New Report “The Magnetic Push and Pull of the Russian Economy: What’s Next for Investors in Russia?” examines how the Russian economy has changed over the past year and what new opportunities have emerged there for foreign investors.
One of the problems of Russia's investment climate is the imperfect legal system. Photo: Getty Images
As Switzerland's Davos prepares for the annual meeting of the World Economic Forum held Jan. 20-23, Russia Direct releases its new analytical report, “The Magnetic Push and Pull of the Russian Economy: What’s Next for Investors in Russia?” In highlighting the key trends present in the Russian economy, the authors of the report examine the question of whether or not investing in Russia really is as risky as one might think.
Given the ongoing confrontation with the West, the overhang of sanctions and the falling ruble, Russia has lost its attractiveness for the majority of foreign investors. A significant part of those already working in the country decided to pack up and go, leaving their businesses behind. On the other hand, there were also those businesses that stayed behind, notwithstanding the political and economic instability.
“What is keeping investors in Russia is the presence of so many competitive advantages: high-capacity market, highly skilled labor force, unsatisfied demand in investment and consumer goods and huge transit potential,” says one of the authors of Russia Direct's report, Stanislav Tkachenko, professor of Political Economy in the European Studies department of St. Petersburg State University.
Analyzing the main changes that happened in the Russian economy during 2015, the expert argues that over the long term those investors that stayed in Russia and those who are planning to invest will be the ones who will enjoy the most benefits as the economy grows in the future.
Another author of the report, Oleg Buklemishev, associate professor on the Economics faculty at Moscow State University, agrees with this notion. Examining how Russia’s position in the World Bank’s Doing Business ranking has been changing, he concludes by saying that, despite all the risks that the crisis is creating, it also opens new opportunities for bold investors. The cheaper ruble, he says, has made Russian-made goods more competitive on global markets.
Read Russia Direct's debates: "With fall of ruble, Russia's economy trying to find a new bottom"
What is more, “Russia’s size and diversity mean that it is almost always possible to find a place where the regional and local authorities are really interested in the arrival of large and small foreign players.” This makes a partnership between an investor and the government quite likely.
With the authorities already making steps to improve the climate for investors in the country through a series of “roadmaps” and introduction of a growing number of Special Economic Zones in a variety of industries, this possibility seems to be even more real.
According to Alexander Tsybulskiy, Deputy Minister of Economic Development of the Russian Federation, there are around 400 companies working in 32 Special Economic Zones in the country; in 2014 alone, they exported over 2 billion rubles ($28 million) worth of goods to the United States, Germany, China, Europe, Asia and Africa. Automotive, pharmaceutical and construction projects are some of the most actively developing initiatives by foreign partners, says the Deputy Minister.
Other sectors that might be of interest to foreign capital are agriculture, metallurgy, and chemical industry, according to Andrei Yakovlev, director of the Institute for Industrial and Market Studies at the Higher School of Economics and President of the Association of Russian Economic Think Tanks. In an interview with Russia Direct, he argues that those who are ready to do business in a period of political uncertainty can obtain good results.
The main obstacle in achieving this, of course, is the imperfect Russian legal system, which makes investors and businessmen working in the country anxious and worried about their properties.
Video by Vladimir Stakheev
Examining recent laws and high-profile examples of Russian legislative institutions at work, Michael Newcity, visiting professor of Slavic Studies and deputy director of the Center for Slavic, Eurasian, and East European Studies at Duke University, notes that every year Russia’s score and ranking in the category of judicial independence have been much closer to the bottom than they were to those of other leading industrialized nations.
“While the legal infrastructure in Russia may be suitable, the institutions available to resolve investment disputes are unreliable,” says the expert. What is necessary is to improve the work of the bodies to ensure that disputes are resolved fairly, which will create an incentive to invest in the country without risk.
What regions and industries have the most potential to bring benefits for investors in Russia? To what extent does politics influence investment in the country? What new measures are being made to create a better environment for foreign capital in Russia? Read in our new report.