Thursday, August 28, 2008

Western investments in Russia, China and other countries without the rule of law

As has become clear over the last year or so, the West needs to systematically rethink its attitude to investing in countries without the rule of law.

Russia's actions and attitudes in relation to the BP-TNK joint venture have made it clear that the BP investment in Russia was a complete mistake.

Similarly, it will become clear in time that Western investments in China have been a mistake.

Any country that does not have the rule of law is bound to be one that, in crunch times (however defined by the ruling elite in the country in question), is going to resort to actions that are entirely illegal.

That raises of course the question of what exactly IS "legal". In the absence of a global agreement on this question, it is clear that investors must decide which definitions of the word they find most congenial - and there can be hardly any doubt that it is the European/ North American definition (for all the minor differences between them) that will find favour.

Why then do individuals and companies want to invest in countries without the rule of law? Because their own markets are more or less fully exploited, and pastures that are far away always appear greener than those that are at hand.

Emerging markets are still markets from which it is difficult to emerge in an emergency. Sphere: Related Content

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