Post: #1

Question, especially for the guys that have spent time in Moscow: what exactly is the engine driving the economy in that city? It's well-known that most of Russia' economic growth is driven by oil, gas, and other natural resource extraction activities, but I'm curious how that translates to the economy of the capital, where the jobs and population are. Is it a trickle-down effect from businesses started by oligarchs? I'm assuming most Muscovites don't work for Gazprom, etc.

Post: #2

Regardless of where the resources are, every company, bank and government department is headquartered in Moscow.

In other words, the economy of Moscow is corruption. The top management always get a cut of the action. It's also the reason that you see ridiculous prices on some items... those guys generally don't care what they pay for things.

Post: #3

(02-10-2014 04:00 PM)RexImperator Wrote:  Question, especially for the guys that have spent time in Moscow: what exactly is the engine driving the economy in that city? It's well-known that most of Russia' economic growth is driven by oil, gas, and other natural resource extraction activities, but I'm curious how that translates to the economy of the capital, where the jobs and population are. Is it a trickle-down effect from businesses started by oligarchs? I'm assuming most Muscovites don't work for Gazprom, etc.

First of all, the oligarchs didn't 'start' any businesses...they effectively just stole existing state assets by buying up shares, sometimes through intimidation (including killing people Khodorkovsky is rumored to have been particularly violent for example), and using political connections and corruption to then gradually consolidate their empires. That's why then went from having nothing to billions in just under a decade. And why there is a decent amount of resentment towards them amongst Russians.

In terms of how the money is 'transferred' back to society via a 'trickle down effect' - hah, that's a laugh. Most of the big money makes it out of the country and that's why you see oligarchs with $350 million yachts and expensive properties in London, the French Riviera, Courcheval etc. And why Moscow outside the center is still pretty much a dump except in certain areas. Sad to say, but the money isn't making it down the the average person even in Moscow, let alone in the provinces. Things have gotten a little better in Moscow the past couple of years in terms of infrastructure, with increased focus on sprucing up the public parks and certain pedestrian zones, but it's still nothing groundbreaking. The corruption is still a huge problem (look what happened during the construction of the Sochi olympic venues) and they are trying to tack it but it's so ingrained into the fabric of the society it will take many years to break it.

The economy is almost completely oil & gas and metals and mining. The price of oil is a pretty good barometer for how the Russian economy is doing. With global commodity prices down and oil stagnating it's no suprise that Russia's economy only grew about 1.5% last year. The central bank has said that if oil goes below $90 a barrel that the country will be in deficit territory and growth will stagnate even more.

BTW, Gazprom is technically based in St. Petersburg, and they have a lot of offices there (and plans for a new very tall building that is creating controversy, not sure where that stands now).

Post: #4

(02-10-2014 04:19 PM)Akula Wrote:  

(02-10-2014 04:00 PM)RexImperator Wrote:  Question, especially for the guys that have spent time in Moscow: what exactly is the engine driving the economy in that city? It's well-known that most of Russia' economic growth is driven by oil, gas, and other natural resource extraction activities, but I'm curious how that translates to the economy of the capital, where the jobs and population are. Is it a trickle-down effect from businesses started by oligarchs? I'm assuming most Muscovites don't work for Gazprom, etc.

First of all, the oligarchs didn't 'start' any businesses...they effectively just stole existing state assets by buying up shares, sometimes through intimidation (including killing people Khodorkovsky is rumored to have been particularly violent for example), and using political connections and corruption to then gradually consolidate their empires. That's why then went from having nothing to billions in just under a decade. And why there is a decent amount of resentment towards them amongst Russians.

In terms of how the money is 'transferred' back to society via a 'trickle down effect' - hah, that's a laugh. Most of the big money makes it out of the country and that's why you see oligarchs with $350 million yachts and expensive properties in London, the French Riviera, Courcheval etc. And why Moscow outside the center is still pretty much a dump except in certain areas. Sad to say, but the money isn't making it down the the average person even in Moscow, let alone in the provinces. Things have gotten a little better in Moscow the past couple of years in terms of infrastructure, with increased focus on sprucing up the public parks and certain pedestrian zones, but it's still nothing groundbreaking. The corruption is still a huge problem (look what happened during the construction of the Sochi olympic venues) and they are trying to tack it but it's so ingrained into the fabric of the society it will take many years to break it.

