Sochi 2014 Update

[mr.x]

Originally Posted by flight_from_kamakura

wow.

damned russians. one imagines that they're wasting money of a load of cool venues that'll be tough to legacy, but it sure does make the mouth water to see those. and here i felt pleased about the ice rink at ubc, damn.

two words: white elephants.


eight words: The Beijing 2008 of the Olympic Winter Games

[LeftCoaster]

Hmm I wonder how these venues will turn out with the complete collapse of the Russian economy? They better hope things turn around in the next few years.

[Yume-sama]

The city of Sochi probably has a lot more money than the city of Vancouver. It's an official "Resort City", whereas we only say Vancouver is .

There are a lot of Russian billionaires, and you know they are in on the action. No matter how legitimately so...

[mooks28]

Totally amazing -- but totally ridiculous as well. If they manage to finish these all on time with the crappy economy I'll be impressed.

Also, Russia planned on having buckets of money due to surging oil prices but obviously the price of oil has dropped by nearly 2/3rds since its peak. I wonder what the effect on those games is going to be?

[LeftCoaster]

I am well aware of the amount of Billionares in Russia, the emergence of the Russian Oligarch has been astounding to say the least. Lately however things have taken a rather drastic turn, as the Russian economy has been hit harder than any economy in the world by the global economic meltdown, and even the notoriously free-spending Russian billionares will be pulling their purse strings a little tighter. As an example, rumour has it that Roman Abramovich, who was once worth nearly 25 billion, is worth little more than 5 billion today. What has happened in Russia over the past 2-3 months is astronomical and causes me to seriously consider Russia's ability to follow through on all these grandiose infrastructure plans. Like I said, I hope things turn around for them in the next few years.

[mr.x]

^ it was a poor choice by the IOC in the first place to select a city/resort that has zero transportation infrastructure and zero sport venues. I wouldn't mind if Sochi 2014 crashes and burns....only to make Vancouver 2010 look even better in comparison. :p

[flight_from_kamakura]

not to get too off topic here, but russia is fine, indeed, if there's a recession, russia will be better off than most states (probably making a relative gain). a vast and reasonably diverse domestic industrial/manufacturing sector combined with a large portion of the world's mineral, energy (not just oil) and timber resources make the russian economy pretty resilient. the mess in the 1990s wasn't so much about the economic fundamentals as it was about widespread corruption, gangsterism and kleptocracy. and now that the "oligarchs" and government have consolidated their positions, it should be a while before we see any significant economic worries over there.

[LeftCoaster]

^What in the world are you talking about??

The russian economy is in a complete collapse and their central markets are free falling. Federal bailouts and interventions have so far done nothing and the World bank just slashed their growth forcasts for Russian GDP by over half.

[mr.x]

Crisis to cut Russian growth sharply: World Bank
18 Nov 2008, 2024 hrs IST, AGENCIES

MOSCOW: The global financial crisis is set to bring an abrupt end to years of strong growth in Russia and prevent more than a million of its
people from escaping poverty, the World Bank
warned on Tuesday.

The bank said it was slashing its growth forecasts for Russia to around six per cent in 2008 from 6.8 per cent previously, with 2009 down sharply at 3.0 per cent from 6.5 per cent.

"After a decade of high growth, the Russian economy is experiencing a slowdown in the wake of the global financial crisis," the World Bank said in its latest economic report on Russia.

Capital flight, the worldwide credit crunch, lower oil prices and the heavy losses on Russia's stock markets "are slowing domestic demand - hitherto the engine of Russia's growth," the bank said.

Between May and November, the stock market lost one trillion dollars (790 billion euros) in value - equivalent to 84 per cent of gross domestic product - with Russia's super-rich alone losing 300 billion dollars, it said.

The events have been a stark wake-up call for an economy that grew 8.1 per cent in 2007 and 7.4 per cent in 2006, driven largely by soaring commodity prices, especially for oil.

The report warned the financial crisis would have a significant human dimension in Russia.

"The implications of the financial crisis on Russia's poor are troubling ... The higher poverty headcounts imply that 1.3 million fewer people will move out of poverty between 2007 and 2009," the bank said.

