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International Relations The West should not consider the once and future president a threat

Putin’s Foreign Policy: Strategy and Self-Interest During Vladimir Putin’s first two presidential terms, Russia pursued a more aggressive foreign policy. Will it be more collaborative this time around?

Russians Hit Antarctic Lake Last month, after more than two decades of work, a drill manned by Russian scientists reached the surface of Lake Vostok, a massive freshwater lake that had been sealed more than 13,000 feet beneath the ice shelf that covers Antarctica for more than 20 million years. The scientists involved in the project say they have found “the only giant super-clean water system on the planet.” The scientists believe that the conditions of the lake are similar to those of the subterranean lakes on Jupiter’s moon, Europa. Read more about Lake Vostok at



Protests Continue, But to What End?

Russians once again took to the streets in early March following Vladimir Putin’s victory in the March 4 presidential election, but turnout was light compared with the protests earlier in the winter. Most observers believe that while there may have been some incidences of fraud in the polls, Putin indeed won easily. Protest organizers say they will continue to push for snap parliamentary elections.


Many analysts both in Russia and abroad believe that relations between Russia and the West will deteriorate under the third presidential term of Vladimir Putin. The day after Putin was reelected, one-time Moscow correspondent Luke Harding, writing in British daily The Guardian, predicted:“In international relations, it [Russia] will continue to play a spoiling role, weighing up its own strategic interests against the frisson of annoying the Americans.” Harding combines these gloomy forecasts with a comparison of Putin’s rule to that of Leonid Brezhnev. Left Front leader Sergei Udaltsov, however, holds the opposite view.“Putin is Russia’s most proWestern politician,”Udaltsov said in an interview with Literaturnaya Rossiya.“He shut down the Soviet military bases in Cuba and Vietnam, he allowed Nato to expand to the territory of the former Soviet Union by admitting the Baltic republics in the early 2000s, and he keeps Russian budget money in American treasury bonds.” Much to the chagrin of Russian nationalists, Udaltsov has the facts right. Putin’s other friendly moves include consenting to the deployment of American bases in Central Asia in 2001 and cooperation with the Western countries in combating the Taliban in Afghanistan. But still there is the abiding sense that Russia’s foreign policy under Putin will be anti-Western. “It seems as if we have a situation in which the media is main-

Read more about protests in Russia at

taining a myth it has created itself,” wrote Stanislav Belkovsky, a noted Russian journalist and political scientist, who considers himself a critic of Putin from what he calls the national-democratic position. “Putin is anything but a nationalist. Under him, Russia finally morphed from being a world power into a calm state that has only regional political ambitions, and even these are not aggressive. But the Western media have harped on it for

so many years that people have subconsciously come to think of Putin as ‘aggressive.’” Although outgoing President Dmitry Medvedev has often been considered more friendly towards the West, much of the credit for his main acheivements — the “reset”of relations with the United States and the signing of a new Strategic Arms Reduction treaty (New START) — really belongs to U.S. President Barack Obama, who led his administra-

tion to adopt policies indicating that the U.S. has stopped perceiving Russia as a threat. Closer to home, however Putin managed to launch some important foreign policy initiatives even during his term as prime minister. One was the improvement in relations with Poland after 2010, when he visited the memorial to the Polish P.O.W.s who had been executed at Katyn. CONTINUED ON PAGE 2

Vladimir Putin in tears (which he said were caused by cold wind) upon winning the presidential race. As prime minister, he made several initiatives at improving relations with the West.

Business Long relegated to roles behind the scenes, Russian businesswomen are becoming more visible

Europe, Russia Leave NASA Behind in Race to Red Planet Russian space agency Roskosmos has been invited to take a bigger role in the European Space Agency’s ExoMars project following NASA’s withdrawal from the endeavor. Budget cuts forced NASA to back out of a 2009 commitment to the Europeans to work on the project, which aims to send a rover to Mars by 2018. Russia had already agreed to supply energy facilites to the $1.3 billion ExoMars project, and will now take on more of the financial burden.



In its short, 20-year history, business in Russia has been largely dominated by men. The chaotic transition years that gave birth to the country’s market economy in the 1990s were ruled over by masculine tribal warfare, and the ensuing oligarch club that rules over the business world today is still largely “men only.” Even linguistics don’t present many opportunities for women in business, the term “businesswoman” not having followed its masculine counterpart when “businessman” made its language jump into Russian. Instead the feminine “-ka” ending is tacked onto the tail of the English “businessman,” to create a



word that literally translates as “female businessman.” But a recent list of the 100 most influential women in Russia, compiled by radio station Ekho Moskvy and several other major media organizations, suggests that women pull more strings in the country than they

are generally given credit for. Tucked away among the usual pile of pop stars, socialites and public activists are roughly 24 mostly little-known businesswomen, whose resumes are studded with top positions and major achievements. “There is a Russian saying that

Darya Zhukova (left) and Natalia Vodyanova are two of Russia’s most visible — and influential — businesswomen.

behind any successful man there is a strong woman,” said Elena Panfilova, director-general of the Russian office of Transparency International, who herself came in 67th on the list.“The 24 businesswomen in this rating represent only those women who are visible. But behind the scenes, women are also playing a significant role because half of the chief lawyers and half of the senior accountants and financial directors in big businesses in Russia are women.” The group is a varied bunch and come from a wide range of sectors — from the aviation, technology and oil and gas, to sectors such as media and retail. There is a fairly clear line between those mainly less-public figures who have attained their influential positions through years of conscientious hard work, and those who have been given a hand by an influential or wealthy husband or father. CONTINUED ON PAGE 3

The Caucasus: Old Traditions and a Complex History RBTH.RU/14977


On March 8, the world celebrated the 101st International Women’s Day. In Russia, the role of women in the business landscape continues to evolve and expand.


A Seat at the Conference Table

Russian Education to Align with Western Standards RBTH.RU/15002




Politics & Society


MOST READ The Real Hopes Behind Russia’s Protest Movement


Elections Popularity of antifraud initiative surprises authorities

Webcam Project Catches Fraud and Frivolity VSEVOLOD PULYA RUSSIA BEYOND THE HEADLINES

With its two carpets on the walls, plastic chairs, a table heaped with documents and a curtained corner for voting, this private household in the Chechen village of Mesedoi caught the interest of a huge number of Internet users who were monitoring the voting in the Russian presidential election. There is no school in the village that could be used as a voti n g p l a c e , s o l o c a l s h ave traditionally come to vote at the house of Shaya Yunusov, head of the local election commission.Voters are asked to take their shoes off when they enter the polling station. Besides performing their main function — to secure election transparency — the network of webcams put in place on the initiative of Prime Minister and President-elect Vladimir Putin also brought home to many Russians the vastness of their country. Some of the cameras, which began transmitting videos from polling stations late on Saturday, March 3, provided glimpses into life in far corners of Russia, such as late-night school dances. During election day, March 4, 2.5 million voters who had previously registered on exchanged links to live broadcasts from all across the country. There was the ballot box installed in a small village that had a very narrow slot and required the voter to use a ruler to push the ballots inside; there were voters dancing the Lezginka at a polling station in Chechnya; and

on one camera, viewers could watch as prominent journalist and public figure Leonid Parfyonov, who was registered as a monitor in his native Cherepovets, talked on the phone. Residents of some Russian regions used the live broadcast to pass on greetings to their relatives. The most advanced users accessed the webcams from their phones and took pictures of themselves casting votes.


2,500,000 people registered before election day on to exchange links to live broadcasts from polling station webcams across the country.

200,000 cameras were installed, two each on more then 91,000 poling stations. At its peak, there were 400,000 viewers on the site at once. Access was provided to 99.3 percent of the polling stations with webcams.

Some of the cameras provided glimpses into life in far corners of Russia, including latenight school dances. “Mr. Putin, will you please keep the webcams on. It is really exciting. I was too busy and missed the people in Chukotka and Khabarovsk. But I saw a woman waiting for voters while sitting on a sofa in Morskoe village on the Curonian Spit. I observed a political hassle in a minimart somewhere in Penza Region. I saw the polling station in my own school, which I haven’t had a chance to visit in the last 15 years. It is a big country,”wrote a blogger called Senism. The webcams did not broadcast the entire vote counting process, which left room for possible rigging during several election phases, but they did cause the voting process to become more transparent. Some bloggers, intent on identifying incidences of fraud, interpreted the mandatory test of electronic ballot boxes as ballot stuffing; the Central Election Commission had to explain to the Internet community how the test worked. Other Internet users were indignant at the

$444 million was spent on the webcameras project, which was announced by Prime Minister and President-elect Vladimir Putin in December as a response to the massive protests against suspected vote-rigging in the Dec. 4 State Duma elections.

“impassive and cynical” face of the man who fed ballots into the machine at one polling place. “Webcams have really complicated many people’s lives: Some found it hard to stuff the boxes and some to shoot ‘shock!stuffing!’ videos. Praise the robots!”writer Sergei Minaev tweeted. The webcam project, which cost the country 13 billion rubles ($444 million), was completed on a very tight schedule and successfully managed the high traffic load.The system was commended by Minister of Communications and Mass Media of Russia Igor Shchegolev. “In normal operating mode, we managed to access


Though viewers started watching webcams installed in polling stations to catch fraud, they soon became captivated by the slices of life visible on the screen.

Live streams from webcams across Russia were broadcast at the Central Elections Commission on March 4.


Tadeusz Iwinski

Milan Bozhevich

Heidi Tagliavini





Everything was, well, transparent and open. Russia has opened a new page in history today – there is a broadcast of the Russian elections all over the world."


Although the authorities made some effort to improve transparency, there remained widespread mistrust in the election process. All allegations need to be thoroughly investigated."

99.3 percent of the polling stations where webcams were installed, with only minor deviat i o n s ,” t h e m i n i s t e r s a i d . According to him, the Web site was accessed 500 million times on March 4. This breakthrough did not go unnoticed by foreign politicians. Independent international monitor Bela Kovacs, a member of the European Parliament from Hungary’s Jobbik party, plans to propose using webcams during the next European Parliament elections. Tadeusz Iwinski, who represented the Parliamentary Assembly of the Council of Europe, called the use of webcams

at Russian polling stations “a global-scale phenomenon.” Furthermore, owing to the webcam network, some distant corners of Russia finally obtained access to the Internet.These channels will be used subsequently to deliver educational content to schools. After the voting ended, theYunusov family in Chechnya was having dinner. Their six-monthold son was crawling under the table, and the adults were having a quiet conversation — albeit under the silent gaze of several thousand webcam viewers. The election was over and life in the country went on.

