Russia Is Well Positioned UPDATE 4 (1 June 2020)

Despite the "best wishes" of the Western mass media that everything in Russia is failing, the reality of the situation is that Russia is uniquely positioned to rebound economically faster and stronger then the over leveraged West.

Even the NYT came to this conclusion "Thanks to Sanctions, Russia Is Cushioned From Virus’s Economic Shocks", true, you can taste the bile in the first half of the article, but then they get to the various points.

Russia has been cut off from the Western financial markets, Russia has been busy regrowing its industry for the past 7 years and Russia has a huge reserve of over $600 billion set aside for occurrences just like this with a government debt of less than 10% to GDP. But this is not enough, what Russia has, unlike the West, is a leadership that is ahead of the curve.

The Russian leadership has foreseen what is coming down the road and has taken key steps to block that road as best as possible. Russia instantly closed the borders with China, while infected people from China were still traveling everywhere. Russia closed commercial flights with the rest of the world more slowly and that did allow for the infection to leak in. Either way, for what ever reasons: Grace of God, cold weather, partial immunity from TB vaccines, the virus has been slow to spread and the rate of full recovery is 5 times to that of deaths, while globally right now its about 2 to 1, of the officially recognized infections.

The Russian government has stock piled medical equipment and has retooled very quickly to manufacture additional equipment and materials, enough so as to send aid to 14 other nations, including the US, as well as 15 plane loads of trucks and personnel to aid Italy, bringing lacking equipment, such as disinfectant machines, spreaders, and liquid as well as over 200 doctors and military biochem experts. Russia has disinfected over a twenty hospitals and homes for the old, as well as building field hospitals, throughout hard hit northern Italy.

Russia has over 44000 artificial/assisted breathing machines and two large manufacturers are working 24/7 manufacturing more. As a comparison, Japan with the world's oldest population, a population of 120 million, has only 24000 and 10000 are already occupied by the sick from other infections. Milan, Italy had 48.

But more so then the medical preparedness, is the economic steps that Russia has taken to make sure that a post infection economic crash does not come at the end of the month long quarantine.

Europe and the US panicked, sending everyone into lock down without a single thought about how the already financially overstretched and struggling populations will feed themselves and survive a month plus without money to buy food and in some cases without food, not to mention pay rents, credit debts and utilities. All plans came only as an after thought, not much for proper full spectrum planning. Over 10 million have filed for unemployment in the US alone, in just two weeks. Unheard of numbers.

The Russian government, spearheaded by President Putin has avoided this and has put in key points for both the workers and the small and medium businesses. They are as follows:

For people:

1. 50% increase to unemployment benefits by the Federal government, so that unemployment will not be less than the minimum allowed salary. Sure a person will not be eating steaks on this but he will not be starving either. Unemployment is available to anyone who has worked for at least 4 months previously. As a comparison, in the US unemployment is available only to those who work full time, on contract pay (not hourly workers) and has worked at least 12 months previously.

2. Provinces will add to the unemployment payout as much as their budgets allow. Moscow for one will double the unemployment payouts of the Federal government.

3. Sick leave pay has also been increased by 50%.

4. People facing unemployment or inability to pay credit due to pay cuts are now able to take a 6 month credit holiday from payments. Banks, by law, have 3 days to process the paperwork and freeze credits.

5. Pensions will be indexed +6%.

6. Filing for Bankruptcy is now free.

For business:

1. For small and medium businesses percent free loans to pay salaries up to 20 million rubles ($270.000 at current exchange rates) without a need to pay back for 8 months after the emergency is lifted.

2. Rents owed on Federally owned lands and infrastructure waived for 8 months.

3. All taxes on rent givers are waved in exchange for them lowering the rent payments demanded from their renters.

4. All business taxes, with the exception of VAT, are waved for 6 months.

5. Large funds for investment in support of whole business sectors.

6. Bankruptcy for businesses can be stalled for 8 months.

Other ideas are still being worked out.

As you can see, the Russian government is dead set on making sure Russian bounces back fast, hard and ahead of its Western competition. But to make sure Russia does not become a temporary slush fund for Western credit, two additional laws were passed:

1. a 13% tax on all percents, dividends and other earnings on deposits or investments over 1 million rubles. This is only on the money earned, as money making money will now be equated to income, unlike in many countries, so the rich will pay their fair share along with all workers.

