RBW: Winter 2007/08

Russia Business Watch Vol. 15, No. 3

winter 2007-2008

Washington, DC

The Quarterly Report of the U.S.-Russia Business Council

ANNUAL MEETING: Keynote Address: William J. Burns, U.S. Ambassador to the Russian Federation Page 5

Keynote Address: Alexander Zhukov, Deputy Prime Minister of the Russian Federation Page 9

15th annual meeting “Success in Russia: Moving Beyond Stereotypes�

Keynote Address: Elvira Nabiullina, Minister of Economic Development and Trade of the Russian Federation Page 11 Keynote Address: Igor Shuvalov, Aide to the President of the Russian Federation Page 15

Board of Directors

Russia Business Watch

Winter 2006-2007

E. Neville Isdell, Chairman of the Board Robert S. Strauss, Chairman Emeritus Eugene K. Lawson, President Theodore Austell, III, The Boeing Company F. Guillaume Bastiaens, Cargill, Incorporated Warren P. Browne, General Motors Corporation Martin A. Cannon, New Health Sciences, Inc. Stephen Chase, Intel Corporation Patricia M. Cloherty, Delta Private Equity Partners James F. Collins, Akin, Gump, Strauss, Hauer & Feld, LLP Richard A. Conn, Jr., Conn International Group LLC Ivan M. Dezelic, Delta Air Lines, Inc. Robert Droogleever, Caterpillar Inc. Robert W. Dudley, TNK-BP Terrence J. English, Baring Vostok Capital Partners Augie K. Fabela, II, VimpelCom Mark B. Fuller, Monitor Group Drew J. Guff , Siguler Guff & Company, LLC Jay M. Haft, Renova Group Shannon S. Herzfeld, Archer Daniels Midland Company D. Jeffrey Hirschberg, Kalorama Partners, LLC E. Neville Isdel, The Coca-Cola Company Karl Johansson, Ernst & Young L.L.P. Sergi Kaminsky, Washington Group International Lisi P. Kaufman, United Technologies Corporation Owen-Christopher Kemp, Hewlett-Packard Company David S. King, Halliburton Company Lamar McKay, BP America Paul Mountford, Cisco Systems, Inc. James J. Mulva, ConocoPhillips Roger Munnings, KPMG Peter B. Necarsulmer, The PBN Company Richard D. Paterson, PricewaterhouseCoopers Peter J. Pettibone, Hogan & Hartson LLP Thomas R. Pickering, The Eurasia Foundation William R. Rhodes, Citigroup Daniel W. Riordan, Zurich-American Insurance Company Peter J. Robertson, Chevron Corporation Paul Rodzianko, Access Industries, Inc. Charles Ryan, Deutsche Bank Ltd. Claudi Santiago, General Electric Company Gregory Stoupnitzky, Morgan Stanley Bernard Sucher, Merrill Lynch International Maurice Tempelsman, Lazare Kaplan International Inc. Rex W. Tillerson, Exxon Mobil Corporation Kevin Tomlinson, JT International Inc. Michael D. White, PepsiCo, Inc. Frank G. Wisner, American International Group, Inc. Daniel H. Yergin, Cambridge Energy Research Associates

Winter 2007-2008

Contents

Annual Meeting 3 nn Introductory Remarks: E. Neville Isdell 4 nn Corporate Comment: Vadim Balashov 5 nn Keynote Address: William J. Burns, U.S. Ambassador to the Russian Federation 33

9 nn Keynote Address: Alexander Zhukov, Deputy Prime Minister of the Russian Federation 11 nn Keynote Address: Elvira Nabiullina, Minister of Economic Development and Trade of the Russian Federation 15 nn Keynote Address: Igor Shuvalov, Aide to the President of the Russian Federation 18 nn Keynote Address: Ambassador John K. Veroneau, Deputy United States Trade Representative nn Panel: The 2008 Political Cycle

20 23 nn Panel: Russia in the Global Supply Chain 25 nn Panel: New Products for a Consumer Society 28 nn Panel: Projecting Russia’s Image Abroad 30 nn Panel: A New Era in Russian Energy 33 nn Panel: Russian Companies in the World Market 36 nn Panel: Russia’s Human Capital Challenge 38 nn Panel: Russia’s Regions — The Next Big Opportunity 40 nn Panel: Views of the U.S.-Russia Relationship 42 nn Основной Доклад: Александр Жуков 45 nn Основной Доклад: Эльвира Набиуллина 49 nn Основной Доклад: Игорь Шувалов

Russia Business Watch

The quarterly report of the U.S.-Russia Business Council 1701 Pennsylvania Avenue, NW, Suite 520, Washington, DC 20006 Tel: (202) 739-9180 • Fax: (202) 659-5920 • www.usrbc.org Moscow Tel: 7-495-291-2105 ditor: Svetlana Minjack • Assistant Editor: Jeff Barnett E Research Assistants: Elizaveta Arkhangelskaya, Kellen Moriarty, Anna Wallace Photography: Olga Muzio, Serge Semenov, Andrei Zubets Design: Svetlana Winslow

For additional information or copies of Russia Business Watch, please contact the Council at (202) 739-9180 or email RBW@usrbc.org.

PRESIDENT’S MESSAGE president’s message

our Gala Dinner. Russia’s new Minister of Economic Development and Trade Elvira Nabiullina presented remarks, as did Igor Shuvalov, Aide to President Vladimir Putin. The text of their remarks can be found in this issue.

In this issue, you will find a full reporting of the Council’s 15th Annual Meeting, held in Moscow on October 23-24, 2007.

The meeting, held in conjunction with celebrations of the 200th Anniversary of U.S.-Russia diplomatic relations, was by far our most successful to date. As always, the Council worked hard to bring its members and those involved in U.S.Russia relations a top-notch program that would generate discussion and provoke new thinking on the bilateral relationship.

I think we succeeded.

This year promises to be a significant one for the U.S.-Russia Business Council.

Not only will the year usher in new leadership in both the U.S. and Russia, but we at the Council are celebrating our 15th Anniversary. Our celebration plans include a 15th Anniversary Dinner on April 10 at the Willard Hotel in Washington, DC, where we will be recognizing General Brent Scowcroft and U.S. Under Secretary of State Nicholas Burns for their contributions to U.S.-Russia relations.

Finally, I would invite all of you to mark your calendars for our 2008 Annual Meeting, which will be held on October 6-7, 2008 at the Four Seasons Hotel in Washington, DC. We look forward to seeing you at a Council event this year.

With best wished,

Eugene K. Lawson

Winter 2006-2007

As you may know, I will be stepping down as President of the Council this spring. It was a difficult decision to make, but I am confident that I leave at a time when U.S.-Russia commercial relations are truly beginning to prosper. It

Already in 2008, we have seen the U.S. and Russia come to terms on an agreement on nuclear fuels, and it is our hope that more progress can be made in Russia’s WTO accession talks so that, finally, the country can join the world trade body under a commercially meaningful agreement. We also look forward to the lifting of the JacksonVanik amendment and the granting of permanent normal trade relations status to Russia — a move that is long overdue.

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We were fortunate enough to have had not only a great program for attendees, but also an impressive line-up of keynote speakers from both the U.S. and Russian governments and the private sector. U.S. Ambassador to Russia William J. Burns provided the opening keynote address, while Deputy Prime Minister Alexander Zhukov addressed attendees at

The Annual Meeting program featured a broad range of topics, from a discussion of the challenges faced by Russian companies in their efforts to expand outside of Russia to the growing labor shortage in the country and Russia’s efforts to create a more positive image of the country abroad. Reports on these and other panel discussions can also be found in this issue.

is my sincerest hope that the hard work that I have enjoyed being a part of over the past 15 years has created an environment where both sides can see the clear benefit of forging close ties in all areas.

We are nearing a period of great opportunity in the U.S.-Russia relationship, and I hope that those of us who support the flowering of this relationship can work to take advantage of this potential.

ОБРАЩЕНИЕ ПРЕЗИДЕНТА

Russia Business Watch

Winter 2006-2007

В этом номере вы найдете полный отчет о 15-м Ежегодном Заседании Совета, прошедшем в Москве 23-24 октября 2007 года. Заседание совпало с празднованием 200-летия американо-российских дипломатических отношений и стало самым успешным из всех Ежегодных Заседаний Совета за всю историю нашего существования. Как всегда, Совет приложил максимальные усилия для того, чтобы представить вниманию своих членов и участников американо-российских отношений интереснейшую программу, в рамках которой состоялись горячие дискуссии и были озвучены новые взгляды на на двусторонние отношения. Я считаю, что мы преуспели.

Нам удалось не только подобрать интересный темы для пленарных заседаний, но и привлечь выдающихся основных докладчиков, среди которых — ведущие государственные деятели РФ и США, а также лидеры бизнеса из обеих стран. Посол США в России Уильям Бернс выступил с основным докладом на обеде, открывающем Заседание, а заместитель Председателя Правительства РФ Александр Жуков выступил с приветственным докладом на торжественном ужине, завершающем первый день программы. Эльвира Набиуллина, новый Министр экономического развития и торговли России, а также Игорь Шувалов, Помощник Президента Путина, выступили с докладами во второй день Заседания. Тексты докладов можно найти в этом выпуске журнала.

Программа Заседания включала широкий спектр вопросов — от проблем, с которыми сталкиваются российские компании, стремящиеся расширить сферу своей деятельности за пределами России, до вопроса повышенного спроса на квалифицированные кадры в России и работы по созданию более позитивного имиджа страны за рубежом. Отчеты об этих и других пленарных дискуссиях вы также сможете найти в этом номере. Этот год — очень важный в истории Американо-Российского Делового Совета. В этом году и в России, и в США пройдут президентские выборы. В свою очередь, Совет в этом году отметмечает свое 15-летие. Праздничная программа включит юбилейный ужин 10 апреля в гостинице “Willard” в Вашингтоне, во время которого генералу Бренту Скоукрофту и Заместителю Госсекретаря США Николасу Бернсу будут вручены награды Совета за их вклад в американо-российские отношения. Как вы вероятно знаете, этой весной я ухожу с поста Президента Совета. Это решение было нелегким, но я убеждён, что ухожу в то время, когда российско-американское коммерческое сотрудничество начинает активно расширяться. Я искренне надеюсь, что напряженная работа, в которой мне посчастливилось принимать участие на протяжении 15 лет, способствовала созданию атмосферы, где обе стороны ясно видят преимущества тесного многогранно-

го сотрудничества. Мы находимся в преддверие открытия величайших возможностей в сфере российскоамериканских отношений, и я надеюсь, что те из нас, кто верит в расцвет этих отношений, приложат все усилия для того, чтобы использовать этот потенциал. Уже в этом году мы стали свидетелями разрешения разногласий между Россией и США по договору о ядерном топливе. Мы надеемся, что дальнейший прогресс будет достигнут и в переговорах по присоединению России к ВТО; и Россия, наконец, сможет включиться в мировую торговлю на основе коммерчески значимого соглашения. Мы также с нетерпением ожидаем вывода России из-под действия поправки ДжексонаВэника и предоставления статуса постоянных нормальных торговых отношений, чему уже давно следует случиться. В заключение, я приглашаю Вас отметить в своем рабочем календаре даты проведения Ежегодного Заседания в этом году — 6-7 октября 2008 года в Вашингтоне, в гостинице “Four Seasons”. Мы надеемся увидеть вас на мероприятиях Совета в этом году.

С наилучшими пожеланиями,

Юджин К. Лоусон

INTRODUCTORY REMARKS

nn October 23-24, 2007

E. Neville Isdell

nn Chairman and CEO, The Coca-Cola Company and Chairman of the Board, U.S.-Russia Business Council

The following is an excerpt of Mr. Isdell’s remarks on October 23, 2007. “…It is good to be back in Moscow, and it is a very significant year. I think Ambassador Burns will refer to this, but I would like to note that this year marks 200 years of U.S.-Russian diplomatic relations.

To start, I have one announcement to make, and it is something that comes from the Board meeting today. It is sort of sweet and sad, as it were, but Gene Lawson has decided that, after 15 years of building this organization, it is time for him to step back and, as it were, smell the roses. This is something that is going to be very difficult for the organization, because the heart and soul of the organization has clearly been Gene, and what we have today is of his creation. [USRBC General Counsel] Peter Pettibone and I were actually part of the original search committee, so we have spent these 15 years with Gene.

…This 200th anniversary does present

Winter 2007-2008

Gene’s greatest wish is that the legacy he leaves behind is of an organization that continues to grow and continues to get better. We are going to have lots of opportunities to thank Gene for everything that he has done, but at this moment I would like all of us just to give him one great round of applause.

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We have set up a search committee, which will be led by Maurice Templesman, Chairman of Lazare Kaplan. Gene will be a part of that search committee, and over the next six months or so we will go ahead with that search.

a real challenge for all of us. The challenge is how we in the private sector can be more effective ambassadors, both here and back in the United States, for these two great countries to benefit — both on the macro and micro scale — overall global human development. You have heard me say in the past that I believe that companies have a major role to play in the development of communities. I know that many of you here are very involved in the local communities E. Neville Isdell, The Coca-Cola Company in which you operate in community are eager to welcome Russia Russia, and I think that that is a into the WTO. We hope it will hapvery significant part of the commerpen soon, but we also know that it will cial partnership that we have with our only happen once Russia brings its trade partners and with the Russian people — that we continue to demonstrate that regime into compliance with the global we are a functioning part of this society. standards that are prescribed in the WTO. That is what the WTO is — a Not only do we provide jobs, not only rules-based system. do we pay our taxes, but we add back to the fabric of the society as well.

As those negotiations progress, we This is a good time for all of us as well. need to continue to make the case for I think most of us here are experiencing accession and make the case for all of the other enabling legislation that extremely good growth on the back of will eventually come before Congress. a growing economy. If you think back 15 years ago when we started, or even if Of course, I am referring here to the we think back 10 years ago, certainly the removal of the Jackson-Vanik amendspirit was very different. So we are here ment and granting Permanent Normal Trade Relations as well. against a really strong background in terms of how we are all doing economiWe have to be the ambassadors of cally in Russia. information to Capitol Hill, because clearly there is not a balanced view of Now, the big issue on the table, as what is happening in Russia today, and you know, is WTO accession, and it is we should be the ones that are helping something that has been on the agenda to provide that. It should not just be for quite a long period of time. The done by the people in our Washington negotiations are now certainly advancoffices, by our public affairs and coming again, and we in the U.S. business

Annual Meeting

ANNUAL MEETING 2007 Moscow, Russia

Annual Meeting

ANNUAL MEETING 2007 Moscow, Russia munications people. It needs to be by all of us, the leaders of the businesses, as well. There is a great deal of work underway, work that, as Gene mentioned, is taking place with the AmCham, but also in Washington with a very broad group, including the likes of the U.S. Chamber of Commerce, in terms of really bringing a coordinated business voice to this overall discussion.

CORPORATE COMMENT

nn October 23-24, 2007

As part of that effort, earlier this summer, Gene took Federation Council Senator Mikhail Margelov around the United States to visit some local business communities and local media. I know that he made a major impact.

From the comments that he has made, Senator Margelov also felt that just those contacts created a whole new level of openness and understanding with regard to the truth of the relation-

ship, particularly the economic relationship, and the importance of that economic relationship between the two countries. We look forward to facilitating some similar trips in the future in order to encourage more of that oneto-one dialogue, because the more that we have that interchange, the rhetoric — which tends to be recitation of old issues — will become a more logical discussion of real issues….” n

Vadim Balashov

nn Partner, Ernst & Young

Russia Business Watch

Winter 2007-2008

The following is an excerpt of Mr. Balashov’s remarks on October 23, 2007.

“…The 21st session of the Foreign Investment Advisory Council (FIAC) was held here last week, the first one in which Prime Minister Alexander Zubkov has participated. It was an open and constructive conversation, which helped enhance the dialogue between the Russian government and investors. This ongoing dialogue helped demonstrate that the Russian government has a continued commitment to reform, and it was stressed again and again that the government wants to create favorable and stable conditions for entrepreneurial activity and for attracting foreign capital to Russia.

FIAC interacts with the Russian government on multiple levels. A standing committee, chaired by the Minister of Economic Development and Trade, meets more regularly. There are working groups headed by representatives of FIAC members and deputy ministers, which work on a regular basis as well.

These working groups focus on tax,

accounting, financial and capital markets, and various aspects of regulation.

Together, they address the decisions and the recommendations that are then made and accepted at FIAC plenary sessions.

In the session held this month, participants addressed and made constructive suggestions on: the overall level of state regulation of the Russian economy, improvements in tax and currency policy, specific improvements Vadim Balashov, Ernst & Young in customs policy, and accounting and financial investment climate in Russia. From a reporting. There was a lively debate corporate view, the economic relationabout public-private partnership and ship between Russia and the United the development of high technology States is stronger than it is perceived companies. to be, and is stronger than the political relationship today. The business To conclude, I would like to say this: community needs to continue to work it is clear beyond doubt today that the together to get beyond the stereotypes business-to-business and business-toand work productively to prosper and government dialogues are extremely to meet the challenges of the 21st cenhelpful to the development of the tury.” n

KEYNOTE ADDRESS

nn October 23-24, 2007

William J. Burns

nn U.S. Ambassador to the Russian Federation

The following is an excerpt of Ambassador Burns’s keynote address on October 23, 2007.

That is not exactly an easy thing to do these days. In our broader relationship, mutual frustration often obscures mutual interest. Russians think that Americans tend to take Russia for granted, and are too quick to lecture, and too prone to double standards.

Americans think that Russians tend to assume the worst about American motives, and are too consumed with the centralization of power, and too quick to see enemies at the gate.

While the answers to those questions obviously matter greatly, for all sorts of reasons, it seems to me that it is the answers to the ‘what’ questions that will shape Russia’s future beyond the 2008 transition, and determine whether Russia will grow and prosper, or whether its current excesses will eat up its successes. What is Russia going to do with its hard-won stability?

What is Russia going to do with the moment of energy-driven economic opportunity that lies before it? What is it going to do with the chance to diversify beyond oil and gas? What is it Ambassador William J. Burns going to do to anchor its economic progress in the rule of law resurgence; in its integration into the and the modern institutions needed global economy; in its diversification; to sustain it? What is it going to do and in the investments in its physical, with its reborn role in the world? Only human and institutional infrastructure Russians can answer those questions, that will both ensure its long-term but how they do so will have profound prosperity and create opportunities for implications for the rest of us. foreign partners.

In our thinking about today’s Russia, both Russians and those of us who care about Russia and recognize its

In considering those questions, in looking at Russia’s economic future and the prospects for our trade and invest-

“…Thank you for this opportunity to speak to a group for which I have enormous respect, about a subject which matters enormously to the future of Russia and relations between our two countries. This year marks the 200th anniversary of our formal diplomatic ties, and it is a natural moment to take a step back, and reflect on where we have been and where we are going.

ment relationship, I am very mindful of my own limitations, and of the value of a little humility in trying to understand a society as big and complicated as Russia…. We do not have all the answers, but we do have a powerful interest in Russia’s continued economic

Let me highlight very briefly five of those ‘what’ questions, and how the

Winter 2007-2008

importance in the world, tend naturally to focus on the ‘who’ questions: Who is going to succeed President Putin? Who is going to occupy what position after the Duma and Presidential elections?

Who is going to prevail over whom?

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“The role of American business is crucial in making the case for WTO and for removal of the JacksonVanik amendment, whose continued application would prevent all of you from taking advantage of the new and more favorable terms of trade that will come with Russian entry into the WTO.”

…If Russia takes advantage of the moment of opportunity opened up by high energy prices and recent economic success, if it translates that into sound long-term decisions and solid institutions, a great deal is possible, and all of us will benefit. If it does not — if hard choices are avoided, power is hoarded and time and money are wasted — the missed opportunities will be a great loss for Russia and its remarkably talented people, as well as for the rest of us.

History has a very unsentimental way of opening up moments of opportunity and then bringing down the curtain, and wise leaders and wise societies understand that.

Annual Meeting

ANNUAL MEETING 2007 Moscow, Russia

Annual Meeting

ANNUAL MEETING 2007 Moscow, Russia growth of American business and economic ties can help in answering each of them successfully.

First, what is Russia going to do to integrate more fully into the global economy? As all of you know far better than I do, this is not an academic question.

The faster Russia enters the World

nn October 23-24, 2007

very hard with Russia to accelerate multilateral talks and complete accession.

Russia has more work to do, in its own self-interest, to bring domestic laws and regulations into compliance with WTO requirements on protection of intellectual property and other issues. For our part, the United States will spare no effort to support Russian accession.

