A Bit of Sukhoi Humor
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Top Story
United Aircraft Corporation moves towards Rostec merger
According to two top defense sector managers, Vladimir Putin supports Minister of Industry and Trade Denis Manturov's proposal to include Rostec in the funding of the United Aircraft Corporation's (OAC) MS-21 passenger airliner program. Under the plan, Rostec will invest some 30 billion rubles ($530 million) through 2020. Putin's support marks a major step towards OAC, a holding that includes well-known design bureaus Mikoyan and Gurevich (MiG) and Sukhoi, being rolled into Rostec completely. A prior presidential decree written pushed by the Ministry of Industry and Trade (MinPromTorg) would have transferred the state's 91.68% stake in OAC to Rostec, but was blocked by Vice PM Dmitri Rogozin, who answers for a number of defense-related issues. The reform may not stop there, though: OAC and Russian Helicopters may be linked as well. The end result will be an aeronautics behemoth that can build whole airplanes, components and all. But some worry about what the move means for other aviation projects... and for an economy increasingly dominated by the state.
BIGGER PICTURE: The fate of OAC and the MS-21 project may seem a little specific, but it's a fantastic microcosm for Russia's economy. It's an effort to built an modern product that can compete globally - exactly what has to be done to diversify the economy. Also, a name not mention in this story to pay attention to: Sergei Chemezov. We see his influence increasing, in this, to the detriment of under-fire-over-space-embarrassments Dmitri Rogozin.
Snapshot: First-born sons should probably avoid the World Cup...
Agriculture Ministry official Pyotr Chekmarev warns that soccer fields could be targeted by locusts during the World Cup. "The whole world is coming here. Football fields are green. Locusts love it where there is lots of green. How would they not come to the place where football is being played?” (Photo: Till Westermayer)
Politics and Regions with Chris Jarmas
Turnout, by any means necessary
The common refrain on Russia’s upcoming presidential election is that Putin will win by a large margin, but turnout will falter in a predetermined contest. But the Kremlin’s expectations for turnout on March 18th remain sky high. The latest poll from less-than-independent pollster VTsIOM predicts that 71 percent of Russians will vote, exceeding not only the Levada Center’s November prediction (by almost 20 percent!), but also exceeding the Kremlin’s own stated goal of 70 percent. In recent months, it had appeared as if the Presidential Administration was backing off of this mark, sensing that it would prove unrealistic. Recall that elections in Putin’s Russia are not competitions between candidates, but rather contests among chinovniki to pull off the best results in their district, city, oblast, or okrug. The new figures – and the return of the arbitrary 70 percent mark – raises the stakes for ambitious officials seeking to impress the Kremlin as Putin begins his fourth and possibly final term.
What’s this mean for observers? You can expect “excesses” – and you can expect westerns to wonder why the regime would rig an easily-winnable election. Understanding how Russia really works provides an answer. In a column this week for Republic.ru, Grigory Golosov untangles the principal-agent problem in Russian governance. Assigned a litany of tasks, ill-resourced peripheral authorities must choose which to execute and which they can afford to ignore without rebuke from the Kremlin. In the wake of several waves of governor-firings in 2017, you can bet that thе vertikal’ is feeling insecure about March 18 – and that means trying to boost turnout by any means necessary.
Macro/Credit
Moody's: Sanctions don't cloud bullish rating outlook
Ratings agency Moody's is sticking by its decision last week to upgrade Russia's sovereign outlook to 'positive.' According to the agency, Russia is on course for a rating upgrade, back to investment-grade, even should it be hit by Venezuela-style sanctions. Says analyst Kristin Lindow, "Government financing needs are so low now that it can essentially rely on the domestic market to finance the deficit. When it needs to refinance external foreign-currency borrowing we expect there will be sufficient demand from investors in countries other than the U.S." The key threat to Russia's outlook remains oil shocks: a drop in price to below $40 per barrel would undercut MinFin's ability to build reserves. That said, such a scenario doesn't seem likely at present, notes Lindow. Moody's expect prices to remain in a band of between $40-60 per barrel over the next two years.
