Central to fairness, American style, is an opportunity to be heard before judgment is pronounced, innocence until guilty is proven and the proof of guilt by actual evidence and not an alleged propensity to do wrong. This is why the unseemly rush to move the Magnitsky Act through the Congress ultimately is at least as damaging to America as it is to Russia. The proposed Act demands that Russia conducts a "thorough and unbiased investigation of the case" and the Russian prosecutors, albeit slowly, and even the parliament are in the process of doing just that.
The Russian parliamentarian report should be read in its entirety by those wishing to be fair and with an appreciation that it is just preliminary, but among other things, it makes the point that the legal context for the arrest of Sergei Magnitsky may be more complicated than Congress was informed by a British citizen William Browder who, it argues, had a motive to distort the facts to cover up his own activities.
According to this report William Browder implemented a scheme involving the use of Russian corporations he controlled to gain a larger interest in the Russian corporation Gazprom than was allowed by Russian law. The report further alleges that Mr. Browder developed a scheme to evade the payment of profit taxes by claiming a deduction for having a large component of special needs workers in their workforce which resulted in the substantial tax evasion.
Microsoft Earns Over $1 Billion in Russia in One Year
Yuri Mamchur
Microsoft's Moscow office
Do you remember the days when all software in Russia was bootleg and it wasn't worth an effort to try to sell the legal copies? Well, those days are gone. Russian families and businesses finally make enough money to forgo the challenges of viruses and cracking headaches of illegal software, and just pay hard dollars to good old Redmond, WA -based Microsoft.
The piracy is still rampant throughout Russia; but so it is in America, where music artists must hit the road to make income even after their songs reach Top-40 chart positions. Not to compare apples to oranges, but as far as business is concerned, it's all copyright law, respect for the law, and its enforcement. Lady Gaga lost several million dollars on her album release -- mostly due to teenage piracy and lacking sales; 99 cents an album creates a financial loss even on transaction, not counting the fixed costs of production and label's overhead. However, she is the hottest selling show in the world, and that's where the real money is. Even in the Western world where internet is fast and respect for copyrights is low, the money is in "bread and circuses" and not in legal digital downloads.
Given the financial crisis in America and relative financial prosperity in Russia and Brazil, Microsoft is seriously concentrating its efforts on those "developing" markets. Russian market yielded over $1 billion in revenues for Microsoft in just one year, and continues to significantly grow. Microsoft has offices in 70 Russian cities, and its best-selling products in Russia are Microsoft Sharepoint Server and Microsoft Project. Once again, private business proves to be more capable of reset and healthy international relations than our respective governments...
A census worker surveys Medvedevs at the presidential residence. Not every Russian was surveyed like President Dmitry Medvedev...
Businesses need sound demographic data on which to base investment and marketing decisions, especially in foreign countries. Russia, despite its oil wealth, is a country that would like to attract more foreign investors. But the latest Census there is probably unreliable. At the very base of collection it was substantially invented.
The 2010 Russia Census was unfunded until late in the process. The operation was about to be postponed when Prime Minister Vladimir Putin intervened and found 10.5 billion rubles to pay for it. Now, as official results trickle out a year later, one would think that a big success was achieved. The national newspaper Rossiyskaya Gazeta reports: "Russia's population has declined by 1.6 percent since 2002 - from 145.2 million to 142.9 million people. There are only two regions where the population increased. In the Perm region the population grew by 11,800 people, and in Usolksky - by 800."
Such precision in Usolksky or anywhere in Russia is suspect, however. The U.S. Census Bureau's Center for International Research believes that specific official Russian numbers may be off by as much as 87 percent from site to site. Anecdotally, I've had the chance to witness a census count in both the U.S. and Russia. The two counts couldn't be much different.
President Obama Can and Should Lift the Jackson-Vanik Amendment Against Russia
Edward Lozansky
On April 18, 2011 my partner, a former Reagan administration official Anthony Salvia, and I filed a lawsuit in the U.S. District Court for the District of Columbia demanding that U.S. president annuls the Jackson-Vanik amendment in relation to Russia. We argue that since Russia is now a free market economy and has no emigration restrictions at all, it automatically has to be excluded from JVA and that its continued application to Russia is illegal. It is our belief that U.S. president has the constitutional authority to state that and declare the JVA null and void with respect to Russia without congressional resolution as previously stated by Clinton, Bush and Obama. Therefore, the main goal of our lawsuit is to help Barack Obama to close this Cold War chapter once and for all and concentrate instead on positive and mutually beneficial cooperation between the United States and Russia.
The historic nature of this case, even at this point is clear. For almost two decades, three successive US administrations (Clinton, Bush, Obama) have said, in effect, "Gee, we'd love to graduate Russia from Jackson-Vanik but we can't do it without getting legislation through Congress." That excuse ¬ and that's all it is ¬ now has been shown conclusively to be false. The President can permanently lift Jackson-Vanik trade restrictions on Russia any time he wants, without any action by Congress. In fact, the way the law is written, since the finding already was made years ago that Russia permits free emigration, the only finding needed to trigger Russia's permanent removal from J-V trade restrictions has been made ¬ but the White House still refuses. Also, as Richard Perle has indicated, Russia is not a "nonmarket economy country," certainly was not in 1974 (when the Russian Federation was not even an independent state), and J-V does not properly apply to it. In fact, as we argued to the Court, Russia is only on the J-V list because in 1993 Clinton unilaterally (without Congress) deleted the name of the USSR and put on Russia. Obama can take it off just as easily.
Corruption in Russia: the Question Is Not whether it Exists, but How Much and How Often...
Yuri Mamchur
An average bribe in Russia today, according to the law enforcement agencies, is $10,000. It grew 500% since a year ago. However, the investigators say that it's not the bribe that grew, but the efficiency of their work. Over the past year, Russian police and FSB caught several multi-million-dollar bribes, and landed some of high-profile officials in jails. The statistics involve everything, from several-dollar drivers bribes to traffic police all the way to 50-60-million-ruble bribes (approx. $2 million) to high-ranking officials.
According to Ernst&Young, Russia is Europe's leader in business corruption. The average amount of a bribe has been consistently at least doubling each year since 2005. Once again, the anti-corruption officials are stressing that the doubling of the bribe's price tag is correlated with the efficiency of their work. We at Russia Blog are wondering though, why is it doubling consistently since 2005, instead of dissappearing? Curbing the corruption has been Medvedev's top priority since day one of his presidency. Instead, his employees are patting each other on the backs for just uncovering the bribes, and in no way reversing the trend. China has a corruption problem as well. The way they deal with corrupt officials is medieval, but it works: they literally shoot them. In Russia, as my friend said the other day, officials -- on par with Putin -- funnel billions to Swiss and Cyprus accounts, go under investigation, share some of the stolen money with the court, get conditional penalties, and wave goodbye before boarding jets to take off for far-away lands.
Of course, undisputed rumors of Putin's $1 billion cottage/castle don't help to set the trend or serve a good example. Russia must harshly prosecute rather than just uncover the corruption. However, the officials are not too inspired to work hard fighting the corruption, when their salaries aren't big enough to go out for 10 dinners with a family. That's where the evil circle comes around. A role-modeling from the top (Putin and Medvedev) would be a good place to start. However, for now, the two enjoy fishing, diving, and driving Mercedeses and Porsches. No wonder, every Russian kid would rather be a Putin than Steve Jobs...
Do you remember that Putin-blessed BP deal with Russia's government Rosneft? Well, the deal did not happen, however... Vladimir Putin said today that Shell may become a Rosneft's partner on the same conditions as BP was expected to. Netherland British Shell will most likely become Rosneft's partner in the Arctic, which will put Russia even further ahead of Canada and other nations claiming the vast Northern oil reserves.
Vladimir Putin commented that "Shell is a comfortable partner for us. It doesn't matter who the foreign partner is, as long as the conditions of the cooperation are in line with Russia's national interests." Shell is already involved in the famous projects Sakhalin-2 and Sakhalin-3. If the Shell-Rosneft deal takes place, the new venture will be split with 67% Russian ownership and 33% Shell ownership. The newly formed company will explore oil in the Arctic. A consortium of Russia's high-level politicians lead by Putin blessed the strategy explaining it by hundreds of fancy words. However, the reality is that while Russia has the money and the military might to claim the Arctic, it does not have the technology. Everybody else does, that's why it doesn't matter to Putin whether it will be Shell or BP. May be American-based oil companies should take a note of the situation.
The Russian market remains one of the greatest untapped markets for American craft beer. To date, there are no major initiatives to import and distribute American craft beers in Russia despite Russia's rapidly growing economy and taste for high quality alcoholic drinks.
Before the global recession, Russia experienced a growth rate of approximately 7-8% annually. Although the recession has slowed the economy down, many experts project a growth rate between 3.3% and 6.2% for 2010. Russia's elite and upper middle class are passionate about Western luxury products from cars to clothing and beer is no exception.
Like vodka, beer is a strong facet of Russian culture. In 2009, Russia consumed over 2.7 billion gallons (10.3 billion liters) of beer. Russia's beer culture is strongest in St. Petersburg, which holds a beer festival every summer and is home to Russia's most recognized beer brand, Baltika. In terms of value, Russia's beer market increased by 11% in 2009 despite a decline in terms of volume. This paradox reflects Russia's rising affluence, increasing palate sophistication, and movement away from standard and economy offerings towards more premium-end products.
Patriarch Kirill: Leader of Orthodox Church and Tobacco Imports
Yuri Mamchur
Many Westerners know little about the new Patriarch of the Russian Orthodox Church Father Kirill. Many Russians know him as a great orator and a host of a weekly TV show "Pastor's Word." However, very few know that Kirill (Vladimir Gundyaev by passport), a billionaire and a former KGB operative, made his fortune in tobacco, alcohol, and oil sales. His activities were among the main reasons why not-for-profits in Russia lost tax-deductible status. The new Orthodox leader is fond of playing with stocks, car racing, downhill skiing, and breeding exclusive kinds of dogs. He owns villas in Switzerland and a penthouse with a view of the Cathedral of Christ the Savior in Moscow.
After Patriarch Aleksiy II died, the Orthodox Synode, made up of spiritual, business, and social leaders, took up the evening news and the Cathedral of Christ the Savior to elect a new leader. After Mitropolits Filaret and Kliment withdrew their candidacies, Kirill won the position. When it became too obvious that Aleksiy was at the end of his life, Mitropolit Mephody, who had been considered the strongest candidate for the Patriarch's post, was sent to lead the Orthodox Church in Kazakhstan. Maybe just a coincidence, but rumors and articles in local newspapers suggested a different scenario. I heard all the stories from friends while witnessing the historic events in Moscow. Later, I took time to research whether or not they were true.
Market and Industry Report: Russian Tea Market Research Report
Alexander Aginsky
Download the PDF version of the report Russian Tea Market
Summary of contents:
- Introduction
- Global Tea Market Summary
- Issues and Trends Affecting the Global Market
- Analysis of the Russian Tea Market
- Analysis of the Indian Tea Market
- Comparison of Russian and Indian Tea Markets
- Opportunities for Indian Tea Producers
Introduction
Tea is the oldest and the most widely consumed beverage in the world after water. It is estimated that there are over 2,000 different types of tea.[1] Though several varieties of tea such as green tea and herbal tea are now becoming popular, by far the most important tea to international trade is black tea. In the global tea market, China, India, Kenya, and Sri Lanka are the major producers and also play a major role as exporters of tea, while Russia, U.K., U.S., Pakistan, and Japan form the major markets for these exports. Consumer awareness of the health benefits of tea and premiumisation [2] have been the growth drivers of the tea market recently.
Why Russians don't Like Money? (or Why Kremlin doesn't Want Good PR?)
Yuri Mamchur
Entrance to an IKEA store in Rostov, Russia.
As economy is sliding down, and even the construction of the Moscow City is up in the air, one would think that Russians, and Kremlin especially, would want as much foreign investment as possible. It is well-known that Russians have had highest levels of disposable income comparing to other nations, and retail has made many Western companies wealthy. Among such companies was IKEA that has three stores in Moscow alone. IKEA built factories, streamlined supply chains, employed thousands of Russians, brought its products to the nation, and has helped Kremlin to look Western more than pictures of shirtless Putin did.
Nine years after the opening of the first IKEA store in Russia, and in the midst of the worst global financial crisis, one would think Russian regions, and especially Kremlin, would want more foreign money and positive PR abroad. IKEA had originally planned to open its new 1,400,000 square feet complex in November 2007 in Samara. But a year and a half later, the store remained closed. The Samara's store's opening was reportedly delayed on eight separate occasions, with local officials refusing each time to supply the necessary documents. The latest objection, according to IKEA, has been that the store is insufficiently resistant to hurricanes. That's a highly unusual requirement, in a region not previously noted for its high-power winds, reported the BusinessWeek. While its sales in Russia have been growing beyond expectation, problems seemed to have been piling up even faster; IKEA has publicly raged again against "blackmail, sabotage and pressure for bribes" from Russian officials. If Kremlin's latest slogan have been "fight with corruption" and "attract foreign investment," can someone help me understand if it's really that hard to imprison the gangsters with government titles who are not only killing the foreign investment (which fell by 45% in 2009), but alsoare hurting Russia's employment, economic development, and image abroad.
Moscow River embankment on a summer night (Photo by Yuri Mamchur)
MOSCOW -- German Sterligov is well known here, but unlike Roman Abramovich, Oleg Deripaska, and other publicly flamboyant Russian billionaires, he is little known abroad. Sterligov neither sails the Caribbean nor drinks in London's Mayfair district; most of the time he lives a traditional peasant lifestyle deep in the Russian countryside with his wife and five children. In winter, their farm is accessible only by horse-drawn cart, and the nearest house is seven miles away. Sterligov's way of life makes a strong Russian Orthodox statement and amuses Moscow's public.
Sterligov made his fortune in the 1990s running a large barter business. He founded a mercantile exchange where Russians traded products they were unable to buy or sell for cash. He lived the luxurious life of a billionaire and owned properties in Moscow, London, and Manhattan. In 2004, after an ill-fated bid for Russia's presidency, Sterligov sold everything and moved to the countryside.
by Oleg Elshin
Executive Director, EastKommerts Investment Group, Moscow
A year ago I by chance witnessed a very unusual situation in a London street. Just next to the Bank of England around thirty Englishmen queued up outside a Northern Rock bank branch hoping to get their deposits back.
