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December 12, 2011
Charles Ryan spoke on the "Why Russia" panel at the USRBC Annual Meeting 2011
Charles Ryan, Chairman of UFG Asset Management took part in US-Russia Business Council `s (USRBC) 19th Annual Meeting in Chicago, on October 3-5, 2011. He addressed his speech at the panel discussion “Why Russia: Evaluating the Global Economic Context” alongside with Mark Fuller, Chairman of Monitor Group and Varel Freeman, First Vice President of EBRD. The discussion was moderated by Drew Guff, Managing Director, Siguler Guff&Company.
Charles Ryan began his address by highlighting that Russia has reached a critical juncture in terms of its future economic outlook. He noted, that Russia has benefited greatly from changes in commodity prices that provided the country the opportunity to address inequalities in society and establish a sovereign wealth fund. This wealth was used to support industries in which Russia will never be competitive.
He credited President Medvedev`s efforts in infrastructure development and innovation, but cautioned, that this initiatives have forced Russia to make a fundamental choice, whether to resemble Western European countries or to BRICs economically. Mr. Ryan added that the issue boils down to those areas in which Russia has a comparative advantage. The optimistic scenario he explained, would resemble Canada or Australia in that sense Russia could become a high value-added producer of natural resources and other high value-added non-tradables, as Russia possesses a high level of technological and scientific expertise to become a world leader in smart manufacturing. However, Mr. Ryan cautioned that success hinges on whether wealth will continue to be used to support inefficient industries.
Providing further examples of competitive industries in Russia, Mr. Ryan highlighted the cell phone industry. He noted its higher mobile penetration rate than the United States, illustrating the high quality of wireless infrastructure in Russia and the need for additional investments as the 4G networks take shape. The ease for investment is much higher compared with high growth countries like India, since the basic level of infrastructure currently exists in Russia that does not exist in many of the developing economies.
As an additional example of the level of technical sophistication present in Russia, Mr. Ryan pointed out that Yandex uses more effective algorithms in its search engine than Google. In conclusion, he conceded, that Russia`s developed economy status will make future high growth rates more difficult, but he contested, that the country also possesses unique qualities that can be competitive in the world market .
Regarding whether taxes and regulations are excessive in Russia, Mr. Ryan explained that, despite legitimate attempts to improve regulation, bureaucracy continues to thrive in Russia. He added that the issue revolves around the persistence and regularity of regulation as well as its ambiguity, which provides regulators with the ability to extract bribes. In contrast, Mr. Ryan believes that level of taxation is relatively low.
Answering the question how does the structure of investments is developing, Mr. Ryan noted that the term “venture capital investing” is vague relative to Silicon Value, but the intent is the same . He agreed, that obstacles, how to close the company down, how to incorporate and shareholder structure agreements, still exist, but they can be overcome. Mr. Ryan pointed out that infrastructure from the old economy still present that can help with overcoming those obstacles. The greatest opportunities in venture are in intellectual property companies.
Source: USRBC's Russia Business Watch (RBW) 2011-2012
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