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Russia’s rich move money out
Published: 27 July, 2009, 10:12
TAGS: Investment, Currencies, Russia and the global economy, Economy
In 2008 Russia’s rich almost doubled their transfers abroad compared to the previous year with overall investment into foreign economies totaling $25.6 billion.
Wealthy Russians are taking money out of the country and placing it in what they believe are safer havens like real estate. Andrey Rozhkov, an analyst at CIG, says the current economic crisis is making Russians look for a better place to invest.
“Russians, who are worried about keeping their savings have found an alternative to the Russian economy, abroad. They are placing their money on the financial markets and into real estate. The increase is because of the crisis, as there are fewer assets into which you can invest now in Russia.”
Transfers were also used to pay for goods and services, or sent to far off relatives and the proportion of money used to purchase real estate doubled- from 4 % to 7 % in 2008.
However, CEO of Citgroup’s global transaction services, Francesco Vanni D’archirafi, says it’s a reasonable thing to diversify assets among different countries.
‘Diversification is very important for a good risk return profile for your investment portfolio, and diversification is not only across industry sectors, but also geographical diversification.”
$8.5 Billion dollars were put into foreign banks in countries like the Netherlands, Luxembourg, Switzerland and Monaco. While some pessimistic forecasts suggest money is leaving the country because Russians don’t trust in its ability to recover from the crisis, Francesco Vanni D’archirafi disagrees.
“I know Russians understand the potential of this country and I am sure they’re willing to invest in the future of this country so I don’t think that’s the cause.”
Time will tell if investors have made the right decision.
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It's not just the super-rich Russians who are buying property abroad. Middle class Russians are taking advantage of lower property prices in places from Australia to Thailand. If these purchases are being made advantageously then either they will reduce the recurring expenses of hotels on foreign holidays or provide Russian with income from rental property.
NO - absolutely this should not be stopped by tax and legislation, other than where the money has been clearly obtained through crime, which is quite a proportion of this outflow anyway.Tax and legislation, this is the EU and US approach, we want none of it. Yes, where the money is the profits of crime it should be gone after, but where it isn't we should only try to keep it in Russia by business means, which means creating opportunities to invest and safe storage of wealth. To go down the tax and legislate route will just hamper Russia. We need drive ourselves to create a business expansion environment, not a command and control contraction environment. Yes we need protection on some markets and always property, but that's it, after that let the capital follow the opportunity. It is the only way to operate efficient business without central control. Then tax the expanding revenue base at flat rate. These are the policies that win, not find a rich person and rob them, like in the EU and the West. I say it again, where the wealth is ill gotten, go after it, not in terms of tax but 100% to get it all back. However, don't invent laws to do it. Apply the rule of law and go after legitimate targets. Russia should aim to be a tax haven to put money into, not a tax prison to take money out of.
John Bonar - absolutely correct, as you say, there are plenty of middle class taking advantage of good property opportunities abroad. There are also criminals laundering money in large amounts, and this is the reality of the situation. We shouldn't go into protective mode, let the ones who can make money, make it, and let the criminals be hunted down. Fair deal if you ask me!