Can Russia’s economy diversify away from energy exports?, page 2

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Can Russia’s economy diversify away from energy exports?

Arklight 30 October, 2008, 03:21	If even half of Russia's reputed wealth in minerals, metals, timber and potential crop yields proves out, Russia can have more strings to its export bow than anyone could make arrows to supply. Stay away from the international banksters and oligarchs, and Russia should be in the catbird seat in no time. permalink quote 0 Arklight
Alexander Sergeyevich 1 November, 2008, 20:58	Looking forward,Russian government assets do not look so healthy. Not only, with declining oil prices ( at 65US$), Russia’s current account will quickly turn into a deficit( US$ 70 is the line before Russian State budget deficit). In addition, there is a huge implicit liability of the government that is related to the enormous infrastructural investment needed to maintain production of energy (in real terms). This enormous infrastructural investment have not been done since 1991! As energy is the main asset of the country, the government needs a huge amount of resources to maintain the value of such asset. The resources set aside as foreign reserves and as oil and sovereign funds look small relative to the huge public investment needs. The true underlying fiscal position of an economy that is moving towards an encompassing role of the State in all economic sectors is very weak. Given the bottlenecks in the energy sectors, it is unclear what are alternative sources of growth for the Russian economy. In sum, the growth displayed by Russia in recent years is not sustainable and the outlook is rather grim. In contrast with the crisis of 1998, Russia may escape default on sovereign debt. However, the prospects of a fast growing Russia post-crisis looked much better in 1998 than today. permalink quote 0 Alexander Sergeyevich
Alexander Sergeyevich 3 November, 2008, 09:13	* Government is studying the possibility of further lowering the duty on exports of crude oil which discouraged production and exploration even further, despite previous suggestions that falling prices would limit tax cuts. Current tax policy contributes a net loss of around $20/bbl of crude oil exported however, the tax regime might mean that Russian oil producers may fare better than their peers. * Oil Output fell 0.7% y/y in October, the 10th straight monthly decline r to 9.87 million barrels of crude a day (41.7 million metric tons a month). Output in Russia's oil heartland of western Siberia is flagging as older fields mature and producers are forced into remote regions to tap deposits. Oil companies need credit lines totaling $100 billion to make investments endangered by the global financial crisis (vedomosti via Bloomberg) * Russian oil production has been falling, for the first time in 10 years and is now under 10mbd, representing more than a 1% drop from last year. Exports are even lower than last year as domestic consumption rose. Oil output likely to increase only 0.8% in 2008, compared with a 2.5% average in the past three years as aging fields in Siberia, limited investment and higher domestic oil and gas consumption reduce output * GI: 100-billion rouble (US$4.2-billion) package of tax breaks in June included a cut in mineral extraction tax (raising the non-taxable level to $15/b from $9/b), incentives for production of high-quality and environmentally cleaner fuels, tax holidays for offshore exploration, and changes to the excise duties on high-quality oil products, Watered down proposals are likely to pass but may not go far enough to meet goal of boosting production * Weafer: The approximately $5 bln that the oil companies will receive with the previously announced cuts will have almost no impact on capex spending as cost growth is greater. A high tax burden in the sector has been the main drag on production. The Finance ministry may push for the oil tax reduction to be balanced with higher taxes on other parts of the country’s extractive industries. * OxAn: Tax structure discourages investment in energy sector as government collects all revenues above $27 a barrel (for Ural oil) * Russia's oil exports might fall from current 5.4mbd to 4.5 mbd in 4-5 years (not including 2mbd in oil product exports) * FT: oil sector output growth was only 2.8% in 2005, and 2.2% in 2006, down from 8.5% in 2000 - 2004. Significant delays to new projects due to uncertain political and investment climate. $300b of investment needed w/in 8-9 nears to maintain current oil production * Fitch: Govt seems to favor hybrid of increased state management of resources with private enterprise as a means for greater long-term efficiencies for the industry. Most of expansion debt-financed, Russian companies could be overextending themselves at a time when oil demand might fall. permalink quote 0 Alexander Sergeyevich
Johnny 5 November, 2008, 20:23	Yes, and help the world with the financial crisis. Russia you can develop your financial sector, but not quite in the way I hear Medvedev and Putin talking about. They are talking about making the Rouble into a reference currency, will never happen. Remember the Pound had about a 400 year start on you. Then when the USA started up, they paid off some politicians and bought the US central bank, and so they now own the dollar as well. Then they got too greedy and broke the world… that’s where we are now. But listen here carefully; you can make a reference currency, and the world will thank you for a nice clean debt free well managed currency that doesn’t spasm every other day. What you must do is put the new currency… lets call it the Asia-Pacific currency UNDER the Rouble. Then you go to all the other countries that aren’t bankrupt, Japan, China, Taiwan, India, Russia etc and you ask them to join you and CO OWN the new currency with you. Then you all trade in that currency… DWALA! …you have solved the financial crisis in Asia. Now the Arabs are trying to do this already, they not broke, so you invite them as well, and DWALA! … the world now has a currency that works. And then if the UK and the USA decide they want to be saved and with no preconditions… the new Asia-Eastern-Pacific currency saves them from the Bushian era. … and we all live happily ever after. If you pay me, I’ll show you how to save the USA? … hey, I like Russians but I gotta live ;) permalink quote 0 Johnny
