NEWS IN BRIEF

On Sept. 7, a Russian-built Yak-42 airplane carry-ing one of Russia’s most popular hockey teams, Yaroslavl Lokomotiv, crashed 160 miles north of Moscow. Forty-four of 45 people on board were killed, including several foreign players and Cana-dian coach Brad McCrimmon. Lokomotiv played in the prestigious Kontinental Hockey League, which consists of 24 teams from � ve countries. The acci-dent is part of an ongoing series of disasters in Rus-sia that has brough aviation safety under major scrutiny from President Dmitry Medvedev.

Nord Stream, a gas pipeline directly linking Rus-sia and Germany underneath the Baltic Sea, came online on Sept. 6. When fully operational next year, it will allow Russia to largely bypass Ukraine’s net-work in exporting gas to Europe, avoiding previ-ous winter supply disruptions that resulted from Ukraine’s refusal to pay market prices for gas.Meanwhile, oil giants Rosneft and ExxonMobil part-nered to explore oil � elds in Russia’s Far North. The deal also gives Rosneft unprecedented access to oil exploration in North America and could gen-erate up to $500 billion in investment, according to Prime Minister Vladimir Putin. ExxonMobil has effectively replaced BP as Rosneft’s partner.

Plane Crash Devastates Kontinental Hockey League

Developments in Russia’s energy distribution

ONLY AT RBTH.RU

Murder in Dagestan: a blowto peace in the Caucasus

Are we safer 10 years after the Sept. 11 attacks?

An initiative originating from the Ivanovo region has become federal policy as Russian families with more than three children become eligible to re-ceive free plots of land under a new law. The plots will come from land currently owned by federal and municipal authorities.“We see this as a serious step toward developing low-rise housing in Russia,” said Elena Nikolae-va, President of the National Agency for Low-Rise and Cottage Construction.

Government Gives Away Land to Large Families

For the past 15 years, the Micex (Moscow Interbank Currency Ex-change) and R.T.S. (Russian Trad-ing Systems) exchanges have been � erce competitors. But by the end of this year, Micex will haveswallowed its principal rival. The deal, in which roughly 35 percent of R.T.S. will be paid for in cash and the other 65 percent ex-changed for Micex shares at a co-efficient of 3 to 1, was announced at the end of June and was ap-proved by shareholders from both companies on Aug. 5. R.T.S. has been valued at 34.5 billion rubles ($1.23 billion).

Proponents of the mergermaintain that it will make the Russian market more attractive to foreign investors, who wereput off by the system of two ex-changes.

“The merger of R.T.S. and Micex, the creation of a united

Moscow Exchanges Go Two for OneStocks Russia hopes to improve its attractiveness to foreign investors by simplifying the system

structure, raising its standards of corporate management and hold-ing an I.P.O., a quality I.P.O., will help raise the organization’s cap-italization and increase the li-quidity of the Russian market,” said Alexei Ulyukaev, the first deputy chairman of the Russian Central Bank.

Market players are, however, skeptical about the merger. “The only way to attract Western in-vestors is to raise the quality of the services we offer,” said trader Dmitry Belchenko. “And devel-opment is impossible without competition.”

“The only thing pushing the market to develop was the com-petition between Micex and R.T.S.,” said Anatoly Gavrilenko, chairman of the oversight com-mittee at the Alor Group of Com-panies. “All new products ap-peared on the market thanks to competition. The market worked fast because R.T.S. had to com-pete with the developing Micex market.” Proponents of the merg-er respond that development at the London Stock Exchange is not hindered by the absence of domestic competitors.

ANTON MAKHROVRUSSIA BEYOND THE HEADLINES

By year’s end Russia will have one stock exchange. Will it help Moscow become an international financial hub, or stifle competition?

CONTINUED ON PAGE 7

RBTH.RU/13291

RBTH.RU/13389

Russian de-signer Lena Vasilyeva’s spring/summer 2011 collection shows some swagger on the catwalk. Post-Soviet design-ers are looking to New York to create an inter-national busi-ness profile, according to Paper maga-zine’s editorial director, Mick-ey Boardman.

The merger of the RTS and Micex exchanges may improve stock market infrastructure.

AP

It is a rare moment in fashion to encounter a fresh point of view. But 20 years after the fall of the Iron Curtain, designers from Rus-sia and emerging post-Soviet markets are garnering attention — even in New York — for their new perspectives and experimen-talism on the catwalk. Russian style exemplifies the complex phenomenon known as the clash

Fashion Designers from the post-Soviet states are finding cult followings in the Big Apple

In honor of New York Fashion Week, RBTH talks to emerging designers from post-Soviet states who are making some waves in Manhattan.

Fashion’s Final Frontier

STEPHAN RABIMOV SPECIAL TO RBTH

of civilizations; creative artists reveal the � erce duality of being both Eastern and Western. Yet today’s designers from the for-mer Soviet Union are also buoyed by two decades of open borders, the endurance of the petrodollar and Russians’ penchant for the pursuit of beauty.

New York is the ultimate fron-tier for designers from Russia and the former Soviet republics. Rus-sian-born designer Alexandre Plokhov, whose label Cloak has reached cult status, is returning to New York after three years in Milan, where he also designed menswear for Versace. Plokhov’s eponymous brand will be

launched at Barney’s in Septem-ber, and longtime Vogue editor-in-chief Anna Wintour recently graced him with a visit to his showroom in the Flatiron Dis-trict. “This is my home,” an elat-ed Plokhov said. “I love this city and the opportunities it repre-sents.”

One of Kazakhstan’s leading designers Kuralai Nurkadilova hopes to present her KURALAI Fall/Winter collection in Febru-ary 2012 during Mercedes-Benz Fashion Week at Lincoln Center. In Central Asia creativity and craftsmanship are fueled by rich cultural heritage and ready ac-cess to some of the world’s � nest

cotton, wools and hides. These designers also seem to benefit from the growing geopolitical in-terest in the region.

New York City is the ultimate stage to launch a designer’s in-ternational pro� le since it pro-vides unrivaled worldwide access to key decision makers. “Design-ers who think they’re ‘artists’ are attracted to Paris. Designers who want to be about � ne craftsman-ship � ock to Milan. Those who want to do business and make money come to New York,” said Mickey Boardman, editorial di-rector at Paper magazine.

EAST N

EWS

WEDNESDAY, SEPTEMBER 14, 2011

Politics & SocietyLife after 40: Discrimination in the workplaceP.02

Special ReportTatarstan: New solutionsto the oil curseP.03

FeatureCan a new sports mascot unite the nation?P.08

This special advertising feature is sponsored and was written by Rossiyskaya Gazeta (Russia) and did not involve the reporting or editing staff of The New York Times.

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don’t miss the next issuewww.rbth.ru Politics, economics, business, opinions and culture

October 12

See a video tribute to the team atrbth.ru/13394

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Only the Glamorous Survive rbth.ru/13299politics & society

employment For many positions in Russian companies, experienced candidates need not apply, even for management roles

the problem of age discrimination is especially acute in russia, where corporate culture does not value professional experience.

“Vacancy for general director – under the age of 40 … head of sales department – under the age of 35 … office-manager – under the age of 30 … ” On the recruit-ment Web site Superjob.ru, 54 percent of the jobs advertised in-clude age as a criterion for po-tential candidates. Yevgenia Sha-tilova, project manager at Rabota.ru, said age preferences are list-ed in 75 percent of job advertise-ments, and even if age is not spec-ified, in most cases it is implied.

“I have three separate degrees — in teaching, law and manage-ment. Starting in 2002, I was head of an H.R. department, and I was constantly building on my qual-ifications,” said Ludmila F. “Now, I am looking for a new job and I have sent my C.V. off to 34 re-cruiters. But I didn’t specify my age on my C.V. I got replies from

midlife in middle management

alexei boyarskykommeRsant

19 potential employers, but when they found out that I was 55, 14 of them openly admitted that they had age limits.”

According to Michael Germer-shausen, managing director of the Antal Russia recruitment com-pany, vacancies for qualified spe-cialists and middle- and upper-management staff are few and far between for job seekers in the 45 to 50 age range.

“Employers still prefer young specialists for most roles,” said Germershausen. “The main rea-sons for this are the problems of the older generation — their in-adequate grasp of modern eco-nomics, their weak knowledge of foreign languages, and the fact that it is hard for them to adapt to modern corporate culture and management style. For example, the unofficial age limit for mid-level professionals in the finance sector is 35-38 years. People think that if the candidate is already in his or her 40s and is not yet a director, then they are either not professional enough or they lack ambition.”

Olga Rybakova, a project man-

Anna Stupina, the youngest Duma deputy of Moscow’s Northern District, is proud of the fact that she broke into politics when she was 21 entirely through social networking. Stupina is riding a new wave of successful political campaigning on the Internet. As the struggle for political power migrates to the virtual world, Russian poli-ticians have turned social net-works and their own Web sites into the new soapbox, the new town meeting and the 21st- century walk-in office.

This year, the Internet has be-come much more than a campaign tool: Once in office, Duma depu-ties began using the Internet as their virtual receptionist and home office. Many also use it to help bring constituents together around a single issue. For Dmitry Gudk-ov, leader of the youth wing of the Just Russia party, “the Internet gives you direct access to the peo-ple, enables you to get feedback and react in real time.”

In May, Gudkov organized a rally demanding that the author-ities deliver on a promise to pro-vide apartments for military of-ficers and their families after reports that some were still ba-sically homeless. A thousand peo-ple turned up on Pushkin Square, and they got a swift response: “The head of the Defense Min-istry’s housing department had to apologize and promise to rec-tify the situation,” Gudkov said.

Russia’s parliamentary elec-tions are only a few months away, and experts say that this year’s campaign will play out in large part in the virtual world. Some of the observers stress that regu-lation should be the next step in online politics.

politicians For today’s parliamentarians, going door to door with leaflets is so 20th century

this year’s campaign season has seen more battles being waged online, as politicians struggle to appear sincere while fighting off spammers.

As of now, the political Inter-net in Russia “is partly regulated by the mass media laws and part-ly by election regulations. How-ever, that is related only to the Internet sources that are regis-tered as mass media,” said An-drey Sharomov, senior public re-lations director of the Grayling communication agency. “Blogs and social sites are regulated the least,” he said.

“The blogosphere is one of the favorite playgrounds of ‘black P.R.’ of Russian politics. The rules of the game in this sphere are not regulated by the law,” said Valery Sidorenko, an Internet/P.R. con-sultant in Moscow. Spam tech-nologies such as bots, mailings and fake bloggers riding top rat-ings are all utilized in an aver-age “black P.R.” campaign. The Russian government is working on measures to enforce Russian law on the Internet, according to Ilya Ponomarev, co-chair of the information policy, communica-tion and technology committee. A bill is expected to be finalized this fall.

the importance of being earnestIt was only three years ago that

“politicians using the Internet targeted the media. Now they target voters,” said Alyona Pop-ova, an e-government special-ist.

