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Monday, 10 February 2014

Sochi Games and Russia

There is something pyrrhic about witnessing an opening to the Sochi Winter Olympics – and the related cost of a jaw-dropping $50bn – set against the prevailing economic headwinds facing the Ruuski economy…itself set against the cyclical turbulence afflicting the emerging economies more generally.

The front cover of this week’s The Economist with Mr Putin’s face pasted onto the ice-skater with his arms aloft whilst his partner (Russia)  is on her backside was apt.

The Sochi Olympics is a showcase for a re-emerging Russia and the wonderful opening ceremony showcased the country’s history, pride and ability for grand engineering.

And yet it remains a project, a grand expensive project at that. Like the London 2012 Olympics it will no doubt inject a degree of feel-good factor in the host country. But the real feel-good driver for Russia in the medium term will remain the price for hydrocarbons that continues to fuel the Putin’s economic model.
And here we return to the fate of Mother Russia or more humbly the Russian economy. What does the Olympics signify for Russia’s ambition to be a major global player in international economics and politics?
A lot has been written about the costs and related corruption on a grand scale. Is any major tournament really that different – particularly in emerging economies? And are decisions to award say the FIFA World Cup to Qatar (without a football league and summer temperatures in excess of 40 degrees centigrade) based on a truly unbiased fair selection? The Russians will do a fab job, and with 1 squaddie for every local denizen in Sochi, it will be well-protected also.

The decision to go for a big international project is akin to a coming of age for a country and signifies confidence in itself, ability to finance the games and to organize it. Witness the World Cup in South Africa, the putative Games and next FIFA Cup in Brazil and even the slightly wonky Asian Games in India.
Mind you it will be interesting to see how many of these EM countries put their hat for such show-case events in the ring now that the US-tapering has commenced and capital has started to leave these states.

So why pyrrhic?

The success in holding an international Sports Day (or days) does not change the overall context of the challenges facing Russia and its economy.  And there are more  parallels with the Soviet Union’s 1980 Games when Russia’s predecessor USSR was in a downward economic spiral than with many of the other EMs that have seen greater structural changes and a more balanced share of wealth.

Unlike the other above-mentioned EMs (and ignoring basket cases such as Argentina and Venezuela) Putin’s Russia is more centralized, less democratic and more reliant for employment on the state when compared with the early 90s…and where the state itself is even more reliant on oil and gas revenue that account for ¾s of all exports.

Whereas the Beijing Games were genuinely regarded as confirmation of China’s return to global influence politically and economically, one hopes the Sochi Games don’t instead presage the parallels with the economic malaise that subsequently afflicted the Soviet Union. 

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