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Jackson-Vanik Amendment: No Business Sense, No Reason, but Still in Effect and Hurts

Russian business has been trying to invest in the U.S. Severstal has been a trailblazer investing billions into the ailing U.S. steel industry. Russians have long been worried about discriminatory provisions in American law, specifically the Jackson-Vanik amendment. Washington insists that if Russia joins the WTO, that amendment will automatically cease to apply. Russia’s accession to the WTO would lead to a more active American presence on the Russian market as well, and U.S. business leaders have a genuine interest in lobbying for that process.

According to the 1974 Trade Act of the United States, the Jackson-Vanik amendment, named for its major co-sponsors, Sen. Henry “Scoop” Jackson (D-WA) and Rep. Charles Vanik (D-OH), denied most favored nation to certain countries with non-market economies that restricted emigration rights. Permanent normal trade relations would be extended to a country subject to the law only if the President determined that it complies with the freedom of emigration requirements of the amendment. However, the President had the authority to grant a yearly waiver to the provisions of Jackson-Vanik, and these waivers were granted to the People’s Republic of China starting in the late 1970s and later to Vietnam.

President Gerald Ford signed the amendment into law on January 3, 1975, after both houses of the United States Congress unanimously voted for its adoption.

In 1972 as the Cold War and the ongoing Arab-Israeli conflict were intensifying, the Soviet regime of Leonid Brezhnev imposed the so-called “diploma tax” on would-be emigrants who received a higher education in the USSR. While the professed justification for this tax was to repay state expenses for public education, this measure was designed to combat the brain drain caused by the growing emigration of Soviet Jews and other members of the intelligentsia to the West. In some cases, the fee was as high as 20 times the emigrant’s annual salary.

This development caused international protests. Twenty-one United States Nobel Laureates issued a public statement condemning it as a “massive violation of human rights.” The Kremlin soon revoked the tax but imposed additional limitations, effectively choking off emigration, even for family reunification. A case could languish for years in the OVIR department of the MVD. An often-cited but rarely explained official ground for the refusal to issue an emigration visa were “national security reasons.”

At first the Jackson-Vanik amendment did little to help Soviet Jewry. The number of exit visas declined after the passing of the amendment, as the USSR felt the external pressure was harming its credibility. However, in the late-1980s Mikhail Gorbachev agreed to comply with the protocols of the Organization for Security and Cooperation in Europe.

Since 1975 more than 500,000 refugees, many of whom were Jews, evangelical Christians, and Catholics from the former Soviet Union, have been resettled in the United States. An estimated one million Soviet Jews have immigrated to Israel in that time.

Jackson-Vanik also led to great changes within the Soviet Union. Other ethnic groups subsequently demanded the right to emigrate, and the ruling Communist Party had to face the fact that there was widespread dissatisfaction with its governance.

Former Soviet dissident Natan Sharansky wrote in his 2004 book The Case for Democracy:

“…Kissinger saw Jackson’s amendment as an attempt to undermine plans to smoothly carve up the geopolitical pie between the superpowers. It was. Jackson believed that the Soviets had to be confronted, not appeased. Andrei Sakharov was another vociferous opponent of détente. He thought it swept the Soviet’s human rights record under the rug in the name of improved superpower relations…. One message he would consistently convey to these foreigners (the press) was that human rights must never be considered a humanitarian issue alone. For him, it was also a matter of international security. As he succinctly put it: “A country that does not respect the rights of its own people will not respect the rights of its neighbors.”

Jackson-Vanik is still in force and applies to Russia, among other countries. Critics of the amendment argue that with the end of the Cold War, Jackson-Vanik is a now merely counterproductive trade discrimination, but some still see it as instrumental in helping democracy take hold in Eastern Europe.

On December 6, 2005 the Anti-Defamation League (ADL) urged the United States House of Representatives to delay approval of Ukraine’s graduation from the amendment. ADL National Director Abraham Foxman wrote: “We expect more from democratic states than we do from totalitarian ones. This year alone has seen a steep increase in acts of violence and vandalism against Jews across Ukraine. There have been attempts to ban everything from Jewish organizations to Jewish holy texts. ”

The very reason for the Jackson-Vanik amendment no longer exists. Neither does the country, which it was originally targeted at.  Russian businesses are annoyed by numerous failed attempts to abolish the ludicrous law, which prevents competitive import of Russian merchandise into the U.S. The standing Russian joke on the subject is “American laws are written by feathers but can’t be carved out with ax or money”.

