Demographic shockwaves

In the end of June, a conference on the consequences of demographic change for Russia took place in the German Council on Foreign Relations (https://dgap.org/en/node/28296). The invited demographers, political scientists and economists touched on a large variety of possible developments, consequences and policy measures, but there were some facts that stood out to me. As I am currently working on a more thorough conference report, I will "leak" some findings I find interesting beforehand.

Maybe the most stunning (and worrying) development in Russia is the forecast for the number of women in the "childbearing age". In Russia, the mean age of mothers at the birth of their first child was 24.6 years in 2009 (it is slowly increasing). This means that the majority of children are born when their mothers are in the 25-29 year age cohort. In the next ten years, the number of Russian women in this age cohort will fall - by half!

Source: World Population Prospects 2015

One reason for this sharp decline is the peculiar shape of the Russian age pyramid (at the conference it was referred to as the "Christmas tree" by Ekaterina Schulmann). The background is, on the one hand, the echo of the second world war: The grandchildren of the wartime parents are in the childbearing age today. This effect is, on the other hand, exacerbated by the lower birth rates in the 1990s which were due to the economic and social turmoil in the first years after the perestroika. The good news is that there will be a moderate recovery after 2025.

Of course, this trend also applies to the male population. In total, the drastic fluctuations lead to enormous challenges for the labour market and the pensions system. Currently, the ratio of Russians entering retirement age to Russians entering working age is 2:1. The workforce will shrink by about 8 million in the next 15 years. The consequences are also felt in the education system: Kindergartens, schools, and universities have to deal with the number of pupils and students doubling and halving again in a matter of a few years.

 Source: http://populationpyramid.net/russian-federation/

Does the Russian government have the resources, both economically and politically, to deal with the upcoming changes? At the moment it does not look that way, as the Kremlin is dodging pressing but unpopular reforms while prioritising foreign policy. This is why demographic change in Russia is a little bit more worrying than in other countries (such as Germany) where similar trends can be observed.

How fracking made the oil price predictable

Predicting the future oil price used to be an ungrateful enterprise. Because the demand and especially supply of oil has been inelastic in the last decades, even slight changes in demand (e.g. through growth of the world economy) could lead to drastic increases or decreases of the oil price.

Although fracking only makes up for a small part of the international oil supply, it increased the supply elasticity between $50 and $100. In addition to huge low-cost oil production sites in Saudi Arabia, Russia and elsewhere, the market now features a large number of small fracking sites with a higher and more diverse cost structure. Variable costs are higher for fracking than for conventional oil production, and investment cycles are shorter.

This means that when oil prices were to reach 60 dollars per barrel again, "hibernating" production capacities in the US will be reactivated, increasing supply and dampening the price. Over time, with continuing development of fracking technologies, the elastic part of the oil supply curve will become flatter, slowly lowering the oil price or compensating for increasing demand.

Of course, the underlying assumption to this is that OPEC or other oil cartels will not artificially reduce their production. However, this assumption is realistic, as OPEC has shown that it suffers from strong collective-action problems and diverging interests. In addition, the conventional oil producers have realised, that reducing their production would only facilitate the further development of fracking. For Saudi Arabia, keeping output high and the price at a level around 50 dollars is the best choice.

The result is an oil price that will most likely not rise above 70 dollars in the next five years. What does this mean for Russia? At the current level, the government is forced to continue drastic austerity if it does not want to burn up the relatively small reserves. The Russian recession will most likely end next year, but economic growth will not return to previous levels. Until 2018 (the next presidential election) the imperative is clearly to limit the pain that is inflicted on the Russian population, especially pensioners. Then, living standards will continue to deteriorate and certainly not return to pre-2014 levels. The most drastic changes are awaiting the pensions system, because a large generation 60-year-olds is currently leaving he labour market while a tiny generation of 20-year-olds is entering it.

Who wants to be a millionaire?

