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Special supplement from Rossiyskaya Gazeta (Moscow, Russia) which takes sole responsibility for the contents. Wednesday, December 26, 2012 www.rbth.ru

Tourism Moscow's world record-breaking sights, from cannons to metro stations

Energy How Gazprom is combatting shale gas with new pipelines and markets

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AFP/EASTNEWS

NEWS IN BRIEF

Holidays For many Russians, this New Year's holidays are a time to go shopping LORI/LEGION MEDIA

Splurging Out At New Year

Nuclear energy deal struck An agreement on cooperation in the field of nuclear energy for peaceful purposes between Russia and the UAE was signed on December 17 in Abu Dhabi. The document is to provide a sound legal basis for cooperation in the peaceful use of nuclear energy. The UAE has concluded similar agreements with the US, Britain, France and other countries. ITAR-TASS

LORI/LEGION MEDIA

Moscow plans to build six new mosques

Moscow authorities may provide six sites for the construction of mosques in different parts of Moscow. Other buildings needed by the Muslim community will also be built on the provided territories. "There is not enough room for Muslims, especially on big holidays," said Russia’s human rights movement veteran Lyudmila Alekseyeva. Interfax

IN THIS ISSUE SPECIAL REPORT

YEVGENY BASMANOV SPECIAL TO RBTH

Russian city streets, shopping malls and businesses are aglow with decorated fir trees, lights and tinsel,

reminding the locals once again that the long New Year’s break is coming. The official NewYear holiday break in Russia will last from Dec. 30 to Jan. 8 this year, a week and a half of mid-winter bliss and the envy of citizens of many Western countries, where only New Year’s Day is a national holiday. Unlike in many nations, in Russia it’s New Year rather than Christ-

mas that’s the main winter holiday. This tradition is rooted in the Soviet past, when religious holidays were phased out and substituted with secular ones. In this substitution, the traditions of decorating a tree, celebrating a special day with family and exchanging gifts are just moved to a different date. “Although I consider myself a re-

For many Muscovites, the only way to ring in the New Year is standing in the falling snow, listening to the chimes from the Kremlin clock tower

ligious person, NewYear’s was always far more important for me than Christmas.You can’t have the feast, the gifts, the holiday atmosphere, the champagne and the smell of tangerines without the the Kremlin clock chiming at midnight,” said Irina Popova, head of an ad agency in Moscow. CONTINUED ON PAGE 2

ITAR-TASS

Inspired by the saying, “The way you see in the New Year is how you will live it,” Russians are splurging out on a shopping spree this holiday season.

Changing the World: From Russia With High-Tech Applications

Economics The Russia-GCC Business Forum in Sharjah highlights a growing Russian presence in the Gulf P.04

Russia-Gulf Trade Quadruples in a Decade Russia and the Gulf Cooperation Council countries are on track to record bilateral trade of $11.2 billion, a fourfold rise in 10 years. YULIA PONOMAREVA RBTH

PRESS PHOTO

Abdullah al Saleh, Undersecretary of the UAE Ministry of Foreign Trade, reported the increase at the Russia-GCC Business Forum that ran in Sharjah from December 17 to 19. The number includes Gulf exports worth $1.1 billion, and Rus-

The Russia-GCC Business Forun in Sharjah

sian imports to the GCC worth $10.2 billion. By the end of this year Russia and the UAE itself are also set to make a new record in bilateral trade of $2 billion, an increase of one-third on last year. In 2011, bilateral trade reached $1.5 billion, and in the first half of 2012 already the figure exceeded $1 billion. The first day of the Sharjah forum took the UAE further on the path toward launching its first nuclear power plant in Barakah,

CUISINE

slated for 2017, as the Energy Ministry signed an agreement with Russia’s state-run Nuclear Energy Corporation Rosatom. The head of Roastom, Sergei Kirienko, said the agreement“offers the way to implement the contract signed in August (2012) between Enec and Tenex to supply the first nuclear power plant at Barakah with natural uranium, conversion and enrichment services.”

Learn How to Make One of Russia's Best-Loved Desserts

CONTINUED ON PAGE 3

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RUSSIA BEYOND THE HEADLINES WWW.RBTH.RU GULF NEWS_WEDNESDAY_DECEMBER_26_2012

Politics&Society

Education Russia attracts foreign students

International Russia’s G20 presidency could highlight the importance of the BRICS

Skolkovo Takes Saudi College As Its Model Russia’s high-tech business school is attracting students from abroad, learning from the experience of Saudi Arabia’s King Abdullah University. YULIA PONOMAREVA SPECIAL TO RBTH

AP

Russia is becoming an increasingly popular higher education destination, accounting for 4% of all tertiary students pursuing their studies abroad. Those are the most recent findings from a survey by the OECD Directorate of Education. “Over a 10-year period, the share of international students who chose the United States as their destination dropped from 23% to 17%, while the share of students who chose the Russian Federation grew by around 2 percentage points,”the Education Directorate reported. In 2010 some 146,000 foreigners studied in Russia, according to Russia’s Statistics Service. “Education is relatively cheap here, I pay $3,250 a year,”said Harbinger Singh from Malaysia, a student of Volgograd State Medical University in southern Russia, interviewed by The Theory and Practice education portal. “In Malaysia a year in a medical school costs about $20,000 on average.” However, Singh said that he receives little practical experience in Russia. “In Malaysia you learn by treating a patient, in Russia you usually only talk to patients, which is a big drawback for me,” Singh said. Researchers point out no or nearly no programs are offered in English and that tuition fees for international students are generally higher than for domestic students. Russian colleges are usually to be found somewhere in the

Russia's Chance to Reform The Global Economy YURY PANIYEV SPECIAL TO RBTH

REUTERS/VOSTOCK-PHOTO

From Dec. 1 until Nov. 30, 2013, Russia will hold the presidency of the G20, the club of the world’s biggest economies.The G20 accounts for 90 percent of global GDP, 80 percent of world trade and twothirds of the world’s population. According to Ksenia Yudayeva, Russia’s G20 sherpa and head of the Russian President’s Expert Directorate, the G20 summit will be held in St. Petersburg on Sept. 5-6. Early bilateral meetings were, however, held in Moscow in midDecember and Russia has already formally presented its presidential priorities to an international conference on Promoting Economic Growth and Sustained Development. PresidentVladimir Putin announced in a recent address that “the main task of the Russian presidency will be to concentrate the efforts of the G20 on developing measures to stimulate economic growth and create jobs.”In line with these priorities, Russia intends to discuss such traditional G20 agenda items as the state of the world economy, job creation, reform of the world monetary system, stability on the global energy markets, promoting international development, strengthening multilateral trade and combating corruption. Russia is proposing two new themes: investment financing as the basis for economic growth and job creation and modernization of na-

After July's G20 summit in Mexico, Russia's presidency started Dec. 1

IN THEIR OWN WORDS

Sergei Ivanov CHIEF OF STAFF, PRESIDENTIAL EXECUTIVE OFFICE

The goal is to make the economies more predictable. To do so, we need to resolve debt issues and problems faced by oversight authorities, because oversight of the banking sector has not been effective. There are bubbles and fake banks that are in fact money laundering operations. This poses major economic problems, not only for Russia, but for all G20 countries."

tional systems for state borrowing and sovereign debt management. Yet the key issue Russia's presidency needs to address is to restore investor confidence, said Finance Minister Anton Siluanov. It is easy to understand his worries. Economic growth in the locomotives of the world economy, including China, is still slowing down. The southern countries of the European Union are in recession. Not surprisingly, major investors are not in a hurry to lose money in the crucible of another crisis. The majority of developing countries, especially in Latin America, are the most affected. Another important problem to face is sorting out the state debts that in many countries exceed 100 percent of their GDP. Debt issues will be high on the Russian presidency’s agenda. Siluanov said that Moscow will suggest the need to design specific debt reduction programs. He added that the formula for calculating IMF quotas would be discussed during the Russian presidency. At the mo-

