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Economic News in Review Dec, Jan
21 January 2008
Economic News in Review Dec, Jan

Economic News in Review
for Dec, 2007 and Jan, 2008

The following resource is meant to quickly introduce the reader to some of Russia's major business news for the month. Please note that we strive to focus on more specific, less-well-covered issues. This news review is developed in conjunction with The School of Russian and Asian Studies.

Please not that this month's edition is intended as as a supplement to the accompanying USRCCNE newsletter. Please see this newsletter for more great information and predictions for the coming year!



State Corporations: Going for the Flow
The state corporations, which are likely to become for those close to Putin what loans-for-shares auctions were for the Yeltsin crowd, can receive federal budget funds, if the funds they have already been given are insufficient.

Healthcare, Housing, Agrarian and Industrial Complex are Priorities
Healthcare, housing construction and development of agrarian and industrial complex will be the country’s priorities in 2008, said Russia’s First Deputy Prime Minister Dmitry Medvedev.

Annual review upbeat as Russia finishes the year strong
Businesses believe that 2007 will not mark the end of good times in Russia, as many of their newest projects are designed to last for five or more years. Russian officials want to believe this too.

Privatization Plan For 2006 Not Implemented In Full
The forecast plan called for the privatization of 1,412 unitary state enterprises, of which only 521, or 37% of the plan, were granted a decision in regards to the terms of privatization.

Govt to Launch Pension Reform This Year
The current pension system is “extremely ineffectual” and the government intends to set to reforming it already this year, said Russia’s First Deputy Prime Minister Dmitry Medvedev. 
Russia Scores 73rd in Budget Spending
Russia scores the 73rd, somewhere between Mauritius and the Republic of South Africa in the ranking of countries that Finance magazine compiled in view of per capita spending of budget.

New Civil Code Disabled Russia’s Patent Authority
Section 4 of the Civil Code that took effect January 1, 2008 abrogated all regulations governing its activities. 
Stab. Fund Worth 4 Trillion Rubles
As of January 1, the Russian stabilization fund contained 3,849,110,000,000 rubles, or $156.81 billion, according to the Russian Finance Ministry. Part of that sum is kept in foreign currency, specifically, $66.85 billion, ˆ50.95 billion and £7.7 billion. In December, 183.09 billion rubles in budget surplus from November was placed in the fund. 
Russia’s Gold, Foreign Exchange Reserves Up by $11.5bn in 3 Wks
Russia’s gold, foreign exchange reserves stepped up by $11.5 billion (2.5 percent) in the first three weeks to another record of $477.7 billion, the Central Bank of Russia reported. 

Thousands of Firms in Russia to Be Re-Named
Thousands of Russia’s companies will have to change their names after the fourth section of the RF Civil Code has taken effect this year, Vedomosti reported. 


Financial Markets & Investment 

Commodities exchanges for petroleum products, crude oil and fish will be opened in Russia.

Russian growth is stalked by inflation demons
Markets ignore the fact that Russia’s inflation demons are rearing their ugly heads and showing every sign of getting worse.

Bank IPOs: will the boom continue?
This idyllic picture is slightly marred by the fact that VTB is now trading below its flotation price. But it would be wrong to conclude that its IPO has failed.

Investment in Russia exceeds forecast by 20% in 2007
Nabiullina also said that it would be necessary to develop an effective system to support exports and announced that her department was currently drafting a plan for Russian economic development up to 2020.

Foreign direct investment in Russia to rise to $51 bln in 2010
Kudrin, who is attending a G20 meeting of central bankers and finance ministers in South Africa, said already this year foreign direct investment in Russia will total about 2.7% of Russia GDP, which corresponds to China's FDI level.

Russia will keep oil wealth in bonds in 2008
Russia will keep its $151 billion Oil and Gas Fund entirely in sovereign bonds next year and will not invest a $19 billion sub-fund in corporate debt or stock, a top Finance Ministry official told Reuters on Tuesday.

State Corporations Stimulate Private Investment In Russian Economy
"Where private business refuses to invest and does so for various reasons."
Andrew Langley, No More Russian Roulette
Stability and growth make for a market set to climb higher. 

Citigroup Offers Rosneft for $1bn 
Citigroup is selling the stake in Rosneft worth $1 billion, offering as many as 110 million stocks, $9.1 each, RBC Daily reported.

Two Cases against Raiffeisen Bank
The antimonopoly watchdog says that the bank illegally collaborated with... insurance companies in mortgage crediting and with eight insurance companies... in automobile crediting.

Russian Cos. among Top M&A Advisors
The Dealogic analytical agency has issued its finding on mergers and acquisitions on the Russian market in 2007. For the first time, two Russian companies, Metropol and KIT Finance, are in the Top 5 most active organizers of M&A transactions. That was thanks to their involvement in the reorganization of RAO UES of Russia.

