BMI 10 (Business Monitor International, leading provider of proprietary data, analysis, ratings, rankings and forecasts covering 175 countries and 22 industry sectors. “Russian Mining Report Q3 2010”, July, Market Publishers, http://marketpublishers.com/report/industry/other_industries/russia_mining_report_q3_2010.html)
The Russian economy is slowly recovering from the economic crisis, however, the aftermath has seen many mining companies burdened by heavy debt. The prices of commodities are continuing to rise and the market as a whole is seeing signs of recovery but there is concern that this recovery is temporary and much of it is reliant on demand from China. In 2009, China overtook Germany to become Russia’s leading trading partner.China suffers from having few resources of its own and is therefore highly dependent on imports. This is very beneficial to Russia’s mining industry, however, sustained demand will also be linked to the Western world’s economy. This is because China is reliant on the West’s buying power for much of its industrial production and therefore a prolonged slump in the US, Europe and Japan, will result in Chinese demand for raw materials also falling. In turn, this could impact on exports of Russian mines supplying Chinese manufacturers. The recovery of Russia’s mining industry is therefore unpredictable and could be very temporary. If China’s economy falters, which is very possible due to the possibility of a double-dip recession in the West, it could lead Russia’s mining companies into more debt and another crisis. Gold, however, is seen as a relatively safe commodity in Russia as it is throughout the rest of the world. Russia’s leading gold miner, Polyus Gold Mining has already expanded into Central Asia with its purchase of a 50.1% stake in Kazakh Gold Group while Petropavlovsk, the third-largest gold miner in the country, raised US$50mn in February for expansion projects. The price of gold has almost doubled since the autumn of 2008, before the downturn, and now stands at US$2,100, with investors viewing it as a safe-haven in times of economic uncertainty. Meanwhile, Russian Prime Minister Vladimir Putin has called for more development into domestic uranium sites. Sergei Kiriyenko, the head of state-controlled nuclear corporation Rosatom stated that while Russia has a number of undeveloped uranium deposits, they could take a long time to develop. However, there are certainly some improvements being seen in the mining industry. Prices are rising in all sectors and global demand is growing steadily. A number of mining companies are turning to IPOs to raise funds to offset debts, with the most significant being UC RUSAL, the world’s leading aluminium producer who entered the Hong Kong stock exchange in January 2010. BMI forecasts that in 2010 the Russian economy should expand by 3.4% Industry Forecast In 2009BMI estimated that the mining sector declined by 8.6%, but Q110 has seen the market recover slightly with the continuing rise in commodity prices and rise in global demand. By the end of 2010 BMI estimates that the mining sector will be worth US$162bn and by 2014, we project that this figure will have risen to US$236bn.
High – farmers
More Farmers are using modern farming technologies and insuing their crops, stimulating the financial sector.
Arutunyan 7/15 (Anna, editor of The Moscow News, graduate of NYU, “Extreme Weather Woes”, July 15, 2010, The Moscow News, http://www.mn.ru/news/20100715/187933018.html)
Technology to the rescue One unexpected consequence of climate change may involve more farmers adopting modern agricultural and irrigation technology. “Modern technology allows farmers to avoid losses from draughts,” Anton Shaparin, a spokesman for the Russian Grain Union told The Moscow News. “But only a minority of farmers use it right now.” With the majority of farmers uninsured, draughts like this could also persuade more of them to insure their crops – thus stimulating the financing sector, Shaparin said. “The government can’t always give the regions this kind of aid, there’s a budget deficit after all. That is why the government would rather stimulate insurance to absorb these kinds of weather-related risks. This is how it’s done all over the world.” It might even be necessary, he said, to introduce mandatory insurance, while new legislation is expected this fall to regulate crop insurance and make sure that farmers get paid. In the long-run, however, global warming could only harm Russia’s grain industry, he said. With most grain-growing regions located in the south, a rise in temperatures could create dryer weather there, and that’s the last thing the area needs. Moreover, it’s erratic weather – not just hot or cold spells – that are harming the grain sector. “We could deal with the frost. But temperature changes in the spring caused the snow to melt and freeze again, creating a crust that damaged crop.” And neurotic weather makes for unhappy farmers, no matter what their crop is, something that could spell more trouble for the economy down the road.
