Russia attractiveness survey 2013
Shaping Russia’s future
Russia continues to draw investors from all over the world, who rank it the sixth-most attractive country in the world for FDI and the most attractive in the Commonwealth of Independent States (CIS).
Russia’s large consumer market, rising disposable income, expanding middle class and cheap, yet highly skilled, workforce continue to attract investors from all corners of the world. Vast resource reserves are also drawing global interest.
Unsurprisingly, the oil and gas sector has been the cornerstone of Russia’s economic growth last year. 61% of the respondents named natural resource endowment Russia’s most competitive feature, showcasing the need for Russia to focus on the development of sectors that add high value.
Investors also highlight heavy industry, automotive, consumer goods and infrastructure as the future growth drivers.
In 2012, Russia received 128 FDI projects for the second year in a row. Meanwhile, jobs created by these FDI projects increased by 60%. This gave Russia the second position in job creation in Europe last year, up from sixth place in 2011.
With almost half of its population using the web, Russia is Europe’s largest internet market. In response to this, Russia’s key FDI magnets Moscow and St. Petersburg became the hot spots for technology investment.
Developments increasing appeal
The majority of investors surveyed believe that Russia’s accession to the World Trade Organization (WTO), the formation of the Common Economic Space with Belarus and Kazakhstan, and a likely Eurasian Economic Union by 2015, will have a positive impact on Russia’s attractiveness.
Acceleration in privatization efforts and an improvement in demographic profile are also expected to improve the investment climate further.
Existing and potential investors: the perception gap
Sixty-eight percent of existing investors plan to scale up their presence in Russia. On the other hand, investors not yet operating in the country remain cautious.
Why? Those who are not yet established in the country have a limited awareness about the investment opportunities that Russia offers. This lack of knowledge is particularly prevalent at the regional level, with foreign companies only being aware of Russia’s biggest cities.
How to reduce the gap? Russia needs to continue reforming and simplifying its economy to encourage new investors to enter the market. The country also needs to identify constraints limiting the growth of firms at the regional level, and undertake efforts to remove the issues pertaining to the business environments of these regions. Promoting the investment culture in Russia through summits and conferences could help foreign companies garner increased knowledge about the country’s investment prospects.
Key factors limiting Russia’s FDI potential
As pointed out by 55% of the respondents, doing business in Russia remains fraught with political, legislative and administrative issues. High levels of corruption, deficiencies in the legislative environment and inter-regional disparities limit Russia’s FDI potential.
The country’s overreliance on oil exports also indicates the need for a more balanced economy that can offer sustainable long-term growth.
Four steps toward a sustainable future
- Reduce administrative barriers by minimizing bureaucracy, increasing transparency of business regulation and consolidating the rule of law.
- Collaborate to innovate by facilitating R&D projects between foreign and local companies and strengthening links between universities and industry.
- Enhance regional attractiveness by facilitating more balanced growth in western and eastern Russia, implementing state programs to develop regions and formulating region-specific campaigns to attract investors.
- Improve business education by organizing innovative joint programs with foreign universities and widening the scope of qualifications available in Russia’s business schools.