State injects £2.4bn into drugs industry P.04
Just what the doctor ordered
A force for the future?
Gorbachev and Yeltsin
Russian police face sweeping reforms P.02 50th Anniversary
of Manned Space Flight
The contrasting faces of perestroika P.07
Tuesday, February 22, 2011
This eight-page pull-out is produced and published by Rossiyskaya Gazeta (Russia), which takes sole responsibility for the contents
Terrorism Kremlin demands better protection for public after airport bombing
Medvedev beefs up security Authorities across the country were galvanised into action after last month’s Domededovo attack exposed flaws in security screening. NIKOLAI ALENOV, ALENA TVERITINA
Sometimes, it seems that the Kremlin chief has to crack the whip to get things moving. With Russia still reeling after the Domodedovo airport suicide bombing on January 24, which killed 36, President Dmitry Medvedev made snap inspections of public transport hubs, putting his authority behind attempts to improve security. Most recently, the president arrived unannounced at Moscow’sVnukovo airport, where he passed through a metal detector and had his pockets searched by a security service officer. Before that he surprised staff at a Metro station and the capital’s Kievsky mainline station, a key link with the restive south of Russia, the source of most home-grown terrorism in the past decade. “Just take a look, I haven’t seen a single police officer,” the dissatisfied head of state told embarrassed officials at Kievsky station. While sceptics may see the visits as a photo-opportunity, the reality is that in Russia it
FSB chief Mr Bortnikov, Mr Medvedev and Mr Sobyanin inspect Metro security
often takes intervention from the highest level to get things moving. For example, in response to the president’s suggestion that more police dogs should be
used to enhance security, the Mayor of Moscow, Sergei Sobyanin, ordered the construction of kennels for 500 dogs that will be trained for security duties. Under the
threat of dismissal, security heads across the country are now busily reconsidering how and where their manpower is deployed. And lawmakers were rushing to tighten con-
trols in the production of fireworks, which, with chemical alterations, can yield weapons-grade explosives. Coinciding with moves to reform the police, the Domod-
edovo bombing highlighted many security failures, from lack of a defined chain of responsibility among law-enforcement bodies to an absence of patrolling officers at key locations. “At the moment everyone is blaming everyone else, saying, ‘I’m only responsible up to such and such an extent’, or there is supposedly joint control which in reality results in there being no control at all,” Sergei Ivanov, the Deputy Prime Minister, told security and transport chiefs four days after the bombing. The Chechen warlord Doku Umarov claimed responsibility for the attack, which was carried out by a 20-year-old man from the republic of Ingushetia. Rashid Nurgaliyev, the Interior Minister, has said more security staff will be placed at airport entrances and in open terminal spaces. Technical security systems are also being rapidly installed at railway and bus stations. Since the January attack, the authorities have added almost 130 metal detector frames at railway stations in Moscow and St Petersburg. All stations would be equipped with detectors by late March, Russian Railways said. There
A giant step for Earth-bound Mars crew DMITRY RODIONOV
The human race has finally set foot on the Red Planet. Kind of. In a unique 520-day experiment to simulate a mission to Mars, a six-man international team of researchers completed the first leg of the journey this month. Broadcast live on a giant screen at the real space mission control centre outside Moscow, two crewmen, Russian Alexander Smoleevsky and Italian Diego Urbina, emerged in space suits after eight months of isolation to stage a “landing”. “Today, as I see this Red Planet surface I can already feel how inspiring it will be
Video at www.rbth.ru
Russian Alexander Smoleevsky and Italian Diego Urbina stretch their legs on a fake Martian landscape after eight months in cramped conditions
to do it through the eyes of the first human to step on Mars. I salute the explorers of tomorrow,”Mr Urbina said in a radio link-up with officials, cosmonauts and media at the control centre. Mr Smoleevsky also dedicated the sortie to the first human space flight made 50 years ago this April 12 by Yuri Gagarin. Remotely assisted by Chinese colleague WangYue, they performed atmospheric, soil and other tests that Mars explorers will one day carry out. They then planted the flags of Russia, China and the EU. The team of male volunteers, which also includes two more Russians and a Frenchman, went into isolation last June as part of the Mars-500 experiment to gauge the physical and psychological effects of a long-term mission. Be-
fore they rejoin life on Earth, their handlers will subject them to the claustrophobia, stress and fatigue that real spacefarers experience. The experiment is being conducted by the Moscow-based Institute for Medical and Biological Problems, in collaboration with the European Space Agency and China’s astronaut training centre. Their simulated craft comprises several interconnecting modules, including a greenhouse where fresh produce is grown, and with living quarters just around 20 yards long and less than four yards wide. There is a builtin Martian surface model for three planned space walks. During the simulated flight, the team has an internet link to Earth, but this is deliberately prone to the breakdowns anticipated during a
Food industry to be opened to investors Russia may make it easier for foreign companies to invest in its food industry. Government amendments submitted to the State Duma, the lower house of parliament, would change a law regulating foreign investment in strategic enterprises, the Duma said. A law limiting foreign investment in strategic enterprises was passed in 2008, before the global financial and economic crisis struck. It requires government approval for major deals involving foreign investment in strategic enterprises, which include oil, gas, the nuclear industry, arms production, fisheries, aerospace, the media, and also food companies dealing with infectious agents and radioactive sources.
Minister backs new sex equality law The Ministry of Healthcare and Social Development has proposed a bill guaranteeing equal rights and opportunities to men and women, Tatiana Golikova, the health minister, said. Analysts, however, remain sceptical about the proposed law. Although Russian legislation includes several anti-gender discrimination acts, it lacks a single federal law preventing it. Ms Golikova could not say when the new law“on state guarantees of equal rights and freedoms to men and women and equal opportunities for exercising these rights and freedoms”, would be adopted. “We are reviewing the legislation and will draft a single act protecting women’s rights,” Ms Golikova said at a meeting with the United Nations High Commissioner for Human Rights, Navanethem Pillay. “This is a demanding task,” she added.
CONTINUED ON PAGE 2
Space travel Scientists test human guinea pigs in simulated mission to the Red Planet
It may take two decades to mount a manned mission to Mars, but work is under way.
NEWS IN BRIEF
trip to Mars. Depending on its orbit, Mars is located 35 million to 250 million miles from Earth. While the main condition of space travel – weightlessness – is missing, the crew sleep in bunks at a 12-degree angle to create a feeling of unfamiliarity. The Russian cosmonaut Boris Morukov, director of the mission, said at its launch:“Each crew member has the right to end the experiment and walk out.” A similar isolation trial at the institute 11 years ago broke down when a Canadian volunteer said a male colleague tried to forcibly kiss her. Two other team members came to blows. But there is plenty of time to get the crew dynamic right: experts do not expect a manned Mars mission until the mid-2030s.
Kremlin signals end to daylight saving
The decision by President Dmitry Medvedev to scrap the annual move to daylightsaving time from October is backed by 60pc of Russians, a poll showed. Russia has been switching to“winter”time on the last Sunday of October since 1981. But power savings from switching the clocks are thought to account for no more than 0.2pc of total consumption. Daylight-saving time is practised in every European country except Iceland, and across the world. The first recorded time change in Russia was in 1917.
IN THIS ISSUE OPINION
After sturgeon stocks in the Caspian Sea were nearly wiped out by overfishing and poaching, the fish – and its coveted eggs – are back in legal circulation. VLADIMIR RUVINSKY RUSSIA NOW
Conservationists and lovers of black caviar in Britain may allow themselves a cautious
hurrah. After a nine-year ban on exporting the delicacy fish eggs to this market, Russian authorities have opened the channel to the European Union again – with provisos – now that the endangered sturgeon population is recovering in farmed conditions. As cultivated stocks of the giant“tsar fish”start to reach maturity, Russian shops can
again sell black caviar produced by state farms set up in the past two decades. But beware those travellers who load their suitcases with jars bought anywhere but in duty-free stores, even if they can produce sales receipts. “This is contraband,” said a customs officer at Moscow’s Sheremetyevo airport, adding that smuggling is pun-
Blue skies lie ahead for black caviar
Sturgeon numbers are recovering under farmed conditions
ishable by up to six years in prison. To casually export legally acquired“street caviar” one must have special permission, which the average buyer can never hope to receive. And the federal customs service says the maximum amount of duty-free caviar you can buy is 250g. The caviar export ban and subsequent sturgeon fishing ban were put in place to combat illegal hauls of the fish from the Caspian and Azov Seas, once the source of more than 90pc of black caviar on the world market. After the CONTINUED ON PAGE 3
Conservation Fish farms help bring the critically endangered sturgeon back from the brink
News for sale
Kremlin plans privatisation of state media outlets SEE PAGE 6
Politics & Society
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Law enforcement Reform cuts numbers and boosts salaries in an attempt to clean up the organisation
A new force to be reckoned with Dogged by low salaries and low public regard, the country’s police face reforms that may make or break the force. Russia Now goes on the beat with Moscow’s cops.
The front line Mikhail Menshenin, from Surgut, Western Siberia, served in the armed forces and joined the police three years ago. He patrols with a partner in 12-hour shifts four or five times a week. Sgt Menshenin welcomes the law, but wishes more emphasis had been given to a comprehensive social package for officers.
Mikhail Menshenin, 25, patrols Moscow’s Southwest district. ‘It’s tough psychologically but rewarding,’ he says
suspects in the murder of a football fan. But it is largely the routine solicitation of small bribes, often when motorists are accused of minor traffic offences, that has soured Russians against the force. The police, meanwhile, defend them-
Kremlin drives broad security overhaul after Domodedovo bombing CONTINUED FROM PAGE 1
are also proposals to link some public transport junctions with the Glonass satellite navigation system, used to monitor transport links from the North Causasus to Moscow. But not everyone is impressed.“The current developments in state security seem like just another public relations campaign. I fear that once it’s over, things will go right back to where they were,”saidVladimirYevseyev, Director of the Centre for Public Policy Research and an expert on international security issues. “Countries with serious security problems do not solve them using metal detectors,” he added. The president was quick to blame lax security for the airport bombing. But authorities acknowledge there is a wider failure to tackle Islamist militancy in the North Caucasus. Terrorist groups
selves vigorously against criticism of their conduct.“What do you expect for the money we make?”asks Alexei, a lieutenant in a different precinct who did not want to give his last name. “The good officers only take bribes for minor stuff, a few roubles from
In recent security discussions, everyone from the president down has emphasised the need for greater public vigilance. Mr Medvedev has also ordered security and transport officials to draft by April a schedule for regular exercises on how to protect people in public places from terrorist attacks. Judging from the public reaction to the airport attack, have carried out several at- implementing a new £1bn, citizens might welcome the tacks in Moscow over the four-year programme for“en- initiative. In a national surpast decade, including twin suring security of the popu- vey in early February by the suicide blasts on the Metro lation on public transport” VCIOM polling organisation, that killed 40 last year. and had already disbursed 80pc of 1,600 respondents “The problem is that we do almost £165m when disaster feared that they or their relnot understand the phenom- struck, according to Mr atives may fall victim to a enon of radicalism and reli- Ivanov.“It’s no small sum, but suicide bombing. A third said gious fundamentalism,” as far as results are con- it was impossible to eradiMikhail Margelov, who rep- cerned, we’ve just seen,” he cate terrorism in Russia. “There is a lot left to do,”said resents the ruling United said of the bombing. The United States set up the Oleg Orlov, director of the Department of Homeland Memorial Human Rights Security after the attacks of Centre. According to him, the Four-fifths of September 11, 2001, and Mr solution to the terrorism Russians are afraid called for a similar problem can only be found they or their relatives Ivanov organisation to oversee the at its source – in the North may fall victim to a security of transport and Caucasus region.“Solving social problems, fulfilling soother infrastructure. suicide bombing Current reform of the police, ciety’s expectations, that’s the Russia Party on Russia’s Se- with an expected cut in the solution,” he insisted. curity Council, said in a re- 1.4 million-strong force by Mr Yevseyev agreed: “The cent interview on Radio Svo- 250,000 officers, may com- majority of the younger popboda. “If we cannot combat plicate effort. But the inte- ulation there is uneducated the sources of terrorism, we rior ministry has said it will and unemployed, but knows will cure the cold and not move to better co-ordinate how to handle a weapon.”But the virus that started it.” law enforcement with private he added: “The problem of Mr Ivanov said that a gen- security companies that em- the Caucasus basically caneral rethink of security prin- ploy 640,000 people and in not be resolved in the very ciples was required. The gov- many cases already work in near future… and we need security now.” ernment last summer began tandem with the police.
