Russia Business Watch Vol. 18, No. 2
Winter 2011-2012
Washington, DC
The Report of the U.S.-Russia Business Council
USRBC ANNUAL MEETING 2011: RUSSIA ON THE CUSP Edward S. Verona p.1
Klaus Kleinfeld p.5 William J. Burns p.7
KEYNOTE ADDRESSES:
KEYNOTE ADDRESSES: Igor Shuvalov p.10 Christopher Wilson p.13
Mikhail Yurevich p.15
PANELS:
PANELS:
PANELS:
PANELS:
Toward A Modern Russian Energy Economy p.23
A Healthy Workforce and Labor Productivity in Russia p.29
PRESIDENT’S MESSAGE:
Facilitating Trade and Investment: the Russian Export Credit Insurance Agency and the Russian Direct Investment Fund p.17 Why Russia? Evaluating the Economic Global Context p.19
Russia’s Political Economy: The 2011-12 Election Cycle p.21
The Future of Manufacturing in a Globalized Economyy p.24
Russia and the Asia-Pacific Economic Cooperation (APEC) Forum p.27
KEYNOTE ADDRESSES:
Restructuring Russia’s Economy p.31 Improving Energy Efficiency in the Russian Economy p.33
Contents
PRESIDENT’S MESSAGE p. 1. WTO and Prospects for 2012
Klaus Kleinfeld, Chairman of the Board Edward S. Verona, President and Chief Executive Officer
Russia Business Watch • Winter 2011-2012
Chairmen Emeritus Robert S. Strauss E. Neville Isdell Theodore Austell, III, The Boeing Company Stephen E. Biegun, Ford Motor Company James P. Bovenzi, General Motors Corporation Laura M. Brank, Dechert LLP Carolyn L. Brehm, Procter & Gamble Peter A. Charow, BP America Inc. James F. Collins, The U.S. Russia Foundation for Economic Advancement and the Rule of Law Jeffrey R. Costello, JPMorgan Chase Bank Andrew Cranston, KPMG Marthin De Beer, Cisco Systems, Inc. Richard N. Dean, Baker & McKenzie Neil W. Duffin, Exxon Mobil Corporation Dorothy Dwoskin, Microsoft Corporation C. Cato Ealy, International Paper Terrence J. English, Baring Vostok Capital Partners Piotr Galitzine, TMK IPSCO Toby T. Gati, Akin Gump Strauss Hauer & Feld LLP David Gray, PricewaterhouseCoopers LLP Herman Gref, Sberbank of Russia Drew J. Guff, Siguler Guff & Company, LLC Trevor Gunn, Medtronic, Inc. Jay M. Haft, Renova Group of Companies Greg Hill, Hess Corporation D. Jeffrey Hirschberg, Kalorama Partners, LLC Kamil S. Isaev, Intel Corporation Karl Johansson, Ernst & Young, LLP Alexey Kim, Philip Morris Sales and Marketing Ltd. Klaus Kleinfeld, Alcoa Sergei A. Kuznetsov, OAO Severstal / Severstal North America Ramon Laguarta, PepsiCo, Inc. William C. Lane, Caterpillar Inc. Eugene K. Lawson, Lawson International, Inc. James J. Mulva, ConocoPhillips Peter B. Necarsulmer, The PBN Company Thomas R. Pickering, Eurasia Foundation Jay R. Pryor, Chevron Corporation Paul Rodzianko, Hermitage Museum Foundation Charles E. Ryan, UFG Asset Management William M. Sheedy, Visa Inc. David Simmons, Pfizer Inc. Maurice Tempelsman, Lazare Kaplan International Inc. Peter L. Thoren, Access Industries, Inc. Clyde C. Tuggle, The Coca-Cola Company Alberto Verme, Citi Mark von Pentz, Deere & Company Daniel H. Yergin, Cambridge Energy Research Associates (IHS CERA) Honorary Director Peter J. Pettibone, Hogan Lovells U.S. LLP
USRBC ANNUAL MEETING 2011 p. 5. GALA DINNER KEYNOTE ADDRESS: Klaus Kleinfeld, Chairman and CEO, Alcoa; Chairman, U.S.-Russia Business Council p. 7. GALA DINNER KEYNOTE ADDRESS: William J. Burns, U.S. Deputy Secretary of State p. 10. OPENING KEYNOTE ADDRESS: Igor Shuvalov, RF First Deputy Prime Minister p. 13. KEYNOTE ADDRESS: Christopher Wilson, Assistant U.S. Trade Representative for WTO and Multilateral Affairs p. 15. KEYNOTE ADDRESS: Mikhail Yurevich, Governor of the Chelyabinsk Region p. 17. PANEL: Facilitating Trade and Investment: the Russian Export Credit Insurance Agency and the Russian Direct Investment Fund p. 19. PANEL: Why Russia? Evaluating the Economic Global Context p. 21. PANEL: Russia’s Political Economy: The 2011-12 Election Cycle p. 23. PANEL: Toward A Modern Russian Energy Economy p. 24. PANEL: The Future of Manufacturing in a Globalized Economy p. 27. PANEL: Russia and the Asia-Pacific Economic Cooperation (APEC) Forum p. 29. PANEL: A Healthy Workforce and Labor Productivity in Russia p. 31. PANEL: Restructuring Russia’s Economy p. 33. PANEL: Improving Energy Efficiency in the Russian Economy p. 35. NEW USRBC MEMBERS
USRBC STAFF Edward S. Verona President and Chief Executive Officer verona@usrbc.org / 202-739-9181 • Julia Bacon Manager of Membership Affairs and Programs bacon@usrbc.org / 202-739-9189 • Jeff Barnett Senior Director of Policy and Programs barnett@usrbc.org / 202-739-9187 • Jo Bottalico Vice President of Administration and Finance bottalico@usrbc.org / 202-739-9188 • Keith Bush Research Director bush@usrbc.org / 202-739-9186
Randi B. Levinas Executive Vice President levinas@usrbc.org / 202-739-9196 • Maryia Dauhuliova Media and Creative Product Manager dauhuliova@usrbc.org / 202-739-9184 • Julia Kulagina Head of RF Representation, Moscow Office kulagina@usrbc.org / [7] 495-228-5896 • Svetlana Minjack Director of Communications and External Affairs sminjack@usrbc.org / 202-739-9182 • Candice Pareshnev Administrative Assistant pareshnev@usrbc.org / 202-739-9180
Russia Business Watch The report of the U.S.-Russia Business Council
1110 Vermont Avenue, NW, Suite 350, Washington, DC 20005 Tel: (202) 739-9180 • Fax: (202) 659-5920 • www.usrbc.org • www.usrbc.org/ru Novinskiy boulevard 8, Office 907, 121099 Moscow, Russia Tel: 7-495-228-5896 • Fax: 7-495-228-5893 ditor: Svetlana Minjack • Assistant Editor: Jeff Barnett • Design and Production: Maryia Dauhuliova E Research Assistants: Laura Franzen, Olga Larionova and Stephen Smith For additional information or copies of Russia Business Watch, please contact USRBC at (202) 739-9180 or email RBW@usrbc.org.
PRESIDENT’S president’sMESSAGE message
WTO and Prospects for 2012
Dear Council Members and Friends:
Credit is due as well as to those political leaders who had the resolve to see the negotiations through to the end.
By joining the WTO, Russia will accept the principle of international review and arbitration in the event of trade disputes. This is crucial to Russia’s trading partners, who have complained on numerous occasions about tariffs, quotas and non-tariff barriers against their exports. But the principle works in both directions: Russia will also enjoy recourse to the same arbitration mechanisms in the event that its exports are subject to discriminatory treatment, an example of which is trade actions against Russian steel exports. This is vitally important for investors who may consider locating regional or global manufacturing facilities in Russia; few companies would choose to put a major link in their global supply chains in a nonWTO member country that could have reduced access to world markets.
Before we break out the champagne, however, there is work to be done to ensure that U.S. companies will be able to take full advantage of Russia’s WTO membership -- namely, the lifting of the Jackson-Vanik Amendment and extension of permanent normal trade relations (PNTR) to Russia. This will entail Congressional hearings and a vote in both houses of Congress, which would be rough going under any circumstances but especially in a presidential election year. However, failure to remove Jackson-Vanik will seriously harm the competitiveness of U.S. companies in a major emerging market and have negligible impact on Russia’s political behavior.
Much gratitude is owed to the indefatigable negotiators on all sides who spent untold hours hammering out the details of the accession package.
As we look ahead to 2012, we do so with a degree of trepidation. The signs of a slowdown in global economic growth are worrisome. While Russia seems better prepared to deal with a global slowdown today than it was in
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There may also be a market psychology benefit to WTO membership. Many investors will see Russia’s accession as a watershed event, putting Russia on track toward financial and economic reforms that would make it a more competitive player in the world economy. Such reforms would reduce Russia’s country risk and thereby lower the long-term cost of capital, leading to increased investment, especially in non-traditional sectors of the economy.
The virtually certain return to the Russian presidency next year of Vladimir Putin won’t make it any easier to get the necessary legislation adopted. Putin’s increasingly nationalistic rhetoric and, in the view of some Congressional leaders, his animosity toward the United States will likely elicit increased opposition on Capitol Hill to doing anything that could be perceived as favorable to further U.S. engagement with Russia - notwithstanding the evident U.S. economic interest in lifting Jackson-Vanik and extending PNTR.
Russia Business Watch
A Russian joke has it that a pessimist is just a well-informed optimist. For a long time such humor has had particular pungency with respect to Russia’s prospects of joining the World Trade Organization. Fortunately, optimism is occasionally triumphant. Russia will almost certainly receive an invitation to join the World Trade Organization at the upcoming Ministerial Conference in mid-December, bringing to a conclusion almost 19 years of on-again, offagain negotiations. Following ratification of the accession accords by the State Duma, the world’s 11th-largest economy (by market exchange rates) will enter the ranks of the global rulesbased trading system. Moreover, Russia will also be on a path to membership in the Organization for Economic Cooperation and Development (OECD),
the club of advanced industrialized economies for which WTO membership is a prerequisite.
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PRESIDENT’S MESSAGE
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the recession of 2008-9, continuing reliance on oil and gas exports could lead to a worsening of Russia’s terms of trade and undermine consumer demand. Yet another unsettling trend is capital flight (expected to exceed $70 billion this year), indicating that Russians themselves are sensitive to the “Russia risk.” This is tragic in a country so desperately in need of investment in infrastructure and in the manufacturing sector, where the emergence of leading edge technologies is cited by the country’s leaders as the key to future growth. At the same time, there are plenty of reasons for optimism. Whether a U.S. decision on PNTR comes sooner or later, Russia’s integration into the global trading system bodes well for our long-term commercial and economic relationship. Many American companies have developed lucrative businesses in Russia and sense that further opportunities will emerge with WTO membership. It’s not a bad idea to plan for the worst while hoping for the best. But there are more reasons to be upbeat about the Russian economy in light of the WTO decision. Many skeptics doubted that that would ever occur, and some may even have planned on that basis. The optimists, on the other hand, are more likely to have positioned themselves to take advantage of the opportunities. With warm regards,
THE COUNTDOWN TO RUSSIA’S WTO ACCESSION HAS BEGUN… GET INVOLVED NOW!
Please join us in a historic campaign on Capitol Hill to support stronger U.S.-Russian economic ties. Sign up now to get involved in shaping the debate on the future of U.S. companies’ access to the Russian market! For more information, please visit us at www.usrussiatrade.org or call or email today. Randi Levinas Executive Director Phone: (202) 739-9196 Email: levinas@usrbc.org
Kellen Moriarty Program Coordinator Phone: (202) 222-0670 Email: kmoriarty@usrussiatrade.org
The Coalition for U.S.-Russia Trade, headquartered at the USRBC, is the U.S. business community’s engine for ensuring that U.S. firms and farmers will be able to compete on equal footing in the Russian market once Russia becomes a WTO member. Edward S. Verona
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USRBC’S ANNUAL MEETING 2012
It is with great pleasure that we invite you to save the date for the USRBC’s 20th Annual Meeting, to take place on October 22-23, 2012, in Atlanta, GA. The Gala Dinner will be held at the World of Coca-Cola on October 22, 2012, with the Annual Meeting taking place at the Four Seasons Hotel on October 23.
October 22-23, 2012 Atlanta, GA World of Coca-Cola and the Four Seasons Hotel
Information on registration and a reduced-rate hotel room block will be available in the coming weeks. For more information about Annual Meeting 2012 and our recent Annual Meeting in Chicago, IL, please visit www.
usrbc.org/activities/am/
Annual Meeting
Annual Meeting The U.S.-Russia Business Council’s 19th Annual Meeting RUSSIA ON THE CUSP October 3-5, 2011 • Chicago, IL
The
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USRBC’s 19th Annual Meeting took place on October 3-5, 2011, in Chicago, IL, with the Conference Program on Tuesday and Wednesday, October 4-5, at the Swissôtel and the Gala Dinner on October 3 at the Art Institute of Chicago.
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Igor Shuvalov, First Deputy Prime Minister of the Russian Federation, opened the Annual Meeting’s program with a keynote address (p. 10) outlining Russia’s short- and long-term economic, political and social strategies. He assured participants that the country will remain committed to improving its business climate, following strict fiscal discipline, reducing and transforming the state’s role in the economy, supporting international cooperation and creating social stability. Keynote speakers from the U.S. side, U.S. Deputy Secretary of State William J. Burns (p. 7) and Assistant U.S. Trade Representative for WTO and Multilateral Affairs Christopher Wilson (p. 13) encouraged everyone who is involved in U.S.-Russia relations to think beyond the reset and WTO accession phase in bilateral relationship and look for new ways and opportunities to deepen ties between the two countries.
The Annual Meeting agenda featured panels (p. 17-34) exploring Russia’s investment attractiveness and market opportunities on the cusp of national elections, the country’s leadership of APEC, and its long-awaited WTO accession, as well as energy and healthy workforce issues, and how the country’s planned privatization, financial services reforms and industrial policies may impact its competitiveness. n
SAVE THE DATE!
USRBC Annual Meeting 2012 October 22-23 Atlanta, GA
The following is an excerpt of Mr. Kleinfeld’s address at the USRBC Gala Dinner.
October 3, 2011 •The Art Institute of Chicago
The first thing is the ‘reset.’ I believe we have to say the reset is already a success. We’ve seen two Summit meetings between President Obama and President Medvedev, the Clinton-
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KEYNOTE ADDRESS: Klaus Kleinfeld Chairman and CEO, Alcoa; Chairman, U.S.-Russia Business Council
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“ … t’s been a year since we were together in San Francisco…. But if you look back, so many things have changed in one year; some for the positive, some for the negative. In the main, I think most of them to the positive. So let me just very quickly go through some of the things that have happened.
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Russia Business Watch Winter 2011-2012
Klaus Kleinfeld addresses the Gala Dinner guests.
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> Lavrov dialog, Vice President Biden’s trip and his meeting with First Deputy Prime Minister Shuvalov and many other meetings. That is one front. The other front is the security front. Who ever would have thought that there would be an Afghan supply agreement taking care of the U.S. supply base going through Russian terrain; who would have ever thought that New START would be ratified; who would have ever thought that on the Libyan front Russia abstained
as 154 out of 178 countries in the Corruption Perceptions Index. Obviously, it is anything but desirable. If you look at the World Bank rating on ease of doing business, Russia is now listed as 123 out of 183 countries…. I believe the reforms need to stay on track and I believe they will stay on track. The news that I’ve heard today from Washington of the meetings that First Deputy Prime Minister Shuvalov had are really positive. We are happy to have him
strongly agree on is visa reform. We are at the verge of signing an agreement on three-year multiple entry visas for business and tourism. This is a great achievement, eliminating invitation letters and reducing the registration requirements that so painfully have been standing in the way. This will make business easier; this will be a positive for the investment climate. So let me come to a close here. I believe that now is the time to resolve many of
Klaus Kleinfeld addresses the Gala Dinner guests.
Russia Business Watch Winter 2011-2012
from the UN vote. I could go on and on….
