photoxpress
itar-tass
Russia India
...Marching towards a common future
Banks kindle new dreams
Russian depositors smell profit in banks
Reaping a bumper harvest
photoxpress
RIBR P.03
Wake up, smell the coffee
Netting mega fertiliser deals in India
Booming food market draws entrepreneurs
RIBR P.02
RIBR P.04
BUSINESS REPORT Wednesday, AUGUST 11, 2010
A Report from The Economic Times In association with Rossiyskaya Gazeta
Calamity Worst drought in a century sends wheat prices soaring, dampens hopes. Temporary ban on grain exports imposed
Facing the heat: drought and fires wreak havoc Hugo Natowicz Special to rir
With temperatures soaring as high as 40° in Russia, the heat wave is breaking one record after another, devastating crops and spawning the worst drought in a century. Twenty-seven regions from Urals to Siberia have declared states of emergency as hundreds of wildfires sparked by the heat wave swept the country,killing more then 50 people and rendering some 3,500
homeless. Fires have cropped up around Moscow, which now sits in a haze of smoke from blazes in the surrounding bogs. Forest and peat bog fires ravaged 14 regions, wiping some villages – such as VerkhnyVereyi – off the face of the earth. With some 2,000 homes officially recorded as destroyed by the fires, both Prime MinisterValdimir Putin and President Dmitry Medvedev promised 3 mn roubles ($100,000) for each family whose home was burned down, pledging that people would have shelter again before November. The resulting wave of panic from the ministries,concerned
by the economic fallout of this unusual meteorological phenomenon, is not likely to ease the minds of millions of Russians dripping in sweat from Moscow to Siberia.The people of Russia are doing what they can do escape the heat and the exodus towards bodies of water has had led to some tragic deaths due to drowning. On July 19 alone, 71 people drowned in Russia while another 274 lost their lives in similar circumstances the week before. Many of these deaths were due to a tragic combination of swimming in unsupervised areas and alcohol consumption. CONTINUED ON RIBR P.3
It is easier to set up a new business in Russia than in any of the other BRIC countries, says the World Bank's Investing Across Borders (IAB) 2010 Report. It takes 31 days to register a new business from scratch in Russia, against 46 days in India, 99 days in China and a staggering 166 days in Brazil. Still, this is pretty poor when compared to the 7-14 days it takes in the UK or USA. Russia also scores best in terms of the number of procedures a wouldbe company may have to complete: Russia has 10, India 16, China 18 and Brazil 17. RIR
Russia announces two space probe missions
A man sits on the ground while a house burns due to severe heat outside the town of Vyksa, some 150 km south-west of the Volga city of Nizhny Novgorod, July 29, 2010.
Politics Russia to forge modernisation alliances
Reuters/Vostock-photo
Medvedev’s call for modern foreign policy In a key speech, Russian President Dmitry Medvedev puts modernisation at the heart of the the Russian foreign policy. nora FitzGerald RIR
In a dramatic move, Russian President Dmitry Medvedev has pushed the ongoing modernisation drive at the heart of the Russian foreign policy and asked diplomats to shed stereotypes and equip themselves with new skills that are critical to the country’s future prosperity. “What we need, and I have
spoken about this before, are special modernisation alliances with our main international partners,” Medvedev said mid July at the biannual meeting with Russia’s ambassadors at the Foreign Ministry in Moscow. He asked them to concentrate on three major goals: promoting economic and industrial modernisation to build an innovative economy; bolstering Russia's democracy and civil society; and boosting international cooperation in the fight against organised crime and terror. Underlining the paradigm
shift in Russia's foreign policy, Medevedev identified Germany, France, Italy, the European Union and the United States as principal international partners of Russia. Stressing on the importance of the Asia-Pacific region and ties with the ex-Soviet republics, comprising the Commonwealth of Independent States (CIS),he underscored the need to firm up strategic partnership with China, to further develop cooperation with India, to reinforce ties with Japan and other countries, including the ASEAN states.
Quickest business setup time amongst BRICs
President Dmitry Medvedev (right) and Foreign Minister Sergei Lavrov at the meeting with Russian ambassadors.
Investment from the Asia Pacific region, he said, is important to living standards in the Russian Far East and East Siberia, both of which border China. But the president’s remarks also included a note of caution. “At the same time, Russia’s policy in the Asia-Pacific should continue to be aimed
at ensuring the safety of our eastern borders and promoting peace and stability in the region,”said Medvedev. Shaking the complacency of diplomats, the Internet-savvy president exhorted them to hone their expertise in non-traditional areas such as biomedicine and aerospace. He asked them to proactively
engage with non-government organisations and experts in other countries and inject more timelines and rigour into their diplomatic notes back home. With the economy partially recovering from the recession, Medevedev puts economic diplomacy in the forefront and asked his diplomats to promote new investments and strengthen multilateral contacts, specially within the BRIC grouping, the club of emerging powers including India, Brazil, Russia and China. “The role of the Russian missions abroad should not be limited to a trivial race after the number and volume of messages sent to the center,” said Medvedev.“First, it is essential to take a deep analytical approach to forecasting development trends, both in bilateral and multilateral relations.”
Russia's space agency says it is preparing two space probes for launch in the next two years to study the surfaces of both the moon and Mars. The Federal Space Agency Roscosmos said a spacecraft scheduled to be launched in 2012 would study the Moon. "Roscosmos plans to send to the moon a spacecraft bearing a neutron generator developed by our institute to study the lunar surface,"Yevgeny Bogolyubov, deputy chief designer of the Automation Engineering Scientific Research Institute, said. The next launch of a probe bearing a neutron generator to the moon is planned to take place in 2013, in accordance with agreement between Russia and India, he added. RIR
Nuclear cruiser to ignite war games Lev Fedoseev_ITAR-Tass
Russia’s worst drought in 100 years has killed 54 people, destroyed crops and revived inflationary pressure. But the gritty Moscow is not giving up.
