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Financial Times: Russian revenge

Published: April 23 2007 03:00 | Last updated: April 23 2007 03:00

There is something very disturbing about the last-minute mass pull-out of Russian business leaders from London’s Russian Economic Forum, which starts today.

Some called the organisers, complaining of late diary changes. Others did not bother with excuses – it was obvious that behind the boycott lay the dread hand of the Kremlin.

Officials have long been unhappy with London hosting the premier annual Russian economic conference and have steadily cut ministerial representation. But business people were free to come until last week when the top names suddenly cancelled.

The authorities gave no reasons. But they left no doubt they wanted to punish London, probably over the Boris Berezovsky affair. Officials are furious at the UK’s failure to respond to the exiled oligarch’s recent anti-Kremlin outburst. Moscow is also angry at the harm done to Russia’s global image by the row over the poisoning in London of former spy Alexander Litvinenko.

The conference pull-out highlights the challenges of doing business with Russia. While the economy is booming, creating opportunities for many companies, the Kremlin is increasingly ready to intervene in the economy, even, it seems, in the conference sector.

Officials argue that, after the turmoil of the 1990s, they had to restore order and give the state a leading role in key sectors, including energy. They say recent rapid growth proves they were right.

They have a point. But they are not telling the whole story. First, the recent boom owes almost everything to high oil prices, not government policies. Next, those policies have been implemented in untransparent ways that have done nothing to restore respect for the law – and have instead created a chilling fear of officialdom. Also, the resurgence of the bureaucracy has been matched by growing corruption.

There is little prospect of change. Mr Putin will soon pick a successor who will almost certainly win next year’s presidential poll. The front-runners, Dmitry Medvedev and Sergei Ivanov, both promise continuity.

For foreign investors these are rich but dangerous waters. Even large groups are not immune from arbitrary actions, as Royal Dutch Shell found when it was pressed to sell control of the Sakhalin-2 scheme to Gazprom. Even companies not involved in strategic sectors may be hurt in the cross-fire, as the forum organisers have learnt.

Investors who think they can avoid political risk are fooling themselves. In Russia almost everything is political and almost everything potentially carries political risk.

Copyright The Financial Times Limited 2007


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