Results tagged “business”

Reuters is reporting that the Russian authorities are cutting down on the number of CEOs allowed to join the parallel business summit, and are planning on moving it from a luxury hotel to inside the Kremlin to keep tighter control.  That just looks bad.

U.S. businessmen are expected to use a Russia-U.S. business summit on Tuesday to press Moscow to rein in corruption and improve conditions for western companies operating in the country. (...)

"It looks like the Kremlin doesn't really want this discussion and Russian business is not very keen either," said one industry source. (...)

And in a sign of unease about the business summit, industry sources say the list of executives who will meet Obama and Medvedev may be cut to 10 from each side from 18 and access for media may also be restricted.

They also said the meeting could be moved to the Kremlin from a luxury hotel, in a further indication that Russian authorities wanted to keep a tight grip on the talks. The Kremlin declined to comment.

Avtovaz has warned that with its gargantuan losses, it may be difficult to face the future without more state help.  Unilever intents to build an $140 million ice cream factory, which will be the biggest plant in Russia to make the frozen dessert.  Medvedev has warned regional leaders that they must use 'all means available' to pay wage arrears.  The government is planning to launch measures to combat unemployment in 20 one-company towns.  Shipbuilder Sevmash has been berated by Medvedev, after there were delays in building an aircraft carrier for a $1.6 billion deal with India.  Apparently Chinese state-run carmaker Beijing Automotive Industry Holding is gearing up for an offer for Opel, but Sberbank has said it does not 'see any serious competition'.  President Medvedev has said that economy class housing should cost no more than 30,000 rubles per square meter.  The Russian Audit Chamber has said that Cuba had three times delayed paying back the Russian credit provided in September 2006 and yet the Kremlin imposed no fine.  Megafon may buy up to 5% of Vimpelcom shares.  Forbes reports on how foreign investors' fears about Russia are substantial and substantiated.

Stephen Blank has an interesting new article on Forbes in which he assesses the economic damage being caused by Russia's inability to effectively reduce legal nihilism and corruption, both of which are dragging on the country's attempt to recover from the crisis.  Sticking out like a sore thumb is of course the second trial of Mikhail Khdorkovsky, which will be in full session during the first state visit of President Barack Obama.  Blank describes the Khodorkovsky trial as a "palpable judicial farce," and if President Dmitry Medvedev is unable to take action to solve the situation it will "confirm the widespread belief that he is merely a tool of his predecessor, a placeholder until Putin resumes the presidency."

When he was a candidate to lead Russia, Dmitry Medvedev denounced the country's "legal nihilism." Now, as president, he has often spoken in favor of judicial independence. Yet one year after his inauguration, with President Obama set to pay a state visit on Monday, Russia remains engulfed by a tidal wave of corruption, hamstrung by a politicized justice system that is chasing away the enduring foreign investment and economic stability that Russia so desperately needs.

Rosnano hopes to use President Obama's visit to urge him to introduce tax breaks for Russian companies, and conclude talks to establish a $1 billion venture fund with US companies to invest in Russia.  The number of unemployed could hit 18% by the end of the year casting serious aspersions on the government's anti-crisis plan.  Cherkizovsky Market may re-open by the end of the week, following a thorough cleaning.  Job cuts yesterday; today Oleg Deripaska's troubled GAZ group says that it may shut down several unprofitable units because of the economic climate.  Presidential aide Arkady Dvorkovich has said that all methods should be used to increase demand for housing.  Local pork producers are facing competition from importers of live pigs who use a customs loophole to dodge quotas and tariffs.  The Washington Post reports on the suspension of production at both Ford and GM plants in Russia.  Russia's largest car manufacturer, Avtovaz, reported a loss of $795 million last year.  Apparently the Russia economy is close to a 'turning point' after industrial production shrank at the slowest pace since September.  The Telegraph has an interview with 'reformer' Alexander Lebedev.

