Veritas: WTO accession should finally create good PR for Russia
After long-winded negotiations that go all the way back to 1993, just after the collapse of the Soviet Union, Russia will finally be officially admitted to the World Trade Organisation on Wednesday August 22, becoming its 156th member. It has taken 19 years to reach this point, but better late than never.
As the big day approaches there is speculation among experts on how this event will impact Russia’s economy. Unsurprisingly, there is a great deal of scepticism, much of it coming from Russia-based professionals. It is often the case that locals see the country in a much more sceptical way than outsiders, as Russian fund flows to Swiss banks, in preference to the high rates still available on home turf demonstrates.
But scepticism about Russia is not confined to its citizens. Delegates at VTB Capital’s Russia investment forum in May agreed the country’s portrayal in the West is hardly favourable.
This perceived risk is driving investors away from the market far more than the realities of the local economy ever could. Despite the continued health of gross domestic product at around 4% and the rising oil prices, allocators are still wary of Russia.
The Bank of America Merrill Lynch latest fund manager survey revealed that the number of managers overweighting Russian equities in their portfolios decreased by a quarter between July and August. Aggregate turnover on the Russian equity market plummeted 23% in the first half of the year, compared to the corresponding period last year.
Analysts are convinced it is the political image of Russia that causes the discount on its equities. So Russia is in need of some positive PR if it is to attract much needed capital inflows, and this is where accession to the WTO can really come in useful.
The strict rules imposed by the organisation will force Moscow to proceed with the reforms it has been planning for years, but has been slow to implement. Already the government is making stronger commitments to privatization initiatives than before, and it will have to continue reporting to the WTO on its progress.
Essentially, the trade body will finally provide a way to keep track of what is actually happening on the ground, as opposed to what the government says it will do. This kind of monitoring and control may well be just the thing to put foreign investors at ease.