This [system] doesn’t exist anywhere else in the world. This unique solution [to the problem of election fraud] shows that the lessons of history were taken into account."

The webcams did not broadcast the entire vote counting process, which left room for possible vote rigging, but they did cause the voting process to become more transparent.

Locals Municipal candidate celebrates a personal political victory

Putin’s New Foreign Policy


Around 8 a.m. on March 5, when it all seemed to be official, a fatigued yet elated Max Katz, 27, a candidate for municipal council in Moscow’s Shchukino district, staggered out of the offices of the municipal electoral commission and tweeted,“I’m 90 percent positive that I did it.” Most of his friends had long since gone to bed, wishing the events of Sunday, March 4, had been a bad dream. At around 6 p.m., an announcer on state television had read the first results of that day’s presidential election, confirming what many assumed, but refused to believe — 63,6 percent of Russians had voted in favor of Vladimir Putin, keeping him in office until 2018. But Katz was not primarily concerned about the election taking place nationwide; rather, he was focused on his own political future. In his race for local council, Katz’s campaign flyers read: “My name is Max Katz. I am 27 years old. The election for the Shchukino municipal council is being held on March 4. This body is completely useless. It possesses no power whatsoever.”No one could accuse him of being less than direct. “Everyone told me I should make the same promises other politicians were making, that I would vow to punish corrupt politicians, reduce the costs of gas and water, etc. But I chose to be honest,” Katz said, driving his black Opel through the jampacked back streets of his district. The new apartment comp l e x e s i n S h c h u k i n o a re surrounded by hoards of cars. The area is known as a prosperous, middle-class neighborhood, full of upwardly mobile young people. Katz is one of them, but unlike many of the middle-manage-

ment types who are his neighbors, Katz made the money with which he funded his campaign playing online poker. He is a Russian champion, as well as a player feared on the felt around the world. He began playing poker in 2004 and soon found he had a talent for the game. Although he does not consider himself a member of poker’s elite, he posts decent earnings. However, he may actually show more promise as a businessman and dealmaker; last year, Katz made more than $1 million sponsoring another player in a tournament.


Katz claims he is not one of the “frustrated city dwellers” and does not want to be labeled as one of the protestors. Katz’s poker skills and business acumen are hardly the only difference between him and standard local politicians, many of who resemble the polling station officials at the Shchukino school that has been designated as polling station 2997. The polling stations are full of older women, all well-dressed with conservative hair styles, many of who are former school principals; the men are all in stiff gray suits and have serious faces. Katz, however, looks more like the 20-year-old volunteer election monitors, who are lounging around the station in jeans and tennis shoes, sitting on couches next to fake plastic trees and dusty red curtains, posting their observations on Twitter and Facebook. For many, it’s their first time monitoring an election.

Change from the bottom up By mid-afternoon on March 4, there was hardly anyone left who truly believed Putin would be forced into a second round of elections — not after a campaign in which images of him flashed across TV screens all day, every day. That’s one of the reasons that Katz decided to run for a seat on the municipal council. It’s the be-


On March 5, rather than mourning President Vladimir Putin’s reelection with his friends, Max Katz celebrated his own win in a race for municipal council in a region of northwestern Moscow.

Poker player Max Katz won election to a Moscow municipal council.

ginning of something new, starting from the ground up. It was sometime after the first demonstrations for fair elections in December that Katz read an appeal by the opposition party Yabloko for candidates interested in running for seats on municipal councils. “To be honest, I want to be mayor in a small Russian town when I am 35, and test my urban development plans,” Katz said, explaining his interest. He claims he is not one of the “frustrated city dwellers”and does not want to be labeled by the media as one of the protesters. “I’m actually quite satisfied,” he said. After the polls closed at 6 p.m., Max Katz turned his Opel back in the direction of polling station 2997. In addition to the six independent election monitoring volunteers, there were now six imposing figures dressed in matching black suits who said they were election monitoring officials. It’s unclear what they were doing at the polling place, but at one point, they began filming Katz and trying to provoke him by such action as screaming and making


obscene gestures. The one officially independent member of the election commission got up and left, but the election monitors kept their calm, responding to the scene by writing one complaint after another. Finally, the men in black left the polling station and drove off in their sedan. “It could very well be that we just kept them from committing electoral fraud,” Katz said. Around 2 a.m., the votes for president were all counted. Prime Minister Vladimir Putin took 52 percent at this polling station alone. “That’s impossible,” whispered a young female monitoring official, almost in tears. Vladimir Putin was also close to tears that night in front on the Kremlin. “We are victorious,” he stated from atop a stage in central Moscow, thanking the thousands of people chanting his name. There was no one chanting Max Katz’s name, but nevertheless, out of a total of 16 candidates, he received the third-highest number of votes and was elected to the municipal council along with four others. Max Katz’s career as a local politician had begun.

“I am deeply convinced that the signs of improvement in Russian-Polish relations at the time were Putin’s personal project,” said Waclaw Radziwinowicz, Moscow correspondent for Polish newspaper Gazeta Wyborcza.“When Polish President Lech Kaczynski died in an air crash, it was Putin who began personally eliminating the consequences of the disaster.” The tragic plane crash, which occurred on Russian soil, could have caused further deterioration in Russian-Polish relations, but instead the countries took the tragedy as an opportunity to make a fresh start. Putin began this process by visiting the crash site with Polish officials and then heading up the inquiry into the crash. In general, this is Putin’s style: coming to the aid of a country that may or may not have been on good terms with Russia and thereby improving relations. Another example can be found in Russia’s response to the disaster at Japan’s Fukushima nuclear plant in March 2011. When it

became clear that the loss of the nuclear power station would create a severe shortfall in Japan’s energy supplies, Putin proposed to compensate with increased deliveries of Russian liquified natural gas as well as coal. Although his opinion piece on foreign policy published in the Russian daily Moskovskie Novosti in the days leading up to the presidential election took a harsh tone towards Russia’s international partners, the West in particular, Putin’s actions as prime minister indicate that Russia under Putin, in its latest incarnation, will not seek conflict, but will rather act strategically with partners ranging from the European Union and the United States to China and the Arab world. “The current political situation is very complicated,” said Tatyana Parkhalina, an expert from the Moscow-based Center for European Security, “and it is in the interest of both Russia and the West to collaborate in fields ranging from the strategic partnership in Afghanistan to the Iranian nuclear program.”






MOST READ Alisa Ganieva and The Chronicles of Dagestan


Women Taking Bigger Role in Business Russia’s Top 100 Women, By Age


Real estate magnate Elena Baturina is the world’s third-richest woman, according to Forbes. CONTINUED FROM PAGE 1

Two of the list’s most public businesswomen, Daria Zhukova and Polina Deripaska, were in relationships with some of the country’s richest men when they began their business ventures. But while the funding for their companies may have come from the men in their lives — Zhukova is the girlfriend of billionaire Roman Abramovich’s girlfriend and Polina Deripaska is married to Basic Element’s Oleg Deripaska — they both worked to make their businesses a success. Zhukova’s art gallery, Garazh, is one of Moscow’s most popular cultural spots, and Deripaska is credited with having pumped new life into Forward Media Group. Elena Baturina is the wife of former Moscow mayor Yury Luzhkov, but her work with the real estate firm she founded, Inteko, made her the world’s third richest woman, according to Forbes.

A ranking of influential women shows that younger women get more press, but success comes with age. SOURCE: EKHO MOSKVY

A slow climb up the ladder But perhaps surprisingly, given the nature of Russia’s business climate, a large number of the business types on the list are women who have worked their way up the through talent and hard work. One of these is Natalia Kasperskaya, Russia’s second richest woman according to Forbes, who, together with her ex-husband Eugene Kaspersky, founded and ran Kaspersky Labs, a world-class I.T. security company. Kasperskaya, who stepped down as C.E.O. of the lab in 2007 to run her own company, InfoWatch, is often put forward as a notable example of Russia’s potential in the global technology industry. Other businesswomen on the list have worked their way to high positions in major Russian companies, but have had little public presence and are rarely regarded as the face of the corporations that employ them.

Women in Business by Industry


Russian Women Create a World-Class Fitness Experience

people were ready to pay for such a club in the center of Moscow, near the Kremlin, with many gyms and the best aerobics classes, fitness machines that they couldn’t find anywhere else. When did you break even? Very quickly.Things were very different in 1993. We broke even in less than a year.



When it comes to management, men and women have different approaches. In business, women are more inclined to compromise, are willing to hear other parties’ opinions, and they are more concerned for loyalty rather than personal success.”

High achievers, low ambition

Olga Miagkikh

TV hosts Tina Kandelaki and Ksenia Sobchak are not regarded as businesswomen in the traditional sense — and yet their influence in Russian society is undeniable. A study on career opportunities for women in business conducted last year by the international audit firm PriceWaterhouseCoopers found that while Russian women are high achievers in the business world, they rarely reach top positions within their companies. The study found that some 91 percent of chief accountant positions were held by women, but only 6 percent of company president positions, showing that women perhaps have the right skills, but don’t generally aim for the top. Panfilova, of Transparency International, says gender roles play a big part in perceptions of the types of roles women should play in the business world. “Sometimes women just prefer to keep a lower profile,”Panfilova said. “We shouldn’t forget that most women are also mothers and simply don’t have the time to promote themselves. The time that men have to spend on self promotion and P.R., women spend cooking dinner.” But Natalia Orlova, a macroeconomist at Alfa Bank and a prominent female figure in Russia’s financial sector, says the issue may also be a product of Russia’s immature business environment. “Russia has had a market economy for just 20 years — not long enough to establish well-protected legal wealth,” Orlova said. “Women in Russia generally try to do business following business rules rather than their personal connections.You could also draw the conclusion that they are less corrupt, but I probably wouldn’t say so directly.”



Lately, I’ve noticed that a majority of large-scale, rather ‘brilliant’ projects, have been engineered by women. In our country, women are very effective in business — they are more organized, goal-oriented, and have the option of using native ‘feminine’ qualities to help them past several obstacles, such as women’s intuition and natural charisma. Success in a woman’s personal life is also very important.”



When you work in a team with men, it’s important to mask your emotions, listen to their opinions, and compromise. Men see problems in a different way — they think globally, and therefore make any problem out to be much bigger than it really is. Meanwhile, women have a tendency to stick with details, so I appreciate the opportunity to hear the male perspective in every situation.”



