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Should investors steer clear of 'corrupt' Russia?

The latest round of Wikileaks revelations focus on corruption allegations about Russia. But of all the countries in the world that could be damaged by corruption revelations, Russia is the one to worry about the least, says fund manager Marina Akopian.

 
Should investors steer clear of 'corrupt' Russia?

The latest round of Wikileaks revelations focus on corruption allegations about Russia. These have already resulted in Russian prime minister Vladimir Putin denouncing US diplomatic staff as rude and arrogant and cancelling an appearance before football governing body FIFA. 

But despite the embarrassment for politicians, Marina Akopian, co-manager of the Hexam Emerging Europe fund, said the stories wouldn't change the global perception of Russia. She said that Russia was already 'the most unloved of the emerging markets'. Meanwhile Russia is the 24th most corrupt nation according to Transparency International's corruption perception index, coming in at 154th out of 178 countries.

Fears about organised crime in Russia are hardly new; the novelty is that the commentary comes direct from leaked US diplomatic papers.

The Guardian highlighted political concerns and links between politics and organised crime. The US documents referred to describe Putin and president Dmitry Medvedev as a Batman and Robin team, while some of the allegations about corruption come from a Spanish judge who investigated Russian organised crime in Spain.

But in another piece a US ambassador described how powerful Russian businessmen are forced to make deals with shady underworld figures. The example was a ‘Russian crime don’ believed to be the power behind gas supplies from central Asia – based on conversations with a Ukranian billionaire.

Akopian said: ‘Of all the countries that could be badly affected [by allegations of corruption] Russia is the least affected. People have become so accustomed  they already look at Russia as guilty until proven innocent. From my point of view, what can you say about Russia that hasn’t been said already?’

Akopian said that Russia should be seen as a 10-year-old country and that it had inherited corruption from the previous regime. She added that democracy was not the easiest environment in which to combat corruption. She said that in fellow-Bric China businessmen were regularly being executed for corruption but in Russia there were no such checks.

She said: ‘I think that Medvedev is the first president trying to challenge corruption. I personally believe him and think that he’s an honest man.'

Akopian said that Hexam would never invest in a company ‘unless we know the management very well and it works in an ethical environment. There are companies that clearly operate in environments that are corrupt and, somewhere down the line, they have to do something that in the general perception is bribery. But the companies we deal with don’t have this problem.'

Citywire Selection, our best investment ideas, include the Neptune Russia and Greater Russia fund and db x-tracker MSCI Russia Capped index ETF .

15 comments so far. Why not have your say?

Keith Simmonds

Dec 02, 2010 at 13:52

Can somebody remind me how Roman Abramovich became a billionaire overnight? When he bought Chelsea FC what tests did the FA conduct to make sure he was a fit and proper person?

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Jonathan

Dec 02, 2010 at 14:03

It's amazing how what was once a communist state where everyone owned everything can suddenly result in multiple billionaires.

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john

Dec 02, 2010 at 14:12

Nice one Keith . Then of course we have the Russian Goverment stealing all the private oil companies for a piitance and threatening to imprison their directors . Oh sorry - Nationalising them !

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William Phillips

Dec 02, 2010 at 14:24

When the UK was the agricultural and industrial wonder of the world in the 18th century, and when its system of constitutional monarchy was being hailed by French philosophes as the epitome of enlightenment, it ran on corruption and jobbery, elitism and nepotism-- from the first prime minister, Walpole, downward.

It didn't smell like crime, it was the way things got done. Values change.

Today's sour-bellied accusations against post-communist Russia, which threw off one of the most corrupt and murderous regimes ever to infest the Earth, come largely from tired, failing, jealous western observers and their media mouthpieces.

Vladimir Putin has purged Russia of the kleptocrats who had ransacked the state of its assets when they were privatised, according to the dictates of western bankers and neoliberal economists under their drunken puppet Yeltsin. The biggest kleptocrat, Khodorkovsky, is in jail. Another, Berezovsky, lurks in London.

Putin used Russia's oil boom to benefit ordinary citizens and create a thriving propertied middle class, ultimately the best bulwark against dictatorship and flouting of law. This bourgeoisie will increasingly clean up what is undoubtedly still a land full of rackets and fiddles, like Robert Walpole's England, as wealth is diffused. There comes a time when codified law and its impartial enforcement is so much more efficient, in a complex system of social and economic relations, that old-fashioned graft dies a natural death. It no longer benefits enough people enough.

The international usury gang and their confederates within Russia who tried to loot it and bring it into their system have failed, so they snipe at the man who is more popular than any Russian leader since Stalin in 1945. Russia, like China, disproves the globalists' claim that we must all live under the almighty dollar in one free trade world, where banksters are the bosses and national pride is dissolved into a beige sludge of universal citizenship. The charges ring hollow from westerners when their own banks can blackmail governments into fur-lining them with taxpayers' cash to repair their errors and save their bonuses.

Which countries are really becoming more or less corrupt, in the world of Quantitative Easing? What criminal racket could be bigger than printing money ad lib. to inflate government debts while pretending that inflation is your big headache, as Cameron and King do?

Who are today's Al Capones?

