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PRESS AND TV COVERAGE OF THE
"RUSSIA: INVESTMENT DESTINATION" SURVEY
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"Government Chooses Zone for Businessmen" by Petr Netreba. Kommersant, March 11, 2005. Read |
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"They’ve Stopped Shooting Investors" by Alexei Tikhonov. Profil, March 14, 2005. Read |
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"German Gref: Second Day Working with President" by Sergei Chereshnev. Izvestiya, March 11, 2005. Read |
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"Corruption Tops Grouch List" by Valeria Korchagina. The Moscow Times, March 5, 2005. Read |
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"Not the Prettiest, but…" by Ivan Gordeyev. Vremya Novostey, March 5, 2005. Read |
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"Corruption Present in Russia, Hence, No Investment". Gazeta, March 5, 2005. Read |
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"Investors Surprise Officials with Corruption" by Alexei Shapovalov. Kommersant, March 5, 2005. Read |
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"Foreign Investors Consider Corruption Main Problem Hindering Investment Growth in Russia — Andrei Sharonov". Prime-TASS, March 4, 2005. Read |
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"A Good Place for Business" by Boris Grozovsky, Vasili Kashin, Olga Proskurina. Vedomosti, March 4, 2005. Read |
www.kommersant.ru
Kommersant
March 11, 2005
Government Chooses Zone for Businessmen
German Gref informs Vladimir Putin on investors’ views
Yesterday after giving the Report on Special Economic Zones at the government session, Minister of Economic Development and Trade German Gref presented a different report to the president. Gref told the president about the major problems faced by investors in Russia. Foreign investors named corruption, administrative barriers, selective law interpretation, contradictory legislation and conflicts between government and business. Corruption is the major problem (named by 71 percent), followed by administrative barriers (66 percent), selective law interpretation and enforcement (56 percent) and non-transparent and contradictory legislation (51 percent). Twenty-nine percent of the survey participants named conflicts between government and business.
Eighty percent of investors say they have been successful in realizing their business plans over the past two years, 17 percent rated their results as average, and 3 percent as unsatisfactory. "Over 70 percent of the companies saw their 2004 profits increase by over 20 percent," said Gref. Investors are attracted by the volume of the Russian market, the high rate of economic growth, the high quality and low cost of the workforce as well as macroeconomic and political stability.
Gref sees major changes when the results are compared with those of the last survey, which was conducted four years ago. "The picture has changed completely. Previously, security issues and differing law enforcement in Russian Federation divisions were among the major problems. The problem of high tax rates is not among the first ten named in this year’s survey either," the minister emphasized.
By Petr Netreba
www.profile.ru
Profil
March 14, 2005
They’ve Stopped Shooting Investors
The Foreign Investment Advisory Council has presented its new survey, Russia: Investment Destination.
It turns out that Russia has quite a favorable investment climate. There is one problem, however. Russia has an extremely unsatisfactory investment image.
Until lately the Foreign Investment Advisory Council (FIAC) sessions were not widely publicized.
But until recently Russia has also been considered a very good place to invest. For this reason, FIAC sessions have been a place where foreigners could complain about their problems and hope to receive assistance.
There have been a number of publications recently dedicated to capital flight from the country as well as reduced investment, which is why this session was given thorough preparation.
A survey of 107 executives of foreign companies that are already investing in Russia was conducted (including Coca-Cola, Ford, Deutsche Bank, Nestle, ExxonMobil and other major companies). They were asked how successful the last two years have been for their business. Eighty percent of investors say they have been successful in realizing their business plans over the past two years.
Seventeen percent rated their results as average, and only three percent said that they were unsuccessful.
Even Gosplan, the Ministry of Economic Development and Trade’s historical predecessor and an FIAC patron, could envy these figures.
It is no coincidence that several days after the session German Gref rushed to present the survey results to the president.
The survey proves that there are no global (e.g. legislative) barriers to investments. There are a number of specific issues. According to the survey, three quarters of the participants consider corruption to be the main barrier to investment. Only 29 percent cited conflicts between government and business as one of the major problems.
Other problems named by investors are administrative barriers, selective interpretation and enforcement of laws, and inadequate and contradictory legislation.
