. Last Updated: 07/27/2016

Reports From the Field: Business Reviews Russia

Businessmen at The Moscow Times roundtable spoke about a number of issues and problems, ranging from doing business in the regions to next year's presidential elections. For the most part, they were positive about the changes in Russia's market economy and had high hopes for the coming year.


Regardless of the parliamentary and presidential elections, the group predicted, business here will continue to be a mixture of power politics, corruption and knowing sources of money, the key to power.


"The power [in this country] is where the money is," the industrialist said. "The simple fact is that the country is run by the people with the money. It is not run by Yeltsin, it is not run by Zhirinovsky. I tell people if you want to forecast the future of this country follow the money.


"Even if we know who the decision makers are," the industrialist added, "those people are so rich anyhow you cannot take a suitcase of money anymore and say 'I'm going to give you money.' The fact is they don't need the money now. If you go to [a politician now] and you need a favor, he doesn't really think money anymore."


"Why? Because he's past the stage where $1 million or $5 million is going to make any difference. How do you get to a mayor or anybody? Find out who their friends are, this is the Russian way of doing things -- it is the same in other societies -- but especially in this society because of the lack of transparency in the process."


Having friends in the right places was a theme many panelists kept coming back to.


"Relationships you have here count substantially more than they do in the U.S. or in Western Europe," the trucking entrepreneur said. "It's who's your friend at customs that can do you a favor, who's your friend in the Transportation Ministry that can get you this particular license or approval.


"You can buy them or they'll do it because you've done something else for them, they're always looking for a little something to help them out, maybe it's just the relationship that's key to doing business in Russia."


When choosing a "relationship," the industrialist suggested choosing one that is already in a profitable sector.


"The energy people have tremendous power," the industrialist said. "That is where the money is. Look where the money is coming from, most of it is coming from metals or mining. And then the money gets distributed and so everybody is connected to it and everybody who is rich is connected to it. But to the Russians, it's as clear as a whistle. We're the ones who don't understand."


The problem with understanding the rules of the game in Russia, the banker added, is that as soon as they are known, the rules and the market itself change.


"The markets are changing and becoming extremely efficient extremely rapidly now on the financial side," the banker said. "The speed at which change takes place and the speed in which markets are formed, here in Moscow particularly, is very fast. If one does not adapt to that, you will lose."


In an attempt to adapt, some businessmen have looked to the regions as a way of getting past Moscow's federal bureaucracy. But the panel agreed there is no escape.


"What you end up finding is that there are a certain group of decisions that are always going to be made in Moscow and the farther you get away from Moscow, you just complicate your life because you have problems of communicating with Moscow," said the business association executive. He added that he travelled to the Far East last fall and witnessed attempts to set up economic free zones being thwarted by a lack of approval from ministries in Moscow.


In the banking sphere, the banker added that the regions simply amount to a smaller, weaker market.


"About 80 percent of the financial markets are based in Moscow. From the financial point of view, the people in the regions owe their jobs to the people here and the financial markets are here too," the banker said. "The [regional administrator] will make sure the guy who put him in the job, and who therefore can take him away, is happy.


Banks will assert themselves this year, the investment analyst predicted, thus assuring that privatization gains of 1995 will not be reversed.


"There is a small core of banks that have the clout, through government connections or wherever, that are buying up all the productive enterprises -- with vested interests I couldn't venture to guess at. The reason I'm so positive about events is that things have been privatized so quickly and so broadly. If you look at how much of the economy, officially, is in private hands it is very large when compared to the rest of Eastern Europe and other emerging markets ... Now there are vested interests in the market, it's a completely inefficient market, and essentially a closed market, as much due to a lack of transparency as to any regulations, but it is irrevocably a market because there is too much money in private hands and those individuals are not going to let it all go."


However, all bets are off if an extremist such as Vladimir Zhirinovsky wins the presidency, panelists cautioned.


"If Zhirinovsky gets elected president, I mean, he can make life hell here for a lot of people," the business association executive said. "Not that he will shut out business, it's just the unpredictability, or lack of transparency. The instabilities will be worse in a situation like that."


Most panel members, however, predicted a more moderate president than Zhirinovsky and business as usual.


"Many of these political events in this country don't really affect business in this country," the industrialist said. "The economy to some extent has separated from the political process. Now we have an economy that has a life of its own. It is going in a certain direction, sometimes it gets excited but most times the economy has been stable."


Unfortunately, in some sectors, perceptions are often reality, the fixed investment analyst said.


"Politics is not what is affecting the local players. [It's more important to] the international portfolio investors, the guys sitting in London reading the Financial Times and saying, 'What a crazy place, what crazy returns.' They matter in that they affect the perceptions of the international fund manager."


The roundtable was unanimous in its bullish diagnosis of the coming year and on the new breed of Russian capitalists.


"My biggest problem," said the industrialist, "is that the great majority of the people we send out of our company worldwide, for three months, six months, or a year, don't come back. That's not because they don't want to come back to Russia. It's because our sister companies in Germany or Switzerland, are hiring these Russians after we spent the money to train them. It's because they are so good, especially the younger ones."


To which the investment analyst added, "The guys who are going to be running this system are going to be the Russians. And they are learning the Western system much faster than people in the West are learning the Russian system."