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| Wednesday 16 May 2012 |
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In cooperation with our media partner, BNE, East Capital provides daily news from our region.
BNE is a leading media source covering the whole of East Capital's investment universe.
Russia
Ukraine
Southeast Europe
Central Europe including the Baltics
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Russia
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Return of the tandem
bne |
May 16, 2012
Pundits were writing off Dmitry Medvedev's future as soon as he agreed to step down as president to allow his mentor Vladimir Putin to return. Bu the likely line-up of the new Russian government might point to the tandem as alive and kicking.
Russia's often derided prime minister Dmitry Medvedev seems to be staging a successful comeback after stepping down as president in favor of his mentor Vladimir Putin. Having headed Russia's ruling party United Russia, and set to represent Russia at the G8 summit in Camp David, he is now about to set his stamp on the new government line-up, according to Russian media.
According to the Russian press, newly appointed prime minister Dmitry Medvedev, Russia's former president, is being given considerable freedom in drawing up the new government. Business daily Vedomosti, quoting a source close to the Kremlin, says that President Vladimir Putin is insisting on only three appointments in the new government - Finance Minister Anton Siluanov should retain his post, deputy economy minister Andrei Belousov seems like to replace current minister Elvira Nabiullina and Igor Artemev will retain his post as head of the Anti-Monopoly Service. But all three are already notably liberal-minded economists close to Medvedev's mind-set.
According to Vedomosti, Medvedev off his own bat will bring in presidential economy adviser Arkady Dvorkovich, former top energy manager Mikhail Abyzov and former head of the presidential secretariat Aleksandr Voloshin, also a noticeably liberal line-up. It is unclear in which capacity Aleksandr Voloshin will serve but the return of Boris Yeltsin's last chief of staff, who resigned from Putin's Kremlin over the arrest of Mikhail Khodorkovsky in 2003, is an eye opener. Dvorkovich will be deputy prime minister with oversight of industry, including agriculture and transport, according to Vedomosti, while Abyzov will liaise with Medvedev's 'open government' of academics and experts. There are also conflicting rumours that Abyzov could head the Energy Ministry. However the 38 year old CEO of coal and energy company SUEK Vladimir Rashevskii is seen as a more likely candidate.
Most Vedomosti sources agree that deputy prime minister Igor Sechin, Putin's 'energy tsar' will leave the government, as will the interior minister Rashid Nurgaliev. Both are seen as conservative statist figures and Putin men.
Liberal first deputy prime minister Igor Shuvalov, regarded as equally acceptable to Medvedev and Putin, seems set to retain his post, while recent appointments to the government Dmitry Rogosin, deputy PM with oversight of the defence sector and Vladislav Surkov, deputy PM for modernization, seem likely to remain in the cabinet, although Surkov might drop down to head the government chief of staff, a more technocratic job.
The news that liberal economy minister Nabiullina is set to leave the cabinet, apparently to go into academia, has two possible interpretations: she has been a proponent both of accelerated privatization, as well as running a 2% budget deficit to finance modernization. Putin has categorically rejected the second policy in favour of macro-economic stability, while sitting on the fence over privatization, so it seems likely the macro-economic dispute is reason for her move, especially as Nabiullina's main opponent over the privatization issue, Igor Sechin seems also likely to leave government.
The new government as outlined by Vedomosti, if it comes to fruition, seems to point to Medvedev having more rather than less influence over government appointments as prime minister than he did as president, when he was notably unable to move his own people into top positions. In combination with Medvedev's heading Russia's ruling party United Russia, and Medvedev's attending the G8 Camp David summit instead of Putin, it could point to the much-derided tandem in fact strengthening as Putin resumes the presidency. Medvedev himself has even talked of a 'dual key' system of government - where both men must agree to any major policy initiative.
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Novatek could break Gazprom's export monopoly
bne |
May 16, 2012
Gennady Timchenko, board member and one of the core shareholders of leading independent gas company Novatek, has said that Novatek is trying to break through Gazprom's export monopoly enshrined in law to get export rights for Novatek's gas, according to Bloomberg. Since Timchenko is also an associate of Vladimir Putin and co-owner of shadowy oil trader Gunvor, and thus has considerable lobbying weight in the Kremlin, analysts believe that the chances are good for what would be a revolutionary development.
ŅNovatek is actively working toward getting export rights for Russian gas,Ó Timchenko was quoted as saying by Bloomberg. The statement, coming from a figure regarded as close to Russian president Vladimir Putin, caused Novatek share price to spike.
Timchenko's statement comes after Russia sharply and unexpectedly increased the level of mineral extraction tax (MET) applied to the natural gas sector May 3. Then Prime Minister Vladimir Putin said in October 2011 that Russia could allow independent natural gas producers to export gas in the future.
