Assignment: Political risk for business in Russia
There has been much criticism, both within and outside Russia, at the way in which privatization of state assets took place in the early 1990s. In particular, a small group of businessmen (the so-called ‘oligarchs') and their companies gained control of huge amounts of previously Russian state industries at what many saw as ‘knock-down' prices. These men did not, however, become billionaires by violence or mafia-style tactics, but by using their political influence more effectively than others during Russia's free-for-all transition to capitalism. One such oligarch was Mikhail Khodorkovsky who, in 1996, became chairman of Yukon, then Russia's second largest oil company (now the largest) with $170bn in oil reserves. Khodorkovsky went on to gain control of massive mineral and timber interests, and was named in 2002 by Forbes as Russia's richest man. Amy Chua [World on Fire, Heinemann, 2003] stresses that it was political influence, starting with communist linkages before 1990 and continuing with close government linkages after communism that was the platform for the concentration of wealth in Khodorkovsky's hands.
How things can change! Political intrigue would, it now seems, be the root cause of his fall. President Putin, having been helped to power by the oligarchs, has now turned on many of them, especially those (like Khodorkovsky) who have financed and supported his political opponents. In October 2003 Mr. Khodorkovsky was arrested for alleged fraud and tax evasion. Yukos claimed to have endured some 678 official enquiries from prosecutors in only two months and faced threats to remove its oil licenses. Not only shares in Yukon but in the whole Russian stock market plunged (over 25% lost in three weeks) after the arrest of the Yukon chairman, as did the share price of Exxon, BP and other major international oil companies with interests in Russia. Financial assets were also withdrawn from Russia as Russian and overseas investors (individuals and governments) withdrew over $50bn in the following few months, worried that Russia was no longer a safe place to hold assets. There is a general concern for those with an interest in Russian business that the Yukon affair is ‘a sign that the state is not willing to see business as a partner but only as a subordinate', said Vladimir Ryzhkov, of the Russian Dumas (Parliament). Anatoly Chablis, Chairman of the state electricity company, called on Mr. Putin for clarification. ‘I want business to understand the authority's position on business.
Question
1 What types of political risk have been increased by the Yukon situation?
2 How might this situation have adverse effects on Russian and international business?
3 How might such businesses respond to this increased political risk?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.