“When people think about Russia’s economic future, they tend to think of what is in the ground, but the truth is it is what is up here, it is the tremendous potential of Russia’s resourceful, creative and well-educated people that sets this society apart from other countries that happen to be rich in natural resources.”

The role of American business is crucial in making the case for WTO and for removal of the Jackson-Vanik amendment, whose continued application would prevent all of you from taking advantage of the new and more favorable terms of trade that will come with Russian entry into the WTO. Another dimension of integration is making U.S.-Russian trade and investment a genuine two-way street. I know there are questions on both sides about the accessibility of the other’s market, with Russia in the midst of complet-

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Trade Organization and other key institutions, on the same terms and according to the same standards that apply to everyone else, the faster its industries will become more competitive, and the faster its economy will diversify. Russia is now on the last leg of what has been a very long journey with the WTO, and completion of multilateral accession talks is finally in sight. Following conclusion of our bilateral WTO agreement last year — which was in many ways the biggest single achievement in our economic relationship in the past decade — the United States has been working

Ambassador Burns (l.) talks with Neville Isdell during the Annual Meeting Opening Luncheon.

ing strategic sectors legislation and defining its rules of the road, and the United States updating its Committee on Foreign Investment in the United States (CFIUS) procedures on certain foreign investments. The truth is that it is in both of our interests to clarify these measures quickly. The further truth is that the American market remains one of the most open in the world. We have never turned down a Russian investment under CFIUS, and the revised procedures are meant to facilitate and streamline the process, not complicate it. Ours is an economy that thrives on its openness and connections to the rest of the world; in 2006 alone, new foreign direct investment into the United States totaled $161 billion — the highest single-year figure since 2000.

Russia’s share of that is growing, with the $2 billion acquisition of Oregon Steel last year an especially impressive example. Much more is possible, downstream in the energy sector, as well as in other areas.

In the meantime, American investment in Russia is expanding rapidly, up more than 50 percent last year alone. It is a phenomenon that is spreading well beyond Moscow and St. Petersburg, and that I have seen vividly on some 40 trips around the country over the last couple years, from Kaliningrad in the west to Chukotka, 11 time zones to the east and 30 miles across the Bering Strait from Alaska. The more American investment and business activity spreads, the more it helps Russia in the huge, historic task of developing Siberia and the Far East, as well as other parts of the country, and the more Russian business benefits from cutting edge business practices and technology.

A second, related question is: what is Russia going to do to diversify its economy beyond oil and gas? While it is true that high energy prices have been the main driver of Russian economic growth in recent years, the potential

to diversify beyond hydrocarbons is substantial — if the current moment of possibility is approached with vision and urgency. Even today, oil and gas exports amount to less than 20 percent of Russian GDP, compared to about 35 percent for Saudi Arabia, 30 percent for Venezuela and 20 percent for Norway.

When people think about Russia’s economic future, they tend to think of what is in the ground, but the truth is it is what is up here, it is the tremendous potential of Russia’s resourceful, creative and well-educated people that sets this society apart from other countries that happen to be rich in natural resources.

Tapping that potential and building an innovative, knowledge-based economy will require great and sustained effort, in which the roles of the private sector and foreign partnerships will be crucial.

Boeing’s success in Russia is one powerful example. Impressive as the sale of more than three dozen 787 Dreamliners to Russia last year was, it is only part of a long-term, mutually-beneficial

nn October 23-24, 2007

territory 25 percent of the world’s forests, and develop its wood and paper product exports. Dow Chemical’s expanding operations in Russia will add value in petro-chemicals and other related sectors, an obvious opportunity for a country which today is the world’s largest producer of oil and gas, but which has significant untapped potential in the processing industries that flow from that natural strength.

At the same time, American involvement in the energy, auto, consumer products, and services sectors of the Russian economy is growing in ways that benefit both of us. The partnership between Lukoil and ConocoPhillips is a quiet but extremely impressive success story, paying dividends not only in terms of Russia’s domestic energy development, but also in opening up new downstream opportunities and investments around the world. Russia has become one of the world’s fastest-growing markets for automobiles and consumer products. Companies ranging from General

There are many other examples, across a range of sectors. International Paper’s new joint venture will help Russia diversify beyond timber exports, a natural strength in a country which has on its

Motors and Ford to Coca Cola and Proctor & Gamble are helping to fuel Russia’s economic resurgence and creating jobs across this huge country — with more than 100,000 jobs in Russia today connected to American businesses and investments. …Let me turn to a third critical question: what is Russia going to do to improve its physical infrastructure? The Russian government’s ambitious new spending plans reflect an awareness of the obvious importance of this issue, because the fact is that without such

A fourth question revolves upon a different kind of infrastructure challenge, the most important part of any society’s infrastructure: what is Russia going to do to protect and develop its human capital? Anyone who has spent any time in Russia, or who has studied Russia’s history, cannot fail to be impressed — not only by what the remarkable people of this country have endured over the years, but what they have contributed to human civilization.

In the last century alone — whether it’s Pasternak in literature, or Shostakovich in music, or Chumakov helping to conquer polio, or Gagarin and the scientists behind him who launched Sputnik almost exactly 50 years ago and pioneered the exploration of space — Russians have demonstrated creativity and scientific potential as impressive as those of any other human beings

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partnership. Boeing’s Moscow design center, with its 1,400 highly-skilled Russian engineers, is a vivid reminder of what Russia has to offer at the high end of the technology sector. And so is Sukhoi’s development of its very promising Superjet, a regional jet project in which Boeing and other partners play a valuable supporting role.

Affordable housing is another large infrastructure challenge, especially as the middle class expands. There is much to be learned from the American experience over the last half-century or more — both from our successes, as well as our mistakes — in promoting affordable housing, developing efficient construction techniques and building mortgage markets. American experts look forward to participating, along with other specialists from around the world, in a seminar on affordable housing that the Russian government is planning to host in the coming months.

Russia Business Watch

“Companies ranging from General Motors and Ford to Coca Cola and Proctor & Gamble are helping to fuel Russia’s economic resurgence and creating jobs across this huge country — with more than 100,000 jobs in Russia today connected to American businesses and investments.”

massive infrastructure investment, without rapid expansion and upgrading of Russia’s roads, railroads, airports, and seaports, modernization and diversification of the economy of this sprawling country will simply not happen. The same is true in power generation sectors. Here, too, the Russian leadership is taking significant steps forward, with reforms needed to improve electricity generation and distribution in place, and plans underway to rationalize rates, promote privatization and attract private capital.

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Annual Meeting Winter 2007-2008 Russia Business Watch

ANNUAL MEETING 2007 Moscow, Russia on the Earth. However, how do you develop that potential, how do you protect Russia’s greatest resource — its talented people — without investing aggressively in the education and health care systems?

In large part, such far-sighted investment is the responsibility of the Russian government, which for the first time in two decades has the resources to devote to it. That is especially true in health care, where demographic decline could cripple sustained economic growth, and cause a stark drop in Russia’s labor force. It is also true in education, where a proud tradition, especially in science and mathematics, needs urgently to be preserved. The private sector has a crucial role to play as well, and foreign partners can do a lot. ALCOA’s scholarship program in Samara is just one example, and the new MGIMOUniversity of Texas partnership, as well as the other U.S.-Russian university partnerships that our two Ministers of Education announced yesterday, show what governments can do to encourage this process. The efforts to combat HIV-AIDS and other infectious diseases of the Global Business Coalition are another important example of what business can do to help deal with one of Russia’s — and the world’s — most urgent health crises.

It’s becoming more and more obvious, in today’s knowledge-driven world, that the measure of economic potential and the wealth of nations is more and more about human resources. As a recent World Bank study puts it, ‘Human capital and the value of institutions (as measured by the rule of law) constitute the largest share of wealth in virtually all countries.’

That leads me to a fifth and final question, about still another kind of infrastructure challenge: what is Russia going to do to build modern economic and political institutions, to create the institutional infrastructure essential to

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sustaining its current prosperity and growth? Without such institutions, without the rule of law to protect property, without checks and balances to hold officials accountable at all levels, without stable and predictable regulatory and investment regimes, it is impossible over the long term to attract capital and know-how, or to ensure a healthy economy, or to realize the full potential of Russia’s people and resources. How do you fight mounting problems like corruption without an independent media and an independent judiciary to shine a light on abuses and deter them? How do you lessen the weight of a bloated bureaucracy without sustained administrative reform and greater transparency? These are not abstract questions of political or economic values, nor are they about ‘preachiness’ or lecturing from Americans, for which I know Russians manage to contain their enthusiasm these days. They are questions for Russians themselves, first and

None of those challenges are easy, but Russia has before it a moment when it can deal successfully with all of them.

It is entirely possible that Russia could become, as some predict, the fifth largest economy in the world within the next couple of decades. It is entirely possible that Russia could diversify beyond hydrocarbons, and make its mark in other sectors, especially high technology. It is also possible to miss the moment, or fail to take full advantage of it. The choice is Russia’s.

For our part, for the United States and for American business, it remains profoundly in our interest for Russia to succeed economically, and I expect that trade and investment between Russia and the United States is going to continue to grow rapidly.

I mentioned at the outset that this year marks the 200th anniversary of U.S.-Russian diplomatic relations. Our

“It is entirely possible that Russia could diversify beyond hydrocarbons, and make its mark in other sectors, especially high technology. It is also possible to miss the moment, or fail to take full advantage of it. The choice is Russia’s.” foremost, and they cut right to the heart of whether or not Russia is going to realize its full potential as an economy and a society. …It seems to me that it is the answers to those five ‘what’ questions, as much as anything else, that will shape Russia’s economic future, and the future of our economic relationship, over the next generation. Each of them is interconnected: integration into the global economy will spur diversification; diversification will not succeed without urgent attention to physical, human and institutional infrastructure; and today’s problems, like corruption and bureaucratism, will eat away at Russia’s potential without a sustained and serious effort against them.

relationship certainly began on a very high note two centuries ago. The first American ambassador to Russia was John Quincy Adams, who later became Secretary of State and eventually the sixth President of the United States.

So I stand before you today as a living example of how far standards have slipped since then. But one thing that has not changed over the first 200 years of our history together is the reality that we matter to one another, and to the future of global order, in a way that few other relationships do. As we begin our third century together, what also seems clear is that our economic ties are becoming a more and more important part of our relationship. Their growth will benefit both of us, for generations to come.” n

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Alexander Zhukov

nn Deputy Prime Minister of the Russian Federation

The following is an excerpt of Deputy Prime Minister Zhukov remarks at the USRBC Gala Dinner on October 23, 2007. “…On behalf of the government of the Russian Federation, I would like to welcome all participants of the U.S.-Russia Business Council’s 15th Annual Meeting. I also would like to congratulate us all on another important occasion — the 200-year anniversary of U.S.-Russia diplomatic relations. I think that the Council’s Annual Meetings serve as an important tool of strengthening the understanding between our two countries, as they give an opportunity to exchange experiences and opinions.

This year has been very successful for the Russian economy and its development. The GDP grew by 7.5 percent during the first nine months of the year, which is the highest rate achieved in recent years. However, even more importantly, the components of this growth, the main factors contributing to it, have changed. Many still believe that the Russian economy is developing mainly due to global commodity prices.

Finally, an even more encouraging development is the record high volume Alexander Zhukov, Deputy Prime Minister of the Russian of foreign investment into Federation Russia this year. This foreign capital inflow started last year with due to consistent budget surpluses, we have been able to accumulate significant approximately $40 billion in investbudged reserves, which today allow us ments, and over $60 billion came to

“I think that in 10-15 years, Russia should be among the top five most developed countries in the world.”

This is probably not surprising. In the last several years, we have created a durable basis for economic stability.

First of all, we have paid off almost all of Russia’s foreign debt. Moreover, our currency reserves today exceed $430 billion, which makes Russia the third largest reserve holder in the world after Japan and China. In addition to that,

to finance all necessary public expenses for a period of three years, even if oil prices fall three times today’s margin.

It is fair to say that we have created the necessary macroeconomic conditions to make investors coming to Russia completely confident and secure that the default situation of the late 1990s will not occur again. This confidence is a significant factor contributing to the improvement in the investment climate in the country, which is confirmed by the increasing volume of foreign investments.

Having said that, I would note that we do not treat foreign capital purely as a financial resource. Russia today has enough money. First and foremost, foreign capital means the influx of high technology and modern equipment into

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Russia in the first half of this year. I have to admit that, due to the financial crisis that hit the United States and other countries around the world, we have noticed some outflow of capital from Russia. However, the volume of capital outflow in the last two months has only reached about $10 million.

Therefore, it is safe to say that Russia has successfully overcome the financial crisis that affected many countries around the world this summer.

Russia Business Watch

Kent McNeley of VimpelCom gives a toast at the Gala Dinner.

In reality, this is no longer true. We clearly do still get high dividends and profits from oil prices, but twothirds of Russian economic growth is attributed to the growth of domestic demand.

Russian earnings are growing, and they are growing considerably faster then the economy overall. In the last nine months, real wages grew by 14 percent.

Annual Meeting

ANNUAL MEETING 2007 Moscow, Russia the country. Note that over the last year, the volume of Russian imports has grown by 30 percent and imports of vehicles and equipment comprised almost half of the total volume. This means that Russian industry is undergoing a very rapid modernization.

We have set a goal to eliminate Russia’s oil dependency, to make the economy more differentiated and to develop our high technology sectors. I think that

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lot of money. Naturally, we expect foreign capital participation and are trying to create all the necessary mechanisms for this to happen.

The question of lifting all restrictions on capital movement in and out of the country has been long debated in Russia. Those of you who have worked in Russia for some time know that we have had very stringent currency regulations. Today, though, foreign

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“We are currently working on securing maximum property right protection in Russia…. I hope that in the coming years we will be able to firmly and completely secure investors’ rights and private property rights in Russia, as well as to create the corporate procedures necessary to support them.”

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gradually we will achieve this goal. I think that in 10-15 years, Russia should be among the top five most developed countries in the world. The mid-term economic development program up to the year 2020, which is aimed at achieving this goal, should be confirmed in the next six months.

capital can freely come into and leave the country. The fears of those who opposed this move on the grounds that lifting the restriction will result in capital flight have not been realized. In fact, we are observing quite the opposite — a considerable increase in capital inflows into Russia.

Currently, we are trying simultaneously to implement several investment mechanisms. I am talking about such things as the creation of special economic zones and the investment fund. The latter, through budgetary investments, is aimed at attracting foreign capital to Russia, primarily for infrastructure projects. We have now resumed the development of concession mechanisms, and with their help plan to finance the constructions of highways, railroads and airports. In the next 15 years, vast capital investments will be allocated to Russian transport, energy, electricity, port, and airport infrastructure.

We are currently working on securing maximum property rights protection in Russia. We are changing our corporate legislation. Today, I think, this is still

According to our calculations, Russian infrastructure needs approximately $1 trillion worth of investment before 2020; otherwise it will jeopardize the high rate of economic growth. This is a

our weak spot, but I hope that in the coming years we will be able to firmly and completely secure investors’ rights and private property rights in Russia, as well as to create the corporate procedures necessary to support them.

Russia’s regions today present a great number of interesting investment projects. Those of you who participated in the Investment Forum in St. Petersburg this year saw a number of Russian regions presenting their investment opportunities, which was very fruitful. A similar forum also took place in Sochi. Both events produced tens of billions of dollars worth of contracts. …The projects presented during the Sochi Investment Forum totaled $20 billion and were not exclusively Olympic Games-related. Olympic-related projects of course are very secure, due to partial government financing and government guarantees. However, there were also entirely private projects presented at the forum, including the project for creating a man-made island in the Black sea with hotels and resorts, similar to the one that now exists in the United Arab Emirates.

Two days ago, I was on a trip to Penza.

The city does not have any natural resources, there are old, Soviet-style

From left: Jeffrey Hirschberg, Kalorama Partners; Terrence English, Baring Vostok Capital Partners; Deputy Prime Minister Alexander Zhukov; Neville Isdell, The Coca-Cola Company

enterprises that once were part of the Russia defense industry and went bankrupt in the 1990s. Penza also hosted an investment forum. To my surprise, Penza and Penza region — with a population totaling only 1.5 million — were able to sign investment contracts and agreements worth more than $2 billion, which included a large cement plant, an oil refining plant and a large number of hothouses for rose cultivation. Those are examples of some of the projects that are available all over the county today.

have come across. When asked whether or not they liked Russia’s investment climate, twice as many foreign businessmen who worked in Russia answered ‘yes’ than those who did not work in the country. That is why one of the problems that we have to address today is the improvement of Russia’s image abroad. Those who work in Russia understand that the conditions here are better, but those who judge Russia from newspapers and television have a different view.

That is why the USRBC Annual Meeting makes a huge contribution to

…Here is another interesting fact that I

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the improvement of Russia’s investment image, and I would like to personally thank you for that. …In conclusion, I would like to say that we hope that our work and our relationship with foreign investors and businessmen will continue dynamically to develop, as they have in recent years.

I would like to wish you successful work in Russia. I hope that more American companies will follow you to Russia. I am sure it will be a mutually beneficial partnership.” n

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Elvira Nabiullina

nn Minister of Economic Development and Trade of the Russian Federation

The following is an excerpt of Minister Nabiullina’s keynote address on October 24, 2007.

During recent years, the Russian economy has been growing at a high rate. Its annual growth rate is in the vicinity of 6-7 percent, which is significantly higher than in the world overall.

Russia’s nominal GDP has grown from $260 billion in 2000 to $985 billion in

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Also, my greetings to the heads of American companies present in this room, those that have been operating successfully on the Russian market for many years, as well as those considering entering our market.

Based on preliminary estimates, in JanuarySeptember 2007, GDP grew 7.4 percent compared to 6.3 percent in the first nine months of 2006. Our GDP exceeded the 1991 level and is now a qualitatively different GDP Elvira Nabiullina, Minister of Economic Development and Trade created in a market economy. In 2003, our per capita Our industrial growth rate in JanuaryGDP in current dollars was about September 2007 was 6.6 percent, with $3,000. In 2006, it reached $7,000, and the highest contribution from the proin purchasing power parity (PPP) terms, cessing industry. our GDP amounted to approximately $12,000.

Russian economic achievements are being noticed by foreign investors. In

Russia Business Watch

“First of all, let me thank the leadership of the U.S.-Russia Business Council for the opportunity to speak at an Annual Meeting of such an authoritative and influential organization. We value highly the contribution that the Council is making to the development of mutually advantageous cooperation between Russia and the United States.

2006. This year, we will reach a nominal GDP level of $1.2 trillion.

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ANNUAL MEETING 2007 Moscow, Russia the first six months of 2007, net foreign investment in Russia exceeded $60 billion. This is two and a half times more than in the first six months of last year.

Foreign direct investment grew almost 1.5 times to about $25 billion in the first half of 2007.

The stock market shows equally spectacular results. The market capitalization of the Russian stock market increased almost 12-fold between 2000 and 2006 and reached the annual GDP volume for that year. In the last one and a half years, the market capitalization grew more than three-fold.

Russia’s stock market capitalization is the world’s 18th largest and is the 8th largest in Europe. The IPO volumes of Russian companies have also grown significantly, or 2.5 times compared with the first six months of 2006. Thus, the Russian stock market has become an instrument of attracting long-term investment in the real sector of the Russian economy.

billion), Stabilization Fund savings (over $140 billion as of October 1), a low external debt, and a budget surplus (7.4 percent of GDP in 2006, 0.2 percent in 2008) create a cushion that ensures the stable development of the Russian economy regardless of external shocks, whether a decline in oil prices or a currently observed global decrease in liquidity.

Of course, Russian economic achievements are not just a consequence of

tion of a system of development institutions that is a catalyst for attracting long-term private investment into the real sector of the Russian economy.

As a more tangible argument for the continuity of the course, it is necessary to note our recent signing of several strategic documents with a long-term focus. In particular, this year — for the first time — we have a federal budget that defined expenses and income for a three year period (until the end of

“I would like, once again, to emphasize that a favorable entrepreneurial climate, in our opinion, is a necessary precondition to stable socioeconomic development. For this reason, especially, the enhancement of economic institutions has been, is and will be our most important goal.” a favorable external economic situation but, first of all, a result of recent economic policies that have ensured political and economic stability and strengthened market institutions….

I would like to note, once again, the preservation of continuity in economic policy with an emphasis on institutional change, market reforms and the forma-

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Over the last several years, measured economic, fiscal and monetary policies have created a ‘safety net’ for the Russian economy. Large gold and foreign currency reserves (over $400

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2010). Before the end of this year, the government will consider the ‘Concept of the Long-term Socio-Economic Development of the Russian Federation until 2020.’ In December, the government will review the ‘Joint Report on the Results and Main Directions of Government Activity for 2008-10,’ which will establish overall government activity indicators as well as the indicators for separate ministries and departments. Thus, strategic documents already passed or to be passed in the near future set the precise direction of economic policy for the future.

