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. Last Updated: 07/27/2016

St. Pete Says Foreigners Still Investing




ST. PETERSBURG -- A year after Russia's economic collapse, city officials are boasting about a healthy flow of foreign investment into St. Petersburg's economy, though their figures have been called into question by some analysts.


In a June speech to the St. Petersburg Business Association, Governor Vladimir Yakovlev said that in 1998, foreign investment grew by 80 percent from 1997, amounting to 1.02 billion rubles ($309 million). "Already in 1999, St. Petersburg can boast investments amounting to $132.7 million, including $26.3 million of direct investment," he said.


The figures show St. Petersburg may have fared better than other parts of Russia, which experienced a 40 percent drop in Western investment in the first quarter of this year compared with the same period in 1998.


But despite the city administration's optimism regarding foreign investment, some observers say many prospective investors have backed out of the region.


James Hitch of Baker & McKenzie, a law firm that advises foreign investors, said most of the investments in northwestern Russia since August 1998 "have been by companies already invested in Russia ? and they just didn't quit."


The investments involve more than 150 U.S. companies, with the largest by Philip Morris, International Paper, Wrigley, Caterpillar and Gillette. Other foreign investors include RJ Reynolds, Conoco/Polar Lights, Coca-Cola, Peterstar, Otis, Kres Neva and Motorola.


The only "new" investment Hitch could point to was a $150 million deal U.S-based Ford Motor Co. signed with the federal government in June to build a car factory in the Leningrad region, which surrounds but does not include St. Petersburg. And Ford had been considering the project well before the crisis.


Hitch said many small and medium-sized foreign companies decided not to come in the past year "because the political and economic risk was too great."


But some analysts remain optimistic.


Natalia Kudryavtseva, executive director of SPIBA, said many companies still consider Northwest Russia "a prospective and promising market ? with many qualified workers, a cost of labor that's not very high, and a transportation infrastructure."