servers try to mediate a peace deal. filled by its apparent successes in libya david cameron's revealed plans for potential intervention in somalia next year the oil rich african country has been described as a threat to british security and its fate will be decided of high level talks in london feb. exactly eight thirty one pm moscow time kevin know it here in moscow next people of elvis part of economic experts look into a relatively new phenomenon for russia's economy booming consumerism on the money next. hello and welcome to on the money where the business of russia is business i'm people about to consume or not to consume that's the question. to discuss the consumer boom in russia i'm joined by alexei make a notion he is senior vice president of integration at pepsico and victor preval

he's a he's a managing partner at new merchandising technologies we also have been errors he is editor in chief of business new europe and tom moody he is chief strategist of a critter but first let's look at how russia consumes. inhumanly jam to its first breath in russia to get more and more people consumerism has entrapped buyers throughout the country with spending habits shooting up in the past years unlike the west that is suffering under the burden of the financial crisis raising economic turbulence and dined european currency russia remains in major resource exporter with the sexual or oil and gas making up airlines share of the country's exports since defiled and russian g.d.p. has grown by an average of seven percent a year in the same period dollar income for head has grown by nearly twenty nine

percent in your early rising from three hundred dollars a month after fifteen hundred in moscow and then sent these growth i think russians to have their own can see what a consumer is more the i think it's a very move more than economists all people still have been there but that for for all that for consumer is for are for get in the more calls and the nicest are on board and if they have funds for more of that they're for luxury brands as well russian consumers have the highs disposable income. all break markets major cities like moscow and st petersburg a populated by western oriented buyers eager to buy goods of a better quality and ready to pay for them the luxuries gives markets sector is booming and constantly expanding foreign carmakers hold which will be the start of the things in russia the majority of our sales currently come from moscow and st petersburg but word spending our retail network to the bar corners of russia and

you know how large this country is consumerism and russia is experiencing great big throws and seems to be smiling with this election with seats crowded to speed ahead of the new year celebrations in the country but whether or not the we don't list the purchase or guarantees of the russian bars arabian future at the moment consumers skier seem to be worse in their brands you've got that international law on their money r.c. . now ok gemma let's talk about russian consumption alex i like to go to you first you're in the food and beverage sector how is the house consumption patterns in russia how it's changed has it affecting your sector i mean they drinking more eating more wealth either your rights in good times or bad times people have to eat and then russia they have to drink as well and this year the industries go is doing very well we're growing at. high single digit or low double digit i'm talking about

the whole industry. is growing very nicely where parades in many segments and they're going to have a huge investment in this country and we saw absolutely this year we've done the major acquisition outside of the united states and the whole history of pepsico but paid more than five billion dollars for a leading there in food company in russia called wimbledon and why is that because there is just simply demand here i mean there you guys must have modeled it pretty well it's a pretty large market now if you look at all the breaks markets which pepsico is very interested in russia. is one of the markets which offers both good growth as well as pretty decent perfectability ok viktor frankl do you mean what are some of the dynamics of the consumer market that you look at that is that is. it matches what you see in western markets and or what's unique to russia itself well the unique thing is that russia has a long cultural tradition of consumerism which goes back. centuries and centuries

secondly after the period of the soviet union with the most severely mentally commodities lacking people still said to buy and buy more and more things the thing that is different in russia of comparisons to western europe is that there is a large group of people that is not burdened by mortgages. the life level is more or less equal to the year p. in countries or even higher than for example in the balkans and together with the a low payments they have to push for utilities they have this extra five hundred thousand euro budget that they can actually spend on and they spend on luxury things going back that there's a big tradition of of spending money on something on sherry's made at the same time russians are not big savers definitely no the thing is that if we look at the last twenty thirty years of russia we can see that a country is going from