When you look at the numbers on overall wealth inequality, Russia is not an extraordinary case. With a GINI index (0%=everybody owns the same, 100%=one owns everything) of 69.9% it is more unequal than Germany (66.7%) and China (55%), but in the U.S., the GINI is even higher than in Russia (U.S. 80.1%). However, wealth distribution is peculiar in Russia when you look at the wealthiest in the upper class. The number of billionaires in Russia is extraordinarily high, while the number of millionaires is very low.

Beginning with the more obvious part, Russia's excentric billionaires are often covered in international news, so it will not surprise you that there are much more of them than Russia's GDP would indicate:

However, the number of millionaires is surprisingly low. Estimating the number of millionaires in a country is much more difficult than counting the billionaires. Depending on the source, there are large differences in the available data. In the following graph, the number of millionaire adults (not households) as estimated in the Global Wealth Databook by Credit Suisse is used:

To indicate the wealth distribution in the upper class in a single diagram, you can compare the number of billionaires with the number of millionaires per country:

In numbers, for every billionaire there are 1,045 millionaires in Russia according to Credit Suisse, while there are 88,583 millionaires for every billionaire in Japan. In Germany, the relationship is 1:14,806 and in the UK 1:44,604.

What do these relations us? There are many factors influencing the distribution of wealth in the top class, among which there certainly are the structure of the economy, state and the history of economic development and each country's institutions, including cultural characteristics which influence social mobility etc. Disentangling these effects would result in a nice research paper.

To explain the low number of millionaires in Russia, it helps to understand who the millionaires in other countries, e.g. the United States are. There is an interesting charaterization of American millionaires: They are mostly self-employed (two thirds, vs. a 20% average in the US) and run "boring" small businesses: "We are welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers, and paving contractors." Small businesses are responsible for many of the American seven-figure belongings. Most did not become a millionaire by inheriting.

We can reformulate the question: "Why are there so few millionaires in Russia" to the question: "Where are Russians small but successful paving contractors?" This provides us at least with one explanation: It is no secret that the difficult business environment in Russia as overproportionally hurting small and medium companies, while large companies may actually benefit from the anti-competitive effects of weak institutions. This is one reason for the large extent of the shadow economy in Russia, which is sometimes estimated to make up 20% of GDP. Small businesses in the shadow economy will most likely not produce many millionaire owners. To the opposite, these entrepreneurs will most likely try to stay small - nobody wants to stimulate the appetite of any state organs or well-connected competitors.

Sources:
GDP - World Bank

Number of millionaires - Credit Suisse
Global Wealth Databook 2015

Number of billionaires - Forbes
(compiled on Wikipedia)

The Russian reserves - how long will they last?

Low oil prices have been a strain on Russia's federal budget this year. The Finance Ministry is expecting a deficit around 3% of the Russian GDP for 2015. Although the current recession in Russia is expected to end in 2016, the budget forecast for 2016 does not look any better. In the budget draft accepted by the Russian Duma today, the deficit reaches 3% of GDP yet again. It is based on an average oil price of $50/barrel. Currently, the price for Urals oil is just above $40.

It is clear that at current oil prices, trouble is ahead for Russia's state finances. But how soon will the reserves run out? There seems to be some confusion about the actual size of the reserves. For example, a Stratfor report counted $515.43 billion (the report is accessible if you google for "Russia Prepares to Tighten Spending in 2016"). However, there seems to be an error in their calculation. They added the international reserves as published by the Russian central bank ($371.26 billion) to the size of the National Wealth Fund (NWF, $73.66 billion) and the National Reserve Fund (NRF, $70.51 billion). The problem is that the NWF and NRF are already included in the $371.26 billion. Thus, Stratfor is exaggerating the Russian reserves by about $144 billion dollars.

The National Reserve Fund and the National Wealth Fund are the most important indicators for the sustainability of Russian state finances. The NRF is designed to be budget buffer. It is replenished from budget surpluses until it reaches 10% of GDP - all surpluses beyond that are used transferred to the NWF. The NWF was designed to be a safeguard for the pension system. However, with law changes it can also - and most likely will - be used for financing a budget deficit.

