To Russia with Hope?

A month or so ago, I asked North American Nearsourcers is Brazil in your future, referencing a special report on business and finance in Brazil in the Economist that noted that, for the first time in modern history, Brazil is democratic, experiencing economic growth, and realizing low inflation.

Today, I’m asking European Nearsourcers if Russia is in theirs? In a recent Harvard Business Review article on The Promise and Peril of Russia’s Resurgent State (subscription required), we are told that there is money to be made in Russia, as long as companies play by the rules imposed during Putin’s tenure as president and that it is just as promising as other members of BRIC; it is no more corrupt, violent, or prone to institutional upheaval. Furthermore, the recent high oil prices have helped to propel economic growth, which has been strengthened by improved tax administration and energy company taxes, and resulted in recent fiscal surpluses.

Of course, with the good come the bad. The Kremlin’s apparently infinite appetite for power represents a growing threat, as do the complexities of doing business in Russia. The current fluctuations in commodity prices, of which Russia is largely dependent on, can make things uncertain as well and Russia isn’t rising to the centre stage in the same way that Brazil, India, and China are. And it’s current president has warned time and time again that Russia will be doomed unless both the economy and the society modernize, hand-in-hand.

But balancing everything out is the fact that Russia’s economic situation will improve with the economy, when oil prices again stabilize (in the $80+ range according to most projections). (European) Energy companies have no choice but to invest in Russia. Inflows will surpass $100 B annually, the nouveaux riches will devour luxury products, and the middle class, that will have an average income of $16K, will expand. During the eight years Putin was President, he did everything he could to enforce the Kremlin’s power to achieve his goal of developing a market system and integrating Russia into the global economy — including the creation of a prudent macroeconomic management policy. (In Putin’s government you did not get involved with politics, did not buy politicians, and paid your taxes. If you were a business who played by the rules, everything was fine, and you were free to get rich if you could. If you didn’t, you were in trouble.) And Putin’s handpicked successor, Dmitry Medvedev, has repeatedly said that tackling remaining corruption is his top priority. Plus, dealing with Russia’s state led capitalism is often easier than coming to grips with China’s single party, multi-level authoritarianism or India’s multi-party, chaotic democracy.

Anyone have any thoughts to share?

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