The Ministry of Foreign Affairs and Modernization

15:00 15.07.2010 • Armen Oganesyan , Editor-in-Chief, International Affairs



IN ANTICIPATION OF the President's visit, the Ministry of Foreign Affairs on Smolensky Square was spruced up fit for a king. The marble was polished until it shone, and all the cars were removed from the parking lot. The pompous conference hall, which has seen more auspicious occasions and guests in its time than one would care to count, removed its crimson red apparel to don a shade of subtle terracotta instead. The ministry's new emblem, approved the previous day by the President, adorned the wall with its heraldic symbol emblazing the center, while each of the eagle's talons clutched a palm branch distinctly reminiscent of goose feathers. The image does not seem complete, however, without the wax-sealed scroll, the prototype of old embassy dispatch...

The atmosphere of intense anticipation was defused by the President's delay; he would not arrive and deliver his speech for another three hours. This gave Minister of Economic Development Elvira Nabiullina, Chief of General Staff Nikolai Makarov, Chairman of the Russian Union of Industrialists and Entrepreneurs Alexander Shokhin, and Chairman of the Management Board of the Institute of Contemporary Development Igor Yurgens the opportunity to speak at the very beginning of the meeting. They were listened to attentively, just as the audience listens to the overture at the opera while the curtain is still closed before the main performers appear.

Nothing heralded a storm... And none was forthcoming, which may have disappointed some. Nevertheless, there was a fair amount of criticism about the Foreign Ministry's work, but the fact that it was expressed without beating around the bush, sometimes with irony, but without any insulting innuendos made the talk inoffensive. From time to time, the President returned to the topic of the high professionalism of Russian diplomacy and its ability to solve the most difficult tasks. After the state awards were handed out, one of which also went to the Head of the Ministry of Foreign Affairs Sergei Lavrov, the President, clearly inspired by the congenial atmosphere in the room, gave a short improvised speech. This informal, "off the cuff," address to the ambassadors essentially became the tuning fork of the entire meeting.

One of the leitmotifs of the President's speech was calling on the Foreign Ministry employees, and not for the first time, to exert maximum efforts to support modernization of the country's economy. He reiterated the idea that these efforts should be regarded as one of the most important criteria in evaluating the work of a particular embassy and expressed in real assistance to Russian companies abroad and promotion of Russian goods and services. The president's call to form "modernized alliances" with the developed economies of the world is entirely justified. In crisis conditions, it is preferable to place the stakes on a time-tested partner in a specific sphere than on a potential one. Such risks might be justified today for China, but not for Russia.

It stands to reason that such alliances can only be formed if there is a reciprocal and interested response from the developed economies themselves. The Ministry of Foreign Affairs, in cooperation with other departments and organizations, of course, is capable of creating an impressive matrix that would reflect the most attractive aspects for Russia of the economic and scientific-technical activity of the leading European countries, Japan, and the U.S. And this should be done regardless of the level of maturity of Russian business. But it is not realistic to plunge into post-industrial partnership from the current launching pad of the Russian economy without first creating a high-tech and science-intensive production base. This is why the President focused particular attention on the priority of "modernizing production."

Unfortunately, at present, the percentage of industrial enterprises engaged in the development and introduction of technological innovations is no higher than 10%, while the share of innovation production amounts to no more than 5.5%. The crisis did not lead to the anticipated optimization of production or to withdrawing from it by means of technical refurbishment and new technology. In turn, banks are refusing to issue loans to enterprises, particularly medium and small businesses, which are the most receptive to the idea of modernization today.

At one time, Russia's widespread state tasks included the establishment of special banks (Stolypin), so why not implement lending projects through state banks (bank) now in order to refurbish the technological base with the help of foreign equipment? Some economists think that the state could subsidize some of the interest on commercial bank loans issued to finance the purchase of this equipment. Customs duties on the import of equipment that is not manufactured in Russia could be lowered. Finally, interest-free loans could be issued to purchase technology, patents, licenses, know-how, and so on. And what if the Ministry of Foreign Affairs pitched in too... This would lead to the natural creation of a business environment that could be involved in modernizing production at the first stage and could knock at the doors of embassies and trade missions abroad in search of reliable partners and markets at the second.

At this juncture, pessimists might object by saying: "But is our business ready for this kind of leap? Is it not too lazy and uninterested? Is it not too greedy to be able to forego ready capital for the sake of long-term plans? Will it not remain devoted to the principle of the initial phase of capital accumulation—'grab and run'? After all, this kind of philosophy will not cut the cloth abroad, either in export, or in import." Of course, it is hard to imagine the Ministry of Foreign Affairs taking the time to mold Russian business to fit the European model or serving momentary and insignificant interests. After all, the work time of a diplomat does not come cheap.

But there is no doubt that a diplomat should know the main modernizing trends, whereby lack of knowledge, as the President made it understood, does not free him of his responsibility. However, the Ministry of Foreign Affairs is not the chief deskman when it comes to modernization in the country. Its role is that of coordinator, mediator, protector and, in some cases, initiator of specific deals and projects. Embassies and trade missions can become meeting places for the economic interests of Russia and foreign countries. This requires one thing, that the Russian economy and the mentality of Russian business be ready for such responsible work. And this is already a national task.

