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Economic News in Review, Feb 2008
27 January 2008
Economic News in Review, Feb 2008

Economic News in Review
for February, 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!



Kozak's New Macroregions
These regions would be similar to the seven current federal districts but would focus exclusively on economic issues.

Spec. Ec. Zones Ease Oil Dependency
Approximately 1 billion rubles in private investment have gone into the Lipetsk zones and heavy industry, the food industry and pharmaceuticals.

Business wants better treatment from government
Fifty five percent of Russian businessmen believe that the authorities view the business community mainly as a ‘tight purse.

The "Nature and Structure" of Russian Corruption
Perhaps most interestingly, the INOP-CESSI study also produced a "price list" of bribes.

Ruthless Mitvol Willing to Step Down
People in Natural Resources Ministry said they knew nothing about the resignation application of Mitvol.

Too Many Agencies Vested With Environmental Control
Powers of environmental control in Russia are divided among too many agencies, First Deputy Prime Minister Dmitry Medvedev said, expressing hope this practice would end "very soon."

Russian govt fails to agree anti-inflation plan
Russia's government failed to agree on urgent anti-inflationary measures at a meeting on Thursday during which the Finance Ministry rejected radical steps such as caps on foreign borrowings.

Russia sets up anti-inflation body as Jan prices soar
The move comes as consumer prices jumped steeply in the first three weeks of January, putting new pressure on the government and the central bank to let the rouble appreciate - one of the few tools they have to fight against inflation.

Amid Vows to Limit State Interference, the State's Stake in Business Grows
The market value of the state’s shareholding portfolio hit $469 billion in 2007, equaling 40% of the capitalization of Russia’s stock market.

Tax Service Given Power over Gaming
The government has granted the Federal Tax Service the authority to inspect gambling establishments for conformity with recent stricter legislation covering them.


Statistics and Numbers

Moscow Doesn't Understand The Need for Accurate Statistics
It both fails to support the collection of good data and sanctions the falsification of even the most fundamental sources like the census.

Russian Consumption: Beer, Meat, Cars
The Ministry of Economic Development and Trade has issued its economic findings for 2007.

Russia's Top Trading Partners: Germany, Neatherlands, China
According to customs statistics released yesterday, Russia's foreign trade turnover for 2007 was $552.2 billion, up 25.8 percent from 2006.

Industry Ended Year in the Black
Russian industry had a good year that just ended. In December, industrial production grew by an unexpected 6.5 percent, compared to 4.7 percent in November, for a year's total of 6.3 percent.

Producers' Prices Grow Twice as Fast as Inflation
The producers’ prices index went up 25 percent in 2007, the Russian Statistics Agency said Wednesday. Industrial prices are growing twice as fast as consumer prices which added almost 12 percent last year.

Putin's aide says VAT might be cut to 12-13 per cent
Speaking about debureaucratization of the country, Dvorkovich told journalists: "The measures are clear; I think they will be adopted in the near future."

End in Sight for Ruble Strengthening
The real effective rate of the ruble has risen by about 1.5 percent since the beginning of the year.


Investment, Finance, and Banking

More U.S. private investors turn to Russia
And if you listened to the Fidelity speaker, he spoke in terms of his own investments being probably 60-70% outside his country, and within that percent Russia, Brazil, China and India played a very large percentage.

Venture Capital in Russia
Russia strikes me as one of the few genuine and relatively untapped opportunities available to investors.

Russia Clears Way for Carbon Profits
Legal doubts have paralyzed such sales of carbon offsets from Russia, which has the potential to account for about a tenth of total emissions cuts under carbon trading through 2012, estimated at roughly the annual emissions of Australia.

Russia Is Most Attractive Emerging Economy for Investors
Foreign investors think the stock indexes of Russia most attractive of all indexes of emerging economies, showed the survey that Merrill Lynch traditionally holds amid managers of the funds, Vedomosti reported.

Creditors Will Get Record Payments
In the first quarter of 2008, Russian banks and companies will pay foreign creditors $35 billion, of which $31.2 billion will go against principle, and $4.7 billion will be interest.

