More Humiliation for Putinomics
Stunning news came last week that Russia’s economy, led by proud KGB spy Vladimir Putin, was on pace to post a whopping 45% drop in foreign direct investment by the end of this year, compared to last. Russia collected an anemic, humiliating $6 billion in FDI in the fist six months of this year, and total flows of foreign money into Russia dropped by nearly as much, a jaw-dropping 30%. Less than a billion dollars of foreign money was placed in the Russian stock market in the first half of 2009, and Russia’s FDI loss was one-third greater than what China, for instance, experienced.
The country risks losing competitiveness as foreign investment dries up and the global economic crisis prompts the government to raise its stakes in corporate stocks. State ownership of corporate stocks reached 45 percent at the end of 2008, the Moscow-based Institute of Contemporary Development said in a February report. More than half of the stock market is controlled by the state, a setup that investors should approach with caution, according to Troika Dialog, Russia’s oldest investment bank.
Russia is, in other words, reinstituting communism whether it likes it or not, because the state is the only one willing to spend money for Russian companies. Billions in oil windfall reserves have already been squandered by the Kremlin buying shares of Russian companies to keep the stock market from totally collapsing.
Foreigners are finally realizing that Russia’s economy has no prospects, it is totally enslaved by the world price of crude oil. This means that there is really no such thing as “investing” in Russia, but rather only the ability to place bets on the price of oil as if Russia were nothing but the world’s largest gambling casino.
Mirax Group CEO Sergei Polonsky, who once declared that anyone who could not make at least a billion dollars in Russia was a total loser who could “go to hell” announced last week that his construction company was going belly up and ceasing all operations, totally unable to secure any kind of interim financing and faced with disappearing demand.
Russia scholar Richard Pipes says, like many others, that all this failure is the result of Russia’s frenzied blind nationalism:
One unfortunate consequence of the obsession with “great power” status is that it leads Russians to neglect the internal conditions in their country. And here there is much to be done. To begin with: the economy. The Russian aggression against Georgia has cost it dearly in terms of capital flight. Due to the decline in the global prices of energy, which constitute around 70% of Russian exports, exports in the first half of 2009 have fallen by 47%.
Russia’s crazed attack on Georgia has not only opened the floodgates to the secession of many Russian regions, it has diverted the national attention from crucial economic issues and caused the outside world to see Russia as a rogue state no different than Libya or Venezuela. No serious person will take Russia seriously as a result, and Russia is left totally friendless, without the ability to inspire the kind of investor confidence necessary to generate life-saving capital flows.