The Business Behind Sochi

February 17, 2014

By: Alena Sukhina

The price of $50 billion made Sochi the most expensive Olympic games in history. The lack of infrastructure was one of the reasons for huge expenses.  Russia tried not only to invest in necessary sport’s venues but also improve lives and business prospects of the population in that region.  Government spent $1.6 billion on the road into Sochi to ease congestion; one of the other spending was $8.7 billion to complete a combined railway highway. The question to ask is “Will Russia’s economy benefit from all this spending?”

According to the European Bank for Reconstruction and Development, these huge investments will not boost Russia’s economy in any way but it may create a good impression and attract business investments in the future for the city of Sochi.  Even though the Olympic games cost seemed to be unbelievable, it is not necessary going to appreciably worsen its current debt because Olympics’ cost is only 2.4% of the country’s GDP.  At the same time government forecasts show that Russia’s economy, which was expanding at an average rate of 7 % since 2000, will grow at a third of that between now and 2030.

Since the beginning of 2014 the Russian ruble lost 6.3% against the USD.  A lot of people talking about how the depreciation linked to the Sochi Olympics and speculate about what can happen once the Games are over in a couple of weeks. In reality the ruble depreciation relies a lot more on the global economy, in particular the USA. There is good and bad about the ruble depreciation for the Russian economy.  Of course foreign goods are more expensive to buy now because the ruble is weaker. On the other hand, this is a great moment for the ruble to be a bit weaker because many people coming to Sochi at the moment and converting money from their home country at a slightly better rate, which means they are going to spend more money during the Olympics. Equally the ruble that is slightly weaker makes it cheaper to export products, therefore, it is cheaper to buy Russian products which would act as a stimulus for domestic industry.

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