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Politics & Society

wednesday, june 13, 2012

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Business Russian Web firms look to expand their offerings beyond the local market

Russian Internet Companies Go Global Established Russian players like Yandex and Odnoklassniki are introducing offerings abroad in an attempt to gauge the market for further expansion.

News in Brief New Cabinet Announced The formation of Prime Minister Dmitry Medvedev’s new cabinet was announced at the end of May. While the appointments held few surprises, political analyst Anders Aslund, writing in the Moscow Times, noted it had the most new faces of any government in modern Russian history — only eight of the 28 positions are filled by incumbents. The youngest member of the cabinet is 29-year-old I.T. and Communications Minister Nikolai Nikifirov. The question now for Russiawatchers is whether the new faces will usher in long-stalled economic reforms or if real power will remain in the hands of the old guard.

anna andrianova

russia beyond the headlines

Buranovo Grannies Take 2nd Place at Eurovision

itar-tass

The Buranovskie Babushki (“Buranovo Grandmothers”) took second place in the 2012 Eurovision competition, held in Baku, Azerbaijan on May 26. The unusual Russian entrants, whose average age is 64 and whose dance moves include pretending to bake bread, captivated fans from around the world by showing that life doesn’t have to get less interesting with age. Their success also brought a tourism boom in their hometown, a tiny village in the Republic of Udmurtia.

The Buranovo Grannies are currently planning a world tour.

Photoshot/Vostock-photo

Russia’s established Internet players are now competing with the global giants, and their success will pave the way for investor interest in new start-ups out of Russia, according to a report by global management consulting firm McKinsey & Company.

During the recent Digital Life Design conference in Moscow, Aigool Khalikova, an associate principal with McKinsey, said that Russian language is the secondfastest growing language on the Internet, outperformed only by Arabic.

“Within the next two or three years we’ll witness quite a bit of growth being driven essentially by the infrastructure being rolled out as well as huge investment going into the Internet sphere,” said Khalikova. “The number of large budget e-commerce startups started within the last year is huge.”

Startups are learning from the experience of Russia’s big Internet companies, which are now looking into geographical expansion. Last year Yandex, Russia’s leading search engine, launched a search engine for Turkish users.

Earlier this year, the company reported reaching the benchmark of 100,000 visitors per day in Turkey.

Arkady Volozh,Yandex C.E.O., said that the company is excited about looking beyond Russianlanguage products.“Russian language was a competitive advantage 20 years ago. Now we

Read more about the grannies rbth.ru/15739

compete not only on the language base. We do a lot of things that nobody else is doing,”Volozh said.

One ofYandex’s new innovations is social search, which aggregates feeds from Twitter, Facebook, and popular Russian social networks like VKontakte, Odnoklassniki and LiveJournal.

“Social networks will more and more penetrate into other busi-

nesses, like music, video and ecommerce,” said Ilya Shirokov, a vice president with Mail.ru Group.

Social network Odnoklassniki, part of the Mail.ru family, has launched a pilot project with Gala Records, Russia’s largest private music label, that allows users to listen to music tracks for free and pay only when the songs are

Speakers at the recent Digital LIfe Design conference discussed ways Russian Web companies are expanding into other countries and languages.

downloaded. Talks on a similar deal with Universal Records have also been announced.

Odnoklassniki has entered Uzbekistan with a test project localized for the region, where everything is tailored for the Uzbek user. The company is viewing this as a pilot project to see how it can brand itself for non-Russian speaking target groups.

Internet Overtakes TV For the first time in history, the monthly audience of Russia’s most popular search engine, Yandex (which had an I.P.O. last year on the NASDAQ exchange), has overtaken that of the country’s top television network, Channel 1. In April, Yandex was visited by 19.1 million people every day, while Channel 1’s daily viewership was at 18.2 million people. The number is just the latest example of Russia’s ongoing Internet boom.

Planes With the crash of its newest medium-range jet, Russia worries about its place in the market

Russian Aviation Flying Blind Experts are divided over the prospects for the Sukhoi Superjet 100 — and Russia’s aviation industry as a whole — after a tragic crash in Indonesia.

Grigory Sanin, Konstantin Ugodnikov, Vladimir Kryuchkov

Since Russia’s most advanced new aircraft, the Sukhoi Superjet 100, crashed in Indonesia on May 9, experts have been asking if the accident heralds disaster for the e n t i re R u s s i a n av i a t i o n industry or if the Superjet project can overcome the crash’s bad publicity.

One of the main questions that aviation specialists have been asking themselves is how the plane’s crew could have failed to spot a mountain. The Superjet uses all the latest global security innovations, in particular the traffic collision avoidance system (T.C.A.S.) and the terrain awareness and warning system (T.A.W.S.), and was flown by experienced test pilots.

“Third- and fourth-generation alert systems are installed in all modern planes, including the Su-

ap

Itogi

The Sukhoi Superjet 100 looked good as it took off on its final flight from Halim Perdanakusuma Airport in Jakarta.

perjet,” said Rafail Aptukov, president of Flight Security Partnership. “They are much more precise and better protected from interference; they include unique logical combinations calculated for various in-flight emergencies. They are designed to alert the pilot of a

potential collision in good time so he can avoid it.”

Aviation specialists have questioned the performance of the local controllers. Some pilots claim that both in Indonesia and the Philippines controllers reply “approved”in response to almost any call from the crew.

“I am concerned that there have been seven plane crashes near Jakarta during the last decade,”Aptukov said, supporting this theory.

So far, there are just unofficial versions of what happened.

The official report will appear only after the Indonesian authorities, the Russian Industry and Trade Ministry (supported by the Foreign Ministry), Investigation Committee specialists and experts of the Interstate Aviation Committee complete their investigation. But there is no prospective date for the issuance of the official report.

Indonesian salvage teams have said that accessing the crash site is extremely difficult due to the terrain, which will make it harder to recover both large pieces of debris and smaller parts of the plane. Without these, it will be hard to gain a real picture of the tragedy. In the best-case scenario, the official version will not be ready for several months; in the worst, the world may never learn what really happened. continued on page 4

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Migration High labor and real estate costs are pushing many Moscow-based companies outside the capital, and employees are happy

Rediscovering the Regions In a shift from the decades in which many Russians dreamed of living in Moscow, today more white-collar workers find much to like in the Russian regions.

Opportunities in All Industries

MARIA PORTNYAGINA, OLGA FILINA

PRESS PHOTO

OGONIOK MAGAZINE

Even during the 9:00 a.m. rush hour, it takes Muscovite Tatyana Gladysheva only five minutes to get to work. After hours, she goes for a stroll in the woods to get some fresh air. And this is even though Gladysheva’s apartment is right in the city center.

It’s easy to explain Gladysheva’s convenient life: Although she is a Moscow native, she doesn’t live in the capital. In 2009, Gladysheva’s company, the Bolshevik Candy Factory, relocated from Moscow to the Vladimir Region, and she moved with it.

“I like the new location,” said Gladysheva, a production manager. “The Klyazma River runs through Sobinka, and the countryside is a delight. Then, just imagine, you can go outside your house in summertime, and have grilled shashlyk and feast your eyes on your flowerbeds. And Vladimir has all the trappings of civilization: movie theaters, stage theaters, cafes, restaurants and clubs.”

The entire candy factory made the move out of the capital: the company’s owners took not only the production units, but also all the managerial staff. With Gladysheva’s professional skills, she could have remained in Moscow and found work at another company, but she made the move for a new kind of life.

“And I don’t regret it! Of course, senior management helped: they offered me an interesting position, plus they provided housing, plus travel expenses in case I want to visit Moscow,”Gladysheva said.

“But I was still nervous, naturally. It was scary: new challenges, a new place and people I didn’t know. Initially I planned to come only for one year. But then things got interesting: the factory is growing, we’re making new products, and people are learning things. Finally I realized that I really like living here. Everything here is for people, unlike in Moscow. So I have settled down in Sobinka.”

Gladysheva is no exception among managerial employees from the capital. Human resources analysts say that a new trend

SOURCE: SUPERJOB.RU

After some initial hesitation, Tatyana Gladysheva is happy in her new home in Sobinka, 100 miles from Moscow.

is taking shape: the flow of office employees beyond the Moscow Beltway. The traditional golden rule of white-collar employment in Russia — the closer to Moscow, the better — is rapidly becoming obsolete. In 2006, according to surveys done by the recruiting portal Superjob.ru, only 15 percent of Muscovites would have been willing to move to a new city for a new job; but in May 2012, 24 percent of upper and middle management people wrote in their resumes that they would agree to move. This mobility at the level of supervisors is steadily growing each year.

“Many companies leaving Moscow to save on administrative costs, and the employees are forced to migrate along with the business,” said Natalya Grishakova from Malakut HR Research and Solutions.

It goes without saying that managerial personnel are not

moving without infrastructure in place. The relocation of companies from the capital to the regions is the context in which executives are migrating out of Moscow.

tive management in the regions, you need qualified managers, so Moscow’s oversaturation with executive personnel is gradually declining.”

“Companies benefit from moving their offices out of Moscow,” said Chernenko.“That’s because it’s better to have management located nearby the production facilities, so that the supervisors have at least some understanding of what they are supervising: it’s sufficient to leave just a showroom in the capital, a place where customers can see samples of the products.”

Nearly all major and mediumsized Moscow companies have relocated some divisions outside the capital. In Tver, which has a population of just over 400,000, Moscow-based companies have opened up14 call centers, each of which can employ more than 1,000 people.

“This is one of the most

The golden rule of white-collar employment — the closer to Moscow the better — is becoming obsolete.

“The process of industrial companies moving out of Moscow began a long time ago, and it makes sense to relocate the administrative divisions closer to the production units,” said Yelena Chernenko, director of the Analysis and Consulting Center at the Real Estate Economics Department of the Russian Academy of the National Economy and State Service. “To achieve effec-

IN THEIR OWN WORDS

Yelena Chernenko

"

The process of industrial companies moving out of Moscow began a long time ago, and it makes sense to relocate the administrative divisions closer to the production units."

RUSSIAN ACADEMY OF THE ECONOMY AND CIVIL STATE SERVICE

Natalya Grishakova

"

Many companies are leaving Moscow to save on administrative costs, and the employees are forced to migrate along with the business."

widespread types of business migration to the regions,” said Natalya Zubarevich, who is director of the regional studies program at the Independent Institute for Social Policy. “The process makes obvious sense: labor costs and office rentals are cheaper outside of Moscow. So everybody who is in a position to relocate right now is doing it. The result is that our call centers are in Tver and our ‘offshore’ programming is done in Nizhny Novgorod or Voronezh.”

