Экономика России. 6

Федеральное агентство по образованию

Волгоградский Государственный Архитектурно – Строительный университет

Курсовая  работа на тему: «Экономика России» 

Выполнила: Шумилова Ю.С.

Волгоград, 2012

Оглавление

Chapter I 4

Appraising the European Central Bank 4

The ECB has run as loose a monetary policy as other central banks have. It is just rather more coy about it 4

Caveat creditor. A new economic era is dawning 6

Balancing inflation and the ruble 9

The West Must Not Turn Its Back on Russia 10

Returning to market 14

Rostelecom consolidates to lead to local telecoms shakeup 16

Russia and Europe to push on roaming call charges 18

Russian billionaires back in town 21

Transition Policies and Entrepreneurship 28

Consumers in a market economy 29

The economic environment 35

Measuring economic activity 36

Economic issues 37

Russia’s economy: Unsustainable support - FT.com 40

Глава II 46

Оценка Европейского Центрального Банка 46

Предостережение кредитора.  Рассвет новой экономической  эпохи 49

Стабилизация инфляции и рубля 52

Запад не должен поворачиваться спиной к России 54

Возвращение на рынок 58

Преобразование “Ростелекома”  значительно укрепит позиции  на рынке телекоммуникаций 61

Россия и Европа договорились о снижении цен на звонки в роуминге 63

Цены и доходы потребителя 64

Российские миллиардеры  возвращаются 66

Предпринимательства в странах с переходной экономикой 67

Потребители в рыночной экономике 77

Экономическая  среда 84

Измерение экономической  активности 85

Проблемы экономики 87

Российская экономика: нежизнеспособная поддержка 90

VOCABULARY  of Economic Terms 99

Chapter I

Appraising the European Central Bank

The ECB has run as loose a monetary policy as other central banks have. It is just rather more coy about it

THE global economy has stopped sinking and central bankers are pausing for breath. As The Economist went to press on July 2nd, the European Central Bank (ECB) was expected to keep its main “refi” interest rate unchanged, at 1%. The ECB’s rate-setting council has been chary of cutting rates closer to zero as policymakers elsewhere have done. Its reluctance to do more has attracted criticism, only some of it fair.

The focus on policy rates may put the ECB in a bad light but these are no longer a reliable guide to the overall monetary-policy stance. If you look at market rates the policy stance in the euro area is as loose as anywhere else, because of stimulus decisions taken at the height of the financial crisis. In October the ECB decided it would offer banks as much cash as they wanted, at a fixed interest rate (the refi rate) and against a wider range of security than usual, for up to six months. It also scheduled extra three-month and six-month refinancing operations, so that banks could come more often to the central-bank well.

In May the ECB council agreed to extend the offer of fixed-rate cash to one year. At the first 12-month refinancing operation on June 24th, euro-zone banks borrowed a staggering €442 billion ($620 billion). With so much cash splashing around, the charge that banks make for overnight loans has stayed well below the refi rate, with some occasional spikes (see chart). Since the €442 billion cash injection, overnight interest rates in the euro zone have fallen to a record low of 0.3%, below those in Britain and scarcely higher than in America. Indeed banks can now borrow more cheaply in euros than in pounds for either three, six or 12 months.

Before the crisis, the ECB would aim to keep overnight interest rates close to the refi rate. Since it moved to unlimited fixed-rate funding, the central bank has been content to allow the overnight rate to drift much lower than the policy rate. In effect, the bank now has a target range for short-term rates: the upper bound is the 1% refi rate and the lower bound is the rate the central bank pays on banks’ deposits with it, currently 0.25%. The deposit rate has been a better guide to the policy stance than the refi rate has. ECB-watchers and markets understand this, even though it has not been spelt out in so many words by Jean-Claude Trichet, the ECB’s president.

Why be so coy? One concern is that by playing up the fight against recession, the ECB could appear to have lost sight of inflation. Keeping the totemic refi rate above zero may be seen as necessary to prevent inflation expectations from drifting up. There may also be a reluctance to admit that such a gushing provision of liquidity has altered the policy stance. Since the start of the crisis in August 2007, the ECB has insisted the two are separate. “They are bold on liquidity because they don’t see it as mainstream monetary policy,” says Charles Wyplosz of the Graduate Institute in Geneva. Yet the terms of its refinancing for banks have clearly led to looser monetary conditions.

Another reason for obfuscation is to mask differences among rate-setters. Monetary-policy hawks can reassure themselves that the policy rate is not too low. Doves are happy that effective interest rates are nearer to zero. And Mr Trichet can claim there is a “consensus”. The terms of the truce make it easier to reverse policy when the time comes. By restricting its liquidity support, the ECB will be able to guide overnight interest rates towards 1% without having to alter its policy rate.

Because the ECB has had one eye on the exit since the start of the crisis it has earned plaudits from those who think the Federal Reserve has been incautious. That judgment is too kind to the ECB, which could afford to have scruples about the medium term because other central banks were taking more care of the present. It is also unfair on the Fed, which had to stand in place of America’s collapsed shadow-banking system. When the economy was in most danger, the ECB could have cut rates more quickly. “If the ECB had been more proactive, the recession would have been less bad,” says Marco Annunziata of UniCredit. The striving for consensus militated against bolder action.