2008 seen as year that big private equity hits Russia
US private equity firm TPG is currently the only major fund in Moscow, having set up shop a year ago. But several other major houses such as Blackstone and Permira are rumoured to be scouting in Russia for investment opportunities.

IPOS. Russia Has a Tough Sell
Russian companies are hoping to attract record funds through global initial public offerings (IPO) this year. But that doesn't mean investors should oblige all comers.

The Pot Of Gold At The End Of The Stabilization Fund
To be sure, pressure to spend the fund has been building from the start. The Communists and some regional leaders… spoke out in favor of boosting pensions or social benefits. Moscow Mayor Yury Luzhkov in December 2005 criticized the policy of "accumulation for its own sake."

Global Banks to Make a Move on MICEX and RTS
UBS Securities is preparing to offer stocks of its investment funds to the Russian market. However, Russian banks do not view foreigners as strong rivals. They believe securities of foreign investment funds are going to be primarily used to diversify portfolios of Russia investors.

Russians' Incomes Follow Oil Price Hikes, Savings Stay As They Are
People's savings show no growth. Moreover, an overwhelming majority of Russians have none. The reason is two-fold - high inflation and the man in the street's distrust towards the Russian banking system.

Russians reluctant to save
The percentage of savers is shrinking, an opinion poll shows.

Russia Creates a $32 Billion Sovereign Wealth Fund
Officials here are already moving to address possible concerns from regulators in the United States and Europe about a government entity investing on the stock exchanges with such large resources.


Global Financial "Crisis"

World economic crisis may affect Russia's export majors
The current turmoil in the global financial markets may impair development opportunities for Russia's major exporters of raw materials, the president of the Russian Union of Industrialists and Entrepreneurs said on Thursday.

Russian Bankers Cautiously Optimistic
Association of Russian Banks President Garegin Tosunyan, noting a healthy reaction in Russia to recent international circumstances, stated that this tendency should limit the negative impact on the national financial system.

Russia to join IMF program to deal with global market crisis
"We should only respond to the stability of our own economy," Kudrin said.

Finance Ministry finds an "investment haven"
Judging from everything, the Finance Ministry regards it as unthinkable that a world crisis could badly hit Russia… This means that experts in his ministry believe that raw materials prices will remain high, and the Stabilization Fund will continue to grow.

Russia, Developing Asia "Outside" Subprime Problems
"Both Russia and developing Asia are outside these problems related to rate cuts in the U.S.," Kudrin told reporters at a briefing at the Russian embassy in Tokyo today. "Our banks had almost no subprime loans."

Effects Of Global Financial Crisis To Hit Russian Banks Later In 2008
German Gref predicted on Thursday that the majority of Russian banks would start feeling the effects of the current global financial crisis in the second quarter of 2008.


Internet and Software

Analysts Forecast Boom for Runet
Russia will have 40 million Internet users by late 2008, signaled the survey of eMarketer. Should it happen, the country will emerge as Europe’s second leader, yielding only to Germany in this indicator.

Microsoft to Launch Russian PC Rental program
Microsoft today launched a technology to enable the delivery of PC rental schemes in emerging markets modelled on mobile phone pay-as-you-go packages.

HP Software: 2007 Russia Business Review
The total business growth of HP Software in 2007 exceeded the growth of the Russian software market by almost four times.

Russian Internet Advertisers Ranked
The MindShare Interaction agency has calculated that $369 million was spent on advertising on the Internet in Russia in 2007, representing 97-percent growth. Automakers and cellular providers led the way.

Russia becomes spam superpower
The rise of Russia into second place, with no sign of volumes slowing, is bound to add to the country’s bad, if sometimes unfair, image for being a malware-sending hotspot.

Yandex Joins Search Engine Top 10
According to ComScore, Yandex received 566 million hits in December of last year, accounting for 0.9 percent of the world total of 66,221,000,000

Most Popular Sites with Russians Listed
The Polish market research company Gemius has published the results of its measurements of the Russian Internet audience. It is the first study to look at both Russian and international websites, through "user-centric" programs installed in users' computers. This is in contrast with "site-centric" research done by TNS Gallup Media.

