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P.06
BUSINESS REPORT
BANGALORE
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MUMBAI
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NEW DELHI
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Wednesday, APRIL 14, 2010
oleg prasolov_RG
A Report from The Economic Times In association with Rossiyskaya Gazeta
3D television hits jackpot photoxpress
From Avatar to Alice in Wonderland to Toy Story 3D and beyond, it’s been the cinema story of the year. Now, Russian television is adding depth to its output.
Vladislav Kuzmichev RIR
By early 2009, the number of users of pay TV had topped 19 million (14pc of Russia’s population), according to iKS-Consulting. Of late, pay TV has assumed a more democratic quality: it has ceased to be a status symbol and become a mass phenome-
non.“This tendency is reflected even in the fairly young and far smaller market of HDTV (high-definition television),” said Gyubbenet. According to his estimates, the number of HD subscribers is currently not more than 100,000. If one adds family members, this
number might reach 400,000. But bear in mind that HD television appeared in Russia only in 2006 and the number of HD subscribers today is ten times what it was only two years ago. CONTINUEd on page 7
Policy Russia is pushing sale of state firms' noncore assets
Privatisation: what's on offer? The Russian state is seeking to reduce its level of ownership in the economy over the next few years. While some people appear sceptical, the government has always claimed that privatisation is the plan. ben aris RIR
In contrast to the prevailing hegemony further west, privatisation remains a dirty word for many Russians. The chaos fol-
BRICs provide food for thought The global financial crisis will act as a catalyst for the BRIC countries’ growth. Forced to work more closely together, they will overtake their developed peers sooner than expected as they play their two trump cards.
Alexandra Prokopenko Itar tass: special to Rir
In February 2010, Russia’s General Satellite and Platforma HD and Korea’s Samsung Electronics announced the launch in Russia of a joint 3D broadcast.“Along with America’s DirecTV and Britain’s SkyUK, the Russian project is a pioneer in developing 3D television,”said Nikolai Gyubbenet, general director of Platforma HD, a leading pay-TV company. The average Russian watches far more television than his or her western European or American counterpart, according to Russia’s Cable TV Association. Growth in personal incomes combined with scepticism about state-controlled channels, has made pay TV increasingly popular.“Various statistics indicate that the volume of the pay-TV market in 2009 exceeded $1bn,” added Gyubbenet.
Growth The club of four emerging powers is raring to go further
lowing the collapse of the Soviet Union, the economic shocks of sudden market liberalisation, and the privatisation rackets that created the oligarch clans have left a nation traumatised. Yet it is only the latter – which saw state assets worth billions swapped for loose change in the Nineties – that still taunts from the TV and front page on a daily basis. The current political leadership has always claimed that it believes private companies should dominate the economy,even as it
has overseen expansion of state ownership. Hence, the announcement in late autumn of a wave of privatisation,kicking off in 2010, is consistent with stated intentions,even if it signals a distinct policy shift from the last decade. In September, first deputy prime minister Igor Shuvalov predicted as many as 5,500 companies could be privatised,with 449 due on the block in 2010. Later, he announced that the privatisation plan for this year is to be substantially expanded.
It’s worth noting that the original numbers include a host of barely functioning enterprises that have been on the table for years – without any takers. While a selection of more interesting assets are now also about to come up for grabs, the investment community will have to wait to get their hands on a larger slice of the crown jewels they covet: the oil and gas, banking and other blue-chip companies. CONTINUEd on page 2
“If Goldman Sachs erred when it coined the acronym 'BRIC', it was only in the modesty of its expectations,”said Roberto Jaguaribe of the Brazilian Foreign Ministry. Speaking ahead of the second BRIC summit, Jaguaribe described it as “not an instrument for making binding decisions, but a format which helps coordinate the positions of countries producing 40pc of the world’s GDP”. While their paths to prominence may differ, the BRICs (Brazil, Russia, India, China) have all been confirmed as members of the world's economic elite in the last year.The future of the BRICs may depend less on external factors than the development of relations within the club. Partly as a result of their faith in big and bold sectors of the in-
dustry that have sometimes been neglected in the west (all four retain their own aircraft, automotive and nuclear industries), the BRICs emerged from the financial crisis looking better-placed than ever. But China's and India's drives to develop their domestic demand were significant, giving external investors a sense of added security. Speaking to an analyst from a major Japanese bank at the beginning of this year after Russia's GDP fell by 7.8 pc in 2009, I heard quite a lot of harsh – though often justfied – criticism of Russia. Most of it concerned the Russian economy’s perceived dependence on oil exports and neverending bureaucracy. However, when asked why he didn't simply leave if things were so bad,he retorted:“Don’t confuse macroeconomic estimates with earning money.” According to figures from the Skolkovo Institute for Emerging Market Studies, despite panicked investors fleeing some markets following the credit crisis, BRIC markets began recovering faster than others. CONTINUEd on page 4
The volume of trade between BRICs grew tenfold, from $15.3 bn to $158 bn, in 2000-2008. It is predicted to grow at an annual rate of 12 pc, reaching $1 trln by 2030.
02
Economy
bookmarks
Russia india BUSINESS report
in association with rossiyskaya gazeta, russia THE economic times wednesday_APRIL 14_2010
government.ru/eng Russian government website www.scf-group.com JSC Sovcomflot www.rosmetrostroy.ru Moscow Metrostroy website www.minprom.gov.ru/eng Ministry of Industry
Privatisation: what's on offer? CONTINUEd from page 1
photoxpress
Of the most attractive companies that are now definite privatisation targets (for example TGK-5 and three large insurers), the government will be relinquishing no more than minor interest or blocking stakes, suggesting the sales may do little to improve free floats or liquidity. Of those with full state ownership certain to go under the hammer, perhaps only construction company Mosmetrostroy will be able to provoke any great interest. However, a second list of names has also been made public.This includes a handful of the largest shipping and transport infrastructure companies in Russia. The potential of this segment stems from the economy’s reliance on bulk exports – not only oil, but metals and mining products, grain and timber, to name but a few – and hence the stakes in Murmansk and Novorossiysk ports and the Sovcomflot shipping line are likely to provoke the most interest among investors. “The crisis only strengthened the authorities’ urgency to escape the oil hook,” Ivan Ivanchenko, chief strategist and economist atVTB Capital says. Hence, in February Mr Medvedev released a list of initiatives and deadlines aimed at improving the investment climate in Russia. This includes demands for penalties against officials who obstruct investment policy and projects, as well as a mid-March deadline for suggestions of further“major and strategic”companies to be in-
The Russian government has said it hopes to sell stakes of some $2.4 bn in 2010
cluded in the privatisation drive. Privatisation is one of the few levers that can help attract FDI into Russia at the moment.This was not always the case: state ownership in Russia’s economy has increased substantially since 2004; from 25-30pc to over 50 pc according to most estimates. This process accelerated during the recent economic crisis, as the government bailed out overleveraged corporations. On a practical level, however, this action was little different to the bail-outs seen across the globe. Once again, prime minister Vladimir Putin insisted that the state had absolutely no interest in nationalising the assets. More recently, finance minister
Alexei Kudrin has pledged that state interest in the enterprise sector will shrink to 30 pc in the coming years. Some believe that rather than a commitment to loosen the state’s grip on the economy, it’s simply current financial straits fuelling the latest privatisation drive. Kudrin anticipates a budget deficit of around 6.8 pc this year, following 5.9 pc in 2009. While every little may help, the $2.4 bn income targeted from privatisation in 2010 will not make much of a dent in the $100 bn deficit.The theory looks even less convincing in the light of Russia’s preparations for its first overseas bond issue since 1998, while it also holds the third highest volume of sovereign
The Russian government has said it hopes to sell stakes of some $2.4 bn in 2010. Despite a return to economic growth, the state engaged in heavy deficit spending (in the form of bailouts, subsidies and other stimulus programs) during the economic crisis and now hopes to cover a part of the financial losses. Among the most interesting companies named thus far are the transport and shipping concerns. As Ivan Ivanchenko of VTB Capital points out, Russia hopes to develop its potential as a transport hub between Europe and the Far East. Sovcomflot, Russia’s largest shipping company, has plans to invest $5.5 bn over the next six years – much of it intended for the oil and gas tanker fleet and offshore services to support Russia’s large-scale projects such as the Shtokman gas field in the Arctic. Overall, Sovcom-
peter kovalev_itar-tass
Companies on sale in 2010
Sovcomflot plans to invest $5.5 bn over the next 6 years
flot could be viewed as a proxy for Russia’s giant energy projects – which have had global oil and gas majors battling to clamber aboard over the last five years.