Another criticism is that the ECB has not done more to ease credit conditions by buying government and corporate bonds outright, as the Bank of England and the Fed have done. Its scheme to purchase up to €60 billion of the safest bank bonds, launched this month, is modest by comparison. Mr Trichet believes that focus makes sense, as euro-zone businesses and homebuyers rely more on banks than capital markets for credit. In America, capital markets matter more, so the Fed had to get its hands dirtier by buying commercial paper and mortgage-backed securities.

The ECB is also loth to soil its hands with public debt, though banks flush with central-bank cash are keen buyers of such low-risk assets. If this is monetisation at a remove, so be it. The central bank keeps its independence from government and does not have to worry about selling bonds back into the market once the interest-rate cycle turns. “If you want to stay clean, the exit strategy is easier,” says Thomas Mayer of Deutsche Bank.

But offering ample liquidity support to banks gets you only so far. By buying assets, the Fed allows American banks to shed them, freeing scarce capital for fresh lending. As losses mount in the euro zone, capital may trump liquidity in determining credit growth. Lending to the private sector slowed to 1.8% in the year to May, an all-time low. Until credit starts to revive, the ECB cannot think about tightening policy. It may yet have to be bolder.

Caveat creditor. A new economic era is dawning

Sometimes you can have too much news. There was so much financial turmoil in the autumn that it was hard to keep up with events. In retrospect it is clear that a change in the economic backdrop akin to the demise of the Bretton Woods system in the early 1970s has taken place. Investors will be dealing with the aftermath for decades to come.

From the mid-1980s onwards the answer to big financial setbacks appeared to be simple. Central banks would cut interest rates and, eventually, the stockmarket would recover. It worked after Black Monday (the day in October 1987 when the Dow Jones Industrial Average fell by 23%) and the Asian crisis of 1997-98. It did not rescue shares after the dotcom bust but the easing led to the housing boom and the underpricing of risk in credit markets.

Easing monetary policy was pretty popular. It lowered borrowing costs for companies and homebuyers. To the extent that savers earned lower returns on their deposit accounts, they were usually compensated by a rebound in the value of their equity holdings.

Indeed, monetary easing appeared to be costless. When policymakers cut interest rates in the 1960s and 1970s they often ignited inflationary pressures. Not so in the 1990s. Whether that was down to the brilliance of central banks or the deflationary pressures emanating from China and India is still a matter of debate.

This time around conventional monetary policy has not been enough. The authorities have also had to resort to quantitative easing, using the balance-sheets of central banks to ensure the funding of clearing banks and to keep the lid on bond yields. And there has been a huge dollop of fiscal easing. Some countries’ budget deficits have soared to 10% of GDP.

The fiscal packages have proved rather less popular than monetary easing. Initially they were seen as bail-outs for greedy bankers. But the focus of criticism has shifted to the deterioration of government finances and the potential for higher future taxes, borrowing costs and inflation.

An eerie parallel seems to be at work. There was a time, back in the 1950s and 1960s, when Keynesian stimulus packages were seen as costless. Governments thought they could fine-tune their economies out of recession. Eventually it was realised that the ultimate result of too much stimulus was higher inflation and excessive government involvement in the economy. Keynesian demand management was abandoned in favour of the monetary approach. The past couple of years have demonstrated that the use of monetary policy had its costs too, not in consumer inflation but in rising debt levels and growing asset bubbles.

The authorities never even considered allowing the financial crisis to continue unhindered. The damage to the economy would have been too great. But the costs of this latest round of government action will be big. Investors will have it in mind during the next boom that governments will rescue the largest banks, slash rates, intervene in the markets and run huge deficits. In other words the moral-hazard problem will be even greater.

Before we get there, however, the authorities will have to work out an exit strategy. Past cycles have shown that the tightening phase, after a long period of low rates, can be very dangerous. Bond markets were savaged in 1994 when the Federal Reserve started to raise rates from 3%. What will bond markets do if central banks also unload the holdings acquired during the crisis? And how will stockmarkets perform if interest rates and taxes are being raised at the same time?

Given these risks, the new era will surely be a lot more fragile than the one that prevailed in the 1980s and 1990s. There is simply more scope for policymakers to go wrong.

In addition, the global financial system has lost its anchor. When Bretton Woods broke down and the last link to gold was severed, there was in theory nothing to stop governments from creating money. It took independent central banks, armed with inflation targets, to reassure creditors. But now central banks have shown they have another priority apart from controlling inflation: bailing out the banks.

The new era is one in which governments are using floating exchange rates, near-zero interest rates and vast fiscal deficits to protect their economies. None of this is good news for creditors, who will surely not put up with the situation for long. The actions they take to protect their portfolios—demanding higher bond yields, pushing for fixed exchange rates—will define the next economic system.

Balancing inflation and the ruble

 
The move by Russia’s central bank to lift the refinancing rate at its last meeting brought economic focus back to inflation, with crude and commodity prices, the ruble, and the economic recovery all factors to be balanced in the response. 
 
Inflation took off in January, with the surge in crude prices and commodities generally leading to fears it could go higher. Vladimir Tikhomirov, Chief economist at Otkritie says the full inflationary impact of the recent surge in oil prices has yet to be felt. 
 
“The current surge in oil prices will gradually worsen Russian inflation, in fact oil prices is not so far a major issue for the inflation process. When we see increase in oil prices it leads to hikes in fuel prices and the chain is further obvious for Russia meaning that inevitably food prices start rising. Taking into consideration that food products account for 38% of consumer basket it became apparent that consumer sentiments will deteriorate. Apart from oil prices, dwindling of harvest and continuous increase of tariffs amalgamate into a serious blast of inflation.” 
 
