many of Sochi’s Olympic venues including the Fisht Olympic Sta-

dium, the site of the Games’ Opening and Closing Ceremonies - were still being put in place in January.

As a result, the Opening Ceremony will be a moment of high drama not just for the world-wide audience, but also for the Russian Olympic organizers.

While all of the new competition venues in Sochi have now hosted international events, they are nearly as new to the Russian Olympic team as they are to the arriving foreign athletes.

The ski-jump area just recently went into service, after significant delays and cost overruns – overruns so outrageous that the head of the project was publicly reprimanded on national television by President Putin himself.

This ski season is the first time the new mountain train – trusted with the responsibility of whisking Olympic visitors between the Coastal Cluster and the Mountain Cluster — has started making trips.

In fact, by selecting Sochi as the host city for the 2014 Olympic Winter Games, Russia turned the traditional model on its head.

That model – which had existed as long as the Olympics took place in the U.S., Canada and Europe – was to take a proven winter resort

Russian Vodka Sponsors U.S. Women’s Bobsled

area, spruce it up, add a few modern touches, and not worry much about anything else – like whether or not it actually snows.

What Russia proposed was to start from scratch in a city with little alpine ski tradition to speak of, a city that’s better known to Russians as a summer resort town on the “Russian Riviera.”

Nemtsov’s quip carried a grain of truth. Sochi’s subtropical climate meant that having enough snow was a matter of some speculation, although plenty of it has fallen this winter.

Lack of state support forces athletes to get creative PAGE 5

SPECIAL REPORT

Paralympians Dream of Gold

A city’s transformation A decade ago, Sochi did not have a single world-class ski resort area, and certainly nothing that would have hinted at Sochi becoming a future Olympics host city.

That all changed when President Putin made the mountains of Krasnaya Polyana his personal ski retreat. Now there are three worldclass ski resorts in the mountains of Krasnaya Polyana. In convincing wealthy Russians who might have gone abroad to instead visit Sochi’s ski resorts, no expense was spared.

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Experts hope the Olympics leads to better facilities and changed attitudes towards Russians with disabilities

CONTINUED ON PAGE 6 PAGE 7

Oil Morgan Stanley sells its oil merchanting business to Russia’s top oil producer, Rosneft SPECIAL REPORT

Russian Oil Major Rosneft Extends U.S. Embrace DAVID MILLER SPECIAL TO RBI

Russia’s largest oil firm, Rosneft, purchased Morgan Stanley’s oil trading and transportation business in a move that gives the firm a new presence in the United States, as it prepares to tap Russian oil fields with its U.S. strategic partner, ExxonMobil.

The purchase follows Rosneft’s ascension to the No. 1 spot in global oil output after buying out private investors in BP’s Russian oil venture, TNK-BP, last March.

The Morgan Stanley deal “represents a breakthrough in strength-

ening Rosneft’s commerce and logistics unit, which will spearhead the company’s growth in the international oil and products markets,” Rosneft CEO and chairman Igor Sechin said in a statement accompanying the news in December.

The agreement involves the sale of an international network of oil trading, storage and shipment facilities, along with 100 front-office executives – including oil traders in the U.S., U.K. and Singapore, or roughly a third of Morgan Stanley’s total commodities“merchanting”personnel – Rosneft said in its recent statement.

The terms of the deal were not disclosed. The Wall Street Journal cited an unidentified person familiar with the details of the transaction as saying that the sale will cut about $4 billion in risk-weighted

Russia hopes to prevent another “Miracle on Ice.” PAGE 8

ONLY AT RBTH.RU AP

Russia’s biggest crude producer agrees to buy Morgan Stanley’s oil merchanting assets as it ramps up cooperation on new fields with U.S. major ExxonMobil.

It’s Not About the Puck

Russia’s biggest oil producer is expanding its horizons overseas.

assets from the Wall Street firm’s balance sheet.

Rosneft, which is majority-owned by the Russian government, has emerged over the past decade from relative obscurity to become the world’s biggest oil producer, responsible for four out of every 10 barrels of crude that Russia produces.

Sechin, a close ally of Russian President Vladimir Putin, has extended Rosneft’s reach beyond Russia’s borders after consolidating large swathes of the country’s privately held energy assets under the state-owned company’s control.

The deal with Morgan Stanley

comes as Rosneft is ramping up cooperation with its strategic American partner, Exxon.

Rosneft and Exxon are scheduled to begin drilling the first oil wells in the far-northern Kara Sea and in the Black Sea together this year.

The firms are also preparing to tap Siberian fields and export liquefied natural gas from Russia.

“We have a unique partnership,” Glenn Waller, the head of Exxon in Russia, said in an interview with Bloomberg News in January.“They have the world’s biggest reserves and we have the largest market capitalization.”

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Russia may become world’s leader in shale oil production RBTH.RU/33405

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Politics & Business

NEWS IN BRIEF

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Banks Russia moves to clean up its financial sector, pulling licenses and toughening standards

• Traffic to Moscow’s Domodedovo airport increased 9% in 2013 to reach a total of 30 million passengers. Some 85 airlines operate flights to 242 destinations out of Domodedovo, Moscow’s busiest airport.

• Anna Chapman: Ready to Wear. The former spy, expelled from the United States in 2010 along with nine other Russian citizens, showed her debut clothing line at a fashion show in Turkey on Jan. 9. The items will be available in Russian stores and online in early February.

Announcements of bank license withdrawals have caught both bankers and their depositors by surprise. In December, investors broke down the front door of Investbank’s headquarters in Kaliningrad on the day after regulators pulled the company’s license, according to a report from Russian news agency Interfax.

Master Bank, the 41st-largest bank in Russia by deposits according to a RIA Novosti rating, was found guilty of conducting “large-scale suspicious operations” and had violated laws against money laundering and the financing of terrorism, the Central Bank said in a statement about its decision.

The firm had been mired in a money-laundering investigation since 2011.

The move against Master Bank was also noteworthy in that President Vladimir Putin’s cousin, Igor Putin, has a seat on the company’s board of directors.

Russia’s Deposit Insurance Agency said that initial estimates put payments owed to depositors at Master Bank at about 30 billion rubles ($914 million). Central Bank officials said that there was also a two-billion-ruble hole in Master Bank’s balance sheet, generated by loans made to companies affiliated to the bank’s owners.

Master Bank’s branches were closed, and its Web site went down in the immediate aftermath of the license withdrawal. Other Russian banks that had partnered with it to use its large network of ATMs cautioned their customers about withdrawal problems.

Russian police officers entered Master Bank’s central office and confiscated materials, apparently in connection with the long-running money-laundering investigation at the bank, officials said.

Igor Putin, who first joined Master Bank in 2010, defended the lender against money-laundering accusations last year, after the homes of top executives were raided by police, suggesting that the law enforcement agencies’ attentions were part of an effort to discredit the bank.

Russian officials are taking a muscular approach towards cleaning up the nation’s financial sector, targeting smaller banks and tackling irregularities.

RIA NOVOSTI

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• Russia will spend $240 million to fight crime, according to a budget proposal covering the period 2014-2020. The budget allocates almost eight trillion rubles ($240 million) to the Interior Ministry for the purpose of ensuring public safety and raising trust in law enforcement. Special attention will be paid to decreasing crime among minors.

• The Duma is debating a return to Winter Time. The Russian parliament has begun discussion on changing the country’s clocks once again to move to a permanent state of Winter Time. Russia has been operating under a permanent state of Daylight Saving Time since 2011, when thenPresident Dmitry Medvedev decided that the country would not “fall back” in November.

Russian regulators are pulling bank licenses over allegations of money laundering and other irregularities while tightening regulations as part of a wide-ranging effort to improve the country’s financial health.

Coupled with a strategy of high interest rates intended to stamp out inflation despite slow economic growth, the measures amount to tough love from the new head of the Russian Central Bank, Elvira Nabiullina, designed to put the nation on course for long-term growth, according to analysts. Some 30 licenses were pulled during 2013 over a range of infractions.

The closures are part of a drive to crack down on financial irregularities in the banking sector among small and mid-sized banks, many

Announcements of bank license withdrawals have caught both bankers and their depositors by surprise.

