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Economic News in Review for March, 2008
8 April 2008
Economic News in Review for March, 2008

Economic News in Review
for March, 2008

The following resource is meant to quickly introduce the reader to some of Russia's major business news for the month. Please note that we strive to focus on more specific, less-well-covered issues. This news review is developed in conjunction with The School of Russian and Asian Studies, which also produces several other reviews ("obzori") each month.

Please note that this month's edition is intended as as a supplement to the accompanying USRCCNE newsletter. To subscribe to this newsletter, input your email address on our homepage (in the bottom left corner).


Legal, Tax Disputes

William Browder Accused of Tax Evasion
The manager of Hermitage Capital's Russian office, Ivan Cherkasov, is wanted on a similar count.

Russia's tax service to check retailers, developers
"Despite growth in imports and a general boom in construction of hypermarkets, big trade centres and the development of retail chains, tax returns from the trade industry decreased in 2007."

Texas oilman takes on Gazprom over giant contract claim
Moncrief obtained the stake in the Yuzhno-Russkoye field a decade ago, with a Gazprom subsidiary holding the remainder. Moncrief insists that his claim is still valid, while Gazprom has neither rejected nor accepted it.

The Tax Service Gets Personal
Former general director of the Eldorado chain Alexander Shifrin has been charged with tax evasion of almost 8 billion rubles from 2004 and 2005.

Domodedovo Faces Nationalization
The Domodedovo Airport complex, which belongs to the East Line group of companies, should be nationalized under an arbitration court decision that came into force on March 20, after an appeal was rejected.

Interpol Wants Mikhail Gutseriev
The name of Russneft ex-chief Mikhail Gutseriev could be found at the official web of Interpol, Russia wants Gutseriev for fraud and money laundering, the web specifies.

German Investor Wins Suit against Russia
On Tuesday, a court in Cologne ruled that the former Soviet trade offices complex be auctioned off with the proceeds to go against the ˆ4.9-million Russian debt to German businessman Franz Sedelmayer. It is a precedent, observers say, that may lead to many more suits against Russia.

Investors nervous after police raid Russia's TNK-BP
The raid by agents from the Federal Security Service (FSB), the main successor to the Soviet KGB, and the Interior Ministry, recalled similar actions against the YUKOS oil company in 2003, the start of a campaign which led to its destruction.

Transport Ministry and Lufthansa Settle
The Russian Transportation Ministry and Lufthansa have reached an agreement on the German airline's cargo flights after negotiations in Munich that began last Thursday. The negotiations were described as unproblematic.


Corruption and Government

Over 1,000 officials prosecuted in 2007
Investigators from the Russian prosecution service last year instituted over 1,000 criminal cases, some of them corruption-related, against the so-called persons with a special legal status, which means prosecutors, judges and deputies of various levels.

Some 100,000 Russian Govt Officials Unlawfully Involved In Business Activities
"A number of facts have been established confirming that these government officials were unlawfully involved in commercial activities, owned shares and stakes, held paid jobs in commercial entities, and even simply failed to submit (tax) declarations."

Medvedev Will Launch Anticorruption Campaign
A draft law "On Combating Corruption" is ready and will be introduced into the State Duma.

Russia Continues Drive for WTO Membership
The Geneva-based World Trade Organization, WTO, recently accepted Ukraine as a new member. This leaves Iran and Russia as the two largest countries outside the WTO.

Putin calls for rouble vigilance as dollar plummets
"We all see what is going on in the Eurozone, how the euro's appreciation is affecting the European economy. This deserves very serious attention."

Medvedev Advocates Tough Measures Against Barriers to Small Business
The state should make small businesses free of bureaucratic custody and extortions, candidate for the Russian presidency Dmitry Medvedev said.

Russian Companies Will Restore Iraq
Russian President Vladimir Putin has sent a letter to Iraqi Prime Minister Nuri al-Maliki stating that Russian companies are prepared to take part in the restoration and modernization of Iraq, especially in the fields of electricity and oil. 

Officials Received Good Raises in 2007
The number of employees of government agencies increased by 7.9 percent to more than 1.5 million people.

Macroeconomic Tensions Come to Light – Again
Deputy Prime Minister Alexander Zhukov and Minister of Economic Development and Trade Elvira Nabiullina favor high GDP growth at the cost of high inflation. First deputy chairman of the Central Bank Alexey Ulyukaev and Finance Minister Alexey Kudrin want macroeconomic stability.

Policemen Are the Main Complaint of the Russians
The enforcement bodies led in number of complaints lodged by the Russians in 2007; the overall number of complaints went down, shows the report of Human Rights Ombudsman Vladimir Lukin.