Russia Business Watch

So, what is this direction? Of course, the Russian government retains an unconditional orientation toward market reform. An improvement in the investment climate and the removal of barriers to entrepreneurial development remain the strategic directions of our work.

12 Neville Isdell (l.) moderates audience questions with Minister Nabiullina.

At the same time, it is important to note that reforms on such a scale as conducted in the 1990s and in the early 2000s will, of course, no longer occur.

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Nevertheless, the spot reforms in the fields of corporate law, taxation and the judicial system that are currently under way are no less important because they are directed toward qualitative changes in the institutional environment.

institutional reform is needed is the social sphere. In addition, reforms are needed throughout the entire spectrum of issues including education, health care and social protection of the population.

In our opinion, the most important issues that require serious institutional reform are concentrated, first of all, in the field of government management

Finally, pension reform remains an incompletely resolved task. Our orientation toward the stimulation of the development of savings mechanisms

“…It is clear that U.S. companies underutilize our market’s investment potential. One of the constraints is the absence of a bilateral agreement on the protection and encouragement of investment.

The United States is the only major economy with which Russia does not have such an agreement.” and regulatory effectiveness, as well as in the social policy field. The creation of clear and transparent mechanisms of government and business interaction, effective mechanisms of government service provision, a transparent government procurement mechanism, and understandable administrative rules — these are very important institutions that ultimately define a favorable entrepreneurial environment, including an environment for small business development.

…I would like, once again, to emphasize that a favorable entrepreneurial climate, in our opinion, is a necessary precondition to stable socioeconomic development. For this reason, especially, the enhancement of economic institutions has been, is and will be our most important goal.

Another large area in which serious

We have created a variety of such

State financial development institutions are subject to risks related to possible

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Another important direction of institutional reform is the fight against corruption. The identification of most corrupt government activities as well as an analysis of statutory acts to uncover corruption are the basis for programs planned to be passed and implemented in each organ of state power and in each subject of the Russian Federation.

At the same time, the gradual formation of the general economic institutions that create a favorable business environment prevents us from achieving the goal of accelerated development set before our country. To achieve this goal, we must create special instruments that stimulate the development of infrastructure and high technology sectors and that will not cause significant distortions of market signals.

…Last year, we created the Russian Venture Company (RVC) that functions based on the ‘fund of funds’ principle.

The RVC’s authorized capital is 5 billion rubles ($200 million). In 2007, the RVC’s funds were used to create three venture funds with cumulative capital of over 8 billion rubles (over $300 million).

By 2008, further capitalization of the RVC is planned that will enable the creation of seven new venture funds with cumulative capital of 30 billion rubles (about $900 million). In addition, the Development Bank was created on the basis of Vneshekonombank. By 2010, the Development Bank will provide over 700 billion rubles ($28 billion) in long-term investment resources.

Russia Business Watch

It is also important to create a transparent and clear mechanism of private equity investment, including foreign investment, in strategic sectors of the Russian economy.

remains valid. Today, we need to give an additional push to this process — to create stimuli for the citizens investing their pension savings. Moreover, an influx of future pensioners’ funds into the financial market will have a positive influence on the development of the entire economy.

instruments — the so-called development institutions — in Russia in recent years. The first is the Investment Fund that supports projects in the field of infrastructure development as well as projects of general statewide significance. We intend to allocate more than 450 billion rubles from the state budget to this purpose before 2010. At the same time, the Investment Fund is a major catalyst of private investment inflows. Based on the projects already approved, one ruble in state investment attracts 3-5 rubles in private investment by way of public-private partnerships.

The second is the Special Economic Zone (SEZ). We are creating four types of SEZs: • Technological Development Zones in Zelenograd, Dubna (Moscow Region), St. Petersburg, and Tomsk; • Industrial/Manufacturing Zones in the Lipetsk Region and Tatarstan (the city of Yelabuga); • Tourism and Recreation Zones in the Kaliningrad Region, Stavropol Territory, Krasnodar Territory, Altai Territory, the Republic of Altai, the Irkutsk Region, and the Republic of Buryatia; • SEZ for ports.

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ANNUAL MEETING 2007 Moscow, Russia inefficiencies in their work. These risks may be decreased through mechanisms of transparency and control over those organizations. The latter means both the preparation of those institutions’ development strategies and the formation of a system of target indicators of their efficiency, as well as the mechanisms of disclosure and public control.

The creation of these mechanisms is our priority goal today.

It is also worth mentioning that state financial development institutions are important not as instruments that ensure state investment inflow in the economy, but rather as institutions that create an environment for private investment. Whether this is infrastructure development that creates an opportunity for private sector investment or the development of mechanisms of venture financing, the efficiency and effectiveness of those institutions, ultimately, must be measured not in terms of the money spent, but in terms of the growth in the volume of investment activity of the private sector.

In conclusion, I would like to say a few words about Russian-American trade and economic relations. The last several years have seen positive trends in our bilateral trade. In 2006, the volume of trade between Russia and the United States, according to Russian statistics, increased by 41 percent compared to 2005 and reached $15.3 billion. The United States is 8th by trade volume among Russia’s trading partners and accounts for about three percent of the total Russian trade volume. These indicators clearly demonstrate the enormous potential to increase U.S.-Russia bilateral cooperation.

The United States is among the leading investors in the Russian economy by volume of foreign investment and is the sixth largest investor in Russia by volume of accumulated investment, according to the 2006 data. In contrast to most other countries, direct invest-

nn October 23-24, 2007

ment comprises over 60 percent of overall U.S. investment. Importantly, American direct investment in Russia is directed mainly to its industrial sector, which accounts for 75 percent of the total volume of U.S. investment.

However, it is clear that U.S. companies underutilize our market’s investment potential. One of the constraints is the absence of a bilateral agreement on the protection and encouragement of investment. The United States is the only major economy with which Russia does not have such an agreement.

We believe that further development will take place in the Russian-American trade and economic relationship over the next several years. Russia’s expected accession to the WTO will contribute to this. The failure to complete this step is an obvious and significant

violations. Illegal production facilities are being closed down, control is getting stronger and our legislation is being improved. In the first half of this year, we have uncovered over 5,000 crimes against intellectual property. Seven unlicensed producers and 17 counterfeit disk warehouses have been forced to suspend their work. At the same time, everybody understands that radically changing the situation in such a short time frame is impossible. The most important thing is to ensure constant forward movement in the right direction. The institutionalization of Russia’s obligations within the WTO will serve to further strengthen and accelerate this movement.

According to our estimates, more than 90 percent of the work on accession negotiations is completed. The final steps, as is usually the case, require a lot

“The United States is 8th by trade volume among Russia’s trading partners and accounts for about three percent of the total Russian trade volume.

These indicators clearly demonstrate the enormous potential to increase U.S.-Russia bilateral cooperation.” obstacle for the growth of U.S. exports and investments in Russia. Russia’s WTO membership will become one of the most effective instruments in strengthening the position of American exporters in the Russian market. Along with easing market access for American goods and services, this instrument, owing to Russia’s international obligations within the WTO framework, will guarantee to American companies a transparent and predictable legal environment that meets international standards.

The very prospect of Russia’s WTO access is improving the situation in the Russian market. The negotiation process has given a powerful push to the fight against intellectual property

of effort. On our side, we are doing our best to complete the negotiations in the nearest future. The support of the U.S. business community, which suffers financial losses from missing profits and unrealized projects due to the delay, is very important for us.

We are well aware of the U.S.-Russia Business Council’s active position on this and other issues with regard to bilateral cooperation between our countries. I would like to express certainty that the Council and its members will continue their intensive work directed towards further development of our trade and economic relations and the creation of more favorable conditions for mutually advantageous cooperation.” n

KEYNOTE ADDRESS

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Igor Shuvalov

nn Aide to the President of the Russian Federation

The following is an excerpt of Igor Shuvalov’s keynote address on October 24, 2007. “…Let me tell you about our current economic situation from the political point of view, our attempts to draw conclusions for the present moment and our plans for the future. I would like to tell you today how we see this interesting moment in which we live, how we view the results achieved up until this point, what we intend to do in the future, and how we see RussianAmerican business relations. …This is an important time for drawing conclusions about the state of our economy. Several months remain until the end of President Putin’s second term. As you know, his approval rating is high, and thus political parties build their platforms based on how close or far they stand from President Putin and whether they have helped or hindered his policies. There are various subjective measures of our economic achievements and failures, but those of us who work close to the President and attempt to formulate policies for the future or judge current policies try to measure the

If you look at real wages, you will notice that real wages have grown more than three-fold over the last seven years. Nominal wages grew more than sixfold. This is notable because our labor force — well educated, albeit with certain shortcomings in the area of labor productivity — has had an opportunity to receive sufficient remuneration for their work in recent years.

Igor Shuvalov, Aide to the President of the Russian Federation

Next, let us discuss foreign direct investment.

There has been significant growth between 2006 and 2007. In 2006, foreign direct investment was in the range

of $30 billion. In the first nine months of 2007, foreign investment exceeded $40 billion.

In recent years, we have witnessed the intensive development of the Russian energy sector. Metallurgy and energy have been growing at a rapid rate with

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economic outcomes objectively. Thus I can objectively say — not as an aide to the President, but as a Russian citizen — that we have achieved a measure of success in our work. There have been large and small achievements, but, overall, we view the last seven to eight years as successful.

Moreover, we have made some regulatory changes that affect Russia’s investment climate. At 24 percent, Russia’s corporate profit tax rate is the secondlowest in the G8 (after Canada, who has a 22.1 percent rate). We have managed to lower the value-added tax (VAT), and have started a widespread discussion on replacing the VAT with a sales tax in the near term. If replacing the VAT with a sales tax proves impossible, our experts are seriously considering unifying the VAT rates and making them considerably lower.

Russia Business Watch

“When President Putin speaks of the continuity of power and the need to continue on the same course, he implies the continuity of economic policy toward modernizing the economy and placing a human being at the center of it, toward putting our resourcebased economy on the platform of innovation and making our economy knowledge-based.”

high gains in export income. Along with those sectors, chemicals, petrochemicals, construction, and retail have also been developing successfully, providing high gains for investors. In addition, other sectors such as forestry and fisheries have begun to emerge from the shadows and demonstrate results.

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Annual Meeting

ANNUAL MEETING 2007 Moscow, Russia As you know, in 2000, we converted the Russian individual income tax to a flat-rate tax instead of the progressive tax system that is prevalent in many countries. Now, we have a flat tax rate of 13 percent, although some political forces, particularly those on the left, criticize this decision and suggest a return to a progressive income tax. We also managed to repeal the estate tax. As a result, we now have a completely new, modernized tax system that is qualitatively different from the one we had in 2000, and this system will continue to evolve. Eventually, we will have a tax system that is simpler for investors to work with — particularly from a reporting point of view — and more transparent.

parable to the one experienced by the economies of Europe and the United States.

To summarize, here is what we have achieved to date. We have a stable and growing economy. We have enormous reserves of hard currency. We have a large amount of savings in the Stabilization Fund. The population’s standards of living are increasing.

Citizens’ education level is increasing

remain our main element of economic development. Looking back at these achievements on the eve of the election, President Putin has been speaking about the need to provide stability and continuity.

All that has been achieved until now required hard work and a degree of compromise. All of it has been accomplished with an understanding that our policies must continue after the elec-

“As soon as we achieve political stabilization and secure the continuation of the present political course, we expect a significant increase in foreign direct investment and a qualitative change to investment flows, which will be innovative, knowledge oriented.” because the system of professional education is being modernized. We intend to continue our progress in this direction.

As you know, two years ago we began the active development of nationwide projects in education, health care and housing. In all these projects, the people are the main measure of our success. Human capital is and will

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…At the same time, we are experiencing certain difficulties — inflation is one. I do not know whether Minister Nabiullina explained this to you, but we consider our inflation problem to be short-term, and our monetary authorities have means to remedy it. Although they may not be able to resolve the issue immediately, in about a year or a year and a half inflation will return to the limits set earlier. We will make an effort to achieve President Putin’s goal of lowering inflation to a level com-

nn October 23-24, 2007

tions of 2007-08. Our strategic, longterm program of actions cannot fit into two presidential terms or eight years but has to be fulfilled over a decade or even longer.

When President Putin speaks of the continuity of power and the need to continue on the same course, he implies the continuity of economic policy toward modernizing the economy and placing a human being at the center of it, toward putting our resource-based economy on the platform of innovation and making our economy knowledgebased.

Russia Business Watch

To achieve all this, our political system has undergone some changes over recent years. President Putin has done much to encourage the development of political parties and the appearance of a multiparty political system in Russia. He has done much to ensure that the parties are represented in the national and regional parliaments so an authentic political agenda could be set and authentic debates could take place within those parties.

16 Council President Gene Lawson (l.) talks with Mr. Shuvalov after his keynote address.

My colleagues and I have a view of how our economy should continue to develop, but we disagree about priorities. Overall, our experts believe that the Russian economy may develop along three different paths: the ‘inertia’ path (that is, with no significant changes to the trajectory of development), the innovation path, and the so-called energy path. However, in accordance with a goal set by President Putin, we need to achieve convergence so that energy is linked to innovation. In this way, our economy will become innovative in the next 10-15 years, so to say, on the ‘shoulders’ of energy and commodities.

We are standing on the threshold of major change. Experts consider the current economic situation an investment boom. However, we think that Russia is standing on a threshold of such a boom that will begin in the near future. As soon as we achieve political stabilization and secure the continuation of the present political course, we expect a significant increase in foreign direct investment and a qualitative change to investment flows, which will be innovative, knowledge oriented.

were preparing for the G8 meeting.

In essence, I support liberal, open foundations for any economic system.

However, Russia is currently undergoing a transitional period and no-one is waiting for Russian business abroad, even with the amount of money it has available. Western investors, particularly those living in the United States and the European Union, think that Russian business is governed by the Kremlin, that the Russian people are absolutely unpredictable, etc. I think

tal? Of course not. Given a chance, this capital will quickly adapt to international realities and civilized rules of behavior, and then it will become just like yours. Only through interactions with you can our capital become transparent and civilized.

Not everyone in the West supports my position, believing that the fewer things depend on Russia, the better it is. I think this is a superficial position of those who do not understand the realities of the role Russia will play in

“In the near future, Russia will become a very important player. Perhaps, we will not be able to match the Chinese or U.S. economies, but we will become an important counterbalancing element without which it will be impossible to make any important decisions.” this principle of reciprocity is necessary for a short period of time until the West understands that Russian businesspeople are the same as American, British and others. Until this happens, investments should take place on a mutual basis only. It should not be limited, but reciprocity should be on our mind when making decisions. It is impossible for Russia to open its doors, as foreign businesspeople request, and say, ‘Please invest in our energy sector or in our mining sector or in some other sector that you like,’ while at the same time they strictly limit Russian investment in those sectors in their own countries. I think it is wrong to require this, or if it is right, it needs thorough discussion and proof.

In the near future, the character of the Russian economy will change. I hope that by 2025 we will be able to say that the Russian economy is knowledgebased and makes available its ample endowment of natural resources to the world economy for the sake of global development. Most importantly, the GDP growth necessary for the state to fulfill its social duties will be created by the innovation economy and not natural resource exploitation.

American capital has done a lot for

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I understand how we Russians are perceived in the West — like children who outgrew their short pants after 15 years.

Our economy has demonstrated such a success, and we have many billionaires on the Forbes magazine list. We understand how much of their capital was accumulated, but is this a basis for your condescending attitude to Russian capi-

the global economy. Our economy is the eighth-largest in the world. In the near future, Russia will become a very important player. Perhaps, we will not be able to match the Chinese or U.S. economies, but we will become an important counterbalancing element without which it will be impossible to make any important decisions. Please do not look at this as just ambitious talk. Behind my every word are plans drafted by my colleagues. I am certain that we will be able to realize these plans.

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Now let us discuss our overall attitude toward the interaction between Russian and U.S. businesses and our view of the U.S. investment in Russia in general.

Political decision-makers in Russia have never had any prejudices with respect to American business. That said, we do intend to protect certain sectors of the Russian economy, and the State Duma is currently considering a draft law concerning foreign investment in certain strategic industries. The new law will codify the procedure of investing in these industries. This law will change over time as necessary, increasing quotas and removing limitations. However, all these actions should have a mutual, reciprocal character. Reciprocity is the magical word often spoken in the West that I like very much. I championed the concept of reciprocity when we

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ANNUAL MEETING 2007 Moscow, Russia Russia…. In the first row I see a representative from Boeing…. I am glad that the Boeing 787 has some Russian labor in it, and this labor is ‘know-how.’

I am not thinking about the titanium that is in it, I am thinking about those young people who were sitting in the engineering office creating this product.

Yes, this is a source of pride for us.

Therefore, I think that we have a future in this respect and we need to cooperate.

Russian and American companies also have a future in the energy sector, and not necessarily only on Russian ter-

KEYNOTE ADDRESS

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ritory. There may be investments in the United States, Russia or even third countries. Everybody who works in our economic department agrees that this new value that we create together constitutes the possible strength of Russian-U.S. business interactions, and we intend to support this process.

There are currently no limitations directed specifically at U.S. capital, there was not and there never will be. Any limitations concerning foreign capital will be mandated by law.

In conclusion, I would like to first

thank you for the opportunity to speak before you, and, second, to reiterate that I consider the results of economic development during President Putin’s period in office as wholly positive. I think in the coming months, we will prepare a detailed analysis of our accomplishments and shortcomings.

We will formulate a concrete plan of action to be offered to those who assume power after us. If there is political continuity, those plans will be utilized and then, I assure you, the Russian economy will achieve a completely different level of development during the next decade. Thank you.” n

Ambassador John K. Veroneau

nn Deputy United States Trade Representative

The following is an excerpt of Ambassador Veroneau’s keynote address on October 24, 2007.

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“…Without a strong rule of law, the height of any country’s development will be limited. Each country will build institutions supporting the rule of law consistent with its own history and politics. Respect is owed each country as it works to build these institutions.

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For sustainability and political legitimacy, institutions supporting rule of law and transparency must be built from within. They cannot be imposed from the outside. But institution-building can be aided through participation in international rules-based agreements and organizations. In recent years, the United States has negotiated a series of bilateral trade agreements. Beyond tariff reduction, these agreements embody the principles of rule of law and transparency.

A number of our trading partners have sought these trade agreements as a way

to help lock-in domestic economic reforms, calling for greater openness, rule of law and transparency.

Similarly, China’s interest in joining the World Trade Organization stemmed in part from a belief that domestic reforms would be easier to implement in the context of a WTO accession agreement.

The United States strongly supports Russia’s accession to the WTO. We would like this process to move as quickly as possible, but the WTO accession process is not easy — China’s accession process took more than 14 years.

Ambassador John K. Veroneau, Deputy U.S. Trade

Representative President Putin and his Administration deserve great remain in areas such as intellectual credit for addressing the many issues property and agriculture. raised by WTO members during the accession process. Some critical issues …While WTO accession remains our

highest priority, the United States and Russia should also consider negotiating a Bilateral Investment Agreement (BIT).

Such agreements are useful in attracting foreign investment because, among other things, they provide a framework for protecting legal rights and assuring the rule of law. To the benefit of both countries, bilateral investment flows are at historic levels and Russia is enjoying huge capital inflows. This may suggest that an investment treaty is not really needed at this time.

However, over the long term, foreign direct investment will be greater and

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Russia is a great and important country. Its recent economic growth is truly impressive. Historic prices for oil and other commodities in strong supply in Russia have certainly contributed to this growth. After a very difficult decade of the 1990s, the economic stability and growth of today is no doubt welcomed by the Russian people.

Today’s growth provides an opportunity to secure broad-based and longterm economic growth for the future by investing in intangible capital assets such as rule of law and transparency.

“Russia’s vast natural resources make it a great country, but its greatest resource is its people…. In the 21st century, the countries that will enjoy the strongest economic growth will be those that are best able to unlock the potential of its people.” more diversified if investments are reinforced through an investment treaty.

For this reason, we are exploring with the Russian government the possibility of negotiating such an agreement.

One of the great lessons of recent history has been the realization that the global economic pie is not fixed. One country does not gain at the expense of another. On the contrary, we share

in each others’ economic growth and development. After too many years of seeing our bilateral relationship through a zero-sum prism, we must view our relationship through the win-win prism of economic growth and opportunity.

