Skip to Content

Saturday, August 24th, 2019

As Russia’s Premier Investment Forum Opens, The Kremlin Faces A Tougher Sell

Closed

It’s Russia’s biggest, oldest, and arguably bestknown gathering for global investors, a conference in Vladimir Putin’s hometown aimed at selling the world on investing in the world’s largest country.

It’s not an easy sell these days.

The St. Petersburg International Economic Forum opens in Russia’s socalled northern capital on June 6, against the backdrop of continuing Western sanctions, Kremlin efforts to woo China, and concerns about Russia’s willingness to protect foreign investors.

U.S. officials and top business leaders are staying away from the event. Chinese officials, however, are not.

China’s President Xi Jinping will attend the threeday event, as his country signs multiple investment deals with Russian firms ranging from energy to telecommunications.

Xi will also join a panel at the forum with Putin, whom he called in an interview ahead of this trip his “closest and most reliable friend” among world leaders.

Russia’s business climate faces stiff headwinds for many reasons, including the economic sanctions imposed by the United States, Japan, and European allies for Moscow’s 2014 seizure of Crimea, along with alleged Russian interference in U.S. elections.

That’s helped push Russia to deepen its business relations with China, and Beijing, which has its own frosty relations with Washington, to do the same.

“In this not so easy and certainly challenging international situation, the close and productive cooperation between China and Russia is one of the most powerful and positive developments,” Xi told the Russian government newspaper Rossiiskaya Gazeta on June 5.

While there may be some “angst” in Washington about the two authoritarian leaders sharing the same stage, the actual investment and trade between Russia and China “is still quite modest” when you take into account the size of the countries, said William Courtney, a former U.S. ambassador to Kazakhstan.

“Both of them are facing a certain kind of isolation with regards to the U.S. and also Europe in the case of Russia, so it’s really trying to show the West, especially the U.S., that they have other alternatives and they will stand stronger if they’re together,” said Courtney, now a Russia analyst at Rand Corp., the Californiabased think tank.

Baring Vostok

Adding to the bearish attitudes toward investing in Russia is the arrest of Michael Calvey, a prominent American investor who was detained in February.

The 51yearold businessman, whose firm Baring Vostok Equity Partners has invested more than $2.8 billion in Russia and the former Soviet Union, is under house arrest on charges of financial fraud, which he calls a business dispute.

U.S. Ambassador Jon Huntsman and American officials are boycotting the St. Petersburg forum, in large part due to Calvey’s detention. Some top executives from major American corporations are also staying away.

Alexis Rodzianko, president of the American Chamber of Commerce in Russia, said Calvey’s case is front and center for U.S. investors.

“For AmCham and the U.S. community, the unresolved Baring case is central,” Rodzianko told RFE/RL in an email.

“[The] question in the air is: do the key Russians care about the investment climate or is it written off? Will it become open season to use these methods against international business?” he said.

Calvey’s case has bolstered the longheld perception that influential Russians are able to use the nation’s law enforcement agencies to settle their commercial disputes or simply to seize assets.

In a move that some viewed as an attempt to placate investors, Dmitry Peskov, Putin’s press spokesman, this week called Calvey’s arrest “unfortunate” and said the Kremlin would like to see him attend the forum.

Established in 1997, the forum has been formally organized by the Russian presidential administration since 2006, and has grown into the country’s biggest strategic investor event, attracting many of the world’s largest corporations. Last year, it drew more than 17,000 attendees.

Weak Growth

With the Russian economy facing slow growth ahead, there is doubt the warming relationship with its eastern neighbor will open the doors to cheap Chinese capital and offset tepid Western and domestic investment.

“Reality is that while Moscow hoped China would write big cheques after the West imposed sanctions on Russia from 2014, China has been tight with the purse strings rather looking to negotiate, [to] knock down energy price deals, taking advantage of Russian weakness,” Timothy Ash, an economist at BlueBay focusing on emerging markets including Russia, said in a post to Twitter.

Dean Cheng, a China specialist at the Heritage Foundation, agreed, saying, “Russia has very few economic cards to play” against its more economically powerful neighbor.

On June 4, the World Bank cut its forecast for Russian growth in 2019 to 1.2 percent which would mark the slowest expansion in three years. The bank left its outlook for 2020 and 2021 unchanged at 1.8 percent, among the slowest in Eastern Europe and former Soviet region.

Andrei Kostin, the chief executive of the stateowned VTB Bank, which is Russia’s secondlargest, said on June 5 that he doesn’t expect Washington to lift sanctions anytime soon, a move that would help revive sluggish growth.

“The main conversation for multinationals is what is happening with the Russian economy,” said Tom Adshead, director of research at Macro Advisory which helps U.S. and European companies investing in Russia. “And here the situation is not great.”

Russian economic growth will slow this year from 2.3 percent to 1.2 percent in part as an increase in the valueadded tax hits consumption, according to the World Bank.

Weak growth over the past five years along with an increase in the pension age has led to a rise in public discontent. Doctors and medical workers in several cities took to the streets earlier this year to protest low wages, one of several grassroots movements over living standards.

To stimulate growth to 3 percent and improve the quality of life, the government plans to spend as much as $272 billion over the next several years on socalled “national projects,” including infrastructure, health care, and education. It aims to attract an additional $115 billion for the projects from private sources, including foreign investors.

The spending program is exactly what Russia should be doing now, Macro Advisory’s Adshead said. However, the government’s track record of misspending budget money has some doubting the goals will be achieved, he added.

Copyright (c) 2015. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave NW, Ste 400, Washington DC 20036.

Previous
Next