the money with the business of russia is business i'm peter lavelle with the start of two thousand and fourteen karimi c.e.o.'s and investors are finalizing their plans for the new year the past year was a bit bumpy but two thousand and fourteen should see the russian economy rebound and the showcase called salty may make more than a few investors have a fresh look at the russian market. to discuss the russian economy i'm joined by robert may he is the managing partner at robert may consulting group we also have been heiress he is the editor in chief of business new europe and we also have john hello big he is the managing partner of a group ben let me start out with you what is the major theme you're looking for in two thousand and fourteen in one word investment investment we need to wait and wait ok robert in one word yes what am i looking for here i think more of the same stagnation probably sec nation ok john labor productivity ok why investment

investment is the achilles heel of the russian economy and we had this horrible slowdown last year was the rushes and and as i read this and surprised everybody on the down side you can reverse the story and the reason is the investment just stopped i think it's to do with the sentiment that there's a lot of uncertainty and people without being able to look forward to the future with any kind of idea of where we're going to go a lot of this was just in the middle of last year it was self-induced where they changed gears they started going for what i call russian austerity is the hope of more quality growth in this year what is complicated i mean there's a lot of things a lot of factors that went into creating this atmosphere of pessimism or uncertainty that we had horrible external conditions we had threats of another meltdown in the mark both internally and externally. we had the start of the anti corruption drive which again introduced more uncertainty about people's future so everyone sort of stepped back and. wait to see what happens and if investment picks

up then that will become a driver or rather it needs to pick up because we need that as a driver the consumer story has been the driver it continues to be the slowing is losing its pop well you said stagnation of the economy still grew just was basically flat and most economists the consensus is up to three percent growth this year so it will be slightly different than last year and we're going to see i think the reason i said that is because you would expect much more from the russian economy if you look in the past five to seven years i mean it was doing actually last year it was the exception to the last seven years right yes so i don't see that improving so what i see i don't see the global economy really accrued improving to such a degree that it will have a positive effect on the russian economy so i would expect the russian economy actually to do worse and when you talk about the russian economy what are we talking about really i mean the bulk of it is oil gas natural resources so if

that's doing well on a global scale then russia will do well but the remainder of the economy i mean production is down i think russia has not reached really the point it needs to be productivity but that's going to give the party is for more reform i mean it's a political issue is what it's all face it i mean there are challenges here president putin came out at the end of last year in december and said look we have our own domestic problems before it was more external issues now he's saying we have to deal with them domestically john. yeah well i don't share the general sentiment that russian economy was particularly bad last year we had one hundred percent growth and no budget deficit deficit there and to state is not indebted full employment compare with what's going on in the european union so i think that people and i missed the point thing is that russia has reached a new story level of development and now it's time to find you

in. the business and what needs to be fine tuned what's the top of your list for this year well one is management practices because all four management practices in russian companies also look for an i want to hear. labor productivity is very low and when there is full employment with low labor productivity that's really what's keeping the economy down when we don't look up and superman still made the first one is that a lot of the problems in we've seen in russia a macro problems there but macro numbers if you actually live on the street people's incomes continue to ride by ten percent and there's no two unemployment to speak of if you want to you can have one in moscow across the country i mean you know the labor market is driving tight which is a consequence of this lack of investment but you know for the people on the street life is actually been pretty good and you compare that to europe where you go fifty

percent youth unemployment and riots so from the ground up it looks pretty good so the problems are major macro problems but don't put his finger on one of the weaknesses which is the lack of productivity you know in russia productivity is a third of that in the states but the world bank did just a study and said most of that gap sixty seven percent of the gap between russia and the states is simply due to bad management and that's something that needs to be fixed it's not easy to train people how to run their companies better but that's where a lot of the progress could be made and. can be done at no cost it doesn't cost any revenue do you don't you well i think there's also a double edged sword here when you talk about salaries going up because you also have inflation and it's very expensive to live here so you need this type of celery just to maintain a good standard of living the second thing is russia used to be attractive for investment because we always said look at it it's cheap labor but it's not the case anymore so i mean it's more of a negative i think than it is a positive for the economy the one of the concerns now is if its economy doesn't

really grow i mean two percent even ok that's fine but if consumers start spending less or if they find that because of inflation and if you look at the ruble right now the way it's dropping i mean i wouldn't want to be someone holding rubles i mean if you're looking kind of exchange rate basis i don't see more reason to be concerned then to be positive or the slow pace of growth is a problem because of this rising wages are growing so fast and it means that you need faster growth to compensate for that because if you don't then what happens is that wage growth is squeezing all the companies and unless they're expanding faster to make up for that then they're getting into more and more this is an opportunity john isn't it as well i mean you can it's long as the economy was growing in people's incomes are going up and say everything is fine the way we do business here and we've just heard from our other guest here it's because of the way business is done here is that we're going to see a faltering or a slowdown because we still have growth there this is an opportunity to modernize these companies because you have to now it's not it's not a convenience it's

