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Russia wants its empire back: analysts
Russia has embarked on a new drive to exert it influence in the EBRD region – through wealth rather than military power
Russia may be limping at home, where a flaccid economy is ruled over by an increasingly unpopular three-term president, but a country that once bestrode the region is again making its presence known, leading experts believe.
Moscow is using its vast wealth, earned by exporting raw materials across the globe, to win friends and influence people.
This is in marked contrast with its Soviet strategy of using political, military and ideological leverage to keep Central Asia, Eastern Europe, and a cast of countries from the Caucuses to Turkey in its pocket.
“Everywhere you look across the region the EBRD covers, you see financial deals, economic deals, sporting deals: all are part of a plan to recreate a Tsarist Russian Empire,” Konstantin Sorin, professor of economics at the New Economic School in Moscow, told Emerging Markets.
Sometimes the interlocking modern interests of sports and business coincide, highlighting efforts by the Kremlin to reassert its sway across the region here. Sorin pointed to a mooted attempt to create a united Russo-Ukrainian soccer league this autumn, a project whose most ardent public promoter is Alexey Miller, chief executive officer at Russian energy giant Gazprom.
Landmark regional acquisitions led by major Russian corporates and lenders regularly hit the financial press. Last year, Sberbank paid $3.5 billion to buy Turkey’s DenizBank, which this April bought Citi’s Turkish retail operations.
Russia’s rising influence is particularly notable in Central Asia. In 2010 Moscow cut a deal to create a single customs union covering Russia and Kazakhstan as well as Belarus. On 1 May Russian billionaire Suleiman Kerimov persuaded Sberbank and VTB to buy almost 3% of an embattled Kazakh iron ore miner for $156 million.
Experts said the logic of Russia’s renewed determination to stamp its presence on the region was due to a mixture of timing, national pride and economic pragmatism.
Timing is easy to explain. The financial crisis hit Moscow hard by suppressing oil prices. But it hurt the United States and Europe more. Both “took their eye off the ball across the region”, said a European corporate chief based in Kazakhstan “Moscow saw that weakness, and it moved to fill the holes that were left.”
National pride is easier to understand, Sorin said. “Russia wants to recreate the economic bloc that it lost when the Soviet Union failed. It is really as simple as that. It has never got used to the idea of not being an empire, and Putin is just trying to recreate that empire.”
Then there is economic pragmatism. Some believe the process is less an extension of national pride and more a recognition among leading oligarchs that foreign markets are just more attractive places to cut deals.
Russia is a notoriously difficult place to do business. The nation ranked 112th in the World Bank’s 2013 Doing Business report, and capital flight has become a serious issue for the world’s eighth largest economy. In the first quarter of 2013, $25.8 billion in capital left the country, according to Russia’s Ministry of Economic Development and Trade.
Russia’s major corporates and banks are “increasingly not investing at home which is a pity. These companies see more opportunity outside the country than inside the country,” said Vladimir Tikhomirov, chief economist at Otkritie Securities in Moscow. “Unless there is a big change domestically on the investment side we will see that trend continue.”
- Follow us on twitter @emrgingmarkets
Moscow is using its vast wealth, earned by exporting raw materials across the globe, to win friends and influence people.
This is in marked contrast with its Soviet strategy of using political, military and ideological leverage to keep Central Asia, Eastern Europe, and a cast of countries from the Caucuses to Turkey in its pocket.
“Everywhere you look across the region the EBRD covers, you see financial deals, economic deals, sporting deals: all are part of a plan to recreate a Tsarist Russian Empire,” Konstantin Sorin, professor of economics at the New Economic School in Moscow, told Emerging Markets.
Sometimes the interlocking modern interests of sports and business coincide, highlighting efforts by the Kremlin to reassert its sway across the region here. Sorin pointed to a mooted attempt to create a united Russo-Ukrainian soccer league this autumn, a project whose most ardent public promoter is Alexey Miller, chief executive officer at Russian energy giant Gazprom.
Landmark regional acquisitions led by major Russian corporates and lenders regularly hit the financial press. Last year, Sberbank paid $3.5 billion to buy Turkey’s DenizBank, which this April bought Citi’s Turkish retail operations.
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Russia’s rising influence is particularly notable in Central Asia. In 2010 Moscow cut a deal to create a single customs union covering Russia and Kazakhstan as well as Belarus. On 1 May Russian billionaire Suleiman Kerimov persuaded Sberbank and VTB to buy almost 3% of an embattled Kazakh iron ore miner for $156 million.
Experts said the logic of Russia’s renewed determination to stamp its presence on the region was due to a mixture of timing, national pride and economic pragmatism.
Timing is easy to explain. The financial crisis hit Moscow hard by suppressing oil prices. But it hurt the United States and Europe more. Both “took their eye off the ball across the region”, said a European corporate chief based in Kazakhstan “Moscow saw that weakness, and it moved to fill the holes that were left.”
National pride is easier to understand, Sorin said. “Russia wants to recreate the economic bloc that it lost when the Soviet Union failed. It is really as simple as that. It has never got used to the idea of not being an empire, and Putin is just trying to recreate that empire.”
Then there is economic pragmatism. Some believe the process is less an extension of national pride and more a recognition among leading oligarchs that foreign markets are just more attractive places to cut deals.
Russia is a notoriously difficult place to do business. The nation ranked 112th in the World Bank’s 2013 Doing Business report, and capital flight has become a serious issue for the world’s eighth largest economy. In the first quarter of 2013, $25.8 billion in capital left the country, according to Russia’s Ministry of Economic Development and Trade.
Russia’s major corporates and banks are “increasingly not investing at home which is a pity. These companies see more opportunity outside the country than inside the country,” said Vladimir Tikhomirov, chief economist at Otkritie Securities in Moscow. “Unless there is a big change domestically on the investment side we will see that trend continue.”
- Follow us on twitter @emrgingmarkets
11 May 2013
