Russian Economy General News: #1

Welcome Move , They should actually lend it at 1-2 % interest like they do in Europe/US so that cheap money is abvailable to start many business and fund many venture.

Reason why US was stable and growing inspite of their problems as cheap money was available but now with QE tapering things might get tight.

@Austin
 
The reason why India and China spends more money on infrastructure development is various reasons, and these are the reasons that I have read in the past couple of years:
 
1) India - With its massive population, only a small portion of India had modern infrastructure built by the British Empire, while the majority of it was fairly underdeveloped.  Problem is, India has a HUGE population, and very little in spending for decades in infrastructure, has created many holes that need to be filled.  Now they are spending the money that needs to be spent in order to bring many peoples lives up to standard.  Even then, India has an education system that needs massive development as there is still a huge population that is illiterate, and about 40+% living below the poverty line.
 
2) China's economy relies heavily on the shadow construction industry.  You have heard of Ghost Cities@ , right?  A huge portion of China's GDP growth is actually stemmed from such projects of infrastructure development, as it corresponds to concept of investment opportunities as well as gives info back to the World Bank that China is growing, thus it then correlates back to GDP growth as there is a perception of growth in investments, so they can borrow more from World Bank.
 
3) Russia relies heavily on the infrastructure built by the Soviet Union.  Much infrastructure that was built was mostly built by the 70's and early 80's, so it is indeed outdated, but by no means needing major change.  Some people will disagree, but majority of people in Russia have a home, a washroom, electricity and water, with maybe at most, 2 bedrooms.  It is no secret that housing prices are greatly mismatched by the various areas (in St.Petersburg, I heard you can get yourself a 3 bedroom condo for maybe around $170,000 equivelent, but then there are places that are like half a million to a million in price, so it is expensive indeed.  As well, maybe they are not the nicest of buildings, but they are indeed livable.  A lot of infrastructure was built by cement, thus things like roads that are built  by cement still stand to this day with very little attention given to it, while asphalt roads are garbage if not given attention after a couple of months after being built.  Now days, I hear that many projects are just overpriced and underdeveloped (meaning they will find cheapest way to build it), and that in itself is true capitalism, as that same garbage is done here in Canada.  Majority of Russian's are educated as University is mostly covered if you enter it, and Primary school/high school is covered.  You may get that in China, but rarely you would get that in India, as even my wife had to pay to go to school, but she got government grant as she was one of the top students in her marks, thus government sponsored her.
 
Majority of Russians have a degree in something, there is even joke about how you cannot become a janitor in Moscow if you do not have a PHD in something.  That is why literacy rate in Russia is something like 95%, which is either higher or the same of these developed countries like USA (Wiki on Literacy Rate)(India is around 75% while China is 94% it seems to by the numbers from the chart).
 
Don't get me wrong though, Russia has a lot of problems of their own, and infrastructure development is indeed much needed.  The major problem I see is a couple of things:
 
1) Too many villages widespread through Russia.  During Stalin era, they moved people to various locations throughout Russia in order to populate the unpopulated areas, even if it is lets say a couple of hundred to a thousand people in one area or the other.  In the end though, what it created is a ton of villages that makes it really hard to provide the services needed to (infrastructure and utilities).  Hence why, there are many villages in Russia that do look indeed like something from a third world country.
 
to solve this issue, I believe that they should make "planned cities" (planned communities), between the villages, somewhere in the "centre" of them, and start promoting development like businesses for things that are needed (Cement plants bring in big money, as well as agriculture facilities like logistics and storage units are needed too), and then promote the concept of building roads to the villages and provide some sort of public transit, so that they can bring in people from the nearby villages.  This option would make it much easier to provide needed utilities to the people of these villages, as well as attract businesses and development, as there would be more people in one central area for business opportunity (to make money) and as well, people can work.  The other option is to prop up one of the villages/monograds, and connect them with the other.
 
