MM Lee’s misplaced “optimism” about Russia
October 1st, 2009 | 
Author: OPINION
Following MM Lee Kuan Yew’s visit to Russia last week, the state media has been singing praises about Russia’s potential and touting it as a future destination for Singapore’s investments after China.
It is little wonder as Singapore journalists are not paid for their ability to think, but rather to spin stories at the order of their political masters. Since MM Lee has already endorse Russia openly, can they write anything to the contrary?
During a recent business forum held in Singapore, Russian banker Ruben Vardanian asked Mr Lee why Singapore was so committed to his country.
MM Lee’s response: Singapore was always looking to expand its hinterland, and he saw in Russia a promising partner.
He was impressed, he said, not just by the developments he had seen first hand, but also by the confidence that large multinationals such as carmaker Daimler- Benz and bank JPMorgan Chase had in the country.
The Russian must be either flabbergasted or amused at MM Lee’s highfalutin ideas about Russia when the rest of the world is having second thoughts about it, including its own president Dmitry Medvedev.
Two weeks ago, Mr Medvedev wrote a hard-hitting article on his blog criticizing Russia’s obsolete political system and economic model. He calls for overhauling Russia’s “terrible” and “dysfunctional” economy by weaning it away from its dependence on energy and metals.
He told a foreign audience lately:
“We spent the 1990s trying to survive, then we spent much of the last decade achieving stability. Now we have to dismantle the legacy of our ‘beloved’ Soviet past.”
MM Lee can be forgiven for not understanding Russian and exchanging pleasantries with Medvedev when the duo met last week, but surely he has been keeping himself updated on international opinions of Russia?
Despite the vast amount of oil and gas Russia had at its disposal, its greatest asset is fast becoming its Achilles heel in its attempts to diversify the economy and reduce its reliance on energy exports.
The Russian economy is plagued by a bloated bureaucracy, widespread corruption and inefficiency, lack of safeguards and protection for private enterprises and a highly politicized judiciary.
According to Transparency International (a favorite pet of MM Lee), the size of the “bribe economy” increased ten-fold during Vladmir Putin’s reign as Russia president.
The bureaucracy became the business elite as the state – from the Kremlin to provincial governors and even local policemen – swallowed up businesses, not quite unlike Singapore whose domestic economy is dominated by state-owned and linked companies.
A Newsweek report this week described Russia’s economy as a leaky bucket – it seems full because of the amount of free money gushing in, mostly from oil and gas.
In fact, Russia falls far behind the rest of the developed world on almost every competitiveness, productivity, and production index. Russia is ranked a miserable 63rd on global competitiveness by the World Economic Forum this year.
On legal protection for investors and property rights, Russia slipped 20 places to 116th. Its GDP is expected to fall 8.5 per cent this year.
Given such gloomy and uncertain circumstances, it is strange that MM Lee remains so upbeat about Russia.
15 years ago, Singapore rushed in to collaborate with China in the joint Suzhou Industrial Park and ended up relinquishing control of the park to the Suzhou municipal government, but not before losing a substantial sum of money, the exact figures are still not known to this very day.
If Singapore had encountered problems investing in China, a country which is culturally and linguistically close to us, what makes MM Lee think that we will do better in Russia, an absolutely alien country altogether?
The Russians are not even remotely close to the typical Caucasians we know of from the West though they appear similiar in appearance.
A backward and medieval state insulated from much of Europre during its golden ages of the Reformation, the Renaissance and the Industrial Revolution, Russia began to reach out only to the developed world during the reign of Peter the Great in the 18th century.
Unlike the Europeans, the Russians are chiefly Slavs who wrote in cyrillic language and most of them are orthodox Christians which is quite different from the Christianity practised in the West.
Russia’s modern history was dominated by powerful princes, monarchs and dictators. Other than a brief period following the end of the Romanov dynasty, it never experienced democracy or a stable representative form of civilian government.
The Soviet Union was a heavily militarized dictatorship which exerted control over its people largely through the army and secret police, the KGB of which its current Prime Minister Mr Vladimir Putin was once a member.
Though today’s Russia is much freer compared to its dark Soviet past, it is still an opaque political system dominated by strong leaders like Vladimir Putin issuing edicts from the Kremlin with no proper enshrined system of power succession and renewal.
As exemplified by the incarceration of oligarch Mikhail Khordovosky who was once the darling of the regime till he fell out of favor on trumped-up and dubious corruption charges, the rule of law does not exist in Russia and the laws change all the time at the whims and fancies of those in power.
Russia faces an increasingly uncertain future with potential fault-lines within itself and in the region threatening its long-term stability and prosperity.