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A Thaw in Relations with Russia?

VOA report - Download (MP3) U.S.-Russian Business podcast

VOA report - Listen (MP3) U.S.-Russian Business podcast

US Vice President Joe Biden gave a hint to the Obama administration’s attitude toward relations with Russia at the International Conference on Security Policy in Munich, Germany on 07 Feb 2009.

Throughout eight years of the Bush administration relations between the United States and Russia have been steadily deteriorating, and occasional flare ups have caused a lot of friction, misunderstanding and frustration. In Munich VP Biden signaled a willingness to end the downward spiral. “It’s time to press the reset button,” he said. “And to revisit the many areas where we can and should be working together with Russia.”

Marshall Goldman from Harvard University, says Mr. Biden’s speech set a new tone for relations between Washington and Moscow.

“When you say ‘reset’ that means you clear the computer and that opens up all kinds of new opportunities and you’re not going to be held back by past commitments which have been controversial,” he said. “This provides an opportunity that maybe only a new administration could do because they don’t have to be held down by complications that arose under the past government.”

Russia is clearly against the Bush administration’s plan to put a missiles in Eastern Europe. Joe Biden: ”We will continue to develop missile defenses to counter a growing Iranian capability, provided the technology is proven and is cost effective, and we will do so in consultation with our NATO allies and with Russia.” Robert Legvold from Columbia University says it’s a departure from the Bush administration’s view to go ahead with the defense shield whether it’s feasible or not. “The basic position is we’re not going forward with this unless it’s technologically feasible and unless it’s something that we can get agreement with at least the allies,” he said. “And in doing so, we also want to consult the Russians… and  achieve an outcome that is acceptable to Russia and one that Russia buys into.”

Senior Russian officials, including Deputy Prime Minister Sergei Ivanov, reacted positively to the vice president’s speech. But in an interview with the Russia Today television program, Ivanov was more cautious.

“From my previous experience - I’m 56 already - I saw a lot of thaws,” he said. “I saw a lot of good intentions which ended nowhere. I hope this time it won’t be the case.”

Business executives are watching this development with hope. Most agree that now is the time to start rebuilding U.S.-Russian political and business relations on the positive tone set out by U.S. VP Joe Biden.

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U.S.-Russia Policy Recommendations to the Obama Administration

The U.S.-Russia Business Council has just submitted its recommendations to the Obama Administration regarding U.S. policy toward Russia. In an effort to create a more productive and lasting partnership between the two countries, the USRBC’s recommendations focus on the development of the commercial relationship as a foundation for moving forward on the geopolitical agenda.

Many experts agree that closer business and finance relations are key to resetting the downward trend initiated by the Bush administration and creating a more productive bilateral relationship.

The Council’s recommendations include the following:

  • The establishment of a bilateral commission to facilitate regular exchanges on commercial issues. Such an interagency commission, led at the highest levels of the U.S. and Russian governments, should have a strong private sector component.
  • The revival of a commercial energy dialogue to promote shared objectives in energy security and efficiency.
  • The Obama Administration’s support for the repeal of the Jackson-Vanik amendment for Russia. This would recognize actions taken by Russia more than a decade ago and would be a notable symbolic gesture of goodwill. At the same time, the Obama Administration must make it clear that a good faith effort to repeal Jackson-Vanik for Russia will not compromise bilateral and multilateral objectives in negotiating Russia’s accession to the World Trade Organization on commercially meaningful terms.
  • A focus on matters that advance the interests of both countries: support for economic diversification, rule of law, and even-handedness in regulation should guide the discussions.

Full report by the USRBC

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Russian Big Four oil companies accused of price fixing

The Russian Federal Anti-Monopoly Service (FAS) has launched a suit against the country’s leading oil companies, Rosneft, Lukoil, Gazpromneft and TNK-BP,  accusing them of price fixing on the petrol market in late 2008 and early 2009.

FAS director Igor Artemyev says all four companies have failed to lower fuel prices to consumers despite the three-fold collapse in the oil price. “In my opinion the companies have challenged the government by increasing wholesale price by 30-60% in February. As the governments representative, today we accept this challenge” Artemyev says.

In December 2008 the FAS fined the four companies for setting high prices for petrol. On that occasion the fines were the lowest possible (Rosneft was fined 1.5 billion roubles, Lukoil 1.44 billon roubles, Gazpromneft 1.3 billion roubles and TNK-BP 1.1 billion roubles). The FAS warned the Big Four that if petrol prices increase again, new cases would follow immediately and penalties will be many times more.

