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When compared to other emerging economies, Russia does not perform well in transparency rankings or in terms of ease of doing business. In its "Doing Business in 2010" report, the World Bank places Russia in 120th place out of 183 countries. However, the global recession and plummeting oil prices have made the government realise that supporting and protecting foreign investment are vital to long term economy growth.
Last year, Russia experienced some inflow of foreign investment. Daria Pozharova, Frost & Sullivan Consultant for the CEE & CIS group, notes: "In the first half of 2008, Russia recorded a 17.5 percent increase in foreign direct investments (FDI) which ground to a halt in the latter part of the year as a result of falling oil prices. Also, investors lost confidence in investing into resource-rich countries." As a result, in the first quarter of 2009, FDI inflows declined by approximately 45 percent compared with the same period in 2008. Emerging economies that had diversified and had a more favourable investment climate did not experience such a decline in investment levels.
Not surprisingly, recent political discussions in Russia have been focused on diversification, modernization and investment in the worn-out infrastructure. Russia would have to inject 2 trillion USD to prop up its raddled assets; an amount difficult to raise without the active involvement of foreign investors. However, not only the total amount of foreign investment flowing into the country is currently an issue, but also the quality of it. Thus, the Russian Government has decided to focus investment efforts on high-tech industries such as medical equipment and technology, telecommunications, nanotechnology, machine building, and information technology.
"Russia is still in a favourable position to achieve stable economic growth," adds Daria Pozharova. "Unlike many other resource-rich countries, Russia has the advantage of a huge population, which means good potential for consumption, a vast territory that needs modern infrastructure updates, as well as a still decent scientific base in terms of R&D institutions, labs and scientists."
According to Frost & Sullivan, to maximize this potential and attract investment into high-tech industries, the overall investment climate must be improved, bureaucratic procedures streamlined and state involvement decreased. "If the Russian Government pursues the announced strategy, we are going to see more incentives as well as legal and regulatory protection for foreign investors in Russia in the short-term," concludes Pozharova.
If you would like to receive more information about investing in Russia or on Frost & Sullivan Growth Partnership Services please send an email to Chiara Carella, Corporate Communications, at chiara.carella[.]frost.com with your full name, company name, title and contact details. A complimentary brochure will be sent to you by email.
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