Emerging Markets : Black Market Booms


As widely anticipated, in late September Russian state monopoly gas giant Gazprom purchased a 73% stake in Sibneft, Russias fifth-largest oil company, for $13.1 billion in what is corporate Russias largest deal ever. Roman Abramovich and his partners purchased the assets of Sibneft for $100 million in 1996. The transaction underscores the Kremlins interest in controlling the countrys energy assets.

In contrast, in September former Yukos oil company head Mikhail Khodorkovsky lost a final appeal in his case, although his sentence in a prison colony was reduced from nine years to eight years. The ruling ended Khodorkovksys hopes of running for a seat for the state Duma in December.

The Russian equity market continued to defy gravity, with the Russian Trading System Index moving through the 1000-point mark for the first time, compared with an October 1998 all-time low of 38 points. Thanks to strong commodities prices, Russian shares remain cheap by global emerging market standards.

On another front, the World Economic Forum characterized Russias government institutions as woefully inadequate, as Russia fell five places to 75th in the forums annual Growth Competitiveness Index. The shadow economy in Russia is still equivalent to more than 40% of the countrys GDP.

Kim Iskyan