IN THIS ISSUE

PAGES 4-5

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BUSINESS & POLITICS

SPECIAL REPORT

FEATURE

Russian investors buy European oil fields...And may spend billions more

Russia’s economy: Growth in 2016?In search of new horizons

Driverless trucks

ONLY AT RBTH.COM

Arab funds step up investments in Russia

MONEY & MARKETS

Stocks head towards year end with gains2016 may be less volatile

RBTH.RU/543835

Unlike Google or BMW, Russian automakers are focused on sending driverless vehicles onto more treacherous roads

PAGE 6

Recession leaves many with crushing debts

Non-performing loans hit record levels as borrowers struggle

This supplement is produced and published by Rossiyskaya Gazeta (Russia) and did not involve the news or editorial departments of The Wall Street Journal

Thursday, December 10, 2015Distributed with The Wall Street Journal

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RTSI ‘The U.S. market remains a pri-

ority for us. But it’s more de-

veloped, so competition is very

steep.’SERGEI ANDREYV, CEO OF ABBYY PAGE 2

Dollar/Ruble

RBTH.COM SPECIAL ADVERTISING SECTION FOR BUSINESS

‘Al Qaeda appeared to have

been beaten after its

leader was killed. But the

group developed new cells.’GEORGY BOVT, POLITICAL SCIENTIST PAGE 7

Russia leapt forward in the World Bank’s high-profi le ranking of glob-al business environments, winning a much-needed vote of confi dence for its troubled economy as the country struggles to emerge from recession.

The ranking, called Doing Busi-ness, measures the relative ease or difficulty of starting a small-to-me-dium size business in 189 countries. This year, Russia surged 10 places to 51st, ahead of European econo-mies Greece, Serbia and Luxem-

Business Russia is rising in the World Bank ranking of competitive economies following reforms

bourg. Singapore took fi rst place, and the United States landed in 7th.

Russia also led members of the so-called BRICS group of large, emerging economies by a wide mar-gin: Brazil clocked in at 116th, India placed 130th, China came in at 84th; and South Africa placed 73rd.

The World Bank said Russia ad-vanced in the ranking after mak-ing improvements in areas like com-panies’ access to credit, registration procedures for new businesses and in providing electricity in far-fl ung areas of the country.

Sylvie Bossoutrot, Program Lead-er for the World Bank in Russia, said the result “confi rms the posi-tive tendency of the past four years, and that Russia maintained a strong reform momentum,” according to

a statement accompanying the re-port. “This year Russia scored amongst top 10 best performers globally in registering property and enforcing contracts.”

Russia also streamlined licens-ing procedures and reduced the number of state inspections, World Bank researchers said.

“Russia reduced the time required to obtain an electricity connection by eliminating redundant inspec-tions,” ‘the World Bank said.

Russian President Vladimir Putin has made raising the country’s standing in the Doing Business ranking a national priority in an attempt to use the metric as an ob-jective set of parameters for mea-suring the effectivness of pro-busi-ness reforms.

In May 2012, Mr. Putin signed a

Russia Surges in World Bank Ranking

Russia jumped 10 places to 51st in

the World Bank’s global Doing

Business ranking, increasing its lead

over China, India and Brazil.

ALEXEY LOSSANRBTH

decree ordering bureaucrats to work towards improving Russia’s posi-tion in the ranking from 120th to 20th place by 2018, a transition that became known as the “hundred steps.”

According to the president’s plan, by 2015 Russia was to achieve the intermediate goal of 50th place, or just one place higher than this year’s ranking.

“In the last fi ve years Russia has risen by more than 60 places,” said Konstantin Korischenko, deputy director of the department of cap-ital markets and fi nancial engineer-ing at Moscow’s RANEPA institute and former deputy chairman of the Central Bank.

“So this is essentially in line with the 2015 objective of entering the ranking’s top 50,” he said.

CONTINUED ON PAGE 4

Sectors like chemicals and health-

care have defied the recession.

After a punishing year in which plummeting energy prices kicked off a grinding recession, signs fi -nally began to emerge late in 2015 that the worst may be over for the long-suffering Russian economy.

Economic activity declined by 4.1% during the third quarter com-pared to the same period a year earlier, according to Russian gov-ernment statistics. While still bru-tal, the decrease was smaller than

Economy Russia is searching for new horizons of development as its recession bottoms out

analysts had expected, and less than the 4.6% contraction of the previ-ous quarter. Indeed, the data showed a 0.3% month-on-month increase in economic activity since August.

Meanwhile, industrial production declined in September at 3.7%, the slowest rate since March, and cap-ital investment fell more slowly in September than in August.

“It now appears that Russia’s re-cession may have bottomed” dur-ing the second quarter, analysts at Moscow’s UralSib investment house wrote in a note to investors. “None-theless,” the analysts wrote, “the recovery is fragile.”

To be sure, Russia is set to see its fi rst annual economic contraction this year since 2009, in a decrease

After a Rough Year, Fresh Hopes for Growth in 2016Amid recession and sanctions,

Russia’s economy had more than

its share of adversity this year. Yet

signs have emerged the downturn

may finally be ending.

ALEXEI SERGEYEVRBTH

the World Bank estimates will be 3.8% for the year.

For Russia, whether growth will resume in 2016 depends largely on the price of crude oil, the country’s key export. The world’s biggest pro-ducer of energy in combined oil and gas, Russia was hammered when oil collapsed by 60% from June 2014 to January 2015, causing its nation-al currency, the ruble, to enter a tailspin as the Russian Central Bank abandoned its former policy of sup-porting the currency.

According to an estimate by the American ratings agency S&P, Rus-sian economic activity will be es-sentially fl at in 2016 if oil prices stay roughly where they currently are, at around $55. Russia’s econo-my may expand by 0.3% next year and by 1.8% in 2017 if oil averages $65 per barrel.

Meanwhile, falling incomes have pushed poverty levels up dramati-cally, and consumer spending fell 10.4% in September, year-on-year.

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NEWS IN BRIEF

• Food imports into Russia have dropped con-

siderably in the first nine months of 2015 com-pared to the same period last year. Meat imports dropped by 27% in the first nine months of the year, while poultry and fish imports contracted 1.6 times and 1.7 times less respectively, the news agen-cy reported, citing data from the Federal Customs Service. A big drop was also seen in imports of butter and vegetable oil, which were down 1.7 and 3.2 times respectively between January and Sep-tember. The decline comes as consumer spending in Russia has been dramatically hit by the coun-try’s economic recession and the weakened ruble — which has made imports more expensive.

• The Central Bank has warned that increas-

ing oil supply is likely to depress oil prices fur-ther, and may mean that the country’s 2016 bud-get will need to be amended, the Vedomosti business daily reported. According to the Central Bank, the widening price difference between Urals crude and the benchmark Brent blend could spell trouble for the ruble and the country’s economic growth. The current draft budget bases Russia’s projected spending on a Urals price of $50 per barrel.

• Tour operators have lost 1.5 billion rubles

($23 million) since flights to Egypt were suspend-ed on Nov. 6, the Interfax news agency reported, citing the Russian Tourism Industry Union. The major losses resulted from tour operators being required to fly empty planes to Egypt to evacuate Russian tourists, Russian Tourism Industry Union spokeswoman Irina Tyurina said. When returning tourists to Russia, every empty seat on the plane costs Russian tour operators approximately $125, the RBC news agency reported. Egypt is Russia’s most popular winter travel destination.

• The price of foreign cigarettes in Russia have

gone up by 20% over the past year, the RBC-Dai-ly newspaper reported. An average pack of for-eign-brand cigarettes cost 85.6 rubles in October, up 20% compared to the same month last year, according to data from the Rosstat state statistics service.

Farmers and 1,500 tractors blocked roads into Paris on Sept. 3 in protest

against rising taxes, strict environmental standards and falling food prices.

Irish farmer John Ryan is angry. The Ukraine crisis has become a live issue for European farmers, he says. The Russia-EU sanctions war has led to an over-supply of food in Europe and depressed prices.

“If the euro drops any more, and interest rates rise, the whole sec-tor will crash,” he said.

In recent months, producers’ frus-trations have spilled over. On Sept. 3, thousands of farmers and 1,500 tractors blocked major arteries into Paris. They were protesting against rising taxes and increasingly strict environmental standards, which, allied to plummeting food prices, have destroyed farm incomes.

Hell hath no fury like angry French farmers. Thus, after the dis-ruption, French President François Hollande caved in, promising help.

Inspired by the reaction in Paris, hundreds of farmers descended on Brussels — from as far away as Finland — days later, demanding EU intervention. Soon, 500 million euros was found for “support mea-sures” for agronomists.

Yet Albert Jan Maat of Copa-Co-geca, the umbrella organization for EU farmers and agri-co-operatives, remains unhappy. “EU producers have lost their main export mar-ket to Russia, worth 5.5 billion euros annually, and a 500-million-euro aid package will not be enough to compensate for this,” he said.

