12/9/2014: Irish Risk Ratings Comeback

Euromoney article on Ireland's improved risk ratings http://www.euromoney.com/Article/3379641/Category/14091/ChannelPage/8959/Irish-comeback-offers-a-safer-eurozone-bet.html

12/9/2014: Q2 2014 Employment Growth in the Euro Area

Eurostat latest figures on employment growth in the EU are worrying, despite some positives in quarterly comparatives.

In q/q terms, employment growth slightly accelerated in Q2 2014 to 0.2% from Q1 2014 0.1% reading. And y/y growth also accelerated from 0.1% in Q1 2014 to 0.4% in Q2 2014.

Still, at current rates of growth, it will take euro area some 9 years to return to the pre-crisis levels of employment.

Looking at the countries data, Ireland posted relatively healthy readings in y/y growth terms (1.7% in Q2 2014), but average in q/q terms (0.2% in Q2 2014 up on 0.1% in Q1 2014, identical to the euro area as a whole). In trend terms, things are more worrying. In H2 2013 Ireland managed to expand employment at an annual rate of 3.2% and an average quarterly rate of 0.7%. In H1 2014, the same rates of growth fell to 2% for y/y growth and 0.15% for q/q growth.

In quarterly growth terms, Ireland ranked 4th in the EU28 in employment growth in Q3 2013, 6th in Q4 2013, 16th in Q1 2014 and 10th in Q2 2014. In y/y terms, we ranked 2nd in Q3 and Q4 2013 and 4th in Q1 2014 and Q2 2014. So deterioration in Irish conditions is in part related to the y/y trends in the euro area, but is more pronounced and idiosyncratic in quarterly trends.

Two charts to illustrate:

Ireland still stands in a better condition compared to other so-called 'peripheral' countries. In contrast to Ireland,

• Greece posted an H2 2013 average q/q decline in employment of 2.75% followed by an average q/q decline of 0.5% in H1 2014. In y/y terms, H2 2013 saw a decline of 0.25% in employment against zero growth in H1 2014.
• Spain posted q/q average decline rate of 2% in H2 2013 and returned to employment growth of 0.4% on average q/q in H1 2014, which outperformed Ireland's growth rates for the same period. In y/y terms Spain's employment grew 0.1% in H2 2013 and 0.35% in H2 2014. The latter figure is better than Ireland's performance, but comes on foot of much shallower growth in previous 6 months.
• Italy continued on the trend for falling employment with H2 2013 q/q average decline of 1.95 moderating to a 0.9% drop in H1 2014. In y/y terms, Italian employment averaged decline of 0.1% in H2 2013 and this switched to growth of 0.1% in H1 2014.
• Cyprus was the worst performer of all 'peripheral' states. The economy posted an average rate of employment decline q/q of 5.05% in H2 2013 and followed up with an average rate of decline of 2.4% in H1 2014. Year on year employment dropped on average by 0.6% in H2 2013 and declined further by 0.25% in H1 2014.
• Portugal, however, showed some significant gains. Average q/q growth rates in H2 2013 were negative -0.85% but turned strongly positive at +1.5% in H1 2014, outperforming Ireland. In y/y terms, Portugal's employment averaged growth of 0.5% in H2 2013 and this slipped to +0.3% in H1 2014.

11/9/2014: Some Recent Links on Ukrainian Conflict

Here is an interesting compendium of academic and analysts' voices dissenting from the prevalent Nato/US rhetoric on the long-term prospects for Nato's role in Ukraine.

Note: some of the links come via RIA Novosti, a Russian news agency, which is hardly surprising, given the consistent spin in the opposite direction that we get from the traditional Western media.

Another note: this collection of links is not a comprehensive reflection of the reality. It is not designed to be such. In reality, nothing is/can be comprehensive, especially when it comes to the conflict in Ukraine. My point is that much of what we are bombarded with in the social media and traditional media is one-sided. Here is a different side to the same stories.


