Is the Leopard Changing its Spots?

This morning I awoke to find the morning paper containing yet another glossy advertising supplement entitled “Trendline Russia“. Trendline Russia is a new effort launched by the Russian government and apparently is being placed in strategic major newspapers around the world with the goal of improving Russia’s image abroad. It is part of a wider media PR campaign to reverse the negative press Russia has been garnering of late. Interestingly enough “Trendline Russia” steers away from stories trying to portray media freedoms, democracy, and rights, and portrays Russia as a progressive destination for investment.

What has brought all of this about? Real investment in Russia in economic sectors outside of energy has been declining dramatically over the last few years. Russia’s move to state capitalism (especially in the high profile natural resources sectors) has shown foreign investors the high risks the must be balanced with the potential high returns in Russia. Foreign investors (most recently BP) find themselves at risk as once sacred agreements are shredded by the state under any number of regulatory guises. What is interesting here is that investors are learning that far from being a guarantor of investment, Russia’s legal system lacks the property rights protection needed to safeguard their projects. Through its PR efforts the Russian government is trying to convince investors that its new laws on investment and wide-ranging opportunity should outweigh concerns over property rights.

So the question must be asked, can the Leopard change its spots? Without demonstrable rule of law in which investors can be protected from predatory behaviour emanating from both private and public sectors, this seems unlikely. Investment laws that can be easily re-written, or property rights that can be threatened through other state tools such as threats of environmental enforcement or tax inspections will continue to keep investment out. The Leopard doesn’t need to change its spots, it needs to examine how it behaves.