Russia Grp9

8/8/2019 Russia Grp9

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RUSSIAN

ROULETTEInvestors Guide to invest in Russiausing Macroeconomic factors.

Group no: 9

Taher Zoher Ali : 52

Anirudh Patwari : 53

Honey Desai : 54

Harkaran Atwal : 55

Nirvi Ashar : 56


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GDP


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Russia: key information

Territory: 17.075.260 sq.m, 65% of it belongs to permafrost

Overall quantity of cities, towns, villages etc. - 157.895 (nearly 20% ofthem dont have telecommunications)

Population: 132.000.000 people, 81% of which live in cities and bigtowns. Nearly 10% of the population leave in Moscow.

61% of population are pensioners.

81% of population either dont work or work in the budget sphere, soless than 20% of population provide state budget with income.

Average income per person - $ 250


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GDP ofRussia

Country

GDP, mln. $

(according to

International

Monetary Fund,

2008)

1 USA 14,264,600

2 China 7,916,429

3 Japan 4,354,368

4 India 3,288,345

5 Germany 2,910,490

6 Russia 2,260,907Russian GDP statistics, %


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RUSSIA is mainly dependent onfollowing factors for its GDP

GDP - composition by sector:agriculture: 4.7%industry: 34.8%services: 60.5% (2009 est.)

Oil - production:9.932 million bbl/day (2009 est.)country comparison to the world: 1

Oil - exports:

4.93 million bbl/day (2009 est.)country comparison to the world: 2

Public debt:6.3% of GDP (2009 est.)country comparison to the world: 122

6.2% of GDP (2008 est.)


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Most economies in the Europe and Central Asiacontracted in 2009(real GDP growth, %)


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Most recent output data for the third quarter suggest that domestic demand

is beginning to replace external demand as the main growth engine.


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Growth in Russia in 2010 will be predominantlydriven by a modest growth in consumption and thebase effect, reflecting a low base of the first twoquarters of 2009 (figures 2.3 and 2.4).


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GDP and inflation forecast for2009-2011

2009

GDP $ 1 608,6 billion inflation - 8,5%

2010

GDP $ 1 848,3 billion Inflation 7%

2011

GDP - $ 2112,8 billion Inflation 6,8%


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INFLATION


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Russian Inflation History PostSoviet Russia

Year after the economic reform ofSovietRussia prices rose an astounding 2,520%

over the next yearRussia managed to

lower inflation rate down to 840% anddown to 224 percent by 1994.

This is due to them lowering monthlyinflation rates down to 21% by early 1994

variations were being caused by theinstability in Russia's monetary policy


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Russian Inflation After the year2000

Russia's inflation rate would slowly start todecline steadily in 2000 from 20% toaround 11% by year end 2006.

.R

ussian inflation rate was expected toreach 12.1% by the end of 2007

Russian inflation accelerated in January2008 as oil and gas prices surged causingconsumer demand to rise

Russian inflation rate remained frozen at15.1% the highest it had been in morethan 5 years.


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Factors for rise in Inflation

Increase in income from rising globalenergy prices boosted domestic demand.

government spending on items like

pensions and state wages in the runup tolast December's elections

surge in consumer spending andconstruction activity

Policy limitations at the level of fiscaldemand management


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Overheating A Problem

Inflation has almost doubled over the pastyear and now extends well beyond foodand energy price increases

Domestic demand is increasing at anannual rate of 15 percent in real terms,while GDP is growing at 8 percent

Resource constraints have now becomestrikingly evident in labor markets, where

shortages are causing real wageincreases of about 16 percent annually


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EXCHANGE RATES


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Exchange Rate

Exchange rates are determined by the demand andthe supply of currencies in the foreign exchangemarket

Currencies

Determinants

The demand forImport & exports ofgoods and services

Relative interestrates

Investmentopportunities Global trading

patterns

Changes in relativeinflation rates

Balance ofpayments(BOP) =

(X M) + (CI CO)+ (FI FO) + FXB


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Appreciation & Depreciation

When the Russian currency (Ruble)appreciates then the exports will becomeexpensive and imports become cheaper sobalance of payments will get worse and onthe other hand the russian currency (ruble) isdepreciated then russias exports will becheaper and imports will be expensive , sobalance of payments should improve.