Novorossiysk Commercial Sea Port’s greatest advantage is its strategic posting on the Black Sea between southern Europe and Asia: most of Russia’s large ports are on the Baltic and Pacific shores. The company has strong links and partnerships with state-owned Russian Railways and Transneft (oil and gas pipelines), which dominate land-based transport, as well as exports. Russia’s fourth largest port (second in the north-west), Murmansk CSP, sits above the Arctic circle, but remains open year round.Traditionally an export route to north-west Europe, coal has always been king for this harbour. However, shipments are now also headed east, with pipes being delivered to the Shtokman gas field and possibilities of expansion to serve the massive project are under scrutiny.
wealth funds in the world, with around $400 bn tucked away. However, a need for cash looks like a viable driver for the inclusion of several transport assets from the strategic enterprises list. In the boom years immediately prior to the crisis, the state’s emphasis was fixed firmly on Russia’s ailing infrastructure, with promises of a gigantic $1 trln investment. The electricity sector was the priority, with cash desperately needed to renew grid infrastructure and build extra capacity; the sector saw significant privatisation in 2007. While Russian and foreign corporations were tussling to get their hands on these power assets, the statements issuing
from the authorities turned the spotlight onto transport. The crisis turned these plans to dust. The private owners of power-sector assets are now facing increasing pressure from the state to honour the massive capex pledges they made at the time they bought; meanwhile, state spending has been diverted to ensure social, and therefore political stability. Investors are to be invited to start the ball rolling again on rebuilding the country’s infrastructure. Private management, as well as foreign expertise and technology, are cornerstones of the Kremlin’s struggle to diversify and modernise the economy. This tallies with the speculation of Angelika Henkel of Alfa Bank that most of the named companies “are better candidates for buy-out by strategic investors that already have a significant interest in them”.The 25.1 pc government stake in TGK-5 for instance is widely expected to end up in the hands of major stakeholder KESHolding, while the 25 pc stake in shipping company Sovcomflot is another likely to head to a working partner. With governments across the globe now holding major assets, the Russian authorities have no intention of letting them go on the cheap. Russia’s state behemoths offer such steady and attractive returns that few fund mangers can summon the idealism to blacklist them. Full version of the article on www.in.rbth.ru
The best assets Company
2008 revenues, RUB mln (RAS)
State ownership (pc)
Brief description
TGK-5
15,354
25.1
Electricity generation
Rosgosstrakh
3,010
13.1
Insurance
Ingosstrakh
42,146
0.06
Insurance
RESO-Garantia
30,132
0.001
Insurance
Moscow Metrostroy
26,886
100
Construction
Iskitimcement
4,305
25.5
Cement production
Tyretsky Solerudnik
414
100
Salt production
Severtruboprovodstroi
2,317
25.5
Construction and maintenance of long-distance pipelines
Murmansk Commercial Sea Port
2,972
n/a
Docks and port services
Sovcomflot
2,652
100
Tanker transportation, port services
Novorossyisk Commercial Sea Port
8,305
20+1
Docks and port services
Koltsovo Airport
6,698
n/a
Management, sale of POL
Anapa Airport
1,113
n/a
Management, sale of POL
Tolmachevo Airport
3,642
n/a
Management, sale of POL
From the list of strategic JSC
Source: Rosimuschestvo, Alfa Research
News in brief More money on education than on arms The Kremlin announced that it plans to start spending more on education than it does for defence this year. Deputy Prime Minister Sergei Ivanov said that the spending on education would be massively hiked this year and hundreds of billions of dollars will be channelled into revamping the education system. "In 2010, 4.4 pc of the GDP will be allocated to ensure the education system's compliance with the demands of the innovative economy," Ivanov said, pointing out that this is more than Russia currency spends on its military. RIR
Russia to stock up on low-enriched uranium Russia and the International Atomic Energy Agency (IAEA) signed an agreement to provide a security stock of low-enriched uranium late last month in Vienna.It will be stored in Russia, at the International Uranium Enrichment Centre. The Centre was created in 2007 at the Angarsk Electrolytic Chemical Combine. It will hold upto 120 tonnes of uranium – enough to provide fuel for two 1,000 MW reactors. Also, a framework agreement was signed to regulate the procedure of signing supply contracts for low-enriched uranium. An IAEA member state interested in uranium supplies will have to apply to the agency, which will decide whether to grant the request. In the event of a positive decision, the Angarsk centre will send the requested amount of nuclear materials to the IAEA, which will redirect them to the recipient. RIR
Consumer confidence rises Russian consumers are slowly getting their nerve back as the crisis recedes. The State Statistics Service said consumer confidence rose in the first quarter as unemployment fell and wages increased. Most of the indicators covering consumers are now on their way up. Unemployment probably has the biggest impact on consumers' state of mind and the latest figures say that unemployment is already starting to fall, despite the finance ministry predictions that it would rise for most of the year. RIR
www.rbcnews.com English-language business news en.rian.ru/business RIA Novosti newswire www.troika.ru/eng Troika Dialog, the oldest and largest private investment bank in the CIS
Economy
Russia india BUSINESS report in association with rossiyskaya gazeta, russia THE economic times wednesday_APRIL 14_2010
Interview Ruben Vardanian
Overcoming growth problems
ury martianov_kommersant
bookmarks
News in brief Upping fight against graft with new anti-corruption strategy
we should be more ambitious, more creative and willing to take risks and be competitive on a world-wide scale. 'Complaining optimist', as he calls himself, Mr. Ruben Vardanian is known in Russia not only as an owner and Chairman of one of the oldest and most influential Russian investment banks, but also has a reputation of one of the most respected financial market experts and socially active business people.
