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Business
03
Economics & Finance: ‘Monetary Therapy Contraindicated’
www.mnweekly.ru/business Find article ‘Russian Firms Invest Abroad’
Energy Security One expert argues that oil is overvalued and that Data New statistics show investment growth
Russia’s government is right to channel petrodollars into its reserves
Figures for Investment
Oil: Black Gold
Growth Released
The state statistics service, Foreign direct investment embourg ($30.3 billion) and
Rosstat, has released data (FDI) in production almost the UK ($24.2 billion). Howev-
or Black Death?
on foreign investment for doubled, reaching $19.6 bil- er, investments from those
January-September 2007. lion, while loans accounted for three countries came mainly
They demonstrate that approximately half of that sum from the offshore structures of
the mutual exchange of ($9.75 billion). Russian companies regis-
investments between Russia Foreigners did not like invest- tered there (i.e., Russian
and the rest of the world ing in Russian securities or money returning to Russia).
has grown by more than 50 unit funds. However, portfolio According to Rosstat, the
percent from the previous investments grew by nearly state statistics agency, Rus-
ects and those who feel that year, a development that 130 percent year-on-year, to sian investments abroad to-
The new year was ushered in not enough is being invested experts believe will be positive $1.55 billion. taled $54.2 billion during Jan-
with oil prices crossing the into the social sphere. In 2007, for long-term economic The bulk of investments, $37 uary-September 2007. This
psychologically important the government failed to meet growth. billion, some of them in the was 56.6 percent more than
$100 a barrel mark on the its annual inflation target of form of trade loans, went into in the same period in 2006.
New York Stock Exchange, 7.5%, with skyrocketing food
YULIA MIRONOVA
the rapidly expanding whole- Accumulated Russian invest-
culminating at $100.09 on prices bringing the figure to FINANSOVYE IZVESTIA sale and retail trade sectors of ments abroad amounted to
January 3. Many wonder how 12% by year’s end.
WWW.FINIZ.RU
the economy. merely $28.1 billion. In other
much higher prices would rise, “In my opinion, the govern- Wholesale and retail firms words, the bulk of Russian in-
and whether this trend could ment has acted wisely in re- Foreigners have invested also borrowed heavily to en- vestments abroad were sub-
lead to inflation and a global gards to the surplus of petro- 150 percent more capital in sure development, and signed sequently repatriated back to
economic slowdown. dollars,” comments Yakovlev. Russia during January-Sep- several agreements to sell Russia.
“In the 1990s, Russia had a tember 2007 than in the same their assets to foreign compa- Russian net investments
MIKHAIL VOLKOV/RBTH
very painful experience with period in 2006. The bulk of nies. abroad amounted to $13.8 bil-
MOSCOW poor budgetary planning and these investments came in Investment in manufacturing lion by the end of September
contradictory monetary and the form of loans. reached $21.6 billion, show- 2007, compared to $14.3 bil-
A number of economists have fiscal policies. Today, the state Total investments in the re- ing foreign companies’ inter- lion by the end of 2006. This
suggested that the approach- has learned to better shield it- ported period amounted to est not only in highly profitable means that the share of direct
ing warmer months in the self from lobbyists in the State $87.94 billion, of which loans sectors, such as mining (in (as opposed to offshore) in-
Northern Hemisphere will Duma [the national parlia- accounted for $57 billion, or which they invested more vestment abroad is growing.
bring oil consumption, and ment].” 67 percent. than $15 billion), but also in However, offshore investments
therefore oil prices, down. “There is enormous pressure The majority of these loans developing Russia’s produc- remain substantial: $8.5 billion
However, the long-term out- to spend the windfall revenues were long-term, which is a tion capabilities. was invested in Cyprus and
look for automobile owners on all sorts of ostentatious strong indicator of continued The leading investors were nearly $6 billion in the Nether-
does not look good. Claudia projects that have not been foreign confidence in the Rus- Cyprus ($39.1 billion), the lands during the first three
Kemfert, energy expert at the thought out very thoroughly. sian economy. Netherlands ($36 billion), Lux- quarters of 2007.
