Depreciation of the Russian rouble in 2014-2015 and its influence on Finnish companies in Saint Petersburg and the Leningrad region : Research in cooperation with Finnish-Russian Chamber of Commerce (FRCC)

Abstract

The present Bachelor’s thesis examines the impact of the devaluation of the Russian rouble in 2014 and 2015 on Finnish companies operating in the food and beverages and chemical industries. The objective of the thesis is to identify the indirect impact of the weakened rou-ble on the financial performance of Finnish companies in Saint Petersburg and the Lenin-grad region. The thesis focuses on exploring the short-term and long-term reasons of rouble devaluation, changes in the behaviour and purchasing power of Russian consumers, the reallocation of market shares among foreign and Russian companies in the target industries and the effectiveness of central bank policy to stabilize the rouble.

The thesis includes theoretical and empirical sections. The theoretical section defines the role of the national currency in international trade, the formation of floating exchange rates, the role of central banks in the stability of national currencies and the determinants of con-sumers’ purchasing decisions. Data on Finnish-Russian trade volumes is also presented. The empirical part reviews research and data collection methods, presents research find-ings and provides a discussion on the results. Four research methods, both quantitative and qualitative, were used for the thesis: (1) face-to-face thematic interviews with representa-tives of selected Finnish companies. Three companies in the food and beverages sectors, Atria, Paulig and Valio, and one company in the chemical industry were included. (2) A thematic interview was carried out with a professor of economics from one of the leading research universities in Saint Petersburg, Higher School of Economics. The interviewee was asked to comment on the Russian current geo-political environment, the real reasons for rouble depreciation, the structural problems of the Russian economy and the effective-ness of the central bank’s actions to stabilise the rouble. (3) An online questionnaire among the citizens of Saint Petersburg and the Leningrad region was completed. 109 respondents answered the survey. The respondents represent various age categories and different in-come-level groups (4) A secondary data analysis of the official publications of the Bank of Russia and of relevant research papers on Russian economy was carried out.

The results show that although consumers’ disposable income decreased in 2014 and 2015, there is an overall preference towards foreign products over Russian analogues. Increased prices for foreign products have forced consumers to purchase smaller volumes of the same products rather than to switch to local substitutes. Rouble depreciation within the timeframe of the research has not facilitated the growth of local companies due to the scarcity of the factors of production. Foreign companies have supplied the majority of raw material from abroad. As for the reasons for the rouble depreciation, the structural problems of Russian economy, low labour productivity, dependence on natural resources export and extensive governmental control were among the core causes of the 2014-2015 crisis. From 1998 to 2008, economic growth was driven by the fulfilment of economic capacities and, when economy needed modernization after 2008 as capacities were fulfilled, the growth was rather led by the profit from oil and natural gas export. The Bank of Russia has under-taken different policies to stabilize the rouble, which included repo auctions and currency interventions. However, these policies have diminished investors’ trust in the Bank of Rus-sia and promoted capital outflow from the country.