Tech businesses face setbacks due to a round of sanctions imposed by the Russian government on the U.S. and European Union.
The bans, which come amid heightened political tension in war-torn Ukraine, thus far affect a large number of food exports for one year. The Kremlin has also publicly mulled barring all European and American flights from crossing Russian airspace, a potent threat that, until now, has remained just that. Moscow is countering sanctions imposed on Russian individuals, energy companies and banks in late July.
Companies with less diversified portfolios will be hit harder by the sanctions, as will those whose supply chains are dependent on Russia. But, says Stephen Minton, vice president at IDC Global Technology, the sanctions should have little effect on an already-shrinking I.T. market – for now. “Unless there are specific sanctions to prevent the export of I.T. products and services to Russia from Europe, in the same way that Putin has just banned food imports, then the impact on Europe’s I.T. industry will mainly be transmitted through the business confidence chain.
“In other words, if sanctions damage economic growth, this will affect business confidence, and this in turn will lower I.T. spending,” adds Minton. “Any economic uncertainty is immediately bad for capital spending which affects purchases of PCs, servers, storage equipment, etc. If it drags on for more than six months, software and services could also be impacted.”
Telecoms industry could be hit
Another technology-driven industry that could be affected by the sanctions is telecommunications. Russia has placed restrictions upon the ‘dual use of goods and technology’, which, argues Ovum analyst Alla Shabelnikova, may harm European vendors. “At the moment Russian operators tend to use several equipment vendors, including European and Chinese, to eliminate the dependence on one vendor,” she says. “In the worst case scenario Russian operators will have to select vendors from countries that did not impose such sanctions.”
For an example, adds Shabelnikova, take a look at Crimea, the former Ukrainian peninsula annexed by Russia in March this year. Several restrictions are already in place, including one on selling, supplying or transferring key equipment and technology for infrastructure projects in several industries including telecommunications.
“This means European technology vendors won’t be able to supply any telecoms equipment for telecoms network deployments in Crimea and Sevastopol,” she says. “Provided that the Ministry of Communications and Mass Media of Russian Federation declared that this region will use the Russian spectrum allocation going forward, the construction of LTE and 3G network will start there at some point and European vendors won’t be able to supply the equipment for those networks.”
For now, investors will have wait and see how the political situation plays out. Mohamed El-Erian, a chief economic adviser writing in the Financial Times warns that sanctions may have a damaging effect in the long-run: “Up to now, investors have been rewarded by dismissing geopolitical tensions as concerns for politicians rather than markets and portfolios. But should the escalation of sanctions and counter-sanctions continue, it becomes only a matter of time until they are hit with demand and supply disruptions that could broadly and materially affect market valuations.”
Despite the sanctions, however, Bloomberg reports that Russia’s economy is not doing so badly. GDP grew 0.8% in Q2 2014, just 0.1% down on the first quarter. Experts have cut their 2015 growth forecasts to 1.6% from 1.8%: neither great for president Vladimir Putin’s government, nor terrible.
At least 2,086 people have died since April, when pro-Russian rebels clashed with government forces in the Donetsk and Luhansk regions. Around 300,000 have been displaced, mostly to Russia. Crimea was annexed in March 2014, which brought a huge amount of Ukrainian energy assets under Russian control. On July 17 the U.S. extended transaction bans to Russian energy firms Rosneft and Novatek, and two leading banks, Gazprombank and Vneshekonombank.
Tension escalating between Russia and the West
Political divisions between Russia and the West have intensified since the downing of Malaysia Airways Flight 17, which was struck by a surface-to-air missile near Donetsk, killing all 298 people on board. Ukraine claims that rebel forces, armed by the Russian military, shot down the plane. Russia has blamed the Kiev government for the attack.
In the latest diplomatic flare-up, a Russian convoy carrying aid to conflict regions in eastern Ukraine was stopped by Ukrainian forces who claim the trucks are being used to ship weapons to the rebels. The foreign ministers are both currently in the German capital of Berlin for ceasefire talks. German foreign minister Frank-Walter Steinmeier has warned that “a simple recipe does not exist” for peace.