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Access for all: the wheelchair revolution in tourism

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Double agent Kim Philby’s escape to the USSR revealed

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Saturday, March 31, 2012

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Government reform Outgoing president leads a new assault on the old problem of corruption

Targeting those on the take Dmitry Medvedev is drawing up a new policy roadmap in the continuing fight against corruption within the state bureaucracy. masha charnay

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Less than two months before coming to the end of his term of office, President Dmitry Medvedev last week met with a team of experts to discuss Russia’s Open Government initiative, which is aimed at stemming corruption. Among the steps Mr Medvedev took after assuming office in 2008 were founding the Anti-Corruption Council and instituting a law requiring government officials and their family members to disclose their holdings. More recently, his crusade featured a law that oversees government officials’ purchases, requiring that anything with a cost of more than triple the family income be subject to scrutiny. Preliminary results show the changes have yielded some improvement – Russia went up seven places in the Transparency International rankings, from 154 in 2010 to 143 in 2011. However, Russia still scores below Sierra Leone and Niger, where GDP per capita is a staggering $800 (£500) – 20 times less than Russia’s. The president said the anti-corruption strategy would rest on new cornerstones. The first – outlined by Sergei Guriev, rector of the New Economic School in Moscow– included deregulation and privatisation. “Government interference in the economy through state ownership and excessive regulation is the main way a corrupt official increases his control over society and business,” Mr Guriev argued. He

Meeting of minds: President Medvedev is taking advice on his roadmap to drive out corruption

said corruption was the greatest challenge for business, because it has caused such massive capital flight (about $84.2bn in 2011). “The big issue with corruption is how it affects SMEs,”says Ben Aris, editorin-chief of Business New Europe. He argues that while the privatisation process wo u l d b e f a i r ly e a s y, authorities should throw their weight behind reducing ubiquitous bureaucracy, where the bulk of corruption really dwells. “If you are a small business [in Russia] with no money or connections, the bureaucrats come after you like a pack of

sharks,” Aris adds. Mr Guriev proposed that the government provide a roadmap for privatising selected companies by December 1. Already, Mr Medvedev is reported to have asked some companies to downsize their government-held stakes, including Sberbank – 57.6pc of which is currently owned by the government. Fighting high-level corruption is the second pillar of the strategy. Sergei Aleksashenko, director of macroeconomic research at the Higher School of Economics, proposed the establishment of an independent body that would monitor corruption

among the“highest echelons of authority”. Mr Medvedev, though, preferred the idea of an agency that would operate under the aegis of the Prosecutor General’s office. He claimed that Russians couldn’t be paid to blow the whistle because decades of informing on each other during the Soviet era had made them averse to it. Enhancing transparency in state procurement and improving corporate governance in state-owned companies was proposed as the third cornerstone of the strategy. Mr Medvedev suggested that, as part of his existing task of overhauling the

Foreign policy What’s next for the president elect?

Activism Demonstrations will have lasting influence on Putin

Protests had an impact

Putin looks to reprise his familiar role on world stage

Rallies are losing their appeal because protesters feel they are unable to change the political situation. But this doesn’t mean the authorities can be complacent.

Upholding the rule of international law and defending Russia’s interests are as crucial to Vladimir Putin’s foreign policy today as they were 12 years ago.

Viktor Dyatlikovich special to russia now

Yevgeny Shestakov

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“Dry food for an animal shelter urgently needed,”read an announcement on the Russian social network siteVKontakte. This wasn’t an appeal by an animal welfare organisation: it came from the 170,000-strong“Against Putin and United Russia Party” group. In recent weeks, calls to take to the streets have been interspersed with calls to give blood or raise money for surgery. The civic activism that fuelled the protests is taking other forms, while rallies are staged by a few activists from political parties. “After Bolotnaya Square, I attended other actions and, each time, my combative mood diminished,”says Sofia

Material difference: white ribbons were a symbol of protest

Shaidullina, a young protester. “As the elections drew closer, the word ‘futile’ was bandied about more and more in conversations with my friends.” The opposition protests on March 17 and 18 in Moscow were smaller than those before the presidential election. Against this background, the

planned “march of the millions” scheduled for May 6 may be a little overambitious. At best, it will be a “march of tens of thousands” and draw the line under the period of protest in Moscow. “People have realised that white balloons and ribbons continued on PAGE 2

management of state-run companies, government officials should be removed from the board of directors. Increasing scrutiny of state procurement and creating a website to monitor state contracts were two approaches approved by Mr Medvedev. But experts say that the legislation and tools put in place to monitor state contracts still have loopholes, which result in kickbacks worth 2pc of the GDP. The sheer scale of Russia’s government apparatus makes implementing these reforms much harder than in other countries. “You can’t possibly compare the scale of what

Russia has to do with what, say, Georgia or Norway have done,” says Aris. The chairman of the Anticorruption Council, Anatoly Golubev, insisted that all of the suggested measures would only serve to exacerbate the problem because “the stakes of accepting a bribe grow... as does the price of the bribe and the network of accomplices.”Last July, the average bribe paid to a government official was said to be up to 293,000 roubles (£6,300). Mr Golubev suggested that the authorities should facilitate public control through independent institutions and media. However, he said that, in the absence of public officials’ accountability, it too would be ill-fated, as penalties for corruption rarely entail anything beyond fines and administrative liability, with most jail terms being suspended. Experts at the Open Government initiative meeting did have faith in the idea of public-government partnerships. They proposed raising awareness and shifting public opinion. Household corruption pervades all of the public services sectors in Russia, a survey conducted by the Fund for Public Opinion showed. Corruption in the education sector – selected by the panellists as one of the target areas – accounts for $5.5bn (£3.5bn) a year. “The algorithm for tackling the problem is skewed,” said Mr Golubev, referring to the efforts to implement new policies without first ensuring that public officials are held accountable. “I don’t know why, but we tend to start making dinner by turning on the stove instead of going grocery shopping first,” he added.

Whatever the opponents of Vladimir Putin say about him, he is definitely a pragmatic and predictable leader. Unlike his rivals who sit on the side of revolutionary romanticism, Mr Putin knew exactly where he would lead his country in the world. “Even before the elections, he drew the red lines in foreign policy that Russia would never cross,”says Alexander Rahr, director of the Berthold Beitz Centre at the German Council on Foreign Relations. “The president’s proposed foreign policy strategy for Russia in the third millennium consists of de-

fending our national interests, rather than pandering to the interests of other countries,”explains Mikhail Margelov, chairman of the Federation Council’s Committee on Foreign Affairs. The Foreign Policy Concept of the Russian Federation, adopted 12 years ago during Mr Putin’s first presidential term, identified four main national priorities. First was strengthening international security based on the creation of a pan-European security and co-operation system. Second was forming a new world order in which the partnership between the world’s major powers is based exclusively on equality and mutual respect. Third, the Russian Foreign Ministry was tasked with creating favourable conditions for Russia in terms of international economic relations. Fourth, Russia would seek respect for

human rights at the international level. None of these items has lost any relevance today. Since Mr Putin’s first inauguration, Russia has learnt to assess western initiatives soberly and impartially – and to say“no”to those that contradict its strategic interests. Not a trace of hope remains from Mr Putin’s first presidential term for a joint security framework in the North Atlantic space and faith in the effectiveness of the Russia-EU Permanent Partnership Council has now vanished. During his second term in 2006, addressing Russian ambassadors at a meeting at the Foreign Ministry, Mr Putin warned his western partners: “Russia will not participate in any holy alliances. It will not participate in an ultimatum which would drive the continued on PAGE 3

News in Brief

Political minnows get party started The State Duma has passed a bill that makes it easier for political groups to register as official parties. The groups will now need to collect only 500 signatures in their support in order to become a registered political party instead of 50,000 signatures, as is currently the case. Critics of the bill had hoped for an amendment that would allow small political parties to form blocks so that they would have sufficient numbers to stand in the elections. Currently, political parties need 5pc of the vote to participate in the elections. However, deputy speaker and United Russia faction head Andrei Vorobyov saw “no necessity” to make this amendment, arguing that such mergers would lead to “a threat of feud and tension.” The bill will come into effect immediately once it is signed by the president.

Performers flock to Moscow Mask The 18th Golden Mask Festival of Performing Arts has opened in Moscow. The event will run until April 15, with a gala awards ceremony scheduled for the main stage of the Bolshoi Theatre on April 16. The Festival features drama, ballet, opera and contemporary dance performances from around Russia. Highlights includes Harlekin by St Petersburg’s Derevo Theatre, which also performed at the Edinburgh Fringe Festival in 2010, as well as theatre performances from Omsk, Ekaterinburg, Altai and a puppet theatre from Chelyabinsk.

Hamleys to open toy store in Moscow

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Hamleys, one of the world’s largest toyshop chains with a flagship store in London, is to open in Moscow, RIA Novosti reports. The first store under the Hamleys brand name in Russia will open in May in the Evropeisky shopping centre and will occupy about 1,700 sq m. The licence for the brand in Russia was given to the Ideas4retail firm, owned by businessmen Alexander Mamut, co-owner of Russia’s largest mobile phone retailer Evroset, and Yevgeny Butman, former co-owner of the re:Store Retail Group. The Russian toy market grew 17pc from 2010 to 2011 to nearly $3.3bn (£2bn). Other major Hamleys stores are in Dublin, Dubai, Amman, Glasgow, Mumbai, Chennai and Riyadh.

