Worst is over for Russia economy: CFO

 

 

 

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CNBC
Monday, 28 Sep 2015 | 5:06 AM ET

Holly Ellyatt

Russia’s recent economic turbulence, weakened ruble and high inflation could be coming to an end, according to the chief financial officer of the country’s leading telecoms business.

Alexey Kornya, chief financial officer of Russian telecoms giant MTS, told CNBC Monday that “in terms of inflation and ruble devaluation, the worst has already passed,” he said.

Russia’s economy was hit by a 50 percent-plus decline in oil prices since June 2014 and sanctions imposed by global powers for its annexation of Crimean and role in the pro-Russian uprising in Ukraine.

The combination of both saw capital outflows from Russia increase and the ruble weaken greatly against the dollar, spurring on a rise in consumer prices.

However, analysts are starting to see life coming back to the beleaguered economy and the recession bottoming out. Inflation remains high, however, at 15.8 percent in August and the ruble remains weak against the dollar, trading at 65.6 to the greenback Monday.

Kornya from MTS, which is the leading telecommunications group in Russia and former Soviet countries, told CNBC Monday that his company was not too dependent on the currency fluctuations his country had seen over the last year as over 90 percent of its business was domestic.

As of June 30 this year, MTS serviced over 100 million mobile subscribers in Russia, Ukraine, Armenia, Turkmenistan, Uzbekistan and Belarus. In the second quarter, the group reported a 4.4 percent rise in total revenues in Russia, year-on-year, to 94.3 billion rubles ($1.43 billion).

“We see challenges from the devalued ruble experienced over the past year but at the same time we’re not depending too much on macro volatility,” he told CNBC, adding that he believed “the worst was over” for Russia.

“I think that the worst in terms of inflation and ruble devaluation is now past so now we need to find the new engines of growth in the Russian economy,” he said.

“Generally, from what we observe in the market, we think the worst has already been experienced in terms of the fall in the oil price…but the question is how long this low commodity cycle will last,” he added.

Russia’s current economic crisis has highlighted how dependent its economy is on commodities for much of its growth, and Kornya said the country had to evolve away from its resource-reliant economic model.

“It is a challenge to see how other businesses in Russia that are commodity-oriented develop, especially in the environment where you have some inflationary pressures and where you’re experiencing a devalued ruble,” he said.

“We feel there is space for new businesses and new experiences for consumers however, it is still a challenge in the Russian economy to reduce this commodity dependence and to go into new sectors.”

Bloomberg:  Russian economy revives despite sanctions

The Russian economy has seen a notable rebound with businesses recovering despite a year of contraction caused by Western sanctions. Fluctuations in the domestic currency have narrowed, which brought investors back into the market.

Global investors appear to be optimistic about the future of Russian corporations, as the country’s economic performance provides evidence to recovery, says Bloomberg analyst Matthew Winkler in his article.

Those who invested in ruble-denominated government securities this year have already made a profit equivalent to seven percent in dollar terms, while those who invested in government bonds of other developing countries lost more than one percent from January, he says. The holders of corporate bonds gained even more with a 7.3 percent return in 2015, which leads the index for emerging market corporate bonds compiled by Bloomberg.

The 50 Russian stocks in the MICEX are up 11.9 percent this year, which is better than any North American market, and that, according to analysts, shows confidence is starting to return.

Russia overcomes the worst, sees stabilization – finance minister

Russian companies were more profitable measured by their Ebitda margins (earnings before taxes, depreciation and amortization) than the rest of the global MSCI Emerging Market Index. Around 78 percent of enterprises represented in the MICEX index showed a greater increase in sales than their counterparts around the world.

For instance, Novatek OAO, a $22.8 billion independent producer of natural gas in western Siberia, saw its sales increase 19.5 percent, compared with 0.76 percent from the sector globally. Oil major Rosneft with a capitalization of $41 billion and production in western Siberia, Sakhalin, the North Caucasus and the Arctic, reported an 18.26 percent annual sales growth, while its international competitors having shown an increase in revenue of just 0.76 percent.

However, the pace of economic recovery strongly depends on investment demand, according to Russian Finance Minister Anton Siluanov. The finance ministry estimates the country’s GDP will fall by roughly three percent in 2015.

<strong>Disclaimer: The contents of this article are of sole responsibility of the author(s). Unruly Hearts will not be responsible for any inaccurate or incorrect statement in this article.</strong>

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