At the same time, confidence in traditional media channels is waning. “Financial and industri-al groups are buying up media conglomerates, which brings in an element of media manipula-tion,” said Maxim Mishchenko, a State Duma deputy and leader of the Young Russia movement. “People no longer trust organi-

zations; they trust the people within the organizations.”

Russian politicians have quick-ly learned how to market them-selves. The most salient feature for a politician is to appear real, which is not a simple task. “In the 1990s, it was fashionable to hire P.R. managers and press sec-retaries to communicate with the general public. In 2011, a politi-cian has to conduct communica-tion via Internet himself,” said Mishchenko.

The secret to success on the In-ternet is to be informative. Mos-cow City Duma deputy Kirill Schitov said: “You have to write exclusive pieces yourself, give your assessment and thus pro-voke comments.”

Alyona Popova advises her cli-ents to closely monitor their on-line presence and to watch out for trolls, who create fake pro-files to discredit public figures. The online audience loses inter-est once it detects a fake or the work of a brand manager instead of a politician. “There is a scram-ble to get into the top 10 to15 pages of LiveJournal,” said Gud-kov. “Phony bloggers, who did not exist before the elections, top the ratings, but they command no trust among the public.” LiveJour-nal, the most popular social net-work of bloggers in Russia, has 4 million subscribers and 20 mil-lion monthly visitors.

This spring, LiveJournal was under multiple hacker attacks that corrupted its operations, and many blogs, including the blog of President Dmitry Medvedev, were unreachable. “This is a way to destroy LiveJournal and ma-nipulate its readers,” said Ilya Dronov, Director of Product De-velopment at SUP Media, which owns LiveJournal.

But Dmitry Gudkov argues that any attempts by the government to control what is going on in the Internet are doomed. “If the au-thorities shut down somebody’s blog, the blog becomes even more popular.”

Politics Enters the Matrix

anna redyukhinaspecial to RBtH

dmitry gudkov’s blog brought military officers into the streets to de-mand apartments that they were promised.

''The most interesting thing about my campaign is that I haven’t spent a single kopeck,

which is quite possible at the local level.”

anna stupinaDuma Deputy FoR moscow’s notHeRn DistRict; electeD at an age oF 21

ager at the Consort Group H.R. consultancy, suggested that the main reason specialists older than 45 have problems finding work is not their shortcomings as pro-fessionals, but the fact that young managers are immature in their outlook and wary of employing people older than themselves. “They do not know how to build a relationship with them,” Ryba-kova said. “And they confuse pro-fessional activity with unresolved personal conflicts they have with

their parents, so they find it sim-pler and easier to deal with peo-ple younger than themselves.”

the old guardBut older job seekers should

not give up completely. There are positions out there in which age is a distinct advantage. “[Mem-

bers of] the older generation often have a lot of experience in a specific area,” said Alexei Zai-kin, deputy C.E.O. of business development at the Solid Invest-ment & Financial Company. “For example, a 50-year-old candi-date applying for the role of asset manager might come with a whole client base.”

“The management of foreign companies — especially in Ger-man and Japanese companies — often prefer mature candidates,”

said Germershausen. “One of the international companies stipu-lated that candidates for the role of senior legal consultant had to be above the age of 36, even though similar positions are being filled by people as young as 29 in other companies. The same thing is often happening

Google founder Sergey Brin once characterized Russia as Nigeria with snow, referring to the high level of corruption. But when it comes to intellectual property, Westerners associate Russia with another African country: Soma-lia. Unlike their counterparts south of the Sahara, Russian pi-rates do not take ships hostage, but according to the rights hold-ers of illegally downloaded music, movies and software, the damage they cause is significant. Piracy is believed to be the reason many Western media products do not reach Russia in their licensed ver-sions. However, Russian piracy has a human face; moreover, it’s a progressive face. The pirates do believe users should pay for con-tent — if they are able to do so.

“You see,” said Stanislav Sha-kirov, head of the Russian Pirate Party, “there are Web sites such as ivi.ru, or, for example, fidel.ru. The former is a free collection of licensed movies; the latter charg-es for watching a certain amount of money (its subscription is about $ 20 per month). Me and many of my friends would gladly pay through pay-per-view or any other system if it is simple, con-venient, at a reasonable price and there’s no need to bother with tor-rents.”

So, what’s the problem? Ac-cording to statistics, the number of users on illegal-content Web sites is constantly growing. Sha-kirov believes the attitude is the

piracy working within the law to change it

the russian pirate party was started to fight illegal downloading. why aren’t the authorities taking their cause more seriously?

root of all problems. “We have no normal payment culture.”

According to members of the Pirate Party a revision of the cur-rent cash flow distribution sys-tem is a trade-off that will sat-isfy everyone: It will help protect users’ rights to copyright, and au-thors will be earning even more than today. But to get this kind of system, the pirates say state support is needed — in particu-lar, the abolition of criminal pros-ecution for breach of copyright.

“What kind of copyrights do they mean?” asked Boris Turovsky, a representative of the Interna-tional Pirate Party. “Russian of-ficials must respect internation-al free licenses and help implement them in full.” Otherwise, the In-ternational Pirate Party says, the current policy sets a double-stan-dard. The Russian branch agrees:

Reform should start from the above. Only then competitive business models emerge and users will finally understand what they must pay and to whom.

But the Russian government is skeptical about such initiatives. And it is clear that the authori-ties have no understanding of what these “angry young men” want. Not long ago, the Ministry of Justice denied the Russian Pi-rate Party official registration. The reason? Article 227 of the Criminal Code, which deals with responsibility for an attack against a ship or riverboat.

Pirate Party Looking for State Support

alexander VostroVspecial to RBtH

piracy is believed to be the reason many western media products do not reach Russia in their licensed versions.

russian recruiters often refuse to consider candidates over 40 for top positions.

employers still prefer young specialists; sometimes they find it simpler to deal with inexperienced workers.

the average salary peaks around the 40-year mark; after this, income plateaus or goes down.

is age a Barrier to Finding work?two-thirds of russians reported age discrimination in finding a job, according to kommersant dengi’s online poll. more than two thousand readers participated in the study oVer the course of a week at the beginning of august.

the polls

23 percent for persons over 50, with 41 percent of that group describing “some” age discrimination and more than a third (36 percent) reporting “very frequent” age discrimination. The numbers for persons aged 30-35 were 1 and 12 percent, respectively.According to Moscow-based lawyer Evgeny Ustin, proving age discrimi-nation (which is illegal in Russia) is difficult. “The decision [not to hire a candidate] is formally based on talks with the applicant and tests. This definitely strengthens the argument of the employer in case the matter goes to court,” he said. “I’ve never seen a case of discrimination in hir-ing brought to court in Moscow or St. Petersburg,” he added.

In a separate poll conducted under similar conditions by E-executive.ru, 87 percent of persons aged 30-35 reported never experiencing age discrimination. That number fell to

in her own words

with positions such as sales di-rector in foreign corporations.”

But according to Olga Savosko, H.R. director of B.C.S. Financial Group, not everyone can devel-op a career in mid-life. “After the age of 50, finding work is pos-sible if you have substantial pro-fessional achievements under your belt and you have occupied top positions in well-known companies,” Savosko said. “Al-ternatively, you could be a spe-cialist in a niche area, or per-haps you would have good business connections that the company needs. But your chanc-es of finding work on the open market are otherwise pretty slim.”

a uniquely russian problemIn general, there are two main

paths that lead to financial and career success: the path of the manager and the path of the skilled professional. But in Rus-sia, the career ladder is not well developed in many sectors. For most companies, business is or-ganized in such a way that high-ly skilled professionals just aren’t

needed. In the absence of real competition in a corrupt econ-omy, a manager only needs peo-ple who are happy to do their allocated jobs and nothing more. As a result, the qualifications ceiling for nonmanagement roles is reached between 30-35.

If an employer has not become a manager by 35, then it is un-likely he or she will continue to advance professionally. Accord-ing to data collected at Super-job.ru, the average salary of var-ious age groups grows steadily with age and peaks around the 40-year mark. After this, income seems to plateau, and in some cases it even goes down.

Even though in the West it is also harder for a 50-year-old to find a job than it is for a 30-year-old, companies in all sectors need staff with different levels of ex-perience. As long as Russian companies frown on innovation and reward people who do what is expected but nothing more, middle age job seekers will con-tinue to hear: “We have a young team — you wouldn’t be suit-able.”

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Optimism for investors in Russian market rbth.ru/13212 special report

regions Republic blends multiculturalism and modernization

tatarstan is setting an example for the rest of russia by combining entrepreneurship with government support to create self-sustaining technoparks.

ben arisbusiness new euRope

“Twenty-three percent of all traf-fic fines in Tatarstan are paid elec-tronically,” said Nikolai Nikifo-rov, Tatarstan’s grinning 29-year-old minister of I.T. and communication, sitting in his of-fice atop the glitzy glass skyscrap-er that forms the I.T. park in downtown Kazan.

Nikiforov is exuberant about his eGov program, which allows access to 25 types of government services — including paying taxes, scheduling weddings and obtaining a passport — via the Internet. “We lose hundreds of millions of man-hours a year on bureaucracy,” said Nikiforov.

In June, users of the eGov pro-gram completed a million trans-actions using the system, a four-fold increase from January. For the 48 percent of households without Internet access, touch-screen terminals across the city offer easy access to the system.

gross regional product (grp) growth has largely rebounded since the global economic crisis.

Although there has been much speculation about Muslim inves-tors moving into Russia, the sit-uation has been one of all talk and no action — until now.

Two Islamic funds have recent-ly launched operations in the Muslim-majority Republic of Tatarstan. The first is the Malaysian private equity firm AmanahRaya Capital Group, which has launched several projects the republic. In the 1990s, most foreign investors headed straight for Moscow. The game changed after 2000, however, and

Russia’s regions have become the new frontier; Kazan caters to the 80 million Russians that live in the cities lining the Volga River.

“We bypassed Moscow and came to Kazan, as it offers the most attractive investment climate,” said Dato Ahmad Rodzi Pawanteh, AmanahRaya’s man-aging director.

The fund’s first project was the Kazan Halal hub, which imports halal meat and other products for the region’s Muslim majority. Once established, the fund fi-nanced the construction of a halal meat processing plant in Baltash, 62 miles from Kazan, where local producers can also bring their meat to be processed according to Islamic rules. The latest phase of the project set up an Islamic fund management company that will invest in halal-related projects. The management com-pany will also hold a pilgrimage fund to finance a Hajj for local residents.

“We have been very successful with this sort of fund in Malysia,

islam Religion adds motivation for investors

Republic Capitalizes on its Muslim Heritagethe muslim-majority region has proved to be an interesting investment destination for funds with muslim shareholders or that are based in muslim countries.

nick watsonbusiness new euRope

and it was an obvious product to bring to Tatarstan,” said Pawanteh. “But we are also working with the local government to raise funds on a private equity basis to bring in foreign investment to the region.”

