Despite Crisis, Wealthy Russians Are Buying Up Coastal Montenegro

November, 2008

The global financial crisis has buffeted the balance sheets of Russia’s legion of billionaires. But suitcases of cash and Russian-owned luxury yachts keep arriving in this idyllic town on the Adriatic, helping Montenegro earn the nickname Moscow-on-the-Sea. Among the biggest investors is the Russian developer Vyentseslav Leibman, a young millionaire who is pressing ahead with investments of $310 million, including plans for a 27-floor modernist hotel, luxury seaside villas, docks for the pleasure boats of the Russian superrich and a water park for their children. The investment might seem daring given the way the economic downturn has hit several of his fellow wealthy Russians. But Mr. Leibman, a Muscovite who is managing partner at Mirax Group, the company owned by the Russian billionaire developer Sergei Polonsky, insists he can barely keep up with demand.

He said more than half of the sprawling condominiums in Mirax’s new complex — which sell for more than $10,400 per square foot and come with outdoor marble Jacuzzis — had been sold to executives of giant Russian companies like Gazprom, Lukoil and VTB. They paid, he said, upfront and in cash. Despite the financial crisis, “the money keeps coming,” said Mr. Leibman, who recently helped bring Madonna to perform in Budva to promote his development. “And hopefully the global financial crisis will help sober up the cost of land here, which is now more expensive than in Monaco.” Thanks in large part to wealthy Russians, Montenegro has received more foreign investment per capita than any other country on the Continent. In recent years, Russian investors have gobbled up land on the Montenegrin coast, a fashionable alternative to the South of France and coastal Turkey. Russians, including the heavily leveraged Russian billionaire Oleg Deripaska, have also made huge investments in the country’s industrial sector.

In neighboring Serbia, Gazprom, the Russian state energy monopoly, recently bought a majority stake in the national energy company, Petroleum Industry of Serbia, for $520 million and agreed to invest another $650 million by 2012. The deal will give Gazprom a dominant position in Serbia’s energy market while transforming Serbia into a gateway for the transportation of Russian gas into western Europe. As governments across the western Balkans have turned toward the United States and Europe — and actively seek European Union and NATO membership — the influx of Russian capital is seen by some in Brussels and Washington as a retaliatory move by Moscow to assert influence in a formerly Communist region with which it has long had close ties. Gen. Blagoje Grahovac, a senior adviser to the speaker of Montenegro’s Parliament, warned in a recent interview with the Serbian newspaper Nedeljni Telegraf that the United States, the European Union and NATO were being “outmaneuvered” in the western Balkans. “Whoever holds the upper hand economically will also do so politically,” he said.

The European Parliament late last year commissioned a study of Russian investment; among its concerns is that a burgeoning property market provides an ideal front for illegal transactions. The European Commission has repeatedly warned of money laundering in Montenegro. But Dmitri S. Peskov, spokesman for Prime Minister Vladimir V. Putin of Russia, dismissed the notion that Russian investment was geopolitically motivated as “utter nonsense.” “When British people 30 years ago were investing in Spanish coastal areas, it would never come to anyone’s mind to speak about enhancing political influence,” Mr. Peskov said. “When tens or hundreds of thousands of British or American people are investing in the Gulf countries, this is not a political pressure. But every time when it comes to Russia or Russians, it is immediately treated as flexing political muscle.” But the Russianization here is unmistakable. Russians can be seen and heard everywhere: on the beaches, in clubs, in upscale restaurants and in a recently opened Russian-language elementary school. Until recently, a billboard at the airport in Podgorica, the capital, greeted visitors in Russian: “Come where they like you!”