All of these factors point to one thing, namely, that Russia has an ineffective system of government, one that takes into account the interests only of those who are currently close to the administration. "Market participants that have access to confidential information have the competitive advantage," says Arjan Overwater, president of Unilever, Russia and Ukraine.
How does the Federal Antitrust Service (FAS) tackle this problem? Mr. Overwater shrugs his shoulders, as he has never heard of any cases when administrative competition has been fought.
After the session, Deputy Minister of Economic Development and Trade Andrei Sharonov explained with a tired smile that the charges of corruption were not surprising for the government. While authorities are trying to make control functions more effective, it is leading to a tightening of the regime and overall unpredictability. The current tax discussion is the best example. "Believe me, it is not that important for us what taxes we are paying now, it is important to know what taxes we will need to pay in the future," says Michael O’Neill. Mr. O’Neill is a veteran investor in Russia. In the 1990s he oversaw Coca-Cola’s expansion into the Russian market. He is currently an advisor to the board of directors and a member of the board of directors of the Russian group Wimm-Bill-Dann. He is both a stoic and an optimist.
"Business is business. We have seen only progress during the last years in Russia," he says. Today nobody attacks company plants with bazookas, nor do they steal large batches of beverages (these are real events from Coca-Cola’s history in Russia).
The Foreign Investment Advisory Council was established in 1994, and Boris Yeltsin promised to provide favorable conditions for foreign investors by 1995. Notorious deposit auctions were held where no foreign investors were allowed to participate.
Russia demonstrated to the world the peculiarities of a politically selective national investment climate.
Members of FIAC reassured that the situation is now the opposite. "Our legislation in the sphere of foreign investment should not be reproached," argues Tatiana Neshtaeva, head of international private law on the High Arbitration Court. She contributed to the preparation of the law herself and is ready to take responsibility. In her opinion, foreign investors themselves often break Russian laws. "I mean rather small companies, though," she adds.
It is difficult to blame foreign companies, however, as they are often trying to settle on the market and adapt to the local climate by learning to "feed" officials. There is another important issue. According to the survey, foreign investors consider Russia a perspective market for their goods and services. Russia corresponds to the main global trend in which countries with large populations and market capacity receive a major portion of foreign direct investment. Perhaps the results of the survey that could be shown to the president reflect adaptation to local conditions.
Independent surveys, however, are different. According to an analysis conducted by A.T. Kearney in the fall of 2004, China, the United States and India are among the most attractive countries for investors. Russia ranks eleventh, although in 2003 it was rated seventh. A.T. Kearney analysts estimate the freely available cash resources of large international companies to be around $2 trillion. This money is reserved mainly for new project development. There is competition for this money. Russia is obviously losing the competition to its major rivals in terms of risks and returns on investments. The exception is the other CIS countries.
Members of the Foreign Investment Advisory Council think that Russia’s investment image is a major barrier to investment. The image is formed by media. Foreign investors have promised that they will try to spread the truth about the "Russian dream."
The efforts of image-makers have not brought any results yet. According to the survey, last year the volume of direct investment grew by 39 percent, amounting to $9.4 billion. Meanwhile, According to the Central Bank, there was a fourfold increase in capital flight from Russia ($7.8 billion). There is the opinion that "dirty money" leaves Russia, and "clean money" returns. Unfortunately there is no Russia: Subject of Investment survey to prove this.
By Alexei Tikhonov
www.izvestia.ru
Izvestiya
March 11, 2005
German Gref: Second Day Working with President
Yesterday, Minister of Economic Development and Trade German Gref was the first to leave the government session. The reason was a personal meeting with the president. This was Vladimir Putin’s second day of meeting with Gref. At the first meeting, Gref told the president and his colleagues about his idea of establishing a new investment fund. Yesterday, Gref went to the meeting alone to tell the president about the government’s medium-term program. Mikhail Fradkov, who has criticized the program, was not invited to the meeting.
Gref first presented a new survey on the problems faced by companies working in Russia. The results of the survey at first appear to be quite contradictory. On the one hand, there are a number of problems. On the other hand, the degree with which Russian companies are able to adapt to them is high. Over 70 percent of the companies saw their 2004 profits increase by over 20 percent. As a result, about half of the representatives of major companies (45 percent) could give neither positive nor negative feedback on the government’s economic policy.