-
DIW German Institute for Eco- However, the Ministry of Fi-
nomic Research, recently told nance has been resilient in
the Berliner Zeitung newspa- channeling these monies into
per that scarcity in oil supplies the national Stabilization
Russia’s Investment, by Sector and Abroad
would continue to push prices Fund. Our reserves are now
up. The institute concluded the third largest in the world,”
that the price of a barrel of oil ARKADY KOLYBALOV_RG states Yakovlev. The Central
would reach $150 in five years, Bank reported that reserves of
and $200 in ten. hard currency recently topped
However, not everyone news coming from oil-produc- However, given that these $475 billion, with growing con-
agrees. Andrei Yakovlev, pro- ing parts of the world: Iran’s fears are not likely to recede in troversy over whether this
rector of the Higher School of recent skirmish with the U.S. the near future, oil prices will money should be invested into
Economics in Moscow, main- Navy, port closures in Mexico not suddenly drop. This will foreign sovereign bonds with
tains that experts in developed benefit emerging markets, a high credit rating.
countries tend to make overly whose governments are able However, many Russians are
pessimistic predictions. “Many “Many Western an- to use revenues to boost con- concerned not with excess oil
Western analysts are interest-
alysts are interested
sumption. Russia, whose revenues, but with the conse-
ed in convincing their govern-
in convincing their
economy was recently ranked quences of a drop in oil prices.
ments that the price of oil will
governments that the
8th in the world in terms of size “Oil prices are difficult to pre-
rise because they want to see by the World Bank, is a classic dict, and therefore the govern-
more investments into alterna- price of oil will rise example. Petrodollars have ment uses conservative esti-
tive energy sources,” says Ya-
because they want
fueled a consumer boom mates when drawing up the
kovlev. “In oil-exporting coun-
to see more invest-
which, according to various budget,” explains Yakovlev.
tries, such as Russia, the
ments into alterna-
predictions, will turn Russia According to a recent report
scientific community tends to into the largest automobile by the Moscow-based Insti-
forecast lower prices.” tive energy sources” market in Europe this year. tute for the Economy in Tran-
For now, many economists The process is cyclical: grow- sition, revenues from oil and
believe that oil is overvalued, ing emerging markets push oil gas sales reached a new low
and that prices are being held and violence in Nigeria. In ad- prices even higher. of 8-10% of the federal budget
up by futures trading (e.g., in- dition, the United States re- In Russia, the public is split in 2007, signaling increased
vestors buying up oil shares cently reported a drop in crude between those who feel that diversification of the Russian
today to weather a potential inventories. “The bottom line the government is spending economy. “For this reason, I’m
crisis in the future). In part, this is: there is no deficit of oil,” too much of its oil revenues on optimistic about the future,”
is the result of grim economic adds Yakovlev. large-scale infrastructure proj- says Yakovlev.
-
look ahead with optimism
Russia as a “Safe
World Stage
Haven” for Global
ROSNEFT
Investors
Specialization: Oil and Gas
IPO: July 2006, LSE
Key Executives: Igor Sechin and Sergey Bogdanchikov A recent report by Alfa Bank, sis and the ensuing global eco-
Market capitalization after IPO: $79.8 billion Russia’s largest private nomic slowdown. As the sec-
bank, bubbles with optimism ond largest exporter of oil in the
INFOGRAPHICA RIA NOVOSTI , WWW.VISUALRIAN.RU
Originally established in 1993, largest oil and gas producer in over the country’s economic world, Russia also benefits
Rosneft was not profitable until Russia. In July 2006, it held prospects. The report predicts from high energy prices. This,
2000. Rosneft has since ex- one of the most successful at least 30 percent annual complemented by the bullish
panded rapidly under its new IPOs in world history, raising profits for foreign investors, growth of its stock market, is
head, Sergey Bogdanchikov. It $10.7 billion on the LSE. Ros- regardless of the stocks they rapidly making Russia attrac- Poll: Political Climate Good,
has increased oil production by neft’s current plans include ex- choose. tive for international investors
around 11% annually. In 2004, pansion into the Chinese mar- seeking to minimize risks by
Rosneft won an auction to buy ket and becoming one of the
ANATOLY GOREV/RIA NOVOSTI
moving funds from American but Corruption Persists
the remnants of the Yukos oil global top-three energy giants MOSCOW and European assets.
empire, making it the second by 2012. Alfa Bank’s analysts say politi-
“Safe haven” is not a term typi- cal stability in Russia is an im- The Russian business sponse was attributed to ob- Respondents also blamed
SITRONICS cally associated with the Rus- portant positive strategic fac- community is optimistic stacles to establishing a new low confidence on the rela-
Specialization: Information Technologies sian financial market. Indeed, tor. “The election of [First about growth prospects and firm. They complained that tionship of some authorities
IPO: February 2007, LSE many investors lost billions of Deputy Prime Minister] Dmitry trusts the president, but is the costs of registering a new toward business. They report-
Key Executives: Vladimir Yevtushenkov dollars during the 1998 default, Medvedev as president of Rus- unhappy with corruption, company were too high and ed that many officials treat
Market capitalization after IPO: $2.3 billion when the Asian financial crisis sia appears to be the most administrative barriers and bureaucracy too complicated. businesses exclusively as a
sent stock exchanges all probable scenario. This prom- poor enforcement of property source of personal income, or,
Formed in 2002, Sitronics is countries. Sitronics benefits around the world into a nose- ises four more years of political rights. at best, as a “junior partner.”
