Archive for the ‘Economics’ Category
October 21st, 2016

We Can Go Screw Ourselves


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Economic sanctions imposed by the West on Putin’s friends and their enterprises, as well as on the most sensitive sectors of the Russian economy—the oil and gas industries and the capital market—have been in effect for more than two years. These measures, however, have failed to restore Ukraine’s sovereignty over the Donbass and Crimea, or to make the Russian military admit its obvious guilt in the crash of the Malaysian Airlines plane. Russian citizens, intoxicated by Kremlin propaganda, do not seem to be interested in the reasons behind the lack of accessible credits, the rise in prices, and the freezing of pension savings, but continue to largely support the aggressive international policy of their presumptuous rulers. So what is the result of the renowned Western sanctions?

In two and a half years, Russia has lost a considerable amount of foreign investments that the country was supposed to receive, and was forced to suspend indefinitely the exploration of new oil and gas fields due to the ban on the import of technologies and equipment. Both factors will continue to have a negative effect on the revenues of the Russian budget. Putin’s economic advisers—the market-oriented Aleksei Kudrin and the anti-market Sergei Glaziyev — both evaluate Russia’s losses resulting from the annexation of Crimea and the introduction of sanctions at no less than $200 billion. According to other experts, the largest part of these losses amounting to $170 billion was caused by Western sanctions. >> Read more

October 12th, 2016

Privatization, Sechin-style

Igor Sechin. Photo by Alexander Demianchuk/Reuters

Igor Sechin. Photo by Alexander Demianchuk/Reuters

As it often happens in movies, a multi-episode crime thriller entitled Bashneft that began in September 2014 with the arrest of the once-mighty Vladimir Yevtushenkov, head of the Sistema corporation, has ended in a prosaic finale that we had predicted from the very beginning: Bashneft has been expropriated from private owners and is being transferred to the state-run Rosneft. Despite public protests by ministers and even the deputy prime minister of Russia, the all-powerful Rosneft chairman Igor Sechin got what he wanted: Prime Minister Medvedev signed an ordinance providing for the sale of the controlling stake in Bashneft to Sechin’s oil empire for $5 billion — without any tender. This is $300 million above the minimum price that the government was prepared to accept for the privatization of its shares in Bashneft, which prompted Putin to observe that Russia’s deficit-ridden budget is in dire need of this money. The federal budget will now undoubtedly receive it, but this leaves the question of where Rosneft had gotten it from, since almost 70 percent of its own shares belong to the Russian state.

As the result of sanctions imposed by Western countries in response to the annexation of Crimea and the shooting down of the Boeing by a Russian missile, Rosneft is practically unable to borrow on the international capital markets. Consequently, just as with the purchase of assets of the Yukos Oil Company that had been forcibly expropriated from private investors and bankrupted, Sechin went to look for money in the East — and found it there in exchange for oil. The only difference is that Chinese companies got guaranteed oil supplies from Rosneft for a fixed low price for several years in exchange for the billions of dollars used for >> Read more

October 5th, 2016

Putinary Geology

mxqfrany89Everyone knows from school textbooks that Russia is extremely rich in mineral resources with the most valuable of them being oil and gas of course. Had Siberia not been rich in oil and gas, Putin could have probably been unable to stay in power that long, since without the “oil needle” hungry Russians would have told the usurper from the KGB to get lost a long time ago. However, he has been fortunate so far, and despite the fact that the importance of hydrocarbons as a source of energy has been slowly but steadily decreasing worldwide, the current Russian tsar still has enough oil revenues to provide for himself and his friends and to silence his electorate that has grown stupid from watching government-owned TV channels broadcasting state propaganda. Russia still has enough available stocks of mineral resources to maintain the status quo in the immediate and medium-term. As for the distant future, the Kremlin does not seem concerned about that at all. It is no surprise then that exploration activity is hardly being carried out in Russia, and geology as a science is slowly dying.

In April 2016, on Minister of Education and Science Dmitri Livanov’s orders, the Russian State Geological Prospecting University >> Read more

September 28th, 2016

From The Cherry Orchard to the Khimki Forest


 “You have no mercy on the woods, or the birds, or on women, or on one another…”

Uncle Vanya, А.P. Chekhov, 1896

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Photo by

Chekhov’s Uncle Vanya and The Cherry Orchard were written more than a century ago, but they remain a brilliant portrait of Russian society and its attitude toward the world around, woods included.

Forests cover around 45 percent of Russia’s territory, and the country accounts for 24 percent of the world’s timber resources. The Siberian taiga and its cedar trees are as much a symbol of Russia as the Kremlin and Sputnik. It would seem that Russian forests should be valued and protected as a national treasure. However, just like the people of Russia, Russian forests have their own peculiar fate full of suffering and tragic mistakes.

