Russian Economy General News: #12

A bullish stock market expected for the next days and weeks at Moscow Exchange.

Shelves of local importance, by Anatoly Kostyrev for Kommersant.ru. 26.07.2022.

The share of Russian consumer goods is growing.

The reduction in imports of food and consumer goods with the outbreak of military operations of the Russian Federation in Ukraine allowed Russian manufacturers to increase their market share to 83% by July. The trend was most noticeable in the sales of beer, strong alcoholic beverages, snacks and hygiene products. The potential for growth in the share of local players remains, but will depend, among other things, on the cost and complexity of imports.

By July, the share of local food products and consumer goods (FMCG) in the sales structure of retail chains reached 83% against 79% a year earlier, NielsenIQ Russia calculated. According to the company's retail director Konstantin Loktev, local brands have been actively replacing goods that have disappeared from the shelves in the past few months.

"Due to the boom in demand at the beginning of hostilities in Ukraine and the accompanying economic crisis, as well as supply disruptions, the assortment in food categories decreased by 10%, and non-food - by more than 20%, which created opportunities for local players", says Mr. Loktev.

According to NielsenIQ estimates, the share of Russian beer increased the most, from 79% to 89%. In the category of strong alcoholic beverages, the indicator increased from 39% to 46%, personal care products - from 28% to 35%, snacks - from 85% to 92%, frozen food - from 94% to 99%, chocolate - from 76% to 79%. In sales of dairy products and cigarettes, the share of local products remained at 91% and 80%, respectively, while in the category of soft drinks it increased from 90% to 91%. According to Konstantin Loktev, large producers of such drinks have been producing products in the Russian Federation for a long time. Although sales of Tarkhun, Baikal, and Duchess flavored sodas began to grow at double-digit rates against the backdrop of the crisis, and the new brands CoolCola, Street, Fancy, Fantola, Chernogolovka Kola took 5% of sales in the category in just two months, he notes.

The general director of Volkovskaya Brewery, Alexei Aksel, notes that the reduction in beer imports is due to the reluctance of the owners of the largest brands to work in Russia, problems with logistics and mutual settlements. Against this background, the share of localized brands will grow, and new products will appear that can replace the disappeared ones, he points out. For example, the Moscow Brewing Company (MPK) has released Ballantine Stout, which could be an alternative to Guinness, and a separate British-style Ballantine Chocolate Stout. But the share of imported beer on the Russian market will remain, Mr. Axel says. Director of TSIFRRA Vadim Drobiz notes that although alcohol imports in April-July could be reduced by more than 40%, distributors should still have stocks, and a sharp increase in the share of local products will begin in September.

Roman Kvinikadze, founder and CEO of NappyClub (produces hygiene products, cosmetics, household chemicals, etc.), explains that a significant reduction in the marketing budgets of transnational companies, as well as an increase in the cost of imported European raw materials, contributes to the growth in the share of local brands. If the political situation remains tense, logistics from Europe does not normalize, then the share of local players in the hygiene segment may grow to 70%, Mr. Kvinikadze predicts. But, he notes, in any such product there are too many imported components that are absent in the Russian Federation, and the production itself is highly mechanized, requiring qualification and excluding downtime.

Marat Ibragimov, senior analyst at Gazprombank, notes that the presence of well-known imported brands in a particular category was an important factor in the value positioning of retail chains, since for some buyers this was a sign of the sufficiency of the assortment.

But in the context of a general reduction in imports, this factor fades into the background, and consumers are gradually switching more and more to Russian brands, he points out.

So, on July 25, Lenta reported in its reporting that it was working with the assortment and pricing in order to quickly respond to changes in external market conditions.

Stores experienced a reduction in the imported assortment of food and drinks.

Alexey Popovichev, Executive Director of Rusbrand, expects that the share of FMCG products and goods produced in the Russian Federation will continue to grow, primarily due to Russian manufacturers and global companies remaining in the country. In addition, the situation contributes to the emergence of new players on the market if they have the necessary investments. An increase in the share of imports in the mass segments of FMCG, according to Mr. Popovichev, is hardly possible now, since the complexity of logistics leads to higher prices for products.

https://www.kommersant.ru/doc/5480465.

Rosstat recorded deflation for the second month in a row, 10.08.2022.

In July, compared with June, consumer prices in Russia fell by 0.39%, Rosstat reported. The last time the July deflation was observed was in 2011, but it was symbolic: the reduction in prices for goods and services did not exceed 0.01%. In annual terms (compared to July of the previous year), inflation amounted to 15.1%.