Reuters/Vostock-photo
News in Brief
The Pyotr Veliky nuclear-powered guidedmissile cruiser is visiting the port of Mormugao, Goa, on August 6-11. The PyotrVeliky will conduct on August 11 a joint PASSEX-type naval exercise with the Indian Talwar class missile frigate INS Trishul.The warships will practice joint maneuvering and carry out several communications drills. RIA Novosti
CONTINUED ON RIBR P.3
In this REPORT
Sergey Babushkin_RIA-Novosti
Assets Govt continues to decrease the state’s share in the economy
Russia is planning the largest sale of state assets since the 1990s, a key step that could cut mounting budget deficit and bring $30 bn for the modernisation drive.
lion over the next three years. The companies that will be put on the block include blue-chips like Russia's largest bank Sberbank and oil firm Rosneft. The largest sale of stateowned assets since the 1990s, says the finance ministry, will help fight the budget deficit, which is expected to be about 5.4 pc of the GDP this year. Observers in the media have dubbed this decision the
Sergei antonov rir
Among the most valuable assets for privatisation is Transneft, a state-operated company responsible for the building, operation, and maintenance of nearly 31,000 miles of pipeline.
ber 8 m e t p e S
In a bid to trim mounting budget deficit, the Russian government is planning to sell its assets in 11 top companies that is expected to swell state coffers by $30 bil-
third wave of privatisation. Unlike in the past, this one has not provoked harsh criticism from the left-wing opposition. The government has a weighty argument: the federal budget is running a large deficit while the state, as the president noted, has permanent social obligations. Pipeline monopoly Transneft shares have the highest growth potential of all companies announced for priva-
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nikolay korolev
Privatisation: the third wave
interview
tisation. The government also plans to sell off 49 pc of the assets of Rosselkhozbank, Russia’s fourth largest bank, nearly 25pc of Sovkomflot and 49 pc of both the united grain concern Rosagrolizing and Rosspirtprom, one of Russia’s top producers of alcohol and vodka. The government is also ready to sell its shares in companies that are already being traded on the stock market.
Russia's going global and is ripe for investment: Shiv Khemka Turn to RIBR p.3
Septem ber 29
The Times of India
Companies
Russia india Business report
page 2
Trend Buoyed by 1.5 bn deal, Russian fertiliser firms are bullish on the burgeoning Indian market
Indian soil conducive to Russian fertiliser companies Victor Pogontsev_PhotoXPress
A growing market, business bonhomie and new subsidy changes make India the perfect soil for Russian companies to plant their dreams…
FosAgro
Natalya Fedotova Special to RIR
Maxim Volkov, chief executive officer of PhosAgro, Russia’s largest manufacturer of fertilisers, is a busy man, stitching lucrative deals and planning an ambitious $1 bn initial public offering (IPO) for his company. When the going gets tough, he likes to relax, doing yoga, his only India connection for a long time. Early this year, India ceased to be just a yoga land and zoomed high on his business radar screen. PhosAgro and India’s leading fertliser company, IFFCO struck a $1.5 bn three-year deal for supplying diammonium phosphates to India during Prime Minister Vladimir Putin’s visit to New Delhi in March this year. The big breakthrough in PhosAgro’s India foray happened after the Indian government expanded its system of subsidies to include threecomponent compound fertilisers. PhosAgro, the world’s second biggest producer of concentrated phosphorus-based fertilisers, moved in quickly and cornered the lucrative deal. “The Indian contract has secured almost 30 pc of PhosAgro’s production capacity at a stroke, which has enabled us to minimise costs and plan a programme for manufacturing and marketing the
Maxim Volkov, CEO of PhosAgro
Indian demand will stimulate Russia's fertiliser industry
product,” said an excited Volkov. The contract signed by PhosAgro includes supplies upto 1 mn tonnes, which will cover almost one fourth of India’s current compound fertiliser consumption. India’s annual consumption rate of compound fertilisers
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in association with rossiyskaya gazeta, russia THE economic times wednesday_AUGUST 11_2010
of different brands is estimated at 3.8 mn tonnes, according to estimates by PhosAgro. The deal was important for PhosAgro for another strategic reason. Before the system of subsidies for fertilisers was revised, the main supplier of diammonium phosphate to
India was the American company PhosChem. The US company’s share has recently declined – between 2008 and the end of 2009 - it fell from 55 pc to 50 pc, while the Russian product’s share doubled – from 10 pc to 21 pc. The sales for 2010 indicate that the Russian company’s
share will continue to grow. Before the subsidy system was revised, Russian manufacturers preferred to supply only simple fertilisers to India. EuroChem, Russia’s biggest producer of mineral fertilisers and one of the top ten world leaders, has been working successfully in the Indian market of phosphorus-based fertilisers for several years. Two Russian potassium giants, Uralkali and Silvinit, whose joint share of the Russian market account for around 75 pc (10 pc of the world market) are firmly entrenched in India. In March, Uralkali secured a contract with Indian Potash Ltd to supply around $333 mn worth of potassium chloride till 2011 through its exclusive exporter, the Belarusian Potash Company. In 2008, the Indian market accounted for 13 pc of Silvinit’s profits (in comparison, Russia accounted for just 9.7 pc, and the EU countries 16 pc). Another Russian manufacturer – Acron – has followed PhosAgro into the Indian
market for three-component compound fertilisers. The company has secured a contract to supply 200,000 tonnes by the end of 2010. “This is approximately 10 pc of the company’s forecast sales of compound fertilisers for this year,” said Vladimir Bespalov, an analyst with investment companyVTB Capital. In the longer term, Acron intends to expand its presence in India and increase its sales to 300–350,000 tonnes per year. Rye, Man & Gor Securities expert KonstantinYuminov predicts that the overall market for all types of fertilisers in India will be 27 mn tonnes in 2010. Russia’s share is projected to be 12-20 pc. However, the Russians are not worried by their relatively small share – they are trying to secure their 'place in the sun' in the booming Indian market. “It is no secret that the Indian market today is a key one in the world of concentrated phosphorus-based fertilisers, consuming almost half of all international trade. Imports have more than tripled in the last five years – and this year contracts have been placed to supply more than 7 mn tonnes,” says PhosAgro’s Volkov. “The rate of growth is also impressive – the last five years have seen the consumption of mineral fertilisers grow by 50 pc and phosphoric fertilisers by 58 pc,”saysVolkov. According to current forecasts, the fertiliser consumption in India will grow at a rate of 7–10 pc per year, he says on an optimistic note. India's fertiliser demand is likely to rise by about five per cent to 56 mn tonnes in FY11, says US Awasthi, MD, Indian Farmers Fertiliser Co-operative Ltd (IFFCO) said recently. “Getting into the Indian market should help to maintain Acron’s profitability, despite rising costs, since compound fertilisers are a higher-margin product than simple fertilisers,” explains Bespalov fromVTB Capital.
