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Analysis & Opinion
21.09.09 Ships, Chips And Automobiles
By Graham Stack

As of late, Germany has been opening its doors to Kremlin–linked companies looking for technologies in automotive manufacturing, shipbuilding, and microchip production. But while the current German election campaign entails that any investors promising to save jobs are welcomed, this new openness could also point to an economic, European dimension to the renowned “reset” in Russian-American relations.

When U.S. President Barack Obama came to power ten months ago and promised to “reset” the relations between the West and Russia, the talk was of missile shields, NATO expansion, Iran and Afghanistan. No one thought that the reset could ripple out to include the ownership of Opel, the embattled German car plant. But this seems to be precisely the case, according to Arkady Dvorkovich, the economic adviser to Prime Minister Vladimir Putin.

"It is a very good political signal,” Dvorkovich said on September 16, referring to the deal that will see Russia’s state-owned Sberbank and Canadian car components producer Magna take a majority stake in Opel, the European subsidiary of the bankrupt U.S. car giant General Motors. “It means the U.S. administration is ready for maximum economic cooperation with us," Dvorkovich said at the Reuters Russia Investment Summit. Following bankruptcy, General Motors is now owned by the U.S. Treasury.

According to Dvorkovich, powerful anti-Russian interest groups were out to scupper the deal, accounting for General Motors’ down-to-the-wire hesitancy over going through with it. But President Barack Obama’s support for the Russian bid tipped the scales, Dvorkovich said.

As a result, Sberbank, Russia’s largest bank, and Magna, the world’s largest car components producer, will each receive 27.5 percent of the carmaker. Sberbank will inject $0.5 million, and the German government – $1.7 million. Magna will oversee the restructuring of the company with an eye on the Russian market.

Coming the same week that Obama implemented a key reset policy by tearing up plans for an anti-missile shield stationed in Poland and the Czech Republic (which Russia opposed), the presidential nod for Russia’s Opel bid raises the question of whether there is an economic – and European – dimension to the reset.

Certainly, the German government under Chancellor Angela Merkel has been warming to Russia ever since Obama came to power in January of 2009. Merkel had previously positioned herself as a skeptic on Russia when compared to her predecessor in office Gerhard Schroeder, and sought closer ties with the United States. But in the wake of Obama’s reset, Germany now seems to be moving in to re-embrace Russia.

In 2007, a wave of acquisitions by Russian oligarchs in sectors ranging from airlines to tourism caused jitters in Germany. But last week, visiting the prestigious International Automotive Fair in Frankfurt, Merkel talked down the risks associated with Russian investors, calling Russia a “market of the future, not something to be kept at an arm’s length.”

Merkel backed the Sberbank-Magna-Opel deal strongly and publicly, despite criticism from her own economy minister and officials involved in administrating the crippled carmaker. This also despite the fact that the real strategic investor in the Opel case, as well as in similar deals in the pipeline for Germany’s Infineon chipmaker and Wadan shipyards, is evidently the Kremlin, through proxies such as state-owned Sberbank or other state-linked companies.

This both politicizes the deals and makes them quite opaque, since it is unclear what economic entity will end up with the stake. “Our medium-term view is that Sberbank may well be a conduit for the transaction and a more logical Russian state or industrial entity will eventually be passed the stake,” said banking analyst David Nangle from Renaissance Capital, referring to the Opel case.

On the other hand, it is very clear what the Kremlin wants from the deals. "If the import of technologies does not take place, it will mean that (the deal) was just a waste of time," Sberbank CEO German Gref told journalists on Friday.

Ships and chips

Two other deals similar to the Opel rescue have been broached by the Russians during the summer. Both involve opaque, Kremlin-linked structures bailing out struggling German companies, which, despite their losses, have technologies the Russians want.

On September 18 the media reported that Russia’s largest telecommunications holding AFK Sistema is negotiating to purchase a share in Infineon, the largest German microchip producer. According to the Kommersant business daily, the deal currently under discussion is for Sistema to acquire 15 to 20 percent of the company for ?1 billion, with the purchase funded by the Russian Bank for Development (VEB) state corporation. Sistema is a private company (although historically linked to the Moscow city government). However, following a succession of deals where the Kremlin has helped Sistema, “this [deal] could be an anticipated reciprocal ‘favor’,” said the telecoms analyst Ivan Kim of the UralSib investment bank. Sistema owns Russia’s largest chip producer, Sinterra.

And in a smaller but similar deal, the former Russian energy minister, Igor Yussufov, a current member of the Gazprom board of governors, is set to acquire Germany’s bankrupt Wadan shipyards, based in Wismar and Rostock.

It is widely believed that Yussufov is acting on behalf of Russian state-linked strategic investors, including the state-owned gas giant Gazprom and the state-owned United Ship-building Corporation. The financially stricken Wadan shipyards possess unique ice-breaking technologies that Russia needs to retool its naval shipyards in order to build transport vessels for energy projects in the Arctic. Again, this deal has been welcomed by Merkel and the German government, despite the ambiguousness of who is actually buying the assets.

Thus the German government seems to look positively on the Kremlin’s shopping around for technologies meant to help modernize the Russian economy. For Vladimir Putin and for his colleague, the head of the state engineering and defense corporation Russian Technologies Sergei Chemezov, who, according to Putin’s biographer Alexander Rahr, were both involved in industrial espionage on Germany during Soviet times, Russian access to German technologies is a dream come true.

Do these deals mark an economic, European dimension to the so-called reset? On Friday Putin called on Obama to follow up on the cancellation of the missile shield plans by supporting Russia’s bid to join the WTO – the longest bid in the history of the organization, with Russia being the largest economy to remain outside the WTO. The former German chancellor Gerhard Schroeder has stated openly that the United States has been blocking Russia’s WTO accession for political reasons. Obama’s position on Russia’s WTO bid might show whether the reset can develop an economic dimension.

An American reset on Russia’s WTO bid will also have knock-on effects for Russian-European ties, since the signing of a new Russian-EU partnership agreement is largely dependent on Russia’s achieving WTO membership.
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