Winter Olympics 2014: Winners and Losers – UBP’s Laberko comments

Pavel Laberko, manager of the UBAM Russian Equity strategy, on the effect that the Sochi games will have on Russian businesses and the economy as a whole.

The Winter Olympic games have not started yet, and it is too early to award medals to participating sportsmen. The list of economic winners and losers, however, can already be compiled. In our view, the project is going to burn holes in the budgets of the state, the region and state-controlled banks and companies. The beneficiaries, on the other hand, are going to be mainly from the private sectors of the economy.

The vast majority of spending on the Olympic sports facilities and the surrounding infrastructure has been financed by the taxpayer via the budget, state-controlled banks and companies (including large gas producer Gazprom, Russian Railways, oil company Rosneft, power utility Russian Grids and Sberbank, among others). A very small portion of it came from ultra-high-net-worth businessmen who could not resist a friendly request from the government to chip in. By now, most of these participants have little hope to recoup their investments.

Who is going to benefit from these investments? The list certainly includes all the sport fans and sportsmen who will be enjoying the competitions. The new facilities and infrastructure will be appreciated by tourists and local citizens for years to come. Economically, we expect a number of companies, some of them with traded equities, to benefit from this project. Local industrial construction businesses (such as Mostotrest) are finishing their contracts to build stadiums, railways and roads. Producers of steel, cement and many other materials have benefitted from these contracts as well. Retailers, property owners and hoteliers are profiting from increasing value of their properties and extra revenues from all those new guests of Sochi and the surrounding resorts. Aeroflot and other Russian airlines will be busy delivering participants to the local refurbished airports. In other words, as a result of the Winter Olympics 2014 project, a substantial amount of money has been taken from Russian taxpayers to support and grow private businesses around Sochi, and elsewhere in Russia.

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