According to the Kremlin, the Russian economy has suffered but not as much as the West expected after starting economic sanctions in July 2014 because of the war in Ukraine. This observation has been made several times throughout 2015 although many western officials predicted that the Russian economy couldn’t withstand such financial pressure, in addition to ongoing drop in oil prices, for more than just a few months. Russian President Vladimir Putin said that what he and his government see as “temporary difficulties” have forced Russia to adapt and undertake the needed change in its economic model.
For instance, despite difficulties resulting from higher inflation, Putin pointed out that Russia’s agriculture sector grew by 3% in 2015 while overall GDP dropped by 3.7% and industry by 3.4%, a fact he introduced as evidence of Russia’s growing ability to replace foreign products with local ones. On the other hand, the cost of sanctions for the European Union (EU) has continued to increase, so far for no concrete results on the ground since the sanctions haven’t prevented Russia from pursuing its strategic objectives in Crimea and Syria.
From a strict business standpoint however, Russian capital outflow hit $59 billion in 2015, still a large amount but almost 3 times less than in 2014. Whatever the challenges of the current economic circumstances, Deloitte wrote, Russia remained a country with an enormous potential for foreign investors. Almost every sector of the Russian economy needs large amounts of investment in line with the government’s goals regarding the country’s modernization.
Over the last couple of years, the circumstances favored a depreciation of Russian business assets that was generally unjustified and the stronger than expected resilience of the Russian economy could provide investors with enough security margin. Keeping an eye on the EU’s hesitations – particularly from German and French governments – about the continuation of economic sanctions and on the oil prices will be a top priority for anyone’s investing in Russia. Less severe sanctions and an unexpected rebound in oil prices in the medium term seems not so unlikely.
Who identified specific opportunities and dared to invest before that could reap great benefits.
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