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Financial Times: EU wary as Russia puts a velvet glove on its iron fist

By Paul Betts
Published: December 12 2007 02:00 | Last updated: December 12 2007 02:00

A decade or so ago, Russian companies – Gazprom excepted – were almost invisible abroad. Since then, they have been growing fast, with the pace of foreign expansion accelerating.

A study published this week by Moscow’s recently founded Skolkovo school of management in partnership with the Columbia Program on International Investment shows that the foreign assets of Russia’s 25 biggest multinationals increased 2.5 times to nearly $60bn (€40.8bn) over the past two years. Since 2004, their exports have doubled to $200bn, and so have their foreign salaried workers, who now total about 130,000.

All this has turned Russia into the third-largest foreign investor from among the developing countries, and the trend is continuing. Only this week, the Russian steel group Evraz announced plans to acquire the US Claymont Steel company for about $565m. Last year, Evraz splashed out $2bn to buy Oregon Steel Mills, another US company.

There have been other large investments by the likes of Norilsk Nickel – its $6.2bn acquisition of Canada’s LionOre Mining is still the largest single foreign transaction by a Russian multinational – and Lukoil and Gazprom. However, Russia still trails a long way behind India and China in the emerging economies’ foreign investment league table. Indian and Chinese companies last year bought almost $70bn worth of assets in Europe alone, compared with $10bn or so by Russian companies.

This appears to be bothering President Vladimir Putin and his closest advisers, who feel Russian multinationals are still not developing fast enough abroad and not getting their fair share of the investment opportunities created by globalisation.

A large part of the problem is Russia’s continued poor reputation in business.

Justifiably or not, the World Bank still places Russia near the bottom of its governance pile. According to this year’s Edelman Trust Barometer, Russian companies are the least trusted in the world. This reputation undermines the chances of Russian multinationals pulling off mega foreign takeovers.

The Russians may well complain of unfair stereotypes, arguing that most of its largest companies are adhering to international standards, and of a lack of reciprocity on the part of western partners keen to secure Russian energy exports and acquire Russian assets. But Mr Putin’s systematic policy of renationalising what he considers strategic Russian assets, coupled with all the familiar western complaints of heavy-handed bureaucracy, weak legal institutions and accountability, not to mention the blurring of business and government interests, hardly help Moscow’s case.

Nor does Mr Putin’s endorsement this week of Dmitry Medvedev, the youthful chairman of Gazprom, as his successor provide much comfort. The new heir apparent is likely to provide a velvet touch to Mr Putin’s iron fist. This is what he has already been doing at Gazprom, where he has been hoovering up assets from Shell and BP in the two biggest foreign-owned energy projects in Russia and describing these arm-twisting deals as reasonable compromises.

Mr Putin does not seem to have any intention of giving up power or of stopping his re-nationalisation of assets. Under his young protégé, this is expected to become what people in Moscow are already calling nationalisation “with velvet gloves”. This is unlikely to make European Union members more comfortable when Russian multinationals come knocking at their door.

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Copyright The Financial Times Limited 2007 and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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