As to the long-term prospects, Aslund reported that many of the senior managers of big companies were interested in boosting the market value of their companies, planning for IPOs in the years to come. Even the CEO of Rosneft after the acquisition of Yukos assets, seemed to be thinking on the same wavelength. Aslund, notwithstanding the more sombre mood among Moscow’s Russian business elite, reassured his readers: ‘State ownership, nationalization and Russian isolation do not look like credible threats because the leading operators do want to transform their asset control into money in private international markets. Capitalism is the name of the game… and capitalism is international. The leading siloviki want to get very rich and legalize their assets.’
State companies
In September 2007 the Russian government initiated legislation which is bound to shape state companies, define strategic sectors, make life harder for foreign investors and force foreign companies to think twice before getting involved. It could well be a deterrent for foreign money and expertise – both needed by Russian companies. While the Ost-Ausschuss der Deutschen Wirtschaft, echoing concerns from all over Western countries, warns against re-creating state monopolies and argues for the creative destruction of old monopolies, for open markets and for the transfer of international standards safety regulations and environmental protection, Russian legislation is, by and large, moving in the opposite direction. The creation of state corporations, in the official Russian version, is meant to show the way for various sectors of the economy, provide an impetus for development and make them attractive for business. On 11 December 2007, Putin told business leaders from the Russian Chamber of Commerce and Industry that the Kremlin does not intend to create ‘state capitalism’, adding: ‘We don’t plan to keep state corporations the way they are now. After the corporations are stabilized and standing on their own feet it would be good for them to work in the market.’ Putin also promised that the government would protect private enterprise and ensure that state corporations ‘do not strangle other businesses’.
Putin wants Russia’s economy to modernize, and fast. He knows that basing Russia’s future solely on natural resources would be profitable in the short term and detrimental in the long term. He wants innovative sectors throughout the economy and has charged Sergei Ivanov, ex-KGB and former minister of defence, with the task of pushing the country into the world of modern technology. That is the bright side. The dark side was visible when Yukos, Russia’s most successful energy company, was placed under state control, the assets sold to more docile companies and the CEO jailed in Siberia.
It is the state that wants supreme control over strategic sectors like ship-building (United Shipbuilders), aircraft industries (United Aircraft Holdings), nuclear technology (Rosatom), and nanotechnology (Rosnanotech) – the latter, according to Sergei Ivanov, the ‘mega-project of the modern age’, generously supported through the national budget.
There is method in this mega-thinking. All important property – much as in the days of the Tsars and the Commissars – should ultimately be seen as merely on loan from the state, that is to say from the Kremlin. The panacea for Russia’s largely backward industries is seen in a broad array of techno-holdings with not much competition between them but full government control. Size is what mattered in Soviet times – and the ideology of quantity over quality has not yet died. Whereas Germany’s very successful machine-tool industry, including those companies working in the Russian market, is by and large organized in medium-sized companies, many of them family-owned, the Kremlin still believes that bigger is better, even for machine tools.
German doubts
German business, by far the largest foreign community in Moscow, fears that imposing restrictions on foreign participation will seriously impede growth, prosperity and employment. Whether these voices are heard in the Kremlin, after the dismissal and reinstatement of German Gref and other liberals, is another question.
Ost-Ausschuss also fears that investment protection will suffer, that agreements will be broken and foreigners discriminated against. Time and again the Germans demand that bureaucracy be reduced, administrative decisions become more transparent and, indeed, more predictable, and that import rules be relaxed. The word corruption is conspicuous by its absence from polite conversation but ever present in real life.
German industry speaks of ‘strategic partnership’, leaving everybody guessing what this could mean in practice. There is no level playing field between the Kremlin administration and German organized interests. Instead, there is much wishful thinking. Industry demands political support from Berlin and has set up a ‘strategic working group’ on economic and financial cooperation, designed to put more pressure on the government in Berlin as well as in Moscow.
How much this is worth, nobody can tell for now. In addition, to secure a large piece of the Olympic business, Ost-Ausschuss has even set up a special working group called Sochi 2014. The Germans are in favour of reciprocity and understand the long-term strategy of many Russian companies to invest abroad, not only to share know-how but also to secure their assets against the secretive strategies of the Kremlin. Most German investors must have taken notice of the notorious Kommersant interview with Oleg Shvartsman, reported at length in the London Financial Times, with some concern, wondering what that might entail for their own economic future in the treacherous Russian business environment. This is also the reason why foreign investors argue for Russian entry into the World Trade Organization, which should create mutual obligations and restrict the temptations of a command economy. The Russian discrimination against meat imports from Poland and, in parallel, Russian restrictions on Lufthansa overflight rights were anecdotal evidence in 2007 and 2008 for the kind of state intervention Western countries have to fear. Copyright infringements are another sore point, together with increased industrial espionage and a notorious disregard for industrial patents.
A strategic partner of sorts
Behind the official rejoicing in Brussels about Russia being a ‘strategic’ partner,[11] there lurks some uneasiness. Russian-EU relations are doing well. Overall volume of trade rose 29 per cent from 2006 to 2007. At 52 per cent of Russian exports the EU is by far the most important trade partner of Russia, while Russia ranks as number four for the EU. Growth is expected to continue, ‘Russia presenting itself as economically strengthened and politically stable’, according to a position paper circulated by Ost-Ausschuss der Deutschen Wirtschaft in September 2007. The most important factor is of course the continuously high oil price and, in its wake, the high price of natural gas. But foreign importers also note that private consumption and rising net investment contribute to self-sustained growth, beyond the energy dimension. Russian legislation is seen as more business friendly, as long as the strategic dimension as determined by the Kremlin is respected, and helpful in defining competition and cartels. There seems also to be a growing awareness at the top that small and medium-sized companies deserve some support. Diversification is the guiding principle, and the need to create more intelligent employment beyond energy and the weapons industry.