Both the NRF and NWF are supposed to be invested in dollar (45%), euro (45%) and British Pound (10%). The size and the composition of the funds is constantly changing slightly because of changes in exchange rates. For example, the NWF was about $6 billion smaller in November 2015 than in January 2015, because the Euro lost 10% of its value against the Dollar during that time. There have been no large transfers involving the NWF until now.

The 2015 budget deficit is being financed with the National Reserve Fund. There were several withdrawals during this year. At the 1st of December 2015, the NRF is $29 billion smaller than in January 2015 (it went from $88 billion to $59 billion). Throughout the year, there were several withdrawals which were used for the federal budget.

The withdrawal of funds serves two different purposes at the same time. On the one hand, the money is used for budget financing. On the other hand, the withdrawals allow the central bank to support the Ruble. The reason is that the freed Euro/Dollar/British Pound investments can be converted into Rubles, creating additional demand for the Russian currency.

To this point, the changes in the Reserve Fund do not look dramatic. However, towards the end of the year there may be additional larger withdrawals. In the end of October, Russian finance minister Siluanov estimated the Reserve fund to shrink to 2,6 trillion Rubles by the end of the year. This estimate is included as a dotted line in the following diagram:

SUMMARY - How long will Russia's reserves last? If the finance minister is right, the NRF will fall to 3,6% of the Russian GDP this year. The budget deficit for next year is planned to be 3% of GDP, meaning that about 0,6% of the NRF would be left in the end of 2016. However, the budget assumes an average oil price which is 20%-25% higher than the actual oil price today. This is why Siluanov has already warned that the NRF will be empty before the end of next year.

If the NRF is gone, this is of course not the end of days for the Russian state. The next reserves to be tapped into is obviously the National Wealth Fund, which would last another two years at current oil prices (until 2018). If the oil price has not recovered significantly by 2018 (i.e. after Putin's probable reelection) the Russian government might try to issue bonds (downside: high interest payments) or sell bonds to the central bank, effectively printing Rubles (downside: inflation will go up). Dramatic budget cuts would be another solution. A combination of all three measures is the most likely outcome.

Overall, the forecast is not looking too bright. Without rallying oil prices there is stormy weather ahead for Russian state finances around 2018. Should economics eventually "rock the boat" in Russia, Putin truly needs an experienced an trusted navigator, which may be the reason for former finance minister Kudrin's expected return to the Kremlin.

*During the mass protests in Russia, Putin called upon the opposition to "not rock the boat". Eventually, OMON police forces and arrests silenced the opposition.

All charts are based on data from minfin.ru

Website of the author: http://www.janis-kluge.com

Skolkowo - ein russisches Märchen in zehn Schlagzeilen

Im Rahmen einer Recherche für dekoder.org fragte ich mich heute: Wie geht es eigentlich dem einstigen russischen Vorzeigeprojekt Skolkowo? Die Google-Trends-Grafik zeigt, dass das Interesse an dem Moskauer Hightech-Viertel deutlich zurückgegangen ist. Die relevanten Schlagzeilen, die Google zu Skolkowo ausspuckt, erzählen ein russisches Modernisierungs-Märchen in zehn Kapiteln. Hier uneditiert wiedergegeben:

24. Juni 2010: Medwedjew zu seinen Landsleuten in den USA: Skolkowo wird keine Kopie von Silicon Valley

11. Oktober 2010: Medwedjew bringt Schwarzenegger nach Skolkowo

25. April 2011: Medwedjew will in Skolkowo unterrichten

10. November 2011: Microsoft unterstützt Startups in Skolkowo

[längere Funkstille, neuer alter Präsident im Kreml, dann:]

12. Februar 2013: Ermittler eröffnen Strafverfahren wegen Unterschlagung von 24 Mio. Rubel in Skolkowo

7. Mai 2013: Der Vize-Präsident von Skolkowo wurde entlassen

30. Oktober 2013: Generalstaatsanwalt: Beim Bau von Skolkowo wurden 125 Mio. Rubel gestohlen

26. März 2015: Generalstaatsanwalt beschuldigt Ponomarjow, an den Unterschlagungen in Skolkowo beteiligt gewesen zu sein [Ponomarjow ist ein oppositioneller Abgeordneter, der den Kurs des Kremls in der Ukraine offen kritisiert]

