dot com. we're back here with our team reminder of the top stories and autonomous hackers calling the u.s. probably to stop the controversial cyber security act says from passing through the senate claiming the bill is a blatant violation of privacy and civil liberties. on employment in debt ridden space and his new record high threatening to fuel public protests amid fears that lawful demonstrations will lead by a brutal police response. to a string of blasts in ukraine that left more than twenty people injured challenges the authorities ability to tackle security issues havea coming euro two thousand and twelve football championships. this is how lions next parallel his gas discuss the investment climate in russia and his program on the money.

with you for spring overseas by grade three birds will come home to roost. bush with their muscle tone great. empathy gives way to both of the motions. towards those who live on the current. welcome to on the money where the business of russia is business i'm peter lavelle to invest or not to invest this is the question asked by investors and money managers all around the world with so much uncertainty impacting the global economy how do countries like russia stack up ed are they sufficiently insulated from external shocks. to discuss russia's

economic and business environment i'm joined by timothy crouse he is head of the russian bank opportunity fun i have see asset management company we also have let america mirror off he is chief economist at all critter financial corp and simon fenton fletcher he is a portfolio manager with renaissance asset managers ok first of this have a look at where russia's economy stands. following a significant drop in december two thousand and eleven russians tugs gained more steam in the first quarter of two thousand and twelve the sharp two thousand to eleven gave way to the capital inflows with russia would performing other brics and emerging markets in midday provide to many put unsounded between state and russia's economy had to completely overcome the consequences of the financial crisis with the g.d.p. reaching the pre-crisis levels in march oil prices soared to do more than one

hundred twenty six dollars per barrel on the back of global economic improvement in the current brant price at one hundred eighteen dollars per barrel would allow the russian government to reduce the budget deficit or even see no deficit at all real consumer spending remains robust we think that consumer confidence is building. we can feel the why the market is moving why the people of products. and she loves to start in the first part of this year however the situation in europe remains complicated then to suppression of worsening tourism performance and less inflows into russia but the main reasons why russia's economic development ministry could the g.d.p. two thousand and twelve forecast to three point four percent from an earlier announced three point seven percent former finance minister aleksei could drink gave yet another wake up call shall we continue to only use the country's resources we may be able to only hold out for one more year if the oil price lowering is not

dramatic maybe two years but not more some experts however are more up to mystic when it comes to russia's ability to resist the potential crisis well currently the national reserve fund is about three percent of g.d.p. or sr is its forecast for two thousand and twelve so i think there is still there is quite a buffer there and i think correction economy could cope with the recession in the european union another spike in oil prices could benefit russia if the upcoming negotiations with iran result in more sanctions if finance ministry is determined to save all the additional oil revenue to either replenishes or fund a cunt domestic borrowing like law that took right under which it was so rushed in bonding if you were to file for. the house was full of life and if if if instead of if you had to become a child something. was right if something

major problem if your life into recession was just having was much otherwise. unless it showed up for the money you have to. locate him and i'm going to start out with you know kind of a mixed picture right there i mean there's a lot of optimism but there's still some kind of uncertainty most of it is from external issues. we're looking at the eurozone we're looking at oil prices which of course cuts both ways for russia what's your major concern let's go from the outside in what's your major concern looking at how russia's economy is going to function within a global context mine my concern isn't with russia my concern is with its neighbors in the euro zone frankly and you know what we're seeing there i think is a crisis that's going to drag on for quite a long time it's not a simple situation in my view i mean first we had greece now we have spain italy has taken some positive steps but frankly when you take away the leverage of

monetary policy. you know it's a very difficult way to manage that group of countries and i see this continuing to be a problem going on russia on the other hand russia basically is an oil commodity driven economy and if i look at it from that perspective or oil is not like the other commodities it's not like steel it's not like copper iron ore so when demand starts to slow in western europe i think that russia will be somewhat insulated because not only does it sell commodities but mainly it sells oil ok well i mean if i can go to you you know i was thinking before this program started that we should call the euro zone cannot stand because just as timothy pointed out i mean we don't see any real resolution there just kicking the can down the road we have elections going on right now we have the dutch government fall is not a cozy will probably not be elected and reelected as president i mean there's so much more uncertainty going on in the euro zone and you know and as timothy pointed