Splurging Out at New Year, She seems to be one of the few Russians who have prepared for the holiday in advance:“I hate the rush at the stores, the long lines and all that bustle, so I prefer to buy everything before the crowds come, or do it online.” This last option is not yet widespread — the share of online shopping in Russia is still only 5 percent, but lines in stores grow exponentially, especially during the peak period from Dec. 15 to 24. According to a survey by De-

loitte, this year, Russians will spend 8.6 percent more on the New Year holidays than in 2011. Experts suggest that this is because they have stronger confidence in their future than they did last year; On average, Russians spend $500 on celebrating the winter holidays — 35 percent less than in Europe, where the average is $770. But given the 120 percent difference in per capita GDP between the EU and Russia, this figure looks far more impressive. Russian shoppers are prepared

to splurge for the holidays, and not just on gifts and food. It is becoming increasingly popular to go on vacation for the New Year break. Slightly more than half of those who spend their holiday abroad chase the sun. Many Russians head to Egypt, where tour packages start at $400 for the week. Ski holidays are PHOTOXPRESS

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ment, Russia’s share of IMF capital stands at a modest 2.8 percent. The United States contributes 17 percent and the EU 30 percent. “GDP should be the decisive factor in distributing quotas,” Siluanov said. This approach is shared by the BRICS nations, the United States and some other G20 members, but small European countries have objected because they fear their IMF quotas would be drastically reduced. Incidentally, a new feature of the Russian presidency will be a BRICS summit, to be held on the sidelines of the St Petersburg G20 summit. The BRICS nations already have a hefty package of promising proposals for reorganizing key international institutions. In promoting reform of the international financial architecture, the BRICS countries have more than just their own interests in mind. Vladimir Davydov, director of the Latin America Institute at the Russian Academy of Sciences, said: “BRICS has within its purview much broader interests of all the emerging economies and emerging countries. The proof of this is the program for reforming the IMF and the World Bank proposed by the BRICS countries.” Gennady Chufrin, of the Russian Academy of Sciences’ Institute of International Economy and International Relations, said that Russia would have an excellent chance of enhancing the role of BRICS. “At present, we see an obvious proWestern tilt in the activities of the IMF and the World Bank. That tilt needs to be corrected in favor of the developing countries and BRICS,” Chufrin said.

THE NUMBERS

7.05 MILLION students attended 1,115 colleges in 2010-2011 in Russia

PRESS PHOTO

Russia’s G20 presidency will focus on traditional economic issues, with a priority on reevaluating contributions to the International Monetary Fund.

middle of international ratings, one of the main reasons for this being insufficient research opportunities. British newspaper The Times put Moscow State University in the top 225 universities in the world in its prestigious annual ranking. Russia’s Education and Science Ministry is reviewing colleges’ performance, and plans to close or reorganize the most ineffective ones. Already, it has merged 30 out of some 1,100 universities in the country to create nine federal universities, which are planned as regional centres of excellence. One such university, the Far Eastern Federal University, was built in just three years as part of preparations for the APEC summit hosted in the Pacific port of Vladivostok in September 2012. Other priority projects are the Skolkovo School of Management near Moscow, one of 16 colleges in Russia that offers MBA courses, and the Skolkovo Innovation Center, sometimes referred to as Russia’s Silicon Valley. One of the education and research centers there is the Skolkovo Institute of Science and Technology, or Skoltech. Raj Rajagopalan, dean of faculty at Skoltech, who co-founded the King Abdullah University of Science and Technology in Thuwal, Saudi Arabia, said that Skoltech could learn from the Saudi university’s best practices. “The [King Abdullah University] model is somewhat similar to ours. It’s a graduate-level university without traditional departmental and college boundaries, and [it utilises] international alliances as tools for developing [its] campus and operations, international faculty and students,” Rajagopalan said in e-mailed comments, adding that both universities operated as private educational institutions amid a “government-funded and government-controlled university ecosystem.” “So we can learn from what has or hasn’t worked for them and why those techniques have been successful,” he said.

4% of all tertiary students pursuing their studies abroad enrol at Russian colleges

Russians Expect Better 2013 also popular, although the price for this type of vacation is substantially higher. Vadim Nesmeyanov, the 30-year-old founder of an IT startup is among those leaving snow to find more snow. “My family has been going to Chamonix for about three years now. There were only four of us in the beginning, but now our group has grown to 12 people, and we need to find a cha-

let that is big enough. If you book early enough, the cost of flights and accomodation shouldn’t be too high — around €1,500 ($2,000) for 10 days,” Nesmeyanov said. “Plus, traveling to Europe during the holiday sale season is an excellent opportunity for shopping - I can buy a new iPhone.” According to the Deloitte poll, a new smartphone is one of the most desired gifts this New Year. Forty percent of respondents would like a new phone; Fiftysix percent said they would be happy with cash. However, most

poll respondents said they planned to give cosmetics (42 percent) and candy (38 percent) as presents. Inexpensive household appliances like slow cookers and juicers are also in demand. Many Russians don’t like to go out on NewYear’s Eve; more than 80 percent prefer to entertain guests at home or visit friends in their homes. But not everybody can share in the bliss or afford to forget about work: more than 11 percent of Russians work through the holidays.


RUSSIA BEYOND THE HEADLINES WWW.RBTH.RU GULF NEWS_WEDNESDAY_DECEMBER_26_2012

Business&Finance

03

INTERVIEW DR. IGOR YEGOROV

A Gateway Between The UAE and Russia THE CHAIRMAN OF THE RUSSIAN BUSINESS COUNCIL IN THE UAE TALKS ABOUT THE IDEAS BEHIND RUSSIAN BUSINESS WEEK

Of all the Gulf countries, why did you choose the UAE for Russian Business Week? Our association – the Russian Business Council is based in the UAE, the regional hub for trade, transportation and trade for the wider Middle East. Therefore it is also justified that our partners from Moscow - the Russian-Arab Business Council (RABC) decided to conduct its event in this economic powerhouse, which is also home for a big vibrant Russianspeaking community. Our goal today is to develop economic relations with the countries of the region. RABC was created as part of the Cooperation Agreement between the Chamber of Commerce and Industry of the Russian Federation and the General Union of the Chambers of Commerce, Industry and Agriculture for Arab Countries and is actively promoting business with Arab partners in Russian Federation. Within the GCC, the United Arab Emirates is most actively seeking to develop economic ties with Russia and has the best infrastructure for exhibitions and meetings; it's also easier for participants to convene here than, say, in Saudi Arabia. Who is involved in organizing the

event from the Emirates? It was initiated by the Al-Qasimi family, which rules the Emirate of Sharjah. The Sharjah Expo Center and local economic zones latched onto the idea and made the exhibition possible. Overall, there are three organizers: RABC, Sharjah Expo Center, and the Russian Business Council in Dubai and the Northern Emirates. The Russian Business Council is a UAE-based entity, not Russian. Of course the Russian Embassy and its Economic Counsellor and the General Consulate provide vital support to the event. The exhibition and the Business Forum, both integral parts of the Week are expected to be attended by CEOs, senior executives, Chambers of Commerce and entrepreneurs from the Gulf. In what way can UAE businessmen benefit from the event? Every year the UAE receives close to a million Russian tourists, yet the country has little knowledge of Russia, and even less about Russian business. We are trying to dispel the mutual apprehension and identify areas for cooperation. Meeting potential partners in conditions of comfort will help build a constructive dialogue. It is no secret that today for both countries the oil sector plays a major role, and not surprisingly, it is the area that develops in the first place. However, local companies are interested in the fields of trade, man-

