Russia in 2005It is fashionable to say that the Russian bear has begun to growl again and recent events in Ukraine seem to underline how different is Russia from the rest of democratic Europe. Actually this is unfair and wrong: it is actually the ageing liberal democracies of Europe that have been provoking Russia this year. There have been acres of newsprint about the new accession states in the EU, but too little about how foolish it was to open up NATO to the countries of Mittel Europe. Russia saw NATO expansion as arrogant, dangerous and aggressive and its military planning and, subsequently, budget, was shaped accordingly. “Whose NATO there to fight if not us?” say Russians, not unreasonably.
Europe, I should add, is ‘somewhere else’ or, as a senior journalist on RIA Novosti recently put it: “Russia is not a part of Europe; still less a part of Asia: it is a continent unto itself.”
Of course, readers have some romantic ideas about bringing freedom to the former Eastern block. Well, for all the news reports you have read about Russian interference in Ukraine, I could show you some about the famous US PR giant, with long-established White House links, hired to promote the opposition, paid by shadowy US ‘Foundations’, who chose the colour orange, provided the tents for tent city and even the Styrofoam necessary to peg them. Russia feels challenged and provoked and, if it genuinely doesn’t want to bring back the Soviet empire, the country and its people do miss the respect that Soviet power brought them.
Most people view 2004 as a terrible year for Russian business, focusing as they do on the seemingly endless Yukos saga: like one of those seventeenth century revenge tragedies where the victim takes forever to die. Of course, seen from the perspective of any sane, mature market, the angry dismemberment of Russia’s most successful company seems perverse.
Moreover, there are other examples of business in peril that suggest Russia remains a mad place to try and do business. Vimpelcom, the number two mobile telephony operator in Russian – owned by one of the countries most ‘colourful’ oligarchs (Mikhail Friedman of Alfa Group) – spooked the whole stock market after announcing a surprise back-tax demand; in a country where tax fraud is a kind of baroque art form, the lightening bolt of a tax bill from many years past is seen as a nice touch. Finally, the Christmas retailing season opened with IKEA forced to delay opening its $300 million shopping mall after - bluntly – the company refused to pay the usual bribes to local officials in order to get the necessary opening permits. By not paying the bribes, and then going public about the fact that bribes were sought, the IKEA general manager in Russia told local media: “I fear for my life”. Yeah well, Stockholm this isn’t.
The truth, though, is that these isolated examples do not reflect what is really going on in Russia. This year the country looks set to cruise in with about 7% real growth (think three years’ German growth), while the consumer probably has around 20% more in disposable income.
Putin has changed people’s lives, having swept away the last vestiges of the Yeltsin ‘kleptocracy’ and introduced a set of tax structures that genuinely make ordinary people richer (with a benign 13% flat rate of income tax). President Putin boldly set out his second (but surely not last!) term ambition of setting Russia on the path to doubling GDP by 2010. He’ll do it too.
Next year, Putin’s oil-based largesse extends to the business sector; where employers’ social taxes will be reduced from a gut-wrenching 36.5%, down to 26%. For those of us who actually pay our employees ‘white’ salaries, this is a very welcome development. Indeed, as the carcass of Yukos is dragged through the streets of wintry Muscovy, it’s a fair bet to say that this season will see a flood of employers embracing paying all (well, ok, more) white salaries, encouraged by the carrot of next year’s lower payroll costs and the stick of business dismemberment by a vengeful tax police.
Why do foreigners want to invest in such a ‘difficult’ market? Well, where else would you invest? Some argue that China is better than Russia (although the corruption levels are largely the same and, of course, China has no oil); or India (much of that story has happened already) or Brazil (are you serious?). Putin and co recognise that however messily they rein in the oligarchs and ‘restructure’ capitalism, western companies will still pour in money. As has been said before, “big companies have short memories” and each new wave of inward investor thinks that they are wiser than their predecessors, while the allure of profits (over the meagre offerings from older, more expensive and more regulated EU markets) is persuasive.
There remain sound reasons to back Russia as a business space and it is not for nothing that I have advised our client, Economist Conferences, to theme their press conference for their 2005 season opener “Beyond Yukos: Russia’s resilience as a global business opportunity”. Russia retains a highly educated and still good value employee-base, perfect for manufacturing industry; but challenging for PR which, like other service sector jobs, currently has 25% annual wage inflation for bi-lingual staff.
Aside from the horror stories that arise from time to time, there is actually a great deal of good news about the Russian business space and a lot of confidence. Of course, it is the big oligarch-related stories that capture the imagination, precisely because they are iconic. They are not the whole truth though. The fate of Yukos has been set a year or more and, some will argue, was an inevitable outcome (although no-one would argue that it was profoundly gauche in its execution). On the wider issue of oligarchs, a final solution is needed to legitimise both their wealth and the state’s acceptance of it. More and more people would argue for a one-off ‘windfall tax’, just as the British government imposed on certain privatised utilities in 1997. The trouble, of course, is that ‘one off’ is not a particularly Russian concept and usually becomes ‘precedent’.
The truth also is that the Russian media still fails to cover itself with glory in reporting these stories. Russian journalists still want the power of the fourth estate but, in reality, remain just as venal and obedient as in Pravda’s heyday; at least in matters political. For serious stories – agenda-setting stuff beyond the usual marketing communications – much press coverage is still ‘bought’. This is not a ‘brown envelope’, shady thing: a tariff is actually published by the offices of most editors: stating how much per size of article (with 50% uplift if the point of the article is to attack another).
In business media, however, things have greatly improved, as well as in certain trade press. It will surprise no-one to learn that the blackest trade media remain oil and banking. That said there are the first glimmers that even in the consumer press, there are PR tools that will work that don’t require a wad of euros (now much preferred over dollars).
For public affairs practitioners used to the classic western model of giving momentum to change or policy issues – float it in the media and take it first political, then legislative – this presents a challenge. Coalition building, which corporate issues advisers talk about but rarely practice, is just crucial here. A subtle patchwork of commercial, regional, governmental and, yes, media interests must be woven together to provide an ‘issue block’ that can deliver the chances of change.
Everything is seen through the prism of ‘Russia First’, a fact that foreigners often forget when compiling their plans for Russian projects. Neither the Russian media, nor its readers and viewers much care about your plans or objectives; they only want to know ‘what you will deliver to us’, as they would see it. Russia has always seen itself as different, but now sees itself at a critical juncture; able to achieve a status – through being Europe’s hydrocarbon master - not possible under Soviet Communism. |
