Investing in Russia – Highlights from Enrst & Young’s FDI Attractiveness Survey

Ernst and Young Survey

Russia in Numbers

  • The unemployment rate in Russia is at a record low of the last two decades at 5.4%.
  • Russia is the ninth largest consumer market in the world.
  • Russia is also the world’s seventh largest labour force.

In Russia, jobs created by FDI (Foreign Direct Investment) projects increased by 60% and led Russia to ranking second in Europe in terms of employment generated through FDI for 2012.

Most of this has been generated by manufacturing projects, with the automotive sector at the fore, but projects in strategic and other functions has also increased, with the business services coming second in terms of project numbers.

Where is it coming from and where is it going?

North America and Europe provide the bulk of Russian FDI investment with companies from the US, Germany and France being the top three for the last year.

While Moscow and St. Petersburg attracted the largest number of FDI projects, Kaluga and Nizhny Novgorod are also emerging as major investment sites.

Why Russia?

Russian offers a large, growing consumer market, a solid telecommunications infrastructure and abundant natural resources. However, respondents to the survey noted that high levels of corruption, deficiencies in the legislative environment and inter-regional disparities may hinder Russia’s FDI potential.

Growth Opportunities

According to results, investors believe that the energy sector will be the driving force for Russia’s future growth. After that other areas of mention were heavy industry, automotive, consumer goods and infrastructure.

Ernst and Young’s document also noted that, “Russia needs to establish a more balanced economy that can offer sustainable long-term growth through high-value added manufacturing and new service sectors. It also needs to operate on a modern technological base. To achieve this, Russia should use energy revenues to finance diversification and develop new avenues of growth.”

Future Action & Increasing Appeal

Ernst and Young’s document recommends that the Government should work “in collaboration with local and foreign companies and universities, to enhance innovation capacity and business education” along with increasing investment in less developed regions.

Investors believe that Russia’s accession to the World Trade Organization, the formation of the Common Economic Space with Belarus and Kazakhstan, and a likely Eurasian Economic Union by 2015, will have a positive impact on Russia’s attractiveness.

Dmitry Peskov, Press Secretary for the President of the Russian Federation, who was interviewed for the survey noted that what he believes Russian needs most, is an investment of ideas rather than funds.

There is another Russia: the real one, the new one, the one that has taken shape in the past 15 to 20 years. It is vibrant and complex. Its citizens are traveling across the world. Its private and public companies are working on all continents. This Russia is continuously moving forward, learning from its ups and downs.”

Download the full report here.

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