What is success? Some accomplishments, which may be considered successes to individual women, may be different from society’s expectations. One of these is earning your first million before you turn 25. But according to society, a woman should strive to be beautiful and smart. If she is wealthy, she is successful.” This content first appeared in the World Economic Journal

Finding Success in Business and Politics


Olga Sloutsker was born in 1965 in Leningrad and began studying fencing at the age of 11. She fenced 12 years for the Leningrad City team and became a master of sports in fencing before retiring in the early 1990s. In 1993, she opened World Class, the first fitness club in Russia. Today, there are 37 World Class clubs in Russia and the C.I.S., and the company has developed other brands to appeal to different segments of society. Sloutsker later studied management at the Management School of the State Academy and has observed American and European fitness clubs to bring her clubs in line with international expectations. World Class has been named one of the world’s top 25 fitness clubs eight times.

[asking] “How can you sell physical training?” I was lucky to make new acquaintances. I moved to Moscow from St. Petersburg and met up with artists, pop stars and film directors, who supported me with my idea. Also, it was a new trend; people didn’t know what fitness meant and we had to translate this word. Who were your first customers? They were some of the most successful people. The Abramovichs, for instance. I did not know Roman then. They were film stars, showbiz celebrities, first capitalists, first successful journalists, there were many politicians. They sensed the trend very well and they wanted change. How much did you charge for an annual pass? The fee was $2,500. Thatisalotofmoneyevennow,butat that time it was an exorbitant price. It was, but there was nothing else; we had no competition. Anyway,

YoucouldsaythattheRussianfitness industry was established by women. You were the first, then big new fitness networks appeared — also controlledbywomen.Howwouldyouaccount for this trend? Maybe our men are unwilling to spend time creating something from scratch. It is very hard work. At that time, many industrial companies were privatized, and you could acquire an oil field or buy into a big foundry without too much effort. Men must have chosen that way. Or there could be a different reason.You know,World Class was the first company. Then we decided to set up a new one to manage cheaper clubs, called Planet Fitness. My director and fitness director were transferred there. A third company was created by my sales director’s wife. The Russian fitness industry could be not so much a women’s initiative, as women’s networks shooting out from World Class. We were working hard, living within our means, which is typical of women. We never split and grabbed state assets. We created this industry; we brought it here. Prepared by Vladimir Ruvinsky

Irina Khakamada isn’t content just to rest on her laurels.

At various times a business leader and a politician, today Irina Khakamada teaches seminars on business psychology, teaching the art of communication. VLADIMIR RUVINSKY RUSSIA BEYOND THE HEADLINES

Irina Khakamada is easily one of Russia’s most prominent women, having been a successful entrepreneur, deputy speaker of the State Duma and a government minister. Now Khakamada has largely retired from the public eye, but remains an influential figure; she has reinvented herself as a teacher, giving master classes in the art of business psychology and communication. The thread that runs through all her courses is the art of negotiating. “Eighty percent of business success depends on successful communication, and most Russian businessmen fail during most negotiations,” Khakamada said. “The reason is not their inefficiency but an inability to communicate.” Khakamada holds degrees in economics and embraced entre-



You started from scratch. How did people like your idea? The media gave us a hostile reception. I was expecting people to laud me when I came to the first press conference. But the response was just the opposite. The reporters started picking on me


At some time you had to make a choice: to stay in the elite club segment, or expand your audience. I had a wonderful team, but I could not make all of them directors. I did not want to lose them, though. That’s when we decided to open a second World Class club. Then I got excited: new offers came in, and I felt that the team, too, had ambition to open new clubs. Our third, fourth and 20th clubs emerged.We established a regional department, to sell franchising contracts. Now we have clubs in 15 cities, including Khabarovsk, Vladivostok, Astana and Almaty.

Olga Sloutsker, founder of World Class, Russia’s first fitness club, talked with RBTH about the role women played in developing the spa, fitness and health club industry in Russia.

Where did you get the money? And how much did you invest? My husband gave me the money. Initially, we invested almost nothing, just $400,000.

For instance, Bella Zlatkis, the deputy director of Sberbank, is one of the founding figures of the Micex stock exchange and was a chief negotiator for the restructuring of Russia’s debt during the country’s 1998 default. And Olga Dergunova, ranked 37 on the list, has twice made it to the Wall Street Journal’s list of most successful female European business leaders for her running of Microsoft Russia and current role on the management board of VTB bank.

Life Stories From entrepreneur to politician


A successful athlete in the past, you decided to go into business. Why? And why did you choose fitness? In the early 1990s, when the country started living a new life, I wanted to come up with something new. I had never thought of becoming a businesswoman. It happened accidentally, as is usually the case. As a professional athlete, I trained all my life in unheated, stuffy and scuffed gyms. We never then thought that it could be any different. I went to Spain on vacation with my then-husband and went into the hotel fitness club for a step aerobics session. I was shocked at the sports culture there: instead of the military-style physical training we were used to during the Soviet era, I saw people engaged in fun and happy sports in a clean gym while listening to music — this motivated you to take care of yourself. I came to Moscow and found out that there were no professional fitness clubs there. So I thought, why not try it for ourselves? We found a place and did it up — a lot with our own hands.

Special Report


preneurship when Russia became a market economy. She took a position with the government in 1997 to promote entreprenuership. In her opinion, the main problem at the federal level is not that some laws are good and some are bad, but that they are changed too often. “Rules, including tax rules, are altered every year,” she said.“Rules must be adopted once a decade.” Khakamada says that gender discrimination exists in both business and politics, and that while there is no gender difference in the ability of a person to succeed in business, she maintains: “Women are better negotiators; they are less ambitious and are more eager to accept a compromise; they are also better at scanning the psychological type of their opponent in order to adapt and get what they want.” Khakamada believes that her business experience made it more difficult for her to succeed in politics. “They told me that politicians did not understand me,”she said,“since I behaved like a businessperson.” She explained that, in business, when you strike a deal and shake hands, you start working even before the contract is signed. “The main thing is to calculate if there is profit for you and say openly whether you can benefit or are uninterested,” she said. “In politics, it is the other way round,” Khakamada explained. “Everything is vague; it is not clear where people’s interests lie. A person nods, agrees and then breaks the deal within three hours. They say one thing, mean something else and imply a totally different thing.”Professionally speaking, politics consists of endless intrigues, she explains. “As a businessperson, I found it hard in politics. It is hard for all businesspeople in politics.”






MOST READ E-Commerce Taking Off in Russia


Taking a New Look at Nuclear One year after Japan’s Fukushima disaster heightened the controversy over nuclear power, Russia’s leadership remains committed to the peaceful use of the atom. RBTH caught up with Denis Kovalevich, head of the nuclear technologies cluster at the Skolkovo Innovation Center, to talk about the many uses of nuclear energy.



Before you came to Skolkovo, you worked on strategic development at the state corporation Rosatom. Was it then that you developed an understanding that there were alternative areas and markets for nuclear energy? I suppose the idea was shaped even earlier, and I was not the only one. If we take a look at the strategic documents of the nuclear industry of the late 1980s, we’ll see many of the new directions outlined there. There are at least two reasons for pursuing diversification in the nuclear sector. The first is that the market is too sophisticated, so there is a lot that does not depend on us. Take Fukushima — it happened outside Russia, but it had a direct impact on us. The second reason is that the markets for allied technologies are growing much faster than the energy market, but their volumes are already comparable. The range of the nuclear industry know-how that can be applied outside the energy market is estimated to include at least 500 products and solutions. Many of them constitute part of the new technology platform “Radiation Technologies” adopted by a special commission with the Russian government and given priority status.


Denis Kovalevich was born in 1979 in the Moscow Region town of Troitsk. After graduating from the Higher School of Economics in 2002, he managed a number of consulting projects in Russia’s Volga River regions. Before becoming executive director of the Nuclear Technologies Cluster at Skolkovo, he worked on long-term strategy planning for Russia’s state atomic power monopoly, Rosatom. Since 2009, he has been a member of the President’s Commission for Modernization.

Currently you supervise this platform as director of the nuclear technologies cluster at the Skolkovo Innovation Center? Yes. This platform is officially coordinated by the Skolkovo Center and our cluster. Overall, four strategic directions have been identified for the nuclear technologies cluster, based upon gen-

We support the development of new projects that will later be included into the tech chains of global giants.

eral development trends in the nuclear power sector, analysis of global progress and this country’s capabilities, including its personnel potential. I won’t go into detail, but simply enumerate them.They include radiation technologies (radiationbased solutions); development of new properties of materials; technologies to design, construct, model and engineer complex technological facilities and systems; engineering, instrumentmaking and new electronics solutions. These all are spinoffs of the nuclear program, to a greater or lesser extent. Why was Skolkovo given authorization to coordinate the “Radiation Technologies” platform, not Rosatom? There are more than 70 organizations currently engaged in radiation technologies within the scope of this platform, and Rosatom is just one of them. As far as its competencies are concerned, it is, indeed, potentially the most powerful investor and a player capable of assembling end prod-


$25 billion is the currently estimated size of the global market for radiation management solutions.

10 percent annual growth has been seen in this segment in recent years.

200 proposals for the peaceful use of nuclear power were made by the Soviet Union at a 1958 Geneva Confererence.

ucts. But, because of its sheer scope, Rosatom cannot support companies worth, say, $1 million dollars. A nuclear power plant is a tangible facility, but when it comes to what we are going to search for and nurture, the state corporation won’t even notice such things.

We pave the way. We support the creation and development of new projects and companies, that will later be included in the technological chains of global technology corporations by acquiring them, working with them in any way possible. We believe it is crucial that as many people and companies as possible choose this direction in which to move and this platform to rely on when building their long-term strategies. This is the essence of my job. Fundamentally, the main challenge is to start the wave, not just support two or three projects, however promising they might seem. How much time will you require and what steps need to be made? Are thereinstrumentsformeasuringand assessing the wave you initiate? I have a model in my head that looks roughly as follows. Essentially, we are talking about making a decision to launch a new industry. Judging from international practice, a decision of this kind requires five to 10 years, depending on the country. For in-

Finance State-owned bank caves to pressure and offers a buyback program to participants in its I.P.O.

V.T.B. Buys Its Way Out of a Public Relations Crisis V.T.B. is planning to buy back shares from disappointed investors in its I.P.O. at the offering price — almost twice the current market value.

“The management has arrived at a fair and morally balanced solution,” said Vladimir Putin.