The relocation of companies from the capital to the regions also makes the regions more attractive. Tatyana Gladysheva recalls that when she arrived in Sobinka in 2009, there were almost no foreign-made cars on the streets or children on the playgrounds.

“That was the detail I remembered: the empty sandboxes, and very few people on the streets,” she said.“But now I feel like the city is coming to life, and you have mothers out walking with kids in strollers. A lot of jobs have opened up, people are staying in their jobs, there are new prospects for career growth, and the communications and road infrastructure have improved.”

There’s another trump card that enhances the attractiveness of the Moscow suburbs: easier housing solutions.

“When we had our office in Moscow, a lot of our executives and managers were renting,”said Oxana Rogova, an employee of the kitchen furnishings company Blum.“After 2007, when we moved to the Domodedovo district, they could buy their own apartments in the Moscow suburbs.”

For more and more Russians, living outside of Moscow seems like an idea whose time has come.

The more difficult the infrastructure and social services situation becomes in the capital, the more advantageous life in the regions appears.

“Money alone is not enough to get somebody to move: today’s skilled workers also want to have interesting work and better living conditions,” said Mikhail Chernysh, head of the Social Mobility Department at the Russian Academy of Sciences Institute of Sociology.

Originally published in Ogoniok magazine.

MALAKUT HR RESEARCH AND SOLUTIONS

Federalism Local elections offer key platform for opposition

With new laws in place for regional elections, local activitsts and voters alike look to change Russia’s political system from the bottom up.

IGOR VYUZHNY

SPECIAL TO RBTH

During regional elections in October 2011, most ordinary voters had very little interest in who was running for posts in regional admininstrations, much less running for office themselves. As a rule, regional positions were won by getting the approval of local and federal bureaucrats.

Yet within only a few months, the situation changed dramatically. “The emergence of some clear opposition movements in the country destroyed the bureaucratic monopoly on forming local governments throughout Russia,” said political expert Vadim Dryagin. And suddenly opposition activists started thinking that the way to get involved in the political process was through winning election to local councils.

In the March 2012 elections, candidates from outside the party of power won positions in municipal councils in several districts of Moscow. Although these councils have limited authority, the opposition hailed the victories of independent and opposition candidates — many of whom

had never been engaged in politics before.

The fight for local administrations spread from Moscow to the regions. Much to the surprise of many observers, United Russia candidates were defeated in mayoral elections in Yaroslavl and Tolyatti. In Astrakhan, when Just Russia candidate Oleg Shein was declared the loser after exit polls showed him in the lead, Shein went on hunger strike, saying the vote had been rigged. A team of opposition leaders, including

In the March elections, candidates from outside the party of power won positions in several districts of Moscow.

Alexei Navalny and Ilya Yashin, along with dozens of activists flew from Moscow to support him.

Changes from the top benefit the bottom

Before he left the presidency, Prime Minister Dmitry Medvedev introduced a bill on political reforms, which included a return to direct elections of regional governors and easier requirements for the registration of political parties and candidates. Many opposition activists seem euphoric

at the idea of more engagement in the political process, said political analyst Dryagin.

According to another analyst, Valery Khomyakov, the opposition now has a core of participants who want to do more than just protest, and winning elections at the local level seems like a reasonable way forward.“Rallies and marches are not enough — people get bored and want something specific. People need to hear declarations that everyone is going to the regional polls, that it is a must to participate in order to probe into protest moods at the regional level,” Khomyakov said.

These efforts will come to a head in the fall, when several Russian regions go to the polls to elect governors under the new law. Dmitry Gudkov, a State Duma deputy from Just Russia, has already said that the opposition party will nominate its first candidate in early June, to run for mayor of Krasnoyarsk.

The Republican Party — which was established in 1990, banned in 2007 and reregistered in April — is also getting ready to challenge United Russia. Party leaderVladimir Ryzhkov has said that his party is planning to test the new election laws in Novgorod, Blagoveshchensk, Amur, Bryansk and Belgorod.

MIKHAIL MORDASOV_FOCUS PICTURES

Thinking Nationally, Acting Locally

Demonstrations following the mayoral race in Astrakhan grabbed national headlines earlier this year.

A History of Gubernatorial Elections In the final years of the Soviet Union, some regions of the Russian Soviet Federated Socialist Republic began electing their heads directly.

A 1995 Supreme Court ruling mandated direct elections for terms of four years, leading to a plethora of sometimes comic academics, actors and military men applying to head regional governments.

Following the 2004 Beslan School

siege, President Vladimir Putin abolished direct elections, citing terrorism and corruption concerns, in favor of a complex system under which the president nominated candidates who were then approved by local legislatures. Governors were appointed under this system until outgoing President Dmitry Medvedev introduced reforms to the system this spring.

“The Moscow City Duma campaign is critical for the opposition,” said political expert Mikhail Remizov.

Moscow and St. Petersburg are likely to see the most heated battles for city council seats. “The Moscow City Duma campaign is critical for the opposition, because enhancement of their representation in the Moscow government

could become a real political goal for angry citizens,” said political expert Mikhail Remizov.

So far, the federal authorities are not taking any actions to discourage the increasing political activism. Some experts believe that the authorities may even welcome new blood in the local bureaucracies.“The mopping up of the governor corps is a result of the previous appointees not living up to expectations and failing to gain prestige locally,” said Vyacheslav Pozgalev, who served as governor of the Volgograd Region from 1996 until 2011.

Said political analyst Dryagin, “It is on the basis of the local councils that Russia’s civil society can emerge, when people with differing viewpoints have to work out a concerted position in order to govern their area together.”

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Special Report

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Space Russia lost ground in the space race during the turbulent 1990s, but the aerospace industry has learned to play by the new rules

A Closed City Builds Satellites That Open Up the World In a setting out of a Cold War novel, engineers in the Siberian city of Zheleznogorsk create some of the world’s most advanced areospace systems.

Elena Shipilova special to rBTH

In the depths of the Siberian taiga, on the banks of theYenisei River, lies the city of Zheleznogorsk.

Founded in 1950 as a center for plutonium production, it isn’t a place people move to. They can’t.

Even local residents have to have permission to leave and return.

Going through the fence that surrounds the city is like crossing a time warp into the 1950s Soviet Union. There are wide avenues flanked by five-story apartment blocks; in the center of town stands the Rodina [Motherland] movie theater and the main entrance to Information Satellite Systems (I.S.S.), the factory that, before the days of perestroika, built the world-famous Kosmos and Molniya satellites, the most powerful of their time. At the be-

The I.S.S. complex in Zheleznogorsk shows off the company’s logo.

About 40 satellites are in production at once, including secret military systems and global positioning satellites. ginning of the 21st century, the city gained a new lease on life, thanks largely to the program to develop the Glonass navigation system, the Russian answer to G.P.S.

I.S.S. director Vladimir Khalimanovich with engineer Yelena Prosvirina.

Flying high on solar wings

“In the 1960s, the whole Soviet Union dreamed of space! It was an honor and prestigious to work in the aerospace industry,” said Vladimir Khalimanovich, now director of I.S.S. He moved to Zheleznogorsk 47 years ago from the central Russian city of Kazan.

At that time, nearly every student dreamed of the opportunity to move to a place like Zheleznogorsk, because it was thought that only the very best were recruited to closed cities.

The prestige was one of the things that helped make the difficulties of living in a closed city worth the trouble. Living in a closed city meant that any friends or relatives interested in making a visit had to be vetted by the security services. “That procedure applies today, too,” said Yelena Prosvirina, an I.S.S. engineer.“At first it’s inconvenient to have to ask permission every time, but you soon get used to it.”

During the Soviet era, there were other benefits, too. For example, certain types of food that were unavailable in ordinary Soviet cities could be bought in the

ruslan sukhushin (3)

Soviet-era status symbol

An I.S.S. employee tests a Telkom-3 satellite, built as part of a contract for an Indonesian telecom company.

in figures

$50 million

is what it costs to build one satellite.

An additional $50 million is required to insure the object. Because the stakes are so high, satellites are tested at every stage of development.

8,500

people work at Information Satellite Systems, many of them recent graduates from top aviation universities.

The high salaries make up for the challenges of living in a closed city.

closed ones. But unlike the residency restrictions, this changed with fall of the Soviet state. In the 1990s, the residents of Zheleznogorsk, like Russians anywhere else, were plunged literally overnight into the harsh conditions of capitalism. Like the majority of Russian enterprises, I.S.S lost the lion’s share of its state financing. The factory continued quietly building satellites for military purposes, but there were few new projects and the factory’s workforce of more than 8,000 was cut almost in half.

In the 2000s, however, the government began to invest funds in the creation of the Glonass satellite navigation. Today, the state provides two-thirds of I.S.S.’s an-

nual operating budget of 20 billion rubles ($625 million); the rest comes from commercial orders.

The new capitalist reality

I.S.S. began winning international contracts in 2008. That year, Israeli satellite operator SpaceCommunication, Ltd. ordered the AMOS-5 satellite; then, in 2009, Indonesia’s PT Telekomunikasi bought the Telcom-3 telecommunications system. Later, contracts were signed with Ukraine and Kazakhstan.

“Every year we take part in four or five tenders, of which we win one. One international contract per year is enough for us. That’s all we can handle at the moment,” said Khalimanovich. Today, about

It costs approximately $50 million to build one satellite, plus about $50 million (the launch cost plus 20 percent) for insurance. One small error results in a complete loss, so tests are done at each stage of construction. One of the most spectacular is the trial unfurling of the wings — the solar batteries of the finished satellite.

“The preparations can take several days. Operations begin only when the staff have checked everything multiple times and put loads of signatures on various documents and the client’s representatives have switched on their video cameras for the minutes,” said Sergei Apenko, chief designer for electrical testing and electrical design at I.S.S.

40 satellites are in production at the same time, including secret military systems, Glonass satellites, and telecommunications and geodesy satellites for Russian operators.

The increase in orders has allowed the factory to do some hiring. Today, 8,500 people work at I.S.S, and the majority of them are young. Newly minted engineers from the aviation uni­ versities in Kazan, Tomsk and Moscow are again drawn to Zheleznogorsk, but this time, the attraction is not prestige, but money. Salaries at I.S.S. are about twice the national average for new graduates. I.S.S. also has a co-op program that allows students in their final year of

study to get on-the-job training, with pay.

