Why invest in Russia?

Russia has a large base of highly-educated professionals. The market is globally low cost; it is higher but comparable to the Philippines and India. Russian market is both expensive and cheap: one will pay lower wages but a very high office rent (especially, in the capital).

However, foreign firms tend generally to establish their presence to gain the huge local market and not to enjoin lower costs. Given Russia’s immense size, there is a great market potential.

Foreign-owned firms and joint-ventures are active both in services and industry.

Political risk

The reinforcement of the relations between the E.U. and Russia give some insurance concerning foreign investments. The European Bank of Reconstruction and Development offers financial products as well as financial participation to European multinational companies willing to operate a business in Russia. Financial products are also offered to private companies investing in Russia by the International Finance Corporation. It is therefore highly advised to companies to use those services when investing in Russia to limit the risks.

The level of foreign direct investment

Despite these opportunities the foreign direct investment inflow remains considerable below its potential level and tends to stagnate since 2007. Many investors feel a lack of informations. The country size, the large population and thus the complex business environment give the impressions that it might be very difficult to succeed in Russia.

In 2011, the total amount of FDI in Russia has amounted to 52,9 billions of dollars. This amount is the highest in Central and Eastern Europe and it is comparable to FDI in Brazil or India.

FDI inflows in Russia 2007-2011

2007	2008	2009	2010	2011
55.1	75.0	36.5	43.3	52.9

 

Source: OECD, 2012

Common difficulties for foreign investors in Russia

On the other side, the time of communism is not so far away, the financial crises in 1998 is still in the mind of many foreigners and many investors complain the lack of common western principles. For example the Yukos case with its main shareholder Khodokovsky was regarded very carefully in the western states and confirmed once again the reservations against the political institutions in Russia. At company top levels, business is still politicised and therefore there is a need for a protection of minority shareholders of foreign companies.

 

Other useful sections of the website

Business and trade in Russia

Economic sectors

 

To go further

napi.ru - National Agency for Direct Investment

investa.spb.ru - North-West Development and Investment Promotion Agency - investment agency of the North-West of Russia

unctad.org/wir - World Investment Report, UNCTAD, Russia country fact sheet

fiac.ru - Foreign Investment advisory council

ey.com/... - Russia attractiveness survey, E&Y, 2011