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| Foreign Investors Leaving Russia in Droves Over Georgia Invasion - Setting Up Conditions for a Nose Dive In Russian Economy
| Nightshade 09
User ID: 489588
8/23/2008 2:18 AM
Report abusive post | Foreign Investors Leaving Russia in Droves Over Georgia Invasion - Setting Up Conditions for a Nose Dive In Russian Economy
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Foreign Investors Leaving Russia in Droves Over Georgia Invasion - Setting Up Conditions for a Nose Dive In Russian Economy
[link to georgiandaily.com]
Investors Looking To Leave Russia? Print
August 22, 2008
INVESTOR'S BUSINESS DAILY
August 22, 2008
The Georgia Invasion: In contrast with the West's otherwise tepid response to Moscow's new nationalism, one group has taken a tough stance — investors, who are leading the march out of Russia's markets.
On Friday, Russia's central bank announced that its foreign currency reserves — a key part of its economic stability and an indicator of foreign investor support — had plunged $16.4 billion in the most recent week, to $581.1 billion (see chart).
Until Russia's move into Georgia, there seemingly had been only massive capital inflows, thanks mainly to the rising price of oil, which makes up 20% of Russia's gross domestic product.
Now, it seems, investors are fed up with the rampant militaristic nationalism, red tape, corruption and anti-investor sentiment in Vladimir Putin's Russia. Some have decided to head for the door and take their money with them.
Last week's decline was the largest since Russia's 1998 currency crisis, which led to a collapse of the ruble and rampant triple-digit inflation. So far this time, there's no major visible impact on Russia's economy. But if the flow of money leaving Russia turns into a flood, it could send Russia's markets into a tailspin, creating massive problems for Prime Minister Putin and his handpicked president, Dmitri Medvedev.
No doubt, foreign investors weren't cheered by another signal sent by Russia's regime last week. Without comment, Russian authorities decided to keep oil tycoon Mikhail Khodorkovsky, whose biggest crime seems to be he became Putin's political foe, in prison — despite his being eligible for release.
Any continued movement of capital out of Russia could prove disastrous. As we noted above, Russia really is a hollow economy, its growth kept afloat by soaring oil prices and a commodity boom which have both boosted investment in Russia and made its overall economy look much better than it is.
In fact, Russia is an economic nightmare in slow motion. Due to poor health care and widespread alcoholism, its population is declining by 500,000 a year — a trend that's expected to accelerate in coming years. Inflation is revving up again, after declining for several years, and now is growing at about a 14% yearly rate — and rising.
Moreover, data from the European Bank for Reconstruction and Development show that, despite the oil-fed boom, Russia's GDP per capita is just 2% above where it was when the Berlin Wall fell.
That means, essentially, there has been no growth at all for 20 years. Of the 15 former Soviet republics that got their freedom after the collapse of communism, 11 are growing faster than Russia.
This is Russia's big vulnerability under Putin. With oil prices falling, Russia's reserves will come under more pressure — and the import boom that has kept the new class of Russian oligarchs happy will come to a screeching halt.
This year, foreign investment is expected to fall for the first time in six years — just as lower oil prices kick in. Russia could be in real trouble, and it couldn't happen to a nicer regime.
Putin needs his hard-currency earnings from oil sales to bolster his military. With grand designs on controlling key choke points in the world economy via a revived Russian military, he'll need lots of money in the coming years.
Can he do it? Without a sustainable economy, it's doubtful. With just twice as many people, the U.S. economy is 29 times as large as Russia's. There isn't an area of technology we're not ahead in. Russia will spend about $31 billion this year on defense, and has planned a $189 billion, 5-year expansion. Even so, that's about what the U.S. spends in five months.
Based on its demographic implosion and lack of a non-oil economy, our guess is Russia is in for a rough couple of decades, not the boom times many have predicted. If foreign investors keep looking for the exits, Russia's good times may be over for good.
Putin may seem menacing now. But he's likely to discover the same thing Mikhail Gorbachev did — no matter what he does, he's still going to be too far behind the U.S., both militarily and economically, to challenge us. He'd be better off worrying about China.