It was not clear whether Timchenko was talking about export of piped gas or liquified natural gas (LNG). Novatek is currently a partner in construction of an LNG terminal on the gas rich Yamal peninsula. "If the attempt to revise MET fails, the company (Novatek) might accelerate implementation of the Yamal LNG project and keep a higher stake in the project than the previously planned 51%, according to the company," write VTB Capital analysts.
Alternatively, Timchenko may have been referring to gas exports using Gazprom's pipeline, as a form of compensation for the MET tax hike.
Analysts regard the statement as part of an ongoing lobbying process regarding the new tax burden for independent gas producers. "NovatekÕs CFO Mark Gyetvay does not believe the MPT decision to be final, he sees it as too aggressive and believes it will take a year to finalize," write Alfa Bank analysts. "Novatek at the same time will join efforts with the other independents to lobby the position."
Some analysts regard the spiraling tax burden on the natural gas sector as heralding an accelerated move to raise regulated domestic gas tariffs towards netback parity - when profitability on gas sales in Russia draws equal to profitability on gas exports. Attaining netback parity, it is thought, would open the door to a general lifting of Gazprom's export monopoly, currently justified as compensation for regulated domestic prices.
"We believe Novatek has a very good chance of being granted export rights from 2016, when the MET for independent gas producers is set to equal the MET for Gazprom," write Metropol analysts.
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MOSCOW BLOG: Occupy Abai - a revolution of nobodies
Julia Reed in Moscow |
May 16, 2012
ItÕs MoscowÕs answer to Wall StreetÕs Zuccotti park: Muscovites are camping out at Chisti Prudy park in what they are calling "Occupy Abai", the latest stage in the standoff between the Kremlin and the nascent protest movement.
There are no drum circles, but life in the small park is noisy at times and some inhabitants are a bit smelly, especially in the mornings. With free food, blankets and warm clothes, free publicity, and a welcoming attitude, the venue has also attracted some homeless who also congregate around the camp wearing the white ribbons that symbolise the opposition movement.
The camp appeared on the evening of May 7, the day of President Vladimir PutinÕs inauguration and the day after the so-called "MillionÕs March", a civil protest which turned into violent clashes with the police.
Like the "Occupy Wall Street" protestors in Zuccotti park, the protestors at Chisti Prudy have set up a small, leaderless, self-governing community. Some of them have not left the site since the first day; others drop in for a chat, take part in the campersÕ assembly, bring food and go home at night.
The camp was named after the statue of famous Kazakh poet Abai Kunanbaev that stands at the head of the park and is the focal point of the community. Around a thousand people congregate daily at the statue, bringing notes and flowers, and the monument has become another symbol of the rebellion. The camp would resemble a studentsÕ cooperative on a university campus if it werenÕt for the 24-hour police presence.
People come here to listen to lectures about the history of global civil protest, to pick up a free brochure about what to do when faced with the police, to read an opposition paper or to watch a free play; to listen to political satire or to sing along to the guitar in the company of people they have never met before. There is an eclectic mix of people: nationalists with anarchists and Marxists, gay and lesbian activists with animal rights and environmental protesters. The average age is about 20-30.
Vera, 37, is a paediatrician and a gay and lesbian activist. She has a husband of 20 years and a female partner of 17 years. She wants equal rights for gays and lesbians. Sasha, 23, a student of economics, and Aslan, 25, a student of history, are young Marxists. They belong to the left movement and take part in all opposition activities. Seva, 18, is a member of the Russian Solidarity movement. He became politically active in December 2012, following the Duma elections. Elena, 31, owns a small HR company, but describes herself as just Ņan angry citizenÓ. She is unhappy with the elections, the inability of the government to act in crisis, and the inadequate state healthcare system.
There is a strict code of conduct enforced by the nationalists who act as self-appointed guards and patrol the crowd: alcohol has been banned (even beer, which most Russians regard as a soft drink) and the residents are not allowed to making noise after 11:00 pm. There are even recycling boxes for cans and plastic, and vegetarian food stands. And there are boxes for donations. Just on May 13 alone, the camp collected RUB470,000 ($15,666) in cash and money transfers for its food needs.
One camper relates how he got his new warm fleece. A businessman stopped by the camp and asked its members about their needs. They wrote down a list: blankets, warm clothes, and sleeping bags. The price came to RUB70,000 ($2,333). "Is that all?" the man was surprised. He came back two hours later with everything that was requested. ŅFood donations are welcome, but please, no sweet things,Ó says a note on the desk of the information centre.
Government tactics
The Russian government has used both real and fake residents of the area to attempt to oust the campers. A pensioner claiming to be a local resident appeared on TV at the weekend demanding the occupiers leave, but was quickly exposed as a stooge for the ruling United Russia party from an entirely different part of the city, setting the blogosphere alight with condemnation and sarcastic comments.
But there is a tension running through the camp as the local court is due to consider a complaint by 50 local residents about the smell and noise of the camp. Everyday, the occupiers talk about possible eviction and where to go when it happens.
