The Russian Avant Garde – in Monaco

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The three Russian revolutions, of 1905 and 1917, were unique in many ways. One, not commented on enough, is the role of the arts in fomenting revolution and preparing the ground for explosive change. A fine exhibition in Monaco this summer made a start at changing that: ‘From Chagall to Malevich’ in the Grimaldi Forum halls.

The Russian imperial eagle has two heads: facing both Europe and the heart of Russia, especially Siberia. Europhiles and Russophiles – a constant dichotomy. Prior to about 1890, notwithstanding the homegrown Golden Age, Russia largely imported artistic ideas and styles, such as impressionism and classical musical forms. Despite 1812, European and especially French culture was idolised. But there was huge change during the C19th, and particularly 1890 to 1930, when Russian fine art, music, dance, sculpture, architecture and engineering all leapt ahead of the world. The ‘Avant Garde’ was an incredible blossoming of artistic, cultural and political awareness, until cut off – all too literally – by Stalin’s crackdown and (logical from his point of view) narrowing to Soviet Realism.

This exhibition is beautifully done, maybe even too much so. Moscow residents will be familiar with over half, and it is great to see old friends again, next to still more assembled from all over the world. From Chagall to Malevich. Hmm. Chagall’s work is wonderful, and well represented; but surely out of place here: a lifetime of personal, mystical, consciousness-exploring and explicitly Jewish expression had little to say to the social (and atheist) revolution.

Laid out in a beautifully symmetrical octagonal shape, the Tatlin tower model grabs the eye, holding the roof up, seemingly. The first exhibit is the legendary and still gripping film Battleship Potemkin, and the closing act is, fittingly, the suicide of Malevich.

It is in approximately chronological order. You can pace briskly, or get confused slowly as you progress. Enter and turn sharp left for Classicism & Neoprimitivism, through Rayonnism and Cubofuturism, be distracted by the ethereal and dreamy tribute to Chagall, and through Abstractionism, Constructivism and Suprematism, before The Matyshin School, finishing with ‘towards a new representation’. Exit where you came in, but facing a different direction.

Confused? You should be. This is a revolution as it unfolds, and few knew where it was going. It is easier for us to explain, with hindsight, than it was at the time: revolution on this scale, of this totality, had never been done before. There is chaos, only some of it intentional. The one linking theme is the experimental thrust at demolishing the old ways of thinking, literally iconoclastic, paving the way for heretical thoughts prising Tsar away from church, questioning the right of the landowner and even the ruler, taking the pyramid of social structure apart, rock by rock, and using the stones first to hurl at the ruling classes and then use them again to construct the new future.

Representational and deferential art is first twisted (a process started by Repin in the Golden Age, depicting a church tyrannical and illogical) and then demolished. Larionov and Goncharova depicted peasants and workers in primitive style, not gentry with fine brushes. Lentulov’s iconic St Basil’s cathedral is irreverently broken up, fractured and without awe. Natalya Goncharova and Rodchenko went further and broke real forms into splintered chards of light – still plausibly landscapes to the practised modern eye; and then further and further, as ‘real’ shapes were reduced to collections of geometric shapes, bearing less and less relation to ‘reality’. But there is still room for acute observation and humour: Goncharova again combines semi abstract cubism to depict a cyclist, bouncing over unruly cobbles – motion frozen.

This all leads to the total abstraction of Kandinsky’s splattered colour canvasses, and perhaps above all to Malevich. From ‘normal’ paintings, Malevich reduced landscapes and people to simple but effective simple shapes, that idealised rural peasants, still part realistic, part idealistic. But from there, shape and then colour were abolished in favour of a nihilist blob of nothing, oddly claimed to be ‘supremacist’. The end of civilisation: feeding the brew of the revolution then fermenting. Anarchy rules! This of course is fine, if trying to undermine the status quo. After the revolution, Stalin was quicker than most to realise that while the anarchy, idealism and questioning of everything official had been useful before, it was dangerous to the new and insecure government. He strangled free expression, and those artists who could, fled. In 1930, the regime’s greatest publicist and propagandist, Mayakovsky at last woke up to what he had helped create, and shot himself. The end of the artistic revolution.

