Positioned for growth
Top FDI sectors and regions
Improving investment opportunities
Igor Shuvalov, First Deputy Prime Minister of the Russian Federation
It might not be quite fair to assess Russia’s attractiveness ourselves, as it is foreign investors who must have their say. Of course, international ratings show that we still have a lot to do. For example, although we have climbed up four positions in the World Bank’s Doing Business ranking, we are still 120th.
However, I can say that all these years we have remained consistent and resolute, albeit not always as fast as we would like, in removing obstacles hindering the inflow of foreign capital into our country. We have improved our laws in line with global best practices and worked to make the system for passing court rulings more transparent. A most important achievement is the accession to the World Trade Organization (WTO). Finally, the Customs Union significantly increased the size of the domestic market.
As a result, we have a positive trend: the net inflow of foreign direct investments (FDI) amounted to US$53b in 2011. Since the autumn of 2010, when I started working as an ombudsman, we have reviewed around 100 complaints from foreign investors. We have managed to resolve most of the issues and find positive solutions.
The Foreign Investment Advisory Council (FIAC) brings together more than 40 major global companies operating in Russia. The Council provides an important and useful forum to handle issues related to investment activities in Russia.
Russia is a net exporter of capital. Last year, according to the Bank of Russia, our country invested US$76b in other countries on a net basis, i.e., net of investments in Russia.
Money is thus not the main reason why we need foreign investors. It is no secret that, in terms of their legal status, many foreign investments are, in fact, made with money that was previously taken out of Russia. We therefore need real foreign investors to signal that the situation in Russia has improved and there are proper conditions for investment.
And there is one more important thing. Foreign investments are primarily associated with innovative technologies, managerial experience, modern standards of production and market relations — and this is exactly what our economy really needs today.
In 2011, Russia led Central and Eastern Europe (CEE) at attracting FDI. Despite that, the number of FDI projects declined by 36% in 2011, down to 128.
FDI projects decline but are still close to the pre-crisis level
Source: EY's European Investment Monitor 2012.
However, 8,362 new jobs were created, a 4% increase over 2010. Labor-intensive industrial activities increased the average number of jobs created per project to 65 in 2011 from 40 in 2010.
Manufacturing: the center of Russia’s appeal
Manufacturing activity remains at the heart of Russia’s attractiveness. Manufacturing accounted for 51% of investment projects and 92% of job creation between 2007 and 2011.
The sales and marketing function attracted 259 projects, 33% of the total FDI projects in Russia. More than 80% of these sales and marketing projects were concentrated in Russia’s two largest cities – Moscow and St. Petersburg.
Russia’s industrial sector attracts more FDI projects than any other sector.
- Automotive has been the key sector attracting FDI in Russia over the last five years, with 90 projects and 16,787 jobs created.
- The food sector brought in the second-largest number of FDI projects (86) in Russia. Over the past five years, the industry created employment for 9,958 people.
- Machinery and equipment emerged as the third-largest sector in Russia in terms of FDI projects (62) and the fourth-largest in job creation (3,682 jobs) between 2007 and 2011.
- Russia's business services sector has seen a growth in FDI activity in recent years. It accounted for 9% of the total FDI projects in 2011.
The US: the largest source of FDI
The United States remains Russia’s leading investor with 122 FDI projects between 2007 and 2011 (16% of the total).
However, eight of the top 10 FDI source countries are from Europe. Over the past five years, European countries originated 343 FDI projects, 44% of the total in Russia.
FDI activity into Russia by emerging economies remained low between 2007 and 2011. India and China each accounted for less than 2% of FDI projects in Russia. Brazil established just two projects in the country.
Over 40% of FDI projects are concentrated in the Federal cities of Moscow and St. Petersburg.
The capital city attracted 231 projects that led to the creation of 3,735 jobs from 2007 to 2011. FDI in Moscow was concentrated in sectors such as business services, financial intermediation, machinery and equipment and software.
St. Petersburg led in the number of FDI jobs (9,843). This city is a major financial and industrial center in Russia
The Kaluga and Nizhny Novgorod regions are other developing areas for foreign investment.