Russia's economy 'suffering' as foreign investors flee

11 September 2008

The Russian economy is suffering markedly, following the conflict in Georgia.

Private sector firms are suffering from a cash drought, as foreign investors become nervous and the national government appears to be favouring state operations.

A $20 billion "flight of capital" has been estimated by analysts - and the stock market has declined 40 per cent since May, the Financial Times reports.

For its part, the Russian central bank estimates that just $5 billion has left the country.

Apart from the Georgian conflict, the harsh criticism of private steelmaker Mechel from ex-president Vladimir Putin are thought to have caused foreign investors to have second thoughts about exposure to the Russian market.

Speaking to the newspaper on condition of anonymity, a Moscow-based banker commented: "There are real estate developers who can't finish projects. They can't get money from anyone, state banks included."

He added: "No one was ready for the lack of cash to manifest itself so quickly [after the Georgian conflict began]. The country has got all this cash but the banking system and capital markets are not particularly good at allocating it.

"There is a flood of liquidity in the state's fields and a drought in the private sector."

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development