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Other arts fared better. Constructivism created real buildings, some of which survive and look sparingly elegant and functional to this day, not least Moscow’s PTT building on Tverskaya. Tatlin’s tower was only ever modelled, but had a huge effect. The edifice in the centre of the Monaco expo reaches to the ceiling, and seems to hold it up… but the building is Tatlin’s triumph: like the Pompidou Centre in Paris, the skeleton is all on the outside, leaving clear and flexible space inside. The earliest expression of ‘form serves function’, and the Modern C.20th is born. In Russia.
A fine exhibition, beautifully put together. And yet, and yet… In tidy, neat, white walled orderly representation of anarchic chaos. It feels flat. Better the organised chaos (the best descriptive phrase summing up the First Five Year Plan) of the Mayakovsky museum at Lubyanka – sloping floors, twisted chairs, incomplete and asymmetric exhibits: a better spirit of its subject. And there is a lot missing: why show Tatlin’s never built and not Shukov’s brilliant and still standing radio tower? None of Grigoriev’s suffering workers, no revolutionary ceramics, hardly any posters, little typography, and, more reasonably, no music, theatre, or dance. It is a splendid collection, well assembled, but there is more to tell of this incredible adventure, under whose shadow the modern world was built

Moscow Photo Walks

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https://www.facebook.com/groups/moscowphotowalks/

If you saw the last issue of Moscow Expat Life, you saw that Moscow Photo Walks is a club for people who love to travel, meet and socialise with all types of people who also have some type of interest in photography. Well this summer the adventure loving people of our club teamed up with Olga Slovnikova and traveled to Yaroslavl, Uglich and Mushkin. Then later we gathered in St. Petersburg for a weekend full of sightseeing and socializing.

Our excursions to these golden ring cities gave us the opportunity to photograph some beautiful 19th century cathedrals and monasteries, plus enjoy the landscapes along the rivers Volga and Neva. We took boat tours, explored museums and viewed monuments that helped us understand the historical importance of these wonderful cities.

You don’t need to be an experienced photographer to join us during any of our excursions. In fact, I can help you learn the art of photography. During our weekly walks, I give helpful hints for improving your photographs and I teach a free class at ЦУН Библиотека им. Н.А. Некрасова.

Therefore, if you would like to travel with us or become a better photographer, you can find out about our future excursions and classes by going to our Facebook page. In addition to the golden ring city trips, we have weekly photo walks in Moscow and everyone is invited to join in on the fun.

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Photo Contest

In the winter after a fresh snow, Moscow becomes even more beautiful and introduces us to a plethora of new ways to entertain ourselves but all of this fun and beautiful landscape will go to waste if you do not share it with others. Therefore, this winter we are holding a contest to see all the fun experiences you have and the beautiful sights you see. Show us your awesome winter landscape, wildlife & travel photos for your chance to win a few prizes and get your photo published in the Moscow Expat Life magazine.

The photos must be of you or your friends enjoying winter activities in the Moscow Region. Please submit the photos by emailing them to moscowphotowalks@gmail.com or using the #moscowphotowalks for Instagram. All submitted photos will be displayed on the Moscow Photo Walks Instagram and Facebook account pages whether they are submitted by either email or Instagram. For more information, please contact David Mercer at MoscowPhotoWalks@gmail.com. The deadline of this contest is Saturday, 19 March 2016.

 

 

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Prisoners of Geography

Selection_099Tim Marshall, until recently the diplomatic and foreign affairs correspondent for Sky News, and now a successful author is a rare bird indeed. Tim is one of only a few British foreign correspondents who have described the global geopolitical situation with a degree of objectivity that goes beyond the at times myopic official view of his home country.

Tim’s main point is that geographical factors have been sadly overlooked when we judge countries’ geopolitical positioning. He starts off with a solid chapter on Russia, describing how from the time of its creation in 882, Russia has always needed to protect itself from marauding invaders from the West. To the East, Russia has the Urals, and now the vastness of Siberia to shield herself with. To the South there is the vastness of the Mongolian deserts (which did not protect Russia from the Mongols as they originated from the desert itself). But there are no seas, impassable mountain ranges, or massive rivers to protect the country from the west. The French, Germans (twice), Poles, have all marched though the lowlands lying very roughly from the Carpathian mountains to the Baltic States in attempts to subdue Russia. Quite naturally the Russian empire wished to plug this gap, something which was achieved in Soviet times with ‘satellite’ states. Come the fall of the Soviet Union and the appearance of modern armies which can survive Russian winters (but which still cannot travel over mountains), Russia is faced with exactly the same problems – how to protect its western flank. “Looking at the map from Putin’s point of view” Tim said recently at a webinar with Glasgow University’s Global Security students: “Russia has no choice but to protect the flatlands; i.e. the Ukraine and Byelorussia from NATO bases”. Tim also points out in his book that Russia’s only southern exit to the Mediterranean and thus the Atlantic oceans – happens to be at Sevastopol, in the Crimea. Scholars of Russian history, (pro-or anti-Putin, whatever) know that every Russian leader interested in projecting Russia has been concerned with the same general military strategy, because Russia is and will remain a prisoner of geography, as indeed all countries are to a lesser or greater degree.

