The Great Debate UK
Russia’s Ekaterinburg – model for growth?
–Denis Manturov is Acting Minister of Industry and Trade of the Russian Federation. The opinions expressed are his own.–
President Putin recently noted that Russia has emerged from the global financial crisis in a stronger position than before, and that average wages will increase by 60% by the year 2020. Traditionally, many people think of Russia as a provider of natural resources, and increasingly as a safe pair of hands for mega-events, such as the upcoming Sochi 2014 Winter Olympic Games, the Formula 1 Grand Prix from 2014, and the 2018 FIFA World Cup. Today the Russian economy is the sixth largest in the world, with an output which may potentially exceed US$ 2 trillion in 2012. Russia’s gross domestic product (GDP) expanded by 4.2 per cent in 2011, making the country the third fastest growing economy after China and India.
I take a keen interest in how policy-makers and businesses are finding economic solutions to meet societal challenges, and I hope global business leaders and policymakers will look to the city of Ekaterinburg as a model for growth.
Ekaterinburg has moved from traditional industrial production to a specialisation in science and technology. This shift has led to a rise in GDP of the surrounding region from 20.7 billion Roubles in 2009 to a forecasted 34.3 billion Roubles in 2012. Capitalising on existing industrial expertise taught in the 16 universities around Ekaterinburg, the priority is to turn innovative research into ready-for-market products and services. Business initiatives such as the Titanium Valley Special Economic Zone have been set up close to Ekaterinburg, at a government cost of more than 50 billion Roubles, to attract foreign investment and expertise. Global technology leaders such as Boeing, Rolls Royce and Goodrich have recently set-up shop in the SEZ, and the wider region now hosts 400 joint ventures, involving cross-border capital from 64 countries and input from 300 representative offices of foreign companies.
Freshly adopted laws greatly incentivise foreign investment in the region, such as income tax reduction for newly established enterprises for 5 years (from 18% down to 13.5%) and a guaranteed investment in the region by the Russian government of 8 billion Roubles each year. There is also an immediate appetite in the region for Western equipment in the fields of telecommunications, food processing, safety and security systems, and construction materials. In light of the expertise Ekaterinburg and its surrounding region has amassed in scientific innovation, it will come as no surprise that they are bidding to host the World Expo in 2020, with the theme “The Global Mind”.
Investing in ‘skills for growth’ – the theme of this year’s European Business Summit in Brussels – isn’t just about Roubles, Euros and Dollars; it’s about boosting peoples’ living conditions, finding solutions to common global challenges and improving the future of our young people. Times are tough, but smart, strategic investments in skills and technology will greatly contribute to a sustainable, knowledge-based economy that everyone gains from.
from MacroScope:
Give me liberty and give me cash!
Come back Mr Fukuyama, all is forgiven.
In his 1992 book "The End of History and the Last Man", American political scientist Francis Fukuyama famously argued that all states were moving inexorably towards liberal democracy. His thesis that democracy is the pinnacle of political evolution has since been challenged by the violent eruption of radical Islam as well as the economic success of authoritarian countries such as China and Russia.
Now a study by Russian investment bank Renaissance Capital into the link between economic wealth and democracy seems to back Fukuyama.
Looking at 150 countries and over 60 years of history, RenCap found that countries are likely to become more democratic as they enjoyed rising levels of income with democracy virtually 'immortal' in countries with a GDP per capita above $10,000.
" Only five democracies above the $6,000 income level have died. Even democracies above the $6,000 level have a 99 percent chance of sustaining their political system each year. The only exceptions were the military coups in Greece in 1967 ($9,800), Argentina in 1976 ($8,180) and Thailand in 2006 ($7,440), and the events in Venezuela in 2009 ($9,115), as well as Iran in 2004 ($8,475)," RenCap global chief economist Charles Robertson writes.
The $6,000 per capita GDP seems to be a crucial level, marking the point where a country is likely to shift to democracy. Tunisia, which early this year triggered the wave of uprisings against autocracy across the Arab world, recently crossed that threshold.