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Country/Year

1st Jan

2007

1st Jan

2008

1st Jan

2009

1st Jan

2010

Novembe

r (Recent)

INDIA (RS) 0.59 0.62 0.60 0.64 0.69

CHINA(yen) 3.37 3.36 4.31 4.42 4.61

BRAZIL(real) 12.29 13.93 12.30 17.15 18.35

US($) 26.33 24.55 29.39 30.18 30.80

UK(Pound) 51.92 48.45 42.70 48.82 49.42

The national currency of the Russian Federation (RF) is the ruble.


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In the year 2008 2009 the Russian economy was hit by major financialcrisis in Russia's long-term economic growth same as 1990 crisis Oil prices dropped from $140 per barrel to $40 per barrel.

The reversal of capital flows from $80 billion of in-flows to $130 billion ofout-flows have all served to crush fledging Russian economic growth.


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Russia was greatly dependent on oil pricescan be proved from the diagram as Duringthe boom that preceded the crisis, theimportance of oil and gas was to some extenton every sector in the economy, not just to oiland gas and related industries that suppliedinputs but also sectors such as retail trade,real estate, telecommunications, and others

saw their sales, profits, and share prices risesharply and now it is hard to ignore that afterthe crisis of 1990 the sectors were stilldependent on oil and gas prices.


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Measures by Russia

Russia needed to move away from itsdependence on oil and gas because itseconomy performed so poorly in 2009. themost instructive comparison is to compareRussias performance to that of the other so-called BRIC countries (Brazil, Russia, India,and china).. It is apparent that while Russiamay have suffered most dramatically from

the global financial crisis, it also grew muchfaster than the other BRICs prior to that.


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Current Currency regulations ofRussia

Payments between residents can only be made in rubles except resident mayborrow from and repay Russian banks in a foreign currency.

While the ruble's exchange rates with foreign currencies are freefloating, itis not yet a fully convertible currency.

Nonresidents have the right to open and operate both foreign currency andruble bank accounts in an authorized bank.

Nonresidents are permitted to make payments between themselves in aforeign currency without restriction.

Residents and nonresidents may import foreign currency into Russiawithout restriction.

Severe administrative fines apply for the breach of currency control rules,ranging from 75% to 100% of the amount of the relevant operations.


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FISCAL POLICIES


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Russian Fiscal policies and deficit

The fiscal outcome for 2010 is likely to be better thanexpected as a result of favorable oil prices.

the Federal budget was executed with a deficit of only

2.2 percent of GDP, down from 4.0 percent of GDP in thesame period in 2009 and a budgeted deficit level of 5.4percent of GDP for 2010

This is mainly due to higher revenues from oil: in Jan-Sep of 2010 revenues amounted to 18.3 percent of GDP,

up from the budgeted 17.3 percent for 2010.

The Government is now planning a gradual fiscaladjustment to eliminate the federal deficit by2015.


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The federal budget deficit is planned to be financed mainly from domestic

borrowing supplemented by a modest amount of external borrowing.


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Challenges

Reliance on domestic financing of the deficitpresents at least two sets of challenges

First, although there is enough liquidity in the

domestic market to finance an overall fiscaldeficit below3 percent of GDP

Second, the fiscal adjustment on the

expenditure side could become slower and thedeficit higher in the election cycle in 2011-12


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Need to rethink fiscal

strategy

The pace offiscal adjustment

in the 2011-13budgets is

slower thaninitially

envisaged

Heighteneduncertainty and

downside risks inthe oil market

As in othercountries,

expenditurepressures mayincrease in theelection cycle

2011-12 leadingto further

weakening offiscal

adjustment.


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Unemployment in Russia


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Recovery and a Seasonalincrease in employment

Unemployment fell from January to June2010 and has since remained broadly stable.