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A great deal of investment has been announced in the meantime. The deal between ExxonMobil and Rosneft is just the latest one, which includes giving Rosneft access to some U.S. fields. There is CocaCola’s plan to invest $3 billion over the next five years and Pepsi’s $3.8 billion takeover of Wimm-Bill-Dann. And we, Alcoa, have invested a total of about $1 billion in Russia…. We have also signed memorandums of understanding with other important technology partners, including Rusnano, for instance. So, this is a very positive picture I think that one could paint of the reset. There are obviously still challenges, such as adherence to the rule of law and corruption. Transparency International ranks Russia
as a keynote speaker tomorrow. I hope we can hear firsthand from him what kind of progress the last hours of WTO negotiations have brought. It is really about time…. I believe that once we get that behind us, we should not underestimate the enormous psychological boost that the successful resolution of Russia’s WTO membership will bring. I think that the plans that we see to privatize a long list of state-owned companies will be seen as a test going forward and another opportunity for many Western companies to increase their positions in Russia…. There are many questions around minority shareholder rights that obviously need to be resolved to make those types of privatizations successful, because most of them are minority privatizations. One positive thing that I think we all very
these issues and shift to a regular as well as structured relationship…. We want to move away from a view of skepticism, we want to move to a view where the business community strongly stands behind investing in Russia, as well as giving Russian companies opportunities to invest here. That is the role that the U.S.Russia Business Council is playing and will continue to play. We will continue to advocate that close relationship, and I hope that this year where we will have something to celebrate in Russia’s WTO membership. We, as a business community, need to be vocal and we need to work together with Washington and with Moscow…. Thank you very much.”
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October 3, 2011 •The Art Institute of Chicago The following is an expert of Deputy Secretary Burns’ address at the USRBC Gala Dinner.
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“… am delighted to be speaking again to the USRBC, a group of people with whom I’ve greatly enjoyed working in the past, and for whom I have great respect.
Before I offer a few thoughts on the road ahead, and especially about the significance of our economic agenda, let me first take a quick look backward.
Where We have Been: The Origins and Results of Reset By the end of 2008, in the wake of the Russia-Georgia war, relations between the United States and Russia were as sour as they have been in more than 20 years. Mutual frustration obscured mutual interest…. We’ve come a long way since then. When President Obama and President Medvedev first met in London two and a half years ago, they agreed to make a fresh start, to ‘reset’ our relations. That effort has brought practical benefits for both of us, and for the rest of the world. We signed the New START Treaty. We brought into force a 123 Agreement on civilian nuclear cooperation and agreed to dispose of enough weapons-grade plutonium for 17,000 nuclear warheads. We reached a military transit accord on Afghanistan that has so far allowed over 1,500 flights across Russian airspace, carrying more than 225,000 U.S. military personnel to the region. Our law enforcement agencies have stepped up information sharing and conducted joint operations to stop the flow of narcotics. We have cooperated in unprecedented ways to counter Iran’s failure to meet its international non-proliferation obligations. We worked together at the United Nations to counter the Qadhafi regime and open up a new era for the people of Libya.
In a spirit of mutual respect, we have built a solid foundation for future cooperation. Mutual respect does not mean, however, that we cannot speak plainly about our disagreements. We can, and we must, speak plainly about human rights, and about our conviction, as President Obama said during his visit to Moscow in July of 2009, that ‘…the arc of history shows that governments which serve their own people survive and thrive…, governments which serve only their own power do not.’ We can, and we must, speak plainly about differences in Russia’s neighborhood, where we will continue to urge that Russia show respect for Georgia’s sovereignty and territorial integrity. We ought to be able to continue to build on shared interests while not pulling our punches on differences, and take steps that benefit both of us without grand bargains or tradeoffs that come at the expense of others. Moving Beyond the Reset and Strengthening Our Economic Agenda So where do we go from here? Managing big, complicated Great Power relationships is a little like riding a bike; if you don’t keep pedaling forward, you are likely to fall over. Our challenge today is to move beyond the reset, to find new ways to propel and organize our relationship, to widen the arc of our cooperation. Nowhere is that task more important in 2011 and the years beyond than in deepening our economic ties. The truth is that this remains one of the most under developed areas of our relationship, and it’s time to consider a more ambitious approach. After a decade of growth, an emerging generation of Russians aspires not just
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“Our challenge today is to move beyond the reset, to find new ways to propel and organize our relationship, to widen the arc of our cooperation. Nowhere is that task more important in 2011 and the years beyond than in deepening our economic ties. "
From left to right: Amb. Jim F. Collins, Deputy Secretary William J. Burns and Amb. John Beyrle
Instead of a new Cold War, together we achieved a new opening — one whose gains have already extended beyond security and global politics to touch the daily lives of Americans and Russians. Last July, Secretary Clinton and Foreign Minister Lavrov signed an agreement to build trust and transparency on the sensitive issue of inter-country adoption. They also approved a reciprocal visa agreement to make it easier for business people and tourists to travel between our countries. And through the U.S.Russia Bilateral Presidential Commission and its 20 working groups, we have built new partnerships and engaged our citizens, businesses and non-governmental institutions in areas such as health care and energy efficiency that would have been hard to imagine in the not-toodistant past.
Russia Business Watch
Let me acknowledge at the outset my own abiding interest in relations between Russia and America. During the course of my checkered diplomatic career, including my most recent posting in Moscow as U.S. Ambassador from 2005 until 2008, I have seen many ups and downs in our relationship. Along the way, I have no doubt made my own share of missteps and misjudgments. I have learned that few things come quickly or easily in our relationship; that interactions between Russia and America are often an uneasy mix of competition and cooperation; and that navigating past the mistrust and misapprehensions of the past takes considerable time and effort, from both of us. But I have also learned to deeply respect Russians and their history, culture and language; to realize how much we have to gain by working together on the main challenges of a new century; and to understand that the opportunities unfolding before us far outweigh our differences. Rarely has there been a moment when getting relations right between our two countries, and between our two societies, mattered more than it does today.
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KEYNOTE ADDRESS: William J. Burns U.S. Deputy Secretary of State
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to see their country a wealthy nation — but a nation with a strong and connected middle class; a nation whose economy can compete in an intensely competitive 21st century global marketplace; a nation that is not just a great power but a global innovator. Russians want to take part in and shape the world’s knowledge economy. Today half of Russians over age 18 are on the Internet. Three million Russians are blogging. Russians made more than 36 million trips abroad last year. More Russians
still they reached just $31 billion — less than one percent of our total trade. Russia is the world’s 7th-largest economy, but it is our 37th-largest export market. Today, Russia is the only member of the G20 — the only one of the world’s 25 largest economies, in fact — that has not joined the World Trade Organization. Russian WTO membership would deepen its investment in the success of the global economy and in the rules of open, free, transparent and fair competition
exports to the rest of the world, thanks to companies like Boeing, John Deere, Caterpillar, and Case New Holland. As a WTO member, Russia would be bound to lower its average tariff rates on agricultural equipment and other goods. That means that companies like John Deere can sell more tractors at more competitive prices in Russia and employ more people in Moline — proving that our foreign policy can create jobs for the American people.
Russia Business Watch Winter 2011-2012
William J. Burns addresses Gala Dinner guests.
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received visas to travel to the United States than ever before — twice as many as came just seven years ago.
that we believe create wealth for everyone. It would create exciting opportunities for the Russian people.
Russia’s realization of these aspirations can have profound importance for Americans. I don’t need to tell you that this is a moment when American foreign policy needs to be a force for economic renewal at home. In the last year, we have seen major business deals such as Boeing’s sale of 50 aircraft to Aeroflot, as well as last week’s agreement to sell 40 planes to Russian airline UTAir; the recent ExxonMobil-Rosneft joint venture to explore the oil and gas fields of the Arctic; and two major Russian joint ventures announced by General Electric and Rostechnologii and Inter-RAO just last month.
But our interest in Russia’s accession is far more direct. The simple fact is that Russia’s accession matters to the U.S. economy. It will create new markets for American exporters in one of the world’s fastest growing markets.
And yet this audience knows better than anyone that these deals only hint at the potential of our economic relationship. Two-way trade flows grew last year, but
Here in Illinois, for example, global exports support over 145,000 jobs. Illinois exports to Russia grew by over 90 percent last year, faster than its
If we want to meet President Obama’s goal and double U.S. exports by 2015 — if we want to put more Americans back to work — then WTO membership for Russia must be a part of our strategy. By one independent estimate, Russia’s WTO accession would allow U.S. exports to Russia to more than double (from $9 billion in 2008 to $19 billion annually).
Nor is it just the John Deeres and Boeings who stand to benefit. A predictable, rules-based system with recourse to dispute resolution will also help small and medium-sized businesses that lack the reach and resources to compete in a more uncertain environment. Respect for WTO rules can unleash a new wave of business activity in Russia — not just from American businesses but from businesses around the world. For the first time, Russia would be bound to honor the WTO rules that underlie open, free, transparent, and fair global economic competition. Russia would be required to provide predictable tariff rates and adhere to an enforceable dispute resolution mechanism. Of course, I should add that Russia’s WTO membership will do U.S. exporters no good unless Congress also terminates the application of the Jackson-Vanik Amendment and extends permanent
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normal trading relations to Russia. Otherwise, Russia’s markets will open, but U.S. companies will remain shut out as our partners benefit. Jackson-Vanik long ago achieved its historic purpose by helping thousands of Jews emigrate from the Soviet Union. Four decades after Jackson-Vanik was passed, a vote to grant Russia PNTR is a vote to create jobs in the here-and-now. The business community has a vital role to play in making this case. When you speak to Congress, you bring to the table a unique credibility to speak about the jobs your companies could create with greater access to Russian markets. Russia has missed a number of opportunities to achieve accession over the last 18 years, but now is the time, with strong American support, to finally get this done. While a lifetime of diplomacy has taught me that each country will be the judge of its own interests, the real benefits for Russia in WTO accession are unmistakable. World Bank economists have estimated that gains to Russia from eliminating barriers to the establishment of foreign service firms could reach 3.7 percent of GDP.
become totally transfixed by the ‘who’ questions: Who will lead our countries? Who will be shaping the choices that matter so much to the future of both our societies? The ‘who’ questions matter. Personalities and leaders matter, enormously, and it makes little sense to pretend otherwise. But it seems to me that it’s at least as crucial to keep a steady focus on the ‘what’ questions: What is each of our countries going to do at this profoundly consequential moment? What is America going to do to create jobs, fix our deficits, rebuild our infrastructure, renew our educational and health care systems, develop clean energy, and ensure our energy security? What is Russia going to do to move beyond dependence on hydrocarbons and diversify its economy? What is Russia going to do to cultivate its remarkable human strengths, its young tech-savvy entrepreneurs and innovators, who need only a strong and predictable rule of law to thrive in the global economy? What is Russia going to do to fight corruption, a cancer in any modern economy that can only be cured with an independent judicial system and an independent media able to hold people and governments to account? What is Russia going to do to foster a healthy
These are all hard questions. They are questions that only Russians can decide. I know that Russians generally contain their enthusiasm for American lectures or free advice, which we’re generally pretty uninhibited about offering. So I will simply restate the glaringly obvious: how those questions are answered, by Russians themselves, will shape whether Russia takes advantage of the historic window for modernization that is still wide open, but which won’t stay open forever. It remains deeply in the interest of the United States to see a strong Russia continue to re-emerge, a peaceful, prosperous and modernizing Russia fully integrated into the global economy, a Russia that respects the rights of its citizens and realizes their extraordinary potential. Fifty-four years ago tomorrow, Sputnik, the first-ever manmade satellite, was launched into space. Sputnik came to symbolize the intense competition between the United States and the Soviet Union, a competition that summoned the best energies of citizens in both countries, a competition that produced capacities to destroy unmatched in human history, as well as unrivaled advances in science and technology. Maybe it’s time today for a new and very different kind of ‘Sputnik moment’ — a moment in which each of us can renew our capacities for innovation, bring out the best in our peoples, compete in a modern global economy, and work together on the great common challenges before us. We are on the cusp of such a moment today, with Russia’s WTO accession and so much else so clearly within reach. It’s time, despite all the hard challenges and differences and unsettled questions before us, to stay focused on the possibilities that lie ahead. It’s time, mindful of the tangible progress we’ve made together over the past two and a half years, to keep trying to widen the arc of our cooperation. It’s time, for both of us, to seize the moment. Thank you.”
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Conclusion I will make just a few final points. This is obviously a moment of intense domestic preoccupation in both Russia and America, when election-year decisions and political personalities dominate the headlines. It’s easy for both of us to
David Simmons of Pfizer Inc., (foreground c.), Sean Mulvaney of the Export-Import Bank of the United States (background l.) and Alexander Danilov of Vnesheconombank (background r.) listen to Deputy Secretary Burns’s Gala Dinner address.
and independent media, when the killers of courageous journalists like Anna Politkovskaya and Paul Klebnikov are not brought to justice? What is Russia going to do to foster a healthy and independent judicial system, when courageous lawyers like Sergey Magnitsky die in pre-trial detention without those responsible being held to account?
Russia Business Watch
To reach its potential, to fully modernize, Russia will have to move beyond its dependence on hydrocarbons. For the great economies of the 21st century, what will matter most is not what is in the ground, but what is in the minds of their citizens. To tap into its remarkable pool of talent, and to attract the critical mass of investment needed to diversify its economy, Russia must also provide firms — both foreign and Russian — with a level playing field, including better legal protections and transparent, predictable rules. Russia’s ratification of the OECD anti-bribery convention will be a step in the right direction and we welcome systemic reforms such as those proposed last spring that would protect whistleblowers that expose official corruption. These steps would send strong signals to investors about Russia’s commitment to rule of law. Other tools like a Bilateral Investment Treaty should also be explored. The protections and reassurance that Bilateral Investment Treaties bring would encourage Russians and Americans alike to invest in each other’s economies.
“Russia’s WTO membership will do U.S. exporters no good unless Congress also terminates the application of the JacksonVanik Amendment and extends permanent normal trading relations to Russia. Otherwise, Russia’s markets will open, but U.S. companies will remain shut out as our partners benefit. ”
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OPENING KEYNOTE ADDRESS: Igor Shuvalov RF First Deputy Prime Minister
Russia Business Watch Winter 2011-2012
October 4, 2011 •The Swissôtel
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The following is an excerpt of First Deputy Prime Minister Shuvalov’s keynote address at the Annual Meeting.
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“… he global financial crisis that started in 2007 has posed challenges, both short and long term, for countries around the world. Russia was no exception. In 2009, our economy contracted almost eight percent. Our financial market, unfortunately, fell nearly 75 percent from its peak in 2008. However, we successfully stabilized the economy and in 2010 we returned our economy to a respectful growth rate of nearly four percent. We expect a similar growth rate this year and maybe even higher.
At the same time, it is clear that the global economy is not yet stable. We should not underestimate the risks we face. The slowdown in the economy, which is so evident in both the United States and Europe, is once again challenging the ability of countries like Russia to endure the turmoil on global financial markets. The biggest problem we face is our dependence on international markets and most of all on commodities exports. The World Bank’s latest report, which was issued in September, was completely clear about this. Another global financial crisis is not inevitable but, nonetheless, it cannot be ruled out. Our job is to be prepared
for every eventuality. Today, Russia is much better equipped to weather a potential crisis than it was in 2008. There is now significantly less leverage in our financial system…. The Central Bank of Russia, which now utilizes a de facto free exchange rate policy, has done a great job with the Ministry of Finance to alleviate the current oil price fluctuations. This approach prevents imbalances from building up. According to the Central Bank, at the start of 2008 the country’s net international investment position was approximately minus $150 billion. By the beginning of 2011, the situation had improved to plus $15 billion, meaning that Russia is now an international net lender, if only by a small margin. Furthermore, the Central Bank and the Ministry of Finance have perfected the mechanism for injecting liquidity into the banking system. This is an essential element in the system for ensuring financial security in the event of another global collapse. The deposit insurance program is operating smoothly, while government debt remains extremely low at around 10 percent of GDP.
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Photos on the rght (from the top): Clyde Tuggle of The Coca-Cola Company; David Simmons of Pfizer Inc. (l.) with Igor Shuvalov (r.); Ambassador Beyrley (l.) with Nikolai Kosov of Vnesheconombank.
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However, like many other countries, Russia is clearly approaching the limits of the physical stimulus that it can apply to the economy. The World Bank report reminds that we must replenish our Reserve and National Welfare Funds. We also understand the importance of fiscal discipline and intend to end this year with a balanced budget.
sis. Many of the structural questions that have come up front over the last few years have global significance. So let me put them in a global context while attempting to address how they apply to Russia. There are five issues that have been mentioned most frequently as structural consequences of the crises: Should governments restrict the free flow of capital globally and the convertibility of their currency? Will nations decide that the liberalization of their economies has gone too far and that the state needs to play a greater role in the economy in the future? Will nations refer to protectionist measures in an attempt to isolate their economies? In relation to this, will governments be able to coordinate with each other to reach the necessary solutions? And finally, the response to this crisis involved making difficult decisions that necessarily benefit some sections of society at expense of others. This raised and continues to raise the question of how and to what extent a national political consensus can be maintained in order to allow governments to act effectively.
