Investment

climate in

Russia 2011

Investment climate

The economic and financial conditions in a country that affect

whether individuals and businesses are willing to lend money and acquire

a stake in the businesses operating there.

Factors

affected on

investment

climate

The Role of Foreign Investments

in Russia

•

•

•

•

•

GDP growth by country in 2010

UK +1,3%

Brazil +7,5%

USA +2,8%

France +1,5% Germany

+3,5%

Russia +4,0%

India +10,4%

China +10,3%

Japan +3,9%

•

•

Russia: 1st place in the world in per capita

natural resources

Russian

consumer

market

Russian consumer market

During the Soviet era Russian

consumers had limited disposable

income and a restricted choice of

goods on which to spend their money.

Today Russian middle class has more

disposable income and greater access

to consumer products than ever

before. Foreign investors see a

unique opportunity to establish brand

loyalty and capture market share

across a diverse population.

Unique geographic position

Attractive taxation system

Russian Tax Code

The Russian Tax Code is one of the most comprehensible of such codes in the

world. And thanks to ongoing improvements, as well as a policy of

resolving contradictions and ambiguities in tax legislation in favor of the taxpayer, the tax system is becoming increasingly

oriented toward the investor.

Cost competitive labor

The average Russian wage

US$593 per month

US$7,1167 per year

Czech Republic US$14,580

Poland US$9,850

Turkey US$8,030

Drawbacks of labor market in Russia

low quality of applicants’ skills

labor shortages outside of urban

centers

weak linkages between the

education system and the labor

market

general shortage of highly skilled labor in

Russian economy

Transparency of the Regulatory

System

• Investors realize they must take extra care that their contracts comply with Russian law and protect investors from possible complications.

• 21% of investors perceive the stability of the political, legislative and administrative environment as unattractive.

• Investors complain that the tax police make no distinction between overt tax-evaders and inexperienced small and medium-sized enterprises who do not fully understand the bookkeeping requirements.

Competition from State-Owned

Enterprises

• Although State-Owned Enterprises are commercial organizations, they receive preferential “case-by-case” legal treatment (there is no unified legal frame work) and can lobby the government directly for preferential treatment.

• Private enterprises are technically allowed to compete with state corporations on the same terms and conditions, but in practice, the playing field is tilted.

• State corporation holding structures and management arrangements (e.g., state representatives as board members) make it difficult for private enterprises to compete. Furthermore, specific legal constructions can result in preferential treatment of state corporations.

Corruption

• According to Transparency International’s 2010 Corruption Perceptions Index (CPI), Russia ranked 154 out of 178 countries.

• In PricewaterhouseCoopers’ 2009 Global Economic Crime Survey, Russia came in last place among the 54 countries.

The value of the average bribe rose by 30% between 2009 and 2010 to reach

approximately US$1,000.

It is almost equal to the monthly wage of a state

official.

Bribes and corruption annually cost Russia the

equivalent of one-third of its GDP

+50%

+3% +19%

+18%

Growth of foreign direct

investment in Russia by

investment project

37

bil

lio

ns

do

lla

rs

Among companies that

have already invested in

Russia 64% say that they

would invest in Russia

again.

But, 86% of

companies that do

not know Russia say

they would not

invest.