Blog: Ukraine's economic shock waves - magnitude uncertain
Dave Leggett | 7 March 2014
We're having more conversations with industry folk who are wondering where the geopolitical crisis in Ukraine could lead. At this point, it's probably fair to say that it's too early to predict where it is going with any degree of certainty. Much depends on how diplomacy plays out over the next week or so and what actualy happend on the ground. Over the next ten days we'll have a better sense of how businesses could be impacted, how far any possible sanctions might go (and what the response might be). Freezing of assets will be worrying a few people though. There are some uncomfortable worst case scenarios if things ratchet up further. Ford's Stephen Odell told me this week that Ford right now is still very positive about Russia prospects in the long-term, but has to react operationally to tweak its business model as appropriate. That's what big multi-nationals do.
The global auto industry with its FDI has been a big positive for Russia's economy. Companies considering further investment in Russia need to feel that the investment climate has not suddenly turned bad, that the Russian economy isn't going irretrievably into reverse. In that scenario, risk assessments and investment strategies do change.
The hope has to be that cool heads will prevail and the situation will be resolved via some nimble diplomacy that leaves no-one losing face, political/business landscapes not having to be completely redrawn. A new version of the Cold War is not in anyone's interests (actually, not completely true, but most sane people don't want that).
Seems to me that a lot rests on what America's leader says and does over the next week. As usual, the EU is in a bit of disarray on its response to events and is sending out mixed messages - and that plays into Moscow's hands. President Obama needs to get this right. Tricky balancing act.
One other obvious thought. Russia is still in a very difficult transition from the command economy days (and attitudes) of the Soviet Union to 'democracy' and a more responsible capitalism. It has not been totally smooth so far, but was never going to be. Russia has made much progress. That is something to build on, but Russia needs help with building the right institutional structures. And Russia needs to want to do that. That's something for Obama's advisers to reflect on.
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