August 12th, 2008
05:14 PM GMT
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Will investors scare of Russia? Get real. Why would any company already in Russia pull out over a quick regional conflict?

Any person or company that has already invested there knows the risks, and many have done extremely well.

Some facts.   Russia has vast energy potential. Oil companies are not going to ignore that. Its auto market has surpassed Germany to become Europe's biggest. GM for example has nearly 10 percent of the Russian market and will open a new plant in St. Petersburg in the autumn.

Sure, there is TNK-BP. But analysts stress to point out that it is a boardroom spat that could happen anywhere and does not involve the Kremlin. While BP is battling with its oligarch partners, the London-based oil giant still makes a lot of money from its joint venture.

Now, the recent conflict in Georgia will surely give pause to those not brave enough to have already invested in Russia. Add to that the nearly 27 percent fall in the country's main stock index since the highs of May (thanks in part to the fall in oil prices.)

As Russia grows in confidence and uses its might, in the boardroom or elsewhere, western funds may choose to put their money elsewhere. The recent fall in commodity prices might mean Russia loses its appeal. Others feel it's a great time to bottom feed on a few Russian stocks.

Either way, companies are going nowhere.

Russia has reformed in tax and customs laws to attract foreign investment. Not that it needs it much. In June, Russia posted a near $19 billion trade surplus. It is using its oil wealth to invest outside the country. A reason, some say, why the Kremlin is not shy about flexing its military muscle. That of course could change if oil prices continue to fall and with that, might go Russia's boldness.

Of course companies are often asked why they invest here or don't pull out of there.

Myanmar and Zimbabwe are perhaps more extreme cases. Still a press spokesman from Barclays Bank said to me it doesn't ask people their politics when taking deposits in Zimbabwe (or anywhere else for that matter.)

When asked about some other conflict, BP said to me, "We don't do regime change."

Companies invest in all kinds of unpalatable places despite pressure to set some sort of example. Russia would have to go a long way before firms think twice.

Watch my report on investing in Russia

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soundoff (53 Responses)
  1. Jim Bennett

    Mr. Boulden's mention of Russia's reform of its tax and customs laws highlights a need for the United States to do the same and pass the Fair Tax, HR.25; S.1025.

    Russia has adopted its version of the Flat Tax, which shares transparency and simplicity with the Fair Tax. Following the adoption by Russia of its Flat Tax, tax compliance rocketed up 46%. The Russian economy has finally started to move.

    If the United States does not reform its tax code, in 32 years there will be no money to pay the electric bill at the White House or the night watchman at the Washington Monument.

    The time to follow Russia's example, and even do Russia one better, is now. The Fair Tax is a national retail sales tax on new goods and services that removes the tax bias against thrift, effort and productivity. There is a provision to make it fair to low-income people, and it unleashes the American economic tiger. It is widely supported by union rank and file, once they understand it.

    Ask your Senators and Congressperson to co-sponsor HR.25 and S.1025.

    ~Jim Bennett
    Summit, NJ
    NJ State Co-Director, Americans for Fair Taxation

    August 12, 2008 at 6:26 pm |
  2. Jason

    Will Investors scare of Russia? <-This isn't English!

    August 12, 2008 at 7:13 pm |
  3. Maggie Tatcher

    The first adequate issue in few recent days since the war started, in the streaming flood of boolshit CNN poured on us!
    Thank you Jim for being sober and up to the point!

    August 12, 2008 at 7:36 pm |
  4. Vanya

    if Russia has no respect for the sovereign state borders, why would it have any respect to private property rights ? How would you like your assets frozen if Russia happened to have a dispute with your country ? Although this is more a rhetorical question, would Russia (and your ownership rights) exist in its current state if oil were to drop to say $20 per barrel ? Anyway, those risks there are higher then say Turkey or Poland, not sure if rewards are.

    August 12, 2008 at 7:36 pm |
  5. Mostafa Sidky

    Why would they ! They have done what any country with pride and integrity would do . I think that people have forgotten that other countries can stand up and fight for their national interests .
    I belive that the world is trying to find balance of power again.

    August 12, 2008 at 7:47 pm |
  6. Lawlord

    Funny that the author of this article (which looks like if it was written in the White House) doesn't want to see that more than 90% of readers believe that Russia's role in the conflict was peacekeeping and not an agression. Or should they just stand and look how their sitizens are being killed in S.Osetia by Georgian artillery??