The event was indeed historical as it was the first classical bank run over 150 years in England. It is common knowledge that no bank ever survives and will definitely crash if all of its depositors, doubting the bank's stability, simultaneously demand to return their deposits. In the end only nationalization saved Northern Rock but its former shareholders lost everything.
Phillip H. de Leon is President of Trade Connections International, LLC in Washington D.C.
Comparing Russia with China is a futile exercise, as both countries do not compete on the same scale. Having been recently to regional cities such as Wuhan in Central China and Tomsk in Siberia and having visited the Wuhan East Lake Hi-Tech Development Zone and the Tomsk Special Economic Zone of Technological Type, I would like to share a few thoughts to see how we can make sure Russia is not left behind by drawing lessons from China's approach to become a global player in the outsourcing arena.
The recent financial crisis has sharply changed the financing options for mid-market and developing companies as the market balance has been driven from one side of the pendulum to the other. In 2008, cash stockpiles from easy credit and windfalls from high natural resource prices created hungry buyers allowing sellers able to dictate terms unthinkable in more rational times. The sale of a solid mid-market company in a western country would generate dozens of bidders and less attractive businesses still had ample options. Normally cautious and even conservative investors, such as private equity funds had to either invest or return funds to their shareholders, found themselves accepting terms never considered in the past.
Workers protest a crisis-shortened four day work week and pay cuts at a Ford plant in Russia (Photo by: The St. Petersburg Times)
In case you hadn't noticed, Russia's culture, whether the subject is politics or business, doesn't always mesh as nicely with the traditions of the West as one might suppose. The recent arrests of gay rights demonstrators in Moscow--they say they were denied any kind of demonstration permit--illustrate a continuing difference in traditions of free speech on public issues. Regardless of their stance on any given issue, such as gay rights, almost all Americans and Europeans support the right to peaceful protest. In the economic realm, the same is true. However, in the case of a demonstration in Russia against Ford Motor Co., there was no official objection to the protest demonstration, but one does wonder what really was being protested.
In the U.S., it is commonplace for companies under financial pressure to cut back employment or, in certain circumstances, to reduce the work week in order to conform to production reductions. If the company lacks orders for cars, it can't afford to build them, can it? But the work week cut still must seem novel to Russians who are more used to a general social contract that accepts low wages in return for security. In the old days of the U.S.S.R., companies just kept making products, often regardless of market acceptance. It was one reason socialism failed.
This country is vast and the opportunities here are extraordinary. And if you grew up or lived abroad in the US, the UK, Europe or parts of Asia, where the rules of the game are more or less understandable after centuries of capitalistic trial and error, it's easy to spot new market niches or opportunities here which are still open to rapid development.
This has led me on countless occasions over the years to new investment ideas and exhilarating discussions with business partners - only later to be met with countless frustrations when I've been told, "Great idea, but we can't do that here" or "this would be wonderful, but the laws here forbid us from fixing this problem in this way".
Why? If it can be done elsewhere, why can't it be done here?
What Will I Tell My Children About My Experiences in Russia?
Kendrick White
Kendrick White is an American entrepreneur living and working in Nizhny Novgorod, Russian Federation. Kendrick's firm, Marchmont Capital Partners, is one of the very few companies publishing business content in English from Russia's regions (that is, the rest of Russia outside Moscow and St. Petersburg). Russia Blog first covered the Marchmont Investment Guide to Russia's regional businesses back in March 2007, when then FINAM investment banker Vladimir F. Kuznetsov posted an article about Kendrick White.
We are proud to announce that blog posts and articles by Kendrick White and other Marchmont Capital authors discussing Russian business issues will now be a regular feature on Russia Blog.
- The Editors
What should I tell my children about my experiences in Russia? That this is a "boom and bust" country of extreme experiences...and emotions?
It's hard to say. So many of my friends--Russians, Americans, Scandinavians, Asians--are having the same experiences in their countries.
"Here we are again, another crisis to deal with!" Most of these friends are pure entrepreneurs, men and women who took the leap of faith in 1991 and 1992...when things were even bleaker than today.
Russian Banks Beg for Bailout Money Since They Will Suffer Controls Regardless
Yuri Mamchur
A currency exchange kiosk sign shows the exchange rate of one dollar to rubles in February 2009. In summer 2008, half a year earlier, one dollar could be purchased for only 23 rubles.
Americans these days are used to banks trying to avoid federal bailouts because they have learned that bailouts come with onerous government management controls. But in Russia, the government puts strings on banks if they are perceived to be in difficulty, and the Central Bank does this without providing any backup money of its own other than modest protection for individual depositors.
The St. Petersburg Times reports that small banks attending the annual conference of the Association of Russian Banks begged lawmakers and state officials to amend the new law that requires them to increase their net worth to 90 million rubles ($2.6 million) by January 1, 2010, and to 180 ($5.2 million) rubles by 2012. But government officials apparently regard the new law as necessary, even if it seems harsh. Minister of Finance Alexei Kudrin said that while there are still "honest" banks in this small-cap category, there are also many banks "engaged in money laundering," banks that exist not to lend but to "protect the owners' or someone else's money." He predicted that by January 1 about 150 banks would not have enough capital to meet the requirements.
Innovation Opportunities Motivate Russian and American Investors Despite Economic Crisis
Yuri Mamchur
Watch the video and read more in the extended post
The economic crisis is in effect; however, investors on both sides of the Atlantic are awakening from the shock they experienced last fall, and starting to invest. According to Russia Today, Russia's president Dmitry Medvedev is a "tech-junkie." Medvedev is known to enjoy keeping up with the latest high-tech gadgets, and even has been seen wearing a James Bond-style watch complete with a camera, GPS navigator, radio and video player. He is believed to be a fan of Apple, reportedly owning an iPhone and at least three MacBooks. The leader's hobbies seem to translate into investment policies.
According to Canwest News Service, a state-owned Russian venture capital fund is poised to pump millions of dollars into Canada's fledgling nanotechnology industry. Later this spring, RUSNANO officials in Moscow will decide which firms or startups it wants to fund. RUSNANO's minimum investment in any of 100 firms will be $10 million U.S.
Also, Silicon Valley/Moscow-based Almaz Capital Partners announced its first $11 million of investments into two Russian-related hi-tech companies, Apollo Project and Parallels, Inc. Their target fund size is $100 million. Almaz has completed an initial closing of $55 million with $30 million from Cisco and $25 million from UFG Asset Management. Peter Loukianoff, co-founder and managing partner of Almaz Capital Partners, will join us at the World Russia Forum on April 27, 2009. Mr. Loukianoff is an internationally recognized expert on venture capital and entrepreneurship in Russia.
Russian businessmen and businesswomen at an entrepreneurs expo
In his recent Davos World Economic Forum keynote speech, [in January 2009] Prime Minister Vladimir Putin stated that excesses, irresponsibility and greed with governments asleep at the wheel formed a perfect storm to wreak havoc on global economies. The result has been an unprecedented fall in global demand, production, employment and wealth.
Putin welcomed dialogue from all to find solutions to the crisis and to chart the way forward. While it may seem that there are more important short-term crisis-management issues to deal with when Rome is burning, it still makes sense to think of the long-term future growth in Russia.
Russia has been hard hit by the global economic meltdown. How can this crisis present governments and entrepreneurs with opportunities to create new incentives for innovation?
The speed with which the economic crisis spread across the globe, devastating so many economies, surprised many. The catalyst for the crisis can be laid at the feet of creditors, but its rapid contagion from one country to another can be explained by the globalization of supply chains.
Business is entering its third stage of evolution -- what IBM chairman Sam Palmisano calls the "globally integrated enterprise." The first stage was the 19th-century's "international model," when corporations established sales offices in foreign countries with minimal economic impact on host countries.
Thomas Nastas Talks Innovation on Russia Today's Spotlight with Al Gurnov
Thomas Nastas
Tom Nastas is an American venture capitalist based in Moscow
Last week I taped an interview in Moscow with the English-language 24 hour news channel Russia Today on technology and creating an innovation economy in the Russian Federation . My appearance on the Spotlight with Al Gurnov show aired on March 24, 2009.
Click on the extended post to watch the video and for links to my previous interviews on RT and previously published articles on Russia Blog.
Russian & Chinese Investment into U.S. Real Estate
Alexander Aginsky
Download the PDF version of the report Real Estate Market in Russia, China, and America: Trends and Opportunities
Russian fertilizer oligarch Mr. Rybolovlev is the buyer of the most expensive single-family home sold in America. The property, at 515 N. County Road on Palm Beach, sold for $95 million.
Summary of contents
- Overview of the current state of the U.S. real estate market
- BRIC economies and their growing importance in the global economy
- Russia's economic outlook and business prospects
- China's economic outlook and business prospects
- Opportunities for U.S. real estate companies
Overview of the current state of U.S. real estate market
The U.S. real estate market is currently going through one of the worst corrections in history as evidenced by a steep, declining trend of new home sales and rapidly growing real estate foreclosures.
U.S. Firm in Kiev: Ukrainian Banking System Might Collapse
Yuri Mamchur
An internal letter at an American company in Kiev, Ukraine, informs the employees that they will receive their two-month salary in advance, because... there might be no way to transfer funds a few days from now. The firm's financial analysts predict that it might become impossible to transfer money within the Ukrainian banking system. The message says:
"The Ukrainian economy is experiencing unprecedented challenges, and one of them is the potential for instability in the banking system. The failure of the Ukrainian banking system is not imminent, however, risks have increased significantly in recent weeks... Should the Ukrainian system not pass these tests, it might significantly affect the ability of businesses to transfer money in the system, including making the salary payments."
This article appeared in a smaller American newspaper, The Oregonian on February 15. On January 27 Vladimir Putin told Bloomberg that he wasn't "indifferent to the amount of the US federal budget deficit" because... "Russia has almost a half of its gold and currency reserves in the American economy." Today, the irony (and the appropriate consequence of the ridiculous investment strategies of the Russian government and oligarchs) is that Western companies owned by Russians will receive Kremlin bailout money ahead of Russians. In fact, the Motherland's businesses might not see the money at all...
Will Kremlin bail out an Oregon steel plant? By Richard Read (richread@aol.com)
The Oregonian
Sunday February 15, 2009, 8:55 PM
During their recent heyday, Russian billionaires bought far-flung companies, London mansions, massive yachts and private jets. Few of the reclusive oligarchs loomed larger than Roman Abramovich. The owner of Britain's Chelsea soccer team is one of two controlling shareholders in Evraz Group, which bought Portland-based Oregon Steel Mills for $2.35 billion in 2007. Now some of the oligarchs, reeling from the global economic meltdown, are proposing a mega-merger -- including Evraz -- that would give the Kremlin a stake in the resulting Goliath and, hence, in Oregon Steel.
Deripaska, the Richest Man in Russia: "The Russian Economy is Turned Inside Out"
Charles Ganske
Oleg Deripaska (right, with Vladimir Putin) is the richest man in Russia and is a longstanding member of the Kremlin elite.
In late 2007 Oleg Deripaska reportedly surpassed Roman Abramovich, the flashy owner of the English Premier League Chelsea football club and former tycoon of the Sibneft oil company, to become the richest man in Russia. This year Mr. Deripaska's holdings and those of his fellow oligarchs have been sharply reduced by the global economic crisis, and in particular, the shrinking of worldwide capital markets that financed the expansion of Russia's largest companies. And yet, when Deripaska sat down with the Wall Street Journal reporter Greg White for an interview in December 2008, the oligarch remained bullish on the long term prospects for Russia. While the WSJ's editorial board has consistently taken a hard anti-Kremlin (and some would say, anti-Russian) line, its reporters continue to do excellent reporting on the Russian economy.
Click on the extended post to read an extensive excerpt from the WSJ article.
According to the A.T. Kearney survey, a global city is defined as an urban center that "excels across multiple dimensions" of human achievement, with different rankings for leading cities in business, finance, education, and governance. Some cities came off better in the rankings due to their historic position as global economic hubs, such as New York, London, and Tokyo, while others offered more lifestyle attractions, such as Toronto and Los Angeles. But all of the established megacities in the developed world have increasing competition from emerging market boomtowns like Beijing, Bangalore, Sao Paulo, and Shenzhen. As the capital of the Russian Federation, Moscow found its spot in the combined rankings at #19 out of 60 global cities, situated in between Vienna and Shanghai.
...And now for some good news amidst the general economic malaise gripping Russia and the Western economies. After years of dependency on imports and neglect following the collapse of the Soviet collective farming system, Russia is making great strides in agriculture.
Although it may have been forgotten, prior to the Bolshevik Revolution, Russia, Belarus, and Ukraine were the breadbaskets of Europe. With sufficient credit for farmers and other policies encouraging investment in the regions, the Russians may very well join the U.S., Australia and South America as breadbaskets for a hungry planet.
One sector looking up long term for Russia is ag. Lots of arable land not being used, and Russia is already a big global source (one of four) for net grain exports. Plus, yields in Russia stand about 30% of that in the advanced West--hence the investment payoff opportunity...
The UN says Russia has 480,000 square miles of arable land. That's twice the size of France and 8% of the world total...
Amazingly enough, with all that potential, Russian ag land costs about 10% of that in France and 20% of that in Brazil.
Read an excerpt from the original BusinessWeek article in the extended post.
Russian Entrepreneurs Facing Tough Times in the New Russian Economy
Yuri Mamchur
The current economy presents unprecedented challenges for Russian entrepreneurs.
An opinion poll conducted by "Business Russia", a group that represents Russian medium-sized businesses, shows desperate results. These businesses are preparing to lay off employees, lower production output, and face reduced demand and higher interest rates.
65% of the Russian entrepreneurs polled do not expect to grow their businesses in 2009. They believe that sales will either stay at the same levels or will drop as soon as the fourth quarter of 2008. 39% percent of business owners surveyed are pessimistic. The main reason for these negative sentiments is a lack of liquidity for daily operations. At this moment, debt makes up 20% of the portfolios of 35% of the companies; for 30% of the companies the debt amounts to 21-40% of their total balance sheet. Most of the companies need more credit which is not available. Many Russian banks are raising interest rates or refusing to give them loans at all.
