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Future We are entering a new world, where the emerging economies are the dominant
force not only behind global growth, but also behind global business and finance
Emerging economies:
Tectonic shift
In May 1998, shortly be- selves -- the regions with
Opinion poll results
fore the financial crisis in the greatest savings flows
Russia, 28pc of respon- and the highest investment
Russian companies alone have
Poverty in Russia declining, but not fast enough
dents defined themselves returns in the world.
been involved in cross-border
VTsIOM, one of Russia’s leading pollsters, has published a sur-
as impoverished. After We are living in a world that is Y NIK
mergers and acquisitions trans-
vey of changes in Russians’ assessment of their financial situa-
1999 this group started going through a fundamental
actions totalling an about $13
tion over the past 11 years.
to decline, to 21-22pc in and profound realignment. What
billion so far this year, up fourfold 2001-2002, 15-16pc in does this mean for Russia?
over the same time last year.
In which of the following income groups would you
2003-2004, 11-13pc in Russia's political and econom-
Companies with headquarters
put your family?
2005-2007, and 7pc in ic influence will only increase in
in the so-called high-growth 2008. The number of the future, and the country's
countries, or HGCs, are also poor was the largest in companies will be more impor-
growing in terms of their global May 2001, when 47pc of tant in the global economy.
stature. According to a report is- respondents said they Moscow will grow in stature as a
sued by the U.S.-based Reputa-
BRICs helped by
were poor, but fell to financial capital, becoming one
tion Institute, 35 companies lo- 35pc in 2006, 28pc in of the world's top six or seven fi-
cated in the four BRIC countries 2007, and 24pc in 2008. nancial centers in the next
of Brazil, Russia, India and China The lower middle class decade. The nature of inward in-
western finance crisis
are also on the institute's list of started growing after vestment will also change, with
the world's most respected com- 1998 to become the increased capital coming from The Western financial cri- said China, India and Russia really bad and is one of the
panies in 2008. Russian compa- largest sector by May investors in Asia, the Middle East sis means the fast-growing were actually growing faster biggest problems in the world
nies making the list of the top 2008 (51pc). Rich Rus- and other HGCs. And, without a economies of Brazil, Russia, than originally predicted by his today,” he said. O’Neill says
200 include LUKoil, Gazprom, sians have hovered doubt, the quality of life for Rus- India and China will grow research published in 2003. the combined GDP of the
Sberbank, Magnitogorsk Iron & around 1pc for the past sians -- and their economic and their share of the world “Of the four BRICs, Russia, BRIC countries could overtake
Steel Works, Norilsk Nickel, 11 years. social freedoms -- will continue economy even faster than China and India have all grown the combined economic might
Evraz, Rosneft and TNK-BP. VTsIOM conducted its to improve. originally forecast, the on average 2 pc more than we of the G7.
The HGCs are producing many surveys in May 1998- It is becoming ever more clear founder of the four-nation suggested,” he said. “It is a hell Russian President Dmitry
of the best leaders and business 2008 in 153 cities and that the rise of the HGCs, with BRIC concept told Reuters. of a lot so they are now collec- Medvedev has said Russia will
models for the exciting new towns in 46 Russian Russia featuring prominently, is tively 16 pc of global GDP so it become one of the top five
world in which we live. Business regions. on a scale and at a speed that is all happening a lot quicker.” economies of the world by
leaders in these countries tend to dwarfs anything that has come SERGEI VOLKOV The four BRIC countries 2020, but admits the rule of
be risk-takers because of the before. We are entering a brave MOSCOW have been seeking to form a po- law needs to be strengthened
speed and magnitude of change tural adjustment being forced on spurred more by increased de- provides an amazing medium- new world, where economies, fi- litical club to convert their and corruption has to be root-
surrounding them. Almost by developed countries. HGC mand from new economies or a term growth opportunity for the nancial institutions and private Jim O'Neill, the Goldman Sachs growing economic power into ed out.