Unemployment in Russia fell from 9.2 percent

in January 2010 to 6.6 percent (5.0 millionpeople) in September

but it is likely to increase with the onset of thewinter and remain high in 2011

many long-term unemployed dropped out ofthe labor force. So, Russias labor marketconditions remain difficult


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Official unemployment climbed a fullpercentage point in Russia during the monthof January and now stands at 9.2 percent

. Despite government claims that therecession is over, the state statistics agencyRosstat reported that a further 630,000people lost their jobs last month

The emergence of mass unemployment inRussia is reflected in a ratio of jobless peopleto vacancies of 24:1. At the same time lastyear, this ratio stood at 16:1.


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Active Economic Policy

The primary goals of Russias economic policy are:

Implementation of the priority national and stateinvestment projects;

Creating special economic zones, facilitating thedevelopment of innovative and high-tech industries;

Facilitating the development of small business sector.

It is necessary to secure both modernized and newly createdjobs with needed skilled workforce.


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Employment of Citizens, Searchingfor Jobs

The number of newly employed citizens (who found gainfulemployment) by the beginning of 2009 was 2 mln. persons.That makes 64.5% of all applicants to the state employmentservice.

As a result of interaction with employers, the national pool

of vacancies (vacant jobs and posts) was growing month bymonth. In January 2009 employers registered 334.000vacancies, while by the end of the same year 792.000vacancies.

Qualitative structure of vacancies remains unaltered: amongworkers occupations professions most demanded by

employers are truck and car drivers, metalworkers, engineoperators, welding specialists, salespeople, electricians.Among other most demanded professions were physicians,policemen, engineers, accountants, inspectors.


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Main Directions of Public Policy in TheField of Labour Market Regulation

Modernizing labour and employment legislation.

Organizing the labour market monitoring

system. Ensuring the balance between vocationaltraining and demand for workforce.

Facilitating the increase of workforce

geographic mobility. Optimizing the influx of labour migrants.

Stimulating the populations economic activity.

Improving the quality of jobs.


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STOCK EXCHANGE


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RUSSIAN STOCK MARKET

Russian Trading System

Established in 1995 in Moscow


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Technical analysis.

Resistance level: - 1695-1705


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Fundamental analysis.

Russian stock exchange is effectivelymanaged.

Complete dependent on Oil prices.


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The Russian stock market has been either in the top fiveperforming markets in the world or the bottom five inevery year except one.

Oil prices have already started rising and if the trendcontinues then Russian market can provide a goodinvestment opportunity.


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INTEREST RATES


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Interest Rate (in past three

years)Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2010 8.75 8.63 8.38 8.13 8.00 7.75 7.75 7.75 7.75 7.75 7.75

2009 13.00 13.00 13.00 12.75 12.25 11.75 11.25 10.88 10.42 9.75 9.25 8.88

2008 10.00 10.13 10.25 10.38 10.50 10.63 10.88 11.00 11.00 11.00 11.50 13.00


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Reduction in main interest rates for the 14th time tobolster the countrys economic recovery.

Interest rates have been continuously falling. Its apositive sign for the country as the govt. is focusing more

on growth and providing the people with an opportunityto get cheap finance.

Gross domestic product rose an annual 2.9 percent inthe first quarter, less than forecast by analysts in aBloomberg survey, after contracting 3.8 percent in the

last three months of 2009. The recovery remains weakand inflation is low, so there is a fundamental case forfurther easing.


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Lending grew 0.9 percent last month with corporate andretail loans showing gains, the first time both rose sinceJanuary 2009.

Banks view lending to the real sector as being quite riskyand prefer to purchase securities and build up liquidity.Further cuts have the potential to spur lending. Thedemand for loans in the real sector is still weak.

The recovery remains weak and inflation is low, so there

is a fundamental case for further easing. The recovery remains weak and inflation is low, so there

is a fundamental case for further easing.