The economy is almost completely oil & gas and metals and mining. The price of oil is a pretty good barometer for how the Russian economy is doing. With global commodity prices down and oil stagnating it's no suprise that Russia's economy only grew about 1.5% last year. The central bank has said that if oil goes below $90 a barrel that the country will be in deficit territory and growth will stagnate even more.

BTW, Gazprom is technically based in St. Petersburg, and they have a lot of offices there (and plans for a new very tall building that is creating controversy, not sure where that stands now).

Personally I SEE them the same as Carnegie s and the robber barons of the 1800's. You are going to tell me blood wasn't spilled while they got rich?

I think the Ukrainian protesters scare me because it is like a alternate version of American Indians trying to take over our gov't and pushing their native tongue on us and expecting us to ask for forgiveness for genocide.

Post: #5

(02-10-2014 04:29 PM)jimukr104 Wrote:  

(02-10-2014 04:19 PM)Akula Wrote:  

(02-10-2014 04:00 PM)RexImperator Wrote:  Question, especially for the guys that have spent time in Moscow: what exactly is the engine driving the economy in that city? It's well-known that most of Russia' economic growth is driven by oil, gas, and other natural resource extraction activities, but I'm curious how that translates to the economy of the capital, where the jobs and population are. Is it a trickle-down effect from businesses started by oligarchs? I'm assuming most Muscovites don't work for Gazprom, etc.

First of all, the oligarchs didn't 'start' any businesses...they effectively just stole existing state assets by buying up shares, sometimes through intimidation (including killing people Khodorkovsky is rumored to have been particularly violent for example), and using political connections and corruption to then gradually consolidate their empires. That's why then went from having nothing to billions in just under a decade. And why there is a decent amount of resentment towards them amongst Russians.

In terms of how the money is 'transferred' back to society via a 'trickle down effect' - hah, that's a laugh. Most of the big money makes it out of the country and that's why you see oligarchs with $350 million yachts and expensive properties in London, the French Riviera, Courcheval etc. And why Moscow outside the center is still pretty much a dump except in certain areas. Sad to say, but the money isn't making it down the the average person even in Moscow, let alone in the provinces. Things have gotten a little better in Moscow the past couple of years in terms of infrastructure, with increased focus on sprucing up the public parks and certain pedestrian zones, but it's still nothing groundbreaking. The corruption is still a huge problem (look what happened during the construction of the Sochi olympic venues) and they are trying to tack it but it's so ingrained into the fabric of the society it will take many years to break it.

The economy is almost completely oil & gas and metals and mining. The price of oil is a pretty good barometer for how the Russian economy is doing. With global commodity prices down and oil stagnating it's no suprise that Russia's economy only grew about 1.5% last year. The central bank has said that if oil goes below $90 a barrel that the country will be in deficit territory and growth will stagnate even more.

BTW, Gazprom is technically based in St. Petersburg, and they have a lot of offices there (and plans for a new very tall building that is creating controversy, not sure where that stands now).

Personally I SEE them the same as Carnegie s and the robber barons of the 1800's. You are going to tell me blood wasn't spilled while they got rich?

I think the Ukrainian protesters scare me because it is like a alternate version of American Indians trying to take over our gov't and pushing their native tongue on us and expecting us to ask for forgiveness for genocide.

I've had this discussion many times (re the 'Robber Barons'). For better or worse, the Carnegies and Rockefellers all actually built something (Steel, railroads, Banks, etc.) whereas the oligarchs basically took existing state assets and used them for their own benefit - they 'created' nothing. Sure they consolidated and also modernized (a bit) but basically they all got really lucky that Russia is blessed with so many natural resources and could ride the wave of increasing prices of oil and metals & minerals during the pre-crisis 'good years'. And when things got bad they now seem to have run many of these companies into the ground.

