Russian business fears return to isolation

A city court building is seen through its gate in Moscow, September 24, 2014. REUTERS/Maxim Zmeyev

MOSCOW: Russian businessmen are backing Vladimir Putin over Ukraine but fear the country is being forced down a path toward less democracy, more central control of the economy and isolation that recalls the Soviet “evil empire.”

Like many other business leaders, Vladimir Potanin, one of Russia’s richest men, says Western sanctions and attempts to force the president to change policy risk opening a rift between Moscow and the West that will be difficult to repair.

“What is happening now, namely the isolation of our country from contacts with Europe, America and several other countries, causes real regret,” Potanin, a metals magnate who built his empire soon after the Soviet Union collapsed in 1991, said in an interview at the Reuters Russia Investment summit.

“Because, in a sense, we are returning to the days when Soviet people were regarded as coming from ‘the evil empire’ and now people are starting to place this cloak on Russians’ shoulders again,” he said, using the phrase coined by former U.S. President Ronald Reagan during the Cold War.

There is broad agreement in business circles that the Western sanctions, imposed on Moscow over its policy on Ukraine, have had the opposite effect to the one intended. Instead of undermining Putin, the sanctions have – at least so far – united the business and political elite.

But there is no hiding the growing alarm over the state of the economy and Russia’s increasing isolation from the West, despite attempts led by Putin to develop business and political ties with Asia and boost domestic industry.

Many businessmen say the West has left Putin little choice but to continue on a path that appears to be steering Russia away from democracy and toward a more nationalized economy with fewer opportunities for innovation and growth.

Potanin, now 53 and estimated by Forbes magazine to have a net worth of $14.5 billion, recalls the Soviet Union of his childhood, when he was one of the privileged few to see it from abroad as his father worked for the Foreign Trade Ministry.

“Unlike many of my peers, I had the possibility of comparing, of seeing, and that really helped me. Those childhood impressions are still with me – that people in our country, when it was the Soviet Union, were seen differently; that because of isolation, there was an element of mistrust,” he said.

“This kind of external pressure ... contributes to consolidation and, on a personal level, is deeply unfair because I don’t think the world will benefit from Russia becoming more isolated and I don’t think anyone can seriously believe that putting pressure on Russia in general and on Putin specifically will bring a better result and not a worse one.”

Potanin, chief executive of Norilsk Nickel, the world’s biggest producer of nickel and palladium, chose his words carefully, saying he did not want to cast blame on any side.

But he concluded: “Now the country is slowing down in terms of economic development. Yes we are going through difficult times, but Russians have got used to tightening their belts and we will survive this period. But those who leave the market will lose out ... It’s madness.”

Russia’s economy was already slowing this year when the United States and the European Union started imposing sanctions on leading companies, officials and banks to try to force Moscow to change policy in Ukraine.

But Moscow did not change policy, denied arming separatists in east Ukraine and refused to give up Crimea, annexed in March after the Black Sea peninsula voted in a referendum to leave Ukraine and join Russia. Now economic growth has stalled and analysts say Russia faces years of stagnation, with even a government forecast of 0.5 percent growth this year being seen as optimistic by some. It’s a far cry from when the country enjoyed annual growth rates of 7 percent at the beginning of the century.

A sweeping ban on imports of dairy, meat, fruit and vegetables from many Western countries, imposed by Moscow in early August in retaliation to sanctions, has prompted food prices to edge higher, threatening inflation which is already at an annual rate of almost 8 percent.

But Agriculture Minister Nikolai Fyodorov said most Russians understood why Moscow had to react and would stand firm.

“There has been and is a consolidation of society, despite the threat of rising prices,” he told the summit.

“People are saying ‘Yes, we understand, prices are rising, but there are sanctions against Russia and we – I don’t want to say this but I hear it – we are surrounded by enemies.”

Russian media, mostly controlled by the state, has whipped up nationalistic fervor, using references to Russia’s role in winning World War II and taking on shades of Soviet-era propaganda to show the West as a morally corrupt aggressor.

While more than a quarter of Russians see colonization of their country by foreigners as the greatest threat to the nation in polls, Putin’s popularity rating has stood at over 80 percent since Russia annexed Crimea.

“Ultimately, the only way out is for one side to back down,” Fyodorov said. “I’m sorry, but this is like a Cold War, and in this Cold War there are no grounds to see someone winning in the foreseeable future.”

Analysts and businessmen do not see any quick resolution to the crisis, with former Finance Minister Alexei Kudrin predicting Russia would have an “exclusionary regime” for several years.

With little certainty over the future, especially since billionaire Vladimir Yevtushenkov, seen as a loyal businessman, was put under house arrest last week on money-laundering charges over a deal that was made five years ago, businessmen are drafting contingency plans for all eventualities.

Some Western investors, who cannot easily quit Russia after starting up joint ventures with Russian companies, are adapting their product lines to attract families who may now have less money to spend.

Ted Cannis, CEO of Ford Sollers, a 50-50 joint venture between Ford and Russian carmaker Sollers, said he saw no sign that the auto market would improve in the next two years.

“A person who was going to buy a premium vehicle in the C segment [small family cars] is now going to buy a cheaper vehicle of the same size,” he told the summit. “We are definitely seeing a lot of that.”

Others see possibilities in forging closer ties with China and other Asian countries, although some warn that after the honeymoon period, the reality of marriage with Russia’s eastern allies may not be as profitable as they initially thought.

Many are drawing up several plans based on different estimates of the big “unknown” – how long sanctions will be in place on Russia.

Some businessmen say Yevtushenkov’s arrest shows a state hungry to fill its coffers by reclaiming assets, sold off after the Soviet Union’s collapse, to ride out sanctions.

“What is going now is a one-way ticket. Unfortunately, there is no normal, democratic way out of this situation,” a senior Russian businessman said. “We will be lucky if this happens to us more or less smoothly. When? In about 10 years. How are we going to move toward democracy? Through pain. The country is too big.”

A version of this article appeared in the print edition of The Daily Star on September 26, 2014, on page 5.




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