eng.phosagro.biz “PhosAgro” company www.onexim.org ONEXIM Group, one of Russia’s largest private investment funds www.sibur.ru/eng SIBUR, the leader of petrochemistry in Russia
Business in brief Defence spending to rise by 60 pc by 2013 ergey Pyatakov_RIA-Novosti
Russian defence spending will increase by 60 pc to more than 2 trln rubles ($66.3 bn) by 2013 from 1.264 trln ($42 bn) in 2010, a media report said. The government made the relevant decision during a meeting in late July. The largest growth is planned for 2013,when the figure will rise by 0.5 trln rubles ($16.6 bn). Konstantin Makiyenko from the Russian Center for Analysis of Strategies and Technologies commented that the
government is likely to spend more on the Navy, as well as the aviation and space industries.The construction of advanced submarines, includingYasen and Borei class subs and Bulava ballistic missiles, as well as the construction of three new Talwar class frigates, three Improved Kilo class subs and other vessels for the Russian Black Sea Fleet are likely to require the largest part of the planned spending. RIA Novosti.
Gazprom, the world's most profitable company Russia's state own gas monopolist Gazprom is the world's most profitable company, reports US business magazine Fortune. Despite the international economic and financial crisis that led to a dramatic fall in both, the demand and price for gas, the company still earned a net profit of $24.56 bn in 2009, down 17.8 pc on the previous year.Gazprom has overtaken Exxon Mobil which has held the top slot on the list for the last five-years. The Russian company is also ranked in
the top 50 largest companies in the world in terms of revenue that were $94.472 bn in 2009. The biggest company in the world in terms of revenue is American shopping giant Wal-Mart Stores that took in $408.214 billion in sales last year. Five other Russian companies made it into the list of 500 largest companies in the world: oil companies Lukoil, Rosneft, and TNK-BP, state-controlled Sberbank, and private industrial and banking group AFK Sistema. RIR
Sukhoi wants 15 pc of regionaljet market by 2019 sukhoi.org
Coal Russian billionaire's mining company set to acquire an Indian flavour
NMDC casts its net wide, eyes Siberia's coal assets India’s largest iron ore miner is holding talks to buy coal assets in Russia. Analysts say it could take the form of a joint venture. Roman Asankin, Elizaveta Kuznetsova kommersant
Mining is a new business alchemy emerging between India and Russia. NMDC, India's third largest mining company, is negotiating the acquisition of four coal mines inYakutia, one of the coldest places on earth. Swaminathan Thiagarajan, the financial director at
NMDC, is excited at the new deal, which he says, is likely to be clinched by December.The Yakutia coal will be delivered to two steel mills being built in Chattisgarh in eastern India at a cost of $3.6 bn and a launch date of 2014 and to $2 bn plant at Karnataka in South India, the official said. The coal assets are owned by Kolmar, an affiliate of Intergeo, the mining behemoth owned by Russian billionaire Mikhail Prokhorov's ONEXIM Group, which is dreaming big to become one of the largest coal-mining companies in Russia by 2012.
Yakutia, says analyst Boris Krasnozhenov, has quality coal and the deposits are close to Far-East ports. Price is an added attraction: coking coal mining costs work out to be just $40 to 45 a ton in Russia compared to $68 to 125 in traditional coal exporting countries such as Australia and the US. He estimates the deal to be around a dollar per ton of Kolmar's reserves, or roughly $400 mn for four mines, plus a premium on assets already in effect. The price suits NMDC fine. Indian metal-makers not backed by coal are trying to
get themselves a safety net against commodity-price volatility in the wake of world suppliers having brought the axe down on the forty-year old annual contracts system and having switched to a quarterly pricing system, says Thiagarajan. With huge stakes involved in Kolmar coal, Inergeo is thinking of creating a joint venture, says Olga Mitrofinova from IFD Kapital. It could take the form of NMDC outfitting the project with equipment in exchange for guaranteed volumes of coal deliveries, Krasnozhenov points out.
