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Foreign investors bypass law to enter Russia's aircraft industry
State-owned Russian aviation firm Sukhoi and Italy's Finmeccanica have managed to overcome restrictions on foreign investors' participation in the capital of Russian aircraft manufacturers. Companies hoping to purchase other Russian assets may demand similar exceptions from the law, experts say.
Under Russian legislation, foreign individuals and companies, and affiliated persons, may not own more than 25% in domestic aircraft companies. The only exception has been made within inter-governmental agreements concluded between Russia and Italy. The Italian firm has been allowed to buy 25% plus one share in Sukhoi Civil Aircraft, which is implementing the Russian Regional Jet (RRJ) project.
The agreement on strategic cooperation between Sukhoi and Finmeccanica also provides for the participation of Alenia Aeronautica (a subsidiary of Finmeccanica) in financing the RRJ program to at least 25% of the business plan.
The program, taking into account the development and production of the Franco-Russian SaM 146 engine, is estimated at $1.5 billion. Finmeccanica general director Giorgio Zappa said the Italian total investments might reach $200-250 million. Sukhoi's CEO Mikhail Pogosyan said over $100 million would be in payment for Sukhoi shares.
Until now, legal restrictions have caused foreigners to pull out of Russian projects. The Eurocopter Vostok company, for example, which was to have a 25% cap on ownership, withdrew from a joint venture to develop the Mi-38 helicopter.
Now, industry experts say, many foreign investors are interested in buying shares in Russian aircraft factories. Interested parties include Hamilton Sundstrand (a division of American United Technologies), which could buy a stake in NPO Nauka, France's Snecma, which has long been eying NPO Saturn, and European concern EADS, a minority shareholder of NPK Irkut, which itself would be interested in increasing its stake in the Russian company. Each of the bidders may powerfully lobby the Russian authorities, which may demand the same exceptions as those given to the Italians. Federal bodies are not yet saying how far the Sukhoi-Finmeccanica precedent may go in becoming accepted practice.
Japan's Daihatsu wants to follow Toyota and Nissan into Russia
Following Toyota, which is now building a car factory outside St. Petersburg, its subsidiary - minicar maker Daihatsu Motor Company - is considering assembling its vehicles in Russia as well. However, Russian experts are skeptical about its prospects.
Early in June a Daihatsu delegation paid a visit to the Roslada plant in Syzran in Russia's Samara Region, owned by the Sok Group. Last fall a delegation from the company went to the Leningrad Region.
A source close to negotiations between Sok and Daihatsu said the Japanese company wanted to build a plant able to supply cars to the whole of Europe. Daihatsu is also eyeing other European countries. The source added that the company was interested in producing parts in Russia to localize assembly as much as possible.
A Far Eastern seller of used cars, who wished to remain anonymous, said Daihatsu minicars do not sell well in Russia. "Local buyers fear small cars - their suspension is too low for our roads," he said.
"They are unlikely to make large volume sales - [Daihatsu] cars are too specific in design," said Avtomir spokesman Alexei Sorokin. Selling small cars is not yet realistic in Russia, he said. Daihatsu, he said, would not be able to sell not more than 7,000 cars per year on the Russian market.
Sergei Alekseichuk, an independent automotive market expert, agrees. He said Daihatsu's interest in Russia sprang from the global fashion for the Russian car market. "A study of the Russian market is made just to report it to the board of directors," he said.
A representative of Irito, a distributor of Chinese cars, said on the contrary that Daihatsu could be successful. "Recently, with traffic becoming denser and petrol prices rising, interest in small cars has been growing," he said.
IBM chooses Russian programmers
IBM has announced it is opening its first Russian systems and technologies laboratory in Moscow, in which it will invest $40 million over the next three years.
Recently, there has been a trend for large Western companies to open development centers in Russia. Google has just announced it will open one, while Siemens, Dell, Intel, Motorola, and HP have had laboratories operating in the country for several years. Experts say the development boom is caused by both the skills of Russian programmers and the cheap cost of labor.
Jennifer Trelewicz, IBM's laboratory director, said it would primarily work with hardware, and less with software. By the end of 2008, the company intends to expand the lab's staff from 40 to 200 people.
Engineers from Russia, the United States, and Germany are expected to cooperate in order to develop and test a new generation of IBM's BladeCenter systems. IBM has already opened three such laboratories, two in the U.S. and one in Germany.
Market analysts say IBM's move is logical. It has long been working on the Russian market, and it has become common courtesy for big firms that sell large volumes in Russia to open their own labs in the country, according to Anatoly Gaverdovsky, president of Vested Development Inc. Western companies that operate on the Russian market but do not have their own labs are "scoring less," he said.
Vladimir Dolgov, the head of Google's Russian office, said IBM's activities were aimed at developing products using highly qualified and cheap resources.
Gaverdovsky agreed, saying that IBM's move might be linked to a goal of obtaining lucrative contracts in Russia.
Russians may again face ascending income tax scale
Upper house speaker Sergei Mironov has supported the idea of reverting to an ascending income tax scale, advanced by Economics Minister German Gref and Finance Minister Alexei Kudrin. Independent experts protest that this would drive big capital back into the shadows, while the country's poor cannot contribute much in the way of taxes.
Mironov said the current flat scale for income tax, where both the impoverished public sector workers and oligarchs pay 13%, is unfair, and called for reinstating an ascending scale. He also proposed reducing all taxes, calling them "excessive". "Taxes account for about 30% of Russia's GDP, and only about 15% in China and North America," he said.
Even the government's economics officials are divided over the issue. Deputy Economics Minister Andrei Sharonov said the flat scale was a major competitive advantage for Russia, and should not be changed because the government has learned to collect taxes quite effectively.
Independent experts say the idea is premature, to put it mildly. "Ministers' statements will scare businessmen, forcing them to remain in the shadows," said Antonina Kovalevskaya, director for development at Russia's Fiscal Policy Center. "An ascending scale can be introduced only when the state learns to collect taxes, but now there are problems with this. The flat scale has proved quite effective, so it is strange for the ascending scale to be advocated now."
Ilya Vorobyov, an analyst with the Open Economy Institute, shares this view. "An ineffective state cannot ensure fairer distribution of wealth in society, and no ascending scale will help this," he said. The budget is overflowing, but this has not resulted in pension and wage increases. "What we need is a practical social policy, not a change of taxation principles," Vorobyov said.
Russians have no confidence in state social policy
Despite the economic growth over the past few years, Russians have become less satisfied with almost every aspect of life, experts from the Sociology Institute of the Russian Academy of Sciences said. In cooperation with the German Friedrich Ebert Foundation, they carried out a massive survey among 1,750 Russians from 11 population groups in 58 towns and villages.
The dissatisfaction is at its highest since the 1998 default. Experts believe that at the time a majority of the population understood only too well that the country was experiencing a very severe crisis, and could not hope for positive changes. The situation is now very different. The crisis has passed, the country is becoming increasingly rich, and the authorities continually speak about Russia's achievements, which for the bulk of the Russian population are of no use. According to the survey, their living standards have not drastically changed - but they hope to receive at least a crumb from the "commodities" pie.
Sociologists say that the nation's living standard expectations have risen so much that the current material and social situation no longer meets their demands.
The government disputes expert conclusions. When discussing the results of the survey, Andrei Isayev, head of the State Duma committee for labor and social policy, said the respondents were often dishonest. According to him, people have learned "to pressurize the government," including through sociological surveys.