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Anonymous 1 needed this 'off the record'

Dec 02, 2010 at 15:17

Marina Akopian's thinking verges on the Utopian and naive. I suggest a serious study is done of companies that have lost out in Russia thanks to corruption, which is often protected from the top. We should listen to those who have experience and realism. For instance, political assassination has been a Russian policy for a long time. On 11 July 2006, shortly before the G8 Meeting in St. Petersburg, the London Times carried a letter from Bukovsky & Gordievsky warning that Putin's new legislation, which he had just rushed through the Duma, could lead to assassinations abroad and even in the UK "for someone to have an appointment with a poison-tipped umbrella." This threat was confirmed by a statement by the then Russian Defence Minister stating that a "black list of potential targets" had already been compiled. Then in November 2006, Litvinenko was murdered in the UK with Polonium! And the main suspect is still being protected by the current Russian government.

It is dangerous not to heed warnings.

There is corruption all over the world. But British companies should have a zero tolerance and set out to win. Naivety is dangerous.

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Gergiev

Dec 02, 2010 at 15:34

Saudis want Iran's nukes stopped, China is losing patience with North Korea, Putin knew about Litvinenko plot, Prince Andrew thinks UK anti-bribe rules are stupid, Cameron a Tory toff, and now we learn that the Russian economy runs on bribes...Wikkileaks? Should be Nosh*tsherlockleaks...yawn yawn

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William Bishop

Dec 02, 2010 at 15:37

It has been possible, from time to time, to make a lot of money investing in the Russian stock market. I have never, however, been tempted to participate owing to my strong conviction that, in that jurisdiction, the rule of law simply does not apply.

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William Phillips

Dec 02, 2010 at 15:56

There'll be fabulous opportunities for 'corruption' now the World Cup is in the bag. As usual, Putin played his game with masterly inactivity, covered himself against losing by getting his complaint in first... and won anyway. This is the greatest living statesman we're talking about, after all.

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Richard S

Dec 02, 2010 at 15:57

Title of article: "Should investors steer clear of 'corrupt' Russia?"

Content of article: "people think Russia is corrupt"

What was the point of this piece? It doesn't answer its own question and I doubt it comes as a surprise to anyone that some people think there is corruption in Russia.

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alan franklin

Dec 02, 2010 at 17:23

Sure, Putin - an ex colonel in the KGB - has been transformed into a great democratic leader. Only in fairyland. Any company "investing" in Russia will be fortunate to see any of its "assets" back should they cut across the interests of the criminal gang who run the country. Just ask Shell and BP, who thought they had invested in a country where their assets would be protected by law (!).

Sudddenly, they have "partners" they didn't want. What a surprise.

I would avoid all the shysters trying to flog dodgy investment "assets" in Russia. I feel the same way about China, where anyone who incurs the displeasure of the Communist thugs who still run the place ends up for the rest of their lives in a gulag.

I keep seeing simple-minded souls on business channels bragging about how much they are making from Chinese "investments." Has it not occurred to them that China regards the west as its enemy, this is taught in Chinese schools and they have hundreds of nukes pointed at, er...us! So one day, if it suits them- and it will - everything the west has ppured ionto the country will just be siezed. Not such a good long term asset then....

I invest only where there is a fair justice system. That cuts it down to about a dozen or so countries....

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Brian

Dec 02, 2010 at 18:09

Quote:

"These have already resulted in Russian prime minister Vladimir Putin denouncing US diplomatic staff as rude and arrogant and cancelling an appearance before football governing body FIFA."

Why bother going to meet FIFA, when he already knew the answer.

And the 2018 World Cup Goes to Russia.

Plenty of opportunity now...

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Anonymous 2 needed this 'off the record'

Dec 02, 2010 at 18:18

I remember well meeting businessmen reporting the ubiquitous 'baksheesh' corruption in Russia's communist days. Nothing could be achieved without brown envelopes full of US$ being handed over.

So one gathers the only things that have changed are the faces and the fistfulls of $ are now BAC transferred by the multiple zeroes.

It is not a country that has ever attracted me in the slightest, World Cup or whatever.

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Victor Meldrew

Dec 02, 2010 at 18:48

One bit of hope is that Putin sorted out the oligarcs (mostly) so maybe he and his sidekick will get round to combating organised crime and corruption.

A few months ago I heard Peter Hambro on the BBC World Service saying corruption was not a problem in Russia (maybe he had to say that), but if a form carried instructions to use a blue pencil, you'd better use a blue pencil.

I might risk some money in a Russia fund if valuations get even better.

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Pertan

Dec 03, 2010 at 08:53

William Phillips is rightly or wrongly obviously a Putin fan. A recent study suggests that the so called middle class isn't actually growing but more a mentality as many people are ashamed to call themselves anything less. There is a widening gap between the rich and poor and more than 20% of the population lives below the poverty line. The situation outside the main cities is worse. Russia with its mineral and oil resources like Norway, Canada and Australia doesn't need to resort to quantative easing, if wisely managed, the currency is sufficiently stable and supported with budget surpluses. However, it needs to watch the potentially explosive situation with its very uneven distribution of wealth and corruption

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Graham Barlow

Dec 03, 2010 at 11:41

Rusia has vast natural resources still largely untapped, because of the inhospitable climate. It is also a new frontier Country in spite of its European and Empirical history. From an investment point of view you have to be prepared to be and act like a frontier man, be more than ready for anything. Make very sure you have the right connections in high places (Like Mr Hambro) urbane, smooth very astute ,with the right people on board. His group has been steadily advancing in turnover and profitability. The going has been tough at times, but politically he has got it right. It does help also to have extensive international connections and a name known internationally as above corrruption. I could not imagine Putin taking a dislike or try to get rid of him. He has been too important to Russian investment , . To attract international Capital you need success stories and the right image.

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