The slump in oil prices in 2008 led to the oil price falling from US$147 in July to just US$40 in December, but petrol prices in Russia did not fall at the same speed, recording the biggest decline in the first month of winter – by 7.3%.

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Kremlin Oligarchs to Take Control in Norilsk Nickel

Russia auctioned its biggest mining company a decade ago when it was strapped for cash. It’s using the global credit crisis to regain control of OAO GMK Norilsk Nickel as economic turmoil forces U.S. and European governments to bail out their own corporations.

Without buying a single share, the government is to appoint its own man as Norilsk chairman this month, replacing the company’s largest owner, Vladimir Potanin. The move comes as the economic crisis saps oligarch funds and Kremlin bailouts help Prime Minister Vladimir Putin secure control of industries where Russia can compete globally, such as energy and arms. Norilsk is the Kremlin’s candidate in mining.

Potanin, 47, is handing over the keys after ending a feud with Oleg Deripaska, the billionaire owner of United Co. Rusal, that turned the world’s biggest nickel producer into a battleground of ambitions. The dispute “irritated” government officials, Potanin said Nov. 26 at a briefing with Deripaska, 40, in Moscow to mark the truce.

“The Kremlin wants to see global champions in the industries most important to the country and the feud lost track of that goal,” said Chris Weafer, chief strategist with Moscow- based investment bank UralSib Financial Corp.

Presiding over the only Russian metals maker among the top 200 companies in the MSCI Emerging Markets Index gives the Kremlin a close handle on the supplier of half the world’s palladium and a fifth of its nickel, key to the global auto and steel industries. It has also alienated investors.

Shares Fall

“From an investor standpoint, it’s basically a big mess,” said Kevin Dougherty, fund manager with Pharos Financial Group in Moscow, which doesn’t own Norilsk. A weak metals price outlook and the battle with Deripaska, coupled with “deteriorating corporate governance make investing in Norilsk like stepping into a casino.”

Norilsk shares are down 40 percent since Nov. 5, when the government approved a $4.5 billion loan to help refinance Rusal, Norilsk’s second-largest shareholder. The Micex Index, a measure of 30 large Russian companies, has dropped 17 percent.

The state took a 25 percent stake in Norilsk as collateral for that loan. When Norilsk shareholders meet Dec. 26 to elect a new board, the remaining intrigue is how many of the 13 seats the Kremlin will win. The bailout also means two government officials will join Norilsk as managers.

Putin, in a Dec. 4 address, said Russia’s role in Norilsk is about providing stability and isn’t much different from assistance other countries have provided to their troubled financial institutions. Without state aid Norilsk may be unable to support its production, company officials have said.

Yeltsin Era

“There’s no direct policy to de-privatize” Norilsk, said Dmitry Peskov, a spokesman for Putin, who opposed the state’s auctions of the country’s major industries and spent the last eight years reasserting government control. “How this situation will play out, only time will tell,” Peskov said.

Russia is “willing” to buy stakes in companies where owners request aid with the aim of later selling out on fair terms, Putin said on Dec. 4. “This is not a way to nationalize the economy,” he said.

The state sold Norilsk to Potanin’s bank in 1997. Putin’s predecessor as Russian president, Boris Yeltsin, auctioned stakes in the country’s biggest enterprises to help his cash-strapped administration. As then deputy prime minister, Potanin became a Norilsk board director in 1996 and helped organize the auctions.

Reasserting state control at Norilsk revives the potential for it to become a platform for mergers in Russia’s metals industry, with the aim of creating a rival to Melbourne-based BHP Billiton Ltd., the world’s largest miner. It would also assert state influence in an industry that lags behind only oil and gas in terms of export volumes and budget contributions.

Cuba, Venezuela

A state-run Norilsk may help Russia’s government expand ties with anti-U.S. states such as Venezuela and Cuba, which has one of the biggest nickel resources. Norilsk is ready to develop a nickel mine in Cuba should Russia lend the Caribbean island $1.5 billion for the project, Chief Executive Officer Vladimir Strzhalkovsky, a former officer in the KGB Soviet-era security agency, said Nov. 20.

Norilsk could operate the Cuban mine without taking an equity stake in the project, the CEO said. The company currently only manages mines it controls.

Stock Downgraded

“If Norilsk has aspirations of being in the same league as the likes of BHP Billiton, it should start behaving as such and show the necessary respect to capital markets,” UralSib metals analyst Michael Kavanagh said in a report today. UralSib cut the company’s 12-month price target to $58 from $285 per share on a lack of strategy, poor disclosure and weak metal demand. Norilsk traded in Moscow today at $64.

