It’s not Called "Russian" Roulette for Nothing: Russia is the Ultimate No-Win Proposition

An editorial in the Financial Times spells out the risks of foreigners doing business in Russia. When considered, these risks make it clear that nobody should do so, and anyone who does richly deserves the suffering she/he receives. First, the Russian government may simply steal your investment. Ask Mikhail Khodorkovsky. Second, your investment may be eaten up by Russian corruption. Third, you may be killed either because you pose a threat to the Kremlin directly or to some organized criminal cartel within its ambit or opposed to it. Fourth, even if you somehow avoid all these perils, the Russian economy is based on smoke and mirrors (it’s a giant Enron) and may collapse at any time. Finally, even if none of that happens, you will face increasing political attacks from your own government abroad as Russia speedily becomes a loathed international pariah very similar to the position South Africa used to occupy. Your reputation will be tainted as both a supporter human rights atrocities and one who does business by means of corruption (the only way to succeed in Russia).

Now, foreign investor, La Russophobe dares to ask you: Is it worth it?

Some 6,000 delegates attended the St Petersburg economic forum in Russia last weekend, including more than 100 chief executives of leading global companies. It was an impressive demonstration of international interest in the Russian economy. It was also, in the words of one Russian participant, distinctly reminiscent of a Communist party congress, where the only speakers were chosen by the ruling bureaucracy.

The occasion underlined the growing divide between international investors in Russia, who are making excellent returns, and western politicians, who are increasingly concerned at the authoritarian drift in the Kremlin. The businessmen used the St Petersburg forum to heap praises on Vladimir Putin, the Russian president. Some criticised Tony Blair, the British prime minister, for warning of the political risks to future investment. Instead, they should have used the occasion to spell out a few home truths themselves.

In Russia today, the rule of law remains erratic, the courts are corrupt, and property ownership can seldom be guaranteed. Moreover, in an autocratic society – even if it is politely called a “managed democracy” – decision-making is much less predictable than in an open democratic society.

Anyone who does business in Russia must do so with their eyes open. They must recognise that politics, as much as economics, dictates the commercial climate. It is whom you know, as much as what you know, that is the key to success. That means the risks are greater, but so are the rewards. Anything to do with the state, or oil and gas and raw materials, carries the greatest risk of interference or expropriation. Those are the sectors that Mr Putin wishes to control. Others, such as telecommunications, are not level playing fields. The car market is the latest to see renewed state intervention, with Rosoboroneksport, the arms manufacturer, taking control of Lada.

Doing business in Russia also carries a reputational risk: international accountancy firms are finding to their peril that local operations come under enormous political pressure to cut corners.

Of course Russia has changed, beyond all recognition, from the dreadful old world of state controls and five-year plans. But it has yet to decide what sort of capitalism it is going to adopt. Anyone doing business there would do well to remember the words of Vladimir Ilyich Lenin: “A capitalist is someone who sells you the rope with which you hang him.” They have not been entirely forgotten in Moscow.

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