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. Last Updated: 07/27/2016

Bomb Attacks Rattle Businesses




The spate of terrorist bomb attacks that has hit Russia over the past few weeks looks bound to hurt the nation's economy, with the services sector already showing signs of strain.


And even as most manufacturing businesses are playing down the possible negative effects of the bombs, the stock market has plunged, down 19.6 percent on the week. The Moscow Times Index of 50 leading shares closed Friday at 61.61, its lowest level since May 13.


Direct losses so far have been in the order of 800 million rubles ($31 million), while hostilities in Dagestan have cost another 3 billion to 7 billion rubles, according to government estimates cited by Alexander Zhukov, head of the State Duma budget committee in a recent interview on radio station Ekho Moskvy.


However, the indirect costs that could result from the disruption to businesses - both from the fears released by the bombs and from the heightened security measures enacted in their wake - could well be comparable with the direct losses or even exceed them, analysts and business figures said.


"First, there came a financial crisis, then a war in the Balkans and now, when everything seemed to be over, there are bombsexploding in town," said Jennifer Yeremeeva, head of the Moscow representative office of U.S. firm General Tours.


In Moscow, the stock market tumbled immediately after the second bomb blast Monday morning.


"It was an awful week," said James Fenkner, equity strategist with Troika Dialog. "People find it hard to find anything good in Russia."


But Fenkner expects the markets to stabilize next week.


"In the big picture, this is an incredible opportunity," he added.


Russian Eurobonds have also been hammered by the bad news, shedding up to 7 percentage points. Traders say that Eurobonds were mostly down on short selling by London Club members, but the series of attacks accelerated the fall.


"The bomb blasts just made sentiment even worse than it already was," said Maksim Arkhipov, trader with Nomura Securities in London.


According to JP Morgan, Russian debts now yield 37 percentage points above U.S. treasuries. Only Ecuador - on the verge of defaulting on its external debts - has a larger spread, of 38 percentage points. Brazil's spread is a mere 10 percentage points.


There are no estimates available for the overall impact of terror campaigns on an economy, but statistics available in the West show that about a third of the costs to the nation of any such series of attacks can be attributed to the disruption to business life.


According to a book entitled The Impact of Catastrophes on Shareholder Value, published in Oxford this summer, the initial impact on the value of corporate entities varies from -5 percent to -11 percent.


Meanwhile, the atmosphere in the Moscow services sector - especially in tourism and hospitality - is grim.


Yeremeeva said General Tours had recorded very few cancellations, but they have received a wave of at times panicky inquiries. The firm has had to drop the fees that it normally levies on customers who cancel already-booked trips in order to maintain customer volumes.


General Tours organizes trips to Russia for 3,000 to 5,000 people a year, Yeremeeva said. She declined to provide estimates for this year, but admitted that sales would be down.


The Moscow office of another tour operator, Tumlare Corp., based in Denmark, also reported cancellations.


In many tour groups they booked - usually from 20 to 35 people in size - two to four clients pulled out.


"We are doing pretty well," said Anna Yemina, tour operator at Tumlare's Moscow office. "So far, only one group has canceled its trip. Others are just smaller than expected."


The hotel business has also been badly hit by cancellations. "We have people who have canceled reservations," said a Sofitel-Iris official, who declined to be identified.


But the damage to the hospitality industry - already suffering thanks to a reduction in business travel caused by Russia's economic downturn - is likely to be long lasting.


"The main effects will be felt next year, because tourist trips are planned a year in advance," said Konstantin Radushevich, director general with Welt Reisen travel agency.


"Now we have more tourists than a year ago."


This is partly due to election fever, Radushevich said.


"We organize trips for [Moscow Mayor Yury Luzhkov's political party] Fatherland from St. Petersburg to Moscow and vice versa," he added. "This year, this is a separate business."


Real-estate brokers hope that the blasts will not push prices further down, but agree that the office rental business is in for more hard times.


"If the market reacts, it reacts with a lag," said Yury Karamalikov, marketing manager with MIEL real-estate agency. "Only shadow brokers who sell rented office space will take a hit."


Meanwhile, as a direct consequence of the Moscow bombings - two of which were caused by explosives planted in basement storage spaces - several small businesses located in basements have reported that they closed down this week.


And foreign businesses operating in Russia have been forced to take precautions.


Coca-Cola upgraded its security system, changed all passes for vehicles entering its territory in Moscow and tightened access for individual visitors.


All of its guests and expatriate workers were issued with certificates confirming the purpose of their visit after the local authorities announced that all nonresidents must re-register.


The mayor's rhetoric regarding the need to scrutinize the city's guests has had little impact on many of the multinationals with offices here, including Coca-Cola.


"Since the early '90s, the proportion of foreign staff, including managerial positions, declined to less than 3 percent of our total employees," said Dmitry Chukseyev, governmental relations manager with Coca-Cola Russia.