Uralkali, a potash miner controlled by billionaire Dmitry Rybolovlev, might also be folded into a state mining giant based on Norilsk after Putin’s deputy, Igor Sechin, reopened a probe into a 2006 flood at the company’s mine. Potanin said Aug. 8 that the arrival of Strzhalkovsky at Norilsk was likely to spur mergers with iron ore, potash, coal and copper assets.

Deripaska had opposed Norilsk combinations with companies other than Rusal. After Rusal acquired its Norilsk stake in April, the nickel company’s merger talks with billionaire Alisher Usmanov’s iron ore producer OAO Metalloinvest stopped.

‘Invisible Hand’

At the “truce” briefing with Potanin, Deripaska only shook his head when asked if he would block a Norilsk merger with Metalloinvest.

“The invisible hand of the state could have seriously contributed to such an idyllic agreement,” Mikhail Stiskin, an analyst at Troika Dialog, Russia’s oldest investment bank, said of the settlement between the billionaires. “The state is playing first violin” and will support Norilsk mergers, he said.

Russia’s upper hand, with $437 billion in international reserves built up during Putin’s presidency from high commodity prices, is reinforced by the global market turmoil. Deripaska, the country’s richest man according to Forbes magazine, ceded stakes in Canadian auto-parts maker Magna International Inc. and German builder Hochtief AG to banks in October after shares used as collateral to finance the acquisitions lost value.

When Rusal’s 25 percent stake in Norilsk, pledged against a $4.5 billion loan from foreign lenders, faced the same risk in October, Russia stepped in. Norilsk CEO Strzhalkovsky, 54, formerly the country’s tourism chief with no experience in the metals industry, said that he asked the state to buy Rusal’s shares. The Kremlin chose to refinance Rusal’s loan for one year and took Norilsk shares as collateral.

Loan Conditions

Among the loan conditions, the state has the right to at least one Norilsk board seat. One of two government nominees is Sergei Chemezov, who like Putin and Strzhalkovsky is a former KGB officer. Chemezov is now CEO of state holding company Russian Technologies Corp., which controls OAO VSMPO-Avisma, the world’s biggest producer of titanium, and has 49 percent of Erdenet, Mongolia’s largest copper miner.

Chemezov said Dec. 12 that he has already asked Potanin and Deripaska to consider a combination with the copper assets of Russian Technologies, which are jointly held with Metalloinvest. Meanwhile, Usmanov of Metalloinvest has acquired about 5 percent of Norilsk as a prelude to consolidation.

“Norilsk Nickel is creeping toward becoming a state-run entity, in practice if not formally so,” Stratfor, a U.S.-based risk advisory group, wrote clients last month.

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Market downgrades Evraz on cashflow concerns

Evraz shares fall 6.4 percent in London as it announces shareholders can receive part of div in new shares.

Shares in Evraz Group fell on Wednesday after the company said stockholders could receive part of their interim dividend in discounted shares to enable the Russian steel maker to preserve cash.

At 1453 GMT the London-listed GDRs were off 6.4 percent at $10.2 having earlier fallen as much as 18.9 percent as analysts voiced concerns about Evraz’s cash flow.

The new shares will be issued at $22.50 each, or $7.50 per GDR, about 31.2 percent below the closing prices on Dec. 16.

Michael Kavanagh, a metals and mining analyst with Uralsib, calculated that if all investors accept the shares the total number of GDRs could increase by 10 percent.

“On one hand, the part shares offer, saving $276 million in cash could imply that cash is in short supply and raise some concerns,” Kavanagh said.

“On the other, the fact that the company is paying a $750 million cash dividend in this environment is a very positive sign regarding the health of the balance sheet and cash position of the company.”

The original first half dividend, announced on Aug. 26, proposed a cash payout of $8.25 per share or $2.25 per GDR.

Under the new proposal, shareholders will still receive $6.00 per share or $2.00 per GDR in cash by Dec. 18 with the remaining $2.25 per share or $0.75 per global depository receipt (GDR) available in the new shares.

“The board believes that the proposal offers shareholders an attractive partial scrip dividend alternative,” Evraz said in a statement on Wednesday.

“Any resultant cash saving will further strengthen the company’s financial position in the current challenging economic and market environment.”

