In the early 1990s to Russia together with capitalism came the Western investment banks. Their task was to help the domestic companies in raising financing and provide access to the stock market many investors. However linger for a long time they did not work: most are gone after the default of 1998 and the ensuing crisis, the rest continue to close its Russian subsidiary due to the lack of prospects and extra money. Now, Russia came under pressure from the sanctions, but at the same time wins by a US trade war. In the era of economic stagnation of Europe about the Western view of Russia “Tape.ru” said a leading economist at Saxo Bank Steen Jakobsen.
“Ribbon.ru”: Stin, what can you say about the current state of the Russian economy?
Steen Jakobsen: Russia passed an impressive way over the last five years — after what happened in 2014-2015 with the sanctions, with the ruble. We can say that Russia withstood this test and is now stronger than ever. Five years ago, many thought of a repeat of 1998 — that your country will once again declare themselves bankrupt. But, as we see, this did not happen. Besides, she is one of the few real winners in the current trade war.
You can compare the success of Russia with the success of Eastern European countries: Poland, Romania, the Czech Republic, and Slovakia. They are now showing more growth than their Western neighbors in the European Union, which in recent years has used to dominate. Of course, the Eastern bloc still has a lot of problems: corruption, dependency on Germany, sometimes painful, reduction in global demand, which they will sooner or later face. But right now, their success can not be ignored.
It is worth noting Russia’s ties with China — today, they are stronger than ever and affect multiple sectors: defense, infrastructure. Take the gas pipeline “Power of Siberia”, stretching from Russia to China. Russia and China have always been close in a certain, say, philosophical terms, but only recently they become close politically and economically. Besides, now they share a common problem — a common enemy in the United States. All this, of course, positive signals, which should not turn a blind eye. China, unlike many countries, knows what he wants. He wants to grow and to do this including through military buildup.
What else our country has advantages and strengths?
Well, one of your main advantages of head of the Central Bank [Elvira Nabiullina]. In recent years she has achieved fame and respect not only in Russia but also abroad. She’s phenomenal. It can be called a hawk, fighting inflation, which just a few years managed to be lowered to four percent. Even when Russia had problems with the budget in order to ensure its balance, everyone knew that the country has a Central Bank, which conducts its own policy. And it certainly is doing attractive Russian government bonds.
In Russia, many call Elvira Nabiullina killer banks for its tough policy. Over the past few years lost the license, dozens of credit institutions.
Oh, yeah, she’s definitely the killer, but it kills not just and not just anyone — she does this in order to increase the transparency of the system. In recent years, Russia has too many banks, it does not give proper control.
But why, then, despite all these advantages and achievements, Russia continues to occupy a modest place in the global economy? It accounts for about two percent of global GDP.
I must say that the importance and influence of Russia is constantly growing, despite the fact that the Russian economy, as you surely have noticed, is still small. It is, say, less Belgian. I think the key factor here, of course, political. Furthermore, there are other reasons: dependence on the energy sector which will not go away, strong state influence on the economy. I like to joke that studying Russia for 15 years, and every time I come to you tell me about how the country seeks to develop, become better, and Moscow is about to become a global financial center. And then I come again, and it turns out that something went wrong: something has been cancelled, delayed, have any interference.
Your question cannot be answered unambiguously. Russian politics and the economy in General is not the place where everything is simple and clear. Many different factors are intertwined together. Although, again, one of the main, if not the main, is the geopolitical. But even in the current situation, Russia shows a much more serious results than it was expected — we can say, surprised. Due to the defense industry, oil and gas — they are still very very strong.
Can you name a few Russian companies attractive for investors, including foreign ones?
All they are hearing: “Yandex”, “Gazprom”, “Rosneft”, Sberbank. Believe me, for them to engage investors worldwide. However, the problem of your companies that they are not focused on the world market, not involved in it. Learn about Russian companies is more than that, and so at the hearing at all, it is often difficult. If you go to the Russian stock market and want to actively participate in, you will depend heavily on local players, including banks, pension funds. In this respect Russia is similar to China — it has a lot of speculators focused on short-term profit. They are not interested to invest in the company, to develop it 20 years, then bring to the exchange and capitalize on this.
You can often hear about the huge Chinese market, but people just don’t understand what I’m saying. Don’t understand that it’s just 90 million active traders that have a strong influence on the quotations and market conditions. And the foreign players can’t look at them, not ignore their behavior.
You already named Russia as one of the winners of a trade war between the US and China. It is involved more and more countries. Who else to put in a number of those who will benefit from global tensions?
First and foremost, this Asian countries: Vietnam, Cambodia, India. They are all in varying degrees, benefit from the fact that foreign companies are shifting their production, thereby creating jobs, value added, paying taxes to local budgets.
How do you characterize the global economy in its current form? Here and there talking about recession, worldwide fall in interest rates and bond yields. In the United States recorded a reverse yield curve, which is considered to be a true signal of a future crisis.
The current situation is very unusual. It was formed due to the lack of loans — the main driver of today’s global economy. No one wants to take them and at the same time no one is willing to give. No one wants to do anything and as a result, the situation has only gotten worse. Take, for example, Germany. Its economy rests on the cars, for which demand is falling because of the development of electric vehicles and a trade war, and petrochemicals. Latest industry produces plastic, which are struggling in many developed countries. Politicians and activists in favor of recycling and reusing.
