News

Terrorism, corruption and human rights: New Maplecroft report rates Russia’s risk as “high but promising”

01/04/2010

A new country report on Russia, released by Maplecroft on the eve of the latest terrorist attacks in Moscow, has highlighted the need for businesses operating there to equip themselves with comprehensive risk intelligence to mitigate short and long term risks to operations and investments in the country.

The 80-page report provides in-depth analysis and sub-national maps illustrating political, societal and environmental risks for business in Russia, across different sectors.

Overview

The recent terrorist attacks, which left 38 dead as a result of two female suicide bombs in Moscow's subway, are being attributed to insurgent groups in the North Caucasus that have been the target of recent activity by Russian state security forces. The Russian government is expected to retaliate strongly. Russia's authoritarian government justifies its restrictions on political, civil, media and other freedoms on the basis of the overall security it provides to support economic growth and living standards. Regime flaws, such as serious corruption, lack of rule of law, the absence of structural reforms and poor economic diversification, have been exposed as Russia's economic growth has faltered. While Russia's infrastructure readiness and education capacity may currently outperform some of the other BRICs, in the longer term, ensuring sound public finances in order to maintain roads and schools will require diversification of the economy away from oil and gas. Russia is currently over dependent on extractives and the report criticizes the poor stewardship of them.

"Short-term or dynamic risks in Russia are considerable, far outweighing the longer-term structural issues. Corruption is widespread in the executive, legislative and judicial branches, including the security forces, and is often conducted with impunity."

- Mandy Kirby, Political Analyst at Maplecroft

Russia is ranked 15/196 in Maplecroft's Dynamic Political Risks Index and 21/196 in the Business Integrity and Corruption Index and is rated "extreme risk" in both indices. For structural risk, which captures the long term growth environment more accurately, Russia is rated medium risk, however that can change if dynamic risks get out of control.

Complicity

Moreover, businesses face a high risk of complicity in the actions of local business partners and through local supply chains due to Russia's very poor labour rights record, which have been exacerbated by the economic downturn. Russia rates as "extreme risk" in both Maplecroft's Labour Rights and Protection Index and the Business Partner, Sourcing and Supply Chain Complicity Risk Index, where it is ranked 18/196, and 17/196 respectively.

The report finds that societal risks are exacerbated by the lack of political plurality and effective restrictions on freedom by the state, which is worsened by societal intolerance. Following the latest terrorist attacks, ethnic minorities are at risk of a backlash, already being subject to societal discrimination. Persons with dark skin or who appeared to be from the Caucasus region, Central Asia or Africa are reportedly targeted by police for beatings, harassment and extortion. The risk of security forces acting improperly with impunity is therefore something that foreign companies should protect themselves against.

Political violence

The risk to business from terrorism is concentrated on operations within the North Caucasus. Companies using rail freight transport face a particularly high risk of being targeted, as do those with operations in transport hubs where the risk of suicide attacks is greatest. If Russian forces respond as anticipated, in a worst-case scenario, this could trigger an escalation of violence and lead to a greater number of suicide attacks by insurgent groups, meaning Russia, currently ranked 15/196 and "high risk" by Maplecroft's Terrorism Risk Index, could fast slip into the "extreme risk" category. This would be an obstacle to much needed foreign investment.

Localised conflict, terrorism and political violence

The Russia report includes sections on governance and business environment, political violence, regime complicity, supply chain risk, environment, economic overview, key recent events and stakeholder views. In addition, it provides rankings from Maplecroft's 100+ risk indices and GIS derived, sub-national maps including localised conflict, terrorism and political violence; labour rights and protection; and climate change vulnerability. Maps illustrate the risks and their inter-relationships.

A similar report will be available on Brazil from 08/04/10

For more information and pricing details on the Russia and Brazil reports contact info@maplecroft.com