“Российская soft power может быть эффективна”
Aleksander Gabuev, 03.09.2012
Ziyavudin Magomedov, Chairman of the Summa Group ‘ s Board of Directors and Chair of the APEC Business Advisory Council, told Aleksandr Gabuyev how Russia has promoted its initiatives and what is needed to successfully integrate into Asia.
"This is an advantageous development for Russia"
How has Russian business benefited from Russia‘s chairmanship of APEC? How has this status helped to promote its interests?
APEC is a consensus-based organization. The results of all the work done during the year are reflected in the recommendations made to the leaders who will be present at the summit. This year, the Russian business community and I, as the chairman of the Business Advisory Council (ABAC), have been able to promote all of our initiatives. This year we have seen for the first time that Russian soft power can be effective - we are capable of articulating and promoting ideas that are well received in other countries (more information about Russian business initiatives at APEC is available in the article "Highway to the Ocean"). Of course, this is all the result of joint work between Russian business and the government.
What are these initiatives?
Russia has suggested four priorities to be the focus of my chairmanship: food security, developing transportation and logistics chains, ensuring innovative growth, and liberalizing trade and investment. In terms of food, we have created a public-private partnership on food security, determined the principles of its organization, and established a road map and the main goals for the next three to five years. With regard to regional integration, we have determined that a number of initiatives that are of interest to Russia should be applied within the framework of APEC in the form of an exchange of best practices. This includes the introduction of radio frequency identification (RFID) and a "one-stop" system. This is a subject closely tied to the problems inherent to transportation and logistics systems. We have proposed creating a list of projects to improve rail and port infrastructure, as well as collecting the world ‘ s best practices aimed at streamlining customs procedures. This is a development that is particularly advantageous for Russia - in this case the adoption of common rules under the umbrella of APEC will mean a significant reduction in the time we spend getting goods across borders.
How will these initiatives be put into practice?
They are included in ABAC ‘ s proposals to the leaders of APEC economies. That letter will include topics such as GLONASS, which we have been promoting enthusiastically. Initially some doubts were being expressed, but we took advantage of our chairmanship of ABAC, and as a result we were able to include GLONASS in the final document along with GPS - all the economies have agreed to it.
What was the process like developing the Russian priorities and initiatives? Who took part in it?
We interacted a lot with our government agencies. There are two agencies whose interdepartmental meetings were responsible for some meaningful contributions to the Russian initiatives - the Foreign Ministry and the Ministry of Economic Development. Initiatives from the business community were articulated within the framework of ABAC, which is one of the key formats of APEC ‘ s work. We created APEC ‘s National Business Center (NBC), a noncommercial partnership, which became both a venue for collecting expertise as well as a think tank. But of course we discussed the most important issues with the country ‘s leaders and got their approval.
And what issues were those?
For example, technology transfer and food security are subjects on which there was some disagreement among the APEC economies. Plus, there are subjects that may run counter to our national interests. For example, within the framework of ABAC we spent a lot of time discussing the American initiative for a Trans-Pacific partnership, which would be a free trade zone within APEC created by a group of countries led by the United States. In a recent meeting of ABAC in Ho Chi Minh City, we first heard the proposal to explore the possibility of uniting under this format. But we ‘ re not yet sure if this would be consistent with our own interests and when we would want to join this initiative, if at all.
And how did the work progress within the NBC? Who was it who articulated the ideas?
We, Summa Group, along with our partners in the NBC and independent consultants like PWC, E&Y, and McKinsey, took an active role in this.
Who paid for the work?
In the preliminary years, 2010 and 2011, Summa footed the bill, but this year some of our partners from ABAC and a few other companies also became involved in the financing.
Ziyavudin Magomedov, Chairman of the Summa Group ‘ s Board of Directors and Chair of the APEC Business Advisory Council, told Aleksandr Gabuyev how Russia has promoted its initiatives and what is needed to successfully integrate into Asia.
"This is an advantageous development for Russia"
How has Russian business benefited from Russia‘s chairmanship of APEC? How has this status helped to promote its interests?
APEC is a consensus-based organization. The results of all the work done during the year are reflected in the recommendations made to the leaders who will be present at the summit. This year, the Russian business community and I, as the chairman of the Business Advisory Council (ABAC), have been able to promote all of our initiatives. This year we have seen for the first time that Russian soft power can be effective - we are capable of articulating and promoting ideas that are well received in other countries (more information about Russian business initiatives at APEC is available in the article "Highway to the Ocean"). Of course, this is all the result of joint work between Russian business and the government.
What are these initiatives?
Russia has suggested four priorities to be the focus of my chairmanship: food security, developing transportation and logistics chains, ensuring innovative growth, and liberalizing trade and investment. In terms of food, we have created a public-private partnership on food security, determined the principles of its organization, and established a road map and the main goals for the next three to five years. With regard to regional integration, we have determined that a number of initiatives that are of interest to Russia should be applied within the framework of APEC in the form of an exchange of best practices. This includes the introduction of radio frequency identification (RFID) and a "one-stop" system. This is a subject closely tied to the problems inherent to transportation and logistics systems. We have proposed creating a list of projects to improve rail and port infrastructure, as well as collecting the world ‘ s best practices aimed at streamlining customs procedures. This is a development that is particularly advantageous for Russia - in this case the adoption of common rules under the umbrella of APEC will mean a significant reduction in the time we spend getting goods across borders.