“I.S.S. is an excellent place for training staff. If we could, we would buy up the majority of its specialists,” said the manager of a Moscow company involved in satellite construction who wished to remain anonymous.

The influx of new employees has benefited the town of Zheleznorgosk in other ways. New housing complexes are being constructed where young engineers can buy apartments under favorable terms.“The company covers half the interest,” said I.S.S. employee Kristina Uspenskaya. But the services in the city are still not developed. The town has a population of almost 100,000 but there are only a few cafés, one restaurant, a single nightclub and one expensive movie theater.

The lack of amenities is easy to explain. “It’s difficult to start a business in a closed city. The process requires stacks of agreements. Therefore there’s no competition,” said Uspenskaya. Every week, she and her husband drive the 40 miles to Krasnoyarsk for a date — it’s a lot cheaper there.

Questions & Answers

Sergei Zhukov, head of the space technology cluster at the Skolkovo Innovation Center, discusses the role Russia can play as space exploration expands to include private companies.

new space strategy is widely discussed. On the other hand, there is virtually no private sector in the industry, whereas the world trend is toward ever more confident involvement of the private sector in space exploration.

Besides, there is international division of labor in high-tech sectors, and Russia should not hesitate to form alliances with leading world producers. kommersant

Has the role of outer space in global politics increased in recent decades?

The world economy is becoming more and more dependent on the intensity of space activities. The market for space technology production and services is variously estimated at between $300 billion and $400 billion a year. It has several segments, the biggest being satellite communications and telecommunications, navigation and distance Earth sensing.

Russia’s share in these segments is less than one percent. In the production of satellites, our share is 7–10 percent. Our share is traditionally high — 33 to 40 percent — in orbiting payloads, but that segment is small.

Sergei Zhukov heads the Space Technology Cluster at Skolkovo

What prevents Russia from in­ creasing its share of the world space market?

On the one hand, state financing of space activities in Russia has more than tripled over the last five years and is still growing. The

A Complement to G.P.S.

press photo

Russia Ready to Compete in the Space Century

Has the U.S. taken the lead in world space activities because of the development of the private sector?

The United States today is the only country that pursues virtually all types of space activity. And no wonder: if one combines their civilian and military budgets, the sum is sure to exceed the total spending by the rest of the world on space activities. As for development of the private segment, the U.S. policy adheres to a strict

division of responsibility: study of the solar system, including planets and asteroids, is the business of the state, whereas developing near-Earth space is the domain of private companies. And you should remember that the giant contractors of the U.S. space agency today — be it Boeing, Lockheed Martin or Orbital — are all private enterprises. They ensure America’s technological lead.

Are any domestically made breakthrough products in the pipeline?

That’s a tough question. Russian energy and engine technologies have a good chance, by which I mean rocket engines and space nuclear plants. I do not rule out some less-spectacular but important technical solutions in the field of small space platforms and elements of on-board service systems. The Skolkovo project is working on such development.

Are there others who are willing to support private initiatives in Russia apart from Skolkovo?

We are not the only ones. Indeed, other development institutions began to support the commercial industry before we did. They include the Russian Venture Company and Rosnano.Vnesheconombank is actively investing in major projects.

Are Russian businesspeople lukewarm about the space industry?

Russia has virtually no legislation on commercial space activities.The federal law on space activities was passed in 1993 and remains basically a framework law. Private interests simply do not understand what rules to play by and businessmen are afraid to invest in the sector. And there are many restrictions, such as on high-resolution space photographs and on obtaining licences for space activities.

Prepared by Elena Shipilova

Glonass — an acronym for Globalnaya navigatsionnaya sputnikovaya sistema or global navigation satellite system — was developed in the 1970s and 1980s as a replacement for an earlier navigational system.

Glonass went into a state of decline due to budgetary constraints until Vladimir Putin made its restoration a top government priority early in his first presidency. By 2012, Glonass had achieved full coverage of the planet’s surface via 24 functioning satellites. More than $4.7 billion has been spent on the project over the last decade. The service is now available free of charge to anybody in the world, with Apple recently announcing support for both GPS and Glonass on its latest iPhone 4S (Samsung Galaxy Note and Galaxy S3 also support Glonass). According to TheNextWeb.com, Glonass provides better accuracy than GPS in some parts of the Northern hemisphere due to the positioning of its satellites.

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Agriculture U.S.-Russian bilateral relations benefit from an increase in live-animal exports

Russia Turns to American Bulls to Beef Up Its Cattle Industry DAVID KESSEL

SPECIAL TO RBTH

The first waves of a new American migration have arrived in Russia, but they need a lot of herding. And sometimes they have to bring their own cowboys.

“Last year, we imported more than 24,000 head of breeding cattle from the United States, and they have been received very well,” said Valery Khromchenkov, the agricultural attaché at the Embassy of the Russian Federation in Washington, D.C. “This cooperation is very important for Russia now, a good direction of mutual benefit between our two countries.”

Although still at the early stages of cooperation, Russia represents a ballooning market for U.S. live cattle exports — what the U.S. Department of Agriculture described in a blog post a few months ago as “a new frontier halfway around the world.” At roughly $200 million annually, Russia is the third-largest import market for purebred cattle.

Russia banned the import of live animals from the European Union on March 20 because of Shmallenberg virus, which increased the need for U.S. exports.

“It’s been a real plus for the U.S.; for Russian importers, it’s one less market for them to go to,” said Mike Phillips, president and C.E.O. of U.S. Livestock Genetics Export, a nationwide U.S. trade association funded by the American livestock industries.

The Russian market opened to the United States following the signing of a U.S.D.A. health protocol in 2008, which negotiated health certificates for exporting U.S. livestock and genetic material to Russia for the first time.

There have also been a series of measures on the Russian end, including targeted programs by the Russian Ministry of Agriculture, agro-industrial complex development projects and investment

subsidies aimed at facilitating cattle imports and developing the livestock industry.

In a meeting on Russian livestock farming in the western Russian city of Tambov earlier this year, First Deputy Prime MinisterViktor Zubkov described livestock breeding as “the most important sector of the agriculture industry.” President Vladimir Putin cited beef farming and processing and dairy farming as an area that requires further attention. Total investment in development projects between 2006 and 2011 amounted to 576 billion rubles ($19.6 billion), according to Putin.

In January, Virginia’s Vistar Farms sent a shipment of 29 Holstein bulls to the Russian city of Novorossiysk.

From Virginia to the World

Keith Long is the director of the Office of International Marketing at the Virginia Department of Agriculture and Consumer Services. He lived in Russia as a child in the 1970s and worked there in the early 1990s, so he knows both the country and the industry well. “The Russians never had a beef industry. Never.

It was always cull cow,” he said, referring to the process of selecting out cows from the dairy to be used for meat. “Now they’re importing U.S. Angus, which has very good beef genetics. And for their first time in their history, they’re actually developing a very good beef industry where they’re going to have nice cuts of meat and steaks, just like in the United States.”

Virginia is one state supplying the Russian market with cattle.

In January, Vistar Farms in Mechanicsville,Va., an international distributor with offices in Russia and Turkey, sent a shipment of 29 Holstein bulls to the Russian port city of Novorossiysk. The bulls were received well, and there was supposed to be a second shipment of 30 bulls in April, but at

Imports of U.S. livestock — and cowboys — expanded during the presidency of Dmitry Medvedev (right).

the moment this deal is on hold.

Valery Osipenko of Vistar Farms was in Russia in late April and early May to work out the final details.

These deals have been about 10 years in the making.“We first went to Russia back in 2002 and started meeting with people, knowing that that market was eventually going to open up for live cattle exports,” Long said.

Long predicts at least another five years of continual exports of live animals to Russia. U.S. investment, as well as Russian interest in their expanding cattle industry, has led to a demand not just for Western cattle, but Western know-how as well.“There was always a demand for Western consultants,” Long said. “Now with such large dairy operations, they want U.S. dairy farm managers to come in help run those operations. The Russians really don’t feel comfortable with their knowledge of how to run those operations yet, so they’re looking for U.S. expertise.”

Impact of W.T.O. on Cattle Exports All signs point to the continued expansion of U.S. live cattle exports to Russia and the country’s accession to the World Trade Organization should further accelerate the process. On Dec. 16 last year, Russia received a formal invitation to become the 155th member of the W.T.O., the culmination of an 18-year effort. Russia’s accession should have a substantial impact on its trade relations with the U.S., including in the field of agriculture.

According to a document issued by the Office of the United States

Trade Representative, following W.T.O. accession, Russia has committed to a final bound tariff of 5 percent for live animals, with some tariff lines at zero. Russia currently applies up to a 40 percent tariff on some live animals. A report from the United States Department of Agriculture (U.S.D.A.) states that purebred breeding animals already enjoy a tariff rate of zero, with other cattle subject to the same 5 percent pre-accession tariff rate; but with accession, these low tariffs will be set for the future.

IN FIGURES

$19.6 billion

was invested by the Russian government into the farming of beef cattle between 2006 and 2011.

$2.35 billion

worth of agricultural exports left Virginia in 2011. Expanding agricultural exports is a top economic priority.

$200 million is what the Russian agriculture industry spends annually on purebred cattle from abroad.

Airplane Maker at a Loss After Crash CONTINUED FROM PAGE 1

Business laws

IN THEIR OWN WORDS

Boris Bychkov GENERAL DIRECTOR OF LOSS ADJUSTMENT CONSULTANCY AIRCLAIMS C.I.S.

"

Longer-term business projects are little affected by such incidents. An accident during test flights is no reason to bury the plane. Public opinion may produce an impact, especially if we are talking about a company enjoying state support. But I can’t rule out that customers might want additional discounts.”

Ruslan Gusarov EDITOR-IN-CHIEF OF AVIA.RU

"

There have been crashes that effectively put an end to new projects. Take the Tu-144 crash in Le Bourget. The plane never regained the trust of foreign buyers.

So the accident in Indonesia might tarnish the image not only of the machine, but also the entire aviation industry in the country.”

Olga Kayukova HEAD OF THE UNITED AIRCRAFT CORPORATION PRESS SERVICE

"

The Sukhoi brand is famous not only for its civil aircraft, but also military products.