Norilsk Nickel shareholders have voted to invite a state representative, Vasily Titov, deputy chairman of state-run VTB Group, to their board, to give the company additional support during the crisis.  Russian Railways chief Vladimir Yakunin has recommended the government consider nationalization of crisis-hit industries to alleviate social tensions.  Four minority shareholders of High River Gold Mines have asked the company to reject Severstal's offer of 19 US cents per share, saying that the Russian steelmaker should raise the bid fivefold.  GAZ Group, the main employer in the Nizhny Novgorod region, will make around 6,500 people from its main production site redundant.  A high-ranking executive at ratings agency Fitch says that Russian banks will need $20 billion to $80 billion in extra capital this year.  The Magna-Opel deal is said to be in jeopardy as GM Europe has announced it is talking to other potential buyers for its Opel unit.  In a surprise move VEB used its 3.7% stake in Norilsk Nickel to help elect billionaire Alisher Usmanov's candidate to the board of the mining giant.  Russia's former telecom minister, Leonid Reiman, will return to the state service as the chairman of Svyazinvest.

Well this is just mean.  Vladimir Putin doesn't want Russia's billionaire bankers to take any vacation this summer, while it also looks like the state will become even more dominant in the banking sector.  From the Financial Times:

No villas in the south of France for Russia's top bankers this summer, if Vladimir Putin gets his way.

Russia's prime minister has sternly warned bank chiefs not to plan any holidays until they have sorted out the financing of the country's recession-hit economy.

It will take a huge effort, with output forecast to fall by about 8 per cent this year and hopes of a quick recovery fading. 

The Economic Development Ministry has changed its forecast for the growth of GDP, predicting that the economy will shrink 8.5% this year instead of the 6-8% previously forecast.  The Ministry is more optimistic on inflation, predicting a rate of 12-12.5% instead of 13%.  Putin has ordered state banks to offer major corporations $13 billion in loans as Russia's economy shrinks for the first time since 1998.  Putin has apparently said that Russia should be aiming for a deficit of 2-3% of GDP as opposed to the 7.4% planned.  As Russia's second largest lender VTB struggles with bad loans, which have increased three-fold this year, the company may make 1,000 employees redundant.  The lender will make a loss this year.  Its chief financial officer has said the bank may require a second share issue next year if the state of the economy declines further.  Cherkizovsky Market is to be closed temporarily on government orders so that its owner Telman Ismailov can deal with sanitation and storage infringements.  In a show of technological innovation, Sberbank is planning to launch Internet-based retail share trade. 

It was clear to many observers that the Canadian auto parts manufacturer Magna was acting partly as a front company Trojan horse to help get Russian state interests deep into Germany's industrial sector with the purchase of a majority stake in Opel from the bankrupt General Motors.  Although it appeared to be a done deal at first (thanks to Sberbank and the Kremlin pressing their client party, the SPD, to push the sale through), now it appears that Opel is taking in other offers - apparently GM feels that Magna/Sberbank group are using heavy-handed political leverage to influence the terms.  The outcome of this transaction will be very interesting in terms of illuminating Germany's future political and business ties to Russia.

From the Financial Times:

Magna, with which GM signed an MoU to buy 55 per cent of Opel alongside Russia's Sberbank in May, remains in a leading position to sign a definitive sale agreement. The Canadian group has the support of the Social Democratic part of Germany's government, regional governments and unions.

However, talks have hit obstacles over future access to GM's global technology, which Magna wants to secure on behalf of its Russian partners. If the sale proceeds, Magna and Sberbank plan to build Opel-based cars in Russia with Gaz, Oleg Deripaska's car company.

Some in GM feel Magna is using its political backing to press for unfair terms. GM also wants the future right to buy back some or all of the stake.

There's an interesting post over at RCW's Compass blog on the new memorandum of understanding signed between the French defense giant Thales and the Russian state arms exporter Rosonboronexport to jointly manufacture and sell arms to third parties, beginning with a focus on naval applications.