The debate is carried on at the feet of the Kazakh poet. Speakers shout their opinions to a crowd of over 500 listeners. As there is a ban on loudspeakers, with smiles and giggles, every sentence is repeated by the members of the crowd as if in a giant game of Chinese Whispers, so that the audience at the back can hear. A vote is taken. The decision has been made not to announce the new venue so as not to warn the police. The atmosphere is that of a party. People just walk up and talk to each other. Every one has one common line: ŅDo you live on the camp? How often do you come here?Ó
What seems peculiar is that the members of the camp act as if they are there to stay. Despite frequent rain and uncomfortable living conditions, the campers clearly enjoy the experience of a fair, self-governing community where all have responsibilities and a voice.
I went to Abai in search of the leaders of the opposition and I found none. Nobody could even name a leader who inspires him or her and who they actually follow. So the 15-day arrest of prominent opposition figures Navalny and Udaltsov on May 9 for "violating legal requests of the police" have made little difference to the passion of the protest movement.
In the world of internet accounts, Russia follows the global trend. The discontent does not need a leader because it can feed off itself. The usual figures of the opposition, like Ilya Yashin or Kseniya Sobchak, appear at camp like ordinary members taking part in daily chores. But they are merely media figures and attract little real interest from the residents of the camp.
These politically diverse people have found unity in their protest, but there are no unified goals. Everyone wants fair elections and freedom of speech, but there is no agreement on how to get them or extend the governing principals of the camp into the greater Russia.
It wonÕt be long before the police will evict the Occupy Abai protestors on some pretext. Yet this smallish rebellion is a social revolution. It is a lesson for the new Russian civil society on how it can act together. Street protests have been off limits to Russians since 1993. Passive until recently, a growing number of people no longer expect the government to solve their problems. There is a growing interest in social initiatives organised, supported and conducted by the ordinary people. It is a revolution of nobodies.
As bne went to press the local courts ruled to evict the protestors for "littering and destroying the greenery in the area" that has caused $650,000 worth of damage, the court said. The protestors are packing up and getting ready to move to a new location.
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Alrosa pips De Beer to become the world's leading diamond producer
Metropol |
May 16, 2012
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Ukraine
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Ukraine collapses more than Greece
bne |
May 15, 2012
Ukraine's stock exchange has fallen further in May even than the Greece exchange. With stock market drops across Europe, as the likelihood grows of a Greek exit from the Eurozone, low liquidity on the Ukraine Exchange is more to blame than domestic triggers for the collapse.
Ukraine Exchange's UX index plummeted by 7.3% May 14, taking its fall since the start of May to 20% - thus collapsing faster even than Greece's panic-struck exchange. Greece's ASE has lost 16.55% since the start of May, as election results May 6 made an exit from the Eurozone seem more likely.
"Yesterday saw a capitulation of Ukrainian equities," write Dragon Capital analysts.
The Ukraine collapse now takes the UX index back to the mid-crisis level of August 2009.
A number of leading stocks - Astarta, Industrial Milk Company, Azovstal, Yenakiieve Steel suffered double digit collapses. The panic spread to Ukrainian titles on the London Stock Exchange, with iron giant Ferrexpo dropping 5.4% and MHP down 8.3%. The Ukrainian index on the Warsaw stock exchange fared better, losing only 4.1%.
There have been no domestic triggers for the extent of the collapse, with early May slow in Ukraine due to public holidays. Nor was there a mass sell-off - trading volume yesterday was at a risible $2.2m. Traders point to the exchange's lack of liquidity as behind the depth of the fall - like a dive into an empty swimming pool, there are simply no buyers in the market. "The market is crumbling, with no buyers to prop it up either domestically or abroad," say Art Capital analysts.
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Court postpones hearing of Tymoshenko appeal
bne |
May 15, 2012
Ukraine's Higher Specialized Court postponed consideration of an appeal lodged by jailed former prime minister Yulia Tymoshenko's until June 26.
The state prosecutor had applied for the postponement on the grounds that Tymoshenko is currently too ill to attend the hearing. According to Tymoshenko's team, the real reason is to delay hearing of the case by the European Court of Human Rights which can only start considering Tymoshenko's case when all courts of appeal in Ukraine have ruled.
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Bohdan Automobile Plant pointed out passenger cars production bust
Phoenix |
May 15, 2012
UkraineÕs leading automobile producer, Bohdan Automobile Plant (LUAZ), dropped passenger vehicle output by 36% M-o-M, and by approximately 23% Y-o-Y to 1,568 units, in April 2012 - Interfax reported yesterday (May.14). The companyÕs press secretary, Serhiy Krasulya, commented that the situation draws attention to the ongoing domestic automobile industry crisis coupled with lack of state support. According to Mr. Krasulya, the fast-growing car imports outstrip domestic output, and therefore, results in low production capacities utilization (less than 20% for Ukrainian automobile industry in general).