Having established the principle of geographic-military determinism in the first chapter, Tim goes on to explain that much the same sort of thing can be seen in China. Tibet is on high ground and overlooks not only the western and fertile plains of China, but India as well. Whoever holds the Tibetan plateau (the dominating Han race), holds China and blocks any attack from India. But there is more. Here are glaciers; fresh water reserves, and the source of the three great rivers: the Yellow river, the Yangtze, and the Mekong. Whatever Mr Gere or Mr Obama say about Chinese Buddhists, for geographical/military reasons, China is never going to withdraw. Looking at the world from a geographical perspective, the Chinese navy and its merchant fleet; which not only bring raw materials into the country but take goods to market, could be quite possibly blockaded by an alliance of Japan, the Philippines, Malaysia (which could block the narrow Malacca Strait), Singapore and Australia. From the Chinese point of view, which it seems hardly anybody is interested in finding out about, this puts the Spratly islands into the category of vital security assets needed to secure a passage to the Pacific, a mere matter of life and death.

Tim goes on to cover the USA. America has two oceans as natural borders, mountains and deserts to the north and south but does not limit the projection of her power to the American continent. Perhaps lessens can be learnt from history that any nation which projects itself far beyond its own natural borders ultimately meets the same exhausted fate as Western European empires, or perhaps it is because America’s natural borders are so conducive to trade (through wonderful deep water ports) that it is a world power (which would support Tim’s argument). We shall ‘live and see’, as the Russians say.

The chapter on the Middle East is particularly relevant at the present time. Tim’s self assessment as a realist could be challenged due to the nature of ethnic and religious struggles which do not recognise borders, and in this respect the book perhaps attempts to take on too much. However this does not alter the fact that ‘Prisoners of Geography’ should be on your ‘must-read’ list.

Real Food Restaurant. A night of the superlatives!

 

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The Crowne Plaza/World Trade Centre in Moscow are generally not associated with fine dining but therein lies quite a secret as hidden in the corridors of this massive complex is Mikhail Kuznetsov one of Moscow’s most talented Chefs. The Moscow Good Food Club was pleased to accept the invitation to return and we were not disappointed!

We were all made to feel most welcome in the Real Food Restaurant and the proffered Prosecco Casa Defra helped the conversation flow as we met old friends and new members. To accompany the Prosecco were prawn and ginger wontons based on batatas, goat cheese espuma and mini-burgers with fig cream. With regular top ups to our glasses, the festive feeling soon commenced!

On taking our seats on beautifully decorated tables we were introduced to Mikhail Kuznetsov and to our Sommelier Vladimir Sinitsin. Mikhail explained that the menu was compiled around Autumn, with warm, stronger flavours to prepare for the coming winter!

The first course was a delicious serving of North Crab with Salmon and Avocado which was a beautifully balanced creation which ideally suited the accompanying Muscadet Sevre et Maine AOC’2013 Domaine Gadais Pere & Fils.

The salad course was a perfect salad of Ripe Baku tomatoes with tomato jam, Pesto and Parmesan cheese accompanied by an excellent 2013 Gruener Vetliner Laurentz V from Austria.

The soup dish excelled our expectations; it was an elegant and light Cappuccino soup with salsify, Parmesan nuggets, pancetta and foie gras steak.

This was soon followed by the first of our main courses, the Mero Filet with bacon, chicory, mashed celery and red wine sauce accompanied by a lively Sharis delle Venezia IGT’2014 Livio Felluga.

The second main course was an extremely tasty and beautifully presented duck fillet with young beetroot and rhubarb cream. In continuation with the around the world wine theme this was perfectly accompanied buy a deep Kindzmarauli 2014 Bisini. An amazing combination.

Six courses down and 5 wines later we took a short break to digest and appreciate what we had imbibed upon. But the kitchen would not let us rest and presented an astonishing dessert of Strawberries marinated with vanilla olive oil served with basil ice cream. This was accompanied by our last wine a Moscatel de Setubal D.O. 2012 Bacalhoa from Portugal. What an amazing finish to an amazing meal.

Selection_098All tables were unanimous of their praise for the inventive and beautifully presented dishes from Mikhail Kuznetsov and his team. The wine selection from Vladimir Sinitsin was very much appreciated and the level of service exemplary and highly commendable.

So our congratulations to Director Dmitry Motorin and all of his incredible team for a most marvellous meal. We hope that we may return soon!

Before degenerating into a total comatose state after this fine meal and it’s liquid accompaniment, members were asked to comment on the topic:- ‘There appears to be a plethora of social events in Moscow where expats and Russians meet. Do any members attend or what are the suggestions for new special interest groups?’

As has become standard par for the course the answers were mostly illegible or incomprehensible but at least some people may think of ideas later!

 

Ehal Greeka

 

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On an early Autumnal evening, undaunted members of the Moscow Good Food Club shared a common desire to extend the summer by joining a Greek evening at the newly opened Ehal Greeka restaurant located on one of the boats close to the Radisson Royal. Whilst their airy terrace had been open all summer the main restaurant was completed recently and was right for an invasion of the Moscow Good Food Club!

As members arrived we were invited to an Ouzo to start to get us into the Greek spirit of the evening. An unusual aperitif but actually appropriate with many asking for a second or in some case, a third! One of the most pleasant aspects of the Moscow Good Food Club is the speed in which people communicate and socialise. There are never people standing alone with new members immediately involved in animated conversations!

