February 2021 p.24 in meltdown ’ ITindustry SHELLING ’S WHITE

HOUSEIN 1993 What areal coup looks like

p.35 The oligarch problem WWW.BNE.EU Has Navalny started arevolution? Making Magnitgreat again and backingfor ‘Khanstitution’ Kyrgyz populist winslandslide Fears ofauthoritarianism as development scandal Estonian premier quits after about risingrisks first time,butCBRworried into the stock market for the Russian investors piling p.42 OUTLOOKS 2021

ISSN 2059-2736 2 I Contents bne February 2021

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Ben Aris editor-in-chief & publisher I Berlin 206 +49 17664016602 I [email protected]

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Stephen Vanson 7 I +44 753 529 6546 [email protected] ——— COMPANIES & MARKETS 14 Russian petrochemical giant Sibur

Advertising closes $11bn joint venture deal to 4 Hungarian official threatens build Amur Gas Chemical plant Elena Arbuzova to wage war on foreign with China’s Sinopec business development director I +7 9160015510 I [email protected] retailers ——— 16 Rio Tinto reports maiden ore 5 Hungary's largest bank reserve at Jadar project in Serbia Design merger granted exemption Olga Gusarova from competition scrutiny 17 Turkish hotels in fire sale art director I London +44 7738783240 I [email protected] 6 Foreign investors eye 18 Online video service ivi.ru starts bargains on distressed NASDAQ IPO registration procedure Please direct comments, letters, press releases Budapest hotel market, but and other editorial enquires to [email protected] owners won't budge 19 AFC CAPITAL: Uzbekistan’s stock market re-rating has much further All rights reserved. No part of this publication 7 picks location for to run may be reproduced, stored in or introduced to any its Izera e-car plant, says retrival system, or transmitted, in any form, or by any means electronic, mechanical, photocopying, production delayed until 21 Borsa Istanbul takes stock of its recording or other means of transmission, without 2024 new speculator express written permission of the publisher. The opinions or recommendations are not necessar- 8 Karachaganak partners 21 Ozon’s oversubscribed IPO brings ily those of the publisher or contributing authors, including the submissions to bne by third parties. pay $1.3bn to settle oil in $1.2bn No liability can be attached to the publisher for and gas fields dispute with these comments, nor for inaccuracies, errors Kazakhstan 22 Romanian tech entrepreneurs or omissions. Investment decisions or related actions taken on the basis of views or opinions expand into banking sector that appear herein are the responsibility of the 9 UK court freezes $5bn in reader and the publisher, contributors and related assets connected to fugitive 23 Slovakia to invest €1.2bn in parties cannot be held liable for these actions. Kazakh banker Ablyazov digitisation bne Intellinews is published by Emerging Markets Direct OU 10 Russian retail investors 23 Turkey hits Facebook, Instagram, piling into the stock market Twitter, YouTube and TikTok with Print issue: for the first time, but CBR second round of fines £4.50 /$6.75 /€5.90 . €499 / year worried about rising risks 24 Belarus’ IT industry in meltdown 12 EBRD investments reach Follow us on record €11bn in pandemic- 26 E-grocery in Russia estimated to twitter.com/bneintellinews struck 2020 reach $1.9bn in 2020, growing to $8bn by 2023 Sign up to FREE electronic version 13 Russian government to of bne monthly magazine OR buy sell First Channel TV 27 Government releases mandated a print subscription at broadcaster, but will keep phone app software list golden share bne.eu/subscribe bne February 2021 Contents I 3 13 66

54

COVER FEATURE 52 Montenegro’s special prosecution probes finance 70 28 Shelling Russia’s White House minister over €750mn in 1993 Eurobond issue

32 Storming : 53 Heavy flooding causes chaos New Europe's greatest hits in parts of Southeast Europe

35 The oligarch problem EASTERN EUROPE

40 OUTLOOK 2021 54 Making Great again

58 Fencing club memberships CENTRAL EUROPE surge following success of Russia’s answer to the 66 EBRD backs “success story” 44 Estonian premier quits after Queen’s Gambit hit mini- TBC as it cuts stake in Tallinn development scandal series Georgia’s largest bank to 5%

46 Czech Pirates and Mayors 59 Kremlin creating pro-Russia 67 Georgia’s political kingpin approve final coalition party in Belarus Bidzina Ivanishvili quits agreement for 2021 elections politics 61 Has Navalny started 47 Transparency International a revolution? warns of high corruption risk OPINION in CEE defence sectors EURASIA 68 Corruption steals back into 48 Poland and Hungary lift their the Russian political agenda blockade of EU budget and 64 Fears of as Mishustin and Krasnov coronavirus recovery fund as Kyrgyz populist wins target the institutional landslide and backing for profiteers ‘Khanstitution’ SOUTHEAST EUROPE 70 The controversial recipe for 65 Fallout from execution of building up Albania 50 ‘Lost hope’ on Turkey’s jobs dissident journalist scuppers market threatens Erdogan Iran-Europe business forum 72 Uzbekistan is being transformed, but where are 51 Arrera Automobili aims to the democratic reforms? launch Albania’s first supercar

74 NEW EUROPE IN NUMBERS 4 I Companies & Markets bne February 2021

Former cabinet chief Janos Lazar openly calls for protectionist measures against foreign retailers at a conference on December 4. Hungarian official threatens to wage war on foreign retailers

Tamas Szilagyi in Budapest

ultinational retailers in Hungary may be bracing the next 7+2 years, thousands of billions of forints will have for a tough period after former Prime Minister’s to be made available for agriculture, he added. Hungary MOffice leader Janos Lazar argued that Hungary should follow the examples of Poland and Slovakia, which should pursue an openly protectionist policy to crowd out have a higher share of processed food made locally. multinational retailers. Hungary has already reintroduced a progressive sectoral tax hitting larger companies, while Lazar said that it would be in the national interest of Hungary sparing local retailers operating with franchise models. to dominate this market.

Agriculture is one sector of the economy that has not benefited In numbers this would mean boosting the share of the from regime change or accession to the European Union, Lazar Hungarian-owned processing industry and domestically said at an online agricultural conference organised by the produced food consumption to 80% each, leading to an 80% Portolio business website on December 4. share in contribution of the sector by local producers.

Despite funding coming from the EU during the last two seven- Foreign retailers under pressure year budgets, agriculture is lagging behind. "We are a country Earlier this year, the Court of Justice of the European Union that exports raw materials and imports finished products," (CJEU) ruled that Hungary’s progressive sectoral tax on said Lazar. retailers in Hungary is compatible with European Union rules. A few weeks later Hungary’s approved a turnover- The next EU budget cycle is Hungary's last chance to be a self- based tax for companies. The tax exemption applies only for sufficient country with a strong food industry, he argued. Over annual of HUF500mn (€1.38mn), or less. www.bne.eu bne February 2021 Companies & Markets I 5

Due to its progressive nature, the windfall tax is targeted its leading position with HUF740bn in last year down at multinational firms while local retailers (CBA, COOP) 2.8% from 2018. operating with a franchise model would be spared from the heavy burden. had 112 , 35 and 55 convenience stores in Hungary. Spar saw its sales rise 10% The rate for turnover between HUF500bn and HUF30bn is to HUF680bn. The two largest local retailers COOP and 0.1%, between HUF30bn and HUF100bn is 0.4% and over CBA were ranked fourth and fifth with annual turnover of HUF100bn turnover the tax rate is 2.5%. HUF643bn and HUF538bn respectively, a modest 2.6 and 2.1% annual growth. The Orban government introduced windfall taxes for retailers in 2010 but was forced to withdraw it three years later after Analysts said that squeezing out multinationals would not solve an infringement procedure by the EU. The case was brought efficiency problems faced by Hungarian retail chains. Employers to the EU court, which ruled in favour of Hungary. Of the top would also feel the impact of a possible ownership change and possibly not to their advantage, a trade union leader said.

Lazar, a once-powerful member of the Orban government, “We are a country that exports has stepped back from national politics in 2018 after his raw materials and imports unexpected loss at a mayoral by-election in his hometown of Hodmezovasarhely. He won his district in the 2018 finished products” parliamentary election. For a long time Lazar portrayed the image of being the "nice guy" of Fidesz, willing to accept criticism and ready for a compromise. ten retailers, only two are Hungarian-owned. The last few years had seen a surge of hard-discount chains. , Lidl In rhetoric, he occasionally unleashed criticism of the and Penny had pursued an aggressive strategy in building government’s policies. He was appointed by Orban as up their market share. commissioner for protecting non-smokers and earlier this year he was picked to lead the Hungarian Tennis Federation German hard discount chain Lidl became the second-largest after a corruption scandal. player in 2019 with a whopping 25% y/y increase in revenue to HUF685bn, which ranked it second behind market leader With such proposals many analysts say that Lazar is pursuing Tesco. According to the annual compilation of the 11 largest an ambition to make a comeback to national politics before FMCG retailers by Trademagazin, the UK-retailer retained the 2022 elections.

Hungary's largest bank merger granted exemption from competition scrutiny

Tamas Szilagyi in Budapest

he cabinet of Prime Minister Viktor Orban has declared to transfer their shares to a joint holding company, Magyar the consolidation of three banks owned by the state or Bankholding in late October. Tbusinessmen close to the ruling Fidesz party of national strategic importance, according to a published in the The owners of MTB Magyar Takarekszovetkezeti Bank, the official gazette on December 10. The government has used "central bank" for Hungary's integrated savings , that legal framework for more than 100 transactions, more acquired a 37.69% stake in Magyar Bankholding; the owners than any other government in the past. of MKB 31.96%; and, the state took a 30.35% through investment fund Corvinus International Investment. The status guarantees that the tie-up of MTB Magyar Takarekszovetkezeti Bank, MKB Bank and state-owned The future merger of the three banks will create the second- Budapest Bank will be speeded up and more importantly largest banking group in Hungary after OTP, although it will exempts the deal from competition oversight by the only be around a quarter of the size of CEE's largest lender competition watchdog GHV. with consolidated market value of HUF744bn (€2.1bn). Magyar Bankholding's balance is around HUF5.8 trillion Takarekbank Group, MKB Bank and Budapest Bank agreed compared to OTP's HUF22.7 trillion. www.bne.eu 6 I Companies & Markets bne February 2021

The consolidation of the three banks is part of a wider cultures and infrastructure at a time when rivals are investing plan backed by government and Orban to boost the share heavily in digital transition. of Hungarian ownership over 50% in strategic sectors such as media, retail, energy and banking. Counting OTP On the other hand, the banks’ customer bases complement as a Hungarian-owned lender, this has already materialised each other well. MTB has a strong presence in smaller as the state has acquired Budapest Bank and businessmen rural areas with a solid SME base and retail clientele close to the prime minister bought stakes in MKB Bank. in agriculture, which fits well with MKB's and Budapest Bank's affluent urban clientele. The latter two also Market players are of the view that it will be an extremely have steady positions in SME lending, private banking difficult task to merge banks with such different organisational and leasing.

Foreign investors eye bargains on distressed Budapest hotel market, but owners won't budge

The prestigious Gellert hotel in Budapest was acquired by US-Hungarian Tamas Szilagyi in Budapest investment management and property developer Indotek for €80mn in mid-2019.

oreign investors are lining up to take advantage of the In the first ten months of 2020 the number of guest nights at collapse of tourism in Budapest in the hope of snatching commercial accommodations dropped 53.1% y/y to 12.8mn. Fbargain deals on the hotel market, local media wrote on Overnight stays by foreign guests in the same period fell 74% December 14. But so far transactions are hard to come by as to 3.57mn. owners are not ready to make concessions. Hungary's tourism sector closed a record year in 2019 as the Troubled hotel operators in Budapest are besieged by investors number of guests at commercial accommodations reached from Europe, China and Arab countries, according to a report 12.8mn and that of overnight stays exceeded 31.3mn, a two- by Privatbankar website, citing industry associations and fold increase from 2010. Foreigners accounted for half of guest consultants. nights at hotels with at least three stars. The data does not include stays booked through short-term rental services There is no pressure on owners to sell their stakes with the such as Airbnb. state-mandated loan moratorium still in place, said Tamas Flesch, head of the Association of Hungarian Hotels and Budapest hotels, which depend heavily on foreign guests were Restaurants. Flesch is also the co-owner of the Continental hit by the crisis harder than their peers in the countryside. Group, a hotel management company, that has sealed two transactions a year ago just before the crisis hit. After the government lifted lockdown measures in June, domestic tourists flocked to popular destinations in the Customers are looking for buying opportunities, with a possible 20-40% price discount, but owners are unwilling to lower prices despite the crisis, said consultant Peter Kraft. Investors are now moving to other European capitals to strike “Troubled hotel operators in deals, he added. Budapest are besieged by Hotel development projects continued during the pandemic investors from Europe, China as there is confidence that life will get back to normal and that tourists will return to Budapest. and Arab countries” www.bne.eu bne February 2021 Companies & Markets I 7

countryside. Hotels at the popular holiday hot spot around could come under review. Some 4,200 of the rooms are to be Lake Balaton operated at full capacity in August with some constructed in Budapest. raising prices by as much as 40% due to strong demand. Developments in the hotel segment have come to a standstill Hotels were forced to close their doors except for business as global tourism collapsed. Some 580 rooms were handed tourists after the government reintroduced restrictions in over in H1, according to a report by property consultancy mid-November. Most of the hotels in the capital have closed CBRE. Projects under due diligence reached €165mn, the temporarily to save costs and laid off staff. They are now majority of these will slip into 2021. trying to survive through the government's furlough measures, which had been extended until January. The largest transactions on the market in the last 12 months were linked to US-Hungarian investment management and The overwhelming sentiment is that owners are not in a hurry property developer Indotek Group, owned by Hungarian to exit the market, Privatbankar writes. billionaire Daniel Jellinek.

Analysts say that there are at least two dozen projects in the The company bought five-star luxury hotel Sofitel for an pipeline in central Budapest. Projects that are still in the estimated €100mn this year after taking ownership of one of the designing phase, however, will be unlikely to proceed with most prestigious hotels in Budapest paying an estimated €80mn the lack of financing. for Gellert, also known for its world-famous thermal bath.

A recent report by the National Bank (MNB) estimated that Indoket is said to carry out a complete renovation of the exterior the development of some 7,000 rooms, roughly 13% of the and interior of the two facilities. In the case of Gellert the costs present capacity on the market to be completed in three years could easily exceed the transaction price, analysts said.

Poland picks location for its Izera e-car plant, says production delayed until 2024

bne IntelliNews

he production of Poland’s first domestically-manufactured The cost of launching production is expected at PLN4bn-5bn, electric vehicle, Izera, will be located in the southern the company said in July. Ttown of Jaworzno in the industrial and mining region of Upper Silesia, ElectroMobility Poland (EMP) – the state-owned The Polish e-car, which is named after a mountain range in company responsible for the project – said on December 15. southern Poland, will be manufactured in SUV and hatchback versions. EMP says that the Jaworzno plant will be capable of The start of manufacturing will be thus delayed by a year releasing 200,000 cars a year. Polish companies will initially compared to a plan announced in late July. supply 30% of the car's components. That is expected to go up to 80% over time. Poland had ambitious plans for quickly growing the number of e-vehicles on its roads to one million by 2025, Prime Minister The company is yet to offer full details on the technical specs Mateusz Morawiecki pledged in 2016. of the car. EMP has only said so far that the vehicle’s nominal range is expected at 400 kilometres on a single charge. The While that is unattainable now, domestic production of what car will be able to go from zero to 100 km/h in about eight EMP claims will be a “reasonably-priced vehicle for an average seconds, EMP also said. Pole” could boost the number of e-car users in the late 2020s. Izera cars will not be available in a traditional sales model but The production of the vehicle will create approximately 3,000 via a rental system with monthly payments, also covering the jobs in the Jaworzno plant as well as some 12,000 in suppliers cost of electricity. EMP's shareholders are Poland's four state- and related companies, EMP said in a statement on its website. run utilities: PGE, Tauron, Enea, and Energa. www.bne.eu 8 I Companies & Markets bne February 2021 Karachaganak partners pay $1.3bn to settle oil and gas fields dispute with Kazakhstan

bne IntelliNews

he Karachaganak Petroleum Operating (KPO) the years, including one in 2012 that led to KMG obtaining consortium managing one of Kazakhstan’s biggest oil its stake in the project. Tand gas fields has paid $1.3bn to settle a long-running dispute with the Kazakh government over -sharing. The most recent dispute began in 2015, when the government The agreement paves the way for the project’s investors to sued KPO for $1.6bn, claiming it was not receiving its fair push ahead with a $1bn expansion project. share of profits from production. The government took the case to a Stockholm international arbitration tribunal. The two The Kazakh Energy Ministry announced on December 14 that in sides reported in 2018 that a settlement was near, but a deal addition to the $1.3bn cash settlement, KPO had agreed to adjust was not finalised. the production-sharing agreement (PSA) for the Karachaganak field. This will earn the Kazakh state an extra $600mn in oil and The agreement this week is a “very positive step” that ensures gas sales by 2037, assuming a $40-50 per barrel crude price. “fiscal certainty in Karachaganak,” Shell and Chevron said in statements to Bloomberg. Kazakhstan’s energy ministry Karachaganak is jointly operated by Royal Dutch Shell and added that the partners could now push on with an Italy’s Eni, each with 29.25% of shares, while its other investors expansion project. include Chevron, Russia’s and Kazakh state oil company KazMunayGas (KMG). The field delivered some 412,000 barrels KPO signed off on a $1.1bn de-bottlenecking project in of oil equivalent per day (boepd) of oil and gas in the first half of September 2018, boosting sour gas processing by 4bn cubic the year, putting it in third place behind Tengiz and Kashagan metres per year and enabling the recovery of an extra 10mn in terms of Kazakhstan’s biggest oil and gas projects. tonnes of liquid hydrocarbons during the field’s remaining operational life. The consortium also approved construction Transformed in 1990s of a fourth injection compressor unit in May last year. Karachaganak is also among the country's oldest projects, having started flowing hydrocarbons in the early 1980s. But it Most of Karachaganak's gas production is pumped via was not until international majors took on the field in the late a 140-km pipeline for processing in a plant in Orenburg, 1990s that it was transformed into one of the country’s biggest Russia, while the rest is used for energy at the field or pumped oil and gas producers. back into reservoirs to maintain pressure. Its oil is delivered via a 635-km pipeline that connects with the Caspian Pipeline Despite their success, however, Karachaganak’s investors have Consortium (CPC) network, which then transports it to been embroiled in several disputes with the government over Russia's Black Sea coast for export to markets.

The agreement also adjusts the production-sharing agreement (PSA) for the Karachaganak field. www.bne.eu bne February 2021 Companies & Markets I 9 UK court freezes $5bn in assets connected to fugitive Kazakh banker Ablyazov

Ablyazov runs the Democratic Choice of Kazakhstan party, bne IntelliNews banned in Kazakhstan, from exile.

he Business and Property Courts of and Wales Capital, one of the defendants in the freezing order, as saying. have issued an asset freeze on $5bn in assets including “We will make an application to have this claim discharged.” Tcash in bank accounts in half a dozen countries, stakes in luxury hotels and a Burger King franchise, as part The allegations come as a surprise twist as Utemuratov has of an ongoing legal saga involving fugitive Kazakh banker been long seen as a close associate of Nazarbayev and in and dissident Mukhtar Ablyazov and Kazakh state-owned leaked diplomatic cables was “rumored to be Nazarbayev's BTA bank, the Wall Street Journal has reported, citing court ‘personal financial manager.’” documents. According to a Facebook post under Ablyazov’s name, he The asset freeze followed a petition from BTA Bank, which responded to the freezing order by denying the money has alleged for years that Ablyazov, the bank’s ex-chairman, laundering allegations and claimed that a top Kazakh stole over $6bn and laundered much of it via shell companies intelligence official was attempting to “destroy Utemuratov around the globe. BTA was once Kazakhstan’s biggest lender physically and financially.” until it defaulted on $12bn of debt in 2009. Investigators claim Ablyazov developed several complex schemes aimed The freeze order at financing investment projects in Russia, enabling him to The new order seeks to freeze assets including bank accounts systematically embezzle the bank’s funds in large amounts. at UBS Group, Credit Suisse Group, EFG International and DBS Group Holdings along with firms that own stakes in Ablyazov, 57, a critic of longtime Kazakh president Nursultan the Ritz-Carlton-branded hotels in Moscow, Vienna and the Nazarbayev, has been living in self-imposed exile in Europe Kazakh capital Nur-Sultan. The Utemuratov-controlled Burger since 2009. He was tried in absentia in Almaty in June 2017 King franchise in Kazakhstan is also included in the order. and sentenced to 20 years in prison on charges of organising and leading a criminal group, abuse of office, embezzlement of Ablyazov took over BTA in 2004 after his business partner around $6bn, and financial mismanagement. He has protested died in what was reported as a wolf-hunting accident. After his innocence, describing his trial as politically motivated. Ablyazov fled Kazakhstan in 2009, the bank was taken over by the Kazakh government. Financier Bulat Utemuratov In the latest petition, BTA said financier and former In recent years, he has been organising and coordinating the Kazakhstan government adviser Bulat Utemuratov worked activities of his Democratic Choice of Kazakhstan movement with 11 other individuals and firms to help hide the bank’s via the internet, including organising protest rallies in stolen funds, the court documents reportedly showed. Kazakhstan's capital Nur-Sultan and largest city Almaty. A UK court in 2012 ruled in BTA’s favor, issuing a $4.9bn civil judgment against Ablyazov and his son-in-law Iliyas In a separate case, BTA bank has accused Ablyazov and his partners Khrapunov. Ablyazov, who resides in France, refused to of using real estate projects in Europe and the US – including units engage with the British courts, leading to him being held at the Trump Soho in New York – to launder $440mn while the in contempt. authorities were probing the alleged thefts. It has also accused Ablyazov’s son-in-law Ilyas Khrapunov of concealing talks on Utemuratov reportedly denied the allegations. real estate dealings in the US by using hundreds of accounts for encrypted emails while facing the money laundering charges. “The claim was based on false documents provided by BTA Bank JSC and its lawyers,” the Wall Street Journal cited Olga Ilyas’s father, Viktor Khrapunov, Ablyazov’s close associate, has Abdrakhmanova, spokeswoman for Utemuratov and Verny also been accused of stealing $300mn from the city of Almaty. www.bne.eu 10 I Companies & Markets bne February 2021 Russian retail investors piling into the stock market for the first time, but CBR worried about rising risks

Russian retail investors are looking for alternative investments since bank Ben Aris in Berlin deposit interest rates have fallen.

ussian retail investors are finally investing in stocks foreign listed companies via the MOEX exchange, which has as they look for better returns following the steady been possible since Russia was hooked up to international Rfall of interest rates at banks in recent years. But the settlements and payment system Clearstream in 2012. By the CBR is worried that risks for the financial sector are rising beginning of November the daily turnover in trading foreign- as a result. listed stocks was up to RUB1.5bn ($20mn). Private investors now account for 43% of the volume of all trading on the With inflation in double digits for much of the time following stock market, up from 34% in 2019, and 45.8% of trading the collapse of the in 1991 have always in foreign shares. been on the hunt for ways to protect the value of their savings. The default option has been to keep their savings in bank The authorities have long tried to encourage the average deposits that pay high interest rates. Russian to invest in order to create a new source of capital, but each attempt in the past has been met with disaster. However, following a long run of sustained interest rate cuts by the Central Bank of Russia (CBR) to the point where the In 1996 then-president launched the so-called overnight prime rate is now almost “normal” – the CBR cut PIFs (mutual investment funds) and several international rates to 4.25% at its last meeting in October – bank deposits companies like Franklin Templeton moved in hoping to reap no longer pay an attractive return for most Russians, who have profits from an investment bonanza; except within 18 months begun to cast about for other investments. the market crashed in the 1998 crisis.

Retail investments into stocks have been accelerating every Another attempt was made to rope retail investors into the month in 2020, reports the CBR, as cited by The Bell. The stock market with the IPO of VTB Bank, dubbed “the People’s third quarter of 2020 set a new record number of brokerage IPO”, in May 2007. The bank raised over $8bn in an offer companies’ clients, up by more than a quarter, or 1.6mn new priced at 13.6 kopecks ($0.005), which over 100,000 clients, to a total of 7.6mn compared to the quarter before. retail investors bought; except again within 18 months the Over the year the number of new clients with brokerage firms markets crashed again, leaving the retail investors holding has already more than doubled. shares worth half their purchase value. Today the shares

The number of individual investment accounts (IIA) for the Russian retail investors flock to the market year from September 2019 to September 2020 increased two Number of individuals with a brokerage acount on the (m) and a half times and reached 2.9mn, and 525,000 of them were opened in the third quarter, reports the CBR.

In October 2020, the Moscow Exchange recorded new historical records in the stock market:

MOEX has also reported record numbers of new clients this year, with adding 736,000 year to date as of October as well as record volumes of transactions, with more than 1.2mn customers making at least one transaction with shares.

The exchange is trying to keep up with demand from these retail investors and in August launched the possibility to buy www.bne.eu bne February 2021 Companies & Markets I 11

are worth 38 kopecks each, which, following the devaluation Safe as houses in 2014 means they are still worth exactly as much as they Outside the domestic capital market the other big winner were worth in the IPO of $0.005 at current exchange rates. from the retail investors' hunt for returns has been the housing market. Housing prices have begun to rise fast on both the Banks deposits fall out of fashion primary and second market, fuelled by a generous government The rapid growth in retail investments into stocks, as well subsidy scheme, which was recently extended into 1H21. as real estate, is being driven by the falling returns from depositing money with banks. The mortgage market took off in 2008 and recently demand has been stoked by the anti-crisis programme of preferential The CBR has cut its prime overnight rate to its lowest level mortgages at 6.5%, and the average rental yield on the in modern history, which has led to a mass exodus of bank housing market in September of 5.5% per year, which depositors, reports the CBR, to the point where last week exceeded the weighted average yield on deposits for up to the central bank warned that these outflows carry risks for the financial system. “The CBR has cut its prime overnight The falling prime rate has led to commercial banks cutting their deposit rates in parallel. At the most recent peak, the top rate to its lowest level in modern ten commercial banks were offering a deposit rate of 7.72% in March 2019, but that had dropped to 5.92% by the start history, which has led to a mass of 2020 and fell again to the current 4.53% as of October. exodus of bank depositors” The current return from bank deposits only just covers inflation, which is expect to end this year at 4.2%-4.3%. a year by 2.25 percentage points, the CBR said in its Financial The rates on foreign currency deposits have decreased even Stability Review. In short, an individual investor can make further and are now close to zero. That has led to an exodus better money from buying an apartment to rent than they of those deposits, too, with RUB635bn ($8.4bn) of outflows can from putting their cash on deposit in a bank. this year. CBR concerns The volume of ruble deposits is still growing and increased In its more recent Financial Stability Review, the CBR for the by RUB1.1 trillion ($14.5bn) in the first nine months of this first time called the flow of retail funds into the stock market year, but ordinary Russians are more and more energetically a risk for the Russian financial system. This is a natural stage looking for alternative investments, the CBR says. in the development of the market, writes the Central Bank citing the example of the United States, where securities The bond market has been another beneficiary of the change. account for 51% of savings. Since the beginning of 2019, investments by the Russian population in bonds have increased by RUB958bn ($12.6bn) The Central Bank lists three associated risks. First, it is the of which 70% are bonds of Russian issuers, out of which danger of a boom mentality when hype about rising returns RUB320bn was invested by the population into shares, causes investors to be incautious when making investment according to the CBR. This is still significantly less than the decisions. Secondly, the growing popularity of foreign amount deposited in ruble deposits over the same period financial market instruments actually means an outflow (RUB3.34 trillion), but the order of magnitude has now of funds from the Russian economy. Thirdly, the growth of become the same. citizen participation increases the systemic importance of the stock market: its conjuncture is becoming an important factor Moscow City Real Estate prices forecast RUB/1sqm in the well-being of people, and their active participation can increase volatility, writes the Central Bank.

The Central Bank calls all these risks limited. Above all, the law on the categorisation of investors, which came into force in July 2020, should help to overcome them. It limits the access of unqualified investors who have not passed special tests to shares that are not included in the calculation base of the largest indices, bonds of issuers with a low rating and other high-risk instruments, as well as investments with leverage.