ufacturing, telecommunications and construction. For example, developers like Limitless, which parent company has built the famous Palm island in Dubai, has long been eyeing the Russian market, but due to the high level of competition has yet to take affirmative action. It is possible that the Forum will help the company find partners and strengthen existing ties. Which Russian companies are developing business activity in the UAE? We have seen opening or extension of offices of some of the Russian heavy weights like Lukoil Overseas, Gazprom, Rosneft, Stroytransgaz, pipes manufacturer MTK and more recently – maritime shipping company Sovkomflot. Some of the major non-oil manufacturers like Kamaz decided to make Dubai their regional base. Hamriyah Steel FZC is a joint venture of Metallinvest Holding and the UAE partners. A number of aviation firms, like Al Aroud Group’s RUS-Aviation airline, are engaged in operating and leasing Russian cargo aircrafts and helicopters. Developed cooperation in military industry is noteworthy. AFC Sistema has wide interests in the region working with local telecommunications companies. These companies are not interested solely in the UAE, but in the region overall. It's just more efficient to run an office out of Dubai or Abu Dhabi than any other city

Law Russia's parliament has ratified a deal guaranteeing investments

Bilateral Investments Reach New Level Russia's parliament has ratified a key Russia-Emirati agreement to promote and protect capital investments in both countries. ILYA SHVEDKO

Both the Russian and the Emirati governments are gradually increasing the volumes of bilateral trade, but cooperation in the investment sphere has proceeded slowly until now. The new agreement will give a new impulse to investment cooperation between Russia and the United Arab Emirates. It states that investors from Russia and the UAE will be granted a no less favorable regime than national investors. They are guaranteed free and clear transfer abroad of earnings. The agreement also spells out the basis for compensation for damages suffered by either side; it establishes the procedures for resolving investment disputes and disputes concerning its interpretation and application. The agreement guarantees protection of capital investments from forced confiscation. Investors will also receive compensation if their investment suffers losses as a con-

REUTERS/VOSTOCK-PHOTO

SPECIAL TO RBTH

Russia finished building the Taweelah-Fujairah gas pipeline in 2011

NUMBERS

$1.1 billion is Russian-Emirati trade activity In the first nine months of 2012 (up from $1 billion for the same period in 2011)

$254 million entered the Russian economy from the UAE in 2012 ($187 million entered the Emirati economy from Russia)

sequence of armed conflicts. The agreement institutes the concept of“without delay”.This means that monies must be paid within five days of an investor’s request.“This civilized practice allows one to save money and time on making official decisions,”said Anatoly Voronin, an analyst with the FIBO Group. In the first nine months of 2012 Russian-Emirati trade activity increased to $1.1 billion. Russian exports to the United Arab Emirates consisted mainly of precious stones and metals, equipment, mineral

PRESS PHOTO

Russia-UAE Business Week, which gets underway in the Emirates on December 15, points of contact for entrepreneurs, and the prospects for joint development.

HIS STORY NATIONALITY: RUSSIAN AGE: 38 CIVIL STATUS: MARRIED

Dr. Igor Egorov has been working in the automobile field for 12 years. He is an expert in international sales & marketing as well as supply chain management. He has been holding managerial roles at Daimler, DaimlerChrysler and Chrysler Group in Europe, Russia and the Middle East. Prior to that he ran his own company in Russia. Dr. Egorov is currently Director of Supply Chain Management at the Regional Distribution Center of Chrysler Group Middle East. He has lived and worked in the UAE since 2002.

products and cereals. UAE exports to Russia consisted of machines and equipment, chemical industry goods, textiles and agrarian products. In recent years Russia and the UAE have succeeded in implementing a number of fairly major investment projects. In 2011 construction on the Taweelah-Fujairah gas pipeline by Stroytransgaz was finished. This was the first large-scale project of its kind to be realized in the UAE by a Russian construction company. The total volume of investment was $418 million. Major Russian companies see the Emirates as a sort of outpost for work throughout the Middle East.“In this sense Rosneft, Inter RAO EES and Lukoil are active in the regions, offices have been created, as have joint enterprises with local businesses, various projects are now in the process of being realized,” said Likhachev, Russian deputy minister of economic development. In early November the Russian company Sovkomflot (SKF) opened a new office in Dubai. One of the world’s top shipping companies, SKF specializes in transporting oil, petroleum products and liquid gas. “Dubai is becoming a world financial and investment center” said Sergei Frank, general director of Sovkomflot. One of the most famous projects of Arab investors in Russia was the purchase by Gulftainer of a share in the port of Ust-Luga near St. Petersburg. Gulftainer is also participating in the Rostekhnologia’s project to create a fund of direct investments in infrastructure works ($500 million).

in the Gulf, plus the very well developed concept of economic free zones, like Jebel Ali FZ, free zones of Sharjah, Ras Al Khaimah FZ, JLT Free Zone Dubai or newly opened KIZAD in Abu Dhabi provide convenient and cost efficient access to the regional market. Are there any small or medium-size businesses? SMEs are the base of any economy and are to play bigger role in developing economic ties between the Russia and the GCC. There are promising areas where the Russian SMEs can be very successful, like services, IT developments, freight forwarding, tourism and

hospitality, healthcare and real estate. Especially I would mention food and agricultural products. For example, Dynamic Hospitality company has announced its investment of AED200 Million into the food and beverage industry in UAE and the MENA region. Another company – BioStream has been operating in the UAE for two years, importing Russian-made food products: dairy, cereals, canned food, etc. As I am sure you know, there is not a huge amount of agriculture in the desert, so the grocery business is growing rapidly. Written by Elena Shipilova, RBTH

Russia-Gulf Trade Quadruples in Decade CONTINUED FROM PAGE 1

Cooperation prospects in transport and investment climate in Russia were the focuses of discussion on the second day of the forum. Between 2013 and 2025 Russia is planning to invest $38.5 billion in the aircraft industry that in the government’s estimate will need a total of $54.6 billion of investment. “The forum is being held when bilateral ties between the UAE and the rest of the region and Russia are on an upswing, the latest sign of this being the launch of Air Arabia service to Rostov, the Sharjah carrier’s fifth destination in Russia,” Ahmed Mohammed Al Midfa, the Chairman of the Sharjah Chamber of Commerce and Industry, said on the forum’s opening day. Russia and the UAE recently signed a deal on mutual protection of investments between the two countries. “The recent decision by Russia to exempt investment bodies and sovereign wealth funds from the UAE from taxation is another positive sign for trade and will open up practically unlimited vistas to UAE investors in Russia,”Al Midfa said at the forum. “Russia is considered one of the main investors in the UAE as Russian companies invested $187.1

million in the Emirati economy in 2011, while the UAE invested $253.8 million in Russian projects,” Abdullah al Saleh said. One of the biggest cooperation projects between Russia and the UAE is a gas joint venture between Russia’s state-controlled giant Rosneft, and the UAE’s Crescent Petroleum, the oldest privatelyowned energy firm based in Sharjah. Rosneft has invested $630 million in the project to date. Metalloinvest, the Russian steel and iron ore company controlled by metals, media and telecoms tycoon Alisher Usmanov, has built a joint venture, Hamriyah Steel, with its UAE partners. UAE’s second largest port operator Gulftainer has secured a $275 million contract to co-develop and operate Ust-Luga Port near St. Petersburg, a key gateway into the heart of Russia’s Baltic western region. This is believed to be the largest private investment of the UAE in Russia. “The recent decision by Russia to exempt investment bodies and sovereign wealth funds from the UAE from taxation is another positive sign for trade and will open up practically unlimited vistas to UAE investors in Russia,”Al Midfa, of the Sharjah Chamber of Commerce and Industry, said at the forum.