2) Corruption.  With the corruption, a lot of money is being lost when construction is being commenced.  There was a story of a bridge somewhere in the Volga area that needed to be built, and the mayor came up with a plan to have it built and the construction company charged millions for a small bridge, that they barely built.  The people were pissed off so they became a collective and built the bridge themselves, stronger than that of what was gonna be built, as well as significantly cheaper.  Construction industry is one of the most corrupt industries in Russia, and probably in the world (Quebec Construction Corruption) and so much money is lost when developing something, that shouldn't cost as much, and it is poorly built.
 
To fix this issue, there needs to be some sort of group, non-profit organization of some sort, to overlook these construction companies.  As well, let the jury system of Russia be separate from politics (people should vote in the head judge imo rather than the government) so that the corrupt jerks can be properly prosecuted.  As well, look outside of the country to develop the infrastructure, besides the local businesses.  I know South Korea has a contract to buil the naval facility in St.Petersburg, and they are doing it within a pretty good budget too (which will allow them to build ships sizes like aircraft carriers).  When there is competition, especially from outside, the local industries may get their heads out of their asses, cause they know they will lose money in the long run.
 
3) Pay people more/provide better social securities.  It is no secret that many university professors are caught in some sort of scandel for being payed by a student to graduate them, thus causing a decrease in quality of education.  If university teachers were better payed, and provided some sort of social security, then people would be more professional, cause they could lose a huge support of their good income.  This goes for any industry.  Simple fact is, scientists and engineers can get payed better elsewhere.  Although, there are private industries in Russia that provides really good pay for their engineers (Yandex, Rostekmesh(sp?), etc), but many of the other important sectors (aerospace as an example, roscosmos as another) do not get payed as well as someone who works in the oil/gas industry or the ones I mentioned above.  So why would they bother go with these companies?  Well, simple fact is, if they payed more or provided some sort of carrot to these people, these people would stay behind and do something.  For instance, if I am correct, Iluyshnya as well as Sukhoi industries own property as well.  Well, why not provide housing to the engineers and scientists?  If these people were given property that they only have to pay for things like condo fees and utilities, then the rest of their money will be for themselves, and that woul end up being a lot of free spending money, especially if they get payed an average of $1500 - $2000 a month.
 
4) Expand logistics.  The Logistics line in Russia is in need of upgrades.  Improve logistics, and private industries from outside will be more inticed to invest their money.  Majority of foreign industries invest in areas like Moscow or St.Petersburg, but that is mostly because of the fact that business taxes for large enterprises are low (lower than small-medium in Russia, which isn't good) and logistics makes things significantly easier to get their product out on the market and to different areas.  Besides China investing in the remote areas, the rest of it is already in heavily developed areas.
__________________________
 
Wow, I went on for a while there.  But anyway, Russia needs to develop its infrastructure, no doubt.  But they do not need to spend as much as countries like India or China for various reasons I mentioned, because of being already developed in many areas, and the fact that they are too sparsly populated, while China and India are definately not.
 

Viktor wrote:@Austin

This article is exactly what I have been saying about new Russian finance minister. That he will in order to up Russian GDP growth prioritize small and medium bussines.

Lending rates for small and medium enterprises to go down

 
Lending rates in Russia was too damn high.  Something like 11 - 15%?  If it was down to 1 - 6%, then that would entice a LOT of people to build a business.  As well, a fluctuating business tax would be a good option as well, so that small businesses that only make so much, would get a low tax rate rather than those with high profits.

eMobility Car Review

http://motor.ru/articles/2013/07/09/yourmobile/

Not Russian but interesting

WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

Austin wrote:Not Russian but interesting

WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

On the contrary. It has everything to do with Russia. Excellent find Austin.

