for the full story we've got it for. the biggest issues get the human voice face to face with the news makers. top stories this hour now on r.t. russia should have a stake in the missile shield in europe barack obama spells out his idea while visiting warsaw poland is still set to hell's part of the system that used to be an apple of discord between moscow and washington. the serbia is divided over that coming out of his arrest and looming extradition on war crimes charges with many saying it's a sacrifice to speed up joining the e.u. the former general was ruled to be handed over to the hague despite health problems . u.s.

state department calls on the georgian authorities to investigate the crackdown and protest that led to several deaths that's his crimes take to police the streets again to rally against the government's excessive use of force. and egypt opens a border crossing with gaza partially ending before you have blockade of the palestinian territory human rights groups say a breakthrough in the humanitarian crisis for one and a half million palestinians and face constant food shortages and lack of medical treatment. up next for you on r.t. our program on the money. hello and welcome to upon the money where the business of russia is business. today we're talking about energy investment in the russian economy and to discuss this i'm joined by ben errors here in the studio with me he's editor in chief of business new europe we also have erich krauss he's an independent fund manager

lattimer also cos he is head of strategic planning and development at unicredit securities and lie to me or to commute off he is chief economist at the critter financial corp ok eric i'm going to go to you first you're very well known fund manager here you've been here actually longer than i have and you write this letter weekly right off its monthly no truth and beauty and russian finance which is not only very smart it's very funny so my first question goes to you how do you correlate high oil prices and investment in russia do we correlate well or not well i mean there is a persistent myth that the russian economy and market is only about oil and i've since quit a quick argument with it i mean since oil is a one way bet and it's in the medium term i don't really think it matters very much the point is that what really is been slowing the investment into russia has been a combination of extremely negative coverage in the western press and the russians

own god given talent for screwing up their public relations the russians can make themselves look bad giving out christmas came the importance and this has different effects and different parts of the economy i mean the van market pretty much discounts it right now i mean russian bonds the market rates the risk remote russian bonds a lot less than some of the european countries and in fact only about a half percentage higher than germany itself on the other hand the equity market it's just fast money flowing in and out right now and. as for direct investment which is what's arguably the most important for the russian economy. the funny thing is this misperception i mean most of the guys who have invested directly in russia are making a mint of money they're doing very very well everybody gets dollar signs in place of eyes when they think of china but who's making money on the direct investment in china not many people in russia most in the doing very well but a lot of people are scared to come in because of what they read in the economist

from the financial times ok ben if i go to you in the studio so i'm not sure of really answer the question which i mean there is a public relations issue here but really when is it in a certain point one hundred twenty dollars a barrel hundred thirty dollars about how our investment foreign investment being affected in russia i mean are they coming in growing in or do you say this is too high can it's not sustainable i mean what's the calculation that a lot of for investors are are making a direct link between their the market fall and the price of oil i mean every story and so much as you should put oil into context. russia seen as petro economy and of course oil plays a very important role however oil and gas only make up about fourteen percent of g.d.p. where is services retail what have you make up fifty two percent so from that perspective russia is a pretty normal country where what is important is it will make something of a sixty percent of export revenues and the government. tax revenues so what's going

on here is is this providing the cash for the government to do its investments and it's providing liquidity for the market the actual economy has been driven by spending by small when he says enterprise is the normal parts of the economy and the trouble is from the outside oil the seem to be absolutely important and if your prices tanked and the equity market tanks government revenues tank because they're using the high yield of cases such as you know has actually done everything good about america. also closely then it really in a way just given with benches that it really still is an oil story because the oil prices go down so low that much is in a very difficult situation isn't it respective with all the other elements of how you break down the economy or of course if there will be a substantial correction then of course there will be some negative developments and there are some economy back on the other hand i would say that. since the as a result of the crisis actually we are living in a completely different part of policy set up which is actually kind of underrated

from the very perspective but i think it's extremely important that we are living in a condition sort of out of flexible exchange rate and that will really that a lot of they have negative impact of their if any correction if it is in a substantial correction or prices that traffic on in my face so if oil prices will fall to thirty dollars per barrel then probable for us of course but but economy is not necessarily have to contract at that point if i go to our other vladimir here it's very interesting and we keep talking about oil price but at what point is what is the ideal oil price for russia's macro economic development because you know it's people have called a curse and it can certainly be a curse of it's not managed well what is too high for russia. well it all depends of course because the price is not the only indicator that we're looking at to look at russian

