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Russia attractiveness survey - attractiveness profile - EY - Russia

Russia's attractiveness profileAttractive for its promising market

The Moscow Government actively supports investment projects


"Foreign investors believe that Russia has promise because living standards and the market continue to grow.

Our experience shows that the investment climate in Russia is stable and attractive for investors, at least in Moscow, where we have our company, despite the somewhat high labor costs, which are not a critical issue.

Our company has been successfully working in Moscow for a long time. Moscow is a large city and its advantages include a highly qualified workforce, access to data, support given by the local authorities and residency convenience for foreign specialists. The Moscow government has actively supported our investment project: it assumed responsibility for all the work in preparing the construction site, made infrastructure available and provided free connection to the power lines. It has cleared, at its own expense, the site of the former Moskvich car plant that utilized hazardous waste. We were provided with suitable startup conditions and the necessary project support by the city's specialists. The Mayor of Moscow, Sergey Sobyanin, has visited our plant and promised to provide all-out support in resolving the pressing issues of our enterprise.

The Ministry of Industry and Trade of the Russian Federation also provides assistance to foreign companies. There is a federal system of measures to stimulate foreign producers. In other words, there is essentially "one stop shopping" for investors in Moscow. This is very convenient.

Our plant is a joint venture between the Moscow government and Renault Russia. We enjoy various subsidies and tax benefits provided by the Moscow government, which supports young professionals who work at production sites with higher education and vocational training. We receive subsidies that are used to pay bonuses to such professionals. This important contribution is highly appreciated by our employees. Fifty-five percent of our workforce is under the age of 30.

Certainly, we know that corruption is a top concern in Russia. However, I would like to emphasize that we have never had to deal with corruption cases in Moscow, probably because our enterprise is large. We are satisfied with our cooperation with Moscow and recommend foreign investors to locate their production sites, especially if they use high tech, in the city. Moscow has industrial areas and industrial parks, which are ready to be used.

One area that, in my opinion, lacks state support is investments in high tech development. The Russian government offers various orders and subsidies only to Russian manufacturers, institutes and design offices. However, it would be reasonable to provide such support to foreign investors in research and development with a view to attracting them. This is evident from our experience involving Turkey. Such research could be carried out jointly. Moreover, the mechanism for acquiring intellectual property according to the results of work with the Russian party could be considered.

Finally, I believe that other investors will be interested to know that the Moscow government has created a technology park near our plant with sites ready for foreign investors. Moscow offers comfortable living conditions for foreign employees as well as streamlined administrative procedures. We recommend that foreign companies take a closer look at such investment opportunities in Moscow."

Igor Titov,
Deputy General Director,
Director for Government Relations
and Corporate Affairs, Renault Russia

Modernization and innovation in the heart of Russia's development


"Government policies in support of foreign investment now clearly signal the goals of modernization and innovation. The government has also responded to foreign investor concerns with migration rule changes that encourage highly skilled foreign specialists to come and work in Russia.

In the minerals sector, amendments to legislation related to the Strategic Sectors Law and to the Sub-Soil Law adopted in 2008, show the authorities are increasingly willing to reshape laws and rules to reverse a decline in geological exploration and investment in hard rock mining.

That is wise because Russia's rich natural resources are unparalleled and one of its three competitive advantages among the BRICS countries. Russian policy makers must not retreat from encouraging even more investment in the natural resources sector. Russia also has the best human capital among the BRICS thanks to growth in business and financial education and a strong tradition in mathematics and science. And it has a sizeable domestic market with an effective rail network and improving air links.

These are a good base on which to develop the role of high technology in the Russian economy.

The Skolkovo research hub near Moscow is an excellent step, although it must not be limited to a single location. The 'Skolkovo mindset' must be adopted across the country. All levels of government and all public and commercial institutions should encourage young people to pursue technical as well as business education, establish and protect favorable conditions for indigenous growth of innovative companies and popularize and reward new initiatives in science and technology.

This mindset should also be spread into public and government attitudes to freedom of expression and information. Greater openness and transparency are the foundation upon which modernization and innovation are built. One other fundamental requirement is that government and business institutions must redouble their efforts to protect intellectual property.

Tax and financial investment incentives are probably less appreciated by investors than a reduction in bureaucracy and red tape. The Skolkovo mindset must include lowering these barriers across the country, and not just in one innovation center or selected free trade or economic zone.

Finally, modernization and innovation should be applied in the broadest sense to include all sectors of the economy. While IT, software, microelectronics and nanotechnology are very compelling subsectors, a country as rich in natural resources as Russia must begin by attracting, promoting and encouraging investments that help to modernize and apply innovation in resource exploration, development and processing."