That could spark rise of oil prices sooner than believed and that also means Austin that if this report is true (and could be) that Saudi Arabia oil reserves are

smaller than Russian ones by 13%  

Austin wrote:Not Russian but interesting

WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices

We've known about this ever since the U.S came up with the idea to lower the oil prices with Saudi oil back when the price per barrel reached around $150.

P.S: The article date back to 2011, good find though.

Just something that crossed my mind.

We have Russian nominal BDP of roughly 2000 bin $
We have Russian government budget of roughly 400 bin $
We have Russian cut in government budget of 50 % meaning 200 bin $ representing oil and gas
Meaning that 200 bin $ alone is collected throughout taxes of all other activities (besides oil and gas)

Meaning that Russian taxes must be one of the lowest in the world of aprox. 12-15% (in general talking) - found later 13 % (incredible)
That being said it is obvious that Russia spends its oil and gas money (as it should) while letting people keep their earned money.
Also Russia has one of the lowest debt (11%) with surplus of money after each year (50 bin $). Because of all this there is simply no point in articles that are
advertising potential 30 bin $ deficit by the end of 2013 while their own countries (from which are authors of those articles) have debt burden of 100+% every each of them. Russia can easily compensate every outside influence that might shift balance of revenues and expenses while other countries cant.

Also Russia could hypothetically speaking rise its tax rates at 23% (something that is normal) and keep all its oil and gas money for themselves (stashing it like
Norway - getting rid of dependence from oil and gas) but instead oil and gas money is compensating much smaller tax rates.

Also if I remember correctly Russia will by 2015 rise its debt to a 17% (controlled rise) in order to conduct its modernization according to a scheduled plan. But that is most probably as high as it will go.

Anyway it is interesting how very few western articles about Russian economy can be found over the internet. Most of them are
scum like this one LINK
and none give overall view of benefits and downturns given all the work done by the government and different outside interference.

Yes the Finance Ministry said if there is $30 billion defict it will be taken from Reserve Fund but right now its too early to say if there is deficit or not , these are the scenerios ....if the Economic Situatuation improves then its possible there the deficit would be much lower.


Yes the Tax base is lower because Russia is oil rich and does not need to tax its citizen as much , I read the 13 % flat tax has even been appreciated by IMF.

Lets hope the Russia China Gas DEAL via ESPO is signed , its much more bigger then the Oil Deal Signed recently , Hopefully they resolve the price issue.

Saudi reserves is a case of hiding more then reveling but since Saudi is backed by US the western press wont speak bad about it and will only inflate the figure.

Infact had it not been wiki leak we wouldnt even know that Saudi Reserve figure are manipulated.

Putin once stated that Russia has Gas reserves to serve Europe for 100 years looking at their figures he is not wrong

http://en.rian.ru/world/20100424/158729140.html

"We can guarantee [gas] 100 years in advance to the growing Russian economy and practically all of our clients in Europe," Putin said at a joint press conference with Austrian Chancellor Werner Faymann.

He noted that just one area in north-east Russia boasted gas reserves of 55 trillion cubic meters.

"Similar gas reserves simply do not exist anywhere in the world," he added.

Austin wrote:Yes the Finance Ministry said if there is $30 billion defict it will be taken from Reserve Fund but right now its too early to say if there is deficit or not , these are the scenerios ....if the Economic Situatuation improves then its possible there the deficit would be much lower.


Yes the Tax base is lower because Russia is oil rich and does not need to tax its citizen as much , I read the 13 % flat tax has even been appreciated by IMF.

Austing many things depend on factors no one knows jet (except western press which tend to already know that when talking about Russian economy all is black  ) but here is one example. Russian calculated their budget based on 90$/barrel price of oil. We have now oil standing close to 110$/barrel which would eventually bring in extra 50 bin $.   

Price of a Barrel to Hit the Economy


Than there is harvest which is according to first predictions brutally 50% better than the last year etc etc.

Austin wrote:Lets hope the Russia China Gas DEAL via ESPO is signed , its much more bigger then the Oil Deal Signed recently , Hopefully they resolve the price issue.

