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www.moscowtimes.ru
By Greg Walters
August 5, 2004
JULY SENT A JOLT THROUGH INVESTORS
Confidence in the business climate plunged last month as the government threatened to sell off Yukos' main oil production field, rumors of a liquidity crisis caused a run on Russian banks, and American journalist Paul Klebnikov was shot dead in an apparent contract killing.
The MT Business Confidence Index, compiled from a pool of managers and market watchers, took its biggest hit in July since the October arrest of Yukos founder Mikhail Khodorkovsky, dropping five points to 24. On the MT scale, 10 represents the lowest confidence and 50 the highest. The index has fallen by nine points since the beginning of June.
The politically tainted fight around Yukos and growing uncertainty about the banking sector dealt the biggest blows to confidence, most index respondents said.
"It's a one-two punch. The Yukos affair has turned out as bad as people feared, and there's nothing like seeing babushkas out there banging on glass doors with security guards shoving them out to instill a sense of panic," said Vladimir Berezansky, vice president of PBN Moscow, the international consulting firm that helped bring Chiquita bananas and Apple computers to Russia in the 1990s and is credited with introducing the term "PR" into the Russian lexicon. |
The personal business indicator, a component of the MT index that measures participants' concern about their own businesses, fell by three points to 27 after holding steady at 30 since December. But the personal index, which measures concern for personal prosperity, stood fast at 30.
"People are worried about the global results, not their own," said Dennis Hopple, president of CBSD business school in Moscow. "The international money people are saying, 'If this thing [Yukos] goes south, it's going to have an effect on FDI.' That's a strategic issue. It has absolutely no affect on my business today."
Berezansky agreed. "The business community is saying as a whole, 'We don't like what we're seeing [but] that doesn't mean we're leaving the country,'" he said. |
Some respondents said high-profile events that are not necessarily directly linked to business – like the shooting of Klebnikov, the editor of the Russian version of Forbes magazine, outside his office by unidentified gunmen on July 9 – are beginning to have an effect on the overall business environment.
"I had a Western company talking to me about an acquisition a few weeks ago. In the first minute, you hear the words 'Yukos,' 'Klebnikov,' 'banking crisis.' If a guy has a negotiating tool, he'll use that to force the price down, if he can," said Tim McDonald, CEO of the TV3 television network.
McDonald said the foreign shareholders of companies operating in Russia are the most likely to get spooked by headlines. The result can be a kind of bubble-up uncertainty, even if businesspeople in Russia think that risks are low.
"I've heard people say, 'Part of our concern about Russia is, how do we explain the country risk to our shareholders,'" McDonald said. "You're talking about perception, the perception of people who are not deeply knowledgeable."
Sergei Ryabokobylko, partner at Stiles & Ryabokobylko, a commercial realtor, warned that the large amount of media attention paid to Yukos and banking is taking attention away from issues that are actually more important for the business environment. The possible overpricing of residential real estate in Moscow, for one, poses a much graver concern, he said.
"There are a tremendous number of people using apartments as bank accounts," he said. "God forbid the prices start to slide. People are going to start cashing in their positions. If the market changes, it's like an avalanche effect."
In the weeks ahead, business confidence could be affected if Yukos is forced to sell off the Yuganskneftegaz oil field at a cut-rate price or if there are further rumblings in the banking sector.
Phillip Gillen, general manger of Intercomp, which outsources payroll accounting for 250 clients in Russia, said his company meets with about 10 companies a month that are looking to set up shop here and that most have not lost any of their initial confidence in the Russian market. "Nowadays, people have done more homework," Gillen said. "Their expectations are more reasonable. I don't see them being panicked."
Berezansky said Western investors he talks to tend to see Russia in the context of other developing countries.
"You have to look at what they're doing in China, Indonesia, India, Brazil," he said. "These things do happen in emerging markets."
Russia's sheer size, however, makes it an important target for international investors, and July's worries are not strong enough to scare them off, he said.
"International institutional investors or portfolio investors weigh big markets differently," he said. "If this were going on in a Baltic state, they'd be long gone." |
The MT index is based on 10 indices measuring respondents' attitudes toward issues such as corporate governance, unemployment and inflation. Political instability is measured slightly differently: At the lowest possible score of 10, no one is worried about it, while at 50 it is on everybody's mind.
The index relies heavily on management opinion and is weighted according to the size of the company and the experience and position of the respondent.
A pool of 440 managers and market watchers participate in the survey, and 85 respondents took part in the July poll, which was conducted from July 15 to 27.
Geoffrey Cox
Chairman, Astera
"The availability of money is related, to a certain extent, to the banking crisis. If I wanted a bank to produce money to build a whole pile of houses, I think they probably wouldn't do it. Or the bank might charge a higher rate because of the increased risk. I sensed it before, but it's got more noticeable now."
Dennis Hopple
President, CBSD
"Any time an American is killed on the streets of Moscow, it's a very unusual event. Of course, anything can happen to anyone at any time, but I wouldn't change what I'm doing or where I'm working for anything. I love it here. I think what we're doing is good, and I think long-term, things will settle down."
For Vladimir Berezansky's analysis of
this summer's banking crisis, click here.
For more information on Vladimir and his
colleagues at The PBN Company, click here.
Articles is reprinted with the
permission of The Moscow Times.
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