What’s Different?

[Deb Palmieri on Russia Table of Contents]

The following article was published in the Russian Commerce News, January-February-March 2002. The Russian Commerce News is the official publication of The Russian-American Chamber of Commerce®.

What’s Different?

The question was placed before me. What is different now in Russia to justify foreign investment? What changes have occurred to make Russia a more attractive place to sink in millions, or possibly billions, in capital? The query was made by an American CEO looking at Russia with curiosity and interest, particularly in the post-September 11 international environment. He’s not the only one to look at Russia with a new slant. It seems like all of a sudden, team player Russia and ally-in-arms in the war against terrorism, is the darling of international investors. The world of money is trying to assimilate and digest the fact that Russia was the strongest stock market performer last year; that the economy was one of the strongest performing globally; that its ratings from agencies such as Moody’s and Standard & Poor’s are improving; that Russia is paying down debt and has restored its creditworthy reputation; and that despite loudly touted controversies and disputes, Russia is looking more and more attractive and even stable, comparatively speaking. Yes, you heard right, a stable haven for investment. Compare Russia to Argentina, for example, or to Indonesia or to South Asia. There is no comparison, Russia looks like a bastion of stability and normalcy by comparison. And it’s also true, a high ranking insider and veteran confided to me, “Only a moron would invest in Russia.” How to reconcile this?

Welcome to the paradoxical world of understanding and dealing with Russia! Investing in Russia is a test of your applied knowledge and wisdom, your ability to think fast and smart in a highly complex and changing environment, and your ability to deal with people who come from a different mindset and history than you do. It’s guaranteed that there will be winners and losers. Biggest winner attribute? The right knowledge, coupled with the right strategy, thinking, partners and implementation strategy, coupled with a deep understanding of how to deal with Russians. Biggest loser attribute? Failure to structure deals properly and to anticipate how to troubleshoot problem areas from the beginning, resulting in costly disputes or losses.

There is no doubt in my mind that there is a revolution underway in the Russian investment climate, one which is creating the basis for an improved investment climate and institutions that are standard in a free market and democracy. Such changes will take place over the long-term, and some will see quicker results. The fundamental reorientation of Russian society has taken place with Vladimir Putin at the helm, who will be viewed by history in the same vein as Peter the Great, for the impact he will have on modernizing Russian society.

Impressive changes have taken place in the area of market reforms, which are really the underpinning to explain improved Russian economic performance. You can list ways in which accounting and tax reforms and favorable foreign investment legislation have taken place in the last few years that inspire confidence and demonstrate a long-term commitment to market reform and the adaptation of Western procedures and norms. Russia is paying back its debts, courtesy of high oil revenues, and is now considered creditworthy, with memories of the August financial collapse a distant nightmare.

One of the most important changes has been the political and attitudinal change of the U.S. towards Russia. When Putin came on board in the fight against terrorism after September 11, it signaled that improved political and diplomatic relations would resound to support the expansion of bilateral economic ties, or at least to support a better climate for business now that Washington and Moscow could talk to each other with a common purpose at stake. It seems also that there is progress in the area of the accession of Russia into the World Trade Organization. This important step is expected to occur in 2003 at the latest.

Finally, the timing is right. There are changes in the global economy that favor developing the complementarities of economic interests between Russia and the West like never before. Russians better understand and believe they need foreign investment to modernize and grow, and they have demonstrated the will and determination to change.

The West understands the vast potential of the Russian Federation and the mistake of ignoring the world’s largest country as investment material. Both sides have developed a better understanding of each other over the last decade, and there is finally a better mesh between needs and expectations. There is a better understanding of how to accommodate each other and to understand the value that each brings to the table. I see a great future ahead in the next several years and beyond as all of this translates into a greater dollar flow into Russia.r