Ukraine and Nato:

"The world could plunge into a new Cold War with Russia and China emerging as a new financial centers, unless the West changes the existing financial structures, a professor at University of California, Davis Wing Thye Woo said ...at the discussion at the Johns Hopkins School of Advanced International Studies.
“I think that if changes do not occur in the international [financial] institutions of today, I think that we are basically encouraging a China-Russian alliance to formulate an alternative center to the US,” Woo said." http://en.ria.ru/analysis/20140807/191797049/International-Financial-Shake-Up-Contributing-to-New-Cold-War--.html

Note: I highlighted this possibility in the context of the UK proposal for barring Russian banks' access to SWIFT system: http://trueeconomics.blogspot.ie/2014/08/2982014-while-new-financial-sanctions.html

University of Chicago University political scientist John Mearsheimer: “There’s no question that Ukraine is interested in becoming part of NATO and be protected by the United States and the West more generally, and who can blame them? But the fact of the matter is that this is a prescription for disaster. …The West should have told Ukraine that incorporating Poland or the Baltic states into NATO was possible, but trying to incorporate Ukraine and Georgia was a bridge too far. We ended up precipitating a crisis and that crisis would lead to the destruction of Ukraine – and that’s obviously not in Ukraine’s interests… We should have stopped NATO expansion, given up the idea of incorporating the Ukraine into the West and instead said that we’re interested in maintaining a neutral Ukraine that effectively serves as a buffer state with NATO on one side and Russia on the other.”
http://en.ria.ru/analysis/20140905/192649988/Scientist--Ukraine-NATO-Membership-Prescription-For-Disaster.html

Note: I agree. And it looks like majority of the Nato members agree too: http://uk.reuters.com/article/2014/09/04/uk-nato-summit-ukraine-idUKKBN0GZ0SI20140904 Nonetheless, Ukrainian Government is keen on reviving its bid to join Nato: http://en.ria.ru/world/20140906/192681097/NATO-Pretends-Ukraine-Membership-Request-Never-Happened.html


Azov Battalion: 

In other news, an interesting article in the NY Review of Books: http://www.nybooks.com/blogs/nyrblog/2014/sep/05/ukraine-catastrophic-defeat/ that covers the aftermath of last weeks' fighting in Eastern Ukraine, summing it up as "the devastation suffered by Ukrainian forces in southeastern Ukraine over the last week has to be seen to be believed. It amounts to a catastrophic defeat and will long be remembered by embittered Ukrainians as among the darkest days of their history."

The article also contains a passing reference to something that is being increasingly whitewashed in the Western Media, the role of the neo-Nazis in backing Kiev's military operations: "As we sped away from the “Russians” we could see a column of black smoke rising from the sea. When we got to the Ukrainian checkpoint the men told us that it was a coastguard cutter that had been hit, they thought by a tank. They were from the Azov Battalion, one of the Ukrainian volunteer militias. On their vehicles and their arm flashes they had the “wolfsangel,” a neo-Nazi symbol, which is their insignia and which tells you much of what you need to know about their background."

In a related news, NBC report on German channel showing a video of Azov soldiers with nazi insignias on their helmets: http://www.nbcnews.com/storyline/ukraine-crisis/german-tv-shows-nazi-symbols-helmets-ukraine-soldiers-n198961

The Guardian article on Azov's central role in Ukraine's Government campaign: http://www.theguardian.com/world/2014/sep/10/azov-far-right-fighters-ukraine-neo-nazis

And on related, an Amnesty International USA post on the "on-going abuses and war crimes by pro-Ukrainian volunteer forces": http://www.amnestyusa.org/news/news-item/ukraine-must-stop-ongoing-abuses-and-war-crimes-by-pro-ukrainian-volunteer-forces

This has to be an uncomfortable reality for the US and EU politicians: Azov was formed on foot of a large number of Maidan 'activists' and represents the strongest pro-Ukrainian force that, in part, has influence with Kiev and business elites. Azov is not the only (but is the most notorious) regiment of similar nature. Explicit US and EU support for Maidan and post-Maidan interim Government is clearly tarnished by the Azov abuses and neo-Nazi base.

