A Silver Lining . . .

May 9, 2007 Topic: Economics Region: RussiaEurasia Tags: BeslanHeads Of StateRosfnet

A Silver Lining . . .

 Tensions between President Putin and the West aside, a market economy has begun to function not only in the traditional centers of the country, but also throughout its periphery.

Over the last decade, the Russian Economic Forum in London has established itself as one of the most significant events on the business calendar and one of the most important points of contact between Russian and Western economic entities.

The big news this year was that President Putin dissuaded the heads of Russia's major state companies as well as senior Russian government officials from going to London and that many of the large privately-owned companies also downgraded their presence. To many observers this seemed to confirm the growing negative trends in the relationship between Russia and the West. I believe that there were also two additional reasons for the Kremlin to encourage the Russian majors not to take part in this year's meeting in London.

One of them was political, particularly because Mr. Putin tried to retaliate not only to the negative western attitude towards Russia, but also against the British government in particular, to show its dissatisfaction that London still refuses to extradite Boris Berezovsky to face trial in Russia. In addition, the Kremlin was very annoyed by the coverage and general attitude of British press in the Litvinenko case.

However, one should not forget that there was a pragmatic consideration as well. Mr. Putin tries to be not only a politician but also a businessman. He apparently decided that the London event will overshadow the long advertised Russian Economic Forum in St. Petersburg due to take place in June. And the reasoning went: The lack of participation of the major Russian companies at the London event will force Western companies to participate in July's event in St. Petersburg.

However, a closer look at the advertisement materials for the St. Petersburg event definitely called to mind the old Soviet "All Union Exhibition of Achievements of the Peoples Economy" (VDNKH). In addition, the Western business figure who wants to take part will also have to be approved by the organizing committee, which will either issue an invitation or reject the application.


Many Western businessmen were looking forward to meeting in informal surroundings with the Russian business and political elite in London and so were quite disappointed by Putin's decision, since almost all the key Russian companies such as Rosneft, Gazprom, Rusal, and LUKoil were not represented at the London forum.

However, we cannot say that the absence of the business elite, although upsetting and disappointing, was a bad thing. It was very interesting to observe how midsize and large-size retail Russian businesses tried to fill the vacuum created by the absence of state officials and major companies. These companies are mainly owned and led by young well-educated Russian businessmen; with lots of them possessing degrees from Western institutions. Many of them often started their careers by first working for the oligarchs or large conglomerates but later went on to create their own businesses.


Another remarkable thing is that they hailed not only from Moscow or St. Petersburg, but from a number of Russia's regions. Their presence is testimony to the fact that a market economy has begun to function not only in the traditional centers of the country, but also throughout its periphery. And these new businessmen took full advantage of the absence of the Russian majors to forge contacts with their Western counterparts.

Of course there is going to be a long way to go for Russia to become a truly market country. But it is encouraging to see the first signs of emerging normal businesses, not just notorious oligarchies and major conglomerates. It also indicates that the re-creation of the Russian middle class is underway, comprised of people not only working for the large (and often corrupt) corporations but also entrepreneurs setting up their own businesses. And these new businesses were, for the most part, not representing mining or other facets of extracting Russia's natural resources, but instead a wide spread of economic activity-including retail operations, services and financial institutions.

So there was a bit of good news coming from the London forum-that Russia is indeed taking its first steps towards a "normal" market economy becoming the norm, rather than the exception.

James Davis is president of South Shore Consulting. He took part in the Tenth Annual Russian Economic Forum in London this past April.