Veles Capital analyst, Ivan Manaenko, believes that after the rebound in food prices during 2010 it has been the recent surge in crude prices, reflecting social instability in the Middle East, which has forced the central bank to act. 
 
“The Central Bank’s reactions to soaring oil prices we have seen already in February when the Central Bank has changed its tactic from smooth well signaled rate increases to a more aggressive stance. Assuming speculative oil price maximums and government policy commitment to limiting price increases the inflationary impact will be limited. I think, that the Central Bank may raise rates by 0.25-0.5 pp in the first half 2011.” 
 
UniCredit Chief Economist, Vladimir Osakovsky believes the Central Bank will be pushed into stronger action, tipping a 1% increase in the refinancing rate during the first half of 2011, on the back of food price hikes. 
 
“Moreover, food prices continued to post robust gains, partly supported by strong seasonality in fruits and vegetables, but most other non-seasonal items also posted robust price growth. Therefore, we continue to believe that inflationary pressures are likely to remain strong in the coming months, as the impact of the administrative correction in fuel prices is set to fade in the near future. 
 
Otrkitie’s Tikhomirov sees inflationary pressure subsiding during 2011, but only if oil prices stabilize and food price inflation, internationally and domestically, doesn’t break out more than it has. He says that the rebound in Russian inflation created an environment where the Central bank was forced to act. 
 
In essence, the Central Bank’s announcement and actions on the refinancing rate and continued increases reflect politics and pressure, because rates have remained unchanged since July 2010 when the inflation rate was 5.5%.But now it grew to 9.5% which cannot be ignored. My forecast will be for inflation at 10.5%-11% for 1H 2011 and then we can see a moderation of the rate easing to 9% at the end of 2011. However, that will happen only if: Russia and the rest of the world has a good harvest, oil prices stabilize and the ruble continues to strengthen.” 

The West Must Not Turn Its Back on Russia

 
Russia's ties with the West have been experiencing growing tension of late. The Yukos affair, the conduct of the parliamentary and presidential elections, increasingly Soviet-like national television and other developments have contributed to what U.S. Ambassador Alexander Vershbow and others have diplomatically alluded to as a "values gap." Debates about Russia and its place in international institutions have become more heated. Similarly, Russia's stances toward the United States, NATO and the European Union have also become more contentious. Unfortunately many of these discussions are replete with dubious interpretations of revisionist history and patently unconstructive approaches from both sides. This has been especially true concerning the future of Russia's role in the G-8 as well as its ties with the newly expanded NATO. 
 
Bipartisan legislation in the U.S. House of Representatives, House Resolution 336, introduced by Democrat Tom Lantos and Republican Christopher Cox, calls for throwing Russia out of the G-8 if it does not make significant progress on a number of issues, including: the rule of law, including protection from selective prosecution and protection from arbitrary state-directed violence; a court system free of political influence and manipulation; a free and independent media; a political system open to participation by all citizens and that protects freedom of expression and association; and the protection of universally recognized human rights. This resolution follows similar legislation introduced into the Senate by Democrat Joe Lieberman and Republican John McCain in the fall, after the arrest of former Yukos CEO Mikhail Khodorkovsky. 
 
There is no question that all of the above points are laudable issues. I and many of my colleagues in and out of government have expressed concern about them over the years and increasingly in the last six months. There is also no question that Russia is deficient on these points in comparison with other G-8 member states. But there are no formal membership criteria for the G-8. Informally, the criteria are that member countries be developed market democracies with large and influential economies. When Russia was invited to become a formal member of the G-8 in 1997, it did not meet any of the above criteria. Even today it really meets only one of those criteria since it was recognized as a market economy by the United States and the European Union in 2002. Even now, into its sixth year of economic growth, Russia is not one of the 10 largest economies in the world. And while Russia was hardly a perfect democracy in 1997, it would be difficult to posit the argument that positive progress has occurred on this front. 
 
So if Russia didn't come close to meeting the loose membership criteria, why was it let in? Well, it was pretty simple. We wanted things from the Yeltsin administration, and membership in this prestigious international club was one of the things we could offer in return. In 1994, when the West wanted to ensure that the Russian military departed Estonia on time, we used the carrot of joining the political discussions of the G-7. In his memoir of Clinton administration Russia policy, former Deputy Secretary of State Strobe Talbott quoted then-U.S. President Bill Clinton as saying, "It's a pretty simple deal. We get 'em into the G-7, and they get out of the Baltics. If they're part of the big boys club, they've got less reason to beat up on the little guys." The same logic applied in 1997, when proposing formally turning the G-7 into the G-8 the following year was to compensate then-President Boris Yeltsin for the decision to expand NATO. Sure, it sounds condescending -- throwing "ole Boris" a bone, as it were -- but that is the way U.S.-Russia relations were in the 1990s, with Russian power and influence at near all-time lows. 
 
Yeltsin understood the logic perfectly well, and he wrote in his memoir "Midnight Diaries" that he viewed his tough stance on NATO expansion as the main reason for the invitation to join the G-8. In 1999, during the negotiations to bring the Kosovo war to an end and to bring in Russian peacekeepers, then-Prime Minister Sergei Stepashin acknowledged that the pressure of the Cologne G-8 meeting scheduled for late June pressed the Russians to reach a deal earlier. The invitation to Russia in 2002 for full participation in political and economic discussions, as well as to host the 2006 meeting of the G-8, acknowledged Russian support in Afghanistan post-Sept. 11, 2001, and President Vladimir Putin's decision to accept the next round of NATO expansion quietly. 
 
