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. Last Updated: 07/27/2016

UN Sees Decline in Investment

Sliding along with the global slump, foreign direct investment into Russia dropped for the third year in a row to $2.4 billion in 2002, according to the United Nations World Investment Report released Thursday.

But the numbers do not tell the whole story, Moscow-based analysts said.

According to the UN, the country's FDI inflows have decreased from a high of $3.31 billion in 1999 to $2.47 billion in 2001. Last year's $2.42 billion boosted accumulated FDI to $22.56 billion.

Russia ranked last in Eastern and Central Europe by FDI as a percentage of gross domestic product, at 6.5 percent, the report noted.

However, the numbers ignore major deals in which money changed hands abroad, said Alexei Moisseyev, an economist with Renaissance Capital.

Examples in 2002 included Heineken's acquisition of the Bravo brewery and Scottish & Newcastle's purchase of Baltika.

"In fact, there was growth [in FDI]," he said, adding that the biggest deal in national history -- BP's $6.35 billion venture with Tyumen Oil Co. -- would not appear in the 2003 investment statistics.

FDI is important not only for the dollar value but because it brings with it Western technology and management experience, Moisseyev said.

Most foreign money flowed into Moscow, widening the gap between the capital and the regions.

Moscow received $1.51 billion in FDI last year, or more than three-fifths of the country's total, according to figures from the city's foreign investment department.

Total foreign investment -- which also includes portfolio investments, loans and trade credits -- grew by almost 50 percent to $8.44 billion last year, or 43 percent of the country's total investment.

It's not the comfort of big city lights but the economic makeup of the regions that accounts for the imbalance, said Alexei Novikov, a director at Standard & Poor's Moscow office.

"Investors are investing not in regions but in sectors," he said.

And the sectors most attractive to investors, such as food production and wholesale and distribution, are concentrated in and around the capital.

With a rosy macroeconomic environment, the country's problem attracting investors appears to lie with the business climate.

"There is a bouquet of minor kinds of issues that could be important for investors -- for instance, the visa bureaucracy," Novikov said.

He added that legal unpredictability is also scaring off capital, with changes to the Tax Code and budgetary legislation every year.

"They may not necessarily be bad amendments, but the very fact that they happen every year is definitely a negative factor," Novikov said.