The confidence crisis in the Russian market following the arrest of one of the country’s top businessmen, with the attendant worries about the safety of investment in Russia, is of particular interest here. First of all, Saudi Arabia, like Russia, is privatizing on a massive scale. Secondly, both want to attract massive foreign investment and need to convince investors that their money is safe. Thirdly, Saudi Arabia and Russia look set to become major trading partners: Crown Prince Abdullah was in Moscow recently as part of a drive by both sides to build a new strategic economic relationship between the two countries; there are a number of deals in the pipeline.
The arrest of Mikhail Khodorkovsky, head of Yukos Oil, Russia’s biggest oil company, does untold damage to investor confidence in the country. The blatantly politically motivated charges were bound to send the stock market plunging. The message it conveys is that Putin’s Kremlin is in the hands of unreconstructed neo-Soviets who care little about the market and understand it even less — a message now reinforced by the resignation over the decision to arrest Khodorkovsky by Kremlin chief of staff and known private-sector supporter Alexander Voloshin.
It required hasty assurances from Putin that Khodorkovsky’s arrest was not an attack on the private sector for shares to rally. But those assurances have been turned on their head with the sequestration of shares owned by two of Khodorkovsky’s companies, one Cypriot, the other Isle of Man-owned. It is frighteningly reminiscent of the jack-booted brutality of the Soviet-era. The seizure says that no investment, foreign or local, is safe in Russia. Even in its most militant pursuit of financial links to Al-Qaeda, the US has never sequestered foreign investments — and unlike Russia, the US is not desperate for foreign investment. It will flow in, come what may.
There is no reason to believe that Putin wants to turn back the clock. He knows if Russia is to become rich — and it could very rich indeed — then the only way forward is by letting the private sector run the economy. But that is not going to happen if investment is frightened off — and that is what this sorry saga does. At the very least, Mobil-Exxon’s planned multibillion-dollar investment in Yukos must now be in serious doubt.
We can say with complete assurance that such things could not happen here. This is a very different economy. The private sector has always been here, and it is thriving. Privatization, too, is a one-way street: There will be no going back. But the Russian debacle provides one valuable lesson — that nothing must be done to frighten off investors. Meanwhile, Saudi investors, like everyone else, must be feeling nervous about putting money in Russia.