The rebellious Chechnya is brought only under temporary control by its Kremlin-aligned Ramzan Kardyzov, a ruthless dictator who is responsible for a wave of kidnapping and murders of human rights activists in the restive republic.
With the insurgents still hiding in the mountains, there is a chance that a renewed conflict may arise and engulf the entire Caucasus including Chechnya’s neighboring republics of Dagestan, Inguishetia and North Ossetia should Ramzan be assassinated one day.
Russia remains at conflict with Georgia over its support for its two breakaway regions of Abkhazia and South Ossetia. Last week a Russian patrol boat carrying rockets docked in a port along the coast of Abkhazia in a deliberate provocation of Georgia.
One has to wonder about MM Lee’s infatuation with Russia when there are other safer and more attractive investment destinations for Singapore in the region.
Singapore should tread extremely carefully in Russia not only because of its volatile domestic situation, but because we have very little leverage over the Russians whose primary occupation continues to be its near abroad.
The Russians will not hesitate to freeze or even nationalize our investments in Russia should conflicts and problems arise. The frequency at which Russian gas giant Gazprom turns off its gas pipes to its clients in Europe is an ominous sign of the inherent dangers of doing business in Russia.
While Singapore should continue to establish ties with new trading partners, we have to conduct a proper risk assessment and management before plunging in head-long into the unknown again.
Posted in Opinion
24 Responses to “MM Lee’s misplaced “optimism” about Russia”
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either LKY is hoping that he could sell his Singapore success model to Russia, or he is just infatuated with states which has got powerful grip on the people.
singaporeans are submissive and have been trained to think uncritically, not sure about russians. last week, some russian students asked LKY questions abt his son LHL and drew an angry response from the old man right?
don’t think the russians will be any easy to deal with than the Chinese. like what the article has pointed, the russians’ way of dealing with internal conflicts and external relations had been very heavey-handed to a point that we could say it’s like a rogue.
Mao Zedong had wanted to befriend russia, only to be treated coldy by them. Journalists were being persecuted if they are against the government.
Unless we want to learn from them of how to deal with dissidents, don’t throw money in that country before we know what we are getting into, please.
MM Lee know nuts about investing, perhaps he should invest his monies in Russia first before giving any advices.
Based on his track record, it is safe to do the exact opposite.
I.e., do not invest where he is investing. Go invest where he says its bad.
Just check with those companies that jumped on the Suzhou bandwagon.
If not Russia, what other available developing markets are there of similar size? Not to say Russian markets are doing any better than the rest of the world in the GFC.
Africa is not up to speed (and dominated by Chinese interests), East Europe is subject to EU economy as well. The middle East are mostly insular economies.
The point being lets not conflate political interests with economic interests.
P.S. I have always wondered something about Temasek and GIC; why do they not invest in tech stocks? MS, Apple and Google have performed spectacularly in the past decade. Could it be there are assessed to be of greater risk than banks and financial firms? In fact, with Singapore’s propensity for IT, I would expected the government to have greater participation and ownership of these shares.
Very good article.
Russia defaulted on their own bonds in 1998… and the economy is on the brink of bankruptcy again if commodity prices do not increase by the end of the year.
even china has problems doing business with russia, i doubt singapore can be better than the stree-savvy china guys
“Autocrat see, autocrat do” (by CSJ):
http://yoursdp.org/index.php/perspective/special-feature/320-autocrat-see-autocrat-do
“A Comparative Perspective on Russia and Singapore” (by CSJ):
http://www.robertamsterdam.com/2007/11/dr_chee_soon_juan_a_comparativ.htm
//#Ω李
great comment.
Have Papa Lee become so senile that his mind short-circuited ? How is it that he forget about the language barrier that is the most important for business and network relationship ? Business is not about money first but relationship first. So Papa Lee telling us to learn Russia language ?
Russia is an enigma. Russian drink vodkas like no tomorrow and the spies there are terribly hot looking, like in those Bond movies. No wonder we are all infatuated with Russia. However I am not sure about its economy – the population isnt that big?
I would say that Dostoevsky is absolutely right. Only “virgin” minds of no knowledge and experience would be adoring of Russian business opportunities. If anyone noticed, the resources-hungry Chinese is investing agressively everywhere except their resources-rich, and nearer to home, northern neighbour, Russia even though Chinese bought into energy business in Khazakstan. The Chinese are street ruthless, the Russians are thuggish ruthless and their business oligarchs are not that far from the practice of mafia-cum-political organisations. There is long history attesting to these apalling records.
