March 4th, 2014

Russia’s Economy and Reputation after the Sochi Olympics

In the aftermath of the Winter Olympics in Sochi, the question of the Games’ effect on Russia’s economy and reputation emerges again. One of the answers to this question can be found in a recent report of the international credit rating agency Moody’s.

According to Moody’s, the Sochi Winter Olympics are credit neutral for Russia’s sovereign creditworthiness; hosting the Olympics is unlikely to boost the Russian economy in 2014. As Moody’s analysts believe, “Most of the effects from (the) construction have already been felt and were mainly realized at the regional level.” In the longer term, despite statements about direct and indirect benefits of the Olympics for the economy of Sochi and Krasnodarskiy kray, fiscal pressures are likely to grow. In particular, maintaining Olympic venues after the Games may prove to be problematic.  Sergei Grushinin, an assistant vice president and analyst at Moody’s, suggests that in order to “ensure that the majority of the hotels are full,” Russia needs to increase the number of tourists visiting Sochi “by two-and-a-half or three times after the Olympics.”

Hosting the Olympics is unlikely to boost the Russian economy in 2014

Russian banks that provided loans or invested in preparation for the Olympic Games will face a “negative impact on their credit rating.” For the state corporations the effect will be largely neutral, while telecommunications companies are likely to see a return on their investments relatively quickly. According to Moody’s estimates, almost the only winners from the Olympics are the leading global companies such as Procter & Gamble and General Electric.

Moody’s notes that the reputational benefits of hosting the Olympics are also quite limited due to the high cost of construction and a number of other negative aspects discussed in the media. By some estimates, the Sochi Winter Olympics were the most expensive in history: “It has since transpired that the budget of the Sochi Olympics has beaten all world records and now amounts to more than USD 50 billion.”

It is known that global sporting events often bring limited or no economic benefits. Moreover, the country’s reputation and image are dependent on not only (and, perhaps, not as much) the success of the event, but the general political environment. For example, domestic crackdown on human rights activists was one of the main reasons why China’s reputation has deteriorated. This has happened despite all the efforts to bolster Chinese soft power, including by hosting the Olympics in 2008. To a certain extent, Russia follows a similar path: for example, on the first day after the Olympic Games, the guilty verdict against eight defendants in the Bolotnaya Square was announced.

 

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