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RUSSIA BEYOND THE HEADLINES WWW.RBTH.RU GULF NEWS_WEDNESDAY_DECEMBER_26_2012

Special Report

IT Startups How Russia’s most promising tech companies are changing the world

Local Software, Global Solutions While Russia’s annual software exports currently total a meager $4 billion, a number of global giants - including Apple increasingly rely on them for their cutting-edge innovation. ALEXANDER MALAKHOV SPECIAL TO RBTH

For Russians like Georgy Pachikov who grew up in Soviet times, fixing broken-down machines was often a test of ingenuity and improvization - not to mention sheer determination. Back in 1989, when the whole country was literally grinding to a halt, he had a broken washing machine. As competent repairmen were then thin on the ground, Pachikov chose to fix it himself. Working with a friend, he took it apart and reassembled it with success. The machine worked fine but there were five spare parts still on the floor. “We had no idea what to do with them. The instructions were in French with no translation. Despite being trained engineers, we were at a loss,” Pachikov recalls. It was then that he had the idea of creating animated threedimensional repair manuals with detailed illustrations of all stages of the process, translated into several languages. That same year, he founded a company called ParallelGraphics. By 2010, Parallel Graphics’ turnover hit $5 million and it employed more than 800 staff. Pachikov is by no means the only successful Russian software entrepreneur. His brother, Stepan Pachikov, developed Evernote, a popular note taking and archiving service in use around the world. Exporting algorithms Software development and Russia may be natural partners. “If we get an urge to solve a problem, we’ll get it done, come hell or high water,”says Artem Lyuftin of Moscow-based Mobile Research Group. Russian companies are now world famous as developers of complex software solutions employing sophisticated algorithms. No field illustrates this more clearly than anti-virus software. Russia’s Dr. Web and Kaspersky Lab are world leaders in the field. The latter was founded in 1997 by Eugene Kaspersky, a graduate of the KGB Institute of Cryptography. Kaspersky Lab produced revenues of over $600 million in 2011 and it employs more than 2,500 people. A different breed of algorithm is offered by ABBYY, a Russian company that developed the inimitable optical character recognition software FineReader. The first version of FineReader was released in late 1993. Today, the program supports about 190 languages and the company’s annual proceeds are estimated at over $100 million. Among the less well-known but

no less noteworthy companies are CBOSS (automation systems for the telecommunications industry), Paragon Software (hard disk tools), PROMT (translation), DocsVision (document workflow software), and Spirit Dsp (software for voice, video and other data), all offering products and services in global use. One market where Russian IT firms have enjoyed particular success is computer games. It was Russian Alexei Pajitnov who first developed Tetris, one of the most popular computer games ever. The fifth installment of the popular “Heroes of Might and Magic”was developed by Russia’s Nival Interactive with French copyright owner Ubisoft. It sold more than 2 million licensed hard copies worldwide. Another Russian game developer, ZeptoLab, also tasted success with “Cut The Rope” in 2010. The concept was simple: feed a green creature by cutting ropes that hold sugar candy. If successful, the candy flies right into the creature’s jaws. The falling candies follow the laws of physics. The app became extremely popular with smartphone and tablet users, with the game being downloaded more than 100 million times and earning more than $85 million. It is now the world’s second most popular game for mobile devices after Finnish developer Rovio’s “Angry Birds.” The strength of Russian firms comes down to their ability to create imaginative algorithms. “Solving complex tasks, indepth analysis of large data volumes, designing algorithms — these are areas of the IT market where Russia can compete internationally,” says Alexander Galitsky, founder of the fund Almaz Capital Partners. “This is because the country provides world-class education in the field of mathematics and physics, which can be used to solve the most complex software development problems. Programmers in India and South Korea are also pretty nifty, but if you’ve got a task no one is willing to tackle, or you don’t yet have a clear concept of the finished article, then ‘Welcome to Russia!’” says Alexander Vovkula, technical director of Parallel Graphics.

Russian Software That Already Runs Your Life

IN FIGURES

$4 billion is the current volume of Russian software exports abroad; this is a paltry sum compared with other tech giants.

80% of Kaspersky Lab's revenue of $600m in 2011 came from outside Russia; the company has offices all over the world.

BUSINESS COOL RUSSIAN STARTUPS TO WATCH Giants like Yandex have proven that Russian IT companies have what it takes to go global, but what comes next? Moscow’s leading tech entrepreneurship centre offers investors five little-known companies to watch. Anastasia Demina Digital October

REALTIMEBOARD

ECWID

ONETWOTRIP

RESUMUP

SPEAKTOIT

Designed by a team from Russia’s industrial city of Perm, RealtimeBoard is a browser-based whiteboard that utilises Massive Multiplayer Online (MMO) technology (similar to online games) to facilitate an easy exchange of ideas. It was created by Multivitamin, also responsible for the Art Multitouch project with artist Konstantin Khudyakov.

Ecwid enables users to set up an online store on their website or a social network within minutes. It currently supports 185,000 accounts in 174 countries and 43 languages. The founding team from Ulyanovsk was a finalist in the “Next Web 2010” contest in Amsterdam. Last year, the project received $1.5 million from Runa Capital.

Taking advantage of Russia’s soaring online tourism market and catering to a booming Internet-savvy middle class, OneTwoTrip has raised $9 million from Phenomen Ventures only one year after launching its convenient online travel website. Total bookings, of which OneTwoTrip enjoys a 6-7% cut, are projected to stand at $400 million by the end of this year.

ResumUp compiles the CVs and social network data of job candidates into an individualised portfolio that guides you through your professional career. The site can tell you what you need to know to achieve your career goals based on data from social networks. The service has attracted 7.2 million active Russian-speaking users.

A digital assistant for your smartphone, comparable to Siri, SpeakToIt was named among the Top 10 Android Apps of the Year by The New York Times. Since launching in May 2011, it has been downloaded over 2.5 million times and is currently available on iOS and Android. This year the company has received an undisclosed amount of funding from Intel Capital.

› realtimeboard.com

› ecwid.com

› onetwotrip.com

› resumup.com

› speaktoit.com


RUSSIA BEYOND THE HEADLINES WWW.RBTH.RU GULF NEWS_WEDNESDAY_DECEMBER_26_2012

Special Report

05

Social Networks Russia is one of the few markets where local players are ahead of Facebook Search Engines Russian behemoth expands

Ambitious Yandex Takes On Google in New Territory After a successful initial public offering on NASDAQ, Russia’s leading search engine is expanding internationally from a saturated domestic market. ALINA UKOLOVA SPECIAL TO RBTH

VKontakte’s 27-year-old founder, Pavel Durov (l), told Wikipedia co-founder Jimmy Wales he would donate $1 million to the web encyclopaedia

Facebook’s Friendly Eastern Competitors Show the Way While the Facebook IPO grabbed the headlines, Russian social networks are quietly monetising traffic to beat the American giant at its own game.

