The Decline of the Emerging Economies
One should not think that the Russian crisis is a unique or isolated situation. Many other developing markets are also struggling to attract investors, and big money is once again flowing into the leading economies.
Some five to seven years ago, the developing markets were boasting record popularity. Investments were shifting in their favor, leaving developed countries behind. Today, we are witnessing the opposite trend – investors are abandoning the emerging markets and going back to the most developed countries, with the US topping that list.
The US economy is showing strong growth figures, so businesses feel quite safe there. In addition, many other developed economies are not able to demonstrate positive trends right now. Unfortunately, the economy is very closely linked to politics, and the political situation in Europe leaves much to be desired. The countries that are suffering the most are Russia and Ukraine, for obvious reasons. But other countries in the region are also finding themselves in unenviable positions. The drop in trade with Russia was a blow to the stagnating European economies; export-oriented producers are facing economic difficulties and are also going under. It is not uncommon to see media reports about protests by European farmers who can no longer sell their goods.
In Russia, the situation is the exact opposite. Companies that manufactured goods domestically for export feel quite positive and are ready to ramp up production. Agricultural producers are also finding themselves well positioned these days – their goods have now become much more competitive. Producers of meat, poultry, and other foods are also feeling optimistic as they welcome greater demand.
However, Russian businesses that were focused on the import of foreign-made products (and there are many such companies) have cause for concern. Some of these companies are waiting to be restructured; others, unfortunately, are dying. Even the companies that are doing well today are hoping to restructure. The businesses that designed their development around relatively low credit leverage will emerge from this process virtually unscathed. A clear strategy will even help those companies whose business exclusively targets imports – they will be able to restructure, and banks will be willing to meet these clients halfway. But the risk-takers who have not accumulated liquidity and capital reserves will have a much harder time. A large number of these businesses will simply disappear.
I am an optimist, and I think that the majority of Russian companies will cope with this crisis; it will make them stronger and wiser in the future. For us, this is neither the first nor the last crisis. In fact, what distinguishes Russian business is our mental and psychological stability – we live in extreme times in an extreme country.
Of course, one could say that this crisis is purely domestic and uniquely Russian since the country is under sanctions that we blame for the recent devaluation of the ruble. But if we take a step back and look at the world as a whole, it becomes clear that the situation is grim for every developing economy. Brazil, Argentina, and Turkey are also experiencing currency devaluations, yet none of them are facing sanctions. Simply put, most emerging markets today are in undesirable positions – investors have lost interest in them.