Sunday, June 20, 2010







From the four BRIC nations, Russia is definitely the one that makes people speculate about the relative power of individual leaders most. At the moment Dimitri Medvedev is president in the Kremlin, but most people believe that former president Vladimir Putin is still running the show. Now temporarily as prime minister, but these observers believe that things will probably be changed back to 'normal' in the 2012 elections. I.e., Putin back for president.

LMG Emerge believes that this is indeed possible, but the relationship between Medvedev and Putin is as good and close as the one between president Hu and prime minister Wen in China. So we wouldn't really be that surprised if Medvedev and Putin continue with the current tandem structure, which gives Putin chances to work a bit more in the background.


 Igor Sechin, Deputy PM  (left)

Strong Ally of Vladimir Putin (right)

and according to Forbes one of the most powerful men in the world

But there is a third powerful man in Russia. Actually, Forbes magazine felt that his relative power exceeded that of president Medvedev (with Putin still considered the absolute number one in Russia). Forbes placed both him and Putin in its top-50 of most powerful men. His name is Igor Sechin. A former colleague of Putin in his St Petersburg years back in the 90s. A loyal friend of Putin with a fierce reputation and by many regarded as the main representative of the siloviki, the old powerbase with army and security service background from the former Soviet days.

Sechin is deputy prime minister and responsible for the oil, gas and metals industries. I.e. the man managing the Russian natural reserouces. In other words: the highest manager of those industries that made Russia a BRIC nation in the first place. He is for instance the chief decision taker in Rosneft, the Russian state oil company with similar role in the oil industry like the one held by Gazprom in gas.

In the attached interview given to two Reuters journalists Sechin explains why his vision on Russia's economic growth (continued focus on the natural resources sectors) is not necessarily at odds with Medvedev's call for more focus on Russia as a knowledge economy. Sechin: it is a given that we are a global commodities and resources giant. That Medvedev wants us to diversify is about risk and proper creation of a less sensitive economic structure. Those things are not necessarily at odds with each other. He definitely has a point there: just like a lot of Middle Eastern countries try to diversify their economies.


The most interesting part of the interview is the part where Sechin is asked what he will do in 2012. Will he also be a candidate in the presidential election? His answer - or better answers, since his spokesman called back the Reuter journalists hours after the interview to change the answer! - is illustrative. We believe that the grip on power held by the triangle Putin-Medvedev-Sechin is strong and will remain strong. It will help us extract the longer run, strategic agenda of the Russians as far as their economy is concerned. This is definitely not a democratic country, where election results and our Duma voting can lead to unexpected policy changes. Compare it with Hu's China: this is where longer term policy can be written and followed.

In the years to come we do not expect political fights for power to be the main risk in Russia. Neither will it be the role of oligarchs. The big issue will be to what extent the leading triangle can and will fight corruption so as to give the - still necessary - foreign investors a feeling that their Russian investments are secure. So far, this is probably the only area where Putin c.s. have left us with big - very big - question markets. 


 Market Risk in Russia:

Maybe not a Russian Roulette,

But definitely above-average,

Even for Em Markets standards

When commodity and metals prices are high and on the rise investors tend to push away their fears and take the risk. When prices remain flat or decline Russia is the first Emerging country receiving their doubts again. This uncertainty leads to high market risk on Russian investments and make it by far the most risky of the four BRIC nations from an investor point of view. LMG Emerge did not see much changes in this respect during the Putin-Medvedev-Sechin years until now and we do not really believe that much will change any time soon. An analysis of Transparency International's Corruption Perception Index over the years doesn't really help either. Russia is and will remain a difficult - but not impossible ! - country for foreign investors. So do not translate our skepticism into staying away from Russia all together. Just make sure that your Russian exposure is in line with prospects for natural resource markets. When they are good there, do a bit more. When they are dim in that area, make sure you are not overly exposed.


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