Why Russia's Economic Slump Has Been Good For London
DON GONYEA, HOST:
The U.S. and Europe began approving sanctions against Russia a year ago. At the time, many British analysts were afraid the sanctions would hurt London. Now the Russian ruble has lost about half its value. NPR's Ari Shapiro looks at whether the anxious predictions for London turned out to be accurate.
ARI SHAPIRO, BYLINE: This time last year, London's financial titans were wringing their hands over Russia. Analyst Ruben Lee offered the BBC this assessment, which was pretty typical of the news coverage at the time.
(SOUNDBITE OF BBC BROADCAST)
RUBEN LEE: All these sanctions are possible, but they're going to hurt us more than they hurt them.
SHAPIRO: A top British government official was photographed walking into the Prime Minister's residence with a secret briefing paper. It said, no support for trade sanctions and no closing London's financial sector to Russians. Fast forward a year, and Russia's economy is collapsing. So what's the impact on London? Scott Corfe is with a think tank called the Center for Economics and Business Research.
SCOTT CORFE: The U.K. saw its fastest growth since the financial crisis last year, and we think that momentum is going to be more or less maintained in 2015.
SHAPIRO: London is thriving. And this may not be despite the crisis in Russia. London might be doing so well partly because Moscow's economy is collapsing. Yolande Barnes is director of world research at the real estate company Savills.
YOLANDE BARNES: There is a paradox, if you like, that the worse the ruble gets, the worse the Moscow market looks, the more attractive London appears.
SHAPIRO: So it's a Monday morning in London. We're standing here in Kensington overlooking the gorgeous park. It's springtime. Introduce yourself.
KATYA ZENKOVICH: I'm Katya Zenkovich. I run the Russian desk at a real estate company called Knight Frank.
SHAPIRO: Zenkovich has been dealing with Russia's ultra-rich for about a decade, and she's brought us to a new luxury building under construction that'll be finished in the fall.
ZENKOVICH: This is fully-serviced, concierge, valet parking, gym, spa...
SHAPIRO: These apartments start above $3 million. She expects Russians to buy at least 10 percent of them.
ZENKOVICH: I think the uncertainty that is in Russia at the moment drives a lot of families to think about a residence outside of Russia.
SHAPIRO: She says the billionaires and oligarchs mostly bought their London mansions years ago. Now, a lot of millionaire 30 and 40-somethings are looking to bring their families over from Moscow.
ZENKOVICH: There is a substantial increase in the number of people who have bought, but the average sale price has decreased.
SHAPIRO: A Russian fortune in rubles does not go nearly as far as it used to. But many wealthy Russians keep their money in other currencies, which points to one more way that London is benefiting from this crisis.
ANASTASIA NESVETAILOVA: And this is an extremely important element of the whole story - is the network of offshore financial centers that have grown out of the - essentially, British Empire.
SHAPIRO: Anastasia Nesvetailova is an economist at City University in London. She says British bankers manage tax shelters all over the world - the British Virgin Islands, the Isle of Man, Guernsey Jersey.
NESVETAILOVA: U.K. is selling to Russia what U.K. does best. That is offshore financial havens and financial services.
SHAPIRO: There are other reasons London is booming while Russia slumps. Oil prices have not gone up, as many analysts expected. The euro is worth less than it's been in years while the pound is strong. Plus, as analyst Yolande Barnes puts it...
BARNES: ...London's economy is happily dependent on very many different and disparate factors.
SHAPIRO: So, she says, the behavior of a few wealthy Russians would never have been more than a ripple in London's economy anyway. Ari Shapiro, NPR News, London. Transcript provided by NPR, Copyright NPR.