For example, Rusal, Mechel et al are now in real bad shape bc they are way over leveraged. Why are they so overleverged? Poor management for sure, but also mostly bc the oligarchs that run them were so greedy and kept piling on debt and taking dividends out to pay shareholders after the crisis. And look at the gold companies....that business should be minting money but their extraction prices are huge and they are now dangerously close to being non-profitable if gold prices don't stay above say $1100 an ounce.

I forget who said it but there's a saying "behind every fortune is a great crime" With the oligarchs that is particularly true....I have no sympathy for these guys, and think it was good that Putin stepped in and got them under control (to a certain extent).

Post: #6

I am always really interested in why Russia, so rich in natural resources, is doing so poorly, while a tiny, mountainous land with hardly any arable land, like Japan, conquers the world with her industrial expertise.

Russia even has a flat tax of 13 percent, and they are still crippled.

Is it because Putin doesn't understand free markets and what they can do?

Or does he understand but actively refuses to do anything?

Or is that he cannot do anything?

Why could Franco and Pinochet take ailing Spanish and Chilean economies and propel them to growth after the damage they had endured? How did Deng Xiaopeng turn China around - China, which arguably was far, far more destitute than Russia.

Is it because there is really no free market? The buying and selling of goods is heavily coerced or not possible? Contracts unenforceable, and so on?

Man, I think my dream job would to be special economic adviser to Putin. Learn Russian, be near the center of power, and do good deeds all at once.

Post: #7

It's because Putin cannot do anything. The tax rate does not mean much if once your business starts doing well thugs move in to steal all your money!

An acquaintance/rival of mine started a successful casino in Russia during the 90's which he eventually sold. He said he was asked by the mafia to pay them an exorbitant amount which would have meant he would have to close down his business. Instead, he said he paid them very little to save face and hired 20 bodyguards to surround him at all times. He said he would travel in a three car convoy to and from his residence to the casino and basically had no life and eventually ended up selling the casino and moving back to his home country of Australia.

I've never been to Russia, but from what I've heard, it's not like EE. It is a culture of corruption and mafia that puts the Five Families to shame.

I think it will get better, but communism's legacy will live on for a while.

Post: #8

(02-10-2014 04:19 PM)Akula Wrote:  First of all, the oligarchs didn't 'start' any businesses...they effectively just stole existing state assets by buying up shares...

In terms of how the money is 'transferred' back to society via a 'trickle down effect' - hah, that's a laugh. Most of the big money makes it out of the country...

Yep... I was aware of how the oligarchs obtained their wealth to begin with, but I was just wondering if they were re-investing some of that into new business ventures inside Russia (esp. Moscow area) but it sounds like that is not really the case to much.

(02-10-2014 04:17 PM)DaveR Wrote:  Regardless of where the resources are, every company, bank and government department is headquartered in Moscow.

So it sounds like a lot of government bureaucrat work and upper management plus back-office stuff. Is this a lot of people (employees), numbers-wise? Not asking for a statistic, but I'm wondering (aloud) if this accounts for the majority of jobs in Moscow when and how they can afford the high cost of living.

Is the "booming" economy of Moscow oblast over-exagerrated in the west?

(02-10-2014 04:17 PM)DaveR Wrote:  In other words, the economy of Moscow is corruption. The top management always get a cut of the action. It's also the reason that you see ridiculous prices on some items... those guys generally don't care what they pay for things.

Part of what has me thinking about this is that there's a new book coming out called Russians: The People behind the Power by Gregory Feifer who I heard interviewed on the radio today and he goes into some of this. I was getting this sense from the author, when he answered questions, that it really sounds like a graft/shakedown economy all the way down.

Post: #9

I read about some assets-like the platinum mining concession- that were sold at ridiculously low prices.
The mines in question had a worth estimated in billions, and were sold for I think, $20 million.
Are the government bent on cronyism, or are they just desperate for any short-term gains to make some fractional
improvement to infrastructure?
I don't know how good transport, schools, hospitals are, although I have read that the police solicit bribes and army cadets are rented out as unpaid labor (no idea how true that is).
What really is the level the average Russian operates at?
What would they be up against if they opened a business-not service or information industry, but making physical products or selling professional services?