In this issue opinion

niyaz karim

Election aftermath ‘Snow revolution’ melts away as reality sets in TURN TO PAGE 6

Politics & Society

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A space for dialogue: where do Russia’s protesters go from here? rbth.ru/15017

Will latest promises end the protests? are no weapons against Omon special security units. A period of social torpor lies ahead”, says author Boris Akunin, an organiser of the winter rallies. One of the reasons that the wave of protests has subsided is the sheer weariness of ordinary people. Unlike political activists, they are not used to going to rallies as if it were their work. Second, the authorities are now behaving more wisely. There were far fewer irregularities in the presidential elections (at least in Moscow) than were witnessed in the Duma elections in December. Many of the protesters have, deep down, resigned themselves to Mr Putin’s victory. Even an independent vote count gave him an overall majority of the votes. This did more to take people off the streets than anything else. The key issue today is whether people who were politically awakened by the protests become disenchanted with politics. The future of new political parties that will spring up in the aftermath of the protests and the liberalisation of the law on political parties depends on people remaining engaged. There will probably be too many new parties emerging. The authorities, nevertheless,

are unlikely to object to this. “Having many parties will split the opposition electorate, with the result that the opposition parties will find it hard to overcome the 5pc cut-off barrier to enter parliament. That will play into United Russia’s hands”, says Mikhail Tulsky, President of the Politicheskaya Analitika think tank. A divided electorate will make things more difficult for Mikhail Prokhorov (former leader of the liberal Right Cause party), who will be building a new liberal party, almost certainly in company with former finance minister Alexei Kudrin. Mr Prokhorov’s showing in the presidential election provides a good springboard.Yet it is one thing to win 7pc of the votes when standing against five leaders who have become overfamiliar to the public over the past 20 years and quite another to win the hearts and minds of voters when confronted with dense ranks of the right-wing, leftwing, social democratic, monarchist and other parties that the Justice Ministry is registering by the dozen. What happens in Russia now depends on how Mr Putin behaves on his third presidential watch. The controversial situation on the eve of the elections forced him to demonstrate a readiness

NOTES FROM THE EXPERT

Dialogue will heal society it sees every action as a crusade through eyes burning with moral indignation. The best way to treat these afflictions is through dialogue. Talking can be difficult and it might involve political manoeuvring. This is the beginning of democracy and the modernisation of our political system. The Human Rights Commissioner’s Institution, for all its flaws, seeks to contribute to such dialogue.

VLADIMIR LUKIN

RUSSIAN HUMAN RIGHTS COMMISSIONER

The Russian authorities and the opposition suffer from chronic afflictions. The authorities suffer from afflictions of age – fretting about the opposition, accusing it of being naïve, inexperienced and unpatriotic. The opposition suffers from infantile disorders –

According to Alexei Mukhin, director of the Centre for Political Information in Moscow: “The people around the President understand that if Putin fails to keep even part of his electoral pledges, this will preserve the protest potential.” Mr Putin will have to work with both the protest electorate and with his supporters. As Mikhail Dmitriyev, President of the Strategic Studies Centre (which predicted the latest political tensions) points out, Mr Putin’s problem is not legitimacy, which he now has, but how long that perception of legitimacy will last against the backdrop of growing discon-

If Putin fails to keep even part of his electoral pledges, this will preserve the protest potential for dialogue. Mr Putin made it clear in articles published before the elections that he was ready to change and for a more meaningful dialogue with society. He promised to revive the system of referendums, to make it easier for citizens to initiate legislation and strengthen public scrutiny of the executive. Whether or not Mr Putin fulfils these promises will dictate what happens to him.

PHOTOSHOT/VOSTOCK-PHOTO

CONTINUED FROM PAGE 1

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Speaking out: opposition leaders Sergei Udaltsov and Boris Nemtsov address a rally for fair elections in Pushkin Square

tent outside the big cities.“At the end of the day, it was the Russian hinterland that elected the President,” Mr Dmitriyev argues.“Now, the problem with the Russian hinterland is that it has frequent mood swings. It may happen that, in a year or 18 months, support for Putin among these social strata will change dramatically. It happened in the Nneties. In 1996, Yeltsin was elected and, by the end of the Nineties, his approval rating had plummeted to less than 10pc. These are very real risks for Mr Putin.” Mr Putin’s supporters in the provinces do not care very much about political reform.

They are far more worried about the problems of housing and utilities, which have not been addressed for more than 20 years, and also about corruption. Mr Putin has always conducted a cautious personnel policy without surrendering members of his team and anti-corruption trials have seldom involved top officials. But if he does not want to see the anger of provincials shift from local bureaucrats to himself, he will be obliged to change his policy. “Putin will not stop at shaking up the ruling team, as witnessed by the sacking of Sergei Darkin, governor of the Primorye Territory. The fight against corruption will

move from the lower to the middle and higher levels,”Mr Mukhin says. Otherwise, Mr Putin will be unable to keep the support of his followers, for he will not be able, as before, to guarantee their support by pursuing an active social policy. According to Mr Dmitriyev, from the point of view of the Russian hinterland, public spending must continue to increase but the Russian budget might have limited resources to do this and any deterioration in the economic situation will probably lead to a reduction in public spending. If this happens, Mr Medvedev’s political future looks uncertain.

By not running for a second term, Mr Medvedev has confirmed his image as a politician who is not independent. He will, of course, become prime minister, but not many political analysts give him any chance of holding on to the job throughout the six years of Vladimir Putin’s presidency. He is sure to become a sacrificial lamb following the unpopular decisions that the government will have to take. These include the inevitable increase in the retirement age and other measures aimed at reforming the pension system. In this case, only a major sacrifice will rescue his popularity rating.

Disability access Travel entrepreneurs campaign to make museums, palaces and churches in St Petersburg and Moscow open to all

In creating a travel company specifically geared towards wheelchair users, two women have fulfilled their dream as well as those of their clients. YULIA GORDIENKO

SECRET FIRMY MAGAZINE

In Russia, there is no legal requirement for public places to be accessible to wheelchair users, making getting around impossible for some disabled people. But two entrepreneurs have forced many tourist attractions to improve disabled access through their travel company, Liberty. Maria Bondar and Natalia Gasparyan bonded as young girls as they had similar spine injuries. They acted in school plays together and, in their final year, dreamt about having their own business. They went to university and did casual work as tour guides for German tourists visiting St Petersburg. They noticed that many foreign tour groups included tourists in wheelchairs and that the tour guides tended to avoid them. “Most tour guides were horrified to find wheelchair users in their group, because it meant 10 times as much work,” Maria said.“You had to make sure that a tourist like this didn’t get left behind, and it often

meant pushing the chair yourself.” But unlike their tour-guide colleagues, the friends were happy to help the wheelchair users and, in 2004, Maria and Natalia decided to build a business to help them see the city. A normal tour consists of showing people the sights and organising meals, hotel accommodation and evening programmes. But organising the itinerary for a wheelchair user in St Petersburg was next to impossible. St Petersburg had no hotels with doorways wide enough for wheelchairs, let alone rooms with special showers or ramps. So Maria and Natalia decided to limit themselves to tourists visiting the city on Baltic Sea cruises because their accommodation was on the ship. To determine where they could take wheelchair users in St Petersburg, the friends did their own groundwork. “We got a wheelchair, sat each other in it and made our way round the city, trying to get into museums and churches so we could find out if disabled people would be able to negotiate them,”said Maria. Each visit was a test for museum staff. Although a museum might have wheelchair lifts, in most cases, they

ITAR-TASS

Tourism transformed: the wheelchair revolution

Art for all: Liberty has opened up museums and other tourist attractions to wheelchair users

stubbornness that some sites became accessible to disabled people. In the case of one of St Petersburg’s famous palaces, it was necessary to give a week’s notice of arrival in order to use the lift, and visitors were required to arrive at the lift at the exact time scheduled. “If we were just a little bit late, the staff member would shout,”Maria

had never been used. Most of the museum staff were sympathetic to the young entrepreneurs and wanted to help, but there were some notable exceptions. “Wheelchairs? Over my dead body! I’ve got 18th-century parquet flooring,”one museum director told the women. In other cases, it was only thanks to the entrepreneurs’

said.“They had to come from a neighbouring building just for a pair of wheelchair users, while the palace was experiencing a flood of visitors.” The process was so unpleasant and complicated that Maria was ready to give up and cross the palace off the itinerary. But Natalia was uncompromising. Now, the entrepreneurs take pride in

the fact that there is a lift for their clients and they are met by a concierge service. It took the women a year to research and plan the itinerary. The first destinations were the Russian Museum and the Hermitage, which were more or less equipped, technically; then they added the Museum of the History of Religion. Ravilya and Pyotr Morozov and Yury Kuznetsov, founders of We’re Together, a St Petersburg-based organisation for disabled people, began helping inspect properties for wheelchair accessibility. They joined forces with Maria and Natalia and together founded Liberty. Natalia and Maria began promoting the company through similar tourist agencies in other countries and via social networks. The friends led the first excursions. There were some hitches, of course. For example, Maria was unable to get a woman in a heavy wheelchair up three steps into the Cathedral of the Saviour on the Spilled Blood. But her husband developed a solution and built a portable aluminium ramp so that she could avoid situations like this in the future. In 2007, the joint owners

of Liberty took out a loan of 750,000 roubles (about £16,000) from Sberbank. They used the money to buy a truck that had been used for transporting fruit, and Maria’s husband, a car mechanic, converted it for passenger transport. He cut out windows, fitted sound and heat insulation, lined the sides, put in single seats by the windows and left a space between them big enough for a wheelchair to get through. He was particularly proud of the lift – a platform that could lift a wheelchair to the level of the bus.“Our vehicle was incredible for Russia – even foreigners were delighted that we, novices in the market, had such advanced equipment,” said Maria. Liberty wanted to offer tours to disabled Russians too, but most Russian wheelchair users have very low incomes. The firm decided to charge foreigners more in order to provide discounted tours for Russians. The group has hosted tourists from Germany, Austria, Switzerland, the US, Canada and Israel. In addition to St Petersburg, Liberty now organises tours of Moscow, the Moscow region and Novgorod. The cost of the tour (excluding entrance tickets) is around