The situation with interest rates, which you mentioned, is also extremely interesting. In the US they sure are moving toward zero and I am sure you will achieve it. In General, I have formulated a rule: if you want to know your future, look at Japan. There is now a negative rate. By this move we all want. Do not forget that the reason that we are seeing now — low real interest rates (market interest rate adjusted for inflation). In Europe, they are now at minus 2.5 percent (Deposit rate of the European Central Bank minus 0.5 percent per annum, less two per cent inflation) in the US is zero. This means that the American authorities still have room to soften its policy. Rates on government bonds will continue to fall, investors will get out of them, increasing the yield. The same inverse yield curve will persist. I think, before us loomed a real prospect of a global recession.
Is not the first decade to say about the economic power of China and that he is ready to dominate the rest of the world. China’s success is indeed striking, but while we are talking only about how to catch up with the world’s largest economy — the US — in terms of GDP, not adjusted per capita. Meanwhile, the population of one country of 350 million people, the other 1.5 billion. Whether correctly them to compare and talk about the leadership of China, which is almost here?
You know, I think China does not need any world domination. They do not tend to catch up and overtake the USA in terms of GDP per capita, which, of course, is a more objective measure when comparing two countries, then I agree with you completely. America used the Second world war, to deliver half of the world is dependent on his weapons, his protection technologies. The Marshall plan is the most important and ingenious that has been done in the history of mankind. To give people around the world loans, to enable them to buy your products, and you to develop their technology and production further. This is a basic primitive idea, and now China is trying to learn from it and apply it in their programme “One belt and one road”. But you are absolutely right when you say that the welfare of the population and the economic power of the country should be measured not just in GDP and in GDP per capita. From this point of view, China is still very far from the United States or to Northern Europe. China has a long way to go. And there is now no one left who would not understand it.
The hardest part of development and improvement of the economy of a single country — to stop being a productive appendage of the developed world, traveling on cheap labor and resources. Russia, by the way, goes through a similar path and facing the same difficulties. The path is difficult, but in the end the economy becomes innovative. To achieve this, we need to develop the many areas which often have no direct relationship to the economy, but nevertheless very important: the legal system (including to foreign investors), the education system, involvement of women in production and in public administration. In my estimation, now China is in the stage of development that the US and Europe have been around in the 1950-ies.
Now some Chinese companies have problems with the American authorities. The most notorious case, the smartphone manufacturer Huawei. In Russia it is very popular. Should the Russians start to look at the other brands? And can they be Chinese?
The truth is that China today is the undisputed leader in the development of 5G technology. New iPhone that has just presented Apple, this standard is not supported. I don’t think the Russians or, for example, my countrymen, the Danes will be a very interesting smartphone without 5G. Huawei the leader in this direction, they’ve been doing this the last 3-4 years, their technology is now objectively the best. But, of course, over them as over all China is hanging a big geopolitical cloud. What is happening now can be called bullying to China. I don’t think the Russians or the Danes may not be able to buy a particular smartphone model, but of course, politicians limit our opportunities.
Do not forget this. They say now that in the future all will be solved by artificial intelligence and big data. Just look who has the most potential in these areas. Who has the most population who have the most widespread non-cash payments, who in the end have the ability to collect unlimited data about millions of its citizens? All this information is then converted into the same big data.
Not many think that is known to us WhatsApp is just a primitive version of the Chinese instant messenger WeChat, which has long does not a messenger. It is the communication, Bank, security, medical card, all at once. What part would you like to be part of Apple and its devices to 4G or Chinese companies with their latest gadgets which may have built-in listening equipment? But people around the world — in Russia or Denmark — and already realize that they are constantly under surveillance even if they do not warn about this directly.
In Russia now very popular trend in the abandonment of the dollar — the so-called de-dollarization. It is caused by political reasons, but increasingly moving into a purely economic plane. How can you rate it? Does it make sense in a global economy?
From a political point of view, it certainly makes sense. The US and its currency should not be the only means of saving and storage of reserves should always be an alternative, and you can look for it. It’s not always easy. The Russian government and the Central Bank recently concentrated on buying gold. But gold also has disadvantages: it is difficult to transport, difficult to store, difficult to use, it is not as liquid as a currency. Also in your country trying to regulate cryptocurrency, although it is a difficult path. What else can be alternatives to the dollar? Special drawing rights? Maybe. In any case, I think, the Russian authorities give the world a political message.
Finally, I can not ask you as a representative of the Bank, offering its clients services in trade and investment. You are present on the Russian market, your application is fully translated into Russian language. But in Russia, only one percent of the population has a brokerage account. Do you think can I vaccinate the Russians the culture of investing?
I, as a person, not steeped in the Russian market and its realities, it is difficult to say for sure, but I think that the only reasons simply do not exist. As there and the only way to rectify the situation — you need to take a range of measures. You can start even with, to create a more free and competitive market, to instill in people an interest and a thirst for entrepreneurship, to build an appropriate legal environment. Special attention should be paid to the right of ownership. If this is done, Russia will have a chance to become a hub for technology, medical, military. You have all the chances to do this. In the end, you are still, without exaggeration, a great education system that each year produces huge amount of highly skilled experts, for example programmers. In the world there are examples of successful ways that didn’t take much time. One of them is Singapore. And it is not in climate, I’m sure. If you observe these conditions, Russia can create a culture of investment, and then Moscow will become a full-fledged international financial centre.
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