Russia’s vast natural resources make it a great country, but its greatest resource is its people. Russia has produced some of the world’s greatest thinkers, artists and inventors. In the 21st century, the countries that will enjoy the strongest economic growth will be those that are best able to unlock the potential of its people.

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For decades, the relationship between the Russian and American people was defined by and through governments.

There were limited exchanges between our business and other communities.

That has all changed. The U.S.-Russia Business Council and its members represent an important link between the people of two great countries. Please continue your important work of strengthening the bonds of commerce and friendship between our countries.” n

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PANEL

THE 2008 POLITICAL CYCLE

Moderator: Mark Medish

Panelists:

Vice President and Director of Russian Studies Carnegie Endowment for International Peace

Thomas Mann

W. Averell Harriman Chair and Senior Fellow The Brookings Institution

Mikhail Margelov

Chairman, International Affairs Committee

Federation Council of the Russian Federation

Respondent: Ed Rogers

Chairman Barbour Griffith & Rogers, LLC

Mark Medish opened the panel with the observation that anti-American rhetoric is yielding political dividends in Russia, reinforcing notions that U.S.Russia relations may be characterized as rapidly deteriorating. However, he pointed out that Presidents Bush and Putin have tried to avoid unnecessary friction between the two countries and that the business sector in particular mitigates risks in the U.S.-Russia relationship. With both positive and negative trends at work in U.S.-Russia relations, Mr. Medish raised the question of how domestic politics during the

2007-08 election season will affect the U.S.-Russia bilateral relationship, both at the state and private sector levels.

Thomas Mann described the United States as having a “toxic” political environment featuring ideological polarization between Republicans and Democrats. He labeled President George W. Bush as a politically weak lame duck who governs in a partisan fashion, and noted his low approval rating. At the same time, the new Democratic majority in Congress also receives low approval ratings, engages in conflicts over budgetary issues, cannot steer policy in Iraq, and is frustrated by obstacles to the decision making process.

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20 Mark Medish, Carnegie Endowment for International Peace

According to Mr. Mann, the American people are troubled by the unpopular war in Iraq, a sense of economic insecurity despite extended economic growth, concerns over access to affordable healthcare, and dissatisfaction with the sustainability of

employment opportunities for future generations. He noted that the past four to six years have seen a fundamental shift in American politics, as the Democratic Party has attracted young voters, Hispanics and well-educated, married women to its coalitional base and has found opportunities for political advancement in Virginia, Colorado, New Mexico, Ohio, New Hampshire, and Iowa. Whereas the U.S. population used to be evenly split, with roughly half of the population supporting Democrats and half supporting Republicans, Mann emphasized that the U.S. population is now 50 percent Democrat versus only 35 percent Republican.

Mr. Mann continued that foreign policy will be an important topic during the 2008 election, but that the U.S.-Russia relationship is not likely to be a central issue. If the question of U.S.-Russia relations is raised, Hillary Clinton will attempt to demonstrate her toughness, Barak Obama will try to prove that he is not naive about foreign policy and the Republican candidates will voice harsh criticisms of Russia’s human rights and democracy record.

As the general election approaches, Mr. Mann emphasized that the Republicans will need to make a transition away

from their current support for President George W. Bush, whose unpopularity might endanger Republican chances of winning the presidency. However, he questioned whether the Republican nominee will be able to break away from President Bush without demoralizing the Republican base constituencies.

Meanwhile, the Democrats will focus on problems with the war in Iraq, the U.S. economy and government competence and integrity. Stating his belief that the conservative philosophy of tax cuts, moral traditionalism and aggressive nationalism no longer connects with the real problems of the United States, Mr. Mann predicted that the Democrats will win the presidency, as well as an increased majority in both the House of Representatives and the Senate, thereby ending a period of conservative dominance in American politics.

Ed Rogers explained that the Republican brand is in free fall and has been tarnished by scandals, fatigue, war, and Hurricane Katrina. Moreover, traditional Republican voters (those who have a conservative ideological point of view and care about effective governance, taxation, spending, and strong

national defense) are discouraged and have been fractured into a number of subgroups: Business Republicans, Ideological Republicans and Evangelical Christian Republicans.

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Mr. Rogers predicted that Republican candidate John Thomas E. Mann, The Brookings Institution McCain will not status. In light of a Giuliani-Romney drop out of the race, and that showdown, Mr. Rogers said that the there is an outside possibility that Mike Republican Party may need to redefine Huckabee will exceed expectations by its standard conception of a conservawinning an early state primary despite tive leader. limited resources. Although Fred Thompson consistently holds a healthy position in the polls, he does not have a Mr. Rogers noted that the Democratic frontrunners, Hillary Clinton and Barak healthy campaign.

Obama, are the weakest Democratic candidates in the race. Mr. Rogers Ultimately, Mr. Rogers predicted that predicted that Senator Clinton will the race among the Republicans will have difficulty receiving more than devolve into a contest between Rudy 51 percent of the national vote. Mr. Giuliani and Mitt Romney. Giuliani Rogers dismissed John Edwards, leads in the Michael Bloomberg and Al Gore as national polls, significant competitors in the presidenbut Romney tial race, although he pointed out that consistently Gore might be able to influence the leads in states party nomination by endorsing Hillary with early priClinton. maries, a factor that will Mr. Rogers noted that, after each probably be party has declared its nominee, the an advantage race between the Democrats and for Romney.

Republicans will focus on the themes Furthermore, Giuliani’s failure of prosperity, peace and change. The to receive much states with weaker economic conditions will present difficulties for the more than 30 Republicans, and the Republicans will percent of the Republican vote need to offer a clear change candidate who is stylistically different from is endangerPresident George W. Bush. He also ing Giuliani’s said that the issue of immigration is frontrunner

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Ed Rogers, Barbour Griffith & Rogers, LLC

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ANNUAL MEETING 2007 Moscow, Russia more likely to drive Republican votes than proximity to the traditional evangelical agenda. As for the role of U.S.Russia relations in the election, Mr. Rogers noted that foreign policy issues are not typically a driving force in voting trends, and campaign mangers are therefore likely to avoid foreign policy topics with the exception of the war in Iraq. If questioned on U.S.-Russia relations, Republicans will be on the defensive and will probably suggest an aggressive approach toward Vladimir Putin.

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Mr. Rogers pointed out that, historically speaking, elections in the U.S. follow predictable patterns: in the history of U.S. presidential elections, only two elections have resulted in a two-term president being succeeded by a member of his own party. As a result, he agreed with Mr. Mann that the Democrats will most likely win the 2008 presidential election.

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Mikhail Margelov began his overview of Russia’s pre-election political environment by saying that Russia faces the task of building a democratic sovereign nation state instead of an empire — a task that is difficult for Russia given its history of empire building under the Tsars and then the Bolsheviks. Looking first at the Duma elections, Mr. Margelov noted that the United Russia party has built itself up as a conservative party, which he likened to the Tories in the United Kingdom. Meanwhile, the Fair Russia party had been positioning itself as a possible party of power, similar to the Labor Party in the UK. He criticized the Communist Party as

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being spoiled by capitalism, and said that other parties, such as the Union of Right Forces and Yabloko, want to be visible but lack charismatic leaders.

Mr. Margelov said that the outcome of the 2007 parliamentary campaign season was a “puzzle” prior to the October 1 announcement that President Vladimir Putin will lead the ticket for United Mikhail Margelov, Federation Council of the Russian Federation Russia in December.

In contrast to the U.S. elections, Baltic States and the European Union. in which many candidates can affect He also predicted that no candidate will the outcome of the race, Mr. Margelov contest Putin’s foreign policy achievesaid that Russia’s elections will focus ments in repositioning Russia as a major on Putin. According to Mr. Margelov, international power. While foreign Putin’s participation will help United policy may be debated, Mr. Margelov Russia win the election, but the party expressed hope that election rhetoric will then be responsible for maintainwill not harm Russia’s relationship with ing Putin’s high level of popularity. the EU or the United States, and he [Editor’s Note: United Russia received 64 affirmed that a solid basis for economic percent of the vote in the Duma election, garrelations will still exist after the election. nering 315 out of 450 seats.]

According to Mr. Margelov, the next With regards to the March 2008 presiPresident of Russia will not be as popudential election, Mr. Margelov said that lar as Putin and will have to fight corPutin will not seek reelection, despite ruption, improve the taxation system reports that foreign investors have and undertake unpopular measures in voiced support for Putin retaining the the economic and financial spheres. presidency. Mr. Margelov predicted Mr. Margelov noted that, although that debates leading up to the presiden- Russia is facing an interesting period tial election will feature some discussion in its political history, no revolutionary of foreign policy issues with particular developments should be expected on focus on Russia’s relations with the the economic front. n

PANEL

nn October 23-24, 2007

Russia in the Global Supply Chain

Moderator: Boris Jordan

President and CEO Sputnik Group

Panelists:

Owen-Christopher Kemp

Vice President and Managing Director HP Russia

President, Russia, Ukraine & Belarus Division, The Coca-Cola Company

Mary Laschinger

President

International Paper Europe

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Clyde C. Tuggle

Boris Jordan opened the session by remarking that, over the past decade, Russia has been active in the global supply chain as a destination for outsourcing and research and development.

The last 15 years have seen the number of foreign corporate representatives grow from 1 to 50. This includes seven global auto producers and an additional three more who are building plant operations; five of these are building cars for export to Europe. The fast growing Russian economy has domestic firms primed for expansion, making Russia an integral part of U.S. companies’ global operations.

Russia has become an important base for Coca-Cola’s global operations as the company has been able to take advantage of favorable macroeconomic conditions to expand its business. He added that the Russian economy should see continued long-term, sustainable growth that will cause more and more foreign firms to take note of the huge potential that exists here.

potential is fairly widespread, but the trend is toward increased understanding.

Mary Laschinger agreed with Mr. Tuggle’s perspective, and added that the potential returns from investing in Russia are too significant to ignore.

While International Paper’s core markets are in North America and Western Europe, these areas are characterized by high energy and raw materials prices.

These pressures are driving the company’s strategy toward investments that have better potential for shareholder value, including manufacturing in countries where IP has a strong cost advantage. As a result, International Paper is

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Mr. Tuggle noted that a lack of information about or understanding of Russia among foreign investors has created an obstacle to investment growth and has prevented many companies from tapping the potential of the market. He continued that in a recent survey about investing in Russia, participants ranked Russia high for return on investment, but only 18 percent rated that return as higher than average. This lack of understanding about Russia’s

Clyde C. Tuggle, The Coca-Cola Company

Russia Business Watch

Boris Jordan, Sputnik Group

Clyde Tuggle discussed Coca-Cola’s strategy and the potential of the Russian market for further expansion. He noted that Coca-Cola is one of the most globally recognized brand names in the world, with 80 percent of its revenues coming from outside the United States.

With over $1.5 billion invested and plans to double that in the near future, the company symbolizes the Russian market’s potential.

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time to invest in Russia. International Paper, though, hopes to make its joint venture a success and a world class example of investing in Russia.

Mary Laschinger, International Paper

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expanding its investment in emerging markets and currently has over $2 billion invested in Brazil, China, India, and Russia.

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Russia represents a major growth opportunity for the firm with its abundance of wood, low cost of energy and a market of 150 million consumers.

The company has grown its paper and packaging segments through acquisitions and joint ventures — it acquired 50 percent of Ilim Pulp, Russia’s largest pulp and paper producer. The firm has also invested $500 million in its Svetogorsk mill and the surrounding community. The Svetogorsk mill is now one of the largest pulp and paper producing facilities in Russia. The acquisition has allowed the company to increase capacity by more than 50 percent, improve profitability six-fold and successfully raise worker safety levels by 70 percent.

Modern Russia offers an excellent opportunity for International Paper to expand its global business strategy.

International Paper is looking to use its base in Russia not only to serve the local market, but also to improve its access to China and other emerging markets in the region. While her assessment of foreign investment in Russia is generally positive, Ms. Lashcinger does not believe there will ever be a perfect

Owen-Christopher Kemp continued the discussion by noting that the IT industry has been a beneficiary of high economic growth, mergers and acquisitions and initial public offerings, and has been growing faster than the markets in China and Brazil. A strong education system continues to be one of Russia’s greatest assets and is being actively tapped by HP for its deep resource of engineers and software developers. He added that the company currently has 30 partnerships with universities thought the country, and that national priorities in areas such as education, healthcare, nuclear, and hitech that seek to diversify Russia away from natural resources have also benefited HP. A well-educated workforce combined with government focus has propelled Hewlett-Packard’s business in Russia.

The company plans to develop a laboratory in St. Petersburg to foster longterm scientific research and information management while improving its research and development capabilities.

Software and services currently employ more than 100 people in Moscow engaged in high-end computer architecture and complex mathematical algorithms. The company recently opened its first manufacturing site with partner Foxcon in St. Petersburg that will not only produce PCs for the Russian market but also for export. Mr. Kemp hopes this partnership will incubate new companies that can act as suppliers to this plant. HP is aiming at equal value creation in Russia through the balancing of products and services for import and export by 2010.

Mr. Kemp was generally upbeat about doing business in Russia, but noted that the picture is not completely posi-

tive. Market expansion continues to be hampered by the importance of “know who” vs. know how, the spiraling cost of wages in Moscow and St. Petersburg and an underdeveloped supply chain infrastructure that makes it difficult to ship parts across the country. The rising attrition rate of skilled workers in Russia is also a major concern.

Mr. Kemp emphasized a trend towards greater transparency in Russia with many companies in the pre-IPO stage looking to list their shares on the stock market. His company’s approach has been a firm commitment to SarbanesOxley through training partners and company employees to abide by these rules. HP hires close to 200 people per year and, to many young Russians, values are becoming just as important as salaries.

Owen-Christopher Kemp, HP Russia

Mr. Jordan concluded the discussion by highlighting two issues that continue to create a drag on Russia’s global competitiveness: corruption and demographics. U.S. companies in Russia are bound to face corruption at some level.

He also addressed the human factor as key to Russia’s future success as well.

He noted that executives in Russia are commanding similar salaries to many Fortune 100 executives in the United States despite a large gap in management ability. n

PANEL

nn October 23-24, 2007

New Products for a Consumer Society

Moderator: Michael White

Chairman and CEO PepsiCo International

Panelists:

Warren P. Browne

Executive-in-Charge, Russia and the CIS General Motors Corporation

Managing Director ACNielsen Russia

Alexander Pismenny

Alexander Pismenny opened the discussion with an overview of consumer trends in Russia. The country’s consumer trends are now comprised of 50 percent modern trade and 50 percent traditional trade, with modern trade developing fastest in St. Petersburg and beginning to spread into other parts of the country. In terms of fast-moving consumer goods (FMCG) consumption, Russia is the fastest growing country that ACNielsen currently monitors.

Whereas vodka, cigarettes and beer were formerly the largest consumer goods categories sold in Russian supermarkets, Russian buyers are beginning

General Director RusRating

Julian C. Salisbury

Managing Director, European Special Situations Group OOO Goldman Sachs

According to Mr. Pismenny, the increased drive for convenience, value and healthy products are indicative of Russia’s growing middle class.

Julian Salisbury discussed Goldman Sachs’ consumer finance investments in Russia and the country’s appeal as an investment destination. He noted that Russia’s large population and nominal GDP of over $1 trillion made it an attractive target for investment. The

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to favor other product categories such as dairy, snacks, carbonated soft drinks, and baby food.

Local companies maintain a presence in Russia’s market, but Russia is seeing increasing participation by multinational companies. For example, Mr. Pismenny pointed out that Russian companies provide most of Russia’s alcohol products with the exception of beer, which is predominantly produced by international Alexander Pismenny, ACNielsen Russia companies. In Moreover, Russian consumers are the beverage market, beginning to purchase more sophistimultinationals have cated products, favoring premium quallong dominated the ity over value. Mr. Pismenny predicted production of carbonthat FMCG producers and sellers will ated soft drinks and be successful in Russia if they effechave recently surpassed tively address the consumer needs of local companies as middle-aged working mothers, who leaders in juice produc- make up 90 percent of the buyers of tion as well.

FMCG products in Russia.

Russia Business Watch

Michael White, PepsiCo International

Richard Hainsworth

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Julian Salisbury, OOO Goldman Sachs

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increased diversification of Russia’s economy has led to the emergence of a new breed of entrepreneurs and an increased number of companies worth more than $500 million. These new entrepreneurs in +have transparent ownership structures, follow proper accounting practices and comply with taxation laws. He added that Russia’s fast-growing economy is in need of companies like Goldman Sachs that can provide capital for future investment and development.

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Of the dozen investments that Goldman Sachs has made in Russia in the past year, Mr. Salisbury noted that half have been in the consumer finance sector, describing the sector as a capital hungry industry in the early stages of its development. Mortgage penetration as a percentage of GDP is in the low single digits in Russia, whereas it is around 75 percent in the United Kingdom. In Russia, the average household debt is only a few hundred dollars, as compared to an average $50,000-$60,000 per household in the UK or the United States. He added that Russia’s mortgage market is growing fast, but nonetheless year-to-date mortgage issuance in Russia was equal to one day’s worth of issuance in the UK.

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As with mortgages, Mr. Salisbury pointed out that credit card penetration is also low in Russia, with most cards being issued to draw down loans rather than for daily or weekly spending purposes as in some other parts of the world. With credit interest rates skyrocketing in Russia, the question of legal reform was raised to control Russia’s consumer credit practices.

However, Mr. Salisbury stressed that legislative restrictions would do more harm than good by limiting the price increases that are necessary to cover high financing costs.

When assessing possible investments in Russia’s consumer finance companies, Mr. Salisbury noted that three factors must be evaluated. First, a bank requires a management team with relevant experience in both the sector and the region — a combination that he characterized as rare.

Second, a bank must be able to deliver its products and services through distribution structures such as branches, mail delivery or association with other organizations. Third, a bank must be able to finance itself.

In the long term, Mr. Salisbury predicted tremendous growth in Russia’s consumer finance market that would give Russian consumers increasing

access to financial services over time.

In the short term, though, he predicted a possible stall in growth due to shortages of capital in the aftermath of the U.S. sub-prime mortgage crisis.

Richard Hainsworth discussed bond ratings and retail banking in Russia, noting that RusRating recently conducted a study that compared the credit spreads of high risk bonds to relatively risk-free bonds both before and after the bonds were upgraded or downgraded by RusRating. The company was surprised to find that the market followed their rating change, thereby revealing that the local market pays attention not only to the three major global rating agencies, but also to local rating agencies as well.

Mr. Hainsworth emphasized that large companies need to consider local ratings so as to avoid the risk inherent in trusting only the ratings issued by the three major agencies.

According to Mr. Hainsworth, the majority of retail banks in Russia are not large. Setting aside Sberbank, which manages 50 percent of Russia’s banking business and 60 percent of Russia’s retail deposits, the main play-

Richard Hainsworth, RusRating

nn October 23-24, 2007

with questionable practices, while allowing more legitimate banks to continue operating.

Warren Browne, General Motors Corporation

Warren Browne spoke about the state of the automotive industry in Russia, predicting several waves of change in Russia’s automotive market due to rising demand. Within 18 months the first wave will manifest itself in the form of

According to Mr. Browne, the third wave will be characterized by the offering of services related to auto sales, such as customer credit, insurance, used car sales, and call centers for fielding customer complaints. Although the selling of used cars may not come into practice in Russia for another five years, the eventual advent of used car sales will have a large impact on Russia’s automotive market.

As the automotive industry proceeds through these waves, Mr. Browne predicted that competitive pressures will intensify. Car manufacturers will need to pay attention to the value, technology and size of their products in order to remain competitive in the growing Russian market and attract well-informed Russian car buyers who increasingly prefer to buy larger vehicles. n

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Mr. Hainsworth acknowledged that some Russian banks do not maintain a level of transparency demanded by the international business community, but he said that many banks in Russia do conform to transparency standards.

Although the legislative regulation of banks may not be prevalent in Russia, the country’s Prosecutor General has previously taken action against banks

Regarding the recent global financial fluctuations resulting from the U.S. sub-prime loan crisis, Mr. Hainsworth commented that, although no individual bank in Russia has experienced a liquidity problem, Russian banks have nonetheless been nervously holding their money rather than lending it, thus leading to higher inter-bank rates.

The impact of the second wave, Mr. Browne said, will be felt two or three years after the first wave. In terms of consumer choices, he said that the current range of 300 products will increase to at least 500 within five years.

Pointing out that one new factory job generally leads to the creation of 10 new distribution and logistics jobs, the second wave will also bring significant new employment options for the Russian work force.

