Monetary Value of Human Life in Russia

Russian daily Kommersant writes about the value of human life in Russia – this time not in numinous terms, but in rubles. Having reviewed government compensations and standard life insurance policies, Kommersant came to the conclusion that there is no widely accepted value: life of a person deceased in a psychiatric ward was estimated at 500.000 rubles (USD 7.867) by the government, accidental death from explosive ordnance brought 300.000 rubles (USD 4.720) in compensation, death in fires and floods – 1-2 million rubles (USD 15.735-31.470), death in terrorist attacks – 2-3 million rubles (USD 31.470-USD 47.205). Family of a child killed by malfeasance was awarded as much as 15 million rubles (USD 236.000) in a civil lawsuit. It could be worse: families of the 13 victims killed in a terrorist attack on Pushkin square in 2000 received approximately USD 1.000. For the sake of comparison, families of victims of the recent terrorist attack in Nice stand to receive approximately EUR 1 million for each killed relative from a special French government fund.
According to a Russian insurer “Rosgosstrah”, mandatory insurance in civil transportation covers the passengers up to 2 million rubles (USD 31.470). In their 2014 paper, Karabchuk, Nikitina, Remezkova and Soboleva used a mixture of indicators including projected lifetime earnings and estimated the value of human life in Russia at USD 1,6 million. This is still much lower than the respective figure in the United States (USD 6,7 million) or United Kingdom (USD 13 million).
Given that half of the working population in Russia lives on less than 23,5 thousand rubles (USD 370) per month, it is no wonder that most of them would consider 1-1,4 million rubles as a just compensation for the loss of human life, as the polls indicate. Even the Russian traffic police values human lives more than that: according to their calculations, it is justified to invest 11 million rubles (USD 173.000) to prevent the loss of a single human life.
One of the direct consequences of the low monetary value of human life in Russia is increased risk in domestic flights – since the potential liability for passenger death is much lower in Russia than abroad, Russian airlines can afford to risk flying outdated equipment on domestic routes. Citizens don’t seem to put too much value on their lives, either: while life insurance makes up 55-60% of total insurance premiums in Poland, Slovakia or Hungary, in Russia it accounts for mere 2%.

Two Large Insurers Quitting the Russian Health Insurance Market

Slon.ru reports that Uralsib and Alliance, two major insurance companies, are looking to sell their health insurance businesses.  Slon.ru cites Russian business daily Vedomosti and its three sources from the companies’ top management.

Allianz spent the last three months collecting bids for its Rosno-MS subsidiary. The value of Allianz’s health insurance business is estimated at between 2-3 billion rubles (USD 31-46 million). Prior to spinning off its health insurance, Allianz started to wind down its retail insurance business. Allianz is the second largest insurance company in Russia, with more than 17 million clients.

Approximately a month and a half ago, Uralsib followed Allianz’s suit and put up its health insurance business for sale.

Inflation of Fines in Russia

Russian news portal Slon.ru writes about the phenomenon of rising fines in Russia as one of the manifestations of the economic downturn. The imminent depletion of the national Reserve Fund and the rising budget deficits force the Government to look for additional sources of revenue. Taxes and duties are not the only way to extract money from the economy, Slon.ru notes. Under the pretense of the necessity to tighten the discipline, the Russian Government has been substantially rising fines during the past two years. Slon.ru lists ten examples, starting with a dizzying 650% increase in fire safety fines, from 1-2 thousand rubles (USD 15-30) to 6-15 thousand rubles (USD 90-180) for individuals. The increase is even bigger for companies, which can be held liable to pay anywhere between 150-200 thousand rubles in case of fire safety non-compliance (USD 2,300-3,000; previously, respective fines for companies ranged from 10-20 thousand rubles). The fines are used to finance the bloated Russian State Fire Service with a staff of approximately 100,000. In view of the government’s increased dedication to fire safety, it is outright bizarre to consider that the material damages caused by fires in the country increased from 11.1 billion rubles in 2009 to 18.8 billion rubles in 2015 (comparison in U.S. dollars makes little sense because of the 2014/2015 devaluation of the ruble).
Work safety is another issue of particular concern to the Government. Should a company with a staff of 100 fail to provide safety training to its employees, it can end up paying 13 million rubles (USD 200,000) or 260 times more than before 2015.

Agriculture Minister Tkachev, the (Un)likely Beneficiary of the Winter Olympic Games in Sochi

