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Russia’s business environment cold and nasty

Marketplace Staff Dec 14, 2006

KAI RYSSDAL: That OPEC production cut we mentioned is a win-win deal for Moscow. Russia’s not a member of the cartel. Even though it’s the world’s number two crude exporter. So it’ll be able to sell as much of its oil as it wants. For higher prices. The Russian market is attractive for a lot of reasons. Not the least of which is that there’s a chance to make a lot of money. But Commentator Edward Lucas says foreign investors ought to look before they leap.

EDWARD LUCAS: A slice of the Russian pie is certainly worth fighting for. It’s a seven hundred billion dollar economy growing at 6 percent a year. Foreigners have poured in 100 billion dollars plus in investment.

But it has its downsides. Russia’s heavily dependent on natural resources. It’s got high inflation and rampant corruption.

And as other post-communist countries put the finishing touches to privatisation, Kremlin INC is extending state ownership over the economy. Now, systematic harassment by the authorities has forced Shell to cede control of its giant Sakhalin 2 gas project to Gazprom, the state-owned energy giant. Foreign investors face unpredictable tax bills, limited ownership stakes, and heavy political pressure.

But Russians find it even tougher. Mikhail Khodorkovsky, the founder of the Yukos oil company, is in jail. Another tycoon, Boris Berezovsky, once boasted that the Russian government was one of his commercial subsidiaries. Now he lives in tightly-guarded exile in London. He was a friend of the ex-KGB officer and defector Alexander Litvinenko.

But criticising the Kremlin is a dangerous business. An assassin shot Anna Politkovskaya, Russia’s best-known investigative journalist, in her own stairwell. She was ferreting out military corruption in Chechnya.

It’s hard to connect these dots with a simple, clear explanation. The bleakest interpretation is the simplest. This is the new Kremlin, delivering old-style warnings: cross our path and you’ll regret it.

But one thing’s certain: Foreigners are no longer cueing up for high-profile projects in Russia, such as the giant gas fields that the country so urgently needs to develop. They’re figuring out that in Russia, normal rules of politics, business and economics don’t apply. And anyone who stumbles on Russia’s twisted path is in for a nasty — perhaps even a lethal — shock.

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