Streetwise Professor

April 9, 2008

A Tasty Morsel

Filed under: Economics,Politics,Russia — The Professor @ 8:16 am

Churchill said “An appeaser is one who feeds a crocodile, hoping it will eat him last.” Hermitage Capital found out that this hope is a dubious one in Russia. Hermitage and its CEO Richard Browder had long been cheerleaders for Russia, rationalizing and justifying some of the chekist’s most dubious measure, including the Khodorkovsky prosecution. But something went off the rails several years ago, and since then, Hermitage has been in the cross hairs. That something, apparently, was Browder’s call for improved transparency at Gazprom. Bad move. As these stories indicate, the attack against Hermitage has reached a fever pitch; the company has been the subject of an audacious hijacking attempt.

The lessons here? In Russia, the crocodile needs constant feeding. What’s more, there are multiple crocodiles that need to be fed. There is no guarantee that if you keep one sated, that another won’t find you a tasty morsel.

Those who assert that Russia is a great investment frontier often rationalize these sorts of episodes by saying that they are the exception, rather than the rule; that most companies operate in Russia without undue interference from the state. (Of course, what constitutes “undue” is quite subjective.) But episodes like BP-TNK, Sakhalin 2, Yukos, and now Hermitage indicate, investing in Russia is like, well, Russian roulette. Investor beware–even if you feed the crocodile today, you may be dinner tomorrow.

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