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bne July 2017
A second issue concerns whether the establishment of a robust digital economy can benefit most Russians. A recent report cites the case of farmer Mikhail Shlyapnikov, who started his own crypto currency called Kolion, which saw $500,000 in investor purchases. For a country short on capital, the ability of Russians such as Shlyapnikov (or the town of Magnitogorsk, which recently earned $5.6mn in an ‘initial coin offering’) to raise money matters.
However, despite interest in crypto currency by both individuals and officials, the number of Russians who actually know of or use digital currencies is “between 10,000 – 20,000 people”, according to that story. The geography of investment is telling as well: per the RVCA, some 83% of total venture capital investments went to the Central Federal District, most probably to Moscow and the surrounding area, and not to poorer regions.
On a broader level, it would be highly optimistic to expect
a population that has yet to fully adopt credit cards in daily use to rapidly embrace technology such as contactless payment, let alone crypto currencies. In other words, it seems more likely that large corporations, including or primarily those owned by the state, would be those who ultimately integrate the technology.
Despite the Bank of Russia’s recent softening on crypto cur- rency issues, Russian authorities have by and large held a sceptical view towards new technologies, tending to view
ALACO DISPATCHES:
Re-empowered Rouhani still faces struggle to woo investors Tom Laub of Alaco
Western investors will have been encouraged by
the re-election of reform-minded Hassan Rouhani as Iran’s president, but Iran’s powerful hardline forces will likely frustrate efforts to make the country more attractive for foreign investment.
Rouhani’s clear victory over conservative rival Ebrahim Raisi on May 19 is widely seen as public backing for his competent
Opinion 55 them through a security lens as opposed to as an economic
opportunity.
The ‘securitisation of IT,’ as it might be termed, is perhaps best exemplified in the Yarovaya Laws, which mandate that telecom providers – some 10,000 in Russia – save metadata from communications for up to three years. The cost of this legislation for operators has been calculated anywhere from 3-10 trillion rubles ($50bn-170bln). Given that that overall sector revenue (not profit!) for 2016 was 1.675 trillion rubles, the scale of the burden becomes apparent. Though implementation – one that will involve state subsidies that add to the challenge of reducing the local deficit – remains a work in progress, the regulatory risk of future acts such as the Yarovaya Laws will not simply evaporate. For every new technology, there arises a new risk of its securitisation.
Ultimately, the digital economy may prove beneficial especially for state procurement and a number of large firms. But there’s no sign yet that nascent digital technologies have the capacity to revolutionise the Russian economy, or that the state has the institutional flexibility to provide fertile soil for its taking root. The risk is that the benefits of a digital economy may both start and end with the state, leaving only indirect benefits for households apt to grow increasingly impatient with stagnation.
Aaron Schwartzbaum is the publisher of Bear Market Brief.
management of the economy and engagement with the West following the 2015 nuclear deal. Although investors have been slow in coming, oil exports have surged, enabling Rouhani to point to significant economic progress. In the year to March 2017 Iran’s GDP grew by around 6.5%, its current account surplus rose to around 6% of GDP over the same period, and inflation has tumbled from a 2013 high of 45% to 7%.
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