Russian political risk denotes the risk that happens due to the possible actions of the government and other political powers in and throughout the country. Such risk indicates insecurity regarding possible shifts in government rules and the effect of such regulations on the impending economic situation (Erkekoglu and Kilicarslan, 2016, p. 1). The political risk in Russia is likely to affect the operations of foreign multinational investors from China, Germany, and the United States differently. These possible consequences are due to the different relationships between Russia and these nations. According to Sharyshev (2016), China and Russia have a promising partnership that shares the same interest and can endure global threats while shaping the prevailing world order. In other words, China and Russia have a colloquial treaty to organize economic and diplomatic moves and develop a partnership against the United States. Therefore, a Chinese investor is likely to encounter a favorable political risk such as a small trade barrier in Russia that allows them to increase their operations in Russia.
Additionally, since China and Russia have a good relationship, they may agree to set international standards and policies that favor them (Sharyshev, 2016). As a result, investors from China are likely to expand their operations in Russia, leading to increased profits. According to Shehadi (2022), Russian political risks, such as its invasion of Ukraine, have negatively affected foreign investors by forcing them to withdraw their operations from Russia. However, foreign multination from china are still retaining their presence and operations in Russia, as Shehadi (2022) states. Their continued existence is because of the alliance between Russia and China. It is also due to the socio-political barriers that prevent Chinese investors from pulling out of Russia.
Similarly, Russia considers Germany as its top European partner; thus, Russia is a vital trading associate for Germany. As highlighted by Umland (2022), Russia and Germany have maintained their partnership since the cold war era. Therefore, the political risk in Russia is likely to favor investors from Germany, enabling them to expand their operations. For example, Russian government interventions such as reducing import and export tariffs create a perfect business climate for German investors to escalate their operations in Russia.
On the contrary, Russia and the United States have a relationship at its lowest point due to Russia’s invasion of Ukraine (Carafano, 2022). Besides, the United States considers the partnership between China and Russia a threat to its regime. Therefore, Russia and the United States have enacted several tit-for-tat measures, entailing diplomats’ dismissal and setting constraints on various diplomatic personnel permitted to labor in each other’s nations. Thus, since the Russian and American governments are at odds with each other, investors from the United States are most likely to be negatively affected by political risk in Russia. For instance, such investors may encounter huge trade barriers preventing them from effectively conducting their operations in Russia. As a result, it could lead to reduced revenues or even withdrawal of their operations from Russia.
Moreover, since Russia has good relations with China and Germany, United States investors are more likely to suffer the outcome of political risk in Russia than investors from Germany and China (Sharyshev, 2016). Political risk such as Russian government intervention prevents foreign multinationals from the United States from operating fully in Russia, leading to the termination of their activities in Russia. For instance, Russia could implement a policy limiting foreign investors in strategic sectors. Such an approach could result in an absurd circumstance where foreign investors from the United States are prevented from increasing their operations in Russia.
References
Carafano, J., 2022. America and Russia Are in a New Kind of War. [online] The Heritage Foundation. Available at: <https://www.heritage.org/defense/commentary/america-and-russia-are-new-kind-war> [Accessed 22 July 2022].
Erkekoglu, H. and Kilicarslan, Z., 2016. Do Political Risks Affect the Foreign Direct Investment Inflows to Host Countries?. Journal of Business Economics and Finance, 5(2), pp.218-232.
Shehadi, S., 2022. The presence of Chinese and Indian companies in Russia shows the future of the country’s investment flows. [online] Investment Monitor. Available at: <https://www.investmentmonitor.ai/special-focus/ukraine-crisis/chinese-indian-companies-russia-investment-landscape> [Accessed 22 July 2022].
Sarychev, A.V., 2016. The strategic partnership between Russia and China: importance and sustainability of bilateral relations. Сравнительная политика, (2 (23)), pp.112-117.
Umland, A., 2022. Germany’s Russia Policy in Light of the Ukraine Conflict: Interdependence Theory and Ostpolitik. Orbis, 66(1), pp.78-94.
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