The reason for their anger is sim-ple. Food prices, especially milk, but also meat and vegetables, have

International Trade Sanctions between Russia and the West have hit earnings for EU farmers

collapsed this year. The cause of the crisis is also clear: the sanc-tions war between Russia and the West.

After Moscow’s takeover of Crimea in early 2014, Europe and the U.S. fi rst attempted to punish Russia with punitive travel bans and asset freezes.

Amid heightened tensions in eastern Ukraine, those measures were extended to embargoes on Russian banks’ access to interna-tional markets. In conjunction with weak resource prices, the policy worked. Russia is hurting; its econ-omy is in deep recession.

Russia retaliatesWhen Russia hit back with coun-ter-sanctions on EU agricultural goods, many analysts reacted with bemusement. However, in August, EU agriculture commissioner Phil Hogan admitted that European farmers are paying the price for the EU’s policy on Ukraine.

“The only sector taking the hit arising from the foreign policy de-cision by Russia has been agricul-ture,” he told the press. He added that it was a “very difficult situa-tion” because Russia was “the re-cipient of 10% of the world’s dairy products”, and “Europe was their fi rst port of call”.

The trouble runs much deeper than that for Europe. In 2013, be-fore the geopolitical tussle, a third of EU fresh fruit and vegetable ex-ports went to Russia and a quar-ter of exported EU beef. Around 75% of EU cabbage, 63% of to-matoes and 52% of all EU apples sold abroad went to the alliance’s giant eastern neighbor. EU-Rus-sian trade grew from 90 billion euros in 2003 to 325 billion euros in 2013. As a result, many Euro-

pean companies became heavily reliant on Russia. This increased during the crisis years earlier this decade, when Russia partially com-pensated for decreased intra-Eu-ropean demand.

Last year, amid sanctions, the value of EU agricultural goods sold in Russia fell by 24%, from 11.8 billion euros to 9.1 billion euros. Preliminary fi gures for 2015 pre-dict an even greater drop.

Meanwhile, Russia is discover-ing new import markets, with 60% of all Brazilian meat exports now bound for Russia.

Furthermore, the Kremlin’s mea-sures have led to an oversupply of food in Europe, causing a break-down in prices.

A change of tack?Now the Ukraine crisis seems to be fi zzling out, there are hints of a possible EU U-turn. The French agriculture minister, Stéphane Le Foll, visited Moscow in October and asked his counterpart, Alexander Tkachev, to repeal the counter-sanctions. The Kremlin demurred, indicating the EU should fi rst can-cel restrictions on Russia. The fol-lowing day, European Commission chief Jean-Claude Juncker an-nounced: “We [Europe] can’t allow our relationship with Russia to be dictated by Washington.”

EU Tastes Bitter Fruit of SanctionsEurope’s farmers are raising an

outcry against political decisions

that have hurt their profits. As

Russia battles recession, EU

farmers warn of a crisis.

BRYAN MACDONALD SPECIAL TO RBTH

“EU producers have lost their main export market to Russia, worth 5.5 billion euros,” said Albert Jan Maat of Copa-Cogeca.

ABBYY is now one of the world’s leading developers of IT solutions.

Since its humble beginnings in a Moscow dorm room in the 1990s, ABBYY has grown to become one of the world’s leading developers of IT solutions. Today, ABBYY’s technologies are licensed by some of the world’s largest manufactur-ers, including Microsoft, Acer, Pan-asonic and Samsung. RBTH spoke with ABBYY’s CEO Sergei An-dreyev about the challenges the company is facing in the new eco-nomic reality.

Which markets are you focusing

on? Are you expanding in the Unit-

ed States?

For us, all regions are important. The U.S. market remains a prior-ity, since it is more developed in terms of technology. In the U.S., competition in the technological sphere is very steep. It takes a lot of work to really transfer knowl-edge. We are exporters, and almost 80% of our profits come from abroad. We get about 20% of our revenue from Russia and about 40% from the United States. Eu-rope accounts for 20%, and anoth-er 20% comes from a combination of Asia, Africa and South Ameri-ca. Interestingly, sales in develop-ing countries are growing faster than in the developed nations.The decline of the ruble against the dollar is helping us develop new products and technologies. This is because we get higher profi ts from exports once we convert back into rubles. So for us, this is a positive situa-tion. Also, the main component of the cost structure for IT companies is the [ruble-based] cost of salaries of qualifi ed specialists.

How different are the products that

you offer in different countries?

Here, the question is really what kinds of projects arise around these products. In Russia, for example, solutions for document and data input are in demand. They are used, mostly, by fi nancial organizations, state-owned corporations, and energy companies. For example, we have a project that is aimed at process-ing the results of the EGE [a stan-dardized Russian test administered to students, similar to the Ameri-can SAT – RBTH]. To complete this project on time, you must process thousands of pages in a single month. And there can’t be any mistakes, because a slip-up could lead to a young per-son failing to get into university. In Asia, we fi nd that projects are much simpler. For example, we do a population census there, which has a more relaxed deadline.

Which new technologies and projects

do you consider most promising?

We are actively moving into the market of projects related to com-putational linguistics, word pro-

Russia’s ABBYY: At the Cutting Edge of ITThe decline of the ruble is giving

Russian IT companies an edge in

foreign markets, says the CEO of

ABBYY, one of the country’s

brightest new lights in tech.

VICTORIA ZAVYALOVARBTH

cessing and information extraction from large streams of unstructured text.For example, we’re helping Rus-sian banks make a quicker deci-sions about granting loans. We can automatically analyze the client’s credibility and determine how well data in a given real estate contract matches up with the market.We also work with computer vi-sion, which is gradually transform-ing into completely new technolo-gies. This can solve, for example, such tasks as software test auto-mation for your computer. These days it’s done using a special pro-gram. At the same time, you should also assign a person to control the process, but this is expensive. It is easier to use a camera that will monitor how the testing goes.

What projects are most in demand in

the United States?

We have, for example, a project in the oil and gas industry. In con-trast to Russia, where the owner gets the rights to a piece of land and is free to do with it whatever he wants, in the United States, rights are sold for different layers.As a result, different people have different rights to the fi rst, second, fourth, fi fth layers. If, say, one of the owners wants to drill a hole in his layer, he must examine all claims and agreements. Previous-ly, this was carried out by hand.But these agreements are, of course, text information, so you can auto-mate the process. We also work with a company that is engaged in pro-viding cloud services for account-ing and tracking of sales.Customers using the system feed it with a body of data, including the provisions of their agreements – payment schedules, the terms of contracts, special conditions. We can structure this information and analyze it. We can notify you when you need to update the agreement, or of upcoming expiration dates. Now it is a pilot project.

In the U.S., there are many companies

in your field. What’s your advantage?

It lies in our development of a uni-versal system, called ABBYY Com-preno, which helps the computer understand the content behind the text. Despite the fact that people speak different languages, they live in the same system of concepts. We are all very similar; we have the same conceptual framework.

INTERVIEW SERGEI ANDREYEV, ABBYY

Sergei Andreyev

CEO OF LEADING RUSSIAN DATA PROCESSOR ABBYY

A graduate of the Moscow Insti-tute of Physics and Technology, An-dreyev joined ABBYY (formerly BIT Software) as commercial director in 1991. Since becoming ABBYY’s CEO in 1999, he has supervised all aspects of production, sales and marketing, re-search and development, support, fi-nance, and public relations.

HIS STORY

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Business & Politics

NEWS IN BRIEF

• About 24 million Russians already buy Chi-

nese goods online, Interfax reported, citing the head of the Europe and Central Asia Department of the Chinese Ministry of Commerce Lin Zhi. The Commerce Ministry estimates the value of the pur-chased goods at $5 billion. On Nov. 11, Chinese on-line retail giant AliExpress, currently the most pop-ular internet retailer in Russia, opened its platform to Russian vendors. About 20 Russian retailers, in-cluding online marketplace Wikimart, electronics brand Tekhnosila and DIY and gardening store 220 Volt, are now available on AliExpress.

• The online lodging service Airbnb has seen

rapid growth in Russia as the country’s econom-ic recession forces more Russians to look for ways to supplement their incomes, the Bloomberg news agency reported. Airbnb’s Russian business has doubled during the past year, propelling Moscow into the world’s top 10 cities with the most book-

ings. In the first half of 2015, real wages in Russia fell by 8.8 %, according to the Rosstat state statis-tics service. The online platform Airbnb allows own-ers to rent out apartments or rooms to travelers.

• Turkey’s flagship carrier Turkish Airlines has

become Russia’s top foreign airline as its com-

petitors have slashed flights to the country amid falling demand, the Bloomberg news agency re-ported on Nov. 11. Turkish Airlines has increased Russian flights by 16% this year compared to 2014, while its rivals have cut flights to Russia by 43% over the same period. The previous market leader, Germany’s Lufthansa, has reduced its Russian ser-vices by 31% this year. Russia imposed economic sanctions against Turkey on Nov. 28 after the Turk-ish air force shot down a Russian Su-24 bomber.