• Moscow Mayor Sergei Sobyanin has named the city’s first business ombudsman. Mikhail Vishegorodtsev, a member of Mikhail Prokhorov’s Civic Platform party, will now have responsibility for protecting the rights of the capital’s businessmen.

• An additional 1,000 people could be freed this year as part of the economic amnesty. More than 1,660 people have already been released under the amnesty program. Although the amnesty was supposed to end Jan. 4, national business ombudsman Boris Titov said that cases are still making their way through the courts and that the amnesty would continue until all eligible cases have been heard.

Master Bank is the highest-profile Russian bank to have its license pulled.

IN FIGURES

30 30 is approximately how many licenses were pulled in 2013

billion

rubles were owed to depositors after regulators pulled Master Bank’s license

41

st

was Master Bank’s position by deposits relative to other Russian banks

Ruble gets new symbol via popular vote

Russia has introduced a new symbol to represent the ruble, based on the Cyrillic letter “R” — which looks like the Latin letter “P” — with a horizontal line through the middle. The design was approved after a public vote in which the winning design took 61%. Critics have said the symbol may confuse English-speaking foreigners, who might see no obvious connection to the word “ruble.” Other variations originally proposed by the Central Bank included different forms of the Latin letter “R.” Russian Central Bank chief Elvira Nabiullina has dismissed the criticism, saying, “The word ‘Dollar’ does not begin with the letter ‘S.’”

International Relations Moscow looks to kick off a new trade dialogue with Washington

Russia Proposes Fresh Round of U.S. Trade Talks Russian officials are looking to open talks on reducing trade barriers with the country’s former Cold War adversary, despite facing a host of political disagreements in other areas.

DAVID MILLER SPECIAL TO RBI

Russia has proposed a new round of trade negotiations with the United States, aimed at kickstarting economic ties, at a time when political relations between Washington and Moscow have been otherwise increasingly strained.

The initiative stands in contrast to a series of other political problems between the two former Cold War adversaries, ranging from Russia playing host to secret-document leaker Edward Snowden to disagreements over the civil war in Syria.

“We have proposed...establishing a comprehensive economic agenda that would...mean creating a kind of a free trade zone by a certain period,”First Deputy Prime Minister Igor Shuvalov told reporters in Washington in mid-December. During the trip Shuvalov met with Secretary of Commerce Penny Pritzker and U.S. Trade Representative Michael Froman, as well as with private American investors.

President Barack Obama and Russian President Vladimir Putin are expected to discuss the propos-

REUTERS

ITAR-TASS

• Yandex will get access to public data from Facebook under a deal signed in mid-January. Yandex, which controls 60% of Russian search traffic, will use its agreement with Facebook to better target its search queries.

of which are little more than corporate treasuries. Russia’s banking sector, born during the tumultuous 1990s after the fall of the Soviet Union, still has hundreds of socalled “pocket banks.”

“The cleanup of the Russian banking sector by the Central Bank of Russia should be positive in terms of raising governance standards and getting rid of non-viable banks,”the Fitch Ratings agency said in a statement.

“However, the implementation of these measures could raise risks to depositor confidence in the short term,” the statement continued.

The effort reached a crescendo in November, when officials ruffled markets by pulling the license of mid-sized Master Bank. The move left depositors in doubt over almost $1 billion in savings and caused problems with withdrawals from ATMs.

ITAR-TASS

Russia Tries Tough Love With Small Banks

• The Russian Central Bank plans to phase out targeted interventions, reducing their size from up to $60 million a day to zero, as it gradually implements a floating ruble exchange rate by 2015. The Central Bank currently buys or sells currency whenenever the exchange rate heads toward the boundaries of a floating corridor of 3.1 rubles (about nine cents) — which is now set between 35.1 and 38.2 rubles relative to a currency basket of the dollar and the euro.

NATALIA MIKHAYLENKO

02

Russian Deputy Prime Minister Igor Shuvalov is spearheading negotations.

Getting Past Politics Hopes for U.S.-Russia trade relations have been high since the U.S. Congress finally repealed the JacksonVanik amendment in December 2012.

The provision, which had been in place since 1974, placed trade restrictions on Russia as punishment for Soviet laws restricting emigration of Soviet Jews.

While Russia had regularly been granted a waiver from the restrictions since the mid-1990s, analysts said its revocation was symbolic of deepening trade relations between Russia and the U.S.

als at the next G8 summit, scheduled to take place in the Olympic host city of Sochi in June 2014, Shuvalov said.

Despite mounting political difficulties, however, trade has been something of a silver lining in U.S.Russian relations in recent years.

“Politics is on one side of the table, business is on the other side of the table, and fortunately they don’t interfere with each other,” Dmitry Akhanov, head of Rusnano USA, the Russian state technology firm that has carried out more than a billion dollars of investments in U.S. start-ups and venture capital funds, told Russian Business Insight earlier in 2013, before the trade initiative was announced.

“In the business climate, we see interest growing from both sides,” Akhanov said.

U.S. exports to Russia rose 38% in 2011, 29% in 2012 and 11% in the first quarter of 2013, according to figures from the U.S. Trade Representative’s Office, which linked the improvements to Russia’s entry into the World Trade Organization.

Between 2004 and 2011, U.S. exports to Russia rose an average 16% per year. Russian exports to the U.S. rose 35% in 2011.

“Market-opening changes made

by Russia during the course of its WTO accession process may already have brought benefits to U.S. exporters,” the U.S. agency said in a report released during the summer of 2013.

Several U.S. companies have moved into Russia in recent years.

Memphis, Tenn.-based International Paper Co. has invested $1.2 billion into Russia, primarily to upgrade a paper mill intended to turn Siberia’s vast forests into paper products for neighboring China.

U.S. car makers General Motors and Ford have pushed into Russia to access the country’s automotive consumers.

Irving, Texas-based ExxonMobil has teamed up with Russian national oil champion Rosneft to spend billions of dollars exploring for oil in the Arctic and also exporting liquefied natural gas to Asian markets.

General Electric Co., America’s biggest conglomerate, and Russian state-controlled power trader Inter RAO have established a joint venture to manufacture gas turbines.

Reporting from RIA Novosti was used in this story.

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Money & Markets

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03

Stocks After a fall in 2013, Russian equity analysts expect single-digit returns in 2014

VIEWPOINT

Russian Equities: A Case For Cautious Optimism

Targeting Inflation: The Right Move For The Long Haul Stanislav Savinov SPECIAL TO RBI

Russia’s benchmark RTS Index fell 6% in 2013 for one of the poorest performances on record. But analysts expect 2014 to be a better year for Russian stocks.

N

BEN ARIS

© RIA NOVOSTI

SPECIAL TO RBI

Russian equity had one of its worst years on record in 2013, especially compared to the champagne year in U.S. and European markets.Yet analysts are more sanguine about the prospects for Russian stocks in 2014.

Despite the country’s image problems abroad, including concerns over minority shareholders’ rights and state influence in the marketplace, Russian equities have frequently been among the best-performing in the world in the years since they came into existence.

After the Russian stock market was founded in 1995, Russian stocks returned at least 8% during 13 out of the past 18 years, and generally returned over 20% in any year where there wasn’t a crisis.

The real trouble is that those crises tended to destroy most of the previous gains. In both the crashes of 1998 and 2008, the market lost some 75% of its value in a matter of months.

With that in mind, investing in Russian equities may be a relatively simple process of asking,“Is this a crisis year or not?”

While predicting a crisis accurately is impossible, predicting which years will not be crisis years should be easier. (Notable exceptions to this rule of thumb include 2000, when the RTS fell 18.2%, and 2011, when it fell 21.9%.)

So what about this year?

In 2014, analysts predict the dollar-denominated RTS Index will rise to 1,500, according to a poll of 11 analysts conducted by Reuters.

That indicates an increase of approximately 8% relative to the year’s open at 1,390. That is perhaps not spectacular. But it is no crisis, and it would represent a recovery from the 5.6% loss in 2013.

Russian stocks have frequently outperformed their emerging-market peers. From 2000 to 2010, Russia-dedicated funds were the best performing in the world of any asset

Analysts forecast that Russia’s benchmark RTS Index will recover from last year’s losses in 2014.

class, taking spots 1, 2, 3, 4 and 6 out of the top 10, according to fund rating agency Morningstar. The best-performing professional investor fund was Prosperity Capital Management’s Quest Fund, which produced a return of over 3,600% in this period, while the best-performing retail fund was East Capital’s Russia Fund, which rose more than 1,500% over the same period.