Real Estate Market in Russia, China, and America: Trends and Opportunities
Alexander Aginsky
Download the PDF version of the report Real Estate Market in Russia, China, and America: Trends and Opportunities
Moscow International Business Center at night. The Federation Tower will become the tallest building in Europe, rivalring the Mercury City Tower (also in the Moscow IBC).
Crystal chandeliers and golden toilet seats might become part of Moscow's decadent past instead of present thanks to the global financial crisis
Two articles, one from the U.S. Washington Post and another from the UK Telegraph do a fair job describing the severe consequences of the global financial crisis for the elite club going life-style of Russia's extravagant rich.
The Washington Post raises the issue of Russian oligarchs losing their fortunes and the Medvedev-Putin government's dilemma of either bailing out Russia's super rich in an unpopular move to shore up the economy, or seize an opportunity to legally nationalize their businesses. It's no secret that many oligarchs enjoyed a successful "head-start" on building their vast fortunes by stealing state assets in the early Nineties, during the so-called privatization of Yeltsin's reforms.
The Telegraph describes the half-empty rooms in The Most, one of Moscow's most glamorous clubs and shops [the Telegraph story was picked up by an expat blog called Moscow Doesn't Believe in Tears, which mocks the ludicrous excess of the Moscow clubbing and fashion world]. The $40,000 private tables, $1,000 shots of liquor, SWAT-team-like feis kontrol bouncers, and toilet seats made of gold in Moscow night clubs seem to be shifting from a nightly routine in the world capital for billionaires into a bizarre but amusing page in Russian history books.
Please visit the extended post to read the articles.
On Monday, October 6, the Russian market experienced perhaps the worst day in its history. Despite several trading pauses, total market losses equaled to 19 percent. Some Russian blue chip stocks lost nearly 40 percent. Declining oil prices didn't help the markets either. The dollar-denominated RTS index dropped to 867 points, while the ruble-denominated MICEX halted trading when its index dropped by 18.66 percent, closing at 749.66 points.
Russian companies saw their equity value evaporate on both Moscow and London exchanges. In London, shares of Russia's "Norilsky Nickel" lost 44.28%, VTB -- 36.18%, "Tatneft" - 45,23%, «Uralkaly» -- 47,78%, Rosneft» --39,77%, LUKoil -- 36,09%, «Surgutneftegaz» -- 31,25%, Х5RETAIL -- 26,12%. In Moscow, "Norilsky Nickel" plummeted 37.67%, "Rosneft" -- 27.41%, Gazprom -- 24.42%, LUKoil -- 24.16%, "Surgutneftegaz" -- 22.92%, MTS -- 21.21%, Sberbank -- 16.32%, VTB -- 24.5%.
Ferrari cars are displayed just outside Moscow's Red Square to mark the opening of the new Ferrari and Maserati showroom in the Russian capital on Saturday, April 28, 2007, with some of the Red Square landmarks in the background. (Photo by AP, Comment by Daylife).
Download the PDF version of the report Luxury Goods Market in Russia
According to a recent study by PriceWaterhouseCoopers, Russia is home to the world's third largest concentration of billionaires (after the United States and Germany) and over 100,000 multimillionaires who have a combined $300 billion of cash on hand.(1) According to Associated Press, "Moscow is home to more rich people than New York."(2)
Rising consumer demand for new and better products and increasing incomes have given rise to an expanding middle and upper class that "have caused an explosion in all types of consumption."(3) The Russian capital, Moscow, is now internationally considered a Mecca for buying and selling the highest of the high-end.(4)
After nearly two days of mandatory vacation the Micex and RTS stock exchanges opened again and set a new all-time record for one-day growth. The RTS dollar index grew by 22.39%, reaching 1295.91 points, while the ruble index of Micex grew by 28.69%, reaching 1098.95. The exchange indexes almost leveled themselves out to the pre-crisis levels. The week of trading resulted in the lowering of the Micex index by 3.4 percent and the lowering of RTS by only 0.2 percent. However, Russian media point out that the growth was artificial and possibly due to high liquidity, a result of the Russian government's unprecedented actions. Media disagree with many Russian financial experts and warn that external factors might precipitate a loss of market value once again.
Interestingly, the stock exchanges had to halt trading briefly on two occasions Friday due to the extremely fast pace of buying. Traders had only three hours of actual trading Friday, yet they managed to set a record. In addition to the measures described in Russia Blog's previous article, the Russian Federal Service for Financial Markets prohibited trading of borrowed assets that weren't fully owned and it prohibited the "short" sales. In addition, the Russian government made a firm statement that its decisions on tax cuts in the oil sector are definite and final. Several private companies, including Lukoil, bought back their own stock.
All the measures and actions aside, experts and media believe that the rebound was mostly influenced by the overall growth of the world market rather than the domestic actions of the Russian government.
Market Failure in Russia: America's Problem, Nobody's Problem or Doomsday?
Yuri Mamchur
Russia and the rest of the world have both suffered a terrible week in their stock markets
A misleading calm prevailed in Russia this week after two days in which the Russian stock market crashed and another two days in which the market was closed. The recent plane crash in Perm, the worst in years, was bigger news in Russia than the sinking markets. Russia's news media presented plummeting share losses in a matter of fact manner, while wondering how the Russian government was going to respond to this harsh new economic reality. Markets remained closed on Thursday.
Russian markets fell 17 percent Tuesday, the biggest drop since 1998, bringing market levels to their lowest point since 2005. Gazeta.ru published these illustrative numbers at the moment of the unscheduled early closures of the dollar-denominated MICEX and ruble-denominated RTS stock exchanges: shares of VTB dropped by 32.5%, Sberbank (the largest bank by deposits in Russia) -- 20.9%, FSK -- 27.6%, Transneft -- 24.1%, Tatneft -- 15%, Lukoil -- 13.5%, Norilsk Nickel -- 8.2%, Severstal -- 8.7%, Gazpromneft -- 8.2%, etc.
Weekly Market and Industry Report: Russian Cosmetics Market Overview
Alexander Aginsky
Download the PDF version of the report Cosmetics Market Research Summary
I. Global Cosmetics Market
II. Market Opportunities in Russia
- A. Russia's economy
- B. Russia's retail industry
- C. Russian cosmetic market
- D. Consumer trends
- E. Cosmetic products
- F. Distribution and sales channels
- G. Russian Market Opportunities
I. Global Cosmetics Market
The global cosmetics and toiletry industries (C&T) had more than $270 billion in sales in 2006. Of this figure more than $140 billion is represented by the cosmetics and personal care sectors. (1) These industries are outpacing most others. The largest global segment is skin care and is estimated to have more than $31 billion during this same time period. (2) Euromonitor International forecasts annual global growth of 3.7% to reach international sales of more than $300 billion by 2010. The largest domestic market is in the United States, where sales in the cosmetics and personal care sectors are nearly $5 billion.
Download the PDF version of the report Russian Construction Material Market Research
Cement from Portland unloaded in Russia
The global cement and concrete additive market is experiencing rapid growth. The world market has been growing at more than 6.8 percent annually since 2005. (1) Developed markets worldwide are posting weaker gains than the world average at about 6 percent. Meanwhile the emerging markets of Eastern Europe are posting gains much higher than the world average at above 15 percent. (2) It is the perfect time for U.S. producers to look to the emerging markets to expand their customer base and diversify their risk. The emerging markets of Eastern Europe, and specifically, Russia, are perfect targets for Western companies that are turning their eye globally to increase their revenues.
Russian Market Overview
Since 1999, Russia has experienced outstanding growth rates, constantly improving macroeconomic conditions, and a growing involvement in the global economy. These achievements, together with high world oil prices, political and economic stability, and skyrocketing foreign direct investment have all contributed to the growth of the country's economy. Russia is the fastest growing economy in the G8 group of industrialized nations. Over the last seven years, Russia's economy has grown by an average rate of 6.8 percent each year and is projected to grow at an average rate of 7 percent YOY through 2010. In 2006 and 2007 Russia's growth exceeded all expectations, accelerating in several key economic sectors such as real estate, tourism, and retail.
The war in South Ossetia and Georgia, though appalling, resulted in fewer deaths and damage than originally reported. It is still not "over" and probably won't be for some time. Meanwhile, it definitely did serious damage to Russia's relationship with the West. In some ways, relations are worse than at any time since well before the collapse of the USSR--in other words, in roughly a quarter century.
We are going to say a lot more on this, and we are not inclined to be particularly laudatory to any of the players. The war has not made any country look good.
Meanwhile, before the war we wrote a report on Ten Reasons Americans Should Care About Russia. It follows, and, as you will see, it remains valid. Perhaps as tempers cool, people of good will can consider what is at stake; what there is to gain, and what there is to lose.
The Russian Federation has experienced significant changes since the volatile years of the 1990s. Nine straight years of consistent GDP growth along with political stability, high commodity prices, and a great influx of foreign direct investment have transformed Russia into a modern country with the 9th largest economy in the world. (1) The country's newfound wealth is driving the modernization of all major industries in the country and especially in the forestry sector.
With the passing of the 2007 forest code and continuing modernization in equipment and techniques, Russia's forestry industry has the potential to increase wood products output by 4 times its current rate. (2) Considering that Russia contains one quarter of the world's forests, industry experts proclaim that "the potential of the national timber industry is no less than that of the oil, iron, and steel industries." (3) According to some experts, the economic potential of Russia's forestry industry can be estimated at more than 100 billion US dollars(!). (4)
Many have wondered whether the conflict in U.S.-Russian relations over Georgia was going to affect business relations between private corporations of the two countries. Tentative indications are "no." Last week, reports Reuters, Best Buy Co Inc (BBY.N), the leading U.S. retail electronics chain, expanded into Russia, having registered its Future Shop trademark to operate in the fast-growing market. Victoria's Secret, owned by Limited Brands (LTD.N), and Japanese retailer Muji have also registered trademarks in Russia this month, Kommersant reported, as a decade of economic growth continues to boost wages and demand for high-end goods.
Vedomosti newspaper, citing the government patent agency Rospatent, said Best Buy had entered its license application for Future Shop, a Canadian subsidiary, in 2006, but has never voiced any intentions of opening stores in Russia. Rospatent has registered the Future Shop brand and is still reviewing the application for the Best Buy trademark, Vedomosti reported. Kommersant also reported that Best Buy had this month been granted Russian trademark rights for Future Shop. The move of Victoria's Secret, Bes tBuy, and Rospatent, most likely, has no relationship to the ongoing conflict, but is a great indicator that the American-Russian business has a bright future.
Crisis in Georgia or Not -- Weekly Market and Industry Report: Russian Retail Market
Alexander Aginsky
Download the PDF version of the report Russia's Retail Market: Trends and Opportunities
Entrance to an IKEA store in Rostov, Russia.
Summary of contents
- Russia's economic outlook
- Russia's retail sector
- Case studies
- Opportunities
Russia's economic outlook
Since 1999 Russia has experienced outstanding growth rates, constantly improving macroeconomic conditions, and growing involvement in the global economy. These achievements, together with high world oil prices, political and economic stability, and skyrocketing foreign direct investment have all contributed to the growth of the country's economy.
Market and Industry Report: Russia's Construction Equipment Market
Alexander Aginsky
Download the PDF version of the report Russia's Construction Equipment Market
Gazprom Building To Be Constructed In St. Petersburg (Photo by The Design Blog)
Eastern Europe and Russia, in particular, is currently home to one of the most dynamic and attractive construction equipment markets in the world. The tremendous growth of Russian businesses, sustained high price of oil and gas, political and economic stability, as well as growing foreign direct investment and international trade have all contributed to the growth of Russia's construction equipment industry. As the construction boom continues across the country, considerable demand for Western made heavy construction equipment continues to grow.
Fueled by rapid economic growth over the last seven years, Russia is now one of the most rapidly growing construction equipment markets in the world. With an average of 10 to 25 percent growth in the market annually, Russia offers Western construction equipment companies enormous opportunities for growth and expansion. (1) The construction and mining machinery market in Russia is expected to continue to grow strongly for at least the next 3-5 years. The market for construction machinery was worth $2.1 billion in 2006, and is estimated to reach as much as $2.6 billion in 2007. (2)
Forbes is reporting for the third straight year that Moscow is the most expensive city in the world according to a cost of living survey of expatriate professionals conducted by Mercer, a UK-based global human resources firm. Expats who have lived like native Muscovites for a long time may argue that prices in London and Tokyo are worse (and indeed, when it comes to rent for a luxury apartment, Tokyo still takes the cake) but Forbes leaves Moscow at the top of this dubious category. A cup of black coffee costs $10.83 in Moscow, but a latte with an hour of Internet access at Kafe Haus or Chocolatnitsa will could cost you considerably more.
Although around the clock traffic jams, high food and housing costs, low entry level salaries in return for long hours, air pollution and snow turning to muddy slush five months out of the year may keep many talented Russians and foreigners away, the city still has its charms; 24-hour shopping and restaurants, street musicians performing for a few rubles in the Metro, reliable if crowded mass transit, wild night life, fine arts and culture, and beautiful women.
Click on the extended post to read "the rest of the story".
It's a rainy Saturday morning (July 26, 2008) and I'm killing some time while my wife gets her nails done. I'm sitting in the Europa Cafe on Severnaya Street drinking some coffee and writing this blog post.
Europa Cafe is one of the best places in Krasnodar to have a business meeting. The location is very convenient to the center of Krasnodar and perhaps most importantly, there's a parking lot just meters from the front entrance.
Market and Industry Report: Russian Hotel and Hospitality Market
Alexander Aginsky
Download the PDF version of the report Hotel Industry in Russia
Is it a Mercedes dealership? No, just a parking lot by a new 5-star hotel in downtown Moscow... (Photo by: Yuri Mamchur
The hotel industry is expected to become one of the most dynamic sectors in Russia,
for two major reasons:
- 1. Tourism to Russia is increasing at a very fast pace.