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EU boycott talks fizzle out
bne |
May 15, 2012
A EU Foreign Affairs Council meeting in Brussels May 14 which discussed the situation with Ukraine's imprisonment of former prime minister Yulia Tymoshenko and Ukraine's hosting of the Eurp 2012 football championship in June, ended inconclusively, according to newswires.
The meeting produced no general EU boycott for officials to attend games played in Ukraine, although the European Commission, led by Jose Manuel Barroso, has already said it wi and national representatives such as German chancellor Angela Merkel have said they will not travel to Ukraine to support their teams.
Apparently Polish efforts played a key role in stymying a general boycott and international isolation of Ukraine. Poland, a traditional Ukrainian ally, is co-hosting the Euro 2012 and anxious to prevent politics overshadowing the event and Ukraine retreating into isolation.
"None of the foreign ministers have proposed to boycott Euro 2012," Polish Foreign Minister Radoslaw Sikorski told Interfax, commenting on the meeting.
Following the meeting, the European Union's High Commissioner Catherine Ashton said the E.U. was still keen to sign an Association Agreement with Ukraine, but this would require release of political prisoners and fair parliamentary elections in October 2012.
"As we expected, divisions among European politicians are serving to maintain a tenuous but constructive relationship between the EU and Ukraine," writes Concorde Capital analyst Brad Wells. "While several EU governments will undoubtedly not send delegates to Ukraine or send them but ask them to not meet with Ukrainian government officials, others will come."
"However," continues Wells, "after Euro-2012, we see Kyiv becoming more and more isolated from Europe. With parliamentary election campaigns set to start just a month after the final match, the current government will be keen to stick to its current course, and not want to appear soft by changing its stance on criminal cases against opposition politicians."
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Southeast Europe
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Greek euro exit risks for Southeast Europe
bne |
May 16, 2012
With the resignation of Greek President Karolos Papoulias May 15 triggering new elections to be held in June, uncertainty reins again in the markets as discussion of a Greek exit from the Eurozone persists. Whilst that would hit markets across the globe should it happen, the immediate neighborhood in SEE is already feeling the effects.
According to Capital Economics, with a few notable exceptions, emerging Europe's direct exposure to Greece is small. But the contagion from a disorderly Greek exit from the eurozone would have disastrous consequences for the region. Frustrated EU officials have even begun openly discussing the country's exit from the euro currency system. As the economist Barry Eichengreen, has said it would provoke “the mother of all financial crises,” Bloomberg quoted. The contemplation of this possibility by EU leaders is making matters even worse.
Economic news in Greece is not pretty: The government no longer has enough money to pay salaries and pensions of the public sector for the month of June, ABC News reported and the recession being stoked by all the enforced austerity cutbacks is deepening — the Greek GDP fell by 6.5% in the first quarter alone. Capital Economics believes these developments have taken the region a step closer to the once seemingly improbable event of a eurozone break-up.
Capital Economics says the region's direct exposure to Greece, in terms of both trade and financial linkages, is relatively small. Bulgaria and Romania are the two notable exceptions and would be the first in the firing line in the event of a Greek exit. Bulgaria's exports to Greece are worth some 3.5% of GDP and Greek banks have a large presence in both countries. This helps explain why Romania's stock market has fallen by 11% since the beginning of the month, the research consultancy said in a statement.
Business and consumer confidence would be hurt in the event of a eurozone break-up with regional exports taking a hit. Capital Economics believes however that the threat of financial contagion is the biggest risk.
“Emerging Europe's banks are heavily dependent on eurozone parents for funding, largely in the form of short-term credit lines,” the consultancy said. “We estimate that these may be equivalent to over 10% of GDP in Hungary, Croatia and Bulgaria and 5% of GDP in the Czech Republic, Poland and Romania.” Capital Economics added that if the fallout can be contained, then emerging Europe's banks are less likely to experience a sudden withdrawal of external funding.
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Romanian economic situation stable, PM says
bne |
May 16, 2012
Following news May 15 that Romania had entered a technical recession, Prime Minister Victor Ponta set to reassuring the nation. The economic situation of Romania is stable and the government and the National Bank of Romania have the required tools to observe the pledged parameters, Prime Minister Victor Ponta said May 15 after a meeting with President Traian Basescu and national bank Governor Mugur Isarescu, Agerpres reported.
'From the data made available by the national bank governor and the finance minister very clearly the results are that Romania's situation is stable, under control and the BNR, in coordination with the Finance Ministry, the government and all the concerned authorities at this moment have absolutely all the required tools to keep the situation stable and to ensure the parameters Romania has pledged and considered', the prime minister said.
Ponta added that the current international economic situation does not concern Romania in particular, since most countries in the area are paying extra attention to the circumstances these days.
On Romania's entering a technical economic recession, Ponta underscored the two consecutive quarters of economic decrease were during the governance of the current opposition.
In a comment, Erste bank said that although no further details have been provided by Romania's National Institute of Statistics, the bank thinks the feeble growth in 1Q12 y/y could be chalked up to domestic demand, and household consumption in particular, as this component accounts for around 70% of total GDP. However, weak investments and likely the running down of inventories in industry may have held down domestic demand, while the faster slowdown of exports compared to imports suggests a negative contribution of external demand to 1Q12 GDP formation (y/y).