According to Pawanteh, the local government has been very active in promoting foreign in-vestment in the region, and has taken a stake in these funds as a way of reassuring foreign inves-tors that it is willing to share the risks with investors.

The second fund that recently established itself in Tatarstan is the Foras International Invest-ment Company, which represents Saudi money and has launched a classic investment vehicle to-gether with the newly established Tatarstan International Invest-ment Company, or TIIC. The $50 million fund will focus on the region’s strengths in bio-technol-ogy, nanotechnology and I.T. The company was inaugurated in June; the founding investors have al-ready contributed $10 million and are in the process of raising the balance.

“We are focused on the Volga region and the attractive invest-ment climate the government has created here with tax breaks and incubators,” said Amizan bin Mohd Nor of Foras. “One of the most attractive elements in this region is the high level of science and engineering, especially in things like civil aviation.”

Kazan was known in the So-viet era as a center of learning, and its universities still churn out many of Russia’s best engineers. It is also home to a flourishing aviation industry as well as a bur-geoning automotive sector.

“We have 20 projects in the pipeline, and 80 percent of them are brownfield that we will de-velop over the next three years,” said Nor. “But probably the most prospective are in the technical aviation sector.” Nor said he can’t reveal the details of the projects yet as they are still in negotia-tions, but that he is particularly excited by a project to make avi-ation rescue vehicles.

“The companies here are ad-vanced, and the level of technol-ogy is as good as anything I have seen in Europe,” said Nor. “And the trouble with Europe is it is a highly saturated market. In Rus-sia, we can easily find companies where we can really increase the value, with willing buyers in the Middle East and beyond.”

taining; by 2007, its companies were paying enough taxes into the local budget to repay the start-up capital. “For the last four years, we’ve been independent of the regional budget, and this is important,” said Yushko. “Our ex-perience proves technoparks are a viable model for economic de-velopment in Russia.”

Yushko explains that most of the companies at Idea provide engineering services, software design or Web design. After three years, graduates of Idea have the option of leaving the territory of the technopark altogether, usually securing bank loans in-dependently to acquire office space, or moving into its busi-ness park, where rent is no lon-ger subsidized. There, neighbors will include the local R&D branches of international behe-moths such as G.E., Honeywell and Siemens. “The foreign com-panies come first and foremost for the qualified personnel,” said Yushko.

“I’m a believer in the unpop-ular notion that we don’t need factories in Russia,” Yushko said. “Production will eventually be moved to where you have cheap labor, like China. Our advantage is people and their ideas.”

Still, that’s also one of the

“We could have offered the contract for developing eGov to pricey foreign software engineers, but chose locals instead,” said Ni-kiforov. “Eighty percent of the system was developed right here, and now the companies are mar-keting their products in other parts of Russia.”

I.T. currently accounts for 3.5 percent of Tatarstan’s economy, but Nikiforov says the republic is aiming for 7–10 percent, like its peers in the developed world, by 2016. “The tools we have for this — technoparks, venture funds and universities — are nothing individually,” said Niki-forov. “They are part of a single ecosystem we must develop systematically.”

Sergei Yushko, general direc-tor of a neighboring technopark called Idea, agrees. “We’ve exist-ed for seven years,” he said, “and a day hasn’t gone by that I haven’t felt the complete backing of local authorities.” Idea was founded on the territory of an abandoned de-fense plant in 2004 with the aim of creating jobs in high-tech sec-tors of the economy. By provid-ing two key services to local start-ups — cheap rent and sound business advice — the technopark “graduated” enough firms with-in three years to become self-sus-

in kazan, the capital of tatar-stan, the local kremlin houses both a russian orthodox church and a mosque.

“The companies here are advanced, and the level of technology is as good as anything i have seen in europe,” said nor.

Kazan was known as a center of learning during the soviet era, and it still churns out many of Russia’s best engineers.

improving infrastructure to Attract investment

interview LinAR yAKupov

The Tatarstan Investment Devel-opment Agency, headed by Linar Yakupov, provides investors with a one-stop shop for all their gov-ernment needs, and offers assi-tance that guides investors from start to finish.

what else does your agency do?We have two primary functions

— to attract foreign investment and to improve the business cli-

Interview bytim gosling

mate; they are related, of course. In addition to promoting Tatar-stan as an attractive destination for foreign capital and helping investors who come here, we also lobby business-friendly legisla-tion in government. We have all the tools to do this, as we report directly to the president and prime minister.

We’re currently working on the creation of a regional investment fund in Tatarstan that would hedge part of the risk faced by investors. This is very important because, unfortunately, despite all our rhetoric, Russia is not the most attractive destination for investment. Tax breaks are great, but poor governance and the per-ceived high level of political risk still scare off a lot of capital. And many changes have to be imple-mented at the federal level, as the investment climate in Tatar-stan depends a lot on the coun-try as a whole. We hope the legal framework for the fund will be in place by January 2012.

what would you like to see the fed-eral government do to improve the business climate in russia?

Both Tatarstan and Russia are in very lucrative geographic po-sitions between Europe and Asia. We need to build roads across the breadth of the country to take advantage of it. To demonstrate the seriousness of our intentions to investors, we need to show we are able to provide such basic infrastructure.

I lived in Malaysia in the ’90s. They were able to build a net-work of high-quality roads in a very short period of time and open up previously isolated parts of their country to an influx of industrial parks. China did the same thing, and has attained very high levels of economic growth as a result. The Russian govern-ment needs to announce such a plan; we’ve had “national proj-ects” in health care, agriculture, housing and education. They should announce one in road con-struction. We’ve done a lot to im-

greatest challenges to high-tech companies in Tatarstan. “We want to build an ‘I.T. village’ outside Kazan based on the Skolkovo model in Moscow,” said Nikifirov, referring to Russia’s equivalent of Silicon Valley located in a vil-lage near the capital. “By our best estimates, we’ll need to house 20,000 I.T. specialists there to get this sector of the economy as large as we want it. Tatarstan cur-rently has 5,000 such specialists. We’ll have to attract 15,000 from other regions of Russia.”

thinking locallyIn another part of Kazan, an

industrial park called Khimgrad became the first such project in Russia to be internationally cer-tified by representatives of Ernst & Young and Knight Frank. Kh-imgrad focuses on polymer and chemical production and, unlike the technoparks, it seeks to take advantage of underdeveloped raw materials in Tatarstan. “We produce a plethora of polymers in Tatarstan, but these are typi-cally exported and then re-im-ported with much added value,” said the park’s manager, Airat Gizzatullin. “At Khimgrad, we

don’t work with technologies of global or even national signifi-cance; we’re just focused on mod-ernizing the local economy and establishing efficient supply chains.”

Khimgrad offers fully equipped facilities, business solutions and tax breaks to investors — both Russian and foreign — willing to set up production. “Only a com-plete ecosystem can structurally change Russia’s economy on the scale that our country’s leader-ship talks about,” said Nikiforov. “That’s what we’re trying to do in Tatarstan, and we began ear-lier than other regions.”

But a lot of work remains to be done. “When we asked inves-tors five years ago what we need-ed to do for them to come, they said, ‘Build a new airport!’ It was a funny response, but carried a lot of truth.” Today, a sign hangs over the shoddy building that ser-vices both domestic and inter-national flights to Kazan: “New terminal to be completed in 4th quarter of 2011.”

of Tatarstan’s regional economy is based in information technology. The republic hopes to increase that amount to between 7 and 10 per-cent.

have gone by since the Idea tech-nopark was established. The park is now financially independent of local authorities and regularly graduates new companies.

3.5 %

7 years

in figures

tatarstan’shigh-techtransformation

prove road quality in Tatarstan already.

what are your best success stories so far?

The Alabuga SEZ has attracted scores of Russian and foreign in-vestors to the point that its board is considering increasingly large projects every year. I’m also think-ing of [truck maker] Kamaz’s joint ventures with Daimler and other companies, [Russian passenger car manufacturer] Sollers’s launching of a Fiat assembly line (with major plans for Ford), and Isuzu.

Fujitsu-Siemens makes hard-ware and software here, and has seen explosive growth. Their cli-ents include some of the world’s largest corporations, like Volvo and Pepsi. They have created se-rious competition for similar ven-tures in India.

We are actively working on de-veloping major aviation and helicopter factories in Tatarstan, which have been here for decades and offer enormous potential for generating value-added products and developing the local scien-tific base.

That is why we call on inves-tors not to see us only as a source of chemicals and raw materials, but also as a high-tech and man-ufacturing hub with a highly skilled workforce.

LoRi/Legion MediA

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souRCes: RussiAn sTATe sTATisTiCs seRviCe, TATAR-infoRM

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Russian spending abroad back to pre-crisis levels rbth.ru/13268business

Several years ago, after Procter & Gam-ble research showed that there is no uni-versal cleaner on the market, the U.S. com-pany introduced Mr. Proper, the Russian version of popular American all-pur-pose floor cleaner Mr. Clean. The company also found that Russian con-sumers are very sensi-tive toward the smell o f t h e p r o d -u c t s t h e y use. Procter & G a m b l e ajusts the smell of household products such as laundry detergent, fabric soft-ener and cleanser to make them more attractive.

There is more competition among companies now and a wider range of products, and Russian consumers have become more aware of what they buy, said Dale Clark, a retail and con-sumer specialist with Pricewa-terhouseCoopers. Advertising has grown significantly in the past 10 years but accelerated in the last five, he said.

Begemot advertising agen-cy head Yulia Dydichenko said a new trend toward more sophisticated adver-tising emerged about a year ago. New products, such as flower-scented toilet paper and cosmetic products for men, are fill-ing niches that had never existed in the country.

Today’s Russia, in terms of con-sumerism, is a lot like the post-Reagan United States of the early 1990s, when the vast consumer ser-vice industry was in its infancy, Komissarova said. As more prod-ucts and services are offered, com-

economy in brief

The Sukhoi Superjet was the big winner at this year’s MAKS Airshow, which took place in August in the Moscow Region town of Zhukovsky. Delivery contracts were signed for more than 100 of the planes. The im-mediate future of the Russian aviation industry depends on the fate of Sukhoi’s Superjet 100 and the Tupolev Tu-204. The Su-perjet, the first Russian plane to be developed entirely during the post-Soviet era and passed an important milestone last month, successfully completing its first commercial flights under the colors of Armenian carrier Armavia. The second aircraft, the Tu-204, which flew for the first time in 1989 and looks much like the Boeing 757, is hav-ing difficulty reinventing itself; only 69 have been built in 20 years.

The overall contract trading volume for the Superjet stands at nearly $3.5 billion. Sukhoi is in talks to sell the jet to U.S. carriers Delta and SkyWest, re-ported The New York Times.

Despite the debut of Russia’s first fifth-generation military fighter — the T-50 — at this year’s MAKS, no major military contracts were signed.