Tyres Petrochem giant SIBUR to cash in on India's auto market boom
Welcome to the rubber club In a marriage of technology and resources, Indian and Russian companies sign a deal to grab a share of the global car tyre market. VIKTOR KUZMIN rir
Riding high on the surging automobile market in India, Reliance Industries Limited, the Indian corporate behmoth and SIBUR, Russia’s petrochemical giant, have inked a pact for manufacturing synthetic rubber in Jamnagar, home to In-
dia’s largest refinery. It was a perfect blend of technology,resources, market and kindred expertise that led to the firming of this business arrangement in May. Sibur, according to the deal, will provide technology and Reliance will supply raw materials and infrastructure.At stake, is a share of the 2 bn euro global market in butyl rubber. Dmitry Konov, the dynamic head of Sibur, is upbeat. He says the joint venture’s capacity could reach 50,000 tonnes
per year and could go further upto 100,000 tonnes. The design work will start in 2011 and the plant is expected to become operational in 2013. It will cost around $200 mn to $300 mn to get this project going, says Konov. With a capacity of 40,000 to 50,000 tonnes, the company should generate revenues of $80 mn to $100 mn a year, bringing its global market share to 3.5-4 pc, according to Nord Capital. SIBUR, in which Russian
banking group Gazprombank owns a 95 pc stake, straddles the entire petrochemical value chain and produces 2000 products ranging from gas processing of monomers and plastics, synthetic rubbers, mineral fertilizers, tyres and industrial rubber goods, as well as the processing of plastics. The company manufactures around 48,000 tonnes of butyl rubber (Tolyattykauchuk) per year. Butyl rubber is produced by just five companies in the world, led by ExxonMobil
sergey gavrilenko_kommersant
Russia's Sukhoi hopes to control 15 pc of the world's medium-haul airplane market by 2029, the company's CEO Mikhail Pogosyan said at the Farnborough airshow 2010. He said Sukhoi could sell upto 800 Superjet 100 aircrafts globally in the next 20 years. He cited global market studies estimating the regionaljet market demand in the
next two decades at around 6,000 aircrafts. "So 15 pc of the market is quite a realistic and viable task," he said. The SSJ100 is a family of medium-haul passenger aircraft developed by Sukhoi in cooperation with US and European aviation corporations, including Boeing, Snecma, Thales, Messier Dowty, Liebherr Aerospace and Honeywell.RIA Novosti
Russian envoy lauds blood donation plan embassy of russia in india
Just one foreign company, ArcelorMittal of Luxembourg, currently owns coal assets in Russia
Chemical, which accounts for a whopping 440,000 tonnes annually. Total production is estimated at 800,000 tonnes, worth $2,5 bn annually.“India’s butyl rubber market is not yet saturated with consumption rate being one fourth of Russia’s and one fourteenth of the European rate,” says Dmitry Aleksandrov, Head of Analysis at Univer Capital. Konov is excited at huge untapped potentialities that the joint venture seeks to harness. “The creation of new facilities so close toAsian markets opens up great growth opportunities for both companies. The region’s rubber consumption, buoyed by expanding tyre production, has been on the rise in recent years,”Sibur represen-
tative says. India’s proximity to the energy-rich Middle East tipped the scale in favour of local production.At the St.Petersburg International Economic Forum in June, Konov argued that the only opportunity to enter the Indian market was to initiate local production. The offer to locate the rubber facility in Jamnagar,an industrial hub in Gujarat bristling with highly qualified engineers, finally clinched the deal. It’s a win-win situation for India.The new rubber plant will generate jobs, export revenues and also hike production of rubber for car tyres, a much-needed boost for India’s booming auto market, with a new model debuting almost every month.
It’s a unique gift for India’s 64th Independence Day. "Go India Foundation", a social youth organisation, is planning 700 blood donation camps across 70 cities in India to collect 63,000 units of blood by targeting 63,000 donors on August 15. Russian envoy Alexander M.Kadakin is all praise. When the organisers came to meet him on July 6, he signed the campaign T-shirt and wrote a message in the signature book. "What really deserves praise
is the scale of the proposed programme,which is going to involve tens of thousands of young donors in 70 Indian cities," said Mr Kadakin. While mentioning that the Russian-Indian friendship has withstood the test of time, he added, "To describe multifaceted co-operation between our countries, I quite often cite one proverb 'great minds run together'." He said the leaders of theYoung Russia movement also regularly hold a blood donation camp every month. RIR
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in association with rossiyskaya gazeta, russia THE economic times wednesday_AUGUST 11_2010
Interview Shiv Khemka
New bounce in bilateral trade Looking beyond the US-Europe corridor to Russia With over $1 bn investment in Russia, Shiv Khemka, vice chairman of the SUN Group, is struck by globalisation of the Russian economy and predicts a surge in IndoRussian business.
nikolay korolev
Vladislav Kuzmichev RIR
Your company has been working in Russia for many years. What differences have you observed in Russia over the years? Our group started working in Russia in 1958. In those days, we worked with foreign trade organisations who were into buying and selling of equipments and services between the then Soviet Union and India.These included mining, transportation equipments and other products. What you have today is a younger generation that is becoming globalised and understands the global economy. I think a very smart, globally educated and globally connected group of bureaucrats, political leaders has emerged. They understand what's happening and are connecting to the world to understand Russia's place on the global map as it develops. For us, the Nineties were a very difficult period because Russia was growing through many changes - privatisation, inflation, devaluation of the currency, many political changes, instability in many regions and so on. I think starting in 2000, when President Putin came to power, he brought stability, which made it much easier to do business. The rules and opportunities became clearer. One could plan and invest better.The opportunities in terms of markets, exports and technology business were significant.
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"I think India is starting to think more about working with Russia and I see this trend accelerating." We belong to FIAC - the Foreign Investment Advisory Council - and everyone at FIAC has not only invested a lot, but also sees Russia as one of its most important markets on the global stage. I also think that Russia has started to invest globally, which has been a marked trend in the last five years.This
will increase as Russian companies start to go global and will give confidence to foreign companies to come to Russia.
What difficulties do you see in investment between India and Russia? I think many of them have to do with a lack of experience and perception. People are afraid of some of the things they read in the newspapers. But most Indians who have done business in Russia have had a positive experience. As the private and public sectors do more business together, this will grow, as they get used to each other. Sistema has
Finance Positive interest rates revive confidence
come to India and ONGC is doing business in Russia. In the technology field, India has become very focused and important, but it has been mostly focused on the US-Europe corridor. Now I think India is starting to think more about working with Russia and the CIS and I see this trend accelerating over the next 5-10 years.