This is Romania's second recession in four years. In 2009, the country took out a EUR20bn bailout loan from the International Monetary Fund, the World Bank and the European Union after its economy contracted by 7%.
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Croatian, Slovenian PMs agree on bank dispute
bne |
May 16, 2012
Croatian Prime Minister Zoran Milanovic and his Slovenian counterpart Janez Jansa have pledged to work together to resolve a dispute over money owed to Croatian savers by the predecessors of Slovenia's Nova Ljubljanska Banka, Bloomberg reported.
“The issue of savers will be resolved to the benefit of all citizens,” Jansa told reporters after meeting with Milanovic May 15 in Slovenia. “Like with all the remaining issues, we will try to resolve this one without much ado,” adding that he was glad to receive the Croatian prime minister's assurances that Croatia's position remains unchanged from its EU accession talks.
Milanovic in turn pledged to adhere to Zagreb's commitment.
"We have to respect the commitments Croatia had to take as a condition to conclude (EU accession) negotiations," Milanovic told journalists, AFP quoted.
Over 130,000 Croatians are claiming EUR160m in savings that were deposited in Slovenia's Ljubljanska Banka before the break-up of the former Yugoslavia. Croatian companies meanwhile owe the Slovenian bank either EUR420m, according to Zagreb, or EUR480m, according to Ljubljana.
Slovenia and Croatia agreed in October 2010 to resolve the dispute under the auspices of the Bank for International Settlements in Basel. The bank a month later rejected mediation, saying it could not bring any added value to negotiations.
An EU member since 2004, Slovenia blocked its neighbor's EU accession talks for 10 months in 2009 over a border issue. The two countries in January agreed on a panel of legal experts to work out a resolution. Croatia is still waiting for Slovenia to ratify its EU membership to enter the bloc in July 2013. Jansa said it is in Slovenia's interest that Croatia becomes an EU member “as soon as possible,” according to a statement on the Croatian government's Twitter profile.
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Bulgarian economy stagnates in Q1
bne |
May 16, 2012
Bulgaria's economy stagnated in the first quarter of the year, with the sovereign-debt crisis in the eurozone and government austerity measures squeezing exports and domestic demand, AP reported.
The National Statistics Institute reported May 15 a 4.6% drop in exports in January-March, with domestic consumption growing only by 0.4% compared to the previous quarter.
Year on year, GDP grew by 0.5% in the period from January to March, also slower than the 0.9% seen in the preceding quarter, the statistics institute calculated in a preliminary flash estimate.
The European Commission already revised its forecast for Bulgaria's economy, estimating it is to grow by just 0.5% this year, down from the previously forecast 2.3% percent. The latest government forecast was for 1.4% growth, revised downwards from 2.3%, Focus newswire reported.
In 2011, Bulgaria's economy grew by 1.7%.
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Central Europe including the Baltics
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CEE tumbles into recession
bne |
May 15, 2012
The upturn in sentiment on CEE assets in the first quarter of the year was little more than wishful thinking it seems, with GDP data for the period released on May 15 extending the contraction in the Czech Republic and sending Romania to join it in recession, with Hungary on the way also. The only bright spot was Slovakia, which pushed against the tide to continue its robust performance so far this year.
Following the depths of fear and despair seen in the final quarter of 2011, as industrial production figures fell off a cliff, the first three months of this year exhibited a far sunnier disposition. With Germany - the driver of much of CEE via its demand for the region's exports - putting in relatively robust performance, hope was sparked for much of CEE.
However, the data illustrates that as they sail into the refreshed Eurozone storm, most CEE economies never actually managed to stabilize, let alone resume growth over the last three months, and fall short of consensus expectations. The numbers ignore Germany's relatively healthy growth of 0.5% through the period, leaving Slovakia as the single country apparently capable of taking advantage.
"There's no getting away from the fact that today's data paint a pretty downbeat picture," says Neil Shearing at Capital Economics. "This is perhaps surprising for two reasons. First, the survey data from quarter one - in particular the EC Economic Sentiment Indicators (ESI) - suggested that activity had stabilised in the first three months of this year. Second, data also released this morning showed that the German economy ... performed surprisingly well."
The Czech Republic was already in technical recession after recording contractions in the last two quarters, but a drop of a full 1% quarter on quarter reinforces that position concretely. The number was particularly disappointing given that analysts had anticipated the economy would return to growth with a 0.1% contraction. The Czech Statistics Office has attributed the surprisingly big drop to one-off effects from January's indirect tax hikes, which pushed some activity into the end of 2011.
Analysts at Komercni Banka worry that the Czech economy is now set to finish the year firmly in the red, even should it stage a recovery in the second quarter - which is the period that most suggest will mark the bottom of the crisis. "[I]f the final reading confirms the 1% quarter on quarter drop in GDP, and if we assume that much of the decline will be recovered during second quarter, then we would expect the Czech economy to decline by 0.4% on average over the full year."
