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Why Russia Is Struggling to Build Putin’s Grand Dream

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(Bloomberg Opinion) — Russian President Vladimir Putin’s so-called national projects — spending plans meant to restart economic growth in Russia — appear to be stuck. Surprisingly, money isn’t the problem: There’s cash to fund them, but the Russian bureaucracy won’t spend it, apparently fearing responsibility for bad outcomes.The projects envisage a total outlay of 25.7 trillion rubles ($400 billion) until 2024. They aim to boost Russian quality of life in the broadest sense, from providing better health care and schooling to making Soviet-built cities  more livable. Putin has noted his sliding popularity, and he’s out to prove to Russians by the end of his current presidential term, which ends in 2024, that he’s good for more than a muscular foreign policy. But the program, first announced last year, has gotten off to a slow start. Earlier this month, the Accounting Chamber, Russia’s budget watchdog, published a report on the state of federal spending in the first nine months of 2019. According to the document, while total budget spending reached 62.9% of annual allocations (the lowest at this time of year since at least 2010), spending on the 12 national projects, plus a related plan to modernize Russia’s “backbone infrastructure” such as ports and railroads, only reached 52.1% of what’s been earmarked for the year. On some of the projects, in particular the effort to boost Russia’s digital economy, barely any of the available funds have been spent. And the total spending on the procurement part of the projects, as distinct from other forms of spending such as subsidies or transfers to regional authorities, has only reached 14% of the planned amount for the year.Russia regularly fails to spend its entire budget in a given year. At the end of 2018, 778 billion rubles ($12.1 billion) was left over. This year, Accounting Chamber head Alexei Kudrin expects 1 trillion rubles to be left, in large part because of the underspending on the national projects. Kudrin, a former finance minister, is the most prominent of Russia’s “system liberals,” Putin loyalists who favor more progressive government policies. He said this to the Russian parliament on Wednesday:Why aren’t we spending 1 trillion rubles, or 1% of GDP? Of course one can’t say we have too much money and that’s why we can’t spend it. I think it’s because of low-quality government. In 2017, Kudrin and fellow economist Alexander Knobel published a paper arguing that Russia was spending too much money on programs where expenditure is weakly or negatively correlated with economic growth, such as defense and security, and too little on those that drive expansion, such as education. The national projects are at least partly Putin’s response to Kudrin’s and Knobel’s thinking. Kudrin’s statement to parliament implies that bureaucrats simply don’t know how to run growth-friendly projects. It’s more likely, however, that they’re merely scared of spending the allocated money in ways that could land them in trouble. Because the national projects are Putin’s personal plan, they enjoy the attention of the president’s increasingly powerful and well-funded enforcement apparatus. Putin wants to make sure the allocated money won’t be stolen. That, however, is not easily done. As Sergey Aleksashenko, a former deputy central bank governor and now a Putin opponent, tweeted earlier this week, the requirements for spending budgetary funds are written so that they’re “impossible to execute without breaking rules. When an official asks himself if he wants to deal with the prosecutor’s office, the answer is obvious — to hell with these national projects!”A select group of Putin's friends can still profit from government spending. For example, earlier this week, the chief executive of a company owned by Putin’s judo sparring partner Arkady Rotenberg said the government-funded construction of a bridge between mainland Russia and Crimea would be merely a break-even project. But not long ago, Rotenberg sold one of the companies involved in the construction to the state-controlled natural gas producer Gazprom for a reported 75 billion rubles; he’d bought the five firms he merged into that company for 8.3 billion rubles in 2008 — from Gazprom.Of course, not everybody can pull of such schemes. Russian bureaucrats and subsidy recipients are regularly arrested and sentenced for misspending government funds even when they have achieved satisfactory results. Kirill Serebrennikov, a prominent theater director and darling of the Moscow intelligentsia, spent 19 months under house arrest on charges of embezzling government money, though he was able to show videos of the performances for which the funding was used in strict accordance with the contract. He still hasn’t been fully cleared.Earlier this month, the Prosecutor General’s office announced it had found 2,500 different irregularities in the administration of the national projects, mainly involving the distribution of subsidies and procurement. Some of these will end in criminal cases; no wonder the procurement budget was only 14% spent by the end of September.The creeping nationalization of Russia under Putin, and the accompanying empowerment of enforcement agencies, has created a dilemma. There’s not enough private initiative and private investment to boost growth beyond 1% to 2% a year, but not even Putin believes in the efficiency of government spending because of endemic corruption. As a result, government money still goes to players with good enough connections to avoid prosecution, but it’s being withheld elsewhere. Russia’s unique mixture of a grasping state, a graft culture and excessive centralized control continues to keep it from realizing its economic potential.To contact the author of this story: Leonid Bershidsky at lbershidsky@bloomberg.netTo contact the editor responsible for this story: Tobin Harshaw at tharshaw@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Leonid Bershidsky is Bloomberg Opinion's Europe columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.



