Foreign Direct Investment in Russia: A Strategy for Industrial Recovery

By Paul Fischer | Go to book overview

A Word from the Author

The decision to write this book was taken in 1995 when I was sent as advisor for enhancing investment and interenterprise cooperation as part of the TRANSFORM Programme 1 between Germany and Russia. I had observed during earlier missions (1993–95) on behalf of the European Commission (TACIS Programme) that foreign direct investment (FDI) could be a realistic option for reviving Russia's economy.

At that time, technical assistance by multilateral donors, although generous, was already showing little impact. General institution building and training programmes were useful in the early years of reforms; what is needed now is a strategy that involves foreign enterprises as suppliers of equity capital, processing technologies and know-how. Such a strategy would supplement current efforts towards macro-level structural adjustment based on neokeynesian and monetarist theories developed in a free-market context.

Policy-makers, academics and donors are slowly understanding that the only sustainable solution for overcoming Russia's persistent crisis hinges on industrial recovery. For this, Russia's manufacturing sector needs substantial capital and investments. But the state budget is insufficient and other sources of finance are not available. FDI could make the difference as seen by the success stories of China, India and Mexico. In these countries, pragmatic reforms at micro level led to an improvement of macroeconomic and financial indicators. By adopting an investor-friendly, strategic approach, the Russian government could acquire a much larger share of global FDI flows. Annually, transnational corporations (TNCs) invested close to US$450 billion worldwide during 1995–98 (US$650 in 1998). Russia received on average only US$2–3 billion not even 1 per cent of global flows. Given Russia's potential, FDI inflows could easily be increased four to five times by 2005.

For the TNCs, an investor-friendly Russia offers a promising market, qualified professionals and a diversified raw materials base. There have been many success stories of TNCs in Russia, but they have not been publicized. There are opportunities for many more foreign companies. To succeed, new entrants will have to change their management attitudes. Like other large emerging markets (LEMs), Russia requires a long-term approach rather than strict adherence to the rule of immediate returns dictated by the 'shareholder value' imperative. Russian consumers, like those of other countries, will reward companies that have a long-term strategy and commitment, and are good corporate citizens.

-xxvii-

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