Lazar Radenovic, Budva’s young deputy mayor, said Russians started to invest here eight years ago, after the Balkan wars of the 1990s, when real estate prices were severely depressed. Russian investment has since grown to more than $13 billion, he said. In Budva, he noted, the influx had created a new class of millionaires — 500 at last count — who had improved the town’s tax base and development. Mr. Leibman said Russians were attracted to the Balkans by a cultural connection stretching back to the 18th century. Serbia and Montenegro, he noted, share a Slavic Orthodox identity with Russia. “When Russians come here,” he said, “we don’t feel like we have crossed over the border.” Zarko Radulovic, co-owner of Hotel Splendid — luxury penthouse suites, swimming pools and boutiques backed by a Russian investment fund — insisted the threat of economic colonization was exaggerated. “The perception that the Russians have bought everything is wrong,” he said. “Only 1 percent of Montenegro is owned by foreigners.” But the European Parliament report countered that official statistics had minimized the scale of Russian investment because many Russians invested through third countries or by teaming up with Montenegrins.

Mr. Radulovic insisted that most businesspeople support Montenegro’s entry into the European Union, since being outside the bloc hampers business. When he recently decided to invest $12 million for new air conditioning to make the hotel’s kitchen comply with European Union regulations, he waited two days for a visa to travel to Belgium to buy it, an annoyance, he said, that “makes me want to buy Russian technology instead.” Many here argue that Russian investment, paradoxically, will help Westernize Balkan countries by aiding economic development, thereby accelerating readiness to join the European Union and NATO. Branimir Gvozdenovic, minister for economic development and a close ally of Prime Minister Milo Djukanovic, said that Russia was Montenegro’s second-biggest foreign investor after Hungary, and that Russians accounted for 12 percent of tourists last year. “We welcome investments from more than 80 countries, so why not Russia?” he said. Yet the relationship does appear to have a political dimension. Russia’s emergencies minister, Sergei K. Shoigu, has warned that relations between Russia and Montenegro could be damaged if Montenegro pursued NATO membership. Two years ago, when Mr. Putin received Mr. Djukanovic in his residence at Sochi, Mr. Putin praised Montenegro for promoting business with Russia and urged closer ties. In July, Mr. Putin moved to permit visa-free travel between the two countries.

Meanwhile, in neighboring Serbia, where the pro-Western government of President Boris Tadic has been pressing for European Union membership, some critics argue that Russia is using pipeline politics to keep Belgrade in Russia’s sphere of influence. In a recently announced energy deal, Gazprom agreed to make Serbia a transit country for its South Stream pipeline, a $14 billion project that will stretch 560 miles undersea from Russia to Europe. The project — which Gazprom insists will forge ahead despite the global financial crisis — is a direct challenge to Nabucco, a pipeline championed by the United States and the European Union to bring natural gas to Europe via Central Asia, offsetting energy dependence on Russia. Danica Popovic, chief economist at the Center for Liberal-Democratic Studies in Belgrade, an economic research institute, argued that economic relations shifted fundamentally in Russia’s favor after Moscow repeatedly invoked its veto in the United Nations Security Council to prevent it from recognizing Kosovo, which declared independence from Serbia last February.

“By Moscow controlling our energy sector, we can become vassals of Russia just like South Ossetia and Abkhazia in Georgia,” she said, noting that attitudes toward the European Union were hardening in Serbia, even among members of the pro-Western government, who are increasingly frustrated with the union’s conditions for membership. Milutin Nikolic, director of Citadel, a Belgrade-based mergers and acquisitions firm that has advised on the biggest Russian deals in Serbia, said he did not believe the recent influx of Russian investments reflected a coordinated Kremlin strategy. If Moscow had influence, Mr. Nikolic contended, it was because Serbs were still smarting over recent history, including the NATO bombing of Serbia in 1999 and the West’s backing of Kosovo’s independence. “Russia doesn’t need to economically colonize Serbia,” he said, “because Moscow already has serious political influence here.”


