The Russian Economy is Collapsing
In 2008, nearly $130 billion flew out of Russia, erasing the modicum of inflows registered in 2006 and 2007. For its size, Russia as an investment destination pales in comparison to South Korea. Total equity portfolio inflow into Russia in 2009 was just $3.4 billion, according to World Bank data, making it the lowest of the big emerging markets by far. India, China and Brazil all registered inflows over $20 billion. A recent opinion poll by the Levada Centre shows that 22% of Russia’s adult population would like to leave the country for good, up from 7% in 2007. It is the highest figure since the collapse of the Soviet Union, when only 18% said they wanted to get out. Over 50% of Russian entrepreneurs said that they wanted leave the country. “From a macro perspective, I don’t want to be in Russia,” says Justin Leverenz, emerging markets portfolio manager at Oppenheimer Funds in New York. “From an investor’s point of view, Russian politics are far beyond what I’m able to analyze.”
Believe it or not, those words appear in a recent article in which the author is trying to put a positive spin on Russia. Can you imagine what Russia’s economic critics are saying these days?
Pavel Baev, writing on the Jamestown Foundation website:
The volatile turbulence that battered the world economy last week should have passed Russia by, but it did not. Indeed, Russia is not burdened by a massive debt, is spared political feuds about budget cuts and is not even exposed to the looming Greek default; nevertheless, its stock exchange fell deeper than most. The Dow Jones index, for that matter, opens this Monday on about the same level where it was a week ago, while the RTS slipped from the plateau of about 11,600 to a low of 9,600 and barely bounced to 9,900 on Friday (Kommersant, August 13). Certainly, the speculative games are only a symptom, and not necessarily a reliable one, of the real economic trends, but statistics suggest that Russia’s economic growth slowed down in the second quarter, and experts argue that the country is entering into the new phase of turmoil, for which it is not any better prepared than it was in mid-2008 (www.newsru.com, August 10; Nezavisimaya Gazeta, August 12).
The Dog Days of August for the Russian Stock Market
The Dog Days of Russian August put the Bite on the Russian Stock Market
August is historically a nasty month for Russia. And true to form, in the first ten days of the month this year, the Russian stock market lost a truly breathtaking 20% of its value, plunging from 2000 to 1600 on the dollar-denominated RTS index. The losses were actually far worse than they appeared, because the Kremlin had been feverishly pumping Russia’s precious reserves into the market to artificially inflate demand and limit the damage.
But even worse than the numbers was the reason for them. Julian Rimmer, a broker in Russian shares at CF Global Trading in London, explained: “Russia is entirely hostage to external factors. The only thing which can arrest the decline would be some form of concerted — and simultaneous — central bank policy response. The perceived lethargy and lack of unanimity is extremely damaging.”
“Entirely hostage.” Ouch. “Lethargy.” Double ouch. Nice work there, Mr. Putin!
Russia’s Retirement Paradox
A Russian man on average lives to the age of 61.8 years while a Russian woman reaches 72.6 years of age. This places Russia a shocking #135 on a list of 194 world nations when ranked for overall average life expectancy (65 years — Russians perish right at the time most Westerners are just starting retirement).
The stunning gap of more than a decade in average lifespan between Russian men and Russian women is matched by virtually no other country on the planet. Even in Japan, the country with the longest-lived women in the world, the gap between men and women is well under a decade.
But what is even more bizarre is Russia’s pension system, which awards retirement to women at 55 and to men 60. This means that the average Russian man would only enjoy a pension for 1.8 years, while the average woman would get one for 17.6 years. Simply by virtue of being born female, a woman would get nearly ten times more pension benefits.
Shocking, isn’t it?
Vladimir Terletsky writing on Rus Business News:
Russia will be unable to become an innovation-driven country in the near term, as, despite its tremendous area, there is no demand for innovative developments. Large companies prefer to purchase off-the-shelf technologies in other countries; talented scientists, in their turn, leave Russia, finding no comfort in living and working at home. Experts see monopolists as the main hindrance to progress, as being the closest to government money. The “RusBusinessNews” columnist is sure that only transnational corporations can make them move; however, the authorities show no haste to allow them access to the Russian market.
Time magazine reports (for those who read Russian, a new ZheZhe blog has been created for expatriate Russians to lay out their reasons for fleeing the nightmare that is Putin’s Russia):
When he was 17 years old, Alexei Terentev, then a bookish high school student in Moscow, created what the Russian government has been desperately trying to engineer — a start-up with some of that Silicon Valley–style magic. It was innovative, cleverly marketed and could be run out of his parents’ apartment. By June of last year, when Terentev got his diploma from one of Moscow’s elite universities, his company was on its way to making him a millionaire. But it was also getting big enough, he says, “to get the wrong kind of attention from officials.” So Terentev, now 22, took no chances. One day after graduation, he packed up his laptop and emigrated to the Czech Republic, taking his company with him. He doubts he will ever return.
The reasons for his move, as well as his haste, are the typical worries of the young entrepreneurs Russia is currently hemorrhaging: corruption and bureaucracy, the forces that are driving the biggest exodus since the fall of the Soviet Union.
Hero journalist Yulia Latynina, writing in the Moscow Times:
While watching the Bank of Moscow scandal unfold, two questions come to mind. First, the Bank of Moscow held the accounts of Moscow’s city budget, and the deficit of the bank is now $14 billion. In essence this means that the city’s funds have been stolen from the bank. How did this happen?
The second question is whether VTB will file a lawsuit in London courts against former Bank of Moscow president Andrei Borodin. It appears that the goal is not to extradite him back to Russia but to put him behind bars in Britain.
Borodin somehow received 20 percent of the shares of the bank, but it is difficult to say whether he was an actual or nominal shareholder.