Russian regulation puts foreign investment in doubt

See more analysis: The risks of resource nationalism

With resource nationalism now enshrined in Russian law, commentators believe investors will be wary of future public offerings in Russia, particularly within the energy and natural resources sectors.

Dr. Elizabeth Stephens, political risk analyst at Jardine Lloyd Thompson said: “As new regulation in Russia comes into effect later this month, Western Europe will find that it is increasingly frozen out of the natural resources and the mineral exploitation markets, with investment opportunities limited to minority shares. And while it remains unclear to what extent foreign investment and the surrounding Eastern European markets will be affected, the recent BP/TNK debacle is widely expected to act as a barometer for future foreign investment in Russia.”

The findings emerged from a new country risk ratings guide. The report also suggested Eastern European countries are bracing for substantial economic and political turmoil stemming from the credit crunch.

Key findings include –

Romania

“As new regulation in Russia comes into effect later this month, Western Europe will find that it is increasingly frozen out of the natural resources and the mineral exploitation markets.

Elizabeth Stephens, political risk analyst at Jardine Lloyd Thompson

• As a result of political manoeuvring in advance of November’s parliamentary election, the upper echelons of the Romanian cabinet have been beset by allegations of corruption and subsequent resignations. If this high level corruption continues, it will result in suspension of some monetary transfers from the EU.

• Putting the Romanian situation into context, many rapidly reforming economies have had to confront the challenges of corruption and the wider rule of law. This is a vital aspect of a country in transition and failure to get this right will damage the Romania economy for decades to come.

Slovakia

• Following Fitch’s move to upgrade Slovakia’s credit rating as a result of Slovakia’s joining the Eurozone in January 2009, economic risks have decreased as Slovak exports become increasingly competitive, backed by an appreciating local currency.

• Conversely, Slovakia may, in the short term, have a tough time keeping inflation under control, as it no longer has an independent monetary policy as it competes with richer EU member states.

The World Risk Review, was produced by Jardine Lloyd Thompson.