Just google “Sukhoi Log” the world’s largest unmined gold deposit of over 32 million ozs of 2.7 g/t of gold plus credit of 1.5g/t of platinum, open-pittable discovered by their geologists way back in 1971 and 38 years now remained un-exploited just like another huge copper project Udokan Copper in Russia
http://www.sukhoilog.com/details.aspx
The history of Sukhoi Log epitomise the impossible difficulties of investing in Russian business oppotunities. Way back in the late 1980, an Australian mining company, Star Mining Limited strongly backed by an illustrious name lists of London-based investment bankers and a boardroom chaired by Neville Wran, former New South Wales Premier, worked on entry opportunity to develop this mine. It has the collaborative political support of Eduard Shevardnadze, then Foreign Minister of Soviet Union to negotiate through the maze of soviet bureaucracy in Moscow and provinces. Corruption and power struggles were rife. London investment bankers paid over A$0.40 per shares and in a few years its traded value fell to 0.001 cents per share (not even 1 ct). Star Mining was anything but star performance for its loyal shareholders. A Canadian successful gold company, Bema Gold went in and have a look followed by South-African based Consolidated Goldfields. None make good of it. Lenzeloto, a Russian mining interest turn to give it a start but hit the wall too as Central Government wobbled from granting mining rights from auction to tender. And as at last look in February 2009, nobody put any seed capital into this very rich gold project. It showed how impossibly difficult to put millions and billions of dollars into Russian investment backed by its Government and nearly 40 years on still in the cold room of political squabbling and indecisions.
Another Australian gold comapny, Bolnisi Gold worked on a heap-leach gold project in Madneuli, in Georgia. Again, it had the support of Georgian Head of State, Eduard Shevardnadze (former Soviet Union Foreign Minister). Corruption and thuggery ruled again. The situation was so bad that Bolnisi was forced to evacuate all its expatriate staff for safety reasons, shut down is operation. It was re-opened only after the Australian Government made direct representation at the highest political office level to its Georgian counterpart,and even then, the most attractively richer orebody was denied of mining extraction in teh joint venture after Bolnisi spent millions of plant and infrastructure to support mining operations.
Then take another look at recent example – British Petroleum – TNK joint venture – the Russian interest represented by Vicktor Vekselberg of Renova Group. Robert Dudley, the British CEO, was subponaed by Russsian prosecutors for alleged labour law violations. Why is Renova not aware of the same alleged violations as joint venture partner of 50:50 equity. The saga ended after Robert Dudley throw in his resignation in favour of a Russian nominee and opertional control.
http://www.thaindian.com/newsportal/world-news/russian-prosecutors-summon-ceo-of-russian-british-oil-joint-venture_10076323.html
Meanwhile, Renova was eyeing aggressive to buy into South African Kalahari manganese deposit, the largest in the world and Soviet Government at the highest level is lobbying South African Government for entry.
http://www.miningweekly.com/article/russians-sniff-kalahari-manganese-prospects-2005-12-09
Why is oligarch like Renova not putting the kind of money into equally huge and attractive resources projects inside Russia like Sukhoi Log and Udokan Copper.
They knew it is NOT an easy game – even for Russians. Singaporean virgins throwing big money into Russian business must, I suspect, make Chinese and Russian business heavyweights ticklish with uncontrollable laughter.
singaporeans basically trust.
Actually, I believe Russia is a good place for investment, but of course if one does so in pace with the reforms their federal government implements. On the other hand, I believe LKY is lecturing them on the wrong kind of things. Russians are seasoned politicians who know how to play the political game better than LKY has, plus they have a better understanding of economics. LKY should not get too caught up with Singapore’s success story. Singapore was easy because it was small. LKY should be the one admiring Medvedev and Putin, considering how they managed to keep a country as large and disparate as Russia not only together but progressing (very slowly though), not lecturing them on how to do business.
Misplaced trusts in matters of business risks in Russia can be very costly – the Australians, Canadians, South Africans and the British have found that out in long history of experiences to a lot of anguish and big holes in their financial pockets.
Sukhoi Log and Udokan Copper are examples of OUTSTANDING AND UNBELIEVABLE business opportunities ‘TO BE HAD” ( leaving in tears and underpants taken off by the mafia in joyous reward for the uninformed and the unwary)
We should not be fools rushing in so blissfully ignorant where devils fear.
Palmary Enterprises Ltd., controlled by Ukrainian billionaire Gennadiy Bogolyubov, is actually domiciled outside the former Soviet Union, despite its yet untapped PROVEN enormous richness of natural resources. From there, they spread the tentacles to acquire global natural resources businesses OUTSIDE RUSSIA. Many Russian billionaires are chasing for natural business in Africa, Australia and Canada too but not their home turf.
