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29 Sep, 2009 05:38

British reserve holds back FDI into Russia

British businessmen are keen to invest in Russia but remain cautious despite promises of rich rewards. Direct investment in the country from Britain fell by nearly 3% in 2008 and is expected to drop more this year.

The UK is one of the biggest investors into Russia. Trade flows reached $11 billion last year. But Britain lags in foreign direct investment. Shadow Energy Minister, Charles Hendry, says that’s Britain’s fault.

“I think there’s been a failure in Britain to distinguish between the politics and business. There are fantastic opportunities for British companies there – the Russian government has made it much clearer now where that investment is welcome, and is going to be allowed, and I think that’s been an extremely important change.”

Recruitment firm Antal has invested millions of dollars in the country. Managing Director of Antal Russia, Tremayne Elson, says British worries are a matter of perception, not concrete problems.

“I’ll always advise people, take the risk. It’s a risk, clearly, but it’s no pain no gain scenario. You can invest, if you do it wisely and with the right partners.”

The 2014 Winter Olympics in Sochi are a huge opportunity. Russia has identified 200 projects worth $12 billion and of the investment, 40% will come from the private sector and abroad.
However, Peter Bishop, Deputy Chief Executive of the London Chamber of Commerce says there’s a legal problem for companies wanting to do business.

“The list of goods that are going into Russia temporarily, whether it be for a trade fair, an exhibition, making a film, or for the Olympics, has to be translated into Russian. Well, no-one else does that, and it’s a barrier to business being done.”

Foreign direct investment in Russia shrank 2.8 percent last year to $27 billion and it’s expected to fall further this year. The government has simplified the laws on FDI, but potential British investors think more could be done.

At the London Chamber of Commerce, attitudes towards Russia are positive, with local businessmen keen on the IDEA of investing in Russia. But the country still suffers from an image problem, and while the rewards are undoubtedly great, the practicalities are still seen as a risk too far for many.