German Gref named five major problems faced by investors in 2004.
All these problems are connected with the work of authorities. Corruption is the major one (named by 71 percent). It is followed by administrative barriers (66 percent), selective interpretation and enforcement of the law (56 percent) and contradictory legislation (51 percent). Over 29 percent of the survey participants are certain that there is an open conflict between government and business.
President Putin asked what business actually expects from the government. Is it simplification of tax and customs procedures? "It is necessary to simplify regulations and ensure their unambiguous interpretation as well as allow businessmen the opportunity to protect their rights during inspection and control procedures," the minister said.
The rest of the meeting was held behind closed doors. German Gref said he would take the outcome of the survey into account when preparing the final draft of the medium-term economic development program. This document was returned for revision twice by the prime minister. The main reason, according to Mikhail Fradkov, is that the program is not ambitious enough and does not envisage rapid growth in GDP. The prime minister is advocating an alternative position that is based on pumping up the economy with money from the stabilization fund. The fact that the draft changes to the program were presented to the president by Gref himself gives reason to believe that Putin supports the minister in this conflict. Gref has pledged to finish working on the program by the end of March.
It is no accident that German Gref told the president that taxes and customs duties are less of a concern for investors than the existing system of relations with the government. Before he left the government session, he said that his position on reducing the VAT rate remains the same. He believes it will result in losses for the budget. It is indicative that Fradkov stayed at the government session yesterday while Gref discussed this issue with the president.
Within a week Gref had managed to accomplish a number of things, including reviewing the stabilization fund’s sources, defending the law on special economic zones at the government session and attempting to defend his economic program while meeting with the president.
By Sergei Chereshnev
www.themoscowtimes.com
The Moscow Times — Business / Investment
March 5, 2005
Corruption Tops Grouch List
A survey of 158 foreign companies found that corruption remains the biggest obstacle for investment into Russia, the government said Friday.
A total of 71 percent of the companies polled named corruption as the top barrier to investment, according to the survey, which was conducted by PBN Company for the government's Consultative Council on Foreign Investment.
The companies, about two-thirds of which are already working in Russia, were asked to name five top problems that obstruct foreign investment.
"We all know that corruption is a problem, but the number of people who put corruption at the top of the list came as a surprise," Deputy Economic Development and Trade Minister Andrei Sharonov said Friday after a meeting of the Consultative Council on Foreign Investment.
Sharonov reiterated the government's goal to cut corruption by reducing the number of situations where a bureaucrat can make a subjective decision — a key goal of the yet-to-be completed administrative reform.
The other four obstacles named were administrative barriers (66 percent), selective application of the law (56 percent), conflicting laws and laws that poorly reflect reality (51 percent), and conflicts between the state and business (29 percent).
Surveyed companies put reduction of corruption at the top of their list of suggestions on what the government must do to attract foreign investment.
Interestingly, the survey indicated that foreign businesses working in Russia consider the investment climate to be in a better shape than those that are looking at Russia from abroad. A total 66 percent of investors said noninvestors see the situation worse than it really is.
Almost half of investors, or 47 percent, said the investment climate is better than what is often reported in foreign media, while only 30 percent of noninvestors felt the same way.
While 49 percent of noninvestors expressed concern about their personal safety if they were to work in Russia, only 10 percent of investors shared their fears.
In addition, 70 percent of investors said they had access to enough information to make investment decisions, while only 41 percent of potential investors agreed. At the same time, 35 percent of investors and noninvestors said that information from state officials was not trustworthy. The most trusted source of information proved to be other foreign investors working in Russia.
The survey suggested that the investment climate appears to be improving on many counts but some problems remain the same as they were a decade ago, including bureaucracy, regulations and a weak judicial system.
| What key steps must the government take to attract investment?* |
| Lowering corruption on all levels | 86% |
| Conducting judicial reform | 56% |
Lowering the amount of paperwork and regulations in the process
of obtaining visas and work permits | 47% |
| Toughening the corporate governance and transparency standards | 45% |
| Increasing consistency in fiscal policies | 45% |
| Reforming the banking system | 38% |
| Improving intellectual property and property rights protection | 37% |
| Complying with the WTO member requirements | 37% |
| *105 investors and 49 noninvestors responded to this question. |
| Source: PBN Company, FIAC |
|
By Valeria Korchagina
www.vremya.ru
Vremya Novostey — Business & Finance
March 5, 2005
Not the Prettiest, but…
Foreign investors say that in reality Russia is better than it is made out to be
Foreign investors who conduct business in Russia or are planning to start working here hold doubts regarding the country’s investment attractiveness. At the same time, however, they believe that the situation in Russia on the whole is better than the country’s image abroad may appear. Moreover, over half of investors say foreign companies that are not currently operating in Russia see the investment climate as being worse than it really is.