"In a time of deceit telling the truth is revolutionary act." - George Orwell |
| mathetes
User ID: 327572
8/23/2008 2:24 AM
 | | Re: Foreign Investors Leaving Russia in Droves Over Georgia Invasion - Setting Up Conditions for a Nose Dive In Russian Economy | Quote |
Great post! And as the article details the crude price drop is a death nail to the U.S.S.....I mean Russia
Jesus said unto her, I am the resurrection, and the life: he that believeth in me, though he were dead, yet shall he live: John 11:25 |
| Nightshade 09
User ID: 489588
8/23/2008 2:26 AM
| | Re: Foreign Investors Leaving Russia in Droves Over Georgia Invasion - Setting Up Conditions for a Nose Dive In Russian Economy | Quote |
[link to georgiandaily.com]
Russia's oil boom may be running on empty Print
August 22, 2008
MCCLARTHY WASHINGTON BUREAU
August 22, 2008
Tom Lasseter
MOSCOW — The Russian oil boom, which has produced a gusher of cash, political power and an opulent elite — and has helped fuel the country's renewed assertiveness in Georgia and elsewhere — is on shakier ground than officials in Moscow would like to admit.
Most of the oil produced after the country's 1998 financial collapse has come from drilling and re-drilling old Soviet oil fields with more advanced equipment — squeezing more black gold out of the same ground — and efforts to develop new fields have been slow or non-existent.
That strategy is potentially disastrous, said Valery Kryukov, who researches oil companies in western Siberia for a government-funded think tank.
"If the situation which exists now stays the same, oil production will start to decline seriously in two years," Kryukov said in a phone interview from his offices in the city of Novosibirsk.
The implications extend far beyond Russia's borders. Last year, Russia was the world's second-largest oil producer. If its output begins to decline or is hampered by inept or corrupt business practices, the price of oil could begin climbing again.
The concerns about Russia's oil industry also raise questions about the health of the nation's economy, which has enjoyed stratospheric growth thanks to high oil prices since the economic crisis a decade ago, according to interviews with a dozen economists and analysts.
Higher oil and gas prices could further enrich and embolden resurgent Russia, but if production declines sharply, a hungry bear could prove to be even more troublesome than a prosperous one is.
That's a serious matter for a country where, by some estimates, the oil sector funded about a third of the national budget last year, and where by all accounts industrial, technological and agricultural businesses lag far behind. Russia's other major revenue source is natural gas, in which Russia leads the world; oil and gas sales are mainly responsible for the country's $592 billion in gold and foreign exchange reserves.
The practice of reaping quick profits and ignoring long-term interests is reminiscent of the former Soviet Union's development policies, and it was embraced by post-Soviet billionaires, known as oligarchs, who propped up flimsy companies to strip Russia's natural resources for as many fast rubles as possible. It continued as the government took over many of those private companies, often by brutish means.
Under Vladimir Putin, Russia's president from 2000 to 2008 and now the prime minister, the Russian government dismantled the nation's largest oil firm, Yukos, and imprisoned its founder.
The government declared oil to be part of a "strategic sector" in which foreign investors need permission from the government before they can buy a significant stake in companies. Foreigners have been steadily shoved out, including a recent incident in which the head of the joint Russia-UK company TNK-BP, one of the country's leading oil concerns, and 148 specialists left the country after their visa status was called into question.
In the short-term, business has been lucrative: Russian oil output jumped from about 6.1 million barrels a day in 1998, when the price of a 42-gallon barrel was less than $20, to an average of some 9.7 million barrels a day in the first half of this year. Prices reached $145 a barrel in July before dropping back to the $120 range.
At its current rate of production, though, Russia will run out of oil relatively soon, in about two decades, according to BP statistics. Saudi Arabia — last year's biggest oil producer — can continue pumping at its current clip for about 70 years, according to the same BP statistics.
A chart provided by the U.S. Energy Information Administration lays out the stark details: Only two of Russia's 14 largest oil producing fields were opened after the Soviet Union collapsed in 1991, and half of the 14 were more than 60 percent depleted in 2006. As fields are depleted, pumping oil out of them generally becomes harder and more expensive.
After a decade of oil production increases, there's been a slight drop — 0.5 percent — in production during the first seven months of this year, according to state statistics. Troika Dialog, Russia's largest investment bank, is forecasting a 0.7 percent decline in oil production this year from 2007.
In response, Russian officials have rolled out a proposed tax break that could enable oil companies to save an estimated $4.2 billion or more in the hope that firms will use the cash to go find more oil.
Economists who are bullish about Russian oil point to upcoming projects on offshore sites — awarded to two state-controlled companies — that could substantially increase the country's oil reserves.
Officials in Russia's ministry of economic development didn't respond to repeated requests for comment.
However, Valery Tsvetkov, a deputy of the institute of market problems at the state-funded Academy of Sciences, laid out an array of statistics showing what's wrong with Russia's oil industry.