Note, personally, I doubt that President Poroshenko or PM Yatsenyuk welcome or support these extremists. I suspect they fear their impact and are concerned about the spread of the Azov-styled groupings in parts of Ukraine. But they have little room to clamp down on these groups in the current environment when the post-Maidan activism is still shaping internal Ukrainian policies to some extent. It is their tragedy as much as the Ukrainian tragedy that Azov is so prominently featuring as a symbol Ukrainian nationalism.


US Public Opinion vs US Political Elites:

Another interesting post is via Politico, covering American public vs political elites' opinions on various topics, including Russia as a threat: http://www.politico.com/magazine/story/2014/09/the-politico-50-survey-110555.html#.VAy5erywJ9m


Historical Map of Russian Expansionism:

Last, but not least, a good info graphic tracing out evolution of the Russian borders from the IXth century AD through the beginning of the 2000s: http://en.ria.ru/valdai_mm/20100906/160481013.html

11/9/2014: Russian Equities and the Crisis: Update

An update of the event study on the impact of the Ukrainian crisis on Russian equities - through yesterday's close.

A chart for two main indices: MICEX (Ruble denominated) and RTS (USD denominated):

And a summary table of % changes in the indices (reed cells mark cumulative declines, green mark increases). Two indices impacts and changes are diverging due to Ruble devaluations vis-a-vis USD:

You can see very clearly that MH17 and subsequent third round of sanctions had the most dramatic impact effect (short-term shock), with most of the impact and longer-term effect accruing to the MH17 event, rather than sanctions. However, in terms of the long-term impact, Yanukovich's flight and replacement by interim Government in Kiev had the most dramatic effect on Russian markets.

Overall crisis impact is fully captured by two factors:

1. Russian markets effectively saw downgrading of the pre-crisis (pre-January 1, 2014) trends (so there is a loss of potential growth that would have happened if there was no crisis, assuming pre-crisis trend would have been sustained - a tall assumption, given the economy slowdown was well underway before the crisis hit); and
2. Devaluations of the Ruble since January 1 (not all of these devaluations were driven by the crisis, as I explained in numerous notes before, as the Central Bank was already moving toward a free float for the Ruble for some years now and set a target for the free flow back in the mid-2013).

9/9/2014: Creative Destruction and Individual Well-Being

Here's a very interesting paper by Philippe Aghion, Ufuk Akcigit, Angus Deaton, and Alexandra Roulet, titled "Creative Destruction and Subjective Well-Being" (April 7, 2014, http://isites.harvard.edu/fs/docs/icb.topic1259555.files/Papers%20Spring%202014/AGHION%20April%202014.pdf)

The paper looks at "the effect of Schumpeterian creative destruction on subjective well-being. We
highlight theoretically the two opposite forces that creative destruction has on well-being: a negative
force through the higher risk of displacement and a positive one through higher growth expectations."

The displacement comes from the entry by an 'innovator' that displaces currently employed worker(s). The new technology is only enabled when a new worker is hired, and this results in higher output thereafter. So "more turnover translates into a higher probability of becoming unemployed which in turn reduces life satisfaction". But higher turnover means higher growth and this implies higher future earnings which "enhances life satisfaction."

Beyond this, the authors distinguish two types of workers, and as the result derive two different net effects.
"A second prediction is that higher turnover has a less positive (or more negative) effect on life satisfaction for more risk-averse individuals."

Applying the model to data, "Empirically, we find evidence supporting the existence of these two effects. We measure subjective well-being … [and] also use a measure reflecting individuals’ current ”worry”. For creative destruction we use establishment and job turnover following Davis et al (1996). The turnover data are MSA-level panel data from the Business Dynamics Statistics."