new name,” said Gennady Gudkov, deputy chairman of the Security Committee in the State Duma (lower house of parliament) and a member of the opposition party A Just Russia. According to the legislator, the pro-Kremlin United Rus-
someone violating immigration rules or something, just to make ends meet.” Some lawmakers fear that the bill will fail to end corruption or ease popular discontent with the police. “Instead of a new force, we get the same militsia with a
sia party blocked attempts to subject the police to greater public scrutiny. “We proposed increasing public oversight through grassroots organisations,”he said.“They denied it.” Some senior police officials are also sceptical that the re-
Society Party of People’s Freedom leads the fight to be heard
Opposition finds unity – but still can’t agree Authorities have tightened their grip on small-scale protests, breathing fresh ambition into a still heavily dispersed opposition. VERONIKA DORMAN RUSSIA NOW
It’s Monday and the last day of January, a typical bumper-to-bumper rush hour in central Moscow. But it’s no average gridlock at Triumfalnaya Square, where members of Russia’s emerging opposition movement have come together just as they have on the 31st of every month with 31 days. They are here to defend Article 31 of the Russian Constitution, which guarantees the right of assembly. Last November, authorities in the capital finally approved this now ritualistic demonstration in the square, although they did so without relinquishing their right to massive shows of force. On December 31, at the end of the authorised gathering, several opposition leaders were arrested and sentenced to between five and 15 days in jail. They made international news and gave human rights activists pause. Key activists include Boris Nemtsov, former deputy prime minister turned opposition activist, Eduard Limonov, leader of the National Bolshevik and Other Russia parties, and Ilya Yashin of the Yabloko party’s youth wing. These parties represent several small anti-Kremlin movements that lack cohesion and do not get on with one another, but on this point they agree: the three leaders felt the latest arrests marked a new wave of repressions. However, Nikolai Petrov, scholar in residence at Moscow Carnegie Centre, is not convinced the crackdown means that the authorities are revealing a new strategy of repression, taking the view that this could merely be a short-term reaction to recent events. “Street protests have become popular across Russia and authorities are obviously overwhelmed. But it’s easier to go after ‘goateed people’ [as Mr Putin calls opposition activists] than a
year. He was prompted to act after a police major went on the rampage and shot dead two people in Moscow in 2009. Staff cuts of 20pc and pay rises were announced, while the draft Law on PoARTEM ZAGORODNOV lice was posted online for RUSSIA NOW public discussion. To build Police Sergeant Mikhail trust, the president also proMenshenin dodges blows as posed reverting to the tsarhe tries to subdue a scream- ist-era name politsia. ing 86-year-old pensioner. He The final draft, which includand his partner were called ed suggestions made by orto the apartment by a social dinary citizens, aims to bring worker, who says:“She’s gone the system in line with policing practices around the completely mad.” Calm is eventually restored, world. An officer’s authority and back in the squad car will be limited to his precinct, the sergeant says he’s thank- citizens will have to be read ful the pensioner didn’t have their rights before being arher cane to hand. “They’re rested, and they will be entitled to make a free phone lethal with those things.” The 25-year-old Muscovite call after they are taken into patrols in the south west of custody. the capital, supporting a wife Mr Medvedev also champiand child on a monthly in- oned police pay rises, reportcome of about 25,000 rubles edly of up to 50pc, in an at(£533), a small sum on which tempt to eliminate one of the to live in one of the world’s root causes of low-level bribery and abuse of power. It is most expensive cities. “It’s tough psychologically, a key issue for both officers but hard work is rewarded,” and a public that simply Sgt Menshenin said. “The wants to feel protected. In salary may not be great, but the latest survey by the Levada independent polling orwe get bonuses.” A member of the capital’s ganisation, 60pc of Russians 98,000-strong police force, said they were dissatisfied which is still known by the with the performance of the Soviet-era name of militsia, police, and only 10pc fully Sgt Menshenin wonders what trusted the force. a new nationwide police bill Public anger at the police apdue to be enacted on March peared to peak in December, 1 will mean for his employ- when thousands of youths ment terms, powers and so- took to the streets of central Moscow in violent protests, cial status. President Dmitry Medvedev accusing corrupt police of ordered the overhaul last taking bribes to release key
form will usher in a new era, and believe there needs to be a broad attack on corruption, targeting both state institutions and public attitudes. “If we don’t reform other institutions along with the police and clarify who’s responsible for what, no staff cuts or increases will make any difference,” said Yuri Matyukhin, police chief of Moscow’s Southwest District. Nikolai Petrov, a security expert with the Carnegie Endowment for Peace, also said the public’s low regard for the police was part of a “broader dissatisfaction with state institutions”. “In my personal experience, there was nothing particularly bad about the police alone,” said Mr Petrov. Mr Matyukhin even claimed that few institutions had attempted to combat internal corruption as aggressively as his.“I challenge you to show any government body in Russia that is doing more to transparently fight corruption and purge its own ranks than the militsia is already doing,” he said. But as Mr Petrov notes, the militsia cannot police itself and still expect to restore public confidence: “What’s needed is outside control over the police by public organisations. What we don’t have is responsibility like in the United States, where sheriffs are elected and removed if they do not do their job.” Back on the beat, Sgt Menshenin said that whatever the implications of the bill, layoffs had already begun and had even had a positive effect:“They’ve already fired a lot of the bad apples in our ranks who were harming our reputation.”
Strategy 31 on Triumfalnaya Square, August 31, 2010
Eugene Ivanov MASSACHUSETTS-BASED ANALYST; RUSSIA BEYOND THE HEADLINES, FEB 15, 2011
Not only did their criticism of Putin never really register with the public, but their focus on Putin’s real or perceived transgressions has become more and more misplaced as President Dmitry Medvedev rallies support for his modernisation agenda"
worked-up crowd of football fanatics,” the analyst said, referring to the clashes on December 11 between 5,000 youths and law enforcers by the Kremlin walls. Mr Putin has since accused the liberal opposition of having started a destructive trend in street protests. It is true there was a rise in street protests in 2010, buoyed perhaps by statements from President Dmitry Medvedev that accepted criticism of power. But hopes
that apparent victories for protesters in recent months were a sign that authorities had relaxed their grip were soon dashed. For example, the Khimki Forest protest against a highway project was an environmental cause that turned political. Faced with large-scale protests in the summer, the president decided to listen and halted construction work. By the end of summer the protesters seemed victorious – until construction resumed at full speed in December. Remembering the adage, “united we stand, divided we fall,” leaders of the democratic and liberal movements merged under the banner of the Party of People’s Freedom and the slogan, “For a Russia without Arbitrariness and Corruption,” in order to field candidates in the 2011 elections and a presidential candidate in 2012. However, during his annual televised conversation with the public (a four-hour, live question-and-answer session), Prime Minister Putin o p e n ly s t a t e d t h a t h e
wouldn’t allow the opposition to “reach the feeding trough”– in particular Boris Nemtsov, Vladimir Ryjkov and Vladimir Milov, founding members of the Party of People’s Freedom. But what does not kill the opposition will probably make it stronger. “The authorities want to frighten those who come out against them, but we will continue to defend the constitution,” Mr Yashin of Yabloko said. Still, despite the seething anger of leaders and members of the political opposition, they have yet to build a real base of support. Denis Volkov, a sociologist at the Levada Centre, said this was because their political message had remained too abstract for ordinary Russians, who don’t see the use of the right to assembly if they are missing the right to a life of dignity. Moreover, all of these groups constitue a tiny fraction of Russia’s 141 million-strong population. The ruling tandem’s popularity ratings have continuously hovered around 60-70pc over the last two years, according to the Levada Center. And Mr Nemtsov, for all his political persecution, has inspired very few with his leadership potential. “People are ready to defend their own rights, even strongly, in a sort of social opposition, but they do not see in Nemtsov a man who is interested in their problems,” Mr Volkov said. Yet according to Nikolai Petrov, it’s only a matter of time before the opposition movement gathers pace behind Mr Nemtsov and others. “The problems that are troubling society will not be solved in 2011, discontent will only increase. The opposition is uniting. When the protesting catches on and those who are dissatisfied are looking for spokesmen, the opposition will be there.” Mr Nemtsov is here already, well dressed and full of swagger, declaring recently: “With the current state of things, people need a political party like ours. Our chances increase every time the authorities tighten their grip.”
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section sponsored by rossiyskaya gazeta, russia Distributed with THE daily telegraph TUeSDAY_FEBRUARY 22_2011
Black caviar to make a comeback in Europe
Equities Government begins shedding its wealth of assets
VTB sale launches privatisation drive In mid-February the government began its privatisation programme by selling a 10pc stake in Russia’s second largest bank.
But the fact that the Krem- talisation. “The state is now lin got the SPO off the ground the biggest shareholder in at all should impress, given Russia and so for once its incollapse of the Soviet Union the current dire market con- terests are aligned with those the business became the ditions. After a strong run in of investors, as it wants to province of poachers. “By 2010, equity investments in see the market do well even 2010 the sturgeon population emerging markets have done more than anyone else,”said was a fortieth of what it had Ben Aris Business new europe badly this year as hot money Chris Weafer, the head of been in the late Eighties,” said Alexei Vaisman of the A $60bn Russian privatisa- floods out on the back of ris- strategy at UralSib. World Wildlife Fund. tion programme began this ing inflation fears. But not The privatisation is also inThe preferred canapé topmonth as the government in Russia, which was the only timately linked to the conping of aristocrats, tycoons sold its 10pc stake in VTB major country to attract net tinuing fight against corrupand 007-style agents will alBank, the country’s second new money – $267m of for- tion and attempts to boost ways find its way onto the largest, raising a record eign direct investment – for productivity, as the Kremlin black market. “[Until 2007] $3.3bn. “This is … proof of the fourth week in a row in has realised that employees Russia officially procured 15 trust in the Russian financial the run up to the VTB deal. steal from publicly owned tons of black caviar annualsystem,” Prime Minister While the new VTB offering companies, which are generly, while selling up to 300 Vladimir Putin told the press was not a smashing success ally badly run. it will do, amid plans to roll The state plans to raise a tons,”said Roman Andreyev, after the deal was closed. of investment company AleThe secondary public offer out more blue chips this year. total of 1.8 trillion roubles mar, adding that the largely (SPO) of the stock was met It’s all part of the effort to ($60bn) in the medium term illegal outflow was worth with lukewarm, but suffi- fund an enormous 1 trillion- through the privatisation of $1bn (£616m). cient, demand from investors. rouble ($33bn) investment about 900 state-owned comCommercial sturgeon fishing VTB’s stock was initially of- programme into badly need- panies. For 2011 to 2013, revenues are expected at 298, was banned in 2003, but the fered in May 2007 in what ed infrastructure. main avenue for legalising was called“the people’s IPO” However, the state has also 276 and 309 billion roubles ill-gotten caviar stayed open: and raised $8bn in the big- said that it wants to get out respectively. of business. Taking stock in Next up will be an SPO of all confiscated caviar could gest IPO of that year. be officially sold at retail Small investors flocked to exchange for various loans state-owned Sberbank, prices. That loophole was Retailing at $1,000 per kilogram, legally produced caviar is a valid means of preserving the sturgeon, say conservationists that sale, spending about and bailouts during the cri- which is the biggest bank in closed in 2007, when the gov$1bn on shares, but the gov- sis, the Kremlin doubled its the country and the bluest ernment ordered caviar con“Volumes of this caviar are cutting the poachers. Legal- lem, said Arkady Novikov, ernment was left with egg on ownership of listed compa- of Russian blue chips. The fiscated from poachers to be Black-market caviar now sufficient to begin de- ly produced Russian “aqua- the owner of Russian Caviar its face after the share price nies in the past two years and share sale is slated for the destroyed. In 2009, fishing for produced for less liveries to the European cultured”caviar costs around House, is that for unknown tanked as the subprime mort- now controls about 40pc of end of this year or possibly sturgeon in the Caspian Sea Union,” said Andrei Krainy, $1,000 (£620) per kilo, a third reasons Russia has still to gage crisis struck, ending in Russia’s total market capi- the start of 2012. than $50 a kilo sells for“scientific purposes”was head of the state fishing con- of the price of the contra- sign EU technical protocols a market crash in Septemalso outlawed, which caused for up to $3,000 cern Rosrybolovstvo. His au- band supplies to Europe. on fish farming and the sale ber 2008. The share prices a drop in the level of illegal- in restaurants thority allows the export of Even China, which began ex- of by-products, including never fully recovered: the ly sold roe to 150-200 tons, 150kg of roe to Europe an- porting farm-raised black caviar, from farm-raised stur- state sold global depository Mr Andreyev noted. But it is In recent years, foreign de- nually, a paltry amount com- caviar last year, cannot com- geon.