Among them: In 1990, some 17.3 million feet of new wells were drilled looking for new reserves in the former Soviet Union, almost all of them in what's now the Russian Federation. In 2007, about 3.9 million feet were drilled.
"Why? Because today those who work in the oil industry find it easier to take the cream off the existing fields than to find new fields," Tsvetkov said. When he and others send research papers to the government about potential economic problems, he said: "No one reads them."
"The Russian government has few people with the mentality of statesmen," Tsvetkov said. "Today, the aim of many people is to become rich at the expense of the state."
Indeed, there are few signs of concern in the nation's capital, a caviar wonderland for the Learjet crowd. Moscow has more billionaires than any other city in the world — 74 according to Forbes magazine. Lest the millionaires feel left out, there's an annual Millionaire Fair where a big spender can buy a $1 million set of diamond-encrusted rims for his Mercedes or BMW.
Even optimists, however, are worried about the economy's dependence on oil revenues during a time when reserves are ebbing.
Valery Nesterov, an analyst at Troika Dialog, showed a reporter a map of Russia's oil and gas infrastructure — a vast array of wells and pipelines — and gestured to blank expanses in the eastern provinces. The oil under the ground there and in the waters surrounding Russia could secure its position as a world leader, he said.
When asked about the current flattening of production numbers, and the extent to which Russia's economy is tied to oil, Nesterov's tone changed.
"Every Russian who thinks is worried about this. Unfortunately, there are no signs this will change," Nesterov said. "These days, the economy is dependent on natural-resource exports, which is just a temporary bonanza. These resources sooner or later will be depleted."
A Western diplomat in Moscow said drilling in old fields makes sense from the perspective of Russia's ruling elite, who control energy companies only as long as they remain in power.
"If you're running Gazprom (a Russian natural-gas producer) but you don't really own it, then your interest is maximizing short-term profits, not long-term development," said the Western diplomat, who spoke on the condition of anonymity because of the delicacy of the subject. "If you look at most of the Russian companies — the energy companies — that's precisely what's happened. They have focused on profits or dividends and less so on long term development and replacing reserves."
In a nation with a history of economic tumult and social unrest, the diplomat said, it doesn't bode well for the future.
"They're not Keynesians," the diplomat said, "they're Russians."
"In a time of deceit telling the truth is revolutionary act." - George Orwell |
| Nightshade 09
User ID: 489588
8/23/2008 2:28 AM
| | Re: Foreign Investors Leaving Russia in Droves Over Georgia Invasion - Setting Up Conditions for a Nose Dive In Russian Economy | Quote |
[link to georgiandaily.com]
US set to tighten scrutiny of Russian investment Print
August 22, 2008
FINANCIAL TIMES
August 23 2008
By Stephanie Kirchgaessner in Washington
Investments by Russian companies and sovereign wealth funds into the US are likely to face tougher scrutiny in Washington in the wake of the country's conflict with Georgia, experts predict.
While billions of dollars in US investment by Russian companies have so far sparked little controversy in the US Congress, Moscow's military action against its neighbour is expected to heighten concerns on Capitol Hill about Kremlin ties to Russian companies and its potential influence on US investments.
Gazprom, the energy giant majority-owned by the Russian government, said in June that it was considering building its presence in the US through acquisitions.
Any attempt by Gazprom to invest in the US was already likely to be closely examined by the Committee on Foreign Investment, or Cfius, the executive branch agency that investigates sensitive deals on national security grounds. But Cfius is now likely to view such a transaction even more sceptically.
Ivan Schlager, a partner at Skadden Arps, the law firm, said Cfius agencies would be much more focused on the impact of Russian economic dominance in certain sectors. Under Cfius rules, the panel can extend a routine 30-day review into a more rigorous 90-day investigation if it sees potential risks in a transaction.
"There may have been a couple of cases where [before] they were borderline investigation. They may face the possibility that more of these cases go to investigation [now]," Mr Schlager says.
Congressional pressure has scuppered two politically unpopular transactions in recent years: Cnooc of China's bid for Unocal, the California oil company, and Dubai Ports World's proposed takeover of five US port terminals.
But transactions involving Russian companies have so far received scant attention on Capitol Hill.
Severstal, the Russian steel company controlled by billionaire Alexei Mordashov, this year acquired Esmark, a medium-sized US-based steelmaker and processor, for $775m (€524m, £415m) with the blessing of US labour unions.
