Summer full of hopes for the global economic revival

HomeNewsSummer full of hopes for the global economic revival

Despite sanctions, trade picks up 43% in Russia

Merkel—Putin meeting results

The leaders of Russia and Germany met last month in Sochi to discuss the situation in Syria, compliance with the Minsk agreement and the preparations for the G20 summit. Germany remains Russia’s major economic partner, with the trade turnover in 2017 up by more than 40%, as the Russian President Putin observed after his meeting with the German Chancellor Angela Merkel.

«Russia seeks to build in cooperation with the Federal Republic of Germany, based on the principles of mutual benefit, mutual respect, fairness and consideration of each other’s interests. Despite the apparent political difficulties and the fluctuations in the global economic environment, Germany remains the privileged political and economic partner of the Russian Federation,» Putin affirmed. He drew attention to the growth of trade turnover between the two countries.

«Reviewing the state of affairs in bilateral trade, we observe with satisfaction the general growth trend: in January—February, trade volume increased by 43%. Incidentally, Germany is the largest buyer of the Russian natural gas, with the supply from Russia covering almost 35% of the German market needs», the Russian leader added. According to Putin, Russia is ready to help ensure that the forthcoming G20 summit, to be held in Hamburg in July, is fruitful.

«Russian delegation is committed to assist the German chairmanship in any possible way in order to ensure that the Hamburg summit is fruitful and that a consensus is established on the most acute problems of the global finance and economy,» Putin said. «I would like to emphasize that Russia and Germany cooperate productively within the G20 framework, combating the financing of terrorism, money laundering, tax evasion and corruption among other areas,» president Putin added.

Ajman free zone, the world’s fastest growing

The Adjman Free Zone (AFZ) is a financially attractive structure. Thanks to its high reputation, the AFZ-registered companies get a warm welcome by the banks and other financial institutions worldwide. These companies satisfy all standards of economic sovereignty, may belong entirely to the foreign shareholders, may benefit from 70 double taxation treaties of the UAE, have no exchange controls and are exempt from income and corporate taxes, and other forms of taxation.

An AFZ entity also receives residence permits for its expatriate shareholders and senior management. Incidentally, a foreign national in the UAE holding a residence permit stays outside the scope of UAE’s CRS exchange of information with other countries.

Midland Consult provides assistance on company registration in Adjman with a help of a local dedicated branch, consults and advises on the business benefits of the AFZ.

Russia perceives the EBRD actions as discriminative

A meeting of the European Bank for Reconstruction and Development held in Nicosia last month was attended by more than 2,000 representatives from two dozens of countries. Punitive decisions in regard of Russia were made at the meeting, aiming to stop further investment in the Russian economy. Russia considers these actions of the EBRD, and in particular, the adoption of a set of «political recommendations» on a complete cessation of new investments in the RF, as discrimination on the national basis, emphasises a written statement by the Russian Minister of Economic Development Maxim Oreshkin.

«The implementation of the „political recommendations“ violates a set of legal norms, such as the foundation agreement of the EBRD, to start with. This is essentially a nationality-based discrimination, which is inadmissible in the activity of a multilateral development institution. Such an approach entails the danger of further arbitrarily interpretation of the Bank’s charter, depriving its members of their shareholder rights with no regard to the statutory principles and objectives of the EBRD,» the Russian statement says.

Russia and the EBRD

Back in July 2014, on the initiative of the bank’s EU shareholders, the EBRD adopted a decree on a ’temporary suspension’ of any financing of new projects in Russia given the introduction of the sanctions against Russia. The EBRD President Suma Chakrabarti told reporters on the sidelines of the World Economic Forum in Davos that the EBRD will ask shareholders to resume operations in Russia, once there is clarity over the course of the new American administration. However, in April this year, a source close to the EBRD came forward saying that the international development institution is unlikely to meet the Russian demand to resume work on lending to Russia-based projects, with the most pessimistic scenario being a complete halt of all the EBRD projects in Russia.