In more details: "We find that the effect of creative destruction on life satisfaction is unambiguously positive when we control for MSA level unemployment, less so when we do not. The magnitude of the effect is similar than that of the unemployment rate (but of opposite sign) and stronger when focusing on anticipated well-being (the growth expectation effect); yet creative destruction is also associated with increased worry (the displacement risk effect). Consistent with our model, we also find that creative destruction has a more positive effect on life satisfaction in states with a more generous unemployment insurance policy."


Note: Thanks to Liam Delaney for spotting this one earlier on twitter.

9/9/2014: Russia's Risks are Up, but Still Vastly Outperforming Ukraine's

Earlier today I tweeted about the drop in the drop in the credit risk score for Russia in the Euromoney Country Risk survey. As always, one has to look at the scores in both time series context and comparative to the peer economies.

Here is the Russian score in time series context:

It is worth noting that Russian score has declines rather steadily over time, but remains well ahead the regional average for the Eastern and Central Europe. Part of Russian score decline is driven by the ECE trend, but part is idiosyncratic.

Here are the main components of the score and the direction:

The sea of read arrows is what is of greater concern - scores dropping across all categories surveyed except one: debt indicators.

For comparative, the chart below shows evolution of Ukraine score, which is much less benign than that of Russia and remains deep under-performer in the Eastern and Central Europe:

Table below (click to enlarge) shows cross-countries comparatives for score and main components for Russia's main non-EU neighbours:

At the bottom of the above table, I list countries that are in 'credit risk' proximity to Russia, Ukraine, Belarus and Moldova. One thing is clear: Russia is comparing favourably to Eastern European countries that are EU members. Ukraine, Belarus and Moldova - do not. Their proximates are least-developed countries of the region.

9/9/2014: An IMF Loans Deal Can Be a Win-Win for EU and Ireland

Earlier today I was covering the topic of Ireland seeking an early repayment of the IMF loans on the CNBC (@CNBCWEX) http://video.cnbc.com/gallery/?video=3000309131. Here is a quick note summarising my views on the topic.

DEAL: The Irish Government is hoping to refinance the IMF portion of the Troika debt to achieve annual savings of some EUR375 million due to lower bond yields enjoyed by Ireland today compared to the IMF interest charges. The Government is looking to pay down EUR15 billion of the EUR22.5 billion total the country owes to the IMF.

IMF loans come with 4.99% interest rate against 1.80% marketable yield on Irish Government 10 year bonds. Back in July, Irish Finance Minister, Michael Noonan said he aims to refinance the first EUR5 billion of IMF loans before end of December, with the same tranche going for refinancing in the first half of 2015 and a final EUR5 billion in 2016.

Since then, following the ECB’s latest rate cut last week, Irish Government yields hit negative territory and yields on 10 year paper are currently trading at yields of under 1.7%.

The Government also has EUR20.6 billion in cash reserves that can be used to fund IMF loans buy-out. And the fiscal performance in 8 months through August 2014 has been surprisingly strong, even stripping out one-off payments.

INCENTIVES: The Irish Government interest in refinancing IMF loans is driven by both political and economic considerations.

On political front, the Coalition Government suffered heavy defeats in the European and Local elections earlier this year. So the Government needs to deliver new savings in Exchequer spending to allow for a reduction in austerity pressures in Budget 2015. Savings of few hundred millions of euros will help. And an ability to claim that the IMF loans have been repaid, even if only by borrowing elsewhere to fund these repayments, can go well with the media and the voters tired of the Troika. Optics and reality are coincident in the case of refinancing IMF borrowings, creating a powerful incentive to deliver.

Additional consideration is provided by the Government failure to secure a deal on legacy banks’ debts (see below), which de facto aligns Irish Government political interests with those of the EU.

On economic incentives side, the Government clearly is forwarding borrowing and re-profiling its bonds/debt maturity timings to minimise short-term pain of forthcoming repayments and to safeguard against the potential future increases in the rates and yields. Especially since the latest Exchequer figures are pointing to Ireland significantly outperforming the Troika targets for 2014-2015 and the economy is showing signs of recovery.