Anastasia Dmitrieva RIR
Mr. Vardanian, you are always very optimistic about the Russian economy. Is it still the case? I’m very optimistic in the shortterm. One year from now, we can expect to see inflation and unemployment going down, currency stable and predicted GDP growth of 5 pc. In five years time, however, Russia will face increasing challenges. There will be a shortage of people. With more people reaching pension age, the pension system will be under severe strain, gas prices will fall if Shell continues to develop its current oil fields and natural resources will become less crucial. What are your views on modernisation of the Russian economy, announced by President Medvedev? This is one of the most important tasks for Russia.We need to understand that this is not solely upto the government, but also the business community.We inevitably have to become a more modern, technological, innovative and an efficient country since eternal dependence on natural resources revenues is not going to work. My major concern regarding Russia is that
RIR Dossier
Ruben Vardanian NAtIONALITY: Armenian AGE: 42 CIVIL STATUS: married, 3 children
One of the leading figures in Russia’s capital markets, Vardanian played a key role in developing almost all segments of the country's stock market. He has been ranked as one of Russia's top three business leaders by the National Association of Managers, while in 2004, he won Ernst & Young's Entrepreneur of the Year Award. Speaking recentely at the annual conference Russian Business Week in London, Vardanian focused on 'real life' of Russian business, acknowledging both, a great potential and problems the country needs to solve – modernisation, attracting and retaining its best people, etc.
we are losing time to change, to become more ambitious, more open-minded, more creative and willing to take risk and be competitive on a world-wide scale. In the coming years, the main competitive advantage will not be natural resources, but people. The country that provides people with the best living conditions, education system, benefits, will win. In the 21st century, medicine, education, the creative and technological sectors will be the most important. If we want to keep our people and attract the best talent to compete on a global
India & Russia: Crossroads in space Cooperation to develop further
level, we are all responsible for creating such conditions and it is pointless to lay this responsibility solely at the government.
Do you find that the trend towards nationalisation of more and more companies in Russia is hurting the economy? I think it is a natural evolution process that has been experienced by several countries in the past.AsTroika Dialog points out in its monthly forecast, since 2004, the economic diversification has been primarily statedriven with the state supporting a number of 'national champions' which didn't deliver impressive results. I do not doubt that in the next three years, we will see a part of state companies privatised. Any chances for mid-sized investors to participate in this big game? Russian capital markets are continuing to develop and have been subject to significant volatility. If you compare the market in Russia and China in 2000, ten years on the return on securities in Russia is around 700 pc and in China 170 pc; unfortunately, while the Chinese market grew steadily without any stress factors, in Russia, it has been going up and down. Mid-sized investors really have to be patient and need to adopt a long-term investment horizon. You are one of the founders of an ambitious international business school of management, Skolkovo . Why would people go to Russia to study for an MBA? Indeed, five years ago, nobody believed Russia could create a top level internationally recognised business school.Today, we
03
Ruben Vardanian is Chairman and CEO of the Troika Dialog Group.
partner with world leading schools including MIT, and this summer we open the campus building. About 40 pc of the first group of students who had already started their MBA in December 2009 are foreigners – from Germany, Finland, US, India who come to Moscow to learn about emerging markets. They spend nine months in Russia, and another three each in China and India. They will also carry out a large entrepreneurial project since the ultimate goals of this school is to create entrepreneurs, not managers. We show our students the realities of doing business in emerging markets. For example, we do tell our students a lot about corruption, which unfortunately is an element of the economy. One of our courses is called ‘corporate riders’: we show real case-studies and explain how your competitors might use it to gain competitive advantage.
Do you think it is possible to be successful in Russia, which is often referred to as a highly corrupt country? There is a lot of opportunities in Russia. Judging from our expe-
The Kremlin added steel to a mounting campaign to squash the endemic corruption in Russia by launching the longawaited national strategy to combat corruption. Dmitry Medvedev sketched out the strategy at a government meeting that will help reduce graft that is siphoning off upto a third of Russia's entire economic output into bureaucrats' pockets. Medvedev has made the drive to stamp out bribe taking and giving one of the main themes of his presidency. The campaign has seen senior officials and state bureaucrats sacked and jailed almost on a weekly basis since the campaign was quietly launched in the summer of 2008. But momentum has been building recently and in first two years of the campaign, Russian law enforcement agencies have uncovered over 260,000 graft cases, which is an increase of a quarter over the estimated levels in 2008, while the level of bribe-taking is up 5 pc between 2008 and 2009. RIR
rience, margins are higher here compared to China (excluding oil\gas and natural resources sector). Over 80 pc of our beer industry is controlled by foreigners. The banking industry does not face any restrictions either.These industries are smaller than our natural resources industries and that is why people talk less about them, but there are plenty of success stories here. Russia is a very complicated and varied country and we are in the transition period and still have a long way to go before a sound legal system is created. The perception of many foreign businessmen is that the rules of the game are more clear in China than in Russia and they prefer to have business in China. This is the difference.The problem in Russia is that you have so many different interest groups and the rules of the game are less clear. So it is not really a question of a corrupted v/s noncorrupted state but rather making the rules clear.
Following the collapse of the Soviet Union, the ruble was debased by years of hyperinflation. The dollar largely replaced the local currency as the only form of legal tender anyone was willing to accept and the bulk of savings were rapidly exchanged for dollars in an effort to keep their value. But since Russia's economy began to boom in 2000 and the ruble to appreciate, the population has turned most of their estimated $250bn worth of mattress savings back into rubles. RIR
Full version of the interview on www.in.rbth.ru
For more news, go to www.in.rbth.ru
Russia to close currency exchange offices
in@rbth.ru in.rbth.ru/letters
04
Cooperation
Russia india BUSINESS report
bookmarks
in association with rossiyskaya gazeta, russia THE economic times wednesday_APRIL 14_2010
www2.goldmansachs.com Goldman Sachs website en.wikipedia.org/wiki/BRIC Find more on BRIC www.skolkovo.ru Skolkovo Institute for Emerging Market Studies
continued from page 1
Over the longer term, in the past ten years, BRIC stock markets have displayed the biggest returns on investment.The fastest growth (724 pc) was demonstrated by Russia’s RTS Index, followed by Brazil’s Bovespa (301 pc), India's Sensex (249 pc) and China's Shanghai A Share (140 pc). Over the same period, the American Dow 30 lost 8.9 pc, and the British S&P 50 0 slumped by 24 pc. The bond markets look similar: in Russia, the market appreciated by 575 pc; in Brazil by 273 pc and in China by 100 pc. Admittedly, this year, market growth in the BRIC countries wasn't as dramatic. However, according to Reuters, the BRIC countries still dominated activity on the IPO market (67 pc). Primary and secondary public offerings exceeded the previous year’s issues almost fourfold. BRICs play the trump card Having survived the global crisis, what will the BRICs do next
– carry on where they left off or change the game plan? Leaders of the BRICs have at least two trump cards up their sleeves, which they could use . The first is ditching the US dollar as the medium of exchange within the club. This issue may be brought up during the BRIC summit, although Jaguaribe attempted to dampen speculation that a decision would be taken any time soon. Quoted by Russian website Vedomosti.ru, the Brazilian diplomat said that though member countries could dismiss the dollar for mutual trade, “they also understand that haste in this issue could lead to losses". Current trade volumes between the BRICs are relatively small but expanding rapidly. According to Skolkovo, from 2000 to 2008, the internal trade volume between BRICs grew tenfold, from $15.3 bn to $158 bn. The Institute predicts that trade between the BRIC countries will grow at an annual rate of 12 pc, reaching $1 trln by 2030.