Russia Business Watch

ers in Russia’s retail banking sector are regional banks. He asserted that it is a fallacy that only large banks will exist in the future, noting that, while many companies operate on the belief that larger, more global organizations with wider coverage have lower risk, larger companies require more layers between clients and decision makers. A typical regional bank does not need the same intermediary structural layers, allowing it to work directly with customers in its own region of expertise. Although companies may find it more difficult to do business with a regional bank than with one that has offices in major financial centers, Mr. Hainsworth noted that regional banks are closer to consumers and are therefore able to provide better information and services.

Despite concerns that the current rapid growth in Russia’s financial sector may be leading to a sudden drop, Mr. Hainsworth predicted ongoing growth in Russia. He noted that there is insufficient financing to meet the growing demand for credit in Russia and, as a result of this low supply, Russian borrowers are willing to pay high interest rates of around 40-50 percent on their loans. The fact that Russian borrowers generally take small, short term loans has also driven up interest rates. Mr. Hainsworth also observed that, whereas banks in typical developed countries issue half of their loans to corporations and half to individuals, banks in Russia issue only a quarter of their loans to individuals.

a dramatic increase in options available to automobile customers. Mr. Browne attributed this to the presence of 10 serious automotive assembly programs in Russia and the fact that international auto manufacturers will soon successfully offer cars priced below 280,000 rubles (approximately $11,500), which he identified as the average price traditionally used by domestic Russian car manufacturers.

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PANEL

nn October 23-24, 2007

Projecting Russia’s Image Abroad

Moderator: Andrew Kuchins

Panelist:

Senior Fellow and Director, Russia and Eurasia Program Center for Strategic and International Studies

Yevgeny Abov

Managing Director of “Russia Beyond the Headlines” Rossiyskaya Gazeta

Stephen Lock

Regional Director Eurasia

MMD Corporate, Public Affairs & Public Relations

Yevgeny Abov opened the discussion by noting that new channels of communication are needed to improve Russia’s image abroad.

Winter 2007-2008

Mr. Abov noted that Rossiyskaya Gazeta’s latest project, “Russia Beyond the Headlines,” is a joint venture with the Russian government to create better opportunities for readers to understand the changes taking place in today’s Russia. The goal of the project is to improve the global image of Russia through inserts in foreign newspapers such as The Washington Post and The Daily Telegraph. The program’s creators hope that the initial successes of the series will lead to articles on business

Noam Gelfond

Gregory L. White

Partner Ketchum

Moscow Bureau Chief The Wall Street Journal

and foreign investment in Russia by other media outlets. Mr. Abov pointed out that foreign audiences currently receive a one-sided view of developments in Russia — foreign media outlets have created a stereotypical image of Russia that is misleading.

Russia Business Watch

Yevgeny Abov, Rossiyskaya Gazeta

In 2006, as the Russian Federation prepared to host the G8 Summit, the country was presented with the challenge of shifting the perceptions of Russia among Western journalists, commentators, thought leaders, and academics around the world. Dmitry Peskov, President Vladimir Putin’s

Press Attaché, realized that the Russian government could not conduct business as usual when it came to communications. Mr. Gelfond’s firm was brought in to assist Russia with Westernizing its

Mr. Abov emphasized that, in his opinion, the best way to access Western media is through paid advertising; the inserts are already reaching a younger generation of Americans. He believes that Russian newspapers need to be more proactive in crafting the nation’s image to the world as earlier approaches received criticism — therefore, by trying something new, Mr. Abov hopes his newspaper can be modern Russia’s channel of information to the West.

Noam Gelfond continued the discussion by noting that the Ukrainian gas crisis in 2006 may be thought of as a turning point in the way Russian government officials seek to manage their image abroad.

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Andrew Kuchins, Center for Strategic and International Studies

approach and helping to coordinate and manage its outreach for the Summit.

Their strategy focused on trying to make Russia more open, accessible, and transparent. During the Summit, Mr. Peskov and other senior Russian officials conducted 24 on-the-record briefings and conducted about 50 interviews and daily briefings that have become part of the Kremlin’s new communications strategy.

Mr. Gelfond added that the goal from that point forward has been to main-

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having U.S. citizenship, many are not supporters of the country and current government, so Russia lacks the international support of its ethnic diaspora.

While Russia is moving in the right direction, it does not have any so-called “pundits” to give third party endorsement to its policies. Western media outlets have not been fair in balancing the disappointments with the successes that Russia is experiencing.

Stephen Lock, MMD Corporate, Public Affairs & Public Relations

tain the transparency and accessibility achieved at the G8 Summit while focusing on promoting Russia as an attractive place to invest, as a reliable energy partner and as a rightful member of the G8, WTO and other world governing bodies. A high degree of trust exists between Ketchum and Mr. Peskov’s team, each allowing the other to make the right decisions and use their best judgment.

Stephen Lock continued the discussion by noting that Russia is disadvantaged by not having the vigorous lobby that other countries have in Washington.

Despite 2.6 million ethnic Russians

Gazprom’s public relations during the crisis were limited to showing men turning off gas valves. The Ukrainian narrative overcame the Russian side of the story despite the fact that Ukraine was stealing of gas on and off for 15 years and paying below market prices.

Mr. White added that modest improvements have been made since the G8 summit, noting that it was quite a revolution during the summit to be able to get an official comment, even if it may have been the typical Russian line.

This, at least, eliminated a complete vacuum of information about what was happening in the Kremlin. He concluded by emphasizing that open channels of communication are an important tool for Russia to convey its side of the story to the media.

Question & Answer Session What are the public relations challenges surrounding the upcoming presidential elections?

Mr. Gelfond stated that there is no lack of interest in Russia. The challenge, though, is to understand where that interest is coming from and how to help Mr. Peskov and his team communicate the appropriate message.

Mr. Lock contrasted the parliamentary elections with the presidential elections by noting that the under-25 and over-55 age groups tend to agree with each other and can be thought of as patriotic, but not militaristic. They are corporatist and think there have been

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Gregory White commented that he has been watching Russia since the early 1990s and that Russia’s efforts to convey its image abroad have been episodic at best. Over time, space has been filled by well-funded organizations who want to portray the Russian story. The 2006 gas crisis with Ukraine showed that Russia had no coherent message to use to counter the message coming from Ukraine and its supporters.

Gregory White, The Wall Street Journal

Russia Business Watch

Noam Gelfond, Ketchum

Mr. Lock generally sees a durable and successful system of rule of law, where contracts are largely respected, unlike neighboring Kazakhstan and Ukraine.

Russian NGOs in the Unites States do talk about Russian success but lack the political and media supporters to help in this process. The large anti-Russian sentiment abroad is financed by those who disagree with the nation’s policies.

Mr. Lock noted that his firm represented Rosneft during its IPO, and added that opposing groups led by George Soros and Boris Berezovsky allegedly pumped millions of dollars into lobbying against both Russia and the offering.

MMD had to reach out and find third party endorsers to frame the debate as a reconfiguration of third party assets and not necessarily as state domination.

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many losers in the way that capitalism has developed in Russia and see a stronger state as essential. United Russia has campaigned well to ensure more consumer protection than a more liberal form of capitalism and that seems to scare the West.

Mr. Gelfond commented that one person’s propaganda is another’s information service. There are going to be missteps in the process of becoming more open, but he believes there is no harm in active engagement between governments and the public and vice versa.

Mr. White believes that Putin will continue to play his hand tightly with regards to Kremlin strategy, as when he surprised many by nominating Viktor Zubkov to become Prime Minister.

Mr. White noted that the economic impact of Putin’s policies has been seen as stabilizing in Russia, but not overseas. On the issue of image management, he stated that image agencies are not the most productive way to approach the problem and that it should be the job of everyone in government.

Journalists should try to differentiate

Is there a danger that these information services could be seen as propaganda?

PANEL

Panelists:

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Mr. Kuchins closed the discussion by stating that bad news is what makes the news, not good news. There are plenty of positives about Russia’s domestic economy, but for many in the United States who thought democracy would take hold quickly, disappointment seems to pervade the Washington consensus. Many think that if a country is more democratic it will naturally follow American interests to a greater extent.

Sometimes this is true, but sometimes it is not true; it is contingent on many factors. n

A New Era in Russian Energy

Moderator: Daniel Yergin

between what is substance and what is state rhetoric.

Chairman

Cambridge Energy Research Associates

Robert Dudley

President and CEO TNK-BP

Daniel Yergin began by noting that Russia is a key player on the world energy markets because of its vast oil and gas resources, high hydrocarbon revenues and its disciplined macroeconomic and fiscal policies that include sequestering a part of its energy revenues. According to official statistics, oil and gas income generates about 2025 percent of overall growth today — a smaller share than in the past. Investors in the industry are uncertain about the scale of future investment, the development of new fields, the rise in costs, the relationship between private and state companies and the changing role of the latter.

Peter Robertson continued the discussion by noting that most international

Peter Robertson

Vice Chairman Chevron Corporation

companies are committed in the long-term to Russia, which has the world’s largest oil and gas resources and is the largest energy exporter. Despite the central role that the state occupies in the Russian energy industry, there is plenty of room for public-private partnership — although one must keep in mind the need for reciprocity, a balance of interests and the importance of competition and private Daniel Yergin, Cambridge Energy Research Associates investment. Clearly, the or through state-owned companies such state plays a dominant role in the Russian energy landscape, wheth- as Gazprom and Rosneft. However, such a situation is hardly unusual in the er in the sphere of oil and gas pipelines

world, where national companies control 80 percent of energy resources.

Mr. Robertson proceeded by expressing his regrets that the United States’ commercial dialogue with Russia and Europe is not moving forward as swiftly as it should. If this situation continues, state companies from other parts of the world will fill the vacuum. At this point, there is a clear need in Russia for Western expertise and technology, particularly in developing offshore deposits in the Arctic and the Far East.

Foreign investment is also needed to supplement planned multi-billion-ruble investments by domestic companies.

The International Energy Agency (IEA) estimates that the Russian oil and gas sector will require up to $1 trillion of investment in the next 15 years, and an increase in the current volume of investment is possible if Russia’s regulatory and fiscal regimes are improved and stabilized.

Mr. Robertson noted that capital investment in upstream capacity development in Russia and the Caspian Basin almost tripled between 2002 and 2006, although it is still well below international standards. He added that, over the last several years, investment in

oil production in the Gulf of Mexico totaled $5,500 per barrel, while in Russia it amounted to only $1,000 per barrel. In addition, minority stakes in joint ventures with Russian companies are not a deterrent to foreign investors, as evidenced by Chevron’s minority share in its joint venture with Gazprom Neft, as well as in its other joint ventures around the world.

Mr. Robertson concluded by stating that competition and private investment remain important despite the state’s dominance in the energy sector.

Although certain challenges such as a lack of adherence to the rule of law remain, increasing investment access is within Russia’s interests as it is within the interests of the United States and the European Union. Therefore, Mr. Robertson urged the business community to support strongly Russia’s accession to the WTO and similar initiatives that promote trade and investment.

Overall, the focus must be on engaging the state as well in the energy sphere, developing robust commercial and government partnerships and strengthening competition and private investment.

Russia’s second challenge is an effective move into new, undeveloped fields located in the remote provinces away from major infrastructure. The development of these new fields will require world class skills and technology and a transparent regulatory environment.

The amount of investment needed for such projects is estimated to exceed $100 billion. The third challenge is the interaction between national champions and private players such as LUKoil and TNK-BP. This situation mirrors the environment in the global industry, where national companies control most of the hydrocarbon resources but have to coexist with large multinationals.

The final challenges are the high procurement and operations costs, as well as the rising taxes that directly impact the energy sector’s ability to deliver the large hydrocarbon projects that Russia needs.

Question & Answer Session According to what you said, without a change in taxes or in the cost structure that is unlikely to happen, is it going to be more of a challenge to either increase oil output or keep it at the current level?

Mr. Dudley responded by observing that with mature onshore oilfields, one has to work harder and harder over time just to keep production flat.

However, onshore development can be advantageous because there is no need for large one-time investments, thus spending and development can be incrementalized. If a few years ago a company would work on big, more capital-intensive projects, in the near future the company will have to build its infrastructure slowly.

Winter 2007-2008

Robert Dudley began by noting that the recent oil production increases by Russian companies provided about 40 percent of global oil production growth between 2001 and 2005, roughly equivalent in volume to China’s demand growth during the same period. There are several challenges to continued output growth, though, beginning with sustaining and expanding the potential of Russia’s brownfields. He noted that, in the foreseeable future, most of Russia’s production will come from the brownfields in West Siberia. Such fields still have many years of produc-

tive life, but increasingly sophisticated production techniques — such as efficient reservoir management and water floating — are required to utilize their full potential once their production rates begin to slow down.

Russia Business Watch

Robert Dudley, TNK-BP

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ing the oil industry now so that an improved regulatory framework could provide targeted incentives to develop new oilfields located far away from any existing infrastructure. The government also needs to readjust export duties to match the timing of oil price changes and eliminate the lag effect that compounds oil price fluctuation.

Peter Robertson, Chevron Corporation

On a global basis, how did rapidly rising costs affect your business and how do you prioritize your expenses?

Winter 2007-2008

If you were asked by the Russian government what needs to be done to keep Russian oil production strong, what would you recommend, in terms of regulations, taxes, etc.?

Russia Business Watch

Mr. Robertson replied that the oil business remains profitable regardless of high costs. However, as the price of oil has increased dramatically, the costs have kept up — in certain instances increasing three- to fivefold compared to several years ago. In addition, governments have raised taxes in an attempt to take advantage of higher earnings. The main challenge for energy producers is to maintain the margins and earnings necessary to make sufficient investments for future production.

Mr. Dudley responded by observing that it is generally harder for governments to implement policy change during two periods: when energy prices and tax revenues are high and during an election year — which is the current situation in Russia. However, the Russian government should re-evaluate its regulatory and tax policies concern-

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It seems as if Russia’s strategy of building large national champions was based on a belief in the benefit of monopolies’ strength and their ability to control markets.

What are the key factors of Russia’s success in this approach, and what are the pitfalls and consequences for international companies, U.S. business and consumers?

Mr. Robertson responded by stating that developing large national champions has its advantages because it often takes large companies to supply the kind of volume of investment necessary in this sector. Rosneft and Gazprom will potentially play an important role nationally and internationally, perhaps following the example of Total, an international oil company that started out as a national one. However, it is unlikely that they will be able to make all the necessary investment today to ensure sufficient production in the future. Therefore, these companies will have to compete with international oil companies — which they are qualified to do. The hope is that this competition will occur on a relatively level playing field.

Mr. Dudley added that Russian companies possess important expertise developing oil and gas in some of the harshest climates in the world. However, they will have to share the risks as is customary for state companies in the

energy sector — it is unusual to have a company operate 100 percent of a project. They will also have to incorporate the best new techniques and project management skills from around the world.

In Russia’s oil sector, the “low-lying fruit” has been picked and future projects will be more complex. Is there any such “low-lying fruit” in the Russian gas industry? Also, please give your opinion on the issue of gas flaring.

Mr. Robertson responded by noting that, so far, Russia’s large-scale onshore gas projects are sufficient to meet Europe’s demand for gas. However, according to some reports, Gazprom has fallen behind on investment that could cause a supply shortfall beginning in 2011-12. At this point, Rosneft, TNK-BP and LUKoil are all producing gas but do not have full access to Gazprom’s pipeline system. The result is that large amounts of gas are flared during oil production. For example, Chevron sells 70 percent of its gas and flares the remaining 30 percent. If this gas reaches the market, the production gap may be closed. Even if Gazprom ends up unable to meet European demand, other companies will be able to step up and fill it.

Mr. Robertson concluded by asserting that no oil company wants to flare gas.

However, shutting that gas production off in many cases would entail also shutting down oil production, which may put a producer in violation of its licenses. The issue is not as simple as just stopping flaring.

Mr. Dudley added that gas flaring has attracted a great deal of attention at the highest levels. There is currently a risk that short-term regulatory penalties will be imposed in order to resolve this issue rather than relying on market incentives to do so. n

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Russian Companies in the World Market

Moderator: Roger Munnings

Chairman and CEO, KPMG Russia and CIS

Panelists:

David Iakobachvili

Z. Blake Marshall

Chairman of the Board of Directors Wimm-Bill-Dann Foods

Senior Vice President-International The PBN Company

Deputy General Director MMC Norilsk Nickel

Deputy Director of Public Affairs Aeroflot Russian Airlines

Ralph Tavakolian Morgan

Roger Munnings opened the panel by noting that more clarity and balance are needed in the discussion of Russian corporations in the world market today.

This balance is necessary to recognize the progress already made and the challenges that remain for Russian companies. At the macro and political levels, turbulence will continue as Russia seeks to establish itself in the position that it feels it deserves owing to not only its energy resources, its size or the skills of the population, but also through the increased integration of its businesses with foreign counterparts.

Lev Koshlyakov

Blake Marshall continued the discussion by pointing out that the frame of reference toward Russian companies in the global market has evolved. He emphasized that Russia is becoming a base for worldwide growth, and that Russia’s global reach is evident by its presence in capital markets and major exchanges. In 2006, 18 Russian IPO’s were undertaken, compared to 23 for the entire previous decade. In 2007, increases are expected both in the number of listings and in the volume they represent. Russia’s integration into world markets and its attractiveness to foreign companies is no longer the exception to the rule but the norm.

from Russia’s overall image and the impact of state affiliations on corporate governance. The second challenge is that of media relations and how to help potential business partners see beyond the often negative newspaper headlines.

The third challenge is overcoming the obstacles emanating from the government and the policy community and ensuring foreign partners that the regulatory and other approvals for M&A and FDI are separate from and not endangered by the political apparatus.

Mr. Marshall proceeded to discuss the dichotomy of perceptions vs. reality when dealing with Russia companies. The Russian corporate story is not well known, misunderstood and often misrepresented in Western media. Primarily, the perceived image of Russian investments in emerging markets is removed from reality.

Recent examples include stories about investments by Norilsk Nickel, Rusal, Renova, and Alrosa in Africa that were portrayed in the media as a safari for the oligarchs, when in fact the deals totaled more than $5 billion in investment over the last three years. Recent investment in the U.S. steel industry by Russian companies has received similar treatment. The Russian companies are portrayed as carrying out the imperialistic desires of the Kremlin on U.S. soil when, in reality, Russia’s biggest producers have invested over $3 billion in

Winter 2007-2008

Mr. Marshall noted that, even though there has been a conceptual shift in how Russian companies are viewed, they still face three reputational challenges when engaging in international expansion. The first concerns financial communication: companies must decide how best to introduce their management and their corporate story to investors. One of the central problems here is that of separating Russia’s business environment

Russia Business Watch

Roger Munnings, KPMG Russia and CIS

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Z. Blake Marshall, The PBN Company

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U.S. steel operation in the past 4 years, revitalizing run-down plants and even winning union support for their business development actions.

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Mr. Marshall concluded by saying that Russian corporates are formidable competitors, with professional management, industry expertise, capital, and other resources and the drive to match their talent. They have found the key to success in starting early and reaching out to build allies and coalitions in order to impact public opinion and break the stereotypes that hinder the development of their business abroad.

Ralph Tavakolian Morgan continued to address the key challenges facing Russian corporates in international markets. He began by discussing a topic of increasing importance: the execution of international ventures and transactions.

Participation in such international deals demands special effort as it already influences how Russian corporates will participate in international industry consolidation and growth.

Mr. Morgan, like the other panelists, emphasized that tiresome stereotypes about the country still linger that make

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investment abroad much more challenging. He pointed out that Russian executives spend too much time expressing their dissatisfaction with these stereotypes or aggressively dismissing them rather than working to retire them.

Matters are exacerbated by the Western media, which by constantly portraying Russia in a negative light renders companies’ advertising budgets and government relations efforts ineffective.

Mr. Morgan recognized that rumors are easy to report but that they carry the real negative consequences of impeding the development of large and medium-sized corporations.

He noted that, over the last couple of years, Russian corporations have gained a reputation for being undesirable acquirers of foreign companies.

The belief that Russian companies are unable to undertake and execute transactions abroad is fairly widespread. It is important to keep in mind that Russian companies are enduring the multi-faceted challenges and changes that are taking place in Russia: that of rapid economic growth, restructuring and a shrinking domestic population.

Furthermore, they are still learning to master the acquisition process.

Mr. Morgan pointed out that his company, Norilsk Nickel, made the largest foreign transaction in Russia’s history. He revealed the most important elements of executing such transactions, as well as the most criti-

cal challenge, which was to tackle the company’s “Russian-ness.” Mr. Morgan offered patience and balance are both virtues in dealing with the negative stereotypes that hinder expansion abroad.

When potential business partners ask somewhat irrelevant questions about the political situation in Russia, it is important to avoid the role of apologist or to become a cheerleader but instead to promote an accurate view of the situation in Russia.

