Nezavisimaya Gazeta
Capital flight from Russia may reach $60 billion this year
Putin said Russia expects $100 billion in capital inflow this year, but the actual figure may be six times smaller. According to information published by Russia’s Higher School of Economics (HSE), capital flight may reach $60 billion.
The Central Bank has increased its capital flight forecast from $12 billion early this year to $36 billion. But experts at the HSE Center of Development said on Tuesday that capital flight will continue to yearend and may reach $60 billion.
“The main reason for the net capital flight is lack of foreign investment,” HSE experts say. “Russian companies and banks failed to attract foreign investment in the third quarter. Russian banks’ foreign obligations grew by just $400 million despite the growing shortage of liquidity on the domestic market.”
The official statistics however seem very optimistic. On October 17, Prime Minister Vladimir Putin told a Foreign Investment Advisory Council meeting that, since 2009 the companies represented in the council have invested almost $100 billion in Russia.
But independent economists say this figure also includes funds that have no direct connection to new investment. Foreign direct investment (FDI) comprises participation in share capital, reinvested income and other investments. New FDI is usually understood as an increase in share capital, while reinvested income results from the economic operation of companies with foreign capital. “We have estimated that reinvested income accounts for 43% of FDI since 2009,” said Sergey Pukhov, an HSE Development Center analyst. Another 42% is known as “other investments” i.e. loans that must be repaid.
In short, FDI growth has not bolstered the Russian economy in the last three years. Only $15 billion of non-residents’ participation in Russian share capital can be regarded as increased FDI, but “that was negated in 2011 by other investors’ withdrawals,” Pukhov said. “The main reason for increased capital withdrawal has been political uncertainty amid the eurozone’s debt problems,” said Vladimir Svinarenko, chief foreign investment expert at Solid Investments. “Capital withdrawal and inflow depend not only on external factors. Capital flees mostly because investors are not sure Russia has a stable, predictable future. Investors think Europe’s peripheral countries and the United States will solve their major problems. But they are less sure about Russia’s future as in the past decade the country has not made much progress in resolving the problems of a weak institutional environment, rampant corruption and feeble and dependent courts,” said Andrei Chernyavsky, a due diligence consultant at 2K Audit Business Consulting.
“Investments must be profitable and safe. Russia has cheap resources, a large market and relatively low competition, offering big profit margins. But this is offset by corruption, changing rules of the game and disrespect for ownership rights. These are the problems we must tackle first of all,” said Maxim Shein, chief strategist at Broker Credit Service.
Moskovsky Komsomolets
Putin, Medvedev go head to head in Stavropol corn harvesting competition
Anyone who has read about cabbages and kings in O’Henry’s Anchuria republic, would have enjoyed yesterday’s remake, Corn and the Tandem, set in Russia’s agricultural Stavropol Territory, where Dmitry Medvedev and Vladimir Putin took part in a corn-harvesting competition and talked with farmers and United Russia activists.
The local authorities treated both men with pointedly equal measures of respect, preparing two identical offroaders to drive them to the Rodina farm where they were to use two identical combine harvesters on two identical plots of cropland with similarly drooping corn plants.
Putin started his combine ahead of Medvedev who took some time to figure it out. When both were finished, they simultaneously poured the threshed corn into a truck. Putin must have harvested more corn because his took longer to load.
“I say ‘you’re keeping people waiting!’ But he just says ‘keep on going!’ That’s the way to do it! He won’t leave his combine until the work is done,” said Rodina director Viktor Orlov who accompanied Putin.
“We’ll auction this corn and spend the money raised on the election campaign,” a United Russia activist said.
Local machinery operator Alexander Shavklis earned popularity overnight after his “kind and open face” encouraged the two leaders to accept the invitation to visit the farm during a United Russia videoconference. “I also noticed your hands. They are just as they should be – covering half this table. Now I know why,” Putin said. He also suddenly put a friendly arm round broad-shouldered Orlov during a discussion about electricity use, causing almost as many raised eyebrows as the “spontaneous” kiss on the belly he gave little Nikita.
The discussion focused on common rural concerns such as diesel fuel prices, government subsidies for equipment leasing, grain interventions, storage and exports. In fact Putin and Medvedev’s Q&A performance could beat a good synchronized swimming team. They took over from each other effortlessly, always on cue. However, Putin seemed to have a clear prerogative on certain issues.
One issue discussed at the meeting stems from the region’s location – close to the North Caucasus. “Groups of young people from neighboring republics often cause disturbances through swearing and disorderly conduct,” local military commissioner Yury Em said. Olga Kazakova, head of the regional youth affairs committee, complained about young people from the North Caucasus taking government scholarships in local universities while behaving in a disorderly manner.
“People from these other regions enroll with local universities for naturalization – that’s a problem too,” Putin said, demonstrating how familiar he was with the subject. Both agreed that disorderly conduct should be severely punished regardless of the perpetrator’s ethnic origin. “Fake students should be expelled and universities involved in illegal schemes should be closed,” Medvedev added.
After the meeting they shared their impressions of driving a combine. Both seemed to have liked the experience.
Moskovskiye Novosti
British investors name Moscow real estate market as best for investment
British investors have named the Moscow real estate market as the most attractive for investment. They say the city’s expansion plans outweigh the negative factors which include an adverse business climate and a low standard of living.
For the 2011 evaluation, Moscow topped the European Regional Economic Growth Index (E-REGI) ranking of European cities by the British firm LaSalle Investment Management for the first time ever. This rating is, in fact, a guide for foreign real estate investors, developers and leasers. London, the recognized leader for many years, dropped below Moscow for the first time. Experts took into account the exceptional growth potential of the Russian capital including its physical area which is expected to expand by almost 150% – up to 160,000 hectares. Until recently, Russian cities were omitted from the annual E-REGI ranking. In 2009, the ranking included Moscow, which took sixth place, then moved to second place last year and has now come out on top.
In addition to the city's potential for development, which makes up 60% of its final score, experts also consider the standard of living (based on GDP) and general business conditions, which are defined by the tax system, the transparency of financial transactions and the political climate. While the living standards in Moscow are still low and operational risks remain high, the prospects for a “new Moscow” have pushed other cities with developed real estate markets – except London, Paris and Munich – behind. Despite their advantages, the current potential of the more established cities cannot compare with the potential expansion in Moscow and the increasing opportunities there, LaSalle Investment Management analysts said.
The exponential growth in the number of projects in an expanding Moscow will play a key role in the development of the real estate market, said Sayan Tsyrenov, leading consultant of the capital markets department at Cushman and Wakefield. He also believes that the quality of new projects will be closer to international standards.
“Moscow authorities are actually planning to build a new city with a separate urban development plan and more efficient urban planning resulting in an investment product closer to models in developed markets,” Tsyrenov said, emphasizing that even now, despite the fact that the quality of the infrastructure is low and the business environment still leaves much to be desired, the amount of investment in 2011 is estimated at a record $7 billion.
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