Economics on coffee grounds – Newspaper Kommersant No. 244 (7445) of 12/30/2022
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In 2022, much, if not most, of the statistics on the Russian economy has been shrouded in a haze of hostilities. Business, in fear of sanctions, has stopped publishing reports and is trying to hide the structure of asset ownership. The state hid import-export statistics and many sectoral data. It is difficult to say to what extent these measures helped to cope with the effects of sanctions, but at the end of the year, negative consequences were clearly manifested: the deterioration or complete disappearance of industry analytics, a drop in the interest of large investors in the stock market. An even more serious problem may be the deterioration of the quality of planning.
If a historian of the future had to write an article about the Russian economy of the “special military operation period” only on the basis of official sources, he would face great difficulties. For example, how to assess the effect of sanctions on Russian foreign trade if the data on it has ceased to be disclosed since March? Information on the extraction and processing of oil and gas would have to be collected bit by bit from the statements of relevant officials, since the Ministry of Energy closed the data of the Central Control Department of the Fuel and Energy Complex. And if the poor fellow suddenly became interested in the structure of Russian gold and foreign exchange reserves, there is nowhere to get it at all.
Not a number to the enemy
The initiator of the introduction of “statistical censorship” in 2022 was the state, but these measures did not meet with resistance from businesses desperately trying to hide from sanctions – rather the opposite. Thus, the Central Bank allowed banks not to disclose financial statements and “sensitive information” – the composition of the board of directors and management, counterparties in transactions, and so on – and financial institutions took advantage of this with gratitude, although they could have remained transparent.
In relation to companies, disclosure restrictions applied primarily to those who were sanctioned (either directly or through blacklisted shareholders). However, very quickly closed the information and those who were not affected by the sanctions. According to the results of the first half of the year, only MMC Norilsk Nickel and Rusal disclosed IFRS financial statements among blue chips.
Kommersant’s interlocutors among officials and businessmen admitted that “sooner or later, everyone will be under sanctions,” hiding information only gives a respite. But non-public Russian companies, in an attempt to avoid sanctions, began to delete existing data as well. For example, SPARK-Interfax lost information about the ownership structure of the ecosystem assets of a large bank and the founders of several leading Russian electronics manufacturers.
If the actions of business are easily explained by fear of sanctions, then it is more difficult to understand the logic of some government steps to close statistics. The cessation of the publication of data on exports and imports was apparently intended to hide (and thus protect) Russia’s foreign trade partners. But the measure loses its meaning if the information is stored in the trading partner’s statistics.
As a result, the decision only added work to analysts, who are now forced to look for data on coal exports or car imports in the statistics of China, India or Korea, with inevitable discrepancies in such cases. Data on oil production in Russia can be found in the materials of OPEC, and the statistics of pipeline gas exports, formally closed, are now reported by Gazprom itself twice a month.
Protection from provocations
It is difficult to determine the criteria that the state uses when closing access to “sensitive” information, but the risk of sanctions does not seem to be the only or even decisive one. The data hiding trend began long before the military conflict, at least since 2020.
Then, for example, amendments to the federal budget ceased to appear in the public domain, and it became more difficult to navigate the redistribution of funds between budget items. The website “Gosraskhody”, launched by the Accounts Chamber in 2019, which displayed the types and recipients of budget subsidies, actually stopped working. In 2020, the public register of special investment contracts, agreements that companies, including foreign ones, entered into with the government, also began to be only selectively updated.
A vivid example of how broad the definition of “sensitive” information is becoming is the FAS’ reaction to the proposal to publish in one place information on tariffs and volumes of energy consumption throughout the country.
This “will provoke a wave of appeals,” an employee of the housing and communal services regulation department of the FAS sincerely admitted in October at a meeting of the public council under the regulator. The official is sure that “consumers don’t really understand” tariff regulation and, out of ignorance, they will start asking, for example, why heating is more expensive in one region than another, or worse – why tariffs on one street differ from house to house.