SO WHAT: Despite being constrained by politics, Russia's economic policymakers are without doubt talented. They've consolidated the budget and started to rebuild reserves that will prove vital should there be another downturn. The big question is whether this smart for the time being economic maneuver is politically sustainable in the long-run. Austerity ain't popular.
CHART: Russia's International Reserves (2014-Present)
Monetary Policy
Economists expect February rate cut
Results of a Reuters expert poll show expectations that the Bank of Russia (CBR) will cut Russia's key rate again at its next meeting on February 9th. 12 of 14 analysts polled see the key rate at 7.5% (it currently sits at 7.75%) by the end of of the first quarter and 7% by the end of the year. That's a major turn from the last poll in 2017, when only 2 of 10 expected a February cut. Says Liza Ermolenko at Barclays, "Taking into account poor economic data and that inflation remains far below the central bank target, we think the rate will be lower in February." A more dovish monetary policy stance could have important election year implications, boosting consumer demand before the March vote. Meanwhile, economists see growth at 1.9% this year, after expansion of a modest (read: stagnant) 1.4-1.8% last year.
CONTEXT: If you're an emerging markets watcher, the independence of central banks from politics is a critical issue. Putin, despite his authoritarian bend, actually gives the Bank of Russia quite a bit of leeway - he seems to understand that CBR head Elvira Nabiullina gets the economy better than he does. As far as a rate cut goes, economic factors are probably more salient than politics. That said, a stimulatory move may well impact votes.
Data Point: Putin's electoral support on Jan. 28th
69.9%
Macro
Middle class gains on wages, loses on prices
According to Sberbank CIB's latest Ivanov Index report, an indicator that measures how Russia's middle class is doing, wages grew by 2% in 2017. That's more, to wit, than in 2016, when wages increased only 1.7%. However, the figure comes in below inflation, which reached 2.5%. It may be because of the above trend that the middle class continues to economize, refusing to consume like it did before the crisis. The index measuring readiness to make large purchases stood at -10% for Q4 2017. That figure, to note, is up from -24% during the worst of the crisis in late 2014 and again in late 2015.
INSIGHT: While Russia's economy has certainly stabilized since the crisis, that doesn't mean Russians are suddenly doing better. It's telling that even with inflation at historical lows, real wages contracted in 2017. For authorities looking to boost economic growth, consumption will have to pick up.
PRESS RELEASE: The Ivanov Index [RUS]
Chart: A snowy winter, measured in dogs
It's the snowiest time of year in Russia. But how does that stack up to a number of common dog breeds? (Chart: BBC)
Cites: Saint Petersburg, Yekaterinburg, Moscow, Novosibirsk, Kazan, Tomsk
Dogs: Akita Inu, Dachsund, Beagle, Corgi, Collie
OPINION AND ANALYSIS
Bloomberg has been killing with the long reads as of late, and here's another one. Henry Mayer and Ilya Arkhipov take a look at Vladimir Putin's efforts to groom a new generation of Russian leaders. [ENG]
On the topic of elite politics, Tatiana Stanovaya writes that for Putin's system to remain stable, it will necessarily become more depersonalized. Could that mean the formation of institutions by accident? [ENG]
Rebeka Foley delves into the sad story of European University at Saint Petersburg, one of Russia's best graduate schools, and how it lost its operating license... in addition to its campus. [ENG]
Artemy Troitsky breaks down the 'Satisfaction' meme sweeping Russia, a thoroughly unexpected source of social solidarity. [ENG]
RBK breaks down seven key questions on the new tax amnesty bill submitted to the Duma. Russia may not be a popular destination for capital stashed abroad, but its tax authorities are getting more savvy, and that may bring cash home. [RUS]
For Novaya Gazeta, Ivan Zhilin takes a fascinating look at how Crimean businesses - and Russia's government - are getting around sanctions. [RUS]
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