It is backed by a 70-year reputation. As for the Sukhoi Superjet 100 brand, it has excellent prospects and will be able to find a firm footing in the market.”

© VALERY MELNIKOV_RIA NOVOSTI

Globally, the market for medium-range aircraft is the most competitive, and the Superjet was intended to vault Russia to the top of that segment. In the aftermath of the crash, Russian aviation experts and foreign buyers alike are reassessing the country’s prospects.

The investigation into the disaster had hardly begun when Indonesia’s Kartika Airlines, which specializes in domestic air travel, said it might postpone indefinitely its order for 30 Sukhoi aircraft.

Kartika was the first company in Southeast Asia to buy the Superjet; it placed a $951 million order in July 2010. The first deliveries were expected in September.

As of late May, hard contracts were in place for the delivery of 168 jets to Russian and foreign air carriers. There are also preliminary contracts and agreements of intent to buy about 130 Superjets from carriers in Spain, the United States and Thailand. Experts are divided over whether these contracts will be cancelled or whether the carriers will deal with the fallout of the crash in a different way.

“The declaration of the Indonesian company about suspension of deliveries perfectly illustrates the popular slogan ‘nothing personal, just business,’”said Ruslan Syroedov, who works for a company specializing in lease operations. “You involuntarily pay attention to the possible causes of the crash that were mentioned after the accident — engine failure, faults in the navigation and control systems — while nothing was said about mistakes by the pilots or controllers.This is a clear signal that they will be seeking new discounts and concessions from the supplier. This is a normal situation for the market.”

Boris Bychkov, general director of loss adjustment consultancy Airclaims C.I.S., believes that

More Russian Firms Delay Scheduled I.P.O.s Two additional high-profile Russian companies have postponed I.P.Os planned for 2012. Russia’s second-largest mobile phone operator, Megafon, has delayed its London I.P.O. from July to September, citing instability in the Eurozone. Megafon became skittish after watching shares of its competitor, Vimpelcom, fall 16 percent since April.

Russian social networkVkontakte has also decided to put its share offering on hold, primarily because of the poor response to the recent Facebook I.P.O. Megafon andVkontakte join airport operator Domodedovo and banking giant Sberbank in delaying public offerings this year.

I.F.C. Invests in I.T. Infrastructure

PHOTOSHOT/VOSTOCK-PHOTO

The world’s third-largest importer of live cattle, Russia is set to expanded its beef farming industry aided by shipments of U.S. stock.

ECONOMY IN BRIEF

A worker inspects an engine intended for the Sukhoi Superjet 100. It is not clear whether engine failure is to blame for the recent crash.

in the long term, the crash will not have too much of an effect on sales. “Longer-term business projects are little affected by such incidents,”he said.“The crash will not become a decisive factor for the buyers to terminate contracts.”

Air carriers are normally very pragmatic. If an airplane has a type certificate, then carriers accept this as sufficient proof that it meets all security standards. In February 2012, the Sukhoi Superjet 100 received a type certificate from the European Aviation Safety Agency (E.A.S.A.), which means that it complies with the standards that all producers have to meet.

Another important reason the contracts are likely to hold is that the Sukhoi Superjet 100 is the industry’s most competitive medium-range aircraft. Small as it might be, the Superjet has an impressive range. It falls just out of the regional class, with a capacity of up to 100 passengers and a range of nearly 2,800 miles. Suk-

hoi believes that most of the demand for its jets will come from Southeast Asia because it is an appropriate plane for the distances between islands in the region.

Secretary General of the Indonesia National Air Carrier Asso-

Contracts will likely hold because the Superjet is the industry’s most competitive mediumrange aircraft. ciation (INACA) Tengku Burhanuddin has already stated that the crash would not affect the demand for this model. “We need such planes to connect our cities,” he said.

Additionally, the Superjet’s competitors in this market segment, most of which are still in development, are generally more expensive.They include Brazil’s Embraer E-Jets (priced at $28.5-$40 million), Canada’s Bombardier

CSeries ($58.28-$66.57 million), China’s ARJ21 (price not yet disclosed), Russia’s An-148 ($24-$25 million) and Japan’s Mitsubishi Regional Jet. The Sukhoi Superjet 100 is available at an average price of $35.4-$36.2 million. And, of these planes, the Superjet is already known to buyers.“It was the first plane to start flying, and it is already in commercial service,”said Bychkov.“For all I know, the Chinese have had few orders so far, and the Bombardier and Mitsubishi models are not flying yet — they have just started making the planes and have a few years of tests ahead.”

Will the bets pay off?

The crash has produced an adverse impact on the image of the brand, yet many specialists argue that accidents of this kind have happened to many international producers who managed to deal with the trouble with their heads held high and pride intact.

“Airbus also had problems during trial flights,” Bychkov said.

“The A320 had a crash, and there were troubles with the A380. Boeing had a fire on board a Boeing-787 during trials, before the plane was supplied to Japan. The contracts remained in place.”

For its part, Sukhoi Civil Aircraft will be doing its best to deliver the ordered planes.

At the same time, some experts see alarming symptoms in the Indonesian crash: “We placed all our bets on a single plane during the last decade, and all our hopes rest with the Superjet now,”Ruslan Gusarov, editor-in-chief of Avia.ru said.“We put all our eggs in one basket and may be left with nothing. This policy is fraught with risks for the development of Russia’s entire civil aviation industry.”

Originally published in Itogi magazine

The International Finance Corporation (I.F.C.) has decided to invest $2.6 million in a new business-focused data storage facility in Russia. The center, which will be built by IXcellerate, will be the largest vendor-neutral data center in the country. In making the announcement, Kent Lupberger, I.F.C. Global Head of Telecom, Media and Technology, said, “I.T. infrastructure is increasingly important for economic development. IXcellerate’s new datacenter will contribute to a favorable business environment in the country.”

Russian Firm Wins Iraq Contract Russian oil major Lukoil has won a tender to develop Block 10, an oil field located near the West Qurna-2 development in southern Iraq. Lukoil, which is Russia’s largest privately held oil company, will explore the field in a joint-venture with Japan’s Inpex. Lukoil’s share of the joint-venture is 60 percent.

Lukoil also recently increased its share of the West Qurna-2 development to 75 percent following the transfer of 18.75 percent from Norway’s Statoil.

GLOBAL RUSSIA BUSINESS CALENDAR ST. PETERSBURG INTERNATIONAL ECONOMIC FORUM JUNE 21–23 2012 ST. PETERSBURG, RUSSIA

The St. Petersburg International Economic Forum will once again provide a unique platform for engaging in discussion and debate over issues affecting the global economy, in particular the increasing role that emerging economic powers are playing in shaping regional and global agendas.

SPIEF 2012 will also be of particular interest to global business, government and media leaders who are concerned with Russian political and economic affairs, as the forum will take place shortly after the new presidential administration is finalized. › 2012.forumspb.com/en

4TH INTERNATIONAL INTERRA INNOVATION FORUM SEPT. 14–15, 2012 NOVOSIBIRSK, RUSSIA

Taking place in the Siberian city of Novosibirsk, The Interra forum is one of the most attractive interregional and international events for discussing and understanding the concepts and practical application of innovative development in the Russian economy and social sphere.

The theme of the 2012 forum will be Innovations for Life. Forum participants, experts and guests will turn their attention to innovative projects and ideas for improving the quality of life both in Russia and around the world. › interra-forum.com

FIND MORE IN THE GLOBAL CALENDAR

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Money & Markets

05

MOSCOW BLOG

Banking Russia’s biggest bank is also its most successful

Sberbank Proves That Bigger Can Indeed Be Better

Putin’s New Cabinet Offers More of the Same Ben Aris

special to rbth

continue to function when the current management team eventually leaves.”

The goal is to make Sberbank as agile as a small bank, even though it is the second-largest bank in Europe after the U.K.’s

The data processing center is the most expensive change the bank has made, but probably just as important in the long run is the upgrade of the bank’s operating system. In the 1990s, Sberbank had an 80 percent market share of deposits, but the start of banking reforms in 2004 saw that reduced to 46 percent as commercial banks ate into its business. However, in the last two years Sberbank has reversed the trend and is currently pushing at the 50 percent mark as it aggressively expands its product offerings.

Under former chairman Andrei Kazmin, the ultraconservative bank was very reluctant to get into the business of unsecured credit card lending. Current chairman German Gref finally launched credit cards in 2008, and in April this year the bank became the segment’s market leader with 18 percent of all credit cards in Russian wallets today. The story is

Moving money and managing risk is all about manipulating numbers, so banking lends itself to I.T.

The goal is to make Sberbank as agile as a small bank even though it is the second-largest bank in Europe.

HSBC in terms of assets and three times larger in terms of the number of branches.“If you measure Sberbank’s size in proportion to Russia’s G.D.P., then we are already by far the largest bank in the world,” Karamzin said.

The answer to the conundrum of how to run a huge institution as if it had the sensitivity and nimbleness of a small regional player is I.T. Moving money and managing risk is all about manipulating numbers, so banking is a business that lends itself to I.T. like no other. For the bank’s 170th birthday in November 2011, Sberbank launched the world’s eighth-largest data processing system at a cost of an astounding $1.2 billion.

the same in pretty much every banking product — mortgages, car loans, and credit for small and medium-sized enterprises.

“One out of every four people in the country banks with us. We are the financial system,” Karamzin said.“We have a system now where every step in the bad loan recovery process is recorded in the system together with the recovery plan schedule and deadlines. If, say, some deadline goes overdue by one day anywhere in any region, then it is immediately flagged in the system. We know here in Moscow, and can call down to the regional branch to ask what has gone wrong.”

The classic approach to turning a company in a new strate-

Ben Aris

Sberbank is the biggest lending institution in Russia, yet also has one of the lowest nonperforming loan ratios in the sector. Other Russian commercial banks complain that they struggle to compete with Sberbank’s speed of service and prices, and customers praise the efficiency of the local branches. This is not your babushka’s Sberbank; it seems like the Soviet dinosaur is in the midst of a revolution.

Anton Karamzin, Sberbank’s deputy chairman, says that one of his bank’s advantages is a new data processing center that can leverage its huge volume of transactions, giving Sberbank one of the most accurate risk-assessment tools in the industry.

Buying high-tech solutions to deal with business issues is a pretty standard strategy, but Karamzin points out that the larger part of Sberbank’s success is the fundamental attractiveness of the banking business in Russia. The bank just has to manage this opportunity.