All-in, this is a smart move for the Irish Government and a win-win for the economy, the EU and the governing Coalition.

SUPPORT:  In August, the Economic and Monetary Affairs Commissioner Jyrki Katainen said that in his view, Irish plan to pay down IMF portion of the Troika loans ahead of schedule makes sense.

The EU Commissioner statement came on foot of the letter by the IMF mission head to Ireland, Craig Beaumont in which he said that the Fund will not impose early repayment penalty on Ireland, were the Government to refinance its debt.

Last week, Mario Draghi cautiously commented on the deal. When asked about his position on it, Draghi said that the ECB “took note” of the proposal and will monitor “very, very closely what is being done with the sale of assets so that monetary financing concerns are being properly and significantly addressed.” In other words, Draghi explicitly linked the IMF refinancing deal with the IBRC-legacy bonds held by the Central Bank of Ireland. The ECB has always signalled that it is interested in seeing Irish Government disposing of these bonds at an accelerated schedule. The accelerated disposal of the bonds means that the Irish Government sells these bonds in the markets to private holders and the coupon payments on these bonds become payable not to the Central Bank (which can recycle payments back to the Exchequer) but to private bondholders. On the other hand, however, the value of these bonds is now likely to be over par, implying that disposing of them today can generate capital gains for the Exchequer. At any rate, Mr Draghi’s statements does signal the ECB willingness to deal on the prospect for refinancing of the IMF loans.

Regardless of Mr Draghi’s comments, we had more statements in support of the deal so far in the last few days with unnamed EU Commission sources indicating further EU support.

As the decision remains with the Euro area governments on whether such a repayment will trigger automatic repayment of other multilateral loans, these are more important than Mr. Draghi’s position. As long as the ECB does not actively object to the deal, Minister Noonan is likely to secure an agreement without triggering automatic repayment of the remaining loans.

The reason for this is simple. In June 2012, the EU promised to review sustainability of Irish public debt in light of potential retroactive recapitalisation of the Irish banks. However, with subsequent developments, it became painfully clear that the Euro states had no intention of providing any significant support for Ireland. In order to back out of the proverbial corner, the EU will look favourably on any debt restructuring or refinancing deal the Irish authorities can design that does not imply retrospective recapitalisations.

Letting Ireland have a EUR375 million annual breathing space is a cheap solution to the EU's dilemma of issuing promises, without any intention of following through on them. 

REALITY: The truth, however, remains simple. EU and ECB insistence in 2008-2011 on paying in full on Irish banks debts has derailed Irish economy and is costing this country in terms of lower economic growth, high unemployment, high burden of taxation and dysfunctional banking system saddled with legacy debts. EUR375 million savings - welcome as they might be - is a proverbial plaster applied to a gaping wound left on Irish public finances by the crisis.

IMPACT: In the short run, refinancing IMF loans will provide improvement in the sovereign cash flow, but can cause the rebalancing of some private portfolios of Irish government debt.

In the longer run, the direct effect of a successful refinancing of the IMF loans can lead to a small, but a positive change in the Government debt dynamics. The definitive point here is what the Irish Government is likely to do with any savings achieved through the debt restructuring.

If the funds were to be used to fund earlier closing off of other official loans or closing off the remaining (and still large) deficit gap, there is likely to be a positive impact in terms of markets expectations and this will support better risk assessment of the sovereign debt dynamics. However, this is unlikely, due to the strong political momentum in favour of spending the new savings on reversing, in part, public sector spending cuts and state wages moderation. The problem is that in this case, interest costs reductions achieved under the deal will simply be consumed by remaining inefficiencies within the public sector. Such a move would likely be detrimental to Ireland's debt sustainability in the longer run.

