Russia Needs Modernization as Well as a Welcoming Business Climate

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Mar. 29 – The American Chamber of Commerce in Russia’s 10th annual Investment Conference held last week examined current trends and their likely impact on the business environment in the country.

The theme of the 2010 conference was “A Post-Crisis Russia: Modernization is the Way Forward.” AmCham representatives said Russia still needed to deal with long-standing issues, such as modernizing what it has and creating a countrywide climate that welcomes business.

“The recession reminded state officials, after years of confidence from a commodity-driven boom, that foreign investment was important to spurring innovation,” said Andrei Goltsblat, managing partner at Goltsblat BLP.

“In 2006 to 2008, the interest in foreign investment was decreasing, as Russian business was strengthening its positions,” he said.

Despite regular complaints, corruption is not the main obstacle putting off foreign investors, Goltsblat told the conference that a legal system and transparency of its operation that matters. “All the investors I meet basically want to know how the legal system works here, how their rights can be guaranteed and why no one in the government addresses these issues,” he said.

“Russia exports lots of products, primarily oil, gas and metals, which have no added value at all for the foreign consumer,” said Jack Barbanel, senior managing director at Strategic Investment Group. “Russia does not produce anything that consumers on a global level want, and that needs to change.”

Richard Sobel, CEO of Alfa Capital, cited Smart Village, an Egyptian project launched in 2003 to develop a high-tech cluster in Cairo as a good example for the Russian development to follow. “It all started when the government gave them land for free, instead of buying acres from someone who would earn billions on that,” he said. He also noted that “companies from the United States, India and other countries have come to work there.”

The country saw only $44.9 billion in foreign investment last year, compared with $72.9 billion in 2008, according to Central Bank figures.