Foreign investment in Russia at all-time low

European investors say Russia’s arduous regulations are a bigger barrier to doing business in the country than the coronavirus pandemic, says The Moscow Times citing the latest annual survey of foreign firms — members of the Association of European Businesses (AEB). Almost 70% of the members consider regulations to be a significant challenge to operating in Russia, and over a half doesn’t expect the situation to improve in the next few years. The coronavirus pandemic is cited as the main obstacle by 57% of AEB members. Although the majority says their sales have fallen due to the crisis, companies are hopeful that they could bounce back relatively quickly. More than 80% see their business recovering by the end of next year.

Only one in four of the surveyed AEB members is planning to increase investment in Russia this year, which is the weakest forecast since 2015. Although increased investment is among President Vladimir Putin’s goals, companies point out that state policies are designed to support domestic companies and import substitution. The survey showed that businesses prefer cutting back investment as a way of dealing with the short-term economic challenges of the coronavirus pandemic.

According to Ernst & Young’s Senior Advisor Stuart Lawson, foreign direct investment in Russia is at an all-time low. “Partly that’s beyond anybody’s control because the pandemic has caused so much disruption to trade and business travel,” he says adding that it’s not been helped by some actions of the authorities. Such cases as the detention of US investor Michael Calvey “do not motivate foreign investors to take the risks that are needed to enter this market”, explains Lawson.

Only 9% of the respondents have reduced staff numbers and 14% have cut employee salaries to deal with the pandemic-related slowdown. The Russian government, which announced maintaining jobs during the pandemic to be companies’ top priority, has introduced low-interest “salary loans” aimed to help firms cover a small portion of staff wages. These debts are meant to be written off if companies keep at least 90% of their staff.

However, according to CEO of GfK Russia research company Alexey Dorofeyev, the real picture may be worse, as the survey was conducted during July and August when economic and mobility restrictions were largely lifted. Now Russia is in the grip of a second wave, which can potentially knock one more percentage point from Russia’s GDP this year, according to head of the Accounts Chamber Alexey Kudrin.