9. Juni 2015: Gegen Ponomarjow wird ein Strafverfahren wegen Beihilfe zur Unterschlagung in Skolkowo eröffnet

16. Oktober 2015: Die Duma genehmigt die Verhaftung des Abgeordneten Ponomarjow, der in dem Verfahren zur Unterschlagung von Mitteln beim Skolkowo-Fonds beschuldigt wird.

Die Quelle.

Russland-Sanktionen - sticks, but no carrots.

Vor genau einem Jahr, am 8. September 2014, beschloss die EU die bisher deutlichsten Wirtschaftssanktionen gegen Russland. Die Möglichkeiten der Finanzierung in Europa wurde für fünf russische Staatsbanken im Vergleich zum vorherigen Beschluss Ende Juli verschärft (die maximale Laufzeit von Anleihen wurde von 90 auf 30 Tage gekürzt). Außerdem schlossen die September-Sanktionen auch einige Industrieunternehmen mit ein, darunter den Ölriesen Rosneft. Schließlich wurde es westlichen Konzernen verboten, in Russland Dienstleistungen zur Exploration und Erschließung neuer Ölvorkommen anzubieten.

Diese Sanktionen hatten zur Folge, dass die betroffenen Unternehmen umdisponieren mussten. Mangelndes Kapital verlangsamte die Investitionstätigkeit und Explorations-Projekte, die zum Teil nur in den wenigen Sommermonaten Sibiriens stattfinden können, mussten "auf Eis" gelegt werden.

Es ist unbestritten, dass die Sanktionen Folgen haben. Die russische Ölfördermenge der nächsten Jahre könnte durch sie erst einmal fallen. Haben die Sanktionen aber ihre politischen Ziele erreicht?

Eine Wirksamkeit im Sinne der EU (nicht im Sinne der EU war z.B. die Instrumentalisierung der Sanktionen für antiwestliche Propaganda) hängt davon ab, ob die wirtschaftliche Lage in Russland die Ukraine-Politik des Kremls beeinflusst. Die Brisanz der Wirtschaftskrise dürfte man im Kreml inzwischen realisiert haben (auch wenn Beamte und Berater häufig große Anreize zur Beschönigung der Lage haben). Mögliche weitere Sanktionen von Seiten der EU kommen daher - sei es unausgesprochen - sicherlich in manchen Eskalations-Szenarien für die Ukraine vor und wirken deeskalierend.

Die bereits eingeführten Sanktionen sind allerdings keine wertvolle Verhandlungsmasse. Hier liegt der zentrale Unterschied zum Iran-Embargo, das den zuletzt erzielten Atom-Kompromiss für die iranische Führung schmackhaft gemacht hat: Das Aufheben der EU-Sanktionen hilft der russischen Führung derzeit kaum weiter.

Während der Iran in naher Zukunft auf Milliarden von Öldollars und Investitionen hoffen kann, fänden die russischen Unternehmen derzeit auch ohne Sanktionen kaum Kapital in Europa. Die Rückgewinnung des Investorenvertrauens dauert. Die blockierten Projekte in der Öl-Exploration beeinflussen die Fördermenge in einigen Jahren. Bei den derzeitigen Ölpreisen stehen dem Kreml schon viel früher viel größere Probleme ins Haus (der Reserve-Fonds soll nach den Plänen des Finanzministeriums bis 2017 aufgebraucht werden). Außerdem ist der Kreml nicht daran interessiert, die "Gegensanktionen" aufzuheben, die ja eigentlich Industriepolitik für die eigene Landwirtschaft sein sollen.