To put that into perspectve: that’s 50 pc more than the current volume of bilateral trade between the USA and China. Almost half of this volume ($450 bn) will be accounted for by trade between China and India. Following them will be China– Brazil and China–Russia trade, worth $200 bn, or approximately equal to the current trade volume between the USA and Japan. Hitting those figures depends on the BRICs countries staying on good terms with each other, which is far from certain in a scenario where competition will intensify. Possible sources of friction could arise from deciding whose currency will be the main medium of exchange. Experts point out that Brazil, Russia and India will be wary of swapping the dominant American dollar for dominant Chinese yuan. The second trump The second trump is potentially even stronger and it could be played on dinner tables around
the globe: coordinated control of the world food supply. According to information published during the March meeting of the BRICs agriculture ministers, the club produces 40 pc of the world’s wheat, half of its pork, and a third of its beef and poultry. The territory of BRIC members includes 32 pc of the Earth’s land under cultivation.At the same time, over 40 pc of the Earth’s population live in BRIC member states. According to the Russian press, during the meeting in Moscow, the ministers signed a joint declaration setting the priority areas of cooperation in the agricultural sector. In particular, the declaration stipulates foundation of an agricultural knowledge base. It will allow a comprehensive analysis of food safety and coordination in the formation of national food reserves. Ministers have also agreed upon the development of a joint strategy regulating the creation of social food supply systems, since a sizeable part of the BRICs’population is under-
privileged and requires support from the state. While the BRIC members may not try to form a fully-fledged price-fixing cartel similar to OPEC, the potential to control what food goes where should not be underestimated with the world population rising and existing resources stretched to the limit. “Cooperation in the agroindustrial sphere will be key for BRIC. Russia and Brazil have colossal potential for the manufacture of all kinds of products, while a very large part of the planet's population lives in China and India,”said Arkady Zlochevsky, President of the Russian Grain Union. The Russian Ministry of Agriculture freely admits the aim of the quadrilateral declaration is ultimately to“influence global processes more efficiently” though it adds that also it includes provisions to make sure BRICs citizens don't go hungry. “They have the money but we have the food.”In the age of the BRICs, it's uncertain which is more valuable.
konstantin zavrazhin_rg
BRICs provide food for thought
Interview Russia is likely to be the best performer of the four this year, believes Jim O’Neill
Goldman Sachs' head of research and the man who coined the term "BRIC", Jim O’Neill talks about how the crisis has impacted the countries. ben aris
business new europe
Coining the term "BRIC" in 2001 by Goldman Sachs' Head of Global Economics Jim O’Neill caused quite a revolution. Following Russia’s drubbing in the recent crisis, some sceptics have suggested dropping the R in the acronym, but O’Neill claims that his original forecast that Brazil, Russia, India and China will increasingly challenge the world’s developed economies is now closer to realisation than ever. Indeed, he sees the BRICs – and especially their emerging
hordes of consumers – as the main drivers of global growth for the foreseeable future. If anything, the crisis has only catalysed the catch-up process the BRIC countries have been enjoying. Six years ago, O’Neill suggested that the BRIC economies would equal the G7 in size by 2040 or so. With the group having contributed 45 pc of global growth since the start of the crisis in 2007, he now projects that the meeting point could now come as early as 2032. “What does seem clear,” says O’Neill in an interview broadcast on the bank’s website,“is that the global credit crisis and its aftermath have caused more damage to the major developed economies than to the BRICs.” “If there’s one big eye-catching surprise, it’s the speed of the development of size of the BRIC
economies,”says O’Neill.“Collectively, they now make up 16 pc of global GDP. Each of them has reached a level of dollar GDP value that we didn’t think possible until 2015.” China has been the undisputed winner for the global meltdown, but O’Neill says that Brazil and India have also been big winners, exceeding all expectations. Russia’s poor performance since start of the crisis has“disappointed”,but he says, it has performed better than most realise: Russia’s average GDP growth since 2003 – and including the 7 pc plus contraction in 2009 - has been only slightly below the average 5 pc a year. “Although Russia has struggled through the crisis, we see little reason why it should not still be regarded as a BRIC, and we still believe that Russia
BEN STANSALL_afp
BRICs weather the global storm
Jim O'Neill, Head of Global Economic Research for Goldman Sachs
could become bigger than Japan,”says O’Neill. The BRIC consumer to the rescue Ironically, the crisis has probably been good for China, he suggests, as it’s made the needed shift from export-lead growth to concentrating on developing its domestic consumption as a
driver for growth.Although not on the same level, the same is true of Brazil and India. “Thinking about the population of those countries, the fact of the matter is that close to three billion people around the world, which is half of the world's population, haven't really been touched by this crisis in the way that most people talk about.”
That 50 pc of the globe is providing much needed growth to replace dwindling demand in developed economies for sectors across the board, be it the auto industry, mobile phones or commodities. O’Neill points at the average monthly subscription rate for mobile phones in just India and China as one example where 32mn people per month are signing up in those two countries alone. That’s the equivalent of the entire UK signing up every two months. “It’s a relief for the world,”says O’Neill,“because in many ways the BRIC consumer is taking over the mantle of key marginal driver from the US”. Time to invest then … ? Despite his enormous expectations for the BRIC economies, O’Neill sounds a note of caution to those looking to invest in stocks in the four countries this year, except for Russia. The recovery of equity prices in Brazil, India and China were so strong in 2009 that valuations are no longer as compelling as they were last year. CONTINUED on page 5
bookmarks
www.rts.ru Russian Trading System Stock Exchange www.micex.ru Moscow Interbank Currency Exchange www.businessneweurope.eu Business magazine focusing on emerging European markets
Finance
Russia india BUSINESS report in association with rossiyskaya gazeta, russia THE economic times wednesday_APRIL 14_2010
05
Funds The market is young, but in each cycle, it gets stronger
Russia is a PE desert The global crisis has depressed private equity investment everywhere, but in Russia the business has yet to get going, despite offering some of the most attractive returns in the world. nick watson
business new europe
The BRIC leaders must show the ability of the club to deploy its collective economic weight towards solving internal and global challenges.