We have a strategic relationship. What should the two countries do to create a strategicrelationshipinthesphere of business and economy? The strategic relationship goes back 60 years in terms of
government-to-government cooperation. In terms of business, I think the big corporations like Gazprom are starting to work more intensively now. I think the India-RussiaChina triangle will become a very important axis, which will create a lot of value for all three countries. Prime Minister Primakov mentioned this idea 10-15 years ago; he was very ahead of his time. Now with the Shanghai Cooperation Organisation and other regional forums, you'll see more cohesion in this region.
What is the total quantum of your investment in Russia and
in which sectors is it concentrated? We don't disclose this, but it's well over $1 bn.We've invested in the food and beverage business: beer brewing and chocolate, oil and gas, mining and technologies. The food and beverage sector has become very sophisticated in Russia. Twenty years ago, it was in a germinal stage. Today, it's a world-class sector in terms of distribution, products, quality, marketing and branding. In the oil and gas sector, there's much more clarity from the Russian government, in terms of who can own what and the rules. This applies to the mining sector as well. That provides an opportunity to investors who are committed to Russia. The Russian government said that it would open up some strategic sectors. Have you seen any changes? There's a gap between political vision and implementation. We are working in the trenches everyday.Things are going well, but the future is in the hands of the political and business elite. I'm confident that if that's the direction they want to go, they will go there. But this takes time - to get the laws right,to make sure no one abuses the system. What are your plans for the future? Our plans are to consolidate here for the future. We want to be here for the long-term and continue to build our businesses. The global economy is still in a fragile condition, and we are being cautious at the moment. As it comes out of this malaise, hopefully, we will become more aggressive in our investment strategy.
ben aris RIR
For most of the last two decades, interest rates in Russia have stayed below the rate of inflation - known as "negative real interest rates". However, interest rates have turned positive, which means that for the first time, Russians can actually make a profit from stashing their money in a bank. It is a subtle difference of a few basic points, but the flip into positive real interest rates should have a profound and longterm beneficial effect on the economy. The global economic crisis has changed everything.The sharp drop in demand following a 7.9 pc contraction in the economy in 2009 killed inflation.While prices began to recover somewhat in the first half of this year, the last two months saw a mild bout of deflation again and the government is predicting a
modest (for Russia) 6 pc inflation rate by the end of the year. With little pressure on prices, the Central Bank of Russia (CBR) has slashed interest rates a dozen times over the last 18 months. Even so, the fall in inflation has been so steep that by June, interest rates on deposits were marginally ahead of inflation - a mere 0.2 percentage points - for the first time since 1991. "The changes will be profound, but they will not be dramatic," says Peter Westin, chief economist at Aton investment bank in Moscow. "We are talking about less than 1 pc, so no one is going to get rich on this kind of spread. Still, the motivations have completely changed." As Russians came to trust their banks, personal deposits have overtaken corporate deposits in size. The banks have used this cheap source of financing to drive a credit boom, which in turn, drove the rapid 6 pc-plus a year growth for five years prior to the autumn crash of 2009. "We are still very early in the cycle, as for every ruble a bank takes in as a deposit, it
The extreme heat has impacted the economy severely, thus destroying crops and fuelling inflationary pressure. According to a July 23 estimate from Russian Agriculture Minister Elena Skrynnik, 10 mn hectares of wheat – an area the size of Portugal – was devastated by the heat, a fact that could also have repercussions on livestock farming. The country will be able to produce 70 mn to 75 mn metric tons of grain, down from an original forecast of 90 mn tons, says Deputy Agriculture Minister Alexander Belyayev. Last week Prime Minister Vladimir Putin announced a ban on Russian grain exports. Russia’s worst drought in at least 100 years, which has driven wheat prices to an all-time high since 1973, will continue in August and threaten more crops and winter-grain sowings, says the Hydrometeorological Center. Rainfall last month in central Russia and along the Volga River was 10 pc to 30 pc of the long-term average, the center said. It’s a big blow to Russian exports, particularly since Russia had just overtaken the US as the world’s biggest wheat
mortgage market, leading to a knock-on effect on the crucial construction sector. Real interest rates will also allow the maturity of bonds to lengthen and will make it easier to draw up long-term investment plans. Most important, real interest rates mean that the Central Bank of Russia's (CBR) overnight rate actually means something, which will allow it to control at the same time, both inflation and the level of the ruble. Still for all these benefits to really take effect, the CBR has to bulk up the financial system with more cash and introduce more flexibility to the exchange rate, say economists. Over the last year,
“What we need here is a fresh perspective.That is why I said that we sometimes need to find the strength to renounce stereotypes, even if they are learned at the Moscow State Institute of International Relations,”Medvedev said. Medvedev, who is at home in new social media, reminded the diplomatic corps that “anyone who has access to modern communication technology can keep abreast of current affairs and it’s not necessary to receive coded messages. In other words, one must live and act in an online mode”. Medvedev cited his recent visit to SiliconValley in California as an example of the kind of new engagement he is encouraging in Russian foreign policy.“Cooperation in the innovations sector can be substantive, rather than something to adorn a summit or just an idle idea,”he said. “It can contribute to the positive agenda in our relations with the US and expand the potential in our future cooperation, which should not be limited to cutting down on missiles or sparring over various regional conflicts.” Kommersant, a Russian newspaper, hailed the speech as“revolutionary”and said it struck a quite different tone than his speech two years ago. “Not a word was said about Russia having got stronger and being a force to be reckoned with in the world,”wrote Kommersant. “Much was said about the need to change the country and to change ourselves.” Besides modernising the economy, Medvedev said Rus-
the CBR has been slowly withdrawing from the foreign exchange markets, as it transitions over to controlling the economy by changing interest rates, rather than simply buying up dollars. But the supply of money in the Russian economy is still only about 45 pc of GDP against the 100-120 pc that is normal in the West. "You need a really liquid monetary base and in particularly, a big and liquid bond market, before you can really use interest rates as a tool to control the economy; to encourage people to save or invest by raising or lowering rates," says Westin. The fly in the ointment is the
heat wave that has settled over Russia. The Agriculture Ministry has downgraded the forecast for this year's grain harvest to 70 mn tonnes, well off the record of 110 tonnes two years ago. This will drive up prices, reversing the falling inflation and interest rate trends. The government is, however, actively deepening the bond market. Private companies have been issuing a flood of bonds as the only way that banks are willing to lend to them, but the state has also announced a massive 1.2 trln ($38.9 bn) borrowing campaign for this year as it taps domestic resources to finance the deficit.