Russia currently receives up to 40 million tourists per year, (1) and this number is
anticipated to rise in both its domestic and foreign component. According to Moscow
City Government estimates, the current number of tourists visiting Moscow is around
2.9 million per year, and this is estimated to reach 5 million within the next decade.
By comparison, Berlin attracts 3.2 million, Vienna 2.8 million, and London 18
million. (2) Furthermore, by year 2020, Russia is expected to be among the 10 top most
visited countries in the world, attracting 3 percent of the world's tourist market. This
trend is confirmed by figures for the first quarter of this year (2007) when tourism has
increased by 20 percent. (3)
- 2. The industry is still modest in size compared to that of Western countries, and it has not developed homogeneously.
While in the '90s Moscow and a few other cities in Russia experienced tremendous growth in the upper tier of the hotel market, now this sector is close to saturation. The concentration in the expensive five-star hotel market limits the alternatives for tourists and business people, who usually look for lower prices while still expecting Western security and comfort standards. (4)
Whereas many American analysts describe U.S. steelmaking as a sunset industry that cannot compete with cheap steel imports from China, Russian tycoons, who have experience modernizing outdated Soviet mills in Russia, perceive value. The weak dollar has made many U.S. companies cheap in comparison to their counterparts in the Euro zone, and many wealthy Russians are purchasing luxury properties in the U.S. for the same reason.
In addition to the dollar devaluation making American exports cheaper, in the past year skyrocketing world oil prices have tripled the cost of sending a standard shipping container from China to the U.S., reducing China's market share for steel in North America. Chinese manufacturers increasingly find themselves not only paying more to ship their low-margin goods abroad, but paying more for oil, iron ore, and other raw materials needed to produce these products, all while having their low-wage advantage undercut by competitors in Vietnam, India and other Asian countries.
Click on the extended post to read an excerpted article from Reuters.
Russia Becomes Europe's Largest Car Market; American Cars Lead Sales
Yuri Mamchur
The New Ford Focus...
...and the Chevrolet Lacetti are the most popular cars in Russia.
Russia has become Europe's largest automotive market after year on year sales grew 41 percent in the first six months of 2008, according to a survey by PriceWaterhouseCoopers (PWC), reported Moscow News. In this period, 1.65 million cars were bought in Russia compared to 1.63 million in Germany, which was previously Europe's largest market. The most popular cars in Russia are American Ford Focus and Chevrolet Lacetti. Gazeta.ru reports that according to the Association of European Businesses, in the first six months of 2008, Russians purchased 1,058,037 new foreign cars. General Motors had no explanation for such success with their Lacetti. "Probably, this model is what a Russian consumer needs at the moment," said a GM representative.
The demand for American vehicles inspired General Motors to open a new factory in Saint Petersburg. The factory will produce 45,000 Lacettis a year. However, even having a factory in Russia is not going to be enough to satisfy Russian demand for automobiles. Russian drivers bought 45,000 Lacettis in just six months. Ford Focus has been an all-time favorite for middle-class Russian drivers, and the new redesigned model added popularity and stronger sales for this model. 47,500 Focuses were sold in the first six months of 2008. Korean and Japanese cars are also very popular with Russian families. The newest version of the Mitsubishi Lancer takes 5th place on the "hit parade" of the bestselling cars in Russia. However, the Japanese also cannot catch up with Russian demand; 34,000 Lancers were sold in the first half of the year, but there remains a long waiting list for more Lancers.
Russian Automotive Market Overview Download the PDF version of the report
The Audi Q7 became one of the most popular SUVs in Russia on the day of its introductory demonstration in Moscow in 2006.
The Russian market for 4x4 vehicle accessories and off-road equipment continues to develop at a rapid pace, as the growth of Russia's car market keeps expanding year over year. According to a recent study led by the German Car Industry Association, the Russian car market will be one of the fastest-growing vehicle markets in the world over the next ten years.(1) The enormous opportunities presented by the Russian market have already attracted most of the major auto-manufacturers there as they vie to establish a presence in a country where, according to PricewaterhouseCoopers, sales of foreign car models increased by 100% over 2005.(2)
Nine straight years of consistently high GDP growth, along with political stability, high commodity prices, and a great influx of foreign direct investment, have transformed Russia into a modern and vibrant 9th biggest economy in the world.(3) Russia is already a bigger economic market than both India and Brazil, and is aiming to become one of the world's top five economies by 2020.(4)
The housing market in the United States continues to cool and demand for pre-fabricated housing and housing components is slowing down. However, the markets for pre-fabricated housing in Eastern Europe, and particularly in Russia, Ukraine, and Kazakhstan present considerable expansion opportunities for U.S. manufacturers. Russia, Ukraine, and Kazakhstan, with a combined population of 200 million, represent a major untapped market for pre-fabricated housing manufacturers. Existing housing stocks are aging and need replacement, while demand for new housing is steeply trending upward in step with rapid economic growth.
Rapid economic growth in these countries means that salaries have risen considerably since 2000 with many people now seeking to purchase their own homes. However, the very slow process of constructing high rise multi-family housing combined with the desire to live in a single family home is driving the enormous interest in cost efficient pre-fabricated housing. Competition in the pre-fabricated housing market in Russia, Ukraine, and Kazakhstan is currently very low, making it the ideal time for U.S. manufacturers to establish manufacturing facilities and secure a significant portion of the market share.
New Weekly Column: Russian and CIS Market and Industry Overviews
Yuri Mamchur
Aginsky Consulting Group is an internationally recognized, boutique consulting company, headquartered in Portland, Oregon, focused on providing a range of management consulting services to mid-size and Global 2000 companies worldwide. The company produces highly interesting reports on the conditions of different areas of the Russian market. The market and industry overviews cover many subjects, from cosmetics and wines to SUVs and luxury goods. Russia Blog is pleased to introduce our readers to the publications from Aginsky Consulting Group; the reports will appear weekly on Tuesdays. The entire list of the reports will be available via the Business section of the Russia Blog, or via searching in the upper left hand box on the main blog page for "Aginsky Consulting Group."
Given the current conditions of the housing market in the U.S., we'll start the new weekly column, brought to us by Alexander Aginsky, the company's Managing Director, with the report that explores business opportunities for housing in Russia, Ukraine, and Kazakhstan.
Oleg Deripaska is the richest Russian with a fortune of over 28 billion dollars
Forbes reports: Moscow has overtaken New York City as home to the most billionaires, according to Forbes magazine, with 74 of the super-rich elite now counting the Russian capital as their home. By contrast, 71 billionaires live in New York, according to the magazine's annual list, which placed London in third place with 36.
"Russia is again the dominant story in (Europe) this year. Its billionaires are just fast and fearsome. What's fascinating is that every single one of them is self made," said Forbes senior editor Luisa Kroll. "We're not going to get into exactly how they got it but none of them inherited it and their average age is 46," she added.
Russia now counts a total of 87 billionaires, ousting Germany in second place but still trailing the first-placed United States, which has 469. Russian oligarchs have made seen their fortunes rise in recent years thanks to booming commodity prices. Among the top-placed Russian figures were aluminum magnate Oleg Deripaska, valued at 28 billion dollars and Chelsea football club owner Roman Abramovich, said to be worth 23.5 billion dollars.
Click here to read the rest of the Forbes billionaires list articles at Forbes.com.
Rankings Versus Reality: It's Time for Inside-the-Beltway Conservatives to Get Real on Russia
Yuri Mamchur
Last week, the Heritage Foundation, one of the largest and perhaps most influential think tanks in Washington, D.C., published its annual global rankings of economic freedom. While think tank reports seldom have as much impact as their authors would like to believe, this particular document was published in partnership with The Wall Street Journal.
The report claimed that out of 150 countries surveyed in 2007, Russia is now ranked 134th in the world in terms of economic freedom, allegedly slipping fourteen spots from its lowly 120th ranking at the end of 2006. Russia was supposedly less free than all of the other countries in the former Soviet Union, with the exceptions of Belarus and Turkmenistan. Russia is also said to be lagging far behind such surging economic powerhouses as Pakistan and Cambodia.
President Putin greeting children at Krasnaya Polyana
It's kind of funny to be sitting here in Val D'Isere at an internet cafe listening to all the Russian tourists while back in Sochi the preparations for the 2014 Winter Olympics are just beginning.
I wonder what will happen to the local economies of the French, Swiss, and Italian ski villages when Krasnaya Polyana and Rosa Khotur are developed enough to convince the Russian skiing public that they might as well stay in Russia for their winter vacations?
Click on the extended post to read two articles detailing the newest developments around Sochi.
Krasnodar Business Round-Up: Golden Telecom Buys NTT Marchmont Capital Looks to the Regions
Timothy Post
From a press release posted recently on CNN Money.com:
Golden Telecom, Inc. ("Golden Telecom" or the "Company") (NASDAQ: GLDN), a leading facilities-based provider of integrated telecommunications and Internet services in major population centers throughout Russia and other countries of the Commonwealth of Independent States ("CIS"), announces today the closing of the acquisition of a 100% stake in LLC "New Telecom Technologies" ("NTT") in Krasnodar -- an alternative carrier providing communication services to business customers and carriers in the region...
The acquisition of NTT is part of Golden Telecom's successful regional expansion strategy. Golden Telecom already owns and operates sizeable local and intercity networks in Novorossiysk, Gelendzhik, Sochi and other cities in the Krasnodar region. In Sochi, Golden Telecom offers long-distance services, corporate networks and Internet access through Sochi Telecom, a telecom operator established in 1999 and acquired by Golden Telecom in October 2005.
Golden Telecom joins Rostelecom (NYSE: ROS) and Vimpelcom (NYSE: VIP) among the fastest growing publicly-traded companies in the Russian telecommunications sector.
Click on the extended post to read more Krasnodar business news.
South Federal District // Commercial Real Estate, #20 (80)
15.10.2007 Krasnodar: Holiday making and Entertainments
South Federal District
The commercial real estate market of Krasnodar is notable for two main characteristics. First of all, local developers of retail properties are better at building entertainment centers than their colleagues in other regions. And, secondly, because of the upcoming Winter Olympics of 2014 hotel construction is switching into high gear.
Life, liberty, and the pursuit of a new washing machine
On Saturday December 8, 2007 we did some serious power shopping.
In the morning we drove over to the Komsomolski district and checked-out a new store, Energiya for your Home, which was having its grand opening. Komsomolski district is quickly becoming the retail center for the city of Krasnodar.
The biggest story in Russian business this week is the UK-based Belgravia Investment Group's announcement of a $2 billion dollar joint venture to develop Russian business parks. The deal involves the Immo Industrial Group, a Belgium-based manager of industrial properties in Europe, and the Russian restaurant holding company Rosinter, which is best known for bringing Kentucky Fried Chicken to Russia.
The total size of the development will be two million square meters (21,527,820 sq. ft.) At least 44 industrial tenants have already leased space, and the Hilton Hotel chain has agreed to build hotels near all fifteen sites, including in Moscow, St. Petersburg, Novosibirsk, Rostov-on-Don, and several other cities. Rosinter will build Sushi Planeta, TGI Friday's and 1-2-3 Cafe restaurants to serve employees at the sites.
Iraqi Foreign Minister Zebari meeting Russian Foreign Minister Lavrov in 2004 Photo by: China Daily
On Thursday Iraqi Foreign Minister Hoshyar Zebari met with Russian Foreign Minister Sergei Lavrov in Moscow. The topic of discussion was reopening Iraq to Russian companies eager to reconstruct the war-torn country's delapidated infrastructure. Mr. Zebari declared that "our main goal is to sign a memorandum with Russia regarding economic trade cooperation". Mr. Lavrov pointed out that much of Iraq's infrastructure was designed by Soviet engineers in the 1970s and that Russia has a lot to offer in terms of restoring and modernizing equipment and buildings.
The main sticking point in the negotiations, according to Kommersant, remains Moscow's offer to forgive $10 billion in Iraqi debt leftover from the Saddam era in exchange for restoring Saddam-era contracts signed to redevelop Iraqi oil fields. The current Iraqi government is sensitive about mineral rights, but wants Moscow to write off 80% of Iraq's debts to Russia in return for oil field concessions.
Vodka and Credit Cards: IHT Profiles Russki Standart Group
Charles Ganske
MOSCOW -- Business consultants at McKinsey were aghast when a Russian entrepreneur, Roustam Tariko, told them he wanted to call his new bank - for which they had drawn up the plans - the same as his vodka brand, Russian Standard.
He overruled them and Russian Standard Bank, created in 2000, is now among the top three most profitable banks in Russia and the largest specialized consumer finance bank, according to the credit rating agency Standard & Poor's.
"The vodka business is an excellent business and the credit business is brilliant," said Al Breach, a Moscow-based economist and strategist for Russia at UBS.
Market research commissioned by Tariko at the time showed that Russians trusted the vodka brand enough to borrow from a bank with the same name - highlighting the differences between consumers in Russia and in developed markets, where alcohol and banking are never mentioned in the same breath.
Click here to read the rest of the article from the International Herald Tribune.
Russia/Ukraine to Restart Antonov 124 Production Russian An-124s Flying into Iraq, Afghanistan
Charles Ganske
A Ukrainian Antonov Airlines An-124 landing in Southern California in 2006
One of the little noted news stories to come out of the MAKS 2007 air show was the announcement by Motor Sich OJSC and Ukraine's Antonov Design Bureau that they would jointly resume production of the Antonov 124 "Ruslan" cargo plane. It has 25% more cargo capacity than the largest plane in the U.S. Air Force inventory, the C-5 Galaxy.
The An-124 and its successor, the An-225, were originally designed in the late 1970s to support Soviet oil and gas development in Siberia. In 1992, after the collapse of the Soviet Union, all new production of Antonovs came to halt. During the Nineties, when transport aircraft were still in high demand but civil and military aviation in the former USSR was in terrible shape, several Antonov jets crashed. However, since the year 2000, Antonov 124s and the -225 have safely logged thousands of flight hours without incident in some of the harshest climates on Earth.
Five Million Families in Russia Earn Over $30,000
Kommersant, September 6, 2007
Five million families in Russia annually earn more than $30,000, according to the report of
Rosgosstrakh insurer. The number grew by over 60 percent over a year.
