Positioned for growth

Meeting investors' expectations:
future needs

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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 your opinion, what should be the three priority measures to take to improve Russia's investment climate?

EY - From a general point of view, could you list, in decreasing order, the three most attractive countries in which to establish operations in Latin America?

Source: EY 2012 Russia attractiveness survey.Total respondents: 208.

The majority of investors continue to believe that Russia's attractiveness will improve in the medium term. However, only 57% are optimistic about Russia's future attractiveness, compared with 70% last year.

It appears that confidence has fallen as a result of instability in global markets and the Eurozone crisis.

Thirty percent of respondents say that Russia's attractiveness will remain the same in the medium term, while only 7% are pessimistic about Russia's future

How to meet investors' expectations

1. Create an investor-friendly environment

Russia offers investors a high-growth economy, a large domestic market and highly skilled labor at moderate cost. But its enduring reputation for difficult business conditions deters investors.

Doing business in Russia is fraught with challenges associated with corruption, government bureaucracy, complex regulatory requirements and a lack of transparency.

Investors highlight the following top three ways to enhance Russia's investment appeal:

  • Improve the effectiveness of the rule of law (53%)
  • Reduce bureaucracy (47%)
  • Improve transparency of business regulations (37%)

2. Reduce Russia's dependence on oil and gas

Overdependence on the oil and gas sector is among of the biggest challenges that the Russian economy faces today.

As a result of this focus on oil and gas, there is a large mismatch in Russia between the attention that other strategic industries receive from investors and their real potential.

Among the most attractive sectors, investors highlight ICT (20%), agriculture (13%), consumer goods (13%) and transport and automotive (11%) as the keys for growth in the next couple of years.

3. Create a favorable environment for R&D and innovation

Inadequate infrastructure and a lack of government incentives are two of the hindrances that are holding back innovation and R&D in Russia.

According to the GE Global Innovation Barometer 2012 survey, more than 87% of the top Russian managers surveyed highlight weak government and private sector support for innovative companies, as well as the poor quality of the regulatory environment.

4. Improve Russia's education system

Although one of Russia's strengths is its higher education and a larger proportion of Russian high school students go on to tertiary education than in any OECD economy, only 7% of respondents believe Russia will have one of the best education and higher learning systems in 2020.

What can be done to improve this perception?

  • Increase government spending on all levels to improve the quality of teachers, infrastructure and the overall standard of education
  • Bring industry and academia closer together by encouraging collaboration
  • Develop universities of a global standard