The year just ended was one of Russia’s worst on record in which an outright crisis did not occur. The almost universal prediction for 3.5% growth in 2013 made at the start of the year failed to materialize. Instead, the economy sputtered, eventually finishing 2013 with about 1.5% growth.

This poor result weighed on the value of stocks, which in Russia have historically been driven largely by rising earnings and energy prices, and produced one of the rare years where the RTS Index fell despite the absence of a crisis. The RTS’s 5.6% decline was mainly due to the impact of a weakening ruble, which lost 10.4% against the Cen-

History of Russian IPOs and SPOs

tral Bank’s basket of currencies, said Chris Weafer, senior partner at Macro Advisory. (The rubledenominated MICEX finished the year just above the break-even line with a full-year gain of 1.9%.)

Economists believe 2013 became Russia’s annus horribilis due to a combination of the soggy global

In 2014, the benchmark RTS Index may rise 8% to 1,500, according to a poll of 11 analysts conducted by the Reuters agency. recovery with the collapse of confidence inside the country, which hurt investment in particular. However, simply because 2014 is starting from such a low base, many of them expect the new year to be a lot better than the last and for Russian stocks to rise, partly because they are cheap – even by Russia’s historically low standards.

At the end of 2013, Russian shares were trading at a 25% discount to their emerging-market

peers, an improvement over the 50% discount shares were marked down to in 2009. As the year began, Russian stocks had the cheapest valuations among 21 emergingmarket economies monitored by Bloomberg, with shares on the benchmark trading at 4.5 times projected 12-month earnings, compared with a multiple of 10.4 for the wider benchmark MSCI Emerging Markets Index.

One event that spurred cautious optimism was the reopening of the IPO market in 2013. A total of $7.9 billion was raised via a combination of five IPOs and four Secondary Public Offerings.

The biggest factor that could affect the markets in 2014, say economists, would be a return of confidence and the resumption of domestic investment, one of the main economic drivers this year.

“The key to the valuation of the Russian equity market is not among assets but rather in investments,” said Alexey Zabotkin, an analyst with VTB Capital. “Only once the investment pattern changes will the Russian market start to re-rate.”

Price performance of 2013 IPOs and SPOs

ew leadership has given the Russian Central Bank a fresh dynamism that was sorely lacking. The new head, Elvira Nabiullina, is shaking things up, in part by making inflation Enemy No. 1.

We here at the Moscow’s UFS Investment Company welcome the change. In the mid-term at least, we think that targeting inflation should indeed be the priority. This drive will hopefully help win investors’ trust, and ultimately benefit capital markets. If successful, the Russian fixed-income market should rally from its currently low levels.

Less than a year into Nabiullina’s appointment, over two dozen banks have been stripped of their licenses as part of a sector-wide cleanup. It took her predecessor, Sergey Ignatyev, over 18 months to do the same. The country’s banking system has been in need of a health check for a long time. The speed with which these events are taking place has provoked a wave of criticism. But while the methods may be up for debate, no one denies that change was necessary.

The new leadership has taken equally radical steps with regard to the refinancing system. The set of monetary policy instruments has been simplified, and the number of operations has been cut.

One of the most important changes is that the main benchmark tool, the refinancing rate — which did not play a big role under the old guard — has been replaced with the one-week repo rate.

That brings us back to inflation, which is the main reason why the new tool, the key rate, hasn’t been reduced in spite of slow growth. Inflation in Russia has been largely driven by non-monetary assets, such as food prices and tariffs charged by natural monopolies. In 2014, those tariffs are planned to stay steady for industrial consumers and to be raised by less than the rate of inflation for households.

Consumer prices rose 6.5% in December, compared to a year earlier. For the next three years, the bank set an ambitious goal of gradually bringing inflation down to 4%. Low inflation is one of the conditions necessary for a favorable investment climate. A lack of investment is one of the main problems of the Russian economy, which is today going through a period of structural change.

The downside to this approach is the inability to provide a stimulus to economic growth. Yet the bank remains adamant that any easing of the policy would only spur inflation.

Stanislav Savinov is a macroeconomic analyst at UFS Investment Company in Moscow.

VIEWPOINT

Russian Retail Lending: Hitting A Growth Ceiling?

Natalia Orlova SPECIAL TO RBI

NATALIA MIKHAYLENKO

Mobile technology Russian designers develop smartphone with twice as much to look at

Two Screens are Better than One Developers say that the YotaPhone can serve as both a smartphone and an e-reader, but analysts say that the device may not have enough specs for its price point.

EKATERINA TURYSHEVA

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RUSSIAN BUSINESS INSIGHT

Russian developers have unveiled the country’s first locally designed cellphone with a novel twist: It has screens on both sides.

The YotaPhone, which uses Google’s Android operating system, was designed by Yota Devices.

On the front of the YotaPhone there’s a standard smartphone screen. On the back is an e-paper screen, which resembles the lowenergy-consuming screen found on a Kindle e-reader.

The idea is that the black-andwhite screen stays on, to display specific kinds of information, such as calendar items, the current weather or text messages that can be updated in real time.

The designers of the YotaPhone say that using the low-energy screen in this way will encourage smartphone users to break the habit of constantly flicking on their phone screen to check for new messages

Yota Devices CEO Vlad Martynov presented the phone Dec. 4 in Moscow.

or updates, thereby lengthening its battery life.

Speaking at a media launch on Dec. 4 in Moscow, company CEO Vlad Martynov paid tribute to Apple’s success and innovations, saying that Yota Devices’ goal would be to use the stiff competition to produce top-end products.

“Apple is a great company and a role model for us. I think we need to learn from people who are very good at what they do — and then try to beat them at their own game,” Mr. Martynov said.

The gadget will also be able to replace dedicated e-book readers, and developers say the battery should last at least 50 hours in the reading mode. Users can also share quotes from the books they read on social media, using the sensory pad under the e-paper screen.

Yota Devices has not made any sales projections for this new product, but about 10,000 units had been pre-ordered online by the time of the launch.

“It is difficult to make any projections when an entirely new type

of device is being brought to the market,” Martynov said.

“But we hope the product will be a success, of course.”

The hybrid phone has been given a lower retail price than was originally anticipated: it will cost 19,990 rubles ($600) in Russia and €499 ($680) in Europe.

Nevertheless, some experts argue that at the current price point, this device is not much cheaper than some of the bestsellers in the same market sector.

“I don’t think there will be a huge demand for the YotaPhone,” said Evgeny Alminov, head of mobile devices and IT at J’son & Partners Consulting, which conducts research in Russia. “For the money it costs, one can find a more highspec smartphone.”

The phone went on sale in Russia in December, but there are currently no plans for bringing the first generation of the device to the American market. The company’s key export market is Europe, where the YotaPhone will be distributed via U.S. firm Ingram Micro.

The YotaPhone will be available in Europe, Asia and the Middle East by the end of the first quarter.

W

hile developed economies face the need to deleverage, emerging markets still have the opportunity to grow by taking on more debt. Russia is no exception: government debt is only 10% of GDP, and corporate debt 57% of GDP. Households’ exposure to bank loans is 13% of GDP. That last area would appear, at first glance, to offer huge upside potential, given that retail loan penetration in developed countries is 80% of GDP. It suggests that the Russian population can continue to take on debt in order to finance consumption.

However, the reality is not that rosy. Of the 13% of GDP overall retail lending penetration in Russia, 10 of those percentage points come from consumer loans. In 2003, the figure was a mere 1% of GDP, but thanks to 50% average annual growth over the past decade, the level in Russia is now comparable with that in developed countries. Russia’s non-mortgage debt is around 160% of the average monthly salary, in line with the level in developed European countries. To put these figures into plain speech, the Russian consumer-lending market appears to have reached its ceiling.

Indeed, concern for potential overheating on the retail lending market was probably the basis of the Russian Central Bank’s introduction of tighter provisioning requirements for unsecured loans last year.

Decelerating growth has caused a deterioration in loan quality. Slower growth hit borrowers that managed their debt positions poorly. A widely cited report from Svyaznoi Bank suggests that 19% of Russian borrowers are servicing at least five loans.