5
Goldman Sachs' facts ABOUT BRICs
1
The BRICs could become as big as the G7 by 2032, about seven years earlier than we originally believed as possible.
CONTINUED from page 4
On the other hand, anticipation of monetary tightening to reduce liquidity in the economies could make investment in equities risky. Russia however stands apart from the others here. Having taken a far harder hit in the crisis, and with sluggish economic recovery to date, there’s a lot more scope for appreciation.The earlier stage of recovery in the Russian economy also means that monetary tightening is not on the agen-
2
4
3
5
Between 2000 and 2008, the BRICs contributed almost 30 pc to global growth in US dollar terms, compared with around 16 pc in the previous decade.
Since the start of the financial crisis in 2007, some 45 pc of global growth has come from the BRICs, up from 24 pc in the first six years of the decade.
da. It’s for these reasons that O’Neill says that the one BRIC he likes best,“for 2010 is the one people keep saying we should exclude from the group – Russia.” The challenges ahead O’Neill says Russia is the BRIC that has the most fundamental issues to address.“As has been illustrated in the crisis, Russia is too dependent on commodities prices, still has corporate governance issues, and has weak demographics.” Elsewhere, he sees Brazil’s challenge as simply getting used to
Long-term projections suggest that the BRICs could account for almost 50 pc of global equity markets by 2050.
BRIC economies will likely account for more than 70 pc of global car sales growth in the next decade. (as per December 2009 figures)
people being in love with it.“It’s managed to keep inflation relatively low and stable. It’s attracting a lot of capital flow, but has introduced controls to reduce the attraction.” Meanwhile, for India the issue is tough, but straightforward: infrastructure.“The new government is talking big about rapidly increasing road building,”he points out.“If they manage it, then that would be a fantastic positive development. But as very often with the Indian government, you have to ask how serious they are about what they say.”
Money. It’s the air that entrepreneurs and fast growing companies breathe. It is also hard to come by for those in Russia and the current crisis has just made it a lot harder.The Kremlin has started a big push to modernise the Russian economy, but while in the west, anyone with a really good idea and a bit of development under the belt can usually find cash to continue; in Russia the nascent private equity (PE) business has been given a messy nose and will take years to recover. Richard Sobel, the head of Alfa Capital Partners, is the old man of Moscow’s nascent private equity business.He has been working and investing into Russian business since the Iron Curtain fell in 1991 but after almost 20 years in the game, he still refers to Russia’s PE sector as a“young market”. Russia’s PE industry was just getting going in the boom years, but was still very lopsided. Prior to the crisis, Russia boasted about $40 bn of private equity funds, according to Michael Calvey of BaringsVostok Capital Management, another doyen of the market. Of this money, only about $5 bn was institutional money managed by professional (almost all western) fund managers.The rest was the oligarch’s money that they were investing into anything other than the sector that made them rich in the first place. By 2007, this oligarch money was becoming more sophisticated and several of Russia leading businessmen had hired professional fund managers to invest their billions. But the crisis hurt Russia’s super-rich more than anyone else and almost all the oligarch money has evapourated. Sobel’s fund has $611mn of assets under management, of which it has invested about $300 mn. But most of what is left of the PE assets under management now belongs to the international financial institutions like the IFC and the EBRD.
“The Russian PE market is young but in each cycle, it gets stronger,”says Sobel, speaking at the C5 Private equity conference in Moscow in March.“The current downturn is to be expected. Private equity is an inherently cyclical business and the extremity of Russia’s cycles exacerbate these flows [of money].” For most funds, 2009 was a year of simply surviving as the game went from expanding into the regions as fast as you could, to consolidating assets and improving operational efficiencies. “You could find yourself in the position where your company was still profitable but managing the debt and credit repayments became really hard,”says Sobel.“Still, most banks were willing to sit down and discuss restructuring,so there have been
Now, the economy seems to have passed as bottom investors are getting interested in growth again. KPMG predicted in a recent report that the volume of mergers and acquisitions would go up by half this year over 2009 to around $70 bn. However, the same report went on to say it could take more than five years until the peak levels of deals seen in 2007 are reached again, when the volume of funds invested reached $125 bn,or about 10 pc of GDP. Russia has never been an attractive destination for international PE funds because of the perceived risks.Fund raising surged between 2005 and 2007 to reach a total of about $5 bn almost all of which was invested. However, Russia will struggle to raise money now and was already lagging behind its BRIC peers: Russia’s PE ranking in terms of assets under management has fallen from sixth to ninth place The Russian PE amongst the emerging markets, while China, Brazil and India market is by far the have retained their slots of first, best performing second and third respectively. of any PE market in “Making a list of the risks you the world will face in Russia is easy,”says Sobel.“They are all there – every risk you can think of. ” relatively few distressed sales.” Enough to put anyone off? It Most Russian companies put in would be, except that Sobel goes flat sales growth in 2009, but on to point out that investors are thanks to inflation and the ru- amply rewarded for taking these ble’s appreciation that trans- risks. Russian PE investments lates into a 20 pc real fall in sales have returned 7.2 pc, 24.1 pc and in ruble terms and 30 pc fall in 15.6 pc over the last three, five dollar terms, says Sobel. On the and ten years respectively, makflip side, the cost of business has ing it by far the best performing come down considerably and it of any PE market in the world, has become much easier to find let alone its BRIC peers. experienced managers. And even with this stellar As the main source of invest- growth Russian companies rement capital remains a compa- main very cheap. The average ny’s own funds, most had a stock company valuations are 8-10 of cash at the start of the crisis. times EBIDTA against the other Some fund managers thought BRIC valuation multiples in the that they would be able to pick high teens or close to 20. up some real bargains as the cri- Russia’s economy has now clearsis hit.They were wrong.Valua- ly passed bottom and owners are tions held up really well at first getting more confident again. If as owners were reluctant to let they got this far, then they will their babies go. But as the cash probably see the course through ran out some owners changed to the end. Sobel says that the their tune. time is now to get into the game “In 2009, we saw the valuations for private equity funds. come down slowly at first, but “The opportunities now are then they started to fall fast,” much better than they have been says Sobel. However, other fund for years,”says Sobel.“The valumanagers say that the valua- ations are lower and there is altions of the best companies – the most no competition.” ones that they were most interested in – didn’t move and cheap For more, go to companies were often not worth www.in.rbth.ru buying.
