Streetwise Professor

October 16, 2011

What Could Be Easier?

Filed under: Economics,Politics,Regulation,Russia — The Professor @ 6:41 pm

Igor Yurgens discusses what Russia needs to do to address its capital flight:

Although the Russian economy is the 10th largest in the world, it is regulated in a way that does not suit investors’ preferences. That is why the regulation issue outweighs the potential advantages that a speculative portfolio investor could have given the high oil prices we’re seeing. In addition, in order to attract short-term direct investment, the country needs investors to be confident in their future, property rights, simple relations with the state, as well as a number of investment factors. We lack some of them, like a predictable tax burden. The absence of quality human capital and skilled labor has also depressed investment.

Investors seek more politically stable havens and financial markets in periods of panic or plain old anxiety. Nor do investors enter a market until they completely understand the country’s foreign investment strategy.

Do you think that the capital outflow we’ve seen since the beginning of the year can give way to capital inflow?

Yes, once all the factors I mentioned change, once Russia becomes investment-friendly for both domestic and foreign investors, once we carry out a sort of regulatory revolution, and neither small or medium-sized businesses are assaulted by law enforcement and raiders.

In other words, pretty much everything must change.  Things that have remained largely unchanged for 20 years.  The prospects for a “regulatory revolution” that protected property rights and stamped out raiding were dim enough under Medvedev’s presidency, and while there was a chance that he might actually proceed with something resembling modernization: these return of Putin–who has never shown the slightest interest in any of these things, and who has actually worked against them in crucial instances–means that the prospects are now non-existent.

So if Yurgens has in fact identified the necessary conditions for vibrant foreign and domestic investment in Russia–and his list is a reasonable one–the only conclusion is that the prospects for vibrant foreign and domestic investment in Russia are pretty much non-existent.

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12 Comments »

  1. “putin … who has actually worked against them in crucial instances…”

    Such as when Our rebellious servant Vladimir had Our junior colleague Mikhail Khodorkovsky arrested for nothing more than political opposition.

    The fastest way Russia could restore investor confidence is by freeing Our junior colleague Mikhail, paying full restitution, with interest, for their dismantling of Yukos, and placing Our rebellious servant Vladimir in Our junior colleague Mikhail’s former cell.

    Comment by a — October 16, 2011 @ 7:14 pm

  2. Reuters, aka Kremlin flunkies.

    FOREIGN DIRECT INVESTMENT (in bln dollars)
    COUNTRY 2007 2008 2009 2010*
    Brazil 34.5 45.0 25.9 30.2
    Russia 55.0 75.4 38.7 39.7
    India 25.1 40.4 34.6 23.7
    China 83.5 108.3 95.0 101.0
    Global 1,978.8 1,770.8 1114.1 1122.0
    Developing 529.3 630.0 478.3 525.0
    BRICs 198.1 269.1 194.2 194.6
    *Preliminary estimates
    (Source: UNCTAD)

    Comment by Sublime Oblivion — October 16, 2011 @ 9:33 pm

  3. Russia 55.0 75.4 38.7 39.7

    Разборчивый кипрский инвестор

    Comment by peter — October 17, 2011 @ 2:55 am

  4. SUBLIME INBRED APE:

    You’re saying that you think Russian FDI being HALF what it was in 2008, UNCHANGED from 2009 despite a soaring price of crude oil and ONE THIRD that of China is GOOD thing?

    Crawl back into your vodka bottle, you maniac.

    Comment by La Russophobe — October 17, 2011 @ 11:09 pm

  5. Russian FDI has declined EACH AND EVERY YEAR since 2007.

    http://online.wsj.com/article/SB10001424052970204479504576637351593119480.html

    Nice work, Herr Putin! Heil Putin!

    Comment by La Russophobe — October 17, 2011 @ 11:14 pm

  6. One photo of FDI in Putin’s Russia is worth a thousand screams.

    http://www.facebook.com/photo.php?fbid=10150442781948968&set=a.218399553967.167251.546473967&type=1&theater

    Comment by La Russophobe — October 17, 2011 @ 11:18 pm

  7. We’d like to congratulate SUBLIME RETARDED FREAK for finally admitting that if Russia lags behind the BRIC group, it proves Russia is a failure.

    http://larussophobe.wordpress.com/2011/06/09/editorial-non-competitive-russia/

    So, Putin must go!

    Comment by La Russophobe — October 17, 2011 @ 11:20 pm

  8. Putin has done such a brilliant job of leading Russia for the past 12 years that the country is so weak and unstable it will collapse without him.

    http://www.calgaryherald.com/news/Putin+defends+Kremlin+warns+Soviet+style+collapse/5565875/story.html

    Question: What happens if Putin’s plane crashes? Russia is doomed? Nice work, Herr Putin! Heil Putin!

    Comment by La Russophobe — October 18, 2011 @ 5:59 am

  9. According to federal statistics, more than 300,000 Russians leave the country to work abroad and about 40,000 emigrate every year. According to recent opinion polls, at least 13% of Russians would want to emigrate because of discontent with the economic and political regime, widespread corruption and inadequate social services.

    http://en.rian.ru/society/20111018/167811696.html

    Russian births down 20%, population falling, saved only by immigrants. By 2080, as many as 70 per cent of Russia’s population could be immigrants or the children of immigrants. Russia’s population could already be 25 per cent Muslim, well above the official figure of 14 per cent.

    http://www.ft.com/intl/cms/s/0/aa3c19bc-f854-11e0-a419-00144feab49a.html#axzz1b6lNDu5N

    Ouch.

    Comment by La Russophobe — October 18, 2011 @ 6:10 am

  10. I’m back in Sakhalin at the moment. I have met with two friends who run businesses in Yuzhno-Sakhalinsk. One says he intends to move completely to South Korea within 5 years because the parastic nature of the local authorities on his business is too great. The other was about to go to Hong Kong to set up an offshore company because he wants his money out of Russia. I wonder how representative these two are of Russian businessmen in general?

    Comment by Tim Newman — October 18, 2011 @ 10:32 pm

  11. Timothy,

    That is a very sad story. Our junior colleague Mikhail once had a similar problem with Vladimir Petukhov, the mayor of Nefteyugansk. He was able to resolve it very satisfactorially. Unfortunately, since Putin’s rise, utilizing such effective methods has become more… complicated.

    Comment by a — October 19, 2011 @ 4:27 am

  12. Russia #120 in the world (below Nicaragua, Kosovo, Ethiopia) for ease of doing business. USA is #4. Eat dirt, Russia.

    http://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/Documents/Annual-Reports/English/DB12-FullReport.pdf

    Comment by La Russophobe — October 20, 2011 @ 2:38 pm

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