French automaker Renault has handed over its Russian assets to the Russian government, both parties announced Monday, marking the first major nationalisation since the onset of sanctions over Moscow’s military campaign in Ukraine.
The same day American fast-food giant McDonald’s said it would exit the Russian market and sell its business after more than 30 years of operations in the country.
Renault controlled 68 percent of AvtoVAZ, the largest carmaker in Russia with the country’s top brand Lada, but was under pressure to pull out of the country since the start of Russia’s military intervention in Ukraine in late February.
Renault has funnelled billions of euros into the Soviet-era factory since the two automakers signed a strategic partnership agreement in 2008.
No financial details were provided on Monday, but Russian Industry and Trade Minister Denis Manturov said in April that Renault planned to sell its Russian assets for “one symbolic ruble”.
“Agreements were signed on the transfer of Russian assets of the Renault Group to the Russian Federation and the government of Moscow,” the industry ministry said in a statement.
Under the agreement Renault will retain a six-year option to buy back the stake in AvtoVAZ.
The deal also included Renault’s Moscow plant, which makes Renault and Nissan models.
“It was a brave and quick decision,” Renault chief executive Luca de Meo told reporters.
– ‘New page in history’ –
De Meo said Russia and its car industry will likely “continue to suffer for a long time” from sanctions imposed over Ukraine.
He added that the company would have “quickly” faced bankrupcy “and that means 45,000 people would have lost their jobs”.
“We didn’t have many choices. I think we did the right thing,” he said.
De Mao did not disclose the financial details of the deal.
Renault indicated that a non-cash writedown of 2.2 billion euros will be made on the firm’s Russia assets in the first half of 2022.
Thanks to AvtoVAZ, Russia was Renault Group’s second-largest market behind Europe last year, with around half a million vehicles sold.
Moscow mayor Sergei Sobyanin said production of passenger cars at the Renault plant would resume under the Soviet-era Moskvich (Muscovite) brand after the French automaker decided to close it.
“This is its right, but we cannot allow thousands of workers to be left without work,” Sobyanin said in a statement.
“In 2022, we will open a new page in the history of Moskvich,” he added.
“We will try to keep most of the team directly working at the plant and with its subcontractors.”
The first Moskvich cars were produced in 1946 and were inspired by Germany’s Opel “Kadett K38.” The Moskvich models were notorious for their shoddiness and were eventually phased out in post-Soviet Russia.
Sobyanin said KamAZ truckmaker will be the Moscow plant’s main partner which will in the future also make electric cars.
Political commentator Anton Orekh said that it was unclear what Moscow authorities planned to do with the plant, but trying to make a new car from scratch in the absence of access to foreign technologies and components would be akin to throwing “billions to the wind.”
– McDonald’s exiting Russia –
Since President Vladimir Putin sent troops into Ukraine on February 24, Renault has had difficulty keeping its operations going due to a lack of components following the imposition of Western sanctions.
The conflict and sanctions have triggered an exodus of foreign corporations.
Russian authorities said they were ready to nationalise foreign assets, and some officials assured Russians that their favourite brands would have domestic alternatives.
McDonald’s in March closed all of its 850 restaurants in the country.
On Monday, the company said it was looking to sell “its entire portfolio of McDonald’s restaurants in Russia to a local buyer”.
The company added that after the sale, the restaurants would no longer be able to use the McDonald’s name, logo, branding or menu.
“We’re exceptionally proud of the 62,000 employees who work in our restaurants, along with the hundreds of Russian suppliers who support our business, and our local franchisees,” chief executive Chris Kempczinski said in a statement.
“However, we have a commitment to our global community and must remain steadfast in our values.”
US baby formula plant again halts production due to flooding
Abbott Nutrition has once again shut down a baby formula plant, this time due to heavy rains and flooding, less than two weeks after it reopened to try and mitigate a crippling US shortage.
The facility in Sturgis, Michigan resumed production on June 4, only to close down again earlier this week so the company could assess rain damage.
Severe thunderstorms that battered southwestern Michigan on Monday resulted in “high winds, hail, power outages and flood damage,” as well as “flooding in parts of the city, including areas of our plant,” Abbott said in a statement posted to their website Wednesday night.
“As a result, Abbott has stopped production of its EleCare specialty formula that was underway to assess damage caused by the storm and clean and re-sanitize the plant,” the statement said.
“This will likely delay production and distribution of new product for a few weeks.”
The plant, a major producer of formula, shut down in February and issued a product recall after the death of two babies raised concerns over contamination.
That worsened to a widespread forumla shortage caused by supply issues, which was particularly concerning to parents of infants with allergies or with certain metabolic conditions, who desperately scoured stores and online sources for the specialized formulas.
The crisis prompted President Joe Biden last month to bring in formula from Europe on commercial planes contracted by the US military. He also invoked the Defense Production Act to give baby formula manufacturers first priority in supplies.
Abbott, which controls about 40 percent of the US baby food market, had announced its hypoallergenic EleCare formula and should be back on store shelves around June 20.
In the statement Wednesday, the manufacturer assured consumers that it had “ample existing supply” of EleCare and most of its other specialty formulas to meet demand until production could resume again.
The formula shortage, coming at a time when soaring inflation and supply-chain delays have fanned a growing sense of unease among many American families, and Biden critics have seized on the situation to question the competence of his administration.