But the main consequence of the flow of money from Russians to the stock market is its growing importance for the economy and the growing role of decisions of small investors in the dynamics of the market. www.bne.eu 12 I Companies & Markets bne February 2021 EBRD investments reach record €11bn in pandemic-struck 2020

Clare Nuttall in Glasgow

he European Bank for Reconstruction and Development There were some casualties as attention shifted to the (EBRD) invested a record €11bn in 411 projects in 2020, pandemic; last year the share of green investment fell to 29% Ta 10% year-on-year increase, stepping up investments after reaching a high of 46% in 2019. However, in October as the 38 economies where it invests were struck by the the EBRD adopted its new five-year Strategic and Capital coronavirus (COVID-19) pandemic. Framework, which aims to make it a majority green bank by 2025. The bank also launched its Just Transition Initiative to As COVID-19 cases rose across Europe in March, the EBRD help protect communities, sectors and workers who stand to adopted emergency measures to address the economic impact lose out economically as a result of policies associated with of the pandemic, becoming the first of the international decarbonisation. financial institutions to do so. Its focus was on helping existing clients, for example by providing short-term liquidity and The Green Cities urban sustainability programme continues working capital to viable companies. to expand. The EBRD doubled funding for the proogramme, and it has been extended to 44 municipalities across the As well as its own investments, the development bank also bank’s area of operations by the end of 2020, with new entrants directly mobilised €1.2bn from co-investors during the year. The private sector received 72% of total EBRD investment during the year. “As well as its own investments,

“The bank put in an impressive performance and delivered the development bank also directly on its promise to help our countries and clients deal with mobilised €1.2bn from co-investors the economic impact of the COVID-19 pandemic. Our investments were sharply higher than the year before and during the year” we also provided policy support to help the private sector through the crisis,” said EBRD president Odile Renaud-Basso in a statement. including the Polsh capital Warsaw. Also in coal-dependent Poland, which is struggling to embark on a green transition, The bank also supported a record 2,090 trade finance the EBRD launched five major new renewables projects. transactions worth €3.3 billion under its Trade Facilitation Programme, that includes 90 issuing and 140 confirming In 2020, the EBRD and other donors within the Western banks across 40 countries, to help keep trade flows going Balkans Investment Framework approved an additional as supply chains were disrupted by the pandemic. Among €77.6mn in investment grants and technical cooperation for the transactions supported by the bank were imports of projects in the EU-aspiring region, which will be supported medicines from Spain, Turkey and Switzerland into Lebanon, by a further €204mn in EBRD finance. Georgia and Jordan. In addition, it continued to support the development of local currency and capital markets with Also in the Western Balkans, the EBRD boosted support for 113 projects. small and medium-sized enterprises (SMEs) and the private sector, providing €729mn in loans to commercial banks for The pandemic’s impact has not been uniform, and has added on-lending to local businesses to finance investments that will to existing inequalities, coming down especially hard on support the recovery and strengthen their competitiveness. women, young people and other groups, according to the EBRD, which prompted the bank to increase inclusion projects The development bank has been supporting regional by 24% to reach a total investment volume of €4bn. connectivity and infrastructure, including through a €30mn www.bne.eu bne February 2021 Companies & Markets I 13

loan to Kosovo to ensure the continuation of vital services, which the EBRD arranged a $585mn syndicated loan. In a €50mn senior loan to EPCG to support the stability of energy neighbouring Uzbekistan, the EBRD financed one of the first provision in Montenegro and an €85mn loan for Serbia privately owned renewable energy projects, a 100 MW solar to finance the construction of a new section of the “Peace photovoltaic plant in the Navoi region. Highway” to Kosovo. The priority for the bank in Turkey was the provision of Further east, major EBRD investments included a €450mn support to the real economy through engagement with local loan to Ukrainian state road agency Ukravtodor, supporting partner banks, to which it channelled a record €893mn, the government in the development of national road supporting thousands of businesses. It also provided both infrastructure and the fight against corruption. infrastructure support and funds for renewables in the energy sector. It funded over $400mn worth of investments in the energy sector in the South Caucasus, including Armenia’s first The newer EBRD members in the southern and eastern renewable project Masrik Solar. Mediterranean (SEMED) region were badly hit by the pandemic. The bank’s response included the provision of Its biggest infrastructure project outside the oil and €784mn in liquidity lines to local banks for on-lending to gas sector in Central Asia was the Almaty ring road, for businesses in Egypt.

Russian government to sell First Channel TV broadcaster, but will keep golden share

bne IntelliNews

he Russian government will sell control in Channel One, The state will retain the "golden share" of Channel One, which but will retain the right to verify investors and a "golden will allow it to control the adoption of important decisions – Tshare," The Bell reported on December 23. for example, the sale of large stakes to new shareholders. The state will give up a controlling stake in Channel One, Channel One has been unprofitable since 2012. In 2019, it recorded Russia’s biggest broadcaster and the main source of news a net loss of RUB4.1bn with RUB27bn of revenue. The channel's for the bulk of the population. accounts payable at the end of 2019 amounted to RUB20.4bn.

Russian President signed a decree on the The channel's contractors systematically complain about additional issue of his shares on December 21, which will non-payments, and the Ostankino television centre filed be sold to non-state shareholders. a lawsuit against them in 2018, and in 2019 announced that it was cutting employees because of Channel One's debts, and The stated purpose of the additional issue is the financial warned of possible disruptions to television broadcasting. recovery of the channel, which has been in deep loss for at least 8 years, and its debts exceed RUB20bn ($265mn). The financial situation of Channel One last year was analysed in detail by Meduza. Sources of the publication explained VTB is already claiming the role of the new investor. Now the the losses by a drop in advertising after 2014, lost largest non-state co-owner of the channel is Yuri Kovalchuk's to competition on the internet, in which the channel began National Media Group. to invest too late, and the ambitions of Konstantin Ernst, who has headed the channel for 20 years, who was “always more The share of the Russian Federation in JSC Channel One interested in creativity than money”. may be reduced to 34% by selling the additional issue of the channel's shares to non-state investors from the current At the same time, in recent years the channel has received less controlling stake it owns. government support than all other government channels. www.bne.eu 14 I Companies & Markets bne February 2021

VTB Bank, which had owned 20% of the shares of Channel Rosimushchestvo under the “share of the Russian Federation” One since 2019 but at the end of September 2020 sold always means the direct share of the state – that is, in the this stake to an unknown buyer (the new legal status case of Channel One, 38.9%. of JSCs allows them not to disclose shareholders with such a stake) may become a new conditionally non-state That means there may be an additional issue of 12.8%, shareholder. A bank representative told RBC that he and with a proportional decrease in the share of FSUEs, was "considering such an opportunity" without disclosing the effective share of the state would fall to 44.6%. If we other details. are talking about reducing both direct and indirect state shares from 51% to 34%, the size of the additional issue Now 38.9% of the shares of Channel One belong to the will already be 30%. Federal Property Management Agency, another 9.1% of the shares are held by FSUE ITAR-TASS, and 3% by The existing private shareholders – NMG with 29% and the FSUE Ostankino. anonymous owner with 20% – will either have to buy out all or part of the additional issue, or their stake will be diluted The largest private shareholder of the channel is Yuri proportionally. The composition of non-state shareholders Kovalchuk's National Media Group with 29%. Another 20% and the size of shares of all shareholders of the joint stock is owned by an unknown buyer, who bought shares from company will be determined by the government within VTB in September. This 49% is the former stake of Roman three months, according to Putin's decree. Abramovich, which he bought from Boris Berezovsky in 2001 and sold off in parts in 2010 and 2018-2019. “Whoever becomes the new investor of Channel One, the main thing on his agenda will be determined in the same How much the share of the state will decrease depends place where it was determined – in the Kremlin. But the fact on the interpretation of the text of Putin's decree. It talks that Vladimir Putin, who in 2001 was indignant that Boris about "the preservation of the RF share in the authorised Berezovsky owns only 49% of the channel, and manages it capital <...of at least 34% of votes at the general meeting as his own, is now going to work in the same way himself, of shareholders." there is a great deal of irony,” The Bell said.

Russian petrochemical giant Sibur closes $11bn joint venture deal to build Amur Gas Chemical plant with China’s Sinopec

Russia's Sibur petrochemical giant has closed a deal to build the Amur Gas Ben Aris in Berlin Chemical plant with China's Sinopec that will target the Asian polymer market

ussia’s leading petrochemicals company and one of the expansion of the company’s production capacity that was most rapidly growing petrochemicals businesses globally, profiled by bne IntelliNews in “Plastics in the snow” in 2018. RSibur Holding, and China Petroleum & Chemical Corporation (Sinopec), China’s leading energy and chemical Sibur and Sinopec signed off on a provisional agreement to company, have closed a $11bn deal to set up a joint venture at build the Amur Gas Chemical complex in June 2019, as bne the Amur Gas Chemical Complex (Amur GCC) after obtaining IntelliNews reported at the time at a signing ceremony attended all the necessary approvals from the regulators of both by President of the People's of China Xi Jinping countries, Sibur announced in a press release on December 28. and Russian President Vladimir Putin at the St Petersburg International Economic Forum (SPIEF) investment forum. The long discussed project has been in the works for years and follows on from the completion of the ZapSibNeftekhim “The will allow the parties to tap into shared petrochemical complex (ZapSib) in 2020, another major expertise and experience to maximise efficiency of new large- www.bne.eu bne February 2021 Companies & Markets I 15

“The Amur GCC project will help attract international investments in the Russian economy while also making a considerable contribution to the national programme of growing the nation’s non-commodity exports. Given the facility’s geography, its products will be targeting Asian markets, primarily China, which is the largest consumer of polymers globally. The Amur GCC project is expected to be included in an intergovernmental agreement between Russia and China,” the company said in its press release.

In keeping with the ongoing move towards environmental, social and governance (ESG) compliant production, Sibur stressed the project would follow the highest global environmental and technology standards, in particular through its reliance on renewable energy sources.

SIBUR and Sinopec sign Term Sheet on potential JV at Amur Gas Chemical Complex. Photo: www.sibur.ru Amur GCC’s construction budget is tentatively estimated at $10bn to $11bn and is subject to adjustments as the project scale projects and to exchange best practices”, said Dmitry progresses. In December, Amur GCC attracted $1.5bn Konov, chairman of the management board at Sibur Holding, at that ceremony.

Under the terms of the final agreement Sibur and Sinopec “The Amur GCC project will help will hold 60% and 40% respectively in the Amur GCC joint venture, the company said. attract international investments in the Russian economy while also The main terms and conditions of the potential joint venture were agreed in 2019 that began the process of getting all making a considerable contribution corporate and regulatory approvals required to close the deal, which has now been completed. Following the deal, the parties to the national programme of growing will gain joint control over Amur GCC. the nation’s non-commodity exports”

Set to become the world’s largest basic polymer production facility, Amur GCC will have a capacity of 2.7mn tonnes per year, including 2.3mn tpy of polyethylene and 400,000 tpy of in bridge financing from a syndicate of Russian banks. polypropylene, and will be producing a wide range of grades. Gazprombank acted as the lead arranger and lender, with Otkritie and Sberbank as arrangers and lenders. The construction of Amur GCC proceeds in sync with the gradual ramp-up of ’s Amur Gas Processing Plant to its full Dmitry Konov, chairman of the management board at Sibur capacity, so that the latter could supply ethane and liquefied Holding, said: “Sibur and Sinopec have a long track record petroleum gas (LPG) to Amur GCC for processing into high of jointly delivering on large-scale investment projects and implementing advanced production technologies. Creating a joint venture is a major milestone in our Amur GCC project. With Sinopec’s involvement, we will be able to maximise the “The partnership will allow the project’s efficiency, in particular optimising and balancing parties to tap into shared expertise the facility's future debt portfolio, while also enhancing its expertise in distribution across Asian markets.” and experience to maximise Zhang Yuzhuo, chairman of Sinopec, added: “Amur GCC efficiency of new largescale projects is a milestone in the co-operation between Sinopec and and to exchange best practices” Sibur, and will also become a model for Sino-Russian energy co-operation to extend to the downstream chemical industry. The success of Amur GCC will inject new impetus into advancing the high-quality co-operation between the value-added products. The completion of construction and two countries in the fields of energy, chemical industry, commissioning is scheduled for 2024. The creation of Amur GCC investment, economy and trade and play a positive role in is part of Sibur’s strategy to move up the value chain and produce effectively promoting the sound interaction of domestic and more valuable hydrocarbon products from the feedstock international markets as well as the economic development, supplied by Russia’s major oil and gas producers. employment and social well-being of the Far East region.” www.bne.eu 16 I Companies & Markets bne February 2021 Rio Tinto reports maiden ore reserve at Jadar project in Serbia

Denitsa Koseva in Sofia

ritish-Australian mining group Rio Tinto reported a It added that the feasibility study, launched in July 2020, maiden ore reserve at its Jadar lithium-borates project should be completed at the end of 2021 and then the company Bin western Serbia on December 10. will start the construction works. Rio Tinto discovered the lithium borate deposit in the Jadar The Jadar project includes the development of underground river valley in 2004. The site is estimated to contain 10% of the mines and the construction of a plant for the metallurgical world's deposits of lithium, which is the primary raw material and technological processing of concentrates. Expected end for production of batteries for electric vehicles (EVs). products are 99.5%-pure boric acid and lithium carbonate, which to be used in the production of lithium batteries. Analysts believe the dip in lithium demand in 2019 was a blip caused by slow global EV sales, and demand is pegged to rise The government and Rio Tinto signed a memorandum of rapidly in the coming years. An October report from data and understanding in July 2017, after which a joint working analytics company GlobalData forecasts that with annual group was formed to deal with the implementation of the production of EVs set to grow from 3.4mn in 2020 to 12.7mn Jadar project. in 2024, and battery production growing from 95.3GWh to 410.5GWh, demand for lithium will to rise from an expected Earlier this year Rio Tinto Energy & Minerals chief 47.3kt in 2020 to 117.4kt in 2024. This is a compound annual Bold Baatar commented: “Rio Tinto’s lithium project pipeline growth rate (CAGR) of 25.5%. is an important part of our vision to pursue opportunities which are part of the transition to a low-carbon future. We In a statement on December 10, Rio Tinto said that the Jadar look forward to working closely with the government of Serbia project has the potential to produce both battery grade lithium over the next eighteen months as we develop and validate carbonate and boric acid. our understanding of the project to the point when we can seek a final investment decision by the board of Rio Tinto.” “The mineral resource comprises 55.2 Mt of indicated resource at 1.68% Li2O and 17.9% B2O3 with an additional 84.1 Mt Rio Tinto has so far invested over $200mn in the project of inferred resource at 1.84% Li2O and 12.6% B2O3,” the and the start of production is expected to take place in company noted. 2023 or 2024.

Photo: riotinto.com

www.bne.eu bne February 2021 Companies & Markets I 17 Turkish hotels in fire sale

Akin Nazli in Belgrade

round 2,000 Turkish hotels and other tourist facilities, Foreign arrivals hit lowest level since 2001 from the 5-star to the boutique, are reportedly presently In 2020, foreign tourist arrivals in Turkey fell to less Aon sale on online platforms. than 13mn, the lowest figure seen since 2001. Even 25mn arrivals in 2021 would be lower than the level in 2016, A total of 86 new adverts for the sale of hotels in Turkey were a year when the country’s tourism industry struggled uploaded on popular e-commerce platform Sahibinden.com after a string of terrorist attacks and a failed military in the first two days of 2021. coup attempt.

Turkish daily Sozcu defined the situation as reflecting “panic In 2019, there were 45mn international arrivals, generating in the tourism industry” while Mehmet Isler, deputy head revenues of $34.5bn. The revenue loss in 2020 is likely to of the Turkey Hoteliers Federation (TUROFED), told the be more than $20bn. newspaper that hotel owners were worried about losing their properties to banks as they cannot foresee how tourism If the course of the pandemic comes to mean Turkey cannot will turn out in 2021. Turkey’s tourism industry was last properly launch its tourism season in April, it would bring year devastated by the coronavirus (COVID-19) crisis. about a tectonic collapse within its economy.

Turofed represents 2,451 tourism facilities with 0.38mn rooms Tourism industry businesses would join the long queues for and 0.81mn beds. bailouts and debt restructurings already seen in Turkey.

In December, Top Hotel News reported that there were 44 new On January 5, the World Bank warned there is a risk that hotels with 8,183 rooms under construction in Turkey. 2021 growth could turn out to be much weaker in tourism- dependent economies of Central Europe, Turkey and the As of December, Turkey had 1.89mn hotel beds and 875,984 Western Balkans. hotel rooms.

On January 5, Sururi Corabatir, head of Turofed, said that the industry was targeting at least 25mn foreign tourists in 2021.

Foreign Tourist Arrivals in Turkey

www.bne.eu 18 I Companies & Markets bne February 2021

bne:Funds Online video service ivi.ru starts NASDAQ IPO registration procedure

East West Digital News in Moscow

ust days after the triumphant NASDAQ IPO of Ozon, The Russian online video market is usually valued at around a leading Russian e-commerce company, another Russian $300 million for 2019. The main players are domestic Jdigital major, ivi.ru, has started the registration procedure platforms ivi, Okko, Amediateka alongside foreign players for a US IPO, reports East-West Digital News (EWDN). YouTube, iTunes and Google Play. At the beginning, the business model of Russian online video platform relied No IPO-related documents related to Cyprus-registered primarily on advertising revenues. However, user-generated company ‘ivi.ru Media Ltd’ are available yet on the SEC’s revenues now exceed advertising revenues. website, but two unnamed sources “close to the company” confirmed, in an exchange with Russian business publication Russian IPOs on Western exchanges RBC, a move that was widely expected following previous leaks. Despite the unfavorable geopolitical context, several Russian digi- tal companies raised substantial amounts on Western exchanges One of RBC’s sources says the IPO should take place in the first in the past years – or are considering doing so in the future. quarter of 2021. ivi.ru’s press service declined to comment. The latest cases include HR platform hh.ru, which went public Leadership on a small market on the NASDAQ in June 2019; , which raised there Russia’s largest video streaming platform in terms of revenue, ivi.ru $460 million in June 2020; and Mail.ru Group, which is about generated last year 6.1 billion rubles ($95 million) in revenues, to raise $600 million on the London Stock Exchange. VAT excluded, up 55% from 2018. The average monthly audience of the service grew by 14%, exceeding 50 million unique users Yandex.Taxi, the promising ride-hailing company of Yandex as of late 2019. The total viewing time for the year amounted to 1 and Uber, was actively preparing its IPO last year. The listing, billion hours, including 400 million hours accounting for initially scheduled for 2020, has however been postponed due a paying audience, according to the company. to market conditions surrounding the coronavirus pandemic.

Ivi.ru could be valued at more than $700 million, according In its triumphant IPO, Ozon saw its shares jump 40% in first to analysts who talked with the Russian media in early 2020. minutes of trading.

Contents

Top stories We have launched a new bne:Tech Russia’s top retail and tech companies join forces to hunt for innovations in the rest of the world 2 -born startups raised more than half a billion dollars in 2019 4 March 2020 www.intellinews.com @bneintellinews Russian video streaming platforms publication bneTech gain speed 5 Cloud services take off in Russia 6 SEMrush to SEO success 8

Leaders 9 Russia’s internet giant Yandex announces growing and more diversified revenues in 2019 10 Russian telecom major misses on earnings in 4Q19, cash flow solid 12 A FREE newsletter covering technology,

Investment 13 World Bank approves $35mn project to modernise Kyrgyz tax administration and statistical system 13 blockchain, ICOs, TMT and all aspects of Romanian online home decoration retailer raises €3.5mn in bonds 14 Russian billionaires Abramovich, Russia’s top retail and tech companies Gutseriev, said to invest in Telegram crypto project TON 14 join forces to hunt for innovations in Russian fund Da Vinci Capital gets the "new economy" in Emerging Europe, €30mn from Germany’s DEG to invest the rest of the world in Ukraine, Belarus and Kazakhstan 15 Fintech & E-commerce 16 BAs Russia’s retail and tech sectors consolidate, the leading Russian e-commerce major Central Asia and MENA. companies are turned their gaze outwards to hunt for Wildberries to add self-employed new technology and innovation. See page 2 vendor products to offering 16 Russian retailer to launch online sales with Ozon 17 bne:Tech Valuation of ’s e-commerce asset Ozon boosted to $1.8bn 17

Telecom 19 Makedonski Telekom’s net profit up 6% y/y in 2019 19 Click the button to read the latest issue Romanian telco Digi grows by double digit rates in 2019 19 Russia could postpone 5G rollout from 2022 to 2024 20

NIBs 21 Ukraine-born startups raised more than half a billion dollars in 2019

In 2019, the venture capital and private funding volume for Ukrainian and Ukrainian-founded tech startups reached $544mn (up from $323mn in 2018 and $265mn in 2017), says AVentures Capital’s latest industry report ”DealBook of Ukraine”, SIGN UP HERE reports Adrien Henni of Ukraine Digital News. See page 4 www.bne.eu bne February 2021 Companies & Markets I 19 AFC CAPITAL: Uzbekistan’s stock market re-rating has much further to run

Scott Osheroff in Singapore

ith strong performance across many listed companies their earnings by several hundred percent per annum; on the Tashkent Stock Exchange this year, it’s worth some even hosted dividend yields as high as 50%. While Wtaking a moment to reflect on the evolution of the share prices have certainly risen and dividend yields have exchange and broader economy to emphasise why the once-in- compressed, many listed company valuations, to reiterate, a-generation re-rating of Uzbek assets is still in its early days. have merely gone from being “unreasonably cheap” to “deeply undervalued”, meaning there should be several Phase I of a three phase re-rating more years of upside ahead. While select equities have run strongly this year, it is highly probable that investors have missed out on very little of what Phase II approaches is likely to be a three-to-five-year re-rating of listed equities on As “Phase I” of our thesis continues to unfold, we believe the Tashkent Stock Exchange, and an even longer re-rating of “Phase II” is approaching as large and high-quality state- the overall economy and real estate market. owned enterprises gradually advance toward privatisation through the stock market. The recent performance in the market is merely confirmation of “Phase I” of Asia Frontier Capital’s broader investment thesis The question of what percentage of listed companies are – Phase I can be summed up as the initial re-rating of existing wholly privately owned is often asked, and the answer is very listed equities from being “unreasonably cheap” to simply few, since Uzbekistan, until 2016, was a centrally planned “deeply undervalued”. This has already begun and is being economy with the State heavily involved. accelerated by the inflation, central bank policy and bank term deposit rates all falling, thereby making listed equities Since the fall of the Soviet Union, and subsequent launch increasingly attractive to local and foreign investors. of the Tashkent Stock Exchange on 8 April 1994, state- owned enterprises have been partially privatised through In 2018, the once-in-a-generation valuations of the majority of the exchange, which today hosts 144 companies and has Uzbekistan’s listed equities made it abundantly clear that they a market capitalisation of $5bn. Historically, listed equity couldn’t get much cheaper. The country, and its equity market valuations have been so cheap (otherwise known as highly in particular, had been “left for dead” by foreign investors attractive deep value opportunities) that private companies following the global financial crisis of 2009, while local were unwilling to sell equity through the exchange. Rather, investors preferred bank term deposits which at the time paid they have opted for private equity investment in order to annualised interest rates of up to 22% in local currency terms. obtain higher valuations; this is the opposite of what typically happens around the world as listed companies usually trade Jim Rogers famously said: “I just wait until there is money at higher valuations due to their liquidity premium. lying in the corner, and all I have to do is go over there and pick it up.” Asia Frontier Capital and a fellow frontier markets Once the initial re-rating phase of existing listed companies investor from Taiwan were the first foreign institutional further matures, it’s expected to start seeing high-quality investors to re-enter the Uzbek market in 2018 and build positions in “blue-chip” equities. Regarded as “crazy” by many Uzbek Year-on-Year Inflation Rate locals for considering acquiring shares in the domestic capital market, and in some cases willing to purchase large blocks of shares at prices locals deemed “expensive”, early investors during Uzbekistan’s re-opening were gifted the opportunity of ample weak hands willing to sell their shares at “deal of the decade” prices. Who wouldn’t be comfortable paying what appeared to be high prices at the time in order to build initial positions, knowing that as local and foreign investors caught on to the reality of what was happening that a stampede to acquire shares would soon drive prices higher?

Several listed companies at the time had up to 70% of their market capitalisation in cash with zero debt and were growing Source: AFC research, Stat.uz www.bne.eu 20 I Companies & Markets bne February 2021

The miner is scheduled for privatisation in 2023 through an international IPO and secondary offering of existing shares though the Tashkent Stock Exchange. While its valuation has not been publicly disclosed, it is expected to be several billion dollars. That would nearly double the current market capitalisation of the exchange. Several other such companies (including Navoi Metallurgical Mining Kombinati which operates the largest open-pit gold mine in the world, Muruntau) are scheduled for similar privatisation towards the middle of the decade and should help to accelerate foreign investor attention as regards the very attractive and highly diversified economy of Uzbekistan.

What economic slowdown? Projected by the IMF to grow 0.7% in 2020 with growth state-owned enterprises IPO and/or be privatised through rebounding to 5% in 2021, at a time when large portions of the stock market (Phase II of our thesis). The liquidity and the global economy are unfortunately subjected to varying market participation generated by these privatisations degrees of government-mandated restrictions, Uzbekistan and higher valuations should in due course trigger very much gives the feeling of January 2020. COVID-19 Phase III of our thesis which is for private companies to is certainly an issue in Uzbekistan, though it appears the pursue IPOs. Listing costs on the Tashkent Stock Exchange government has accepted the fact that the virus can’t be are very affordable and listings will provide companies with stopped through quarantine drives (of which there were a straightforward avenue for financing, relative to private two earlier this year) and has opted to instead open up the equity or debt financing from banks which often come economy. This decision by the Mirziyoyev administration can with restrictive conditions. be clearly felt (and should be celebrated) as construction sites are buzzing, schools are back in session, foreign tourists are Back to Phase II. Before private companies aggressively welcome, cafes, restaurants and pubs are open and there is participate in the market, several large state-owned no “social distancing”. This response by the government, one companies in the commodities sector are expected to IPO. of the best in the region, is likely what has translated into a This should transform the capital markets of Uzbekistan by very positive third quarter earnings season, with many listed attracting new institutional capital, as well as dramatically companies reporting superb results. increasing the market capitalisation and liquidity of the exchange. In mid-November, one of the most notable The table below highlights some of the listed company (and highest-quality) state-owned enterprises finalized its valuations on the Tashkent Stock Exchange and their earnings consolidated IFRS reports which were audited by Ernst & growth on a trailing 12-month basis and for the third quarter Young. The company has also retained KPMG for pre-IPO year-on-year. Valuations for the majority of the portfolio analysis before a planned IPO in 2023. The company is remain far too cheap. Continued growth expectations should Olmaliq Kon-Metallurgiya Kombinati (TSE: AGMK), a large be supported by the further liberalisation and diversification mining company producing copper, zinc, molybdenum, of the economy, rising foreign direct investment, growing gold and silver. AGMK also accounts for 90% and 20% of exports and improved purchasing power among the local Uzbekistan’s silver and gold production, respectively. population.

Third Quarter YoY Earnings Growth

Company Q3 YoY EPS Growth TTM EPS Growth Market Cap (mn USD) P/E P/B Dividend Yield

Cement 224% 123% 142.11 2.65 0.77 13.91%

Cement 213% 43% 24.26 1.94 0.54 -

Steel Cable Producer 168% 121% 11.43 2.72 0.46 0.60%

Cement 108% 14% 137.25 6.01 0.92 -

Spirits Producer 55% 22% 14.00 7.21 3.30 8.73%

Gold Miner 50% 1534% 34.50 0.07 0.03 245.94%

Financial Services 39% 53% 51.12 1.49 0.44 -

Consumer Goods Conglomerate 21% 11% 62.86 7.87 3.20 10.06%

Source: AFC Research, Tashkent Stock Exchange www.bne.eu bne February 2021 Companies & Markets I 21 Borsa Istanbul takes stock of its new speculator

Akin Nazli in Belgrade

man named Cem Okullu has become a popular figure He is the majority shareholder in Tukas and has a partnership among the Borsa Istanbul crowd. On December 3, with Galip Ozturk in this company. AOkullu said in a filing with the public disclosure platform (KAP) that he had on December 3 sold his entire In 2015, Erdemir (EREGL/Eregli Demir Celik), one of Turkey’s 7.11% stake, or 199mn shares, in Turkiye Sinai Kalkinma largest steelmakers, said in a stock exchange filing that it Bankasi (TSKB/Industrial Development Bank of Turkey) sold 43,467 square metres of real estate holdings located at a price range of Turkish lira (TRY) 2.02-2.12. in the town of Altinoluk in the northwestern Balikesir province to Okullu Gida Maddeleri for a consideration of On December 4, Okullu said in a separate filing that he had on TRY46mn (€16mn). December 4 bought 97.3mn shares in petrochemical producer Petkim (PETKM) at a price range of TRY4.30-4.63. Tukas or Isfin are small trading boards, suitable for easy manipulation. However, Petkim is among the leading His stake in Petkim has gradually risen to 6.19% from 2.349%. stocks on the Borsa Istanbul and TSKB is also a component Okullu earned 50%, or TRY134mn, in profit from TSKB in 50 of the BIST-50. days, while he earned TRY20mn profit from his Petkim trades in a single day on December 4, Yunus Kaya of Alnus Invest Erdemir, controlled by Turkish military pension fund Oyak, wrote on Twitter. is also among leading companies in Turkey.

