Foreign Investors Forget about Russia

Western experts believe that Russia is still retarded

The issue of the lack of foreign investments in the Russian economy has been recently debated at all levels of power in the country. President Vladimir Putin recommended the government to work on the extenuation of the investment climate in Russia. On a visit to Germany, Russian Prime Minister Mikhail Kasyanov called upon Germany businessmen to build factories in Russia. The Russian government addressed to French companies with the same request and even offered them to “edit” the draft of the new customs code, in order to make it more convenient. However, international research centers chose the “best” moment to say that foreign investments are not coming into the Russian economy.

SRU and Expert Information Group research centers conducted a special research, which was devoted to Russia’s appeal for Western investors. They came to conclusion, which looked like a paradox from the book “Alice in Wonderland:” Western businessmen forgot about Russia.

According to researchers, Russia took a lot of efforts to convince English and American businessmen of the fact that the country was absolutely ready for the inflow of foreign investments. Yet, the poll, which was conducted by consulting firms, proved that Russia was still somewhere beyond that. Forty businessmen, managers and journalists took part in the poll. No one of them mentioned that Russia was on the list of countries, where they were supposed to run their businesses in. On the contrary, they said that they were not going to deal with Russia at all. SRU executive director said that Russia turned out to be no man’s zone.

To be honest, that was rather a strange and not very unbiased conclusion to make, taking into consideration the fact that there is serious discrepancy between Russia and the USA regarding the war in Iraq. However, this opinion gets more and more predominant in the Western business world.

The Financial Times has recently published an article, which was devoted to foreign businessmen’s intentions in the Russian economy. As it was said in the article, the intention of such a huge transnational corporation as British Petroleum to Acquire 50% of the new joint venture TNK-BP did not at all mean that other large companies would follow BP’s example. In other words, it is an exception, which confirms the rule even more.

According to the report of the mentioned consulting firm, an oil manufacturer is supposed to be in the place, where that oil is available. However, Russia is not the only country, where people extract oil. There is a lot of oil in other places of the planet. The participants of the poll said that they  had a choice about a place, where they could extract oil. Russia was mentioned on the bottom of that list.

Russia looks rather colorless when it comes to the investment climate. The situation is absolutely different with China, though. China has the strategy of economic liberalism that is secured with political authoritarian regime. Russia has done the opposite thing. President Putin is very popular in the West. However, foreign investors are not sure that Putin's reforms have been implemented completely. Foreign experts say it sometimes that Russia stepped on this way of its development with the help of Western advisors, who worked a lot with Boris Yeltsin. Well, foreign advisors could not advise anything else. It was the USSR, not China, that was in the opposition to the USA for several decades in a row. Here is the result of the opposition.

Researchers determined two other aspects, which hindered Russia from becoming a good place for foreign investments. First of all, Western businessmen believe that Russia is still a deeply corrupted country. In other words, all levels of the Russian society do not have any respect for the power of the law, while the leading role for the economic and political lives of Russia is played by so-called criminal elements. The authors of the report think that such a state of things cut any investments opportunities off.

Second of all, no social changes occurred in Russia over the entire 20th century. Foreign researchers think that Russia is still a retarded country when it comes to the living standard of the Russian people. This needs some explanation, though. Foreign economists do not talk about an opportunity of another October Revolution to happen in Russia. They talk about the fact that there is no such notion as middle class in Russia, no private property cult, no property at all. They think that Russian people do not possess the pride of an honest tax-payer, that they are not devoted to the idea of democracy and free business. In other words, foreigners are sure that no Russian person will live for the sake of paying back a loan and interest to a bank on time. It just so happens, that Russia is not going to become a good place for investments until it becomes similar to the living standard of England or Germany, for instance.

This seems to be rather absurd. Russia will never manage to obtain the living standard of Belgium or of the USA: the history and the mind-set are absolutely different, so it is not possible. In addition to that, both Saudi Arabia, and India and China are absolutely different countries as well. However, the volume of foreign investments in those countries grows every year. This means that motives are meant to conceal certain reasons.

Indeed, a respondent of SRU and Expert Information Group gave an absolutely amazing reason, which was cited in the report. An anonymous foreign businessman said that Russia used to be an influential country, especially twenty years ago.  However, as a man said, Russia does not raise daily interest for the West nowadays. It seems that investors can not find anything special about Russia that would make them be interested. Various influential experts have been reproaching Russia of the low level of qualification of management, low level of industrial discipline and many other sins. This does not mean that Russians do not work well. Competitive branches of the Russian economy show that Russians can do something really good. They manage to stand the international competition without any loans, almost without any support of the state. Although, the reason why is different: Russian people do not work the same way as foreigners do.

Here is a good example to show it. The National Council for the Corporate Management has been recently established in Russia. This council acknowledged that only 53% of Russian managers know, what corporate management was. Only seventeen percent of them read the Corporate Conduct Code, which has been passed in the country recently. It should be also said here that those companies, where those managers worked, were set up in a Western manner.

Does it mean that all Russian managers are of low qualification? Of course, it does not. This means that Russian managers think and work in another way. Foreign methods of working are not good for them. It also means that billions of dollars have been wasted during ten years of economic reforms. Foreign experts failed to teach Russian managers to live and work in a Western way.

That is why all those attempts to present Russia as a retarded country, which it is absolutely not profitable for investments, are only a consolation for the vanity of those, who won the Cold War. This is especially good against the background of no success in Iraq.

Strategic organizations do not leave Russia out of their sight. On They keep taking a lot of efforts to extend their presence in the country. The European Bank for Reconstruction and Development announced that it was going to increase its investments in the Russian economy. Furthermore, it was said that the Bank was intended to bring investments up to the level of three or five billion dollars a year. This was said by the Bank’s President Jean Lemierre. Mr. Lemierre told Japanese reporters that the countries of East Europe get integrated in the European Union. That is why, the active investments policy of the Bank shifts to Russia. The Bank invested a billion dollars in Russia in 2002, which was 50% as much as in 2001.

Needless to mention that the European Bank for Reconstruction and Development is a very serious organization. If such organizations as the IMF, the World Bank, the EBRD come to Russia to work there, this means that the West is supposed to be there too, from the strategic point of view. This also means that such places might imperil interests of the West. This is the reason why scheduled crises and defaults occur.

It is not ruled out that the whole Western world is still afraid of a possible rebirth of the superpower. However, will the international capital be good for Russia? Its influence and presence in the country keeps growing stronger.

Dmitry Slobodanuk

Translated by Dmitry Sudakov


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Author`s name Olga Savka