Given continuing income growth in Russia, we at Alfa Bank expect growth in the non-mortgage lending market to stabilize around 25%-30% this year.

It is unlikely to accelerate going forward. The main cause for hope is the mortgage market, which equals only 3% of GDP, making it virtually non-existent compared with other countries. Only a little over a million Russians, or a mere 1% of the population, have mortgages, suggesting tremendous growth potential given the 40% penetration in the EU. However, there are constraints on both the supply and demand sides. Russian banks lack longterm funding, and the complex regulation of the mortgage-lending segment is also an issue.

The conclusion to be drawn from all this is that there is still strong upside potential for retail lending, thanks to the mortgage segment, but this potential is unlikely to be realized in the near term.

Natalia Orlova is the Chief Economist at Alfa Bank in Moscow.

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A WISH LIST FOR GROWTH Chris Weafer ANALYST

R

ussia suffered a poor economic performance in 2013 and the government is desperate to avoid a repeat in 2014.

Realizing the goal of returning growth back towards the 3% level will require fiscal and monetary policy changes and faster progress with the reform agenda. With that in mind, an investor’s wish list from the government for 2014 would include: • Greater efficiency in budget spending, and a shift of resources towards growth-boosting projects and away from nonproductive areas such as defense spending; • The initiation of cuts to the Central Bank’s benchmark interest rate, and a big cut in the commercial bank’s average lending rate to small businesses; • An increase in infrastructure spending; • Greater determination to meet OECD membership conditions, which means improving investors’ perception of Russia, of risk and of the business environment; • An improvement in corporate governance, especially among state-run companies.

Although already urgent, the debate over specific action is not expected to intensify until spring 2014. For the next two months, one policy priority will eclipse all others: delivering a controversy-free and efficient Winter Olympics.

Overall growth in 2013 is expected to be closer to 1.3%, instead of the over-3% rate achieved in 2012, even though a similar number was originally forecast for last year. The slump in growth has come despite the fact that the country boasts a very strong balance sheet with total sovereign debt at only 10% of GDP, the world’s fourth largest financial reserves, and quite a modest budget deficit.

The problem is that confidence among consumers, business owners and investors is too low, while the average commercial bank lending rate, especially to consumers and smallto-medium-sized enterprises, is too high.

It is encouraging that President Vladimir Putin has finally acknowledged the cause of the current slump in growth is domestic policy failures, rather than contagion from the rest of the world. That is an important change of position. It suggests that Mr. Putin will now

side more with those in government who demand fiscal and monetary policy changes.

So, what are the chances of the investor’s wish list being realized?

On the issue of spending efficiency, the Duma recently passed a revised three-year budget, which still has far too much money allocated to defense equipment and to other“secret”and nonproductive areas. The basis for optimism that this may be revised to shift more resources to growth-boosting projects has recently improved, after President Putin acknowledged that current spending is inefficient and voiced support for changes.

The battle for lower interest rates will be tough. The Central Bank is opposed to any cuts

OECD membership is an important goal. To qualify, Russia will need to demonstrate much greater progress in reducing corruption and bureaucracy, as well as improving the rule of law.

The Kremlin has made membership a key priority for the next couple of years.

Poor standards in corporate governance are among the main reasons why the risk premium in many state companies is so high. But it does seem that the message of higher standards leading to better valuations is finally getting through to the state – and to controlling shareholders.

in its benchmark rate so long as inflation is even close to the 6% level. Inflation has been rising again recently, and it is expected to end the year close to 6.5%. The president’s economic advisor has recently demanded a rate cut as part of a growth stimulus package. This will likely be a key battle in the spring.

One traditional way to boost economic activity is to invest in infrastructure. Russia clearly needs to expand and modernize a lot of infrastructure, and the catalyst may come with the start of preparations for the 2018 FIFA World Cup, to be hosted in 11 Russian cities. The state has agreed to make money available from the National Welfare Fund.

Chris Weafer is a senior partner at Macro Advisory, a Moscow-based research consultancy.

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CRISIS IN UKRAINE: A CATALYST FOR LONG-OVERDUE CHANGE? EXPERT

U

krainian President Viktor Yanukovich set off a fresh crisis in his country in fall 2013, when he rejected a trade deal offered by the European Union in favor of closer ties with Russia.

Thousands of Ukrainian citizens took to the streets in protest, and clashes with riot police resulted in injuries.

What are we to make of these events?

Understanding the choice before Ukraine and the motives of Yanukovich and Russian President Vladimir Putin requires a nuanced appreciation of the economic history of the post-Soviet landscape.

The break-up of a single economy that resulted from the collapse of the USSR had harsh economic consequences that are still playing out in the region.

In the 1990s, Russia’s economy contracted 40%, and Ukraine’s economy fell as much as 60%.The Soviet economic system was destroyed, and new types of co-operation between countries are only just beginning to emerge. This is by no means an easy process.

In the Soviet era, Ukraine was the most economically and technologically advanced republic in the USSR. But as a sovereign state today, Ukraine is one of Europe’s poorest countries.

The EU and the U.S. began to compete with Russia for influence over Kiev soon after the breakup of the Soviet Union. But their actions lack strategic vision and are currently not backed by economic resources.

Not so long ago, Ukraine was the third largest recipient of U.S. aid, after Israel and Egypt.

The EU too has implemented numerous reform assistance programs for Ukraine.

But the scale of that support was far from meeting Ukraine’s needs. The 2008 crisis had a devastating effect on its economy.

A $16.4 billion agreement with the IMF signed in November 2008, and a follow-up $15.1 billion agreement in August 2010 were only able to slow down the country’s slide into an economic abyss. There were also difficult social consequences, showing the country’s leadership that the path of ultraliberal reforms would be dangerous for social stability.

It was at that period of uncertainty that Russia joined in the politico-economic rivalry over Ukraine.

When inviting Kiev to sign an association

Russia and Ukraine’s future prosperity lies in developing European-style democracies.

Integrating Ukraine’s economy may create a window for reform.

Champions of integration within the Eurasian Union say one should not overestimate the destructive consequences of the collapse of the unified Soviet economy.

Much of the shared Soviet legacy has indeed been preserved. For instance, Russia and Ukraine still have massive trade in goods and services ($55.5 billion in 2012), visa-free travel and free movement of labor, an integrated gas transportation and power system and military-industrial cooperation. Russia still has its naval base in the Crimea, Ukraine. In political economics, relations like these are termed“interdependence” and they are an important condition for economic integration.

But it is doubtful whether the model proposed by Russia will remain sustainable in the long term. Experts are well aware that the effective functioning of a modern state depends on such institutions as strong property rights and market sophistication. Property rights protection in Russia is poor, institutions

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of the required quality have not yet been created and the country’s authorities are not doing anything to create them. What the Russian economy needs is not micromanagement from the Kremlin, but reforms that could ensure the operation of the economic institutions of a modern state.

If Russia’s next move after involving Ukraine in a process of reintegration is to carry out the kinds of radical institutional reforms that economists have been urging for the past 10 years, then the protests in Kiev’s Independence Square and the unexpected rapprochement between Russia and Ukraine could have long-term positive consequences for both countries.

Russia and Ukraine are united in that their future prosperity lies in developing Europeantype democratic societies. Yet Russia also aspires to become an independent center of gravity in world politics. Its current efforts are aimed at attracting Ukraine into its own integration project, which runs counter to the interests of the EU and the U.S. The need to deepen cooperation with Ukraine within an integration project will hopefully spur reforms both in Russia and Ukraine, leading to the creation of a window of opportunity for a real modernization of the politico-economic system in both countries.

But in the meantime, Russia is unlikely to adopt a policy that reconciles itself to passively watching Ukraine develop as a peripheral member of the European Union.

Leaders of the countries that once constituted the Soviet Union share certain similarities in their worldview. One is that they tend to downplay the concept of ”values”as a motivating factor for national policy, preferring instead to focus on “interests,” both national and personal.

Russian leaders are convinced that international relations within the Commonwealth of Independent States (as the loose-knit organization of former Soviet states is known) is a zero-sum game territory. That means every defeat suffered by a partner from outside the region translates into a victory for Russia. Such outsiders would include the U.S. and China, as well as the EU. Any attempt to understand the economic consequences of the current events around Ukraine without taking into account this worldview of the regional elites is bound to fail.