“But without it, not one receipt shares to internationState stake Stake for sale still a highly lucrative busi- mand has been partly met pared to the 1,500 tons the pete with this price.“Increas- Russian company can sup- al investors at $10.56 during VTB 85.50pc 10pc in 2010, 10pc in 2011, 15.5pc in 2012 minus one share. 2010-2015, reducing state stake to ness for those who can get with Iranian caviar, farmed Soviet Union supplied every ing the number of sturgeon ply such caviar and Europe the IPO but was only able to block package provided that there is away with it.“Taking into ac- with the consent of the other year, but it’s at least a start. farms is a positive step to- won’t accept it,” he added. muster $6.25 with the SPO a major investor and increase of the count the bribes paid to con- Caspian neighbours, but even Meanwhile, critics might wards restoring the sturgeon The demand for caviar in Eu- this time round. company capitalisation servationists, bureaucrats this has almost disappeared argue that not enough is population in its natural hab- rope is however “limitless”, Understandably, Russia’s reUnited Grain 100pc 100pc by 2012 and distributors, the cost of from European shops. Given being done to preserve stur- itat,” Mr Vaisman said. said Mr Krainy, and once the tail investors remain livid at Company Sberbank 57.58pc 7.58 pc minus one share in 2011-2013 [illegally] producing one kil- the sturgeon’s growth period geon in the wild rather than Now comes the rub. For all problems are solved he pre- “the people’s IPO”, and the Rosneft 75.10pc 25pc minus one share by 2015. 15pc on ogram of Caspian black cav- of seven years or more, Rus- farming it to tantalise the the talk of resumed exports, dicts that people will rush debacle has impaired the open market, 10pc minus one share in iar is less than $50 (£31), he sian fish farms are only now taste buds of wealthy con- legal Russian black caviar to buy it. But for now, the state’s ability to float more shares exchange said, while on markets and starting to come online. The sumers. But commercially has yet to arrive in Europe share of the precious roe that companies amid broad pubRussian 100pc 25pc minus one share by 2015, including the Railways share-exchange option in restaurants it can cost up first renewed shipments went nurturing the fish may save in anything other than a lit- the state has earmarked for lic scepticism at its investto $3,000 (£1,850). ment promises. to Japan earlier this year. it from extinction by under- tle duty-free jar. The prob- Europe remains in Russia. Source: CEEMarketWatch, EconMin, Deutsche Bank Global Markets Research Ria Novosti
continued from PAGE 1
Privatisation of major companies
Commodities As world producers search frantically for new sources of rare earth metals, Moscow is urged to develop an industry to exploit its vast reserves
China’s decision to reduce exports of rare earth metals shocked the world, but the crisis could be an opportunity for Russia. ivan rubanov
In a dramatic move that rattled its trading partners, China announced last year that it would further reduce exports of rare earth metals (REM) by 10pc in 2011. The decision sent shock waves across the industrialised world as manufacturers are heavily dependent on China for the metals, which are used in a range of sophisticated electronic goods, such as TVs and computer monitors. What compounded the worries was that China had a virtual monopoly, providing 97pc of the world’s supply. Beijing’s decision was strategic. Last July, the People’s Daily published an article by Li Bing, an international strategy expert of the Central Party School. He said poor China should no longer sell its valuable resources cheaply to capitalist countries and declared that REM exports “must be gradually
reduced and, ultimately, stopped.”By August, the Chinese authorities announced cuts in export quotas in the second half-year by 72pc; later, in the first round of export quota distribution for 2011, it cut them by another 11.4pc. In September, China halted exports to Japan; in October, there were supply shortages in Europe and the United States.
REM are expensive and appreciating, so Russia is well placed to leverage its mining capabilities “The market did not hesitate to react to the reduced supply with a sharp price rise: most rare earth products appreciated by a factor of 1.5-4; some of them, by an order of magnitude [10x] or more,”according to analysts at MetalResearch. Russian industrialists should become proactive in developing a strategic REM industry. Beijing’s unilateral quota triggered a hysterical reaction and also prompted a
search for alternatives. India has already declared its readiness to export REM, but it has only some of the rare earth metals supplied to the global market by China. India needs serious investments and technologies, including those aimed at ensuring environmental safety of production facilities. The REM crunch, however, may prove to be an opportunity for Russia. Currently, there is practically no REM production; rare earth metals are mostly produced as a by-product. In northern Russia, for instance, the Lovozersk integrated mining-and-processing plant (IMPP) mines loparite ores (which contain a wide range of REM: tantalum, niobium, zirconium, lanthanum, cerium, etc) and the Solikamsk Magnesium Plant (SMP) processes concentrates of these. But these facilities focus on the production of magnesium; the rare earth metals business is merely auxiliary. Russia has the second largest explored reserves of REM in the world (about 30pc); and the world’s largest an-
ticipated reserves. A good example is the Lovozersk dep o s i t i n t h e n o rt h e r n Murmansk Region, which “consists of three main minerals in about equal shares,” says Alexandr Samonov, a researcher for the Institute of Geology of Ore Deposits, Petrography, Mineralogy, and Geochemistry of the Russian Academy of Sciences. “Besides loparite, the triplet includes eudyalite, an exceptionally rare mineral, which, outside the Kola Peninsula, is found in small quantities only at two locations in the world,” he said. For the production of rare earth metals, eudyalite is much more attractive than loparite, as the REM content is 2–3pc, twice that of loparite, Mr Samonov said. And ore reserves that can be surface-mined are estimated at 80 million tons. The second gem is the Tomtor deposit inYakutia, where REM content in its ores reaches a phenomenal 12pc. Moreover, its proven reserves total 150 million tons, while possible reserves may exceed all the rest of the world’s reserves combined. Finally,
Russia could cash in as China cuts REM exports
A skip loader at work at a rare earth metals mine in the Murmansk Region
Key to electric cars, solar batteries, lasers and more Rare earth metals include scandium, yttrium, lanthanum and another 12 lanthanides, cerium being the most widespread. They are found in nature in dispersed form and hundreds are in minerals. In metallurgy, REM are used in the production of cast iron, steel and non-ferrous alloys.
They are used in laser manufacturing, and added to nuclear control rods and radiation protection coatings. REM have long been used to produce catalysts, primarily for the oil industry. Significant quantities, above all of samarium and neodymium, are used in manufacturing permanent magnets.
One of the most promising areas involving REM is in electric and hybrid cars. The Toyota Prius is a classic example. The latest model includes more than 10kg of rare earths (mostly lanthanum and neodymium) in the batteries, catalysts and metal alloys. REM is also used in solar batteries.
there is another promising source, with apatite ores having been mined on a massive scale on the Kola Peninsula to produce phosphorus fertilisers. Comprehensive processing of the apatite raw material might produce approximately 40,000 tons of rare earth metals a year, experts say. REM production facilities in Russia are, however, concentrated in the hands of a few Russian entrepreneurs who have been in no hurry to invest in developing the sector. SMP and the Lovozersk IMPP are controlled by Suleiman Kerimov’s Sylvinite. Apatite is controlled by the Fosagro holding company, which has shown no apparent interest in REM. However, conditions have changed. Unlike fertilisers, REM are exceptionally expensive and are appreciating by the day, so Russia is well placed to leverage its mining capabilities and associated infrastructure. Moreover, supplying semifinished products to developed countries might constitute a good starting point for establishing the advanced stages of the rare earth production chain in Russia and for spurring the production of innovative goods. China certainly sounded the alarm bells internationally with its export reductions, but ultimately it may be Russian cash registers that ring loudest on the REM market.
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Russia encourages investment at Davos http://bit.ly/h15sFV
Business in brief
Pharmaceuticals Government to boost home-grown companies with cash injection and curbs on global giants
New shot in the arm for ailing drug industry
Toyota in deal to make cars in Vladivostok
Foreign manufacturers are racing to secure positions in Russia’s burgeoning pharmaceuticals market while the Kremlin gets tough on imported medicines. Rachel Morarjee
Business New Europe
£2.4bn State funds to be pumped into drug sector
The Russian government has unveiled a new plan to modernise Russia’s pharmaceutical industry and give local firms a greater presence in international markets, injecting £2.4bn of state funds into the sector. In late 2010, Prime Minister Vladimir Putin set the target of domestically producing 90pc of Russia’s vital medicines and 50pc of its medical equipment by 2020, while increasing exports eight times. Foreign pharmaceutical companies and medical equipment manufacturers in Russia would face sales restrictions if they were not prepared to share their expertise, he warned. “We will have restrictions for them on our market if there are no imports of manufacturing facilities and technologies,”Mr Putin said, adding
that the trade barriers would be gradually implemented. Dmitry Genkin, CEO of Russia’s Pharmsynthez, which raised £10.9m in an initial public offering (IPO) last November, said Russia had struggled with the Soviet legacy of building most of Eastern Europe’s pharmaceutical industry while neglecting its own needs:“It left a huge gap between fundamental sciences and applied science like medicine when the Soviet Union collapsed.” Russian firms have long awaited government support, but current spending levels in the country fall far short of the money spent to support research and development in Europe and America, Mr Genkin noted. “The money being spent by the Russian government is still peanuts compared to spending by the European Commission or the US National Institutes of Health,” he said. Nevertheless, Russia’s pharmaceutical market is growing twice as fast as US and European markets and has already become a key bat-
90pc Vital medicines to be produced domestically by 2020
11pc Estimated growth of Russian pharmaceutical market in 2011
tleground for pharmaceutical companies whose sales have stalled in Western markets as patents expire. The Russian brokerage Uralsib said: “The pharmaceutical market, boosted by consumer and government spending, is set to outperform Russian GDP while the
Russia’s fast-growing drugs market presents a great opportunity for foreign investors
fragmented regional pharmacy segment offers big consolidation potential to leading chains.” To cash in on the market’s growth potential, Western drug giants are determined that they will not be caught out by import barriers and are already setting up domestic manufacturing bases in Russia. Just before Christmas, the Swiss giant Novartis said it would invest £310m in Russia over the next five years, building a production plant in St Petersburg to focus on local manufacturing and
research and development partnerships with local firms. Switzerland’s Nycomed and Denmark’s Novo Nordisk have also announced plans to start producing in Russia, while Britain’s GlaxoSmithKline struck a vaccine deal in November with Moscowbased Binnopharm. And the French giant SanofiAventis in January appointed a new emerging markets management team to boost its market share in Russia, which is considered one of its key markets. Meanwhile, Russian companies are also looking at mar-
kets overseas. Pharmsynthez said it will use part of its IPO funds to purchase pharmaceutical producers in Europe, as well as in the US and Israel. The drug manufacturer is looking for small, growing and profitable companies which own production facilities, Mr Genkin says. With the push to promote domestic pharmaceuticals, the Kremlin has opened up a new front in the war to diversify the Russian economy. Analysts are excited by the government’s initiative as it gives them a new sector in which to invest. In the last
week of January, Uralsib launched research into the pharmaceutical sector with a report entitled Just what the doctor ordered. “Russian pharma producers offer an excellent domestic story and access to defensive market niches and strong cash flows,” the Uralsib analyst Tigran Hovhannisyan wrote. “The relative underperformance of Russia’s pharmaceutical market by comparison to other Bric markets is compensated for by the market leaders’ higher margins and consolidation potential.”
Digital market Electronic publishing capitalises on thriving literary market across Russia and the CIS
Trade surplus rises 24.7pc as exports soar
E-book boom is a page-turner Sales of electronic books and digital readers are soaring as manufacturers exploit the poor reach of traditional publishing across Russia. Rachel Morarjee, Graham Stack business new europe
loaded product on the Russian internet by industry experts; Mr Dunlop says the number of downloads from Bookmate grew exponentially in the past year. The rising popularity of e-books is easy to see; it seems that every carriage on
Given Russia’s nine time zones, no other market in the world is quite as well suited to electronic books the Moscow Metro has at least one or two people clutching an e-book reader. And rising demand for affordable e-readers has already been met with a popular, cheap and effective Ukrainian-produced reader.