Village School Director Backs Linux
Alexander Ponosov, director of the school in the village of Sepych, Perm Territory, who has found guilty of installing pirated Windows software is now engaged in popularizing the free Linux operating system.

Counters for Russia’s Internet
"You can find anything in today’s Internet – kid pornography, sites of terrorists, calls for extremism, calumny. This information flow should be regulated in the legal field."

Yandex Launched Investors Search
Russia’s biggest Internet holding Yandex is willing to make IPO on the U.S. NASDAQ this fall.


Other Technology News

Russia Remains on Piracy Watch List
Russia has been again added to the annual list of the nations with the highest piracy, the Priority Watch List, compiled by the International Property Alliance (IIPA).

Golden VimpelCom
Rostelecom announced yesterday its readiness to sell 11 percent in Golden Telecom (GT) to VimpelCom.

Rosnanotekh Creates Interest
The corporation, which was allotted 132 billion rubles in December of last year, will receive income from placing its free funds in financial instruments, and it will begin building an office only in 2009.

Russian Medicines Triumphant
The chemical technology and bioengineering department of the Russian Ministry of Industry and Energy has begun developing a new development strategy for the Russian pharmaceuticals industry that will protect it from "unscrupulous Western competitors."

Student fined 1,100 euro for DoS attack on key sites in Estonia
Galushkevich, a native Estonian reportedly of Russian ethnic origin, was said to be angry over his government's controversial plans to move a World War II-era memorial.

Russia has only 13 functional GLONASS satellites and those do not provide stable positioning anywhere.

Moscow State buys Russia's first supercomputer
This is the first time the export of such advanced technology has been allowed to the former Soviet Union.


Demographics and Labor

Monthly Salary in Russia Averages $550 in 2007
Personal incomes in Russia went up 10 percent in real terms, the national Statistics Agency said Tuesday reporting the first economic results of 2007. Average monthly salary went up 27 percent last year to 13,518 rubles.

(Disabled Persons) Equality at Work
An embarrassed Vladimir Putin told the assembly: "Shame on us. The policies of the past made it impossible to integrate the disabled into society, even in the smallest ways. We need to make a complete overhaul of our attitudes and approaches."

Work Force Shortage to Affect GDP
The number of economically active population reached 75.3 million past year in Russia. The employment growth that drove down unemployment indicator to unusually low level, accounted for a third of economy’s advance.

Economic Growth Favors the Rich
Despite that the portion of the population with incomes of less than 3500 rubles per month, which was 23.3 percent in 2005, dropped from 16.1 percent in 2006 and to 11 percent in 2007.

From Crisis to Baby Boom
Russia witnesses its highest birth rate in 25 years.

Cancer Advocacy Group Launches in Russia
An estimated two million Russians suffer from cancer.

Russia’s middle class to grow fast
Russia’s Economy Ministry expects the country’s middle class to make up 50-52 percent of the population by 2020.

City to Remain Hotspot of Xenophobia
Two new human rights reports released this week argue that the numbers of hate crimes in Russia seem set to increase in the near future.

Russians Still Drinking Much, But Deaths From Surrogates Fewer
19,000 or so people died of alcohol poisoning from January through November 2007 versus the 28,000 thousand who died for the same reason from January through the yearend in 2006 and 40,000 in 2005.

Hangover Holds Up Russian UPS Flight
Russian clients of the international delivery company UPS received their express packages ten hours late yesterday after the radio operator on a UPS flight was found by doctors to be too hung over to fly out.


Public Opinion

Russian Elite Trusts Business, Govt.; distrusts NGOs, Media
The American public relations company Edelman presented the results of its annual Trust Barometer survey in Russia yesterday.

Inflation, Social Concerns Mounting
Rapid price growth, the huge gap between rich and poor and the inaccessibility of medical care have worried Russians much more in the last year than they did three years ago, according to the findings of a Levada Center poll.