These are some of the major findings of a survey conducted by The PBN Company for the Foreign Investment Advisory Council (FIAC). The survey Russia: Investment Destination was conducted among 158 foreign companies, 107 of which are already operating in Russia and 51 of which are considering investing here.
According to investors, the country’s negative image is due to several factors, primarily corruption. Seventy-one percent of survey participants named corruption as the main obstacle to attracting foreign investment. Sixty-six percent of respondents mentioned excessive bureaucracy, 56 percent pointed to inconsistent enforcement of laws, and 51 percent named cited inadequate legislation. Approximately 40 percent of all investors said "it is difficult to do business in Russia without breaking internationally accepted ethical and legal norms." As for investment prospects, 29 percent of survey participants believe that Russia is on the right track in terms of economic policies and laws aimed at encouraging foreign investment, while practically an equal number (26 percent) say that the country is heading in the wrong direction. It should be noted that companies that have not yet entered the Russian market are more likely to share the latter opinion.
The survey participants named the size of the Russian market (88 percent) and the country’s sustained economic growth to be the main features that attract foreign investors. High quality and low cost of human resources (55 percent) as well as macroeconomic stability and the government’s solvency (46 percent) are other key positive factors for foreign investors.
The research found that 80 percent of the companies surveyed that are already operating in Russia have been successful in realizing their business plans over the past two years. Seventeen percent of companies consider the results of their operations to be average, while only 3 percent say they have been unsuccessful. Sixty-five percent of companies say their company’s profits increased by over 50 percent last year. An overwhelming majority of foreign companies operating in Russia — 78 percent — plan to expand their business over the next few years.
"FIAC members have repeatedly said that investments in the Russian economy will increase significantly if government authorities do better at informing and communicating with foreign investors," said Arjan Overwater, president of Unilever Russia and Ukraine and head of the FIAC working group on Russia’s image.
According to Overwater, the survey revealed several problems whose elimination will help make Russia more attractive to investors.
Eighty-six percent of the survey participants called on the Russian government to take measures to fight corruption, 56 percent said the government should enact judicial and legal reforms, and 47 percent believe it should reduce bureaucracy and simplify procedures for issuing visas and work permits. Forty-five percent of foreign investors called for legislating stricter requirements for corporate governance and transparency, while another 45 percent said the government should prevent situations similar to the Yukos affair from happening by conducting a consistent tax policy.
In his conclusions at yesterday’s FIAC meeting, Deputy Minister of Economic Development and Trade Andrei Sharonov said that the results of the survey clarified the general impression regarding the Russian economy: on the whole, investors’ attitude toward Russia remains positive. Companies already operating in Russia are planning to increase their investments or at least to maintain them. At the same time, the deputy minister said that companies that are planning to invest in Russia have a less positive opinion, while almost three quarters of the investors surveyed believe that the main problem with the Russian economy is corruption. "I think the government’s objective should be to close loopholes and eliminate subjective resolutions, as all norms of operation should be prescribed in regulatory acts," Sharonov said.
According to Sharonov, investors mentioned improvement in banking legislation as well as good investment growth. Many foreign companies have expressed an interest in investing in Russia ’s transportation infrastructure. "Already today the Ministry of Transportation proposed cooperation in the area of transportation infrastructure. We can also expect interest in other industries, apart from the energy and raw materials sectors," Sharonov summed up.
By Ivan Gordeyev
www.gzt.ru
Gazeta — Business
March 5, 2005
Corruption Present in Russia, Hence, No Investment
Foreign investors consider corruption to be the main obstacle to increasing foreign investment to Russia, said Deputy Minister of Economic Development and Trade Andrei Sharonov. He cited the survey Russia: Investment Destination, conducted by the FIAC working group on Russia ’s image. The survey reveals that two-thirds of investors consider corruption to be the main problem here. Other obstacles include excessive government bureaucracy, selective interpretation and application of laws, inadequate and contradictory legislation, and conflicts between the government and business, Sharonov said.