out right here i mean russia is just basically an innocent bystander. well i would agree with you actually yes indeed external factors do play a very important role as they always did over the past few decades for russia or back. the soviet union but in the current situation there there is a significant level of uncertainty as to what's going to happen internally then ethically we've seen some indications from top people including mr putin and mr madrid of which basically say that they are going to push forward with their quiet strong reform agenda and that some of the central bank people and government people said that could lead to a reversal in the capital trend flow trends to russia and we might see pick up in investment so the focus certainly there however there is not much of a concrete stuff happening and basically in my understanding significant part of

investor community is still waiting on the sidelines to see car the russian domestic story plays out whether russia would be capable to provide more incentives for both domestic and foreign investors to put their money into russia and that's very important factor so i mean figure to you it's interesting because all of the elements are in place or we just don't know what the puzzle piece what the real picture is going to look like in the end because we do know the reformist agenda is still very much out there we've looked at some of the energy policies that putin that what he said he's going to introduce he's reaching out to investors here i mean are the right what kind of pieces are you looking at well i mean the energy policy is in place i mean he's also talking about increasing the action as a tax on gas which is not necessarily good for russian exporters especially when the creation of natural gas in america export to europe is becoming more and more a possibility so yeah the energy russia has benefited significantly from an

increased oil price and with tensions up across the middle east but i will say that in the in the future in the next. you know they can see downward pressure on gas prices specially in europe so that's not something to be very much aware of from an international perspective i mean obviously the whole world combined there's not one nobody's intially to the decoupling theory is well and truly deep bunked but you can save a lot of money ok and that's what the russians are doing i absolutely need a absolutely i mean the profit friends in western europe the u.k. squandered its oil reserve cash in the seventy's and eighty's and norway we can see from that from they saw the wealth and has benefited from from the fact of saving russia has made significant inroads into savings which will insulate somewhat in the in the coming years if there is a downturn or cope perceived long term downturn in europe and that's a distinct possibility. you know for years we've been talking about diversifying away from the energy sector is here i mean is there enough i mean when the money's

coming in it's so easy to be complacent here i mean from the things that incoming president putin is saying are you confident that that reform agenda in modernization will mean will use the energy resources to build a new economy here well look peter you know actions speak louder than words so you know this is not an easy task because what needs to happen is that a lot of regulatory changes need to occur i remember putin saying that right now russia ranks number one hundred twenty three in the ease of doing business report and he said i want to get russia to number twenty well that's a pretty big jump to make over a short period of time and you know the trouble with doing that is that there are a lot of civil employees out there who are effectively making their money from corruption what it is going to rupture stopping small businesses from actually doing what they need to do so if we're going to jump from number one hundred twenty three in the ease of doing business report to number twenty we're going to have to

make sure that those people stop asking for payments and that we get rid of a lot of the nonsense that. only on the books so it's going to take some time but it's a fantastic opportunity and i think it's absolutely terrific that putin has acknowledged this and i hope that he will follow through on it because if he does we will see a much more stable overall economy for russia russia will no longer be held hostage by energy prices as it is today so but we should go for a lot of what do you think about that i mean it looks like they're really there and everything is being said in the right way but i mean do you think that the next presidency in that putin six year term coming back to the presidency do you think that he has everything together to make that happen. well actually i'm fairly bullish about future developments in russia for a reason i think that what was perhaps one of the major lessons that the russian government and particularly mr putin have learned from the recent crisis was that

the government cannot really fully become dependent on the reserves of its own money that it has managed to accumulate the government has been very bullish pre-crisis on its ability to fund growth and russia on its own however when the crisis came they had to use a very considerable part of or their reserves to try to bail out companies to try to stability situation in russia so now looking into the next term of mr putin actually i think there is this recognition that government resources are fairly limited even though there is a reserve fund and i actually i expect that to grow however i expect that the russian government will be forced to become more liberal in the same agenda to forward to it to try to deal with that and with the many. complicated and perhaps difficult structural problems or which team has just mentioned rather than sitting on the sidelines and hoping that windfall revenues coming from our prices will

enable you to have enough cash to put. the growth in on track so i think there is a big recognition that the private investors should come and this requires a lot of steps that should be taken all right gentlemen we're going to go to a short break and after that short break we'll continue talking about the brushes investment environment stay with on the money. the. world. science technology innovation all the list developments from around russia we've done the future. covered but did i kill innocent. allies or. of course and that's never a. song

that's cost me i think of it every day. of the flyers but from the memories. so much so that a long time i'm just here trying. i was ashamed. i was ashamed. i was ashamed that i hadn't been a hero why. i got my legs. in the mine. that i'll believe what i was doing i was the right thing. that i was a good soldier. but you know my soldier on the other side and i think i'm just a good.