As this brief history suggests, Russia's inclusion into the G-8 has had little to do with its democratic or economic credentials. Now we can argue, and many have, that relaxing membership criteria for Russia to join the G-8, the Council or Europe or a number of other international institutions was and is a mistake. But in the case of the G-8, it is not even that the membership criteria were relaxed, but rather that Russia was let in for really quite different reasons. It seems just a tad self-righteous and hypocritical to come back now and argue that Russia should be excluded for reasons that were not really part of its membership criteria. But it provides a convenient excuse for some congressional grandstanding during an election year. 
 
Similarly, the recent entry of seven new states, including the Baltic states, into NATO has triggered many well-worn and neuralgic arguments from Russian government officials and political elites about the potential threat that NATO presents. However, it is simply not credible that four old Belgian jets patrolling Baltic airspace present any kind of real threat to Russia. Nor does the possible creation of smaller "lily pad" bases in new member states like Romania and Bulgaria present any threat to Russia. Russia has a very different kind of relationship with NATO today than during the Cold War, so the movement of bases closer to Russia's borders does not simply equate to an increased threat environment for Moscow, as traditional military planning might suggest. 
 
None of this is to suggest that Russia, the United States and Europe don't have real differences to address, or that existing institutions have fully adapted to rapidly changing conditions. On European security, resolving our differences over the Conventional Forces in Europe Treaty, including the importance of its ratification by the Baltic states, and for Russia to fulfill its Istanbul commitments to close bases in Moldova and Georgia, are and will be challenging. Let's not also forget, however, that Russia and NATO military forces are working increasingly closely to achieve joint operability. Putin and Defense Minister Sergei Ivanov last week articulated the importance of moving a positive agenda with NATO forward.  
 
And while democracy in Russia has taken steps backward, throwing Russia out of the G-8 is not the solution, either. Part of the rationale for admitting Russia into the G-8 and other institutions is that through interaction with powerful market democracies in a format of equal partnership, Russia would over time be socialized to different standards of conduct. Just as it would be premature to pronounce the demise of NATO (as many Russians would like), so it would be premature and not in the interests of the West now to close the books on the long-term prospects for Russia's integration with the West. 

 Returning to market 
 
With Russian companies resuming equity placements in 2010 and a number lined up to go to market in 2011, Business RT spoke with Tom Blackwell from M:Communications Russia about the factors they consider and the difference between success and failure. 
 
RT: Global markets are shivering over debt issues and rating cuts. Is it not risky for Russian companies to list in such market conditions? 
 
TB:  “I think certainly there is a lot of nervousness around the world, and some of that reaches into Russia. Is it risky? I think you have to look at some of these things case by case, and I think what you’ve seen is that, as you’ve said there has still been $2 billion raised so far this year. There are still companies that meet the criteria and are able to get their stories away and others have struggled and partly that is influenced by the market conditions and partly that’s influenced by more company specific aspects.” 
 
RT:  Which sectors of the Russian economy are of the most interest for foreign investors and why? 
 
TB:  “Well I think that if you look at how the Russian IPO market has evolved over the last few years, you have had a lot of diversification whereas previously in the early days it was more the natural resource stories that dominated the capital markets, and you moved out into the consumer area, the retail consumer goods and what have you. At this stage you have a lot of the sectors which are quite well represented, so there has been proven appetite and demand for more or less any sector of the economy that meets a certain investor criteria. If you look at the deals which are in the pipeline at the moment and coming up over the next year, you have anything from toilet paper, to shoes, to coal, to manufacturing, maybe even helicopters. You’ve got a big range, and I think within that it’s a matter of whether the companies can present the right kind of story.” 
 
RT:   Are Russian IPOs a good opportunity for a foreign investor and why? What's your advice? 
 
TB:  “I think there has been a lot of skepticism generally.People have looked at the performance of Russian IPOs and Russian companies that have listed and where they are trading today versus where they were at the listing date.And I think its true that if you look at where everyone, by and large, is trading, it’s not quite as impressive as you would have hoped at the times when buying into these deals.But I think that you have to add a bit of perspective into that when you are looking at the performance of Russian IPOs over the last several years.The IPO market has really only existed for about five or six years, by and large, and within that timeframe you have had some fairly major things happening in the global economy, including the worst crisis in, sort of, living memory.And that obviously, Russian stocks, like many others were hit fairly substantially, and many now are recovering and getting back into pre-crisis levels.But you have to factor that in then you look at the performance of Russian IPOs specifically.” 
 
RT:  What's behind the failures of mobile phone retailer Euroset and Severstal's unit Nord Gold earlier this year? Are they asking for too much? 
 
TB:  “Well I think, were they asking too much? That’s one of the questions. Valuation and price is always going to be one of the key questions investors look at. But if you look at the concerns and considerations of investors today, they are fundamentally no different than they were five or six years ago. There has always been fairly key themes that investors have looked at. One is obviously the price and that we discussed, but they also want to see a reasonable split between primary and secondary not just a case of a shareholder selling out completely, that some of the money is going into the company, they don’t mind seeing some of the money going to paying down debt, but to see it an entire debt driven story, and so on. But they have always been the criteria from the beginning and they remain so today. And perhaps there is even more scrutiny around those core areas. So if you look at the deals which didn’t happen, you would probably be able to see why those deals didn’t get away, why they didn’t get the demand, based on those criteria I mentioned.” 