Foreigners need to overcome their suspicions of offers emanating from Russia, regardless of the ownership structure of the company. Holding subsequent meetings with potential business partners in Russia is crucial to dissipating these fears, as they are often impressed by the state of affairs in the country. Communications efforts must be doubled to compensate for the perceived physical and cultural differences between the countries. Personal executive commitment and informal relations must accompany corporate efforts.

Mr. Morgan concluded by pointing out that the leading Russian companies need to develop skills in integrating assets into their corporations. These are not only Russian companies acquiring assets abroad, but also global companies based

Ralph Tavakolian Morgan, MMC Norilsk Nickel

in Moscow. Knowledge, skills and experience must be gathered and actively applied in Russia to complement the unique experience that has been gained by Russian companies in Russia over the last 10 years during a time of intense business restructuring. Norilsk remains committed toward becoming a fully fledged global company. This is possible, but requires a personal commitment from the senior management to break down significant barriers to understanding between Russian corparates and their future counterparts.

Lev Koshlyakov began his presentation with an overview of Aeroflot’s experience as a corporation on the global market, which, he believes, reflects the general perceptions of Russian companies. Newspapers continue to begin business articles with negative associations with the Soviet days and the unpleasant memories of “Aeroflot chicken.” Mr. Koshlyakov emphasized that Aeroflot deserves to be described and assessed as a serious company and that, even though stereotypes persist now, facts and figures can and will expunge the misperceptions.

He noted that, currently, Aeroflot is one of the most financially efficient airlines in the world, ranking in 40th

Winter 2007-2008

place concerning the volumes of traffic, but 9th in terms of profit. The company overcame challenges and transformed itself before it reached its current success: it acquired new management, introduced new standards of corporate governance and transparency, adopted international accounting standards, and learned from international consultants in terms of improvement of its service and rebranding. Aeroflot has experience in terms of David Iakobachvili, Wimm-Bill-Dann Foods revenue management, comcompany, as it has learned from seemercial operation, network ing how farm and dairy production has restructuring, and crisis management. been developed in the United States.

Mr. Koshlyakov stated that the company plans to improve its competitiveness American dairy companies are not and stay on top of modern technology largely present on the Russian market and trends. He reiterated that Russian like European companies, and Wimmmarket holds great potential and that Aeroflot is working to bring benefits to Bill-Dann welcomes their presence.

Competition from U.S. dairy producthe Russian aviation industry overall. ers would help to alleviate the current dairy deficit in Russia and would benDavid Iakobachvili began by pointing efit consumers. He noted that Russia out that Wimm-Bill-Dann was one of invests only 1.3 percent of the governthe first Russian companies to be listed ment budget to agricultural subsidies, successfully on the New York Stock compared to 25 percent in Belarus and Exchange (NYSE). The 12 percent in Ukraine. Russia is too success has not been dependent on imports of milk and milk easy, as the company was powder from abroad. Additionally, the forced to undertake a traditional exporter of milk products to fundamental transformaRussia, Belarus, now sells much of its tion after the financial products to Algeria and Ghana, who are crisis of 1998. willing to pay more for them.

Wimm-Bill-Dann’s presMr. Iakobachvili noted that Wimmence on the NYSE is Bill-Dann wants to be present in all indicative of the comregions of the Russian market, as well pany’s adherence to the highest levels of transpar- as to expand to other markets such as Armenia and Georgia. He expressed ency, which is crucial for hope that the presence of his company, removing misperceptions as well as other big dairy companies, about Russian corporawill continue to improve and develop tions. Furthermore, the the agricultural sectors of the countries relationship with the U.S. in which they operate. n is very important for the

Russia Business Watch

Lev Koshlyakov, Aeroflot Russian Airlines

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Russia’s Human Capital Challenge

Moderator: Andrei Kortunov

Panelist:

President New Eurasia Foundation

George Abdushelishvili

Senior Partner

Ward Howell International

Andrei Kortunov introduced the panel by emphasizing the increase in human capital that occurred in Russia over the last 10 years. The number of students doubled, the number of higher education institutions tripled, and over 2,000 private training facilities emerged. In addition, a migration boom took place that made Russia the number-two destination country for migrants after the United States. Russia also experienced a radical increase in professional and geographic mobility of its labor force.

However, human capital development in Russia is still characterized by a variety of problems. The system of higher education is not linked to the market, and many graduates are not using their knowledge and skills at work. Private educational and training institutions tend to combine high cost with low quality. In addition, the country turned out to be unprepared to accommodate the large numbers of incoming migrants, thus creating serious social,

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Andrei Kortunov, New Eurasia Foundation

Sergei V. Kravchenko

President

Boeing-Russia/CIS

David Pearson

General Director Deloitte & Touche CIS

economic and political problems as a result. These factors have combined to create a deficit of human capital on all levels in Russia, from higher management to qualified civil servants to bluecollar labor in some regions.

Mr. Kortunov noted that the private sector could contribute to resolving these problems. The American experience of conducting corporate training programs may be used as a model for setting up corporate universities in Russian companies. It would also be greatly beneficial for companies to forge public-private education and training partnerships with Russian public universities, vocational training institutions, regional departments of education, and government bodies.

David Pearson continued the discussion by describing Deloitte’s growing personnel needs and the company’s experience in successfully filling them.

He noted that the company’s regional offices grew from 150 employees six years ago to 3,500 today. To fill an additional 1,800 jobs available this year, Deloitte draws entry-level candidates from many Russian universities and attracts qualified expatriate and regional executives for senior-level slots.

Given the complexity of today’s Russian business environment, the company invests time and effort not only in finding the strongest outside candidates, but also in developing talent from within, which is achieved through a variety of successful employee training programs.

Overall, Mr. Pearson sees Deloitte as an

David Pearson, Deloitte & Touche CIS

opportunity firm that continuously supports its talented Russian workforce, encouraging them to achieve their full potential and thus reducing its staff turnover rate to less than 15 percent for the past six years.

George Abdushelishvili discussed the concept of leadership that may present a challenge to companies from Russia and other post-Soviet states.

The meaning of the word “leader” has changed significantly in the last ten years owing to an increase in the number of stakeholders with whom managers now have to interact. These stakeholders include shareholders, subordinates, clients, competitors, the government, and regulatory agencies.

Today’s leader has to play at least seven roles: operational director, strategist, coach, energizer, innovator, ambassador, and owner. However, many Russian CEOs and general directors do not fully understand their role as leaders or owners because they tend to measure their success only in the present moment, without envisioning it as a

step in building a great company. Mr. Abdushelishvili advised Russian business owners, regardless of the type and size of their companies, to devote much of their time to identifying, attracting and developing their present and future leaders.

Another challenge for multinational corporations in Russia is their difficulty attracting or retaining their best talent.

It is hard for international companies to attract a qualified workforce because they cannot offer the same system of remuneration, including incentive plans, options plans, etc. Russian employees prefer to have more responsibility in local companies and they tend to require constant access to the company’s top manager, which may pose a problem at a regional office far from the central location in Moscow. In this case, Mr. Abdushelishvili recommended giving freedom to local and regional managers to make decisions that would allow them to hire the best and the brightest and let them function outside a rigid corporate framework.

it boasts many well-educated, highly skilled people who can assist American companies in cutting costs, win new business, and simultaneously create a knowledge- and innovation-based economy.

Compared to China and India — who, in the last 25 years, established themselves as cost-effective and efficient suppliers of customer support, backoffice, and IT services — Russia’s niche lies in performing a combination of IT, engineering and research and development services that foreign companies currently conduct in-house. Boeing, Intel and Motorola have recognized this by establishing thousands of high tech jobs in Russia, the latter two within their own structure and Boeing by creating separate Russian firms such as Progress-Tech that become its main Russian partners. According to Mr. Kravchenko, these jobs account for only about $0.5-1 billion in costs, which makes them 15 times less expensive than similar intellectual services exported from India in 2007.

Mr. Kravchenko cited Boeing as a successful example of U.S.-Russian cooperation in the field of intellectual services. Boeing created about 2,000 high-tech jobs in Russia not by hiring people directly but by establishing independent software companies such as Infosys, Infotech, and Progress Tech. The Boeing management team in Russia consists of about a hundred local employees who are trained in-house.

Russian high-tech specialists designed about one-third of modifications of the company’s largest projects, including the Boeing 747 and 777, and a thousand Russian engineers worked on the company’s newest Dreamliner jet, giving Russia a reason to be proud not only about an influx of foreign jobs but also about preserving its scientific traditions.

Mr. Kravchenko noted that, although Russia has begun investing in education, investing in universities is not enough.

George Abdushelishvili, Ward Howell International

In his opinion, Russia needs American contracts and jobs that would be more effective than investment of any kind.

American and international business owners will have to work with schools and universities to raise professionals who may never become millionaires but will be able to provide a good standard of living for themselves and their families. While the Russian government is doing its part by establishing free economic zones, hundreds millions of dollars in contracts from Motorola, Intel and other major foreign companies are needed to fill those zones. Russia needs contracts, not investment.

Mr. Kravchenko concluded by emphasizing that intellectual services could be the antidote to the over-reliance on oil and gas. While he admitted that the Russian economy is out of balance today, he saw the key to a future balance in the convergence between an energy-based economic model and a model based on knowledge and intellect. This convergence will allow American businesses to decrease production costs or launch new products faster, as well as help Russia develop its surplus intellectual potential and integrate it into the outside world. It is up to Russia to decide whether to take advantage of its untapped intellectual potential, but if it chooses to do so, Boeing, Intel, Motorola, and others will be there to take an active part in this process. n

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Sergei V. Kravchenko, Boeing-Russia/CIS

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Russia Business Watch

Sergei Kravchenko began by portraying Russia as a human-capital powerhouse and proceeded to envision it as the world’s supplier of intellectual services, such as information technology and research and development. Today, Russia may lack specialists in the field of public relations or accounting, but

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Russia’s Regions — The Next Big Opportunity

Moderator: Kendrick White

Panelist:

Managing Principal Marchmont Capital

Robert Droogleever

General Director Caterpillar CIS

Darrell Stanaford

Managing Director, Russia & Ukraine CB Richard Ellis Noble Gibbons

Kendrick White began by noting the tremendous amount of potential found in Russia’s regions and the emergence of policies on the federal and local levels that increase the regions’ attractiveness to Western companies. Compared to Moscow and St. Petersburg, the regions boast lower barriers of entry for foreign investment that induce local Russian companies to compete to retain their market position. Local political elites are interested in increasing competition and attracting foreign investment, which generates a need for greater transparency.

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Winter 2007-2008

Mr. White went on to discuss the “bottom-up” regional development trends, supported both on the municipal and

38 Robert Droogleever, Caterpillar CIS

Mark T. Robinson

President Citibank ZAO

Evgeny Zakablukovsky

Regional Government Affairs Manager Intel Corporation

private level, of a growing number of business clubs, consulting companies, Western banks (that bring with them new credit and financial mechanisms), and Russian microfinance companies.

The number of local MBA programs has also increased over the years, alleviating a deficit of qualified, experienced personnel and counteracting a shortage of Moscow-trained managers who are still hard to persuade to relocate to the regions. Commercial clusters developing in Rostov, Nizhny Novgorod, Yekaterinburg, Novosibirsk, and Kazan are a result of such “bottom-up” efforts by the local administrations to attract investment, develop technoparks and business incubators and support the development of more diversified regional economies.

Robert Droogleever noted that his company has expanded into the regions in order to remain close to its customer base — many of Caterpillar’s regional offices are located on customers’ sites.

Most regions offer the advantage of cleaner air and fewer traffic problems than Moscow, as well as steadily improving living standards. However, regional expansion is complicated by a lack of adequate infrastructure — including internet and phone service (one of the reasons the company had to close its Vladivostok office) — and levels of corruption that are higher than in Moscow.

Kendrick White, Marchmont Capital

Although Caterpillar hires its employees both in Moscow and in the regions, shifting people between the central and regional offices has proven difficult due to the company’s pay structure and a shortage of affordable real estate in Moscow. However, despite the challenges, a regional presence is important because of the wealth located there and the increasing spending power of the population.

Mark Robinson continued the discussion by noting that Citibank has also moved into the regions in order to remain close to its customers. The regions hold great potential for services industries such as banking due to their growing middle class, expanding private

wealth (as illustrated by the increasing number of retail stores and worsening traffic conditions), and insufficient number of bank branches. In addition to customers, the regions are also rich in intellectual capital, which inspired Citibank to launch a project this year to create its first regional back-office processing center.

Mr. Robinson noted that, when considering where to expand, the company is guided by several considerations. The first is the human capital consideration.

When choosing a location for its backoffice facility, the company approached a number of local universities, who clearly understood the potential of attracting investment into their cities. Effectively, Citibank faces significantly less competition for young labor of the same caliber in the regions than in Moscow, and its regional compensation costs and turnover rate are significantly lower as a result.

Citibank also considers available office space. Although there is a lot less office space of acceptable quality in the regional cities than in the capital, this situation is changing rapidly. In addition, office space in the regional cities costs at least 50 percent less than in Moscow, which presents a significant attraction.

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Regional infrastructure (particularly roads, airports and hotels) has improved significantly over recent years, although the degree to which it has improved still varies from city to city. Transportation connectivity within Russia now enables business travelers to conveniently reach most Russian cities and regions.

Technological costs are still higher in Moscow where the necessary infrastructure has been in place for years. In contrast, much of the regional infrastructure still needs to be created from scratch, which is a more significant consideration in a service industry such as banking compared to manufacturing.

Mr. Robinson concluded by stating that the Russian regions drive a lot of business opportunities for Citibank. A decade ago the regional cities were ten years behind Moscow, and now this gap is only two years and will continue to shrink. To those companies that are considering doing business in Russia, Mr. Robinson recommends developing their regional strategy at the same time as they develop their general Russia strategy. The opportunities in the regions are immense, and they will be captured by those who move the quickest.

Moscow remains a default destination

for foreign business, although the city’s saturation with foreign business makes for an ambivalent attitude from Moscow Mayor Yuri Luzhkov. In contrast, when American corporations go beyond Moscow, they are welcomed in rapidly developing regional centers such as Tatarstan, Lipetsk and Nizhny Novgorod, whose growth may be attributed in part to advantageous local government attitudes. For example, Valery Shantsev, the head of Nizhny Novgorod’s regional administration, has learned from Mayor Luzhkov’s experience. He now intends to implement in his region what Mr. Luzhkov has done in Moscow, including conducting large-scale infrastructure projects such as international airport and port construction. Novosibirsk has a great deal of human talent, and Russian developers built a techno park there to take advantage of it. This is not the case in every region — overall, each Russian region is developing at its own pace. The regions are where the future is and where Richard Ellis’ customers are expanding.

Evgeny Zakablukovsky began by talking about Intel’s commitment to the Russian market. The company first started contracting with engineers in Sarov in 1992 and opened its subsidiary in Nizhny Novgorod in 2000. Although Intel has invested a great deal in Russia,

Winter 2007-2008

Darrell Stanaford viewed the Russian regions as his company’s main opportunity for development, as most of the resources, consumers and intellectual talent are located in the regions. As a commercial real estate company, Richard Ellis sees its task as building an entirely new country — most of the Soviet-era real estate has become obsolete, including housing, industrial warehouses and shopping. Commercial real estate is a growing business where a lack of material and expertise is driving up the cost of doing business. Infrastructure presents another challenge, as the attitude to development varies widely among different regions.

Darrell Stanaford, CB Richard Ellis Noble Gibbons

Russia Business Watch

Mark T. Robinson, Citibank ZAO

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ing a silicon manufacturing facility in the country, but the company remains cautious due to insufficient legal and political stability and infrastructure, as well as the existing import and export duties.

He noted that it took Intel almost two years to remove customs duties from the microprocessors that the company imports into Russia — a temporary measure that will expire in nine months.

Evgeny Zakablukovsky, Intel

Corporation

its Russian operations are limited to software development, engineering, sales, and marketing. The Russian government has approached Intel about locat-

PANEL

Russia is a fast-growing market for Intel, and much of this growth occurs in the regions. The company has made a policy of consulting trusted local experts on the best growth strategies for a particular region; for example, Intel created a Corporate Experts’ Council in its Nizhny Novgorod office. The company also invests in building relationships with the

local governments, looking for possible synergies and opportunities for cooperation. Mr. Zakablukovsky noted that an added benefit of close cooperation with the local authorities is that they sometimes take federal positions in Moscow, thus elevating one’s connections to the federal level.

Mr. Zakablukovsky also emphasized the importance of corporate social responsibility in the regions. Intel has established a Department of Nongovernmental Relations (NGR) through which it cooperates with the government in finding solutions to community problems on a charitable basis. Through various programs, Intel funds, supports and monitors projects by local non-profit organizations. n

Views of the U.S.-Russia Relationship

Moderator: Vladimir Pozner

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Panelist:

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President Academy of Russian Television

President

Vladimir Frolov

Andrew Kuchins

Senior Fellow and Director, Russia and Eurasia Program

LEFF Group

Center for Strategic and International Studies

Vladimir Pozner opened the discussion by noting that Russia’s newfound position as a political heavyweight is reflected both in the views of its president and its people. The West’s concern over what it sees as the rollback of democratic reforms instituted in the 1990s rings hollow in the ears of most Russians today, while President Putin’s comments last year referring to the collapse of the Soviet Union as the greatest geopolitical catastrophe in world history are echoed by a majority of Russians. Sixty-three percent of Russians agreed with Mr. Putin’s views, despite the fact that many of them have never experienced life in the Soviet Union. Nearly 50 percent also

agreed that Stalin was a wise leader, and — perhaps most disturbing — 64 percent actually consider the United States to be Russia’s main rival.

Andrew Kuchins continued the conversation by noting that, over the last 15 years, the U.S.-Russia relationship has never been as good as some people thought it was, and it is not as bad as some people try to characterize it to be today. Many would like to believe a new Cold War is upon us, but the international system today is fundamentally different from what it was during the Cold War. The Russian political elite do not seek a return to the posture of the

Cold War because it led to the demise of the Soviet Union and such a relationship would not be in Russia’s interests.

Mr. Kuchins believes that over the last decade, the United States and Russia have experienced a reversal of fortunes.

At the end of the 1990s, the United States had a sense that it had an extraordinary historical role to play. That all changed with the Bush administration coming to office and the September 11th attacks.

After a seemingly successful campaign in Afghanistan and early in the Iraq war, the turning point came in 2003. Since then, U.S. budget surpluses evaporated and now the subprime mortgage crises

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mies, including Russia, China, India and, even Brazil, are gaining more economic power and have more political influence. The great challenge faced by the U.S. and Russia is how to adjust global governance institutions and structures to reflect a more multipolar world.

Vladimir Pozner, Academy of Russian Television

looks like it will drag the economy into a recession.

In contrast, the Russian economy has rapidly accelerated since 2003 due in large part to the high price of oil. When Vladimir Putin took office, Russia’s foreign currency exchange reserves were less than $10 billion. Today, reserves are hovering over $400 billion, with over $130 billion in the Stabilization Fund.

As a result, Russia has become a more confident player and seeks to have a greater voice in global affairs.

The Russian political elite believe the balance of the economic power in the world is shifting. Large emerging econo-

Mr. Kuchins emphasized that, while the U.S.-Russia relationship may be frosty in many respects today, relations have come a long way and that the Cold War is a distant memory. Today’s situations are new and the challenges are new. AntiAmericanism in Russia and anti-Russian stereotypes in the U.S. are dominating the headlines, but both nations do need each other to establish new institutions and to manage global governance more effectively.

Vladimir Frolov, President, LEFF Group

on realism will allow both nations to understand each others’ strengths and vulnerabilities. The U.S. and Russia must cooperate where interests overlap and agree to disagree but not undermine each others’ positions on issues where interests diverge.

As it is viewed in Moscow, the relationship with Washington is not an end in itself and it cannot trump Russia’s other interests. A strong bilateral relationship with the U.S. is just one way for Russia to strengthen its position in the world.

In some cases, though, close association with misguided U.S. policies could actually weaken Russia’s position, like in Iraq, for example. He emphasized that Russia faces its greatest threat of instability, extremism, terrorism, and radical Islam on its southern border — an area where both nations share a common interest

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Vladimir Frolov continued the discussion with his somewhat more optimistic views of the current state of the relationship. He noted that, despite differences over U.S. plans for a missile defense system in Eastern Europe, the strategic security relationship crafted under the Moscow Treaty is still in place, and discussions have been launched on a new strategic framework to govern that relationship after the START I treaty expires. On Iran, the relationship has been completely transformed — Iran has moved from being a major irritant to a major area of cooperation. Russia has tightened and enforced its export control policies and the issue of legal missile and nuclear technology exports has been removed from the bilateral

He believes the state of today’s relationship is healthy because it is realistic. Since the end of the Cold War, U.S.-Russia relations have been swinging wildly between periods of idealistic optimism bordering on irrational exuberance and politically self-serving pessimism.