a necessity yeah absolutely i come from finland and we have a saying in their gut siberia will teach you that when you're forced to do something you have to do and now russian companies are just forced to because. as our colleagues are saying the witches are going up faster than revenue growth so you kill yourself if you don't make your process is an organization more efficient and what how do you do it. well it's the environment isn't it's darwin's forces that you do it or you die so they going to have to do it and those who don't will die and that's you know competition this is a free market that's how it works and really we've been this is the first time rush has been in the system but i'm glad you brought that up because i think that you know we have to put it in perspective you're going back to what robert had to say because for a solid decade we had a growth growth growth story and

a lot of these issues that we're talking about right now were not considered very important because you had growth you had money coming in as he had economic expansion so this is i look at this is as an opportunity because the same things are going to happen now you have to start fine tuning it as we heard from joe you know i mean basically these had a very good stream of luck over the past several good policy ok you can call it good policy but i think it's a lot of. money as well i mean the torrent of petro dollars just meant that you could run a business badly and still make money because there was so much money around and exactly and that's gone and i think now the have to realize if you don't innovate if you don't implement some new practices really so you can be competitive not only domestically but also internationally i mean you're still going to be bogged down by the natural resource this. black cloud hanging over your head on the one hand it's a great part of gold but on the other it kind of creates a bit of

a mali's where you don't do anything in now its credibility at least over i mean it's do or die no. i absolutely agree that you either do it or you don't. also that there is still a fortunately for your company to enter because when you can come in with an. attitude good management you can kill the big amounts that are standing here. ok i mean let's look at it in. realistically if you're an investor you have a money a certain amount of money you want to put it somewhere and you're looking around the world because i mean you have germany trying to promote themselves japan the united states everyone saying look we have great conditions so you're making a choice there was just this ranking came up the other day russia is number forty three so you're looking for a while when you're looking for work and. it also you can change in a way and get one up but think about it your number forty three so if you're making

a choice as a partner in a partner as an investor saying i don't want to buy it by all the rules and the players again are you going to pick number one or top ten are you going to say look i'm going to go for number forty three because i like a challenge to come to this market yet they still look at the german. i mean they're all here and they flooded in because it's the biggest market in europe by a long shot it's like fifty percent bigger than germany with one hundred forty three million people but however i mean you take the point if you're if you're picking and choosing which market i'm going to go to than russia because of his horrible image is going to be down on your list but if you're a big multinational then you have to come moreover if you're a big european company you have to come and that's been the bulk of the investment so far it's the large companies and we need is more a sort of general groundswell of smaller companies and entrepreneurs because the irony is that once people have come and invest it's they're very happy you know once you go through selling out because they make really good money but people

don't know so they don't come and look but i agree with you because some of the larger companies feel they have to be here because if not they're just giving the market up to the competitor and it doesn't make sense that they really need to be here but you need more you need a groundswell you need people to find like while the conditions of really improved it's a good place to do been the margins are great once you're here. absolutely. and i were actually likes to say traditionally they have been great now because of the which they grow they are not so great anymore but they can be if you do it better ok on that point gentlemen we're going to go to a short break and after the break we'll continue our discussion russia's economy stay with our. hear you ok. how do you operate dylan piggy i'm going to the most good sports

such experts. and olympic hockey. league in my life. i know. tonya. well tell me how you are my little grandson. i know you i don't like. being cut off. except as an ecovillage that the spiritual side is destructive. i try to convince her and try to preach that it was a sect but it's dangerous and she had to leave it was a story she had lost her mind. you know you she will

come back i know it and i will wait but even if it means i must wait. until my dying day. in the future. so we hit the road focus on new technology. on this show no policy is complete without school shootings. and we learn about the next in kill so revolution is also the potential to save lives. knowledge. we've got the future covered. welcome back to on the money with the business of russia's business i'm peter all about remind you we're talking about of russia's economy in two thousand and

fourteen all right let's talk about what two letters here the r. word and the c word we're going to start with our first reforms what is two thousand and fourteen reform have to do with each other if anything what we agreed that we're living in a more hostile environment now and that the easy money is gone and going forward then businesses are going to have to change to cope but you know in the past bad government didn't matter because you are making so much money and now bad government does matter because it becomes a drag on your growth eats up your resources when you should be concentrating on boosting the profits so the government for the first time is in the front line and what it does actually makes a difference and it needs to retain acknowledges this is a well to do research for the first time in his say the nation speech in december he said look you know problems are internal we need to fix them and he's highlighted this world bank doing business ranking and improving russia's but you know that's sort of emblematic of the kremlin's renewed focus on structural reforms