Rostelecom consolidates to lead to local telecoms shakeup

 
From April, 1 Sibirtelecom, Southern Telecommunications, Northwest Telecom, Volgatelecom, Uralsvyazinform, CenterTelecom, Dalsvyaz and Dagsvyazinform are officially merged into Rostelecom. 
 
The consolidation process has seen ordinary and preferred shares in the eight companies converted into ordinary Rostelecom shares along with bonds.  Alexander Provotorov, president Rostelecom , hailed the consolidation  saying that it paves the way for a new global fixed line player. 
 
"The biggest telecommunications company in Russia has been created, which could become the unconditional leader in several segments of the domestic market." 
 
Georgy Voronkov, analyst telecoms at InvestCafe believes the merger is likely to generate synergies with staff numbers likely to be trimmed as function duplications between the former companies are eliminated.  But he believes that customers are barely likely to notice. 
 
“I don’t think customers will noticed any changes in service provision. Pricing can vary only within the price wars with competitors; it is a concern for long-distance service in Moscow – where Rostelecom is losing its market share. In order to increase customer loyalty Rostelecom may intend to reduce prices on long-distance calls.” 
 
With the consolidation underway Rostelecom president Alexander Provotorov says a placement of shares in London is moving onto the radar, although he didn’t indicate a specific timeframe and said the company is not in need of equity funding currently. 
 
"It'll probably be the LSE, however, the company does not need additional funds and we don't plan to raise additional funds on the exchange in the near future" 
 
Provotorov added that mobile players are looking attractive as merger partners, dovetailing with the new Rostelecom strategy. 
 
"Some of them are already ready for merging as they are leaders in their markets, and others are not quite ready.  The whole process will take some time,"      
 
Svyazinvest general  director,  Vadim  Semyonov,  says  Rostelecom might take on Sky Link, with Svyazinvest looking for a supportive partner  for Sky Link expansion. 
 
“Svyazinvest as the main shareholder of Sky Link is considering various options for its development. We hope in this matter, Rostelecom will help us." 
 
Voronkov Georgy, analyst telecoms InvestCafe, says the move will help company to succeed in an alternative business niche. 
 
Analysts believe the consolidation will make it easier for the company to attract loans and investment.  The establishment of the merged Rostelecom  will see an increase in the share free float which will be added to the MSCI Russia and MSCI EM May 31. 
 
Georgy Voronkov also believes that Rostelecom will expand its broadband operations, with the broadband market rapidly becoming a core market.

 
Russia and Europe to push on roaming call charges 
 
Russia and European Commission have agreed to work on a partnership agreement allowing Russia to become a member the European roaming model, after a meeting between the Russian Ministry of communications and members of the European commission in Brussels. 
 
Igor Shchegolev Russian Minister of communications hailed the move saying that the proposed model will improve communications from abroad.  
 
“We have expressed willingness to join the European model and extend it to Russia. This means that Russian citizens will pay for services according to European tariffs”  
 
According to the Ministry of Communication experts from both parties will work out the most feasible scheme of cooperation, with the Minister looking for an expedited outcome. 
 
“ The road map can be presented by April and talks on the project should be finished not earlier than in 2012. The Russian side is ready to accelerate talks.”  
 
Prime Minister Putin stressed the importance of the issue for Russian citizens with Minister for Communications, Igor Shchegolev, prior to Euro commission meeting.  
 
“We have raised these issues in bilateral negotiations with mobile operators and we continue to push them, but the issue should be addressed to the European Union because the European Union has a single roaming rate, there are two special rules of the European Union, which is compulsory for all participating countries” 
 
Viktor Markov Senior Analyst Zerich Capital Management believes this bilateral agreement could see costs fall for many Russian roaming customers.   
“It is a good sign for Russian citizens and a strong regulatory move to support customers and control tariffs of mobile operators. The price of roaming was earlier addressed by the regulatory body following unjustified overstatement of tariffs. The operators were overpricing roaming tariffs according to their own calculations unproved by the general rules. On the other side foreign operators impose high prices on connection service. Currently, the roaming tariff includes Local operator tariff cost plus foreign operator tariff and additional costs for connection service.  If Russian operators will apply the European roaming model the tariff will exclude the connectivity cost and operators will be able to change and influence the tariffs only according to the European charter which states that the cost of out warded calls should not exceed 49 cents per minute and 24 cents per minute for incoming calls.”  
 
According to Top Three Russian mobile operator’s statistic data 20 to 30% of revenues comes from roaming services.  Markov says that the implementation of the new scheme for roaming service will not affect operators’ revenues. 
 
Prices and Consumer Incomes 
 
The other economic factor that consumers must consider carefully in making their purchases of goods and services is their own level of income. Most people earn their income from the work they perform, whether as physicians, carpenters, teachers, plumbers, assembly line workers, or clerks in retail stores. Some people also receive income by renting or selling land and other natural resources they own, as profit from a business or entrepreneurial venture, or from interest paid on their savings accounts or other investments. 
 
