For anyone interested in how the global economy works today, it is interesting to view the recent performance of the world's pre-eminent economy, from a wider perspective.
Flaming dragons and rampaging elephants notwithstanding, the United States is still the most dominant economic force in the world today. In some respects it is an economic force that is peerless in so far as in the history of the global economy there has hardly ever been another unified entity that has managed to so successfully structure not only the economic but also (and at times more importantly so) the non-economic aspects of the global economic system to its disproportionate advantage.
Of course, it is not without partners. What has been good for the United States, has also been largely good (give or take) for a number of the other handful economies which together make up the 'systemically significant' proportion of the global economy.
What does the performance of the US look like from a wider plane? Today, the Fed is pursuing an almost missionary activist monetary policy in the face of what many fear as imminent recession in the real economy. But viewed in Euros or gold, the US has been in recession for the past five years! This lends weight to those who have been pointing out for sometime now that the global economy, dominated by the US, is increasingly bipolar. There is a 'real' economy and there is a 'financial' economy. Until now it has been possible to hedge your bets in one against the other, as the logic of the real economy seemed to increasingly defy the logic of the financial economy. But today the proverbial jig is up. The credit crunch is eating away at the fundamental asset price inflators in the US and friends. Some of most hallowed halls on Wall Street (M. Lynch, Citigroup to name two) are suffering major losses, sending CEOs packing. The financial economy in the US is a mess.
Even a blonde Brazilian bombshell has the economic dilligence to 'refuse to get out of bed is she is paid in US dollars'. The main reason for this exaggerated suffering is the way the US economy chooses to deal with its pains. As in the past, many allege the US is either brave enough or stupid enough to print dollars to fight its way out of dying dollar (or a decaying real economy, depends which perspective you start with).
This is how Mark Faber put it: "the dollar is the most oversupplied commodity in the world". He may well be right. But for those who write on economic development, emergence, globalization, poverty reduction etc. the irony cannot possibly be lost:
Money is not the problem. There is more money in the world than anyone seems to know really what to do with. The problem is what money does. And the extent to which it conditions all incentive structures. To a point where no other reference can seem to guide any coherent purposive action on a mass scale. And for that we really have to be grateful to our American friends. A ship so vast the ocean is sinking in it!
Monday, November 5, 2007
Saturday, October 20, 2007
‘Striking the balance between keeping foreign investors happy and not having too big an influx of capital’
If I write from China, or Brazil, South Africa, Russia, Mexico or any other so called ‘big emerging market’, do I envy India? Or Indian policymakers and regulators?
If I sat through the East Asian crisis – of which arguably there were several ominous portends (see Richard Duncan’s work for instance) – and watched the Thai story go from being based on ‘solid fundamentals’ to a debt fueled bubble desperately trying to keep pace with re-rated fundamentals, would I envy India? Or Indian policymakers and regulators?
Sure there are limited parallels between India today and East Asia a decade ago. But lets have a peek at them anyway shall we?
Inflows staggering enough to have an apparently visible impact on the exchange rate; dramatic asset price inflation (booming property and construction sectors, heavy real investment requirement in infrastructure upgrades); volatile speculative inflows into capital markets driven by unwinding global positions – some limited parallels – exchange rate depreciation in export competitor (and overseas market, i.e. China).
Perhaps the key parallels as far as I am concerned – if we see East Asia as a monolith: varying degrees of capital account and exchange rate liberalization, high in Korea, Philippines and Indonesia (crisis impact: high), confused and unpredictable in Thailand and Malaysia (crisis impact: high – moderate), low or none at all Hong Kong, Taiwan and China (crisis impact: low – nil); and the piece de resistance – a fundamentally solid growth story chasing (not driving) dizzying expectations of appreciation.
Ok, one more. Almost to the decade, India was contemplating capital account liberalization when the crisis hit next door and the very finance minister who is in office today tabled a proposition in parliament, a consequence of which has been to put off ‘fundamental reforms’ like complete capital and exchange rate liberalization to this day. For India today, as it was a decade ago, is an overwhelmingly poor country whose vast majority neither have the appetite for the kind of ensuing risk such reforms entail nor a rapacious enough desire for the possible rewards.