producer.“It’s easy to leave the export market but harder to return it to. It would be sad to lose the unique possibilities that were acquired with such difficulty these last five years,”said Pavel Skurikhin, the president of the National Grain Producers’Union, who said he fears wheat prices could spike by 1.5 to 2 times. Inflationary pressures are growing. “If the harvest is lower (than 80-85 mn tonnes), inflation numbers for August won’t be affected, but the period from September to November will be,” warned Russia’s Deputy Economy Minister, Andrei Klepach. The heat wave in Russia has come as a shock to many in India who identify the country with wintry landscapes. Greenpeace was the first to sound the alarm on the unseasonal heat. “The heat wave of the past two months is the consequence of climatic change and experts at Greenpeace have proof,”the organisation said in a July 21 statement.“The Russian government should take steps to combat the effects of climatic change,” the document urged. Read more on www.in.rbth.ru
A call for modern foreign policy CONTINUED from RIBR P.1
only lends out 50 kopeks; banks are still very nervous as a result of the crisis," says Westin. "However, the inflow of money means that banks are building up bigger and bigger supplies of capital and getting healthy and stronger as each day passes. It is only a question of time before they feel confident enough to start financing growth again." Normalcy returns The appearance of "normal" rates of return should produce a raft of benefits for the economy. "Negative rates are like having a leak in the petrol tank of your car. No matter what you do, eventually, you run out of gas and stop," says Westin. "Thanks to the reluctance of banks to lend, the car is driving very fast now, but as more and more fuel is put into the car, it can go further and faster." Banks will now be able to manage their cash better, dividing it between equities, bonds and cash, which will make the financial system more robust.Also, lower interest rates have already fed through into the nascent
CONTINUED from RIBR P.1
Reuters/vostock-photo
Smile your way to the bank, say investors With interest rates staying below inflation for the last two decades, Russians are turning to banks in larger numbers to park their savings.
Facing the heat: fires wreak havoc
sia’s principal goals were strengthening democracy and civil society and fighting organised crime, including terrorism, drug trafficking and illegal migration. Although Medvedev warned that democracy cannot be imposed unilaterally from the outside, he said,“It is in the interests of the Russian democracy for as many nations as possible to follow democratic standards in their domestic policy.” The speech was followed by a closed session where Medvedev was reportedly even sharper in emphasising the need for the diplomatic corps to get behind the twin goals of modernisation and democratisation. "We are facing more serious tasks and
"What we need is a fresh perspective... [and] the strength to renounce stereotypes." they will require mobilisation. This was a useful conversation and one that was rich in content,”Konstantin Kosachev, the head of the Foreign Affairs Committee in the Duma, the lower house of parliament, told Kommersant. Medvedev’s modernisation mantra has, however, attracted its share of critics.“Moscow’s modernisation scenario implies selective cooperation in the areas in which Moscow is interested, rather than full-scale integration with the West,”writes Fyodor Lukyanov, editor-inchief of ‘Russia in Global Affairs’.
Russia's coal mining industry: Facts, Challenges, Expectations.
Lifestyle
RUSSIA INDIA BUSINESS REPORT
PAGE 4
BOOKMARKS
IN ASSOCIATION WITH ROSSIYSKAYA GAZETA, RUSSIA THE ECONOMIC TIMES WEDNESDAY_AUGUST 11_2010
Food sector The market is turning more competitive, stoking appetite of a new breed of entrepreneurs
Appetite for business? Put your money where your mouth is The last two decades have dramatically altered the food business. There is a rich menu awaiting for those with a hunger for new business challenges.
value of this market grew by 21.8 pс last year and it was also up by 3.7 pс in terms of volume. The largest importer is Vietnam, accounting for 25.4 pс of spice imports. It is followed by India, with 11.4 pс. Imports from other countries hover below 10 pс. Indian and Mexican spices are considered the best. Russia’s spice market is barely 15 years old. Earlier, bay leaf and black pepper were mostly used in cooking. Even today, black pepper remains the most popular spice among Russians.The spice market is dominated by foreign brands. Over the past two years, the top five players have remained the same, says Olga Nikitina, key account manager at MEMRB RetailTracking Services-Russia LTD.
Russia is a dairy lover’s heaven. Any Russian would tell you that their milk and dairy products are the best in the world
NATALYA FEDOTOVA RIR
It took Russia’s food market nearly two decades to overcome the hangover of the socialist experiment and the planned economy.At the close of the Soviet era, food stores stood empty, with people queuing for hours to buy even essential products. All this changed in the first decade of market reforms, but other problems arose: imported products flooded local shops, endangering domestic producers new to ways of the market economy. It was not until the late 1990s– early 2000s that entrepreneurs woke up to the lucrative potential of the food production business. Sergei Lisovsky and German Sterligov were among those who hitched their fortunes to the food business. In the early 1990s, Lisovsky was involved in the entertainment business and even ventured into politics during the election campaign for BorisYeltsin’s second presidential term. Now, he runs a poultry business, selling chicken. Sterligov toyed with various businesses and was among the first to start a commodity exchange in Russia amid market reforms. He finally settled on the food industry, opening an organic food shop and selling futures contracts on meat. Strange as it may seem, the latest financial crisis has stoked the appetite of Russian producers and importers. The devaluation of the rouble by more than 30 pс in the first quarter of 2009 drove lower-income groups to cheaper domestic products. As a result, domestic output edged up by 4.8 pс from January to May 2010. The production of meat and meat products was up by 12.5 pс,
From Russia with love
It was not until the late 1990s-2000s that entrepeneurs woke up to money in the food business. the manufacturing of dairy products rose by 10.4 pс, while potato, fruit and vegetable production, processing and preservation jumped by 14.7 pс. The processing and conservation of fish and seafood went up by 10.8 pс. The value of food and agricultural exports was up by 8.6 pс during this period. For the first time in many years, Russia’s poultry market saw overproduction, bringing chicken (mostly domestic) prices down by 4.3 pс. At the same time, the value of imports jumped by 24.8 pс, which the Economy Ministry attributed to the growing volume and value of basic import items.