It should be noted that an international industrial group Thales is one of the world's leading manufacturers of defense products. In 2008, according to the Stockholm International Peace Research Institute, the company delivered its products to customers in the amount of more than $9.3 billion, taking tenth place among other top defense corporations in sales volume. Memo to Pentagon: Thales also actively participates in supplying technology and products to NATO countries, so how exactly will its cooperation with Moscow affect French military relationship with Washington? Especially given how much Russia and US compete on the global arms market? Anyone?

Yevgeny Bendersky goes on to note that it is possible that the French could help the Russians rescue a long dormant project to build the "Belgorod" - by far the largest submarine in the world.

Federal budget revenue will account for about 16% of national GDP in 2009.  Bloomberg reports on why it will take the government years to recover from the crisis.  Following Vladimir Putin's complaints about the cost of pork, X5 Retail Group has slashed prices.  Telenor has said that it will not enter discussions with Alfa Group about settling their dispute until the end of Farimex Products' lawsuit.  An op-ed piece in the Moscow Times argues that 'Telenor's legal troubles echo the Yukos case and have become a test of President Dmitry Medevedev's commitment to the rule of law and an independent judiciary'.  Sberbank has warned that their joint deal with Magna to buy Opel could fall through.  Bloomberg reports that the bank may abandon the joint bid for Opel after GM raised the prices for its unit.  The Times reports on how the opening of Telman Ismailov's new luxury hotel in Turkey has fueled the ire of Prime Minister Putin.  The Times also features a report on a lawsuit between Boris Berezovsky and his former yachtbroker.  The New York Times reports on the wave of unemployment that it suggests will follow the government's closure of all gambling establishments. 

I see that Anders Aslund from the Peterson Institute née IIE is defending Latvia's currency peg again, this time in the Moscow Times. Given the dearth of such defenders among the conventional economics wisdom crowd, and considering Russia's kabuki-like rhetoric over its own currency policy, I thought this something worth drawing attention to. Not only that, but I dare say currency peg cheerleaders are a dying breed. This is not to say that pegs are uncommon, but simply that nowadays no country is ultimately considered to be fully developed until it can float its own currency in the international foreign exchange market, somewhat like sitting for an exam without a crib sheet to consult (Hong Kong is an obvious exception, but also not technically a country).

Now, I could get all petty-nitpicky-snipey with Aslund's defense and quibble that rejecting a comparison to Russia c. 1998 and ignoring a comparison to Argentina c. 2001 while choosing to compare Latvia with Denmark and Barbados - all while contending that Latvia is a special case - is a non-sequitur, self-serving, disingenuous and lazy all wrapped up in one. Or, I could get all econo-geeky and point out that substituting the triple-whammy of wage cuts, tighter government spending and deflation for a currency devaluation is tantamount to trading six for half a dozen when faced with an asset-liability mismatch as deeply embedded as Latvia's.

But that's not what I want to do here, in part because plenty of others have already taken enough of a swat at it from an economic standpoint (and indeed, those predicting a devaluation are many: Business Monitor International, Paul Krugman, Edward Hugh, Ambrose Evans-Pritchard, Marxist theoretician Boris Kagarlitsky, and, with an Op-Ed that frankly reads as though it was penned by one of his underpaid student assistants, Nouriel Roubini). No, what I would rather do is propose the Latvia currency situation as an example of politics trumping economics.

The World Bank has a new report out with a pretty gloomy outlook on the Russian economy, as though the political burden weren't already heavy enough on Alexei Kudrin's shoulders.  Moscow may be attempting to build a "new global financial architecture," but these forecasts from the old one, though not definitive, still matter.  Obviously the critical puzzle will be fiscal policy - how much the state spends, how much it saves, while keeping everybody happy in conditions of rising unemployment.  From The New York Times:

As the global recession deepened last winter, Russia spent about $200 billion, or a third of its precrisis foreign currency reserves, defending the ruble during a gradual devaluation. This spring the tables quietly turned as oil prices rose, and the Russian Central Bank has made back about $30 billion since March by intervening to prevent the ruble from appreciating, the report said.

Yet other factors are weighing on Russia's prospects, the World Bank report said. A swoon in domestic demand, worse-than-expected global growth, tight credit and declining infrastructure investment are taking a toll, it said.