definition, to have been success- economies face a painful transi- decrease from the developed financial services industries of companies from emerging mar- economist who originated the greater geopolitical clout. O'Neill said Russia should
ful at building a business in one tion, to be sure. They cannot rely countries. the HGCs. This process will in- kets are the dominant force not term in 2003 to describe how In May in the Russian city speed up some of its infra-
of these markets, an entrepre- on developed markets to contin- Another challenge is the stage volve the emergence of new lo- only behind global growth, but the four rising economies are of Yekaterinburg, the four structure projects and that
neur has to have thought more ue to provide the growth in de- of development of the HGCs' fi- calised reserve currencies and also increasingly behind global likely to rival and overtake sought to formalise their club corruption could sap Russia's
ambitiously, built faster and han- mand for their exports. The fu- nancial markets. In the near much deeper and more sophisti- business, wealth management many of the West's leading at the first stand-alone meet- economic potential.
dled far greater risk than busi- ture growth markets will be the term, these markets are simply cated local capital and banking and finance. economies over the next half ing of BRIC foreign ministers. “At the core of it is a
ness people in mature markets. HGCs themselves. The question not large enough to facilitate the markets. There will also be an ex- century, said the financial crisis “I would hope that Western stronger self-confidence in a
The ownership and decision- is how quickly that transition will flood of global and domestic cap- plosion of financial flows and in- Stephen Jennings is CEO of that began in US mortgage se- leaders take note of that rule of law that everybody
making structures of companies take place and whether it is ital headed their way. Clearly this tegration among the HGCs them- Renaissance Group. curity markets was allowing meeting and start to acceler- likes,” he said. “In some ways
in HGCs are also better suited to the BRIC countries to take a ate bringing them into the G8 Russia enjoys stability almost
the business environments in bigger share of world gross do- club and the IMF because the too much.
which they operate. To be suc-
cessful, it is critical to be able to
move quickly and make big deci-
Women of substance
mestic product. world doesn’t want a separate “The Russian people like
“On a relative basis it defi- club just looking after the stability which, given Russia's
nitely allows the BRICs to de- growing countries the same history, is very understand-
sions. For that, you need concen- velop faster as they are going as it doesn’t need an old club able and admirable but it
trated ownership and focus from Developing countries have nual growth rate by 0.3 to 1.5pc ber of women outside the labour Turkish GDP could rise by 1.5pc a to take an even bigger share of looking after the declining – it should not come at the ex-
key decision makers who are to- a huge potential for increas- in the next 10 years. market. If the gap between year thanks to women. GDP sooner,” O'Neill told in an needs a better club involving pense of things which are
tally locked into the long-term ing their GDP and per capita But Russia is already using this working men and working As for Vietnam and China, interview at an economic forum them both,” O’Neill said. needed for private sector risk-
risks and rewards of their ac- incomes by using the potential. women is narrowed by half, where nearly 80pc of women are in Russia's former imperial cap- “I think that the lack of taking, which are stronger
tions. untapped talent of The Chinese saying “Women Egypt, where women practically employed, they have used almost ital of St Petersburg held in progress by the G8 and the property rights and a stronger
So increasingly, it is not just non-working women, hold half the world” (this is also do no work, will gain the most. In all their women’s potential. June. Western leaders to change is rule of law.”
the fastest-growing economies, Goldman Sachs investment the name of the study) remained 2020, per capita incomes there Nor do GS researchers fore- “This is a financial crisis of
wealth creation and markets bank has said in a study. wishful thinking for a long time, will increase by 14pc and in 2030, cast any major improvement for the West and we must not for-
that are emerging among HGCs, say GS economists. They have by 20pc through an increase in Russia: 65pc of its women al- get that of the world's 6 billion
but also the people and the com- looked into the effect of women’s female labour. ready have jobs. The share of people most of them are not af-
This issue has been conceptualised by
panies best placed to take ad- OLGA KUVSHINOVA employment on economic growth The gap between the percent- women among the employed is fected by this,” he said. “I was
vantage of them. VEDOMOSTI in BRIC countries and N-11 (large ages of working men and work- the highest in N-11 and BRIC - in India four weeks ago and
Of course, there are still large developing economies). ing women is slightly smaller in 49pc. Any additional growth in there were no signs of India be-
● Feature Co-ordinator:
risks. One of the biggest risks is a If most housewives enter the Housewives are a great poten- Pakistan, Turkey and India. These per capita incomes in Russia ing affected by all of this.”