Half of Russians Yearn for Super-Power Status
Most people in the Russian Federation want the next president to make their country a powerful player in the global stage.

Country a Full-Fledged G-8 Member, Say Russians
45 per cent of respondents share this opinion, up 21 points since 2005.

G7 Citizens Critical of Putin's Impact on Russian Democracy
Russians are favorable of Putin's imapact on all fronts.



Ford Mondeo to Be Assembled in Russia
The plant will make 25,000 of the cars next year.

Skoda and Russian-European Trade 
It took until 2005 for 7,500 of the redesigned Skodas to be exported to Russia. But in the first 11 months of this year, sales reached over 28,200 cars.

Renault Makes a Run on AvtoVAZ
The French car company Renault has completed the due diligence of AvtoVAZ and documents on the sale of a blocking package.

French Car Plant Last in Russia So Far
PSA Peugeot Citroen will build a ˆ300-million auto plant in Kaluga Region with a potential capacity of 150,000 vehicles.

Ford Workers Agree to Pay Raise
Workers at the Ford plant near St. Petersburg accepted a management offer of 16-21 percent salary increases along with other bonuses. Experts estimate that the offer is costing Ford an extra $5 million.

Toyota Subsidiary Invests in Construction
Burgeoning sales are leading car dealers to invest in real estate.



Bulgaria Joined South Stream
Bulgaria will join the South Stream project. Prime Minister of Bulgaria Sergei Stanishev has made the respective statement today, January 18, 2008.

Siberian deer herders take aim at Russian dam plan
An indigenous tribe who herd deer in Russia's frozen tundra fear their way of life will perish if plans to build of one of the world's biggest hydro-electric dams on their land go ahead.

ArcelorMittal Enters Russian Coal Market
The world's largest steel smelter ArcelorMittal confirmed yesterday that it has entered the Russian coal market.

Eastern Siberian Pipeline Has Flex Schedule
Although the board of directors of Transneft refused to push the deadline for the pipeline's completion back from the fourth quarter of 2008 to the fourth quarter of 2009, the Ministry of Industry and Energy is now conciliating a draft resolution on that issue for submission to the government.

Russia Struggles to Supply Power to Domestic Consumers
Russia has faced a series of power outages in early January, including in areas where temperatures plummet to extreme lows.

Kremlin celebrates Gazprom's power
Gazprom celebrates its 15th birthday with billboards and Tina Turner.

In Gazprom's Grip
It's now been more than two years since Moscow cut off gas supplies to Ukraine. Yesterday, it threatened to do so again.

Gazprom's Oil Unit Plans to Double Output, Invest $70 Billion
OAO Gazprom Neft, the Siberian oil company once owned by billionaire Roman Abramovich, plans to double crude production by the end of next decade through developing Arctic fields and investing $70 billion.

PM Zubkov could replace Medvedev as Gazprom board chairman
"The Constitution bars a prime minister from running a business entity, but the position of board chairman does not imply economic activities…"

Russian oil firms need to shape up to grow abroad
Heavy taxation has crimped growth in Russian oil production while Kremlin orders for higher social spending and large missions abroad for state energy champions are burdening firms such as Gazprom and Rosneft.

Energy and mining to lead Russian spree
"The Kremlin has already encouraged the development of national champions. The next stage of their development will be to become international champions."

BP downbeat on Russia output
Robert Dudley predicted a return to growth of about 100,000 barrels of oil a day in 2009, when several new projects are due to come on stream, up from this year’s level of 1.8m or so.

Eco-risks loom as arctic oil activity grows
Exploitation of the Arctic's huge oil and gas wealth poses a growing danger to an icy wilderness that can recover only slowly from heavy oil spills, a report by the eight-nation Arctic Council said on Monday.


Style, Fashion, Marketing

The Style Tsars
Her label, Kova & T, sells in more than 70 stores around the world and Zhukova rides the vanguard of a new style revolution -- post-Soviet glamazons with a mission to prove that Russians are the biggest and best luxury consumers on the planet.