Conversely, democracy is most fragile at the lowest income levels and when incomes are shrinking. The world's populous democracy, India, is a notable exception as its per capita income was under $800 from 1950-1967, and only exceeded $2,000 in 2003.
from MacroScope:
The iPod – the iCon of Chinese capitalism
Walking past Apple's sleek shop along London's Regent Street on Sunday, my wife asked me what I wanted for Father's Day.
"An iPad?" I ventured, half-jokingly.
"Are you sure you want one? Don't you care how they're made?" came her disapproving reply.
She was, of course, referring to the rash of suicides among Chinese workers at Foxconn, the Taiwanese manufacturer of Apple's much desired iPads and iPhones.
The deaths prompted the company to raise salaries and cut working hours but lingering concerns over conditions for its over 1 million workers in China were underscored by a plant explosion last month that killed at least 3 people.
Workers like those who live and work in Foxconn's sprawling Chinese facilities have long been the backbone of the country's vast manufacturing sector which churns out a torrent of consumer goods for export.
But the recent labour unrest that has erupted in parts of China suggests that this low-cost export-fuelled growth model may be wheezing towards its expiry date.
Thank you for your comment.
Apple is working with Foxconn to prevent more worker suicides, including auditing the Chinese plants of its supplier to ensure conditions comply with its standards.
The point of my blog is that the iPod is an interesting prism through which to view China’ economy and gauge its shift in emphasis from manufacturing and exports to domestic consumption.
At first glance, the iPod encapsulates China’s manufacturing prowess. It is able to assemble very sophisticated products at a cost that is low enough to attract global companies. So much so that these Made-in-China iPods and iPad contribute to the trade surplus in China’s favour against the U.S.
But a closer examination of the iPod story also reveals the limitations of the Chinese model. The country remains far behind in innovation and doesn’t own the intellectual property behind many of the products it exports.
A University of California study, for instance, found that the iPod accounted for almost 41,000 jobs worldwide in 2006, of which only 30 jobs were in manufacturing in the US.
But more than two thirds of all the wages paid to workers in the iPod value chain were estimated to have been paid to US workers.
from Global Investing:
Russia’s babushka time-bomb
The babushka, that embodiment of Russian grandmotherly goodness that has spawned iconic dolls and inspired a Kate Bush song, poses one of the gravest threat to the Russian economy.
Moscow-based investment bank Renaissance Capital also expects this segment of the demography to spur politically risky pension reforms.
Russia's pension system is coming under increasing strain thanks to growing life expectancy -- particularly among women -- and a shrinking labour force due to the collapse in birth rates in the 1990s.
Since the introduction of the current system, the average life span of the Russian man has risen to 63.4 years, up from 58.7. Over the same period of time, the life expectancy for the country's women has risen to 75.4 years, up from 71.9.
Russian women are thus likely to claim a pension for 20 years after retirement at 55. Compare this to the three to four years that the average Russian man gets.
Little wonder that it's the babushka segment of the demographic that is giving Russian policymakers cause for pause.
"This is becoming expensive. Russia spends 6 percent of GDP on pensions compared to just 1 percent of GDP in Mexico." writes Renaissance Capital Chief Economist Charles Robertson in a note.
from Davos Notebook:
Will Goldman’s new BRICwork stand up?
Jim O'Neill, the Goldman Sachs economist who coined the term BRICs back in 2001, is adding four new countries to the elite club of emerging market economies. But does his new edifice have the same solid foundations?
In future, the BRIC economies of Brazil, Russia, China and India will be merged with those of Mexico, Indonesia, Turkey and South Korea under the banner “growth markets,” O'Neill told the Financial Times.
Hmmm. Doesn't quite grab you like BRICs, does it? The Guardian helpfully offers an amended branding banner of "Bric 'n Mitsk" (geddit?). But which ever way you cut it, it's hard to see a flood of investment conferences and funds floating off under the new moniker.
Ten years ago, Goldman had this field to itself. Now more and more acronyms are being bandied around by banks seeking to pique investors' appetite for higher returns.
Goldman has already launched the N-11, or Next Eleven countries, and other contenders include the VISTA economies (Vietnam, Indonesia, South Africa, Turkey and Argentina), the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and the EAGLES (Emerging and Growth-Leading Economies).