Russia’s DST Global has ex-panded its social media stable with a $400 million investment in Twitter. The deal values the U.S. company at $8 billion, ac-cording to Bloomberg. The fi-nancing round is being used to cash out Twitter investors as the company tries to monetize its short-messaging service ahead of a bid to go public. An I.P.O. would bring Twitter into com-petition with other companies in which DST has an interest.

super deals for superjets at maks airshow

dst global expands its social media holdings

gLobaL russia business caLendar nyse russia business andinvestment summit 2011Oct. 27 – Oct. 28 new yOrk stOck exchange center new yOrk, ny, u.s.a.The Summit will offer a series of panels and one-on-one meetings with institutional investors, allow-ing attendees to explore invest-ment expectations. Topics will include key trends of policy mak-ing, the regulatory environment and investment valuations.

www.irtinc.org/nyse_rBIs ›

adam smith russian banking forumnOv. 28 – dec. 1LOndOn, u.k.In addition to addressing the most pressing industry concerns, this forum will feature a special day on risk management strate-gies. Executives from Alfa Bank, Sberbank and HSBC have already confirmed their attendance.

www.adamsmithconferences.com/ ›xr41bnee

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at www.rbth.ru

Soviet women washed dishes with soda and salt for decades, while men never heard of deodorant and teens scrubbed their pimples with soap and water. Not any-more. Western consumer goods companies have flooded what re-mains in many aspects a virgin market, spending tens of millions of dollars to research consumer habits and conduct increasingly elaborate marketing campaigns aimed at selling products that many Russians never imagined needing.

The companies, such as Reckitt Benckiser, a British consumer goods firm that recently rolled out an advertising campaign for Calgonit dishwasher tablets, view their efforts with an educational slant. “We are launching a com-prehensive brand campaign to raise awareness for Reckitt Benck-iser in Russia,” said Andraea Dawson-Shepherd, Reckitt Benckiser’s senior vice president of corporate communications. Polish consumers, for example, spend six times more on dish-washing tablets, because dish-washer penetration in Russia is

consumer marketing Finding out what people want is not easy

western companies spend millions of dollars to conduct marketing campaigns aimed at selling products that many russians never imagined needing.

companies teach russians western ways

khristina narizhnaya the MOscOw tIMes

very low, according to company research.

Reckitt Benckiser spends about 12 percent of its $440 million rev-enue from Russia and other for-mer Soviet countries on consum-er research, marketing and advertising, said Bruno de La-barre, the company’s general manager for the former Soviet Union.

In trying to sell these products, the company has to change con-sumers’ perceptions. In the case of Calgonit, it is changing wom-en’s attitude toward washing dishes, which has always been considered a natural part of home life, said Tatyana Komissarova,

dean of the Higher School of Eco-nomics’ School of Business and Marketing. She said Western com-panies have succeeded in some areas, such as replacing soda and salt with dishwashing detergent. “If someone doesn’t have it, it’s like, are you cheap?” she said. The same goes for Clearasil, the anti-acne treatment made by Reckitt Benckiser. Most teenagers now use Clearasil, instead of plain

soap and water just a little more than a decade ago.

The best marketing campaign, however, doesn’t guarantee a prod-uct’s success. After the Calgonit TV commercial, Reckitt Benckis-er rebranded the dishwashing tab-lets as Finish.Reckitt Benckiser hopes for 15 percent annual growth in Russia and the Com-monwealth of Independent States, and to double sales by 2016.

Unilever, the British-Dutch consumer goods giant, found that the amount of deodorant the av-erage Russian uses per year is less than one unit, which is consider-ably less than in Western Europe, said Yegor Yevteyev, senior brand

manager for Rexona, a deodor-ant brand owned by Unilever.

This is a huge opportunity for the company, which has blanket-ed Russian television airwaves with a Rexona deodorant com-mercial in which blond and beau-tiful pop star Vera Brezhneva asks, “What do you do to be perfect?” Before kicking off the campaign two years ago, Unilever surveyed Russian women on who they be-lieve to be the perfect woman — successful, beautiful and femi-n i n e — a n d t h e y ch o s e Brezhneva. “When advertising personal care products,” said Yevteyev, “we try to educate the consumer on the necessity of fol-lowing the basic rules of hy-giene.”

Before releasing products on the market, companies conduct much painstaking research, and often adjust their merchandise to customer tastes. Company rep-resentatives watch shoppers in stores, distribute questionnaires, visit consumers in their homes and hold forums to study shop-per behavior.

panies will have to continue to in-novate or fall behind. Russia will reach Western consumer standards very quickly, said Denis Shirikov, a retail analyst with Nielsen, which tracks consumer habits in more than 100 countries.

branding company takes home cannes Lion for milk branding

Thirteen years ago, the entire workforce of the Depot W.P.F. branding agency in Moscow con-sisted of just two people, and their work was unknown even in the advertising world. But now De-pot’s founders claim that at least half of all the Russian brands widely known today have prof-ited from their drawing board; their client list features major in-ternational companies such as Xerox and Nestlé.

What is the secret for launch-ing a successful enterprise? Part of it is timing. In Europe and the United States, branded products and agencies dealing with brand-ing started to appear more than 100 years ago, but in Russia the concept only arose with the ar-rival of branded products in the marketplace after 1991. During the Soviet era, consumers bought what was available when it was available without much thought as to the quality of the product itself, much less the way it was packaged.

In 1998, in spite of an econom-ic crisis and a lack of funds and

alexei andreev and alexei fadeev took a chance starting a business in the nascent branding industry in 1998, but recognition shows that their risk has paid off.

experience, two young entrepre-neurs with the acoustically com-patible surnames of Fadeev and Andreev decided to turn these in-auspicious circumstances to their advantage.

“We had a difficult task on our hands,” said Depot’s creative director, Alexei Fadeev. When we started, the concept of a brand didn’t exist — there were com-panies that dealt with everything, from business cards to TV com-mercials. So we decided to con-centrate on something specific

and, to start with, we chose packaging.”

Alexei Andreev added, “Of course, this decision was influ-enced by the fact that in our own way we were quite savvy. There was no way we could have be-come the No. 1 advertising agen-cy according to conventional cri-teria, but we didn’t want to be No. 101, so we had to create a new niche.”

Andreev and Fadeev said that by their second month of opera-tion, they had a constant flow of

work, and this workload has brought the company more than commercial success.

Now, the firm is awaiting the arrival of a Cannes Lion — the most prestigious award for ad-vertising — currently making its

way from France to Russia. Lions are awarded for creativity in both design and execution. The com-pany won the Lion in this year’s festival for its work on the MLK brand, which sells organic dairy products. The design, which in-cludes birch groves, grassy mead-ows and traditional wickerwork, was rendered in black-and-white pencil drawings.

Fadeev and Andreev are also two-time winners at the Epica Awards in Europe.

“In our industry, a Cannes Lion is proof of your professionalism,” said Andreev. “It takes a massive amount of work to win at this festival. It’s not enough just to think up a certain brand; the jury needs to know about the brand prior to the competition. It needs to have been recognized at a num-ber of European festivals, like the Epica Awards, for example. And it also needs to be promoted.

“It’s a labor-intensive process. As well as [working for] the com-petition, we are working for the real market, so it’s very difficult to do work that is worthy of a festival prize. Our work is geared towards the mass consumer mar-ket. And so, no matter how cre-ative we are, there is inevitably some degree of generalization. So it’s great to find a client who is prepared to work with us towards the goal of a festival prize. We will literally track these people down. And when we find them, we suggest they try their luck at the festival.”

Added Fadeev, “When we see that a client has ambition and a niche product, we offer them the chance to do something a bit dif-ferent. The client benefits, and we are able go to the festival. This is the only way to do it.”

Russian Marketing Firm Wins Global Recognition

depot w.p.f.’s branding of mLk milk won it international recognition.

daria trosnikovaspecIaL tO rBth

nestlé studies russian consumersNestlé opened an innovation center in Russia last year to study custom-er behavior more closely. The center includes a mock shopping area, a kitchen and special rooms to make drinks. The company invested a to-tal of $35,000. Nestlé has put out several products to meet the needs of the Russian consumer looking for healthier food, including ice cream called 48 Kopeks modeled on a So-viet-era brand and Bystrov Prebio instant hot cereals.

“In our industry, a cannes Lion is proof of your professionalism,” explained alexei andreev.

pop star vera brezhneva is a model for rexona in russia.

In trying to sell new products, foreign companies have to change traditional consumers’ perceptions.

today’s russia is a lot like the post-reagan u.s.; the consumer service industry is in its infancy.

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AgricultureRebounds after Fires

After a ban on grain exports, Russia is once again poised to become a leader on

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As one of the few fully functional economies left in Europe, Russia has foreign investors

jumping in with verve. In July, the Russian market took in $87.7 billion of fresh investments — triple the amount from a year earlier, according to Rosstat (the state statistics agency). Is the tide turning?

It makes a good headline, but the number is actually a bit de-

ceptive, as much of this money is pro� ts reinvested by existing foreign investors, which is count-ed by Rosstat as foreign invest-ment. Likewise, more of this amount is due to foreign loans made to pay for mergers and acquisitions deals and the re-registering of Russian business-es to foreign domiciles. Still, the result is indicative of a general increase by foreign investors in the Russian market.

About half of the general in-vestment was actually short-term credits (180 days or less) that accounted for $46.5 billion of the total. Short-term borrow-ing by Russian banks also ac-counted for about half of the borrowing, or $44 billion of the “investment.” But this number is also confusing, since much if not all of it is probably rich Rus-sians lending to their own com-panies as a way of getting money into the country to support their assets now, but leaving a door open to get the cash back out again when things improve. Even this trend, though, testi-fies to improving sentiment among Russia’s rich.

Starting in the last quarter of 2010, Russia experienced a sharp out� ow. A total of $31 bil-lion � owed left the country in the first half of 2011. In July, though, the tide turned and in-vestments began to return.

What appears to be happen-ing is that those oligarchs whose businesses are dependent on politics are salting away a little something, just in case the elec-tions bring surprises. This doesn’t mean a change at the top, which no one expects, but potential changes just as dam-aging farther down the chain of command. As politically taint-ed businesses rely heavily on re-lations with bureaucrats, this sort of change can lead to an oligarch losing control of his business entirely. Indeed, Rus-

sian President Dmitry Medve-dev has started a campaign to remove state officials from the boards of state-owned compa-nies, and more of the same can be expected in the next year.

At the same time, asset pric-es are getting lower. The price-to-earnings ratio on stocks fell to a ridiculously low four dur-ing the worst of the recent sell off by the last week of August. However, the economy contin-ues to grow at around 4 percent, and the state’s forward-looking forecasts for oil remain at about the $100-per-barrel mark. At the same time, lending by banks was up by more than a quarter in the � rst seven months of this year. All this suggests that the economy will bounce back, as has been widely expected, al-beit at a slightly slower pace than anticipated thanks to the external debt problems in the rest of the world.

For those businessmen doing “real” business, the investment climate is improving and the bold among them are going back to investing in their businesses — since the long-term goal of most businessmen remains to capture as much market share as they can while it is still up for grabs.