a global economy however general perception is and what is good about that is that these general perception is now also perception within the government that high oil price is not necessarily a blessing but it is also a curse for sure because the president knows the larger our government very views and the glow is the drive towards reform we have seen that quite clearly in the years before the crisis and this last crisis was a very good example and a very good teaching experience for the russian government to re-evaluate things to see that. pure the penguins or oil revenues and the redistribution mechanism through state coffers in order to boost economic growth is not necessarily a good thing erick if i go back to you i mean what is it that you know i'm learning lessons from crisis i mean it's very interesting has there been any lessons learned here because again with oil so high everyone knows it's easy to be complacent ok

money is coming in budgets are expanding have there any will any lessons been learned at all but peter the last crisis wasn't about oil oil fell in the last crisis in two thousand and eight so the reason that a lot of other assets fell it was a liquidity crisis and the lesson that russia learned from that one is that the couter and system whereby the russian government received huge revenues from oil exports and then banks that were brought. russian companies were borrowing very heavily from western banks left the country dangerously exposed so basically when those banks stopped lending and they wanted their money back then the local market was sucked totally dry and we had a bit of that we had a bit of a scare so i think the lesson that they've learned is don't do that russian companies should be borrowing in rubles on the domestic. market and not getting too heavily exposed to western find it i don't know i think although i don't see much of a curse in oil it's certainly allowing

a useful restructuring of the country and i don't think russia would reform very fast under any scenario i mean russia sort of halfway between europe and china it does not have the dynamism of china and it does not have the slowness it doesn't have the high nature of europe so it's going to be a lot it's going to be a ten year process twenty year process russian reform i mean we're maybe halfway through it ok then go ahead go ahead pick up and sequence eric's may i mean looking at the ninety eight crisis it was never again they came out of it and we never again we won't let this happen ever again and the reality that came out of it was the stabilization fund right and here you have a massively corrupt and inefficient country and yet cooter in the finance minister was able to ring fence six hundred billion dollars it makes russia the third richest country in the world and said to cash in the bank and he managed to keep that out of the has the he's coming out of this crisis they had another never again

moment because they thought that stabilization fund was enough they could just buy themselves out of a crisis and that plainly didn't happen so the result has been in the kremlin a very strong conviction for the need to real reform and if you want is real referral if you look at what was going on before the crisis we had the for example the strategic investment which was ring fencing some forty sectors foreign investors couldn't go into. after the crisis the talk now is on investment privatization some of those companies that were put off limits back on limits and they're going to be so things and transpose shipping what have you and the need then having cash in the bank and massive amounts of cash is not going to save your bacon you know when that when the when the crunch comes and if you're dependent on commodities like the crunch will come in to come regularly for. go over to of what amir over it and you know put it securities have is the process of diversification away from oil and gas and is that on track because we've been the i've lived in

russia for twelve years and i've heard about it for twelve years is it being meaningfully done. well if you know if you take a look at the structure of russian economy i guess it was mentioned before that. for example places like services and crafts russian financial services are contributing more than one hundred a piece or russia is actually a diversified economy it's not that actually double oil dominated russia is a major oil exporter but it's not necessarily oil don and i think i mean well of course he is important but. that i would really see it as a function of the fact that we have too much oil on the ground and actually i would really want to comment on the back world cursed be sure i really don't think that the high oil prices or resources is a curse russia can reform if well prices is high or low or of course they might be

less likely to reform but it can definitely have the toss ability of that is not zero so it's not impossible so it's up to russia to continue to develop or evolve or something like that and it's not really related. with oil prices oil just adds additional resources which russia could use in the process for. one thing but ok if you want to jump in there go ahead remember. the the the deal of the year in american markets it's been the flotation of yet this which is a russian technology company one of the only ones in the world which managed to beat google with its own on its own turf and that was made in russia and it's been it's been floated a very high valuation in new york i think. because it's to misunderstand its rating and it becomes. a problem in so much as it becomes with this very specific country problems in the countries with oil you have appreciation this disease or you that's