2. a 15% tax on all monies being transferred out of Russia. So it will no longer be a quick slush fund and get the cash out later, doing damage to the economy built on those monies. At least a portion will remain in the country to be put back into the economy.

Now we will wait and see what other new projects or laws will come in and only time will tell who in 2 months will be standing, who will be on their knees and who will be on the floor bleeding out with a white chalk outline.

God Bless.

Update 6 April 2020

The situation on the ground has continued to evolve, with several governmental and non-governmental actions starting to continue easing life for Russians and Russian business.

1. Sberbank has created a payment holiday for its clients, for up to 6 months. This, unfortunately, does not mean that percents are not accuring, but payments can be put off, as follows:
   -- Mortgages up to 1.5 million rubles
   -- personal loans up to 250.000 rubles
   -- automobile loans up to 600.000 rubles
   -- credit cards up to 100.000 rubles
   -- small business short term loans up to 300.000 rubles
While the sums are small, it is a start.

2. Government has cut pension contributions from businesses for their employees by 50%. This is the biggest chunk of the payroll taxes that a business has to pay.

3. Internet- all major internet providers have agreed that they will not cut service for those who are unable to pay, during the crisis period, however long it lasts.

Update 8 April 2020

The Russian government has allocated 10 billion rubles ($133 million) to double the salaries of medical personnel fighting the Coronavirus out break.

Emergency salary loans to small and medium businesses are now full operative and are being turned around in under a day. Bank staff are working from 0800 to 2400 daily.

Update 17 April 2020

In order to recharge the economy once the locks downs are over, the Russian government is now offering guaranteed 6.5% mortgages, with the government picking up the tab for any percentage above the 6.5% level. The mortgage level limit is 5 million rubles for Moscow and St. Petersburg and 3 million for the rest of the country.

Update 1 June 2020

The Russian government has now started to pay a one time sum of 10,000 rubles per child between the ages of 5 and 16. The first deposits have started and parents have up to the end of September to file.

Government loans to small and medium businesses for the purpose of paying salaries have now been modified so that if 90% of the work force is kept on, the government will wave the debt totally. If 80% of the work force is kept, 50% will be waved.

When Dealing With Russian Suppliers: Hold Areas

Western companies, especially European companies, when developing drawings for large engineering projects, have a tendency to complete an 80-90% drawing, with various "Hold" areas where technical issues are still open for one reason or another. 

These drawings are then passed on to their Western suppliers who begin the manufacturing process and await updates that cover these "Hold" areas. 

This does not work with Russian suppliers. Russian suppliers want all technical questions answered before they commit to work and will not begin until everything is worked through and signed by both parties. 

Part of this stems from the unwanted risk of loosing money on having to redo work. The majority, however, arises from legal concerns. If a tragic incident occurs from such unorthodox work methods, Russian prosecutors will go after everyone from the CEO to the line engineer of the manufacturer. Thus such risks are considered unacceptable at personal levels. 

Often what happens in such a "relationship" is that the Russian manufacturer will raise the issues verbally, and be told not to worry about it, its for later. They will not start work. Then they will begin to write letters to the client and his engineering department. In the case of an Italian company I worked for, the project manager laughed in their faces that he just threw their stupid letters out and they would get the answers when it damn well suited him. I, as the procurement project manager had to repeatedly explain to him and the Italian engineers that realize it or not, they are not doing any work till they get the answers and our due dates are quickly slipping out. 

Such cultural misunderstandings or especially on the part of western Europeans, absolute refusal to consider cultural and legal differences and frameworks led us to long delays, sour relations and stiff fines.

Food for thought.

How to Motivate Russians

A few years back, I had a senior regional vice-president from Houston give me and others advice that the only way to motivate Russians is with the whip. He thought he was at the peak of wisdom, when in reality he showed everyone, who was Russian anyways, his absolute ignorance. 

This, like many stereotypes comes from yellow propaganda of the Cold War that dipicted Russians as some sort of slave race under either the Tsars (who were hardly what one would call despotic) or Communist leadership. 

True, Stalin did use slave labour, but this was first and foremost against political opponents not as a form of economics.

So what then? Money? To some degree, yes but that wears thin on the Russian soul rather quickly.

Now wait, if I can not whip them or bribe them, then how do you motivate those damn Russians? Or is it all a riddle in a quandary? 

Truth be told, it is all much simpler than that. Russia is a great nation, one that has withstood what would have ground any other people into sand. A quick perusual of Russia's 1400 year history will quickly teach that lesson. 

