Mr. Gref cited the United States as an example, as it imposes high import duties on finished steel products, whereas duties on semi-finished products are either much lower or have been abolished altogether. "Our companies buy enterprises abroad, export their semi-finished products there, process them and then sell finished products which become more competitive in price," the minister said.
This is what the Severstal steel company did in 2004, when it bought Rouge Industries for $286 million. It was the first Russian-led takeover on the US market. Rouge Industries is a major supplier of steel for the US automobile industry, and so Severstal gained access to the market. The Russian firm's purchase of a 62% stake in the Italian steel producer Lucchini helped it overcome the European Union's prohibitive barriers on steel imports. Similar moves making some Russian companies more competitive also help raise the country's competitiveness.
Such comments on the legal export of capital from Russia could have been expected long ago. In mid-January, the Central Bank of Russia stated that the legal export of capital from Russia had increased by nearly four times in 2004 in comparison with the previous year and had reached $7.9 billion.
Capital export, both legal and illegal, whereby Russian citizens and companies take money out of the country or transfer it abroad, instead of investing or keeping it in the country, has long been regarded a matter of great concern by both the Russian authorities and the Russian press. When the Central Bank published its latest data on this score, the press took a purely negative view, forgetting that only a few months previously they had written in rapturous tones about money leaving the country.
Unsurprisingly the devil is in the detail, the terminology. The phrase "capital outflow" has a negative connotation in Russia, as it is associated with the tumultuous privatization drive in the 1990s, when huge fortunes were made virtually out of nothing and suddenly vanished into offshore zones. Most of the capital outflow of those years was illegal and was therefore called "national wealth drain." However, that outflow has little in common with the legal export of capital today, when Russian companies have started expanding into global markets.
Moreover, Russians often regard reports that Russian companies, such as Severstal, Norilsk Nickel or oil giants, have acquired assets abroad as a source of pride. However, some money obviously has to be taken out of the country to buy overseas assets. This is precisely the legal export of capital that has increased so much in the past year.
Undoubtedly, even the legal export of capital is not always positive for the economy since it may (or may not) indicate that businessmen prefer to invest their funds outside Russia to avoid political and economic risks. The thesis that the fourfold increase in capital outflow in 2004 was the result of the "state-initiated persecution" of Yukos and Mikhail Khodorkovsky, its owner and founder, has become widespread. The theory is that the Russian authorities forced many Russian businessmen to look for investment opportunities overseas, where there is no need to fear for these funds' safety.
The main idea that could be extracted from the economics minister's comments is that both the opponents of the government's policy and the government itself have no statistical instrument that could clearly separate "profitable" from "unprofitable" capital export, or Russian capital flight from its expansion. Naturally, this makes political debate on this subject futile, but some detailed calculations would certainly not be out of place.