we talk about judges these links part of the program but it's not it's not because someone says you know there's not that many countries that have missed. but you look about no way i mean they managed to contain it they used isolation from sterilize the money and what have you and it's a problem in so much as you have to have a very specific set of policies that don't apply generally to most countries in order to what to do with all this money that you generate yukon just dump it in your economy right that doesn't work so you have to do something with it but of course you want to use it to pay for all this reform and change ok ben let me jump in here we're going to go to a short break and then we will be turned on that short break we'll continue our discussion on russian energy stay with r.t. . if. you please

please. please. please. please. please please. i did actually and i simply have allies if. they supply some that's never and said . i am a something that's called scope let me i think are going every day. the flashbacks from the memories. i have so much so a long time. i was afraid. i was ashamed that

i didn't. i was ashamed that i hadn't been a hero why i got my arm i got my. what i want to be out. for today i said i believe what i'll go i don't want to i think. that i was a good soldier. but you know my soldier on the other side and i think i'm just glad. the mission. critical take three. three. three. three. three lives leave on live video for your media project

the street medio dot tarty dot com. to. lead welcome back to on the money i'm peter lavelle we're discussing russia's energy sector. but first let's see whether russia is too dependent on its energy resources. surging crude process of late two thousand and ten early two thousand and eleven have an upside of a budget deficit at one point to the past seven percent increasingly approaching balance with energy revenues pushing consumption and g.d.p. growth. the downsides include aggravation of russia's product inflation concerns with brutal strengthening stoking consumer imports some warn of dutch disease but others note the russian symptoms you can eat the classical example of the dutch to

seize is that your dependence on oil and gas or other natural resources pushes up there is really saying trade and distortion manufacturing industry well russia hasn't got a manufacturing base of destroyed. first place where you have a dependency or suffer could be suffering is that you might have a hurdle for developing the manufacturing industry the russian government has long been consumed about over dependence on for moderately revenues and his push to boost because with limited success and skepticism about the prospect of i personally involved see how it's going to change in in in the near term and in the long term is you know even though the russian oil production begins to decline or the global oil production begins to decline what will happen at that time would also mean high oil prices so you who are production will be getting lower the oil price will be getting higher because of that so as a result b. the russian into a. commodity exports would more or less the the same it will be

a big amount of money coming into the country that leaves investors with the choice of leveraging energy revenues or trying to keep those economic sectors which can create and sustain bill you into the future the russian government increasingly pushing for the latter but international investors usually writing the film the theme of how to play russian energy and position for a future russian economy will continue to be seen from russian in business james blake on the money to. ok vladimir over at unicredit securities i'd like to go back to you so is the dutch disease a myth when it comes to russia or just as russia have its own russia disease. well yes i know i guess russia does have problems where they went through when oil is high right but they russian tradeable is good sectors do have programs where oil prices do rise and they will appreciate so of course there are we see substantial

problems in the key manufacturing producers they do have losses then there is a huge and bring in per capita can potentially increase and if this issue asian prevails but at the other hand i would say that the russian market as a whole is not as developed then there's not really it is really big enough to sustain the best take you know substantial big domestic industries actually so for example if we are talking about countries which usually are talked about that he talk about their disease for example ignore we are straley or something like that then. the cooperation of russia is actually bigger than population of those countries combined so it's potentially it's much bigger market which can accommodate. most of the best most of foreign players but also big the best they can histories as well and on top of that the actual industry the magic industries are not big to you know to suffer too much let's say if we go over to

one of the lot of the critter i mentioned russia disease i mean maybe there are certain elements of dutch is easier but russia has just because of the things we just heard the other variables involved russia does has its own balancing act when it comes to high oil prices. well my view is that there are two points of view one you can form a look at the structure of russia's g.d.p. and say hey russia receives more than fifty percent from from for services so it's not come out of the driven economy however if you dig a bit deeper and look at how much of consumer demand and the demand for local services or financial services for that matter is driven by all money which is reduced to a beautiful budget through the garment then you would realize how strongly the car can country's economy still reliant on on revenues it raised from oil i