At 20:00 we were invited to take our seats and were introduced to our host for the evening, Yiannis Kofopoulos who now lives in Moscow but is originally from Thessaloniki. He explained that the menu for the evening was 100% authentic Greek and with that the first course was served.

This was a cold meze consisting of Taramosalata, Tzatziki, Tyroslata, Melitzanoslata and Kristinia beautifully presented on a slate. This was accompanied by our first Greek wine, Thalassitis, Santorini Asyrtiko which was light and refreshing. This was followed by the warm meze of Dolmades, Flogera and Seafood Kritharoto with a full- blooded Kanenas Mavroudi-Syrah.

Selection_098Ehal Greeka offered a choice of 4 main courses: Greek Suvlaki of Pork, Lamb or Chicken, Stifado with rabbit , Sea bass in a cream of greens or Vakaloo (cod) with beetroot and potatoes. Many members opted for the Lamb Suvlaki an all enjoyed the rich flavours and succulent meat, the Rabbit was also excellent with a delicate onion and tomato sauce with subtle cinnamon flavouring. The Sea bass was well received and its flavours enjoyed by the members that selected this and the Vakalao(cod) was deemed exquisite. The main courses were complemented with 2 wines a Metohi Xinomayro/Limnia/Cabernet Sauvignon again a full-blooded red with plenty of flavour and a more delicate Metohi Asyrtiko Athiri/Sauvignon Blanc for the fish.

At this stage, our host Yiannis Kofopoulos surprised us by taking the microphone and singing some ballads from his hometown of Thessaloniki creating a full Greek tavern experience on the Moscow river! Naturally there was more to come and when the first strains of the Sirtaki could be heard members jumped to their feet and were soon dancing through the tables to exclamations of Opa! A first for the Moscow Good Food Club!

Returning to our tables we found a choice of Greek desserts including Karydopita, Baklava and honey cake washed down with Tsipouro made from distilled grapes, boiled with cinnamon and honey.

Now it was time for business and for the elected Spokesperson from each table to deliver their critiques on our meal, all were agreed that the Food Quality was high, the Quality and Suitability of the drinks was also appreciated especially as few had much experience with Greek wines. The service standards were extremely high as was the general rating of the meal.

The independent results indicate a high level of food, quality and service so the Moscow Good Food Club members give Ehal Greeka a resounding ‘Highly Recommended’!

The Moscow Good Food Club evenings are not all about food & drink and we do make our members work for a few short minutes as they discuss and prepare answers to the evening’s question – “Culture! Are there enough cultural events for expats in Moscow? Do we need more please provide favourites of suggestions”. As always the answers/suggestions are varied and included: more English language theatre (or at least some English subtitles); more Russian movies with subtitles; limited English language audio guides in museums and attractions; Moscow not on the circuit for International plays, little information available in English. Naturally there were less serious, light hearted answers that included: cultural events in Tverskaya 17; more Good Food Club events; Morris dancing and Whippet racing!

So with Zorba the Greek echoing in our heads it was time to leave our little piece of Greece and return to normal Moscow life. Efcharisto Ehal Greeka and Yiannis, thank you for your great hospitality!

After a tough 2015, how may 2016 shape up?

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No matter how you slice and dice 2015, it was a tough year for Russia Inc. While much less frenetic and with fewer dramatic events than was the case in 2014, it was a year when the economy certainly suffered the fall-out from the actions of the preceding year. It felt more like the hangover kicked-in and the headache stayed all year. It is fair assumption that most people will be glad to see the back of 2015 if the sentiment heard at many of the leaving parties of the past year is anything to go by. Most would prefer greater business predictability and employment stability to the short-term currency boost.

It is a feature of all developing economies that when expats and investors are forced to leave they will almost always then view prospects for the country as a glass half empty, i.e., further gloom is only just around the corner. Those who remain are constantly accused of unrealistically viewing the glass as half full. As always, the reality is usually parked in the neutral zone in the middle.

So, in the firm hope that the reader’s reaction will be balanced between a temptation to accuse one of wishful thinking and of being too conservative, what may be expect in 2016? Specifically what may be the most important factors, whether internally driven or external, which could affect the economy, the business climate and, ultimately, whether we will be attending more farewell parties – if not hosting one! – in the coming year.

• The rouble. The big change in government policy in 2015 was the move away from supporting the rouble towards a declared weak rouble policy. What that means, according to the Central Bank, is that they will no longer try to support the rouble against a falling oil price but will block the currency from rallying past 55-58 against the dollar even if the oil price recovers strongly. In practical terms that means if the price of Brent drops to $35 per barrel then expect the rouble to trade between 75 and 80 against the dollar. But if oil were to recover to, say, $100 per barrel, the rouble will not cross 55 to the dollar.