    August 12, 2008 at 7:50 pm |
  7. Paul

    Tell you what – I was already scared back in 2006:
    If "pecunia non olet" is your motto, and you can pay your way to protection (in Italy it's called Mafia, Camorra or N'drangeta) then, by all means, the former Soviet Union is your oyster.
    I personally believe in a brand of business behaviour that does not include violence or other unethical behaviour, Jim.
    To each his own, I guess.
    Lugano, Switzerland

    August 12, 2008 at 8:07 pm |
  8. David

    If you are doing business with the devil already surely more of his bad behavior will not slow you down. Don't you people know he threw all his economic enemies in the gulag? Yes the real president of Russia not the pretend puppet he has there. They have not and will not change. Anyone who thinks the Russians have learned how to play nice is a fool. They were and are the real threat. A bunch of spoiled bullies who along with their long armed Mafia make the world a better place. (Not.)

    August 12, 2008 at 8:37 pm |
  9. carl

    The world will keep investing in Russia because they care more about money than they do human rights.

    August 12, 2008 at 9:42 pm |
  10. inthemoney

    Exactly. Nobody is leaving Russia over the conflict in Georgia. Putin's attack on Mechel scared investors more than the conflict in Georgia. Russia's stock market rallied yesterday, before any talk of cease fire started.

    August 12, 2008 at 11:24 pm |
  11. Anthony

    Jim, as (apparently) a reporter and one experienced with the English language you need to get busy on your proof-reading. That blog title is not likely to impress those of us who can use English correctly.

    August 13, 2008 at 5:20 am |
  12. Ilia

    About “We don’t do regime change.”!

    Thats not always true as they do if they want to get contracts. So if people of their countries will say them not to do money there by this or other reason they will not.

    So Looks problem is on how electorate thinking. And not all of them is thinking about only cheap gas but about there personal friends in other countries like is Georgia too.

    Second is that if Russia will not be punished for this it can repeat such things with other countries. So economical pressure is not only question of how much money you get but what this money will make for you in the future. Ask your reach people not to invest to Russia as it is like giving weapons to people who shoots you.

    think 10 times.


    August 13, 2008 at 7:19 am |
  13. Alex Ancharsky

    Absolutly agree with Jim Boulden – Russia today is a very attractive market to invest. All blue chips in lowest 2 years prices. Rally starts now. Good luck!

    August 13, 2008 at 7:55 am |
  14. John The Netherlands

    Russia is a country with an upcoming economy that brings the usual problems with it. To invest in Russia might be at the moment a risky bussiness but in the long therm it canbe very profitable.
    However Russia should respect Georgia 's rights at ones .

    August 13, 2008 at 9:21 am |
  15. lexann

    GULAG was created by Stalin(Jugashvili) and Beria.Both were native Georgian.Stalin was born in Gori.
    Draw an analogy

    August 13, 2008 at 10:24 am |
  16. Alex

    They may be investing, absolutely, but I am almost sure that business companies will prefer to inves in the country that respects human rights. I would not risk to invest in the country that bombs teritories of souverene republic, killing hundreds of people and vandalising the pieceful civilians. Yes, they bombed several civilian houses. They do not like people who state their own ideas, they want everyone to be obedient. So, if a businessman is not ready to obedient, it is better not to invest in Russia yet.

    August 13, 2008 at 10:51 am |
  17. Timothy Post

    I live here in Krasnodar, I the conflict has had no impact whatsoever on daily life here.

    Sure, people are following the events south of here but, honestly, people are too busy to care much.

    Russia remains a great investment opportunity because it is so misunderstood in the West. I would suggest that even before the Russian stock index lost 27% it was undervalued from a P/E perspective. Now, it's a steal.

    The new Russian is much more about the bottom-line, market share, and increasing the standard of living than it is about any ideology or silly Cold War stereotypes.

    So, call up your broker and buy some shares in a mutual fund focused on Russia. Your 401K will thank you shortly.

    August 13, 2008 at 11:20 am |
  18. Sergo

    Russian troops were fighting for freedom of thousands people. They did great thing. Each country have rights to protect own population. And USA shown Russians how to do it in many cases in the past.