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Happy contrails … Delta sees strong 2020 profit, revenue

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Delta Air Lines, the most profitable U.S. carrier, expects profits and revenue to increase next year on sustained demand for air travel and stable prices for jet fuel.

The airline’s top executive, however, warns that concern about the environmental impact of flying — including flight-shaming and the potential for higher taxes on emissions — is “the existential threat” to Delta’s ability to keep growing.

“You see it happening in Europe, it’s increasingly coming here to the U.S., you’ll see it on a global scale,” CEO Ed Bastian said Thursday. “We are seen in the world’s eyes as somewhat of a dirty industry.”

During a meeting with analysts in Atlanta, Bastian said the airline industry has done a “terrible” job explaining how it is reducing emissions through the use of more fuel-efficient planes, and needs to more forcefully argue for the economic and other benefits of travel.

On Thursday, however, investors seemed more interested in Delta’s short-term financial outlook. They bid up shares of Delta Air Lines Inc. by $1.89, or 3.4%, to $56.97 in midday trading.

The Atlanta-based airline said that 2020 adjusted earnings will be between $6.75 and $7.75 per share. The midpoint of that range is modestly higher than the $7.05 projected by industry analysts, according to a survey by FactSet.

Delta expects revenue to grow 4% to 6% over this year, above the 3.6% increase predicted by the analysts.

Bastian said strong spending by travellers boosting the airline now should spill into 2020.

“Holiday bookings look good, and bookings into the first quarter look strong,” he said in an interview with The AP. “So the U.S. consumer is holding (up) well.”

However, many analysts believe fares will fall next year if and when regulators allow the grounded Boeing 737 Max to resume flying. American, Southwest and United would likely add new seats to the market with their Max jets, which have been grounded since March while Boeing works to fix problems that played a role in two deadly crashes overseas.

There are a number of other factors that could influence travel decisions, including political uncertainty with a general election in the U.S. next year.

“The last election cycle, in 2016, we did see spending slow down a little bit in certain spaces — some consumer spending as well as business spending,” Bastian said.

Delta expects to increase its passenger-carrying capacity by 3% to 4% next year — unchanged from earlier plans — with a chunk of that related to resuming flights to India.

Delta predicted a modest increase in costs. After a sustained increase between 2016 and 2018, the cost of jet fuel has remained stable this year. This summer, Delta increased spending on overtime to handle heavy traffic, and it is negotiating with pilots over a new contract that is certain to include pay raises.

The airline said this week that it plans to hire 1,300 pilots in 2020, although Bastian said most will replace those who are retiring or leaving the airline.

Delta also announced it will invest in privately held Wheels Up, which lets members use private planes at an hourly rate. Delta did not disclose the size of its investment or how much equity it will get in Wheels Up, which will have a fleet of 190 planes.

Delta has reported net income of more than $33 billion since the start of 2010 after losing $26 billion in the previous decade, which was marked by terror attacks using U.S. planes, two recessions and an oil-price shock.

In recent years, the airline has plowed some of those earnings into new aircraft that will be about 25% more fuel-efficient than the planes they will replace.

Aviation accounts for 2% to 3% of carbon emissions, but it is growing faster than most other sources. Airline executives including Air France CEO Anne Rigail have sounded alarms about flight-shaming. UBS said its survey in the U.S. and Europe found that one in five respondents claimed they had cut back on flying in the past year.

And Time just named 16-year-old Swedish climate activist Greta Thunberg its youngest Person of the Year for leading a movement that includes avoiding flying.

In response to criticism, airlines have stepped up carbon offsets — investing in projects to reduce climate-changing pollution — and flown a few flights with biofuels. But true breakthroughs, something like all-electric airliners, are years if not decades away.

David Koenig, The Associated Press


The post Happy contrails … Delta sees strong 2020 profit, revenue appeared first on Canadian Business – Your Source For Business News.



