St. Pete Economic Forum: Image Control

As European and U.S. concerns about Russia's political scene affect business abroad, Russian executives try to counter

by Galina Stolyarova

The St. Petersburg International Economic Forum, aimed at combating prejudice against Russian businesses, trumpeted financial successes but was marred by concerns about the country's political climate.

During the forum Russian President Vladimir Putin confidently played the role of host and the leader of a global energy giant. The event, which ended on 10 June, set an attendance record in its 11th year and investors from around the world inked billions of dollars in deals.

But the aftershocks of the G8 summit in Heiligendamm, Germany, where the Russian president arrived as the head of what U.S. President George Bush called "a derailed democracy," could still be felt in Putin's home town.

Russian executives complained at the forum that political pressures are damaging the nation's business links in the European Union and United States, affecting their business abroad, and generally stifling their international development.

IMAGE PROBLEM

Viktor Vekselberg, chief executive of the Renova Group, said Russian businessmen are suffering from how their counterparts in Europe and the America view the Russian political scene. He cited the failure of the steel and mining company Severstal to close a deal with the global steel giant ArcelorMittal in 2006 as a compelling recent example of a decision based on what he alleged was political bias. If the merger had gone ahead it would have made the Russian company a global giant and world's largest steel producer.

"I am not even talking about Gazprom, which faces a red light wherever it goes," Vekselberg said. "It is a vicious combination of politics and bureaucracy."

The Russian energy conglomerate Gazprom is actively seeking international expansion and a greater access to the European market. The company has been considering a takeover of the British company Centrica, the owner of British Gas, and the United Kingdom's largest gas distributor.

When Gazprom first voiced its interest in the company in 2006, British and other EU politicians sounded the alarm about a possible takeover. They felt it would give Russia, which is already gaining political clout out of the growing EU dependence on its oil and gas, an additional means of applying political pressure.

Vekselberg recalled his own experience of what he called a prejudiced reception from overseas business interests.

"When Renova bought a stake in the Swiss engineering giant Sulzer, the local media reacted with an avalanche of angry articles, which all related to Russian politics rather than my company," Vekselberg said. "There then followed a string of audits and financial assessments of us. Such treatment affects the international reputation of the company because everyone starts to think there must be something wrong with us."

BUILDING FAITH

Vekselberg's concerns were echoed by Andrei Illarionov, Putin's rebellious former economic advisor. Illarionov, instead of going to the prestigious forum, chose to attend a dissenters' march in St. Petersburg on 9 June. There he warned that Russia's economic successes are bound to be short-lived if the country fails to follow up its economic successes with coherent political reform aimed at developing its fledgling democracy.

The political protest rally attracted about 2,000 activists, compared with about three times as many people who registered to take part in the economic forum.

But in Illarionov's opinion, the march was more significant than the business gathering.

"During his first years in power President Putin did a series of healthy moves for the Russian economy but failed to back them up with a political foundation," Illarionov said.

"Trust in a country is not built at forums," he said. "And, no matter how often you hold such business gatherings, trust is effectively ruined by things like the destruction of Yukos and by the state using its laws like a club against its political opponents."