There are many guidelines on attracting investment. There are very few on doing the opposite. But if you are indeed willing to drive away investors from your own market, you can follow these simple steps:
Step 1: Undermine rule of law by selectively nationalizing companies of oligarchs through tax inspections and other financial levers (Yukos). Have your colleagues and trusted friends fill the vacancies in the private and state-owned companies made though these actions.
Step 2: Revoke contracts with major foreign firms over concerns about the environment, and then turn over the same projects to a domestic firm (Shell).
Step 3: Threaten joint ventures between international firms and domestic companies (TNK-BP). Raid the offices of the largest foreign portfolio investor in your country and, to make your point even more clear, deny visas to the fund managers (Hermitage Capital).
Step 4: When a domestic company honors contract prices it has established with foreign firms while charging higher market prices to domestic companies without such contracts, threaten the company with charges of tax evasion (Mechel). This will send the shares of the company, which is listed on foreign stock exchanges plummeting, but this way it will be cheaper to buy in the long run.
Step 5: Refuse to adhere to the clauses in the treaty that stopped the war in the smaller neighboring country. Make inflammatory statements, like the territorial integrity of another nation no longer exists or your ready for a new cold war.
Step 6: Respond to the foreign policy fallout from a military conflict by withdrawing from negotiations to enter the WTO. Who needs an international framework of rules governing trade anyway?
Now you can just sit back and watch investors’ flee and reconsider future investments in your country all while your domestic market falters in response to increasing political risk.
In an increasingly globalized world when two countries pick a fight with one another the rest will suffer in some way. While I am not suggesting that pressures on supply chains and the oil market can ever be equated with the horrors of war, the fact remains that when two modern national economies pick a fight with one another the effects will be felt worldwide.
Georgia seems to be the more economically damaged of the two countries thus far. Its credit rating has recently been reduced from a B+ to a B by the ratings agency Standard and Poor’s (S&P) immediately after the start of the conflict. An economy that has been averaging 10 percent growth for the past few years also faces high inflation and a much smaller growth in GDP this year. Also, oil and gas companies that were beginning to think of the Caucuses as an alternative route from the Caspian to Western markets are having serious second thoughts about billions of dollars of investments.
On the Russian side of the conflict, foreign investors were already feeling the pressure from Prime Minister Putin when he recently decided to attack the coal company Mechel for “tax evasion”. Russia will have to deal primarily with its image problem and the severe political damage that has the potential to send foreign money running. Europe, which has already invested heavily in alternative energy sources, will likely re-double their efforts in an attempt to wean themselves off Russian oil and gas.
Perhaps the most unsettling outcome of this conflict is the end to Thomas Friedman’s Golden Arches theory of conflict resolution, which stated that no two countries with a McDonald’s have ever gone to war with one another. It seems the Ronald is not the statesman he once was.
In the last five days of the conflict between Georgia and Russia, there have been innumerable opinions about which is right/wrong, which is the aggressor/victim. Confusion will reign on those questions for some time. One thing is clear, there is a true point of success for Georgia in communications.
At every turn, Georgia’s President Saakashvili has been live, at the top of the news hour in all forms of media, all around the globe. Journalists are being generously offered one on one interviews with Saakashvili, who appears with a slide show, updated for each appearance. He mobilized Presidents of neighboring nations to travel to Tblisi, and the rally of citizens was (succesfully) planned to maximize press coverage.
In contrast, Russia has relied primarily on unnamed spokepeople from the Kremlin and various Ministries. Russian President Medvedev and Prime Minister Putin have also made use of surrogates, such as France’s President Nicolas Sarkozy.
Russia have may be the victor in the short term military conflict, but Georgia is the clear winner in the communciations battle, which may pay significant long term dividends.
I’ve been following events in Georgia with some interest over the past few days. Police chasing protesters, government shutting down independent media, opposition leaders summoned to prosecutors’ office – rarely do headlines and photos capturing such events are associated with democracy. Its been particularly puzzling to see attacks on media (both in terms of shutting down broadcasts and raiding offices) since it was that same media that propelled the current administration to power several years ago. Violent attacks on protesters are puzzling as well, since the current administration was swept into office through similar democratic protests over the actions and policies of the previous government.
We are re-learning the basics of democracy in Georgia today: democracies are not defined by elections alone – they are defined by government actions between elections. Is raiding media offices and shutting down broadcasts consistent with the values of democracy? What democratic values are there in using riot police to beat and dispurse peaceful protests? Does the opposition have the right to voice its opinions and be heard?
Much coverage of the crisis has focused on the battle playing out between the West and Russia in Georgia. Unfortunately, in thinking about who wins – Russia or the West – it seems that there is not enough thought put into the fate of Georgians themselves – the regular citizens who want to enjoy democracy, rule of law, and economic prosperity. This is not about Russia or the West – it is about Georgia and its own democratic values.
Simply put, democracy is not about everyone agreeing on economic policies or a social agenda. It is not about silencing the opposition. It is not even about winning elections. It is, however, about a democratic process, fundamental rights, and equal opportunities to be heard. Saakashvili had the opportunity to be heard four years ago. What happened since then?