However, we decided that this would be a mistake. Our country benefits from allowing foreign capital in. Since foreign investors bring not only experience and technology but also help us to improve corporate governance, attempts to hold domestic capital by using administrative barriers would be futile and would only cause the bureaucracy to grow. It was for exactly this reason that instead of restricting capital movement Russian President Dmitry Medvedev put forward the idea of creating an international financial center in Moscow with the aim of making it easier for foreign investors to operate in Russia. We are working hard to improve our market infrastructure. Our two major stock exchanges are in the process of completing a merger. We are also planning to create a central depositary that would meet the requirements of among others, the U.S. Securities and Exchange Commission. In addition, the Russian Direct Investment Fund was founded in June of this year. Much has been said about foreign companies being deterred from investing in Russia due to the higher risks involved. With the creation of this fund, we intend to stand alongside international investors and take our share of those risks. There is speculation that the Russian government is trying to enhance its role in the economy. Let me explain our real position. The Russian government has made it clear that the state’s role in the economy should be reduced and transformed. In view of this, we have started
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It would not be appropriate, though, to focus only on the near-term outlook and risks. I would also like to take this opportunity to talk about the longer-term structural issues arising out of the cri-
Leading international and Russian experts believe that Russia has the least stringent currency regulations of all the major transitional economies. The ruble is a fully convertible currency. The capital flight we saw in the winter of 2008 and 2009 was the primary driver of the slowdown that Russia experienced in 2009. We faced many calls for the government to change its course and reinstate currency controls. Our country’s savings rate is higher than our investment rate, while capital outflows consistently exceed capital inflows. We are therefore able to fund growth from domestic sources, which means that — in principal — we could have restricted the flow of international capital without damaging domestic investment.
Russia Business Watch
…Many people question whether our budget policy will be as strict as it was under [former Minister of Finance Alexei] Kudrin, and I can ensure you that everything will stay the same because those policies were our common approach, not just his personal position. We are very sorry that he left, but, again, fiscal discipline will remain the same. In addition, we plan to add 700 billion rubles ($23.3 billion) to the Reserve Fund this year and a further 500 billion rubles ($16.6 billion) at least in 2012.
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We certainly do not claim to have definite answers to these questions but I will try to explain our approach to dealing with them.
Main photo: Igor Shuvalov provides opening keynote address at the USRBC Annual Meeting.
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"Improving the country’s business climate is a longterm process, and historically it is proven resistant to transformation. But I can assure you that we are working very hard to continue to make progress in this area." >
a new phase of privatization focused on the oil, banking and infrastructure sectors. This program is consciously designed to allow the state to reduce its share in the economy, which increased to above the comparable international average due to the crisis measures taken in 2008 and 2009. The privatization plan for the three-year period starting in 2011 involves selling government stakes in major companies, including up to 25 percent in Rosneft, 7.5 percent in Sberbank, 35 percent in VTB and 25 percent in Russian Railways and some other strategic companies.
Russia Business Watch Winter 2011-2012
We have taken a variety of steps to reduce the government’s role, in particular by removing ministers and state officials from the boards of state-owned companies. I, myself, had to quit just a few days ago from one of the major companies. I did not want to, but I had to….
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Russia remains the only major global economy outside the WTO, unfortunately. In theory, it means that there is more freedom in setting import and export restrictions. However, instead of limiting access to our markets, we made a decision to accelerate Russia’s WTO accession and plan to complete this process in the near future. Yesterday, we had very fruitful talks in Washington, DC with the Vice President of the United States, with Congressmen, even with the chairman of a committee who criticizes us a lot. We just explained that it is for the benefit of all the countries and for the mutual benefit of the Unites States and Russia. So, we are trying to complete the deal by the end of December. I have to say that thanks to the leadership of the American administration, we are very close to accomplishing this. We have also been rethinking our policies regarding foreign investors’ access to various sectors of the economy. These policies are already bearing fruits. Two of our major oil and gas companies have signed far reaching cooperation agreements with international majors: Novatek with Total and Rosneft with ExxonMobil.
Pepsi has also bought a majority stake in one of our largest food companies. And the presence of foreign car manufacturers in Russia is also growing. At the same time, we still have much work to do to improve our investment climate. I won’t go into detail on this because there has been extensive coverage of these issues in the U.S. media. What I do want to mention is some of the progress we have made in this area. We have introduced mandatory revenue and asset reports for high-ranking officials. We have initiated police reform, and we have reopened investigations into the death of Sergey Magnitsky and the murder of Anna Politkovskaya. Improving the country’s business climate is a long-term process, and historically it is proven resistant to transformation. But I can assure you that we are working very hard to continue to make progress in this area. On international cooperation, the Russian government position is very transparent. We completely support international cooperation and we firmly believe in building an international consensus. Wherever we can, we work with our global partners through the G8, G20 and the BRICs. The resetting of the relationship between Russia and the U.S. continues. The New START Treaty, which reduces the nuclear arsenals of both countries by almost a third, was signed in April 2010. And we have signed the 123 Agreement toward cooperation in the peaceful use of nuclear energy. Russia and the U.S. are also actively expanding our partnership in dealing with important issues in Afghanistan, Iran, North Korea, and other countries. The Russian elections are just around the corner, and we are often asked if our policies will depend on the outcome. Let me assure you that the majority of Russians support the agenda I just described. I hope that many of our people in Russia share all these views. That is why they will vote for the agenda provided by Putin, Medvedev and United Russia. Once the new government is formed after the elections, we will be even more active in pursuing reforms. Of course, these policies are not shared by the whole nation. We have communists who are more active this year, and we have liberal democrats who are almost protesting this agenda. But again, I hope that the majority of our nation, most of the people will support us and they will vote. I am not a member of
United Russia, but in this election I and all my colleagues from the government will lead the party’s regional election lists because this time it is going to be a real fight between the left and right wings and balanced politics. So, we need to provide a real agenda we can fulfill. At the same time I want to mention that the next presidential term will be six years, not four years. As you know the Constitution was changed, allowing us at the beginning of the next presidential term to be more active…. Social stability is a key element for providing all the reforms and achieving new goals in my country. If we lose sight of that fact, nothing is possible and it will be a repeat of the nightmare of the 1990s. So, we will be very active, we will pursue, we will do what we understand we are supposed to do. At the same time, we need your cooperation and sometimes understanding that it cannot be done overnight. It will be very hard work that takes some time. Thank you!”
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Alcoa Chairman and CEO Klaus Kleinfeld (l.) talks to RF First Deputy Prime Minister Igor Shuvalov (c.) and U.S. Ambassador to RF John Beyrle (r.)
Igor Shuvalov (l.) talks to Nikolai Kosov, First Deputy Chairman of Vnesheconombank (r.)
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KEYNOTE ADDRESS: Christopher Wilson Assistant U.S. Trade Representative for WTO and Multilateral Affairs October 4, 2011 •The Swissôtel The following is an excerpt of Assistant USTR Wilson’s keynote address at the Annual Meeting.
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That context, I would argue, is about a quest for greater predictability in this
Despite the size and growing prosperity of the Russian economy, Russia still ranks only number 23 among U.S. goods trading partners, with $31.7 billion in total two-way goods trade during 2010. And Russia is even further down the rankings — at number 37 — among U.S. export markets for goods. Beyond statistics, though, both Russians and Americans understand that we need to be striving for greater maturity in the way that we go about managing our trade relationship, and resolving the disagreements and disputes that inevitably arise
Russia has made tremendous progress since mid-2010 in putting WTO accession on a fast track, and working with the United States and other WTO members to explain a trade regime that has changed in important respects by virtue of Russia’s customs union with Kazakhstan and Belarus. The United States, working closely with the European Union, has offered our technical support and advice to Russia as it has extensively revised the
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I want to provide a sort of framing context for the U.S. government’s approach to WTO accession for Russia, and to the very much related effort to work with the U.S. Congress to terminate application of the Jackson-Vanik Amendment to Russia and enable extension of permanent normal trade relations.
And yet I think there is an understanding, in both government and private sector circles, that this is a trade and investment relationship that is still less than fully developed, and that is, in many respects, falling short of its potential.
The recognition that our trade and investment relationship should be taken to the next level has emerged as a major priority of President Obama this year. Building on successes elsewhere in the U.S.-Russia relationship, the President has made clear that it is time to focus on making sure the economic dimension of the bilateral relationship keeps pace. WTO membership for Russia is at the very heart of that emphasis, and is one of the Administration’s top priorities this year for the U.S.-Russia relationship.
Russia Business Watch
“… s everyone in this room is aware, there is a lot of work that still lies in front of us as we seek to build a progressively more mature, constructive and rules-based trade relationship between the United States and the Russian Federation…. I’ll try briefly this afternoon to provide you with a perspective on Russia’s bid to become a WTO Member — a bid that is clearly now in its final stages, and closer to completion than at any time in the past two decades. We are at an exciting and optimistic moment in this process, though one that is not without remaining challenges that will need to be met in the coming months.
trade relationship. The U.S.-Russia trade and investment relationship has grown and deepened a great deal since the end of the Soviet Union. The flow of goods and services between our two countries — as well as the flow of investment — is undeniably benefiting companies and workers in both countries. Russia’s growing affluence, and the increasing appetite of its consumers for American-produced goods and services, is a boon for companies represented in this room, and more broadly in the American economy. Twoway investment is likewise producing great benefits for both countries.
in any such relationship. It is certainly not normal, for example, that heads of state should need to engage in resolving quite specific trade disputes, as has happened too often between the White House and the Kremlin. But this is a tangible indicator of the limited range of policy tools available to trade policy officials in both countries when it comes to managing the ‘blips’ in the relationship. And, of course, this is precisely why it is so important that Russia cross the threshold of WTO membership — a step that will immediately provide both sides with an established framework for managing trade relations more effectively, and with greater predictability.
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> documentation underlying its WTO acces-
sion to reflect the new realities of the Customs Union. We also worked aggressively, and successfully, in the summer of 2010 to resolve a number of key bilateral issues related to the accession process, a number of which had been outstanding for a long time. The progress has continued throughout this year, and Russia is now clearly in the home stretch. Working with the Chairman and members of its accession working party, Russia has established an ambitious course to the finish line — the finish line being the Ministerial Conference of the WTO to be held in mid-December. The schedule for achieving this is holding. The Russian accession team is working with extraordinary dedication. I want to underscore the Administration’s deep appreciation for the efforts and dedication of First Deputy Prime Minister Shuvalov, Minister of Economic Development Elvira Nabiullina and many others. My negotiating counterpart, Maxim Medvedkov, and his team have shown tremendous skill and have been putting in remarkably long hours to cross the finish line.... It is clear to all of us in the Administration that the government of the Russian Federation remains extremely determined to finish the job this year. Yes, there is a political season on in Russia, but what I observe is a deep continuing commitment to completing the process. Both the President and the Prime Minister are focused on diversification and modernization of the Russian economy, and I am confident that they, and the Russian government more broadly, appreciate the role that WTO membership can play in advancing that objective.
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So, Russia remains committed. But why has this become such an important priority for the United States?
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Here I return to the point of trying to create a more robust, well-functioning, predictable, and larger trade and investment relationship, to the benefit of businesses, workers and farmers in both countries. Ultimately, the WTO is the heart of the international trading system, and it is simply very hard to manage a successful trade relationship, or to help a trade relationship grow sensibly, without reference to that system. This is why it is so important that Russia cross the finish line to WTO membership. For nearly two decades, with some stops and starts along the way, the trade policy dialogue between the United States and
Russia has been almost exclusively dominated by the WTO accession process. It has been a complex, and occasionally very difficult, negotiation. Both sides, recognizing the stakes, have negotiated hard. All of this has been absolutely necessary, but in a sense, the overwhelming focus on the multilateral process of accession has sort of crowded out the ability to really focus on building a mature, constructive and flourishing bilateral trade relationship. From my perspective, this will be one of the biggest benefits of Russia completing the accession process. It will effectively free us up, in Moscow and Washington, to turn our attention to the construction of a fully-developed bilateral trade partnership that will benefit both economies and support job creation in both our countries. I have seen a similar positive shift in focus in another context. In my previous position at USTR, I was responsible for U.S. trade relations with the Middle East, and the U.S. relationship with the Kingdom of Saudi Arabia was a fairly prominent account…. What I observed in my interactions with the Saudis was that, once the Kingdom had entered the WTO, there was a nearly immediate interest in turning the page to building a strong relationship in bilateral channels to manage trade and investment relations…. This is exactly what we are striving for in the Russia context as well. I would encourage all of you involved in U.S.Russia trade relations to start thinking now about what you would like to see reflected as we move into a ‘post-accession’ phase in our commercial relationship. My colleagues at USTR and in other agencies will be giving this a lot of thought — both in terms of the structures that will make sense, but also in terms of policy priorities to pursue. Your input in this area will be extremely valuable.
manufacturers, service providers, farmers and ranchers to enjoy the full benefits of Russia’s membership in the WTO. Without this, we would lose, at least temporarily, the ability to have access to a much-needed tool-kit for managing problems that arise in our trade relationship. The Administration will continue to emphasize the importance of the Congress taking this action. The challenge is a large one. We are listening with great care to the particular concerns Members of Congress raise with us with regard to Russia. We will continue to work vigorously to address those concerns effectively in the interest of building the strongest possible base of support for positive Congressional action on this critical issue. With Congressional action on pending free trade agreements and other trade legislative priorities now moving forward, we are committed to working as rapidly as possible with Congress to address Jackson-Vanik. [Ed.: Congress passed the Colombia, Panama and South Korea free trade agreements on October 12.] Our efforts are ramping up — in fact, I and other colleagues from the Administration will be on Capitol Hill every day this week, making our case that Congress’ action on this question is, above all, something that will measurably advance our own economic interests. As this effort goes forward, USTR and the Administration as a whole are determined to stay closely in touch with USRBC and the broader coalition of stakeholders who share an interest in this issue….” n
Before closing, let me offer a word with respect to the Administration’s commitment to working with Congress on Jackson-Vanik/PNTR. First, and above all, that commitment is solid. The President has made clear that the Jackson-Vanik Amendment has long since served its stated purpose, and has had no practical impact on U.S.-Russia trade relations for many years. The Administration is also clear on the following reality — terminating application of the Amendment to Russia is manifestly in U.S. national economic interests. This is critical to enabling U.S.
William C. Lane, Washington Director of Caterpillar Inc., introduces Christopher Wilson for the luncheon keynote.
Annual Meeting
tures, but the technology that is required to extract those impurities has not been broadly unutilized…. The region is among the top 10 in the volume of industrial production in Russia, but it is also a top agricultural producing area. We produce various crops and make processed foods such as pasta and poultry. Chelyabinsk is third in Russia in pork production, while we expect poultry production in the region to double in the near future. As a result of our industrial and agricultural growth, we have a dynamically increasing requirement for machinery…. Chelyabinsk oblast is integrating itself globally in a very dynamic fashion but, of course, it is dependent on the microeconomic situation in the country. U.S. companies account for a small segment of our total foreign trade turnover of about $30 billion, and volumes are rising with the economic recovery…. We have investments coming from more than 30 countries including the U.S. I’m talking here about direct investment, and a number of major European companies have found a home in Chelyabinsk, including Rexam and Henkel….
KEYNOTE ADDRESS: Mikhail Yurevich Governor of the Chelyabinsk Region
The following is an excerpt of Governor Yurevich’s address at the Annual Meeting.
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Chelyabinsk region is also rich in mineral resources. Both domestic and international companies are active in the development of more complex mineral resources such as copper, zinc and gold. Currently, we’re looking for investors in two iron fields that have some admix-
In Chelyabinsk, the region itself provides the maximum possible incentives and benefits in terms of tax payments, provision of gas and electricity supply, etc. to investors. The regional government will build roads if the proposed facility is far from the existing highway, and they also offer tax benefits in terms of property tax and profit tax. These are serious deductions because the profit tax mostly goes to the regional government, so until the project pays for itself in fact the new project will operate at very low tax rate.
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“… helyabinsk region’s location in the center of the Russian Federation can be considered an advantage and disadvantage. A significant number of metallurgical companies were located in the Urals during Soviet times, and today, the Urals Mountains remain one of the most important industrial centers of Russia. The region’s position in the middle of the country makes it convenient to organize production and to operate throughout the territory of the Russian Federation.
We have about 30 universities in the region, the largest of them being the Southern Urals Federal University, known for its engineering programs. The university has the status of a scientific research center, one of only 10 such universities in Russia and the only one in the Urals Federal District….