Mehernosh Gotla (
global economic downturn labour market, developing tial for economic growth, which is countries employ only 30pc to thanks to women will not exceed O'Neill, head of global eco-
● Design: Resp-Art
caused by the large-scale struc- economies will increase their an- higher in proportion to the num- 40pc of their women aged 15-64. 2.7pc, and in GDP, 0.4pc. nomic research at Goldman,
Growth in numbers Russia’s legal and regulatory framework is Investment Russia is third most attractive destination, according
something to look up to to a latest survey
…By leaps
must be admitted that the
Moscow, St. Petersburg,
Ulyanovsk, and Rostov regions,
for example, do, indeed, offer
Think investment,
the investor substantial, pro-
fessional assistance.
Even so, excessive bureau-
and bounds
cracy in the work of the local
administrations and complex think Russia
regional legislation often ac-
company the arrival of major,
strong investors. Officials often
KPMG, a consultancy and ac- China is a long-standing partner competitive advantages provid- from the Peterson Institute for
meet the inflow of investments
counting firm, canvassed 311 for Russia’s Asian regions, said ed by emerging markets that International Economics. How-
Never before has the ties and local specific condi- much more. At this point, one
with increasing red tape, which
senior managers from interna- Yulia Tseplyayeva from Merrill companies value most, said San- ever, he said that not all BRIC
production sector of Rus- tions. can certainly not rely on the
it is vital to be able to cut
tional companies and invest- Lynch. dra Lawson from Goldman countries were equally attrac-
sia's economy seen such Today, it is more important customary willingness of bu-
through. Also worth consider-
ment funds in 15 countries in a The BRIC countries will seri- tive: India for example received
high investment growth as for the foreign investor to have reaucrats to take bribes. Law
ing is that the existence of pro-
major new survey of invest- ously press developed nations
China was the
$15.3 billion in 2007, one-fourth
nowadays. In particular, a team of skilled managers and becomes a more effective tool,
fessionals in the administration
ment intentions. If the inten- and significantly reduce their of what China attracted.
foreign direct investment external consultants than to lay helping the investor save sub-
and of tax benefits is of much
tions cited are acted upon, competitive advantage by 2014.
top investment
China was the top investment
totalled, according to the its hopes merely in support stantial funds.
less significance for a region's
Russia will become the world’s BRIC and the US (fourth) will be
destination in the
destination in the early 2000s,
Russian government, $47 from the authorities. The latter In reality, it is more impor-
appeal than how developed the
third most popular place to in- the top five most attractive des- when developed economies
billion in 2007, meaning a might open their arms to the in- tant for the foreign investor to
infrastructure is, how available
vest for many respondents tinations for mechanical engi-
early 2000s,
slowed down; however, with
growth of more than 20 vestor and promise to give the be able to establish normal
energy sources are and how ca-
looking for a business-friendly, neering investment in 2014.
when developed
their growth rates restored, Chi-
percent against 2006. "green light" to all its undertak- business relations with author-
pable the regional authorities
low-tax environment in 2014. In the IT sector, China will na was pushed down to the fifth
ings. Yet the investor needs an ities on the regional and local
are of providing real support.
outstrip the US and Britain, economies place in 2007.
all-round understanding of the levels. So what exactly can re-
Ultimately, the regional and
while Russia and India will over-
slowed down;
France and Germany show
ANDREY GOLTSBLAT real state of affairs - above all gional authorities do for the in-
local authorities cannot ignore
OLGA KUVSHINOVA take Germany. slower growth, higher taxes
THE MOSCOW TIMES the legal framework for invest- vestor? Above all, they can cut
investors, as they really need
ULYANA GORBOLSKAYA The US and Britain will re- however, with and harsher regulations, but in-
ing capital. This is where quali-
them. After all, investors pro-
VEDOMOSTI main leaders in financial services
their growth
vestors also look at the level of
It would, no doubt, be an over- fied legal assistance comes in.
vide new jobs and local tax
investment but China, Russia development of markets and in-
simplification to put all this The investor needs someone to
Ultimately, revenues and help in creating
In 2008, 10pc of respondents and India will also be in the top rates restored, frastructure as well as at geo-
down to the inflow of petro- make sense of the various op-
the regional and
the local infrastructure. An in-
said they planned to invest in five.