• Oil price. The price of oil looks more likely to stay weak at least until the autumn of 2016, unless there is a major escalation in war or terrorism in a big oil export country. Supply is staying strong because US shale producers have compensated for the oil price with technology gains. The ending of sanctions against Iran is expected to add between 400,000 and 600,000 barrels of extra crude to the market as that country goes for cash flow irrespective of the price. The demand outlook looks poor at best. So, there is a risk of Brent below $40 this winter and a recovery to $60 seems unlikely until late 2016.

• Ukraine. The fighting in Donbass has, thankfully, stopped. There seems a real determination on the part of Moscow and the major European capitals to ensure a political solution is now pursued. The rhetoric and actions are at least encouraging although there are still plenty of risks and the legacy of conflict will remain as a negative backdrop for many years.

• Syria. The events in Syria are moving very fast which makes it very difficult to call. But, if Russia’s involvement is seen to be a net positive in respect of defeating, or containing, IS or bringing an end to the EU refugee crisis, then Moscow’s involvement may help to repair some of the political damage caused by the Ukraine crisis. But the uncertainty and risks are clearly very high.

• Sanctions. While it was the oil price collapse which brought the economy into recession, it will require an end to the sanctions against the financial sector to allow growth return to the targeted level of at least 4 percent annually. The hope is that progress in respect of eastern Ukraine, and a positive view of Russia’s role in Syria, may allow the EU to start easing these sanctions from the spring or summer. The US position is more difficult and is unlikely to change much. Still, an easing by the EU will indicate the passing of the high water-mark and that should allow non-sanctioned entities easier access to external debt and at more competitive rates than currently available. The sanctions imposed after the Crimea referendum are here to stay ‘indefinitely’ but have no impact on the economy. The sanctions against the oil sector and those which block the sale of dual-use technology are also unlikely to be eased in 2016. These, however, are the sanctions which are more easily worked around, e.g. alternative sourcing. The US, for example, still has the sanctions imposed against China after the events in Tiananmen Square (1989) but work-arounds have rendered them irrelevant.

• US Fed action. Despite the delay and procrastinating, the US Fed is expected to raise its interest rate either by year-end or early in 2016. That will be a largely symbolic act as the pace of growth in the US economy is too slow to allow for much higher debt service costs. However, the action will provide a further boost to the exchange rate for the US dollar against most other currencies and that will add further downward pressure on oil and other commodity prices.

• Eurozone. It is an understatement to say that Europe seems to be in a mess politically, economically and socially. Without dwelling on the various scenarios, it is a reasonable conclusion to make that the dollar will reach parity against the euro over the medium term which means that the rouble will lose less ground against the latter than the former until mid 2016, at earliest.

• China growth. If China’s growth slows even more then the impact will be felt on the price of oil and other commodities, especially metals. That will have an indirect negative impact on the rouble. The volume of trade outside of extractive industries is too small for a slowdown or a decline in the value of the Yuan to have any other impact on Russia.

• Duma elections. Because the elections have been brought forward to early September, it means that there will be a more subdued pre-election period in the summer. That should reduce the anti-western rants and nationalist rhetoric. Still, we can expect to get some of that in the months ahead of the election. Thick skins should be enough to survive that.

• Olympics. If Russia is excluded from the summer Olympics, i.e., two months before the Duma elections, then the ranting will be more aggressive. Uncomfortable as that may be, the government is expected to retain the pragmatic stance and measured responses seen since early 2014 in respect of western businesses and investment.

This is the third economic crisis in Russia since I arrived almost eighteen years ago. It is the sixth in which I have been involved since starting my career in emerging markets. And no, I don’t consider myself to be either a Jonah or just suffering from bad luck. Periods of crisis are a natural part of the evolution of developing countries and economies; you need one every so often to force a change of direction and to weed out bad practices and complacency. Russia’s 1998 and current crisis certainly rank amongst the most extreme, partly because of geo-politics, history and the impact of such a huge influx of hydrocarbon wealth over such a short period of time. But while the nature and scale of crisis is different in Russia, the fact that they occur is not.

As always, it will be the strength of political conviction as much as external factors which will determine whether this crisis is the one which positions the economy for another period of growth or condemns it to a lengthy stagnation. The optimists have enough evidence of pragmatic monetary and budget actions over the past year to support their viewpoint. The pessimists are always right until they are proven wrong.

Chet Bowling, Managing Partner, Alinga Consulting Group

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Chet, in your view, what are the risks and opportunities today for foreign companies in the Russian market?

Chet: It goes without saying that political risks are some of the main ones. Investors are also apprehensive about the slowdown in Russia’s economic growth, seeing instability in the exchange rate and falling oil prices. However, if you assess these risks and hedge for them properly, the payback can be quite substantial.

What is the situation like for foreign companies already operating in Russia? How are they being affected by sanctions, as well as the sharp fall in the exchange rate between the ruble and the dollar and euro?

