Streetwise Professor

May 5, 2010

Trailing the Pack

Filed under: Economics,Energy,Russia — The Professor @ 7:37 pm

Russian manufacturing expanded at the most rapid rate in the last two years, with the April PMI registering 52.1 (with anything over 50 indicating growth).  Yes, better than a sharp stick in the eye, but nobody should get too excited: Russia is still a manufacturing underperformer.  The Global PMI was 57.8, the second highest level recorded in history.  The US PMI came in at a robust 60.4.  Germany’s even better, at 61.5.  China’s 55.7.  India’s 57.2.   Brazil was a comparative laggard, at 53.8, as was Japan at 53.5, both of which still lapped Russia.

Russia suffered one of the sharpest declines in manufacturing activity.  It is also experiencing one of the weakest recoveries.  Not exactly an “L”, but definitely not a “V”.  More like a very shallow “U”.

A good deal of this is the result of one of the myriad consequences of the resource curse.  Relatively strong oil prices have bolstered the ruble, and this has hampered the Russian manufacturing recovery.

Russia has been very aggressive at cutting interest rates to try to counter the ruble appreciation and force feed credit to businesses.  Even with this stimulus, however, the manufacturing performance has been lackluster.

The worst appears to be over (unless, as is not outside of the realm of possibility, the metastasizing European fiscal crisis causes another global shock), mais les bons temps ne roule pas en la Russie.

When he first became president, Putin compared Russia’s standard of living with Portugal’s, and promised that Russia would catch up to the small Iberian country by 2015.  Not going to happen.  Unless, that is, the convergence is from above, with Portugal crashing to earth with the other once flying PIIGS, rather than from below, with Russia growing at a much faster rate.

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  1. Russia’s GDP per capita is 14.9k $, Portugal’s is 21.9k $ (IMF 2009).
    This means that Russia will have to grow at 8% points greater than Portugal for the next five years.
    So I agree. Russia will probably grow at 5-6% in the next five years, Portugal will probably stagnate, so it won’t quite catch up. It will get quite close, though.

    Comment by Sublime Oblivion — May 5, 2010 @ 8:32 pm

  2. A friend just told me that to register and start a business in Russia, you need to file 600 documents. Whatdya think: maybe that’s kinda holding manufacturing back?

    Comment by mossy — May 6, 2010 @ 2:40 am

  3. 600 eh? Probably not that many, certainly not if you know the right people or hire a law firm to handle the paperwork for you. Bureaucracy anywhere is annoying, but it’s not going to keep anyone out if there’s a buck/ruble/drachma to be made…especially if that bureaucracy and the documents it absorbs are backed up by the rule of law.

    It’s the lack of rule of law that’s keeping billions upon billions of dollars/euros/doubloons from flowing into Russia. If I invented and built a popular widget in Scotland I could be assured that I would be well compensated for my genius and enterprise. I’d be invited to give lectures on my entrepeneurial spirit while raking in substantial royalties as my product grew in popularity.

    If, however, I were to invent that same widget in Russia and I began to inconvenience well-connected competitors and/or make enough money to rise to the wrong sort of notice…I could reasonably expect that my door would be kicked open, the widget confiscated, and my lab burnt to the ground and the earth salted (all right…that last part is hyperbole…they’d never bother with the salt). If I objected I could expect to be thrown in prison for my temerity. And those 600 documents would be that much intricately stamped trash.

    Comment by Swaggler — May 6, 2010 @ 9:16 am

  4. Perhaps the Russian stock market knows something that the Russophile charlatans do not (or simply lie about):

    Comment by La Russophobe — May 6, 2010 @ 11:18 pm

  5. A friend just told me that to register and start a business in Russia, you need to file 600 documents. Whatdya think: maybe that’s kinda holding manufacturing back?

    Your friend was probably exaggerating. According to the World Bank, you need to undergo 9 procedures to start a business in Russia.

    But in any case, I doubt bureaucratic hurdles hold manufacturing back. That is because manufacturing enterprises tend to be pretty big and can negotiate directly with the local administration. It would badly affect small & medium businesses providing services, but wouldn’t this actually give a comparative advantage to manufacturers?

    No, I think the real problem for manufacturing is the effect of the resource curse / appreciated ruble.

    Comment by Sublime Oblivion — May 7, 2010 @ 4:00 am


    Your illiteracy knows NO bounds. “STEPS” is not the same as “PROCEDURES” you hapless moron, each step could have MANY different documents associated with it.

    What’s more, YOUR OWN SOURCE says Russia is one of the most difficult nations ON THE PLANET to start a business in, THE VERY WORST in construction permits. YOUR OWN SOURCE proves the comment was CORRECT, you braying jackass.

    Comment by La Russophobe — May 7, 2010 @ 6:56 am

  7. No, my friend wasn’t wrong or exaggerating. But I didn’t ask what the business was. In any case, they were having a law firm do it for lots of money. Obviously, small businesses may not be able to hire a law firm to handle it.

    I have another friend who arranged to buy a concession stand at a bus stop. After agreeing on the price and getting all the paperwork in order, he brought it to the head of the prefekt to sign off on it. But the prefekt said his signature cost $50K. End of deal.

    S/O — come on over and try to start a business. Then we’ll talk.

    Comment by mossy — May 8, 2010 @ 1:11 pm

  8. Since mid-April, the Russian stock market has lost MORE THAN ONE FIFTH of its value, shedding all gains gathered over the prior six months.


    Comment by La Russophobe — May 20, 2010 @ 9:33 pm

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