“This was....pure politics, part of the prime minister’s performance ahead of the election,” said Slipchenko.


In 2007, one of Russia’s leading banks, state-ownedV.T.B., floated 22.5 percent of its shares by public subscription at 13.6 kopecks per share, raising over $7 billion from the flotation. The action, one of several offerings by stateowned companies, was called a “people’s I.P.O.” and was intended to encourage individual Russians to take a chance on investing in the stock market. TheV.T.B. issue proved extremely popular, but its timing was off. In the crisis years that followed, the bank’s share price dropped by almost half, and is currently trading at 7 kopecks. Participants in the I.P.O., many of whom were novice or unsophisticated investors, were outraged and claimed they had fallen victim to fraud. Over the next few years, rumors of a possible buyback appeared from time to time, but V.T.B. always dismissed the measure as economically unsound. However, during the Russia 2012 economic forum in February, Russian Prime Minister Vladimir Putin recommended that V.T.B. reconsider the matter. Shortly thereafter, the bank finally agreed to buy back shares from I.P.O. participants at the offering price. While initially this seemed like it would inflict a heavy blow on the company’s assets, in reality, few initial shareholders have managed to hold on this long. Most of them have already sold the stock. V.T.B. estimated that the bank will have to repurchase less than 1 percent of its share capital at the cost of roughly half a billion dollars. Still, the buyback is likely to be a pain-

stance, Singapore launches a new industry once every seven years. They take seven years to think, analyze, check and double-check. I perceive and interpret Skolkovo’s potential in this context as “action research”. When our grants committee decides to support some proposed project, invest in a startup, it is a chance to assess the viability of the applicant company. We cannot check it by way of analysis, using a piece of paper and a pencil. We need to give people a real opportunity, let them try, face certain obstacles — when you have worked with them, you see their strengths and weaknesses. We need to organize this process.

Engineers inspect a magnetic seperator at the Joint Institute for Nuclear Research in Dubna.

V.T.B.’s “people’s I.P.O.” attracted many first-time small investors.


50 is the percentage of value V.T.B. stock has lost since its widely touted “people’s I.P.O.” in 2007. Many feel the bank duped first-time investors out of their money.

ful experience, said Alexander Lebedev, businessman and owner of the National Reserve Corporation. He expects V.T.B. to be swamped with claims, since thirdparty interests will likely surface along with complaints about the number of shares subject to the buyback and the form of compensation.V.T.B. President Andrei Kostin, however, has announced that the odds of aggrieved share-

Planning a Global Expansion V.T.B. Capital is looking to hire about 200 bankers this year under a new incentive program linked to its parent company’s share price, according to recent reports by Bloomberg. “We have about 1,300 employees now at V.T.B. Capital, and we are looking to grow 15 percent,” said first deputy chief executive Yury Solovyov. “We will be hiring in Singapore, New York and Hong Kong. We just hired an equity trading team in Dubai.”

V.T.B. Group chief Andrei Kostin created V.T.B. Capital in 2008 and pledged to spend $500 million building the business, including hiring Solovyov and more than 100 other bankers from Deutsche Bank. Within two years, the unit became the biggest organizer of Russian equity sales and the first domestic company in the post-Soviet era to underwrite the most bond sales. Originally published in The Moscow Times

holders winning any lawsuit against V.T.B. over the buyback scheme are extremely low. Putin, for his part, welcomed the decision. “The management has arrived at a fair and morally balanced solution,” the prime minister said after the announcement, and minority shareholders have hailed the bank’s move. But major shareholders and partners appeared befuddled — first and foremost global depositary receipt (G.D.R.) holders, who are mostly foreign investors. But Bank of Russia Deputy Head Alexei Ulyukayev is sure that the misunderstanding will soon be overcome. “The fact is that the transaction has no material financial value,”Ulyukayev said,“since half a billion dollars is by no means a significant amount for the bank’s capital or dividends.” Rating agencies also do not predict that the buyback will have any negative impact on the bank. “These facts, although negative in essence, will have no material influence on the bank. Furthermore, V.T.B. will be free to float the shares again later,” said analyst Alexander Danilov with the Fitch ratings agency. And the bank is indeed planning to float some shares as well as partially transfer them to its top managers as a bonus, said Vladimir Ta-

rachev, chairman ofV.T.B.’s Shareholder Advisory Council. In making this decision, the bank also rejected the premise of the initial I.P.O., saying that the idea of increasing the number of individual minority shareholders has been a failure. “Selling shares to the public directly is unreasonable, so I believe that the reduction of the number of individual shareholders through the proposed buyback is well justified,” Kostin said. He also emphasized that the proposed buyback was above all a move aimed at reinforcing the image of the bank’s brand by“alleviating the negative attitude towards V.T.B”. This step to build goodwill, however, will most likely have negative consequences, said Alexander Khandruyev, head of the consulting group Banking, Finance, Investment: “This P.R. campaign is doing V.T.B. a disservice. After all, it amounts to the bank admitting its own failure and inefficiency. “There’s no talk of reimbursing minority shareholders for lost profits, although almost every one of them withdrew money from bank accounts, where it had been generating interest, in order to buy shares. In the four years since the flotation, bank account balances have increased by a factor of 1.5, or even more.” Meanwhile, many experts are positive that the expected buyback was hardly financially motivated. More likely, it was a preelection maneuver by Putin, who was at the time in the midst of his presidential campaign.“This was obviously pure politics, part of the prime minister’s performance ahead of the election,”said Leonid Slipchenko, a banking analyst at Uralsib Capital. Chairman of the Board of Otkrytie Bank Yevgeny Dankevich, however, is certain that there are market reasons behind the move as well. According to Dankevich, the buyback “combines business with pleasure. “On the whole, buybacks are, if economically feasible, a normal practice. In the current situation, when banking shares are cheap, it may be the right thing to do. On the other hand, it was also clearly a good election campaign move.”

You referred to Singapore’s experience. What about recent developments in Japan? Do you believe they are thinking about diversifying the nuclear industry and giving priority status to sectors other than nuclear power? I’m sure that, following Fukushima, this has become much more relevant. They must think about ways to diversify. In brief, what does Skolkovo resident status offer your foreign partners? To be very brief, I’ll mention just two benefits. First, this will enable foreign companies to create their own R&D centers in Russia. In Skolkovo, they will be able to establish them without red tape and on a very tight schedule. Second, foreign companies, as soon as they partner up with some of the Skolkovo startups, will enjoy the status of exclusive innovation partner of Russia. When a foreign company joins the center, it gets special status to position itself in Russia. The Skolkovo team has experience and an understanding of how to deal with administrative obstacles, tackle customs problems, and much more. The center was designed and set up to shake up the existing bureaucratic model. Prepared by Alexander Yemelyanenkov


This annual fair brings together key players from all sectors of the global travel industry for a weekend of networking and presentations. The event features nearly 1,300 travel companies from 138 different markets. For the Russian regional segment of the event, regions from Kaliningrad to Vladivostok have already confirmed their participation, including the Krasnodar, Altai and Primosky territories, the Caucasus Mineral Waters and the Rostov, Irkutsk, Vladimir, Orel, Yaroslavl, Penza and Arkhangelsk regions. ›


This award, established in 2010 by the World Organization of Creditors (W.O.C.), seeks to increase the appeal of Russia and the C.I.S. countries as investment destinations, stimulate economic development and investment activity, and encourage businesses to expand and improve quality. Competitors for the award can be individuals, businesses, organizations and governments interested in fulfilling the goals of the award. Winners are selected based on the success, competitiveness, level of innovation, cost recovery, and economic and public importance of their respective projects. Winners are selected by a panel of distinguished professionals. ›





MOST READ Watch the Construction of a Moscow Skyscraper

Money & Markets



Investors Russians remain cautious about putting their money in stocks and other investment vehicles


Individual Investors Not Quite Ready to Stock Up

Once Again, the Question: “Who is Mr. Putin?” Ben Aris SPECIAL TO RBTH


Last year was not a lucky one for investors in the Russian stock market. Its major index, the R.T.S., fell 19 percent, and only 20 percent of listed funds reported profits. At the same time, the number of individual investors playing the stock market independently increased 9.3 percent, according to R.T.S. data. Economist Denis Strebkov, an assistant professor at the Higher School of Economics, believes that the percentage of Russians who personally invest in the stock market does not exceed 1 percent of the population. In contrast, in the United States, approximately half of all households own shares in publicly traded stocks. Russians’ interest in investing has grown slowly. Although the Russian stock market was established in 1992, for years it remained the exclusive domain of professional brokers. One reason was the underdeveloped market itself, but additionally, according to Strebkov, Russians lacked“elementary financial literacy as an essential component of market economic culture.” Potential investors did not trust financial instruments, and the possibility of making money on the stock market made no sense; they only regarded securities as an alternative to bank deposits. The mentality began to change in the mid-2000s. The general

population was becoming more prosperous, and people increasingly saw investing in stocks as a way to manage their personal savings. Additionally, by that time, a sustainable growth in the capitalization of the Russian stock markets had been achieved, and brokerages took off. A new kind of Russian was developing, one who did not depend on state paternalism and wanted to take control of his own finances. “A new bourgeois personality

Potential investors did not trust financial instruments, and making money on the stock market made no sense. Despite the overall increase in the number of private brokerage clients, their activity decreased in 2011. type emerged, gauging happiness, freedom and success by the yardstick of money,” said Strebkov. In contrast to developed markets, where securities are acquired primarily to obtain dividends, the main objective of Russian investors is to make money on the price difference. Many Russian public companies often fail to pay dividends, and even when they do, the dividend rate is insignificant. Prior to the 2008 economic crisis, unit funds secured their investors incomes that were two to 10 times the inflation and bank deposit rates. A yield of 30 per-

cent was considered low, especially for companies in the oil and gas, metals and banking sectors. The trend came to a halt in 2008 and again in 2011; Russian private investors lost up to 50 percent of their capital in unit funds. As a result, interest in the stock market waned. The drop in stock prices worldwide combined with the high volatility of the Russian market, which is mainly caused by dependence on fluctuating raw material prices, prompted investors to exercise caution or postpone active investment.

Russia’s flagship R.T.S. exchange is failing to attract young investors.

