Investment climate in Russia — Foreign investor perception
After a period of moderate growth, Russia’s economy slowed in 2013, though the overall macroeconomic situation continued to remain favorable. Developments that took place in 2014 have greatly affected the investment climate in Russia, along with sentiments of foreign investors operating in the country. The biggest blow was dealt by the introduction of sanctions against Russia and a plunge in oil prices that significantly worsened the country’s macroeconomic environment, spurred inflation, weakened the national currency, limited access to debt financing, hiked interest rates, led to foreign trade restrictions and complicated life for a number of industries.
Strained international relations and weaker macroeconomic fundamentals have visibly undermined investor confidence: In 2014, the inflow of foreign direct investment to Russia dwindled by 70% to USD 21 billion, a record low since 2006. In the latter half of 2014, the Bank of Russia reported a net outflow of foreign direct investment from the country for the first time since 2005. Experts familiar with foreign investment inflows point to a drop in investment projects initiated and pursued by foreign investors in Russia in 2014 and 2015.
The crisis has uncovered the major challenges that foreign investors face in Russia. The traditional concerns that include unstable regulation and red tape have been aggravated by the unfavorable economic developments, reduced attractiveness of the Russian market, the too complicated business environment and uncertainly over the sustainability of economic measures taken by the government.
Our survey suggests that foreign companies with investments in Russia’s real economy are not planning to reduce presence in the country despite the current situation which they describe as unfavorable. Noting also positive developments in Russia’s investment climate, including the progress made on National Business Initiative road maps, investors are confident in Russia’s economic potential and ready to step up investment in the coming few years.
This report summarizes the main findings from our survey conducted among foreign companies that are members of the Foreign Investment Advisory Council in Russia (FIAC).