A certain basic level of professionalism is needed to informally evaluate the modernization trends and grasp their deep-seated economic meaning, particularly when it comes to understanding how they can productively interact with the participants in the world market. But in the 1990s, the institution of economic advisors with special knowledge and skills was essentially wiped out of the diplomatic service. There are economic advisors in the largest embassies today. But an even higher level is required in order to recruit specialists who are sufficiently trained to meet the set tasks. For comparison, in foreign embassies, a diplomat responsible for the development of economic and trade relations has the rank of minister-counselor and no less. And this not only applies to Russia's foreign embassies, but, as the saying goes, is the same across the face of the Earth. Of course, new wage rates will require additional financing. But modernization comes at a price. I was surprised to find out that the Ministry of Foreign Affairs did not receive any additional targeted funds for this new and difficult task. So I am wondering: how work will be modernized in this direction, how qualified personnel will be recruited and how the corresponding settings will be activated for establishing contacts with the necessary enterprises? Awareness-raising efforts are also important here. Many embassies make use of the local media to help boost the investment appeal of their country, without shying away from publications that offer their services on advertizing conditions. But these services must also be paid for.

Terms such as "the knowledge economy," "science-intensive" and "nanotechnology" have become part and parcel of current vocabulary. Today, as specialists believe, the Ministry of Foreign Trade cannot be restored to its former state. At the same time, very many share the opinion that the functions of the State Committee for Science and Technology would be worth reviving in some form or another. The buying up Russian patents and inventions, often for a mere pittance, and their leakage abroad may not be as endemic as it was in the 1990s, but the problem of protecting and utilizing domestic scientific know-how is still urgent. More than that, in the context of modernization, it is becoming even more urgent, particularly in regard of creating innovation technology. Even a qualified diplomat-economist will not be able to choose a module for attracting an interested partner if the matter concerns specific scientific-technical designs, which are very complex nowadays. This also requires special knowledge.

In order for the Ministry of Foreign Affairs to play a coordinatingrole, other departments, particularly the Ministry of Economic Development and the trade missions subordinate to it, must be as transparent as possible. This is easier said than done. Often the work of trade missions is not transparent for the ambassador who, as the President's representative, exercises supreme power over all Russian institutions in the host country. Besides, business, which is under the protection of commercial confidentiality, is not always ready to share information or ask the Ministry of Foreign Affairs for advice. Often the Ministry and embassies are asked for help after the fact, when a particular company finds itself in a difficult legal or even criminal situation.

Not that long ago, a large Russian company bought more than 5% of an enterprise's shares in a European country where such transactions are strictly regulated by the law. A legal incident developed that forced this company to turn to the Ministry of Foreign Affairs for help. If the company had done this in advance, it could have avoided this "headache." There are, finally, countries where the political climate makes it impossible for foreign companies to participate in their economic life without backing from the Russian state structures. For example, in Saudi Arabia, coordinated action between the Ministry of Foreign Affairs and Russian Railroads led to a successful deal: the company received the right to build a railway.

The Russian Ministry of Foreign Affairs continues to render political support to such large projects as building the Nord Stream and South Stream gas pipelines. The Russian embassy in Thailand managed to get anti-dumping fees cancelled on rolled metal products from Russia. Russian metallurgical enterprises have repeatedly turned to the Ministry of Foreign Affairs for help when they encountered discrimination from West and South African countries. After the military coup in Guinea, when financial claims were made against the RUSAL Company and attempts were made to confiscate its assets by litigation, the Russian Ministry of Foreign Affairs and embassy got directly involved in organizing and holding negotiations between the Guinean authorities and company head Oleg Deripaska. Through cooperating with the Russian embassy in Beijing, the Mechel Company increased deliveries of iron ore and other products to the PRC. The Russian embassy in the Republic of South Africa managed to get a local company to participate in modernizing production at ferroalloy plants in Russia with the financial support of a group of South African banks. And the list can go on.

An extensive information base, a kind of data base, must be createdfor this kind of successful interaction, which, if constantly updated, would give Russian business and entrepreneurship the opportunity to make contacts of mutual interest. Today, in addition to the portal of the Ministry of Economic Development, there is a well-known site called, but their information is clearly insufficient. A data bank should be an open arena, an inquiries office of sorts, and the fuller, more diverse and more targeted is the information, the more companies will be drawn into cooperation.

It stands to reason that the Ministry of Foreign Affairs cannot act as a simple understudy. I have heard ambassadors complain that their dispatches on important from the government' point of view projects receive no response. Or more likely than not the response is the same: "Our business is not ready." Others say in confusion: "When I'm in the host country I can't find out any details about the situation in branches of the Russian economy." In order for diplomats to be able to work efficiently, a reliable information infrastructure must be created that will help to lead the embassies and trade missions through the labyrinth of interests of the Russian economy, production, and science and technology.

Many diplomats with long years of experience behind them are entirely capable of giving an expert's opinion of our export-import activity. A recent example: this year, despite the drought, there are plans to export some of our grain. The Ministry of Foreign Affair's economists object that it would be better to sell grain designated for export (that stimulates meat production somewhere in Brazil, which will later be imported back into Russia) in our own country in order to develop domestic meat production.

Of course, the President and the ambassadors discussed all the main vectors of foreign policy at their meeting, including the traditional aspects of political work, with the emphasis being placed on the priority of particular vectors. However, the new task, increasing the role and responsibility of the ambassadors in carrying out modernization, aroused the most vivid discussion. Any way, you don't have to be a diplomat to understand that there is no alternative to modernization. It is a question of how to handle it so that you won't have to admit bitterly some time later, "We wanted the best, but it turned out as always." Viktor Chernomyrdin, who is famous in Russia for this catch phrase, just happened to be sitting in the front row.


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