Back in 2013, an international team of scientists calculated that from 2000 to 2012, Russia had lost more forest area than any other country in the world. Such forest cover loss was caused by different reasons including forest fires, storms and insect pests. However, this was also due in no small part to human activity. According to World Wildlife Fund’s estimates, Russia annually loses around $1 billion due to illegal logging.

According to First Deputy Prosecutor General Aleksander Buksman, illegal logging is responsible for more than 800,000 hectares of Russia’s forest loss annually, which is more than half of the total wood harvest in the country. >> Read more

September 21st, 2016

Sincerely yours at your expense

Dmitry Medvedev / Photo by

Dmitry Medvedev / Photo by

Russian officials’ increasingly frequent statements about the lack of funds in the country’s budget to cover even the bare necessities of life make one almost believe their sincerity. It is not that officials themselves experience money problems. The most recent examples with Medvedev’s 35-billion-ruble country house or 8 billion rubles in cash discovered in the possession of the temporary acting head of Russia’s anti-corruption agency, colonel Zakharchenko, do not leave any doubts regarding  Russian officials’ success in siphoning off the national wealth. However, besides a few million of ministers, lawmakers, policemen and prison officers who are comfortably settled in life, there are some 140 million citizens in Russia, whose living standards directly depend on budget funds left over after officials’ rent-seeking activities.

In late 2015 and early 2016, the country’s budget was adopted with a deficit and later subject to sequestration. According to the most recent official figures, in the first half of 2016, Russia’s budget deficit has reached 1.52 trillion rubles. Over this period, Russian tax and customs services have collected around 5.24 trillion rubles, and, all other revenues included, the country’s gross national income reached the lower-than-expected 5.87 trillion rubles, since the 2016 draft budget envisaged 13.74 trillion rubles in revenues. It is obvious that at the end of the year, this figure will prove to be unattainable, as Medvedev sincerely admits.

The government traditionally rejects the option of increasing taxes and thus suggests balancing the budget for the next three years by cutting spending by 3.5 trillion rubles. >> Read more

September 8th, 2016

The Earth’s Edge is Harsh and Embraced by Silence


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Russia’s Far East, a region that is farthest from Moscow with more than 6,000 kilometers between them, has been going through difficult times for quite a while now. Since 1990, when the last population influx was registered, the region’s population has decreased by more than 20 percent with 90 percent of it being due to the migration outflow – not to natural population decline. A considerable part of the population leaves the region to seek jobs and a better life.

Making a speech at the 2016 Eastern Economic Forum, Putin promised to turn Vladivostok, the country’s largest city on the Pacific Ocean coast, into a Russian San Francisco. Our dreamer in the Kremlin must be counting upon investments from Japan and China, including a joint development of the disputed Kuril Islands. One has a hard time believing that though.

This year, a Federal Law No 119-FZ from May 1, 2016 dubbed “On the Far Eastern Hectare” was adopted on the government’s initiative. However, the attractive idea of giving away land for free to anyone interested is confronted by the greed of corrupt officials. Right after the law had come into effect, opposition activist Aleksei Navalny exposed fraud schemes used by officials with regard to allocated land plots, when, for example, the most attractive ones turned out to be occupied within minutes of the entry into force of the aforementioned law. This story just gets funnier as it goes. According to the project’s official website, in three months only 379 people out of 6 million who still live in Russia’s Far East submitted requests for complimentary land plots.

A few years ago, when skyrocketing oil prices provoked an investment urge, there were plans to build automobile-manufacturing plants >> Read more

August 31st, 2016

Stadiums Versus Hospitals

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Russian healthcare, just like state-funded Soviet healthcare before it, has never been characterized by either quality or accessibility.  Despite rather large investments in the medical industry that both the federal and local budgets could afford during the period of high energy prices, the quality of medical care received by the population remains appallingly poor. There is a deficit of doctors, and their level of knowledge does not meet modern-day standards. There is a continuous deficit of effective drugs. Today, when oil revenues have plunged and there is no prospect of foreign investment, the question arises:  At whose expense will the government be cutting back on spending? The authorities have quickly found a solution on the federal level by gradually reducing healthcare spending for over a year. Local authorities act in a similar way. Only, whereas in Putin’s opinion, the government cannot cut down on “national security” spending (or in other words, federal expenditures on the police and special forces used to suppress popular unrest), local authorities use budget funds that were supposed to be spent on health care and education, for example, to build sports facilities for the upcoming 2018 FIFA World Cup instead. Thus, in St. Petersburg, funds originally intended for the construction of schools, daycare centers and healthcare facilities are going to be used to complete the construction of the Zenit Arena stadium.