• The International Launch Services have

signed a contract with Intelsat to launch five tele-

communications satellites aboard Soviet-designed Proton rockets, the Roscosmos space agency web-site reported. Intelsat’s decision to use a Russian launch company comes after the satellite firm raised the alarm on a series of suspicious Russian satel-lite maneuvers near several Intelsat communica-tions satellites in orbit over the past year.

The L1 deal marks the first major M&A transaction by Russians in Europe since sanctions were introduced.

Russia’s L1 Energy has scooped up $1.6 billion worth of oil and gas fi elds in the North Sea, defying pre-vious attempts by the British gov-ernment to keep the firm out of Europe’s top offshore energy-pro-ducing region amid frosty relations with Russia.

L1 Energy – owned by Mikhail Fridman, founder of Russia’s larg-est non-state fi nancial corporation, Alfa Group – said it may continue to spend several billion dollars on North Sea energy assets in the fu-ture.

The assets lie in the Norwegian area of the North Sea, and were purchased from German energy and utility giant E.ON, according to a statement posted on L1 En-ergy’s website.

The deal, which has been ap-proved by the supervisory author-ities of Norway and the European Union, means L1 receives 43 licens-es and instantly becomes one of the biggest owners of oil and gas fi elds in the North Sea.

“This is the largest transaction conducted by any business under the control of Russian businessmen in recent years,” said Ivan Kapi-tonov, associate professor of the In-stitute of Civil Service and Man-a g e m e n t a t t h e R u s s i a n Presidential Academy of National Economy and Public Administra-tion – a research institution close to the Russian government.

Completing the North Sea pur-chase marks a victory for Mr. Frid-man, who had previously been thwarted in his attempt to buy as-sets in the region by the British government. That rebuff last year underscored how suspect Russian fi rms have become in the eyes of the West since European countries and the United States placed re-strictions on Russian state-con-trolled oil and gas producers as part of the sanctions imposed on Mos-cow over its role in Ukraine. L1 Energy is a private Russian com-pany independent from the Krem-lin.

As a result of the deal, L1 En-ergy became the fi rst Russian fi rm to make a signifi cant acquisition in Europe since the conflict in Ukraine began last year.

Mr. Fridman’s CoupMr Fridman and his partners are attempting to take advantage of depressed energy prices as a chance to scoop up assets, betting prices

M&A Russia’s L1 Energy, owned by billionaire Mikhail Fridman, acquires oil licenses in the North Sea

will rise in years to come, said Ni-kita Kulikov, CEO of the Moscow-based consulting company Heads.

“The oil and gas market has slowed down,” he said. “As a result, many assets have come down sig-nifi cantly in price and become very attractive.”

Sergei Ilyin, an analyst at Mos-cow fi nancial fi rm Premier, called

the deal an enormous coup for Mr. Fridman and his partners, given both how reluctant European reg-ulators are about admitting Rus-sian investors, and how cautious Russian investors have become about venturing back into Europe.

Yet it was the fulfi llment of L1 Energy’s mission, he said, noting that “L1 Energy was originally cre-ated for investments in the energy sector, and initially focused on for-eign projects.”

As it set out to acquire foreign assets, L1 Energy snatched up top-level talent in the oil and gas in-dustry, including former BP CEO Lord Browne, who now serves as L1 Energy’s executive chairman.

...After Being Thwarted by British RegulatorsLetterOne Group, the parent com-pany to L1 Energy, was established by Mr. Fridman and his business partner German Khan in 2013 to invest some of the $14 billion the men earned from selling their stake in TNK-BP to state-controlled oil giant Rosneft.

In March, Mr. Fridman’s group agreed to buy RWE’s entire Brit-ish division RWE Dea for 5 billion euros, including signifi cant reserves in the British section of the North Sea as well as assets in countries like Algeria, Egypt, Germany and Turkmenistan.

However, before the transaction could be closed, UK authorities

blocked the deal, demanding that the Russian investors sell the North Sea fi elds.

British authorities said the Rus-sian investors might eventually be included in the list of those im-pacted by European sanctions in the future, a move they said could threaten production at the offshore fi elds and jeopardize Britain’s en-ergy security.

On Sept. 11 this year, L1 Energy announced it had sold the British fi elds to the Swiss chemical com-pany Ineos. According to a report by the Reuters news agency, the Russian company had expected to earn $1.2 billion from the sale, but was forced to accept a maximum offer of $750 million.

In October, however, L1 Energy received a letter from the new Brit-ish administration, reassuring Mr. Fridman that he was still welcome to invest in Britain despite the de-nial of the RWE Dea deal by the previous governing coalition.

Besides the oil market, LetterOne Group is also active in telecommu-nications, and has sought to invest $4 billion in Brazil’s Telecom Oi, according to the Bloomberg news agency. The offer to Oi SA is con-ditional on the carrier agreeing to a merger with rival Tim Participa-coes SA, according to Bloomberg.

Mr. Fridman and his partners also own Russia’s second-largest retail-er, X5 Retail Group, and wireless operator VimpelCom.

Russia’s L1 Splashes Out $1.6 Bln for North Sea OilA new, privately-held, fast-rising

energy firm from Russia paid

German energy giant E.ON $1.6

billion for North Sea oil licenses, in

spite of UK opposition.

ALEXEI SERGEYEV

RBTH

is the total number of production li-censes L1 has acquired from German energy and utility giant E.ON.

barrels of oil equivalent per day is the amount of production L1 Energy ac-quired through the deal.

is the total amount L1 will pay for the oil and gas fields in the Norwegian section of the North Sea.

43

45,000

$1.6 bln

IN FIGURES

Russian spending on foreign real estate has dropped by about half in 2015.

When oil prices surged in the mid-to-late 2000s, newly-minted mil-lionaires and billionaires from en-ergy-rich Russia splashed out on condos and apartments from Lon-don to New York, helping drive up property prices in some of the world’s most desirable neighbor-hoods.

The boom was epitomized when Russian fertilizer baron Dmitry Ry-bolovlev bought a 6.5-acre beach-front luxury estate in Florida’s Palm Beach from Donald Trump for a cool $95 million.

While billionaires bagged the headlines, middle-class Russians got in on the action too, albeit with more modest acquisitions.

But now, as Russia’s economy contracts and its currency fl oun-ders, the trend has reversed: Spend-ing by Russians on foreign prop-erty has fallen precipitously throughout 2015.

Real Estate Russia’s great foreign property acquisition boom appears to be ending

Indeed, Russian purchases of for-eign property seem to have peaked at an annual $2.15 billion in 2013 before sliding to $2.05 billion in 2014, according to fi gures from the Russian Central Bank.

Since then, multiple indicators suggest that the dip in 2014 has turned into a collapse.

Research produced by the Tra-nio.com real estate fi rm suggests that overall Russian demand for homes abroad declined this year by about 50%.

“Most of the respondents inter-viewed in our study, or 74%, said that the number of deals has de-creased,” said Yulia Kozhevnikova of Traino.ru, adding that Russian purchases of homes in practically all countries seem to have slumped.

During the fi rst quarter of 2015, $281 million was transferred out-side of Russia for the purpose of making purchases in real estate, according to Russia’s Central Bank.

That fi gure represents a 42% de-crease from $484 million during the fi rst three months of 2014.

In the second quarter, Russian spending on foreign real estate fell 50% compared to a year earlier, to $229 million.

In the second quarter, however, Tranio.com research showed that investments in commercial prop-erty actually grew 30%.

The fi rm said that the increase in commercial real estate purchas-es comes as “Russians move to pro-tect their assets against local po-litical and economic risks,” according to a statement on its web site. “The most popular destina-tions for commercial real estate are Germany and London.”

Meanwhile, real estate prices in Moscow have slumped when com-pared with other major world cit-ies. Between 2011 and 2015, total real estate price growth in Moscow was just 10.3%, according to Traino.com, while Hong Kong and Shang-hai gained 20%. London and New York rose 40%, and prices in São Paulo and Istanbul more than dou-bled, the fi rm said.

Russian Demand For Foreign Real Estate PlummetsRussian purchases of real estate

abroad, which once propelled

markets in places like New York

City, have fallen by half as the

country’s currency has fallen.

ALEXEI SERGEYEVSPECIAL TO RBTH

“With the fall of the ruble, Rus-sian buyers started buying in the most reliable European countries and demand is fi rstly related to in-vestment objectives,” said Yekateri-na Rumyantseva, chairwoman of Kalinka Group, one of the largest real estate companies in Russia.

“Well-off Russian citizens are now investing in the commercial sector and aiming to maintain and increase their capital,” said Ms. Ru-myantseva.

Russian investors have also prac-tically stopped buying foreign real estate for leisure purposes.

“Demand among Russian inves-tors for such property has declined by almost 80%. On the other hand, interest in real estate that helps preserve capital has remained on a more or less stable level in Rus-sia,” said investment manager Igor Indriksons.

