Last week, the Russian government introduced into the Duma its proposed law on foreign investment in strategic industries. The law places limits on foreign investment in 39 industries deemed relevant to state secrets or Russian national security, such as the aerospace and weapons industries and atomic energy.
Some observers, including an excellent piece from Business New Europe, see this as a victory of the siloviki (FSB) over the liberal globalists (Alexei Kudrin and German Gref) in the government. I agree with this assessment and would further argue that this victory is at least partially related to the state of Russia’s relations with the West.
It is still too early to assess the effect this law will have. On the one hand, both foreign investors and Russia will be hurt if the flow of capital into the Russian economy is too severely limited. Furthermore, Russia is more likely to be hurt by this than the investors – it’s not as if there aren’t other emerging markets where they can put their money. On the other hand, a clearly established set of rules governing foreign investment is a step forward from the opaque and contradictory framework that this law will replace. Of course, this presupposes that the law will be enforced rationally and consistently.
As an American watching Russia, it never ceases to amaze me how similar our countries can be, this being a good example. Just a week before the Russian law was introduced into the Duma, the U.S. House of Representatives passed a law reforming the review process of the Committee on Foreign Investments in the United States (CFIUS). The bill is intended as a response to the Dubai Ports debacle from last year – remember, when we wouldn’t let a foreign company invest in our country because of national security reasons?
I think both the United States and Russia are dealing with resurgent waves of protectionist and anti-globalist sentiment, which were put on hold after 9/11. Naturally, Russia will continue to be a more unstable environment for foreign investors. Hopefully, this law will help establish some ground rules to make it less so.