Page 48 - RUSRptOct18

The challenge that president Vladimir Putin faces now is to recreate that atmosphere of optimism from 2006-2007 so that his own businessmen want to bring their money home from its offshore haven and invest in Russia. The Kremlin is now trying the stick and carrot approach with Putin’s deoffshorisation laws vs things like a tax amnesty for returning flight capital. He has not convinced any one yet. Russia doesn't look stable enough. US sanctions are not going away. And the economy is effectively stagnating. Some of the ideas the Kremlin has been throwing around recently – such as presidential advisor Andrei Belousov’s “super tax” suggestion – suggest the Kremlin will simply force the oligarchs to invest. In a meeting with Belousov in August the collected captains of industry agreed to invest $4.5bn, but that is a drop in the bucket compared to the $131bn that came by itself in the boom years. And that was ten years ago; if there was a another boom presumably the amount of returning flight capital could be multiple times higher.
Bloomberg ran a story this week entitled “US Sanctions Driving Russian billionaires Into Putin’s Arms” claiming that Russia’s top businessmen were moving their money back to the motherland. But the piece turned out to be controversial. Tim Ash, Senior Sovereign Strategist at BlueBay Asset Management, said in an email to clients: “The data just does not show this. Look at private sector capital flow data from the CBR. It’s shows the opposite, private sector flight capital increasing, if anything.”
Central Bank of Russia (CBR) data shows that private capital outflows from Russia have fallen over the last year from $17.4bn for H12018 versus $14.4bn the same time one year earlier. This is according to data captured by the CBR on the balance of payments method of calculation and clearly the CBR does not see all the money flowing in and out of Russia. However, as its clean up of the banking sector continues one of the main goals has been to close down the “money chute” used by businessmen to whisk their earnings off shore undetected by the authorities. According to the central bank the amount of this money laundering has been massively reduced in the last few years.
It is very hard to get a clear picture of what is happening within the details of the capital flows. Certainly Putin’s deoffshorisation campaign has encouraged some oligarchs to bring their money home. In an interview with bne IntelliNews two years ago when the campaign was at its height Dmitri Mints, the CEO of the O1 real estate company, said he had seen hundreds of millions of offshore oligarch money flow into high-end Moscow real estate in the previous year.
But at the same time there are oligarchs that are more scared of a Kremlin appropriation than US sanctions and are sending money out in large amounts.
Russia capital flight (BoP $bn)
Q1, 2015
32.9
Q2, 2015
18.6
Q3, 2015
-3.5
Q4, 2015
9.2
Q1, 2016
8.4
Q2, 2016
-0.4
48 RUSSIA Country Report October 2018 www.intellinews.com