Oleg Naumenko, 29, the Ukrainian entrepreneur who launched the best-selling Pocketbook e-reader, realised that a product designed for the Russian-language market could profit from the huge number of free (pirated) files on the internet without infringing copyright laws. Before the Pocketbook, the drawback of such files was the inconvenience of reading from printouts or LED displays. Mr Naumenko’s Pocketbook e-reader range does not come cheap at around £190, but users recoup their investment quickly if they use it as a substitute for buying hard copies of books. The crisis year of 2009 was a breakthrough for Pocketbook; it sold 142,000 devices, earning £23m. Around 60pc of the devices were sold
in Russia and most of the rest in Ukraine. According to SmartMarketing, Pocketbook captured 43pc of the Russian market, with Sony a distant second with 24pc. Pocketbook’s success was expected to continue in 2010, with earnings estimated at around £94m. Mr Naumenko has also established an e-book where licensed files cost a fraction of hard copy. With a Russian population of 142 million, a total of 110 million people in the CIS online and double-digit growth in the spread of internet capability, the market has huge growth potential.“As long as people have an internet connection you can start to use the power of technology to crack open new markets,” Mr Dunlop said. E-books are a common sight on the Moscow Metro
Russia’s trade surplus grew 24.7pc to $167.5bn in 2010, $33.2bn more than in 2009, the Federal Customs Service said. Exports rose 31.4pc year-on-year to $396.4bn, including a 32.1pc rise in exports to non-CIS countries to $336.7bn, and a 27.4pc growth of exports to the CIS states to $59.7bn. Imports rose 36.8pc yearon-year to $229bn. Imports from non-CIS countries grew by 35.6pc to $197.4bn, while imports from CIS states rose 44.8pc to $31.6bn.
With classic writers such as Alexander Pushkin still firm favourites beside detective potboilers, electronic publishing is in hot pursuit of Russia’s avid and largely untapped readership. “Russia has very little physical distribution of books. There are no nationwide chains like Barnes & Noble or Waterstone’s,”said Simon Dunlop, founder of the digital download company Bookmate.ru. A total of 80pc of books are sold in Moscow and St Petersburg, with only 20pc in
the regions, according to the booksellers Bookmate and Ozon.ru. But digital distribution may overcome the challenges of selling books across this vast territory. “With digital media there are no border controls, no customs and no transport costs,”said Mr Dunlop. With nine time zones, no other market in the world was as well-suited to e-books. The former Soviet Union was a “nation of readers”, and Russia remains a society with literacy on a par with or higher than Western Europe. But internet piracy has held back the development of the publishing industry, with illegal downloads robbing publishers of revenues needed to back new authors. E-books are thought to be the leading legally down-
Leisure industry Film distribution reaps the benefit as more people go to the cinema
Movie business finally makes the grade as a billion-dollar baby Russia’s movie distribution market is a ripe prospect for foreign investment after the 2010 box-office take soared to $1bn. Tim Gosling
Special to russia now
Thanks to oil and gas revenues, Russia has become a middle-income country, and its people increasingly enjoy the little luxuries of life, such as going to the movies. So much so, that by November 2010, the value of Russia’s movie distribution market had reached $1bn (£620m), up 40pc from the
Top-earning films in the CIS, 2011 Title
Total gross $USD
20th Century Fox
3. The Chronicles of Narnia: The United States Voyage of the Dawn Treader 4. The Tourist
5. Tri bogatyrya i Shamakhanskaya tsaritsa
2009 box-office season, Russian Film Business Today reported. Companies are building cinemas across the country (usually in the shopping centres that are going up in every city) and last year’s box office take makes Russia the fifth biggest movie market in the world. The importance of the Russian movie market was highlighted by the success of two American films at the beginning of this year. The Tourist and Gulliver’s Travels attracted bigger audiences in Russia than in any other market in the world bar the US: the
former film took $10.3m (£6.4m) on its first weekend in January while the latter took $9.5m (£5.9m). But foreign investors have generally yet to arrive in this promising market, which is dominated by Russian distributors – who account for around 97pc of the total revenue the sector generates, according to the trade publication Kinobusiness. According to consulting firm PricewaterhouseCoopers, one of the strengths of the Russian cinema market is that the consumer seems prepared to pay more for quality. Box
Japanese car-making giant Toyota, the Japanese trading house Mitsui & Co and Russian car-maker Sollers will launch joint car production in the far eastern city of Vladivostok in 2012, the Japanese business daily Nikkei reported. Toyota will provide parts and production technology for the joint venture, which will aim to build 30,000 Toyota-brand vehicles a year. The Vladivostok plant is expected to assemble saloons and off-road vehicles. The participants of the joint venture will discuss production details and financing later this month. Initially, the companies plan to operate the production facilities of Sollers. Toyota will supply car parts from Japan while Mitsui will transport cars via the TransSiberian Railway for sale in Russia, Nikkei wrote. Toyota will become the first Japanese car-maker to assemble cars in Russia’s Far East. The Russian government has made major investments in the Far East after protests in 2009 over higher tariffs on car imports, on which the region is highly dependent.
office revenues were up by 40pc in 2010, but the audience only increased by 14.9pc over the same period, it noted. This strong performance is doubly surprising, as although Russia has become a hot market for Hollywood blockbusters, the infrastructure remains underdeveloped. There are fewer than 11,000 screens in Russia, of which about two-thirds are modern.There should be four times that number, given the population of 142 million, says Viktor Frumkin, CFO of Kinoplex, which operates dozens of movie theatres in Russia’s regions. “One mid-sized cinema operator in America has more screens than all the screens currently operating in Russia,” says Mr Frumkin, adding that the relatively low penetration of screens is
more than offset by the sheer numbers of movie-goers. Hollywood has woken up to the profits that can be made in Russia, but so have Russian producers: imported films are already facing stiff competition from home-
Foreign investors have yet to arrive in the market, which is dominated by Russian distributors grown offerings. In the 2010 box-office year (which runs to November), 338 films were released in the Commonwealth of Independent States,with distributors of Hollywood films grossing a quarter of the total take, or $250m (£155m). The rest of the box-office receipts went to Russian distributors.
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GLOBAL RUSSIA BUSINESS CALENDAR 5th annual open russia conference: partnership for modernisation march 24-25, world trade centre, Moscow
Over the last several years, the number of Russian companies interested in increasing their level of international involvement has greatly increased. The conference seeks to capitalise on this important trend and serve as a venue for exchange between Russian and foreign executives. The conference is an annual meeting of Russian and foreign entrepreneurs, financiers, lead experts, journalists and representatives of federal and regional governments. The organisers are the Chamber of Commerce and Industry of the Russian Federation and AER group. Previous speakers of note include Sberbank president and former economics minister German Gref and steel magnate Alexei Mordashov.
Banking & Finance
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most read Leading Russian exchanges MICEX and RTS to merge http://bit.ly/gjEesZ
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Foreign direct investment Latest figures suggest that multinationals are once again sensing opportunities in Russia
Big names eye up huge deals Buoyed by major new deals with foreign companies, the Russian leadership is now seeing returns on efforts to modernise the country and enhance investor appeal. Tim Gosling
business new europe
Overshadowed as his trip to Davos was by the January 24 terrorist attack on Russia’s Domodedovo airport, which left 35 people dead, President Dmitry Medvedev had a string of billion dollar-plus deals to show off as he took the podium at the World Economic Forum. Oil major BP’s share swap deal with state-controlled oil company Rosneft kicked off 2011 with the same message that PepsiCo’s record-breaking $3.8bn investment into juice-maker Wimm-BillDann offered at the end of last year: Russia is a “mustdo” investment for leading strategic investors. The two deals have been welcomed by the Kremlin, which last year launched a major initiative to modernise the country by luring large investors that bring not just cash but badly needed technology and management skills. Modernisation has been promoted to the top of Russia’s political agenda after the 2008 economic crisis exposed the flaws of the economic model built since 2000.“The slump proved that the model was not capable of delivering stable long-term growth,” said Roland Nash of Verno Capital. Foreign investors can import more efficient management, expertise and technology. At the same time, they bring capital and competition to spur growth. The twin BP and PepsiCo deals are key as they will bolster the confidence of other strategic in-
Robert Dudley, CEO of BP, and Eduard Khudainatov, president of Rosneft, marked their share swap last month
Foreign direct investment ($bn) COUNTRY
vestors to buy into Russia. However, many commentators were more concerned with the government’s entry into the capital of BP through
the stock swap.“Very few see this deal for what it was the next logical step in the modernisation of Russia, and a milestone in attracting
large-scale foreign direct investment (FDI) into the Russian economy,” says Plamen Monovski, chief investment officer at Renaissance Asset Managers. Russia has a relatively poor track record in attracting FDI, weighed down by a reputation for bureaucracy, corruption and poor corporate governance. While the levels of FDI started to recover to a total of $40bn in 2010, the second highest among all emerging markets, it is still half that of 2008, according to UNCTAD. However, the pace picked up fast at the close of last year. A third of global M&A deals were struck in emerging markets in 2010, but Russia closed $34bn of transactions in the last quarter of the year alone, on a par with the
$38bn of China (which has a much bigger economy) and well ahead of Brazil and India. Speaking in Davos, BP chairman Carl-Henric Svanberg said: “We are being asked what has changed in Russia, why now all these deals are being signed. The regulations have changed considerably… normal conditions have been created.” Indeed, while the total volume of deals remains depressed, the size of the deals is increasing as strategic investors commit themselves, eyeing Russia’s abundant natural resources and population of 142m. Analysts expect the pace to pick up this year, and Mr Medvedev attended the signing of another $1bn joint venture between Exxon
Mobil and Rosneft at the forum itself. “The deals don’t necessarily mark a turnaround in sentiment,” suggested Pavel Sorokin, an analyst at investment bank Alfa, “but they may be a first step. “These deals are being made in strategic enterprises which are pillars of the Russian economy.” Last year’s focused drive for hi-tech arrivals has drawn pledges from a slew of big names, including IBM, Siemens, Philips, and Microsoft, to open R&D facilities. This year, the hot sectors are likely to be transport and infrastructure: late January saw a plan to build a £42bn highspeed rail network in time for the 2018 World Cup, with private companies contributing a third of the finance. Russia is best known for its treasure trove of natural resources, but the PepsiCo deal highlights the fact that Russia’s emerging middle class is now capturing the attention of major multinationals. Indeed, PepsiCo has become Russia’s biggest food producer as a result of the deal. Italian bank UniCredit, which moved into Russia several years ago, is also rapidly expanding to tap into the pool of household money. It has announced that, in January, it will add hundreds of retail branches.Thomas Cook Group travel company has also taken the plunge into a country widely predicted to become the biggest consumer market in Europe within a decade. The low level of investment into Russia is closely connected to its poor international image. However, experts say investors need to be more discerning; while the risks to doing business in Russia are real, they are not universal.
