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Reasons to be wary of investing in Russia, ctd

Take a look at this short video featuring Bill Browder, founder of the investment firm Hermitage, who several years ago was suddenly denied entry into the former Soviet Union for the “crime” of asking awkward questions about various Russian firms he had invested in. As I say, this sudden refusal of entry came to light a few years ago, but for some reason the video got made recently, and has stirred up fresh controversy about Mr Browder, and his treatment. I hope he has got decent security and takes care of himself.

To be honest, whenever I have an off-the-record chat with any private banker strategist, hedge fund manager etc., they tell me the same thing: avoid Russia if you do not want the risk of having your wallet lifted, or worse. It is that bad now.

But then I consider how the bond-holders in the US auto industry got the shaft during the recent bailout of said as orchestrated by Mr Obama and his pro-union political allies. The abuse of property rights knows no national boundaries.

20 comments to Reasons to be wary of investing in Russia, ctd

  • Sozidoh

    It’s funny that as kids, we learn that if we want other kids to not keep taking our stuff, we have to tighten our grip, shout “mine” and maybe even apply a little retaliatory force. Yet that seems to get educated out of us as we get to adulthood.

  • Paul Marks

    No, No, No, Johnathan.

    The wise elite of Newsweek have explained that the problem with Russia is that it is too “capitalist”.

    Just as the wise elite of the media (and academia) say that it is evil smear to say that Barack Obama is a socialist and that “we are all socialists now” (“but that is a contradiction” is something that would only occur to an evil capitalist mind, remember logic has been replaced by dialetics).

  • As you know, I was over there for 12 years and helped out the Trade Minister. That’s only some of the tales. The most famous is the crystal factory in Vladimir where the local council found anomalies in the land lease and took the lot, shut down the factory, filed down the id marks on the machines, repainted all, let the foreigners back in and said there was nothing there belonging to the foreigners.

    You only invest in Russia with muscle and then, like Exxon, you still don’t get your own way.

  • Over the weekend, I was chatting with a good friend of mine who is a senior Australian fund manager. One reason why the Australian dollar is as strong as it is at the moment, and why Australia has barely had a recession is that over the last couple of years there has been a huge inflow of money into Australia from investors who want to further exploit Australia’s enormous gas reserves. The principal cause of this is that customers have become extremely nervous about the levels of political risk and the way business is done in Russia. After a few years of that, Australia’s solid rule of law and political stability has suddenly started to look very attractive.

  • widmerpool

    I’ve worked in Russia for 14 years and there’s a very simple reason why people continue to invest here. They all expect to make enough money before the state lifts their wallet.

  • James Waterton

    Michael:

    Wrongo! Firstly, you shouldn’t trust (or even associate with) those greedy bankers – who shall henceforth be known as “fatcats” – and their bonuses. They are profiting off the misery of the Aussie battler – sucking them dry via the application of a $4/month bank account keeping fee. And Telstra. That was their fault, too. What about the bush? If only those bankers didn’t break up the Postmaster General’s department in the 70s – Australian broadband could have been world-class! And did I mention that fatcats also make bread from the blood of battler babies? Also, they don’t pay any tax. Fatcats! I expect the situation is similar in Russia, too.

    Anyway, it was the Rudd govt’s stimulus package that saved Australia from the ravages of the financial crisis, doncha know.

  • James… step… away… from… the bong.

  • James: Considerable time was also spent laughing at the National Broadband Network while having a glass of wine (in my case) or apple juice (in my friend’s case – he doesn’t drink alcohol and so is obviously nothing resembling a proper Australian).

    For the non-initiated: going into the last election, then Australian opposition leader and now Prime Minister Kevin Rudd decided that Australia had to have a “world’s best” broadband network. Obviously, this is not created by allowing companies to build such a thing in competitive markets. This is the sort of thing that the previous ultra-capitalist government of John Howard might have done. (Actually, what the previous pathetic government of John Howard did was privatise the lumbering state owned telco Telstra whole, complete with the extremely uncompetitive market structure imposed upon it by government before that, in which Bob Hawke and Kim Beazley ganged up on Paul Keating, so gaining themselves about six weeks political advantage at the time, but I digress).

    No, obviously the only way you get world class infrastructure like this is if the government does it. Therefore, the government called for tenders for existing companies to build the National Broadband Network (with capital letters) with government money. Finding none of the tenders to its satisfaction, the government decided it would build the networks itself. That’s right, it decided it would create a new huge state owned telco to replace the previous one that the Howard government had privatised. It then more or less asked the world “Does anyone know how one goes about building a National Broadband Network” and allocated about $50 billion to doing this. This is more or less where we are at the moment, along with regulatory attempts to interfere with the business of existing companies (mostly Telstra) because after all, it would be terrible if customers decided that they were happy with the broadband they have already, and chose not to use the government’s new thing, assuming they can get it to work. Meanwhile, Australia’s very left wing and divorced from reality chattering classes (Australia is a long way away from anywhere else, and they are thus far less likely to ever talk to anyone else than most such groups) can preoccupy themselves with such things and comment how great it is to have a Prime Minister focusing on the important things.