Yes, fingers crossed

I am sure you might be aware of this but just incase if you are not , Russian Oil Blend also called as Ural Blend sell roughly $3 less compared to Brent , so if Brent says is $100 it would sell as $97 as thumb rule.

Which is much better compared to WTI that Crude Saudi and other ME countries sell it.

I read the ESPO brand would sell at $1 - 2 more then Brent Crude

http://indrus.in/articles/2012/11/23/espo_to_be_new_russian_oil_benchmark_for_asia_19287.html

On a side note, I think they dropped the dependancy of the oil/gas/resources on the economy by 25% over the last couple of years from its inherint 45+%.

Russia's dependancy last I heard was something like 20%, which is still high, but not nearly as high as it used to be.

Anyway, the oil money and gas money has been a crutch used as a way out if things get tough, as they have a lot of that money stashed away in a coushin fund, which I agree upon. Although, with the fact that oil can increase again in cost, they should start using that money in developing some infrastructure like hospitals and revamping universities while building new ones (universities are pretty much the centers for technology development, especially in Russia), which they could capitalize by building linking relations between the public industries with those universities. All of that could be done with funneling some money from the oil funds, into that.

I am not sure if that is true from what I remember off my head , Oil & Gas contribute ~ 50 % of Budget Income and makes up 15 % of the GDP.

sepheronx wrote:On a side note, I think they dropped the dependancy of the oil/gas/resources on the economy by 25% over the last couple of years from its inherint 45+%. Russia's dependancy last I heard was something like 20%, which is still high, but not nearly as high as it used to be.

Yes it is 20%. But it is easy to calculate.

Russia economy is 2000 bin $ and oil and gas sector is 400 bin $. So 400/2000*100=20%

sepheronx wrote:
Although, with the fact that oil can increase again in cost, they should start using that money in developing some infrastructure like hospitals and revamping universities while building new ones (universities are pretty much the centers for technology development, especially in Russia), which they could capitalize by building linking relations between the public industries with those universities.  All of that could be done with funneling some money from the oil funds, into that.

I remember reading about how Russia annually produces more engineers than Germany and France together.

Austin wrote:I am not sure if that is true from what I remember off my head , Oil & Gas contribute ~ 50 % of Budget Income and makes up 15 % of the GDP.

Put this into perspective.

If it is 50% of the budget income, it is because the fact that oil output is high, infrastructure is already in place and it is pumping in great quantity to be sold for big $$$. Oil/Gas are expensive to start up, once start up, it is not very expensive to upkeep and it is quite easy to do so. It is also a great source of income for anyone as it is classified as "easy money". Texas, the most well developed and economically strong economy of the United States, is heavily dependant on its oil, agriculture and its military industrial complex. Sounds awefully familiar.

Austin wrote:I am not sure if that is true from what I remember off my head , Oil & Gas contribute ~ 50 % of Budget Income and makes up 15 % of the GDP.

The percentages are lower than that. Here is a not too recent article from wiki:

oil and gas only contribute to 5.7% of Russia's GDP and the government predicts this will be 3.7% by 2011 wrote:

http://en.wikipedia.org/wiki/Russia

Interesting news , Asia Growth is paying off well for Russia

Moscow's focus on Asian markets driving Russian crude prices up

Anyway, the oil money and gas money has been a crutch used as a way out if things get tough, as they have a lot of that money stashed away in a coushin fund, which I agree upon. Although, with the fact that oil can increase again in cost, they should start using that money in developing some infrastructure like hospitals and revamping universities while building new ones (universities are pretty much the centers for technology development, especially in Russia), which they could capitalize by building linking relations between the public industries with those universities. All of that could be done with funneling some money from the oil funds, into that.