THIS IS DESPITE THE SO-CALLED REFORMS IN RUSSIA’S POLITICAL INSTITUTIONS AND BUREAUCRATIC CONTROLS AFTER THE BREAK-UP OF THE FORMER SOVIET UNION.
The reforms brags of by the Kremlin is NOT a new drill of politics and business nexus but has been on-going for 30 years AND it is centric to mafia-type business oligarchs in bed with political power base in Moscow. That explains ignominious closure of BP-TNK saga of arm-twisting as recent as this year. That won’t change anytime soon because of political vested interests.
And through all these years and given the best of intentions and assistance of the highest power base of the likes of Eduard Shevardnadze, then Foreign Minister of Soviet Union to negotiate through the maze of soviet bureaucracy in Moscow and provinces, a lot of opportunities just fell through the cracks of thuggish politics till today.
A mineable reserves of gold in the ground anywhere else in the world might be valued in financial market at US$60 to US$200 per oz depending on quality of orebody but the same grade mineral resources within the same quality dimension valued at US$10 per oz within Russia will find no buyer.
Investment opportunties in Russia, to me, is like the thallium joke. Thallium has great use but highly toxic and has cultivated fame names of relevance to murder like The Poisoner’s Poison” and “Inheritance Powder etc
http://en.wikipedia.org/wiki/Thallium
Russia’s singularly lack of economic success compared to China, India and Vietnam through much longer decades of reforms is testimony its reform’s persistent failures and very few foreigners are keen to put money into that country’s outdated industries INCLUDING AND DESPITE the attractiveness of its natural resources.
Russia’s future is, I believe, is already encapsulated in “HISTORY”
Since when are Singaporeans not cheated while investing in foreign countries? We should mention the FEW successes instead of the MANY failures of Singapore Inc in overseas ventures, in order of success:
1) Optus
2) Bharti Airtel
3) Indonesian Telecom (I cant remember the name)
4) DBS in Vietnam so far
These are the few I can recall. Can any pro investors would like to highlight to me?
Optus, Bharti and Indosat (?) is Singtel – one sucess story to some extent but in Indonesia, they were whipped too and Qataris got the upper hand contrary to Indonesian corporate law.
DBS wrote off completely its Thai acquisition and another Hong Kong Bank, if I am not mistaken, so not exactly stellar of success. Vietnam is a new venture – small risk involved in scale.
What U see GIC & Temasek investment all flock.
So this senile Oldfart don’t no how to be Shame.
As a Old words always said “Don’t teach your Father how to Fuck”. ShamE SHAME
It is really mind-boggling how hopeless is the business climate existing in Russia for 4 decades – both before and after the collapse of the Soviet Union. The numbers tell it all.
Sukhoi Log is 32 million ozs of mineable ozs of gold at 2.7 g/t and the platinum credit is 1.5 g/t. For the entire orebody the recoverable platinum is 55% of the gold content or roughly 17.5 million ozs as of current estimate. As drilling has NOT closed off either at depth or in any other strike direction, Sukhoi Log could be much bigger. Taking conservative values of current mineable reserves, the extactable value at current market prices is
32,000,000 oz of gold X US$1,000 per oz = US$32 trillion
17,500,000 oz of platinum X US$ 1,285 per oz = US$22.6 trillion
The combined value from mining Sukhoi Log is roughly US$54.6 trillion or ROUGHLY A STAGGERING 3.9 TIMES CURRENT US GDP FIGURE.
For a nation struggling on the edge of poverty, and putting Sukhoi Log into production, the impact on their national economy must be phenomenal.
BUT THE RUSSIANS COULD NOT GET THEIR ACT TOGETHER EVEN IN DIRE STRAITS OF ECONOMIC DESPERATION, HOW CAN FOREIGNERS PUT THEIR MONEY INTO THEIR ECONOMY WRECKED BY THIS DEGREE OF POLITICAL INCOMPETENCE, ECONOMIC AND BUREAUCRATIC MISMANAGEMENT???
Maybe it is easier to sign on the dotted line after a downing a few bottles of Russian vodka alongside them perhaps??
Russia is a huge country with great potential. If it can develop and grow like China, we may indeed benefit from working with them. Early birds may catch the fatter worms.
But we better be careful with investments in Russia. It is no less complex an environment as China in the early opening days. Perhaps, it can be worse for Singaporeans since there is additional language and cultural barriers.
It helps to know thy partner like thyself.
Jane Goo, US$56 trillion on the table at just ONE opportunity at Sukhoi Log, no takers inside Russia even among the wealthiest Russian billionaires with NO language or cultural barriers. Surely these must be sirens of dangers and warning signs flashing of impending disaster before the eyes of all except the blind and deaf.