Seasonal price reductions traditionally occur in August-September, when farmers are harvesting and food supply is growing. However, in 2022, the situation turned out to be atypical: deflation has been observed for the second month in a row since the very beginning of summer: in June, consumer prices for the first time in the history of modern Russia for this month decreased by 0.35%.

The main driver of price reductions in July was the reduction in the price of fruits and vegetables - minus 11.5% per month. Food products as a whole fell in price by 1.5%, and non-food products - by 0.4%. The only category that went up in price was services — plus 1.4%.

The leaders in terms of cost reduction were white cabbage - minus 33.2%, potatoes - 27.6%, beets - by 27.1%. Among the goods that fell in price over the month, in addition to vegetables and fruits, there were chicken eggs - minus 4.4%, granulated sugar - 3.5%, buckwheat - 3.2%.

At the same time, prices for chewing gum, margarine, chilled and frozen salmon fish, caramel, cereal flakes (breakfast cereals) increased by 1.3–2%. Among the segment of services that has risen in price as a whole, housing and communal services showed the greatest growth — by 3.4%. Of these, prices for water disposal increased by 5.6%, hot water supply rose by 4.9% and heating by 4.8%.

Earlier, the Central Bank announced a decrease in inflationary expectations of the population in July to a minimum since March 2021, they amounted to 10.8%. In addition, in early July, the regulator improved its inflation forecast: it will be 12-15% in 2022 (instead of the previously expected 14-17%), drop to 5-7% in 2023 and return to 4% in 2024.

https://www.rbc.ru/economics/10/08/2022/62f3bc4b9a79475c425bc4b8

Bloomberg: The Central Bank of the Russian Federation has named three new currencies to replace the dollar

The Central Bank of Russia said that it is currently considering the possibility of buying foreign currency to fill the National Welfare Fund. Sanctions due to the conflict in Ukraine prevent Russia from buying dollars and euros. However, this is no longer necessary - leaving these Western currencies is listed as a priority, and this will be done with the help of new positions. It is reported by Bloomberg.

The Central Bank of the Russian Federation on Friday for the first time disclosed a possible combination of "reserve" currencies in a report on the prospects for monetary policy for the next three years. It also says that other positions may be included in this list, but the financial regulator declined to give details.

So, Russia is considering buying the Chinese yuan, the Indian rupee and the Turkish lira for its wealth fund as part of a fiscal mechanism that uses excess income from energy sales to accumulate. In addition, trading in the yuan-ruble currency pair on the Moscow Exchange reached a record level last month, so the Central Bank's plans began to be executed almost automatically.

According to Bloomberg, the leadership of the Russian Federation had some disagreements about the Fund. With purchases in euros and dollars on the international market blocked by Western sanctions due to Russia's ongoing special operation in Ukraine, Finance Minister Anton Siluanov has previously indicated that the Russian Federation may turn to other currencies to replenish the Welfare Fund and possibly invest in yuan as it expands. trade with Asia.

At the same time, Russian Central Bank Chairman Elvira Nabiullina warns against the use of volatile currencies, supporting a return to saving additional oil and gas revenues. As an optional measure, the Central Bank previously called on the government to oblige state-owned companies to convert their foreign exchange assets into the currencies of countries that have not joined the sanctions against Russia.

However, there is nothing surprising in the published list, since the list of national currencies exactly coincides with the list of countries with which Russia is now actively trading, quickly reorienting its export flows. Such an approach will also speed up this process by filling the commodity interaction of countries with a live stream of funds that will not need to be additionally converted or sought for settlements on free markets.

https://topcor-ru.translate.goog/27424-bloomberg-cb-rf-nazval-tri-novye-valjuty-dlja-zameschenija-dollara.html?_x_tr_sl=auto&_x_tr_tl=en&_x_tr_hl=en

Turkish lira is a collapsing currency with mass inflation growing in Turkey. Mixed in with Turkey being a very unreliable country with a heavy mix of Islamic extremism thats growing, I wouldn't touch that with a 10 ft pole.

A short position, one would say

A short position as of Turkey's, it should be clarified!

I don't get why these excess revenues can't be reinvested into the Russian economy, who is supposed to benefit from this? I swear Russia's Central Bank is either governed by idiots, traitors or both. 

The $300B they allowed the West to steal could've been used to develop vast infrastructure projects in Eastern Russia, domestic semiconductor fabrication, highspeed Maglev railways from Vladivostok to Crimea, civil aviation, rebuilt the entire Naval fleet and still have enough leftover to invest in 1000's of entrepreneurial projects and offer low interest loans to small/medium businesses.

