Wednesday, October 20, 2010

Mortar Keeping BRIC-Story Together Starting To Deteriorate

A theme I have begun exploring here at EPJ is the idea that the "BRICs miracle" is more like the "BRICs mirage", and that some or all of the BRICs are not contenders for world economic power status but instead are economic basket-case runners-up, happening right now.

Russia in particular stands out as a country with a lot of economic problems derived from its numerous political problems. For one, the country has had a love-affair with authoritarianism since at least the 16th century, a record which has stood uninterrupted even to the present despite numerous invasions, revolutions and imperial ambitions alike. Contrary to the secret wishes of Keynesian economic professors and orators everywhere (remember Keynes' special foreword to the German edition of his treatise?), authoritarianism is not an ingredient in the recipe for sustainable, organic economic growth.

In that vein, contributor Craig Pirrong commented on a recent FT article which disclosed that the Russian shareholders of a joint venture with BP have been urging the multinational supermajor to invest surplus funds outside of Russia, rather than exploring for new energy opportunities within its borders:
Interesting, isn’t it, that it’s the Russian owners of BP-TNK who are so anxious to invest outside of Russia? (Ditto Rosneft’s recent splurge for PDVSA refining assets in Germany.)

That desire by Russian firms to invest cash flows generated inside Russia outside the country even in the energy business (where Russia presumably has its greatest attraction because of the often-touted untapped oil and gas reserves there), says a lot about the investment climate there. And it doesn’t say anything good. We’re constantly lectured that Russian assets are undervalued; the investment prospects there are amazing; there’s a lot of money just lying around to be picked up.

If all that’s true, why don’t Fridman et al pick up the money and buy all those undervalued assets in Russia?

If Russian oligarchs aren’t too wild about investing their capital in Russia, Putin’s new initiatives to attract foreign investment are facing a serious uphill climb.
Indeed, it's very interesting. You'd think if anyone had a chance at recognizing and acting on "hidden value" in Russia it'd be some of the investors who actually live there. Now, you could say that relatively-speaking there are still better opportunities available in developed markets, such as the United States. But really, it seems like jumping the hurdle necessary to beat THAT competition is getting lower and lower everyday.

I'm going to keep my eye on the BRIC story. Something doesn't seem right about it, aside from the economic ignorance behind their promotion.

No comments:

Post a Comment