US urges Russia to open Ukrainian ports for grain exports
US Agriculture Secretary Tom Vilsack called on Russia Thursday to rapidly open Ukraine’s ports to permit the export of millions of tonnes of stockpiled grain.
“They should be acting immediately to open up those ports and they should end this war,” Vilsack told reporters at the United Nations.
“This is serious thing, we shouldn’t be using food as a weapon,” he said.
The United Nations has been deep in talks between Moscow, Kyiv and Ankara for weeks on how to open up the Black Sea, where the Russian navy has created a blockade around Ukraine, to commercial cargo ships to carry the grain to global markets.
Such an agreement would also permit Russian fertilizer, now blocked by sanctions, to return to the global market.
With grain prices soaring internationally and key importers in the Middle East and Africa facing supply shortfalls, Moscow has demanded that economic sanctions on it be lifted in exchange for allowing the exports.
Vilsack said US and European sanctions do not apply to grains and fertilizers.
Addressing the ongoing talks on the issue, Vilsack said he hoped that Russia would “take this thing seriously and that they’re not just doing this to create an image.”
He urged Moscow “to make sure that they are negotiating in good faith about the reopening of the ports and they do so quickly. Because the need is immediate.”
Vilsack said a US proposal to build silos in Poland to receive Ukrainian grain was to reduce the possibility of spoilage before the grain can transported to markets.
On Wednesday, Turkish Foreign Minister Mevlut Cavusoglu said Ankara is ready to host a four-way meeting with the United Nations, Russia and Ukraine to organize the export of grain through the Black Sea.
Under the plan, safe corridors for grain exports from Ukraine could be established without de-mining in the Black Sea, he said.
“If Russia answers positively, there will be a four-partite meeting in Istanbul,” Cavusoglu said.
There was no immediate comment from Moscow.
Is recession the only way out of US inflation scourge?
A massive interest rate hike by the US Federal Reserve and promises of more to come are fueling warnings that the only offramp from the searing price hikes engulfing American families is a full-blown recession.
The Fed remains hopeful it can slow activity and demand, cooling the blistering pace of inflation, without derailing the world’s largest economy. But skepticism is growing about the chances of success.
The central bank hiked the benchmark borrowing rate on Wednesday by three-quarters of a point, the biggest increase in nearly 30 years, and indicated a similar move is possible in July.
The super-sized rate increase came as the Fed faces intense pressure to curb soaring gas, food and housing prices that have left millions of Americans struggling to make ends meet and sent President Joe Biden’s approval ratings plunging.
The central bank has raised the key rate 1.5 points since March, as the Russian invasion of Ukraine and ongoing Covid-related supply chain issues combine to send prices up at the fastest pace in more than four decades.
Fed Chair Jerome Powell said recession is not the goal, but bringing down inflation “expeditiously” is “essential” since that is vital to a healthy economy.
But Kathy Bostjancic, chief US economist at Oxford Economics, warned that “it becomes very difficult to thread that needle.”
The Fed will need a Goldilocks scenario where “a number of things fall into place and at the right time,” she told AFP.
The healthy US labor market and strong consumer demand, helped by a beefy stockpile of savings, are working in the Fed’s favor and could support activity even as the economy cools.
In the wake of the Fed decision, mortgage rates rocketed to their highest level in 13 years, with the average for a 30-year, fixed rate home loan reaching 5.78 percent.
Drivers still face gas prices at the pump of more than $5 a gallon, although for the first time in days, the national average fell on Wednesday, down from Tuesday’s record.
“My colleagues and I are acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing and transportation,” Powell told reporters after the rate hike was announced.
– Higher unemployment –
With the shift towards prioritizing the aggressive tightening of lending conditions — which policymakers see rising to 3.8 percent next year — the best the Fed might be able to hope for now is a “softish” landing, which would include higher joblessness.
The economy has continued to create jobs: the unemployment rate in May was 3.6 percent, just a tick above its pre-pandemic level, and there are nearly two job openings for every unemployment person, compared to 1.3 pre-Covid.
The Fed chief said “a 4.1 percent unemployment rate with inflation of well on its way to two percent, I think that would be a successful outcome.”
But he stressed that “events of the last few months have raised the degree of difficulty” in achieving the soft landing, and it likely will “depend on factors that we don’t control.”
But a half-point increase in the jobless rate can signal the start of a recession.
Diane Swonk of Grant Thornton, a long-time Fed watcher, called the central bank’s outlook “fanciful.”
– Rising risks –
Steve Englander of Standard Chartered Bank and a former Fed economist does not expect a recession — usually defined as two quarters of negative growth — and said unemployment may not have to increase by that much to achieve the Fed’s goals.
But the central bank will have to shrink demand, and “it’ll be painful, even if it’s not a technical recession.”
“The risk of a recession is rising and it’s rising sharply,” he told AFP.
But it is a risk the Fed is willing to take since it has made fighting inflation the priority.
Bostjancic said a softish landing is still possible, but without tough action to contain prices, the US could face stagflation — lower or negative growth with high inflation — last seen in the 1970s and 80s.
“The Fed is worried that if they don’t take care of inflation, now, it’s going to linger and be a problem many years into the future,” she said.
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