Chet: We recently held a working breakfast with the heads of foreign companies in Russia. Representatives came from such sectors as luxury motorcycles, international media, hospitality, coffee, and others. They all have a positive view of the potential of working in Russia, and no one is planning to leave the market. This decision cannot be considered short-sighted and based on a misunderstanding of the true situation here.

Foreign companies fear volatility in exchange rates more than anything. As one manager from a coffee brand put it, it’s not important how much the rouble is worth; what is important is that it is stable.

How would you assess the impact of changes in Russian law on the ease of doing business in the country?

Chet: In general, my view is positive, since the changes are all in line with global trends and are generally aimed at establishing more clear-cut rules of the game. This is good for both business and the state. However, several recent changes in law, including the now enacted law on personal data that requires foreign and Russian companies to keep and process the personal information of Russian citizens in Russia, threatens business, as it requires additional expenditures in order to comply with it. Given the unstable economic situation this doesn’t seem especially timely.

What about taxation of foreign companies? Have things become easier or more difficult for them?

Chet: In recent years, officials have said a lot about relaxing the administrative burden on business. However, in practice, we see that the tax authorities are becoming more aggressive in conducting tax audits due to the economic decline and the need to improve tax collection and fill state coffers. Tax agents are spending less time talking to us and more time applying punitive measures and increasing the number of legal proceedings. All of this has served as a stimulus for business to more carefully monitor the activities of their finance departments, conduct audits more frequently, and more actively defend their position in tax disputes. In this sense, things have become more difficult.

What are the main problems faced by foreign companies that auditors and accounting firms have to solve?

Chet: If we’re speaking in general terms, then we play the role of a pilot in a sea of bureaucracy. We help when it comes to interactions with the tax inspectors, working with banks, accounting, reporting, and audit. We explain the rules and laws concerning Russia’s business environment that are frequently unclear to foreigners. For example, in the West, a bank serves as your partner; in Russia, on the other hand, it’s more likely to be an agent of the state. There are a lot of nuances like this.

You also offer consulting services to Western CEOs and CFOs who are working at Russian companies. What do they come to you for most often?

Chet: They often use us as advisors and consultants, including on issues related to management of local human resources. For example, finance specialists in Russia are rather conservative. In their work, accountants are focused above all on the tax authorities – on what they will say and how they will react – rather than on the advisability and advantages of a given decision made by their employer. We explain to foreign managers why accountants hold such a position, share the experiences of other clients and work out an optimal solution.

What are five things a foreign CEO should do after arriving at a Russian company?

Chet: First, it’s important to get to know all of the leaders personally (the directors of HR, finance, operations, accounting, sales, marketing, etc.) in order to assess their level and vision of the business. It’s possible do this by using outside consultants. I don’t recommend making staffing changes right away. If possible, it’s worth working with the existing management team for at least six months in order to understand what is going on at the company and why.

Second, build a clear system for reporting on work completed. Use it not only for the purpose of monitoring, but for timely assistance in getting tasks done. In Russia people are often very busy, but the results are often difficult to see. I believe that correct positioning of tasks and regular communication will allow a situation to be improved.

Third, create a system of internal control – especially as it relates to finance. Be certain that there is a division of functions and that processes don’t duplicate one another. Conducting regular audits is absolutely necessary. They won’t provide complete security, but they’ll make life significantly easier.

Fourth, start learning Russian. This is a major but important undertaking that shows respect for the culture and the environment you find yourself in. If you’re able to master Russian, you’ll have a much greater understanding of what’s taking place in the country at every level.

Finally, a general recommendation to adapt quickly in Russia: be as open as possible. Listen more than you talk. It’s wrong to think that an approach to business that works in the West will work here. It’s important to understand how everything works here and to make improvements with this already in mind.

 

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Russia Recreates Itself

Selection_089The propensity for salacious cars that adorn the inner ring road of the Sadovoye Koltso, Moscow shows no sign of abating nor does the daily hustle and bustle of Moscow’s metro system as it transports its 10 million daily commuters to and from work. But underneath the hardened exterior, that stoic trademark of Russian resilience that has come to be a hallmark of its historical ability to endure and be adaptable to challenging times is being tested once again.

A combination of protracted economic sanctions on food imports and the technology industry, the implosion of the rouble and an unabated and sustained downturn of global oil prices have all contributed to an economy in recession resulting in job losses and food price increases that are biting into the average Russian’s already stretched budget.

So these are certainly interesting times in the country’s history, for most Russians there is a reticence that things can only get worse. There appears to be an all too common inference that this will continue. Recently Deutsch Bank announced the closure of its Investment operations in Russia and some of the International Blue Chip Consulting companies based in Moscow have seen a drastic reduction in contractual assignments that have seen some senior executives roles become dormant. The sanctions, coupled with speculation on oil and the fall in value of the rouble has pushed the Russian economy into a prolonged recession during 2015 and at the same time almost all imports to Russia were virtually blocked as oil and gas exports remained constant. It appears that looking forward to 2016 the central bank will not be able to or does not wish to enact an active credit policy that is to say a quick growth of money volumes and therefore a reduction of the key rate. This may prevent any forthcoming impetus or stimulation into the economy next year. The economic situation in the Russian economy today is highly complex.