No limits
Russia’s food market is growing, but it’s hard to quantify it. The State Statistics Service has identified 28 basic categories of food products. It is also a resilient market that provides enough room for new players. There are neither serious administrative barriers nor limits in terms of access to raw materials. Refreshingly, vertically integrated companies and price monopolies are absent.“I think food markets are open to new players; there are no insurmountable obstacles to entry,”says Julia Gapon, deputy chief analyst of the Infina financial centre. The food market is becoming increasingly competitive. In May 2010, food sales made up 49.1 pс of the country’s total retail turnover. Earlier, faced with empty shelves in shops, many Russians turned to open air markets and fairs, but the situation has now changed. By May 2010, retail sales at
open air markets dropped to 12.4 pс for both, food and nonfood products. Some cities have, however, bucked this trend. For example, the Mayor of Sochi, the 2014 Winter Olympics host, had to create open air food markets in the city to bring local producers to their senses and curb spiraling food prices.
1 kg of tea per Russian
Though tea came to Russia rather late, it has taken firm roots in this country, becoming a part of the Russian tradition. One "samovar" (a heated metal container traditionally used to heat and boil water) was enough to supply this exhilarating liquid for an entire peasant family. Now, samovars are a rarity, but Russia remains one of the world’s largest consumers of tea. An average Russian consumes approx. 1 kg of tea a year. Meanwhile, 99 pс of Russian tea is produced from im-
ported materials, Sri Lanka and India being the largest suppliers (38.7 and 33.9 pс, respectively). According to the ROIF Expert marketing agency, Russian companies produced 143,000 tonnes of tea products in 2008, up by 8 pс from 2007 (133,000 tonnes). Over 75 pс of the market is controlled by top five producers, including Orimi Trade, May Company, Unilever, Ahmad and Sapsan.The leader is Orimi Trade (28.9 pс of market value and 32.6 pс of volume), which owns tea brands like Greenfield,TESS, Princess Noori, Princess Kandy, Princess Gita and Princess Java. 90 pс of tea packaging facilities are located in the Moscow and Leningrad regions.
Spices too hot for crisis
The spice market has miraculously survived the crisis unscathed.According to MEMRB Retail Tracking Services, the
Eating right A new wave of health hazards compels the need for lifestyle changes
Food for thought: Watch your weight
Spoilt for choice, Russians are becoming more choosy about what they eat. But lifestyle changes and not faddish food, hold the key.
sportsman and now a department head at a medium-sized Moscow bank. “When my heart problems started, I had to switch to low-fat products.” VENERA REZTSOVA Butman is not alone: almost RIR half of all deaths in Russia Russians just love food and are due to heart attacks and the end of Communism whet- 37 pc due to strokes. Accordted their appetite, unfurling a ing to the World Health Ornew carnival of culinary de- ganisation, 9.6 mn people in lights. From sausage to the Russia today are suffering exotic sushi, grocery stores from Type 1 diabetes due to offer takeaways and fast food unhealthy lifestyles. Part of joints can be found at every the problem stems from the corner. But there’s a worm in traditional Russian diet, as the garden of diehard foodies: any visitor to a Soviet-era In38 pc of Moscow’s population tourist restaurant will tell is clinically overweight and you: fried chicken and chips diabetes and heart diseases swimming in oil were standard fares and still adorn the are becoming rampant. Spoilt by a decade of unfet- dining table of many homes. tered choice, the health perils Shielded behind the Iron have forced Russians to think Curtain for long, the superseriously about what they’re structure of healthy living eating.“Excess weight was largely passed Russia; the making my heart ache. The glossy magazine articles doctors said that if I didn’t about the dangers of salt and start to lose weight immedi- the use of artificial additives ately, it might not hold out,” or the obsession with fitness says Ivan Butman, a former that has gripped the West are
PHOTOXPRESS
How often do Russians eat fast food?
Unfortunately, strict standarts for food labelled 'organic' have not yet been established in Russia
38 pc of Moscovites are overweight and diabetes and heart disease are becoming rampant
only now trickling in Russia. Organic food has become a new mantra for the health conscious. Market research firm Nielsen found in a study last autumn that one in two Russians have already tried organic products.The market for biologically pure food products, however, is a very
SOURCE: LEVADA CENTRE
modest $80 mn, according to the Institute for Biological Agriculture. Nevertheless, there is money to be made in the health-food sector. “Healthy food is less profitable than unhealthy food, but it’s still profitable,” notes Lidiya Seryogina, founder of the Seryogina.ru company.