Reserve Fund Can Go to Foreign Banks
Under the new rules, funds received by Russia from oil selling at high prices on the world market can be deposited in foreign banks ad credit organizations, as well as being placed in foreign currency and securities. Foreign deposits are not to exceed 30 percent of the Fund's total.

Western Markets Drag Russia's Down
The wave of sales on markets in the United States, Europe and Asia undermined the quotes on almost all Russian companies.

SEC Sues Russian Citizen for Fraud
The U.S. Securities and Exchange Commission, or SEC, has filed a complaint in the United States District Court for the Southern District of New York against Russia’s citizen Anatoly Russ, blaming on him the fraudulent account scheme to purchase and sell options contracts.



Moscow, St Petersburg top list of European retailer destinations
Kiev ties for 10th.

$7 Billion in Telephones Sold Last Year
Cellular telephone sales in Russia increased by 16 percent last year from $6 billion to $6.9 billion, according to the MForum Analytics market research firm. About 13 million telephones were sold in the year. The average price of a cellular phone increased by 14 percent last year to $220.  



Seven new Russian techno parks to be launched
The first objects will start operating in Russian pilot techno parks in 2008.

Indian IT Co. Enters CIS Market
India's largest software developer and IT services provider Tata Consultancy Services has announced that it will open an office in Moscow in March to sell its goods and services in the countries of the former USSR.

Oligarch in the Blogosphere
The Russian entrepreneur Alexander Mamut has bought the US blogging website LiveJournal. Its many Russian users are worried that the Kremlin loyalist will use his ownership to censor the blog.

Odnoklassniki: Russians Connect to Their Student Days
With 7 million registered users - some of whom are driving their bosses to ban the website in the office - Odnoklassniki.ru is all the rage.

New Year’s Online Shopping: Russians lag behind
The Americans have managed to set another record regarding online purchasing on the eve of Christmas and New Year.

Software Won't Be VAT Exempt
The exemption of software from the value-added tax instituted on January 1 will not extend to retail sales, according to a letter written by Deputy Finance Minister Sergey Shatalov to the Information and Computer Technologies Industry Association. The Finance Ministry has been able to counteract that tax break because no ...

The economy needs restructuring to high tech
There have been no deliberate attempts to develop high-tech industries in Russia. This is not surprising, since an economic model that depends on natural resources is all too comfortable.


More Legal, Tax, and Accounting News

Those interested in the more nitty-gritty issues of Russian business should check out The Alinga Market Update, published by USRCCNE member Alinga Consulting Group.


Advertising, Marketing, and Style

Muscovites' love of Chinese astrology clears pet shops of rats
The auspicious Chinese Year of the Rat, which starts next month, has led Moscow’s pet shops to sell out of the rodents, Interfax news agency reported today, citing a pet shop owner.

Medvedev brands to help promote products
The moment Vladimir Putin named Dmitry Medvedev his chosen successor, the Federal Service for Intellectual Property, Patents and Trademarks (Rospatent) received numerous bids to register "presidential" brands

Govt Bans Tobacco Advertizing in Russia
Russia’s government has approved the federal bill on the RF joining the World Health Organization's Framework Convention on Tobacco Control. The respective decision was taken at the cabinet’s meeting.

Versace’s Russian Revolution
Donatella Versace returns to Moscow after a decade to find that Russian women - like Versace designs - have swapped bling for sophistication.

Russian Revolution
Over the past few seasons, fashion has mined Russia much like Yves Saint Laurent did in the seventies for fur trims, Mongolian hats and folkloric prints.


Real Estate

Year of Consolidation
Looking back, we can remember a lot of significant deals and contracts. Looking forward sometimes makes us more pessimistic.

Gazprom Tower Threatens to Deface St. Petersburg
“It is out of the question that the current proposal be built, because it is against St. Petersburg's own regulations.''

World’s Biggest Building Coming to Moscow: Crystal Island
Sir Norman Foster’s mountainous 27 million square feet spiraling “city within a building” will cost $4 billion and it is scheduled to be built within next 5 years.

Japan to Construct Artificial Islands Near Sochi
The firms of Japan will take part in creating artificial islands close to Sochi coastline when preparing for 2014 Olympics, said Aslan Atabiev, who chairs the board of Russia’s-Japan’s Business Council.

Medvedev Not to Yield a Square Foot of Land
Indeed, the Regional Development Ministry and Agriculture Ministry are in clear contradiction when it comes to construction and agrarian projects. You may either build or cultivate in the land that appears in clear shortage in today’s Russia.


Automotive and Aeronautics

Peugeot Citroen to Construct Carmaker in Kaluga
PSA Peugeot Citroen has chosen Kaluga for constructing its carmaker in Russia.