At this point, the best thing Putin could do is create a separate wealth fund from the BIS-controlled Russian Central Bank so the 5th columnist rats aren't able to do more damage than they already have.

Broski wrote:I don't get why these excess revenues can't be reinvested into the Russian economy, who is supposed to benefit from this? I swear Russia's Central Bank is either governed by idiots, traitors or both. 

The $300B they allowed the West to steal could've been used to develop vast infrastructure projects in Eastern Russia, domestic semiconductor fabrication, highspeed Maglev railways from Vladivostok to Crimea, civil aviation, rebuilt the entire Naval fleet and still have enough leftover to invest in 1000's of entrepreneurial projects and offer low interest loans to small/medium businesses.

At this point, the best thing Putin could do is create a separate wealth fund from the BIS-controlled Russian Central Bank so the 5th columnist rats aren't able to do more damage than they already have.

$300B wasn't actually stolen.  We have gone over this so many times.  I would recommend going back and reading about it.

Also, You cant just start throwing it into the country without creating some kind of situation with inflation.  The US didn't learn from that, Russia did.  You have to be smart with the money.

kvs wrote:Russia loses nothing from engaging with Turkey.   It gains by disrupting NATzO.   In this case the enemy of my enemy is my friend.

To a degree, yes and no.  Working with private Turkish companies may be fine so long as they aren't indulging in the growing anti Russian sentiment that is happening in Caucuses that the Turkish government is indeed funding and promoting.  Remember, Turkey was indeed involved in the Recent situation in Kazakhstan which a lot in Kazakhstan did not learn from, including Tokayev.  When working with an enemy, you end up with the same situation Russia is in with Ukraine as they did with the United States and many here where crying why Russia was willing to work with the US when the US was creating enemies of Russia right at their boarder.  In this regard, Turkey is playing the exact same game as USA is.  Add to it, everyone around Turkey is starting to get real pissed off, with China included.

Turkey needs to be watched and worked with in a very heavily monitored environment and in very limited fashion. I know I have read more than enough from Russians who were very pissed off with Turkish construction companies in the country as they import cheap labor from Caucuses (Uzbekistan and Turkmenistan) whom these people were causing a ton of problems. I do remember years ago seeing how many of them were being rounded up and deported. They all worked for Turkish construction companies. Many in Russia was pissed in that why are they paying Turkish companies to do something Russians can do. So there is also heavy disagreement for these companies and people within Russia. To which I do not blame them.

flamming_python wrote:

sepheronx wrote:Turkish lira is a collapsing currency with mass inflation growing in Turkey. Mixed in with Turkey being a very unreliable country with a heavy mix of Islamic extremism thats growing, I wouldn't touch that with a 10 ft pole.

The Lira is not great as an investment. But it is necessary for importing from Turkey while avoiding the USD and EUR.

And a country with a collapsing currency is a great place to import from. Russia's priority is deflation and driving down consumer prices; what a great way to do that by inviting Turkish companies to export in bulk to Russia and/or replace leaving European/North American brands

This is indeed true. If Russia could convince Turkish import/export companies to get heavily involved to move Russian products (and not just products from the Russian mulsim regions that Turkey is known for promoting separatism from, but from all regions of Russia) then this is all good. But like I said, keep it at a very close watch. They are as much to be trust as the USA.

It is indeed good to import from at least.

sepheronx wrote:$300B wasn't actually stolen.  We have gone over this so many times.  I would recommend going back and reading about it.

Whichever the dollar/euro amount was, it never should have been held in the accounts of openly belligerent and hostile countries that have a history of stealing/freezing funds, gold and assets of their adversaries like the US did with $130B of Iran's money.

Also, You cant just start throwing it into the country without creating some kind of situation with inflation. 

We're not talking about QE money printing like what the US Federal Reserve has done for the last 14 years, this is money that Russia's state owned companies earned over the period of 20 years that was invested into Europe's Central Banks instead of Russian companies.

The US didn't learn from that, Russia did.  You have to be smart with the money.

Agreed, so when does the Russian Central Bank intend on being smart with Russia's money? Or is buying high inflationary currency from fair-weather friends and frenemies smart?

If you flood the market with money regardless of printing or not, creates inflation. Trickling it in is a much safer position to which Russia is doing - increasing wages (which helps bring money back in taxes), infrastructure projects and now military as well.

As for buying currency, they keep to in order to purchase the goods from Turkey, China, India, etc. Much like how they are with Ruble to buy Russian goods and resources.

Being tactical and methodical is far better than throwing money around. We did that in Canada and we have no more money, new issues arrived and can't fund development.