China was
graphic location, said Gilles
dollars and investment in the tions for implementing its proj-
local authorities
flow of investments allows the
Russia (seventh place); in 2009, When asked about factors Moec, economist at Bank of
extraction industries. The suc- ect.
regional administration to
12pc (fifth); and in 2014, 19pc. that determine their choice of in- pushed to the America.
cessful implementation of First of all, the investor needs
cannot ignore
hope for a rise in the region's
Investors regard consumer vestment destination, most re-
fifth place
He also pointed out the dif-
large-scale production invest- to organise an efficient corpo-
investors, as they
investment rating.
goods manufacturing as the spondents cited access to new ference between intended des-
ment projects, in both the ma- rate structure. This largely de-
To conclude, it can be as-
most attractive sector in Russia: consumers as the most impor- tinations and actual invest-
chinery and FMCG sectors, pends on business goals, the tax
really need them
serted that the regulatory
21pc of them plan to invest in tant, followed by political stabili- Sachs. ment: France ranks traditional-
have also contributed to driving legislation and other factors.
framework for further expan-
that area by 2014 (ranks second ty and clear legislation. Cheap Salaries in China are higher ly low in intentions surveys but
economic growth. A stable le- Unfortunately, Russian legisla-
sion of an inflow of capital
and third with China), up from workforce, however, was cited than in India, Cambodia or Viet- ends up attracting quite a lot
gal system has now taken tion does not yet take full ac-
from abroad has already been
only 8pc in 2008-2009 (sixth). 12th and last. nam, but it attracts more invest- ($123.3 billion, third place in
shape in Russia for implemen- count of international experi- profit tax by 4 percent from
created. Russia's investment
The number of those wishing It is the high growth rates and ment, said Nicholas R. Lardy 2007).
tation of such projects. At the ence of taxing holding compa- the ordinary rate of 24 pc. They
appeal is not open to doubt.
to invest in Russian mechanical
same time, there still remain a nies. can also exempt the investor
Just one small thing is left:
engineering will grow from 25pc
number of misconceptions that Equally important is the from property and land tax or
professional administration of
to 30pc (third), and in fuel and
prevent Russia's investment po- choice of location, the con- cut these taxes. Regional ad- energy from 10pc to 14pc (third).
BRIC social and economic development figures
the inflow of investments and
tential from being fully realised. struction site and execution of ministrations are entitled to al-
good-quality legal support. It
The share of investors in trans-
Russia China Brazil India
First, there is an underesti- entitling documents. Careless- locate subventions to the in-
is up to lawyers, of course, to
port and real estate will reach
mation of the role of law and ju- ness and haste at the stage of vestor on a non-repayable ba- 13pc, on a par with the United
Population as of mid-2007 (mn) 141.4 1,321.9 190.0 1,129.9
provide top quality, profes-
dicial procedures. Second -- an acquiring land and formalising sis. Also very important is or-
sional support for investors
Preliminary GDP for 2007 ($, bn)
oversimplified perception of the a deal might prove expensive in ganisational support on the
and convince them that the
Russia seems most attractive
according to IMF 1,289.6 3,250.8 1,313.6 1,098.9
role of the authorities, who sup- the long run. part of regional officials in es-
requisite legal mechanisms ex-
to Chinese (45pc) and American
posedly decide everything on Once production is under tablishing an uninterrupted investors (35%). Russian compa-
2007 per capita GDP adjusted for
ist in Russia - not only for im-
just an informal basis. Third -- way, the investor requires legal supply of electricity and gas, nies prefer to invest in China
purchasing power parity ($) 9,000 2,390 6,098 935
plementing investment proj-
overestimation of the possibili- support for its operations. This prompt assistance in execution
ects, but also for protecting
(30pc), Ukraine (25pc) and Kaza-
Average economic growth
ties of the federal bureaucracy might encompass legal assis- of agreements, and so on. This
them in the future.
khstan (20pc).
rate in 2003-2007 (%) 6.9 10.4 3.9 8.6
and "knowing the right people tance in distribution, relations is where things get a bit worse.
Andrey Goltsblat is Managing
Ukraine and Kazakhstan must
in Moscow," combined with a with suppliers and purchasers, Russian local officials are often seem attractive due to a similar
Corruption Perception Index 2007
misunderstanding of the role of
Partner, Pepeliaev, Goltsblat &
labour law matters, enforce- underqualified and inexperi- mentality and fewer bureaucrat-
(ranging from 0, highly corrupt,
regional and municipal authori- ment of trademarks and much, enced. At the same time, it
ic barriers than in Russia, while
to 10, highly clean) 2.3 3.5 3.5 3.5
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