Okullu has previously been fined by the Capital Markets There have been declines in the number of foreign-held Board (SPK) due to share transactions in Tukas (TUKAS) shares in the free floats of Petkim and TSKB. and Is Leasing (ISFIN).

Ozon’s oversubscribed IPO brings in $1.2bn

East West Digital News in Moscow

zon Holdings announced the completion of its IPO on Vostok and Sistema, the company has issued in total December 9, which started triumphantly on November 42,450,000 new ordinary shares. O24, reports East-West Digital News (EWDN). The e-commerce major received gross proceeds of $1.27bn, In total, 37,950,000 ordinary shares represented by American or net proceeds of $1.20bn. When it filed for the IPO in depositary shares (ADSs) were acquired by new investors, early November, Ozon expected to raise just around $500mn. including those corresponding to purchase options exercised by underwriters. As result of these transactions and exercises of outstanding convertible loans in December 2020, Ozon has a total of Taking into account the private placements and other 208,202,929 ordinary shares. subscriptions from Ozon’s existing shareholders, Baring www.bne.eu 22 I Companies & Markets bne February 2021

bne:Tech Romanian tech entrepreneurs expand into banking sector

bne IntelliNews

omanian tech entrepreneur Vasile Olimpiu Balas, with Google Pay and Apple Pay, also offering the possibility a programmer who has over 20 years of experience to withdraw cash at any ATM. Rin developing software for the local banking industry, has taken over a 64.6% stake in local lender Banca Comerciala It will aim to attract SME customers from the online retail area. Feroviara and plans to turn the bank into one dedicated to local tech startups. The private bank, based in Prague and with the main focus on online stores and merchants in the Eastern and Central Europe The bank was founded by local businessman Valer Blidar, (ECE) region, will initially operate on the Czech market to who owns the biggest passenger wagon factory in Romania, later expand in Romania, Poland, and Hungary. to support local industry. The launch of the operations is scheduled for early next year, The bank will change its name to Techventures Bank. after completing the first round of capital investment. Octobank "Starting with December 2020, we have a new project – representatives did not provide details about the targeted Techventures Bank, a bank that will be developed according amount, but they specified that it is a pre-seed venture capital to the vision of an IT specialist who aims to deliver products investment led by one of the Big4 consulting companies. and services connected to the latest advanced technologies available on the international market,” Balas said.

“We want to differentiate ourselves through a technology “We want to differentiate ourselves applied and useful to each client. From January next year, through a technology applied and we will start integrating a series of technologies, and we will continue to develop each solution and product through this useful to each client” vision," added Balas, quoted by Economica.net.

At the same time, another Romanian entrepreneur is Octobank will operate in the Czech Republic in collaboration launching a wholly-online bank in the Czech Republic. with a local bank.

The Romanian-Czech bank Octobank, a neobank – meaning "We have chosen the Czech Republic as the first market to a bank that operates only online – founded by Romanian launch operations because in recent years it has recorded the entrepreneur Bogdan Atanasiu, is preparing to launch largest share of contactless payment transactions at points of operations. sale (POS) in all European countries, this being the basis on which Octobank develops its solutions. And we expect this The lender will provide services through web and mobile trend to spill over the entire ECE region, where we intend to applications. The virtual and physical debit cards issued continue the expansion with Poland, Romania, and Hungary by the bank are compatible with online and POS payments at a later stage," explained Atanasiu.

www.bne.eu bne February 2021 Companies & Markets I 23 Slovakia to invest €1.2bn in digitisation

Linas Jegelevicius in Vilnius

lovakia plans to invest at least €1.2bn in digitisation client-oriented and modern public administration, in other in the country in the next few years, said Slovak words, we aim to invest in services for the public,” the SInvestment Minister Veronika Remisova, on December 11. minister said, noting that the long-term goal is to have 100% of households connected to high-speed internet by 2030. According to Remisova, this digital reform will form part of the national recovery plan financed by the Next Generation "If we want to improve the state’s digital services, we also EU fund, based on interconnectedness, cyber security, need to bolster cybersecurity because the state handles the digital economy, digital skills, innovations and access citizens' personal data and it needs to be safely stored. Our to state-related administration via mobile phones. goal is to bolster the detection of risks... and adopt necessary legislation that will be fit for the 21st century and related "As for the 'state in a mobile' pillar, we want to focus on cyber threats," she said, quoted by the news agency.

Turkey hits Facebook, Instagram, Twitter, YouTube and TikTok with second round of fines

Many critics still get the feeling the EU is rather too submissive when it comes Akin Nazli in Belgrade to Turkey's strongman. Will the social media companies hold out?

urkey has fined Facebook, along with its Instagram to comply with government censorship demands on pain of platform, as well as Twitter, Google’s YouTube and China’s eventually being blocked within the country should they not. TTikTok a second time. Turkish lira (TRY) 30mn ($4mn) fines were levied on each for not complying with the country’s “Meanwhile, in its communique of October 2, the Council new social media law, BloombergHT reported on December 3. of the European Union offered improved economic ties with Turkey without reference to Turkey's record,” On November 4, Turkey fined the companies TRY10mn as a the IPI also noted. first-stage punishment after they failed to name a representative in Turkey as required by the law by a November 2 deadline. The social media law was approved on July 29 and went into effect on October 1. On December 3, meanwhile, Netflix, which, along with Prime Video, in November obtained a Turkey licence January could see the imposition of local advertising bans by complying with new online broadcasting rules, said that it on those who are still not complying with the legislation. was planning to open an office in Istanbul. Bandwidth throttling is next on a rising scale of punishments. If it proves necessary, the throttling would start in April and The number of Netflix subscribers in Turkey has risen to more May. It would become so severe that any platform facing it than 3mn from around 1.5mn in 2019, the company’s CEO would be rendered unusable in Turkey. Reed Hastings said. Facebook has around 37mn subscribers in Turkey, a country VKontakte, the Russian version of Facebook, has also compiled of 83mn. The Facebook personnel that deal with Turkey are with Turkey’s new social media law. based in London. Instagram has 39mn Turkish subscribers.

Censorship demands Twitter has 14mn users in Turkey while the country is among On December 2, the International Press Institute (IPI) said in a TikTok’s largest markets, providing it with around 30mn statement that the law would require social media companies subscribers. www.bne.eu 24 I Companies & Markets bne February 2021 Belarus’ IT industry in meltdown

Belarusian IT pioneer Max Bogretsov joined the Coordination Council shortly after returning to after violence broke out in the wake of Ben Aris in Berlin the presidential elections in August.

s soon as the street fighting broke out following the Brain drain disputed August 9 presidential election in Belarus, In the last two decades Belarus has become a European IT hub AMax Bogretsov, a pioneer of the country’s IT sector, with thousands of start-ups founded in the last decade that got on a plane and flew to Minsk. cater to both the western and eastern markets, incongruously located in what has been dubbed “Europe’s last dictatorship.” was returned to office with a landslide IT has become an engine of growth and the infrastructure victory according to the official results, but it is widely that has developed around it – especially the high technology believed these were massively falsified. The Central Election park (HTP) in Minsk – has become a platform for new young Commission (CEC) immediately burned the ballots, so no entrepreneurs to set up their own businesses. recount is possible and we will never know. The Belarusian economy has been hit from all sides this year: “I arrive a few days later,” Bogretsov told bne IntelliNews by the coronavirus (COVID-19) epidemic’s impact on retail; in an exclusive interview by phone from the Belarusian by the collapse of oil prices; and by Moscow winding down its capital. “If you had asked me in February if I was going to energy subsidies, to name the most obvious. But probably the do anything political this year then I would have laughed worst damage done to the country is the destruction the faux- at you. But here I am.” president has wrought on the country’s IT sector.

“I got here as soon as I could, a few days after the elections. During the protests the authorities have been cutting off I am now the man that is keeping [opposition leader jailed the internet as they attempt to stymie the demonstration ex-banker Viktor] Babariko’s seat warm.” organisers, which has disrupted the IT business.

Listed by the IT industry’s Crunchbase, Bogretsov used to work But even more damaging is the climate of fear and the as senior vice-president of technology solutions at Belarus’ raids on firms where there has been any sign of support premier software company EPAM before he retired. Today for the opposition. As bne IntelliNews reported in “Innocent he is based in the US and remains active in the business as lives wrecked by the Lukashenko maelstrom”, the successful a manager and an investor. media entrepreneur Alexander Vasilevich has already been in prison for three months for supporting ex-banker and But everything changed after he touched down in presidential candidate Viktor Babariko. Vasilevich was Minsk. Within a month he was invited to join the newly arrested in August and the accounts of his six businesses established Coordinating Council, which is a collection frozen. His wife had to flee to , where she has just given of leading Belarusian citizens, to represent the people’s birth to their second daughter. Similar stories are widespread. will to Lukashenko. Headed by opposition leader Svetlana Tikhanovskaya and her running mates in the presidential In the week following the start of mass protests some 300 IT CEOs elections Veronika Tsepkalo and Maria Kolesnikova, the and leading professions sent a letter to the government threatening Coordinating Council also includes many other significant to move their businesses out of Belarus unless the authorities figures such as Nobel laureate and called an end to the violence and agreed to fresh elections. former culture minister . However, almost all of the members of the council have either been driven “Before the elections tens of people wanted to move [abroad] into exile or are in jail. each month and that was normal, but now I think thousands want to go,” says Bogretsov, who is also a supporter of Babariko. Today Bogretsov, together with union leader Sergey Dylevsky, are the only two members of the council still at liberty EPAM’s local CEO also signed the letter, but it is not planning in Minsk. to shut up shop as long as there are company employees who www.bne.eu bne February 2021 Companies & Markets I 25

want to stay. Many have family commitments or frail parents. have been propped up by the Russian energy subsidy money Other simply want to sit the current chaos out and believe and the country’s low wages; Russia has given Belarus an that the stalemate will be resolved in the coming months. estimated $100bn in subsidies over the last decade.

But many of the smaller firms have already left and even EPAM IT is the only truly modern sector of the economy and has recently opened new offices in both and Tbilisi. Belarusian IT engineers are famous within the global business as amongst the best. IT has also been a source of investment “The big companies are not going to go, as too many of their and brings in over a billion dollars a year from exports. staff have commitments in Minsk like parents and families and these companies are remaining loyal to their staff that “I have not drawn a single dollar [to Belarus] since August,” want to stay,” says Bogretsov. says Bogretsov. “I can’t recommend to clients or investors to come here. This is a reputation business. We have spent 20 years But according to reports, thousands of smaller small and building up the reputation, or producing white label products medium-sized enterprises (SMEs) have already left. The and software. Now [the country’s reputation] is wiped out. There surrounding countries – , Ukraine and Poland in are days with no internet. You never know when a key person particular – have introduced relocation schemes, fast-track will be arrested. You can’t totally isolate a client from that.” resident visas and business permits to make it easy for Belarusian engineers and firms to move. Bogretsov says after Lukashenko has gone the IT industry leaders will try to re-establish both the industry and its reputation, “Companies like EPAM offer mobility packages so that staff but currently he says it is like “living in a no-man's land.” who want to move somewhere else can, and there is a steady stream of people going to the other markets and those The damage being done to the industry is massive. The state numbers have increased in recent months,” says Bogretsov. statistics committee reported that the “information and “Most of the smaller firms that wanted to go have already left telecoms” sector was growing by 9.1% in August year on year and they probably won’t be coming back. The rest are staying before the elections but that had fallen to 1.9% by October. to wait and see. They believe we will win.”

It's a brain drain of epic proportions. Belarus IT professionals “Companies like EPAM offer mobility are already amongst the most mobile members of the population. Well paid, highly skilled and sought after, they packages so that staff who want face few hurdles finding employment elsewhere if they want. to move somewhere else can, and “The packages been offered by countries like Poland and there is a steady stream of people Lithuania are welcome and appreciated,” says Bogretsov. “But you have to understand how much people are giving going to the other markets” up if they go. They are leaving homes and most of them have nice homes in the premium real estate sector. I think there is already a crisis in the housing market, as these homes are not easy to sell.” “But those numbers are in Belarusian rubles and they have started the printing presses now. I don't think there is any Bogretsov says the first wave of departures is probably already growth at all,” says Bogretsov. over, but a second wave may start if the showdown is not resolved. In the medium and long term the IT professionals still Potentially even more damaging than the intermittent internet, in the country are looking further afield to Spain, Germany, the the raids and arrests, and the climate of fear is the persecution US and other countries. They could go literally anywhere, but of students that is under way. The authorities have been moves to those countries take longer to organise. raiding universities and students that attend protests have been expelled. OMON troops have even entered schools to snatch Death of investment children holding the red and white flags of the opposition. Lukashenko’s neo-Soviet economy is good at working metal and building giant dump trucks. It also has a famous “The students are being harassed more than anyone else,” says sideline in the “Minsk fridge,” a low-cost but very serviceable Bogretsov. “They are being forced out of the country. How refrigerator that can be found all over the former Soviet Union are you going to build a human capital intensive business if you (FSU). It even has a strong agricultural sector and Lukashenko don't have any students?” Neighbouring countries have also is prone to taking baskets of Belarusian potatoes as gifts offered fast-track programmes for students that want to leave and for foreign dignitaries or going on televised melon-picking continue their studies in other countries nearby such as Poland. exhibitions with his son in the summer. New role While those industries turn a profit, their purpose is to keep Bogretsov has thrown himself into his new political role, the army of blue collar workers employed. Many of these firms not without putting himself at personal risk. The authorities www.bne.eu 26 I Companies & Markets bne February 2021

have harassed and arrested all of the other members of the protests. He doesn't like any of the options available to him,” Coordinating Council. says Bogretsov. “It’s like a dysfunctional family with a 26-year- old living in the cellar. You scold him this week, but next week Maria Kolesnikova was snatched from the street and driven to the you give him money.” Ukrainian border where security services officers tried to force her to cross, until she ripped up her passport, making it impossible Bogretsov says the Coordinating Council has tried to approach for her to leave the country. She disappeared for a day, eventually the Russian government but has been met with a brick wall. turning up in a Minsk jail where she has been charged with trying to organise a coup d'état. She has been in jail ever since. “None of the politicians in Russia want to touch this with a six-foot pole,” says Bogretsov. The only contact they have Sergey Dylevsky was detained for organising strikes at the is through the Russian think-tanks that have contact with Minsk Tractor Plant, but was released after a month and is now the government. “They say it’s very tough. A change of the only other member of the Coordinating Council at liberty, president through a democratic election could bring but has dropped off the radar recently. stability but that is so unnatural in Russia, which deals mostly in personalities.” Bogretsov says the Coordinating Council is fighting back and turning the screws on the authorities by painstakingly That might be starting to change now. The Kremlin is starting documenting all the beating and abuses by the police and to move away from its personalities-driven foreign policies, security services, as the Coordinating Council intends to bring analyst Dmitri Trenin of the Carneigie Moscow Centre recently all the officers responsible to book after Lukashenko falls. argued in a paper, but if so that change is going too slowly to be of help to the Belarusian people. “When we take power we will follow the law and go after all the violators,” says Bogretsov, who says they have already In the meantime, Tikhanovskaya recently called on Putin for documented hundreds of cases. a meeting, to no avail. Bogretsov says that the Coordinating Council may have to make compromises if it is to open talks But first the people need to force Lukashenko out of office. with the Kremlin as an obvious way of breaking the stand-off The Kremlin doesn't like him, but as Lukashenko has with the authorities. systematically repressed the opposition, and even had some of its most prominent members killed in 2010 according to “We might have to take some steps backwards and find an reports, there is no obvious domestic candidate to replace him. intermediary that is acceptable to the Kremlin like [former German chancellor Gerhard] Schroeder,” says Bogretsov. “Putin hates Lukashenko but he can’t associate with street “It won’t be pleasant, but we need to find a way to resolve this.”

E-grocery in Russia estimated to reach $1.9bn in 2020, growing to $8bn by 2023

bne IntelliNews Russian retail sales

-grocery in Russia is estimated at RUB145bn ($1.9bn) “Express-delivery is in our view the most rapidly growing in 2020 and is forecast to grow to RUB605bn ($8bn) niche and is in great demand in cities with a population of Eby 2023, online retail consultant InfoLine said on over 1mn. It was pioneered by Samokat, later followed by November 25. Yandex.Lavka,” VTB Capital (VTBC) said in a note.

E-commerce is rapidly increasing its contribution to total food As bne IntelliNews reported, e-commerce is booming and is retail sales, which are expected to rise from less than 1% to 3% expected to make up 20% of all retail sales by 2024 from in Russia versus 3.5% across developed markets, reports VTB. approximately 9% anticipated at the end of this year. www.bne.eu bne February 2021 Companies & Markets I 27

“Rosstat data for September related to consumer demand daily, as of the October update. Stock-up shopping is mostly was weaker than expected. Both retail sales for September covered by online hypers (Perekrestok, Vprok, Utkonos) (-3.0% year on year) and real wages for August (+0.1% y/y) and assemblers (Sbermarket, iGoods). In this segment, X5 is not only fell short of the Bloomberg consensus estimates present via five dark stores with a blended check of RUB4,000 (-2.1% y/y and +1.4% y/y respectively), but were below the and more than 12,000 daily orders as of October. lower bound of the respective confidence intervals made of standard deviations around the consensus' mean estimates,” leads in online food sales in Russia, with 9M20 BCS GM reported. turnover of RUB12.7bn. Stock-up shopping contributes 76%, and express-delivery 24%, of the total. By 2023, it aims for However, the online sales of the top 10 retailers have been a 20% market share, which would mean RUB120bn of sales. growing in triple digits this year. Market leader X5 Retail Group saw sales expand 3-fold, Sbermarket, the online The total investment into the online platform, as mentioned offering from Russian state-owned retail bank Sberbank, by the company in May, is RUB5-6bn. up 8.4-fold and e-commerce leader Wildberries up 8.5-fold y/y in the first nine months of this year. “Future investment would be of a different nature (i.e. application development, private labels, dark stores), X5 is a leading player in this transformation, as bne IntelliNews while the existing store base, and purchasing terms reported in an interview with its CEO recently. are the key tailwinds,” VTBC said. “The comment on the valuation of the online businesses implied some 1.6x P/Sales, X5 now covers more than 500 outlets in 10 cities with compared with the existing multiple for X5 of 0.4x. Across a blended ticket of RUB1,500-1,700 and over 16,000 orders global e-commerce operators, we see the multiple at 3.5x.”

Government releases mandated phone app software list

The Russian government has released a list of 29 apps that have to be preinstalled on any phone sold in Russia, drawing mostly on the software FPRI BMB Russia from Russia's leading tech companies

fter much delay, lawmakers have determined which virus and an office software. Vedomosti’s mobile app was chosen Russian-made apps must come pre-installed on in the media category. Lastly, the state-run Mir payment system Asmartphones sold in Russia under the so-called and government services apps will be required on each phone. “law against Apple.” According to an analyst from Mobile Research Group, the Recall last December, Putin signed into law a bill that mandates government’s selections show that it’s much more interested in all smartphones, tablets, laptops, PCs and Smart TVs in Russia supporting certain tech firms than listening to the population’s come preloaded with domestic software. The legislation did not desires. Mail.ru’s ICQ messenger, for instance, is obsolete in sit well with Apple, which forbids preinstalling third-party apps comparison to Telegram. The government will finalise the on its hardware and threatened to leave the Russian market list after a review on December 15. The Bell predicts that the as a result. The legislation was supposed to enter into force on legislation will enter into effect around April 1, 2021. July 1, but it’s been held up by bureaucracy. Apple hasn’t responded to the latest news, but there’s no Which apps did the government choose? MinTsifry selected 29 doubt that the company is not interested in downloading software programs out of 100 contenders. Thirteen belong to a messenger system associated with the siloviki, a voice assistant Mail.ru Group and five belong to Yandex. Mail.ru’s email app, that would compete with Siri, and an anti-virus software that ICQ messenger, Marusya voice assistant, news aggregator, OK has been banned from use within the US government. Live streaming service and Vkontakte will be mandated. Yandex won out on the browser, search engine, maps and cloud storage apps. From Kaspersky Labs, the government selected an anti- This article originally appeared in FPRI's BMB Russia newsletter. www.bne.eu 28 I Cover story bne February 2021

At least 200 people were killed when Yeltsin ordered tanks to open up after Russia's White House had been occupied and his opponents in the Duma tried to overthrow him in 1993.

Ben Aris in Berlin

SHELLING RUSSIA’S WHITE HOUSE IN 1993 What a real coup looks like

www.bne.eu bne February 2021 Cover Story I 29

he world was mesmerized by justification, and he and his allies were National Unity Party had organised a scenes of bizarrely clad Trump attempting to halt the programme. home guard-style defence and brought Tsupporters breaking into and Amongst the many effects of shock out their Tsarist-era flag, although no occupying the Capitol in Washington therapy was that male life expectancy weapons were in evidence yet. DC that was widely described as an crashed to 56 years and millions of attempted coup d'état. Russians died early. Yeltsin’s efforts to break the occupation were going nowhere and the situation had Parallels were quickly drawn with the In September the war of words escalated ended in a standoff, somewhat similar attack on Russia’s White House that to the point where the Duma deputies to that between the protesters in Minsk was home to the Duma’s executive, occupied the White House and tried and Belarus' self-appointed President the Russian parliament, by the late to impeach Yeltsin, and Rutskoi was Alexander Lukashenko today. Except President Boris Yeltsin. appointed acting president and sacked all the protesters in Minsk have specifically the ministers. Yeltsin ordered the Duma said they will not occupy the government But apart from the fact that both buildings dissolved – for which he had no consti- buildings, partly because Russian house parliamentary deputies and the tutional powers – and tried to call for a President Vladimir Putin said he was occupation was largely carried out by referendum to ask the people which camp willing to send a special military unit to normal people the parallels stop there. they wanted to back. Russia was thrown quell the protests “if necessary” on August into a full-blown constitutional crisis. 27 and partly because of the memory of I had arrived in Moscow a few months what happened next in Moscow in 1993. earlier and was at the very start of my I was living in an apartment on Novy journalistic career. Only 18 months Arbat at the time behind the legendary Ostankino after the collapse of the Soviet Union Dom Kinigi bookshop, a short walk from By October 3 the tensions had gone up and Moscow was a very different city to the White House, and we used to wander again and now the police had brought in that of today; dark, run down and thinly down every day to see what was going on. dozens of water trucks that are used to supplied by the empty shelves of Soviet- spray the roads in the summer to keep era stores. The depth of the potholes in In those days there was no fence around the dust down and circled them wagon- the roads could take an unsuspecting the White House and you could walk style around the building to make a taxi’s wheel off and the Russians you round to the courtyard at the back where much more solid barrier. The police met on the street could easily identify the bulk of the protesters were hanging had also started to strictly enforce the you as a foreigner because of the quality out and occasionally a deputy would come cordon but my press pass still allowed of your shoes. out and make a speech. The building was me through the lines. surrounded by a cordon of protesters The storming of the Capitol was driven carrying posters, reminiscent of the 1991 Things were coming to a head and it was by politics as Trump continues to claim tussle in front of the same building where becoming increasingly obvious that the the election was falsified – a claim Yeltsin made his historic speech from police were going to arrive in numbers without any evidence and widely on top of a tank that ended with the fall and break the occupation by force. derided – but the political argument that of the Soviet Union in December of that led to the occupation of the White House year. This time round the standoff was That day a large demonstration marched was a much more serious clash between a lot more low key and really not much down Novy Arbat to the White House the Duma and the president. was happening other than the building's and the police fled. A crowd gathered occupation by the deputies. in the courtyard and Rutskoi came out Russia is a republic and the president has on the balcony to address the crowd. considerable powers, but in those days so But as September wore on tensions An aide stood next to him and opened did the Duma and Yeltsin spent much of were slowly ratcheting up. First the a brief case out of which panels of his first term in conflict with the Duma city government was ordered to turn bullet-proof glass folded which he held deputies led by Ruslan Khasbulatov, the water and power off, then a cordon up in front of Rutskoi in case of snipers. a Chechen professor who was the of police arrived and tried to stop parliamentary speaker at the time, and pedestrians walking in and out of the Rutskoi addressed the crowd (at that point Alexander Rutskoi, the vice-president. grounds, trapping those demonstrators I had no Russian at all) and suddenly and deputies already inside. there was activity all around me. Men Their problem was that at the started appearing out of the White House International Monetary Fund's (IMF) The police were pretty relaxed, carrying Kalashnikovs and began climbing What a real coup looks like behest, Yeltsin and his prime minister, standing around cadging fags off the into a number of MAZ trucks parked in Yegor Gaidar, had launched demonstrators and not enforcing the the courtyard, which left in convoy. a programme of “shock therapy” that cordon particularly thoroughly. My press caused hyperinflation and most of accreditation was good enough to be We quickly flagged down a gypsy cab industry to collapse. Rutskoi called allowed through the line, and behind and followed the trucks around the it “economic genocide,” with some the White House the right-wing Russian Garden Ring and up Prospekt Mira. It www.bne.eu 30 I Cover story bne February 2021 soon became clear that we were headed Then I started to hear a “ziiiiip” sound have been flooded with fighters in the to Ostankino, the home of Russia’s around us. My Spanish colleague Angela morning and a serious uprising that national broadcaster and the TV tower Alonso was the first to realise what was would have led to widespread street that dominates Moscow’s skyline in the happening and hit the deck: snipers had fighting throughout the capital could north of the city. worked their way round to the side of have started in the morning. the bus and were now starting to fire Rutskoi had called for his supporters to into the crowd sheltering behind it. It didn't happen, as in the small hours of take over the TV stations and call on the the morning the gravel-voiced General entire country to rise up and take control By this time the ambulances had Alexander Lebed, who had command of regional government. started to arrive. Groups of men were of a tank brigade barracked just outside appearing out of the darkness under the Moscow, came down on the side of Yeltsin. At this point I should point out this is trees carrying the wounded, who were a textbook example of iniating a coup bundled into the waiting ambulances and Svetlana Ivanova, my later landlady of d'état. driven off at high speed, sirens wailing. my apartment on Kutuzovsky Prospect, the eight-lane spoke road that leads to However, the police had got wind of Dozens of people were killed that the White House, recalled that night: Rutskoi’s plan (there were almost certainly night at Ostankino – the official death “We were woken very early in morning, undercover agents in the crowd at the White House) and the OMON and special forces also raced to Ostakino, arriving a few minutes before Rutskoi’s men and “Snipers had worked their way round to the side taking up position in the foyer of the of the bus and were now starting to fire into the building and windows on the floors above. crowd sheltering behind it” By this time it was early evening and the sun had just gone down. Our taxi driver dropped us off at the start of the road count was 46 dead – including British about four I think, to the sound of that leads to the TV tower, where a bus cameraman Rory Peck, who was a tanks driving down the road to the had been overturned and pushed across freelance war reporter working for the White House.” the road. (That bus was left for years German station ZDF. The Frontline in the courtyard of the cultural museum Club in London by St Mary’s Hospital As the sun came up Lebed had stationed on Tverskaya as a reminder of the was founded in Peck’s memory by his five tanks on the bridge overlooking October events). colleague Vaughan Smith and today has the White House and troops and more some of Peck’s memorabilia, and that tanks had taken up position on the A crowd of people were cowering of other war correspondent freelancers embankment facing the building on the behind the bus as a firefight had broken killed in action, on display in the opposite side of the Moskva. out between the OMON and Rutskoi’s cabinets in the clubroom. men. You could hear the rat-tat-tat of Then they opened up, sending shells Kalashnikovs coming out of the darkness At this point we decided things were into the upper floors of the building to from under the trees ahead but could getting too hairy and walked back down minimise casualties but to disorientate see nothing. The temptation was to the road to find another car to take the defenders of the White House, who go around the bus to get a closer look. us home. What shocked me later was were mostly on the lower floors. The My colleague at the Daily Telegraph, how unafraid I felt during this whole building quickly caught fire. Marcus Warren, later explained to experience. It was my first time under me why freelancers are in much more fire, but with bullets flying around The people from the picket from danger in warzones than staffers, as it you, you become so pumped up by around the building took refuge on the is the freelancers that go round the bus adrenalin that you don't feel fear. I was embankment under the bridge, but because of this urge, while the staffers seriously considering walking around they were still exposed to the snipers. stay at the back or in their offices and the bus but only common sense (and According to the official report 147 people watch the events on TV. the lack of a serious string at that point) were killed and another 437 wounded. were what stopped me. I should have Unofficial sources put the death count The situation got rapidly more dangerous. been terrified. far higher. It was the bloodiest violent First someone started firing a machine conflict since the 1917 revolution. gun with tracer bullets over the bus. Shelling the White House You could see streams of bullets flying On the night of October 3 Russia was We didn't go down to the White House overhead in what was probably a move to at a tipping point. Things could have that day, despite the fact you could prevent more reinforcements moving up gone either way. Rutskoi had failed to clearly hear the shelling going on just into position outside the TV tower. take Ostankino but the streets could down the road. The occupying forces of www.bne.eu bne February 2021 Cover story I 31

