Irish business hopes to sit and wait out Russian crisis

It was never this bad in Lenin's day. Then all they had to lose were their chains

It was never this bad in Lenin's day. Then all they had to lose were their chains. Now, the poor Russians are in danger of losing their shirts as well.

But it's not just the locals who are being hit by the current crisis in Russia. Wider Irish business interests are also watching the fate of the rouble closely.

Russia looked oh so rosy for Irish business seven years ago, and indeed opportunities for companies in the Russian market have blossomed with exports growing more than five-fold since 1991. But what we are seeing now is, according to Mr Kevin McLoughlin, manager of the Moscow office of Enterprise Ireland, "probably the single most serious economic crisis since 1991".

It has sent Irish business there into an enforced period of rest, an extended "wait and see and hope," he said. No one, he added, is looking to extend business at the moment. The priority is to keep things ticking over.

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Thermo King, which installs refrigeration systems in trucks, has stopped work that is paid for in roubles.

Last year, the Russian market was worth £225 million to Irish companies. Most Irish businesses seem cautiously optimistic that they can ride out the current situation. Ireland's players on the Russian economic stage are in the commodity and service industries and have been protected to a point by the fact that they are paid mainly in dollars.

Murray O'Laoire is in construction and engineering, as is the Cork-based Kentech. Also operating in Russia are ESB International, Aer Rianta and firms with expertise in telecommunications. And of course there is the Irish food industry.

Beef constitutes Ireland's largest single export to Russia, and Russia is our beef industry's third-largest market by volume. Last year it was worth £85 million; dairy was worth £8 million and there is also a smaller market for alcoholic beverages and confectionary.

"The situation has, yes, affected beef exports to Russia," said Mr Owen Brooks, director of international marketing with An Bord Bia. "The demand for beef will always be there, but with the collapse of the Russian banking system, the problem arises with importers getting their hands on the funds to pay for the beef."

Also, since Russian importers pay for the beef in dollars, the price for the consumer is increasing, making beef another item which may be cut gradually from the working Russian's diet. Of greater concern is the prospect that trade credits, which Russian commercial banks have exempted from their moratorium on payments to creditors, might soon not be honoured.

Irish cattle-farmers are already feeling the pinch. According to Mr Brooks, the fall of 2p, to 82p, this week in the price of a pound of beef is attributable to the Russian situation. "But we are confident Russia will come back," said Mr Brooks. "It's an enormous market and they will always need beef."

Mr John Brophy, manager of Murray O'Laoire's Moscow office, told The Irish Times that although it was reducing operations while the crisis continues, it was "not pessimistic".

"We're looking at a longer time-scale. So far, up-and-coming projects have not been affected. We're pressing ahead with a shopping project in Moscow, a large housing development and an industrial warehouse project. At this stage, we are positive and hoping things will get easier."

Even in the long term however, despite a rally by the world markets this week, the chief Russia and Former Soviet Union economist with Lehman Brothers in London, Mr Augusto Lopez Claros, believes things are looking bleak for anyone running a business in Russia.

"At the moment it could last longer than six months. We have complete political paralysis. We could have parliamentary and presidential elections ahead of schedule. If that is the case the focus will be on the campaigns and elections, not on the economy. With no government there is no consensus. No revenue is coming in to government. Taxes were not collected at all in August."

He lays the blame for the current catastrophe squarely at the door of the West. "The West has lost the chance it had to step in at the end of August, before the rouble was devalued. Then $10 to $15 billion would have stabilised the economy, kept the government in place. There was a massive, collective lack of political leadership.

"In the end we are met with a situation which is infinitely worse, and yes, exporters paid in dollars should be worried. The longer it goes on the longer the risks involved in staying there. The banks are honouring trade credits at the moment, but if the situation deteriorates, well-meaning promises may well not be kept."