Trend toward independence But in the midst of crisis, a new group of semiprofessional investors with access to online trading emerged. Futures on the R.T.S. and Micex indices (the two merged in late 2011) became popular trading instruments with these private investors, who played the stock market by themselves. Short-term speculation using automated software enabled private players to increase their original investments several times over. According to data from, in the first half of 2011, net investments in unit funds were in excess of 5.8 billion rubles ($198 million), which is triple the amount in the same period of 2010. In August 2011, however, the indices fell and earnings generated in the first six months depreciated. Despite the overall increase in the number of private clients with brokerage accounts, their activity decreased in 2011, according to figures from R.T.S. The number of private investors conducting more than one transaction a


$198 million


50 percent

was invested in unit funds in the first half of 2011, triple the amount invested over the same period in 2010.

private Russian investors conducted more than one transaction a month in 2011, down from 104,000 in 2010.

of the capital invested in Russian unit funds was lost in 2011, resulting in a significant drop in interest in investing.

month fell to 96,000 in 2011 from 104,000 in 2010. Finam remained the market leader in terms of the number of clients, with 18,373, followed by Brokkreditservis with 15,852 and Sberbank with 13,738.

Alternative to banks Analysts are certain that, for the private investor, especially a relatively prosperous one, the stock market is a good alternative to banks.Yet the Russian unit fund market is very small. Vladimir Savvov, head of the analysis department at Otkrytie Bank, said: “The total net asset value of all

Russian unit funds is less than 500 billion rubles, which is not much compared to the 10 trillion rubles in bank deposits.” The government’s strategy for promoting the Russian stock market for the period up to 2020 envisages an increase in the number of private investors to 20 million. The figure was dismissed by the Audit Chamber, which cited the low activity of domestic long-term investors.“If the situation proves favorable, with no new waves of recession, we might reach 4–5 million, but by no means 20 million,” said Finam President Vladislav Kochetkov.

International Foreign investors finding much to like in Russian government bonds after a new law eases trading rules

Traders Forming New Bonds With Russian Treasuries BEN SEEDER, BEN ARIS SPECIAL TO RBTH

A revolution is underway in Russia’s domestic capital market. In the first week of Feburary, demand for Russian government bonds outstripped supply more than fivefold as traders in London and New York snapped up the high-yielding 10-year Russian paper. “It was pretty spectacular demand, and the strange thing was that 70 to 80 percent of the bids came from foreign investors,”said a trader at Deutsche Bank, who preferred to remain anonymous. “I’ve never seen such high demand for [Ministry of Finance bonds] of this duration.” The auction raised 35 billion rubles, ($1.2 billion), more than twice as much as originally targeted. It was the first sale of Russian government bonds since a policy change opened up the local market to foreign investors without accounts or branches in the country. The new policy came into effect Jan. 1. Further liberalization of the bond market will come in April when the Russian capital market

will be hooked up to Clearstream and other international settlement systems, making it even easier for foreign traders to tap the Russian market. The changes in the bond market are just the latest step in the ongoing reform of Russia’s financial system. “Russia’s financial infrastructure is undergoing its greatest transformation since the beginning of the 1990s, when the country made the switch to a market economy,”said Chris Weafer, chief strategist with Russian investment bank Troika Dialog in Mos-

The changes in the bond market are just the latest step in the ongoing reform of Russia’s financial system.

Growth in Russian bond purchases

Local vs. international bonds in 2011

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amount to 1 percent of G.D.P. after a 0.8 percent surplus in 2011. To finance this gap, the state is turning to the domestic market, where domestic borrowing overtook foreign issue of Eurobonds for the first time in 2011. According to the Finance Ministry, the Russian government’s domestic

cow.“These changes could result in a massive re-evaluation of assets and removal of any risk premium associated with Russian equity valuations versus other emerging markets in the next two to three years; we will start to see the first benefits arrive in the next six months or so.” While higher-than-expected oil prices meant that Russia ended 2011 with a small surplus, the government expects a mild deficit to appear this year. In January, a deputy economics minister told reporters that Russia’s federal budget deficit in 2012 may

debt jumped 42.5 percent in 2011 to 4.2 trillion rubles ($138.8 billion), including government guarantees, half of which is in fixed coupon bonds.This is slightly more than the total outstanding Eurobond market, which was worth $115 billion at January’s end. According to Weafer, these changes are just more proof of an ongoing shift in the center of gravity of the global financial system. “The opening of the Russian market in the 1990s moved the global financial center from New York to London, while the rise of emerging Asia moved the center of gravity from Florence to the Black Sea,”Weafer said. “The financial center is still moving, as Hong Kong is the fastest growing market in the world. But as Moscow lies between London and Hong Kong, its geographic position is perfectly placed to emerge as a major regional market.”


A change in Russian law easing requirements for foreigners seeking to invest in government treasuries has resulted in high demand for domestic bonds.

C O N TA C T U S : F o r e d i t o r i a l i n q u i r i e s , p l e a s e , c o n t a c t u s @ r b t h . r u

fter Vladimir Putin was first elected president in 2000, journalists spent the next six months trying to figure out who he was. Not one but two Putins quickly emerged.The first is better known to foreigners. This is the political Putin, who nixed the popular elections of regional governors and drove the oligarchs out of the Kremlin. Putin’s image of strongman reached its zenith with the jailing of Mikhail Khodorkovsky, the former owner of oil company Yukos, in 2003. By the start of Putin’s second term in office in 2004, he was fully in control of the country


A class of Russians with the money and interest to buy stocks emerged in the 2000s, but a decade later, they are still a tiny part of the population.

e b i r sc b u S

Although the political Putin has been demonized in the Western press, Russians welcomed him. and imposed a political stability on Russia that has remained ever since. Although the political Putin has been demonized in the Western press, Russians welcomed him as a much-needed change after the chaos of the Boris Yeltsin era. But the second Putin is much better known to the locals, and he is the reason that so many people still vote for Putin in national elections. This is the economic Putin. Even before the oligarch arrests or end of regional elections were introduced, Putin slashed income taxes to a flat rate of 13 percent and corporate taxes to 24 percent. More subtly, he introduced a federal treasury system that put the center back in control of the nation’s finances and stopped the rampant stealing by regional administrations. Then he launched the Gref plan of liberal reforms.These reforms, together with rapidly rising oil prices, led to a sustained economic boom that transformed the Russian economy.

Is Putin a leader who can guarantee Russia’s stability and growth, or is he someone the West should fear? And it should be no surprise that the economic Putin is genuinely popular among many Russians. When he first became president, the average income was a mere $50 a month; today it is $800 — a 16-fold increase. Over the months of the 2012 Russian presidential campaign, it became clear that the country needs a new growth model; the old one of high oil prices accompanied by heavy spending is not going to work for much longer. At the same time Putin, for his part, reverted to his tough-guy political persona. Now, as Putin prepares to retake his old job, pundits find themselves asking the same question again that they did in those first months of 2000:“Who is Mr. Putin?”Is he a leader who can guarantee Russia’s stability and economic growth, or is he someone the West should fear on the international stage? The obvious answer is that nothing has changed and Putin will continue to be the person he has been for the last 12 years: a politician prickly on the political front, but progressive on the economic one.

Catch the vibes of Moscow When I first arrived in Russia, I was completely at a loss trying to understand their humor. Seemingly amusing humor found its way to offend many Russians. That’s when I heard about KVN.

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Figuring out Russia’s Political Future


n the run-up to the recent elections, the Russian government announced that it was working on a proposal to increase dividend payouts at state-owned companies to a standard 25 percent of net earnings, with a public discussion to precede any final decision on the issue. Initially floated by presidential economic advisor Arkady Dvorkovich, the government’s move is aimed at improving Russia’s investment climate. The details are now being worked out under Deputy Prime Minister Igor Shuvalov. As often happens, however, Russia’s plan is rather out of line with both financial theory and international practice, at least in the U.S. and U.K. The dividend policy — the target percentage of net earnings paid out in cash to the shareholders, usually quarterly or semiannually — is a function of various factors, including the type of company in question. There is not any standard figure, but as a rule, fast-growing companies reinvest earnings into expansion, while more mature companies make higher payouts. Rapidly expanding companies need large amounts of cash as working capital since making, storing and distributing more products pushes up costs before the company has time to recoup the extra outlays from sales. This


cause they have to pay the shareholders an equity premium, which is usually about 5–6 percent above the return on their corporate bonds. So, financing expansion using bonds is much cheaper and reduces the cost of capital to the company, providing it does not take on too much debt. When companies announce a dividend policy, they try hard to stick to it. As long ago as 1956, John Lintner conducted a classic survey of boards of directors in the United States. They did indeed set long-term target dividend payout ratios, but believed that shareholders prefered a steady progression in dividends. So even when earnings might appear to warrant a high payout, managers only move slowly towards the payout ratio and wait before increasing dividends too much to see if the higher earnings will be permanent. Managers thus “smooth” dividends, so they fluctuate far less than earnings and give investors a reasonable degree of certainty. Too high a dividend target runs the risk of failing to meet investor expectations, which can then be taken as a sign of bad management and in turn hit the share price quite badly. Investors then lose out on both fronts, losing any capital gains they made on the stock and receiving a lower dividend than they expected. Russian practice deviates somewhat from this. Gazprom only paid out 5 percent in 2008 and 9

is one reason that fast-growing companies can go bankrupt if they fail to take out bank loans in good time. Technology and other innovative companies also have to engage in expensive R&D. Classic examples are Microsoft and Apple, which for years held on to their earnings and paid no dividends; Apple is currently sitting on a cash pile of nearly $100 billion and is due to pay its firstever dividend later this year.