the White House started shooting back, and the Garden Ring road, the main ring passed he became increasingly erratic. but used the tunnels under the building road in Moscow, was pockmarked with The government remained in constant to take up positions on the rooves of bullet holes from a sniper battle, until it budget crisis, which led to the notorious the surrounding buildings and began was finally repaired in the boom years loans-for-shares privatisations in indiscriminately to shoot anyone on the of the noughties. 1995-96 and Yeltsin suffered some street. At the same time, Lebed’s snipers sort of heart attack between the first took up position on top of the “Heineken But bizarrely life in the rest of the and second round of the presidential building” on the opposite bank and shot city carried on as normal. Down on elections in 1996, disappearing from the back, also targeting pedestrians. Tverskaya, the Oxford Street of Moscow, stage entirely in the run-up to the second the shops and cafes were open and vote. Russia’s economy then crashed in The buildings around the White House people went about their business 1998 thanks to the spill-over effects of get their nicknames from the huge as normal, although the occasional a currency crisis in Asia the year before. advertising billboards on their rooves explosion could be heard in the distance. and at the time the Heineken was home It wasn't until Putin took over in 2000 to the many German diplomats who The night of October 4 we went to Bely that things really started to change. worked at the embassy further down Tarakan (White Cockroach), a very The “economic Putin” put through the embankment and up the hill at cool private bar set up by a bunch of a raft of reforms, including a flat rate Mosfimovskaya. Behind the Heineken impoverished actors from one of the tax for individuals and companies that building is the “Kutzovsky ghetto”, theatres for people to hang out and drink set the stage for a boom. The “politi- where most of the international news cheaply. Although the actors couldn't cal Putin” finally made use of those bureaus were housed in Soviet times and make any money from the theatres extended presidential powers and are still housed there today. they made a nice income from the bar rapidly crushed , removed and went on to open a string of famous the corrupt governors from the upper A friend of mine, Akhim Luther, lived in bars, including Krisis Genre, Vermel, house of parliament, took direct control the Gazprom building that is next door Bedny Ludy and, most famous of all, of the media and began a long campaign to the White House on the same side of Propaganda, which is still going. to tighten his control. the river. A young German entrepreneur who had come to Moscow very early on Rumours were flying at Bely Tarakan: Ironically Russia flourished. GDP growth to represent his father’s electronics firm, the government had fallen; the borders in 2000 was almost 10% despite the he went on to his balcony that overlooks were closed; Yeltsin had fled; Rutskoi predictions of a return to hyperinflation the White House to see what was going had been arrested. No one knew what and widespread poverty. Putin’s recovery on. However, as soon as he appeared was happening. The morning felt like has been attributed to oil, but the oil a storm of bullets and machine gun fire a long while away and the next day was prices didn't start rising from a low of poured through his window as the White a completely unknown entity. It was $15 in 2000 for several years, but when House defenders clearly thought he was exhilarating in a way, but more than that they did the economy boomed. a sniper. He threw himself back inside it made me realise I had never faced the room and crawled away to the back a day where I had absolutely no idea In the West Yeltsin is hailed as a rooms of his apartment. what was going to happen next and democrat and a blessing, while Putin is couldn't even guess. Our friends in the demonised as an autocratic demagogue, A pair of young British para-legals were bar didn't seem too phased. Their life was but the Russians that lived through the less lucky. They went up to the roof already hard, so political chaos didn't events of 1993 and the following years of their building on the other side of really make any difference to them. see it the other way round: Yeltsin’s era the White House from the Gazprom was full of chaos, conflict, poverty and building, also to get a better look, but In the end it was all over fairly quickly. misery, whereas Putin’s era has been one was hit by a sniper bullet and she Successfully keeping Rutskoi’s people about stability, a return to prosperity and only survived thanks to an emergency out of Ostankino meant the insurrection the creation of a more or less normal life. blood transfusion after the Russian staff died out fairly fast. The ringleaders Russia got back some of its dignity under at her office took her to hospital and of the White House’s occupation Putin, whereas under Yeltsin it was donated the blood that saved her life. were quickly arrested, but they were robbed by the oligarch and crushed by amnestied within a year once Yeltsin the advice of the international finanical Aftermath had consolidated his position, and institutiotns. But the real irony is that The fighting went on for about three Khasbulatov went back back to teaching. Yeltsin’s attempt to dissolve Parliament days. A curfew was imposed at sundown and his use of force was clearly illegal and it was still dangerous to go The main result was Yeltsin changed under the Russian Constitution and was anywhere near the White House. The the constitution in December, giving the a constitutional coup that answered snipers spread up the Novy Arbat and president vastly increased powers. But Rutskoi’s attempt at a coup d'état, while for years afterwards the upper floors of even that didn't bring his showdowns Putin is a stickler for sticking at least to the building on the corner of Novy Arbat with the Duma to an end and as time the letter, if not the spirit, of the law. www.bne.eu 32 I Cover story bne February 2021

Russian state-owned media has been having a field day with the storming of the US Capitol in Washington DC and has given the story blanket coverage.

Storming parliaments: exploiting the upheaval by bussing hordes of aggressive supporters into the capital Bishkek to intimidate those New Europe's greatest hits that had taken to the streets to back other figures who were attempting to launch bids to become the country’s new bne IntelliNews president. At one rally that broke up after an attack by Japarov supporters, S democracy was shaken on buildings, smashed up furniture and an ex-president, Almazbek Atambayev, January 6 when a mob of occupied the parliamentary chamber. survived an apparent assassination UDonald Trump supporters Outside, an angry mob caught up attempt by an alleged Japarov supporter. stormed the Capitol building to try to with Speaker of Parliament Ararat prevent Joe Biden being named the Mirzoyan. He was brutally beaten. The US embassy in Bishkek has 46th president of the United States. voiced concerns about the threat Four people died during the riot, Emotions were running high organised crime may pose to one woman being shot by police. because Armenia had just essentially Kyrgyz democracy by exploiting the surrendered following a bloody 44-day formation of a new government. Events in Washington DC were war with Azerbaijan over the enclave of unprecedented, but they are much Nagorno-Karabakh. Protesters claimed Georgia: a site of conflict more common in the New Europe, the government had not squared Georgia is well used to violent where young democracies are with them during the conflict over confrontations outside the parliament struggling to establish themselves just how badly things were going. in Tbilisi. Thousands of protesters (often with the urging and advice attempted to storm the building in of American ambassadors and Kyrgyzstan: rioters dispute elections June 2019 after word spread that a the US State Department). In Kyrgyzstan – where the “Kyrgyz Russian lawmaker had been invited to Donald Trump”, Sapyr Japarov, make an address from the speaker’s People in Eastern Europe and across will on January 10 attempt to claim chair. Some demonstrators lost eyes Central Asia are now looking on the presidency in a snap election – to rubber bullets fired by riot police. somewhat bemused by events that are protesters last October stormed the a lot more familiar to them, this time president’s office and took control of In November 2019, police playing out in what was supposed to government buildings, including the used water cannon to dislodge be the bastion of Western democracy. headquarters of the intelligence services, protesters that had barricaded the Here is a list of recent parliamentary following parliamentary elections that entrance to the parliament. storms in Central and Eastern Europe. opposition parties said were fixed. Currently the only debates MPs of Armenia: defeat sparks anger Amid the turmoil, Japarov was busted the ruling Georgian Dream Party There were scenes of chaos in Armenia’s out of prison, where he was serving can enter into are those between capital Yerevan last November as a sentence for kidnapping a political themselves – since the parliamentary protesters stormed government opponent. Japarov was accused of election last autumn, opposition www.bne.eu bne February 2021 Cover story I 33

parties have refused to take their morning his tank battalion had taken Ukraine: oligarchs co-opt protests seats, claiming the poll was rigged. up position on the bridge and embank- Protesters occupied the whole of central ment overlooking the White House and in a legendary tent camp, as well Russia: a constitutional coup proceeded to shell it into submission. as several buildings around Maidan Russia faced a constitutional crisis Square during the 2014 Revolution in 1993 when protesters led by vice- Fighting went on for several days of Dignity and quickly trashed the president Alexander Rutskoi and as snipers from both sides took city centre, which came to resemble Duma speaker Ruslan Khasbulatov up positions on the surrounding a scene from Hell as tyres burnt and defied the president, Boris Yeltsin, and rooftops, indiscriminately shooting debris was strewn across the streets. mounted a sit-in at the White House, anyone on the streets. Refugees hid the parliament building that sits on the under the bridge and in surrounding But the protesters did not attack banks of the Moskva in central Moscow. apartment blocks but 147 people were the Verkhovna Rada building on killed – thousands according to some Khreshchatyk, a stone’s throw from Tension ratcheted up for over a week sources – until the deputies holed the Maidan. The Rada is the scene of until October 3, when a large group up inside the burning White House regular punch-ups, but these have been of their armed supporters occupied building finally conceded defeat. exclusively between MPs who work there the Moscow mayor’s offices and drove and are supposed to be in the chamber. out to the Ostankino TV centre in an Despite his reputation as a leading attempt to take over the transmitter, force for democratic change in Russia, However, other government buildings have come under attack, most recently the offices of the National Bank of Ukraine (NBU), which is up the hill “Amid the turmoil in Kyrgyzstan, Japarov was from Maidan on Instytutska Street.

busted out of prison, where he was serving In November 2019 protesters stormed the a sentence for kidnapping a political opponent” offices of the National Bank of Ukraine (NBU), demanding the resignation of then governor of the National Bank of Ukraine (NBU) Yakiv Smolii. They intending to broadcast a call for a nation- Yeltsin illegally dissolved Parliament crashed through the security and wide insurrection. The OMON riot and changed the constitution to give occupied the ground floor as the central police and special forces himself extended powers in what was bank staff cowered on the upper floors. beat the protesters to the building by in effect a constitutional coup d'état. a few minutes and a gunfight broke out The police on duty made little effort to in which dozens of people were killed, The 10-day conflict was the deadliest expel the protesters and the attack was including British TV cameraman Rory episode of street fighting in Russia widely seen as a paid-for provocation Peck. During the course of the night since the 1917 Russian Revolution. by oligarch Ihor Kolomoisky, who Russian general Alexander Lebed came had been dispossessed of his bank down on the side of Yeltsin and by PrivatBank by the NBU in 2016. www.bne.eu 34 I Cover story bne February 2021

The attack on the NBU building despite the almost universal rejection Launched after President Aleksandar followed several arson attacks on NBU of the August election results. Vucic announced a curfew – members, including the burning down that many blamed on his decision to of former governor Valeriya Gontareva’s In one meme doing the rounds on lift restrictions in time for the June house on September 16 that year. January 7, an image of US President general election, which was followed Donald Trump and his son had been by a sharp upturn in infections – The NBU branded attacks on its staff photoshopped so both appeared to be the protests were hijacked by far-right and Gontareva as a “terror” campaign wearing body armour and carrying groups who led attacks on police and and named Kolomoisky as being machine guns in a spoof of a famous state buildings. 71 people were arrested responsible. Smolii unexpectedly image of Lukashenko and his son, who over the attack on the parliament. quit seven months later on June 2, descended from a helicopter during the citing “systemic political pressure” worst of the August riots also wearing Bosnia: presidency torched in as the reason for his departure. body armour and carrying a gun. Sarajevo's “Arab Spring” Bosnian protesters set fire to the Belarus: peaceful protests North Macedonia: politicians bloodied presidency and razed a regional Mass protests broke out in Minsk in Skopje Parliament storming government building, as well as on August 9 following the disputed Around 200 nationalist demonstrators torching politicians' cars, throwing presidential election, which the Cen- forced their way into the parliament some of them into a river in 2014. tral Election Commission (CEC) claims in Skopje on April 27, 2017, angered The unrest was sparked by fury over was won by a landslide by incumbent by the election of ethnic Albanian job losses and unpaid wages at failing Belarusian President Alexander Lukash- politician Talat Xhaferi as speaker, privatised companies, sparking what enko. No one believed the results and a move that paved the way for the some called Bosnia’s “Arab Spring”. street fighting broke out the same day. appointment of a government led by the Social Democratic Union Moldova: election of oligarch’s The OMON riot police brutally beat of Macedonia (SDSM). Over 100 proxy sparks riot demonstrators, and more than 30,000 people were injured, including Zoran Hundreds of protesters broke into the people have been arrested in the last Zaev, the then opposition leader Moldovan parliament in January 2016 six months. and current prime minister. Footage when a new government led by Pavel from the parliament showed Zaev Filip was appointed. The vote took But Belarusian protesters have specifically with blood pouring from a cut on his place amid mass protests outside the ruled out storming government buildings, forehead. MP Ziadin Sella was knocked parliament and disruptions from inside as that would almost certainly lead to unconscious and local television also by pro-Russian opposition lawmakers. Russian troops being sent to Minsk showed one demonstrator ruthlessly When it was announced that Filip – in support of Lukashenko. pulling the hair of SDSM MP Radmila seen by many as a proxy for influential Sekerinska, who became defence local oligarch Vlad Plahotnuic, whose Lukashenko came close to being ousted minister in the new government. candidacy had previously been a few weeks later until Russian President rejected – had been confirmed as Vladimir Putin said that he was willing The storming of the parliament followed PM, demonstrators pushed their way to send a special military unit to quell almost daily protests organised by the inside the entrance to the parliament. the protests “if necessary” on August 27. civil association For United Macedonia. They included supporters of the The previous storming of the Moldovan Some in Belarus have called for violence, conservative VMRO-DPMNE that parliament was in 2009, when anti- but in a country where the population had been in power for the previous communist protesters rampaged respect the "keep off the grass" signs, decade. Among those put on trial through the building in an angry the chances of a violent uprising after the investigation into the attack response to the re-election of Vladimir seem remote. Moreover, opposition were several top VMRO-DPMNE Voronin’s Communist Party. leader Svetlana Tikhanovskaya officials. The new government led by and the Co-ordinating Council that Zaev was approved by the parliament Romania: sheepdog protesters represents the protesters have so one month after the incident. flock into Parliament far continued to call for restraint, Thousands of Romanian farmers and determined to get rid of Lukashenko Serbia: lockdown frustrations boil over shepherds, some in traditional costume by peaceful and democratic means. The hardship caused by the spring and ringing cowbells, forced their lockdowns contributed to a hot summer way through the parliament gates in Still, Belarusian Twitter has been in some SEE countries. In Serbia, protest against new restrictions on having fun with the events unfolding a group of several hundred anti- the use of sheepdogs in 2015. in Washington DC, by likening Trump lockdown protesters broke into the supporters to the minority of hardliners parliament during a series of often that have supported Lukashenko, violent mass protests in summer 2020. www.bne.eu bne February 2021 Cover story I 35

government’s taxes on the people and business; oligarchs became expert at setting up schemes to extract an economic rent on any activity. The upshot was inefficient and overly expensive goods and services that have acted as a drag on growth ever since.

More recently in some countries a new generation of “real” businessmen have emerged that do “real” business. The high volume-low margin retail sector, for example, has never appealed to oligarchs, as you can’t charge economic rents. This new generation make up the new flock of millionaires and At the end of the communist experiment in 1991 the East was supposed to start resembling the West as billionaires, but the old guard are too it increasingly adopted western liberal democratic values, but what has actually happened is that the well entrenched, and to confuse things West is increasingly starting to resemble the East. some of them are investing into the new businesses too to let the younger The oligarch problem generation do the work, as many Yeltsin- era oligarchs are in at least their 60s now.

Ben Aris in Berlin Today Russia is a mixed bag with both real mega-wealthy businessmen ndrew Meier had a good joke around him was plunged into poverty and oligarchs. And the oligarchs' star about the problems post- then anything became possible. has waned after Russian President ASoviet countries face with their Vladimir Putin took over, as his first act oligarchs in his book “Black Earth”: But these men are not good for the was to eject them from the corridors if the two questions that dominated country. They are a corrupting influence of power, along with their corrupt the Soviet-era were “What is to be as they buy their way – or worse – into proxies in the Federation Council, done?” (Lenin’s famous pamphlet of the possession of their assets and are the upper house of Parliament. the same title) and “Who is to blame?” in the business of controlling state (as nothing in the Soviet Union worked assets and the men that control them. While Russia is tarred as a kleptocracy, and someone got shot for it), after the irony is that Putin is the only one the collapse of the Soviet Union the Boris Berezovsky, another of the of the Commonwealth of Independent question becomes: “What is to be done original seven oligarchs from the States (CIS) leaders that has made about those who are to blame?”

The chaos of the 1990s created the oligarch class. They were the fastest “Legend has it that Russia’s uberoligarch Roman to react and pick up the extremely valuable assets that had fallen to the Abramovich made his first million when he ground amongst the rubble of the managed to divert a train full of crude oil to the collapsing totalitarian system to literally make millions of dollars overnight. Baltic ports and on to the international markets”

Legend has it that Russia’s uber- oligarch made his first million when he managed to Yeltsin-era, famously said it was not a successful attempt to break the control divert a train full of crude oil from its necessary to privatise a company, only of the oligarchs at his famous “oligarch destination to some internal refinery in to “privatise its revenues.” Of course meeting” in 2001, where he told them the backwoods of Russia’s regions and this includes not paying any tax. “keep what you have got, but stop the sent it instead to the Baltic ports and on stealing,” and bring power back into to the international markets in 1992. As time passed the game became more the hands of government officials. sophisticated. The people remain the Once a businessman had several million biggest source of wealth in any country Of course since 2000 the pendulum dollars in his pocket while everyone and access to that wealth is via the in Russia has swung too far the other www.bne.eu 36 I Cover story bne February 2021 way. Putin experimented with the had its third but control of the parliamentary majority ZAO Kremlin system in the noughties Sadyr Japarov, who just took over and the oligarchs are actively working where he held one-on-one meetings and legitimised his presidency with to undermine him. Specifically, Ukraine with all the leading businessmen elections on January 11, was in jail has been rocked by a string of scandals and tried to ensure their plans in December on kidnapping charges that have upset the International dovetailed with the Kremlin’s goals. before the mob freed him. Not only Monetary Fund (IMF), including is he an oligarch; he is also accused physically attacking the employees of But the oligarchs proved too hard to of having links to organised crime. the reform-minded National Bank of control and he eventually replaced them Ukraine (NBU), a Constitutional Court with the stoligarchs – state-sponsored Georgia became a poster boy for decision to strike down most of the oligarchs, who are given the biggest democratic transition following anti-corruption legislation and most budget-funded contracts personally the Rose Revolution in 2003 that recently to cap the domestic tariffs for by Putin and who can then manually supervise the corruption and keep the stealing to “acceptable” levels. “The reason why the Central European countries As bne IntelliNews has argued many have flourished is they were handed those times, most of the countries of New Europe have failed to set up working institutions fully formed by the EU” institutions to regulate business. Without strong property rights and a functioning independent judiciary then corruption is the system. The easiest catapulted Mikheil Saakashvili into gas. All these scandals have been laid way to bind minions to a leader is give the presidency. He allied with the West at the feet of oligarch machinations. them positions of power where they can and made some successful reforms, but charge an economic rent. The power he lost touch with the people and lost “We identified billionaires Akhmetov comes from an ability to take those jobs elections in 2012 to Bidzina Ivanishvili, and Kolomoisky as the most powerful away again. So Russia didn't solve its a Georgian-born oligarch who made players in Ukrainian politics as early oligarch problem after all. It just recast it his money in Russia in the 1990s. as April. And much of the Ukrainian in a different form that gave Putin more public understands this, with even political power. It is the system employed Ivanishvili said last week that he Zelenskiy’s own 95 Kvartal comedy by almost all the CIS countries. was leaving politics as “mission troupe performing skits depicting accomplished”, but after his dominating the two oligarchs abusing their On the flip side the reason why the Georgian politics for almost a decade excessive power,” Zenon Zawada of Central European countries have the country has lost its poster boy Concorde Capital said in a note. “While flourished is they were handed those sheen and has reverted to type. Akhmetov has been treading between institutions fully formed by the EU. Corruption and insider dealing is back the pro-Western and pro-Russian But even the likes of Czechia and the with a vengeance and the country has camps, never committing himself to Baltics still suffer from the bane of the seen a string of protests as a result. either one, Kolomoisky has swung oligarchic corruption. Only this week Ivanishvili has used his vast fortune to entirely to the pro-Russian camp since the government in Estonia fell when it run politics from behind the scenes. Zelenskiy’s election in spring 2019.” transpired the Prime Minister was doing dodgy real estate deals. In Hungary one Things in Ukraine are even worse, where Ukraine has a long history of abuse of the biggest oligarchs in the country is the oligarchs are increasingly taking by oligarchs. Under Leonid Kuchma, also a close personal friend of Hungarian complete control of the political process. the country’s second president, the Prime Minister Viktor Orban. Even the About 100 out of the 422 active MPs country’s gas transit business was newly minted EU members have not in Ukraine’s parliament are accused of notoriously corrupt, conducted via solved their oligarch problem entirely. being under the control of billionaire “independent” trading companies Rinat Akhmetov, and another 70 work such as Eural Trans Gas, controlled Kyrgyzstan, Georgia and for the oligarch Ihor Kolomoisky, who by oligarch Dmytro Firtash, that Ukraine in trouble is also a personal friend of comedian- siphoned off billions of dollars on Most of the other countries in the region turned-president Volodymyr Zelenskiy, behalf of the elite – both Ukrainian and are far less advanced and their oligarchs according to an investigation by bihus. Russian – among many other scams. have had an extra decade on Russia’s info news site published on January 11. oligarchs to entrench themselves. More recently Kolomoisky had inserted Zelenskiy was swept to power in himself into the state oil procurement If anything, the oligarch problem April 2019 on the promise of ending auctions and was extracting a 15% is getting worse. Kyrgyzstan just corruption, but since then he has lost commission on all the deals, according www.bne.eu bne February 2021 Cover story I 37

to a senior Ukrainian politician speaking international financial institutions to follow the letter of the law versus to bne IntelliNews off the record. (IFIs) are fairly helpless in countering the realities on the ground. the influence of the oligarchs. Even former President Petro Poroshenko, The arrest of US fund manager Michael who took over after the 2014 Revolution All they can do is insist on Calvey on February 14 in 2019 caused of Dignity that was supposed to anti-corruption laws and a huge scandal and the international restart reforms, was an oligarch. institutions that are too easily business community (and several circumnavigated by the oligarchs. very senior Russian officials) called He was the only oligarch to see his on Putin to stop the case and let him wealth increase in the first years after the Even Poroshenko only caved in to the go. Putin responded, correctly, that revolution, while the others lost billions of IMF demands to set up an anti-corruption as president he had no power to order dollars. Although Poroshenko promised to court (ACC) when Ukraine was facing a the courts to do anything, whereas it is put all his businesses into trust, he never financial crisis and when the IFI became also perfectly obvious the courts will do did. The Panama Papers leak showed the only sources of funds to stave off exactly as they are told, if Putin asks. he lied and remained in control of his an economic collapse. However, the assets – including a chocolate factory in ACC has yet to jail anyone significant. The irony in this case is it was the the Russian region of Lipetsk, although he When the National Anti-Corruption international community that was eventually sold this – which was backed Bureau of Ukraine (NABU) indicted the asking that Putin ignore the rule of law, up by an investigation carried out by first big fish in 2017, Roman Nasirov, whereas Putin insisted on following bne IntelliNews on his business empire. the head of the State Fiscal Service it. This contradiction in views comes of Ukraine and a close Poroshenko up time and time again as each side More tellingly, despite actively lobbying ally for embezzling up to $50mn, not flip-flops between insisting on the Washington and the IMF for help only did the courts fail to prosecute law or conceding to the realities as a counter to Russian aggression, him, but he was eventually re-instated of the way things really work. true to his oligarch form, Poroshenko and even ran for president in 2019. vociferously resisted the IMF’s attempts Anti-corruption blogger and opposition to impose anti-corruption legislation Part of the problem is that the IMF’s own activist was due to and institutions on Ukraine. insistence on sticking to the letter of the return to Russia on January 17, but law means it has to accept the decision during the previous week a court According to bne IntelliNews’ high- of courts and elections even when it is took his suspended sentence for an placed source, Poroshenko spent most obvious they have been perverted by old embezzlement case and turned of his time trying to place his own oligarch bribes. However, the oligarchs it into an actual jail-time sentence. people to control the main sources of only follow the letter of the law when it Commentators widely saw the ruling as money flows in the administration. suits them and when they have bought an attempt by the Kremlin to persuade a decision that is in their interests. Navalny to remain in exile, but it also What’s to be done about shows the courts will do whatever the those who are to blame? Examples of this duplicity abound. Kremlin tells them to – not that anyone And this is where Meier’s joke comes in: The most recent example is Ukraine’s will ever admit to that in public. what can be done to break this system Constitutional Court’s decision to strike when the leaders of these countries down most of the anti-corruption laws. CE & Belarus have no interest at all in ending it? Even Central Europe is not immune The court is supposed to be the to the oligarch problem. Czech Prime The EU has real leverage over the countries ultimate guarantor of the rule of law in Minister Andrej Babis is an oligarch that joined the union in 2003. The IMF Ukraine, but with five of the 15 judges and was caught directing EU structural has leverage over cash-strapped Ukraine themselves already under investigation funds to his own companies. too, although as the events of 2020 and for corruption it is patently obvious that before show, very little progress has the decision was bought by oligarchs Hungarian Prime Minister Viktor been made there. But the international looking to scupper the IMF deal and Orban is not an oligarch, but his community has no leverage over the rest of halt the anti-corruption drive. close personal friends are and they the region and so change will have to come have been making a fortune from from within, forced on the governments Ironically the IMF had to accept the state contracts in recent years. by the emerging middle classes which are Constitutional Court’s decision, because Lukashenko is an interesting case, slowly becoming politicised. That could it is the Constitutional Court, and as while there are a few oligarchs in take generations, although the popular rebuke Zelenskiy who attempted to Belarus, men who are close to the revolutions in Armenia and Belarus give sack the judges – for which he doesn't president, as the country has yet to cause for hope a shortcut is possible. have the constitutional power. go through mass privatisation their Thanks to this penetration of politics Western commentators are also power and wealth is limited. They by the oligarchs the IMF and other caught in the paradox of the need make their money from securing what www.bne.eu 38 I Cover story bne February 2021 government contracts are available which he overtly retained control Evgeny Lebedev in November, the son rather than charging economic rents, of throughout his presidency. of Alexander Lebedev which is a much bigger business. and former head of the KGB station in Lukashenko’s fixation on concentrating Leading Ukrainian oligarch Kolomoisky London in Soviet times, and who now all power in his own hands means the is widely credited with putting Zelenskiy owns the UK newspapers the Evening Belarusian oligarch system has never into power in April 2019 thanks to the Standard and the Independent. been able to develop very far. One of backing of his 1+1 TV station and the big dangers of the changes that other media holdings. Moreover, it has Deripaska got caught up in another follow his mooted ouster is that in the recently transpired that the pro-Russia scandal after a Belarusian escort economic chaos that follows Belarus politician and personal friend of Putin, Nastya Rybka claimed she had will finally get its own oligarch class. Viktor Medvedchuk, is also an investor evidence that Deripaska was in Kolomoisky’s media empire that is actively planning to interfere in the You can be a little more optimistic now agitating in Moscow’s interests. US elections in February 2018. in Belarus’ case, as with luck the country’s economic revival will be The story is similar in Georgia, In the US the Russian oligarchs led by the IT entrepreneurs who have despite its democratic reputation, and the US-based the money, the relations with outside where there has been a running were major sponsors investors, and most importantly, battle for control of the leading TV of Trump’s inauguration, while ethical business principles thanks to station Rustavi 2, an influential but Trump has been linked to a major their self-made wealth, rather than financially troubled broadcaster. Russian real estate magnate, who having earned their first fortunes from probably lent him money when good connections with government. Happily the power of the media his business was going badly. is waning slowly as internet use Oligarchs in media becomes widespread. In Russia the Kolomoisky is also finally under Media ownership plays an important role young have more or less abandoned federal investigation in the US for in the oligarch problem, as by controlling watching TV in favour of YouTube laundering billions of dollars he stole TV stations in particular, oligarchs gain videos, bloggers and a plethora of from his PrivatBank through companies real and unregulated political power. alternative online news sources that based in Delaware for years. will contribute to the slow politicisation When Putin took over in 2000 the of the emerging middle classes. Most recently, the US imposed sanctions two oligarchs he chose to attack first on seven Ukrainians in January who are were Boris Berezovsky and Vladimir The growing importance of truly accused of interfering in US elections Gusinsky, who controlled the state- independent online news was on Russia’s behalf. Deripaska has been owned ORT (now the First Channel) highlighted in the Belarusian mass sanctioned on the same grounds, as and the largest privately owned protests last summer. Lukashenko flew the Russian state sometimes makes broadcaster NTV respectively. in technical staff from Russia’ state- use of its oligarchs for its own benefit owned RT broadcaster to take over the or they act on their own hoping to And it wasn't done subtly. Berezovsky Belarusian state media and pump out curry favour with the leadership. was driven into exile and his stake in pro-regime propaganda very early on ORT was taken over by Abramovich, in the revolution, but to little effect, as Ukrainian opposition leader, who was a Putin ally, and the channel almost the entire population had turned former Prime Minister and head of is only now about to be “privatised”. to the independent Telegram Batkivshchyna (Fatherland) Party Yulia Gusinsky was arrested and later channel that briefly became the most Tymoshenko was exposed using a US complained that a figurative “gun was read news outlet in the world in August. lobbying firm to meet with senior US held to my head” forcing him to give politicians close to Trump during a up control of NTV, which was quickly Oligarchs in the West trip in December 2018. Tymoshenko taken over by Gazprom Media. The West is not immune to oligarchic is also an oligarch, dubbed the “gas influence either. Their huge fortunes princess” after she participated in the Putin’s control of the media was and their yearning for political influence oligarchic gas trading scams of the an essential part of his programme makes them tempting sources of 90s to amass a fortune believed to to defang the oligarchs and was funding for western politicians. be worth some $350mn during her extended to the extreme of banning time as Energy Minister in the years any foreign organisation from Senior British politician George Osborne before the Orange Revolution. owning more than 20% of a Russian vacationed on ’s yacht, media business. Poroshenko played one of the top oligarchs from the end More insidiously, oligarchs in Eastern the same game: despite promising of the Yeltsin era and Abramovich’s Europe have taken to funding think- to put all his businesses in trust he protégée. And UK Prime Minister Boris tanks in an effort to manage the explicitly excluded his TV station, Johnson went as far as ennobling message and influence lawmakers www.bne.eu bne February 2021 Cover story I 39 and policy wonks in Washington. “This could open an opportunity. is allowed and regulated. It could also The Atlantic Council is nominally To date Fridman has been extremely be described as “legalised corruption.” a foreign policy think-tank, but it stingy,” Aslund said in an email that took in $21mn of donations in a year became public as part of a legal The oligarch problem is not unique according to its website, receiving process in a US court case. “I shall to the new countries of the Former significant donations from Rinat tentatively have dinner with Aven in Soviet Union (FSU), but is becoming Akhmetov and Viktor Pinchuk, two Moscow Sunday night so I might be a general problem for the whole of Ukraine’s biggest oligarchs and the able to ask him what he wants. As world. Following capitalism’s defeat same Akhmetov that is believed to you remember, we hosted him here of socialism the West decided the way control 100 deputies in the Rada. in November and got nothing.” forward was “more capitalism.”