Given that the family size averages 2.7 persons here, roughly 13.5 million have the income above the medium one. Besides just wealthy, Russia has 160 families that are the millionaires in terms of the U.S. dollars and 12,000 families have revenues above $5 million. It isn't surprising that 80 percent of millionaires live in Moscow and in the Moscow region.
The wealthiest category of the Russians (revenues above $5 million) widened by a half past year. The families with revenues of $30,000 to $100,000 manifested the highest growth of 71 percent.
Click on this link to read the full story. Click on the extended post to read excerpts from coverage of the Russian economy by Reuters and the Wall Street Journal.
What Leading Global CEOs Think About Doing Business in Russia
Charles Ganske
Here is a short video clip from the 2007 World Economic Forum held last month in Davos, Switzerland (the next WEF will be held September 6-8, 2007 in the port of Dalian, China). The topic of the panel discussion was "Modern Russia: Strengths, Challenges and New Prospects - A Perspective from Business". The participants included:
Vladimir Evtushenkov, President and Chief Executive Officer, Sistema JSFC, Russia
Steve Forbes, President and Chief Executive Officer, Forbes, USA
E. Neville Isdell, Chairman and Chief Executive Officer, The Coca-Cola Company, USA
Andrei L. Kostin, Chairman and Chief Executive Officer, Vneshtorbank (VTB) Russian Federation
James S. Turley, Chairman and Chief Executive Officer, Ernst & Young, USA Lionel Barber, Editor, Financial Times, United Kingdom
Russian First Deputy Prime Minister Dimitri Medvedev
Russian Economic Development and Trade Minister German Gref
Click on the extended post to read what these leaders in global business had to say about modern Russia.
Krasnaya Yabloka (КраÑÐ½Ð°Ñ Ð¯Ð±Ð»Ð¾ÐºÐ°): The Apple Store in Krasnodar
Timothy Post
Here's a photo of the Krasnodar branch of a licensed Apple retailer called re:Store. The store is located inside of the Krasnaya Ploshad (translation: "Red Square") Mall. When driving up to the mall, stay right, pass the McDonalds drive-through window on your left, and then park behind the mall. The store is just inside the entrance on your left, next to Maria Rafaela boutique. Click on this link to view a map and directions on the store website.
The staff (just like at most Apple stores) is young, knowledgeable, and friendly. The store has almost the same feel as Apple stores in the U.S. and as far as I could tell, it had almost the same selection of electronics. All of the hardware is compatible with the Russian electrical outlets and all of the keyboards have permanent Cyrillic characters on each key.
Russian real estate developer Araz Agalarov Extended post photos by: Timothy Post
In this piece, Timothy Post, an American living and working in the southern Russian region of Krasnodar Krai, talks about Agalarov Estates, an exclusive new development in Moscow.
-The Editors
If you do not live in Moscow, the name, Araz Agalarov (age 51), may not be familiar to you, but you will hear it more often very soon. Mr. Agalarov, a native of Baku, Azerbaijan, is a Moscow-based real estate developer and one of the hundred richest men in Russia. Agalarov has built a number of projects which, despite some initial skepticism about their financial viability, have all gone on to exceed expectations. Agalarov's first major project in Moscow was a super high-end shopping mall called Crocus City Mall.
Completed in 2002, many thought the idea of putting an elite mall along the outer ring road around Moscow was ill advised. Would wealthy Muscovites fight traffic to drive to a shopping mall to buy their Prada, Armani, Gucci? Mr. Agalarov thought so and it turns out he was correct.
Crocus City Mall has since spawned a well-known brand called "Crocus" which, like the Trump brand, has been extended to a number of other projects. Since 2002, Mr. Agalarov has built a couple of expo centers, a yacht club along the Moscow River, a hyper market, and a number of condominiums.
Russian metals tycoon Oleg Deripaska is working out a deal to acquire the Canadian auto parts maker Magna International, a key supplier for the American automobile industry
Click on the extended post for links to previous Russia Blog posts about Mr. Deripaska.
"If you do business in Russia, you will lose all of your money, because your Russian business partner will steal it from you, because he or she is a thief. And you will die, because the Russian mafia will murder you in your hotel bedroom when you visit Moscow or St. Petersburg (I'm happily surprised that so many of you survived the night)."
"This is the Wall Street Journal and CNN view of business in Russia...and it's 98.6% wrong, rubbish, garbage. Business success in Russia is the best kept business secret in the world. More rubbish is written and spoken about Russia than any other country on the planet Earth."
Maria Rafaela (ÐœÐ°Ñ€Ð¸Ñ Ð Ð°Ñ„Ð°Ñла): A New Taxi Service in Krasnodar
Timothy Post
In this piece, Timothy Post, an American living and working in the southern Russian region of Krasnodar Krai, talks about Russian entrepreneurs starting new businesses in his area.
-The Editors
Travel on the streets of Krasnodar just got a whole lot easier. All of Krasnodar is talking about a "crazy" new taxi service called Maria Rafaela Taxi, which is, gasp, using Mercedes B Class 170 white minivans. The taxi service, which sponsored a music concert in the main square to celebrate its launch yesterday, should quickly capture significant market share in this area.
Real Estate in Krasnodar: Kubano Naberezhnaya (Кубано ÐабережнаÑ)
Timothy Post
The riverwalk in the Kubano Naberezhnaya neighborhood
With Sochi now the International Olympic Committee's choice to host the 2014 Winter Olympiad, the real work of preparing Krasnodar Krai for the expected influx of capital and visitors has only just begun. To give Russia Blog's readers a better picture of the tremendous economic development now underway in the region, we have asked Timothy Post, an American businessman working in the city of Krasnodar, to share some of his insights.
-The Editors
Kubano Naberezhnaya (Kuban riverbank) is quickly becoming Krasnodar's most exclusive residential neighborhood. The neighborhood is best known for its huge park which stretches for a couple kilometers along the banks of the Kuban River. Recently, the park has seen a large influx of investment with the building of a large water park, new entertainment rides, cafes, outdoor discos, and new restaurants. Each weekend, thousands of folks from Krasnodar gather to relax and enjoy one another's company along the beautiful river.
Logo of EuroSet, the largest cellular retailer in Russia and the former USSR
The last twelve months have witnessed several interesting changes happening in Russian banking. In particular, I wanted to highlight the stories of two prominent Russian businessmen who have established their own banks to expand their business operations in innovative ways.
The first story relates to Euroset - the biggest chain of retail stores in Russia and the Commonwealth of Independent States (CIS) selling mobile phones. Its 2006 sales were around $4.6 billion. Euroset is 100% owned by Dutch Euroset Holding, which belongs to Yevgeny Chichvarkin and Timur Artemyev. Euroset has a very advanced web-site and its owner Yevgeny Chichvarkin is noted in the Moscow business community for his special style. For example, at a recent conference hosted by Renaissance Capital, Mr. Chichvarkin shocked the crowd by wearing a pair of casual torn jeans with holes that revealed his leg hair. Nevertheless, Yevgeny Chichvarkin is an extremely successful businessman and a talented manager who should not be underestimated.
Working hard, and apparently playing hard in Moscow too:
"On Saturday night of June 23 [2007] residents of Moscow City area were intrigued by a group of young people partying at the Federation Tower. Dance music was heard, and break-dancers performed right in the street, and more and more people were coming."
"That was the beginning of the Street Challenge competition, which became a major event of our corporate life. The organizers -- the Council of Young Specialists and MGSU students -- brought together a hundred of Mirax Group staff, who divided into 29 teams and rushed along the night city streets to display quick wit and resource and win the Cup."
"The tasks were different -- from epatage, for example, to take a picture of a young man in a skirt at the entrance to the army recruitment center, to mathematical problems. During the game they had to communicate with unsmiling guides, faked policemen, and angry vendors and make them render assistance or least stay out of the way. It was not easy to distinguish between ordinary passers-by and masked organizers not to put a foot into it."
Click on the extended post to read more about the developers building the the most visible addition to Moscow's skyline.
Dell Building Supercomputer in Russia Bigelow Aerospace Launches Private Space Station into Orbit from Orenburg Region
Charles Ganske
Friday, June 28, 2007 was apparently a big day for business news from Russia. The latest reports come from Russia's National Information Technology Development Center and Bigelow Aerospace, a U.S. company launching private space station modules into orbit from the Orenberg Region.
A new super computer aimed at solving Russian oil and gas industry tasks on the interior of the earth usage is to be constructed in Dubna special economic zone. The computing cluster delivery within the strategic partnership with the National IT Development Center in the oil and gas industry is to be carried out by the Dell company. Besides [taking delivery of the supercomputer], the scientists are going to turn to the company's head Michael Dell with proposals to develop innovations in the Russian oil and gas industry.
While many industry analysts have criticized Russia for not doing more in research and oil and gas exploration, this report suggests that Russian energy producers are looking to the future. And while "Peak Oil" enthusiasts continue to insist that Russian oil production has topped out or will do so in the next few years, Russia has just begun applying the latest technologies to tapping its vast natural resources.
On April 18, 2007 Discovery Institute's Real Russia Project was pleased to host distinguished Russian Studies scholar Herbert Ellison and international attorney Bill Robinson for an insightful and informative forum and discussion on the state of U.S.-Russia relations. The event was hosted at Ambassador John Miller. The speakers focused on recent events in the Russian Federation as well as Western stereotypes about Russia and how these stereotypes negatively impact trade and diplomacy.
This was an opportunity to hear the views of experts who are familiar not only with Moscow, but with Russia's more remote regions as well. Their insights into the politics, business and investment climate through out the country are helpful in discerning the truth behind many of the most common assumptions made about Russia in America and Europe.
Please continue to the extended post to read the full transcript of the event or download the PDF version.
During my career here in Moscow, I have come across many American businessmen who were keen to play golf in Russia. In one case, we even cancelled a couple of business meetings in favor of taking our guests to the Moscow City Golf Club.
The question foreigners always ask at first is -- does golf exist in Russia? Does the average Russian know anything about golf? The first answer is yes, it does exist; but the second question is more difficult to answer.
IBMED uses synthetic (not embryonic) stem cells to treat a variety of illnesses
A few days ago I visited the Institute of Biological Medicine, the company I referred to in my previous post on this topic. The IBMED is the first company in Russia to receive a license to treat patients with stem cell therapy from the Federal Inspectorate for Healthcare and Social Development.
"We turn the clock back" -- that is the motto prominently displayed at the entrance to IBMED's new offices. The company has a small clinic and each of the patients gets a symbolic souvenir - a clock that runs backward -- to remind them of this motto.
It has been six months since Bloomberg produced a news story about IBMED. Last week, I arranged an interview between the Moscow bureau chief of one of the world's top business magazines and the IBMED's chief executive, Alexander Kovalenko. Mr. Kovalenko, a distinguished academician, philanthropist, and former public servant, agreed to speak to us about the goals of his company.
Part 3 -- A Brief Overview of the Russian Stem Cell Market
In Russia stem cell therapy technology is not as developed as it should be. This is the result of a weak regulatory environment and inadequate levels of investment. The market volume of stem cell therapies in Russia is much smaller than in the United States and in Europe. Human and animal stem cell transplantations are done in a select number Russian of clinics and medical centers aimed at the physical revitalization and rebalancing of hormones in the patient's body.
Americans thinking about stem cell research in the U.S. immediately recall the political controversy over the ethics of using embryonic stem cells. In Russia, however, the most widespread therapies are associated with the uncontroversial practice of cord blood banking -- that is, collecting stem cells from a newborn baby's umbilical cord.
The scarce statistical data available on this topic tells us that in 2005 only about 1,000 families in all of Russia used this service. Presently only ten Russian companies are officially licensed to provide these services. Basically these companies are small entities that have been established at different medical institutions. In Russia these companies are typically run by the individual doctors treating the patients and usually lack an internationally-minded business vision.
Click here to read the original post at Vladimir Kuznetsov's blog, Equity Financing in Russia. Click on the extended post to read more background on this rapidly changing topic (see the post above this for details).
"Russia is increasingly turning out to be a tale of two different countries. At one level, the state is becoming more assertive and is seeking to broaden its influence in the 'strategic' sectors of the economy...but the rest of the economy is caught up in one of the most powerful domestic-demand booms in the emerging-market universe."
"The divergence in performance between the natural-resources sector and the rest of the economy is evident in the stock market. Shares of banking, media and consumer companies remain on a tear and have in fact risen more than their emerging-market counterparts even this year. Meanwhile, stock prices of oil and gas companies have been drifting aimlessly over the past year, with a 'Russia' discount assigned to them, as investors fear further government intervention."
"But in sum, it is rather remarkable that Russia's economy has expanded an average 7 percent over the past five years, despite negative population growth and a per capita income of $7,000--a relatively high base compared with most other developing countries. That dynamic has made Russia an attractive destination for foreign direct investment, or FDI. This year about $30 billion in FDI is expected to flow into the country, with most of it headed toward the non-oil economy."
Click on the extended post to read more excerpts from this excellent Newsweek International article ("A Tale of Two Russias") by the head of emerging markets at Morgan Stanley, Ruchir Sharma.
Last week Aeroflot Russian Airways announced that it will buy 22 Boeing 787 Dreamliner airplanes. Aeroflot formally signed the contract with Boeing at the St. Petersburg Economic Forum on Saturday, June 9, 2007. The $3 billion order was part of $13.5 billion in new business deals announced over the weekend at the conference, which drew over 10,000 visitors to multiple venues in Russian President Vladimir Putin's hometown. President Putin joined several of his cabinet ministers and many Russian business leaders at the showcase event to promote Russia's booming economy.
A year ago, Russia Blog reported the widespread speculation in the Russian newspapers that the Boeing-Aeroflot deal would become a casualty of deteriorating U.S.-Russia relations. However, at the end of the day, healthy international competition and the attractiveness of Boeing's product trumped the legacy of the Cold War. In March 2007, Aeroflot agreed to purchase 22 A-350s from Boeing's European rival Airbus - but also pressed ahead with plans to purchase 787s.
Western observers ponder Russia's "injustice" and lament Ukraine's chaos. Yet, it was Putin's Russia that took Western examples and applied it, while Orange Ukraine (emboldened by empty Western guarantees and promises) decided to hurl themselves out of their window of opportunity.