Meat me in Moscow: A carnivore’s guide to the best steak-houses

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Special Report

But the decline in energy revenues has also pushed state policymak-ers to seek new avenues for growth in areas beyond raw materials ex-ports, in areas as diverse as phar-maceuticals manufacturing, chem-icals production, automotive exports and agriculture.

A Cheaper Ruble: Harbinger of Growth? The Russian Central Bank’s deci-sion to let the ruble lose almost half of its value against the dollar over the past year had a profound impact on the Russian economy, with implications that rippled through many sectors.

On the positive side, one key re-sult has been to provide a boost to Russian exporters, slashing prices for Russian products and allowing them to compete favorably with foreign offerings.

Indeed, production costs have fallen by almost 50% inside Rus-sia, helping the producers aggres-sively lower wholesale prices.

One example: The cheaper ruble has created a boom in agricultur-al exports to China. Russian sales of foodstuffs to China rose 33% in the second quarter of the year in terms of value.

Overall, trade between Russia and China is still lower this year than in 2014, primarily due to the depressed value of Russia’s energy exports.

Russian agriculture also got some backhanded assistance from the country’s sanctions war with Eu-rope. Having blocked European food imports over the political standoff with Ukraine, Russian

in foCuS RuSSiA in 2016

RuSSiA GoeS in SeARCH of new GRowtH in 2016

following a deep recession in 2015, russia is eyeing new

sectors for growth as a cheaper ruble spurs exports

Continued fRom pAGe 1 farmers are now being tapped to fill the breach. As a result, Russian food output is surging. In the first nine months of the year, meat out-put grew 13.9%, cheese output rose 22% and poultry output increased 10%.

Meanwhile, global automakers scrambled their plans for Russia as domestic demand fell, rework-ing their strategies towards export-ing cars made in Russia to take advantage of the weaker currency.

The Reuters news agency report-ed in September that Volkswagen, Ford, Nissan and Renault were all

considering increasing exports from Russia, although final decisions have yet to be made.

Nevertheless, German carmaker Volkswagen opened a 250-million-euro engine manufacturing plant in Russia’s Kaluga region in Sep-tember with a capacity of 150,000 engines a year, while America’s Ford produced its first car with a Rus-sia-made engine in October.

The falling ruble has also taken some of the pain away for Russian

oil companies, which sell crude onto international markets in dollars. The ruble has closely tracked the decline of oil, meaning oil export-ers have had significant support to their profits when calculated in the domestic currency.

Despite sanctions and recession, other sectors of Russia’s economy, such as healthcare, have also man-aged to attract foreign investment.

Before the end of 2015 Merck, the German chemical and phar-maceutical giant, plans to open a production facility in Russia to pro-duce medicine for treating diabe-tes and heart ailments. Merck’s full production cycle is scheduled to commence in the second half of 2016, with plans to produce up to 1.5 billion tablets a year, enough to meet the demand of the entire Russian market.

“For us Russia is one of the key countries among the developing markets,” said Merck’s Executive Vice President Elcin Ergun. “We plan to strengthen our positions and create a long-term develop-ment strategy.”

Another German company, Phoe-nix Contact is placing a bet on a recovery in Russian machine con-struction. Phoenix Contact, which specializes in automation technol-ogy, will spend 10 million euros opening its first factory near Mos-cow.

“For Phoenix Contact, Russia is an important strategic market,” said Phoenix Contact President Frank Stuhrenberg.

inflation Concerns One major risk to the country’s re-covery, however, is stubbornly per-sistent inflation, which has eaten

away at average Russians’ spend-ing power.

The Russian Central Bank held interest rates steady at 11% at a meeting on October 30, citing con-cerns over double-digit inflation, which hung at 15.6% as of mid-October. “We believe that inflation will decelerate more steeply into the year end, and expect it to reach 12.5% by the end of the year,” Ural-Sib analyst Olga Sterina wrote in a note to investors in November.

Getting control of inflation would allow the Russian Central Bank to begin cutting interest rates to spur the economy and promote lending.

Mrs. Sterina said she expected the bank to cut the interest rate by half-a-percentage point in mid-De-cember.

“for us russia is one of the key countries among the developing markets,” said elchin ergun from Merck.

“we believe that inflation will decelerate more steeply into the year end,” said uralsib analyst olga sterina.

During the sunset years of the So-viet Union’s great socialist exper-iment, the country remained a pow-erhouse of the global chemical production industry even as other parts of its economy unravelled.

Despite the punishing recession of the 1980s, the Soviet Union held its position as the world’s second-largest producer of chemicals, after the United States, until the day the country ceased to exist.

During the economic tumult that followed the end of socialism, how-ever, Russia lost its vaunted place in the industry, even after recover-ing from the immediate aftermath of the Soviet collapse. By 2006, Rus-sia had fallen to 20th place.

Now, Russia’s chemicals sector is showing peculiar resiliency once more, defying the country’s current economic malaise.

The Kremlin is casting a hope-ful eye over the sector, in expecta-tion of seeing a new horizon for economic growth.

According to the Ministry of Eco-nomic Development, investment in the chemical industry grew by 8.4% in the first six months of 2015 com-pared to the same period a year earlier., despite the country’s over-all economic contraction.

Meanwhile, in the first quarter of 2015, net profit margins in the chemical sector as a whole in-creased from 18.3% during the first nine months of last year to 38.4% during the first three quarters this year, propelled in part by higher export revenues. A weaker ruble boosted income calculated in the domestic currency from sales abroad, and Russian fertilizer groups like PhosAgro and Acron reported stronger financial results

These increases come despite western sanctions that have re-

stricted Russian firms’ access to im-ports of western modern technol-ogy as well as to some raw materials used in chemical produc-tion.

Yet the sanctions, combined with Russia’s focus on localizing pro-duction domestically as a replace-ment for imported supplies, may have a perverse effect of bolster-ing the sector.

Imports of chemical products have fallen 30% in monetary terms, according to the Federal Customs Service, while domestic production in a variety of areas increased. Out-put of chemical plant protectors increased in the first quarter by 27%, household cleaning products output rose by 11% and pharma-ceutical products output rose by

11%. Moscow’s RANEPA Institute

notes that overall the supplies of non-oil products from Russia de-clined in 2015, but exports of equip-ment and chemical production fell even more.

Good Chemistry Russia’s chemical sector has also caught the interest of foreign in-vestors looking for a tie-up.

In the beginning of September, Chinese state-owned oil producer Sinopec agreed to take a stake in SIBUR, Russia’s top petrochemi-cal company.

While details of the deal weren’t made public, the Reuters news agency reported Sinpec would take a 10% stake, citing an unnamed source familiar with negotiations. Other reports have put the size of the deal at roughly $1 billion.

Meanwhile, Rosneft, Russia’s largest oil company, agreed to swap control of its Eastern Petrochemi-cals Company for a stake in a unit of China’s largest chemical com-pany, ChemChina.

According to an analyst at Pre-mier Sergei Ilyn, Russian firms have been increasingly open to selling stakes to strategic investors in

chemical industry defies recessionRussia’s chemicals industry is weathering the country’s recession better than most sectors. now policymakers hope to spur further growth.

ALeXeY LoSSAnrbth

order to attract investment. That way they can continue de-

veloping, despite U.S. and Euro-pean sanctions that have made it more difficult for them to access funding.

“China is interested in increas-ing its exposure over businesses that are oriented toward export-ing to the Chinese market. That is why they are interested. As a rule, they are ready to continue invest-ing in key projects in exchange re-ceiving the ability to influence pric-ing, future equipment purchases and so on,” Mr. Ilyn said.

import SubstitutionRussia’s efforts at replacing foreign production for domestic output through a policy known as “import substitution,” have been limited by its lack of raw materials and by capital market instability, howev-er.

The effort is part of a wider ini-tiative. In early April, Russia’s Min-istry of Industry and Trade an-nounced import substitution targets across a range of sectors, aiming to double or triple production in a host of industries while reducing imports to targeted levels.

The program targets 19 civilian industrial sectors. Plans for the chemical industry include 35 groups of products such as titani-um dioxide (used for producing paints), decorative cosmetics and plastics.

“Russia, while a leader in the production of titanium, is satisfy-ing only 10% of its domestic de-mand for dioxide. By 2020 that per-centage should increase nine-fold,” notes the ministry’s press service.

Yet critics of the plan say Rus-sia will need a decade or longer to hit these targets.

“The aim is not to have people buy only what is produced in Rus-sia but to make the production of equipment in Russia cheaper.

For now, this is impossible be-cause Russian industry seriously lags behind in terms of technolo-gy,” says Georgy Vaschenko.

Chemicals may be one bright spot in the Russian economy in 2016.

is the overall net profitability of Rus-sia’s chemical sector during the first nine months of 2015, up from 18% in the same period a year earlier.

