Here comes the Russian bear

The Sunday Telegraph

When Russian President Dmitry Medvedev takes to his feet in a swanky new conference centre in the Swiss resort of Davos this Wednesday he will need to make the speech of his life.

For although the Kremlin is still basking in the afterglow of BP’s landmark £10bn share-swap deal with state-controlled oil giant Rosneft, the clouds are gathering. Mr Medvedev’s message to the great and good of the global business elite will be that Russia is “open for business” and committed to making life easier for foreign investors. Show us your money and ideas, send us your experts, and let us buy stakes in your companies in order to make it a two-way process, he will say.

Saddled with large and growing social spending commitments and with its creaking oil and gas-fired economy not forecast to boom anytime soon, Russia needs both foreign capital and expertise in a hurry. European money, American money, Asian money, and of course Middle Eastern money. Russia is keen to attract it all so as not to be overly dependent on one part of the world.

But Russia has an image problem and it knows it, which is why it has retained a small army of both domestic and Western spin doctors to help it to shed its reputation as an inefficient corrupt kleptocracy.

Despite Mr Medvedev’s optimism, the reality on the ground is in fact a world away from the nimble highly diversified hi-tech economy that he is promising Russia will become. Genuine direct foreign investment is neglible, corruption and red tape are corrosive, legal and property rights are precarious, and even with oil pushing $100 a barrel Russia is struggling to plug holes in its budget.

Despite several significant deals, such as the BP-Rosneft tie-up and PepsiCo taking a huge stake in Russia’s biggest dairy and juice group last year, Russia’s image as a place to do business continues to take a beating. American retailing giant Walmart said last month it was closing its Moscow office without having opened a single store and leaving. Swedish furniture empire IKEA suspended all expansion last year after a string of corruption and extortion scandals. And some of the country’s top businessmen say the dead hand of the Russian state is choking new business and prompting massive capital outflows.

Fresh confirmation that the problem is serious comes from risk analysis firm Maplecroft who have just ranked Russia among the top 10 countries in the world affected by fast-changing political risks along with the likes of Somalia and Zimbabwe. “The country’s poor performance is compounded by its ‘extreme risk’ ratings for its business environment, corporate governance and the endemic nature of corruption, which is prevalent throughout all tiers of government,” it said.

A court’s decision at the end of last year to give jailed oligarch Mikhail Khodorkovsky another six years in prison (on top of the eight he is already serving) on new fraud charges dealt a fresh blow to Russia’s image. Viewed in the West as a politically motivated verdict, it generated negative headlines around the world and, in the eyes of many, made a mockery of Mr Medvedev’s promise to restore the rule of law. Indeed, even Mr Medvedev’s top economic aide had to admit that the ruling was likely to put foreign investors off, a statement he then tried rapidly to dilute when he realised how bad it sounded.

The grim death of Sergei Magnitsky, a Russian lawyer working for London-based Hermitage Capital Management, remains another serious reputational thorn in the Kremlin’s side. Mr Magnitsky died in a squalid Moscow prison in November 2009 having been repeatedly denied essential medical care after spending more than a year in pre-trial detention. His real crime, his friends say, was to have uncovered a $230m (£140m) tax fraud perpetrated by a gang of corrupt Russian policemen. Hermitage founder Bill Browder, who fell out with the Kremlin after he criticised corporate governance in some of Russia’s biggest companies, will be in Davos reminding other would-be foreign investors of the pitfalls.

“President Medvedev will be telling people in Davos why they should invest in Russia,” Mr Browder told The Sunday Telegraph. “I’ll be there telling people why they shouldn’t. I’ll be explaining what happened to me as the largest foreign investor in Russia: how they expelled me from the country and then killed my lawyer after complaining about corruption.”

