Oil Price Crash, Currency Depreciations: EMEA Markets MNCs Should Watch Closely

The current fall in oil prices was one of the disruptors to EMEA performance we anticipated in May this year. As Brent prices fall below US$60/bbl, we have revised our forecast for 2015 average prices to US$65/bbl. Combined with expectations for a rate hike by the U.S. Federal Reserve, this is resulting in capital flight from a number of EMEA markets. It is affecting not only oil exporters, but also some oil importers who are suffering from contagion as capital flees emerging markets.

Which markets should MNCs monitor particularly carefully?


(Image: FT.com)


The Central Bank’s interest rate hike by 6.5% to 17% last night failed to stem the ruble’s depreciation. Russia is entering extremely dangerous territory with a nascent currency crisis. The economy will go into recession next year and could contract as much as 4% while facing double-digit inflation. At this time, it is impossible to forecast where the exchange rate will bottom out and how much it would recover once oil prices stabilize, but the ruble is unlikely to regain most of its losses to date. Capital controls are becoming a more real prospect, among other urgent measures the government may take in the next few days. These dynamics pose a substantial risk to the financial health of local partners and business customers, not to mention increasing the likelihood of contracting consumer spending next year and a planned 10% cut in budget expenditure for 2015.

Protecting your partners and employees should come as first priority to help maintain your market infrastructure; price increases, product portfolio adjustments, and localization are other long-term strategies our clients are considering for next year. 


The ruble’s free fall substantially increases the risk of an overnight devaluation in Kazakhstan. In the current situation a gradual loosening of the exchange rate would result in a run on the tenge, so the government is more likely to devalue again in one go and try to defend the new exchange rate. There is no reliable information in the market about the size of a potential devaluation, but given today’s ruble depreciation, it would need to be at minimum 10-20% to compensate for some of the tenge’s appreciation against the ruble.

If possible, pass the exchange rate risk to local partners or shift to pre-payment or payment on delivery. If looking to maintain market share, increasing inventories now may allow your business to maintain competitive pricing for a while in the case of currency devaluation. 


The Nigerian government has already devalued the naira by 8% and is using foreign currency reserves to soften the depreciation of the currency. The lower integration of Nigeria into global financial markets will benefit the country, making a scenario like the one in Russia not very likely. However, public spending is already being cut to account for the lower oil prices and we’ve revised our GDP growth forecast for 2015 from 6% to 5.2% as a result.

Prepare for volatility as the country heads toward the February elections while cutting social spending and removing subsidies. Work with corporate HQ to ensure that the short-term instability in the coming months does not undermine the commitment of your business to the market. Nigeria remains a long-term opportunity that few MNCs can afford to miss.


The lira has been depreciating rapidly because of concerns over the US Federal Reserve​’s interest rate hike, a government operation against Gulen movement-associated media outlets, slowing GDP growth (1.7% YOY in Q3), and general financial market panic over CEE because of Russia’s crisis. The lira will remain volatile and will continue depreciating as we head into the June 2015 parliamentary elections. Ultimately, however, Turkey is an energy importer and low energy prices will support the economy once financial market volatility subsides.

Provide financing support and more attractive terms to local partners and business customers. Lira depreciation and political volatility will affect customer confidence; use targeted marketing, pricing, and financing strategies to encourage hesitant customers in the next few months. We expect demand to pick up in H2 2015. 


The dinar has depreciated by almost 10% since June 2014 and is likely to depreciate further. However, in Algeria the depreciation will be gradual because the government has foreign exchange reserves of around US$215 billion, a large oil fund, and a relatively closed and insulated capital account where banks and companies are not allowed to borrow abroad. This makes the risk of significant currency volatility low, although lower oil prices will be sure to reduce public spending power next year and to undermine overall growth.

Lower growth and pressure on the currency will add to an already-challenging operating environment. Make sure that you are fully aligned with local partner on your expectations and targets for 2015, especially as investor interest in Algeria increases. 

Saudi Arabia

Lower oil prices will not undercut current Saudi government spending plans significantly and spending will continue to focus on quality-of-life projects. Saudi Arabia’s low debt levels and high foreign exchange reserves provide a cushion against falling oil revenues and will allow the country to maintain its peg to the US dollar. However, the market will become more competitive as public spending increases at notably lower rates than in previous years.

Prepare for more competition for government tenders as demand increases below some companies’ current expectations. Make sure your business continues to localize in the market as companies with a deeper local footprint will be better positioned against competitors in the next year.

To learn more about how FSG’s scenario planning and forecasting capabilities can help protect your emerging markets business against disruptive events, contact us.

One thought on “Oil Price Crash, Currency Depreciations: EMEA Markets MNCs Should Watch Closely

  1. Pingback: FSG's Events to Watch: Extreme Currency Volatility in 2015

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