Ukraine is free (according to Freedom House anyway)

So, the wait is over and the new Ukrainian government is established. The pro-Russian prime mininster Victor Yanukovich is out, and Yulia Tymoshenko is in. Now Tymoshenko must keep the promise to conduct a criminal investigation into the gas deal Ukraine has signed with Russia, and introduce tougher anti-corruption measures. Should she be succesful, Ukraine will come out as a winner.

According to Freedom House Rating of Independent Countries Ukraine is at par with India as free countries where democracy rules. Granted, Romania and Bulgaria are more democratic, according to the rating, but it is encouraging to see free Ukraine as much as it pains to see authoritarian rule of Putin in Russia.

Indeed, Russia shares its rating with Pakistan on the other end of the spectrum. Let me quote recent article which appeared in The Economist:

The re-election of General Pervez Musharraf as Pakistan’s president on October 6th was “fair and transparent”. THat was the considered judgement of his chief sidekick, the prime minister. “Unrepresentative, rigged and at gunpoint” would have been nearer the mark.

In Russia it is no longer a question whether the election will be democratic. NY Times published an article in which it describes how the Russian government violates the law and prohibits opposition parties from participation. Inofficial sources, such as blogs, provide countless examples of such violations.

Yet, despite the negative press that both Putin and Musharraf received in the past few days, the situation in Russia and Pakistan are not much different than equally ranked Thailand, which despite its lack of democratic freedoms, enjoys a steady stream of tourists.

China and Belarus shared an even worse position in the rating, matching Zimbabwe. Demonstrations in Belarus last year aired by international TV networks further supported the notion of Belarusian to be an oppressive regime. Yet we see the continuous growth of foreign direct investment into China, the country where, as it is widely known, elections do not take place, and the leader of the Communist Party is expected to name its heir. Yet, acccording to United Nations, China was the world’s fourth-largest recipient of foreign direct investment in 2006 after the U.S., U.K. and France.

Why then Ukrainian FDI are not as impressive? IN 2005, the year after the Orange Revolution, the FDI in Ukraine were $4.1 Billion. Perhaps, investors value predictability of the authoritarian regime in China over the Ukrainian instability of democracy? The challenge for Ukraine is to stick to its pro-Western path, form a working government and continuing its reforms.

Web2.0 in Russia: Country’s Response to Censorship

Trying to make sense of Russian user-generated content sites, I came to realise that the only way to learn about the real state of affairs was by browsing blog sites.

Livejournal.ru, the most successful Blogging service so far in Russia is providing a broadcasting platform for disgruntled journalists, oligarchs in excile, aspiring politicians and artists. Russia is the second largest geography for Livejournal audience after the US.

I discovered a blog of Viktor Shenderovich, the creater of “Kukli” – a satirical programme where politicians were represented by the puppet dolls, closed shortly after Vladimir Putin came to power. 

I also found postings by Leonid Nevzlin, a co-founder of Yukos now living in Israel, who talked about Russian affairs and authors of a book about Putin, which was confiscated by FSB. My attention was further captured by a story by Maria Arbatova, a writer and talkshow presenter about her experience in politics. I was bored by pointless ramblings of a journalist Sergey Dorenko (a blog to clean up his act or pretend it never happened?). In the 1990s he sold his soul to Berezovsky, according to the late Paul Khlebnikov’s book “Boris Berezovsky: the Godfather of the Kremlin”.

But the word of praise goes not only to the american company, who skillfully engaged celebrities in raising popularity of its services in Russia. There are at least 70 social networking websites offering blogging facilities to their users. Internet TV service is truly the only way to broadcast uncensored programmes in Russia. Too bad that there are only 28 million Internet users in Russia, or only 20% of the population.

I will write more about Russian Web2.0 community in the next few days. My list reached 120 websites and continues to grow.

natasha.starkell(at)goaleurope.com

Oligarchic fights

A hilarious article appeared in Sunday Times yesterday. It goes like this:

Oligarchs battle on Sloane Street

by Kevin Dowling

It was handbags at noon when two of Russia’s richest oligarchs clashed at a London fashion boutique yesterday.

Boris Berezovsky, an archenemy of Russia’s president, Vladimir Putin, was shopping in Dolce & Gabbana on Sloane Street when his bodyguards spotted Chelsea football club’s owner, Roman Abramovich, shopping two doors down…

Read the full article here.

