Investment Climate in Russia Gets Cold

Premier Kasyanov hospitably threatens German businessmen

If the money that the Russian people keep in their stockings were involved in the Russian economy, there would not be so many complaints regarding the absence of foreign investments. Moreover, the growth of home investments would raise the capitalization of the Russian economy on the whole. It would attract foreign investors too. However, the Russians are not going to entrust their hard-earned money either to the state or to the business elite that appeared because of plundering the majority of the Russian people.

That is why, Russian politicians keep thinking on how to get hold of foreign money. This was particularly a subject of the parliamentary hearings within the scope of the third parliamentary assembly of Russian business circles. The conference was called “Investments in the Russian economy: practice and perspectives.” The discussion was devoted to the legal base for the improvement of investment climate in Russia.

The chairman of the economic committee of the Federation Council, Oganes Oganyan stated at the hearings that about $150 billion dollars a year were needed for increasing the speed of Russia's economic development and for improving the economic situation in Russia. For the time being, Russia manages to attract only $50 billion.

In the opinion of the head of the economic committee of the Federation Council, the growth of investments in the Russian economy has decreased lately. The volume of investments gained 17% in the year 2000, whereas there was only seven percent obtained in 2001. The volume of investments in Russia gained only 2.5% over ten months of the current year.

Oganes Oganyan believes that such situation can be explained with several objective factors. For instance, neither the population of the country, nor Russian enterprises are willing to invest their capitals in the Russian economy. According to experts’ estimates, personal savings of the Russian population make up 32% of the Gross Domestic Product. Yet, only a half of those savings are used for investments. No wonder, it could be less. Mr. Oganyan believes that all that trouble is caused with excessive red tape in the Russian economy and its corruption. Yet, if there were fewer obstacles, the outflow of capital would become as massive as it was in 1996-1998. However, the Russian Clearing House informed that the situation improved a bit in this respect. Only 30-32 million dollars run away from Russia every month instead of 200 million dollars as it was before.

The participants of the parliamentary hearings unanimously approved the state’s support of the macroeconomic stability at the reduction of inflation rate and continuation of reforms. Specifically, it goes about the power industry, railway, Gazprom reform, public utilities, banks, as well as the court reform.

In other words, it means that the Russian business elite is eager to get rid of the state from everywhere. Russian oligarchs believe that the Russian property will become a lot more attractive for foreigners, and they would bring their capitals in Russia on Russian conditions.

By the way, this is the major obstacle on the way of Russia's membership in the World Trade Organization. The home business would definitely like to get Western investments, but they want to keep the total control over the investment process, as well as over the country's economy on the whole. Yet, foreigners refuse to invest in Russia under such conditions. They invest in a country seriously, if they can control everything there, including a parliament, a government, and even a president (not to mention businessmen).

It was said during the hearings that the investment growth is impeded with the fact that 30% of the Russian Gross Domestic Product comprises the production of so-called natural monopolies. The latter are located in a non-market section - their tariffs are regulated by the state. In the words from Oganes Oganyan, it testifies to the fact that those branches do not have necessary conditions either for the improvement of the investment climate or for the attraction of investments. Foreign capital will not come, until the state leaves, to put it otherwise.

The state would be happy to go, but it can not do it now. The reason why is very simple – elections are coming. Nevertheless, the participants of the hearings supported the laws, which were aimed at the financial investment market development, at the appearance of new investment tools and at the new forms of cooperation for banking and industrial branches. It goes about the federal laws “About Commercial Securities,” “About Exchanges and Exchange Trade,” About Mortgage and Issue Securities,” and others.

Prime minister of the Russian government contributed his mite to  the attraction of foreign investments too. Kasyanov has recently had a meeting with German businessmen in Berlin. He clarified to German businessmen (they are currently very busy with a hard crisis in their own national economy) that Germany was not supposed to hope for Russian markets much. Mikhail Kasyanov stated that the Russian government could not shut down the import at all, of course. The Russian prime minister added that he was very concerned about a sudden growth of ready-made products import to the country. Kasyanov claimed that the Russian government was not going to create comfortable conditions for that import in the future.

Mikhail Kasyanov suggested German businessmen to think about manufacturing in Russia the goods that are currently imported in the country. Yet, German investors prefer to think about their opportunities and possibilities in Ukraine.

To crown it all, Kasyanov’s statements can be perceived as a threat in disguise. The prime minister stated that if European companies wanted to have a political support, they must produce the goods in Russia instead of exporting them there. The up-coming three of four years will be a critical period for structural reforms in the Russian economy.

It is hard to say, if careful German businessmen perceived Kasyanov’s statement as an invitation for further cooperation. On the other hand, Germany does not really have much to choose from at the moment. Germany needs sales markets to sell its products as well as a stable source of raw materials. Anyway, Germany keeps on expanding its investment presence in China now, as almost all developed countries do.

Kira Poznakhirko

Translated by Dmitry Sudakov

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Author`s name Olga Savka