All shareholders of record as of Sept. 18 are eligible for the dividend. They will be asked to vote on the proposal at a Jan. 30, 2009 extraordinary general meeting (EGM).

The company did not say when shareholders will receive the remaining portion of the payout.

Evraz built up considerable debt in recent years through acquisitions in Africa, Europe and North America. Its $2.3 billion purchase of Canadian steel pipe maker IPSCO earlier this year has saddled the company with a sizeable short term debt load.

The group in November obtained $1.8 billion in credits from state-owned VEB to refinance debt.

VEB, or Vnesheconombank, has been entrusted by the Kremlin to distribute a $50 billion rescue package to help Russian companies refinance a total of $120 billion in Western loans by the end of 2009. (Reporting by Alfred Kueppers; Editing by David Cowell and Elaine Hardcastle)

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Russian nationalizations pick up steam amid economic crisis: for better for worse

Nickel and potash mining are the latest key industries targeted by the nationalization efforts of the Russian government. Moscow has recently nationalized some private holdings that have put extreme levels of concentrated wealth in the hands of the country’s new oligarchs.

In the immediate aftermath of the socialist Soviet Union’s overthrow in 1991, there was a frenzy of unbridled privatization of all the former Soviet republics’ tremendous natural wealth, especially in the Russian republic.

Under socialism, the huge oil, natural gas, mineral, forest and other natural resources had been owned and shared in common by the people. But in capitalist Russia, modern-day robber barons have amassed huge fortunes while poverty has risen to record levels.

Much of the motivation for state intervention is the collapsing economy that has severely affected Russian companies. More than $74 billion worth of foreign investments has left the country since August, and the Russian stock market has lost more than 60 percent of its value since May.

The international capitalist financial collapse and plummeting prices for oil and other raw materials exports have pushed Moscow to act more forcefully to recapture some of the wealth stolen by the oligarchs. The government and state cannot function without sufficient income and resources.

From 2003 to 2006, the government took action against Yukos Oil, Russia’s largest private oil company, and its principal billionaire owner, Mikhail Khodorkovsky, because of massive tax evasion and siphoning of profits. Rosneft, Russia’s state-owned oil company, took over the assets. Last month, the government intervened in the nickel industry. Russia is the world’s largest producer of this strategic metal.

The government’s possible future takeovers are an attempt to keep vital industries operating by reclaiming them from the obscenely wealthy billionaires who have stolen resources that were once used for the benefit of all. So far, Dmitri Rybolovlev, the mining oligarch who owns almost all of Russia’s potash industry, has not resisted steps by the Kremlin to sanction and perhaps reclaim the industry.

In an online forum accompanying the New York Times article of Nov. 11, many Russians supported the nationalization, recognizing that “Mineral resources are a national wealth, and as such should belong to the state,” and that “[o]ligarchy sprang up thanks to the ‘liberal’ reforms imposed on us by Washington.”

One participant observed: “The financial crisis is an excellent way to review the results of the criminal privatization. … I can only praise it. And these measures will be very popular among people.”

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Rouble devaluation pressures continue

Russia’s Central bank has once again widened Rouble trading band this week. It’s the fifth time in the past month that the bank has allowed the local currency to devaluate - but not the last, say experts. Some investment firms are expecting a one-time devaluation of about 20% in January, following the New Year holidays.

Russians have started buying jewelry and hoarding foreign currency as the Rouble continues to lose value, falling 16 % against the dollar since August.

The Central Bank continues to weaken its defense of the Rouble, while the government assures it won’t allow sharp devaluation. Prime Minister Putin is adamant there will be no sharp Rouble fluctuations.

“With low prices for oil and metals - our traditional export products - we may face a deficit in our trade balance. This in turn has an impact on our national currency. But we will do everything to prevent sharp Rouble fluctuations. We have all the necessary financial reserves.”

The average forecast for the Rouble - Dollar rate at the beginning of 2009 is around 30 Roubles per Dollar. But some experts see signs that a larger devaluation may be on the way.

Investment firm Troika Dialog thinks the New Year holidays are a perfect time for a sharp drop of up to 20 percent in the Rouble’s value as demand for the currency rises.Chris Weafer of Uralsib agrees but says the government hasn’t taken a final decision so far.

“Despite Prime Minister Putin’s comments and statements that there would be no sharp moves in the Rouble, the fact is that the price of oil continues to go lower. Its increasing the cost of defending the Rouble, ie the reserves are going down at quite a big pace, and so the pressure is building. Despite the Prime Minister’s assurances they maybe in a situation where they’ll have no choice but to allow the Rouble to devalue by a higher level.”