MOSCOW BLOG

Ben ArisSPECIAL TO RBTH

Foreign Investment Flowing Back into Russia

In July, Russia took in $87.7 billion of fresh investment – triple the amount from last year, according to Rosstat.

The economy will bounce back, as has been widely expected, albeit at a slower pace than anticipated.

Scams Unscrupulous investment funds prey upon small investors who don’t know their rights

Igor Kostikov, former chairman of Russia’s stock market regula-tor, believes that protecting small investors from pyramid schemes masquerading as funds should be just as important to the Kremlin as developing an international � -nancial center (I.F.C.) to attract a broader investor base. Accord-ing to Kostikov, these schemes are widespread in Russia — and not only are there no laws to stop these scams, but no one in gov-ernment is responsible for over-seeing these funds.

Russia needs to develop a much broader investor base, but recent reforms to the investment infra-structure have failed to build trust among individuals who might in-vest directly into stocks.

It’s not easy for Moscow to become an international financial center when the country’s banks and investment funds keep stealing small investors’ money.

BEN ARISBUSINESS NEW EUROPE

“Creating an I.F.C. is not just a question of having a state-of-the-art stock exchange,” said Ko-stikov. “Just as important — more important — is building a rela-tionship with the small investors [in which] they trust the markets and funds to look after their money. That is still missing in Russia. Here, people invest once, get ripped off and walk away, never to return.”

In February 2011, Kostikov es-tablished the Union Of Financial Services Consumers (FinPotreb-Soyuz in Russian). Its job is to help people who have been ripped off by unscrupulous investment fund scams.

The pyramids The way it works is this: An

investment club advertises in the press promising handsome re-turns to small investors, who then get in touch with the Russian of-fice and sign a contract before investing their savings. When they come to withdraw their money,

they are told that the club made some mistakes and lost all its money. If the investors start in-quiring why the fund went bust, they will quickly hit a wall.

“The investor can’t sue the Rus-sian office, which it turns out has no legal connection with the club. The Russian end of the operation is acting as an ‘agent’ and resell-ing the services of the fund that is registered in Cyprus, British Virgin Islands or somewhere,” ex-plained Kostikov. “It is nothing more than a post box and is closed down when it has collected enough money. For most people, to pursue a claim against the com-pany overseas is too expensive. And even if they did, the contract that they signed in Russia prob-ably has no standing overseas.”

No one is sure how much money retail investors have in these funds. According to the Russian business daily Kommersant, Rus-sia’s mutual funds started taking in money again in the � rst half of this year for the � rst time in four years, but still only hold a pathetic $200,000 of total assets under management. Kostikov says there are no official � gures, but estimates the value of the total retail investment business at about $300 million.

According to Kostikov, the

scams are already generating tens of millions of dollars, but the state has done nothing to regulate the business; there is still no organ or laws to oversee or license in-vestment clubs. In the meantime, the sharks are left to operate with impunity and can even run high-pro� le advertising campaigns in the local media.

What makes these scams so in-sidious is that the operators don’t screw everyone over. The bigger clubs make some real returns and pay back the bulk of their inves-tors, but they bolster the bottom line by simply stealing some of their investors money and using it to pay the rest. Moreover, this practice of padding pro� ts by sim-ply helping yourself to a small portion of investor’s money is widespread. Slightly less egre-gious, but still unethical, are over-ly aggressive sales people in es-tablished banks who sell more traditional products such as mort-gages and car loans. The absence of regulation and a supervisory body means that salespeople push these products on customers even though they know many can’t af-ford them, simply to earn a bonus. Even the giant state-owned Sber-bank is prone to this sort of prob-lem, although it has been respon-sive to consumer complaints.

“Sberbank has been one of the few banks that have fully coop-erated with us [FinPotrebSoyuz],” said Kostikov. “The consumer complains to the regional branch, but if they don’t get anywhere, they come to us. We took these cases up with the head office here in Moscow. And in each instance, the consumer was refunded their money in a matter of days.”

The root of the problem is the average Russian’s almost total ig-norance of his rights vis-à-vis � -nancial services. Companies prey on debtors and intimidate them

when things go wrong. Most of the established consumer credit banks have a well established routine for dealing with problem loans: The account is passed to a special department, which then offers to restructure the terms and pesters the clients with calls. As the average personal debt in Russia is on the order of $900 — equivalent to a bit more than one month’s average salary — the re-covery rate is fairly high, as most people can raise this sort of money from friends and family. But, if a loan is deemed “irrecov-erable”, the banks often sell them to a debt collection agency. “There is no regulatory authority and there is nothing in the personal bankruptcy law that covers debt collectors. They are completely illegal,” said Kostikov. “But al-most everyone is unaware of this.”

Raising the levels of awareness is another challenge his agency hopes to take on.

Russia’s Largest Pension Funds

The Kremlin hopes Moscow City (right), Moscow’s finan-cial district, will become a global financial hub.

Russia’s Ponzi Problems

Igor Kostikov

AGE: 53

HOMETOWN: LENINGRAD

STUDIES: POLITICAL ECONOMY

HIS STORY

Kostikov headed the Federal Secu-rities Market Commission (as the stock market regulator was then known) between 2000 and 2004.In February 2011, he established the Union of Financial Services Con-sumers (better known by its Rus-sian name of FinPotrebSoyuz). FinPotrebSoyuz has no official standing and is funded by a few private sponsors. Its job is to help people who have been cheated by unscrupulous investment fund scams.

“The investor can’t sue the Russian office, which it turns out has no legal connection with the club,” said Kostikov.

What makes these scams so insidious is that they don’t screw everyone over. The big clubs make real returns.

Instability Russian stocks, like those of the rest of the world, are affected by the U.S. downgrade

The Russian equities market lost everything it had gained over a year this summer as investors sought security in cash and bonds.

Alongside drops in other world stock exchanges, the Russian stock market has lost, on aver-age, one-sixth of its capitaliza-tion since the beginning of Au-gust. By Aug. 25, the R.T.S. dollar index had dropped by 18 percent, and the Micex index, denominat-ed in rubles, by 15 percent.

But, according to Evgeny Osin, chief economist with Finam Cap-ital Management, “The Russian market has now stabilized.” Osin expects it to rebound late in the third quarter or perhaps the fourth quarter of 2011.

The recent slump in the Rus-sian stock market was triggered by Standard & Poor’s downgrad-ing of the U.S. credit rating. Micex and R.T.S. beat the 2008 record daily falls by 5.33 percent and 7.56 percent, respectively. The market bounced back 6 percent between Aug. 10 and 17, before plunging again.

“Everything was plunging: It was Gazprom one day, Sberbank the next and Uralkali the day after,” said Andrey Kukk, Ural-sib’s chief trader.

The main reason was that in-vestors were shedding assets marked as risky in their portfo-lios and moving them into bonds with lower, but presumably guar-anteed, yields.

Simultaneously, the markets have moved into a period of great-er instability, with daily Micex � uctuations reaching 8 percent. This has prompted experts to compare these leaps to the vola-tility of the market in 2008. Kukk attributes the wild � uctuations to speculative investors. “Every spike has been initiated by short positions on any good piece of news from any country,” he said. This will continue, Kukk said, “until market players make up their minds about whether they are included in the current share prices.” Institutional investors risk less, trying not to lose anything.

According to Kukk, four main factors in� uence investors on the Russian stock market: “Fear of sliding into a second wave of global recession; fear of a wors-

ening debt crisis in Europe; in-stability on the currency and com-modity markets; and geopolitical instability.”

Osin points to one more factor: media reports with “a deliberate-ly negative macro-economic and � nancial character that were re-� ected in the business climate in-dicators and investor mood on the market.”

Kukk says investors should re-think risk assessment: “What we see is a debt crisis, while inves-tors move from shares to bonds, which is a paradox.”

Some market players think the stock market is on the way to a slow recovery. Big investment banks have accumulated lots of money in their accounts, but are not doing anything with it.

The policy of the U.S. and Eu-ropean regulators remains com-mitted to supporting economic demand recovery, which implies rising share prices, including in Russia, Osin pointed out.

“The recovery may be rapid, considering that the E.U. and U.S. have managed to resolve the sit-uation, although it may have in-volved market shocks,” Osin said.

Analysts with the Alfa-Capital investment company think cur-rent Russian share prices are at-tractive for long-term positions. Osin agrees: “Today, against the background of a stabilizing mar-ket, we see a certain very gradu-al increase in the number of those wishing to open a long posi-tion.”

So far, investors have no point-ers in this country or abroad, and many volatile days may lie ahead.

“There is still a lot of uncer-tainty,” said Alexey Dolgikh, vice president of Troika Dialog. “Big investors are confused, and are sitting on cash. So, there will be a lot of volatility; the market is emotional, but we do not expect a slump.”

Moscow Markets React to Global Panic

Russian stocks are responding to global trends.

VLADIMIR RUVINSKYRUSSIA BEYOND THE HEADLINES

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Beware the Apocalypserbth.ru/13263opinion

stanislav mashagin

Special to RBtH

ian prydeSpecial to RBtH

the global system of credit ratings no longer works. For years, these ratings de-terred states from exces-

sive borrowing, caused them to curtail social programs and pub-lic spending, and encouraged them to raise taxes. But Standard & Poor’s downgrade of the cred-it rating of the United States has not had the intended effect. Since the downgrade, demand for U.S. bonds, far from diminishing, has risen, while the interest rate has dropped.

Obviously, the greatest benefi-ciary from this latest change in the rules of the game is the Unit-ed States itself. It is now abso-lutely clear that the U.S. Treasury Department can continue to bor-row as much as it likes and to print money — and neither rat-ings, nor proposed legislation, nor fear of losses will prevent play-ers in the global markets from buying the U.S. dollar. For one thing, they depend on it for as-sessing value and payments. Moreover, U.S. Treasury bonds represent cash for financial in-stitutions and major players; they are liquid, denominated in dol-lars and bring in interest.

I subscribe to Warren Buffet’s simple idea that the U.S. credit rating is still AAA and there is no reason to change it, because U.S. Treasury bonds must be paid for in U.S. dollars, which the Fed-eral Reserve can print in any amount.

There is a real question, how-ever, about the cost of these dol-lars. We can already sense the an-swer, as the value of money is rapidly changing. The process started by the U.S. will draw China, Europe, Russia and other states into a devaluation race if they want to keep their econo-mies competitive.

As is often the case, this is both good news and bad news. The good news is that the current world financial and economic model can survive for a very long time without major upheavals. The bad news is that you and I will have to pay for this stagna-tion. By devaluing money, states gradually reduce real incomes, hurting everyone, and above all, the poor.

Ideas about changing the very infrastructure of world finance — such as creating a central bank of central banks or replacing the dollar as the universal means of evaluation with gold or a basket

in the 1990s, many economists in the U.S. and Europe pre-dicted that the euro would fail. Yet precious few pointed to the

West’s huge debt in the late 1990s — or forecast that even higher debt after 2000 would not only lay low the euro, but also the U.S. and indeed the global economy.

