MOSCOW, February 28 (RIA Novosti) New cabinet reshuffles expected in Russia/ Russian arms exports to reach $8 billion in 2007/ Russia to become Japan's window to Europe/ Rosstat and CB disagree on capital inflow figures/Reputation of Russian Companies remains low
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New cabinet reshuffles expected in Russia
Cabinet reshuffles will continue in Russia, said a top official in the Russian government on condition of anonymity. Next to be reshuffled is the government's fuel and energy department, he said.
Local media said changes in the Interior Ministry were also possible.
A high-ranking Russian official said in Tokyo on February 27 that new reshuffles would affect the fuel and energy sector. In particular, the Ministry of Industry and Energy may be split into two separate ministries, or some federal agencies may be removed from the ministry's competence.
"The division of the Industry and Energy Ministry into two ministries would be reasonable, since energy resources are the main competitive advantage that Russia has on the global market, and should be managed by a separate ministry," said Alexander Razuvayev, chief analyst with the Megatrustoil brokerage.
The reshuffles will not be positive for business, experts said.
"It is not the ministers but heads of semi-state companies, such as oil company Rosneft, energy giant Gazprom, arms exporter Rosoboronexport or the United Aircraft-Building Company, that propel the Russian economy," Razuvayev said.
Natalia Milchakova, head of fundamental analysis at the Otkrytie brokerage, said: "I do not see a major difference between one ministry or two ministries for business and the economy."
According to sources of the popular daily Gazeta, reshuffles in the government, which Russian President Vladimir Putin began on February 15, will continue, but will be selective until the December 2007 parliamentary elections. It is rumored that Interior Minister Rashid Nurgaliyev will replace Mintimer Shaimiyev as president of the Volga republic of Tatarstan in March.
Newspaper sources in the government said the Kremlin needs Nurgaliyev in the election year to strengthen the system of power in Russia, and the post of president of Tatarstan is extremely important in this respect.
Nurgaliyev's possible successor is Oleg Safonov, who was appointed deputy interior minister in October 2006. Safonov is an old friend of Putin, with whom he served in East Germany.
Bosses at the Kremlin's personnel department believe that Safonov's promotion may cushion the disappointment felt by the security sector over the recent appointment of Anatoly Serdyukov, a purely civilian official with experience in the tax agencies, to the post of defense minister.
Russian arms exports to reach $8 billion in 2007
This year, Russia could export weapons worth $8 billion, a $1.5 billion increase on 2006. Moscow is entering new markets, compensating for a reduction in orders from China and India.
Mikhail Dmitriyev, director of Russia's Federal Military-Technical Cooperation Service, disclosed the volume of arms sales ($6.46 billion) and currency earnings ($8 billion) for the first time in several years, adding that in 2007 arms exports could increase to an all-time high of $8 billion.
Russia is second only to the United States in terms of transparent arms sales. France has not yet published its 2006 arms-export statistics, while Israel and China never reveal them.
Last year, Rosoboronexport, Russia's main state arms exporter, sold $20 billion worth of weaponry; and independent producers and components suppliers posted $10 billion in exports.
Dmitriyev said orders from Russia's traditional customers, i.e. China and India, had fallen from 74% to 62% in 2006.
Dmitry Vasilyev, chief editor of the Arms Exports magazine, said export volumes had not increased last year. But Russian weapons are becoming more expensive, Konstantin Makiyenko, an expert with the Moscow-based Center for Analysis of Strategies and Technologies, told the paper.
A contract for the delivery of the first three Mk 11356 frigates to the Indian Navy in 1997 was worth $900 million; and in 2006 a contract for another three frigates was priced at $1.6 billion, Makiyenko said.
Russian arms sale volumes are expected to increase this year because Moscow is due to supply fighters to Venezuela, Algeria and some other countries, Vasilyev told the paper.
Russian arms producers are hoping to boost exports against the backdrop of rising global tensions, Makiyenko said.
Alexander Rybas, head of the Tula-based Instrument Design Bureau, an independent arms producer, said the enterprise has already received more orders for the new Pantsir air-defense system than it could handle.
Moreover, preliminary orders for MiG fighters are now worth $8 billion, which surpasses the company's production capacities, said a source in the aircraft-building sector.
Russia to become Japan's window to Europe
Russian operator Transtelecom and Japan's largest telecom company NTT have announced plans to set up a joint venture to build a network that will transfer Japan's digital traffic to Europe via Russia. The project's initiators hope that the new company's annual turnover will reach $200 million by 2010 and that it will account for one third of Japan's international traffic. Analysts described the project as promising, but warned that it will not be easy to reach the planned targets.
Transtelecom has the largest optic-fiber network in Russia; it is over 50,000 km long and connects 71 regions. Its main client is Russian Railways, the railway monopoly, which owns 100% of the operator. Revenues for 2006 are projected at 17 billion rubles. NTT's sales last year amounted to $7.75 billion. The Japanese government holds a 33.7% stake in the company.