The Atlanitic Council also took While nominally a think-tank, the That lead to things like the US Supreme $100,000 per year for three years Atlantic Council has invested heavily in court’s Citizens United in 2010 that gives from 2016 from Mykola Zlochevsky, its media profile and actively produces explicit political power to corporations. who owns energy company Burisma op-eds, webinars and commentary for In the US there are constant complaints about “Big Pharma” and “Corporate Media” that are undermining democracy. The NRA’s power to block “Kolomoisky is finally under federal gun laws, despite the overwhelming investigation in the US for laundering public support for those laws, because it is representing the industry’s billions of dollars through companies interests is another example of explicit based in Delaware” political actions by companies. And the issue was thrown into really stark relief in the last weeks by Twitter that famously hired US President- mass consumption, as it is as much and the other social media’s decision Elect Joe Biden’s son Hunter to about influencing the narrative as to ban Trump – who incidentally lobby its interests in the US. it is about doing academic research sold himself as an oligarch in all on foreign policy goals. For example, but name, highlighting as his main Not surprisingly, the Atlantic Council during the high of the Belarusian mass qualification for the job of President treads lightly when it comes to protests last summer, it scooped up the his ability to make money. criticising its oligarchic sponsors two leading social media commentators and has taken an extreme anti- – journalists Hanna Liubakova and The Trump ban has raised the question: Russian position on the showdown Franak Viacorka – making them do private companies with commercial between Ukraine and Russia. associate fellows of the organisation interests have the right to block the despite the absence of any higher comments of an elected public official, Despite this ideological stance, the academic qualifications. Viacorka has where social media obviously now Atlantic Council has not shied away also become opposition leader Svetlana has largely usurped the tradition role from approaching Russian oligarchs Tikhanovskaya’s media spokesman. of the press as the “fourth estate.” for money too. It also counts Russian fertlisier producer Eurochem amongst Aslund also worked for Tymoshenko What has emerged in the US is an its sponsors, owned by super-wealthy as an advisor while she was Prime oligarch set-up that would look oligarch Andrey Melnichenko, who Minister after the Orange Revolution. extremely familiar to anyone in Russia: made his first fortune as a talented independent businessmen in charge banker before switching into the raw None of the oligarchs’ funding of of vast fortunes, who control the most materials processing business. Western politicians or institutions is important media outlets and are actively illegal. The Atlantic Council dismisses manipulating the narrative for their And recently it transpired that Anders the unsightly oligarch funding by saying: own political and commercial ends Aslund had dinner with Pyotr Aven, “We are transparent about it”, as it does that are not beholden to anyone. the co-owner of the Alfa Group that publish all their names on its website. was set up by , At the end of the communist experiment another Yeltsin-era oligarch and Moreover, what is bribe paying in in 1991 the East was supposed to start also a business partner of Vekselberg Russia is legalised in the West under resembling the West as it increasingly and Blavanik in the TNK BP oil company. the term “lobbying”, where cash adopted Western liberal democratic Aslund touched Aven for a donation donations by oligarchs, or employing values, but what has actually happened o the Atlantic Council, despite the fact well connected Americans to change is that the West is increasingly that Fridman is on the US sanctions list. the course of legislation in their favour, starting to resemble the East. www.bne.eu 40 I OUTLOOK 2021 bne February 2021

Every year bne IntelliNews releases reports If you find these useful why not try the bne IntelliNews PRO news service on all the markets in our region that look which covers all these stories on a daily basis. Sign up for a free two forward to the main events of coming year, week trial that starts tomorrow by filling out the form here. and tries to identify the trends that are already identifiable.

EASTERN EUROPE / Russia

Political outlook at least the first quarter of 2021 and maybe not for the The main political event of 2021 is the Duma elections entire 2021. The easing cycle has definitely ended. in September. The popularity of the ruling United Russia Party has been falling but it is still expected to win Budget & fiscal policy outlook a majority, albeit perhaps in partnership with some The federal budget deficit will amount to 3.9% of GDP new smaller parties. in 2020, with the non-oil deficit at 8.8% of GDP. Budget execution appeared to be better than previously expected The main policy goals are to restart spending on the (4.4% of GDP in September and 5% of GDP in June). 12 national projects that are supposed to “transform” the economy and specifically bring back the prosperity The budget deficit will be reduced to 2.6% in 2021 partly Russians enjoyed until the stagnation started in 2011 thanks to the government’s ongoing commitment to in the hope of countering Russia's slowly rising social a policy of austerity rather than one of boosting growth. discontent. This is wrapped up with the Kremlin’s belief that it is in an economic war with the West and so won’t spend Macro economy from its large National Welfare Fund (NWF) to stimulate After the slump in 2020 Russia’s economy will start growth, instead preferring to sit on this reserve, which growing again in 2021 and expand by between 2.5% is seen more as a strategic defensive weapon. and 4%, according to various forecasts. The rate of growth is uncertain due to the number of unpredictable "Extremely conservative" spending Federal budget factors. On the down side real income growth is likely to expenditures in 2021, according to the analysts, will be remain negative, holding back consumption. The govern- 9% lower than the current year level, or by RUB2.2 tril- ment is also planning to cut spending. On the plus side lion, which is about 2% of the potential GDP in 2021. oil and commodity prices are likely to grow and bring in extra funds and inflows of foreign capital into Russia's New spending is coming from reforms to the government local bond market, which has been significant and sup- that are designed to stop the stealing, more efficiently tax portive of the ruble. The biggest unknown is whether the both the population and companies and find new revenue US will impose new sanctions and if it does, how harsh streams. The government has also committed to increasing these will be. However, the main macro indicators have borrowing modestly from 14% of GDP in 2020 to just over already stabilised and are likely to remain close to cur- 20% in 2021. Austerity and budget deficits are expected to rent levels for most of 2021. stay in place until 2023, slowing the pace of the recovery.

At its last meeting of the year the CBR kept the mon- Real economy etary policy rates on hold at 4.25% due to the reappear- Commodity prices were already rising again in November ance of inflationary pressures. Food prices had spiked and are likely to continue to strengthen on the back of to the point where the government started negotiations a global recovery, and boosted by the weakening dollar. with producers to artificially cap price increases. The CBR revised upwards CPI from 3.8-4.2% year on year Industry was struggling in 2020 and after a brief recovery to 4.6-4.9% y/y by YE20 due to the impact of short-term following the end of the lockdowns it stalled again in the one-off factors, but its statements were less dovish going autumn. Industry should pick up again in 2021, particu- forward and it is now clear there will be no more cuts in larly in the second half of the year as the vaccines do their www.bne.eu bne February 2021 OUTLOOK 2021 I 41

magic, and the numbers will be strong thanks to the low The prospects for a relief rally and a return to growing base effect. But fundamentally there will be a recovery too valuations are good, as traditionally the securities mar- from the release of a year's worth of pent-up demand. kets have done well in the year following a big crisis. On top of that, structural changes, like the anticipated Corporate profits remain sensitive to changes in things weakening of the dollar over the next few years, will like personal income. While the situation with companies support emerging markets (EM) stocks in general and remains stable, their outlook is still unpredictable. domestically the last of the big state-owned enterprises Profits remain below 2019 levels but are expected to (SOEs) are expected to fulfil the MinFin order to pay out continue closing the gap in 2021. 50% of income as dividends that will also be supportive. Traders believe the market could rise over 30% in 2021 Markets outlook on a general re-rating and the RTS could end 2021 at BCS GM set its end-of-year 12MF RTS index target at 1670 1,850, up from 1,400 at the start. – borderline between a Buy and a Hold – that suggests the market has a 20% upside in the last month of trading. Read the full report here

The Russian stock market was growing strongly in the first two months of 2020 before the multiple shocks knocked it off the rails. However, it started to surge again in November after the coronavirus (COVID-19) vaccine trial results were announced and following the conclu- Russia Ukraine Belarus sion of the US presidential elections.

CENTRAL EUROPE / Poland

As everywhere else, the No. 1 story in Poland in 2021 The initial predictions of a recession of -6% or even will be the recovery from the coronavirus (COVID-19) deeper have been gradually revised with each new pandemic. Poland, which emerged pretty much dataset from the real economy once the shock of the unscathed by the previous global crisis – the financial first lockdown began subsiding in May. The current meltdown of 2007-2008 – appears to have weathered consensus is that the recession will take place – avoiding the first wave of the pandemic as well. it completely was never on the cards – but it will be mild, not even -3% in 2020, some analysts venture to say. Poland’s well-diversified economy should take credit for the relatively mild impact of the coronavirus crisis so far, Leading Polish banks expect the recovery in 2021 to be analysts say. Poland is the least exposed country to tourism at least 3%, with the forecast average as high as 4.1%. in the OECD, while also having big agri-food and business A slightly sharper picture of how solid the economic services sectors, both relatively resistant to the crisis. rebound will be should emerge sometime in late January or February when it will become clear how well – or Poland’s surging exports of durable consumer goods how badly – the authorities have handled the national also helped, especially in the second half of the year. vaccination programme. Finally, the country has attracted a good deal of invest- ment in industrial branches – automotive being a case Poland’s growth could also be helped by the influx of in point. new money from the EU budget for the years 2021-2027, although 2021 may well be a preparation year of planning Last but not least, the government quickly stepped in to take advantage of the funding, so its real impact may with substantial help, even if its efficiency is being ques- not show until 2022. tioned now by many businesses. Politically, this could be another year of tension and Polish industrial exports grew rapidly in the second half unrest, especially if economic recovery is sluggish or of the year. Before the pandemic in Poland, there was a otherwise impeded by the pandemic taking unexpected lot of foreign direct investment in promising sectors, e.g. turns, such as the emergence of new strains of the virus. in the new automotive industry. Now it is paying off. All That might make the tripartite coalition government, led this was combined with relatively aggressive and effec- by Law and Justice (PiS), vulnerable to street protests. tive relief efforts.

www.bne.eu 42 I OUTLOOK 2021 bne February 2021

Another potential flashpoint could arrive with the publi- cation of the hugely unpopular ruling of the government- controlled Constitutional Tribunal, which outlawed virtually all possibilities for women to have a legal abor- tion. The ruling brought hundreds of thousands of angry Czech Estonia Hungary protesters to the streets in October and November. If the Republic government orders the formally independent tribunal to publish the ruling, protests are likely to erupt again.

But the PiS-led government has maintained a steady lead in the polls and will not be tested in elections until 2023, giving it a manageable period to address politi- Latvia Lithuania Slovakia cal woes rife in post-pandemic Poland. How effective the government will be in doing that remains an open question, not least because of the internal tensions in the coalition. Unless support for the government drops dramatically, the opposition appears unlikely to mount a successful political challenge to it in a non-election year. Read the full report here Poland

SOUTHEAST EUROPE / Turkey

2020 goes down as a globally exceptional year, a rare thing. despite the wailing and the flailing from Donald Trump, won Nobody could have predicted such a massive virus outbreak a mandate, and the policies of his administration will be the would strike when it did, although there were little heard main determinant as to what will eventuate in Turkey in 2021. voices warning that humankind’s incursions into nature were pushing up the chances of a pandemic. Among its Read the full report here myriad impacts, the outbreak changed expectations on the chances of a snap election in Turkey, while it must have swung plenty of votes that won Joe Biden the White House.

“I’m willing to bet that this time last year nobody (including us) was forecasting that a pandemic would Albania Bosnia & Bulgaria rip through the world in 2020, causing the biggest fall Herzegovina in global GDP since World War Two,” Neil Shearing of Capital Economics wrote on December 7 in a note on “What to expect in 2021.”

“What’s more, I’m willing to bet that anybody that did forecast such an event, failed also to forecast that stock Croatia Kosovo Moldova markets would end the year at a record high,” he added. The pandemic serves as a useful reminder of Keynes’ prin- ciple of fundamental uncertainty as some things are simply unknowable before they happen, according to Shearing.

So, perhaps, we should not easily buy the recovery in the Montenegro North Romania “real economy” story for 2021. We are familiar with out- Macedonia looks brimming with positivity at the beginning of a new year, but we should not forget that those who produce these dominant discourses are typically those that also drive global liquidity in the financial markets.

In November 2020, the music changed in the US. Biden, Serbia Slovenia www.bne.eu bne February 2021 OUTLOOK 2021 I 43

EURASIA / Uzbekistan

Uzbekistan started out 2020 as The Economist’s “Country strong commitment to continue reforms in key sectors of the year” as efforts to transform what just four years of the economy to achieve stronger growth and improve ago was still basically something like an old-fashioned wellbeing of citizens. This is very important to ensure post-Soviet dictatorship, dismantle trade protectionist a more resilient and inclusive post COVID-19 recovery.” policies and develop the beginnings of a free market bore much fruit. Read the full report here

The coronavirus-afflicted year that has just passed obviously proved a setback for the pace of the transformation engineered by Shavkat Mirziyoyev, the former prime minister who succeeded despot for 27 years Islam Karimov in late 2016, but Uzbekistan’s “Third Renaissance”– as the presidential administration Armenia Azerbaijan Georgia refers to it – is far from derailed.

Despite the impact of the coronavirus (COVID-19) pandemic, Uzbekistan is still set to achieve growth, amounting to 0.7% in 2020, with a bounceback to 5.0% in 2021, according to the October update of the Kazakhstan Kyrgyzstan Mongolia International Monetary Fund’s World Economic Outlook. The country’s finance ministry, meanwhile, remains a tad more optimistic about likely 2020 GDP. The World Bank by its October upate was expecting something similar to the IMF, with Marco Mantovanelli, World Bank country manager for Uzbekistan, saying: “Despite the current challenges, the authorities have reconfirmed their Tajikistan Turkmenistan Uzbekistan

www.bne.eu 44 I Central Europe bne February 2021

Prime Minister Juri Ratas presenting his resignation to President Kersti Kaljulaid. Estonian premier quits after Tallinn development scandal

Linas Jegelevicius in Vilnius

stonian Prime Minister Juri Ratas estate development project in return for a situation, giving, through my resig- resigned on January 13 over the party donations. nation, a possibility to shed light on Echief state prosecutor's decision all circumstances and achieve clarity to investigate a Tallinn real estate "This decision, as I said, was made as seems the only right thing to do. Under scandal. President Kersti Kaljulaid a result of consultations with the board conditions of political and societal calm, immediately asked opposition Reform of the Estonian Centre Party, fellow I am convinced that the investigating Party leader Kaja Kallas to try to form members of the party group, closest authorities will do their work profession- a government, putting an end to the people to my post. And while there ally and without bias and will establish country's turbulent and controversial definitely would be different solutions, the definitive truth also in this case," populist left-right coalition after less only one of them seemed to be right," Ratas said. than two years in power. said Ratas, who denied being informed about the dubious financing of Porto Taavi Pern, the chief state prosecutor, As reported by bne Intellinews, Estonia's Franco in any way. said that all in all five persons have chief state prosecutor announced on been declared as suspects in the case January 12 that he is investigating "The suspicions lodged by the Office of and an investigation will determine allegations of corruption against two the Prosecutor General do not yet mean which suspicions are founded. The of the ruling parties’ top officials that someone is definitely guilty, but suspects include the Centre Party's involving government loans given to they inevitably cast a serious shadow secretary general Mihhail Korb, Kersti Tallinn's controversial Porto Franco real on all the parties involved. In such Kracht, an adviser to the Conservative bne February 2021 Central Europe I 45

People's Party (EKRE) minister of According to the constitution, the for businesses demonstrably hit by the finance, and businessman Hillar Teder. president must, within 14 days after coronavirus pandemic. the resignation of the government, The prosecutor said that Teder and Korb designate a candidate for prime minister The scandal added to the Centre Party's are suspected of having agreed that whom the president will task with problems in its first try at leading a Teder would donate up to €1 million forming a new government. national government. It threatens to to the Centre Party before the local refocus public attention on the left government elections later this year, President Kaljulaid has been in constant populist party's chequered history and, in return, a company with links conflict with the government, and under former leader and long-time to Teder was to receive the loan it had particularly the EKRE party ministers. Tallinn mayor Edgar Savisaar and requested. She has accused the far right party's further damage its already diminished leaders of damaging the country's popularity – and could also land it with Commenting on the accusations, international image, particularly huge fines. Ratas said: “Despite taking political through their comments backing US responsibility, I can say with full peace President Donald Trump's allegations In autumn 2019, the Centre Party of mind that as the prime minister, about the illegitimacy of the US was ordered by the Harju County I have not made a single malevolent presidential elections. Court to pay the state €25,000 in or knowingly wrong decision. Today, a corruption case concerning Savisaar. I have communicated with both the She also expressed hope on January The court ruled that the party, which prosecutor general and the Internal 13 that the coalition's controversial pleaded guilty to accepting forbidden Security Service, who both affirmed marriage referendum is off the table donations, would also have a fine of that they have no suspicions with regard in the present government crisis. €250,000 suspended, so long as it to myself. As the head of government, I did not feel in the Porto Franco case either that some minister or political “The suspicions lodged by the Office of the party had tried to influence the decisions made by the government Prosecutor General do not yet mean that someone in an unlawful direction.” is definitely guilty, but they inevitably cast a serious The PM emphasised that the decision to shadow on all the parties involved” lend was made on the basis of a proposal made by KredEx, the state credit guarantee agency, and the terms and Ratas said in parliament's question did not commit another crime over conditions of the loan were altogether time on January 13, speaking of the a probationary period of 18 months. comparable with those of the decision planned referendum on the definition It was only health reasons that stopped made with regard to port operator of marriage, that he doesn't consider Savisaar himself being put on trial Tallink, for instance. handling such a big initiative in the on charges of accepting bribes, current situation as necessary. money laundering, embezzlement on EKRE Finance Minister Martin Helme, a large scale, and accepting prohibited who has suspended his adviser Kersti As reported by bne Intellinews, the donations. Kracht, said he had “zero tolerance investigation showed that Teder, whose for corruption” and that the party had son Rauno Teder leads the Porto Franco In autumn 2016, Savisaar, who had received no money. project, a real estate development in long been treated as a pariah by other Tallinn’s city centre next to the Baltic Estonian parties, was ousted as Centre On January 13 Ratas notified President sea, donated €30,000 to the Centre Party patriarch and replaced by Ratas, Kersti Kaljulaid of his resignation. Party in July last year, and made two representing a younger, more moderate Kaljulaid swiftly made a proposal to more donations in the sums of €30,000 generation. Ratas has tried to turn Reform Party leader Kallas to form the and €60,000 in September and in the a page on the Savisaar era and extend next government of Estonia. final quarter of 2020, respectively. As the Centre party's appeal beyond its reported by bne Intellinews, the Estonian ethnic Russian base, but the party's According to the , the government approved on September 3 opinion poll ratings have been hit by political force that received the biggest a loan of €39mn for Porto Franco. the scandals and his decision to form number of votes in elections must a governing coalition in March 2019 get the possibility to offer its values The developer was compelled to with the far-right EKRE party and the and demonstrate its ability to form apply for the loan in the wake of the national conservative Isamaa party. a functioning government that will coronavirus (COVID-19) pandemic. Many of its voters appear to have take life in Estonia forward. The loan has stirred controversy, as shifted to EKRE. it utilises KredEx and funds intended www.bne.eu 46 I Central Europe bne February 2021

to take the lead in this country in its most difficult times. In times of an economically devastated country, in times when many people and companies are sinking,” Bartos said.

“I would say that this cooperation may be based primarily on politically pragmatic foundations. Pirates and Mayors agreed to it mainly because they want to achieve a stronger election result, they want to be a competitor for the ANO movement and … to even defeat the ANO movement,” commented political reporter Marie Bastlova.

“The Pirates do not have too many politi- cal parties to create a possible coalition with. I dare say that the Mayors and the Independents are basically one of the Pirate Party leader Ivan Bartos could become Europe's first Pirate premier. few entities in the Chamber of Deputies that the coalition with the Pirates could Czech Pirates and Mayors be created with,” Bastlova said. "We do not want a revolution because we do not want to change the system. approve final coalition But we want an evolutionary leap that comes in biology after a period of agreement for 2021 elections stagnation. We feel that the potential of the Czech Republic has not been used in recent years, and the coronavirus crisis bne IntelliNews has revealed this to 'the bone marrow'," said STAN Chair Vit Rakusan for Czech he Czech opposition Pirate Party According to the agreement, the Radio Plus. and Mayors and Independents coalition will focus on transparency, Tmovement (STAN) have signed digitalisation, human rights, and climate According to Rakusan, STAN and the an agreement to form a progressive issues. On other issues the radical Pirates Pirates will either form the government coalition for the parliamentary elections and the more staid Mayors may struggle or stay in the opposition together. in October 2021 which, according to opinion polls, could allow them to overtake Prime Minister Andrej Babis's ANO party to become the largest “I am very pleased that the members of the Pirate political grouping. Party have approved the coalition agreement

"I am very pleased that the members between the Pirates and the STAN movement” of the Pirate Party have approved the coalition agreement between the Pirates and the STAN movement. This to find consensus, though Bartos made They say that in a coalition they have is a very strong mandate, which I value pains to stress that the alliance was not a chance to win the election and thus very much and, above all, I thank our opportunistic. meet the condition stated in recent days members for it. I believe that we will by Czech President Milos Zeman that not disappoint your trust and that the "As we have already declared, this is the next PM should be the winner of combination of Pirates and STAN will a solid coalition, standing on solid the elections. succeed in the elections," said Pirates foundations. A coalition that will not chair Ivan Bartos, the coalition's fall apart even after the election. In The popularity of the Pirate party has candidate for prime minister. If elected, those we intend to succeed and reach been growing in the past year, mainly he would be the first Pirate premier in the highest goal – to be the winners. since the outbreak of COVID-19 back the European Union. We are ready, if we have the opportunity, in March 2020 and the government's www.bne.eu bne February 2021 Central Europe I 47

Transparency International warns of high corruption risk in CEE defence sectors

bne IntelliNews

Anti-corruption watchdog Transparency International (TI) – the worst in the region – places it in the ‘critical’ risk has warned of the high risk of corruption in Central and category, and it scores poorly across all five categories. Eastern Europe (CEE) countries’ defence sectors that has Montenegro is also judged to be at ‘very high’ risk with increased as governments step up defence spending. a score of 32.

The Government Defence Integrity Index (GDI) compiled At the other end of the spectrum, Latvia scores 67, by TI for 15 countries in the region shows that more than indicating a low risk of corruption due to high levels of half have a high risk of corruption in their defence and transparency in defence procurement. It is the only one security sectors. of the countries in the region to be classed as ‘low risk’.

According to the report, region-wide issues including Albania, Armenia, Hungary, Kosovo, Serbia and Ukraine weak parliamentary oversight of defence institutions, are assessed as ‘high risk’, while Bosnia & Herzegovina, secretive procurement processes and concerted efforts Estonia, Georgia, Lithuania, North Macedonia and Poland to reduce transparency and access to information raise are ‘moderate risk’. the risk of corruption and poor governance. “Following major strides towards more robust defence The problem has worsened with the rising military governance in Central and Eastern Europe, many of these spending in the region that includes several of the newer results should be a cause for concern. Corruption and Nato members, concerned about the rising tensions weak governance in the defence and security sector is between their near neighbour Russia and western powers. dangerous, divisive and wasteful,” commented Natalie Countries in the region spent $104bn on defence and Hogg, TI’s director of defence and security. security in 2019, including $65bn spent by Russia. “While it is encouraging to see a handful of countries “Whilst defence governance standards in Europe are some score well the overall picture for the region is one of high of the most robust globally, states in Central and Eastern corruption risk, especially around defence procurement – Europe and the Caucasus, where a combination rising an area responsible for huge swathes of public spending.” defence budgets and challenges to democratic institutions, are particularly vulnerable to setbacks to their recent Looking at specific areas, the report reveals that secret progress in governance and development,” said the report. procurement accounted for as much as 70% of total procurement procedures in Poland, 51% in Georgia and Since Donald Trump was elected president of the US four 45% in Ukraine. years ago, Nato members have been under pressure to meet their commitment to spend 2% of GDP on defence. In otherwise relatively clean Lithuania, open competition Among the region’s Nato members, between 2010 and accounted for as little as 0.5%, while at least 93% of 2019, Lithuania and Latvia increased military spending defence procurement is conducted through restricted by 232% and 176% respectively, and Poland by 51%. tenders and negotiated procedures.

