The Demolition of Russia's Economy

Western businesses backtracking on selling their assets in Russia because Putin requires them to discount their assets by 50% when selling them to Putin's buddies... and Russia also charges a 15% exit tax.

Western businesses backtrack on their Russia exit plans
Companies such as Avon Products, Air Liquide and Reckitt remain in country as bureaucratic obstacles to leaving increase
https://archive.ph/iQA7v#selection-1579.0-1587.120

Western companies including Avon Products, Air Liquide and Reckitt have remained in Russia despite saying they planned to leave after the invasion of Ukraine, as bureaucratic obstacles increase and consumer activity rebounds.

The Natura-owned cosmetics brand, the French industrial gas producer and the UK consumer group that produces everything from painkillers to condoms are among hundreds of western groups that have stayed in the country since the full-scale invasion in 2022.

“Many European companies have found themselves really between a rock and a hard place,” said one executive working with western companies in the country. “They said they’d leave. They were presented with a choice of buyers that were unacceptable to them.”

Overall, more than 2,100 multinationals have stayed in the Russia since 2022, the Kyiv School of Economics has found, compared with about 1,600 international companies that have either quit the market or scaled back operations.

Shortly after the 2022 invasion of Ukraine, scores of such groups pledged to scale back their presence in Russia as the west sought to starve the country’s economy and the Kremlin’s war coffers of foreign cash.

But Moscow has gradually raised the cost of corporate departure, imposing a mandatory 50 per cent discount on assets from “unfriendly” countries sold to Russian buyers and a minimum 15 per cent “exit tax”. It has also been increasingly hard to find local buyers acceptable both to the seller and to Moscow and whose involvement does not fall foul of western sanctions.

Air Liquide announced in September 2022 it had signed a memorandum of understanding to sell its Russia business to the team of local managers who had been running it. However, the deal never received Russian government approval, leaving the company in limbo.

(More at above url -- Financial Times article in the archive)
 
gwb-trading said:
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https://twitter.com/x/status/1791950760927789448
More...

Hey Putin lovers,

Want to buy something that costs less than a liter of petrol. Go buy as share of Gazprom (or a few shares).

Do it quickly before the company stops trading and goes out of business. At which point you can burn the paper shares to keep warm in the Russian winter.

Russian Gazprom shares plummet on Moscow Exchange
https://english.nv.ua/nation/russia...or-has-not-been-seen-since-2017-50423372.html
 
Let's check-in with the state of "modern" Russian technology. Oh, they can finally created a computer chip making tool -- that can make chips utilizing 30 year old technology levels. It's laughably pathetic.

Russia develops its first chipmaking tool — outdated by 30 years from day one
https://www.tomshardware.com/tech-i...graphy-tool-outdated-by-30-years-from-day-one

For now, Russia's chipmaking industry is just a few decades behind the industry.

The first Russian photolithography tool, capable of producing chips with a 350 nm process technology or thicker, has been built in Russia and is undergoing testing in Zelenograd. This mature technology is currently used for some automotive and power chips, though it could be used for military equipment too. We estimate that the new piece of equipment is about 30 years behind the industry.

"We assembled and made the first domestic lithographic scanner," Vasily Shpak, Deputy Minister of Industry and Trade of Russia, told TASS. "It is currently undergoing testing as part of the technological line in Zelenograd."

This development marks a significant milestone for Russia's technological capabilities in semiconductor manufacturing. Yet, a 350nm (350 micron) is an extremely outdated technology by world-class standards. Intel made its Pentium MMX, Pentium Pro, and initial Pentium II processors on this node in 1995 and 1997, respectively, whereas AMD used this node for its K6 processor in 1997.

Even for Russia, a 350nm fabrication process may be considered outdated as two of the country's contract makers of chips — Angstrem and Mikron — do not offer this production node. Angstrem has a variety of technologies ranging from 250nm to 90nm, whereas Micron has processes ranging from 250nm to 90nm.

For now, it is unclear how the Russian lithography tool can be used commercially, but we can guess that its main goal is to serve as a development vehicle for more sophisticated litho machines.

Russia's semiconductor sector is developing at a much slower pace than the country's government announced in 2023. Previously stated short-term objectives include ramping up local chip production using 90nm technology by the end of the year, with a long-term goal of establishing 28nm manufacturing by 2027, and then 14nm node by 2030.

An avid reader would ask why Russia needs advanced chipmaking tools if it cannot develop sophisticated chips due to a lack of local talent and the latest electronic design automation tools. It also does not have domestic raw materials to make chips on modern technologies. Furthermore, Russian entities can no longer license advanced CPU cores or chip IP, so they cannot even buy-in the technologies they need to build advanced processors.
 