the largest IT firm in Eastern from a close relationship with dive. In part due to poor bank- stability in Russia,” the bank’s Businesspeople were consis-
Europe and the only hi-tech the Kremlin at a time when the ing legislation, the Russian forecast says.
KONSTANTIN SMIRNOV / GAZETA
What do Russian tent in describing corruption
Russian company listed on a Russian government is pump- government defaulted on its Alfa Bank’s analysts single out MOSCOW
businesses value?
among government officials as
foreign stock exchange. The ing billions of dollars into hi- debt and subsequently deval- inflation as Russia’s biggest a major problem (56 percent),
company specializes in con- tech industries.This special re- ued the ruble. sore spot. It exceeded planned A December 2007 VTsIOM though they also mentioned
sumer and microelectronics, lationship was demonstrated However, the ruble devalua- levels in 2007, and with nei- Research Center poll, con- foul play on the part of other
telecommunications and IT so- when President Vladimir Putin tion also strengthened the po- ther the prices of commodities ducted among 1200 busi- businesses (60 percent).
lutions, and has subsidiaries in toured the company’s Zeleno- sition of Russia’s exporters and nor the influx of petrodollars nesspeople in 40 Russian re- According to the VTsIOM poll,
Ukraine, the Czech Republic, grad production facility in spurred an economic recovery. likely to subside, the govern- gions, showed that business- corruption is highest among
Greece and other European 2006. The country learned some im- ment may also fail to restrain people were optimistic about law enforcement bodies (43
portant lessons from the deba- the growth of prices in 2008. prospects for growth, but un- percent), followed closely by
X5 RETAIL GROUP cle, and took significant steps Another serious problem happy with the level of corrup- local governments (39 per-
Specialization: Retail toward cushioning itself from comes in the form of competi- tion in Russia. cent) and local branches of
IPO: May 2005 (as ‘Pyaterochka’), LSE another financial meltdown. In tion from the rapidly growing Fifty-four percent of respon- the Federal Tax Service, the
Key Executive: Mikhail Fridman addition to passing new legis- economies of China, India and dents assessed their own Federal Anti-Monopoly Ser-
Market capitalization after IPO: $1.99 billion lation, the government chan- Brazil. They are vying for the business as doing well. This vice, the Health Inspector’s
neled windfall revenues from attention of international in- figure was 30 percent for Office and the Fire Marshal’s
As Russia’s largest retail com- St. Petersburg. The following high oil prices into a “stabiliza- vestors, and have demon- those operating large busi- Bureau (33 percent).
pany, X5 owns over 700 super- years saw the two companies’ tion fund.” Russia’s gold and strated their ability to realize nesses, 50 percent in the me- Surprisingly, none of these
markets in Russia, Ukraine rapid expansion into the Rus- foreign currency reserves are sound economic policies. dium business category and problems prevented the busi-
and Kazakhstan. Its story sian regions, and their subse- expected to top $535 billion However, as long as the gov- 20 percent among owners of ness community from assess-
began in 1995, when Mikhail quent merger into the X5 Retail this year, while GDP growth is ernment maintains its commit- small businesses. ing the current political envi-
Fridman’s Alpha-Group Group in May 2006. Recently, forecast at 6.5 percent. ment to attracting foreign in- However, a majority of the re- ronment as comfortable.
opened a chain of “Perekre- there have been rumors about Investors are now revising their vestors and maintaining spondents (63 percent) com- Businesspeople largely sup-
stok” supermarkets in Mos- further mergers and the possi- opinions about the Russian macroeconomic stability, Rus- plained that the environment ported current government
cow. In 1999, Alexander Girda ble acquisition of X5 by a major economy. The country looks sia should further live up to its in Russia was not entirely policy, with the president en-
and Andrey Rogachev opened international chain, such as prepared to weather the effects developing reputation as a business-friendly. The most joying a high level of trust (50
the first “Pyaterochka” stores in Wal-Mart or Carrefour.
-
of both the U.S. mortgage cri- “safe haven.”
-
popular reason for this re-
SOURCE: VTSIOM
percent).
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