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Insight - Violent raid exposes risks for investors in Russia

10 October 2013 03:32 (UTC +04:00)

Baku-APA. Workmen cut the door from its frame, allowing a dozen men in balaclavas and hoods to enter a Moscow restaurant, APA reports quoting Reuters.

They chased out the staff with metal rods, beating one so badly he needed hospital treatment, smashing furniture and stealing computers and a safe, a video posted on YouTube showed.

In half an hour, the Georgian restaurant Khachapuri had been repossessed in the kind of raid that was widespread in the 1990s when the Soviet collapse gave birth to capitalism and a lawlessness that allowed protection rackets to thrive.

Such raids are now a rarity, but the violent closure of a business with a seven-year rental contract shows how Russia is failing to offer investors the kind of safe environment its president, Vladimir Putin, says is needed to kick start the economy and diversify it away from energy dependence.

"They destroyed everything, they chucked us out on the street," said Tatyana Melnikova, one of the three owners of Khachapuri, describing the raid that was filmed by staff and posted on YouTube. "There was blood on the floors."

The raid is being investigated by police and many details are unclear but the case does highlight the weak property laws and limited legal recourse that are among the most commonly cited obstacles for doing business in Russia.

They particularly deter investors in small and medium-sized businesses which account for just 17 percent of gross domestic product compared with 50 percent in the United States.

But big companies also fall foul of the system.

McDonald's, one of the first Western investors in Russia, has failed so far to defend its ownership of a building from the Moscow government which put it up for auction in November 2012.

A spokesperson said the company had filed a claim to challenge Moscow city's right to "own non-residential property built by CJSC 'Moscow-McDonalds' at the company's own expense".

According to RAPSI, a legal newswire, the Moscow Commercial court ruled in favour of the government and against McDonald's in February. It is not clear whether McDonald's will appeal.