 So what is the secret? Its in that Greatness itself. Russia and Russians must always have a great cause to strive for. Be it for the Mother Russia of the ancient knyazei (princes) or Holy Third Rome Defender of Orthodox Christianity of the Tsars or the World Proletariat Unite of the early Bolsheviks or Building Enlightened Communism of the later Bolsheviks, Russians have to have an overwhelming goal to strive and sacrifice for, to believe in. 

This is why the 90s were such a disaster. The Communists fell and all the new, corrupt, self absorbed leadership could come up with was: now we will be like all other nations....what? That's it? Then there is nothing to strive for. And that is one of the keys to President Putin's success, to some degree, he has returned those ideas, albait still in a murky form. 

 So there is the example. Your workers are not just building and designing trucks, they are building the best trucks in the world that will be exported all over the world. Your genetisists and their lab assistants are not just making vaccines but are making vaccines which will save the lives of millions of children. 

But do not make these empty words. When the leadership does not believe in what it is saying, the Russian worker will see through the smoke quite quickly and then you are in an even worse state than before. 

To manage in Russia is to lead in Russia and for that you need actual leaders and leaders with vision, vision that goes further than the next quarterly report. Who is up for the task?

GOST: Yes Russia Does Have Standards

Many foreigners, when dealing with Russia in thr 90s and on, and even today are under the very big misimpression that Russia has no government standards that its business operates under and thus the foreign business is free to do as it pleases. 

This, of course, could not be further from the truth. Since 1925, Russia has been operating under GOST (Government Standard)...yes, those latin words do translate that close.  GOST is a set of standards that covers everything from food preparation to building construction to wire manufacturing. At present they are undergoing their biggest review since their inception with several thousand outdated standards being removed or heavily redacted.

This is a very thick series of standards that cover all manufacturing of any and all products or product categories. Companies are allowed to make technical exceptions to GOST but these must be approved by the appropriate GOST committees and can not be weaker than the existing standards. GOST has been translated into English and is available online.

I have heard numerous times that Gazprom, Rusneft or some other entity has agreed to API standarsa whicg is why we are producing in API instead of GOST. But here is the key, they agree to exploit (use) the API standard project NOT accept it for exploitation. Acceptance or completed projects is conducted by Rostecnadzor (Russian Technological Supervision) which is the government agency that must sign off before a project is completed and accepted, and they work exclusively in GOST. 

Now, however, if you are manufacturing for exportation out of Russia and not into another nation adhering to GOST, you can manufacture to whatever standards you wish.

You Work Remotely and Are Not Living in Russia?

Surely than you do not value your money or appreciate your own efforts.

 Now that I have your attention, lets deconstruct the Western myths and lies and discover why for remote workers, Russia is the optimum place to live.

 Lets begin with some life basics. Russia is not a frozen gray hellhole of unsmiling people, perpetual winter and vodka fuelled depression. I will deconstruct these myths in detail in a later piece. And while some villages and some remote provincial towns may look like that, the majority of the country is modern and filled with all the conveniences Westerns are used to. Go to any large grocery store and you will be hit by a selection of dairy, cheeses and meat products twice as large as the average American is likely to see in his life time in an average US supermarket. As for climate, Russia has everything from deep subtropics to frozen arctic, from sandy beaches to deep forests, from steppe to impenetrable mountains, so you get a wide variety of choices in that category too.

 But that aside, let us review things such as the costs of working or doing business. Just for starters, in the Ease of Doing Business Index for 2018, Russia rates in 31st place, up from 35th in 2017 and way up from the low score of 124 just 8 years ago. This puts Russia ahead of such heavy weights as France, 32, Switzerland, 38, Japan, 39, China, 46, US Puerto Rico, 64, India, 77, Brazil, 109.

 Lets go deeper, we will begin with taxes.

 If you are a resident of Russia and a tax resident (you spend at least 183 days in Russia) you pay low local taxes, which for most employees is 13% income and the rest the employer picks up. However, if you are working for yourself or with a very small staff, you can register with the tax authorities as an individualni predprinimatel (individual businessman). The simplified tax is 6% of income, plus gov insurance and pension taxes, which translates into approximately 7% taxes. Big difference from a US base tax starting in the 20% and up.

Now, if you are an American and spend less than 36 days in the US per year, your first $107,000.00 are US income tax free, so you only need pay the Russian 7%. Good deal or what? And filing those taxes is extremely simple, no need to hire expensive accountants or spend days over the tax programs.

