Investors and successors

Vladimir Putin's triumphant speech to reporters last Thursday demonstrates the Russian president's impressive achievements. In particular, he noted that GDP growth, which amounted to almost seven percent in 2006, was achieved not only due to high energy prices, but also due to domestic demand for consumer goods and real estate. No less justifiably, Putin boasted that the process of capital flight had been stopped in Russia: last year, for the first time since independence, record amounts entered the country’s economy - $10 billion in portfolio investments and $31 billion in foreign direct investment.

However, such a rosy picture cannot distract foreign investors from understandable concern: what will happen to their current assets and future investments after Putin's successor takes over? It is quite obvious that under the next regime, large investors in the West will be forced to go through the process of yet another redistribution. In some cases, this process will be quite painful. So does it matter who rules Russia?

Yes, it does. Russia's level of openness varied significantly during Soviet times. With the fall of communism, Russian elites made a conscious choice to integrate into the global economy. This path seemed to be the most effective in terms of maximizing profits from the country's immense natural resources, and also allowed us to hope that the influx of foreign technology and investment would allow Russia to eventually transform from a developing market into a developed economy.

It is no secret that three groups are competing for Putin's legacy. The first is headed by Deputy Prime Minister Dmitry Medvedev, Putin's former chief of staff and his longtime friend and legal adviser. Unlike many current Kremlin residents, Medvedev does not come from the special services or, more simply put, a “silovik”.

The Medvedev-Successor campaign is being coordinated by Alexander Voloshin, the politically savvy head of the Yeltsin and Putin administrations from 1999-2003. Two Russian commercial giants: Gazprom and RAO UES, where Voloshin heads the Board of Directors, are Medvedev's main supporters.

The second “official” candidate for successor is Minister of Defense and Deputy Prime Minister Sergei Ivanov. Ivanov clearly demonstrated his growing influence during a joint visit to India with Putin, during which he dealt not only with issues of arms exports. In addition to signing an agreement with Delhi on the joint construction of a fifth-generation combat aircraft, he also announced that Indian companies could enter the Russian oil production market, which is far from his competence.

According to informed sources, a former high-ranking employee of the Russian Foreign Intelligence Service, retired general Ivanov, is supported by a KGB general (also retired), president of Russian Railways OJSC Vladimir Yakunin.

The Ivanov-Yakunin group can be characterized as pragmatic-nationalist, wary of the West and having excellent relations with the Russian Orthodox Church.

The third group is headed by Putin’s longtime friend, Deputy Head of the Presidential Administration Igor Sechin. According to persistent rumors coming from the Kremlin, the Chairman of the Board of Directors of Rosneft, Sechin, does not want Putin to part with the presidency, as this could cause serious damage to his political and business interests. According to unofficial data, Sechin's group is the most nationalist-minded.

The ideology of any of the three opposing groups will also affect foreign investment. Speaking at the last World Economic Forum in Davos, Medvedev promised that Russia would soon adopt a new law on foreign investment, and also possibly reconsider the ban on the participation of Western capital in large projects in the extractive sector, including such tasty gas fields as Shtokman and Kovykta.

In his speeches in the West, Medvedev appeared as a Russian patriot and liberal in the best traditions of Russian democrats of the early 20th century. The Davos public was given assurances of commitment to democracy and the rule of law and promises that Russia would produce more oil than Saudi Arabia, and that within two years it would “catch up and surpass” Italy, France and the UK in terms of GDP, making the ruble one of the main reserves. currencies of the world.

Russia will be respected, Russia will be taken into account, the Deputy Prime Minister assured. In general, Medvedev appeared before the international community as presidentially enlightened. But in response, Western investors noticed that they were more interested not in words, but in actions.

According to a source close to the Kremlin, even if Medvedev becomes president, Gazprom will retain a monopoly on gas pipeline infrastructure, portfolio investors will be limited to stakes of 50 percent minus one share, and Western capital will most likely have to be content with a 25 percent participation in large energy projects.

“Medvedev’s group will manage the economy pragmatically, privatizing where possible and nationalizing where necessary. The goal will be to maximize the profits of those closest to the table,” the source commented.

Thus, Medvedev is not so different from the pragmatic nationalists around Ivanov. We can agree with this statement, making three significant reservations. First, as a brilliant lawyer, Medvedev is able to deal with one of the main shortcomings of the Putin era - a weak, incompetent and sometimes corrupt judicial system. Unfortunately, one can hardly expect this from the security forces.

The second point concerns foreign policy. Positioning himself as a partner of the West, Medvedev will seek a balance between the West and a rapidly developing China. Ivanov adheres to the concept of the “iron triangle”, which includes Russia, China and India. Moscow’s integration initiatives towards the Muslim world, including attempts to create a “gas OPEC” with Iran and Algeria, must be viewed from the same perspective. Moreover, nationalists cast Russia as the core of this triangle, designed to squeeze American cultural influence and Western economic power from the Eurasian supercontinent.

The third caveat is more about content than substance: the anti-Western sentiment of the two nationalist power groups, their indifference and sometimes hostility towards the West, may lead foreign and Russian investors to consider taking their money out of the country and looking for alternative markets for investment.