War’s Economic Echo
// Russian businessmen fearing international isolation
The war with Georgia will negatively affect the Russian economy causing reduction in foreign investments in the long run and complicating the work of Russian companies abroad. In the country proper, the state continues to interfere in the economy, with domestic factors being the key reasons for the Russian stock market’s collapse. These are the major results of the regular monthly survey with Russian businessmen in the framework of the joint project of the Russian Managers Association and the Kommersant Publishing House.
The survey was conducted from August 27 to September 5, 94 top-managers and Russian companies’ owners polled.
The world’s back stage
Apparently, the Russia-Georgian conflict has been the key event of the present. It started on August 8 developing in hostilities which drew a wide response at the international level. We decided to find out the factors businessmen regard as the conflict’s routes, and its consequences for Russia’s economy.
The poll found that businessmen consider direct confrontation of Russia’s interests with those of other states (52%) rather than with those of Georgia (20%) the main reason for the beginning of the hostilities. Only 8% of the respondents noted the personality factor as a catalyst for escalation of the hostilities.
This said, in the view of the Russian business community, the conflict is not local, that is why it is likely to have large-scale consequences. The consequences are thought to be unfavorable in general, according to 60% of those polled. 40% of the businessmen emphasized that Russia’s economy will be in a disadvantageous position due to a break in economic ties with the West or an outflow of foreign investments from the country, whereas 20% gave other reasons for a possible deterioration of Russia’s economic situation. Every fifth respondent believes the war in Georgia won’t have any particular impact on the state of affairs in the Russian business. It need be said that no one referred to the military conflict as a blessing which could boost the state’s demand for military equipment and increase the workload of Russia’s companies of the military-industrial complex, or result in new business links with international partners.
The conflict’s international scope is expected to have a negative influence on the dynamics of investing in Russia. 62% of the businessmen think that this factor bodes ill for the growth of capital inflow volumes. No one admits that the war will make Russia more attractive for investors.
However, the recent developments will change both economic situation in Russia and common business practices abroad. From the viewpoint of 64% of those surveyed, the military operation will inevitably lead to complicating the working conditions abroad. 9% of the respondents expect Russia to gain ground in international politics, which could ensue certain improvements in the work of the companies doing business abroad. 27% of those polled do not link the conflict’s hidden political motive with any expects of doing business abroad.
Nevertheless, all the concerns mentioned above relate to the situation in the long run: the hostilities in the conflict zone haven’t had any impact on 88% of the companies whose top-managers and owners took part in this survey (as to the rest 12%, the influence was mostly detrimental).
The internal enemy
Russian Prime Minister Vladimir Putin’s lashing out at Mechel’s pricing policy resulted in the company’s shares value fall, which fomented the Russian stock market’s collapse. The Russian Federal Antimonopoly Service’s charges against Mechel allegedly violating Artile 10 of the Federal law “On Defending Competition” brought about imposing sanctions on the company for abuse of its dominant position in the market. The chain reaction seized the other large enterprises in the coal branch, including “Raspadsky Coal” and Evraz Group, which are now paid special attention to.
The market’s prompt reaction to the Prime Minister’s speech showed that, from investors’ point of view, political risk are pretty high in Russia. Businessmen share the same opinion. 64% of them presume that it is internal, rather than external factors that influence the state of affairs in the Russian stock market the most – even provided the Russian stock market’s clear-cut dependence on the situation in the world crude markets. Only 32% of the businessmen incline to the opposite view.
This sort of cause-and-effect relation is a manifestation of a broader trend – the state’s more extensive interference in the economy. This trend has been spotted by 68% of those participating in the survey, with 28% arguing that the magnitude of the state’s interference in the economy hasn’t changed. No one noticed reduction, at that.
It need be added that the changing the rules of the game as a result of the state’s interference is not the first occasion of that kind in Russia’s history. The YUKOS story is still remembered – many investors feared that the scenario would repeat with Mechel and sold out their shares. Those surveyed this time are not that panic-stricken. The respondents divided by half: 52% said they saw some similarity between the YUKOS and Mechel deals, whereas 44% regard these cases as absolutely different. Only 4% saw a direct analogy. However, you should not rule out “recurrences” given the state’s soared interference in business. The respondents called the fuel-energy complex and metallurgy the branches likely to fall under state pricing regulation (23% and 16%, respectively). Only 5% predict the distillation, building and municipal economy sectors will be paid special attention to.
Sergey Litovchenko, Alexander Dynin, the Russian Managers Association; Pyotr Rushaylo, Kommersant
All the Article in Russian as of Sep. 18, 2008
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