£83-£330 per person for a two-day tour and £830£1,600 for one-week trips. Winning theVagit Alekperov Foundation’s Our Future competition enabled Liberty to obtain an interest-free loan of a further 1.72m roubles (around £36,900) for four years. The company used this money to buy air conditioning for the minibus and to develop itineraries for more cities, such as Kiev. The firm’s future plans include purchasing a modern bus equipped for wheelchair users, which will cost about £53,500. A major international pharmaceutical company has approached the foundation, expressing its interest in helping buy the new transport for Liberty. This year, the company is planning to expand its offerings to tourists who are deaf or very hard of hearing. For this, the friends need to invest in equipment for signing.“We’re ready to create a whole empire,” said Maria. Her ideas include a hostel and a chain of night clubs accessible to everyone, including people with disabilities; a fleet of specialised buses; a magazine about wheelchair journeys; and a guide to St Petersburg for people with disabilities.

Local elections After a campaign funded by gambling winnings, 27-year-old Max Katz was elected to the the municipal council chambers of a Moscow district

Poker champ raises political stakes with victory at the polls MORITZ GATHMANN RUSSIA NOW

For those Russians who had hoped that the March 4 presidential election would bring about a real change in Russian politics, spirits were low on March 5. That is, with the exception of Max Katz, who was celebrating his victory as an independent candidate in the Shchukino municipal council elections.

At around 8am on March 5, when Mr Putin’s victory seemed to be official, a fatigued and elated Mr Katz, 27, staggered out of the offices of the municipal electoral commission and tweeted: “I’m 90pc positive that I did it.” Most of his friends had long since gone to bed. At around 6pm, an announcer on state TV read the first results of that day’s presidential election, confirming the news that many people found difficult to believe, that 64pc of Russians had voted in favour ofVladimir Putin, keep-

ing him in office until 2018. It was some time after the first demonstrations for fair elections in December that Mr Katz decided to stand as a candidate after reading an appeal by the opposition partyYabloko for candidates for the municipal council elections. “I want to become mayor in a small Russian town when I am 35, and test my urban development plans,”Mr Katz says. He claims he is not one of the“frustrated city dwellers” and does not want to be labelled by the media as one

Election day tensions

Max Katz took a gamble by standing as an independent in the March 4 local elections. It paid off, and he is now councillor Katz.

ish corrupt politicians, reduce the costs of gas and water, and so on. But I chose to be honest,” he says, as he drives his black Opel through the jam-packed backstreets. The district is known as a prosperous, middle-class neighbourhood, full of young people with new apartment complexes surrounded by hordes of cars.

No bluffing: an unusual election manifesto won Mr Katz votes

of the protesters. “I’m actually quite satisfied,” he says. Mr Katz funded his campaign with money he earned playing online poker – he is a Russian champion. His campaign flyers read: “My name is Max Katz. I am 27 years old. The election for the

Shchukino municipal council is being held on March 4. This body is completely useless. It possesses no power whatsoever.” “Everyone told me I should make the same promises other politicians were making, that I would vow to pun-

The polling stations here on March 4 were full of older, well-dressed women with conservative hairstyles, many of whom were former school principals, while the men tended to have serious faces and wear stiff grey suits. Then there were the 20-yearolds, in jeans and trainers sitting on couches next to fake plastic trees and dusty red curtains, posting their observations on Twitter and Facebook. For many, it was their first time monitoring an election. By mid-afternoon, there

was hardly anyone left who truly believed that Mr Putin would be forced into a second round of elections – not after an election campaign in which images of him flashed across TV screens all day, every day. That’s one of the reasons why Mr Katz decided to run for a seat on the municipal council. “It’s the beginning of something new, starting from the ground up,” he says. After the polls closed at 8pm, Max Katz returned to polling station 2997. In addition to the six independent election monitoring officials, all of whom were young, baby-faced Russians, there were now six imposing figures dressed in matching black suits, purporting to be election monitoring officials, but they looked more like nightclub bouncers. Mr Katz says they tried to provoke him by filming him, making rude hand gestures, and screaming hysterically. He kept his cool, but they did

succeed in scaring off the only independent member of the election commission. Finally, the men in black left the polling station and drove off.“It could very well be that we just kept them from committing electoral fraud,” says Mr Katz. At around 2am, the count of the votes for the presidential candidates was announced, with 52pc going to Mr Putin at this particular polling station. Vladimir Putin was close to tears that night in front of the Kremlin.“We are victorious,”he declared from the stage, thanking the thousands of people fervently chanting his name. There was no one chanting Max Katz’s name. Nevertheless, out of a total of 16 candidates, he received the third-highest number of votes, winning him a seat in the municipal council along with four other members. He has taken his first step towards becoming a mayor.

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Politics & Society

OPINION

The Russian position on Syria: myths and reality Alexander Yakovenko

cil in March, Russian Foreign Minister Sergei Lavrov desituation into a dead end and scribed such actions as“risky deal a blow to the authority recipes of geopolitical engiof the UN Security Council.” neering”that threaten global The president came out for stability. Russia’s confronta“principles for settling re- tion with the West on these gional conflicts that must be issues will remain. Russian political scientists universal and based on inbelieve that the future head ternational law.” In 2012, Mr Putin has not of state will continue to dembudged an inch from his pre- onstrate to the West that his vious policies. His position international policy is guidhas become tougher and even ed solely by the interests of more aggressive, not in terms an independent Russia that of potential military threats intends to remain an indeto any neighbours, but in up- pendent player in the foreign holding the fundamental policy field. Mr Putin will reprinciples of international nounce participation in any law. He believes that west- international alliances in ern attempts to arbitrarily which Russia might be perreplace undesirable rulers ceived as a junior partner. Over the past decades, under the pretext of protecting human rights (as hap- Russia has outlined its range pened in Libya), and to use of interests and it will conhumanitarian arguments to sistently protect them against threaten foreign states (as is any foreign intervention. happening now in Syria), Any country should undercontradict the principles of stand that in wilfully invadinternational law. Address- ing Russia’s geopolitical ing the UN Security Coun- space, it will automatically

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find itself in conflict with Russia. What Moscow does want is to preserve its political influence in the post-Soviet territory and it is now making plans to form a Eurasian Union based on shared economic interests.

Mr Putin believes that western attempts to replace undesirable rulers, under the pretext of protecting human rights, contradict the principles of international law Continuing to develop relations with the Asia Pacific Region remains a priority for Russia. And it is also seeking ways to restore its position in the Arab world and Africa that it lost in the Nineties. The situation in the world has changed and, in

AFP/eastnews

International law tops Putin foreign agenda

Strong man: Putin will flex his political muscles to protect his country’s vital interests

the opinion of German political scientist Alexander Rahr: “Moscow has become strong enough to play its own role in world politics.” “The main ideas Putin has tried to get across in his responses to international questions are ideas of the country’s openness, its search for allies, and the rejection of Russia’s image as a bully,” says Nikolai Zlobin, director of Russian and Asian Programmes at the Centre for Defence Information in America. Western media often portrays Russia as an intransigent bogeyman allegedly defending undemocratic, dictatorial regimes. But Mr Putin describes the West’s wish to remove the idea of state sovereignty from the agenda and replace it with the idea of human rights as demagoguery. Mr Putin will, therefore, continue to protect the principles and values that allow people to determine their own future without outside interference. The challenges and threats that lie ahead in the coming years will force Russia to define its circle of allies and partners more clearly. Although Moscow has re-

nounced the concept of a potential enemy in assessing other states, we can predict an intensified rivalry between Russia and the West under Mr Putin. This will apply above all to its relationship with the US. Mr Putin will never be resigned to Washington’s attempts to use anti-missile defence to mobilise members of Nato to advance America’s strategic interests. It sees such a unilateral approach as a threat to its security.

