Who Would Invest in Russia?

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At the risk of opening up a furor of indignant comment I am going to make some rather critical observations prompted by some recent developments reported in the FT and Telegraph newspapers. Now let me start by saying I haven’t got anything against Russians, indeed I count several both here and still living in the country as good personal friends, but Vladimir Putin’s Russia sometimes exhibits all the worst characteristics of a totalitarian state. In an article on the breakdown of talks between Russia and China over a proposed gas pipeline the FT adds some telling quotes from senior industry observers. The project is indefinitely delayed because the two sides cannot agree on price for the gas, not helped by the fact China has recently done a deal with Turkmenistan and Kazakhstan, two former Soviet states, to supply gas reducing the Chinese need for a deal with Russia. The viability of the project has also been undermined because Gazprom is behind schedule bringing the vast Kovykta field in east Siberia on stream ” why, technical reasons? No because the license is held by BP-TNK and the authorities have been waging a two year campaign to take control of the company and sell (give) the license to Gazprom. Apparently Gazprom is not in a hurry to conclude the project; they are short of cash to finance it and according to Valery Nesterov, energy analyst at Troika Dialog, the Moscow investment bank they are waiting for a solution to the BP problem saying Gazprom doesn’t want to spend money now when it could get it for free later! Who would invest in Russia?

Another article in the Telegraph this week calls into question whether it is appropriate to include Russia in the emerging market quartet termed BRIC by Goldman Sachs and now widely applied when discussing developing countries rapid industrialization. China exhibits robust and formidable growth that even with its heavy reliance on exports has continued to expand in the midst of global meltdown. India too has continued to grow and at the same time is a shining example of the tenacity of democracy in spite of the country having probably the most fragmented of cultural and religious societies. Although Brazil has achieved phenomenal growth it has at the same time achieved a record of monetary caution and fiscal restraint that should be an example to all other emerging markets (and many developed ones). But what has Russia achieved? Left to their own devices, Russian oligarchs (having built their wealth in dubious ways) have largely embraced market forces and expanded overseas. But the state frequently reverts to bully boy tactics to get what it wants, using energy supplies as a political weapon outside its borders and repeatedly intervening domestically to support state champions in their attempts to grab resources from foreign investors as they see fit. Even the war in Georgia had more to do with warning other ex soviet states not to get too close to the west than it had to the stated aim of protecting Russian peoples living in Georgia.

As western corporations build ever closer links with Russian suppliers you have to ask how reliable these agreements will prove to be in the long term. The answer may be until the western corporation’s interests clash with those of the Russian state.

–Stuart Burns

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