Inert Detritus The Internet's dust bunnies

9 April 2009 @ 8am

Russia’s future

The past few years have been a roller coaster for Russia. Putin’s efforts to remain in a position of power and influence were successful, and oil revenues swelled the government coffers. Their economic house of cards is now teetering, and threatens to take private business down with it. Where did this all start, and why are things going wrong now?

Russia is a warning to any multinational corporation. Companies and investors came because the potential profits offset the risk of a sudden, Kremlin-backed repossession of assets (see: Yukos). But now, such investment looks more foolish than ever, as the government takes money meant for shoring up toxic assets and providing money liquidity, as has been done recently in the United States, and instead funnels it towards semi-autonomous private corporations with heavy government ties. Any hope of semi-responsible governance has been killed dead.

Russia will continue to reap windfall oil and tax profits over the short and medium-term, as worldwide demand recovers and businesses finish investment of assets already committed to the state. However, only the most singly profit-motivated and foolish of companies will invest in Russia in the long term. The cost of building a profitable business must take into account the inherent risk posed by the current administration and government officials, who see any capitalistic enterprise in the state as merely a source of future assets for capricious state seizure.

Russia, until recently, was often considered one of the world’s premier emerging economies. Instead, sloppy governance and property rights run over roughshod have turned it into a bottomless pit for return-free investing.

(Edit: this was originally a draft written last while flying back to San Francisco. A few things have changed since November, but most important is this: Russia, Venezuela, and other oil-driven governments are seeing demand and revenues plummet, and are facing large budget shortfalls as a result. Their short-term stability is rightfully being questioned, and they may turn to violence and militarism in an attempt to retain power.)

1 Comment

Posted by
9 May 2009 @ 1pm

The frustration that you feel is common to all who live in Russia and yet retained their brains and common sense..