Emerging Markets: Russia

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By Kim Iskyan


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Lighting up: Russia launches bid to become financial center

In mid-June at the St. Petersburg International Economic Forum, Russia’s answer to Davos, Russian president Dmitry Medvedev continued to pitch his modernization campaign, which is focused on diversifying the economy. He called for Russia to be a cornerstone of a “new world economic order.” Medvedev used the spotlight to discuss two key, high-profile initiatives, the creation of a Russian Silicon Valley and the cultivation of Moscow as an international financial center. He also announced a number of fresh initiatives, including cutting taxes for investors and opening up more state companies to foreign investment. But the president’s efforts thus far have done little to address underlying structural challenges of corruption and weak rule of law. Also, the most pressing issue for many investors—the question of how the diarchy of Medvedev and prime minister Vladimir Putin will change with the 2012 elections—went unaddressed. Investors will hardly be comforted by the fact that, in a sign of his rising frustration, Medvedev in late June held his second meeting this year to discuss whether presidential orders are being executed by the cabinet.

 

In late May the Russian antimonopoly authorities launched an investigation into the pricing policies of Evraz and other steel producers, and the government proposed measures to prioritize domestic coal markets over exports. The measures appeared to be chiefly focused on constraining inflation—and also served as a warning to industry that state interests will continue to prevail over those of private enterprise.

 

In a sign of consolidation in the Russian food industry, European dairy giant Danone announced that it would merge its Russian operations with local producer Unimilk. The combined entity will control 21% of the dairy market of the former Soviet Union. Competitor Wimm-Bill-Dann, in which Danone holds an 18% stake and which had long been believed to be an acquisition target of the French company, said it wanted to buy back Danone’s stake.

 

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