Open for business.

Photographer: Simon Dawson

A-Listers Flock to Putin's Private Davos

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
Read More.
a | A

Two years ago, President Vladimir Putin decided to wait out Western attempts to isolate Russia economically and politically. This year's St. Petersburg Economic Forum -- an annual event informally known as Russia's Davos -- showed that his patience is gradually paying off, but business as usual still isn't within reach.

The lineup at the forum was much more impressive than in 2014, when Western leaders and top chief executives stayed away because Russia was toxic in the aftermath of the Crimea annexation, or last year, soon after the Minsk peace accord suspended the fighting in eastern Ukraine. This year, the U.S. State Department again warned U.S. companies against attending the gathering because of "clear risks, both economic and reputational, associated with top-level engagement with a government that is flouting the most fundamental principles of international rule of law by intervening militarily in a neighboring country." Yet Exxon Mobil Chief Executive Officer Rex Tillerson showed up.

So did foreign leaders: United Nations Secretary General Ban Ki-moon, European Commission President Jean-Claude Juncker, Prime Minister Matteo Renzi of Italy, former President Nicolas Sarkozy of France. The presence of the leaders of occupied Crimea and Putin's wealthy friends, who are under international sanctions, didn't deter these foireign dignataries from attending and giving Putin's ego a boost. 

At times, once could even think that their positions were close to Putin's on certain economic matters. Juncker, for example, said Thursday:

For the European Union and Russia, the prize, one day, could be great: a vast region governed by the rule of law, trading freely and working together on common projects.

In his Friday keynote speech, Putin appeared to echo the grand vision:

The 'greater Eurasia' project is definitely open for Europe, too, and I am sure such interaction can be mutually profitable. The European Union, despite all the well-known problems in our relationship, remains a key trading and economic partner for Russia.

Reality, of course, is more complicated. Juncker made it clear that Russia would remain subject to sanctions until the Minsk deal is fully implemented and that the Crimea annexation was illegitimate. Renzi took care to confirm this in his speech, too. On Friday, the European Union reinforced the message by extending Crimea-related sanctions for another year (harsher eastern Ukraine-related ones probably will be extended for a shorter period). 

Besides, Juncker and Putin are clearly talking about different versions of a EU-Russia free-trade arrangement. To the EC president, the cooperation must proceed on Europe's terms, such as the rule of law as it is understood in the EU. Putin, for his part, wants a deal on his terms: He's pushing his Eurasian Union, which also includes four other post-Soviet countries, as a party to any trade negotiations. Kazakhstan President Nursultan Nazarbayev, who also appeared at the forum, has proposed that the Eurasian Union start preliminary technical talks with the EU on pulling down trade barriers, and Putin has talked to Juncker about this.

Although Putin said Friday that 40 countries had expressed a desire to form free-trade zones with the Eurasian Union, the bloc is not a success -- at least for now. Last year, its first in the current form, trade volumes within it declined. Kazakhstan's trade with Russia, for example, dropped more than a quarter. The post-Soviet nations that comprise the union all faced sharp economic slowdowns due to lower commodity prices, and their economic integration isn't a big help. Besides, Kazakhstan, Belarus, Armenia and Kyrgyzstan don't trade much among themselves -- the bloc remains Russia-centric. 

It may not make sense for the EU to get too deep into trade talks with a shaky entity that, for now, mostly represents Putin's attempt to recreate the Soviet Union in some form. The Eurasian Union won't necessarily survive the removal from power of Putin or even Nazarbayev, and the multitude of technical issues that would have to be resolved for an interbloc trade deal may not be worth hammering out if Putin's union falls apart in the next 15 years. The resolve to maintain the Ukraine-related financial sanctions may be weakening in Europe -- that's why figures such as Juncker and Renzi are willing to talk to Putin on his home turf, but that doesn't mean they're ready to work with him on his terms.

Putin, meanwhile, makes no secret of wanting just that. "We don't hold a grudge," he told Europeans, reiterating a phrase he used at the same forum a year ago: "Russia did not initiate today's discord, problems and the introduction of sanctions." 

"Putin called on Western politicians to follow the lead of their businesses which want to develop relations with Russia," tweeted Alexei Pushkov, head of the Russian Parliament's Foreign Relations Committee. "That's what will happen at the end: The dam of sanctions will burst." Some top European executives -- such as Nestle Chairman Peter Brabeck-Letmathe -- are openly opposed to the sanctions regime, and voiced that position in St. Petersburg. Yet Pushkov's vision is overoptimistic. The way Putin frames a return to cooperation remains unpalatable to Europeans. 

In the Q&A session after the speech, Putin blamed Ukraine for the slow implementation of the Minsk agreement and accused the U.S. of driving a wedge between Europe and Russia. He is not budging from any of the positions he took two years ago, and Europe will not reward this recalcitrance with major concessions, at least not soon.

Putin did his best to sound confident about the state of the Russian economy: Growth will pick up, Russia has kept its international reserves, inflation is lower and capital flight has dwindled. Armed with recent economic proposals from his liberal advisers, he talked of cutting Russia's non-oil budget deficit by 50 percent within five years, creating more jobs in small and medium businesses and making law enforcement agencies weaken their grip on private business. These ideas and promises, however, have been voiced many times before, without much of an effect on Russia's abysmal business climate. As the forum unfolded, the Health Ministry banned the U.K.'s Reckitt Benckiser from selling Durex condoms, the most popular brand in Russia, because of a bureaucratic problem with certification.

No wonder that, as in the previous two years, no major Western investments or joint projects with Russian companies have been announced at the forum. The high-profile participants, such as Tillerson or Alibaba founder Jack Ma, watched, listened and talked but apparently didn't make deals.

It's heartening that top Western executives and politicians are not giving up on Russia, but it's also clear that Putin views their willingness to attend his forum as a sign of weakness. It's not clear what the visitors gained by visiting St. Petersburg; they may have merely contributed to Putin's already bloated sense of his own importance. The Russian regime is not thawing, and there's no retreat from its geopolitical assertiveness or its dogged economic statism. If the Western visitors expected to see something different in St. Petersburg, they were naive. If they didn't, they were no more than glorified tourists. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Max Berley at mberley@bloomberg.net