According to the Moscow Times, Russia's inflation rate in 2009 will be far less than had originally been predicted.  Finance Minister Alexei Kudrin is avoiding over-optimism, saying Russia will meet the target of 13%, although 'maybe it will be even less'.  Russia is considering an extensive bail out of banks, surpassing that undertaken by the US, reports the Financial Times.  Telenor is apparently ready to approve a proposal by Alfa group to merge VimpelCom and Ukraine's Kyivstar.  A consortium of VTB Capital, Fraport and Copelouzos Group has announced it has won a tender to develop and reconstruct St Petersburg's Pulkovo Airport, beating two other consortiums (one of which included Deripaska's Basic Element).  During Medvedev's visit to Namibia a memorandum of understanding was signed allowing Russian fishing ships to operate in Namibian waters.  The Moscow Times reports on how at the Inter RAO meeting, Deputy Prime Minister and Inter chairman Igor Sechin managed to coax shareholders into abandoning their demands for slashing managements payouts.  Exiled tycoon Boris Berezovsky has been convicted in absentia of large-scale fraud for a second time.

One would think that with the confusing ban on U.S. pork imports, that Russia wasn't really concerned with food supply or prices.  But with this news from the Moscow Times, I think Homer Simpson will be booking a ticket immediately.  Perhaps these high prices reflect the rising interest in swine sports...

"How much is pork?" Putin asked astounded store attendants, Interfax reported.

Seeing a price tag of 335 rubles ($11) and consulting a pricing table that listed the item's purchase price as 160 rubles, Putin's calculation yielded an unhappy result.

"This is double the price. Is that normal?" the prime minister asked Yury Kobaladze, the managing director of X5.

"Is 120 percent a high markup?" Kobaladze asked.

"Very high," Putin said.

"It will be lowered tomorrow," Kobaladze said.

A report has found that Russia's number of wealthy people fell by 28.5% last year, which is nearly twice as much as the average level across the globe.  The World Bank and the OECD have stated that Russia's economy would shrink by approximately 7.9% in 2009, rather than the 4.5% they had earlier predicted.  Apparently the delay in launching an anti-crisis plan exacerbated the downturn.  The New York Times reports upon how Russia has been one of the countries the hardest hit by the recession.  Finance Minister Alexei Kudrin has reaffirmed that in the next ten years, there will not be 'considerable changes in the structure of reserve currencies in the world'.  With debts of $5.4 billion, 'there is substantial doubt about our ability to continue as a going concern', says steel and coal producer Mechel.  The Moscow Times reports on the problems facing coal producers as they struggle to compensate for weakening domestic demand with higher exports.  Demand for steel will drop by one quarter his year.  Russia has initiated membership talks with the OECD.  Sberbank has revealed its only noncorporate shareholder with a stake of more than 1% is ex-Maxi Group owner Nikolai Maksimov.   

In its current issue, Global Finance Magazine lists what it calls the "Stars of the New Russia" across a variety of business sectors. A lot of the preamble will probably not come as a shocker to those watching Russia on a continuous basis, but there are a couple of quotes that leapt out at me:

Kingsmill Bond, London-based senior Russia analyst at Troika Dialog:

"Russian corporates are used to handling volatility and difficult times. They can adapt quite quickly. Other countries are not used to such dramatic changes in the economic landscape. Russian firms are used to being thrown around and rebounding very quickly. They have had periods of high growth and high inflation in the past, and they have recovered. Russia is better positioned to bounce back when markets return. Russia will bounce back harder and quicker [than in 1998]."

Alexandra Evtifyeva, Senior Economist of VTB:

"They still need to do a lot on cleaning of banks' balance sheets. Non-performing loan levels are rising quickly." Most estimates put the proportion of non-performing loans in the system at between 10% and 20%. "There will be a major shakeout of Russia's 900 banks. Risks are quite concentrated in the largest banks. The smallest banks don't take risks. We expect some restructuring in the banking sector."

