President Dmitry Medvedev went to Davos after all, in spite of the horrific terrorist attack at Moscow’s Domodedovo airport just before the Forum began. He gave a keynote speech at Davos in which he outlined the ten points he believed were critical for modernisation in Russia. These have already been formulated inside Russia on several occasions, but have never been heard abroad in such a comprehensive form.
Russia. Better than Zimbabwe
So far, so good. Davos brings together leading investors and influential business people from all over the world, so it’s not hard to imagine what impression would have been given of the investment climate in Russia if the Domodedovo incident had prevented the Russian President from attending the Forum.
Dmitry Medvedev could have given the Forum a miss. People would have understood the reason for his absence.
However, the possible consequences should not be over-stated. All investors read the newspapers, and are, naturally, well aware of the fact that from time to time there are explosions in Russia. Not as often as in Iraq, of course. Investors also know that in some regions of Russia, there is ongoing conflict with militants. Although not as often as in some regions of Afghanistan. And on the whole they know from reading their newspapers that Russia does not have the best investment climate. Although in Somalia or Zimbabwe it is somewhat worse.
Essentially, Medvedev could have given the Forum a miss. People would have understood the reason for his absence. They would have read the day’s press a bit more attentively to compensate for the lack of personal interaction with the President. But this is where the most interesting question arises: why do top politicians representing countries such as Russia actually need to make speeches to investors anyway? After all, everything can be gleaned from the newspapers. The ten points of the modernization programme which Medvedev set out in Davos didn’t reveal anything fundamentally new to Russian analysts. I suspect that they didn’t reveal much that was new to potential investors either.
Mingling with presidents is obviously congenial for investors, which is why they come to Davos. But could it really be so that this mingling has any influence on economic processes?
I suspect it does. There are a number of issues concerning Russia that only Medvedev himsel can clarify. However, these issues were not discussed in Davos.
The Khodorkovsky case
Medvedev should, for instance, have given a detailed explanation of the situation surrounding the Russian entrepreneur Mikhail Khodorkovsky, who is currently serving a prison sentence. There have long been doubts that the court was unbiased towards Khodorkovsky. And he has only recently been handed down a second sentence. In the business community many people have the impression that the Russian authorities, seeing a potential political opponent in Khodorkovsky, plan to keep him in prison indefinitely.
Dmitry Medvedev could have clarified the Khodorkovsky issue. He was asked about this in an interview, but confined himself to vague generalities, practically repeating what Putin has said for domestic consumption.
Influential Russian business people in Davos claimed that Khodorkovsky’s second sentence would not affect the investment climate and perhaps it won’t, directly. But in this matter the opinion of such commentators is of no particular interest, as they are too dependent on Vladimir Putin to tell the truth. These people are effectively senior Kremlin propagandists, who receive a degree of support for good behaviour. Some of them directly represent public industries, and they are in the full sense of the word people who are dependent on the ruling regime.
Dmitry Medvedev could have clarified the Khodorkovsky issue. He was asked about this in an interview, but confined himself to vague generalities, practically repeating what Putin has said for domestic consumption. But Putin’s comments are propaganda aimed at millions of ordinary Russians. Serious potential investors need serious clarification of this problem. They want to receive clear and credible assurances from the head of the Russian state that an incident of this kind will not happen to another investor, especially a foreign investor. If Medvedev was only going to repeat a standard set of propaganda phrases, was it worth him going to Davos?
The stability of the Russian economy
Russia and the oil dependency of its economy is another important issue. Everyone saw quite recently that when the oil price drops sharply, the Russian economy goes into crisis mode. Unlike the economies of other BRIC countries. In the crisis year, GDP in Russia fell by almost 8%, while in China, for example, it continued to grow, although not without problems. In Davos, the Russian president should have taken the opportunity to explain to the business community whether the same thing would happen in the next crisis, or whether the Russian government is planning do anything over the next two to three years to prevent such collapses.