They already do that. They build a lot of new hospitals and rebuild older ones as well as universities. New Far East university in Russian Island is quite known. Building railroad to Yakutsk and from than to Magadan is also strategically important to connect very rich region with the nearest harbor in Magadan as with other Russian region through BAM railroad. Cheaper transport and increase in production.

Russia Approves IT Development Roadmap

And it look like Medvedev took some time off to look at our forum finally  

Medvedev Lauds Russia’s 5th Place in World Bank’s GDP Rating

^^ I am not sure of PPP is a better way to judge a nation then plain GDP , WB believes in PPP while IMF on nominal GDP.

Any ways as far as Oil & Gas percentage viz GDP goes I found different figures on the internet but found this interesting article

The Russian economy: 22 years after modernization

the share of oil and gas revenues is gradually decreasing. The government plans to reduce the figure to 8.5 percent of GDP by 2015, down from the current 10.5 percent.

Viktor wrote:Russia Approves IT Development Roadmap

Atleast in field of IT and more specifically we are leaders this field is growing like any thing earning us major $$

In 2013 we are expecting a revenue of $75 Billion , I am sure by 2020 this would perhaps be far more crossing the $100 billion barrier

http://profit.ndtv.com/news/economy/article-software-services-exports-to-grow-10-per-cent-in-fy13-319887

May be something where Russia can learn from our IT parks experience and how to grow in SW exports.

Austin wrote:^^ I am not sure of PPP is a better way to judge a nation then plain GDP , WB believes in PPP while IMF on nominal GDP.

Any ways as far as Oil & Gas percentage viz GDP goes I found different figures on the internet but found this interesting article

The Russian economy: 22 years after modernization

the share of oil and gas revenues is gradually decreasing. The government plans to reduce the figure to 8.5 percent of GDP by 2015, down from the current 10.5 percent.

 
GDP is a bad indicator anyway.  USA jumped in GDP from the 90's to now over $10T.  Nearly impossible, but through banking and insurance scams, the economy of the USA is the biggest in the world (would have been anyway, but there is no way it got that big so quickly).
 
GDP PPP is best indicator for countries who produce the goods that are needed for its development.  Russia, like Canada, use PPP measurements as we are main exporters of our resources, as well, we can build with the resources within our own country.  And to boot, Russia produces a lot for itself, in terms of the really needed components (Military, energy, pharma, etc), while smaller things like household electronics and shirts/shoes are imported.  India cannot do so based on PPP because it has to import a lot of the technology itself.  It has to import military equipment, electrical grids/powerplants, etc.  The bigger equipment really.  As well, they have to import a huge amount of raw resources in order to come up with the final goods.  Russia on the other hand, does not.

Austin wrote:

Viktor wrote:Russia Approves IT Development Roadmap

Atleast in field of IT and more specifically we are leaders this field is growing like any thing earning us major $$

In 2013 we are expecting a revenue of $75 Billion , I am sure by 2020 this would perhaps be far more crossing the $100 billion barrier

http://profit.ndtv.com/news/economy/article-software-services-exports-to-grow-10-per-cent-in-fy13-319887

May be something where Russia can learn from our IT parks experience and how to grow in SW exports.

Russia is like 3rd or 4th in the world in the IT field. As well, even specialized components for semiconductors are made in Russia. Software engineering is huge in Russia, but it really isn't well tapped market compared to India. One thing that make India huge in IT development, is specifically its much poorer work force. Why pay someone 50K + a year when they can pay someone in New Deli 12K a year? Not saying it is bad, it just how things work. Doubt you will find a Russian that would work for that amount per year in Russia. Chances are, they will still be behind in Software Development than India would be for that very reason alone.

Yes I agree cost factor is a major one for India being selective IT destination for MNC the other being English is native language for us thanks to British ruling over us for 200 years  

The best way to Grow is to develop Manufaturing Base , that how China Grew thats how South Korea , Japan grew quickly .......I think Russian Government is not paying attention here , they need to manufacture Hi Tec engineering goods and export .....lot tech stuff is not an option as China is cheaper.