say that has to russia is perhaps less dependent on oil than it was ten years ago but it is certainly still very much in suitcase. much of industries outside and come on to the sector as my colleague another vladimir just said are not that competitive goals on a global markets and domestic market so that means that there is a huge need for investment in order to modernize this industries in order to make them competitive however when you look at the sources of this investment you end up with it with the commodity revenues that are the way again ok then what about you you're the first person in the program that mentioned disease i mean i'm pushing the russia disease ok there's a big is it because there's no industrial base to really degrade ok i mean if you really come back so that's the point isn't there i mean what does russia exports nothing except raw materials and you can get us diseases here it's a physical surety of

a long time ago the ruble keeps appreciating and appreciating strongly and you go and talk to so that still produces and so you produce steel why don't they make containers about and they make finished goods and tell you reason why we don't is because it's so expensive to do it here we can never ever compete against someone like the chinese and that this. pelleas and so from that sense the economy's already been affected with us this is however the point you're making that it's been mitigated by the size of the population i mean we have. a fifty percent bigger than expected country in europe germany and the mystic markets to some extent is insulated because disease stops you exporting everything's too expensive but however you have a massive massive suggesting it has a level missing to some extent and that's what's going on at the moment i'm in the pushing to diversify manufacturing a service company. but then in pharmaceuticals in the car industry we're having massive investments of that so it's not as bad as it could be it's not as bad as it

is for countries with small populations like norway like australia eric i go to you i think it's very interesting i've lived here for over twelve years and it was only during the the great recession that the. ruble. i'm sorry going back going to inflation the inflation was under control first for a short amount of time and now it we go again high oil prices and the are you happy with management of the ruble. the ruble is basically bouncing along we haven't i mean everybody's talking about dutch disease the only problem is that these requires a constantly strengthening currency and the ruble is not constantly strengthening the the day is slightly fictitious to the extent that all prices are pretty much a one way bet given the continued growth in consumption in asia and the fact that no moral has been made since the dinosaurs less oil prices are going to continue to

strengthen and russia has if you compared to the advantages russia is never going to be a major exporter of nobel telephones russia cannot compete with the chinese neither can anybody else so russia needs to develop those sectors of the economy where there is a compelling. advantage and there are few of them in the resource sector and ben was talking about and still produces and he's right in terms of it is good but on the other hand if you look at the metals producers they have become so much more technologically advanced in the last ten years i mean they're now exporting specialty steels are they doing very well in in the high tech. resources and that is where russia is good as well as in some high tech in some technology. only one example maybe aerospace if you were there is but it's never going to it's never going to export stereo's to korea it's just not going to happen and i think a better example we keep looking at norway in place i think is australia which is

doing very very well on supply the demand of china in all sorts of resources ok if i go over to vladimir over it i mean when we looking at management of the ruble have they found the right balance in and making them russia more attractive investment. destination because we any economy that doesn't have a good handle on its currency is not attractive well i want to stress one part of your question when you said management of the ruble and i want to stress the trouble is is not a free floating currency it is a managed currency so basically we can get ruble rate whenever provided the global situation remains stable or what we can get in the ruble rate where the central bank of russia wants it to be currently we've seen some stability station in the markets we have seen quite significant growth in commodity prices but we also see in still a fairly high levels of risk aversion global markets and the recent correction on

the markets is this is quite a good example of that from that perspective there has not been a lot of investment into the ruble coming from abroad and the one one example is that russia still suffers from continued capital of those which in. you are more of russian exporters not to repeat your rating all for the export revenues into russia partially due to political domestic factors but partial it is also due to the fact that rubble was going no right as eric rightly said however the fact the trouble goes nowhere is that because the central bank of russia does not see any need for ruble appreciation because and set up with the liquidity levels being quite high in any but stable any any ruble appreciation of what can create additional speculative and flow of cash into the country as was the case before the crisis which eventually most money supply there was and most inflation central banker fresh is

very much aware of this fact that's why the ruble is managed in fairly narrow corridor has been minister over the last one to two years and came in with the real house question only a few seconds election cycles coming up is it going to affect how investors look at russia certainly i mean we're having capital out of capital flight for russia for the first time in the ten years there's a lot of nerves because no one knows quite what's going to happen and if there is a change of that stuff then you know we launch into a totally new direction and who's to say what that actually means that she becomes ok gentlemen we've run out of time i want to thank my guests today and thanks to our viewers for watching us here on on the money see you next time and stay with our team.

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