…We do not make any distinction between smaller and larger investors. We believe that all kinds of investments in the Chelyabinsk region should be successful, should pay for themselves, should be profitable. This is how we are building our reputation.
Russia Business Watch
October 5, 2011 •The Swissôtel
One of the first U.S. companies that arrived in the Urals was Emerson, and Chelyabinsk has become a major instrumentbuilding center. Emerson employs about 1,000 people and has been growing at a rate of about 30-40 percent annually. As a result, they came to the Chelyabinsk City Administration voicing their intent to build a new factory, because the previous one was too small for them. Carbo Ceramics has also become quite successful in our region, having built a production facility.
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land is free — we have a lot of it. As I said, our communications and infrastructure will also be offered free of charge. We also provide administrative support to new companies that have just arrived in the Russian market. We will dedicate a member of the local administration to attend all kinds of business meetings and negotiations. That person will listen to company concerns and requests so that the company will have an easier time adapting to the local conditions, to the new regulatory environment and to the new technological standards. Of course, this rules out the possibility of corruption. A lot has been said about corruption in Russia in general. Let me tell you that in most regions along the Volga River, in Siberia and in the Urals, it exists on a small, day-to-day level. The government has made a great many strides against corruption. Judicial reform is underway, making court decisions far more transparent and fair….
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Nevertheless, in my view, the most important thing for the development of business is a good judicial system, and a close relationship with regional and local authorities. Both the federal government and the government of Chelyabinsk are quite interested in attracting investors because investments will create good jobs for the population. In our market, we would like to see American companies make a profit for themselves as well. It’s also quite a significant market….
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The living standards in Russia are improving. If you look back 7-10 years ago, automobile companies thought they would produce 10,000 cars and that seemed like a lot. Now Russia is one of the biggest automobile market ,and over 2 million cars will be sold in Russia in the current year. Then you have to add Belarus and Kazakhstan because we have a Unified Customs Space. We are member of the Customs Union. Uzbekistan and Ukraine are very likely to enter this Customs Union as well. So the cars can be easily transported to Ukraine as well. Similar things will be happening with trucks in the near future. Now there’s a big shortage of this kind of transport. There’s also a shortage of railroad cars, although Russia does manufacture all those itself. Next year there will be a reform of “Russian Railroads.” Locomotives will become privatized, the cars themselves will become private. This will provide a serious impetus for the production of locomotives.
I had a meeting together with Russian entrepreneurs and the company is called UralVagonZavod. They produce 24,000 cars a year. That’s an impressive volume. They want to start producing locomotives as well, but they want to do the full cycle starting with the engine and all the way to the wheels. That’s an interesting market as well. I’m sure that our cooperation will be quite varied and diversified. We’re willing to show you all the best things that the region has to offer, to give you all sorts of information about what we have to offer. We look forward to greeting and welcoming investors in our region. Thank you!” Questions & Answers Session Q: Does Chelyabinsk Region have any kind of priority areas in energy efficiency policy to attract new investments? A: “Energy efficiency is an urgent topic in Russia because the Soviet Union was not known for its efficiency or for saving energy…. We have developed a program for the region in, for example, heating systems for local communities. Often these central heating systems are inefficient and the government has to provide subsidies on the tariff rate to consumers. With foreign investors, we would conclude a tariff agreement and guarantee the stability of a certain tariff. Then the investor would reorganize the unprofitable heating facility. It takes three to five years for a project to pay for itself and then it becomes profitable. It works both ways: it is good for the investor and it helps us to increase energy efficiency…. We have also modernized and upgraded our electric streetcar, or tram, system, enabling us to reduce the amount of electricity consumed by 40 percent per year. This tram system will continue to run using pretty much the same principles for another 20 years….” Q. Do you think governors should be elected or is the system that currently exists better for Russia? A: “When then-President Putin made the decision to appoint governors that was a justified measure at that time. I was in the State Duma and I supported that decision because we have forgotten the time when the country was falling apart…. There was a real threat to the integrity of the country at that time…. But I want to mention that none of the
governors was suspected of having a desire to separate from the center…. Right now we have a single power structure. We understand that the regions need to accomplish the directives set out by the President. For example, in energy efficiency we draft our own plans and report upon the completion of those plans. We understand that we need to get this done and we’re the ones that draft the plans. We are the ones who know better what needs to be done in our regions. That’s why we’re the ones who drafts the plans. Perhaps, sometime in the future governors may again be elected. I consider that as an option…. Of course, when a person is appointed it is not a transparent process. There are some people who are appointed to this position who are very accomplished and who are strong leaders but they are not able to lead a region. What can I say about myself? I was twice elected to the State Duma through direct elections. I was twice elected as Chelyabinsk mayor. I would have won elections in the Chelyabinsk region.” Q. As the federal government is reducing the amount of transfers from the central budget to regional budgets and revenues are falling, how do you envision attracting additional finances? A: “We’ve already drafted our budget and will adopt it finally in December of this year. Everybody keeps talking about the crisis, but we don’t sense that the crisis has reached our region. We think the September macroeconomic numbers are sufficient and, in fact, we have some growth. But we will have to create two drafts of the budget — one that takes a new crisis into account, and one that does not. We estimate that the budget will be reduced by 30-40 percent in such a situation. Our draft budget — even the crisis version of it — is balanced. We do not plan on any borrowing, and we will try to pay off about $60 million worth of loans next year. Our region is an industrial one; we are able to live within our means. That’s why we have a high credit rating. We will need to take certain positions in case of a crisis, but we have projected to pay off our loans….” n
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Clockwise from top left: Karl Johansson (l.) with Richard Daley (r.) , Richard Daley (l.) wtih Kirill Dmitriev (r.), Pyotr Fradkov, Sean Mulvaney, Sergey Vasiliev, and Nikolai Kosov.
PANEL: Facilitating Trade and Investment: the Russian Export Credit Insurance Agency and the Russian Direct Investment Fund Moderator:
Karl Johansson Managing Partner CIS, Ernst & Young
Panelists:
Richard Daley Former Mayor City of Chicago
Pyotr Fradkov Deputy Chairman Vnesheconombank
Sergey Vasiliev Deputy Chairman, Vnesheconombank
Sean Mulvaney Member, Board of Directors Export-Import Bank of the United States an increase in foreign investment from all around the world, particularly in real estate and manufacturing, allowing the city to rebuild its economy after difficult times. With the increase in urbanization, the former Mayor noted the importance of cities in the future of the U.S.-Russian relationship. For the development of Moscow, the Russian Direct Investment Fund (RDIF) is very important as it will allow business leaders to invest in Russia, which will affect not only the city, but the region and the country as well. The faster Russia becomes a WTO member, the better off Russia and the U.S. will be.
In his opening remarks, Kirill Dmitriev acknowledged Igor Shuvalov’s role as a driving force behind the government initiatives to improve the investment climate and behind the creation of the RDIF. The fund was created in June 2011, with the goal of revitalizing foreign investment in Russia. The government expects to capitalize the fund with $10 billion. Mr. Dmitriev noted that the RDIF is not a substitute for reform but will highlight examples of successful investments and will give a voice to the investment community to share their views with the Russian government.
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Richard Daley opened his remarks by calling attention to the immigrants who founded Chicago, making it a global city. Chicago has experienced
Nikolai Kosov First Deputy Chairman Vnesheconombank
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n his introductory remarks, Karl Johansson noted that the Russian government has taken a number of initiatives, particularly over the past few months, to improve and enhance the trade and investment opportunities in Russia. The panel discussion focused on what the Russian government is doing in cooperation with the Vnesheconombank and the Credit Export Agency, as well as the creation of the Russian Direct Investment Fund.
Kirill Dmitriev Chief Executive Officer Russian Direct Investment
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Russian market is and has been attractive for investors for several reasons: it is the 8th-largest economy in the world (by purchasing power parity), has the world’s 3rd-largest foreign exchange reserves, debt to GDP is under 10 percent, and the country’s middle class has tripled over the last 5 years. The fundamentals necessary for investment are exceptionally strong in Russia and many investors have already benefited from them. Mr. Dmitriev strongly emphasized the partnership that will exist between the RDIF and foreign investors. Co-investment will allow the Russian government to make better investment decisions (more eyes looking at the deals) and enables them to bring money and expertise into the economy. Investors will profit from state-share exposure to investments. He added that the RDIF investments will be focused on the Russian middleclass, on import substitution and on different sectors and engines of growth that will allow the country to push forward. Tremendous opportunities are found in agriculture and pharmaceuticals. An advisory board has been set up and has been working since the beginning of September. The fund unites talented people who believe in making Russia a better investment destination.
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Pyotr Fradkov gave an overview of the new Export Credit Insurance Agency, which is designed to function in a similar fashion to the U.S. Export-Import Bank. Like the RDIF, the Export Credit Insurance Agency is a subsidiary of Vnesheconombank (VEB).
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The Export Credit Insurance Agency benefits from state-backed support and financial support from VEB and is in full accordance with OECD principles. The share capital of the agency is about $1 billion, which will allow the organization to start operations quickly. It will become one of the most capitalized agencies in the world and will be able to offer internationally recognized products. Mr. Fradkov noted that the Russian state guarantee is an important issue for the new agency. All the necessary legislation is in place to allow the agency to receive a sovereign rating and allow it to arrange risk instruments in
international markets — an important step in terms of the agency’s global cooperation.
source of competition in international trade or a source of instability in the trading system.
One of the main goals of the Export Credit Insurance Agency is to develop export support infrastructure in Russia. The company will help drive the development of the Russian financial market through the emergence of a mature insurance market. Under the agency’s coverage, Russian commercial banks will be able to place their liquidity in the form of export credit facilities. The company plans to issue its first policy by the end of next year.
In closing, Mr. Mulvaney suggested that ECIAs should stay commercial and devote themselves to economic reasoning and rationale as basic guidelines for operation. It is best to make firms pay for the service of export finance so that ECIAs can operate without taxpayer subsidies to the extent possible. He stressed that, in order to expand the consensus on the appropriate use and non-use of export finance by statesponsored entities, it is critical that Russia adopt the corresponding OECD convention.
In his remarks, Sean Mulvaney noted that the Export-Import Bank plays an important role in facilitating bilateral trade. Its mission is to enable small and large companies to turn export opportunities into real sales that create or maintain jobs and contribute to a stronger American economy. The bank’s products include export credit insurance, loan guarantees, direct loans, working capital guarantees, and structured finance, as well as limited resource project finance. For small- and medium-sized businesses, the Ex-Im Bank is able to offer working capital loans with the help of commercial banks. The bank also offers accounts receivable insurance with the help of brokers. This enables American exporters to offer credits to Russian buyers, solving a problem American firms have as U.S. commercial banks often will not lend against foreign purchase orders or foreign accounts receivables. The Export-Import Bank steps in so commercial banks can provide the working capital needed for the production of American exports. Mr. Mulvaney also noted that the Ex-Im Bank supports the extension of credit to potential Russian buyers for the purchase of American products. This can take the form of a loan guarantee to commercial banks, extending credit or even a direct loan from the ExportImport Bank, which operates in Russia and is open to new transactions. According to Mr. Mulvaney, export finance can be of national interest because it plays a constructive policy role in three ways: export credit insurance agencies (ECIA) level the playing field, correct failures and they take on credit risk the private sector is unable to assume. The ECIAs should not be a
Nikolai Kosov began his presentation by explaining Vnesheconombank’s role in economic recovery after the financial crisis. The government decided to make VEB one of the institutions to remedy the situation through financial support to banks, industrial enterprises and major Russian companies. In the past, the focus was on generating immediate results, but this year VEB is looking into the future by finding new opportunities in areas such as the attraction of foreign investment and widening the scope of exports and imports. VEB expects to see results from this qualitative leap in the development of its policies in the next few years. n
Amb. Beyrle addresses the panel.
Sean Mulvaney ( l.) and Pyotr Fradkov talk on the sidelines of the conference.
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PANEL: Why Russia? Evaluating the Economic Global Context Moderator:
Drew Guff Managing Director Siguler Guff & Company
Panelists:
Varel Freeman First Vice President European Bank for Reconstruction and Development Mark Fuller Chairman and CEO Monitor Group Charles Ryan Chairman UFG Asset Management
Charles
Ryan began his address by highlighting that Russia has reached a critical juncture in terms of its future economic outlook. He noted that Russia has benefited greatly from the changes in commodity prices that provided the country with an opportunity to address inequalities in society and establish a sovereign wealth fund. This wealth was used to support industries in which Russia will never be competitive.
As an additional example of the level of technical sophistication present in Russia, Mr. Ryan pointed out that Yandex uses more effective algorithms in its search engine than Google. In conclusion, he conceded that Russia’s developed economy status will make future high growth rates more difficult, but he contested that the country also possesses unique qualities that can be competitive in the world market. Varel Freeman began his remarks by stressing that the watchword for the next year is uncertainty — not just in Russia, but worldwide. Despite the expected outcome of the upcoming elections in Russia, a degree of uncertainty remains, especially with the sudden departure of former Finance Minister Kudrin. Mr. Kudrin was himself a source of stability throughout the last economic crisis and Russia will again need this in the near-term to steer through the next crisis.
Mr. Freeman highlighted a number of trends in the Russian economy. He was optimistic on the state of the Russian banking system as it has re-capitalized and is currently in a better position relative to the European banks. Overall, Mr. Freeman described liquidity in Russia as good, but also weak and limited for medium-scale business, which he believes is crucial for a successful conversion from a Soviet-style economy. Mr. Freeman also observed a striking difference in the emerging desire from Russian entrepreneurs to take risks and build wealth through building good companies as opposed to appropriating natural resources and state assets. Referring to Russia’s economic potential, he said natural resources should not be ignored as they provide an opportunity to fund modernization and diversification in Russia. Speaking on areas where Russia’s diversification will likely be successful, Mr. Freeman agreed with Mr. Ryan that the high level of technological and scientific expertise would provide an advantage in sectors producing highly engineered components, such as the aerospace and material sciences. Given Russia’s extensive resource base, he viewed these sectors as a great opportunity for Russia. Mr. Freeman also noted that privatization efforts have slowed due to economic
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Providing further examples of competitive industries in Russia, Mr. Ryan highlighted the cell phone industry. He noted its higher mobile phone penetration
rate than the United States, illustrating the high quality of wireless infrastructure in Russia and the need for additional investment as the 4G network takes shape. The ease of investment is also much higher compared with high growth countries like India, since a basic level of infrastructure currently exists in Russia that does not exist in many of the developing economies.
Russia Business Watch
He credited President Medvedev’s efforts in infrastructure development and innovation, but cautioned that these initiatives have forced Russia to make a fundamental choice, whether to resemble Western European countries or the BRICs economically. Mr. Ryan added that the issue boils down to those areas in which Russia has a comparative advantage. The optimistic scenario, he explained, would resemble Canada or Australia in the sense that Russia could become a high value-added producer of natural resources and other high valueadded non-tradables, as Russia possesses a high level of technological and scientific expertise to become a world leader in smart manufacturing. However, Mr. Ryan cautioned that success hinges on whether wealth will continue to be used to support inefficient industries.
Clockwise from top left: Drew Guff, Varel Freeman, Mark Fuller, Charles Ryan
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> conditions,
but recent months have seen a renewal of Russian privatization commitment. Mark Fuller focused on the similarities of risk and rewards of investment in Russia relative to emerging markets worldwide. He explained that practically all emerging markets have issues with conversion from closed economies, corruption, regional asymmetries, and low-quality governance. However, the emerging markets are all growing faster than developed markets.
Russia Business Watch Winter 2011-2012
Mr. Fuller pointed out that there are several positive factors regarding the Russian market. Russia possesses a strong currency and sufficient financial reserves along with a reasonable debt situation. In addition, a real business mentality is developing that is not limited to asset stripping coupled with the growing power of a middle class as consumers and employees. Mr. Fuller also explained that there were negative aspects of the Russian market as well. He mentioned the selective application of the laws, high transaction costs, bureaucracy, emigration of talent, declining social indices, and inadequate and aging infrastructure as issues Russia currently faces. Mr. Fuller continued by describing the framework of investment as the balancing of the positive and negative aspects of the Russian market, primarily in the area where Russia confronts the greatest economic challenge — diversification.