Civil Projects Pulled Out Of United Aircraft Construction Corp
Alexander Rubtsov, today’s general director at Ilyushin Finance Co., will head the subsidiary that is to share responsibility with the corporation and enterprises for aircraft contracts that are often violated.

President Lets Italians Buy into Sukhoi
Russian President Vladimir Putin has given Alenia Aeronautica, part of the Finmeccanica group, permission to buy 25 percent plus one share in ZAO Sukhoi Civil Aircraft.

Toyota Tests Russian iQ
Toyota plans to begin assembly of a new budget model, the iQ, at its St. Petersburg plant.

Australia Chooses between Russian and American Jets
The Australian Defense Ministry is looking for replacements for its outdated fighter jets.

Hyundai is Russia's third-biggest car dealer
Foreign car sales soared 61 percent in Russia in 2007 to reach 1.65 million units. Korea’s Hyundai reclaimed its place in the top 3 in December bouncing back from a slump at the start of the year. French Citroen was the only one among the top 30 to see its sales declining. Citroen is also the only one of them that does not control ...

New Troop Carriers for Russian Army
The Russian infantry will receive five armored troop carriers in 2008, chief commander of the infantry Igor Konashenkov announced. In addition, the Army will receive two T-90 tanks, an infantry combat vehicles for one battalion, 4000 automobiles and 500 missile and artillery units.

Arms exports hit an all-time high
Russia has exported record-high $7 billion arms in 2007, First Deputy Prime Minister Sergey Ivanov said on Monday. Still, it came short of $1 billion as a ship construction contract with Algeria was frozen over tensions in the bilateral relations. Russian arms sales have doubled over the past seven years when arms exports have been overseen by Rosoboronexport’s former CEO and Rostekhnologia’s new director general Sergey Chemezov.



Russian Oil Takes On A Refined Look
Russian oil producer West Siberian has agreed to buy refiner Alliance Oil, as part of a Kremlin push to move Russia away from being a natural resources exporter, to a supplier of refined products.

Russian oil output rises in 2007, exports stagnate
Russian oil output edged up in December to bring the year-on-year growth to 2.3 percent, but pipeline exports from the world's No.2 oil supplier edged down in 2007 as oil firms sent more crude for domestic refining.

Record oil profits to be taxed stronger
The Russian government intends to raise industry taxes, enriching state coffers and putting pressure on Russian producers.

Once sidelined, Siberia's Tomsk enjoys oil boom
About 1,900 miles east of Moscow and sitting on a frozen swamp the size of France, the city of Tomsk has struggled economically since the Trans-Siberian Railway passed it by at the end of the 19th Century.

Gazprom Takes On Exxon
"There is no way that Gazprom is going to sit idly by and watch Exxon export Russian gas to China and compete with Gazprom's own plans to export its gas to China."

Pragmatism to seal Russian gas price deals
Moscow is particularly wary of a damaging rift with Ukraine, under newly-appointed Prime Minister Yulia Tymoshenko, ahead of Russian presidential elections in March and analysts predict any last-minute quibbling should be relatively minor.

In Russian energy plan, coal is a question mark
The plan, still under intense discussion, entails using coal increasingly for domestic consumption as well as exports so as to relieve the pressure on the demand for natural gas both inside Russia and outside it.

Electricity Powers Inflation
Rising gas prices have pushed non-controlled electricity prices up 50-70 percent, and they will stay at that level for the rest of the year.

RAO UES of Russia electricity holding to be reorganized
RAO ceases to exist on July 1 of this year. In its place, there will be 14 regional generating companies and six wholesale generating companies.

Resurgent Russia Sees Oil as a Weapon
As part of his series on the politics of oil, VOA's Brian Padden reports on the dilemma over Russia's oil wealth.


Other Markets

5000 Russians Spend Xmas in Holy Land
Five thousand pilgrims, three times more than last year, will spend Orthodox Christmas, which falls on January 7, in Israel, according to Yury Minulin, general director of the Radonezh tour agency, which specializes religious tours within Russia and abroad. “That figure is based on an analysis of direct flights from Moscow to Tel Aviv by Russian Transaero and Siberian (S7) airlines and Israeli El Al, Minulin told the website ...

Alcohol Production Returns to 2005 Level
Production of vodka and other distilled liquors has recovered 2006's crisis, climbing 9.9 percent last year to reach 131.5 million decaliters.

IMS Health Buys RMBC Pharm Consultant
IMS Health, the world's second largest research company, after Nielsen, has bought RMBC, the top company on the Russian pharmaceutical consulting market.  