It is worth noting that in 8 months through August, the Government took in EUR971 million more in tax revenues (UER700 million if one-off measures are netted out) than it planned in the Budget 2014, so some tax rebate is overdue, given the hefty burden of taxes-linked austerity on Irish economy. But the state is still borrowing EUR800 million per month to fund its spending. And we spent around EUR5.5 billion so far this year on funding interest payments on the debt.

9/9/2014: iPhone 6 Dilemma for Ireland?..

And so it comes... the iPhone 6 is about to be launched, and Apple has a major dilemma. Hype in the market suggests bumper sales for the new phone. But sales mean profits. And profits, for Apple, mean growing a pile of cash stashed in off-shore locations, including Ireland that the company can't do much with. Get the dilemma? The Guardian did: http://www.theguardian.com/technology/2014/sep/07/apple-iphone-6-cash-pile-tax-avoidance-us?curator=MediaREDEF.

I covered this earlier: http://trueeconomics.blogspot.ie/2014/06/2562014-imf-on-corporate-tax-spillovers.html as well as within the context of the overall position of Ireland as a corporate tax non-haven (you can track the topic from the links starting here: http://trueeconomics.blogspot.ie/2014/08/2682014-betting-on-corporate-tax.html).

Lest we forget: in the last 12 months through Q1 2014 (the latest for which data is available), Irish economy shipped out EUR26.678 billion in net factor payments abroad (these are, roughly, profits paid out to foreign entities out of Ireland, net of profits from Irish investments abroad). In the same 12 months period of 2012-2013, the amount was EUR28.517. Which means that in the 12 months through Q1 2014, cash repatriation out of Ireland was EUR1.839 billion lower than a year before. This contributed positively to our GDP. But our GDP over the same period rose by EUR1.953 billion. So if profits repatriation was running in 12 months through Q1 2014 at the same rate as in 12 months through Q1 2013, our GDP would have risen not by EUR1.953 billion (+1.13%) but by EUR114 million (+0.07%).

Let's take a look at Apple, again: the company has USD140 billion worth of cash stashed around the world, with much of this - by various reports between USD60 and USD90 billion via Ireland. Take a lower envelope and start repatriating... there can be a risk of a serious recession in Ireland were this to happen.

Ah, all the worries of the FDI-rich Ireland, the best little country to do tax business from...

8/9/2014: Some Pretty Good Services Data from Ireland

Irish services sectors have been at the forefront of the latest recovery for over two years now, posting booming figures and rosy PMIs. Underlying trends, however, are less often voiced. So let's take a look at the latest data here:

Overall, by value indices, Irish Services sectors posted a reading of 113.2 in July 2014, which is 1.34% up m/m. In previous month, June, m/m rate of increase was 1.45% which suggests slower growth in the sector overall. However, taking longer-range reading provides for a more encouraging picture. 3mo average through April 2014 was up 2.23% compared to same period 2013 and this rose in the 3mo period through July 2014 to 3.20%. 6mo average through July 2014 is also robustly up: +2.72% y/y.

So the above are encouraging trends and visible in the following chart:

As per composition of Services:

