Yan Yanovskiy: Investing in Human Capital is a Realistic Alternative to the Further Development of Russian Energy Resources

Yan Yanovskiy: Investing in Human Capital is a Realistic Alternative to the Further Development of Russian Energy Resources

The article is published in: September 2012

Russia’s economic performance, as well as the country’s prestige amongst the G-20, is continuing to grow. Yan Yanovskiy, a member of the World Economic Forum’s Global Agenda Council on Russia, Managing Partner of First Nation Societe Bancaire, discussed this topic with the WEJ in a recent interview.

Yan, can you tell us what the new convocation of the Council on Russia is going to be working on now? 
Certainly! Creating a separate council on Russia is a very important step that confirmed country’s growing reputation and role amongst the G-20. Some of the topics that are going to be discussed and worked through within the framework of the Global Agenda Council on Russia are its financial stability, the geopolitical risks it faces, and the main trends of development. It is my personal hope that the work of the new council’s convocation will create a balanced view of Russia in the global community and create new vectors of inter-country cooperation. Country Councils have unique expertise, as well as access to a variety of abilities within the format of the World Economic Forum. Various Councils dealing with global financial markets and new economic models, poverty and urbanization, the role of civil society and the energy safety are working towards this same goal as well. The main goal is developing solutions to the problems Russia faces, while creating a successful image of the country for the world.

And what image does Russia have now? How is our country perceived in the international community?
I have had many conversations with the President of the World Economic Forum, Professor Klaus Schwab and with a number of leading international economists, businessmen and politicians regarding this topic. And the general opinion, which was formed with the help of objective indicators, future calculations, and personal experiences, is that Russia has considerable potential. When businessmen –who often talk about how difficult it is to do business in Russia – take the risk to begin working there, they end up feeling perfectly comfortable. In fact, I do not know a single foreign businessman engaged in the real sector of the Russian economy, who went into the Russian market and had to leave before finishing what he started. Nonetheless, the formation of the investment climate in the country is an ongoing and systematic process, and there is a lot to done in order to transform many verbal declarations of openness and transparency into real actions in that direction. It is really important for the country to attract new investors and partners, and really show them that it is possible to work and make money in Russia.

That’s not always the easiest thing to do, unfortunately…
I agree. This problem should be solved. There are Russian trade offices all over the world that are supposed to look for investors, attract partners, and unite the efforts of both Russian and foreign business communities, but these institutions do not really work. In my opinion, we need to completely reform these existing trade offices and establish an “Invest in Russia” agency. This will be a specialized agency that should provide real tools to support and assist foreign businesses in Russia. For example, it should help when foreign businesses are looking for partners or trying to understand Russian tax system. I believe that this type of structure should be a “one-stop window” for Russian companies abroad and foreign companies in Russia. These are very important issues, especially for foreign small and medium-sized businesses that want to enter the Russian market but cannot understand how to do it. In any case, the arrival of this particular business segment could have a positive impact on the Russian economy and give a new impetus to the development of small and medium-sized businesses in our country.

Do you think that Russia is considered an attractive country in terms of investments?
Russia is certainly among the top five European countries in terms of investment attractiveness. Investors are attracted to Russia by the country’s ability to produce consumer goods and sell them to the growing Russian middle class. The competitive cost of labor and their developing logistics network is a significant advantage. Investors will also certainly pay attention to the level of diversification in the economy and note that the rate of future economic growth will greatly affect commodity prices and the effectiveness of the reforms. At the moment investors still have concerns with the transparency of the political, legislative and administrative spheres. According to foreign investors, state-owned enterprises restrict new players, to a large extent, from entering the Russian market.

The “Scenarios for the Russian Federation” study, which was presented at a forum in St. Petersburg, showed that a majority of the economic elite, yourself included, saw a successful breakthrough in the Russian economy that led to a record-breaking growth in its macroeconomic indicators. Can you tell us a little more about this?
The GDP and stock market are growing in Russia. Over the past two years, inflation has actually decreased slightly, the stabilization fund and Russian reserves are growing, and the consumer index as a whole is increasing as well.  This is official data that comes from official sources, such as Rosstat and the Central bank of the Russian Federation. Russia feels confident enough virtually across all economic indicators, which is especially evident against the current background of instability in the Eurozone.