Therefore given this current complex economic environment anyone following the news on Russia could be forgiven for being confused. Indeed in addition to constant news flow of the depressing state of an economy which is over-reliant on natural oil and gas resources, there has come positive economic reports from leading economists that the slowdown in Russia is calming, while corporate profits have been growing. A recent report late September 2015 said the recession in Russia is likely to have hit bottom when GDP fell by 4.6% in the second quarter, thus companies with growing profits are likely to spend much more which in turn is likely to contribute to an adjusted recovery. This stabilisation may be more important to the economy than the remaining weak consumer demand. So not all bad news then.

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Indeed in recent days there have been various news articles inferring senior political moves and strategic meetings held between the different sides in the Ukraine that an on-going peace settlement maybe in reach. There appears to be a realignment in the current political stance from the US, given the current events and swiftness of action by Russia in dealing with an implosive situation in Syria. We will see. But where some Russian nationals talk of a return to a status quo and an economy and culture pre 2014 it would be hard to envisage with any confidence that this could happen. What has been now set in train is an economic strategy that has been slowly and quietly put into place by the key political players of a Russia focusing on a reliance on localisation, self-sufficiency and a continuance of the further development of the Euro-Asia market and its bedding down, governance, and its tactical and operational ability to trade seamlessly between its members mainly Russia, Kazakhstan, Belarus. Kyrgyzstan and Armenia. More (but not all) of the 12 ex CIS countries may well join in the forthcoming years as it gains momentum, that will further strengthen the community and make the Euro-Asia market more viable and will solve the need to look to the west and previous suppliers of agriculture, agro-fishery, hardware and FMCG goods. A marketplace that currently stands in the region of 181 million people will further develop, notwithstanding issues, challenges and barriers. The down valuation of the rouble in December 2014 negatively affected business between Armenia and Russia and many companies in Armenia lost considerable sums on goods ordered prior to the down value and its knock-on effect resulted in trade figures subsequently down this year. For some commentators, this was a sign of a dysfunctional marketplace however this will not prevent the union from moving forward… it will not be allowed to fail.

So what about the current economic strategy for localization and self-sufficiency? Russia has been steadily improving its socio-economic standards and investing in raising the quality in a number of key strategic sectors; the health care system being one of them. The Pharma 2020 Strategy, initiated in 2010, is aimed at modernizing the country’s pharmaceutical industry and reducing the reliance on imported medicines. The government has already allocated over $4 billion in order for Russia to be partially self-sufficient in medicines (50-70%) by 2020. The Pharma 2020 Strategy entails the creation of several biopharmaceutical clusters and provides preferential procurement treatments for locally-produced medicines, among other incentives. Thus, the localization of production in Russia by major pharmaceutical companies, as well as the increase in funding for R&D activities, should provide a suitable platform for the local pharmaceutical industry’s organic growth. This has seen major international blue chip companies such as Astra Zeneca invest Millions of dollars to build a state of the art manufacturing plant 50 kilometres south of Moscow to facilitate delivery and manufacture of medicines within the country. This will indeed assist in the rebirth and distribution of new jobs from those lost and may also hasten medical development into much needed rural areas it is hoped.

Russia must find alternative sources from a country with an over dependence and reliance on the oil and gas industry. Localization encourages public and private companies to be more engaged in the country’s economy, to develop industrial production, train their personnel, and also build local networks of equipment and services suppliers. Successful import substitution creates added value to the national economy in a form of a supply chain and has a multiplication effect on adjacent industries. Key drivers would be the agricultural sector and agro fishery sectors. The huge potential within both these industries is particularly prevalent here in Russia. A 220-hectare site south of Moscow, an area rich in agricultural land and minerals is prime for joint venture farming facilitation and urban and or retail development. These will be the areas where either Russian entrepreneurial investment or joint international investment will encourage a refocus within a country that is awakening from its slumber and a desire to now look from within than to buy foreign products and food. In my day to day role I have already come across and interacted with Russian entrepreneur businessman and women who have innovatively begun their own businesses in the retail grocery sector. One is setting up a French cheese factory investigating and trialling its manufacture here to great results, another seeing various gaps in the market such as bakery products, and now adding value to the market place with Russian branded products. These are just the first seeds of initiative and business for thought that will continue and further strengthen a country that will have a more robust and durable economy based on its self-sufficiency and localization programme. There is more to follow for that there is no doubt.