Stanislav Tkachenko is an associate professor of International Relations at St. Petersburg State University

AP

Stanislav Tkachenko

agreement in November 2013, the European Union in effect agreed that the task of improving Ukraine’s situation lay fully on the Ukrainian authorities and people. The EU, after all, had its own financial and economic crisis to deal with first.

Kiev had expected Brussels to come up with a modern version of the Marshall Plan, and those expectations were dashed. In effect, Ukraine was being invited to join a Eurocentric model as one of its periphery states.

By contrast, Russian leaders believe that becoming“a second-rate European country”is not what Ukraine deserves. The Kremlin is offering Ukraine a more attractive short-term development path as a partner in the Moscowled integration bloc called the Eurasian Union.

The aid package that Russia offered to Ukraine in December 2013 (a $15 billion loan; a considerable price cut on Russian gas; joint technological projects) prevented a default and provided some breathing room to develop plans for saving the Ukrainian economy.

What to expect from Russia in foreign policy this year Russian officials consider 2013 nothing less than a triumph for the country’s foreign policy. Alexander Gabuev, a member of Russia’s Foreign and Defense Policy Council, outlines top challenges facing Russia in 2014, including strengthening Eurasian integration, managing natural resources and repairing its relationship with Europe.

January Monthly Memo: Russia-U.S. Relations Dr. Richard Weitz, director of the Center for Political-Military Affairs at the Hudson Institute, highlights areas of potential progress in the U.S.-Russian relationship to watch for in 2014.

These include enhanced business and cultural ties as well as greater cooperation in crucial areas like counter-terrorism and Syria.

Quarterly Report: Going for the Olympic Gold Russia Direct explores the special challenges needed to prepare Sochi for the Olympic Winter Games, including building infrastructure, fighting terrorism and turning a seaside resort into a skiing paradise. In this report, experts from Russia and abroad discuss these issues and speculate on the future of the North Caucasus region.

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05

Sochi 2014 The Olympic Winter Games promise plenty of drama, set in a seaside resort town specially remodeled for the purpose

Thrills, Chills and Bills: Sochi 2014 Is Geared Up for A Spectacle

The Olympic Winter Games kick off Feb. 7 as Russia goes for gold.

DPA/VOSTOCK-PHOTO

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The venues

don 2012. Protests are limited by law to a small town eight miles from the nearest venues.

Any spectator in the Fisht Olympic Stadium for the ceremony will see the entire vision for Sochi 2014 distilled into two spectacular views: Hockey at one end of the arena, the snow-capped CauThe men’s hockey gold-medal game is the uncasus mountains; at the other, the sparkling rivaled blue-ribbon event at any Winter OlymBlack Sea. pics, but here it arguably means more for the Those two views sum up the entire phihost nation than at any previous Games. losophy of Sochi 2014, the first Olympic With no Olympic gold since Soviet days Winter Games to put venues in clusters. and with a rowdy home crowd, Russia’s This is a conscious attempt to replicate team is under pressure. the Olympic Park buzz of summerThey certainly have all the ingredihost cities like London and Sydney.

Spectators at ents, with the forward firepower of By the water’s edge, the Fisht Alex Ovechkin, Evgeni Malkin and the Opening stadium nestles alongside hockIlya Kovalchuk, the last of whom Ceremony will see ey, skating and curling venues has been playing on Olympicthe entire vision for in a meticulously landscaped size rinks all season in St. Pecoastal park. Inland, a scattersburg.

Sochi 2014 distilled tering of brand-new ski re“All in all, it is a powerinto two views: on one sorts dot the mountain ful Russian team,”Canadiside, the snow-capped ridges. an pundit Tony Ambrogio Caucasus Mountains; The two locations are a contold RBI. stant reminder of the city’s leg“The key for me will be how at the other, acy plans as a beach resort and quickly they bond and how they the sparkling also a base camp for winter sports. cope with the immense pressure Black Sea. Preparations have generally gone that will be on this team. I can’t think smoothly, despite a rush to finish the of any other Russian team that has Fisht stadium, which hosts only the openhad to deal with such pressure.” ing and closing ceremonies.

Up against them: the Canada of SidA year ago, there were concerns when ney Crosby and (hopefully) the injured Steve snow melted at some rather balmy mountain Stamkos, burning to defend their Vancouver test events. But those worries have now large2010 gold. ly evaporated, as the white stuff has poured from the heavens this winter.

Figure skating In echoes of Beijing 2008, security is extremeIt may not have the celebrity status of its 1990s ly heavy - double the police presence of Lonheyday, but figure-skating could be back in the

From figure-skating at the Coastal Cluster to downhill action at Roza Khutor, these Olympic Winter Games have something for everyone.

JAMES ELLINGWORTH SPECIAL TO RBI

Whatever else the 2014 Olympic Winter Games will be, they must certainly be considered unique.

Seven years and over $50 billion have gone into making Russia’s first such event a success.

All that remains is to actually stage it. The sheer grandeur of the operation alone ensures that Sochi 2014 will be a topic of discussion for years to come.

As with the similarly extravagant Beijing 2008, Sochi 2014 bears the indelible mark of the government overseeing this prestige project.

Marked by high-flying architectural designs and fueled by cash from natural resources – while also riddled with allegations of corruption and spurred on by organizers desperately hoping to impress the international community – the event is almost a Russian national avatar.

The sheer engineering challenge matches President Vladimir Putin’s political goal of restoring the heft and credibility of Russia, which was lost after the collapse of the Soviet Union.

For a sense of perspective: this is going to be a Winter Olympic Games set in the subtropics.

Even the connecting road to the mountain venues cost nearly as much as Vancouver 2010.

“It’s a big responsibility and a lot of work still, setting up the operations,”a senior official overseeing the finishing touches to Sochi 2014 told RBI.

spotlight at Sochi 2014.

North American fans have plenty to cheer for - in Canada, the men’s world record holder Patrick Chan; in the U.S., the veteran Jeremy Abbott, who reached new heights in qualifying for Sochi 2014.

The Russians could emerge with three gold medals, resulting in a crowd-pleaser for the host nation. Their emerging ladies’ skaters will challenge reigning champion Yuna Kim, while pairs team Tatiana Volosozhar and Maxim Trankov are odds-on for gold.

In the new team event, scores across all the four disciplines are added together, making for a podium battle between Russia, Canada and the U.S.

Alpine skiing For U.S. fans, there’s someone missing at these Games, and that’s LindsayVonn. Injury stopped this downhill skiier from reaching Sochi, but there’s still lots of action on the slopes.

Colorado’s Mikaela Shiffrin is the reigning slalom world champion at just 18, while there will be an emotional farewell for 36-year-old legend Bode Miller.

The men’s slalom and giant slalom are Austrian Marcel Hirscher’s to lose, and there could be a rare medal for one of the world’s tiniest countries.

Liechtenstein’s 36,000 people will be praying that Tina Weirather can put them on the Olympic podium for the first time in 26 years.

She has the pedigree - members of her family have won six Olympic medals between them.

CONTINUED ON PAGE 7

Finances Without federal subsidies, American Olympic athletes must find creative ways to finance their dreams

American Bobsled, Brought To You by Russian Vodka A vodka whose brand name is a playful nod to Russian President Vladimir Putin is sponsoring the U.S. women’s bobsled team.

$0.12 is the amount that U.S. bobsled team member Emily Azevedo had in her bank account a few months ago as she was pursuing her dream of competing in the Olympics.

2.8%

CARL SHRECK RIA NOVOSTI

is the percentage of Russian viewers over 18 who tuned in to watch broadcasts of 2013’s Bobsleigh World Cup, according to marketing research firm TNS Global.

$17,000 is the amount that American bobsledder Jamie Greubel spent in 2013 on expenses related to training. She has worked odd jobs after training sessions to support her dream of being an Olympic athlete.

AP

If U.S. Olympic bobsled team member Jamie Greubel takes home gold at the Winter Olympics, she’ll have to thank Russian vodka.

Like many of her fellow U.S. athletes, Greubel relied on private sponsorship to help stave off financial ruin as she strove to make the national team at the Games in the southern Russian resort town of Sochi in February.