“The credit quality of the Russian consumer is one of the best in the world. Russian banks suffer from less fraud and bad loans than other European countries because Russians don’t like to load up on debt,” Karamzin said.

According to Karamzin, 20 years after the fall of the Soviet Union, Sberbank is in a position to take advantage of these quality consumers.“Sberbank is four years through a five-year strategic development plan, and we are now starting to see the results,” Karamzin said.“The plan covers every aspect of the bank’s life and we are doing this systematically, as we want to create a selfperpetuating system that will

press photo

special to rbth

Sberbank Deputy Chairman Anton Karamzin

S

o far, the reaction to the new Russian government has ranged from neutral to negative. Perennial hopes that Russia would finally launch a radical and rapid course of economic reform and political liberalization failed yet again to materialize — but this was no real surprise.The Kremlin doesn’t do radical. Business leaders, at least, praised the stability that the new cabinet brings. For most existing investors, continuity is important.They have learned how to operate in this environment and don’t want radical changes.

Photoshot/Vostock-photo

Once considered the dinosaur of Russia’s banking industry, today Sberbank is the market leader in nearly every available financial service.

Sberbank celebrated its 170th anniversary by opening a new I.T. center.

Sberbank Stock Price (in $) on the R.T.S.

source: RTS

gic direction is to focus on two or three strategic goals and push them through, but Sberbank is too big for that.“If we did it that way, the simple inertia of the bank would pull it back to its old habits. We have to do everything at once. We currently have 740 strategic projects running concurrently,” Karamzin said.

“It’s like flying a plane and fixing the engines in mid-air. It takes military discipline to make it work.”

But the new system seems to be working. Under the old regime,

the control mechanisms were repeated at every level — from the federal center to regional hubs, down to the subregional branches. Today the new system is fully integrated into a single national whole.

Karamzin adds that Russia is still at the beginning of developing its banking system:“Consumer loans grew by 40 percent last year, but penetration of banking services into the economy is still extremely low. The Russian banking sector can still grow many times over.”

Innovation A desire to solve global energy problems brings Russian entreprenuer to Philadelphia

Firm Finds Success Blowing in the Wind In 2008, when the price of oil was hovering around $200 per barrel, few Russians were concerned about green energy. But Vladimir Kanin was the exception.

in figures

2

is the number of safe wind generator prototypes Optiflame Solutions can build, thanks to a grant from the Skolkovo Foundation. The prototypes vary in size and price.

Artem zagorodnov

russia beyond the headlines

$2

million in profits from the sale of an early start-up, Aero Solutions, gave Vladimir Kanin the capital to found Optiflame Solutions in 2008.

photoxpress

This month’s Russian-American Innovation Technology Week, which will be held in Philadelphia, Pa. and Boston, Ma., from June 14–21, will formally welcome Optiflame Solutions as the first Russian company to become a resident of America’s oldest and biggest city-based technopark, the University City Science Center. Located in Philadelphia, the technopark will celebrate its 50th anniversary next year. St. Petersburg–based Optiflame, which manufacturers devices to generate wind power, was founded in 2008 by Vladimir Kanin, a mathematician-turned–venture capitalist who wanted to create cheap, safe wind power for the world to use.

“The technopark gives us an unprecedented opportunity to tap into American talent after passing through a rigorous acceptance process,” said Kanin.

After receiving a degree in math from Omsk State University in

Vladimir Kanin founded Optiflame Solutions in 2008 with the profits from the sale of an I.T. start-up he founed in 2004.

1997, Kanin led a number of successful I.T. startups in Russia. One of his companies, Aero Solutions, which specialized in radio-frequency identification, was bought out by Systematica in 2007 for $2 million.

“In 2008, I was sitting on a pile of money we had earned from selling Aero Solutions,”said Kanin.“I wanted to invest it into some project rather than buy myself a new house or car.With fuel prices where they were, we were all worried

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about how the third world would pay for energy.”

“You can thank the iPhone and other modern phenomena,”Kanin continued,“but the third world has an exploding demand for energy.”

The problem with meeting this demand via wind, nuclear, hydro or other power sources has to do with safety or price or both.“Most people don’t realize you can’t place wind turbines in populated areas, like on top of skyscrapers,”Kanin said. “There’s a famous video on

49

years have passed since the University City Science Center — one of the oldest technoparks in the United States — was founded outside Philadelphia, Pa.

“Most people don’t realize you can’t place wind turbines in populated areas,” said Vladimir Kanin.

YouTube about a bird that was killed on a wind farm. That’s saying nothing about children who could get hurt.”

Optiflame’s technology allows for the wind turbine to be encapsulated inside two aerodynamic cones which, the company claims, both increase wind efficiency and render the device safe to human contact.“When we originally came up with the idea, I traveled around the world to find out which of the major companies, like G.E. and Honeywell, were developing such a product and was shocked to find none,” recalled Kanin.

A grant from Russia’s Skolkovo Foundation allowed Optiflame to begin development of two models, which vary in price.“We’re setting up shop in Philadelphia because of the highdemand for green technology in the region — it’s one of the greenest cities in the U.S. — and to tap into the local labor market, which is awash in talented engineers and scientists,” said Kanin.“We’lldevelop the technology at home, and then sell the production rights to someone who can build it cheaper and better. It’s Ricardo’s Theory of Comparative Advantage at work.”

Find more information at ma-rbc.org

Hopes that Russia would finally launch a radical and rapid course of reforms failed yet again to materialize.

Nevertheless, a couple of appointments have been singled out for upbeat commentary.

The promotion of former presidential economic advisor Arkady Dvorkovich to the post of deputy prime minister for industrial and energy policy is seen as a big step forward for the liberal camp, as Dvorkovich, like his former boss German Gref, only talks sense.

One surprise was the appointment of relative unknown Alexander Novak to oversee the energy portfolio. At the same time, the move of Igor Sechin, who formerly oversaw the energy portfolio, from the government to Rosneftgaz, the holding company that owns the state’s stake in oil major Rosneft, has led some to speculate that Sechin will de facto be in charge of energy.

However, all this talk of power is to miss the point of Vladimir Putin’s government’s. In Boris Yeltsin’s day, running the Kremlin was all about power, but under Putin, Russian politics is increasingly about policy.

Of course, power still counts for a lot, but to understand where Russia will go under this new cabinet, it makes more sense to look at what sort of policy changes the new government will pursue.

It seems that energy policy will be about collecting taxes from the natural-resources sector.

Take the Dvorkovich-NovakSechin triangle. Sechin will clearly be responsible for operational issues pertaining to developing the sector as Novak is not an oil man, but rather comes from the Finance Ministry. Considering these facts together with Dvorkovich’s background as an economist, it seems that energy policy will be about collecting taxes from the natural-resources sector. This theory is bolstered by the appointment of Andrei Belousov as minister for Economic Development. A well-respected economist, Belousov is close to Putin and supports the president’s preference for big state spending. In other words, the plan seems to be to make money off oil to spend on big state initiatives.

Overall, observers can expect more of the last decade. Steady progress toward reform, but nothing to make banner headlines and plenty of mistakes in implementation.

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New Cabinet, same Policies? beneath the surface, caught in an oil trap productive ones. Not following this conventional mode of capitalist economic cycles indicates that deep down, there is something wrong with the Russian economic system.

Russia’s stubborn dependence on the export of raw materials is not just a curse of natural wealth; this dependence has been Russia’s systemic vulnerability. Since its birth in early 1990s, the development of Russian capitalism has been driven by external

Felix Goryunov

special to rbth

R

Russia has overcome the recession, but the economy can hardly benefit much from the recovery. rather than domestic demand.The privatization of public assets in the mid-1990s was meant to make the economy more efficient, but the private businesses and banks that bought state-owned companies were interested only in commodities tradeable on the world market.

The strategy did not change in the new century since the economy continued to benefit from it.

Exports of oil, gas, timber, steel

Felix Goryunov is a Moscowbased journalist who has been covering the global economy and international trade issues for more than 30 years.

Read the full version at rbth.ru/15731

To Encourage Business, It’s One Step at a time Alexei Kvasov Vedomosti.ru

V

ladimir Putin has declared the main economic goal for his latest presidential term: for Russia to rise 100 places in the World Bank’s Ease of Doing Business rankings, from 120th to 20th.

Almost 10 years have passed since the International Finance Corporation launched the Doing Business report, and finally the Russian government has decided to take its assessments seriously.

Both the creator of the report, current Bulgarian Minister of Finance Simeon Djankov, and the World Bank, which strongly supports it, believe the report has already largely achieved its goals of highlighting red tape and promoting reform. Russia has been very slow to address these issues, but now the country is preparing to head off in the right direction and, moreover, very quickly.

Is it realistic for the country to move up 100 places in the ranking in such a short time?

When speaking about Russia, it is important to keep in mind several facts. First, when the 2007 report (representing data from

special to RBTH

R

ussia’s efforts to diversify its economy must focus on creating demand for modernization at home rather than just exporting products. Recently, Russia’s efforts at developing high-tech production have focused on two different directions: cultivating scientists to develop innovative products, and convincing businesspeople to provide sources of credit. Unfortunately these efforts ignore the most critical elements to success: the end users who benefit from advanced technology.

Again and again at the recent Skolkovo Innovation Summit, I heard the questions: “What specific market are these products being developed for?”and“Is there already strong demand from Rus-

A rating can be greatly improved once, but it is only possible to stay on top through sequential, continuous effort. occupies 45th place; and in fulfillment of contracts, the plan has generally been overfulfilled, and Russia has risen to 13th in the world.

Then, there are large regional variations in the favorability of business conditions in Russia. In 2009, the World Bank tried to assess the regulation of entrepreneurship in 10 Russian cities across four indicators: company creation, receipt of construction

permits, property registration and foreign trade operations. In that year, Russia, which was represented by Moscow, came in the 120th out of 181 in the general rating, just like today. Moscow received the distinction of being the most difficult place in the world in which to obtain construction permits.

If Russia were not represented

by Moscow, the picture would have looked better. In all nine other cities, approval procedures were better than in the capital. In Moscow, the collection of all documents for construction on average takes 704 days, but in Rostov-on-Don, it takes 194, which is closer to the average of 162 days for countries in the Organization for Economic Cooperation and Development (O.E.C.D.).