On the contrary: Central bank-ers closed their eyes to burgeon-ing debt due to their focus on in-flation, while the financial sector not only played along, but ben-efited greatly.

One exception was Peter War-burton, a British financial ana-lyst whose 1999 book “Debt and Delusion. Central Bank Follies That Threaten Economic Disas-ter” is bursting with prescient sound bites and warnings. On Warburton’s reading, debt makes the West’s prosperity of the last 20–30 years illusory, despite all the new products around, such as plasma TVs, smart phones and tablet computers.

But government debt levels are actually much higher than usu-ally quoted since they don’t in-clude the huge unfunded liabili-

JUMP-START THE ECONOMYWANTED: A NEW DEVELOPMENT PARADIGM

DIFFERENT CONSUMERS, SAME PRODUCTS

of five main currencies — may be sound, but they are unrealistic, not only because of the resistance from the U.S. elite but also the disparities in the positions of the other major countries.

Robert Zoellick, the head of the World Bank, said recently that hard times lie ahead for the world economy. “The world is involved in a change of the international financial system, with such coun-tries as China coming to the fore,” Zoellick said.

Although China does not count for much on its own, China and the U.S. today are two sides of

the same coin: They will either fall together or emerge from the crisis together, and China still has a margin of strength. China is, at long last, lifting restrictions on ownership of its debts via Hong Kong for foreign investors and appears to be loosening the link between the yuan and the U.S.

ties in health and pensions, a problem which will only get worse in the near future as the baby boomers age and the working population falls. If Western econ-omies are in for a long period of stagnation, the problem will be even worse.

The current fears of a double-dip recession are hardly surpris-ing. Despite the promising start by the G20 and periodic bouts of market optimism in recent years, the underlying structural prob-lems of debt and huge trade im-balances remain unsolved. The fi-nancial sector is now looking to

the U.S. and Europe to fix this colossal collective mess because economists have no new model — hardly surprising after con-fusing genuine growth with pur-chases made on debt and the scholasticism of their economet-ric models. And if Joe Public is clever, he will not only delever-

dollar, which may provide world players with an alternative mea-sure of value and a saving instru-ment before this year is out.

But, most important, econo-mists and advisers everywhere should look at the root causes of the economic turbulence through-out the world.

The modern concept of eco-nomic development and scientif-ic and technological progress has exhausted itself. There is no lon-ger any need to create anything new. There are already cars, planes, houses, telephones and computers that make life com-fortable and livable. Their further improvement is only of marginal use to the consumer.

Until we work out a new de-velopment paradigm, there can be no serious growth. New ideas and creation of a new economy are possible in some areas such as medicine, ecology, space ex-ploration and the oceans. But these areas need to be “made” in-teresting in order to get people involved.

As economist M. Khazin said, the current situation “consigns the most active and energetic peo-ple to a fairly bleak scenario: In-creasingly, the idea is sneaking into the heads of many people that there is no room for them in this life.”

If the world is to continue to develop economically, it is nec-essary to change society, to cre-ate new values and motives that can, on their own, provide the basis for further economic growth.

Stanislav Mashagin is deputy general director of the invest-ment firm Ursa-Capital.

age, but remain deleveraged. That means a higher savings rate, but also lower demand and growth.

So, the market’s answer is to look to the emerging markets for growth — including the credit-financed consumer booms that have been so disastrous in the West. Ironically, it was the Marx-ists who maintained that capi-talism constantly needs new mar-kets.

The West has still not grasped the depth of its problems. Wheth-er S&P’s credit rating downgrade was justified, the wider issue is that the West has been here be-fore, but is still stumbling.

In a recent CNBC roundtable called “Meeting of the Minds: The Future of Capitalism,” former G.E. C.E.O. Jack Welch claimed that as the U.S. saw off the Japanese challenge, it would meet Chi-na’s.

Well, yes, Japan’s economy has seen little growth for 20 years due to bad policy decisions, but this island, with just 125 million peo-ple and no oil, gas or coal has huge reserves, huge savings, huge monthly trade surpluses, excel-lent engineers and global lead-ership in a series of high-tech areas. The Japanese approach of going for market share rather than profit wiped out one sector after another in the U.S. and Eu-rope — and yet it’s hardly men-tioned in business school text-books.

The West, on the other hand, has “squandered its resistance on a pocket full of mumbles such are promises” since World War II with sliding educational stan-dards in the humanities, math-ematics and the sciences and, more recently, massive grade in-flation at our best universities.

India and China are now catch-ing up fast. There is certainly no guarantee that the Asian giants can escape the low-income trap, let alone reach the sunlit uplands of Western development, but with around 1.3 billion people each, their sheer magnitude puts their challenge to the West on a total-ly different level than the earlier one from Japan.

Can the West in general afford to wait and see if the “rising tide lifts all boats” theory really works? Or will it be submerged by The Rest long before that happens?

China’s far-sighted, long-term and rational strategy in particu-lar stands in marked contrast to America’s anarchic “no one’s in charge” approach — just as the Founding Fathers intended. Eu-rope is difficult simply because a continent of many nations finds it hard to reach agreement.

But in an increasingly compet-itive world where The Rest have cottoned to part of the West’s suc-cess, amateurism and political grandstanding is simply not good enough. If its elite cannot come together, the West’s future looks bleak indeed.

Ian Pryde is Founder and C.E.O. of Eurasia Strategy & Communi-cations in Moscow.

the modern concept of economic development and scientific and technological progress has exhausted itself.

the West still has not grasped the depth of its problems; it has been here before, but is still stumbling.

Letters from readers, guest coLumns and cartoons LabeLed “comments,” “Viewpoint” or appearing on the “opinion” and

“refLections” pages of this suppLement are seLected to represent a broad range of Views and do not necessariLy

represent those of the editors of russia beyond the headLines or rossiyskaya gazeta.

PleAse send letters to the editor to us@rbth.ru

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RETURN TO STABILITY ISLAND

it might seem that the current economic downturn will be a repeat of 2008. As that crisis was quickly spreading around

the world in early 2008, Russian officials claimed that the country was an “island of stability.” As a result, they did not believe that the global financial crisis would affect many in Russia. But the cur-rent crisis is the exact opposite. Now everyone is talking about the contagion, while the crisis might have minimal effect on Russia.

The 2011 crisis is fundamen-tally different from the 2008 cri-sis. Now, there is no shortage of liquidity on the markets, and the main problems are connected with excessive government bor-rowing. While politicians take steps intended to win the pub-lic’s trust, economists increasing-ly realize the need to maintain an extremely loose monetary pol-icy and allow inflation to increase to help restructure debt.

These economists are correct. The United States and Europe cannot extricate themselves from the current situation without ac-celerating inflation. By simply al-lowing prices to rise while main-taining near-zero interest rates, citizens can be induced to spend, and companies to invest.

The inevitable convulsions of the stock markets will also be felt in Russia, of course, but as major currencies devalue, investors will favor commodities such as gold that provide some protection against shocks, given their steady increase in price over the past 18 months. At the same time, the real sector will begin a steady recov-ery, although it might initially suf-fer some problems. Thus, the new crisis is unlikely to cause a drop in oil prices, which continue to be the bedrock of Russia’s econ-omy.

At the same time, the possible outflow of investment from for-eign currency markets in Europe and the United States does not threaten a substantial apprecia-tion of the ruble. Unlike the Ca-nadian and Australian dollars, the ruble has not risen in price as the U.S. dollar and the euro have declined. Because it is not a convertible currency, the ruble does not attract speculators, even though Russia’s economy depends more on raw materials than Aus-tralia or Canada.

What’s more, the extremely high level of capital flight that hammered Russian markets in 2008–2009 will likely not be re-peated this time because a large portion of debt held by major private companies has been re-financed by the state. In addi-tion, most investors who want-

ed to leave Russia have already done so.

The main risks for Russia are internal rather than external fac-tors. First, Russia has not had to make budget cuts since the early 2000s. The government austerity measures that Western countries like Greece, the United States and the U.K. face have never even been considered in Russia.

The economic stability achieved

by Vladimir Putin during his de-cade in power allowed for bud-getary expenditures to grow by 18 percent to 23 percent annu-ally since 2000. But if Russia re-mains dependent on commodity exports, it will be unrealistic to maintain that path of growth in state expenditures over the next five to six years. Such growth would depend on oil prices being well above $110 a barrel, which looks like a long shot now, given the overall slowdown in econom-ic growth.

Further, it can be expected that Russia will increase imports by 30 percent to 35 percent annu-

ally, even while export value will grow only 10 percent to 12 per-cent. This negative trade balance will likely continue to grow through 2014–2015, even with all other factors being favorable. This will encourage growth in the country’s national debt, and be-cause Western countries will cer-tainly find ways to lighten their debt burden in the coming years, the perceived risk of borrowing will decrease, sparking rapid growth in Russia’s debt load.

All of these factors will make it possible for Russia’s leaders to maintain a semblance of stabil-ity through 2018. Even if they are successful, however, Russia will emerge from this period being more dependent on commodities exports and less competitive in the global economy.

In five to seven years, the West will have resolved its current problems, and the energy efficien-cy measures it implemented in 2006–2008 will have already started to shift the energy bal-ance. When this happens, Russia will be faced with a major test, but thankfully for Putin and his circle that day of reckoning is still years away.

Vladislav Inozemtsev is a profes-sor of economics, director of the Moscow-based Center for Post-Industrial Studies and editor in chief of Svobodnaya Mysl.

the united States and europe cannot extricate themselves from the current situation without accelerating inflation.

Vladislav inozemtsev tHe moScoW timeS

Letters to the editorcartoons and the russian bearI read the articles on Russian car-toon animation [RBTH August 2011, “‘Smeshariki’ Seeks Global Audience”] and my mind drifted to the Russian bear. I Googled “Russian bear cartoon” and got lots of cartooned bears. None of them had the “right” design or character. Words that come to mind when I saw the ones in the list were: lumbering, mean, hos-tile, stupid, confused ... and they were all poorly drawn in the sense that the bear has no strong char-acter. Many of them looked like some political hack cartoonist in the 1800s.At first glance, this may seem silly,

but Russia is stuck with the bear as its mascot. It is part of the image of the country. However, that mascot is — more often than not — in the hands of Russia’s detractors, who use it in negative ways. So, my thought is that by designing the bear it can serve the purpose of promoting an in-spired Russia rather than a con-stant reminder of the past. By fix-ing/standardizing the image in the same way characters like Mickey Mouse and Bugs Bunny are standardized, the bear will not so easily lend itself to satire.

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and Solovyova had accomplished, he strode directly over to us and sat down in a soft director’s chair to talk.

Following a few hectic ex-changes with assistants and a brief cell phone conversation or two, Konchalovsky settled into a 20-minute talk about Chekhov as though that is all he could pos-sibly have on his mind. He an-swered my simplistic leading questions with thoughtful, expan-sive replies. It was as though he was sharing his love and respect for Chekhov in a private chat somewhere on a back porch.

