This report examines how international businesses are faring in Russia after 18 tumultuous months in which sanctions have been imposed, oil prices fallen and policy has been volatile. We look at what some of the biggest international investors are saying about Russia in their published reports, covering the six quarters in 2014 and the first half of 2015. In particular we examine how the 46 companies in our sample assess Russia and whether their actions show they are committed to the market or stepping back, and we consider what aspects of Russian policy are exacerbating or alleviating the concerns they may have.
The main findings of the report:
- The overwhelming majority of firms have a bleak assessment of Russia, due to both structural and cyclical factors, with six times as many viewing the market negatively than those that view it positively.
- Even so, twice as many firms are committed to the Russian market and expanding their presence there as those that are reducing it, although there is an even larger group of companies that are either standing still or not reporting changes;
- There are considerable difference in the assessments and behaviours of companies across sectors, with firms in healthcare the most optimistic and those in the financial and energy sectors the most pessimistic.
- While most firms do not comment on Russian policy those that do tend to be negative with concerns greatest regarding the food embargo and policies impacting on the financial sector.
- A number of firms are behaving in a striking way which appears counter-intuitive on the surface. In several sectors we find examples of companies that are downbeat in their assessment of the Russian market, but are still taking concrete steps to expand their operations. We describe this counter-cyclical strategy as ‘doubling down’. The strategy is most prevalent in the non-food-and-drink consumer sector.
Many firms are still reassessing their Russia strategy and we conclude this is a critical moment for foreign companies in Russia. We do not yet know whether the commitment being shown to the Russian market in the face of widespread pessimism about market conditions will be sustained. Some of Russia’s problems are undoubtedly structural, with growth slowing in the years running up to 2014. Much will undoubtedly depend on whether the factors that have caused the market outlook to deteriorate so rapidly in 2014 – sanctions, oil prices, and some aspects of policy – are temporary. If they are not then we expect that more firms will begin to reduce their exposure in Russia in the months ahead.
The views expressed in this note can be attributed to the named author(s) only.