High – NAFTA
NAFTA solves the economy, three reason.
Dutram 7/14 (Eric, Analyst at ETF Database “Why Russia’s Trade Pact is Big News for RSX”, July 14,2010, ETF Investing, http://etfdb.com/2010/why-russias-trade-pact-is-big-news-for-rsx)
As the economies of Western Europe have grown more intertwined over the past few years, Russia has been left on the sidelines. Blocked out of NATO and the EMU even as both organizations creep ever closer to its western boarders, the once mighty superpower was quickly being boxed in and losing influence over former Cold War allies. However, Russia has experienced somewhat of a resurgence as of late and is seeking to regain its role on the world stage by further exercising its diplomatic and economic might. This is evidenced by the recent trade deal that was signed between the leaders of Russia, Kazakhstan, andBelarus, which is seen by many as a watershed event in post-Soviet relations. “This is a very positive paradigm shift in how Russia deals with the near abroad,” said Yaroslav Lissovolik, the chief economist at Deutsche Bank in Moscow to the New York Times. “Previously, it was a one-way street where Russia was giving out economic favors in exchange for political favors.” The deal, which was signed in the Kazakh capital of Astana earlier this month, looks to push the economies closer together by forming a customs union that will fully abolish all duties and tariffs between the three. This pact, which can be thought of as a Russian NAFTA, is likely to have a huge impact on the Russian economy for years to come, especially as more ex-Soviet republics move to join the union. In fact, just days after the pact was announced, the leaders of Tajikistan and Kyrgyzstan, two countries heavily reliant on migrant labor remittances from Russia, said they were interested in joining the union. As these countries move closer together, three important events are likely to transpire that could give a boost to the Russian economy [also read ETF Plays To Follow Cisco Into Russia]: 1. Cements Moscow’s Status As Financial Capital The deal could open up the other two nations to Russian investment and expertise, especially in the banking industry. That would be crucial for the extremely command-driven economy of Belarus, which is looking to privatize major industries in order to provide financing in light of the global economic slump. This should help Russia diversify away from natural resource production and develop its service sectors, a primary goal of the current administration. The pact could also eventually be regarded as the first step to a common currency among the ex-Soviet countries. “We’ve now neared a very high level of integration,” Russian President Dmitry Medvedev said during a bilateral meeting with his Kazakh counterpart, Nursultan Nazarbayev. “Looking forward, there’s cooperation on the common economic space, and in the future … a common market and, I think, ultimately the creation of the foundations for a shared currency zone” [also see Three Country ETFs With Low Debt-To-GDP]. 2. Access To Excess Labor Pools One of the major problems facing Russia today is its shrinking population, development that is forcing the country to import thousands of workers in order to keep its economy going forward. This pact should allow for workers to more easily enter Russia, which could help to boost the economy in the near-term. Russia currently has a population growth rate that is among the 20 lowest in the world, has one of the lowest birth rates, and one of the highest death rates; if the Russians want to continue to grow the consumption and service side of the economy, many more workers and citizens from ex-Soviet nations will be needed [see Emerging Market ETFs: Where's The Consumer Exposure?]. 3. Delay Russian Entry Into WTO Despite the positives of the trade deal, it is seen by many as possibly delaying the country’s entry into the World Trade Organization. This is largely due to Russian leaders calling for a joint bid between the three for membership in the WTO, something that is unlikely to happen in the near future given how far behind the economies of Kazakhstan and especially Belarus are from complying with the WTO requirements. Russia is by far the largest non-WTO member in the world, and its continued absence from the organization is likely to restrict investment from those who are more attracted to countries with more liberalized and transparent trade practices [also read Seven Most Corrupt Country ETFs].