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Winners And Losers In Russia's Currency Crisis

Signs of sinking ruble in Moscow
Signs of sinking ruble in Moscow
Anastasia Yakoreva

MOSCOW — If you happen to produce widgets in Russia and sell them in foreign currency, your time has come.

Konstantin Babkin, president of a company that produces tractors, is convinced that the ruble should have been devalued long ago. "An excessively strong ruble already killed our airplane construction, food and light manufacturing industries," he says.

Some economists agree that the previous exchange rate of 33 to 35 rubles per dollar was bad for exports. "The disparity between the "real" exchange rate and the official rate is unprecedented, and it is a real barrier for exporters of high-tech products," one observer said in the middle of November. Now the ruble is trading at more than 45 per dollar.

And the exporters are happy. "In the end, our exports have grown by 27% this year," Babkin says. His company exports tractors to Poland, Hungary and Romania, although exports comprise only about 20% of the company's sales. This year, the company sold its first products in Germany.

Babkin thinks that a fair exchange rate would be about 55 rubles per dollar. But exporters would feel a bit more confident if it was readjusted gradually instead of undergoing a free fall. The quick fall the of ruble has made international buyers hesitant about investing in Russian products. After all, if you buy a tractor, you're committing to several years worth of parts and repair services. "What if everything falls apart there tomorrow?" those buyers no doubt ask themselves.

"I have another factory in Canada," Babkin says. "A Hungarian bank was willing to give a farmer a loan for my Canadian combines but not for a Russian tractor."

Babkin says his domestic orders are up by 15% too. "Large agribusinesses have started to buy our machines," he says. "They never even noticed us before."

Sollers, an auto manufacturing company, is also experiencing a booming business. "The devaluation is an excellent opportunity to expand the sales market," a representative from the Sollers press office says. "But that opportunity with be limited within a year or two, so the effect will be less noticeable."

In fact, it's not that simple. Russian manufacturers often aim to sell internationally so that they can get access to bank loans abroad, which have lower interest rates than those in Russia. "We sell three-quarters of our products abroad," says a representative of one Russian manufacturer who wishes to remain anonymous. "We would prefer to sell everything in Russia so that we could just use one currency, but the reality of the Russian market doesn't let us. Now, on the one hand, we have increased our income from exports. On the other hand, we also have loans from foreign banks that we have to repay."

That's exactly the situation in which most companies that should theoretically be flourishing find themselves. One father-son company near the Finnish border has grown into a major berry supplier, at home and abroad. But because the company has loans in euros, the devaluation has left it in a difficult situation. "We sell two-thirds of our production domestically, so if you account for the loan payments in euros, we have nothing left,” complains Aleksandr Somokhvalov, the company's director. "What are we going to do now? Either sell all our berries in Europe, unprocessed, because they aren't interested in our processed berries, or double the price for Russian consumers."

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Port at Oblast. Photo: Euno

Do foreign countries even want what Russia produces? Russian non-oil and gas exports fell from $525 billion in 2013 to $490 billion in 2014.


"Next year should be like 2009 for domestic tourism, which grew 30% to 40% that year," says Ilya Klubnikin, former general director of a Sochi resort. "But right now, at the end of 2014, there hasn't been a big surge."

The hotel owners, hostel owners and resorts we spoke to hadn't noticed an uptick in domestic tourism. "We are equally as full as last year," says Dmitri Kyzin, owner of Kofehostel in Nizhny Novgorod. "The only thing I've noticed is that people are coming for one or two days instead of three or four days."

Viktor Lemeshev, owner of a Karelia resort, says that the difference for his business is that they are seeing more Finns because it's on the Finnish border. "Last year only one Finnish travel agency agreed to sell trips to our resort, but this year we had three," he says.

Considering, of course, the 40% to 50% drop in international tourism, simply maintaining the same occupancy rates as last year seems like a success.

Restaurant woes

Food businesses, which were already suffering from international sanctions, prohibitions on smoking in restaurants and rents that are paid in dollars, are likely to see a major crash. According to various estimates, every fourth or fifth restaurant in Moscow and St. Petersburg is likely to close in 2015. Fast food joints typically flourish during difficult situations like this, but they aren't exempt from rent problems. "We've only just now been able to negotiate reductions in rent," says Aleksei Gisak, founder of a Chinese takeout chain.

But it does seem that business models like Gisak's, which are focused on food deliveries, could have an advantage, as people try to save money by staying in.

Trust in the crisis

Entirely unexpectedly, it seems that the crisis has increased opportunities for peer-to-peer services. Russians have always approached the sharing economy relatively skeptically — perhaps because of our untrusting mentality — but these services could witness a boost this year.

In 2014, the number of Russian offerings on Airbnb doubled. "This year is our chance," says Ekaterina Kukureko, an Airbnb representative. "Right now in Russia there are 8,000 apartments for rent. By comparison, there are 22,000 in Croatia and more than 100,000 in Paris. We expect the users in Russia to grow this year."

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