While the well dressed Indian financial media sells you its version of fundamental bullishness, please keep in mind how we got to this juncture in the first place. Relatively conservative reforms that bore in mind global ramifications at every step and prudential regulation (for instance, gradual liberalization of direct external borrowings). These are perhaps the only parameters within which the kind of ‘fundamental growth’ India has so enviably achieved is possible to do for a large and poor developing country.
Killing the goose that laid the golden eggs (PNs)? That is, India would receive US$9bn instead of US$18bn in hot money the next time Big Ben decides to shave (the Fed rate)? However, it would send an unequivocal message that Indian policymakers and regulators are still acutely aware of the kind of insatiable appetite excess liquidity breeds and the inevitable hangovers that come with it.
‘Striking a balance between keeping foreign investors happy and not having too big an influx of capital’, entails compromises on two fronts. The Indian financial media would do well to pay some heed to the consequences of the latter and let policymakers and regulators deal with the former for a change.
If I sat through the East Asian crisis – of which arguably there were several ominous portends (see Richard Duncan’s work for instance) – and watched the Thai story go from being based on ‘solid fundamentals’ to a debt fueled bubble desperately trying to keep pace with re-rated fundamentals, would I envy India? Or Indian policymakers and regulators?
Sure there are limited parallels between India today and East Asia a decade ago. But lets have a peek at them anyway shall we?
Inflows staggering enough to have an apparently visible impact on the exchange rate; dramatic asset price inflation (booming property and construction sectors, heavy real investment requirement in infrastructure upgrades); volatile speculative inflows into capital markets driven by unwinding global positions – some limited parallels – exchange rate depreciation in export competitor (and overseas market, i.e. China).
Perhaps the key parallels as far as I am concerned – if we see East Asia as a monolith: varying degrees of capital account and exchange rate liberalization, high in Korea, Philippines and Indonesia (crisis impact: high), confused and unpredictable in Thailand and Malaysia (crisis impact: high – moderate), low or none at all Hong Kong, Taiwan and China (crisis impact: low – nil); and the piece de resistance – a fundamentally solid growth story chasing (not driving) dizzying expectations of appreciation.
Ok, one more. Almost to the decade, India was contemplating capital account liberalization when the crisis hit next door and the very finance minister who is in office today tabled a proposition in parliament, a consequence of which has been to put off ‘fundamental reforms’ like complete capital and exchange rate liberalization to this day. For India today, as it was a decade ago, is an overwhelmingly poor country whose vast majority neither have the appetite for the kind of ensuing risk such reforms entail nor a rapacious enough desire for the possible rewards.
While the well dressed Indian financial media sells you its version of fundamental bullishness, please keep in mind how we got to this juncture in the first place. Relatively conservative reforms that bore in mind global ramifications at every step and prudential regulation (for instance, gradual liberalization of direct external borrowings). These are perhaps the only parameters within which the kind of ‘fundamental growth’ India has so enviably achieved is possible to do for a large and poor developing country.
Killing the goose that laid the golden eggs (PNs)? That is, India would receive US$9bn instead of US$18bn in hot money the next time Big Ben decides to shave (the Fed rate)? However, it would send an unequivocal message that Indian policymakers and regulators are still acutely aware of the kind of insatiable appetite excess liquidity breeds and the inevitable hangovers that come with it.
‘Striking a balance between keeping foreign investors happy and not having too big an influx of capital’, entails compromises on two fronts. The Indian financial media would do well to pay some heed to the consequences of the latter and let policymakers and regulators deal with the former for a change.
Thursday, October 18, 2007
Whats the best 'China line'?
The IHT reports on vitrolic EU trade commissioner Mandelson, lashing out at the China juggernaut. The "EU trade chief calls for aggressive action against China".