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SOCIAL CULTURAL &

POLITICAL


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Facts About Russia

The capital of Russia is Moscow.

The population of Russia is 149,476,000.

The money used is the ruble.

The language spoken is Russian.


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Lets visit some important

cities in Russia. Moscow


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St. Petersburg


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St. Petersburg


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Russia is famous for

The Brown Bear Russian Teacakes Baba Yaga Russian Nesting Dolls Ballet

Ukrainian pysanky

P l ti 140 041 247 (J l 2009 t )


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Population 140,041,247 (July 2009 est.)

Age structure(%)

0-14 years: 14.8% (male 10,644,833/female

10,095,011)

15-64 years: 71.5% (male 48,004,040/female

52,142,313)

65 years and over: 13.7% (male 5,880,877/female

13,274,173) (2009 est.)

Median age(years)

total:38.4years

male:35.2years

female: 41.6 years (2009 est.)

Population growth rate(%) -0.467% (2009 est.)

Ethnic groups(%)

Russian 79.8%, Tatar 3.8%, Ukrainian 2%, Bashkir

1.2%, Chuvash 1.1%, other or unspecified 12.1% (2002

census)

Religions(%)

Russian Orthodox 15-20%, Muslim 10-15%, other

Christian 2% (2006 est.)

note: estimates are of practicing worshipers; Russia has

large populations of non-practicing believers and non-

believers, a legacy of over seven decades of Soviet rule

Languages(%) Russian, many minority languages


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Russia: Resources

Russia has a rich resource base. One of themost important mineral producing countrieswith widely scattered deposits.

Russia leads the world in the production ofnatural gas and lead.

Russia also leads the world in iron orereserves and natural gas reserves. Russia is

second in the production of platinum,tungsten, aluminium and vanadium.


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Political structure of Russia

The years under Boris Yeltsin (19911999), were characterized bythe reorganization of governmental structures and functions, withconflict over the balance of power between the president and theparliament, and between central and regional powers

. A constitution approved by referendum in 1993 provided for ademocratic federation with executive, legislative, and judicialbranches

Vladimir Putin, replaced the governors with centrally appointedmembers, giving the president greater control over that house

Putin also changed the electoral and party system to remold thestructure and power of the Duma.

The state has always been prone to authoritarian rule with

censorship and strong government control over the media;oppression of political opposition, partly through the secret police;bureaucratic centralization; and legislation by decree


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Education evolution in Russia

Academic standards remain high, and students arewell trained in world history, foreign languages, music,mathematics, and science

In Soviet times, the values of internationalism were

stressed, and theS

ovietU

nion's role in modeling amultiethnic nation was highlighted Soviet Union had a world-class system of higher

education, with forty universities and hundreds ofinstitutions specializing in academic, scientific,professional, and technical disciplines

Business education, especially in management,finance, and marketing, has been developed onlysince 1991


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Literacy

Ninety-nine percent of the adult populationis literate, although literacy and completionrates are declining among educationally

disadvantaged ethnic groups in the NorthCaucasus, southern Siberia, and the FarEast.

Higher education has come to be valuedas a mark of social prestige and isregarded as critically important for

economic success.


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CONCLUSION


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CONCLUSION

The debt crisis in Western Europe has sharpened downsiderisks to global recovery and oil prices.

But the impact on Russia is likely to be limited because ofRussias better fiscal and debt positions and limited trade andfinancial linkages with the affected countries

Russia is likely to grow by 4.5 percent in 2010, followed by 4.8percent in 2011 as domestic demand expands in line withgradual improvements in the labor and credit markets

Employment situation is expected to improve only graduallywith attendant reductions in poverty.


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CONCLUSION

Preliminary updates to the World Banksforecast suggest global GDP growth ofabout 3.5percent this year, slowing to 3.2percent in 2011 before recovering to

around 3.6 percent in 2012 An increase in risk premia would likely

affect Russian corporations with largeexternal debts. The maturing debt in 2010

is equal to USD 114.5 billion (about 7percent of GDP), with USD 35.6 billion inthe financial sector.