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Apple Avoids $150-Per-iPhone Levy After U.S., China Reach Deal

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(Bloomberg) — Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. Apple Inc. avoided 15% tariffs on its most important products, the iPhone, iPad and MacBooks, after U.S. President Donald Trump signed off on a trade deal with China.The new import duties were due to kick in Dec. 15 and could have added about $150 to the price of iPhones during the crucial holiday shopping season, according to Wedbush Securities analyst Dan Ives.“Trump delivered an early Christmas present to Apple,” Ives wrote in a note to investors following news of the trade deal. “If this tariff went through it would have been a major gut punch for semi players/Apple and could have thrown a major wrench into the supply chain and demand for the holiday season.”Holding product prices steady while swallowing additional tariffs would have cut Apple earnings per share by about 4% next year. If the company reacted by raising iPhone prices, demand would shrink 6% to 8% in 2020, Ives estimated.Apple already is paying duties on the Apple Watch, AirPods headphones, iMac desktop computer and HomePod speaker. Some of those levies may be rolled back. The deal presented to Trump on Thursday included a promise by the Chinese to buy more U.S. agricultural goods. Officials also discussed possible reductions of existing duties on Chinese products, according to people familiar with the matter.Although the Dec. 15 tariffs were averted, the broader trade war has exposed a weakness at the heart of Apple’s business. The world’s largest technology company relies on suppliers and manufacturing partners that are mostly based in China. Apple can’t quickly move production to other countries, so it has counted on a furious White House lobbying campaign this year, led by Chief Executive Officer Tim Cook, to protect its key products from tariffs.Cook met frequently with Trump this year, and even took criticism for standing beside the president as he blasted the media and House speaker Nancy Pelosi at a Mac Pro assembly facility in Texas last month.Trump said at that event that it isn’t fair for Apple to be taxed on iPhones built in China given that South Korean rival Samsung Electronics Co. wouldn’t have to pay the duties.“Cook has become so crucial in these ongoing China negotiations,“ Ives wrote on Thursday. Apple “more than any company out there has the most to lose if this tariff war does not see a truce going forward.”To contact the reporter on this story: Mark Gurman in Los Angeles at mgurman1@bloomberg.netTo contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net, Alistair Barr, Andrew PollackFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.



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Safra Catz to Remain Sole Oracle CEO After Mark Hurd’s Death

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Oracle executive chairman Larry Ellison said the software giant won’t hire a second chief executive officer to run the business alongside CEO Safra Catz, deciding not to replace the late Mark Hurd.

“We have no plans for having a second CEO,” Ellison said Thursday during a conference call with analysts. He pointed to the company’s second-tier of executives, who are being groomed for future leadership. “Those people will be the next CEO when Safra and I retire, which will be no time soon.”

Bloomberg News reported in November that Oracle decided to hold off on naming a direct successor to Hurd and was instead focusing on grooming its leaders who are now running business divisions. Hurd had been co-CEO with Catz for five years before his death in October.

Additionally, Oracle gave a sales forecast for the current quarter that was in line with analysts’ estimates, signaling muted demand for the company’s software amid its uneven transition to cloud computing.

Revenue will increase 1% to 3% in the fiscal third quarter, Catz said Thursday on a conference call with analysts. Wall Street projected a 2.3% jump.

Earlier, the world’s second-largest software maker reported sales gained less than 1% to $9.61 billion in the period that ended Nov. 30, short of analysts’ projections of $9.65 billion. Shares declined 3% in extended trading after closing at $56.47 in New York. The stock has gained 25% this year.

Since Hurd’s death, Ellison and Catz have sought to reassure investors about the company’s stability, emphasizing Oracle’s advantage in the market for financial planning applications, where it’s seeing some of its strongest sales growth.

While Oracle has made little headway in its effort to compete with the biggest cloud companies to rent computing power and storage, it remains a leader in database software. Now, the company is betting on its new Autonomous Database, which runs without a need for human administrators, to spur revenue in the face of strong competition from Amazon.com Inc.’s cloud division.

After inconsistent sales growth the past five years, Catz pledged to investors in September that revenue would accelerate this fiscal year and next, and that earnings per share would grow by a double-digit percentage. To help reach that goal, the company that month announced a new artificial intelligence-driven operating system, as well as partnerships with software makers such as VMware Inc. and Box Inc.

In the fiscal second quarter, revenue from cloud services and license support climbed 2.6% to $6.8 billion. While that metric includes sales from hosting customers’ data on the cloud, a large portion is generated by maintenance fees for traditional software housed on clients’ corporate servers.

Cloud license and on-premise license sales decreased 7.5% to $1.13 billion in the period, suggesting the company is signing fewer new deals.

Profit, excluding certain items, was 90 cents a share, compared with analysts’ average estimate of 89 cents. In the current quarter, Oracle projected earnings of 95 cents a share to 97 cents a share. Analysts, on average, estimated 96 cents a share.



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