Dominic Gualtieri has worked at Alfa Bank since May 2000 as head of its Equities Division, responsible for domestic and international sales, research, trading, structured products and the Bank's Internet brokerage, Alfa Direct.

With his help, the bank is aiming to diversify and develop the services it offers to both Russian and international investors.

A key part of Alfa Bank's strategy is to move beyond Russia's twenty largest companies (the so-called "blue chips") in order to work with the thousands of its corporate clients – mid-sized companies – whose development will drive the growth of the Russian economy in the years ahead.

Gualtieri spoke to The Russia Journal about current trends on the Russian investment market.

The Russia Journal: The interest of strategic and financial investors in Russia is growing noticeably. However, as a rule, investment projects are going ahead in the oil and gas, mining, telecommunications, construction and, in recent years, the retail and food industries. In your opinion, why aren't investors putting their money into other areas?

Dominic Gualtieri: You've actually listed a pretty full basket of sectors that make up a modern market economy. But there are some sectors that are not yet covered… the banking sector would be one; tourism is one, high-tech would be another. But I'd have to say that today's investor interest in a broad range of sectors is a very positive sign, in particular the heightened interest that is specifically focused on consumer goods.

I think consumer goods is an important sector because it tracks the growth of household income and consumer demand and reflects the overall health of the economy. If people have more money to spend, consumer goods is one of the sectors that responds strongly.

At the same time, where Russia wants to go in the future is more toward a knowledge-based economy. As soon as we see heightened interest in things like services, technology, aeronautics, even the space sector – areas where the Soviet Union had some real advances in the last century – that will show that Russia is moving away from raw materials and manufacturing to a more knowledge-based economy.

RJ: How is merger and acquisition activity developing on the Russian market?

DG: Mergers and acquisitions has already been one of the great stories over the last four years, since the 1998 crisis.

In pretty well every sector of the Russian economy, there has been considerable consolidation and rationalization, mostly the result of mergers and acquisitions activity. Some people complain about the growth of the large industrial groups and argue that what Russia needs are more small and medium-sized enterprises. To some extent I agree with that, but at the same time there are a number of industries and sectors of the economy where Russia can be globally competitive, and for that you need large companies.

In the aluminum sector, there is the giant Rusal, in metals and mining you have the emergence of some very large companies like Norilsk Nickel, and in oil and gas there are global players like LUKoil and Yukos. Russia has a lot of large companies that have built themselves up over the last three to five years to operate and compete internationally.

RJ: Some of these sectors are more developed than others. What are the requirements to be globally competitive?

DG: Obviously, you need to have a low cost base for your production. The ruble devaluation gave a lot of companies a great competitive advantage because they were exporting for hard currency and producing for rubles.

Now, four years on, improved accounting, transparency and marketing are an integral part of success.

But the most important thing that Russian companies need is good management. That's something where you see improvements every year – both talented expatriates and educated Russian professionals are entering the labor force.

As time goes by, both company managers and the financial community are becoming more experienced. Going through the 1998 crisis was an incredible management lesson for a lot of people who had only known the bull-market days following privatization. It added a lot of discipline to the way managers looked at the market and vice versa. So, in all of those areas, I think there are a lot of improvements in Russian companies that will allow them to be globally competitive.

RJ: What problems are companies facing coming out onto the markets?

DG: Some of them are their own problems – problems of getting the right kind of audit prepared, getting the documentation in place, having a proper valuation, good management with the desire to tap into capital markets with all the demands for transparency and accountability that that entails.

But there are also problems that go beyond the companies themselves and include the problems of global capital markets – you can be the best company in Russia, but trying to do an IPO [initial public offering of shares] when the Dow Jones and the NASDAQ are collapsing is tough. Nobody's going to have any interest in your stock no matter how good the company is. But regardless of those kinds of challenges, I think 2003 is going to be known as the year when a number of Russian companies tapped into both the domestic and international capital markets.

I think actually one of the most positive stories this year, which is going to be even more broadly appreciated next year, is the emergence of capital markets as a source of equity financing for Russian companies. Up until the beginning of this year, until the IPO of Wim-Bill-Dann on the New York Stock Exchange – for which we were co-lead manager, very few Russian companies had looked to market for their capital needs. Now, Russian companies are actively preparing for both primary and secondary issues.

RJ: How would you assess the performance of the Russian companies trading on the NYSE?

DG: Russian companies on the NYSE trade quite well. Obviously, liquidity is always an issue but one that we feel will improve over time. A newly listed company is like a new kid in the classroom – it takes some time for that kid to make friends and for people to understand that kid's appeal.

RJ: What would you say Wim-Bill-Dann's prospects are?

DG: I won't predict how the stock will do but we consider the company to be fundamentally attractive. We have a buy recommendation on Wim-Bill-Dann. We consider it to be an extraordinarily well-run company – very transparent and with a good strategy. As that message is conveyed to investors – those who want to diversify beyond oil and gas, etc. and who are looking at the consumer sector as an area of growth in Russia – which we believe it to be – then we think that Wim-Bill-Dann is going to do very, very well.