Russia’s economy has been free-falling over the past couple of months. While many have mistakenly associated this collapse to the excessive sale of rubles, others have correctly identified that Russia was in recession because of a mix of factors, including oil price shock.
We’ve got the lowdown on what’s happening in one of the world’s most promising telecommunications markets.
What Caused the Fall?
The depletion of currency reserves can hardly explain why Russia is in recession. In theory, central banks use foreign reserves to prevent the appreciation of their local currency, thereby maintaining the competitiveness of their exports. But we are seeing that the Russian central bank (CRB) is doing the very opposite. The ruble has dropped significantly over the past months, and to slow its fall, the CRB decided to be aggressive on financial markets by selling massively its dollar reserves. Russia’s woes initially began when Western nations imposed a series of sanctions on the European giant following the Ukraine-related events. Yet these woes took a new turn when oil prices started to fall rapidly.
The Lesson? Diversify Your Economy
To truly understand why a nation as huge as Russia is struggling to deal with its current issues, one must take a hard look at its economic fundamentals. Russia’s economy has been essentially reliant on oil exports and is run as a monolith. There’s a crying need for structural reforms, which as you can imagine will only give positive results in the long run. Any emerging nation that hopes to become an advanced one in the future must make sure that its economy is diversified enough to deal with events it has no control over, such as external shocks.
Still, the tide might turn for Russia. Along with China, India, and South Africa, it remains an emerging market worth watching—if sanctions don’t interfere. Its mobile phone industry is one of the largest in the world, after all.
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