Social Networks’ Share of Internet Ad Market (%)

ILAN GOREN SPECIAL TO RBTH

In 2006, as Russia was in the throes of a decade-long economic boom, a young entrepreneur named Albert Popkov had a paradoxical idea: to capitalise on his countrymen’s nostalgic tendencies in order to build a 21st century venture. He founded Odnoklassniki (Russian for“Classmates”) a social network which reunited old schoolmates. Within a year a million Russians flocked to the site, where they could reconnect with friends from the past. The site won the country’s top web prizes, and in 2008 Popkov was named GQ magazine’s “businessman of the year”. Odnoklassniki flourished, racking up almost 30 million visitors from Russian-speaking countries by July 2008. Today the site is the second most popular social network in Russia, after the leader, Vkontakte, which boasts 35 million visits a day. Despite accusations that he had pilfered crucial information from a British company he had worked for before founding Odnoklassniki, Popkov sold his pet project for an estimated 10 to 20 million euros to DST, a holdings company later renamed Mail.ru Group. Mail.ru now owns 100% of Odnoklassniki, controls Russia’s most popular mail service and has a 40% stake in fierce competitor Vkontakte. Meanwhile, Odnoklassniki earned $103 million (3.2 billion rubles) in the first three quarters of 2011, securing a net profit of $45 million (1.4 billion rubles).

SOURCE: ACAR

Size of Internet Advertising Market ($ millions)

SOURCE: BBDO AGENCY

Average Daily Number of Visits (millions)

SOURCE: LIVEINTERNET.RU, SOCIALBANKERS.COM

German Klimenko, editor of audience monitoring website Liveinternet.ru says Odnoklassniki’s current success is fuelled by the integration with services offered by Mail.ru, its parent company. “Users’ accounts combine both their email address and social profile and you can cross-link between them. This is a significant incentive for advertisers.” Free Songs and Costly Smileys However, complete assimilation by external investors is a fate that Pavel Durov, the founder of Vkontakte, has been keen to avoid. When Durov launchedVkontakte (meaning “in touch”) in late 2006, he was accused of brazenly cloning Facebook, ripping off even the colour scheme. Yet he forged ahead with his brainchild, offering users free sharing of video and audio files. Accusations of intellectual property theft were quick to fly, but users loved the free content. They still do. A decision by a Russian appeal court earlier this year that free file sharing and downloading amounted to copyright infringement could have created problems for Vkontakte, but the firm adapted. It drew on YouTube’s experience by allowing copyright owners to delete pirated content while offering help promoting owners’ pages. Vkontakte's revenue swelled in 2011 to $106 million (3.29 billion rubles) while net profit rose to $16.6 million (516 million rubles), increases of 41.7% and 13.9% respectively from the year before. Ten thousand advertisers are registered with the network, each paying in advance an average of $645 (20,000 rubles). Analysts estimateVkontakte to be worth more than a billion dollars and Durov’s personal fortune at around $260 million.

Although free songs and videos are popular with users, Durov’s company is not so generous with all its services. “Russian operators, and particularly Odnoklassniki, made it clear to users from day one: ‘for some things, you have to pay.'You want to play online with your friends or share an emoticon? That game or that smiley will cost you,” says Ariel Weiss, a former executive with ICQ, an instant messaging program owned by Mail.ru. “They understood they have to monetise and they know how to adapt western models to their audience’s needs.” The New Mobile Frontier Russian-language social media may be entering its most competitive period ever, particularly since Facebook has built a 20% market share – which Klimenko describes as “an impressive foothold.” Albert Popkov believes the Russian web “might remain a very good place for local players. Foreign projects rarely succeed here. It’s possible that in a few years there will be just one or two leaders and all the others will shrink and virtually disappear.” Although Odnoklassniki and Vkontakte have both announced international expansion plans, Popkov says opportunities still abound inside the Russian Federation, and sees networks venturing into remote regions to capitalise on the growing popularity of mobile devices. “Broadband was the last main drive for social networking,”he reminisces. “The same might happen with mobiles when access becomes faster. Whoever’s smart and fast enough to offer top quality mobile services is likely to win. If I knew how to do that I wouldn’t be speaking to you right now: I’d probably be writing the code.”

Yandex has become an internationally recognised brand name, thanks in large part to its $8 billion public offering on NASDAQ last year. Not only was it the first Russian IPO on an American exchange in five years, but it was also the largest by an IT company in 2011. Investment banks bought 5,217,405 Class A shares at the placement price of $25, only to see the stock soar to $38.85 on the first day of trading. On launch day,Yandex co-owner Ilya Segalovich, encouraged by investor support, said something he had earlier not dared to say: thatYandex, in his opinion, is better than Google. Objectively, Google’s relevance and search speed are in a different league. Where Yandex excels is not in the quality of its searches but in its completely Russian interface and Russia-specific services: Yandex.Market is an online catalogue of consumer goods from all over RuNet (the Russian-language Internet), Yandex.Elektrichky offers commuter train schedules customised to the user's city, and the Yandex.Mail and Maps apps are used by nearly everyone in Russia with Internet access. Last month, Apple included Yandex’s map software on its iPad and iPhone as standard software. Yandex’s strategy has allowed it to stay well ahead of Google on Russian territory despite stiff competition. Audience monitoring website Liveinternet.ru says Yandex has a 60.5% market share, Google 26.6%, and Mail.ru Group subsidiary Search.mail.ru, 8.1%. About a year ago,Yandex founder ArkadyVolozh announced that his company had outgrown the confines of Russia. As a country’s web space is, basically, as big as its population, sooner or later growth inevitably starts to slow. Last year, the company had revenues of about $600 million and grew by 60%. This year, it expects 45% growth, said Volozh. So Yandex has decided to expand into emerging web markets, and has now turned to Turkey as

the first step in its international expansion. It is a bold move as Google is Turkey’s most popular search engine. “This is an experiment so far, but we don’t rule out the possibility that, if it’s successful, we will explore other places too,”Volozh said. Yandex is interested in countries where a single player dominates the market.“It’s wrong when the whole world is reflected through a single window,”Volozh said.Experts believe the strategy has potential. “It’s too early to say whether Yandex’s technology will be able to defeat Google globally, but the company definitely has a shot at places like Turkey, where web search engines are underdeveloped,” said Vsevolod Topolyansky, managing partner at Aurora Venture Capital. Europe’s largest and fastest growing web market, Turkey may be the right place to test the waters. Its linguistic isolation offers an opportunity to develop indexing approaches, while testing technolo-

Yandex is interested in expanding into countries where a single player dominates the market gy in an emerging market makes it possible to identify pitfalls. Yandex will review the results of its first year of international operations in December. The company hasn’t disclosed any numbers, but Volozh says new users have welcomed the company. “Of course we had to modify the services we offer in Russia, and add many things Turkish users find useful. For example, our Ramadan project offered [users] the opportunity to check sunset times in various regions,” adds Volozh. Some experts have been sceptical of Yandex’s policies in “foreign” markets. Operating in an uncharted territory is risky and expensive, and they argue that rival Google’s one-size-fits-all approach has already been tried and tested many times over. Yandex’s performance abroad may just depend on how fast it learns to “recognise” and “index” the mentality of other countries.

