Russian Economy General News: #5

kvs wrote:http://www.sdelanounas.ru/blogs/71620/




Samsung has localized 50% of its Russian market production.

Ruble devaluation is very good for Russia.   It baffles me how forex speculators could be handing Russia such a gift.  
Their fixation on Russia being some one-commodity banana republic is epic in its inanity and they are so blinded by
their chauvinist retardation that they more than offset the oil price drop with the forex devaluation.

Question for you..

I was reading this report..

http://russia-insider.com/en/inflation/ri11913

That even though it was very negative and doom for Russia future economy..the methodology
used to measure real inflation raise in Russia seemed valid and interesting. Compared the prices of a traditional market store in Russia ,and buying the same products and compare the prices.

ok.. regardless if the article is correct or misleading.. (read the poster comments below)

Correct me if im wrong..

But inflation in Russian food generally speaking only happens because Foreign products raise the prices to compensate for Ruble devaluation? so they are paid about the same price as before when using the Ruble convert to their currency..

So the question is.. all that Russia needs to do to stop for real ,the food inflation is to no longer import food from abroad ? and produce all its food internally? all tomatoes ,Rice,meat ,chicken,eggs and dairy ,to produce all that in Russia? and not import any food from abroad?

In other words if Russia was very strong food producer nation ,and produced everything inside
Russia to cover all its needs.. then inflation will have not happened ,will not be news at all ,regardless if Ruble was 70 or 80 or even 90 to dollar?

and same question for technology ,(although this came take a couple of decades for Russia to be fully self suficient in all tech) . If Russia produced 100% of what it consume ,the essentially
Russia could be immune to inflation no matter the rate value of Ruble vs Dollar?

kvs wrote:Yes, imports are the sole real causal factor for inflation associated with devaluation.   But there is also the
speculator opportunism syndrome.   When prices start to go up for some goods then there is a strong incentive
by merchants to jack up prices on all goods.   It is pure abuse of the market, but the consumer is typically
clueless and does not have the iron will to break the merchant, especially when the price rise is incremental.
Iron willed, informed consumers would routinely boycott all vendors who misbehaved, en masse, and
would either drive them out of business or force them to behave.  

Then all this means that Russia needs to seriously move its economy into the food business
and agriculture business. Also it needs to fully develop its own internal tourism. IM surprised
why Russia did not think earlier about being self sufficient food export nation. There is no reason for Russia to be buying chicken in US or Argentina or Brazil across the globe.  

What i will do if was Putin is create an industrial revolution in Russia.

1)90% total import substitution of food ,
2)develop and promote that 90% of Russians do tourism internally and not abroad.
3)50% to 80% technology import substitution
4)Progressive tax , people who earn more higher tax.. people who earn less lower tax.
(no idea if this is possible).
5)cut all federal employeers income by 20% including Government ,freeze any salary increase
until recension ends.
6) Cut the spending in Sports and significantly reduce entertainment activities financed by kremlin
7)allow prisoners to work for free or for very little in change for 10 hours away of jail.
Low tax for foreign companies creating jobs in Russia to attract investment.
9)Defense Budget to not touch it.. if any if needs to be increase a bit more.
10) Space program significantly increase its budget ,all those things creates unity and
helps innovation , technology development and nation image. Push Russia to become the leader in Space not only transportation but planets missions. and more than anything Get to the moon as fast as possible and deploy a base there. Nothing in the world ,attract more investors to a nation that to "steal the show" and show an image of high development and being leaders in space.
11)Russia should really push for the new internet ..with China. and become really strong
in semiconductor industry and software development. an IT and Semiconductor revolution.
This new internet could operate independently of today internet but also could connect to it too.
12)Entertainment.. Russia should push the video gaming Industry.. is today the biggest business in entertainment today. even more than Holywood.

China have a saying that the best way to promote the economy in any region is to build
a good road. and thats exactly what Russia needs to invest.. improve its roads ,in key zones to promote creation of business. Once inflation controlled and low..Russia can decrease interest rates even more.

The money that Russia will save in over spending and salary cuts in well paid people it can be used to create more jobs. Same with promoting tourism and More Space development. etc.
Russia also can start to kick foreigners taking a job in Russia that could be given to a Russian citizen. Significantly reduce moldovans and Tajikistanis employment in Russia.. same with Europeans that move its earned money abroad. Only foreigners allowed to work in Government companies or construction should specialist ,engineers or scientist that cannot be replaced easily.

http://www.vedomosti.ru/economics/articles/2015/12/14/620769-vtoraya-volna-krizisa-shokovie-stsenarii-2016-god-mogut-stat-bazovimi

The annual average price of oil at $ 35 per barrel, the decline in the economy by 2-3%, continued investment slowdown, the slow decline in inflation - up to 7% by the end of 2016, falling real wages comparable with 2015 rates (January - October 2015 . almost 10%) with an increase in unemployment - these are the parameters of risk scenario, the Central Bank in 2016 "Last dynamics of oil prices suggests that the relevance of this scenario has increased", - said chairman of the Central Bank, Elvira Nabiullina.

