Russia must act to attract foreign investment
improve regulatory transparency in order to attract more foreign
investment, claims a new OECD report.
The Organisation for Economic Co-operation and Development (OECD)'s Investment Policy Review - Russian Federation: Progress and Reform Challenges examined the progress made by Russia to attract more foreign investment over the last three years. While some progress has been made - the tax code is clearer and a new code has speeded up customs clearance procedures - it argues that Russia could do more to make itself more attractive to foreign investors.
There is certainly scope for increasing foreign investment in Russia. Direct foreign investment in the country, currently stands at just $28 per head, compared with the Czech Republic, which had inward investment of $818 per head. The food industry accounts for 27.5 per cent of the total FDI (foreign direct investment) in industry, according to the Delegation of the European Union to Russia.
At present though, a lack of confidence in the way Russian courts enforce the law and corruption throughout the public sector continues to undermine investors' trust in Russia's legal system. Russia should therefore do more to protect private property rights, tackle corruption and make contracts easier to verify and enforce.
The OECD wants Russia to create a level-playing field so foreign companies can compete with domestic firms in the privatisation of state-owned companies. Many investors are concerned that privatisation held to date could be challenged in a court of law because existing privatisation laws are inconsistent and contradictory.
The government should therefore clarify the laws and the selection process for bidders.
The OECD noted that corporate governance is improving in a number of areas; for example the government's commitment to adopt International Financial Reporting Standards is encouraging. But it is still difficult to find out who actually controls companies.
Russia therefore needs to streamline federal laws on disclosure, strengthen enforcement and put in place clear rules on mergers and acquisitions.
The EU accounts for about 70 per cent of all accumulated foreign investment in Russia. The leading investors in the country are Germany, the USA, Cyprus, the UK, and France. They accounted for 67.7 per cent of total accumulated investment as of the end of 2001.
