First Deputy Prime Minister Sergey Ivanov at the G-8 Summit held last year St. Petersburg

Nonetheless, for the top executives representing multinational corporations last week in St. Petersburg, the Kremlin’s support for “national champions” in strategic sectors such as energy and aerospace remained a serious topic of discussion. First Deputy Prime Minister Sergey Ivanov attempted to address their concerns by referring to President Putin's comments on the subject made the previous week at the G-8 summit:

"In cases where we are establishing large state corporations, such as in the shipbuilding and aircraft manufacturing sectors, we are not nationalizing previously privatized enterprises but are simply bringing scattered state-owned assets under one roof, uniting them as a single corporation. We have no intention of trying to increase the number of state assets from beyond their present size..."

"As I already said, in the case of the aircraft manufacturing and shipbuilding sectors, we are streamlining state assets and making them more viable, efficient and competitive, and we do not rule out the sale of stakes in these corporations in the future, IPO operations, but these future plans will then involve viable and competitive companies of European level and significance. We do not want to lose these sectors; we want to develop them and we want to do so with the help of private capital."

Mr. Ivanov is widely considered to be a strong candidate to succeed Putin as President of the Russian Federation next year. The BBC described the St. Petersburg forum as an opportunity for the former Russian Defense Minister to increase his international profile ahead of the 2008 presidential elections.

Speaking to reporters, Ivanov said that the government will continue its policy of consolidating large holding companies, but it will also purchase their stock at market prices through future public offerings. Regarding foreign investments in Russia, Mr. Ivanov suggested how this exchange would work: “your technologies in return for our market”. This is not a new paradigm for emerging markets – China has long required Western investors to transfer technology in exchange for access – but it is relatively new concept in Russia.

The International Economic Forum generated several announcements that indicate a strong desire by Western financial institutions to work in Russia:

- Goldman Sachs Group plans to expand its Moscow office to 100 employees by adding 25 more bankers.

- Deutsche Bank AG, which already has about 800 employees in Moscow, plans to add consumer lending to benefit from the demand for retail loans and financial services in Russia.

- Barclays Capital PLC is likely to open a Moscow office this year

Deutsche Bank is creating a retail banking business in Russia

New Survey of Investor Attitudes Towards Russia

Today Russia's Vedomosti Daily newspaper published the results of a poll sponsored by the global accounting firm Ernst & Young that was conducted by the Foreign Investment Advisory Council (FIAC) “The Image of Russia in the View of Foreign Investors” .

One of the key findings of the survey is that investors who are already working in Russia have a better attitude to the country as opposed to those who are merely considering investing. This finding supports my argument presented in yesterday’s post (Russian IPOs: Week 23 of 2007 Reviewed: Investment Trumps Rhetoric”).

Among investors working inside the Russian Federation: 47% of those polled believe that Russia is moving in the right direction, while 25% consider it wrong, and the rest were undecided or declined to respond. Among potential investors, these figures are 26% and 33% respectively.

Over 50% of investment bankers working here consider investing in Russia to be more profitable than in other emerging markets such as India, China, and Brazil. Not surprisingly, potential investors who are on the outside looking in perceive things differently – only 18% agree that Russia is a better play than other emerging markets. Just 39% of the respondents in Russia agreed that investment risks are higher here than in other emerging markets; while 59% of the potential investors agreed with this notion. In the wake of this survey, FIAC suggests that investors and government officials should do more to inform their peers about the advantages of doing business in Russia.

Russian Private Equity Fund Manager Speaks About the Global Economy in Australia

Writing over at the politically libertarian Daily Reckoning blog ("Russian Stock Market on Fire, No Longer As Dependent on the U.S. Market"), Australian blogger Chris Mayer recounts a recent talk delivered by Harvey Sawikin, managing principal of Firebird Management LLC. According to his bio on the Wharton Global Business Forum website, Sawikin is a graduate of Harvard Law School who currently manages four funds in Eastern Europe and the former Soviet Union.

In his remarks to an Australian audience, Mr. Sawikin described how the declining American dollar is increasingly buying less oil from Russia and other major oil exporting nations. According to Mr. Sawikin, Russian energy executives have told him that they see little incentive to produce more oil at $60 per barrel when they can reasonably expect to fetch higher prices for this finite natural resource in the future.

Chris Mayer quotes Sawikin as saying that with the rise of India and China, the world is no longer as dependent on the U.S. to serve as the main engine of global growth as it was just a few years ago, during the 1990s.

This particular point echoes a theme I have repeated a few times here at Russia Blog, while describing the flight of American IPOs to Europe due to the Sarbanes Oxley law and Europe's market capitalization exceeding the value of U.S. markets for the first time since World War I. And that theme is: today the United States of America faces a new world of competition. Complacent, post-Cold War assumptions about where the U.S. and Russia fit in the global political and economic order are increasingly outdated. Unfortunately, it appears to us here in Moscow that America's political class lags far behind American investors and entrepreneurs when it comes to coping with globalization.

Mr. Mayer concludes his informative blog post with this:

“Investors should not discount the importance of the Russian market and other overseas stock markets. Increasingly, investors will want to pay attention to what happens in Moscow, Dubai or other once-backwater investment arenas.”

You can read the original post at Vladimir Kuznetsov's blog, Equity Financing in Russia. The views expressed in this post and on his blog are the personal opinions of Vladimir Kuznetsov, and are reproduced here solely for educational purposes. To read more Russia Blog posts about Russian capital markets, click on the finance section or type www.russiablog.org/finance in your web browser.