Karyera (Moscow) - May 13, 2005

The 11th international investment conference "Russian and Ukrainian business under new conditions: risks and prospects" organized by RosBusinessConsulting was held in the Swiss city of Gstaad from March 20 to 23.

The famous mountain ski resort of Gstaad in Saanenland, located in the very center of the Berner Oberland, is one of the favorite haunts of the world establishment. Its hotels are noted for their subtle luxury and British chic. "For the first time in the history of holding investment conferences, RBC is presenting two countries, Russia and Ukraine, to foreign businessmen," RBC General Director Yury Rovensky commented. "Our countries have a common fate and a common development vector. Both Russia and Ukraine are facing the necessity of integration into Europe. They are continuing economic reforms, and in many instances developing common concepts with respect to the WTO," he commented. "A range of economic agreements that may become the basis for the common economic area between our two states are being prepared," Rovensky added.

Respectable Switzerland has become not only a European center where international problems are discussed but also a unique place where financial flows and business interests intersect. The conference's main topics were risks of Russian and Ukrainian businesses, theory and practice of investment, Russian-Ukrainian relations, and the crises of the Russian political system. It became possible to hold a series of vivid and memorable top-notch events within RBC's international conference thanks to the forum's general sponsor, Chivas Regal whisky.

The conference's special session was called "Ukraine: new opportunities". Speakers pointed to the fact that over the past 15 years Ukraine had come further in its political development than Russia. As opposed to Russia, at least ten fully-fledged political parties have functioned in Ukraine over these years; the survival of Ukrainian business has depended not on distribution of state licenses to produce natural resources but on the modernization of industrial production; Ukraine has had a free press and a relatively independent judicial and legal system. Ukrainian President advisor Boris Nemtsov said, "Two factors have led to the 'orange revolution': distrust of the ruling regime and falsification of the elections." "But in Russia, as you know, the public loves the President," he added. Nemtsov said Ukraine had an advantage over Russia in relations with foreign investors. He believes Ukrainian people know what they want and can clearly state it to the rest of the world. "We want to live in Europe, we are Europeans. Russian businessmen should be afraid of re-privatization in Ukraine," he said. "Ukrainian people understand that if they behave that savagely, nobody will ever admit them to the European Union. The main result of the 'orange revolution' is the discovery of the national idea and strategy, all the rest is a matter of time," Nemtsov continued. "Ukraine's success is a chance for Russia. If Ukrainian reforms are successful, if the country escapes from oligarchic capitalism and corruption, they will be an example for us. But if they fail, we, Russia, will have no chance," he underlined.

Chairman of Agrokhimbank's Board of Directors said "monetary" authorities are capable of transferring approximately $100bn in investments in Russia without effort and risks. This would give a new incentive for industries not involved in raw materials production to develop, and would decrease the Russian economy's dependence on hydrocarbon exports. Viktor Gerashchenko talked about the situation with YUKOS. Last year, YUKSO used to be Russia's largest company producing 20 percent of the country's oil. At present, the company's taxes, $7bn plus an additional $4.5bn, constitute approximately 5 percent of Russia's consolidated budget. More than 30 letters with the request for payment by installments have been sent to the government but remained unanswered. At the same time, an international problem exists. A fourth of the company's shares belong to foreign investment funds. If share price decreases, minority shareholders will take legal measures.

Free capital flows are one of the most important conditions for development in liberal economies. This is a fairly universal recipe for recovery of national economies, regardless of their regional, mental and other features.

Investments move to where they feel fairly secure. They the need guarantees. Money is careful and timid. Guarantees imply mature economy and political stability. Capital moves to where it is profitable.

Gamza from Agrokhimbank pointed out that deposits of monopolistic credit organizations (state-owned banks and banks of energy and raw materials financial and industrial groups) at the Bank of Russia total a colossal amount of more than RUR100bn (approx. USD3.47bn), which proves that investments are first and foremost "corked" in the economy's primary industries and that Russia does not have a financial system that would ensure free capital flows into the inter-industry and interbank spheres. The financial system needs to be cured from "clots". Money, after all, is the blood of an economy.

Head of the Department for Central and Eastern Europe of Credit Suisse Bank Arno Leclercq declared that Russia has always been and continues to be part of Europe. Close cooperation with European countries is an efficient way of recovering the national economy and transforming it into a transnational one. Russia's interest in Europe was confirmed by the number of participants. Among them were Viktor Gerashchenko, chairman of YUKOS's board of directors; Boris Nemtsov, advisor to the Ukrainian President; Alexander Livshits, Deputy General Director of the RusAl-Management Company; Ella Pamfilova, Chairwoman of the Council on human rights under the Russian President; Mikhail Delyagin, Board Chairman and Director of Research at the Institute of Globalization Studies; Pavel Astakhov, Executive Board Chairman of the Pavel Astakhov Bar Association, and other heads of major companies, leading economists, public figures and top-echelon officials.

The number of foreign participants, current and potential investors, was also very high. They were represented by Hans Joerg Rudloff, Board of Directors Chairman of Barclays Capital; Thierry Delley, Head of the Office for Economy and Labour of the Canton of Zurich's Financial Services and Economic Development; Neil Osborn, Managing Director of the Euromoney magazine; Arno Leclercq, Head of the Department for Central and Eastern Europe of Credit Suisse Bank, and many others.

Leclercq also pointed out that Europe did not always understand the language of Russian business. What is necessary is a common investment language, civilized lobbying of Russia's interests in the West, and the creation of a reputation for Russian businessmen as people not tied to criminal circles.

Alexander Livshits from RusAl-Management declared in Gstaad that large business was asking neither for money, power, nor favors. What it needs is certainty and predictability. As for other circumstances, businessmen will be able to adapt to these on their own. He also commented that Russia was not by any means facing capital flight. In fact, it was enjoying investments into foreign business. Russia has reached this level, Livshits believes. For example, Russia procured alumina in bulk abroad, as the country's aluminium industry lacks this ingredient. According to Livshits, Russia desperately needs a civilized system of acquiring foreign assets.

Mikhail Delyagin, Board Chairman and Director of Research at the Institute of Globalization Studies, declared at the forum that "Putin's five years" had ended in Russia and impressive results had been achieved. However, oil revenue has ceased to affect Russia's economy considerably. Stagnation is arising amid an open racket by law enforcement agencies. Delyagin thinks the essence of the last 15 years of Russian reforms is the bureaucracy's exemption from control and liability to the public Among the key issues for Russia discussed at the conference were attraction of foreign investments to the economy, creation of mechanisms to cooperate with international financial organizations and an atmosphere of confidence in our economy and in the possibility of making large investments in Russia.

The conference's program included discussion of such topics as: "Long-term investments for Russian business", "Investments in real estate business infrastructure", "Modern trends on the M&A market", "Prospects for the Russian IPO market: expectations of a boom", "The role of the insurance market in the development of Russia's economy", "Presentation of the Zurich Canton", and "Business mass media in the west and in Russia: constructive dialogue with Russian business."

Investors' confidence is fragile. High-level political solutions, competitive business, modern management, and various forms of international contacts are necessary to create an atmosphere of confidence for investors in our economy. Russia has long way of its own in store but it is necessary to remember that ways to success are similar to all successful economies with transnational interests and ambitions. Russia should target integration into the world economy.