Chekhov, Konchalovsky ex-plained with conviction and a cer-tain amount of admiring awe, “was very often perceived to be weak, shy and compassionate. It’s not [true] at all. [...] He was a womanizer. He was terrible with women — and with men. Very cruel. He was cynical and he was not happy because of that.”

Here again was Konchalovsky, the artist fascinated by craft — in this case, the craft of living a life no matter how well or badly. He spat out these hard, probing words about Chekhov almost as though they were poetry. He hit his consonants and drew out his vowels in such a way as to cap-ture the rhythm of what it is to be cruel, cynical and unhappy. Chekhov, he said, was his god. And as he spoke, I could see him testing himself against the great writer and working to make me understand why that was impor-tant.

I recently looked at my film again to verify my quotes and once more I was struck by Kon-chalovsky’s complete and total involvement in the words he spoke at that speci� c moment in time. Nothing cast, as the saying goes, like pearls before swine.

embraced a rebirth of folk art and Slavic heroes. For Slavnikova, this stylistic nostalgia created a “his-torical dreaminess in their weak and impressionable heirs.” His-tory becomes a virus and then an epidemic.

Slavnikova imagines a fake but bloody civil war, as inevitable as it is inauthentic. The striving for authenticity, rejecting the super-� cial sparkle of wealth and the “culture of copies,” is a keynote of the novel.

The protagonist, a gem-cutter called Krylov, relishes the trans-parency of quartz; his polishing is an attempt to reveal what he sees inside. Despite this back-ground in a lovingly depicted trade, Krylov’s aimlessness nudg-es him towards the ranks of Rus-sian literature’s famous super� u-ous men. The women in Krylov’s life are disappointingly allegori-cal. His wife, Tamara, is � eshy and glamorous, worldly and cynical, while Krylov’s lover, the myste-rious Tanya, is slim and spiritual. Krylov and Tanya’s poignant and fragile relationship recalls that of Anna and Dmitry in Chekhov’s “Lady with a little Dog” mixed up — in this case — with a spy thriller. Tanya is a frustratingly elusive character, identi� ed with the legendary “Stone Maiden,” one of the rock spirits who occasion-ally threaten to lead the novel veering off into the thickets of magic realism.

Deep-rooted paganism and folklore are just two of the fac-ets of Russian culture the book begins to explore. “2017” is packed so full of ideas and images it sometimes threatens to explode under the pressure. Its strength is in its linguistic subtlety and ingenuity.

Phoebe Taplin is the author of “Moscow Walks,” published by RIA

Novosti and available this month.

Recently the Winzavod gallery in Moscow host-ed a retrospective of An-drei Konchalovsky’s

work, screening nine � lms, all of them made outside ofRussia.

I believe I have met Andrei Konchalovsky just twice and both times are burned into my experience — not only my mem-ory — as events of signi� cance. Of all of the impressions I carry of Konchalovsky and his work, perhaps this takes precedence over all: his extraordinary abil-ity to be composed and present in the moment.

He demonstrated this com-posure when I interviewed him for a small documentary � lm I was making about Anton Chek-hov. Konchalovsky’s “Uncle Vanya” is one of the � nest cin-ematic adaptations of Chekhov ever made, and by 2007 he had set himself the mission to direct all of Chekhov’s plays on stage.

Konchalovsky asked me to meet him in a cavernous ware-house, small sections of which had been remade for his � lm, “Gloss,” into a chic penthouse. I and my small � lm crew showed up slightly in advance of the agreed-upon time and so had ample opportunity to watch the director go over and over a scene in which a thug strikes a terri-� ed young man across the face with a fashion magazine.

Deliberately, as though he had nothing but time on his hands and no other task in mind, Kon-chalovsky worked carefully with his cinematographer Maria So-lovyova to catch just the right angle, just the right motion for the few violent seconds that would remain in his � lm after the editing process.

Without interrupting his work, he acknowledged my presence at one point and apol-ogized, again, that I would have to wait until he was done. When he was satis� ed with what he

In the mythical Riphean Mountains, gem prospectors, called rock hounds, search for precious stones. On the

streets of a Russian city, ro-mance unfolds against the back-drop of the centenary of the 1917 revolution — seemingly a call to repeated violence. Olga Slavnikova weaves these par-allel plots and settings together in “2017,” an ambitious, post-modern contribution to a re-vered literary tradition. Slavnik-ova’s strange, genre-defying novel, winner of the 2006 Rus-sian Booker Prize, � nally made it into English in Marian Schwartz’s luminous transla-tion.

There is a great heritage of Russian sci � , most of it decid-edly dystopian. Several recent novels have set their action a few years in the future to cre-ate a satirical alternative pres-ent: Tatyana Tolstaya’s “Slynx” and Dmitry Glukhovsky’s “Metro 2033” use post-apoca-lyptic scenarios.

Slavnikova � irts with the sci-� genre. She winks at rejuve-nating nanotechnologies and � ashes a few holographic toys, but a more serious prognosis is found in ecological catastrophe, which is poisoning the miner-al-rich Ripheans (reminiscent of Slavnikova’s native Urals).

The anniversary of the revo-lution reinforces the idea of a recurring national destiny. Many 19th-century Russian artists

THEATER PLUS

BIBLIOPHILE

Andrei Konchalovsky: Calm in the Midst of Chaos

Mining for Love in a Dystopian Russian Future

Of all my impressions of Konchalovsky, this takes precedence: his ability to be composed and present in the moment.

TITLE: “2017”

AUTHOR: OLGA SLAVNIKOVA

PUBLISHER: OVERLOOK/

DUCKWORTH PUBLISHING

That is why South Korea, Argen-tina and a group of African coun-tries have presented collective showcases here, attracting glob-al attention to their fashion mar-kets. Russian designers would do well to follow suit. “The antici-pation and stakes are high. The potential for subsequent success and consequences of failure to impress are both measured in cold hard cash,” said Rubin Singer, a Manhattan-based American de-signer with Russian roots.

Few Russian or post-Soviet de-signers will make it to New York Fashion Week — yet. They cut their teeth at the fashion festi-vals at home: Between Moscow and St. Petersburg there are six fashion weeks. Occasionally, a star breaks through. Easily the most memorable debut in recent years belongs to Vardoui Nazar-ian. In� uenced by Armenian ar-chitecture and culture, her shows are among the most anticipated each season. Vika Gazinskaya ex-ploded onto the scene when one of her collections was presented to critical acclaim at the iconic Colette store in Paris. Her the-atrical style is so distinct that “very Vika” is becoming slang for “cool” among fashionistas. Le-onid Alexeev, who received the coveted St. Martin’s College of Art & Design diploma, chose to return home to launch his label. While many young Russian de-signers end up trapped in na-tional looks or folklore, Alexeev follows his own chemical muse. His last collection was inspired by the process of breakdown in oils and acids.

Among those vying for the global spotlight are Russian fash-ion stars Lena Vasilyeva and Oleg Biryukov, whose work appeals to the country’s elite while still try-ing to reach a mass audience. Vas-

New York: Post-Soviet Designers’ Final Frontier CONTINUED FROM PAGE 1

Two Designers to Know

Kuralai NurkadilovaBeginning this fall, the Kazakh army will be outfitted with new uniforms designed by Kuralai Nurkadilova. The attire will feature tradition-al Kazakh folk motifs and embroi-dery. KURALAI fashion collections underscore Kazakhstan’s desire to remain at the intersection of East and West.

Alexandre PlokhovPlokhov’s gothic menswear line, “Cloak” had a devoted following, and his fans were distraught when the line was shuttered in 2007. The designer returns to New York this year with a Spring/Summer 2012 collection presentation at Barneys that includes deconstructed, slim jackets and asymmetrical tailoring.

Restaurants Andrei Dellos believes New Yorkers are ready for his unique brand

Andrei Dellos, one of Russia’s best-known restaurateurs, has de-cided to bring his unique, grand, old-world style to America.

“I don’t know how I can shock the Moscow public, so I decided to go west,” Dellos said, explain-ing the reasoning behind his de-cision to set up shop in New York.

This year, Dellos plans to open two brasseries and launch a con-fectionery factory on the outskirts of New York. The brasseries will be tailored speci� cally to the New York market, with a simpli� ed menu that still adheres to 19th-century traditions. The Brasse-ries Pushkin will also have a patisserie at the entrance.

The opening of the brasseries, scheduled for this winter, will be a litmus test of public taste. “There are certainly no analogues to what we have conceived in New York; we have seen all the Rus-sian restaurants here,” Dellos said. He divides Russian restaurants in America into two types: holes-in-the-wall opened by émigrés and Russian restaurants opened by Americans that have nothing to do with Russian cuisine.

“Russian restaurateurs abroad have repeated the fate of Russian ballet,” said Dellos. “Having lost their ties with Russia, they changed irrevocably. Today, we offer the West genuine, classical Russian recipes.”

Moscow restaurateur hopes 19th-century Russian cuisine in an historically informed atmosphere will be a recipe for success in the New York market.

What Would Pushkin Eat?

Restaurateur Andrei Dellos shows off his flair for interior design at his restaurant, Turandot, in Moscow.

NADIA POMERANTSEVASPECIAL TO RBTH

This attitude may be why Del-los is not deterred by the fact that one of the locations he has rent-ed for a brasserie is on 57th Street, next door to the famous Russian Tea Room.

The Dellos team has been work-ing in New York for several months now and is at the stage of � nding chefs and choosing sup-pliers. In Moscow, Dellos’s res-taurants mainly work with farms but, in an unfamiliar market, he prefers to follow the advice of professionals.

“We will look for chefs on the local market, which will make it much easier to lure clients,” said Dellos, “because the local chef knows all the nuances of

the restaurant business, the cli-ents’ tastes and the local condi-tions.”

If the Brasserie Pushkin proj-ect gets off to a good start, Del-los will open three or four bras-series and, in early 2012, New York will get its own Café Pushkin gourmet restaurant.

“The project is very original for this market, and it’s likely that the restaurant will be interesting to consumers,” said Maxim Klyagin, an analyst at the Finam Management Company.

Dellos is � nancing the Ameri-can project by himself; he esti-mates that opening the two bras-series will cost about $2 million, not including advisers’ fees.

With luck, Dellos says, he will make back his investment in the � rst 18 months; with average de-mand, it will take between three and four years. Dellos would like to expand into other major Amer-ican cities, but it all depends on New York.

“We are only interested in open-ing restaurants abroad if they are hugely successful,” Dellos con-cluded.

The Nurkadilova collection heralds from Kazakhstan.

“I don’t know how I can shock the Moscow public, so I decided to go west,” Andrei Dellos said.

ilyeva got her start designing pri-vately for some of country’s most beloved actresses. Her style epit-omizes both Moscow’s sense of tradition and renewed self-con-� dence: classic silhouettes, bold palettes, no showoff gimmicks.

80% of Russian spending on luxury goods

takes place in Moscow, although re-gions are courting luxury brands.