a crisis to crisis and the for the last ten years there was more or less a stable situation and people understand that they have to enjoy life right now and they don't like to spend because all the money they can earn right now the chance can easily disappear in five or ten years and they're sure this is the situation which is very very similar to what we've force for example see in the eastern european countries where people don't really tend to save money also ok ben if i can go to you some we were talking before the program what are some of the trajectories for consumption in russia. well it's growing and victor said the russians are buying more and more but if you look at the size of the market i mean the key thing here is one hundred forty two million people that's half the size again of germany it's a huge market and this year russia has already become the biggest internet user in your next to become the biggest advertising market in twenty fifteen it'll become the biggest car market by some time around twenty eighteen it will just be simply

the biggest consumer market in the whole of europe and i think companies are starting to wake up to this fact and you're seeing companies like pepsico doing these massive investments because it's still under penetrated internally it's good to continue with that and with the penetration of russia with this kind of investment in consumption i mean what do you know what are your estimates i mean it isn't a rosy future at the all things considered or do some major things have to change to really open up the floodgates. well i think it's a bit of a mixed picture i mean definitely there's been a big growth in the consumer clearly is the reason spender saying there's going to be. a lot more growth in the market but there are some issues in the us an issues with real real disposable income we've seen some pressure on it already and i think it's quite clear that if this government is serious about reforms the economy is going to have to move the subsidies that it provides the consumer three cheap. energy and cheap but it just isn't cheap guys in chief and and to do that they're

going to have to eat and see what has been a big growth in despair in salaries to be paid to public sector as well as pensions and i think there is a story for the consumer but i think it's going to get tougher but actually when you look at the weather where there has been foreign investment to take advantage of this growth you know it's it's been quite selective it's very impressive i mean i have to say i think the paps crowd session of wimbledon was it was a strategically very significant event for russia and also unilever buying cleaner but definitely foreign players want to get in on this market also has acted so you lots of foreign players coming in but i think it's going to get tougher and where there are no weather has been great from my point of view it's either been funded by relatively high debt levels or it's always consolidation story i think one of the biggest trend is going to be the removal of subsidies from to the consumer and i think it's going to harden ok let's go back to you what are the barriers that you see fit to growth because everyone's you know giving three cheers for the

acquisition of wimbledon by pepsi co but i mean when you look forward in any large company that looks at the consumer and you're again you're in the food and beverage business where one of the things you'd like to see happen to expand that business. well when people talk about investment in russia they talk about two particular barriers one would be administered barriers and second one explain to my audience what that means administrative barriers well people believe there is a lot of for a tape ok but in the in the industry in the business however we've been operating in two hundred markets around the world and i've been operating all in all in about twenty markets and i must say russia by far is not the most difficult market to operate not the most difficult not the most difficult it's not easy but once you have competent local management once you have foreign business practices and you can marry the two and can talk transparently to the government you can talk to authorities and the real explain what you are bringing to the economy i think you

have a good story and you never have any she's ok. one of the things that i've lived in russia almost thirteen years now and the because of the income differences between people and we have amazingly wealthy people in this country in this city of moscow and st petersburg to some extent is the consumption patterns very much skewed to what the middle class and how would you define the middle class in russia well let's say first of all there's a lot of rich people all over the world. more russian moscow is not exception. definitely the minimum salary level has been growing by ten fifteen percent on an annual basis for the last five years. and greater than in g.d.p. growth they say they're more like greater. good greater but we're speaking about low paid jobs like the like salespeople in shops like merchandisers like people in the plant and things like this. so let's say yes indeed the middle class is

increasing in volume and even those people that cannot afford to live. on the full scale as a middle class representative they do try to spend the same way as their spending and with that we understand that the money that comes to them is through loans for banking system and things like this and which has been a big. big opening for the for the people that that folly finally understood that they can take loans for bank and they can give it away back in three or four or five years ok all right after a short break we'll continue our discussion on russia's business environment state . playing. to the future new year's wishes on

