There is still confidence in Russia's long-term economic potential
This article originally appeared at Forbes
If you read Western coverage of Russia long enough, you see that there is a really sharp divide between the views of people who work in academia, media, NGOs, and the government, and between people who work in business. This division is by no means ironclad. The famously hawkish Bill Browder did a lot of business in Moscow, while one of the primary advocates of engagement (Ambassador Jack Matlock) spent his entire career in public service.
But, in general, people who are in the business world seem much more bullish on Russia than people who are primarily concerned with the public sector. You thus have think tank analysts proclaiming that the end is nigh while Western businesses in general are, in the words of Nestle Russia CEO Maurizio Parnello, “still confident in Russia’s long-term prospects.”
The Croatian food company Podravka is a particularly interesting case study of this general trend. Croatia is, as I have written before, trapped in a low growth paradigm and has been ever since it joined the European Union. Measured in Euros, Croatia’s GDP in 2014 remained smaller than it was all the way back in 2007.
Podravka, like virtually all Croatian companies, currently finds itself in a position in which it needs to expand into new markets if it hopes to achieve any significant revenue growth. As Bloomberg noted, the CEO Zvonimir Mrsic announced that the company is in the process of raising $71 million in new capital to fund aggressive expansion in Central and Eastern Europe and, in particular, in Russia.
Now, as Bloomberg noted, Podravka has also focused on growing in markets across Africa, the Middle East, and China. But given the way that Russia is often presented, particularly after the recent ruble crisis, it seems noteworthy that it is on the company’s radar at all. Despite all of the political problems that the EU has with Moscow, and despite the very real impact of economic sanctions, many businesspeople persist in the belief that Russia is a market worth being in.
Given the highly uneven nature of its post-communist reforms there is still a fair bit of low-hanging fruit in Russia, particularly in the consumer sector. Even as the economy was decelerating from 2012-2014, certain subsectors of consumer retail (most noticeably supermarkets and food processing) continued to experience supercharged growth rates of more than 20% a year. Someone is going to try and take advantage of all that growth, and there are a great many small and mid-sized companies in Eastern Europe which seem very well-positioned to do so. Even in the current environment they appear to be doing so with gusto.
Russia is never a country of black and white. Even when things looked great during the pre-2008 boom years there were significant underlying structural problems that were going unaddressed. By the same token at the present time, when economically speaking things can look simply catastrophic, there is a lot more going on behind the scenes than meets the eye.
And that is one of the real takeaways from the experience of Podravka: there appears to be a rising generation of entrepreneurs in the newly reformed economies of Eastern Europe who, in the clash between politics and profits, consistently choose to focus on the bottom line. Few in the region find Russia’s policies laudable or worth imitating, and there is increasingly little love for the Russian government. But there is still confidence in the country’s long-term economic potential.
Some might find that business analysis persuasive and others might not, but people with an interest in the region ought to keep it in mind.