Declining confidence of investors in Russia

According to the ”Thomson Reuters & OeKB CEE Business Climate Index” the loss of confidence in the Russian economy already started when the financial crisis began. The country’s strong dependence on the oil industry is considered the reason for the growing pessimism. In the past the revenues from the oil industry were an essential growth driver.

Now the decline of the oil price reveals the negative aspects of this dependency. Among the 400 policy-makers who direct their CEE-participations from Austria and who were interviewed for the survey for the first time the number of those considering the business cycle negative was larger at the end of 2008 than that of the ones considering it positive. Most optimistic business confidence still prevailed for Russia in July 2008. At that time the country was mentioned the second most frequent target destination for investments. It now ranks 7th due to the economic and financial crisis. The Business Climate Index reveals that only eight of the 110 new investment projects for CEE shall be realized in Russia.

Credit insurer Prisma points out that estimating the country-specific risks gets more and more important with an economic situation which gets more and more difficult. They also consider the situation in Russia especially precarious. Contrary to many of the other CEE countries Russia has so far not been degraded but its economic situation remains tight. Rated ”C”, the country holds the second worst position on the insurer’s six-point scale. Due to the present development a country’s risk rating can quickly change, which plays an especially important part for Austrian exporters on financing or insuring their exports. After several years of   growing strongly Russia’s economic growth is expected to slow down significantly this year. An economic growth rate of 1,5 per cent is expected for 2009. In the last quarter of 2008 the industrial production abruptly collapsed. ”The recession was accompanied by a plunge of shares of listed companies and a devaluation of the Rouble”, Bettina Selden, executive director of Prisma Kreditversicherung, explains.

The international rating agency Fitch also paints a gloomy picture of the Russian economy. The country faces more and more difficulties because of the declining prices for raw materials and the capital flight of foreign investors. Edward Parker from Fitch analyzed that the amount of transferred money and the fast declining exchange reserves put additional strain on the country. According to Fitch more than USD 90 billion (€ 71,25 billion) were transferred by investors just during the last quarter of 2008. Within six months the Rouble’s value in relation to the Dollar has dropped by more than one third. The central bank keeps backing the currency to avoid an uncontrolled crash.

A study presented by the market research company GfK in February 2009 sees the situation different. According to GfK Russia will be the second most attractive market in Eastern Europe, ranking just behind Romania, in the next two to five years. Presently only 11 per cent of the companies consider Russia the most attractive market for direct foreign investments. The CEE countries are ”the natural markets for Austrian companies which there is no way round”, as Rudolf Bretschneider sums up the study which represents the estimates of 100 Austrian managers who have already invested in Eastern Europe.

Zitat:
The recession was accompanied by a plunge of shares of listed companies and a devaluation of the Rouble.
Bettina Selden, executive director of Prisma Kreditversicherung,