Technologies
in association with rossiyskaya gazeta, russia THE economic times wednesday_APRIL 14_2010
The virus warrior He has built Kaspersky Lab into an anti-virus software dynamo. He tells us about his ambitious strategy for long-term growth
Jessica Bachman
Exceptional magazine
Eugene Kaspersky began studying computer viruses in the late 1980s, when PCs in Russia were only available at a handful of elite government institutions. Now he’s built a $329 mn empire around the virtual bugs, designing software that sniffs them out and kills them off before they wreck his clients’ systems. Founded in 1997, his namesake company, Kaspersky Lab, is now the world’s fourth largest anti-virus software company. With a whopping 76pc growth rate between 2007 and 2008, it’s also the only Russian firm that holds a place on a list of the world’s top 100 software companies by revenue, coming in at number 76 in 2008. Kaspersky Lab still lags behind American anti-virus giants Norton and McAfee and Japan’s Trend Micro, which had $5.8 bn, $1.6 bn and $848 mn in
revenues in 2008, respectively. But Kaspersky shrugs off the competition.“We all know from sports that the winner is not the team with the largest budget, but the one that plays better,”he says. In the anti-virus game, it’s the company with the most brains that wins. Kaspersky Lab’s security experts and malware analysts are always on the move, developing new programs to speed up the detection and neutralisation of threats. Kaspersky mentions types of malware (malicious software) with perplexing names: worms, Trojan horses, spyware botnets, rootkits, bootkits, backdoors and zero-day attacks. More than 3,500 signatures that detect threats are added each day to the company’s database, which is already replete with around three million signatures. With new malware being born every second, Kaspersky claims that recruiting programmerscum-virus busters to his already top-notch international team is a priority — you must know how a virus is built in order to create its antidote. Since January 2009, 25 new software engineers have signed on from St. Petersburg. Before they joined, however, they made
it clear that they wouldn’t shift away from the northern capital; Kaspersky and his HR department never once attempted to convince them otherwise. “They wanted to switch companies but didn’t want to move to Moscow. So we said fine, and set up an R&D office in St. Petersburg just for them,” says Kaspersky.“How could we have done otherwise? People are our most valuable assets.” Harnessing mathematical and engineering prowess has been the key to Kaspersky’s entrepreneurial success. In 1991, the year the Soviet Union was dissolved and four years after he graduated with a degree in mathematical engineering from Moscow’s Institute of Cryptography,Telecommunications and Computer Science, Kaspersky was offered a job designing anti-virus protection programs for a Ukranian computer import company. “I had been studying viruses as a hobby, but I never knew that I could make money from this hobby,”says Kaspersky. So when the offer came up, he jumped.“I thought to myself, ‘Wow, I can buy a car with the money they’re offering’,”he says.“Well, I could have bought a used car but a car’s a car, and it was 1991. The economy was not doing well.”
oleg prasolov_rg
IT security Eugene KASPERSKY
Moscow in the early 1990s conjures up stereotypical images of underworld characters. But well beyond the streets, one young mathematician was building up post-Soviet Russia’s reputation as a nation of brilliant cyber crime fighters.
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The project, however, was a temporary one and, soon after it ended, a former teacher offered him a job doing similar anti-virus work for Kami, one of the first Russian hard and software firms. The company gave him a computer and about $100 a month, and Kaspersky considered himself lucky. “I was a one-man band doing antivirus work at Kami until two old friends approached me asking about a job,”he says.“I knew they were brilliant engineers, so I convinced the owner that we needed to bring them on.”
From the ground up
For the first few years, the team’s prowess in developing virus detection and disinfection software flew under the radar. “Kami was selling domestically, but the software market was practically non-existent in Russia,”Kaspersky says. But in 1994, after Hamburg University’s Computer Science D e p a rt m e n t r e c o g n i s e d Kaspersky’s antiviral toolkit as the best anti-virus scanner in the world, the phones began ringing. Kaspersky’s three-man team was soon inundated with antivirus software licensing requests from European and American computer companies, but the administrative and sales work involved in international contracts soon became too much to handle. It was cutting into their lab time, which they could not afford. Kami was barely breaking even at the time and it didn’t have the funds to get a seasoned sales director. So Natalya, Kaspersky’s wife at the time,also from a technical background,agreed to join. She proved extremely adept at sales and PR, and became the driving force behind the team’s
www.kaspersky.com Kaspersky lab website www.drweb.com Dr.Web - a 100 pc Russian company developing and distributing award-winning anti-virus www.ictrussia.com IT and telecom sector in Russia
decision to leave Kami to set up their own exclusively anti-virus software firm in 1997. As Kaspersky was already well known in Europe and Asia, Kaspersky Lab’s stock grew dramatically. Between 2000 and 2005,the company launched operations in all major markets, including the US, Japan and China. The company now employs more than 1,500 people internationally and is continuing its global regional expansion. It has a direct presence in and around 30 countries, with a new office in South Africa and one soon to open in India. Mounting interest in Kaspersky antivirus software in the US, a traditional Norton and McAfee stronghold, has also prompted the company to set up an office with an expert analyst team on the West Coast. Without a reevaluation of compensation packages, however, convincing SiliconValley techies to join will prove challenging. “We’re still a private company, so we can’t offer stock options. But our compensation program is one of the most important issues discussed at board meetings, and we’re fine-tuning it,” says Kaspersky. Stock options, at least, won’t be on the cards for sometime. Kaspersky Lab was ready to go public in 2008, but the financial crisis came in the way. “We don’t see any reason to rush it now,” Kaspersky says. “The company is profitable anyway and doesn’t need any extra funding or back-up.”He adds that the board will follow its“initial plans”once the economy recovers. But the financial downturn hasn’t dampened Kaspersky’s ambitious organic growth strategy, which does not, he is eager to point out, include even a mild M&A drive. What it does involve is the aggressive expansion of the company’s enterprise segment, targeting small businesses and corporates. This lesser-known
part of the company’s product line carries comprehensive security software for all types of network nodes: workstations; smart phones; file and mail servers; and Internet gateways. It protects incoming and outgoing data transfer, including email, web traffic and network interactions from all types of computer threats.
