21 April 2006 the Permanent Committee of the Russian Federation Foreign Investors Advisory Council (FIAC) met, chaired by Deputy Minister for Economic Development and Trade K. G. Androsov and Ernst & Young Managing Partner K. Johansson.
Meeting participants reviewed the results of Russia: Investment Destination, a survey of foreign investors conducted between 15 March and 14 April 2006 for the FIAC working group on Russia's image. The survey asked senior executives responsible for investment strategy from 155 current and potential investors about their views of Russia's investment climate. For the second consecutive year, the FIAC working group and the Ministry of Economic Development and Trade commissioned The PBN Company to conduct the survey.
The overall findings of the survey show that 2005 was a positive year for foreign investments in Russia and the country is increasingly more attractive to foreign investors.
According to the survey results, the majority of foreign investors are planning to expand their operations in Russia in the next three years. Ninety-four percent of companies surveyed said they plan to expand their business operations and 91 percent plan to increase investments in Russia in the next three years. These are qualitative changes to the 2005 survey results, when 78 and 71 percent, respectively, said they were planning to expand their business operations and increase investments in Russia.
According to the survey results, the investment climate in the Russian regions has improved. More than 51 percent of survey participants said there have been positive changes in the investment climate in Russia's regions, and only 14 percent assumed the opposite.
The size of the domestic market, the country's sustained economic growth and high quality human resources as well as political and microeconomic stability remain Russia's top investment advantages.
However, as 2006 survey demonstrated, traditional Russian drawbacks such as a foreign investment target also underwent no changes, including bureaucratic barriers, deficient licensing, administration and law enforcement procedures, corruption, selective interpretation of laws, insufficient protection of intellectual property. All those issues are presently unresolved, and the government has to focus its efforts on that as they directly affect the world perception of the Russian investment climate and competitiveness. According to the survey, foreign investors have become more optimistic regarding their investments into Russia. This view is shared by 47 percent of board members of companies (as opposed to 39% in 2005), 61% of top management representatives (48% in 2005), as well as 42 percent of shareholders (27% in 2005).
The majority of foreign investors said Russia is undergoing a positive trend in FDI growth, which increased by 33.6 percent in 2005. This year's survey saw most of the current investors being positive about the future, while the majority of potential investors said they plan on investing into Russia in the near future. This demonstrates that the country is heading in the right direction in terms of its economic policy.
Investors working in Russia believe that their businesses are developing successfully. A majority of respondents reported a considerable increase in sales and profit over the past year. One half of the companies investing in Russia reported sales growth of 30 percent. A quarter of companies said their profits increase by more than 30 percent.
The survey also indicated positive trends in investors' views of Russia's investment risk as compared to other countries. Investors continue to be confident of the high rate of return of investments in Russia, and the number of survey participants who rate Russia's investment risk as high has decreased. This year, 35 percent of respondents indicated that the investment risk in Russia is higher than in other countries with emerging economies as compared to 54 percent of foreign investors last year. Similar improvements in results were seen with China, India, and Brazil.
At the same time, the survey indicated that corruption and bureaucratic barriers continue to be top concerns for investors. Approximately two-thirds of investors working in the Russian market have been directly impacted by corruption, with tax authorities most often named.
As in 2005, foreign investors this year again urged the Russian government to be more active in promoting Russia as an investment destination. Participants of the meeting discussed the preparation for the forthcoming international economic forum to be held in St. Petersburg on June 13-15, 2006 and a special roundtable session Time to Invest in Russia! which are planned to be attended by top managers of the largest international companies.
The discussion of the results delivered by the 6 remaining working groups of the FIAC was also on the agenda. The Russian presenters included: Yu. P. Trutnev, Minister of Natural Resources of the Russian Federation, S. D. Shatalov, Deputy Minister of Finance of the Russian Federation, A. V. Dementyev, Deputy Minister for Industry and Power of the Russian Federation, A. P. Kozlov, Deputy Minister of Agriculture of the Russian Federation, A. A. Kozlov, First Deputy Chairman of the Bank of Russia, and V. Yu. Streltsov, Deputy Head of Federal Service for Financial Monitoring of Russia. The foreign presenters included: Richard Brody, President, United Technologies Russia, Andrea Francesco Martinelli, Managing Director, Metro Cash & Carry, Richard Smite, General Director, OOO Mars Russia and the CIS, Dietrich Moeller, President, Siemens AG Russia, Charles Rain, Head, Regional Divisions and Executive Director, Deutsche Bank Russia, and Bernard Meunier, General Director, Nestle.
Other issues brought up by the foreign investors included the use of digital signature and implementation of electronic document flow in the Russian Federation, new provisions of the Federal Law Concerning Advertising, restrictions of foreign investments in Russian strategic organizations, improvement and simplification of approval procedures in respect to investment projects in the industry, input VAT recovery, tax administration, implementation of pension reform, development of derivative market, certain issues of customs regulation, etc.
