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Financial Times: DSG spurns Russia

EXTRACT: The increasingly bellicose pronouncements of President Vladimir Putin suggest risks are rising too, especially in the “strategic” areas of energy and natural resources, where government control is being reasserted. Shell and BP have run into highly publicised problems (though it is worth remembering that BP, for example, has already recovered its original Russian investment through dividends).

THE ARTICLE

Published: June 21 2007 03:00 | Last updated: June 21 2007 03:00

Adventurers have sought their fortunes in the mythical El Dorado since the 16th century. Yesterday, UK retailer DSG International decided its own quest was too risky, terminating its option to buy into Russian electrical retail group Eldorado.

Yet the profits to be made in Russia by outsiders have largely proved real, rather than illusory, despite the dangers along the way. The consumer sector in particular has been booming, with real disposable incomes up an estimated 13 per cent year-on-year in the first quarter. The likes of Coca-Cola, McDonald’s and Procter & Gamble say they are going great guns. Confectionery group Mars believes Russia has contributed about a third of its organic growth in recent years.

The increasingly bellicose pronouncements of President Vladimir Putin suggest risks are rising too, especially in the “strategic” areas of energy and natural resources, where government control is being reasserted. Shell and BP have run into highly publicised problems (though it is worth remembering that BP, for example, has already recovered its original Russian investment through dividends).

Although not politically sensitive, retailing can also be tricky territory for new entrants. Some of the most globally minded retailers, such as Wal-Mart and Tesco, have yet to make a decisive move into Russia and others are just dabbling. The two biggest problems for foreign entrants, corruption and bureaucracy, can meld rather unpleasantly when it comes to finding and building retail sites.

The DSG board decided it was not “appropriate” to proceed with its investment after it “learnt a great deal about both the company and the market in which it operates”. If that means rewards were not substantial enough to outweigh considerable risks, it was a sensible decision. But for most, the allure of massive profits will continue to be irresistible.

Copyright The Financial Times Limited 2007

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