But the bank also said that Russia's improved fiscal management had protected the country from the worst excesses of the shock and praised the government for a "swift, coordinated and comprehensive" response.

"Russia is better prepared today to deal with these challenges than at any time since the beginning of transition (from Communist rule in 1989)," it said.



Wealthy Russians to Lose $300bn on Global Collapse

The wealthy Russians will lose roughly $300 billion on the drop in capitalization of the country’s stock market, the World Bank forecasted in the report covering Russia’s economy.

What’s more, the industrial slowdown will impair the actual income of middle class and of the poor in Russia. As to the latter, the World Bank experts came up with two different scenarios.

Under the pre-crisis scenario that is based on the surge in per capita GDP of 6.8 percent in 2008 and of 6.5 percent in 2009, the share of the poor will narrow to 10.2 percent in 2008 and to 8.6 percent in 2009, shedding by nearly a third in 2007 through 2009. Some 5.7 million will leave the poor category if this scenario ultimately materializes.

The second scenario has been made out with regard to financial collapse. It specifies the slowdown of 6.5 percent in 2008 and 3.5 percent in 2009 and foresees extension of the poor share to 10.4 percent in 2008 and 9.5 percent in 2009. As a result, the number of people that will escape from the poor category will be 1.3 million less in 2007 to 2009, according to the World Bank.

The World Bank downgraded the forecasted growth of Russia’s GDP from 6.8 percent to 6 percent in 2008 and from 6.5 percent to 3 percent in 2009. According to its outlook, the unemployment in Russia will step up to 5.9 percent by this year-end (the previous forecast was 5.3 percent).
www.kommersant.com

[flight_from_kamakura]

^ really quick: government revenues are up, the government expects growth to drop to a mere 3-3.5%, and that $1 trillion (or whatever) in capitalization loss doesn't have anything to do with the country's productivity or whatever. the government has the situation well underhand, foreign direct investment and technological modernization are continuing apace, and exports are stronger now (at least in volume terms, rather than dollar terms) than they've ever been. the fundamentals of this economy are strong.

[LeftCoaster]

Government revenues are not up, FDI is not continuing apace and exports are not as strong as they have ever been, exports in fact are predicted to plummet.

Did you just make that entire post up?

Even Russian president Medvedev does not share you rosy outlook of his own country.

Russia's Medvedev: crisis has spread to real economy

IZHEVSK, Russia, Nov 18 (Reuters) - Russian President Dmitry Medvedev said on Tuesday that the global financial crisis has spread to the real economy, and that the many sectors that need state aid will get it.

"Today it is clear that the crisis is spreading, unfortunately, from the financial sector into the sectors of the real economy," Medvedev told reporters.

"Every industry is affected in its own way. It is impossible to say that one among them is sitting pretty and will not get state money," he said.

Russia is pushing ahead with a $200 billion state aid package, and the central bank has spend tens of billions of dollars propping up the local currency in recent weeks as investors pulled money out of the country and its stock markets.

Medvedev added that some sectors vying for state assistance had been heavily leveraged before the onset of the credit crisis.

"In a number of cases we are having to help industries that were living on debt, for example the retail sector," he said.

The comments were notably more downbeat than previous ones made by Medvedev, who has sought to reassure investors and the Russian public by saying the crisis could pass Russia by and will allow it to emerge stronger on the world stage. (Reporting by Denis Dyomkin, writing by Simon Shuster; editing by Patrick Graham)

http://www.reuters.com/article/economicNews/idUSLI65856020081118

[flight_from_kamakura]

uh, right.