Therefore in summary the next few years will continue to see a difficult trading environment and hurdles will continue to have to be overcome. However if the correct focus, education, and a strategy that could be aligned (but over time), I see no reason why the people of Russia could not see another prosperous future period for their next generation. There has never been a better time to see an entrepreneurial spirit and investment become the overriding strategy for Russia during these challenging times. Indeed international companies not affected by sanctioned industries could be well advised to look to the country for joint investment opportunities as in a few years the opportunity will have passed and the door to such a huge potential marketplace of 181 million people – and growing – will be well and truly shut and a place at the table where the next generation of wealthy business owners will not be available.

Belgian Russian Business Club

Selection_091The Belgian Russian Business Club organised a fascinating talk in September given by Danny Thorniley, President of DT-Global Business Consulting at ING Bank’s headquarters in Moscow.

In his speech, Danny gave a realistic review of the Russian situation, saying that 66% of his clients have indicated that they will continue to invest in Russia. Large companies, he said, complain about the state of the Russian economy, but this is in comparison to what the situation was a few years ago, when Russia was in the first three worldwide in terms of profitability. Now Russia is in the top 30% of companies around the world, bad news for CEOs who are “hooked on the cocaine of hyper Russian profits.” Compared to their performance in other countries, however, multinationals are still enjoying good profits in Russia.

Danny traced the present economic crisis back to January 2013, way before the Crimea crisis started. He saluted the Russian Central Bank for its good stewardship of the economy, and mentioned that the bank made it clear as far back as 2012 that if there was to be another global economic crisis, the rouble would not be propped up excessively. The bank proved true to its word. Oil is never going to go back up again to the heights it previously commended, Danny said, and predicted a range of $48-$60 per barrel. Medium term growth, as predicted by the World Bank would, however, be roughly 2.4%. Sanctions are unlikely to be intensified by the EU, Danny mentioned, although US sanctions are unlikely to be lifted, because whoever wins the next US elections, Congress will be Republican. The rouble will continue to experience volatility, just like the currencies of all developing markets.

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ROI, Danny predicted will not be great but it won’t be bad either over the next 5 years. There will be more opportunities to source locally, which seems to be very much the name of the game at the present time. Because of its cheap and highly qualified labour force, Russia could actually become an export base. Foreign companies, however, will need to realise that if their goods have been in demand in Russia because Russians were always prepared to pay a premium for well made goods, now it will need to be explained in details exactly why the goods are better than home produced equivalents. In other words, selling in Russia will become more difficult; more like selling in other countries. Danny pointed to the Russian regions as possible grounds for expansion, and also to CIS countries, but pointed out that as good as things may be in Kazakhstan and a few other countries, Russia still accounts for roughly 85% of total business from the Russia/CIS region.

Other highlights of the evening included a farewell speech by Luc Truyens, who is leaving his post as General Director of ING bank in Moscow, to take up a similar position in Austria. Luc will be missed by all in Moscow, and not only because of his superb management skills at ING.

John Kopiski’s Cheese Stall

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John presented a wonderful stall near the mayory on Tversakaya this Autumn. This was a chance to present his farm’s cheeses, something which John takes delight in doing.

How did you come to have a cheese stall on Tverskaya?

This is a scheme operated by the mayor of Moscow, and this is not the first year it has been running. It seems to be a brilliant concept, as everyone wins: it obviously creates a good image, and the public gets to sample a rich variety of products. The event is called ‘Moscow Autumn,’ there are also stalls on Manezhnaya Square. The stalls are free of change for one month.

How did the stall work out for you?

It was fantastic for us, because we could sell our cheeses to a lot of people who we wouldn’t normally come in contact with. Although we have started to sell to supermarkets, prices through them are much higher. On the stall, we sold at market prices, which are about 50% cheaper. In doing this we are also helping to advertise our cheeses as people did ask where they can buy these cheeses. So for us it has been rather marvellous to get something free in Moscow!

What sort of cheeses were you selling there?

We sold a product line called ‘John’s cheeses.’ I created my own recipes, and we produce cheeses that are somewhere between Goudas and young Cheddars when young and more like a parmesan, after 6-7 month in the cellar! We were also selling our rather brightly coloured Annatto, which has a nutty taste, and a Ricotta cheese, which is going down quite well now.

Have the sanctions been good for you in the sense that there is less cheese coming in from abroad?

Not really. There were over 300,000 tonnes of cheese imported yearly before the sanctions, but the question is: what kind of ‘cheese’ at what kind of price? A lot of consumers are not able to buy quality products and hence are compelled to purchase adulterated products, such as so called cheese made from Palm oil and other non-dairy substitutes. On the other hand, there is a sufficient number of the so called ‘business class’ that are able to afford real products. We have a unique ‘boutique’ cheese if you like, because we only produce 150 kilogrammes a day but even then we still have marketing problems due to the high Moscow costs. In general, I don’t think the sanctions have helped us, but what is helping us is the increasing desire amongst middle class Russians to buy good, real food.