In other news:

Muammar Gaddafi Visits Moscow

Libyan leader Col. Muammar Gaddafi arrives today in Moscow for an official visit. He faces difficult a talk with Russian President Dmitry Medvedev. Libya did not fulfill the agreement reached in April with Prime Minster Vladimir Putin, even though Russia wrote off $4.5 billion in Libyan debt. But Kommersant has learned that Libya has a pleasant surprise for Russia as well. It is willing to host a Russian naval base. The Libyan leader’s visit is fraught with unsettled issues, not the least of which is where to erect the Bedouin tent that he travels with and spends most of his time in. Gaddafi will spend three days in Russia. The last time he was here was 23 years ago. Like his previous visit, this trip will focus to a great extent on ordering Russian arms. Libya ran up a $5.4-billion debt for arms at one time. That debt was a stumbling block in bilateral relations after the collapse of the Soviet Union. A breakthrough in relations came with Putin’s visit to Tripoli earlier this year, when he cancelled much of the Libyan debt in exchange for promises to conclude contracts with Russian heavy industry and construction companies and to buy a shipment of arms. They value of the contracts was to reach $4.5 billion, the same amount that was written off Libya’s debt. Libya has taken no action to fulfill its side of the agreement, however. Russian Railways, which has a contract worth $3.2 billion for the construction of a rail line from Sirt to Benghazi, has received only a small advance payment from Libya. Libya has also disappointed Russian hopes for the creation of a “gas OPEC.” Libya and Qatar were Russia’s original choice for partners in the undertaking, but Tripoli refused to cooperate. Qatar was unwilling to form an organization with only two members. Iran stepped in to save the plan at the last moment, even though it does not export natural gas. Gaddafi has suggested that allowing Libyan gas companies to operate in Russia would improve bilateral relations. That idea has not created enthusiasm in Russia.


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Dear reader,

Arevordi will be taking a sabbatical to tend to personal matters. New blog commentaries will henceforth be posted on an irregular basis. The comments board however will continue to be moderated on a regular basis.

The last 20 years or so has also helped me see Russia as the last front against scourges of Westernization, Globalism, American expansionism, Zionism, Islamic extremism and pan-Turkism. I have also come to see Russia as the last hope humanity has for the preservation of classical western civilization, Apostolic Christianity and the traditional nation-state. This realization compelled me to create this blog in 2010. Immediately, this blog became one of the very few voices in the vastness of cyberia that dared to preach about the dangers of Globalism and the Anglo-American-Jewish alliance, and the only voice preaching the strategic importance of Armenia remaining within Russia's orbit. From about 2010 to 2015 I did monthly, at times weekly, commentaries about Russian-Armenian relations and Eurasian geopolitics in general. It was very difficult as I had no assistance in this endeavor. The time I put into this blog therefore came at the expense of work and family. But a powerful feeling inside me urged me to keep going; and I did.

When Armenia finally joined the EEU and integrated its armed forces into Russia's military structures a couple of years ago, I finally felt a deep sense of satisfaction and relaxation, as if a very heavy burden was lifted off my shoulders. I finally felt that my personal mission was accomplished. I therefore felt I could take a step back, as I really needed the rest. Simply put: I have lived to see the institutionalization of Russian-Armenian alliance. Also, I feel more confident now that Armenians are collectively recognizing the strategic importance of Armenia's ties with Russia. Moreover, I feel satisfied knowing that, at least on a subatomic level, I had a hand in the outcome. As a result, I feel a strong sense of mission accomplished. I therefore no longer have the urge to continue as in the past. In other words, the motivational force that had propelled me in previous years has been gradually dissipating because I feel that this blog has lived to see the realization of its stated goal. Going forward, I do not want to write merely for the sake of writing. Also, I do not want to say something if I have nothing important to say. I feel like I have said everything I needed to say. Henceforth, I will post seasonal commentaries about topics I find important. I will however continue moderating the blog's comments section on a regular basis; ultimately because I'm interested in what my readers have to say and also because it's through readers here that I am at times made aware of interesting developments.

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