China reported to be heavily buying gold after selling off their US treasuries. Russia also, has huge gold reserves. It can only lead to the US further devaluing the US dollar as inflation goes higher or interest rates get raised further, raising the cost of credit on US businesses. Sanctions destroying the US economy although, you would not hear the truth from extreme liberal media propaganda. Everything is hunky dory with Bidenomics and the continued destruction of the US dollar. Most Americans still clueless on what is actually, happening with all the sanctions on Russia. Russia will be fine since, their currency is now backed with gold. US dollars are fiat money and only printed with nothing to back it up.
 
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Ukraine’s best hope may be a faltering Russian economy
https://finance.yahoo.com/news/ukraines-best-hope-may-be-a-faltering-russian-economy-163008134.html

The Russian gas giant Gazprom was a money machine for the last two decades, enriching many insiders and helping keep Vladimir Putin’s government flush. But that run has ended, with Gazprom recently announcing it lost $6.9 billion in 2023, mainly because of Russia’s war in Ukraine and sanctions that have punctured Gazprom’s sales.

Like Gazprom, the whole Russian economy is beginning to crack under the twin strains of enormous wartime spending and withering sanctions. Since invading Ukraine in February 2022, Russia has held up better than many Westerners expected or hoped. That has been mainly due to skillful central bank management of the economy and robust oil and gas revenue.

But US-led sanctions, imperfect as they are, are slowly strangling Russia’s economy, and the Biden administration is hinting at more to come. Russia’s war production may be peaking now, with equipment shortages, possibly dire ones, looming in 2025 and beyond.

“The Soviet Union was a war machine, and it ran out of steam,” Fiona Hill, a Russia expert at the Brookings Institution, said at a May 28 Brookings conference. “This will, as well, eventually run into considerable consequences. Putin wants us all to think he can’t be defeated. He knows he can be. And he is genuinely worried at this particular moment.”

The biggest news regarding Russia’s war in Ukraine this year has been the precarious condition of Ukraine’s frontline troops, who have been outgunned, outmanned, and slowly losing territory. A six-month delay in vital US military aid, combined with manpower shortfalls and other problems, has allowed Russia to exploit weaknesses, pound Ukrainian infrastructure with bombs and missiles, and threaten Kharkiv, Ukraine’s second-largest city.

But Russia is on borrowed time too, and the real test may be whether its economy can hold up long enough to exhaust the Ukrainians and their sometimes flaky allies.

On the surface, Russia’s economy looks OK, with the International Monetary Fund forecasting 3.2% GDP growth this year. That’s better than the 2.7% GDP growth forecast for the United States.

But some analysts think the GDP outlook masks so many underlying problems that it’s almost meaningless. Putin “still has some ability to finance the war, but this is running out very fast,” Vladimir Milov, a Russian economist who led some reforms in the late 1990s and has since left Russia, said in a recent podcast for the UK’s Royal United Services Institute. “The signs that sanctions are working are there, but it really takes more time. Putin’s economy is a big beast. It takes time to strangle.”

Among Russia’s problems: Its national wealth fund, a pool of reserves Putin taps to finance the war, has dropped from $113 billion before the war to about $56 billion now. Not all of the $56 billion is liquid, and Russia needs to keep some money on hand for a genuine emergency.

“Their reserves are fast depleting,” Agathe Demarais of the European Council on Foreign Relations said at the May 28 Brookings event. Gazprom’s losses, she said, are “going to be a problem for replenishing the reserves. We’re talking about really big numbers. I don’t think there will be an easy way out for Russia.”

Analysts think Gazprom will continue losing money through at least 2025, mainly because European nations that used to be the firm’s biggest customers have weaned themselves off Russian energy. The easiest way to transport gas is by pipeline, and while other countries buy Russian gas, they’re not connected by pipes.

Oil is easier to transport, and oil revenue continues to provide Russia with desperately needed cash. Yet it’s also more expensive for Russia to ship oil to Asian buyers that have replaced Europeans, causing another crunch.

Sanctions, meanwhile, have weakened the value of the ruble and pushed up the cost of goods, especially imports. Russia’s central bank has tried to offset those problems by raising interest rates, with short-term rates currently set at 16%.

Yet difficulties persist. Russia’s official inflation rate is an uncomfortable 7.8%, and the Russian research firm Romir reports that overall price levels for common consumer goods have nearly doubled since the 2022 invasion. Vegetables, as one example, have shot up in price because of sanctions on Western supplies of seeds, fertilizer, and other staples of agricultural production.

To plug some of the holes, Putin is planning tax hikes on businesses and the wealthy, but that could backfire. Foreign investment in Russia has plummeted, and most businesses can’t afford loans at double-digit interest rates. So the only source of investment is companies' own profits, which new taxes will take a bigger bite out of, discouraging investment. The whole cycle is a recipe for collapsing output, similar to what caused the dissolution of the USSR in the late 1980s.

China is helping in ways by selling Russia many of the products Western sanctions seek to limit. But China is exploiting Russia’s weakness more than helping it regain its economic footing, according to a recent paper Milov wrote for the Wilfried Martens Centre for European Studies in Brussels.