    August 13, 2008 at 11:25 am |
  19. gatkin09

    I am not sure why the Russian's are seen as the bad guys in all this? Seems to me that the Georgians,under the cover of the Olympics opening, thought they could move into their neighbor and settle some old scores.

    If you are going to have moral issues about investing in Russia then you should not invest in the U.S. After all, the U.S has made a bit of a habit of invading sovereign state recently.

    In any case, the best thing for all would be for NATO to be dissolved and the U.S stop meddling in regions where it's actions only cause tension.

    Russia deserves some respect, the Cold War is over and maybe rather than the U.S trying the encircle Russia they could leave it to the E.U to handle ongoing relations.

    Greg Atkinson

    August 13, 2008 at 12:03 pm |
  20. B GORDON

    U..S support for Georgia has been non existent-now Russia knows
    they need not fear U.S–U.S. support has been proven to be only
    verbal in nature.

    August 13, 2008 at 12:39 pm |
  21. John

    Investing in Russia is profitable like it was providing goods to Nazi Germany occupying parts of the neighbours.

    Carry on guys, long live the sustainability!

    August 13, 2008 at 1:27 pm |
  22. Alexey

    Why are you speaking about human rights in Russia? I live in Russia, I have small bussines here and I don't feel that my rights are restrained. On the account of Georgia, Saakashvili started this war in a day of Olimpic opening! More than 1600 our sitizens have been killed. What should Russia do in that situation in your opinion? What will do USA if somebody kill 1600 sitizens of USA? What Saakashvili thought giving the order to attack South Ossetia? In our usual life if two people are going to fight, other people try to separete them and precisely do not give them stones and knifes. In case of Ossetia-Georgia all world armed both parties. It's sounds "Big policy, struggle for spheres of influence". Why??? I thing many countries are responsible for this war. Human rights in Russia are realy not the reason of that.

    August 13, 2008 at 1:28 pm |
  23. James Beadle

    There is not a reputable analyst on the Russian market that believes TNK-BP is a boardroom dispute that the Kremlin has no hand in. Not least because state agencies have acted in concert with the Russian partners in the case.

    Even sell-side brokerages recognise that Russia's risk premium has soared in the last month. The reason? The nature of the prime minister's attack on Mechel, a US listed Russian metals and mining company.

    No one reputable involved with the Russian market believes that falling oil prices are connected to the recent collapse in equities prices. The market was suffering on domestic political risk, now it is suffering on geopolitical issues.

    People remember what happened the last time that the Russian army crossed its borders, they are not prepared to give the discredited Russian government the benefit of the doubt, after it has changed its position to its own advantage so many times.

    There is a fundamental difference between portfolio investors and foreign direct investments, which this report seems sadly oblivious of.

    These are difficult times when the world needs clear, well researched articles to present balanced view points, not poorly contrived stories intended only to stimulate unproductive arguments.

    August 13, 2008 at 1:39 pm |
  24. Andrey

    Yestodays news, BP stoped its oil transfer though Georga and will go though Russia....Hellooooo ))

    August 13, 2008 at 2:04 pm |
  25. Daniel

    Yes, foreign investors got so scared of the United States after our invasion of Iraq, that we've been reduced to living off of our own savings for the past 5 years. Heh.

    We've been freezing other countries assets, violating their borders with impunity, borrowing like mad and then crashing the dollar, and raising tariffs on foreign steel in violation of international trade agreements – all under the Bush administration.

    And guess what? The market interest rate on gov't bonds is lower than it was in the late 90's. Global investors LOVE bully governments that are ready to bomb, cheat, lie and destroy for the slightest economic benefit of their country.

    Russia is following the American example – and is getting fairly successful at it. The problems foreign investors have with Russia are entirely home-grown: government banditism and corruption, such a complete lack of corporate transparency and accountability that Enron begins to look boy-scouty in comparison, etc.

    August 13, 2008 at 2:11 pm |
  26. Vas

    Since it is obvious in modern times when people consume more goods… under stressed situations… as it is when a war erupts or terrorist attacks, thus there is no doubt that investors in Russia are relaxed feeling very comfortable…!
    So Business as usual…!