38%tHe numbeRS

ruble profits for russian exportersdue to LASt YeAR’S depReCiAtion of tHe RuSSiAn RubLe AGAinSt tHe u.S. doLLAR, net pRofitS of CompAnieS tHAt eXpoRt pRoduCtS AbRoAd, eSpeCiALLY eneRGY And mininG CompAnieS, HAve RiSen wHen CALCuLAted in RubLeS. in tHe fiRSt nine montHS of tHe YeAR, RubLe pRofitS RoSe 50% foR GAS GiAnt GAzpRom, 20% foR GoLd mineR poLYuS, And 16% foR oiL GiAnt RoSneft. totAL pHYSiCAL output voLumeS foR RuSSiAn StAYed neAR tHe LeveL of A YeAR eARLieR.

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Special Report

dmitrydokuchayev

journalist

at a meeting of government ministers de-voted to economic issues in early novem-ber, russian president vladimir putin told assembled officials that the russian econ-

omy has achieved “the point of equilibrium and bal-ance.” thus, Mr. putin waded chest-deep into a de-bate that has been raging both in russia and abroad. the question being asked is this: has the russian economic decline finally reached the bottom?

Mr. putin is not alone. the russian authorities’ alarming rhetoric regarding the crisis of 2015 has given way to rather optimistic statements. the main reason for this is the release, by the Ministry of economic development, of fresh data that showed russia’s gdp, taking into account seasonal factors, increased by 0.3% in september compared to au-gust. such a monthly increase — even if just mar-ginally higher than zero — gleams like a flickering light of hope in the dark tunnel of economic gloom.

the optimism that began radiating from the Min-istry of economic development was shared by, among others, deputy finance Minister Maxim oreshkin, who confidently declared that russia’s economic crisis is now in the past, citing new in-vestment inflows into the russian economy dur-ing the third quarter of 2015.

but are russian leaders getting ahead of them-selves? in reality, the facts appear to be these: in roughly a year since the start of the crisis, the rus-sian economy has not yet experienced true growth, but has to some extent adapted to the new real-ity of low oil prices (around $50 per barrel), the significant decline of the ruble (down to 60-65 per dollar from a bit more than 30), and the closing of western capital markets to borrowers.

little by little, russia’s agricultural and food-pro-duction sector is beginning to play the role of eco-nomic “locomotive,” having received new focus and emphasis by the food import embargo imple-mented against europe and america in august 2014. as a result, during this period, the produc-tion of cheese has increased by almost 30%, meat by 12-13%, and fish by 6-7%. in short, not all sec-tors of the domestic economy find themselves on the “minus” side.

but perhaps the newfound optimism is about something other than the beginnings of a real eco-nomic turnaround. it has been exhausting, during this past year of crisis, to watch the ruble tumble, to see prices constantly rise in shops, to see friends have trouble finding work, and to note the level of russian domestic wages and incomes. it is in this context that the announcements of high-ranking officials in the economic field can be understood.they are trying, with their statements, to breathe optimism into the population, and into the mar-kets, and into businesses, both big and small.

Dmitry Dokuchayev is a Russian journalist. This ar-ticle was first published by Russia Direct.

viewpoint

russia’s economy: real turnaround, or early optimism?

Currently Russian-made pharmaceuticals make up only 55% of the market for drugs in the country.

Russia aims to double-down on growth in its pharmaceutical man-ufacturing sector and tempt multi-national firms to move production to the country by increasing the volume of locally-sourced drugs purchased by the state through so-cial welfare programs.

Officials may find a receptive au-dience in big pharma: In the con-text of a punishing recession and falling national energy export rev-enues, a recent study by British con-sutancy Global Counsel concluded that firms operating in Russia’s healthcare sector are the “most op-timistic” among multinationals present in the country, in contrast to the pessimism in the energy and finance sectors.

“Healthcare stands out as the sector that is the most optimistic and where many firms remain strongly committed to the Russian market,” the report, released in Oc-tober, said.

Russia’s pharmaceutical indus-try has not faced sanctions from the U.S. or Europe, and sales have continued to grow in spite of the recession. That has led policymak-ers to focus in on pursuing growth in the industry.

A government plan announced in the spring by Prime Minister Dmitry Medvedev calls for increas-ing the share of domestically-pro-duced drugs purchased by the state for its hospitals and pharmacies to 90% by 2018, up from the current level of 65%.

There is potential for both drug companies already working in Rus-sia as well as those exploring the market in the government’s import substitution drive, according to Vik-tor Dmitriyev, general director of the Association of Russian Phar-maceutical Manufacturers.

“For localized foreign companies, [the government plan to increase purchases of locally-sourced drugs] is an opportunity to recoup faster the investment they have made here; whereas for those who do not have plants [in Russia], it is an in-centive to set up local production as soon as possible,” Dmitriyev says.

Russian officials hope the policy will be the economic equivalent of pushing on an open door.

Currently Russian-made medi-cines make up 55% of the product mix available on the market, and just 20% of the market value, ac-cording to the Russian State Sta-tistics Service. Over 90% of inno-vative medicines consumed on the

Russian pharmaceutical market are foreign.

Great expectationsTo be sure, while it may provide a new direction for growth, drug pro-duction stands a dim chance of being as lucrative as Russia’s en-ergy production, which accounts for about two-thirds of the coun-try’s total exports.

Yet Russia remains hopeful it can replicate the success of India, which has earned billions by luring in-ternational pharma companies into its borders and by producing vast quantities of generic drugs that are sold all over the world.

The report by Global Counsel noted that AstraZeneca, a British-Swedish pharmaceutical firm, saw revenue in Russia grow 26% in the first half of last year, and 18% over the full year.

Novartis, the Swiss multination-al, saw double-digit growth in con-stant currency terms, although sales in Russia fell in dollar terms, the report said. Russia was the big-gest driver of growth in the over-the-counter segment in common currency terms for Novartis, ac-cording to the report.

Another study of pharmaceuti-cal firms operating in Russia car-

ried out by London-based consul-tancy Ernst & Young late last year found that 70% believed that po-litical conflict and sanctions had “no impact on their business.”

A further 13% said changes were positive and opened up new op-portunities, while 17% saw new risks and plan to scale down their investment programs.

Of the firms polled, 53% said they plan to organize complete-cycle pharmaceutical manufacturing in-side Russia, while 26% said they would consider buying facilities in Russia or organizing joint ventures with local firms. About three-quar-ters of the firms surveyed were for-eign.

“Bayer is pursuing its localiza-tion strategy through selective part-nerships with Russian producers being focused on full-cycle produc-tion,” says head of Bayer CIA Niels Hessman.

In 2012, Bayer entered into a partnership with the Russian man-ufacturer Medsintez for the pro-duction of pharmaceutical prod-ucts. In 2015, the first commercial batch of anti-infective medicine Avelox was produced on the facil-ities of Medsintez, he added.

France’s Sanofi Pasteur also sees potential in working with Russian

russia ups purchases of locally Made drugs to lure in foreign firmsRussia is coaxing foreign firms to move pharmaceutical production inside its borders, as one global consultancy calls healthcare Russia’s “most optimistic” sector.

kiRA eGoRovArbth

partners. “Under the import sub-stitution strategy, we see addition-al opportunities for expanding business in Russia through coop-eration with Russian companies,” says Thibault Crosnier Leconte, managing director of Sanofi Pas-teur, the company’s vaccines divi-sion, in Russia.

The French company is planning to establish the production of a popular children’s vaccine at the St Petersburg plant of the Russian company NANOLEK. Sanofi Pas-teur plans to start localizing its vac-cine production in 2016, by trans-ferring technology know-how and the quality control system.

The technology transfer is due to be completed by 2019, and the plant in St. Petersburg will pro-duce up to 10 million doses a year, fully meeting the existing demand for this vaccine in Russia, Leconte says.

American company Abbott re-cently carried out one of the big-gest deals in the history of the Rus-sian pharmaceutical business, purchasing the country’s second biggest manufacturer of medicines, the Veropharm company, for 16.7 billion rubles ($495 million at the 2014 exchange rate).

“Right now our primary goal is to ensure a smooth transition of Veropharm into Abbott’s global or-ganization without any disruption of the supply of products to pa-tients and healthcare providers or to the Veropharm business in gen-eral,” says Irina Gushchina, public affairs director to Abbott Russia.

According to Gushchina, Abbott is planning to further expand Vero-pharm’s R&D and production ca-pabilities in gynaecology, neurol-ogy, gastroenterology, and oncology, where demand for med-ication is particularly high.

Russia’s Growing pharma business

source: iMs health (data without dietary suppleMents and natural pharMaceuticals)

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Money & Markets

Russia put investors through a vol-atile year of chutes and ladders in 2015, as stocks climbed and slid amid fl uctuations in the oil mar-ket and the ruble, against a back-drop of geopolitical turmoil.

Yet for investors who held on through 2015, the year brought sur-prisingly handsome returns, con-sidering all the negative headlines, smoke and brimstone.

As of late November, when this issue of RBTH was going to press, Russia’s ruble-denominated Micex stock index boasted gains of about 29% year-to-date amid emerging signs that Russia has passed the worst days of its deep, dark 2015 recession.

Those overall returns were no-table for big fl uctuations, however, such as the 15% sharp decline in the index from late February to mid-March.