Meanwhile Russian companies that borrowed massively in U.S. Dollars last year, have already started to lose money due to exchange rate movements. X5 retail group posted third quarter losses of $15 million, while Russian mobile operators, MTS and Vimpelcon lost $200 and $300 million dollars respectively - much of that blamed on exchange rate costs.

Experts say only state-owned firms are relatively safe now. The government has postponed sharp devaluation to allow them to convert their dollar debts into Roubles. Now it seems that there is not much holding the government back from letting the Rouble fall.

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Russia still plans to join WTO

Despite the difficulties facing Russia’s economy amid the global credit crunch, the country has not abandoned its plans to join the World Trade Organization (WTO), the foreign minister said on Wednesday.

“Despite continuing doubts in some circles, joining the WTO without unnecessary delays is still a priority of Russian foreign policy. Of course, it may be true that during a crisis period it is better to be outside the WTO system, but we take a long-term view and are aware of our international responsibilities,” Sergei Lavrov told a meeting of European businessmen.

He said Russia views WTO membership as “a necessary condition for improving the commodity structure of our foreign trade and GDP, and therefore a means for Russia of taking its rightful place in the international labor setup, in the future economy.”

However, the minister stressed that Russia is not ready to join the WTO “regardless of the price” involved.

Moscow had expected to join the 153-member global trade body by the end of next year, but the accession process has dragged on due to a number of political and economic factors.

Russia is the only major world economy still outside the WTO. The agreement of all 153 WTO members is necessary for a state to join the global trade body. The majority of analysts believe that Russia will not join the WTO earlier than 2010.

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Russia Pharmaceuticals and Healthcare in Q4 2008

Despite a bruising a few months for the Russian economy as a whole, BMI broadly maintains an optimistic growth outlook for the Russian pharmaceutical market for the period 2008 to 2012. We have lowered our US dollar growth rate estimates based on updated exchange-rate forecasts. With the precipitous fall in oil and gas prices in recent months and foreign-investment outflows, both the ruble short- and longer-term position has weakened. Nonetheless, we see strong average annual US dollar growth of 10.6% for the period and 10.3% for the ruble. Market growth is forecast at 22.0% for 2008, in line with 2007 levels, with the market cooling from 2009.

We expect 2012 market value to reach US$23.6bn. It would be going too far to describe the pharmaceutical industry as immune to the current instability, in particular the lack of access to capital for expansion and worries about a weakening currency are substantial worries. Anecdotal evidence suggests that the damage to date from the broader crisis has been limited. Domestic producer Valenta (formerly Otechestvennye Lekarstva) has reportedly had problems refinancing existing debt. It has halted investment projects and has moved to sell its Krasfarma production subsidiary in Krasnodar Region.

Leading wholesaler Protek has announced and then shelved its latest initial public offering (IPO) plans in the face of tumbling stock markets. Unlike the banking or retail sectors, however, there have been no high-profile company defaults . yet. Arguably, the local sector is mired in a longer-term crisis.

Local research group Pharmexpert estimates that around 50% of the country.s 525 registered producers are unprofitable.

In July, Prime Minister Vladimir Putin described the sector as only capable of producing “last century’s drugs”. Hence the industry is closely watching the development of the Conception for the Development of the Russian Pharmaceutical Industry to 2020, a draft of which was submitted to the government in August 2008. Unsurprisingly the plan calls for the development of both modern generics and innovative drugs by the domestic industry in order to lead five-fold growth in the sector as whole by 2020. Like Brazil, Russia sees import substitution of vaccines “a traditional strength of the Soviet-era industry” and insulin as a vital first step. With the exception of a long-rumoured plant project by Nycomed, the bulk of new investments in recent months have come from domestic players, including new players intent on raising capital from domestic and foreign markets.

One example is Gerofarm, which is building a contract-research focused factory in Moscow Region using both Danish and UK expertise for a EUR15mn. Meanwhile, some attractive production assets are reportedly in play. A powerful shareholder in local market leader Pharmstandart is reportedly pursuing Verofarm, controlled by Pharmacy Chain 36.6 and a modern player in oncology generics.

The belated collapse of a 2007 deal by Gedeon Richter for Polpharma and its Russian subsidiary Akrikhin could see bids for the latter firm. The prices paid will be indicative, a study by PriceWaterhouseCoopers suggests that asset prices for mid-sized Russian companies may be off by between 10 and 20% from their peak.

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