Russia's Mikhail Khodorkovsky and Ukraine's Rinat Akhmetov embody the evolution of their contemporary nations. Both oligarchs are remarkably similar in many ways, but the courses taken by their respective countrymen have largely dictated where they are today.
For a fistful of rubles...for a few rubles more...
Last week The Wall Street Journal published an article titled - "A Caveat for Emerging Markets" that warns of a possible crisis in Hungary, Kazakhstan, Russia, Ukraine, and Estonia brought on by excessive borrowing. I tend to agree with the American financial analyst/advisor Roger Nusbaum that "there are more people that call for a crisis than actual crises that occur" (you can read Mr. Nusbaum's thoughts on the Van Eck Global Russia ETF that began trading on the NYSE last month here).
Nonetheless, there are some political issues that foreigners should be aware of when they are considering investing in Russia.
This week the BBC published an article about the new-found prosperity of Nizhny Novgorod, the fourth largest city in Russia. This blue collar city of 1.3 million people on the Volga River now has its first IKEA store. IKEA has already opened three stores in Moscow and two in St. Petersburg.
Compared to her last visit eight years ago, the BBC correspondent is surprised at the variety of foods available at a local supermarket (no word on whether the food store sells powdered cane sugar, though) and meets an upwardly mobile young Russian middle class couple at one of the city's new shopping malls.
UPDATE: Our reader Tim Newman, who works in the oil and gas industry on sunny Sakhalin Island in Russia's Far East, writes:
Shame you didn't mention the IKEA which opened in Kazan in late 2005. A good friend of mine was the manager of the whole thing, and I spend a day walking about the place days before its grand opening when I was visiting him and his wife in the city.
We apologize for the omission. If any of our readers have photos of this new MEGA/IKEA store in Kazan, please send them along for the panorama series of posts in the Photos section of Russia Blog.
Click on the extended post to read an excerpt and for a link to the original article.
ABC, CBS, and NBC apparently have closed their bureaus in Moscow, or greatly reduced them. CNN has shrunk to one reporter, and Western print media also have reduced staff lately. The big exception among the international media is Bloomberg News. Speaking recently to fellow expats on Bloomberg's elegant terrace overlooking the Kremlin two blocks away, James Brooke, Enterprise Reporter, said that the Moscow bureau has doubled in the past year to 22 reporters and editors. There is a new Bloomberg bureau in St. Petersburg and another coming in Kazakhstan. There is even a stringer now for Georgia-Armenia and there may be another soon for Azerbaijan. Bloomberg also boasts Russian speakers and writers, a small but up-to-date TV studio in Moscow and excellent connections in London.
The Moscow bureau alone is Bloomberg's fourth largest overseas unit (among 50)--after London, Frankfurt, and Paris. "We are investing in the personnel to make Bloomberg the premier source of business news for Russia," Brooke states.
Troika Dialog CEO Ruben Vardanian and President Putin open the new Skolkovo School of Management on September 21, 2006 in Moscow
One of the current constraints on growth in Russia's booming economy is a critical shortage of experienced people with executive-level training. In Moscow, many middle or senior management positions that would normally be filled by fortysomethings in the United States, Western Europe and Japan are going to ambitious young Russians who know how to succeed in the Russian marketplace, but who often lack professional education for managing businesses at an increasingly global level. According to government statistics, only three out of every 100,000 Russians have an MBA, compared to 70 in the United States.
To address this glaring need, the Russian government has developed a high-priority national educational project. As part of the national education project, two new business schools, one located in Moscow and the other in St. Petersburg, opened their doors last year. Both projects are backed by the government, which would like to see Russian counterparts to Europe's Insead, and America's MIT and Wharton.
Venture capital first surfaced in Russia in the early 1990s. Venture capitalism began in Russia with a lot of help from foreigners, with the goal of giving the New Russia a mechanism for promoting the prompt development of both individual companies and the economy as a whole. During the Nineties, the European Bank for Reconstruction and Development (EBRD) established 11 regional venture funds in the country. At the same time, several funds were introduced with the participation of the World Bank's International Finance Corporation and American capital investors. By 2000, a number of experts and institutions (Russia's Information Technology and Communication Ministry, iKS Consulting, Troika Dialog Group, etc.) started producing reliable research data on venture financing in Russia, particularly in the IT sector.
The healthy influence of venture financing in Russia today is supported by these current statistics:
• For the last 7 years, the share of capital financing venture projects in the Russian Federation from Russian investors has increased up to 26%, while in 1998 this figure was only 3%.
• The average profitability of Russian venture capital projects has not been less than 11% per year since the market came into existence in 1994.
• At the end of 2005, the volume of the capital under management for all VC funds operating in the Russian market had reached $ 4.8 billion.
Click on the extended post to read more about the rapid development of information technology and the spread of the Internet in Russia.
Something Bush and Putin both have in common - tax cuts
Jon Hellevig, a Finnish citizen currently practicing business law in Moscow, sends us this article about the tremendous success of the supply side tax reforms implemented in Russia since 2002. In addition to a better climate for investors and businesses, these changes have given millions of Russians the freedom to travel, to communicate instantly via email and cellphones, and greater access to Western media networks. The social and political consequences of all of this for Russia are now being vigorously debated, but no one can deny that Russia's economy has surged forward in the last six years.
-The Editors
Putin's efforts to pull Russia out of political and social anarchy and strengthen statehood are starting to pay off transforming Russia into one of the best investment climates in the world while rewarding the nation with unprecedented increases in living standards. At the same time there have been big advances in the judiciary and the legal culture at large; relaxation in the bureaucratic press and reduction in corruption. In all of this, tax reform has played a crucial role in bringing stability and predictability back to Russian society.
After the anarchy of 1990s, the Russian government set out in the year 2000 to implement transparent and predictable tax laws. Gradually over the years from 2001 to 2005 this goal has been achieved through enacting the new Russian Tax Code. And today Putin's tax reforms stand out as the prime example of success achieved during the years of his presidency.
The Rooskie 53 of Forbes: Give or Take a Billion But Who Will Win the Swimsuit Competition?
Nick Slepko
Elena Baturina: Probably not the best looking oligarch in a bikini, but still one of the few women in the global billionaire's club--of course, it helps your bottom line when you're the wife of Moscow Mayor Yuri Luzhkov, especially when your buildings collapse and you can avoid those pesky lawsuits.
In Europe, Russia's mostly young, self-made tycoons are catching up to Germany's often-aging heirs and heiresses. Russia now has 53 billionaires (2 shy of Germany's total), but they are worth $282 billion ($37 billion more than Germany's richest).
The Forbes billionaires list is out and not only is the Gulag Archipeligo ranked third in absolute number of billionaires worldwide, but 14% of the top hundred hold a Russian passport. Furthermore, of the 178 newcomers to the list this year, ten percent of them are Russian nationals. It is also interesting to note that the average age on the Forbes list is 62 while the average Russian billionaire is 46. This makes them the fifth youngest group of billionaires in the world--Lebanon (with four billionaires) has the youngest group, followed by Czechia (1), Kazakhstan (5), and Ukraine (7). (It is worth noting that had Ukraine's Orange Coalition kept their promise to arrest some their oligarchs, Russia would be in fourth place.)
The list is of course not exhaustive as other wealthy Russian billionaires like M. [censored] escaped the double-edged sword of being identified. Moreover, in the highly competitive race for richest Moskal, the Forbes ranking is already out of date. If we disregard the coming fallout from his recent divorce from wife Irina, Roman Abramovich (the richest man of Russia) was already second to Oleg Deripaska (the richest man in Russia), being just $200 million short--evidently $170 million eBay yachts and $150 million luxury hospitals just don't depreciate very well. The Guardian (UK) also pegs Deripaska's (US$21.2 billion) and Abramovich's (US$21 billion) net worth as slightly higher and their figures would make them 12th and 13th on the Forbes list (though last year Abramovich ranked 11th).
BOR, Russia -- On Bor Glassworks' state-of-the-art production line here, workers in blue overalls churn out windshields for Russian-made Fords and Renaults -- and offer a glimpse of an investment boom transforming Russia's industrial landscape.
The glass company was once so poor it paid its workers with sewing machines and other tradable goods. Now, after an injection of $100 million from Belgian investors, it's a success story: Bor produces a growing share of windows for the Western cars assembled on Russian soil.
Putin in Europe: Meeting with Pope Benedict XVI, Manufacturing Russian Planes with Italy, Building New Pipeline
Yuri Mamchur
Yesterday (Monday, March 12, 2007), Vladimir Putin left Russia on his first trip to Europe since his critic-acclaimed speech in Munich. This time, the highlight of the trip will be Putin's meeting with Pope Benedict XVI, which will be conducted in German. Putin will share his conservative social and family values with the Pope. However, many experts believe that Putin will not extend the Pontiff an invitation to Russia. After practicing his fluent German, the Russian President will meet for the first time with the 81-year old Italian President Georgo Napolitano, and have dinner with Italian Prime Minister Romano Prodi. Then Vladimir Putin will pay a short visit to Greece.
Putin does not want to invite the Pope to Russia because according to the Russian President "it's the church's business," not his. It is the Russian Orthodox Church which should be extending an invitation to a spiritual, rather than a political, leader. Nonetheless, for Russian leaders meeting the Pope has become a fairly routine practice -- both Boris Yeltsin and Mikhail Gorbachev met with the head of the Roman Catholic Church.
According to Professor Boris Falikov at the Russian State University of Humanitarian Studies, a positive dialogue between the Orthodox and Catholic churches is something we may witness very soon, as both confessions share common values and are concerned about growing secularism in the world.
Russian Business News Delivered 24/7 - FM 87.5 Debuts in Moscow
Charles Ganske
A radio and TV tower in Moscow
In yet another sign of Russia's economic expansion, business news junkies in Moscow will soon be able to get their fix around the clock. Business FM 87.5 will begin broadcasting business news stories every half hour starting March 1, 2007, according to Russia's Interfax news agency.
Click on the extended post to read the full article.
The Russian billionaires club: Oleg Deripaska (left) with his friend Roman Abramovich (Photo by: The Moscow Times)
The UK Guardian is reporting this weekend that Oleg Deripaska is now the richest man in Russia. The 39 year old oligarch owns RusAl, which next month will merge with SUAL and Glencore to form the largest aluminum company in the world. Deripaska's net worth is conservatively estimated at $21.2 billion. Roman Abramovich, who mostly resides in London, is the second richest man in Russia with a $21 billion fortune.
However, in his interview with the UK Guardian, Deripaska denies being the wealthiest man in Russia, and claims that there are several people who should be well ahead of him on the list. Deripaska also comments on the difference in how Russia is viewed by politicians and the media in the West versus the attitude of Western investors, "We had discussion with our advisory board of one of our companies last week...there was one comment from a very prominent member of British society who said, 'If you look at the front page it's a disaster. But if you go further down to the economics page it's brilliant.' We try to live on the economics page."
Russia Blog has written frequently about Deripaska and Abramovich:
MosNews is reporting today that Congress may be willing to abolish the Jackson Vanik Amendments and fully normalize trade relations between the U.S. and Russia. RIA Novosti quoted House International Relations Committee Chairman Tom Lantos, who is in Moscow this week, as saying that the amendments are part of a Cold War legacy that should be left behind.
Russia Blog had previously reported that most Russian analysts considered the new Democratic Congressional majority likely to be even more suspicious of Russia than the previous Republican-led Congress. However, it appears that in the wake of Vladimir Putin's speech last week in Munich, both the White House and senior Congressional leadership want to improve relations with Russia. In May 2005, Congressman Lantos called for Russia to be expelled from the G-8 for jailing Yukos oligarch Mikhail Khodorkovsky. It appears that Congressman Lantos has moderated his position on Russia since that time.
Click on the extended post to read the full MosNews article.
Last week the Toronto Star published an article on the emerging Russian middle class. While these type of articles have become quite common in Western media outlets over the last year, the interesting thing is that after eight years of economic expansion, prosperous Russians going shopping is still news in the West. Perhaps the reason is that some Western pundits still peddle Cold War stereotypes about the Russian economy and deny the existence of a middle class in Russia.
Click on the extended post to read the full article (hat tip: Copydude blog)
AvtoVAZ and Magna Building Car Factory; Nokia Extends Contract with Megafon
Charles Ganske
A Lada car rolling off the AvtoVAZ assembly line
Over the holiday weekend, AvtoVAZ announced a contract with multinational auto parts maker Magna International to build a major new car factory in Russia. The Moscow Times reports that the deal could be worth as much as $1.6 billion and eventually produce 500,000 cars per year. AvtoVAZ is concentrating on the moderately priced car market in Russia with a model that will cost between $10,000-$12,000. AvtoVAZ already manufactures the Viva compact car and Niva small SUV for the Russian market with General Motors. Since Boris Berezovsky sold the company in the 1990s, AvtoVAZ has come under new management as part of a major modernization plan.
Roman Abramovich, age 40, is the richest man in Russia
The Moscow Times is reporting today that Roman Abramovich, the richest man in Russia, has resigned as Governor of the Far Eastern region of Chuhotka. Abramovich reportedly wanted to spend more time developing his holdings in the metals business.
In addition to the English Premier Soccer League team Chelsea FC, Mr. Abramovich owns 41% of the Russian aluminum giant Evraz. Last month, Evraz announced plans to purchase Oregon Steel for $2.3 billion. The U.S. Committee on Foreign Investment is reviewing the deal by examining possible ties between Evraz and the Russian government.
According to today's article in the New York Times, $33,000 per square meter (10 square feet) is the going rate for a luxury apartment in the so-called Golden Mile property development in Moscow. Russia Blog has previously covered the overheated real estate market in the Russian capitol in these articles:
On Sunday the Dubai-based firm Limitless LLC announced the biggest real estate development in Russian history. The first phase of the Great Domodedovo project outside Moscow is expected to cost $11 billion, and Limitless will partner with Russian developer Coalco to build the new suburb. According to the International Herald Tribune, the project will require 44,000 acres (18,000 hectares) and will eventually include 150,000 residential and commercial units. To put that number in perspective for our U.S. readers, the Seattle suburb of Bellevue, Washington (pop. 112,344) has 48,396 housing units.