Russian business daily Vedomosti writes about the success of Tkachev Agrocomplex Company Ltd., a major agricultural holding with revenues of 38.7 billion rubles (USD 600 million) in 2015 and leading market positions in milk, wheat, and rice production. Located in the southern Russian region of Krasnodar, the holding consists of 60 farming companies and a retail chain with 600 outlets.
Mr. Tkachev, currently serving as the Minister of Agriculture in the Russian Government, bought the company that became the foundation of the future agricultural holding through voucher privatization in the 90’s – not surprising, as his father managed the company (and got Tkachev his first job there) in the Perestroyka years. Tkachev begun building his political career as well, becoming a representative in the regional parliament in 1994 and a Federal Duma deputy in 1995. In 2000, he became the Krasnodar Region Governor and got a big break when Russia became the host of the 2014 Winter Olympic Games in Sochi, located in the region headed by Tkachev. After the games, Tkachev’s agricultural holding received generous financial backing by state-owned Sberbank and Russian Agricultural Bank and started its aggressive expansion, eventually doubling its revenues and land under management.  One of the factors that helped Tkachev’s expansion was a wave of bankruptcies that affected the agricultural sector in the region, enabling his holding, formally owned by his family members, to acquire companies at very low prices and refinance their debt with the aforementioned state banks at favorable rates.  However, on a couple of occasions, Tkachev’s competitors withdrew their offers for the purchase of acquisition targets without explanation, enabling Tkachev to buy the desired companies at lower prices. Financial contortions, generous attitude of the banks and reticent behavior of Tkachev’s competitors indicate that Tkachev’s business success might be more than meets the eye. At any rate, it coincided with Tkachev’s participation in the most important PR project of Putin’s third presidential term and demonstrated that in Russia, business success often mirrors political career.
Tkachev’s business continues to receive government support: in 2015, the Russian Government paid 1.13 billion rubles (USD 17 million) in subsidies to Tkachev Agrocomplex Company Ltd., or approximately 20% of all agricultural subsidies in the Krasnodar region.  To be fair, this is not uncommon, and other major agricultural holdings in Russia receive significantly larger subsidies.

Putin no Longer Among the Top Vodka Brands

Citing Kommersant, news portal Meduza.io reports that the sales of a popular Vodka brand “Putinka” fell by half in the last year. Accordingly, “Putinka’s” market share dropped from 2.74% in July 2015 to 1.36% in May 2016, and the brand slid from its 4th position to number 15 on the list of Russia’s most popular vodkas.
“Putinka” never experienced such a downturn in the entire history of the brand. It appeared on the market in 2003 and within two years became the number one vodka in Russia. “Putinka’s” brand manager lays the blame on its new distributor, “Status-group”, which doesn’t seem to care much about marketing its new acquisition. However, one can imagine there are reasons why forces outside of the market might not want to associate the President’s name with alcohol. According to the unnamed sources, the ultimate beneficiary of “Real-Invest”, the company that owns the “Putinka” brand, is a businessman and Putin’s Judo partner from his youth Arkady Rotenberg. Because of his connections with Putin, Mr. Rotenberg was blacklisted by the U.S. State Department after Russia annexed Crimea.
However, it might be just that “Putinka’s” distributor is doing a lousy job, as other vodka brands distributed by “Status-group” also suffered a decrease in sales.

As Russia Eats Through its Reserve Funds, Some Thoughts About Why They Matter

Slon.ru cites Mr. Nikolai Kasheev, Research and Analysis Director with Promsvyazbank, who talks about the relative weakness of Russian reserve funds. Similar funds exist in 44 countries including China, which operates four national funds with a total value of close to USD 1.5 trillion. Next in terms of value are the seven United Arab Emirates’ funds with USD 1.3 trillion in assets, Norway with USD 850 billion in its state pension fund and Saudi Arabia with reserves of USD 760 billion.

With assets of USD 150 billion, Russian reserve funds are only the 10th in terms of value. In per capita terms, Norway is the absolute leader with USD 160,000 in reserve funds per each inhabitant. With USD 1,000 in reserve funds per capita, Russia is way down the list together with China. For example, neighboring Kazakhstan has USD 9,000 per capita in reserve funds. According to Mr. Kasheev, Russia managed the funds too conservatively and passed up on the opportunity of bigger returns by investing almost exclusively in government debt securities – a dubious practice given their long-term investment horizon.

According to the IMF, pension outlays in Russia are projected to increase from 8-9% of BDP to 14% of BDP by 2030. The Russian pension fund is already USD 50 billion short every year, but instead of using the reserve funds to compensate for this shortfall, the Russian Government is using them to patch up the central budget.

Spending all the reserve funds’ money, which is projected to happen by the end of next year, will significantly impact the macroeconomic conditions in the country. It could lead to increasing debt and budget cuts with uncertain effects on the exchange rate and overall liquidity. However, it is not the presence of the reserve funds that impresses the business and makes it willing to invest and operate in Russia. Rather, it is the necessary structural changes that will lead to a more diversified economy.

 

Russian Ministry of Finance to Reduce Subsidies to Regional Budgets by 15.5%

Russian business daily Vedomosti reports that the Russian Ministry of Finance plans to reduce subsidies to regional authorities by 15.5% in 2017.  One of the items that will be cut is that aimed at fulfilling President Putin’s executive order from May 2015 to increase the salaries in the public sector.
Other subsidies will be cut as well, such as those related to road construction and maintenance. This might seriously impact the regional authorities, as their sources of revenue are either stagnating or decreasing. In January 2016, only nine regional budgets recorded a surplus, while 79 regions ran a deficit.  In April 2016, consolidated regional and municipal debt in Russia amounted to 2.65 trillion rubles (USD 40.5 billion).
Russian Government decided to freeze the budgetary expenditures at 15.78 trillion rubles (USD 241.3 billion) in 2017. During the last two years, it transferred as much as 1.6 trillion rubles (USD 24.5 billion) to various levels of local government.