Investment and business prospects of the Crimea

Andriy Onistrat and Mikhail Ilyashev speculate on the investment and business prospects of the Crimea resulting from accession to Russia
Source: Investgazeta

Andrew Onistrat, Chairman of the Supervisory Board of the Bank National Credit

1. Crimea Autonomy
Property and liabilities
Any assets within the new Crimean state will be impaired. It refers to any form of ownership, including private. You may forget about apartments and garages, hoses and private recreation houses. None of them will not cost 10% of their current price in unrecognized state and legal vacuum.

Business
As the owner of the bank having branches in the Crimea, I will endeavor to save the branch. Though if I will have to obtain two licenses in the public agencies of two states, it may be cheaper to close the branch.

Trade industry has always been the most flexible segment capable of quick adaptation to new conditions. It will not be an exception in this case either. All retail trade will immediately become prepaid just because business has no better protection against risks than prepayment. It will result in a rapid rise in prices in supermarkets and shops. The upward trend has already started: I have recently talked to a representative of a Swiss pharmaceutical company, who confirmed that the company has already begun working with the Crimea on the 100% pre-payment basis.

Investment
Investments in the Crimea will have to be forgotten for many years to come. World experience proves that even decades later investors sidestep unrecognized states.

2. Crimea as part of Russia
Property and liabilities
Depreciation of assets is unavoidable, but it may be less than in case of independence of the Crimea.

Another important point is loans and deposits. Borrowers will take advantage of the situation and 80% of liabilities will defaulting. It is slightly less than in case of independence, where I predict up to 99% bad debt. Further the Ukrainian banks cannot avoid their obligations to own depositors and lenders. Any Crimean resident, a former citizen of Ukraine, having deposit in the Ukrainian bank, will retain his/her passport and claim fulfillment of the relevant obligations, and the banks will have no legal grounds to refuse.

Network business
It can be assumed that operation of the networks in the Crimea as part of the Russian Federation will be more transparent from a legal viewpoint. However, its expediency is not obvious. I admit it might be interesting for retail trade, which, besides the networks, has formed logistics, distribution, etc. in the Crimea.

In any case, the Crimea with a population of 2 million people, the figure has every chance to decrease on account of refugees, can hardly be called an ideal market. In this sense, the Crimea shall not rely on the Russian business: investors will not hurry to invest in the region with the high seasonality and a declining population lacking infrastructure and logistics.
Investment

We cannot speak about investments in this case. Money infusions promised by the Russian party in case of annexation of the Crimea can be called subsidies more correctly with all the consequences. The only question is whether the promises of the Russian Federation will be implemented and how long the federal budget will cover the increased appetites of the Crimea. After all, it is not about preserving the existing indices, and about the total improvement in every aspect of economy, social standards, etc.

Mikhail Ilyashev, attorney at law, Managing Partner, Ilyashev & Partners Law Firm
However, this “lifeline” is also a big problem for the unrecognized state. For some period, perhaps lasting, revenues to the budget will reduce significantly.

1. Autonomous Crimea
Investment
Legal status of the unrecognized state actually puts an end to investment in the region. Theoretically, some Russian and Ukrainian investors may invest in Crimea, but only those who understand the situation and can make forecasts. However, high risks and inevitable legal collisions will reduce such investments to a minimum.

2. Crimea as part of Russia
If the Crimea accedes to Russia, the legislation of the Russian Federation will become effective on the peninsula, certainly with some exceptions and after a transition period.
Property and liabilities

Private property rights are very likely to remain effective. However, confusion and chaos are inevitable during transitional period. There is no procedure for transferring data from the Ukrainian to the Russian registry, and considering differences between the laws and regulations of two states it will be difficult to develop. Moreover the Ukrainian system of property rights registration is far ahead of the Russian one.

Network business
Availability of legal grounds improves prospects for network business, but in this case intermediate options are excluded. The companies willing to preserve their networks in the Crimea will be forced to register new legal entities in the agencies of the Russian Federation. The procedure may be complicated, but in some cases it makes sense.

Investment
From a legal viewpoint, investments in the Crimea will be much more protected if Russia finalizes annexation of the peninsula. You may argue about the sanctions, which may be applied to Russia and entail decrease of the state’s investment attractiveness, but considering the legal rules, the effective legislation and practices of its application are much more preferable for the investor than the laws of the unrecognized state.