welcome back on the money i'm peter lavelle welcome back to the program let's continue our discussion on russia's economic environment simon if i can go to you may is an interesting month for investors when you look at russia a lot of people make a decision to come in sit pretty or just walk away what do you think this month may is going to be all about me it's an interesting month for all over the world for markets traditionally said it may go away. from from my personal perspective on the markets have been so turbulent over the last three or four weeks this is on the back of insane growth in genuine fabric so we've benefited from from from gains across portfolios been fairly conservative in our approach over the last four or four weeks and i'm. taking that stance when it's so many political uncertainties within fronts we have you know the iranian situation keeps coming coming back and forth we still have you know an election year in the u.s. without chinese political ramifications going on at the moment that so there are

many different situations that been it's fluid the one thing i would say good or bad because i mean it is it is it is does it give a reason to invest longer term or is it just short term money in out in out in out i think you have to separate the traders from investors and there are two sets two very different things if you're a long term investor a short term correction in may isn't going to is going to make much effect over a five year horizon it may actually may offer opportunities to come in and buy cheaper so there are buying opportunities and in downturns that's not to say the prices don't go down further but i am a firm from my perspective yes he flew through it he's good for markets complete uncertainty means that everybody will stand on the sidelines but we're not in that situation at the moment i think that we have there are pros and cons to be investing in russia at the moment so we're taking a cautious stance but we are we're certainly investing in russia what do you think timothy when you think about may. madness i have to defer to simon on made because

i'm a long term investor i'm not a trader so i can't tell you what is the trend here i mean is it much you see that when you look at most of the investment in russia is it for long term or sort of just more of a in and out of play i mean what do you see my i mean simon probably knows this better than i but my sense is that there is a fair bit of in and out but then you've got a core of long term investment that is coming in from your multi multinational companies what you don't have in russia is a lot of private equity money coming in in the early years we had oligarchs playing that particular role but if you look at the number of private equity firms in russia today you can count them on one hand so there are very few means to change for that what needs to change for that i think is that people need to have a much different perception of where. russia's going in the next ten years because my time horizon is let's say five to eight years and when i go out and talk to international investors in the middle east and in the far east russia's and on their radar screen i had one quake because you can't make money you know it's

a political risk one i think people are afraid to come to russia it's just that they're really afraid to come to russia so when i was in quezon i was in a bad p.r. if it's the way it's a bad p.r. situation but it goes beyond p.r. come on i mean it also goes beyond p.r. i mean there are certain things that have happened in the last you know five to eight years that have not been good for investors in when you have legal cases that are sold in you know nontransparent ways this really scares investors and frankly it's unfortunate but the only things that foreign investors who sit in singapore be read our international newspapers with these very dramatic whines right they sell newspapers but they don't necessarily tell the whole story what's going on in russia i think russia actually has a fantastic opportunity in terms of investment i call it the last great emerging market because brazil is already in over invested in china has plenty of players there india has plenty of players there but as

a private equity player when i look at things. to buy i'm not competing with very many players it's not like china where everyone goes after the same deal so i think there's a huge opportunity here but russia needs to change the perception of what this country can offer and why it's a safe place for investors to come ok vladimir how does that how do we change that perception you can come here and make money and a lot of it. certainly is yes but. one other point that i want to ted to what team was just saying is that russia is in a very peculiar situation compared to other brics countries in the sense that it has for years has been that one of the largest exporter of the capital worldwide so what we're looking at situation where local business. as local investors prefer to invest abroad drug in the country so there is something wrong here. you should try to attract foreign investment only after your feel that you're there is

a lack of funds inside the country and foreign investors would certainly come when they see that local investors starting to invest so yes indeed there is a big opportunity here and they're there they're great future if russian government starts. seriously. liberalizing its attributes towards local i would like to stress first of all local investors making their life much easier and then this opportunity is would explode and then the foreign investors would also come in it's a very good point someone when you think about that because you know in investment environment is only as good as it is in the country itself absolutely i mean one of the major things that we see that we have concern about is that the outflow of capital has been accelerating in recent times we will thought that it's probably going to slow off post post president elect putin getting back up but it hasn't and that's it's a serious concern i would also say obviously i mean private equity is fundamental to this and it's not great completely it needs to have