So far, none of them have really caught on. One thing you can bank on: the term BRIC will still score highly in any tally of the millions of words that will issue forth from Davos next week.
from MacroScope:
Building BRICs in Africa
Some eye-catching numbers from Standard Bank out today on the influence of BRICs countries -- Brazil, Russia, India and China -- on Africa.
First off, the bank says the global recession and its recovery have been nourishing these so-called South-South ties. But it is all now ready to take off. The bank estimates:
-- By 2015, BRIC-Africa trade will have incresed threefold, to $530 billion from $150 billion this year.
-- BRICs share of Africa's total trade will increase from one-fifth today to one-third in the next five years.
-- BRICS foreign direct investment stock in Africa will swell to more than $150 billion from around $60 billion today.
Standard Bank bases these assertions partly on estimates for BRICs growth over the next five years -- eg, domestic output, global output and a doubling of BRICs trade with the world in general. But it also sees Africa growing rapidly -- for example, a per capita real annual growth rate of 5.7 percent between now and 2015, and a doubling of private consumption in Africa's 10 largest economies. And it adds:
Crucially, a host of global-minded corporates is emerging from the BRICs. In 2010 231 (11.5 percent of the total) companies listed in the Forbes Global 2000 originated in the BRICs, up from only 83 companies (4 percent) in 2005. Recent trends are a harbinger of deeper potential.
Pranab Bardhan on the economic rise of China and India
In its May economic outlook, the Organisation of Economic Cooperation and Development projected upward growth outlooks for BRIC countries Brazil, Russia, India and China — the world’s four largest emerging economies.
Strong growth in those economies is helping to pull other countries out of recession, the OECD said. The Paris-based organisation projects that China’s GDP growth will exceed 11 percent for 2010, and anticipates that India’s real GDP growth will be 8.3 percent. Russia‘s GDP growth is expected to be 5.5 percent, and Brazil‘s is projected at 6.5 percent. By comparison, the OECD projects that the Euro area will see 1.5 percent real GDP growth, while the UK will see a 2.2 percent growth.
The “BRIC” acronym was created by Goldman Sachs economist Jim O’Neill in 2001 to mark a shift of economic power from the West. In June 2009, the BRIC leaders met in Yekaterinburg, Russia, for a summit, which was seen as the beginning of a geopolitical alliance, although their economies are very different: Brazil’s economy is based on agriculture; Russia’s on energy exports; India’s on services and China’s on manufacturing. At that time, the BRIC countries accounted for 40 percent of the world’s population and about 15 percent of its economy.
In a new book titled “Awakening Giants, Feet of Clay: Assessing the Economic rise of China and India“, Pranab Bardhan, a professor of economics at the University of California, Berkeley, dissects some generally accepted beliefs about the economies of China and India — arguing that they are oversimplified — to provide a new perspective on what to expect from the two countries in the future.
He examines the impact of economic growth on politics, people and the environment within China and India.
Bardhan spoke to Reuters about his book at his office at the London School of Economics where he is serving as BP Centennial Professor for 2010 and 2011. Watch the video here:
Vikas Pota on ten business icons in India
Amid jitters about uncertainty in the financial markets over the past 16 months, many investors have continued to look toward the BRIC countries — Brazil, Russia, India and China, which by 2050 are expected to be wealthier than most current major economic powers.
In all four countries, GDP has more than doubled since 1998, and in China and India it has trebled.
The Confederation of Indian Industry, a non-profit non-governmental, industry-led organisation, estimates India’s GDP growth rate at 6.1 per cent in 2009-10.
With those facts in mind, Vikas Pota, managing director of public affairs firm Saffron Chase, wrote “India Inc.”, a book about 10 global success stories he parallels with such powerful businessmen as Microsoft’s Bill Gates, News Corp’s Rupert Murdoch and Berkshire Hathaway’s Warren Buffett.
“The fact that the domestic Indian market is growing proves to be a major boon and safety net for Indian companies like Tata, who face the severe consequences of the slowdown in other parts of the world while their home market sees expansion,” Pota writes.