Evraz, the Russian steel group controlled by Roman Abramovich, won approval to buy Oregon Steel following a 30-day review by Cfius.
Last week Carlyle, the US private equity group, said it was selling John Maneely, a US manufacturer of steel pipes and tubes, to Novolipetsk Steel for $3.53bn. The transaction will be subject to a Cfius review.
While acquisitions by private companies of non-sensitive assets are still expected to be approved without controversy, attorneys say deals by Russian companies with ties to the Kremlin will be more heavily scrutinised by Cfius, particularly in sensitive industries such as defence, technology and energy.
Paul Marquardt, a partner at Cleary Gottlieb, said the quality of the US relationship with Russia would affect Cfius's assessment of risk in determining whether to approve a deal.
"However, I don't think Cfius is going to start trying to block Russian transactions just because they're Russian," he said.
"Cfius has a structured way to look at a deal, but that doesn't mean someone in Congress isn't going to grab a microphone and talk about how terrible Russia is."
"In a time of deceit telling the truth is revolutionary act." - George Orwell |
| slightly retarded republican
User ID: 483035
8/23/2008 2:53 AM | | Re: Foreign Investors Leaving Russia in Droves Over Georgia Invasion - Setting Up Conditions for a Nose Dive In Russian Economy | Quote |
They should invest in the US, where there is no imperialistic motives to be found |
| Anonymous Coward
User ID: 489596
8/23/2008 3:04 AM | | Re: Foreign Investors Leaving Russia in Droves Over Georgia Invasion - Setting Up Conditions for a Nose Dive In Russian Economy | Quote |
So far you've posted nothing but BS. Why should I believe you or Georgia about this? Russia has a very strong economy, because they are isolated from the dollar. |
| Anonymous Coward
User ID: 489606
8/23/2008 3:38 AM | | Re: Foreign Investors Leaving Russia in Droves Over Georgia Invasion - Setting Up Conditions for a Nose Dive In Russian Economy | Quote |
Russia has a very strong economy, because they are isolated from the dollar. Quoting: Anonymous Coward 489596
 |
| Anonymous Coward
User ID: 447638
8/23/2008 3:47 AM | | Re: Foreign Investors Leaving Russia in Droves Over Georgia Invasion - Setting Up Conditions for a Nose Dive In Russian Economy | Quote |
So far you've posted nothing but BS. Why should I believe you or Georgia about this? Russia has a very strong economy, because they are isolated from the dollar. Quoting: Anonymous Coward 489596
VERY STRONG economy??? why do people when they argue against someone have to go extreme the other direction. My roomate is a foriegn exchange student from russia and i just asked him if this is true and he just laughed. He said the same thing is happening as before...that is almost all gains the russian economy is getting is not going to the people but to the military, government and select few companies. He said if they dont change they are just going to crash and burn again (economy wise). He said figuratively speaking Russia looks like a nice house but its foundation is very weak and interior is unkept. He said since the foundation of the economy is only oil...if that ever is gone the whole house will go down. |
| Anonymous Coward
User ID: 489624
8/23/2008 4:03 AM | | Re: Foreign Investors Leaving Russia in Droves Over Georgia Invasion - Setting Up Conditions for a Nose Dive In Russian Economy | Quote |
So far you've posted nothing but BS. Why should I believe you or Georgia about this? Russia has a very strong economy, because they are isolated from the dollar.
VERY STRONG economy??? why do people when they argue against someone have to go extreme the other direction. My roomate is a foriegn exchange student from russia and i just asked him if this is true and he just laughed. He said the same thing is happening as before...that is almost all gains the russian economy is getting is not going to the people but to the military, government and select few companies. He said if they dont change they are just going to crash and burn again (economy wise). He said figuratively speaking Russia looks like a nice house but its foundation is very weak and interior is unkept. He said since the foundation of the economy is only oil...if that ever is gone the whole house will go down. Quoting: Anonymous Coward 447638
At least they have oil going for them. Here in America we have bubbles (credit, housing, etc). Our entire economy is based on credit and services, since nearly our entire manufacturing base has been wiped out and moved over seas. "Made in China", "Made in Taiwan", "Made in Japan", "Made in Indonesia", "Made in Mexico", etc. Also, those items made elsewhere are being "serviced" elsewhere. Try buying an HP computer...you call to get your computer fixed under warranty, some Indian tries to walk you through fixing it yourself, as if you can understand them anyhoo.
America is in even worse shape, and investors are bailing here as well. America is already bankrupt, we the people just dont realize that yet. |
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