Alexander Sergeyevich 9 November, 2008, 12:36	This idea of BRIC ( Brazil Russia India and China) is an idea coming from Goldman Sachs and has no reality except fro investment bankers , hedge funds managers, etc. But it is also a quite useful instrument because it puts Russia inside a group of poor countries - emerging from poverty. # Merrill Lynch: We introduce a proprietary indicator to monitor this cycle as it unfolds. In contrast to the developed world, BRICycle shows that this is still a mid-cycle slowdown, not a recession. The BRIC walls are about to be hit by the effects of the credit crunch. The outlook for exports is terrible and for credit growth is cloudy. Yet emerging markets have some tricks up their sleeves and can help stabilize the global economy. BRIC consumption alone contributed 110bp to global growth this year, against 20bp from US consumption. There is a lot more to come, in our view. Wage growth remains high, consumers underlevered and policies supportive. The global economy is intensifying its process of rebalancing. 78% of global growth is now coming from emerging markets, rising to 88% next year. Regionally, Brazil and India are currently the most resilient BRICs, with China and Russia showing signs of a slowdown # Morgan Stanley: We have composed annual increases in official reserves into trade balance, FDI flows and everything else. Everything else’ could include portfolio flows,remittances, loans and any other type of capital flows.The presumption here is that the more a country is reliant on this last category of flows, the more vulnerable the currency is, in an environment of abating capital inflows. Looking at the BoP positions of the BRIC economies, a prospective decline in capital flows into EM might be most damaging for the INR and least so for the CNY. RUB looks somewhat better positioned than BRL. Thus, CNY > RUB > BRL > INR # BRIC economies should see solid growth in 2008 although performance will not be as good as in 2007 – 2Q08 growth remained strong but some slowdown is expected among other challenges # DB: If anything, most if not all BRIC countries currently seem to be at risk of overheating. While all are growing strongly, unless Brazil and Russia experience a productivity revolution, their economic growth rates will remain way below China’s and India’s. # Goldman Sachs: Solid but not spectacular growth among BRICs will still be extremely helpful as we estimate the BRICs will contribute close to 50% of total global growth in both 2008 and 2009, as opposed to only 30% back in 2006 # Performance of BRICs exports varies: Brazil and Russia continue to see some significant gains y/y but mostly on the back of sharp price increases in commodities, while volume slowed in Russia and is actually negative in Brazil. China export growth remains high but is starting to slow while Indian exports are growing slower. # Domestic demand remains quite strong in all of the BRIC economies although some signs of moderation can already be seen. As a consequence, imports will continue to play a crucial role, supplying local production. Overall, import growth will remain high especially driven by the sharp increase in commodity prices # Inflation is a global threat and it is not different for the BRIC countries. The inflation outlook and the response to the worsening inflation is nonetheless different among those countries – Russia has the highest inflation figures and the least enforcing response, while Brazil has the lowest inflation figures with the most austere monetary policy response. # Russia headline CPI at 15.1% is the top among many EME, followed by India (+8.2%), China (+7.7%) and Brazil (+5.6%). # Russia: Inflation is the highest since 2002 with food prices way above earlier readings. High capacity utilization and low unemployment as well as negative real interest rates (-5.0%) might postpone any fast conversion of inflation readings # China: Inflation figures already fell back slightly but more monetary tightening – including revaluation of the CNY would be needed to control inflation. # India: Central bank cut the repo rate, more easing is expected. # Brazil: Highest real interest rate among the BRICs and the most protracted tightening, it is expected to be the least vulnerable to the inflationary pressures. On long-term trends: # The rapid rise of the BRIC economies bears similarity to the post-war high-growth period of Japan and Korea. Comparing with these countries, China seems to be at an advanced stage of development. India, though a few steps behind China, is poised to follow a similar growth path. With a much higher income per capita than India and China, Russia and Brazil are ahead in the development stage (Goldman Sachs) # We have used the penetration rate of refrigerators and TV sets to gauge how the standard of living has changed and, most importantly, what section of the population benefited from the rapid growth witnessed in the past decade: # 1) It seems that the gap in living standard between the urban and rural populations has decreased since the mid-1990s, indicating that high growth did penetrate in the rural areas # 2) Comparing the BRIC economies, it is not surprising that Brazil and Russia's refrigerator penetration rates are higher than that of India and China. However, it seems that China has caught up with Brazil in the past decade. India is strikingly behind the rest of the BRICs again suggesting that it is probably the BRIC that is most behind in its stage of development permalink quote 0 Alexander Sergeyevich
Regular_John 10 November, 2008, 12:01	In recent speeches made by the holly trinity of Medvedev, Putin and Lavrov they “preach” to us all about a muli-polar world, Russia feels that the demon USA has to much influence over all over nations and uses this to her own wicked evil advantage. Russia claims to be a champion for the rights of smaller weaker nations and proclaims on high that all be given equal rights and are freed from the chains of single interest domination in her holly vision of a multi- polar world. (Praise the lord!!!) So one might expect this great crusader for a fairer new world order would lead by example and in the one area where Russia is truly a “world super power” energy, what do we see?, Russia doing all it can to completely control the flow of gas to western Europe, Its not enough to supply us with their own Hugh resources they also want to be the country that control the transit routes for Eurasian and now north African gas supplies. Russia is so determined to place a strangle hold on our energy supply that they are willing to pay Eurasian countries the same for gas that we will pay to have it directly pumped through our planned nabucco pipe line from source, Russia will make no profit from this at all but to gain the control they desire and stop the nabucco project good business sense has flown out the window. I find it Hypocritical that Russia attacks the USA’s domination in key areas but then acts in a wholly self serving dominating way over energy supply. It appears their multi-polar vision is one for others to follow but not themselves. (Another false profit I fear!!!). permalink quote 0 Regular_John
Johnny 11 November, 2008, 20:50	I tell you, the fact the worlds bankers are not working full time on a way to get us past this financial crisis, just pisses me off. You see, I don permalink quote 0 Johnny
SrpskiCrnogorac 11 November, 2008, 21:45	"Russia doing all it can to completely control the flow of gas to western Europe" Russia was more than once attacked from European barbarians, so it permalink quote 0 SrpskiCrnogorac

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