and we've always talked about it and where russia falls down is always on the implementation but certainly the rhetoric is saying they they realize the problem and they want to do something and russia has gone up from one hundred twenty to ninety second it's now the easiest of all the brics for doing business according to the world bank whereas before it was the hardest place to do business but we need a lot more of that if we're going to get back to you know four percent five percent growth over. i mean i think you russia is one of these unique places where there's really no fine line between the government in business any longer and i think this this is a problem because you have a situation where the government can decide whether your company succeeds or fails whether you go to jail where you get out a deal i mean there's there's there's no you could you see used to be able to say there's a fine line between government and its role in the economy but here is not the case there's much more privatization needs to be done and you need more well they said when the market conditions are i understand i don't know maybe i mean again you go

back to the stories of the nine hundred ninety s. when things were sold for a song and so there's a quite a bit of a sensitivity let's put it that way another selling state assets for a song again but i think for foreign investors are looking at not only the institutions in place but the rule of law and that it's actually practiced and i think that's an important part for most foreign investors because more and more people do go to the courts for we dress of issues that they feel i mean in civil matters and in business matters i mean it gets of actually very controversial thing confusing to the major courts or in this country. i think that the state of the rule of law is one of the greatest success stories. of it. russia because in the soviet union there were no independent of course there were actually no laws. no legal system and in never in a real sense from one thousand nine hundred one they started implementing a totally new system of law and in twenty years it's gone up to

a very high level all the international lawyers practicing in russia agree that russian ports are fairly good in the world but that's one of the things that russia does what a contract foresman russia ranks in the top ten but it's undermined i didn't read that in bloomberg then why not and it doesn't fit with the rates if there is it moreover it's all very well having contract enforcement. but then that's undermined by the corruption because the system is set up in order to. extract money from you and your country it may be in force but then you have other problems and again the government's turned its attention to that because it's probably the major drag on growth of the program that's the c word john where do we stand on that in two thousand and four when you know it's kind of ironic because the more the state officials talk about cracking down on corruption again that scares off for investment because they don't know who's going to go you know who's

going to be investigated who could potentially be arrested or even worse really it's a very odd situation to have because that also is something that is a barrier to foreign investment you want to see how things are going to clear out. the crackdown on corruption is to very dual edged sword because in fact it's been very successful had to differ to crack down on corruption so successful that it's actually putting down economic growth we see it clearly because in the high end. market. real estate this election really areas prices have plummeted because i think. for middle class apartments the. price is still and i think that's because less corruption money is coming into real estate and those who have corrupt money are

afraid and they want to sell and take the money out. so corruption is definitely. it's the fight is going on and going on very well here what people don't understand is that you need time. twelve years to go russia was a total out with no state power or power break now during putin. being gradually put in place the rudiments of state and that's why only three four years ago. really. the fight against corruption could start so he feels that give it a little more time in corruption will dissipate i mean corruption is clearly permeates the society here at all levels from the traffic up to the higher social and so on government we are going to go ahead to the next moment and traffic up. from two thousand and eleven to two thousand and twelve traffic fines both in our

amount of find and the volume of money went up five times. that the police corrected five times more traffic fines in the morning the one of the fine or so and they had the moment of tickets and money it means that there has been a huge progress in that area i don't know i mean i live here day to day i've been here twelve years and i can't see much of a difference in what i certainly do i mean what he sees there's a million for his parents so you know there are a lot of studies that show that it is the every day level corruption is dissipated i mean there are certainly other elements of the society which i think are to be. just gone from being the most corrupt the transparency index which is the one everyone quotes to being the least corrupt of eastern europe however it's still whatever is i think place hundred twenty seven out of a list of a hundred eighty so it's still a good. but then if you took to the investment bankers they say look if you compare

russia's corruption on a per capita basis there's this line in russia is exactly where it should be along with everybody else and so it's really no different but it is a horrible problem nevertheless the government has started this. you know we're in the one hand we have contracts and forstmann on the other hand people are going to jail for the first time losing their jobs but i agree with the assets also have done it's a generational change this will take thirty years just because once it's out there it's incredibly difficult to stand i don't want to change gears and before we in the programs talk about sochi. it's a big it's a big event for russia it's a showcase of entier but can we put it into economic terms we talked earlier in the week investment in infrastructure in this country has been immense the games cost six to seven billion dollars not to fifty billion that everyone wants to talk about but that fifty billion has been major infrastructure development this country in the last decade yes. the cost of organizing the olympics building new stadiums and

