Hundreds of companies suspend work in Russia as global grain shortages loom

 

Tass

March 10th

Nearly 200 large foreign companies announced that they were suspending their work in Russia or leaving the country. Among them are the technological enterprises of the energy sector, automotive, clothing, shoe and cosmetics retailers, as well as financial services. However, foreign businesses won’t be able to withdraw their capital from Russia. On March 1, a presidential decree took effect which practically blocks foreign investors from withdrawing Russian assets.

According to Finam’s Yaroslav Kabakov, many companies are freezing investment, yet will continue to function in Russia. In his opinion, as a consequence, Russia’s GDP may slow down to negative 5% annually. "The main obstacle for a rapid import replacement, as strange as it sounds, is the high integration of many Western companies into Russia’s economy, no one will just give up their business. The second reason is a sharp decrease in the sources of investment," the expert said.

Western companies may pay a high price for leaving Russia, leading analyst of Mobile Research Group Eldar Murtazin says.

According to preliminary estimates, compensation to fired employees, bonuses to partners and other payments may cost Apple about $6 bln and Microsoft may spend on this $6.6 bln not to mention decreased profits and reduced investment in partnership projects.

Western investors in the energy sector, such as Uniper, announced that they were withdrawing from Russian assets. According to Finam’s Natalya Malykh, this is not critical for the Russian market since their share can be bought out by Chinese investors.

While Western companies are suspending their activity, Russian ones hope to take advantage of the situation and increase their market share. For example, clothing manufacturers count on increased demand. The owner of I Am Studio Oleg Voronin told Izvestia that this situation represents an opportunity for domestic business. According to him, people are interested in buying new things while Russian brands know how to produce quality products with a unique design.

Igor Bederov of T.Hunter noted that Linux-based products such as Ubuntu or the Russian AstraLinux may replace Windows, while several Russian and Chinese products may replace Microsoft Office. According to an employee of a retail chain, if Samsung and Apple leave the market completely, their niche will be filled by inexpensive Chinese smartphones. He added that the same will happen with tablets and other electronics. Deputy head of new car sales at Avilon Alexey Starikov told Izvestia that continued growing demand is expected for Chinese auto brands that are actively developing in Russia.

Vedomosti: Will Russia be able to avoid defaulting on its debts

International agencies Moody’s, S&P and Fitch one after another downgraded Russia’s sovereign credit ratings from investment grade to pre-default level. The lowest C rating in foreign currency was given by Fitch on March 8. Earlier, S&P cut Russia’s credit rating by eight notches at once - from BB+ to CCC- with a negative forecast, while Moody’s decreased it by six notches, from B3 to Ca with a negative prognosis. Russia has not had rankings like this since 1998.

The main intrigue is currently around fulfilling the obligations of the foreign currency part of Russia’s national debt. The Central Bank cannot use its money because of sanctions, said Vladimir Bragin, director of financial markets and macroeconomics analysis at Alfa Capital. Another issue is whether foreign investors will be willing to open C accounts to receive payments, Elena Kozhukhova, an analyst with Veles Capital, pointed out.

Head of Macroeconomic Analysis at Finam Olga Belenkaya thinks that now, as opposed to the 1998 default, Russia has all economic and financial conditions to deal with its debt without any problems. Yet, due to the sanctions, the Finance Ministry cannot attract new external loans to refinance the existing ones while a significant part of the Central Bank’s reserves is blocked while the sanctions shut down international transactions for many of Russia’s largest banks. Under these conditions, a lot will depend not only on the ministry’s ability to pay off its debt but also on political will, the expert thinks.

The experts concur that even if Russia technically defaults on its foreign liabilities, this won’t be catastrophic. Senior analyst at Alfa Capital Maxim Biryukov says that even if half of money is not accessible due to it being frozen by "unfriendly states," the available funds are sufficient to cover not only the immediate obligations but the entire debt in general.

