Report from Moscow
August 1, 2007 (Wednesday)
Recently I had the opportunity to visit Russia for a week and meet with entrepreneurs from various fields. I was accompanied to Moscow by fund managers and investors interested in the remarkable recent growth of the Russian economy.
I have visited many different countries over years, some multiple times. It was, however, my first time to visit Russia. While there are some experts on Russia in Japan, interest in Russia has been low especially in recent years, and compared with neighboring countries such as China economic exchange has been marginal.
Various notions concerning bitter legacies and obstacles in Japan-Russia relations remain rooted among citizens. Many negative factors seem to be in play such as the unilateral disregard for the nonaggression treaty passed before the war, the post-war territorial issues, the problem of trading companies’ unpaid debts from the economically turbulent period of the 90s, and the recent image of the Putin Administration’s authoritarian politics.
It is easy for Japanese people to hold such preconceived notions. The Moscow that we experienced in our trip, however, was worlds apart from these images.
There are some old famous hotels, but many of the new hotels are foreign-owned with brand-new equipment, a generous number of towels, and other world-class amenities. While the roads are sprinkled with domestic passenger cars, what stand out are the foreign luxury cars. The latest Mercedes-Benz and Toyota Lexus models are not an uncommon sight, and Bentleys, Ferraris, and Aston Martins also catch the eye.
Several high-end shopping centers have popped up in residential districts, and enormous shopping malls are being developed in the suburbs. The high-end super markets carry a surprisingly abundant selection of goods. Many of them even provide a Japanese corner, some of which offer sushi. There is a rich variety of magazines, of which many are hobby-oriented (cars, sports and etc.) or fashion and cosmetics magazines for women. The suburbia shopping malls provide expansive parking lots that can hold thousands of cars, and inside the shops are bustling with customers. It is reminiscent the era when America was swept away in a consumption boom.
The suburbs boast recently established green planting zones, and luxury second-homes line the streets. Prices are quite high: the price of meat and grains seem to reach double that of Japan. Apparently there used to be a cluttered bazaar across from the famous Kremlin wall in the red square, but in recent years it has been completely transformed into a shopping gallery. On one side of the brightly-lit hall are French and other western European brand name shops that have the latest fashions on display.
Moscow is the capital city where the government, companies, and global information are concentrated, and as such it may be a special case. Even so, one wonders what the factors are that have brought about such a booming economy.
It is speculated that the recent spike in global oil and resource prices is the main factor. It is common knowledge that the resource-rich Russia has pulled in massive amounts of foreign capital, and as the privatization of state-owned companies continues, profits from these resources have flowed into the hands of the private and privileged class with strong ties to the government. The wealth and income of this class has rippled out to even more industries through consumption, housing investment and etc., and this is likely one factor that has started to produce an affluent consumption economy.
There seems to be more, however, to the economic cycle that is being set in motion. Russia’s voracious consumption is stimulating production and investment activity in various fields through industry linkages. In addition, as the telecommunications industry rapidly develops many venture companies are sprouting up in fields such as IT. Put differently, as economic reforms, privatization and the running of a free market economy have been pushed by the tailwind of a price spike in resources since perestroika, an economic cycle with a dynamic and far-reaching ripple effect is finally being realized.
We visited innovative entrepreneurs from various fields, and observed the activities of shopping centers and automobile dealers, fashion and information industries, the media and telecommunications industries, and asset managing venture companies.
What was striking was the fact that young managers in their twenties and thirties have ridden the waves of economic reform, and have developed impressive business models with sharp business acumen and realized rapid growth. Many companies have achieved outstanding annual growth of 100% or even 200%. The Russian economy seriously suffered in the process of transitioning from communism to a free market economy, but it seems that in recent years this process is beginning to bear fruit. Many US and European companies have entered the fray and are producing a close synergistic effect with the Russian economy.
Recently many Japanese companies have expanded into China, and economic exchange between Japan and China is extending wider and deeper. In comparison, economic exchange between Japan and Russia does not reach even one-fifteenth of the Japan-China exchange. While many Japanese people and Japanese companies have experience with and hold strong interest in China, the same cannot be said for Russia. It must be said that this is an inexplicable imbalance.
There is no denying that, from the perspective of Japan, there are many problems in Japan-Russia relations. Russian people, however, seem highly interested in Japan, and the predominant feeling towards Japan is positive. Opportunities for Japan through exchange with the dynamic Russian economy are truly substantial. Japanese people, including myself, should develop more interest in, study more about, and deepen exchange with Russia.