Russian companies, like those elsewhere, should decide their investment and dividend policies on an individual basis. But these retained earnings can also be used simply to build up the most interesting part of the balance sheet, the“owners’ funds,” often with the aim of making acquisitions. This usually applies to successful mature companies capable of paying out much more in dividends because they see little or no scope for organic growth or acquisitions. Companies can also spend the retained earnings on buying back shares from the shareholders, who benefit from a large“terminal”dividend and receive more money than would otherwise be the case, which they can then decide to spend or reinvest elsewhere. The companies also benefit from buybacks be-



percent in 2009 before increasing the dividend to 22 percent in 2010. Rosneft, on the other hand, links its dividend payout to its net profit. As a result, its payout was 10 percent in 2004, 20 percent in 2005, 13.3 percent in 2006, 10.5 percent in 2007, 14.4 percent in 2008, 11.7 percent in 2009 and 15.2 percent in 2010. So while the dividend has always been at least 10 percent since 2004, its variability also represents a risk for investors since their returns are uncertain. Sberbank, Russia’s biggest bank, has never reduced its dividend since 2001, when it paid out 6 percent, and since then has steadily increased its payout in line with international practice to 12 percent in 2010 — and plans 15 percent in 2011. It has already announced its intention to increase its dividend payout to 20 percent in the next three years. As elsewhere, dividends are much higher at Russian telecom com-

panies. Rostelecom paid out 22 percent in 2010, but at M.T.S., the dividend was 60 percent and at Vimpelcom, 78 percent. Some local analysts believe the change will help improve the chronic undervaluation of Russian stock, but of course that undervaluation is attributable not only to dividends, but also to the perception of Russia as a highrisk country with a very negative reputation. The Russian government expects higher payout ratios to make the companies more attractive to investors. But German Gref, a former economic minister and now head of Sberbank, pointed out that if implemented, the policy would also reduce the money available to companies for investment.“I don’t think 25 percent for all companies is a good idea — especially now, when the banking sector, for instance, needs huge amounts of investment and

capital to maintain high growth rates and expansion” Gref said. “On the one hand, we’re seeing some demands for a certain level of payout, while on the other, the government is helping banks to increase their capitalization. There’s a clear contradiction.” It remains to be seen whether the government will force the 25 percent payout through, but as Gref implied, Russian companies, like their counterparts everywhere else, should really decide their investment and dividend policies on an individual basis. But despite the lack of consistency on the part of some Russian companies with regard to dividend payouts, most investors look at the earnings per share — which in Russia is comparable with international levels. Ian Pryde is founder and C.E.O. of Eurasia Strategy & Communications in Moscow.


s Russians voted for a new president this month, their country was back in fashion with foreign investors. The ruble has gained 12.2 percent against the dollar-euro basket since last fall and is not far from its post-2008 crisis high. The rebound of stock prices since the beginning of the year has been an impressive 13.7 percent in ruble terms for the Micex, and an even more impressive 25.4 percent in dollar terms for the R.T.S. Given that the balance-of-trade surplus is running at 12 percent of this winter’s gross domestic product, the strength of the exchange rate looks plausible and will probably continue — provided there is no new crash of the oil price and imports do not go through the roof once again. To be sure, neither of these two risks can be ruled out, and must therefore be watched closely. The stock market, valued at a price-to-earnings ratio of 5.9 on the basis of last year’s earnings and at a price-to-book ratio of


1.03, is fundamentally on firmer ground than the exchange rate. But, of course, the stock market is hostage to oil prices. At the same time, however, the country’s fixed-income markets remain neglected. The ruble-denominated government OFZ November 2021 bond, for example, yields nearly 8 percent and has thus a rather high real return, particularly considering the fact that consumer price inflation had been just 4.2 percent year over year in January. Equally, the dollar-denominated April 2020 government eurobond with a yield of 3.98 percent is about 250 basis points higher than that of a comparable U.S. Treasury note. Nonetheless, Russia has a bad reputation among investors, despite the government’s budget surplus and minuscule debt levels. On the whole, this bad reputation is undeserved. The real estate market has probably bottomed out, but there are wide regional disparities. Moscow is where all the wealth and the population growth is concentrated, while the regions continue to struggle. Meanwhile, the Central Bank hesitates to cut interest rates because it doubts that inflation can remain so low. Judg-

ruble and the stock markets are so strong. While foreigners are putting more money into Russia, Russians themselves are net capital exporters to the tune of almost $10 billion a month. Technically speaking, in the absence of Central Bank interventions in foreign exchange markets, that $10 billion is the flip side of the current account surplus. Since the Central Bank’s foreign reserves have been more or less unchanged at around

Rather than being determined by economic fundamentals, the oil price today is mostly a political tool.


Dieter Wermuth

ing by the strength of the ruble and falling import prices, the inflation outlook is actually quite good.To buy real estate as a hedge against inflation does not make sense in such an environment. Economic growth is certainly fairly moderate. Real G.D.P. had expanded by 4.3 percent in both 2010 and 2011, and it is generally expected to increase by another 4 percent this year. Before

the 2008-09 crisis, growth rates had averaged about 7 percent. This suggests that capacity utilization remains low. A 4 percent growth rate will therefore not cause any serious frictions or imbalances, nor will it lead to an acceleration of inflation. Investors appreciate this new stability. It is much better than wild swings around a steeper trend, and may help to explain why the

$500 billion for several months now, the private sector, by definition, must be accumulating foreign assets. Why is this? One reason is that exporters, in the wake of the recent oil price boom, may feel overwhelmed by the sudden increase of their revenues and have no plans on how to spend these windfall gains.They’d rather park them abroad for a while.

The other reason is more worrying. It could be that the capital exports reflect Russia’s uneven income distribution. The country’s wealthy may be afraid of a popular backlash — Putin has raised this theme several times recently — and have thus decided to stash away part of their funds in safe places. The main risk is that high oil prices are not sustainable because they could cause a global recession, which in turn would bring the price down, perhaps violently. Apart from this, at an annual growth rate of real G.D.P. of about 2.25 percent since last autumn, the world economy is not exactly booming. Rather than being determined by economic fundamentals, the oil price today is mostly a political tool. Since the risk of a war between Iran and Israel is exaggerated, the oil price itself is not well supported. In all likelihood, we are looking at a new bubble. Investors must be aware that they will face an entirely new game once it pops, and they would be wise to remember the age-old axiom: Bubbles always pop. Dieter Wermuth is a partner at Wermuth Asset Management.


his presidential race sure was exciting. The suspense was killing me. In fact, I got so caught up with the race that I forgot to rate the campaign slogans and posters. Ratings methodology: Get into car to do errands around town. Get stuck in traffic jams. Stare out the window at campaign billboards. Ratings criteria: Do the ads convey the essence of the candidate and his platform? Can you recall them five minutes after you’ve seen them? Do they make you want to vote for the guy?


Summary conclusion: A weirder batch of campaign ads is hard to imagine. The award for the most grammatically challenged slogans goes to Liberal-Democratic Party of Russia leader Vladimir Zhirinovsky. One billboard read: Жириновский или будет хуже (Zhirinovsky or it will be worse). Another white billboard reads: Жириновский и будет лучше (Zhirinovsky and it will be better). No comma, no verb, no grammar as we know it. On the other hand, you get the message — even if it is a bit short on detail. The award for the strongest visuals goes to Gennady Zyuganov of the Communist Party. In one retro-style poster, the candidate


stands in shirtsleeves in front of a montage of a Kremlin tower and the Monument to Minin and Pozharsky. Blue skies, white

Prokhorov’s campaign slogans win the award for understated style — understated to the point of obscurity. clouds and a red banner evoke both the Russian tricolor and the symbol of communism. One page of a Soviet-era calendar has the Communist Party emblem, and another shows March 4 as a redletter day. The simple slogan,

Выбираем Зюганова (We’re voting for Zyuganov), is next to a checked election ballot box. The whole package is out of a Soviet propaganda textbook — perfectly on target for his core electorate but totally out of touch with everyone else. Mikhail Prokhorov’s campaign slogans win the award for understated style — understated to the point of obscurity. One is: Требуйте большего! (Demand more!) More what? From whom? Another Prokhorov slogan, Новый президент — новая Россия (A new president — a new Russia), conveys, albeit obliquely, the need for change. And Управлять, а не царствовать (Lead, don’t reign) implies, I guess,


a different approach to governance and muted criticism of the current regime.Too bad the whole campaign is like a dissident Soviet-era play: You have to read between the lines to get the message. The award for most illusory ads goes to Sergei Mironov. If they exist in Moscow, I didn’t see them. Nor do they appear to be on his Web site, which shows a curious lack of brand consciousness. As far as I can tell, one slogan is: Миронов — честный выбор! (Mironov — an honest choice!). Another seems to be: Твой голос изменит страну! (Your vote will change the country!). Is he kidding? Vladimir Putin’s ads win the

bland award. They’re like a campaign for Mr. Nice of theYear. One billboard reads, Владимир Путин 2012 (Vladimir Putin 2012), with the tiny tagline: Счастье народу (Happiness for the people). Another is: Слышать людей, работать для людей (Hear the people, work for the people). Only the slogan, Великой стране — сильный лидер (A strong leader for a great country), conveys something of his leadership style and worldview. But what’s with the poster, За Путина и всё (For Putin and that’s it)? That’s it? Well, I guess that’s it. Michele Berdy is a Moscowbased translator and interpreter.




MOST READ Russian Prodigies Tour the U.S.




David MacFadyen was born in London, but has spent his career in North America. Currently he is a professor of Slavic Languages & Literatures at the University of California, Los Angeles, specializing in contemporary Russian culture. His interests include animation and film and how social networks affect cultural trends. He launched the Far From Moscow project in 2008.

a certain viewing time and the performance would take place “live,” but online. In the U.S., for instance, people are starting to watch ballet and opera in the cinema. For the same reason, international football games are also shown in theaters: audiences get a much better sense of the spectacle. Russia faces lots of these media challenges. For those same reasons, I don’t understand why state media does nothing to help young artists. The British Broadcasting Corporation offers a very good example to follow. After primetime shows, most of national pop scheduling in the evening is given over to young musicians and local performers. No one needs that system more than Russia.You have to start with something. What I see are wonderful little blogs all around the country designed for different styles of Russian music, whether it’s techno or folk, but they remain small and typically don’t collaborate. Then, of course, there’s a second issue connected to radio stations. They tend — on the American example — to choose one narrow genre and not mix styles. As a result, the surprises are few and far between. Publications don’t collaborate and styles don’t combine.