The potential default may result in investors questioning Russia’s reliability as a sovereign borrower for years to come, Belenkaya points out. Currently, this cannot have much of an effect since due to the sanctions Russia cannot attract investment at the most important foreign markets, yet when the sanctions are over, the post-default aftertaste will linger, the analyst says. Bragin concurs that the default repercussions seem insignificant amid the general sanctions pressure on the economy.

Nezavisimaya Gazeta: Ukraine puts Russian-Chinese axis to the test

During a video summit with French President Emmanuel Macron and German Chancellor Olaf Scholz, China’s leader Xi Jinping supported the idea of peace talks on Ukraine and expressed concern over the negative impact of sanctions on the global economy. Western media outlets say that Beijing is adjusting its stance, worrying that anti-Russian restrictions may affect its economy. However, according to expert opinions, the events in Ukraine are prodding China to bolster its ties with Russia so it won’t stand alone against the US.

Alexander Lukin, who heads the International Affairs Department at the Higher School of Economics, told Nezavisimaya Gazeta that China’s stance is changing towards greater support for Russia since Chinese Foreign Minister Wang Yi asserted that relations between Russia and China were "solid as a rock." "In the economic sphere, some Chinese organizations, particularly, banks, may display caution. As for the military operation, China doesn’t support it. Meanwhile, regarding the sanctions, Beijing believes that they may undermine the global economy," the expert said.

From China’s point of view, all these events were provoked by the West. "The West’s success in counteracting Russia is not to China’s advantage. If the Americans manage to overcome Russia, they’ll go for China with renewed efforts. It is not to China’s advantage for Russia’s position to weaken. In this case, it would be left to face the strengthened Western bloc alone," the expert thinks.

Kommersant: Russian oil production grows despite delivery problems

Despite Russian oil companies experiencing problems with selling spot batches of oil, so far they have managed to boost production. Since early March, average daily production has grown by 0.5% more than February levels. However, this increase is somewhat lower than Russia’s quota allows according to OPEC+ agreements. On March 8, the US and the UK imposed an embargo on Russian oil, yet according to experts it will be impossible to replace significant volumes of Russian oil with deliveries from other countries in 2022.

Long-term problems with demand may also negatively affect the rates of increasing production in Russia. Since the beginning of the special military operation in Ukraine, the price of oil has rocketed past $120 per barrel, this, accompanied by the weakening of the ruble, should stimulate oil companies to produce more.

The situation is conditioned both by the limited potential for a quick increase in production and growing demand, Ivan Timonin of Vygon Consulting thinks. According to current expectations, the global consumption of liquid hydrocarbons will grow by more than 3 mln barrels per day in 2022, nearing the level observed before the coronavirus pandemic. In his opinion, the highest growth will be observed in China and the US. Opportunities for increased production volumes also exist for OPEC countries, the US and Canada. However, with growing demand, there will be practically no additional production capacities for the replacement of Russia’s export of liquid hydrocarbons, the expert concluded.

Rossiyskaya Gazeta: World faces shortages of grain, sunflower oil

The global food crisis which began during the pandemic is compounded by the suspension of the export of wheat and sunflower oil from Russia and Ukraine. While this problem won’t affect Russia, the EU is already concerned over the lack of products.

Signs of a food crisis were already obvious before the special military operation in Ukraine, says Evgenia Serova, Director for Agricultural Policy of the Higher School of Economics. The price hike was triggered not only by the pandemic but also by the EU-US switch to biofuel, which began draining the volume of crops used as food products, the expert said.

Besides logistics problems, due to the aggravated geopolitical situation, the world market may be negatively impacted by the suspended export of Russian fertilizers. The Russian Industry and Trade Ministry recommended this move amid the sabotage of carriers refusing to transport Russian products. Russia ranks among the top three global exporters of mineral fertilizers. Freezing this export would only spark a price hike, the expert noted.

"For at least the next couple of years we will have to live under the conditions of galloping food products inflation," she forecasted.

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Global Grain Shortage Forecast March 2022 :

Source: https://tass.com/pressreview/1419503