[Deb Palmieri on Russia Table of Contents] The following article was published in the Russian Commerce News, March-April 1999. The Russian Commerce News is the official publication of The Russian-American Chamber of Commerce®. |
So far, the Kosovo crisis has had a minimal impact on U.S. company interests in Russia. It's important, however, that companies be aware of potential risk factors that could develop if the crisis escalates or if solutions are reached on which the U.S. and Russia strongly disagree. We provide you with some thoughts you may want to consider in your own risk planning.
Special President's Report
Evaluating Kosovo-Related Risk Factors to
Foreign Direct Investment in Russia
Dr. Deborah A. Palmieri
Companies we've talked with in recent weeks indicate that they have not experienced nor do they anticipate heightened Russian country risk factors associated with the conflict in Kosovo. For now, they are right and we hope this will continue to be the trend. Companies should be cautioned, however, to anticipate certain risks that may arise if the conflict persists in duration (with, for example, a lengthy bombing campaign or ground troop conflict) or intensity (disagreements mount between U.S. and Russia on resolution and settlement issues).
Politics and Business
It's a given that good political relations and a compatibility of political goals and values foster strong commercial ties - witness the high degree of economic cooperation among the U.S., Canada and Western Europe. It's also a given that conflict-laden political relations, with a high degree of tension and differences over fundamental strategical and tactical approaches to third party or regional issues create ill-will, distrust, unwillingness to cooperate and serve to hinder commercial ties - witness the low level of economic interaction and nearly non-existent trade and investment levels between the United States and the Soviet Union during the Cold War.
During the "honeymoon period" of relations between the United States and Russia following the disintegration of the Soviet Union, a period of friendly and cooperative political relations followed from 1991 to 1997 or 1998. Since then, for a variety of reasons, "irritants" or issues of disagreement have arisen. The most significant of these is the Kosovo crisis.
Best Scenario
Under the scenario that the Kosovo crisis is quickly resolved - the bombing stops, resettlement proceeds smoothly and Russians are drawn into the decisionmaking process, companies have little to be concerned about, with the exception of observing the growth of anti-American sentiment more closely. Russian public opinion is staunchly against the NATO bombings - 90% according to recent polls - and demonstrations in front of the American Embassy have increased in numbers and negative actions (egg and ink throwing; attempted grenade launch.) And the U.S. Ambassador's residence in Moscow recently was hit with an arrow containing this message, "Those who act against the Slavs by the sword will die by the sword," and stating that the war would end on U.S. territory. An isolated incident, yes, but unthinkable before Kosovo. Companies should understand the depth of Russian sentiment, because many Russians feel they might be the next target. Companies should anticipate that anti-Americanism will get a lot worse before it gets better and plan for specific effects it might have on their operations.
Crisis Continues Scenario
Under a scenario whereby the Kosovo crisis drags out; the bombing campaign extends over time; tensions mount and NATO and U.S.-Russian relations deteriorate further, companies should be aware of heightened risk factors. These include growth of anti-American sentiment among Russian employees and loss of morale and goodwill, and possible decrease in employee productivity; physical threats to production facilities or workplace sabotage by militant forces seeking retaliation against U.S. policies; increased risk of kidnapping or physical assault by political extremists on the right or left; diminishing cooperation from the Duma or ministry-level officials on projects; and so on. Public opinion might deem it unpatriotic for Russians to work for Americans.
Worse-Case Scenario
The worse-case scenario for American corporate investors would be one whereby Russia changed its present position (Yeltsin has presently stated he would not become militarily involved) and provided arms or direct financial support to the Serbs. If this were to happen, Washington lawmakers might unleash a wave of sanctions, embargoes, and other types of restrictions on our economic activity in Russia. Right now, I would give this a rating of 2 on a scale of 10 - not likely to occur, but not impossible if gridlock and tensions mount. Similarly, Russian legislators could be expected to react in non-cooperative, punitive or restrictive ways, and that might impede progress on projects dependent on their legislation.
Recommendations
Presently, companies should be watching for patterns of escalation or
de-escalation of the conflict. Under circumstances of escalation or lengthy
duration, they should be assessing possible risks to their own projects
and company responses, and acting to shield their interests from damage
or loss until the tensions subside.
Deborah Anne Palmieri
Russian Commerce News, March-April 1999
Copyright 2001 The Russian-American Chamber of Commerce®