language=JavaScript> </SCRIPT> language=JavaScript src="http://ad.jp.doubleclick.net/adj/rectangle.ad2.japantimes.co.jp/opinion;sz=300x250;ord=1134642066234?"></SCRIPT> JapanTimesOnlineAds MOSCOW -- I recently attended a conference in Moscow aimed at attracting foreign direct investment (FDI) to Russia. It was a high-level conference, organized by Interfax and Chatham House and attended by ministers, senior bureaucrats and leading businessmen, both Russian and foreign.
For a conference designed to attract FDI -- and there were many businessmen from West Europe and North America in the room -- it was a strange event. Usually at such conferences, the locals try to oversell their country, but in this case Russian ministers, officials and businessmen competed with each other to give the strongest reasons for not investing in Russia.
The minister for economic development and trade, German Gref, and natural resources minister Yuri Trutnev complained about the government for delaying, even reversing, economic reforms and about the bureaucracy for delaying and distorting the implementation of reforms that have been introduced. It was mind-boggling, yet understandable.
FDI in Russia is low and falling, currently less than 5 percent of gross domestic product. If the big foreign investments in the oil and gas sectors are excluded, it is tiny by international standards. The conference was really about why foreign investors are not investing in Russia and why they may continue not to invest there.
Why is Russia, with 25 percent of the world's proven oil and gas reserves (probably much more) and with about the same share of the world's exploitable timber reserves, unable to attract the FDI that it will need to develop its economy in a sustainable way? Why does it look at present as if it is condemned to be a hewer of wood and a drawer of oil for the foreseeable future (and to be a provider of large amounts of imported luxury consumption goods for those benefiting, legitimately or not, from the hewing and drawing)?
Politics is the answer. It became clear at the conference that the political situation in Russia today does not lend itself to attracting FDI. Russia under President Vladimir Putin is going backward politically; it is becoming nationalistic and xenophobic.
Putin, a former KGB official, has gathered around him a group of cronies among the politicians and bureaucrats who look back to the days of the Soviet Union with nostalgia. He recently described the Soviet Union's collapse as the most significant geopolitical event of the 20th century.
Re-establishing Russia as a respected world power means, to Putin and his cronies, setting up an autocratic political system backed up by willing military, security and police (and even criminal) networks. These networks are proving themselves very willing to support Putin -- they may even control him.
Moves toward democracy are being stopped and reversed; liberal economic reforms are being slowed down, stopped and reversed; controls over individual freedoms are being tightened; and whole swaths of the economy are being renationalized (including the media, which might otherwise criticize it). The entrepreneurs (apart from the oligarchs who Putin supports and has brought into his camp by threatening to destroy their empires) are losing heart.
One entrepreneur at the conference, a successful national distributor of mobile phones, digital cameras and the like, exclaimed that he and people like him are now "at war, at war with the government, at war with the bureaucrats, at war with regional and provincial authorities." He described how his shops have had Molotov cocktails thrown into them, how regional tax authorities backed up by light infantry turn up, and how a ministry "confiscated" a $55 million consignment of mobile phones, which then disappeared, without compensation.
The failure of Putin and other political leaders to inspire the Russian people, to provide aspirations and objectives that would motivate them, was pointed out by another leader of industry as the reason why the Russian economy is failing to reach its potential. People, he said, no longer have ambition. Infrastructure everywhere is crumbling, and the manufacturing sector is inefficient and in decline, with no meaningful restructuring toward more modern sectors encouraged.
Education is worsening, even in areas where Russia has traditionally led: mathematics, engineering and chemistry. Women's lawn tennis is the only area of pride in Putin's Russia, he concluded.
This lack of hope, lack of ambition, is reflected in demographics. Russia is depopulating -- men are drinking themselves to death in their prime working (or, more likely, nonworking) years, women are not having children or having them later, and other women are leaving Russia for the West. AIDS is rampant.
Depopulation is matched by a growing antiforeigner sentiment based on racial intolerance. This prevents the country from benefiting from immigration in the way that Western countries have. A nasty political situation is developing: One of Russia's largest and fastest growing parties was banned from the Dec. 4 Moscow City Council election because of racially slanted TV advertisements.
Would I invest in Russia? Not after this conference. The message I got was that Russia is collapsing. Apart from the behavior of the leaders at the conference, I would also point to the scene in the streets. Street drinking is now illegal -- the fine for indulging was tripled last month -- but large groups of people still drink in the streets as police walk past ignoring them. Empty beer bottles are everywhere, even rattling around on the floor of the metro during the morning rush hour.
A country without hope, without ambition -- even if it does have thousands of nuclear intercontinental ballistic missiles -- and with leaders who do not lead is not one I would invest in. I worry about the destabilizing effect on the world as this lack of hope turns into desperation.
David Wall is a research associate at the East Asia Institute of the University of Cambridge and an associate fellow at Chatham House.
The Japan Times: Dec. 11, 2005 (C) All rights reserved
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