We later describe how the prices for those kinds of payments are determined; but the important points here are that: 1) in a market economy, the basic resources used to make the goods and services that satisfy consumer demands are owned by private consumers and households; and 2) the payments, or incomes, that households receive for these productive resources rise and fall — and that fluctuation has a direct influence on the amount consumers are willing to spend for the goods and services they want, and, in turn, on the output levels of the firms which sell those products. 
 
Consider, for example, a worker who has just retired, and as a result earns only about 60 percent of what she did while she was working. She will cut back on her purchases of many goods and services — especially those that were related to her job, such as transportation to and from work, and work clothes — but may increase spending on a few other kinds of products, such as books and recreational goods that require more leisure time to use, perhaps including travel to see new places and old friends. 
 
If, as in many countries today, there are rapidly growing numbers of people reaching retirement age, those changing spending patterns will affect the overall market prices and output levels for these products, and for many others which retirees tend to use more than most people, such as health care services. In response, some businesses will decide to make more products and services geared toward the particular interests and concerns of retirees — as long as it is profitable for firms to produce them. 
 
To summarize: whether consumers are young or old; male or female; rich, poor, or middle class; every dollar, peso, pound, franc, rupee, mark or yen they spend is a signal — a kind of economic vote telling producers what goods and services they want to see produced. 
 
Consumer spending represents the basic source of demand for products sold in the marketplace, which is half of what determines the market prices for goods and services. The other half is based on decisions businesses make about what to produce and how to produce it.

Russian billionaires back in town 
 
The number of Russian billionaires has returned to beyond pre crisis levels according to the annual survey by Finans magazine. 
 
The annual survey undertaken by the magazine shows that Russia currently has 114 billionaires, more than the 101 it had in 2007, but with the net worth of the richest 10 Russians still down at $182 billion, compared with $221 billion in 2007. 
 
Retaining number one position is NLMK Chief, Vladimir Lisin with a net worth according to Finans magazines list of the Richest Russians compiled at the end of 2010, of $28.3 billion. His net worth has been buoyed by the rebound in the Russian stock market since the start of 2010, with seemingly insatiable Chinese demand for steel also helping global steel prices, and his wallet. 
 
Mikhail Prokhorov, owner of the New Jersey Nets, Chairman of Polyus Gold, and president of Onexim came in at second position with a net worth estimated at $22.7 billion, largely through having sold his stake in Norilsk Nickel at the height of the 2007-2008 boom, and purchased a half stake in Renaissance Capital, with the performance of gold also helping his Polyus Gold operations over the last 18 months. 
 
Another beneficiary of the rebound in global demand and prices for metals is Russia’s third richest magnate, Alisher Usmanov, who Finans magazine estimates is worth $19.9 billion.The co owner of Mettaloinvest also has significant media, telecoms and internet interests, and is a major shareholder in London’s Arsenal Football Club. 
 
Metals also underpin the wealth of Oleg Deripaska, General Director and majority shareholder in Rusal, the world’s largest Aluminium producer, with an estimated net wealth of $19 billion. 
 
Roman Abramovich, owner of the Chelsea football Club, and majority shareholder in Millhouse, rounds out the top 5 Russian billionaires with a net wealth estimated at $17.1 billion. A major shareholder in steelmaker and miner, Evraz, he also has gold interests through Highland Gold. 
 
Rounding out the top ten, according to Finans Magazine, were more metals and energy magnates, Alexei Mordashev ($17.05 billion), Suleiman Kerimov ($16.9 billion), Mikhail Fridman ($16 billion), Vladimir Potanin ($14.3 billion) and Vagit Alekperov ($10.9 billion). 
 
Entrepreneurship in Transition Economies

Introduction

The establishment and growth of new enterprises is central to the transition process. This is because the change in economic system from communism to capitalism implies a reallocation of resources in which new firms have to be the main actors. Compared to other situations of major liberalization, existing firms are less well placed to be the engine of structural change because they are themselves institutions of the planning system and must also be subject to major reforms. Thus, while mainstream economists have emphasized the three pillars of the “Washington consensus” - stabilization, liberalization and privatization – analysts such as Kornai  and McMillan and Woodruff have instead argued that the creation of new firms de novo would be the primary mechanism of the transition.

As a period of major economic and institutional change, transition throws up numerous opportunities for “low-level”  entrepreneurs to transfer resources from low to high productivity uses in the new market economy. Moreover, the incentives for innovation and efficiency were notoriously weak under communism so reformers in the transition economies have been also greatly concerned with Schumpeterian entrepreneurship. Overcentralisation and inappropriate management incentives were important causes of the stagnation in the last years of communism and new technologies have to be adopted to restore growth. As with all innovation, the driving force was expected to be “high-level”  entrepreneurship.

However, the transition economies started their reforms with few legal, institutional and policy structures to provide the basis for an entrepreneurial market economy. To the contrary, the institutional environment has created numerous new barriers to entry, some conventional and others unique to transition. These have prevented entrepreneurs from fully exploiting the opportunities opened up by transition. Moreover, the institutional environment is evolving and the process of reform did not always enhance rapid or fundamental change. Indeed, in many countries the chaos associated with transformational reforms instead led to an entrenchment of the former elite in a new quasi–market environment. The development of the entrepreneurial sector is sensitive to the institutional environment with a sharp distinction between the more market-oriented economies of Central and Eastern Europe and slower and more erratic pace of change in the former Soviet Union. Successful entrepreneurship depends not only on initial conditions in the transition economies but also on the speed and consistency with which the reform process has been applied.