Continuing to develop relations with the Asia Pacific region remains a priority for Russia, as does restoring its position in the Arab world and Africa that it lost in the Nineties The dialogue between Russia and the European Union will not be easy, either. If a united Europe continues to fearfully build border barriers to Russian business and delay the adoption of a visafree regime, as well as perceive Moscow as a Trojan

horse allegedly seeking to destroy the prosperity and moral principles of Europeans, we can forget about rapprochement. Mr Putin agrees to the idea of a common European home, mutatis mutandis, of course. But he does not intend to gatecrash his way into the European Union if these initiatives are met with no understanding by European partners. All the more so if they refuse to respect Russia’s concern over the American missile defence systems being deployed in Europe. For the next six years, the Russian president will develop a dialogue with China and other Asian countries. On the one hand, such cooperation allows Russia to avoid putting all its eggs in one basket and substantially expands its foreign policy options. On the other hand, Russia having an ally like Beijing forces the West to heed what is said in Moscow. This is a foreign policy situation which could be characterised as“Whatever China thinks, Russia speaks out about.” That is particularly true of issues connected to compliance with the principles of international law.

Space exploration Roscosmos has its sights set on delivering a manned lunar mission by 2020

Russia breaks the bank to land on the Moon The Moon could become a useful source of helium-3 for thermonuclear energy as well as a useful station for space launches to Mars. Ilya Kramnik

special to russia now

Apart from a 17-month simulated voyage to Mars, which ended last November, over the past decade there has been little news of any exciting Russian space missions. So when Roscosmos general director Vladimir Popovkin recently announced plans to return man to the

THE QUOTE

Vladimir Popovkin Russian Space Agency Chief

We are now discussing how to begin [the Moon’s] exploration with Nasa and the European Space Agency. There are two options: either to set up a base on the Moon or to launch a station to orbit around it.”

send an astronaut back to the Moon at all? Does anyone need a manned Moon landing 50 years after it was achieved successfully by the Americans? The scientific Moon exploration programme uses unmanned spacecraft launched by various countries. Russia plans to send Luna-Glob and Luna-Resurs to the Moon in the next few years and is expecting them to return with a case of wet Moon soil from the polar regions. The thinking behind Roscosmos’s new plan is that large polar ice masses present on the Moon will make potential deployment of a lunar base much easier. The Moon, having no atmosphere, will still be able to provide the base with oxygen – about 40pc of the lunar soil is bound oxygen. A Moon base could act as a springboard for exploring Mars. The lower force of gravity on the Moon makes it easier to launch a heavy spacecraft from there, one capable of delivering a relatively large crew of six or seven to Mars, along with the required

getty images/fotobank

Moon by 2020, it caused a bit of a sensation. The programme for sending a mission to the Moon will cost an estimated 500bn roubles (£10.7bn) over the next decade. Given that the current annual budget of Roscosmos is 120bn roubles (£2.6bn), the financing of the space agency will have to be increased by almost 50pc to implement it. If Roscosmos is hoping to build a permanent base on the Moon, its budget will have to be raised more than six-fold. But why should Russia

Pulling power: the Moon’s lower gravity could make it easier to launch a spaceship to Mars

equipment. A “space shipyard” could be set up at the Moon base for assembling a vehicle bound for Mars on the Moon from components delivered from Earth. The Mars mission may also return to the Moon, as a staging post en route back to the Earth. Another reason for developing a Moon base would be to extract the isotope helium-3 from the Moon rock.

Helium-3 could potentially be used to create greener form of nuclear power. If so, the Moon would become a valuable business asset, rather than an abstract scientific challenge, and would involve the biggest energy corporations. To make its plans a reality, Roscosmos is developing a new-generation manned craft, the New Generation Piloted Transport Ship (PTK

NP) under the banner of the Prospective Piloted Transport System (PPTS). The system is being developed by Russian aerospace corporation RKK Energia. It hopes to have its unmanned ship ready by 2015 and the manned version by 2018. But if the recent track record of Russian space efforts is anything to go by, there are doubts that Energia will meet its schedule.

Diplomat

consider it important to share with readers the basic elements of Russia’s real position on the situation in Syria. Unfortunately, British public opinion has a distorted view of Russia’s approach to the political crisis in a country with which we have longstanding bonds of friendship and whose fate is not a matter of indifference to us on a state or human level. First, I would like to make clear Russia categorically condemns any violence. The actions of President Bashar al-Assad’s government in the crisis can hardly be called exemplary and the perception Russia is ‘‘blindly supporting’’ the Syrian authorities is mistaken. However, it is worth remembering that 25-30pc of those who have been killed in Syria were members of the security forces. It is wrong to say government tanks and artillery are confronting poorly armed civilians. Several dozen law enforcement personnel die in Syria every week in terrorist attacks. Seeking to stoke tensions, opposition fighters disrupt power and water supplies and the work of shops. In the recent showdown in Homs, civilians were in effect hostages to the irreconcilable positions of the two sides. So we believe it is crucial that the international community condemns not only the violence on the part of government forces, but also the armed actions of the opposition; that it demands the political opposition dissociate itself from extremists and that armed opposition groups leave population centres in conjunction with the withdrawal of government forces. This was the aim of the Russian amendments to the draft resolutions of the UN Security Council and the General Assembly. Sadly, these ideas were not backed by many of our UN partners. We are convinced that a one-sided condemnation of the Syrian government and its diplomatic isolation, coupled with unconditional support for the opposition, are not conducive to a peaceful settlement but instead encourage the opposition to continue armed struggle instead of turning to politics. Our western and some Arab partners are in effect taking one side in the confrontation, when the goal should be to help Syrians decide their future independently through the political process. It is well known how long it took for the political situation in France to return to normal after the 1789 revolution. Perhaps in England it took less time – 50 years – to achieve a settlement in the form of the Glorious Revolution. Neither the Enlightenment nor the European revolutions could protect Europe and the world from the catastrophe of the First World War. Why not help others avoid such a bloody path and carry out transformational processes by evolutionary methods? It is important to understand that President Assad still has the support of a significant proportion of the Syrian population.The high turnout and the results of the vote on the referendum for the new constitution, for all the flaws of holding a referendum during such an

unstable period, have demonstrated Syrians’ desire for a political solution. To continue to inspire the opposition to overthrow the government militarily is irresponsible with regard to all the citizens of Syria, irrespective of their political views. Judging from reports in the British media, the opposition claims that western countries first provoked it to launch an armed struggle and have now ‘‘abandoned’’ it. Russia is working with Damascus on the diplomatic front in order to induce the Syrian authorities to hold a dialogue. It is not easy to achieve results because any government would find it hard to agree to negotiate with people who openly call for its overthrow. Nevertheless, we have secured the Syrian government’s agreement to have such a dialogue. By contrast, the opposition, including the Syrian National Council, has rejected it. The whole international community is interested in averting civil war in Syria. Russia knows only too well what civil war is from its own tragic experience.To that end, it is necessary to make every effort to launch an inclusive political process in Syria, involving both the authorities and opposition groups. One of the key conditions for that is restoring confidence, including between Russia and western partners. One has to admit that this was seriously undermined by Nato’s military operation in Libya. Some episodes in the Syrian crisis have also tended to erode confidence. They include the hasty vote on the draft UN Security Council resolution, ignoring our mediation efforts while western journalists were evacuated from Homs, and so on. However, we see that responsible politicians and diplomats, including in Britain, are leaning more and more towards the need for a political settlement.The appointment of the former UN secretary general Kofi Annan as the representative of the UN and the Arab League, mandated to bring the parties to the negotiating table, is a welcome development. All the more so as his mission has received unanimous support in the Security Council. President Dmitry Medvedev, at his meeting with Kofi Annan in Moscow on March 25, called Annan’s mission Syria’s last chance to avoid a long and bloody civil war. That chance must not be missed.We are convinced that civil war can be avoided and that the Syrians can overcome the current crisis, if all the outside players act together. The main aim must be to help create conditions in which the Syrians themselves can sort things out. One may argue that we are advocating a ‘‘soft landing’’ for the regime, but in fact it is about a soft landing for Syria and all Syrians, and for the whole of this explosive region. Alexander Yakovenko is Ambassador of the Russian Federation to the United Kingdom. He was previously Deputy Minister of Foreign Affairs of the Russian Federation. Follow him on Twitter: @Amb_Yakovenko

Innovation

Russia now www.rbth.ru

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section sponsored by rossiyskaya gazeta, russia Distributed with THE daily telegraph saturday_MARCH 31_2012

Skolkovo innovation centre (Russian Silicon Valley in Skolkovo) rbth.ru/skolkovo

Venture capital Subsidies and tax cuts for foreign investors in hi-tech hubs such as Skolkovo are helping to attract funding for new businesses

Technology start-up boom goes global a lot of enthusiasm among US funds for taking elements of successful e-commerce and social networking companies in one geography and transplanting them to another – first China, now increasingly in Russia,” said Mac Elatab, an investment analyst at TrueBridge Capital Partners. “With a GDP-per-capita growth of around 13pc annually from 1999 through 2010, Russian consumers have money to spend.” Another appealing factor for investors is the reputation of Russia’s science and technology industries.“In compu-

