Developing An Efficient Financial Market Step By Step
- Nov. 07 2013 00:00
What is your forecast for growth?
I think the world is becoming much more interlinked. We saw this when the U.S. started talking about tapering its funding for the economy and immediately the effect spread out across the world. More and more events are correlated and this is why the slowdown affected Russia. The main thing is that there is still growth. You can argue about whether it will be one-and-a-half or two percent but in much of Europe it's negative. Eighty percent of exports are still correlated to oil, gas and commodities. GDP is more balanced, at 25 percent. But that helps the Russian economy now, because oil prices stayed at around $110 a barrel, commodity prices came down but if you start to compare the Russian producers of commodities they still have a natural advantage over other countries.
In the steel sector, the big producers like Evraz are well integrated: they have iron ore, coke and cheap energy. Still I am quite positive on the outlook. The challenges I see are about doing business. There is an index on the ease of doing business and Russia positions itself around Honduras. A lot of companies are struggling to do simple things like getting access to electricity and gas. Customs is still difficult. Secondly there is a lot of work to do on efficiency. Then there is bureaucracy and I think it's fair to say corruption is still an issue here. If you look at the infrastructure, that's also among the challenges.
What steps should the Russian government take to revive and diversify the economy?
Russia is developing and we have to follow that. It's not just oil and gas. There are major plans for infrastructure and ports. We have to be able to supply answers to the new local champions of Russia.
It is still, however, an economy that is dominated by big companies. It is one of the challenges for the government to make sure that small companies can grow. It's hard for these companies to get access to funding and that is linked to transparency.
There is not so much talk now about turning Moscow into an international financial center, but can you see any progress?
Things are happening by small steps but moving in the right direction. Alrosa will be floated here on the Micex. There has been new legislation on the securities industry. In the financial markets they are working on developing the bond market to make it open and easy to deal for international investors. I see people are pleased that Euroclear and Clearstream are moving here. Continuous linked settlement (CLS) is also in the plan. We expect a central counterparty for over-the-counter derivatives to start operating soon which will help to develop the derivatives business in Russia. The local regulator is improving the ruble settlement system to make it easier to operate. It's about giving international investors confidence that it is progressing in the right way.
It's also about demand and supply. In a market in which we are active, Eurobonds, there are some investors who will only buy Eurobonds and not local ruble bonds. Russia needs to make sure the supply and the systems come into place, that the legal framework is there and that Russian courts have enough expertise in financial products. I see that increasingly law is enforceable. That gives us more confidence as a bank.
It is also about building trust in investors. When the U.S. talked about tapering, the impact on other markets was much greater than in Russia so that is a sign that confidence is growing.
What other issues should companies be aware of?
Close-out netting is still not enforceable. You cannot net here, which creates additional risk exposure. More and more today in the financial markets if we lend money, we have to give or receive collateral so that the total amount of our exposure comes down and we just exchange the difference. But that requires legislation and organizing, and this is part of what I call hampering development. Sometimes this creates big pricing differences.
Currency control is also very strict. We have so many people working in currency control, acting as advisers for clients. It is one of our key strengths although it has a direct affect on our costs.
How would you summarize ING's strengths in Russia?
We know Russia: we have spent 20 years here and never backed off during a crisis. At all levels of the organization we have a deep understanding. The staff is 98 percent Russian, backed up and supported by central teams in London and Amsterdam. So it is a combination of sector knowledge and commitment. If you have a good understanding of businesses here, how things work, the different steps in a process, then you can succeed.