Zee Beam News

April 2006 - Analytical department of RIA RosBusinessConsulting - Foreigners have a low opinion on Russian authorities' efforts to improve investment climate in the country. The Economy Ministry hopes to solve this problem by creating a new government agency
Foreign investors are becoming more positive on Russia, an opinion poll has shown. The results of the investment survey of foreign companies were announced at the meeting of the Consultative Council for Foreign Investment last week. Most respondents said they planned to expand their business in Russia over the next three years. At the same time, they pointed to Russia's traditional problems such as red tape, corruption, selective interpretation of law and poor business ethics. Respondents said Russian authorities were using very ineffective methods to attract foreign investors. Economy Ministry officials suggest creating a separate government agency that would be responsible to attracting foreign investment. If the government supports the initiative, the new agency might appear in Russia before the end of this year.
The International Monetary Fund published a report last week showing that Russia's investment climate needs improvement. "Investment in Russia is not as active as we would like it, and one reason for it is investment climate that needs to be improved," said Raguram Rajan, Economic Counselor and Director of Research at the International Monetary Fund. The country's investment climate is not good for Russians, either, judging by complaints from the members of the Russian Union of Industrialists and Entrepreneurs. Yet, the latest investment survey shows a more optimistic picture. The research was prepared by the Consultative Council for Foreign Investment based on a research by PBN Company, which covered 155 international companies. Fifty one percent of companies operating in Russia or planning to open business here are optimistic about the country's future, fourteen percent expect the investment climate to change for the worse and 27 percent do not expect any changes at all.
The main advantages in the eyes of foreign investors are rising personal incomes, the large size of the market, vast natural resources, qualified staff, and economic stability. Among problems respondents named administrative barriers (licensing, getting work permits and red tape), corruption, inadequate and contradictory legislation, selective interpretation and application of laws and poor business ethics. Economy Minister German Gref expressed satisfaction with the survey results. "I might have doubted the results had the research not been carried out by independent experts, he said. Deputy Economy Minister Kirill Androsov said foreigners investing in emerging economies used different assessment criteria than their Russian colleagues. "Russian investors were born here, they formed their capital here, and some things they take for granted are seen as an advantage by foreigners. "I do not think Russian companies are seriously considering investing in other developing countries," he said. Some analysts say foreigners focus on areas other than Russian investors, and it is not quite correct to compare their assessments. Attitude to foreign investors in Russia is different, too. One source who asked not to be named said Russian businessmen were forced into bribery more often than foreigners. According to the Consultative Council for Foreign Investment, corruption exercises certain influence on the activities of fifty percent of foreign investors, it has strong influence on eleven percent of investors, and 39 percent are unaffected by it. German Gref assured foreign businessmen present at the meeting that the government would take effective measures against corruption this year. Only 24 percent of foreign respondents assessed the Russian government's efforts to attract foreign direct investment as effective, while 76 percent criticized them as ineffective. Kirill Androsov hopes the situation will improve after a separate government agency is set up to oversee foreign investment issues. "We are considering the concept of this agency," he said. If the government supports the idea, the agency could appear before the end of this year. Its officials will instruct foreigners on how to open business in Russia. Natalya Orlova, chief economist at Alfa Bank, welcomed the initiative: "This agency would be very useful. Today many companies spend a year or even more trying to understand what they need to do to start business in Russia."