a long term stability horizon one of the one of the great things about russia is that it has a political millpond but the same time you know it's now it's in a place where it needs to move forward it needs to crush down the barriers of of corruption that have existed for a long period of time and start investing in infrastructure i mean one of the one of the fundamental things about its country is that you know we have the two thousand and eighteen world cup coming this phenomenal infrastructure projects that need to be completed and that's one of the things i would urge putin to push forward with because that will that will the investment in the in the country will see benefits a long time into the future and when you think about that i mean putin is coming back in and his time in office his first eight years in office will complete phenomenal in the. and you could say the international and investment environment business environment was favorable to his first eight years in office it's not going to be a walk in the in the park this time around you know it's not going to be a walk in the park and i and i think that's why we will probably see what

a lot of people call putin two i think putin one was a completely different time and i think i think mr putin understands that so the challenge that he faces today is to address the concerns of a much broader constituency here in russia. it was a little easier during the first eight years because the job then was to consolidate to create stability to rebuild the state rebuild the state bring honor back to the russian people which i think he did very very well so he's accomplished that he's created i think a very strong platform on which to go forward but now comes the you know tough parts of this assembly in parts of the old communist system still that make it so hard to invest easily in this country and make it too easy to sort of take things that don't belong to you and i think that is what scares investors away that being said i mean i think that i see efforts to try to address this for example people

talk about the moscow being an international financial center yes we've done a program on. it's a very interesting topic i'm sure you would agree peter i don't see it happening in my lifetime but i think the fact that we're starting to see changes with the russian equity market the securities market you know simplifying the registry system simplifying the process of payment and clearance so that institutional investors from the united states and others can come into the market can only help so i mean these are some of the small steps that i think the government is trying to take which will encourage investors to come in and over time including foreigners i'm sorry russians who have taken their money and put it elsewhere yeah it's kind of interesting that cyprus sometimes is the biggest foreign investor in russia which we all know is because all the money goes right there but what about the what about the next six years what if you had a wish list for putin what would you want to ok three things to make russia's

business environment better. first of all i think it's there for more bureaucracy that's a broad topic that i think was also fight against corruption but the fight against corruption doesn't make sense until they actually improve the efficiency and bring in qualified people and pay them proper service and that would include actually significant cuts in the numbers of bureaucrats particularly on the local and regional levels second i think russia needs to streamline its thick station legislation and set sort of clear rules and don't change them every year for the investors they have went through a very hard time they've actually made very hard times for investors particularly the beauty of the sector when they went back and forth on that tariff. tariff reform agenda and that has created a very bad sense and bear bed for investors and thirdly i think russia needs to push forward with their liberalization of its political system that's not

only about the multi-party democracy but it also includes. an independent judiciary court system that also comes in line so courts courts should actually be responsible to the parliament relevant to the president or the government that's where the things should start moving in so i mean it's very interesting to me is it in our competitive world that with globalisation if you don't change you're going to be punished ok and i think this is what russia has realised it's had a remarkable twelve years but the next twelve years will particularly six. a lot more challenges than when to me just mentioned quite a few of them you know absolutely i mean one of the things we were so into tory and there is this interconnectivity. is phenomenal i mean you know the great great story last year stocks of stocks in turkey stocks in asia were were tumbling and there is there is no there is no independence of any one country and the fact that president putin knows me obviously sees this and puts into it we've spoken about

will definitely take. take take note of everything that's happening and we'll change hopefully i mean we keep saying hopefully in the most important things we still hasn't got additional capital to do it i mean there's a lot of help out of salute but at the same time we just heard today that you know the there are there are going to be elected. people in the provinces heads of the provinces but the same time they still can be it is going to be president presidential veto so if that person is a gauge the national interest then he can not not stand in those elections so some sort of giving with one hand and taking away a little with the other so yes he has great political capital. substantial price is certainly going to benefit him in the first first communion we start the program he didn't. fully appreciate it but it should do and it should see him it should see him get him a bore a clean sheet of paper for the first couple years all right gentlemen thank you very much judy for joining us here on the money and stay with our team.

to sleep. and. coming. to.