What do you think about the copyright situation in Russia? It’s difficult to say. I don’t see how piracy can be stopped unless somebody invents a magical, technical way of doing so. Because of piracy’s effects, bands have to tour constantly. That may sound romantic, but in Russia, where distances are so big, it’s often impossible to do so. Musicians repeatedly complain to me that local promoters are difficult to find: you don’t know who is reliable outside of major cities, and finding accommodation is equally tricky. A lot of regional clubs are also badly behaved: they may, for example, promise you a certain percentage, so you play the concert — but then get nothing. Online concerts could become a solution. People could agree on

Do you envision Russian groups gaining popularity in Europe or the U.S.? Yes, but a lot is determined by the genre in question. The more

a style is connected to a given language, the harder things will be. The worst example would be something like rap or hip-hop; I don’t see how something so linguistically complicated could survive in an international market. The best chance might be for dance music or wordless electronic genres, perhaps. I already see a lot of international Net labels

I have been doing this project for three years now, and the site remains noncommercial. It’s a cultural exercise. within electronic music inviting Russian performers. In those cases, geography doesn’t really matter, but those projects still don’t involve truly commercial music. It all remains on a modest scale. There are some Russian electronic artists who live and work here in L.A., but a lot of instrumentalists, both here and at home, have given up; they see no hope of making money from their craft, so they start writing incidental music for advertising, computer games, TV series and so on. That’s something we have already seen in the West. It’s an option, but not the best.

ally: it was outside of Russia altogether. My brother lives in Toronto and I went to one of Alla Pugachyova’s concerts there. An entire generation of émigrés was present, folks in expensive furs and enormous jewelry who hadn’t seen their favorite star for 30 years. That was absolutely remarkable. Everyone was dressed as if it was the last party of their lives! They made one heck of a noise. Foreigners in Russia often go looking for traditional sounds, such as the balalaika, but increasingly they are astonished to discover contemporary bands. How do you strike a balance between those rural roots and urban trends? Here the issue of geography returns again, in that “provincial” musicians sometimes feel themselves far from anything modern or stylish. Performers, therefore, frequently don’t want to mention their address. They actively hide it. It’s as if homelessness creates an ability to sidestep clichés and stereotypes. Whenever a rural or provincial artist moves to Moscow, though, then all of a sudden all their social profiles refer to “Moscow.”In the long term, that’s clearly not a good way to work. There needs to be an equal balance between urban centers and the “periphery,” between the future and the past.

What’s has been the most memorable Russian concert for you? Something rather strange, actu-

Prepared by Darya Gonzales

Russian Directors Take on Yale Drama Playwrights John Freedman THE MOSCOW TIMES

t was politics and Bertolt Brecht that brought David Chambers to Russian theater many years ago. As Chambers recalls it now, he could feel the great Russian director Vsevolod Meyerhold“looming in the background” as he studied the work of Brecht. The connection with Meyerhold finally happened during a visit to a conference in Montreal in the late 1990s. There, Chambers met the Russian pedagogue and scholar Nikolai Pesochinsky and they launched into an ambitious joint project — a reconstruction of Meyerhold’s famous 1926 production of Nikolai Gogol’s “The Inspector General.” “We began to stage what we thought it looked like, and then we built a frame around that,”Chambers said. The result was, in his words,“a production about a production.” Chambers is a professor of directing at the Yale School of Drama, and his connection to Russia and Russian theater now runs deep — personally as well as professionally. “I found myself feeling very comfortable in Russia,”he said. “I feel very connected.” In addition to adopting a son from a small city outside Yekaterinburg, Chambers has continued to develop a working relationship with Russia and Russian theater. He has been a participant or catalyst in several projects bringing Russian and American theater cultures together. These have included, among others, Kama Ginkas’s world-premiere production of “Rothschild’s Fiddle”at theYale Repertory Theater in 2004; several trips to St. Petersburg and Moscow to study the legacy of the influential Russian directors and teachers Georgy Tovstonogov, Maria Knebel, Anatoly Efros and Lev Dodin; and a joint program with Moscow’s Playwright and Director Center that began last year.


Dramatizing Russia’s Protests The recent protests against alleged electoral fraud in Russia are nothing less than inspirational for a British playwright who finds the dramatic in what others see as news. PHOEBE TAPLIN



Jonathan Holmes at the rehearsal of his latest play in London.

Writing about America Holmes’s 2007 play “Fallujah,” about the occupation of Iraq, provoked death threats, but it also helped publicize the use of chemical weapons in the title city. “Katrina” (2009) was similarly groundbreaking, drawing on verbatim testimonies from survivors of the New Orleans hurricane to expose the negligence of the U.S. authorities in the disaster. The theater critic for British daily The Guardian called it “a staggering picture of official lies and personal heroism.”

cane Katrina in a play completed in 2009. Holmes said that it is a sense of underreported histories that draws him to these controversial topics: “When you question the silence, controversy follows,” he said.“I don’t enjoy the hate mail, but it’s usually a sign that you’re doing something right.” In the case of his latest project, Holmes says he has long had the feeling that “Russia was being startlingly underestimated and undervalued by mainstream commentary,”and now has“the sense that something momentous is passing us [in the West] by.” He sees the demonstrations as particularly suited to dramatic treatment.“Protests and rallies are, of

course, performative; their relationship to space and to audience is purely theatrical,”Holmes said. “They share this with religious rituals. Theater was born from such moments.” Before he became a playwright and director, Holmes was a senior lecturer in drama at the University of London. His Ph.D. thesis was on Shakespeare in performance, and he has since written books on the subject, so he is well placed to explore both the roots and the cutting edge of theatrical practice. Holmes sees ethical questioning and interaction with the audience as crucial components of traditional drama. He welcomes the expression of different views as part of the ongoing process of creation. “All I want to do is rediscover something we’ve lost, which is the ability to participate,” Holmes said. In his plays, members of the audience are often free to move around and make judgments about how close to stand to any particular character. Holmes admits that he now finds conventional plays increasingly hard to watch: “I can’t figure out why the people with the lights pointing at them are ignoring those of us in the dark — which is an apt metaphor, I suppose, for the connection of theater with current enthusiasms on the streets and squares of Moscow.”

A group from the Center — including director Marat Gatsalov and playwright Nina Belenitskaya — visitedYale last spring. That was followed by a trip to Moscow involving a group of young playwrights currently studying at theYale School of Drama.Their works were translated into Russian and given staged readings of varying sophistication during a public workshop. It was “one of the most valuable new play experiences”Chambers said he had ever had. He explained that the American writers were“challenged, thrilled, excited and frustrated”by the encounter and that it was a profound learning experience for them.

The interpretations were “thrilling; quite different from what American interpretations had been.” Accustomed by their own national tradition to having significant control over the staging of their works, the American playwrights were surprised to find that in Moscow, they not only were not invited to attend rehearsals, they were not allowed to be present. Thus, when they witnessed the staged readings along with packed houses of spectators at the Playwright and Director Center, they were amazed at what they saw. In some cases, that meant they were exhilarated by what directors revealed in their work; in others it meant they were horrified to see how they had been misinterpreted. As Chambers describes it now, these directorial interpretations were “thrilling, quite different from what American interpretations had been.” The experience had an immediate effect on Chambers’ work atYale, he said:“We brought some ideas back and have remodeled the first-year playwright and directing laboratory on the experience.”



The Language of Silence Finds a Voice

Theater A British playwright finds stories to tell in today’s history-making moments

Jonathan Holmes, a highly acclaimed British writer and director, plans to stage a work-in-progress at the Bush Theatre in the Notting Hill neighborhood of London in mid-March based on the recent demonstrations against alleged electoral fraud in Russia. Holmes hopes that early raw performances of his new play might generate some debate about the goals and causes of the protests that have occurred in cities across the country since December. Elements of these discussions could then become part of the larger production, scheduled to take place this fall. Holmes said his interest in Russian politics started as a child, when the collapsing Soviet Union still had a quasi-mythical status among the militant left movements of 1980s Britain, but this is not the first time he has taken international events and reimagined them, with sometimes controversial results. Holmes dramatized the invasion of Iraq in a 2007 work, entitled“Fallujah,”and explored the aftermath of Hurri-




How do you select the music for the Web site Originally I had to search for the music myself during many trips to Russia. It took a great deal of physical effort, but now an enormous amount of material is available online, and due to the success of the Web page, much of the content is actually sent to me. There is a constant flow of audio files between Los Angeles and Moscow. Unfortunately, though, everything on the site is written by me. It would be wonderful if the project were completely bilingual, but that’s physically impossible. I have been doing this for three years now, and the site remains noncommercial. It’s a cultural exercise. The biggest problem of all is that Russian and Slavic music doesn’t have an obvious “center.” People don’t know where to look. In addition to the site itself, I’ve started to put together some compilation albums. The next logical step would be a regular podcast, maybe streaming audio, that kind of thing. There need to be more ways to give people regular access to new sounds. If you ask someone in the West if they want to hear “Slavic music,”they usually imagine folk music. There’s one Russian promoter in Berlin who’s managing a pretty good flow of Russian and Ukrainian artists to Germany; she says that “folky” issue is both a plus and a minus. It’s much easier to promote bands with a connection to tradition, but it’s also very hard to escape those clichés.





oung Sofia can’t speak, but she is one of the most important narrators in Elena Chizhova’s sad and beautiful tale of life in Soviet Leningrad. We hear her thoughts (and her adult voice, framing the story) as she tries to make sense of life in a 1960s communal apartment, growing up with a single mother and three surrogate grandmothers. They raise her on a mix of secret religion, parables and French while keeping her out of the orphanage. Sofia’s silent commentaries are peppered with a child’s fears and fairy tales; in the poignant prologue, she remembers following her mother’s coffin which “should be made of glass. Then everybody would see that Mama is asleep, but will wake up soon.” There is not much mystery as to how the story will end, but the richness of both characters and atmosphere pulls the reader through a plot whose folktale motifs — ghostly brides, sleeping daughters and scheming old women — are part of a very real world of factories and dormitories haunted by war. One of the delights of “The Time of Women” is the sense of ordinary domesticity that is used as backdrop and foil to some of the 20th century’s horrors. Chopping onions, peeling potatoes


and boiling laundry are woven into the narrative streams of consciousness. These minutiae are important on several levels. They parallel the details of the struggle to survive the Leningrad blockade: starving children chewing coal or wallpaper glue, a factory worker saving her family by hiding dough under her breasts. They also link the novel to a tradition of feminist writing that refuses to see domesticity dismissed as traditionally women’s business and champions it instead as a vital and under-represented area of life. This may be partly why some critics felt “The Time of Women”should not have won the Russian Booker Prize. It is a tension Virginia Woolf identified in “A Room of One’s Own:” Is a book important if it deals with war and not if it deals with “the feelings of women?” Chizhova’s fragmented monologues embrace war and women, famine and food preparation. The title and the style both challenge more conventional narratives.The mixture of eavesdropping, whispered dialogue and stories is set against the official versions of reality on the new TV. Sofia’s muteness becomes a metaphor for the enforced silence of the times. In “The Time of Women,” the difficulty of living with trauma and oppression is represented in broken grammar, shifting narrators, unfinished sentences. It doesn’t always make for easy reading, but it does convey a powerful sense of the almost inexpressible tragedies of life, of poverty and sickness, the legacy of terror and the need to look honestly at the past.






