Blog posts by Marcus Svedberg

Portrait de Marcus Svedberg
2012-05-08 |

A number of EU leaders have announced that they are not going to attend the inauguration of the Euro 2012 football tournament or any of the matched hosted by Ukraine. The background is the imprisonment and reported maltreatment of former Prime Minister Yulia Tymoshenko.

The EU protested already when Tymoshenko was sentenced to seven years on corruption charges, arguing that the trial was politically motivated, and her deteriorating health conditions have caused strong reactions from leaders across the union.

The Ukrainian government has responded that this resembles cold war tactics and it has given rise to a discussion about the links between sports and politics. The Economist argued this week that political leaders but not the football teams should boycott the matches in Ukraine (the tournament is co-hosted by Poland). I personally agree with that line of reasoning as does a majority of those that have participated in an online vote on the Economist website.

The idea behind such a line of thought is that footballers and sports more generally should not be punished for having a regime that does not respect the rule of law. But it is, at the same time, important to send a message that Europe does not accept such practice.

The not so subtle message sent to the Ukrainian government in general and President Yanukovych in particular is one of isolation. Hosting the football tournament was supposed to be a great triumph – and it may still be one for the Ukrainian football team – but for Yanukovych it is starting to become more of an embarrassment.

Étiquettes: fotbal, Sports, Ukraine | 12455
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Portrait de Marcus Svedberg
2012-04-26 |

One of the most persistent discount factors on Russia is demographics. The fact that the population used to decrease by 0.5% per year, which led to forecasts that the population would fall to 125mn by 2025, is still on top of many people’s mind when thinking about Russia. It has caused people to suggest that Russia should not be part of the BRICs – even though the inventor of the acronym has argued against that claim – and that Russia has a huge employment challenge.

 

Source: Troika, State Statistics Service
 
Now, things have changed since 2004 when these overly bearish forecasts were made. An optimistic forecast made in 2010 suggests that the population will be around 147mn in 2025, which is roughly the same as in 2000. These long-term forecasts are very uncertain and it is fair to argue that demographics remains a problem in Russia but the negative trend has been broken and there are reasons to be optimistic.
 
Life expectancy is still not great in Russia but has increased from the record low noted in the early 00s. It has on average increased by 5 years to 63 for men and 75 for women.   
 

Source: Troika, State Statistics Service
 
The Russian population is still shrinking but the rate of decline has decelerated from more than 0.5% per year to around 0.1%. The reason is more births and that Russians are living longer. The Russian population actually grew by 100 000 people in 2011 with the difference being made up of official net (labor) immigration.  


Source: Troika, State Statistics Service

The positive changes have already caused the economically active population to increase, after a slump in the 00s following the negative demographics in the 90s, and this trend is expected to continue.
 


Source: Troika, State Statistics Service
 

Russia has not yet overcome its demographic challenge but it is fair to argue that things are going in the right direction. The underlying reason behind the positive development is probably that the standard of living has improved dramatically since the early 90s and that Russians have a more positive outlook today. The 90s was very hard on Russia while the 00s has been very good from an economic perspective. The Russian economy is ten times larger today compared with 2000 and the country has moved up significantly on various socio-economic indices while poverty has fallen sharply. UNDP’s broad human development index and the sub index on health capture the progress quite well.


Source: UNDP

Étiquettes: Russian Demographics | 12315
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Portrait de Marcus Svedberg
2012-02-24 |

The big question ahead of the Russian presidential election next Sunday is not who will win but rather what the margin will be and, more importantly, what will happen after the election.  

Prime Minister Putin may not be as popular as he used to be or as liked as the official polling suggest, but he is nevertheless the most popular politician in Russia and the other candidates are trailing far behind the former president.

The latest Levada survey, which is the most trustworthy polling organization, gives Putin a 66% win, which means that he would win easily in the first round.  None of the other four candidates comes close to those levels with Communist leader Zyuganov and nationalist Zhirinovsky at distant second while the two other candidates, Just Russia leader Mironov and billionaire Prokhorov, trailing even further behind.

Putin’s popularity has fallen during the last couple of years and the street protests after the parliamentary election in December illustrate the growing discontent with the ruling elite, personified by Putin, among the urban middle class.

But it would be a mistake to assume that he has turned deeply unpopular or that some other politician has become more popular. Putin’s approval rating has dropped from an abnormally high 85% four years ago to a more normal 65% today, according to Levada.

The protests have not been unimportant though as they seem to have encouraged Putin to adopt a more reformist stand. He has been talking and writing about the need for reforms in the election run-up, which would be very positive for the economy and the stock market if implemented.

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Portrait de Marcus Svedberg
2012-02-14 |

What are the defining characteristics of politics in Central Asia? It remains in the shadows of Russia and rarely changes. The latest election in Turkmenistan and the recent government reshuffle in Tajikistan do not change these old truths as it happened while the spotlight was on the upcoming Russian election and it will not lead to any real changes anyhow.

That incumbent President Berdymukhamedov won a landslide in the 12 February election in Turkmenistan did not surprise anyone. According to the official election authorities, Berdymukhamedov who has been in power since former president Niyazov died in office in 2007 received 97% of the votes.