Tourists Rank Moscow as Third-Rudest City
Moscow ranks third among cities with the "most unfriendly hosts," according to a survey carried out by TripAdvisor, a travel guide website.

Russia Has Middling Tourist Attraction
Switzerland was found to be the best place for tourism on the basis of cost, safety, ecology, government policy on tourism, sanitation, hotel quality, UNESCO-acknowledged cultural attractions, multilingualism and 6 other criteria. Russia ranked 64th.

Train Fare May Rise 8% This Summer
The year's total price hike may equal 20 percent.

Georgia's Jets Headed for Moscow
A plane took off to Moscow from Tbilisi airport yesterday after the break of a year and a half, resuming direct flights of two countries.

Aeroflot Is Official Carrier for Beijing 2008 Olympics
China has recognized Russia’s Aeroflot as official air carrier for 2008 Olympics that is held in August, Interfax reported with reference to Sergei Bugrov, who represents Aeroflot in China.

Aliens Not Eager to Go to Russia
The Russians tend to go abroad more often now, while the interest of foreigners in our country is shedding, showed the data that Russia’s statistics authority Rosstat compiled in view of the border-crossing number.


Agribusiness & Food

PepsiCo to Lead on Russia’s Juice Market
The $1.357 billion acquisition will make PepsiCo the leader of Russia’s juice market, covering 30.6 percent. But Coca-Cola is in no yielding mood. 

Russia To Join WTO On Conditions Favorable To Domestic Agribusiness
"These negotiations are in the final phase now. I think the terms and conditions on which we will gain access to the WTO are reasonable and can protect our agricultural producers,"

High-tech Pig Farm Brings Rural Hope
The operation, valued at $29 million, was funded by a Spanish outfit and is expected to pay off that investment in six to seven years.

Groceries Show Retail Promise
A survey by Ernst & Young of retail chains has shown the following sectors to be the most promising: food goods (57% of respondents consider this sector promising), construction materials and goods for remodeling (55%), and clothing (47%).

Ag. Ministry Plans Include Price Controls
Those pans may be brought to fruition before the end of the month or next month. There is practically no opposition to the ministry's plans.

Coke chief upbeat about Russian market
Coca-Cola, along with most major consumer goods firms, is counting on the Russian economy to play a significant role in fueling growth.

Auchan Russia to rebrand acquired Ramstores
The Russian division of France's hypermarket chain Auchan has devised a rebranding program for its 14 Ramstore supermarkets acquired from Turkey's Enka for EUR 181m in late 2007.

Price Controls Are Bad News For Everyone
The Economic Development and Trade Ministry is sparring with the Agriculture Ministry over legislation they are drafting to control food prices. What the ministries cannot agree upon is the duration of these measures.

Customs Leaves Meat Import as Is
The Federal Customs Services has decided against changes in meat import points due to take effect April 15, thus leaving the Baltic and Vladivostok ports open to those imports.

Moscow Buys Over 70 Percent of Food Overseas
In terms of foodstuffs, the import dependence of Moscow surged to 73 percent, Interfax reported with reference to Alexander Baburin, chief of the city’s food department.


Technology and IPR

Analysts say no censorship facing Russian internet
"There will be no censorship on Russian Internet content. However, prosecutions for retrospective statements will be stricter," Zasursky said referring to extremist organizations and content of a similar nature.

The Blogging Czar of Moscow
How American Andrew Paulson is building a growing Internet empire in Russia.

Altimo Demands a Billion from Telenor
The Russian holding filed a $1-billion suit against Norwegian Telenor for lost profit. Altimo claims that money was not earned in Ukraine because Telenor hindered the VimpelCom's entry into the Ukrainian market.

Medvedev Opened Russia’s Internet Forum
President-Elect Dmitry Medvedev opened April 3 Russia’s Internet Forum. Roughly 40 million are Internet users in Russia, the official said.

IT Ministry Wants Free Software
The Russian Ministry of IT and Communications has published a draft development concept for free software in Russia on its website.

VimpelCom ADR Make a Beeline Down
Cellular operator VimpelCom released its financial results for 2007 yesterday. Its ADR then fell 5.7 percent as soon as the New York market opened. Analysts say the fall was a reaction to worsening performance in the fourth quarter. VimpelCom's value may pick up again after the first quarter of this year, however, with the consolidation of

Russia’s Assembly Lost to Foreign One
The supplies of desktop computers of foreign make surged by over 70 percent past year, while the sales of Russia’s suppliers lowered by 1.2 percent.