Russian stocks traded in dollars fared worse but still chalked gains. Moscow’s dollar-based RTS Index was up about 11% for the year in late November.

Nevertheless, the decline in the ruble wreaked havoc on some port-folios. Russian equities traded in New York fell 25% from their peak in April through mid-September this year as Russia’s currency plum-meted in value.

The year earlier, in 2014, the Micex ended down 6.5%.

While the prospects for Russian equities for next year likely rest on the fortunes of Russia’s key export, crude oil, there are reasons to think that at least the volatility of the past year may recede during the next one, giving investors respite

Equities Amid sanctions and recession, Russian shares have been on a wild ride in 2015

from their white-knuckle ride. “In Russia we’re coming back

to, I would say, ‘normal levels’ of volatility in comparison to what we had at the end of last year,” said Yevgeny Fetisov, Chief Financial Officer of Moscow Exchange, in an interview broadcast on CNBC.

“Markets overreact to the oil price and they overestimate Rus-sia’s link to the oil price,” Mr. Fe-tisov said.

But What About the Oil Price? Mr. Fetisov’s comments aside, look-ing ahead to 2016, many analysts have said the price of oil will be the single most crucial factor in determining the direction of both Russian stocks and the country’s economy.

Predicting the price of oil may be a fool’s errand, but many of those who get paid to do so have fore-

cast that crude will rise in 2016. Oil prices staged an historic 60%

collapse from June 2014 to Janu-ary 2015, but are likely to recover to an average $62.30 per barrel in 2016, up from an average of about $57.60 per barrel in 2015, a Reuters news agency poll of 30 top market analysts concluded in September.

The poll results indicate that the analysts believe oil prices have fall-en too far, too fast, Reuters con-cluded.

If so, a recovery for oil would provide much-needed comfort to Russian economic policymakers, since some two-thirds of Russian export revenues arise from sales of crude oil and natural gas.

Meanwhile, Russian officials have cautiously predicted that the coun-try’s overall economic prospects will brighten, if moderately, in 2016.

Russia’s Economy Ministry has

Russian Stocks 2016: In Search of RespiteRussian markets may find calmer

waters in 2016 after the waves of

2015 recede. But whether stocks

sink or swim will depend largely on

the price of oil.

DAVID MILLERSPECIAL TO RBTH

forecast Russia will return to growth in the second quarter of 2016 after seeing its economy con-tract 3.3% in 2015.

Some private analysts seconded the ministry’s cautious optimism.

“We expect the Russian econo-my to stabilize next year,” wrote a team of Credit Suisse analysts led by Global Head Ric Deverall in a research note in November.

Others, however, were less san-guine.

“Things are no longer getting worse” for the Russian economy, Liza Ermolenko, a London-based analyst at Capital Economics Ltd., told the Bloomberg news agency in November, though she was re-luctant to express optimism.

“I don’t think we can talk about good news next year. Rather it’s kind of less bad news,” Mrs. Ermo-lenko said.

One Russian’s Struggle With Massive Debt

Russian stocks are on track to end the year with significant gains despite significant volatility in 2015.

Many Russians are struggling with credit card and bank debts.

Arrears on loans have reached re-cord levels in Russia as a sharp de-cline in real incomes reduces bor-rowers’ ability to repay debts and a recession undercuts businesses’ profi ts.

As a result, Russian banks have begun to curtail lending, a move that could hamper prospects for future economic growth as the country fi ghts desperately to pull itself out of its downturn.

For average Russians, greater dif-ficulty paying back loans has pushed many to cut back on per-sonal expenses in favor of greater fi nancial austerity. The most des-perate are turning to “debtor anon-ymous” groups, seeking help in planning their fi nances as well as commiseration from the psycho-logical stresses that accompany mounting piles of debt.

According to the Gaidar Insti-tute, one of Russia’s most impor-tant private economic think tanks, non-performing consumer loans in Russia hit a record level of 11% this year. Prior to the recent down-turn, the record was 9.1%, accord-ing to fi gures from the institute.

Moreover, delayed payments have risen to 20%, said Mikhail Khro-mov, director of the laboratory of fi nancial studies at the Gaidar In-stitute.

Overall non-performing loans, beyond just the consumer sector, may reach their 2009 record with-in the next year, Moscow-based Moody’s analyst Alexander Proklov said in September.

“We anticipate a worsening of loan quality and expect that dur-ing the next six to 12 months prob-lem loans will reach approximate-ly the level of 2009,” Proklov told the news agency Reuters. “Banks haven’t created enough provisions, and in some cases this is becom-

Banking Russians are facing rising difficulties repaying loans as the recession bites

ing critical... We expect a signifi -cant increase in loan-loss provi-sioning in 2015 and 2016,” he said.

According to the National Bu-reau of Credit Histories (NBCH), Russians currently owe more than 10 trillion rubles ($154 billion) in retail debt, while arrears on loans currently stand at 1 trillion rubles.

Falling IncomesIn the second quarter of 2015, the Sekvoya Credit Consolidation col-lecting agency conducted a survey of 3,000 individual debtors, asking why they missed their loan pay-ments, with 43%of respondents at-tributing the problem to trouble with income amid the recession.

Debt Trap Widening As Real Incomes FallStraddled by recession and falling

incomes, average Russians face

mounting problems repaying their

debts, a development that could

imperil economic growth.

ANNA KUCHMARBTH

“As a result of the deteriorating macroeconomic situation, the pop-ulation’s real disposable income decreased by 1% in 2014, and in 2015 it is expected to decrease by 8%. Consequently, more resources are used for paying for primary goods, and less are left to repay loans,” said Yelena Dokuchyova, president of Sekvoya Credit Con-solidation.

The situation has led banks to start limiting loans and impose credit limits on retail borrowers. The volume of consumer credit in the January-October 2015 period declined by 35% to $51.8 billion in comparison with the same pe-riod last year, according to official statistics.

Alexei Volkov of Russia’s Nation-al Bureau of Credit Histories said many Russian borrowers appear to have inaccurately judged their own ability to repay their loans.

“In order for this not to happen it is necessary to check your cred-it history, assess your potential and ask for credit only when it is really unavoidable,” said Mr. Volkov.

Some Turn to Homegrown Debtors Anonymous Meanwhile, some Russians are seeking help from organizations like the Society of Anonymous Debtors, founded in 2011 and mod-eled on the American Debtors Anonymous, which began in the 1970s.

“We have found out that bor-rowing can be a sickness that doesn’t fade with time, but on the contrary, progresses. It may be im-possible to cure the disease com-pletely. Nevertheless, it can be stopped,” the society’s website says in bold font.

The Moscow’s group’s meetings are held once a week at one of the Moscow drug dispensaries, which are special clinics normally serv-ing drug addicts.

Yet in comparison to other coun-tries, especially the heavily-indebt-ed United States, Russia is not a country that is historically prone to binge-borrowing.

The overall credit volume owed by the Russian population is one-fi fth that of the U.S. But American borrowers have advantages like longer credit periods and lower in-terest rates, making repayment eas-ier.

Thus, the debt burden on the in-come at Russians’ disposal is 11.1%, while for Americans it is 9.9%.

Alexey

LossanRBTH

Ever since the collapse of the Soviet Union in the early 1990s, Russian authorities have been, from their point of view at least, bending over backwards to attract foreign investors. To do-

this, they realize, the Russian business environment must improve. In order to be sure they were making progress, they deemed it necessary to establish some objective criteria. Enter the World Bank’s official rank-ing system, known as Doing Business, which gave Moscow official benchmarks (and kept mid-level bu-reaucrats from moving the goalposts). Unlike other comparable programs, the World Bank’s methodol-ogy is far removed from politics. It analyzes specific indicators, such as how many days are required to obtain a construction permit, or how many docu-ments must be processed to connect a new store to the power grid. The methodology is highly transpar-ent, making it possible to assess the amount of red tape in a given economy In May 2012, Russian Pres-ident Vladimir Putin signed a special order directing policymakers to work towards improving Russia’s ranking by 100 points, now known as the “100 steps.” Russia hopes to rise from 120th place in 2011 to 20th in 2018, with the interim target of 50th place by 2015. Officials in the Kremlin therefore quietly rejoiced this year when Russia clocked in at 51st place.

To improve its standing in the Doing Business ranking, Russia undertook a broad range of activi-ties. A new development institution, the Agency of Strategic Initiatives, has become fully operational. The agency began carrying out regional spot checks, sending representatives to report back on factors such as officials’ fluency in foreign languages.

This year, the Doing Business ranking also reveals the weakest areas in the Russian business environ-ment: mainly, construction and export-import op-erations. In the “Dealing with Construction Permits” category Russia ranks in lowly 119th place (although that marks an improvement versus 156th place a year ago). In “Trading Across Borders,” in 2015, Rus-sia even slipped from 155th to 170th place, its poor-est showing ever. Analysts said this bout of back-sliding underscores the need for comprehensive reform of the country’s customs authority.

