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Russia’s regions: Russia’s Future

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Alexei Mordashev, CEO, Severstal Group.

Alexander Shokhin, President, Russian Union of Industrialists and Entrepreneurs.

Alexei Lavrov, Head of Budget Policy, Ministry of Finance of the Russian Federation.

Given the location of this year’s EBRD Annual Meeting and Business Forum, it was appropriate that one of the event’s panel discussions should focus on attracting investors to Russia’s regions and developing business opportunities beyond Moscow.

It soon became clear, however, that regional development issues could not be separated from questions about international relations and the session held on Sunday 20 May, entitled “Russia’s regions: Russia’s future”, returned repeatedly to this theme.

In light of the recent EU-Russia summit near Samara, the panel considered whether – as moderator and regional expert Alexander Rahr put it – Russia is “changing the rules of the game” in its relations with the European bloc and turning towards Asia.

Aleksander Shokhin, the president of the Russian Union of Industrialists and Entrepreneurs and a member of several official Russian deliberative bodies, said Russia was eager to join the World Trade Organisation but needed to protect its interests. Mr Shokhin regretted the “accumulation of distrust” between Russia and the EU and urged European negotiators to “remove spokes” from the wheels of bilateral discussions.

The question of how to draw investors to Russia’s regions led to debate about foreign perceptions of the economic climate in Russia. Concerns about the extent of central government influence, for example, fuelled what Mr Rahr called “myths” about Russia, so how could these be countered?

Alexey Mordashov, CEO of Russian steelmaker Severstal, said his ties with public sector bodies were no closer than those of his European and American counterparts. “Western investors would have greater opportunities if they tried to understand the realities of a particular region,” Mr Mordashov added. “Sometimes Asian investors are more active, they spend their time focussed on the realities and less time on stereotypes.”

The panel next considered the extent to which the federal government could help stimulate foreign investment in Russia’s regions. Alexei Lavrov, the Head of Budget Policy at the Russian Ministry of Finance, argued that, following important administrative reforms, it was now up to regional authorities themselves to attract business and promote growth.

“Some regions have fulfilled their potential, others haven’t,” Mr Lavrov said. “Central government can try to balance things out, but only to a certain extent.” He said the federal government was in favour of infrastructure projects as well as a “fiscal smoothing out that doesn’t excessively punish rich regions while helping poor ones”.

Mr Lavrov urged foreign businesses to grasp the opportunity to influence local business practices in Russia’s regions. “You should use common standards of corporate governance and use these attitudes to try to change local attitudes, instead of trying to adapt to local circumstances. Many regions are open to accepting these standards and the less developed the region, the greater the opportunity.”

When the debate turned to interventions from the floor, Andrew Levi, a diplomat at the British Embassy in Moscow, responded to what he called the “one-sided” nature of the panel’s discussion on international relations. “The UK is the largest source of foreign investment in Russia. (…) We want Russia to join the WTO,” Mr Levi said. He also suggested that when Russian companies seek to list on western stock exchanges, concerns about corporate reputation – rather than political considerations – were an issue. “I agree that wise people on both sides should address the real issues and try to solve them,” Mr Levi added, referring to tensions between the EU and Russia.

These comments spurred further discussion of Russia’s ties with her western neighbours. Mr Mordashov in particular was keen to emphasise that “Russia is a country on the right track”, something which he felt foreign observers often fail to appreciate.

“We all underestimate the progress that has been achieved. When it comes to fiscal discipline, tax legislation or criminality in business, significant improvements have been made in the last 10 years,” Mr Lavrov said. “And the things we are talking about today would not have even been possible in 1988!”

By Mike McDonough, Communications Adviser
21 May 2007