Among this year’s sponsors of the U.S. bobsled team is the Putinka vodka brand.

“We’re excited to have great sponsors for this season, because it’s really expensive to get to Russia [twice],” Greubel said, referring to the team’s training trip to Sochi last month and the upcoming Winter Games.

Unlike most countries, the United States does not provide federal subsidies for its Olympic athletes, leaving them to rely on sponsors, grassroots donations, family support, an array of odd jobs and, more recently, online crowdfunding to finance their Olympic dreams.

The U.S. Olympic Committee’s approach is reflected in an old slogan:“America doesn’t send athletes to the Olympics, Americans do.”

Meanwhile, Russian vodka brands have been forced to promote themselves in creative ways due to restrictions on advertising. The brand “Putinka” plays with Russian President Vladimir Putin’s last name, although it is not actually endorsed by him.

“If one of the contract provisions requires us to drink a vodka shot, we will,” team manager Lenny Kasten told the RBK news agency.

Greubel, 30, said that even though her travel costs, expenses and health care are covered,

IN FIGURES

Russia’s Putinka vodka brand is sponsoring the U.S. women’s bobsled team this year

thanks to sponsorship money earmarked for members of the U.S. team during an Olympic year, remaining financially solvent is a constant struggle.

“We’re kind of forced to work night jobs and waitressing jobs,”she said.“There we are, training all day and then running off to work an eight-hour shift to make money.”

Greubel estimates her total training-related costs this year at around $17,000, and that’s on top of the student loans she has to pay off. To fund her training last season, she racked up $5,000 in credit card debt that she was only able to pay off earlier this year.

Nonetheless, she decided not to work nights this year to focus exclusively on making the U.S. women’s team for Sochi.

Greubel’s teammate and sometime racing partner Emily Azevedo launched her bobsled

career seven years ago. She felt the financial pressure after just one season.

“I had 12 cents left in my bank account, and my family had helped with a majority of my bills that season,” Azevedo said.

Even top U.S. athletes in higher-profile Olympic sports, such as gymnastics and swimming, sometimes reach the pinnacle of their career only as a result of sacrifices by their families.

Last year, gold medal-winning gymnast Gabby Douglas’s mother declared bankruptcy to escape her money woes. Meanwhile, the family of swimming champion Ryan Lochte faced possible foreclosure on their home due to their alleged failure to make mortgage payments.

Both of those athletes have gone on to secure endorsement deals worth millions of dollars.

But many Olympic competitors never see that kind of payday.

Around half of U.S. track-and-field athletes who rank in the top 10 in their events earn less than $15,000 annually from sponsorships, grants, prize money and other sources associated with their sporting careers, according to a study last year by the Track and Field Athletes Association, a U.S. nonprofit.

Of the U.S. national ski team competing in Sochi, most of the top skiers are fully funded by their federation through a mix of sponsorship, member fees and financing from the U.S. Olympic Committee.

Azevedo and Greubel say they are grateful for the support from sponsors of the U.S. Bobsled and Skeleton Federation, which in addition to the Russian owners of the Putinka vodka brand – the Eastern European Distribution Company – include German car-maker BMW and U.S. real estate giant Century 21.

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RUSSIA PULLS OUT ALL THE STOPS FOR GAMES SOCHI HAS BEEN BUSY LINING UP EVENTS TO MAKE THE CITY A TRUE YEAR-ROUND DESTINATION

AFP/EASTNEWS

Rosa Khutor, the crown jewel, has one of the longest vertical drops in the world and was built with the help of Western European and American ski experts. At the highest elevations, it resembles Switzerland or Austria. Sleepy mountain roads are now filled with European-style ski chalets and pastel-colored hotels. U.S. Olympic skiers who have visited Sochi called it surreal, as if Russia had built a winter-themed Disneyland in the mountains.

Critics – and there are many, both in Russia and abroad – would argue that Sochi 2014 is a personal prestige project of Vladimir Putin, a grand attempt to put Russia back on the map by wildly overspending.

Others point to the escalating price tag that officially makes Sochi the most expensive Olympic Games in history.

Western critics have complained that the $50 billion-plus total has been inflated by both endemic corruption and Russia’s byzantine bureaucracy. In a report analyzing the costs of Sochi 2014, Christopher Hartwell and William Wilson of the Skolkovo School of Management in Moscow concluded,“As a model of development, the enormous amounts of public investment in Sochi are unlikely to be replicated any time soon across Russia…the costs are too great.”

And, given that the project required the transformation of a subtropical resort into a winter wonderland, Sochi became one of the largest construction zones in Europe.

For the locals, it wasn’t just that the construction was staggeringly expensive. It was that it never seemed to stop.

In the lead-up to Sochi 2014, residents complained about endless traffic jams, inexplicable power outages, and the constant noise of construction cranes working around the clock to complete everything on time.

The documentary“Putin’s Games,”which was screened at a Moscow documentary film festival in December, takes the most controversial complaints about Sochi and gives them a human face.

The film’s director, Alexander Gentelev, claims that the evidence of corruption and incompetence in Sochi is so glaring that Russian authorities offered him more than €600,000 ($814,000) simply to make the film go away.

In the film, Elena Panfilova, executive director of anti-corruption body Transparency International Russia, summarizes the dilemma faced by the people of Sochi: “You can be an accomplice or a victim. The choice is yours.”

There are real concerns that all of the construction in the mountains – including that of new bridges and tunnels – has disrupted the fragile ecological balance of the region.The newest concern is that, with the actual deadline right around the corner, all of the Sochi 2014 organizers’ efforts at making this the“greenest Olympics in history” are about to go out of the window.

There is no doubt Sochi will be one of the biggest, most extravagant Olympic Winter Games in recent memory, or perhaps ever. The 123-day

Sochi hopes to be known as a world-class ski resort after the Olympics, putting some of its new infrastructure to good use.

Olympic Torch Relay has already included a space walk aboard the International Space Station, a visit to an active volcano, and a trip underwater to Lake Baikal. The highest medal count ever in the history of the Olympic Winter Games, and the largest number of events ever, have also been promised at Sochi 2014.

The real test, of course, will come after the event itself is but a memory. Can Sochi really pull it off and become an international tourism and sports destination?

It’s here that Russia may have a leg-up on nations that have previously hosted the Olympic Winter Games. While other nations are dogged by the legacy of barely used stadiums, Russia has already begun laying out plans to avoid suffering the same fate. For each of the competition venues, there is a very clear post-Olympics outline. The main ice-hockey venue, the Bolshoy Ice Dome, for example, recently hosted the Sochi International Investment Forum.

The Olympic Village near the Black Sea coast will become an upscale residential complex.There are even plans to pack up and move some of Sochi’s facilities elsewhere, as a“gift”to the nation.

And, to make all this a reality, Sochi has been busy lining up events to make the city a true year-round destination. In June, Sochi will be the site of the next G8 Summit. New Formula One Grand Prix events are scheduled, starting this fall. Then, in 2018, Fisht Olympic Stadium will become an official host of the FIFA World Cup when it comes to Russia. At the same time, the new winter resorts built in the mountains will attempt to woo visitors from both Russia and Europe.

From the outset, President Putin has stated his desire that Sochi should become an economic model for the rest of the nation. In a best-case scenario, the success of Sochi can be exported to other parts of the country, including Siberia and Russia’s Far East. Western investors may be cheered by the example of Sochi, and be willing to invest in deals throughout Russia, not just in Moscow or St. Petersburg. That would go a long way toward diversifying Russia’s national economy, as well as reducing the country’s economic reliance on natural resources such as oil and gas.

Sochi 2014 should be viewed as part of a broader geopolitical trend - what NewYork Times columnist and author Thomas Friedman has referred to as the“flattening”of the world – as new global powers take their turn hosting international events and announcing their debut on the world stage.

The list continues to grow: Beijing (Olympic Games 2008); South Africa (FIFA World Cup 2010); Brazil (FIFA World Cup 2014 and Olympic Games 2016); Pyeongchang (Olympic Winter Games 2018) and Qatar (FIFA World Cup 2022). From this perspective, Russia hosting the Olympic Winter Games in Sochi in 2014 is not a strange anomaly but a sign of things to come.

