ITE: The other side of the ruble
Posted on March 3, 2009 by Richard Beddard
Filed Under Companies |
From Russia with fear
Since yesterday, a report from Moody’s and a video from the BBC have unsettled me even more about Eastern Europe. Ignorance was bliss. A little information is terrifying. The truth is probably somewhere in between.
The gist of the report is that the credit crunch and collapsing oil price are costing Russian companies. Russia’s recent growth depended on high commodity prices, and cheap foreign debt (to what degree, I’m not sure).
Since the oil price fell 75% in the last six months of 2008 and since foreign lenders have no money to lend, the growth machine is coming to a juddering halt.
Because the economy has gone from high growth to no growth, the ruble is depreciating against the dollar (30% since August 2008), which increases the size of companies’ debts and the likelihood they’ll won’t be able to pay them.
In this BBC clip, Jim Rogers tells ‘The Oracle’ how this might affect us, or Austria at least, which apparently lent 70% of its GDP to Eastern Europe, in the next leg of the credit crunch.
I’m more interested in the effect on Russia, because ITE, the exhibitions company I’m sizing up, does most of its business there and in Central Asia.
Central Asia as ITE defines it consists of the ‘Stans’: Kazakhstan, Uzbekistan, Azerbaijan, Kyrgyzstan, and Tajikistan. The first three are big markets for ITE, and Kazakhstan is heavily reliant on foreign debt.
I had intended to examine reasons to be confident about ITE but that will have to wait until tomorrow when I hope to talk briefly with ITE financial director Neil Jones, because I’ve remembered another worry. The immediate concern is economic crisis in emerging markets like ITE’s. The long-term worry is the repercussions for globalisation, if countries respond to the credit crunch by raising trade barriers, increasing regulation and generally become more autocratic, a point Robin Bew, chief economist at the Economist Intelligence Unit, makes.
Only last year, companies that did much of their business abroad were feted but now, it seems, that bubble is over.
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