IN FIGURES

Success Begins at HomeFor centuries, Russia has been a premier producer and consumer of luxury fashion goods. From Vikings to Silk Road traders, diverse influ-ences created the country’s sense of style. Russian experiments in fashion, however, have historically been heavy-handed: Peter the Great enforced a European dress code; Soviet ideology shunned all things Western. The collapse of the Soviet Union presented yet another set of challenges. During the Soviet era,

a dress sold in Siberia could be de-signed in Armenia and made from Uzbek cotton in Estonia. Suddenly, this transaction was a complex af-fair involving customs duties. Un-derperforming production facilities and difficult logistics have made foreign buyers skeptical about part-nerships with post-Soviet designers, but now Russian fashion infrastruc-ture is expanding, driven in part by the domestic demand for higher-quality goods.

Biryukov is among a handful of Russian designers with a signa-ture look and feel; the St. Peters-burg resident stood by his “cou-ture intellectuelle” and weathered many trend storms while nurtur-ing a niche for sensuous mini-malism.

At its pre-� nancial crisis height, Russia’s luxury spending was an impressive $8 billion. Slashed nearly in half, the market forced the withdrawal of brands such as Vivienne Westwood, Alexander McQueen and Stella McCartney. Now, it is steadily regaining vol-ume, and these brands are making a cautious comeback. According to Moscow-based fashion consult-ancy Esper Group, in 2011 Russia’s luxury market is set to grow by 16 percent, outpacing the global rate of 10 percent. The country is on track to reclaim its position as the world’s fourth-largest consumer of luxury goods.

While 80 percent of the coun-try’s luxury trade happens in Moscow, many regional centers are courting brand attention. Rostov-on-Don, a vibrant south-ern city, boasts Salvatore Ferrag-amo, Sonya Rykiel and Pierre Cardin boutiques, with others on the way. “This momentum is ex-citing, but it does little for Rus-sian designers. Our consumers traditionally place a premium on imported fashions. It creates an odd boomerang mentality. One must prove oneself overseas to get noticed here,” said Alina Mat-lashenko, editor at regional M.M.G. Fashion & Beauty mag-azine. The pressure to show abroad is intense, but those who manage to do so reap the re-wards. And if the KURALAI col-lection debuts at Mercedes-Benz Fashion Week in New York next February, it will help put Ka-zakhstan on the world’s fashion map.

Additional reporting by Alexey Timbul in Russia.

Stephan Rabimov is the founder and editor in chief of Depesha Russian Lifestyle Magazine and C.E.O of Depesha, a communica-tions agency.

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Russia’s drive to become a glob-al sports destination does not stop at the Sochi Olympic Games. Both before and after the 2014 Winter Olympics, the country will host sporting events that will boost its international pres-tige — and require staggering investment.

Following the Sochi Winter Olympics, the World Swimming Championship will take place in 2015 in Kazan (which is also hosting the 2013 world summer Student Games). In 2016, the country will host the World Ice Hockey Championship and, two years later, the soccer World Cup.

Sports Russia to host multiple international championships

With four major championships scheduled in its territory, Russia is pouring money into developing infrastructure — and not just sports facilities.

By moving four major interna-tional tournaments eastward over a four-year period, Russia is, in a way, rewriting world geo-politics.

But just as significant, the events require Russia to under-go a major infrastructure up-grade. Huge amounts of money are being invested under pub-lic-private partnership initia-tives, and the bulk of the invest-

ments will be used to develop infrastructure rather than build sports facilities. Strategic proj-ects such as ports, roads, tour-ist routes and railways are being

developed on the assumption that sporting events will ensure sustained economic growth in the country.

Not until after the 2018 World Cup will Russians be able to re-view the results of the work that is starting with the preparations for the Sochi Olympics. These two key events will cost about $37 billion, a veritable moun-tain of cash, most of which Rus-sia has already raised. Accord-ing to Dmitry Chernyshenko, head of the Sochi Organizing Committee, the 2014 Olympics have already raised a record $962 million. Vitaly Mutko, Russian minister of sports, says the World Cup will cost $23 billion. In that case, more than a third of the resources will be used to build express highways and ordinary, not sports, facilities.

Thanks to sponsorship by business tycoons, the country is

Tournaments Open New Field in Geopolitical Game

By 2018, 13 Russian cities will have hosted major international sporting events.

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The closing ceremony of the 1980 Olympics featured Misha the bear.

in no danger of a � nancial back-lash that might undermine the state budget as happened in Greece, where the cost of host-ing the Olympic Games in Ath-ens constituted the � rst step to-ward default.

The government’s plan for pre-paring for the Winter Olympics on the Black Sea coast calls for $14 billion in investment; two-thirds will be put up by the state and the rest by private investors. Gazprom alone will invest $185

million in the Russian Olympic team. Another $53 million will be needed for the construction of roads and railways, and yet more money will need to be raised to build a new airport.

To prepare for all these events simultaneously is a real chal-lenge, especially given wide-spread doubts about Russia’s ability to follow through on its plans. But the country intends to use these events to put it on the map in the world of sports

and to build from there. St.Petersburg is planning to bid for the 2024 Olympic Games. Marat Bariyev, the head of the Russian Olympic Committee, has said that he already has President Dmitry Medvedev’s support in the battle for the 2024 Olym-pics.

How Russia manages the events between 2014 and 2018 may be a significant factor in assessing the northern capital’s chances.

The country intends to use these events to put it on the map in the world of sports and to build from there.

At the closing of the 1980 Mos-cow Olympic Games, thousands of spectators had tears in their eyes as they sang along with the unofficial anthem of the games, “Goodbye, our Gentle Bear.” To this doleful tune, the beloved Olympic mascot, a cuddly bear, was lifted into the Moscow sky by a bunch of balloons. Twenty- o n e years later, the Olym-pic bear is back, although the intervening years have left their mark on the character and appearance of this legendary symbol. The Russian bear has be-come more aggressive, determined and has acquired business acu-men. According to the Russian Olympic Committee’s plans, the Team Russia brand has more to do than unite athletes and fans. It must also make money for the Olympic budget.

Casting the role of the new Team Russia mascot did not take long. In late July, President Dmitry Med-vedev announced that the coun-try needed a new set of sports sym-bols with a universal appeal. “If it turns out well, our performance will be different,” the president said. As a result, in just over a month, the Mildberry Agency, which focuses on sports branding, came up with a new version of the old face of Russian sport. The de-signers decided that, rather than invent a new brand, the best idea would be to take an existing one and invest it with new meaning, the agency’s managing partner Oleg Beriev told Vedomosti.

Beriev argues that most Rus-sians recognize the bear as a na-tional symbol. Yet some wonder if the meaning the designers put into the new logo is the best one for an image meant to broadly rep-resent Russia on the global stage.

“The image would be natural for a rugby or boxing team, the clear message being, ‘We are Rus-sia and should be taken serious-ly,’” said Alexei Andreev, co-pres-ident of the Association of Russian Branding Companies. “In any event, we have a brutal symbol, whereas in the modern world, strong nations tend to be ironic about themselves.”

Symbols Team Russia represented by a new take on an old favorite

More than 20 years after a cuddly cartoon bear won the hearts of fans at the 1980 Moscow Olympic Games, the legendary symbol is reinvented for Team Russia.

“There is nothing wrong with the bear itself, but one wonders if the idea has been implement-ed well,” said Della Bezelyanska-ya, director of the Chorus art cen-ter. “One gets the feeling that the authors were under pressure to come up with something new and startling, and that this pressure produced something arti� cial. The

American Team USA project was far less ambitious and therefore more authentic.”

How do sports fans feel about the new symbol? They seem to have the same mixed feelings as the experts. “I would wear such a bear cub, only without the words Team Russia and the ubiq-uitous tricolor, every day,” said

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Fans say they will wear the brand.

1980 Moscow Olympic Games MascotThe bear started appearing as a symbol of Russia in the 17th centu-ry when the Romanov dynasty be-gan the country’s expansion east-ward. Although bears are found in much of Russia, the presence of the animals was not actually the main reason that they came to repre-sent Russia. As Russia expanded in th 19th century, British newspapers used the bear as a satirical meta-phor for the country, symbolizing their own imperial ambitions with the much more “civilized” lion, as opposed to the unpredictable and lazy bear. The Olympic Bear Misha, however, was far from a symbol of prowling imperalism. In creat-ing the symbol for the 1980 Olym-

pic Games, illustrator Victor Chi-zhikov was tasked with showing the “friendly face” of the Soviet Union. He ended up doing much more, cre-ating the first major Soviet sports mascot. Bears continue to hold a special place in Russia. The Mildber-ry Agency, which was hired by the government to develop an emblem for Team Russia, recently an-nounced that it would use a bear. The agency heeded the words of President Dmit-ry Medvedev (whose surname means bear), who argued: “It is crucial to find some image that is shared by most Russians.”

Anna, 20, as she left Moscow’s Lu-zhniki Stadium after watching a soccer game. Her boyfriend, Oleg, disagreed, arguing that the pa-triotic colors should be left in: “These aren’t clothes for the street or the gym; it is the battle colors for a stadium — to scream and shout and get crazy.”

Right now, the Team Russia

brand is known to just a few specialists. But in September, the bear will start its triumphant march across the country with a massive advertising campaign sponsored by the Olympic Com-mittee. The face of the bear (who has yet to be named) will stare out from TV screens and billboards in cities all over Russia. It will invade

the Internet and even crowd out the official logos on the uniforms of Olympic athletes. The aggres-sive bear will also hover over pop-ular sports festivals, such as the Moscow International Street Bas-ketball festival.

So far, developing the brand has cost $170,000, with the es-timated advertising costs at $5

million. The � gures are very tentative, as the � nal cost

will depend on the scale of the project. The Olympic organizers are sure that the brand is

worth the money, and that very soon the fighting

bruin will be bringing money into the government coffers.

“Such brands are already work-ing in many countries: Team USA in America, Ital Team in Italy and GB Team in Britain. These brands cost a staggering amount of money and advertisers cooperate with them actively,” said Fyodor Shcherbakov, managing director of the Professional Sports orga-nization, which is responsible for raising money for the Russian Olympic Committee.

Shcherbakov predicts that if Russia’s professional sports fed-erations join in promoting the Team Russia brand in 2011–2012, as much as $1 billion could be raised. So far, his agency has signed contracts only with the Russian Alpine-Ski and Snow-board Federation and the Golf Federation, but before the end of the summer, they hope to reach agreements with 10 more sports a s s o c i a -

tions.

of Russia’s professional sports as-sociations have signed contracts to wear the new Team Russia logo. Ten more organizations are expected to sign agreements soon.

could be raised for the Games through the sale of TeamRussia merchandise featuring the new bear, according to marketing experts.

is expected to be spent on advertis-ing the brand across Russia. Soon the bear will appear in television ads and stare down at fans from billboards along major roads.

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Officials hope that a unified bear symbol will inspire players and fans at international sporting events.

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