GAIA RUSSO

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From Curling to Slopestyle, Sochi Aims To Impress Fans of Winter Sports

OFFICIALS SET UP PROTEST ZONE 7 MILES FROM OLYMPIC EVENTS A park in the small coastal resort of Khosta, seven miles from the main Olympic venues in Sochi, has been set aside for demonstrations approved by local authorities and security services during the Olympics and Paralympics, according to Russian Deputy Prime Minister Dmitry Kozak.

The town of 20,000 was chosen after President Vladimir Putin lifted a ban on protests and ordered a site for demonstrations to be identified.

“At Khosta in the park people will be able to freely express their opinion without breaching the rights of other citizens and without

CONTINUED FROM PAGE 5

REUTERS

Curling

Skaters Ksenia Stolbova and Fedor Klimov (below) are Russia’s national champions.

© RIA NOVOSTI

breaching the Olympic charter,” Kozak said.

“At the sports arena, at the sports facilities, in compliance with the Olympic charter, expressing political opinions is forbidden.”

Some restrictions on protests have been in place at all recent Olympics. At the 2008 Olympic Games in Beijing, authorities introduced a strict permit system for protestors and arrested some demonstrators.

The London 2012 Olympic Games restricted protests near venues, but saw a number of demonstrations in other areas of the city during the Games.

Since this ancient sport, thought to have originated in medieval Scotland, joined the Olympics program in 1998 its popularity has soared.

Idiosyncratic as only a game involving a broom can be, curling offers a change of pace from the frenetic nature of most sports at Sochi 2014.

As usual, the Canadian players are Russia’s among the favorites, but their teams women’s curling lack Olympics experience. team (above) is “I think it will be closer than optimistic about its North American curling fans rechanges in Sochi, alize,” Scotland-based curling although their writer Thomas Edmunds says. performance has He predicts Sweden, Norway and been inconsistent Britain as the main rivals to 2010 in recent champion Canada in the men’s event, months. while the British women’s team “are in the best position they could be.”

Russia’s women won the European championships in 2012, but have been wildly inconsistent. Off the ice, they’re engaging personalities - skip Anna Sidorova is a PR specialist dedicated to sweeping away the image of curlers as, in her words, “pretty girls who push mops, throw pebbles and clean the floors well at home.” Her engaging teammate Kira Ezekh is breaking down barriers as one of the few black athletes both in Russian sport and in the world of curling.

Russia“should never be ruled out,”Edmunds says. “While the bonus of a home crowd could definitely see them pick up a medal, I don’t think it will be gold.”

Slopestyle: The new kid on the block The most notable of the new events on the Sochi 2014 program is slopestyle, a flashy, X-Gamesstyle trickfest with jumps and rail grinds.

It joins the burgeoning freestyle program, with men’s and women’s ski and snowboard events.

Elsewhere, even hardened winter sports fans may be surprised to hear it has taken until 2014 for women’s ski jumping to become an Olympic sport. Japan’s Sara Takanashi is the hot favorite to win the first gold.

Ski halfpipe, biathlon mixed relay and a team luge event are among the other debutants.

Security concerns

RIA Novosti

A Russian team like never before After the shock of finishing 11th in the medal table at Vancouver 2010, Russia has stopped at nothing to chase glory in Sochi.

Vast sums have been thrown at once-obscure sports and legions of foreign coaches imported – even foreign athletes. Triple Olympic gold medal-winning speedskater Ahn Hyun-Soo immigrated from South Korea and now calls himself Viktor Ahn. On the slopes, an unusual husband-and-wife duo is among Russia’s medal hopes in snowboarding.

ITAR-TASS

As part of the effort to protect Sochi 2014 from terrorist attacks, restrictions on movement in and around Sochi were imposed on Jan. 7, with the introduction of “controlled” and “forbidden” zones. The restrictions will be in place unti March 21.

The controlled zones cover all Olympic venues and infrastructure, including the coastal Olympic Park and the mountain cluster of skiing facilities, and all transport hubs including air, sea and rail.

The forbidden zones include the border area separating Russia from Abkhazia, a few miles east of the coastal facilities, and Sochi National Park, which is an environmentally protected area.

The government has also tightened up Russia’s mandatory registration system for its citizens visiting Sochi, and banned all except local cars from entering the city without a special Olympic accreditation.

07

Paralympics There’s something greater than gold to aim for at Sochi 2014, say those who are working toward better integration

For Paralympians, A Chance To Transform Attitudes Toward People With Disabilities For people with disabilities, competing in the Paralympic Games is a forum to increase understanding and challenge perceptions in Russian society.

THEIR STORIES

Irek Zaripov 2010 SILVER MEDALIST, SKIING AND BIATHLON

OLEG BOYKO

Irek Zaripov lost his legs in a car accident in 2000, when he was 17. After nearly two years of lying in bed, Zaripov’s parents encouraged him to participate in athletics as a way to work out his depression.

Zaripov tried a variety of sports before he was noticed by a coach and began focusing on skiing. “When I started doing sports, I realized that life is not dull; I had a goal,” said Zaripov.

Russia’s Paralympic ski team hope to dominate the course at Sochi during Russia’s first Paralympic Games.

The hope is that Russia’s hosting of the Paralympic Games will help change attitudes and break down barriers.

In 2012, the country ratified the Convention on the Rights of Persons with Disabilities, and is implementing the “Accessible Environment” program, although it remains fairly localized. Russia faces considerable challenges in the rehabilitation of the disabled, due to insufficient social infrastructure and the lack of unified approaches and standards to ensure an accessible environment.

In everyday life, people with disabilities encounter difficult and, at times, insurmountable obstacles.

Transportation itself becomes a hurdle. Simply traveling to work

or school, or meeting up with friends, may be ruled out because of inaccessible subway stations and public transport. The Moscow Metro is not expected to be adapted to meet the needs of people with disabilities until 2017-2018. Of the 2.57 million disabled people of working age in Russia, only 817,200 are employed (6% of the total number of people with disabilities); the number of unemployed people with disabilities, meanwhile, is 1.8 million (70% of disabled people of working age).

In the United States in 2012, 17.8% of people with disabilities were employed, according to the U.S. Bureau of Labor Statistics, The unemployment rate (that is, the amount of people looking for work who could not find it) among people with disabilities last year in the U.S. was 13.4%. For people without disabilities, it was 7.9%.

The Paralympic Games are considered a turning point in the longterm goal of removing barriers between people with disabilities and society, and in assisting with their integration and acceptance, especially in the Paralympic host country. Since the 2008 Paralympic Games in Beijing, China has undertaken significant efforts to improve life for the disabled. More than 329,000 jobs for people with disabilities were created in 2012 alone, according to official figures.

The Paralympic Games should not be seen as a universal panacea, but as a real opportunity to change society’s attitude towards people with disabilities and to draw public attention to the problems of socialization and rehabilitation.There is hope that the 2014 Paralympics will nudge Russia toward some qualitative changes in relation to people with disabilities.

Anna Milenina 2006 SILVER MEDALIST, 2010 GOLD MEDALIST, SKIING AND BIATHLON

Anna Milenina was born with a pinched nerve, which caused a partial paralysis of her arm. But Milenina was from a family of champion crosscountry skiiers. Her aunt, a cross-country skiing coach, raised Milenina on the track. She started racing at the age of six and joined the national team at 14. Said Milenina of her success, “You have to overcome yourself, and be stubborn and run until the end.”

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On March 7-16, the Winter Paralympic Games will be held in Russia for the first time. The event will bring together 1,350 athletes and team members from 47 countries.

In addition to these impressive numbers, the program in Sochi will set another record in the history of the Paralympic Games: 72 sets of medals will be awarded during the nine days of competition.

The Paralympic movement began developing in Russia only 17 years ago, in 1996, with the creation of the Russian Paralympic Committee. Nevertheless, since 2006 the Russian team has consistently medaled in winter sports team events.

In 2012, at the XIV Paralympic Games in London, Russia produced its best-ever performance. In total, the team picked up 102 medals and set 14 world records.

Hopes are therefore pretty high for the Russian team’s performance at Sochi 2014.