The underwater cable network between the Japanese island of Hokkaido and the town of Nevelsk in the south of Sakhalin Island in Russia's Far East will be put into operation by the end of the year, a Transtelecom representative said. The 450-km line will be built by a JV between the Russian company and Japan's Nippon Telegraph and Telephone Corporation, where the partners will have equal stakes. Transtelecom's president Sergei Lipatov said that the $50 million project would pay for itself within two years.
Yankee Group, an independent technology research and consulting firm, estimates that revenues from traffic transfer between Europe and Asia Pacific are growing by 30% a year. Last year, the aggregate revenues of all transcontinental operators working in the sphere amounted to $500 million, out of which $18 million was earned by Russian companies, first of all Rostelecom, Russia's leading long-distance communications operator.
Konstantin Belov, analyst with the financial corporation Uralsib, said, "Traffic transfer between Europe, Russia and Asia Pacific is growing at a pace higher than these countries' economic growth rates."
Experts, however, point out that market competition is growing alongside the demand for operators' services. Tatyana Tolmacheva, managing partner with iKS-Consulting, said that Rostelecom had announced plans to build a second cable line between Russia and Japan in 2006. Transpacific Express, which connects Japan with the United States, came up with its own project at the same time. Another similar proposal was made by the international consortium Asia-America Gateway.
"Perhaps, Transtelecom and NTT will have to adjust their plans in part related to the market share," Tolmacheva said.
Rosstat and CB disagree on capital inflow figures
Russia received $55.1 billion in investment in 2006(2.7% more than in 2005), the Federal Statistics Service (Rosstat) reported yesterday. Investments from Russia amounted to $52 billion (67% more). Earlier, the Central Bank gave a figure of $41.6 billion to describe the inflow of private capital. Analysts are not surprised.
This is not the first time differences have cropped up. According to Rosstat, in 2004 Russia obtained $40.5 billion in investment, and $53.7 billion in 2005. The Central Bank, however, posted different figures - $12.5 billion and $26.1 billion respectively.
"We have different methods of collecting data," said Pavel Vorozhtsov, an analyst with Unicorbank. According to him, the Central Bank analyses the real-time flow of money through banking structures, while Rosstat draws on industry data. "The Rosstat technique leads to distortions, because enterprises use a variety of methods to evade taxes - all this blurs the real picture," the expert said.
According to expert opinion, even allowing for such technology, Rosstat figures do not look upbeat. "A 2.7% rise in inflow is really a sharp drop in growth compared with other years," said Igor Nikolayev, director of strategic analysis at the FBK financial and accounting consultancy. "The huge growth of investment going out of Russia points to a return of the credits taken out by private organizations since 2003, rather than a direct investment increase," said Vladimir Tikhomirov, Uralsib senior economist.
"Factors working against investment are the indefinite status of an investor, planned curbs on ownership in strategic sectors of the economy, and episodes like Sakhalin II," Tikhomirov said.
Reputation of Russian Companies remains low
Confidence in Russia and Russian companies remains very low compared to other countries, according to the annual survey Trust Barometer published yesterday by Edelman, the world's largest independent PR firm. Russian experts insist that the West continues to paint a stark picture of Russia because it fears growing competition from its businesses.
It is the eighth survey that Edelman has conducted, and its findings indicate that Russian companies are least likely to be trusted globally. Respondents - 82% in developed countries and 56% in developing countries - have little confidence even in multinational companies if they are based in Russia. In comparison confidence in German companies was rated by respondents at 32% and 21% in developed and developing countries respectively.
This lack of confidence in Russian business is backed up by Russians themselves and not just foreigners. This fact surprised Western researchers, who believed that the population in countries with emerging economies was more likely to trust their own national commercial organizations. Only 39% of respondents in Russia trust Russian business (compared to 60% in China, India, Brazil, Poland and Mexico). The only countries that had worse results were Germany (31%) and France (28%).
Ivan Yermilov, analyst with Eci-Invest, said he was not surprised by the results of the survey and the attitudes of Russians. "The country has just been through a period of wild capitalism; but extortion, racketeering and blackmail continue to flourish. And all this is mixed up with widespread corruption," he said.
As to the opinion of foreign analysts, expert opinion is divided. Some analysts consider the survey reflects the real lack of business confidence in Russia and the effect on commercial enterprise of governmental control. Others, however, felt that it was not possible to rule out the influence of Western rivalry.
"Russia is traditionally ranked bottom in many Western ratings," said Vladimir Salnikov of the Center of Macroeconomic Analysis and Short-Term Forecasts. "The West gives the image that Russia is a country that is dangerous to do business with. I believe that foreign businesses sometimes do this on purpose, because they fear growing competition on the part of Russian commercial giants."