Evaluation of Russian investment climate after the imposition of sanctions

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Evaluation of Russian investment climate after the imposition of sanctions

Perepelitsa D.

Abstract: the world practice confirms that the achievement of the desired economic development is only possible with a favorable investment climate and the widespread support of investment activity by the state. The article introduces the authors' view on the investment climate in Russia after the imposition of sanctions and the assessment of Russia's attractiveness for foreign and domestic investors.

Keywords: investments, sanctions, economic growth, crisis, government policy.

Аннотация: мировая практика подтверждает, что добиться желаемого экономического развития возможно лишь при благоприятном инвестиционном климате и широкомасштабной поддержке инвестиционной деятельности со стороны государства. В статье представляется авторский взгляд на инвестиционный климат в России после введения санкций, а также оценка привлекательности России для иностранных и внутренних инвесторов.

Ключевые слова: инвестиции, санкции, экономический рост, кризис, политика государства.

The investment climate of the country is the generalized characteristic of investment processes in every separate region. Investment climate reflects the combination of different socio-economic, natural, environmental, political and other factors that determine the scope and volume of investments attraction into the region. Every Russian region has some objective reasons for investing activity in a form of natural resources, geographical location, the state of the production infrastructure and political stability. On the other hand, there is a subjective activity of investors on the use of these objectively existing conditions and prerequisites. Thus, the degree of favorable investment climate in the region and in the whole country is determined by the combined effect of the investment objective and subjective factors.

The concept of the investment climate is complex and integrated, and can be considered on the macro and microeconomic level. At the macro level this concept includes such indicators as political, economic and social environment for investment. For example, for potential foreign investors the analysis of the political situation plays a significant role especially the state policy about foreign investments, the probability of nationalization of foreign property, country's participation in international agreements on various issues, strength of state institutions, the succession of political power, the degree of state intervention in the economy, etc.

One of the most important conditions for economic growth is a balanced investment state policy that is strategically aimed to maintain economic and political stability in the long term. In recent years, the investment situation in Russia is gradually changing to the better side, but it is too early to assume that these improvements are sustainable. The successful development of the Russian economy is impossible without solving the whole range of sectoral, regional, institutional and instrumental issues, and that is a priority for the modern investment policy designed to perform country's integration into the world economic system. investment climate economic russia

The evaluation of the investment climate and potential of Russia is relevant at the moment. The urgency of this problem became particularly evident in the last two years when country became almost isolated from Europe and USA.

Russia is in transitional state between adverse and favorable investment climate. Most of the statistics speak in favor of improving the investment climate in Russia, but some areas remain problematic.

According to the Corruption Perceptions Index 2015 Russia took 119th place in the rating which means that Russia is suffering from corruption [1]. Highly corrupt country means extra expenses on business and investment activity which results in a low level of attractiveness. Moreover, rising inflation influences foreign investor's decision to invest or not. The higher the inflation the lower the rate of national currency and for investor that invests in dollars, for instance, and have return in rubles it is a problem that is better to avoid. Finally, very complicated and unclear administrative system is also a barrier for foreign investments.

The main task of investment policy support is the creation of favorable economic conditions for the development of investment activity. The attractiveness of the investment environment is determined, first of all, by the taxation system, financial and credit policy of the state. At the same time for the potential investors expected prospects of current conditions development, the degree of stability of the political and economic situation in the country are also important.

Looking on the internal sources of finance for investments, it has to be mentioned that overall Russian people are not very active to invest in different investment products. Only 5% of Russian people are investing in finance instruments. The opposite situation is in the USA, as there around 30 % of people invest in mutual investment fund, while in Russia - no more than 0.5 % of people [2]. The reasons for the reluctance of Russians are obvious: first of all, it is the low financial literacy, and last but not least - people fears. People lived in 90s still remember the so called “financial pyramids”, when all the saved funds vanish without any possibilities of refunding. That is why the negative experience has turned into the mistrust and pessimism about the future gains of investing activities. What is more, after the oil price drop Russian people earnings have decreased dramatically, purchasing power has fallen and today people need to save money refusing from luxury cloth, quality food and equipment [3]. That is why people do not consider money investments as the option, preferring to have money now. So, Russian economy cannot rely on investment funds of middle class in the near future.

As for the wealthy people, their number makes up 0.7% of all the population in Russia and they have onefourth (or 7.3 billion rubles) of all the population earnings. According to Citibank research, the major part of wealthy Russians nowadays prefers to hold money in banks with the primary purpose to save money rather than to increase their savings. They consider the best strategy to “wait out the storm” and put the money on the certificates of deposit, as the safest way to hold money. They account for 55% of assets. Another 30% of money is hold overseas in foreign commercial banks and stock markets. The rest of funds are placed in gold and real property, which is usually property in Europe. So, to make the story short, the wealthy people are waiting for the end of crisis and mostly place their money in safe banks.

According to the Russian Investment Agency, the next 20 years Russia needs 7 billion USD for all the spheres of Russian economy. It is obvious, that the amount of Russian investments is not enough to bring the country out of crisis. That is why, it is so important to attract the foreign investors and as much foreign capital as it is possible.

Summarizing all the above, to attract investments, first of all, favorable conditions for investments should be created, by improving the taxation system and making the financial and credit policy of the state more predictable. At the same time, it is of crucial importance to provide potential investors with reliable prospects of future development, and ensure that the stability of the political and economic situation in the country will be kept. Under the present conditions, when Russia's international policy seems to be quite aggressive and economic development continues to slow down, the investment climate is unfavorable for investors, willing to get low-risky returns. However, Russia has the huge investment potential, which is expressed in low market competition in all the economic sectors, lack of legal margin control, which allows to receive high profits and low income taxes, compared with Europe and the USA, which allow to stay companies financially flexible.

References

1. Transparency International [Internet resource], URL: http://www.transparency.org/cpi2015 (date of the application: 29.05.2016).

2. The institute of independent evaluation [Internet resource], URL: http://www.ippnou.ru/about.html (date of the application: 29.05.2016).

3. “Иностранные инвестиции в условиях санкций”, Успенский И.В., Перепелица Д. Г. (date of the application: 29.05.2016).

4. Российское инвестиционное агентство [Интернет ресурс], URL: http://www.investment-inrussia.com/site/ru (date of the application: 29.05.2016).

5. Исследование Российской экономической школы и Citybank [Интернет ресурс], URL: https://www.citibank.ru/russia/news/rus/192.htm (date of the application: 29.05.2016).

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