Which is fine so long as he bears in mind Goldman Sach's "Globalization and Disinflation: can anyone else do a China" - which ostensibly argued Chinese cheap manufacturing and trade surplus is helping contain inflation in credit over-stretched developed Western markets.
www2.goldmansachs.com/insight/research/reports/docs/gepaper.pdf
China itself would much rather focus inwards, by all accounts of the recently held communist party congress, where Hu Jintao's 'scientific development' was much in vogue.
So, what is the best 'China line' in such a context? How might Western trade partners and policymakers respond to inevitable Chinese transformation (read inward orientation)?
This could be an important test case for the objectivity and parsimony of the WTO. Anti dumping measures against China are already a fertile area. China's response has been and is likely to be 'technocratic' at best. Its reach in third country markets (e.g. Africa) which are accorded priviliged access to developed markets, has already met with the chagrin of development economists and free-traders alike. Has the WTO been easy on China? Or is it simply that its core principles (national treatment, MFN) lack the bite to match their bark?
This is a fruitful area of future collaboration and I welcome insight on this multifacted issue.
Which is fine so long as he bears in mind Goldman Sach's "Globalization and Disinflation: can anyone else do a China" - which ostensibly argued Chinese cheap manufacturing and trade surplus is helping contain inflation in credit over-stretched developed Western markets.
www2.goldmansachs.com/insight/research/reports/docs/gepaper.pdf
China itself would much rather focus inwards, by all accounts of the recently held communist party congress, where Hu Jintao's 'scientific development' was much in vogue.
So, what is the best 'China line' in such a context? How might Western trade partners and policymakers respond to inevitable Chinese transformation (read inward orientation)?
This could be an important test case for the objectivity and parsimony of the WTO. Anti dumping measures against China are already a fertile area. China's response has been and is likely to be 'technocratic' at best. Its reach in third country markets (e.g. Africa) which are accorded priviliged access to developed markets, has already met with the chagrin of development economists and free-traders alike. Has the WTO been easy on China? Or is it simply that its core principles (national treatment, MFN) lack the bite to match their bark?
This is a fruitful area of future collaboration and I welcome insight on this multifacted issue.
Sunday, October 7, 2007
Indian Art Reframes
"The real history of modernism hasn't been written yet. It is all about Europe and New York. But that's hardly the whole of modernism. A hundred years from now, people will laugh at these narrow histories."
Amar Kanwar, who recently showed "The Lightning Testimonies," his video installation about sexual violence to Indian women, at Documenta 12 in Kassel, Germany, said that artists in India are "challenged ideologically every step of the way."
"And yet this friction can be a source of great creativity," he added.
"This is an extremely intolerant society, an extremely racist society,"
The Indian art world has more than changed. It has exploded. Prices have increased tenfold since 2002. In the last two years alone, they have nearly doubled.
The auction price of paintings by the older generation of great Indian modernists can easily pass a million dollars, hardly uncommon for leading Western artists but staggering in a country where the average income among the 1.1 billion residents is about $820 a year
http://iht.com/articles/2007/10/07/news/indart.php
Amar Kanwar, who recently showed "The Lightning Testimonies," his video installation about sexual violence to Indian women, at Documenta 12 in Kassel, Germany, said that artists in India are "challenged ideologically every step of the way."
"And yet this friction can be a source of great creativity," he added.
"This is an extremely intolerant society, an extremely racist society,"
The Indian art world has more than changed. It has exploded. Prices have increased tenfold since 2002. In the last two years alone, they have nearly doubled.
The auction price of paintings by the older generation of great Indian modernists can easily pass a million dollars, hardly uncommon for leading Western artists but staggering in a country where the average income among the 1.1 billion residents is about $820 a year
http://iht.com/articles/2007/10/07/news/indart.php
Why can't Russia be normal?
Russia has always been a mystery.
February 5, 2007
http://www.cbc.ca/news/viewpoint/vp_kinsman/20070205.html
After a scary night of lethal fighting in October 1993, when renegade parliamentarians tried to usurp then president Boris Yeltsin, I can remember an anguished TV panellist asking, "Why can't Russians be normal?"
Nothing about those days in Russia fitted anybody's definition of "normal." A totalitarian society and state-controlled economy had flip-flopped in the space of months. Behaviour recently forbidden became mandatory for success, whose very definition turned socialist principles upside down. Moviemaking stopped because fiction could not match everyday drama.