Planning for the future
Securing more corporate contracts will drive long-term growth, explains Kaspersky. “Success in the consumer segment is important too, but there is little brand loyalty with home users,”he says. With businesses, he notes, it’s a different story. Once they find a security system they trust, they will stick with it. And this means a more sustainable revenue stream for Kaspersky Lab, whose enterprise segment also includes service and consulting agreements. Kaspersky Lab hopes to become the world’s third largest anti-virus software company by 2011. This would mean overtaking Trend Micro, which was roughly three times as large as Kaspersky Lab in 2008. Although the Lab is already number two in the European retail market, it has so far only captured 5 pc of the global market share. The firm’s global approach, Kaspersky feels, holds the key. “For our American competitors, the domestic market is the major cash cow,”he says.“But we’re different. We’ve never been a Russian company because our major markets have always been outside Russia.We know how to behave differently in different countries and pay close attention to local features. “It’s our global approach that will move us forward.” First published in the Exceptional magazine Ernst & Young (February-March 2010)
The other Kaspersky At the helm of Kaspersky Lab as CEO until 2007, Natalya Kaspersky — now Chairman of the Board — has scripted the company’s success story. In 1997, with no start-up capital and no big investors on the horizon, she knew that that the fledgling anti-virus company badly needed contracts from companies who could pay upfront. The turning point came when she clinched two licensing deals with German and Finnish software companies, which enabled KL to stay afloat. In 2000, Natalya decided to focus on Europe’s retail sector instead of the online market. The strategy worked. Kaspersky Lab is now the number two security solutions vendor in the European retail market, while ranking
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fourth worldwide. In 2007, Natalya became chairman of Kaspersky Lab. She also took up another project at her daughter's company, InfoWatch, which specialises in protecting companies’ networks from internal, not external, threats.
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Technologies
Russia india BUSINESS report in association with rossiyskaya gazeta, russia THE economic times wednesday_APRIL 14_2010
07
3D television hits jackpot in Russia CONTINUEd from page 1
Dogs in space – a 3D odyssey
Centre of National Film
The number of people who own televisions with the proper format is hundreds of times greater. In Moscow, almost every third family now owns an HD television, and the cost of HDTV televisions drops every year. Today, most television sets sold in Russia have the HD format. And it would seem that interest in HDTV has not been dented by the severity of the recent financial crisis. Production of 3D television equipment has started in the Kaliningrad region. According to deputy prime minister Sergei Ivanov, who recently visited the plant, the cost of the 3D television, receiver and glasses is still fairly high.“But as the economy develops, and people’s interest in quality grows, this market will expand,”said Ivanov. And it may well be that the subscriber base for this newformat television will grow after General Satellite and Samsung have organised (as planned) production of this equipment for Russia’s largest satellite operator Tricolor TV, whose subscriber base even now numbers several million users. “In Russia, the HDTV market is far from saturated, while the battles for 3D subscribers haven’t even begun,” said
Maxim Savvatin, an analyst at iKS-Consulting. “They will take place on the field of content, where the choice in 3D will be even smaller than in HD.” The cost of an HD television that supports a three-dimensional picture ranges from $900-$1500, stereoglasses from $200-$260, a receiver and a year’s subscription to HDTV over $500. The 3D TV market relates to high-quality services of the next genera-
tion,”said an analyst at Incor Alliance.“That means that it will be in demand only in large financial and industrial centers in Russia. The potential market is estimated at 200,000 to 300,000 sets.” In Russia, a home movie theater used to be considered a luxury, but now even mid-level managers will be able to buy themselves the necessary equipment. And the cost of stereoglasses and a receiver will not keep them from
switching to a 3D format. How quickly the new technology becomes widespread will also depend on content. Giants such as Sony, Pixar and Disney have stated that they are interested in 3D, and experts estimate that by 2013, the 3D market will total $15.5bn. Technologies for making an existing picture 3D are expensive, but it is possible to rent the equipment and software. Russian suppliers of
Following the popularity of James Cameron’s Avatar on Russian screens, the country’s own Centre of National Film (one of the largest film studios during Soviet times) has produced the first modern Russian animation in 3D. 'Belka and Strelka' is based on the true story of two dogs who were sent into space in 1960: the release of the cartoon marks the 50th anniversary of their flight. During the early stages of the Soviet space programme, the animals were sent into space to test life-support systems aboard spacecraft. The real Belka and Strelka returned safely to earth, and Strelka later gave birth to puppies. One of the puppies
was sent to Caroline Kennedy (daughter of then US President John F Kennedy) as a gift by Soviet leader Nikita Khrushchev. In the cartoon, the dogs are shown being caught on a Moscow street and taken to a research centre where they are trained for space flight with a series of tests and sessions in a spinning centrifuge. Then it's time for them to blast off into space, along with a fast-talking rat called Venya - in real life, the dogs travelled with mice, plants and insects. Belka and Strelka do not just spend a day in orbit, but go on a space walk and even change the batteries in a Soviet Sputnik.
content appear ready to get involved in the new market after satellite technologies passed the 3D test last year. Then, British subscription channel Sky broadcast a Keane concert live in 3D, while in France, the Mozart opera Don Giovanni was broadcast in spacialised sound and 3D video-images from the Rennes Opera. In late January of this year a London pub showed a 3D broadcast of a soccer match
between Arsenal and Manchester United. Eyewitnesses say the bar was jam packed and the sensation of watching “simply fantastic”. Today, a number of Russian companies are participating successfully in international projects connected with 3D. M r I va n ov re c e n t ly a n nounced that in April a gala ballet performance, featuring Maya Plisetskaya, will be broadcast throughout Europe in 3D.
Auto industry Gearing up for production of low-priced cars
A new race for making lowcost cars has swept the Russian market. Russian oligarch Mikhail Prokhorov is the latest to join the fray with his dream of the world’s first hybrid vehicle. Nikita Afanasyev rir
Billionaire Mikhail Prokhorov recently met Prime Minister Vladimir Putin and President Dmitry Medvedev with an ambitious plan to build a low-cost hybrid-fuel car in Russia. The car will be made byYarovit-Motors, a truck maker based in St. Petersburg, in collaboration with Prokhorov’s ONEXIM group. The new model is expected to cost €8,888 and will feature a hybrid engine fueled by both, battery-stored electricity and petrol or natural gas. Prokhorov plans to invest upto €100 mn in the
project. Construction of golfclass vehicles is to begin early next year with the initial target of producing 10,000 vehicles a year.The production will start in mid-2012. Russian Minister of Industry andTradeVictor Khristenko is confident that the investment will be paid back when the sales reach 600,000 vehicles. The Eco hybrid car, according to Russian media, will be 3.657 m long, 1.8 m wide and 1.6 m high. The maximum speed will be 120 km per hour, and the car will be powered by a lithium-ion battery, and an electric motor coupled with a 0.6-litre combustion engine producing a combined 70 horsepower. Prokhorov’s pet project in Russia has stunned industry experts as there is no back-up infrastructure, including charging stations, in the country. Besides, incentives like toll road and parking discounts for owners of
electric cars given in other countries are missing in Russia. Building a network of maintenance and repair service, too, will be a costly affair. Besides the costs, two years are not enough to develop a new vehicle even with innovative technology, says Pavel Lyamenkov, deputy sales manager at the Torgmash dealership. But while questions are being raised about the viability of the hybrid car, a new race for making low-cost cars has swept Russia. Four years ago, German Volkswagen announced plans to produce a new Polo-based sedan (B class under the EU classification) tailored to the needs of Russian customers.Originally priced at $10,000,the German carmaker scaled up the price of the new car to $14,500 last October.The sedan will be showcased this year at the Moscow International Automobile Salon.