Inflation Recovery talk abounds but ordinary Russians suffer as the cost of basic foodstuffs rises by 22pc
Consumers feel the economic heat Dmitry Dovlatov
Special to Russia Now
The worst of the crunch may be over, but as the consumer’s basket will tell you, Russia’s economic health faces a further relapse. In 2010, inflation was 8.8pc, after being in double digits for more than two decades. But the price of the monthly basket of goods used to define the poverty level rose 22pc, to 2,626 rubles (£55). “The reappearance of inflation could derail Russia’s economic recovery as it hits the Russian consumer’s pocket directly. With oil prices expected to be more or less flat in 2011, it will be the strength of internal consumption that will set the pace for economic growth this year,” said Alexey Moiseev, chief economist at VTB Capital. “The rise in food prices is the major concern and part of the current global upward trend, but there is relatively little the authorities can do about it.” In a demonstration of the impact of inflation on ordinary Russians, aYekaterinburg student tried to live for a month on the official basket of goods. He immediately began to lose weight, which shamed a local official into admitting that pensioners are expected to live on “the same as you need to feed a dog”. The wildfires that swept Russia last summer kicked off the dramatic rise in food prices. Russia’s harvest of 60 million tons of grain was around half of the bumper crop in 2008, and the world’s third-biggest grain exporter was barely able to cover its domestic needs. The situation looks a little better this year, although the export ban remains in place, with First Deputy Prime Minister Viktor Zubkov predicting a harvest of 80 million-85 million tons. But foodstuff prices are already rising so
dict what will happen next as we have seen this movie before; most of the conditions that drove the last bubble are back, with bells on.” The effect of QE2, as it has been called, can already be felt. Turkey is in the strange position of having to cut interest rates to reduce rising inflation (the orthodox wisdom is you increase rates
rapidly the government is considering price caps on potatoes and flour. However, the Central Bank of Russia (CBR) is not free to concentrate solely on dampening inflation. It also has to deal with issues provoked by the $600bn (£370bn) released by the US Federal Reserve to revive faltering growth in November, which has spread a wave of liquidity around the world. “Nominally, the latest dollop of money is to perk up the flagging US economy, but in reality there will be continuous leakage of capital flowing away from the place it is meant to stimulate (developed geographies) to the places that do not need any stimulus (emerging markets). If anything the emerging markets are already overstimulated,” said Plamen Monovski, chief investment officer at Renaissance Asset Managers.“It is easy to pre-
Food prices are rising so rapidly that the government may impose price caps on staple products when inflation is high), as higher rates suck in more US “hot money” and send inflation even higher. Brazil has had to impose capital controls to stem the flows. China also had the fastest rise in inflation for three years, but is reluctant to raise interest
rates, which would take the edge off its extraordinary economic expansion. In Russia the situation is less extreme, but money has been gushing into the market since the end of last year, sending the stock market soaring and bond yields tumbling. Russia suffered from a whopping $38bn (£23.5bn) of capital outflow last year, but the CBR expects the flow to reverse in 2011, and Russia to take in $10bn (£6.2bn). The CBR ended a two-year string of cuts which took interest rates to record lows with its first rate rise in December. Economists believe the CBR will have to start increasing rates again this year, which could kill the recovery before it can gather momentum. Only a year ago, the talk was all of recovery and how the emerging markets would “rescue the global economy”; this year’s discussions sur-
rounding emerging markets seems increasingly to be focused on overheating, with pundits divided over how bad the problem will get. Emerging markets are“where the risks lie at this point, be-
cause those economies are further along in the overheating stage, and you are starting to see tightening,” said Michael Aronstein, president of Marketfield Asset Management in New York.
Up go the volcanoes, up go the prices Violent eruptions along Russia’s volcano belt are affecting global weather patterns and prices to boot. Ben aris
business new europe
If you want to know where the especially harsh winter weather came from, look no further than Russia - and prepare to pay more for your flour and coal this year. Volcanoes on the country’s eastern seaboard of Kamchatka have been unusually active for the last six months. The dust they threw up diverted winds in the Arctic, pushing cold air over Europe and North America and causing the unusually cold winter, say scientists. This string of volcanoes, 29 of which are active, could cause more problems this year, depressing harvests around the globe just as food prices soar,
As Russia emerges from the economic crisis it now faces more traditional foes, with higher food prices, and capital inflows creating speculative bubbles.
The Kamchatka Peninsula’s Karymsky volcano rumbles away
and culminating in a second freezing winter. The eruptions have come at the worst possible time. The Pacific Ocean has already been cooled by the“La Niña” ocean/atmosphere phenomenon, which is particularly severe this year. At the same time the Atlantic Ocean is warmer than usual.
Erste Bank said the combination of these factors means the weather forecast for the first quarter of 2011 is extreme, and will hit both the agricultural and mining sectors, sending spiking prices up even faster.“These climatic conditions reduce the outlooks of harvests for agricultural commodities and prevent
the mining of commodities like coal.The extreme weather will probably culminate in 2Q11… the prices of commodities will be influenced… then [we will see] an acceleration of consumer inflation.” The combination shifts wind patterns around the world, but the spanner in the works has been the Kamchatka volcanoes, according to US climatologist Evelyn BrowningG a r r i s s ’s a c c l a i m e d Browning Newsletter:“Kamchatka tends to be active but recently it has been ridiculous! Since late November, Kizimen, Sheveluch, Karymsky, and Kliuchevskoi have been erupting almost constantly.” Volcanic ash screens out the sun, cooling the air below.This lowers air pressures, which changes wind patterns, especially in the Arctic. And,“the cold air normally trapped
around the North Pole surges south”. The upshot has been some bizarre weather.The UK was colder than Russia on Christmas Day and NewYork was under heavy snow, while Moscow had icy rain as temperatures hovered around zero. The snap has already impacted agriculture. Australia’s wheat crop was down by 10pc in December – the worst fall in 100 years – and Russia’s agriculture ministry is forecasting a mediocre harvest. Add in last season’s severe drought in Argentina, floods in Brazil and Venezuela, odd weather in agricultural parts of China, and food prices have soared. What happens throughout the re s t o f t h i s ye a r w i l l depend entirely on the volcanic activity, says Ms Browning-Garriss, which is impossible to predict.
Finding new strength in latest numbers Ben Aris
Special to Rn
s Russia, the “unloved Bric”,the new safe haven of 2011? Russia is already off to an excellent start, and analysts only expect momentum to build from here. The Russian stock market was up 23pc in 2010, soaring 18pc in December alone. Having shunned Russian equity for most of 2009, when the leading RTS index lost about three-quarters of its value, investors are now piling back in. Net inflows into emergingmarket equity funds were recorded in 33 of the past 34 weeks, and Russia had its biggest inflow in three years in mid-January. Portfolio investors are increasingly drawn here seeking to continue the big returns enjoyed in emerging markets since the crisis struck, while Renaissance Capital predicts that Russian IPOs will triple this year, as Russian companies return to equity markets to raise fresh investment capital. The economy is also doing well.The government upped its end-of-year estimate for GDP growth to 4pc in January, but most analysts predict that growth will top 5pc this year – not bad for a middle-income country. Unexpectedly strong oil prices (topping $90 per barrel in January) have meant that state finances in 2010 did a lot better than expected, with the deficit coming in at 3.8pc – far better than the 6-7pc expected at the beginning of the year. The key number, however, is the state’s external debt, which, at 17pc of GDP, is ridiculously low against the triple digits that most developed economies are sporting. And, with private investors having caught the Russia bug, institutional investors in the UK and US have also said they will con-
tinue to invest in emerging markets, as they offer higher yields, appreciating currencies and lower risk. Safe havens are likely to be in high demand this year: with the fiscal stimulus coming to an end, new storm clouds are gathering as the next stage of the Great Sovereign Debt Crisis unfolds. In Europe, Spain and Portugal have to raise tens of billions of euros this year simply to roll over existing debt. In America, things are looking even worse. Investors fled the US municipal bonds in December, driving up the cost of borrowing and driving state after state into deficit. Currently, well over half of America’s states are unable to meet their obligations and
Having shunned Russian equity for most of 2009, investors are now piling back in the government is due to pass a bill enabling states to go bankrupt. Russia was briefly hailed as a safe haven as the world reeled from the subprime mortgage debacle in 2008, but following the Lehman Brothers collapse that September, the huge corporate indebtedness of Russia’s biggest firms was exposed, bringing the economy to a standstill. The crisis has squeezed Russian debt dry, and, this time round, if there is a fresh credit crunch, Russia is much better equipped to deal with it. Indeed, a safe-haven image becomes a self-fulfilling prophesy, as the more money you attract, the better you are able to weather the storm. It is already clear that the biggest danger Russia faces this year is inflation – driven by the arrival of“hot money” from the developed world and by asset-price bubbles with investors having nowhere else to go.
Trade ties show solidarity against the terrorists to put more energy into exploring alternative and cheaper sources of energy? Russo-british chamIf the BP-Rosneft deal was ber of commerce potentially good news with hen I left the a few question marks, JanuBBC in 2004 it ary’s other big news out of was because I Moscow was dreadful: the was told Rus- bomb at Domodedovo airsia“wasn’t news any more”. port. I went through DomodYet for a non-newsworthy edovo 50 times in the past country, 2011 has already two years; a year ago I stood seen a couple of massive on that spot, at that time, waiting to meet a flight; I had headlines. Early in January, the first friends five minutes either big business story was that side of the explosion. So this BP and the Russian oil had personal resonance. giant Rosneft had signed a However, I was in London deal to drill for oil under on July 7, 2005, when four the Arctic ice cap, in the bombs went off on the transprocess exchanging a sig- port system. I was late for nificant number of shares. work, otherwise I could have This was a real sign that been on one of the trains that Russian and British busi- was hit. I then detoured past ness relations were improv- the point where, 30 minutes ing again after the reces- later, the bus blew up. Clearsion, which saw a sizeable ly, on that day, as in Moscow last month, my name wasn’t drop in bilateral trade. But even before BP’s asso- on any of those devices. ciated company in Russia, But one thing that angered TNK-BP, started to ques- me after the Moscow bombtion the legality of the deal, ing was the frequently asked I had doubts that it made question: “Will this put peogreat sense. I can’t pretend ple off doing business in Rusto understand all the eco- sia?”In 2005, when the Lonlogical ins and outs, but don bombings occurred (the there’s something about day after London was awarddrilling for oil in the Arc- ed the 2012 Olympic Games) tic which makes me uncom- the question was: “Will this fortable. The World Wildlife affect the number of tourists Fund says it could affect the coming to London?”Despite habitat of polar bears, but there being four explosions, to me this is only one no one asked whether anyone would be deterred from precarious aspect. I’m sure BP has learnt the doing business in the UK. lessons of the Gulf of Mex- This shows that far too often ico oil spill, but there is al- the West judges Russia by ways risk. What would be other criteria than those by the price to pay for such an which it looks at itself. Fortunately, those westerners alaccident in the Arctic? And what about the“price” ready doing business in Rusfactor in the direct sense? sia will see the tragedy of Is it really going to be fi- January 24 for what it was, nancially viable to extract and realise that if you pull oil from such a difficult re- out of the country you are gion, with the costs of drill- simply allowing the men of ing, transportation and so violence to win. on? There is, of course, the Ultimately, international argument that we are so trade is an essential part of committed to our cars that the dialogue whereby, in the we shall continue to buy ever-hopeful words of the petrol whatever the price. BBC’s motto, “Nation shall But might it not be wiser speak peace unto nation.” Stephen Dalziel
Russia now www.rbth.ru
LESSONS FOR MODERNISERS
World Bank Business Environment and Enterprise Performance Survey (Beeps) indicate that domestic certification of equipment remains a very long and costly affair, even in the case of internationally certified and widely used technologies, with approvals required from a large number of different government agencies. This raises the relative cost of investment and delays modernisation. Reform of the certification regime, the lowering of non-tariff import barriers for capital goods, and improvement in the broader business environment leading to higher rates of foreign direct investment could go a long way. Finally, a recent EBRD survey showed that Russian firms scored well below average in terms of quality of their management techniques. Strikingly, management skills proved to be worse on average in highervalue-added industries. Setting up management schools – as is being done in the context of the Skolkovo project – is important, but secondary school attainment is a more important predictor of economic growth. Ultimately, it is competition that drives badly managed firms out of business and puts pressure on to modernise. Given the daunting challenges of modernisation, visions are helpful in providing a sense of direction. Skolkovo, the international financial centre project and nanotechnologies are probably good places to start, as they draw on some of Russia’s existing strengths and they are each associated with a broader reform agenda. These flagship initiatives will hopefully eventually succeed; some are more likely to than others. But there should be realistic expectations in terms of their wider impact. SiliconValley and Route 128, the implicit models for Skolkovo, are not the primary reasons why the United States remains the world’s top destination for capital. The success of broader modernisation will ultimately depend on economy-wide efforts to modernise capital stock, upgrade management practices and improve human capital through deregulation, competition, education and other policies to build an attractive environment for business. As President Medvedev told participants at the St Petersburg Economic Forum a few years ago, the ultimate test of modernisation is whether it creates a country in which people want themselves and their children to live.
Special to RN
The challenge of modernising Russia runs much deeper than flagship projects like the Skolkovo hub Russia has islands of excellence in terms of human capital, but overall, secondary education is vital
New Patriarch wins over the public A poll by vciom found that patriaRch kirill, who replaced alexy II as head of the RUSSIAN orthodox church in 2009, is increasingly known and supported by russians.
He was named as head of the Church by 70pc of respondents, compared to 68pc in 2009. Most of those familiar with Patriarch Kirill hold him in high esteem, with that number increasing each year (53pc compared with 44pc in 2009). Two-thirds (68pc) of those surveyed said that Church policy as maintained by the Patriarch reflects the interests of the public.