But perhaps this explanation was not essential. Some companies are prepared to invest in Russia even if its economy is unstable. But then one is mainly relying on capital which, at the first signs of a crisis, the investor can quickly move out of Russia. There is already plenty of “hot money” in the country. Does Russia really need such investments? And was it worth going to Davos to secure them? Furthermore, speculative investments in the Russian economy strengthen the ruble, undermine Russian companies’ competitive edge and increase the volume of imports. Russia urgently needs direct foreign investments in high-tech spheres of the economy, and such investments are, alas, extremely rare.
Medvedev could have tried to interest potential investors at Davos in just these kinds of investments. But he didn’t say anything serious on the subject. Even the average Russian seems to have had enough of the endless talk about the Skolkovo scientific centre, our “Silicon Valley”. The Skolkovo project is more about propaganda than of any real importance for the Russian economy. Western investors needed more serious arguments about Russian economic prospects. It’s not worth trying to feed them propaganda.
Elections in Russia mean nothing. If Putin decides to stand in 2012 (and he has the right to do so according to the Russian constitution), then he will win and Medvedev will have to move over.
What Putin did not tell Medvedev
It would also have been no bad thing for Medvedev to explain his own future to potential investors. The Presidential election will take place in a year’s time. Whatever the current president has to say in Davos will only have any meaning as long as he’s not a lame duck. As far as the Russian “duck” is concerned, there are suspicions that it has serious problems, not only with its legs, but also with its wings. Not to mention its beak. Almost all serious independent Russian analysts consider that Medvedev is a leader who lacks independence and is incapable of opposing Putin on any fundamental issue.
Elections in Russia mean nothing. If Putin decides to stand in 2012 (and he has the right to do so according to the Russian constitution), then he will win and Medvedev will have to move over. Then, perhaps, the gentleness of Medvedev’s policy will once more be replaced with Putin’s harsh rhetoric.
So far, Putin has not told his ally whether he will allow him to remain in power for a second term. But if Medvedev himself doesn’t know, then what value can there be in the ten points he laid down at Davos? He could set out 100 points if his speechwriters put their minds to it. But they won’t have anything to do with real life.
Moscow as a financial centre?
Another issue is the development of a world financial centre in Russia. The present Russian leadership is very fond of this subject of conversation. But no major financial centre in the world has ever been set up in a country with an economy as restricted as Russia’s. Again, one gets the impression that discussions on this topic were begun exclusively for propaganda purposes, and intended for the average Russian, rather than the Davos audience. It was hardly worth the President repeating what he says on Russian TV to the assembled business community.
Perhaps Medvedev knows something about plans for a radical liberalisation of the Russian economy. Then he should have talked about them in Davos. But what he said about privatisation plans for the coming years has nothing to do with creating a financial centre. Privatisation is always better than nationalisation, but the present programme is rather less than sweeping. Furthermore, the development of the market in Russia is hindered by administrative barriers and corruption. And privatizing blocks of shares in a number of major companies can’t change this.
One of the things Dmitry Medvedev failed explain to potential investors was of crucial importance: his own future.
What Obama didn’t say at Davos
If the transformation of Moscow into a world financial centre is a very abstract issue, its entry into the WTO is extremely concrete. It is a good thing that Medvedev once more declared how important this is for Russia. But, as Russia’s entry into the WTO now depends not on Medvedev, but on the American president, investors would have been more interested to hear Barack Obama’s opinion on this subject. It is well known, for example, that since the war with Russia, Georgia is in no hurry to agree to Russia joining WTO. And the USA has its supporters of a hardline policy towards Russia. Will Obama be able to overcome this resistance? Russia’s acceptance into the WTO has already been postponed many times, after all.
Investors probably wanted to hear Medvedev tell them to what extent they will be protected from terrorism in Russia. Since the Russian president’s arrival in Davos was delayed for this very reason, it would have been good to talk about the future. After all, the business community has an interest in bombs that might be blown up at airports. This could have more effect on investments than explosions in the Moscow metro or in the North Caucasus.
Almost 12 years have passed since the moment that Putin promised to fight terrorism harshly, but over this period Moscow has not become any safer.
In short, Medvedev went to the forum in Davos, but all the questions remain. His next speech about modernization will be given at the St Petersburg forum in June. But the likelihood is that there too potential investors will be treated to an assortment of general truths.
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