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welcome back to on the money. you were talking about some of the recent events in russia and the business environment. all right tom if i can go to you first i mean where in an election cycle right now when we've been talking about consumption and foreign investment here what is the perception of russian russia's political risk right now we had the protests recently how are things changed and if they have change for the good or the worse. well short. of risk in russia is obviously elevated. because of the protests and the disturbances in moscow and around russia as a result of the parliamentary elections long term it doesn't necessarily have to be that way i mean i think if if the kremlin listens to the protesters and understands that there is a growing call for more. clarity in parliamentary politics here

as well as a very strong economic necessity to reform. the way that the budget generates. its revenues records revenues from predominantly not just oil and a slightly more diversified knowledge based economy if they can make these changes i think for investors may well worn story in russia russian shirts after the dynamic lessons are concerned and i think the risk premiums might might start to dissipate i think there's a real potential for foreign investment to start flowing into russia i think in the short term maybe run the run up to the elections it will the presidential elections in march to the a bit more complicated but beyond that potentially this recent process could be turned into a win and i tend to agree with you ben if i can go to you again we were talking before the program this could turn out to be a very real win win situation because there is were she will prove to itself that

it can continue its reform process and reform it all kinds of way i mean reform domestic reform and that that reform at home will have a ricochet effect or are telling foreigners that there's more transparency here yeah i mean these two stories consumerism and politics are interlinked what we're seeing is the rise of the middle class what is the middle class that people who are concerned about property rights the government services like health education and russia's got to the point you know in the ninety's everyone was simply surviving and now life is good enough where people are thinking about the future about their children and they're starting to. demand a bit more input and this was always going to happen and lieberman said from the beginning that it wanted to encourage civil society and get the people to participate i think really the issue here is that the middle class a prosperous enough now it's all happened a little earlier than maybe the kremlin were expecting tom said if they listen this is essentially a very civilized protest i mean the protesters themselves that they don't want

violence they want to change the government so much they want order which means getting rid of the bureaucracy getting rid of the corruption and just being able to enjoy the fruits of the interference and it's a very good if i go back to work sammy i'm going to ask you to talk about politics directly but is it as it is working for a major corp goble corporation that has a growing presence in russia when we see changes like that when we look at the middle class here i mean a company like yours would probably welcome this because you see the people want is ben pointed out to be able to have more fruits of their labor do you think that this kind of change will lower the administrative barriers that you were talking about well i must say peter that we shouldn't be looking at the recent events in the eyes away look and think in very short term mystically you would been operating in soviet union and russia since one nine hundred fifty nine you know since the time we introduced pepsico drinks to khrushchev you know during cold war during previous troika during if you're if you survive everything so we know our way and

i'm sure most businesses haven't seen any business disruption when it comes to the future i think the fact that most of foreign companies are relying on the middle class as you rightly pointed is exactly right and we will look at the continuous growth of the middle class as a base for expansion of the business picture when you think about that i mean in other countries look at investing in this country and we've been talking about the growth of the middle class here and there's a point as ben has pointed out you know the what's going on with the the maybe. social situation in russia right now and consumption are really intimately connected right here i mean do you think that a company will be less interested in coming into this country now or to say well we we should stand back well i think that old major companies first of all look for a stable market and from a political point of view russia is definitely a stable stupidly sickly stable country for the next ten years at least now. if we

go into the turmoil that we had seen in the african countries in tunisia in lebanon and so countries like this the there is a big there is one problem that russia is still doesn't face it's a problem of a generation that doesn't have jobs it's a problem of young people without any job at all now if within the next ten years the government will create extra jobs for these people to become in future part of the middle class i don't think that we will be looking at any political turmoil in the near so even middle of the show that will long term future time and i'm going to i think it's really interesting when talking about disturbances in changes in russia but there's a hell of a lot of austerity too with russia's major trading partner into the european union i mean can we put this into perspective and people are looking at things happening in russia protests which you know on a very large scale that we haven't seen since the one thousand nine hundred which i think is a net good thing not a bad thing and we compare with the riots going on let's say in athens and and in

london i mean does russia look better and better all things being equal. well i mean i'm not sure i made the comparison because the riots and. in athens for example were academically born rather than sort of politically born here i don't think there's any huge issues in russia with the economic situation and i don't think these were protests in russia about economics i think there's a potential link through if you look at night so it's a little bit about pressure on disposable income but there could be some issues and sounds of access to credit and loan growth you know i wonder if you know the we've already seen it's an extent actually is that the uncertainty that emanates from from the euro zone could be reflected by a slight degree of cautiousness from the consumer to spend a lot you know when they're worried about commodity prices where they're worried about the e.u.'s going to break up and you seen some extent in some of the