Post: #10

On investing in Russia, here's an interesting talk by Bill Browder, founder and CEO of Hermitage Capital Management, on the widespread corruption that still pervades Russia's economy:

Post: #11

^^^

ha ha Browder still going strong! That guy doesn't get a lot of respect from most of the guys in finance I know in Moscow but he and his firm did get royally raped financially but the powers that be (and his lawyer, Sergei Magnitsky, was jailed and then subsequently died in prison). He basically took on the government and finance industry head on in trying to 'improve corporate governance standards' and battle corruption. Bit of a crazy aggressive idea given how entrenched it is in the system and how he was essentially going directly against every sort of regulatory and government agency as a foreign national - that sh*t generally doesn't work too well in Russia). The whole Hermitage Capital meltdown is pretty legendary at least in Russia as those guys were one of the more successful funds right when the country was starting to grow and people were making money on equities. I sympathize with the guy, and his lawyer's death was a pretty scary thing, but get the sense he got a little too big for his britches by trying to take on the whole corruption thing basically on his own.

If you want the other side of how there are good places to invest in Russia check out the Prosperity Capital fund(s). It's an equity shop led by Swede Mattias Westman that really knows the lay of the land. They have a reputation as really sharp guys who have done well even through all the crises Russia has offered up. Pretty amazing that they can generate the sort of returns they have in Russia.

Post: #12

Last year there was an article on the NYTimes on the mall explosion in Russia:

• With a mall boom in Russia, property investors go shopping (2013)
  

Check out this open-air mall in Moscow called Outlet Village Belaya Dacha:

Post: #13

(02-10-2014 06:08 PM)RexImperator Wrote:  

(02-10-2014 04:17 PM)DaveR Wrote:  Regardless of where the resources are, every company, bank and government department is headquartered in Moscow.

So it sounds like a lot of government bureaucrat work and upper management plus back-office stuff. Is this a lot of people (employees), numbers-wise? Not asking for a statistic, but I'm wondering (aloud) if this accounts for the majority of jobs in Moscow when and how they can afford the high cost of living.

Is the "booming" economy of Moscow oblast over-exagerrated in the west?

For example, police officers have a low official wage (around $20k per year) but with bribes they're probably making $60k. Officers who work higher up the chain deal with more important cases and can make more in bribes. The same applies for fire safety inspectors, rectors of universities (people pay for their test results), people in the city administration (hire illegal immigrants to clean the streets and keep the excess wages), etc. So a lot of people who work in state institutions have it made with bribes and corruption.

Now, because a lot of State employees are doing very well for themselves, it turns out that Moscow is actually a pretty good place to do business. If you have some foreign experience and can apply it in Russia, or you're just capable at running a company in general, you could make good money in Moscow.

(02-10-2014 06:08 PM)RexImperator Wrote:  

(02-10-2014 04:17 PM)DaveR Wrote:  In other words, the economy of Moscow is corruption. The top management always get a cut of the action. It's also the reason that you see ridiculous prices on some items... those guys generally don't care what they pay for things.

Part of what has me thinking about this is that there's a new book coming out called Russians: The People behind the Power by Gregory Feifer who I heard interviewed on the radio today and he goes into some of this. I was getting this sense from the author, when he answered questions, that it really sounds like a graft/shakedown economy all the way down.

Corruption is at all levels and it's been that way for 150 years or more. People don't mind paying small bribes instead of complying with the rules. For the same reason, I don't think Ukraine will ever make it into the EU (except the Western part around L'vov, which was part of Poland for a long time and has nothing in common with the rest of the country).

Post: #14

(02-10-2014 04:42 PM)Akula Wrote:  

(02-10-2014 04:19 PM)Akula Wrote:  First of all, the oligarchs didn't 'start' any businesses...they effectively just stole existing state assets by buying up shares, sometimes through intimidation (including killing people Khodorkovsky is rumored to have been particularly violent for example), and using political connections and corruption to then gradually consolidate their empires. That's why then went from having nothing to billions in just under a decade. And why there is a decent amount of resentment towards them amongst Russians.