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Mr. Fuller discussed the development of the Texas economy as a model for Russia. He argued that success was based on two basic themes: intelligent management of the iron triangle of prosperity and vigorous competition amongst cities in Texas. In terms of upgrading prosperity, Mr. Fuller highlighted three key areas: development and deployment of specialized human assets; cultivating new capacity to innovate; and providing a rigorous context for entrepreneurship. Texas, he continued, relentlessly upgraded what it had and selectively added relevant clusters and industries to the pre-existing base. Mr. Fuller stressed that Russia must provide a better environment for entrepreneurs. Market entry and exit for a company is particularly difficult, and entrepreneurs operate in an insufficient business service environment, where bureaucracy is generally not supportive. At the same time, the incentives in place to promote innovation are insufficient, as are the level of pub-
lic-private cooperation and number of multi-nationals participating in the sector. Mr. Fuller also noted that improving the connection between the education system and the private sector will help in the development of specialized human asset management. In closing, he added that any reduction in market uncertainty would improve the overall business climate in Russia. Speaking on a question regarding what can be done to increase the amount of private investment in Russia, Mr. Freeman pointed out that past high returns are a reflection of the easily identified opportunities that previously existed in the Russian market. However, the opportunity set now is not as obvious as it was before. The real opportunity lies in linking Russian intellectual capital and products to the world market, which has brought substantial returns. Mr. Ryan pointed out that the high level of dependency on organizations like EBRD to spearhead private equity and venture capital efforts is a result of a bad brand. Based on his experience, U.S. business leaders generally have a negative impression of investment in Russia. Answering a question regarding what is driving business deals in Russia and what will drive the M&A market in the future, Mr. Fuller noted that businesses that have previously invested in Russia have a noticeably different perspective on the Russian market when compared with companies that have never invested in Russia. In the current environment, legacy investors will make additional investments and Russia can expect a general cumulative increase investment as more companies develop their own understanding of the country. Regarding the quality of Russian management teams today compared to ten years ago, Mr. Freeman noted that he has observed a dramatic surge in entrepreneurial and management capabilities in Russia — a new entrepreneurial class of Russians is emerging that have the drive to start their own businesses. Mr. Ryan likened Yandex’s contribution to the Russian venture capital market to Netscape’s contribution to Silicon Valley in 1995, arguing that Russia needed a few examples to grab the attention of investors. Speaking on the current state of the venture capital market in Russia, Mr. Ryan commented that despite domestic venture capitalist not yet taking full technology risks in Russia, he was starting to see the
beginnings of a venture capital industry. In terms of angel networks, he described the situation as chaotic, adding that the coherence that one would see in Western Europe or California does not yet exist in Russia. Answering a question regarding how to make the case to management for investment in Russia, Mr. Fuller stated that, across the world, most of the opportunities in upgrading business skills and privatization programs have already been undertaken, but these opportunities still exist in Russia. Russia’s differentiating factors are the possession of a good asset base during asset shift and its unique position as a crossroads for investments between the East and West. In response to a question about whether a large number of small oligarchs would be better for the Russian economy in a structural context, Mr. Freeman argued that Russia will be better off with the successful rise of entrepreneurism. In the end, business leaders will have a stake in the country’s economic future and good governance and the ability to demand good performance and behavior from national leaders. Mr. Freeman said Russia was located at an inflexion point where five years from now, the world will see a different brand for Russia and an outlook that will change business perceptions. Regarding whether taxes and regulation are excessive in Russia, Mr. Ryan explained that, despite legitimate attempts to improve regulation, bureaucracy continues to thrive in Russia. He added that the issue revolves around the persistence and regularity of regulation as well as its ambiguity, which provides regulators with the ability to extract bribes. In contrast, Mr. Ryan believed the level of taxation is relatively low. Responding to a question on why IPOs are not listed domestically, Mr. Fuller pointed out that only recently has demand existed for capital for internal investment. He explained that Russia does not possess deep enough savings pools at pension funds, insurance companies and other financial institutions to support a big liquid domestic market. The government is broadening the pension program, but deep local markets will not exist until this happens. Citing the examples of Australia and South Korea, Mr. Fuller said the long-term development of sufficient capital markets is possible. As a result,
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Russian companies are accessing foreign markets until appropriate domestic capital market conditions exist. Mr. Ryan added that investment reform is one area of disappointment, emphasizing that the lack of a domestic capital market will be a negative factor in the eyes of foreign investors. Answering a question regarding how the structure of investment is developing, Mr. Ryan noted that the term “venture capital investing” in Russia is vague relative to Silicon Valley, but the intent is the same. He agreed that obstacles, such as how to close a company
down, how to incorporate and shareholder structure agreements, still exist, but they can be overcome. Mr. Ryan pointed out that infrastructure from the old economy is still present that can help with overcoming these obstacles. The greatest opportunities in venture are in intellectual property companies. Mr. Freeman added that the structure of business investments has proven to be an impediment. Regarding how large Russian financial institutions interact with private sector investors, Mr. Freeman explained that large Russian financial institutions have
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a great deal of capital and patience, emphasizing the positive leadership role the institutions have taken in infrastructure finance. Mr. Ryan mentioned that during the global crisis, these institutions played a crucial role as the only players in the market willing to take on Russian risk, which illustrates their importance to how the economy grows and functions. He added that the example also illustrates the need to expand the base to include longer-term equity capital. n
PANEL: Russia’s Political Economy: The 2011-12 Election Cycle Moderator:
Amb. James F. Collins Co-Chairman of the Board U.S. Russia Foundation for Economic Advancement and the Rule of Law
Panelists:
Konstantin von Eggert Commentator and Host Kommersant Media Holding Leonid Gozman Director for Humanitarian Projects RUSNANO President Union of Right Forces Andranik Migranyan Director Institute for Democracy and CooperaClockwise from top left: Amb. James F. Collins, Andranik Migranyan, Leonid Gozman, Konstantin von Eggert
Providing an outlook for Russia’s strategic and non-strategic sectors, Mr. von
Eggert said that the focus in sensitive areas such as oil and gas will continue to be on boutique deals. In non-strategic sectors, he stressed that the modernization process will have a technical focus, which will not include changing institutions or attitudes. While some of the modernization efforts likely to be a centerpiece of a future Putin presidency will not result in institutional reform, several initiatives will certainly have an impact on important issues such as corruption. He argued that Russia’s implementation of the electronic government program will significantly reduce the government’s face-to-face interaction between citizens and civil servants, which often facilitates corrupt acts.
Mr. von Eggert described the past year’s Duma campaign as a disappointment, explaining that there are currently two ideas that exist in society outside the government-controlled media: liberal capitalism and Russian nationalism. These two constituencies, mostly represented by a burgeoning middle class, were supposed to be represented through vehicles like the Right Cause Party. Despite the Right Cause Party’s efforts to work with the Kremlin, that project was cancelled earlier this year. Mr. von Eggert noted that this move was a signal that the government does not really want to listen to these groups in Russian society. It also highlights the conflict between what is necessary for Russia to modernize and
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von Eggert began his remarks by noting that that the primary concern in domestic politics in Russia is stability, particularly social stability. Simply put, Russia does not want broadbased political participation. As an example, he explained that 40 percent of Russia’s population depends on government money and budget handouts. This group is the bedrock of the Russian political system. As a result, social and regional policy will likely remain the same in the form of additional handouts as a means to retain base support for United Russia.
Russia Business Watch
Konstantin
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desire of Russia’s political ruling elite to retain power through relentless maintenance of the status quo. Mr. von Eggert speculated that this conflict will take center-stage in the coming years as tensions persist and grow. Leonid Gozman focused his comments on political instability, immigration and low national self-esteem, arguing that although the level of dissatisfaction in the country is currently high, the people have no united enemy on which to focus their discontent. In contrast, during the late 1980s, popular dissatisfaction had a singular enemy, the Communist Party. In the present day, blame is widely dispersed and discontent has not reached a critical point.
Putin. Mr. Migranyan argued that the creation of Medvedev’s image as a modernizer while portraying Putin as a leader of the status quo was little more than the product of self-interests within particular political circles in Russia who sought political gain.
in the higher-level echelons of the government and state-run companies. Mr. Gozman added that reducing corruption is also a matter of political will. When political leaders do not reduce corruption, it means that they simply do not want to do it.
Mr. Migranyan asserted Putin can provide both modernization and stability. He contrasted this notion with past modernization efforts in Russia that mainly failed due to the weakening of the existing political and institutional framework. Only through a strong state can the modernization processes succeed.
Answering a question on Russian immigration, Mr. von Eggert noted that, in contrast to those who left Russia prior to the collapse of the Soviet Union, today’s émigrés maintain their ties to Russia in terms of relationships and property. The only difference now is that these people simply do not work in Russia. At the same time, even though nearly 20 percent of Russians surveyed expressed a desire to leave the country, only a small percentage are actively taking steps to do so. However, Mr. von Eggert noted that recent polls showing that 40 percent of people in the 18-24 age group have considered leaving Russia is a troubling sign.
Given the nationalist and liberal groups’ lack of political participation, he does not believe dissatisfaction will lead to serious social dissidence. Mr. Gozman argued that the high level of support for United Russia also reflects this assumption.
Mr. Migranyan described the U.S.-Russia “reset” as a sober-minded position recognizing that unilateralism is obsolete. It is a demonstration that a country must take the considerations of its world partners into account. Mr. Migranyan speculated that, over time, countries will become more reliant on selective ad-hoc coalitions rather than existing institutions like NATO.
In contrast, immigration is a more pressing issue with roughly 40 percent of those younger than 35 considering it the most important problem to be addressed. Regarding low national self-esteem, he stated that the lack of Russian manufacturing and brands that are internationally competitive is a prime contributor.
Regarding the demographics of the Russian middle class, Mr. Gozman noted that half the population of the large cities are middle-class, but this segment of the population is also indifferent to the political leadership, meaning that they are not interested in taking part in the political process.
Mr. Gozman ruled out draconian methods of ensuring social order as unfeasible and argued that the only way for Russia to manage the risk of social discontent is to modernize and become more competitive internationally. National self-esteem will be restored when Russia can compete in international markets.
In response to a question on the future of pension reform in Russia, Mr. von Eggert explained that Russia’s pension fund is near bankrupt due largely to unfavorable demographic trends that, although not as bad as the 1990s, are still worrisome. He argued that the issue presents two options for Russia: either raise taxes or the retirement age. He predicted that raising taxes is the likely outcome since raising taxes on the middle-class, which typically does not vote, provides a more viable option than increasing the pension age. Mr. von Eggert added that the government is likely to postpone the decision for as long as possible.
Mr. Gozman stressed that the political will exists and that there is broad recognition that modernization is imperative for the country. The requisite resources, such as a high concentration of intellectual capital, exist, and the Russian Diaspora, numbering over 100,000 worldwide, is willing to work with Russia. Within Russia, demand exists for high-tech products and jobs in high-tech industries. Andranik Migranyan began his remarks by noting that the Russian political situation will be stable, predictable and certain, which bodes well for Russia as a place for investment. He stated that Russia must modernize in order to survive and the concept of modernization is shared between both Medvedev and
Responding to a question regarding e-commerce’s impact on the Russian market, Mr. von Eggert noted that e-government will reduce corruption, but not eliminate it. The e-government efforts will help with the day-to-day level of corruption, not institutional corruption. He further explained that the main corruption problem exists at the fusion of business and government, where profits are privatized, but losses are made public. This form of corruption is prevalent
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PANEL: Toward A Modern Russian Energy Economy Moderator:
Piotr Galitzine Chairman TMK IPSCO
Panelists:
Peter Charow Vice President, Russia BP plc Neil Duffin President ExxonMobil Development Company Jonathan Elkind Principal Deputy Assistant Secretary for Policy and International Affairs U.S. Department of Energy Timur Ivanov Director General Russian Energy Agency Jay Pryor Vice President Corporate Business Development Chevron Corporation
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Responding to a question on what the Russian Energy Agency (REA) is doing to address energy waste in Russia, Timur Ivanov acknowledged that Russia uses twice as much energy per unit of GDP as the U.S. and Europe. He was quick to point out that since President Medvedev signed a decree on energy efficiency in 2008, the REA has shifted its focus to increasing work in that field. Mr. Ivanov recognized energy efficiency as one of
the real tools for modernizing the Russian economy. One of the challenges Mr. Ivanov mentioned will be to attract small and medium-sized enterprises (SMEs) from both the U.S. and Russia into the efficiency market. The REA’s goal is to become the interface between government and business, facilitating project development and reducing barriers to investment. He highlighted the creation of the Energy Financial Agency, which will issue energy bonds to help SMEs, as one example of the agency’s efforts to address these challenges. Mr. Ivanov added that the Russian Energy Agency will award $250 million in subsidies to the best regional energy efficiency program as part of a larger action plan. In Russia, Mr. Ivanov explained that renewable energy is not an alternative energy, but it fulfills a supporting role. The REA would like to use renewables where other sources are not feasible. The agency has also begun an initiative to promote electric vehicles. Starting in Moscow, the plan will include the construction of at least 28 charging stations in the city by the end of the year and the replacement of public transportation vehicles. Mr. Ivanov also stated that the REA is charged with supporting the increase of
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Speaking on Russia’s strategic energy reserves, Mr. Elkind gave recognition to the great deal of upstream potential waiting for investment. Although an uneasy standoff existed over the past several years, he was encouraged by the partnership between Rosneft and ExxonMobil, which he believes holds the possibility of new serious relationships between the Russian majors and global leaders.
Mr. Elkind viewed Russia’s power sector as a hindrance to economic growth due to the years of underinvestment. While certain segments, such as transmission, distribution, nuclear, and large-scale hydro, remain under state control, he argued that Russia’s unbundling of the electric power sector represents a significant step toward providing a structure for private investment. In regards to future opportunities, Mr. Elkind drew attention to the energy grids of both the United States and Russia as an area for potential future collaboration and investment. He explained that both countries currently need a great deal of investment in their respective energy grids, which creates the potential for mutual commercial relationships in areas such as high-performance batteries, high-voltage power transformers and high-voltage direct current transmission.
Russia Business Watch
onathan Elkind began his presentation by discussing the challenges Russia faces in the energy sector and what it is doing to address these issues. Speaking on the up-stream sector, he stressed that Russia will need to put in place a physical regime that would provide the right encouragement for Greenfield and development projects. He also mentioned that despite the dynamic development of Russia’s energy sector in the 1990s, whether there have been sustained investments to maintain the level of upstream development is questionable. Mr. Elkind was also quick to acknowledge the positive changes in the investment environment, highlighting the announcement of the 60-66 tax regime in late August of 2011.
Clockwise from top left: Peter Charow, Piotr Galitzine (l. background) with Jonathan Elkind (c.) and Timur Ivanov (r. foreground), Neil Duffin, and Jay Pryor.
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> nuclear power in the overall energy bal-
ance from 16 to 25 percent, describing the current nuclear market in Russia as quite competitive. Answering a question regarding Chevron’s proposed Black Sea project with Rosneft, Jay Pryor noted that, despite backing away from the deal, dialogue has continued between the two companies. He continued by stating that ExxonMobil’s work with Rosneft will benefit other foreign companies wanting to invest in Russia, noting that there may be a lot of problems for first-movers with contract formatting, but the format is not as important as the overall sharing of risk and revenue. He argued that the contracting format and how the two parties actually work together within that framework will drive future success in the industry, stressing that the most important components of a contract are the longevity and whether a company can depend on the terms and conditions. Mr. Pryor noted that, with the large investment requirements for energy projects in Russia, companies will need a great deal of certainty to proceed. He added that coinvesting outside of the country is also beneficial since the activities educate both sides of the partnership and expose both parties to new contracting formats.
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Responding to a question on whether PSAs should be on the agenda again, Mr. Pryor emphasized that the contract structure is not important as long as the interests are addressed in terms of risks, rewards and longevity. Neil Duffin added that PSAs were put in place during a difficult time and that although challenges to the PSA structure and institutional resistance to PSAs existed, the agreements worked well. He argued that PSAs provided fair return to investors — billions of dollars were invested as a direct result of those agreements and investment flowed to the regions.