    August 13, 2008 at 3:35 pm |
  27. Vlad

    Georgian military troops killed near 2000 of peacefull population in Tskhenvali, capital of South Osetia. Most of this people have Russian citizenship. Russia's actions were aimed to defend peaceful russian citizens. By the way most people dont know about the violation of georgian troops, that were killing a familiar nation. It was genocide. People were burned alive in houses, children and women mostly, peolpe were crushed by tanks. All these actions are criminal and shold be punished by international law. Saakashvili will be judged for this by Gaags tribunal.

    August 13, 2008 at 4:11 pm |
  28. Anatoly

    Russia has great potential for investing. Ignore mad Saakashvili's words about russian threats, he just plays someone's game. This war ends soon with russian fairness and good profit comes with funds.

    August 13, 2008 at 4:13 pm |
  29. Brigitte

    I Think that I would be embarrassed to be called a Russian or American. It seems that Bush like to stir problems as well Putin. Now he's blaming Russia for everything. What do you to go to war? Looks like it. It shows that he's at the end of his term cause he He should take care of his country and let the others take care of theirs. It shows that he doesn't care about his nation or the others. Boy am I glad to be Canadian!!!

    August 13, 2008 at 5:28 pm |
  30. pit

    russia controls huge deposits of gas and oil ,has adopted the western way of doing business, is a big market of 150 million of people i doubt that the Georgian incident will affect negatively the investment climate in russia

    August 13, 2008 at 8:28 pm |
  31. Alex

    Did anyone notice that Dow went up when the conflict started and started to go down when it ended? It is truly amazing how markets can predict complete irrelevance of these events to money making processes.

    August 13, 2008 at 10:21 pm |
  32. Jeff H. Reynolds

    Over the past couple years, several of my associates had been pushing for us to explore investment opportunities in Eastern Europe. As a consequence of the regional conflict between Russia and Georgia... we will not be moving forward with any such investment. I find this mess involving Russia to be very sad. I understand that blame may well rest on both countries. But that fact doesn't really matter. Tens of thousands have suffered... if not millions... because of the near sightedness of government leaders. I for one am not about to make an investment in such an unstable region. I certainly am not going to recommend it to my associates or their friends. Oh well.

    August 15, 2008 at 9:40 am |
  33. Tim Tahaney

    Clearly it will no longer be business as usual in Russia.

    Russias heavty handed response with Georgia as well as its past
    abuses with western business interests show just how risky this
    market is.

    August 15, 2008 at 9:57 pm |
  34. tarja

    if you invest in russia without conscience you are investing in old time brutality – 100 – 110 million people lost and then some ....a mere 60 million more...the history of russia is a paranoid fearful people, brutalised, defeated, want to make money?...disarm them with your truthfulness, kindness, bread, calm waters, and warmth....that is why they are buying up all the lake front property in my beloved suomi, all of us...they want peace...they want to hear voices echo across mirror-perfect (tyyni) them to be not afraid, and soutaa ("row" ) much i would want to fight them because of past wars lost...i do come( with clenched teeth) in a-peace-ment....such is the history of us all...this fragile pearl on a string in the there, i come in clenching my teeth...hope you find a spot for some kind of kindness in your blogs???

    August 18, 2008 at 1:11 pm |
  35. urgen

    hello tarja,
    what a shame on you! are you from Moon?

    August 24, 2008 at 10:01 pm |
  36. Helmut

    Politicians Russia, US! Voruete you my money! And I want to earn money in Russia. The whole world is to blame for the tragedy in the Caucasus! But now everything depends on America, even Europe. How long will it continue? The Americans! Think that you leave your grandchildren!

    August 28, 2008 at 8:35 am |
  37. Russ

    Russia stopped war between Georgia and two rebels republics – there will be bo more fight in those regions – and that makes America upset? Sounds weird, isnt it?

    August 29, 2008 at 2:49 pm |
  38. Dasha Stepanova

    Why do people in their comments say non stop that Georgia started the war? Who needed this war? Russia, of course!!!

    Look what russia did in the previous years to set up the current invasion. They want to grab more and more – and will, if you let them!!!!

    Cut their oil and gas income, and we will see what will happen. Collapse!!

    Good luck .

    August 30, 2008 at 6:02 pm |
  39. Ramsi Hashash

    It is funny when emotions come into a discussion.

