Russian entrepreneurs vote with feet as troubles mount

Moscow (AFP) - Russia has long had a problem with capital flight, but this time entrepreneurs are also fleeing given that President Vladimir Putin appears to be turning the screws as the dispute with the West over Ukraine drags on.

Since last month Maxim Shvidkiy's consultancy has seen a spike in the number of businessmen seeking to leave Russia.

"Entrepreneurs returned from their summer vacations, analysed the situation and have decided to act," Shvidkiy, managing director of SHFM OVERSEAS Sweden Filial, told AFP.

"It all boils down to one thing -- business does not like instability and uncertainty."

His clients, he said, represented a wide range of industries from IT to trade to manufacturing and included those who have long contemplated immigrating as well as those who have only recently begun considering leaving.

Some of them were selling or planning to sell their businesses in Russia, others wanted to buy a new company, most often in an EU country, and move abroad together with their families, said Malmo-based Shvidkiy.

He said his competitors have also reported a similar increase in demand for business immigration services.

That demand has apparently reached such proportions that the head of Russia's largest lender took the hugely unusual step of sounding the alarm in front of foreign investors last week.

"Today the most popular application among businesses is not the one to set up a new company, to open and register an enterprise but an application to leave, to receive a residence permit," Sberbank CEO Herman Gref said to applause from the audience.

A queue of entrepreneurs seeking advice on how to move abroad represents a vote of no confidence in the economic and political policies of Putin, who is locked in a confrontation with the West.

Instead of changing tack over Ukraine, the Kremlin responded to Western sanctions by ordering an embargo on EU and US food and threatened to ban other imports.

- 'The eruption of truth' -

Over the past days former economy minister Gref, who in his speech flayed government policies and drew parallels with the "mind-boggling incompetence" of the Soviet leaders, has been praised for plucking the courage to speak up.

Former deputy energy minister Vladimir Milov said Gref's outcry was all the more striking because he has been known for his loyalty to Putin despite his liberal credentials.

"I've been receiving signals that Gref is 'seething' and is extremely unhappy with what is going on," said Milov.

"The eruption to the surface of the truth spoken by a key member of the Putin team is an unimaginably serious sign of an internal crisis," Milov wrote on his blog.

A business exodus intensifies the braindrain as Russia's best and brightest including economists and opposition activists are fleeing.

Entrepreneurs have long complained of a risky business environment in Russia, and experts say that many have now come to a conclusion that risk now outweighs opportunity.

While Putin touted the country's economic might at last week's forum, saying "serious investors" were committed to Russia, the mood on the sidelines was starkly different.

"The main topic on the fringes is what Gref cried about: 'the queue is not for investment projects, the queue is to leave the country'," said Sergey Romanchuk, the head of currency dealing at Metallinvestbank.

"No one knows what to do, the steering wheel is wobbling," Romanchuk, who is also head of financial markets association ACI in Russia, said on Facebook.

Government statements that increasingly distort the truth like a carnival fun-house mirror also unnerve businesses.

Last week, Putin said he would not impose total control over the Internet as he ordered extra security measures. Shares of top Russian Internet companies immediately plunged.

"All the time we hear the president and other officials say the words which later turn out to be false," the business daily Vedomosti said in an editorial, pointing to a series of statements crowned by Putin's denial that the Kremlin had sent troops into Ukraine.

- 'Exodus will continue' -

With Russian economic growth grinding to a halt and the ruble setting new historic lows, business opportunities are drying up. Added to that Western companies are cutting back their presence due to sanctions.

Shell has suspended a shale oil venture with Gazprom Neft. Morgan Hotel Group and Russian developer Capital Group have halted cooperation on a key project.

Computer software maker Adobe Systems is shutting down its Russian office.

Business consultant Shvidkiy said he was doubtful that the economic outlook would improve any time soon.

"Speculative capital will be present but long-term private investments will be dwindling," he said.

"And that means that private business will continue its exodus from the country."