For those involved in the Paralympic movement and who work with the disabled, there is more at stake than medals. The hope is that Russia’s hosting of the 2014 Paralympic Winter Games will help change stereotypical attitudes toward people with disabilities. According to statistics from the Russian Ministry of Labor and Social Protection, there are officially 13 million people in the country with disabilities (9% of the population).

For comparison, the U.S. is home to 56.7 million disabled people (about 19% of the population).

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The Sochi tournament is a continuation of a rivalry that dates back to the 1970s

Rivalries Team Russia looks to take on the U.S. and Canada with players hailing from both the NHL and Russia’s Kontinental Hockey League

Another ‘Miracle On Ice’?

Not If The Russians Can Help It The trans-Atlantic hockey rivalry between Russia, Canada and the United States has come a long way since the Summit Series of the 1970s, but winning remains a matter of national pride.

WHO TO WATCH

Pavel Datsyuk CENTER, DETROIT RED WINGS

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When Russia’s hockey team faces off against Team U.S.A. in Sochi on Feb. 15, the trans-Atlantic clash is likely to bring the host nation to a halt.

Not only is the men’s hockey tournament the single biggest event of Sochi 2014 for Russian fans, it represents a rare chance to continue the sequence of superpower sporting summits that dates back to the 1970s.

The game will be the continuation of a sporting rivalry that once pitted political ideologies against one another – and that remains a barometer of national pride. Additionally, for Russian fans, an Olympic Winter Games on home ice is an unmissable opportunity to land a first-ever hockey gold for an independent Russia and reassert the sporting primacy established by the near-invincible Red Machine of the Soviet Union over the pampered stars of the National Hockey League.

Alexander Ovechkin

Past meets present

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Moscow native Alexander Ovechkin began playing hockey at age 9 and was quickly recognized as a talent to watch. He joined the national team at 17.

Ovechkin was the first overall draft pick in the 2004 NHL Draft and has been the star attraction of the Washington Capitals.

CENTER PITTSBURGH PENGUINS

Evgeni’s father, Vladimir, also played hockey professionally and Evgeni learned to skate when he was three years old.

Malkin began his career with his local team, Magnitorgorsk Metallurg.

He began playing for the Pittsburgh Penguins in the 2006-2007 season and won the Calder Trophy for best NHL rookie.

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I think [defending Olympic champion] Canada’s forwards are probably deeper but the first two [Russian] lines are as good – if not more offensively talented – than Canada’s. Any team with Ovechkin, Malkin, Datsyuk and Kovalchuk will be dangerous, especially on the power play.”

Deputy Igor Ananskikh, who heads the parliamentary commission on sport, claimed the case was motivated by a desire to scupperVarlamov’s impressive early-season form and see him locked up before Sochi 2014. The charges were dropped, and Varlamov is set to backstop Russia’s lineup in Sochi.

NHL pitfalls?

Ironically, though, a rivalry that started out pitting the virtues of collective effort against the individual expressions promised by the West now sees those prejudices turned back on their homelands. Hockey in Europe is typically played on a bigger rink than in the NHL, and Russian fans insist that their hockey style allows greater scope for individual brilliance, that gamebreaking glimpse of skill that leaves opponents stumbling blindly towards defeat. By contrast, they claim, the NHL is a crude exercise in “dump-and-chase,” interspersed with on-ice violence, where creative flair is sacrificed to percentage-based play.The evidence, they say, comes from a host of Russians – from “Russian rocket”Pavel Bure to Nichushkin – who play a daring attacking game in the NHL, securing plaudits as they go. On the rinks of North America, meanwhile, the feeling persists that Russian players are overhyped show-ponies, full of flicks and tricks, but lacking the application and endurance to tough out a potential 100-game season culminating in Stanley Cup glory. Whatever happens in Sochi, it promises to be another lively instalment of a rivalry between nations which have been brought up to regard excellence on ice as a given and defeat in “our game” as a crushing blow to national pride.

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Evgeni Malkin

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But what was once a clash of two seemingly alien cultures – East versus West, Communist versus Capitalist – is now a very different affair. The 1972 Summit Series, when the notionally amateur Soviet Olympic champions played a team of Canadian professionals from the NHL was a confrontation between the best of the best. More than that, it was a clash of two unknowns: previously only reputations had filtered through the Iron Curtain.

Canada won the best-of-eight series 4-3 (one game was a tie), but only after an almighty shock on home ice that saw the Maple Leafs booed out of the arena by their own fans after four games in Canada. Heading to Moscow, they trailed 2-1 in a series they were expected to win easily, and pride was hurting.

The impact was far deeper than a few hockey games, though. Ted Nolan, now behind the bench of the Buffalo Sabres, watched the series as a teenage hockey fan and saw Eu- r o pean stars for the first time. “We realized they had some guys who could play hockey,”he said, and that impression stayed with him. Today, aside from his interim role with the Sabres, he is also head coach of Team Latvia, and will lead the former Soviet Republic’s team to the Olympics.

Nolan is typical of a new generation of Trans-Atlantic hockey enthusiasts, reared on the Summit Series and the “miracle on ice” of the 1980 Lake Placid Olympic Winter Games, when the U.S. national team upset the Soviet juggernaut. Although it took almost two decades to get from the Summit Series to relatively free movement of players and coaches across the ocean, today’s Russian national team is dominated by NHL-based talent. More than half of Russian team coach Zinetula Bilyaletdinov’s roster plies its trade overseas, and the likes of Alexander Ovechkin (Washington Capitals), Pavel Datsyuk (Detroit Red Wings) and Evgeni Malkin (Pittsburgh Penguins) carry the weight of a nation’s demand for gold.

The potential break-out player at Sochi 2014 might be Valeri Nichushkin, just 18, and currently playing for Dallas Stars after electrify-

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Growing up in the Urals city of Sverdlovsk (now Yekaterinburg), Pavel Datsyuk wasn’t considered a leading player because of his size. He entered the NHL draft in 1996 amd 1997, but was only taken in 1998, by the Detroit Red Wings.

In his long career with the Red Wings, Datsyuk has proven to be a consistent top scorer and a leader both on and off the ice.

He will captain Russia’s Olypmic hockey team in Sochi.

ing Traktor Chelyabinsk’s play-off push last season in Russia’s Kontinental Hockey League.

Changing circumstances mean changing rivalries: while in the 1970s, players like Boris Mikhailov or Phil Esposito knew each other only by reputation – and reportedly didn’t like what they heard of one another – Malkin shares a Pittsburgh locker-room with Canada’s top star, Sid Crosby. However, the defining battle among fellow Penguins may come in that Russia-U.S. game, when Malkin will have to contend with grizzled defenseman Brooks Orpik, also of Pittsburgh. He’s the kind of gnarled veteran on which successful teams should be based, and his close-up view of Malkin’s game makes him ideally placed to combat one of Russia’s top goal threats.

The reverse story could be true in Los Angeles, where the Kings will send Stanley Cupwinning defenseman Slava Voynov to Russia to face his club captain, Dustin Brown, a roughand-ready forward whose solidly unspectacular scoring is eclipsed by the gritty leadership he brings in tight games. Voynov, a rare example of a strong Russian blueliner, might also come up against his L.A. Kings colleague Drew Doughty, should we see a long-awaited matchup between Russia and Canada.

Doughty is arguably Canada’s top guy on defense and was called the top player in the Kings’ 2012 Stanley Cup win.

Elsewhere, though, Canada’s roster sprung a few surprises: goal-getter Steve Stamkos got the nod despite struggling with a leg injury of late, but his Tampa Bay line-mate Martin St. Louis missed out, as did the Flyers’ Claude Giroux. Then there was the decision to draft in St. Louis Blues’ defense pair Jay Bouwmeester and Alex Pietrangelo, both preparing for Olympics debuts and seemingly selected with the bigger ice of Europe in mind. But the buzz is still all about Crosby, the golden goal hero of Vancouver and back in action at last. His long spell out with concussion-related problems, followed by the enforced R&R of last season’s lockout, led some to question whether his career was destined to wind down, but a league-leading 68-point haul in the NHL suggests he’s going to be a threat to any opponent in Sochi.

Familiarity has taken some of the edge off this rivalry, but has done little to dampen suspicions: when the Colorado Avalanche’s Russian goaltender Semyon Varlamov was arrested on domestic-abuse charges in October, Russian State Duma