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3 Jul, 2007 06:28

Foreign investment strengthening in Russia

A new survey has found that Russia has the fifth highest level of foreign investment in the world, behind China, the U.S., Germany and India. Ernst & Young surveyed 800 strategic investors for the research.

 Russia has seen a flow of foreign direct investment estimated at almost $US 17 BLN in the first quarter of 2007. The total for 2006 was $US 28 BLN. The economy is entering a new face of growth driven by fixed capital investment – a sign that Russia's economy is diversifying successfully.

China is the first in the list with 48% of votes, followed by the U.S., Germany and India. This year Russia is for the first time included in the list, and indeed the country is getting more competitive in attracting foreign investment.

“Fixed investment growth is reaching record high rates, unseen since 1992. We are talking about the investment growth of more than 20% in real terms compared to the year before. And to a significant degree this is driven by this massive influx of foreign capital into the country,” commented Yaroslav Lissovolik, Chief Economist of Deutsche Bank, Moscow.

Analysts say good macroeconomic indicators – high rate of economic growth, low state debt and huge reserves – are attracting investors, though red tape often slows the pace of investment projects.

Government's attempts to restore national control over certain large areas of economy like mining, oil and gas industries also did not help to increase the investor's confidence. However, I won't say that risks in Russia are higher than in China or in Brazil,” Vladimir Tikhomirov, Chief economist Uralsib, Moscow, explained in his interview with RT.

The challenges for Russian companies lie in establishing better corporate governance and transparency that leads to more accurate valuations. Investors say Russia's attractiveness is relatively recent. But its growing fast driven by a boom in consumer and retail markets.