Adrien Henni

russia now/east-west digital news

Russian start-ups and business incubators are thriving and attracting the attention of foreign technology investors. Tiger Global Management, a New York-based international investment management firm has recently invested twice in the Russian e-commerce platform Wikimart.ru – $5m (£3.1m) in 2010 and another $7m in 2011. It has also contributed $10m in a round of financing for online travel sales site Anywayanyday.ru. Tiger also has shares in Russian search giant Yandex, which began trading on the Nasdaq in May 2011, and once held a stake in Mail.ru, a leading email service and portal. Other examples include the whopping $55m that was invested into private shopping club KupiVip.ru last April, in which US venture fund Bessemer Venture Partners played a notable part. And, Ostrovok.ru, a clone of Booking.com, received $13.6m last July from western funds and business angels such as Zynga founder Mark Pincus, early Facebook investor Peter Thiel and Skype founder Niklas Zennström, among others. Russia’s new appeal comes as a logical consequence of the fast growth of its innovation-led markets. One in two Russians now uses the internet and last September the country overtook Germany as Europe’s largest internet market.“There has been

At the federal and regional levels, the Russian state is investing billions of dollars in innovation ter science and materials science, the Russians are as good or better than anyone in the world,” said Bill Reichert, managing director of Garage TechnologyVentures, a major US venture fund chasing Russian start-ups. Progress in entrepreneurship has been remarkable over the past 10 years – with a more than a scent of northern California in the Moscow air. “Both Silicon Valley and Russia have extremely smart people who are working to create innovative opportunities globally,” said Court Coursey, managing partner at Eric Schmidt’s Tomorrow Ventures. Labour costs are another reason for hi-tech investors to come to Russia. Salaries are high in Moscow start-ups, but in a city like Tomsk, in

Siberia – where every fourth resident is a student, a researcher, a university teacher or an employee of the Russian Academy of Sciences – a modest $2,500 (£1,580) a month can be enough to attract the best local talent. Another factor favouring investment in start-ups is the level of government support for foreign and domestic investment in private equity: at the federal and regional levels, the Russian state is investing tens of billions of dollars in innovation. With its huge subsidies and tax cuts for innovative projects, Skolkovo, the giant technology hub outside Moscow now nearing completion, has attracted dozens of global venture funds and hi-tech firms. IT Park, near Kazan, is one of the largest technoparks in Eastern Europe, while the Tomsk special economic zone has attracted a number of domestic and international technology companies, including Nokia Siemens Networks, Korea’s Darim International and the US-based firms Monsoon Multimedia and Rovi Corporation. Direct state financing is also provided through the Russian Venture Company, which has launched 12 hitech funds in Russia and abroad. Three years ago, fewer than two dozen funds were operating in the country, but now there is more money in Moscow than in many other innovation hotspots. Avi Hersh, a US private equity investor who began investing in Russia in the Nineties, said: “As more young Russian enterprises are funded, then merged or acquired,

Android ‘first step to robot cosmonaut’

getty images/fotobank

As Russian scientific and technical industries flourish, foreign technology investors are increasingly opting to back start-ups in these fields.

Talent pool: A skilled workforce with relatively modest regional labour costs is part of Russia’s appeal to investors

it will produce more success stories, which in turn will provide more funding for the next round of start-ups.”

THE numbers

percent of start-ups’ costs when launching are spent on surveys and research, according to the Expert-RA rating agency.

billion dollars is the amount the Russian IT market will be worth by the end of 2013, according to a Ministry of Economic Development forecast.

300

thousand people now work in the Russian Information Technology Industry, according to the Russian Ministry of Economic Development.

Obstacles to investment But there are still some obstacles to investing in Russian start-ups. Russia doesn’t have a long history of entrepreneurship and some Russian businessmen do not always present mature projects. “We sometimes see very raw start-ups, lacking sound business models or business plans or with weak management teams,” said Marina Kuznetsova of BV Capital, a venture fund operating from San Francisco and Hamburg. Russia is considered less attractive by many venture capitalists than other Bric countries because of its smaller population compared with China or India, and because of its location – Moscow has a 12-hour time difference from California. Language can also be a barrier, as relatively few Russians speak fluent business-level English. Russia still has a serious

image problem too. “Media coverage from Russia is almost uniformly negative in the US,”said Mr Elatab.“That is not to say that only negative things are happening in Russia – the truth is somewhere in the middle. I think the Cold War still has an effect on how Russians and Americans view each other.”

Giant technology hub Skolkovo has attracted dozens of global venture funds and hi-tech firms Corruption and frequent breaches of the rule of law, whether real or imagined, are the greatest deterrent in the eyes of many foreigners. According to SiliconValley veteran Steve Blank: “So many entrepreneurs have told me they have no guarantee that what they are starting is what they will keep... How can Russia have an innovation future in such conditions? When a new wave of start-ups began developing in Silicon

Valley 30 years ago, there was never a discussion of such things. Russia has to fix this critical government issue. Otherwise, the brightest section of Russian entrepreneurs and engineers will leave the country.” Other investors have not found corruption a problem. Esther Dyson, a US investment angel who has invested in 15 Russian start-ups as well as in Yandex, said she had not witnessed any serious threat from aggressive Russian businessmen or corrupt Russian courts. Gleb Davidyuk of the Russian venture fund iTech Capital agreed: “In the digital sphere, greedy civil servants don’t know what to look for – or where. This helps the industry stay below various radar screens.” Adrien Henni is editor-inchief for East-West Digital News. This article is published in partnership with East-West Digital News, the international resource on Russian IT industries (www. ewdn.com).

Interview denis kovalevich

The future is bright for nuclear spin-offs Skolkovo is working with 70 companies to creatE products using radiation technologies The centre is finding new markets for radiation technology outside the energy sector. It’s attracting foreign partners, too.

In power: Denis Kovalevich, and a magnetic separator at the Joint Institute for Nuclear Research in Dubna.

profile NAtIONALITY: Russian AGE: 32 Education: management

Alexander yemelyanenkov special to rn

eastnews

press photo

One year after Japan’s Fukushima disaster heightened the controversy over nuclear power, Russia Now caught up with Denis Kovalevich, head of the nuclear technologies cluster at the Skolkovo Innovation Centre, to talk about the many potential uses of nuclear energy and to find out whether the Russian nuclear industry is developing them. Prior to Skolkovo you worked on strategic development at Rosatom corporation. Was it there that you learnt about alternative areas and markets for nuclear energy? I suppose the idea was shaped even earlier. If we take a look at the strategic documents of the nuclear industry of the late Eighties, we’ll see that many of the new directions were outlined there. It is important that we do pursue diversification of the nuclear sector. The markets for allied technologies are now growing much faster than the energy market, and their volumes are already comparable. The range of nuclear industry know-how that can be applied outside the energy market is estimated to include at least 500 products and solutions. Many of the applications constitute part of the new technology platform Radiation Technologies which was adopted by a special commission with the Russian government and given priority status.

200

ment-making and new electronics solutions. These are spin-offs of the nuclear programme, to a greater or lesser extent.

analysis of global progress and this country’s capabilities, including the potential of its workforce. I won’t go into detail, but simply enumerate them.They include radiation technologies (radiation-based solutions); development of new properties of materials; technologies to design, construct, model and engineer complex technological facilities and systems; engineering; instru-

Why was Skolkovo given authorisation to co-ordinate the “radiation technologies” platform, and not Rosatom? There are more than 70 organisations currently engaged in radiation technologies within the scope of this platform, and Rosatom is just one of them. As far as its competencies are concerned, it is, potentially, the most powerful investor and a player capable of assembling end products. But, because of its sheer scope, Rosatom cannot support companies worth, say, $1m (£630,000). A nuclear power plant is a tangible facility, but when it comes

In figures

$25bn

is the current estimated size of the global market for radiation management solutions.

10pc

annual growth has been seen in the alternative nuclear technologies segment in recent years.

Currently you supervise this platform as director of the nuclear technologies cluster at the Skolkovo Innovation Centre? Yes. This platform is officially co-ordinated by the Skolkovo Centre and our cluster. Overall, four strategic directions have been identified for the nuclear technologies cluster, based upon general development trends in the nuclear power sector, an

proposals for alternative uses of nuclear power were made by the Soviet Union in 1958.

News in brief

to what we are going to search for and nurture, the state corporation won’t even notice such things. We pave the way. We support the creation and development of new projects and companies, that will later be included in the technological chains of global tech corporations by acquiring them, working with them in any way possible. We believe it is crucial that as many people and companies as possible choose this direction in which to move and this platform to rely on when building their long-term strategies. This is the essence of my job. The main challenge is to start the wave of development, and not just to support two or three projects, however promising they might seem.

Denis Kovalevich was born in 1979 in the Moscow Region town of Troitsk. After graduating from the management faculty of the Higher School of Economics in 2002, he trained in the field of managing innovations and regional development. He then managed a number of consulting projects in Russia’s Volga River regions before working on long-term strategy planning for Russia’s state atomic power monopoly, Rosatom. Mr Kovalevich is now executive director of the Nuclear Technologies Cluster at Skolkovo and has been a member of the President’s Commission for Modernisation.

