During a recent research trip to Russia, we gained valuable insights into the country’s new economy. As the nation’s economic recovery begins to splutter despite a backdrop of higher oil prices, we ask: can Russia’s tech sector provide much-needed balance to the economy? Cyber-espionage accusations against Russia, state sanctions and poor governance have dominated news flow in recent years. The fundamentals of the country’s technology sector have been overshadowed by the state’s alleged interference in the 2016 US presidential campaign and hacking of state secrets and corporations. Russia’s tech sector pales in comparison to the country’s oil and gas industry in size, which produced an average of almost 11m barrels per day in 2017 – the highest level since the collapse of the Soviet Union in 1991. But despite higher oil output and prices, the country’s economic recovery from its 2015-2016 recession remains anaemic. Russia’s economy grew 1.5% in 2017, undershooting its 2% target, after industrial production unexpectedly fell in November due to a slowdown in Russian defence spending. Consensus forecasts point to 1.9% GDP growth this year. Furthermore, at 7.5%, the Bank of Russia’s key interest rate further constrains growth.

“Companies do not exist in isolation: they use resources from the commons, employ labour and attract customers from towns and cities, and are required to operate under the laws of the land. They influence the lives of far more people than shareholders alone, but unfortunately plenty of businesses act to the detriment of many – including, in the long run, themselves and their investors.”

Companies do not exist in isolation: they use resources from the commons, employ labour and attract customers from towns and cities, and are required to operate under the laws of the land. They influence the lives of far more people than shareholders alone, but unfortunately plenty of businesses act to the detriment of many – including, in the long run, themselves and their investors.

While South Africa’s market performance has been unremarkable so far in 2016, political and economic events within the country have been more dramatic. Elena Tedesco, Co-Portfolio Manager – ESG Strategies, on the Emerging Markets team at Hermes Investment Management, discusses the ongoing challenges and opportunities in a nation facing significant upheaval. South Africa has performed broadly in line with the rest of the emerging markets this year (see Figure 1). Yet delve deeper and it is clear that the country and its economy have had a much more turbulent year.

While South Africa’s market performance has been unremarkable so far in 2016, political and economic events within the country have been more dramatic. With its sovereign credit ratings under scrutiny, we discuss the ongoing challenges and opportunities in a nation facing significant upheaval. South Africa has performed broadly in line with the rest of the emerging markets this year (see Figure 1). Yet delve deeper and it is clear that the country and its economy have had a much more turbulent year, and now face the glare of the three leading credit ratings agencies. With the three agencies threatening to re-rate South Africa if change is not made, the need for reform is acute. A country in crisis Economically, South Africa is struggling more than it has in decades. In the first quarter of 2016, GDP growth turned negative for only the second time in 20 years and for the first time since the financial crisis. Stagflation, rising debt, twin deficits and political setbacks add to the rating agencies’ concerns about its economy and its prospects.