Even Russians themselves know – foreigners are very wary of Russian investment opportunities. Read this comment right from the horse’s mouth
….Valentina Matviyenko, St. Petersburg’s governor, said her city was a leading Russian region for cooperation with Japan. She described Japanese businessmen as EXTREMELY CAUTIOUS….”
http://en.rian.ru/business/20080904/116555855.html
Japan invested roughly US$4-US$6 billion BUT MOST OF IT IS IN ONE PROJECT – EAST SIBERIA PACIFIC OCEAN oil and gas PIPELINE to supply Japanese energy needs. NOTICE THE JAPANESE NOT INVESTING IN THE OIL AND GAS PRODUCTION FIELD but just the infrastructure to deliver the oil and gas.
Japanese investment in the Russian economy only accounted for around 1.5% of total investment in Russia, and just 0.5% of Japanese investment abroad.
The Australians, Canadian,South Africans and British had long bad experience stretching more than 30 years. Americans NOT touching and neither is Chinese.
On the superficial look, Jane Goo,as you said “Russia is a huge country with great potential.” but the early birds DID NOT catch the fatter worms BUT ALL ATE THE TOXIC WORMS INSTEAD.
Russia is NOT comparable to China. Russia had “Perestroika” ( opening up )BEFORE China’s Deng Xiao Ping opening up of China. China boom the next 20 years, Russia?? A lumbering bear from one poverty struggle to another nearing starvation and bankruptcy BUT IMPOSSIBLY DIFFICULT OF even ONE SINGLE LARGE SCALE ECONOMIC DEVELOPMENT of their own even WITH FOREIGN INVESTMENT INTERESTS IN SUKHOI LOG OR UDOKAN COPPER.
THEY CAN’T EVEN GET ONE BIG PROJECT RIGHT. And they know that no foreign investors trust them.
There is no sign of economic achievement but a lot of signs of going abck to old ways of technology and innovation in weapons research and development for export markets.
Summing up, Russia do have a lot of potential BUT POTENTIAL TO REMAIN POOR, UNDEVELOPED, CORRUPT, MAFIA-LIKE OLIGARCHS IN BED WITH POLITICAL POWER BASE – the toxic pit of no hope case in my judgement.
And engineer I once knew and name Herma… A Norwegian… told me he was sent by his company to MossCOW once… And he arrived late at check into his hotel at around 10pm…
Then he call for Room Service and Dinner… Waited 1/2 an hour and at 10.30pm with a GROWLING Tummy, he called Room Service again…
Was told… dinner Coming… and they will call him back in 15 mins…
At 10.45pm, now COLD and HUNGRY… he called and WAS Told by Room Service That The Kitchen was waiting for Instructions to make dinner for him as was cleaning and closing for the day…
FIVE mins. later… someone from the Front Office or Room Service called… to say that his Supper should be coming up in FIVE mins…
Happy and waiting EAGERLY… but at 11 pm When NO SUPPER Came… He Called The Kitchen… And was told they had CLOSED at 10.30 and ARE now BUSY CleaNing and closing for the DAY…
He was then passed to ROOM SERVICE… When a new shift staff TOLD HIM most pointedly… THAT he DIDN”T GET his food BECAUSE HE DID NOT Order VODKA… So he asked for a bottle of Vodka to help him keep warm…
But was TOLD He HAD Too Order VODKA FIRST AND then his food along with it in THAT ORDER!!!…
By now he had given up. And he drank warm water and felt lucky THAT there was SOME in a Thermoflask in his room!!!! Now warmed… he curled up under his fortunately sufficiently warm blanket!!!…
DREAMER LKY in his IVORY Tower Arranged visits to anywhere… Is just too unconcern about the workers… possible problems and plights…
Hooray… Herman did speak RUSSIAN… And I suppose LKY did TOO???
“The Russians are not even remotely close to the typical Caucasians we know of from the West though they appear similiar in appearance.”
You may want to refrain from making sweeping statements like this.
It is not that long ago that even top class hotels in Moscow leaked details of foreign guests ( for payment received like any other business) to the thugs underworld for robbery risking kidnapping. Businessmen travelling there switch rooms at first sign of unsolicited knock at door. And BP-TNT as well as Bolnisi Gold as high profile case histories showed foreign expatriates’ personal safety were in jeopardy when corporate disputes arose (however these arose) – it is thug’s business in Russia even in the knowledge of Kremlin that this has been going on.
Apparently things are better now but could get worse if Soviet economies deteriorated further – poverty is the driver of crime – big time and foreigners are targetted because they are thought to have US dollars on them.