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Moving forward, Mr. Duffin noted that the future of energy agreements would likely be dominated by boutique deals, but he cautioned that boutique deals were more likely to be challenged because they are created outside of the general legislation. Providing an example, Mr. Duffin explained that creating a unique set of rules in a boutique deal creates issues because auditors are accustomed to auditing under one set of rules. As a means to correct boutiquerelated issues, Mr. Duffin preferred to see a framework that was more general and applied to the regional areas in which companies will operate. He added
that an integrated structure that applies to all companies would facilitate investment. Peter Charow noted that foreign investors assume that Russian policymakers want to maintain the position as the world’s largest oil producer, but this assumption is not necessarily accurate. Referring to comments made by Deputy Prime Minister Shuvalov earlier in the day, Mr. Charow argued that Russia’s oil production target will likely remain a debate throughout the election period in Russia. He first cautioned that the drivers of Russia’s past success and development in the energy sector will not be sufficient for future success. The application of modern enhanced recovery techniques was responsible for the recovery of oil production after the drop-off in the 1990s, and these efforts were spearheaded by a combination of Russian and foreign companies. However, the challenge moving forward is how to transition from aging energy basins to new basins while maintaining the same production levels. In the context of improving existing energy assets, Mr. Charow clarified that the goal was primarily to enhance recovery in order to slow the decline of the asset. Speaking on Greenfield developments, he explained that future opportunity in the Russian energy sector lies within a combination of applying technology to mature fields while scaling up Greenfield projects to offset declining production in mature assets. Mr. Charow added that procuring licenses and access to new fields will be critical moving forward. Answering a question on the future of LNG in Russia, Mr. Duffin described LNG as a global commodity that will follow the market place. He argued that pipeline transportation was more economic, but also believed that LNG could be a means to access markets that cannot be reached through pipelines for Russia. Responding to a question on the potential for the joint development of arctic energy reserves, Mr. Duffin commented that the environmental concerns, along with a number of fundamental considerations such as risk mitigation and what the capability is to intervene if problems arise, were issues that need to be developed more fully. As a result, efforts must go through governments and other bodies to determine what the best approach will be in developing the region.
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Top: Jeff Hanley (l.), Richard A. Herold (r.) Bottom: Mikhail Yurevich (l.) Markwart von Pentz (r.)
PANEL: The Future of Manufacturing in a Globalized Economy Moderator:
Markwart von Pentz President Agriculture and Turf Division Deere & Company
Panelists:
Stephen Biegun Vice President International Government Affairs Ford Motor Company Jeff Hanley Director of Procurement Parts and Assemblies Boeing Commercial Airplanes Richard A. Herold Executive Counsel Global Government Affairs and Policy GE Transportation Alexey Rakhmanov Director Department of Automotive and Agricultural Machinery Industries RF Ministry of Industry and Trade Mikhail Yurevich Governor Chelyabinsk Region
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gion are moving forward. In 2011, the growth rate of the Russian Federation was 4 percent, whereas it was 7.5 percent in Chelyabinsk. Since the federal government cannot follow every investor personally, certain responsibilities fall to the regional authorities. Governor Yurevich assured that the government of the Chelyabinsk region will always have time to talk to investors and advise them on adapting to the Russian market. The region is willing to offer certain tax benefits that foreign companies can take advantage of when investing in Chelyabinsk.
Top: Alexey Rakhmanov (l.) Bottom: Stephen Biegun (r.)
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arkwart von Pentz noted that John Deere is very active in Russia and sees significant potential for the future considering the vast amount of agricultural and forestry acres available across the country. The company plans to investment $500 million over the next several years and is particularly interested in vertically integrated manufacturing as it will help cut costs and improve Deere’s presence in the market. John Deere sees great opportunities for development in the market for construction, agriculture and forestry equipment. The global supply base in Russia is not yet developed, a key issue when talking about local content and vertically—integrated manufacturing and not just assembly operations.
In terms of foreign trade, Chelyabinsk region has a volume of approximately $7.5 billion annually. Governor Yurevich stressed that Russia’s WTO accession is a chance to open more doors to the advanced markets, which are currently difficult to access for Russian companies. He noted that during his trip to the U.S., he met with the heads of major companies in order to encourage direct investment in the Chelyabinsk region. Even though the Russian market is currently dependent on commodities, many of the enterprises and manufacturing facilities in the Chelyabinsk re-
Mr. Rakhmanov stressed that it is imperative to start a dialogue, which should be based on four pillars: clearly communicated strategies for foreign manufacturers about their future in Russia; a proper component industry without which localization efforts will be useless; efficient training of a qualified workforce; and the maintenance and creation of jobs in the industry. Stephen Biegun began by announcing that The Ford Motor Company just opened the doors on a new joint venture in Russia, a $1.4 billion project with Sollers. What attracts companies such as Ford is the current growth and potential for future growth in Russia. The decision to invest is facilitated by good governance and policies, such as the creation of a series of incentives that give companies the choice to operate in a way that is consistent with an overall industrial policy. A government that works closely with the industry in this regard is likely to draw the kind of investment that Ford recently made. The supply chain is an important issue. Over the last decade, it has been
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The government has undertaken efforts to increase the transparency of court decisions and the impartiality of
Governor Yurevich noted that the Russian market now includes Belarus and Kazakhstan with the creation of the Customs Union, and he expressed hope that Uzbekistan will join in the near future. Agriculture is expanding and will continue to do so as long as long-term investments are made and tariffs are adjusted as necessary, with livestock a promising sector. The Southern Urals region has excellent educational potential with research facilities, universities and a number of technoparks.
Russia Business Watch
Governor Mikhail Yurevich began by pointing out that cooperation between the U.S. business community and the Chelyabinsk region already exists, and that notable direct investments have been made in the Southern Urals. He noted that a major concern for foreign investors is corruption and that, even though this is part of the reality of doing business in Russia, it varies greatly over the different regions and the government is doing its utmost to fight it. Certain regions are subject to large-scale corruption, but most of the country’s territory is comprised of lawabiding citizens.
the judiciary. Overall, the government and the regional administrations are doing their best to create a comfortable and competitive environment for investments. Russia has a good resource base, relatively clear conditions for doing business and corruption should therefore not be an impediment to investment.
Alexey Rakhmanov began his remarks by addressing the results of 30 years of underinvestment in the Russian automotive sector. Considering the overall market situation, the Ministry of Industry and Trade offered to form partnerships with the industry, which has allowed a deeper study of the necessary steps to solve key problems such as component manufacturing. Without progress in the localization process and improvement of technologies, the future of Russian manufacturing remains problematic. One of the reasons that component production has been in such a difficult phase is the lack of communication that currently exists between the different companies involved in the industry.
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challenging to achieve the required local content and the market did not reach a sufficient scale early on to attract serious interest from investors. Today, the number of foreign investors as well as the sizable Russian industry will likely drive an explosion of supplier investment consistent with the new government policies. This positive cycle will encourage better costs and the achievement of localization goals.
Russia Business Watch Winter 2011-2012
Mr. Biegun noted that, despite high growth rates in Russia, there are also many risks. As long as benefits exceed costs, though, Ford and other companies will have a high tolerance for risk. The costs include logistics, tax and tariff policy and the local supply case, all of which the Russian government has addressed. The government needs to determine sound manufacturing and trade policies that take into consideration the imperative of integrating Russia into the global markets and the WTO, while assuring a reasonable transition to encourage investment throughout the process. Mr. Biegun emphasized that while this is beneficial for both business and the government, it is nevertheless important to keep in mind that the balance between growth and risk could be rapidly altered by bad policies, political risk or an economic recession. Today the scenario is optimistic.
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Jeff Hanley opened his remarks by pointing out that there are advantages as well as challenges in doing business in Russia. Boeing has been able to capitalize on many opportunities, but still faces difficulties regarding access to low cost energy and raw material sources, finding highly-skilled workers in manufacturing as well as engineering, and low cost labor rates that are competitive. Russia needs to continue working toward eliminating these challenges as other countries are sometimes more aggressive and flexible in creating a positive business environment for global companies Boeing’s success in Russia is based on several factors. First, Russia has always been an important market for the company — current projects are based on investments established in the past. Second, Boeing now utilizes the knowledge and relationships acquired over two decades of presence in Russia to help develop supply chains. This knowledge also allows the company to focus on areas in which Russia has unique and strategic advantages.
Richard Herold highlighted the complexity of the global supply chain, noting that many concerns arise for companies, including conflicting laws in different countries, quality control, compliance issues, technical requirements, and coordination problems, among others. General Electric (GE) has been operating in Russia since the 1920s in the energy sector and is now one of the most dynamic companies in the oil and gas industry, supplying both Russian and foreign customers working in Russia. In September, GE signed a new joint venture with an expected leap in sales of gas-fired power generation turbines. Similarly, GE’s healthcare division also signed a joint venture to sell high-technology medical diagnostics units. To support this new business, GE has significantly increased the number of employees in Russia who work on supply chain both to meet and surpass Russian requirements for localization and to increase Russia’s role in the company’s global supply chain. According to Mr. Herold, the most vital foundation necessary for increased localization is intellectual property protection. It is important to have international standards that are predictably enforced in the courts with equal access for foreign and domestic companies. Russia has already made progress in this area but a lot remains to be done. In addition to more efficient intellectual property protection, it is important that all items manufactured in one country meet the specifications in customer countries. As in many other countries, this can become a problem in Russia when the law requires manufacturers to comply with different standards in different countries.
A: Mr. Biegun pointed out that Ford’s presence in Russia is in the form of a joint venture, 50 percent Russian and 50 percent American. The government is setting up a policy framework but a normal economic relationship does not require government involvement. Nevertheless, the Russian government should not remain indifferent and has an important role to play in encouraging cooperation between the U.S. and Russian business communities. Ford recognizes that the government is going to be a clear stakeholder in the decisions but ultimately their ambition is to work directly in the economy with their Russian partners. A: Mr. Herold remarked that GE increasingly works directly with Russian businesses. However, since many of the partners are state-owned or partially state-owned, it will remain normal to do business with the government. Mr. Rakhmanov commented that the government is simply there to provide assistance when necessary. If a company does not need help, it can work directly with the Russian companies. Q. Would the modernization of industrial production cause an increase in the unemployment rate? A: Mr. Rakhmanov answered that the Russian government is talking about establishing 25 million high-tech and high value-added jobs. The conditions offered to manufacturers gives them a choice about how to handle localization since they are all different — some are more labor intensive while others are interested in highly automated processes, for example. This can help the situation with structural changes to employment. n
Mr. Herold also called attention to the differences between short-term and long-term planning. When GE negotiates with Russian suppliers, they are generally interested in three to five year contracts that include shared risk. Often, Russian suppliers require customers to take all the risk, making it difficult to have a long-term planning perspective. Questions & Answers Session Q. Can American companies work directly with the industry or do they always have to go through the central or regional governments?
SNR Denton’s Managing Partner Russia Doran Doeh listens to the panel presentations.
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PANEL: Russia and the Asia-Pacific Economic Cooperation (APEC) Forum Moderator:
Dorothy Dwoskin Senior Director Global Trade Policy and Strategy Microsoft Corporation
Panelists:
Joshua R. Floum General Counsel VISA, Inc. Leyla Mamedzadeh Vice President for Strategy and New Business Development Summa Group Kurt Tong U.S. Senior Official for Asia-Pacific Economic Cooperation (APEC) U.S. Department of State Clockwise from top left: Dorothy Dwoskin, Kurt Tong (r. foreground) with Leyla Mamedzadeh (c.), Valery Sorokin, Joshua R. Floum.
Ambassador
Kurt Tong focused his presentation on the overall functioning and objectives of APEC, noting that the Asia-Pacific region is of great importance given that it represents 40 percent of the world’s population, approximately 50 percent of global GDP and more than 60 percent of U.S. trade.
Valery Sorokin pointed to consensus, its voluntary nature and the speed of implementation of decisions made on a national level as the main strengths of APEC. Even though the organization’s decisions are not binding, this does not prevent them from influencing the economies of member countries. Russia is a good example of this, since two peer reviews of individual actions plans adopted in order to achieve the Bogor Goals have
Mr. Sorokin noted that Russia’s priorities in its involvement in APEC are trade liberalization and regional economic integration. Closely linked with these issues is cooperation in the field of improving regional transportation and logistics, supply chain connectivity and food security. In terms of economic modernization, Russia suggests sharing views on how to promote innovative growth in the regions. Mr. Sorokin concluded by noting that Russia is in final preparations for it chairmanship of APEC in 2012. The country has developed an outline of APEC events for the year, with the first meeting to take place in December in St. Petersburg. In 2012, there will be around 85 events. Joshua Floum began his presentation by emphasizing Visa’s strong support for APEC. The company is active in the Russian market and sees unlimited opportunities for the future. Russian banks have issued more than 80 million Visa cards and the company sees a trend toward electronic payments, which benefits tourism and drives the scale of goods and services.
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Ambassador Tong pointed to the openness of APEC to the private sector as another one of the organization’s strengths. This interaction takes place in three ways: through the APEC Business Advisory Council (ABAC) that devises policy recommendations; through
APEC is focusing on three themes this year: regional economic integration and expanding trade; green growth; and regulatory cooperation and convergence. Looking further into the future, the organization’s objective is to fulfill the Bogor Goals: achieve free and open trade in the Asia-Pacific region by 2020. Important issues included in this ongoing program are structural reform, trade facilitation, supply chain connectivity, and food security. The Bogor Goals are based on two organizing principles; first, a strategy that calls for growth that is balanced, inclusive, innovative, secure, and sustainable in the environmental sense and secondly, creating a free trade area in the Asia-Pacific that includes all APEC members.
been passed. This attests to the fact that Russia has been moving ahead in terms of modernization, making changes in national legislation that help liberalize and facilitate trade and investment.
Russia Business Watch
While some view the fact that APEC does not negotiate binding trade agreements like the World Trade Organization (WTO) as a weakness, the U.S. feels that it is actually one of APEC’s key strengths as it brings flexibility to the agenda. The process of bringing new topics to the table is simple, making APEC the most important agenda-setting body in the region, perhaps even globally. Ambassador Tong added that the APEC process ensures that efforts are focused, resultsoriented and primarily aimed at trade issues. Despite the non-binding nature of the organization, there is potential for APEC agreements to have strong political backing, a considerable technical base underlying them as well as flexibility in discussions.
contributions from the private sector to their governments; and through direct participation by the private sector in the organization’s 30 technical groups.
Valery Sorokin former Special Envoy to APEC RF Ministry of Foreign Affairs
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In Russia, as well as in Asian markets, the sophistication of the use of electronics is low. Of all the forms of electronic payment used, the vast majority are for cash withdrawals, with only 11 percent representing penetration at the point of sale. Visa is very optimistic about future developments, because Russian legislation regarding the national payment system contains open access and a bias toward open competition. Visa intends to be very active in the framework of APEC to encourage open competition, equal access and competitive neutrality. Mr. Floum noted that recent studies have shown that a country with a number of domestic monopolies trying to have their own payment systems will ultimately be inefficient for domestic economies and banks as well as on a global scale. Electronic payment provides a necessary infrastructure for economic growth and is positive for governments trying to move out of the gray, cash-based economies by simplifying tax collection and efficient bookkeeping. With groups such as APEC and other interregional organizations, Visa embraces the idea of economic cooperation and competitive neutrality, both of which they believe to be essential.
Russia Business Watch Winter 2011-2012
Leyla Mamedzadeh began by giving a description of the APEC Advisory Business Council (ABAC), which consists of top business leaders from all of the 21 economies represented in APEC. The Council generally meets four times a year and discusses top priorities in order to come up with recommendations for APEC.
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For 2012, ABAC has set up six working groups dedicated to finance and economics, regional integration, small and medium enterprises, sustainable development, infrastructure, and advocacy. The priorities of the working groups are aligned with the priorities of the Russian government. Ms. Mamedzadeh noted that ABAC will give priority to transportation and logistics, as improvements in this area are a prerequisite for successful regional integration. Green growth and creation of eco-cities will also be at the forefront of discussions. The formation of Public Private Partnerships will also be a key topic given the recent turmoil in the financial markets. In terms of energy security, she stressed that ABAC’s intent is to devise a set of recommendations on how to ensure access to sustainable energy and create a dialogue with governments on the issue.