However, a healthy relationship based

Russia Business Watch

Andrew Kuchins, Center for Strategic and International Studies

Mr. Kuchins believes the adjustment process will be anything but easy. What is happening in Russia in terms of public opinion is in some ways an over-reaction to what happened in the 1990’s. He noted that Russia is not shunning integration; it simply does not want it under the terms that were offered in the 1990s.

This goes to the heart of President Putin’s Munich speech and the current posture of Russian foreign policy.

agenda. Russia has also supported the UN Security Council resolutions imposing sanctions on Iran over the nuclear program.

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ANNUAL MEETING 2007 Moscow, Russia and that could drive U.S. and Russian interests together, as it did after 9/11.

While Putin’s Russia has succeeded in having its voice heard at the big tables of world politics, it has had to raise its voice to get the audience’s attention.

The recent U.S. proposals on missile defense that seek to integrate Russia into a joint regional missile defense architecture, indicate that Russia’s new assertive posture, with a more vocal defense of

ОСНОВНОЙ ДОКЛАД

nn October 23-24, 2007

its interests, can yield important results.

Russia should emphasize historical and natural characteristics that are at play in the long and difficult evolution of its democratic values, practices and traditions. Mr. Frolov emphasized that the U.S. will need to give Russia and, more specifically, Vladimir Putin, the benefit of the doubt that in the end his administration will do the right thing and finally set up a sustainable democratic system.

What is critical to ensuring continuity in the relationship and preventing political change from disrupting the order of business is to have a viable communications structure; viable working mechanisms that function on a nonpolitical but bureaucratic level. Viable communication channels are those that could function smoothly, without daily interference or stewardship by the principals or by the top leaders of the two countries. n

Александр Жуков

nn Заместитель Председателя Правительства Российской Федерации

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Выдержки из выступления Заместителя Председателя Правительства РФ на торжественном ужине АмериканоРоссийского Делового Совета 23 октября 2007 года.

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“…От имени Правительства Российской Федерации я хочу поприветствовать всех участников и гостей уже 15-го Ежегодного Заседания Американо-Российского Делового Совета. И хочу вас сегодня поздравить с еще одним знаменательным юбилеем, а именно с 200-летием со дня установления дипломатических отношений между Россией и Соединенными Штатами Америки. Я думаю, что работа Американо-Российского Делового Совета, его ежегодные сессии, являются очень важным инструментом укрепления•взаимопо нимания между нашими странами, а также обмена опытом и мнениями. Вы конечно знаете, что этот год был очень успешным для России и ее экономики. Мы имеем почти 7,5 процента роста нашей экономики на первые 9 месяцев этого года. Это самые высокие темпы роста за последние годы в России. И что, наверное, может быть, еще

более важно — у нас изменились главные движущие силы этого роста. У многих попрежнему бытует мнение, что российская экономика развивается в основном за счет роста цен на нефть и газ на мировом рынке. На самом деле это уже не совсем так. Конечно, мы получаем большие дивиденды и прибыли оттого, что цены на нефть высоки, но на самом деле, две трети экономического роста в России сегодня обеспечиваются за счет роста внутреннего спроса. Доходы граждан России растут значительно быстрее, чем наша Юджин Лоусон и Александр Жуков экономика в целом. За первые 9 месяцев этого поступило порядка 40 миллиардов года заработная плата российских долларов иностранных инвестиций, а граждан выросла почти на 14 затем в первом полугодии этого года процентов в реальном выражении.

— более 60 миллиардов долларов. Однако, с началом финансового И что, наверное, наиболее отрадно, кризиса в Соединенных Штатах и это то, что в этом году мы наблюдаем в мире, мы наблюдаем некоторый небывалый приток капитала в отток капитала из России. Но за два Россию. Этот приток начался в последних месяца он составил всего прошлом году, когда в Россию навсего 10 миллиардов долларов.

Так что в целом, можно сказать, что Россия вполне успешно преодолела тот финансовый кризис, в котором оказались многие страны летом этого года. И это не случайно, поскольку за последние годы мы сумели создать очень серьезный запас прочности в нашей экономике. В первую очередь мы расплатились практически со всеми внешними долгами, которые были у нашей страны. Кроме того, наши валютные резервы сейчас уже превышают 430 миллиардов долларов. Мы вышли по этому показателю на третье место в мире после Японии и Китая. За счет постоянного профицита нашего бюджета мы также сумели накопить значительные бюджетные резервы, которые позволяют нам нормально финансировать все необходимые государственные расходы в течение трех лет, даже в том случае, если цены на нефть будут в три раза меньше чем сегодня.

Мы поставили перед собой цель освободить нашу экономику от нефтяной зависимости, сделать ее более диверсифицированной, а также развить высокотехнологичные сектора экономики. Надеюсь, что постепенно мы эту цель достигнем. И в обозримой перспективе, думаю, что в течение 10-15 лет, Россия должна войти в пятерку наиболее развитых стран мира. В течение ближайшего полугода будет утверждена среднесрочная программа развития нашей страны до 2020 года, которая как раз и преследует эту цель. Мы сейчас стараемся внедрить сразу несколько новых инвестиционных механизмов в нашей стране. Речь идет о

помощью собираемся построить дороги, железные дороги, порты, аэропорты. Надо сказать, что мы, конечно, рассчитываем на то, что в ближайшие годы, а именно в ближайшие 15 лет, в российскую инфраструктуру — я имею в виду, в первую очередь, дорожную инфраструктуру, энергетику, электроэнергетику, строительство портов, аэропортов —будут вложены огромные деньги. По нашим расчетам, для того, чтобы инфраструктура не препятствовала высоким темпам роста нашей экономики, нам необходимо вложить туда примерно триллион долларов США до 2020 года. Это огромные деньги. И естественно, что мы ожидаем еще в большей степени прихода иностранных инвесторов и стараемся создать для этого все необходимые механизмы. Должен сказать, что в России очень долго шли споры по поводу того, нужно ли снять все ограничения на свободный приток и отток капитала из России. У нас

“Сейчас мы работаем над тем, чтобы максимально защитить права частной собственности в России.... В ближайшие годы, я надеюсь, что мы сумеем кардинальным образом закрепить права инвесторов и права частной собственности в России и создать все необходимые корпоративные процедуры, которые будут этому способствовать.” создании особых экономических зон и инвестиционного фонда, который с помощью бюджетных инвестиций позволит нам привлечь в Россию капиталы, в первую очередь, в инфраструктурные проекты. Мы вновь начали развивать концессионные механизмы и с их

на протяжении длительного времени существовали, очень жесткие правила валютного регулирования. Но после долгих дебатов мы, наконец, решились и отменили все ограничения. Сегодня капитал может свободно приходить в Россию и свободно уходить из России. И

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При этом мы, конечно, рассматриваем иностранный капитал не только как чисто финансовый ресурс. Денег в России сегодня и так много. Мы рассматриваем иностранный капитал как приход высоких технологий и современного

оборудования в Россию. Здесь, кстати, мы можем отметить, что импорт в Россию за последний год увеличился примерно на 30 процентов, и почти половину всего импорта составляют машины и оборудование. Это означает, что российская промышленность проходит этап очень быстрого перевооружения.

Russia Business Watch

Думаю, что это позволяет говорить о том, что мы создали в макроэкономике все необходимые условия для того, чтобы инвесторы, которые приходят в Россию были абсолютно спокойны и не боялись того, что в России наступит дефолт, который многие из вас наблюдали в конце 90-х годов. Думаю, что России сейчас это не грозит. И, наверное, это существенно влияет на улучшение инвестиционного климата в нашей стране, о чем и свидетельствует увеличивающиеся иностранные инвестиции.

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ANNUAL MEETING 2007 Moscow, Russia опасения тех, кто говорил, что если мы вот так откроем двери настежь, капитал будет уходить, не оправдались. Все случилось ровно наоборот: капитал в значительно больших объемах пошел в Россию. Сейчас мы работаем над тем, чтобы максимально защитить права частной собственности в России. Мы меняем наше корпоративное законодательство. Думаю, что сегодня это пока достаточно слабое место. Но в ближайшие годы, я надеюсь, что мы сумеем кардинальным образом закрепить права инвесторов и права частной собственности в России и создать все необходимые корпоративные процедуры, которые будут этому способствовать.

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инвестиционном форуме были представлены проекты на общую сумму больше 20 миллиардов долларов США, причем, это все абсолютно реальные проекты, не только касающиеся Олимпиады. Например, частный проект по созданию острова, который будет насыпан в Черном море и на нем построены различные курорты — аналогично проекту, который есть в Арабских Эмиратах. Два дня назад я был в городе Пензе. Это город, в котором нет никаких полезных ископаемых, а есть старые заводы, которые в свое время когда-то работали на оборонную промышленность Советского Союза, но в 90-е годы многие из них стали банкротами. Там тоже проходил инвестиционный форум. И, к моему

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“И в обозримой перспективе, думаю, что в течение 10-15 лет, Россия должна войти в пятерку наиболее развитых стран мира.”

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В российских регионах сегодня есть множество весьма привлекательных инвестиционных объектов. Те из вас, кто был в этом году на инвестиционном форуме в СанктПетербурге, могли увидеть, как разные российские регионы представляют свои инвестиционные проекты, и это имело результаты. Десятки миллиардов долларов — это суммы, на которые были заключены соглашения в Санкт-Петербурге и в Сочи, где проводился совсем недавно аналогичный инвестиционный форум. ...Только в одном городе Сочи на

удивлению, в городе Пензе и в Пензенской области, где живет всего полтора миллиона человек, они сумели заключить инвестиционных договоров и контрактов на сумму больше двух миллиардов долларов, включая крупный цементный завод, нефтеперерабатывающий завод и огромное количество теплиц, где будут выращиваться голландские розы. Вот такие, на первый взгляд, экзотические проекты сегодня есть в России. ...Еще одни интересный факт, с которым я столкнулся. Когда опрашивают бизнесменов, нравится

ли им инвестиционный климат в России, то обычно те, кто уже работает в стране, отвечают “да” в два раза чаще, чем те, кто не работает в России. Поэтому очень важной проблемой или важной задачей, которую мы должны решить — это улучшение инвестиционного имиджа России в мире. Поскольку те, кто знает Россию, понимают, что здесь условия лучше, чем те, кто не знает и судит только по газетным публикациям и телевизионным репортажам. Я считаю, что с точки зрения улучшения инвестиционного имиджа России сегодняшнее ваше Ежегодное Заседание Американо-Российского Делового Совета — это очень большой вклад в улучшение имиджа России, за что я хотел бы вам сказать большое спасибо. ...Завершая свое выступление, я хотел бы сказать, что мы очень рассчитываем, что наша работа, наше общение и отношения с крупнейшими иностранными инвесторами, бизнесменами, и конечно, в первую очередь, с представителями самой сильной экономики мира — Соединенных Штатов — будут развиваться так, как они, и развивались в последние годы — очень динамично. Мне хотелось бы пожелать вам успешной работы в России. Мне хотелось бы, чтобы за вами пришли еще и другие американские компании в Россию. Я уверен, что это будет взаимовыгодное сотрудничество.” n

ОСНОВНОЙ ДОКЛАД

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Эльвира Набиуллина

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Выдержки из выступления Министра экономического развития и торговли РФ на Ежегодном Заседании АмериканоРоссийского Делового Совета 24 октября 2007 года. “Прежде всего, разрешите поблагодарить руководство Делового Совета за предоставленную возможность выступить на Ежегодном Заседании авторитетной и влиятельной организации американских деловых кругов. Мы высоко оцениваем тот вклад, который Совет вносит в развитие взаимовыгодного сотрудничества между Россией и США. Я также приветствую находящихся в этом зале руководителей американских компаний, как успешно работающих на российском рынке уже в течение многих лет, так и рассматривающих возможность выхода на наш рынок.

Конечно же, успехи российской экономики не остаются незамеченными и иностранными инвесторами. За первое полугодие 2007 года чистый приток иностранных инвестиций составил в Россию более 60 млрд. долларов. Это в два с половиной раза больше, чем в первом полугодии прошлого года. Существенно — почти в полтора раза — возрос приток прямых иностранных инвестиций, составивший за первую половину этого года около 25 млрд. долларов. Впечатляющие результаты демонстрирует и фондовый рынок. Так, капитализация российского рынка акций с 2000 по 2006 годы увеличилась более чем в 12 раз, сравнявшись в 2006 году с годовым объемом ВВП. Этот показатель за полтора года вырос более чем в три раза. По капитализации фондового рынка Россия занимает 18 место в мире и 8 место в Европе. Значительно растут объемы IPO российских компаний — рост по сравнению с первым полугодием 2006 года в 2,5 раза. Таким образом, фондовый рынок превращается в инструмент привлечения долгосрочных инвестиций в

Эльвира Набиуллина, Министр экономического развития и торговли Российской Федерации

реальный сектор российской экономики. Взвешенная экономическая и финансово-бюджетная политика последних лет создали хороший ‘запас прочности’ для российской экономики. Большие золотовалютные резервы (более 400 млрд. долларов США), накопления Стабилизационного фонда (на 1 октября 2007 года — 3 трлн. 519 млрд. руб. или более 140 млрд. долларов США), низкий уровень государственного долга и бюджетный профицит (7,4% ВВП в 2006 г., 0,2% —в 2008 г.) являются подушкой безопасности, которая обеспечит стабильное развитие экономики России при внешних потрясениях — будь то снижение цен на нефть или наблюдаемое сейчас общемировое снижение ликвидности. Конечно же, успехи, демонстрируемые российской экономикой, являются не только следствием благоприятной внешнеэкономической конъюнктуры, но и, прежде всего, результатом

Winter 2007-2008

По предварительным данным, за январь-сентябрь 2007 года прирост ВВП к соответствующему периоду 2006 года составил 7,4% (против 6,3% за 9 месяцев предыдущего года). Объем ВВП превысил уровень 1991 года, причем по структуре это уже

Рост промышленного производства в январе-сентябре 2007 г. составил 6,6%, причем наибольший вклад внесли отрасли обрабатывающей промышленности.

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В последние годы российская экономика развивается высокими темпами. Ее ежегодный экономический рост составляет порядка 6-7%, что значительно опережает динамику мировой экономики. В этом году номинальный ВВП России (в долларах США) вырос до 985 миллиардов долларов по сравнению с 260 миллиардами долларов в 2000 году. В этом году наш номинальный ВВП достигнет 1,2 триллиона долларов США.

качественно другой ВВП, созданный в рыночной экономике. И если в 2003 году ВВП на душу населения по текущему курсу составлял около 3 тыс. долларов, то в 2006 году — уже 7 тыс. долларов, а по паритету покупательной способности — около 12 тыс. долларов США.

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ANNUAL MEETING 2007 Moscow, Russia экономической политики, которая проводилась в последнее время и обеспечила политическую и экономическую стабильность, укрепление рыночных институтов. Хочу еще раз отметить сохранение преемственности курса в области экономической политики с акцентом на институциональные изменения, рыночные преобразования, а также

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сегодняшний день или планируемые к принятию в ближайшее время стратегические документы задают четкий вектор экономической политики на ближайшие годы. Каков же этот вектор? Конечно же, Правительство сохраняет безусловную ориентацию на рыночные преобразования.

“И еще раз хочу подчеркнуть — благоприятный предпринимательский климат, на наш взгляд, является необходимым условием обеспечения стабильного социально-экономического развития. Именно поэтому совершенствование экономических институтов для нас было, является и будет важнейшей задачей.” формирование системы институтов развития, являющихся катализатором привлечения долгосрочных частных инвестиций в реальный сектор российской экономики.

Улучшение инвестиционного климата, ликвидация барьеров для развития предпринимательства остаются стратегическим направлениями нашей деятельности.

Если приводить более осязаемые аргументы преемственности курса, то необходимо отметить принятие ряда стратегических документов, ориентированных на перспективу. В частности, в этом году впервые принят федеральный бюджет, определяющий доходы и расходы государства на три года вперед (до 2010 года включительно). До конца года Правительством будет рассмотрена Концепция долгосрочного социальноэкономического развития Российской Федерации до 2020 года. В декабре на заседании Правительства будет рассмотрен Сводный доклад о результатах и основных направлениях деятельности Правительства на 2008-2010 годы, в котором будут закреплены показатели деятельности как Правительства в целом, так и отдельных министерств и ведомств. Таким образом, принятые на

При этом необходимо отметить, что таких масштабных реформ, какие проводились в 90-е годы и в начале 2000-х, конечно уже не будет. Но, тем не менее, проводимые сейчас точечные реформы в области корпоративного права, налогообложения, судебной системы являются не менее важными, так как они направлены на качественное изменение институциональной среды. Наиболее значимые проблемы, требующие серьезных институциональных преобразований, на наш взгляд, сегодня сосредоточены, прежде всего, в области эффективности государственного управления и регулирования, а также в области социальной политики. Создание ясных и прозрачных механизмов взаимодействия государства и бизнеса, эффективные

механизмы предоставления государственных услуг, прозрачный механизм госзакупок, внятные административные регламенты — это все важнейшие институты, определяющие, в конечном счете, благоприятную среду для предпринимательства, в том числе для развития малого бизнеса. Также важным является прозрачный и понятный механизм инвестирования частного капитала, в том числе иностранного, в стратегические сектора российской экономики. Еще одним важным направлением институциональных реформ является противодействие коррупции. Идентификация наиболее коррупционогенных полномочий государственных органов, а также анализ нормативных актов на выявление коррупции является основой программ, которые предполагается принять и реализовать в каждом органе государственной власти и в каждом субъекте Российской Федерации. Другая крупная область, в которой требуются серьезные институциональные преобразования — социальная сфера. Причем реформы нужны по всему спектру вопросов — это и образование, и здравоохранение, и социальная защита населения. Наконец, не решенной до конца задачей остается проведение пенсионной реформы. Выбранный несколько лет назад вектор на стимулирование развития накопительных механизмов продолжает оставаться актуальным. Сегодня нужно задать дополнительный импульс этому процессу — создать стимулы для граждан, инвестирующих свои пенсионные накопления. Тем

более, приток средств будущих пенсионеров на финансовый рынок позитивно скажется и на развитии экономики в целом. ...И еще раз хочу подчеркнуть — благоприятный предпринимательский климат, на наш взгляд, является необходимым условием обеспечения стабильного социально-экономического развития. Именно поэтому совершенствование экономических институтов для нас было, является и будет важнейшей задачей. В то же время, постепенное формирование общеэкономических институтов, обеспечивающих благоприятные условия для ведения бизнеса, не позволяет решить стоящую перед страной задачу ускоренного развития. Для ее решения необходимо создание специальных инструментов, стимулирующих развитие инфраструктуры и высокотехнологичных отраслей, которые при этом не искажают существенным образом рыночные сигналы. Ряд таких инструментов — так называемых институтов развития — был создан в России в

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цели будет выделено из бюджета более 450 млрд. рублей. При этом Инвестиционный фонд является мощным катализатором притока частных инвестиций. По уже одобренным проектам на один рубль государственных средств привлекается от 3 до 5 рублей инвестиций частного сектора на основе государственно-частного партнерства.

дальнейшая капитализация РВК, которая в последующем позволит создать семь новых венчурных фондов с совокупным капиталом 30 млрд. рублей (около 900 млн. долларов США). Кроме того, на базе Внешэкономбанка создан Банк развития, который предоставит к 2010 году свыше 700 млрд. руб. (28 млрд. долларов США) долгосрочных инвестиционных ресурсов.

Второй — это особые экономические зоны. Создаются зоны четырех типов: • Четыре технико-внедренческие зоны: Зеленоград, Дубна Московской области, Санкт-Петербург, Томск; • Две промышленнопроизводственные зоны: Липецкая область и Татарстан (г. Елабуга); • Семь зон туристско-рекреационного типа: Калининградская область, Ставропольский край, Краснодарский край, Алтайский край, Республика Алтай, Иркутская область, Бурятия; • Портовые особые экономические зоны.

Функционирование государственных финансовых институтов развития несет в себе риски, связанные с возможной неэффективностью их деятельности. Механизмами, направленными на снижение данных рисков, является прозрачность и подконтрольность данных организаций. Речь идет и о подготовке стратегий их развития, и о формировании системы целевых индикаторов эффективности их деятельности, а также о механизмах раскрытия информации и общественного контроля. Создание этих инструментов — инструментов контроля и оценки — сегодня является первоочередной задачей.