In Moscow, the number of necessary procedures and approvals for starting construction is the largest in the world at 54; Perm, Kazan, and Rostov require 24, 23 and 22, respectively. Among O.E.C.D. countries, the average is 15 such required procedures and approvals. It turns out that it is no more difficult for an entrepreneur to build in Rostov-on-Don than in Portugal.

Should Russia spend time and effort to increase its ranking? For all its shortcomings, the rating is a useful tool for improving the effectiveness of state regulation.

The main thing the government needs to keep in mind is that this goal should be pursued systemantically on all fronts rather than through half-measures in one area at a time. A rating can be greatly improved once, but it is only possible to stay on top through sequential, continuous efforts.

The latest scientific research also provides additional arguments in favor of the special emphasis given to the ranking. For example, if a country, in the process of competing for a higher evaluation, reduces the registration period for a new business by 10 days, on average it can count on an increase of 0.36 percentage points in G.D.P. growth.

Other experts see a strong correlation between a consistently high ranking on the one hand and the state of the business climate and the depth and quality of measures for regulating the business environment on the other. It turns out that in the final analysis, the Doing Business ranking is not at all a false target.

The economic history of Russia shows that the country has had success with symbolic national projects. Given Russia’s traditionally small institutional infrastructure, associated external effects by themselves are so significant that they can exert substantial influence on the country’s development.

Alexei Kvasov is the World Bank’s executive director for Russia and a former member of the board of directors of World Bank Group institutions.

For tech, Success Abroad Starts with creating demand at home Andrei Bunich

2005–2006) was released containing the first consolidated rankings, Russia appeared in the 96th place, so it isn’t unreasonable to think Russia could return to the top 100.

Additionally, in certain areas, Russia’s position is already now significantly higher than its general 120th place ranking. In terms of the effectiveness of procedures related to financial insolvency, Russia holds the 60th place; in terms of property registration, it

Niyaz karim

ussia’s recent government reshuffle can be seen as proof that PresidentVladimir Putin intends to fulfill his pre-election promises of radical improvements in economic performance, monitoring and governance. The firing of a few unpopular ministers was definitely meant to show that the Kremlin is bent on changing how the country’s economy is run. However, the appointment of these former ministers to powerful positions in the presidential administration raises doubts as to whether the reshuffle will seriously affect government policies.

The penchant of the president and his cronies for micromanaging even microeconomic problems hasn’t changed, and so the new cabinet is hardly likely to be any more influential than the old one — especially as many former ministers have retained their personal connections in the real economy. During the presidential election campaign, Putin voiced very grandiose but hardly realistic plans to make the economy more advanced and efficient. For example, he promised to increase the share of fixed investment in Russia’s G.D.P. from 19.7 percent in 2011 to 27 percent in 2018; to raise labor productivity by 150 percent and to upgrade the country’s position in the World Bank’s Doing Business rankings from 120th place to 20th. The list of similarly unachievable goals is so long and ambitious that many reasonable Russian economists compare them with China’s Great Leap Forward.

After three years of slow struggling out of recession, the Russian economy has basically repeated the 2008 indicators of performance, and with developed countries in or near a depression, Russia again looks like“an island of stability,” as the Kremlin claimed four years ago. With 4.3 percent growth in 2011, Russia was the world’s third-best performer, after China and India. The major driver of this growth, however, is the price of crude oil.

The Kremlin may rejoice that Russia has overcome the recession, but the economy can hardly benefit much from the recovery so far as the quality of its business activity is concerned.

The Russian economy did not use the recession to undergo a muchneeded process of creative destruction, in which the old ways of doing business are destroyed and replaced by new and more

and other low value–added goods now account for 25 percent of G.D.P. and generate half of the federal budget revenues. As long as this remains the case, the promises of President Putin to renovate the economy can only be regarded as a political bluff.

The president has named the petrochemical, automobile, shipbuilding and aerospace industries as potential economic drivers eligible to receive financial support and trade protection. The improvement of agriculture and infrastructure are also priorities for the government. Can the economy sustain these plans?

Russian economists have estimated that realizing all Putin’s targets will require the country’s growth rates in the coming years to be well over 5 percent. So the question is: How can this goal be reached when the forecasted 2012 G.D.P. growth rate will be 3.5 percent and the 2013 rate will depend solely on highly volatile world oil prices?

This systemic vulnerability of the Russian economy proceeds from the fact that no matter how vigorously Putin and his men proclaim their desire for change, they are personally committed to the existing order of things. And this order is often determined not inside the Kremlin walls, but in the boardrooms of Kremlinfriendly oligarch-owned companies.

sian industry to use innovative products in modernizing production and improving efficiency?”

Of course success stories already exist in cases where there is definitely both a demand and a robust market:Yandex, Russia’s largest search engine, has done remarkably well honing its unique technology to the needs of the Cyrillic alphabet and Russia’s exploding base of Internet users.

The company has also successfully addressed problems of everyday Russian city dwellers via itsYandex.Maps andYandex.

Probki (traffic) services. These factors have helped Yandex maintain its leading position in Russia and launch a recordingbreaking I.P.O. last year on the NASDAQ exchange in New York.

In order to create more of these success stories, the state needs to

Letters from readers, guest columns and cartoons labeled “Comments” or “Viewpoint,” or appearing on the “Opinion” page of this supplement, are selected to represent a broad range of views and do not necessarily represent those of the editors of Russia beyond the headlines or Rossiyskaya Gazeta.

Please send letters to the editor to US@rbth.ru

send a strong signal that it is not just interested in, but will bravely implement, a long-term restructuring of the economy through issuing tax breaks, fighting inflation and other business-

Russia’s efforts to develop high-tech production have ignored the end users who benefit from technology. friendly policies in the short term.

Additional funding for universities, business incubators and venture funds would then bolster those policies.

One of the greatest faults of Russia’s existing state policies is that they are directed at creating products for Western markets.

While some successes have been achieved by Russian innovators — notably, Kaspersky Labs’ anti-virus software, which exports around 80 percent of its production — I’m convinced that a longterm strategy for weaning Russia’s economy off raw materials must also generate domestic demand for innovation.

The Skolkovo Innovation Center may be an efficient vehicle for generating some demand by providing both favorable business conditions for innovators and linking them with companies interested in modernizing production. I hope more nationally significant efforts at stimulating this demand will follow suit.

Andrei Bunich is a prominent Russian economist and commentator for Kommersant FM and other Russian media outlets.

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LETTERS TO THE EDITOR Joseph Brodsky and Spaceships John Freedman’s article about Ann Arbor, the Proffers and Joseph Brodsky caught our eye.

Shortly afer his arrival in the U.S. my husband and I had the pleasure of meeting him. When we entered his small dormitory room, he was reading a letter from the U.S.S.R. I asked to see the envelope, tore it open at the seam and showed him a tiny numerical imprint, the mark of the censor. He could not believe his eyes. The next day the room was filled with cigarette smoke and Brodsky was sitting on the bed surrounded by envelopes; he’d spent the night searching for those minute numbers.

There had been such vociferous worldwide protests after his arrest that the Soviets released him after 18 months and deported him to the West. Their loss was our gain, and surely the Soviets must have been gnashing their teeth, because if he had stayed, he could have been their hero, their great poet. Their cruel

punishment pursued him in exile as well because when Brodsky’s parents were dying, permission to visit them was refused.

Our compliments to Mr. Freedman and RBTH. Dr. Gene & Gloria D. Sosin West Plains, NY

In looking up information about hydrogen fusion, I stumbled onto the fact that it was Russians who invented the plasma fusion idea and developed it, in 1956. It is still one of the best prospects for developing fusion for power. And of course it is Russian rockets that are now lifting crews to the space station. All this leads me to believe that the inventiveness of Russian scientists has been grossly underplayed in the press over the past half century. The Russian media should pull its reporters off the streets of Moscow and send them to places where science is going on.

Joe Dart Fairbanks, AK

To advertise in this supplement, contact Julia Golikova, Advertising & P.R. director, at golikova@rg.ru. © copyright 2012, Rossiyskaya Gazeta. All rights reserved. alexander gorbenko chairman of the board. Pavel Negoitsa General Director Vladislav Fronin Chief Editor Any copying, redistribution or retransmission of the contents of this publication, other than for personal use, without the written consent of Rossiyskaya Gazeta is prohibited. To obtain permission to reprint or copy an article or photo, please phone +7 (495) 775 3114 or e-mail us@rbth.ru with your request. Russia beyond the headlines is not responsible for unsolicited manuscripts and photos.

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Culture

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Theater Plus

Interview Marat Guelman

Artists’ Walk Shows That Moscow Can Laugh at Itself

“I Want to Prove That Things Can Work Differently”

John Freedman

the moscow times

“M

A man of many skills and deeds, Guelman is Russia’s most well-known art curator, a political consultant and an inveterate provocateur.

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What about turning Perm into a cultural capital? How much of that plan has been implemented?

Around 10 percent. We wanted to turn Perm into a normal Eu-

apran andrey sh

You are now engaged in cultural policy-making yourself. You are the director of the Perm Museum of Contemporary Art — part of a larger effort to turn the city into a cultural capital. What were your motivations for the endeavor?

I was 47 at the time and I was going through a mid-life crisis.

The gallery was doing perfectly well without me, and I felt like all the projects I undertook and the people I worked with were only making use of my name and not my skills or talent. And when Perm came up, it promised to be a real gamble. No one thought it was going to work out.

3

itar-tass

A few days ago you held a press conference in which you and Aidan Salakhova announced that you are closing your galleries, while another old art gallery, XL, will transition to another format. What is happening to the Russian art market?

Over the last two years, the gallery has stopped bringing in profit. I can only speculate as to the reasons, but I think the main issue is that the present environment in Russia is not conducive to good market conditions. Art depends on freedom as much as a car depends on gasoline.

2

His story

Marat Guelman NAtIONALITY: Russian AGE: 51 studied: communication

Born in the Soviet republic of Moldova, Guelman moved to Moscow permanently in 1990 and opened his namesake gallery. From the beginning, the space hosted both art and political discussions. In the late 1990s, he began working as a political consultant and analyst. With Gleb Pavlovsky, he founded the Foundation for Effective Politics, but left the organization in 2002.

Guelman continues to support both innovative art and politics.

ropean city with a rich cultural life. At the moment, however, there is not enough drive for that.

So, what we did is we organized a festival, called White Nights. It runs for one month [each year].

And the hope is that we will see the concept slowly gain a foothold.