Technology and modernization are other themes that have emerged over the past year, with a new initiative being set up to devise practical methods for sharing best practices across the 21 economies. The discussion is focused on how to provide a mechanism that is backed by adequate financial means to encourage the commercial use of innovative green technologies. Ms. Mamedzadeh noted that in other groups, ABAC will continue the work that the U.S. has led this year. Given the current currency situation in financial markets, the Council will particularly focus on providing business advice to government officials on how to deal with the crisis. Regarding small and medium enterprises in Asia and in Russia, work will continue to promote policies that ensure their longevity and access to easy financing so they can succeed in the short and medium-term. Question & Answer Session Q. Competitive neutrality and national payment systems are part of a broader problem regarding anti-competitive market distortions by governments around the world. Will these issues be discussed within APEC, particularly in terms of finding new ways of measuring the impact of these distortions on domestic and global markets? A: Ambassador Tong responded by confirming that this is a topic that APEC is discussing. The organization’s objective is to help economies identify policies that are inefficient, where the cost is too high and where they do not achieve policy objectives. APEC can examine issues from a scientific perspective rather than from a bureaucratic perspective, effectively shedding light on a problem from different angles. A: Mr. Floum added that looking at issues from an economic or scientific perspective often dampens down emotions and forces policymakers to think about the medium and long-term. Thinking about economics and growth in the longterm is hard to do but is to everyone’s advantage. Q. Has the APEC process been successful engaging businesses to promote industry codes of conduct, specifically in the construction industry and the medical technology field? A: Dorothy Dwoskin stressed that businesses are driving these issues, presenting them to APEC and pushing them
through the system. Businesses identify challenges, and APEC can then help them come up with the best solutions to achieve their goals. A: Ambassador Tong added that there is also a broader effort on anti-corruption and transparency and a number of commitments have been made over the years by APEC leaders. APEC is currently engaged in reviewing the performance of the economies against these commitments to make sure they have followed through on their promises. Q. Have industry dialogues had substantial effects on some of the member economies who have reached out to APEC and asked for help putting some of these initiatives into practice? A: Valery Sorokin began the discussion by noting that he is often asked about the relevance and usefulness of APEC, to which he answers that it provides a forum for discussion of any problem of interest to the member economies. In order to take part in the dialogue, business leaders should transmit their proposals to the appropriate governmental agency or ministry who will then forward the initiative to APEC. Another way to start a dialogue within APEC is through the pathfinder initiative. Every problem can be raised and discussed through the mechanisms APEC provides, which is one of the great assets of the organization. A: Ms. Mamedzadeh continued by pointing out that it can sometimes be challenging to push for a specific initiative because the 21 economies represented often have different agendas and opinions. At the same time, whenever an issue is raised within APEC there is almost certainty that the discussion will lead to the best practice and the best way forward. It is a helpful instrument for the top leaders of a country to come up with the best solutions and the most effective implementation in their own environment. Ms. Dwoskin ended the discussion by emphasizing the tremendous opportunities available for private sector involvement. APEC members have the possibility not only to speak with government officials but also with the private sectors of all member economies. The baton that will be passed from the U.S. to Russia covers many important next generation issues including new ways to look at infrastructure, competitive neutrality and the role of the state. n
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PANEL: A Healthy Workforce and Labor Productivity in Russia Moderator:
Ahmet Göksun Regional President, Europe, Russia, India and Turkey Emerging Markets Business Unit Pfizer Inc.
Panelists:
Elena Dmitrieva Director Health and Development Foundation Pamela French Director, Benefits, International Rewards and M&A Integration in Human Resources The Boeing Company Dmitry Morozov Chairman of the Board of Directors BIOCAD Clyde Tuggle Senior Vice President, Chief Public Affairs and Communications Officer The Coca-Cola Company
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n his opening remarks, Ahmet Göksun noted that Pfizer has been working in Russia for more than two decades and currently employs approximately 1,000 people. The government’s strategies of Pharma 2020 and Health Care 2020 have encouraged Pfizer to enter into a series of partnerships with Russian companies in order to work side-by-side to achieve the goal of building a healthy Russia.
The first part of the 2020 Strategy reflects the present state of the Russian pharmaceutical sector. The strategy document, for example, revealed that a number of medicines were no longer covered by patents, and, in terms of consumption, that a majority of the money spent on pharmaceuticals was for ineffective prescriptions. The second part of the document presents detailed descriptions of measures for localization of production sites. The Strategy is aimed to serve as a catalyst for a technological upgrade of the national pharmaceutical industry through technology transfer and fostering research and development of innovative medicines.
The Strategy stipulates the localization of full-circle production of international companies in Russia. Many companies are interested in this opportunity, and there are a number of initiatives designed to encourage them to move forward.
Clyde Tuggle focused his presentation on the experience and objectives of the Coca-Cola Company, which are closely aligned with those of other FMCG companies. Coca-Cola operates 17 plants across Russia and employs roughly 15,000 people. The company expects to double the size of their business by 2020 and plans to put another $3 billion into the market over the next 5-6 years. According to Mr. Tuggle, the algorithm for success in a market like Russia is fairly straightforward and requires the following elements: a growing GDP, a growing middle class, a growing population, and a relatively young population. This means that a healthy and growing workforce is very important. Currently, the demographic situation in Russia leaves much to be desired: the country’s population of 141.5 million declined by approximately 800,000 over the last three years. Furthermore, Russia is projected to lose from 2.5 million up to 6.5 million by 2020. Additionally, over the next 10 years, Russia’s young population will decrease by 8 million. Without a healthy and growing population, there can be no real economic growth. The solution to this problem lies in addressing some of
Winter 2011-2012
As a result of the Strategy, the Federal Law “On Turnover of Medicines” entered into force in September 2010. Mr. Morozov said that this law created a level playing field for foreign and Russian manufacturers. He explained that this was particularly important for Russian manufacturers who were at a disadvantage in the past.
Dmitry Morozov concluded that even though the Pharma 2020 Strategy was launched only very recently, it is already beginning to yield very specific results.
Russia Business Watch
Dmitry Morozov began his presentation by describing the state of the pharmaceutical sector after the collapse of the Soviet Union. At that time, most of the production facilities for the manufacturing of pharmaceuticals were located outside of the Russian Federation, mainly in Poland, Yugoslavia and Hungary. The Russian government could not, therefore, provide its citizens with even the most basic of drugs, and the decision was made to completely open the market to foreigners. This was done without implementing necessary regulations, and now the country is dealing with the consequences. The development of the pharmaceutical industry is currently a priority for Russia. In October 2009, the Pharma 2020 Strategy was adopted by the Ministry of Industry and Trade.
Clockwise from top left: Clyde Tuggle, Ahmet Göksun, Dmitry Morozov, Pamela French, and Elena Dmitrieva.
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the major health concerns that are taxing the future growth of Russia. These solutions cannot come from the government alone. Only the partnerships between the private sector, the government, and civil society can address these problems in an efficient way. Coca-Cola takes this issue very seriously and addresses it at various levels. First of all, the company promotes a healthy and active lifestyle among its employees and provides them with the best possible health coverage and care on the market. Coca-Cola also promotes awareness of issues such as alcohol consumption and smoking, as well as encouraging people to engage in sports and other activities. The Coca-Cola Company plans to take advantage of the opportunities provided by their sponsorship of sports competitions such as the Olympics and FIFA to promote a healthy lifestyle. A collective and cooperative approach between the government, civil society and business will also be necessary to the efforts to improve the educational system.
Russia Business Watch Winter 2011-2012
In her remarks, Elena Dmitrieva posed the question of how business can contribute to social stability and how this can be done in the most effective manner. Currently, one of the most important issues in Russia is the demographic crisis. There are ongoing discussions on how to improve maternal and child health and how to promote a healthy and active lifestyle, especially among the youth.
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One example of how the different actors can work together to improve maternal and child health (MCH) is a new partnership to create “text4baby Russia,” a free mobile health information service promoting maternal and child health through text messages. The “text4baby Russia” service is scheduled to start sending messages to moms later this year. This program is an example of how nongovernmental organizations, businesses and leading federal institutes can work together to address the MCH agenda. “Text4baby Russia” is a joint effort of the Russian nonprofit Health and Development Foundation, Voxiva (an American company specializing in mobile health information technology), the Kulakov Center for Obstetrics, Gynecology and Perinatology of the Russian Ministry of Health and Social Development and Johnson & Johnson (the founding sponsor). In order to attract and appeal to young
people, programs need to be innovative. Ongoing programs are using modern means of communication such as text messages to communicate with the target groups. Also, involvement of different players in these initiatives, including federal and regional governments, businesses and NGOs, guarantees higher success rates. Pamela French opened her presentation by noting that the health and well-being of employees is a core value at Boeing. Additional emphasis has been placed on this area over the last few years with the introduction of new programs on the global level. Boeing currently employs approximately 1,500 people in Moscow, primarily engineers working in the company’s design center. Working in Russia comes with health issues that are peculiar to the country, including chronic disease, smoking, diabetes, and a sedentary lifestyle among others. Boeing tries to customize its programs to meet each country’s specific needs and has identified three key areas that are affected by employee well being. The first is quality of life, and Boeing is dedicated to offering preventive care, as early identification of health problems leads to more successful treatment. Secondly, the company conducts a biannual survey to ask employees how engaged they are by their work and how they feel about the management. Boeing has found that there is a high correlation between well-being program participation and high employee engagement scores. The third key area is employee productivity. If employees are in good health, they are able to operate more effectively, both at work and at home. There are a number of well-being programs in place in Moscow that promote a healthy and active lifestyle. These include programs dedicated to employee assistance, tobacco cessation and flu immunization, as well as others that focus on stress and physical activity. Boeing also provides its employees with tools such as informational websites, online health assessments, training classes on nutrition, and supplemental health coverage. These numerous initiatives have already shown results with a 12 percent reduction of tobacco use over the last 3 years, for example. Ahmet Göksun summarized the panel discussion by stating that improving health outcomes is an ongoing process that will probably have a bearing on the kind of growth the Russian economy will see over the years to come. Health 2020
and Pharma 2020 are very timely strategies to influence these outcomes and achieve the objectives set. Question &Answer Session Q. To what extent do U.S.-based companies have health programs and to what extent are they investing in the future from a health perspective? How can the USRBC promote additional health programs as they are needed? A: In response to this question, Clyde Tuggle pointed out the importance of policy. An organization such as the USRBC needs to be actively engaged in a policy discussion with the Russian government to further promote a healthy and active lifestyle. It took decades in the U.S. to reach the point where effective policies were put forward, and there is still much left to be done in both countries. The government plays an important role in guiding society in the right direction. A: Ahmet Göksun commented that Pfizer uses an approach they call “More Than.” The objective is to go beyond manufacturing medicine and act as a positive force in the development of the pharmaceutical industry by extensively partnering with Russian companies. Pfizer is also dedicated to increasing levels of research aimed at contributing to the development of infrastructure for R&D as well as engaging in educational activities. A: Elena Dmitrieva added that in order for programs to be successful, a lot of research is necessary on the motivation and expectations of the target groups. For example, research in Russia on the attitudes of the youth has shown that they associate the phrase “healthy lifestyle” with illness. It was therefore necessary to come up with a new concept in order to motivate them to participate in the programs in the most effective way possible, often using education and entertainment. A: Dmitry Morozov responded with a Russian saying: it is better to be rich and healthy than poor and sick. According to him, there are two main concerns in Russia: the low birth rate, which requires a certain amount of social stability to be incentivized, and low life-expectancy due to diseases that are otherwise very treatable. As the owner of a huge segment of the healthcare delivery system, the state is not always an effective manager and often causes shortages of vital medications. Working with its partner Pfizer,
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company, BIOCAD, ensures access to modern and high quality, but inexpensive, drugs. Advocating for a healthy and active lifestyle is also very important, but the availability and accessibility of drugs is one of the fundamental issues in health care.
In the final comments of the panel, Pamela French noted that with each successive generation, there is an opportunity for change and this is why education is very important. The government and a large number of employers have been testing new and different ways
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to improve health care and well being. Some have been successful, whereas others have not. It is, therefore, important to establish a stronger forum to share what initiatives work best to help accelerate the improvement of health statistics. n
PANEL: Restructuring Russia’s Economy Moderator:
Nataly Nikolaeva Managing Director Government Affairs Citibank Russia
Panelists:
Dmitry Akhanov President RUSNANO USA, Inc. Oleg Fomichev Deputy Minister RF Ministry of Economic Development Alexey Navalny Attorney Moscow Bar Association
Clockwise from top left: Dmitry Akhanov, Oleg Fomichev (l.) with Alexey Navalny (r.), Nataly Nikolaeva (l.) with Dmitry Akhanov (r.), Andrei Sharonov.
Deputy Minister Oleg Fomichev began
his remarks by referring to a presentation he gave at a USRBC event a few years ago, in which he presented Russia’s economic goals, and explained that the financial crisis had a significant impact on Russia’s ability to meet those goals.
Mr. Fomichev identified the pension system as one of the Russian government’s main issues, which will be a significant burden on the budget in the next five to six years. He also stressed that Russia’s economic policy must target the “active and creative” class. He described this class as well-educated people who demand a positive institutional environment and not just a higher income.
Speaking about the lack of U.S. investment interest in Russia, Mr. Akhanov attributed the low interest to the poor knowledge of the Russian market, rather than to bad perceptions. He believed localization was an essential means to improve market awareness, stating that localization provides a sense of comfort for the entrepreneurial community. A sense of comfort exists when people who know how to do business in Russia
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Dmitry Akhanov began his remarks by stating that the discussion about the Russian economy is more focused on transformation and modernization, rather than restructuring. He explained that with Russia’s mature economy, the discussion is about a different set of efforts that do not revolve around restructuring. Mr. Akhanov highlighted Rusnano’s role
in bringing international players into the Russian market as part of these efforts. With commitments to over 128 projects valued at over $7 billion, Rusnano focuses on recruiting international companies to localize operations in Russia. Mr. Akhanov pointed out that this process also helps the Russian government to determine what to focus on and what steps to take in order to foster a positive investment climate. He conceded that modernizing the Russian economy cannot be viewed as a quick fix, recognizing that people will need to adjust to new processes and a new mindset.
Russia Business Watch
Mr. Fomichev continued by presenting the Russian government’s vision of the main issues in the socio-economic development and restructuring of the Russian economy. Balanced budgets and low inflation are the main objectives of Russia’s financial policy. Another area of the Russian government’s attention is the need to increase investment in the development of human capital, including education, healthcare and social programs. The improvement of the institutional environment in terms of lower administrative barriers, creation of competitive jurisdictions, judicial reform, law enforcement reform, competition policy, anti-corruption measures, and corporate laws is also considered as imperative. In terms of economic priorities, Mr.
Fomichev stated that the top three were the development of human capital, infrastructure (especially roads and large cities’ infrastructure), and innovation. He added that budget policy must be adjusted to focus on these priorities.
Andrei Sharonov Deputy Mayor for Economic Issues City of Moscow
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are accessible to others who want to gain knowledge about the market. As a result, Mr. Akhanov concluded that bringing foreign business into Russia in any form is a positive step for the country. Alexey Navalny began his remarks by stating that, in August, President Medvedev outlined the government’s new privatization plan. Referring to an S&P report, which concluded that more than 53 percent of the market capitalization in Russia was under state control, Mr. Navalny believed a new plan was necessary. However, he asked whether privatization would actually reduce the state’s influence in Russian companies, adding that privatization is commonly referred to as a magic pill, however it is not necessarily effective in solving every problem. For example, the least transparent oil company in Russia is entirely private, but there is no knowledge regarding who owns the company, its schemes of trading or any operational information. The privatization of Bank of Moscow is another example — the details of the purchase price were not revealed.
Russia Business Watch Winter 2011-2012
Mr. Navalny argued that despite privatization, issues with transparency and corporate governance still exist, adding that privatization will not work without the vigilance and direct involvement of the investor and shareholder. He believed existing tools could effectively reduce state interference without the need for developing new systems.
