Interview with Tom Adshead

Tom Adshead, Portfolio Manager of Alfa Capital, joined Russia Today to give his comments concerning economic trends related to the strengthening rouble.

Russia Today: What are your impressions of 1998, when a financial crisis hit Russia in August?

Tom Adshead: Obviously, the fact was that the banking system 'dried up'. It was very difficult to take money out of cash points. There were also difficulties with credit cards. I remember walking into a restaurant and ordering food at one price, which by the end of the meal soared because of the exchange rate had changed. This was in Germany, and we felt echoes of this crisis. Also we were on the stock market back then and there were discussions whether or not the market existed as there were people there but no one was actually trading. So it was a difficult time and the memories are still strong.

RT: Now the situation is different. There is trust in the Russian rouble. How do you think the strong currency makes people feel about being Russian?

T.A.: I think Russians are very pragmatic people. I've heard quite few people complain about having their currency linked to something else. Obviously, there is a morale element to it. An interesting fact that I've heard from a friend's friend who deals in currency in St. Petersburg is that the currency market had almost dried up then.  It’s easier and seemingly safer now to have your money in roubles. And you see that very much in terms of everyday life. I think most ordinary consumer goods ceased to be priced in dollars quite some time ago – I’d say two or three years ago. Until recently most big-ticket items tended to be based somehow in dollars. Now they are more and more based in roubles. If you look at real estate or car magazines, the prices at large tend to be in roubles. And I don’t think this is a patriotic move, it’s purely pragmatic.

RT: It’s not all good news having a strong currency: the imported goods become cheaper but this makes Russian goods less competitive on the market. How do you think that’s going to pan out?

T.A.: It’s a vexing question. I remember writing essays on this as a student like 30 years ago, and I’m sure students are still writing essays on whether or not the devaluation is the only factor that drives the competitiveness of a country’s goods, as there are obviously non-price factors in any purchase decision that may be much more crucial. I mean – yes, in principle, a Lada car is that much more expensive on the international market, but the fact it is worse in quality lowers its competitiveness. Therefore, I doubt the margin is going to make that much difference. And it’s much more important here. Here the domestic producers did tend to compete solely in terms of price. Now that the imported competitors are that much cheaper, it becomes much easier to choose a foreign car. Having said that, there are still plenty of non-price factors in that decision, such as local support, local dealer network – so you can buy spare parts locally. So it’s not like it’s going to kill completely the domestic auto industry overnight. We talk about investing to various manufacturers and they say the change in the rouble makes them less competitive domestically. But they still have long-term links with the buyers, the spot network – and that’s just as important in determining a purchase as the price.