Ragging the puck
Under the shock therapy that accompanied the shift to open markets, too many ordinary Russians were adversely affected while gangsters prospered and sly operators manipulated a new capitalist system for which no legal framework yet existed.
Boris Yeltsin was an earthy populist whose intuition sought three fundamental rights for Russians: To own property, to speak freely, and to elect their government.
But Yeltsin soon lost his hero status. GDP fell by 50 per cent under his watch. Crime doubled.
People wanted a leader who would stop the rot, make them proud again, after the breakup of the USSR, and the depressing inversion of so many lives. In December 1999, Yeltsin resigned in favour of a prime minister rapidly promoted from obscurity, Vladimir Putin.
Shortly afterward, Putin won the presidential election with 52 per cent of the vote.
Putin was elected to stabilize Russia. When President George W. Bush said he looked into Putin's eyes and "saw his soul," Russians laughed because that was the last thing they saw or wanted.
February 5, 2007
http://www.cbc.ca/news/viewpoint/vp_kinsman/20070205.html
After a scary night of lethal fighting in October 1993, when renegade parliamentarians tried to usurp then president Boris Yeltsin, I can remember an anguished TV panellist asking, "Why can't Russians be normal?"
Nothing about those days in Russia fitted anybody's definition of "normal." A totalitarian society and state-controlled economy had flip-flopped in the space of months. Behaviour recently forbidden became mandatory for success, whose very definition turned socialist principles upside down. Moviemaking stopped because fiction could not match everyday drama.
Ragging the puck
Under the shock therapy that accompanied the shift to open markets, too many ordinary Russians were adversely affected while gangsters prospered and sly operators manipulated a new capitalist system for which no legal framework yet existed.
Boris Yeltsin was an earthy populist whose intuition sought three fundamental rights for Russians: To own property, to speak freely, and to elect their government.
But Yeltsin soon lost his hero status. GDP fell by 50 per cent under his watch. Crime doubled.
People wanted a leader who would stop the rot, make them proud again, after the breakup of the USSR, and the depressing inversion of so many lives. In December 1999, Yeltsin resigned in favour of a prime minister rapidly promoted from obscurity, Vladimir Putin.
Shortly afterward, Putin won the presidential election with 52 per cent of the vote.
Putin was elected to stabilize Russia. When President George W. Bush said he looked into Putin's eyes and "saw his soul," Russians laughed because that was the last thing they saw or wanted.
Selling Russia
A state-owned Russian bank is set for a $5bn IPO
Vneshtorgbank, one of Russia’s state-owned banking giants, has gained approval to float up to 25% of its stock in an initial public offering in London and Moscow, scheduled for May, that could raise US$4bn-5bn. The move is consistent with the state capitalist model—seen in previous share offerings at home and abroad by state energy giants Rosneft and Gazprom—which has become a hallmark of President Vladimir Putin’s second term. It is likely to be followed by other share offerings from state-owned banks. Full privatisation is a distant and uncertain prospect, however.
Speaking on the sidelines of the World Economic Forum in Davos on January 24th, Vneshtorgbank (VTB) CEO Andrei Kostin said that his bank planned to hold an initial public offering (IPO) in Russia and London in May this year. He has expressed similar sentiments before, but the credibility of this latest statement is increased by the fact that, according to Mr Kostin, VTB has hired Citigroup, Deutsche Bank and Goldman Sachs to manage the floatation. Mr Kostin says that 22-23% of VTB is likely to be sold during the offering, which should raise Rb120bn (US$4.6bn), although the IPO could dispose of up to 25% of the bank. Russia’s government intends that up to half of the shares will be placed in Moscow and made available to ordinary Russian citizens (in accordance with Mr Putin’s expressed wish).
The VTB IPO only became possible during the Orthodox Christmas period, when Mr Putin signed a decree removing the bank from the list of strategic enterprises that are under ownership restrictions. According to the government’s plan, a further package of VTB shares will be sold in 2010, after which the state will hold only a bare majority in the bank.
