Most Russia coverage isn't just biased - it's plain wrong. Here are some real facts
This article originally appeared at Ofwealth.com
Russia gets a bad press. Literally. In fact Western media coverage of Russia is almost always extremely negative. That would be excusable if it was mostly accurate, but in fact it’s usually blatantly wrong. The reality of Russia is far removed from the fiction that we’re meant to believe. As investors, understanding the difference is essential. Here are just some of the surprising things about Russia that you probably don’t know.
In no particular order…
Russia has a flat rate of tax on personal income of just 13%. This compares with top rates of personal income tax of 45% in Australia, China, Germany and the UK, amongst others. The USA is slightly lower, at 39.6%, but that excludes state and local income taxes which can add a lot (Californians pay over 50% top rate). Chances are you pay more tax than the average Russian.
Contrary to popular belief, the oil and gas sector is not “half” the economy, or some other huge amount that’s typically quoted in the media. In fact it’s share is just 16%, having fallen sharply over the past 15 years as other sectors have grown much more rapidly (World Bank figures).
It is commonly stated that “over half” of Russian state revenues are derived from the oil and gas business, the theory being that Russia goes bust if the oil price falls. The reality? In 2013 only 27% of revenues were from this source, according to Jon Hellewig at Awara Group (Russia analysts). The largest contributor, at 29%, came from payroll taxes, despite the low flat tax (see above).
Russia doesn’t have a stagnant and failing economy. Okay, this year it will have a recession brought about by Western sanctions and the sharp fall in commodity prices. But between 2000 and 2012 the economy grew tenfold, measured in US dollars.
The Russian stock market has been a great place to invest. Since its launch at the end of 1994 the MSCI Russia index is up 516% (in US dollars), compared with a gain of 355% for the MSCI USA index over the same period. This is despite Russian stocks currently trading at incredibly depressed levels, and US stocks trading in bubble territory, yet again (see here for more).
Despite what NATO warmongers claim, Putin is not seeking to rebuild the Soviet Union. (NATO is a Cold War relic in desperate search of a purpose.) Russian actions in Ukraine, following the Western backed coup in Kiev, were simply defensive moves against an expansionary NATO. Putin is on the record as saying “He who did not mourn the passing of the Soviet Union had no heart, but anyone who tried to re-establish it had no head.” Substitute Putin for ex-UK prime minister Winston Churchill, and “Soviet Union” with “British Empire” and this makes sense. (Note for those of a sensitive disposition: I’m not trying to justify either the Soviet Union or the British Empire. I’m just saying neither is likely to reappear.)
US president Barack Obama recently said: “Russia doesn’t make anything. Immigrants aren’t flooding to Moscow in search of opportunity. The population is shrinking.” He was wrong on not one, not two, but all three counts. So…either the US emperor has terrible advisors…or he was deliberately lying…or both (either way it’s worrying). In fact, Russian industrial production grew 60% from 2000 to 2012 according to the United Nations Economic Commission for Europe (UNECE). Russian exports, excluding oil and gas, increased 250% over the same period and food production was up 100% (Rosstat). Russia had a trade surplus of US$40 billion in the first quarter of this year, meaning the country exported a lot more than it imported (despite sanctions).
What about immigration? Well, according to the UN, Russia has the second highest immigrant population in the world, standing at 11 million in 2013. That’s a lot less than the USA’s 46 million, but more than Germany’s 10 million, the United Kingdom’s 8 million or France’s 7 million. Wrong again, Obama.
The US president also struggled with his knowledge of Russian demographics in general. It’s a myth these days that the population is shrinking, as men drink themselves into an early, vodka soaked grave and children die young. The Russian population was 144 million in 2014 after growing 275,000 that year. That’s only a modest increase, but it’s still not a decline. Male life expectancy, while still low at 66 years, has increased by 8 years since 1999. Infant mortality rates are down by two thirds as healthcare has improved. That’s real progress, even if there is much more to do.
The total tax take as a percentage of Russian GDP was just under 30% in 2013. That’s a bit above the USA’s 25%, but well below France’s 44%, Germany’s 37% and the UK’s 36%, let alone high tax Scandinavian countries (think mid-50s). (Source: Awara Group)
There are no massive “capital outflows” from Russia, despite what is often reported. In fact the flows represent Russian companies paying off foreign debts. Since Russian companies can no longer trust foreign sources of finance this makes sense.
Russian government debt is just 13.4% of GDP. This extremely low level, which points to the strength of Russian state finances, is something that most developed countries can only dream of achieving…in about a hundred years (or after massive debt defaults or hyperinflations). Despite regular scare stories to the contrary, a repeat of the 1998 Russian debt default is not imminent.
Few people in Western countries understand the crucial role that the Soviet Union played in crushing the Nazis during World War II. Yet none other than British wartime prime minister Winston Churchill said that “It was the Red Army that tore the guts out of the Wehrmacht.”, meaning the combined German armed forces. Including civilian casualties it’s estimated that 22 to 28 million Russians died during that horrific war. That’s many more than any other country, and 16 to 20 times the combined 1.4 million casualties of France, the USA and UK. This huge sacrifice should be remembered.
Putin is not a new “Hitler”. Russia’s role fighting the Nazis means it should be baffling to all, and is deeply offensive to Russians, when people compare Putin to the most vicious vegetarian to ever walk the Earth. Anyone that says things along those lines is no more than a poor comedian with bad taste. Unfortunately it’s a long list of jokers, which includes Prince Charles, future British head of state (when he’s not talking to plants), former US foreign minister and Democratic US presidential hopeful Hillary Clinton (when she isn’t sending secret emails), Republican US senator John McCain (er, when he isn’t cooking frozen french fries?), and German finance minister Wolfgang Schauble (when the Greeks aren’t asking the Germans for hundreds of billions of euros to make up for what the real Nazis did).
As recently as 2012 Vladimir Putin set a goal to increase the country’s ranking in the World Bank’s ease of doing business survey to 20th by 2018. From a starting point of 112th at the time Russia leapt to 63rd by 2014. It’s a remarkable achievement in a short time.
Obama also said of Russia recently “It is America that stands strong and united with our allies, while Russia is isolated, with its economy in tatters.” We’re supposed to believe everyone hates Russia. Yet again it’s completely false. The government of China describes Russia as an “irreplaceable strategic ally”. And ahead of a recent visit by Mr. Putin to India an official Indian government press release said “Every Indian child knows that India has no greater friend than Russia.” With just those two governments on Russia’s side, which represent 37% of the world population, Russia can hardly be described as “isolated”. By comparison, the combined populations of the USA and its main allies in the European Union and Japan make up 13% of the world population. Just saying.
Russia and its leaders are not perfect. Far from it. But a huge amount has been achieved in the past 15 years, after the initial chaos in the 90s that followed the collapse of the Soviet Union.
If you dig just a little deeper than the consistently negative headlines then the Russian reality may surprise you.