© 2005 PRIME-TASS News Agency All Rights Reserved
www.kommersant.com
Kommersant
March 5, 2005
Investors Surprise Officials with Corruption
The Russia: Investment Destination survey was discussed
yesterday at a session of the permanent committee of the Foreign Investment
Advisory Council at the Ministry of Economic Development and Trade. The survey
results were predictable. Foreign investors consider corruption and inadequate
legislation to be the main problems in Russia. The problem of corruption,
however, surprised officials "not in terms of quality, but rather quantity."
According to the European Bank for Reconstruction and Development, the total level of foreign investment in Russia is equal to 6.5 percent of the country’s GDP — five times lower than the ratio in other European emerging economies. Authorities have been trying to solve the problem of attracting foreign investment for over ten years. The Foreign Investment Advisory Council (FIAC), which aims to develop a favorable investment climate, was established in 1994 in cooperation with Western investors. At its September session, the FIAC decided to conduct a survey in order to investigate opinions held by foreign investors regarding Russia . In January-February 2005, The PBN Company conducted the survey. Executives from international companies based primarily in the United States and Europe participated, including 107 companies already operating in Russia (e.g., Total, Nestle, Siemens, Citibank) and 51 companies that have not yet entered the Russian market (e.g., Bank of America, British Telecom, Nokia, Marks and Spencer).
According to the survey, approximately 40 percent of the participants think that it is difficult to operate in Russia without breaking internationally accepted legal and ethics norms. At the same time, the majority of the participants consider Russia less profitable than China, India and Southeast Asia . In terms of investment risk levels, Russia is rated lower than these countries as well. Three quarters (71 percent) of those surveyed named corruption as the main barrier to investment, and 86 percent called for the Russian government to fight corruption at all levels. Another problem for investors is inadequate legislation and law enforcement. Sixty-six percent of participants mention administrative barriers, 51 percent inadequate legislation and 56 percent selective interpretation of laws and law enforcement.
Investors have a clear opinion on the role of officials in creating a
positive investment climate in Russia: 90 percent think that authorities
do not work effectively enough in this area. In addition to fighting corruption,
foreign investors recommend that the Russian government carry out judicial
and legal reforms (56 percent), simplify the process for obtaining visas
and work permits (47 percent), establish stricter regulations on corporate
governance and transparency (45 percent) and prevent another Yukos-type
situation through consistent tax policy (45 percent).
It should be noted that officials were surprised by the survey results. According to Andrei Sharonov, deputy minister of economic development and trade, "the degree to which corruption influences decisions is surprising not in terms of quality, but rather quantity." He added, "we need to concentrate our efforts on tackling this problem." In reality, nobody knows how to change the situation. The only proposal made by Svetlana Daneyeva, head of the ministry’s investment department, was to "conduct more detailed research in order to discover at which levels there is more corruption." The situation with law enforcement is unlikely to change either. The government did not support the judicial reforms approved by the ministry as part of the 2005-2008 medium term program. To influence the judicial system, Ms. Daneyeva suggested that representatives participate in the work of the FIAC.
By Alexei Shapovalov
www.prime-tass.com
Prime-TASS — News
March 4, 2005
Foreign Investors Consider Corruption Main Problem Hindering Investment Growth in Russia — Andrei Sharonov
Foreign investors believe that corruption is the main obstacle to increased investment in Russia, said Deputy Minister of Economic Development and Trade Andrei Sharonov at a meeting of the Foreign Investment Advisory Council (FIAC).
"This speaks to the wide scale of the problem and requires the government
to concentrate efforts on resolving it," Sharonov emphasized. He cited
the survey Russia: Investment Destination, conducted by the FIAC
working group on Russia’s image. The survey reveals that two-thirds
of investors consider corruption to be the main problem here. Other obstacles
include excessive government bureaucracy, selective interpretation and application
of laws, inadequate and contradictory legislation, and conflicts between the
government and business, Sharonov said. Therefore, according to Sharonov,
the government has much to do to improve the country’s investment climate.