In Rosneft's footsteps
State oil company Rosneft’s July 2006 IPO raised around US$9bn, while Russian gas monopoly Gazprom has become one of the top three energy companies in the world by market capitalisation since the lifting of the so-called ring fence on foreign trading in its shares. But is there really sufficient investor appetite for Russia’s banking sector?
The initial signs seem to suggest that there is. First, there is a dearth of traded Russian bank stocks, and this puts VTB in a strong position. It is, after all, a major player in Russia, holding approximately 10% of total bank sector assets, with 150,000 corporate clients and 1.5m individual depositors. In the first nine months of 2006 it recorded a net profit of US$816m on core revenue of US$2.9bn, with assets at the end of that period of US$49bn. Under three separate brands (VTB, VTB 24 and Promstroibank), it has 158 branches in Russia as well as a strengthening presence in the CIS. The IPO’s proceeds have been earmarked to finance major investments in retail in Russia’s regions, although VTB also has an investment arm, and expansion abroad.
Second, Russia’s banking sector is booming at present, with an annual growth rate of around 40%. VTB 24, for instance, saw its consumer loan portfolio increase from US$107m to US$576m between January and September 2006.
Third, VTB has strong political connections that point to a bright future. The bank’s accumulation of a 5% stake in EADS, the parent company of Airbus, is widely believed to have been done at the Kremlin’s behest with a view to building a strategic alliance between the European aerospace giant and the national champion currently being constructed in Russia under the aegis of state-owned arms export agency Rosoboronexport.
Conforming to type
The proposed VTB IPO will largely resemble the Rosneft/Gazprom model. Up to half the offering is to be placed in Moscow, and there is a clear preference for institutional or private shareholders, rather than strategic ones. Moreover, while a sizeable block of shares is to be made available, the state for the moment has no intention of relinquishing control.
This model has several attractions for Russia’s government. It helps to soak up domestic liquidity, reduce capital flight and build up the Russian stockmarket. At the same time, by listing in London also, it boosts the credibility of VTB (and, by extension, Russia) and gives it access to a much deeper pool of capital. Furthermore, listing on a western exchange marks another small step towards Russia’s integration with the global economic system. The preference for diversified, non-strategic ownership—spread between Russians and foreigners—allows the government to generate late receipts while keeping a lid on the level of operational influence that non-state shareholders will have.
Those participating in the IPO are, in effect, accepting a trade-off: in return for exposure to a company that is likely to remain under government control, and so will not always focus exclusively on maximising profits (consider Gazprom, which is busy building an Olympic resort on Sochi despite ongoing concerns over its medium-term production prospects), they have an investment that promises to be secure and reasonably lucrative. Majority state-ownership offers a cast-iron guarantee that VTB will not be subject to an assault like the one that crippled Yukos; moreover, it holds out the promise of lucrative business—as a state favourite, VTB seems well placed in the next few years to handle M&A deals in the politicised swathes of the Russian economy.
Start of the new wave
In VTB’s wake, other share offerings from state banks are likely to follow. Next in line is the Russian market leader, former state savings bank Sberbank. Its proposed IPO, which would cut the government’s stake from the current 66.6% to 51%, could happen as early as the second half of 2007—and it could raise as much as US$11bn, a figure that would eclipse the Rosneft IPO. The government is also holding out the possibility of part-privatising Rosselkhozbank, which is fully owned by the state, but the time horizon is longer. A third group of state-owned banks—Vneshekonombank (VNB), Rossiisky Bank Razvitiya and Rosekonombank—may be merged before any decisions are made on a privatisation timetable.
According to finance minister Alexei Kudrin, Russia’s government will retain majority control of VTB and Sberbank for at least the next five years. Beyond that horizon, the current government says it envisages the full privatisation of its banks. While this is interesting, it amounts to little more than a statement of aspiration on which the current government will not have to deliver. On current plans, the decisions on relinquishing control are set to fall during the presidency of Mr Putin’s successor, or even the one after next. The surrender of state control is in principle to be desired, but it goes against one of the principal selling points that VTB’s IPO managers will be touting—namely that this is a state bank that can be confident of securing a handsome share of the state’s business.
