No country hosting a major global gathering like the Olympic Games can hope to escape the intense media scrutiny and public criticism that are a part-and-parcel of the event, and Russia is no exception.
The run-up to the Sochi games has been rife with all kinds of negative headlines, and issues ranging from the quality of the sporting facilities to the security surrounding the once-in-four-years event have been cast into the spotlight – and not in the most favorable way either.
To boot, reports have clearly stated that Sochi’s hefty $50 billion price tag won’t be a slam-dunk for Russia.
Given the negative hype surrounding the event, many aren’t sure just how much the Games are going to boost the Russian economy, which is forecast to grow at a feeble 2% in 2014, significantly down from the 7% figure recorded for 2013.
“The Sochi Games so far seem to be well run and professional,” said Vladimir Milev, emerging markets strategist at investment firm Payden & Rygel. “But the bigger question is whether Russia is in a position to have spent $50 billion on this event, whether that price was worth it.”
Like many others, Milev believes any positive outcome from the astronomical costs of Sochi won’t be clear for a number of years.
“Sochi has been built up to become a huge vacation destination but right now, it’s difficult to see whether it’s going to be successful that way or not,” he said. What can be seen, though, are the same flaws that have dogged Russia for some time and that have caused and continue to cause hesitation on the part of many foreign investors to commit too deeply to the country, despite the opportunities that it offers.
For one, the run-up to Sochi has once again brought to light the huge problem of corporate governance—or lack thereof—in Russia, and for investors like Tim Hanson, senior analyst at Motley Fool Funds, this is one of the main reasons for not investing in Russia.
“Many Russian stocks look cheap, particularly energy stocks, and when you think about the energy reserves that Russia has, they seem like a great deal, and yet we don’t own a lot in Russia because our study of the market has shown that corporate governance in Russia has gotten worse,” Hanson said.