The Cunning Russian Boom

By any measure, Russia has a lot coming down the pike that would seem to augur better ties with the West.

Aside from the Winter Olympics in 2014 and the World Cup in 2018, there is the New START treaty and impending WTO membership.

This latter is of particular importance, some analysts say, because WTO membership, which has been in the works for 17 years, could lead to a surge in foreign investment and competitiveness in the Russian market. Perhaps. Certainly mergers and acquisitions in Russia are on the uptick: in the third quarter of 2010, M&A activity hit a three year high of $33.8 billion, pegging the Russian market just $4 billion behind China.

It is against this backdrop, in December, that Pepsi announced it was doubling-down on its decades-long investment in Russia, spending $3.8 billion for a 66% ownership in Wimm-Bill-Dann, Russia’s market-leading dairy and juice company. The deal, if approved, would give Pepsi (which famously entered the USSR on the skirts of the Nixon-Khrushchev Kitchen Debate) control over 50% of Russia’s juice market (Coke already controls 35%).

So, is Russia on the cusp of an economic boom?

Perhaps. But the thing to remember about economic booms is that it is impossible to predict their blast radius or direction.

In the heyday of perestroika, I was living and working in Moscow, in a Canadian-Soviet joint venture. (You remember joint ventures: that Gorbachevian contrivance to salvage the Soviet economy without harming its socialist carapace? The idea was to infuse Western expertise into the bloodstreams of rotting state-owned enterprises, like the blood-transfusions which kept dottering Soviet leaders upright. No surprise, most JVs ended in failure.) Back then, in the early 1990s, it was quite popular to speak of the “Coming Russian Boom.” And those were certainly heady times. Hardly a day went by when we weren’t pitched a proposal to get involved in some previously unimaginable opportunity – usually one of inestimable legality.

The boom did come, but it was later, and of a different sort, than predicted. Before it could arrive, there was Yeltsin’s mass privatization fraud, then oligarchization, both of which fertilized a ground overripe for corruption (from which Russia has yet to recover; it ranked 154 out of 178 on the 2010 Corruption Perceptions Index). So when the boom arrived for average Russians in the early years of this century (fueled by soaring world oil prices), it was vertiginous and surreal – yes, the economy was growing, but so was corruption, poverty, and the gap between rich and poor. Meanwhile, other things important for the creation of a stable economy and hearty middle class were disappearing, like direct elections for local leaders, the right to freely assemble, and a free and independent press.

So when I hear talk of a new Russian boom in the wake of WTO membership, or a new honeymoon in U.S.-Russian relations because of New START, I am highly skeptical, if not downright cynical. I remember that Putin and Medvedev have their own agenda, which differs widely from that of Obama or Merkel. And I remember that things rarely develop in the way pundits or prophets expect, that events in Russia tend to unfold according to Russian rules, not American ones.

But then again, I can’t help thinking about 2014 and 2018… about the Olympics and the World Cup… about all those stadiums and hotels Russia needs to build… I mean, a construction boom is inevitable, right?