There is an even higher level of defence spending in Armenia and Azerbaijan, which have been locked into a usually frozen conflict over the Nagorno-Karabakh enclave for years until it erupted into full scale war this year. The two countries spend close to 4% of GDP on defence and are among the most militarised countries in the world.

The GDI scores each country across five key risk areas – financial, operational, personnel, political, and procurement – with a maximum score of 100.

The average score on TI’s GDI is just 48, but scores vary widely between countries. Azerbaijan’s score of just 15

www.bne.eu 48 I Central Europe bne February 2021

perceived mishandling of the crisis. recently split ranks to vote for ANO's the Green party and trade union Together with STAN, opinion polls show 2021 budget. representatives. they could surpass 25%, around the level that ANO has been polling. Rakusan confirmed that the second “For me, this is a bit of a sad chapter coalition is a suitable partner for post- of the election year that's ahead of us. The Pirates are not the only political election cooperation. “We may have I still remember the Social Democrats as coalition that Babis and his ANO party differences, but we have tested the the driving force of the Czech political will have to deal with in the autumn cooperation during the coronavirus scene – if not a victorious force, then at elections. The three centre-right crisis. If both groups say that they want least relevant and very fundamental. parties, the Civic Democrats, Christian to bring about a qualitative change in We are now watching a little desperate, Democrats and TOP 09, have also policy – content and form – then they last minute attempts and efforts to created a coalition to increase their should be natural coalition partners,” find a way to save at least 5 percent chances of ousting Babis. According to he added. Taken together, the two in the next parliamentary election,” the latest polls, they would obtain 20% coalitions would be difficult to beat – Bastlova added. of the votes. The three parties have if they stay together. more in common than the Pirates-STAN According to opinion polling carried out combination, but they have stressed The third coalition that has also been at the end of 2020, the Social Democrats that they will operate separately after discussed recently is cooperation would barely cross the 5% electoral the election, and the ODS is seen as between the current junior government threshold for the first time in the a potential partner for ANO, having party the Social Democrats with country's independent history.

Poland and Hungary lift their blockade of EU budget and coronavirus recovery fund

bne IntelliNews

eaders of EU member states limited only to the proper use of the "Now we can start with the implemen- brokered a deal on the €1.8 trillion bloc’s money. Poland and Hungary tation and build back our economies," Lbudget and COVID-19 recovery will also be entitled to review the Michel said, adding that “our landmark fund during a summit on December 10 mechanism in court to make sure it recovery package will drive forward our after Poland and Hungary backed down is in line with EU treaties. green and digital transitions.” from their opposition to tying the funds to respecting the rule of law. Governments in both countries have After reaching the compromise, Poland’s long been at odds with the rest of the tripartite coalition government is in for Poland and Hungary said they would bloc for attacks on their judiciaries and more tension. veto the €1.1 trillion budget and the undermining the independence of the €750bn recovery fund if access to money media. United Poland, one of the parties in the was made conditional on the rule of coalition led by Law and Justice (PiS), law, undermining which has landed Vetoing the budget and the recovery reiterated on December 10 that linking both countries under the scrutiny of fund would, however, result in Poland the budget with the rule of law strips the European Commission. and Hungary losing billions in EU Poland of its sovereignty and must not funding in the next seven years, a period be accepted. “We will meet to discuss The rule of law clause did remain in spiked with difficulties of emerging the effects of the decision made by the conclusions of the summit but from the coronavirus pandemic and the [EU] summit,” the party – which was tweaked to remove Polish and implementing bold EU-wide reforms, threatened to leave the government Hungarian objections that it would such as the transition to a low-carbon if the rule of law mechanism stayed – become a tool of political pressure economy. said in a statement. rather than a mechanism of legal safeguarding. The agreement was reached a few hours Meanwhile, Hungarian Prime Minister into a summit meeting in Brussels, and Viktor Orban presented the deal as Linking the rule of law to funds will be was announced by the President of the a victory, saying that reason triumphed governed by an objective process and European Council Charles Michel. and Hungarian money was defended. www.bne.eu bne February 2021 Central Europe I 49

In a video message on his Facebook the government cannot approve any deal The scope of the mechanism has also page, Orban said everybody at the that links the EU’s financial resources to been limited: in essence, it will only negotiations had "played their last card". political or ideological conditions. apply to fraud, corruption and conflicts "We achieved three things. We defended of interest affecting EU money and the European Treaties. We eliminated At the end of the budget debate, Orban’s not to perceived rule of law breaches the danger of using fiscal instruments critics in the EU can also communicate in general. to force decisions on Hungary that it that the rule of law criteria was ultimately does not want to take or accept, and we included in the package. One of them was This means that under the agreement defended the Hungarian money that will Dutch Prime Minister Mark Rutte, who the government will not face tighter support economic development in the coming years," he said. “Governments in both countries have long Hungary is expected to receive €8bn non-refundable grants from the recovery been at odds with the EU for attacks on fund in addition to the €10bn in loans. their judiciaries and undermining the Before the deal, the Hungarian prime minister floated the idea that the country independence of the media” could do without these funds. In early November, Hungary’s state debt manager unexpectedly tapped the bond market proposed strict conditions for the approval scrutiny over the use of funds before with a €2.5bn issue. Analysts said this was of the €750bn economic recovery fund the 2022 parliamentary elections. a "plan B" for Orban to allow Budapest to during the July summit. Rutte did not secure financing for future years should raise objections to the deal on Thursday, Critics of the deal say that the EU has talks over the budget collapse. according to sources. let Hungary and Poland off the hook by delaying the legal enforcement Although Hungary’s illiberal leader Under the compromise agreement the of any possible misuse of EU funds. has sought to avoid any reference to rule of law mechanism will not be used linking EU values to the payout of funds until Hungary and Poland have the "The European Council will strive to he agreed to the German proposal as chance to challenge its legality in the formulate a common position" should it provides concessions and many legal EU's top court and get a verdict. This a country facing penalties request assurances. concession to Budapest and Warsaw a discussion of its case, according to means that the implementation of the the text in the agreement. Hungary Independent media also pointed out mechanism will be delayed by years. The and Poland requested that sanctions that Orban went against his own text also stipulates that the mechanism at the European Council were made parliament. Before the July EU summit, only applies to the 2021-2027 EU budget with a unanimous vote but this was lawmakers approved a resolution that and recovery fund. rejected.

www.bne.eu 50 I Southeast Europe bne February 2021

Jobs are in short supply in Turkey. Analysts say the deficit is reaching crisis proportions. ‘Lost hope’ on Turkey’s jobs market threatens Erdogan

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122.5% year on year increase to “There is a risk that the bulk of them could of the AKP party government appear to 1.4mn in the number of people be dismissed when the ban is lifted.” have received low marks.” Ain Turkey who have reported that they’ve lost hope of finding employment The severity of the worsening jobs crisis Erdogan ‘held responsible’ points to a stark deterioration in Turkey’s is starting to pose a big threat to Turkish A Gezici survey in November showed job market caused by existing economic President Recep Tayyip Erdogan and combined support for the AKP and its troubles severely exacerbated by the his ruling Justice and Development ultra-nationalist ally MHP falling to coronavirus (COVID-19) crisis. Party (AKP). 45.4%. Metropoll found in the same month that a third of respondents held Erdogan The latest official unemployment data, Pollster Murat Gezici, head of the Gezici responsible for the deteriorating economy. covering October 2020, also showed 4.1mn Research Center, told Bloomberg: “A large people ready to work but not yet looking part of the electorate is experiencing Unemployment among younger Turks for jobs, marking an 84% y/y increase. economic problems. Economic policies now officially stands at 24.3%. Around

Economist Seyfettin Gursel of Istanbul’s Bahcesehir University was quoted by Bloomberg as saying the numbers “A large part of the electorate is experiencing were unprecedented. “There is another artificial situation in employment data economic problems. Economic policies of the since the [coronavirus crisis-period] ban AKP party government appear to have received on dismissals is masking about two million people who were sent on leave,” he said. low marks" www.bne.eu bne February 2021 Southeast Europe I 51

four-fifths of those between the ages of 18 and 27 say they don’t support the ruling Arrera Automobili aims to launch Albania’s coalition. That’s up from 76% in 2018 and 70% in 2015, Gezici said. The age group first supercar accounts for 16% of the electorate.

“The jobless ones are now defined as ‘home-youth’,” Gezici was further quoted bne IntelliNews as saying. “They are deeply frustrated as they’re unable to have their voices heard Arrera Automobili, owned by Albanian car designer Qendrim Thaqi, plans due to pressure and censorship.” to put the 840-hp supercar dubbed Illyrian Pure Sport into production, the company announced on December 31. Illyrian Pure Sport is intended to be The Erdogan administration was the first Albanian supercar. hoping for a V-shaped rebound as the coronavirus crisis eased, but the crisis “Pure Sport is designed by the same designer who designed the Porsche 9RE appears to have redoubled in Turkey in fan rendering, Qendrim Thaqi. Now, through his company Arrera Automobili, recent months, forcing the authorities Thaqi wants to make the Pure Sport the first Albanian Supercar,” Arrera to reintroduce weekend and night-time Automobili said in a Facebook post. lockdowns. 28-year-old Thaqi was born in Kosovo and now lives in Germany. He has Drive for growth braked worked on rendering before, and designed his idea for a successor to the The drive for growth, meanwhile, has Porsche 918 Spyder in the past. been braked by Erdogan bowing to market pressure for elevated interest rates to In an interview with the automotive portal Motor1, Thaqi revealed that he has offer some protection to the crisis-stricken already assembled a team of engineers and body designers. Turkish lira and usher in a period in which the central bank can attempt to rebuild FX The new supercar Illyrian Pure Sport will be powered by a 6.2-litre twin- reserves devastated by a failed effort at turbocharged LT2 V8, with 840 horsepower going to all four wheels via an protecting the currency. eight-speed Tremec dual-clutch automatic transmission, the company said.

Turkey’s next parliamentary and The top speed is expected to reach 375 kilometres per hour, and acceleration presidential elections are scheduled for is expected to last only 2.7 seconds to reach 100 kilometres per hour. 2023, but opposition parties, sensing the vulnerability of the Erdogan government in Arrera Automobili follows another startup from the region, Croatia’s Rimac an increasingly crisis-infused atmosphere, Automobile, a manufacturer of electric hypercars that has attracted the are pushing to have them sooner. attention of luxury sports car producers that are looking to adapt to the industry’s electric future. The job retention programmes, including the ban on dismissals, have braked the build-up of official unemployment in the formal sector, with the rate edging down in August to October from the previous period to 12.7%, data released by the official statistics office TUIK on December 10 show. But the overall size of the workforce contracted 3.9% from a year ago, and with companies going bankrupt left, right and centre amid the global health emergency, analysts pay little regard to this headline figure.

In October, Turkish labour union DISK noted that while official unemployment in the three months to August stood at 4.23mn, the real figure, when including people covered by the layoff ban and those placed on short weeks, was 9.8mn in a country of 83mn. www.bne.eu 52 I Southeast Europe bne February 2021 Montenegro’s special prosecution probes finance minister over €750mn Eurobond issue

The new Montenegrin government's second session on December 10, the day the Eurobond Denitsa Koseva in Sofia was issued.

ontenegro’s special prosecution by local NGO Montenegro International, The country was badly hit by the has launched a probe into which claimed that the prosecution coronavirus pandemic, reporting one MFinance Minister Milojko should establish based on which law of Europe’s highest infection rates in Spajic’s role in the issuance of a €750mn Spajic organised the bond issue and the early autumn. Over 39,000 cases Eurobond in December 2020, a few days via which banks and brokers, public have been confirmed since the start after the government was elected. broadcaster RTCG reported on January of the pandemic among a population 25. The NGO claimed that Spajic had a of just 628,000. The bond was placed on December 10, personal interest in the bond placement. just three days after the government The large tourism sector contributing took office, and was not announced in Moreover, the NGO suggested the around 20% of GDP, suffered from the advance. However, the actions of Spajic bond placement might be related to an spring lockdown and international and of Prime Minister Zdravko Krivokapic alleged attempt to bribe Montenegro’s travel restrictions, contributing to one related to the bond have raised numerous Deputy Prime Minister Dritan Abazovic. of the deepest economic contractions questions in the country regarding the Abazovic has reported being offered a across the emerging Europe region. way they took the decision and whether bribe shortly after becoming a minister the bond was actually necessary. but gave no further details. Even ahead of the crisis, Montenegro had a high level of debt, having At the time, Spajic announced the Meanwhile, the finance ministry borrowed heavily from China’s successful placement of the Eurobond on released details on the bond issue, Eximbank to finance construction of Twitter and said that he country has been revealing that the UK-based law the Bar-Boljare highway. In the third “saved from bankruptcy” by the Eurobond company Linklaters was hired as a legal quarter of 2020, the public debt-to- issue after the coronavirus (COVID-19) consultant for the procedure. GDP ratio stood at 78.1%, and it was pandemic hammered the local economy. pushed up further by the Eurobond The Eurobond carries a 2.875% coupon. in December. The special prosecution decided to The demand was almost €3bn, Spajic launch the probe after being contacted said at the time.

Contents

Top stories We have launched a new bne:Tech Russia’s top retail and tech companies join forces to hunt for innovations in the rest of the world 2 Ukraine-born startups raised more than half a billion dollars in 2019 4 March 2020 www.intellinews.com @bneintellinews Russian video streaming platforms publication bneTech gain speed 5 Cloud services take off in Russia 6 SEMrush to SEO success 8

Leaders 9 Russia’s internet giant Yandex announces growing and more diversified revenues in 2019 10 Russian telecom major Rostelecom misses on earnings in 4Q19, cash flow solid 12 A FREE newsletter covering technology,

Investment 13 World Bank approves $35mn project to modernise Kyrgyz tax administration and statistical system 13 blockchain, ICOs, TMT and all aspects of Romanian online home decoration retailer raises €3.5mn in bonds 14 Russian billionaires Abramovich, Russia’s top retail and tech companies Gutseriev, said to invest in Telegram crypto project TON 14 join forces to hunt for innovations in Russian fund Da Vinci Capital gets the "new economy" in Emerging Europe, €30mn from Germany’s DEG to invest the rest of the world in Ukraine, Belarus and Kazakhstan 15 Fintech & E-commerce 16 BAs Russia’s retail and tech sectors consolidate, the leading Russian e-commerce major Central Asia and MENA. companies are turned their gaze outwards to hunt for Wildberries to add self-employed new technology and innovation. See page 2 vendor products to offering 16 Russian Dixy retailer to launch online sales with Ozon 17 bne:Tech Valuation of Sistema’s e-commerce asset Ozon boosted to $1.8bn 17

Telecom 19 Makedonski Telekom’s net profit up 6% y/y in 2019 19 Click the button to read the latest issue Romanian telco Digi grows by double digit rates in 2019 19 Russia could postpone 5G rollout from 2022 to 2024 20

NIBs 21 Ukraine-born startups raised more than half a billion dollars in 2019

In 2019, the venture capital and private equity funding volume for Ukrainian and Ukrainian-founded tech startups reached $544mn (up from $323mn in 2018 and $265mn in 2017), says AVentures Capital’s latest industry report ”DealBook of Ukraine”, SIGN UP HERE reports Adrien Henni of Ukraine Digital News. See page 4

www.bne.eu bne February 2021 Southeast Europe I 53 Heavy flooding causes chaos in parts of Southeast Europe

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looding has caused chaos in In Kosovo several cities and villages have provide help to all citizens affected several Southeast European been flooded and the Kosovo Security by the situation. Fcountries from Albania to Bulgaria. Force was deployed to assist citizens in the affected areas. Heavy rain has flooded several towns in Heavy rain and snowfalls in recent Bulgaria and Serbia with some of them days resulted in rising river levels In Fushe Kosove (Kosovo Polje), in declaring emergency situations, local and widespread flooding that resulted central Kosovo, the flooding caused media reported on January 11. in dozens of people being evacuated damage to shops, cars and apartment from their homes in Albania and buildings while the road connecting the In Bulgaria, the town of Tran declared Kosovo, while emergency situations municipality with the capital Pristina an emergency, while in Novi Iskar were declared in parts of Bulgaria was under water. people have been evacuated. In Tran, and Serbia. the river Erma has risen by three metres, Rescue teams were deployed on causing floods. Local authorities have More than 30 families were evacuated January 11 to evacuate residents from started clearing up and addressing in the western Albanian municipalities the affected buildings, Prishtina Insight the damage. of Lezha and Durres due to floods reported. caused by heavy rains in recent days, In Pernik and Sofia, authorities started the defence ministry announced In Drenas, also in central Kosovo, emptying dams to avoid floods. In the on January 10. citizens were facing power cuts and town of Pernik two districts were also a lack of drinking water following the flooded due to the elevated level of the The Albanian army evacuated 28 families in Lezha because their homes were at risk as the Drin River overflowed. 2,850 hectares in the “The floods have led to collapsed electricity municipality are under water, the infrastructure resulting in power outages in defence ministry said. a number of areas" Eight families were also evacuated in Durres and 20 homes were flooded. So far only 520 hectares of land are under water in this area. Shkodra floods. About 50 people were evacuated Struma river. Other districts in Pernik is another region badly affected from their homes in Drenas. were also covered by water due to the by the floods, as are Lac, Reshen increased level of the Meshtichka river. and Tropoja. The village of Dobroshevc has been cut off, as heavy rains destroyed the bridge, Bulgaria’s Economy Minister Lachezar The floods have led to collapsed leaving the area without access to Borissov set up a crisis team to monitor electricity infrastructure resulting in infrastructure. the levels of dams, and the ministry power outages in a number of areas. claims all preventive measures have Meanwhile, flooding in eastern Kosovo been taken to avoid further floods. The Kalivac bridge in the municipality has caused disruption to the water of Lezha collapsed due to the flooding in supply from the Perlepnica reservoir. In neighbouring Serbia, b92 reported the last few days, isolating about 1,500 Lutfi Haziri, the mayor of Gjilan in that several municipalities were flooded inhabitants of the surrounding villages. eastern Kosovo, was cited by RTK in the southern part of the country. as saying that 18 citizens have been Several areas in Pirot were covered The National Civil Protection Agency evacuated from the area. by water and the mayor declared an is cooperating with local governments emergency situation. In the municipality to prevent any situation that may arise The outgoing prime minister, Avdullah of Vlasotnica, several villages were left from the persistent rainfall, which was Hoti, who visited Drenas following the without electricity or running water due forecast to peak on January 11. floods said that the government will to the heavy rain. www.bne.eu 54 I Eastern Europe bne February 2021

Magnit is staging a comeback under its new management. Photo: www.magnit.com

LONG READ: Making Magnit Great again

Ben Aris in Berlin

n its heyday, before the crisis of The chain, founded by The store’s revenues grew to top $10bn, 2014 hit, Magnit was an investors’ entrepreneur in the making it the biggest retailer in Russia Idarling. At one point international regional city of Krasnodar, was one during the boom in the noughties and investors were 3% overweight in the of Russia’s great retail success stories Galitsky became a billionaire on the back benchmark MSCI Russia index and of the 90s. of his high volume, low margin concern. almost all of that overweight was in Investors fell over themselves to buy just one stock: Russian regional Unusually the chain eschewed Moscow, into the new Russia business story that supermarket chain Magnit. The which is by far the richest city in Russia tapped its greatest resource: not oil, gas, company could do no wrong. and has a local population larger than gold or diamonds, but its people. most Central European countries, to But the chain fell from grace about focus on building out its business in But things started to go wrong in about five years ago and has been struggling Russia’s far flung regions. 2017 when the management team was to find its direction since. Retail riven by disagreements on where to take in general has also been hit by the Galitsky was also unusual, shunning the the company next. multiple economic shocks and also ritzy high life of Russia’s newly wealthy seven years of falling real incomes. New in Moscow and remained in his native “The decline started in the last two years management was appointed two years Krasnodar to focus on building up a low- before Galitsky left. He was tired and was ago and the new CEO, Jan Dunning, cost, but good quality retail business that not paying attention. He was looking for explains to bne IntelliNews in an catered to the everyday needs of the vast a successor and wanted to sell,” Dunning exclusive interview how he is turning majority of the people. told bne IntelliNews speaking from his the business round. office in Krasnodar by video link. www.bne.eu bne February 2021 Eastern Europe I 55

VTB Bank bought a 29% stake from “It was a good experience, as while Retail revolution the chain's founder in February 2019 president I toured the stores and got Already arguably one of the most for RUB138bn ($2.25bn). VTB then to know how the business was run on modern parts of the Russian economy, brought the stake down to 17.3% after the ground,” says Dunning. organised retail is currently going selling 12.05mn shares, or 11.82%, through a revolution and e-commerce is to the Marathon Group of Alexander After Galitsky left the company Dunning booming, catalysed by the coronacrisis. Vinokurov for a reported $1bn. Minority was asked to take over as President and Turning Magnit’s fortunes around is not shareholders, led by Russia-veterans CEO of the company in June 2019 and just a question of fixing its problems but Prosperity Capital Management, were began to reshape the juggernaut that actively developing its business to take infuriated by the deal, saying it “spits in Magnit had become. these new realities into account. The the face of investors.” The stake comes in task is two-fold: digitise the business, just below the 30% threshold that would “Since February 2019 I brought in my but as Dunning points out, the backbone trigger a mandatory buy-out of minority new management team to transform of the business remains running the investors, of which Prosperity was one the business into a “proper” retail thousands of physical stores spread of the biggest. business,” says Dunning. across the country.

In that same year Magnit’s rival X5 Dunning has had to face multiple “It’s an asset you can’t ignore,” he Retail Group, which belongs to oligarch challengers since he took the helm. The says. “The future is digital, but we Mikhail Fridman and has a number of company had already been knocked by have reached a critical mass offline supermarket brands in its portfolio, its internal disputes over direction and and the network is so big it has its overtook Magnit to become the biggest was rocked again by various crises even own challenges. The stores are very retailer by revenue and X5’s stock price before the 2020 coronacrisis hit. important and how they are run, how soared, while that of Magnit’s remained shoppers make on the spot decisions, flat, despite the green shoots of an Magnit has always done well by offering is key part of the business.” economic recovery appearing. Magnit’s value for money. While it is not a management regrouped and is now discounter per se, it has always focused Dunning admits that Magnit has been fighting back. This year it is the turn of on keeping prices down and has built a bit slow in setting up its IT and getting Magnit’s shares to soar, while those of up a loyal following as a result. into e-groceries, but its site was updated X5 remain more or less flat. recently and it is now getting its act The organised retail business has together. Like everyone it has seen New broom had to cope with Russia’s economic explosive online sales growth during the Dunning is a dyed-in-the-wool retail stagnation that began in 2013, when coronacrisis and over the last six months professional. He spent 10 years working growth stalled and real incomes began Dunning has introduced a slew of new for the German discount supermarket to stagnate. While firms like X5 have services and innovations. chain Aldi, was operations director of built up their businesses in the biggest Metro Cash & Carry Russia and then cities – like Moscow and St Petersburg – Online sales tripled from their January- general manager of Metro Cash & Carry the lower incomes hit the poor regions February levels during the lockdown Ukraine before taking over as CEO of disproportionately, hurting Magnit’s that started in May 2020 and the base Russia’s second tier chain Lenta and business more than its rivals. Against went from a 100 orders a day to 3,000. eventually was hired to be president, that as bne IntelliNews has reported, a non-executive position, which was the squeeze also killed off the small While at Lenta Dunning revamped the introduced in 2019. players and concentrated turnover in IT sector and claims that he had some the biggest player, so ironically retail of the best information on customers As president he spent time touring some turnover in many of these companies of any of the big retailers thanks to one of the company’s 22,000 stores that has actually increased during the of the most advanced systems. (Magnit stretch down into the towns and villages stagnation. attempted to buy Lenta in 2019, offering across Russia’s 11 time zones. $1.8bn for the chain, but was pipped at

“Since February 2019 I brought in my new management team to transform the business into a “proper” retail business”

Jan Dunning Chairman of the Management Board, President and CEO at Magnit PJSC. www.bne.eu 56 I Eastern Europe bne February 2021

Photos: www.magnit.com the post by Severgroup of steel tycoon Delivery options Like everyone else, Magnit is also invest- Alexei Mordashov, who also has retail One of the biggest changes in Russian ing in its own delivery and logistic system. ambitions.) retail in recent years is the possibility In November the company launched the of having your groceries delivered to Magnit Dostavka (Delivery) app, which “The e-commerce has started but your home rather than trekking down will support the e-commerce effort. Ini- in the short term we are looking for to the store with an avoska, the string tially available in Moscow inside the major customer insights. It’s what we need: shopping bag everyone used to carry in MKAD ring road it carries 5,000 products to better understand our consumers,” Soviet times in case there was something that can be delivered in under 60 minutes. says Dunning. “Magnit has no choice. to buy in the shops. The pilot has been set up in partnership We have to be digital and we need an with Yandex.Eda, the food delivery service e-commerce platform and by next year The company started with food of Russia’s internet giant. In the same we will be an active e-commerce player.” deliveries in August and in September month deliveries from hypermarkets in followed up with the launch of the company’s home region of Krasno- Amongst the first changes Dunning e-pharmacy and an e-grocery delivery dar were added and more will follow. made was to introduce a customer service in partnership with e-commerce loyalty card in September 2019 to begin firms Delivery Club and Yandex.Eda the Cosmetics is a first step to expanding collecting information on customers' owned by Russia’s internet deliveries from the company’s drogerie shopping habits. powerhouse Yandex. The tie-up with format. The e-pharmacy draws on over

Dunning says that Magnit has always concentrated on procurement to present the best customer value “The e-commerce has started but in the short proposition. Now he wants to turn the relationship around and listen and term we are looking for customer insights: learn from the customers for more to better understand our consumers” insights on appealing prices, product ranges and private labels.