Vneshtorgbank, one of Russia’s state-owned banking giants, has gained approval to float up to 25% of its stock in an initial public offering in London and Moscow, scheduled for May, that could raise US$4bn-5bn. The move is consistent with the state capitalist model—seen in previous share offerings at home and abroad by state energy giants Rosneft and Gazprom—which has become a hallmark of President Vladimir Putin’s second term. It is likely to be followed by other share offerings from state-owned banks. Full privatisation is a distant and uncertain prospect, however.
Speaking on the sidelines of the World Economic Forum in Davos on January 24th, Vneshtorgbank (VTB) CEO Andrei Kostin said that his bank planned to hold an initial public offering (IPO) in Russia and London in May this year. He has expressed similar sentiments before, but the credibility of this latest statement is increased by the fact that, according to Mr Kostin, VTB has hired Citigroup, Deutsche Bank and Goldman Sachs to manage the floatation. Mr Kostin says that 22-23% of VTB is likely to be sold during the offering, which should raise Rb120bn (US$4.6bn), although the IPO could dispose of up to 25% of the bank. Russia’s government intends that up to half of the shares will be placed in Moscow and made available to ordinary Russian citizens (in accordance with Mr Putin’s expressed wish).
The VTB IPO only became possible during the Orthodox Christmas period, when Mr Putin signed a decree removing the bank from the list of strategic enterprises that are under ownership restrictions. According to the government’s plan, a further package of VTB shares will be sold in 2010, after which the state will hold only a bare majority in the bank.
In Rosneft's footsteps
State oil company Rosneft’s July 2006 IPO raised around US$9bn, while Russian gas monopoly Gazprom has become one of the top three energy companies in the world by market capitalisation since the lifting of the so-called ring fence on foreign trading in its shares. But is there really sufficient investor appetite for Russia’s banking sector?
The initial signs seem to suggest that there is. First, there is a dearth of traded Russian bank stocks, and this puts VTB in a strong position. It is, after all, a major player in Russia, holding approximately 10% of total bank sector assets, with 150,000 corporate clients and 1.5m individual depositors. In the first nine months of 2006 it recorded a net profit of US$816m on core revenue of US$2.9bn, with assets at the end of that period of US$49bn. Under three separate brands (VTB, VTB 24 and Promstroibank), it has 158 branches in Russia as well as a strengthening presence in the CIS. The IPO’s proceeds have been earmarked to finance major investments in retail in Russia’s regions, although VTB also has an investment arm, and expansion abroad.
Second, Russia’s banking sector is booming at present, with an annual growth rate of around 40%. VTB 24, for instance, saw its consumer loan portfolio increase from US$107m to US$576m between January and September 2006.
Third, VTB has strong political connections that point to a bright future. The bank’s accumulation of a 5% stake in EADS, the parent company of Airbus, is widely believed to have been done at the Kremlin’s behest with a view to building a strategic alliance between the European aerospace giant and the national champion currently being constructed in Russia under the aegis of state-owned arms export agency Rosoboronexport.
Conforming to type
The proposed VTB IPO will largely resemble the Rosneft/Gazprom model. Up to half the offering is to be placed in Moscow, and there is a clear preference for institutional or private shareholders, rather than strategic ones. Moreover, while a sizeable block of shares is to be made available, the state for the moment has no intention of relinquishing control.
This model has several attractions for Russia’s government. It helps to soak up domestic liquidity, reduce capital flight and build up the Russian stockmarket. At the same time, by listing in London also, it boosts the credibility of VTB (and, by extension, Russia) and gives it access to a much deeper pool of capital. Furthermore, listing on a western exchange marks another small step towards Russia’s integration with the global economic system. The preference for diversified, non-strategic ownership—spread between Russians and foreigners—allows the government to generate late receipts while keeping a lid on the level of operational influence that non-state shareholders will have.