sentiment surveys from russia's manufacturing exports isn't it things like the p.m.i. surveys have been quite depressed in russia for quite some time and the bulk of those are driven up by a comprise of exports as of the people questioned in the service so i think there could be some potential feed through that but overall no i don't think this is an issue in russia of of of economic dissatisfaction and that's actually one of the reasons why i don't think there's going to be a big ramp up in public in public sector spending and popular spending by the kremlin in the run up to the presidential elections i don't think they need to do that i think they just need to liberalize a little bit more and to show that they're willing to change the structure of the economy and i know it's just a different is a different a whole different backdrop there shouldn't that shouldn't be an austerity issue in this country but there should be made changes to a way to work that's how the economy is run and where the rather revenues generated the budget then what do you think about that i mean again it had a kind of stress the stereo on one one border of this country and then we have

people i still think you know it is aspirational i think a lot of people maybe some of the people who protested it's part of this aspirational generation that putin is actually. during his time in power as president now a prime minister is actually created i mean it's again it's kind of a net plus i mean these are the people that they want to work in many ways they want to say they want to participate a bit more i mean you know i mean to carry on times thought this is the irony of this protest is that the things that the people are calling for exactly the things that the government needs to do i mean next year is projection for g.d.p. growth is four percent this is obviously well down on the seven percent we were running at before the crisis. four percent is not enough we need six or seven percent how do you get there and it's not going to be spending it's not going to be all price is going to be reform is going to be liberalization because in the early stages of transition it's up to the government to push and it's the only economic agent with resources but now russia's reached this point this sophistication where

you've got this middle class where you need to step back in this to liberalize in the needs to nurture private business and that means giving middle class more say so the political agenda marries very nicely with the economic necessity if you want to go back to this strong growth so i think you know there's a chance in an area that will actually see the kremlin after the uncertainty of the presidential elections come out with some radical ideas or other to say that they need to i mean they need to actually accelerate this liberalization if they want to get the growth that the people are demanding. about here i mean one of the big things that happened recently is russia is in tree into the w t o how do you think this is going to have impact all foreigners look at russia because now russia is part of the club you can actually say now we're a member now everybody has to play by the rules i mean how much do you think the consumer in a very macro sense who is going to benefit from entry into the w t o or russia has been entering into w.t. or for a long time since one thousand nine hundred three or since two thousand and active

stage. a lot of changes that could have happened there already happened russia broad the legislation customs regime more or less. lined with double duty or requirements so i don't see that in the short term there will be any significant impact in the world in prices lower for people because moscow is a very expensive city well it is. but i think in the meat the longer on the goods that russia imports will go down in price because of for slight five to ten percent change in custom stereo and as a result russia will become more competitive so i think local industry will respond by raising the productivity and then eventually bring the prices well ok picture i'm going to you are almost finished out of time here i mean over the next ten years how would you destroy in ten years' time how would you describe the middle class in russia all things being equal well i think that middle class will grow up to some forty to fifty percent of population. these people

will have an average salary of net seller of a round's one point five two thousand euros per month. and there will still stick to that consumer is better and that was traditional that is traditional for russia and other think that well there will be no qualitative changes will she just want to say to changes ok ben i'm going to give you the last word in this program ten years time what's the middle class going to look like at forty seconds normal school look like everywhere else i mean we're on a path of convergence what victor just described is pretty much a description of most of the countries. and things i believe it's going to accelerate that process ok many thanks my guess the day and thanks to our viewers for watching the money state party. i.

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a second protest in the russian capital against the parliamentary poll result. moscow's biggest rally in recent history has come and gone without incident as thousands came onto the streets of the capital to protest against what they call a rigged vote and they want a rerun joy mean and he's now way for more details. in syria old people want for christmas in the new year is peace but there's no festive mood in the air as the latest round of violence leaves dozens dead. new mission for a new you.