Emerging Markets : Black Market Booms
Russia


As widely anticipated, in late September Russian state monopoly gas giant Gazprom purchased a 73% stake in Sibneft, Russia’s fifth-largest oil company, for $13.1 billion in what is corporate Russia’s largest deal ever. Roman Abramovich and his partners purchased the assets of Sibneft for $100 million in 1996. The transaction underscores the Kremlin’s interest in controlling the country’s energy assets.

In contrast, in September former Yukos oil company head Mikhail Khodorkovsky lost a final appeal in his case, although his sentence in a prison colony was reduced from nine years to eight years. The ruling ended Khodorkovksy’s hopes of running for a seat for the state Duma in December.

The Russian equity market continued to defy gravity, with the Russian Trading System Index moving through the 1000-point mark for the first time, compared with an October 1998 all-time low of 38 points. Thanks to strong commodities prices, Russian shares remain cheap by global emerging market standards.

On another front, the World Economic Forum characterized Russia’s government institutions as “woefully inadequate,” as Russia fell five places to 75th in the forum’s annual Growth Competitiveness Index. The shadow economy in Russia is still equivalent to more than 40% of the country’s GDP.


Kim Iskyan
 

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