Among his subjects are key players in such firms as ICICI Bank, Biocon, Eros International, Infosys Technologies, Bharat Forge, HCL Technologies and Tata Consultancy Services.
“I included questions on their early days, their perspectives on what it takes to succeed, whether their Indian heritage played any role in their thinking or business achievements, and how those who lead family-owned businesses, members of what has been termed the ‘lucky sperm club,’ view their successes in years to come,” Pota explained to Reuters at his book launch in London.
I am so glad to know that my country is growing so fast and at such astounding speed. But please do not overlook our poor people. Please provide enough for them. Thanks
from Global Investing:
What worries the BRICs
Some fascinating data about the growing power of emerging markets, particularly the BRICs, was on display at the OECD's annual investment conference in Paris this week. Not the least of it came from MIGA, the World Bank's Multilateral Investment Guarantee Agency, which tries to help protect foreign direct investors from various forms of political risk.
MIGA has mainly focused on encouraging investment into developing countries, but a lot of its latest work is about investment from emerging economies.
This has been exploding over the past decade. Net outward investment from developing countries reached $198 billion in 2008 from around $20 billion in 2000. The 2008 figure was only 10.8 percent of global FDI, but it was just 1.4 percent in 2000.
Not surprisingly, the lion's share comes from the BRICS -- Brazil, Russia, India and China -- which together made up 73 percent of outflows last year. BRIC outward investment jumped to $144.3 billion in 2008 from $29.6 billion three years earlier.
Perhaps the most interesting data, however, concerned political risk insurance. MIGA studied the kind of insurance BRICs outward investors were taking to see what kind of things worried them.
Brazil had a mixed of concerns, but Indians were most worried about transfer and convertibility restrictions, the Chinese concerned themseves with war and civil disturbance and Russians were extremely worried about breaches of contract.
Sceptics might be tempted to see this as a reflection of national concerns. But MIGA said it was more micro than that. Russian investment, for example, is dominated by commodity exploration, an area said to be more subject to contract problems than others.
Anecdotally, we see more younger Russians taking investment out of Russia due to violence, demands for protection money, and unofficial or official corruption.
Back in the 90s there were the same risks, maybe more, but the stakes were higher. But now many of the younger generation are voting with their feet and wallets by deciding a long-life is worth considerably more than another million or two.
So in the past there was a lot of return-tripping going on. Money out of Russia to abroad and then re-invested in Russia under ‘new’ ownership as FDI. Now we are less sure. We feel more money is leaving permanently. That can only make Russia that much poorer in the end.
There is definitely a diminished appetite for political risk.
from Global Investing:
Time to kick Russia out of the BRICs?
It may end up sounding like a famous ball-point pen maker, but an argument is being made that Goldman Sach's famous marketing device, the BRICs, should really be the BICs. Does Russia really deserve to be a BRIC, asks Anders Åslund, senior fellow at the Peterson Institute for International Economics, in an article for Foreign Policy.
Åslund, who is also co-author with Andrew Kuchins of "The Russian Balance Sheet", reckons the Russia of Putin and Medvedev is just not worthy of inclusion alongside Brazil, India and China in the list of blue-chip economic powerhouses. He writes:
The country's economic performance has plummeted to such a dismal level that one must ask whether it is entitled to have any say at all on the global economy, compared with the other, more functional members of its cohort.
I have just returned from Moscow, which is always dreary around this season. But this year, the mood among the capital's eloquent liberal economists has hit a new low. For the last seven years, Russia has undertaken no significant economic reforms. Instead, the state has been living off oil and gas, like a lucky but undeserving rentier."
Economically, Åslund has the numbers on his side. The International Monetary Fund estimates that the Russian economic will contract by 6.7 percent this year, while China will grow 8.5 percent and India 5.4 percent. There is less of a case for Brazil, with a contraction of 0.7 percent projected, but it is still doing far better than Russia.
But the BRICs concept is not just about economics. As mentioned, it is a marketing device to urge investors to focus on the big emerging players. From an investment standpoint, it could be argued that Russia is leading the BRICs. Its stock market is up 128 percent this year versus around 80 percent for the other three.
At very least, however, Russia's economic underperformance and stock market outperformance does suggest it is the outlier of the group.
