Investing in Russia
This entry was posted on 3/4/2008 9:32 AM and is filed under uncategorized.
The idea that Russia is a good place for private investment is absurd. Russia is a very corrupt place. It ranks on a level with Togo and it is getting worse. Direct investment in Russia is subject to enormous red tape propagated by venal bureaucrats. Direct FDI in Russia last year was only 2.2% of GDP, half of investment in the Ukraine. Most of that was in natural resources that make up 80% of exports. FDI in other sectors has decline from 1.6% of GDP in 1999 to 0.65%. The growth in Russia is due to the oil and commodity boom, but this is ending. First, as the world goes into recession the demand for oil and other natural resources will decline along with the price. Second, the growth in oil output has declined from 9% a year to just 1%. The legal system has been hijack by the Kremlin and corruption is rising. Inflation is now at double digits and corrupt state owned businesses have borrowed $400 billion from capital markets. Gazprom, which owns the largest reserves of natural gas, is barely profitable because it must sell subsidized gas and skimming. Small and medium businesses make up only 15% of the GDP. This is a train wreck. Investors want a return on their investments, but they want their investments returned even more.
