RUSSIA/FILE: Top economist from Renaissance Capital says need for reform in the Russian economy compares with what is needed at Chelsea football club, owned by Russian billionaire Roman Abramovich

Record ID: 836198

  • Title: RUSSIA/FILE: Top economist from Renaissance Capital says need for reform in the Russian economy compares with what is needed at Chelsea football club, owned by Russian billionaire Roman Abramovich
  • Date: 4th April 2012
  • Summary: MOSCOW, RUSSIA (RECENT) (REUTERS) (SOUNDBITE) (English) RENAISSANCE CAPITAL ECONOMIST MERT YILDIZ, SAYING: "Now it's his chance to be one of the greatest leaders of Russia, and I think Putin wants this. If he can only manage to make the economy more business-friendly, open up the economy for FDI (foreign direct investment), then it's going to be a massive investment boom in Russia over the next five years probably."
  • Embargoed: 19th April 2012 13:00
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  • Location: Portugal, Russian Federation, United Kingdom
  • City:
  • Country: Russian Federation United Kingdom Portugal
  • Topics: Economy,Politics,Sports
  • Reuters ID: LVA71Y7TC8WAU9PSF5PBIH9ZJXQ
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  • Story Text: The Russian economy may face similar problems to those facing Chelsea soccer club owned by Russian billionaire Roman Abramovich, and will need reforms to move forward, according to a top economist at Russia's biggest private investment bank Renaissance Capital. Foreign investors say they want to see reforms replace what they see as complacency in Russia's commodity-driven economy.
    Renaissance Capital Economist Mert Yildiz compared the fate of the English football club Chelsea, which is struggling to find form this season, with core issues of the Russian economy which is trying hard to prevent capital flight and to overhaul its ageing infrastructure. Russian Prime Minister Vladimir Putin, who will return next month to the presidential office he held in 2000-2008, must embark on a reform path to return to the economic growth of past years, just as Chelsea must reform to return to past glories, Yildiz said.
    The comparison between the Russian economy and Chelsea is not literal, the economist said, but he believes parallels can be drawn.
    The London club is now scrapping for a place in the top four in the English league, making the current season possibly its worst since Roman Abramovich bought Chelsea in 2003. In previous years the club has won three League titles.
    Abramovich has been criticised for the speed with which he gets rid of managers, and particularly for his treatment of Carlo Ancelotti who parted company with the club at the end of last season, a year after winning the English League and FA Cup double. Last month Chelsea sacked Andre-Villas-Boas, it's sixth manager since 2003, after less than nine months in charge. This 'revolving door' policy has cost about 150 million dollars in compensation, salaries and pay-offs.
    "Looking at Chelsea, I mean, you see a declining performance, especially this year unfortunately. It's an on-and-off performance. It's a very quick change in managers, a very quick turnover of players. And all this is sustained through Abramovich's money. He can easily throw money at the club and make sure they perform relatively well. And it kind of compares to Russia because the oil revenues in Russia mask a lot of deficiencies in the economy," Mert Yildiz told Reuters.
    The problem of ageing Chelsea players can also be compared to the problem of a lack of new faces in the Russian economy and politics.
    "We do see some very old players in the Russian politics, and we do see some old players in Chelsea. Players, I don't mean footballers, I mean managers. The difference is that with the new (Vladimir) Putin governement we are expecting a change in the management. And if that is delivered, that's actually the first step forward. That kind of shows Putin's will to say: look, we are willing to change things," Mert Yildiz said.
    Russia is one of the better-performing emerging markets but is heavily dependent on energy and commodity exports, plagued by corruption and its political stability rests on one man, Vladimir Putin.
    It is the world's biggest energy producer and remains reliant on sales of oil and gas, which make up 65 percent of exports, despite the Kremlin's calls to diversify the economy. Oil and gas account for more than half of budget revenue.
    With oil prices over 100 dollars a barrel, Russia is accelerating out of the economic crisis and some investors expect a boom in the coming years.
    Other economists are more cautious. Citigroup analysts believe that the commodities supercycle is drawing to an end, and the prices for oil and metals will go down in the next few years and say this could undermine the case for investment in Russia, which has been based on the commodities windfall.
    "The Russian market has been a play on the commodity cycle. It has been commodities which have been an absolutely key driver to lift this market from the disasters of the late 1990s to its current relatively successful position," Citigroup's Russia strategist Kingsmill Bond told Reuters.
    Russia is betting on oil prices staying high for years, and even if this is the case, the federal budget will only balance with the oil price at 125 dollars per barrel next year.
    Also, in a sign that investors are getting nervous about the prospects for the Russian economy, capital outflows from Russia unusually surged last year to 84.2 billion dollars, a figure that analysts called "extraordinarily high".
    "I think there's a very large degree of complacency, and certainly many people with whom we speak assume that commodity prices will continue to rise inexorably higher and higher. If we are right, and if the realisation sinks in that it's not the case we may well see a sea change of attitudes and a realisation that it's necessary to operate differently," Kingsmill Bond said.
    The World Bank warned in March that Russia's economic recovery is relatively weak and its level of investment is inadequate. It urged Russia to accelerate structural reforms which should start after Vladimir Putin assumes the presidency and appoints a new Prime Minister in May.
    "Now it's his chance to be one of the greatest leaders of Russia, and I think Putin wants this. If he can only manage to make the economy more business-friendly, open up the economy for FDI (foreign direct investment), then it's going to be a massive investment boom in Russia over the next five years probably," Mert Yildiz said.
    Economists say Russia needs to find new drivers outside the commodity sector to revive its economy, much like Chelsea can no longer just rely on its "old guard" , Yildiz said.
    Russian companies managed to strike several high-profile deals with big global leaders, most notably in the car sector and in the food industry. Companies like Renault, Chevrolet and Ford have built large production plants in Russia, while giants like Coca-Cola and Pepsico are fighting for a share of growing consumer demand.
    "Simply because there are so many of oil revenues, it delays and it reduces the need for infrastructure reforms. But again, I do think that oil revenues will start to decline and at this point Russia needs to do some reforms. I don't know if Chelsea can deliver that," Mert Yildiz said.
    But if oil prices fall and Chelsea fail to qualify for the Champions League next year, the need for reform both in Russia and at Chelsea will be equally urgent.
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