Azov-City Gambling Zone to Emerge in Southern Russia
Russia’s Prime Minister Viktor Zubkov inked a ruling to set up a gambling zone, Azov-City, in the Scherbinovsky district of Krasnodar area and the Azov district of Rostov region, the RF government’s press service reported.


The Noga Controversy

Russia’s Finance Ministry Buys Noga Debts
Their amount might grow up to $1.26 billion on the way from Paris to Geneva Kommersant keeps discovering the details of the arrest of Russian companies’ accounts in Paris at the suit of Swiss company Noga. Russia’s Ministry of Finance said Tuesday that it had bought out rights of claim on the Russian Federation’s debt to Noga in December 2007.

Noga Takes the Final Step
The Noga case, which those in Russia had thought was closed for good, has made itself known again. 
CBR Accounts Frozen in France, Noga Lawyer Said 
Accounts of the Central Bank of Russia (CBR) and of a number of Russia’s companies have been frozen in France under the lawsuit of Swiss Noga, Ogonek magazine reported January 14 referring to the exclusive interview of the company’s lawyer Antoine Korkmaz. The information hasn’t been confirmed by other sources yet.

VTB Confirmed Frozen Accounts under Noga’s Suit 
VTB has confirmed that some accounts of Russia’s government’s bodies and companies with VTB Bank France were frozen under the suit of Noga to Russia, Interfax reported.

CBR Accounts Frozen in France, Noga Lawyer Said
Accounts of the Central Bank of Russia (CBR) and of a number of Russia’s companies have been frozen in France under the lawsuit of Swiss Noga, Ogonek magazine reported January 14 referring to the exclusive interview of the company’s lawyer Antoine Korkmaz. The information hasn’t been confirmed by other sources yet.


 Economic Stats, Indicators

Prices to Be Beyond Control Next Year
The prices will climb more than 10 percent in 2008, analysts of Interfax.ru forecast, explaining that the time-delay bomb has been put this year and the surge in fuel prices and freezing prices for certain food products are the explosives. Wholesalers changed the price tags in November, signaling the price increase will reach stores early in the year.

Russia's Gold, Foreign Exchange Reserves Grew by $7.8bn
The country’s gold and foreign exchange reserves in the Central Bank of Russia grew by $7.8 billion (1.7 percent) to $474.0 billion as of December 28, 2008. 

Inflation Starts the Year Strong
The Ministry of Economic Development and Trade is predicting that inflation for January will reach 1.8 percent. Although that figure is higher than for January 2007 (by 0.1 percent), economists say that the annual target of 8 percent need not be scuttled yet. A ministry spokesman pointed out that a January spike in inflation is normal, since many fees rise at the new year. January inflation in 2006 was 2.4 percent.

Russia may become world's fifth largest economy by 2020
"If we maintain GDP growth at 6-7% per year, we'll join the group of the world's five largest economies. We are setting ourselves this goal," Elvira Nabiullina said.

Russia First Outpaced China as Emerging Economy
Russia has climbed from the 140th position to the 66th one over ten years. It has outpaced China in the latest rating and emerged as a new leader of BRIC (Brazil, Russia, India and China).  

Russian Economy Weighs in at No. 8
Russia accounts for 3.09 percent of the world GDP. Italy followed Russia in the ranking with 2.96 percent.

Russia's GDP Up 7.7 Percent in 11 Months 
The growth in GDP was still rather high in November, though the pace slowed down a bit vs. October. Cleared of seasonal and calendar factors, the monthly gains in GDP averaged 0.6 percent point from January through November.

Corporations Able to Influence Govt, Most Russians Believe
The giant corporations are more powerful than national governments, said over 60 percent of respondents in Russia, Vedomosti reported with reference to the survey of Canadian Ipsos-Reid that covered 22 states of the world.

A rising middle class sees its confidence restored
Stability under Mr Putin has nurtured a middle class with cash to spend on holidays abroad, restaurants and foreign-made cars, and who have a great deal to lose in case of another crisis.


General, Other

A troika of oil, middle-classes and stability will boost Russia
With the Russian economy expected to grow at more than 7pc in 2008, Russia again looks set to generate the outstanding returns that it produced in 2005 and 2006.

When oligarch friends fall out...Norilsk divorce causes shock waves
Dubbed the divorce of the century by the Moscow press, the separation is also a litmus test for Russian business… he question is whether the country’s billionaires are mature enough to divide their fortunes as successfully as they amassed them.

Business Reputation of Russia’s Arms Exporter Costs 80 Million Rubles
Russia’s state arms exporter Rosoboronexport has evaluated at 80 million rubles the damage done to its business reputation by the Kommersant interview of businessman Oleg Shvartsman.

Former Russian Spies Are Now Prominent in Business
Highly educated and well connected, former Federal Security Service officers include among their number Russia’s president, Vladimir V. Putin.

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