In terms of how the money is 'transferred' back to society via a 'trickle down effect' - hah, that's a laugh. Most of the big money makes it out of the country and that's why you see oligarchs with $350 million yachts and expensive properties in London, the French Riviera, Courcheval etc. And why Moscow outside the center is still pretty much a dump except in certain areas. Sad to say, but the money isn't making it down the the average person even in Moscow, let alone in the provinces. Things have gotten a little better in Moscow the past couple of years in terms of infrastructure, with increased focus on sprucing up the public parks and certain pedestrian zones, but it's still nothing groundbreaking. The corruption is still a huge problem (look what happened during the construction of the Sochi olympic venues) and they are trying to tack it but it's so ingrained into the fabric of the society it will take many years to break it.

The economy is almost completely oil & gas and metals and mining. The price of oil is a pretty good barometer for how the Russian economy is doing. With global commodity prices down and oil stagnating it's no suprise that Russia's economy only grew about 1.5% last year. The central bank has said that if oil goes below $90 a barrel that the country will be in deficit territory and growth will stagnate even more.

BTW, Gazprom is technically based in St. Petersburg, and they have a lot of offices there (and plans for a new very tall building that is creating controversy, not sure where that stands now).

I've had this discussion many times (re the 'Robber Barons'). For better or worse, the Carnegies and Rockefellers all actually built something (Steel, railroads, Banks, etc.) whereas the oligarchs basically took existing state assets and used them for their own benefit - they 'created' nothing. Sure they consolidated and also modernized (a bit) but basically they all got really lucky that Russia is blessed with so many natural resources and could ride the wave of increasing prices of oil and metals & minerals during the pre-crisis 'good years'. And when things got bad they now seem to have run many of these companies into the ground.

For example, Rusal, Mechel et al are now in real bad shape bc they are way over leveraged. Why are they so overleverged? Poor management for sure, but also mostly bc the oligarchs that run them were so greedy and kept piling on debt and taking dividends out to pay shareholders after the crisis. And look at the gold companies....that business should be minting money but their extraction prices are huge and they are now dangerously close to being non-profitable if gold prices don't stay above say $1100 an ounce.

I forget who said it but there's a saying "behind every fortune is a great crime" With the oligarchs that is particularly true....I have no sympathy for these guys, and think it was good that Putin stepped in and got them under control (to a certain extent).

Post: #15

(02-11-2014 06:46 AM)Handsome Creepy Eel Wrote:  

(02-10-2014 04:42 PM)Akula Wrote:  

(02-10-2014 04:19 PM)Akula Wrote:  First of all, the oligarchs didn't 'start' any businesses...they effectively just stole existing state assets by buying up shares, sometimes through intimidation (including killing people Khodorkovsky is rumored to have been particularly violent for example), and using political connections and corruption to then gradually consolidate their empires. That's why then went from having nothing to billions in just under a decade. And why there is a decent amount of resentment towards them amongst Russians.
...

BTW, Gazprom is technically based in St. Petersburg, and they have a lot of offices there (and plans for a new very tall building that is creating controversy, not sure where that stands now).

I've had this discussion many times (re the 'Robber Barons'). For better or worse, the Carnegies and Rockefellers all actually built something (Steel, railroads, Banks, etc.) whereas the oligarchs basically took existing state assets and used them for their own benefit - they 'created' nothing. ...

...

I forget who said it but there's a saying "behind every fortune is a great crime" With the oligarchs that is particularly true....I have no sympathy for these guys, and think it was good that Putin stepped in and got them under control (to a certain extent).

Agree completely but there are some "honest" businessmen in Russia. Sergey Galitsky is one, built a grocery empire with 7,000+ stores. BUT he did it by staying away of Moscow and St. Peter for as long as possible.

Post: #16

http://uk.reuters.com/article/2015/10/15...DF20151015

Looks like Saudi Arabia is targeting customers of Russian oil. This will hurt some more.