    Even hard to believe, but the Georgian South Ossetia conflict is over 100 years old. It is also obvious that Russia never would have let South Ossetia and Abkhazia be taken in by Georgia especially since the majority in both regions is Russians or at least not Georgians. So that was a conflict which was obvious and yes maybe Russia pushed Georgia, but the fact is that it was Georgia who entered South Ossetia even though previously agreeing that it would be autonomous state. By the way we are talking about, if we add both regions together of 270000 people and some 18000 square kilometers.
    Neither the West nor Russia will go to war with each other over this or even think about sanctions.

    Russia is changing, so you guys in the West stop living in the past, Russia is a sleeping economical giant and that is what the West is afraid of especially the US. Since they have not figured out how to control them. The fact is that Russia has vast untapped natural resources all over Siberia so it will be a very wealthy country in the next 25 to 35 years.

    There is hardly any oppression in Russia, the people are free and doing what they want. Of course like anywhere else, similar like in the 50th in the US, the top executives in the government and in business are battling out between themselves who will be at the top at the end.

    This is a good time to invest in Russia, of course you need to make sure you invest in the right industry, company etc, like anywhere else in the world.

    September 1, 2008 at 11:38 pm |
  40. Dasha Stepanova

    Some good points, although not entirely accurate. I won't go through all the individual actions on Russia's part in the months leading up to 7-8 Aug that finally pushed Gerogia to act. Suffice it to say that it was unwise to finally take the bait. No, the West does not want to go to war with Russia over Georgia – and this is what Russia was banking on. Russia was willing to take the risk of war with the West on the bet that the West wouldn't go that far. So far, that's a bet Russia has won. Time will tell about sanctions, but it appears Europe doesn't have the stomach for anything other than words. Again, a good strategic move on Russia's part over the past few years to make Europe dependent on Russian energy.

    With its vast natural resources, Russia is potentially the most wealthy country on the planet. However, corruption, lack of planning, and lack of capital investment has left Russia where it has been fot he last thousand years – woefully behind the West and waving a big stick in the attempt to prove its equality. The Russian economy is in desparate condition, and is surviving only because of high oil and gas prices. If prices should fall to former levels, the Russian economy would come crashing down. Hard. Russia needs some serious investment to keep this industry viable over the next 25-30 years. Actions like those taken in Georgia, however, are pushing the West to increase the pace of investment and research into alternate energy. Russia will likely end up as usual – stuck in the past using fossil fuels while the West has moved on to cleaner, more efficient sources of energy.

    As for oppression in Russia, I think anyone in Russia who's not blonde haired and pale white would disagree with you. (Who, by the way, will be in the majority not too long from now. What happens when they decide they don't like being part of Russia?) I think there are a few journalists in Russia who would disagree, as well.

    As for me, my investments will go to Coca Cola.

    September 3, 2008 at 4:11 pm |
  41. toray99

    What a minute isn't Georgia the Russians neighbor.? It's their business, their neighbor. Was it legitimate for the USA to bomb all of Serbia and Montenegro.? Also the oligarchs and the USA had a big role in the collapse of the Soviet Union. The Russians don't forget it. Remember the late 80's with the wests promises,NATO, Chechnia. The Oligarchs with full support of the west literally tried to bleed Russia dry of all it's resources. Ossetia is just the first time Russia is actually returning fire @ the US empire. Russia has little to fear from the west on the economic front. USA is spending more on defense than the rest of the world. Russia has no such ambitions for world domination as the west does. USA is already spending themselves into bankruptcy. Russia is angry because of the double standard and the hypocrisy of the west. The west wants to put economic sanctions against Russia. Most of the planet has no interest in cutting down economic ties with Russia. USA has already lost the wars in Afghanistan, Iraq, barely has the energy to contemplate a conflict with Iran. The EU is totally dependent on Russian gas and has no military means. The greenback is in free fall and the USA economy is in a recession. No to NWO. Thanks for relief ranting !

    September 4, 2008 at 4:11 pm |
  42. deis

    I am in Russia and not blonde, etc., so what do you mean by oppression? It is just a buzz word to which everyone assigns their own meaning...

    Again, what do you mean by Russia ending as usual? It was one of the first (if not the first ever) to build a nuclear power plant and still does build them. Yes, it does not build thermonuclear's but as far as I guess nobody yet builds them either...

    September 5, 2008 at 6:30 am |
  43. M4 Gunny

    what the biggest question and problem is, why do Russia and Georgia hate each other so much? Can't we al just get along????

    September 5, 2008 at 3:29 pm |
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