Foreign Investment Council listens to investors

Russian Prime Minister, Vladimir Putin, held the 24th meeting of the Foreign Investment Council on October 18 with the problems of establishing a business in Russia in the spotlight.

Investment conditions in Russia and the issues facing business establishment in Russia by the expatriate business community was a major theme this year. The speakers prepared reports, addressing the Prime Minister with questions and claims on the way the business is run in Russia.

Maxim Kulkov Partner at Goltsblat BLP commented on the bureaucratic issues needing address when employing foreign employees, referring to issues faced by Schlumberger in dealing with the Migration Service of the Nenets Autonomous District, over duties undertaken by foreign employees was a typical case for companies in Russia.

“There are a large number of unnecessary restrictions, and it discourages business from further Western investment in Russia”

Darrell Stanaford Managing Director of CB Richard Ellis calls corruption a major problem faced by foreign investors, adding that it was an issue in not only working with government agencies but also within companies, with employees taking bribes, and making all services more expensive.

“Certainly, it affects the market, the price of goods and services”

Andrei Bunich the president of Union of Entrepreneurs and tenants says Russian business is also in no hurry to invest in the country, leading domestic funds offshore and underlining a negative image for investors.

“There is no confidence in the system. Why do people here not invest money? Because they do not trust their government, they do not believe that these investments will be protected. When everything is seen from the outside, it develops a certain pattern; so naturally, we have thoroughly undermined the investment process.”

Business RT talked to Elena Titova President of Morgan Stanley in Russia and CIS about the investment climate in Russia and the upcoming privatizations.

RT: Do you accept the argument there has been major progress in improving the investment climate?

ET: “I clearly do believe and we see it very well that the investment climate is improving. Whether it’s a major improvement depends on what you compare to. I’ve just talked to a friend who has compared it to 1990 – that clearly has been a major improvement. But what is most important is that there are specific steps now and I would say within the last year, year and a half, that have been developed by the government, and they are really intending to implement them. That will, I think, make a major difference.”

RT: Your bank has been working with the government on improving the investment climate. What do you see as the biggest problem?

ET: “Our overall number one recommendation has been to listen to investor concerns and those are specifically, and I am afraid to repeat my self, your audience probably has heard that, that’s working with or against corruption, working against the administrative barriers, allowing more freedom of investment of international investment in the economy, and also reducing the share of the government in the economy of the country.”

RT: The government has an extensive plan of privatizations. How attractive do you think they will be for foreign investors, and how important will foreign capital be to its success?

ET: “Foreign capital is important in any open economy, and any open emerging economy, which Russia is, so clearly it will be very important here as well. And the government understands it, and is very focused on it. I am personally, and I think as an institution, Morgan Stanley in Russia, we are optimistic about the next wave of privatizations – it is taken very seriously and very detailed work is going on to develop the plan, make it a success and invite the money that is needed in the economy. And its probably not just $50 billion, in the longer term it is more”

RT: Will the privatization program improve the investment climate, given that the government will be less directly involved in running companies

ET: “I do believe it will. Because one of the concerns is that the government is too involved. Governments nowhere are very efficient in running the companies in any way, and the more companies become public, they have to report to investors, they have to have independent directors, the more transparent and open the economy will be. So privatization will be a very important step in that direction”