Despite the unpropitious environment, we observe a remarkable expansion of the private sector in all transition economies. The average share of private sector output in GDP rose from virtually zero in 1989, at least in centrally planned economies like Czechoslovakia or the Soviet Union, to 62% in 2001. The transition economies therefore experienced a similar transformation to China, as Deng Xiaoping’s remark about the first eight years of Chinese reform shows, “all sorts of small enterprises boomed in the countryside, as if a strange army appeared suddenly from nowhere”. Table 1 shows that the increases occurred in every country, and were paralleled by rises in the share of private sector employment. Growth in the private sector share was caused by privatisation of existing firms as well as the emergence of entirely new enterprises. Privatisation has received enormous attention in the literature, but new firm growth was probably at least as important; we observe that a significant proportion of private sector development preceded privatisation in most transition economies.

In this chapter, we examine the opportunities and constraints for entrepreneurship offered by the evolving institutional environment and the characteristics of the people who stepped up to the challenge. In the next section, we place the concept of entrepreneurship in a transition context, before identifying in the third section the unique features of entrepreneurship in transition economies. Section 4 discusses the evolving business environment while the scale and nature of entrepreneurship in transition economies is reported in the fifth. The personal characteristics and the business strategies of entrepreneurs in the transition economies are discussed in the sixth and seventh sections respectively. Section 8 concludes by outlining directions for future work.

Entrepreneurship and Economic Transition

To what extend can definitions of entrepreneurship be transferred from mature market economies to transition economies? Defining entrepreneurship for transition economies is not made easier by the fact that definitions of entrepreneurship vary in the literature, as other chapters in this handbook reveal. In this section, we discuss the distinctive character of entrepreneurship in transition and analyze how this might change as the transition process develops.

 Defining Entrepreneurship in a Transition Context

Existing definitions stress the innovative aspect of an entrepreneur, her decision-making under uncertainty and her role as coordinator of resources. These were developed in work on Western economies but entrepreneurs face a different business environment in the transition context. They have to learn a different coping behavior 2, formed by their experience under communism, and they may have different personal characteristics.

Baumol argues that the definition of the entrepreneur should reflect the local incentive structure. In transition economies, this encompasses the onslaught of rapid changes and the resulting uncertainty, a wide range of opportunities thrown up by the restructuring of formerly planned economies, imbalances between supply and demand, fragile or only partial market institutions and a variety of informal rules and behaviors which are remnants of the communist past. However, while many market institutions were absent, the skill level and educational attainment and in some cases investment into local technology were on par with the developed world.

Thus, the characteristics of entrepreneurs and their economic impact cannot be assumed to be the same as those in Western countries. For example, entrepreneurs in transition economies can be value-subtracting because of the numerous opportunities in rent-seeking. Dallago distinguishes between systemic and economic entrepreneurs, with the former introducing changes into the system of institutions and rules. Building on Wennekers and Thurik, Aidis  defines productive entrepreneurship as entailing “innovative activity under uncertainty resulting in an economically productive business”. Thus, entrepreneurship does not necessarily require the establishment of a new enterprise, but includes leaders that took over state owned enterprises and employ new combinations of resources. This definition includes the formation of new businesses as well as spinoffs from former state firms and management employee buyouts (MEBOs) but excludes managers continuing in their role in old enterprises. We refine this definition by focusing on individuals who:

• Perceive and create new economic opportunities through innovative activity;
• Introduce their ideas in the market in the face of uncertainty and other;

obstacles;

• Undertake efforts that result in a viable business that contributes to national

economic growth and personal livelihood;

Entrepreneurship and Stages in Transition

The transition process can be divided into several stages that gave rise to different kinds of entrepreneurship. In the first stage, early transition, equilibration of supply and demand, manifested in adjustment of relative prices, opens up opportunities for mainly Kirznian type of entrepreneurs. This is a period of extreme uncertainty, as there is no previous market information. Channels of resource allocation face disruption as planning is abandoned, though nomenclature networks may provide some alleviation.

Macroeconomic stabilization, indicated by reduced inflation and a resumption of economic growth, removes extreme uncertainty and increases the incentives for Schumpeterian entrepreneurship. In this second stage, the price mechanism can be used to convey information about supply and demand and macroeconomic stability reduces business risks. This allows investments into longer-term projects and unmasks needs for new projects and technologies.

In the third stage, market institutions become more developed and provide better mechanisms for resource co-ordination, information gathering and contract enforcement. Property rights enforcement relies less on physical threat or reputation and more on courts so resources are increasingly accessed through financial institutions and market exchange. At this stage, Schumpeterian entrepreneurship becomes more feasible.

Thus changes in environment and opportunities over time in the transition economies are likely to lead to differences in entrepreneurial endeavor, strategies and personal characteristics. One can expect the initial stage to attract a larger number of entrepreneurs but also to witness a larger failure rate. The skill set and physical as well as social capital of initial entrepreneurs may differ from those in later years, as will the types and strategies of businesses created by these entrepreneurs. However, one cannot assume an automatic progression from stage to stage, so the forms of entrepreneurship that emerge in the early stages may become enthrenched.

The Functions of Entrepreneurship in Economic Transition

In this section, we identify the unique opportunities for entrepreneurship in transition economies. We thus discuss the heritage from planning and describe the reform process and its effect on entrepreneurship, drawing on the literature in comparative economics.