The turnout was 96% and one can only wonder what the 3% of the electorate that voted for any of the remaining seven candidates were thinking. The elections were, obviously and as usual in Turkmenistan, neither free nor fair and international election observers like the OSCE did not even bother to monitor the vote.

President Berdymukhamedov refers to his time in office as “"The Era of Turkmenistan's Great Renaissance”, but the country has not changed in any material way from the so called “Golden Age” under his predecessor. And there is, unfortunately, little prospect for a real renaissance in Turkmenistan in the near future.        

President Rahmon has meanwhile ruled Tajikistan, which is slightly less authoritarian but mostly unfree according to Heritage, since independence 20 years ago. That Rahmon reshuffled the government recently will unlikely change anything since he is unlikely to reduce his tight grip on power.

There have been suggestions that the changes in the government, which included the removal of the minister of education as well as a number of security service officials, was a result of growing pressure from the media on the back of corruption allegations.

That may very well be true but the changes will most likely be of a more cosmetic nature rather than a serious attempt to change the status quo in one of the poorest and least developed countries in Eastern Europe.    

One can only conclude that it is rather ironic that these two countries together with neighboring and equally authoritarian Uzbekistan are expected to the fastest growing economies in Eastern Europe in 2012.

Étiquettes: Berdymukhamedov, Central Asia, Rahmon, Tajikistan, Turkmenistan | 11267
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Portrait de Marcus Svedberg
2012-02-10 |

What is the common denominator between Hungarian flag carrier Malev and Romanian Prime Minister Emil Boc? The answer is that both went out of business this week as a result of the economic slowdown.

The flag carrier Malev has, just like the Hungarian economy in general, been struggling for quite some time so the closure did not come as a major surprise. It had accumulated almost EUR 300mn of debt and was grounded after failure to service those debts.

It was also running into problems with the EU Commission over allegedly illegal state aid from the Hungarian government, which is the main owner of Malev. It remains unclear what airline(s) will fill the void but two low cost airlines have already tried to seize the opportunity.  

Meanwhile, the Prime Minister Boc in neighboring Romania resigned as a result of public protest that took place throughout the country in January. People are protesting against political incompetence and economic austerity in general.

President Basescu and Prime Minister Boc have been targeted and their ruling Democratic Liberal Party has dropped sharply in the opinion polls. PM Boc defended the austerity measures, which have been applauded by the IMF and foreign analysts, but stepped down in order to “defuse political and social tension.”

President Basescu quickly nominated former foreign minister Mihai Razvan Ungureanu as Prime Minister. He promised to continue with the reforms and will now try to form a government. The winter of discontent is thus not over quite yet. 

Étiquettes: Basescu, Boc, Malev | 11211
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Portrait de Marcus Svedberg
2011-12-20 |

It took 18 and 14 years respectively but Russia has now signed the World Trade Organisation, WTO, accession treaty as well as the Central Depository Act, CDA. These events did not cause much attention but are important positive steps to improve the investment climate in Russia.

Russia negotiated with the WTO for 18 years and many analysts had given up on the issue, especially as the talks stalled over Georgia. Nevertheless a breakthrough was reached a few months ago as we have written about before (read more).

Russia now needs to ratify the treaty and is expected to become a formal member during the first half of 2012. The accession is believed to add 0.5 to 1 percentage of growth (GDP) per year through improvement in the investment climate over the longer term or roughly USD 160bn in total.

The benefits are likely to fall unevenly though with the coastal regions (Northwest, St Petersburg and the Far East) expected to reap the largest welfare gains through increased trade and investments.

The effects will also impact different sectors differently, some will gain from improved market access (metals and mining) and lower imports (consumer goods) whereas others could be hurt by increased competition (auto manufacturers, agriculture and financials). Other sectors, such as energy and utilities, could benefit indirectly through more efficient capex programs and tax structures. 

That President Medvedev signed the CDA after 14 years of deliberation was also a major step to improve the investment climate in Russia as it will make the market directly available to more investors (that until now have been restricted from buying local Russian shares).

The CDA is a first step to improve the liquidity on the market. The next step is to reduce the 25% threshold for foreign listings. Progress on the CDA is also part of a larger ambition to improve the investment climate in Russia and comes as the two main stock exchanges in Moscow are merging. Analysts expect lower costs and better liquidity after the Micex and RTS merger became a fact earlier this week.

Investors should welcome these changes as it will improve the investment climate in Russia. We acknowledge that there is still much to do – and implementation is key – and expect the reform momentum in this area to continue.

 

 

Étiquettes: CDA, Russia, WTO | 10700
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Portrait de Marcus Svedberg
2011-12-13 |

Something did change the week after the parliamentary election in Russia on 4 December. The protests and vocal discontent with the ruling elite and Prime Minister Putin suddenly became a political force too strong to be easily dismissed by the Kremlin. The inevitable change in Russia will follow its own logic, but I dare to say that it has started.       

I have been arguing that the elections (parliamentary and presidential) would not change the political situation in Russia in any fundamental way in the short term but that the increasingly assertive middle class represent the best hope for real change in Russia in the medium term.