• Wholesale Trade services rose 1.42% m/m in June 2014 but fell 7.10% in July. Volatility aside, 3mo average through April 2014 was up 4.07% y/y and 3mo average through July was up 3.04%, while 6mo average was up 3.54% y/y. All healthy figures even though volatility is worrying.
• Combined Wholesale and Retail Trade sectors, however, were performing slightly less encouragingly. In June 2014, m/m growth was 0.27% and in July this fell to -0.27%. Again, monthly fall-off is down probably to heavy declines in Wholesale Trade area. But 3mo average through April 2014 was up 4.02% y/y and in 3 months through July this fell to 1.8% - a much more significant decline in growth compared to Wholesale trade alone. 6mo average through July was up 2.89% y/y which is again weaker than 3.54% for Wholesale Trade alone.
• Transport and Storage posted zero growth in July 2014 in m/m terms, having posted growth of 1.67% m/m in June. 3mo average through April 2014 posted a y/y decline of 1.96% and 3mo average through July posted a rise of only 0.88% y/y, which means that 6 months average through July was down 0.53% on same period in 2013.
• Accommodation and Food Services activity posted a significant m/m decline of 4.22% in June but managed a small comeback of 0.67% in July. Still, 3mo average through April 2014 was up 3.89% y/y and this moderated to 2.28% growth y/y in 3mo period through July 2014.
• Information & Communications Services sub-sector is booming. Up 3.73% m/m in June, followed by a rise of 3.52% m/m in June. The sector activity was up 6.88% y/y in 3 months through April 2014 and is now up 9.9% y/y in 3 months through July 2014. Much of this is down to MNCs booking massive revenues through Ireland on their way toward tax optimisation.
• Professional, Scientific and Technical Activities sector posted a disappointing m/m rise of just 0.62% in May-June 2014, but followed this with a strong 4.03% rise m/m in July 2014. Still, the sector 3mo average activity through April was down 9.35% y/y and it is down 2.17% for the 3 months through July too. The knowledge is not booming, apparently, in the Smart Economy.
• Administrative & Support Services - another backbone of the ICT services sector and international financial services as many of jobs in the MNCs operating from here have more to do with administration and sales - posted a rise of 1.80% m/m in July 2014 which is an improvement on 1.16% growth in June 2014. The sector is now down 1.85% y/y on the 3mo average basis through July 2014 and is down 0.74% y/y for 6 months through July.

Charts below illustrate trends:

Lastly, a summary of 3mo average moves, with current referencing period of May-July 2014 and previous referencing February-April 2014 period:

All in, the numbers are getting positive, and we have now much greater convergence between the Services PMIs and Services Index performance, suggesting that recent uptrend in Services PMIs (http://trueeconomics.blogspot.ie/2014/09/392014-services-pmi-for-ireland-august.html) is going to lead to continued uptrend in actual sector activity.

8/9/2014: Russia's Agrifood Sector: In Need of Serious Investment

In a recent note on the state of Russian economy (http://trueeconomics.blogspot.ie/2014/08/2882014-state-of-russian-economy.html) I wrote about the need for significant increases in investment in logistics and SCM in agri-food sectors in Russia. Here is the latest Government view on the subject: http://en.itar-tass.com/economy/748513

My estimation is that to effectively develop production of substitutes for banned imports, Russia will require much more significant allocations. Production supports alone will have to rise by USD2.3 billion by Russian Ministry of Agriculture estimates starting with 2015 (Minister Nikolai Fyodorov's own estimate back in late August was for USD3.8 billion), on top of USD5.4 billion already budgeted for annual supports for 2013-2020 development. But investments in food processing, storage and transport capabilities will also be required. My estimate is that the rate of investment in auxiliary capabilities to accompany production expansion will have to run at least at 50% of the agricultural supports and this implies annual investment of ca USD3-4 billion. This comes on top of recent surveys, conducted prior to the onset of the sanctions, which put Russian logistics and SCM markets at the top of global growth curve (here is a slide on the sector potential from my earlier presentation deck):

The opportunity space in these areas is huge. And the market itself offers so much potential that faced with imports bans, producers are still attempting to maintain their long-term relations, as suggested by this article: http://en.itar-tass.com/economy/748296.

7/9/2014: Scotland's Financial Services and the UK

Here is an interesting tweet on the size and inter-links between Scottish Financial Services and the UK:

But here are some other facts:

