Russia’s Investment Setback

From James Beadle in The Moscow Times:

But once again, Russia’s popularity as a target for investment of all forms will be hindered by insecure political structures. Foreign direct investment will be the biggest victim. Learning from Yukos, as well as Shell, BP and many others, companies will be hesitant to invest in long-term fixed assets as long as the government’s word is the only guarantee that their rights and property will be respected.

It is certainly true that befriending Putin assures investors somekind of protection under the status quo, but most internationalcompanies do not operate on such principles. There is no substitute for atransparent, written and inviolable legal structure. In its absence,investors in Russia will at least require higher returns, meaning thatthey will expect lower entry prices and the ability to extract morevalue from any operations they establish in the country.

It was always clear that the Yukos affair was untouchable. But in thelight of a case where many incumbent and former senior officialsvouched for the defendants and where Putin intervened publicly beforethe trial was completed, the Dec. 30 verdict was a national setback.