Transcript: Russia’s failed efforts to rebuild in Ukraine

This is an audio transcript of the FT News Briefing podcast episode: ‘Russia’s failed efforts to rebuild in Ukraine’

Marc Filippino
Good morning from the Financial Times. Today is Friday, February 23rd and this is your FT News Briefing.

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Marc Filippino
The UK and the EU agree to work closely on migration and Japan’s stock market hit a high not seen in more than 30 years. Plus, we’re going to take a look at the Ukrainian city of Mariupol, two years after it was invaded by Russian forces. I’m Marc Filippino and here’s the news you need to start your day.

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Marc Filippino
The UK and the European Union are signing a formal agreement to work together on migration. Today’s deal is between the EU’s border agency Frontex and the British government. The two sides will share intelligence, train officials together and collaborate on new technologies to protect the border. The plan is the latest sign of thawing relations between the EU and the UK after Brexit. Prime Minister Rishi Sunak has said that a close relationship with Frontex is vital to reducing the number of migrants entering the UK. But officials have stressed that the UK will not be part of EU migration policy or be required to take asylum seekers.

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Marc Filippino
Nvidia’s share price surge sent stocks around the world on a hell of a run. The S&P 500, the Stoxx Europe 600 and the FTSE All-World index all ended at record highs, and so did Japan’s Nikkei index. Now, this one is a big deal because the record it broke was set 34 years ago. And we should mention that Nikkei Inc, which calculates and publishes the index, owns the Financial Times. Japan’s market bubble burst in the 1980s and has had a slow time recovering. Leo Lewis, the FT’s Asia business editor, was on the trading floor to witness the historic event for Japan.

Leo Lewis
There was cheering, there was a standing ovation. And so what happened on Thursday was a very significant psychological moment. The ability for Japan to say, look, we are finally through our post bubble period. We can go on to something else.

Marc Filippino
Japan was riding high in the 1980s, especially in the tech and entertainment industries. So when the bubble burst, it was a big one.

Leo Lewis
What you had in Japan was deflation. The banks were in a lot of trouble because of how much money had been loaned against property. You know, people who’d invested everything in assets that were crazily inflated prices were going bankrupt. It was a long process, this kind of gloom that came over Japan left, you know, Japanese households as very, very cautious with their money. They hold an enormous amount in cash. Companies became quite conservative and cautious. And with all that caution, you know, the outside world looks on and goes, look, if they’re being cautious about their own economy and their own stock market, why should we be very enthusiastic about it? And it’s only been very recently that people have sort of looked at Japan with fresh eyes, decided, actually, you’ve got some very high quality companies here.

Marc Filippino
Leo says there are a few reasons that investors outside Japan are looking at the country with fresh eyes.

Leo Lewis
At the top end of corporate Japan are some globally high quality companies. We think of companies like Toyota, of course, in the auto sector, you think of SoftBank in tech and Sony obviously in entertainment. But look, underneath that is a very, very high quality stratum of Japanese companies that are involved, for example in semiconductor production, in speciality chemicals, in speciality engineering and so on and so on. And it’s those companies, the kind of bedrock of the Japanese economy, that have made themselves very lean. They’ve made themselves extremely profitable and they have globalised. And it’s that kind of dealmaking, I think, that reflects an idea that they do need to go overseas to get their growth in a way that in 1989, when the bubble was inflating and they would sit in Japan and sort of export the good stuff and wait for their own domestic market to do the rest.

Marc Filippino
And there are other countries that can learn from Japan’s experience, too.

Leo Lewis
If you look around, China is indeed looking at the possibility of deflation settling in and then not being a temporary thing. And of course at the beginning of deflation in Japan, nobody thought it would last for such a long time. And so there are lessons in terms of the things that Japanese companies have done to globalise themselves and to make themselves leaner, certainly. But more crucially, from a policy point of view, it’s a big cautionary tale about what happens if you let deflation settle in and that it casts its shadow over an entire economy for too long.

Marc Filippino
Leo Lewis is the FT’s Asia business editor.

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Marc Filippino
In other market news, Reddit is gonna float. The social media site filed paperwork yesterday ahead of its initial public offering, which could happen next month. This would make Reddit the first major tech company to test the US IPO market this year. Reddit was valued at $10bn in its most recent private fundraising in 2021. But since then, some investors have marked down their valuations by about 50 per cent.

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Marc Filippino Two years ago, Mariupol captured the world’s attention.

News clip 1
President Zelenskyy says Russia’s siege of the port city is a terror that will be remembered for centuries to come.

Marc Filippino
It was the epicentre of Russia’s invasion of Ukraine.

News clip 2
And their tactics becoming brutally familiar: if you can’t seize the city, then simply flatten it.

Marc Filippino
When Russian forces finally took control of Mariupol, 90 per cent of the residential buildings were either damaged or destroyed. Now Russia is trying to rebuild the city, but it’s not going exactly to plan. Here to talk about it is the FT’s Alison Killing. Hi, Alison.

Alison Killing
Hi, there.

Marc Filippino
All right. So, Alison, after Russia took over Mariupol, what did it do first?

Alison Killing
So very quickly, it installed its own Russian administration, and then it got to work ostensibly rebuilding. So very quickly, a master plan was published. It actually was announced two weeks before the last Ukrainian soldiers even surrendered. And this master plan, it takes us from 2022, when the city fell, through to 2035. It set out strategies for the development of the different neighbourhoods. It had plans for networks of trams and buses to be restored, things like that.

Marc Filippino
And just given the damage from the fighting, I got to assume that these Russian authorities had their work cut out for them. How is the reconstruction going?

Alison Killing
If you listen and watch Russian media, then you would think it was going really well. There’s been all of these brand new shiny apartment blocks which have been completed, and these videos of happy residents moving into them. There are these new trams. But looking underneath that surface, it’s all a sham. So this master plan, we’d learnt that it was actually based on an old Ukrainian master plan from pre-2016. It’s completely out of date. And that’s in fact how they managed to produce it so quickly. The trams that we were shown riding around Mariupol — they were actually trams which the Ukrainian municipality bought just before the war. And the Russians, like, tidied them up after the bombing and then just rebranded them. They added stickers to the side saying St Petersburg and Mariupol are twin cities. We’ve recently seen videos of those new apartments that were being built. And actually they were constructed very, very poorly, partly because they were done so quickly. And they now seem to be falling apart.

Marc Filippino
Now, how did you find all this out? Like who did you talk to?

Alison Killing
So a lot of what we found out, we found out through social media . . .