It is not at all frightening

The Russian news agency RosBusinessConsulting (RBC) continues to take Russian entrepreneurs to major business centers of Europe. Davos (Switzerland) was chosen as a place for the regular economic forum this year (Russia's Investment Outlooks for a New Presidential Term). About 200 distinguished people discussed ways to do business in Russia over the next four years.

The central theme of discussions in Davos was the investment climate in Russia. It turned out that it has improved over the past few years, and investors feel rather comfortable. It is expected that private companies will import more currency to Russia than the amount they will export for the first time in post-Soviet Russia this year. Russian Finance Minister Alexey Kudrin estimates that the net inflow will reach $3bn-4bn, and most experts share this opinion. Moreover, analysts believe that this amount could be even higher, as Russia's sovereign rating is expected to go up again this year. Fitch is likely to be the first to increase the rating, and conservative S&P will follow it at the end of the year. Russian officials think that this is the result of reforms, including tax reforms: investors are now confident that the return on capital is higher in Russia than in other countries. Former Central Bank Chairman Viktor Gerashchenko, who is currently the first deputy chairman of the State Duma Property Committee, declared in Davos that at present, there is no more need to create mechanisms for guaranteeing investments in the Russian economy. Gerashchenko underlined that investors should be primarily concerned with restrictions on importing capital to Russia, the conditions of buying shares and limits on the amount of shares to be purchased, and the possibility of selling these shares later.

During the Davos forum, the RTS index, which is the main indicator of the Russian stock market, was setting new historic records. Obviously, this is a symbol of the successfulness of the present economic policy. However, not everything is as good as it seems. According to Gerashchenko, the successes of our economy are paradoxical (economic growth, strengthening of the ruble, doubling of imports, a decrease in employment); it is still orientated to exporting raw materials and is too dependent on the global economy. Gerashchenko forecasts that the flow of oil revenues will decrease in 2005-2007, and the economic growth rate will reduce to 3.5 percent. A default on corporate liabilities and, later, on liabilities of banks could be the result of this situation.

The Russian banking system is one of the weakest sectors of the Russian economy. Alexey Novikov, the analytical director of the Standard & Poor's international rating agency, declared that Russian banks have the poorest ratings (CCC+), while the average rating for federal districts is B-, and the corresponding corporate rating is B. According to Novikov, the underdeveloped banking system could lead to a technical default. Banks are seriously dependent on the securities market, they have been showing a decline in operating profits recently, and public confidence in bankers is falling.

What is the likelihood of the most pessimistic scenarios? Judging from the confidence of government officials who made reports in Davos, one should still hope for the better. Reforms will involve the banking sector soon: banks will adopt international accounting standards. According to Central Bank First Deputy Chairperson Tatyana Paramonova, banks will prepare reports in accordance with the IAS, regardless of their size. Reports in accordance with the IAS will show the real status of the banking sector in Russia. "We will receive the first such report for the first 9 months of 2004, and banks will prepare their first full-fledged, audited reports for 2004," Paramonova remarked. In her opinion, the transition to the IAS will rule out possible consequent mergers of small regional banks between each other and their mergers with larger credit organizations.

RBC investment conferences attract several hundred participants every year, because one can hear about actual trends in the country's development directly from people who determine the key decisions. The conference in Davos is the ninth conference by RBC.

The organizers underline that the forum's main aim is to attract foreign investments in the Russian economy and to facilitate further integration of Russia into the global economic community. Business forums that RBC has held since the middle of the 1990s can be considered the main public events in the Russian business community. Their participants include the chief executives of major western and Russian companies, and influential government officials and leading economists make reports there. The conferences have acquired a specific format. For one week participants don't just have enough time to discuss which Russian companies and industries have the highest return on investments, but they also can see all the local places of interest. This year they could not only go mountain skiing, skating and curling, which are traditional for Switzerland, but could also visit a mountain brewery in the Via Mala gorge. This combination of pleasure and benefits makes it easier for Russian and western businesspeople to "make friends," the organizers of the conference believe.

A business conference is a unique place for Russian businesspeople to establish a dialogue with representatives of the European business elite. The main figures during the event are investors, issuers and middlemen between them. Investors are interested in such meetings, because they have a chance to estimate their risks. They can communicate with representatives of the monetary authorities and the leading professional brokers to receive first-hand information about the latest trends on the Russian financial market and new financial instruments and to personally meet the owners and top managers of dynamically developing companies.

As for issuers (companies that have offered securities on an exchange), they are able to attract the attention of the audience they need and to increase the investment community's level of confidence in them.

The Davos conference was not an exception: one of its sharpest discussions dealt with problems of investments in Russia and the peculiarities of working on the Russian market. Statements of the chief executives of Russian companies about initial public offerings of shares that were being prepared drew special attention. For example, Russian Textile, SkyLink and Tinkoff gave updated dates and parameters of their offerings, and participants of the forum began to argue on ways an IPO should be conducted. Many pointed out that a closed offering for a limited group of investors should initially be made, envisaging the offering of a small block of 5-7 percent of the shares, which should later be followed by the offering of a more significant block of shares on the market. However, in the opinion of RBC Group Vice President Alexander Morgulchik (this group earlier conducted the first IPO in Russia), "a block of shares to be offered on the market should be not less than a blocking share, or it should be close to it." The sides failed to reach understanding and, having agreed that the future will show who is right, they proceeded to the SHIVAS life private party.

Konstantin Agarkov