Why is it that, in spite of the great numbers we’re seeing, the Russian economy continues being one of the most secretive economies in the world?
The economy is largely determined by the politics. We are just beginning the process of integration with the international community. And on this topic, I would like to note a number of real breakthroughs and positive steps – such as Russia’s accession to the WTO. Although, overall, the past year and a half was spent waiting for this moment. A pre-election year is a difficult phase in the development of any country. This is partly why many projects and initiatives have been in pending states of readiness. I think that now things will change, in terms of the speed and power of implementation above all.

To what extent do you believe Russia’s accession to the WTO will help in reducing the barriers blocking Russian integration into the international trade market?
Russia’s accession to the WTO should have a positive impact on the economic relations of our country. As a shareholder of the investment bank, I watched many of my clients experience difficulties from their inability to buy assets abroad, due to the fact that Russia was not a WTO member. There were a number of barriers that have since been withdrawn. The benefits can be seen for both importers and exporters of goods. The first will receive reduction of protectionist duties, and the second will get stable access to export markets. There are also possible benefits with regard to domestic demand. Healthy competition is always stimulating action, which in turn will allow Russians to buy better and cheaper products. With the advent of serious competition, many companies will have to keep up with the competition and increase efficiency and productivity in order to remain competitive and survive in the new market realities.

Let’s go back to the issue of oil dependence for a minute. What do you think can replace oil in Russia?
Despite some of the successes achieved in recent years, we have not managed to steer entirely clear of the inertial energy resources development scenario. The World Economic Forum is currently working to on Russia’s scenarios 2030. An enormous amount of work with experts from around the world is being conducted, but in my opinion, all basic planning is reduced to the evaluation of the oil and gas industry. Sate budget depends almost entirely on the price of oil per barrel – if prices continue rise, salaries, pensions, social benefits, etc. will all grow accordingly. On the other hand, if prices fall dramatically, it will become necessary to seek other sources of funding for the social component of the budget. Today we need to make innovative development of the country our top priority, to invest in human capital in Russia, and to prepare a new formation of leaders that can bring the economy to a qualitatively new level of development.

Are you referring to the work within the Global Shapers community that is worked on as part of the World Economic Forum, where you are one of the founders and active members?
Yes. Right now in Russia, we are looking for people, under the age of 30, who have already achieved a lot and who have both the potential and the desire to change the country and influence the processes taking place today.  We have gathered economists, financiers, doctors, paralympic champions, and artists in our community. This diverse group of people is coming together to discuss specific problems and try to improve everything that is happening in our country right now. Right now there is one group in Russia, which is located in Moscow, but we are also creating regional groups in St. Petersburg, Kazan and Irkutsk. By the way, during the St. Petersburg Forum, representatives of the group had a chance to meet with Professor Klaus Schwab, Founder of the World Economic Forum. Professor Schwab is very optimistic about the formation of the Global Shapers community in Russia. And as representatives of the Global Shapers community, we are definitely planning to participate in a global conference on Russia, which will be held in October in Moscow. For us, the opinions that young people share concerning the global issues in Russia and their solutions are of the utmost importance.

Are any specific projects being implemented at the moment?
Yes. The first one is aimed at developing a special course of seminars for university students, which will include such topics as basic values and leadership, dignity and professional role in society, economy of start-ups and state economy. The second project is more global – it will bring together experts from the world’s best universities, the World Economic Forum, and the Forum of Young Global Leaders. It is aimed at creating a unique educational online platform that can be used by the Global Shapers community as a teaching resource and access to a wide range of information. There is already active work being conducted in this area. Hopefully by the beginning of next year, we will be able to talk about the first results. For the most part, these projects are aimed at creating a new generation of people that can manage the Russian economy and integrate it into the international market.

So these are our intellectual resources for the future?
Yes, we must learn how to live in another country and how to educate a new generation – that is the only way we can ensure the development of Russia. Hydrocarbons are non-renewable resources, and they will run out at the time of our great-grandchildren. What will they use instead of it? Russia’s human capital.

Text: Anastasia Yakovleva