alexandr drozdov_photoxpress
A nice, cheap ride
Billionaire Mikhail Prokhorov says his new hybrid car will be built in Russia's carmaking hub Togliatti
The company also plans to launch the production of a budget version of the Skoda Octavia there. Skoda has other surprises in store: it is planning an automobile based on A00 which is likely to enter the Russian market in 2011-2012. Fiat, too, is eying the budget car segment with plans of a small car priced under $10,000. The Indian carmaker Tata stunned the world by rolling out the world’s cheapest car, the
Nano, in January 2008. Tagged at $2,500 for the Indian market, it took four years to develop the car before it entered the market. The Nano, Ratan Tata, CEO of Tata Motors said, was designed to provide an alternative to middle class families in India who choose scooter for family commuting. Two years ago,Nissan Motor Rus unveiled plans to establish a joint venture with the Indian Bajaj Auto for a low-cost model
starting at $2,500, which would be manufactured in India. The project is yet to take off. Another affordable model was shown by Toyota at the Indian salon in January 2010. The car, expected to be priced at $10,000, will be marketed in India, other Asian countries, South America and Russia. In 2012,Russia’s largest carmaker AvtoVAZ is planning budget B-class cars based on its Kalina model, with design tie-up with Renault. Experts say that tiny vehicles like the super-cheap Tata Nano don’t have much of a chance in the Russian market in view of severe Russian winters.Volkswagen’s budget model, however, can succeed as it has been adapted to the Russian market’s needs. “To my knowledge, this model will cost from $12,000 up and will take its place between the Renault Logan and the midrange Ford Focus,”says Konstantin Prokhortsev, a car expert. “The low-cost sedans have a lot of potential in Russia,”he says. Full version of the article on www.in.rbth.ru
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IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA THE ECONOMIC TIMES WEDNESDAY_APRIL 14_2010
www.russiaprofile.org Russia profile magazine, see Culture & Living section en.rian.ru/sports RIA Novosti newswire - sport sochi2014.com Sochi 2014 Winter Olympics website
Corporate sport An important part of the Russian business culture, it plays an active role towards fostering team spirit
ARTYOM MIKHAILOV RIR
According to the ANCOR HR agency, sport-related compensation is offered by 21 pc of Russian and 18 pc of Russia-based foreign firm averaging in real terms to $98 and $738 respectively. Why are companies willing to spend all that money? They enhance their reputation by demonstrating that they care about their staff and treat them as individuals with a wide range of needs rather than hired biorobots. Sports help narrow the social gap between the rank-andfile and management as well as develop team-player skills. Football is clearly the number one corporate sport in Russia. It is not, however, the conventional type of soccer with eleven players on each team. For managers and top executives, it is more practical to play indoor soccer or use a quarter of a standard pitch, with five or six players a side. “My work is sedentary and stressful so a game of football sheds both, calories and stress. I generally play three or four times a week,” says Oleg Lanskoy, the managing director of a big transport company. Leonid Edlin, Creative Director at the IntelSport corporate event agency says that the demand for football training programmes exceeds supply. “There are a few available pitches of decent quality that could be conveniently leased outside working hours: in the evenings on business days and on weekends. It is particularly hard to find indoor or heatedturf fields for the winter season. So there is plenty of room for investment in this segment,” says Edlin. As for the number two corpo-
To advertise in this supplement contact Julia Golikova golikova@rg.ru ph. +7 (495) 755 3114
ANDREY LUKIN_ITAR-TASS
Paintball is becoming an increasingly popular activity in Russia
VASILIY SHAPOSHNIKOV_KOMMERSANT
The Russian business community is investing generously into sports, encouraging their staff to stay in shape.
VIKTOR POGONCEV_PHOTOXPRESS
Games businessmen play!
Football is clearly the number one corporate sport.
rate sport, quite a few candidates are neck and neck: volleyball, tennis, billiards, paintball, and carting. Among less popular sports are hockey, basketball, ping-pong, and downhill skiing. The most elitist include squash, sailing and golf. Some sports such as polo, showjumping, car racing, and various kinds of extreme sports, are exotic for Russia and attract only a few connoisseurs. Football, volleyball and tennis are relatively affordable hobbies. Half of a football ground can be leased for $100 to $150 an hour, so each player spends no more than $10 per training session. Indoor venues, however, can cost two or three times more.
The cost of renting facilities and equipment can vary widely even for the same kind of sport. For instance, the price of renting a tennis court in Moscow ranges from $30 to $200 an hour, and the use of a volleyball court may cost from $30 to $100 an hour. To enjoy the most expensive sports, golf and yachting, you may have to fork over from $100 to several thousand dollars an hour depending on the quality and prestige of the location. Naturally, most businessmen prefer sports they played in their youth or childhood. Top executives or shareholders, who are passionate devotees of a particular kind of sport, often initiate company-wide pro-
Russia's richest man Vladimir Lisin is a master of shooting sports.
grammes to set up teams, conduct training sessions and take part in tournaments with other companies. Corporate sport in Moscow has turned into a big business. Executives who are chronically short of time commonly resort to specialised agencies to make the necessary arrangements. Moscow has a number of event agencies that organise corporate competitions.“Corporate sports are gaining ground fast in various industries,”explains Leonid Edlin. "Companies associated with metal products are keen on Russian billiards tournaments. The construction industry plays football and volleyball. IT specialists prefer bowling and American pool. Every weekend,
“A little growth would go a long way to earning Russia little more love...” “It’s about the atmophere of an oasis of recreation with delicious drinks, snacks, comfortable seats, wi-fi...” “My strategy has been to find the funnier side of life in Russia, and it works for me.”
Moscow sees multiple competitions in various kinds of sport and the number of new participants keeps growing. Although the crisis set back this segment too, we now see a brisk revival of the market.” Many companies conduct corporate Olympic games.Vneshtorgbank, the second biggest bank in Russia holds annual games attracting employees from over ten countries and 50 Russian cities to challenge their colleagues in golf, darts, carting, bowling, etc. At Sberbank and UralSib, both management and staff play on the same team. Pavel Makarevski, Deputy Director General at IMA Consulting says there is no class segregation in their company.
Catch the vibes of Moscow in.rbth.ru/blogs
Foreign businessmen and expats also take an active part in corporate sports events in Moscow. Teams taking part in indoor soccer games are often composed of German, American andYugoslavian businessmen. Expats take credit for importing the game of polo into Russia. Foreigners also constitute a sizable clientele of golf clubs in and outside Moscow. On the whole, there is hardly a sport, however exotic and rare, which you would be unable to enjoy in the Russian capital. To read more about popular recreations in Russia, log on to www.in.rbth.ru
This issue has been conceptualised by INTERNATIONAL MEDIA MARKETING, RESPONSE adqueries@ timesgroup.com Co-ordinator: • Feature Mehernosh Gotla (mehernosh.gotla@ timesgroup.com)