How much time will you require and what steps need to be made? Are there instruments for measuring and assessing the wave you initiate? I have a model in my head that looks roughly as follows. Essentially, we are talking about making a decision to launch a new industry. Judging from international practice, a decision of this kind requires five to 10 years to materialise, depending on the country involved. For instance, Singapore launches a new industry once every seven years. They take seven years to think, analyse, check and double-check. I interpret Skolkovo’s potential in this context as“action research”. When our grants committee decides to support a proposed project or invest in a

start-up, it is a chance to assess the viability of the applicant company. We cannot check it by way of analysis, using a piece of paper and a pencil. We need to give people a real opportunity, let them try, face certain obstacles – when you have worked with them, you see their strengths and weaknesses. We need to organise this process. What about recent developments in Japan? Do you believe that they are thinking about diversifying the nuclear industry and giving priority status to sectors other than nuclear power? I’m sure that, following Fukushima, this has become a much more relevant issue in Japan.They must think about ways to diversify. In brief, what does Skolkovo’s resident status offer your foreign partners? To be very brief, I’ll mention just two benefits. First, this will enable foreign companies to create their own research and development centres in Russia. In Skolkovo, they will be able to establish them without red tape and on a very tight schedule. Second, foreign companies, as soon as they partner up with some of the Skolkovo startups, will enjoy the status of being an exclusive innovation partner of Russia. This means that when a foreign company joins the centre, it gets special status to position itself in Russia. The Skolkovo team has experience of dealing with administrative obstacles and knows how to tackle customs problems. The centre was set up with the intention of shaking up the existing bureaucratic model.

Russia has built a space android to work in orbit, its first space robot in more than two decades, according to Izvestia Daily. The S-400 can perform simple tasks, such as screwing bolts and searching the spacecraft for damage. It will be sent to the International Space Station (ISS) within two years, and will join future missions to the Moon and Mars. Oleg Saprykin, a senior official at Russia’s space agency, Roscosmos, said that the S-400 was its “first step towards a robot cosmonaut”. Andrei Nosov, an engineer at the firm which made the S-400, said the robot would be able to send tactile sensations to an operator on Earth which would allow the operator to virtually touch its surface. The US has launched an android robonaut to the ISS and Japan and Germany are also planning to send androids to space.

Boffins beam over huge laser

alamy/legion media

Russia is preparing to build the world’s most powerful laser station, according to the news agency RIA Novosti. Called UFL-2M, it will cost $1.5bn (£940m) to build, and will be used for military and scientific purposes. In particular, it will be used in the research of laser thermonuclear fusion, which scientists believe will be the backbone of energy production in the future. Rady Ilkayev, scientific director of the Russian Federal Nuclear Centre – the All-Russian Research Institute of Experimental Physics, said the design power of the laser was 2.8 megajoules, higher than the similar facility in the US and one being built in France. The Sarov Federal Nuclear Centre in Russia’s Nizhny Novgorod region may be chosen as the sight for the 10-storey laser station. Mr Ilkayev said it would take 10 years to build, but no date has yet been set for construction to begin.

GLOBAL RUSSIA BUSINESS CALENDAR global russia business meeting April 22-23, City of luxembourg, luxembourg

The Global Russia Business Meeting offers a means to gain insight from and access to business leaders and key government officials. Around 300 business and government decision-makers from both Russia and the rest of the world will convene at the meeting in Luxembourg. Russia will play a pivotal role in reviving the global economy and the meeting is a unique opportunity for leaders from Russia and beyond to provide input on the priorities for the global economy going forward. Participants will discuss and propose holistic strategies to increase global corporations’ presence in Russia. Global Russia Business Meeting is hosted by the Global Vision Community Horasis in co-operation with the government of Luxembourg and supported by Moscow Investment & Export Promotion Agency (Miepa) and other Russian organisations. www.miepa.org/en/

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Business & Finance

Exports As agricultural production increases, foodstuffs manufacturers aim to export more of their products abroad

From Russia with food Russian specialities like ryazhenka, tvorog and kolbasa are little known and hard to find in the EU. But that could change soon. russia now

Promoting Russian food

lori/legion media

Russia is one of the major exporters of raw materials to the West but its share of the world’s food imports is less than 1pc. Nevertheless, Russian food manufacturers have grand ambitions to introduce Western customers to their goods. And with the rapid rise in food production in Russia, the potential to expand the market is huge, say experts from the Ministry of Agriculture and the National Union of Exporters. Irina married Paul and moved to Britain from Russia several years ago. She enjoys life in London, but misses her favourite Russian foods such as ryazhenka, tvorog, kolbasa and pelmeni – everyday foods for most Russians, but in England they are available in only a few specialist stores in London. “Even my husband fell in love with syrki (a sort of iced milk dessert), when we were in Russia,” she says.“But it’s unlikely that syrki will be on offer here – it is very sweet and I guess could be considered an unhealthy food.” There are many other foods that are widely consumed in Russia that are very hard to come by outside the former Soviet Union. “There is a strong demand for our grain and we have consistent marketing outlets in many foreign countries,” says Dmitry Bulatov, the president of the Russian National Union of Exporters. “However, the situation with the supplies of pre-packaged foods abroad is pretty dire. The activities to promote our domestic food products to the external markets leave much to be desired.” Although the export of Russian food has been steadily growing over the last decade up from $1.5bn (£950m) in 2001 to $7.1bn (£4.5bn) last year, the statistics don’t tell the whole story. The lion’s share of Russian food products are traditionally purchased by the former Soviet republics and only around a third or a quarter of these goods are imported by EU and other foreign states. It’s not surprising that exSoviet countries are the main buyers of Russian food as, for many decades, they were a part of the homogenous market.The stable trade relationship between these countries

Another obstacle preventing Russian manufacturers selling to western markets is that foreign customers are not familiar with many Russian foods and even the names of these products are usually hard to spell, such as pryanik or ryazhenka. This is because, for many decades, the Russian market has been isolated from the West, culturally and politically. As a result, people in the West are unfamiliar with the national food of Russia. Mr Bulatov says promoting Russian foods at exhibitions and trade fairs could A question of taste: producers and exporters are seeking to increase the profile of Russian speciality foods help them gain wider recogcan be explained partly by nition. But he says manufacinertia and shared history. turers should also pay attenWhen it comes to exporttion to advertising materials. ing food and drink products Brochures, booklets and to the EU member-states, the media kits must be produced US and other countries, only in different languages, with a few Russian producers have clear explanations for each managed to do so. Manufacof the countries at which they turers of alcoholic drinks are targeted. have had considerable sucAnother fundamental obcess exporting from Russia. stacle that both the exportRussian Standard Vodka, ers and the experts point to available in 70 countries, is is the insufficient level of one of the more popular support from the state.“A list drinks sold abroad. Some of various fields of manufacRussian wines, such as those turing that are eligible for produced by Fanagoria and state subsidies has recently Abrau-Dyurso, are sold in been published, but the food Britain, while Baltika beer industry, unfortunately, was is exported to Denmark. Alnot mentioned there,” says coholic drinks raise $116.6bn Mr Bulatov. from exports outside the Other measures that could former Soviet republics. help the food industry exSimilarly, confectionery is pand include business privmaking its way abroad. Prodilege taxation, promotional ucts from the Udarnitsa facbank loans and other forms tory are eaten in Norway, and of financial support. sweets and chocolates made Dmitry Bobkov, press atby Belogor’e go to Finland. taché at the Ministry of AgBut manufacturers of other riculture, says the role of the foods may start exporting intends to distribute its of the manufacturers com- Russian food manufacturers national agricultural sector soon.“We have many outlets infant food abroad.” plained that the rules set by are not properly equipped to is vital in terms of Russia’s in Russia that produce innoforeign markets were very meet the restrictions and reg- export potential. “We are vative food items, that aren’t Adapting to regulations ulations for exporting out- about to reach the estimated demanding. produced anywhere else in The recent survey of Russian The EU imposes a wide side of the former Soviet targets for wheat, potatoes, the world and could compete food manufacturers and food range of restrictions on food Union.“The Russian compa- sugar, sunflower oil and pouloutside of the domestic mar- exporters conducted by the imports, covering wrapping, nies should not consider the try production,”he says.“But ket,” says Mr Bulatov. Ministry of Economic Devel- sustainability, contents, ad- requirements of western targets for meat production “Among them is a type of opment sheds light on the ditives and more. US regu- countries for imported goods will take another three to five wheat named Zhitnitsa problems they experience lations on imports go much a discrimination or sabotage,” years to be achieved.” which is produced by Pava. when trying to market their further and its regulators says Mr Bulatov. As agricultural production It has a unique nutritional products abroad. “The food products of expands, exporting it will be often insist on inspecting the composition and Pava has Many Russian producers production site to check the domestic European manu- a priority, according to the big export plans. Another ex- said they experienced diffi- conditions in which the goods facturers meet these stand- experts. But for now, Russian clusive producer is Wimm- culties in finding out the are manufactured. If they are ards and fully correspond to food remains the preserve of Bill-Dann, a major producer regulations for imported not satisfied with the condi- them. Therefore, it seems fair those living within its borof non-alcoholic drinks and goods, such as sanitary and tions they may not allow the that they set the same rules ders or those in the former milk products. The company technical requirements. Most product to be imported. Many for import as well. The main Soviet republics.