US Government GDP is higher but its Debt is far higher meaning it owes much then what it can produce so that figure can be very deceiving too .....Russias GDP is Lower but its Debt is 11 % , Indias Debt is around 70's and Chinas around 50 %.

Found a Link of Official US GOv Budget , It says by 2021 US Gross Debt will be $26 Trillion  

http://www.budget.senate.gov/republican/public/index.cfm/budget-background?ID=b0c9af26-a829-40f8-ac98-e4e9f9cb3e51

Problem with economies that rely on building high tech and exporting it, they end up extremely expensive industrial base, produce less over the years and then end up with higher debt. Japan and South Korea are examples.

Russia produces goods like TV's, Fridges, phones, etc, but rarely is it ever sold outside other than the CIS countries. Yes, they could indeed try to get into the open market, but the market is flooded with Chinese goods, and the Russian goods, not much better in quality, are more expensive. High tech is a term thrown around often, but little is understood. I work in the high tech market, but we do not produce iphones, ipods or alike. Instead, Russia seems to be going the right route on concentrating on what the country needs, more so than what the world needs. They have semiconductor industries that deals in the high tech market like MCST, Multiclet, Elvees, Micron, etc. Thing is though, they produce for a lot of inhouse equipment. Think about it, the space industry, even with its faults, produces quite a bit in terms of talent and technology. Russia is second country in the world to have a full constellation of a positioning system (GLONASS) and that already makes them ahead of the market compared to a lot of these other so called "High tech" countries. South Korea has not invented anything new, neither has China or Japan. Instead, they keep reinventing the wheel. Reason is, they just develop technologies already existing. Russia has a chance to produce technology that does not exist.

If they really work on that quantum computing technology that they are making breakthrough in, then they would be one of the few countries to have such capabilities.

High-tech market is too congested with cheap goods coming from South Korea and China. It would be better for Russia to invest in the high tech that is barely funded/founded - CNC, Energy (already happening), propultion, composite materials and self sufficiency in semiconductor development (semi-there).

Some bad news on Economic Front

The Russian economy will continue to stagnate

The Russian economy continues to stagnate despite the rise of the existing imbalances, the emergence of new sources of instability, including those under the influence of inconsistent policies. This is the conclusion of the National Intelligence Research Institute of the Higher School of Economics / HSE / published in the new bulletin "Comments on the state and business."

According to analysts, published by Rosstat assessment of GDP for the first quarter of 2013 does not allow to judge about the real reasons for the growth.

"All the 1.6 percent growth in the economy obtained by the statistical discrepancy, with a sharp deterioration in the dynamics, both external and domestic / consumer and investment / demand" - written by analysts HSE.

The main obstacles to the economic growth of the country's experts have called the balance of payments in the face of shrinking exports, capital flight and the weakening of the ruble, which will lead to higher prices for imported goods and, as a consequence, higher inflation.

In addition, the source of the imbalance in the Russian economy, according to analysts HSE is a higher wage growth than the growth of labor productivity.

"Not supported by economic growth higher wages is one of the reasons for declining profits of enterprises, which in turn constrains how their own sources for investment in the economy, as well as receipts from income tax, from which mainly affects the same regional budgets" - experts say.

Minister of Economic Development does not expect a recession by the end of the year

Yuzhno-Sakhalinsk, on July 16. / Itar-Tass Petrov /. Economic Development Minister Alexei Ulyukayev does not expect a recession by the end of the year. "Recessions do not expect," - he told reporters.

"Moreover, in the second half of the year, I think the growth will be more than the first," - he added.

By the end of June, the growth rate of GDP in Russia in January-May 2013 was 1.8 percent. For the same period in 2012, the figure was 4.5 percent. As previously stated the former Economic Development Minister Andrei Belousov, "the main reason for the decline of economic growth - the dynamics of investment, investment activity has fallen sharply."