Georgi Poltavchenko, Putin’s colleague from the Leningrad KGB and current governor of St. Petersburg, called this redistribution of funds a “technical solution” instead of admitting that the country that is rapidly sliding into poverty simply cannot afford an expensive World Cup. It would seem that it should not be difficult for
>> Read more

August 24th, 2016


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According to the recent statistics provided by the Russian Federal Statistics Service, foreign direct investments (FDI) in Russia have dropped in the first half of 2016 by 4.3% APR. In fact, shallowing of the investment inflow has continued for more than two years. Hunger for superprofits sharks of capitalism perceive the expropriation of Yukos in the mid-2000s as an isolated case, which does not affect the overall investment climate in the country. They continued actively flirting with the Putin’s regime, and only economic sanctions, entered by the Western governments in 2014 in response to the annexation of Crimea and support of separatists in Donbass, have forced transnational corporations to slow down its expansion on the Russian market.

Russia’s overall investment climate quickly turned from positive to negative. Russia was among the top three recipients of FDI with a record US$94 billion in 2013. This precipitously fell to only US$21 billion in 2014 and US$4.8 billion in 2015.

In 2014 just 178 new foreign investment projects worth US$13 billion were launched, compared to 396 projects worth US$23bn in 2011. Russia’s second biggest European investor (after Cyprus), the Netherlands, decreased its investment from US$5.7bn to US$1.23bn in 2014. Even though weak currency usually attracts foreign investors, as ruble weakened, FDI kept collapsing.

Ernst & Young sees the following issues negatively influencing the investment climate: inconsistent and selective law enforcement, non-transparent decision-making procedures, and corruption.

Historically, the main industries for FDI inflows in Russia have been wholesale and retail trade, banking, manufacturing, and the mining sector (mostly extraction of oil and gas). Surprisingly >> Read more

August 17th, 2016

A Mortgage from Putin

German Gref (right) and Vladimir Putin / Photo by

German Gref (right) and Vladimir Putin / Photo by

Vladimir Putin rarely acts as an advertising agent, but the current economic crisis and the fear of political instability it provokes are forcing the president to recur to unorthodox methods of state support for key segments of business on which the regime’s financials are based. During his meeting with the head of Sberbank—Russia’s major bank, 51 percent of which is owned by the state—Putin suggested that Russian citizens should take out mortgages without waiting for interest rates to go down.

There could be many reasons for such promotional activity, the chief among them being a slowdown in nominal wage growth, an upturn in inflation since July, and a rise in the unemployment rate. These factors are already affecting the banking sector and could potentially lead to a balance-of-payments crisis, the holding back of wages and pensions, and other systemic problems. Analyzing Putin’s aforementioned statement, Russian economist Sergei Aleksashenko notes that while the numbers of mortgage loans have been increasing, their amounts have been steadily diminishing.

As of the summer of 2016, the growth of Russia’s mortgage market has been mostly caused by measures of state support, the repeal of which, according to the Russian Finance Ministry, will inevitably lead to an increase in mortgage rates and a lower demand for mortgage loans. Essentially, Sberbank is the only bank that shows decent mortgage figures, whereas such key players in the Russian banking sector as VTB24, Gazprombank and Rosselkhozbank, not to mention smaller banks, demonstrate an almost two-fold decrease in the volume of  mortgage loans. >> Read more

August 10th, 2016

The Hard Labor Market

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According to official data from the Russian Federal Statistics Service (Rosstat), Russia’s unemployment rate had been decreasing during the period from 2010 to 2014. Data from 2015 shows, however, that this trend has changed—the official unemployment rate demonstrated a minor but symptomatic increase of 0.5 percent and reached 5.8 percent. According to calculations of the Russian Ministry of Labor, in 2016, Russia’s unemployment rate could amount to 6 percent, and the situation is not expected to change significantly in 2017.

It is clear that in Russia official data concerning the population’s employment and unemployment rate can be considered only partially objective. The country’s shadow labor market where people are listed as either formally unemployed or employed for a minimal salary in one place while they are actually getting paid in cash somewhere else without declaring their income is just too big.

Rosstat claims that as of June 2016, the economically active population in Russia reached 76.9 million people (or 52 percent of the country’s overall population,) with 4.2 million of them being officially unemployed and another 30 million being employed in the shadow sector of the economy and not paying taxes, according to President Putin’s statement. In 2013, Deputy Prime Minister Olga Golodets declared that the “sectors that we can see and that are clear to us employ a total of 48 million. It is anyone’s guess where the others are employed, what they are busy with, and how”. Despite the president’s order to deal with this situation, it seems that no specific measures have yet been taken on the state level. Most likely, the government simply >> Read more