Feeding the world: the figures

Retail Burgeoning birth rate helps fuel huge growth in the children’s goods sector

Anna Krachenko and Ben Aris special to rn

Russia’s population is no longer dwindling, as the birth rate has been steadily rising since 2009. So much so, that in 2011 Russia became the largest market in Europe for children’s goods as parents splash out on the cute clothing and toys they never had when they were growing up in the former Soviet Union. The political stability of the past decade has helped inspire more couples to start families, resulting in a tidal wave of post-Soviet babies. This has fed through to the children’s goods sector and sales of baby clothes, baby food, toys and accessories have rocketed, allowing chains like Detsky Mir (Children’s World) to benefit. The toys sub-sector is one of the fastest growing of all non-food product groups, with the market expanding by 76pc in the past five years, according to market information service PMR. Indeed, legendary UK toy store

Hamleys is cashing in on the growth, and has just opened a new store in Moscow. In Soviet days, it was the dream of every child to visit Detsky Mir and queues encircled the huge building. Founded in 1957, the company has transformed itself into a modern retailer and is expanding fast.VladimirYevtushenkov, the owner of parent company Sistema, said in December at the Russia

The toy market is one of the fastest growing and has expanded by 76pc in the past five years Forum: “I believe that the turnover will amount to nearly $1bn (£631m).” He plans to add another 25 stores to the existing 146 outlets operating in 73 cities around the country. There were 22 million children under the age of 14 in Russia last year, and sales in Moscow accounted for one quarter of the total demand for toys, says PMR retail mark e t a n a ly s t K a t a r z n a Twardzik. That represents a market worth $11.3bn,

against the $7bn made on toys in 2006, according to RBC Market Research, making Russia Europe’s biggest toy market. By contrast Germany posted $10.5bn of sales in toys in 2009 but is only growing at an annual rate of 1.5pc. Most other major European toy markets are in decline. Despite the increase in births, this growth in sales of children’s products is in line with other aspects of Russia’s consumer market. For instance, Russia became the largest European milk market in 2011. By 2018, Russia is predicted to become the largest consumer market in Europe for all goods. With a population of some 11.5 million registered inhabitants, most consumer spending growth is concentrated in Moscow, the largest city in Europe. But as Russia recovers from the economic crisis, its burgeoning prosperity is spreading slowly to the 11 regional cities with more than a million residents – known as the Millionniki – turning Russia into a retailer’s paradise. Russia’s per capita incomes may be half of those in Europe, but as Russians have no debt to

speak of they have the same spending power as Europeans – and they love to shop. Russia has already become the 11th-largest consumer market in the world and the second or third largest in Europe in many product categories, according to market research company Euromonitor. “Rising wealth levels over the past decade have turned Russia into a middle-class country arguably for the first time in its history,” says Citigroup’s chief Russian strategist Kingsmill Bond. Russia is quickly closing the gap on Germany – currently Europe’s largest retail market. Russia’s total annual retail turnover was $470.3 bn (£296.9bn) in 2009, according to state statistics agency Rosstat. In 2010, this figure rose to $543.5bn, and grew by 5.4pc in the first half of 2011. While Germany’s total retail sales are still higher than Russia’s, its growth rate was not as sharp, increasing by 1.1pc and 1.3pc in real terms in 2010 and 2011 respectively, according to provisional figures from the federal statistics office. With the increase in consumer spending power, Rus-

kommersant

Baby boom drives plot for latest toy story Having babies is back in fashion for Russians, resulting in rocketing sales for makers and retailers of children’s products.

Spoilt for choice: the children’s goods sector surges ahead

THE numbers

11.3

billion dollars were made on toy sales in Russia last year, up from $7bn in 2006.

2018

Is the year when Russia is predicted to become the largest consumer market in Europe.

MOSCOW BLOG

Traders form new bonds with high-yield treasuries task here is to assist Russian manufacturers in their attempts to understand foreign markets and their regulations. “We should also strive to negotiate with our existing and potential importers about bringing compatibility to our mutual food regulations and their import rules.”

Elena Krivovyaz

sians are looking to buy bett e r qu a l i t y a n d m o re sophisticated products.“Food is the fastest-growing segment in Russian retail,” says Ms Twardzik.“It can already compete with leading western European countries.” More generally, Russia’s clothing, footwear and accessories market is the fastest growing in Europe and was already worth $56.8bn (£35.9bn) in 2010.“If it maintains its current 10pc-a-year expansion, then it will overtake Germany to become the biggest market in this segment within the next two years,” says Ms Twardzik.

Ben Aris

special to rn

change in Russian law easing requirements for foreigners seeking to invest in government treasuries has resulted in high demand for domestic bonds. A revolution is under way in Russia’s domestic capital market. In the first week of February, demand for Russian government bonds outstripped supply more than fivefold as traders in London and New York snapped up the high-yielding 10-year bonds. “It was pretty spectacular demand, and the strange thing was that 70 to 80pc of the bids came from foreign investors,”said a trader at Deutsche Bank. The auction raised 35bn roubles, (£755m), more than twice as much as originally targeted. It was the first sale of Russian government bonds since a new policy came into effect on January 1 that has opened up the local market to foreign investors without accounts or branches in Russia. Next month, the Russian bond market will be hooked up to Clearstream and other international settlement systems, making it even easier for foreign traders to tap into it. These changes in the bond market are just the latest step in the ongoing reform of Russia’s financial system. “Russia’s financial infrastructure is undergoing its greatest transformation since the beginning of the Nineties, when the country made the switch to a market economy,” said Chris Weafer, chief strategist with Troika Dialog.“These

changes could result in a reevaluation of assets and removal of any risk premium associated with Russian equity valuations versus other emerging markets in the next two to three years.” While higher-than-expected oil prices meant that Russia ended 2011 with a small surplus of 0.8pc, in January a deputy economics minister told reporters that Russia’s federal budget deficit in 2012 may amount to 1pc of GDP. To finance this gap, the state is turning to the domestic market, where domestic borrowing overtook foreign issue of Eurobonds for the first time in 2011. According to the Finance Ministry, the Russian government’s domestic debt jumped 42.5pc in 2011 to 4.2 trillion roubles (£90.5 billion), including government guarantees, half of which is in fixed coupon bonds. This is slightly more

Changes in the bond market are the latest step in the ongoing reform of Russia's financial system than the total outstanding Eurobond market, which was worth $115bn (£72bn) at the end of January. According to Mr Weafer, these changes are more proof of an ongoing shift in the centre of gravity of the global financial system. With Moscow’s geographic location lying between two important financial centres – London and Hong Kong – it is perferctly placed to emerge as a major regional player. Ben Aris is the editor and publisher of Business New Europe.

london blog

Working towards a post-industrial revolution Alexei Moiseev

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n order to follow through on its election promises, the Russian government now needs to make the changes that are necessary for sustainable, long-term economic growth. As a middle-income country with a large public sector to support, neither labour costs nor taxes are low in Russia. Although Chinese labour costs are rising, they’re still a third of those in Russia, giving the Chinese a huge advantage in the global market for manufactured goods. The government has attempted to erode the Chinese advantage by subsidising industries and erecting high tariff barriers. Ultimately it simply delays the necessary productivity and management reforms that would help Russian industry become more competitive. Subsidies and protectionism actively works against increasing manufacturing productivity. The government has attempted to overcome its structural problems with fiscal and monetary tools to stimulate domestic demand, a tactic used in many developed countries. But this has only worked to boost inflation and increase reliance on imports. It has not addressed the fundamental problems: labour in Russia is too expensive to produce cheap goods competitively, while being unable to compete in higherend manufacturing. Some have called for a wholesale reindustrialisation of the country so it can compete with China, much as it did during the Soviet era. This would involve major macroeconomic and institutional reforms, including greater levels of government intervention. However, current rates of capital flight show that Russian investors are nervous about such prospects. All this is not inherently discouraging. The real prize lies in developing a post-

industrial economy with higher-value knowledgebased industries and services. To achieve this, the government needs to ensure that all sectors have an equal chance to thrive.This involves introducing a natural resources tax, reducing subsidies and trade protection for weaker sectors, and reducing regulatory and tax barriers to new businesses. Other vital reforms include accelerating privatisation and further deregulation. The government also needs to ensure that investors can deploy their capital without fear of future arbitrary confiscations or regulations. Private property rights must be taken seriously and upheld by the judiciary. The legal system needs to be fair, transparent and independent, so decisions are apolitical and consistent. These moves would help reverse the cor-

The real prize lies in developing highervalue knowledgebased industries and services ruption that has been holding back the economy. Added to this, the labour force needs to upgrade its skills to compete in the knowledge economy of the 21st century. If the policy mix is correct, Russian businesses and investors should be able to modernise the economy themselves from the bottom up, with strategic help and investment from the government where appropriate. The government has made a good start, for example by creating a new Silicon Valley (Skolkovo) and investing significant sums in modern transport and communications infrastructure. In 2012, it should build on these initiatives and continue the path towards modernisation. Alexei Moiseev is head of macroeconomic analysis at VTB Capital, based in London.

