I launched business new europe (bne) 12 years ago this month with my partner Nick Watson. At the time emerging Europe was in the midst of a huge boom. Russian incomes had risen by 10% a year for a decade. The stock market added 50% a year to valuations. The Russian economy grew by 6-8% a year and would double in size during that decade.
And the growth was not limited to Russia. Ukraine was also in the midst of a buying frenzy with international banks snapping up local players, paying crazy prices as high as six to eight times the book value.
Turkey was also on a roll. In those days Turkey’s then prime minister (now president) Recep Tayyip Erdogan was loved by the market and it seemed the country’s economy had finally puts it military oversight behind it to join the western world. Istanbul was the vibrant place to be, and fund managers were rushing in with new equity offerings for retail investors. Newsweek wrote breathless pieces about the hipsters' hangout in the streets around Taksim Square and the new secular future the country was enjoying.
Even in the backwaters of Central Asia, Kazakhstan was on a tear. Bank sector assets were growing in double digits and new banks like Alliance were putting in 200% growth. Kazakh Eurobonds were hot and the market was sophisticated as the republic used the funds to build a new economy. In Georgia the Bank of Georgia came out of left field with a pioneering IPO that ended up valuing the bank at more than the whole banking sector. Bank of Georgia’s CEO Lado Gurgenidze told me at the time – I was the first correspondent to travel to Tbilisi to interview him after the IPO — that they had run out of Georgian expats working in banks overseas to poach and he was having to turn to Poles, Russians and Ukrainians to fill job slots because the bank was growing so fast.
And then it all blew up in 2008.
The US financial crisis wrecked the recovery of emerging Europe. In the two years before the crash, capital inflight had reversed and Russians brought home $131bn of capital in 2006 and 2007 to invest in domestic businesses. That was almost as much as the $158bn that had left in the preceding decade. The local businessmen were optimistic about the future of Russia for the first time. The next year in 2008 it all left again: capital flight in 2008 was $133bn and Russia has been exporting capital ever since. I have always wondered what the region would look like if the US crisis could have been avoided.
But bne is still standing and we are still reporting on the story. Since 2008 it has got a lot harder. And it is doubly difficult as an independent publisher that is funded entirely by our commercial activities – mainly subscriptions.
In the last decade I have watched at least four titles try and launch in bne’s space, but they all folded after a year or two. In the boom years there was plenty of advertising revenue as newly minted East European business wanted to get their name out. But now, after a decade of grinding away in an increasingly difficult economy, the interest in bringing in foreign investors has evaporated and the expats have left.
Titles like the Moscow Times and Kyiv Post are also now loss-making and slimmed down versions of their former glorious selves. Indeed, all the direct competition bne has today is either receiving government subsidies or, in the case of media like EurasiaNet and RFE/RL, are directly funded by western governments. Only a very few titles like the Baltic News Network or the Budapest Business Journal are still purely commercial, and bne remains the only pan-regional title with correspondents in almost all our countries that is not on someone’s teat.
This longevity has given us a unique perspective. In the boom years of the noughties several publications rushed into the same space bne occupies today. The financial monthly Euromoney set up a publication called Russiamoney at the start of 2008 as the parent title had been earning so much. The Wall Street Journal also briefly had a supplement called the Central and Eastern Europe Review. And the Economist group had Business Central Europe, a sort of Economist for emerging Europe (where I served as Russia correspondent for several years). But all these titles also disappeared when the money dried up.
bne keeps soldiering on as we believe the transition of emerging European countries into normal democracies with functioning markets is one of the most exciting stories on the planet. It may not be a profitable story for a publishing house any more, but call me idealistic, it is an important story and badly needs the traditional “forth estate” coverage — especially now, in the increasingly toxic environment we find ourselves in.
In 2014 we merged with IntelliNews to become bne IntelliNews and attracted an investor Jerome Booth on the strength of the potential in emerging markets, which expanded our staff considerably and gave us new subscribers.
1991 vs 2018
Those of you that read bne regularly are probably aware that we take what superficially may seem to be a more sympathetic or moderate line on the story than most of our western peers.
That is not because we have gone native or are pro-east in some way. Having lived the transformation, our perspective is not east vs west, but 1991 vs 2018. And from where bne stands, the region has changed out of all recognition — and continues to improve. The lives of some 500mn people have become immeasurably better, but there is still a long way to go until they become completely “normal”.
I regularly get into (polite) public disputes with the likes of the Economist or Atlantic Council on the extent to which Russia’s President Vladimir Putin is “evil” or failing the Russian people. And perhaps I am too harsh a critic of Ukraine’s failures to reform.
However, my point of reference is when I arrived in 1993 shortly after the collapse of the Soviet Union. In those days the shops were literally empty. In Kyiv we spent half the day with a driver looking for bread and cheese. In Kyrgyzstan in 1994 you couldn't find toothpaste anywhere in the capital Bishkek. Things were so desperate in Moscow, where prices ballooned, that literal crowds of young women gathered at the bottom of Tverskaya to prostitute themselves to get by. Many were young mothers. There were so many of them the police eventually started cracking down, not so much because prostitution is illegal, but because they were blocking the traffic on Moscow’s main thoroughfare.
Today those crowds of girls are gone. Unemployment is at a historic low. Anyone who wants a job can find one – even in the regions. And on a PPP basis Russian wages are the highest in Eastern Europe.
In Central Europe the situation is even more extreme. There is an acute labour shortage as these countries have more than completed their catch up with the west and are booming to an extent that Polish and Czech companies are actively recruiting in Ukraine and Belarus to find workers to fill empty factory seats. Life in Eastern Europe is immeasurably better but the boom in Central Europe shows how much further the transition further east has left to run.
Comparing that Russia of 1993 with today’s Russia and I can well understand the Russian people’s admiration for Putin as he has delivered on things they care about: imposing stability, improving standards of living, and restoring some national pride after the humiliation many Russians felt after the total collapse of their lives in the 90s. Progressive values like LGBT rights look less important in this light.
Emerging Europe is going though a particularly bad patch at the moment. Putin has broken definitively with any attempt to compromise with the west. Erdogan is increasingly dictatorial and unhinged. Ukraine’s leaders have utterly failed to deliver on the promise of the Euromaidan protests and that country now looks to me like Russia in the early 90s. And the illiberalism in Czechia, Hungary and Poland is alarming.
Personally I think many of these problems are growing pains as the countries in our region start to mature. Most of the 2004 wave of accession countries from Central Europe have caught up with the rest of the EU economically, but now they are starting to flex their political muscles. Russia’s problems are also a function of the Kremlin wanting to assert itself on the regional stage, but the relationship with the west is poisoned by the legacy prejudices of the Cold War and exacerbated by the lack of a democratic tradition in Russia itself. The whole region remains subjected to wild swings — both economically and politically — but people’s lives continue to improve slowly.
I believe that all these countries will work through these issues eventually as the bottom line is the people on the streets of Warsaw, Budapest, Bucharest, Kyiv and Moscow all aspire to the same things as those in Berlin, Paris and London. With the free travel in Europe, the weight of this popular pressure is irresistible even if it works at a glacial pace.
And it is with this optimism that bne stays in business, despite all the difficulties. I look forward to reporting on this story and struggling to understand it for another 12 years.