A Second Hand Conjecture

After forcefully savaging the Russian invasion of Georgia, controversial Swedish economist Anders Aslund lays out ten reasons he expects an impending economic collapse in Russia. Each point is sound, although some are more problematic than others.

Particularly cogent are the following Aslund points IMO:

4. Renationalization is continuing and leading to a decline in economic efficiency. When Putin publicly attacked Mechel, investors presumed that he had decided to nationalize the company. Thus, they rushed to dump their stock in Mechel, having seen what happened to Yukos, Russneft, United Heavy Machineries and VSMP-Avisma, to name a few. In a note to investors, UBS explains diplomatically that an old paradigm of higher political risk has returned to Russia, so it has reduced its price targets by an average of 20 percent, or a market value of $300 billion. Unpredictable economic crime is bad for growth.

5. The most successful transition countries have investment ratios exceeding 30 percent of GDP, as is also the case in East Asia. But in Russia, it is only 20 percent of GDP, and it is likely to fall in the current business environment. That means that bottlenecks will grow worse.

6. An immediate consequence of Russia’s transformation into a rogue state is that membership in the World Trade Organization is out of reach. World Bank and Economic Development Ministry assessments have put the value of WTO membership at an additional growth of 0.5 to 1 percentage points a year for the next five years. Now, a similar deterioration is likely because of increased protectionism, especially in agriculture and finance.

[...]

8. Oil and commodity prices can only go down, and energy production is stagnant, which means that Russia’s external accounts are bound to deteriorate quickly.

9. Because Russia’s banking system is dominated by five state banks, it is inefficient and unreliable, and the national cost of a poor banking system rises over time.
(Moscow Times via Robert Amsterdam)

As for all this leading to a Russian economic apocalypse, it should be noted that the accuracy of Aslund’s predictive powers leaves more than a little to be desired. I note that we’re still waiting for his prediction of a military coup against Medvedev to come true.

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Gas flaring in the Niger Delta (photo: Ellie)

John Ghazvinian is a journalist and historian of considerable insight into African affairs. He also happens to have written one of the best recent books on the emergent international struggle for African petroleum: Untapped: The Scramble for Africa’s Oil (the paperback edition is due out in April). Whilst being an enormously valuable investigation of a very serious issue, it is also a page-turning and literate adventure into exotic and dangerous places. Indeed, one that’s practically impossible to put down once you’ve picked it up.

As John writes therein, since 1990 the oil industry has invested $20 billion in oil exploration and production in Africa, with $50 billion more planned before 2010. Over the next five years Chevron alone is devoting $20 billion in investment for Africa. Taken collectively, this exercise represents the largest commercial investment in African history. But such a spectacular windfall for some of the world’s most impoverished countries can be a poisoned chalice, where the brutal economic forces of the so-called “resource curse” hollow out states, eviscerate agricultural economies and break traditional cultures.

Populous and promising Nigeria for example, is one of the oldest and most well established oil producing countries in Africa. But with the expansion of Nigeria’s oil extraction industry, she has seen only the systematic erosion of her economic and civil society. As well as witnessing the transformation of her oil bearing region in the Niger Delta (one of the richest in the world), into a vast social wasteland of extreme poverty, rapacious crime and guerrilla warfare. As John notes, “Nigeria” is now a shorthand expression in Africa for what everyone with oil desperately wants to avoid.

John took some time out of his morning yesterday to sit down with me for a telephone interview. We were able to discuss a variety of subjects related to issues raised in his book. Including among other things, US oil supply diversification, the political consequences of offshore exploration in the Gulf of Guinea, the resource curse and rentier states, instability and post-nationalist militancy in the Niger Delta, oil field subculture, the labor problem, Chinese energy strategy in Africa and the difficulty of talking about Africa “without lapsing into sanctimoniousness” (as John puts it in the preface of his book). As I did, I believe you’ll find this to be a rather rewarding and unconventional discussion.

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