Quote:From global majors such as Shell (RDSa.L) and Total (TOTF.PA) to more modest Polish energy firms, oil refiners in Europe are cutting their longstanding use of Russian crude in favour of Saudi grades as the world's top exporters fight for market share.

Russia has for years been muscling in on Asian markets where Saudi Arabia was once the unchallenged dominant supplier. But now Riyadh is retaliating in Moscow's backyard of Europe with aggressive price discounting.

This has nothing to do with Western sanctions imposed on Russia over Ukraine, which apply to energy industry equipment but not to oil or gas itself. Instead it is a commercial battle for customers as both exporters ramp up their output despite weak world oil prices.

This is likely to complicate further a dialogue between Moscow and the OPEC exporters' group on tackling the global oil glut, with joint production cuts already looking elusive.

Trading sources told Reuters that majors such as Exxon, Shell, Total and Eni have been all buying more Saudi oil for their refineries in Western Europe and the Mediterranean in the past few months at the expense of Russian oil.

"I'm buying less and less Russian crude for my refineries in Europe simply because Saudi barrels are looking more attractive. It is a no brainer for me as Saudi crude is just cheaper," said a trading source with one major, who asked not to be named because he is not allowed to speak to the media.

Riyadh traditionally focussed on the U.S. and Asian markets, leaving Moscow as a major supplier to Europe, especially the eastern countries that were once part of the Soviet bloc.

But Russia's most powerful oil executive, Rosneft (ROSN.MM) chief Igor Sechin, said on Tuesday that Saudi Arabia had started supplying ex-communist Poland at "dumping" prices. Then on Wednesday, Russian Energy Minister Alexander Novak described the Saudi entry into eastern European markets was the "toughest competition".

Trading sources said at least one cargo reached the Polish port of Gdansk in September and two more could come in October, to be processed by refiners PKN Orlen and Lotos.

Two trading sources said Saudi Arabia was looking at storing crude in Gdansk so that it can supply eastern European customers more quickly, just as it has done for years for western European clients from ports in the Netherlands or Belgium.

One trader said supplies from Gdansk could be sent to Germany to compete with Russian crude sent down the Soviet-built Druzhba (Friendship) pipeline.

The Baltic state of Lithuania, once a Soviet republic, is also looking to diversify its energy supplies. Lithuanian energy minister Rokas Masiulis told Reuters on Wednesday that the country is in talks with U.S. liquefied natural gas company Cheniere Energy Inc (LNG.A) over possible imports as it tries to cut its dependence on Russian supplier Gazprom (GAZP.MM).

LOCKING MARKET SHARE

The battle may raise suspicions in Moscow that Riyadh is trying to punish the Kremlin for supporting Syrian President Bashar al-Assad, an enemy of Saudi Arabia, most recently with Russian air strikes on rebel groups.

In fact, Moscow and Riyadh were already locked in another battle for market share in Asia long before Syria slid into civil war after 2011 or the West imposed the sanctions on Russia last year.

Over the past decade, Russia has diverted as much as a third of its oil exports to Asia by building gigantic pipelines into mainland China and its Pacific coast.

"There is a perception that because Russia has been pushed from the West, they have been turning to the East. In fact, Russia has been actively locking market share in Asia for a long time," said Seth Kleinman, the head of energy research at Citigroup.

Kleinman said the competition has become so intense in Asian markets in recent months that Saudi Arabia had to reduce supplies there in the face of growing deliveries from rivals such as Russia, Kuwait and Angola.

Meanwhile, the low oil prices have spurred demand in Europe after years of lacklustre performance.

"For the first time in many years the European market looks more interesting than the Asian market. So Middle Eastern producers are looking to take that opportunity," a senior Iraqi oil source told Reuters.

The competition is likely to intensify in the next few months as Iran, which supplied between five and 10 percent of Europe's crude before 2012, is set to return with large volumes if and when Western sanctions on Tehran are lifted.

"The Saudis want to secure the market share before Iran comes back," said a trading source with an oil major.