Russia’s results suffered, in part, because the scope of this indicator was expanded to include transpor-tation of goods by air and rail, in addition to sea-borne shipping. The Doing Business ranking ac-counts for a host of factors in this area, including the effective use of electronic logistical systems, how long cargo waits at the border and the costs associated with processing paperwork. In each these parameters, Russia seems to have no progress to report. In OECD countries, documentary compli-ance takes no more than five hours and costs $36. By comparison, in Russia, these figures are 43 hours and $500.

Alexey Lossan is executive editor for business at Russia Beyond The Headlines

VIEWPOINT

Why the Doing Business Ranking Matters to Russia

Victoria, a young lady from Moscow, breathes a sigh of relief as she re-counts how she was eventually able to dig herself out of a massive hole of debt. Several years ago Victoria de-cided to make investments through a Russian financial firm, FOREX MM-CIS Group. Without any savings of her own to use, she instead took a bank loan and borrowed from friends. But in 2014, Victoria received a letter from MMCIS informing her that the

company no longer had the resourc-es to repay its investors, and would go bankrupt. Together with interest, Victoria owed $77,000. She began at-tending the Society of Anonymous Debtors, which helped her fashion a plan to make small monthly pay-ments to the bank and to her friends. “I have stopped considering myself a victim and my life has become less impulsive than before,” Victoria told Moscow’s RBC Daily newspaper.

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Opinion

TRUMP: THE KREMLIN’S TOP PICK FOR U.S. PRESIDENT?

RUSSIA AND THE NEW GEOPOLITICS OF OIL

AFTER PARIS, A CALL FOR JOINT ACTION

Although the U.S. presidential election is still more than a year away, the candidates have said enough about Russia to give some indi-cation of where U.S.-Russia relations are

headed. If Russia’s leaders could vote, they’d probably back

Trump for the Republicans. And they’d support any-body but Clinton for the Democratic ticket.

Bill Clinton remains popular in Russia. Rightly or wrongly, he’s perceived as having been less hostile to the country than his two successors, George W. Bush and Barack Obama. Although Bill’s wife Hillary Clinton is now the bookmaker’s odds-on favorite to take the Democratic nomination, Hillary is not Bill, and times have changed. It’s impossible to imagine the former Secretary of State laughing and joking with Vladimir Putin as her husband used to do with Boris Yeltsin. In fact, Mrs. Clinton is regarded as a har-dliner on Russia. Indeed, she’s criticized Barack Oba-ma’s handling of the Ukraine crisis and proposed far stronger measures to support Kiev.

Of course, Clinton’s position might well be pre-election bluster, designed to cast her as a strong fi-gure. Hoping to become the first female president, Clinton probably feels that she has to appear even tougher than her male opponents at times. In that regard, she’s borrowing from the playbook of Ange-la Merkel and Margaret Thatcher, two phenomenally successful female leaders. The Kremlin naturally fears that a new Clinton presidency would be far more hawkish than the previous Clinton administration.

Currently, Marco Rubio is the long-term favorite in the race for the Republican nomination. The 44-year-old Florida senator is potentially even tougher on Russia than John McCain, a notorious tormentor of Putin’s government. In fact, Rubio, who has strong links to the Tea Party movement, has even won sup-port from former McCain donors such as George Seay and Jim Rubright, according to Fox News.

In May, Rubio penned a Politico op-ed in which he

Changes in the structure of the global oil trade — including a new role for Saudi Arabia, and the rise of non-state actors such as ISIS — have important implications for the world’s biggest

producer of energy: Russia. Russia’s top energy companies have already been

grappling with the consequences of lower global oil prices. Now they face additional challenges brought on by the shifting structure of the global oil business. Most importantly, Saudi Arabia’s move to start ship-ping more crude oil to Europe is forcing Russia to accelerate its energy pivot to Asia.

What we are witnessing is a change in the geo-graphy of the oil trade. Russia is turning to the East, winning market share from Middle Eastern oil pro-ducers. At the same time, Saudi Arabia is replacing Russia in the European oil market.

As a result of increased tensions over Ukraine, Eu-ropean reprocessing plants cut their purchases of Russian crude and started to replace it with oil from Saudi Arabia, setting the stage for a titanic struggle for global market share between two of the world’s

Friday, Nov. 13, 2015 will be remembered as France’s 9/11. And this is exactly what ISIS had in mind.

On that day, ISIS demonstrated its ability to carry out a series of simultaneous attacks in multiple pu-blic places in a large European capital. Despite France’s strict gun control laws, the terrorists had not only explosive belts at their disposal (standard equipment for such attacks), but also Kalashnikov assault rifles. Some observers had pointed fingers at the Egyptian security services for failing to stop a bomb from being planted aboard a Russian passenger aircraft in Sharm el-Sheikh. But after Paris, they had to admit that a democratic country with well-equipped and well-trai-ned security services had been powerless to preempt or detect a large-scale attack.

Indeed, in this modern era, terrorist attacks are the price we pay for the fact that the current internatio-nal system of economic and political relations is sadly not conducive to rooting out terrorism in individual countries or keeping it constrained abroad.

Al Qaeda appeared to have been beaten when its leader was killed. However, the fact is that the group has since grown newer and even more fanatical and barbaric cells. Stability in the Middle East has been undermined. We now confront a whole terrorist qua-si-state on the territory where, according to starry-eyed plans, the tyranny of dictators like Saddam Hus-sein and Bashar al-Assad should have been replaced by electoral democracy. Except that “the electorate” in these countries is increasingly voting more in favor of terror and against Western civilization, while at the same time, thousands of volunteers leave Wes-tern countries to fight for ISIS. They fight for a new world order, as designed by barbarians and murde-rers. It is their idea of “justice” against the backdrop of their rejection of the injustice of modern capita-lism and the true “liberty, equality and fraternity” that have never taken hold.

In hindsight, of course, it should have been clear that a large-scale terrorist attack in Europe was im-minent. First there was the crash of the Russian air-liner in Egypt’s Sinai desert, which many outside Rus-sia gloatingly interpreted as “revenge for Putin’s adventure in Syria.” Then, on Nov. 12, there was the double terrorist attack in a Shia neighborhood in Beirut, in which dozens of people were killed. In that instance, clearly, terrorists from ISIS or similar groups were taking revenge on the Shia group Hezbollah for fighting on Assad’s side in Syria. The international community shuddered, but, of course, the world’s reaction wasn’t as dramatic as it was after France.

It would appear that 9/11 has happened all over again. All those who consider themselves to be a part of the civilized world should not only unders-tand where we have gone wrong over the past 15 years in the fight against terror, but also create new forms of joint and coordinated action.

The author is a political scientist and a member of the Council for Foreign and Defense Policy, a Moscow-based independent think tank.

called for further NATO expansion, including the ac-cession of Ukraine. The idea is anathema to Moscow. Responding to the notion that NATO might send mil-tary advisors to Ukraine, Alexander Grushko, Russia’s envoy to the North Atlantic Alliance, told news agen-cy Tass that “Moscow will take all measures, inclu-ding military-technical, to neutralize the possible threat from a NATO presence in Ukraine.”

Most analysts agree that should full NATO mem-bership for Ukraine be proposed, Moscow’s reaction would be less than pleasant.

NATO expansion may be the one topic of agree-ment between Rubio and his former mentor Jeb Bush, who may yet make an impact in the race. Bush views Putin as a “bully” and has called for larger troop de-ployments to the NATO-member Baltic states.

Then there’s Trump himself. Although the billio-naire’s candidacy was orignally viewed as a joke, no-body’s laughing now. Of course, some U.S. allies in Europe might be alarmed at a putative President

Trump’s warm feelings towards Russia. This doesn’t seem to bother the candidate, who doesn’t have much sympathy for the Europeans. Trump also believes that Crimea is Europe’s problem and that the U.S. has no role to play in the territorial dispute.

The Kremlin’s worst nightmare would be a Clinton-Rubio battle. In such a contest, Russia would make a convenient whipping boy for their foreign policy tussles. Worryingly for Moscow, Clinton-Rubio remains far more likely than Trump or any Democrat alternative to Clin-ton. Russia could easily find itself used as the electo-ral bogeyman du jour. It could be a long year.

Bryan MacDonald is a Moscow-based Irish journa-list who focuses on Russia’s role in international geo-politics.

most important oil suppliers.Holding on to market share is vital because room

for crude suppliers is tightening. By contrast, the mar-ket for refined oil products (like gasoline and kero-sene) continues to expand and globalize.

Meanwhile, amid these changes, the backdrop of the energy industry is evolving as well. Refined oil pro-ducts have taken a more central role in the globaliza-tion of trade flows.

Major crude producers like Saudi Arabia and Rus-sia are now focusing on developing their own refine-ry capacities and firming up their positions in refined products markets. And, increasingly, the main consu-mers for this output are located in Asia rather than the stagnating European market.

