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Impact of FDI rebound slowed by red tape

International business leaders say Russia’s emergence from the economic downturn is being hampered by the obstacles placed in the way of foreign direct investment.

Foreign investors want frequent meetings with government officials to help boost inflows into Russia. James Turley, CEO of global consultancy Ernst & Young, says it’s satisfied with Russia’s anticrisis measures but still unhappy with poor infrastructure and productivity, corruption and red tape

“A Company was interested in building a production plant here in Russia. The administrative barriers on obtaining the required permits to start construction resulted in delay of well over one year to even the beginning of construction. During that same period of time the same company built two similar plants in another country.”

Prime Minister Putin recognized the historical basis of the problem.

“It’s the negative heritage of the planned economy when the state took all the decisions even on market issues. Now certain proposals to escape that are being realized. It is not happening as fast as we would like but we shall continue to work on that.”

The Prime Minister also promised to stabilize the financial system, narrow the budget deficit and stimulate consumer demand, with Sanjiv Kakkar, Head of Unilever, Russia, saying that Russian consumers represent a potentially lucrative market.

“If we look at consumers in 10 thousand dollars households, Russia has as many as China has so certainly the potential is enormous.”

After plummeting in late 2008 and early 2009 the rate of foreign direct investment picked up in the second quarter. Analysts say that the increase means now is the time to act on making sure the flows continue and that what is already in Russia is allowed to be productive, with as little administrative burden as possible.