Moscow Foreign Investment Conference Confirms the Obvious: Western Sanctions Have Backfired
In the next 3-year period, only a third of the federal budget revenues will be generated due to oil and gas revenues
VTB Bank, Russia's largest investment bank, held their annual foreign investment conference last week in Moscow.
It is the biggest such conference of the year, with 2000 guests attending, mostly from overseas. Putin and many other top government officials also made appearances at the conference.
This Russian TV report relays some eye-opening facts about the Russian economy:
(Full transcript follows below, key parts bolded)
- Russia is weaning itself off of oil dependency. Over the next three years, only a third of the government budget is expected to come from oil, down from 50%.
- Rising oil prices are benefiting the economy.
- Auto manufacturing, pharmaceuticals, and agriculture are showing robust growth.
- Inflation is now below 3%, an historical low, which promises to boost domestic investment.
- The mortgage market it at an all time high, and expected to grow dramatically, benefiting from these lower interest rates.
- Due to these bullish fundamentals, Chinese and European investors are showing renewed interest.
- Western efforts to bully Russia into submission with economic sanctions have been a complete failure.
This week good news came from the VTB Capital "Russia Calling!" investment forum. First, the Russian economy emerged from stagnation and started growing. Second, the Russian economic structure is changing, and with it dependence on hydrocarbon prices. That is, Russia is slowly, but surely getting off the oil needle.
$60 per barrel, the ceiling which oil prices broke through on Friday for the first time in more than 2 years. This news for exporting countries is certainly good. Although contrary to the popular opinion sellers of black gold and blue fuel don't wait for some other-worldly quotations, that's harmful for national economies.
More than 10 years ago the definition of the "non-oil and gas deficit" appeared in the Russian Budgetary Code, that is, the difference between budget spending and revenues, which doesn't include income from hydrocarbons. If they manage to get a surplus, it's put in the Reserve Fund, if there isn't enough money in the treasury, petrodollars are sent to cover current budget expenditures. The smaller the non-oil deficit, the better. Hence, the country is not so dependent on commodity prices.
In 2009, the non-oil and gas deficit was more than 13% of GDP, in 2011 a decrease to 9.7%. In the crisis of 2015, it reached 11%. Now it's at 8.5%, and, according to forecasts, by 2019, the non-oil and gas deficit will drop to 6%. It was impossible to start the process of reduction earlier, and Vladimir Putin explained why.
"Under the economic crisis conditions, economic recession, I won't talk about its causes right now, it was necessary to first think about social justice, about the citizens, whose real incomes and real wages have already decreased. With this,
it would be unfair to reduce social expenses with respect to the citizens. But, in the next 3-year period, only a third of the federal budget revenues will be generated due to oil and gas revenues. Meanwhile, I emphasize that the total revenues of the federal budget will definitely grow."
The country makes money with production. Auto manufacturing, pharmaceuticals, and food production are in the lead. As of last year, more agricultural products were sold abroad than weapons. The national economy comes to life, and this is something for the investors to reflect on. There are more than 2,000 people in the audience.
They came to Moscow, because Russia is Calling, a forum for business people. Since the beginning of the year, the inflow of foreign capital has exceeded $23 billion, which is twice as much as last fall.
Jean-Pierre Thomas, Thomas Vendome Investment CEO:
"A huge number of investors around the world, both in Europe and in Asia believe in Russia. Today, the best decision is to invest right now, despite the sanctions."
Yong Kwek Ping, Managing Partner at Inventis Investment Holdings:
"Russia is the neighbor of China, we have very friendly relations, also in the "One Belt, One Road" Initiative, the Russian Far East and Siberia are of great importance. We need to invest more."
The mood of investors is also influenced by the adjusted strategy of the Russian Central Bank. Putin calls it conservative, but stresses: restraint brings results. The financial sphere is stable, and the inflation rate is at the historical minimum, below 3%. On such a favorable background, loans, primarily mortgages, should become cheaper.
Andrey Kostin, President and Chairman of the Board of VTB Bank:
"We see a tendency for rates to decrease, this is good since it contributes to lending growth and economic growth in general."
The mortgage market has recovered so much that it's setting records. Just in August almost 175 billion rubles of loans for housing were issued, an unprecedented amount. The growth of industrial production was noted, but people still don't get their wages on time.
"We have 60,000 people in the country who don't receive wages on time, and the debt is almost 3.5 billion rubles."
Maxim Anatolyevich. Maxim Topilin, Minister of Labor::
"Last year we began to work actively with the Investigative Committee, 225 people were convicted, because sometimes administrative measures are simply not enough."
"What's worrying me is that agriculture accounts for 6% of debt and mining industries up to 12%. Is there less money there than in agriculture? Of course not."
"This indicates at the very minimum a lack of discipline, inattentive attitude towards people. We need inspections to work properly, and law enforcement agencies need to be brought in. Be more attentive going forward!"
Vladimir Putin held the meeting with government members on the eve of the federal budget examination in Parliament. The item to which the Head of State drew attention to is payments to military pensioners. In 5 years, the size of benefits has almost doubled.
And now, for some reason, they decided to postpone indexing payments for those who are retired.
"I looked at the budget for 2018, there's indexation for servicemen from January 1, and the indexation of pensions for military pensioners from February 1. This applies to 2.6 million people.
I think we need to do the same as we did before, do it at the same time, also from January 1, we will index pensions to military pensioners and equivalent people."
Another important Presidential assignment on budget formation: by 2019 the minimum wage shouldn't be lower than the minimum standard of living.
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