Unnamed analyst:

"The country needs to produce a good-bank/bad-bank structure, but politicians appear to be shying away from the big decision." Such a lack of clarity mirrors the early reluctance of Russia's politicians to admit that the country was facing any sort of crisis.

Ok, enough of the peanut gallery. On to the award winners:

Jason Bush has a devastating piece published in BusinessWeek about the Council of Europe report on Russia's rule of law vacuum.

Prosecutors accuse the ex-Yukos managers of embezzling 350 million metric tons of oil, equivalent to Yukos' entire oil output for six years. Defense lawyers and several independent legal observers have expressed bewilderment at the new claims. They note that in their previous trial, the two managers were convicted of underpaying taxes on this same output, implying that it was legal business activity. The alleged embezzlement occurred when Yukos was Russia's largest oil company and one of its most visible companies overall.

Now these concerns have been echoed by the author of the Council of Europe report, Sabine Leutheusser-Schnarrenberger, a former German Minister of Justice. "The legal justification of the new criminal cases against Mr Khodorkovsky and Mr Lebedev has me perplexed," she writes, adding that "any accusation must fulfill minimum standards of logic."

President Dmitry Medvedev has unveiled a rather curious environment plan to put greenhouse gas emissions back to the level they were at in 1990 - which essential means a 30% increase.  At least they are talking about the issue, point out some environmentalists with diminished expectations....

From the Wall Street Journal:

As countries announce their emissions targets in advance of the talks in Copenhagen this December, there's been some maneuvering on this issue. The Australian delegation has proposed a plan that would allow each country to submit its own schedule for reducing emissions, effectively allowing them to choose their own baseline year. Japan would like to use 2005, because the country's emissions have been creeping up in recent years.

All this, of course, has to do with politics. Nations that commit to emissions targets want other countries to try just as hard. It's easier for politicians to sell belt-tightening at home if it appears that everyone in the international community is shouldering an equal burden.

And on that front, Russia's plan looks like a dud.

Good 'ole Norway.  You'd never hear a peep from them about human rights or democracy shortcomings over in Russia, and in exchange they are gifted with some large contracts for the state energy company.  Nobody ever said it was a good strategy to keep their assets safe.  While perhaps Gazprom and the environmental and tax gestapo is held at bay, it doesn't account for other private groups using the Kremlin to their business advantage ... hence the court-ordered sale of Telenor's stake in Vimpelcom over to Mikhail Friedman of Alfa Bank.

There are a lot of arguments that one could make about what this transaction means for foreign business in Russia, but we should stop calling it "a test" of Russia's investment climate.  There is no test and there is no investment environment - we're in the middle of the second absurdist trial of Mikhail Khodorkovsky, countless companies have been expropriated and partially expropriated, and the threat of government intervention is omnipresent and increasing.  Let's start being realistic, and stop pretending anyone is surprised that Norway has been thrown into the maw of lawlessness just like everyone else.

Today the defense team for Mikhail Khodorkovsky is running a letter, bearing the signature of Robert Amsterdam, in the global edition of the Financial Times.  The story has been covered by Dow Jones and some other news outlets.  Below is the full text of the letter.

An open letter to the boards of directors, management, auditors, and shareholders of Rosneft, Gazprom, Eni, Enel, and other purchasers of Yukos assets.

RE: Russia's obligation to seize your assets?

Beginning in December 2004 with the sham tax auction of Yukos's main production subsidiary Yuganskneftegaz, management and lawyers and shareholder representatives for major oil companies as well as private investors have had to evaluate the risk of purchasing Yukos assets and, subsequently, the oil produced by one of the prior production subsidiaries. This dilemma continued during the illegitimate Yukos bankruptcy where the receiver liquidated the company's assets through a series of auctions. Actions for damages resulting from the expropriation of Yukos have been filed by Yukos shareholders, e.g., the Hulley and Yukos Universal Energy Charter Treaty case and minority shareholders under bilateral investment treaty cases, as well as an action filed by ex-Yukos western management before the European Court of Human Rights and defenses asserted in other actions.