Investors Don't Like Surprises

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Dmitry Medvedev's accession to the presidency has been variously described in the Western media as predictable, boring, managed and rigged. The transition of the presidential mantle from Vladimir Putin to his chosen successor was, indeed, as managed as could be expected from Russia's new democracy.

But while the result of the election was never in any doubt, it is important to remember that the outcome provides welcome confirmation of Russia's political and economic stability and continuity, devoid of any unsettling fallout or tremors. For foreign businesses the most positive message to come out of last weekend's contest was that it was predictable. Investors don't like surprises.

Just as the presidential election was stereotyped, so the personality of the winning candidate was presented in the Western media as a malleable puppet, portrayed in several newspaper cartoons as a marionette, with the gray cardinal Putin manipulating the strings. The Financial Times published a photo of Medvedev's likeness painted on a matryoshka, with the alter ego Putin figure on the inner doll nestling beneath.

Despite these stereotypes, there is still room to believe that Medvedev's credentials offer us some reason to expect a shift of direction toward improved democratic institutions and free-market reform. Even though he has been at pains to underscore Putin's Plan, along with a commitment to adhere to it, we have seen a certain independence of opinion in a number of statements over the past year. As head of the Russian delegation to Davos for the World Economic Forum in January 2007, Medvedvev impressed Western observers by his accomplished professionalism, his commitment to democratic and free-market principles and his comments suggesting that state involvement in industry should be minimized.

His subsequent remarks concerning the need for change within state-owned corporations from control by political figureheads to being managed exclusively by independent business directors are a positive indicator that his tenure as president may see more improvements to promote investor confidence. In addition, his support for a clearly recognizable and independent judiciary has addressed some underlying concerns from foreign investors that the rule of law should be transparently and uniformly applied.

Medvedev served as chairman of Gazprom, a post he will relinquish before his inauguration as head of state. He was further primed for the presidency by being entrusted with responsibility for the national projects covering the key social problems of housing, health care, agriculture and education. As president, he will also engage in massive infrastructure projects worth more than $1 trillion that will encompass roads, railways, airports, ports and the reconstruction of the national power grid and distribution system across the largest country in the world. Britain aims to continue its pre-eminence as a foreign investor by being at the forefront of this vast national reconstruction program.

Foreign direct investment doubled to $27.8 billion last year, with Britain playing a leading role as a key contributor to this country's economy. The continued growth of trade and investment stands in stark contrast with the deterioration over the past 18 months in political relations, which have been inextricably mired in arguments on extradition procedures, the relative state of development of our two democracies and the respective state of the rule of law.

History has demonstrated that successful trade statistics have not always correlated with harmonious political relations between Russia and Britain, particularly during the Soviet period. It would therefore be possible, though hardly desirable, for the current unsatisfactory situation to continue along these lines. Statistics over the past two years have shown that, while the political and diplomatic relationship has cooled, the curve of trade and investment continues in a diametrically opposite trajectory. From Margaret Thatcher's accession in 1979, Britain's first female prime minister was bitterly opposed to Soviet ideology, but as a free marketeer, she promoted trade with Russia and never countenanced any interruption of the commercial relationship, even following Soviet intervention in Afghanistan, which precipitated U.S. withdrawal of trade resources among a range of retaliatory measures. It was only after Mikhail Gorbachev's emergence as general secretary of the Communist Party in 1985 that a true warming of political relations took place, despite continued ideological opposition. Even though Communist ideals had not been relinquished on the Russian side, a fundamental change took place in relations as the result of the advent of one man.

A change of personalities at the top of the Kremlin leadership may now have a similar influence and provide a shift in outlook and relations to help resolve the significant difference of opinion that has adversely affected the Russian-British diplomatic relationship. At a post-election news conference treated with understandable media skepticism, Medvedev was quite adamant that foreign policy is to rest with the president's office, which will be his direct responsibility from May.

It is therefore to be hoped that a Medvedev presidency, while dependent on the tandem relationship with incoming Prime Minister Putin, will demonstrate sufficient independence to enable a more open dialogue and a favorable framework in which any diplomatic disagreements with foreign states may be resolved in a more emotionally restrained and constructive manner. Similarly, in Medvedev's espousal of continued democratization for the management processes of state industries and in his promotion of true independence of the judicial system to provide better guarantees of the rule of law, the corporate governance and transparency fundamental to a healthy business environment for investors stand to be greatly enhanced.

The $1 trillion-plus infrastructure program will require enormous resources of financing, management and time. It will also demand more innovative forms of cooperation, such as public-private partnerships, in which Britain is a world leader and has a great deal to offer Russia in cooperation beyond the scope of more traditional investments in natural resources, retail and manufacturing industries.

The best news for Britain following the no-surprises election in Russia would be demonstrable signs of an independence of spirit from the new president and a genuine and sustainable improvement in political cooperation between our countries to parallel our business relationship.

Neil Cooper is Russia director of the Russo-British Chamber of Commerce.