As Shearing points out however, "[a]t the very least, [the data] ... suggests that Emerging Europe is already feeling the effects of the apparent downturn in Germany since the start of quarter two."
Hungary underperformed expectations of a 0.5% contraction by an even wider margin, with economic growth at -1.3% quarter on quarter. Meanwhile, growth for the final quarter of 2011 was revised down to 0.0%.
The country's statistical office said that industry seems to have come to a halt in the first three months of the year, "which cannot be seen as reassuring, taking the better than expected German figures into consideration," worry analysts at Erste.
"As for the growth prospects, today's reading did not change our predictions for ... the real economy to contract by 0.5% in 2012. As for the second quarter, the start of the Mercedes plant may help the figure, but [will] be insufficient to push the yearly index into the positive territory in the second quarter. In [the second half of theyear], we hope that the euro area will show some revival, and this will affect the Hungarian growth figures positively, given the big share in exports."
Meanwhile, Romania joined the recession club - technically at least - as it saw its economy contract by 0.1% on the quarter, seriously under shooting consensus expectations, although on a yearly basis it recorded 0.3% growth. Bulgaria just managed to keep its head above water with output flat on the quarter.
Reflecting boisterous indicators through the start of the year however, including industrial production growth of over 12%, Slovakia followed up its impressive quarterly growth of 0.9% in the final three months of 2011 - the highest in the EU - with a 0.8% expansion. "Industry increased, according to our calculations, by 4%, adding more than 1pp to the quarterly growth rate," Erste says.
"[The] Slovak case is special," the analysts add, "as there was continuing build-up of production at new car lines in the first quarter. In addition to higher demand from Asian markets, this helped the industry on the upward path." Erste joins a line of analysts on watch to join the European Commission in raising their full year forecast. Brussels raised its outlook from 1.1% to 1.8% on May 11.
However, aside from the German numbers, Slovakia remains the sole bright spot within the region. "[T]he key point," insists Shearing, "is that much of the region was struggling to grow even before the latest escalation of the euro-crisis. Of course, much now depends on how the crisis itself pans out ... [A]ny hopes that the region will remain immune to the problems in the single currency bloc have surely been extinguished by recent events."
He also predicts that the numbers will only provoke further conflict in the debate between growth and austerity across the region. "But in truth," he suggests, "while there may be scope for some countries (notably the Czech Republic) to ease the pace of fiscal consolidation, there is not much room for either fiscal or monetary policy stimulus."
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Disgraced official claims Vladimir Antonov planned Estonian bank purchase
bne |
May 15, 2012
Vladimir Antonov, the former owner of two collapsed Baltic banks, came close to buying an Estonian bank to complete the set, a former security services official arrested on unrelated charges earlier this year claims.
Indrek Poder, who worked for Estonia's national security agency Kapo before being arrested earlier this year on suspicion of bribery told the investigators that Antonov planned to buy a large stake in Eesti Krediidipank, reports Baltic Business News.
The Russian, who is currently fighting extradition from the UK to Lithuania, where he is wanted relation to missing assets of over €1bn from Snoras bank, had agreed €23m deal with Bank of Moscow for a 40% stake in Krediidipank, Poder claims.
Vilnius was left severely out of pocket after it had to pay out compensation to depositors following the collapse of Snoras in November, although Russian media reports suggest there are several major Russian business groups that missed out due to their location outside the country. Latvias Krajbanka followed parent Snoras into liquidation a couple of days later.
As it happens, former Bank of Moscow head Andrei Borodin is also hoping to convince the UK courts not to honour an extradition request. Russia is pressing the case after Borodin fell from grace in April 2011 following the sacking of former Moscow mayor Yury Luzhkov. State giant VTB says that BoM's former management was handing out dodgy loans and that assets are missing.
Poder claims the deal for the Estonian bank failed at the last minute when a bitter conflict broke out between Bank of Moscow and Krediidipank management. Poder claims he offered to solve the dispute, with the objective of securing a job in the financial supervisory department. "My interest and objective was to find a job in the internal auditing department of some bank," said Poder, admitting that one of the most likely employers would have been Krediidipank.
The security service agent said he got to know the people involved in the Krediidpank case when Kapo started to investigate the purchase and sale of the bank's shares. In March 2011, Borodin sold 27.6% in Krediidipank, decreasing the stake to 16.22%. The move was claimed illegal by the new management of the Russian bank later in 2011 and the 43.79% stake was restored.
Bank of Moscow and four smaller Krediidipank shareholders then agreed to sell their stakes in EstoniaÕs fifth-largest lender in November, after the country's financial watchdog complained that the bankÕs management wasnÕt transparent. "The contracts would end a business dispute over the sale of Krediidipank shares by the former president of the Bank of Moscow, Andrei Borodin," Krediidipank said in a statement at the time.
