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. Last Updated: 07/27/2016

Foreign Capital Fuels Russia's Grey Economy

During a recent meeting of the Russian government's Advisory Council on Investment Policy, First Deputy Economics Minister Yakov Urinson presented statistics on the inflow of foreign investment into Russia. At the end of last year, that investment totaled $2.7 billion. In the first quarter of this year, investment equalled $138 million and 6 billion rubles. The overwhelming portion of this, 86 percent, is made up of direct investments. The Economics Ministry estimates that a little more than $1 billion will have been invested in the Russian economy by the end of the year.

Judging by this information, it would appear that Russia remains a relatively unattractive zone for capital investment. However, it would be well to treat these statistics, like all statistics coming from governmental agencies, with caution. Significant foreign investments remain unaccounted for and, although it is difficult to identify them, their presence cannot be contested.

It is clear that the voucher privatization program created broad possibilities for "unnoticed" investment. The most convenient vehicle for this practice is the investment fund, which is capable of investing enormous sums of vouchers at privatization auctions at the request of foreign clients. Through the funds, these firms have been able to get shares in enterprises that interest them even before beginning of the stage of privatization that will legally allow foreign firms to invests. In time, these investment funds will be replaced by the foreign firms on the list of the owners of Russian enterprises and the government will have to revise its statistics.

As privatization has developed, a very serious, but little noted process has been going on. Many attractive enterprises and even entire branches of industry are being bought at "advantageous" prices: but not by those of whom our nationaliss have been so afraid.

A number of little-known foreign companies have appeared on the Russian market, actively buying up selected shares. A quick acquaintance with these firms reveals that, very often, they are controlled by Russians -- and not by ?migr?s. They are controlled by Russians who in recent years have managed to accumulate substantial capital and transfer it abroad. Now they are appearing in the role of purchasers of shares in Russian enterprises.

Izvestia recently ran the story of a monopoly producer of tin that has virtually come under the control of an Anglo-Russian joint venture called Armet, which is clearly acting in the interests of its Russian partners. The same process has been observed with other Siberian companies.

Alexander Bekker, an economic observer for the newspaper Segodnya, has labelled this process the "self-colonization" of Russian industry. He is concerned by the fact that the real control of these Russian enterprises will be exercised from abroad.

Maxim Boiko, head of the Russian Privatization Center, is not as concerned. He considers it the beginning of the normal process of Russian capital returning from abroad.

No matter what one thinks, it must be admitted that in Russia today a "double" economic life is not only being maintained, but is developing as well. One is open and demonstrated by statistics, while the other is secret -- or "grey" -- which statistics have not yet managed to penetrate. We can safely say, however, that this grey economy is becoming ever more comparable in scale to the official economy.