Traditional Russian products have a special place in the hearts and minds of Russians. Kvass (a fermented beverage) can easily be prepared at home using bread and kvass mash. It is also an important ingredient for another traditional Russian dish, okroshka – a cold soup made of cucumbers, greens, radishes, boiled potatoes and meat. Even more popular are blini and pelmeni (though pelmeni is of Turkish origin). Blini (pancakes) are round in shape and prepared from batter poured onto a heated pan. Cooking tasty blini requires an art of sorts: as the popular Russian saying says, the first attempt is always a failure. And pelmeni, a trademark Siberian delicacy, is in a class of its own.Today, only diehard fans of Russia’s traditional cuisine make pelmeni, kvass or blini themselves. Most of these traditional Russian products are available in supermarkets. The ones who are pressed for time to try out culinary adventures can also buy readyto-eat products (such as blini filled with cheese), heat them in a microwave or on a pan and eat.
This has bred a new tribe of charlatans who are unscrupulously tagging ordinary food with “eco-”,“bio-”, and “natural” simply to jack up the prices. In some sectors, the amount of “phoney” health food is as high as 60-70 pc of the market. High price has acted as a deterrent for Russian consumers. However, as more health food becomes available, that may all change. Only a few Russians make any distinction between“healthy”,“natural”and“organic”food. Most food is either imported and bought in an expensive supermarket or fresh and bought in the local open-air market or rynok. The Russian Consumers’ Rights Inspection plans to establish norms for health food by as early as the end of this summer, giving manufacturers and consumers the guidelines to help strengthen their trust in “healthy” products. Lifestyle holds the key, not faddish health foods.“In the end, I realised you cannot solve the problem of excess weight just by changing the quality of your food: you have to change your way of life,” says Butman.
“You don’t have to be a millionaire to live a decent life in Moscow”
To advertise in this supplement contact Julia Golikova golikova@rg.ru ph. +7 (495) 755 3114
“...I understood about 5 percent of what he was saying and he understood about 10 percent of what I was saying. After about 20 minutes he whips out a St. Petersburg scarf and hands it to me...” “The only people in Russian films who have vaguely threatening accents are non-Russians.”
food.einnews.com/Russia Find more about Food industry www.agrimarket.info Information on agribusiness in Russia www.euracadagri.com/eng/members/russia.php The Russian Academy of Agricultural Sciences
Gambling Far from the maddening crowd, the 'casino' culture is catching up
Playing for high stakes in mini-Las Vegas
Kevin O'Flynn travels to the special gambling zone in the remote Azov Coast and finds that Las Vegas dreams will take some time to realise.
based investment group, RoyalTime, has yet to capture the glamour of shuttered gambling legends like Moscow's Metelitsa or St. Petersburg's Taleon Club.
KEVIN O’FLYNN
Dreams of prosperity
RADIO FREE EUROPE/RADIO LIBERTY
It takes a bumpy, three-hour drive along crumbling roads to travel from the nearest city to Azov City, this lonely outpost in the middle of a barren field. Visitors walk across wooden planks laid down over dug-up earth, as fluorescentlit palm trees glimmer nearby. The building, squat and ugly, is festooned with blazing lights. Two stray dogs curl up by the entrance, hiding from the howling wind that sweeps in from the nearby Azov Sea. Yury Pozharov is the director of the Oracle, the first legal gaming site built since a Russian gambling ban last year restricted casinos and slot machines to four special zones in far-flung locations. He says since it opened in February, the Oracle draws between 150 and 400 people a day, both locals and out-oftowners. "There are slot machines, roulette and cards. The locals mainly play the slot machines," Pozharov says. "Roulette and cards have different stakes and the people who play those are the ones who come from Krasnodar and Rostov-na-Donu."
Game for a game?
Russian gamblers last year were shocked to hear of a ban on gambling, which also deprived thousands of casino workers of jobs and threatened to drain around $1 bn in tax revenues. It also abruptly ended a culture of entertainment and excess embraced by the country's oligarchs and high-rollers. Illegal gambling, however, continues to flourish in some cities. Prime Minister Vladimir Putin first proposed the step while the president said the ban was a moral imperative that would save families of modest means from losing their last kopecks. Instead, the Kremlin designated legal gambling zones in the Far East, Kaliningrad, Siberia's Altai Krai and the Azov Sea coast.The plan, it was hoped, would funnel new income into economically sluggish regions while keeping the bulk of Russia vice-free. Nearly a year later, foreign and Russian investors remain skeptical. Azov City, near the mouth of the River Don in southern Russia, is the only zone to have successfully launched a casino. And Oracle, which is run by a Kazan-
Royal Time says a second casino is expected to open by summer and a third by year's end, with hotels and an aquapark to follow. Casino entrepreneurs say the Azov City complex may draw in as many as 25 mn tourists a year.Locals are, however, cautiously optimistic. Lyudmila, who lives in the neighboring village of Molchanovka, says her home would still be without heat if it weren't for the Oracle. "For us, of course, it's good," says Lyudmila who has opened a small store for casino employees and gamblers. "They gave us gas, electricity and water. We have gas heating now, so of course, it's good for us.”Other
"For us, of course, it's good," said a local resident. "They gave us gas, electricity and water." Molchanovka residents are looking forward to other amenities in the town.
Luring in the customers
Perhaps the greatest challenge facing the Oracle is its remote location.The two nearest cities, Rostov-na-Donu and Krasnodar, are hours away by road and the conditions of roads leading to Azov City can be treacherous. The casino has tried to sweeten the deal by offering free minibus service to and from nearby cities, but it hasn't worked. For diehard gamblers like David Semelnikov, a 26-yearold fitter from Rostov-naDonu,nothing can come in the way. On his fourth trip to the Oracle in a week, he has already made 5,000 rubles ($165) on the slot machines and has winnowed the trip down to a relatively speedy 2 1/2 hours. "They've banned it in the city,taken them all away and made a special entertainment center, where you can calmly, legally play," Semelnikov says. "It's the first legal club. So we've come from Rostov to try our luck." Andrei, a local taxi driver, is among those who has seen his fortunes improve. But after losing several thousand rubles on the slot machines - and watching other poor people fall into despair after losing even more - Andrei says he has personally lost his taste for gambling.
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