Those participating in the IPO are, in effect, accepting a trade-off: in return for exposure to a company that is likely to remain under government control, and so will not always focus exclusively on maximising profits (consider Gazprom, which is busy building an Olympic resort on Sochi despite ongoing concerns over its medium-term production prospects), they have an investment that promises to be secure and reasonably lucrative. Majority state-ownership offers a cast-iron guarantee that VTB will not be subject to an assault like the one that crippled Yukos; moreover, it holds out the promise of lucrative business—as a state favourite, VTB seems well placed in the next few years to handle M&A deals in the politicised swathes of the Russian economy.
Start of the new wave
In VTB’s wake, other share offerings from state banks are likely to follow. Next in line is the Russian market leader, former state savings bank Sberbank. Its proposed IPO, which would cut the government’s stake from the current 66.6% to 51%, could happen as early as the second half of 2007—and it could raise as much as US$11bn, a figure that would eclipse the Rosneft IPO. The government is also holding out the possibility of part-privatising Rosselkhozbank, which is fully owned by the state, but the time horizon is longer. A third group of state-owned banks—Vneshekonombank (VNB), Rossiisky Bank Razvitiya and Rosekonombank—may be merged before any decisions are made on a privatisation timetable.
According to finance minister Alexei Kudrin, Russia’s government will retain majority control of VTB and Sberbank for at least the next five years. Beyond that horizon, the current government says it envisages the full privatisation of its banks. While this is interesting, it amounts to little more than a statement of aspiration on which the current government will not have to deliver. On current plans, the decisions on relinquishing control are set to fall during the presidency of Mr Putin’s successor, or even the one after next. The surrender of state control is in principle to be desired, but it goes against one of the principal selling points that VTB’s IPO managers will be touting—namely that this is a state bank that can be confident of securing a handsome share of the state’s business.
Russia revives links with Africa
Russia set its sights on Africa several centuries later than other European countries. But it no longer wants to miss its chance.
Moscow's love affair with Africa began in the 1960s and reached its peak at the beginning of the 1980s. This was the time when the USSR was ready to provide all kinds of help - from building factories to military aid - in exchange for an anti-American stance.
"In recent years, Africa has become very visible in Russia," says Anna Brazhkina, editor-in-chief of New Africa magazine. "It would be difficult to find an African country that Russian companies have not tried to co-operate with. This is almost tantamount to an expansion, although it is not quite an expansion."
According to rough estimates, the investments of four companies alone - Rusal, Nornikel, Alrosa and Renova - in Sub-Saharan Africa constitute about $5m. Others are also active, including metal group Evraz, oil giant Lukoil and a number of banks. The Russian firms that are particularly active in Africa are those involved in exploration and production of mineral resources - known as "upstream" companies.
Raw materials
Renova is one of the most dynamic Russian players in Africa. Its largest African project is the development of a manganese deposit in the Kalahari Desert.
Renova's head, Viktor Vekselberg, member of the International Investment Council for South Africa, is known to local journalists as Mr South Africa in Russia.
So far, according to Anna Brazhkina, Russian companies in Africa are interested mostly in raw materials, rather than investment in infrastructure projects. But, to all appearances, this could soon change.
Rusal, the leading producer of aluminium in Russia and the second-largest in the world, is maintaining its presence in Africa despite the kidnapping of six of its staff in Nigeria in June.
Aluminium production, like so many other foreign projects in Africa, is extremely energy-intensive.
Yet 92% of its rural population and 42% of the urban population do not have access to uninterrupted energy supplies.
"When the energy situation stabilises, other projects will follow, such as telecoms and mining," says Igor Yurgens, chairman of the board of directors of the Renaissance Capital Bank and former vice-president of the Russian Union of Industrialists and Entrepreneurs.
"Russia is unlikely to undertake mega-projects, such as the Aswan Dam, but its nuclear energy expertise could prove useful. By helping Africa, we are also helping ourselves."
Risk and reward
Russian banks are also moving into Africa. The Vneshtorgbank has opened the first Angolan bank to have predominantly foreign ownership.
In the meantime, the Renaissance Capital already owns 25% of the shares in Ecobank, one of the most advanced Nigerian banks, with branches in 11 African countries.
