Russian financial winter fails to slow march of visitors

Two "new Russians" - the class of instant entrepreneurs who replaced the communists after the end of the Soviet Union in 1991 - are having coffee. One is admiring the other's new tie. "Yes, it's Hermes. Cost $200." "You fool!" replies his friend. "There's a shop just round the corner where you could have got it for $500." Jokes like this abound about the new flash, bling-laden generation of Russians who rose to prominence after the Gorbachev era. They were extravagant, extrovert and extreme in their embrace of capitalist values. And they liked nothing better then to show off their wealth in the beach hotels and resorts of Dubai.

In the depths of the Russian winter they would hop on the Emirates or Aeroflot flight from Moscow and a few hours later would be soaking up the Gulf sunshine. At the height of the boom, some of the big beach hotels appeared to be occupied almost entirely by Russian visitors, with menus in Russian and hotel staff badged up to show they could speak the language. The strange thing is, nothing much seems to have changed with the global financial crisis. While impoverished Brits are staying at home in downmarket holiday resorts like Butlins, and the Americans have rediscovered Florida, the Russians are still coming - to Dubai in particular.

Emirates Airline has been flying to Moscow since 2003, but business was so brisk recently - "exceptionally successful" says the airline - that a second daily flight was added to the schedule last month. The airline says it is one of its best-performing services, and getting better. Aeroflot also runs two daily flights to Dubai, which are also running at nearly 100 per cent full. That makes around 2,500 passengers per day making the trip. The Russians just cannot get enough of Dubai, it seems.

Over at Jumeirah, the story is the same. Dubai's premier hotels and leisure group is filling its big beachside facilities with guests from Russia, and they are not holding back on the spending. This weekend - Easter in the Russian Orthodox calendar - is especially busy. It seems the Russians have pushed out the British, who are traditionally the big spenders over the period of school holidays at home.

A manager at one of the big beach properties told me last week: "The Russians do not seem to be bothered by the downturn at all. We've seen guests from Russia coming to Dubai in greater numbers than ever before, and they are still spending lots of money in the hotels. We've hired extra Russian-speaking staff to make them feel more welcome." That is surprising. Russia, like the rest of the world, is in the grip of a financial crisis of great severity. The economy contracted by eight per cent in the month of January alone - among the worst falls recorded by any of the G20 countries. The rouble lost 33 per cent of its value last year against the dollar (and the dollar-pegged dirham). The financial system has frozen as investors looked to get their money out of Russia, thereby exacerbating the economic crisis. The Moscow stock market collapsed, and was intermittently closed by the authorities. Industrial investment all but dried up.

Add to that the fall in oil prices since last summer. Recent Russian prosperity was founded on the country's vast oil and other mineral reserves, and the boom in commodity prices put many (then strong) roubles in people's pockets. Falling crude prices had a direct impact on living standards. That has had an effect on the real Russian economy, as unemployment has grown. Unheard of in Soviet times, joblessness is now one of the hazards of capitalist life for many Russians. Outside Moscow, many industrial towns are closing obsolete plants, leading to virtually 100 per cent unemployment overnight.

The telling phrase is "outside Moscow". Since the fall of communism, the Russian capital, and to a certain degree the other great conurbation of Saint Petersburg, has functioned almost as a separate economy. The wealth created by the flawed privatisation programme, which led to the rise of the much-abused "oligarchy", caused a huge influx of real capital into Moscow, and the multiplier effect created a newly enriched class, the "new Russians" of above.

To find out why these people are still happily spending - and coming to Dubai - while the rest of the world is shrouded in austerity, I spoke last week to a Russian banker, himself a Muscovite, living in Dubai. He was wary of talking at all to a journalist, after the recent assassination in the emirate of a Chechen exile made many Russians wary of adopting a high profile, and agreed to do so only on condition of anonymity. But what he said helped explain the resilience of Russian consumers, and their liking for the UAE.

"The world underestimated just how much wealth was created in Russia in the 1990s. They focused on the oligarchs, but there were hundreds of thousands of others who made fortunes in the privatisations. "The Russians have always been suspicious of banks - maybe it's a Soviet legacy - and they were badly stung in the crisis of 1998 [when Russia defaulted on its international debt and many of the country's banks collapsed]. So they kept their cash liquid, preferably in dollars. That is what we are seeing coming into Dubai - the surplus cash accumulated over the past decade.

"Dubai is welcoming to them, and is glad to take their money for investment now. A lot of these 'tourists' will take the chance to buy property in Dubai while they're on holiday, and open a UAE bank account. It's safer here than in Russia." So that's it in a nutshell. The "new Russians" are richer even than we thought before, and there are also more wealthy Russians than we imagined. They like Dubai for a variety of reasons - glamour, sunshine, investment opportunities and security of the financial infrastructure - and will continue to come even in the face of a global economic crisis.

The British, meanwhile, will be in Butlins this summer. [e-mail]