The Heritage from Planning

The emergence of a market economy from a planned one implies a major reallocation of resources: from industry to services, domestic to global production, intermediate products to final goods. Planned economies were “over-industrialised” – the share on industry in GDP was routinely in the 45-50% range as against less than 30% in developed market economies and output was focused to the manufacture of intermediary products. Moreover, though most communist countries were small, they were not very open, especially to West European neighbours, as planners had concentrated trade within the communist bloc. Thus reforms opened many profitable opportunities in services, final products and international trade. One might expect this reallocation to be spearheaded by existing firms rather than entrepreneurial ones.

However, existing firms were themselves institutions of planning, and therefore part of the problem rather than its solution. It was hoped that the sharper incentives and improved governance would follow privatization, but this was everywhere a major and lengthy project and in the interim, new firms would have to play a disproportionate role.

Former state owned firms were however an important breeding ground for entrepreneurs, as well as a source of fixed assets. Socialist enterprises were highly integrated vertically and these structures were often liquidated when the logic of planning was replaced by market incentives allowing their workers and managers to acquire the assets at low prices. New firms, often very small, therefore spun out of the socialist enterprise and filled niches in consultancy, logistics, and business services.

The new market economy also emerged from grey and black-market activities. Planning led to shortages of consumer goods, which created an environment in which arbitragers, black marketers and criminals thrived. At the same time, the rigidity and inflexibility of the planning system, combined with strong incentives for managers to attain plan targets, created a class of “middlemen”, providing inputs critical to the production process. These individuals were often local party members or associated with local government or the secret police, termed the “nomenclatura”. This process of intermediation through informal networks was another important seed bed for the new entrepreneurial class, especially in the former Soviet Union. However, the distinguishing feature of this group was not their ability to spot new economic opportunities but rather their networking skills among the political and economic elites.

Transition Policies and Entrepreneurship

The transition process itself also influenced the pattern of entrepreneurship. In the early 1990’s, the established order broke down and the resulting macro-economic instability as well as some of the methods of privatisation chosen by policy makers in those crucial early years constrained entrepreneurship. Thus, the general business climate in the early years was recessionary and inflationary. Even in the least affected economies, like Poland or Hungary, GDP fell by up to 20%; in much of the former Soviet Union it halved using official statistics.

There was also inflation everywhere after prices were liberalised and though, in countries like Poland and Czechoslovakia, it was fairly speedily brought under control, in most countries, it remained persistently high for the early years of transition, greatly increasing the risks faced by entrepreneurs. The chaotic business environment that existed while a legal and institutional framework was being developed also gave many opportunities for nomenclatura-based networking, and led to an increase of corruption, a failure to enforce property rights and the rise of mafias. One can discern a clear distinction between the sustained progress in business environment in Central and Eastern.

Europe (CEE) – perhaps as a consequence of the European Union Accession processand the more erratic path followed in the former Soviet Union (FSU) and much of the Balkans.

Privatization policy was also crucial for entrepreneurship. The bulk of new firms in the early years were probably created by the “small privatisation” – the sale of house, flats, shops, garages, restaurants etc. When SOEs were restructured for privatization or liquidated, their assets – plant and machinery but also less expensive and more versatile capital goods such as trucks or office equipment – were sold, often at fire sale prices. This factor was particularly significant in the more advanced transition countries like Poland.

Consumers in a market economy

Consumers in both market and command economies make many of the same kinds of decisions: they buy food, clothing, housing, transportation and entertainment up to the limits of their budgets, and wish they could afford to buy more. But consumers play a much more important role in the overall working of a market economy than they do in a command economy. In fact, market economies are sometimes described as systems of consumer sovereignty, because the day-to-day spending decisions by consumers determine, to a very large extent, what goods and services are produced in the economy. How does that happen?

Buying Oranges

Suppose a family — Robert, Maria and their two children — go shopping to buy food for a family dinner. They may originally be planning to buy a chicken, tomatoes and oranges; but their plans will be strongly influenced by the market prices of those goods.

They may discover, for example, that the price of oranges has increased. There are several things that might cause those higher prices, such as freezing weather in areas where oranges are grown, which destroys a large part of the crop. The effect of the freeze is to leave the same number of consumers trying to buy a smaller number of oranges. At the old, lower, price, therefore, sellers would soon run out of oranges until the next harvest. Instead, by raising the price, all consumers are encouraged to cut back on the number of oranges they buy, and producers are encouraged to grow more oranges as fast as they can.

There is another possibility: suppliers could choose to import a larger number of oranges from other countries. International trade, when it is permitted to operate with relatively few barriers or import taxes (called tariffs), can give consumers wider choice and allow producers to offer more competitive prices for a wide range of products, from oranges to automobiles.

On the other hand, the orange crop might be spared freezing weather, but instead consumers decide to start buying more oranges and fewer apples. In other words, instead of the orange supply shrinking, demand increases. This too will drive up the price of oranges for a time, at least until growers have time to bring more oranges to market.

Whatever the reason for the higher price, Robert and Maria will probably respond in a predictable way once they discover that the price is higher than they anticipated. They may well decide to buy fewer oranges than they had planned, or to buy apples or some other fruit instead. Because many other consumers make the same choices, oranges won't disappear from store shelves entirely. But they will be more expensive, so only the people who are willing and able to pay more for them will continue to buy them. Shortly, as more people start buying apples and other fruits as substitutes for oranges, the prices of those fruits will rise as well.