© alexandr kryazhev_ria novosti

The two phrases most frequently used to refer to you are a gallery owner and a political consultant — a pretty odd combination.

I became well-known in the 1990s when dealing art was my primary occupation. Gallery ratings had just emerged and the Guelman Gallery was always ranked first.

Back then, being a gallery owner was an entirely novel concept. So I think that in a lot of ways, I became a symbol. And Russia is a type of country where you only need a single individual [to make a difference].

But you managed to juggle that with political consulting.

It was only unusual when I first started. It was in 1996. I was running my gallery and at the same time co-founded the Foundation for Effective Politics, along with [former advisor to the presidential administration] Gleb Pavlovsky. At that time, it was quite rare, but now it is entirely normal.

Still, don’t you think that some aspects of the project seem out of place in a city like Perm?

This is one of the most common complaints that we get. They say things like,“What you are doing is great, but it makes the remaining Soviet architecture look even more miserable,” or “You call Perm a cultural capital, but our streets are squalid.”You have to understand that when we developed the 20-year master plan, we decided that we would start by introducing art that would highlight the ugliness of the city and call for its transformation.

Perm’s last mayor told me he started getting twice as many complaints to have the streets cleaned.

Do you think of yourself as a liberal?

I do, although I have never fought for political power or been part of the opposition. But I always say what I think. I present alternatives. Without trying to change the whole system, I want to prove that things can work differently.

Pussy Riot’s performance at the Cathedral of Christ the Savior is mainly

1) Guelman at the opening of an exhibit in Novosibirsk 2) The old Guelman gallery 3) The painting “2007” by Dmitry Vrubel and Viktoria Timoeeva spans two walls in the Guelman gallery.

seen as a political protest. What do you make of its artistic value?

I refuse to debate the artistic value of their performance while the girls are still in prison. The most important thing right now is that they are released.

Many Russians are already too wary of contemporary art. Don’t you think their performance has only exacerbated this attitude?

I can’t even begin to tell you how many problems I have had because of Pussy Riot. At the same time, radicals perform a very important function. On Dec. 10 [a day of protests in Moscow], artists realized that they were no longer the social avant-garde. Society proved that it was ahead of them, that it was more radical. It was a lesson to them, a reminder that there was still no democracy, no freedom of speech and that they should resist being integrated into the system.

Prepared by Masha Charnay

oscow Does Not Believe in Tears” is not just the title of a film that once won an Oscar for Best Foreign Film. It is a phrase that, perhaps, characterizes Russia’s capital city better than any other combination of six words. Moscow is a tough town. If you’ve ever lived here, you know how true that is.

But reputations, like laws, are made to be broken. If only just for a few moments at a time.

May 19 was the target date for the second low-key political protest masquerading as no political protest at all that took place in the course of a single week. The first was the Writers’ Walk on May 13 that drew upwards of 20,000 people, strolling through the streets with their favorite authors. The May 19 march was called by the city’s painters, sculptors, animators and graphic artists. It did not draw nearly the number of people as earlier protests have — I would guess that around 2,000 people showed up — but size here isn’t the point.

The Artists’Walk, dubbed the Mobile Museum of Contemporary Art, provided some of the most amusing 90 minutes this city has enjoyed in some time.

All those crazy artists with their crazy smiles and inspired, fruitcake exhibits — balloons trapped in a cage, a six-foot wooden fish, a motoring machine with all kinds of crazy moving parts, a purple spiked throne, a plastic man trapped in a plastic, computerized world — made Moscow smile.

Moscow doesn’t believe in tears? You’re damn right. It believes in laughter and mirth.

Wit has emerged as a major component in the current socio-political dialogue. Russians are proving themselves to be the possessors of an extraordinarily inventive sense of humor.

Whatever dark and ominous decision the Russian authorities

Theater Young Russian-Jewish immigrants in New York find catharsis in the theater

What They Left Behind

Phoebe Taplin

Xenia Grubstein special to rbth

Anya Roz_White Crow Pictures

The stories in “Doroga” go back and forth between past and present.

and how we got to the point of where we are today,” said Zicer.

“I decided to look for people who would be interested in the same investigation, who are not necessarily actors, but would be committed to this idea of investigating the past and finding their meaning through it.”

It took months of intensive improvisation and days of trainings and workshops before the team was ready and their stories known.

As one member of the cast, Sergey Nagorny, put it:“We came together, 10 strangers from the same background, meaning we all immigrated at one point in our lives

Tightly held memories knit the thread of a narrative, creating an epic picture of an era of immigration. and all were born to Russian-Jewish parents. But we didn’t know each other; we were 10 people that had different energies. So the whole deal was to build that into one, to create an ensemble.”

In this small intimate laboratory, the most precious family tales were shared. Some were cut and some were combined for the

TITLE: Ice Trilogy AUTHOR: Vladimir Sorokin Review Books Classics

sake of narrative, with the goal of having a powerful, touching and relevant story. The ensemble shared the feeling that no professional scriptwriter would understand their family dramas, so each wrote his or her own part of the script. When it was ready, they were “already a well-oiled machine, able to move forward,” Nagorny said.

The personal memories include rude custom officials yelling at parents; indistinct announcements in Russian and Ukrainian in the thick air of the Kiev airport; grandma’s cherished silver spoons staying behind; being forced to say goodbye to a first love — these tightly held memories knit the thread of a narrative, creating an epic picture of an era of immigration.

Director Ben Sargent was born in Philadelphia, studied in Canada and Moscow, and considers himself a metaphorical immigrant from Moscow’s theater community. He wanted his actors “to understand the mental process that was going through the head of their mother or father ... to really step into that situation.”

After the first performances, it seemed that no one was left untouched.“Some people said what we showed was too much, others said, in reality it was much harsher,” Zicer said. “It was really interesting to see how our plays aroused something in them.”

Art is never about answers. It’s always the questions that count.

Plus our emotional response.

Was this an artist’s moment of solidarity with President Vladimir Putin, who now finds himself in the position of metaphorically occupying a seat like this for another six or 12 years? Or was it an attempt to ridicule anyone silly enough to put himself in a position like that? I don’t have the answer to that. Art is never about answers. It’s always the questions that count. Plus our emotional response.

What I can say definitely about this sculpture is that it made people laugh. As did the little sculpture of two fish playing piggyback — an unmistakable reference to the tandem of Putin and current Prime Minister Dmitry Medvedev.

Occasionally the policemen stationed along the route smiled and waved to the crowd passing by.

They were courteous and helpful. A time or two the crowd awarded them with applause. For their part, the members of the march were remarkably lawabiding, honoring most (if not all) of the“don’t walk”signs they encountered.

Metaphysical Masterpiece or Empty Myth?

PUBLISHER: New York

In creating the play “Doroga,” Russian-Jewish Americans found that their shared history can speak to the hopes, fears and regrets of immigrants across generations.

toss at demonstrators and common citizens these days, the response is invariably a veiled — or not-so-veiled — thumb to the nose and a big laugh.

During the May 19 march, I frequently found myself walking next to an artist who had created an oddly lovely purple rattan chair. It featured two heads extending out of the chair back, suggesting something to do with the official Russian seal of the twoheaded eagle. Projecting upwards from the seat were a series of long, sharp spikes. The artist, always speaking in a friendly, engaging manner, repeatedly asked passersby, “Would like to take a seat on the throne?” or “Try out my throne of power if you like!”

bIBLIOPHILE

Special to RBTH

The poignant play “Doroga,” which means journey, tells stories of young immigrants from the Soviet Union. The play had a brief run in New York May 29– June 3 and will appear later in the summer at festivals in Montreal and Boston before returning to NewYork. Produced by a group of young RussianJewish Americans from the Lost&Found Project,“Doroga” is narrated as a series of emotional sketches, going back and forth between present and past. This style allows the actors, who are also co-creators of the project, to work through the memories of leaving their birth country in the 1980s and 1990s.

The theater group was conceived in 2011 by Anna Zicer, who immigrated from Russia to Israel at the age of two, and moved to New York in 2007. The idea of “Doroga” was a huge source of inspiration for Zicer and the other young actors with whom she shares the stage. “I saw that we are very much stuck in the present, not really focusing on or investigating where we came from,

07

A

huge, frozen meteorite crashes into Siberia.

Our hero, young Snegirev, is mysteriously drawn towards it and becomes the first of the 23,000 Children of Light to awaken and realize his destiny. He and the rest of the blue-eyed, fair-haired brotherhood are really“Light-bearing rays.” Endlessly reincarnated, they have become prisoners on Earth, the planet that was “Light’s great mistake,” violating the harmony of the cosmos.

The mission for Bro (Snegirev’s new light-name) is to find and assemble the other 22,999 brothers and sisters in order to dissolve the Earth back into Primordial Light.

This is the premise of Vladimir Sorokin’s bizarre “Ice Trilogy,”now a three-novel tome in English. The author is a controversial figure: Soviet authorities banned his satirical books and state prosecutors (with the encouragement of a pro-Putin youth group) once tried to prosecute him for disseminating pornography; the pornographic material in question was the writer’s own work. But Sorokin has gone on to win several awards and become a major cultural figure. “Ice Trilogy” is an ambitious and extravagant work but its metaphysical and mythological pretensions sometimes seem a little hollow.

Awakening the rest of the“Ice Trilogy” Light-gang involves

smashing each of them very hard on the chest with an ice hammer.

When the brotherhood loses the ability to recognize fellow children of light, they resort to whacking every blue-eyed, blond-haired person in the hope of finding“one of ours.”The resulting corpses are discarded as “empties.”

This searching process, which runs throughout the trilogy, could be seen as an image of the novels themselves: often excessively violent, numbingly repetitive and ultimately perhaps disappointingly empty. But just when the reader is tempted to abandon these unusual books, Sorokin shifts registers with a thrilling screech of the literary tires. Hardcore sadism and casual prostitution are set next to woven grass blankets and tea made from Altai herbs.

Sorokin is at his best in the detailed evocation of individual psyches. He seems equally at home mimicking businessmen or anarchists, web designers, chemistry professors or members of a new age cult. Translator, Jamey Gambrell has negotiated these varied voices with an impressive combination of precision and stamina. It is clear that the novels’ faults cannot be blamed on her admirable translation.