According to Finance Ministry estimates, the average annual decline in prices to $ 40 per barrel in 2016 to increase the budget deficit to 5.2% of GDP, the reserve fund is exhausted for the year almost completely. According to the forecast of Economic Development, at a price of oil the economy will shrink by 1%, the average dollar exchange rate will be 72.6 rubles., The decline in real wages and incomes will continue.

Looks like Russian Economy are preparing 2 scenario Ural at $40 and $35 , The FM is predicting more bleeker $30 situation , In all scenario GDP will shrink some percentage.

Also Putin mentioned he would look into selling 19.5 % stake in Rosneft will would fetch around $7 billion atleast to not use money from Reserve Fund , may be they want to cushin some money in Reserve Fund for 2017.

Ofcourse the best scenario is for $50 Oil on which budget is based.

But Kremlin Economist spoke of getting prepared for $40 Oil for next 6-7 years , Though I think its overly pessimistic but better to be prepared then be caught by surprised.

I think a $40 Oil is good for Russian Economy in long run. they will have to reform structurally introduce higher taxes , privatise some state funded companies and cut some budget expenditure some where , bitter pill but in long run Russian Economy will be much less depended on Oil Shock

Moscow, Beijing agree deals worth up to $5bn

Privatization of state corporations could solve number of problems in Russian economy

http://tass.ru/en/opinions/845412

Austin wrote:Privatization of state corporations could solve number of problems in Russian economy

http://tass.ru/en/opinions/845412

Yeltsin privatized a whole lot of state industries in the 1990's, yeah that turned out well...

Economy can be protected from this - just introduce some laws limiting foreign ownership of companies - to say 15% in regular companies and 5-10% in companies of strategic significance.

Should work.

Russia FDI flows tripled in first half 2015: OECD
bne IntelliNews October 29, 2015

A report by the Organisation for Economic Co-operation and Developments (OECD) shows foreign direct investment flows to Russia almost tripled in the first half of 2015 amid signs the economy is recovering and becoming an investment destination again.

FDI flows rose to $12bn in the first six months from the very low level of just $4.7bn for the same period a year ago, according to the report published by the OECD on October 29.

Foreign investment in Russia practically came to a shuddering halt last year as European and US companies and financial institutions froze new investments in the country after sanctions were introduced for the Kremlin's involvement in the armed conflict in East Ukraine. A collapse in the ruble and the price of commodities also conspired to push Russia into its first recession since 2009.

Overseas investment in oil and gas, metallurgy, trade agriculture and real estate investment virtually ceased as companies decided to opt out rather than try to navigate the sanctions minefield.

Data from the Central Bank of Russia (CBR) put capital outflows last year at $151bn compared to $61bn for 2013. The IMF predicts full year capital outflows of $113bn this year.

Maxim Oreshkin, Russia's Deputy Finance Minister, told foreign investors on October 21 that the country is now emerging from its biggest crisis since the USSR was whip-sawed by the 1985 collapse in oil prices.

Russian foreign debt has dropped 30% this year to about $500bn from $700bn, despite economic sanctions and the recession. The current account and fiscal balances improved this year even as oil prices declined two-fold.

A new agreement brokered in Paris on October 2 to hold elections in East Ukraine, along with a ceasefire and a continuing withdrawal of weapons from the front lines, boosted hopes that Russian companies will allow to tap international capital markets again. Gazprom and Norilsk Nickel have already succeeded in raising over $2bn in the first deals in 11 months, while the sovereign is eyeing a $3bn Eurobond for early next year.

Corporate profits are now growing at "double-digit rates" because of nominal wages growing at a much lower rate, Oreshkin said. This is translating into a bottoming out of the negative GDP trend. "We plan to have positive quarter-on quarter positive growth in Q4 and next year we expect to see 0.5% growth," he told delegates at the RussiaTalk forum on October 21. The government is seeing the return of foreign capital "after the shocking events of the last 18 months", the deputy minister emphasised.

"We see the resumption of syndicated lending of Russian borrowers, capital inflow to subsidiaries of foreign companies for new investments as well as investments of British investors in Russian debt securities," Oreshkin said.

sepheronx wrote:Russian government has ownership of Rosneft of 69.5% of shares.  They are looking to sell 19.5% of shares to someone else (chances are heavily the Chinese will buy it).  That means Russia will have effectively 50% of shares or possibly 50% + 1 share (common for Russian government to do this) so that would indicate that Russian government would still have controlling shares and obtain at least 50% of the profit from it, while BP and China have the other portions of it (BP with 19.75%).  I think that they should try to obtain some of those shares back from BP so that they can sell it to someone more reliable (possibly India's energy company or Vietnam's).

As for Aeroflot, it is only 51% state owned.  I cannot imagine selling any further shares is a good idea as Aeroflot is really Russia's remaining profitable airline company and privatization could drastically increase costs for people wanting to fly.

Why is the Russian government looking to sell 19.5% of shares of Rosneft? Is it not better to hold onto to them, I don't get this.