Russia: Perestroika?

At the annual St. Petersburg International Economic Forum this week -- which reviews Russia's economic performance and analyses its business relations with foreign partners -- there will be attention on Vladimir Putin's law restricting foreign investment in Russia, inked in his final week as president. Yet his Parthian shot mirrored the will of his people.

The law lists 42 sectors where foreign investment will be limited and decrees that any foreign company seeking to buy more than half of a firm in a strategic sector will need official authorisation. A recent Gallup Poll suggests most citizens likely approve of the new limits.

• 68% of Russians believe their government should prohibit foreign companies from buying big Russian companies.
• Among the former Soviet populations surveyed, Russians are the most likely to object to foreign ownership of their most lucrative industries, although sizable percentages of residents in several former Soviet republics -- from 40% in Moldova to 63% in Kazakhstan -- also say their governments should prohibit foreign companies from buying big businesses.

FDI understanding

Russians may not want foreigners in charge, yet they understand the importance of foreign money to economic growth. They view foreign direct investment, which has surged over the past several years, as good rather than bad for their economy.

Forty-two percent of Russians say foreign investments will help their economy, while just over a third (34%) think these investments will hurt the economy. With the economy growing last year by 8.1%, foreigners continue to see business opportunities: foreign investment has risen to 221 billion dollars, 120 billion of it arriving in 2007:

• The Northwest region, which includes St. Petersburg, has attracted a high percentage of total foreign direct investment. A majority of this region's residents (58%) view foreign investments as helpful. Yet attitudes are much different in another prime investment target, the Central region, which includes Moscow. Only 35% of this region's residents perceive the investments as beneficial.
• Younger Russians are more likely than older Russians to see foreign investment as a good thing for the nation's economy. Of Russians aged 54 and younger, 44% say such investments are helpful, compared with 36% of those aged 55 and older who say the same thing.

Anti-Westernism?

Yet the desire to keep foreign investors under control in Russia may be more about pride than suspicion. The Putin administration set itself up as returning Russia to stability and strength after the chaos and weakness of the Boris Yeltsin years. The serious economic difficulties experienced by the vast majority of Russians in the 1990s were seen by many to stem from the adoption of a Western market democracy; the understandable desire to recreate an economically strong country is now bound up with the notion of an independent Russia, free of Western interference.

There are signs that Putin's successor has inherited some of these notions. New Russian President Dmitry Medvedev made his first foreign trips as president to Kazakhstan and then to China.

Yet the anti-Western rhetoric of the Putin era may fade as Dmitry Medvedev's presidency begins. Putin has largely achieved his aim of reasserting Russia's independent identity as a strong sovereign state. And with each passing year, references to the 1990s are less relevant to policymaking.

Russia's future economic growth depends on being a diversified modern economy, integrated into global markets. Although economic development is not fatally undermined by anti-Western rhetoric, as seen in recent years, there is a level beyond which anti-Westernism will inhibit foreign investment in Russia and Russian investment abroad.