Limitless LLC is a subsidiary of the Dubai World holding company, which also owns Dubai Ports World. Russia Blog's American readers may recall that last year Congress rejected a DPW bid to operate several U.S. ports, citing national security fears. At that time, DPW spokesmen pointed out that their company had securely operated several ports that serviced U.S. Navy ships for years. However, Dubai World has shrugged off this setback, and Dubai continues to be one of the fastest growing cities in the world. Large construction firms based in the Emirates, like their Chinese counterparts, have a lot of experience building whole new cities from scratch. Now the "Singapore of the Middle East" is investing in another rapidly emerging market in Russia.
While the sensational case of Alexander Litvinenko dominates world media headlines about Russia this week, Russia's integration into the global economy quietly moves forward. As part of the agreement to bring Russia into the World Trade Organization, the Russian government has agreed to shut down AllofMP3.com, an online music store that the U.S. government asserts is pirating intellectual property and failing to pay royalties to American media companies. Russia Blog has previously reported on the online music site and the problem of digital piracy in Russia here.
AllofMP3.com executives assert that they are paying royalties to copyright holders through the Russian Multimedia and Internet Society, but the U.S. government has never recognized this organization as legitimate. According to company spokesmen, AllofMP3.com continues to operate and has not been shut down. However, in October Visa announced that it would stop processing credit card orders for the site, dealing a severe blow to its online business.
Moscow - Evraz, the largest steelmaker in Russia, announced yesterday that it will purchase Oregon Steel Mills Inc. for $2.3 billion. Oregon Steel Mills is planning a new pipe mill in Portland, Oregon to supply its customers with more steel pipe. The company currently produces steel products in Canada and Colorado.
Industry analysts in the U.S. and Russia say that Evraz paid a steep premium for the U.S. steel producer, but could reap rich benefits from diversifying assets in the North American market. In particular, the Oregon Steel acquisition gives Evraz access to the North American oil and gas pipeline infrastructure market. In the next twenty years, U.S. and Canadian companies are planning to build two major pipelines to provide natural gas from Alaska and Canada's McKenzie Delta to customers in the lower 48 U.S. states.
President Bush and President Putin at the G-8 Summit in St. Petersburg
The U.S. and Russia finally seem to have reached an agreement on Russia's entry into the World Trade Organization. Next week President Bush and President Putin will meet face to face at the Asia Pacific Economic Cooperation (APEC) summit in Vietnam, where they will make the agreement official.
The last time the U.S. and Russia were this close to a deal was before Russia's July 2006 showcase G-8 Economic Summit in St. Petersburg. Iran spoiled the party by ordering Hezbollah to rain rockets on Israel. At the summit, both Tony Blair and George Bush were visibly distracted by the Mideast conflict, and were unable to address a comprehensive agenda for engaging Russia. On the Russian side, the money the Kremlin spent to hire the Washington-based Ketchum PR firm to promote Russia's image for the summit appeared to be wasted. Both during and after the G-8 summit, the U.S. media was flooded with stories depicting Putin as a tyrant cracking down on economic and civil liberties at home and arming America's enemies abroad. When Israeli newspapers reported that several Israeli Defense Forces tank crews were killed using Russian anti-armor missiles supplied to Hezbollah by Syria, the anti-Russian mood in Washington reached a boil.
This week the Russia Profile magazine published two articles on the state of Russian agriculture. While most economists do not tend to think of agriculture as occupying the commanding heights of the economy, for most of the former Communist Bloc countries, this is where the path of liberalization usually started. The reforms Deng Xiaoping promoted in the early 1980s finally allowed millions of Chinese peasants to fetch market prices for their produce, with entrepreneurial ripples spreading throughout China that continues to this day. Gorbachev's contemporary reforms of collectivized agriculture had barely started when the Soviet Union collapsed in 1991.
During the 1990s, Boris Yeltsin was not able to overcome fierce Communist opposition in the Duma to land reform, and there was a lot of confusion about who actually owned plots, as with so many other sectors of the economy. Yeltsin left the task of forming a parliamentary coalition in support of land privatization to his appointed successor, Vladimir Putin. As University of Washington Professor Herbert Ellison observed at the recent Real Russia Project roundtable, the results since the year 2000 have been quite impressive.
Norilsk Nickel Doubles Profits, Lukoil to Invest $100 Billion
Charles Ganske
The Wall Street Journal reported on October 9, 2006 on page A12 today that Russian mining company Norilsk Nickel more than doubled its profits in the first half of 2006. The company's stock closed at $128.50 per share on Thursday, and Norilsk Nickel plans to buy back a billion dollars worth of its own stock at $131 per share. Shareholders will also be rewarded with a dividend of 56 rubles ($2.07) per share for the first nine months of 2006. The International Herald Tribune has the full story here. Norilsk Nickel is one of a basket of Russian companies traded on the New York Stock Exchange (NYSE), AMEX, the London Stock Exchange, and the technology-weighted Nasdaq index (NN's holdings include key metals for semiconductors).
In other Russian business news from the weekend, LukOil President Vagit Alekperov announced that his company would invest $100 billion dollars to develop new oil and gas production. The ten year development plan will be presented to investors in New York on October 19. Alekperov vowed to acquire refining capacity in the U.S. and other key markets, adding that the company could boost earnings by $3.5 billion by making gasoline instead of just selling crude. Lukoil is also turning many of its drilling and shipping units over to contractors to emphasize its core business of pumping and transporting oil. The IHT again has the story.
Russia Merger Creates World's Largest Aluminum Producer
Charles Ganske
Business is good: RUSAL CEO Oleg Deripaska
Today the UK Financial Times newspaper confirmed what the Kommersant newspaper reported Monday - two Russian firms, SUAL and RUSAL, are being merged to create the largest aluminum producer in the world, combining for 11% of global production. The deal is reportedly worth $30 billion dollars, though the exact terms of the merger are still being negotiated, reportedly with the advice of the JP Morgan and UBS multinational investment banks. According to the Bloomberg story, RUSAL will form 75% of the combined company with SUAL getting the rest.
Russia Blog readers may recall seeing the face of Oleg Deripaska, the 38 year-old CEO of RUSAL in our post about the 32 Russians featured on Forbes's list of the 100 richest individuals on the planet. The megadeal means that Mr. Deripaska, the 6th richest man in Russia, is now a full partner with the 4th wealthiest Russian, Viktor Vekselberg. Besides acquiring state assets and taking the personal risk of competing with many rivals in the metal business, Mr. Deripaska also built up his fortune through his successful reorganization of GAZ, the old Soviet manufacturer of jeeps and Volga sedans.
However, unlike many of his other fellow oligarchs who didn't "share" and have been banished, Mr. Deripaska was able to successfully navigate the difficult transition from the roaring 1990s (Deripaska's father-in-law is married to one of Boris Yeltsin's daughters) to the new Kremlin regime. This means that Deripaska "shared" some of his wealth and did not break the iron rule that Khodorkovsky did (trying to sell the means of raw materials production to foreigners). Now Deripaska is getting his reward for playing by the rules: once the time arrived to marry Rusal's production facilities with Susal's abundant Siberian metal deposits, Putin was on hand to officiate.
Does Real Estate in Russia Really Track the Price of Oil?
Yuri Mamchur
Recent reports about Moscow as the most expensive city in the world (24% more expensive for expat workers than New York), and stories about hundreds of new 24-hour casinos, boutiques, clubs and multi-million dollar condos bring Europeans and Americans to a simple conclusion -- Russians are getting rich only because of high oil and gas prices. This stereotype is wrong. As always, things are not quite as simple as they appear in Russia.
It is normal to assume a rising economy drives up prices for real estate and common goods; that's how it is in Western Europe and Northern America. However, consider the late 1990s in Russia: in 1998, oil prices bottomed out at $10 per barrel. Even so, castles in the Moscow suburbs and luxurious apartment complexes in the city were being built just as fast as they are today. The difference between Russian and American wealth creation is the fact that a rising economy in America means that almost everyone is a little bit better off; but this new wealth in Russia trickles down much more slowly, and the vast majority of the population sees no improvement.
Chinese investors are planning to build a huge new condo complex with an international trade center and underwater tunnel in St Petersburg; as well as a new global trade center in downtown Moscow. This month the final list of investors is being finalized for the construction of the "Baltic Diamond" complex in St. Petersburg. The complex will consist of ten million square feet of condos and four million square feet of stores. Locals are already calling this neighborhood the new "China-town". The total amount of Chinese investment into the "Baltic Diamond" is expected to top $1.5 billion.
Another project that interests Chinese investors is the construction of a major toll tunnel under the Neva River. The tunnel will connect two parts of the city. The tunnel will cost at least another billion US dollars. Both projects are the fruit of a St. Petersburg city trade delegation trip to Shanghai. Another project, which will take place in Moscow, was negotiated during Putin's latest visit to China. The Chinese are planning to build two office buildings in downtown Moscow. The buildings will be 32 and 50 stories each with two million total square feet. The complex will be surrounded by Chinese gardens with a shopping mall and small entertainment park. The estimated cost for this project is $300 million. These buildings will be mostly occupied by Chinese businessmen.
Last year, Russia Blog wrote about Moscow's astronomically-priced real estate market. This month, the Discovery/New York Times Channel series Super Homes is showing American TV viewers a glimpse of this bizarre world, where anonymous people buy multimillion-dollar properties with grocery sacks full of cash (one grocery sack can hold about $200,000).
The first character we meet for our education in New Russian excess is Phil Bogdanov - real estate agent to Moscow's super rich. Like many Russians who came of age in the perestroika years, Bogdanov found himself in 1991 with an education but not many connections or opportunities to make money at home, so he emigrated to the United States. In the U.S., Phil worked various low-wage jobs in restaurants and other businesses until he found his true passion: real estate. Phil married an American real estate agent and brought her back to Moscow during the go-go 1990s. This was the era - Phil's wife explains on camera - when fifty Moscow businessmen would pose for pictures toasting their entrepreneurial success. Six months later, she says, half of them would be dead, the victims of business murders.
During this transition, prices for Moscow apartments and office buildings were still officially fixed by the state, but the real value was determined by negotiations and paid in cash. Even today, with the Kremlin trying to return capital to Russia, Moscow's millionaires and billionaires must remain discreet.
American, British Law Firms Competing for Clients in Irkutsk
Yuri Mamchur
Today Russian media outlets reported that American and British law firms are competing to represent the victims of last month's Sibir Airways plane crash in Siberia. The European aviation consortium Airbus is likely to face lawsuits on behalf of family members and survivors of the crash.
Siberian Airlines flight #778 Airbus A-310 crashed in Irkutsk a month ago. Russia is known for very small compensations being paid to the families of accident victims, that's why there aren't any Russian or foreign law firms in the country that specialize in serious torts. Foreign lawyers don't like dealing with Russian courts and companies because the laws are opaque; the courts are easy to bribe; the economy is shadowy and it is very difficult to receive any compensation even after years of litigation. If Airbus is proven to be at fault, however, then this case would set a major precedent for foreign law firms hoping to represent Russian clients in wrongful death and injury cases.
An anonymous Moscow-based blogger writing for Ruminations on Russia is making some interesting claims about a report issued last week by UBS, an international investment bank. According to RoR's Thursday July 13 blog post, foreign investors are seriously underestimating how quickly the Russian economy is growing, and therefore how much gas Russia will soon burn at home instead of having available for export. For those of us hoping that Russia can provide the U.S. and Europe with a major alternative to importing more oil and gas form the Middle East, at first glance this sounds like very bad news.
Contrary to the dire predictions of Peak Oil doomsayers, the main obstacle to Russia meeting the world's need for more energy is not geology, but waste and corruption.
Russia Energy Revenues $550 Million Per Day; Kremlin Builds $76 Billion Stabilization Fund
Charles Ganske
Gazprom CEO Alexei Miller next to President Putin
The Canadian Broadcasting Corporation (CBC) is reporting some big numbers in their story about Russia's oil and gas boom today. According to the CBC article, Russian oil and gas companies are raking in "$550,000,000 every day, or $380,000 every minute, around the clock. The state gets 65 per cent of that. Oil and gas exports account for about 60 per cent of federal budget revenues and 60 per cent of its exports."
What is more interesting than these raw numbers though is what the Kremlin is doing with the windfall.
RussiaBlog has written before about copyright violations in Russia and the former Soviet Union. I have really strong feelings about this issue, because I produce my own music and have worked with the largest Ukrainian music business at the time in late 90s early 2000s.
Things are getting better with DVD's, because Russian companies simply dropped prices per copy so they would be able to compete with pirated versions. Licensed DVDs for new Russian releases can be purchased for $4-6 each. The same with Russian music, regular CDs go for $3-5. The only hope for musicians is daily live concerts. However, Western producers are getting ripped off again and again. Please read more about music business in Russia here, and in the meantime, enjoy the news story from MSNBC.com.
MOSCOW - A Russian Web site that lets visitors download albums for less than $1 is a smash hit with music fans -- but not with U.S. trade and music industry officials.
Russian Media: Cheney's Remarks May Cost Boeing Aeroflot Contract
Yuri Mamchur
Several Russian media outlets are reporting this week that Aeroflot will purchase Airbus instead of Boeing airliners
In the last year, Aeroflot has been negotiating to purchase 22 long-distance Boeing 787 Dreamliners, worth $3 billion dollars. Under the contract, Boeing would have started delivering the planes in 2008 and completed the order in 2009.
Since the early 1990s, there has been fierce competition between Airbus and Boeing for dominance in the global airliner market. When Aeroflot recently modernized its medium-range fleet, it replaced Boeing 737s with Airbus A320s. Nonetheless, for several years Aeroflot has used Boeings 767s for its long distance routes. Now Gazeta.ru, Vedomosti.ru and several other Russian media outlets are reporting that Aeroflot is reconsidering the Boeing purchase, due to the political uproar sparked last week by Vice President Cheney's remarks about Russia. Aeroflot is now likely to order A350s manufactured by Boeing's rival Airbus.