The critic Lev Danilkin described “Ice” as Sorokin’s first “honest,”not-completely conceptualist novel, citing it as part of a resurgent realism in Russian Literature. The author himself has inveighed against critics and philologists, with their tendency to read books only in comparison with other books instead of in relation to real life. “They see life only through texts and are proud of the fact.” Instead, Sorokin insists, his novels are no less than a discussion of what it means to be human.

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Tourism The Russian capital launches a new campaign to rebrand itself in an attempt to counter stereotypes and appeal to savvy travelers

Creating New Memories of Moscow

4

Russia’s capital has a reputation as a cold, unfriendly place, but the city’s tourism committee and some local entrepreneurs are trying to change its image.

KATHRIN ALDENHOFF SPECIAL TO RBTH

Nearly 75 percent of Russians are city dwellers, and more and more they are thinking about how to m a k e t h e i r c i t i e s b e tt e r.

Creating a positive urban brand is essential in an increasingly globalized world where cities compete for residents, business people and companies. Cities that make a good first impression hold the advantage in this competition.

Russia has long had a reputation as a cold, unfriendly country and Moscow, as the capital,

has absorbed this stereotype. Russian blogger IlyaVarlamov, known on the Internet under the handle “zyalt,”recently proposed 10 measures that could help turn Moscow into a “city for people.” Included in Varlamov’s list are bike paths, more benches and a ban on vehicles into the city center.

But steps like this will take time to implement; for the moment, Moscow city authorities have decided to take a more cosmetic approach.

In April, local authorities announced a tender to develop a new tourism brand for the city.

Participants in the competition must submit an“original and organic logo to project Moscow as a global tourism center;” come up with a slogan in English and Russian; and present visuals, col-

1. Typical Russian souvenirs include nesting dolls (matryoshki) and models of St. Basil’s. 2. Souvenirs made by the the Heart of Moscow brand are decorated with red-and-white stripes. 3. Wow Moscow souvenirs feature a smile symbol, which company founder Alexander Sapov says symbolizes all that can surprise visitors to Moscow. 4. The bear created for the 1980 Olympic Games has become a popular symbol of Moscow.

ors, videos and a brandbook that describes all the key elements.

“We understand that creating a recognizable brand is only a way to attract attention,” said Georgy Mokhov, Deputy Chairman of the Moscow Tourism and Hotel Committee.“Our main goal is to create comfortable conditions for tourists to come and enjoy Moscow. We’ve taken a number of steps last year: set up a call center for tourists as well as a Web portal [travel2moscow. com], added signs in English

In April, Moscow authorities announced a tender to develop a new tourism brand for the city. Participants in the competition must submit an original logo and a slogan in English and Russian.

PRESS PHOTO

1 © VLADIMIR FEDORENKO_RIA NOVOSTI

PRESS PHOTO

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throughout the city and published guides in eight languages like ‘Unusual Moscow Museums and Monuments’ and ‘Moscow’s Metro.’”

The city’s Committee on Tourism and several local entreprenuers have also decided that the souvenirs tourists take home from Moscow could also use some updating. The Russian capital is associated with the standard souvenirs that can be found anywhere in Russia: nesting dolls (matryoshki), scarves, samovars, painted tablewear and fur hats.

Alexander Elzesser, a young Muscovite, wants to prove to tourists and Russians alike that Moscow, indeed, has a heart. His company, Babushkov, is working to develop a brand it calls Heart of Moscow. Through a blog and the

sale of a wide range of products, Babushkov is trying to make as many people as possible fall in love with the Russian capital.

Elzesser from the earliest years of his life lived in the center, by day suffocating in traffic jams and by night enjoying the tranquility and beauty of the city. “I know that Moscow has a lot of problems, but I love my city,”Elzesser said. “And if everyone can come to consider it the best city on Earth, then everything will change very quickly.”

The Heart of Moscow is a symbol in the shape of one of the domes of St. Basil’s Cathedral, colored in with red and white stripes. Elzesser has put the symbol not only on items that are traditionally associated with Russia, such as winter socks and mittens, but on notebooks and covers for smartphones.

The Wow Moscow Web site also offers souvenirs that cannot be bought anywhere else. All the goods on the site feature the same symbol: a stylized smile.

“We feel that Moscow has a lot to offer that can pleasantly surprise, cause one to smile and make foreign guests say ‘Wow!’This was all reflected in the project,” said Alexander Sapov, one of the founders of the Capital City – International Cultural Center movement, which was involved in developing the brand.

The Moscow Committee on Tourism recently spent 5 million rubles ($160,000) to develop souvenirs that will appeal to the modern traveler. Their new items include U.S.B.-drives in the form of nesting dolls, mouse pads featuring a panorama of the city, and ballpoint pens mounted in wooden spoons. Currently, the committee is using the souvenirs as promotional items, giving them away at international tourism trade shows.

The goal of the city project, like that of Wow Moscow and Heart of Moscow, is to contradict the stereotype that Moscow is a city of stressed, frustrated, cold people. They all want to show the world that the Russian capital has heart, and a smile for visitors, too.

Festivals Graffiti and skateboarding keep the kids at home

In an Industrial Town, Counterculture Goes Mainstream RUSSIA BEYOND THE HEADLINES

For the second year in a row, Vyksa, a factory town in the Nizhny Novgorod Region of northcentral Russia, hosted the alternative youth festival known as Art Ovrag (Art Ravine). From June 1–3, several thousand people gathered in a ravine outside the city that had been turned into an amphitheater for the event.

During the festival, participants painted on fences, walls and pavement, demonstrated stunts on skateboards, arranged seminars, rapped, conducted dance classes and learned to make found-art sculptures.

Vyksa isn’t an obvious location for a youth art festival. It is the home of a large metallurgical plant that produces extra-large diameter pipes for the Nord Stream gas pipeline, wheels-toorder for Russian Railways and housing for armored vehicles. A third ofVyksa’s population works in the plant, and the town’s landscape is made up of factory chimneys and large warehouses.

“Life necessitates doing this.

For towns like Vyksa, retaining youth is a question of survival. It is important to make sure that the kids do not leave for Moscow,” said Vyksa Mayor Igor Raev. “To do this, there should be a fullfledged urban environment.Youth art is an indicator of development.”

To encourage participation in the event, Raev drove artists from nearby Nizhny Novgorod around Vyksa in his own S.U.V. in the

Unlike other cities, Vyksa remains unique in that it allows artists to transform any surface they see fit. ous city, but by number of drug addicts, it is one of the leaders of the Nizhny Novgorod Region,” said Irina Sedykh, chairman of the board of trustees of the OMKParticipation charity fund, which is sponsored by the town’s major employer, the United Metallurgical Company. “We wanted to do something bright and interesting for young people in order to divert them away from drug use.”

Help from abroad

In addition to the efforts of the Vyksa city government, the Moscow cultural foundation Art Residence played a leading role in organizing the cultural program.

Art Residence takes its inspiration from Russian avant-garde artists such as Vladimir Mayak-

ovsky, David Burluk and Vasily Kamensky. In 1918, these three artists published a decree about the democratization of art, which declared art should be not“in the palaces, galleries, libraries and theatres … but on the walls, fences, roofs, cars, trams and clothes of all citizens.” Their forwardthinking motto“Let’s make streets a celebration of art for everyone” is very close to the Art Ovrag festival slogan “Make art at your street.”

The program of the second Art Ovrag included exhibitions of works by Spanish architect Lorenzo Fernández-Ordóñez, and American sculptor John Powers; master classes by the New York Battery Dance Company; presentations by Russian fashion designer Slava Zaitsev’s laboratory of fashion; and lectures from architects and urban planners of the Shchusev State Museum of Architecture, among others.

Carmen Nicole Smith from New York Battery Dance Company was visiting Russia for the first time. She was invited by Art Residence leader Konstantin Grouss, who saw her group in New York. With two colleagues, Smith ran dance workshops for 20 local students ranging in age from 12–17 during the five days of the festival.

NewYork Battery Dance’s participation was party of its“Dancing to Connect” program, which the group usually brings to countries in crisis or into stigmatized communities.“We didn’t plan to overcome any problems in Vyksa; it’s just a small town,”said Smith.

“It was more about letting children express themselves through dance. But we hope that their impression about Americans improved. The kids had different

IN THEIR OWN WORDS

Igor Raev VYKSA MAYOR

PRESS PHOTO

DARIA GONZALES

weeks before the festival to show them the sites available for use during the event. The city administration made it clear that the artists could use any surface they liked during Art Ovrag.

But visual arts weren’t the only way the city authorities hoped to encourage young people to stay inVyksa. The festival also included such elements as extreme sports demonstrations. Performances by skateboarders, rollerbladers and BMX bike enthusiasts in the ravine were replayed on the Web site Virtual Vyksa (wyksa.ru) Art Ovrag serves another important social function.“Vyksa is a well provided for and prosper-

Street artists from Moscow’s Zuk Club like to work in small cities because their work attracts a lot of attention from locals.

"

Life necessitates doing this. For our town, retaining youth is a question of survival. It is important to make sure that the kids do not leave for Moscow. To do this, there should be a full-fledged urban environment. Youth art is an indicator of development.”

Nikita Nomerz STREET ARTIST, NIZHNY NOVGOROD

"

When we were painting, a lot of people came up to us. Ninety percent of them had a positive attitude, old ladies brought us cookies ... I do not do illegal things: I paint by day with the knowledge that I am beautifying the city.”

PRESS PHOTO

Counterculture art fans and adrenaline addicts flocked to the north-central Russian town of Vyksa for the second year in a row to take part in Art Ovrag.

New York Battery Dance Company ran workshops for five days.

levels of experience: some were dancers, some were not. We had a few gymnasts; some had taken Middle Eastern dance classes; and they all didn’t know each other. But they were so happy.”

Paint anywhere and everywhere

The organizers of the Vyksa festival believe that street art is now becoming accepted, and what was once considered taboo is now judged on its content rather than

its forbidden status. This is not a particularly controversial view.

Festivals arranged around street art are becoming more common in Russia, and permanent street art installations are appearing in certain districts of some cities.

Vyksa and Art Ovrag remain unique, however, because during the event, the city opens up the entire urban environment for artists to work, further dispelling the stereotype that street art should be — or can be — restricted.

Carmen Nicole Smith DANCER, NEW YORK BATTERY DANCE COMPANY

"

I loved it because usually, at least in New York, festivals are more concentrated on one kind of art or one kind of style. It was nice to see all this different forms in one space along with sculpture and hip-hop and dance and fashion.”