Marchmont’s 2010 Russia survey: “Now is the time for action”

4 Feb '10
Oleg Kouzbit, Online News Managing Editor

Marchmont surveyed a cross-section of Russian business leaders to share their views for the coming year. Here is their response:

David Tsiteladze, editor-in-chief and publisher, The AngelInvestor magazine; director for development, Magnate-NN foodstuffs wholesaler, Nizhny Novgorod:

“I believe 2010 will by and large be very much like last year. The labor market has stabilized. I expect the jobless rate to stay within a 2009 range. Consumer activity is unlikely to show any considerable growth as incomes across Russia’s economic sectors will probably hover at 2009 levels.

Banks have generally recovered from shock and continue ‘business as usual’ with their best clients. However, the burned hand teaches best, and this has made some banks very wary about funding new projects—especially if they don’t promise quick and substantial returns.”

His prognosis for the publishing business is decidedly less positive. “Upmarket advertisers who help sustain our journal with ads to sell their high added value products took a severe beating at the apex of the crisis. So 2009 was stagnant and I believe 2010 and 2011 will also be tough for publishers.

Between now and late 2011 the survivors will either change their business focus—and we are doing that right now—or narrow their focus even further to find their optimum target audience. Today’s advertiser needs a much clearer understanding of how his investment will pay off. I think the increasingly competitive business magazine segment will shrink further over the next two years.”

In his foodstuffs wholesale business David has plans to give special attention to improving their current product range rather than betting on expansion—unavoidable tactics in today’s hard-edged price competition. “We did enough diversification into micro-projects last year, and it all proved successful,” he said.

“By the end of 2010 two types of market players will survive: those with a clear long-term strategy and those having yet nowhere to go and therefore just doing their utmost to stay on board to tell their tale later,” David said in his concluding remarks.

Thomas Nastas, founder, Innovative Ventures, Inc.; member, boards of directors: Sotsgorbank Moscow, Independent Directors Association Moscow, Tata Coffee Moscow; co-founder and member, board of directors, BPOcom, Moscow:

His overall expectations are rather upbeat. “I expect a general increase in economic indicators.”

Leading the growth will be “a rapid increase in real estate pricing as construction companies use fear tactics to stimulate demand.”

Thomas also believes that Russia’s IPO market will show new signs of life in 2010.

Despite a very tough 2009, the Russian stock market in 2009 actually was one of the world’s best performing, increasing over 40% since its bottom.

Thomas’ take on corporate Russia focused on a peculiar trend in the nation’s labor market. “Employees use the labor shortage of trained professionals to extract increases in salaries and benefits,” he said.

As far as his personal expectations for this year, Thomas said he hoped to get a new VC fund up and running by the end of the year.

Mikhail Treivish, president, OmniGrade rating monitoring agency, Moscow:

“In 2009 our company changed its slogan from “Assessing the Future” to “Building Trust.” It was no accident. Prior to the current crisis it was easy to look into Russia’s economic future; presenting a national budget for a year the RF Ministry of Finance would comfortably announce that the budget had been drafted ‘based on an $X oil price.’ We’re still reaping the ‘fruit’ that such an ‘oily’ economy planted in this country.

It is still not so difficult to give a short-term forecast. Experts don’t expect considerable oil price fluctuations—so there will hardly be any dramatic changes in Russia’s economy. There might emerge a number of external factors, though, that may make a serious difference, but they are beyond this country’s control.

Despite the current apparent stability, I would personally like to see 2010 become the year of the actual creation of a new economic paradigm. The centerpiece should be dependence on intellect rather than commodities—a resource Russia has and will never run out of. Today we have a handful of large commodity companies and thousands of knowledge-based firms, but unless a current level of trust toward what the latter does increases exponentially, those firms will be unable to influence Russia’s economy with the same impact commodities do.

Trust needs to be developed through honesty and transparency. I wish for more and more companies to realize how critical this is. The more honesty and transparency in Russian business will also have a significant benefit to our company, too.”

Eric Hansen, vice-president, U.S. Russia Center for Entrepreneurship, Moscow:

Eric feels the crisis 2009 has taught Russia a lesson in self-reliance.

“In an odd twist of fate, what is bad news for the economy is good news for entrepreneurship. When economies take a nosedive, entrepreneurship increases.

This is due to several factors. One, people lose their job and realize that no one is hiring. They become entrepreneurs out of necessity to feed their families. There are others who view their loss of a job as the sign to start the business that they have always dreamed of, but never did because they were comfortably employed. In either case, a slowing economy makes people realize that in order to take control of their life they need to be their own boss.

One heartening aspect of this crisis is the fact that the Russian government is now actively promoting entrepreneurship. In years past, entrepreneurship was equated with criminality, a stereotype that the government did not dispel. Now, the government is equating entrepreneurship with job growth and wealth creation. They are beginning to enact laws that reduce barriers to entrepreneurial success. Our center’s hope is that 2010 sees a continuation of this positive trend.”

Gregg Robins, specialist in wealth management, Russia & Eastern Europe, and an American singer-songwriter living in Geneva, Switzerland:

Gregg has an extensive experience of working in Russia and believes that to overcome the aftermath of the crisis this country needs to embark firmly on its path of modernization, innovation, and diversification.

“The world outside Moscow looked very different a year ago as the crisis set in and the RTS plunged to 500 levels, making current Russian stocks valuations amongst the lowest in the world. With the worst of the crisis behind, and the economy and markets showing signs of life, Russia now must begin in earnest investing in her infrastructure, and to enable investment to flow into the country again.

More than in previous years, Russia needs and welcomes outside investment and must create a supportive legal and political environment for investment inflows to pick up again. Efforts to privatize Russia’s largest banks are evidence of this trend.”

Gregg also has hopes that politics will play a pivotal role as well.

“Clear improvements in Russia-US relations, and momentum for joint efforts on nuclear reductions, will also help encourage foreign investment.

President Medvedev has spoken often of modernizing Russia, in many regards, and now is the time for action. He has more wind at his back now with the RTS on a steep upward trend, growth returning, and the world economy returning to normal.”
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