anyway, further off topic then, i think the doom and gloom around the russian economy is vastly overstated. revenues are indeed up, the stabilization fund (or rather, the two successor funds) have something like $200 billion, which is the highest ever, and the country still holds about $400 billion in foreign reserves, probably 4th in the world on that measure. exports are not predicted to plummet (show me a serious person who says that), indeed, with the ruble's value against the euro dropping 15% over the last 3 months (and predicted to drop up to 30%), and the inflation rate finally going down, things are looking good on that front. consumer confidence is bad, as is services, and most of these issues are related to the virtual collapse of the banking sector, which of course was among the least healthy and most corrupt in all the world. but none of this really touches the productive economy, aside from the capitalization side of it. you're totally wrong that foreign direct investment is "not continuing", especially in the resource sectors (though i suppose one could argue that since a lot of these loans are backed by the likes of vneshtorg they don't really count) - really, nothing's changed there except a lot of capital flight. current accounts are positive, with no deficit predicted any time soon (show me someone who says anything differently), and though there's a question that it may narrow, the jan-june numbers were the widest since they began measuring. most people think the government's currency swapping/foreign reserve sales/loan-support plan (with some good structural reform in the banking sector) should eventually straighten most of this stuff out. as for the little article there, i gather medvedyev is talking to the domestic media and he's talking about the services contraction and the big drop in property-related industries (construction, real estate, related services) that's hit most russians the hardest. again, that's all removed from the fundamental strength of the russian economy, especially on the resource side.

[LeftCoaster]

You can't just make stuff up flight, for every pertinant recent article I have posted you have provided your own personal anicdotes and opinoins as a rebuttal... here is another rather damming article with more evidence that the Russian economy is getting hammered and is probably in worse shape than any industrialised nation in the world.

Russia industry slowdown prompts new government action
11.18.08, 12:44 PM EST

By Gleb Bryanski and Denis Dyomkin

MOSCOW, Nov 18 (Reuters) - Russia pledged fresh efforts to boost its economy on Tuesday after data showed industry growth slumping and the World Bank said further weakness in the rouble looked inevitable.
Official statistics showed double-digit falls in production of materials such as rolled steel and cement, which slowed annual industrial output growth to 1.6 percent in October, well below a forecast of 3.7 percent and 6.0 percent a year ago.

Underlining the extent to which the global financial and economic crisis is hurting Russia's economy, its biggest steelmaker Severstal cut its 2008 earnings forecast and said it would defer its $8 billion 2009-2011 investment programme because market conditions have worsened.

President Dmitry Medvedev said the country would need to spend more of its wealth, amassed when global demand for its commodity exports was booming, on helping the economy.

'About 5 trillion roubles ($182.3 billion) will be spent on stabilisation measures. But this is not the final number. We understand that the scale of the problem is such that additional decisions will be needed,' Medvedev said in a speech.

For the first time Russia's top leadership acknowledged the crisis that it has previously described as global and financial is spreading fast into the heart of the Russian economy.

'Today it is clear that the crisis is spreading, unfortunately, from the financial sector into the sectors of the real economy... Every industry is affected in its own way,' Medvedev told reporters.

Russia's reserves have already shrunk by a sixth in the last three months to $475 billion, largely due to official efforts to defend the rouble through three months of capital flight.

The World Bank praised Moscow's response to the global crisis but halved its forecast for 2009 Russian economic growth to 3 percent due in part to the collapse of world oil prices.

'The weakness of the oil market, the capital outflows, the weakening current account situation -- obviously those forces are going to continue in the short term,' Zeljko Bogetic, the bank's lead economist for Russia, told journalists.

'It's not a question of if (the rouble weakens), it's more a question of how it will be managed in the short term given the fundamental factors and also the need to maintain ... reserves.'


HARD DATA

Tuesday's data, together with releases on unemployment, producer prices and capital investment later this week, will enable economic planners to provide advice on the scale of the rouble's depreciation and the bailout package.

'This figure (industrial output) is the first hard data point on the impact on the real economy of the freezing of the financial system last month,' said Rory MacFarquhar, managing director at Goldman Sachs (nyse: GS - news - people ) in Moscow.

Russia's MICEX index recovered after a trading suspension prompted by falling prices and ended the day up 3.3 percent on Tuesday, tracking Wall Street gains and the oil price recovery. The index is still down 70 percent this year, hit by capital flight and a bleak outlook for Russian exports.

Earlier this month, Raspadskaya, Russia's second-largest producer of coal for the steel industry, said fourth-quarter 2008 sales would reach only one-third of planned volumes after steel makers slashed orders.

Depositary receipts of construction firm PIK Group plummeted by 57 percent this week on debt worries. The World Bank estimates total corporate debt due in the fourth quarter 2008 at up to $65 billion including margin calls.

Prices for Urals, the country's main export blend of oil, stood at $47 per barrel, the level last seen at the start of 2007. Russia's energy minister Sergei Shmatko said companies could cut output and exports should they become 'unprofitable'.

