Russia-specific: Obstacles for foreign investments

2010-02-05

February 3-5, Russia keeps an eye open for the international “Forum Russia 2010”. Officials and businessmen take the floor one by one speaking of foreign investments, economy indicators and respect for business. The audience is either gaping astonished or yawning with distrust but the essence of the forum is simply to understand that Russia has a way to go before reaching solid foreign investments.
Numbers, figures, diagrams, GDP and unemployment rates are not always enough for a foreign investor to make a decision. The decision takes more. And you may have to deal with the following:

Information.

National market players are not commonly known to foreigners since Russian companies are not very active globally, besides the information in Western mass media is often given in the negative context.

Speaking locally, most foreign businessmen do collide with the fact that Russia has no unified system of business information support. Where and how to start? What documents and licenses are needed? Eventually, you will find it out after visiting dozens of offices and places.

Law.

Here we deal with legal basement for investment turnover: how to properly invest money and how to return the benefit across the border; tax system and documentation. Foreign investors are simply not sure that they can withdraw their funds from Russia. The game rules should be easily defined.

Language.

Russian language is not an easy one to master while only 5-15% of the Russians speak English. So, most businessmen still communicate with their Russian business partners through interpreters. This turns a duty trip into a linguistic challenge for business travelers. English menu in the restaurant? English-speaking taxi driver? Dobro Pozhalovat’!

Infrastructure.

Underdeveloped transport and communication infrastructure leaves much to be desired. Lack of middle-class hotels is not inviting either; besides the hotels as such are not enough, they should be supported by world-wide travel agencies to get reputation and promotion in sales.

Visa

Getting a Russian visa takes efforts and time and cannot be resolved within a day. This puts an end to urgent business trips. Getting a work permit in Russia is far more a brain twister, since Russian migration authorities do not differentiate the applicants as between a shop assistant and William Henry Gates III.

Bureaucracy

The procedure of getting a construction permit in Russia is as difficult as of 182th place world-wide (out of 183 possible). Customs and trade procedures register Russia with position # 162. The figures can speak… Generally, Russia is put on 120th place in the rating list of countries judging from their business-friendly environment (acc.to World Bank).

Is it that bad? Hardly so! Since Russia is not only about obstacles, but about benefits that may overcome any risks. Besides, through understanding of the challenges, the authorities do go for their solution.

President Medvedev (excerpts): We have taken certain measures in this direction. These measures allowed us to keep relative stability in the investment area during global economic crisis. Nevertheless, comparing to year 2008, total volume of capital investments into Russian economy decreased by 17%. The figure is adjusted to inflation. In the background of general investment plummet last year, the investment inflow into Russia dropped 41%. This is definitely sad. As a result, a share of direct foreign investments into our country made up 3,6% ...

Due to anti-crisis measures and earlier solutions we managed to form up a baseline for favourable investment climate, for political and macro-economic stability. In general we have an economy open for investments; that is an established fact. There was created quite a qualified tax system that meets both specific criteria of innovative economy and the necessity to develop investment activities. I will not dwell on any tax items, yet this is obvious that low tax rates are significant. In particular, a corporate profit tax was decreased to 20%, while personal income tax has been one of the lowest and stable for the last 8 years in the countries of developed economy.

It is necessary to overcome such investment-unfriendly factors as a low quality of federal and municipal administration, inefficient law enforcement, and in point of fact – our natural disaster called corruption, economic crimes; excessive administrative, technical, information barriers; and a high level of monopolism.

What is our current task? The task is to develop a complex of measures that will increase investment activities… Firstly, this is about elimination of foreign labour quotas in regards to qualified skilled specialists; secondly – improvement of situation for refund of value-added tax in capital constructions and exports; optimization of expenses management for research and pilot works; and easing customs clearance for engineering and high-tech. These are preliminary steps.

Alexey Kudrin, Russian Minister of Finance, is much more optimistic. Russia can revive its pre-crisis direct investment volumes of up to 60-70 bln USD in 2-3 years, he says.

by Kazakov Andrey

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