Cell Companies Drilled a Hole in Missile Warning System
It looks like the biggest cellular operators of Russia will be able to spread the 3G nets in Moscow by this year-end. The RF Defense Ministry had fiercely opposed the project until recently, as its missile warning system operates at the frequencies required for 3G.

Russia Claims Payment for Kalashnikov Assault Rifle Patents
Russia will attempt to make foreign makers of Kalashnikov assault rifles pay for respective patents.


Real Estate and Development 

Goldman Sachs Invests $2 Bill. in Russia
The bank is in the process of forming a $4-billion fund for real estate investments in the BRIC countries (Brazil, Russia, India and China). Almost half of the money will go to Russia and, of that portion, two-thirds will be invested in Moscow.

Office Shortage Looming in Moscow
According to the Frank Knight consulting company, London has the highest rental rates for premium class office space in Europe. There, 1 sq. m. costs ˆ1607 per year. Moscow is in second place at ˆ1358. 

Revamping Khrushchev's Legacy
Some are asking whether remodeling the dilapidated buildings might be better than demolishing them.

Tearing Down Moscow
The Moscow Times presents a series of stories on building facing the bulldozer in Moscow.

Caterpillar to Build Excavators in Russia
Caterpillar intends to build an assembly plant for excavators with a capacity of 2000 machines per year in Leningrad Region. The estimated cost of the project is ˆ20 million.

Volvo Will Build Excavators in Kaluga
Observers say the plant will cost no more than ˆ10 million, and it may allow Volvo to occupy 20 percent of the Russian market for the heavy machines.

Consortium to Develop Vladivostok
The consortium will spend $6.2 billion.

World Bank Gives Loan for Outsourcing
The World Bank has approved a $200-million loan to support the Housing Utilities Reform project and the development of a competitive mechanism for housing utilities reform in ten cities within five years.


Minerals, Metals, & Timber

The meaning of Norilsk
How a takeover battle provides a test case for Russian capitalism.

American Union Seeks Aid of Severstal
The union at the American Wheeling-Pittsburgh Steel plant want Severstal to buy that company. The union hopes that way to avoid the massive layoffs planned by the current owner.

ArcelorMittal Gives Severstal a Discount
Severstal has overcome stiff competition to reach an agreement with ArcelorMittal on the purchase of the Sparrows Point steel mill near Baltimore, Maryland, in the United States.

Finns Clash with New Kostroma Gov.
The Finnish forest industries company Ruukki Group has withdrawn from a project in Kostroma Region and plans to take the region's new governor to court.

Russia, China Emerge as Key Gold Producers
The global market of gold is hitting all records recently with the prices nearing the physiologically vital $1,000 per an ounce. But the production isn’t forecasted to gain momentum in the nearest years, the skyrocketing prices notwithstanding.

Prokhorov Wins First Round for Norilsk Nickel
The Moscow Arbitration Court upheld today Onexim Group President Mikhail Prokhorov and invalidated the resolution of KM Invest BOD on the disposal of 2 percent in GMK Norilsk Nickel and 7.4 percent in Polus Zoloto, Interfax.ru reported. KM Invest has a month to appeal the resolution.

Timber Export Points Reduced by 80%
The Federal Customs Service yesterday reduced the number of customs checkpoints that will process unfinished timber exports from 668 to 128 with proper technology for assessing timber cargo.

Lifting Tax Burden from Coal
Russia’s State Duma has unexpectedly revived the bill on lowering the coal severance tax, intending to discuss in May the two-fold reduction in this rate from 2009.



Will Russian Crackdown Tame 'Wild East?'
"There's a danger that soon they'll only allow us to advertise a product and its price… If that happens, advertising will become torture for TV viewers."

Advertising Down on Russian TV
Spending among the top 15 advertisers rose notable less (25%) than on the market as a whole (37%). The cutback was mainly in television, where buying was down 6 percent due to price hikes.

Onishchenko Attacks McDonald’s
Gennady Onishchenko, who heads the Federal Service on Consumer Rights Supervision (Rospotrebnadzor) and is the country’s chief sanitary inspector, suggests limiting advertising of harmful products.

United Russia Presses for Banning Tobacco Ads
A bill has been submitted to the State Duma that completely bans advertising of tobacco and smokables from July 1, 2008, RIA Novosti reported.



Russia to open doors to foreign insurance companies
However, only "reliable and qualified" foreign insurance companies will be permitted to open offices in Russia, an explanatory letter to the document reads.

Opening Borders for Insurance Affiliates
The date for Russia’s entry into the WTO hasn’t been determined yet, but the insurance lobby is ready to oppose the arrival of affiliates of foreign insurers. All-Russia’s Union of Insurers President Alexander Koval has submitted to the State Duma a bill requiring a bank guarantee and Russia’s license from affiliates of non-residents.