Lou Naumovski,
Vice President and General Director,
Moscow Representative Office,
Kinross Gold Corporation

"Our natural and intellectual potential is what gives us a competitive edge, which is quite sufficient to keep up with the most advanced achievements of world science".
Yevgeny Yasin, Founder Higher School of Economics

Russia's domestic market is the country's most attractive feature for investors surveyed. Growth opportunities, especially in serving consumers, are "very attractive" for 30% of investors and appeal to 75% overall, an unusually high proportion.

What are the most attractive features of the Russian economy?

Investors say Russian workers are affordable. Overall, 69% find that Russia has attractive labor costs. Although not a low-cost destination in global terms, Russia offers an attractive alternative to wage rates in many European countries.

The potential for productivity gains is also a big appeal of locating in Russia. The possibility of improving corporate productivity in Russia is highlighted by 67% of investors surveyed, with 27% seeing a “very” good opportunity. Investors also understand that opportunities are greatest in sectors with the least government intervention,where private companies can use efficiency to gain a competitive edge over rivals.

Investors clearly see opportunities to bring more advanced manufacturing techniques to Russia and use these advances to win market share. Such manufacturing would allow Russia to develop leading-edge industrial production, while enhancing its internal market and service sector.

A complex operating environment

Investors see Russia’s investment climate as enticing, but risky. They fret about three key areas: transparency, political stability and interaction with public authorities.

29% of investors say the “transparency of the political, legislative and administrative environment” is not attractive. This ranking highlights a fear among investors about protecting their investment in Russia.

What are the least attractive features of the Russian economy?

Russia’s legal system is uncertain for investors. Investors worry that changes in legislation, the administration, or government policy may harm their investment projects or that they may lose control of their investment.

Seeking innovation and entrepreneurship

Entrepreneurship and R&D capabilities get mixed reviews. Almost half of investors (47%) do not perceive Russia as having an environment attractive for entrepreneurs and 44% do not find its R&D capabilities attractive.

This view is exemplified by a perceived lack of dynamism in Russia’s economy, attributed to the large role of state–owned enterprises (SOEs).

Russia challenges emerging leaders

Russia competes with Central and Eastern European countries for export-oriented, high value-added manufacturing projects. Yet Russia also resembles Asian countries, with a fast-growing economy, a need to upgrade infrastructure and a large and blossoming consumer market.

64% of investors identified an Asian country as its main competitor, while only 15% said Russia’s main competitor was in Europe. Forty–six percent of investors chose China as Russia’s main competitor, and 14% suggested India as its main investment rival.

Upon that, Russia shares many important characteristics with European economies.
Investors recognize this and say Germany (5%) and the US (4%)
are its next closest competitors.

Potential opportunities

Investors believe future growth in the Russian economy will be driven by the energy, information and communication technologies (ICT) and automotive sectors. The bias toward energy and utilities (54%) stems from Russia’s reputation and strength in oil and gas production.

But investors clearly see beyond energy to emerging opportunities in high value-added manufacturing and technology, including vehicles, transportation and ICT.

The Russian government is opening access to the energy sector, which had gained a reputation for being difficult to access, to foreign investors.Three major foreign investments had been made in Russia’s energy sector by mid-2011. The government realizes that foreign investors will transfer technology andknowledge to Russian companies, strengthening Russian energysector capabilities.


Beyond energy, investors see:

1Telecommunications, technology and industry as Russian growth sectors.

2Capabilities in technology, and believe proactive government policy and the creation of R&D clusters will help build capacity and a market.

3Russia's scientific tradition and resources can make it a leader in technology. But resources are underexploited and the current business environment does not nurture these businesses, while scientists and engineers are still learning to collaborate with business.1

4Telecoms opening up to competition. "Russia agreed to terminate the Rostelecom monopoly on long distance fixed line telephone services as part of the Russia-EU bilateral agreement."2 Multinationals are already working in the Russian mobile telephone market.

5Rapid growth in manufactured goods and a rise in internal consumption.

6"...Domestic demand is beginning to replace external demand as the main growth engine. The industrial sector, supported by a gradual pickup in investment, and inventory restocking in particular, has continued healthy growth in the third quarter (6.4%) led by manufacturing (9.5%)."3

Russia offers investors rapid growth, a new market and high-quality labor at moderate cost. But its enduring reputation for difficult business conditions deters some investors. If the investment climate were better, Russia’s vibrant opportunities would almost certainly attract more projects.

How do you see Russia in 2020?


1."Russia's Modernization and Innovation from the Perspective of Foreign Investors", FIAC White Paper, October 2010.
2.Russian Trade and Foreign Direct Investment Policy at the Crossroads, The World Bank Development Research Group Trade and Integration Team, David Tarr and Natalya Volchkova, March 2010.
3."Growth with moderation and uncertainty", Russian Economic Report 23, The World Bank Group, November 2010.

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