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"Investing in Russia" Conferences Take to the Road

Russia wants foreign investors to feel as at home here as in their native countries, according to Russia's Minister of Economic Development and Trade, German Gref, whose appearances to business elite in the capitals of Europe are becoming somewhat of a tradition due to a new initiative to spread the news of Russia's improving investment climate.

The idea to hold a series of conferences in European capitals dedicated to investing in Russia originated as a solution to a widespread problem affecting European businesses in Russia: Russia's relatively poor image abroad handicaps their efforts towards achieving success on this unique market. While there are plenty of success stories, the press tends to report mostly Russia's negative aspects, consequently forming the views of European headquarters. Understandably, many are inclined to presume that their own representatives in Moscow are too enthusiastic about the situation. A further distortion of the real picture occurs when companies doing good business in Russia attempt to avoid what they see as unnecessary competition by not sharing their success openly. At the same time, the more foreign market players there are, the greater possibilities exist for building a civilized market economy in Russia.

For this reason, the European Business Club in the RF, together with the Foreign Investment Advisory Council and Ernst & Young, took upon themselves to visit European capitals with a plea for investors to start to think differently about Russia. The project was launched in Paris in May and met with such success that it gained the attention of the Kremlin. The President's Administration forthwith offered for the "Investing in Russia" Road Show to accompany President Putin on his trips to Berlin and Brussels this fall, in close collaboration with Interfax Information Services.

In the wake of the recent and tragic events of September 11, "the West is looking to Russia as a strategic partner", stated Alexander Rahr, from the German Council on Foreign Relations, at the Berlin forum. This was evident by the turnout of over 300 top German enterprises in Berlin on September 25th to hear testimony to Russia's reform process from top-level Russian officials, from the heads of European businesses already operating on the Russian market, and from several Russian businessmen and economists.

"Germans are impressed with the pace of the economic reform programme" noted Oliver Wieck, Executive Director of the Ost-Ausschus der Deutschen Wirtschaft. Who could not be impressed when confronted with the dramatic changes made recently in tax legislation, the surplus budget, the passing of the Land Code in the State Duma and the 150 acts passed to improve the investment climate? All of this, combined with Putin's flawless speech in German to the Bundestag, made quite an impression on Germany, which is, and rightly so, Russia's most important foreign trade partner.

Immediately following the Berlin conference, the "Investing in Russia" forum made its way to Brussels together with Putin. In the midst of global security questions and discussions with NATO, important steps were also made to develop Russia's further integration into the common European economic space. The formation of a high-level working group to examine the technical details of Russia's economic integration with the EU was announced.

Belgian Minister of State for Foreign Affairs, Annemie Neyts-Uyttebroeck, and Christopher Patten, EU Commissioner on External Affairs, joined German Gref in opening the Conference and in drawing attention to Russia's potential. "Levels of investment in Russia have been disappointing by comparison with other transition economies, with foreign direct investment averaging $20 a head between 1994 and 1999", while "Hungary attracted over ten times this amount in the same period", Commissioner Patten asserted in his address. Gref reminisced about the times small European shops lined the streets of the major Russian cities and said that "seeing this again become reality in Russia will be a measure of the success of our actions."

The process of changing Europeans mindset on Russia is slow; however, the willingness of politicians and businessmen, Europeans and Russians, to come together in meaningful dialogue within the framework of the "Investing in Russia" forums should go a long way to helping Russia rediscover her European roots.
Rebecca MILDREN

Foreign Investment in St. Petersburg

International investment in St. Petersburg totalled
US $881 million in 2002, US $84.1 million of it direct, and
US $12.6 million portfolio investment.

Last year, St. Petersburg attracted 4.5% of all foreign investment in Russia versus 8.2% in 2001, and 11% in 2000. St. Petersburg is currently Russia's third most sought-after investment destination after Moscow and the Omsk Region.

According to the Expert RA rating agency, St. Petersburg has remained second to Moscow only in investment opportunity since 1996, and the city’s investment potential as a percentage of Russia's total has grown from 4.9% in 1999/2000 to 5.1% in 2000/2001 to 5.7% in 2001/2002.

In 2002, foreign investment in St. Petersburg dropped to 75.2% of the 2001 figure, but the structure of investment hardly changed: direct investment made up 9.6%, portfolio investment, 1.4%, and miscellaneous other, 89% of the total. The bulk of investment, US $784.3 million, was in the other class (including loans), which shrank 35% from 2001.

International investors favoured manufacturing industries (78.2%), particularly, the food industry, which absorbed 59% of investment dollars. Some 6% went into telecommunications, and 4.1%, into retail and restaurant business.

Investors preferences reveal their desire to obtain quick returns on their investment without committing to a long and arduous production revamp.

A total of US $1.351 million in investment came from other nations in the former Soviet Union, the majority of it (US $1.292 million) from Ukraine (US $1.184 million of that was invested in heavy engineering).

Foreign Investment in 2002 by Type