Investment & Finance

Russian Business Expansion
This issue of the Russian Analytical Digest discusses Russian global business expansion. The authors examine the foreign investments of Russian companies and analyze Gazprom's expansion strategies and joint ventures in the European market.

Russia's Economic Pipeline
A commentary in Forbes notes that more than $200 billion flowed into Russia in 2007, marking an annual foreign investment growth rate of 2.5 percent—higher than that of any of the world’s fifteen biggest economies.

No investment problems in Russia, Economy Minister says
Speaking about the global financial crisis, Nabiullina said Russia’s financial authorities had enough tools to solve liquidity problems on the country’s financial market.

Where to Invest in Russia as Medvedev Takes Control
MST and Vimpelcom are good telecom picks, while in the banking sector Sberbank and Austrian bank Raiffeisen, which has branches in Russia, fit the bill and look set to gain.

Investing In Russia: An Interview With Pharos' Peter Halloran
Why should an American investor take a serious look at Russia right now as a part of his/her international portfolio?

Medvedev Term May Boost "Myopic" Russian Market
Russian stocks will probably rise in the early part of Dmitry Medvedev's presidency because he'll enact market-friendly reforms that "myopic" investors aren't anticipating

Russia's Low US Economic Correlation Catches Investors' Eyes
Expectations that Russian equities would shine this year and leave behind their stigma of emerging-market laggards so far haven't panned out. But they are garnering more attention as the clouds hanging over the U.S. economy darken and benchmark crude oil continues to hover near $100 a barrel.

Sberbank Pays Shareholders 10%
According to the report, the bank's net profit was up 32.8 percent for the year, to 116.7 billion rubles. As last year, the bank plans to spend 10 percent of that sum on shareholder dividends.

Merrill Lynch Sets Up Infrastructure Fund
The Merrill Lynch Russian Infrastructure Basket has been registered in Luxembourg. It consists of stock from 19 telecommunications, energy, heavy industry, metals and transport companies.

Russians Add Money to Foreign Accounts
The citizens of Russia transferred $18.48 billion overseas past year and received no more than $7.510 billion from abroad

Americans Book a Place in Russia's Credit History
Big foreign investors appear to be anew interested in Russia’s credit bureaus. One of the leading players of the U.S. market of information solutions, Equifax, is buying out a stake in Global Payments Credit Service (GPCS) of Russia. The analysts speculate that the global liquidity crisis has driven the U.S. companies to the advantageous market of the country.

Strong Euro Draws off Russian Capital
Ruble assets are gradually losing their attractiveness as the euro strengthens. 

Russian Cos. Refinance for $111 Bill.
There is no danger of default, however, Two-thirds of the debt belongs to top-rated borrowers that have no problems attracting funds.

Russians Trade Raw for Technology
The aggregate worth of M&A transboundary deals with Russia’s assets involved exceeded $48.5 billion past year.

Russia to Lose a Portion of Influence in IMF
The International Monetary Fund (IMF) backed up March 28 the plans to redistribute voting power amid 185 member states. Despite that the emerging nations will get more influential as a result of this move, the share of Russia will narrow.

$18bn Flew Out in Jan, Feb
Some $18 billion flew out of Russia in January and February, CBR First Deputy Executive Alexei Ulyukaev announced March 16, RIA-Novosti reported.

Russia to Become A-Class Borrower
The chance is solid that Moody’s will upgrade Russia’s sovereign score already in April.



Market Authority Suggests Consolidating All Exchanges of Russia into a Holding
Russia’s Federal Financial Market Service (FFMS) has suggested consolidating all exchanges of Russia into a single holding and making the IPO of its stocks afterwards, Vedomosti reported.

NYMEX Hardly to Own Anything in St. Petersburg Oil Exchange
Prime Minister Viktor Zubkov convened a meeting yesterday, which focused on creating there an oil exchange with Russia’s ownership of 100 percent. 

Russia's Indexes Suffered the Heftiest Losses Worldwide
The yesterday’s global slump on commodity markets drove down the stock exchanges of Russia, having stripped the benchmarks of 2.08 percent to 3.45 percent by results of the trading.


Banking & Finance

Expobank Sells High to Barclays
Barclay's is paying $745 million for Expobank, which had capital of $186 million as of December 31 of last year.

Russian banks need help from oil windfall
The Russian banking sector is facing a slowdown due to the global credit crunch and authorities should use the oil windfall to support it or face an economic downturn, a prominent banker said late on Sunday.

Central Bank Writes Off Bankers
The consolidated list of bankers through whose fault the banks lost their licenses has been recently released at the CBR web.

