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Younghusband
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Younghusband

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June 15th, 2005

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Putin’s Policy Paying Off?

Is Russian president Vladmir Putin’s dictatorship of law paying off? We all know one one of the most important things for a developing economy is FDI, and before any FDI money flows in investors have to be confident in local institutes that will uphold the law and protect their investment. Mr. Putin has been working hard to provide an inviting economic environment, and today was in St. Petersburg with our favourite behind the scenes puppeteer former Japanese Prime Minister Yoshiro Mori to celebrate the opening of a Toyota factory in Shushary. Ford Motors and Renault already have plants in the region, and Nissan is also looking to open one before 2007.

So, Russia hands, are these the results of Putin’s policies, or are international car manufacturers just cashing in on the new zero-percent import duty on car components (previously 12%)?

Comments to this entry

IJ
June 15, 2005
4:55 pm
Doing business with Russia carries a very high risk, reportedly.

On inward investment, there is the chance the assets will be nationalised. "Bolivia points the way":http://www.pinr.com/. On vital energy flows westwards from Russia, there was a report recently that Ukraine's supplies were in jeopardy.

There are lots of examples of inadequate safeguards in the global economy. Global finance and national politics don't always mix - the IMF tries but. . .
Kenneth
June 15, 2005
5:08 pm
Putin's nationalization of several industries appears more grounded in a desire to route the ogligarchy that has taken root in Russia and poses a potential political threat via its economic muscle than making Russia safe for investment (which is likely to be secondary). As well, in light of "certain machinations":http://www.atimes.com/atimes/China/GF04Ad07.html Putin has political reasons for maintaining government control over key industries.
IJ
June 15, 2005
7:18 pm
Excellent link about the relations between Iran and China. And Russia has a lot of trade with China.

Anyway, Russia will need a lot of inward investment if it is to continue selling its energy. This year's report from the International Energy Agency says:

"Converting the world's resources into available supplies will require massive investments. In some cases, financing for new infrastructure will be hard to come by. Meeting projected demand will entail cumulative investment of some $16 trillion from 2003 to 2030. . .Russia will play a central role in global energy supply and trade. . . with major implications for the world's energy security. . . Developing Russia's huge energy reserves, modernising existing infrastructure and improving efficiency will call for enormous investments [more than $900 billion from now to 2030]. A stable and predictable business regime and market reforms are urgently required if these investments are to be financed. . ."

So much rests on the shoulders of the IMF.
Mike
June 15, 2005
10:27 pm
I am no Russia hand, but right now I would not put real money into Russia. Like IJ said, the environment is way too risky. If you want to sell cars in Russia build a plant in Poland and rail them east. If anything Putin's policies are scaring the heck out of everyone but the energy sector which has no choice but to go after the cheap crude and gas in Russia. The best thing for Russia would be new leadership. Putin had us (well me at least) fooled for a while. He looked strong, he looked smart, but then his response to the Belsen school incident showed him to be scared and weak. Also the man doesn't seem to have a very good grasp of how outside world functions he reportedly asked Bush if the president had had Dan Rather fired, not understanding that the president has no control over the American media.
Curzon
June 16, 2005
2:11 am
I think the Carylyle Group just closed shop in Moscow for the second time... cars may be all it is.
Mike
June 16, 2005
5:12 am
The Carylyle Group last year announced it was investing $1 billion in China. Some powers rise and others fall.
Albert
July 22, 2005
7:16 am
Building a plant in poland and carting the cars east to Russia would be very very very costly. Huge duty on import cars thats why they will most likely ship the parts and assemble in factories providing employment.