Despite challenges Russia’s highly skilled workforce continues to attract foreign investors
- Project numbers remain steady – US and Western Europe remain top investors
- Number of jobs created by foreign direct investment (FDI) up by 60%
- Perception gap remains between investors in place and those who are not
LONDON AND ST.PETERSBURG, 20 JUNE 2013: Russia’s highly skilled workforce, growing consumer market and vast resource reserves continue to attract investors from all corners of the globe according to EY’s third annual Russia Attractiveness Survey.
The report combines an analysis of international investment into Russia over the last year with a survey of more than 200 global executives on their views about how and where global investment will take place in the next 10 years.
In 2012, Russia received 128 FDI projects for the second year in a row. However, jobs created by these FDI projects increased by 60%, indicating a large increase in average project size. Russia ranked second in Europe in 2012 in terms of employment generated through FDI, up from its sixth position in 2011, and accounted for 8% of the total jobs created in Europe.
The report, released to coincide with the St Petersburg International Economic Forum, highlights that the investors already present in Russia remain confident about its potential and 68% plan to scale up their presence in the country. Seventy percent of survey respondents highlighted Russia’s large domestic market as its most attractive asset.
Alexander Ivlev, EY’s Country Managing Partner for Russia says: “Russia managed to improve the way it is perceived by investors in 2012. Respondents to our survey rank it as the sixth-most attractive region in the world for FDI, and the most attractive in the Commonwealth of Independent States (CIS).”
Manufacturing lead generator of FDI
By activity, manufacturing generated by far the most FDI projects (60) and 98% of jobs. Projects in strategic functions and other functions also increased but still remain relatively low. At a sector level, automotive received the most FDI projects with 27 in 2012 up from 18 in 2011, and also accounted for the largest share of jobs created by FDI. The business services sector has also increased its appeal, accounting for the second largest number of projects (17) in 2012.
Investment from Germany doubles
North America and Europe continue to provide the bulk of Russian FDI investment. Companies from the US (29), Germany (28) and France (14) were the top investors in Russia in 2012. The number of FDI projects from Germany more than doubled, mainly because of increased investment from automotive companies. While Moscow and St. Petersburg attracted the largest number of FDI projects, Kaluga and Nizhny Novgorod are also emerging as major investment sites.
The emerging economies have kept a low profile in Russia with only 30 FDI projects announced between 2007 and 2012 from Brazilian, Indian and Chinese investors. However, the report highlights that Russia is trying to create a mutually forge stronger ties with the other BRICs by pursuing joint initiatives to encourage investment.
Energy sector expected to drive future growth
Investors continue to believe that the energy sector will drive Russia’s future growth. Beyond energy, they highlight heavy industry, automotive, consumer goods and infrastructure as the future growth drivers. As Jay Nibbe, EY’s Area Managing Partner, EMEIA – Markets, explains: “Russia needs to support a more balanced economy that can offer sustainable long-term growth through high-value added manufacturing and new service sectors which are supported by a modernized technology base. To achieve this, Russia should use energy revenues to finance diversification and develop new avenues of growth.”
Though significant success has been achieved, investors confirmed that administrative barriers and corruption are still preventing Russia from realizing its full FDI potential.
Alexander concludes: “There’s no quick-fix solution for these challenges. Nevertheless, government efforts to increase transparency and drive modernization have started to yield results. Russia has improved its ranking on several business indices, and accession to the World Trade Organization, as well as other integration efforts, are expected to improve the investment climate further.”
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