The factors that explain this development are rooted in the energy security concerns of Asian oil impor-ters, who have historically had a high degree of de-pendence on Middle Eastern crude and who turned to Russian supplies as a way to diversify. Moreover, the deteriation of relations between Russia and the West also has an impact on this process, as Russian companies reduce their presence the European refi-nery business, and international energy companies pull back from modernizing Russia’s oil refinery in-frastructure.

Irina

MironovaACADEMIC

Georgy

Bovt

POLITICAL SCIENTIST

The EU is the second largest producer of oil pro-ducts after the U.S. After the economic crisis of 2008-2009, the European refinery industry experienced difficulties, including weak demand for its output and growing competition from export-oriented refineries in the Middle East, Russia, the United States and India.

In recent years, Saudi Arabia has faced a decrea-sing role in Asian markets as buyers there strived to diversify a market heavily dependent on crude oil from the Middle East via Russia. Now in an effort to keep market share, Saudi Arabia plans to ship more crude oil to Europe.

Recent reports show that light Saudi crude is a new favorite for energy importers in Europe, threa-tening the traditionally Russian-dominated market. Low prices, in addition to strained relations between Russia and the West, are factors that have led com-panies like Shell and Total to make the switch.

There has long existed a desire for energy supply diversification in Europe, recently with Poland taking the lead by announcing a natural gas pipeline deal with Latvia, Lithuania and Estonia. An injection of Saudi oil into the European market would provide another much-desired avenue to achieve this goal.

These moves are aggressive enough to have caused concern among the Russian leadership. So long as Saudi Arabia keeps prices sufficiently low by means of discounts, high production, or both, Russian mar-ket share in Europe will continue to be threatened.

Meanwhile, there is another complicating factor: the emergence of the Islamic State of Iraq and Grea-ter Syria (ISIS) has complicated the notion that the geopolitics of energy are traditionally set by sove-reign states. ISIS enjoys a crude output of 34,000-40,000 barrels per day, banking an estimated $1.5 million per day.

Reportedly some of this oil is sold and consumed by both rebels fighting Syria’s al-Assad government and the al-Assad government itself. This strange in-terdependence between enemies further complicates the already labyrinthine set of allegiances in the re-gion. The increased production from fields controlled by ISIS, indeed, signifies a serious change — the birth of a new geopolitics of oil in which non-state actors have increasing importance.

As a result of all these changes, the notions of so-vereignty over national resources, traditional trade bar-riers associated with national borders and trade agree-ments, and energy diplomacy are all taking on a very different meaning.

Irina Mironova is Senior Lecturer on the ENERPO Pro-gram at the European University in St. Petersburg. The article was first published by Russia Direct.

Bryan

Macdonald

COMMENTATOR

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Feature

Russia’s driverless vehicles take the harsh conditions of its roads into account. Truck maker KAMAZ is working on new automated vehicles.

“In Soviet Russia, truck drive you!”That’s surely how the great Ukrainian-Amer-

ican comic Yakov Smirnov would have started this story about Russian self-driving trucks.

Let us say instead, with greater seriousness, that Russia has announced a target date for unveiling its fi rst driverless vehicles.

Deputy Prime Minister Arkady Dvorkovich said in early October that Russia will roll out a fl eet of the self-driving vehicles in time for the FIFA World Cup, the international soccer tournament Russia is to host in the summer of 2018.

While it isn’t yet clear whether the self-driv-ing trucks will have a special mission at the soccer tournament or simply be displayed there as something of a showpiece, the date marks a new milestone along the road towards a world of driverless vehicles — a world that is ap-proaching faster than you might think.

Russia takes on the worldOf course, auto makers from many other coun-tries are also pushing rapidly towards technol-ogies that will remove human drivers from the automotive equation.

In October, Toyota announced plans to bring self-driving cars to the market by 2020, which also happens to be the year of the Tokyo Olym-pics.

Meanwhile, Germany’s Daimler has been test-ing self-driving tractor-trailers on public roads in a suburb of Stuttgart, while Japan’s Honda, America’s Tesla Motors and Germany’s BMW are all testing driverless cars in California, one of the few places in the world where no regu-latory restrictions exist for these newfangled vehicles.

The dawn of this new age will bring its own quandaries. For example, in Mountain View, Cal-ifornia, a hapless police officer pulled over one of Google’s driverless cars in November for driv-ing 24 miles per hour in a 35 mph zone. No ticket was issued. Perhaps it was unclear who would have to pay the fi ne?

Automotive Russia will unveil its first driverless trucks when it hosts the 2018 FIFA World Cup

Russia, for its part, boasts two companies cur-rently working on self-driving vehicles: KAMAZ, which is controlled by the state-owned con-glomerate Rostec, and Gaz Group, part of the Basic Elements industrial group that belongs to Russian aluminum tycoon Oleg Deripaska.

Mr. Dvorkovich didn’t reveal which compa-ny would roll out the driverless trucks in 2018.

Human vision for robot carsRussia’s approach towards driverless vehicles differs from the international competition in much the same way that Russian roads differ from those in Europe, the U.S. and Japan.

Most international competitors are working on cars suited primarily for ideal traffic condi-tions and high-quality road surface markings.

Russia’s far-fl ung road network, stretching through countless miles of forest and perma-frosted tundra, is known to be more treacher-ous.

Indeed, Russia’s famous 19th century satiri-cist Nikolai Gogol supposedly quipped that the country “has two problems: fools and roads,” a phrase still commonly used in Russia today.

To handle the problem, KAMAZ has teamed up with Russian software developer Cognitive Technologies to work on features that take the harsh conditions of Russia’s highway network into account.

The KAMAZ and Cognitive Technologies proj-

ect is based on the so-called passive, or signal-acquiring computer vision.

This means that the vehicle’s computer vi-sion system acquires data from outside, and this data is then processed by the vehicle’s ar-tifi cial intelligence to make decisions.

“This works in pretty much the same way that human vision does,” said Olga Usova, pres-ident of Cognitive Technologies. “Our eyes per-ceive the road and our brain analyzes the en-vironment and makes decisions. We developed a computer model of human vision, and our vehicles actually perceive the road and other vehicles.”

This concept involves using radar-like devic-es that employ refl ected light to measure dis-tance. The car can therefore navigate by emit-ting signals that refl ect off the environment.

“Thanks to the algorithms used by our truck, it can operate in Russian conditions, as well as on most of the world’s roads,” said Ms. Usova.

According to her, this feature distinguishes the KAMAZ effort from most other driverless cars, including the Google Car, which is based on what she calls a “signal-emitting design.”

The Russian approach, said Ms. Usova, may help the country lead the way in developing self-driving cars suitable not only for well-main-tained roads like Germany’s Autobahn system or California’s Highway 1, but also for more difficult roads in out-of-the-way places.

Russian firms have joined the race to develop

driverless cars, with a focus on technology that

helps vehicles navigate more treacherous

roadways in less-than-pristine conditions — like

those in the Russian backcountry.

VICTORIA ZAVYALOVARBTH

QUOTE

SergeiRadchenko

" There are cur-rently two main trends when it

comes to robotics de-velopment in Russia: improving classic cars and the development of a new type of vehicle, which is a cross-breed between a helicopter and an airplane. The use of new materials — carbon fiber and compos-ites — will make it possible to reduce the weight of vehicles. We can expect the use of robotic systems, flexible manufacturing systems, and 3D-printing technologies to become widespread in Russian industry.”

Executive secretary of the futurologist organization of the Russian society Znaniye

Russia Rolls Out Self-Driving Trucks

Moscow 2016: Event calendar

Theatrical performances, exhibitions and concerts will take place through-out the city. The festival will com-memorate the heroes of WWII.

The Moscow Spring Festival

MAY

Thirty-six festival platforms will appear on the city map. Each will have rows of mar-ket stands, open stages and street theaters.

The Journey to Christmas Festival

12 .12. 2015 �11.01.2016

The 80th championship tournament will be held in Moscow and St. Petersburg, with 16 national teams competing.

The World Ice Hockey mpionship

MAY 6�22

Moscow City DaySEPTEMBER 3�4

Moscow’s birthday. The city turns 869 years old). Con-certs, shows and theatrical performances will be staged on the city’s central squares, streets, boulevards, water-fronts and parks.

SEPTEMBER

Russian and foreign military bands, folklore groups and honor guard units will hold demonstrations on Red Square.

The Spasskaya Tower International Military-Musical FestivalSurveys show that the day

Russia commemorates victory over Nazi Germany is the most respected Russian holiday. The main event is the famous military parade on Red Square.

Victory DayMAY 9

MAY

The Night at the Museum FestivalMore than 250 cultural institutions will remain open late into the night: museums, galleries and other institutions dedicated to the arts.

AUGUST

The city will be decorated with art installations, and festival-goers will have their choice of jams and fruity sweets to purchase in many tents.

A Moscow Summer. The Preserves Festival

SEPTEMBER�OCTOBER

A grand lighting show: light designers and 2D and 3D graphics profession-als will use the city’s architecture as screens to project multimedia and light installations.

THE KRUG SVETA FESTIVAL

JANUARY

MAY SEPTEMBER .... 2017

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