How will these initiatives be put into practice?
They are included in ABAC ‘ s proposals to the leaders of APEC economies. That letter will include topics such as GLONASS, which we have been promoting enthusiastically. Initially some doubts were being expressed, but we took advantage of our chairmanship of ABAC, and as a result we were able to include GLONASS in the final document along with GPS - all the economies have agreed to it.
What was the process like developing the Russian priorities and initiatives? Who took part in it?
We interacted a lot with our government agencies. There are two agencies whose interdepartmental meetings were responsible for some meaningful contributions to the Russian initiatives - the Foreign Ministry and the Ministry of Economic Development. Initiatives from the business community were articulated within the framework of ABAC, which is one of the key formats of APEC ‘ s work. We created APEC ‘s National Business Center (NBC), a noncommercial partnership, which became both a venue for collecting expertise as well as a think tank. But of course we discussed the most important issues with the country ‘s leaders and got their approval.
And what issues were those?
For example, technology transfer and food security are subjects on which there was some disagreement among the APEC economies. Plus, there are subjects that may run counter to our national interests. For example, within the framework of ABAC we spent a lot of time discussing the American initiative for a Trans-Pacific partnership, which would be a free trade zone within APEC created by a group of countries led by the United States. In a recent meeting of ABAC in Ho Chi Minh City, we first heard the proposal to explore the possibility of uniting under this format. But we ‘ re not yet sure if this would be consistent with our own interests and when we would want to join this initiative, if at all.
And how did the work progress within the NBC? Who was it who articulated the ideas?
We, Summa Group, along with our partners in the NBC and independent consultants like PWC, E&Y, and McKinsey, took an active role in this.
Who paid for the work?
In the preliminary years, 2010 and 2011, Summa footed the bill, but this year some of our partners from ABAC and a few other companies also became involved in the financing.
"We simply cannot afford to lose interest in this part of the world"
In Russia it is quite often the case that we generate some wonderful initiatives and then forget about them as soon as that event passes. In a week the APEC summit will end, while Sochi and the Football World Cup are fast approaching. Isn‘t there the danger that everyone will forget what APEC stands for and the opportunities on our doorstep?
Yes, that is a danger, because the country will be facing a lot of major issues in the next several years. But the real situation is clear and the country ‘ s leaders have made their wishes plain. Both the president and the prime minister insist that the development of the Russian Far East and Siberia is a strategic priority. An enormous amount of mineral resources are concentrated there, but those areas also have major demographic problems. And right next door are markets that are growing by an average of 8-9%. Given the slower growth in Europe, which is traditionally a very important market for us, Asia represents a brand new opportunity. APEC is responsible for 57% of global GDP, 40% of the world ‘ s population, and 46% of trade. For those reasons we simply cannot afford to lose interest in this part of the world.
And what role can Russia play in the Asia-Pacific region, other than just that of a vendor of raw materials? Is there any way we can offer the region something more?
Russia is a big country that is rich in resources. But Russians themselves are our greatest resource. Russians are talented, savvy people with lots of experience in business as well as in science and technology. At this stage we obviously need to establish the fact that for Asia we represent respectable, straightforward, reliable suppliers of raw materials. Right now we need to build infrastructure that allows us to export a large quantity of different resources, such as grain, coal, metals, gas, oil, and other products, to the growing markets in East and Southeast Asia. For example, we can increase Russian grain exports to Asian markets from our current 70,000 tons to 10 million tons, but this will require transshipment facilities in the Russian Far East. The grain terminal that Summa is building in Zarubino will go a long way toward solving this problem. On the other hand, we need to understand that getting any of these infrastructure projects off the ground will always involve new approaches to design and new technology. This will allow us to acquire new skills and knowledge.
For example, as part of APEC ‘ s work, we, Summa Group, gained new expertise in best logistics practices such as RFID (radio-frequency identification - Vlast), which allows goods to be transferred more quickly and their locations continuously tracked. RFID is like a SIM card. Cell-phone SIM cards cost almost nothing - mobile operators have long given them out for free. Imagine needing just a simple little SIM card instead of all those piles of customs and transportation documents, and being able to use it to instantly identify cargo, its sender, recipient, and everywhere it ‘ s been, if necessary. Exporting raw materials and building the needed infrastructure will inevitable entail the emergence of new technology here, so in the future we will be able to create products with higher added value. No Russian businessman in years to come, myself included, will be satisfied being relegated to the position of nothing more than a supplier of raw materials.
Immediately the issue of creating suitable transportation infrastructure arises. As long as we don‘t have it, we are losing markets to competitors from Australia, Canada, and Central Asia. But our nation has recently had to tighten its belt economically. Where will the astronomical amounts of money needed for these projects come from?
