Academic journal article Current Politics and Economics of Russia, Eastern and Central Europe

2013 Investment Climate Statement: Russia*

Academic journal article Current Politics and Economics of Russia, Eastern and Central Europe

2013 Investment Climate Statement: Russia*

Article excerpt

Bureau of Economic and Business Affairs

OPENNESS TO, AND RESTRICTIONS UPON, FOREIGN INVESTMENT

Russian President Vladimir Putin has stated that improving the investment climate in Russia and increasing foreign direct investment (FDI) is a priority for his tenure as President. This commitment led to a variety of reforms in 2012 that sought to reduce administrative barriers and provide incentives for foreign businesses looking to invest in Russia. The capstone of this commitment was Russia's accession to the World Trade Organization (WTO) in August of 2012, reducing tariffs across the board and securing a variety of market-opening acts by the Russian government. Russia continues to promote the use of high-tech parks, special economic zones and industrial clusters which offer additional tax and infrastructure incentives to attract investment. One of Putin's stated goals, to move Russia from 120th (in 2010) to 20th on the World Bank's Doing Business Index by 2020, saw incremental progress with Russia climbing to 112th in the 2012 publication. Russia's continued engagement in the accession process to the Organization for Economic Cooperation and Development (OECD) could also lead to greater market access for foreign investors.

Despite these positive changes, investing in the Russian market still requires that firms navigate a complicated and fluid set of challenges ranging from complex and burdensome regulatory processes to corruption that marks both political and judicial structures. The Russian economy was impacted by the global economic slowdown and the 2008-2009 financial crisis but has quickly rebounded thanks to high energy prices and use of two sovereign wealth funds to inject capital into domestic markets. Russia's GDP growth forecast of 3.6 percent in 2013 is a healthy figure when compared to the expected continuation of economic contraction in Europe, slow growth in the United States, and deceleration in China. However, Russia continues to be particularly vulnerable to global energy prices and continued weakness in the European economy, as the EU represents more than 50 percent of Russia's total trade volume. According to the United Nations Conference on Trade and Development (UNCTAD) 2012 World Investment Report, Russia saw FDI flows grow 22 percent, reaching USD 53 billion in 2011, its third-highest level ever recorded. In addition, in 2011, according to Ernst & Young's 2012 Russia Attractiveness Survey, Russia was the premier destination for investment in Central and Eastern Europe. This Survey combined analysis of statistical data with a survey of 208 global executives, 135 of whom do business in Russia. According to the survey, 19 percent of international investors considered Russia to be one of the most attractive regions of the world; this was up 8 percent from the previous year's results. According to the Central Bank of Russia, in 1H 2012, FDI into Russia reached USD16.2 billion, with manufacturers and the financial industry receiving most of the money (the most recent numbers available). The Economic Development Ministry forecasts that 2012 FDI in Russia will exceed the 2011 level and will likely reach about USD 60 billion.

Prime Minister Medvedev is particularly committed to building a strong high technology sector in Russia. The country's solid base of expertise in the scientific and mathematics fields, combined with a sizable market and an economy growing faster than most others in the region, have helped entice a series of U.S. firms to make investments in Russia. Roughly a dozen U.S. companies and organizations already have announced their intention to invest in the Skolkovo Innovation Center, Russia's high-tech cluster in Moscow's outskirts modeled on the example of Silicon Valley.

While a legal structure exists to support foreign investors, the laws are not always enforced in practice. The 1991 Investment Code and 1999 Law on Foreign Investment guarantee that foreign investors enjoy rights equal to those of Russian investors, although some industries have limits on foreign ownership (see Establishment section). …

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