Then there is the fact that your every day expenses will be half or less what you are used to paying in the US. For example, a phone plan with 10Gbytes internet, 100 texts and 1000 minutes will run you about $10, while a high speed cable internet connection with unlimited download will set you back on average $20. There are 4 major phone companies and an average of 5-10 ISP providers in any major city or town. Electricity and gas is dirt cheap.  For example, one kw of electricity will run you on average $0.06 and gas for heating is even cheaper.

 Rent, outside of Moscow or the first tier cities, will set you back about $200 for a 1 room apartment, $500 for a three room. Foreigners are also allowed to purchase none agricultural lands, so you could easily purchase an apartment or house. As a matter of fact, doing this is the fast way to help get you to the top of the list for residency.

To prove this point, I will compare below the cost of living in three American cities: NYC, Houston, Oklahoma City with three Russian cities: Moscow, St.Petersburg, Krasnodar. For this, I will use Numbeo.com

 NYC: Moscow
You would need around 2,879.43$ (187,874.03руб) in Moscow to maintain the same standard of life that you can have with 7,900.00$ in New York, NY (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).
NYC: St.Petersburg
You would need around 2,277.78$ (148,618.09руб) in Saint Petersburg to maintain the same standard of life that you can have with 7,900.00$ in New York, NY (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).

NYC: Krasnodar
You would need around 1,781.46$ (116,235.10руб) in Krasnodar to maintain the same standard of life that you can have with 7,900.00$ in New York, NY (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).

Houston: Moscow
You would need around 2,845.95$ (185,689.96руб) in Moscow to maintain the same standard of life that you can have with 4,300.00$ in Houston, TX (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).
Houston: St.Petersburg
You would need around 2,251.30$ (146,890.38руб) in Saint Petersburg to maintain the same standard of life that you can have with 4,300.00$ in Houston, TX (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).
Houston: Krasnodar
You would need around 1,760.75$ (114,883.85руб) in Krasnodar to maintain the same standard of life that you can have with 4,300.00$ in Houston, TX (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).
Oklahoma City: Moscow
You would need around 2,886.37$ (187,050.13руб) in Moscow to maintain the same standard of life that you can have with 3,600.00$ in Oklahoma City, OK (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).

Oklahoma City: St.Petersburg
You would need around 2,278.90$ (147,683.50руб) in Saint Petersburg to maintain the same standard of life that you can have with 3,600.00$ in Oklahoma City, OK (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).

Oklahoma City: Krasnodar
You would need around 1,782.41$ (115,508.23руб) in Krasnodar to maintain the same standard of life that you can have with 3,600.00$ in Oklahoma City, OK (assuming you rent in both cities). This calculation uses our Cost of Living Plus Rent Index to compare cost of living. This assumes net earnings (after income tax).

And do not worry so much about Russian. Not only are english language menus and such available in most places in the larger cities, but the language itself is not nearly as difficult to grasp as you are led to believe. Sure you may need a few years of effort before you are reading Dostoyevskii in Russian, but you will grasp enough in half a year to live and get around, and if need be, hiring a part time translator is not expensive.
And finally, that costliest of all things for any American, the medical bills. Russia, like many European countries, has a dual medical system. The first is a government universal coverage that comes out of your and every other person’s taxes. This is available to all legal residents of Russia. Depending on what you need done and where you live on the quality of the service. Basic dental work or check ups will not require a long wait, more serious issues may and the further you are from the main cities, the worse the quality. The government is investing huge sums and providing incentives for doctors to move to small towns and villages, but this is all work in progress.
There is also the private sector, which for the most part, is high quality. There are of course quacks and crooks, like in any system, so buyer beware. But lets compare: the writer of this column had an infected molar, in which one of the roots rotted out and collapsed. The tooth was removed, all pieces of the root were removed, gum was opened up, drained and sewn up. All told, the cost was $90. In the US, the same operation costs $1,600 on average. An implant was put in the place of the lost tooth. The top of the line implant plus labour ran this author $550. In the US you will be lucky to escape with only $3-4,000. And so on and so on.
So, ready to make the life enhancing move you deserve? I will outline just how to do this, in the next instalment.

Characteristics of a Russian Meeting

As anyone meeting with anyone in Russia, there are a few ground rules you should be aware of: 

1. Timeliness While Russians are not as prompt as Germans, Russians are rather prompt. So being 5 minutes late is ok, anything later needs an excuse and one that is preferably called ahead. Aka: We are stuck in traffic. Being 30-40 or more minutes late without a formal reason, such as the tendency of Italians or Spaniards, is considered very bad manners. 

