RS Brief news We’re better than what people think!

We’re better than what people think!

March 2013

© RIA Novosti, Dmitry Astahov
Dmitry Medvedev at the World economic Forum
Dmitry Medvedev at the World economic Forum

The main plenary meeting on the first day of the annual World Economic Forum in Davos was entitled ‘Scenarios for Russia’. One has to admit that not only of the developed scenarios had a happy ending. All three scenarios (scenario with low raw material prices, a scenario with high raw material prices combined with poorly conducted institutional reforms and a scenario with increased regional differentiation) turned out to be far from optimistic for the Russian economy. One should note that in Davos one of these scenarios was presented by Aleksei Kudrin, the former Minister of Finance in Russia, who is known as a talented economist abroad*. Reforms are necessary, like Aleksei Kudrin proved once again, but action has yet to be taken. Economists and investors call poor management leading to rampant corruption and other unpleasant things the main problems facing Russia.

*FYI

In 2006 the British newspaper ‘Emerging markets’ named Aleksei Kudrin the best minister of finances amongst European countries with a developing market, while in 2010 the British magazine ‘Euromoney’ named Aleksei Kudrin minister of finances of the year.

It should come as no surprise that the Russian prime-minister, Dmitry Medvedev, heading up the delegation did not agree with any of the proposed scenarios. He had his own of the situation. He arrived in order to talk about how attractive Russia is for investors. Head of Sberbank, German Gref, Kirill Dmitriev, the Head of the Russian Fund for Direct Investments, accompanied Medvedev during the conference. They offered up a fourth prediction of how events will unfold, according to which the risks mentioned in the first 3 negative scenarios will be eliminated (in Mr. Gref’s opinion). The head of Sberbank pointed out that matters in Russia are much better than what various ratings demonstrate.

© RIA Novosti, Sergey Guneev
German Gref
German Gref, Head of Sberbank: ‘We need to improve our image as a country because we are really better than what people think’

According to him, Russia has all the prerequisites for growth and has ‘amazing capabilities on an enormous market with all the resources in order to make big profits’. Overall, research on changes in Russia’s investment climate confirm Russian civil servants’ optimistic outlook relative to 2007 when research was ordered by the Consulting Council on Foreign Investments and performed by Ketchum Global Research and Analytics. Current and potential capital investors in the Russian economy (a total of 100 companies) took part in the research project.

As it was said in the report, companies investing in Russia are more than satisfied with their results. They felt an improvement in the investment climate relative to 2007. Research participants admit that there are certain problems like bureaucracy, red tape and corruption, but this is not deterring them from continuing to invest in the Russian economy. The majority of respondents (71%) are satisfied with their decision to invest in Russia. Only are a select few (2%) are unsatisfied. A third (34%) of respondents in 2011 made larger capital investments in Russia than in 2010.

In 2007 irrespective of how much effort the Russian government put into attracting foreign investments, two thirds of investors still considered their investments to be ineffective. In 2007 merely 8% of investors believed that Russia is taking all possible measures for attracting foreign investments. In 2012 this figure has already jumped up to 35%.

When considering Russia separately or in comparison with other countries, investors expressed serious concern regarding the level of corruption in Russian society, bureaucracy and red tape, insufficient transparency when interpreting and applying certain laws and protecting property rights. Now, like never before, Russia needs to take consistent and carefully weighted measures for fighting against corruption and bureaucracy, in addition to improving legislative efficiency so that a stable, competitive and attractive investment climate would appear in Russia for a long time--the research authors made that conclusion.

One of the more notable events at the forum in Davos was Goldman Sachs’ invitation. The international investment bank will become Russia’s personal image maker (their services were enlisted by the Russian government). The bank will shape a favorable image of Russia for foreign investors. A contract totaling $500,000 has been signed with Goldman Sachs. The consultants’ work boils down, first and foremost, to organizing meetings between Russian civil servants abroad with foreign funds, business associations and rating agencies. RS