At the same time, Sharonov said that on the whole investors consider Russia’s investment climate to be positive and plan to increase or at least maintain their level of investment. Investors also noted that corporate governance in Russian companies is improving.
When asked with which industries investors plan work in Russia, Sharonov named the transportation infrastructure in particular. According to Sharonov, the Ministry of Transportation suggested cooperation in the construction of major roads and airports, and foreign companies supported the idea of setting up a working group to consider the issue. Sharonov also said that foreign investors are interested in investing in Russia ’s aviation industry.
© 2005 PRIME-TASS News Agency All Rights Reserved
www.vedomosti.ru
Business daily Vedomosti
March 4, 2005
A Good Place for Business
Most foreign investors believe Russia holds promise
Russia is currently losing the competition for foreign investment. According
to a survey conducted for the Foreign Investment Advisory Council (FIAC),
profits are lower in Russia, while risks are much higher than in Asia’s
developing economies. The amount of foreign investment in Russia is continuously
growing, however.
In January-February 2005 The PBN Company conducted a survey for FIAC. A number of executives from international companies participated in the survey, including 107 from foreign companies operating in Russia and 51 from companies that have not yet entered the Russian market. AIG, Alcatel, Alcoa, BASF, Bayer, BP, British Telecom, Citigroup, Exxon Mobil, Ford, IBM, Intel, Microsoft, Nokia, Procter & Gamble, Shell and Siemens were among the survey participants. One quarter of the companies surveyed have invested over $500 million in the Russian economy, and 15 percent of the companies have invested over $200 million. FIAC unites top managers from 25 international companies operating in Russia, including EBRR and the World Bank.
Last September the FIAC decided to investigate foreign investors’ opinions
on Russia. "We thought that Russia’s image does not correspond
to reality," says an FIAC member. Improving Russia’s image is
not a charity action. "Some companies are aiming to begin production
in Russia while others are interested in expanding their client base," he
says.
The survey demonstrates that foreign businesses are flourishing in Russia.
According to the survey, over 50 percent of foreign companies saw their 2004
profits increase by over 20 percent. Eighty percent of investors say they
have been successful in realizing their business plans over the past two
years. Other CIS markets, Eastern Europe and Brazil were rated lower in terms
of return on investment by 57 percent of the survey participants. Russia
is considered less profitable than China, India and Southeast Asia.
In terms of risk levels, however, Russia is rated lower than the majority of European economies, with the exception of CIS markets. Meanwhile, 52 percent of survey participants believe that the investment climate is likely to improve.
Contrary to popular belief, the majority of investors (79 percent of those already in Russia and 68 percent of those who are planning to begin doing business here) consider Russia a promising market for their goods and services and not simply a source of natural resources.
Foreign investors also have their own views on the degree to which Russian authorities influence business. Eighty-eight percent consider the presidential administration to be the most influential, followed by the tax authorities (81 percent) and the economic and customs ministries (78 percent). The federal government received only 61 percent, ranking behind financial regulatory agencies as well as regional and judicial authorities.
Investors are quite satisfied with the macroeconomic situation, the tax
regime and the quality of the workforce in Russia. In addition to fighting
corruption, which 86 percent named as the main barrier to investment, foreign
investors recommend that the Russian government carry out judicial and legal
reforms (56 percent).
The results of the survey are encouraging. Seventy-one percent of foreign companies working in Russia are planning to increase investment, 65 percent of non-investing companies are planning to begin making investments within the next three years.
"Companies currently operating in Russia consider the investment climate to be more favorable than those who have not yet entered the market," a FIAC member concluded.
Russia provides numerous opportunities for business. According to Kirill
Dmitriyev, managing director of Delta Private Equity Partners, the main areas
for investment could be retail chains, cinema chains, credit card services
and cable TV, the latter of which is still far less developed than in Eastern
Europe.
"Our business is growing rapidly. In 2004 the Russian office ranked seventh in the world in terms of turnover," says Sergei Sidorov, public relations coordinator at Nokia CIS. "Bureaucratic barriers and corruption exist in China, a country with a rapidly growing economy," adds Axel Hartmann, commercial director of Ehrmann. In his opinion Russia is no worse than any other emerging economy.
By Boris Grozovsky, Vasili Kashin, Olga Proskurina
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