The rouble remained stable at 30.68 against the central bank's policy basket made of 0.55 dollars and 0.45 euros after last week's 1 percent devaluation.

Both Medvedev and Prime Minister Vladimir Putin, the country's most influential politician, have engaged in a verbal attack against currency speculators, but more signs emerged that firms and ordinary Russians are no longer convinced the authorities can avoid more substantial devaluation.

Electricity producer OGK-3 said it had converted more than $560 million worth of roubles into dollars to hedge against a devaluation of the rouble and now had so much cash that the banks were asking the company for loans.

'We are not speculators. We are not trying to get an extra profit, but are simply counting on avoiding the devaluation of the assets we have,' the company's financial director said.

(Additional reporting by Toni Vorobyova, Olga Popova, Gleb Gorodyankin and Melissa Akin; Editing by Ruth Pitchford) ($1=27.43 Rouble) Keywords: RUSSIA ECONOMY/

([email protected] ; +7 495 775 1242; Reuters Messaging: [email protected] )


COPYRIGHT


Copyright Thomson Reuters 2008. All rights reserved.

Russia's reserves, although initially vast will certainly be tested through this economic disaster. Their reserves however won’t be able to singlehandedly stave off the crisis, as many industries have just too many fundamental issues to be saved by a capital injection. With the Rouble plummeting, as you so aptly pointed out, Russia's reserves will also be worth substantially less and have less of an economic impact. In addition, if Russia continues to pump capital into their economy, while currency investors continue to flee the rouble, inflation will rise and the currency will continue to devalue, creating a wealth vacuum and an economic disaster of massive proportions.

Could you please provide me with some proof as to FDI increasing, or even staying at its previous levels? I don’t know how you can refute the statement that FDI will drop when foreign Banks, investment firms and multinationals are scaling back their own domestic operations, let alone poring more money into a shaky Russian economy. Russian consumer confidence is low and resource prices are dropping faster than the rouble... why would any entity be looking to invest in this situation?

And Exports... well your unsubstantiated claim that exports will not drop is baffling. Where will they sell these exports to? I cannot envision a scenario where a world in complete global economic recession will be buying more goods from Russia. It is completely counter intuitive.

Please provide some evidence to substantiate you claims, as I have provided more than enough corroborative information to verify mine. Just because you say the Russian economy has strong fundamentals does not make it so... no matter how many times or ways you say it.

Edit*
Also how can you claim that the banking sector's collapse will not have any effect on the productive economy? Where will firms obtain the necessary capital funding to persue new or existing endeavours? Have you not seen what has been happening all around the world? Its not just developers who cannot obtain funding; mines, factories, firms from A to Z are finding it difficult to fund their operations.

[flight_from_kamakura]

hmm, i'm pretty confident about what i'm saying here, but i'm not interested in stepping on anyone's toes, and indeed, it looks like there's new data there that i'll have to look at (there's lots of q3 data yesterday and today to look at). so though i don't really buy the economist/reuters line on all this, for now i'll admit that it may be that you're more right than i am.

just a few things that i'll take immediate issue with though, real quick. as i'm sure you know, a large portion of the stabilization reserves are held in a mix of currencies, and the foreign currency reserves are mostly debt, meaning that they'll be somewhat isolated from the ruble's current troubles. also, inflation has been huge in russia since the fall of communism, and it's been hovering around 12-14% since october 2007 (and it was a high 8-10% in the months before that), and the central bank has basically committed to maintaining there or lowering it a little, which sounds weird until you realize how unevenly it's distributed (ie. regional differences, price controls, etc). you can't look at inflation in russia the same way you do in other places. as for resource prices, oil is the only one that's dropping faster than the ruble, and that's affecting exports because of relatively high delivery costs and export duties (which have dropped considerably, by the way).