Die bisherigen Sanktionen haben die Bereitschaft der EU gezeigt, wirtschaftliche Einschränkungen gegen Russland einzusetzen. Damit haben sie für den Kreml Anreize geschaffen, die Situation in der Ukraine nicht weiter eskalieren zu lassen. Da ein Aufheben der Sanktionen dem Kreml aber derzeit kaum weiterhilft, wurde - im Gegensatz zum Iran-Embargo - keine Verhandlungsmasse geschaffen. Zur Deeskalation wären bspw. Einschränkungen der Ölimporte aus Russland sinnvoller gewesen, weil ihre Aufhebung unmittelbar wirksam ist.

Über das Politisieren ökonomischer Proteste

Mit seiner jüngsten Äußerung zu den fortdauernden Protesten in Armenien hat der russische Außenminister Lawrow eine interessante Klassifizierung verschiedener Protest-Typen eingeführt. Lawrow warnt, die zutiefst ökonomischen Proteste könnten zu politischen Protesten gemacht werden.

Die Unterscheidung zwischen "ökonomischen Protesten" und "politischen Protesten" ist deshalb interessant, weil sie verdeutlicht, wie sich die politische Klasse in Russland legitimiert. Auch mit Blick auf die aktuelle Situation in Griechenland wirkt die Trennung zwischen beiden Protestformen erst einmal absurd. Was unterscheidet sie? Für Herrn Lawrow sind "politische Proteste" solche, die gegen die Regierung (bzw. auf den Austausch der Regierung) gerichtet sind, während "ökonomische Proteste" eine unpolitische Bekundung von Bedürfnissen und Notständen sind. So wie die russische Regierung den russischen Gesellschaftsvertrag interpretiert, sind "ökonomische Proteste" gewissermaßen konstruktive Kritik und erlaubt (siehe auch der Beitrag zum Pikaljowo-Komplex), während "politische Proteste" destruktiv und tabu sind.

Herr Lawrow weist auch darauf hin, dass alle Farbrevolutionen als ökonomische Proteste begonnen hätten. Über den Arabischen Frühlung könnte man ähnlich argumentieren. Wenn Lawrow "farbige Revolution" sagt, heißt das natürlich: Die schlimmen, destruktiven Revolutionen. D.h. irgendwann ist bei den ökonomischen Protesten etwas schiefgelaufen und sie haben sich in politische verwandelt (oder: wurden von westlichen Geheimdiensten dazu gemacht). Aber gab es diese Wandlung der Proteste wirklich?

Ich halte die Trennung von politischen und ökonomischen Protesten für eine institutionelle Innovation autoritärer Politik. Da die Politik über die Verteilung der ökonomischen Ressourcen entscheidet sind natürlich alle ökonomischen Proteste gleichzeitig politische Proteste. Die Trennung, die Lawrow zum Ausdruck bringt, ist fiktiv. Es handelt sich vielmehr um Labels, die Lawrow und andere den verschiedenen Protest-Typen aufdrückt. Durch die Einführung dieser Labels trennt die Politik die zwei wichtigsten Verbündeten jeder Revolution: Die Hungrigen und diejenigen, die mitbestimmen wollen.

Aber welche Arten von Protesten verstecken sich wirklich hinter den Bezeichnungen? "Ökonomische Proteste" sind diejenigen, in denen kein Anspruch auf Mitbestimmung angemeldet wird. Diese Proteste können als wichtiges Frühwarnsystem für politische Aufruhr sehr nützlich sein (wenn es gelingt, die Probleme wie in Pikaljowo zu lösen). Der "ökonomische Protest" (du wirst hier gebraucht, Zar!) nach Lawrows Lesart enthält immer die Möglichkeit, dass der Präsident einfliegen und das Problem lösen kann, das jemand weiter unten in der Hierarchie verursacht hat. Während ein "ökonomischer Protest" also einer ist, in dem das Einfliegen des Präsidenten erwünscht ist, wollen die "politischen" Demonstranten ihn lieber ausfliegen. Mit den Begriffen "ökonomisch" und "politisch" hat das aber weniger zu tun als mit einem vordemokratischen und einem demokratischen Verständnis von Herrschaft.