these things cost. seven billion dollars and then there's this if the billion dollar figure out there which western press claims cost of organized it's not all and not all that it's deposited investments have that have come in to such area thanks to. only six you know. you didn't build it again one thing about business people going back to obama's campaign. the russians have built quite a bit in the last seven years leading up to sochi how does it is that does that help is that interest investors at all a little bit well i think people have missed the point here i mean these sports events there's not just such i mean such she was the test case that they were the one they started with is that these things are being put out as a template for regional development and moscow as well and some petersburg too and

what we're talking about is the rest of the country which is ignored largely and what they've done is they said ok we're going to host this big sports event so we need hotels trains airport airports everything and we're going to fix everything but we're going to do it in the framework of this event moreover we're going to have thousands and thousands of foreigners come and we're going to be inspected and we're going to be held to international accounts therefore if you steal you and your bridge falls down if you just if i gave you a contract you're british for now well you know but if you that happens in the middle of the olympics everyone's going to care a hell of a lot and so we started with sochi and then the world cup and turning eighteen we're talking about eleven cities which cities are they had to be the big regional centers the most important cities and it's not just the olympics and the world cup but you know we've got the rowing championships we just had the university world championship is that one thing after another so the leafs are some one driver to modernize these different regions and parts of the country here which you know from what i've seen as being quite effective we'll see how the games play out but how do

you go from this number of seventy billion to fifty billion i mean you're saying this is foreign. mentor this is a great example he's been one of the six to seven billion for the games itself half of it is private investment ok even that has been missed by what mr western media what was the fifty come from the airport i mean the this is this is one of the myths about the funding here is that when there are new airports in russia not just in sochi in all of russia and they've been can they been conflated is all being the same thing this is been a huge misrepresentation of the olympic games and western media and we've seen a lot of infrastructure built in russian a lot of in this does this specific example with the bid for the world cup which i think russia put in a twenty billion dollars bid but just the high speed rail links between those eleven cities is going to cost sixty billion and that's the point is that you know all this other stuff is going on top you know when you're building it's not just putting it if you're into doing it in germany you just need to build a new stadium because everybody does that i should say we didn't spend fifty

billion this sort of the olympics there just that it. announced it very clearly a couple of days ago let me say so then billion dollars has gone to organizing the olympics the same figure that went to a bank group that's organizing ok to be doing building stadiums and the infrastructure of iran to staying on top of that they've built ten thousand new hotel rooms in two years which is. as much as they've built in helsinki during two hundred years. they've built highways. mountain road on a railroad thirty kilometer tunnels. you did need nose structure to organize to games all right john shows we're going to talk about this after the fact next month there are many thanks to my guests and thanks to our viewers for watching us here on the money see you next time and stay.

our maybe also reflects the massive surveillance operation that is going on when we're talking about defending against terrorism which ultimately i think is it's where is a catch twenty two right because you don't want to take a program away that is saving people and creating a safer environment but at the same time you know i truly believe that we have a right to freedom i believe we shouldn't be surveilled except.

for on june sixteenth one thousand forty one we had a graduation party at school and the war broke out. the shops were always full of goods. in september leningrad was blocked. one day mom went to sort it all the shelves were empty. in november they bombed the warehouses it was the main storage place for all the food in the city people eating the earth because it had small traces of sugar in it i tried to eat it as well but i couldn't. move it was incredibly heavy bombing. it was a direct hit on that very shelter and everyone was buried underneath. all of them

would. gentlemen i get you all the ladies. it was good to see you even a few hundred a day come across it honestly i'm going to miss the faces i'm going to soak in the midst of it we've got people coming in with criminals where you have people from who knows where in the world this is a the united states i'm very tough by the way you know to sure i was worried that they may not know life they live on mars you know mars. so we pick up things like

florida and. turbans prayer rugs so when we know they do they're coming from the middle east a concentration camp. concentration camp. body as the white house is not even one of those closed the fact that. a stranger. put it on your home and watch it in a bank holiday face i think i feel. a pleasure to have you with us here on our team today i'm sure.

protesters in kiev kidnaps three policemen and one is reportedly released with a stab wound as officials demand the immediate release of the other two officers. the ball was gone the highbrow social gathering of europe's far right are the triggers anger among thousands in vienna. and third anniversary of its revolution is marred by street clashes with security forces using tear gas to disperse opponents of the army backed government asked cairo reels from friday's deadly bombings.