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The ongoing debt crisis in high-income Europe poses a new challengefor the global recovery ,while direct impact of the crisis on Russia islikely to be limited, this is predicated on the assumption that the Eurozone will avoid large-scale debt default and restructuring and broadercontagion.


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Investment

Private sector involvement is crucial to address the vastinvestment needs and brings significant value to the public sector.

it provides new sources of funding, encourages entrepreneurialinitiative, increases efficiencies and introduces new managementpractices and know-how.

Russian infrastructure projects cannot take foreign currency risk.Therefore, the availability of long-term rouble funding must be apriority

An increase of financial services FDI in Russia has been identifiedas an important trend for the continued modernization of thefinancial services industry as well as providing much neededcapital for a decaying infrastructure and a multitude of othercapital projects.


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Should Investors Invest in

Russia:

Under the regime of Vladimir PutinRussia has progressed gradually and ata decent rate with average gdp growthof around 6 %

The main advantage of Russia is thatmore than 50% of GDP comes fromproduction of Oil and it is 2nd largestexporter of Oil after Saudi Arabia

with globalization the demand for Oil

will keep on increasing and it being ascarce commodity the prices will keepon rising as demand with be more thansupply.


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Russia:

Inflation has come down drasticallyfrom 15% in May 2008 to 5% in June2010. The government is taking lot ofmeasures to curb inflation by limiting

the money supply and practicing creditconstraints

But increasing wages and pensionfunds could be counterproductive

The belief that high oil prices would

persist, combined with low interestrates abroad, made foreign borrowingattractive


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Russia:

The system became more vulnerable tosudden stops of capital inflows whichaffected the balance of payments andthis led to the weakening (depreciation)

of currency as compared to othercountries.

WRT to stock markets since itsinception after the collapse of theSoviet Union, the Russian stock market

has been either in the top fiveperforming markets in the world or thebottom five in every year.


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Russia:

So it mainly fluctuates with the price ofits precious commodity Oil and goes upand down as per changes in the crudeprices so its a very volatile market.

So investors need to be careful ininvesting in Russian stock marketbecause risky investors can make lot ofmoney but long term investors might

not find value in this volatile market.


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Russia:

Russias fiscal and debt outlook is muchless pressing than in other countriesbecause both fiscal deficits and debt-to-GDP ratios are much lower

Russias trade with the main affectedEuropean countries is relatively small,making the potential impact through thischannel limited.

The possible contagion and the broaderdebt crisis in Europe, however, could

transmit new shocks to Russia throughtwo key channels: oil prices andfinancial/capital flows.


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Bibliography

Petrostate: Putin, Power, and the New Russia Russia's economic reform muddle by Abram Bergson https://www.cia.gov/library/publications/the-world.../rs.html www.tradingeconomics.com/Economics/GDP-Growth.aspx www.balticdata.info/russia/.../russia_macro_economics_russia_GNP_GDP_ summary.htm www.worldwide-tax.com/russia/rus_inflation.asp www.einnews.com/russia/newsfeed-russia-inflation www.businessweek.com/.../russia-drought-may-lift-inflation-state-economy- role.html www.esri.go.jp/en/tie/russia/russia4-e.pdf www.corporateinformation.com/Currency-Exchange-Rates.aspx www.exchange-rates.org/currentRates/E/RUB www.gwu.edu/~ieresgwu/assets/docs/ponars/pm_0090.pdf www.opendemocracy.net/...russia/.../russian-unemployment-massaging-stats

www.business-standard.com/.../russia%5Cs-unemployment.../on http://seekingalpha.com/article/84286-russian-inflation-is-the-boom-about-to-bust http://www.russiansabroad.com/russian_history_196.html http://russiatooat.blogspot.com/2008/02/russian-inflation-january-2008.html http://www.marketwatch.com/news/story/russian-inflation-rate-continues-

its/story.aspx?guid={CB80FAE9-33BA-4A9B-A039-3C740E12597C}

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Russia Grp9