Moscow Times
March 2, 2006
Foreign Investors Seek More Clarity
By Valeria Korchagina
Staff Writer
The government should act to create clearer rules for business and tackle widespread corruption if Russia is to make the most of the current favorable economic conditions, foreign investors said Wednesday at an American Chamber of Commerce conference.
Despite enjoying a seventh consecutive year of economic growth on the back of booming oil prices, the country is underperforming in attracting foreign investment, participants said. Unless active steps are taken to diversify the economy away from oil and gas and speed up decision-making, the momentum for a major breakthrough in sustainable growth could be lost, they said.
"The real question before us at the beginning of 2006 is whether the Russian economy will do as well as it is capable of doing," U.S. Ambassador William Burns said at the annual conference.
"[Corruption] was a big problem when I lived here 10 years ago, and it seems like a much bigger problem today. Along with its evil twin -- bureaucratic red tape -- it is a deadweight on economic dynamism and the growth of small and medium-sized enterprises," Burns said.
"It's not a good sign that a society as rich in human and natural resources as Russia should let itself be lumped together in corruption rankings with small, impoverished countries like Albania and Sierra Leone," he said.
The lack of clarity in the rules of doing business in Russia was singled out as a key concern of foreign investors.
"We would like to see clarity on subsoil, fiscal and [natural reserves] licensing regimes," Kris Sliger, head of business development at TNK-BP, told the conference.
The government has yet to outline its policy toward foreign firms' participation in projects involving the development of strategic natural reserves and foreign investment in strategic sectors, including those involving dual-use technologies.
The Cabinet discussion on these issues was due to take place Thursday but was pushed back a week, Interfax reported Wednesday.
"Russia clearly does not attract as much foreign investment as it deserves," Sliger said, adding that the reason for the lag was Russia's inability to create a fully competitive investment climate. While in 2005 Russia attracted a record $17 billion in foreign direct investment, the figure pales into insignificance compared with the world's total volume of about $900 billion, he said.
Trem Smith, president of Chevron Neftegaz, the Russian arm of U.S. oil company Chevron, noted that the cash flow from abroad continued to be directed chiefly into the energy sector, and pointed out the need for increased diversification of the economy.
Others speakers, however, including Charles Ryan, CEO of Deutsche Bank in Russia, said there were signs that the economy was beginning to expand outside the oil and gas sectors.
"Pretty startling things have happened in the Russian economy. We've seen a fundamental breakthrough that cannot only be explained by oil. A number of things have happened in the last 12 months that reveal something much more fundamental," Ryan said.
The growth of per capita gross domestic product, which jumped to nearly $5,500 in 2005 from just over $4,000 in 2004, is just one of the many encouraging developments, he said.
"GDP per capita is finally starting to enter the range where the names of countries make some sense," Ryan said, pointing out that the current level put Russia way ahead of China and among nations such as Turkey and Latvia.
Many of the speakers at the forum agreed that aside from energy, Russia has a great potential in developing the information technology sector.
Richard Brody, president of United Technologies International Operations in Russia, however, said that just like in the oil and gas sector, the lack of clarity on rules and regulations in the IT sector remained a major barrier to development.
Intellectual property rights protection -- one of the few remaining obstacles in Russia's negotiations with the United States for entry into the World Trade Organization -- is a major hindrance to increasing foreign capital in the IT and high-tech sectors.
Chris Israel, the U.S. Coordinator for International Intellectual Property Enforcement, said Russian authorities were making encouraging steps toward protecting intellectual property, and conceded that it was possible for Russia to meet U.S. requirements for WTO entry by the end of 2006.
Nevertheless, further improvements are needed in combating online piracy and counterfeit pharmaceuticals, improving patent protection, and enforcing the licensing for optical disk plants.
AmCham president Andrew Somers said he expected the differences between Russia and the United States to be settled as soon as this spring. "On both sides the business community is urging for the very small gap that exists to be closed," he told the forum.
Summarizing the overall business climate in Russia, Somers noted that "foreign business is still being very positive about Russia's development."
"And this is based on the proven success in the past," he said.
Staff Writers Catherine Belton and Anastasiya Lebedev contributed to this report.