    Such things as National Broadband Networks cost a lot of money, but the Australian government has a lot of money, thanks to all the iron ore and petroleum revenues. Some of us might prefer it if Australian governments just cut taxes and/or invested the money in Norwegian style investment funds, but those parts of the Australian government and public service who deal with the mining and energy businesses do so in a professional manner. Corporate taxes are reasonable. Personal tax rates are far too high – perhaps a little lower than Britain but much, much, higher than many of our Asian neighbours. If you are a multinational oil company, the good thing is that the politicians are distracted with their own silliness while you just get on with your business. Nobody is going to steal your company, arrest you on trumped up charges, or murder you with Polonium-210

  • James Waterton

    Hey Perry, I’ve been on the straight and narrow, honest! The above is the distilled (and slightly extrapolated) “knowledge” gleaned from reading the populist op-eds of various Australian dailies over the couple of years or so.

  • I suspect the op-ed writers probably aren’t on the bongs either. It would be a definite improvement if they were.

  • Jonathan

    Seems to me like the Russians, after having got rid of Soviet socialism, are replacing it with National socialism.

  • Paul Marks

    I did try to explain to people that (gun control not withstanding) John Howard’s government was not too bad.

    I agree that from the standpoint of pure libertarianism the Howard government was indeed “pathetic” – but it was NOT compared to the ideas that dominate the universities, the schools and the mass media.

    Such things as a balanced budget and one of the lowest (O.K. least absurdly high) levels of government spending as a percentage fo the economy in the Western world, are not small things.

    The efforts to deregulate the labour market were indeed puny – but remember that most other nations were shoving yet more regulations onto the labour market (and all other markets) and still are (at a faster rate than ever).

    The economy that Mr Rudd inherited was one of the strongest in the Western world (not a pathetic thing) and his best (or rather worst) efforts have not yet managed to ruin it.

  • James Waterton

    I suspect the op-ed writers probably aren’t on the bongs either. It would be a definite improvement if they were.

    Absolutely. At the very least, it might make them more imaginative. If I had a dollar for every time I’ve seen ‘fatcat’ prefixed to ‘banker’ in a News Ltd article, I’d be a fatcat myself.

    Populist nonsense.

  • James Waterton

    Paul – I agree, Howard and co could have been worse. However, that lot are still distinctly ho-hum in my opinion, and not worth getting misty-eyed over in the slightest, for reasons set out here and here.

    Hey, haven’t we had this conversation before? :)

  • Hermitage….I think they were the management co. of the hotel in Yuzhno-Sakhalin my wife worked at, and they rapidly bailed in about January 2007. I think they realised they couldn’t work with the hopelessly incompetent and clueless hotel owners, who had made their millions exploiting a fishing monopoly and thought they were clever enough to run a hotel and office block. They weren’t.

    Incidentally, Russia has finally realised that having declared 2 years ago they don’t need western oil and gas expertise, perhaps they do after all. The only question is, are the western majors daft enough to plough another few billion in without demanding enormous, iron-clad guarantees that the Russians won’t once again help themselves to the projects once they are completed. I’m guessing some of them will be that daft. Keep your eye on Repsol, Shell, and possibly Total. Wouldn’t surprise me if they are weeping at the unfairness of it all in 2016.

  • joel

    Well, this looks good for the West. Just let Russia sink into a kleptocracy. It will go broke. I hope this time the West doesn’t bail it out. Russia has never been a Western country, despite Peter the Great.

  • Laird

    Of course the West will bail it out. That’s what we do.

  • James: Yes, we definitely had this conversaton before.

    My greatest individual Howard policy that I will laugh at is the “First Home Owners grant”, in which the government solved the problem of people not having downpayments to get mortgages by writing them cheques. (The amounts varied depending on time and place, but at their extremes they reached levels like £15,000). This led to house prices going up by the approximate amount of the cheques, and pushed Australia’s housing bubble to levels unimaginable even in London. The bubble has not popped yet, due do a combination of the resources boom, a high population growth rate (2.5% annually) due mostly to immigration and combined with shortages of land in Australia’s major cities due to planning restrictions (which are just ludicrous – it’s a f*cking continent). This bubble will not pop as long as these factors continue and Australia continues selling Iron ore and Natural Gas as it has been doing, but it is trouble that is going to come back and hit us at some point.

    Plus Howard could have cut taxes, but didn’t. He introduced VAT (called GST in Australia) and when he left office the top marginal tax rate was 46.5%. In this environment it would have been possible to cut it to 30% without a significant impact on the size of government. He did virtually nothing, spending his time instead on inflating the housing bubble.

    Howard’s government was just another mediocre Australian government that did a lot of talking and did nothing other than shortsighted spending to appease its supporters, but had the good sense to benefit from and get out of the way of a resources boom. Australian governments are like this. They are not as authoritarian as (say) the current British government (despite their regular clueless attempts to censor the internet – it is worth mentioning that the Howard government also decided it was going to do this when it first came to office) and they are rather paternalistic.

  • Russia has never been a Western country, despite Peter the Great.

    True. It’s not been a European country either. Although St. Petersburg is very much a European city.

  • Paul Marks

    James and Michael:

    O.K., O.K.

    I am just too kind heated and tolerant of the imperfections of people in office.

    Or I am too used to beating someone over the head for the various misdeeds in private – and then trying to defend them at election time against whatever pit demon the “mainstream” media and academia are supporting.

    Dishonest – but hard to avoid in a society where the left have (Gramsci or Favbian style) gained control of the basic cultural institutions (such as the schools and the universities) so to find politicians who dissent from any of the doctrines of leftism is a rare wonder.