The final decision on this purchase will be made on May 10, and it looks like Americans here in Seattle will lose a very large lucrative contract due to the Vice President's irresponsible remarks. Russia Blog is wondering why the Vice President, the Administration and certain U.S. Senators have all recently decided to step up their harsh criticism of the Kremlin lately. Why now?
Izhmash CEO: 90% of Kalashnikovs Sold Worldwide Are Knockoffs
Charles Ganske
RIA Novosti reported last week that 90% of the automatic rifles in the world based on Mikhail Kalashnikov's Model 1947 are unlicensed copies, according to the CEO of the Izhmash firm that owns the patent. While this isn't exactly breaking news, as a worldwide cultural phenominon it's interesting because the Kalashnikov "is symbolically reflected in the national coats of arms of six states" (I'm not sure if this estimate includes the flag of Hezbollah, the Shi'a militia that controls southern Lebanon).
To explain why the Kalashnikov is the most successful assault rifle of all time, Nicholas Cage's character in the movie Lord of War describes shooting an AK-47 by saying, "It's so easy a child can use it. And they do." According to Wikipedia, the nickname for the African boys who carry guns in that continent's numerous regional conflicts is "kalash".
Seattle, WA -- Aeroflot is the biggest Russian airline, dating back to the days of the Soviet Union when it used to be a state monopoly. Today things are different, and Aeroflot must compete in the Russian market and internationally as well. This is why Americans and foreigners residing in Oregon and Washington recently saw their favorite direct flight between Seattle-Moscow cancelled. This route will not re-open until Summer 2008.
Flights inside Russia are still done using old Russian jets like Ilyushin and Tupolev. The planes are loud, uncomfortable and they aren't allowed in European and American airports because of their noise levels. While noise levels are the official reason, the real one might be the issue of safety. Soviet-era planes simply aren't safe to fly. There are many stories you could hear from old-time American travelers who took flights to Russia on Soviet aircraft.
However, Aeoroflot's Seattle office commented on this article saying that "If you look close into Aeroflot's history, you'll be surprised to find that Aeroflot was and still is one of the safest airlines in the world (there are many other Russian airlines currently operating in Russia, please don't mix them up with Aeroflot)."
Twelve of Russia's oligarchs made it into Forbes magazine's list of the 100 richest individuals in the world this year.
Roman Abramovich, the governor of the Chukotka region who owns Britain's Chelsea football club, rose to the No. 11 spot, with a net worth of $18.2 billion, up from $14.7 billion last year. Vagit Alekperov, the chief executive of oil giant Lukoil, ranked No. 37 with $11 billion. Steel tycoon Vladimir Lisin was No. 41 with $10.7 billion. Viktor Vekselberg, who co-owns the Russian-British joint venture TNK-BP and the aluminum major SUAL, placed 44th with $10 billion...the only Russian woman to appear on this year's list is Yelena Baturina, the owner of a booming construction business and wife of Moscow Mayor Yuri Luzhkov. She ranked 335th with $2.3 billion.
Read the full story by RIA Novosti and view the photos of the Russian oligarchs in the extended post.
If you look at their faces you will be surprised - these people don't look like ordinary billionaires, because they aren't. They look like either corrupt soviet bureaucrats or 35 year old charismatic scoundrels; because that's who they are.
Please remember, that these Russian oligarchs did not create wealth; they actually didn't create anything. They simply stole former Soviet property and have been leaching off it for the last 15 years.
And the people who were capable of doing this were either corrupt Soviet bureaucrats in the right places at the right time or 21 year old college drop-outs with shrewd minds and no fear. It's because of them that Russia doesn't produce anything but natural resources, extracted without any accountability or transparency. While the oligarchs own castles in Britain and hundreds of billions of dollars, the total Russian federal budget is only 104 billion dollars a year, and Russian pensioners are forgoing toilet paper to save money. And the citizens of booming Moscow could care less about the mayor's wife controlling the entire construction industry in the city.
Americans are used to the convenience of USPS Express Mail, FedEx or UPS ready to ship anything safely to almost anywhere in the U.S. or around the world. Americans clearly take this amazing service for granted, so they will not understand the news story from a week ago, when a train-car attendant of the St Petersburg, Russia -- Sevastopol, Ukraine rail line was arrested, for smuggling hundreds of rare military medals through the border. The 49 year old woman was hiding the "treasures" under bags of clean sheets.
In Russia, if you decide to send something valuable, let's say a $20 bill to your nephew for Christmas -- it will never make it to the addressee, it will be stolen by the postal workers. If you send regular mail to another city in Russia, don't hope it will be there next day, or the day after. Sending packages with valuable items is an absolutely crazy idea. There are no FedEx and UPS locations even in the major cities like Moscow. This author had to FedEx a document once, and this task required a two hour drive through Moscow traffic to a distant location, where after showing your ID to several guards you arrive at the only FedEx office serving 15 million Muscovites. It's not exactly a convenient way to do business.
Have you ever bought or sold a house or a condo in America? If yes, then how many 5 inch stacks of $100 dollar bills were involved, and how many years were you required to wait between the purchase and moving in? If you can't answer these very simple questions, you are not ready for the Russian real estate market.
The hottest market is, of course, Moscow and its suburbs. The prices for a condo range anywhere between $60,000 for 400 square feet on the outskirts (a few hours from downtown) to tens of millions of dollars. Houses start at about $200,000 even 30 miles out of the city (which can be a three hour commute one-way), they become closer to 3-5 million dollars towards the city, and having a house in the city, or in a nice setting right outside of the city limits can cost as many zeros as you can imagine.
The rent for the apartments within the city limits in downtown area will amaze even New Yorkers. Just follow this link and see how much you have to pay for a 400-600 square feet studio or one bedroom apartment ($1,000-3,000). The prices you see on the websites are in American dollars.
Moscow downtown -- a car exploded after a bomb detonated under the vehicle, targeting its owner, Sergei Chelyaginov, age 35. Mr. Chelyaginov is a private business owner. Please see the Crime section of RussiaBlog for more news on assassination as a common tool of Russian business.
Russia Today -- the new English language 24 hour channel -- was launched on Saturday. It went off the air on Monday. The Russian government spent $30 million on new digital equipment, and more money on the salaries of young British "professionals" fresh out of college and their Russian peers. The new channel administration blames the failure on a hacker attack; however, there are more likely explanations for what happened.
Russia Today is the first channel in Russia to go 100% digital (without real tapes), and there are just not enough Russian technicians available who have extended experience working with such equipment. The channel is 100% owned and controlled by the Kremlin, and channell executives promised reporting just "as professional as Al Jazeera or BBC". There's a little problem though -- Russian bureaucrats don't really speak English, and therefore, they don't have much control of what is done and said on the channel. Here's the result: a bunch of young kids playing with expensive equipment to create the first in Russian history 24 hour channel ended up losing control of the situation, and literally shutting down their live programming for some period of time. The channel is still off the air, and no one really knows when it will be back.
Russian Duma (Parliament) passed the law in the first reading, which will prohibit cell phone companies to charge clients for incoming phone calls! Yes, you read it right, the Russian Parliament will make all cell phone companies in the country re-write their contracts and deal with the losses.
Boris Gryzlov, Parliament Speaker, justifies the action supported by 400 MP’s (out of 226 necessary votes) saying, “At least now advertisement about free incoming calls will be true.”
Now let’s see, who’s been selling the contracts featuring free incoming phone calls, and advertising this great deal for the past 3 years? Megafon. I used to be a client of Megafon, a company that offers cheap cellular services, that other companies like BeeLine and MTS can’t afford to provide.
The answer to why this law now, in my opinion, is simple. Ludmila, wife of Vladimir, yes – Putin, is behind this cellular company. Ludmila’s role is invisible on the paper, just like Luzhkov’s wife’s involvement in Moscow construction market and entertainment parks. If other companies had to heavily invest to build their infrastructure from the very beginning, Ludmila Putina got it right – she used the resources of the former Soviet Ministry of Communications, staffing the company with former government officials.
Out of the blue, three years ago Megafon jumped into the market and created real competition for the other providers. Western-style companies reacted, and while offering better service and quality, they re-gained the market, though not as fully as they had it before the Megafon's entry. Sonet didn’t survive the Megafon invasion and fell apart, BeeLine was challenged by the Russian Tax Ministry and barely escaped the fate of YUKOS.
Russian oligarchs and politicians are used to fast and easy profits, and the people behind Megafon, mostly government officials and ‘relatives’ of Putin himself, have no tolerance for free market ideology. While BeeLine and MTS are trying to provide the best service to their clients, Russian bureaucrats feel like the income they are making is not enough. Now, try to compete with the Russian Parliament and President Putin himself in the Russian “free” market.
YUKOS stock jumped 40% today, based on rumors that the company will be acquired by Rosneft. There has been general uptick for stocks in the Russian market in the past few days. However, this isn't the reason for YUKOS big "success".
Speculators believe that the stock will be purchased by the state-owned Rosneft, that acquiredYuganskneftegas earlier this year. The corporate meeting between Yuganskneftegas and YUKOS is scheduled for April 18, 2006, and many Russian analysts say that it's too early and too risky to speculate on some future deal that might not happen at all. However, this kind of acquisition makes perfect sense.
RIA Novosti reports today that Russian GNP will grow about 6% annually for the next three years, according to government ministry figures. While during the Soviet era such Gosplan statistics would be meaningless (though the CIA often accepted them, overestimating Soviet productivity) we have good reason to believe that Russia's economic forecast is finally improving after more than a decade of decline.
Furthermore, RIA Novosti editor Peter Lavelle thinks that there is a very good reason why Russia's stock market has surged in recent months - the flat tax reforms of 2001-2002, combined with the government's attempts to produce a more liberal climate for business following the Yukos upheaval.
President Vladimir Putin's call for an end to "tax terrorism" against the business community has started to work its way through Russia's bureaucracy.
The lowering of some hefty back-tax claims and defining tax collection methods has been translated into lower political risk affecting Russia's investment case, and contributed to sterling stock market performance.
The UK Times finds signs of progress in the vital small business sector in Russia. While Gazprom/Shell and other megadeals dominate the headlines, as in the U.S., the real measure of any capitalist economy's health is small businesses growing, hiring more workers, and having access to capital.
In Russia, the mafia is most notorious deterrent to going into business, but Russian entrepreneurs responding to an OECD survey ranked bureaucracy as the biggest obstacle to success.
On the supply side (lest we be seen here at Russiablog as only trumpeting bad news!) the flat tax legislation from 2001 is already paying major dividends. Russian tax receipts are up dramatically, proving that a radically simplified code works much better than a complicated code, and that lower taxes actually boost revenues. According to Daniel Mitchell at the Heritage Foundation, the former worker's paradise now boasts a more investor-friendly tax code than the United States (though Russia still needs the rule of law, infrastructure, and a healthier, growing population to begin catching up with the U.S.). For a map of European countries that have adopted the flat tax, click here.
Skeptics in the U.S. and Europe will insist that Russia's yearly 10% GDP growth rate since 2001 is all due to higher oil and gas prices or unrelated economic reforms. It is true that the vast majority of foreign investment in Russia is still in the oil and gas sector. As one experienced American business consultant in Russia recently told me, "Russia's in the process of creating 'national champion' industrial firms where the country's strongest--natural gas and oil." Nonetheless, at least in the enclaves of Moscow and St. Petersburg, entrepreneurs are finding improving opportunities, especially in service industries.
As documented here, and here, privatization remains a dirty word for most Russians, given their experience with the oligarchs in the early 1990s. However, it appears that Putin's economic advisors are learning that prosperity comes from bottom-up, rather than top-down reforms. Strengthening the rule of law while cutting back on red tape should be the primary goals of the Putin government and Putin's successors. Russia must be prepared for the day when oil prices come back down to earth.
This is the latest major deal for Russia's gas monopoly Gazprom, and marks a new stage of the Kremlin's effort to return total state control lost during the first half of the 1990's - a loss the regime associates with democracy, "privatization" and anarchy.
State-owned Gazprom has purchased 25 percent plus one share in the world's largest liquefied natural gas (LNG) project Sakhalin-2, located off Russia's east coast.
The deal was seen by some analysts as driven by a desire to keep valuable natural resources in Russian hands.
RussiaBlog's reply is - not a “desire” but the highest priority, and not just “Russian” hands - but the Kremlin's.
Royal Dutch/Shell Chief Executive Jeroen van der Veer said, "This is an absolutely win-win situation. It helps our resource base and our production."
It should be mentioned that one Russian executive, Mikhail Khordokovsky, did not agree to give the State his 25% chunk. There were many attempts by the Kremlin to take some part of YUKOS (siphoning off its daughter companies, its pipeline project to China etc.). YUKOS executives' refusal to “share" and to “return" (give gratuitously) property “taken" (gained) during the first half of 90's brought about the total demolition of the corporation by the Putin regime.
A CNN analyst comments, "The deal also raised the prospect that when Gazprom comes to choose partners to develop its giant Shtokman gas field in the Barents Sea, it will look for assets in return."
One of the major positive news in Russia today is that American dollar gained in price. It’s a happy news to see the Russian ruble devaluating, because many people are getting their salaries “under the table” in American dollars - cash.
Jobs paid under the table range from construction workers and school teachers to presidents and executives of profit and non-profit organizations. Not to mention the bribe market, where euros are still chasing U.S. dollars as the preferred hard currency.
Salaries in Russia are usually paid on a monthly basis. The flat tax of 13% is withheld from the official Rubles salary, which is about 10-15% of the real one; the rest comes in a plain postage envelope. Russians and Russian ATM’s prefer freshly printed hundred dollar bills. Currency exchange businesses may refuse to serve you, if the bills are too small or too old (used).
Today in Moscow you can get 28 rubles for one American dollar.
Russia Blog presents up-to-date news, facts and commentary on the state of events in Russia and the former Soviet Union. The blog is managed by Yuri Mamchur, Director of Discovery Institute's Real Russia Project . The blog is edited by Charles Ganske, a writer with the Discovery Institute.
The Russian market remains one of the greatest untapped markets for American craft beer. To date, there are no major initiatives to import and distribute American craft beers in Russia despite Russia's rapidly growing economy and taste for high quality alcoholic drinks.