FAS employees who were present at the meeting rushed to support their colleague: firstly, power engineers and local regulators are already publishing everything, secondly, the service does not have enough forces to search and process data from all over the country, and thirdly, “some companies in the current situations won’t reveal anything about themselves.” In the end, they agreed that now is not the time to disclose data – because of “possible political and social tensions.” Officials tried to reassure the experts of the public council: they say that such information is needed only for decision-making, that is, for regulators, who, apparently, understand tariffs more than a simple ordinary citizen.
Nothing to analyze here
A direct consequence of the disappearance of a huge layer of available economic information was the decline in the quality of analytics – financial and industry. This segment has already suffered serious damage as a result of the withdrawal of Western companies. Leading foreign news agencies Reuters, Bloomberg, Dow Jones left the Russian Federation. The information coverage of the Russian market by Western investment banks has been reduced. The “big four” audit and consulting companies left. The largest Russian banks, which almost immediately fell under severe sanctions, also sharply reduced the issuance of analytical information – this area revived only closer to autumn.
Smaller analytical companies in the context of a sharp narrowing of the information field were forced to focus on macroeconomic research or foreign issuers. Russian rating agencies continue to work, although they have significantly reduced their comments on the actions of the Central Bank and specific issuers, especially those under sanctions.
Industry analytics also suffered: for example, the Ukrainian publication Industrial Freight, the main source of statistics on rolling stock operating rates, left the Russian market. Who will replace him remains unclear. In other industries, analysts shy away from making public estimates, both because of a lack of statistics to rely on and because of perceptions of the “sensitivity” of almost every aspect of the operation, from importing equipment to exporting goods and services, from financing operations to logistics schemes. Market participants are forced to use data obtained unofficially or knowingly incomplete, which is why estimates begin to differ significantly.
For example, it is currently impossible to understand how the statistics of the Association of European Businesses (formerly the industry standard in the car market) reflect the real situation after some automakers stopped providing data and at the same time unofficial deliveries of parallel imports increased. Such deliveries are considered by the Avtostat agency together with Electronic Passport JSC, but the data is provided without breaking down into new cars and used cars up to three years old.
One of Kommersant’s interlocutors in an electronics manufacturer admits that “now no one has more or less reliable data, for example, on the size of the market for servers and data storage systems, and we were forced to form a department to analyze the market on our own” .
Plans from the ceiling
The closing of reports and the drop in the quality of analytics have already led to a noticeable decrease in the interest of institutional investors in the Russian stock market. The share of individuals in the trading of shares of the Moscow Exchange exceeded 80% by the end of the year in terms of volume. However, the bond market quickly recovered. The Central Bank recognizes the problem and from next year obliged financial market participants to disclose financial statements (with the exception of particularly sensitive ones relating to individuals and counterparties). Issuers, however, will be able to extend the right not to disclose information until the middle of the year.
However, the problems of financial investors or individual industrial companies associated with a deterioration in understanding of their own market are nothing compared to the challenges that the state itself will face. The ever-shrinking volume of open data, creating distorted perceptions of the situation in industries, makes it difficult for officials to work and any form of planning.
In theory, some abstract state, of course, has access to all statistics. However, in practice, before the ministries actively resorted to the help of companies and analysts both for making individual decisions (sectoral subsidies, duties) and for creating sectoral development strategies. This is understandable, because, firstly, even in the old open times, ministries often did not have enough data (for example, commercial information), and secondly, most regulators do not have their own resources for analysis.
Now the situation has become much more complicated, the economy is being actively rebuilt, and officials need to re-understand how it works. Some sectors, with or without state permission, have partially moved into the gray zone: suffice it to mention civil aviation, which receives spare parts for Western-made aircraft from somewhere, despite sanctions.
Market participants are often not very interested in sharing information with regulators about how to solve their problems, and the state, according to Kommersant’s observations, does not always try to find out and take this into account. In recent months, many industry decisions, including on taxes, have been taken after discussion with only individual companies or without it at all. As a result, the state finds itself in approximately the same situation as business, facing the risk of making wrong decisions due to deliberately incomplete data.
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