Russian Laws too Unpredictable for Foreign Investors

A weaker ruble means higher prices at home, less spending power abroad, and another round of belt tightening for most Russians. (Photo: Wikimedia Commons)
The Foreign Investment Advisory Council (FIAC) warn Prime Minister Dmitry Medvedev that unpredictable lawmaking is undermining Russia’s ability to attract foreign investors.

The Foreign Investment Advisory Council (FIAC) warn Prime Minister Dmitry Medvedev that unpredictable lawmaking is undermining Russia’s ability to attract foreign investors.

According to FIAC, a group of the biggest foreign companies working in Russia, a report published on Monday shows that 77 percent of the firms are unhappy with the unpredictability of legislative changes. 

Here is a link to the report "Investment climate in Russia - Foreign investor perception".

The report is produced by financial services group and FIAC-member Ernst & Young (EY), reports Moscow Times.

Preoccupied with "economic sovereignty"

Although the group's attitudes welcomed the progress in some areas of regulation, the foreign companies complained that the Russian government was making unexpected decisions - like new waste disposal rules or measures to incentivize local production - without calculating side effects.

According to the business daily Vedomosti such decisions cost consumer goods makers 1,7 billion USD last year alone.

The Russian government has become increasingly preoccupied with “economic sovereignty” following the crisis in Ukraine last year and resulting economic sanctions. The replacement of foreign goods and services with local production has become a key priority, and is a rising topic among foreign investors, according to Alexander Ivlev, a managing partner at EY Russia.

A list of negative regulatory changes over the past year, including a law requiring companies to store data in Russia and bans on a range of food imports, is mentioned in the report from the multinational professional services firm headquartered in London, United Kingdom. 

The new law that is restricting media ownership by foreign companies to 20 percent is one example. The law zipped through three sessions of parliament within 10 days of its apperance last fall, and has already forced foreign companies to restructure or withdraw from Russia's media market.

Raised interest rates and curtailed trade

FIAC was originally set up in 1994 as a forum for foreign business to communicate with senior officials. Nowadays, the group has 51 member companies, most of them from Europe, North America and Japan.

The warning by the members of FIAC came as overseas investors increasingly question whether Russia is an attractive place to do business amid a deep recession.

Sanctions and counter-sanctions between Moscow and the West following the Ukraine crisis last year and a plunge in oil prices have propelled Russian inflation, weakened the ruble, limited access to debt financing, raised interest rates and curtailed trade with other countries.

When opening Monday's meeting with FIAC, Prime Minister Dmitry Medvedev said that the combined investment in Russia - of all the countries represented by member firms - was 130 billion USD.

- And it is rising, despite our current problems, he added.

New union - new opportunities

Medvedev also pointed to the new opportunities presented by the Eurasian Economic Unioen, which came into force earlier this year. The new economic union unites  five former Soviet countries - offering easier access to those markets.

According to Global Council, which analyzed the financial statements of 46 multinational groups working in Russia, the most pessimistic were banks and oil and gas firms, while health care companies were more confident. 

Russia's economy is expected to contract by around 4 percent this year, and the decline is expected to continue well into next year.

- We should not, on any account, cut ourselves off from the kind of foreign investment and technology that can drive economic growth, President Vladimir Putin told a conference of business people in May. 

Dmitry Medvedev, Prime Minister, Russia. Photo: Wikimedia Commons/ Presidential Press and Information Office
Russia's Prime Minister Dmitry Medvedev. (Photo: Wikimedia Commons/Presidential Press and Information Office)