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As an example, Mr. Navalny highlighted President Medvedev’s order to remove state officials from company boards. In reality, these state officials were only replaced by former officials or relatives of the removed official, which produced no real change. Institutional investors have complained about the lack of board quality, but have done little to affect change. Mr. Navalny explained that with as little as two-percent ownership in a company, a shareholder can nominate a board member. Over the past several years, institutional investors that meet this requirement have not nominated any board members. While, using this tool, they could affect change without the need of privatization. Mr. Navalny stated that corruption and ignoring minority shareholder rights is routine in Russia. However, shareholders with over one-percent ownership have the opportunity to sue management for damage to a company caused by corruption. Citing a case with Gazprom as an example, Mr. Navalny described a scan-
dal regarding the sale of shares in Novatek at a significant discount. In this case, he believed that if shareholders had threatened a lawsuit over the discounted sale of shares, the deal would have been cancelled, but they did not. Mr. Navalny mentioned fear as a means to explain institutional investors’ inaction. Highlighting the effectiveness of the U.S. judicial system, he argued that seeking redress through litigation is more effective than privatization in terms of affecting corporate governance and transparency. Nataly Nikolaeva discussed the necessity of corporate governance in the creation of a corporate financial center, believing it to be an essential component. Speaking on the creation of an international financial center in Russia, Ms. Nikolaeva noted the slight improvement of Moscow’s ranking in the the Global Financial Centres Index (September 2011), advancing from 68th to 61st. Despite the improvement, additional measures will need to be taken to continue this success. The existence of a large number of registrars and the absence of a central depository in Russia is one of the issues that needs to be resolved, and it is related to corporate governance. While noting that potential existed for Russia to become an international financial center, Ms. Nikolaeva listed several steps necessary for success that included creating a central depository, developing human capital for the financial market, marrying domestic financial certifications processes with international standards, developing a financial education system, attracting more issuers to the market in terms of number and diversity, and increasing competition in the banking sector. Andrei Sharonov began his remarks in agreement with Alexey Navalny that privatization does not solve every problem, but can solve some of them. He explained that the municipal sale of noncore assets reduces the opportunities for corruption. Mr. Sharonov identified three core challenges to developing Moscow as an international financial center: business climate, special financial infrastructure and physical infrastructure.
tional investors to develop a system that communicates that corrupt acts will be prosecuted. Responding to a question on why the Russian government has not included the financial sector in policy literature, Mr. Fomichev emphasized the importance of the working group on international finance in drafting economic priorities and policy. Ms. Nikolaeva added that many of the proposals from the working group will be incorporated into the final document for Strategy 2020. In response to a question on the success of enforcement in dispute settlements in the judicial system Mr. Navalny said that the Russian judicial system is not irredeemable, explaining that there are tools within the system to seek redress. He noted that he observed legitimate legal decisions in cases that did not have an obvious political motivation. He attributed the issues more to the lack of frequency in cases brought to the courts rather than the structure of the judicial system. Answering a question on whether Rusnano had any experience with project failure, Mr. Akhanov noted that there were no current investments in Rusnano’s portfolio that were on a path towards bankruptcy, but he was confident that the Ministry of Economic Development’s work to improve bankruptcy protection would yield a positive result. Responding to a question regarding the lack of discussion on privatization of energy networks as a means to attract capital investment, Mr. Akhanov stated that implementing proper tariff regulation that is proven to work in the long run is necessary before a government can privatize an asset. He explained that this is an essential step before determining the value of the asset for sale. n
Question &Answer Session Answering a question regarding the success of litigation through investor proxy, Mr. Navalny stressed the need for investors to become more proactive as a means to fight corruption. He indicated that the responsibility lies with institu-
Nataly Nikolaeva (r.) talks to her colleague Rick Johnston, Senior Vice President, International Government Affairs, Citi
Annual Meeting
PANEL: Improving Energy Efficiency in the Russian Economy Moderator:
Richard Herold Executive Counsel Global Government Affairs and Policy GE Transportation
Panelists:
Jonathan Elkind Principal Deputy Assistant Secretary for Policy and International Affairs U.S. Department of Energy Jonathan Hale Deputy Assistant Administrator Bureau for Europe and Eurasia U.S. Agency for International Development Timur Ivanov Director General Russian Energy Agency
Richard Herold opened the panel dis-
cussion by describing energy efficiency as an area with the most immediate growth potential in the Russian energy sector.
In regards to the Russian government’s program for energy efficiency, Mr. Ivanov mentioned several tools that the government uses. A primary tool is a subsidy program that provides funds to the best regional programs for increasing energy efficiency. Government funds are available to provide subsidies for up to 55 of 83 regions in 2011 alone. Another tool is the statesovereign guarantee, which can be offered to domestic and foreign companies for the implementation of energy efficiency projects in Russia. Access to market information was another area of importance. Mr. Ivanov stated that the Russian Energy Agency is developing an information system that will provide data to investors down to the regional level and will include action plans for each region. A few secondary tools mentioned included overseas training and R&D activities. Stressing the significance of foreign investment, Mr. Ivanov revealed that
federal and regional budgets will only 8-percent of the energy efficiency plan, while 92 percent of its costs are expected to be covered by private investment. Recognizing the challenges with attracting investment, he highlighted the Energy Credit Agency’s offering of energy bonds as a major initiative that should create financing incentives for investment. In conjunction with large Russian financial institutions, the Energy Credit Agency initiative may eventually create financing for up to 10 years. Additionally, the World Bank recently launched a program that will provide a $1 billion credit line through an authorized Russian bank with the Russian government’s certification. It is expected that the first tranche will be allocated by 2012. The Energy Working Group of the U.S.-Russia Bilateral Presidential Commission defined energy efficiency as a priority area. The Russian Ministry of Energy and U.S. Department of Energy also signed a memorandum of understanding that Mr. Ivanov believed will provide a framework moving forward. Speaking about collaboration between Russia and the U.S. on energy efficiency, Mr. Ivanov listed current areas of cooperation, including smart grid development, energy efficiency in public buildings, financing of energy
Winter 2011-2012
Speaking on the Russian Energy Agenda, Mr. Ivanov restated that increasing
energy efficiency is a top priority for modernization of the Russian economy. Therefore, the Russian Energy Agency’s main objectives are to become an informational and analytical support mechanism for the development of state policy, support the implementation of federal law, and manage the state program of energy efficiency.
Russia Business Watch
Timur Ivanov began his remarks by highlighting the general optimism for Russia’s economic growth, which will likely exceed an annual rate of over four-percent each year in the near future. He believes that favorable macroeconomic conditions are the most prominent factors in attracting foreign investment to Russia. Investment will have an increasingly significant role in the Russian economy and Russia’s modernization efforts. In 2000, fixed capital investment was 17 percent of GDP in Russia, increasing to 22 percent of GDP by 2010. Referencing IMF projections, Mr. Ivanov stated that fixed capital investment will exceed 25 percent by 2015. Emphasizing the importance of energy to the Russian economy, he reiterated that energy comprises half of the Russian government’s budget revenues and two-thirds of Russian exports. Russia has progressed in terms of energy efficiency from a highly inefficient state-managed economy; however, a great deal of potential still exists for energy efficiency.
Clockwise from top left: Richard Herold, Jonathan Elkind, Timur Ivanov, and Jonathan Hale
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Annual Meeting
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efficiency projects and medium and long-term forecasting of world energy balances. Among the areas of potential cooperation are bio-energy and renewable energy sources, complex infrastructure projects in the oil and gas industry, development of energy storage technologies, clean energy technology, and comparative analysis of legislation in energy efficiency, resulting in the development of joint recommendations.
Russia Business Watch Winter 2011-2012
Jonathan Elkind began his remarks by commending the Russian government’s sincerity in regards to finding solutions to energy efficiency issues in Russia. Mr. Elkind spoke about tools the U.S. incorporates in its energy efficiency planning. For example, the Federal Energy Management Program with its 550 implemented projects and 2 trillion BTUs saved, can be considered a success as a cost-saving measure. This program could be used as a model that Russia might selectively apply as needed. Recognizing that Russia’s plan to cut the energy intensity of the country’s economy by no less than 40 percent by 2020 is a very ambitious goal, Mr. Elkind described Honeywell’s memorandum of understanding with St. Petersburg as a significant step forward that will open the door for follow-on projects for other companies. With access to a highquality pool of engineering talent, Mr. Elkind believed that Russia is capable of making rapid progress toward the 2020 goal.
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Jonathan Hale began his remarks by stating that USAID’s focus was the development of industry-to-industry partnerships working through the U.S. Energy Association. He described the partnerships as a series of exchange visits that were centered on sharing best practices, including such areas of collaboration as smart meter deployment, project management, tele-information technologies selection and deployment, distribution network efficiency, utility operational efficiencies resulting from smart grid deployment, enhanced customer service, and transmission efficiency. In addition, Mr. Hale stated that USAID is supporting city-to-city partnerships with the intent of sharing best practices in automated metering, fiber optic communication networks, energy efficient street lighting, and distribution automation. Along with partnership development, Mr. Hale presented USAID’s collaborative efforts with the U.S. Energy Association and the Russian Energy Ministry on a study of the barriers to smart grids, which will be
incorporated into future national smart grid planning. The study will examine the benefits of smart grid technology deployment and the regulatory, market, commercial, customer-oriented factors that may influence the realization of benefits to both the U.S. and Russia. The study would be prepared by a U.S.-Russia team composed of two individuals, one from each country. He noted that selection for the team is nearly complete and the study is expected to begin later in 2011. Question & Answer Session Responding to a question regarding Russia’s status in areas of energy consumption measurement and marketbased energy pricing, Mr. Ivanov noted that adjustments to the tax code now allow retention of energy cost savings that are the result of energy efficiency investments for a period of three years. In regards to energy consumption measurement, Mr. Ivanov responded that a metering campaign is in progress to address energy loss in both the private and public sectors. He provided the current progress of the campaign, stating that electricity was 99 percent equipped, but improvement was needed for gas and heat metering. Cato Ealy of International Paper referenced International Paper’s investment in a pulp mill in Siberia. The investment will focus on rebuilding the mill to achieve greater energy efficiency. However, he noted a significant challenge as the energy use of the town is intertwined with the energy use in the industrial complex, which adds to the complexity of planning for energy efficiency. He recommended developing a programmatic way to rethink the relationship between cities and the industrial complex.
In response to a question on whether large energy companies are taking energy efficiency and natural gas flaring in Russia seriously, Mr. Elkind mentioned joint work between U.S. and Russian research centers as a method to provide feasible and economic solutions to companies in order to change attitudes. He explained that the research will look at on-site utilization, technologies for re-injection and other ways of avoiding the venting or flaring of natural gas. n
The Annual Meeting also Featured:
Olga Miller, CEO of Renova Group USA, provides opening comments.
In response, Mr. Ivanov acknowledged local power generation and distribution as a more feasible method than the existing large-scale system, and added that Russia is developing a strategy for small-scale power generation and distribution to address the variety of energy needs. Answering a question regarding whether incentives exists at the regional level for increasing energy efficiency, Mr. Ivanov acknowledged that monetary incentives did not exist at that level, but that the government is providing the tools for changing the approach to energy efficiency.
Sarah Sweedler, Executive Director of the Fort Ross Interpretive Association, discusses efforts to preserve the Fort Ross historic site in California.
new members
new USRBC members AGCO • www.agcocorp.com AGCO, a worldwide leader in the design, manufacture and supply of farm machinery, offers a full product line of tractors, combines, hay tools, sprayers, forage equipment, tillage implements and related replacement parts. A Fortune 500 company with net sales of $6.9 billion, AGCO, products are sold under the core brands of Challenger®, Fendt®, Massey Ferguson®, and Valtra® and are distributed globally through 2,600 independent dealers and distributors in more than 140 countries. Focused solely on agriculture, the company is uniquely positioned to provide high-tech solutions for professional farmers feeding the world. AGCO is headquartered in Duluth, Georgia, USA.
BayRu LLC • www.bay.ru The online store www.bay.ru is one of the fastest growing global shopping site in Russia/CIS. Through operations in Chicago, Moscow and St. Petersburg, the company sells goods from the USA to Russian consumers. BayRu LLC was the first cross-border e-commerce business in Russia and today offers consumers the broadest selection of in-stock products, American-style customer experiences and the most consistent home delivery. Integrated product catalogues from retail affiliate partners eBay and Amazon have helped build a large market share across many categories, including auto parts, electronics and fashion. BayRu has shipped nearly 60,000 items to 160 cities in Russia/CIS.
Lindsay Corporation • www.lindsay.com Lindsay is one of the world’s largest exporters and marketers of center pivot and lateral move irrigation systems. Through building a global distribution network and regional manufacturing, Lindsay has sold more than 100,000 center pivots that irrigate over six million hectares worldwide. Lindsay Corporation has manufactured and distributed agricultural irrigation equipment for over 50 years, with annual revenues of $358 million in 2010. Lindsay is committed to using its technology in ways that can help produce more and better crops while encouraging responsible stewardship of the world’s natural resources.
MeadWestvaco • www.mwv.com
Praxair is the largest industrial gases company in North and South America, and one of the largest worldwide with 2010 sales of $10 billion. The company produces, sells and distributes atmospheric and process gases and high-performance surface coatings. Praxair products, services and technologies bring productivity and environmental benefits to a wide variety of industries, including aerospace, chemicals, food and beverage, electronics, energy, healthcare, manufacturing, metals, and others. >>
Winter 2011-2012
Praxair Inc. • www.praxair.com
Russia Business Watch
MeadWestvaco Corporation provides packaging solutions to many of the world’s most-admired brands in the healthcare, beauty and personal care, food, beverage, home and garden, and tobacco industries. The company's businesses also include Consumer & Office Products, Specialty Chemicals and the Community Development and Land Management Group, which sustainably manages the company’s land holdings to support its operations and to provide for conservation, recreation and development opportunities. With 17,500 employees worldwide, MWV serves customers in more than 100 nations and has operations in 30 countries, including a state-of-the-art packaging facility in Domodedovo just outside of Moscow. The company has annual sales in Russia of approximately $50 million.
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new members
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Rexam • www.rexam.com Rexam is a leading global consumer packaging company and one of the leading global beverage can makers. It is a major global player in rigid plastic packaging and is a business partner to some of the world’s most famous and successful consumer brands. Rexam’s vision is to be the best global consumer packaging company. Sales from continuing operations in 2010 were about $7.3 billion. The company has close to 100 plants in more than 20 countries and employs around 19,000 people. Rexam is a member of the FTSE 100.
Russian Pointe, Inc. • www.russianpointe.com Russian Pointe, Inc., founded by Aleksandra Efimova, provides an international collection of dancewear and accessories, including the finest pointe shoes manufactured and imported from Russia. Since opening in 1998, Russian Pointe has grown exponentially and now distributes to hundreds of dancewear stores across the United States and Canada. In 2006, the flagship store in Chicago's Magnificent Mile opened to gain greater access to national trade and retail outlets. The Russian Pointe Dance Boutique is also a venue to host trade, cultural and political events to promote Russian-American relations. Inspired by the world-renowned Russian education system, Growing Through Arts was established in 2010 by Ms. Efimova as a collection of educational books and toys distributed worldwide. Ms. Efimova is a Harvard alumna, business owner, writer and philanthropist.
Samuel Curtis Johnson/Cornell University • www.johnson.cornell.edu The Emerging Markets Institute provides world-class education and conducts cutting edge research in emerging markets. As part of the Samuel Curtis Johnson Graduate School of Management at Cornell University, the institute is bringing together preeminent practitioners and academics from around the world to create the most highly regarded academic program for the study of emerging markets — with the breadth, depth and quality of education needed to effectively prepare business leaders for success.
Summa Group • www.summagroup.ru
Russia Business Watch
Winter 2011-2012
Summa Group is a diversified private investment holding, working in the fields of ports and logistics, engineering and construction, oil and gas, power utilities, metals and mining, and transportation. Summa Group’s portfolio companies employ more than 10,000 people in almost 40 regions of Russia and abroad. Summa Group is a strategic investor that plays an active role in the operational management of its companies, focusing on long-term operational value-add through a wide variety of initiatives including enhancement of corporate governance and management practices, talent management, financial discipline and socially responsible behavior in the regions where its companies operate. Mr. Ziyavudin Magomedov is the founder and shareholder of the Group.
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Sweet Analysis Services Inc. • www.sasi-corp.com Sweet Analysis Services, Inc (SASI) is a veteran-owned small business with corporate headquarters in Alexandria, VA and regional offices in Kiev, Ukraine and Bucharest, Romania. Primary services include business process reengineering, cooperative threat reduction, foreign materiel acquisition and foreign military sales, international logistics, international program support, security solutions, and test and evaluation. SASI’s talented team of former military and Department of Defense personnel, engineers, logisticians, and management experts focuses on enabling customers to accomplish their mission within the environment of increasing requirements and constrained resources. Many of SASI's recent contracts have required industry and government surveys, multiple site visits and thorough analyses that integrate performance metrics with program requirements. n
Special Room Rates for USRBC Members at Marriott Hotels in Moscow Marriott is pleased to provide members of the U.S.-Russia Business Council with favourable room rates at Marriott Moscow Royal Aurora, Marriott Moscow Grand and Marriott Moscow Tverskaya hotels. With questions regarding this special room rates offer for members of the U.S.-Russia Business Council, please contact Marriott Moscow Cluster Reservations Department at reservation@marriott-moscow.ru or via phone +7 495 937 00 55.
MARRIOTT MOSCOW ROYAL AURORA 11 Petrovka str. Moscow, 107031, Russia Tel.: +7 (495) 937 1000 Fax: +7 (495) 937 1001
MARRIOTT MOSCOW GRAND HOTEL 26/1 Tverskaya str. Moscow, 125009, Russia Tel.: +7 (495) 937 0000 Fax: +7 (495) 937 0001
MARRIOTT MOSCOW TVERSKAYA HOTEL 34 1-st Tverskaya-Yamskaya str. Moscow, 125047, Russia Tel.: +7 (495) 258 3000 Fax: +7 (495) 258 3099
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