The immature legal system is one of the main concerns of the Western companies looking to do business in Russia and Eastern Europe. But what is the difference between Russia and England, where even a tycoon struggles to serve a writ to take his opponent to court?

Russian and Ukrainian IT Services

A couple of months ago we at Goaleurope have been scanning the market for a mid-size IT services company in Russia. So here is a summary of our findings, and a few facts about the industry.

We have identified over 150 companies of various sizes, vertical mix, product and services mix. One certain observation that came out of our research is that the industry is highly fragmented. These companies together employed over 50 000 people and generated $12.5B in revenue.

Our research identified the following issues of the IT industry:
- lack of resources as the number of graduates entering the market could not satisfy 20% rate of annual market growth (in services sector);
- a need to refocus the business from low margin hardware sales to a more profitable service segment;
- corruption and bureaucracy.

We have also seen the first signs of consolidation:

The company Verysell (10th on our list with $470M turnover and 500 employees in 2006) has raised $50M in 2007 from Renaissance pre-IPO fund, Mint Capital, RP Explorer Fund, and Steep Rock to acquire IT services companies in preparation for an IPO.

IBS Group ($760M turnover in 2006) has announced its interest to go public in 2008. In 2007 it has also announced an acquisition of Borlas, a consultancy and an IT services company.

In 2007 Systematica has announced an acquisition of the system integrator TopS BI, which in 2006 employed 475 people and generated revenue of $96M.

in 2006 Epam Systems (US-based company with origins and development centers in Belarus) acquired Vested Development Inc. (Moscow, Russia, 400 employees) to create the largest software development company in Eastern Europe.

The official figures paint IT market in bright colours: the IT services market has grown by 23% to $3B, representing 20% of the total IT market. The largest service segment was consulting and software development, which accounted for over 30% of the total market. The top vertical markets included financial services (21%), telecommunications (15%) and manufacturing (11%).

Compared to Russia, with population of 143 million, Ukraine (population of 47 million) has seen a considerably smaller IT services market. According to IDC in 2006 IT services market was estimated at $192M, which is over 20% more than in the previous year. Installation and maintenance of equipment and software products constituted 51%, system integration – 25% and software development – 10% of the total market.

Ukrainian economy did not enjoy a similar economic revival as Russia due to its relatively poor energy resources and dependence on Russia for gas. However the economic potential of Ukraine is significant, which will boost the IT market in a mid-term.

Investments in Russia

The Russian government reports that net inflow of capital to Russia has exceeded $100 Billion in 2006-2007. According to Kudrin, the inflow was $40 Billion in 2006, and will be $60-70 Billion in 2007, compared to a zero balance in 2005.

Perhaps investors have made the rational choice, balancing between the democratic cravings and what the country needs to be run effectively. The democracy of Yeltsin years has seen the de-facto ruling by the oligarchs and running economy into the ground. The regime of Mr. Putin has brought Russians a stronger country, yet we have seen consolidation of power, censored press and nepotism of the government.

The stability has finally arrived to the Russians. Whether the same stability will be granted to the businesses is an open question. For the moment the growing number of investors in Russian economy are closer to saying “yes”.

On Russia, Ukraine and starting of the blog

I have finally decided to approach Eastern European subject in a consistent manner. Balancing between writer’s block and a writing bug, I have started to collect thoughts, news and ideas here.

This week has seen the results of Ukrainian parliamentary elections. It has also shed the light on the Russian presidential elections puzzle. Exciting times in both countries made me eagerly anticipate a book from one of the close observers which will undoubtedly come out in a few years.

Ukraine: Now then, Yulia Timoshenko has taken the majority in the parliament and the current president Victor Yushschenko came last. So they will inevitably have to try to make “the marriage” work again. Timoshenko’s beautifully staged election campaign had all the elements of the Orange Revolution: mistreatment (a struggle of Timoshenko’s party to register for the upcoming elections), branding (clever combination of words Believe and Yulia in верЮ ) and a distinct look of the party leader.  Uncompromising war on crime and corruption, announced by Timoshenko, perhaps didn’t win her many supporters. It is possible though, that anti-Russian well-wishers have financed her campaign, as there was a disagreement of the misspending of the money between Yushschenko and the Russian tycoon in exile Boris Berezovsky.

In Russia in the mean time, the guesswork of the political analysts have been eased out by the announcement of Mr. Putin to run for the post of prime minister after his term as a President of Russia expires in 2008. For those who wish to speculate further here is a tricky question: what will happen if the newly elected president of Russia as of March 2008 will suffer from the ill health?

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