Ernst and Young’s, Russia’s Attractiveness Profile is a must read document for those planning to invest in Russia. The study, compiled with the support of over 200 executives from European, North American and Asian companies measures Russia’s attractiveness to future investment.
The tax and investment specialists said, “increasing investor interest in Russia comes from the significant economic growth potential it can offer…” In 2010, Russia, one quarter of the BRIC (Brazil, Russia, India and China) group, generated US$37 billion of foreign direct investment.
The report, which presents an analysis of the Russian economy and its capacity to develop, particularly mentions its domestic market as one of the primary reason for optimism. A number of others factors are also highly rated.
Most Attractive Features of the Russian Economy
- Russia’s domestic market
- Telecommunication infrastructure
- Labour costs
- Local labour skills level
- Possibility of increasing my company’s productivity in Russia
- Russia’s culture and language
- Russia’s performance in sustainable development
- Labour law flexibility regarding hiring, termination and duration of work
- Quality of life
- Access to Russian investors
- Transport and logistics infrastructure.
Least Attractive Features of the Russian Economy
- Transparency of the political, legislative and administrative environment
- Stability of the political, legislative and administrative environment
- Aid, subsidies and support measures from public authorities
- Entrepreneurial culture
- Research and development availability and quality
- Corporate taxation/
World Bank View of Investment in Russia
In the World Bank, Ease of Doing Business Index, the Russian Federation is ranked (2011) at number 123 out of 183 countries. Leading the rankings is Singapore with the United Kingdom at number 4, United States at number 5 and Canada at number 7.
These rankings are calculated using a number of indicators, which include:
- Starting a Business
- Dealing with Construction Permits
- Registering Property
- Getting Credit
- Protecting Investors
- Paying Taxes
- Trading Across Borders
- Enforcing Contracts
- Closing a Business.
A closer examination of this data clearly indicates that the Russian government has improvements to make in certain areas, most notably: Starting a Business, Dealing with Construction Permits, Registering Property and Getting Credit.
In the World Economic Forum Global Competitive Report (2011) Russia languishes at number 66 out of 139 economies examined. The report shows that the country has a distance to go before investors have full confidence
According to the Economic Forum the most problematic factors for doing business in Russia are:
- Corruption
- Inefficient government bureaucracy
- Crime and theft
- Tax Rates
- Access to financing
- Poor work ethic in the national labour force.
If further evidence was needed that Russia faces a number of serious challenges to its business environment, Transparency International in their Corruption Perceptions Index (2010) show the country at number 154 out of 178.
As part of the Attractiveness survey, respondents were asked where they saw Russia in 2020. While the majority said that Russia would be a leader in the energy sector a substantial proportion said the country would be challenged on its social and economic model. A mere 10% said, “Can’t say.”
If the soothsayers at global investment giant Goldman Sachs are to be believed, Russia will be among the top ten world economies by 2020 and, alongside its fellow BRIC members, one of the top four economies by 2050.
Sources:
World Economic Forum Global Competitive Report (2011), site accessed 25 September 2011
World Bank, Ease of Doing Business in the Russia Federation site accessed 25 September 2011
Ernst and Young, Russia’s Attractiveness Survey (2011)
Transparency International, Corruption Perceptions Index, 2010