Sberbank Not a Capitalization Leader
The Savings Bank of Russia (Sberbank), Russia's largest bank, is no longer one of the top 3 Russian companies in stock market capitalization. Its capitalization has fallen 21 percent since the beginning of the year, due to the mortgage crisis.

Russia Dev Bank plans borrowings, projects scarce
The document, obtained by Reuters, showed the bank wants to issue bonds worth $19 billion and raise another $7.4 billion in loans from international banks by 2013.

Russia says in control of corporate borrowing
Standard & Poor's revised on Tuesday Russia's long-term outlook to positive from stable, affirming its 'BBB+/A-' long-term sovereign credit ratings.

In global capital markets, Russia eyes larger role
The investment push, fueled by a new sovereign wealth fund and eager Russian businessmen, has raised concerns of Moscow meddling abroad.

Booming Russia now facing debt crisis
They're highly leveraged, because they've made loans with Western banks that are also in trouble because of the mortgage crisis.


Cars & Planes

Russia revolutionises its jet industry
The goal is to build nearly 6,000 new military and civilian aircraft, and to win 15% of the global aviation market.

Lada deal highlights Russia's auto boom
By the end of next year, Russia will have overtaken Germany to become the biggest car market in Europe, a fact that Paul Willis, chief operating officer of Kia Motors Europe, describes as "the most startling statistics I have heard in my whole career".



Russia Quietly Starts to Shift Its Oil Trade Into Rubles
Industry analysts and officials, however, say that this change, if it comes, is still some time off.

Gazprom Deal Imperils Hopes For Trans-Caspian Pipeline
A landmark deal reached this month between Russian gas giant Gazprom and three energy-rich Central Asian states is likely to usher in dramatically higher prices for countries reliant on Russia for their natural gas.

Putin Beats Soviet Sword Into Atomic Weapon for Generator Sales
"Previously, the atomic energy industry was only a bastard child of the military program."

Average gas price for Europe could rise to $400 in 2008
The rise of national industries, such as producers of cement, building materials, and fertilizers and gas refineries, is also pushing up gas demands, Miller said.

Check to Ukraine and checkmate to Nabucco
A new deal between Gazprom and its Central Asian suppliers evokes images of a "gas-OPEC."

Russia to Bid for First Turkish Nuclear Power Plant
Turkish Energy Minister Hilmi Guler officially announced on Monday the tender for construction of the country’s first nuclear power plant, France Presse reported.

Gazprom Ranked the 19th of Biggest World Companies
Russia’s gas monopoly Gazprom has been ranked the 19th in Global 2000 list of world biggest corporations compiled by the U.S. Forbes.

Medvedev Win May Aid Gazprom, Rosneft, Says RenCap
Medvedev may work to transfer administration functions to the private sector and strengthen financial markets

Ukraine Rewrote Agreement with Gazprom
The revised document not only excludes Rosukrenergo from supplies but also strips it of the chance for gas transit to Europe.


Forcasts & Commentary

Russia to have bigger role in global economy
Russia’s share of global economy will rise from 3.1 percent of GDP (purchasing power parity) in 2007 to 3.8 percent in 2015 and 4.3 percent in 2020, the Economy Ministry said in its guidelines for Russia’s long-term socioeconomic development.

What Russia's Election Means for Business
Now may be an opportune time for a fresh bout of economic or political liberalization.

Russia's new president will face new economic challenges
Economic analysts said Russia's new president will have to tackle emerging economic challenges as the country is in danger of exhausting its growth potential.

Economic Growth Will Continue
According to IGSO, investors will be interested primarily in securities, industrial production and retail.

Whose Kremlin is it?
Medvedev's economic plan rocks the boat.

Ruslan Grinberg: No Reforms Needed
Director of Institute of Economics at the Russian Academy of Sciences talking of political competition, social expectations and types of anti-social capitalism.

James Beadle, Time to focus on the supply side
Since Vladimir Putin became Russia’s second president in 2000, economic policy has focussed on stimulating demand.

Russia Facing Overconsumption Crisis
Sending on apartment repairs, education and cars are all down. Twenty-four percent of Russians plan repairs in their living quarters this year, compared to 30 percent last year.

Enough Problems without Overheating
The recent bulletin of the National Economic Institute of Russia’s Science Academy revises the mid-term economic forecasts up to 2011. 

Processing Industries Accelerated in Feb
Russia’s official statistics confirm the assumption of Economic Development Minister Svetlana Nabiullina that processing industries of the country are growing anew. 

The Return of the Bear
Eight Russia experts, from financiers to academics to Khrushchev's granddaughter, assess the legacy of Vladimir Putin.

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