Financial News: Letter from Moscow: Rising birth rate a cause for celebration

Letter from Moscow: Rising birth rate a cause for celebration by Stephen Isaacs, Alvine Capital Management Ltd. 13 Dec 2010. Capturing the 2014 Winter Olympics and 2018 World Cup has provided a welcome boost to Russian national pride. But a bit of social engineering by prime minister Vladimir Putin is likely to have a more lasting impact. It has led to a dramatic improvement in Russia’s birth rate which, until recently, was little short of appalling. It is time investor fears over a population crisis were reassessed, now Russia’s 21st-century consumer boom is likely to enjoy greater longevity than thought. Following the collapse of the Soviet Union, and attendant economic crises in the 1990s, Russia’s population has been shrinking. Combine this with the dislocation of the economy, and Russia’s health system has also been under great pressure. The fertility rate that had stood at 1.89 – the number of live births per woman – in 1990, fell to a low of 1.16 in 1999. This came at a time of higher adult mortality, with life expectancy dropping from 69.5 in 1988 to a low of 64.5. Emigration has also played a part, with the mass exodus of Soviet Jews peaking in the early 1990s. Russia’s Jewish population had once stood at 2.5 million in the USSR. Little more than 250,000 remain in the region. As the economy recovered in the early years of the decade, so did greater spending on healthcare, and improved diet helped to boost life expectancy to 68.7 in 2010. Sound economic conditions and a better jobs market have allowed more families to put down roots. Soviet couples often had to wait years for their own apartments, and were forced to live with their parents. A real estate boom has tapped into this demand. The government had also recognised the dangers presented by a falling birth rate. Since 2004, every woman has been paid 250,000 roubles – about $8,000, said to equal the average annual Russian salary – for every second and subsequent baby born. This is a real bounty for poor Russians. Plans announced at the State of the Union 2010 address are being drawn up to pay monthly child benefits, with greater payments going to larger families. All this has boosted fertility rates. They increased to 1.54 in 2009. The number of live births per 1,000 rose from a low of 8.27 a year in 1999, to 12.4 in 2009. This compared with 13.8 in the US, and is broadly in line with other European countries. Emigration has slowed. The exodus of Russian Jews, for example, is down to a trickle. Germans and Baltic citizens are still emigrating, but the large number of ethnic Russians returning to the motherland has corrected this imbalance. Ethnic Georgians, Armenians and others from the Soviet diaspora have been attracted to an improving jobs market. Pundits have been slow to pick on this improving story. Mark Steyn, the Canadian right-winger, has ranted: “Russia? The demographics deformation of Tsar Putin’s new empire is even more severe than Beijing’s.” Better-informed consumer groups, such as Procter & Gamble, have pioneered their Golden Sleep Pampers advertising in Russia after seeing population trends play in their favour. Elena Shaftan of fund manager Jupiter, has said: “Russia has a large underleveraged population with a low burden of government debt. What drives this economy is a steady rise in household demand.” Because Russia’s government recognised early the dangers of a declining population, so unlike Japan, proper measures are in place. There are other concerns about Russia, not least the rule of law. But the improvement in the birth rate has alleviated one fear for the country’s future. Stephen Isaacs, Alvine Capital Management Ltd.