Downward trend

«Maintaining the current stance in the Bank’s operations might turn its position unsustainable in the coming years, lead to a decrease in the credit ratings and require a recapitalisation of the bank,» Oreshkin’s statement reads. In his view, this is largely due to the fact that almost a third of the EBRD’s income was so far generated in Russia. «The total revenue of the bank, according to the official report, amounted to EUR 1.699 billion. Clearly, the specified level of profitability is not sustainable for a number of reasons. A good management practice is to demonstrate the results less any discontinued operations, since, obviously, the lack of any operations in Russia will bring down this indicator in the coming years. Without taking into account the Russian operations, the actual revenue of the bank amounted to only EUR 1.202 billion,» the document affirms.

Operations in Russia

According to Oreshkin, the Bank’s operations in Russia have always allowed for significant financial results. «The EBRD operations in Russia were always defined by a high credit quality and a good resource turnover, they opened way for significant financial results and the implementation of projects in the riskier markets/regions without a damage to the capital or a worsening of the Bank’s risk profile,» the statement reads.

As a result, by the end of the first quarter of 2017 the Russian portfolio shrunk to EUR 3.7 billion down from EUR 10.4 billion (a top figure in the third trimester of 2012). At the same time, the Russian portfolio, accounting for less than 10% at the end of 2016, provided some 29% to the EBRD’s annual revenue," Oreshkin’s statement reminds.

Openness for a dialogue

The document emphasizes, that as a shareholder of the EBRD and a country of operations, Russia is forced to make efforts to find a legal solution to the current situation, while at the same time, it remains open for a dialogue and calls upon the EBRD to take decisions that would ensure sustainable development of the bank.

«The Russian side remains open to a constructive and mutually involved dialogue on the search for legitimate and acceptable solutions for the current situation and calls on the EBRD’s management and its shareholders to take decisions that ensure a sustainable development of the bank,» the document reads.

Oreshkin observes that Russia is not only concerned with the illegitimacy of the EBRD decisions taken in respect of the RF, but also with the indicators of the bank itself.

«By raising this issue, we point out not only the illegitimacy of decisions taken in respect of Russia. We care about the fate of the bank itself: as a result [of its actions], it is the most profitable loan portfolio that is invalidated, the bank’s mandate in facilitating the transition to the market economy is not fulfilled and its operational indicators deteriorate. This may have serious and far-stretching consequences,» says Oreshkin in the statement.

Huge increase in Britons seeking EU citizenship in Cyprus

The number of Britons seeking citizenship in other EU countries has surged as a result of the Brexit vote, with some member states recording near tenfold increases on 2015 figures. Reports now say that the number of calls made to the Cypriot consulate in London requesting information on acquiring the Cypriot citizenship are now up to 200 a day mostly from Britons with Cypriot origins of second and third generation.

The Republic of Cyprus, Denmark, Italy, Ireland and Sweden, have all reported a spike in applications from British citizens eager to secure proper status in the EU following the 23 June vote that has set the UK on the course to leave the bloc.

Russian economy celebrates victory over the «fly-by-nights»

The amount of capital, withdrawn from the Russian Federation via the fly-by-night companies fell 18 times. And this is not a statistical glitch, but rather the real progress achieved by the Central Bank of Russia and by the tax authorities in the fight against the problem that has plagued the economy nearly since the collapse of the Soviet Union. As the statements by the CBR and the Federal Customs Service read, Russian authorities succeeded in defeating one of the most popular schemes of the capital flight from the country since the 1990s: the use of the fly-by-nights (FBN). Unfortunately, this does not mean that the process of grey transfers of assets is now done away with.

«The fly-by-night is an instrument of those who wish to remain in the shade, and this usually are the high-profile officials or those who have an indirect link to the civil service.»

According to the Federal Customs Service, the total volume of illegal cash operations withdrawing capital from Russia via the FBNs decreased by more than 18 times in 2016, from 170 bln to 9 bln Roubles. This trend continued in the first trimester of 2017: in comparison with the same period last year, the amount laundered through the illegal cross-border transactions more than halved, down to USD 16 million.

