The Bell, 7/17/23
| President Vladimir Putin signed a decree that transferred the shares of foreign shareholders to the “temporary control” of Rosimushchestvo, the agency responsible for state property. The decree affects the Baltika brewery, which is 100% owned by Denmark’s Carlsberg, and dairy firm Danone Rossiya, which is owned by France’s Danone. In effect, the state has appropriated the assets of foreign investors who have poured billions of dollars into the Russian eonomy over the years. Danone Rossiya and Baltika are important players on the Russian consumer market. Danone is Russia’s biggest diary producer and Baltika is the second-largest brewery. Danone first started producing its branded products in Russian factories in 1994, and opened its own plant in the country in 2000. By 2022, the French company owned 13 businesses in the country, employing 100,000 staff. Carlsberg became a key player in the Russian beer market in 2000 when it partnered with Norway’s Orka to acquire a 50% stake in Baltika. In 2008 the Danes increased their share in Baltika to 100%. From 1996 to 2020, Baltika was consistently the leading beer brand in Russia. The decree might come as a surprise to Carlsberg: three weeks ago the company announced that it found a buyer for its Russian assets (although the buyer’s identity was never publicized). However, it’s currently impossible to sell Russian subsidiaries of foreign companies without the permission of a special government commission. Carlsberg’s press service admitted that it was awaiting that permit. In February 2023, media reports said Danone planned to transfer control over its assets to new investors. However, there were never any reports that new investors had been found.“ Transfer to temporary control” is de facto nationalization. This mechanism was introduced at the end of April and was first applied to two major foreign investors in the Russian electricity market: Germany’s Uniper and Finland’s Fortum. The day after Putin’s decree was published, the management of both companies’ Russian subsidiaries were replaced with individuals from Rosneft boss Igor Sechin’s circle. This week Fortum announced that it was filing a multi-billion-euro compensation claim to international arbitration. Why the world should care: In reality, nationalization happened some time ago, and it fell upon everyone at once. Last fall, Putin banned foreign companies from selling Russian assets without the government’s permission. If you cannot sell your business when you choose, it is no longer your business. |
| Inflation gains momentum Russia’s Central Bank expects prices to rise. But just a month ago, Putin was hailing the country’s low inflation rates compared to the rest of the world. At the start of the summer, Putin boasted of how inflation in Russia was approaching record lows and was even less than in many Western countries at 2.9%. However, with the rapid fall in the ruble and high levels of consumer demand, the Central Bank is warning of price rises to come. According to the Central Bank’s latest figures, price rises over the past 12 months reached 6.4%. Since the start of this year alone, they are up 3.25%. The bank’s analysts anticipate that the coming months will see annual inflation rates getting higher. Taking into account current monetary policies, the rate will be 4.5-6.5% this year. The weakening ruble’s knock-on effects are currently less noticeable than usual, the Bank warned. There are exceptions for specific goods and services where demand remains high (cars, foreign tourism). As demand grows and existing stocks deplete, the combined impact of ruble depreciation may have a greater impact on prices, the Bank’s analysts warned. Inflation was also boosted by labor shortages, wage increases outstripping productivity and consumers choosing to spend rather than save, which encourages manufactures to hike prices. The Central Bank published fresh data on inflation a week before its next meeting to discuss the base interest rate, which has held steady at 7.5% since September 2022. Now, Russian analysts predict a 50bp increase. Why the world should care: Official inflation rates in Russia have been low all year, close to the Central Bank’s 4% target. However, factors such as ruble depreciation, increased demand, depleted stocks of imported goods indicate that inflation is set to increase. This will compel Russia’s Central Bank to pursue a stricter monetary policy. |