Russian fashion blooms on a par with West
Igor Chapurin, famous for his bubble sleeves and sheered mink dresses, was the first Russian designer to feature pret-a-porter on the coveted Paris catwalk three years ago.

Swiss Say `Spasibo' as Russians Fill Hotels, Buy Gucci Sleds
Russians have more money than ever, and they ski in Switzerland to show it off.


Other Markets

PM Disappoints Foreign Forest Investor
The government will not cancel its scheduled duty increases on timber, nor will investors in the sector get tax benefits or priority status. But they may be able to receive benefits from regional programs.

British farmers reap rich Russian harvest
Robert Monk owns Heartland Farms Penza, a 75,000-acre prairie in the fertile Volga region 400 miles southeast of Moscow.

Pricewaterhouse Loses Appeal
The Russian subsidiary of Pricewaterhouse Coopers, an international accounting firm, lost an appeal on Wednesday against a back tax bill of 10.4 million dollars (7.4 million euros).

As Tycoons Reclaim National Treasures, Counterfeiters Also Emerge
An impatient Russian bidder quickly stepped in with an offer of $200,000 and then two bidders, both unidentified Russians, faced off in bids made by intermediaries over the phone until the icon was sold to one of them for $854,000, a world record for an icon at auction.

Wal-Mart May Expand Into Russia Within Two Years
"We believe expansion into Russia rounds out Wal-Mart's 'BRIC' (Brazil, Russia, India and China) exposure," UBS analyst Neil Currie wrote in a note on Thursday."

Sovcomflot Tankers Emerged in London
The Investigating Committee at the RF Prosecutor General Office has officially confirmed the demand for extradition of St. Petersburg businessman Yuri Nikitin from Britain on count of defrauding Sovcomflot of $700 million.

Deripaska Tops the List of Russia's Fat Cats
Oleg Deripaska has topped the ranking of Russia’s wealthiest people compiled by Finance magazine, Vedomosti reported.

Govt Tossed Siberian Coin
Russia’s Prime Minister Viktor Zubkov inked a ruling to create a gambling zone, Sibirskaya Moneta (Siberian Coin) in Altai. The area of 23 square kilometers will be the third of four reservations where the gambling business is to move after July 1, 2009.

Arbat Prestige Loses Scent
Moscow City Court has upheld the chosen judicial restraint for Arbat Prestige co-owner Vladimir Nekrasov, who was detained on tax evasion count.


Commentary and Forecasts

Top Russian boss says hawkish policy hurts economy
Chubais says Russia's hawkish foreign policy is scaring off foreign investors.

Putin offers new development strategy for Russia
He also said Russia should increase its labor productivity four-fold by 2020.

Medvedev says 'four I's key' to Russia's economic program
His program is still lacking specifics, but his foci are now becoming clear.

In Russia, a deal with the devil
Robert Amsterdam, the London-based Canadian-born lawyer of imprisoned Russian businessman Mikhail Khodorkovsky, returned to his home country last week and blasted Canadian political leaders and businessmen who insist on doing business with the corrupt regime of Russian President Vladimir Putin.

US Director of National Intelligence On Russia
Aggressive Russian efforts to control, restrict or block the transit of hydrocarbons from the Caspian to the West—and to ensure that East-West energy corridors remain subject to Russian control—underscore the potential power and influence of Russia’s energy policy.

Economic Prognosis
What will happen to the dollar on the Russian currency market, how consumer prices will change, what world oil prices will be and how the dollar and euro will fare on the world currency market?

Congress may vote on Russia trade this year
U.S. lawmakers could face a vote on trade relations with Russia this election year if Moscow finally wraps up its bid to join the World Trade Organization.

No Reckoning with Realities in Russian Economic Policy
Bad governance Russian-style has another worrisome feature: the progressive commercialization of increasingly corrupt special services whose feuds disrupt the work of key state agencies.

Climate of opportunity
Former politician David Shaw (UK) turned to business in Russia. 10 years later, he assesses the current situation.

New year, new expectations. Further economic liberalization is expected in 2008
"2008 is not a good year for reforms, with the presidential election and transfer of power. And it will take another year for a new government to tune in."

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