Letters from readers, guest columns and cartoons labelled “Comments”, “Viewpoint” or appearing on the “Opinion” and “Reflections” 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
This eight-page pull-out is produced and published by Rossiyskaya Gazeta (Russia), which takes sole responsibility for the contents. Internet address www.rbth.ru Email uK@rbth.ru Tel. +7 (495) 775 3114 fax +44 (20 3070 0020) ADDRESS 24 Pravdy STR., bldg 4, Floor 12, Moscow, Russia, 125 993. evgeny abov Editor & publisher konstantin fets executive editor artem zagorodnov editor Olga DMITRIEVA editor (UK edition) anastasia dedyukhina representative (uk) Paul Carroll, sean huggins subeditors (uk) Andrey zaitsev head of photo dept. milla domogatskaya head of pre-print dpt. ilya ovcharenko layout e-Paper version of this supplement is available at www.rbth.ru. Vsevolod pulya online editor. To advertise in this supplement contact Julia Golikova Advertising & PR director, on email@example.com or Toby moore on firstname.lastname@example.org © copyright 2010, ZAO “Rossiyskaya Gazeta”. All rights reserved. Alexander Gorbenko chairman of the board. pavel nEgoitsa general director. Vladislav Fronin Chief Editor. Any copying, redistribution or retransmission of any of the contents of this publication, other than for personal use, without the express written consent of Rossiyskaya Gazeta is expressly prohibited. To obtain permission to reprint or copy an article or photo, please phone +7 (495) 775 3114, or email email@example.com with your request. RN is not responsible for unsolicited manuscripts and photos.
to four with existing technology. Even then, recent analysis shows that Russian industry is not only poorly diversified and lacking efficiency, but its capabilities are in places where the scope for productivity improvements is limited and from where diversifying to products with more growth potential is difficult. In these circumstances it is understandable that policymakers are toying with ideas for top-down industrial policy. International experience with such policies is mixed at best, and on balance not very encouraging. In part, this is because government officials are not necessarily better than markets at picking “winners”. But more importantly, without the key inputs of adequate human capital, physical capital, and the application of management skills, there will be no long-term competitive companies from which to pick these winners. Russia needs to modernise all three. Start with human capital. Successful recent modernis-
ers tend to be among the top performers in the Programme for International Student Assessment (Pisa), the OECD test of performance of 15year olds. In 2006, Finland was ranked first, Hong KongChina second, Korea third, Chinese Taipei fifth, and Japan 10th (Singapore and Malaysia did not participate in the survey). Russia was ranked 33rd in maths, 35th in science, and 39th in text-analysis. Russia undoubtedly has islands of excellence in terms of human capital, but for modernising the technological base of the entire economy, overall secondary education will be of particular importance, as it is largely about learning to learn and to acquire new skills. Another key aspect is the modernisation of capital stock and technologies. A major impediment to “imported modernisation”is the lack of convergence towards international standards of certification and application of equipment. Enterprise surveys including the EBRD/
Erik Berglof is a chief economist at the European Bank for Reconstruction and Development.
All the president’s messages http://bit.ly/f6LJQg
THE PEOPLE can make the MEDIA HONEST William Dunkerley
The Moscow Times
s the government trying to cash in on the sale of worthless media properties? President Dmitry Medvedev has announced plans to divest the state of its media holdings. But what is a Russian media outlet worth? Newsweek magazine sold for just $1 last year. I wonder how much the Russian outlets will bring in. Some insiders may already be anticipating a bonanza from the mass sell-off, but it is worth asking whether these media companies have any real commercial value. From my experience, it is rare to find a profitable indigenous media company. More commonly, a business with an inadequate audience and advertising revenues will sell propaganda that masquerades as news to compensate for the revenue shortfall.Who is going to buy into such a corrupt business? Arkady Dvorkovich, the presidential aide, said he would like to keep the sold-off media companies out of the hands of“dishonest investors”. Interesting concept. The purpose of a commercial enterprise is to produce profits. Given that, what’s the value of one that produces losses? Newsweek was put up for sale by The Washington Post Company because the publication was incurring losses. But before last year’s sale, Newsweek made a valiant effort to rehabilitate itself. Managers targeted a different readership, redesigned the magazine and attempted to increase revenues. But they made serious mistakes in judgement. Maybe the magazine’s new owner will have a better go at it. Can the state-controlled unprofitable media companies in Russia be rehabilitated? Can they become legitimate businesses that will attract “honest investors”? Some circumstances will make this difficult. First, there are too many media companies in Russia — more than the economy could support as legitimate businesses. Second, the media field generally has a deficit of
transparency of ownership or to know the allegiances of the new owners. What is more, it is hard to define exactly what is a governmentowned outlet. The owner of record may appear to be an independent company, but the beneficial owner may be a politician or state entity. Closing down hack media outlets is something consumers can do. All they need are some good media outlets to choose from. That is where the administration’s focus should be. It must create conditions for truly consumercentred media outlets to emerge and thrive. Those will be the outlets of consumer Conditions must choice. The existing crop be created for truly of self-censoring purveyors consumer-centred of dishonest news will be media outlets to put in their place and marginalised, if not closed emerge and thrive completely. control of the outlets from There is a salty Russian provregional leaders and put erb which characterises the them under the power verti- original plan to sell the cal. Legislating“subsidies”to governmental media outlets: aid the“transition away from beer without vodka is money government ownership” thrown to the wind. Perhaps seems consistent with that the same could be said about media enterprises without supposed scheme. Mr Medvedev’s initiative to profits. They will be very get the government out of the tough sells. media business is commendable. In his televised Decem- William Dunkerley is a ber interview, he asserted media business analyst and that news decisions should consultant specialising in be made independently of Russia and the former Soviet governmental influence. Union. But this will be very difficult to accomplish. It doesn’t seem Originally published in practical to assure absolute The Moscow Times business acumen. And finally, the ingrained corrupt culture of paid-for news would be a difficult institution to eradicate. In addition, there is the question of whether the government really wants to get out of the media business. Some predict that the media outlets will end up being acquired by friends or supporters of the current political owners. Others suggest that the selloffs are just a ruse to wrest
Talks bring thaw to ‘Cold Peace’ Yevgeny Shestakov
special to rn
t may not be a breakthrough, but the existing problems between Russia and the United Kingdom brought upon by cold wars and mutual distrust are no longer taboo topics. On his first official visit to London last week, the Russian foreign minister, Sergei Lavrov, closed the books on an era of frosty political relations with Moscow that had characterised Tony Blair’s time as prime minister. The thoughtful and intelligent views of the British Foreign Secretary William Hague, whose wisdom has been polished over the years by multiple political battles, have replaced the hot-headed and often impulsive nature of his predecessor David Miliband, who came across as wanting to teach Russia British common sense. This by no means implies that London has surrendered its positions in favour of restoring a dialogue with Russia. But Mr Hague vividly demonstrated his country’s ability to transform quickly during Mr Lavrov’s visit. Such transformations are being seen not only in the economy, where Prime Minister David Cameron is carrying out large-scale reforms, but also in foreign policy, where it turns out that Lon-
don can nevertheless hold a constructive dialogue with its more complex partners without ditching its principles. Commenting on their meeting, Mr Hague said gradual progress was being made step by step. This measured Russian-British forced march, void of any bravura, has shown the first signs of paying off. The previous approach of simply marking time and only giving the illusion that progress was being made has come to an end. The work the two ministers put into a joint statement on Afghanistan, which was passed on Mr Lavrov’s visit to London, demonstrated that Downing Street and the Kremlin can achieve results when there is strong political will. What made the situation unique was that there were roughly six points of contention on the joint declaration when the two foreign ministers sat down for talks, but Mr Lavrov and Mr Hague insisted experts involved in the negotiations find a compromise in an hour. Amazingly, 60 minutes was long enough to fully resolve all the disputed issues. It appears there has also been a shift in London on another issue that long remained contentious under the previous British government: cooperation between intelligence agencies in the fight against terrorism. The Brit-
odernisation is the new keyword in the Russian policy debate, closely associated with President Dmitr y M e d v e d e v. R u s s i a undoubtedly faces enormous challenges in modernising its industry, agriculture and services sectors, and the media spotlight has focused on a few high-profile undertakings such as the Skolkovo innovation hub, the initiative to make Moscow an international financial centre, and the Rusnano corporation for co-investing in hi-tech projects. The government has poured significant resources into these flagship projects; Rusnano alone was capitalised with $5bn (£3.1bn) in 2007. These initiatives represent important visions, but they may be a distraction in the debate about what needs to be done to modernise the Russian economy. The challenge of modernising Russia runs much deeper and requires much broader changes in the business environment. There is also a risk of creating unrealistic expectations for what individual projects can achieve. The government initiatives focus on radical modernisation, with the development of new products and technologies. The objective is to put Russia back strongly on the world’s R&D map. Russia remains home to some of the world’s brightest minds, and recent reforms of migration legislation make it easier to attract expatriates. The country’s commodity wealth also enables the government to fund radical innovation projects generously, even without co-investment from the private sector. But true modernisation also encompasses importing internationally applied technologies and skills, and the gradual enhancement of existing domestic products and technologies. Russia lags behind many other emerging markets in attracting foreign investment and in bringing about incremental productivity improvements in existing enterprises. According to various estimates, productivity in Russian manufacturing could be improved by a factor of three
ish Foreign Secretary confirmed this was one of the main subjects discussed at the talks.The two men agreed in principle to exchange experience in such delicate matters as security for Olympic facilities. Mr Hague was slightly evasive in his reply about when such cooperation would begin, saying only that the appropriate services would think about how to establish such interaction. But it was still clear the foreign ministers had reached a mutual understanding on this issue.
The missing link appears to have been found in the Russian-British agenda, despite its relative brevity at first glance. The lack of such a link, which could be described as tolerance for different viewpoints, had hampered the dialogue between Moscow and London for several years. In addition, the two men did not shy away from controversial issues that could have put a damper on the atmosphere during the talks. On the contrary, Rossiyskaya Gazeta has learnt that Mr
Hague reminded Mr Lavrov about the situation involving a Guardian newspaper correspondent who had been unable to enter Russia because of technical problems. The Foreign Secretary thanked his Russian counterpart for his efforts in resolving the problem. Mr Hague also expressed gratitude for the Russian security services’ actions to provide consular and medical assistance to British citizens injured during the January terrorist attack at Domodedovo airport in Moscow.
Taking questions from students at the London School of Economics, Mr Lavrov mentioned on several occasions that Russia was prepared to involve all of Europe in its modernisation programmes, with particular emphasis on innovative sectors of the economy. These programmes, to be called“A Partnership for Modernisation”,would be extremely important for the European Union and its key members amid the global economic crisis, he said. In this regard, the minister noted that Peter the Great had also attached great importance to co-operation with Europe in the development of the Russian state 300 years earlier. Overall, the sides can pride themselves that thorny issues were discussed, including the Mikhail Khodorkovsky case and UK moves to deport the Russian citizen Yekaterina Zatuliveter for alleged spying, without harming or altering the two sides’ conceptual approach, whether for these negotiations or future ones. This approach can basically be summed up as Moscow and London finally being united in the understanding that existing disagreements should not hamper areas where they capable of co-operating. Yevgeny Shestakov is editor of the international politics desk at Rossiyskaya Gazeta.