Arkady Volozh celebrating Yandex’s 2011 NASDAQ IPO in New York City


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RUSSIA BEYOND THE HEADLINES WWW.RBTH.RU GULF NEWS_WEDNESDAY_DECEMBER_26_2012

Case Study

Energy Gazprom is urgently seeking to overcome falling prices and outdated technologies via new pipelines and markets

Adapting to the Shale Revolution

Thanks to the shale revolution in the United States, the global gas market is entering a new golden age and Russia is straining every fiber to connect its gas pipelines to Europe. Worn out by the endless gas disputes with Ukraine, Moscow has spared no expense on new pipelines to link Russia directly to Europe: Nord Stream to Germany, and South Stream to Italy. In midNovember, Finland gave the green light to the construction of an additional two branches of Nord Stream and further economic integration between Russia and Europe. One of the two new pipelines will run to Britain. A series of swap deals has provided Gazprom with enough funds to begin investments in the offshore route, said Konstantin Simonov, head of Russia's National Energy Security Fund. The plans to expand the pipeline were confirmed in October by Gazprom CEO Alexei Miller. Capacity is set to increase to up to 100 billion cubic metres a year — approximately the same amount of gas that Russia currently pumps through Ukraine. The South Stream project, due to run under the Black Sea to Bulgaria and onwards overland through Hungary, Serbia, and Slovenia as far as Italy, is developing much more slowly. In midN o v e m b e r, G a z p r o m a n d Bulgaria signed an agreement on a final investment decision on construction within the country's territory, according to RIA Novosti. Construction is scheduled to start by 7 December. Four branches are to be built in total, each with a capacity of 15.75 billion cubic metres. The first deliveries are slated for December 2015, and commercial supplies will come on line

The shale threat In its drive to string new pipelines together, Moscow has to constantly look over its shoulder at the results of the shale revolution in the United States. Shale is not only forcing importers of traditional fossil fuels out of the US market: At the current rate of production growth, in just 10 years the US could itself become a major exporter of LNG to the global market. However, according to the experts at Skolkovo Business School, 1,000 cubic metres of US-produced gas would cost $320 (€250) on the European market. Preliminary estimates also indicate that this would be the production cost of shale gas in Poland. Hence, if suppliers of natural gas curb their appetites, they will have no trouble in keep-

IN FIGURES

7% of the world's shale gas reserves are estimated to be in Russia.

250 euros per 1,000 cubic metres is the estimated price of US shale gas in Europe

ing shale gas out of Europe simply by offering a lower price. Nevertheless, the increase in the fuel supply has already reduced demand for Russian gas in Europe, and the Russian authorities have been forced to acknowledge the problem. In October, Russian PresidentVladimir Putin instructed Gazprom to analyze the market and report back on the company's export policy, focusing on shale gas. However, soon after, Gazprom announced that it was studying the prospects of shale oil, not shale gas. Russia has about 7 percent of world shale gas reserves, and they are mostly located in easily accessible areas near St Petersburg and the Volga region. "Perhaps in the future, the higher cost of shale gas production will be offset by lower outlays on transportation, and extraction will turn a profit, but a decision on any large-scale operations in Russia can only be made after the level of reserves and the cost of production are confirmed. That could take 10-15

IN THEIR OWN WORDS

Vladimir Putin

Angela Merkel

Alexei Miller

PRESIDENT OF RUSSIA

CHANCELLOR OF GERMANY

CEO OF GAZPROM

We don't feel it's right to apply laws retroactively. If Russian and German companies invest in multibillion dollar projects according to current laws, what confidence can they have... if these laws are subject to such change?"

ITAR-TASS

SPECIAL TO RBTH

ropean Union in the absence of other contenders. While South Stream could have other suppliers, since it will run from Caspian fields, Nord Stream's only supplier is Gazprom.

Most of the new demand for gas will come from Asia, where Russia wants to build pipelines

ITAR-TASS

VICTOR KUZMIN

in the first quarter of 2016. The two pipelines should ultimately be enough to break Russia's dependence on the problematic supply route through Ukraine. However, Moscow may want to hang on a moment before severing gas ties completely. Europe's third energy package stipulates that providers cannot use more than 50 per cent of pipeline capacity. According to Mikhail Krutikhin, an analyst with RusEnergy, a consultancy, more than half the capacity of the first two branches of Nord Stream is not yet booked. Demand for gas in Europe is not growing, and Germany has yet to indicate its interest in extra gas from Russia. This view is backed by official statistics. In its opening year of operation, the first branch of Nord Stream was operating at just 30-40 per cent capacity, delivering 9 billion cubic metres of gas. Experts at the Energy Center of the Skolkovo Business School say that the risk factor regarding Russian gas on the European market is rising. Demand will not recover until 2018 at the earliest, while spot trading is growing in leaps and bounds: 30-40 per cent a year. As a result, the commercial and political appeal of Russian gas is waning. At the same time, supplies of liquefied natural gas (LNG) are on the rise and gas at power plants is being replaced with coal and other resources. Gazprom CEO Miller is inclined to blame the problems on the third energy package, which he says ties the company's hands. He complains that Gazprom can no longer rely on the use of adequate transport facilities to deliver gas inside the EU. Moscow and Berlin are both trying to influence the situation. In mid-November, German Chancellor Angela Merkel said her country would insist that suppliers be allowed to use 100 per cent of gas pipeline capacity in the Eu-

ITAR-TASS

The construction of pipelines is booming, but will it be enough for Russia to compete with U.S.produced shale gas?

We need to figure out how [the third energy package] will work in practice. We will be as flexible as possible and expect a similar level of flexibility [from our partners]. That is what we are going to discuss in Brussels."

Gas demand in India will grow 1.7 times by 2020. This market has very good perspectives [for development] and we are taking that into account as we develop our export potential via the Eastern Gas Programme."

years", said Valery Yazev, head of the Russian Gas Society and a member of the State Duma. Going south and east? As things stand, the main market for Russian gas is Europe, but Moscow is actively searching for alternatives, since the main growth in demand over the coming years is projected to come from Asia. According to experts at the Skolkovo Business School, by 2030 demand in China alone will grow from 150 billion cubic metres to 430-450 million. Simonov, of the National Energy Security Fund, says that the promising Chinese market is a problematic alternative, despite the long border between the two countries. Russia is now in talks on supplying pipeline gas to the country, but even disregarding Beijing's tough stance on price, the source of raw materials will not be new fields in Eastern Siberia, but old reserves in Western Siberian. "It is quite a defeatist concept to take gas from Europe and give it to China", said Simonov. Another prospective consumer of Eastern Siberian fuel is India. In early October, Gazprom signed a 20-year contract to supply LNG to India's Gail, plus memoranda of intent with several other energy majors. Beginning 2019, Gail will receive 2.5 million metric tonnes of liquefied natural gas per year. India could actually be a more attractive partner for Russia since it has already agreed to buy LNG, according to Simonov. The gas agreement with India will strengthen Russia's positions in its dealings with China. "It will be a good way to put pressure on the country", said Mikhail Delyagin, director of the Moscowbased Institute of Globalisation Studies. "It is another step towards concluding a proper largescale agreement with China. As the Chinese taught me, the best way to haggle is to walk away."


RUSSIA BEYOND THE HEADLINES WWW.RBTH.RU GULF NEWS_WEDNESDAY_DECEMBER_26_2012

Opinion

07

NEW ENERGY REALITIES TEST RUSSIA GAZPROM'S TOUGH SHALE CHALLENGE Mikhail Korchemkin ENERGY ANALYST

A

few years ago, Gazprom regarded the United States as one of the main consumers of Russian natural gas. By 2015, the Russian gas monopoly had planned to increase its share in the U.S. natural gas market to 10 per cent. However, the shale gas revolution thwarted its plans. The U.S. doubled its annual shale gas output in 2007 and 2008, even though import prices were quite reasonable, at $243 and $307 per 1,000 cubic meters, respectively. During most of 2009, the import price remained below $130, but shale gas production continued to grow. U.S. imports of liquefied natural gas (LNG) not only failed to double over the past five years, as had been predicted, but fell dramatically, with imports in the first eight months of 2012 totalling less than one-fifth of the volumes half a decade earlier. Thanks to shale gas, the tables have turned: the U.S. has changed from a major gas importer into a potential exporter. President Vladimir Putin in October warned that the development of shale gas production solutions “could seriously restructure the global market for hydrocarbons.” Yet Gazprom CEO Alexei Miller still speaks about the shale gas revolution as if it were a futuristic Hollywood movie, commenting recently that Gazprom didn’t consider shale to be a promising business. The truth is that the global gas market is now unfavourable for Gazprom. Because of reduced U.S. demand for natural gas, the LNG traditionally supplied from Trinidad, Nigeria and other countries is being rerouted to the spot markets of Europe and Asia, resulting in lower prices. Gazprom’s competitors have renegotiated and cut their prices faster, grabbing market share, and the gas giant currently faces huge political pressure and lawsuits. The answer is to

meet its customers halfway in price negotiations. The shale revolution also hits Gazprom’s prospects of supplying gas to China by pipeline. China plans to increase its shale gas output to 80 billion cubic metres per year by 2020. Given annual supplies of 55 billion cubic metres of natural gas from Central Asia, Russia will have no gas future in China, at least until Gazprom offers Beijing a competitive fee.

