Four lessons from Russia – and what the West must do to hobble the bear

Despite many people giving Russia the benefit of the doubt when deciding where to put their money, Simon Nixon remains cautious about investing in Russia. Here, he explains why.

Events in Georgia over the last week or so have certainly clouded the political landscape. But for investors, the picture has suddenly become clearer. A few months ago I wrote in MoneyWeek that I thought Russia was becoming a menace and the West wasn't taking the threat to our security and economic interests seriously enough. Shortly afterwards, I spent a few days in Moscow at an international investor conference, trying to understand why investors continued to display enthusiasm for all things Russian even as Russia acted with such apparent belligerence to the rest of the world.

I discovered most investors were wary (how could they not be, given the alarming way BP was being treated by its Russian joint venture partners?), but were prepared to give it the benefit of the doubt. There was hope that newly installed President Medvedev might be allowed to be more than a puppet of his predecessor, Putin, and would act on his fine words about the need for the rule of law. Russia's harassment of some of its former satellites was dismissed by the optimists as merely heavy-handed attempts to force customers to pay the market price for gas and oil. Besides, most investors were persuaded that the weakness of Russia's economy outside of natural resources, the flimsiness of its banking system and its huge need for infrastructure investment would ensure it stayed wedded to international trade.

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Simon Nixon

Simon is the chief leader writer and columnist at The Times and previous to that, he was at The Wall Street Journal for 9 years as the chief European commentator. Simon also wrote for Reuters Breakingviews as the Executive Editor earlier in his career. Simon covers personal finance topics such as property, the economy and other areas for example stockmarkets and funds.