MOST READ Russian Ad Sales Online Top Those in Print


Technology In order to continue growing, Russian information technology needs to diversify beyond hardware into software and services

One place Russian companies hope to compete with international players is in cloud technology. Although this sector is fairly small at the moment, Konstantin Chernyshov, an analyst with UralsibCapital, believes its growth rates will blow away similar figures across the entire I.T. services market in the period up to 2015. Market intelligence firm IDC predicts that the value of the cloud services market in Russia in 2015 will reach $1.2 billion; in 2010, the market was valued at just $35 million. Cloud technology is one of 15 priority areas supported by the Skolkovo Innovation Center,

Information technology is one of Russia’s fastest-growing economic sectors, but new companies still face many barriers to entry. VSEVOLOD PULYA SPECIAL TO RBTH

It seems clear to both financial institutions and independent analysts that the Russian information technologies market has recovered completely from the 2008 financial crisis. Russian Minister of Communications Igor Shchegolev has reported that the sector grew 14.6 percent in 2011, and the Ministry of Economic Development predicts that it will continue to show positive growth — roughly 16 percent in 2012, and 18 percent in 2013. Currently, Russian I.T. companies control 1 percent of the global market for information technology products and services, wo rt h ro u g h ly $ 1 6 t o 2 0 billion. The Ministry of Economic Development forecasts that the volume of the Russian I.T. market will hit $32 billion by 2013. But behind these positive numbers are questions about the sector’s overall potential. In 2011, the World Economic Forum rated Russia 77th in the world for growth in the information and communications technologies sector and third among resource-oriented countries. Today, Russia exports at most $1.5 billion of I.T. services, and no more than 300,000 people work in the country’s I.T. industry.

One place Russian companies hope to compete with international players is in cloud technology. The top 10 Russian I.T. firms account for 70 percent of all revenue earned by the country’s top 30 I.T. companies. the government’s “Silicon Valley” rising outside of Moscow. Cloud technology is part of Skolkovo’s information technologies cluster, which also includes multimedia search systems, video and audio processing and recognition, mobile applications, complex engineering solutions, green information technologies and wireless sensor networks. The Skolkovo project is just one way the government has ramped up its support of the sector over the past two to three years. An increasing number of state agencies are now accessible online; various information projects have begun; and the state has stepped up its war

The future is in the clouds Hardware continues to dominate t h e R u s s i a n I . T. m a r k e t , making up more than 50 percent of the sector. In contrast, hardware is only 30 percent of the European I.T. market. The rest of the segment there belongs to I.T. services (50 percent) and software (20 percent).

against pirated property and commercial raids. Moreover, the government has talked about developing online media and the commercial operation of fourthgeneration networks. State-sponsored industrial parks are emerging, and the government has introduced special economic zones that have reduced taxation and other benefits. But because the Russian government has suddenly become the biggest customer on the I.T. market, many companies are being created to serve governmental purposes, which has both positive and negative consequences. For one thing, it makes the sector much more sensitive to changes in the state budget. Growth in the I.T. sector lags three to four months behind that of other sectors, such as manufacturing, partially for this reason. “Officials just need a tick in the documents while business is focused on the profit,”said Ilya Rachenkov, an analyst with InvestCafe. But government support is needed to make any positive developments in the system and even skeptics admit that its influence is not all bad. Rachenkov confirms that he has heard good opinions on Skolkovo from businesses of all sizes. “For them it’s a place where they can come and get real investment without long bureaucratic procedures,”he said.“Everybody is surprised because start-ups are traditionally supported by investment angels, not government.” Both Rachenkov and Chernyshov believe the private sector would do a better job in developing the I.T. industry than the government, but here there are barriers to entry. Russia’s I.T. market is dominated by several big companies. The top 10 Russian I.T. firms accounted for 70 percent of all revenue


For Russia’s Growing I.T. Sector, the Cloud Has a Silver Lining

Hardware continues to dominate the Russian I.T. market, making up more than 50 percent of the sector.

I.T. market volume by percent of G.D.P.

earned by the country’s top 30 I.T. companies. These top 10 control 54 percent of the Russian I.T. market — 5 percent more than in 2009. Chernyshov notes that none of the companies alone controls the lion’s share of the market, which leaves an opening for new players. But more than established companies, I.T. start-ups struggle to find funding. Additionally, they suffer more from high taxes on labor, which come to roughly five to 10 percent of company expens-

Investment Venture capitalists are taking a risk on Russia’s high-tech start-ups

es in noncommodities industries, thereby cutting into profits. For companies willing to pay the labor costs, there are other problems. Foreign competitors such as Apple, HP, Foxconn and TrendMicro are entering the Russian I.T. market in droves, and this expansion will only increase after Russia joins the World Trade Organization. These companies have notable financial resources and technologies to attract Russia’s top I.T. specialists. Experts believe that the future

of the I.T. market is in the Russian regions.The country’s I.T. sector is currently concentrated in Moscow and St. Petersburg, but more and more residents outside these major cities are coming online, and the number of Internet users in the regions is expected to explode in the next five to 10 years. Other potential growth segments include search engines and navigation software, according to Rachenkov. This is due to opportunities and challenges that make the Russian market unique. The complexity of the Russian language has allowed local companies such as Yandex to dominate the market for search (Google is a distant second in the Russian search market), while the finally active Glonass — Russia’s answer to G.P.S. — has stimulated development in navigation. But overall growth in the I.T. sector, like in the rest of Russia’s economy, will depend on real economic growth, an increase in investment activity, stabilization of the country’s financial and political situation, an increase in personal incomes, a stable exchange rate, moderate inflation and benefits that can encourage new enterprises to form. Read more at

Service Kiosks to benefit online shoppers

Many American venture capitalists find a lot to like in Russia’s burgeoning tech sector, but some remain hesitant due to stereotypes left over from the days of the Cold War. ADRIEN HENNI

Russia is becoming the next big thing for U.S. venture capitalists interested in foreign tech. Exemplifying the invest-inRussia trend is Tiger Global Management, a New York–based international investment management firm that has invested $12 million in two installments over the past two years in Russian ecommerce platform and contributed $10 million to online travel sales site Also of note is the rise of, a clone of Booking .com, which received $13.6 million last July from Western funds and investment angels such as Zyngo founder Mark Pincus, early Facebook investor Peter Thiel and Skype founder Niklas Zennström. “There has been a lot of enthusiasm among U.S. funds for taking elements of successful ecommerce and social networking companies in one geography and transplanting them into another geography — first in China, now increasingly in Russia,” said Mac Elatab, an investment analyst at TrueBridge Capital Partners, adding that the the high G.D.P. per capita growth in Russia’s economy between 1999 and 2010 indicates that Russian consumers have more money to spend. Part of the appeal for foreign investors is the reputation of Rus-



Investor Steve Blank (right) sees potential in Russian tech students.

Part of the appeal for foreign investors is the reputation of Russia’s science and technology industries. sia’s science and technology industries.“In computer science and materials science, the Russians are as good or better than anyone in the world,”said Bill Reichert, managing director of Garage TechnologyVentures, a major U.S. venture fund chasing Russian start-ups. Labor costs are another reason for investors in high tech to come to Russia. Salaries are high at Moscow start-ups, but in a city like Tomsk, in Siberia — where every fourth inhabitant is either a stu-

dent, a researcher, a university teacher or an employee of the Russian Academy of Sciences — a modest $2,500 per month can prove enough to attract the cream of the crop among local engineers. Another positive factor is government support for foreign and domestic investment in private equity. This support goes well beyond words: At the federal and regional levels, the Russian state is investing tens of billion of dollars in innovation.With its massive subsidies and tax cuts for innovative projects, Skolkovo, the giant tech hub outside Moscow now nearing completion, has attracted dozens of global venture funds and high tech firms. I.T. Park, near Kazan, is one of the

largest technoparks in Eastern Europe, while the Tomsk special economic zone has attracted a number of domestic and international tech companies, including Nokia Siemens Networks, Korea’s Darim International and the U.S.–based firms Monsoon Multimedia and Rovi Corporation. State funding comes in addition to a dramatic increase in available Russian and foreign venture capital. While fewer than two dozen funds were actually operating in the country just three years ago, there is now more money in Moscow than in many other innovation spots on the global map. Silicon Valley entrepreneur Steve Blank described the situation as “the biggest pile of money I have ever seen.” Despite all the positives, Russian tech is not without problems. One of these is the lack of well developed proposals. “We sometimes see very raw start-ups, lacking sound business models or busin e s s p l a n s o r w i t h we a k management teams,”said Marina Kuznetsova of BV Capital, a venture fund operating from San Francisco and Hamburg. Additionally, Moscow works at a 12-hour time difference from California, where many U.S. tech investors are based. Russia still has a serious image issue as well.“Media coverage from Russia is almost uniformly negative in the U.S.,”said Elatab.“That is not to say that only negative things are happening in Russia — the truth is somewhere in the middle. At bottom, I think the Cold War still impacts how both Russians and Americans view each other.”


Tech Has the Midas Touch

Hands-Free From Order to Delivery Qiwi, a company that operates pay kiosks, is taking on the Russian postal service with a network of self-service package collection terminals. ANASTASIA NAPALKOVA EXPERT MAGAZINE

Russian instant payments operator Qiwi has put into service a series of terminals that will distribute packages to consumers. The postal kiosks are vying with courier and ordinary postal services for the attention of the increasing number of Russians shopping online. “We want to cut down our lastmile expenses, which are incurred at the most cost-intensive stage of the logistics chain, when goods are handed over to the client,”said Qiwi Post C.E.O. Andreas Pregowski.“One terminal can do the work of several deliverymen.” The Qiwi Post terminals make it possible for online buyers to pick up their orders themselves using personal identification numbers. The terminals allow online shops to cut their costs by up to 20 percent, while other types

of long-distance sales outlets such as catalogue companies and network marketing firms can lower their shipping times. In Moscow, Qiwi Post has already installed several dozen metal lockers equipped with drawers of various sizes and cash acceptors, and intends to commission an additional 400 units in 2012. The company plans to invest $30 million in the project over three years. Qiwi’s interest in this market is its connection with the company’s core business — payment processing services, which it provides to a number of clients, including online shops. Qiwi Post is not the only player in this market, however. PickPoint and Logibox launched approximately 200 automated postal kiosks throughout the country last year. PickPoint forecasts indicate that postal kiosks will be serving 15 to 20 percent of all business-toconsumer dispatches in the near future. Read more at

Russia’s Invisible Infrastructure Boom April 11

Russia Beyond the Headlines in NYT #3  

Russia Beyond the Headlines supplement distributed with the New York Times in the US.

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