Russia now www.rbth.ru
most read Democracy promotion for dummies http://bit.ly/erb3W4
Comment & Analysis
THE DUO WHO SHOOK OUR WORLD On February 1, Boris Yeltsin would have turned 80. Burly and boisterous, charismatic and controversial, he leaves a huge legacy in the modern Russian state and 14 more independent republics of the former USSR. Russia Now pays tribute to the man and his close contemporary, former Soviet President Mikhail Gorbachev
SPECIAL TO RN
ur world is fortunate indeed that the collapse of the Soviet Union and its empire was presided over by two men of intelligence and moderation. It might not have been so. For all the opprobrium they have received at home, the late Boris Yeltsin and Mikhail Gorbachev will be remembered in the long view of history as positive, albeit limited leaders. Gorbachev and Yeltsin are linked in a Janus-like embrace, resent it as they might. Allies in the early years of perestroika as each recognised and even admired the strengths of the other, they became bitter rivals who increasingly detested what each perceived as the faults of the other. Each blamed the other for, in essence, going with the flow of history. Gorbachev recognised the futility of the Cold War and brought it to an end, with the goal of reinvigorating the Soviet system. In the latter objective, he failed. Yeltsin recognised the futility of the Soviet system itself and helped bring it to an end, with the goal of a Russia accepted by Western nations as fully one of their own. In the latter goal, he failed. Forces beyond them determined the outcome of the Cold War and the Soviet Union, but peaceful management of the respective end
games required political talents of the highest order. From his years as Communist Party boss in Sverdlovsk, Yeltsin understood the Soviet system from the inside as few others could. Like many of his peers, however, it was not until he encountered the real world – the outside world – in person that he understood how much a failure his country had become. On his first trip to the United States,Yeltsin was astonished at the contents of an average supermarket and that“workers”were allowed to shop there. On his return, after describing these wonders to one of his closest advisors, he blurted out, “Our system is s**t!” It was that recognition which led him to break with it. At this remove, it is difficult to recognise the political and personal courage required of a member of the Politburo to break openly with the Party and set out on an independent political course. By rights,Yeltsin should have disappeared. Through charisma, brashness and good luck, he prevailed, first in Moscow and then as leader of the Russian Federation. Yeltsin was extremely fortunate in his timing and in the character of those who fumbled the August 1991 putsch. In such a moment, Yeltsin knew what to do. In the aftermath, his experience and instincts were inadequate. One almost had to be present to recall how immense was Yeltsin’s charisma with a
Russian crowd in those days. The man could dominate a room just by walking in. In one briefing with a prominent American television journalist, I compared Yeltsin’s force-of-nature magnetism and masculinity with that of Lyndon Johnson. She replied, “More.” Yeltsin had great faith in youth and in talented people with“Western”concepts. He was not a hands-on manager of the application of Western prescriptions to the Russian patient, being more of a Franklin Roosevelt, trying one thing after another until something might work. Sadly, none did. Yeltsin was always inspired by a crisis, but lacked followthrough and the stamina to bring reforms to fruition. He tired with the details of pluralist political life. Even after he obtained a renewed popular mandate in the April 1993 referendum, Yeltsin could not use it effectively to produce constitutional reform. He then resorted to illegal means in September to prorogue the legislature, leading to his pyrrhic victory on October 4. The episode was a terrible setback for the rule of law in a country which needed it badly. ThatYeltsin had lost touch with the economic needs and fears of ordinary Russians was demonstrated clearly in the December 1993 elections, when his team was decisively beaten.To his credit, Yeltsin accepted the electoral outcome, but he never
hOW Boris DIVORCED the sOVIET system
We are all the beneficiaries of Yeltsin’s performance in the critical months of 1991-92. We must remember him for the vision he could not bring to fruition learnt how to deal with a non-compliant parliament. Every important leader makes mistakes, but Yeltsin made two of surpassing stature which permanently blot his historical record. Russia faced a genuine problem of public order in the North Caucasus in 1994, but the unleashing of war against the Chechen people was a failure of judgement and humanity redolent of Soviet leadership. The carnage not only turned the region into
a bloodbath, it eviscerated political reforms in Moscow and decisively turned much Western thinking against Russia.Yeltsin always wanted his country to be accepted by the West as having triumphed over Communism. He told one associate that his two finest moments were August 1991 and his appearance before a joint session of the United States Congress. But the war against the Chechens became the perfect instrument of Russophobia in Europe and America, perfect because it was of Russian manufacture. Yeltsin’s second blunder was in standing for a second presidential term, when he (and everyone) must have understood that he was in no condition to serve. Sadly,Yeltsin was too easily convinced that only he could prevent the Communists returning to power, a message urgently
communicated from Washington. This was nonsense. There were ample alternatives toYeltsin. None of these men were ideal and most were little known in the West, but any of them could have won and would have done a better job than did Yeltsin, whose declining years in office alternated between failure and farce. To those who recalled the leader in his great years, the contrast was often painful. How wouldYeltsin at the end evaluate his own choice of successor? Vladimir Putin represents the end of the post-Soviet transition and is emblematic of Russian leadership for years, if not decades, to come. Yeltsin must have recognised that. Did he feel he had no better choice, that he had misjudged, or simply that events had taken Russia back into familiar channels?
Given his mixed legacy, why should one look back with respect on the leadership of Boris Yeltsin? Above all, because he was the antithesis of a Russian Slobodan Milosevic, thank God. We are all the beneficiaries of Yeltsin’s performance during the critical months of 199192. In addition, we should rememberYeltsin for the vision he could not bring to fruition. To an extraordinary extent, he was a Russian leader unafraid of the Russian masses. He believed that if the people could be empowered, both politically and economically, then all would be well. But he had not a clue how to achieve that. Aleksandr Yakovlev said of his mentor that Gorbachev was by nature a democrat but always afraid of democracy. In contrast, Yeltsin was by nature not a democrat, but not afraid of democracy in
pared to his grey-faced colleagues. However, his goals were not clear, and it became obvious that he cared much more about his Communist Party friends and his political ambitions.Yeltsin looked like a doer, a fixer, like someone who was capable of bringing real change. And indeed he brought it.Yeltsin revised and changed the traditional Communist ban on private property, his most significant achievement. Yeltsin did not make everyone in Russia happy; national minorities are a significant part of political life. Complicated ethnic conflicts in the North Caucasus – the aftermath of the Soviet national policy and the result of a vacuum of power in societies where feudal instincts were
still quite strong – did not give him much choice. I strongly supported his actions in 1993 against the Supreme Soviet, whose members arranged, as the veteran politician Anatoly Chubais correctly said, “a militaryfascist coup”againstYeltsin. I understood the fragility of the economic model he built in the early Nineties and predicted the default of 1998 which was a turning point for Russia and Yeltsin. From 1998, he was a differentYeltsin, exhausted by political struggle. He was not free of bad habits, and had a serious heart problem. He criticised America and argued with his friend Bill Clinton, who cared for and devoted more attention to Russia than any other pres-
his country. He did not want to mobilise or harness or discipline or control his people, but to empower them. He failed. Yeltsin could not achieve his vision in part because the task was so immense and in part because so few even of the so-called democratic forces in Russia shared his trust in the people. Indeed, one of Yeltsin’s closest Kremlin aides was widely reported to describe the Russian people as “the manure of history”. It is an axiom that all political careers ultimately end in failure.Yeltsin’s did, but how long may it be before Russia again produces a national leader who believes her people should be empowered rather than mobilised? Wayne Merry was chief of the domestic political reporting section of the US Embassy in Moscow, 1991-94.
on the right side of history peter Cheremushkin Special to RN
resident BorisYeltsin is of our time. We don’t have the distance to evaluate him fully, or unequivocally. There are many people alive who remember him very well. Many of my friends worked close to him, as journalists in his travelling pool, and as his speechwriters, photographers, interpreters and advisers. They remember how he spoke and how he moved, when he was rude, or cracking jokes, drinking champagne and vodka. To some of us it seems only yesterday when he made his famous pronouncements, including: “Default is not going to hap-
ryone had said. Then I saw him again at Dom Kino (the cinema house) where he gave a bear hug to the Polish dissident Adam Michnik. And when Yeltsin was expelled from the Politburo of the Communist Party, I picked up his portrait and placed it on the bookshelf in our house. My wise grandfather threw it away with the reproach, “Don’t be an idiot, while they are fighting for power, you are taking sides.” My friends evaluate him in various ways. Those who worked with him – with a few exceptions – say he was a great statesman with enormous charisma. The best characterisation came from Strobe Talbott, the American foreign policy analyst, who said that Yeltsin had a vol-
pen!” and “I will lay down on the railroad tracks if the prices will go up!” I talked to him only once, in 1990. I was a young TASS reporter in Moscow attending his meeting with a delegation of the Polish parliament. He had just been elected chairman of the Supreme Soviet of the Russian Federation, and after the meeting I was supposed to get his clearance for the text. Yeltsin said: “As far as I can see, you are an experienced man (it was not true by any means). It will be up to you to decide.”And then my hand disappeared in his giant grip as he shook it. I saw him speak at Moscow State University in 1988 and he impressed me, seeming larger than life, just as eve-
canic character. He could be unpredictable, but his political instincts were without comparison on the Russian
Yeltsin looked like a doer, a fixer, like someone capable of bringing real change. And indeed he brought it. He could be unpredictable, but his political instincts were unrivalled political scene. I have also heard the opinion thatYeltsin brought the country to its knees, and that he made several crucial mistakes – including the process of priva-
tisation, during which mobs and thugs seized Soviet property. He also started a war in Chechnya and brought into power as his successor“someone we won’t be able to get rid of for a long time”. But for me this is a simplification of Yeltsin. His supporters say he brought Russia freedom. Others say it was Gorbachev who initiated freedom of the press (glasnost); opened the Soviet Union for foreign travel; arranged the first democratic and alternative elections; published Solzhenitsyn; and refrained from using force against the opposition. The mid-Eighties was a period of expectation for the Russian people. Gorbachev looked like an unusual and promising individual com-
ident in US history. He was not the same person on whom we pinned our aspirations and expectations in 1987. At his resignation, Yeltsin again showed himself to be the same man we liked so much a decade earlier: a human being who was capable of a gesture, of a step, of a deed. He asked for forgiveness. That is something that not many politicians can do. I would rememberYeltsin as someone who cared about his nation and as someone who always felt himself to be on the side of the virtue of good, on the right side of history. Peter Cheremushkin is an Interfax News Agency correspondent based in Washington DC.
Special to RN
or taking tough decisions and staying the course even when it w a s u n p o p u l a r, Mikhail Gorbachev has earned his place in history. There are leaders who have presided over the renewal of their countries: Adolfo Suárez, Margaret Thatcher, Helmut Kohl, Ronald Reagan andVáclav Havel. Then there are leaders who changed the world. The first among them wasVladimir Lenin, who created the Communist system that stood up to the West. The second was Mikhail Gorbachev, who brought that system down. Between 1985 and 1990, Gorbachev showed that he was
a different kind of leader. First, he recognised that the US-Soviet arms race was futile. In 1986, Gorbachev put forward the idea of a nuclear-free world, which resulted in the Soviet-American dialogue on nuclear disarmament and the signing of a treaty on the liquidation of medium and shorter range missiles. The two sides decided to destroy a class of weapons that could have triggered a nuclear war. This decision was followed by negotiations on strategic offensive arms reductions, cuts in conventional weapons and a ban on chemical, bacteriological and biological weapons. Gorbachev’s dialogue with Ronald Reagan on security matters was not merely an admission that the Soviet Union was no longer
Gorbachev: THE architect of perestroika able to compete with the United States in the nuclear arms race; a different Soviet leader could have continued playing dangerous games with the Americans for much longer. Gorbachev decided voluntarily to renounce the maintenance of the nuclear threat as a way of propping up the Soviet system. Gorbachev’s second great departure from his predecessors was his conviction that every nation was entitled to choose its government, a belief that was crucial in his decision to release Eastern Europe from the Soviet grip. When revolutions swept across East Germany, Czechoslovakia, Hungary and Poland, their leaders made frantic calls to the Kremlin pleading for help, but Gorbachev responded with a firm
“Nyet.” Soviet troops were still stationed in these Eastern bloc countries, but Gorbachev did not want a repeat of the Prague Spring. His actions were crucial in reunifying the German people and returning the former Soviet satellites into the European fold. Gorbachev buried the world Communist system, marking the end of the Cold War and confrontation between two systems vying for world leadership. Having renounced the Communist Party’s monopoly and opened the floodgates for the freedom of expression, Gorbachev accelerated the disintegration of the Soviet Union. True, he had hoped to preserve the country as a community of allied states, but national republics were distancing themselves from
Moscow much too quickly and strongly for disintegration to be averted. Gorbachev let the Soviet Union evaporate and, probably without intending to, turned out to be a great reformer. The former Soviet president comes across as a dramatic personality first and foremost because after starting the country’s great transformation, he did not carry it through all the way to the end. He was the first man in Russian history to have left the Kremlin without clinging to power. But this is not unusual. History does not know of any reformer who managed to destroy an established system and build a new one in its place. Reformers sacrifice their popularity when they start to dismantle the old way
of life, and this is true for Gorbachev. Even today, his name evokes mixed feelings in Russia. No society has ever perceived reformers as heroes during their lifetime. Great politicians are recognised for their achievements only when they pass into eternity. Mikhail Gorbachev, however, has become a monument in his lifetime. Gorbachev is history. As Thomas Carlyle said: “The history of the world is but a biography of great men.” Having assured himself a place in eternity too, he remains a remarkable man of a calibre and personality that are indeed larger than life. Lilia Shevtsova is a senior associate at the Carnegie Moscow Centre.
