Clearly in restoration campaign mode, Vladimir Putin has declared that Russian GDP per capital will double by 2015, and that Russia will become one of the world’s top 5 economies. Why anybody would believe such a statement is beyond me. Recall that Putin made a similar promise early in his presidency, promising a doubling of GDP by 2010. Didn’t happen then. Won’t happen now.
Note that doubling in 10 years requires roughly a 7 percent growth rate. The country is currently lucky to get slightly north of 4 percent, despite a the dramatic rise in oil prices in the past 18 months. Russia was pushing it to get 6 percent growth during the boom years. 7 percent per year over 10 years is a fantasy, especially in light of the vulnerability of the economy revealed by its experience during the crisis, and the daily revelation of its fundamental institutional weaknesses and political risks.
Putin is an expert at these long horizon forecasts that promise a pot of gold at the end of the rainbow. He chooses a time horizon long enough that by the time it arrives, people will have long forgotten the promise.
Ironically, Putin’s resumption of the presidency would only reduce the odds of achieving his stated objective. Twelve more years of stagnant corruptocracy will not generate growth.
Countries with sparkling growth potential do not experience massive capital outflows. Countries with glittering prospects do not see major IPOs fail with regularity. The pulling of the Domodedovo IPO is just another example of the toxicity of the Russian business environment. Did it have to be pulled because (a) the dodgy corporate structure makes it suspect to Western investors, or (b) Western investors fear expropriation based on the pretext of a dodgy corporate structure?:
Domodedovo had been facing an onslaught of media scrutinty in Russia before the IPO on reports that the company’s management could be forced to sell out to a state-connected private investor.
Meanwhile, the prosecutor general recently released a report that deemed Domodedovo’s offshore ownership structure “unacceptable” and asked Russia’s transport ministry to put together a new bill that would essentially forbid Domodedovo’s current owners from managing the business.
Dmitry Kamenshhik, who owns 100 per cent of Domodedov, was named the 86th-richest man in Russia by Russian Forbes with an estimated net worth of $1.1bn
Analysts and investors say they are sceptical that the increased pressure against the airport at home had nothing to do with the decision to postpone the listing.
“Investors are not ready to pay fair value for a company which could face some risks with the state,” says one analyst, who did not wish to give her name because of the sensitivity of the matter.
“I don’t exclude the possibility that Domodedovo will change its shareholder structure very soon.”
Does it matter whether it is Russian business practice or the vulnerability of Russian businesses to the state that makes investors nervous? And, pray tell, just what is the rationale for the creation of such an offshore structure? To make it easier to tunnel assets out of the company–and out of the country? Or to limit exposure to expropriation? Both? However you interpret it, it suggests that the prospects for a Russian growth spurt are dismal. Yes, Yandex just had a wildly successful IPO. But it is the exception that proves the rule.
I haven’t heard much recently about the privatization campaign that is supposed to raise billions to fill the budget hole that Putin needs to meet his lavish campaign-but-not-campaign promises. Given the rash of problems with Russian IPOs of companies, especially those with connections to the state, is there any wonder?
Ironically, I read of Putin’s promise to double GDP while in Portugal. You might recall that once upon a time Putin promised that Russian living standards would reach Portugal’s by 2014. First, that’s not going to happen. Second, remembering that while in Lisbon brought to life the real implications of that statement, for the Portuguese capital looks very, very tired. Unrealistic ambitions to surpass Portugal are revealing indeed.*
* Other parts of Portugal are more encouraging, to be sure. I am currently in Troia, which is quite nice, and extremely reasonably priced for what you get. But I have had to shake my head several times at the self-defeating economic attitudes here. These are best summed up by my conversation with the nice woman at the car rental agency, after a frustrating experience relating to Portugal’s bizarre rules relating to declining insurance coverage based on coverage provided by my credit card company and US insurers, just as I’ve done not just in the US but throughout Europe. (Essentially, they require you to buy the car.) She said, with an obvious look of pain in her face: “I am sorry. Many bad things in Portugal. But the weather is nice!” And ironically, while sitting here in the lobby discussing some arrangements with the guest services person at the hotel, just had another example of the rather, uhm, dysfunctional attitude towards the concept of customer service. And I should say, piecing together what I can of the political ads on TV (a national election is being held next week), I doubt things will improve any time soon. Which is sad, because it is a very nice country with some very interesting things to see (Sintra, for example), and extremely pleasant and friendly people.