Forbes: Investing - It's The Corruption, Stupid



Susan Richards:

Before you invest, look behind those gleaming Russian facades.

While money is fleeing Egypt and the Middle East, the fact that Russia’s economy grew by 4% in 2010 may make certain Western investors salivate. And when you hit Moscow, the opulence of the expense accounts and the sheer panache of the boutique hotels and shopping malls may make life back home feel a tad dog-eared. But before you invest, you must look behind gleaming facades. And it’s not a pretty sight.


Russia’s very own Wikileaks website, Ruleaks.net, revealed recently that, at the annual meeting between Prime Minister Putin and Finland’s President, Tarja Hallonen, Putin seemed surprisingly "frustrated and anxious." I would be too if I were running Russia.


Troika Dialog, the largest private investment bank in the ex-Soviet region, has just published the report "Russia: 20 years of change." It reviews some of the striking facts about the cataclysmic change that has taken place there.
A mere six years after the fall of communism, 70% of the state-run, planned economy was already in private hands. Today 55% of Russians are middle-class, according to the standard global definition. Annual consumption, which was under $1,000 per head in 1990, now stands at almost $6,000. In addition, as the report does not even bother to say because we all know it: Russia enjoys the world’s largest energy resources.
So what’s the problem? It’s corruption, stupid. After Russia’s post-Communist decade of Wild West gangster capitalism, in 1998 Transparency International ranked the country as only the 76th most corrupt country out of 180--square in the middle between more respectable Western countries and those largely from the Third World, where anything goes.
Today, after Vladimir Putin has claimed to have restored law and order, Russia has dropped to near the bottom of the honesty league, ranking 154th out of 180. How did that happen?

To read full article click:
http://www.forbes.com/2011/02/26/corruption-communism-ruleaks-investing-international-russia_2.html 

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