Survey Touts Russia's Investment Climate

Despite a host of problems like corruption and excessive bureaucracy, Russia is the most promising market for foreign investment, surpassing India and China, according to a survey of foreign companies released Friday.

According to the survey of more than 50 chief executives and board members at companies doing or considering doing business in Russia, the country's market is more promising than those of other major developing economies, such as China, India and Brazil.

The survey, released on the eve of the St. Petersburg International Economic Forum, was commissioned by the Foreign Investment Advisory Council. The body is chaired by the prime minister and was established in 1994 by the Russian government and businesses to improve the country's investment climate.

"Investors see that you can do business in Russia and succeed," Alexander Ivlev, a partner at Ernst & Young and FIAC coordinator, said in a statement.

Respondents' general opinion, the survey said, is that Russia is "too important [or too big] to ignore," although deep-seated problems like corruption and administrative barriers remain.

The largely upbeat findings come despite a new law restricting foreign investment in 42 sectors deemed strategic by the government. Investors have complained that the law essentially limits access to the better part of the economy, and Finance Minister Alexei Kudrin said earlier this week that he expected foreign investment to decline because of the law, which came into effect May 7.

A "substantial" number of respondents said the strategic-sectors law represented a "step in the right direction," while adding that "everything will depend on implementation."

Investors were most worried about corruption, insufficient legislative transparency, administrative barriers and a lack of judicial independence. Several executives said they were "very" or "extremely" concerned about worsening infrastructure. Other problems included political interference, lack of skilled staff and the complexity of the tax system.

"There is no country in the world where taxation is as complex as in Russia," the survey quoted an unidentified executive as saying. "It's so complex that it's almost impossible to do everything properly. The authorities will always find a way to hit you if they want."

Participants in the survey included BHP Billiton, Coca-Cola, Ernst & Young, Ford, Merrill Lynch, Mitsubishi, PepsiCo, Renault, and Stockman.

Those who agreed to disclose the amount of their investment in the country said they invested a total of $78.4 billion, or 40 percent of Russia's foreign direct investment to date.

Karl Johansson, managing partner for Ernst & Young in the Commonwealth of Independent States, said it was not surprising that the Russian market was more attractive than those of China and India. The results are consistent with export and import opportunities and "the margins we are working with," among other things, he said by phone.

Only one respondent said he would not have come to the country if he had a chance to reconsider. A few executives said the climate for foreign investment had actually deteriorated over the past five years, it said.