The improvement of Russia’s investment climate: problems and perspectives

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The improvement of Russia’s investment climate: problems and perspectives

Foreign investment has a significant role in the country’s economic development, so Russian Government takes certain measures for encouragement of foreign investments. A lot of factors facilitate the investment climate, however, the implementation of those factors should be interconnected, otherwise the results would not be evident. One should pay attention to the aspect that the investment growth is inseparably linked with innovations in the country. At this level of the economy development an effective state policy can lead to a colossal shift of production value of innovation products in Russia. The significant feature of this innovation cycle is investment raising in different industries, including participation of foreign investors. The main idea is not so much investment raising by using natural resources and rather cheap work force of the country (this would mean that Russia will be involved in endless low-productive competition for foreign investors with many countries of «The third world»), as an opportunity of effective commercial implementation of innovation projects, and first of all in those spheres, where Russian scientific and technical researches yield to the world level. The main aim is to restore innovational potential by transfer of foreign technologies in order not only to create certain samples of science intensive, technical complicated products, but also to develop modern investment projects on the basis of foreign technological achievements, and then to produce and supply innovation products in inner and world markets with a positive effect for the country.

Those measures that are taken on a federal level are not sufficient. Successful realization of investment projects depends primarily on effectiveness of local authorities. The strategies of the socio-economic development of the Russian Federation presuppose regional economic development by accelerating the development of both traditional and high-tech industries. Thus, 51 subjects of the Russian Federation determine the creation and development of high-tech industries as a priority of the regional policy, moreover, 14 subjects continue to place a major focus of economic development on extractive industries, in addition to this, the development of agriculture is a priority in 35 subjects of the Russian Federation.

It should be noted that the majority of regions implemented active investment policy in 2010−2011, improving the regional investment climate, promoting the brand of the region and contributing to the realization of investment projects in the region. However, activities started require further implementation, and it is time to identify the main directions for improving the investment climate:

1. Establishing a favorable environment for investments and removing administrative barriers

The majority of Russian regions were active in improving the legal regulation of the investment legislation, implemented measures to increase the transparency of the investment process in the region. As a result, 45 regions have taken measures that contributed in improving the regulatory environment. It was urgent to adopt regional law «About public-private partnership», as well as to make changes in regulation of the subsidies and tax benefits provision process due to the reduction of economic downturns. According to the report «Investment Climate Statement — Russia» of Us Department of State [1], «Russia has a body of conflicting, overlapping, and frequently changing laws, decrees and regulations, which complicates the environment for dispute resolution, moreover the laws are not always enforced in practice. The government should coordinate and oversee efforts to improve the business and investment climate, including the protection of foreign and domestic investors».

2. Establishing high-technology parks

Creating efficient «industrial sites», industrial and technological parks, providing favorable administrative, infrastructural conditions for the implementation of investment projects — one of the most effective mechanisms to attract major investors, and, at the same time, one of the most expensive.

3. Formation of financial mechanisms to attract and support investments, tax stimulation measures

It is worth to point out that the financial mechanisms are widely used in the majority of subjects of the Russian Federation. For instance, mechanisms of mortgage fund, subsidies from the regional budget to investors and others. Financial mechanisms supporting investments work in 48 regions, measures to tax incentives are taken in 39 regions, and at least one of these activities is used in 57 regions. Since 2012 these activities have been implemented, and that requires additional development in all the regions. Local administrations should provide for a real positive effects of using financial mechanisms to attract investors.

4. Establishing favorable tariff conditions for investments

There are only 4 out of all the regions where measures aimed at creating favorable tariff conditions have been performed. But this is only a small part of the huge country. Local governments should strengthen control in this area and make suggestions based on their own experience.

5. Peopleware of the investment process

«Employers usually complain about a low quality of applicants' skills and labor shortages outside of urban centers. This is due in part to weak linkages between the education system and the labor market. In addition, the economy suffers from a general shortage of highly skilled labor. Employers in regions outside Moscow and St. Petersburg contend with a dearth of available workers. Businesses in these areas face increasing labor costs as competition over a limited pool of workers intensifies. On the other hand, a large number of inefficient enterprises with high vacancy levels offer workers unattractive, uncompetitive salaries and benefits» (The report of Us Department of State «Investment Climate Statement — Russia», June 2012 [1]). Some activities were provided for improving the qualifications of relevant staff in 11 regions, and these activities should be expanded. The results will be following: an increase of financial competence and effective implementation of investment projects. Existing language barriers, lack of professional knowledge in the innovation process generate unfavorable investment climate in the country. I think the creation of powerful educational institutions will lead to founding on the international financial centers in the regions.

6. Stimulating demand for the innovation products

The government should pay attention to this factor, because the improvement of the product attractiveness both at home and abroad will lead to the growth of GDP, an overall economic development and the interest of investors.

investment brand financial mechanism

7. Brand promotion of Russian regions

Brand promotion of Russian regions abroad certainly has the positive consequences. However, it is not so effective with the high level of costs and the choice of region for presentations.

Only several suggestions of improving the investment climate were mentioned. The main point is that while adopting those investment programmes local authorities should take into account the peculiarities of the region, its advantages and weak sides. Thereby increasing the investment attractiveness of Russia is possible on condition of mutual interest in activities held by the Government and by business community.


1. The report «Investment Climate Statement — Russia». US Department of State, June 2012.

http: //www. state. gov/e/eb/rls/othr/ics/2012/191 223. htm

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