However, in the latest twist in the tale, the deal - which was meant to see BoM unload its 43.8% stake in Krediidipank to Swiss company RLS Finanse - broke down in early April this year, after the Estonian regulator refused to clear the buyer.
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Lithuania's slow, slow, quick, quick, slow nuclear foxtrot
Mike Collier in Riga |
May 15, 2012
A new report from Moody's Investors Service has reignited the debate about whether there is a business case for the Baltic states having a nuclear power plant or if the whole thing is just hubris.
The Moody's sector comment released May 14 points out that the state-run energy companies that are supposed to be the driving forces behind the new Ignalina nuclear power plant in Lithuania risk exposing themselves due to the huge sums involved in paying for a new €5bn-plus plant to replace the Soviet-era facility shut down in 2009.
"If the project goes ahead in its proposed form, it will be credit negative for Estonia's Eesti Energia and Latvia's Latvenergo owing to the project's large capital commitments and the execution risk associated with construction," warns Joanna Fic of Moody's.
According to the draft agreement between Lithuania and Hitachi - which will build the 1.350-megawatt plant - Lithuania will own 38% of the project, Estonia 22%, and Latvia and Hitachi 20% each.
In some ways, what Moody's is saying is obvious to anyone on nodding terms with nuclear projects. They are invariably late, invariably way over budget and usually come with bigger-than-promised future costs for smaller-than-promised returns. But there has been surprisingly little debate in the Baltic about this - the assumption is generally that everything will come in on budget, and on schedule despite the fact that this rarely (if ever) happens in the Baltics in a general sense and the nuclear industry in a very specific sense. "The Lithuanian government expects the... plant to cost at least €5bn, although we expect a final estimate will not be known until 2015. The current plan assumes full commissioning of the plant in 2020-22, which we consider ambitious given the early stage of the project," says Fic.
Undertaking such a big scheme - partly for political reasons - will mean Eesti Energia and Latvenergo are taking a bigger risk than they might feel comfortable with in a normal business environment. As Moody's points out, Eesti Energia has total assets of around €2bn, while Latvenergo has €3.2bn. "Given the project's cost, we expect all participants will find it challenging to raise the required funds, particularly in the current financial climate," Fic says.
Latvenergo responded on May 15 in restrained tones. A spokesman told bne it's "possible participation" in Ignalina was dependent entirely on the "commercial viability" of the project - hardly a no-holds-barred endorsement. "The decision on whether to participate will be a rational consideration of all impacting and relevant economic factors, including equity and credit obligations," Latvenergo said, adding that a share of "up to" 20% would represent a good balance of opportunity and risk.
Andres Tropp, head of Eesti Energija's nuclear department, tells bne that Moody's opinion reflects a widespread perception that all nuclear projects are considered high-risk and a final investment decision cannot be taken earlier than 2015. "It's pretty obvious that Eesti Energija requires strong support, including financial support, from its shareholder [the Estonian State] for participating in this project and this shareholder should get adequate and detailed views on all aspects of the project before it can proceed with its decision making process. We are not there just yet," Tropp says.
Regarding the planned 22% stake, Tropp said: "Nothing is certain until the final investment decision will be made."
Twists and turns
As investment adverts invariably warn, past performance is no guarantee of future returns, but the litany of failures connected to Ignalina does not provide much encouragement. For a project in its "early stages," it has been around for an awfully long time.
After years of fruitless chit-chat, a supposed deal signing at a showcase energy summit in 2008 turned out to be an embarrassing non-event. Poland was unilaterally invited to join the project by Lithuania, then unilaterally walked out again last year. The South Korean company Kepco that actually won the protracted tender made for the exit as well in circumstances that remain murky.
Contracts to take care of the decommissioned Soviet-era plant have been beset by legal wrangles, while Lithuania constantly bothers the EU for more money to take care of the fallout - if that's not an unfortunate term.
As if to underline that plenty of questions remain about the environmental credentials of nuclear power following the Fukushima disaster in Japan, it seemed grimly ironic that it should be Hitachi riding to the rescue just as their home market dried up.
The draft agreement signed between the Lithuania and Hitachi still needs ratification in parliament and while this will likely be forthcoming, it might not be quite as smooth a ride as anticipated. This is an election year after all and opposition parties will want to shine a light on gaffes by the Andrius Kubilius government during the tendering process, while promising of course that when they are in charge everything will be on target and on budget.
The one thing you can credit Lithuania with is persistence. The desire for the "prestige" of having a nuclear reactor pumping out the watts on their territory seems to be the one unshakeable fact in the whole affair.
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Emigration and demographics are CEE's next crisis
Mike Collier in Riga |
May 16, 2012
Since accession to the EU, it has been assumed that the countries of Central and Eastern Europe would provide a virtually unlimited supply of good-quality, cheap labour to the West. But demographic trends across the region suggest that like the other dominant resource of developed economies - oil - the time to worry about shortages at both ends of the supply chain is already here, and nowhere provides a better example of the looming crisis than Latvia.
