Coca-Cola HBC says Russia a ‘risky’ developing economy

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Published time: February 27, 2013 14:25
Edited time: February 27, 2013 18:30

The world’s second largest Coca Cola bottler Swiss-based Coca-Cola HBC, in a report to investors, says its revenues are endangered by “inconsistent state politics in developing countries like Russia, Nigeria and Romania.”

In the company’s opinion, legal ambiguity typical for Russia and Nigeria can have a negative influence on its business in these regions.

According to Coca-Cola HBC, Russia has a large and complex structure of government and its national, regional and municipal authorities may take contradicting decisions and propose a variety of requirements, which may increase the company's costs.

In addition, Russia and Nigeria historically have very high levels of corruption, and while the Coca-Cola brand is guided by US law forbidding corruption abroad, its competition with other market participants can become unequal.

Coca-Cola HBC argued the uncertainty may affect company sales both directly and indirectly, as the population, dubious about the future, will be spending less on non-essential goods like beverages.

Coca-Cola Hellenic Bottling Company S.A. is the world's second-largest Coca-Cola bottler responsible for the markets of Eastern Europe, CIS, Ireland and Nigeria.

The risks of developing a business in Russia were highlighted by Coca-Cola’s main competitor, PepsiCo. The corporation's annual report talked about the unstable political situation, civil unrest and other risks in countries like Russia having a possible negative impact on PepsiCo’s business and financial results.

According to analyst Darya Pichugina from Moscow based Investcafe, a country’s investment climate is individual for each particular company, and if Coca-Cola HBC says Russia and Nigeria are unfriendly to it, they must have a point. “These negative forecasts can be due to a country’s individual legislation regarding food companies like Coca-Cola. For example, in Russia a tax on sparkling beverages was proposed not long ago, a fact that can’t be seen positively from Coca-Cola HBC’s point of view.”

“As for the risk assessment, the risk of investing in Russia does exist, but it has a positive side too. Our country is very attractive to foreign investment as it has a lot of different industries still developing, like the food industry or agriculture, and a company can gain a lot by investing in these. So, if it is ready for risks, it invests in the Russian economy, if not, it turns to safer places like Germany,” Darya Pichugina told RT.

“Unfortunately, Russia traditionally has quite a negative image for investors that needs to be changed, and that can’t happen in a wink of an eye. Russia and Nigeria have been compared a lot, but if we look at the question more profoundly, Russia’s corruption is much lower and it also has a much higher level of education and scientific development which can be attractive to investors,” the economist pointed out.

Russia has recently moved up in the ranking for economic freedom compiled annually by the World Bank where it occupies 112th place. In this list economies are ranked on their ease of doing business, from 1 to 185.