Chinese suppliers are marking up the prices of cars, electronics, industrial products, and just about everything else Russia needs, in some cases charging even more than the American and European suppliers they’re replacing. That’s contributing to Russian inflation.

When buying Russian oil and gas, China demands discounts ranging from 20% to 50% off the market price. At the same time, there’s barely any new Chinese investment in Russia or any sign China is taking long-term economic risks for Russia’s sake.

“Russia is learning the hard way that China is not interested in being Russia’s donor,” the Milov report says. “China is only interested in Russia economically as a supplier of cheap raw materials with sizeable discounts, as a market for Chinese finished products sold at a premium, and not interested in investing in seeing Russia emerging as a competitor at international markets of manufactured goods.”

Sanctions were never meant to unilaterally end Russia’s barbarity in Ukraine, and nobody thinks they will now. What they are meant to do is raise the price Russia pays for invading a peaceful neighbor and perhaps contribute to an outcome that looks something like a win for Ukraine.

Ukraine is not close to winning, and much depends on future events, starting with this year’s US presidential election. If Donald Trump wins, he’s likely to ease the pressure on Putin, whom he has publicly admired, possibly opening the door to a Russian victory. If Biden wins, however, a more aggressive effort to defeat Putin is possible.

The Biden administration has given Ukraine increasingly sophisticated weapons and has now changed its policy to allow Ukraine to use some of them to strike military targets inside Russia, which has been a taboo up till now.

Congress recently passed a law allowing the US government to seize around $6 billion worth of Russian assets in the United States and give them to Ukraine. The Biden administration is trying to do persuade European nations to do the same with up to $300 billion of Russian assets parked there.

Another big step Biden could take would be lowering the price cap on Russian oil sales — currently $60 per barrel — and better enforcing it. Russia has found a variety of ways to evade the cap and has been selling oil for more when market conditions allow. Biden, for his part, has been reluctant to impose any sanctions on Russia that could raise prices in global markets and, crucially during an election year, at home.

That could change if Biden wins a second term, which would definitely be a disappointment to Putin, who’s hoping for friendlier governments in Washington and other capitals. If not running for reelection, Biden would be freer to make decisions he deems necessary, even if they’re not popular. There could be a lot more of those before Russia’s Ukraine war is over.
 
Russia is now the 4th largest economy in the world when using PPP

(source World Bank)

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According to analysts, the Russian gas company Gazprom will not recover any time soon. According to them, by 2035 the company will only export a third as much natural gas to Europe as it did before the war. There is only one way to maintain its dominant position.

The Russian gas company Gazprom is in a worse situation than previously known. This is suggested by an internal report to the company's board of directors, which has been made available to the "Financial Times". It shows that the company will need at least ten years to recover from the consequences of the invasion of Ukraine and the Western sanctions. According to this, by 2035 Gazprom will only export an average of 50 to 75 billion cubic meters of natural gas to Europe. That is just under a third as much as before the war.

The analysis shows that the Russian gas giant is hit harder by the Western sanctions than Russia is willing to admit. "It is very bleak," said Elina Ribakova, Senior Fellow at the Peterson Institute for International Economics in Washington, assessing the results of the report to the "Financial Times". "Gazprom is at an impasse, and they are aware of it."

According to the report, the sanctions have particularly cut Gazprom off from important technologies such as turbines that support the transport of gas through the pipelines, as well as from the spare parts and expertise needed to repair them. The Russian state-owned company has also lost important sales markets with the sanctions imposed by Western states as a result of the Russian offensive in Ukraine.

If Gazprom fails to open up new sales markets, the company will lose importance, according to analysts. In addition, the company's Nord Stream pipelines - long the main transport route for gas to Europe - were damaged by suspected acts of sabotage in September 2022. Europe was Gazprom's most important export market for years. Moscow wants to increase gas exports to China in particular. Negotiations on the planned expansion of the "Power of Siberia 2" pipeline, which is intended to bring gas from Siberia through the Mongolian steppes to northern China, have recently stalled.

Gazprom reports record loss for 2023

In contrast to natural gas transported by pipeline, analysts expect growth in liquefied natural gas (LNG). According to the report, exports are expected to increase to 98.8 to 125.8 billion cubic meters by 2035. In 2022, Russia exported 40.8 billion cubic meters. The drawback: it is not Gazprom but the Russian LNG producer Novatek that will benefit from this development. According to the authors of the report, LNG could be a more reliable source of export revenue for Russia in the future because it is transported on ships rather than pipelines and is more difficult to track.

Last year, Gazprom recorded a record loss. In May, the state-owned company reported a net loss of 629 billion rubles (almost 6.4 billion euros) for 2023. In 2022, Gazprom reported a profit of 1.23 trillion rubles (almost 12.5 billion euros). According to the report, there is only one way to maintain its dominance in the domestic gas market: Gazprom must demand preferential treatment from the Kremlin.

 
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