“It’s customer-centric thinking. We e-commerce is natural, as all the serious 100 pharmacies in Moscow and offers are not there yet but we are making players have already invested heavily a 30-minute pick-up period at the nearest progress,” says Dunning. “We have to in distribution and logistics to support store to the customer. A courier service for re-orientate from procurement and their own businesses. over-the-counter items is also in the works. fancy stores. We need to know what the customer wants, how to present it, The tie-up with Delivery Club is also The company is also in the process of and how they want to pick it up. That being used for express delivery of setting up “dark stores” that have no last part is new: there are more aspects cosmetics from the company’s cosmetics walk-in customers, as they are there to to retail now as it is changing very fast. subsidiary. A pilot was launched fulfil online orders quickly. But Dunning What used to take 20 years to change in Yekaterinburg and Krasnodar in says that currently the main appeal of now changes in five years.” December and will be expanded to major the online platforms is the insight they cities where Magnit operates in 2021. give into customers’ behaviour. www.bne.eu bne February 2021 Eastern Europe I 57

Magnit super App Stagnant incomes have made punters producers who are now cheaper than The most recent addition to the family was a lot more price conscious and Russia’s China, the traditional supplier to the the launch Magnit Pay on December 15, new discount chains are flourishing, as Russian market. a payment system within the Magnit app bne IntelliNews featured in its profile of developed in partnership with VTB that Fix Price. Indeed, they have been doing Magnit currently has 11 factories will be a key digital platform in the future. so well the discounters are starting to producing goods for its own in-store cut into the sales of the major chains and products, including things like pelmeni, Registered users can obtain a virtual now the big boys are fighting back. pasta, chocolate, sweets and buns as card that can be used to pay for well as a variety of common fruit and purchases both in-store and online. The Magnit opened its first three Moya vegetables such as mushrooms and card can be topped up via bank transfer Tsena (My Price) discount stores in carrots, potatoes and onions. and can also be used to send money to July 20 in the Samara, and any Russian card. the Volgograd regions. Moya Tsena is “Russia’s doesn't grow bananas and a hard discount store, earlier than its coconuts but it is much more able Magnit Pay's functionality will be expanded rivals; X5 announced it was launching to provide for its own needs,” says in the first half of 2021, with users able its Chizhik discounter at a strategy day Dunning. “We still need international to pay for third-party services (utilities, in October, partly to counter the rise sources, but we can find things like telecommunications and fines) and transfer of firms like Fix Price that has been plastics, textiles, seasonal goods on the funds to other Magnit Pay users. Magnit enjoying double-digit growth for Russian market. There are lots of quality customers will be able to withdraw cash several years now. suppliers. And the devaluation of the from VTB ATMs using only a QR code. ruble and the sanctions have pushed “It has been very successful. The store industry to develop fast.” “We consider the development of has 1,500 stock keeping units (SKUs) a payment system as a promising niche and one item per need,” says Dunning, Magnit stock rallies considering Magnit's unmatched customer who adds that more stores will be rolled Investors seem to approve of all the base. Similar systems have made a material out in the New Year. changes being made at the store, as the contribution to EM and DM retailers. [Rus- company’s stock price performance has sian regional shoe retailer] Obuv Rossii has Keeping the costs under control is come back to life. already had success with a similar scheme doubly important to discounts and like in the Russian retail space. That said, the the other firms, Magnit is investing into After Galitsky sold his shares to VTB in take-up for the service could take some production to produce its own private 2019 the stock became a dud. As the time, so we see no impact over the medium label goods for consumer commodities. Russian stock market began to recover term,” Sova Capital said in a research note. again that year, Magnit shares remained With the ruble’s devaluation in 2014 flat, ending the year slightly down 6.8%, Discounter and Private label and the growing demand from domestic while rival X5 Retail Group gained Another new feature of Russia’s retail has retailers Russia’s light manufacturing 37.6% over the same period and became been the rise of the hard discounters – and food processing sectors have the new hot name in retail. another bricks and mortar business that enjoyed a renaissance, as local firms is geared towards the impulse buy rather strive to meet the demands of the This year the story has reversed again. than the convenience of online sales. domestic consumer using domestic Both companies saw their shares www.bne.eu 58 I Eastern Europe bne February 2021

crash in March, falling by over 40% Fencing club memberships surge following in the worst of the panic selling, but since then Magnit’s shares have easily success of Russia’s answer to the Queen’s outperformed those of X5; they have Gambit hit mini-series returned 41.4% and 13.8% respectively since the start of year as of December 16. Magnit’s stock is back in fashion Ben Aris in Berlin and analysts have been writing glowing research notes on the company. Following the phenomenal success of “The Queen’s Gambit,” Netflix’s fictional drama about a female chess prodigy, Russia has released its own version of the This new enthusiasm is partly a result genre – except “On the edge” is about female fencing stars, not chess players. of the strong results that Magnit has put in. The pick-up in sales and lower costs The Queen’s Gambit has been one of the most popular shows on the online movie in the last two quarters is due to the service in recent months and racked up 62mn views in its first 28 days after new executive team finding its stride, release on October 23, the company said as cited by the Wall Street Journal. according to VTB Capital (VTBC), which expects more good things to come. It has also led to one of the biggest surges in chessboard sales and online chess club memberships since chess’s heyday during the and the legendary This year, VTBC says it expects the store clash between the Soviet Union’s Boris Spassky and the US’ Bobby Fischer in rollout to resume, with 7% year-on-year a game held in Reykjavik Iceland – the most watched chess game of all time. higher selling space and a 6% top-line compound average growth rate (CAGR) “We’re setting a new record for most new members in a single day almost every for the next five years. day of November,” Nick Barton, director of business development at Chess.com, a site for chess education and online play, told the Wall Street Journal. The Ebitda margin of 7% is at a comfortable level and the gross margin The Russian movie about a young woman that takes up fencing has pulled cushion is sufficient to offset cost off the same trick. expansion, the bank said in a note.

Alexandra Pokrovskaya is the best sabre fencer in the world and is famous, "The story now switches to careful rich and happy. To go down in history, she just needs to take the last step: capex allocation and working capital to win an Olympic gold. But her path is blocked by nineteen-year-old Kira optimisation, which in our model Egorova, a girl from the provinces who arrived in Moscow and overnight rose returns a blended free cash flow (FCF) to become the best fencer in the country. yield of 6% in 2021-2025," VTBC wrote.

Fêted on the piste and off, Kira’s goal is to take the place of Pokrovskaya and Dunning says that he is keen to restore a desperate battle begins – not only in tournaments, but also in life – as the investors’ confidence in the company’s movie builds to the showdown on the piste between the two women. stock and after income and EBITDA improved in the third quarter of 2020 he Like The Queen’s Gambit, On the edge has sparked popular interest in fencing was happy to return cash to investors with a in Russia, and fencing instructors have piggy-backed on the film's popularity. surprisingly generous dividend payment. Magnit offers a sector-leading dividend yield of 10%, with the higher-than- expected dividends for 9M20 and a total payment of RUB25bn ($330mn), making a 67% y/y increase at RUB245.3 per share.

“The EBITDA has been good and the like-for-like (LFL) sales robust. We spent less on capex than we anticipated and so as there was free cash flow we decided we could return some money to the shareholders. It’s one of Magnit’s traditions that we will keep,” says Dunning. “But what we will really reward shareholders with is the results. We want to grow the value of the business.” www.bne.eu bne February 2021 Eastern Europe I 59

where Putin also announced Russia would extend a $1.5bn loan to Belarus.

Russian Foreign Minister Sergei Lavrov followed up with another meeting with Lukashenko in Minsk on November 26, when he publicly berated him, reminding him to “keep your promise” on pushing through the constitutional changes.

The Belarusian opposition has also called for a change to the constitution, but opposition leader Svetlana Tikhanovskaya, the nominal winner for the presidential elections in August, has called for a return to the 1994 constitution that includes term limits of the president. The opposition has also Leaked documents show the Kremlin has plans to set up a pro-Russia Belarusian party and transition the insisted that any reconciliation process country to a parliamentary democracy as a solution to the current political crisis must begin with Lukashenko stepping down as president and the appointment THE INSIDER of a transition government to organise Kremlin creating pro-Russia new presidential elections. The two versions of the constitutional changes are likely to be very different. party in Belarus The Insider published documents from Russia’s President’s Office for Interregional and Cultural Relations Ben Aris in Berlin with Foreign Countries. It is headed by foreign intelligence expert General he Kremlin is preparing to launch That has changed since the protests Vladimir Chernov. and support a pro-Russia political began as the Kremlin sees the changes Tparty in Belarus called “The Right as a way of defusing the stand-off The first of the papers described the of the People” that will take advantage and a convenient way to easing “Operational Strategy in the Republic of mooted changes to the constitution Lukashenko out of office, or at least of Belarus”. It was prepared in that will lead to fresh parliamentary reducing his power, while at the same September 2020, reports The Insider. elections.

Russian news site The Insider reported on December 22 it has obtained documents “Russia is going to intervene comprehensively claiming that Russia is going to intervene in the internal politics of Belarus and is fully comprehensively in the internal politics of Belarus. The documents also show that involved in drawing up the changes to the the Kremlin is fully involved in drawing up the changes to the constitution. constitution”

Belarus' self-appointed President Alexander Lukashenko has said many time placating the population by “Its authors write about the need to times in the past that the constitution giving them more representation in penetrate the governing bodies of all needs reform, but until the protests the political process. opposition structures in Belarus and began following the disputed August 9 about the formation of a base for presidential election this suggestion was While few details have been released, a future party or political movement. seen largely as a sop to the population clearly a deal of some sort was cut In addition, the paper talks about and was not expected to bring any between Russian President Vladimir creating its own channels for the meaningful change to the way in which Putin and Lukashenko during their dissemination of information, such the country was run. meeting in Sochi on September 14, as Telegram channels and YouTube www.bne.eu 60 I Eastern Europe bne February 2021

channels,” the Russian-language mentioned Babariko’s name in his talks news site reported. with Lukashenko, who would also be COUNTRY acceptable to the population. However, The text of the speech also talks about analysts believe the Kremlin is unlikely REPORTS the need for constitutional reform that to support Babariko as candidate for will transfer power to the parliament, Prime Minister and will prefer someone which will be as loyal to Russia as it can more fully rely on. possible. It becomes clear from the programme Another document seen by journalists that the Kremlin is planning the is the founding programme of the transition of Belarus to a parliamentary- puppet party “The Right of the People”. presidential republic. As part of Check out IntelliNews Its creation has not yet been officially this compromise it is also likely that Pro’s Country Reports covering announced. Judging by the programme, Lukashenko will be left in office but the 30 countries in Central & the Kremlin expects to divert stripped of most of his executive powers Eastern Europe/Commonwealth discontent towards “constitutional as a face-saving compromise, before he of Independent States. reforms”, hoping that this will distract retires sometime later. from the fight against the A monthly round up of the stolen elections. In addition, there are plans for large- most important economic, scale privatisation of the public sector, finance, business and political “We do not support violent revolutions “dismantling of censorship” and “respect events, the reports are aimed and revolutionary transformations,” for the freedom and dignity of the at busy professional investors the programme proclaims. “We are individual,” the document says. and companies that need to supporters of decisive reforms that will keep on top of the story. form solid conditions and mechanisms Russian businessmen would be happy for prompting the dignity of citizens and to move into yet another “near-abroad” To subscribe to the reports delivered by email get in touch with our sales staff for a trial. “We do not support violent revolutions and T. +44 203 633 2008 revolutionary transformations” E. [email protected]

Or go to bne.eu/welcome to see samples of this and other products. the dignity of the Republic of Belarus,” country, which has a well-developed the programme says in its manifesto, heavy industrial sector, sends significant as cited by The Insider. exports to Western Europe, in addition to its exports to Russia, two very The idea of transferring power from attractive oil refineries and a world-class the president to the parliament IT sector amongst other assets. At the has been floated before and jailed same time, the Kremlin is very keen to ex-banker and leading opposition keep Belarus as a buffer state to NATO, candidate Viktor Babariko has been which has member countries on Belarus’ suggested as a possible compromise western border. The Kremlin has long candidate. Babariko worked for sought to have Russian forward military Belgazprombank for 20 years and is bases on Belarus’ western border. pro-Russian, although his platform highlights Belarusian sovereignty as The authors of The Insider emphasised his primary goal. the fact that the document shows many edits from Nikita Logovoy. Logovoy is a Babariko garnered an unprecedented graduate of the Faculty of International 400,000 signatures-plus in support Relations of the Belarusian State of his candidacy for president in the University, and in social networks he August elections and had been very actively supports opposition events and likely to win against Lukashenko until is photographed with the WRW flag. he was jailed on trumped up financial crimes charges. Putin also reportedly www.bne.eu bne February 2021 Eastern Europe I 61

personal liberty and safety? Put more simply: are average people willing to take a beating by the police for what they believe in?

There is a calculus to violence that the Kremlin understands very well. Some violence will intimidate the population, as most people are not prepared to literally risk their necks for a change in the political system. But if the authorities go too far then that changes, and once inflamed by moral outrage the revolutionary movement becomes unstoppable, as Ukraine has demonstrated twice.

In March 2015 I met up with Nikolai Alekseev, one of the leaders of the Around 100,000 people met opposition activist Alexei Navalny's call for mass protests, but is it enough Russian gay rights movement who came to start a revolution? directly from a court hearing where he had just been fined RUB15,000 ($50) MOSCOW BLOG: for organising an unsanctioned rally. We went to join the opposition leader Boris Has Navalny started Nemtsov, who was on the street handing out his newly released economic manifesto that laid out an alternative a revolution? to Putin’s regime. Nemtsov was killed shortly afterwards. Ben Aris in Berlin Alekseev had been fighting a running he sun comes up again over a work, but until now did not take him battle with then-mayor Yuri Luzhkov, Russia that has been changed seriously as a politician. trying to get permission for a gay pride Tby the nationwide protests on march in Moscow that the homophobic January 23 as up to an estimated Despite the dramatic footage of street mayor had been blocking for years. 100,000 people answered anti- fighting and the shocking brutality of corruption blogger and opposition the OMON – an officer kicked an old “The city has always refused permission activist Alexei Navalny’s call to woman in the stomach in St Petersburg, on the basis that the venue we wanted to demonstrate in the biggest protests who is now in hospital suffering from use was already booked,” Alekseev told Russia has seen since 2011. concussion as well – these protests me in a café near the Chistye Prudy metro

But has anything changed? Did Navalny start a revolution? Will the same amount of people hit the streets next week, “One thing that can be said immediately is that as the organisers are calling for? Has a Belarusian style protest started that will Navalny has been promoted. Putin’s claim that continue for months and lead to the ouster he is a “nobody” is clearly no longer true” of Russian President Vladimir Putin?

One thing that can be said immediately is that Navalny has been promoted. are probably not enough to radicalise station in the heart of Moscow. “So this Putin’s claim last month that he is the Russian population and start a year at the first session of the court we a “nobody” is clearly no longer true, revolution similar to those in Ukraine, put in an application for every day of the if it ever was. Kyrgyzstan, Armenia and Georgia. year as soon as the court opened. They still refused to give permission.” Navalny is now a national celebrity in The key question to ask is: are the the way he was not before. Ordinary Russian people now prepared to put Eventually Alekseev did manage to Russians respect his anti-corruption their demands and anger before their organise a small rally by publicly www.bne.eu 62 I Eastern Europe bne February 2021 announcing one location, but secretly is what they have largely done in the deftly taken the initiative and the organising the rally in another that was past…. I am not convinced Kremlin Kremlin has been forced into a series shared by SMS amongst participants. The has deftness of touch and control of heavy-handed errors. It has lost gay pride activists marched as the police to calibrate that kind of violence control of the narrative. raced across the city to the real location accurately without risking a kind of to break up the “meeting,” as rallies are Bloody Sunday, + I suspect PrezAdmin Many commentators believe the threat called in Russian. Alekseev was arrested feels the same.” of jail – Navalny is facing 3.5 years from and the fine he paid was the result. a previous conviction on fraud charges This is a delicate moment in Russia’s that was suspended and another 10 “Lots of people support us, but the modern history. There is a very strong years from new charges – was designed problem is the general public have been argument that the Kremlin should have to keep Navalny in Germany. But he intimidated by the state. Putin was on done nothing and let the protests go as called the Kremlin’s bluff, and TV last month and said anyone that goes ahead unchallenged in the hope that having threatened to arrest Navalny to unauthorised rallies faces a “beating they quickly burn out. the Kremlin had to follow through on by police truncheons.” That is totally his return. illegal. He can’t threaten the people In the last few years Russian civil with violence under the constitution,” society has become more active and Then Navalny provoked the Kremlin Alekseev explained. “But until the the number of protests have grown, again on the day after his arrest with his people are willing to take a beating although they usually focus on local latest investigation into Putin’s alleged for their beliefs they won’t participate issues like the demolition of a park wealth: a two-hour documentary that in mass rallies.” or the mismanagement of a smelly has already garnered 50mn views.

Violence Have Russians reached the point where they will bleed for their beliefs? That is “Have Russians reached the point where the big question. they will bleed for their beliefs? That is The videos shared on social media the big question” from the weekend show a new level of violence. Ordinary Russians have engaged in punch-ups with the OMON landfill. The propensity to protests And in the same week Navalny called clad in full body armour. That is new. with political demands is not particularly for mass unauthorised demonstrations high at the moment and has fallen on January 23, which the Kremlin However, while these videos have this year, while Putin has regained his condemned as illegal and was then shocked the rest of the world and are popularity approval of 65% from forced to send in the police to “uphold seen by many commentators as likely before the 2020 crises. the law,” which was guaranteed to end to outrage the Russians to the point in the scenes we have witnessed. they will rise up against the authorities, Navalny’s previous political protests the Kremlin is not unhappy about them, have attracted a few thousand people Numbers as they also act as a deterrent that will and are far less popular. However, The key part in this plan was the number prevent more Russians joining the after the arrest of the popular governor of people that answered Navalny’s call. protests next week. The trick is to get of Khabarovsk in the far east, Sergei If his plan to hold weekly protests in the level of violence right: some, but Furgal, the political protests that the style of Belarus is to work, then not too much. followed went on for months, suggesting a significant number of people needed Russians are becoming more interested to come out. “For the Kremlin, it depends how it in politics, although that too was has decided to play the day, which in essentially a local issue. “For Team Navalny, it is about the turn will tell us much about how far we numbers coming out, the spread of places are witnessing an ‘authoritarian turn’ So if the Kremlin is going to react it they come out, and at least as important, overall following the poisoning, which has to get the level of violence right: what kind of people come out. Can they def went beyond past practice,” bne too brutal and the Kremlin will put use it to demonstrate a broadening of IntelliNews contributor Mark Galeotti a match to the touchpaper and could their support base?” Galeotti tweeted. said in a long thread on the Navalny set off a social explosion; too soft “They don’t need to reach Bolotnaya protests. “[The Kremlin] can focus and the protests will not stop. Team numbers to claim success, certainly on managing the day: still enough Navalny must have been hoping for not for a 1st day of protests: tens of arrests to signal the risks in a brutal response, as these were by far thousands in Moscow is enough, esp if – participation, but essentially hope[s] the largest protests his group has ever as seems the case – they can also point to ride out the protest moment. This managed to organise. Navalny has to protests all across the country.” www.bne.eu bne February 2021 Eastern Europe I 63

The size of demonstrations on January housewife”, and her motivation and her which suggests his real popularity may 23 – 40,000 in Moscow alone according agenda were crystal clear: she stood be a bit higher: people rank him low in to Reuters and some 100,000 across in the disputed August presidential the popularity polls not because they the country according to reports – can elections because her husband was jailed don't like him, but simply because they already be called a huge success for and she demands only three things: believe he has no chance Team Navalny. Lukashenko should step down; the of ever being allowed to stand. political prisoners should be released; But Navalny still has a limited appeal and fresh elections should be held. She Another Levada poll taken in September, for the general public. Alekseev claimed has said explicitly she has no aspiration shortly after he was poisoned while that his cause has widespread support, to take power for herself, or even her campaigning in Siberia, asked but not enough people are willing to husband. She just wants her life back. respondents whether they approved of demonstrate to force the authorities to Navalny’s activities, a question only rarely make a change. The last poll from the On the other hand, most Russians posed in Levada’s polling. While 50% Levada Center puts Navalny's political assume that Navalny wants to become replied negatively, 20% said they did, support at around 2%, although his president if Putin leaves. One of the by far Navalny’s strongest ever result in name recognition has clearly gone up legacies of the Soviet system is most a public poll, reports the Moscow Times. now and the 50mn views of his “Putin’s Russians don't understand how anyone Palace” video show he has caught the can just stand up and say “I want to be As a result, Navalny’s protests are public’s attention. president;” political leaders have to be unlikely to go as far as those in Belarus. in some way “qualified” for power, to He has scored a huge victory with the In Belarus the weekend demonstrations have come from some sort of organ of size of the protests on January 23, and regularly drew 100,000 people in state. Russia’s Foreign Minister Sergei the protests are likely to continue at a country of only 10mn, but Navalny's Lavrov, Defence Minister Sergei Shoygu, a lower level, but not on the same scale protest drew the same number in far-right leader Vladimir Zhirinovsky as those across the border. a country of 148mn. Protests in the Far and Prime Minister Mikhail Mishustin East of Russia at the weekend are new, all fare much better in trust polls than The Kremlin’s plan will be to contain but protests in the European part of Navalny. these protests and try to avoid Russia, where 80% of the population radicalising the population in the hope live, were more muted. Still, even the Despite a recent downturn in his they will eventually fade away. But smaller regional protests are significant, popularity, Putin consistently outpolls Navalny has succeeded in changing as protests are usually limited to Navalny by a wide margin, being the game and the Kremlin will have Moscow and St Petersburg. trusted by 32% of respondents, and the to prepare for sustained social unrest preferred choice for president of 55%, well into the summer, as Navalny In contrast to Navalny, the opposition according to the latest polls. However, probably has more tricks up his sleeve – leader Svetlana Tikhanovskaya has a Navalny did win 27% of the vote when putting his wife Yulia Navalnaya up much cleaner profile and won the trust he ran for mayor of Moscow in 2013 and as a candidate for the Duma elections in of her people easily. She was “just a nearly forced a second round of voting, September being the most obvious one.

Perm city, Russia – January 23, 2021: Unauthorized rally in support of opposition leader Alexei Navalny. Photo: www.shutterstock.com www.bne.eu 64 I Eurasia bne February 2021

Sadyr Japarov: "There will be no dictatorship as some scaremongers say. There will be a dictatorship of law and justice." Fears of authoritarianism as Kyrgyz populist wins landslide and backing for ‘Khanstitution’

Nizom Khodjayev in Almaty

opulist politician Sadyr Japarov, condemned by opposition groups as Candidates in the vote "could mostly sprung from prison during the rigged – saw Japarov secure 79.2% of campaign freely" but the campaign was Ppolitical unrest that broke out in the vote, according to preliminary results "dominated by one candidate [Japarov] Kyrgyzstan last October, won a landslide put out by Kyrgyzstan’s Central Election who benefited from disproportionate victory on a low turnout in the snap Commission (CEC). CEC data showed financial means and misuse of presidential vote held on January 10. that voter turnout stood at a mere administrative resources, resulting in 39.88% and, as such, Japarov’s victory an uneven playing field," the observers The 52-year-old Japarov’s release may reflect a general disillusionment from the Organization for Security from prison immediately led to him assuming the position of prime minister in October. He then quickly moved on to taking the role of interim president “One or two years will not be enough to fix before he positioned himself to run for the permanent presidency. Japarov’s everything, we can do it in three or four years lengthy prison sentence was the result of and it will require stability” the kidnapping of a provincial governor during protests over the Canadian- owned Kumtor gold mine. with the political process in Kyrgyzstan. and Cooperation in Europe's (OSCE’s) The presidential election – triggered as It has been ridden by scandals, surprise Office for Democratic Institutions and a result of the previous government’s twists and back-stabbings, with the Human Rights (ODIHR) and the OSCE collapse amid protests that broke out Northern and Southern Kyrgyz elites Parliamentary Assembly (OSCE PA) said after a parliamentary election was squabbling over control. in a preliminary report on January 11. www.bne.eu bne February 2021 Eurasia I 65

Threat to foreign investment expense of parliament. The reform is set support for him across Kyrgyzstan given The main downside of a new to enter force by June. the low turnout. Extreme cold was administration led by a populist may blamed by officials for keeping many come in the form of a threat to foreign Fears of authoritarianism voters away from the polling stations. investment. Kyrgyz citizens have long The changes to the constitution may put perceived foreign-owned entities as an end to Kyrgyzstan’s ambitions to remain “I am assuming power at a time of benefiting from Kyrgyzstan’s natural a parliamentary democracy, which was hardship and crisis,” Japarov said resources such as gold at the expense originally formed to prevent the potential following the announcement of his victory. of the population and the environment. rise of a new after Askar Akayev “One or two years will not be enough to fix Nationalistic attacks on foreign and Kurmanbek Bakiyev’s regimes were everything, we can do it in three or four businesses were observed both during toppled in 2005 and 2010, respectively. years and it will require stability.” the upheaval in October during the fall Critics fear the constitutional changes of the Sooranbai Jeenbekov presidency could empower the presidency to operate "There will be no dictatorship as some and in other instances in recent years. in an authoritarian manner. scaremongers say. There will be a dictatorship of law and justice," Japarov The fervent nationalist Japarov’s rise In late November, hundreds took to added, borrowing a phrase from Russian to power was met with concern by the the streets in Bishkek to protest against leader Vladimir Putin, whose country US embassy in Bishkek last October. the proposal to alter the constitution – is a key ally for Kyrgyzstan, where it has The mission referred to the political sometimes referred to by opponents as a military base. developments as amounting to a threat the “Khanstitution”. posed to democracy in Kyrgyzstan from Despite all the talk of stability, Japarov’s organised crime. Japarov, sometimes known as the presidency may not fare well in a “Kyrgyz Donald Trump”, faced off country all too used to solving political Over 80% of voters also supported a against 16 presidential poll rivals, but conflict violently – especially if Japarov constitutional reform proposal to grant his victory, along with the constitutional attempts to succeed where Akayev and sweeping powers to the president at the changes, may disguise a weak level of Bakiyev have already failed.

Fallout from execution of dissident journalist scuppers Iran-Europe business forum

bne IntelIiNews

ran has executed Ruhollah Zam, the very platform on Telegram which saying he had been falsely accused a journalist who ran the anti- Zam used to subvert the regime, incite of working with foreign intelligence Igovernment website Amad News, disobedience and criticise opponents services. which the Islamic Republic said he used whom he viewed as being too soft.” to incite the country’s 2017-18 protests. Zam was convicted of “corruption on Zam became a household name in Iran, Earth”, to which he pleaded not guilty. Zam (pictured), 47, was hanged on using his network – which had more December 12 after the supreme court than a million followers on Telegram, upheld a death sentence against him, an encrypted messaging app – to Iranian state television reported. The share videos of protests and damaging son of a previously high-ranking pro- information about Iranian officials. It reform Shia cleric, Zam, who was living was removed by Telegram for breaching in exile in Paris after being granted the company's rules on posting political asylum, was according to BBC dangerous content, but later reopened Persian, detained after being lured under a different name. to Iraq last year to meet the grand Ayatollah Sistani in the hope of securing The IRGC claimed that Zam was his support. BBC Persian wrote: “Upon "under the guidance" and protection of his arrest, the intelligence wing of Iran's intelligence services in France, Israel Revolutionary Guards (IRGC) posted and the US. Zam fled Iran in the wake news of its success on Amad News – of anti-government protests in 2009, Ruhollah Zam. Photo: MojNews www.bne.eu 66 I Eurasia bne February 2021

France condemned the court ruling those from Germany, Austria and Italy “The authorities rushed to execute as a “serious attack on freedom were also cancelling their involvement Ruhollah Zam in what we believe of expression and freedom of the in the December 14 event, the French was a reprehensible bid to avoid an press in Iran” and said the execution foreign ministry said on Twitter, using international campaign to save his was a “barbaric and unacceptable the hashtag #nobusinessasusual. life,” said Diana Eltahawy, Middle act”. It called on Iran to respect its East deputy director for the human rights obligations. The organisers of the forum later said International rights group. “His they were postponing it. execution is a deadly blow to freedom Row knocks out business forum of expression in Iran and shows the On December 13, France announced Iran’s Foreign Ministry summoned extent of the Iranian authorities’ brutal that its ambassador to Tehran would the envoys from France and Germany, tactics to instil fear and deter dissent.” not participate in an online Europe-Iran the current holder of the European business forum in the Iranian capital Union’s rotating presidency, to protest The execution was also condemned by this week as the row between Iran and over French and EU criticism of the the press freedom groups Reporters European nations over the execution execution on December 12, Iranian without Borders and the Committee of Zam grew. Other envoys, including media reported. to Protect Journalists.

support the expansion of its activities. In 2012, together with other shareholder international financial institutions, the EBRD participated in a rights issue by TBC Bank. Subsequently, the lender was successfully listed on the London Stock Exchange in 2014.

Francis Malige, EBRD managing director, financial institutions said: “TBC is a success story and the EBRD has been, and intends to continue to be, a close partner and shareholder for more than a decade. The TBC Bank offices in Marjanishvili Street, Tbilisi. bank’s strong progress allows us to reduce our shareholding and harvest some of the fruit of our patient investment strategy. EBRD backs “success story” Naturally, we continue to be actively involved in the bank’s future development.”

