Ben Aris in St Petersburg -
The theme of the 2015 St Petersburg International Economic Forum (SPIEF) is "Time to act: shared paths to sustainability and growth". But as Russia pushes through major economic upheavals and growing international isolation, President Vladimir Putin’s speech in the northern city on June 19 was conspicuously lacking a real action plan to re-energise the business environment.
“We are responding to the today’s limitations [placed on Russia] with the openness of the Russian economy,” Putin told a large audience of mainly national but also foreign business and political figures.
However, the president’s message that there will be various tax breaks on profits that are supposed to provide stimulus for Russian business was about the sum total of the practical support offered. And it is not onerous taxes on profits that is the problem for Russian business, which already enjoys one of the lowest rates of tax in Europe, but the lack of growth and the stifling bureaucracy that is preventing a recovery.
Putin went on to outline a number of new state initiatives to improve the business climate, including support for technology and business administration. He even proposed a committee to support the development of talented Russian children. But as usual, the focus was on state bodies and consolidating and improving state bodies tasked with "promoting" various economic activities that the private sector should be engaging in.
The idea is right. The identification of the parts of the economy that should be promoted is right. But the way these problems should be solved is completely wrong. The one point where Putin called on business leaders to get involved in improving Russia's business environment was about their joining the boards of universities to help shape education for the future.
Meanwhile, as Russia steps up its import substitution drive to counter the effect of EU and US sanctions, Putin also stressed that it was not about building up barriers to the outside world, but about making the most of domestic potential. “We are open for the world,” he stressed.
Putin, a former Soviet KGB agent and ex-head of Russia's FSB federal security service, delivered a stock cool appraisal that downplayed the shocks of recent months as Russia weathered Western sanctions and above all the collapsing global oil prices - a point Putin did emphasise in his opening remarks. But while Russia's industrial output fell by an alarming 5.5 percent year-on-year in May (up from 4.5% in April), he focused on restored calm and the country's still impressive $360bn reserves.
"Last year we were predicted a deep economic crisis, as you know. This did not happen. We have stabilised the situation, halted the negative volatility, and we are confidently going through a period of difficulties," he said.
Crisis-hurdling tops 'very Russian' forum
One distinct theme has emerged from interviews conducted by bne IntelliNews at this year's forum: The larger, well-established companies and banks are taking this crisis in their stride. Almost all CEOs and managers had planned for a crisis, not because they were expecting one in 2008 or 2014, but because crises are part of the weft of the Russian business fabric.
"This is my third crisis," said Franz Marx, CEO of paper maker Ilim who took over the helm of the company a month before the 1998 crisis broke. "We don’t want to miss this crisis. We are thinking about how we can improve our position on the local market and go up a level on the international market." So Ilim has doubled the amount of training its does and invested heavily in a new line to produce coated paper that has lead to a halving in Russia's import of quality copy paper in the last half year.
However, this year's SPIEF is a very Russian affair. Apart from the journalistic fixtures like bne, Bloomberg and the FT, few other papers seem to have sent correspondents. There is also a dearth of European CEOs other than those that already have businesses in the country and were appearing on panels. The language spoken in the grassy garden in the centre of the ‘Lenexpo’ complex is for the most part Russian, with a smattering of English and Chinese.
Putin also took up his favourite theme of creating a multipolar world in place of the unipolar one dominated by the United States. SPIEF is a testament to the intention if not the success of the emerging markets clubbing together to form a new economic block to counter the developed world paradigm. In addition to a strong Chinese delegation, there were plenty of India representatives, who are becoming increasingly active in Russia. The head of the newly founded $100bn BRICS Develop Bank (aka New Development Bank, or NDB) is Indian banker Kundapur Kamath, who will serve for five years.
A work in progress, closer cooperation between the BRICS countries (Brazil, Russia, India, China and South Africa) the has been catalysed by the conflict with the West over Ukraine. The talk is increasingly about turning to "south-south" trade, where the priority for emerging markets is to invest and trade with each other. The west is welcome if it wants to participate, but the emerging markets are not going out their way to coax them in. Russia doesn’t have a choice following the extension of EU sanctions for another six months on June 17.
It's all Greek to the Kremlin
Far from being isolated, Russia's importance to the rest of Europe was highlighted by the presence of a Greek delegation at SPIEF. The main actors in the Greek crisis seem happy to choreograph an ending with this week’s “last ditch” negotiations to be followed on June 22 by a “final” summit of EU leaders. But it is significant that in the middle of the country's almost existential crisis, Greek Prime Minister Alexis Tsipras took time out to travel to St Petersburg to meet Putin. Tsiapras, who amid his country’s financial horror story, has been actively courting Russia for some heavyweight economic support, was accorded the honour of speaking immediately after Putin. It was clearly no coincidence that his message was about shifting global economic centres, and how Europe’s believe in itself as the centre of the world is now being fundamentally challenged.
While Russian Finance Minister Anton Siluanov said ahead of the meeting that the Greeks were not asking for money, it is clear the delegation didn’t come to sample Russian blin pancakes and a tour of the Hermitage museum either. Despite the partial write-off of Greece’s debt in 2012, its public debt now exceeds €315 billion, which is 175% of GDP.
Before their leaders addressed the forum, Russia and Greece signed a $2bn deal to ship Russian gas via Greece to the EU, circumventing the current main supply route in Ukraine by constructing pipelines via Turkey and then Greece.
The Russo-Greek talks presumably focused on the basis for co-operation and financial support between the two nations in the event of Grexit, and pegged on the EU gas supply project Putin has been pushing since a similar route via Bulgaria was cancelled in 2014.
It is an attractive deal for Tsipras, as instead of a "extend and pretend" bailout deal of debt that will have to be paid off eventually, Putin's offer is for real investment into infrastructure that will earn Greece transit fees in perpetuity. It also has the cherry on top of cheaper energy for Greece, cutting the pressure on the budget. And that is all in addition to whatever Putin may offer in the way of the cheap financing that it gave to Ukraine in December 2014. Of course therein lies the rub: you don’t do a deal with Putin without offering a quid to his pro quo. But given that Putin would probably be delighted to simply driving a wedge deep into EU unity, the terms are unlikely to be prohibitive for Greece.
No big vision
But what was missing from Putin's speech was a vision for the future, a big plan on how to deal with the deep structural problems that Russia is facing and are blindingly obvious to everyone, even those in the Kremlin. Instead, the president called on business to buckle down and invest in the local economy.
bne IntelliNews commentary on forum: https://youtu.be/rpMaDl5GKRg
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