A side note on this, if during the meeting you agree to set due dates or deadlines for some document or action, be sure to accomplish it by the agreed upon date. Everything during the meeting will be set down in writing in the Minutes of Meeting and not meeting due dates is a major blow to one's credibility and reliability in Russia.

2. Inclusiveness It is considered very rude to turn your back on someone while continuing your conversation with another person in the group...one to remember for non-Russians who have no such issues. This additionally means, turning to your co-workers, and beginning a conversation in a separate language not understood by everyone. This is also considered very rude. If the need arises to have such a discussion, request some time alone, a break from the meeting and maybe a separate room to do so in.

 3. Emotions While getting into an emotionally "hot" discussion happens, never over do it. Never get personal and never ever ever throw a temper tantrum and walk out. I had an EPC project manager who would do this. He had zero respect from the other side who had to beg him to return. This is viewed as unmanly and childish.

4. Shaking Hands Do it with everyone and anyone who enters the room after the start and before you hand out or receive business cards individually. When leaving, equally, shake everyone's hand. Walking by some person who stops to talk to someone in your party? Shake his hand. And make it a firm hand shake. Additionally, women shake hands also, so not to shake the hand of a woman is a grave insult.

5. Woman enters the room to join the meeting? Get up and show respect, as if it was a senior person, and since 42% of Russian executives are women (twice that of the progressive West) it just may be. Additionally, if there are no more seats, surrender yours to the woman.

6. Bargain Hard Russian price negotiations used to be described as something between a mugging and a bar fight. Its gotten a bit more civilized but....I remember fighting a supplier over each 0.01$ of a price on forgings...ok we finally agreed to limit it to just full round dollars or we would never get done. Pulled out 15% savings from already low prices which saved us several million dollars. 

7. Never take the initial NO IT CANT BE DONE as the end answer. If the junior or secondary management says no, go straight to the senior leadership. If they say yes it will be yes. Equally, since the culture is conservative, use your persuasion skills to sell the idea, either by its merits or by its profitability.

8. Figure out who the trusted lieutenant of the general director is. Russian chain of commands are linier except for that special lieutenant who has the ear of the boss. 

9. Meetings must come to some decisions...why else are you in a meeting, other than if its just an introductory meeting.Southern peoples like to have meetings for the sake of meetings and no decisions are reached, this is very infuriating to Russians. Most meetings usually have a set agenda and the agenda is set to come to a decision.

10. All meetings will end in a Minutes of the Meeting with all parties involved signing. Sometimes getting the MoM done takes longer than the whole meeting and all parties most definitely must sign it, so be careful what actually goes in to it, as this is a legal document.

Why Russian Steel Goods Are Cheaper

There is an age old, ok more like several decades old, myth, that all things from China....and if not China then surely India, are cheaper and better quality than anything Europe and for that matter Russia can produce.

The truth of the matter is that this is a well crafted PR illusion that China has nourished for two decades and that most American managers, directors and VPs accept on blind faith. One sr. director of mine would repeat "I can't believe that Russia is cheaper than China" over and over at the start of every weekly meeting, even as we poured resources into establishing Russian suppliers. The facts were right there in front of him and with quite a bit of personal push we were moving in the right direction, but some part of him could no believe it.

He even had other supply chain managers demand that the Chinese forge shops give him the same prices as our Russian suppliers. To his credit, they did. Unfortunately for the company, that only lasted long enough for the company to invest in dies and samples and then the Chinese bumped their prices straight back up.

But why is this so and in what steel goods?

True, in open die forgings, the Chinese are kings and for good reason. Open die forgings are low technology, no engineering efforts pushing out blocks and round bar. You can easily dump minimally trained employees on to these efforts and the equipment does not need to be to high tech.

However, the Chinese quickly loose all advantages when faced with manufacturing details that are complex and thus engineering and machine driven. Closed die forgings, detailed machining, coatings and assemblies are all such items and in all such items, the Chinese are not cost compatible, not if a real analysis is done, and  when TCO costing models are used, it gets even worse.

Russian suppliers, in these categories, tend to be 10-40% CHEAPER than the Chinese. Yes, that's not a misprint. No its not 1-4% it is 10-40% and with the ruble devaluation, things have gotten even better.