TBC as it cuts stake in Georgia’s Unlike Bank of Georgia, the other major Georgian bank, which is the successor of largest bank to 5% one of the oldest banks in the country, TBC Bank was founded from scratch "with $500 in capital" in 1992, as Mamuka Khazaradze, Iulian Ernst in Bucharest co-founder and chairman, likes to recount.

he European Bank for The EBRD said it was confident in TBC’s Prior to its move to place premium shares Reconstruction and Development strong performance and bright prospects on the LSE, TBC was still Georgia’s second T(EBRD) has reduced its equity and remained fully supportive of its biggest bank by assets and the third stake in TBC Bank, Georgia’s largest bank, strategic development and plans for Georgian company to obtain a premium from 8% to 5%. The development bank domestic and cross-border expansion. listing at LSE, after Bank of Georgia. sold 1.65mn TBC shares in an accelerated bookbuild placed on the London Stock The sale was the second such step The bank then went on to surpass Bank Exchange (LSE) on December 4. taken by the EBRD since it reached a of Georgia by taking over, for €130mn in participation height of 12.5% in TBC. a combined cash and share deal, 100% of The EBRD did not mention a price but Georgia’ fourth-biggest bank, Republic, traders said the shares were placed at The EBRD first acquired shares in TBC in from Societe Generale and the EBRD. 1,120p each, resulting in a total price of 2009 as part of a larger funding package TBC is presently building a market GBP18.5mn (€20.4mn) for the whole stake. to strengthen the bank’s capital base and presence in Uzbekistan. www.bne.eu bne February 2021 Eurasia I 67

Georgia’s political kingpin Bidzina Ivanishvili quits politics

Iulian Ernst in Bucharest

Bidzina Ivanishvili, billionaire founder and chairman of Self-exiled Saakashvili has himself de facto left Georgia’s Georgia’s ruling party Georgian Dream and the dominant politics after something of a failed comeback. His role in politician in the country for the past decade, on January 11 last autumn’s general election proved divisive among some announced he is retiring from politics. of the opposition. Saakashvili’s credibility and support among voters has faded although the UNM remains the "I deem my mission to have been accomplished. I have leading opposition party in Georgia. decided to completely withdraw from politics and let go of the reins of power. I am leaving my position as party In his statement explaining his decision to leave politics, chairman, as well as the party itself," Ivanishvili, who will Ivanishvili also said that "the ruling [Georgian Dream] team turn 65 years-old in a few weeks’ time, said. is really the best and there is no alternative that matches it among all the political actors of today". Ivanishvili is stepping out of the political limelight at a curious time in Georgian politics. Georgian Dream won He added: “I am convinced that a team of these people can two-thirds of parliament’s seats in last autumn’s general replace my work, authority and skills with dignity.” election, but the opposition parties have refused to take their seats in the , remaining united in accusing “Inspiration of youth” Ivanishvili’s party of having rigged the vote. Ivanishvili further wrote: "In just a few weeks, I will turn 65, and this is one of the most important factors in my decision to end "It is heartbreaking that a constructive opposition has not my political career. With the inspiration of youth, this step of been created," Ivanishvili wrote in his farewell letter. mine will not weaken, but I believe will further strengthen and make the ruling party more viable and motivated, encourage After making his fortune in Russia in the 1990s in metals our supporters and make the government more energetic. and banking, Ivanishvili, Georgia’s richest person, set up Georgian Dream in 2011. A year later, it won the general "I leave politics proud, victorious and grateful to the election and a year after that dislodged the president, people. People were able to see the efforts I made only in the Mikhael Saakashvili, who, with his United National interests of the country and the state. I am sure that the Movement (UNM), had ruled since the November 2003 Georgian people will also appreciate my present move, which Rose Revolution. is dictated by the same interests for which I came into politics".

Humble origins Ivanishvili, a man of humble origins who served as prime minister for nearly a year from October 2012 and has always denied allegations that he is close to the Kremlin, is seen as a sometimes eccentric businessman – he is known for his private zoo with penguins, lemurs and a zebra at his grand, futuristic residence overlooking Tbilisi – and is rarely far from controversy on Georgia’s Bidzina Ivanishvili. (Left) Ivanishvili's residence in heated political scene. Tbilisi, designed by Shin Takamatsu. (Below) Prior to the winter 2018 Georgian presidential election, Image source: Vadim Klochko Ivanishvili’s charitable foundation paid off debts owed to banks by around 600,000, or a sixth, of Georgians. The candidate backed by Ivanishvili, Salome Zurabishvili, went on to become Georgia’s first woman president after she defeated the UNM’s leader Grigol Vashadze – also recently retired from politics – in a run-off. The UNM cried foul, saying Ivanishvili’s actions meant he was guilty of vote buying.

Irakli Kobakhidze, who currently serves as executive secretary of Georgian Dream, is expected to replace Ivanishvili as party chairman.

www.bne.eu 68 Opinion bne February 2021

General Prosecutor Igor Krasnov (left) and Prime Minister Mikhail Mishustin (right)

STOLYPIN: Corruption steals back into the Russian political agenda as Mishustin and Krasnov target the institutional profiteers

Mark Galeotti, director of the consultancy Mayak Intelligence, an honorary professor at UCL School of Slavonic & East European Studies

eneral Prosecutor Igor Krasnov has been busy. On 9 serious attention, something that chimes with a whole series December, he chaired a conclave of the heads of law of recent incidents and initiatives being pushed by Prime Genforcement agencies on the implementation of the Minister Mikhail Mishustin. National Anti-Corruption Plan for 2018-2020. He tempered the usual self-congratulatory rhetoric with an admission that Whereas Mishustin’s predecessor Dmitry Medvedev had an much still needed to be done and presented a shopping list at-best awkward relationship with former General Prosecutor of necessary measures, from greater powers to confiscate Yuri Chaika, the Mishustin-Krasnov partnership may prove he property of corrupt officials, that not least property that more productive. And that could mean serious progress has been moved abroad, and to target profiteering within addressing corruption – albeit up to a point. state structures. The Genprok The day before, he had given a set-piece interview in Krasnov’s appointment at the start of 2020 was an interesting Rossiiskaya Gazeta, the government newspaper emerging move. Chaika had served in the post for fourteen years as the Pravda of late Putinism, the place to find Kremlin in which progress in addressing corruption was often policy encoded between the lines. He again highlighted tempered by the enthusiastic prosecution of political cases. kick-backs in state procurement as an area that needed Furthermore, there was a steady stream of rumours about www.bne.eu bne February 2021 Opinion 69

his and his family’s improprieties (not least in one of Alexei in corruption has been destroyed. Bringing them to criminal Navalny’s investigative blockbusters). In part as a result, many responsibility is far from uncommon,” is ingenuous, but also even within the Procuracy had little time for him – the first ritually necessary. time I heard Pussy Riot’s own contribution to Chaika’s legend, it is worth noting, was because a staffer at the University of the The biggest beasts in the system remain untouchable, and Prosecutor’s Office of the Russian Federation sent me a link. when lesser kleptocrats are bought to justice, it is because they have already fallen from political grace. Even Mishustin’s Krasnov is a rather different figure, with a rather different efforts at reform have not touched this stratum. The reputation. In his career, he has been involved in a number of controversial may have lost his position as high-profile cases, including investigating the ultra-nationalist head of Rusnano, but was given the new position of ‘Special BORN group and corruption at the Vostochny cosmodrome, Representative to the President of the Russian Federation which cost the state billions of rubles. He is known as an for Relations with International Organisations to achieve extremely able investigator who actually investigates, and follows Sustainable Development Goals’ not only presumably to the evidence wherever it leads. This helps explain why he was the set a new record in the lengths of official titles but also to initial lead on the assassination of Boris Nemtsov in 2015, which suggest he remains off-limits. was a genuine shock to the Kremlin, and also why – as soon as the Chechen connection became evident – he was replaced with Then there is the middle level, the institutional corruption another investigator considered more politically amenable. embodied not so much in envelopes of cash, nor in the

His position ought not to be caricatured – Krasnov has built a career within a deeply compromised legal-political system and he is not a rebel looking to bring the system down, but he also appears genuinely committed to doing what he can “It is this world of institutional within that system’s constraints. He has, for example, dutifully profiteering that seems to be in recognised Vladimir Putin’s current pseudo-historical mission to sanctify a certain mythologised take on the Soviet victory in both Krasnov and Mishustin’s sights” the Great Patriotic War and proposed further criminalisation of questioning the genocide of the peoples of the USSR. He does what he must. wholesale theft of companies and industries, but in padded The grafters contracts handed between friends, in sweetheart deals, and Russia is a kleptocracy, but it is not just a kleptocracy, and the in over-price invoices signed off for a consideration. challenge and also the progress is to be found in the nuance. It is useful to think of corruption at three levels. A recent hike in higher-rate income tax is expected to bring in an extra RUB60bn ($820mn). According to Krasnov, the cost There is the predatory street-level bribe-taking or rather of this kind of corruption in the national economy in the first bribe-demanding, which used to be such a feature of Soviet nine months of 2020 was RUB45bn – which, pro-rata over life and continued well into post-Soviet times. While not twelve months, comes to the same RUB60bn. This is a big deal, altogether gone – it resurfaces in times of hardship and also is and it is this world of institutional profiteering that seems to experienced disproportionately by marginal and vulnerable be in both Krasnov and Mishustin’s sights. communities such as migrant workers – it is vastly less of an issue now. The days when GAI traffic police would routinely The gamble pull over drivers for a quick shake-down, or in which access Although coronavirus (COVID-19) clearly has pushed him to state medical care might depend on an under-the-counter a little off track, Mishustin’s core mission is clearly to bring payment, are largely gone. In part this reflects better training the kind of efficiency he brought to the Federal Tax Service (FNS) and salaries for relevant officials, in part greater control, to the rest of the government – and in the process drive forward especially with the shift of many services to online platforms, the National Projects that Putin considers key legacies. and in part a greater public awareness that this is not right. At the Federal Tax Service (FNS), Mishustin combined At the other end of the spectrum is the industrial-scale administrative reorganisation, a healthy dose of ‘techno- kleptocracy of oligarchs, big business and senior officials: authoritarianism’ and also a crackdown not only on many of Putin’s cronies, and their allies and cronies in turn. Individuals the scams and loopholes individuals and businesses used to may sometimes be kicked out of this exclusive club and face evade tax, but also those of corrupt officials within the service. prosecution. In his interview, Krasnov noted ex-minister Mikhail Abyzov and former head of Leonid Markelov, There certainly has been a measure of reorganisation. He has but his claim that “the myth about the inaccessibility of high- a cabinet reshuffled to more closely match his interests and ranking officials at the federal and regional levels involved needs, and perhaps more directly important, there has been www.bne.eu 70 Opinion bne February 2021

a major reform of Russia’s 40 development institutions such capacity to cheat, lie, bribe, con, connive and backslide their as Rusnano and the Russian Venture Company. Some of these ways around any such reforms, given the opportunity. And this have been quite effective, but others have been notorious may be where Krasnov comes in. for their wastefulness and corruption, and even the more successful ones were too often used as slush funds to support Bit by bit, Krasnov has been shaking up the Procuracy, in prestige projects, bail out court favourites and otherwise part to bring in his own allies, but also to purge some of the spend money on anything but their actual development more notoriously corrupt or inefficient officials. Meanwhile, mission. It remains to be seen whether the changes will he has identified the struggle against kick-backs as a priority manage to alter this, as in part that depends on greater self- and wants civil servants convicted on corruption charges – control by the government, but it is a worthwhile first step. including accepting a bribe of less than RUB10,000, currently considered a petty offence and which may leave them with Russia’s established commitment to ‘techno-authoritarianism’ no lasting criminal record – to be barred from re-employment is also unchanged – although it is, in fairness, the flipside with the government. to a very successful campaign to move on to efficient and accessible online platforms such as the Gososlugi public It doesn’t necessarily mean that Mishustin has instructed service portal. Artificial intelligence-based systems are being Krasnov with this role – there is no evidence he needed rolled out to do everything from monitoring progress on the a push. Rather, the prime minister’s drive for administrative National Projects to collating police evidence. efficiency, as well as the political realities which keep the kleptocrats safe from prosecution, means that there is an Institutional change, and even fancy ‘techno-authoritarianism,’ inevitable coincidence of interests in going after the middle- is still hostage to the human factor. Individuals still have the level institutional profiteers.

BALKAN BLOG: The controversial recipe for building up Albania

Clare Nuttall in Glasgow The coast at Vlora, where a new marina is planned under a proposed PPP project.

he Albanian coastal city of Vlora, where the Adriatic private investment through public-private (PPPs) Sea merges with the Ionian Sea, is a major industrial for much needed infrastructure projects. Thub as well as tourist destination. Like much of Albania, its infrastructure needs are large and it is not only the likely The debate erupted again in recent weeks, when President destination for Albania’s second airport – if an investor can be Ilir Meta rejected the budget for 2021 put forward by Rama’s found – but also the site of a planned 400-berth marina. government, citing PPP projects among his objections.

Controversy surrounds the latter project after local media The main problem with the Albanian take on the PPP revealed that the infrastructure ministry has launched a concept, as repeatedly pointed out by the International tender offering a 35-year concession for the port of Vlora, Monetary Fund (IMF) and other international financial that will include construction of the new marina. The institutions (IFIs), is that many of the PPP projects that went project was proposed not by the government or municipality ahead followed unsolicited bids where a private company but by a company, as yet unnamed, interested in taking approached the government with a proposal, rather than on the concession, in what has become common – albeit a tender being launched based on an assessment of needs by much criticised – practice in Albania in recent years as the the authorities. Moreover, the companies that proposed the government led by Prime Minister Edi Rama seeks to mobilise projects are typically given bonus points when considering www.bne.eu bne February 2021 Opinion 71

bids, which have almost invariably led to that company for a new theatre building. Faced with fierce opposition, that winning the tender. project was eventually funded from the public budget instead.

In September 2020 the IMF made the point yet again: Following widespread backlash from both IFIs and the “There is an urgent need to strengthen public investment Albanian opposition, in September 2019 the parliament management and the quality of spending. Projects should passed legislation banning PPP projects based on unsolicited be taken from a pipeline that has gone through a rigorous proposals in the road sector, though they are still allowed for ports and airports as well as in the energy sector. The new legislation also ended the awarding of bonus points to the “There is an urgent need to company that proposed the project. strengthen public investment Moreover, at the end of December, the Central Electoral Committee (CEC) banned the launch of any new concessions management and the quality including PPP projects that were not previously announced of spending” in the four months before the April 2021 general election. Albania’s main opposition parties, the Democratic Party and the Socialist Movement for Integration (LSI) – both of which preparation, assessment and prioritisation process, and have an extremely adversarial relationship with Rama’s will contribute sufficiently to an inclusive recovery. We Socialists – have been highly vocal in their opposition to PPPs reiterate our call to establish a unified process for preparing, which they claim are enriching a handful of oligarchs close to prioritising and evaluating all public investment projects, the ruling party. including public-private partnerships [PPPs]. The use of unsolicited PPPs should continue to be prevented.” Democratic Party leader Lulzim Basha wrote on his Facebook page on December 30 that Albania’s wealth is “concentrated The IMF added that fiscal risks are increasing in Albania and in the hands of the oligarchs”. Rama’s decisions, he added, need to be carefully monitored and managed. “Strong efforts “have always favoured four to five oligarchs”, and over are needed to rigorously assess and manage not only the direct €2bn has been “dedicated to PPP concessions received by budgetary impact but also contingent liabilities stemming those oligarchs”. from PPPs,” it said. After rejecting the 2021 budget, Meta expanded on his The European Bank for Reconstruction and Development objections to the government’s use of PPP on December 15 (EBRD) head of Albania, Matteo Colangeli, told bne IntelliNews when he wrote on Twitter: “The total value of PPP contracts in in an interview back in 2018 that a “PPP should share risk 2021 amounts to 838.2 BILLION [Albanian lek] ALL or 49.8% between the public and the private sector, and should be run of GDP. Whereas for the fight against COVID-19 are foreseen transparently through a transparent process”. 14.5 BILLION ALL or 0.86% of GDP.”

The way the financing tool is used in Albania, he added, is “not The PPP situation is disappointing because there were high ideal, because the government is not really exercising its role hopes from the new Socialist government led by Rama, of privatising projects; what gets tendered is what [is] offered who has done much to push Albania towards EU accession, by those who are interested in developing a project. The role including initiating judicial reforms, as well as a wide-reaching of strategic planning of priorities is missing.” anti-corruption programme. The government also with great fanfare virtually wiped out drug cultivation at the village of The EBRD went on to criticise such projects in its 2019-20 Lazarat – dubbed Europe’s “marijuana mountain” – just before Transition Report, where it said that improving the conduct gaining EU candidate status in 2014. of PPPs required “urgent attention”. Large unsolicited PPPs continue to be awarded, particularly in the road sector … without Yet since then, there have been reports that drug cultivation a sufficient level of cost-benefit analysis and competition in and trafficking have crept up again. A 2020 report from the the tender process. This increases the potential social cost and Global Initiative against Transnational Organised Crime exposes the government to implementation risks, also given the looking at illicit financial flows in Albania, Kosovo and North general lack of track record and financial standing of the chosen Macedonia found that far from the drugs industry being in bidders relative to the scale of the projects tendered.” retreat, the transit trade in drugs is estimated to be worth more than half a billion euros each year in Albania. The report Among the more controversial unsolicited PPP projects are also honed in on public procurement, pointing to recent the major road projects singled out by the EBRD, namely the investigations which showed that €300mn is lost annually Milot-Balldren and Orikum-Llogara sections. Another was the to abuses in public procurement procedures, nearly 45% plan to raze the old National Theatre in Tirana to make way of the total bid value of public contracts awarded in 2019. www.bne.eu 72 Opinion bne February 2021

COMMENT: Uzbekistan is being transformed, but where are the democratic reforms?

In his end of year speech, Uzbek President Shavkat Mirziyoyev used the word “reform” 34 times, but mentioned democratic reforms only three times, and Fred Harrison in London then only in general terms.

n his sweeping two and half hour end of year address to the shift on Uzbekistan’s reform journey. “President Mirziyoyev Uzbek parliament, President Shavkat Mirziyoyev used the set out his vision for the ‘new Uzbekistan’,” Sir Suma said Iword “reform” 34 times. There was agricultural reform, in an interview. “He made clear the link between reforms judicial reform, reforms in education, health care and human and what the public value such as jobs, better education rights, economic and banking reforms, administrative reforms, and healthcare. He said that the private sector, not the human rights reforms, and so on and so on. But strangely, in state, would drive the economy in the coming years. And 10,881 words (in Uzbek; 13,492 in the English translation), that public administration and regional leaders would be he mentioned democratic reform just three times. judged on their delivery for the people. And the president encouraged the government to listen more to the views of It’s the elephant in the room at present in Uzbekistan. the citizen.” Eleven months from now, Mirziyoyev will face his second presidential election, having first been elected in December And yet, there is that elephant in the room, political reform, 2016 following the death of his authoritarian predecessor, to deal with. The clichéd old English-language metaphor may Islam Karimov. No-one knows whether Mirziyoyev faces be familiar in Uzbekistan via its roots in neighbouring Russia, a genuinely contested election or whether it will be, as The Economist described the 2019 parliamentary vote, just another “semi-serious election”. “In his New Year’s speech President Few doubt that Mirziyoyev is an energetic reformer. He has Shavkat Mirziyoyev used the word wrought vast changes to the economy and the way the state is managed. And there is much more on the way, from one “reform” 34 times, but he mentioned of the most ambitious privatisation programmes currently found in the world to the development of a whole new social democratic reform just three times” support system intended to fight widespread poverty. But even as he catalogued his plans in his year-end address to the parliament, it was clear who is in charge. On matters large where the 19th Century poet Ivan Krylov wrote a short story and small, national or local, Mirziyoyev was “instructing” about a man visiting a museum who examines all sorts of legislators what needs to be done. For instance, in the wake small items but completely overlooks an elephant. of some recent headline-grabbing disasters and fires, he said, “In this regard, the Government is instructed to draft a law Mirziyoyev seems well aware of his particular elephant’s on the state of emergency and a programme to address these existence. But in contrast to the attention given to the problems within two months.” details of bank privatisation, improvements to rural schools or even fire safety regulations, his year-end address stuck ‘Important shift’ to generalisations. Sir Suma Chakrabarti, former president of the European Bank for Reconstruction and Development (EBRD), and “The Central Electoral Commission should pay special now adviser to Mirziyoyev on economic development and attention to the organisation of the upcoming high-level governance, believes the speech marked an important elections on the basis of national legislation and generally www.bne.eu bne February 2021 Opinion 73

recognized international democratic principles,” he said. This appears to be an indirect response to recent grumblings He spoke of developing “systemic knowledge of electoral within the government regarding blog posts complaining legislation and international standards” among electoral about seasonal power and natural gas shortages. He singled commission members. out the government’s Information and Mass Communications Agency, formed on his watch to “broadly support and protect He even made reference to the recommendations of the media” and promote greater transparency. “In order to international observers from the last elections, though bring to a new level the reform in the information sphere, to he made a point of stating it would be their “acceptable” ensure its further development, full support for independent recommendations, which would be implemented. Most of media activities, I think it is necessary to critically review the the observers stopped well short of describing past voting activities of the agency,” he said. as free and fair.

Mirziyoyev appears to feel the time has not yet come for full- fledged competition in political life. Elsewhere in the Former “From now on, every public body Soviet Union (FSU), politics has been taken captive by corrupt must engage in constant dialogue insiders and the rich elites. and cooperation with the media in Address highlights corruption Indeed, the president dropped hints about the moves he its day-to-day activities” feels should be taken first. The address highlighted several, including corruption. In other words, Mirziyoyev appears to be very aware of the “It is no secret that due to the lack of proper organisation risks of ignoring political reform – that elephant stomping of work in the field, some managers lack competence and about in the background. But he has placed economic qualifications, there is bureaucracy, corruption, indifference and administrative reforms at the top of his agenda. The and negligence,” he said at one point. elephant comes later. In one of his three references to political change, he gave this ringing endorsement of the “It is essential to prevent corruption and ensure transparency process he has in mind: in decision-making processes in all public bodies,” he said at another. “No matter how difficult it may be, we will not deviate from the path of democratic reforms.” He stressed the need for media freedom. “Fair criticism of objective journalists and bloggers points to the mistakes and shortcomings of the old-fashioned leaders, forcing them to Fred Harrison, with the London consultancy Belgrave Europe, change their style of work and increase their responsibility,” is a former international journalist who has spent the last 20 he said. “From now on, every public body must engage in years advising emerging market governments on reforms, FDI constant dialogue and cooperation with the media in its and their international image. He has been successfully working day-to-day activities.” in Uzbekistan since 2018.

Contents

Top stories We have launched a new bne:Tech Russia’s top retail and tech companies join forces to hunt for innovations in the rest of the world 2 Ukraine-born startups raised more than half a billion dollars in 2019 4 March 2020 www.intellinews.com @bneintellinews Russian video streaming platforms publication bneTech gain speed 5 Cloud services take off in Russia 6 SEMrush to SEO success 8

Leaders 9 Russia’s internet giant Yandex announces growing and more diversified revenues in 2019 10 Russian telecom major Rostelecom misses on earnings in 4Q19, cash flow solid 12 A FREE newsletter covering technology,

Investment 13 World Bank approves $35mn project to modernise Kyrgyz tax administration and statistical system 13 blockchain, ICOs, TMT and all aspects of Romanian online home decoration retailer raises €3.5mn in bonds 14 Russian billionaires Abramovich, Russia’s top retail and tech companies Gutseriev, said to invest in Telegram crypto project TON 14 join forces to hunt for innovations in Russian fund Da Vinci Capital gets the "new economy" in Emerging Europe, €30mn from Germany’s DEG to invest the rest of the world in Ukraine, Belarus and Kazakhstan 15 Fintech & E-commerce 16 BAs Russia’s retail and tech sectors consolidate, the leading Russian e-commerce major Central Asia and MENA. companies are turned their gaze outwards to hunt for Wildberries to add self-employed new technology and innovation. See page 2 vendor products to offering 16 Russian Dixy retailer to launch online sales with Ozon 17 bne:Tech Valuation of Sistema’s e-commerce asset Ozon boosted to $1.8bn 17

Telecom 19 Makedonski Telekom’s net profit up 6% y/y in 2019 19 Click the button to read the latest issue Romanian telco Digi grows by double digit rates in 2019 19 Russia could postpone 5G rollout from 2022 to 2024 20

NIBs 21 Ukraine-born startups raised more than half a billion dollars in 2019

In 2019, the venture capital and private equity funding volume for Ukrainian and Ukrainian-founded tech startups reached $544mn (up from $323mn in 2018 and $265mn in 2017), says AVentures Capital’s latest industry report ”DealBook of Ukraine”, SIGN UP HERE reports Adrien Henni of Ukraine Digital News. See page 4

www.bne.eu 74 I New Europe in Numbers bne February 2021

Ukraine bank sector profit (monthly UAH mn) Ukraine's banking sector ends 2020 with best monthly profits in four years

Ukraine’s banking sector remained impressively healthy throughout 2020 and finished the year on a high. The banking sector posted a sectorial profit of UAH43,365mn ($1.5bn), which was still down on the 2019 result, but on a monthly basis the banking sector recorded its highest month-on-month profit in four years of UAH6,302 ($223mn), according to National Bank of Ukraine (NBU).

The banking sector has benefited from the clean-up work carried out Source: NBU by the previous management under first former NBU governor Valeriya Gontareva, who took over the job in 2014 and then her successor Yakiv Smolii, who quit last year.

Romania’s stock exchange close to pre-crisis peak after strong rally

The Bucharest Stock Exchange’s (BVB’s) blue-chip index, BET, passed 10,000 points after a 1.56% advance on January 8. Since the end of 2020, BET has risen by over 3.5%.

The index is climbing up toward the pre-crisis high of just over 10,200 points reached in January and February 2020. Thus, the BET has topped 10,000 points again before the upward trend at the beginning of last year was abruptly interrupted by the COVID-19 pandemic. The BET-TR total return index is already at an all-time high of 17,080 points.

Russia Watcom shopping index (Moscow) Russia’s Watcom shopping index recovers some ground in December, still down by half on previous year

Russia’s Watcom shopping index, which measures foot traffic in Moscow’s major shopping malls in real time, recovered some of the ground lost after the second wave of the coronavirus (COVID-19) pandemic emerged in the autumn, but still finished the year well down on the previous year.

Foot traffic in the Russian capital’s major malls bounced back in the summer after the first lockdown was ended, recovering all the ground lost in the crisis. However, as the second wave gathered pace in September the index began to fall again. Tthe drop was limited as the Source: Watcom authorities decided to forego a second lockdown because the damage it was doing to the economy.

Zagreb Stock Exchange's Crobex10 index at highest level since March 5

The main indices of the Zagreb Stock Exchange (ZSE) rallied on January 5, with the Crobex10 index hitting its highest level since March 5.

On January 5 (the last trading day before the Three Kings public holiday on January 6), the main Crobex index rose by 1.25% to 1,765.80 points, while the Crobex10, which tracks the top 10 Crobex index companies by free float, market capitalisation and turnover, was up by 1.26% at 1,104.95 points. www.bne.eu bne February 2021 New Europe in Numbers I 75 FDI inflows to CEE down 58% in 1H20 but rebound expected

bne IntelliNews

Foreign direct investment (FDI) inflows Independent States (CIS) — excluding By segment, wiiw reports that the to countries in Central, Eastern and Russia — as well as in Ukraine capital pledged in greenfield investment Southeast Europe fell by 58% year- and Turkey. projects across the region fell by 23%, on-year in the first half of 2020, as less than the global decline. “Low the coronavirus (COVID-19) pandemic wiiw economists forecast that FDI commitments in greenfield investments and lockdown curbed economic inflows should return to pre-COVID continued also in the third quarter activity, according to a report from levels in about two years. Both CEE’s and amounted to 41% lower in the the Vienna Institute for International EU members and parts of the Western first three quarters of 2020 than in Economic Studies (wiiw) released Balkans could benefit from near- the previous year,” said the report. in December. shoring of production by major Western “However, the bulk of the decline multinationals, as they re-think their in capital commitments in [Central, The decline was steeper than the 49% supply chains. Southeast and Eastern Europe] global fall, though less severe than CESEE can be attributed to Russia the 75% decline in FDI in developed “Over the long run technological change and Kazakhstan as a response to economies, the annual wiiw FDI — especially in the automotive industry low international oil prices.” Report showed. However, there were — will change the structure of value substantial variations in how severely chains and may see Western investors Within the region, the eastern EU the impact of the pandemic was on return investments from Eastern members did particularly well, FDI across the CEE region and the Europe to their home markets,” says seeing a fall in the number of negative FDI inflows to Russia dragged the report. greenfield investment projects of down the result for the region. In the only 21%, while the investment eastern EU members, FDI fell by just They warn, however, that “the value dropped by 16% in the first 35% and the fall was as small as 8% takeover of domestic-oriented sectors three quarters of 2020. Despite the in the Western Balkans. Meanwhile, by national capital and economic adverse circumstances, four countries a decline of around 40% was recorded nationalism may reduce foreign — Czechia, Latvia, Poland and in both the Commonwealth of investment in Eastern Europe”. Slovenia — “all received higher amounts of investment commitment than a year earlier, indicating the Change in the FDI inflow and greenfield FDI commitments in CESEE main regions, in % steady commitment of investors, especially in the real estate sector”, the report said.

Manufacturing was more vulnerable to the recession than other sectors, but investment continued in the automotive industry — an important component of the Central European economies — which is “under pressure to reduce the burden on the climate and to introduce profound technological changes, even while suffering a drop in demand during the COVID-19 crisis”, said wiiw. “The main current challenges to the automotive industry include the rise of electric cars, CO2 fleet emission targets, autonomous and connected driving.”

The industry accounted for as much as 38% of manufacturing production in Slovakia, 28% in the Czech Republic, Source: Respective National Banks and FDI Markets database. 26% in Hungary and 23% in Romania. www.bne.eu Are you interested in following the countries of Emerging Europe and Eurasia more closely?

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