"We have a joke that in 2030 the last Latvian can switch off the light at Riga airport," says Aldis Austers, chairman of the European Latvians' Association. "Emigration creates two major problems: it weakens the fiscal position of the state... and the outflow presents questions on the preservation of national identity."
Austers was among the speakers at an April seminar in the Latvian capital considering how to turn the decade-long tide of emigrants from the small Baltic state. It was the second event in as many weeks, following on from an even more apocalyptic forum run by the American Chamber of Commerce titled: "Too late to defuse the ticking time-bomb for Latvia?"
In Austers' view, the Latvian diaspora needs to be turned into a potential resource rather than a drag on development. "Development agencies do not see the potential... You need the diaspora's knowledge and skills to break the vicious circle of emigration," Austers argues.
The figures are daunting. A 2011 survey revealed the Latvian population shrank from 2.2m in 2000 to just 2.0 - a 13% reduction in little more than a decade. The UK and Ireland are particularly popular destinations, and the fear is that the emigrants who tend to be younger and better educated than the general population may never return. According to projections by the Economy Ministry, if nothing is done to tackle the exodus, the population could drop to just 1.6m by 2020. Even before then, the country might experience serious labour shortages that will hinder its continuing recovery from what was the deepest recession in the world during the global financial crisis of 2008-09, when GDP fell by a quarter over two years.
The scale of Latvia's economic collapse saw even more Latvians leaving their homeland in search of work as unemployment topped 20%. "In 2020, we might be facing a 15% decrease in the working age population and a 10% increase in economic demand," says Economy Minister Daniels Pavluts. "The first issue is to stop emigration; the second stage is to utilise the diaspora. As a labour supply of last resort, we have to think about attracting skilled workers from abroad."
The fear is that the real picture could be even worse than predicted due to the lack of reliable, comprehensive migration data, as the European Commission's representative in the country, Inna Steinbuka, admits. "I spent six years working in Eurostat... and I learned from my own experience that correct measurement of migration is not currently possible for all sorts of reasons," she says.
However, Steinbuka is convinced Latvia's brain drain is "no longer a risk, it is a reality."
Professor Mihails Hazans, a leading academic whose studies paint a particularly bleak picture of what he unflinchingly calls Latvia's "demographic disaster," agrees. "The census number is just an upper estimate and no one really knows how many there are in reality," he says.
Hazans' views are not popular in official circles, but he does have a knack of producing data to back up his arguments that makes him difficult to counter. According to his research, emigration is rapidly accelerating the pace of underlying demographic decline. "The important thing is we supply labour to countries that have much less of a demographic challenge - so it's a much bigger problem," he says.
"Most emigrants are young - about 80% of recent emigrants are younger than 35 - hence the remaining population is ageing faster," he warns.
Thus the "donor" countries of CEE will actually leapfrog the likes of Germany, the UK and France in terms of ageing population - hardly the sort of convergence catch-up they had in mind when they joined the EU. "Do we have some hope that they will come back? Unfortunately not very much. The longer they stay, the more likely they will stay forever. After three years, the number who are planning to come back in the short run drops from 10% to 3%," he says.
Hazans even has ideas about how to stop the outflow, suggesting that the destination countries to which migrants head could pay some sort of labour levy to lessen the impact on donor countries. It sounds completely unworkable, but at least it's something. For despite everyone agreeing that the CEE brain-and-body drain is becoming a real crisis, ideas about what to do about it are thinner on the ground than residents in the disappearing villages of Latgale.
But with the worst of the economic crisis apparently over, officials are finally turning their attention towards the shrinking population. "The demographic situation is certainly one of the big worries of society," Prime Minister Valdis Dombrovskis tells bne, pointing to his decision to set up a special Demographic Council to come up with new ideas to counter a situation he describes as "among the worst in the EU27."
So far, fresh initiatives have included proposals to improve access to kindergartens, give increased social security contributions to parents and revive fertility treatment programmes that were cut during the crisis.
Dombrovskis is also floating the idea of using EU funds to try and persuade skilled expatriate scientists to return to their homeland to carry out research instead of working abroad - not that far from a rarefied version of Hazans' labour levy in some ways. "I see that as an issue of the brain drain," Dombrovskis says. "But the main reason behind emigration is the economic situation: lack of jobs, and lack of well-paid jobs. That's what we need to concentrate on if we need to deal fundamentally with emigration."
But large-scale emigration has social as well as economic costs. When parents leave to work abroad, children are left behind and the strain on them can be extremely damaging, says Dace Beinare, a family-based care adviser with the charity SOS Children's Villages. "Many children are left with grandparents and are effectively abandoned when a parent or both parents have left... They are forced to be more responsible than they are capable of being at that age and face many emotional problems," she tells bne.
"Emotional problems will eventually become problems for society as a whole," Beinare concludes.
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