In private, Russian officials are blasé about both the Khodorkovsky and Magnitsky affairs, believing they will fade from prominence and that shrewd foreign investors will understand that they are very specific cases and look beyond them. They portray Mr Khodorkovsky as a latter-day Al Capone figure who got too big for his boots and Mr Browder as a former Putin cheerleader who got burnt when he broke the rules of the game by questioning the competence of those who ran the companies that had made him fabulously rich. Stick to the Kremlin’s rules, stay out of politics and do not criticise us, and you will be fine, they say.

Mr Browder believes such rules undermine Russia’s status as a member of the much-hyped BRIC (Brazil, Russia, India and China) group. “Russia should not be rated as a BRIC country but as one of the RIVS (Russia, Iran, Venezuela and Sudan),” he said. “Those countries are much more similar in terms of economics, politics and rule of law to Russia than the other BRIC countries.”

The main problem that Mr Medvedev faces however is a widening credibility gap. Scepticism about his ability to deliver on oft-repeated promises to modernise Russia, restore the rule of law, and stamp out corruption is at an all-time high. Mr Medvedev, has promised big changes since he assumed the presidency in 2008 but has, by most accounts, delivered little beyond high-flown rhetoric. He will therefore not just have to talk the talk when he gets his 20 minutes in the spotlight in Davos but sound like he is capable of effecting at least some of the changes promised.

“People at Davos will want to start hearing about specific projects and timelines instead of generalities,” said Chris Weafer, chief strategist at Moscow-based investment bank Uralsib Capital. “Strategic investors, particularly in risk-averse industries that Russia really needs, such as the IT industry, want to know that they can come to Russia and see real progress rather than promises of progress.”

To make matters worse, Mr Medvedev has an image problem of his own. With just over a year to go before his presidency ends, he has failed to shed the impression that he is a stooge of Vladimir Putin. Mr Putin, currently the prime minister, remains more popular, more powerful, and has not ruled out standing for the presidency himself in 2012, though Mr Medvedev’s supporters are beginning to lobby for a second term for their man too. Most officials in key government posts are Putin appointees however and so analysts are sceptical whether Mr Medvedev even controls the necessary levers of power to deliver what he promises.

Uralsib’s Mr Weafer says it was a myth to think of Mr Medvedev as an independent political player, arguing that his economic views do not differ from Mr Putin’s. “Both men are singing from the same hymn sheet. Medvedev’s plan is very much based on the Putin plan rather than anything he has brought in himself.”

Though some of Russia’s ruling elite do fret about which of the two will become the next president, many say it does not matter since their differences are played up to create the impression of political change when in reality there is none. Mr Putin, it is widely understood, calls the shots. The latter’s aims, beyond preserving the de-facto one party state he has built, are to maintain stability and effect gradual change but certainly not to turn Russia into a Western-style democracy.

The Kremlin does not like to say it aloud but people familiar with the way it works say the consensus behind its high terracotta-coloured walls is that Russia should follow the Chinese development model embracing economic reform while putting political reform on the backburner.

The Kremlin’s economic reform plans are nothing if not bold though. It has identified five strategic areas for modernisation; energy efficiency, pharmaceuticals, nuclear power, information technologies, and space and communications.

The Kremlin is banking on a bold privatisation programme to excite sceptical foreign investors. The programme envisages assets worth $60bn being sold off between now and 2015. “Foreign investors have a lot of interest in Russia and want to invest in our assets and we have many assets,” said Arkady Dvorkovich, top aide to President Medvedev. The recent BP-Rosneft deal would set Davos abuzz, he predicted. The deal is a triumph for the Kremlin and a timely antidote to some of the bad publicity it has been getting.

Uralsib’s Mr Weafer agreed that the deal was a fillip but said the Kremlin would have to diversify beyond oil and gas if it was serious about modernising: “Russia has lived on rising oil prices for too long. Time has run out. There is an urgent need to do something different. If not, we’re looking at an extended period of low growth.” микрозаймы онлайн займ на карту https://zp-pdl.com/emergency-payday-loans.php https://zp-pdl.com/get-quick-online-payday-loan-now.php hairy girl