Russia to Attract More Foreign Investment

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Sept. 20 – Foreign investors are optimistic about Russia’s future attractiveness, according to Ernst & Young’s first Russia Attractiveness Survey published on the company’s web site.

A total of 75 percent of international business leaders interviewed by Ernst & Young said Russia had an attractive domestic market, with about one-third of them calling it “very attractive,” the consulting company said in the survey.

Ernst & Young’s European Investment Monitor data shows the last five years Russia has more than doubled the number of projects attracted to the country and it was Europe’s fourth-largest foreign direct investment destination in 2010, attracting over 200 projects, up 18 percent from the previous year.

In May and June 2011, Ernst & Young interviewed senior executives in 205 international businesses (132 of which have operations in Russia) about the potential of the Russian market. A large majority believes that by 2020 it will be a very attractive market and will be a chief rival for foreign direct investment for Asian countries, particularly China.

A majority of companies (64 percent) already operating in the Russian market expressed their intention “to invest there again,” the survey said.

Despite the company’s enthusiasm, Russia saw a total of US$13.8 billion in foreign direct investment last year, a 13.2 percent decline compared with 2009, according to State Statistics.

The situation improved in the first half of this year, however, when foreign direct investment increased 29 percent from the first half of 2010 to reach US$7 billion, the service said on its web site.

The primary investors in Russia between 2006 and 2010 have been the United States with 117 projects, Germany with 96 projects and Finland and France with 45 projects each. In 2010, German companies took the lead, accounting for 13 percent of investment projects and the largest source of foreign direct investment jobs.

“At present the main investors in Russia are from well-developed economies, with Brazil, India and China outside the top 10. But China is becoming one of Russia’s largest trading partners, and opportunities in Russia have begun to attract Chinese investment,” Alexander Ivlev, Managing Partner of Ernst & Young in Russia, comments.

The automotive industry and food manufacturing are Russia’s most attractive sectors for foreign direct investment, according to the survey.

“The emphasis on these two sectors clearly suggests that investors are targeting Russia’s emerging consumers. In both production and sale of consumer goods, Russia is attracting the type of investment that will allow it to achieve well-rounded and steady growth,” Ivlev comments.

However, most respondents — 54 percent of those interviewed — believe that Russia will continue to rely on its energy sector in the next two years, while 26 percent see growth opportunities in telecommunications.

According to international business leaders interviewed for the survey, the main competitors of Russia in terms of business appeal are China (46 percent) and India (14 percent) among the rapid-growth markets and Germany (5 percent) and the United States (4 percent) among the developed markets.

Meanwhile, some foreign investors, which have no local presence, are still wary to enter the market despite the government’s efforts to improve the investment climate.

A total of 63 surveyed firms, which have no local presence, said they had no intention of investing in Russia.

Poor rule of law, bureaucracy and a lack of transparency in regulating business remain among the biggest concerns for foreign companies, the survey said.

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