...В прошлом году создана Российская Венчурная Компания, функционирующая по принципу фонда фондов. Уставной капитал РВК составляет 5 миллиардов

рублей (200 млн. долларов США). С участием средств РВК в течение 2007 года создано три венчурных фонда, совокупный капитал которых составит более 8 млрд. рублей (более 300 млн. долларов США). К 2008 году планируется

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последние годы. Первый из них — Инвестиционный фонд, осуществляющий поддержку проектов в области развития инфраструктуры, а также имеющих общегосударственное значение. Намечается, что до 2010 года на эти

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“По объему товарооборота США занимают 8-е место среди торговых партнеров России — на их долю приходится около 3% всего товарооборота России. Из этих показателей ясно, что существует огромный потенциал для расширения двустороннего сотрудничества.”

Также следует отметить, что государственные финансовые институты развития важны не как инструменты, обеспечивающие приток государственных инвестиций в экономику, а в большей степени как институты, обеспечивающие среду для частных инвестиций. Будь то строительство объектов инфраструктуры, которые обеспечивают возможность для инвестиций частного сектора, либо развитие механизмов венчурного финансирования — эффективность и действенность данных институтов, в конечном итоге, должна оцениваться не масштабом израсходованных средств, а размером повышения инвестиционной активности частного сектора. В заключение несколько слов хочу

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ANNUAL MEETING 2007 Moscow, Russia сказать о российско-американских торгово-экономических отношениях. В последние годы наблюдаются положительные тенденции в двусторонней торговле. В 2006 г. объем товарооборота между Россией и США, по данным российской статистики, увеличился на 41% по сравнению с 2005 годом и составил 15,3 млрд. Долларов США. По объему товарооборота США занимают 8-е место среди торговых партнеров России — на их долю приходится около 3% всего товарооборота России. Из этих показателей ясно, что существует огромный потенциал для расширения двустороннего сотрудничества. США входят в число ведущих странинвесторов по объему привлеченных иностранных инвестиций в экономику России. По итогам 2006 года по объему накопленных иностранных инвестиций в России США находились на 6м месте. При этом в отличие от большинства других стран в структуре поступающих из США инвестиций преобладают прямые инвестиции (около 60%). Весьма важно, что американские прямые инвестиции в России вложены, в основном, в ее производственный сектор, в котором, согласно данным американских экспертов, сосредоточено 75% их объема. Однако очевидно, что инвестиционный потенциал нашего рынка используется американскими компаниями далеко не в полной мере. Один из сдерживающих факторов — отсутствие двустороннего соглашения о защите и поощрении капиталовложений. США — единственная из крупных экономик, с которой у России такого соглашения нет. Мы рассчитываем, что в ближайшие

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годы российско-американские торгово-экономические отношения получат дальнейшее развитие. Этому будет способствовать и ожидаемое присоединение России к ВТО. Очевидный и существенный фактор, препятствующий наращиванию американского экспорта и инвестиций в Россию — незавершенность этого процесса. Членство России в ВТО станет одним из наиболее эффективных инструментов закрепления позиций американских экспортеров на нашем рынке. Помимо улучшений условий доступа на рынки товаров

17 складов хранения контрафактных дисков. При этом понятно всем, что кардинально изменить ситуацию в сжатые сроки невозможно. Главное — обеспечить постоянное поступательное движение в правильном направлении. Закреплять и ускорять это движение будет юридическое закрепление обязательств России в ВТО. По нашим оценкам, на переговорах по присоединению проделано более 90% работы. Последние шаги, как это обычно бывает, требуют очень больших усилий. Мы со

“…Очевидно, что инвестиционный потенциал нашего рынка используется американскими компаниями далеко не в полной мере. Один из сдерживающих факторов — отсутствие двустороннего соглашения о защите и поощрении капиталовложений. США — единственная из крупных экономик, с которой у России такого соглашения нет.” и услуг, этот инструмент — через международные обязательства России в рамках ВТО — обеспечит гарантии прозрачной, предсказуемой и соответствующей международным ‘стандартам’ правовой среды для деятельности американских компаний. Сама перспектива присоединения России к ВТО улучшает ситуацию на российском рынке. Переговорный процесс дал мощный импульс борьбе с нарушениями прав интеллектуальной собственности. Нелегальные производства закрывают, контроль усиливается, совершенствуется законодательство. За первую половину года выявлено более пяти тысяч преступлений в области нарушения авторских прав. Приостановлена деятельность семи не лицензированных производств и

своей стороны делаем максимум возможного для завершения этих переговоров в ближайшее время. Поддержка американского бизнеса, для которого каждый месяц промедления выражается в реальных суммах потерь от недополученной прибыли и нереализованных проектов, очень важна для нас. Нам хорошо известна активная позиция Американо-Российского Делового Совета в этом и других вопросах двустороннего сотрудничества. Хочу выразить уверенность, что Совет и его члены продолжат интенсивную работу, направленную на дальнейшее развитие наших торговоэкономических отношений и создание более благоприятных условий для взаимовыгодного сотрудничества.” n

ОСНОВНОЙ ДОКЛАД

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nn October 23-24, 2007

Игорь Шувалов

nn Помощник Президента Российской Федерации

Выдержки из выступления Помощника Президента РФ на Ежегодном Заседании Американо-Российского Делового Совета 24 октября 2007 года. “…Позвольте рассказать вам о том, как мы в настоящий момент оцениваем экономическую ситуацию с политической точки зрения; как мы стараемся подвести некие итоги; и каким образом мы строим планы на будущее. Я хотел бы рассказать вам, как мы оцениваем тот интересный момент, в котором мы живем, как мы оцениваем результаты, достигнутые на данный момент, что мы планируем делать в будущем и какое значение мы придаем российскоамериканским деловым контактам.

Если Вы посмотрите на уровень реальной заработной платы, вы увидите, что она выросла больше чем в три раза за последние семь лет. Номинальная заработная плата выросла больше чем в шесть раз. Это особенно важно, потому что наши профессиональные кадры — достаточно высоко квалифицированные, хотя и с определенными недостатками в сфере производительности труда — в последние годы получили достойную оплату своего труда. Далее, давайте поговорим о прямых иностранных инвестициях. Они значительно возросли с 2006 по 2007 гг. В 2006 году прямые иностранные инвестиции составили порядка 30 миллиардов долларов США. А за первые девять месяцев текущего года иностранные инвестиции превысили 40 миллиардов долларов США.

Кроме того, мы внесли изменения в законодательство, регулирующее

российский инвестиционный климат. Российский корпоративный налог на уровне 24 процентов — один из самых низких в странах Большой Восьмерки (ниже только 22,1 процента в Канаде). Нам также удалось снизить налог на добавленную стоимость (НДС)и развернуть широкую дискуссию о замене в ближайшее время налога на добавленную стоимость налогом с продаж. Если заменить НДС налогом с продаж не удастся, наши эксперты всерьез рассматривают унификацию ставок НДС и значительное их снижение. Как вы знаете, в 2000 году мы перевели индивидуальный подоходный налог на плоскую шкалу вместо прогрессивной шкалы, существующей во многих странах. Теперь у нас ‘плоская’ ставка в размере 13 процентов, хотя некоторые политические силы, особенно левого толка, критикуют это решение властей и считают, что необходимо вернуться к прогрессивной шкале подоходного налога. Нам также удалось

Winter 2007-2008

В последние годы очень интенсивно развивался энергетический сектор РФ. Металлургия и энергетика развивались высокими темпами и давали высокие приросты экспортной выручки. Наряду с этими отраслями весьма успешно развивались химическая и нефтехимическая промышленность, строительство и розничная торговля, обеспечивая высокую прибыль инвесторам. Кроме того, другие отрасли промышленности, например, лесная промышленность и рыболовство, вышли из тени и начали давать высокие результаты.

Игорь Шувалов, Помощник Президента Российской Федерации

Russia Business Watch

... Почему же сейчас самое интересное время, когда эти итоги подводятся? Осталось несколько месяцев до окончания второго срока президента Путина. Как вы знаете, его рейтинг популярности очень высок, и политические партии строят свои платформы исходя из того, насколько они близко или далеко находятся от Президента Путина и насколько они помогали или мешали ему осуществлять его политику. Есть различные субъективные оценки того, чего нам удалось достичь, а чего не удалось. Нам же, тем, кто работает рядом с Президентом и кто пытается формировать политику на будущие годы или представить свое видение будущей политики, хотелось бы объективно оценить эти результаты. Таким образом, могу откровенно сказать — не как Помощник Президента, а как гражданин РФ — что по каждому из направлений, по которому мы работали, нам удалось достичь определенных позитивных успехов. Есть и очень значительные успехи,

и незначительные, но в целом за эти семь-восемь лет нам удалось достичь больших успехов.

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ANNUAL MEETING 2007 Moscow, Russia отменить налог на наследование. В результате у нас теперь есть новая модернизированная налоговая система, которая значительно отличается от той, которая существовала в 2000 году, и она продолжает развиваться. В итоге у нас будет налоговая система, которая упростит работу инвесторов, особенно с точки зрения отчетности, и которая станет более прозрачной. ...Есть ли у нас проблемы? Конечно, например, с инфляцией. Я не знаю объяснила ли Министр Набиуллина, но мы исходим из того, что эти

nn October 23-24, 2007

этому пути будем и дальше двигаться. Как вам наверное известно, два года назад мы начали активно развивать национальные проекты по образованию, здравоохранению и жилищу. Мы исходим из того, что какие бы мы проекты не вели, и какие бы успехи в целом в экономике мы не имели, мы ставим ставку на человека. Человеческий капитал и в дальнейшем будет для нас являться ключевой экономической единицей. И в настоящий момент, имея на руках все вот эти успехи и находясь накануне политических выборов,

Russia Business Watch

Winter 2007-2008

“Когда Президент Путин говорит о преемственности политического курса, — в том числе и экономического курса,— имеется в виду как раз то, что необходимо продолжить начатые изменения по модернизации экономики, во главе которой будет стоять человек, и чтобы перевести российскую экономику, которая была основана на природных ресурсах, на рельсы инноваций.”

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проблемы носят краткосрочный характер, и у монетарных властей есть механизмы с ней справиться. Не думаю, что у них есть возможность моментально отреагировать, но через год-полтора инфляцию вернут в те рамки, о которых и говорилось ранее. Мы будем добиваться того, чтобы в ближайшие годы инфляция снизилась до уровня, сопоставимого с европейской и американской экономиками — о чем и говорил Президент Путин. Что мы достигли к настоящему моменту? У нас есть стабильно развивающаяся экономика. У нас огромные золотовалютные резервы. У нас высокие накопления в Стабилизационном Фонде. Повышается уровень жизни людей. Повышается образованность граждан, потому что модернизируется система профессиональной школы, и мы по

Президент Путин повторяет, что необходимо обеспечить стабильность и преемственность курса. Все, что сделано к настоящему моменту, было достигнуто тяжелым трудом, и многие решения приходилось принимать, допуская некоторые компромиссы. То, что достигнуто к настоящему моменту, достигнуто благодаря четкой и твердой линии в политике и пониманию, что это направление должно будет продолжено после выборов 2007-2008 годов. Это стратегическая и долгосрочная программа действий, которая не может быть уложена в два президентских срока, то есть в восемь лет. Это программа действий, которая может быть исполнена в течении десятилетия или даже больше.

Когда Президент Путин говорит о преемственности политического курса, — в том числе и экономического курса,— имеется в виду как раз то, что необходимо продолжить начатые изменения по модернизации экономики, во главе которой будет стоять человек, и чтобы перевести российскую экономику, которая была основана на природных ресурсах, на рельсы инноваций. Для того, чтобы добиться этого, как Вы знаете, в последние годы наша политическая система претерпела некоторые изменения. Президент Путин сделал много для того, чтобы действительно стимулировать развитие политических партий; чтобы в стране появилась многопартийная политическая система; чтобы партии были представлены в Парламенте; чтобы партии были так же представлены в региональных парламентах; и чтобы реальные дебаты формировались и осуществлялись в недрах политических партий, а не каким-то иным образом, как это было раньше в России. Я и мои коллеги имеем приблизительно одинаковые взгляды на то, как должна развиваться наша экономика. Однако, мы все время спорим о том, какие же делать акценты, на какие приоритеты нам опираться. Специалисты исходят из того, что у России есть три магистральные линии развития: инерционный путь (то есть не предполагающий никаких изменений); инновационный путь и так называемый, энергетический путь. В настоящий момент все понимают, что в соответствии с задачами, поставленными Президентом Путиным, необходимо обеспечить соединение энергетического и инновационного путей, чтобы на плечах имеющейся у нас

энергетической и сырьевой базы экономика стала инновационной в ближайшие 10-15 лет. Мы стоим на пороге значительных изменений. Эксперты оценивают нынешнее состояние российской экономики как инвестиционный бум, хотя мы не разделяем их мнение. Мы считаем, что Россия стоит только на пороге инвестиционного бума, который должен начаться в ближайшее время. Как только будет достигнута политическая стабильность и обеспечено продолжение политического курса, мы ожидаем значительного прироста прямых иностранных инвестиций, которые по своему качеству значительно изменятся: это будут инвестиции, связанные с инновациями и ‘know-how’.

Западе —reciprocity, — которое я очень люблю, и которое я активно пропагандировал, когда мы готовили встречу Большой Восьмерки. Я считаю, что в настоящий момент Россия обязана именно таким образом себя вести с другими государствами и иностранными инвесторами, поскольку мы до сих пор переживаем некий переходный период, и российский бизнес (даже с большим количеством денег) за рубежом пока не ждут. Инвесторам на Западе, в частности бизнесменам из США и ЕС, кажется,

либо в какой-нибудь иной сектор, какой вы хотите’, но, при этом, имела жесточайшие ограничения по аналогичным секторам на территории этих государств. Я считаю, что такой подход неверный; а если он верный, то по этому поводу нужно провести дебаты и доказать, почему он верный. Я прекрасно понимаю как к нам, русским, сейчас относятся на Западе: как к ребятам, выросшим из маленьких штанишек за 15 лет. Экономика продемонстрировала такой успех, и российские

“Как только будет достигнута политическая стабильность и обеспечено продолжение политического курса, мы ожидаем значительного прироста прямых иностранных инвестиций, которые по своему качеству значительно изменятся: это будут инвестиции, связанные с инновациями и ‘know-how’”. предприниматели заняли совершенно иные ниши. По списку Forbes у нас большое количество миллиардеров. Мы понимаем, каким образом появилось большинство этих капиталов, но является ли это основанием для того, чтобы вы так снисходительно относились к российскому капиталу? Конечно, же нет. Этот капитал очень быстро адаптируется к мировым реалиям, к цивилизованным правилам поведения, и станет точно таким же, как ваш. Но только при четком и жестком взаимодействии с мировым капиталом он как раз и станет более прозрачным и цивилизованным. Именно поэтому, я и являюсь проповедником вот такого принципа взаимности. Я считаю, что мы на столько будем чувствовать себя в безопасности, на сколько будем зависеть друг от друга. Такую мою позицию не все

Winter 2007-2008

что существует некая управляемая рукой Кремля бизнес единица, и что русские люди совершенно непредсказуемы. Поэтому принцип взаимности, как мне представляется, необходим на недолгий период времени, пока на Западе не поймут, что российские предприниматели точно такие же предприниматели, как и американские, и английские, и все остальные. До тех пор, пока этого не будет, инвестиции должны осуществляться исключительно на взаимной основе. Они не должны носить какой-нибудь ограничительный характер, но принцип взаимности скорее должен быть в наших головах и умах, и в понимании тех, кто принимает конкретные решения. Невозможно, чтобы по требованию иностранных предпринимателей РФ открыла свои двери и сказала ‘Пожалуйста, инвестируйте в наш энергетический или сырьевой сектор,

Russia Business Watch

Теперь поговорим о том, как мы относимся к взаимодействию между российскими и американскими бизнесменами, а также к американским инвестициям в РФ. Могу вам откровенно сказать, что среди тех, кто принимает политические решения или способствует подготовке таких решений, никогда не было никаких предубеждений в отношении американского бизнеса. Действительно, у нас намерения защищать некоторые отрасли российской экономики, и Государственная Дума в настоящий момент рассматривает закон о порядке инвестирования иностранными компаниями в некоторые стратегические отрасли. Этот закон будет носить более либеральный характер по отношению к ныне действующему порядку. Более того, мы считаем, что такой закон должен с течением времени меняться. Однако, это должно носить обоюдный, взаимный характер. Вот то волшебное слово, которое сейчас произносят на

nn October 23-24, 2007

Annual Meeting

ANNUAL MEETING 2007 Moscow, Russia

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ANNUAL MEETING 2007 Moscow, Russia поддерживают на Западе, считая, что ‘чем меньше от России зависим — тем спокойнее живем’. Я считаю, что это позиция тех, кто не понимает какую роль будет играть Россия в глобальной экономике. Наша экономика — восьмая в мире. Я

Winter 2007-2008 Russia Business Watch

экономика, основанная на знаниях, предоставляющая свои значительные природные ресурсы мировой экономике для глобального развития. И самое важное, что ВВП, который необходим для выполнения всех социальных обязательств государства,

“Я убежден, что в ближайшие годы Россия будет сильнейшим игроком. Возможно, что мы не сможем равнятся с Китайской экономикой и с экономикой США, но мы станем очень важным балансирующим элементом, в том числе в мировой финансовой системе, без которого просто невозможно принимать важные решения.” убежден, что в ближайшие годы Россия будет сильнейшим игроком. Возможно, что мы не сможем равняться с Китайской экономикой и с экономикой США, но мы станем очень важным балансирующим элементом, в том числе в мировой финансовой системе, без которого просто невозможно принимать важные решения. Я попрошу Вас не воспринимать это как амбициозные политические заявления. За каждым моим словом стоят определенные планы, которые мы готовили с моими коллегами. Я уверен, что даже если не мне, то моим коллегам, удастся эти планы реализовать.

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nn October 23-24, 2007

В ближайшие годы (до 2020 года) характер российской экономики будет иметь совершенно иной вид. Я надеюсь, что в 2025 году мы с уверенностью сможем сказать, что экономика России — это

будет создан за счет инновационной экономики, а не за счет эксплуатации природных ресурсов. Американский капитал сделал очень много для России....На первом ряду я вижу представителя компании Boeing....Мне было отрадно, что в Boeing 787-м есть часть российского труда; и это часть в форме ‘knowhow’. Я в этот момент не думал про титан, я думал про ту молодежь, которая сидела в конструкторском бюро и создавала этот продукт. Это наша гордость. Поэтому я считаю, что у нас есть в этом плане большое будущее, и мы должны взаимодействовать. Конечно же у российских и американских компаний большое будущее и в энергетическом секторе, не обязательно связанное только с американскими инвестициями на

на территории России. Это могут быть и совместные инвестиции на территории и США, и России, и на территории третьих государств. Самое главное, чтобы объединенные усилия российского и американского бизнеса могли продемонстрировать новую ценность. А мы в Администрации Президента, — все, кто работает по экономическому направлению, — всячески будем это поддерживать. Что касается ограничений, то никаких ограничений, направленных исключительно на американский капитал, нет, не было и не будет. Любые ограничения будут вводиться законом, и они будут касаться любого иностранного капитала. Завершая, во-первых, хотел бы поблагодарить за возможность перед Вами выступить. И во-вторых, поводя итоги экономического развития за тот период, когда Владимир Путин являлся Президентом, я их оцениваю, как исключительно положительные. Я думаю, что в ближайшие месяцы будет подготовлен глубокий анализ того, что нам удалось сделать, а чего не удалось. Будут сформированы конкретные планы действий, которые будут предложены тем, кто придет к власти после нас. Если будет обеспечена политическая преемственность, то эти планы будут востребованы, и тогда в течение ближайшего десятилетия российская экономика выйдет на совершенно другой уровень развития.” n

CONGRATULATIONS TO GENE LAWSON ON HIS RECEIPT OF THE ORDER OF FRIENDSHIP OF THE RUSSIAN FEDERATION, THE HIGHEST AWARD BESTOWED BY THE COUNTRY TO A FOREIGN CITIZEN.

ПОЗДРАВЛЯЕМ ЮДЖИНА ЛОУСОНА С НАГРАЖДЕНИЕМ ОРДЕНОМ ДРУЖБЫ — ВЫСШЕЙ ГОСУДАРСТВЕННОЙ НАГРАДОЙ РОССИИ, КОТОРАЯ МОЖЕТ БЫТЬ ВРУЧЕНА ИНОСТРАННОМУ ГРАЖДАНИНУ.