We don ‘ t need astronomical amounts of money. We are just not putting our existing infrastructure facilities to proper use. Dispatch systems, the construction of rail yards, and operational improvements of railroads are all much cheaper than building new branch lines or modernizing old ones while continuing to badly manage them. Here ‘ s just one fact. In Soviet times the Port of Vladivostok handled 12 million tons of cargo, but it only manages half of that today. That speaks for itself. We also need to simplify customs procedures by introducing elements of RFID. The best practices we discussed at ABAC could be put into practice in Russia within a year or year and a half. This is critically important for our country, because right now a container sits at the Port of Vladivostok for more than 13 days. Containers travel in Russia at 30 km/h and cover only 750 km per day, instead of the 1,500 km we would like to see. So best practices should be introduced along with improved operational/dispatch management.
Immediately the issue of creating suitable transportation infrastructure arises. As long as we don‘t have it, we are losing markets to competitors from Australia, Canada, and Central Asia. But our nation has recently had to tighten its belt economically. Where will the astronomical amounts of money needed for these projects come from?
We don ‘ t need astronomical amounts of money. We are just not putting our existing infrastructure facilities to proper use. Dispatch systems, the construction of rail yards, and operational improvements of railroads are all much cheaper than building new branch lines or modernizing old ones while continuing to badly manage them. Here ‘ s just one fact. In Soviet times the Port of Vladivostok handled 12 million tons of cargo, but it only manages half of that today. That speaks for itself. We also need to simplify customs procedures by introducing elements of RFID. The best practices we discussed at ABAC could be put into practice in Russia within a year or year and a half. This is critically important for our country, because right now a container sits at the Port of Vladivostok for more than 13 days. Containers travel in Russia at 30 km/h and cover only 750 km per day, instead of the 1,500 km we would like to see. So best practices should be introduced along with improved operational/dispatch management.
These improvements will also be significant because each additional percentage point of traffic between Europe and Asia that passes through Russia provides one billion dollars to our economy. We could potentially be servicing 5% of these goods, but we ‘ re currently not even seeing 1%.
Is it possible to do without the construction of new transportation facilities?
On the contrary - they need to be built. But it would be best to use the channels of public-private partnerships to finance these projects. Summa Group, along with some other private companies, are willing to play a part in this. That will make the construction cheaper and faster.
"This is an example of when my interests as a businessman fully coincide with those of the state"
Do you think it‘ s necessary to involve foreign partners in the construction of our infrastructure?
I think that in terms of technology - yes. We need to involve foreign contractors in areas where we lack domestic expertise. In terms of financing, I think Russian capital is sufficient. It just needs to be spent properly. There are cases where we might consider foreign funding for projects - for example, if China should actively offer its capital and its companies as contractors. But then, of course, it needs to be a two-way street. Russia has its own interests. For example, we might allow Chinese companies to do construction work, but strictly enforce our own immigration rules. Second, China possesses some technology we find interesting. How can they build one kilometer of railway so much cheaper, better, and faster than we can? The Chinese are among the world ‘s leaders in this area. They build a thousand kilometers of railway a year. Russia is currently building less than 100 km, although in Soviet times we managed 600-700 km.
Wouldn‘t letting Chinese companies take part in major infrastructure projects entail certain risks for Russia? How can we hedge against them?
We have to have a pragmatic approach. I would be very cautious about building infrastructure that only leads toward a single, given country, such as China, whether we ‘ re talking about pipes or railroads, because then we end up with a buyer ‘ s market and he ultimately dictates the terms. Russia ‘ s infrastructure border must be the sea - in order to keep things diversified. Then no one will be able to dictate terms to us regarding pricing formulas, such as for hydrocarbons. Even if the contract includes take or pay terms that are not satisfied. The sea is the best hedge against such risks.
And who on the Russian side should be developing the Russian Far East? The recently created ministry, a state corporation, or a subsidiary of Vneshekonombank?
We need a single institutional agency that will view the region as a whole through the prism of Russian interests. I think that maybe a state corporation, an open joint-stock company, should be in charge of this development. This OJSC should not change the law governing mineral resources or any other laws. This corporation must have a perspective that supersedes that of the various departments, but in consultation with the state. This body ‘ s main job will be to create infrastructure in accordance with a carefully considered plan and to arrange financing. The infrastructure this corporation will create must meet three criteria: it must have adequate capacity, be geographically diversified, and allow equal access. Private business can do everything else, such as building ports and processing plants and prospecting for mineral resources.
And who should head such a corporation?
That person should be someone substantial, well-known, and successful. It has to be someone who has experience bringing off major projects.
Are you referring to yourself?
No.
Incidentally, you‘ re up to your ears in business at Summa. You are also the only one of the three ABAC co-chairs to fly out to all the events and you‘ ve installed the NBC in Summa‘s office and pushed your senior managers to work at APEC. What‘s your motivation?
My answer won ‘ t surprise you. APEC ‘ S work is an example of when my interests as a businessman fully coincide with those of the state. Asian markets are critical for the growth of my companies. At Summa we are developing expertise in logistics, commodities, and even hi-tech, and the future of those industries lies in Asia. And for Russian business that future is closely tied to the development of Siberia and the Russian Far East. So in this instance, our business strategy is clearly linked to the interests of the country. That ‘ s why I do it.