Streetwise Professor

Yes, Russia can breathe easy.  Even when it comes to corruption, it’s not the worst!  Bad–tied for 146th out of 180, according to an average of surveys assembled by Transparency International–but not the worst.  Indeed, not even the worst in the FSU–several ‘Stans are all well below Russia.

And I am sure that the “whatabout Ukraine” crowd is asking, well, “whatabout Ukraine.”  Well, amusingly, it is tied for 146th place, although since ties (based on rounding to 1/10th of a point) are arranged alphabetically, and the lowest and highest scores for Ukraine are both higher than Russia’s, my guess is that without rounding Ukraine edged out its former Gulag cellmate.

Speaking of ties, Zimbabwe joined Russia and Ukraine in 146th place.  Now that’s something to be proud of.

It should also be noted that Russia isn’t even close to being the least corrupt in the FSU. Indeed, one ‘Stan–Kazakhstan–came it at 120, and even Azerbaijan beat Russia’s 2.2 score (out of 10!) by a tenth of a point. The Baltic states aren’t even in sight, with Estonia at 27 and Lithuania and Latvia at 52 and 56, respectively.

But, according to accounting firm PWC, Russia IS the worst, when it comes to, er, agency problems:

Russia is the worst country in the world for companies in terms of employee theft and extortion by officials, a PricewaterhouseCoopers LLP survey showed.

Seventy-one percent of domestic and foreign companies in Russia were victims of fraud in the past year, double the rate reported in fellow BRIC countries Brazil, India and China, PwC said in a report released today. That’s a “shocking” increase of 12 percentage points from 2007, when the last survey was conducted, PwC said. In Japan, the figure is 9.6 percent.

Theft and bribery hit Russia’s financial, energy and mining industries the hardest, according to the survey of 3,000 executives from 55 countries, including 86 Russians. “The nature of these industries means that they are particularly exposed to both asset misappropriation and corruption, the two most prevalent types of economic crime,” PwC said.

. . . .

PwC said the prevalence of government graft in Russia is twice the global average, with 48 percent of all companies surveyed reporting an instance of bribery or corruption in the last 12 months.

The problem has been exacerbated by the country’s record economic contraction, which has lowered the “morale” of employees and made “asset misappropriation” more tempting, PwC said. The economy shrank 10.9 percent in the second quarter, the most on record, and 8.9 percent last quarter.

More people are feeling “real pressure to ‘cross the line’ or to look the other way,” PwC said.

The line about the special vulnerability of energy and mining is of particular interest.

One other Russia bit caught my eye today.  Russia’s industrial output contracted in October:

Russia’s  industrial slump deepened in October as companies failed to build up inventories and credit remained tight even after eight central bank interest rate cuts since April.

Output fell 11.2 percent from a year earlier after the decline eased to 9.5 percent in September, the  Federal Statistics Service in Moscow said via e-mail today. Production rose a non-seasonally adjusted 0.8 percent on the month. The medianestimate in a Bloomberg survey of 10 economists was for an annual decline of 8.1 percent.

. . . .

Manufacturing in October plummeted an annual 17.5 percent, the most since May, and dropped 4.3 percent compared with the previous month in the first monthly decline since August.

Output and generation of electricity, heat and water dropped 6 percent last month compared to the same period in 2008, the smallest annual decline since April.

Passenger car production in October plunged an annual 58 percent, while output of trucks declined 54 percent compared to last year, the statistics service said.

Wage arrears increased in October by 6.4 percent, to 5.4 billion rubles ($188.4 million) after declining 8.6 percent in September, the statistics service said in the report today.

This may be the case of every silver lining having its cloud.  The strengthening of commodity prices (thanks, Ben! thanks, China!) has bolstered the ruble, which adds another blow to an already devastated manufacturing sector.

The corruption news–with the energy and mineral industries at its heart–and the Dutch Disease effect, both demonstrate just how hard it will be to transform Russia’s economy.  The powerful won’t want to stop the gravy train, and as long as it is going it will be very difficult for non-resource industries to take hold.

Like I say.  Purgatory.