We must Enhance Russian Positions

 Die Presse
23.01.2008
Jens Hartmann

DIE PRESSE: One of the themes on the agenda is going to be an issue of whether state funds pose any danger or not. What would you tell those critics who are worried that Russia and China are seeking to buy up Western assets?

Dmitriev: VEB is not in charge of managing Russian state funds. It’s the responsibility of the Finance Ministry and, to some extent, the Central Bank.

Question: Nevertheless, you purchased a five percent stake of Aerospace Company EADS last year.

Dmitriev: VEB has the right to purchase foreign shares and participate as an investor in foreign corporations. In case of EADS, our goal was not to purchase a Western asset as if we were to act as a state fund.

Question: Was it a net financial investment?

Dmitriev: We are going to exchange this stake for a stake in the United Aircraft Building Corporation (UABC)…

Question: … a state-owned holding incorporating all Russian aircraft builders…

Dmitriev: …the stake that will come on the market after additional share issue. UABS has to take a decision on this matter. In our opinion the exchange would help integrate the Russian and European aerospace industries to the benefit of both sides. As you know, EADS holds Russian Aircraft Building Company Irkut’s shares. Irkut is incorporated in UABC.

Question: The China State Development Bank has become a shareholder of the British Barclays Bank. When are you going to buy a stake in a Western bank?

Dmitiev: I wouldn’t like to rule out the possibility that some day our activity would assume larger dimensions and we would start to purchase foreign assets. But at present, it is much more important to us to initiate major investment projects in Russia.

Question: Do you know why the EU is seeking to introduce legal protection measures against such investors like you?

Dmitriev: I think that the whole debate over legal restrictions for foreign investors in EU countries is blown out of proportion. Forced regulation could become a serious obstacle to Eastern European businessmen and would eventually deliver a blow to those who initiated these restrictions. Those who try to hamper competition harm consumers. I’d like to remind you that oil sheiks that invested heavily in the West in the seventies ran into fierce resistance to become later welcome business partners.

Question: Does this mean that the West shouldn’t be afraid of you?

Dmitriev: A line in a revolutionary Russian song reads: “ We are peaceful people but our train waits in reserve” (laughing). Our Bank for Development is designed not only to develop our domestic economy but we are also developing it for our companies to step up their efforts to enter third countries’ markets. And this means that they seek to purchase production assets. For example, we financed the purchase of an oil refinery by a Russian company in Bosnia. Those who think that it is dangerous are mistaken. We simply must enhance Russian positions in CIS countries, as well as South East Asia, Africa, Latin America, that is in those regions where the Soviet presence was strong. 

Question: Russia’s former economics minister Herman Gref said that a trillion dollars should be invested in infrastructure till 2020. What is VEB going to do to make this happen?

Dmitriev: If you will, we are pumping international and Russian financial markets’ resources into our economy. We are making efforts to move our economy to a qualitatively new level by overcoming our one-sided dependence on raw materials. Innovations are supposed to be a driving force of economic growth. We help key industries in need of the state’s support such as transport, power engineering, communications, aircraft construction and shipbuilding, high technologies. But we have to build railways, bridges, pipelines, power transmission lines and communal networks for them to reach mineral resources and production sites. Private business can’t do all this. The only way out is for the state and VEB to finance these infrastructure projects.

Question: What can private business do?

Dmitriev: In our estimate, each ruble invested by the state would raise up to 3-5 rubles in private investments till 2012.

Question: What are VEB’s advantages over commercial banks?

Dmitriev: We carry out the projects, which are financially unfeasible for commercial banks or go beyond their capability. Commercial banks’ goal is to generate profits. Our goal is to address social and economic tasks.

Question: Does it make sense to refuse to generate profits?

Dmitriev: We are not philanthropists. While our founding documents stipulate that generating profits is not our central principle they specify that we should operate on a break-even basis. Our advantage is that we, for example, do not have to pay profit tax. This enables us to borrow money on more favorable terms than other banks and lend at lower-than-market interest rates.

Question: This looks like damping.

Dmitriev: No, it doesn’t. This doesn’t have anything to do with damping. We don’t compete against commercial banks. Only 18% of all commercial credits have been extended for a period of more than three years. And in our loan portfolio these credits account for 65%.

Question: One of the main issues at the coming Davos Forum will be the mortgage crisis in the US. How do you think this crisis affected Russian banks?

Dmitriev: The crisis didn’t have any negative effect on VEB as we didn’t borrow on a large scale on international markets. There is no doubt that on the whole borrowing costs will be higher but we’ll be able to take new credits because we have sovereign rating and don’t have to pay profit tax.

Question: Are there any reasons for Russian banks to be afraid for their future?

Dmitriev: To my mind, the situation in the Russian banking system is by and large pretty stable.

Undoubtedly, Russian banks were active players in the international interbank market but, for the most part, they didn’t use highly risky financial instruments. If some difficulties emerge they would be able to address them by way of borrowings, consolidations, mergers and acquisitions in the banking sector.

Question: You are a part of world business elite in Davos. Are you as a Russian baker under impression that your foreign colleagues let you join them? 

Dmitriev: There is no doubt about it. Ten years ago we attracted a lot of attention. You know all the stereotypes associated with Russia: bears, vodka, black caviar and today they look upon us the way they look upon Germans and Britons.