Comment & Analysis

Russia now www.rbth.ru

putin 3.0: what can we expect? Leonid Radzikhovsky

special to rn

niyaz karim

hat will Putin’s new presidential term – officially the third, but actually the fourth – be like? Will we see Putin 2.0 reloaded or will the regime collapse and the world witness a third Russian revolution in 100 years? Watching television reports about the rallies calling for fair elections, the Western audience might get the impression that Russia is on the threshold of an Arab Spring, as Senator John McCain wrote to Putin, and that there might still be a rerun of the presidential elections under pressure from the street. Yet inside Russia, everyone – from Putin to his fiercest opponents – knows this is not the case. The game is over and the results are not subject to revision. Under the new law,Vladimir Putin has been elected for six years. His power is absolutely legitimate, impeachment by the Russian parliament is impossible because Putin’s party holds more than 50pc of the seats, and there is no other way that Putin can be removed. As for revolution, this is extremely unlikely in today’s Russia. The shock of 1917, which upset the course of Russian history, has yet to wear off, so even the most rabid members of the opposition repeat the mantra “anything but revolution”.As for Russian pro-Western liberals, they are terrified of revolution because they have little doubt that the liberated people would give them as rough a deal as in 1917. No matter how scathing the liberals might be of Putin, they are even more

The myth about Vladimir Putin as a cold-blooded and cynical individual is far from the truth afraid of the people. Such revolutionaries will obviously never stage a revolution. So, after being legitimately elected, Putin will remain in office until 2018, during which time no one will be able to overthrow him. Unless, of course, he decides to quit himself. Now let us take a look beyond the propaganda myths at what Vladimir Putin is

really like. The myth about Putin as a cold-blooded and cynical individual is far from the truth. In reality, he is emotional, sensitive and even touchy. At a rally after his resounding victory in the presidential election, he was crying. Even if one assumes the tearfulness was planned, there can be no doubt that he was very emotional. The view that Putin is a dictator concerned only with personal enrichment does not stand up to criticism either. Putin is 59 years old and has been leading Russia for 12 of them. If he were concerned only about personal gain, he had a wonderful chance to leave the post of president after negotiating

firm guarantees for his safety – which is whatYeltsin did in 2000. The fact that he stayed, despite realising that lean years probably lie ahead, shows he is not guided by his selfish personal interests but by a sense of mission – Russia’s mission. Putin has a profound faith in Russia’s great mission, just like the US, Britain, China or any other great country believes in its own great mission. Having worked in the wild Nineties, he felt Russia’s disgrace deeply when it was weak. As a former KGB officer, he believes the root of Russia’s woes is unfair competition, above all from the West, which traditionally dislikes and is afraid

of Russia.On all these issues, Putin has solid popular support, as many Russians think along the same lines. Putin values personal decency and loyalty and considers himself to be a man of his word. He promised to appoint Medvedev as prime minister and he will keep that promise. Putin, who made a dizzying career within a few months (1998-1999), cannot but believe in his star. I think the successful years of his presidency (up to 2008) further reinforced his confidence. Perhaps that is why he reacts in such a morbid way to what he regards as a challenge to his power. Having enjoyed genuine popular love, Putin is sensitive to changes in society’s mood. The demonstrations apparently hurt him deeply. What policies can we expect in the foreseeable future? Putin will try to divide and rule: part of the opposition has already been recognised; they have been allowed to register their own political party and will take part in elections. Will Putin allow greater freedom of expression? During the elections, it became clear that he had no reason to be afraid of such freedom. Putin has been criticised a lot, but that has only helped him. If he controls the overall situation, criticism can even do him good as people begin to sympathise with him and feel angry at his critics. It’s a simple recipe: keep overall control and allow freedom to criticise within limits. Putin will not share real power but will appoint top officials. He will turn a sensitive ear to public sentiment, especially on social and economic policy. For example, he will do everything possible to avoid raising the retirement age. Thus, Putin vintage 2012 will be a president who keeps real power firmly in his own hands, expands public political freedom, puts his faith in patriotic propaganda and judicious social policy. Leonid Radzikhovsky is a columnist at Rossiyskaya Gazeta. An expert in political technologies, he has advised many senior politicians in their election campaigns.

special to rn

he Western media’s reaction to the events surrounding the presidential election in Russia seems to have been somewhat misguided. Headlines such as“Putin’s pyrrhic victory”and“The end of Putinism?” were rampant, but was there ever any real chance of the so-called“snow revolution” toppling Putin? It’s hardly surprising that Senator John McCain tweeted that the Arab revolution was coming to Vladimir Putin’s door, as McCain also believes the American operation in Afghanistan to be a “sustainable success” (according to his recent opinion piece in The Washington Post). McCain’s tweets can safely be reserved for optimistic fantasists. What is more worrying is that the same revolutionary tune was adopted by American, British and other west European media giants, some of them even with their own correspondents in Russia. How could the modern media leviathan be so blind to the reality of the situation? It is arguable whether a

revolution in Russia, especially one modelled on the Libyan or Egyptian uprisings, would be good for the West.Why the Western media tends to believe stories about Vladimir Putin’s hostility to the West, quoting only Putin’s bitterest enemies as reliable experts, is a mystery to me. Putin’s record in power (agreeing to American bases in Central Asia and an International Security Assistance Force transportation hub in Central Russia; acquiescing to Nato’s and the EU’s expansion into the Baltic; encouraging mergers with western companies) is not anti-western. But even if we agree that Putin being removed from power by the snow revolution would have been a good thing, it clearly wasn’t going to happen, though dramatic pictures of bored Moscow clerks and the likes of Ksenya Sobchak (Russia’s Paris Hilton) demonstrating against the regime produced heightened expectations. The first reality check should have registered in January, when Sobchak (now in fashionable protest garb) and most other protesters happily went abroad for the New Year vacation. Revolu-

Letters from readers, guest columns and cartoons labelled “Comments”, “Viewpoint” or appearing on the “Opinion” and “Comment & Analysis” pages of this supplement are selected to represent a broad range of views and do not necessarily represent those of the editors of Russia Now or Rossiyskaya Gazeta. Please send letters to the editor to UK@rbth.ru

Once again, the question: “Who is Mr Putin?” rbth.ru/15098

second fiddle calls new tune Ilya Zhegulev Forbes

ontrary to rumours that the MedvedevPutin tandem will fall apart because it will no longer be needed once Vladimir Putin regains the presidency, it looks like Dmitry Medvedev will remain in government. Several high-ranking sources in the government and the Kremlin have confirmed that Medvedev will be prime minister until the end of Putin’s presidential term.“The White House will not be without Medvedev – that is inconceivable,” said one. Although the talk about change will remain largely just talk, there will be some changes in the new regime and some departures. The old-timers will be among the first to be sent packing. The list of candidates for dismissal is topped by Minister for Emergencies Sergei Shoigu and Transport Minister Igor Levitin. There will also be major changes in the fuel and energy department. Sources have indicated that Deputy Prime Minister Igor Sechin, dubbed Putin’s most loyal deputy, is likely to quit. A high-ranking government source says this is the key condition set by Medvedev, who has had a long-running feud with him. He is likely to be followed by his protégé, Energy Minister Sergei Shmatko. The acrimonious relationship between former finance minister Alexei Kudrin Kudrin and Medvedev will prevent Kudrin, who left the government late last year after a very public spat with Medvedev, from returning. Kudrin is likely to continue to engage in right-wing political projects and will probably find a common language with ex-presidential Right Cause candidate

a n d o l i g a rc h M i k h a i l Prokhorov. Of the current key ministers, only Igor Shuvalov – the senior deputy prime minister in charge of the economy – looks set to stay. And he will be partnered by his one-time Kremlin colleague, presidential aide Arkady Dvorkovich, says a cabinet source. According to a high-ranking source, the government will become more “projectbased”. Medvedev will have several deputies who will not be in charge of departments, as is the case today, but responsible for various projects. For example, he might have a deputy prime minister responsible for reform of the housing and

As a deputy prime minister, Medvedev was ruthlessly devoured by apparatchiks from different departments who sabotaged his work utilities sector. However, former deputy chief of staff Alexei Volin says the problem with this project-based approach is that there is too much overlap between departments. “It would be wrong to say that the housing and utilities complex is linked exclusively with the Ministry for Regional Development. It also includes the Energy Ministry, the Tariff Service, the Ministry for the Economy, the Transport Ministry and the Communications Ministry. Who will settle the differences between them?” he asks. The new plan is reminiscent of one that was implemented during Putin’s second presidential term, in which none other than

Medvedev was made deputy prime minister in charge of national projects. At that time, Medvedev was No 2 to then prime minister Mikhail Fradkov, but nevertheless he was ruthlessly devoured by apparatchiks (loyal servants) from different departments who sabotaged his work, according to a member of that administration who did not want to be identified. A once high-ranking presidential administration member recalls how, two days before one of Medvedev’s foreign trips, the premier failed to sign a document needed for the trip because his aide had latched on to some formality. Also, those familiar with the goings on of the White House recall how ministers would frequently fail to show up for meetings with Medvedev because the apparatchiks had deliberately scheduled them for another meeting with the prime minister at the same time. Similarly, ministers can sabotage the work of deputy prime ministers.“When deputy prime ministers supervise specific ministries, they are the bosses”, another source close to the government reasons: “If both Shuvalov and Kozak (also a deputy prime minister) issue orders, the ministers may fulfil the orders of one and not the other. “And let us not forget that the budgets are still in the hands of the ministries. It is a scheme that patently cannot work.” Evgeny Minchenko of the International Political Expert Institute believes that there is a more effective way to reform the cabinet structure: “The best way would be to get rid of the ministries with complex structures,” he says. First published in

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No arab spring in Russian winter Dmitry Babich