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Culture A Russian folk festival brings warmth and colour to central London
Blini and a bear on Trafalgar Square Spring fever is in the air, as the fun-filled Maslenitsa party hits the capital – and there’s a lot more on offer than just pancakes. OLGA DMITRIEVA RUSSIA NOW
Do you like to make pancakes? Personally, I don’t. My first pancake is always a flop and so, as a rule, is my last – possibly because I don’t know how to juggle the frying pan properly. To treat yourself to really good pancakes is another matter entirely. Russians make pancakes fairly often, though not necessarily on the Russian folk festival immediately preceding Lent known as Maslenitsa. But don’t believe the popular myth that the Russian tradition is to eat pancakes or blini with spoonfuls of caviar. The USSR would probably be alive and kicking today if the Soviets had enjoyed such luxury – they did not. Anyway, should you happen by Trafalgar Square on Sunday, March 6, the delicious sweet-smelling pancakes will not be served with black caviar. But don’t worry: they there will be in abundance, together with pirozhky (small pies). There will also be many bizarrely dressed Russians resembling living Matryoshka dolls, and a strolling bear who will give you his paw – if you have the courage to take it. Meanwhile tuneful balalaikas, folk orchestras and the best voices on the Russian stage promise to give such a powerful performance that the Trafalgar Square pigeons risk going deaf.
At the culmination of the celebrations, Lady Maslenitsa will wave winter goodbye
Many Russians dress as living Matryoshka dolls, and a strolling bear will give you his paw What did you expect? Gulyat means to entertain (sometimes to excess) – and the Russians are famous for it.To outdrink a Russian, outscream a Russian, outdance a Russian is a difficult busi-
ness, indeed.You may suspect Russians of any sin but dreariness: with them there’s never a dull moment. And during holidays, such as Maslenitsa, this irrepressible energy is used purely for fun and amusement. On the same day, Maslenitsa will be celebrated all over Russia, and at 3pm GMT, Londoners will be able to wave to fellow party-goers near Red Square via satellite link. So don’t hesitate to come. This will be the first-
ever celebration of Maslenitsa on Trafalgar Square. Pancakes have never been made at this famous London landmark – and certainly never by Russian bakers. The idea of firing up skillets under the protection of Horatio Nelson is the brainchild of Olga Balakleets, a charming Russian businesswoman who has been importing Russian culture to Britain for close to 15 years. In the early nineties, Ms Balakleets graduated from London’s Royal
College of Music and married “local lad” Julian Gallant – musician and now dire c t o r o f t h e R u s s i a n cultural centre Pushkin House. She then made a typically feminine decision: she brought what she loved best from her native Russia to her new home in Britain. She started her own company for this purpose, Ensemble Productions, and became an avid promoter and organiser of Russian events, from tours by leading ballet com-
panies to rock concerts. A self-styled Russian cultural attaché, Olga is organising Maslenitsa in London for the third time. The first two were held at Potters Field Park, right next to City Hall. This year, the London Mayor’s office made an even more generous gesture, offering her Trafalgar Square. Mayor Boris Johnson took into account the substantial size of the Russian community in London, which he has praised as “enormously influential – in business, in sport and in culture”. He also rightly remarked that “familiar as we are with Matryoshka dolls and onion domes, there is much more to this vast nation, which has a rich and varied cultural heritage.” But why was Maslenitsa chosen to represent Russia in London? “It is a very happy festival,”said Olga.“Farewell to winter, the welcoming of spring and the sun. It is a time when people go to each other’s houses and forgive each other all past offences. It is, I think, the most beautiful and most ‘folkloric’ of all the Russian festivals.” How did she manage to find the funds to underwrite this festival given that nobody has any money to spare nowadays? Well, everyone chipped in a little: the London Mayor’s office, the Russian Ministry of Culture, the Moscow City Government and the Onexim Group, one of the largest private investment funds in Russia. However, according to a Russian saying,“You don’t bring your own samovar with you
while visiting a friend.”Then why are Russians coming to visit Londoners with their own samovar, and even their own pancakes? In order to feel at home in their friend’s house, of course. Nobody knows exactly how many Russians live in Britain today. But this much is clear: there are an awful lot of them. Professor Donald Rayfield, the Chekhov translator, once joked to me that it had become impossible to have a private conversation in Russian on the London Tube: invariably there will be a native Russian speaker in the same carriage.
Britain has become a home from home for (if not the permanent residence of) hundreds of thousands of Russians. In gratitude for this hospitality, they have taken to sharing with the British what they have: rich culture and traditions. People who lived for many decades behind the Iron Curtain are now discovering a world that had been closed to them.That is why it is so important to Russians to show themselves and to see others. And to make a foreign country feel like home – with one’s own samovar, one’s own pancakes, and even one’s own bear.
Here is the simplest and most popular version of oladi, a traditional form of Russian pancake. Ingredients 8 fl oz sour cream 2 tbsp sugar 3 eggs 2 tbsp butter 7 oz plain flour 1/3 tsp baking soda 2/3 tbsp milk 1 pinch salt
Preparation 1. Separate egg yolks and whites. Mix yolks with sugar. 2. In a small pan, melt butter. 3. In a bowl, combine flour, sour cream, salt, butter and egg yolks, stirring vigorously to form a batter. 4. Add baking soda to milk, then pour into bowl. 5. Whip egg whites, add to bowl, and mix again. 6. Once the batter is ready, place a few dollops (not more than 3-4 inches in diameter) on a preheated pan and fry briefly on a low/medium heat until underside is golden brown. Flip and repeat, being careful not to burn. Oladi should not more than 3/4 of an inch thick. 7. Serve with sour cream, jam or honey. And enjoy!
Books The forthcoming London Book Fair will provide a special focus on the most talked-about talent in contemporary Russian literature
Read all about it – a new wave of authors
Russian literature has started to regain the spring in its step in the 21st century. The most interesting works on offer today will be presented at the London Book Fair – Russia Market Focus 2011, which will take place from April 11-13 at Earls Court. Representing the trends and genres that have evolved and flourished over the past decade, the following 10 books are among the most notable now available in English translation. KONSTANTIN MILCHIN SPECIAL TO RN
1. HE-LOVER OF DEATH
Boris Akunin (W&N) Moscow, the early 20th century. Senka the thief falls for a mysterious beauty nicknamed Death, whose previous lovers all died in suspicious circumstances. Senka witnesses horrific events but is saved by Erast Fandorin, a detective who is Russia’s answer to Sherlock Holmes. Boris Akunin is the pen name of the philologist and Japanese-Russian translator Grigory Chkhartishvili, whose postmodernist detective novels have become bestsellers and movies. His works are set in the late 19th and early 20th centuries, a period well known to aficionados of Russian literature as the heyday of Fyodor Dostoevsky and Leo Tolstoy. Akun-
in marshals his material with great elegance, and his novels are studded with hidden pearls from classical literature.
2. LIVING SOULS
Dmitry Bykov (Alma Books) A highly ironic description of civil war in Russia in the 21st century, where the Varangians are pitched against the Khazars. Both warring sides are in essence alien to Russian soil and show scant concern for the fate of its people. The characters clearly evoke biting literary caricatures of contemporary Russian publicists and political analysts. Dmitry Bykov is not only a novelist but also a poet, television and radio host, columnist, critic and the author of an impressive biography of Boris Pasternak, which hit the literary jackpot in 2006, when Bykov received two of Russia’s most prestigious book awards:
the National Bestseller and the Big Book.
3. PARIS WEEKEND
Sergei Kostin (Enigma Books) The tale of Paco Araya, a dashing Russian superspy working undercover in the US who comes to Paris for the weekend. While attending to some personal business, he must also locate a lost container holding a hazardous substance. Kostin’s publishing house insists he himself is not a spy, but he has extensively studied the ins and outs of the world’s intelligence services. There is a distinct deficit of good-quality spy novels in Russia, but Kostin’s work is a cut above the coffee-table action novels that permeate the mass market.
4. AN AWKWARD AGE
Anna Starobinets (Hesperus Press) This book combines a format and genre that remain largely unknown in Russia – the short story and horror – and features eight terrifying yarns, including an ant colony living inside a teenager; a description of Moscow destroyed after a war between humans and androids; and a southbound train chug-
ging into an unknown dimension. The effect produced is that of sheer fear, largely due to the simplistic style of the language and the realistic reportage-style descriptions. An Akward Age is the debut work of this young Moscow journalist (born 1978). It was followed by her equally chilling but less successful novel Asylum 3/9, and a critically acclaimed novel based on the feature-length animation film First Squad.
5. THE NIGHT WATCH
Sergei Lukyanenko (Arrow Books) Besides ordinary citizens, there are “others” living in this world. They have the outward appearance of ordinary people but they are gifted with supernatural powers. The “others” are divided into “dark” (bad) and “white” (good). The main character in the series, Anton Gorodetsky, is a white magician working in the the “night watch”, a white special service charged with ensuring the dark forces do not work their mischief at night. A former psychiatrist, Sergei Lukyanenko is the most popular and best-selling author among contemporary Rus-
“This is the best holiday of them all!” I gushed, “I’ve had three marriage proposals, ten invitations to go for a beer, and two guys asked me to swim with them.” “I have seen so many surreal things in my time in Russia: a single-stemmed rose auctioned off for thousands of dollars, eight-hour traffic gridlock, and a nine dollar can of Dr. Pepper.”
sian science-fiction writers; he is also one of the most popular bloggers in the Russianlanguage internet. In the Night Watch series, he has created a parallel universe exactly like ours – even the major historical events are the same – only everything in it is explained by the confrontation between the dark and the white.
6. DANIEL STEIN, INTERPRETER
Ludmila Ulitskaya (Overlook Press – being printed) Ludmila Ulitskaya works in an area that could be defined as intellectual female prose. Ulitskaya has received an impressive array of awards, the most recent of which is the French Simone de Beauvoir Prize (2011). A true story, it follows the escapades of a Polish Jew, who managed to not only survive the Second World War but also to save hundreds of people from Nazi concentration camps. Based on the life of translator, hero, and monk Oswald Rufeisen (1922–1998), the novel was both praised and disparaged in Russia, yet won Ulitskaya the Big Book award.
Catch the vibes of Moscow www.rbth.ru/blogs
7. I AM A CHECHEN
German Sadulaev (Tin House Books) A collection of novellas about what it is like to be a Chechen. German Sadulaev was born in the town of Shali to a Chechen father and a Russian mother and now lives in St Petersburg. There are two distinct directions in his work that could be termed the “mountain theme” and the “city theme”. The first is far more interesting, in particular, his books I am a Chechen and The Raid on Shali. Sadulaev is second to none on this topic; there are very few who would dare to write about the Chechens on behalf of the Chechens themselves.
Olga Slavnikova (Duckworth Publishers) A novel about love and revolution set in the near, rather gloomy, future. The events take place in a town resembling both the author’s hometown of Yekaterinburg and a classic, anti-utopian metropolis with mysticism, gangs, a polluted environment, social inequality and an atmosphere of impending revolution. 2017 is Slavnik-
ova’s most successful novel, receiving the Russian Booker prize. This serious author’s distinctive feature lies in the courage she displays when experimenting with such traditionally light-branded genres as romance novels and contemporary city prose.
9. METRO 2033
Dmitry Glukhovsky (Gollancz) It’s 2033. Twenty years have passed since nuclear war destroyed the world, and the pitiful remnants of Moscow's population is struggling to survive in Metro stations and tunnels where they have established a primitive economy, raising pigs and growing tea. Meanwhile, they have also created over a dozen mini-states, some on the outskirts that suffer from mutant invasions, and from where one inhabitant goes on a journey in search of help. Muscovite Dmitry Glukhovsky has lived in Israel, Germany and France. It took him eight years to write Metro 2033, which may partly explain his book’s popularity: it is not merely post-apocalyptic science fiction, but a true coming-of-age novel.
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10.THE HELMET OF HORROR
Viktor Pelevin (Canongate Books) Eight people meet on a certain website in a certain chat room. They begin communicating and through a series of innuendos and tiny details they, as well as the reader, quickly gather that they are locked in a virtual labyrinth – the very same labyrinth as featured in the Theseus and Minotaur myth. As they try to escape, fearing an encounter with the beast, they endeavour to maintain communicating with each other. A near consensus has been reached in Russia regarding Pelevin, with literary circles tending to agree that he is one of the most important contemporary Russian authors. Once a year, as autumn approaches, Pelevin publishes a new novel, novella or a collection of short stories in which he renders an accurate, if rather cynical, description of life in Russia. Pelevin’s work is increasingly seen as a treasure trove for future historians. More about the London Book Fair–Russia Market Focus at www.academia-rossica.org
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Published on Feb 21, 2011