• Financial Services contributed £8.8bn to the Scottish economy in 2010 or over 8% of Scottish onshore economic activity.
• Financial Services direct supported 85,000 employees and indirectly provided jobs for 100,000 more, accounting for around 7% of total employment.
• Banking, as a sub-sector of the Financial Services is the largest contributor to the Scottish economy adding over £4bn, or nearly half of the total financial services contributions.
• Adding to the financial services the associated professional services combined broader financial services sector employs a total of 148,600 people, or 6.1% of total Scottish employment, contributing over £14bn to the economy, 13.1% of Scottish GDP.
• More than 40% of Scottish postal services & almost 30% of Scottish accountancy services are sold to the Scottish financial sector. Almost 19.4% of all 'other business services' in Scotland are supplied to the financial services contractors, 18.7% of all advertising, 18.2% of computing services, 18.1% of real estate services, 17.6% of printing and publishing, 20% of research services, 16.3% of legal activities, 16% of telecommunications, and 13.4% of air transport services.
• The Scottish banking sector (a subset of Financial Services sector) is huge. The assets of the whole UK banking sector (including Scotland) are ca 490-500% of UK GDP. Scottish banks assets total around 1,254% of Scotland’s GDP, not counting any effects on the GDP from a vote for independence. In comparison, at the end of 2007, Icelandic banks had assets were around 800% of GDP, while Cypriot banks assets amounted to around 700% (450% for domestic banks). Irish banking system reached around 894% of GDP at the peak of pre-crisis boom.
• Scottish banking system is heavily concentrated (a factor that played significant role in the Cypriot banking crisis): the two largest banks – the Bank of Scotland and the Royal Bank of Scotland (RBS). As the UK Government report (see link below) of May 2013 notes, "There could be questions about an independent Scotland’s ability to stabilise its banking system in the event of a future financial crisis. In 2008, the UK Government spent £45 billion recapitalising the RBS in order to protect the deposits and savings of households and small business. In addition, the bank received £275 billion of guarantees through the UK Government’s Asset Protection Scheme. This combined support from the UK Government to RBS is equivalent to some 211 per cent of Scottish GDP in 2008." The later accounts for Scotland's geographical share of North Sea oil revenues.
• Quoting from the same report: "The Scottish financial services industry estimates that 90 per cent of its customers are located in the rest of the UK, and the market is highly integrated for most financial products. For example, 89 per cent of stocks and shares Individual Savings Accounts (ISAs) provided by Scottish firms are sold to customers based in the rest of the UK, and 33 per cent of the Individual Savings Accounts (ISAs) opened by Scottish consumers were with non-Scottish firms."
• Two main banks in Scotland control 70% share of the market for SMEs lending in 2011, Lloyds: 36% and RBS 34%.

On the opposite side of trade: 

• 70 per cent of all pension products bought by Scottish consumers are from firms based in the rest of the UK.
• 48 per cent of adults in Scotland currently have an ISA, which attract UK tax relief. Per UK Government report: "ISAs would cease to be available in the current form if Scotland separated from the rest of the UK."
• 24 per cent of employment in the UK life and pensions sector is based in Scotland, but 91% of pensions products originating in Scotland are for non-Scottish residents.
• Funds management is a big business in Scotland, with an estimated £750bn of assets under management and an estimated 3,600 people employed (directly and in related services). The Scottish share of the UK asset management sector was 6.4% in 2010. Two of the UK’s top 10 asset management firms: BlackRock International Ltd (the largest in the UK) and Standard Life Investments (the ninth largest) were based in Scotland.
• 90% of Scottish Financial Services customers reside in the rest of the UK. 84% of mortgages issued in Scottish institutions are to customers outside Scotland. 
• 58% of total exports and 71% of total imports in Scotland are with the rest of the UK.

More analysis and facts on the interlinks between the UK and the Financial Services in Scotland available here:
https://www.gov.uk/government/publications/scotland-analysis-financial-services-and-banking

7/9/2014: The Neighbourhood We Are In: Dublin as Global Financial Centre

Look who ranks as an offshore financial centre as opposed to regional or global or niche / specialist centre? Why... of course it is...

And what a neighbourhood we occupy... Lux, Guernsey, Caymans, Bermuda and Isle of Man... all, presumably, trading on their human capital, skills, world class education, innovation, R&D, state policies for development of entrepreneurship, rigorous world class quality regulations. etc, etc, and strictly transparent benign taxation regime...