The CBR Chairwoman Elvira Nabiullina recently spoke about this sharp decrease in the scale of illegal operations. According to her, last year the amount of illegal cash in Russia was more than 500 bln Roubles (EUR 7.7 bln), and the total amount of funds illegally withdrawn abroad was 183 bln Roubles (or EUR 2.8 bln). The figures are certainly impressive, although in 2013, when Nabiullina chaired the Bank of Russia, the amount of illegal cash laundered was 1.2 trillion Roubles (around EUR 28 bln at the time), and the scale of total withdrawal of assets was at 1.3 trillion Roubles (or EUR 30 bln). «This large amount, however, saw a nine-fold decrease,» she added.

Although Elvira Nabiullina expressed the hope earlier this year that most of the banks involved in the criminal cash laundering already lost their licenses, several recent license reviews indicate that this process is far from being over.

Russia as a desirable target for foreign investors

St. Petersburg International Economic Forum (SPIEF) that took place in the end of May attracted a higher interest than ever in recent years. The venue saw a a record number of participants, with the most impressive American delegation. In terms of reputation, SPIEF is said to have caught up with the annual Davos forum. One of the main issues discussed at the forum was the digital economy, essential for Russia to be able to regain technological leadership.

The annual International Economic Forum in St. Petersburg had a tagline «In Search of New Balance in the Global Economy». According to the presidential adviser Anton Kobyakov, over three days SPIEF gathered more than 14,000 participants, some 386 agreements were signed amounting to about 2 trillion Roubles, a figure higher than in the past years. In 2015, 105 agreements were signed, and in 2016 — 356 agreements.

«Everything is in high demand, any Russian asset is super attractive for investment»i>

The guest-countries this time were India and Serbia. Overall, the businessmen and reps from the international organisations, industry experts, scientists and journalists from 143 countries around the world attended the forum — more than ever before.

Despite the fact that the United States do not weaken their sanctions against Russia, the US business turned out to be the most represented at the forum. According to the Russian presidential adviser Anton Kobyakov, there were 560 people from 140 companies. He jokingly expressed hope that these businessmen would not be subjected to any disciplinary measures at home.

According to the head of the Russian Sberbank German Gref, the founder of the World Economic Forum (WEF) in Davos, Klaus Schwab, acknowledged that the reputation of the SPIEF now equalled that of the WEF. «This is a very high assessment on the part of the person who created the most important forum in the world,» Gref commented. He also called for measuring the effectiveness of a forum not by the number of contracts signed, but rather by «the number of participants and the effectiveness of the ongoing negotiations on potential transactions.»

This year, according to Gref, the range of the SPIEF participants is much wider than in the previous years. «This year, it is obvious that the interest to Russia and to investing in Russia is higher than in the past,» Gref affirmed.

Panel sessions held at the Forum were dedicated to the automotive industry, the digital economy, development of antibiotics, and the place of Russia in the global film making process.

The Centre for Strategic Research CEO and ex-Finance Minister Alexei Kudrin referred to the forum as a place of «battle» of several strategies that revealed a common desire to restore Russia’s technological capacity. The day before, the President of Russia Vladimir Putin set the focus on the development of the digital economy, saying the country needs to build up human, intellectual and technological capacity.

The Deputy Minister of Economic Development Savva Shipov said that the work on legislation, that would define basic concepts and rules of the digital economy, is to begin this summer. In the near future a working group consisting of reps of state departments and businesses will present a draft to the President of the programme for the development of digital economy. «We presume that apart from removing the existing legal barriers, we would need to develop a comprehensive law to regulate the set of issues in the digital economy. The work is to start this summer, following the approval of a detailed plan of action,» Shipov said.

The presidential aid Andrei Belousov claimed that Russia is now at the peak of interest from foreign investors. «It has become very fashionable today to invest in Russia. Everything is in high demand: any Russian asset is super attractive for investment... Today, Russia is at the peak of interest,» he affirmed at the «Regions: investor’s view» round table.

Belousov also noted that along with the so-called ’hot money’, large investors are also coming to Russia. Foreign businesses have an interest in buying corporate brands.

In the year 2018, the St. Petersburg International Economic Forum will be held on May 24-26 bearing upon the upcoming World Cup. Traditionally, the SPIEF is held in June, only once the organisers departed from this rule: in 2014 the forum was held on May 22-24.