The Renaissance Bank is actively promoting the idea of Russian investment in Africa and is even about to launch an African investment fund.
Today, the risks of epidemics, corruption and wars scare Russian investors in Africa. But they are getting used to the idea that these problems are not going to just go away in the near future.
Mark Buzuk thinks that rumours of corruption in Africa are vastly exaggerated. But many analysts think that the lack of transparency in African business often helps companies from those countries where bribing foreigners is not punished by law.
"The USSR used to be an important player in Africa," says Igor Yurgens. "The Soviet Union put an emphasis on grand industrial projects and helping the developing countries in their fight against imperialism, but in the process we built a broad network.
"Thus, for example, many African leaders are graduates of Soviet universities."
But Anna Brazhkina thinks that old connections will be of little use: "Russian companies know very little about Africa and attach too much importance to old ties and old friendships."
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/6897865.stm
Moscow's love affair with Africa began in the 1960s and reached its peak at the beginning of the 1980s. This was the time when the USSR was ready to provide all kinds of help - from building factories to military aid - in exchange for an anti-American stance.
"In recent years, Africa has become very visible in Russia," says Anna Brazhkina, editor-in-chief of New Africa magazine. "It would be difficult to find an African country that Russian companies have not tried to co-operate with. This is almost tantamount to an expansion, although it is not quite an expansion."
According to rough estimates, the investments of four companies alone - Rusal, Nornikel, Alrosa and Renova - in Sub-Saharan Africa constitute about $5m. Others are also active, including metal group Evraz, oil giant Lukoil and a number of banks. The Russian firms that are particularly active in Africa are those involved in exploration and production of mineral resources - known as "upstream" companies.
Raw materials
Renova is one of the most dynamic Russian players in Africa. Its largest African project is the development of a manganese deposit in the Kalahari Desert.
Renova's head, Viktor Vekselberg, member of the International Investment Council for South Africa, is known to local journalists as Mr South Africa in Russia.
So far, according to Anna Brazhkina, Russian companies in Africa are interested mostly in raw materials, rather than investment in infrastructure projects. But, to all appearances, this could soon change.
Rusal, the leading producer of aluminium in Russia and the second-largest in the world, is maintaining its presence in Africa despite the kidnapping of six of its staff in Nigeria in June.
Aluminium production, like so many other foreign projects in Africa, is extremely energy-intensive.
Yet 92% of its rural population and 42% of the urban population do not have access to uninterrupted energy supplies.
"When the energy situation stabilises, other projects will follow, such as telecoms and mining," says Igor Yurgens, chairman of the board of directors of the Renaissance Capital Bank and former vice-president of the Russian Union of Industrialists and Entrepreneurs.
"Russia is unlikely to undertake mega-projects, such as the Aswan Dam, but its nuclear energy expertise could prove useful. By helping Africa, we are also helping ourselves."
Risk and reward
Russian banks are also moving into Africa. The Vneshtorgbank has opened the first Angolan bank to have predominantly foreign ownership.
In the meantime, the Renaissance Capital already owns 25% of the shares in Ecobank, one of the most advanced Nigerian banks, with branches in 11 African countries.
The Renaissance Bank is actively promoting the idea of Russian investment in Africa and is even about to launch an African investment fund.
Today, the risks of epidemics, corruption and wars scare Russian investors in Africa. But they are getting used to the idea that these problems are not going to just go away in the near future.
Mark Buzuk thinks that rumours of corruption in Africa are vastly exaggerated. But many analysts think that the lack of transparency in African business often helps companies from those countries where bribing foreigners is not punished by law.
"The USSR used to be an important player in Africa," says Igor Yurgens. "The Soviet Union put an emphasis on grand industrial projects and helping the developing countries in their fight against imperialism, but in the process we built a broad network.
"Thus, for example, many African leaders are graduates of Soviet universities."
But Anna Brazhkina thinks that old connections will be of little use: "Russian companies know very little about Africa and attach too much importance to old ties and old friendships."
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/6897865.stm
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