Typically, we don’t like to engage in discussion concerning things that are purely political, but eventually, all political changes impact business. Recently there was a major protest in Moscow involving several opposition parties opposed to the crackdown on democracy enacted by the Kremlin. It is true that the Kremlin enjoys an approval rating of around 80%, but I think there could be cracks starting to show in the armor. After the March 2nd election, price controls will be lifted sometime in spring, possibly beginning the “winter of the Russian citizen’s discontent”. Even with rising oil prices, projected Federal surpluses are going to decline, how fast depends upon how many of the promises in spending they keep and the actual price of oil. The current account surplus is scheduled to be wiped out by 2010 and if there are not reforms to the legal system and increased transparency, it is unlikely global investors will keep pouring money into Russia. If these protests start to spread even after the elections the government is going to have two choices with each having consequences. First they may decide to crush protest ruthlessly like Tianemen Square in China. This would have serious consequences for the economy as global investors seek to pull their money out of an unstable environment (like Venezuela) and all the bonds the government is counting on to improve the country might have trouble finding buyers, this is only a small amount of complications that could arise from this strategy. Then they could seek a compromise position after elections by voicing themselves (at least if only in language) the things the opposition is most vocal about. Ultimately, this might only serve to delay the inevitable. One thing is certain, stagnation is not a viable option in a continuously changing world.

Russian Timber has halted an IPO scheduled for London due to negative market conditions, in other words there is less of a desire for people to throw money around carelessly as they have done the past several years. That is not to say Russian Timber is not a fundamentally good company, well run, with a good product. Principally, I suspect the Kremlin’s desire to place export taxes on timber in a misplaced bid to get more downstream production in the timber industry has caused people to examine the profitability of this company, at least in the short-term. This could signify a certain amount of caution on investors as well as election time is fast approaching.

We have today an example of a growing region and company, specifically, that in their need to find workers has thought of benefits outside the box to attract them. Finnish tire manufacturer Nokian, in order to attract workers to their factory in Leningrad Oblast, is constructing apartments to help give employees from other regions that extra incentive to relocate to a sparsely settled region. They will be offered the apartments at an at-cost basis. The region, with the tens of thousands of new jobs that are projected to emerge in the approaching years, faces a critical manpower shortage. In a way, this symbolizes the promise, and some of the pitfalls facing Russia in the approaching years, attracting and growing the right companies, matching them with workers with the appropriate skills, in the right place-all at the same time.

Negotiations are taking place between German carrier Lufthansa and the Kremlin regarding moving the airline’s cargo hub from Khazakstan to a Siberian city. It seems the government is holding the threat of denying the use of Russian airspace for the airline unless the move is made, probably nothing will happen within two years due to the airport not being equipped to handle the traffic yet. I am never afraid to criticize things the government does that hurts industry or the economy, being someone that loves free market competition. I am not a slave to my ideology regarding economic theory, and you should not be a slave to your investment theories, to the point of being blinded to pragmatism. In this case I believe Russia is acting in its own best interest, it has nothing to lose and everything to gain by investment in an economically destitute part of Siberia, an investment that could be a catalyst for other things. When France invests in nuclear power plants, or Germany in solar, they don’t think of the negative consequences for Russia and Russian companies, in a more blunt example, this is what is happening here.

The telecommunications industry is consolidating in Russia as leading companies in the field seek to be a one stop shopping experience or “bundle their services” to clients. VimpelCom, the second largest mobile phone company in Russia will be borrowing 4.5 billion dollars in December to possibly acquire a smaller company that offers WiFi in metro areas and owns fixed lines. They were forced to do this in response to their larger rival, but in the long-run, just as in the west, businesses, consumers, and the better run telecommunications will benefit from these changes.

Sistema is a large diversified company that gains the lion’s share of its revenue from telecommunications, is involved in industries as diverse as health care to real estate development. It is one of the major conglomerates in Russia being listed on both the London Exchange as well as the RTS. It stated it will invest over 400 million over the next several years building a network of medical clinics across Russia. This is in addition to the medical infrastructure it already has. This is interesting to see as the federal government has let the current system decay into a state of anarchy, a system of care in name only and someplace to be avoided at all costs, a private company steps in to provide basic services. Their target market will be the middle and upper middle classes, as the poor can not afford the services and the wealthy can afford to travel abroad for their care. The potential market for this product is in the tens of millions, I personally will be watching how this develops, can private insurance be far behind?