I carried out a research on Nordic manufacturing companies in Russia in 2011-12. One of key questions of the study concerned investment strategies.
In connection with the research, I made interviews with managers and employees at seven Nordic-owned factories in Russia, three of which were small plants, having less than 100 employees, while four were larger ones, having more than 100 employees.
It was typical of the companies having smaller units in Russia in terms of employees that they had adopted a gradual and incremental approach to entering the Russian market. The companies with bigger units in Russia, consequently, had assumed more rapid expansion strategies. The latter type of investments were naturally riskier.
A brief media study, carried out in the beginning of this year, confirmed that the units that were small in 2011-12 had remained small. The business of one of the big companies had grown in Russia since 2011-12, but the business of the rest of the big ones had not made any remarkable progress.
One has to keep in mind, however, that this was the situation in the pre-Crimean crisis era, the time before Ukrainian president Viktor Yanukovich fled his home country and Russia de facto occupied the Crimean Peninsula. Prior to the time when political spectators in Europe and the U.S. learned that Mr. Putin will prefer his nation’s geopolitical greatness to economic and political ties established in a long and time-consuming process of negotiation and dialogue.
During the Crimean crisis, I have been worried about what this all will imply for the seven Nordic factories that I investigated in 2011-12. Will they see their future in the Russian market as optimistically as previously? Will the big investment projects turn even riskier? Will the small units that had cultivated gradual, step-by-step investment policies, die away after having been realised that the Russian market will stagnate in the aftermath of the power politics. This is the worst-case scenario which nobody wants but which seems all the time more likely to occur.
There will not be any winners in the big game that has started at the highest political level. There is not only the economy of the Russian Federation or EU, which are already on the brink of recession, at stake. When the EU starts its economic sanctions against Russia, the Russian government will start ad hoc actions of its own. In this worst scenario case, even the (already reduced) growth rate of the Russian economy, forecasted by Goldman Sachs analysts Clemens Grafe and Andrew Matheny who set it to only one percent this year, will not be realistic.
What is more, investment activity of foreign companies in Russia will die away. The Bank of Finland Institute for Economics in Transition (BOFIT) predicts that investments in Russia will not grow this year, and some spectators even predict that investments will decrease by a few percent.
The harsh measures projected by and against the Russian government will shake the very foundation of investment activity, the market. A major part of foreign investments in Russia - if the investments in the oil and gas sector are excluded - is market-seeking. The nasty political game that is now shaking the Russian economy will impair the attractiveness of the Russian market, and accordingly, the cut down investments, for years.
Russia is a country of surprises. It remains to be hoped that at this point some positive development will arise, either in political, societal or economic spheres of activity. Development in any of these spheres will have repercussions for the other areas. And perhaps mutual collaboration in the form of projects and joint activities in the Barents region and elsewhere will give the top politicians a hint that dialogue is preferable to confrontation.