Gazprom’s competitors have renegotiated and cut their prices faster, grabbing a bigger share of the market Gazprom still believes that, despite the global shale gas bonanza, its position in the world market will remain unshaken.“The current shale gas output volumes won’t be enough to change the situation in the European gas market because of the cuts in the production of traditional natural gas,”Gazprom said in its report for the third quarter of 2012. “In the medium term, Gazprom’s natural gas supplies to its traditional markets will remain competitive.”

Yet the global figures tell a different story. If shale gas production costs remain at the average U.S. level of $4 to $5 per MMBtu, then shale gas will be as competitive in some regions as pipeline gas delivered by Gazprom. Does Gazprom have real shale gas production prospects of its own? It would appear not. Instead it should focus on keeping its (falling) share in the major gas markets — in Russia, the former Soviet Union and Europe. Inefficent Gazprom needs to cut costs, especially on pipeline construction, and put off exploring some deposits, specifically the Bovanenkovo gas field. Shale gas may be attractive for independent Russian producers, including Novatek, Itera and smaller companies working in the regions that have no access to network gas. They will be able to work in local markets, offering fees below those charged by Gazprom. The Kremlin has promised that domestic gas supplies will eventually be as profitable as exports, so shale gas could ultimately displace Gazprom’s pipelines. There is reason to believe shale gas production costs will average $4-5 per MMBtu. In the U.S., production costs remain within $3 per MMBtu at some deposits, which is lower than Gazprom’s average wholesale price in Russia. So the challenge for Gazprom is clear: become more competitive, or face being eclipsed by its competitors. Mikhail Korchemkin is president of East European Gas Analysis, a consulting firm.

CREATING A MORE DIVERSE ECONOMY Ian Pryde ENERGY ANALYST

M

ost observers agree that after making generous promises during the presidential election campaign, Vladimir Putin has finally realised that Gazprom is no longer the state’s cash cow. In October, he warned that the development of shale gas“could seriously restructure the global market for hydrocarbons,”although experts argued it was a game-changer long before. The same observers see all the moves to create a huge energy conglomerate at Rosneft in recent months as Putin’s attempt to shore up the budget to keep his election promises. The problem is not only that Russia still seems totally wedded to the failed Soviet methods of staterun gigantism, but has simply shifted all its eggs from one basket to another and will remain just as exposed as before to the vagaries of global energy prices. In this sense, the economy’s structure has hardly changed since the Soviet era, when oil propped up the budget, but the country had to import grain periodically from the likes of the United States, Argen-

INVESTMENT ANALYST

R

ussia’s economy should enter a new phase in 2013 – the country begins its first full year as a member of the World Trade Organisation and has plans to pursue further modernisation policies. How the new year will play out, however, depends largely on how the government responds to the changing demands of the global economy.

Russia should be doing much better in diversifying its economy, but is finding it tough to move up the value chain. developing Russia’s sparsely populated, poorly developed and often inhospitable Far East Region in order to supply Asia with the resources it needs, especially oil, gas, metals and electricity. Russia, however, has been here before – the Kremlin was convinced that the commodity boom would last until 2014, despite warnings to the contrary from numerous experts, including even Jim O’Neill, who coined the muchvaunted BRIC acronym. Once again,

Ian Pryde is Founder and CEO of Eurasia Strategy & Communications in Moscow.

PRODUCTIVITY THE KEY TO ESCAPING BOOM-BUST CYCLE Alexei Zabotkin

tina and Australia to make up for failed harvests due to bad weather and its chronically inefficient agricultural sector. Before and after the Asia-Pacific Economic Cooperation (APEC) summit inVladivostok in early September, Prime Minister Dmitry Medvedev and Oleg Deripaska, one of Russia’s richest oligarchs, wrote virtually identical articles in the Financial Times about Russia’s need to “pivot to Asia,” which involves

the approach is typically Sovietcum-Russian: grandiose medium and long-term plans and projects that do little to ease pressing problems. And once again, there are significant risks. The BRIC countries, three of which are in Asia, are all experiencing significant slowdowns following their unbridled optimism in 2000-2008. Then there’s energy – the threat to Russia is not just from shale gas and oil. As energy expert Daniel Yergin asks, if global GDP jumps from some $70 trillion now to $130 trillion in just two decades and the number of cars doubles from 1 billion in 2011 to 2 billion, mostly in Asia, will fuel resources be sufficient? If not, Russia will of course benefit enormously. But the future is unknowable, and another disruptive technology – or technologies – could change the equation fundamentally. Given its educational level and intellectual history – the Soviet Union produced 27 Nobel Prize winners in economics and science – Russia should be doing much better in diversifying its economy, but as in the Soviet period, modern Russia is finding it astonishingly difficult to move up the value chain. As Ruchir Sharma, head of Emerging Market Equities and Global Macro at the investment bank Morgan Stanley, has pointed out, the Moscow stock exchange lists not even one large global manufacturing company, while none of the top five global vodka brands is Russian. Ultimately, Russia’s problems come down to politics. There are no rich countries of any size that are not democratic. As Sharma noted,“Russia needs not only a new non-oil economic model. It needs a new non-tsarist mindset.”That means fundamental economic and political reforms – and development of the rule of law and trust in society both between state and people and between the people themselves. A modest start might have been made. Recently, Russia finally passed a law to allow people to register businesses at home – just 21 years after the collapse of the Soviet Union.

At the height of the 2008 financial crisis, many observers believed Russia was destined to be trapped in a boom-bust cycle. Memories of the 1998 economic crash had not yet completely faded when the 2008 financial crisis hit, and experts widely believed its effects would be far worse. Although the crises were different in substance, it was not difficult to question the ability of a commodities-based economy lacking diverse financial markets to resurrect itself for the second time in less than 10 years.

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Today, however, the situation looks very different. Economies around the world are either slowing down or remain in stagnation, and while Russia’s economy has also cooled down since the second quarter of 2012, it has done so in an orderly fashion. Russia’s GDP for 2013 is currently expected to be in the range of 2-2.5 per cent. Inflation, which inched higher early in 2012, has showed some signs in recent weeks of rolling over yet again. If this is the case, then the Russian Central Bank could consider easing mo-

netary policy, even as it strives to bring Consumer Price Index inflation down to 5-6 per cent. By the end of 2013, economic growth would most likely have expanded to 3.5-4 per cent, which is widely seen by analysts as the proper estimate for Russia’s current longterm growth potential. The crucial question is whether Russia is capable of attaining an even higher growth rate. Russia’s economy grew by over 7 per cent a year for nearly a decade. However, much of this growth has since been attributed to the