Furthermore, taking into account TCO (Total Cost of Ownership), things only get worse. Considering that once producing at high quality, Russian manufacturers will remain true to the course and take great pride in manufacturing quality. Chinese suppliers tend to take great pride in maximizing profits and that tends to come at the cost of quality. Any shortcuts even potentially deadly ones will be observed over time with most Chinese suppliers.

We experienced several cases where we were forced to scrap up to half the Chinese production, which was still considered a good buy because of the per piece cost (on paper). Well, dear fellows, when you scrap half, the base price just doubled and that is before you count holding inventory costs, logistics, replacement (usually out of desperation at the highest spot prices) and lost business and contractual fines.

Furthermore, Russia is better placed to service Europe and the US logistically, with shorter routes and thus quicker times, requiring less safety stock to maintain. Russian suppliers get the 18% VAT refunded to them when their production goes to export, another price advantage on the bottom line.

Over all, you just should not argue with reality....but many Western managers just do.

The New Realities of Russian Sourcing

Many in the West may have missed the fact that Russia has opted out of Recession and has entered a  weak, economic growth phase. It has decoupled from Sanctions and has partially decoupled from the price of oil, with an economy based on manufacturing that is continuing to diversify. As a matter of fact, resource based economics makes up roughly 19% of the Russian GDP. This is the situation that brings us to this topic.

Sanctions, like war, bite and often bite the hand that unleashes them. A large part of Russia’s uplift has been based on over a score of major infrastructural and industrial mega projects that had previously been put off or the need for which had not been apparent as well as import substitution with various degrees of government assistance, something that was all but lacking in the pre Cold War 2.0 era.

To that end, the Russian government has taken a series of projects to economically expand the Far East and create the needed energy infrastructure to develop the Asian market away from Europe. Four greenfield projects, in the $2-4 Billion range are in the works for the Amur River area, specifically the Amurskaya Oblast. The first is entering its third and final stage of construction.

So how are sanctions biting?

On these and other government funded projects, American suppliers, unless working specifically through European/Asian or Russian subsidiaries and manufacturing in Russia, Europe or Asia, are banned from the projects, as politically unreliable suppliers. Yes, the Russian government has heard the US Congress’ continuous drum beat of economic, financial and political warfare and has shot back and as usual, while the US Congress gets fat off of special interest donations, US workers will suffer lost opportunities. The only exception to this is when unique technologies are at stake, but this is a rare exception.

Equally US companies, like Exxon, have lost their place in the various artic projects. Just in one light sweet crude oil patch in the Kara Sea, Exxon, who had a 10% stake, has lost an estimated $100 billion over a 10 year period. No, that was not a mistake in the number of zeros.

However, Europeans and Asians should not feel too relieved, as this position is not the only new force in play.

Going into effect on 1 January 2017 was a new decree signed by President Putin that specified a preference for local, Russian manufacturing. It works as follows: whenever a tender is launched, and everything now requires a full tender, and a foreign company is competing against a Russian company, the Russian company’s bid is automatically counted as 15% cheaper. In the event that the foreign company still wins, they are then forced to automatically lower their last bid offer by a further 15% or be disqualified.

Considering that 38% of the Russian economy is manufacturing based, with huge inflows in investment over the past 36 months, most everything needed for these projects can be found in country, either from Russian or foreign manufacturers. And that makes sense, considering that Russia has the lowest utility costs, some of the lowest taxes, lowest wage rates and low cost raw resources.

Due to sanctions, four automobile engine plants were built over the past 5 years. Compare that to zero for the proceeding 24 years. Nissan now builds cars in Russia for export to Mexico, South America and SE Asia. Half a year ago, Mercedes opened a new manufacturing plant, just west of Moscow. The state of the art plant employees some 1.500 employees for full cycle assembly.

What does not make sense is the raw fear of many medium and small Western companies to manufacture in Russia, where companies can sue and win against the government, as opposed to many countries where these corporations do manufacture. Russia ranks 28 in the World Bank’s list of countries in the Ease of Doing Business Index, moving up over 92 positions in 7 years. To put this in perspective, Japan is 29, China 31, France 32, Netherlands 42, Belgium 46, Italy 58, India 63, Brazil 124.

Since major reforms and extremely pro-business economic conditions have not been enough to fight against the Western yellow journalism, the government has decided to make a more pointed approach to forcing localization. Since Russia is one of the few countries running well over a dozen major mega projects in an otherwise recessionary global economy, they have the leverage to do so.