also, as i'm sure you know, a lot of these firms in difficulty were massively overleveraged, mostly in sectors based on domestic consumption. capital has dried up for these losers, and we can look at the example of vancouver to get a sense of how this works. dropping steel orders on the domestic side means dropping coal orders on the domestic side. but international demand in these domains remains strong (in this instance at least...and i've got a copy of steelworld right here that tells me so!) and the russian government has been suspending or pushing back export duties across the board - in timber, in metals, coal, heck, they cut the oil export duty nearly in half. and though i may be wrong on this, i've read nowhere serious (yet) that we've seen declines aside from the timber drops attributed to weak harvest and oil export drops. the reuters article seems deliberately to be sensationalizing the drop by talking to a coal producer obviously selling to domestic steel concerns (thus likely having no export license and being especially dependent on said domestic demand). this, to me, is a pretty weak anecdotal example.

finally, as for foreign direct investment, i've seen no real decline, though with capital flight and the perception of increased risk, the loans are being backed by equity stakes, which is a pretty fair deal, in many minds, given the obvious strengths of these companies. incidentally, this is probably part of the reason that the government is shoring up the big players with lots of foreign debt right off - because widespread default would lead to significant foreign ownership of these resources companies, deemed strategic. anyway, the way it seems to be working is that an entity like deutschebank puts up a loan for something like vedba or norilsk and then the vtb puts walks in to provide the guarantee.

edit: though it may sound ludicrous, i think russia right now is in a great position.

[LeftCoaster]

just a few things that i'll take immediate issue with though, real quick. as i'm sure you know, a large portion of the stabilization reserves are held in a mix of currencies, and the foreign currency reserves are mostly debt, meaning that they'll be somewhat isolated from the ruble's current troubles. also, inflation has been huge in russia since the fall of communism, and it's been hovering around 12-14% since october 2007 (and it was a high 8-10% in the months before that), and the central bank has basically committed to maintaining there or lowering it a little, which sounds weird until you realize how unevenly it's distributed (ie. regional differences, price controls, etc). you can't look at inflation in russia the same way you do in other places. as for resource prices, oil is the only one that's dropping faster than the ruble, and that's affecting exports because of relatively high delivery costs and export duties (which have dropped considerably, by the way).

For sure The Russian Government would diversify its reserves in multiple currencies, and multiple mediums for that matter, although I would still think the majority of its reserves would be in Rubles… but that is mere speculation on my part. And resource prices may be dropping, but the demand just isn’t there right now, or at least it won’t be after the last latent demand dries up. Even Demand engines like China, India and Dubai are gearing up for a slowdown. Times look tough nearly everywhere in the world right now.

though it may sound ludicrous, i think russia right now is in a great position.

Hmm well I’m going to have to agree with you on this last point, but with one big disclaimer. I think in the short term Russia is in a terrible position as they relied too heavily on their O/G industry during their fantastic growth over the past several years and now that it is suffering some of the industries it was propping up have shown their weaknesses. In the long term however I do agree that Russia is in an incredible position. Russia is a country that has long benefited from its vast natural resources, and now much like Canada it is poised to make great strides in world standing due to this. As the world’s population continues to increase and industrialize and natural resources become more and more scarce the profits seen in resource rich countries like Russia and Canada will be staggering. Let’s just hope that Russia’s bungling X-KGB politicians don’t get in the way of this due to their archaic views on foreign policy.

[mr.x]

Russia has cut its Sochi 2014 budget by 15%, and that would mean they would save about US$8.3-billion......and that's just 15% of the entire Olympic budget, so you can basically do the math on what their total budget is.

And yet, Vancouverites complain about Olympic costs that would benefit the city for decades to come.


http://news.bbc.co.uk/2/hi/europe/7894644.stm

[Yume-sama]

Wow. Well, obviously they are trying to showcase Russia to the World, much the way Beijing was doing.

Not surprised they had such a big budget, there was some SUPER GODLY rich Russians up until this. Now they're just REALLY rich.

I may try to swing going to Sochi 2014. Something tells me I'll be able to get tickets.

[mrjauk]

If a 15% cut saves 8.3 billion US, then the budget was originally over 55 billion dollars! Yikes!

Just for comparison, the total BC GDP for last year was about twice that (about 120 billion USD). So the Russkies had been planning on spending about 6 months of total BC GDP on the Winter Games.

[Distill3d]

i think we should consider ourselves blessed that we had the most of the venues and infrastructure in place prior to making an Olympic bid. surely that has kept our costs down significantly.