RUSSIA BEYOND THE HEADLINES IS PRODUCED AND PUBLISHED BY ROSSIYSKAYA GAZETA (RUSSIA), WHICH TAKES SOLE RESPONSIBILITY FOR THE CONTENTS. INTERNET ADDRESS WWW.RBTH.RU EMAIL UAE@RBTH.RU TEL +7 (495) 775 3114 FAX +7 (495) 988 92 13 ADDRESS 24 PRAVDY STR, BLDG 4, FLOOR 12, MOSCOW, RUSSIA, 125 993 EVGENY ABOV PUBLISHER PAVEL GOLUB CHIEF EXECUTIVE EDITOR DMITRY GOLUB EDITOR LARA MCCOY MANAGING EDITOR TIM WALL GUEST EDITOR ALEKSANDRA GURIANOVA ASSISTANT EDITOR ANDREY ZAITSEV HEAD OF PHOTO DEPT ANDREI SHIMARSKY ART DIRECTOR MILLA DOMOGATSKAYA HEAD OF PRE-PRINT DEPT IRINA PAVLOVA LAYOUT TO ADVERTISE IN THIS SUPPLEMENT CONTACT SALES@RBTH.RU

redeployment of idle resources – both capital and labour – after the 1998 crisis. This process has been repeated since the 2008 crisis. As of October, Russia’s national unemployment rate stood at 5.3 per cent, a post-Soviet record. Therefore, a superior growth outlook for Russia relies significantly on an increase in productivity. However, an increase in productivity growth will require a major expansion and upgrade of Russia’s capital stock. One of Putin’s first acts as president was to sign a decree to increase the investmentto-GDP ratio from 20 per cent in 2011 to 25 per cent in 2015 and to 27 per cent in 2018. This decree and other public statements since are clear declarations that in order to attain this goal a radical enhancement of Russia’s investment climate is urg e n t ly re qu i re d . I t i s t h e government’s aim to deliver the

first tangible results of this sentiment in 2013, which in many ways will determine the structural growth outlook and the nature of Russia’s next business cycle. In fact, the government can take credit for some notable achievements in 2012 that have helped pave the way to a more modern economy: the institutionalisation of the budget rule, requiring the federal budget to balance at the 10 year average of oil prices; the creation of the Central Depository; a decree requiring state-owned companies to pay a 25 per cent dividend; and progress on the privatisation of state companies. These are all commendable steps on the road to modernisation. That said, it is yet to be seen if the momentum behind these efforts is sustainable. Alexei Zabotkin is head of investment strategy atVTB Capital.

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RUSSIA BEYOND THE HEADLINES WWW.RBTH.RU GULF NEWS_WEDNESDAY_DECEMBER_26_2012

Feature

Travel The capital boasts the world’s largest cannon and its most impressive subway system

RECIPE

See World Record-Breaking Sights, All Around Moscow

A Russian Fairy Tale Cake Michele Berdy SPECIAL TO RBTH

For tourists who want a way to explore the capital of Russia apart from that laid out in tourist maps and museum guides, the Guinness Book of World Records offers an interesting alternative. LUCIA BELLINELLO RBTH

The first place to start is the Moscow metro. Numbers alone are not enough to demonstrate that this is one of the world’s most fascinating and luxurious subways. Its stations are covered in marble and granite, mosaics and stucco. Begun in the 1930s, the Moscow Metro splits into 12 lines that transport up to 10 million passengers a day at an average speed of 26 miles per hour. Another site embracing the elegance of Moscow is the Sandunovsky Baths, found at 14 Neglinnaya Street. Here, in the second half of the 17th century, actor Sila Sandunov transformed the building into an elegant neo-classical style Russian banya, or steam baths. The pursuit of the sumptuous in the city also leads to the Tsar Cannon in the heart of the Kremlin. The biggest cannon in the world located here was cast in 1856 by Andrei Chokhov. It is 17.5 feet tall, has a diameter of nearly three feet and weighs 40 tons. Just past the cannon is the largest bell ever cast, the Tsar Bell. At 20 feet tall, 21 feet in diameter and weighing more than 200 tons, its surface is covered with reliefs dedicated to Tsar Alexei Mikhailovich, the father of Peter the Great. A new Moscow milestone was reached in December 2011 in the city’s iconic Gorky Park. After a renovation to clean up and modernize the area in the spring and summer, Europe’s largest ice skating rink was erected as the winter approached. It has an area of 160,000 square feet and has separate areas for adults, children, and ice hockey. Outside of the city center, the more than 250-yearold Moscow State

One of Russia's most beloved cakes has an unusual history: we know exactly who invented it and when. The whimsically named Bird's Milk Cake (in Russian fairy tales, "bird's milk" is a luxury so fantastic it doesn't even exist) was created in 1978 by Vladimir Guralnik, the head of the Praga restaurant confectionary shop. It is an unusual cake that reverses the usual ratio of cake to filling:

Guralnik's rich confection alternates thick, ethereally light layers of souffle with thin layers of cake, topped by a chocolate glaze. If you can't make a quick shopping trip to Moscow, Guralnik has shared the recipe and helped Russia Beyond the Headlines adapt it for Western kitchens. The trick of the souffle is agar-agar, a thickener that withstands the high temperature needed to make the sugar syrup.

Ingredients

utes). When a spoon lifted from the syrup forms an unbroken stream, stir in the lemon juice and then remove from the flame. Pour into a heat-resistant measuring cup (or container that allows for easy pouring) and cool to room temperature, stirring occasionally. 5. In a small bowl, cream the butter and then mix in the sweetened condensed milk. Set aside. 6. In a large bowl, beat the 3 egg whites with a pinch of cream of tartar until the mass forms firm peaks. Beating constantly with a mixer, pour in the cooled sugar and agar-agar syrup in a thin stream. The resulting mixture should be thick and slightly shiny. Let stand 5 minutes. 7. Add the butter and condensed milk mixture to the egg white and syrup mixture, mixing gently with a whisk at first and then with an electric mixer until thoroughly combined. 8. To construct the cake: Grease a 9" spring-form pan. Place one cake at the bottom of the pan and cover with half the souffle mixture. Place the second cake on top and then cover with the rest of souffl´e mixture. Place the cake in the coolest part of the refrigerator for 15 minutes. 9. For the glaze: in a double boiler, melt the chocolate bits and butter; mix well. Take the cake out of the refrigerator and use a knife or spatula to cover the cake with chocolate glaze. Place in the refrigerator to set. 10. Before serving, remove the sides of the spring-form pan. To serve, heat a knife under hot water to cut through the glaze without cracking it. Tip: As soon as you are done with the pans that contained the agaragar and sugar mixture, immediately place them under hot running water to clean before the mixture sets.

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Cake: • 3/4 c sugar • 3/4 c margarine • 3 eggs • 1 1/2 c sifted flour • 1/2 tsp vanilla

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Souffle: • 4 Tbsp agar-agar • 1 3/4 cup water • 2 1/2 c sugar • 1 tsp lemon juice • 3 egg whites • Pinch of cream of tartar • 1 c butter, softened at room temperature • 1/2 c sweetened condensed milk Chocolate glaze: • 1 c bittersweet chocolate bits • 2 Tbsp butter • Optional: 1/2 cup canned or frozen peas; one carrot, boiled and cooled

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Preparation 1. Preheat oven to 450 degrees F and grease two 9" round cake tins. 2. Prepare cakes: Cream the margarine and sugar; add the eggs and beat well; mix in the flour and vanilla. Pour in cake tins to form two 1/2-inch layers of dough. Place pans in the top part of the oven and bake until golden - about 10 minutes. Remove and cool on cake racks. 3. For the filling: In a small saucepan, mix the agar-agar and one cup of water and place on a low flame. Heat, stirring, until dissolved and then remove from heat. 4. In a large saucepan, mix the together the remaining 3/4 c water, sugar and agar-agar mixture. Bring the mixture to a boil, then reduce to a simmer and whisk constantly, until the syrup thickens (about 40 min-

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