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The economy in Moscow and Russia
02-10-2014, 04:00 PM
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.
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The economy in Moscow and Russia
02-10-2014, 04:17 PM
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.
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The economy in Moscow and Russia
02-10-2014, 04:19 PM
Quote: (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).
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The economy in Moscow and Russia
02-10-2014, 04:42 PM
Quote: (02-10-2014 04:29 PM)jimukr104 Wrote:
Quote: (02-10-2014 04:19 PM)Akula Wrote:
Quote: (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).
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The economy in Moscow and Russia
02-10-2014, 05:00 PM
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.
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The economy in Moscow and Russia
02-10-2014, 05:40 PM
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.
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The economy in Moscow and Russia
02-10-2014, 06:08 PM
Quote: (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.
Quote: (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?
Quote: (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.
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The economy in Moscow and Russia
02-10-2014, 06:09 PM
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?
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The economy in Moscow and Russia
02-10-2014, 06:43 PM
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:
"The great secret of happiness in love is to be glad that the other fellow married her." – H.L. Mencken
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The economy in Moscow and Russia
02-10-2014, 07:25 PM
^^^
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.
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The economy in Moscow and Russia
02-10-2014, 08:04 PM
Last year there was an article on the NYTimes on the mall explosion in Russia:
Check out this open-air mall in Moscow called
Outlet Village Belaya Dacha:
"The great secret of happiness in love is to be glad that the other fellow married her." – H.L. Mencken