I was partly right because the formal political set-up has not changed (United Russia won a majority in the Duma and Putin is still expected to become President) and the middle class could now become an engine of change. But it all happened sooner than expected and something did change the week after the parliamentary election on 4 December. The protests and vocal discontent with the ruling elite in general and Prime Minister Putin in particular suddenly became a political force too strong to be easily dismissed or repressed by the Kremlin. 

This force has been described as urban, middle class, young, and frustrated with the ruling elite. All that is probably true but that is also where the easy categorization ends. There is no single organization or leadership but rather a mix of groups with different interests that have united through social networks on the internet based on what they don’t like.

It is therefore difficult to predict how this frustration will play out. But given the fact that the protests so far have been larger than expected and calmer than feared, there is reason to believe this force will not go away anytime soon. Indeed, new demonstrations are scheduled on 24 December.

This should be welcomed as it will put pressure for free and fair elections, more plurality and increased transparency. But given the absence of a single organization, leadership or ideology behind the protesters, it is difficult (although not impossible) to see how this force can challenge the current leadership.

Putin and United Russia are, after all, popular (albeit not as popular as the official election results suggest) among a large share of the Russian population after more than a decade of rapid economic growth and increased stability. Some of the leaders behind the protests have been suggested as potential rivals to Putin for the presidency and an oligarch announced his candidacy this week. More names may appear in the near future but I doubt anyone will have the capacity to unite the protesters and become a serious challenge to Putin in March. 

The political situation in Russia has become more complex and uncertain, but there is also reason to believe things will change for the better even though it is too soon to speculate exactly how things will evolve. In the meantime, I believe one should be careful in comparing this with the color revolutions in Eastern Europe or with the uprisings in the Middle East.

I believe the inevitable change in Russia will follow its own logic, but I dare to say that it has started.     
 
 

Étiquettes: election, parliamentar, presidential, putin, Russia, United Russia | 10635
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Portrait de Marcus Svedberg
2011-12-06 |
The East Capital Outlook 2012 has been published.

• What do we like in the different countries in Eastern Europe?
• What are the risks country wise 2012?
• What about China?
• Can emerging economies grow when the developed world slows down?
• Can markets perform in this environment?

Take part of the East Capital Outlook 2012 here.

Étiquettes: outlook 2012 | 10541
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Portrait de Marcus Svedberg
2011-12-04 |

The ruling United Russia won the parliamentary elections as expected on 4 December, but they seem to have lost a lot of votes. Exit polls suggest that they only received 48.5% of the votes, which is significantly below the 64.3% they received in the previous election. Voter turnout was high and lots of people have been expressing their frustration with the ruling elite through different channels. 

It seems like both the Communists and the right-wing nationalist LDPR did better than expected by receiving 19.8% and 11.4% of the votes, according to exit polls, which is significantly better than the 11.6% and 8.1% they got in 2007. But the fact that a Just Russia, which originally was created as a fake competition to United Russia, received 12.8% of the votes, up from 7.7% in 2007, was a big surprise since they were more or less written off a few months ago.

The actual numbers may be changed when the official results are announced and United Russia will probably get their own majority since the votes cast for parties not passing the 7% threshold will be distributed proportionally to the four parties that passed the bar. My guess is that United Russia and Just Russia together will get more than 300 seats, which translates into a two thirds constitutional majority.

United Russia should in any case be able to continue to rule but the election results show that the electorate is growing increasingly impatient and frustrated with the ruling elite.

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Portrait de Marcus Svedberg
2011-12-01 |

It has probably escaped few that Russia will hold parliamentary elections this coming Sunday. It is, however, less well known that Croatians and Slovenians will go to the poll on the same day. And I would like to argue that the two Balkan elections will be more exciting.

Make no mistake, the election in Russia is far more important (and we will blog directly from Moscow early next week) but the surprise factor is likely low as the dominant pro-Kremlin United Russia party is expected to win comfortably again, thus confirming the status-quo.

The elections in Croatia and Slovenia are expected to result in new governments as the incumbents are expected to lose or need to find coalition partners. The political climate is rather complicated and the stakes are high.

The centre-right HDZ governing party in Croatia, which successfully completed the EU negotiations earlier this year, is smeared by a corruption scandal opening the door for a coalition of centre-left opposition parties.


The Croatian parliament building

Slovenian politics, meanwhile, have been deadlocked for months and the snap election was called after the centre-left government lost its parliamentary support after failing to push through a reform package. The election is likely to be a close call though and will most likely lead to a coalition government.

Rating agencies, which has downgraded sovereign rating over the political crisis and lack of reforms, are likely to watch the elections closely. The bond yields are already high and Ljubjana would have to pay dearly for not solving the impasse.

The biggest uncertainty in Moscow is voter turnout and how big a majority United Russia will get. It is not trivial as a low turnout and/or an indecisive majority could put the legitimacy of the tandem rulers into question. 

Étiquettes: Croatia, election, Russia, Slovenia, United Russia | 10470
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    Founding partner and Chief Representative, Shanghai office. Karine blogs about East Capital, its investment products and gives direct reports from Shanghai.

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