Transparent legislation required to attract foreign investment to Russia
In 2020, foreign investment in Russia plunged to the lowest level in 16 years. Besides an overall negative economic background, there were also specific reasons for such a dramatic decline, as investors do not consider the Russian business climate comfortable and safe, according to the World Bank.
Russia needs to untangle a complex web of laws and foster a business culture that gives investors more security if it wants to attract foreign direct investment again, says Reuters citing the World Bank. Foreign direct investment in Russia has decreased since the first Western sanctions were imposed in 2014. Last year, the volume of foreign investment slumped to $1,4 billion from $28,9 billion seen a year earlier, according to the Central Bank of Russia, becoming the lowest figure since 1994.
“If you look at the fundamentals, everyone is looking for yield, and Russia is a place where that yield [...] does exist,” said the World Bank’s Country Director for the Russian Federation Renaud Seligmann in an interview. Nonetheless, he pointed out that the benefits needed to be extremely high to make investors “even start considering putting their money into Russia”.
According to Seligmann, legislative hurdles currently make it difficult to invest in Russia. “Having a consolidated investment law that clarifies the institutional framework, the investment entry, the protection rules for minority investors in particular [...] would create more certainty, which is what investors crave,” he explained. Ratifying an international convention created by the International Centre for Settlement of Investment Disputes could give Russia a transparent mechanism for conflict resolution between investors and the state, considers the banker. The issue has become especially significant since the initiation of an embezzlement case against US entrepreneur Michael Calvey in 2019.
In March, head of Sberbank and former Minister of Economy Herman Gref told Reuters that the government was working on an economic reform package. He admitted that geopolitical trends were complicated but pointed to “really high activity” within the country referring to efforts to improve, among other things, the investment climate. Russia’s economy is expected to grow by around 3-4% this year after falling by 3,1% in 2020 due to the COVID-19 pandemic and a slump in oil prices.